EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
Dated as of September 30, 1998
Among
HEALTHWATCH, INC.
MERAD SOFTWARE, INC.
AND
▇▇▇▇ ▇▇▇▇▇▇▇▇ ENTERPRISES, INC.
TABLE OF CONTENTS
ARTICLE 1 - THE MERGER..........................................................................4
1.1 The Merger.........................................................................4
1.2 Closing............................................................................4
1.3 Effective Time of the Merger.......................................................5
1.4 Effects of the Merger..............................................................5
1.5 Articles of Incorporation; Bylaws..................................................5
1.6 Directors..........................................................................5
1.7 Officers...........................................................................5
ARTICLE 2 - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS...........5
2.1 Exchange of Shares.................................................................5
(a) Common Stock of Sub.......................................................5
(b) Cancellation of Treasury Stock and Parent-Owned Company Common Stock......5
(c) Conversion of Company Common Stock........................................6
(d) Dissenting Stockholders...................................................6
(e) Cancellation and Retirement of Company Common Stock.......................6
2.2 Options, Warrants..................................................................6
2.3 Exchange of Certificates...........................................................7
(a) Exchange Agent............................................................7
(b) Exchange Procedures.......................................................7
(c) Distributions with Respect to Unexchanged Shares..........................7
(d) No Further Ownership Rights in Company Common Stock.......................8
(e) No Fractional Shares......................................................8
(f) No Liability..............................................................8
(g) Transfer Restrictions.....................................................9
2.4 Additional Consideration...........................................................9
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES......................................................9
3.1 Representations and Warranties of the Company......................................9
(a) Organization, Standing and Corporate Power...............................10
(b) Subsidiaries.............................................................10
(c) Capital Structure........................................................10
(d) Authority; Noncontravention..............................................11
(e) Financial Statements; Undisclosed Liabilities............................12
(f) Absence of Certain Changes or Events.....................................12
(g) Litigation...............................................................13
(h) Labor Matters; Employee Matters..........................................13
(i) Tax Returns and Tax Payments.............................................15
(j) State Antitakeover Laws Not Applicable...................................16
(k) Real Estate..............................................................16
(l) Compliance with Laws; Environmental Matters..............................16
(m) Leased Tangible Personal Property........................................17
(n) Contracts................................................................17
(o) Assets...................................................................19
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(p) Intellectual Property....................................................19
(q) Accounts Receivable......................................................20
(r) Properties...............................................................20
(s) Transactions with Directors, Officers, Employees and Affiliates..........20
(t) Insurance................................................................20
(u) Brokers..................................................................20
(v) Asset Sales; Merger......................................................20
(w) Full Disclosure..........................................................21
(x) Board Recommendation.....................................................21
(y) Required Company Vote....................................................21
3.2 Representations and Warranties of Parent..........................................21
(a) Organization, Standing and Corporate Power...............................21
(b) Subsidiaries.............................................................21
(c) Capital Structure........................................................21
(d) Authority; Noncontravention..............................................22
(e) SEC Documents; Undisclosed Liabilities...................................23
(f) Absence of Certain Changes or Events.....................................23
(g) Litigation...............................................................24
(h) Tax Returns and Tax Payments.............................................24
(i) Compliance with Laws; Environmental Matters..............................24
(j) Intellectual Property....................................................25
(k) Properties...............................................................25
(l) Interim Operations of Sub................................................25
(m) Brokers..................................................................25
(n) Board Recommendation.....................................................25
ARTICLE 4 - COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER..........................26
4.1 Conduct of Business of the Company................................................26
4.2 Conduct of Business of Parent and Sub.............................................28
ARTICLE 5 - ADDITIONAL AGREEMENTS..............................................................28
5.1 Preparation of Proxy Statement; Stockholder Meeting...............................28
5.2 Parent Access to Information......................................................29
5.3 Company Access to Information.....................................................29
5.4 Best Efforts......................................................................29
5.5 Expenses..........................................................................30
5.6 Public Announcements..............................................................30
5.7 Takeover Statutes.................................................................30
5.8 Certain Agreements................................................................30
5.9 Registration of Parent Stock......................................................30
5.10 Tax-Free Reorganization; Plan of Liquidation.....................................31
ARTICLE 6 - CONDITIONS PRECEDENT...............................................................31
6.1 Conditions to Each Party's Obligation to Effect the Merger........................31
(a) No Injunctions or Restraints.............................................31
(b) Compliance with Federal and State Securities Laws........................31
(c) Consents, etc............................................................31
(d) Shareholder Vote.........................................................32
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6.2 Conditions to Obligation of Parent and Sub........................................32
(a) Representations and Warranties...........................................32
(b) Performance of Obligations of the Company................................32
(c) Opinion of Counsel to the Company........................................32
(d) Dissenter's Rights.......................................................32
6.3 Conditions to Obligation of the Company...........................................32
(a) Representations and Warranties...........................................32
(b) Performance of Obligations of Parent and Sub.............................33
(c) Opinion of Counsel to Parent.............................................33
ARTICLE 7 - TERMINATION, AMENDMENT AND WAIVER..................................................33
7.1 Termination.......................................................................33
7.2 Effect of Termination.............................................................34
7.3 Amendment.........................................................................34
7.4 Extension; Waiver.................................................................34
ARTICLE 8 - INDEMNIFICATION....................................................................34
8.1 Survival of Warranties............................................................34
8.2 Indemnification by the Company....................................................34
8.3 Procedure for Claims..............................................................35
8.4 Limitation on Indemnification.....................................................35
8.5 Indemnification by Parent.........................................................35
8.6 Procedure for Claims..............................................................36
8.7 Limitation on Indemnification.....................................................36
8.8 Notice; Defense of Claims.........................................................36
ARTICLE 9 - GENERAL PROVISIONS.................................................................38
9.1 Further Assurances................................................................38
9.2 Notices...........................................................................38
9.3 Definitions.......................................................................39
9.4 Interpretation....................................................................39
9.5 Counterparts......................................................................39
9.6 Entire Agreement; No Third-party Beneficiaries....................................39
9.7 Governing Law.....................................................................39
9.8 Assignment........................................................................39
9.9 Enforcement.......................................................................40
9.10 Severability.....................................................................40
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into as
of September 30, 1998, by and among HEALTHWATCH, INC., a Minnesota corporation
("Parent"), MERAD SOFTWARE, INC., a Nevada corporation and a direct wholly owned
subsidiary of Parent ("Sub"), and ▇▇▇▇ ▇▇▇▇▇▇▇▇ ENTERPRISES, INC., a Georgia
corporation (the "Company").
RECITALS
A. The Boards of Directors of Parent and the Company have approved, and
deem it advisable and in the best interests of their respective companies and
stockholders to consummate, a merger of the Company with and into Sub (the
"Merger"), with Sub as the surviving corporation in the Merger, upon the terms
and subject to the conditions set forth in this Agreement, pursuant to which
each share of common stock, no par value per share, of the Company ("Company
Common Stock") issued and outstanding immediately prior to the Effective Time
(as defined in Section 1.3), other than shares of Company Common Stock owned,
directly or indirectly, by the Company or any subsidiary (as defined in Section
9.3) of the Company or by Parent, Sub or any other subsidiary of Parent, will be
converted into the right to receive, subject to the terms hereof, .1041666
shares of the Series P Preferred Stock of Parent (the "Preferred Stock"). In
addition, each holder of Company Common Stock shall be granted its/his/her
pro-rata interest in an earn-out based on Parent or any affiliate sales of
products based on the MERAD technology owned by the Company (or any derivative
thereof) (the "MERAD Technology").
B. For United States Federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization under the provisions of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code") and this Agreement
is intended to be and is adopted as a plan of reorganization within the meaning
of Section 368(a)(1)(A) and 368(a)(2)(D) of the Code.
AGREEMENT
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Nevada Revised Statutes NRS92A.005
et. seq. (the "Nevada Code"), and the Georgia Business Corporation Code O.C.G.A
ss.14-2-101 et. seq. (the "GBCC") the Company shall be merged with and into the
Sub at the Effective Time. Upon the Effective Time, the separate existence of
the Company shall cease, and the Sub shall continue as the surviving corporation
(the "Surviving Corporation") having the name Merad Software, Inc.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article 6, the closing of the Merger (the "Closing") will take place at 10:00
a.m. Atlanta Time October 1, 1998 (the "Closing Date"), at the offices of
counsel to the Company, unless another date, time or place is agreed to in
writing by the parties hereto.
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1.3 Effective Time of the Merger. On the Closing Date, the parties
shall file articles of merger, certificate of merger or other appropriate
documents (in any such case, the "Articles of Merger") executed in accordance
with the relevant provisions of the Nevada Code and GBCC and shall make all
other filings or recordings required under the Nevada Code and GBCC. The Merger
shall become effective at such time as the Articles of Merger are duly filed
with the Secretary of State of the States of Nevada and Georgia (the time the
Merger becomes effective being the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth
in the Nevada Code and GBCC.
1.5 Articles of Incorporation; Bylaws.
(a) The Articles of Incorporation of the Sub as in effect
immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(b) The Bylaws of the Sub as in effect at the Effective Time
shall be the Bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
1.6 Directors. The directors of Sub at the Effective Time shall be the
directors of the Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
as the case may be.
1.7 Officers. The officers of the Sub at the Effective Time shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly appointed
and qualified, as the case may be.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Exchange of Shares. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock of Sub
issued and outstanding immediately prior to the Effective Time shall
continue to be issued and outstanding as one share of common stock of
the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Company
Common Stock. Each share of the Company Common Stock that is owned by
the Company or by any subsidiary of the Company, and each share of
Company Common Stock that is owned by Parent, Sub or any other
subsidiary of Parent shall automatically be canceled and retired and
shall cease to exist, and no cash, Preferred Stock, Additional
Consideration Agreement (as defined in Section 2.4) or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise
provided herein and subject to Section 2.3, at the Effective Time each
issued and outstanding share of Company
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Common Stock shall be automatically converted into .1041666
nonassessable shares of Preferred Stock (the "Stock Consideration").
The Stock Consideration and the Additional Consideration (as defined in
Section 2.4) and any cash paid pursuant to Section 2.3(e) are herein
collectively referred to as the "Merger Consideration."
(d) Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding shares of Company
Common Stock held by a person (a "Dissenting Stockholder") who duly
demands appraisal of his shares of Company Common Stock pursuant to the
GBCC and complies with all the provisions of the GBCC concerning the
right of holders of Company Common Stock to demand appraisal of their
shares in connection with the Merger ("Dissenting Shares") shall not be
converted as described in Section 2.1(c), but shall become the right to
receive such cash consideration as may be determined to be due to such
Dissenting Stockholder as provided in the GBCC. If, however, such
Dissenting Stockholder withdraws his demand for appraisal or fails to
perfect or otherwise loses his right of appraisal, in any case pursuant
to the GBCC, his shares shall be deemed to be converted as of the
Effective Time into the right to receive the Merger Consideration,
without interest, pursuant to Sections 2.1(c) and 2.4. The Company
shall give Parent (i) prompt notice of any demands for appraisal of
shares received by the Company; and (ii) the opportunity to participate
in and direct all negotiations and proceedings with respect to any such
demand. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate any such demands, which consent shall not be
unreasonably withheld.
(e) Cancellation and Retirement of Company Common Stock. As of
the Effective Time, all shares of Company Common Stock (other than
shares referred to in Section 2.1(b)) issued and outstanding
immediately prior to the Effective Time, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive pursuant to Sections 2.3 and 2.4,
(i) a certificate or certificates of Preferred Stock representing the
number of full shares of Preferred Stock into which the shares of
Company Common Stock theretofore represented by such canceled and
retired certificate shall have been converted pursuant to Section
2.1(c), (ii) in lieu of fractional shares of Preferred Stock, a cash
payment for the fair market value of a fractional share to be issued in
consideration therefor based on a price of $9.60 per share and (iiii)
an Additional Consideration Agreement representing such holders
pro-rata share of the pay-out obligation to be paid by Parent on future
sales of products using the MERAD technology or any derivative thereof.
2.2 Options; Warrants. At the Effective Time, all options and warrants
exercisable for Company Common Stock granted or issued prior to the date hereof,
which are outstanding and unexercised or unconverted immediately prior to the
Effective Time (the "Prior Securities"), shall be converted into a number of
options for the Parent's Common Stock calculated by taking the number of such
options outstanding and dividing such number by .96.
2.3 Exchange of Certificates.
(a) Exchange Agent. At the Effective Time, Parent shall
designate Corporate Stock Transfer, Inc., Parent's transfer agent (the
"Exchange Agent"), to act as agent for the holders of shares of Company
Common Stock in connection with the Merger to issue the certificate or
certificates to which holders of shares of Company Common Stock shall
become entitled
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pursuant to Section 2.1(c). Parent shall authorize and instruct the
Exchange Agent to issue to the holders of Company Common Stock, in the
aggregate, certificates representing the number of shares of Preferred
Stock required to effectuate the terms of the Merger.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of an
outstanding certificate or certificates which prior thereto represented
shares of Company Common Stock (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to
such certificate shall pass, only upon delivery of such certificates to
such Exchange Agent (the "Letter of Transmittal"), and (ii)
instructions for use in effecting the surrender of the certificates
representing shares of Company Common Stock for shares representing
Preferred Stock and return of the Letter of Transmittal. Upon proper
surrender to the Exchange Agent of such certificates for cancellation
and return of the Letter of Transmittal, the holder of such
certificates shall after the Effective Time be entitled only to a
certificate or certificates representing the number of full shares of
Preferred Stock, into which the aggregate number of shares of Company
Common Stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to this Agreement plus
payment for the fair market value of a fractional share as provided in
Section 2.3(e). The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange
Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there shall
be no further transfer on the records of the Company or its transfer
agent of certificates representing shares of Company Common Stock and
if such certificates are presented to the Company for transfer, they
shall be canceled against delivery of certificates for Preferred Stock
as hereinabove provided. If any certificate for such Preferred Stock is
to be issued in a name other than that in which the certificate for
Company Common Stock surrendered for exchange is registered, it shall
be a condition of such exchange that (1) the certificate so surrendered
shall be properly endorsed, with signature guaranteed, or otherwise in
proper form for transfer, (2) a Letter of Transmittal be executed and
returned by the transferee, and (3) that the person requesting such
exchange shall pay to Parent or its transfer agent any transfer or
other taxes required by reason of the issuance of certificates for such
Preferred Stock in a name other than that of the registered holder of
the certificate surrendered, or establish to the satisfaction of Parent
or its transfer agent that such tax has been paid or is not applicable.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Preferred Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered certificate for shares of Company Common Stock with
respect to the shares of Preferred Stock represented thereby. Subject
to the effect of applicable laws, following surrender of any such
certificate, there shall be paid to the holder of the certificate
representing whole shares of Preferred Stock issued in exchange
therefor, without interest, (i) at the time of such surrender the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such shares of
Preferred Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of
Preferred Stock.
(d) No Further Ownership Rights in Company Common Stock. All
shares of Preferred Stock (and any cash-in-lieu of fractional shares)
and the Additional Consideration Agreement issued upon the surrender
for exchange of certificates representing shares of Company Common
Stock in accordance with the terms of this Article 2 (including any
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certificates issued pursuant to Section 2.3(e)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to the shares
of Company Common Stock theretofore represented by such certificates.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional
shares of Preferred Stock shall be issued upon the surrender
for exchange of certificates representing shares of Company
Common Stock, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a
stockholder of Parent; and
(ii) Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock
converted pursuant to the Merger who would have otherwise been
entitled to receive a fraction of a share of Preferred Stock
shall receive, in lieu thereof, payment in cash based on a
share price of $9.60 per share.
