<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 12, 1998
Healthdyne Information Enterprises, Inc.
----------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Georgia 0-270576 58-2112366
- --------------------------------------------------------------------------------
<S> <C> <C>
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
</TABLE>
1850 Parkway Place, Suite 1100, Marietta, Georgia 30067
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (770) 423-8450
--------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Exhibit Index is on Page 5 herein.
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 12, 1998, Healthdyne Information Enterprises, Inc. ("HIE" or the
"Company") completed a stock-for-stock merger (the "Merger") through a
wholly-owned subsidiary with HUBLink, Inc. ("HUBLink"), a privately-held
integration software tool company. In connection with the Merger (which was
accounted for as a pooling of interests), the Company issued an aggregate of
2,926,136 shares of its common stock, $.01 par value, together with associated
preferred stock rights (the "Common Stock"), to a total of thirty persons and
entities. The amount of consideration for the Merger was determined through
arms-length negotiation.
Mark D. Shary, the former Chairman of the Board of Directors, President and
Chief Executive Officer of HUBLink, held approximately 31.3% of the outstanding
HUBLink common stock prior to the Merger. Mr. Shary is now the Senior Vice
President - Product Planning, Chief Financial Officer, Treasurer and Secretary
of the Company.
Additional information is set forth in the news release attached as Exhibit
99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
99.2 HUBLink, Inc. Independent Auditors' Report; Balance
Sheets as of December 31, 1996 and 1995; Statements
of Operations, Statements of Stockholders' Equity
(Deficit) and Statements of Cash Flows for the years
ended December 31, 1996 and 1995; and Notes to the
Financial Statements.
99.3 HUBLink, Inc. Independent Auditors' Report; Balance
Sheets as December 31, 1997 and 1996; Statements of
Operations, Statements of Stockholders' Equity
(Deficit) and Statements of Cash Flows for the years
ended December 31, 1997 and 1996; and Notes to the
Financial Statements.
99.4 HUBLink, Inc. Condensed Balance Sheet as of March 31,
1998; Condensed Statements of Operations and
Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997; and Note to the
Condensed Financial Statements.
</TABLE>
<PAGE> 3
(b) Pro Forma Financial Information
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
99.5 Healthdyne Information Enterprises, Inc. Pro Forma
Combined Condensed Statements of Operations for the
three months ended March 31, 1998; Pro Forma Combined
Condensed Statements of Operations for the years
ended December 31, 1997, 1996 and 1995; Pro Forma
Combined Condensed Balance Sheet as of March 31,
1998; and Notes to the Pro Forma Combined Condensed
Financial Statements.
</TABLE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated May 12, 1998 by
and among HIE, HIE Acquisition Corporation, HUBLink
and Mark D. Shary.
2.2 Private Placement and Registration Rights Agreement
dated as of May 12, 1998 among HIE and the
Shareholders (as defined therein).
23 Consent of KPMG Peat Marwick LLP.
99.1 Healthdyne Information Enterprises, Inc. News Release
dated May 13, 1998.
</TABLE>
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Healthdyne Information Enterprises, Inc.
By: /s/ Cheryl N. Blanco
----------------------------------
Cheryl N. Blanco
Vice President - Controller,
Chief Accounting Officer,
Assistant Treasurer and
Assistant Secretary
(duly authorized and principal
accounting officer)
Date: May 27, 1998
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ ------------
<S> <C>
2.1 Agreement and Plan of Merger dated May 12, 1998 by and among
HIE, HIE Acquisition Corporation, HUBLink and Mark D. Shary.
2.2 Private Placement and Registration Rights Agreement dated as
of May 12, 1998 among HIE and the Shareholders (as defined
therein).
23 Consent of KPMG Peat Marwick LLP.
99.1 Healthdyne Information Enterprises, Inc. News Release dated
May 13, 1998.
99.2 HUBLink, Inc. Independent Auditors' Report; Balance Sheets as
of December 31, 1996 and 1995; Statements of Operations,
Statements of Stockholders' Equity (Deficit) and Statements of
Cash Flows for the years ended December 31, 1996 and 1995; and
Notes to the Financial Statements.
99.3 HUBLink, Inc. Independent Auditors' Report; Balance Sheets as
of December 31, 1997 and 1996; Statements of Operations,
Statements of Stockholders' Equity (Deficit) and Statements of
Cash Flows for the years ended December 31, 1997 and 1996; and
Notes to the Financial Statements.
99.4 HUBLink, Inc. Condensed Balance Sheet as of March 31, 1998;
Condensed Statements of Operations and Condensed Statements of
Cash Flows for the three months ended March 31, 1998 and 1997;
and Note to the Condensed Financial Statements.
99.5 Healthdyne Information Enterprises, Inc. Pro Forma Combined
Condensed Statements of Operations for the three months ended
March 31, 1998; Pro Forma Combined Condensed Statements of
Operations for the years ended December 31, 1997, 1996 and
1995; Pro Forma Combined Condensed Balance Sheet as of March
31, 1998; and Notes to the Pro Forma Combined Condensed
Financial Statements.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into this 12th day of May, 1998 (the "Closing Date"), by and among HEALTHDYNE
INFORMATION ENTERPRISES, INC., a Georgia corporation ("HIE"), HIE ACQUISITION
CORPORATION, an Ohio corporation and wholly-owned subsidiary of HIE ("Newco"),
HUBLINK, INC., an Ohio corporation ("HUBLink"), and MARK D. SHARY (the
"Shareholder"). HIE, Newco, HUBLink and the Shareholder are sometimes referred
to herein collectively as the "Parties" and individually as a "Party."
BACKGROUND:
A. HUBLink and Newco desire to merge in the manner provided for herein.
B. The respective Boards of Directors of HIE, Newco and HUBLink have
determined that the merger of Newco with and into HUBLink (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement, would be
fair and in the best interest of their respective shareholders.
C. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests."
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual
promises, covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the relevant provisions of the Ohio
General Corporate Law (the "OGCL"), at the "Effective Time" (as defined in
Section 1.3 hereof), Newco shall be merged with and into HUBLink. As a result of
the Merger, the separate corporate existence of Newco shall cease and HUBLink
shall continue as the surviving corporation of the Merger under the laws of the
State of Ohio (the "Surviving Corporation"). The name of the Surviving
Corporation shall remain "HUBLink, Inc." and the Articles of Incorporation and
Code of Regulations of Newco shall become the Articles of Incorporation and Code
of Regulations of the Surviving Corporation at the Effective Time.
1.2 Certificate of Merger. At the "Closing" (as defined in Section 3.1
hereof), the Surviving Corporation shall duly execute a certificate of merger
(the "Certificate of Merger") in
<PAGE> 2
the form attached hereto as Exhibit A, and, as soon as practicable thereafter,
the Surviving Corporation shall file the executed Certificate of Merger with the
Ohio Secretary of State in accordance with Section 1702.43 of the OGCL.
1.3 Effective Time. The Merger shall become effective at the time (the
"Effective Time") the executed Certificate of Merger is duly filed pursuant to
Section 1.2 hereof in accordance with the requirements and provisions of the
OGCL.
1.4 Effect of the Merger. The Merger shall have the effects specified
in Section 1702.44 of the OGCL.
1.5 Tax-Free Reorganization. The parties hereto intend for the Merger
to be a tax-free reorganization pursuant to Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code. Following the Effective Time, HIE shall conduct its
business, and cause the Surviving Corporation to conduct its business, in a
manner which does not destroy the characterization of the Merger as a
reorganization described in Sections 368 (a)(1)(A) and 368 (a)(2)(E) of the
Code. In this regard, HIE shall cause HUBLink to continue its historic business
or use a significant portion of its historic business assets in a business as
required by Treasury Regulations Section 1.368-1(d).
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Shares and Options. At the Effective Time, by virtue
of the Merger and without any further action on the part of the Parties or the
holders of any of the following securities:
(a) subject to Section 2.3 hereof, each outstanding share of
common stock in HUBLink ("HUBLink Common Stock") issued and
outstanding immediately prior to the Effective Time shall be
canceled and extinguished and shall be converted into the
right to receive (subject to the provisions set forth in
Section 2.2 with respect to fractional shares) 396.15989
shares of fully paid and non-assessable common stock in HIE
("HIE Common Stock");
(b) each share of HUBLink Common Stock owned by HUBLink as
treasury shares ("Treasury Shares"), if any, shall be canceled
and extinguished, and no shares of HIE Common Stock or other
consideration shall be delivered in exchange therefor; and
(c) each outstanding share of common stock in Newco shall be
converted into one share of common stock in the Surviving
Corporation.
2.2 No Fractional Shares. No fractional shares of HIE Common Stock will
be issued in the Merger, and each shareholder of HUBLink will receive cash in
lieu of any fraction of a share of HIE Common Stock in an amount equal to such
fraction multiplied by $4.07.
2
<PAGE> 3
2.3 Dissenters' Rights. Notwithstanding anything else contained herein
to the contrary, no holder of any shares of HUBLink Common Stock with respect to
which such holder exercises the appraisal rights granted in Section 1701.84(B)
of the OGCL shall be entitled to receive any shares of HIE Common Stock pursuant
to Section 2.1 hereof, and the full and complete consideration such holder shall
be entitled to receive in exchange for such shares of HUBLink Common Stock shall
be determined in accordance with Section 1701.85 of the OGCL.
2.4 Exchange of Certificates. HIE will issue certificates to existing
HUBLink shareholders representing shares of HIE Common Stock to which such
shareholders are entitled under Section 2.1 upon the surrender of existing
certificates representing shares of HUBLink Common Stock.
2.5 Conversion of Stock Options and Warrants.
(a) At the Effective Time, each outstanding stock option
(whether vested or not) to purchase shares of HUBLink Common Stock (a "HUBLink
Option" or, collectively, the "HUBLink Options") shall be canceled and
extinguished and converted into and deemed to constitute a stock option to
purchase shares of HIE Common Stock (an "HIE Option" or, collectively, the "HIE
Options") upon the same conversion rate for HUBLink Common Stock as set forth in
Section 2.1(a) hereof (but excluding fractional shares), all as more fully set
forth on Schedule 2.5. The terms of all of the HIE Options to be granted
pursuant to this section including exercise prices, vesting and the exercise
period is set forth on Schedule 2.5 hereto. Schedule 2.5 also contains the forms
of all of such HIE Options to be granted pursuant to this Section 2.5. In
addition, at the Effective Time, all HUBLink option plans and agreements shall
be terminated, and the Surviving Corporation shall not be bound by any of the
terms thereof or be liable for any obligations thereunder.
(b) At the Effective Time, each outstanding warrant (whether
vested or not) to purchase shares of HUBLink Common Stock (a "HUBLink Warrant"
or, collectively, the "HUBLink Warrants") shall be canceled and extinguished and
converted into and deemed to constitute a warrant to purchase shares of HIE
Common Stock (an "HIE Warrant" or, collectively, the "HIE Warrants") upon the
same conversion rate for HUBLink Common Stock as set forth in Section 2.1(a)
hereof (but excluding fractional shares), all as more fully set forth on
Schedule 2.5. The terms of all of the HIE Warrants to be granted pursuant to
this section including exercise prices, vesting and the exercise period is set
forth on Schedule 2.5 hereto. Schedule 2.5 also contains the forms of all of
such HIE Warrants to be granted pursuant to this Section 2.5. In addition, at
the Effective Time, all HUBLink warrant agreements shall be terminated, and the
Surviving Corporation shall not be bound by any of the terms thereof or be
liable for any obligations thereunder.
2.6 Conversion of the Jones Note. At the Effective Time, and subject to
Section 2.2, all of the rights of Scott A. Jones ("Jones") under that certain
Promissory Note in the original principal amount of $500,000 dated as of
February 27, 1998 (the "Note"), made by HUBLink payable to Jones shall be
cancelled and extinguished and converted into the right to receive 126,154
shares of fully paid and non-assessable HIE Common Stock. HIE will issue a
certificate
3
<PAGE> 4
to Jones representing the shares of HIE Common Stock to which he is entitled
pursuant to this Section 2.6 upon the surrender of the Note to HIE.
ARTICLE III
THE CLOSING
3.1 Closing. Contemporaneously with the execution this Agreement, the
closing of the transactions contemplated hereby (the "Closing") shall occur at
the offices of Benesch, Friedlander, Coplan & Aronoff LLP, 88 East Broad Street,
Columbus, Ohio 43215.
3.2 Deliveries of HUBLink. At the Closing, HUBLink shall deliver to HIE
each of the following, in form and substance reasonably satisfactory to HIE:
(a) Evidence that the employment agreements listed on Schedule
4.23 hereof, other than John Stanton's, have been terminated
and that HUBLink has received a full and unconditional release
under each such employment agreement.
(b) Originals of the agreements pursuant to which the HUBLink
Options and HUBLink Warrants were granted.
(c) An opinion of Benesch, Friedlander, Coplan and Aronoff LLP,
counsel for HUBLink.
(d) An officer's certificate of HUBLink.
(e) A registration rights agreement in substantially the form
attached hereto as Exhibit B (the "Registration Rights
Agreement") which has been executed by all of the shareholders
of HUBLink and "Volpe" (as defined in Section 7.2 hereof).
(f) A restrictive covenant agreement in which the Shareholder
makes a non-disclosure covenant, a two (2) year
non-competition covenant, a one (1) year non-solicitation of
customers covenant, and a one (1) year non-solicitation of
employees covenant in favor of HIE and the Surviving
Corporation (the "Restrictive Covenant Agreement"), which has
been executed by the Shareholder.
(g) Evidence that Volpe and HUBLink have terminated Volpe's
engagement as a financial advisor to HUBLink in accordance
with the provisions of Section 7.2 hereof.
(h) Any other information, documents or certificates reasonably
requested by HIE.
4
<PAGE> 5
3.3 Deliveries of HIE. At the Closing, HIE shall deliver to HUBLink
each of the following, in form and substance reasonably acceptable to HUBLink:
(a) Evidence that the guarantee of HUBLink's line of credit with
The Huntington National Bank by Jones has been terminated and
Jones has been fully released from any and all obligations
thereunder.
(b) The Registration Rights Agreement executed by HIE.
(c) The Restrictive Covenant Agreement executed by HIE.
(d) An opinion of Troutman Sanders LLP, counsel for HIE.
(e) An officer's certificate of HIE.
(f) Evidence of the grant of the HIE Options and the HIE Warrants.
(g) Any other information, documents or certificates reasonably
requested by HUBLink.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HUBLINK AND THE SHAREHOLDER
HUBLink and the Shareholder, jointly and severally, hereby represent
and warrant to HIE and Newco as follows:
4.1 Power and Authority. HUBLink has full power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of HUBLink, and no other
corporate proceedings on the part of HUBLink are necessary to authorize this
Agreement and the transactions contemplated hereby. The Merger and this
Agreement were adopted and approved by holders of at least ninety percent (90%)
of the outstanding shares of HUBLink Common Stock.
4.2 Binding Effect. This Agreement has been duly executed and delivered
by HUBLink and constitutes its legal, valid and binding obligation, enforceable
in accordance with its terms.
4.3 No Violation; Consents. Neither the execution and delivery of this
Agreement by HUBLink, nor the performance by it of its obligations hereunder,
will:
(a) violate or conflict with any provision of the Articles of
Incorporation or Code of Regulations of HUBLink;
5
<PAGE> 6
(b) violate, breach or otherwise constitute or give rise to a
default under any "Contract" (as hereinafter defined) to or by
which HUBLink is a party or is bound, except to the extent any
such violation, breach or default would not have a material
adverse effect on HUBLink;
(c) violate or conflict with any statute, ordinance, law, rule,
regulation, judgment, order or decree of any court or other
governmental or regulatory authority to which HUBLink is
subject; or
(d) except as set forth on Schedule 4.3, require any consent,
approval or authorization of, notice to, or filing, recording,
registration or qualification with any person, entity, court
or governmental or regulatory authority by HUBLink.
4.4 Capitalization.
(a) The authorized capital stock of HUBLink consists solely of
10,000 shares of HUBLink Common Stock, of which only 6,815.427 shares are issued
and outstanding. All of such outstanding shares of HUBLink Common Stock are
owned by the individuals listed on Schedule 4.4(a) in the respective proportions
set forth therein. All of such issued and outstanding shares of HUBLink Common
Stock are duly authorized and validly issued, are fully paid and non-assessable,
and were offered, issued and sold in compliance with all applicable securities
and other laws.
(b) Except as set forth on Schedule 4.4(b), there are no
outstanding options, warrants, calls, rights, commitments or agreements
obligating HUBLink to issue, deliver or sell any shares of the capital stock of
HUBLink, and there are no outstanding securities or other rights which are
convertible or exchangeable into capital stock of or any other equity interest
in HUBLink. HUBLink is not subject to any obligation to repurchase or otherwise
acquire or retire or to register any shares of capital stock or any other equity
interest in HUBLink. The HUBLink Options are not subject to the terms of any
option or other type of plan.
4.5 Corporate Structure.
(a) HUBLink is a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio. HUBLink has the
necessary corporate power and authority to carry on its business as it is now
being conducted and to own and lease the properties and assets it now owns and
leases. Schedule 4.5 sets forth all jurisdictions in which HUBLink is required
to be qualified to do business as a foreign corporation, except to the extent
any non-qualification would not have a material adverse effect on HUBLink.
(b) HUBLink has no direct or indirect subsidiaries. Except as
set forth on Schedule 4.5, HUBLink has no interest in any partnership, joint
venture, corporation, limited liability company or other entity.
6
<PAGE> 7
4.6 Corporate Books. The corporate books of HUBLink completely and
accurately reflect in all material respects the actions of HUBLink (including,
without limitation, all issuances, transfers and redemptions of the capital
stock of HUBLink), and all such actions were duly and validly taken in
compliance with all applicable corporate laws.
4.7 Financial Statements. Attached hereto as Schedule 4.7 are true,
correct and complete copies of (a) HUBLink's audited financial statements
(including balance sheets, statements of stockholders' equity (deficit),
statements of operations and statements of cash flow) for the fiscal years ended
as of December 31, 1997 and 1996; and (b) HUBLink's unaudited interim financial
statements (including balance sheet, statement of stockholders' equity,
statement of operations and statement of cash flow) for the three (3) month
period ended as of March 31, 1998 (collectively, the "Financial Statements").
