EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of March 28,
2005, is by and among HealthStream, Inc., a Tennessee corporation ("Buyer"), ▇▇▇
▇. ▇▇▇▇▇▇▇▇ (the "Seller") and Data Management & Research, Inc., a Tennessee
corporation (the "Company"). Capitalized terms used in this Agreement are
defined as set forth in Annex A attached hereto. Buyer, Seller and the Company
are sometimes referred to individually as a "Party" and collectively as the
"Parties."
WHEREAS, Seller owns 100 shares of common stock of the Company (the
"Shares"), which Shares constitute all of the issued and outstanding shares of
capital stock of the Company;
WHEREAS, Seller desires to sell, and Buyer desires to purchase, all of the
Shares, for the consideration and on the terms set forth in this Agreement; and
WHEREAS, the Company, in consideration of the anticipated benefits to be
received by the Company in connection with the closing of the transactions
contemplated hereby, and in order to induce Buyer to enter into this Agreement,
has agreed to be a Party to this Agreement for certain purposes as set forth
herein.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
the Agreement, the representations, warranties, conditions and promises
hereinafter contained, and other consideration, the receipt and sufficiency of
which consideration are hereby acknowledged, each of the Parties hereby agrees
as follows:
ARTICLE I
SALE AND TRANSFER OF SHARES; CLOSING
Section 1.1. Sale and Transfer of Shares. Subject to the terms and
conditions of this Agreement, at the Closing, Seller shall sell and transfer the
Shares to Buyer, and Buyer shall purchase the Shares from Seller.
Section 1.2. Purchase Price. The purchase price (the "Purchase Price") for
the Shares shall be $10,550,000, adjusted initially by the Estimated Closing
Adjustment Amount and finally by the Closing Adjustment Amount. In accordance
with Section 1.4(b), at the Closing, the Purchase Price, prior to adjustment by
the Closing Adjustment Amount, shall be delivered as follows:
(a) $8,950,000, adjusted by the Estimated Closing Adjustment Amount,
if applicable, payable in cash by Buyer to Seller by wire transfer of
immediately available funds (the "Cash Consideration");
(b) $100,000, payable in cash by Buyer to the Escrow Agent by wire
transfer of immediately available funds to be held pursuant to the Escrow
Agreement (the "Cash Escrow");
(c) the number of shares of HealthStream Stock having a value equal to
$500,000, with the value of each share of HealthStream Stock to be equal to the
Average Price (such HealthStream Stock delivered to Seller at the Closing, the
"Closing Stock"); and
(d) the number of shares of HealthStream Stock having a value equal to
$1,000,000, with the value of each share of HealthStream Stock to be equal to
the Average Price (such HealthStream Stock delivered to the Escrow Agent to be
held pursuant to the Escrow Agreement, the "Escrow Stock").
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The Closing Adjustment Amount shall be paid by Buyer or Seller, as the case may
be, following the Closing in accordance with Section 1.6.
Section 1.3. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Bass, ▇▇▇▇▇ & ▇▇▇▇
PLC, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ at 2:00
p.m. (local time) on the later of (i) the satisfaction or waiver of all the
closing conditions set forth in Article V of this Agreement, or (ii) March 28,
2005, or at such other time and place as Buyer and Seller may agree in writing
(the date of the Closing, the "Closing Date"). Subject to the provisions of
Article VI, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 1.3 will not result in the termination of this Agreement and will not
relieve any Party of any obligations under this Agreement. In such event, the
Closing will occur as soon as practicable, subject to Article VI.
Section 1.4. Closing Obligations. In addition to any other documents to be
delivered under other provisions of this Agreement, at the Closing:
(a) Seller shall deliver, or cause to be delivered, to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer to Buyer;
(ii) releases in substantially the form attached hereto as
Exhibit A, executed by Seller and the Company Key Employees (the
"Releases");
(iii) a consulting agreement in substantially the form attached
hereto as Exhibit B, executed by Seller (the "Consulting Agreement");
(iv) employment agreements in substantially the form attached
hereto as Exhibit C, executed by the Company Management Employees (the
"Employment Agreements");
(v) a noncompetition, nondisclosure and nonsolicitation agreement
in substantially the form attached hereto as Exhibit D, executed by Seller
(the "Noncompetition Agreement");
(vi) an escrow agreement relating to the Cash Escrow in
substantially the form attached hereto as Exhibit E, executed by Seller and
the Escrow Agent (the "Cash Escrow Agreement"); and
(vii) an escrow agreement relating to the Escrow Stock in
substantially the form attached hereto as Exhibit F, executed by Seller and
the Escrow Agent (the "Stock Escrow Agreement").
(b) Buyer shall deliver, or caused to be delivered, to Seller or the
Escrow Agent, as applicable:
(i) the Cash Consideration to Seller by wire transfer of
immediately available funds to an account specified in writing by Seller;
(ii) the stock certificates for the Closing Stock to Seller;
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(iii) the Cash Escrow Agreement, executed by Buyer and the Escrow
Agent, together with the delivery to the Escrow Agent of the Cash Escrow by
wire transfer to an account specified by the Escrow Agent;
(iv) the Stock Escrow Agreement, executed by Buyer and the Escrow
Agent, together with the delivery to the Escrow Agent of the stock
certificates for the Escrow Stock;
(v) the Consulting Agreement, executed by Buyer;
(vi) the Employment Agreements, executed by Buyer; and
(vii) the Noncompetition Agreement, executed by Buyer.
Section 1.5. Estimated Closing Adjustment Amount.
(a) The "Estimated Closing Adjustment Amount" (which may be a positive
or negative number) will be an amount equal to (i) the Working Capital of the
Company as reflected on the Estimated Closing Balance Sheet (as prepared and
delivered pursuant to Section 1.5(b) below), minus (ii) $0. If the Estimated
Closing Adjustment Amount is negative, such amount will be subtracted from the
cash portion of the Purchase Price payable by Buyer to Seller pursuant to
Section 1.4(b)(i). If the Estimated Closing Adjustment Amount is positive, such
amount will be added to the cash portion of the Purchase Price payable by Buyer
to Seller pursuant to Section 1.4(b)(i).
(b) No earlier than five (5) Business Days and no later than one (1)
Business Day prior to the Closing Date, Seller shall cause an estimated balance
sheet of the Company as of the Closing Date (the "Estimated Closing Balance
Sheet") to be prepared and delivered to Buyer, which will be accompanied by an
estimated calculation of the Working Capital of the Company as of the Closing
Date.
Section 1.6. Closing Adjustment Amount.
(a) The "Closing Adjustment Amount" will be an amount (which shall be
a positive number) equal to the difference between (i) the Working Capital of
the Company as reflected on the Closing Balance Sheet and (ii) the Working
Capital of the Company as reflected on the Estimated Closing Balance Sheet. If
the Working Capital of the Company as reflected on the Closing Balance Sheet is
greater than the Working Capital of the Company as reflected on the Estimated
Closing Balance Sheet, then the Closing Adjustment Amount will be paid by wire
transfer of immediately available funds by Buyer to Seller to the account
specified by Seller. If the Working Capital of the Company as reflected on the
Estimated Closing Balance Sheet is greater than the Working Capital of the
Company as reflected on the Closing Balance Sheet, then the Closing Adjustment
Amount will be paid to Buyer to an account specified by Buyer from and to the
extent of the Cash Escrow held by the Escrow Agent under the Cash Escrow
Agreement, and any remaining amount payable to Buyer by wire transfer of
immediately available funds by Seller to Buyer to an account specified by Buyer.
Within three (3) Business Days after the calculation of the Closing Adjustment
Amount becomes binding and conclusive on the Parties pursuant to Sections 1.6(c)
and 1.6(d), Seller or Buyer, as the case may be, will make the payment provided
for in this Section 1.6(a) and/or Buyer and Seller will deliver joint written
instructions to the Escrow Agent under the Cash Escrow Agreement directing that
the appropriate amount be paid to Buyer from the Cash Escrow with any remaining
amount of the Cash Escrow, if any, being distributed to Seller. If the payment
provided for in this Section 1.6(a) is not made within 10 Business Days after
such Closing Adjustment Amount becoming binding and conclusive on a Party,
interest at the rate of 5% per annum shall accrue and be payable on the Closing
Adjustment Amount.
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(b) Buyer shall prepare a balance sheet of the Company as of the
Closing Date (the "Closing Balance Sheet"), which will include a calculation of
the Working Capital of the Company as of the Closing Date. Buyer shall deliver
the Closing Balance Sheet to Seller within forty-five (45) days following the
Closing Date (the date of such delivery, the "Delivery Date").
(c) If within fifteen (15) days following the Delivery Date, Seller
has not given Buyer written notice of his objection to the Closing Balance Sheet
calculation (which notice must contain (i) a statement of Seller's calculation
of the Company's Working Capital as of the Closing Date and (ii) the basis of
Seller's objection), then the Working Capital amount reflected in the Closing
Balance Sheet will be binding and conclusive on the Parties and will be used in
computing the Closing Adjustment Amount.
(d) If Seller duly gives Buyer such notice of objection within fifteen
(15) days following the Delivery Date, and if Seller and Buyer fail to resolve
the issues outstanding with respect to the Closing Balance Sheet and the
calculation of the Working Capital reflected in the Closing Balance Sheet within
fifteen (15) days of Buyer's receipt of the objection notice from Seller, Seller
and Buyer shall submit the issues remaining in dispute to ▇▇▇▇▇▇▇▇▇ Black ▇▇▇▇▇▇
& ▇▇▇▇, PC (the "Independent Accountants") for resolution. If issues are
submitted to the Independent Accountants for resolution, (i) Seller and Buyer
shall furnish or cause to be furnished to the Independent Accountants such work
papers and other documents and information relating to the disputed issues as
the Independent Accountants may request and are available to that Party or its
agents and shall be afforded the opportunity to present to the Independent
Accountants any material relating to the disputed issues and to discuss the
issues with the Independent Accountants; (ii) the determination by the
Independent Accountants, as set forth in a notice to be delivered to Seller and
Buyer within thirty (30) days of the submission to the Independent Accountants
of the issues remaining in dispute, will be final, binding and conclusive on
Seller and Buyer; and (iii) Seller and Buyer shall pay equal percentages of the
fees and costs of the Independent Accountants in connection with such
determination, unless one Party's calculation of the Working Capital of the
Company as of the Closing Date differs from the calculation of the Working
Capital of the Company as of the Closing Date by the Independent Accountants by
more than 33.33% in which case such Party shall then pay one-hundred percent
(100%) of the Independent Accountant's fees and costs in connection with such
determination. In the event that both Parties' calculation of the Closing
Adjustment Amount differs from the determination of the Independent Accountant
by more than 33.33%, then the Party whose calculation differs from the
determination of the Independent Accountants by the greatest amount shall pay
one-hundred percent (100%) of the Independent Accountant's fees and costs.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company, jointly and severally, represent and warrant to
Buyer as follows:
Section 2.1. Organization and Good Standing.
(a) Schedule 2.1(a) contains a complete and accurate list of the
Company's jurisdiction of incorporation and any other jurisdictions in which it
is qualified to do business as a foreign corporation. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use its properties
and assets and to perform all of its obligations under the Applicable Contracts.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the
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ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
(b) True and complete copies of the Charter and Bylaws of the Company,
as currently in effect, have been delivered to Buyer.
(c) The Company does not, directly or indirectly, own, and has not
agreed to purchase or otherwise acquire, the capital stock or other equity
interests of, or any interest convertible into or exchangeable or exercisable
for capital stock or other equity interests of, any Person.
Section 2.2. Authority; No Conflict.
(a) This Agreement constitutes the valid and binding obligation of
each of Seller Parties, enforceable against each of Seller Parties in accordance
with its terms. Upon the execution and delivery by Seller or the Company,
respectively, of each document or instrument to be executed or delivered by
Seller and the Company at Closing pursuant to Section 1.4(a) or any other
provision of this Agreement (collectively, the "Seller Closing Documents"), each
of the Seller Closing Documents will constitute the valid and binding obligation
of Seller and the Company, as applicable, enforceable against Seller and the
Company, as applicable, in accordance with its terms. The Company has all
requisite corporate power and authority and Seller has all requisite power,
authority and capacity, to execute and deliver this Agreement and the Seller
Closing Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby have been duly and validly
authorized and approved by the Company, and no other corporate action on the
part of the Company is necessary to authorize the execution and delivery of this
Agreement by the Company or the consummation of the transactions contemplated
hereby.