(f) No Liability. None of Parent, Sub, the Company or the
Exchange Agent shall be liable to any person in respect of any shares
of Preferred Stock (or dividends or distributions with respect thereto)
or Additional Consideration Agreements delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Company Common Stock shall
not have been surrendered prior to five years after the Effective Time
(or immediately prior to such earlier date on which any cash, shares of
Preferred Stock, Additional Consideration Agreement, any cash in lieu
of fractional shares of Preferred Stock or any dividends or
distributions with respect to Preferred Stock in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.1(d)), any such shares,
agreements, cash dividends or distributions in respect of such
certificate shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(g) Transfer Restrictions. Subject to the provisions of this
Agreement, the transfer of Preferred Stock issued in connection with
the Merger shall be limited to the full extent required by federal and
state securities laws and as set forth in Section 5.9(b). Certificates
representing such stock will bear appropriate legends describing all
such restrictions.
2.4 Additional Consideration In addition to the Preferred Stock, the
holders of Company Common Stock shall be paid an amount of cash and additional
Parent Common Stock as additional consideration for the Merger based on sales of
MERAD-related products (i.e., software products that include any part of the
MERAD technology or any derivatives thereof), equal to 5% of the gross amount of
the revenues from such sales by Parent or any affiliate (or any other entity in
which Parent or any affiliate owns more than 5% of the capital stock or other
ownership interests), or any fees of Parent or its affiliate (or any other
entity in which Parent or any affiliate owns more than 5% of the capital stock
or other ownership interests), derived in any manner from such products, during
any fiscal year up to $1 million of such revenues, and 10% on revenues
thereafter during the balance of such fiscal year (collectively, the "Additional
Consideration"). The Additional Consideration shall be paid quarterly, on or
before 30 days after the end of such calendar quarter, during the 10-year period
following the Merger and shall not exceed $7 million in the aggregate for all
such years. One-half of all of the Additional Consideration shall be paid in
shares of Parent's Common Stock, the value of which shall, for
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this purpose, be the average closing bid price for such stock for the 10 trading
days prior to the payment date, with the remaining amount paid in cash. In the
event that Parent acquires HALIS, Inc., a Georgia corporation ("HALIS"), the
license agreement between the Company and HALIS shall be terminated and future
payments based upon sales of the MERAD technology incorporated into the HALIS
products shall be pursuant to the foregoing payment obligation. In the event
that Parent does not acquire HALIS, any payments received by Company from HALIS
under the license agreement during the 10-year term of the pay-out period shall
be passed through to the holders of the Company Common Stock, such HALIS
payments to be counted against the $7 million maximum payment to be paid under
the Additional Consideration Agreements, and shall cease upon the earlier of the
payment of total Additional Consideration, in the aggregate, of $7 million or
the end of the 10-year term of such agreements. The Additional Consideration
obligation shall be represented by the Additional Consideration Agreements, a
form of which is attached hereto as Exhibit A. Each holder of Company Common
Stock shall be issued an Additional Consideration Agreement at the Closing, such
agreement to be for the pro-rata share of the Additional Consideration allocated
to such holder based upon such holder's ownership of Company Common Stock
outstanding at the Effective Time.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. The Company
represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the
Company and each of its Subsidiaries (as defined in Section 3.1(b)) is
duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. The Company is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in
the aggregate) would not have a material adverse effect (as defined in
Section 9.3) with respect to the Company. Attached as Section 3.1(a) of
the disclosure schedule ("Disclosure Schedule") delivered to Parent by
the Company at the time of execution of this Agreement are complete and
correct copies of the Articles of Incorporation and Bylaws of the
Company.
(b) Subsidiaries. The only direct or indirect subsidiaries of
the Company (the "Subsidiaries") and other ownership interests held by
the Company in any other person are those listed in Section 3.1(b) of
the Disclosure Schedule. The Company owns the shares of capital stock
of each Subsidiary free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except as set forth in Section
3.1(b) of the Disclosure Schedule, the Company does not own, directly
or indirectly, any capital stock or other ownership interest in any
corporation, partnership, business association, joint venture or other
entity.
(c) Capital Structure. The authorized capital stock of the
Company consists of 10,000,000 shares of Company Common Stock. As of
the date of this Agreement, there are
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(i) 3,210,550 shares of Company Common Stock issued and outstanding;
(ii) no shares of Company Common Stock held in the treasury of the
Company; and (iii) except as set forth in Schedule 3.1(c), no shares of
Company Common Stock reserved for issuance upon exercise of Prior
Securities. Except as set forth above, no shares of capital stock or
other equity securities of the Company are issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and
nonassessable and, except as described in Section 3.1(c) of the
Disclosure Schedule, are not subject to preemptive rights. There are no
outstanding bonds, debentures, notes or other indebtedness or other
securities of the Company having the right to vote on any matters on
which stockholders of the Company may vote. Except as set forth above
and in Section 3.1(c) of the Disclosure Schedule, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the
Company or any of its Subsidiaries is a party, or by which it is bound,
obligating the Company or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of the Company or of
any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company or any of
its Subsidiaries to repurchase, redeem or otherwise acquire or make any
payment in respect of or measured or determined based on the value or
market price of any shares of capital stock of the Company or any of
its Subsidiaries and, to the knowledge of the Company, there are no
irrevocable proxies with respect to shares of capital stock of the
Company or any Subsidiary of the Company. Except as provided in Section
3.1(c) of the Disclosure Schedule, there are no agreements or
arrangements pursuant to which the Company is or could be required to
register shares of Company Common Stock or other securities under the
Securities Act of 1933, as amended (the "Securities Act").
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the
Company, subject, in the case of the Merger, to approval by the
Company's shareholders ("Company Shareholder Approval"), and no other
corporate action on the part of the Company is necessary to authorize
the execution and delivery of this Agreement and, subject, in the case
of the Merger, to Company Shareholder Approval, the consummation by the
Company of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms. Except as disclosed in Section 3.1(d) of
the Disclosure Schedule, the execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, (a) conflict with
or result in any breach of any provision of the articles of
incorporation or bylaws of the Company, or (b) conflict with, or result
in any breach or violation of, or constitute a default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration under (i) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or any of its Subsidiaries or their respective properties or
assets or (ii) any judgment, order, decree, statute, law, ordinance,
rule, regulation or arbitration award applicable to the Company or any
of its Subsidiaries or their respective properties or assets, or (c)
result in the creation of any Lien upon any of the parties or
7
assets of the Company or any of its Subsidiaries, other than, in the
case of clauses (b) and (c), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the aggregate
would not reasonably be expected to have a material adverse effect with
respect to the Company or would not reasonably be expected to prevent,
hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing with,
or notice to, any Federal, state or local government or any court,
administrative agency or commission or other governmental authority or
agency, domestic or foreign (a "Governmental Entity"), is required by
or with respect to the Company or any of its Subsidiaries in connection
with the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby,
except for (i) the filing of the Articles of Merger with the Secretary
of State of the States of Nevada and Georgia, and appropriate documents
with the relevant authorities of other states in which the Company is
qualified to do business and (ii) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or notices
as are set forth in Section 3.1(d) of the Disclosure Schedule.
(e) Financial Statements; Undisclosed Liabilities. The
financial statements of the Company for the quarter ended March 31,
1998 audited by ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C. attached hereto in Section
3.1(e) of the Disclosure Schedule (the "Financial Statements") have
been prepared in accordance with generally accepted accounting
principles. The Financial Statements fairly present the financial
position of the Company as of the date thereof and the results of
operations for the period then ended. Since March 31, 1998, the Company
has not incurred any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) except (i) as and to the
extent set forth on the balance sheet of the Company as of ▇▇▇▇▇ ▇▇,
▇▇▇▇, (▇▇) as incurred in connection with the transactions contemplated
by this Agreement, (iii) as incurred after March 31, 1998 in the
ordinary course of business and consistent with past practice, (iv) as
set forth in Section 3.1(e) of the Disclosure Schedule, or (v) as would
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect with respect to the Company.
(f) Absence of Certain Changes or Events. Except as described
in Section 3.1(f) of the Disclosure Schedule, since March 31, 1998
there has not been:
(i) any material adverse change with respect to the
Company;
(ii) any damage, destruction or loss (whether or not
covered by insurance) of any material assets of the Company;
(iii) any increase or decrease in the rates of
compensation payable or to become payable by the Company to
any of its officers, directors or employees over or under the
rates in effect during the twelve months ended March 31, 1998,
other than general increases made in accordance with past
practices which are described in Section 3.1(f) of the
Disclosure Schedule; or any declaration, payment, commitment,
or obligation of any kind for the payment by the Company of
any bonus (other than standard year-end bonuses consistent
with past practices which are described in Section 3.1(f) of
the Disclosure Schedule), additional salary or compensation,
or retirement, termination or severance benefits to officers,
directors or employees;
8
(iv) any material amendment or termination of any
material contract, lease or license to which the Company is a
party or by which it may be bound, other than in the ordinary
course of business;
(v) other than in the ordinary course of business,
any disposition, mortgage, pledge, or subjection to any lien,
claim, charge, option, or encumbrance of any property or asset
of the Company, or any cancellation or compromise of any debt
or claim of the Company;
(vi) any labor dispute or to the Company's knowledge
threat of a labor dispute or any attempt or to the Company's
knowledge threat of an attempt by a labor union to organize
the Company's employees;
(vii) any acquisition by the Company of the assets or
capital stock of another business entity;
(viii) any termination of any material permit or
license issued to the Company or to any of its employees or
agents;
(ix) any dividend or distribution declared, set aside
or paid in respect of the Company Common Stock or any
repurchase by the Company of shares of Company Common Stock.
(g) Litigation. Except as disclosed in Section 3.1(g) of the
Disclosure Schedule, there is no suit, action or proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries which would
reasonably be expected to have a material adverse effect on the Company
or, to the Company's knowledge, any basis for any such suit, action,
proceeding or investigation. There is no judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of its Subsidiaries.
(h) Labor Matters; Employee Matters.
(i) Neither the Company nor any of its Subsidiaries
is a party to, or bound by, any collective bargaining
agreement, contract or other agreement or understanding with a
labor union or labor organization, nor is it or any of its
Subsidiaries the subject of any proceeding asserting that it
or any Subsidiary has committed an unfair labor practice or
seeking to compel it to bargain with any labor organization as
to wages or conditions of employment, nor is there any strike,
work stoppage or other labor dispute involving it or any of
its Subsidiaries pending or, to its knowledge, threatened.
(ii) Except as disclosed in Section 3.1(h) of the
Disclosure Schedule, no employee of the Company has a written
or oral agreement (or an assurance pursuant to any employee
manual) which would preclude the Company from terminating such
employee's employment at any time with no obligation of the
Company to make any payment except wages and accrued benefits
to the date of termination. The Company, to its knowledge, has
not engaged in any discriminatory hiring or employment
practices. Except as set forth in Section 3.1(h) of the
Disclosure Schedule and except for matters which would
reasonably not be expected to have a material adverse effect
on the
9
Company, there have not been any employment discrimination
complaints filed against the Company with any state or federal
agency and the Company has not been threatened by any former
employee with any suit alleging wrongful termination.
(iii) The Company has delivered to Parent (i) all
employment manuals utilized by the Company within the past
three (3) years, (ii) copies of any determination letters
received by the Company from the Internal Revenue Service or
any other governmental authority with respect to any employee
benefit plan, (iii) copies of any summary plan descriptions or
summaries of material modifications relating to any employee
benefit plan (as defined in Section 3(3) of ERISA) that have
been prepared or distributed in the past three (3) years, and
(iv) any annual reports (Form 5500 series) filed for any
employee benefit plan or fringe benefit plan (within the
meaning of Code Section 6039D) for plan years ending March 31,
1998. All such summary plan descriptions, summaries, and
annual reports, were true, complete and correct in all
material respects, and complied in all material respects with
all requirements applicable thereto, at the time such
documents were distributed or filed. The current summary plan
descriptions comply with all applicable requirements and
properly describe the current versions of the plans to which
they relate.
(iv) There are no present or former Company
employees, directors or independent contractors entitled to
(i) pension benefits that are "unfunded" as defined under the
Employee Retirement Income Security Act ("ERISA") or (ii) any
pension benefit or welfare benefit to be paid after
termination of employment. Except with respect to continuation
coverage under group health plans pursuant to Section 4980B of
the Code or state law, and except with respect to continuation
coverage under group life insurance plans pursuant to state
law, no other benefits (whether or not pursuant to any plan or
benefit arrangement that is subject to ERISA) whatsoever are
payable to any present or former Company employees after
termination of employment or to any present or former
directors or independent contractors after cessation of
service to the Company (including, but not limited to, any
post-retirement medical or death benefits, any severance
benefits or any disability benefits).
(v) There are no arrangements or contracts with any
director, officer, employee or independent contractor of the
Company that require any deferred compensation, retirement or
welfare benefits to be paid or provided following termination
of services.
(vi) Each "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA) of the Company is either funded
through insurance or is unfunded for purposes of ERISA. There
are no reserves, assets, surplus or prepaid premiums under any
such plan, and, the Company is not in default under any such
plan, and all such plans are in compliance in all material
respects with all applicable laws (including, but not limited
to, ERISA, the Code and the Age Discrimination in Employment
Act of 1967).
(vii) Each of any "employee welfare benefit plan" (as
defined above) maintained by the Company, any fiduciary
thereof, and the Company is not subject to any liability
(other than normal liabilities and expenses associated with
maintenance of such plan or arrangement as an ongoing benefit
plan or arrangement) under ERISA or
10
the Code or any other applicable law, including without
limitation, liability resulting from a partial plan
termination.
(viii) The Company is not subject to any liability
(other than normal liabilities and expenses associated with
maintenance of such plan or arrangement as an ongoing benefit
plan or arrangement) under ERISA or the Code or any other
applicable law, including without limitation, liability
resulting from a partial plan termination or from prohibited
transactions.
(ix) The Company neither maintains, nor has it ever
maintained or ever been obligated to contribute to, (i) a
multi-employer plan within the meaning of Section 3(37) of
ERISA, or (ii) any employee benefit plan within the meaning of
Section 3(3) of ERISA.
(x) There are no inquiries, proceedings, claims or
suits pending or, to the knowledge of the Company, threatened
by any governmental agency or authority or by any participant
or beneficiary against any of the Company's "employee welfare
benefit plans" (as defined above) with respect to the
operation of such benefit plans.
(xi) The consummation of the transactions
contemplated by this Agreement will not (i) entitle any
employee of the Company to severance pay or any other payment,
or (ii) accelerate the time of payment or vesting, or increase
the amount of, compensation due to any such employee.
(xii) The Company has no obligation for (i) any
long-term disability benefits to or for any of the Company's
employees who become disabled prior to the Closing Date
(including any individual who is disabled but has not
satisfied any applicable waiting period) and (ii) any life
insurance benefits promised, due and/or payable to or for any
of the Company's employees who die prior to the Closing Date.
(i) Tax Returns and Tax Payments. Except as set forth in
Section 3.1(i) of the Disclosure Schedule, the Company and each of its
Subsidiaries has timely filed, with the appropriate authority, (or, as
to Subsidiaries, the Company has filed, with the appropriate authority,
on its behalf) all Tax Returns (as defined below) required to be filed
by it, has paid (or, as to Subsidiaries, the Company has paid on its
behalf) or shareholders of the Company have paid all Taxes (as defined
below) shown thereon to be due and has provided (or, as to
Subsidiaries, the Company has made provision on its behalf of) adequate
reserves in the Financial Statements for any Taxes that have not been
paid, whether or not shown as being due on any Tax Returns. All Tax
Returns were correct as filed. Except as set forth in Section 3.1(i) of
the Disclosure Schedule (i) no claim for unpaid Taxes has been asserted
by a Tax authority or has become a lien (except for liens not yet due
and payable) against the property of the Company or any of its
Subsidiaries or is being asserted against the Company or any of its
Subsidiaries, (ii) no audit of any Tax Return of the Company or any of
its Subsidiaries is being conducted by any government entity, and (iii)
no extension of the statute of limitations on the assessment of any
Taxes has been granted by the Company or any of its Subsidiaries and is
currently in effect. Neither the Company nor any of its Subsidiaries is
or has been a member of any consolidated, combined, unitary or
aggregate group for Tax purposes except such a group consisting only of
the Company and its Subsidiaries. As used herein, "Taxes" shall mean
all taxes of any kind, including, without limitation, those on or
measured by or referred to as income, gross receipts,
11
sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or
similar fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional
amounts imposed by any governmental authority, domestic or foreign. As
used herein, "Tax Return" shall mean any return, report or statement
required to be filed with any governmental authority with respect to
Taxes.