The Financial Statements were prepared in accordance with generally accepted
accounting principles consistently applied, present fairly and, in all material
respects, accurately the financial condition of HUBLink as of the dates
indicated therein and the results of operations and cash flows of HUBLink for
the periods covered thereby, and are consistent with the books and records of
HUBLink.
4.8 Liabilities. HUBLink does not have any debt, liability, or
obligation of any kind (whether accrued, absolute, known or unknown, contingent
or otherwise), except (a) those reflected on the most recent Financial
Statements, and (b) liabilities incurred since the date of the most recent
Financial Statement in the ordinary course of business consistent with past
practices (none of which liabilities are material individually or in the
aggregate). HUBLink does not have any obligations (absolute or contingent) to
provide funds on behalf of, or to guarantee or assume any debt, liability or
obligation of, any person or entity.
4.9 Title to Assets. Schedule 4.9 contains a complete and accurate
list of all tangible personal property and assets owned by HUBLink as of the
date hereof. Except as otherwise noted on Schedule 4.9, HUBLink has good and
marketable title to all of such property and assets, free and clear of all
liens, charges, security interests, pledges, hypothecations, other encumbrances
and claims of any kind or nature, and such property and assets (together with
the Contracts, the "Leased Assets," the "Intellectual Property" and the
"Facility Leases" as each is hereinafter defined) constitute and include all of
the property and assets related to, used, or useful in the conduct of HUBLink's
business. Schedule 4.9 also identifies all of the non-real estate leased assets
used by HUBLink (collectively, the "Leased Assets"). As of the date hereof,
HUBLink has the right to use all of the Leased Assets in connection with the
operation of its business pursuant to valid and enforceable lease agreements.
All of the properties and assets listed in Schedule 4.9 are in good operating
condition and repair (ordinary wear and tear excepted).
4.10 Real Property and Leases. HUBLink does not currently own or hold
title to any real property. Schedule 4.10 lists all of the leases (the "Facility
Leases") of real property (the "Real Property") used by HUBLink in the operation
of its business. HUBLink holds an unencumbered interest in the leasehold estate
of all such Real Property. To the knowledge of HUBLink and the Shareholder, none
of such Real Property is subject to any easement, right of way, license, grant,
building or use restriction, exception, reservation, limitation or other
impediment which adversely interferes in any material respect with or impairs
the present and
7
<PAGE> 8
continued use thereof in the operation of HUBLink's business in a manner
consistent with past practices, and HUBLink enjoys peaceful and undisturbed
possession of all such Real Property. Each Facility Lease is valid, in full
force and effect, and enforceable in accordance with its terms and constitutes a
legal and binding obligation of each party thereto. HUBLink has neither given
nor received any notice of default, termination or partial termination under any
Facility Lease, and there is no existing or continuing default by HUBLink or, to
the knowledge of HUBLink or the Shareholder, any other party in the performance
or payment of any obligation under any Facility Lease. The copies of the
Facility Leases heretofore furnished by HUBLink to HIE are true, correct and
complete, and none of such Facility Leases have since been modified in any
respect.
4.11 Intellectual Property. Schedule 4.11 contains a correct and
complete list of all copyrightable works, copyrights, trademarks, service marks,
logos, trade dress, trade names, patents, processes, inventories, trade secrets,
confidential business information, goodwill, inventions, computer software and
other intellectual property (including, to the extent applicable, registrations,
applications, and renewals for registrations of each of the foregoing) which are
owned or held for use by HUBLink in connection with the operation of its
business (collectively "Intellectual Property"). Except as set forth on Schedule
4.11, HUBLink owns all rights to use and protect, or holds a valid license to
use and protect, all such Intellectual Property. Schedule 4.11 also identifies
all Intellectual Property licensed from third parties by HUBLink. HUBLink has
not violated or infringed any patent, copyright, trade secret, trademark,
service mark or other intellectual property rights of any other person or
entity, and there are no claims pending or threatened against HUBLink asserting
that the use of any Intellectual Property by HUBLink infringes the rights of any
other person or entity. HUBLink has not made or asserted any claim of violation
or infringement of any Intellectual Property against any other person or entity,
and HUBLink and the Shareholder are not aware of any such violation or
infringement. Schedule 4.11 identifies all outstanding licenses or other rights
to any such Intellectual Property granted by HUBLink to any person or entity.
The transactions contemplated herein will not have a material adverse effect on
any of the Intellectual Property.
4.12 Year 2000 Compliance.
(a) All versions of the Integrator, the OM 3 Message Broker
and the Master Indexer products sold by HUBLink (collectively, the "Products")
are "Millennium Compliant" (as hereinafter defined). To the knowledge of HUBLink
and the Shareholder, except as set forth on Schedule 4.12, all material
software, databases, hardware and other equipment used by HUBLink in the
operation of its business (collectively, the "Systems") are Millennium
Compliant.
(b) To the knowledge of HUBLink and the Shareholder, except as
set forth on Schedule 4.12, none of the Systems receives data from or in any way
communicates or interacts with any software, database, hardware or other
equipment which is not Millennium Compliant.
(c) Except as set forth in Schedule 4.12, to the knowledge of
HUBLink and the Shareholder, HUBLink is not likely to incur any material
expenses, liabilities or obligations of any kind or nature arising from or
relating to the failure of any of the Products or the Systems
8
<PAGE> 9
(or any of its material customers', suppliers' or service providers' software,
databases, hardware or other equipment) to be Millennium Compliant.
(d) For purposes of this Agreement, "Millennium Compliant"
shall mean that:
(i) the software, hardware, embedded chip or other
applicable item which is represented to be Millennium
Compliant (an "Item"):
(A) is able to consistently, and without error,
recognize, handle, accept, sort, manipulate, calculate,
display, store, retrieve, access, compare and process date and
time information before, during and after January 1, 1999,
September 9, 1999, December 31, 1999, January 1, 2000,
February 29, 2000 and any other date after December 31, 1999
(collectively, the "Relevant Dates"), including, without
limitation, accepting any date or time input and without error
or interruption performing calculations or other operations or
functions on dates or portions of dates;
(B) before, during and after any of the Relevant
Dates, functions accurately in accordance with any applicable
specifications or documentation and without interruption,
error or changes in operations associated with the occurrence
of any of the Relevant Dates or the advent of any new century,
leap year or any other date or time related matter;
(C) consistently and accurately responds to
two-digit date input in a way that properly resolves any
ambiguity as to century or year in a disclosed, defined and
predetermined manner;
(D) stores and provides output of date and time
information in ways that are unambiguous as to century or
year;
(E) will not be adversely affected by the advent of
the year 2000 A.D. or the passing or transition of any century
or other date;
(ii) is able to be used and operated prior to, during, and
after the calendar year 2000 A.D. or any of the other Relevant
Dates, all without error relating to date or time data and without
providing invalid or incorrect results or prematurely ending its
operations, specifically including any error, invalid or incorrect
results or premature endings relating to, or the product of, date or
time data which represents or references different centuries, more
than one century, any leap year or any period or date before, on or
after any of the Relevant Dates; and
(iii) has been designed to ensure year date data century
recognition calculations which accommodate same century and
multi-century formulas and date values, and date data interface
values that reflect the century.
9
<PAGE> 10
4.13 Notes and Accounts Receivable.
(a) All notes receivable, accounts receivable and other
receivables owed by or due to HUBLink are valid and represent bona fide claims
against debtors for sales made, services performed or other charges arising on
or before the date hereof, and all of the goods delivered and services performed
that gave rise to such receivables were delivered or performed in accordance
with the applicable orders, contracts, or client requirements. All such
receivables are evidenced by written agreements, invoices or other documents.
Except as set forth on Schedule 4.13, HUBLink has not written off any such
receivables since December 31, 1997, except nonmaterial write-offs in the
ordinary course of the business consistent with past practices.
(b) There are no inherent losses related to the delivery,
recording or earning of payments owed or due under any contract, agreement or
other arrangement giving rise to the Deferred Revenue reflected on the Financial
Statements (each a "Deferred Revenue Contract").
4.14 Contracts and Commitments. Schedule 4.14 contains a list which
identifies and briefly describes all written and oral contracts, agreements,
leases, guaranties or commitments (collectively, the "Contracts") to which
HUBLink is a party or by which HUBLink is bound: (a) involving the payment by or
to HUBLink of more than $50,000 in any twelve (12) month period; (b) which may
not be terminated by HUBLink on less than ninety (90) days' notice and without
incurring any obligation in excess of $10,000 therefor, whether as a termination
fee or otherwise; (c) which is a Deferred Revenue Contract; or (d) which is
otherwise material to the operation of HUBLink's business. Each such Contract
was entered into in the ordinary course of business, is valid, in full force and
effect, and enforceable in accordance with its terms and constitutes a legal and
binding obligation of each party thereto. HUBLink has neither given nor received
any notice of default, termination or partial termination under any Contract,
and there is no existing or continuing default by HUBLink or, to the knowledge
of HUBLink or the Shareholder, any other party in the performance or payment of
any obligation under any such Contract. The copies of the Contracts heretofore
furnished by HUBLink to HIE are true, correct and complete, and none of such
documents have since been modified in any respect.
4.15 Services and Products. Schedule 4.15 lists all of the software
licensed, services performed and products manufactured or sold by HUBLink during
the past three (3) years. Schedule 4.15 also contains a true, correct and
complete copy of all warranties given by HUBLink with respect to any such
licenses, services or products and a listing of all claims made under any such
warranties during the past three (3) years (together with a description of the
current status or resolution of each such claim).
4.16 Ordinary Course of the Business. Except as set forth on
Schedule 4.16, HUBLink has operated its business in the ordinary course
consistent with past practices and as contemplated by HUBLink's 1998 business
plan since December 31, 1997. Without limiting the generality of the foregoing,
and except as set forth on Schedule 4.16, since December 31, 1997:
(a) there has been no material adverse change in the
business or in the assets, liabilities, results of
operation, cash flow or financial condition of
HUBLink;
10
<PAGE> 11
(b) there has been no destruction or loss of or to any of
the assets or properties of HUBLink, except for any
destruction or losses which individually or in the
aggregate do not have a material adverse effect on
HUBLink;
(c) there has been no sale, transfer or other disposition
of any asset of HUBLink, other than in the ordinary
course of HUBLink's business consistent with its past
practices;
(d) the books, accounts and records of HUBLink have been
maintained in the usual, regular and ordinary manner
on a basis consistent with prior years;
(e) there has been no labor dispute, organizational
effort by any union, unfair labor practice charge or
employment discrimination charge, nor institution or
threatened institution of any effort, complaint or
other proceeding in connection therewith, involving
HUBLink or affecting the operation of HUBLink's
business;
(f) there has been no amendment, termination or waiver of
any right of HUBLink under any Contract or agreement
or governmental license, permit or authorization,
other than in the ordinary course of HUBLink's
business consistent with its past practices;
(g) there has been no declaration, setting aside or
payment of any dividend or other distribution on or
in respect of the capital stock of HUBLink;
(h) there has been no: (i) increase in the compensation
or in the rate of compensation or commissions payable
or to become payable by HUBLink to any director,
officer, employee, salesman, independent contractor
or agent of HUBLink, other than in the ordinary
course of HUBLink's business consistent with its past
practices; (ii) officer, director, salesman, agent,
independent contractor or employee hired by HUBLink
at a salary in excess of $50,000.00 per year; or
(iii) increase in any payment of or commitment to pay
any bonus, profit sharing or other extraordinary
compensation to any officer, director, salesman,
agent, independent contractor or employee of HUBLink,
other than in the ordinary course of HUBLink's
business consistent with past practices and as
contemplated by HUBLink's 1998 business plan;
(i) there has been no change in the Articles of
Incorporation or Code of Regulations of HUBLink;
(j) there has been no mortgage, lien, security interest,
pledge, hypothecation or other encumbrance created on
or in any assets of HUBLink or assumed by HUBLink
with respect to any of its assets or its business,
other than in
11
<PAGE> 12
the ordinary course of HUBLink's
business consistent with its past practices;
(k) there has been no creation of, amendment to or
contributions, grants, payments or accruals for or to
the credit of any employee of HUBLink with respect to
any bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension,
group insurance or other benefit plan, or any union,
employment or consulting agreement or arrangement,
other than in the ordinary course of HUBLink's
business consistent with its past practices; and
(l) HUBLink has neither made nor committed to make any
capital expenditures or capital additions or
betterments in excess of an aggregate amount equal to
$25,000.00.
4.17 Litigation. Except as set forth on Schedule 4.17, there is no
litigation, action, suit, arbitration, mediation, hearing, other legal or
regulatory proceeding or governmental investigation pending or, to HUBLink's or
the Shareholder's knowledge, threatened by or against HUBLink. No judgment,
award, order or decree has been rendered and is still outstanding against
HUBLink.
4.18 Compliance with Laws. HUBLink has complied with all statutes,
laws, rules, regulations, orders, decrees and ordinances applicable to it or the
operation of its business (collectively, the "Laws"), except to the extent any
such non-compliance would not have a material adverse effect on HUBLink.
4.19 Permits and Licenses. HUBLink holds all required permits,
licenses, approvals and authorizations from all governmental or regulatory
authorities which are necessary to conduct its business in a manner consistent
with its past practices. All of such permits, licenses, approvals and
authorizations which are necessary to operate HUBLink's business consistent with
past practices or which are otherwise material to HUBLink or to the operation of
its business are listed on Schedule 4.19 and are in full force and effect (and
no suspension of any of them is pending or, to HUBLink's or the Shareholder's
knowledge, threatened). The transactions contemplated herein will not have a
material adverse effect on any of such permits, licenses, approvals or
authorizations.
4.20 Taxes. Except as set forth on Schedule 4.20, HUBLink has duly
and timely filed all "Tax" (as hereinafter defined) reports and returns required
to be filed by it prior to the date hereof, and all of such reports and returns
are true, correct and complete in all material respects. Except as set forth on
Schedule 4.20, HUBLink has paid all applicable Taxes with respect to any period
of time prior to the date hereof, except for Taxes accrued but not yet due and
payable (which Taxes are adequately reserved for in the most recent Financial
Statements). Without limiting the generality of the foregoing, HUBLink has
withheld proper and accurate amounts from its employees for all periods prior to
the date hereof, all in compliance with the Tax withholding provisions of
applicable federal, state and local tax laws. Except as set forth on Schedule
4.20, HUBLink is not a party or subject to any levy, assessment, collection or
pending
12
<PAGE> 13
action, proceeding or claim, and no notice of the possible institution
of any levy, assessment or collection action, proceeding or claim has been given
to or received by Shareholder or HUBLink. No extension of a statute of
limitation relating to Taxes is in effect with respect to HUBLink. HUBLink has
never been a member or a parent of an "affiliated group" as defined in Section
1504 of the Code and has never joined in the filing of a consolidated return
pursuant to Section 1501 of the Code. At no time during calendar year 1998 has
HUBLink been taxed pursuant to "Subchapter S" of the Code, and HUBLink has not
filed an election to be taxed as a "Subchapter S" corporation under Subchapter S
of the Code with respect to calendar year 1998 or any subsequent year. For
purposes of this Agreement, "Taxes" shall mean any taxes, fees, levies, duties,
charges or similar assessments (including interest, penalties and additions)
imposed by or payable to any governmental or other taxing authority, whether
foreign, federal, state, local or otherwise, including, without limitation, net
income, gross income receipts, franchise, assets, withholding, excise, ad
valorem, value added, capital gains, stamp, real and personal property,
assessment, sales, use, employment, social security and unemployment
contributions, net worth, services, customs duties and other taxes or charges of
any kind or nature.
4.21 Insurance. Schedule 4.21 contains a complete list and
description (including the expiration date, premium amount and coverage
thereunder) of all policies of insurance and bonds presently maintained by, or
providing coverage for, HUBLink or any of its officers, directors or employees
in their capacities as such, together with a complete list of all claims in
excess of $25,000 made within the last three (3) years and all pending claims
under any such policies or bonds. All material terms, obligations and provisions
of each of such policies and bonds have been complied with, all premiums due
thereon have been paid, and no notice of cancellation with respect thereto has
been received. The copies of each such policy and bond listed on Schedule 4.21
heretofore furnished by HUBLink to HIE are true, complete and correct, and none
of such policies or bonds has since been modified in any respect.
4.22 Environmental.
(a) HUBLink has complied at all times with all applicable
laws, regulations, rules, judgments, orders and decrees pertaining to health,
safety or environmental matters, including, without limitation, the Resource
Conservation and Recovery Act (as amended by the Hazardous and Solid Waste
Amendments of 1984), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (as amended by the Superfund Amendments and
Reauthorization Act of 1986), the Water Pollution Control Act, the Safe Drinking
Water Act, the Clean Air Act and the Toxic Substances Control Act (collectively,
"Environmental Laws").
(b) To the knowledge of HUBLink and the Shareholder, no event,
condition, circumstance, activity, practice, incident, action or plan
(including, without limitation, any intentional or unintentional release into
the environment of any hazardous or toxic substances) has occurred which
interferes with HUBLink's operation of its business, prevents continued
compliance by the Surviving Corporation with all applicable Environmental Laws,
or otherwise gives rise to any liability or serves as the basis for any claim,
action, suit or proceeding, hearing or investigation under any Environmental
Law.
13
<PAGE> 14
(c) No portion of the Real Property has been used by HUBLink
or, to the knowledge of HUBLink or the Shareholder, by any other person or
entity for the generation, handling, processing, use, refinement, recycling,
treatment, storage or disposal of hazardous or toxic substances. To the
knowledge of HUBLink and the Shareholder, no underground tank or other
underground storage receptacle for any hazardous or toxic substances, petroleum
or petroleum products is or has been located on any portion of such Real
Property, and there are no asbestos containing materials located at or on any of
the Leased Facilities.
(d) Neither HUBLink nor, to the knowledge of HUBLink or the
Shareholder, any of the Real Property is subject to any applicable Environmental
Law requiring the performance of site assessments, the removal or remediation of
hazardous or toxic substances, the giving of notice to any governmental agency
or the recording or delivery of an environmental disclosure document or
statement by virtue of the transactions contemplated by this Agreement.