(b) Except as set forth in Schedule 2.2(b), neither the execution and
delivery of this Agreement by Seller Parties nor the consummation of the
transactions contemplated hereby will, directly or indirectly (with or without
notice or lapse of time):
(i) conflict with or violate the Charter or Bylaws of the
Company;
(ii) conflict with or violate, or give any Governmental Authority
or other Person the right to challenge any of the transactions contemplated
hereby or exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which any Seller Party, or any of the assets
owned or used by the Company, may be subject;
(iii) cause the Company to become subject to, or to become liable
for, the payment of any Tax;
(iv) breach any provision of any Applicable Contract, or give any
Person the right to declare a default under, exercise any remedy under,
accelerate the maturity or performance of or payment under, or cancel,
terminate or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Lien upon or with
respect to any of the assets owned or used by the Company.
(c) Except as set forth in Schedule 2.2(c), no Selling Party is or
will be required to give any notice to or obtain any consent or approval from
(i) any Governmental Authority, (ii) any party
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to any Applicable Contract, or (iii) any other Person, in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
Section 2.3. Capitalization. The authorized equity securities of the
Company consist of 1,000 shares of common stock, of which 100 shares are issued
and outstanding and are defined herein as the "Shares." Seller is and will be on
the Closing Date the record and beneficial owner of the Shares, free and clear
of any Liens. All of the Shares have been duly authorized and validly issued and
are fully paid and non-assessable. The Shares have not been issued in violation
of, and, except as set forth in Schedule 2.3, the capital stock of the Company
is not subject to, any preemptive or subscription rights or rights of first
refusal. None of the Shares were issued in violation of the Securities Act or
any other Legal Requirement. There are no options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments that obligate the Company to issue, transfer or sell any shares of
capital stock of the Company. Except as set forth in Schedule 2.3, there are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There is no
obligation, contingent or otherwise, of the Company to repurchase, redeem or
otherwise acquire any Shares. There are no voting trusts, proxies or other
agreements to which any Seller is a party with respect to the voting or transfer
of any Shares.
Section 2.4. Financial Statements.
(a) Attached as Schedule 2.4(a) are copies of (i) the unaudited
balance sheets of the Company as of December 31 in each of 2002, 2003 and 2004,
and the related unaudited income statements for the years then ended, (ii) an
unaudited balance sheet of the Company as of December 31, 2004 (the "2004
Balance Sheet"), and (iii) an unaudited balance sheet of the Company as of
February 28, 2005 and the related unaudited income statement for the two months
then ended (the financial statements referred to in clauses (i), (ii) and (iii)
above, including the notes thereto, if any, the "Financial Statements"), each of
which are true and correct in all material respects. The Financial Statements
fairly present in all material respects (and the financial statements to be
delivered pursuant to Section 4.7 will fairly present in all material respects)
the financial condition and results of operations of the Company as at the
respective dates of and for the periods referred to in such Financial
Statements. The 2004 Balance Sheet has been prepared in accordance with GAAP.
The Financial Statements have been prepared from the books and records of the
Company (which books and records are accurate and complete in all material
respects) and reflect the consistent application of accounting principles
throughout the periods involved, except as disclosed in the notes to the
Financial Statements.
(b) Attached as Schedule 2.4(b) is a copy of a management
representation letter, dated as of March 9, 2005, provided to Ernst & Young LLP
(the "Management Representation Letter"). The Management Representation Letter
is true and correct in all material respects.
Section 2.5. Real Property.
(a) The Company does not own any real property.
(b) Schedule 2.5(b) lists (i) all real property with respect to which
the Company holds a leasehold interest or subleasehold interest, or otherwise
has a license or other right to use (the "Leased Real Property"), and (ii) each
agreement, contract or other arrangement under which the Company leases or
otherwise has the right to use any such Leased Real Property (listing, with
respect to each such agreement, the date of the agreement and any amendments
thereto, any assignments thereof, the names of the parties to the agreement, the
address of the Leased Real Property, the rentable square footage and annual rent
thereunder, the expiration date, and the existence of any renewal terms). The
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Company enjoys peaceful and undisturbed possession of the Leased Real Property.
The Company has not entered into any subleases, arrangements, licenses or other
agreements relating to the use or occupancy of all or any portion of the Leased
Real Property by any Person other than the Company.
(c) The Leased Real Property, and the use of the Leased Real Property
by the Company for the purposes for which it is currently being used, conforms
to all applicable fire, safety, zoning and building laws and ordinances, laws
relating to the disabled, and other applicable Legal Requirements. To the
Knowledge of Seller Parties, there are no pending or threatened eminent domain,
condemnation, zoning, or other Proceedings affecting the Leased Real Property
that would result in the taking of all or any part of the Leased Real Property
or that would prevent or hinder the continued use of the Leased Real Property as
currently used in the conduct of the Company Business. All Leased Real Property
has adequate rights of access to dedicated public ways and is served by water,
electric, sewer and other necessary facilities and services.
Section 2.6. Personal Property.
(a) Except for the personal property of Seller set forth on Schedule
2.6(a) that will be distributed to Seller prior to the Closing (the "Seller
Personal Property"), the Company has good and valid title to, or a valid and
enforceable right to use under a contract listed in Schedule 2.15(a), all
property and assets (whether tangible or intangible) used or held for use by the
Company in connection with its business, including all such assets reflected in
the 2004 Balance Sheet or acquired since December 31, 2004 (the "2004 Balance
Sheet Date"), free and clear of all Liens other than (i) any Lien for Taxes not
yet due and payable, (ii) any landlord's, carriers', warehousemen's, mechanics',
materialmen's or similar Liens arising or incurred in the ordinary course of
business with respect to obligations that are not yet due or delinquent, and
(iii) any Liens identified on Schedule 2.6(a) (the "Permitted Liens").
(b) Each item of machinery, equipment, furniture, and other tangible
personal property used or held for use by the Company in connection with its
business is in good repair and good operating condition, ordinary wear and tear
excepted, and is suitable for the purposes for which it is presently used. All
such tangible personal property is in the possession of the Company.
Section 2.7. Taxes.
(a) The Company has timely filed all Tax Returns required to be filed
by it in accordance with applicable Legal Requirements, other than any Tax
Returns in respect of which the Company has been the beneficiary of any
extension of time within which to file any such Tax Returns as disclosed on
Schedule 2.7(a). All such Tax Returns are true and complete. Except as set forth
in Schedule 2.7(a), no such Tax Return has been audited or examined by any
taxing authority, court or other Governmental Authority, and, to the Knowledge
of Seller Parties, no such audit or examination is threatened. True and complete
copies of such Tax Returns for the past three years and any examination reports
and statements of deficiencies relating thereto assessed against or agreed to by
the Company have been delivered to Buyer.
(b) All Taxes due and owing by the Company (whether or not shown on
any Tax Return) have been paid. All Taxes that the Company is or was required by
applicable Legal Requirements to withhold or collect have been withheld or
collected, and, to the extent required, have been properly paid on a timely
basis to the appropriate Governmental Authority or other Person. The (i) unpaid
Taxes of the Company (computed consistent with the Company's historical
accounting principles and practices provided that such principles and practices
are consistent with applicable Tax law) do not
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exceed the reserve for Taxes (rather than any reserve for deferred Taxes
established to reflect timing differences between book and tax income) set forth
on the face of the 2004 Balance Sheet (rather than in any notes thereto), and
(ii) reserve set forth on the 2004 Balance Sheet represents a reasonable
estimate of the Taxes due with respect to the periods ended December 31, 2004.
(c) There is no dispute or claim concerning (i) any Liability of the
Company for additional Taxes, or (ii) any obligation of the Company to file Tax
Returns or pay Taxes in any jurisdiction in which it does not file Tax Returns
or pay Taxes, either (x) claimed or raised by any Governmental Authority in any
notice or other communication provided to the Company, or (y) as to which any
Seller Party has Knowledge. No assessment or other Proceeding by any taxing
authority, court or other Governmental Authority is pending, or to the Knowledge
of the Company, threatened, with respect to the Taxes or Tax Returns of the
Company. There are no Liens for Taxes (other than Taxes not yet due and payable)
upon any assets of the Company.
(d) There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitations applicable to any claim for or the
period for the collection or assessment of Taxes due by the Company for any
taxable period.
(e) The Company does not have any liability for Taxes of any Person
other than the Company (i) under Treasury Regulations Section 1.1502-6 (or any
similar provision of applicable law); or (ii) as a transferee or successor by
contract or otherwise. The Company has not been a member of an "affiliated
group" within the meaning of Section 1504(a) of the Code. The Company is not a
party to any Tax allocation agreement, Tax sharing agreement, Tax indemnity
agreement or similar agreement.
(f) None of the assets of the Company is "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(g) The Company has not made any payments, is not obligated to make
any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make payments, that (i) will not be
deductible under Section 280G of the Code (including any payments required to be
made in connection with the consummation of the transactions contemplated
hereby), or (ii) to any employee that would not be deductible under Section 162
of the Code.
(h) No closing agreement pursuant to Section 7121 of the Code or any
similar provision of applicable law has been entered into with respect to the
Company or any of its assets.
(i) The Company has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times during its existence,
and the Company will be an S corporation until the consummation of the Closing.
(j) There are no joint ventures, partnerships or other arrangements or
contracts to which the Company is a party that could be treated as a partnership
for federal income tax purposes.
(k) The Company has no potential liability for any Tax under Section
1374 of the Code. The Company has not, in the past ten years, (i) acquired
assets from another corporation in a transaction in which the Company's Tax
basis for the acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other party) in the hands of the
transferor or (ii) acquired the stock of any corporation which is a qualified
subchapter S subsidiary.
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Section 2.8. Employees.
(a) Schedule 2.8(a) sets forth a complete and accurate list of (i)
each employee of the Company, including each employee on leave of absence or
layoff status, and (ii) each director of the Company, giving, with respect to
each such individual, name, job title, current annual salary with the Company,
any bonuses paid by the Company in addition to such annual salary during the
twelve (12) months preceding the date of this Agreement, vacation and sick leave
that is accrued but unused, and services credited for purposes of vesting and
eligibility to participate under any Employee Benefit Plan (in each case, to the
extent applicable).
(b) There is no collective bargaining agreement in effect between the
Company and any labor unions or organizations in respect of its employees. The
Company has not experienced any organized slowdown, work interruption strike or
work stoppage by its employees, and, to the Knowledge of Seller Parties, there
is no strike, labor dispute or union organization activities pending or
threatened affecting the Company.
(c) The Company is, and since January 1, 2002 (the "Compliance Date"),
has been, in compliance with all Legal Requirements regarding employment and
employment practices, terms and conditions of employment, wages and hours,
benefits, equal employment opportunity, anti-discrimination, immigration,
occupational health and safety, unfair labor practices and collective
bargaining, except where such noncompliance would not have a Material Adverse
Effect.
(d) Except as set forth in Schedule 2.8(d), the Company is not a party
to any employment, non-competition, severance or other contract or agreement
with any employee or director of the Company. To the Knowledge of Seller
Parties, no employee or director of the Company is bound by any contract or
agreement that purports to limit the ability of such director or employee to
engage in or continue or perform any conduct, activity, duties or practice
relating to the business of the Company, or that requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than the Company.
Section 2.9. Employee Benefits.
(a) Schedule 2.9(a) lists all employment, consulting, executive
compensation, bonus, deferred compensation, incentive compensation, stock
purchase, stock option or other equity-based, retention, change in control,
severance or termination pay, hospitalization or other medical, life, disability
or other insurance, supplemental unemployment benefits, profit-sharing, pension
or retirement plans, programs, agreements or arrangements, and each other fringe
or other employee benefit plan, program, agreement or arrangement (including any
"employee benefit plan", within the meaning of Section 3(3) of ERISA),
sponsored, maintained or contributed to or required to be contributed to by the
Company or by any ERISA Affiliate for the benefit of any employee or former
employee of the Company, or any beneficiaries thereof, or with respect to which
the Company may have any Liability (the "Employee Benefit Plans").
(b) Each Employee Benefit Plan is and has been maintained and
administered in compliance with its terms and with the applicable requirements
of ERISA, the Code and any other applicable Legal Requirements, except where
such noncompliance would not have a Material Adverse Effect. The Company has
timely paid all contributions, premiums and expenses payable to or in respect of
each Employee Benefit Plan under the terms thereof and in accordance with
applicable Legal Requirements. Neither the Company, nor, to the Knowledge of
Seller Parties, any other Person, has engaged in any transaction with respect to
any Employee Benefit Plan that would be reasonably likely to
9
subject the Company or Buyer to any Tax or penalty (civil or otherwise) imposed
by ERISA, the Code or other applicable Legal Requirements with respect to any
Employee Benefit Plan.