(j) State Antitakeover Laws Not Applicable. No state takeover
statute or similar statute or regulation of the State of Georgia
applies or purports to apply to this Agreement or the transactions
contemplated hereby and no provision of the Articles of Incorporation,
Bylaws or other governing instruments of the Company or any of its
Subsidiaries or the terms of any rights plan or agreement of the
Company would, directly or indirectly, restrict or impair the ability
of Parent to vote, or otherwise to exercise the rights of a stockholder
with respect to, securities of the Company and its Subsidiaries that
may be acquired or controlled by Parent by virtue of this Agreement or
the transactions contemplated hereby or permit any shareholder to
acquire securities of the Company or of Parent or any of its
Subsidiaries on a basis not available to Parent in the event that
Parent were to acquire securities of the Company.
(k) Real Estate. The Company does not own or have title to any
real estate, and has never owned or had title to any real estate. The
Company does not lease any real estate other than pursuant to real
estate leases listed in Section 3.1(k) of the Disclosure Schedule, true
and correct copies of which have been delivered to Parent (the
"Leases"). The Company is not in default under the Lease, and there are
no facts which, with notice and/or the passage of time, would
constitute such a default by the Company. The Company has not received
notice that said buildings do not comply with municipal, state and
federal statutes, ordinances, rules and regulations applicable to the
construction of the buildings and their actual use. Consent is required
under the Leases in connection with the Merger.
(l) Compliance with Laws; Environmental Matters.
(i) The Company and its Subsidiaries and their
operations and assets, including owned or leased real
property, are in compliance in all material respects with all
statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees or arbitration awards applicable thereto,
including Environmental Laws (as defined below).
(ii) There are no legal, administrative, arbitral or
other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose,
or that reasonably could be expected to result in the
imposition, on the Company or any of its Subsidiaries of any
liability or obligations arising under common law standards
relating to environmental protection, human health or safety,
or under any local, state, federal, national or supernational
environmental statute, regulation or ordinance, including the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (collectively,
"Environmental Laws"), pending or, to the knowledge of the
Company, threatened, against the Company or any of its
Subsidiaries, which liability or obligation would reasonably
be expected to have a material adverse effect on the Company.
To the knowledge of the Company or any of its Subsidiaries,
there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any
liability or obligation that would reasonably be expected to
have
12
a material adverse effect on the Company. To the knowledge of
the Company, during the period of (i) its or any of its
Subsidiaries' ownership or operation of any of their
respective current properties, (ii) its or any of its
Subsidiaries' participation in the management of any property,
or (iii) its or any of its Subsidiaries' holding of a security
interest or other interest in any property, there was no
release or threatened release of hazardous, toxic, radioactive
or dangerous materials or other materials regulated under
Environmental Laws in, on, under or affecting any such
property which would reasonably be expected to have a material
adverse effect on the Company. Neither the Company nor any of
its Subsidiaries is subject to any agreement, order, judgment,
decree, letter or memorandum by or with any court,
governmental authority, regulatory agency or third party
imposing any liability or obligations pursuant to or under any
Environmental Law.
(m) Leased Tangible Personal Property. At the date hereof, the
Company does not lease any personal property other than pursuant to (i)
leases in the ordinary course of business which can be terminated on
not more than 30 days notice by the Company without payment of any
penalty or termination payment, and (ii) leases ("Personal Property
Leases") which are listed in Section 3.1(m) of the Disclosure Schedule,
true and correct copies of which have been delivered to Parent. Each of
the Company and, to the Company's knowledge, the other parties thereto
is not in default in any material respect under any of the Personal
Property Leases, and the Company is not aware of any fact which, with
notice and/or passage of time, would constitute such a default by the
Company. Except as set forth in Section 3.1(m) of the Disclosure
Schedule, no consent is required under the Personal Property Leases in
connection with the Merger.
(n) Contracts. Section 3.1(n) of the Disclosure Schedule
lists, and the Company has previously delivered to Parent, true and
complete copies of, all of the following contracts or other obligations
to which the Company is a party or by which it is bound:
(i) employment agreements and any other contracts or
understandings with or loans to any of the Company's
shareholders, officers, directors, employees, consultants,
salesmen, distributors or sales representatives, including but
not limited to any which relate to bonuses or deferred
compensation;
(ii) any employee benefit plan made available by the
Company to any of its employees;
(iii) any collective bargaining agreement or other
agreement with any union;
(iv) any outstanding contracts with customers;
(v) any deeds of trust, mortgages, conditional sales
contracts, security agreements, pledge agreements, trust
receipts, or any other agreements or arrangements whereby any
assets of the Company are subject to a lien, encumbrance,
charge or other restriction;
13
(vi) any loan agreements (whether for borrowing or
lending), letters of credit or lines of credit;
(vii) any contracts restricting the Company from
doing business in any geographic areas or in any way limiting
competition and any contracts which limit, restrict or
transfer rights to any technology utilized or developed by the
Company or which establish rights of a supplier or customer to
a particular product marketed or being developed by the
Company; for each such contract, Section 3.1(n) of the
Disclosure Schedule briefly describes the restrictions or
limitations contained in the contract;
(viii) any construction contracts, or contracts for
the purchase of equipment, and any contracts calling for
aggregate payments by the Company in excess of $25,000.00 and
which are not terminable without cost or liability on notice
of 90 days or less;
(ix) any joint venture, partnership or limited
partnership agreement involving the Company;
(x) any indemnification by the Company and any
guarantees by the Company of the obligations of any other
party except those resulting from the endorsement of customer
checks deposited by the Company for collection;
(xi) any license or franchise agreement, either as
licensor or licensee or franchisor or franchisee, including
any such agreements relating to intangible property, and any
distributorship, dealership, or sales agency agreement.
(xii) any insurance policies or contracts;
(xiii) any other contracts which would reasonably be
expected to have a material impact on the Company's results of
operations or financial condition; and
(xiv) Any commitments to enter into any of the types
of contracts and obligations referred to in this Section
3.1(n).
Except as set forth in Section 3.1(n) of the Disclosure
Schedule, the Company has not received notice of any default under any
such contracts, obligations or commitments which are material to the
conduct of the Company's business, the Company is not in any material
respect in default under any such contracts, obligations or
commitments, there are no facts which, with notice and/or the passage
of time, would constitute such a default, and to the Company's
knowledge, no other party thereto is in default. All such contracts are
enforceable by the Company in accordance with their terms except as
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other laws affecting creditors rights generally. No
consent is required under the contracts, obligations and commitments
referred to in this Section 3.1(n) in connection with the Merger,
except as set forth in Section 3.1(n) of the Disclosure Schedule.
None of the Company's purchase commitments is in excess of the
normal, ordinary, and usual requirements of the Company's business or
was made at any price substantially in excess
14
of then-current market price, or to the knowledge of the Company
contains terms and conditions significantly more onerous than those
which are usual and customary in the Company's industry.
(o) Assets. The equipment, furniture, computers, and other
tangible personal property owned, leased or used by the Company in its
business is in good condition, normal wear and tear excepted, and is in
good operating order, except for items not material in value which are
under repair in the ordinary course of business. Section 3.1(o) of the
Disclosure Schedule lists all furniture, equipment, and other tangible
personal property of the Company (other than inventory and supplies)
having an original cost of $10,000.00 or more. Section 3.1(o) of the
Disclosure Schedule also lists all equipment, furniture, computers and
other tangible personal property which (i) is used by the Company or
which is located on the Company's premises and (ii) which is not owned
by the Company, except for items leased under the Personal Property
Leases and except for normal personal property of employees. Except for
sales of inventory in the ordinary course of business, since the date
of the most recent balance sheet contained in the Financial Statements
no tangible assets (whatever their original cost) have been transferred
from the Company, whether by sale, dividend or otherwise.
(p) Intellectual Property. Each of the Company and its
Subsidiaries owns or has a license to use all of the copyrights,
patents, trademarks, service marks, service names, trade names,
applications therefore, technology rights and licenses, computer
software (including any source or object codes therefore or
documentation relating thereto), trade secrets, franchises, know-how,
inventions, and other intellectual property rights (collectively, the
"Intellectual Property") which is used by them in their respective
businesses. Except as set forth in Section 3.1(p) of the Disclosure
Schedule, all software used in the Company's business and sold by the
Company is year 2000 compliant. Each of the Company and its
Subsidiaries is the owner of or has a license to any Intellectual
Property sold or licensed to a third party in connection with their
business operations, and have the right to convey by sale or license
any Intellectual Property so conveyed. Neither the Company nor any of
its Subsidiaries is in default in any material respect under any of
their Intellectual Property licenses. No proceedings have been
instituted or are pending, or to the knowledge of the Company has any
person claimed or alleged any rights to such Intellectual Property.
Except as set forth in Schedule 3.1(p) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries is obligated to any
recurring royalties to any person with respect to any such Intellectual
Property. Except as set forth in Section 3.1(p) of the Disclosure
Schedule, no officer or director of the Company or any of its
Subsidiaries, or to the knowledge of the Company, other employee of the
Company or any of its Subsidiaries, is a party to any contract or
agreement which restricts or prohibits such officer, director or
employee from engaging in activities competitive with any person or is
a party to a contract or agreement which requires such officer,
director or employee to assign any interest in any Intellectual
Property to any person other than the Company or any of its
Subsidiaries or to keep confidential any trade secrets, proprietary
data, customer information, or other business information of any person
other than the Company or any of its Subsidiaries.
(q) Accounts Receivable. All accounts receivable of the
Company reflected in the most recent balance sheet contained in the
Financial Statements originated in the ordinary course of its business,
are valid, and to the knowledge of the Company, at the date hereof, are
fully collectible and not subject to any defense, counterclaim or
setoff, except and only to the extent of the reserve against accounts
receivable shown on such balance sheet.
15
(r) Properties. Except as set forth in Section 3.1(r) of the
Disclosure Schedule, each of the Company and its Subsidiaries (i) has
good, clear and marketable title to all the properties and assets
reflected in the latest balance sheet of the Company contained in the
Financial Statements as being owned by the Company or one of its
Subsidiaries or acquired after the date thereof (except properties sold
or otherwise disposed of since the date thereof in the ordinary course
of business), free and clear of (a) all Liens except statutory liens
securing payments not yet due and (b) all real property mortgages and
deeds of trust and (ii) is the lessee of all leasehold estates
reflected in the latest financial statements or acquired after the date
thereof and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without default thereunder by
the lessee or, to the Company's knowledge, the lessor.
(s) Transactions with Directors, Officers, Employees and
Affiliates. There have been no transactions since March 31, 1998
between the Company and any director, officer, employee or affiliate of
the Company, except on an arm's length basis in accordance with normal
business practices. To the Company's knowledge, since March 31, 1998
none of the officers, directors or affiliates of the Company, or any
member of the immediate family of any such persons, has been a director
of officer of, or has had a material interest in, any firm,
corporation, association or business enterprise which during such
period has been a material supplier, customer or sales agent of the
Company or has competed to a material extent with the Company.
(t) Insurance. The Company has not received any notice of
cancellation with respect to any insurance policy of the Company. All
premiums due under any such insurance policy have been paid in full.
The Company has timely filed all claims or timely notified insurance
carriers of events or circumstances giving rise to any claims under
such policies.
(u) Brokers. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company or by or on behalf of any
shareholder of the Company.
(v) Asset Sales; Merger. The Company has not, except for sales
of inventory in the ordinary course of business and as set forth in
Section 3.1(v) of the Disclosure Schedule, sold, transferred or
distributed any significant portion of its assets during the two-year
period preceding the date hereof nor has the Company taken any other
action which would preclude the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code.
(w) Full Disclosure. No representation or warranty made by the
Company under or in connection with this Agreement, no certification
furnished or to be furnished to Parent pursuant to this Agreement, and
no agreements, instruments or documents delivered by the Company to
Parent or its counsel hereunder, contains or will contain any untrue
statement of a material fact.
(x) Board Recommendation. The Board of Directors of the
Company has by unanimous action of all directors then in office (i)
determined that this Agreement and the transactions contemplated
hereby, including the Merger, are fair to and in the best interests of
the stockholders of the Company, and (ii) resolved to recommend that
the holders of the shares of Company Common Stock approve this
Agreement and the transactions contemplated herein, including the
Merger.
16
(y) Required Company Vote. The Company Stockholder Approval
which the Company will use its reasonable best efforts to obtain, being
the affirmative vote of a majority of the outstanding shares of the
Company Common Stock, is the only vote of the holders of any class or
series of the Company's securities necessary to approve this Agreement,
the Merger and the other transactions contemplated hereby.
3.2 Representations and Warranties of Parent. Parent represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of
Parent, HealthWatch Technologies, Inc., and Sub is duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of Parent and Sub is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse
effect with respect to Parent.
(b) Subsidiaries. The only direct or indirect material
subsidiary of Parent is HealthWatch Technologies, Inc. ("HWT"). All the
outstanding shares of capital stock of Sub and HWT have been validly
issued and are fully paid and nonassessable and are owned (of record
and beneficially) by Parent free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of Parent
consists of 50,000,000 shares of Parent's Common Stock and 5,000,000
shares of preferred stock, $.01 par value. As of the date of this
Agreement: (i) 2,924,121 shares of Parent's Common Stock are issued and
outstanding; (ii) 1,500,000 shares of Parent 6% Convertible Preferred
Stock, which stock is convertible into shares of Parent Stock at the
lesser of 70% of the current market price for such stock at the time of
conversion or $.52 per share, are reserved for issuance; and (iii)
2,309,476 shares of Parent's Common Stock are reserved for issuance
upon exercise of outstanding options and warrants. Except as set forth
above, no shares of capital stock or other equity securities of Parent
are issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of Parent are, and all shares of Preferred
Stock which may be issued pursuant to this Agreement will be, when
issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. All shares of Preferred Stock or
Parent Common Stock issued pursuant to this Agreement will, when so
issued, be registered or exempt from registration under any applicable
federal or state securities laws. There are no outstanding bonds,
debentures, notes or other indebtedness or other such securities of
Parent having the right to vote on any matters on which stockholders of
Parent may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, or rights obligating Parent or
any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
equity securities of Parent or any of its subsidiaries or obligating
Parent or any of its subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, or right.
