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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27056
HIE, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2112366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 PARKWAY PLACE, SUITE 1100 30067
MARIETTA, GEORGIA (Zip Code)
(Address of principal executive offices)
(770) 423-8450
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value per share (together with associated preferred
stock purchase rights)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock (based
upon the closing sales price quoted on the Nasdaq National Market) held by
nonaffiliates as of March 19, 1999 was approximately $97,197,700.
As of March 19, 1999, 25,311,458 shares of the registrant's Common
Stock, par value $0.01 per share (together with associated preferred stock
purchase rights), were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999
Annual Meeting of Shareholders are incorporated by reference into Part III.
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TABLE OF CONTENTS
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NUMBER
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Part I
Item 1. Business..................................................................................3
Factors That May Affect Future Performance...............................................11
Item 2. Properties...............................................................................23
Item 3. Legal Proceedings........................................................................23
Item 4. Submission of Matters to a Vote of Security Holders......................................23
Executive Officers of the Registrant................................................................24
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................26
Item 6. Selected Financial Data..................................................................27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...............................40
Item 8. Financial Statements and Supplementary Data..............................................40
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.....................................................................41
Part III
Item 10. Directors and Executive Officers of the Registrant *.....................................41
Item 11. Executive Compensation *.................................................................41
Item 12. Security Ownership of Certain Beneficial Owners and Management *.........................41
Item 13. Certain Relationships and Related Transactions *.........................................41
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................42
</TABLE>
*Incorporated by reference to the Registrant's Proxy Statement for the
1999 Annual Meeting of Shareholders.
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, in particular, forward-looking statements under the
headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations." The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are intended to identify such forward-looking statements; however,
this Report also contains other forward-looking statements in addition to
historical information. Actual results may differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. Among the important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are the factors set forth below in
"Item 1. Business -- Factors That May Affect Future Performance." By making
these forward-looking statements, HIE, Inc. does not undertake to update them
in any manner except as may be required by its disclosure obligations in
filings it makes with the Securities and Exchange Commission (the "Commission")
under the Federal securities laws.
In this Report, the words "Company," "HIE," "we," "our," "ours," and
"us" refer to HIE, Inc. and its subsidiaries. HIE owns the Cloverleaf(R) and
EMerge(TM) trademarks in the United States. Trademarks, trade names or service
marks of other companies appearing elsewhere in this Report are the property of
their respective owners.
PART I
ITEM 1. BUSINESS
The Company was incorporated in Georgia on June 15, 1994 and changed
its name from Healthdyne Information Enterprises, Inc. to HIE, Inc. on February
24, 1999. The Company's principal executive offices are located at 1850 Parkway
Place, Suite 1100, Marietta, Georgia 30067, and its telephone number is (770)
423-8450. The Company maintains a web site at http://www.hie.com. The reference
to HIE's web address does not constitute incorporation by reference of the
information contained at the site.
During 1998, the Company operated in two segments: (i) the licensing
of integration software products and performance of related integration
services and (ii) the providing of consulting services related to information
systems integration for healthcare organizations. See Note 13 of the Notes to
Consolidated Financial Statements for financial information with respect to
segments. On December 31, 1998, HIE sold the assets comprising its Integrated
Services Group, which provided these consulting services related to information
systems integration for healthcare organizations, to Superior Consultant
Company, Inc., a wholly-owned subsidiary of Superior Consultant Holdings
Corporation. The purchase price for the sale of the Integrated Services Group
was $2.2 million in cash, subject to adjustment based on the actual collection
of accounts receivable of the Integrated Services Group.
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OVERVIEW
HIE develops, markets and supports enterprise application integration
("EAI") software and services. HIE's principal product suite, the Cloverleaf
EAI Suite, offers organizations a scaleable and reusable software integration
engine as well as related components to integrate efficiently their disparate
information technology ("IT") systems. HIE's solutions are targeted for
specific vertical industries, including healthcare and finance, by supporting
industry-specific computing protocols, among other things. HIE also offers
EMerge, a processware product which improves the efficiency, quality of care
and administration in a healthcare organization by enabling it to continuously
track patients, doctors, insurance plan members and their records across
different organizations and information systems.
PRODUCTS AND SERVICES
HIE's EAI software products are designed to provide a configurable
infrastructure for enterprise-wide application integration. HIE's Cloverleaf
EAI Suite facilitates the integration of business processes and information and
enables customers to use common business terminology to make decisions about
how and when data will be shared throughout the enterprise. HIE's EMerge
product is a process-oriented application of integration technology which
improves workflow in a healthcare organization's front office.
Cloverleaf EAI Suite
HIE's Cloverleaf EAI Suite consists of the Cloverleaf Integration
Engine and related integration components, adapters and utilities. The
Cloverleaf EAI Suite is designed to allow information in the form of messages,
records or transactions to be easily exchanged, transformed and routed between
disparate applications. As a result, the Cloverleaf EAI Suite can simplify and
accelerate integration projects in environments with a wide range of
applications, message structures, platforms and legacy technologies.
The Cloverleaf EAI Suite consists of the following components:
Cloverleaf Integration Engine. The Cloverleaf Integration Engine
replaces costly, individual point-to-point interfaces with an easily configured
and managed hub-and-spoke architecture. The Cloverleaf Integration Engine
provides a reliable, high performance messaging platform that supports
asynchronous and synchronous connections to a range of application programs,
databases, objects and protocols. It routes and reformats data, adapts to and
bridges communications protocols and combines and disassembles messages to keep
applications synchronized. Graphical configuration clients allow users to
quickly and easily develop sophisticated flow logic to direct and modify
messages to support the organization's business integration rules.
Other functions include proactive management, alerting and testing functions.
Cloverleaf OM3 Components. The Cloverleaf OM3 components allow
creation of new message adapters and extensions to core technology within a
distributable, object-oriented framework. The Cloverleaf OM3 components include
OM3 XFormer, an inheritance transformation engine that applies already
completed and re-usable work to future solutions, and OM3 Rules, a
publish-and-subscribe engine which enables rules-based routing of messages.
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Cloverleaf Adapters. Cloverleaf adapters provide record format and
message protocol libraries that support popular packaged applications and
industry-standard message models in order to provide application-level and
transport-level integration. Adapters to extend the Cloverleaf EAI Suite are
continually under development. These include vertical domain-specific
application adapters, adapters to popular enterprise resource planning systems,
adapters to other messaging protocols and message transport systems and
adapters for emerging interoperability standards. The list of adapters is added
to frequently by HIE's development team, its strategic partners and
distributors and its customers.
Cloverleaf Utilities. The Cloverleaf utilities provide system- and
transport-level integration and enable users to program extended functionality
into the Cloverleaf EAI Suite. Cloverleaf's utilities also include a software
developer's kit that allows vendors or developers to embed the robust
functionality of Cloverleaf components into their own applications.
HIE is currently shipping Cloverleaf Integration Engine 3.5.2 and
Cloverleaf OM3 1.1, and expects to release updates or new versions during 1999.
In addition to the Cloverleaf EAI Suite that HIE markets directly to the
healthcare market, HIE currently sells three branded versions of the Cloverleaf
EAI Suite.
- Pathways Interface Manager, a private label version of the Cloverleaf
Integration Engine and selected healthcare adapters distributed by
McKesson HBOC, Inc. ("McKessonHBOC")
- Cloverleaf finance, a Cloverleaf EAI Suite specifically bundled for
trade-oriented banking and securities applications which includes
pre-built adapters and features required for successful
implementations in the Society for Worldwide Interbank Financial
Telecommunication ("S.W.I.F.T.") and Straight Through Processing (STP)
environments common to international banking and trading
- HIE Message Broker, a bundled offering being co-marketed by
International Business Machines Corporation ("IBM") and HIE which
consists of MQSeries from IBM, and the Cloverleaf Integration Engine,
certain Cloverleaf components, the MQSeries adapter and certain other
adapters from HIE
HIE also offers the Cloverleaf Gateway, an integration engine designed
primarily for independent software vendors seeking to bundle selected
integration features with their own product. The Cloverleaf Gateway enables
vendors to easily and quickly integrate their applications with their
customers' existing IT environments.
EMerge
EMerge helps healthcare providers and payors identify and track
persons, such as patients, members and physicians, and their related records
across organizations and information systems. Healthcare information systems
typically have proprietary master person index ("MPI") keys to reference data
related to each person (e.g. a patient record) held in its database. EMerge is
an enterprise-wide MPI ("EMPI") product built with healthcare process logic on
top of HIE's EAI technology. EMerge integrates the MPIs of multiple, disparate
healthcare information systems so that a physician or other healthcare provider
can request or link to information on these systems. It identifies and tracks
patients and encounter summaries across
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the continuum of patient care and offers front-end and back-end integration
capabilities. EMerge also minimizes the duplication of patient records,
improves data access time and ensures accurate linkages of disparate clinical
information. EMerge provides process-level integration and an indexing system
applied specifically to the healthcare industry. As of December 31, 1998,
EMerge was installed in 11 healthcare locations.
HIE is currently at EMerge release level 3.0 and expects to release
updates or new versions during 1999.
Services
HIE offers the following comprehensive design, implementation,
maintenance and education services related to its integration products,
including:
- pre-implementation assessment services
- software implementation
- dedicated onsite integration personnel to work with a customer's staff
to define integration procedures, implement interfaces, manage the
transition of the customer's staff from its old system to a new HIE
solution and manage integration projects on an ongoing basis
- offsite management of a customer's integration needs
- assistance for time-critical, highly complex integration projects on
an as-needed basis
- open-enrollment training courses to provide users of HIE's products
with training on system essentials, intermediate level and advanced
courses
- training on system administration, project management, operating
system, networking, programming languages and record format standards
HIE provides training courses at client-hosted facilities on a request basis
and tutoring services as refreshers and enhanced skill-building before or after
training. In addition, computer-based training is available for certain
refresher and general prerequisite training courses.
HIE's service personnel bring significant expertise that can be used
to handle a variety of integration-related projects. Examples of such projects
include:
- helping a customer analyze system configurations to improve system
performance
- designing a custom automatic backup and archiving system to protect a
customer's integration infrastructure
- evaluating a customer's record layouts and translations (a project
which can be the foundation for maintaining system update records or
alerting a customer to potential Year 2000 problems)
In addition to its integration and system administration services, HIE provides
its customers with comprehensive training and 24 hour/7 day technical support
for its products via telephone, electronic mail and its web site.
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CUSTOMERS
The "enterprise" is HIE's target customer. An enterprise is either a
single entity with multiple departments or multiple entities that are joined
together to fulfill a common mission. For example, a hospital, which has
laboratory, radiology, pharmacy and other departments, is an enterprise, and an
integrated healthcare delivery network, which consists of hospitals, clinics,
imaging centers, physicians, home healthcare providers, management service
organizations, employers, payors and others, is also an enterprise.
Since its inception in 1994, HIE has focused on providing products and
services to customers in the healthcare market, and substantially all of HIE's
revenue comes from customers in the healthcare market. For example, sales to
healthcare organizations accounted for substantially all of HIE's total revenue
for the year ended December 31, 1998. HIE's products are currently available to
customers in versions specifically designed to meet the needs of companies in
the healthcare and financial industries. HIE plans to expand into the utilities,
transportation and government markets, although to date HIE has not generated
significant revenues from any of these markets. While approximately 92% of
HIE's revenues in 1998 were generated within the United States, HIE has
customers in several countries worldwide.
No single customer accounted for more than 10% of the Company's
revenue in either 1998 or 1997. In the year ended December 31, 1996, sales of
software and services to one customer, Promina Health Systems, accounted for
approximately 20% of HIE's total revenue.
Approximately 35%, 18% and 16% of HIE's total revenue in 1998, 1997
and 1996 were generated by third-party distributors of its products. No single
distributor provided customers to HIE that accounted for more than 10% of HIE's
revenue in either 1997 or 1996. During fiscal 1998, distributors accounted for
approximately 80% of HIE's software sales, and one distributor, McKessonHBOC,
accounted for approximately 40% of HIE's software license revenue and
approximately 18% of HIE's total revenue.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Backlog" regarding information about
backlog orders.
SALES AND MARKETING
HIE sells its products and services both through independent
distributors and its direct sales force. HIE focuses on selling to the
healthcare market through distributors and selling into other vertical markets
through its direct sales force. During fiscal 1998, distributors accounted
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for approximately 80% of HIE's software sales. HIE has made initial sales of
its solutions for use in the financial sector, and plans to expand its
offerings in each of the transportation and utilities and government markets by
establishing additional distributor relationships, undertaking further research
and development and adding staff with significant industry expertise. As of
December 31, 1998, HIE employed a total of 14 individuals in its direct sales
force. HIE's sales people are located throughout the United States and in Great
Britain and Germany.
HIE's typical healthcare sales cycle is between three and six months.
HIE expects the sales cycles for other targeted vertical markets generally to
be longer than the sales cycle for the healthcare market, particularly as HIE
initially penetrates these new markets.
HIE conducts extensive marketing programs including direct mail, media
relations, user group and partnership relations, advertising and trade shows.
HIE also sponsors an annual user conference that provides it with the
opportunity to exchange information with its customers on HIE's products and
trends in the industry. As of December 31, 1998, HIE employed a total of seven
individuals in marketing.
HIE has marketing and distribution relationships with, among others,
McKessonHBOC, DST Systems, Inc., Per-Se Technologies (a division of Medaphis),
LifeLine Networks B.V., Clinicomp, Trace and Siemens. Additionally, HIE recently
has developed a marketing relationship with IBM.
RESEARCH AND DEVELOPMENT
HIE has made substantial investments in EAI technology through product
development and acquisition. HIE spent $5.1 million, $3.4 million and $3.3
million on research and development activities during 1998, 1997 and 1996,
respectively. Its product suite has evolved from message brokers first produced
by predecessors as early as 1991. As of December 31, 1998, HIE had a
development staff of 35, which included the original architects of the core EAI
products. HIE categorizes its product development management into four
coordinated groups:
Component Framework. This group creates the reusable objects and
components that form the essential building blocks of HIE's EAI and processware
products.
Message Broker. This group is responsible for the development,
integration and quality engineering of the Cloverleaf EAI Suite, including its
Cloverleaf Integration Engine, Cloverleaf OM3 components and other messaging
brokering products.
Solutions. This group constructs and integrates the various industry
application and workflow adapters for the Cloverleaf EAI Suite, for such
products as the Cloverleaf finance S.W.I.F.T. module.
Processware. This group is responsible for HIE's healthcare
processware product, EMerge, which draws on EAI technology produced by the
other development groups.
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COMPETITION
The market for HIE's products is intensely competitive and is expected
to become increasingly competitive as current competitors expand their product
offerings and new competitors enter the market. HIE's current competitors
include a number of companies offering one or more solutions to the application
integration problem, some of which are directly competitive with HIE's
products.
HIE faces competition for product sales and services from a number of
sources, including the following:
- "in-house" IT departments of potential customers or distributors
- other vendors offering EAI software directly competitive with our
products, such as IBM, New Era of Networks, Software Technologies
Corp. and TSI International Ltd.
- systems integrators and professional service organizations and
consultants
- other vendors of software that address only certain technology
components of EAI solutions
Many of these companies have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition, and a larger installed base of customers than HIE.
Many of these competitors also may have well-established relationships with
HIE's current and potential customers in our targeted markets. In addition,
many of these competitors have extensive knowledge of EAI generally and of
specific vertical markets, and may be in a better position than HIE to devote
significant resources toward the development, promotion and sale of products
generally or in specific vertical markets.
HIE believes that the principal competitive factors affecting its
market include product features such as heterogeneous computing platforms,
responsiveness to customer needs, scaleability, adaptability, support of a
broad range of functionality, performance, ease of use, quality, price, and
availability of professional services for product implementation, customer
service and support, effectiveness of sales and marketing efforts, and company
and product reputation. Although HIE believes that it currently competes
favorably with respect to such factors, there can be no assurance that it can
maintain its competitive position against current and potential competitors,
especially those with greater financial, marketing, service, support, technical
and other resources than HIE.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
HIE's success and ability to compete are dependent in part upon its
proprietary technology. HIE relies on a combination of copyright, trademark and
trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect its proprietary rights. Despite HIE's
efforts to protect its proprietary rights, existing copyright, trademark and
trade secret laws afford only limited protection. Moreover, the laws of certain
countries do not protect HIE's proprietary rights to the same extent as do the
laws of the United States. In addition, attempts may be made to copy or reverse
engineer aspects of HIE's products or to
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obtain and use information that HIE regards as proprietary. Accordingly, there
can be no assurance that HIE will be able to protect its proprietary rights
against unauthorized third-party copying or use, which could materially and
adversely affect HIE's business, financial condition or results of operations.
Moreover, there can be no assurance that others will not develop products that
infringe HIE's proprietary rights, or that are similar or superior to those
developed by HIE. Policing the unauthorized use of HIE's products is difficult
and litigation may be necessary in the future to enforce HIE's intellectual
property rights, to protect HIE's trade secrets or to determine the validity
and scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on HIE's business, financial condition or results of operations.
There can be no assurance that third parties will not claim
infringement by HIE with respect to current or future products. HIE expects
that EAI software developers will increasingly be subject to infringement
claims as the number of products in different industry segments overlap. In
addition, there can be no assurance that legal action claiming patent
infringement will not be commenced against HIE, or that HIE would necessarily
prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event a patent claim against HIE was
successful or HIE could not obtain a license on acceptable terms or license a
substitute technology or redesign to avoid infringement, HIE's business,
financial condition and results of operations would be materially adversely
affected.
EMPLOYEES
As of December 31, 1998, HIE employed 172 persons. Of these employees,
31 were engaged in sales and marketing, 81 were in services, 35 were in
research and development and 25 were in general and administrative functions.
None of these employees are represented by a labor union or subject to any
collective bargaining agreement, and HIE has experienced no work stoppages.
Management believes that its relationship with its employees is good and that
the future success of HIE depends in large part on its ability to attract and
retain qualified personnel.
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FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to other factors and matters discussed elsewhere herein,
factors that, in the view of HIE, could cause actual results to differ
materially from those discussed in forward-looking statements are set forth
below. All forward-looking statements attributable to HIE or persons acting on
our behalf are expressly qualified in their entirety by the following
cautionary statements.