(c) With respect to each Employee Benefit Plan, the Company has
delivered to Buyer complete copies of each of the following documents; (i) a
copy of each Employee Benefit Plan (including any amendments thereto); (ii) a
copy of the three most recent Form 5500 and annual report, if any, required
under ERISA or the Code; (iii) a copy of the most recent Summary Plan
Description, if any, required under ERISA; (iv) if the Employee Benefit Plan is
funded through a trust or any third party funding vehicle, a copy of the trust
or other funding agreement (including any amendments thereto); and (v) if the
Employee Benefit Plan is intended to be qualified under Section 401(a) of the
Code, the most recent determination letter received from the Internal Revenue
Service.
(d) No Employee Benefit Plan is a "multiemployer plan," as such term
is defined in Section 3(37) of ERISA or a plan that is subject to Title IV of
ERISA.
(e) None of the Employee Benefit Plans that are "welfare benefit
plans," within the meaning of Section 3(1) of ERISA, provide for continuing
benefits or coverage after termination or retirement from employment, except for
COBRA rights under a "group health plan" as defined in Section 4980B(g) of the
Code and Section 607 of ERISA.
(f) Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a determination from the Internal
Revenue Service that it is so qualified and, to the Knowledge of Seller Parties,
there are no facts or circumstances that would be reasonably likely to adversely
affect the qualified status of any such Employee Benefit Plan.
(g) Except as set forth in Schedule 2.9(g), the consummation of the
transactions contemplated hereby will not (i) result in an increase in or
accelerate the vesting of any of the benefits available under any Employee
Benefit Plan, or (ii) except for the Change in Control Payments, otherwise
entitle any current or former director or employee of the Company to any
severance pay, bonus payments or other payment from the Company.
(h) There are no pending or, to the Knowledge of Seller Parties,
threatened, Proceedings that have been asserted relating to any Employee Benefit
Plan by any employee or beneficiary covered under any Employee Benefit Plan or
otherwise involving any Employee Benefit Plan (other than routine claims for
benefits). No examination or audit of any Employee Benefit Plan by any
Governmental Authority is currently in progress or, to the Knowledge of Seller
Parties, threatened. The Company is not a party to any agreement or
understanding with the Pension Benefit Guaranty Corporation, the Internal
Revenue Service or the Department of Labor.
Section 2.10. Compliance with Legal Requirements. Except as set forth on
Schedule 2.10, the Company is, and at all times since the Compliance Date, has
been, in compliance with all Legal Requirements, including any Legal
Requirements related to escheat laws, that are or were applicable to the
operation of its business or the ownership or use of any of its assets, except
where such noncompliance would not have a Material Adverse Effect. The Company
has not received, at any time since the Compliance Date, any notice or other
communication from any Governmental Authority or other Person regarding any
actual, alleged or potential violation of or failure to comply with any Legal
Requirement.
Section 2.11. Governmental Authorizations. Schedule 2.11 contains a true
and complete list of each Governmental Authorization that is held by the
Company. Each such Governmental Authorization
10
is valid and in full force and effect. Except as set forth in Schedule 2.11, the
Company is, and at all times since the Compliance Date, has been, in compliance
with each such Governmental Authorization. Except as set forth in Schedule 2.11,
the Company has not received, at any time since the Compliance Date, any notice
or other communication from any Governmental Authority or other Person regarding
(a) any actual, alleged or potential violation of or failure to comply with any
term or requirement of any such Governmental Authorization, or (b) any actual,
proposed, or potential revocation, suspension, cancellation or termination of,
or modification to, any such Governmental Authorization. The Governmental
Authorizations listed in Schedule 2.11 collectively constitute all of the
Governmental Authorizations necessary to permit the Company to lawfully conduct
and operate its business in the manner it is currently conducted.
Section 2.12. Legal Proceedings; Orders.
(a) Except as set forth in Schedule 2.12(a), there are no pending
Proceedings or claims, whether oral or in writing (i) by or against the Company
or that otherwise relate to or may affect the business of, or any of the assets
owned or used by, the Company, or (ii) that challenge, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the transactions contemplated hereby. To the Knowledge of Seller Parties,
except as set forth in Schedule 2.12(a), no such Proceeding or claim, whether
oral or in writing, has been threatened, and no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding or claim. Except as set forth in Schedule
2.12(a), there have not been any orders, judgments or decrees rendered against,
or any settlements effected by, the Company in connection with any Proceedings
or claims, whether oral or in writing, brought by or against the Company or that
otherwise relate to or may affect the business of, or any of the assets owned or
used by, the Company.
(b) There are no Orders outstanding (i) against the Company or that
otherwise relate to or may affect the business of, or any of the assets owned or
used by, the Company; or (ii) that challenge, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated hereby. To the Knowledge of Seller Parties, no such
Order has been threatened, and no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such Order.
Section 2.13. Environmental Matters.
(a) The Company is and has been in compliance with all Environmental
Laws, and does not have any Liability under any Environmental Laws with respect
to the Leased Real Property or any other properties and assets (whether real,
personal, or mixed) in which the Company (or any predecessor) has or had an
interest, except where such noncompliance or Liability would not have a Material
Adverse Effect.
(b) There are no Hazardous Materials present on or in the environment
at the Leased Real Property. There has been no emission, disposal, discharge or
other release or, to the Knowledge of Seller Parties, threat of release, of any
Hazardous Materials at or from the Leased Real Property or, during the period of
the Company's ownership or lease thereof, at, on, under or from any property
formerly owned or leased by the Company.
(c) The Company has not received any citation, notice or other
communication from any Governmental Authority regarding any alleged, actual or
potential violation of any Environmental Law, or any alleged, actual or
potential obligation to undertake or bear the cost any Liabilities under any
Environmental Law.
11
Section 2.14. Insurance. Schedule 2.14 contains a true and complete list of
(a) all policies of property, fire and casualty, products liability, workers'
compensation and other forms of insurance under which any of the assets or
properties of the Company are covered or otherwise relating to the business of
the Company, and (b) all life insurance policies covering the life of any
employee of the Company for which the Company or any employee of the Company has
paid any premiums. Such policies are in full force and effect, and the Company
or such employee have paid all premiums due, and have otherwise performed all of
its obligations under, all such policies of insurance. Neither the Company nor
any employee of the Company has received any notice of (a) cancellation or
intent to cancel, or (b) an increase or intent to increase premiums, with
respect to such insurance policies, and is not aware of any basis for any such
action. True and complete copies of such insurance policies have been made
delivered to Buyer.
Section 2.15. Contracts.
(a) Schedule 2.15(a) lists each contract, agreement or other
commitment to which the Company is a party or by which the Company is otherwise
bound, excluding the agreements disclosed in Schedule 2.5(b), Schedule 2.8(d)
and Schedule 2.16(c) (such contracts, agreements and obligations, together with
the agreements disclosed in Schedule 2.5(b), Schedule 2.8(d) and Schedule
2.16(c), the "Applicable Contracts"):
(b) Except as set forth in Schedule 2.15(b):
(i) Each Applicable Contract is valid and binding and in full
force and effect.
(ii) The Company and, to the Knowledge of Seller Parties, each
other party to any Applicable Contract is, and at all times since January
1, 2003, has been, in compliance with all applicable terms and requirements
of each Applicable Contract, except where such noncompliance would not have
a Material Adverse Effect.
(iii) Since January 1, 2003, the Company has not given to, or
received from, any other party to any Applicable Contract, any notice or
other communication regarding any actual or alleged breach of or default
under any Applicable Contract by the Company or any other party to such
Applicable Contract.
(c) True and complete copies of each of the Applicable Contracts have
been delivered to Buyer.
Section 2.16. Intellectual Property.
(a) The term "Intellectual Property Assets" means all intellectual
property owned, licensed (as licensor or licensee) or used by the Company,
including:
(i) the Company's name, all fictional business names, trade
names, trade dress, registered and unregistered trademarks, registered and
unregistered service marks, and applications for any of the foregoing
(collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable or unpatentable worldwide (collectively,
"Patents");
12
(iii) all registered and unregistered copyrights in both
published works and unpublished works, and copyright applications
(collectively, "Copyrights");
(iv) all rights in Internet web sites and Internet domain names
(collectively, "Internet Rights");
(v) all computer software (excluding off-the-shelf software
components licensed to the Company pursuant to non-negotiable standard
form, mass-market or "shrink wrap" licenses involving payments of less than
$3,000 on an annual basis) (the "Software");
(vi) all confidential or proprietary know-how, information,
customer lists, technical information, data, process technology, plans,
drawings, and blue prints pertaining to the business of the Company and
maintained by the Company as trade secrets (collectively, "Trade Secrets");
and
(vii) all general know-how, business information, customer and
supplier lists, technical information, data processing technology, plans,
drawings and blue prints pertaining to the business of the Company but
which are not Trade Secrets (collectively, "Business Knowledge").
(b) Schedule 2.16(b) contains a true and complete list of the
Intellectual Property Assets (other than the Trade Secrets) in each case
listing, as applicable, (i) the title of the application or registration, (ii)
the name of the applicant/registrant and current owner, (ii) the jurisdiction
where the application/registration is located, (iv) the application or
registration number, (v) filing date, and (vi) whether each such Intellectual
Property Asset is owned or licensed.
(c) Schedule 2.16(c) contains a true and complete list of agreements
and contracts under which the Company licenses any Intellectual Property Assets
(as a licensor or licensee). The Intellectual Property Assets constitute all of
the intellectual property necessary to the conduct of the Company business as
currently conducted. The Company has good and valid title to, or a valid and
enforceable right to use under an agreement listed in Schedule 2.16(c), each of
the Intellectual Property Assets, free and clear of all Liens. The Company has
the right to use without payment to a third party each of the Intellectual
Property Assets, other than any payment required under any agreement listed in
Schedule 2.16(c). Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Buyer by operation of law or
otherwise of any contracts or agreements to which the Company is a party, will
result in (i) Buyer granting to any Person any right to or with respect to any
Intellectual Property Assets; or (ii) Buyer being bound by, or subject to, any
non-compete or other restriction on the operation or scope of its business.
(d) To the Knowledge of Seller Parties, none of the Intellectual
Property Assets is infringed by any patent, proprietary right, trade name,
trademark, trade dress, service ▇▇▇▇, copyright, domain name or other
intellectual property or proprietary right of any other Person or, to the
Knowledge of Seller Parties, has been challenged or threatened in any way. None
of the Intellectual Property Assets infringes or interferes with or is alleged
to infringe or interfere with any patent, trade name, trademark, trade dress,
service ▇▇▇▇, copyright, domain name or other intellectual property right of any
other Person, or misappropriates any trade secret or proprietary rights of any
other Person.
(e) There are no pending or, to the Knowledge of Seller Parties,
threatened, Proceedings asserting that any of the Intellectual Property Assets
is infringed by the intellectual property
13
rights of any other Person or that any of the Intellectual Property Assets
infringes or interferes with any intellectual property or proprietary rights of
any other Person, or otherwise relating to the Intellectual Property Assets.
(f) All Patents, Marks and Copyrights that have been registered, and
all Internet Rights, are in compliance with all formal Legal Requirements
(including the payment of any required maintenance fees), and are valid and
enforceable.
(g) The Company has taken all commercially reasonable precautions to
protect the secrecy, confidentiality and value of all Trade Secrets. The Trade
Secrets are not part of the public knowledge or literature, and, to the
Knowledge of Seller Parties, the Trade Secrets have not been used, divulged, or
appropriated either for the benefit of any Person (other than the Company) or to
the detriment of the Company. To the Knowledge of Seller Parties, the Business
Knowledge has not been appropriated either for the benefit of any Person (other
than the Company) or to the detriment of the Company.
(h) To the extent that any work, invention or material relating to the
business of the Company has been developed or created by any employee or third
party for the Company, the Company has entered into a written agreement with
such employee or third party with respect thereto and thereby has obtained
ownership of, and is the exclusive owner of, all intellectual property in such
work, including all Marks, Copyrights, Patents, Trademarks and Trade Secrets,
material or invention by operation of law or by valid assignment. The Company
has not licensed any computer software source code included in the Intellectual
Property Assets to any Person in source code format.