4.23 Employees, Etc. Schedule 4.23 contains a true and complete
list of the names, titles, and compensation arrangements of each full-time and
part-time employee, consultant, advisor and independent contractor of HUBLink
(including, without limitation, the date each was hired and all salary, wages,
bonuses, accrued vacation, and other fringe benefits). Except as set forth on
Schedule 4.23, none of such employees, consultants, advisors or independent
contractors have written employment agreements with HUBLink and, subject to
compliance with applicable law, all of them may be terminated by HUBLink at any
time for any reason or no reason without further obligation or consequence. No
such employee, consultant, advisor and independent contractor has informed or
advised HUBLink or the Shareholder (nor is HUBLink or the Shareholder otherwise
aware) that he or she does not intend to continue his or her employment or
relationship with HUBLink after the date hereof or as a result of the
transactions contemplated herein.
4.24 Employee Benefits.
(a) Schedule 4.24(a) lists (i) all "employee benefit plans"
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) and all bonus, stock option, stock purchase,
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements to which HUBLink is a party, with respect to which HUBLink has
any obligation or which are maintained, contributed to or sponsored by HUBLink
for the benefit of any current or former employee, officer or director of
HUBLink, and (ii) each employee benefit plan for which HUBLink could incur
liability under Sections 4069 or 4212(c) of ERISA (collectively, the "Plans").
Each Plan is in writing and HUBLink has furnished HIE with a complete and
accurate copy of each Plan and a complete and accurate copy of each material
document prepared in connection with each such Plan.
(b) None of the Plans is a multiemployer plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA) or a single employer pension
plan (within the meaning of Section 4001(a)(15) of ERISA) for which HUBLink
could incur liability under Section 4063 or 4064 of ERISA. None of the Plans is
a defined benefit plan (as defined in Section 3 (35) of ERISA) subject to Title
IV of ERISA. None of the Plans provides for the payment of separation,
severance, termination or similar-type benefits to any person or obligates
HUBLink to pay separation,
14
<PAGE> 15
severance, termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or as a result of a "change in
control", within the meaning of such term under Section 280G of the Code. None
of the Plans provides for or promises retiree medical, disability or life
insurance benefits to any current or former employee, officer or director of
HUBLink.
(c) Each Plan is now and always has been operated in all
respects in accordance with the requirements of all applicable laws, including,
without limitation, ERISA and the Code. HUBLink has performed all obligations
required to be performed by it under, is not in any respect in default under or
in violation of, and has no knowledge of any default or violation by any party
to, any Plan. No legal action, suit or claim is pending or, to the knowledge of
HUBLink or the Shareholder, threatened with respect to any Plan (other than
claims for benefits in the ordinary course) and no fact or event exists that
could give rise to any such action, suit or claim.
(d) Each Plan which is intended to be qualified under Section
401(a) of the Code or Section 401(k) of the Code has received a favorable
determination letter from the IRS after January 1, 1995, that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and no fact
or event has occurred since the date of such determination letter from the IRS
to adversely affect the qualified status of any such Plan or the exempt status
of any such trust.
(e) There has been no prohibited transaction (with the meaning
of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
HUBLink has not incurred any liability for any excise tax arising under Section
4972 or 4980B of the Code and no fact or event exists which could give rise to
any such liability. HUBLink has not incurred any liability under, arising out of
or by operation of Title IV of ERISA. No complete or partial termination has
occurred within the five years preceding the date hereof with respect to any
Plan.
(f) All contributions, premiums or payments required to be
made with respect to any Plan have been made on or before their due dates. All
such contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any government entity and no fact
or event exists which could give rise to any such challenge or disallowance.
4.25 Labor-Related Matters. HUBLink is not a party to any
collective bargaining agreement or agreement of any kind with any union or labor
organization. HUBLink is not in violation of or default under any collective
bargaining or other agreement. There are no unfair labor practice charges
pending or, to HUBLink's or the Shareholder's knowledge, threatened against
HUBLink, and there are no charges, complaints, claims or proceedings pending or,
to HUBLink's or the Shareholder's knowledge, threatened against HUBLink with
respect to any alleged violation of any legal duty (including but not limited to
any wage and hour claims, employment discrimination claims or claims arising out
of any employment relationship) as to
15
<PAGE> 16
HUBLink's employees or as to any person seeking employment therefrom, and no
basis for any such charges, complaints or claims exists.
4.26 Directors and Officers. Schedule 4.26 correctly lists all of
the present officers and directors of HUBLink.
4.27 Transactions With Management. Except as set forth on Schedule
4.27, there are no transactions between HUBLink and the Shareholder or any other
current or past officer, director, employee or shareholder of HUBLink (or any
affiliate of any such individual) other than for current employment services.
4.28 Bank Accounts. Schedule 4.28 contains a complete and accurate
list of the names and addresses of every bank and other institution in which
HUBLink maintains an account or safety deposit box, the account numbers of each
such account, and the names of all persons who are authorized to draw thereon or
have access thereto.
4.29 Propriety of Past Payments. HUBLink has not used any of its
funds or assets for illegal or improper purposes. HUBLink has not established
any unrecorded funds or assets for any purpose which would violate any Laws or
which would have a material adverse effect on HUBLink or its business. No
accumulation or use of any funds of HUBLink which would violate any Laws or
which would have a material adverse effect on HUBLink or its business has been
made by HUBLink without being properly accounted for in the books and records of
HUBLink. All payments by or on behalf of HUBLink have been duly and properly
recorded and accounted for in its books and records in accordance with its
policies with respect thereto. No false or artificial entry has been made in the
books and records of HUBLink, and no payment has been made by or on behalf of
HUBLink with the advance knowledge and understanding that any part of such
payment would be used for any purpose which could violate any Laws. HUBLink has
not made, or offered to make or obtain directly or indirectly, any illegal or
improper contributions or payments of any kind or nature to any political party,
elected or appointed official or candidate, and, to the knowledge of HUBLink and
the Shareholder, no individual or entity has taken or offered to take any such
action for or on behalf of HUBLink.
4.30 Insolvency Proceedings. No insolvency proceedings of any kind
or nature, including, without limitation, bankruptcy, receivership,
reorganization, or other arrangements with creditors, whether voluntary or
involuntary, with respect to HUBLink are pending or, to HUBLink's or the
Shareholder's knowledge, threatened.
4.31 Representations and Warranties. No representation or warranty
made by HUBLink or the Shareholder in this Agreement or pursuant hereto contains
any untrue statement, and such representations and warranties do not omit any
statement necessary in order to make any statement contained therein not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder hereby represents and warrants to HIE as follows:
16
<PAGE> 17
5.1 Power and Authority. The Shareholder has full power and
authority to enter into this Agreement, to perform his obligations hereunder and
to consummate the transactions contemplated hereby.
5.2 Binding Effect. This Agreement has been duly executed and
delivered by the Shareholder and constitutes his legal, valid and binding
obligation, enforceable in accordance with its terms.
5.3 No Violation; Consents. Neither the execution and delivery of
this Agreement by the Shareholder, nor the performance by him of his obligations
hereunder, will:
(a) violate, breach or otherwise constitute or give rise
to a default under any contract, commitment or other
obligation to or by which the Shareholder is a party
or is bound;
(b) violate or conflict with any statute, ordinance, law,
rule, regulation, judgment, order or decree of any
court or other governmental or regulatory authority
to which the Shareholder is subject; or
(c) except as set forth on Schedule 5.3, require any
consent, approval or authorization of, notice to, or
filing, recording, registration or qualification with
any person, entity, court or governmental or
regulatory authority by the Shareholder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HIE AND NEWCO
HIE and Newco, jointly and severally, hereby represent and warrant to
HUBLink and the Shareholder as follows:
6.1 Organization and Good Standing. HIE is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia and has the necessary corporate power and authority to carry on its
business as it is now being conducted and to own and lease the assets and
properties it now owns and leases. Newco is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio.
6.2 Power and Authority. Each of HIE and Newco has the full power
and authority to enter into this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of each of
HIE and Newco, and no other corporate proceedings on the part of either HIE or
Newco are necessary to authorize this Agreement and the transactions
contemplated hereby.
17
<PAGE> 18
6.3 Binding Effect. This Agreement has been duly executed and
delivered by each of HIE and Newco and constitutes the legal, valid and binding
obligations of each, enforceable in accordance with its terms.
6.4 No Violation; Consents. Neither the execution and delivery of
this Agreement by each of HIE and Newco, nor the performance by HIE or Newco of
its respective obligations hereunder, will:
(a) violate or conflict with any provision of the
Articles of Incorporation or Bylaws of HIE or the
Articles of Incorporation or Code of Regulations of
Newco;
(b) violate, breach or otherwise constitute or give rise
to a default under any contract, commitment or other
obligation to or by which HIE or Newco is a party or
is bound, except to the extent any such violation,
breach or default would not have a material adverse
effect on HIE or Newco;
(c) violate or conflict with any statute, ordinance, law,
rule, regulation, judgment, order or decree of any
court or other governmental or regulatory authority
to which HIE or Newco is subject; or
(d) except as set forth on Schedule 6.4, require any
consent, approval or authorization of, notice to, or
filing, recording, registration or qualification with
any person, entity, court or governmental or
regulatory authority by HIE or Newco.
6.5 Exchange Act Reports and Financial Statements. HIE has
delivered to HUBLink (i) HIE's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 containing consolidated balance sheets of HIE at
December 31, 1997 and 1996 and consolidated statements of operations,
shareholders' equity and cash flows of HIE for the three years ended December
31, 1997, all certified by KPMG Peat Marwick LLP, independent auditors and (ii)
any Current Reports on Form 8-K filed by HIE since December 31, 1997
(collectively, the "HIE Reports"). All HIE Reports as of their respective dates
(i) comply in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the SEC thereunder, (ii) do not contain any untrue statement of a
material fact and (iii) do not omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All such financial
statements, including the related notes and schedules, have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as indicated therein) and fairly represent the consolidated financial
condition, assets and liabilities of HIE at the dates thereof and the
consolidated results of operations, shareholders' equity and cash flows of HIE
for the periods stated therein.
6.6 Merger Shares. The shares of HIE Common Stock issued to
holders of HUBLink Common Stock pursuant to this Agreement shall be, when
issued, duly authorized, validly issued, fully paid and non-assessable.
18
<PAGE> 19
6.7 Absence of Certain Changes. Since December 31, 1997, HIE has
conducted its business in the ordinary course consistent with past practices and
there has not been (a) any material adverse change in HIE's business, (b) any
declaration, setting aside or payment of any dividend or other distribution with
respect to HIE's capital stock, or (c) any material change in HIE's accounting
principles, practices or methods.
6.8 Status as Reorganization.
(a) HIE has no current plan or intention to:
(i) Liquidate HUBLink;
(ii) Merge HUBLink with or into another corporation;
(iii) Sell or otherwise dispose of the stock of
HUBLink except for transfers of stock to corporations
"controlled" (within the meaning of Section 368(c) of the
Code) by HIE;
(iv) Reacquire any of its stock issued in connection
with the Merger;
(v) Cause HUBLink to issue additional shares of
stock of HUBLink that would result in HIE losing "control"
(within the meaning of Section 368(c) of the Code) of HUBLink;
(vi) Cause HUBLink to sell or otherwise dispose of
any of its assets or any assets of Newco acquired in the
Merger except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by
HIE; or
(vii) Take or refrain from taking any other action
that might otherwise cause the Merger not to be treated as a
reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
(b) Neither HIE nor Newco is an "investment company"
(within the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code). Newco
is being formed solely for the purpose of merging with HUBLink and, as of the
Effective Time, will not have had any existing operation, assets or liabilities
(other than liabilities for franchise taxes, if applicable, and liabilities
under this Agreement). HIE will, as of the Effective Time, own all of the issued
and outstanding capital stock of Newco.
6.9 Representations and Warranties. No representation or warranty
made by HIE or Newco in this Agreement or pursuant hereto contains any untrue
statement, and such representations and warranties do not omit any statement
necessary in order to make any statement contained therein not misleading.
19
<PAGE> 20
ARTICLE VII
OTHER AGREEMENTS OF THE PARTIES
7.1 Further Assurances. Upon the reasonable request of any other
Party, each Party agrees to take any and all actions necessary or appropriate to
give effect to the terms and conditions contained herein.
7.2 Investment Banker's Fees. At the Closing, and in lieu of the
cash fee required pursuant to the terms of the engagement letter, dated as of
June 6, 1997, between Volpe, Brown, Whelan & Company, LLC ("Volpe") and HUBLink
(the "Engagement Letter"), HIE agrees to pay to Volpe an amount consisting of
(i) one hundred thousand (100,000) shares of HIE Common Stock and (ii) an amount
not to exceed $10,000 in cash as reimbursement of reasonable expenses of Volpe
in connection with its representation as financial advisor to HUBLink under the
Engagement Letter (together, the "Volpe Payment"). The Volpe Payment shall
represent full payment and satisfaction of all amounts due Volpe in connection
with its representation as financial advisor of HUBLink under the Engagement
Letter. HIE's payment of the Volpe Payment shall not constitute a breach of any
representation or warranty of HUBLink under this Agreement. Each Party hereby
covenants and agrees that, except for the Volpe Payment, there is no broker or
finder or other person who would have any valid claim against any of the Parties
for a commission, brokerage or similar fee in connection with this Agreement or
the transactions contemplated hereby as a result of any agreement, understanding
or action by the Parties.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements contained
in this Agreement shall survive the Closing; provided, however, no Party shall
be entitled to bring any action under this Agreement unless it gives written
notice to the Party from whom it is seeking indemnification setting forth its
claim in reasonable detail on or before the earlier of: (a) March 31, 1999; or
(b) the completion of HIE's audit for the year ended December 31, 1998.
8.2 Indemnification by HUBLink and the Shareholder.
(a) Subject to Sections 8.1, 8.2(b) and 8.2(c) hereof, HUBLink
and the Shareholder hereby agree, jointly and severally (provided, however, that
the Shareholder shall have no rights of contribution therefor against HUBLink),
to indemnify and promptly defend and hold harmless HIE and its officers,
directors, shareholders, employees, agents and affiliates from and against any
and all claims, costs, expenses (including, without limitation, attorneys' fees
and court costs), judgments, actions, suits, proceedings, penalties, fines,
damages, losses and liabilities of any kind or nature (collectively, "Losses")
incurred by any of them resulting from or arising out of any of the following:
(i) any breach of any representation or warranty made by
HUBLink or the Shareholder herein or in any other document or
agreement executed by HUBLink or the Shareholder and delivered
to HIE pursuant hereto; and
20
<PAGE> 21
(ii) any breach of any covenant or agreement of HUBLink or
the Shareholder contained herein or in any Exhibit, Schedule,
document or agreement executed by HUBLink or the Shareholder
and delivered to HIE pursuant hereto.
(b) Notwithstanding anything else contained herein to the
contrary, the maximum aggregate liability of the Shareholder pursuant to this
Section 8.2 shall be limited to $343,123.63. Any amounts for which the
Shareholder becomes liable to HIE pursuant to this Section 8.2 must be paid by
the Shareholder by relinquishing shares of the HIE Common Stock received by him
pursuant to Section 2.1 hereof (unless Shareholder has prior to such time sold
all of such shares, in which case payment must be made in cash); provided,
however, for all purposes pursuant to this Article VIII, each share of HIE
Common Stock held by the Shareholder shall be valued at the closing price of one
share of HIE Common Stock as of the end of the last business day prior to the
Closing (regardless of any subsequent increase or decrease in the market price
thereof).
(c) Notwithstanding anything else contained herein to the
contrary, HUBLink and the Shareholder shall have no liability to HIE and its
officers, directors, shareholders, employees, agents or affiliates pursuant to
Section 8.2(a)(i) unless and until the aggregate amount of all Losses for which
HIE is entitled to indemnification under Section 8.2(a)(i) exceeds $25,000.00,
in which event HIE shall be entitled to recover all Losses in excess of such
amount.
8.3 Indemnification by HIE. HIE hereby indemnifies and agrees to
promptly defend and hold harmless HUBLink from and against any and all Losses
incurred by it resulting from, arising out of, or related to any of the
following:
(a) any breach of any representation or warranty made by
HIE or Newco herein or in any Exhibit, Schedule,
document or agreement executed by HIE or Newco and
delivered to HUBLink pursuant hereto; and
(b) any breach of any covenant or agreement of HIE or
Newco contained herein or in any Exhibit, Schedule,
document or agreement executed by HIE or Newco and
delivered to HUBLink pursuant hereto.
8.4 Administration of Third Party Claims.
(a) Whenever any claim shall arise for indemnification under
this Article VIII, the Party entitled to indemnification (the "Indemnified
Party") shall promptly notify the other Party (the "Indemnifying Party") of the
claim and, when known, the facts constituting the basis for such claim. In the
event of any claim for indemnification hereunder resulting from or in connection
with any claim or legal proceeding by a person who is not a party to this
Agreement (a "Third Party Claim"), such notice shall also specify, if known, the
amount or a good faith estimate of the amount of the Losses arising therefrom.
(b) The Indemnified Party shall not settle or compromise or
voluntarily enter into any binding agreement to settle or compromise, or consent
to entry of any judgment arising
21
<PAGE> 22
from, any such claim or proceeding except in accordance with this Article VIII.
With respect to any Third Party Claim, the Indemnifying Party shall, subject to
the limitations set forth in Section 8.1 above, undertake the defense thereof by
representatives of its own choosing reasonably satisfactory to the Indemnified
Party. The Indemnified Party or any other Party shall have the right to
participate in any such defense of a Third Party Claim with advisory counsel of
its own choosing at its own expense. Assuming they have received reasonably
adequate advance notice of a covered claim, in the event the Indemnifying Party,
after two-thirds of the period for the presentation of a defense against any
such Third Party Claim, fails to begin to diligently defend it (or at any time
thereafter ceases to diligently defend it), the Indemnified Party will have the
right to undertake the defense, compromise or settlement of such Third Party
Claim on behalf of, and for the account of, the Indemnifying Party, at the
expense and risk of the Indemnifying Party.
8.5 Exclusive Remedy. Other than claims for injunctive relief
(where appropriate), the rights of indemnification contained in this Article
VIII shall be the exclusive remedy of the Parties for any contractual claims for
any breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. Notices.
(a) All notices, consents, requests and other communications
hereunder shall be in writing and shall be sent by hand delivery, by certified
or registered mail (return-receipt requested), or by a recognized national
overnight courier service as set forth below:
If to HIE or Newco: Healthdyne Information Enterprises, Inc.
1850 Parkway Place, Suite 1100
Marietta, Georgia 30067
Attention: Robert I. Murrie
with a copy to: Patricia A. Wilson, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2216
If to HUBLink: HUBLink, Inc.