OUR OPERATING RESULTS VARY SIGNIFICANTLY AND OUR PAST OPERATING RESULTS MAY NOT
BE INDICATIVE OF OUR FUTURE PERFORMANCE
Although we have experienced revenue growth in recent quarters, such
growth may not be sustainable, and you should not use our past results to
predict future operating margins and results. Additionally, we have a limited
operating history upon which you can base your evaluation of our business and
prospects. Prior to 1998, we experienced a history of losses, and we have not
yet been consistently profitable on an annual basis. At December 31, 1998, we
had an accumulated deficit of approximately $21.3 million. Our future operating
results will depend on many factors, including the following:
- the continued growth of the EAI software market
- the size and timing of orders for our products, especially from major
distributors such as McKessonHBOC
- the amount and timing of services revenue
- the length of the sales cycle for our products
- potential delays in our implementations at customer sites
- continued development of distribution channels
- our ability to penetrate new vertical markets
- changes in demand for our products
- introduction of new products or product enhancements by us or our
competitors
- changes in prices of our products and those of our competitors
- the effects of global economic conditions on capital expenditures for
software
- amount and timing of expenditures relating to expansion of our
business
- variability in the mix of services we perform versus those performed
by our third-party service providers
FACTORS AFFECTING FLUCTUATIONS IN OUR QUARTERLY RESULTS
Our quarterly operating results have fluctuated significantly in the
past and may vary significantly in the future. Quarterly revenues and operating
results depend upon, among other things, the volume and timing of customer
contracts and service orders received, as well as the amount of each contract
which we are able to recognize as revenue. These factors are difficult to
forecast. In addition, as is common in the software industry, a significant
portion of our license
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revenue in a given quarter historically has been recorded in the last month of
that quarter. However, our expense levels for each quarter are based primarily
on our estimates of future revenues and are largely fixed. As a result, we may
be unable to adjust spending rapidly enough to compensate for any unexpected
revenue shortfall. Any significant shortfall in revenues in relation to our
planned expenditures would seriously harm our business, financial condition and
results of operations.
Our Dependence On Sales To Distributors May Impact Our Quarterly
Results
We primarily use distributors to sell EAI solutions in our principal
market, the healthcare market. As a result, distributor practices may have a
significant impact on our quarterly results. Sales of our products to a limited
number of distributors may account for a significant amount of revenue for a
particular quarter. For example, in the fourth quarter of 1998, sales to a
major distributor, McKessonHBOC, accounted for almost one-half of our total
revenue and substantially all of our software license revenue. Our distributors
may not purchase significant amounts of our products in a particular quarter,
if at all. Further, changes or delays in distributor orders may cause
significant variability in our revenue for any particular quarter.
Seasonality May Impact Our Quarterly Results
Our operating results have also experienced certain seasonal
fluctuations. Historically, our revenues have been higher in the fourth quarter
and lower in the first quarter of each year. We believe that our seasonality is
due in part to the calendar year budgeting cycles of many of our customers and
our incentive compensation policies, which tend to reward our sales personnel
for achieving year-end rather than quarterly revenue quotas. In future periods,
we expect that these seasonal trends may continue to cause first quarter
license revenues to decrease from the level achieved in the preceding quarter.
As a result of these and other factors, our quarterly revenues may
fluctuate significantly, and we cannot predict with certainty our quarterly
revenues and operating results. Further, we believe that period-to-period
comparisons of our operating results are not necessarily a meaningful
indication of future performance. It is likely that in one or more future
quarters our results may fall below the expectations of securities analysts and
investors. If this occurs, the trading price of our common stock would likely
decline.
OUR COMMON STOCK PRICE MAY BE HIGHLY VOLATILE
The trading price of our common stock may be volatile. The stock
market in general, and the market for technology and software companies in
particular, has, from time to time, experienced extreme volatility that often
has been unrelated to the operating performance of particular companies. These
broad market and industry fluctuations may significantly affect the trading
price of our common stock, regardless of our actual operating performance. The
trading price of our common stock could be affected by a number of factors,
including:
- changes in expectations of our future financial performance
- changes in securities analysts' estimates (or the failure to meet such
estimates)
- announcements of technological innovations
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- customer and distributor relationship developments
- conditions affecting our targeted markets in general
- quarterly fluctuations in our revenues and financial results
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to us, litigation would be expensive and
would divert management's attention.
SUBSTANTIALLY ALL OF OUR REVENUE IS ASSOCIATED WITH THE HEALTHCARE MARKET
Substantially all of our revenue comes from customers in the
healthcare market. For example, sales to healthcare organizations accounted for
substantially all of our total revenue for the year ended December 31, 1998. As
a result, our business, financial condition and results of operations are
influenced by conditions affecting this industry. Our healthcare distributors
and customers may not continue to purchase our products and services.
Consequently, our failure to maintain our relationships with our current
distributors and customers or to add new distributors or customers that make
significant purchases of our products and services would seriously harm our
business, financial condition and results of operations.
Many healthcare organizations are consolidating to create integrated
healthcare delivery systems with greater market power. These organizations may
try to use their market power to negotiate price reductions for our
applications and services. As the healthcare industry consolidates, competition
for customers will become more intense and the importance of acquiring each
customer will become greater. If we were forced to reduce our prices for
products or services, our operating results would suffer.
The healthcare market itself is highly regulated and is subject to
changing political, economic and regulatory influences. These factors affect
the purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could cause us to make
unplanned enhancements of applications or services, or result in delays or
cancellations of orders or in the revocation of endorsement of our applications
and services by healthcare participants. Federal and state legislatures have
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state level. These programs may contain proposals to
increase governmental involvement in healthcare, lower reimbursement rates or
otherwise change the environment in which healthcare market participants
operate. Healthcare market participants may respond by reducing their
investments or postponing investment decisions, including investments in our
applications and services. We do not know what effect any proposals would have
on our business.
OUR SOFTWARE LICENSE REVENUE IS SUBSTANTIALLY DEPENDENT ON ONE PRODUCT SUITE
Substantially all of our software license revenue in 1998 was derived
from sales of our Cloverleaf EAI Suite. While we have introduced other
relatively new integration software products, such as EMerge, we anticipate
that our Cloverleaf EAI Suite will continue to account for a substantial amount
of our software license revenue for the foreseeable future. Our future success
will depend on continued market acceptance of our Cloverleaf EAI Suite and
enhancements to these products. Competition, technological change or other
factors could
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<PAGE> 14
reduce demand for, or market acceptance of, our Cloverleaf EAI Suite. A decline
in demand for our Cloverleaf EAI Suite would seriously harm our business,
financial condition and results of operations.
WE DEPEND ON SERVICES REVENUE
Services revenue represented a majority of our total revenue for each
of 1998, 1997 and 1996. We anticipate that services revenue will continue to
account for a substantial amount of our total revenue for the foreseeable
future.
- Because services revenue has lower gross margins than software license
revenue, an increase in the percentage of total revenue represented by
services revenue or an unexpected decrease in software license revenue
could have a detrimental impact on our overall gross margins and our
operating results
- We subcontract certain product implementation, customer support and
training services to third-party service providers. Revenue from these
third-party service providers generally carries lower gross margins
than our service business overall; as a result, our services revenue
and related margins may vary from period to period, depending on the
mix of revenue from third-party service providers
- Services revenue depends in part on ongoing renewals of support
contracts by our customers, some of which may not renew their support
contracts
If our services revenue is lower than anticipated, our business,
financial condition and results of operations could be seriously harmed. Our
ability to increase services revenue will depend in large part on our ability
to increase the scale of our professional services organization. We may not be
able to do so.
FAILURE TO EXPAND INTO NEW MARKETS WOULD SERIOUSLY HARM OUR BUSINESS
We are currently focusing on expanding our EAI solutions into new
vertical markets. We may not be successful in marketing our products and
services to new markets. Since our inception in 1994, we have focused on
providing products and services to customers in the healthcare market.
Accordingly, we have limited experience in other markets. HIE has recently
entered into the financial services market. Our current plans are to expand
into the utilities, transportation and government markets, although to date we
have not generated significant revenues from any of these markets.
New markets that we are currently targeting, or may target in the
future, have significantly different characteristics than the healthcare
market. Further, new markets may require a high degree of industry-specific
expertise that we do not currently have. In order to be successful in new
markets, we will need to enter into strategic relationships with distributors,
engage industry consultants with market-specific expertise and acquire or make
significant investments in companies, products and technologies that focus on
the specific markets. Additionally, we may need to change our pricing
structures, sales methods, sales personnel, consulting services and customer
service. We cannot assure you that we will be able to successfully carry out
any of these steps or be successful in entering new markets. Additionally,
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<PAGE> 15
our inability to market our products and services in these new vertical markets
would seriously harm our business, financial condition and results of
operations.
OUR GROWTH IS DEPENDENT UPON THE DEVELOPMENT OF OUR DISTRIBUTOR SALES MODEL
We believe that our future growth depends heavily on developing and
maintaining successful strategic relationships with third-party distributors.
Currently, we are focusing on sales to distributors in the healthcare market as
opposed to direct sales to end-users. As such, we place a strong emphasis on
developing and maintaining relationships with entities in a position to
distribute our products. Approximately 34%, 16% and 16% of our total revenue in
1998, 1997 and 1996 were generated by third-party distributors of our products.
Although we have entered into written distribution agreements with
all of our significant healthcare distributors, these agreements typically do
not restrict them from distributing our competitors' products and do not
require them to purchase any minimum amount of our products. Additionally, many
of our distributors pre-purchase our products in volume and, consequently, may
not make purchases of our products every quarter. We cannot assure you that we
will be able to maintain existing relationships, develop new relationships or
that any such relationships will prove to be effective in distributing our
products. If we lose any of our distributor relationships, such as
McKessonHBOC, or fail to establish new relationships, or if our distributors
fail to successfully sell our products, we would not be able to execute our
business strategy and our business would suffer significantly.
WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of our business strategy, we may focus on acquiring, or making
significant investments in, complementary companies, products and technologies.
Future acquisitions may subject us to the following risks:
- the difficulty of incorporating new operations, technology and
personnel into one company
- the potential disruption of our ongoing business
- the additional expense associated with amortization of acquired
intangible assets
- the maintenance of uniform standards, controls, procedures and
policies
- the impairment of relationships with employees and customers
We cannot assure you that we will successfully overcome these risks or any
other problems that we encounter in connection with any future acquisitions.
Integrating any newly acquired businesses or technologies may be
expensive and time-consuming. We do not know if we will be able to complete any
future acquisitions or that we will be able to successfully integrate any
acquired business, or that any anticipated efficiencies will be realized. For
example, in May 1998, we acquired HUBLink, Inc. As a result of this
acquisition, we integrated HUBLink, Inc.'s message broker product, OM3, with
our Cloverleaf EAI Suite. However, we can not assure you that we will be
successful in integrating any future businesses or technologies. If we are
unable to integrate any newly acquired entities or
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<PAGE> 16
technologies effectively, our results of operations could suffer. Further, it
may be necessary for us to finance any future acquisitions through public or
private financings. Any equity or debt financings, if available at all, may be
on terms that are not favorable to us and, in the case of equity financings,
may result in dilution to our shareholders.
WE MAY BE UNABLE TO EXPAND OUR DIRECT SALES AND PROFESSIONAL SERVICES
ORGANIZATIONS
Currently, we market our products to distributors and end-users in
certain vertical markets through our internal sales force. Additionally,
clients that license our products often engage our professional services
organization to assist with support, training, consulting and implementation of
our EAI solutions. Our ability to achieve significant revenue growth in the
future will greatly depend on our ability to recruit and train sufficient
technical, customer support and direct sales personnel, particularly additional
sales personnel focusing on new vertical markets that we target. Any new
professional services personnel will require training and education and take
time to reach full productivity. We have in the past and may in the future
experience difficulty in recruiting qualified sales, technical and support
personnel. To meet our needs for such personnel, we may need to use more costly
third-party consultants and independent contractors to supplement our own
professional services organization. Our inability to maintain an adequate
direct sales force and professional services organization could seriously harm
our business, financial condition and results of operations.
OUR FAILURE TO MANAGE GROWTH OF OPERATIONS MAY ADVERSELY AFFECT US
Our current information systems, procedures and controls may not
continue to support any growth in our operations and may hinder our ability to
exploit the market for EAI products and services, specifically outside of the
healthcare market. We cannot be certain that we will continue to experience or
successfully manage growth. Our inability to sustain or manage our growth could
seriously harm our business, financial condition and results of operations. To
manage any growth, we must continue to:
- expand our sales, marketing and customer support organizations
- invest in the development of enhancements to existing products and new
products that meet changing customer needs
- further develop our technical and marketing expertise in our targeted
vertical markets so that we can influence and respond to emerging
industry standards
- improve our operational processes and management controls
SALES AND IMPLEMENTATION CYCLES FOR OUR EAI SOLUTIONS CAN BE LENGTHY
Sales cycles for our EAI solutions can be lengthy. Our typical sales
cycle to customers in the healthcare market ranges between three to six months
from our initial contact with a potential customer to the sale of our EAI
solutions. Our typical sales cycle for customers outside of the healthcare
market is generally longer, ranging from six to nine months. A key element of
our strategy is to market our EAI solutions directly to large organizations in
markets other than healthcare. As we enter into new markets, the length of our
sales cycles will likely increase. We are unable to control many factors that
will influence our customers' buying decisions. The sales
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<PAGE> 17
and implementation process involves a significant technical evaluation and
commitment of capital and other resources by our customers. The sale and
implementation of our solutions are subject to delays due to our customers'
internal budgets and procedures for approving large capital expenditures and
deploying new technologies.
Additionally, we will need to expend substantial resources to
integrate our applications with the existing legacy and client-server
architectures of large organizations in disparate markets. We have limited
experience in integrating our applications in markets other than healthcare,
and we may experience delays in the integration process. These delays would, in
turn, delay our ability to generate revenue from these applications and
seriously harm our business, financial condition and results of operations.
OUR MARKETS ARE HIGHLY COMPETITIVE
We compete in markets that are intensely competitive. We will be
required to devote a significant amount of resources to enter into and expand
our presence in our targeted markets. Additionally, in order to maintain our
market share in the healthcare market, we must preserve our relationships with
our current customers as well as establish relationships with new customers. We
expect the markets for our products and services to become more competitive as
current competitors expand their product offerings and new competitors enter
the market. Increased competition could result in price reductions, reduced
gross margins and loss of market share, any of which could seriously harm our
business, financial condition and results of operations. Our principal
competitors include:
Internal IT Departments
We face competition and sales resistance from the internal IT
departments of potential customers that have developed or may develop in-house
systems that may substitute for our products. We expect that internally
developed application integration systems will continue to be a principal
source of competition for the foreseeable future. In particular, we may face
difficulties making sales to organizations whose internal development groups
have already progressed significantly toward completion of systems that our
products might replace, or where the underlying technologies used by such
groups differ fundamentally from our products.
Software and Middleware Vendors
We face competition from a variety of software and middleware vendors
that provide EAI products in different vertical markets. These competitors
include, among others:
- companies offering EAI products
- companies offering enterprise master person index solutions
- IT consulting firms
- original equipment manufacturers
- relational database vendors
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Systems Integrators and Professional Service Organizations
We also may face competition from systems integrators and professional
service organizations that design and develop custom systems and perform custom
integration of systems and applications. Certain of these firms may possess
industry specific expertise or reputations among our potential customers. These
systems integrators and consulting firms can resell our products, and we may
engage in joint marketing and sales efforts with them. We may rely upon these
firms for recommendations of our products during the evaluation stage of the
purchase process, as well as for implementation and customer support services.
These systems integrators and consulting firms may have similar, and often more
established, relationships with our competitors, and there can be no assurance
that these firms will not market or recommend software products that are
competitive with our products.
Many of these companies have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition, and a larger installed base of customers than we do.
Many of our competitors also may have well-established relationships with our
current and potential customers in our targeted markets. In addition, many of
these competitors have extensive knowledge of EAI generally and of specific
vertical markets, and may be in a better position than we are to devote
significant resources toward the development, promotion and sale of their
products generally or in specific vertical markets.
Current and potential competitors may also respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
They may have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address customer needs. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. We also expect that competition will increase as a result of software
industry consolidations. We cannot assure you that we will be able to compete
successfully against current and future competitors, or that competitive
pressure we face will not significantly harm our business, financial condition
and results of operations.
WE MUST KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY TO REMAIN COMPETITIVE
The market for our products is characterized by rapid technological
change, frequent new product introductions and enhancements, changes in
customer demands and evolving industry standards. Our existing products could
be rendered obsolete if we fail to keep up in any of these ways. We have also
found that the technological life cycles of our products are difficult to
estimate, partially because they may vary according to the particular
application or vertical market segment. We believe that our future success will
depend upon our ability to continue to enhance our current product line while
we concurrently develop and introduce new products that keep pace with
competitive and technological developments. These developments require us to
continue to make substantial product development investments.
Existing Products
We currently serve a customer base with a wide variety of hardware,
software, database and networking platforms. To gain broad market acceptance,
we believe that we will have to
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support our products on a variety of platforms. Our success will depend on,
among others, the following factors:
- our ability to integrate our products with multiple platforms,
especially relative to our competition in our targeted markets
- the portability of our products, particularly the number of hardware
platforms, operating systems and databases that our products can
source or target
- the integration of additional software modules under development with
existing products
- our management of software development being performed by third-party
developers
Future Products
We cannot assure you that we will be successful in developing and
marketing future product enhancements or new products that respond to
technological changes, shifting customer preferences or evolving industry
standards. This is especially true in new vertical markets that we plan to
enter. We may experience difficulties that could delay product enhancements or
new products or increase our costs to develop these products. If we are unable
to develop and introduce new products or enhancements of existing products in a
timely and affordable manner or if we experience delays in the commencement of
commercial shipments of new products and enhancements, then customers may
forego purchases of our products and purchase those of our competitors.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY
Our success depends upon our ability to maintain the proprietary and
confidential technology incorporated in our products. We rely on a combination
of copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect our proprietary
rights. We presently have no patents. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade secret laws afford
only limited protection. In addition, the laws of certain foreign countries do
not protect our rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. We cannot assure you
that we will be able to protect our proprietary rights against unauthorized
third-party copying or use. Furthermore, policing the unauthorized use of our
products is difficult, and litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of our resources.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS CAN BE COSTLY AND RESULT IN THE LOSS
OF SIGNIFICANT RIGHTS
It is possible that third parties will claim that we have infringed
their current or future intellectual property rights. We expect that EAI
software developers may increasingly be subject to infringement claims as the
number of products in different industry segments overlap. Any claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays, or require us to enter into royalty or licensing
agreements, any of which could
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seriously harm our business, financial condition and results of operations. We
cannot assure you that such royalty or licensing agreements, if required, would
be available on terms acceptable to us, if at all. Additionally, we cannot
assure you that legal action claiming intellectual property infringement will
not be commenced against us, or that we would prevail in such litigation given
the complex technical issues and inherent uncertainties in litigation. In the
event an intellectual property claim against us was successful and we could not
obtain a license on acceptable terms or license a substitute technology or
redesign to avoid infringement, our business, financial condition and results
of operations would be seriously harmed. Even if we prevail in litigation, the
expense of litigation could be significant and could seriously harm our
business, financial condition and results of operation.