(d) Authority; Noncontravention. Parent and Sub have all
requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated by this
Agreement have been
17
duly authorized by all necessary corporate action on the part of Parent
and Sub and no other corporate action on the part of the Parent or Sub
is necessary to authorize the execution and delivery of this Agreement
or the consummation by Parent and Sub of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by and
constitutes a valid and binding obligation of each of Parent and Sub,
enforceable against such party in accordance with its terms. The
execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated by this Agreement and compliance with
the provisions hereof will not (a) conflict with or result in any
breach of any provision of the articles of incorporation or bylaws of
either Parent or Sub, or (b) conflict with, or result in any breach or
violation of, or constitute a default under (with or without notice or
lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration under (i) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Parent or Sub or
their respective properties or assets or (ii) any judgment, order,
decree, statute, law, ordinance, rule, regulation or arbitration award
applicable to Parent or Sub or their respective properties or assets,
or (c) result in the creation of any Lien upon any of the properties or
assets of Parent or Sub, other than, in the case of clauses (b) and
(c), any such conflicts, breaches, violations, defaults, rights, losses
or Liens that individually or in the aggregate would not reasonably be
expected to have a material adverse effect with respect to Parent or
would not reasonably be expected to prevent, hinder or materially delay
the ability of Parent to consummate the transactions contemplated by
this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any
Governmental Entity is required by or with respect to Parent or Sub or
in connection with the execution and delivery of this Agreement by
Parent or Sub or the consummation by Parent or Sub, as the case may be,
of any of the transactions contemplated by this Agreement, except for
(i) the filing with the SEC of such reports under the Securities Act of
1933, as amended (the "Securities Act") and the Securities Exchange Act
of 1934 (the "Exchange Act") as may be required in connection with this
Agreement and the transactions contemplated hereby, (ii) the filing of
the Articles of Merger with the Secretary of State of the States of
Nevada and Georgia and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do
business, and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as may
be required under the "takeover" or "blue sky" laws of various states.
(e) SEC Documents; Undisclosed Liabilities. Parent has filed
all required reports, schedules, forms, statements and other documents
with the SEC since June 30, 1995 (collectively, and in each case,
including all exhibits and schedules thereto and documents incorporated
by reference therein, the "Parent SEC Documents"). As of their
respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and
none of the Parent SEC Documents (including any and all financial
statements included therein) as of such date contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Parent included in
the Parent SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in
the case of unaudited consolidated quarterly statements, as permitted
by Form 10-QSB of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes
18
thereto) and fairly present the consolidated financial position of
Parent as of the dates thereof and the results of operations and
changes in cash flows for the periods then ended (subject, in the case
of unaudited quarterly statements, to normal year-end audit
adjustments). Since March 31, 1998, neither Parent nor any of its
subsidiaries has incurred any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) except (i) as and
to the extent set forth on the balance sheet of Parent as of March 31,
1998 (including the notes thereto), (ii) the placement of up to
1,500,000 shares of Parent's 6% Preferred Stock, (iii) as incurred in
connection with the transactions contemplated by this Agreement, (iv)
as incurred after March 31, 1998 in the ordinary course of business and
consistent with past practice, (v) as described in the SEC Documents
filed between March 31, 1998 and the date hereof (the "Recent Parent
SEC Documents"), or (vi) as would not, individually or in the
aggregate, have a material adverse effect with respect to Parent.
(f) Absence of Certain Changes or Events. Except as disclosed
in this Agreement and the Recent Parent SEC Documents, since March 31,
1998, Parent and its subsidiaries have conducted its business only in
the ordinary course consistent with past practice, and there is not and
has not been (i) any material adverse change with respect to Parent;
(ii) any condition, event or occurrence which, individually or in the
aggregate, would reasonably be expected to have a material adverse
effect or give rise to a material adverse change with respect to
Parent; or (iii) any condition, event or occurrence which would
reasonably be expected to prevent, hinder or materially delay the
ability of Parent to consummate the transactions contemplated by this
Agreement.
(g) Litigation. Except as disclosed in Parent SEC Documents,
there is no suit, action or proceeding or investigation pending or, to
the knowledge of Parent, threatened against or affecting Parent or Sub
which would reasonably be expected to have a material adverse effect on
Parent or Sub, or to Parent's knowledge, any basis for any such suit,
action, proceeding or investigation. There is no judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or Sub.
(h) Tax Returns and Tax Payments. Parent and each of its
subsidiaries has timely filed, with the appropriate authority, all Tax
Returns required to be filed by it, has paid all Taxes shown thereon to
be due and has provided adequate reserves in the Financial Statements
for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns. All Tax Returns were correct as filed. Further,
(i) no claim for unpaid Taxes has been asserted by a Tax authority or
has become a lien (except for liens not yet due and payable) against
the property of Parent or is being asserted against Parent, (ii) no
audit of any Tax Return of Parent is being conducted by any Government
Entity, and (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by Parent and is currently in
effect. Parent has not been a member of any consolidated, combined,
unitary or aggregate group for Tax purposes.
(i) Compliance with Laws; Environmental Matters.
(i) Parent and its operations and assets, including
owned or leased real property, are in compliance in all
material respects with all statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees or arbitration
awards applicable thereto, including Environmental Laws.
19
(ii) There are no legal, administrative, arbitral or
other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose,
or that reasonably could be expected to result in the
imposition, on Parent of any liability or obligations arising
under common law standards relating to environmental
protection, human health or safety, or under any local, state,
federal, national or supernational environmental statute,
regulation or ordinance, including the Environmental Laws,
pending or, to the knowledge of Parent, threatened, against
Parent, which liability or obligation would reasonably be
expected to have a material adverse effect on Parent. To the
knowledge of Parent, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that
would impose any liability or obligation that would reasonably
be expected to have a material adverse effect on Parent. To
the knowledge of Parent, during the period of (i) its
ownership or operation of any of its current properties, (ii)
its participation in the management of any property, or (iii)
its holding of a security interest or other interest in any
property, there was no release or threatened release of
hazardous, toxic, radioactive or dangerous materials or other
materials regulated under Environmental Laws in, on, under or
affecting any such property which would reasonably be expected
to have a material adverse effect on Parent. Parent is not
subject to any agreement, order, judgment, decree, letter or
memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any liability or
obligations pursuant to or under any Environmental Law.
(j) Intellectual Property. Parent owns or has a license to use
all of the copyrights, patents, trademarks, service marks, service
names, trade names, applications therefore, technology rights and
licenses, computer software (including any source or object codes
therefore or documentation relating thereto), trade secrets,
franchises, know-how, inventions, and other Intellectual Property which
is used in its business. Parent is the owner of or has a license to any
Intellectual Property sold or licensed to a third party in connection
with its business operations, and has the right to convey by sale or
license any Intellectual Property so conveyed. Parent is not in default
in any material respect under any of its Intellectual Property
licenses. No proceedings have been instituted or are pending, or to the
knowledge of Parent has any person claimed or alleged any rights to
such Intellectual Property. Parent is not obligated to any recurring
royalties to any person with respect to any such Intellectual Property.
No officer or director of Parent, or to the knowledge of Parent, other
employee of Parent, is a party to any contract or agreement which
restricts or prohibits such officer, director or employee from engaging
in activities competitive with any person or is a party to a contract
or agreement which requires such officer, director or employee to
assign any interest in any Intellectual Property to any person other
than Parent or to keep confidential any trade secrets, proprietary
data, customer information, or other business information of any person
other than Parent.
(k) Properties. Parent (i) has good, clear and marketable
title to all the properties and assets reflected in the latest balance
sheet of Parent contained in the Financial Statements as being owned by
Parent or acquired after the date thereof (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of (a) all Liens except statutory liens
securing payments not yet due and (b) all real property mortgages and
deeds of trust and (ii) is the lessee of all leasehold estates
reflected in the latest financial statements or acquired after the date
thereof and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without default thereunder by
the lessee or, to Parent's knowledge, the lessor.
20
(l) Interim Operations of Sub. Sub was formed solely for the
purposes of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its
operations only as contemplated hereby.
(m) Brokers. No broker, investment banker, financial advisor
or other person is entitled to or may be paid any broker's, finder's,
financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
(n) Board Recommendation. The Board of Directors of Parent has
by unanimous action of all directors then in office (i) determined that
this Agreement and the transactions contemplated hereby, including the
Merger, are fair to and in the best interests of the stockholders of
Parent, and (ii) resolved to recommend that the holders of the shares
of Parent's Common Stock approve the convertibility of the Preferred
Stock at a meeting of Parent's shareholders to be held as soon as
practicable following the Merger.
ARTICLE 4
COVENANTS RELATING TO
CONDUCT OF BUSINESS PRIOR TO MERGER
4.1 Conduct of Business of the Company. From the date of this Agreement
to the Effective Time (except as otherwise specifically required by the terms of
this Agreement), the Company shall, and shall cause its Subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and, to the extent consistent
therewith, use its best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers,
franchisees, licensors, licensees, advertisers, distributors and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall not be impaired in any material respect at the Effective Time.
Without limiting the generality of the foregoing, from the date of this
Agreement to the Effective Time, the Company shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of Parent:
(a) (i) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other
than dividends and distributions by a direct or indirect wholly owned
Subsidiary of the Company to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (iii) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
Subsidiaries or any other securities thereof, other than the repurchase
or cancellation of Company Common Stock held by a Subsidiary, or any
rights, warrants or options to acquire any such shares or other
securities;
(b) authorize for issuance, issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock or the capital stock
of any of its Subsidiaries, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
or any other securities or equity equivalents (including without
limitation stock appreciation rights), or contractual obligation valued
or measured by the value or market price of Company Common Stock (other
than the issuance of Company Common Stock upon the exercise or
conversion of stock options, warrants
21
or convertible securities or pursuant to antidilution provisions of
securities outstanding on the date of this Agreement and in accordance
with their present terms, such issuance, together with the acquisitions
of shares of Company Common Stock permitted under clause (a) above,
being referred to herein as "Permitted Changes");
(c) amend its articles of incorporation, by-laws or other
comparable charter or organizational documents;
(d) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
joint venture, association, or other business organization or division
thereof;
(e) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets except in the ordinary course of business consistent with past
practice;
(f) (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any debt
Securities or warrants or other rights to acquire any debt securities
of the Company or any of its Subsidiaries, guarantee any debt
securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice, or (ii) make
any loans, advances or capital contributions to, or investments in, any
other person, other than to the Company or any direct or indirect
wholly owned Subsidiary of the Company;
(g) acquire or agree to acquire any assets or make or agree to
make any capital expenditures except in the ordinary course of business
consistent with past practice;
(h) pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction, of (i) liabilities or obligations in the
ordinary course of business consistent with past practice or in
accordance with their terms as in effect on the date hereof, and (ii)
liabilities reflected or reserved against in, or contemplated by, the
most recent financial statements (or the notes thereto) of the Company
set forth in Section 3.1(e) of the Disclosure Schedule, or waive,
release, grant, or transfer any rights of value or modify or change in
any respect any existing license, lease, contract or other document,
other than in the ordinary course of business consistent with past
practice;
(i) adopt or amend in any respect (except as may be required
by law or by this Agreement) any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or
other employee benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any employee, director or
former director or employee or, other than increases for individuals
(other than officers and directors) in the ordinary course of business
consistent with past practice, increase the compensation or fringe
benefits of any director, employee or former director or employee; pay
any benefit not required by any existing plan, arrangement or
agreement, grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its
severance or termination pay
22
policies in effect on the date hereof, other than any such increase or
acceleration provided for under such policies as in effect on the date
of this Agreement;
(j) change any material accounting principle used by it,
except for such changes as may be required to be implemented following
the date of this Agreement pursuant to generally accepted accounting
principles or rules and regulations of the SEC;
(k) knowingly take any action that would, or is reasonably
likely to, result in any of its representations and warranties in this
Agreement becoming untrue, or result in any of the conditions to the
Merger set forth in Article 6 not being satisfied;
(l) except in the ordinary course of business and consistent
with past practice, make any tax election or settle or compromise any
federal, state, local or foreign income tax liability; and
(m) authorize any of, or commit or agree to take any of, the
foregoing actions.
4.2 Conduct of Business of Parent and Sub. From the date of this
Agreement to the Effective Time, neither Parent nor Sub shall, without the prior
written consent of the Company, knowingly take any action that would, or is
reasonably likely to, result in any of its representations and warranties in
this Agreement becoming untrue, or result in any of the conditions to the Merger
set forth in Article 6 not being satisfied.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Stockholder Meeting.
(a) Promptly following the date of this Agreement, Parent
shall prepare and file with the SEC a Solicitation Statement which will
be used by Parent to solicit approval of its stockholders of the
conversion feature for the Preferred Stock. Each of the Company and
Parent shall use its reasonable best efforts to cause the Solicitation
Statement to be filed with the SEC as promptly as practicable and to
have the Solicitation Statement finalized as promptly as practicable
after such filing. Parent shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified) required to be taken under any applicable state securities
laws in connection with the issuance of Preferred Stock in the Merger,
and the Company shall furnish all information concerning the Company
and the holders of the Company Common Stock and rights to acquire
Company Common Stock as may be reasonably requested in connection with
any such action.
(b) Parent will, as promptly as practicable following the date
of this Agreement, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Stockholder Meeting") for the purpose
of approving the conversion feature for the Preferred Stock. Parent
will, through its Board of Directors, recommend to its stockholders
approval of the foregoing matters, unless its Board of Directors has
concluded in good faith, after consulting with and considering the
advice of counsel, that such recommendation is not consistent with the
exercise
23
of its fiduciary duties to stockholders. Parent will use its reasonable
efforts to hold such meeting as soon as practicable after the date
hereof.
5.2 Parent Access to Information.
(a) The Company shall, and shall cause its Subsidiaries,
officers, employees, counsel, financial advisors and other
representatives to, afford to Parent and its representatives reasonable
access during normal business hours during the period prior to the
Effective Time to its properties, books, contracts, commitments,
personnel and records and, during such period, shall, and shall cause
its Subsidiaries, officers, employees and representatives to, furnish
promptly to Parent information concerning its business, properties,
financial condition, operations and personnel as Parent may from time
to time reasonably request. No investigation pursuant to this Section
5.2 shall affect any representations or warranties of the Company
herein or the conditions to the obligations of the parties hereto.
(b) The Company shall report on operational matters and
promptly advise Parent orally and in writing of any change or event
having, or which, insofar as can reasonably be foreseen, could have, a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
5.3 Company Access to Information.
(a) Parent shall, and shall cause its subsidiaries, officers,
employees, counsel, financial advisors and other representatives to,
afford to the Company and its representatives reasonable access during
normal business hours during the period prior to the Effective Time to
its properties, books, contracts, commitments, personnel and records
and, during such period, shall, and shall cause its subsidiaries,
officers, employees and representatives to, furnish promptly to the
Company information concerning its business, properties, financial
condition, operations and personnel as the Company may from time to
time reasonably request. No investigation pursuant to this Section 5.3
shall affect any representations or warranties of Parent herein or the
conditions to the obligations of the parties hereto.
(b) Parent shall report on operational matters and promptly
advise the Company orally and in writing of any change or event having,
or which, insofar as can reasonably be foreseen, could have, a material
adverse effect on the Company and its subsidiaries taken as a whole.
5.4 Best Efforts. Each of the parties agrees to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement. Parent, Sub and the Company will use their
reasonable best efforts and cooperate with one another (i) in promptly
determining whether any filings are required to be made or consents, approvals,
waivers, permits or authorizations are required to be obtained under any
applicable law or regulation or from any governmental authorities or third
parties in connection with the transactions contemplated by this Agreement and
(ii) in promptly making any such filings, in furnishing information required in
connection therewith and in timely seeking to obtain any such consents,
approvals, waivers, permits or authorizations.
24
5.5 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
5.6 Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or The Nasdaq Stock
Market, Inc. The parties agree that the initial press release or releases to be
issued with respect to the transactions contemplated by this Agreement shall be
mutually agreed upon prior to the issuance thereof.
5.7 Takeover Statutes. If any "fair price," "moratorium," "control
share acquisition" or other form of antitakeover statute or regulation shall
become applicable to the transactions contemplated hereby, the Company and the
members of the Board of Directors of the Company shall, subject to their
fiduciary duties as advised by counsel, grant such approvals and take such
actions as are reasonably necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.
5.8 Certain Agreements. Neither the Company nor any Subsidiary of the
Company will waive or fail to enforce any provision of any confidentiality or
standstill or similar agreement to which it is a party without the prior written
consent of Parent.