100 East Campus View Boulevard
Columbus, Ohio 43235
Attention: Mark D. Shary
with a copy to: Benesch, Friedlander, Coplan & Aronoff
LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attention: Ira C. Kaplan, Esq.
22
<PAGE> 23
If to the Shareholder: Mark D. Shary
138 West Riverglen Drive
Worthington, Ohio 43085
(b) Notices delivered pursuant to Section 9.1(a) shall be
deemed given: (i) at the time delivered, if personally delivered; (ii) at the
time received, if mailed; and (iii) two (2) business days after timely delivery
to the courier, if by overnight courier service.
(c) A Party may change the address to which notice is to be
sent by written notice to the any other Party in accordance with this Section
9.1.
9.2 Entire Agreement. This Agreement, including all Exhibits and
Schedules hereto (all of which are incorporated herein by this reference),
contains the entire agreement and understanding concerning the subject matter
hereof between the Parties and specifically supersedes any other agreement or
understanding among the Parties related to the subject matter hereof.
9.3 Waiver; Amendment. No waiver, termination or discharge of this
Agreement, or any of the terms or provisions hereof, shall be binding upon any
Party unless confirmed in writing. No waiver by any Party of any term or
provision of this Agreement or of any default hereunder shall affect such
Party's rights thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar. This
Agreement may not be modified or amended except by a writing executed by all
Parties.
9.4 Severability. If any provision of this Agreement shall be
held void, voidable, invalid or inoperative, no other provision of this
Agreement shall be affected as a result thereof, and, accordingly, the remaining
provisions of this Agreement shall remain in full force and effect as though
such void, voidable, invalid or inoperative provision had not been contained
herein.
9.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
9.6 Assignment. No Party may assign this Agreement, in whole or in
part, without the prior written consent of all of the other Parties hereto, and
any attempted assignment not in accordance herewith shall be null and void and
of no force or effect.
9.7 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the Parties and their respective heirs, representatives,
successors and permitted assigns.
9.8 Cumulative Remedies. All rights and remedies of each of the
Parties are cumulative of each other and of every other right or remedy such
Party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
23
<PAGE> 24
9.9 Headings. The titles, captions and headings contained in this
Agreement are inserted for convenience of reference only and are not intended to
be a part of or to affect in any way the meaning or interpretation of this
Agreement.
9.10 Reference with Agreement. Numbered or lettered articles,
Sections, paragraphs, subsections, Schedules and Exhibits herein contained refer
to articles, Sections, paragraphs, subsections, Schedules and Exhibits of this
Agreement unless otherwise expressly stated. The words "herein," "hereof,"
"hereunder," "hereby," "this Agreement" and other similar references shall be
construed to mean and include this Agreement and all Exhibits and Schedules and
all amendments to any of them unless the context shall clearly indicate or
require otherwise.
9.11 Interpretation. This Agreement shall not be construed more
strictly against any Party hereto regardless of which Party is responsible for
its preparation, it being agreed that this Agreement was fully negotiated by all
of the Parties.
9.12 Definition of Knowledge. Any reference in this Agreement or in
any certificate delivered pursuant hereto to a Party's "knowledge" (whether to
"the best of" such Party's knowledge or other similar expressions relating to
the knowledge or awareness of any Party) shall include all matters which such
Party or any of its officers or directors actually knew or should have known
after reasonable inquiry; provided, however, any reference to "HUBLink's
knowledge" or similar expressions shall include all matters which HUBLink or any
of the individuals listed on Schedule 9.12 actually knew or should have known
after reasonable inquiry.
9.13 Further Assurances. Upon the reasonable request of a Party,
each Party agrees to take any and all actions, including, without limitation,
the execution of certificates, documents or instruments, necessary or
appropriate to give effect to the terms and conditions set forth in this
Agreement and to allow the Merger to be accounted for as a "pooling of
interests."
9.14 No Third Party Beneficiary. This Agreement is not intended to,
and shall not, create any rights in or confer any benefits on any person or
entity other than the Parties and may only be enforced by the Parties.
9.15 Counterparts; Fax Signatures. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute the same Agreement. Any signature
page of any such counterpart, or any electronic facsimile thereof, may be
attached or appended to any other counterpart to complete a fully executed
counterpart of this Agreement, and any telecopy or other facsimile transmission
of any signature shall be deemed an original and shall bind such party.
24
<PAGE> 25
IN WITNESS WHEREOF, the undersigned have caused their respective duly
authorized representatives to execute this Agreement as of the day and year
first above written.
"HIE"
HEALTHDYNE INFORMATION
ENTERPRISES, INC.
By: /s/ Joseph G. Bleser
-------------------------------------------
Joseph G. Bleser, Executive Vice
President and Chief Financial Officer
"HUBLink"
HUBLINK, INC.
By: /s/ Mark D. Shary
-------------------------------------------
Mark D. Shary, President
"Newco"
HIE ACQUISITION CORPORATION
By: /s/ Joseph G. Bleser
-------------------------------------------
Joseph G. Bleser, Vice President
"Shareholder"
/s/ Mark D. Shary
---------------------------------------------
Mark D. Shary
The Company will furnish supplementally a copy of any omitted schedule to this
Exhibit 2.1 to the Commission upon the Commission's request.
25
<PAGE> 1
EXHIBIT 2.2
PRIVATE PLACEMENT AND REGISTRATION RIGHTS AGREEMENT
THIS PRIVATE PLACEMENT AND REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of this 12th day of May, 1998, by and
among HEALTHDYNE INFORMATION ENTERPRISES, INC., a Georgia corporation ("HIE"),
and the persons and entities listed under the heading "Shareholders" on the
signature pages hereof (individually, a "Shareholder," and collectively, the
"Shareholders").
WHEREAS, HIE, HUBLink, Inc., an Ohio corporation ("HUBLink"), HIE
Acquisition Corporation, an Ohio corporation ("Newco"), and Mark D. Shary
("Shary") have entered into an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement") pursuant to which it is proposed that Newco
will merge with and into HUBLink (the "Merger"), and all of the shares of
HUBLink Common Stock held by persons other than HIE will be converted in the
Merger into the right to receive HIE Common Stock as determined in accordance
with the Merger Agreement; and
WHEREAS, the Merger Agreement contemplates that HIE and the
Shareholders shall enter into this Agreement concurrently with the Merger
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein and other good and valuable
consideration, the parties hereto covenant and agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the same meaning as provided in the Merger
Agreement.
For purposes of this Agreement, the following terms shall have
the respective meanings set forth below:
"Majority Shareholder" shall mean each holder of 10% or more
of the outstanding shares of HUBLink Common Stock as of the date of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
2.1 Investment Intent. Each Shareholder severally, as to itself
only:
(a) represents that the HIE Common Stock to be received by the
Shareholder pursuant to the Merger Agreement is being acquired for its own
account for investment and not with a view to any distribution or public
offering within the meaning of the Securities Act except as contemplated by
Section 3 hereof;
(b) acknowledges that the HIE Common Stock to be received by
the Shareholder pursuant to the Merger Agreement has not been registered under
the Securities Act;
<PAGE> 2
(c) represents that it is an "accredited investor" within the
meaning of Rule 501 of the Securities Act or that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in HIE Common Stock, and that the
information provided to HIE in the questionnaire completed by such Shareholder
(the "Purchaser's Questionnaire") is true and correct;
(d) acknowledges that it received prior to executing this
Agreement the HIE disclosure documents listed in Schedule A to this Agreement;
(e) acknowledges that HIE has made available to it at a
reasonable time prior to its execution of this Agreement the opportunity to ask
questions and receive answers concerning the terms and conditions of this
Agreement and to obtain any additional information which HIE possesses or can
acquire without unreasonable effort or expense that is necessary to verify the
accuracy of the information referred to in (d) above;
(f) agrees that it will not sell or otherwise transfer any of
the HIE Common Stock except pursuant to the registered offering contemplated by
Section 3 hereof or in one or more private transactions if, in the opinion of
counsel reasonably satisfactory to HIE, such transaction or transactions are not
required to be registered under the Securities Act; and
(g) understands and acknowledges that this Agreement does not
constitute an offer to sell or a solicitation of an offer to buy or a sale of
HIE Common Stock and that no sale will occur prior to the undersigned's election
to receive and receipt of HIE Common Stock pursuant to the Merger Agreement.
2.2 Pooling of Interests Representation.
(a) Each Shareholder whose name is set forth on Schedule B to
this Agreement severally, as to itself only, represents and warrants to and
covenants with HIE that (i) the Shareholder will not sell, transfer or otherwise
dispose of any HIE Common Stock received by the Shareholder pursuant to the
Merger Agreement until such time as financial statements covering at least
thirty (30) days of the combined operations of HIE and HUBLink following the
Merger have been published by HIE.
(b) Each Shareholder whose name is not included on Schedule B
to this Agreement severally, as to itself only, hereby represents and warrants
to HIE that such Shareholder is not an officer or a director of HUBLink or the
owner of 10% or more of the outstanding HUBLink Common Stock.
2.3 Legend. Each certificate representing the HIE Common Stock
issued pursuant to the Merger Agreement shall include a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES ACT AND
2
<PAGE> 3
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM, OR IN THE ABSENCE OF
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT IT MAY BE SOLD OR TRANSFERRED
WITHOUT SUCH REGISTRATION.
3.1 Registration by HIE. As soon as practicable after the Closing Date
but in no event later than 20 days thereafter, HIE shall file a registration
statement under the Securities Act (the "Registration Statement") with respect
to resales by the Shareholders of the HIE Common Stock issued to the
Shareholders pursuant to the Merger Agreement and shall cause such registration
to become effective as soon as practicable thereafter.
3.2 Registration Statement Form. The registration provided pursuant to
Section 3.1 shall be effected by the filing of a Registration Statement on Form
S-3 or such other form as HIE in its sole discretion determines to be available
and appropriate for the registration of resales of the HIE Common Stock by the
Shareholders, which shall provide for sales to be made on a continuous basis
pursuant to Rule 415 (or any similar rule that may be adopted by the Commission)
in accordance with the intended method or methods of disposition designated by
the Shareholders; provided, however, that not more than one underwritten
offering shall be made pursuant to such Registration Statement.
3.3 Expenses. Except as otherwise prohibited by applicable law, HIE
will pay all expenses of registration including, without limitation, fees and
disbursements of counsel for HIE, blue sky fees and expenses, and accountants'
expenses including without limitation any special audits or "comfort" letters
incident to or required by any such registration, transfer taxes, fees of
transfer agents and registrars, costs of insurance, and any fees and
disbursements of underwriters, customarily paid by issuers of securities, but
excluding underwriting discounts and commissions and fees of any counsel for the
Shareholders.
3
<PAGE> 4
3.4 Obligations with Respect to Registration.
(a) In connection with the registration of the HIE Common
Stock pursuant to this Agreement, HIE shall:
(i) Promptly prepare and file with the Commission
any amendments (including post-effective amendments) and
supplements to the Registration Statement and to the
prospectus included therein (the "Prospectus") as may be
necessary to keep such Registration Statement continuously
current and effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated
thereunder with respect to the disposition of all HIE Common
Stock covered by such Registration Statement for a period to
expire upon the earlier of (a) one year following the Closing
Date or (b) the date that all of the shares of HIE Common
Stock covered by the Registration Statement have been sold by
the Shareholders;
(ii) Notify the Shareholders and confirm such advice
in writing, (w) when such Registration Statement becomes
effective, (x) when the filing of any post-effective amendment
to such Registration Statement or supplement to the Prospectus
is required, when the same is filed and, in the case of a
post-effective amendment, when the same becomes effective, (y)
of any request by the Commission for any amendment of or
supplement to such Registration Statement or the Prospectus or
for additional information and (z) of the entry of any stop
order suspending the effectiveness of such Registration
Statement or the initiation of any proceedings for that
purpose, and, if such stop order shall be entered, HIE shall
use its best efforts promptly to obtain the lifting thereof;
(iii) Furnish at HIE's expense to the Shareholders
(x) at a reasonable time prior to the filing thereof with the
Commission a copy of the Registration Statement in the form in
which HIE proposes to file the same; not later than one day
prior to the filing thereof, a copy of any amendment
(including any post-effective amendment) to such Registration
Statement; and promptly following the effectiveness thereof, a
conformed copy of the Registration Statement as declared
effective by the Commission and of each post-effective
amendment thereto, including financial statements and all
exhibits and reports incorporated therein by reference, and
(y) such number of copies of the preliminary, any amended
preliminary, and final Prospectus and of each post-effective
amendment or supplement thereto, as may reasonably be required
in order to facilitate the disposition of the HIE Common Stock
covered by such Registration Statement in conformity with the
requirements of the Securities Act and the rules and
regulations promulgated thereunder, but only while HIE is
required under the provisions hereof to cause the Registration
Statement to remain effective;
(iv) Use all reasonable efforts to register and
qualify the HIE Common Stock covered by the Registration
Statement under such other securities laws of
4
<PAGE> 5
such jurisdictions as shall be reasonably requested by the
Shareholders and do any and all other acts and things which
may be reasonably necessary or advisable to enable the
Shareholders to consummate the disposition of the HIE shares
received by the Shareholders in the Merger in such
jurisdictions; provided, however, that HIE shall not be
required in connection therewith or as a condition thereto to
qualify to transact business or to file a general consent to
service of process in any such states or jurisdictions, or to
maintain the effectiveness of any such registration or
qualification for any period during which it is not required
to maintain the effectiveness of the related Registration
Statement under the Securities Act as set forth in Section
3.4(a)(i);
(v) Promptly notify the Shareholders of the happening
of any event as a result of which the Prospectus included in
such Registration Statement contains an untrue statement of a
material fact or omits any fact necessary to make the
statements therein not misleading and, subject to the further
provisions of Section 3.5(b), HIE will prepare a supplement or
amendment to such Prospectus so that, as thereafter delivered
to the purchasers of such HIE shares, such Prospectus will not
contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading;
(vi) Enter into such customary agreements in form
and substance satisfactory to HIE and take such other
customary actions as may be reasonably requested in order to
expedite or facilitate the disposition of the HIE shares
covered by the Registration Statement; and
(vii) Cooperate with the Shareholders to facilitate
the timely preparation and delivery of certificates
representing the HIE shares to be sold pursuant to the
Registration Statement and not bearing any restrictive
legends, and enable such HIE shares to be in such lots and
registered in such names as the Shareholders may request at
least two (2) business days prior to any delivery of the HIE
Shares to the purchaser.
(b) HIE's obligations with respect to and compliance with this
Section 3 shall be expressly conditioned upon each Shareholder's compliance with
the following:
(A) The Shareholders shall cooperate with HIE in
connection with the preparation of the Registration Statement,
and for so long as HIE is obligated to keep the Registration
Statement effective, shall provide to HIE, in writing, for use
in the Registration Statement, all such information regarding
the Shareholders and their plan of distribution of the HIE
shares as may be necessary to enable HIE to prepare the
Registration Statement and Prospectus covering the HIE shares,
to maintain the currency and effectiveness thereof and
otherwise to comply with all applicable requirements of law in
connection therewith.
5
<PAGE> 6
(B) During such time as the Shareholders may be
engaged in a distribution of the HIE shares, the Shareholders
shall comply with Regulation M promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and pursuant thereto, shall, among other things: (w)
not engage in any stabilization activity in connection with
the securities of HIE in contravention of the rules comprising
Regulation M; (x) distribute the HIE shares solely in the
manner described in the Registration Statement; (y) cause to
be furnished to each broker through whom the HIE shares may be
offered, or to the offeree if an offer is not made through a
broker, such copies of the Prospectus and any amendment or
supplement thereto and documents incorporated by reference
therein as may be required by law; and (z) not bid for or
purchase any securities of HIE or attempt to induce any person
to purchase any securities of HIE other than as permitted
under the Exchange Act.
3.5 Holdback Agreements.
(a) Notwithstanding any provision of this Agreement to the
contrary, in the event HIE notifies the Majority Shareholders, in writing and no
later than ten (10) days prior to the proposed filing date, that HIE intends to
file a registration statement in connection with an underwritten offering (the
"Offering") by HIE of any of its capital stock, the Majority Shareholders shall
refrain from selling or otherwise distributing any HIE Common Stock within the
period requested in writing by the managing underwriter for such Offering, which
period shall begin no earlier than two days (subject to prior written notice
thereof) prior to the effective date of such registration statement and shall
end no later than 90 days after such effective date (the "Offering Restricted
Period"); provided, however, that the Majority Shareholders shall not be
required to refrain from selling in connection with any Offering unless (i) HIE
and all of the directors and executive officers of HIE are also required to
refrain from selling for a comparable period with respect to any shares not
registered for sale by them in such Offering pursuant to contractual
registration rights in effect on the date of this Agreement; and (ii) each of
the Majority Shareholders whose shares of HIE Common Stock are covered by the
Registration Statement shall be given the opportunity to include such HIE Common
Stock in the registration statement filed in connection with such Offering
unless the managing underwriter of the Offering in good faith determines that
the size of the Offering should be limited to a number of shares less than that
requested to be registered by HIE and the Majority Shareholders and all other
persons having contractual rights to include securities in such registration
statement ("Other Holders"), in which case the number of shares to be registered
on behalf of the Majority Shareholders shall be reduced on a proportional basis,
together with shares requested to be registered by all Other Holders, it being
understood that HIE shall have priority as to sales over the Majority
Shareholders and each Other Holder. If the Registration Statement filed pursuant
to Section 3.1 is in effect at any time during the Offering Restricted Period
and the Majority Shareholders are not permitted to include in the registration
statement filed for the Offering all shares requested by the Majority
Shareholders to be included in the Offering, HIE's obligation under Section
3.4(a) to keep such Registration Statement current and effective shall be
extended for a number of days equal to the number of days such Registration
Statement was in effect during the Offering
6
<PAGE> 7
Restricted Period or, if earlier, until the date on which all of the HIE Common
Stock initially covered thereby has been disposed of.