WE RELY ON THIRD PARTIES FOR TECHNOLOGY IN OUR PRODUCTS
We depend upon third-party suppliers to provide software that is
incorporated in certain of our products. We do not have control over the
scheduling and quality of work of such third-party software suppliers.
Additionally, the third-party software may not continue to be available to us
on commercially reasonable terms, if at all. Our agreements to license certain
third-party software will terminate after specified dates unless they are
renewed. If we cannot maintain licenses to key third-party software, shipments
of our products could be delayed until equivalent software could be developed
or licensed and integrated into our products.
THERE ARE MANY RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
While approximately 90% of our revenues in 1998 were generated within
the United States, we have customers in several countries worldwide.
International sales in certain foreign markets are subject to a variety of
risks, including
- difficulties in establishing and managing international distribution
channels
- localizing software products for sales in foreign markets and
enforcing intellectual property rights
- fluctuations in the value of foreign currencies, including the Euro
- changes in duties and quotas
- introduction of tariff or non-tariff barriers
- economic, political and regulatory changes
In addition, to the extent profit is generated or losses are incurred in
foreign countries, our effective income tax rate may be materially affected. We
do not currently engage in hedging transactions, but we may do so in the
future. We cannot assure you that any of the factors described above will not
seriously harm our business, financial condition and results of operations.
FAILURE TO RECRUIT AND RETAIN KEY EMPLOYEES WILL SERIOUSLY HARM OUR BUSINESS
Our success is highly dependent upon the continued service and skills
of our executive officers and other key technical, sales and marketing
employees. We do not maintain key man
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life insurance on any of our employees, and we have not entered into employment
agreements with any key employees that provide for any fixed term of service.
In addition, our future success will depend considerably on our ability to
attract and retain highly skilled employees and management personnel.
Competition for such personnel is intense. We cannot assure you that we will be
successful in attracting and retaining highly skilled employees and management
personnel. Further, we anticipate growth and expansion into areas and
activities which may require the addition of new highly skilled employees and
the development of additional expertise by existing management personnel. Any
new highly skilled personnel may require training and education and take time
to reach full productivity. The failure to attract and retain such employees or
to develop such expertise could seriously harm our business, financial
condition or operating results.
OUR PRODUCTS MAY BE AFFECTED BY UNKNOWN SOFTWARE DEFECTS
Our products depend on complex software, both internally developed and
licensed from third parties. Complex software often contains defects,
particularly when first introduced or when enhancements or new versions are
released. Although we conduct extensive testing, we may not discover software
defects that affect our new or current products or enhancements until after
they are deployed. Although we have not experienced any material software
defects to date, it is possible that, despite testing by us, defects may occur
in our software. These defects could cause performance interruptions, which
could damage our reputation with existing or potential customers, increase our
service costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could cause our business to suffer.
WE MAY INCUR MATERIAL COSTS IN CONNECTION WITH PRODUCT LIABILITY CLAIMS
Since many of our clients use our products to integrate important
applications in their organizations, any errors, defects or other performance
problems of our products could result in financial or other damages to our
clients. Additionally, we provide services to assist certain customers in
identifying and correcting potential Year 2000 problems. In the event of any
errors, defects or other performance problems in our products or services, our
clients could seek damages for losses from us, which, if successful, could
seriously harm our business, financial condition or results of operations.
Although our license agreements typically contain provisions designed to limit
our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate such limitation of liability
provisions. We have not experienced any product liability claims to date.
However, a product liability claim brought against us, even if not successful,
would likely be time consuming and costly.
YEAR 2000 RISKS MAY RESULT IN MATERIAL ADVERSE EFFECTS ON OUR BUSINESS
The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information when the year changes to 2000. As a result, in less
than a year, IT and non-IT systems used by many companies may need to be
upgraded to address Year 2000 problems. We have formed a Year 2000 task force
which is evaluating our systems, products and key external relationships to
ascertain material Year 2000 issues and solutions. The Year 2000 issue could
result in the following risks for us:
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- we may not be able to modify our products, services offerings, IT and
non-IT systems in a timely and successful manner to comply with the
Year 2000 requirements, which could have a material adverse effect on
our operating results
- The system failures due to Year 2000 problems of third parties with
whom we have a material relationship may have a material adverse
effect on our operating results
- our customers may reallocate capital expenditures to fix Year 2000
problems and defer purchases of our software
- we may be subject to a claim involving our products or Year 2000
assessment services which could have a material adverse effect on our
business, results of operations and financial condition
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
Our business is subject to government regulation. Existing as well as
new laws and regulations could adversely affect our business. Some computer
applications and software are considered medical devices and are subject to
regulation by the United States Food and Drug Administration (the "FDA"). We do
not believe that our current products or services provided to the healthcare
industry are subject to FDA regulation. However, we may expand our application
and service offerings into areas that subject us to FDA regulation. We have no
experience in complying with FDA regulations. We believe that complying with
FDA regulations would be time consuming, burdensome and expensive and could
delay our introduction of new applications or services.
By virtue of our products and services provided to the healthcare
industry, we are subject to extensive regulation relating to the
confidentiality and release of patient records, which are included in our
databases. Federal and state regulations govern both the disclosure and the use
of confidential patient medical record information. Although compliance with
these laws and regulations is at present principally the responsibility of the
hospital, physician or other healthcare provider, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the distribution of medical records has been proposed at both the state and
federal level. This legislation may require holders of such information to
implement security measures. It may be expensive to implement security or other
measures designed to comply with any new legislation. We cannot assure you that
changes to state or federal laws will not materially restrict the ability of
healthcare organizations to submit information from patient records using our
software products.
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ITEM 2. PROPERTIES
HIE leases approximately 9,315 square feet of office space in
Marietta, Georgia for its principal executive and administrative offices and
its corporate sales and marketing facilities. This lease expires in February
2003 and currently requires monthly rental payments of approximately $16,123.
HIE also leases approximately 12,797 square feet of office space in Dallas,
Texas for monthly rental payments of approximately $19,945, pursuant to a lease
which expires in November 2000. HIE also leases approximately 9,550 square feet
of office space in Columbus, Ohio for monthly rental payments of approximately
$10,023, pursuant to a lease which expires in August 1999.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, there are no material legal proceedings pending
against HIE. From time to time, HIE is involved in legal proceedings and
litigation arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are the current executive officers of HIE.
Certain information as of December 31, 1998 relating to the executive officers,
which has been furnished to HIE by the individuals named, is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert I. Murrie 53 President, Chief Executive Officer and Director
J. Edward Pearson, Jr. 36 Senior Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
Mark D. Shary 38 Senior Vice President - Commercial Business
and Director
Carolyn R. Jolley 49 Senior Vice President - Client Services
Joseph A. Blankenship 29 Vice President - Controller, Chief Accounting
Officer, Assistant Treasurer and Assistant
Secretary
</TABLE>
Robert I. Murrie has served as a director and the President and Chief
Executive Officer of HIE since October 1997. He was President of Healthcare
Communications, Inc., a wholly-owned subsidiary of HIE, from April 1997 to
October 1997 and served as a Client Partner of HIE (a senior sales executive
position) from January 1996 to April 1997. Prior to joining HIE, Mr. Murrie
served as President and Chief Executive Officer of Nurse on Call, a managed
care service company, from 1992 to December 1995 and held several senior
executive positions at HBO & Company from 1985 to 1992, including President and
Chief Executive Officer of Healthquest, Inc., a wholly-owned subsidiary of HBO
& Company, from 1988 to 1992.
J. Edward Pearson, Jr. has served as Senior Vice President - Finance,
Chief Financial Officer, Secretary and Treasurer of HIE since December 1998. In
October 1994, Mr. Pearson co-founded Criterion Health Strategies, Inc., an
affiliate of HIE which was a systems integration solutions provider for
hospitals, integrated delivery networks and specialty healthcare providers. He
served as the Chief Financial Officer and Executive Vice President of Criterion
Health Strategies, Inc. until it was acquired by HIE in December 1997, after
which he worked with HIE's Integrated Services Group until being elected to his
current positions. From 1990 to 1994, Mr. Pearson was Chief Financial Officer
and Executive Vice President of Inforum, Inc., a provider of planning and
marketing information and decision support software products to hospitals and
managed care organizations.
Mark D. Shary has served as a director of HIE since June 1, 1998 and
as Senior Vice President Commercial Business since February 1999. He previously
served as Senior Vice President - Product Planning of HIE from May 1998 through
January 1999 and as Chief Financial Officer, Treasurer and Secretary of HIE
from May 1998 until November 1998. Mr. Shary joined HIE when HIE acquired
HUBLink, Inc. in May 1998, where he had served as Chief Executive Officer since
founding that company in 1992. From 1982 until 1992, Mr. Shary served in a
number of executive and staff capacities at Ernst & Young LLP, including Senior
Manager from 1989 to 1992.
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Carolyn R. Jolley has served as Senior Vice President - Client
Services of HIE since December 1997 and as Vice President of HIE from October
1997 until December 1997. Ms. Jolley joined HIE when HIE acquired Healthcare
Communications, Inc., where Ms. Jolley had served as Vice President, Client
Services since May 1993. Prior to joining Healthcare Communications, Inc., Ms.
Jolley was an account executive for Shared Financial Systems, Inc., an
integration engine company serving the banking industry, from September 1990
until April 1993.
Joseph A. Blankenship has served as Vice President - Controller, Chief
Accounting Officer, Assistant Treasurer and Assistant Secretary of HIE since
January 1999. Mr. Blankenship served as Corporate Controller of Decorative Home
Accents, Inc., a textile manufacturer, from October 1996 to December 1998, and
as Director of Accounting of Allegiant Physician Services, Inc., a healthcare
services company, from April 1994 to October 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
HIE's common stock, $0.01 par value per share, together with
associated preferred stock purchase rights, is traded on the Nasdaq National
Market under the symbol "HDIE." The following table sets forth the high and low
sales prices of the common stock as reported by the Nasdaq National Market for
the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1997
First Quarter............................................. $ 6.25 $ 3.63
Second Quarter............................................ 4.00 2.25
Third Quarter............................................. 3.50 2.19
Fourth Quarter............................................ 3.13 1.38
1998
First Quarter............................................. $ 2.97 $ 1.44
Second Quarter............................................ 4.28 2.63
Third Quarter............................................. 4.81 2.81
Fourth Quarter............................................. 5.47 1.94
</TABLE>
As of March 8, 1999, there were approximately 1,923 holders of record
of HIE's common stock.
The Company has never paid any cash dividends with respect to its
common stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain all earnings, if any, for use
in the expansion of the Company's business. The payment of dividends, if any,
in the future with respect to the Company's common stock is within the
discretion of the Board of Directors and will depend on the Company's earnings,
capital requirements, financial condition and other relevant factors. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" regarding restrictions in HIE's
credit agreement on HIE's ability to pay dividends.
On May 12, 1998, the Company issued approximately 2.7 million shares of
its common stock in connection with the Company's acquisition by merger of
HUBLink, Inc. In connection with the HUBLink merger, the Company also issued (i)
124,923 shares of HIE common stock to Scott A. Jones in exchange for the
cancellation of a promissory note in the original principal amount of $500,000,
(ii) 100,000 shares of HIE common stock to Volpe, Brown, Whelan & Company, LLC
in lieu of the cash fee required pursuant to the terms of an engagement letter,
and (iii) a warrant to purchase up to 32,751 shares of HIE common stock at a per
share exercise price of $3.15, which warrant is exerciseable at any time until
December 31, 1999, to Robert J. Massey in exchange for cancellation of a warrant
to purchase 82.6712 shares of HUBLink, Inc. common
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stock at a per share exercise price of $1,247.02. These issuances were exempt
from registration under Section 4(2) of the Securities Act as transactions not
involving a public offering. In addition, the HUBLink, Inc. shareholders, Mr.
Jones, Volpe, Brown, Whelan & Company, LLC and Mr. Massey were sophisticated and
had access to information about the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with HIE's consolidated financial statements and related notes
thereto, and with Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Report. The selected
consolidated financial statement data for the years ended December 31, 1998,
1997, 1996, 1995 and 1994 are derived from HIE's audited consolidated financial
statements and give retroactive effect to the 1998 merger of a subsidiary of HIE
and HUBLink, Inc., which merger was accounted for as a pooling of interests.
Historical results are not necessarily indicative of results of operations to be
expected in the future.
<TABLE>
<CAPTION>
For the period
from 6/15/94
For the years ended December 31, (date of
--------------------------------------------- incorporation)
1998 1997 1996 1995 to 12/31/94
-------- -------- -------- -------- ---------------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations:
Total revenue.............................. $27,184 $ 18,064 $20,243 $ 11,248 $ 1,405
Operating earnings (loss).................. $ 1,599* $ (8,506)* $ 497 $ (9,891)* $ (1,487)
Net earnings (loss)........................ $ 1,498* $ (8,596)* $ 107 $(10,961)* $ (1,496)
Diluted net earnings (loss) per share of $ 0.06* $ (0.38)* $ 0.01 $ (0.60)* $ (0.08)
common stock............................
Shares used in the calculation of diluted
net earnings (loss) per share of common
stock................................... 24,867 22,587 21,277 18,302 17,720
</TABLE>
* Includes non-recurring pre-tax and after-tax charges of $1.1 million, $6.4
million and $5.4 million, or $0.04, $0.28 and $0.30 net loss per share, in 1998,
1997 and 1995, respectively (see Notes 1 and 3 of Notes to Consolidated
Financial Statements).
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Total assets ....................... $31,535 $28,940 $33,085 $22,793 $11,467
Long-term debt and obligations under
capital leases, excluding current
installments .................... $ 642 $ 316 $ 4,316 $ 5,462 $ 169
</TABLE>
27
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain of the statements made in this Item 7 and in other portions of
this Report and in documents incorporated by reference herein are
forward-looking statements. Such forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company to
differ materially from historical results or from any results expressed or
implied by such forward-looking statements. Such factors include, without
limitation, those discussed in "Item 1. Business -- Factors That May Affect
Future Performance" herein.
Overview
HIE develops and markets EAI solutions and provides related
implementation, maintenance and support services to companies seeking to connect
their disparate software applications and data repositories. HIE has served
customers in the healthcare market since 1994 and has recently begun providing
its software and services to financial institutions. HIE's products are designed
to enable companies to more effectively administer the disparate elements of
their IT systems by linking both new and existing software to form a more
efficient IT environment.
The Company was incorporated in Georgia in June 1994 as Healthdyne
Information Enterprises, Inc., a wholly-owned subsidiary of Healthdyne, Inc.,
and was initially focused on providing enterprise-wide clinical information
management solutions for healthcare delivery networks. In November 1995,
Healthdyne, Inc. distributed all of the outstanding shares of HIE common stock
in a spin-off. In October 1997, HIE redefined its strategic direction to focus
on providing software products and services to support the enterprise-wide
integration of information. As part of its new strategic focus, HIE (1) acquired
HUBLink, Inc., a privately-held integration software product company, in May
1998 in a pooling-of-interests transaction and (2) sold assets related to
certain non-strategic consulting services to Superior Consultant Holdings
Corporation in December 1998.
HIE sells its software products to distributors and application
vendors, as well as directly to end-users. Software license sales typically are
full-use licenses, which provide the end-user with full functionality of the
product. Less expensive limited use licenses are also available, which restrict
the functionality of the product or the number of application interfaces. A
typical distributor or application vendor agreement includes an initial purchase
of software for resale with additional licenses purchased periodically during
the term of the agreement. Sales directly to end-users are generally for
perpetual licenses for a one-time, up-front fee.
HIE recognizes revenue from two primary sources, software licenses and
services. Software license revenue is recognized in accordance with the criteria
set forth in Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"), issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants. Accordingly, HIE recognizes software
license revenue when: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable.
28
<PAGE> 29
Services revenue includes fees for product implementation and
integration services, software support and maintenance agreements and education.
Product implementation and integration services are generally provided under
contracts with terms of less than one year. Revenue is recognized as the work is
performed or, in the case of a fixed fee contract, on a percentage-of-completion
basis, even though some services may be prepaid. Software support and
maintenance services are generally provided under one-year renewable service
contracts for a prepaid standard fee. Revenue is recognized ratably on a
straight-line basis over the term of the contract. Education classes are
provided for a standard per-student charge and revenue is recognized as the
service is provided.
Research and development expenses are accounted for in accordance with
the provisions of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). SFAS 86 requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on HIE's product development
model, technological feasibility is established upon completion of a working
model. In 1998 and 1997, HIE capitalized $1.2 million and $0.5 million,
respectively, of software development costs in accordance with SFAS 86.
HIE is increasingly focused on selling its solutions through
third-party distributors, and its future success depends on its ability to
continue to develop and maintain successful relationships with effective
distributors. One distributor, McKessonHBOC, accounted for approximately 40% of
HIE's software licensing revenue and approximately 18% of HIE's total revenue in
1998. HIE's future success also depends on continued demand for its software
integration design, implementation and maintenance services. Services and other
revenue comprised approximately 54% of HIE's total revenue in 1998.