(i) Except as set forth in Schedule 2.16(i), all proprietary software
of the Company conforms in all material respects to the specifications and
documentation therefor and is otherwise in compliance with applicable law. No
open source, public source or freeware software, code or other technology, or
any modification or derivative thereof, including, without limitation, any
version of any software licensed pursuant to any GNU general public license or
limited general public license, was or is, used in, incorporated into,
integrated or bundled with, or used in the development or compilation (other
than generally available commercial compilers) of, any Intellectual Property
Assets.
(j) To the Knowledge of Seller Parties, the Company is not barred from
seeking patents on material potentially patentable inventions by "on-sale" or
similar bars to patentability or by failure to apply for a patent on such
inventions within the time required.
Section 2.17. Accounts Receivable. Attached as Schedule 2.17 are the
accounts receivable of the Company as of March 22, 2005, and such accounts
receivable and each account receivable that will be on the accounting records of
the Company as of the Closing Date represent or will represent valid obligations
arising from sales actually made or services actually performed by the Company
in the ordinary course of business. Except to the extent paid prior to the
Closing Date, such accounts receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on Schedule 2.17 or
on the accounts records of the Company as of the Closing Date, as the case may
be (which reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Closing Date, will not represent a
greater percentage of the accounts receivable reflected as of the Closing Date
than the reserve reflected in Schedule 2.17 represented of the accounts
receivable reflected therein and will not represent a material adverse change in
the composition of such accounts receivable in terms of aging). Subject to such
reserves, each of such accounts receivable either has been or will be collected
in full, without any set-off, within ninety (90) days after the day on which it
first becomes due and payable. There is no contest, claim, defense or right of
set off, other than returns in the ordinary course of business, with any account
debtor of an account receivable relating to the amount or validity of such
account receivable.
14
Section 2.18. Sufficiency of Assets. The assets of the Company constitute
all of the assets, other than the Seller Personal Property, tangible and
intangible, of any nature whatsoever, used in or necessary to operate the
business of the Company in the manner presently conducted by the Company.
Section 2.19. No Undisclosed Liabilities. Except as set forth in Schedule
2.19, the Company has no Liabilities except for Liabilities reflected or
reserved against in the 2004 Balance Sheet and current Liabilities incurred in
the ordinary course of business of the Company since the 2004 Balance Sheet
Date.
Section 2.20. Material Adverse Change. Since the 2004 Balance Sheet Date,
there has not been any material adverse change in the business, operations,
assets, results of operations or financial condition of the Company, and, to the
Knowledge of Seller Parties, no event has occurred or circumstance exists that
may reasonably be expected to result in such a material adverse change.
Section 2.21. Absence of Certain Changes and Events. Except as set forth in
Schedule 2.21, since the 2004 Balance Sheet Date, (i) the Company has conducted
its business in the ordinary course of business, and (ii) the Company has not
taken any action that, if taken during the period from the date of this
Agreement through the Closing Date, would require the prior consent of Buyer
pursuant to the provisions of Section 4.2(b).
Section 2.22. Material Customers. Schedule 2.22 sets forth a true and
complete list of (a) each of the top fifteen (15) customers of the Company (by
volume in dollars of sales to such customers), for the twelve-month period ended
December 31, 2004 (the "Material Customers"), and the amount of revenues
accounted for by the Material Customers during such period. Since December 31,
2004, there has been no material adverse change in the business relationship of
the Company with any Material Customer. The Company has not received any notice,
and Seller Parties do not have any Knowledge, that any Material Customer has any
intention to terminate or materially reduce services purchased from the Company
on account of the transactions contemplated hereby or otherwise.
Section 2.23. Transactions with Related Persons. Except as set forth in
Schedule 2.23, (i) neither Seller nor any employee, officer, or director of the
Company, or any Related Person thereof (together, the "Company Related
Persons"), is, or at any time since January 1, 2003 has been, involved in any
business arrangement or relationship with, or otherwise is a party to any
Applicable Contract (other than any employment or other agreements disclosed
pursuant to Schedule 2.8(d)), and (ii) no Company Related Person owns, directly
or indirectly, any property or right, tangible or intangible, used by the
Company in the current conduct of its business.
Section 2.24. Securities Laws Matters. Seller (i) understands that the
shares of HealthStream Stock to be issued pursuant to this Agreement have not
been, and, as of the date of issuance, will not be, registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (ii) understands that such shares will be
characterized as "restricted securities" under the Securities Act and may be
resold without registration under the Securities Act, only in certain limited
circumstances, (iii) is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act;
(iv) is acquiring HealthStream Stock solely for his own account for investment
purposes, and not with a view to the distribution thereof, (v) is a
sophisticated investor with knowledge and experience in business and financial
matters, (vi) has received certain information concerning Buyer and has had the
opportunity to obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding shares of HealthStream Stock, (vii) is
able to bear the economic risk and lack of liquidity inherent in holding
HealthStream Stock, (viii) is an Accredited Investor and (ix) understands
15
that the certificates evidencing the shares of HealthStream Stock to be issued
pursuant to this Agreement will bear the following legend and the legend set
forth in Section 7.5:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. Such shares have been
acquired for investment and may not be offered for sale, sold,
transferred, pledged or hypothecated in the absence of an effective
registration statement covering such shares under the Securities Act or
an opinion of counsel satisfactory to the Company that such
registration is not required."
Section 2.25. Brokers or Finders. Except as set forth in Schedule 2.25,
Seller Parties have not incurred and will not incur any liability for brokerage
or finders' fees or agents' commissions or other similar payment in connection
with the transactions contemplated hereby.
Section 2.26. HIPAA Compliance. The operations of the Company are
compatible with, and if engaged indirectly by a Covered Entity (as defined at 45
CFR Section 160.103) would comply with, the Standards for Privacy of
Individually Identifiable Health Information (45 CFR Part 160 and Part 164,
Subparts A and E) ("Privacy Standards"). The operations of the Company, as
currently structured, are compatible with, and if engaged indirectly by a
Covered Entity will comply, as of April 20, 2005, with the Security Standards
for the Protection of Electronic Protected Health Information (45 CFR Part 164,
Subparts A and C) ("Security Standards"). The Company has in effect agreements
with its customers that satisfy the requirements of 45 CFR Section 164.504(e)
and 45 CFR Section 164.314(a), such agreements permit the Company to provide its
services effectively, and the Company is not in breach of any such agreements.
The Company has not received any complaints from any person regarding the
Company's or any of its agents, employees or contractors' uses or disclosures
of, or security practices regarding, individually identifiable health-related
information. None of the Company, the Company Management Employees or the Seller
is aware of any misuse, improper disclosure or security incident (each as
determined by reference to the Privacy Standards, Security Standards or state
law, as applicable), by the Company or any of its agents, employees or
contractors, involving individually identifiable health-related information.
Section 2.27. Change in Control Payments; Transaction Expenses; Employee
Benefit Plan Payments.
(a) The aggregate amount of the Change in Control Payments equals
$592,081.66. Schedule 2.27(a) identifies each Person, including any taxing
authority, to whom any Change in Control Payment is owed or to whom any Change
in Control Payment has been made, with the amount owed to such Person specified.
(b) The aggregate amount of the Transaction Expenses equals
$11,396.00. Schedule 2.27(b) identifies each Person to whom any Transaction
Expense is owed or to whom any Transaction Expense has been made, with the
amount owed to such Person specified.
(c) The aggregate amount of the Employee Benefit Plan Payments equals
$16,807.88. Schedule 2.27(c) identifies each Person, including any taxing
authority, to whom any Employee Benefit Plan Payment is owed or to whom any
Employee Benefit Plan Payment has been made, with the amount owed to such Person
specified.
Section 2.28. Disclosure. No representation or warranty or other statement
made by any Seller Party in this Agreement, the certificate to be delivered
pursuant to Section 5.1(h)(iv), and any other document or agreement delivered or
to be delivered by any Seller Party in connection with the transactions
contemplated hereby contains or will contain any untrue statement or omits or
will omit to
16
state a material fact necessary to make any of them, in light of the
circumstances in which it was made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 3.1. Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Tennessee, with full corporate power and authority to conduct its business as it
is now being conducted.
Section 3.2. Authority and No Conflict.
(a) This Agreement constitutes the valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of each document and instrument to be executed
and delivered at Closing by Buyer pursuant to Section 1.4(b) or any other
provision of this Agreement (collectively, the "Buyer Closing Documents"), each
of the Buyer Closing Documents will constitute the valid and binding obligation
of Buyer enforceable against Buyer in accordance with its terms. Buyer has all
requisite corporate power and authority to execute and deliver this Agreement
and the Buyer Closing Documents and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement by Buyer and
the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by Buyer, and no other corporate action on the
part of Buyer is required to authorize the execution and delivery of this
Agreement by Buyer, or the consummation of the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement by Buyer, nor
the consummation of the transactions contemplated hereby will, directly or
indirectly (with or without notice or lapse of time):
(i) conflict with or violate the Charter or Bylaws of Buyer;
(ii) conflict with or violate, or give any Governmental Authority
or other Person the right to challenge any of the transactions contemplated
hereby or exercise any remedy or obtain any relief under, any Legal
Requirement applicable to Buyer or any Order to which Buyer may be subject;
or
(iii) breach any provision of any contract or agreement of Buyer,
or give any Person the right to declare a default under, exercise any
remedy under, accelerate the maturity or performance of or payment under,
or cancel, terminate, or modify, any such contract or agreement.
(c) Buyer is not and will not be required to give any notice to or
obtain any consent from any Governmental Authority or any other Person in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
Section 3.3. Legal Proceedings; Orders. There are no Proceedings or claims
pending or, to the Knowledge of Buyer, threatened, against Buyer that challenge,
or that may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the transactions contemplated
17
hereby. There are no Orders outstanding or, to the Knowledge of Buyer,
threatened, against Buyer that challenge, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated hereby.
Section 3.4. Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
Section 3.5. Brokers or Finders. Except as disclosed on Schedule 3.5, Buyer
has not incurred and will not incur any liability for brokerage or finders' fees
or agents' commissions or other similar payment in connection with the
transactions contemplated hereby.
Section 3.6. Capitalization. The authorized HealthStream Stock consists of
75,000,000 shares, of which 20,667,515 shares were issued and outstanding at
December 31, 2004. All of the issued and outstanding shares of HealthStream
Stock have been duly authorized, are validly issued, fully paid and
nonassessable. The shares of HealthStream Stock to be delivered as part of the
Purchase Price, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
Section 3.7. SEC Reports. Buyer has filed with the SEC all forms, reports
and documents (collectively, "Filings") required to be filed with the SEC by it
pursuant to the Securities Act and the Exchange Act, all of which complied at
the time filed in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. None of such Filings, at the time filed,
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, except to the extent any such statements have been modified or
superceded by a later Filing filed prior to the date hereof.
ARTICLE IV
PRE-CLOSING COVENANTS
Section 4.1. Access and Investigation. Between the date of this Agreement
and the Closing Date, and upon reasonable advance notice received from Buyer,
Seller shall cause the Company to (a) afford Buyer and its agents and
representatives, and the agents and representatives of any Persons providing
financing to Buyer in connection with the transactions contemplated hereby
(collectively, the "Buyer Group"), full access, during regular business hours,
to the Company's properties, facilities, contracts, books and records, and other
documents and data, such rights of access to be exercised in a manner that does
not unreasonably interfere with the operations of the Company, (b) furnish to
the Buyer Group copies of all such contracts, books and records, and other
existing document and data that the Buyer Group may reasonably request, (c)
furnish the Buyer Group with such additional financial, operating, and other
relevant data and information as the Buyer Group may reasonably request, and (d)
otherwise cooperate and assist, to the extent reasonably requested by Buyer
Group, with Buyer Group's investigation of the properties, assets and financial
condition of the Company. Buyer will be provided access prior to the Closing to
the Company's employees, significant customers, significant suppliers, and other
Persons having business relations with the Company, at such times and in the
manner mutually agreed to by Buyer and Seller.
Section 4.2. Operation of the Business of the Company.
(a) Except as contemplated by this Agreement or with the prior written
consent of Buyer, between the date of this Agreement and the Closing Date,
Seller shall cause the Company to (i)
18
conduct its business in the ordinary course of business, (ii) use commercially
reasonable efforts to preserve intact the current business organization of the
Company, keep available the services of the Company's officers, employees, and
agents, and maintain the Company's relations and good will with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with the Company, (iii) confer with Buyer prior to implementing
operational decisions of a nature which are either material in respect of the
business of the Company or outside the ordinary course of business, and (iv)
upon reasonable request from Buyer, periodically report to Buyer concerning the
status of the business, operations and finance of the Company.