(b) Each of the Majority Shareholders agrees to use his
reasonable best efforts to give HIE prior oral notice, directed to its Chief
Executive Officer or its Chief Financial Officer, confirmed immediately in
writing by facsimile transmission, of its intention to sell any shares of HIE
Common Stock under the Registration Statement, which notice shall be given at
least two (2) days in advance of any such proposed sale; provided, however, that
no liability shall attach to the inadvertent failure of a Majority Shareholder
to give such notice to HIE. Notwithstanding anything set forth herein to the
contrary, in the event that HIE notifies the Shareholders in writing (the
"Disclosure Notice") that
(i) there exist bona fide financing,
acquisition or other plans of HIE or other matters
which would require disclosure by HIE of information,
the premature disclosure of any of which would
adversely affect or otherwise be detrimental to HIE,
or
(ii) HIE desires to amend the Registration
Statement or to supplement the Prospectus in order to
disclose material information required to be
disclosed in the Prospectus included in such
Registration Statement, as then in effect, in order
to correct an untrue statement of a material fact or
to disclose an omitted material fact that is required
to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances then existing,
the Shareholders shall refrain from selling HIE Common Stock thereunder until
HIE notifies the Shareholders in writing that (x) the required amendment or
supplement has been filed with the Commission (which filing will be made as
promptly as practicable, subject to the provisions of Section 3.5(b)(i)), (y)
HIE notifies the Shareholders that the potentially disclosable event no longer
exists and that the Prospectus included in the Registration Statement does not
contain an untrue statement of material fact or omit to state any fact necessary
to make the statements therein not misleading; or (z) until 90 days following
the Disclosure Notice, whichever is earlier (the "Disclosure Restricted
Period"). If a Registration Statement filed pursuant to Section 3.1 is effective
at the time during the Disclosure Restricted Period, HIE's obligation under
Section 3.4(a) to keep such Registration Statement current and effective shall
be extended for a number of days equal to the number of days such Registration
Statement was in effect during the Disclosure Restricted Period, or, if earlier,
until the date on which all of the HIE Common Stock initially covered thereby
has been disposed of.
3.6 SEC Filings. HIE will use commercially reasonable efforts to timely
file all reports required to be filed by it under the Exchange Act and the rules
and regulations adopted thereunder to the extent required to enable the sale of
the HIE Common Stock pursuant to the Registration Statement filed on Form S-3 or
pursuant to Rule 144 promulgated under the Securities Act for the period
commencing on the date hereof and ending on the earlier of (i) one
7
<PAGE> 8
year from the Closing Date or (ii) the sale by the Shareholders of all of the
HIE Common Stock referred to in Section 3.1.
3.7 Indemnification and Contribution.
(a) By HIE. In connection with the registration under the
Securities Act of the HIE Common Stock pursuant to this Section 3, HIE shall
indemnify and hold harmless the Shareholders and each other person, if any, who
controls any of the Shareholders within the meaning of Section 15 of the
Securities Act ("controlling persons"), against any expenses, losses, claims,
damages, liabilities or costs (including without limitation court costs and
attorneys' fees), joint or several (or actions in respect thereof) ("Losses"),
to which each such indemnified party may become subject, under the Securities
Act or otherwise, but only to the extent such Losses arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which such HIE Common Stock was registered under the Securities Act, in any
preliminary Prospectus (if used prior to the effective date of such Registration
Statement) or in any final Prospectus or in any post-effective amendment or
supplement thereto (if used during the period HIE is required to keep the
Registration Statement effective) (the "Disclosure Documents"), or (ii) any
omission or alleged omission to state in any of the Disclosure Documents a
material fact required to be stated therein or necessary to make the statements
made therein not misleading, or (iii) any violation of any federal or state
securities laws or rules or regulations thereunder committed by HIE in
connection with the performance of its obligations under this Section 3; and HIE
will reimburse each such indemnified party for all legal and other expenses
reasonably incurred by such party in investigating or defending against any such
claims, whether or not resulting in any liability, or in connection with any
investigation or proceeding by any governmental agency or instrumentality with
respect to any offering of securities pursuant to this Section 3; provided,
however, that HIE shall not be liable to an indemnified party or any other
Shareholder or controlling person of any other Shareholder in any such case to
the extent that any such Losses arise out of or are based upon (i) an untrue
statement or omission or alleged omission (x) made in any such Disclosure
Documents in reliance upon and in conformity with written information furnished
to HIE by such indemnified party for use therein, or (y) made in any preliminary
Prospectus if a copy of the final Prospectus was not delivered to the person
alleging any loss, claim, damage or liability for which Losses arise at or prior
to the written confirmation of the sale of such HIE Common Stock to such person
and the untrue statement or omission concerned had been corrected in such final
Prospectus and copies thereof had timely been delivered by HIE to such
indemnified party, or (z) made in any Prospectus used by such indemnified party
if a court of competent jurisdiction finally determines that at the time of such
use such indemnified party had actual knowledge of such untrue statement or
omission; or (ii) the use of any Prospectus after such time as HIE has advised
such indemnified party in writing that the filing of a post-effective amendment
or supplement thereto is required, except the Prospectus as so amended or
supplemented, or the use of any Prospectus after such time as the obligation of
HIE to keep the same current and effective has expired. In determining the
actual knowledge of an indemnified party for purposes of clause (i)(z) above,
the actual knowledge (without any requirement of due inquiry) of a controlling
person of the Shareholders who is also a director of HIE shall be imputed to the
Shareholders (and its other controlling persons).
8
<PAGE> 9
(b) By the Shareholders. In connection with the registration
under the Securities Act of the HIE Common Stock of the Shareholders pursuant to
this Section 3, the Shareholders receiving such HIE Common Stock shall,
severally, indemnify and hold harmless HIE, each of its directors, each of its
officers who have signed such Registration Statement and each other person, if
any, who controls HIE within the meaning of Section 15 of the Securities Act,
and each other Shareholder and each controlling person of such Shareholders
against any Losses to which such indemnified party may become subject under the
Securities Act or otherwise, but only to the extent such Losses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any of the Disclosure Documents or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with written information
furnished to HIE by such indemnifying party for use therein; (ii) the use by
such indemnifying party of any Prospectus after such time as HIE has advised
such indemnifying party in writing that the filing of a post-effective amendment
or supplement thereto is required, except the Prospectus as so amended or
supplemented, or after such time as the obligation of HIE to keep the
Registration Statement effective and current has expired, or (iii) any
information given or representation made by such indemnifying party in
connection with the sale of HIE Common Stock which is not contained in and not
in conformity with the Prospectus (as amended or supplemented at the time of the
giving of such information or making of such representation); and such
indemnifying party shall reimburse each such indemnified party for all legal and
other expenses reasonably incurred by such party in investigating or defending
against any such claims, whether or not resulting in any liability, or in
connection with any investigation or proceeding by any governmental agency or
instrumentality relating to any such claims with respect to any offering of
securities pursuant to this Section 3.
(c) Actions Commenced. If a third party commences any action
or proceeding against an indemnified party related to any of the matters subject
to indemnification under Section 3.7(a) or (b) hereof, such indemnified party
shall promptly give notice to the indemnifying party in writing of the
commencement thereof, but failure so to give notice shall not relieve the
indemnifying party from any liability which it may have hereunder unless the
indemnifying party is prejudiced thereby.
The indemnifying party shall be entitled to control the
defense or prosecution of such claim or demand in the name of the indemnified
party, with counsel satisfactory to the indemnified party, if it notifies the
indemnified party in writing of its intention to do so within 20 days of its
receipt of the notice from the indemnified party without prejudice, however, to
the right of the indemnified party to participate therein through counsel of its
own choosing, which participation shall be at the indemnified party's expense
unless (i) the indemnified party shall have been advised by its counsel that use
of the same counsel to represent both the indemnifying party and the indemnified
party would represent a conflict of interest (which shall be deemed to include
any case where there may be a legal defense or claim available to the
indemnified party which is different from or additional to those available to
the indemnifying party), in which case the indemnifying party shall not have the
right to direct the
9
<PAGE> 10
defense of such action on behalf of the indemnified party, or (ii) the
indemnifying party shall fail vigorously to defend or prosecute such claim or
demand within a reasonable time. Whether or not the indemnifying party chooses
to defend or prosecute such claim, the parties hereto shall cooperate in the
prosecution or defense of such claim and shall furnish such records, information
and testimony and attend such conferences, discovery proceedings, hearings,
trials and appeals as may be requested in connection therewith. The indemnifying
party shall not, in the defense of such claim or any litigation resulting
therefrom, consent to entry of any judgment against the indemnified party (or
settle any claim involving an admission of fault on the part of the indemnified
party), except with the consent of the indemnified party (which consent shall
not be unreasonably withheld).
(d) Contribution. If the indemnification provided for in
subsections (a) or (b) of this Section 3.7 is unavailable to or insufficient to
hold the indemnified party harmless under subsections (a) or (b) above in
respect of any Losses referred to therein for any reason other than as specified
therein, then the indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on the
one hand and such indemnified party on the other in connection with the
statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by (or omitted to be supplied by) HIE or the
Shareholders and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by an indemnified party as a result of the Losses referred to
above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Limitation of Liability of Shareholders. The
indemnification obligation under Section 3.7(b), and the contribution obligation
under Section 3.7(d), of a Shareholder shall be limited to the amount of
proceeds received by such Shareholder upon the sale of HIE Common Stock under
the registration statement filed pursuant to this Section 3.
4.1 Notices. All notices and other communications required to be
given hereunder shall be in writing and shall be deemed to have been duly given
upon delivery, if delivered by hand; if given by mail, three (3) days after the
date of mailing, postage prepaid, certified or registered mail to a party hereto
at the address set forth below; if given by facsimile, upon transmission to the
number set forth below provided written confirmation is sent to the address
below; if given by overnight delivery service addressed to the address set forth
below, the business day following the day on which such notice is sent:
If to HIE:
10
<PAGE> 11
Healthdyne Information Enterprises, Inc.
1850 Parkway Place, 11th Floor
Marietta, Georgia 30067
Attention: Robert I. Murrie
Facsimile: (770) 767-8580
With a copy to:
Troutman Sanders LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attention: Patricia A. Wilson, Esq.
Facsimile: (404) 885-3995
If to the Shareholders:
To the address of each such Shareholder as set forth
in such Shareholder's Purchaser's Questionnaire, or
at such other address as shall be designated in
writing by such Shareholder.
Any party hereto may change its address for purposes of receiving notice
pursuant to this Agreement by giving notice of such new address to each other
party hereto.
4.2 Interpretation. The Sections and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement. Terms used in the plural include the
singular, and vice versa, unless the context otherwise requires.
4.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument. Telecopy transmission of
signatures shall be deemed originals.
4.4 Miscellaneous. This Agreement, including its Schedules (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof; (ii) is not intended to and shall not
confer upon any other person any rights or remedies hereunder or otherwise with
respect to the subject matter hereof; (iii) shall not be assigned by operation
of law or otherwise; and (iv) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Georgia.
4.5 Specific Performance. The parties hereto acknowledge and agree that
the benefits to them under this Agreement are unique, that they are willing to
enter into this Agreement only upon performance by each other of all of their
obligations hereunder and that they will not have
11
<PAGE> 12
an adequate remedy at law if the other fails to perform any of its obligations
hereunder. Accordingly, the parties hereby agree that each shall have the right,
in addition to any other rights or remedies it may have at law or in equity, to
specific performance or equitable relief by way of injunction if the other party
fails to perform any of its obligations hereunder.
4.6 Amendment and Waiver. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with the written consent
of HIE and those Shareholders holding a majority of the then outstanding shares
of HIE Common Stock which are subject to registration pursuant to the terms of
Section 3 hereof.
4.7 Diligence. Each of the parties certifies that he, she or it has
(a) received a copy of this Agreement for review and study before being asked
to execute it; (b) read this Agreement carefully; (c) had sufficient
opportunity before he, she or it executed this Agreement to ask questions about
this Agreement, to which he, she or it has received satisfactory answers to any
such questions; and (d) understands his, her or its rights and obligations
under this Agreement.
4.8 Binding Effect. The terms and provisions of this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by or against the
parties and their respective legal representatives, heirs, successors and
permitted assigns.
4.9 Severability. If any part of this Agreement or other agreement
entered into pursuant hereto is contrary to, prohibited by or deemed invalid
under applicable law or regulation, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect to the greatest extent permitted by law.
4.10 Preparation of Agreement. This Agreement shall not be construed
more strongly against any party regardless of who is responsible for its
preparation.
[SIGNATURES BEGIN ON NEXT PAGE]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
HEALTHDYNE INFORMATION ENTERPRISES, INC.
By: /s/ Joseph G. Bleser
--------------------------------------------
Title: Executive Vice President and Chief
Financial Officer
"SHAREHOLDERS"
Signature: /s/ Douglas T. Anderson
----------------------------------------
Douglas T. Anderson (Douglas T. Anderson
and Kerrii B. Anderson, Joint Tenants
with Right of Survivorship)
Signature: /s/ Kerrii B. Anderson
----------------------------------------
Kerrii B. Anderson (Douglas T. Anderson
and Kerrii B. Anderson, Joint Tenants
with Right of Survivorship
Signature: /s/ Larry W. Anderson
----------------------------------------
Larry W. Anderson
Signature: /s/ Molly M. Anderson
----------------------------------------
Molly M. Anderson
Signature: /s/ Chris T. Anton
----------------------------------------
Chris T. Anton
Signature: /s/ John L. Babitt
----------------------------------------
John L. Babitt
[SIGNATURES CONTINUED ON NEXT PAGE]
13
<PAGE> 14
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Signature: /s/ Robert S. Barklay, Jr.
---------------------------------------
Robert S. Barklay, Jr.
Signature: /s/ Richard J. Candela
---------------------------------------
Richard J. Candela
Signature: /s/ James J. Chester
---------------------------------------
James J. Chester
Signature: /s/ John J. Chester
---------------------------------------
John J. Chester
Signature: /s/ Richard T. Day
---------------------------------------
Richard T. Day
Signature: /s/ Donald W. Dick
---------------------------------------
Donald W. Dick (Donald W. Dick and
Richard E. Dick, Joint Tenants with
Right of Survivorship)
Signature: /s/ Richard E. Dick
---------------------------------------
Richard E. Dick (Donald W. Dick and
Richard E. Dick, Joint Tenants with
Right of Survivorship)
Signature: /s/ Richard W. Gambs
---------------------------------------
Richard W. Gambs
Signature: /s/ Steven J. Jefferis
---------------------------------------
Steven J. Jefferis
[SIGNATURES CONTINUED ON NEXT PAGE]
14
<PAGE> 15
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Signature: /s/ Scott A. Jones
----------------------------------------
Scott A. Jones
Signature: /s/ Gary L. Jordan
----------------------------------------
Gary L. Jordan (individually and, with
Annette J. Jordan, Joint Tenants with
Right of Survivorship)
Signature: /s/ Annette J. Jordan
----------------------------------------
Annette J. Jordan (Gary L. Jordan and
Annette J. Jordan, Joint Tenants with
Right of Survivorship)
Signature: /s/ John P. Kennedy
----------------------------------------
John P. Kennedy (AmeriTrade, Inc. Cust.
FBO John P. Kennedy, SEP IRA
A/C #341-028439)
Signature: /s/ Ernest Kreutzer, M.D.
----------------------------------------
Ernest Kreutzer, M.D. (Midwest
Physician Anesthesia Services, Inc.
Profit Sharing Ernest Kreutzer, M.D.
Directed)
Signature: /s/ Scott T. Mallory
----------------------------------------
Scott T. Mallory
Signature: /s/ John William Martin
----------------------------------------
John William Martin
Signature: /s/ M.E. Palloto
----------------------------------------
Monaghan Reinsurance Co. Limited
[SIGNATURES CONTINUED ON NEXT PAGE]
15
<PAGE> 16
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Signature: /s/ John B. Patton
-----------------------------------
John B. Patton
Signature: /s/ Michael H. Perrini
-----------------------------------
Michael H. Perrini
Signature: /s/ John J. Perrini
-----------------------------------
John J. Perrini
Signature: /s/ David A. Richards
-----------------------------------
David A. Richards (Ameritrade, Inc.
Cust. FBO David J. Richards, IRA
A/C #341-028439)
Signature: /s/ Diane M. Rose
-----------------------------------
Diane M. Rose (Diane M. Rose and
Lawrence M. Rose, Joint Tenants
with Right of Survivorship)
Signature: /s/ Lawrence M. Rose
-----------------------------------
Lawrence M. Rose (Diane M. Rose
and Lawrence M. Rose, Joint Tenants
with Right of Survivorship)
Signature: /s/ Mark D. Shary
-----------------------------------
Mark D. Shary
Signature: /s/ Mark F. Taggart
-----------------------------------
Mark F. Taggart (Mark F. Taggart
and Suzanne C. Taggart, Joint
Tenants with Right of Survivorship)
[SIGNATURES CONTINUED ON NEXT PAGE]
16
<PAGE> 17
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
Signature: /s/ Suzanne C. Taggart
----------------------------------------
Suzanne C. Taggart (Mark F.Taggart and
Suzanne C. Taggart, Joint Tenants with
Right of Survivorship)
Signature: /s/ Gordon Taylor
----------------------------------------
Gordon Taylor (Gordon Taylor and Jean G.
Taylor, Joint Tenants with Right of
Survivorship)
Signature: /s/ Jean G. Taylor
----------------------------------------
Jean G. Taylor (Gordon Taylor and Jean
G. Taylor, Joint Tenants with Right of
Survivorship)
Signature: /s/ James R. Thorson, Jr.
----------------------------------------
James R. Thorson, Jr. (James R.
Thorson, Jr. and Kelley K. Thorson,
Joint Tenants with Right of Survivorship)
Signature: /s/ Kelley K. Thorson
----------------------------------------
Kelley K. Thorson (James R. Thorson, Jr.
and Kelley K. Thorson, Joint Tenants
with Right of Survivorship)
VOLPE, BROWN, WHELAN & COMPANY, LLC
By: /s/ Steven D. Piper
-----------------------------
Its: Compliance Officer
17
<PAGE> 18
SCHEDULE A
LIST OF DOCUMENTS RECEIVED FROM HEALTHDYNE INFORMATION ENTERPRISES, INC. FOR
REVIEW
1. Form 10-K of Healthdyne Information Enterprises, Inc. for the fiscal year
ended December 31, 1997.
2. 1997 Annual Report to Shareholders of Healthdyne Information Enterprises,
Inc.
3. Notice of Meeting and Proxy Statement for 1998 Annual Meeting of
Shareholders of Healthdyne Information Enterprises, Inc.