29
<PAGE> 30
Results of Operations
The following table sets forth both HIE's total revenue and the
percentage of total revenue (unless otherwise indicated) for each component
included in HIE's Consolidated Statements of Operations for the years indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Total HIE Revenue (in 000's) ........................ $ 27,184 $ 18,064 $ 20,243
Revenue:
Software ....................................... 45.7 % 40.9 % 42.6 %
Services and other ............................. 54.3 % 59.1 % 57.4 %
-------- -------- --------
Total revenue .............................. 100.0 % 100.0 % 100.0 %
-------- -------- --------
Cost of revenue:
Software (as a % of software revenue) .......... 6.9 % 13.9 % 10.5 %
Services and other (as a % of services and other
revenue) ..................................... 48.1 % 56.4 % 55.5 %
Total cost of revenue ...................... 29.3 % 39.0 % 36.3 %
-------- -------- --------
Gross profit ............................... 70.7 % 61.0 % 63.7 %
-------- -------- --------
Operating expenses:
Sales and marketing ............................ 24.5 % 29.7 % 26.8 %
Research and development ....................... 14.3 % 16.5 % 12.5 %
General and administrative ..................... 22.1 % 26.5 % 21.8 %
Merger costs ................................... 3.9 % -- % -- %
Obsolete software and other write-offs ......... -- % 25.7 % -- %
Purchased in-process research and development .. -- % 9.7 % -- %
-------- -------- --------
Operating earnings (loss) .................. 6.0 % (47.2)% 2.5 %
Losses of affiliate ................................. -- % (0.8)% -- %
Interest expense .................................... (0.9)% (2.4)% (3.2)%
Interest income ..................................... 0.6 % 2.8 % 1.2 %
-------- -------- --------
Earnings (loss) before income taxes ........ 5.7 % (47.6)% 0.5 %
Income taxes ........................................ -- % -- % -- %
-------- -------- --------
Net earnings (loss) ........................ 5.5 % (47.6)% 0.5 %
======== ======== ========
</TABLE>
30
<PAGE> 31
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue
Revenue increased by 50% to $27.2 million in the year ended December
31, 1998 from $18.1 million in the year ended December 31, 1997.
Software. Software license revenue increased by 68% to $12.4 million in
the year ended December 31, 1998 from $7.4 million in the year ended December
31, 1997. As a percentage of total revenue, software license revenue increased
to 45.7% in the year ended December 31, 1998 from 40.9% in the year ended
December 31, 1997. The dollar increase in software license revenue was primarily
due to increased sales of software to third-party distributors. The increase in
software license revenue as a percentage of total revenue was primarily due to
the dollar increase in software sales to third-party distributors added in the
latter half of 1998. During 1998, HIE focused its marketing efforts primarily on
software sales to third-party distributors and application vendors. The addition
of new distributors and application vendors facilitated HIE's revenue growth
during 1998 and third-party distributors comprised approximately 80% of software
sales during 1998.
Services and other. Services and other revenue increased by 38% to
$14.8 million in the year ended December 31, 1998 from $10.7 million in the year
ended December 31, 1997. As a percentage of total revenue, services and other
revenue decreased to 54.3% in the year ended December 31, 1998 from 59.1% in the
year ended December 31, 1997. The dollar increase in services and other revenue
was primarily due to an increase in the sale and completion of projects as well
as an increase in service personnel productivity. The decrease in services and
other revenue as a percentage of total revenue was primarily due to increased
software sales to third-party distributors added in the third and fourth
quarters of 1998.
Cost of Revenue
Software. Cost of software license revenue consists principally of
royalty payments to third parties for software products that were sold with
HIE's products, software purchased from third parties for resale, and
amortization of capitalized software development costs. Cost of software license
revenue decreased by 17% to $0.9 million in the year ended December 31, 1998
from $1.0 million in the year ended December 31, 1997. As a percentage of
software license revenue, cost of software license revenue decreased to 6.9% in
the year ended December 31, 1998 from 13.9% in the year ended December 31, 1997.
The dollar decrease in cost of software license revenue resulted primarily from
a write-off of obsolete software in late 1997 which resulted in a lower
amortization of purchased software expense for 1998. The decrease in cost of
software license revenue as a percentage of software license revenue was
primarily due to the write-off of obsolete software in 1997 and to increased
software license revenue.
Services and other. Cost of services and other revenue consists
primarily of personnel, facility and systems costs incurred in providing product
implementation, integration project, maintenance, consulting and education
services. Cost of services and other revenue increased by 18% to $7.1 million in
the year ended December 31, 1998 from $6.0 million in the year ended December
31, 1997. As a percentage of services and other revenue, cost of services and
other
31
<PAGE> 32
revenue decreased to 48.1% in the year ended December 31, 1998 from 56.4% in the
year ended December 31, 1997. The dollar increase in cost of services and other
revenue was primarily due to an increase in service personnel necessary to
complete service projects. The decrease in cost of services and other revenue as
a percentage of services and other revenue was primarily due to increases in
service personnel productivity.
Operating Expenses
Sales and marketing. Sales and marketing expense consists primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
travel and promotional expenses. Sales and marketing expense increased by 24% to
$6.7 million in the year ended December 31, 1998 from $5.4 million in the year
ended December 31, 1997. As a percentage of total revenue, sales and marketing
expense decreased to 24.5% in the year ended December 31, 1998 from 29.7% in the
year ended December 31, 1997. The dollar increase in sales and marketing expense
was primarily due to initial marketing for solutions being developed for new
vertical markets other than the healthcare market. The decrease in sales and
marketing expense as a percentage of total revenue was primarily due to
increased distribution to third-party distributors versus direct sales.
Research and development. Research and development expense includes
personnel costs, contract services, and travel associated with the development
of new products, enhancements of existing products and quality assurance
activities. Research and development expense increased by 30% to $3.9 million in
the year ended December 31, 1998 from $3.0 million in the year ended December
31, 1997. As a percentage of total revenue, research and development expense
decreased to 14.3% in the year ended December 31, 1998 from 16.5% in the year
ended December 31, 1997. The dollar increase in research and development expense
was primarily due to an increase in development personnel and contract
programmers needed to support planned product expansion in vertical markets
other than healthcare. The decrease in research and development expense as a
percentage of total revenue was primarily due to an increase in revenue and, to
a lesser extent, to increased capitalization of costs related to internally
developed software to $1.2 million in 1998 from $0.5 million in 1997. The
increased capitalization of internally developed software costs was a result of
increased spending on software development projects in connection with planned
expansion into additional vertical markets.
General and administrative. General and administrative expense consists
primarily of personnel costs, outside professional fees, and software and
equipment costs associated with the finance, legal, human resources, information
systems, and administrative functions of HIE. General and administrative expense
increased by 26% to $6.0 million in the year ended December 31, 1998 from $4.8
million in the year ended December 31, 1997. As a percentage of total revenue,
general and administrative expense decreased to 22.1% in the year ended December
31, 1998 from 26.5% in the year ended December 31, 1997. The dollar increase in
general and administrative expense was primarily due to increases in recruiting
costs, telecommunication expenses and other general and administrative expenses
as a result of an overall increase in personnel and revenue growth. The decrease
in general and administrative expense as a percentage of total revenue was
primarily due to increased revenue and elimination of redundant costs in the
second half of 1998 related to the acquisition of HUBLink, Inc. by HIE.
32
<PAGE> 33
Merger costs. Merger costs consist of investment banking, legal and
accounting fees, travel and severance costs in connection with HIE's acquisition
of HUBLink, Inc. on May 12, 1998. In connection with the acquisition of HUBLink,
HIE incurred $1.1 million of one-time charges in the year ended December 31,
1998.
Obsolete software and other write-offs. Obsolete software and other
write-offs consist of certain assets that were written-off or fully reserved
relating to HIE's redefined strategic direction in October 1997. In the year
ended December 31, 1997, HIE wrote-off or fully reserved certain assets totaling
$4.7 million that no longer contributed to HIE's new strategic direction,
including the following: (1) the net book value of certain third-party and
internally developed software totaling $2.7 million; (2) accounts receivable
totaling $1.1 million and project completion costs totaling $0.6 million, both
related to the software that HIE ceased selling and distributing under its new
strategic direction; and (3) other costs totaling $0.3 million.
Purchased in-process research and development. Purchased in-process
research and development consists of costs for software integration products
that HIE purchased in connection with its acquisition of Criterion Health
Strategies, Inc. in 1997. The total costs incurred were $1.7 million in the year
ended December 31, 1997.
Income taxes. HIE had no provision for income taxes in the years ended
December 31, 1998 or 1997 as a result of HIE utilizing net operating loss
carryforwards in 1998 and a net operating loss for 1997. As of December 31,
1998, HIE had net operating loss carryforwards for tax reporting purposes of
approximately $18.4 million, which expire at various dates from 2007 through
2018.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue
Revenue decreased by 11% to $18.1 million in the year ended December
31, 1997 from $20.2 million in the year ended December 31, 1996. Sales of
software and services to one customer, Promina Health Systems, accounted for
approximately 20% of HIE's total revenue in the year ended December 31, 1996.
Software. Software license revenue decreased by 14% to $7.4 million in
the year ended December 31, 1997 from $8.6 million in the year ended December
31, 1996. As a percentage of total revenue, software license revenue decreased
to 40.9% in the year ended December 31, 1997 from 42.6% in the year ended
December 31, 1996. The dollar decrease in software license revenue was primarily
due to a reduction in integration engine software license revenue and, to a
lesser extent, to reductions in sales of certain products that HIE elected to
discontinue as part of its redefined strategic direction in October 1997. The
decrease in software license revenue as a percentage of total revenue was
primarily due to the decrease in software license revenue.
Services and other. Services and other revenue decreased by 8% to $10.7
million in the year ended December 31, 1997 from $11.6 million in the year ended
December 31, 1996. As a percentage of total revenue, services and other revenue
increased to 59.1% in the year ended December 31, 1997 from 57.4% in the year
ended December 31, 1996. The dollar decrease in services and other revenue was
primarily due to a relatively low level of service personnel
33
<PAGE> 34
productivity at the beginning of 1997 and HIE's decision to de-emphasize
hardware sales. This was partially offset by increased software maintenance
revenue. The increase in services and other revenue as a percentage of total
revenue was primarily due to a decrease in total revenue.
Cost of Revenue
Software. Cost of software license revenue increased by 13% to $1.0
million in the year ended December 31, 1997 from $0.9 million in the year ended
December 31, 1996. As a percentage of software license revenue, cost of software
license revenue increased to 13.9% in the year ended December 31, 1997 from
10.5% in the year ended December 31, 1996. The dollar increase in cost of
software license revenue was primarily attributable to an increase in the amount
of third-party software products resold by HIE. The increase in cost of software
license revenue as a percentage of software license revenue was primarily a
result of the higher cost of third-party software products compared to HIE's
proprietary software products and the decrease in software license revenue.
Services and other. Cost of services and other revenue decreased by 7%
to $6.0 million in the year ended December 31, 1997 from $6.4 million in the
year ended December 31, 1996. As a percentage of services and other revenue,
cost of services and other revenue increased to 56.4% in the year ended December
31, 1997 from 55.5% in the year ended December 31, 1996. The dollar decrease in
cost of services and other revenue was primarily a result of the decrease in
hardware revenue in 1997 discussed above. The increase in cost of services and
other revenue as a percentage of services and other revenue was attributable to
a relatively low level of service personnel productivity at the beginning of
1997, partially offset by the reduction in hardware sales cost of revenue, which
has a relatively high cost of revenue.
Operating Expenses
Sales and marketing. Sales and marketing expense was $5.4 million in
both the year ended December 31, 1997 and the year ended December 31, 1996. As a
percentage of total revenue, sales and marketing expense increased to 29.7% in
the year ended December 31, 1997 from 26.8% in the year ended December 31, 1996.
The increase in sales and marketing expense as a percentage of total revenue was
primarily due to the decrease in total revenue.
Research and development. Research and development expense increased by
17% to $3.0 million in the year ended December 31, 1997 from $2.5 million in the
year ended December 31, 1996. As a percentage of total revenue, research and
development expense increased to 16.5% in the year ended December 31, 1997 from
12.5% in the year ended December 31, 1996. The dollar increase in research and
development expense was primarily due to increased expenditures for
enterprise-level object-oriented integration engine technology development,
offset somewhat by decreased expenditures for a software product that was
discontinued in 1997. The increase in research and development expense as a
percentage of total revenue was primarily due to an increase in expenditures
overall and to a decrease in capitalization of costs related to internally
developed software to $0.5 million in 1997 from $0.8 million in 1996. The
decreased capitalization of internally developed software costs was a result of
decreased spending on certain software development projects that were ultimately
discontinued in 1997.
34
<PAGE> 35
General and administrative. General and administrative expense
increased by 8% to $4.8 million in the year ended December 31, 1997 from $4.4
million in the year ended December 31, 1996. As a percentage of total revenue,
general and administrative expense increased to 26.5% in the year ended
December 31, 1997 from 21.8% in the year ended December 31, 1996. The dollar
increase in general and administrative expense was primarily due to an increase
in expenditures related to HIE's change in strategic direction. The increase in
general and administrative expense as a percentage of total revenue was
primarily due to a decrease in total revenue.
Obsolete software and other write-offs. Obsolete software and other
write-offs consist of certain assets that were written-off or fully reserved
relating to HIE's redefined strategic direction in October 1997. In the year
ended December 31, 1997, HIE wrote-off or fully reserved certain assets totaling
$4.7 million that no longer contributed to HIE's new strategic direction,
including the following: (1) the net book value of certain third-party and
internally developed software totaling $2.7 million; (2) accounts receivable
totaling $1.1 million and project completion costs totaling $0.6 million, both
related to the software that HIE ceased selling and distributing under its new
strategic direction; and (3) other costs totaling $0.3 million. No such obsolete
software and other write-offs were incurred during the year ended December 31,
1996.
Purchased in-process research and development. Purchased in-process
research and development consists of costs for software integration products
that HIE purchased in connection with its acquisition of Criterion Health
Strategies, Inc. in 1997. The total costs incurred were $1.7 million in the year
ended December 31, 1997.
Income taxes. HIE had no provision for income taxes in 1997 and 1996
due to the net loss incurred in 1997 and the utilization of available net
operating loss carryforward benefits in 1996.
Liquidity and Capital Resources
HIE financed its operations from inception through the November 1995
spin-off primarily through equity investments totaling $22.0 million by
Healthdyne, Inc. Following the spin-off, Healthdyne, Inc. made no additional
advances or equity infusions in HIE. During November 1996, HIE sold 2.75 million
shares of its common stock in a follow-on public offering and received proceeds
of $10.3 million, after deducting offering-related expenses. In addition, HIE
received proceeds of $5.2 million, after deducting offering-related expenses,
from various private placements of common stock and from employee stock option
and purchase plans from 1995 through 1998. HIE generally uses capital leases to
finance additions of computer equipment. HIE also periodically borrows under
established lines of credit for working capital purposes.
Prior to the completion of the follow-on offering in November 1996, HIE
used its available cash and cash flow from operating activities to pay acquired
debt and acquisition financing-related debt, as those obligations matured.
Subsequent to the follow-on offering in November 1996, HIE used $800,000,
$400,000 and $200,000 of cash during November 1996, April 1997 and September
1997, respectively, to prepay a portion of long-term debt at a discount.
35
<PAGE> 36
HIE also invested $995,000 during 1997 to satisfy its funding commitment to
Criterion Health Strategies, Inc. HIE plans to use the remainder of the net
proceeds from the equity sources referred to above to pay debt as it matures and
for working capital and general corporate purposes.
HIE had working capital of $7.4 million at December 31, 1998 compared
to working capital of $2.7 million at December 31, 1997. The increase in working
capital was generated primarily through operating earnings and the exercise of
stock options.
Net cash used in operating activities increased to $3.7 million in the
year ended December 31, 1998 from $1.7 million in the year ended December 31,
1997. The increase in net cash used in operating activities was attributable to
an increase in accounts receivable offset by an increase in deferred revenue and
net earnings for the year ended December 31, 1998.
Net cash used in investing activities decreased to $0.3 million in the
year ended December 31, 1998 from $2.3 million in the year ended December 31,
1997. This decrease in net cash used in investing activities was primarily a
result of HIE's sale of the Integrated Services Group in the fourth quarter of
1998, which generated $1.5 million in cash. No gain or loss was recognized on
the transaction.
Net cash used in financing activities decreased to $0.6 million used in
the year ended December 31, 1998 from $1.0 million provided in the year ended
December 31, 1997. Principal payments on long-term debt increased $2.5 million
to $3.8 million for the year ended December 31, 1998 compared to $1.3 million
for the year ended December 31, 1997. This increase was offset by issuances of
common stock and borrowings under line of credit facilities. HIE's net
borrowings from its line of credit facilities totaled approximately $1.5 million
for the year ended December 31, 1998 compared to $0.1 million for the year ended
December 31, 1997.
In August 1998, HIE entered into a new line of credit agreement
providing for borrowings of up to $5.0 million, with the maximum amount
available under the line at any time dependent on HIE's accounts receivable. As
of December 31, 1998, $3.0 million of the facility was available to HIE of which
$2.5 million in borrowings were outstanding. The facility is for a one year
term, with borrowings bearing interest at the bank's prime rate plus 1% (8.75%
as of December 31, 1998). The line of credit agreement contains certain
covenants, including a provision prohibiting HIE from paying dividends on its
common stock. HIE plans to maintain the $5.0 million line of credit for
unanticipated needs and financial flexibility.
HIE is committed to make expenditures under non-cancelable operating
leases and capital lease agreements for certain facilities and equipment. These
leases expire at various dates through 2003. At December 31, 1998, HIE had $2.9
million in outstanding capital and operating lease obligations.
HIE believes that currently available cash, anticipated cash flow from
operations and borrowings under existing or future credit facilities will be
sufficient to meet HIE's requirements for at least the next twelve months. HIE
may seek to raise additional financing to support expansion, develop new or
enhanced applications and services, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of favorable market
36
<PAGE> 37
conditions. In such event, or if HIE's cash needs or plans change, HIE may seek
to raise additional funds by selling debt or equity securities, by entering into
strategic relationships or through other arrangements. There can be no
assurance, however, that HIE will be able to raise any additional amounts on
reasonable terms, if at all.
Backlog
As of December 31, 1998, HIE's revenue backlog totaled $8.7 million
compared with $8.3 million as of December 31, 1997. Revenue backlog is comprised
of maintenance fees paid in advance, contracted for implementation services and
other unearned revenue relating to accepted orders or agreements for the
delivery of HIE's products and services. Revenue included in backlog is
generally expected to be recognized over the next twelve months. Generally,
customer orders and agreements included in backlog are subject to cancellation
and there can be no assurance that backlog will be realized. Consequently,
backlog is not necessarily indicative of future results.