5.9 Registration of the Underlying Common Stock.
(a) Within 60 days after the approval by Parent's stockholders of
the conversion feature, Parent shall prepare and file a
registration statement (including a prospectus, pre- and
post-effective amendments, and all exhibits thereto) (the
"Registration Statement"), covering the underlying Common
Stock to be issued to the shareholders of the Company,
assuming the conversion of the Preferred Stock to be issued
pursuant to Section 2.4, with the Securities and Exchange
Commission (the "SEC") and use its best efforts to cause the
Registration Statement to be declared effective under the
Securities Act as promptly as practicable after its filing.
The Registration Statement shall be on Form ▇▇-▇, ▇-▇, ▇-▇ or
such other form as is appropriate in order to register such
stock with the SEC pursuant to Section 5 of the Securities
Act. Parent shall use its best efforts to maintain the
Registration Statement continually effective under the
Securities Act for a period of two (2) years after the date on
which the Registration Statement is declared effective by the
SEC.
(b) No person may participate in any registration provided for in
(a) above unless such person (i) agrees to be bound by the
Stockholder's Agent Agreement in substantially the form of
Exhibit B hereto pursuant to which such person agrees that,
for a period of 18 months after the Effective Time, such
holder agrees to (1) limit the sale or other disposition of
shares of the underlying Common Stock received by such holder
pursuant to this Agreement, when taken together with all
holders receiving stock hereunder, to the greater of the
volume limitations set forth in Rule 144 of the SEC
regulations or 100,000
25
shares per rolling thirty (30)-day period, and (2) not convert
any shares of the Preferred Stock into the Parent's Common
Stock if such conversion would cause the aggregate shares of
Parent's Common Stock held by the Company stockholders to
exceed 45% of the then outstanding shares of Parent's Common
Stock, calculated after giving effect to such conversion, and
(ii) completes and executes all questionnaires, powers of
attorney, indemnities and other documents reasonably required
under the terms of any such registration. Parent agrees to use
its best efforts to list the the underlying Common Stock to be
issued upon conversion of the Preferred Stock or the
Additional Consideration Agreement on the Nasdaq SmallCap
Market or such other exchange on which the Parent Stock may be
trading at the time of issuance.
5.10 Tax-Free Reorganization; Plan of Liquidation. The parties hereto
shall use their reasonable best efforts to cause the transactions contemplated
hereby to be treated for all purposes as provided in Recital B and to be
recognized as a tax-free reorganization under Section 368 of the Code and any
other applicable state or federal law.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that the parties hereto shall use their reasonable best
efforts to have any such injunction, order, restraint or prohibition
vacated.
(b) Compliance with Federal and State Securities Laws. The
issuance of Parent's securities to the holders of the Company Common
Stock shall be exempt from the registration requirements of or be
registered under the Securities Act, and applicable state blue sky
laws.
(c) Consents, etc. Each of Parent and the Company shall have
received evidence, in form and substance reasonably satisfactory to it,
that such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third
parties as are necessary in connection with the transactions
contemplated hereby have been obtained, except such licenses, permits,
consents, approvals, authorizations, qualifications and orders which
are not, individually or in the aggregate, material to Parent or the
Company or the failure of which to have been received would not (as
compared to the situation in which such license, permit, consent,
approval, authorization, qualification or order had been obtained)
materially dilute the aggregate benefits to Parent of the Merger.
(d) Shareholder Vote. The Merger has been approved by the
favorable vote of the shareholders of both Sub and the Company.
6.2 Conditions to Obligation of Parent and Sub. The obligations of
Parent and Sub to effect the Merger are further subject to the following
conditions:
26
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing
Date. Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects the obligations required
to be performed by it under this Agreement at or prior to the Closing
Date, and Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer of the Company to such
effect.
(c) Opinion of Counsel to the Company. Parent shall have
received, on and as of the Closing Date, an opinion of counsel to the
Company, in usual and customary form reasonably acceptable to Parent,
to the effect that (i) the Company and its Subsidiary are corporations
duly incorporated, validly existing and in good standing under the laws
of the State of Georgia, (ii) the execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all
necessary corporate and shareholder action, (iii) this Agreement has
been duly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company, enforceable in accordance with
its terms (subject to customary exceptions), and (iv) the execution and
delivery of this Agreement does not, and the consummation by the
Company of the transactions contemplated hereby will not, violate the
Articles of Incorporation or Bylaws of the Company.
(d) Dissenter's Rights. No more than 10% of the shareholders
of the Company who own and are entitled to vote shares of Company
Common Stock shall have exercised their statutory dissenter's rights
they may have with respect to the Merger pursuant to the GBCC.
6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub set forth in this Agreement shall be true
and correct in all respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date; provided, however, that between the date of this
Agreement and the Closing Date, Parent may have issued or agreed to
issue additional securities of Parent in connection with one or more
private or public offerings of its securities or incurred or agreed to
incur additional indebtedness in order to raise additional working
capital. The Company shall have received a certificate signed on behalf
of Parent by the chief executive officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and
Sub shall have performed the obligations required to be performed in
all material respects by them under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed
on behalf of Parent by the chief executive officer of Parent to such
effect.
(c) Opinion of Counsel to Parent. The Company shall have
received, on and as of the Closing Date, an opinion of ▇▇▇▇, Plant,
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A., counsel to Parent, in usual and customary
form reasonably acceptable to the Company, to the effect that (i)
Parent and Sub are corporations duly incorporated, validly existing and
in good standing under the laws of
27
the state of their incorporation, (ii) the execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent and Sub
of the transactions contemplated hereby have been duly authorized by
all necessary corporate action, (iii) this Agreement has been duly
executed and delivered by Parent and Sub and constitutes a valid and
binding obligation of each of Parent and Sub, enforceable in accordance
with its terms (subject to customary exceptions), and (iv) the
execution and delivery of this Agreement does not, and the consummation
by Parent and Sub of the transactions contemplated hereby will not
violate the Articles of Incorporation or Bylaws of Parent or Sub.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time of the Merger:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final
and nonappealable; or
(c) by either Parent or the Company if the Merger shall not
have been consummated on or before October 2, 1998; or
(d) by Parent if the Company shall have withdrawn, modified or
amended in any respect adverse to Parent or Sub its approval or
recommendation of this Agreement or the Merger; or
(e) by Parent, if the Company fails to perform any of its
material obligations under this Agreement; or
(f) by the Company, if Parent or Sub fails to perform any of
their respective material obligations under this Agreement.
7.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub, the Company or Principal Shareholder,
other than pursuant to the provisions of Section 5.8 and this Section 7.2.
Nothing contained in this Section 7.2 shall, however, relieve any party for any
willful breach of the representations, warranties, covenants or agreements set
forth in this Agreement prior to any such termination.
7.3 Amendment. This Agreement may be amended by the parties at any time
before or after Company Stockholder Approval; provided, however, that after such
approval, there shall be made no amendment that by law requires further approval
by such stockholders without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
28
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.3, waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
ARTICLE 8
INDEMNIFICATION
8.1 Survival of Warranties.
(a) Subject to Section 8.4, each of the representations,
warranties, agreements, covenants and obligations herein shall survive
the Merger and shall not be deemed to be waived or otherwise affected
by any investigation made by the parties to this Agreement.
(b) If any representation, warranty, covenant, or agreement of
any party in this Agreement is qualified by materiality, material
adverse effect, or words of similar import (collectively, "Materiality
Conditions"), then such representation, warranty, covenant or agreement
shall not be considered breached until such Materiality Condition has
been satisfied. However, once the Materiality Conditions have been
satisfied, so that a claim can be made, the amount of any claim for
indemnification under this Article 8 shall be determined without regard
to such Materiality Conditions.
8.2 Indemnification by the Company. Subject to the limitations set
forth below, the Company hereby agrees that, notwithstanding the Merger, and
regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party hereto may have in respect thereof, the
Company will save, indemnify and hold Parent, its directors, officers, employees
and agents and, after Merger, the Surviving Corporation, (hereinafter,
collectively, "the Indemnitees") harmless from and against any and all
liabilities, losses, damages, claims, deficiencies, costs and expenses
(including, without limitation, reasonable attorney fees and other costs and
expenses incident to any suit, action or proceeding) arising out of or resulting
from, and will pay to the Indemnitees the amount of damages suffered thereby
together with any amount which they or any of them may pay or become obligated
to pay on account of:
(a) the willful breach or inaccuracy of any warranty or
representation by the Company herein; or
(b) any material breach or failure to perform by the Company
of any material term, provision, covenant or condition hereunder.
In the event of any claim by Indemnitees under this Section 8.2,
Indemnitees shall be entitled to exercise all remedies provided by law and/or
equity with respect thereto. If the Closing hereunder is held, the Company and
the Surviving Corporation will have no liability with respect to indemnification
claims by the Indemnitees.
29
8.3 Procedure for Claims. Whenever the Indemnitees, or any of them,
have a claim for indemnification, they shall deliver notice of such claim to the
Company as provided herein specifying the claim and describing it in reasonable
detail.
8.4 Limitation on Indemnification. Provided there has been no knowing
and intentional misrepresentation of a material fact, and no knowing and willful
omission of facts or information necessary to make a representation or warranty
not materially misleading, by the Company, the indemnification obligations of
the Company are subject to each of the following limitations, understandings or
qualifications:
(a) Each of the representations, warranties and covenants made
by the Company in this Agreement shall survive for a period of one year
after the Merger. After the expiration date of any representations and
warranties no claim for indemnification based on such representations
and warranties may be asserted by the Indemnitees, except that claims
first asserted in writing with reasonable detail before the expiration
date may be pursued until they are finally resolved.
(b) No claim by Indemnitees for indemnification under Section
8.2(a) can be made unless and until the amount of damages incurred by
the Indemnitees, in the aggregate for all claims asserted, exceeds
$50,000 (the "Threshold Amount"); and then only for the amount of
damages in excess of the Threshold Amount.
8.5 Indemnification by Parent. Subject to the limitations set forth
below, Parent hereby agrees that, notwithstanding the Merger, the delivery of
instruments of conveyance, and regardless of any investigation at any time made
by or on behalf of any party hereto or of any information any party hereto may
have in respect thereof, it will indemnify and hold the Company but only up
until Merger, harmless from and against any and all liabilities, losses,
damages, claims, deficiencies, costs and expenses (including, without
limitation, reasonable attorney fees and other costs and expenses incident to
any suit, action or proceeding) arising out of or resulting from and will pay to
the Indemnitees the amount of damages suffered thereby together with any amount
which they or any of them may pay or become obligated to pay on account of:
(a) the willful breach or inaccuracy of any warranty or
representation by Parent herein; or
(b) any material breach or failure to perform by Parent of any
material term, provision, or covenant or condition hereunder.
In the event of any claim by the Company under this Section 8.5, the
Company shall be entitled to exercise all remedies provided by law and/or equity
with respect thereto.
If the Merger hereunder is held, the Company shall no longer benefit
from the foregoing indemnification. The limitation on indemnification in this
Section 8.5 does not release or discharge Parent from any obligation to be
performed following the Merger pursuant to this Agreement and the exhibits
hereto.
8.6 Procedure for Claims. Whenever the Company has a claim for
indemnification, it shall deliver notice of such claim to Parent specifying the
claim and describing it in reasonable detail.
8.7 Limitation on Indemnification. No claim by the Company for
indemnification can be made unless and until the amount of damages incurred by
the Company, in the aggregate for all claims
30
asserted, exceeds the Threshold Amount, and then only to the extent such damages
exceed the Threshold Amount.
8.8 Notice; Defense of Claims.
(a) The party which is entitled to indemnification hereunder
(for purposes of this Section 8.8, the "Indemnified Party") may make
claims for indemnification hereunder by giving written notice thereof
to the party required to indemnify (for purposes of this Section 8.8,
the "Indemnifying Party") within the period in which indemnification
claims can be made hereunder. If indemnification is sought for a claim
or liability asserted by a third party, the Indemnified Party shall
also give written notice thereof to the Indemnifying Party promptly
after it receives notice of the claim or liability being asserted, but
the failure to do so, or any delay in doing so, shall not relieve the
Indemnifying Party from any liability, unless, and then only to the
extent that, the rights and remedies of the Indemnifying Party are
prejudiced as a result of the failure to give, or delay in giving, such
notice. Such notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third
party. Within 30 days after receiving such notice, the Indemnifying
Party shall give written notice to the Indemnified Party stating
whether it disputes the claim for indemnification and whether it will
defend against any third party claim or liability at its own cost and
expense. If the Indemnifying Party fails to give notice that it
disputes an indemnification claim within 30 days after receipt of
notice thereof, it shall be deemed to have accepted and agreed to the
claim, which shall become immediately due and payable.
(b) The Indemnifying Party shall be entitled to direct the
defense against a third party claim or litigation with counsel selected
by it (subject to the consent of the Indemnified Party, which consent
shall not be unreasonably withheld) as long as the Indemnifying Party
is conducting a good faith and diligent defense. Notwithstanding the
foregoing, the obligations of the Indemnifying Party hereunder as to
such third party claim or litigation shall include taking all steps
necessary in the defense, settlement, or compromise of such claim or
litigation and holding the Indemnified Party harmless from and against
any and all damages, liabilities, losses and expenses (including,
without limitation, reasonable fees of counsel) of any kind or nature
whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of
the foregoing) caused by or arising out of any settlement or compromise
approved by the Indemnifying Party or any judgment in connection with
such claim or litigation. The Indemnifying Party shall not, in the
defense of such third party claim or any litigation resulting
therefrom, consent to entry of any judgment (other than a judgment of
dismissal on the merits without costs) except with the written consent
of the Indemnified Party, or enter into any settlement or compromise
(except with the written consent of the Indemnified Party) which does
not include as an unconditional term thereof the giving by the claimant
or the plaintiff to the Indemnified Party a full release from all
liability in respect of such claim or litigation. The Indemnified Party
shall at all times have the right to fully participate in the defense
of a third party claim or liability at its own expense directly or
through counsel; provided, however, that if the named parties to the
action or proceeding include both the Indemnifying Party and the
Indemnified Party and the Indemnified Party is advised that
representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the
Indemnified Party may engage separate counsel at the expense of the
Indemnifying Party.
31
(c) If the Indemnifying Party shall not give notice of its
intent to dispute and defend a third party claim or liability or
litigation resulting therefrom after receipt of notice from the
Indemnified Party, or if such good faith and diligent defense is not
being or ceases to be conducted by the Indemnifying Party, the
Indemnified Party shall have the right, at the expense of the
Indemnifying Party, to undertake the defense of such claim or liability
in such manner as it deems appropriate (with counsel selected by the
Indemnified Party), and to compromise or settle such claim or
litigation on such terms as it may deem appropriate, exercising
reasonable business judgment.
(d) The Indemnifying Party shall promptly reimburse the
Indemnified Party for the amount of any settlement or compromise in
connection with, or any judgment rendered with respect to, any claim by
a third party in such litigation and for all damages, liabilities,
losses and expenses (including, without limitation, reasonable fees of
counsel) of any kind or nature whatsoever (whether or not arising out
of third-party claims and including all amounts paid in investigation,
defense or settlement of the foregoing) incurred by the Indemnified
Party in connection with the defense against such claim or litigation,
whether or not resulting from, arising out of, or incurred with respect
to, the act of a third party.
(e) If the third party claim or liability is one that by its
nature cannot be defended solely by the Indemnifying Party, the
Indemnified Party shall make available such information and assistance
in connection therewith as the Indemnifying Party may reasonably
request and shall cooperate with the Indemnifying Party in such defense
at the expense of the Indemnifying Party.