(b) Without limiting the generality of Section 4.2(a), except as
contemplated by this Agreement, between the date of this Agreement and the
Closing Date, the Company shall not, without the prior written consent of Buyer,
take any of the following actions:
(i) issue, sell, repurchase, redeem or acquire any shares of
capital stock of the Company, or grant or enter into any rights, warrants,
options, agreements or commitments with respect to the issuance of such
capital stock;
(ii) except for the distribution of the Seller Personal Property,
declare, set aside or pay any dividend or other distribution (whether in
cash, securities or property or other combination thereof) in respect of
any shares of capital stock of the Company;
(iii) adjust, split, combine, subdivide or reclassify any shares
of capital stock of the Company;
(iv) amend the Charter or Bylaws of the Company;
(v) except for the payment of the Change in Control Payments, pay
or increase (except in the ordinary course of business) any salaries
payable to any employee or director of the Company, or pay any bonuses to
any employee or director of the Company;
(vi) adopt, amend, or increase the payments or benefits under,
any Employee Benefit Plan;
(vii) except as set forth in Section 4.9, enter into, amend or
terminate, or waive or assign any material right under (1) any contract or
agreement of the Company having a value per contract, or involving payments
by or to the Company, of at least $50,000 in the aggregate, (2) any
contract or agreement with any Material Customer; (3) any joint venture,
partnership or other similar agreement; (4) any agreement or contract with
any Company Related Person, or (5) any other material contract or
agreement.
(viii) acquire assets or other properties of any Person outside
of the ordinary course of business;
(ix) except for the distribution of the Seller Personal Property,
sell, lease, or otherwise dispose of any assets or properties of the
Company other than dispositions of obsolete or unsaleable inventory or
equipment in the ordinary course of business;
(x) make any capital expenditure (or series of capital
expenditures) or commitments for capital expenditures in excess of $10,000
individually or $25,000 in the aggregate;
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(xi) make any loans or advances to any Person, except for
advances to employees of the Company for expenses incurred in the ordinary
course of business;
(xii) incur, assume, or guaranty any indebtedness for borrowed
money or capitalized lease obligations in excess of $25,000 or outside of
the ordinary course of business, consistent with past practice;
(xiii) fail to keep in full force and effect insurance comparable
in amount and scope to insurance now carried by the Company;
(xiv) permit or allow any of the assets of the Company to be
subject to any Lien other than any Permitted Lien;
(xv) cancel, waive, settle or compromise any Proceeding disclosed
in Schedule 2.12(a);
(xvi) cancel, waive or settle any claims or rights with a value
to the Company in excess of $10,000;
(xvii) make any change in connection with its accounts payable or
accounts receivable terms, policies or procedures;
(xviii) make any material change in the accounting or tax methods
used the Company; or
(xix) enter into any agreement, whether oral or written, to do
any of the foregoing.
Section 4.3. Required Approvals; Reasonable Best Efforts. As promptly as
practicable after the date of this Agreement, Seller shall, and shall cause the
Company to, make all filings required by Legal Requirements to be made by the
Company or Seller in order to consummate the transactions contemplated hereby,
and to obtain all consents required in connection with the transactions
contemplated hereby as set forth in Schedule 2.2(c). In addition, between the
date of this Agreement and the Closing Date, each Party will use reasonable best
efforts to cause the conditions in Article V to be satisfied.
Section 4.4. Notification. Between the date of this Agreement and the
Closing Date, Buyer or Seller Parties, as the case may be, shall promptly notify
the other Party in writing if such Party becomes aware of (i) any fact or
condition that causes or constitutes a breach of any of the representations and
warranties of such Party made as of the date of this Agreement, or (ii) the
occurrence after the date of this Agreement of any fact or condition that would
or be reasonably likely to cause or constitute a breach of any such
representation or warranty had that representation or warranty been made as of
the time of the occurrence of, or such Party's discovery of, such fact or
condition. If any such fact or condition requires any change to the Schedules,
Seller Parties shall promptly deliver to Buyer a supplement to the Schedules
specifying such change. In addition, between the date of this Agreement and the
Closing Date, Buyer or Seller Parties, as the case may be, shall promptly notify
the other Party of the occurrence of any breach of any covenant of such Party in
this Article IV or of the occurrence of any event that may make the satisfaction
of any conditions in Section 5.1 or Section 5.2 impossible or unlikely. No
disclosure pursuant to this Section 4.4 will prevent or cure any breach of any
representation or warranty or covenant set forth herein.
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Section 4.5. No Negotiation. Until such time as this Agreement is
terminated pursuant to Section 8.1, Seller Parties shall not, and shall cause
their respective representatives and agents not to, directly or indirectly,
solicit, initiate, encourage or entertain any inquiries or proposals from,
discuss or negotiate with, provide any information to, or consider the merits of
any inquiries or proposals from, any Person (other than Buyer) relating to any
merger, consolidation, business combination or similar transaction involving the
Company, or the sale of the business or assets of the Company (other than sales
of inventory in the ordinary course of business), or the sale of any capital
stock of the Company. Seller Parties shall notify Buyer of any such inquiry or
proposal and the terms thereof within twenty-four (24) hours of receipt or
awareness of the same by any Seller Party.
Section 4.6. Payment of Indebtedness by Related Persons. Seller shall cause
all indebtedness owed to the Company by Seller, the employees of the Company, or
any Related Person thereof, to be paid in full prior to Closing.
Section 4.7. Interim Financial Statements. Until the Closing Date, Seller
shall cause the Company to deliver to Buyer within ten (10) calendar days after
the end of each month an unaudited balance sheet of the Company as of the last
day of such month and the related unaudited income statements for the month then
ended prepared in a manner consistent with the Company's current practices.
Section 4.8. Change in Control Payments. Prior to the Closing Date, Seller
shall cause the Company to pay all Change in Control Payments.
Section 4.9. Termination. Prior to the Closing Date, the Company shall take
all necessary steps to terminate (a) the Data Management & Research, Inc. Change
in Control Plan, dated ▇▇▇▇▇▇ ▇, ▇▇▇▇, (▇) the ▇▇▇▇▇▇▇▇ Special Partnership,
L.P., (c) the TSP Trust Agreement, (d) the Key Employee Agreements with each of
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, (e) the Key Staff Member
Agreements with each of ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and (f) the Data
Management & Research, Inc. 401(k) Profit Sharing Plan, and shall provide
satisfactory evidence to Buyer of such termination. Buyer understands that this
Section 4.9 requires only formal termination of the Data Management & Research,
Inc. 401(k) Profit Sharing Plan and that final distributions, solely to the
extent set forth on Schedule 4.9, may occur following the Closing Date.
Section 4.10. Section 338(h)(10) Election.
(a) Seller and Buyer shall make a timely, irrevocable and effective
election under Section 338(h)(10) of the Code and any similar election under any
applicable state, local or foreign income tax law (collectively, the "Section
338(h)(10) Elections") with respect to Buyer's purchase of the Shares.
(b) To facilitate the Section 338(h)(10) Elections, Buyer shall
deliver to Seller, prior to the Closing Date, drafts of Internal Revenue Service
Form 8023 and any similar forms under applicable state, local and foreign income
tax law (collectively, the "Forms"). Seller shall review such Forms and provide
any proposed revisions to Buyer. Buyer and Seller agree to negotiate in good
faith such proposed revisions and to attempt to resolve any differences between
the Parties. The Forms, in the form reasonably agreed by the Parties, shall be
duly executed by Seller and an authorized person for Buyer at the Closing. Buyer
shall duly and timely file the Forms as prescribed by Treasury Regulations
Section 1.338(a)(10)-1 or the corresponding provisions of applicable state,
local or foreign income tax law.
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(c) As soon as practicable after the Closing Date and at least 30 days
prior to the due date and filing of Internal Revenue Service Form 8883 by either
Party, Buyer shall provide Seller with a draft of Internal Revenue Service Form
8883, including the calculation and proposed allocation of the "Aggregate Deemed
Sales Price" (as such term is defined in the Treasury Regulations) in a manner
consistent with the requirements of Section 338 of the Code and the Treasury
Regulations thereunder. Seller shall review such Form 8883 and provide any
proposed revisions to Buyer at least 10 days prior to the due date of such Form
8883 for either Party. Buyer and Seller agree to negotiate in good faith such
proposed revisions and to attempt to resolve any differences between the
Parties. In the event the Parties reach agreement as to the information to be
reflected on such Form 8883, the Form shall be revised and timely filed by each
Party as required by law. Each of Buyer and the Company shall report the
allocation of the Aggregate Deemed Sales Price (and any adjustments thereto) for
Tax purposes and file its Tax Returns (including the Form 8883) in a manner
consistent with any mutually-agreed allocations determined pursuant to this
Section 4.10(c). In the event the Parties do not reach agreement on the
information to be reflected on such Form, each Party shall provide to the other
Party its final version of such Form and shall timely file its final version of
such Form in the manner required by law.
Section 4.11. S Corporation Status. The Company and Seller shall not revoke
the Company's election to be taxed as an S Corporation within the meaning of
Sections 1361 and 1362 of the Code and shall not take or allow any action that
would result in the termination of the Company's status as a validly electing S
corporation within the meaning of Sections 1361 and 1362 of the Code.
Section 4.12. Anti-Dilution. In the event that, at any time within 90 days
of the Closing Date, Buyer sells HealthStream Stock pursuant to an Equity
Financing for a price per share less than the Average Price, then Buyer shall
issue to Seller, without further consideration, stock certificates representing
that number of shares of HealthStream Stock (rounded to the nearest whole
number) equal to (a) $1,500,000 divided by the Equity Financing Price, minus (b)
the sum of the Closing Stock and the Escrow Stock.
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1. Conditions to Obligations of Buyer. The obligations of Buyer
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions (any
of which may be waived in writing, in whole or in part, by Buyer):
(a) Representations and Warranties. (i) Each of the representations
and warranties of Seller and the Company in Article II of this Agreement must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to the Schedules
made after the date hereof, and (ii) each of the representations and warranties
of Seller and the Company in Article II of the Agreement that contains an
express materiality qualification must have been accurate in all respects as of
the date of this Agreement, and must be accurate in all respects as of the
Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Schedules.
(b) Covenants. All of the covenants and obligations that Seller
Parties are required to perform or to comply with pursuant to this Agreement at
or prior to the Closing must have been duly performed and complied with in all
material respects.
22
(c) Consents. All consents required to be obtained from, and all
declarations or filings required to be made with, any Governmental Authority or
other Person in connection with the transactions contemplated hereby, including
those set forth on Schedule 2.2(c), must have obtained.
(d) No Proceedings. Since the date of this Agreement, there must not
have been commenced or threatened against Buyer, or against any Affiliate
thereof, any Proceeding (i) involving any challenge to, or seeking Damages or
other relief in connection with, the transactions contemplated hereby, or (ii)
that may have the effect of preventing, delaying, making illegal, imposing
limitations or conditions on, or otherwise interfering with, any of the
transactions contemplated hereby.
(e) No Claim regarding Stock Ownership or Sales Proceeds. There must
not have been made or threatened by any Person any claim asserting that such
Person (i) is the holder or the beneficial owner of, or has the right to acquire
or to obtain beneficial ownership of, any stock of, or any other voting, equity,
or ownership interest in, the Company, or (ii) is entitled to all or any portion
of the Purchase Price payable for the Shares (except as otherwise contemplated
herein).
(f) No Conflict. Neither the consummation nor the performance of the
transactions contemplated hereby will, directly or indirectly (with or without
notice or lapse of time), conflict with or result in a violation of, or cause
Buyer or any Affiliate thereof to suffer any material adverse consequence under,
any Order issued by any court or other Governmental Authority since the date of
this Agreement or any Legal Requirement enacted or promulgated since the date of
this Agreement.
(g) Officers and Directors. Each of the officers and directors of the
Company must have resigned effective as of the Closing.