Recent Accounting Pronouncement
Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"), was issued by the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants in October 1997, effective
for financial statements for fiscal years beginning after December 15, 1997. On
January 1, 1998, HIE adopted SOP 97-2. In accordance with SOP 97-2, revenue from
the license of software is generally recognized upon shipment of the software
and fulfillment of acceptance terms, provided that the fee is fixed or
determinable and collection of the resulting receivable is deemed probable.
Service revenue is recognized as the work is performed or, in the case of a
fixed-fee contract, on the percentage of completion basis, even though some
services are prepaid. The implementation of this statement has not had a
material impact on HIE's consolidated financial statements. However, SOP 97-2
includes restrictive provisions regarding specific terms of software
arrangements which, if present, require deferral of revenue recognition beyond
the point of delivery of the software. Future competitive conditions may arise
that could necessitate changes in HIE's business practices and the contract
terms of its software arrangements. Such changes may require deferral of revenue
recognition and periodic operating results could be adversely affected.
Year 2000
The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information when the year changes to 2000. The Year 2000 issue
affects IT systems, such as computer programs and various types of electronic
equipment that process date information by using only two digits rather than
four digits to define the applicable year, and thus may recognize a date using
"00" as the year 1900 rather than the year 2000. The issue also affects some
non-IT systems, such as devices which rely on a microcontroller to process date
information. The Year 2000 issue could disrupt a company's operations by
generating erroneous data or causing system failures or miscalculations.
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<PAGE> 38
State of Readiness
HIE has formed a Year 2000 task force which is systematically
evaluating its systems, products and key external relationships to ascertain
material Year 2000 issues and solutions. HIE's Year 2000 readiness program has
two phases: (1) assessment and (2) remediation (including modification,
upgrading, replacement and validation by third parties). HIE's Year 2000
readiness program is an ongoing process involving continual evaluation and may
be subject to change in response to new developments.
HIE's products and services. HIE is in the process of assessing the
Year 2000 readiness of all products available currently or previously sold to
customers and distributors. HIE expects this assessment to be complete in
mid-1999.
Although HIE does not generally warrant the Year 2000 readiness of its
products, it has disclosed to its customers and distributors that its products
are "Year 2000 ready." HIE has defined "Year 2000 ready" as the ability for a
product component to initialize and operate normally on and after January 1,
2000; and, where applicable, the ability to correctly manipulate, display, store
and exchange with other components of its system all dates, either prior,
during, or after January 1, 2000. However, HIE's products are configurable and
programmable by end users, and Year 2000 problems relating to re-configurations
and programming extensions to HIE's base product generated by an end user cannot
be anticipated by HIE.
HIE also markets its products and services as a solution for addressing
the Year 2000 problem. As part of its Year 2000 risk assessment services, HIE
executes an application that browses all Cloverleaf site configuration files and
provides a listing of the date fields that are at risk and where the fields are
integrated within the Cloverleaf system. After executing its Year 2000 risk
assessment application, HIE provides the customer with a written report
describing the location of these at risk fields and the application interface
that is affected.
HIE attempts to limit by contract, both with its customers and with the
parties that license technology to HIE, its liability for damages arising in
rendering its products and services. Despite this precaution, there can be no
assurance that the limitations of liabilities set forth in its contracts would
be enforceable or would otherwise protect HIE from liability for damages. In
addition, HIE's products are generally integrated into enterprise systems
involving sophisticated hardware and complex software products that HIE cannot
adequately evaluate for Year 2000 problems. HIE may face claims based on Year
2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system.
Internal IT and non-IT systems. HIE is in the process of implementing
new software for its accounting, internal network and timekeeping functions in
order to consolidate various systems under its new strategic direction and
integrate HUBLink's operations. Representations made by software vendors for
these new systems, including Year 2000 readiness, will be validated at the
completion of that implementation, which is expected to be early 1999. Non-IT
systems, such as telecommunications systems, as well as existing IT systems are
currently being assessed.
38
<PAGE> 39
Other third parties. HIE has surveyed with a questionnaire material
vendors and suppliers of systems used by HIE for internal IT and research and
development in order to determine the extent to which HIE is vulnerable to any
failure by such material third parties to remediate their respective Year 2000
problems and resolve such problems to the extent practicable. HIE expects the
assessment to be complete in early 1999 and will take the necessary remediation
action, including changing to vendors who are Year 2000 compliant or installing
internal IT systems, to minimize the Year 2000 non-compliance risk with respect
to third parties. HIE has not conducted a Year 2000 survey of the distributors
and financial institutions with whom it has material relationships.
Year 2000 Costs and Contingency Plans
To date, HIE has not incurred any material costs directly associated
with its Year 2000 readiness efforts nor accelerated the replacement of any
system due to Year 2000 issues. HIE does not anticipate that it will incur
either significant operating expenses or significant capital expenditures to
address Year 2000 issues with respect to its internal systems and the software
products and services that it markets.
In view of HIE's Year 2000 assessment and remediation efforts to date,
and the limited activities that remain to be completed, HIE's contingency plans
consist of plans to re-route phone calls, manual accounting and restoring
working systems with backup files. HIE is in the final stages of development of
these contingency plans, which are expected to be completed by mid-1999.
Risks of Year 2000 Issues
In light of its compliance efforts, HIE does not believe that the Year
2000 issue will materially adversely affect operations or results of operations,
and does not expect implementation to have a material impact on HIE's
consolidated financial statements. However, there can be no assurance that HIE's
systems will be Year 2000 compliant prior to December 31, 1999, or that the
failure of any such system will not have a material adverse effect on HIE's
business, results of operations and financial condition. In addition, to the
extent the Year 2000 problem has a material adverse effect on business,
operations or financial condition of third parties with whom HIE has material
relationships, such as customers, distributors, vendors, suppliers and financial
institutions, the Year 2000 problem could have a material adverse effect on
HIE's business, results of operations and financial condition.
Although HIE has not been a party to any litigation or arbitration
proceeding involving its products or services related to Year 2000 issues, HIE
may in the future be required to defend its products or services in such
proceedings or to negotiate resolutions of claims based on Year 2000 issues. The
costs of defending and resolving Year 2000-related disputes, regardless of the
merits of such disputes, and any liability HIE may have for Year 2000-related
damages, including consequential damages, could materially adversely affect its
business, results of operations and financial condition. There also can be no
assurance that HIE will be able to obtain or maintain insurance coverage for
such liabilities, that such coverage will continue to be available on acceptable
terms, or that such coverage will be available in amounts to cover one or more
large claims. The assertion of claims against HIE that exceed available
insurance coverage or changes
39
<PAGE> 40
in HIE's insurance policies, including premium increases or the imposition of
large deductible or co-insurance requirements, could have a material adverse
effect on HIE's business, financial condition and results of operations.
The above Year 2000 discussion contains forward-looking statements
reflecting management's current assessment and estimates with respect to HIE's
Year 2000 readiness efforts and the impact of Year 2000 issues on HIE's
business, financial condition and results of operations. Various factors, many
of which are beyond the control of HIE, could cause actual plans and results to
differ materially from those contemplated by such assessments, estimates and
forward-looking statements. Some of these factors include, but are not limited
to, the accuracy of the Year 2000 assurances, disclosures or representations by
HIE's customers, distributors, vendors, suppliers, financial institutions and
other third parties with whom it has material relationships, availability of
qualified personnel and other IT resources and any actions of third parties with
respect to Year 2000 problems.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company currently maintains all cash in United States dollars in
highly liquid, interest-bearing, investment-grade instruments with maturities of
less than three months, which the Company considers cash equivalents; therefore
the Company has no "market risk sensitive investments," and no disclosure is
required under this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for the years ended December 31, 1998, 1997
and 1996
<TABLE>
<S> <C>
Independent Auditors' Report....................................................................F-1
Consolidated Balance Sheets.....................................................................F-2
Consolidated Statements of Operations...........................................................F-3
Consolidated Statements of Shareholders' Equity.................................................F-4
Consolidated Statements of Cash Flows...........................................................F-5
Notes to Consolidated Financial Statements......................................................F-7
</TABLE>
40
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
HIE, Inc.
We have audited the accompanying consolidated balance sheets of HIE, Inc.
(formerly Healthdyne Information Enterprises, Inc.) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HIE, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Atlanta, Georgia
January 26, 1999
F-1
<PAGE> 42
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,167 $ 7,777
Trade accounts receivable, less allowances of $720 and $626 at
December 31, 1998 and 1997, respectively (note 1(d)) 12,295 5,977
Other current assets (note 7) 2,555 1,375
-------- --------
Total current assets 18,017 15,129
Notes receivable 82 335
Purchased software, net (notes 1(e) and 1(k)) 1,946 2,397
Capitalized software development costs, net (notes 1(f) and 1(k)) 1,606 564
Property and equipment, net (note 4) 2,289 1,939
Excess of cost over net assets of businesses acquired, net (note 3) 7,535 8,503
Other assets 60 73
-------- --------
Total assets $ 31,535 $ 28,940
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and obligations under capital leases (note 6) $ 2,911 $ 5,175
Accounts payable, principally trade 1,276 863
Accrued liabilities (note 5) 1,718 2,821
Deferred revenue 4,690 3,597
-------- --------
Total current liabilities 10,595 12,456
Long-term debt and obligations under capital leases, excluding current
installments (note 6) 642 316
Other liabilities - 476
-------- --------
Total liabilities 11,237 13,248
Shareholders' equity (note 8):
Preferred stock, without par value. Authorized 20,000 shares; designated
Series A cumulative preferred stock 500 shares; issued none - -
Common stock, $0.01 par value. Authorized 50,000 shares; 24,972 and 23,563
issued and outstanding shares at December 31, 1998 and 1997, respectively 250 236
Additional paid-in capital 41,301 38,280
Deferred compensation - (73)
Accumulated deficit (21,253) (22,751)
-------- --------
Total shareholders' equity 20,298 15,692
-------- --------
Commitments (notes 9 and 11)
Total liabilities and shareholders' equity $ 31,535 $ 28,940
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 43
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue (note 12):
Software $ 12,432 $ 7,388 $ 8,622
Services and other 14,752 10,676 11,621
-------- -------- --------
Total revenue 27,184 18,064 20,243
-------- -------- --------
Cost of revenue:
Software 852 1,026 907
Services and other 7,102 6,025 6,449
-------- -------- --------
Total cost of revenue 7,954 7,051 7,356
-------- -------- --------
Gross profit 19,230 11,013 12,887
Operating expenses:
Sales and marketing 6,672 5,362 5,435
Research and development 3,882 2,977 2,540
General and administrative (including related party expenses
of $10, $13 and $51 for the respective periods) (note 2) 6,017 4,784 4,415
Merger costs (notes 1(k) and 3) 1,060 - -
Obsolete software and other write-offs (note 1(k)) - 4,650 -
Purchased in-process research and development (note 3) - 1,746 -
-------- -------- --------
Operating earnings (loss) 1,599 (8,506) 497
-------- -------- --------
Losses of affiliate (note 3) - (151) -
Interest expense (254) (436) (643)
Interest income 153 497 253
-------- -------- --------
Earnings (loss) before income taxes 1,498 (8,596) 107
Income taxes (note 7) - - -
-------- -------- --------
Net earnings (loss) $ 1,498 $ (8,596) $ 107
======== ======== ========
Net earnings (loss) per share of common stock (note 1(m)):
Basic $ 0.06 $ (0.38) $ 0.01
======== ======== ========
Diluted $ 0.06 $ (0.38) $ 0.01
======== ======== ========
Shares used in the calculation of net earnings (loss)
per share of common stock (note 1(m)):
Basic 24,031 22,587 19,863
======== ======== ========
Diluted 24,867 22,587 21,277
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 44
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- Paid-in Deferred Accumulated Shareholders'
Shares Amount Capital Compensation Deficit Equity
----------- --------- ----------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 18,754 $ 188 $ 24,066 $ (23) $(14,262) $ 9,969
Issuance of common stock in public and
private offerings, net of offering expenses
of $654 2,919 29 11,025 -- -- 11,054
Stock options exercised 905 9 452 -- -- 461
Employee stock plan purchases 14 -- 58 -- -- 58
Deferred compensation related to granting
of stock options -- -- 29 (29) -- --
Amortization of deferred compensation, net
of forfeitures -- -- (75) 29 -- (46)
Net earnings -- -- -- -- 107 107
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 22,592 226 35,555 (23) (14,155) 21,603
Issuance of common stock in an acquisition 416 4 1,095 -- -- 1,099
Issuance of common stock in private
offerings, net of offering expenses of $20 280 3 1,236 -- -- 1,239
Stock options exercised 193 2 31 -- -- 33
Employee stock plan purchases 82 1 169 -- -- 170
Deferred compensation related to granting
of stock options -- -- 233 (233) -- --
Amortization of deferred compensation, net
of forfeitures -- -- (39) 183 -- 144
Net loss -- -- -- -- (8,596) (8,596)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 23,563 236 38,280 (73) (22,751) 15,692
Issuance of common stock in satisfaction of
investment banker advisory fee 100 1 405 -- -- 406
Issuance of common stock in satisfaction of
note payable to HUBLink shareholder 125 1 507 -- -- 508
Stock options exercised 1,092 11 1,491 -- -- 1,502
Employee stock plan purchases 92 1 140 -- -- 141
Amortization of deferred compensation, net
of forfeitures -- -- -- 73 -- 73
Income tax benefits arising from stock
option exercises -- -- 478 -- -- 478
Net earnings -- -- -- -- 1,498 1,498
-------- -------- -------- -------- -------- --------
Balance at December 31, 1998 24,972 $ 250 $ 41,301 $ -- $(21,253) $ 20,298
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 45
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,498 $ (8,596) $ 107
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Obsolete software and other write-offs - 4,614 -
Purchased in-process research and development - 1,746 -
Losses of affiliate - 151 -
Provision for doubtful accounts 270 445 383
Depreciation and amortization 2,165 1,816 1,738
Compensation related to stock options, net 73 144 (46)
Increase in trade accounts receivable (8,457) (1,206) (2,934)
Increase in other current assets (302) (711) (197)
Increase (decrease) in trade accounts payable 413 (767) 814
Increase (decrease) in accrued liabilities (419) 122 728
Increase in deferred revenue 1,093 503 1,289
-------- -------- ------
Net cash provided by (used in) operating activities (3,666) (1,739) 1,882
-------- -------- ------
Cash flows from investing activities:
Purchased software (112) (445) (1,713)
Capitalized software development costs (1,249) (467) (789)
Capital expenditures (258) (303) (486)
Change in other non-current assets and liabilities, net (210) (1,071) 112
Proceeds from disposition of business 1,517 - -
-------- -------- ------
Net cash used in investing activities (312) (2,286) (2,876)
-------- -------- ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 583 67
Principal payments on long-term debt (3,797) (1,261) (4,159)
Net borrowings under line of credit 1,522 120 250
Proceeds from issuances of common stock 1,643 1,589 11,573
-------- -------- ------
Net cash provided by (used in) financing activities (632) 1,031 7,731
-------- -------- ------
Net increase (decrease) in cash and cash equivalents (4,610) (2,994) 6,737
Cash and cash equivalents at beginning of year 7,777 10,771 4,034
-------- -------- ------
Cash and cash equivalents at end of year $ 3,167 $ 7,777 $ 10,771
======== ======== ========
</TABLE>
F-5
<PAGE> 46
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash paid for:
Interest $ 254 $ 190 $ 279
========= ========= =========
Income taxes $ - $ - $ -
========= ========= =========
Supplemental disclosures of non-cash investing and financing
activities:
Equipment acquired under capital lease obligations $ 844 $ 467 $ 132
========= ========= =========
Obligations incurred in connection with acquisitions $ - $ 840 $ -
========= ========= =========
Issuance of common stock in connection with an acquisition $ - $ 1,099 $ -
========= ========= =========
Issuance of common stock in satisfaction of note payable
to HUBLink shareholder $ 508 $ - $ -
========= ========= =========
Issuance of common stock in satisfaction of investment
banker advisory fee $ 406 $ - $ -
========= ========= =========
Income tax benefits arising from stock option exercises $ 478 $ - $ -
========= ========= =========
Disposal of business:
Assets disposed of $ 2,445 $ - $ -
Liabilities disposed of (278) - -
Amount in escrow (650) - -
--------- --------- ---------
Proceeds from disposition of business $ 1,517 $ - $ -
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 47
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
(a) Business
HIE, Inc. and subsidiaries (collectively referred to as "HIE" or the
"Company") provide software tools and services to achieve the
enterprise-wide integration of information.
HIE was incorporated on June 15, 1994 in the State of Georgia and is
headquartered in Marietta, Georgia. HIE was a wholly owned subsidiary
of Healthdyne, Inc. ("Healthdyne") until November 6, 1995 at which
time Healthdyne distributed all of the outstanding shares of HIE to
the Healthdyne shareholders (the "Spin-off"). On February 24, 1999,
the Company changed its name from Healthdyne Information Enterprises,
Inc. to HIE, Inc.
(b) Basis of Consolidated Financial Statement Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries, as appropriate (see note 3).
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the dates of the consolidated
balance sheets and income and expenses for the periods. Actual
results could differ from those estimates.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments
with original maturities of three months or less.
(d) Revenue
Revenue is derived from the sale of integration software tools and
from providing related education, consulting, project management,
implementation, support and other integration services. Revenue from
software licensing and support fees is recognized in accordance with
Statement of Position ("SOP") 97-2, Software Revenue Recognition.
Software revenue is recognized based on four criteria proscribed by
SOP 97-2, which are: (1) persuasive evidence of an arrangement
exists, (2) delivery has occurred, (3) the fee is fixed or
determinable, and (4) collectibility is probable. All service revenue
is recognized as the work is performed or, in the case of a fixed fee
contract, on the
F-7
<PAGE> 48
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
percentage-of-completion basis, even though some services are
prepaid. Deferred revenue represents advance payments or billings for
software licenses, services, or support in advance of revenue
recognition.
The Company established business relationships with several new
distributors in 1998 and 1997 and therefore, limited historical data
is available on which to base estimates of future returns, allowances
and warranties. Management of the Company has provided an allowance
for expected returns, allowances and warranties based on historical
rates. The amounts of returns, allowances and warranties ultimately
incurred could differ materially in the near term from the allowances
calculated.