ARTICLE 9
GENERAL PROVISIONS
9.1 Further Assurances. From time to time, on and after the Effective
Time, as and when requested by Parent or its successors or assigns, the proper
officers and directors of the Company immediately before the Effective Time, or
other proper officers or directors, shall, at Parent's expense, and for and on
behalf and in the name of the Company, or otherwise, execute and deliver all
such deeds, bills of sale, assignments and other instruments and shall take or
cause to be taken such further or other reasonable actions as Parent or its
successors or assigns may deem necessary or desirable in order to confirm or
record or otherwise transfer to the Surviving Corporation title to and
possession of all the properties, rights, privileges, powers, franchises and
immunities of the Company and otherwise to reasonably carry out fully the
provisions and purposes of this Agreement.
9.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
32
(a) if to Parent or Sub, to:
HealthWatch, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chairman of the Board
with a copy to:
▇▇▇▇, Plant, ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(b) if to the Company, to:
▇▇▇▇ ▇▇▇▇▇▇▇▇ Enterprises, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇., ▇.▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
with a copy to:
Robinson, Rappaport, Jampol, Aussenberg & ▇▇▇▇▇▇▇▇▇▇, LLP
Three NorthWinds Center
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
9.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first person;
(b) "material adverse change" or "material adverse effect"
means, when used in connection with the Company or Parent, any change
or effect that either individually or in the aggregate with all other
such changes or effects is materially adverse to the business, assets,
properties, condition (financial or otherwise) or results of operations
of such party and its subsidiaries taken as a whole; provided, however,
that a decline in general economic conditions affecting the Company or
Parent shall not be deemed to be a "material adverse change" or to have
a "material adverse effect" with respect to either such party or its
subsidiaries;
(c) "person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other
entity; and
(d) "Series P Preferred Stock" means the preferred stock of
the Parent designated as such having the rights, preferences,
limitations and restrictions set forth on Exhibit C.
33
(e) a "subsidiary" of any person means another person, 50% or
more of the equity interest of which is owned directly or indirectly by
such first person.
9.4 Interpretation. A reference made in this Agreement to a Section,
Exhibit or Schedule, shall be to a Section of, or an Exhibit or Schedule to,
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.6 Entire Agreement; No Third-party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. This Agreement is not intended to confer upon
any person other than the parties any rights or remedies.
9.7 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Georgia regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
9.9 Enforcement. The parties shall be entitled to enforce the terms and
provisions of this Agreement in any court of the State of Georgia or of the
United States located in the State of Georgia in the event any dispute arises
out of this Agreement or any of the transactions contemplated by this Agreement,
and each party agrees (a) it will not attempt to deny or defeat personal
jurisdiction or venue in any such court by motion or other request for leave
from any such court and (b) it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any court
other than any such court.
9.10 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein, so long as the economic and legal substance of the
transactions contemplated hereby are not affected in a manner materially adverse
to any party hereto.
34
IN WITNESS WHEREOF, Parent, Sub, and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
HEALTHWATCH, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
A Director
-----------------------------------
MERAD SOFTWARE, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
Its President
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ENTERPRISES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------
Its President
-----------------------------------
35
EXHIBIT A
ADDITIONAL CONSIDERATION AGREEMENT
THIS ADDITIONAL CONSIDERATION AGREEMENT (the "Agreement") is made and
entered into as of October 1, 1998, by and between HealthWatch, Inc., a
Minnesota corporation ("HealthWatch"), and the stockholder set forth on the
signature page hereto ("Stockholder").
W I T N E S S E T H:
WHEREAS, ▇▇▇▇ ▇▇▇▇▇▇▇▇ Enterprises, Inc., a Georgia corporation
("PHE"), MERAD Software, Inc., a Nevada corporation ("Newco"), and HealthWatch
have entered into an Agreement and Plan of Merger (the "Merger Agreement") dated
as of September 30, 1998 (capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Merger Agreement), in connection with
the proposed merger of PHE with and into Newco with Newco continuing as the
surviving corporation (the "Merger");
WHEREAS, pursuant to the Merger Agreement, the Stockholders' Company
Common Stock were converted, in the aggregate, into 334,432 shares of
HealthWatch Series P Preferred Stock (the "Shares"), and the right to receive
the Additional Consideration pursuant to the Merger Agreement and this
Agreement;
WHEREAS, the Stockholder has adopted, approved and executed this
Agreement by Stockholder's execution of the Letter of Transmittal accompanying
the surrender of the Shares in exchange for payment of the Merger Consideration;
WHEREAS, concurrently with the entering of this Agreement, the
Stockholder has adopted, approved and executed that certain Stockholders' Agent
Agreement dated as of the date hereof (the "Stockholders' Agent Agreement"), in
which a Stockholders' Agent was designated (the "Stockholders' Agent") to
perform such duties as are delegated to the Stockholders' Agent as required in
the Merger Agreement, the Stockholders' Agent Agreement, and this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree that:
1. Obligation of HealthWatch to Pay Additional Consideration.
a. HealthWatch hereby agrees to pay the Additional
Consideration to the Stockholders' Agent, for the benefit of the Stockholder,
and such other former stockholders of PHE, pursuant to the provisions of Section
2.4 of the Merger Agreement, which provision is incorporated herein by
reference. Stockholder shall be entitled to Stockholder's pro-rata share of the
Additional Consideration in the form received by the
36
Stockholders' Agent, less any amounts withheld by the Stockholders' Agent
pursuant to the Stockholders' Agent Agreement.
b. The Additional Consideration earned during each of the
first, second and third calendar quarters of each fiscal year (or partial year
if not a complete year) ending after the Effective Date of the Merger shall be
paid to the Stockholders' Agent, for the benefit of the Stockholders, within
thirty (30) days after the end of the respective calendar quarter, with the
Additional Consideration earned during the fourth calendar quarter of any such
fiscal year, due and payable to the Stockholders' Agent within forty-five (45)
days after the end of such quarter. Each of the Additional Consideration
payments made for the each calendar quarter shall be accompanied by (i) an
accounting in such detail as reasonably satisfactory to the Stockholders' Agent
and (ii) a certificate of HealthWatch's chief financial officer certifying that
such accounting is complete and accurate to the best of such officer's knowledge
and belief and is based upon generally accepted accounting principles
consistently applied. The Additional Consideration payment made with the fourth
calendar quarter shall also be accompanied by a reconciliation of the Additional
Consideration payments made for the fiscal year making note of any corrective
adjustments necessary to properly account for all Additional Consideration
earned by the Stockholders during the fiscal year. Any adjustments in the
Stockholders' favor shall be reflected in the fourth quarter payment. Any
adjustments in favor of HealthWatch shall be deducted from future quarterly
payments of Additional Consideration, except that following the final payment of
Additional Consideration, any adjustments in favor of HealthWatch thereafter
shall be reimbursed by the Stockholders (limited to each Stockholder's pro-rata
share) within thirty (30) days of receipt of demand.
c. With respect of each of the Additional Consideration
payments due and owing to the Stockholders, HealthWatch shall deliver to the
Stockholders' Agent (i) one lump sum cash payment payable to the Stockholders'
Agent for the benefit of all of the Stockholders with respect to the cash owed
hereunder, and (ii) certificates of HealthWatch common stock issued in each of
the Stockholders' respective names for the number of whole shares due to each
Stockholder making up the balance of the respective payment. Any cash owed a
Stockholder in lieu of a fractional share shall be included in the cash payment
and properly reflected in the accounting as to which Stockholder such payment
should be allocated.
2. Audit Rights of Stockholder.
a. In the event that the Stockholders' Agent and HealthWatch
disagree as to the amount or allocation of any of the quarterly payments, the
Stockholders Agent shall have the right, at any time, during the ninety (90) day
period after the payment, accounting and certification from the chief financial
officer are delivered with respect to a quarterly payment, to have a firm of
certified public accountants audit and inspect all books and records relating to
the revenues derived during such quarter or fiscal year for purposes of
determining the accuracy of the accounting and the payments made
37
to the Stockholders' Agent. Any inspection shall be during reasonable business
hours and upon reasonable notice to HealthWatch. HealthWatch shall, and cause
any of its affiliates to, cooperate fully and completely in the performance of
such audit and inspection. If, pursuant to such right of audit and inspection,
the Stockholders' Agent causes an audit and inspection to be instituted that
thereafter discloses a deficiency between the amount previously paid with
respect to any quarter or fiscal year and the amount determined to be owed, then
HealthWatch shall be responsible for payment of the deficiency, and the costs
and expenses of such audit and inspection shall be paid by HealthWatch if a
deficiency of five percent (5%) is determined to exist, and shall be paid by the
Stockholders if a deficiency of less than five percent (5%) is determined to
exist.
b. HealthWatch agrees to provide the Stockholders' Agent, for
the benefit of the Stockholders, and the Stockholders' Agent's representatives
and agents access to all books and records maintained by HealthWatch or its
affiliates in respect of HealthWatch's, or its affiliates, commercial
exploitation of the MERAD technology, including without limitation, all books
and records regarding sales, licensing, leasing and marketing of the MERAD
technology, and any products that are a derivative thereof, as are reasonably
necessary and required by the Stockholders' Agent or her representatives and
agents to permit a determination of the Additional Consideration earned and due
for any quarter or fiscal year as described herein. All information provided
shall be kept confidential except to the extent required in connection with the
audit and inspection authorized herein.
3. Acknowledgement of Delegation of Rights to the Stockholders' Agent.
HealthWatch hereby acknowledges that the Stockholder has delegated to the
Stockholders' Agent such of Stockholders' rights under this Agreement to receive
payments on such Stockholder's behalf and to enforce any other rights of
Stockholder herein. Notwithstanding the foregoing, Stockholder shall be entitled
to commence legal proceedings not inconsistent with this Agreement if
HealthWatch shall allegedly be in breach of this Agreement, provided, however,
the right of inspection and audit granted hereunder shall only be exercised by
the Stockholders' Agent and not by any Stockholder individually.
4. Notices. All notices or other communications required or permitted
to be given or made hereunder shall be in writing and delivered personally, or
sent by pre-paid, first class, certified or registered air mail, or by facsimile
transmission (with an original sent by first class mail as otherwise provided
herein), or by a recognized overnight delivery service with receipt
acknowledged, to the intended recipient thereof at the address or facsimile
number specified below. Any such notice or communication shall be deemed to have
been duly given immediately if given in person or made by confirmed facsimile,
or if mailed, three business days after such mailing, and in proving same it
shall be sufficient to show that the envelope containing the same was duly
addressed, stamped and posted, or if by overnight delivery service on the date
of delivery. The addresses and facsimile numbers of the parties for purposes of
this Agreement are as follows:
38
To the Stockholder: To the Stockholders' Agent, with a copy to the
Stockholder, at the addresses set forth below the
Stockholder's name below
To HealthWatch: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chairman of the Board
Facsimile No.: _________________
Any party may, by written notice given hereunder, designate any future or
different addresses or facsimile numbers to which subsequent notices,
certificates, and other communications shall be sent.
5. Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon the parties hereto and their respective heirs, executors,
successors, administrators, and assigns.
6. Arbitration. Any dispute from or in any way related to this
Agreement shall be resolved by an arbitrator experienced in arbitrating business
disputes and selected in accordance with the rules of the American Arbitration
Association ("AAA"), with such arbitration to be held in Atlanta, Georgia, or
such other place as the parties may mutually agree, and conducted in accordance
with the AAA's Commercial Arbitration Rules then in effect. Each party hereby
agrees that this is the exclusive remedy for such dispute and instead of any
court action, which is hereby expressly waived, except with regard to an entry
of the arbitration award in a court of competent jurisdiction to confirm and
enforce the award. The parties agree that reasonable limited discovery shall be
allowed for purposes of resolving the dispute, as determined by the arbitrator.
The reasonable costs of arbitration, including the fees and expenses of the
arbitrator, shall be paid by the losing party. Each party shall bear the cost of
preparing and presenting its case; provided, however, the losing party shall
reimburse the other party with respect to such reasonable costs and expenses
(including reasonable attorneys fees and other fees of professionals or
otherwise) incurred by the prevailing party, unless the arbitrator has good
cause to set forth a different allocation of costs and expenses. The
arbitrator's decision shall be final and binding. Notwithstanding the foregoing,
any party may seek temporary or preliminary injunctive relief against the other
party in any court with proper jurisdiction with respect to any and all
preliminary injunctive or restraining procedures pertaining to this Agreement or
the breach thereof, pending the outcome of any arbitration proceeding.
7. Severability. In the event any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
39
8. Execution of Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.
9. Applicable Law. This Agreement shall be construed and governed
exclusively by the laws of the State of Georgia, without regard to its
principles of conflicts of law. The parties consent to the jurisdiction of the
courts sitting in the State of Georgia for any actions brought hereunder.
10. Headings. The headings used in this Agreement have been prepared
for the convenience and reference only and shall not control, affect the
meaning, or be taken as an interpretation of any provisions of this Agreement.
40
IN WITNESS WHEREOF, the parties hereto have caused the execution of
this Agreement as of the date first above written.
HEALTHWATCH, INC.
By:
-----------------------------------
Title:
--------------------------------
THE STOCKHOLDER LISTED BELOW SHALL BE DEEMED A PARTY TO THIS AGREEMENT UPON HIS,
HER OR ITS EXECUTION OF THE LETTER OF TRANSMITTAL, AS REQUIRED BY THE MERGER
AGREEMENT, AND SHALL ONLY BE ENTITLED TO RECEIVE HIS, HER OR ITS PRO RATA
PORTION OF THE ADDITIONAL CONSIDERATION HELD BY THE STOCKHOLDERS' AGENT FOR THE
BENEFIT OF SUCH STOCKHOLDER, IF EVIDENCE OF THE EXECUTION OF THE LETTER OF
TRANSMITTAL IS PROVIDED TO THE STOCKHOLDERS' AGENT.
STOCKHOLDER'S NAME:
-----------------------------------
ADDRESS:
-----------------------------------
-----------------------------------
-----------------------------------
PRO-RATA SHARE:
-------------------
STOCKHOLDERS' AGENT
ADDRESS:
-----------------------------------
-----------------------------------
-----------------------------------
41
EXHIBIT B
STOCKHOLDERS' AGENT AGREEMENT
THIS STOCKHOLDERS' AGENT AGREEMENT (the "Agreement") is made and
entered into as of October 1, 1998, by and between ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, an
individual and resident of Georgia (the "Agent"), HealthWatch, Inc., a Minnesota
corporation ("HealthWatch") and those certain holders of shares of common stock
of HealthWatch set forth on Exhibit A hereof (the "Stockholders").