4. Draft of the Agreement and Plan of Merger by and among Healthdyne
Information Enterprises, Inc., HIE Acquisition Corporation, HUBLink, Inc.
and Mark D. Shary.
5. Description of the Healthdyne Information Enterprises, Inc. Capital Stock.
<PAGE> 1
EXHIBIT 23
We consent to the inclusion of our report dated March 27, 1998, except for Note
12, as to which the date is April 28, 1998, with respect to the balance sheets
of HUBLink, Inc. as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the two-year period then ended, which report appears in the Form 8-K of
Healthdyne Information Enterprises, Inc. dated May 27, 1998.
We also consent to the inclusion of our report dated September 10, 1997, with
respect to the balance sheets of HUBLink, Inc. as of December 31, 1996 and 1995,
and the related statements of operations, stockholders' equity (deficit), and
cash flows for each of the years in the two-year period then ended, which report
appears in the Form 8-K of Healthdyne Information Enterprises, Inc. dated May
27, 1998.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
May 27, 1997
<PAGE> 1
EXHIBIT 99.1
FOR IMMEDIATE RELEASE FOR: HEALTHDYNE INFORMATION
ENTERPRISES, INC.
APPROVED BY: Robert Murrie
Healthdyne Information Enterprises, Inc.
President and CEO
(770) 423-8526
CONTACT: Investor Relations:
Gordon McCoun/Stacey Levitz
Press: Michael McMullan
Morgen-Walke Associates, Inc.
(212) 850-5600
Web: http://www.morgen-walke.com
HEALTHDYNE INFORMATION ENTERPRISES, INC.
COMPLETES MERGER WITH HUBLINK, INC.
Marietta, GA, May 13, 1998--Healthdyne Information Enterprises, Inc.
("HIE"), an integration solutions company (NASDAQ: HDIE), announced today it has
completed a merger through a wholly owned subsidiary with HUBLink, Inc., a
privately-held integration software tool company located in Columbus, OH. Under
the terms of the merger, which will be accounted for as a pooling of interests,
HIE issued approximately 2.95 million shares of common stock in conjunction with
the transaction. The merger is expected to be accretive to earnings.
HUBLink, Inc. is a provider of message broker tools and solutions for
enterprise-wide systems integration. Message brokers represent a new form of
middleware that bridge heterogeneous applications across the enterprise. "This
merger of HIE and HUBLink combines two of the leading participants in the
healthcare integration solutions segment, and positions HIE as a significant and
emerging player in the rapidly growing $2.4 billion applications integration
market. In addition to a significant healthcare customer base, HUBLink provides
HIE with advanced object technologies, early market positioning for message
brokering among large organizations and key partners for non-healthcare vertical
growth. The combined company has a distribution network encompassing North
America, Central & Eastern Europe, the Asia/Pacific region, the Middle East and
Africa, over 1,000 customer sites, and pro forma 1997 revenue of $18 million.
Robert Murrie, HIE's President and Chief Executive Officer, said, "This
merger, which is expected to enhance our revenue growth rate, is a natural
partnership of complementary services, technologies, corporate cultures and
customer bases. Both companies are dedicated to designing tools and services
that allow for integration of disparate hardware and software components within
an enterprise information system. We have established reputations as premier
technology suppliers in our respective segments of the applications integration
market: HIE, with its Cloverleaf(R) integration engine, and HUBLink with its
OM3(TM) enterprise-level object-orientated message broker. Both companies are
leaders in customer service and will continue to emphasize service as a merged
entity."
<PAGE> 2
Mr. Murrie continued, "Under a unified operating structure, HIE expects
to build quickly on common strengths, create efficiencies in areas such as
administration, marketing, and research & development, and leverage combined
resources to provide customers, partners, and prospects with a broader offering
of innovative integration tools and services."
Mark Shary, HUBLink's President and Chief Executive Officer, will be
HIE's new Chief Financial Officer, as well as Senior Vice President for Product
Planning. Mr. Shary founded HUBLink in 1992 following a ten-year career with
Ernst & Young, where he held the position of Senior Manager. He is a CPA and a
contributing member of various technology organizations, such as the Object
Management Group (OMG), Healthcare Information Management Systems Society
(HIMSS), and the Message Oriented Middleware Organization (MOMA). Mr. Shary
replaces Joe Bleser, HIE's current Chief Financial Officer. Mr. Bleser will
remain actively involved with the Company as a consultant and board member after
his retirement on June 30, 1998. Robert Murrie will continue as HIE's President
and Chief Executive Officer.
Mr. Shary stated, "With this merger, HIE plans to continue its strong
focus in the healthcare industry while creating significant opportunities to
leverage core integration tools and service offerings in complementary vertical
markets such as manufacturing, retail banking, financial services, and
government. HUBLink, as an IBM BESTeam Premier Partner, brings considerable
expertise in IBM's MQSeries product, which leads the middleware market with an
installed base of over 3,500 sites in a variety of industries. HUBLink has been
making significant progress in penetrating this MQSeries customer base with its
OM3 Message Broker, a complementary product."
HIE, Inc. helps enterprises protect and leverage their legacy
information technology investments and add new, incremental capabilities
designed to enhance organizational effectiveness and meet new goals.
Except for the historical information contained herein, this press release
contains forward-looking statements that involve a number of risks and
uncertainties which could cause actual results to differ materially from those
indicated in such forward-looking statements. Among the important factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are competitive pressures, the mix of software and
service revenue, the mix of direct and indirect sales, sales timing, changes in
pricing policies, undetected errors or bugs in the software, delays in product
development, lower-than-expected demand for the Company's software tools or
services, business conditions in the healthcare and other complementary markets,
the Company's ability to modify its software for use in non-healthcare
industries, risks associated with possible acquisitions, general economic
conditions and the risk factors detailed from time to time in the Company's
periodic reports and registration statements filed with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. By making these forward-looking statements, the
Company does not undertake to update them in any manner except as may be
required by the Company's disclosure obligations in filings it makes with the
Securities and Exchange Commission under the Federal securities laws.
FOR MORE INFORMATION VISIT HIE'S WEB SITE AT HTTP://WWW.HIE.COM.
###
"HIE" and "Cloverleaf" are registered trademarks of Healthdyne Information
Enterprises, Inc. "HUBLink" is a registered trademark and "OM3" and "OM3 Message
Broker" are trademarks of HUBLink, Inc., now HIE. "IBM", "BESTeam" and
"MQSeries" are all registered trademarks of International Business Machines
Corp.
<PAGE> 1
EXHIBIT 99.2
HUBLink, Inc.
-------------
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
HUBLink, Inc.:
We have audited the accompanying balance sheets of HUBLink, Inc. (the Company)
as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HUBLink, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
September 10, 1997
<PAGE> 3
HUBLink, Inc.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 28,781 21,678
Accounts receivable, net of allowance for doubtful accounts of $160,000 in
1996 (none in 1995) 778,355 555,092
Prepaid expenses 9,200 19,270
----------- ----------
Total current assets 816,336 596,040
Fixed assets, net 422,739 413,572
Other assets 44,001 49,500
=========== ==========
Total assets $ 1,283,076 1,059,112
=========== ==========
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Line of credit 850,000 600,000
Notes payable 295,000 405,000
Current portion of capital lease obligations 84,560 68,959
Current portion of deferred revenue 696,581 678,042
Accounts payable 381,896 99,337
Accrued expenses 102,087 61,022
----------- ----------
Total current liabilities 2,410,124 1,912,360
Long-term portion of capital lease obligations 50,602 80,440
Long-term portion of deferred revenue 175,255 26,241
----------- ----------
Total liabilities 2,635,981 2,019,041
----------- ----------
Stockholders' equity (deficit):
Common stock, no par value; 7,500 shares authorized; 6,107 and 5,681
shares issued and outstanding in 1996 and 1995, respectively 2,760,256 2,077,080
Deferred compensation (23,126) (23,288)
Accumulated deficit (4,090,035) (3,013,721)
----------- ----------
Total stockholders' equity (deficit) (1,352,905) (959,929)
=========== ==========
Total liabilities and stockholders' equity (deficit) $ 1,283,076 1,059,112
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
HUBLink, Inc.
Statements of Operations
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Software $ 1,453,462 1,087,230
Services 1,564,656 905,026
Hardware sales 984,631 469,070
Other 89,457 87,064
----------- ----------
Total revenues 4,092,206 2,548,390
----------- ----------
Cost of revenues:
Services 717,265 571,174
Hardware sales 966,600 338,604
----------- ----------
Total cost of revenues 1,683,865 909,778
----------- ----------
Gross profit 2,408,341 1,638,612
----------- ----------
Operating expenses:
Sales and marketing 1,929,940 1,529,910
Research and development 963,805 760,894
General and administrative 503,222 185,275
Write-off of licensed technology -- 100,000
----------- ----------
Total operating expenses 3,396,967 2,576,079
----------- ----------
Loss from operations (988,626) (937,467)
Interest expense (90,930) (63,205)
Other income 3,242 23,028
=========== ==========
Net loss $(1,076,314) (977,644)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
HUBLink, Inc.
Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Total
stock-
Common stock Deferred Accumu- holders'
----------------------- compen- lated equity
Shares Amount sation deficit (deficit)
------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 5,681 $ 2,108,027 (34,379) (2,036,077) 37,571
Deferred compensation related to granting of
stock options -- 20,000 (20,000) -- --
Amortization of deferred compensation -- -- 24,094 -- 24,094
Forfeitures of stock options -- (50,947) 6,997 -- (43,950)
Net loss -- -- -- (977,644) (977,644)
----- ----------- ------- ---------- ----------
Balances at December 31, 1995 5,681 2,077,080 (23,288) (3,013,721) (959,929)
Issuance of common stock, net of issuance costs
of $20,688 426 729,312 -- -- 729,312
Deferred compensation related to granting of
stock options -- 29,160 (29,160) -- --
Amortization of deferred compensation -- -- 20,651 -- 20,651
Forfeitures of stock options -- (75,296) 8,671 -- (66,625)
Net loss -- -- -- (1,076,314) (1,076,314)
===== =========== ======= ========== ==========
Balances at December 31, 1996 6,107 $ 2,760,256 (23,126) (4,090,035) (1,352,905)
===== =========== ======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
HUBLink, Inc.
Statements of Cash Flows
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,076,314) (977,644)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 114,995 99,457
Loss from disposal of fixed assets -- 11,060
Provision for doubtful accounts 291,413 --
Compensation related to stock options plan, net of forfeitures (45,974) (19,856)
Changes in assets and liabilities:
Accounts receivable (514,676) (281,441)
Prepaid expenses and other current assets 10,070 (9,125)
Other assets 5,499 3,540
Deferred revenue 167,553 (14,883)
Accounts payable 282,559 (17,284)
Accrued expenses 41,065 (13,540)
----------- ----------
Net cash used in operating activities (723,810) (1,219,716)
----------- ----------
Cash flows from investing activities--
Purchase of fixed assets (59,048) (105,433)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 729,312 --
Repayment of capital lease obligations (79,351) (47,122)
Net borrowings under line of credit 250,000 600,000
Repayment of notes payable (110,000) (60,000)
----------- ----------
Net cash provided by financing activities 789,961 492,878
----------- ----------
Net increase (decrease) in cash 7,103 (832,271)
----------- ----------
Cash at beginning of year 21,678 853,949
=========== ==========
Cash at end of year $ 28,781 21,678
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Interest paid $ 79,675 82,720
=========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES--
Fixed assets acquired under capital lease obligations $ 65,114 116,782
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
HUBLink, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
(1) DESCRIPTION OF BUSINESS
HUBLink, Inc. (the Company), located in Columbus, Ohio, develops,
markets, and supports database and information system integration
software which has primarily been sold in the health care industry
in the United States. The Company's software enables disparate
systems to be connected via a unique, object-oriented rules-based
hub. The Company also resells various pieces of computer hardware.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of
the related assets and includes amortization of capital
leases. Amortization of leasehold improvements is computed
over the shorter of the lease term or estimated useful life of
the asset.
(B) REVENUE RECOGNITION
Revenue is derived principally from the development and sale of
internally developed software products and from support
services related to those products. The Company's revenue
recognition policies conform to Statement of Position 91-1,
Software Revenue Recognition, promulgated by the American
Institute of Certified Public Accountants. Revenue from
software sales is recognized upon product delivery and
customer acceptance. Revenue from support and other services
is recognized as the services are performed. Revenue from
service and maintenance agreements is recognized ratably over
the terms of the agreements.
(C) SOFTWARE DEVELOPMENT COSTS
Software development costs are included in product development and
support expense and are expensed as incurred. Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, requires the capitalization of certain
software development costs once technological feasibility is
established, subject to net realizable value considerations.
The capitalized cost is then amortized. To date, the period
between achieving technological feasibility, which the Company
has defined as the establishment of a working model, and the
general release of such software has been short and software
development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized
any software development costs.
(Continued)
<PAGE> 8
2
HUBLink, Inc.
Notes to Financial Statements, Continued
(D) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that included the enactment date.
(E) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income disclosures for
employee stock option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123 for employee stock options.
(F) USE OF ESTIMATES
Management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the
financial statements and the reporting of revenues and
expenses during the reporting period to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(3) FIXED ASSETS
Fixed assets consisted of the following at December 31:
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Furniture and fixtures 5-7 Years $ 154,476 143,836
Computers and software 3-5 Years 526,883 413,466
Leasehold improvements 5 Years 16,838 16,838
--------- --------
698,197 574,140
Less accumulated depreciation and amortization (275,458) (160,568)
--------- --------
$ 422,739 413,572
========= ========
</TABLE>
(Continued)
<PAGE> 9
3
HUBLink, Inc.
Notes to Financial Statements, Continued
Included in fixed assets is $301,295 and $225,469 of equipment recorded
under capital lease agreements at December 31, 1996 and 1995,
respectively. Accumulated amortization related to this equipment was
$110,143 and $54,401 as of December 31, 1996 and 1995, respectively.
(4) LINES OF CREDIT
The Company established a line of credit with a commercial banking
institution that enables it to borrow up to $850,000 at 0.375% above
the prime rate (8.625% at December 31, 1996). The line of credit is
secured by substantially all of the Company's assets. Subsequent to
year-end, the Company increased the credit available under the line
to $1 million and extended the terms of the line of credit to
December 31, 1998. The $1 million line of credit is guaranteed by a
significant shareholder.
(5) NOTES PAYABLE
Notes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable to shareholder, payable on demand with interest
payable at 2% above prime in 1996 and at 3-month Internal
Revenue Code rates in 1995 $285,000 285,000
Note payable to a third party for consulting services, paid subsequent to
December 31, 1996 10,000 120,000
======== =======
$295,000 405,000
======== =======
</TABLE>
Subsequent to year-end, the Company signed an agreement to borrow
$350,000 from a commercial banking institution at 0.375% above the
prime rate. The note matures on December 31, 1998.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value for cash, accounts receivable and all current
liabilities approximates their respective fair values because of
the short maturities of these instruments.
(Continued)
<PAGE> 10
4
HUBLink, Inc.
Notes to Financial Statements, Continued
(7) LEASES
The Company has one operating lease having an initial or remaining
noncancelable lease term in excess of one year for its principal
office facility and has various other capital leases for fixed
assets. Future minimum lease payments under these noncancelable
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases lease
------ -----
<S> <C> <C>
Year ending December 31:
1997 $ 94,839 80,174
1998 38,584 81,625
1999 12,209 47,614
2000 5,546 --
-------- --------
Total minimum lease payments 151,178 $209,413
========
Less amount representing interest 16,016
--------
Present value of minimum lease payments 135,162
Less current portion of capital lease obligations 84,560
========
Long-term portion of capital lease obligations $ 50,602
========
</TABLE>
Interest expense related to capital leases was $15,238 and $14,346 for
the years ended December 31, 1996 and 1995, respectively. Total rent
expense was $170,474 and $128,717 for the years ended December 31,
1996 and 1995, respectively.
(8) STOCK OPTIONS
The Company grants nonqualified stock options to selected employees. The
Board of Directors determines the terms and conditions of options
granted. Options granted have varied vesting provisions. Vested
options expire one year from the date employment terminates. The
Company has recorded deferred compensation for the difference
between the grant price and the deemed fair value of the stock at
grant date related to certain of the Company's stock options. This
amount is being amortized over the relevant period of benefit.
(Continued)
<PAGE> 11
5
HUBLink, Inc.
Notes to Financial Statements, Continued
The following table summarizes option activity:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
-------------------- --------------------
Weighted- Weighted-
Number average Number average
of exercise of exercise
shares price shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of period 438 $ 839 435 $ 595
Granted 60 1,250 150 1,267
Forfeited (213) 528 (147) 553
==== ====== ==== ======
Outstanding at end of period 285 $1,158 438 $ 839
==== ====== ==== ======
Weighted-average fair value of options granted
during the year $ 802 $ 454
====== ======
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- -------------------
Weighted- Weighted-
average average
Range of exercise exercise
exercise prices Number price Number price
--------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
$100 25 $ 100 25 $ 100
$1,250-1,300 260 1,260 62 1,260
====== ====== ==== ======
285 $1,158 87 $ 929
====== ====== ==== ======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following assumptions used
for grants in the years ended December 31, 1996 and 1995: expected
volatility of 0%; dividend yield of 0%; risk-free interest rates of
6%; and expected lives of 5 years.
The Company applied APB Opinion No. 25 and related interpretations in
accounting for its stock options. Had compensation cost for the
Company's stock-based compensation been determined based on the fair
value at the grant dates for stock option awards consistent with
SFAS No. 123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Pro forma net loss $1,125,020 1,041,834
</TABLE>
The pro forma amounts are not representative of the effects on reported
net income (loss) for future years.
(Continued)
<PAGE> 12
6
HUBLink, Inc.
Notes to Financial Statements, Continued
In 1996, the Company agreed to pay $45,000 by January 1, 1997 to cancel
one employee's option to purchase 138 shares at $136. The $45,000 is
included in accounts payable and accrued expenses at December 31,
1996.
(9) PUT OPTION
A 20% shareholder of common stock has a put agreement with the
Company. The agreement gives the shareholder the right, any time
after May 6, 1998, to sell back any or all of his shares to the
Company at a purchase price equal to 4.5 times the average of the
three preceding fiscal years annual cash earnings per share before
net interest, debt service, proceeds of financing and taxes.