(e) Purchased Software
Purchased software includes the cost of purchased integration
software tools and the cost of software acquired in connection with
business combinations. It also includes the cost of licenses to use,
embed and sell software tools developed by others. These costs are
being amortized ratably based on the projected revenue associated
with these purchased or licensed tools and products or the
straight-line method over five years, whichever method results in a
higher level of annual amortization. Amortization expense related to
purchased software amounted to $563, $886 and $620 in 1998, 1997 and
1996, respectively. Accumulated amortization related to purchased
software totaled $1,341 and $778 at December 31, 1998 and 1997,
respectively. (See notes 1(k) and 3.)
(f) Research and Development and Capitalized Software Development Costs
Prior to the determination of technological feasibility for software
tools, research and development costs are expensed as incurred. After
determination of technological feasibility and before the release of
the software tools for general availability, the development costs
related to such tools are capitalized. These costs are being
amortized ratably based on the projected revenue associated with
these tools or the straight-line method over five years, whichever
method results in a higher level of annual amortization. The Company
capitalized $1,249, $467 and $789 of software development costs in
1998, 1997 and 1996, respectively. Amortization expense related to
capitalized software development costs was $207, $101 and $39 in
1998, 1997 and 1996, respectively. Accumulated amortization related
to capitalized software development costs totaled $329 and $122 at
December 31, 1998 and 1997, respectively. (See note 1(k).
(g) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the
straight-line method over an estimated useful life of five years.
Amortization of leasehold improvements is recorded over the
F-8
<PAGE> 49
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
shorter of the lives of the related assets or the lease terms and is
included in depreciation expense.
(h) Excess of Cost Over Net Assets of Businesses Acquired
The excess of cost over net assets of businesses acquired (goodwill)
is being amortized using the straight-line method over 15 years.
Amortization expense related to acquired businesses amounted to $672,
$672, and $682 in 1998, 1997 and 1996, respectively. At each balance
sheet date, the Company assesses the recoverability of this
intangible asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. Accumulated
amortization related to goodwill totaled $2,611 and $1,939 at
December 31, 1998 and 1997, respectively. (See note 3.)
(i) Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(j) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plans 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
to be recognized over the related vesting period would generally be
determined 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 Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), 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 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings
(loss) and pro forma earnings (loss) per share disclosures for
employee stock option grants as if the fair-value-based method
F-9
<PAGE> 50
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
defined in SFAS 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 required by SFAS 123 (see note 8).
(k) Non-recurring Charges
The Company incurred the following non-recurring charges during 1998
and the fourth quarter of 1997:
<TABLE>
<CAPTION>
Fourth
Quarter
1998 1997
------- ---------
<S> <C> <C>
Obsolete software and other write-offs $ - $ 4,650
Purchased in-process research and development - 1,746
Merger costs 1,060 -
------- -------
$ 1,060 $ 6,396
======= =======
</TABLE>
Merger costs resulting from the Company's acquisition of HUBLink
Inc., which was accounted for as a pooling of interests, include
investment banking fees, legal and accounting fees, travel and
severance costs (see note 3). The total merger costs were $1,060
during 1998.
During the fourth quarter of 1997, in conjunction with a change in
executive management, the Company ceased selling and distributing,
and consequently wrote-off, certain third-party and internally
developed software, related project costs and accounts receivable,
and other costs that no longer contributed to the Company's redefined
business direction stated in note 1 (a) above.
In connection with the acquisition of Criterion Health Strategies,
Inc. during 1997, the Company recorded a non-recurring charge related
to purchased in-process research and development costs for
integration software tools. The amount of the non-recurring charge
was equal to the estimated current fair value of specifically
identified technologies for which technological feasibility had not
yet been established pursuant to Statement of Financial Accounting
Standards No. 86, Accounting for Costs of Computer Software to be
Sold, Leased or Otherwise Marketed and for which future alternative
uses did not exist at the time of acquisition (see note 3).
(l) Income Taxes
The Company accounts for income taxes using the asset and liability
approach in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under
SFAS 109, deferred income taxes are recognized
F-10
<PAGE> 51
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. Additionally, the effect on deferred
taxes of a change in tax rates is recognized in earnings in the
period that includes the enactment date. Income tax benefits are not
recognized unless ultimate realization of such benefits is more
likely than not.
(m) Net Earnings (Loss) Per Share of Common Stock
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128"), which
prescribes the calculation methodology and financial reporting
requirements for basic and diluted earnings per share. Basic earnings
(loss) per common share available to common shareholders are based on
the weighted average number of common shares outstanding. Diluted
earnings (loss) per common share available to common shareholders are
based on the weighted average number of common shares outstanding and
dilutive potential common shares, such as dilutive stock options,
determined using the treasury stock method.
(n) Operating Segments
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. During 1998, the Company operated
in two segments: (i) the licensing of integration software products
and performance of related integration services and (ii) the
providing of consulting services related to information systems
integration for healthcare organizations (see note 13).
(o) Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and presentation
of comprehensive income and its components in a full set of financial
statements. The Company has no "other comprehensive income" to report
for the three years ended December 31, 1998.
F-11
<PAGE> 52
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
(2) Related Party Transactions
Matria Healthcare, Inc. ("Matria"), which was formed in a merger
involving Healthdyne in March 1996, provides certain legal, tax, data
processing, personnel and accounting services to the Company. Amounts
charged to the Company related to such services, which have been
reflected as general and administrative expenses in the accompanying
consolidated statements of operations, were $10, $13, and $51 in 1998,
1997 and 1996, respectively. Charges for services provided by Matria to
the Company are generally determined based on estimates of actual time in
providing such services to the Company using actual costs without markup.
To the extent that charges for such services and for costs incurred by
Matria on the Company's behalf are allocations of common expenses, such
allocations are based on one or more criteria such as asset or revenue
size, relative transaction volume, employee headcounts, facility size and
other relevant criteria. The Company believes that such allocation
methods result in reasonable approximations of the common expenses
related to the Company.
(3) Acquisitions and Dispositions
Integrated Services Group
On December 31, 1998, the Company disposed of assets comprising of its
Integrated Services Group ("ISG") to Superior Consulting Company, Inc., a
wholly-owned subsidiary of Superior Consultant Holdings Corporation, in
exchange for cash of $2.2 million, of which $650 is held in escrow until
certain conditions are met. ISG provides consulting services related to
information systems integration for healthcare organizations. ISG
comprised approximately 12.3% of the Company's revenue in 1998 (see note
13). There was no gain or loss resulting from this disposal.
HUBLink, Inc.
In May, 1998, the Company issued 2.9 million shares of its common stock
in exchange for all outstanding common stock of HUBLink, Inc. ("HUBLink")
of Columbus, Ohio, an integration software tool company. This business
combination has been accounted for as a pooling-of-interests combination.
Merger costs totaling $1,060 resulting from the Company's acquisition of
HUBLink include investment banking fees, legal and accounting fees,
travel and severance costs. The financial position and results of
operations of the Company have been restated for all periods prior to the
Merger to give retroactive effect to the Merger.
F-12
<PAGE> 53
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated
financial statements are summarized below:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1996
----------- ---------
<S> <C> <C>
Revenue:
HIE $15,552 $16,151
HUBLink 2,512 4,092
------- -------
Combined $18,064 $20,243
======= =======
Net earnings (loss):
HIE $(6,166) $ 1,183
HUBLink (2,430) (1,076)
------- -------
Combined $(8,596) $ 107
======= =======
</TABLE>
The 1998 pre-merger revenue and net earnings for HUBLink were $2,584 and
$234, respectively.
Criterion Health Strategies, Inc.
In October 1994, the Company committed to make certain loans to Criterion
Health Strategies, Inc. ("CHS") of Nashville, Tennessee, a provider of
data management software tools and services, with such loans being
convertible into a 64% equity ownership interest in CHS. During December
1995, Massey Burch Capital Corp. ("Massey Burch") agreed to share equally
HIE's funding commitment to CHS in exchange for half of HIE's potential
equity ownership interest in CHS. In December 1996, HIE acquired an
option (the "Option") to purchase Massey Burch's potential equity
ownership interest in CHS. In June 1997, the existing and potential
equity ownership interests of various parties in CHS were restructured
and all equity ownership interests in CHS held by persons other than HIE
and Massey Burch were canceled in exchange for the grant of options to
purchase 199 shares of HIE common stock to CHS executive management and
other employees at the fair value on the date of grant.
On December 31, 1997, HIE exercised the Option to acquire Massey Burch's
50% equity ownership interest in CHS, bringing HIE's equity ownership
interest in CHS to 100%, in exchange for 416 shares of HIE common stock
and warrants to purchase 50 shares of HIE common stock for $1.59 per
share exercisable through December 2003. The warrants were still
outstanding at December 31, 1998. Prior to HIE's acquisition of the
majority interest in CHS, the Company's share of the losses of CHS was
netted against notes receivable from CHS and shown as losses of affiliate
in the accompanying consolidated financial statements. CHS' results of
operations were included in the Company's consolidated statements of
operations beginning on January 1, 1998.
F-13
<PAGE> 54
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
The acquisition of CHS was accounted for using the purchase method of
accounting. The total purchase price of CHS was $3,200. The acquisition
resulted in purchased in-process research and development of $1,746,
which was expensed in 1997, purchased software of $715 and additional
cost over net assets acquired of $336. The Company also assumed an $840
obligation to a third party for the exclusive use of a software tool in
the healthcare industry.
The purchased in-process research and development charge relates to a
back-end software integration tool research and development project
designed to facilitate the analysis of data stored in various disparate
information systems. The amount of this purchased in-process research and
development charge was determined based on the present value of
management's estimate of the future cash flows (discounted by a
risk-adjusted weighted average cost of capital of 45%) expected to be
derived from the new software integration tool for its estimated
eight-year life subsequent to the completion of the project, after
consideration of the fair value of the other CHS assets acquired. At the
date of acquisition, management estimated that this research and
development project was approximately 50% complete measured in terms of
the total estimated man-hours for the project. During 1998, this project
was completed with costs incurred of $150.
The following pro forma financial information presents the combined
results of operations of HIE and CHS as if the acquisition had occurred
as of January 1, 1997, after giving effect to certain adjustments,
including the amortization of goodwill and purchased software and related
income tax effects. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred
had HIE and CHS constituted a single entity during 1997.
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Revenue $ 18,834
========
Net loss $ (9,146)
========
Net loss per share $ (0.40)
========
</TABLE>
F-14
<PAGE> 55
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
(4) Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ---------
<S> <C> <C>
Machinery and equipment $ 2,067 $ 1,842
Furniture and fixtures 484 471
Equipment under capital leases 1,822 978
Leasehold improvements 110 99
-------- -------
4,483 3,390
Less accumulated depreciation and amortization 2,194 1,451
-------- -------
Net property and equipment $ 2,289 $ 1,939
======== =======
</TABLE>
(5) Accrued Liabilities
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- --------
<S> <C> <C>
Benefits and compensation $ 1,061 $ 739
Project completion costs 352 1,076
License fee - 560
Other 305 446
------- ------
$ 1,718 $2,821
======= ======
</TABLE>
F-15
<PAGE> 56
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
(6) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------- ----------
<S> <C> <C>
Lines of credit (see below) $ 2,492 $ 970
Promissory note payable - paid-off in 1998 - 3,309
Note payable to commercial banking institution - paid-off in 1998 - 350
Note payable to HUBLink shareholder - extinguished through
issuance of common stock - 285
Obligations under capital leases - equipment leases; interest
ranging from 9% to 17% with various monthly payments and
maturing at various dates through September 1, 2003 1,061 577
------- -------
3,553 5,491
Less current installments 2,911 5,175
------- -------
Long-term debt, excluding current installments $ 642 $ 316
======= =======
</TABLE>
Approximate aggregate minimum annual payments due on long-term debt and
capital leases subsequent to December 31, 1998 are as follows: 1999,
$2,911; 2000, $402; 2001, $198; 2002, $27; and 2003, $15.
In August 1998, the Company entered into a new $5.0 million line of
credit of which $3.0 million was available for borrowing under the
borrowing base limitation at December 31, 1998. The balance outstanding
under the line of credit was $2.5 million on December 31, 1998. The line
of credit is for a one-year term, with borrowings bearing interest at the
bank's prime rate plus 1% (8.75% at December 31, 1998). The Company plans
to maintain the $5.0 million line of credit for unanticipated needs and
financial flexibility.
On December 31, 1997, the Company had a $2.0 million line of credit
agreement with a bank, which was subsequently replaced by the $5.0
million line of credit mentioned above. Amounts outstanding under this
agreement carried interest at the bank's prime rate plus 1% (9.50% at
December 31, 1997) and were payable on demand. No amounts were
outstanding on December 31, 1997.
HUBLink had a $1.0 million line of credit agreement with another bank
with an outstanding balance of $970 at December 31, 1997. Amounts
outstanding under this agreement carried interest at .375% above the
bank's prime rate (8.5% at December 31, 1997). On May 12, 1998, the
outstanding balance on this line of credit was paid in full and the line
of credit was terminated.
F-16
<PAGE> 57
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
(7) Income Taxes
The provision for income taxes includes income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future and any increase or decrease
in the valuation allowance for deferred income tax assets.
A reconciliation of the expected income tax (expense) benefit (based on
the U.S. Federal statutory rate) to the actual income tax (expense)
benefit is as follows:
<TABLE>
<CAPTION>
Years ended December, 31
-----------------------------------
1998 1997 1996
----------- ----------- -------
<S> <C> <C> <C>
Computed expected income tax (expense)
benefit $ (524) $ 3,008 $ (37)
Goodwill amortization and other non-
deductible expenses (261) (266) (178)
Losses in excess of allowable carrybacks - (2,689) (465)
Utilization of prior year financial
statement losses 367 - 680
Losses of affiliate - (53) -
Decrease in valuation allowance 416 - -
Other 2 - -
------- ------- -----
$ - $ - $ -
======= ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are as follows:
<TABLE>
<CAPTION>
December, 31
---------------------
1998 1997
----------- -------
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts $ 70 $ 61
Accruals and reserves not deducted for tax purposes 13 213
Depreciation and amortization (140) (172)
Net operating loss carryforwards 6,441 5,942
Revenue recognition - 272
Tax credit carryforwards 260 266
----- ------
Total gross deferred tax asset 6,644 6,582
Less valuation allowance 6,166 6,582
------ ------
Net deferred tax asset, included in other current assets $ 478 $ -
====== ======
</TABLE>
F-17
<PAGE> 58
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
Under SFAS 109, deferred income tax assets and liabilities are
recognized for differences between the financial statement carrying
amounts and the tax bases of assets and liabilities which will result
in future deductible or taxable amounts and for net operating loss and
tax credit carryforwards. A valuation allowance is then established to
reduce the deferred income tax assets to the level at which it is "more
likely than not" that any tax benefits will be realized. Realization of
tax benefits of deductible temporary differences and operating loss and
tax credit carryforwards depends on having sufficient taxable income
within the carryback and carryforward periods. Sources of taxable
income that may allow for the realization of tax benefits include (1)
taxable income in the current year or prior years that is available
through carryback, (2) future taxable income that will result from the
reversal of existing taxable temporary differences, and (3) future
taxable income generated by future operations. The valuation allowance
for deferred income tax assets at December 31, 1998 and 1997 was $6,166
and $6,582, respectively. The net (decrease) increase in the valuation
allowance for deferred income tax assets for the years ended December
31, 1998 and 1997 was $(416) and $3,422, respectively. Based on the
level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company
will realize the benefits of the deferred tax assets, net of existing
valuation allowances at December 31, 1998.
At December 31, 1998, the Company had the following estimated credits
and net operating loss carryforwards available for Federal income tax
reporting purposes to be applied against future taxable income and tax
liabilities:
<TABLE>
<CAPTION>
Net
Foreign Business operating
Year of expiration credit credit loss
------------------ ------------ ----------- ----------
<S> <C> <C> <C>
1999 $ 4 $ - $ -
2000 23 - -
2007 - 3 5
2008 - 38 838
2009 - - 2,069
2010 - 49 1,938
2011 - 34 7,160
2012 - 109 5,616
2018 - - 777
----- ------- ---------
$ 27 $ 233 $ 18,403
===== ======= =========
</TABLE>
The net operating loss carryforward of $18,403 includes deductions of
approximately $3,878 related to the exercise of stock options, which will
be credited to additional paid-in capital when recognized. The
alternative minimum tax net operating loss carryforward approximates the
regular net operating loss carryforward. A portion of the net operating
F-18
<PAGE> 59
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
loss (approximately $8,165) is limited by Section 382 of the Internal
Revenue Code of 1986, as amended, to an annual utilization of
approximately $749.
(8) Shareholders' Equity
Public and Private Offerings
On November 4, 1996, the Company sold 2,750 shares of its common stock
and received proceeds of approximately $10,325, net of offering expenses
of $634. In 1997 and 1996, HUBLink issued 280 and 169 equivalent shares
of HIE common stock and received proceeds of $1,239 and $729,
respectively, net of offering costs of $20 in each year.
Stock Option Plans
The Company maintains five stock option plans for the benefit of key
employees, nonemployee directors, and certain directors and employees of
Healthdyne (with such Healthdyne-related plan being established pursuant
to the Spin-off). A total of 5,268 shares of the Company's common stock
have been authorized for issuance under these plans. Most of the stock
options granted under these plans are exercisable in equal amounts over
three years and expire in six years. Other terms of options granted under
the plans are determined by the Stock Option Committee of the Company's
Board of Directors, subject to the terms of the respective plans.