W I T N E S S E T H:
WHEREAS, ▇▇▇▇ ▇▇▇▇▇▇▇▇ Enterprises, Inc., a Georgia corporation
("PHE"), MERAD Software, Inc., a Nevada corporation ("Newco"), and HealthWatch
have entered into an Agreement and Plan of Merger (the "Merger Agreement") dated
as of September 30, 1998 (capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Merger Agreement), in connection with
the proposed merger of PHE with and into Newco with Newco continuing as the
surviving corporation (the "Merger");
WHEREAS, pursuant to the Merger Agreement, the Stockholders' Company
Common Stock were converted, in the aggregate, into 334,432 shares of
HealthWatch Series P Preferred Stock (the "Shares"), and the right to receive
the Additional Consideration pursuant to the Merger Agreement, and the
Additional Consideration Agreement issued to each Stockholder;
WHEREAS, subject to approval of the shareholders of HealthWatch, the
Shares are convertible, in the aggregate, into 3,344,320 shares of HealthWatch
common stock (the "Converted Shares")
WHEREAS, the Merger Agreement provides for certain restrictions on the
Shares and, if appropriate the Converted Shares, and for the designation of a
"Stockholders' Agent" to perform such duties as are designated to the
Stockholders' Agent as set forth in the Merger Agreement, the Additional
Consideration Agreements, and herein;
WHEREAS, at a meeting of the Stockholders held on August 6, 1998, the
Stockholders have elected Agent as the Stockholders' Agent, and Agent has agreed
to serve in such capacity;
WHEREAS, the Stockholders have adopted, approved and executed this
Agreement by their execution of the Letter of Transmittal accompanying the
surrender of the Shares in exchange for payment of the Merger Consideration;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree that:
42
1. Stockholders' Agent; Powers of Attorney.
a. Without further act of any Stockholder, Agent (Agent and
any replacement Stockholders' Agent are hereinafter the "Stockholders' Agent")
shall be, and is, constituted and appointed as agent and attorney-in-fact for
each Stockholder, to give and receive notices and communications, to act as sole
and exclusive representative of all Stockholders with regard to matters arising
out of or relating to the Merger Agreement, to receive all amounts that may
become due under the Additional Consideration Agreements, to take any such
action as may be delegated to the Stockholders' Agent pursuant to the Merger
Agreement or the Additional Consideration Agreements, and to take all actions
necessary or appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing. Agent hereby accepts such appointment subject
to the provisions of this Agreement. Such agency of the Stockholders' Agent may
be changed by the Stockholders from time to time and the Stockholders' Agent may
be removed, upon (i) not less than thirty (30) days prior written notice to the
Stockholders' Agent, and (ii) holders of a majority of the Shares (calculated on
a fully converted basis, if applicable) agree to such change in agency or
removal and to the identity of the substituted Stockholders' Agent. No bond
shall be required of any Stockholders' Agent. Notices or communications to or
from the Stockholders' Agent shall constitute notice to or from each of the
Stockholders. If the Stockholders' Agent shall die or otherwise become incapable
of fulfilling such individual's obligations as Stockholders' Agent hereunder,
such other person designated by the Stockholders entitled to vote a majority of
the Shares (calculated on a fully converted basis, if applicable) shall be the
Stockholders' Agent. If a substitute Stockholders' Agent is not designated by
the Stockholders within fifteen (15) business days of such death or other event,
HealthWatch or one or more Stockholders shall be entitled to petition a court of
competent jurisdiction to appoint a substitute Stockholders' Agent who shall,
upon such appointment, possess, and be bound by, all of the rights, powers and
authority of this Agreement, as may be modified by order of such court.
b. In the absence of fraud or intentional misconduct on the
part of the Stockholders' Agent, the Stockholders' Agent shall not be liable for
any act done or omitted hereunder as Stockholders' Agent. Any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of the
absence of fraud or intentional misconduct. The Stockholders (but only to the
extent of any Additional Consideration that may be received by the Stockholders'
Agent on behalf of the Stockholders) shall indemnify the Stockholders' Agent and
hold the Stockholders' Agent harmless against any loss, liability or expense
incurred, without gross negligence or bad faith on the part of the Stockholders'
Agent, and arising out of or in connection with the acceptance or administration
of the Stockholders' Agent's duties hereunder, including reasonable attorneys'
fees in connection therewith.
2. Effect of Actions of the Stockholders' Agent.
a. A decision, act, consent or instruction of the
Stockholders' Agent within the authority granted in this Agreement shall
constitute a decision of all the Stockholders, and shall be final, binding and
conclusive upon each of the Stockholders, and the parties to the Merger
Agreement and the Additional Consideration Agreements may rely upon any
decision,
43
act, consent or instruction of the Stockholders' Agent as being the decision,
act, consent or instruction of each and all of the Stockholders. The parties to
the Merger Agreement and the Additional Consideration Agreements are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.
b. The Stockholders hereby acknowledge that Agent is also a
Stockholder and agree to waive any actual or apparent conflict with regard to
appointment of Agent as the Stockholders' Agent. Agent shall be entitled to vote
her shares of HealthWatch stock, to the extent the holder of such shares is
entitled to vote, in her capacity as a Stockholder in any manner Agent so
desires without regard for her position as the Stockholders' Agent.
3. Stockholders' Agent's Duties.
a. The Stockholders' Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, in the Merger
Agreement, in the Additional Consideration Agreements, and as set forth in any
additional written instructions not inconsistent with the foregoing which the
Stockholders' Agent may receive after the date of this Agreement which are
signed by holders of a majority of the Shares, on a fully converted basis if the
Shares are granted the right of conversion, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
b. Except as may be required herein, the Stockholders' Agent
is hereby expressly authorized to disregard any and all warnings given by any of
the parties hereto or by any other person, excepting only notices of disputed
claims, orders or process of courts of law, and is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court. In case the
Stockholders' Agent obeys or complies with any such order, judgment or decree of
any court, the Stockholders' Agent shall not be liable to any of the parties
hereto or to any other person by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered into without jurisdiction.
c. The Stockholders' Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement, the Merger
Agreement or the Additional Consideration Agreements, or any documents delivered
hereunder or thereunder.
d. The Stockholders' Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement, the Merger Agreement or the Additional Consideration Agreements.
e. The Stockholders' Agent shall be entitled to retain in
reserve, for the benefit of the Stockholders, such reasonable amounts, not to
exceed $25,000 in the aggregate (exclusive of the Agent's Fee, as defined in
Section 9 below, that may be due to the
44
Stockholders' Agent), from the cash portion of any Additional Consideration
received, in order to fulfill Stockholders' Agent's duties under this Agreement,
the Merger Agreement, or the Additional Consideration Agreements.
f. Within ten (10) business days after its receipt by the
Stockholders' Agent, the Stockholders' Agent shall distribute to each of the
Stockholders at their last known address provided to the Stockholders' Agent,
the Additional Consideration received by the Stockholders' Agent, less amounts
withheld in reserve pursuant to subsection (e) above, and for the payment of the
Agent's Fee, and other costs and expenses due and owing hereunder.
g. The Stockholders' Agent shall invest and reinvest any cash
assets of the Stockholders received by the Stockholders' Agent in (i)
obligations of the United States of America, (ii) general obligations of any
state of the United States of America, (iii) general obligations of any
political subdivision of a state of the United States of America, if such
obligations are rated by at least two recognized rating services as at least
"AA," (iv) certificates of deposit of any national bank or banks insured by the
Federal Deposit Insurance Corporation with a net worth in excess of
$100,000,000, (v) obligations of state or municipal public housing authorities
chartered by the United States of America and guaranteed by the United States of
America, (vi) demand interest bearing accounts of the Stockholders' Agent,
segregated from other funds of the Stockholders' Agent; and (vii) money market
funds, which invest in any of the preceding (i) through (vi). Any and all income
and interest realized from the investments of any of the cash of the
Stockholders held under the Stockholders' Agent's control shall be allocated, as
appropriate, to the Stockholders.
h. The Stockholders' Agent shall maintain a register of all of
the Stockholders and the number of Shares originally held by each, the number of
Shares converted into common stock of HealthWatch, if applicable, and any sales
or other transfers made in compliance with Section 4 hereof.
4. Restrictions on Sale or Other Transfer of the Shares; Cooperation of
Stockholders.
a. If, in the event the Shares become convertible into common
stock of HealthWatch (the "Restricted Common Stock"), for a period of 18 months
from the Effective Time (the "Restriction Period"), each Stockholder, when taken
together with all of the Stockholders, shall not be entitled to sell, transfer,
or otherwise dispose of any of the Restricted Common Stock (for purposes of this
Section 4, "Restricted Common Stock" shall be deemed to include any shares of
common stock of HealthWatch which are issued in the name of any of the
Stockholders pursuant to the Additional Consideration Agreements during the
Restriction Period, or into which the Shares may be converted, if applicable,
whether or not converted by a Stockholder) in excess of the greater of (i) the
volume limitations set forth in Rule 144 of the Securities and Exchange
Commission regulations, or (ii) 100,000 shares per rolling thirty (30) day
period. In addition, the Stockholders agree that during the Restriction Period
the Stockholders in the aggregate shall only be entitled to convert so much of
the Shares into common stock of HealthWatch if such conversion would not cause
the aggregate number of shares of common stock held by the Stockholders, in the
aggregate, to be in excess of 45% of the
45
total shares of common stock of HealthWatch outstanding, calculated after giving
effect to such conversion. In order for the Stockholder to make such disposition
or conversion, the respective Stockholder must obtain the written determination
of the Stockholders' Agent as provided for in subsection b. below, and then
shall only be entitled to convert or dispose of the number of shares set forth
in such determination.
b. Each Stockholder desiring to (i) convert any of the Shares,
or (ii) sell, transfer, or otherwise dispose of any of the Restricted Common
Stock, shall make a request of the Stockholders' Agent for a written
determination of the number of Shares that the Stockholder can convert, or
Restricted Common Stock that can be sold or transferred within the limitations
set forth in subsection a. above. For purposes of determining when a request for
a written determination has been received hereunder, all requests received by
the Stockholders' Agent from Stockholders in writing after 5:00 p.m. Eastern
Time on any business day, or on a weekend or federal holiday shall be deemed
received on the next business day. The Stockholders' Agent shall respond to
Stockholders in the order of receipt of the written requests, provided, however,
that all requests received on the same day shall be deemed received at the same
time. Within three (3) business days after the receipt of the written request,
the Stockholders' Agent shall prepare a written determination setting forth the
number of Shares that the Stockholder or Stockholders shall be able to convert,
or the number of shares of Restricted Common Stock such Stockholder can sell or
dispose of without violating the limitations set forth herein, and if
applicable, the earliest date that such Stockholders can sell any of the shares
of Restricted Stock in compliance herewith. The Stockholders' Agent shall
provide such determination to (i) the Stockholder(s) requesting the
determination (in accordance with the notice provisions hereof, unless a
specific method of notification authorized hereunder was requested by the
Stockholder or Stockholders), and (ii) HealthWatch (by the same manner as
provided to the Stockholders). If more than one Stockholder requests a
determination on the same day, and due to the limitations herein all of the
Shares requested to be converted, or shares of Restricted Common Stock requested
to be disposed of, can not be converted or disposed of as of such day, the
determination shall be allocated equally among the Stockholders, except to the
extent that one or more of the Stockholders has specific circumstances causing
the disposition of such Stockholder's shares to be limited more stringently then
the other Stockholders making a request on such date, as determined by the
Stockholders' Agent. The Stockholders' Agent shall not otherwise be involved in
the conversion of the Shares or the disposition of the shares of Restricted
Common Stock, nor be responsible for any fluctuation in the stock price for the
Restricted Common Stock during the period of delay in providing the written
determination, or the ultimate consummation of such proposed conversion or
disposition.
c. HealthWatch shall be entitled to provide its transfer agent
with stop transfer instructions setting forth the restriction on the ability of
the Stockholders from converting the Shares or disposing of any of the
Restricted Common Stock except in compliance with the provisions of this Section
4. HealthWatch is not bound by the determination of the Stockholders' Agent and
shall be entitled to make its own determination of the satisfaction of the
restrictions set forth herein.
46
d. Pursuant to the provisions of the Merger Agreement,
HealthWatch has undertaken the responsibility to register the common stock
underlying the Shares for the benefit of the Stockholders. The Stockholders
agree to complete and execute all questionnaires, powers of attorney,
indemnities and other documents reasonably required under the terms of any
registration statement in which the underlying shares are included, and any
prospectus utilized therein. The Stockholders further agree that all sales,
transfers, or other dispositions of any of the Shares and the common stock
underlying the Shares shall be in compliance with all state and federal
securities laws, and during the Restriction Period, for a number of shares not
in excess of the number as determined by the Stockholders' Agent pursuant to
this Agreement.
5. Term of Agreement. Stockholders' Agent's obligations hereunder shall
terminate when all of the Additional Consideration (less costs and expenses
payable hereunder) has been distributed by the Stockholders' Agent in accordance
herewith, but in no event later than the Termination Date. As used herein, the
"Termination Date" shall be the date that ends 120 days after the earlier of (a)
all of the Additional Consideration to be earned under the Additional
Consideration Agreements has been and paid to the Stockholders' Agent, or (b)
the termination date of the Additional Consideration Agreements.
6. Reliance on Opinion of Counsel. The Stockholders' Agent hereunder
shall be entitled to rely upon the advice of counsel in any action taken in such
individual's capacity as Stockholders' Agent hereunder and shall be protected
from any liability of any kind for actions taken in reasonable reliance upon
such opinion of such counsel.
7. Professional Services Used by Stockholders' Agent. The Stockholders'
Agent may engage the services of such attorneys, accountants, and other
professionals as the Stockholders' Agent may, in such individual's sole
discretion, deem advisable to carry out the Stockholders' Agent's duties under
this Agreement; provided, however, the Stockholders' Agent shall not incur in
excess of $25,000 in expenses, in the aggregate, in the furtherance of the
Stockholders' Agent's duties (excluding the Agent's fee, as defined below),
without obtaining the consent of holders of a majority of the Shares.
8. Resignation. The Stockholders' Agent may resign at any time upon
written notice to the Stockholders and HealthWatch. Such resignation shall take
effect upon the earlier of (a) receipt by the Stockholders' Agent of an
instrument or acceptance executed by a successor Stockholders' Agent and
subscribed and consented to by HealthWatch, or (b) thirty (30) days after notice
of resignation was provided by the Stockholders' Agent.
9. Stockholders' Agent's Fees; Reimbursement of Expenses. The
Stockholders' Agent shall receive a fee equal to 5% of any Additional
Consideration earned by, and paid to, the Stockholders pursuant to the Merger
Agreement and the Additional Consideration Agreements after the Effective Time
(the "Agent's Fee"). The Agent's Fee shall be due and payable only from the cash
received by the Stockholders' Agent on behalf of the Stockholders pursuant to
the Additional Consideration Agreements. All costs, expenses and professional
fees reasonably incurred by Stockholders' Agent hereunder, including all legal
fees and expenses, shall also be paid from the cash received as Additional
Consideration. If the Stockholders' Agent shall be
47
terminated or otherwise removed from her position, the Stockholders' Agent shall
be entitled to any Agent's Fee calculated on Additional Consideration earned up
to the time of such termination or removal.
10. Notice. All notices or other communications required or permitted
to be given or made hereunder shall be in writing and delivered personally, or
sent by pre-paid, first class, certified or registered air mail, or by facsimile
transmission (with an original sent by first class mail as otherwise provided
herein), or by a recognized overnight delivery service with receipt
acknowledged, to the intended recipient thereof at the address or facsimile
number specified below. Any such notice or communication shall be deemed to have
been duly given immediately if given in person or made by confirmed facsimile,
or if mailed, three business days after such mailing, and in proving same it
shall be sufficient to show that the envelope containing the same was duly
addressed, stamped and posted, or if by overnight delivery service on the date
of delivery to the address provided to the Stockholders' Agent. The addresses
and facsimile numbers of the parties for purposes of this Agreement are as
follows:
To the Stockholders' Agent: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
-----------------------------
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
To the Stockholders: At the addresses or facsimile numbers set
forth on the Letter of Transmittal
To HealthWatch: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chairman of the Board
Facsimile No.:
Any party may, by written notice given hereunder, designate any future or
different addresses or facsimile numbers to which subsequent notices,
certificates, payments and other communications shall be sent.
11. Entire Agreement; Binding Effect. Except for the Merger Agreement
and the Additional Consideration Agreements, this Agreement contains the sole
and entire agreement among the parties hereto with respect to the subject matter
hereof and shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, executors, successors, administrators, and
assigns.
12. Arbitration. Any dispute from or in any way related to this
Agreement shall be resolved by an arbitrator experienced in arbitrating business
disputes and selected in accordance with the rules of the American Arbitration
Association ("AAA"), with such arbitration to be held in Atlanta, Georgia, or
such other place as the parties may mutually agree, and conducted in
48
accordance with the AAA's Commercial Arbitration Rules then in effect. Each
party hereby agrees that this is the exclusive remedy for such dispute and
instead of any court action, which is hereby expressly waived, except with
regard to an entry of the arbitration award in a court of competent jurisdiction
to confirm and enforce the award. The parties agree that reasonable limited
discovery shall be allowed for purposes of resolving the dispute, as determined
by the arbitrator. The reasonable costs of arbitration, including the fees and
expenses of the arbitrator, shall be paid by the losing party. Each party shall
bear the cost of preparing and presenting its case; provided, however, the
losing party shall reimburse the other party with respect to such reasonable
costs and expenses (including reasonable attorneys fees and other fees of
professionals or otherwise) incurred by the prevailing party, unless the
arbitrator has good cause to set forth a different allocation of costs and
expenses. The arbitrator's decision shall be final and binding. Notwithstanding
the foregoing, any party may seek temporary or preliminary injunctive relief
against the other party in any court with proper jurisdiction with respect to
any and all preliminary injunctive or restraining procedures pertaining to this
Agreement or the breach thereof, pending the outcome of any arbitration
proceeding.