(h) Closing Deliveries. Seller must have caused the documents and
instruments required by Section 1.4(a) and the following documents to be
delivered (or tendered subject only to Closing) to Buyer:
(i) estoppel letters in substantially the form of Exhibit G,
executed by each lessor leasing the Leased Real Property to the Company;
(ii) the Charter and all amendments thereto of the Company, duly
certified as of a recent date by the Secretary of Tennessee;
(iii) certificates dated as of a date not earlier than the third
Business Day prior to Closing as to the good standing of the Company,
executed by the appropriate officials of the jurisdiction of the Company's
incorporation and each jurisdiction in which the Company is licensed or
qualified to do business as a foreign corporation as specified in Schedule
2.1(a);
(iv) a certificate dated as of the Closing Date, executed by
Seller and the Company, certifying as to the satisfaction of the conditions
set forth in Sections 5.1(a) and (b); and
(v) such other documents as Buyer may reasonably request for the
purpose of evidencing the satisfaction of any condition referred to in this
Section 5.1, or otherwise facilitating the consummation or performance of
any of the transactions contemplated hereby.
23
(i) Due Diligence Review. Buyer must be reasonably satisfied with the
results of its due diligence investigations with respect to the business,
operations, affairs, prospects, properties, assets, Liabilities, and condition
of the Company.
(j) Material Adverse Change. Between the date hereof and Closing,
there shall have been no material adverse change in the business, operations,
prospects, assets, results of operations or condition of the Company, and no
event shall have occurred or circumstance shall exist that may reasonably be
expected to result in such a material adverse change.
Section 5.2. Conditions to Obligations of Seller. The obligations of Seller
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions (any
of which may be waived in writing, in whole or in part, by Seller):
(a) Representations and Warranties. Each of the representations and
warranties of Buyer in Article III of this Agreement must have been accurate in
all material respects as of the date of this Agreement, and must be accurate in
all material respects as of the Closing Date as if made on the Closing Date,
without giving effect to any supplement to the Schedules.
(b) Covenants. All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing must have been duly performed and complied with in all material
respects.
(c) No Conflict. Neither the consummation nor the performance of the
transactions contemplated hereby will, directly or indirectly (with or without
notice or lapse of time), conflict with, or result in a violation of, or cause
Seller to suffer any material adverse consequence under, any Order issued by any
court or other Governmental Authority since the date of this Agreement or any
Legal Requirement enacted or promulgated since the date of this Agreement.
(d) Closing Deliveries. Buyer must have delivered the documents and
instruments required by Section 1.4(b) and the following documents to Seller:
(i) the Charter and all amendments thereto of Buyer, duly
certified as of a recent date by the Secretary of State of Tennessee;
(ii) a certificate dated as of a date not earlier than the third
Business Day prior to Closing as to the good standing of Buyer, executed by
the Secretary of State of Tennessee;
(iii) a certificate, dated as of the Closing Date, executed by
Buyer, certifying as to the satisfaction of the conditions set forth in
Sections 5.2(a) and (b); and
(iv) such other documents as Seller may reasonably request for
the purpose of evidencing the satisfaction of any condition referred to in
this Section 5.2, or otherwise facilitating the consummation or performance
of any of the transactions contemplated hereby.
ARTICLE VI
TERMINATION
Section 6.1. Termination Events. By written notice given prior to or at the
Closing, subject to Section 6.2, this Agreement may
be terminated as follows:
24
(a) by Buyer, in the event a material breach of this Agreement has
been committed by any Seller Party and such breach has not been waived in
writing by Buyer;
(b) by Seller, in the event a material breach of this Agreement has
been committed by Buyer, and such breach has not been waived in writing by
Seller;
(c) by Buyer, if the satisfaction of any of the conditions to Buyer's
obligation to close the transactions contemplated hereby as set forth in Section
5.1 becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement), and Buyer has not waived such condition
in writing on or before such date;
(d) by Seller, if the satisfaction of any of the conditions to
Seller's obligation to close the transactions contemplated hereby as set forth
in Section 5.2 becomes impossible (other than through the failure of Seller to
comply with their obligations under this Agreement), and Seller has not waived
such condition in writing on or before such date;
(e) by mutual consent of Buyer and Seller; and
(f) by Buyer or Seller, if the Closing has not occurred on or before
June 30, 2005, or such later date as the Parties may agree upon, unless the
terminating party(ies) is in material breach of this Agreement.
Section 6.2. Effect of Termination. Each Party's right of termination under
Section 6.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of such right of termination will not be an
election of remedies. If the Agreement is terminated pursuant to Section 6.1,
all obligations of the Parties under this Agreement will terminate, except that
the obligations in this Article VI, Section 7.1, Section 7.2 and Article IX will
survive; provided, however, that termination of this Agreement will not preclude
a Party from bringing an indemnification claim against any other Party to this
Agreement for a breach arising prior to such termination pursuant to the terms
and conditions set forth herein.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1. Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated hereby
will be issued at such time and in such manner as the Parties may agree;
provided, however, that in the case of announcements, statements or
acknowledgments that any Party is required by applicable Legal Requirements to
make, issue or release, the making, issuing or releasing of any such
announcement, statements or acknowledgment by the Party so required to do by
applicable Legal Requirements will not constitute a breach of this Agreement if
such Party has given, to the extent reasonably possible, notice thereof to the
other Parties not less than one (1) Business Day prior to such disclosure and
has attempted, to the extent reasonably possible, to clear such announcement,
statement or acknowledgment with the other Parties.
Section 7.2. Non-Disclosure Agreement. The Mutual Confidentiality and
Non-Disclosure Agreement, dated as of December 15, 2004, entered into by and
between Buyer and the Company (the "Non-Disclosure Agreement") will remain in
full force and effect following the date of this Agreement, whether or not the
Closing occurs, in accordance with the terms thereof.
25
Section 7.3. Customers and Other Business Relationships. After the Closing,
Seller will cooperate with Buyer in its efforts to continue and maintain for the
benefit of Buyer those business relationships of Seller relating to the business
of the Company, including relationships with suppliers, customers, landlords,
creditors, lessors and employees. After the Closing, Seller will refer all
customer inquiries relating to the business of the Company to Buyer.
Section 7.4. Tax Matters.
(a) Seller shall prepare or cause to be prepared all Tax Returns of
the Company for all Tax periods ending on or prior to the Closing Date which are
required to be filed after the Closing Date, including the Tax Return for the
short period ending on the Closing Date. Seller shall provide Buyer with a copy
of such Tax Returns at least thirty (30) days prior to the due date for any such
return and shall make any change requested by Buyer if Buyer has received an
opinion of counsel that such historical practice is not in conformity with
applicable law. Buyer shall execute and file such Tax Returns.
(b) Buyer and Seller shall cooperate fully, as and to the extent
reasonably requested by the other Party, in connection with the filing of Tax
Returns pursuant to this Section 7.4 and any audit, litigation or other
Proceeding with respect to such Tax Returns. Such cooperation shall include
Buyer's retention and (upon Seller's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
Proceeding. Seller Parties shall retain all of their books and records with
respect to Tax matters pertinent to the Company relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations.
Section 7.5. Lock-Up Agreement.
(a) Except with the prior written consent of Buyer, Seller will not,
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), grant any right or warrant to
purchase, lend, pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act or otherwise dispose
of the risk of owning any shares of HealthStream Stock received pursuant to this
Agreement for a period commencing on the date hereof and continuing until (i) in
the case of the Closing Stock or any HealthStream Stock issued pursuant to
Section 4.12, the date that is 12 months following the Closing Date, and (iii)
in the case of the Escrow Stock, the date that is 18 months following the
Closing Date. The foregoing sentence shall not apply to the transfer of any or
all of such shares of HealthStream Stock owned by Seller, either during his
lifetime or on death, by gift, will or intestate succession to the immediate
family of the undersigned or to a trust the beneficiaries of which are
exclusively the undersigned and/or a member or members of his immediate family;
provided, however, that in any such case it shall be a condition to such
transfer that the transferee executes and delivers to Buyer an agreement stating
that the transferee is receiving and holding the shares of HealthStream Stock
subject to the provisions of this Section, and there shall be no further
transfer of such shares of HealthStream Stock except in accordance with this
Section. Seller also agrees and consents to the entry of stop transfer
instructions with Buyer's transfer agent and registrar against the transfer of
such shares of HealthStream Stock except in compliance with the foregoing
restrictions.
(b) Seller understands that the certificates evidencing the shares of
HealthStream Stock to be issued pursuant to this Agreement will bear the
following legend:
"The shares represented by this certificate are subject to contractual
restrictions on transfer expiring after a specified holding period,
pursuant to that certain Stock Purchase Agreement dated as of March 28,
2005 (the "Agreement"), by and among the
26
HealthStream, Inc. (the "Issuer"), Data Management & Research, Inc. and
▇▇▇ ▇. ▇▇▇▇▇▇▇▇. Prior to the expiration of such holding period, such
shares may not be sold, transferred or assigned and the Issuer shall
not be required to give effect to any attempted sale, transfer or
assignment except to the extent such sale, transfer or assignment is in
compliance with the Agreement. Upon the written request of the holder
of this certificate, the Issuer agrees to remove this restrictive
legend (and any stop order placed with the transfer agent) when the
holding period has expired."
ARTICLE VIII
INDEMNIFICATION
Section 8.1. Survival. All representations, warranties, covenants, and
obligations in this Agreement, the Schedules attached hereto, the certificates
delivered pursuant to Article V, and any other certificate or document delivered
pursuant to this Agreement will survive the Closing to the extent contemplated
by Section 8.6. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification,
reimbursement, or other remedy based on such representations, warranties,
covenants and obligations.
Section 8.2. Indemnification by Seller Indemnifying Persons. Subject to the
terms and conditions of this Article VIII, Seller and (subject to the last
sentence of this Section 8.2) the Company (the "Seller Indemnifying Persons"),
jointly and severally, shall indemnify and hold harmless Buyer and its
Affiliates, stockholders, officers, directors, employees, agents and
representatives (collectively, the "Buyer Indemnified Persons"), and shall
reimburse the Buyer Indemnified Persons for, any losses, liabilities, claims,
diminution of value, damages, and expenses (including reasonable attorneys' fees
and expenses), whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made in Article II of
this Agreement, the Schedules attached hereto (including any supplements
thereto), the certificate to be delivered by Seller and the Company pursuant to
Section 5.1(h)(iv), and any certificate or document delivered at Closing by
Seller Parties pursuant to this Agreement;
(b) any breach of any covenant or obligation of Seller Parties in this
Agreement; and
(c) any liability or obligation for Taxes payable for all taxable
periods ending on or prior to the Closing Date and the portion through the end
of the Closing Date for any taxable period that includes (but does not end on)
the Closing Date (i) payable by the Company or (ii) for which the Company
otherwise has any liability or obligation as a transferee or successor, or
pursuant to any contractual obligation or otherwise.
Notwithstanding the foregoing, on and after the Closing, the obligation of the
Company to indemnify the Buyer Indemnified Persons will terminate and be of no
further force and effect.
Section 8.3. Indemnification by Buyer. Subject to the terms and conditions
of this Article VIII, Buyer shall indemnify and hold harmless Seller and
Seller's Affiliates, Related Persons, agents and representatives (collectively,
the "Seller Indemnified Persons"), and shall reimburse Seller Indemnified
Persons for, any Damages arising, directly or indirectly, from or in connection
with:
27
(a) any breach of any representation or warranty made by Buyer in this
Agreement, the certificate to be delivered by Buyer pursuant to Section
5.2(d)(iii), and any certificate or document delivered at Closing by Buyer
pursuant to this Agreement; and
(b) any breach of any covenant or obligation of Buyer in this
Agreement.
Section 8.4. Limitations on Indemnification by Seller Indemnifying Persons.
Notwithstanding anything contained herein to the contrary, the obligation of
Seller Indemnifying Persons to indemnify the Buyer Indemnified Persons pursuant
to Section 8.2 is subject to the following limitations and qualifications:
(a) Seller Indemnifying Persons will not have any indemnification
liability under Section 8.2(a) until the total amount of Damages incurred or
suffered by the Buyer Indemnified Persons hereunder is at least $50,000 (the
"Basket"), after which Seller Indemnifying Persons will have indemnification
liability for the total amount of Damages;
(b) any indemnification claims brought by or on behalf of the Buyer
Indemnified Persons must be brought within the time periods set forth in Section
8.6(a) below;
(c) except for liabilities arising out of Sections 2.2(a) (Authority),
2.3 (Capitalization), 2.7 (Taxes), other than liabilities relating to Tennessee
state and local taxes resulting from the Section 338(h)(10) Elections, and 2.9
(Employee Benefits), and subject to Section 8.10, the Seller Indemnifying
Persons' maximum aggregate liability under Section 8.2(a) shall not exceed
$1,000,000; and
(d) subject to Section 8.10, the Seller Indemnifying Persons' maximum
aggregate liability under Section 8.2(a) with respect to liabilities arising out
of Sections 2.2(a) (Authority), 2.3 (Capitalization), 2.7 (Taxes) and 2.9
(Employee Benefits) shall not exceed $10,550,000.