The per share weighted-average fair values of stock options granted
during 1998, 1997 and 1996 were $1.20, $1.14 and $2.02, respectively, on
the date of grant using the Black- Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Expected volatility 44% 40% 41%
Expected dividend yield none none none
Risk-free interest rate 5.30% 5.50% 6.25%
Expected life of stock options 5 years 5 years 5 years
</TABLE>
F-19
<PAGE> 60
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements, unless the stock
options were granted at an exercise price below fair value at the grant
date, in which case the difference between the exercise price and the
fair value has been recorded as deferred compensation cost and is being
amortized over the relevant period of benefit. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS 123, the Company's reported net earnings (loss) and
related per share amounts would have been changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net earnings (loss):
As reported $ 1,498 $(8,596) $ 107
Pro forma 649 (9,301) (717)
Diluted net earnings (loss) per share:
As reported $ 0.06 $ (0.38) $ 0.01
Pro forma 0.03 (0.41) (0.04)
</TABLE>
A summary of stock option transactions under these plans during 1998, 1997 and
1996 is shown below:
<TABLE>
<CAPTION>
Option price per share
----------------------
Number Weighted
of shares Range average
--------- ----- -------
<S> <C> <C> <C>
Options outstanding at December 31, 1995 3,027 $0.23 - $3.28 $1.05
Granted 1,072 $2.37 - $5.88 $4.31
Exercised (905) $0.23 - $1.50 $0.50
Canceled or expired (253) $0.23 - $4.81 $2.96
-------
Options outstanding at December 31, 1996 2,941 $0.23 - $5.88 $2.24
Granted 1,242 $0.25 - $5.88 $2.74
Exercised (193) $0.23 - $1.50 $0.93
Canceled or expired (499) $1.31 - $5.88 $3.81
-------
Options outstanding at December 31, 1997 3,491 $0.23 - $5.88 $2.21
Granted 1,240 $2.00 - $3.95 $2.60
Exercised (1,092) $0.23 - $4.47 $1.38
Canceled or expired (1,167) $1.50 - $5.50 $3.20
-------
Options outstanding at December 31, 1998 2,472 $0.23 - $5.88 $2.27
=======
Options exercisable at December 31, 1996 1,334 $0.23 - $3.16 $1.09
=======
Options exercisable at December 31, 1997 1,511 $0.23 - $5.88 $1.57
=======
Options exercisable at December 31, 1998 1,303 $0.23 - $5.88 $1.85
=======
</TABLE>
F-20
<PAGE> 61
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- ---------------------
Weighted
average Weighted Weighted
Number remaining average Number average
outstanding contractual exercise exercisable exercise
Classification at 12/31/98 life (months) price at 12/31/98 price
-------------- ----------- ------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Healthdyne-related 219 28 $0.50 219 $0.50
Directors 198 43 $2.33 132 $1.84
Others 2,055 55 $2.46 952 $2.17
----- ---
2,472 52 $2.27 1,303 $1.85
===== =====
</TABLE>
Non-Employee Directors Stock Plan
On October 20, 1995, the Company established a stock plan for
non-employee directors whereby such directors may elect to receive all or
a portion of their annual retainer fee in unrestricted shares of the
Company's common stock. As of December 31, 1998, none of the 250 shares
reserved for this plan have been issued.
Stock Purchase Plan
On July 1, 1996, the Company commenced an employee stock purchase plan
for all eligible employees of HIE and designated subsidiaries.
Participants may use up to 10% of their compensation to purchase the
Company's common stock through payroll deductions for 85% of the lower of
the beginning or ending stock price on a quarterly basis. Of the 200
shares of the Company's common stock reserved for issuance under this
plan, 92 shares, 82 shares and 14 shares were issued during the years
ended December 31, 1998, 1997 and 1996, respectively.
Shareholder Rights Plan
On October 20, 1995, the Company's Board of Directors declared a dividend
distribution of one purchase right for each share of the Company's common
stock outstanding as of October 30, 1995. If a person or group acquires
beneficial ownership of 15% or more of the Company's outstanding common
stock or announces a tender offer or exchange that would result in the
acquisition of a beneficial ownership right of 20% or more of the
Company's outstanding common stock, the rights detach from the common
stock and are distributed to shareholders as separate securities. Each
right entitles its holder to purchase
F-21
<PAGE> 62
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
one one-hundredth of a share (a unit) of Series A Cumulative Preferred
Stock, at a purchase price of $50 per unit. The rights, which do not have
voting power, expire on October 23, 2005 unless previously distributed
and may be redeemed by the Company in whole at a price of $0.01 per right
at any time before and within 10 days after their distribution. If the
Company is acquired in a merger or other business combination
transaction, or 50% of its assets or earnings power are sold at any time
after the rights become exercisable, the rights entitle a holder to buy a
number of common shares of the acquiring company having a market value of
twice the exercise price of the right. If a person acquires 20% of the
Company's common stock or if a 15% or larger holder merges with the
Company and the common stock is not changed or exchanged in such merger,
or engages in self-dealing transactions with the Company, each right not
owned by such holder becomes exercisable for the number of common shares
of the Company having a market value of twice the exercise price of the
right.
(9) Employee Benefit Plans
The Company and its subsidiaries, Healthcare Communications, Inc. ("HCI")
and HUBLink, each previously maintained a 401(k) defined contribution
plan for the benefit of their employees. Prior to June 1, 1996, the
Company's obligation for contributions under its 401(k) plan was limited
to the lesser of (i) one-half of each participant's contribution but not
more than 2.5% of the participant's compensation or (ii) 20% of the
Company's pretax earnings before consideration of this contribution.
Subsequent to June 1, 1996, Company contributions are discretionary. The
HCI plan provided for HCI contributions equal to one-half of each
participant's contributions up to 3% of the participant's base salary.
The HUBLink plan provided for discretionary matching contributions.
During 1998, the Company merged the HCI 401(k) plan and the HUBLink
401(k) plan into HIE's 401(k) plan. Contributions to the plans included
in the consolidated statements of operations were $212, $72, and $79 in
1998, 1997 and 1996, respectively.
(10) Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts receivable,
accounts payable, and deferred revenue approximate fair value due to the
short-term maturities of these assets and liabilities. The Company
estimates that the carrying amounts of the Company's long-term debt
approximates the fair value based on the current rates offered to the
Company for debt of the same remaining maturities.
F-22
<PAGE> 63
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
(11) Commitments
The Company is committed under non-cancelable operating lease and capital
lease agreements for facilities and equipment which expire at various
dates through 2003. The future minimum annual lease payments under these
leases are summarized as follows:
<TABLE>
<CAPTION>
Operating Capital
Year ending December 31, Leases Leases
------------------------ --------- ----------
<S> <C> <C>
1999 $ 725 $ 529
2000 477 451
2001 243 211
2002 193 32
2003 32 18
Thereafter - -
------ ------
$1,670 1,241
======
Less interest 180
------
Present value of future minimum
capital lease payments $1,061
======
</TABLE>
Rental expense for operating leases (excluding those with lease terms of
a month or less that were not renewed) was $962, $918 and $770 in 1998,
1997 and 1996, respectively.
(12) Major Customers
One distributor accounted for 18% of the Company's total revenue and 40%
of its software revenue in 1998. No single distributor accounted for more
than 10% of the Company's revenue in either 1997 or 1996. No single
customer accounted for more than 10% of the Company's revenue in either
1998 or 1997. One customer accounted for approximately 20% of the
Company's revenue in 1996. Revenue from international sales was less than
10% of the Company's revenue in each of 1998, 1997 and 1996.
(13) Segment Information
The Company's reportable segments are strategic business units that offer
different products and services. During 1998, the Company operated in two
segments: (i) the licensing of integration software products and
performance of related integration services ("Software") and (ii) the
providing of consulting services related to information systems
integration for healthcare organizations ("Consulting"). Prior to 1998,
the Consulting
F-23
<PAGE> 64
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
business did not separately exist. On December 31, 1998, the Consulting
business was sold (see note 3). The accounting policies of the segments
are the same as those described in note 1. The Company evaluates
performance of the segments based on revenues and operating earnings
(loss) of the segments. Segment information for the year ended December
31, 1998 is as follows:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Revenue:
Software $ 23,830
Consulting 3,354
--------
Total revenue $ 27,184
========
Operating earnings (loss):
Software $ 2,059
Consulting (460)
--------
Operating earnings (loss) $ 1,599
========
</TABLE>
F-24
<PAGE> 65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section of the Company's Proxy Statement for the 1999 Annual
Meeting of Shareholders (the "1999 Proxy Statement") captioned "Proposal 1.
Election of Directors" identifies members of the Board of Directors of the
Company and nominees, and is incorporated in this Item 10 by reference.
See also "Executive Officers of the Company" appearing in Part I
hereof.
The section of the 1999 Proxy Statement captioned "Other Matters --
Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated in this
Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the section of the 1999 Proxy Statement captioned
"Executive Compensation and Other Information" is incorporated in this Item 11
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section of the 1999 Proxy Statement captioned
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
in this Item 12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section of the 1999 Proxy Statement captioned
"Certain Relationships and Related Transactions" is incorporated in this Item 13
by reference.
41
<PAGE> 66
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company
and its subsidiaries and report of independent auditors thereon are included as
Pages F-1 through F-24 of this Annual Report on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Operations -
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows Years Ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) The following supporting financial statement schedule and report
of independent auditors thereon are included as part of this Annual Report on
Form 10-K:
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts
All other Schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
(a)(3) Exhibits:
Periodic reports, proxy statements and other information filed by HIE
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the Commission's Public Reference Room, 450
Fifth Street, N.W., Washington, D.C. 20549, and the public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission also maintains an Internet site
(http://www.sec.gov) that makes available reports, proxy statements and other
information regarding HIE. HIE's SEC file number reference is Commission File
No. 0-27056.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Distribution Agreement between Healthdyne and HIE (filed as Exhibit 2.1
to Amendment No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-96478), and incorporated herein by reference).
3.1 Amended and Restated Articles of Incorporation of HIE.
</TABLE>
42
<PAGE> 67
<TABLE>
<CAPTION>
<S> <C>
3.2 By-Laws of HIE, as amended (filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-27056), and incorporated herein by reference).
4 Rights Agreement dated October 23, 1995 between HIE and SunTrust Bank
(filed as Exhibit 4 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-96478), and incorporated
herein by reference).
10.1 Tax Indemnity Agreement between Healthdyne and HIE (filed as Exhibit
10.2 to Amendment No. 1 to the Company's Registration Statement on Form
S-1 (Registration No. 33-96478), and incorporated herein by reference).
10.2 Tax Disaffiliation Agreement between Healthdyne and HIE (filed as
Exhibit 10.3 to Amendment No. 1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-96478), and incorporated herein by
reference).
10.3 License Agreement between Healthdyne and HIE (filed as Exhibit 10.4 to
Amendment No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-96478), and incorporated herein by reference).
10.4 Option Agreement dated December 18, 1996 between HIE and The Southern
Venture Fund II, L.P. (filed as Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (Commission
File No. 0-27056), and incorporated herein by reference).
10.5 Agreement dated June 13, 1997 between HIE, Criterion Health Strategies,
Inc. and Brenton L. Teveit (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated June 13, 1997 (Commission File No.
0-27056), and incorporated herein by reference).
10.6 Agreement dated June 13, 1997 between HIE, Criterion Health
Strategies, Inc. and J. Edward Pearson, Jr. (filed as Exhibit 2.2 to
the Company's Current Report on Form 8-K dated June 13, 1997
(Commission File No. 0-27056), and incorporated herein by reference).
10.7 First Amendment to Option Agreement dated December 31, 1997 between HIE
and The Southern Venture Fund II, L.P. (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 31, 1997
(Commission File No. 0-27056), and incorporated herein by reference).
10.8 Amended and Restated Stock Purchase Warrant dated December 31, 1997
between HIE and The Southern Venture Fund II, L.P. (filed as Exhibit
2.2 to the Company's Current Report on Form 8-K dated December 31, 1997
(Commission File No. 0-27056), and incorporated herein by reference).
10.9 Agreement and Plan of Merger dated May 12, 1998 by and among HIE, HIE
Acquisition Corporation, HUBLink, Inc. and Mark D. Shary (filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated May 12,
1998 (Commission File No. 0-27056), and incorporated herein by
reference).
</TABLE>
43
<PAGE> 68
<TABLE>
<CAPTION>
<S> <C>
10.10 Private Placement and Registration Rights Agreement dated as of May 12,
1998 among HIE and each of the HUBLink Parties (filed as Exhibit 2.2 to
the Company's Current Report on Form 8-K dated May 12, 1998 (Commission
File No. 0-27056), and incorporated herein by reference).
10.11 Loan and Security Agreement dated August 3, 1998 between HIE and
Silicon Valley Bank.
10.12 Loan Modification Agreement dated November 13, 1998 between HIE and
Silicon Valley Bank.
10.13 Value Added Marketing Agreement dated September 8, 1998 between HIE and
HBO & Company of Georgia (Portions of this exhibit have been redacted
and are subject to a confidential treatment request filed with the
Secretary of the Commission pursuant to Rule 24b-2 under the Exchange
Act. The redacted material was filed separately with the Commission.).
10.14 First Amendment to Value Added Marketing Agreement dated March 3, 1999
between HIE and HBO & Company of Georgia.
10.15* HIE Adjustment Stock Option Plan (filed as Exhibit 10.5 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
No. 33-96478), and incorporated herein by reference).
10.16* Form of Director Agreement under HIE Adjustment Stock Option Plan
(filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (Commission File No. 0-27056), and
incorporated herein by reference).
10.17* HIE Stock Option Plan I (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-27056), and incorporated herein by reference).
10.18* Form of Agreement under HIE Stock Option Plan I (filed as Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 (Commission File No. 0-27056), and incorporated herein by
reference).
10.19* HIE Restated Stock Option Plan Two (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (Commission File No. 0-27056), and incorporated herein by
reference).
10.20* Form of Agreement under HIE Restated Stock Option Plan Two (filed as
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 0-27056), and incorporated
herein by reference).
10.21* Non-employee Director Stock Option Plan (filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (Registration No.
33-96478), and incorporated herein by reference).
10.22* Form of Agreement under Non-employee Director Stock Option Plan (filed
as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (Commission File No. 0-27056), and
incorporated herein by reference).
10.23* Non-employee Directors Stock Plan (filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (Registration No.
33-96478), and incorporated herein by reference).
</TABLE>
44
<PAGE> 69
<TABLE>
<CAPTION>
<S> <C>
10.24 Nonqualified Stock Option Plan (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-27056), and incorporated herein by reference).
11 Statement of Computation of Per Share Earnings (Loss).
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
27 Financial Data Schedule (for purposes of the Commission only).
</TABLE>
- ------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1998, the Company did not file a
Current Report on Form 8-K.
45
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HIE, INC.
By:/s/ Robert I. Murrie
---------------------------------
Robert I. Murrie
President and Chief Executive Officer
(Principal Executive Officer)
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Parker H. Petit Chairman of the Board of Directors March 31, 1999
- ---------------------------------
Parker H. Petit
/s/ Robert I. Murrie Director, President and Chief Executive Officer March 31, 1999
- --------------------------------- (Principal Executive Officer)
Robert I. Murrie
/s/ J. Edward Pearson, Jr. Senior Vice President - Finance, Chief Financial March 31, 1999
- --------------------------------- Officer, Treasurer and Secretary (Principal
J. Edward Pearson, Jr. Financial Officer)
/s/ Joseph A. Blankenship Vice President - Controller, Chief Accounting March 31, 1999
- --------------------------------- Officer, Assistant Treasurer and Assistant
Joseph A. Blankenship Secretary (Principal Accounting Officer)
</TABLE>
46
<PAGE> 71
<TABLE>
<S> <C> <C>
/s/ Joseph G. Bleser Director March 31, 1999
- ---------------------------------
Joseph G. Bleser
/s/ J. Terry Dewberry Director March 31, 1999
- ---------------------------------
J. Terry Dewberry
/s/ William J. Gresham, Jr. Director March 31, 1999
- ---------------------------------
William J. Gresham, Jr.
/s/ Charles R. Hatcher, Jr. Director March 31, 1999
- ---------------------------------
Charles R. Hatcher, Jr.
/s/ Scott A. Jones Director March 26, 1999
- ---------------------------------
Scott A. Jones
/s/ John W. Lawless Director March 24, 1999
- ---------------------------------
John W. Lawless
/s/ Carl E. Sanders Director March 31, 1999
- ---------------------------------
Carl E. Sanders
/s/ Mark D. Shary Director March 23, 1999
- ---------------------------------
Mark D. Shary
/s/ Donald W. Weber Director March 31, 1999
- ---------------------------------
Donald W. Weber
</TABLE>
47
<PAGE> 72
Independent Auditors' Report
The Board of Directors and Shareholders
HIE, Inc.
Under date of January 26, 1999, we reported on the consolidated balance
sheets of HIE, Inc. (formerly Healthdyne Information Enterprises, Inc.) and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, as contained in the
annual report on Form 10-K for the year 1998. In connection with our audit of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
January 26, 1999
<PAGE> 73
SCHEDULE II
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
Balance Balance
at Charged to at
Beginning Costs and Other End of
of Period Expenses Additions Deductions Period
------------ ------------ ------------ ------------ -------------
Allowance for Doubtful Accounts:
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996 $ 85 $ 383 $ -- $ 143 $ 325
Year Ended December 31, 1997 $ 325 $ 445 $ -- $ 144 $ 626
Year Ended December 31, 1998 $ 626 $ 270 $ -- $ 176 $ 720
</TABLE>
<PAGE> 74
Index to Exhibits
Periodic reports, proxy statements and other information filed by HIE
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the Commission's Public Reference Room, 450
Fifth Street, N.W., Washington, D.C. 20549, and the public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission also maintains an Internet site
(http://www.sec.gov) that makes available reports, proxy statements and other
information regarding HIE. HIE's SEC file number reference is Commission File
No. 0-27056.
Exhibit
Number Description
- ------ -----------
<TABLE>
<S> <C>
2.1 Distribution Agreement between Healthdyne and HIE (filed as Exhibit
2.1 to Amendment No. 1 to the Company's Registration Statement on
Form S-1 (Registration No. 33-96478), and incorporated herein by
reference).
3.1 Amended and Restated Articles of Incorporation of HIE.
3.2 By-Laws of HIE, as amended (filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-27056), and incorporated herein by reference).
4 Rights Agreement dated October 23, 1995 between HIE and SunTrust Bank
(filed as Exhibit 4 to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-96478), and incorporated
herein by reference).
10.1 Tax Indemnity Agreement between Healthdyne and HIE (filed as Exhibit
10.2 to Amendment No. 1 to the Company's Registration Statement on
Form S-1 (Registration No. 33-96478), and incorporated herein by
reference).
10.2 Tax Disaffiliation Agreement between Healthdyne and HIE (filed as
Exhibit 10.3 to Amendment No. 1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-96478), and incorporated herein by
reference).
10.3 License Agreement between Healthdyne and HIE (filed as Exhibit 10.4 to
Amendment No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 33-96478), and incorporated herein by reference).