13. Severability. In the event any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
14. Execution of Counterparts. This Agreement shall be executed in
several counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.
15. Applicable Law. This Agreement shall be construed and governed
exclusively by the laws of the State of Georgia, without regard to its
principles of conflicts of law. Except as limited in Section 12, the parties
consent to the jurisdiction of the courts sitting in the State of Georgia for
any actions brought hereunder or the enforcement of any arbitration awards.
16. Headings. The headings used in this Agreement have been prepared
for the convenience and reference only and shall not control, affect the
meaning, or be taken as an interpretation of any provisions of this Agreement.
[Remainder of Page Intentionally Left Blank]
49
IN WITNESS WHEREOF, the parties hereto have caused the execution of
this Agreement as of the date first above written.
STOCKHOLDERS' AGENT:
---------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
HEALTHWATCH, INC.
BY:
------------------------------------
TITLE:
---------------------------------
STOCKHOLDERS:
EACH STOCKHOLDER LISTED ON EXHIBIT A SHALL BE DEEMED A PARTY TO THIS AGREEMENT
UPON HIS, HER OR ITS EXECUTION OF THE LETTER OF TRANSMITTAL, AS REQUIRED BY THE
MERGER AGREEMENT, AND SHALL ONLY BE ENTITLED TO RECEIVE HIS, HER OR ITS PRO RATA
PORTION OF THE ADDITIONAL CONSIDERATION HELD BY THE STOCKHOLDERS' AGENT FOR THE
BENEFIT OF SUCH STOCKHOLDER, IF EVIDENCE OF THE EXECUTION OF THE LETTER OF
TRANSMITTAL IS PROVIDED TO THE STOCKHOLDERS' AGENT.
50
EXHIBIT A
STOCKHOLDERS OF PHE
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇▇ ▇▇▇▇▇
A. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ Klumok
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and M. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, III
51
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Katharine ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ Properties, Inc. Profit Sharing Trust
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Wall
52
EXHIBIT C
CERTIFICATE OF THE DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS OF THE
SERIES P PREFERRED STOCK OF
HEALTHWATCH, INC.
HealthWatch, Inc., hereinafter called the "Corporation", a corporation
organized and existing under the Minnesota Business Corporation Act does hereby
certify that, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, as amended, of the Corporation, said Board of
Directors at a meeting duly called and held on August 27, 1998, and at which a
quorum was at all times present, duly adopted a Resolution providing for the
issuance of a series of 400,000 shares of Series P Preferred Stock, which
Resolution is as follows:
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, as amended, a series of Preferred
Stock of the Corporation be and it hereby is given the distinctive designation
of "Series P Preferred Stock" (hereinafter referred to as the "Series P
Preferred Stock"), said Series to consist of Four Hundred Thousand (400,000)
shares of the stated value of Ten Dollars ($10.00) per share ("Stated Value").
The preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof shall be as follows:
1. Dividends
(a) Subject to the following, the holders of shares of Series P
Preferred Stock shall be entitled to receive dividends at the
rate of 12% (as adjusted for any stock dividends, combinations
or splits with respect to such shares) per annum from the date
of issuance to January 31, 1999, payable out of funds legally
available therefor; provided, however, that such dividends
shall not be paid and the dividends on the Series P Preferred
Stock shall terminate and cease to accrue in the event that
the Series P Preferred Stock shall become convertible into
shares of the Corporation's Common Stock in accordance with
Section 4 hereof on or before January 31, 1999. In the event
that the Series P Preferred Stock has not become convertible
into shares of the Corporation's Common Stock in accordance
with Section 4 hereof prior to February 1, 1999, the dividends
accrued to that date shall be due and owing and the holders of
shares of Series P Preferred Stock shall be entitled to
receive dividends at the rate of 18% (as adjusted for any
stock dividends, combinations or splits with respect to such
shares) per annum from February 1, 1999 to August 1, 1999, or,
if earlier, the date upon which such shares shall become
convertible into shares of the
53
Corporation's Common Stock, payable out of funds legally
available therefor. In the event that the Series P Preferred
Stock has not become convertible into shares of the
Corporation's Common Stock prior to August 1, 1999, the
dividends accrued to that date shall be due and owing and the
holder of shares of Series P Preferred Stock shall be entitled
to receive dividends at the rate of 24% (as adjusted for any
stock dividends, combinations or splits with respect to such
shares) per annum from August 1, 1999 until such date as the
Series P Preferred Stock shall become convertible into shares
of the Corporation's Common Stock, payable out of funds
legally available therefor. Such dividends shall commence upon
issuance and shall be payable in preference to any dividend to
any shares of Common Stock, and shall be cumulative. Dividends
earned after February 1, 1999 shall be paid semi-annually on
June 30 and December 31, commencing June 30, 1999, and in
every case shall be paid to holders of record as of the close
of business five business days before the dividend payment
date. Dividends shall be paid in cash or, at the option of the
holders of the shares of Series P Preferred Stock, in shares
of the Corporation's Common Stock, the value of such stock for
the purpose of any such payment to be equal to the average
five-day closing bid price for the Common Stock for the
five-day period immediately preceding the record date for such
payment.
(b) No dividends (other than those payable solely in the Common
Stock of the Corporation) shall be paid on any shares of
Common Stock of the Corporation during any fiscal year of the
Corporation until dividends, combinations or splits with
respect to such shares) on the Series P Preferred Stock shall
have been paid or declared and set apart during that fiscal
year and any prior year in which dividends accumulated but
remain unpaid. Following any such payment or declaration, the
holders of any shares of Common Stock shall be entitled to
receive dividends, payable out of funds legally available
therefor, when, as and if declared by the Board of Directors.
In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights to
purchase any such securities or evidences of indebtedness, then, in each such
case the holders of the Series P Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of the Series
P Preferred Stock were the holders of the number of shares of Common Stock of
the Corporation into which their shares of Series P Preferred Stock were then
convertible as of the record date (assuming for this provision that there was no
limitation on the right of conversion of the Series P Preferred Stock) fixed for
the determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
54
2. Liquidation Preference
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders
of the Series P Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of
shares of Common Stock by reason of their ownership thereof,
the amount of $10.00 per share (as adjusted for any stock
dividends, combinations or splits with respect to such
shares), plus all accrued or declared but unpaid dividends on
such shares for each share of Series P Preferred Stock then
held by them. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series P
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amount, then
the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among
the holders of the Series P Preferred Stock and holders of any
other shares of Preferred Stock of the Corporation in
proportion to the preferential amount each such holder is
otherwise entitled to receive.
(b) After payment to the holders of the Series P Preferred Stock
of the amounts set forth in Section 2(a) above, and the
payment to the holders of any other series of Preferred Stock
of the Corporation of any liquidation preferences for such
additional series of Preferred Stock, the entire remaining
assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders
of the Common Stock in proportion to the shares of Common
Stock then held by them.
(c) Whenever the distribution provided for in this Section 2 shall
be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of
such securities or other property as determined in good faith
by the Board of Directors.
3. Voting Rights
Unless and except to the extent otherwise required by law, the holders
of the Series P Preferred Stock shall have no voting power; provided that if any
dividends on the Series P Preferred Stock declared by the Board of Directors in
accordance with Section 1 hereof have not been paid for a period of one year or
more, the holders of Series P Preferred Stock shall, until such dividends have
been paid, be entitled, with the holders of the Common Stock, voting as a class,
to vote or act by written consent for the election of directors, with the number
of votes per share of Series P Preferred Stock in such election to be equal to
ten shares of Common Stock (as adjusted for any stock dividends, combinations or
splits with respect to such shares). Unless and except to the extent otherwise
required by law, the holders of the Series P Preferred Stock shall have no right
to vote as a class with respect to any matter. Should the Series P Preferred
Stock be
55
entitled to vote on any matter pursuant to a requirement of law, each holder of
such stock shall be entitled to one vote in respect to each share of such stock
held of record in respect to such matter, unless some other vote is required by
law.
4. Conversion of Series P Preferred Stock into Common Stock
(a) Subject to the following conversion rights being approved by
the holders of a majority of a quorum of the shares of the
Corporation's Common Stock and the provisions of this Section
4, the holder of record of any share or shares of Series P
Preferred Stock and the Corporation shall have the right, at
his or its option, as the case may be, at any time after
issuance, to convert or to cause the conversion of each said
share or shares of Series P Preferred Stock into ten (10) (as
adjusted for any stock dividends, combinations or splits with
respect to such shares) fully-paid and non-assessable shares
of Common Stock, $.01 par value (herein referred to as "Common
Stock), of the Corporation. The Corporation shall not be
required to issue fractional shares in connection with the
conversion of any of the Series P Preferred Stock and shall,
in lieu thereof, pay to the holder requesting conversion, an
amount equal to the value (determined by the Corporation's
Board of Directors) of such fractional share.
(b) Any holder of a share or shares of Series P Preferred Stock
desiring to convert such Series P Preferred Stock into Common
Stock, shall surrender the certificate or certificates
representing the share or shares of Series P Preferred Stock
so to be converted, duly endorsed (if required by the
Corporation) to the Corporation or in blank, at the office of
any Transfer Agent for the Series P Preferred Stock (or such
other place as may be designated by the Corporation), and
shall give written notice to the Corporation at said office
that he elects to convert the same as provided above, and
setting forth the name or names (with the address or
addresses) in which the shares of Common Stock are to be
issued.
(c) Conversion of Series P Preferred Stock shall be subject to the
following additional terms and provisions:
(1) As promptly as practicable after the surrender for
conversion of any Series P Preferred Stock, the
Corporation shall deliver or cause to be delivered at
the principal office of the Transfer Agent for the
Series P Preferred Stock (or such other place as may
be designated by the Corporation), to or upon the
written order of the holder of such Series P
Preferred Stock, certificates representing the
shares of Common Stock issuable upon such conversion
issued in such name or names as such holder may
direct. Shares of the Series P Preferred Stock shall
be deemed to have been converted as of the close of
business on the date of the surrender of the Series P
56
Preferred Stock for conversion, as provided above,
and the rights of the holders of such Series P
Preferred Stock shall cease at such time, and the
person or persons in whose name or names the
certificates for such shares are to be issued shall
be treated for all purposes as having become the
record holder or holders of such Common Stock at such
time; provided, however, that any such surrender on
any date when the stock transfer books of the
Corporation shall be closed shall constitute the
person or persons in whose name or names the
certificate for such shares are to be issued as the
record holder or holders thereof for all purposes at
the close of business on the next succeeding day on
which such stock transfer books are open.
(2) The Corporation shall pay all dividends accrued on
the shares of Series P Preferred Stock surrendered
for conversion, such payment to be made in cash or at
the option of the Corporation, in shares of the
Corporation's Common Stock, the value of such stock
to be determined as set forth in Section 1(a) hereof.
(3) The Corporation shall at all times reserve and keep
available solely for the purpose of issuance upon
conversion of Series P Preferred Stock, as herein
provided, such number of shares of Common Stock as
shall be issuable upon the conversion of all
outstanding Series P Preferred Stock.
(4) Prior to March 31, 2000, the holders of Series P
Preferred Stock shall not be entitled to convert nor
shall the Corporation have the right to require
conversion of the Series P Preferred Stock held by
such holders to the extent that such conversion would
result in such holders beneficially owning (as
determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934 and the Rules
thereunder) in the aggregate in excess of forty-five
percent (45%) of the then issued and outstanding
shares of the Corporation's Common Stock.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series P Preferred Stock shall be made
without charge for any tax in respect of such issuance.
However, if any certificate is to be issued in a name other
than that of the holder of record of the Series P Preferred
Stock so converted, the person or persons requesting the
issuance thereof shall pay to the Corporation the amount of
any tax which may be payable in respect of any transfer
involved in such issuance, or shall establish to the
satisfaction of the Corporation that such tax has been paid or
is not due and payable.
57
5. General
(a) In the event that the Corporation shall at any time prior to
conversion either (a) subdivide the outstanding shares of
Common Stock into a greater number of shares, (b) combine the
outstanding shares of Common Stock into a smaller number of
shares, (c) change the outstanding shares of Common Stock into
the same or a given number of shares of any other class or
classes of stock, (d) declare on or in respect of the Common
Stock a dividend payable in shares or other securities of the
Corporation, then the holders of the Series P Preferred Stock
shall be entitled to receive the same number of shares or
other securities of the Corporation, or shall be entitled to
subscribe for and purchase at the same price that the shares
or securities are offered to holders of Common Stock, the
number of such shares or the amount of such securities as will
represent the same proportion of the outstanding Common Stock
prior to such increase or decrease as they would have been
entitled to receive or subscribe for, as the case may be, had
they been holders of the number of shares of Common Stock into
which their shares of Series P Preferred Stock were
convertible on the record date (assuming for the purposes of
this provision that there was no limitation on the right of
conversion of the Series P Preferred Stock) for any such
dividend or subscription. The Board of Directors shall
determine what adjustments shall be made in the Stated Value
in order to appropriately reflect and account for any such
change.
(b) In the event the Corporation at any time while any of the
shares of Series P Preferred Stock are outstanding shall be
consolidated with or merged into any other corporation or
corporations, or shall sell or lease all or substantially all
of its property and business as an entirety, lawful provision
shall be made as part of the terms of such consolidation,
merger, sale, or lease so that the holder of any shares of
Series P Preferred Stock may thereafter receive in lieu of
such shares of Common Stock otherwise issuable to him upon
conversion of his shares of Series P Preferred Stock (assuming
for the purpose of this provision that there was no limitation
on the right of conversion of the Series P Preferred Stock),
but at the conversion rate which would otherwise be in effect
at the time of conversion as hereinbefore provided, the same
kind and amount of securities or assets as may be issuable,
distributable, or payable upon such consolidation, merger,
sale, or lease, with respect to shares of Common Stock of the
Corporation. The Board of Directors shall determine what
adjustments shall be made in the Stated Value in order to
appropriately reflect and account for any such change.
(c) Nothing herein shall be deemed to require the Corporation in
the event of any such subdivision, combination,
reclassification, recapitalization, consolidation, merger or
sale of assets, or liquidation, dissolution or
58
winding up, to issue or distribute fractional interests in
shares of capital stock or any other security of the
Corporation or another issuer, and the Corporation may make
such arrangements as the Board of Directors of the Corporation
shall approve with respect to any such event for settlement in
lieu of issuance of a fractional interest in a share of
capital stock or other security of the Corporation or another
issuer to any holder of the Series P Preferred Stock.
(d) The shares of Series P Preferred Stock shall not be subject to
the operation of a purchase, retirement or sinking fund.
(e) The issuance of additional shares of Series P Preferred Stock
shall not be subject to any restrictions as to issuance, nor
shall the holders of the Series P Preferred Stock be entitled
to any restriction with respect to the issuance of shares of
any other series of the Corporation's Common Stock or
Preferred Stock, or as to the powers, preferences or rights of
any such other series; provided that no series of additional
shares of Preferred Stock shall have any liquidation or other
similar rights in preference to the Series P Preferred Stock."
59
IN WITNESS WHEREOF, I have hereunto subscribed my hand this 30th day of
September, 1998.
HealthWatch, Inc.
By
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
Chairman of the Board of Directors
60