Section 8.5. Limitations on Indemnification by Buyer. Notwithstanding
anything contained herein to the contrary, the obligation of Buyer to indemnify
Seller Indemnified Persons pursuant to Section 8.2 is subject to the following
limitations and qualifications:
(a) Buyer will not have any indemnification liability under Section
8.3(a) until the total amount of Damages incurred or suffered by Seller
Indemnified Persons hereunder exceeds the Basket, after which Buyer will have
indemnification liability for the total amount of Damages;
(b) any indemnification claims brought by or on behalf of Seller
Indemnified Persons must be brought within the time periods set forth in Section
8.6(b) below; and
(c) subject to Section 8.10, Buyer's maximum aggregate liability under
Section 8.3(a) shall not exceed $1,000,000.
Section 8.6. Time Limitations.
(a) If the Closing occurs, Seller Indemnifying Persons will have no
indemnification liability under this Article VIII with respect to (i) any claims
made under Section 8.2(a) or (ii) any claims made under Section 8.2(b) relating
to any covenant or obligation to be performed and complied with by Seller
Parties on or prior to the Closing Date, unless on or before the date that is
eighteen (18) months following the Closing Date, Buyer notifies Seller of a
claim specifying the factual basis of that claim in
28
reasonable detail to the extent then known by Buyer; provided, however, that (x)
any claims with respect to Sections 2.7, 2.9 and 2.13 made under Section 8.2(a),
or any claims made under Section 8.2(c), may be made at any time prior to the
seventh (7th) anniversary of the Closing Date; and (y) any claims with respect
to Sections 2.2(a) and 2.3, or a claim for indemnification or reimbursement not
based upon any covenant or obligation to be performed and complied with prior to
the Closing Date may be made at any time.
(b) If the Closing occurs, Buyer will have no indemnification
liability under this Article VIII with respect to (i) any claim made under
Section 8.3(a) or (ii) any claims made under Section 8.3(b) relating to any
covenant or obligation to be performed and complied with by Buyer on or prior to
the Closing Date, unless on or before the date that is eighteen (18) months
following the Closing Date, Seller notifies Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Seller; provided, however, that any claim for indemnification or reimbursement
made under Section 8.3(b) not based upon any covenant or obligation to be
performed and complied with prior to the Closing Date may be made at any time.
Section 8.7. Procedure for Indemnification - Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 8.2
or Section 8.3, as the case may be (an "Indemnified Person"), of notice of the
assertion of any third-party claim against it, such Indemnified Person shall
give notice to the Person obligated to indemnify such Person under Section 8.2
or Section 8.3, as the case may be (an "Indemnifying Person"), of the assertion
of such third-party claim, provided that the failure to notify the Indemnifying
Person will not relieve the Indemnifying Person of any liability that it may
have to any Indemnified Person, except to the extent that the Indemnifying
Person demonstrates that the defense of such third-party claim is prejudiced by
the Indemnified Person's failure to give such notice.
(b) If an Indemnified Person gives notice to the Indemnifying Person
pursuant to Section 8.7(a) of the assertion of a third-party claim, the
Indemnifying Person will be entitled to participate in the defense of such
third-party claim and, to the extent that the Indemnifying Person wishes (unless
(i) the Indemnifying Person is also a Person against whom the third-party claim
is made and the Indemnified Person determines in good faith that joint
representation would be inappropriate, or (ii) the Indemnifying Person fails to
provide reasonable assurance to the Indemnified Person of its financial capacity
to defend such third-party claim and provide indemnification with respect to
such third-party claim), by providing written notice thereof to the Indemnified
Person within ten (10) days of the delivery of such notice pursuant to Section
8.7(a), to assume the defense of such third-party claim with counsel
satisfactory to the Indemnified Person. After notice from the Indemnifying
Person to the Indemnified Person of its election to assume the defense of such
third-party claim, the Indemnifying Person will not, so long as it diligently
conducts such defense, be liable to the Indemnified Person under this Article
VIII for any fees of other counsel or any other expenses of any Indemnified
Person with respect to the defense of such third-party claim, in each case
subsequently incurred by the Indemnified Person in connection with the defense
of such third-party claim, other than reasonable costs of investigation. If the
Indemnifying Person assumes the defense of a third-party claim, (x) such
assumption will conclusively establish for purposes of this Agreement that the
claims made in that third-party claim are within the scope of and subject to
indemnification, and (y) no compromise or settlement of such third-party claims
may be effected by the Indemnifying Person without the Indemnified Person's
consent unless (A) there is no finding or admission of any violation of Legal
Requirement or any violation of the rights of any Person by any Indemnified
Person; and (B) the sole relief provided is monetary damages that are paid in
full by the Indemnifying Person, and the Indemnified Person will have no
liability with respect to any compromise or settlement of such third-party
claims effected without its consent. If notice is given to an Indemnifying
Person of the assertion of any third-party claim and the Indemnifying Person
does not,
29
within ten (10) days after the Indemnified Person's notice is given, give notice
to the Indemnified Person of its election to assume the defense of such
third-party claim, the Indemnifying Person will be bound by any determination
made in such third-party claim or any compromise or settlement effected by the
Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person determines
in good faith that there is a reasonable probability that a third-party claim
may adversely affect such Indemnified Person other than as a result of monetary
damages for which it would be entitled to indemnification under this Agreement,
the Indemnified Person may, by notice to the Indemnifying Person, assume the
exclusive right to defend, compromise or settle such third-party claim, but the
Indemnifying Person will not be bound by any determination of any third-party
claim so defended for the purposes of this Agreement or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).
(d) With respect to any third-party claim subject to indemnification
under this Article VIII: (i) both the Indemnified Person and the Indemnifying
Person, as the case may be, shall keep the other Person fully informed of the
status of such third-party claim and any related Proceedings at all stages
thereof where such Person is not represented by its own counsel, and (ii) the
Indemnified Persons and Indemnifying Persons shall render to each other such
assistance as they may reasonably require of each other and cooperate in good
faith with each other in order to ensure the proper and adequate defense of any
third-party claim.
(e) With respect to any third-party claim subject to indemnification
under this Article VIII, the Parties shall cooperate in such a manner as to
preserve in full (to the extent possible) the confidentiality of all
confidential information and the attorney-client and work-product privileges. In
connection therewith, each party agrees that: (i) it will use its reasonable
best efforts, in respect of any third-party claim in which it has assumed or has
participated in the defense, to avoid production of confidential information
(consistent with applicable law and rules of procedure), and (ii) all
communications between any Parties hereto and counsel responsible for or
participating in the defense of any third-party claim will, to the extent
possible, be made so as to preserve any applicable attorney-client or
work-product privilege.
Section 8.8. Procedure For Indemnification - Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought and will be paid
promptly after such notice.
Section 8.9. Materiality Qualifications. For purposes of calculating the
amount of Damages to which the Buyer Indemnified Persons and Seller Indemnified
Persons are entitled under this Article VIII (but not for purposes of
determining whether a representation or warranty has been breached), the terms
"material," "materiality," and "Material Adverse Effect" will be disregarded.
Section 8.10. Other Actions. Notwithstanding anything to the contrary in
this Article VIII, any liabilities arising from criminal activity, willful
misstatements, willful omission, willful breaches, willful nonfulfillments and
willful violations or for fraud shall survive the periods set forth in Section
8.6 and shall not be subject to the limitations on liability set forth in
Sections 8.4 and 8.5.
Section 8.11. Exclusive Remedy. Each of the Parties agrees that its sole
recourse for any breach or default hereunder, or for any other matter as to
which indemnification is provided to it in this Article VIII, shall be limited
to (a) the indemnification provisions set forth herein, (b) any equitable relief
to which it is entitled, and (c) any action based on the fraud or willful
misconduct of any Party.
30
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. Expenses. Buyer shall bear its costs and expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including all fees and expenses of
Buyer's agents and representatives and all transfer, documentary, sales, use or
other similar Taxes arising in connection with the transactions contemplated
hereby. The Company shall bear the costs and expenses of Seller Parties incurred
in connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including all fees and expenses of
Seller Parties' agents and representatives; provided, however, that in no event
shall such costs, fees and expenses exceed the amount set forth on Schedule
2.27(b).
Section 9.2. Assignment; No Third Party Beneficiaries. No party may assign
any of its rights or delegate any of its obligations under this Agreement
without the prior written consent of the other Parties, except that Buyer may
assign any of its rights and delegate any of its obligations under this
Agreement to any Affiliate of Buyer, provided that no such assignment or
delegation will relieve Buyer from any of its obligations hereunder. Subject to
the preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
Parties. Nothing in this Agreement will be construed to give any Person other
than the Parties to this Agreement any legal or equitable right under or with
respect to this Agreement or any provision of this Agreement, except such rights
as will inure to a successor or permitted assignee pursuant to this Section 9.2.
Section 9.3. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and must be delivered (a)
personally, (b) by national overnight courier with confirmation of next-day
delivery or (c) by facsimile and will be deemed given (i) when so delivered
personally, (b) if sent by national overnight courier, two (2) days after the
date of mailing, to the addresses set forth below or (c) if sent by facsimile,
upon confirmation of transmission by the transmitting equipment (or to such
other addresses and facsimile numbers as a Party may designate by notice to the
other Parties):
If to Seller or the Company (prior to the Closing Date):
▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, PLLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
31
If to Buyer or the Company (following the Closing Date):
HealthStream, Inc..
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Legal Department
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: J. Page Davidson
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Section 9.4. Entire Agreement; Modification. This Agreement (together with
the Annexes, Schedules and Exhibits attached to this Agreement and the other
documents delivered pursuant to this Agreement) and the Non-Disclosure Agreement
constitute the entire agreement among the Parties and supersede all prior
agreements, whether written or oral, between the Parties with respect to the
subject matter hereof and thereof. This Agreement may not be amended except by a
written agreement signed by each of the Parties to this Agreement.
Section 9.5. Waiver; Remedies Cumulative. Neither the failure nor any delay
by any Party in exercising any right under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, and no
single or partial exercise of any such right will preclude any other or further
exercise of such right or the exercise of any other right. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one Party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other Parties; (b) no waiver that may be given by a Party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one Party will be deemed to be a waiver of any
obligation of such Party or of the right of the Party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement. The rights and
remedies of the Parties to this Agreement are cumulative and not alternative.
Section 9.6. Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect, and the
Agreement shall be deemed modified to the least extent necessary and not in a
manner that would deprive any Party of the benefit of its bargain.
Section 9.7. Headings; Construction. The headings of Articles and Sections
in this Agreement are provided for convenience only and will not affect its
construction or interpretation. All Annexes, Exhibits and Schedules to this
Agreement are incorporated into and constitute an integral part of this
Agreement as if fully set forth herein. All words used in this Agreement will be
construed to be of such gender or number as the context requires. All references
to documents, instruments or agreements will be deemed to refer as well to all
addenda, exhibits, schedules or amendments thereto. The language used in the
Agreement will be construed, in all cases, according to its fair meaning, and
not for or against any Party hereto. The Parties acknowledge that each Party has
reviewed this Agreement and that rules of construction to the effect that any
ambiguities are to be resolved against the drafting Party will not be available
in the interpretation of this Agreement.
32
Section 9.8. Jurisdiction. The Parties agree that the state and federal
courts located in Davidson County, Tennessee, will be the sole venue and will
have sole jurisdiction for the resolution of all disputes arising hereunder.
Process in any action or proceeding referred to in the preceding sentence may be
served on any Party anywhere in the world.
Section 9.9. Governing Law. This Agreement will be governed by and
construed under the laws of the State of Tennessee without regard to any
conflicts of laws principles that would require the application of any other
law.
Section 9.10. Execution of Agreement; Counterparts. This Agreement may be
executed in one or more counterparts, each of which will be deemed to be an
original copy of this Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement. The exchange of copies of this
Agreement and of signature pages by facsimile, or by .pdf or similar imaging
transmission, will constitute effective execution and delivery of this Agreement
as to the parties and may be used in lieu of the original Agreement for all
purposes. Signatures of the parties transmitted by facsimile, or by .pdf or
similar imaging transmission, will be deemed to be their original signatures for
any purpose whatsoever.