Twenty-five percent of the purchase price would be payable upon
exercise of the put option and 25% would be payable at each of the
next three succeeding anniversary dates of the exercise. Management
has determined the put option is of nominal value and believes that
the likelihood the put agreement will be exercised is remote.
(10) INCOME TAXES
The actual income tax benefit differed from the expected benefit as a
result of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Expected tax benefit computed $ (376,710) (342,176)
at 35%
Change in the beginning of the year
balance of the valuation allowance
for deferred tax assets 471,000 400,000
State and local income tax benefit, net
of federal (53,816) (48,882)
Other, net (40,474) (8,942)
---------- --------
$ 0 0
========== =======
</TABLE>
No federal or state income tax provision (benefit) has been provided
because of net operating losses since inception and the
establishment of a valuation allowance equal to the amount of the
Company's deferred tax assets. At December 31, 1996, the Company has
a net operating loss carryforward for federal income tax purposes of
approximately $3.2 million. The carryforward expires from the years
2008 through 2012. Changes in the Company's ownership may cause
annual limitations on the amount of loss carryforwards that can be
utilized to offset income in the future.
The net deferred tax assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,263,000 873,000
Deferred revenue 349,000 281,000
Accounts payable and accrued expenses 171,000 65,000
Other, net 9,000 57,000
----------- ----------
1,792,000 1,276,000
----------- ----------
Deferred tax liability--
Accounts receivable (310,000) (265,000)
----------- ----------
Less valuation allowance (1,482,000) (1,011,000)
=========== ==========
Net deferred taxes $ -- --
=========== ==========
</TABLE>
(Continued)
<PAGE> 13
7
HUBLink, Inc.
Notes to Financial Statements, Continued
(11) EMPLOYEE BENEFITS
Effective January 1, 1995, the Company established a 401(k) profit
sharing plan and trust (the Plan) for its employees. The Plan is
open to full-time employees having attained 6 months of service and
being at least 21 years old, with monthly entry dates. The Company
may make matching contributions to the Plan at its discretion. To
date, no matching contributions have been made to the Plan.
(12) SUBSEQUENT EVENT
During February, March and April 1997, the Company issued 700 shares of
common stock for approximately $1.2 million.
<PAGE> 1
EXHIBIT 99.3
HUBLINK, INC.
-------------
Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
HUBLink, Inc.:
We have audited the accompanying balance sheets of HUBLink, Inc. (the Company)
as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HUBLink, Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
March 27, 1998, except for
Note 12, as to which the
date is April 28, 1998
<PAGE> 3
HUBLINK, INC.
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 44,683 28,781
Accounts receivable, net of allowance for doubtful accounts of $219,193
and $160,000 in 1997 and 1996, respectively 348,964 778,355
Prepaid expenses 36,854 9,200
----------- ----------
Total current assets 430,501 816,336
Fixed assets, net 465,085 422,739
Other assets 36,722 44,001
----------- ----------
Total assets $ 932,308 1,283,076
=========== ==========
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Line of credit 970,421 850,000
Notes payable 635,000 295,000
Current portion of capital lease obligations 69,055 84,560
Current portion of deferred revenue 931,117 696,581
Accounts payable 326,888 381,896
Accrued expenses 147,967 102,087
----------- ----------
Total current liabilities 3,080,448 2,410,124
Long-term portion of capital lease obligations 55,925 50,602
Long-term portion of deferred revenue 195,336 175,255
----------- ----------
Total liabilities 3,331,709 2,635,981
----------- ----------
Stockholders' equity (deficit):
Common stock, no par value; 10,000 shares authorized; 6,815 and 6,107 shares
issued and outstanding in 1997 and 1996, respectively 4,193,196 2,760,256
Deferred compensation (72,864) (23,126)
Accumulated deficit (6,519,733) (4,090,035)
----------- ----------
Total stockholders' equity (deficit) (2,399,401) (1,352,905)
----------- ----------
Total liabilities and stockholders' equity (deficit) $ 932,308 1,283,076
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
HUBLink, Inc.
Statements of Operations
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Software $ 614,600 1,453,462
Services 1,723,051 1,564,656
Hardware sales 67,613 984,631
Other 106,412 89,457
----------- ----------
Total revenues 2,511,676 4,092,206
----------- ----------
Cost of revenues:
Services $ 1,043,772 717,265
Hardware sales 99,002 966,600
----------- ----------
Total cost of revenues 1,142,774 1,683,865
----------- ----------
Gross profit 1,368,902 2,408,341
----------- ----------
Operating expenses:
Sales and marketing 1,737,708 1,929,940
Research and development 1,366,106 963,805
General and administrative 569,292 503,222
----------- ----------
Total operating expenses 3,673,106 3,396,967
----------- ----------
Loss from operations (2,304,204) (988,626)
Interest expense (125,494) (90,930)
Other income -- 3,242
----------- ----------
Net loss $(2,429,698) (1,076,314)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
HUBLINK, INC.
Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
stock-
Common stock Deferred Accumu- holders'
------------------------ compen- lated equity
Shares Amount sation deficit (deficit)
------ ------------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 5,681 $ 2,077,080 (23,288) (3,013,721) (959,929)
Issuance of common stock, net of issuance costs 426 729,312 -- -- 729,312
Deferred compensation related to granting of
stock options -- 29,160 (29,160) -- --
Amortization of deferred compensation -- -- 20,651 -- 20,651
Forfeitures of stock options -- (75,296) 8,671 -- (66,625)
Net loss -- -- -- (1,076,314) (1,076,314)
----- ----------- -------- ---------- ----------
Balances at December 31, 1996 6,107 2,760,256 (23,126) (4,090,035) (1,352,905)
Issuance of common stock, net of issuance costs 708 1,239,250 -- -- 1,239,250
Deferred compensation related to granting of
stock options -- 232,990 (232,990) -- --
Amortization of deferred compensation -- -- 170,938 -- 170,938
Forfeitures of stock options -- (39,300) 12,314 -- (26,986)
Net loss -- -- -- (2,429,698) (2,429,698)
----- ----------- -------- ---------- ----------
Balances at December 31, 1997 6,815 $ 4,193,196 (72,864) (6,519,733) (2,399,401)
===== =========== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
HUBLINK, INC.
Statements of Cash Flows
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,429,698) (1,076,314)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 163,678 114,995
Provision for doubtful accounts 51,667 291,413
Compensation related to stock options plan, net of forfeitures 143,952 (45,974)
Changes in assets and liabilities:
Accounts receivable 377,724 (514,676)
Prepaid expenses and other current assets (27,654) 10,070
Other assets 7,279 5,499
Deferred revenue 254,617 167,553
Accounts payable (55,008) 282,559
Accrued expenses 45,880 41,065
----------- ----------
Net cash used in operating activities (1,467,563) (723,810)
----------- ----------
Cash flows from investing activities--
Purchase of fixed assets (116,747) (59,048)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs 1,239,250 729,312
Repayment of capital lease obligations (99,459) (79,351)
Net borrowings under line of credit 120,421 250,000
Proceeds from notes payable 350,000 --
Repayment of notes payable (10,000) (110,000)
----------- ----------
Net cash provided by financing activities 1,600,212 789,961
Net increase (decrease) in cash 15,902 7,103
Cash at beginning of year 28,781 21,678
----------- ----------
Cash at end of year $ 44,683 28,781
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Interest paid $ 106,000 79,675
=========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES--
Fixed assets acquired under capital lease obligations $ 89,277 65,114
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
HUBLINK, INC.
Notes to Financial Statements
December 31, 1997 and 1996
(1) DESCRIPTION OF BUSINESS
HUBLink, Inc. (the Company), located in Columbus, Ohio, develops,
markets, and supports database and information system integration
software which has primarily been sold in the health care industry
in the United States. The Company's software enables disparate
systems to be connected via a unique, object-oriented rules-based
hub. Previously, the Company also resold various pieces of computer
hardware.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of
the related assets and includes amortization of capital
leases. Amortization of leasehold improvements is computed
over the shorter of the lease term or estimated useful life of
the asset.
(B) REVENUE RECOGNITION
Revenue is derived principally from the development and sale of
internally developed software products and from support
services related to those products. The Company's revenue
recognition policies conform to Statement of Position 91-1,
Software Revenue Recognition (SOP 91-1), promulgated by the
American Institute of Certified Public Accountants (AICPA).
Revenue from software sales is recognized upon product
delivery and customer acceptance. Revenue from support and
other services is recognized as the services are performed.
Revenue from service and maintenance agreements is recognized
ratably over the terms of the agreements.
The AICPA issued Statement of Position 97-2, Software Revenue
Recognition (SOP 97-2), which supersedes SOP 91-1. The Company
will adopt SOP 97-2 in 1998. The Company does not expect that
SOP 97-2 will have a material impact on the Company's
financial position or results of operations.
(C) SOFTWARE DEVELOPMENT COSTS
Software development costs are included in product development and
support expense and are expensed as incurred. Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed, requires the capitalization of certain
software development costs once technological feasibility is
established, subject to net realizable value considerations.
The capitalized cost is then amortized. To date, the period
between achieving technological feasibility, which the Company
has defined as the establishment of a working model, and the
general release of such software has been short and software
development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized
any software development costs.
(Continued)
<PAGE> 8
2
HUBLINK, INC.
Notes to Financial Statements, Continued
(D) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that included the enactment date.
(E) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income disclosures for employee stock
option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123 for employee stock options.
(F) USE OF ESTIMATES
Management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the
financial statements and the reporting of revenues and
expenses during the reporting period to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(3) FIXED ASSETS
Fixed assets consisted of the following at December 31:
<TABLE>
<CAPTION>
USEFUL LIFE 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Furniture and fixtures 5-7 Years $218,302 154,476
Computers and software 3-5 Years 666,118 526,883
Leasehold improvements 5 Years 18,731 16,838
-------- -------
903,151 698,197
Less accumulated depreciation and amortization 438,066 275,458
-------- -------
$465,085 422,739
======== =======
</TABLE>
(Continued)
<PAGE> 9
3
HUBLink, Inc.
Notes to Financial Statements, Continued
Included in fixed assets is $390,440 and $301,163 of equipment recorded
under capital lease agreements at December 31, 1997 and 1996,
respectively. Accumulated amortization related to this equipment was
$180,934 and $110,143 as of December 31, 1997 and 1996,
respectively.
(4) LINES OF CREDIT
The Company established a line of credit with a commercial banking
institution that enables it to borrow up to $1,000,000 at 0.375%
above the prime rate (8.5% at December 31, 1997). At December 31,
1997, the Company had additional borrowing capacity under the line
of credit of $29,579. The line of credit is secured by substantially
all of the Company's assets and is guaranteed by a stockholder. Any
amounts outstanding under the line of credit are due on December 31,
1998.
(5) NOTES PAYABLE
Notes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to a commercial banking institution at .375% above the
prime rate (8.5 % at December 31, 1997), due December 31, 1998 350,000 --
Note payable to stockholder, payable on demand with interest
payable at 2% above the prime rate 285,000 285,000
Other -- 10,000
-------- -------
$635,000 295,000
======== =======
</TABLE>
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value for cash, accounts receivable and all current
liabilities approximates their respective fair values because of
the short maturities of these instruments.
(Continued)
<PAGE> 10
4
HUBLINK, INC.
Notes to Financial Statements, Continued
(7) LEASES
The Company has one operating lease having an initial or remaining
noncancelable lease term in excess of one year for its principal
office facility and has various other capital leases for fixed
assets. Future minimum lease payments under these noncancelable
leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases lease
-------- ---------
<S> <C> <C>
Year ending December 31:
1998 $ 71,160 81,625
1999 41,605 47,614
2000 28,972 --
2001 10,781 --
-------- --------
Total minimum lease payments 152,518 $129,239
========
Less amount representing interest 27,538
--------
Present value of minimum lease payments 124,980
Less current portion of capital lease obligations 69,055
--------
Long-term portion of capital lease obligations $ 55,925
========
</TABLE>
Interest expense related to capital leases was $17,034 and $15,238 for
the years ended December 31, 1997 and 1996, respectively. Total rent
expense was $189,627 and $170,474 for the years ended December 31,
1997 and 1996, respectively.
(8) STOCK OPTIONS
The Company grants fixed, nonqualified stock options to selected
employees. The Board of Directors determines the terms and
conditions of options granted. Options granted have varied vesting
provisions. Vested options expire over various periods, from the
date employment terminates to one year after employment terminates.
The Company has recorded deferred compensation for the difference
between the exercise price and the deemed fair value of the stock at
grant date. This amount is being amortized over the relevant period
of benefit.
(Continued)
<PAGE> 11
5
HUBLINK, INC.
Notes to Financial Statements, Continued
The following table summarizes fixed, employee option activity:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
--------------------- --------------------
Weighted- Weighted-
Number average Number average
of exercise of exercise
shares price shares price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of period 285 $1,158 438 $ 839
Granted 210 893 60 1,250
Forfeited (150) 1,250 (213) 528
---- ------ ---- ------
Outstanding at end of period 345 $ 957 285 $1,158
==== ====== ==== ======
Weighted-average fair value of options granted
during the year $1,083 $ 802
====== ======
</TABLE>
The following table summarizes information about fixed, employee options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------- --------------------
Weighted- Weighted-
average average
Range of exercise exercise
exercise prices Number price Number price
--------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
$100 75 $ 100 67 $ 100
$1,000-1,300 260 1,173 50 1,275
$1,750 10 1,750 -- --
---- ------ ---- ------
345 $ 957 117 $ 604
==== ====== ==== ======
</TABLE>
The fair value of each option is estimated on the date of grant using
the minimum value method with the following assumptions used for
grants in the years ended December 31, 1997 and 1996: expected
volatility of 0%; dividend yield of 0%; risk-free interest rates of
6%; and expected lives of 5 years.
The Company applied APB Opinion No. 25 and related interpretations in
accounting for its fixed, employee stock options. Had compensation
cost for the Company's stock-based compensation been determined
based on the fair value at the grant dates for stock option awards
consistent with SFAS No. 123, the Company's net loss would have been
as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Pro forma net loss $2,455,329 1,125,020
</TABLE>
The pro forma amounts are not representative of the effects on reported
net income (loss) for future years.
(Continued)
<PAGE> 12
6
HUBLINK, INC.
Notes to Financial Statements, Continued
In 1997, the Company granted performance based stock options and
warrants to a Company consultant. The consultant was elected to the
Company's Board of Directors after the grant of options and
warrants. The vesting of the options and warrants is contingent upon
specific sales activity of the consultant and certain revenue and
earnings performance of the Company in 1998 and 1999.
The following table summarizes the Company's performance based option
and warrant activity:
<TABLE>
<CAPTION>
Year ended
December 31, 1997
------------------
Weighted-
Number average
of exercise
shares price
------ -----
<S> <C> <C>
Granted and outstanding at end of period 648 $1,206
==== ======
Options exercisable at end of period 83 $1,247
==== ======
Weighted average fair value of options granted
during the year $ 677
======
</TABLE>
The fair value of each performance based option and warrant is estimated
on the date of grant using the minimum value method with the
following assumptions: expected volatility at 0%; dividend yield of
0%; risk free interest rate of 6%; and expected lives of 3 years.
At December 31, 1997, the 648 performance based options and warrants
have exercise prices between $1,000 and $1,871 and a weighted
average remaining contractual life of 2 years. The Company
anticipates none of the unvested awards at December 31, 1997 will
eventually vest.
(9) INCOME TAXES
The actual income tax benefit differed from the expected benefit as a
result of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Expected tax benefit computed $ (850,394) (376,710)
at 35%
Change in the beginning of the year
balance of the valuation allowance
for deferred tax assets 949,000 471,000
State and local income tax benefit, net
of federal (121,485) (53,816)
Other, net 22,879 (40,474)
---------- ----------
0 0
========== ==========
</TABLE>
No federal or state income tax provision (benefit) has been provided
because of net operating losses since inception and the
establishment of a valuation allowance equal to the amount of the
Company's net deferred tax assets. At December 31, 1997, the Company
has a net operating loss carryforward for federal income tax
purposes of approximately $4.8 million. The carryforward expires
from the years 2008 through 2012. Changes in the Company's ownership
may cause annual limitations on the amount of loss carryforwards
that can be utilized to offset income in the future.
(Continued)
<PAGE> 13
7
HUBLINK, INC.
Notes to Financial Statements, Continued
The net deferred tax assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,925,000 1,263,000
Deferred revenue 451,000 349,000
Accounts payable and accrued expenses 169,000 171,000
Other, net 26,000 9,000
----------- ----------
2,571,000 1,792,000
----------- ----------
Deferred tax liability--
Accounts receivable (140,000) (310,000)
----------- ----------
Less valuation allowance (2,431,000) (1,482,000)
----------- ----------
Net deferred taxes $ -- --
=========== ==========
</TABLE>
(10) EMPLOYEE BENEFITS
Effective January 1, 1995, the Company established a 401(k) profit
sharing plan and trust (the Plan) for its employees. The Plan is
open to full-time employees having attained 6 months of service and
being at least 21 years old, with monthly entry dates. The Company
may make matching contributions to the Plan at its discretion. To
date, no matching contributions have been made to the Plan.
(11) SUBSEQUENT EVENT
In February 1998, the Company borrowed $500,000 from a stockholder. The
loan, which bears interest at 12%, is due August 31, 1998.
(12) LIQUIDITY
The Company has a commitment from a significant shareholder to fund the
Company's activities through 1998.
<PAGE> 1
EXHIBIT 99.4
HUBLink, Inc.
Condensed Financial Statements (Unaudited)
March 31, 1998 and 1997
<PAGE> 2
HUBLink, Inc.
Condensed Balance Sheet
March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Assets 1998
----
<S> <C>
Current Assets:
Cash $ 58,084
Accounts receivable, net of allowance for doubtful accounts of $209,193 452,532
Prepaid expenses 38,473
-----------
Total current assets 549,089
Fixed assets, net 481,278
Other assets 35,904
-----------
Total assets $ 1,066,271
===========
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit 922,000
Notes payable 1,135,000
Current portion of capital lease obligations 65,671
Current portion of deferred revenue 1,252,321
Accounts payable 299,700
Accrued expenses 189,193
-----------
Total current liabilities 3,863,885
Long-term portion of capital lease obligations 95,562
Long-term portion of deferred revenue 193,357
-----------
Total liabilities 4,152,804
-----------
Stockholders' equity (deficit):
Common stock 4,193,196
Deferred compensation (51,108)
Accumulated deficit (7,228,621)
-----------
Total stockholders' equity (deficit) (3,086,533)
-----------
Total liabilities and stockholders' equity (deficit) $ 1,066,271
===========
</TABLE>
See Accompanying Note to Condensed Financial Statements.