Section 9.11. Further Assurances. The parties shall cooperate reasonably
with each other and with their respective representatives and agents in
connection with any steps required to be taken as part of their respective
obligations under this Agreement, and the parties agree (a) to furnish upon
request to the other parties such further information, (b) to execute and
deliver to each other such other documents, and (c) to do such other acts and
things, all as the other parties may reasonably request, for the purpose of
carrying out the intent of this Agreement and the transactions contemplated
hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BUYER:
HEALTHSTREAM, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Its: Chief Executive Officer
SELLER:
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇
COMPANY:
DATA MANAGEMENT & RESEARCH, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its: President/CEO
ANNEXES, EXHIBITS & SCHEDULES
Annexes
Annex A Defined Terms
Annex B Working Capital as of December 31, 2004
Exhibits
Exhibit A Form of Release
Exhibit B Form of Consulting Agreement
Exhibit C Form of Employment Agreement
Exhibit D Form of Noncompetition Agreement
Exhibit E Form of Cash Escrow Agreement
Exhibit F Form of Stock Escrow Agreement
Exhibit G Form of Estoppel Letter
Schedules
ANNEX A
DEFINED TERMS
Capitalized terms used in this Agreement have the meanings set forth below:
"2004 Balance Sheet" has the meaning set forth in Section 2.4.
"2004 Balance Sheet Date" has the meaning set forth in Section 2.6.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such first Person.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Applicable Contracts" has the meaning set forth in Section 2.15(a).
"Average Price" means the average closing price of HealthStream Stock on
The Nasdaq Stock Market's National Market System for the 30 trading days
immediately prior to the second trading day prior to the Closing Date.
"Basket" has the meaning set forth in Section 8.4(a).
"Business Day" means any day other than Saturday or Sunday or any other day
on which banks in the State of New York are permitted or required to be closed.
"Business Knowledge" has the meaning set forth in Section 2.16(a)(vii).
"Buyer" has the meaning set forth in the first paragraph of this Agreement.
"Buyer Closing Documents" has the meaning set forth in Section 3.2(a).
"Buyer Group" has the meaning set forth in Section 4.1.
"Cash Escrow" has the meaning set forth in Section 1.2.
"Cash Escrow Agreement" has the meaning set forth in Section 1.4(a)(vi).
"Cash Consideration" has the meaning set forth in Section 1.2.
"Change in Control Payments" means any payments made or to be made by the
Company to the Company Key Employees or any other Person pursuant to that
certain Data Management & Research, Inc. Change in Control Plan dated as of
August 1, 2000 or otherwise as a result of the consummation of the transactions
contemplated by this Agreement, including any Taxes paid or payable by the
Company as a result of such payments.
"Closing" has the meaning set forth in Section 1.3.
"Closing Balance Sheet" has the meaning set forth in Section 1.6(b).
"Closing Date" has the meaning set forth in Section 1.3.
"Closing Stock" has the meaning set forth in Section 1.2.
"Closing Adjustment Amount" has the meaning set forth in Section 1.6(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Management Employees" means ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
"Company Key Employees" means ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and any other employee of the Company who has rights
under an agreement or plan upon a change in control of the Company.
"Compliance Date" has the meaning set forth in Section 2.8(c).
"Consulting Agreement" has the meaning set forth in Section 1.4(a)(iii).
"Company Related Persons" has the meaning set forth in Section 2.23.
"Copyrights" has the meaning set forth in Section 2.16(a)(iii).
"Damages" has the meaning set forth in Section 8.2.
"Delivery Date" has the meaning set forth in Section 1.6(b)
"Employee Benefit Plans" has the meaning set forth in Section 2.9(a).
"Employee Benefit Plan Payments" means any payments made or to be made by
the Company to any Person in connection with or as a result of the termination
of the Employee Benefit Plans (including payments made under the safe harbor
provisions thereof) pursuant to Section 4.9, including any Taxes paid or payable
by the Company as a result of such payments.
"Employment Agreements" has the meaning set forth in Section 1.4(a)(iv).
"Environmental Laws" means all domestic or foreign federal, state, local
and municipal Legal Requirements concerning pollution or the protection of the
environment.
"Equity Financing" means a financing by Buyer through the issuance of
shares of HealthStream Stock and specifically excludes the issuance of shares of
HealthStream Stock (a) pursuant to awards (including but not limited to options
and restricted stock) granted to employees, officers or directors of, or
consultants to, Buyer or any Affiliate of Buyer pursuant to Buyer's stock
incentive plans or stock option plans, (b) pursuant to or upon conversion,
exercise or exchange of any convertible securities, options, warrants or other
stock purchase rights issued or granted prior to the date of this Agreement, (c)
pursuant to a merger, consolidation, acquisition or similar business
combination, (d) in connection with any stock split, stock dividend,
recapitalization or the like, (e) pursuant to any borrowing, direct or indirect,
or any
lease arrangement, from financial institutions or other persons by Buyer,
including any type of loan or payment evidenced by any type of debt instrument,
or (f) in connection with strategic transactions that are not for the purpose of
raising equity financing for Buyer and involve Buyer and other entities having a
business relationship with Buyer, including joint ventures and marketing and
distribution arrangements.
"Equity Financing Price" means the price per share of HealthStream Stock
sold in an Equity Financing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity that is considered a single employer
with the Company under Section 414 of the Code.
"Escrow Agent" means SunTrust Bank, or any successor named pursuant to the
Cash Escrow Agreement or Stock Escrow Agreement.
"Escrow Consideration" means the Cash Escrow and the Escrow Stock.
"Escrow Stock" has the meaning set forth in Section 1.2.
"Estimated Closing Adjustment Amount" has the meaning set forth in Section
1.5(a).
"Estimated Closing Balance Sheet" has the meaning set forth in Section
1.5(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filings" has the meaning set forth in Section 3.7.
"Financial Statements" has the meaning set forth in Section 2.4.
"Forms" has the meaning set forth in Section 4.10(b).
"GAAP" means generally accepted accounting principles for financial
reporting in the United States.
"Governmental Authority" means any domestic or foreign federal, state,
local or municipal court, legislature, executive or regulatory authority, agency
or commission, or other governmental entity, authority or instrumentality.
"Governmental Authorization" means any consent, license, or permit issued,
granted, given, or otherwise made available by or under the authority of any
Governmental Authority or pursuant to any Legal Requirement.
"Hazardous Materials" means any (a) pollutant, contaminant, waste,
petroleum, petroleum products, asbestos or asbestos-containing material,
radioactive materials, polychlorinated biphenyls, mold, urea formaldehyde and
radon gas, and (b) any other chemicals, materials or substances defined or
regulated as "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "biohazardous waste,"
"biomedical waste," "medical waste," "sharps," "contaminant," "pollutant,"
"toxic waste", "toxic substance" or words of similar import, under any
Environmental Law.
"HealthStream Stock" means Buyer's common stock, no par value per share.
"Indemnified Person" has the meaning set forth in Section 8.7(a).
"Indemnifying Person" has the meaning set forth in Section 8.7(a).
"Independent Accountants" has the meaning set forth in Section 1.6(d).
"Intellectual Property Assets" has the meaning set forth in Section
2.16(a).
"Internet Rights" has the meaning set forth in Section 2.16(a)(iv).
"Knowledge of Buyer" (and any similar expression) means any matters
actually known by, or which should be known following reasonable inquiry by, the
executive officers or directors of Buyer.
"Knowledge of Seller Parties" (and any similar expression) means any
matters actually known by, or which should be known following reasonable inquiry
by, Seller or any Company Management Employee.
"Leased Real Property" has the meaning set forth in Section 2.5(b).
"Legal Requirements" means any domestic or foreign federal, state, local or
municipal laws, ordinances, codes or regulations.
"Liability" or "Liabilities" means, with respect to any Person, any
liability or obligation of such Person of any kind, character or description,
whether known or unknown, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, secured or unsecured, joint or several, due or to
become due, vested or unvested, executory, determined, determinable or
otherwise, and whether or not the same is required to be accrued on the
financial statements of such Person.
"Lien" means any charge, claim, lien, option, pledge, security interest,
mortgage, or other encumbrance.
"Management Representation Letter" has the meaning set forth in Section
2.4(b).
"Marks" has the meaning set forth in Section 2.16(a)(i).
"Material Adverse Effect" means any event, change, occurrence, effect, fact
or circumstance having, or that would reasonably be expected to have, a material
adverse effect on the business, operations, prospects, assets, results of
operations or financial condition of the Company in an amount in excess of (a)
$10,000 individually or (b) $25,000 in the aggregate when combined with any
breach of any representation or warranty made in Article II of this Agreement
that contains a materiality qualification.
"Material Customer" has the meaning set forth in Section 2.22.
"Noncompetition Agreement" has the meaning set forth in Section 1.4(a)(v).
"Non-Disclosure Agreement" has the meaning set forth in Section 7.2.
"Order" means any order, injunction, judgment, decree, ruling, assessment
or arbitration award of any Governmental Authority or arbitrator.
"Party" has the meaning set forth in the first paragraph of this Agreement.
"Patents" has the meaning set forth in Section 2.16(a)(ii).
"Permitted Liens" has the meaning set forth in Section 2.6(a).
"Person" means any individual, partnership, limited partnership,
corporation, business trust, limited liability company, limited liability
partnership, joint stock company, trust, unincorporated association, joint
venture or other entity, or any Governmental Authority.
"Privacy Standards" has the meaning set forth in Section 2.26.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted, or heard by or before, or otherwise involving, any
Governmental Authority or arbitrator.
"Purchase Price" has the meaning set forth in Section 1.2.
"Related Person" means, with respect to any individual, (a) such
individual's spouse, siblings, children, sibling's children, or parents, and (b)
an entity, the beneficiaries, stockholders, partners or owners, or persons
holding a controlling interest of which, consist of such individual and/or such
other individuals referred to in clause (a).
"Releases" has the meaning set forth in Section 1.4(a)(ii).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Standards" has the meaning set forth in Section 2.26.
"Section 338(h)(10) Elections" has the meaning set forth in Section
4.10(a).
"Seller" has the meaning set forth in the first paragraph of this
Agreement.
"Seller Closing Documents" has the meaning set forth in Section 2.2(a).
"Seller Indemnified Persons" has the meaning set forth in Section 8.3.
"Seller Indemnifying Persons" has the meaning set forth in Section 8.2.
"Seller Parties" means Seller and the Company.
"Seller Personal Property" has the meaning set forth in Section 2.6(a).
"Shares" has the meaning set forth in the Recitals of this Agreement.
"Software" has the meaning set forth in Section 2.16(a)(v).
"Stock Escrow Agreement" has the meaning set forth in Section 1.4(a)(vii).
"Taxes" means any income, payroll, employment, excise, property, franchise,
withholding, social security, unemployment, disability, sales, use, transfer or
other tax, fee, assessment, charge or duty of any kind, and any interest,
penalties, additions or additional amounts thereon, imposed, assessed or
collected by or under the authority of, any Governmental Authority.
"Tax Returns" means any returns, information returns, reports, statements,
schedules, notices, forms or other documents or information (including any
amendment thereof) filed with or submitted to, or required to be filed with or
submitted to, any Governmental Authority in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
"Trade Secrets" has the meaning set forth in Section 2.16(a)(vi).
"Transaction Expense" means all costs, fees and expenses incurred by the
Company, other than the Change in Control Payments, that are or will become
payable upon the Closing or otherwise in connection with the transactions
contemplated by this Agreement and the Seller Closing Documents or that were
incurred in anticipation of or in the course of the transactions contemplated by
this Agreement and the Seller Closing Documents, including without limitation
(1) the fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, PLLC (which are in
the amount set forth in Schedule 2.27(b)), and (2) the fees and expenses of
▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.C. (which are in the amount set forth in Schedule
2.27(b)).
"Working Capital" means the current assets of the Company minus the current
liabilities of the Company (including all accruals for unpaid Taxes and all
accruals relating to Employee Benefit Plans), as determined in accordance with
GAAP, after taking into account the payment or accrual of the Change in Control
Payments, Transaction Expenses and Employee Benefit Plan Payments. For
illustration purposes, the Working Capital of the Company as of December 31,
2004, without taking into account the payment of the Change in Control Payments,
Transaction Expenses, and Employee Benefit Plan Payments, is set forth on Annex
B.