<PAGE> 3
HUBLink, Inc.
Condensed Statement of Operations
For the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Revenue:
Software $ 74,000
Services 407,258
Other 18,352
---------
Total revenues 499,610
---------
Cost of Revenue:
Software -
Services 206,486
---------
Total cost of revenue 206,486
---------
Gross Profit 293,124
---------
Operating Expenses:
Sales and marketing 306,456
Research and development 424,667
General and administrative 222,866
---------
Total operating expenses 953,989
---------
Loss from operations (660,865)
Interest expense (48,023)
---------
Net loss $(708,888)
=========
</TABLE>
See Accompanying Note to Condensed Financial Statements.
<PAGE> 4
HUBLink, Inc.
Condensed Statement of Cash Flows
For the Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(708,888)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 44,713
Compensation related to stock options 21,756
Changes in assets and liabilities:
Accounts receivable (103,568)
Prepaid expenses and other current assets (1,619)
Other assets 818
Deferred revenue 319,225
Accounts payable (27,188)
Accrued expenses 41,226
---------
Net cash used in operating activities (413,525)
---------
Cash flows from investing activities --
Purchase of fixed assets (7,416)
---------
Cash flows from financing activities:
Net repayments under line of credit (48,421)
Proceeds from note payable 500,000
Repayment of capital lease obligations (17,237)
---------
Net cash provided by financing activities 434,342
---------
Net increase in cash 13,401
Cash at beginning of period 44,683
---------
Cash at end of period $ 58,084
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Interest paid $ 51,525
=========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION --
Fixed assets acquired under capital lease obligations $ 53,490
=========
</TABLE>
See Accompanying Note to Condensed Financial Statements.
<PAGE> 5
HUBLink, Inc.
Condensed Statement of Operations
For the Three Months Ended March 31, 1997
(Unaudited)
<TABLE>
<S> <C>
Revenue:
Software $ 120,000
Services 453,264
Hardware sales 38,794
Other 44,700
---------
Total revenues 656,758
---------
Cost of Revenue:
Software -
Services 201,168
Hardware sales 53,832
---------
Total cost of revenue 255,000
---------
Gross profit 401,758
---------
Operating Expenses
Sales and marketing 558,000
Research and development 279,000
General and administrative 100,000
---------
Total operating expenses 937,000
---------
Loss from operations (535,242)
Interest expense (20,000)
---------
Net Loss $(555,242)
=========
</TABLE>
See Accompanying Note to Condensed Financial Statements
<PAGE> 6
HUBLink, Inc.
Condensed Statement of Cash Flows
For the Three Months Ended March 31, 1997
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(555,242)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 35,270
Compensation related to stock options 5,256
Changes in assets and liabilities:
Accounts receivable 279,480
Prepaid expenses and other current assets 4,600
Other assets (698)
Deferred revenue (51,077)
Accounts payable (195,000)
Accrued expenses (30,689)
---------
Net cash used in operating activities (508,100)
---------
Cash flows from investing activities --
Purchase of fixed assets
(69,181)
---------
Cash flows from financing activities:
Proceeds from the issuance of common stock 989,250
Repayment of line of credit borrowings (325,000)
Repayment of capital lease obligations (33,211)
Repayment of note payable borrowings (10,000)
---------
Net cash provided by financing activities 621,039
---------
Net increase in cash 43,758
Cash at beginning of period 28,781
---------
Cash at end of period $ 72,539
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Interest paid $ 20,000
=========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION --
Fixed assets acquired under capital lease obligations $ 12,044
=========
</TABLE>
See Accompanying Note to Condensed Financial Statements.
<PAGE> 7
HUBLink, Inc.
Note to Condensed Financial Statements
March 31, 1998 and 1997
1. General
The accompanying Condensed Financial Statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for the fair presentation of the financial position and results of operations
and cash flows for the periods presented have been included. Results for interim
periods are not necessarily indicative of results that may be expected for the
full year.
These Condensed Financial Statements should be read in conjunction with the
HUBLink, Inc. Financial Statements and Notes for the years ended December 31,
1997 and 1996 included herein in this Current Report on Form 8-K dated May 27,
1998.
<PAGE> 1
EXHIBIT 99.5
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Condensed Statements of Operations
for the three months ended March 31, 1998 and the years ended December 31, 1997,
1996 and 1995 have been prepared to reflect adjustments to HIE's historical
results of operations to give effect to the merger of HUBLink with a
wholly-owned subsidiary of HIE as if said merger had occurred on January 1 of
each period presented. The following unaudited Pro Forma Combined Condensed
Balance Sheets as of March 31, 1998, give effect to said merger as if it had
occurred on that date.
These pro forma financial statements have been prepared by HIE based on the
audited financial statements of HUBLink for the years ended December 31, 1997,
1996 and 1995 and the unaudited financial statements of HUBLink for the three
months ended March 31, 1998, all of which statements are included in this
Current Report on Form 8-K.
These pro forma financial statements are not necessarily indicative of the
results of operations which would have been attained had the merger been
consummated on the dates indicated or which may be attained in the future. These
pro forma financial statements should be read in conjunction with the historical
financial statements and notes thereto of HIE (included in the Quarterly Report
on Form 10-Q of HIE for the quarterly period ended March 31, 1998 and the Annual
Report on Form 10-K of HIE for the years ended December 31, 1997, 1996 and 1995)
and HUBLink (included herein).
<PAGE> 2
Healthdyne Information Enterprises, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations (Unaudited)
For the three months ended March 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
------------------------------------------------------------------
Pro Forma
---------------------------------------
Historical Adjustments
--------------------------
HIE HUBLink Note Amount Combined
<S> <C> <C> <C> <C> <C>
Revenue:
Software $ 1,905 $ 74 $ 1,979
Services and other 2,796 425 3,221
------------- ------------ -------------------------------
Total revenue 4,701 499 5,200
------------- ------------ -------------------------------
Cost of revenue:
Software 222 0 222
Services and other 1,358 206 1,564
------------- ------------ -------------------------------
Total cost of revenue 1,580 206 1,786
------------- ------------ -------------------------------
Gross profit 3,121 293 3,414
------------- ------------ -------------------------------
Operating expenses:
Sales and marketing 1,115 306 1,421
Research and development 543 425 968
General and administrative 1,008 223 1,231
------------- ------------ -------------------------------
Total operating expenses 2,666 954 3,620
------------- ------------ -------------------------------
Operating earnings (loss) 455 (661) (206)
Interest income (expense), net 41 (48) (7)
------------- ------------ -------------------------------
Earnings (loss) before income taxes 496 (709) (213)
Income tax (expense) benefit (144) 0 2 $ 144 0
------------- ------------ -------------------------------
Net earnings (loss) $ 352 $(709) $ 144 $ (213)
========================== ===============================
Net earnings (loss) per share of
common stock:
Basic $ 0.02 $ (0.01)
------------- ===============
Diluted $ 0.02 $ (0.01)
------------- ===============
Shares used in the calculation of net
earnings (loss) per share:
Basic 20,902 3 2,926 23,828
============ =========================
Diluted 21,689 3 2,139 23,828
============ =========================
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
<PAGE> 3
Healthdyne Information Enterprises, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations (Unaudited)
For the year ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------------------
Pro Forma
---------------------------------------
Historical Adjustments
--------------------------
HIE HUBLink Note Amount Combined
<S> <C> <C> <C> <C> <C>
Revenue:
Software $ 6,773 $ 615 $ 7,388
Services and other 8,779 1,897 10,676
------------- ------------ -------------------------------
Total revenue 15,552 2,512 18,064
------------- ------------ -------------------------------
Cost of revenue:
Software 1,026 0 1,026
Services and other 4,882 1,143 6,025
------------- ------------ -------------------------------
Total cost of revenue 5,908 1,143 7,051
------------- ------------ -------------------------------
Gross profit 9,644 1,369 11,013
------------- ------------ -------------------------------
Operating expenses:
Sales and marketing 3,624 1,738 5,362
Research and development 1,611 1,366 2,977
General and administrative 4,215 569 4,784
Non-recurring charges 6,396 0 6,396
------------- ------------ -------------------------------
Total operating expenses 15,846 3,673 19,519
------------- ------------ -------------------------------
Operating loss (6,202) (2,304) (8,506)
Losses of affiliate (151) (151)
Interest income (expense), net 187 (126) 61
------------- ------------ -------------------------------
Loss before income taxes (6,166) (2,430) (8,596)
Income tax (expense) benefit 0 0 0
------------- ------------ -------------------------------
Net loss $(6,166) $(2,430) $(8,596)
========================== ===============================
Net loss per share of common stock:
Basic $ (0.30) $ (0.37)
============= ===============
Diluted $ (0.30) $ (0.37)
============= ===============
Shares used in the calculation of net
loss per share:
Basic 20,336 3 2,859 23,195
============= ===============================
Diluted 20,336 3 2,859 23,195
============= ===============================
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
<PAGE> 4
Healthdyne Information Enterprises, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations (Unaudited)
For the year ended December 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------------------
Pro Forma
---------------------------------------
Historical Adjustments
--------------------------
HIE HUBLink Note Amount Combined
<S> <C> <C> <C> <C> <C>
Revenue:
Software $ 7,169 $ 1,453 $ 8,622
Services and other 8,982 2,639 11,621
------------- ------------ -------------------------------
Total revenue 16,151 4,092 20,243
------------- ------------ -------------------------------
Cost of revenue:
Software 907 0 907
Services and other 4,765 1,684 6,449
------------- ------------ -------------------------------
Total cost of revenue 5,672 1,684 7,356
------------- ------------ -------------------------------
Gross profit 10,479 2,408 12,887
------------- ------------ -------------------------------
Operating expenses:
Sales and marketing 3,505 1,930 5,435
Research and development 1,576 964 2,540
General and administrative 3,912 503 4,415
------------- ------------ -------------------------------
Total operating expenses 8,993 3,397 12,390
------------- ------------ -------------------------------
Operating earnings (loss) 1,486 (989) 497
Interest expense, net (303) (88) (391)
------------- ------------ -------------------------------
Earnings (loss) before income taxes 1,183 (1,077) 106
Income tax (expense) benefit 0 0 0
------------- ------------ -------------------------------
Net earnings (loss) $ 1,183 $(1,077) $ 106
========================== ===============================
Net earnings (loss) per share of
common stock:
Basic $ 0.07 $ 0.01
============= ===============
Diluted $ 0.06 $ 0.00
============= ===============
Shares used in the calculation of net
earnings (loss) per share:
Basic 17,481 3 2,592 20,073
============= ===============================
Diluted 18,876 3 2,592 21,468
============= ===============================
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
<PAGE> 5
Healthdyne Information Enterprises, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations (Unaudited)
For the year ended December 31, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
------------------------------------------------------------------
Pro Forma
---------------------------------------
Historical Adjustments
--------------------------
HIE HUBLink Note Amount Combined
<S> <C> <C> <C> <C> <C>
Revenue:
Software $ 5,136 $1,087 $ 6,223
Services and other 3,564 1,461 5,025
------------- ------------ -------------------------------
Total revenue 8,700 2,548 11,248
------------- ------------ -------------------------------
Cost of revenue:
Software 536 0 536
Services and other 2,082 909 2,991
------------- ------------ -------------------------------
Total cost of revenue 2,618 909 3,527
------------- ------------ -------------------------------
Gross profit 6,082 1,639 7,721
------------- ------------ -------------------------------
Operating expenses:
Sales and marketing 3,435 1,530 4,965
Research and development 1,928 761 2,689
General and administrative 4,337 185 4,522
Non-recurring charges 5,335 100 5,435
------------- ------------ -------------------------------
Total operating expenses 15,035 2,576 17,611
------------- ------------ -------------------------------
Operating loss (8,953) (937) (9,890)
Losses of affiliate (1,144) 0 (1,144)
Minority interest 142 0 142
Interest expense, net (168) (41) (209)
------------- ------------ -------------------------------
Loss before income taxes (10,123) (978) (11,101)
Income tax (expense) benefit 140 0 140
------------- ------------ -------------------------------
Net loss $ (9,983) $(978) $(10,961)
========================== ===============================
Net loss per share of common stock:
Basic $ (0.64) $ (0.60)
============= ===============
Diluted $ (0.64) $ (0.60)
============= ===============
Shares used in the calculation of net
loss per share:
Basic 15,653 3 2,477 18,130
============= ================================
Diluted 15,653 3 2,477 18,130
============= ================================
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
<PAGE> 6
Healthdyne Information Enterprises, Inc. and Subsidiaries
Pro Forma Combined Condensed Balance Sheets (Unaudited)
As of March 31, 1998
(in thousands)
<TABLE>
<CAPTION>
As of March 31, 1998
------------------------------------------------------------------
Pro Forma
---------------------------------------
Historical Adjustments
--------------------------
HIE HUBLink Note Amount Combined
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 4,146 $ 58 3 $ (450) $ 3,754
Trade accounts receivable 6,657 453 7,110
Other current assets 1,442 38 1,480
-------------------------- -------------------------------
Total current assets 12,245 549 (450) 12,344
Notes receivable 341 0 341
Purchased software, net 1,942 0 1,942
Capitalized software, net 780 0 780
Property and equipment, net 1,644 481 2,125
Goodwill, net 8,329 0 8,329
Other assets 39 36 75
-------------------------- -------------------------------
Total assets $ 25,320 $ 1,066 $ (450) $ 25,936
========================== ===============================
Liabilities and Shareholders' Equity
Current installments of debt $ 356 $ 2,123 3 $ (950) $ 1,529
Accounts payable 794 300 1,094
Accrued liabilities 1,657 189 3 344 2,190
Deferred revenue 3,150 1,252 4,402
-------------------------- -------------------------------
Total current liabilities 5,957 3,864 (606) 9,215
-------------------------- -------------------------------
Other liabilities 686 289 975
-------------------------- -------------------------------
Common stock 209 4,193 3 (4,164) 238
Additional paid-in capital 34,347 0 3 5,070 39,417
Accumulated deficit (15,879) (7,280) 3 (750) (23,909)
-------------------------- -------------------------------
Total shareholders' equity 18,677 (3,087) 156 15,746
-------------------------- -------------------------------
Total Liabilities and
Shareholders' Equity $ 25,320 $ 1,066 $ (450) $ 25,936
========================== ===============================
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
<PAGE> 7
Healthdyne Information Enterprises, Inc. and Subsidiaries
Notes to Pro Forma Combined Condensed Financial Statements
March 31, 1998 and December 31, 1997, 1996 and 1995
(in thousands)
1. GENERAL
The foregoing Pro Forma Combined Condensed Statements of Operations for the
three months ended March 31, 1998 and the years ended December 31, 1997, 1996
and 1995 give effect to the merger of HUBLink with a wholly-owned subsidiary of
HIE completed on May 12, 1998. HIE accounted for the merger as a pooling of
interests.
Adjustments to the accompanying Pro Forma Combined Condensed Statements of
Operations give effect to events that are (a) directly attributable to the
merger; (b) expected to have a continuing effect on HIE; and (c) factually
supportable. The adjustments to the Pro Forma Combined Statements of Operations
assume that the transaction was consummated on January 1 of each period
presented.
Adjustments to the accompanying Pro Forma Combined Condensed Balance Sheets as
of March 31, 1998 include such adjustments as are necessary to give effect to
the events that are directly attributable to the transaction and are factually
supportable. The adjustments related to the Pro Forma Combined Condensed Balance
Sheets assume that the transaction was consummated on March 31, 1998.
In preparing their respective historical financial statements, the management of
both HIE and HUBLink were required to make estimates and assumptions that
affected the reported amount of assets and liabilities as of the dates of the
balance sheets and income and expenses for the periods reported. There were no
significant differences in the estimates and assumptions used by the management
of HIE and HUBLink with resect to the accounting for and reporting of similar
events in their respective historical financial statements.
There were no intercompany transactions between HIE and HUBLink prior to the
merger.
2. STATEMENTS OF OPERATIONS
The pro forma adjustments included in the accompanying Pro Forma Combined
Condensed Statements of Operations for the three months ended March 31, 1998 and
the years ended December 31, 1997, 1996 and 1995 relate to (a) the elimination
of income tax expense for the three months ended March 31, 1998 due the combined
net loss in that period and (b) the adjustment of shares used in the calculation
of net earnings (loss) per share in all periods presented to give effect to the
shares of HIE common stock issued in connection with the merger (see note 3).
These adjustments assumed that the merger was consummated on January 1 of each
period presented.
<PAGE> 8
Subsequent to the merger, HIE eliminated certain redundant positions in the
marketing, finance and administrative areas. Management estimates that these
eliminated positions will reduce annual personnel costs up to approximately
$500. In addition, management expects to incur certain integration costs
in the range of $250 to $500 related primarily to its research and development
activities during the remainder of 1998. These anticipated personnel cost
reductions and incremental integration costs are not reflected in the
accompanying Pro Forma Combined Condensed Statements of Operations in any period
presented.
3. BALANCE SHEETS
The adjustments related to the accompanying Pro Forma Combined Condensed Balance
Sheets assume that the transaction was consummated on March 31, 1998. The merger
provided for the issuance of 2,926 shares of HIE Common Stock as follows: (a)
2,700 to the HUBLink shareholders; (b) 126 to a HUBLink shareholder in full
payment of a $500 note payable and related accrued interest to said shareholder;
and (c) 100 to an investment banking firm in full payment of a fee payable by
HUBLink to said firm for advisory services related to the merger. In addition to
this investment banking fee of approximately $406, HIE incurred additional
non-recurring, merger-related expenses for employee severance totaling
approximately $163 and for legal, accounting and regulatory fees totaling
approximately $181, all of which will be expensed as non-recurring charges in
HIE's operating results for the second quarter ended June 30, 1998.
For purposes of paying cash in lieu of fractional shares and paying the
liabilities referred to in note 3(b) and 3(c) above, the fair value of HIE
common stock on May 12, 1998, as defined in the merger agreement, was the
average of the high and low HIE stock price on May 11, 1998 or $4.0625.
HIE used approximately $450 of its cash to reduce the amount of outstanding
borrowings under HUBLink's line of credit as of May 12, 1998.