10.4 Option Agreement dated December 18, 1996 between HIE and The Southern
Venture Fund II, L.P. (filed as Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (Commission
File No. 0-27056), and incorporated herein by reference).
10.5 Agreement dated June 13, 1997 between HIE, Criterion Health Strategies,
Inc. and Brenton L. Teveit (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated June 13, 1997 (Commission File No.
0-27056), and incorporated herein by reference).
10.6 Agreement dated June 13, 1997 between HIE, Criterion Health Strategies,
Inc. and J. Edward Pearson, Jr. (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated June 13, 1997 (Commission File No.
0-27056), and incorporated herein by reference).
</TABLE>
<PAGE> 75
<TABLE>
<S> <C>
10.7 First Amendment to Option Agreement dated December 31, 1997 between HIE
and The Southern Venture Fund II, L.P. (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 31, 1997
(Commission File No. 0-27056), and incorporated herein by reference).
10.8 Amended and Restated Stock Purchase Warrant dated December 31, 1997
between HIE and The Southern Venture Fund II, L.P. (filed as Exhibit
2.2 to the Company's Current Report on Form 8-K dated December 31, 1997
(Commission File No. 0-27056), and incorporated herein by reference).
10.9 Agreement and Plan of Merger dated May 12, 1998 by and among HIE, HIE
Acquisition Corporation, HUBLink, Inc. and Mark D. Shary (filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated May 12,
1998 (Commission File No. 0-27056), and incorporated herein by
reference).
10.10 Private Placement and Registration Rights Agreement dated as of May 12,
1998 among HIE and each of the HUBLink Parties (filed as Exhibit 2.2 to
the Company's Current Report on Form 8-K dated May 12, 1998 (Commission
File No. 0-27056), and incorporated herein by reference).
10.11 Loan and Security Agreement dated August 3, 1998 between HIE and
Silicon Valley Bank.
10.12 Loan Modification Agreement dated November 13, 1998 between HIE and
Silicon Valley Bank.
10.13 Value Added Marketing Agreement dated September 8, 1998 between HIE and
HBO & Company of Georgia (Portions of this exhibit have been redacted
and are subject to a confidential treatment request filed with the
Secretary of the Commission pursuant to Rule 24b-2 under the Exchange
Act. The redacted material was filed separately with the Commission.).
10.14 First Amendment to Value Added Marketing Agreement dated March 3, 1999
between HIE and HBO & Company of Georgia.
10.15* HIE Adjustment Stock Option Plan (filed as Exhibit 10.5 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (Registration
No. 33-96478), and incorporated herein by reference).
10.16* Form of Director Agreement under HIE Adjustment Stock Option Plan
(filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (Commission File No. 0-27056), and
incorporated herein by reference).
10.17* HIE Stock Option Plan I (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-27056), and incorporated herein by reference).
10.18* Form of Agreement under HIE Stock Option Plan I (filed as Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 (Commission File No. 0-27056), and incorporated herein by
reference).
10.19* HIE Restated Stock Option Plan Two (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (Commission File No. 0-27056), and incorporated herein by
reference).
</TABLE>
<PAGE> 76
<TABLE>
<S> <C>
10.20* Form of Agreement under HIE Restated Stock Option Plan Two (filed as
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (Commission File No. 0-27056), and incorporated
herein by reference).
10.21* Non-employee Director Stock Option Plan (filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (Registration No.
33-96478), and incorporated herein by reference).
10.22* Form of Agreement under Non-employee Director Stock Option Plan (filed
as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (Commission File No. 0-27056), and
incorporated herein by reference).
10.23* Non-employee Directors Stock Plan (filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-1 (Registration No.
33-96478), and incorporated herein by reference).
10.24 Nonqualified Stock Option Plan (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(Commission File No. 0-27056), and incorporated herein by reference).
11 Statement of Computation of Per Share Earnings (Loss).
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
27 Financial Data Schedule (for purposes of the Commission only).
</TABLE>
- ------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HEALTHDYNE INFORMATION ENTERPRISES, INC.
The original Articles of Incorporation of Healthdyne Information
Enterprises, Inc., a Georgia corporation, as filed with the Secretary of State
of Georgia on June 15, 1994 and as amended from time to time, are being hereby
restated and amended as permitted by Section 14-2-1006 and 14-2-1007 of the
Georgia Business Corporation Code by deleting said original Articles of
Incorporation in their entirety and restating and amending said Articles of
Incorporation. The Restated and Amended Articles of Incorporation were approved
by a sufficient vote of the Board of Directors as permitted by Section 14-2-1002
of the Georgia Business Corporation Code. Shareholder approval was not required.
The original Articles of Incorporation are restated and amended as follows:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HIE, INC.
1.
The name of the Corporation is HIE, INC. and its control number is K415299.
2.
The aggregate number of shares which the Corporation shall have the
authority to issue is seventy million (70,000,000) shares, of which fifty
million (50,000,000) shall be shares of common stock, par value $.01 per share;
and twenty million (20,000,000) shall be shares of preferred stock, without par
value, the board of directors being hereby authorized to divide such shares of
preferred stock into classes and into shares within any class or classes to
determine the designation and the number of shares of any class or series and
the relative voting, dividend, liquidation and other rights, preferences and
limitations of the shares of any class or series, including, but not limited to,
classes or series of preferred stock:
(a) entitling the holders thereof to cumulative, noncumulative or
partially cumulative dividends, or to no dividends;
(b) entitling the holders thereof to receive dividends payable on a
parity with, or in preference to, the dividends payable on any other class or
series of capital stock of the Corporation;
<PAGE> 2
(c) entitling the holders thereof to preferential rights upon the
liquidation of, or upon any distribution of the assets of, the Corporation;
(d) convertible, at the option of the holder or of the Corporation or
both, into shares of any other class or classes of capital stock of the
Corporation or of any series of the same or any other class or classes;
(e) redeemable, in whole or in part, at the option of the Corporation,
in cash, bonds or other property, at such price or prices, within such period or
periods, and under such conditions as the board of directors shall so provide,
including provision for the creation of a sinking fund for the redemption
thereof;
(f) lacking voting rights or having limited voting rights or enjoying
special or multiple voting rights; and
(g) Series A Cumulative Preferred Stock.
Of the authorized preferred stock of the corporation, 500,000
of such shares shall be designated "Series A Cumulative Preferred
Stock" and shall have the following designations, preferences,
limitations and relative rights:
(A) Certain Definitions. Unless the context otherwise
requires, the terms defined in this subparagraph (A) shall have, for
all purposes of this Paragraph (g), the meanings herein specified:
(i) "Board of Directors" shall mean the Board of Directors of
the Corporation and, to the extent permitted by law, any committee of
the Board of Directors authorized to exercise the powers of the Board
of Directors.
(ii) "Common Stock" shall mean the common stock, par value
$.01 per share, of the Corporation, which term shall include, where
appropriate, in the case of a reclassification, recapitalization or
other changes in such Common Stock, or in the case of a consolidation
or merger of this Corporation with or into another corporation, such
consideration to which a holder of a share of Common Stock would have
been entitled upon the occurrence of such event.
(iii) "Series A Preferred Stock" shall mean the five hundred
thousand (500,000) shares of Series A Cumulative Preferred Stock,
without par value, of the Corporation.
(iv) "Junior Stock" shall mean the Common Stock and any other
class or series of stock of the Corporation not entitled to receive any
dividends unless all dividends required to have been paid or declared
and set apart for payment on the Series A Preferred Stock and any
Parity Stock shall have been so paid or declared and set apart for
payment and, for purposes of subparagraph (C) below, shall mean any
class or series of stock of the Corporation not entitled to receive any
assets upon liquidation, dissolution or winding up of the affairs of
-2-
<PAGE> 3
the Corporation until the Series A Preferred Stock and any Parity Stock
shall have received the entire amount to which such stock is entitled
upon such liquidation, dissolution or winding up.
(v) "Parity Stock" shall mean any class or series of stock of
the Corporation entitled to receive payment of dividends on a parity
with the Series A Preferred Stock or entitled to receive assets upon
liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with the Series A Preferred Stock.
(vi) "Rights Declaration Date" shall mean October 30, 1995.
(vii) "Semiannual Dividend Payment Date" shall mean the first
day of March and September in each year.
(vi) "Senior Stock" shall mean any class or series of stock of
the Corporation ranking senior to the Series A Preferred Stock and to
any Parity Stock in respect of the right to receive dividends or in
respect of the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of the
Corporation.
(B) Dividend and Distributions. (i) Subject to the prior
preferences and other rights of any Senior Stock, the holders of shares
of Series A Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available
therefor, semiannual dividends payable in cash at the rate hereinafter
fixed in this subparagraph (B) on each Semiannual Dividend Payment
Date, commencing on the first Semiannual Dividend Payment Date after
the first issuance of any shares or fractions of a share of Series A
Preferred Stock. Semiannual dividends on the Series A Preferred Stock
shall be payable to holders of record of the Series A Preferred Stock
on the respective date not exceeding 50 days preceding such Semiannual
Dividend Payment Date as shall be fixed for this purpose by the Board
of Directors, in an amount per share (rounded to the nearest cent)
equal to the greater of (V) $.05 or (W) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Semiannual Dividend Payment Date, or, with
respect to the first Semiannual Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred
Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (X) declare any dividend on Common Stock payable in
shares of Common Stock, (Y) subdivide the outstanding Common Stock, or
(Z) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the
-3-
<PAGE> 4
amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (W) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(ii) No dividend or other distribution may be declared or paid
on the Common Stock (other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock)
unless, coincidentally with the declaration of such dividend or such
other distribution, the dividend payable on the Series A Preferred
Stock pursuant to clause (W) of subsection (i) above is declared and
the consideration sufficient for the payment thereof set apart from
funds legally available therefor so as to be available then and on the
next Semiannual Dividend Payment Date for the payment in full thereof
and for no other purpose. In the event no dividend or distribution
shall have been declared on the Common Stock during the period between
any Semiannual Dividend Payment Date and the next subsequent Semiannual
Dividend Payment Date, a dividend of $.05 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Semiannual Dividend Payment Date.
(iii) Dividends on each outstanding share of Series A
Preferred Stock shall begin to accrue and be cumulative from the
Semiannual Dividend Payment Date next following the respective date of
issuance of such share unless the date of such issuance is a Semiannual
Dividend Payment Date, in which case dividends shall accrue and be
cumulative from the date of issuance.
(iv) The holders of shares of the Series A Preferred Stock
shall not be entitled to receive any dividends thereon other than the
cash dividends specified in this subparagraph (B). Unpaid dividends
shall be cumulative and shall accrue, whether or not declared by the
Board of Directors, until the date such dividends are paid. Accrued but
unpaid dividends on the Series A Preferred Stock shall not bear
interest. Dividends on account of arrears for any past dividend periods
may be declared and paid at any time, without reference to any
Semiannual Dividend Payment Date, to holders of record of the Series A
Preferred Stock on such date, not more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(v) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare or pay on any Junior
Stock any dividend in cash or property of any sort, nor shall the
Corporation make any distribution on any Junior Stock, or set aside any
assets for any such purposes, nor shall any Junior Stock be purchased,
redeemed or otherwise acquired by the Corporation or any of its
subsidiaries, nor shall any monies be paid, set aside for payment or
made available for a sinking fund for the purchase or redemption of
-4-
<PAGE> 5
any Junior Stock, unless and until all dividends to which the holders
of the Series A Preferred Stock and any Parity Stock shall have been
entitled for all current and all previous dividend periods shall have
been paid or declared and the consideration sufficient for the payment
thereof set apart so as to be available for the payment thereof and for
no other purpose; provided, however, that nothing contained in this
subsection (v) shall prevent the payment of dividends solely in Junior
Stock or the repurchase, redemption or other acquisition solely through
the issuance of Junior Stock.
(C) Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to
which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of shares of the Series A Preferred Stock
shall be entitled to receive from the assets of the Corporation
available for distribution to the shareholders the sum of $50 per
share, together with the amount of all cumulative dividends accrued and
unpaid thereon to and including the date of such liquidation,
dissolution or winding up, before any payment or distribution shall be
made to the holders of any Junior Stock of the Corporation, which
payment shall be made pari passu to any such payment made to the
holders, if any, of any Parity Stock. The holders of the Series A
Preferred Stock shall be entitled to no other or further distribution
of or participation in any remaining assets of the Corporation after
receiving the liquidation price described above. If, upon distribution
of the Corporation's assets in liquidation, dissolution or winding up,
the assets of the Corporation to be distributed among the holders of
the Series A Preferred Stock and to all holders of any Parity Stock
shall be insufficient to permit payment in full to such holders of the
preferential amounts to which they are entitled, then the entire assets
of the Corporation to be distributed to holders of the Series A
Preferred Stock and such Parity Stock shall be distributed pro rata to
such holders based upon the aggregate of the full preferential amounts
to which the shares of Series A Preferred Stock and such Parity Stock
would otherwise respectively be entitled. Neither the consolidation or
merger of the Corporation with or into any other corporation or
corporations nor the sale, transfer, or lease of all or substantially
all the assets of the Corporation shall itself be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this subparagraph (C).
(D) Voting Rights. (i) Except as otherwise expressly provided
in this subparagraph (D) or as otherwise required by law, the holders
of shares of Series A Preferred Stock shall vote together with the
holders of the Common Stock (and the holders of any other class or
series of the Corporation's stock entitled to vote with the holders of
the Common Stock) as a single class for the election of directors and
on all other matters coming before any meeting of the shareholders of
the Corporation or otherwise to be acted upon by the shareholders of
the Corporation, subject to any voting rights granted or which may be
granted to
-5-
<PAGE> 6
holders of any other class or series of the preferred stock of the
Corporation. Each share of Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation.
(ii) In addition to the voting rights set forth above, if and
when dividends payable on the Series A Preferred Stock shall be in
arrears in an amount equivalent to or exceeding three (3) full
semiannual dividends thereon, whether or not consecutive, the holders
of shares of the Series A Preferred Stock, voting separately as a
class, shall be entitled to elect two directors to the Board of
Directors. Directors so elected shall thereupon become additional
directors of the Corporation and the authorized number of directors of
the Corporation shall thereupon be automatically increased by such
number. During such times that the holders of the Series A Preferred
Stock, voting as a class, shall be entitled to elect such additional
directors as provided herein, the holders of the Series A Preferred
Stock shall not be entitled to participate in the election of any other
directors with the holders of shares of the Common Stock or any other
class or classes of stock who are entitled to vote for the election of
directors.
Such right of the holders of shares of the Series A Preferred
Stock who are entitled to vote in such manner to elect such additional
directors may be exercised until all dividends in default on the Series
A Preferred Stock shall have been paid or declared and the
consideration sufficient for the payment in full thereof set apart so
as to be available for the payment thereof and for no other purpose;
when said dividends shall have been so paid or declared and set apart,
such right to elect two directors shall terminate, subject to the
vesting of such voting rights in the event of any such future default
or defaults in the payment of dividends. Whenever the holders of shares
of the Series A Preferred Stock who are entitled to vote in such manner
shall be divested of such voting rights by reason of the payment or the
declaration and setting apart of consideration sufficient for the
payment in full of the dividends then in default, the terms of office
of the directors elected as such by the holders of shares of the Series
A Preferred Stock shall forthwith terminate and the number of the
directors of the Corporation shall be reduced correspondingly.
At any time after such voting rights shall so have vested in
the holders of shares of the Series A Preferred Stock who are entitled
to vote in such manner, the Secretary of the Corporation may, and upon
the written request of the holders of record of not less than 75% of
the outstanding shares of Series A Preferred Stock, addressed to him at
the principal office of the Corporation, shall, call a special meeting
of the holders of shares of the Series A Preferred Stock who are
entitled to vote in such manner for the election of the directors to be
elected by them, such meeting to be held within 10 days after the
earlier of such call or the delivery of such request and at the place
and upon the notice provided by the By-laws of the Corporation for the
holding of meetings of shareholders, except that the Secretary of the
Corporation shall not be required to call such a special meeting if the
-6-
<PAGE> 7
request for such call is received less than 45 days prior to the date
fixed for the next annual meeting of shareholders.
(E) Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100 times
the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series A Preferred Stock shall
be adjusted by multiplying such amount (as such amount may have been
previously adjusted by reason of the prior occurrence(s) of any such
events)) by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(F) Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of preferred stock and may be
reissued as part of a new series of preferred stock to be created by
amendment of the Articles of Incorporation of the Corporation adopted
by resolution of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
(G) Preemptive Rights. The holders of shares of the Series A
Preferred Stock shall not have any preemptive right to subscribe for or
purchase any shares of stock or any other securities which may be
issued by the Corporation.
(H) No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
(I) Amendment. Without the consent of the holders of at least
75% of the shares of Series A Preferred Stock at the time outstanding,
either in writing or by vote at a meeting called for that purpose at
which the holders of the Series A Preferred Stock shall vote as a
class, neither the Articles of Incorporation of the Corporation nor any
resolution of the Board of Directors establishing and
-7-
<PAGE> 8
designating a series of preferred stock and determining the relative
rights and preferences thereof shall be changed so as to alter in an
adverse manner the designations, preferences, limitations and rights of
holders of the Series A Preferred Stock.
(J) Fractional Shares. The Series A Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred Stock.
(K) Exclusion of Other Rights. Except as may otherwise be
required by law, the shares of Series A Preferred Stock shall not have
any designations, preferences, limitations or relative rights, other
than those specifically set forth in the Articles of Incorporation of
this Corporation.
(L) Severability of Provisions. If any right, preference or
limitation of the Series A Preferred Stock set forth in this Paragraph
(g) (as such Paragraph may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or
public policy, all other rights, preferences and limitations set forth
in this Paragraph (as so amended) which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation
shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent
upon any other such right, preference or limitation unless so expressed
herein.
3.
The address of the initial registered office of the Corporation shall
be 1850 Parkway Place, 12th Floor, Marietta, Cobb County, Georgia 30067 and its
initial registered agent at such address shall be J. Brent Burkey.
4.
The name and address of the incorporator is J. Brent Burkey, 1850
Parkway Place, 12th Floor, Marietta, Georgia 30067.
5.
The mailing address of the initial principal office of the Corporation
is 1850 Parkway Place, 12th Floor, Marietta, Georgia 30067.
-8-
<PAGE> 9
6.
(A) Beginning with the election of directors in 1998, the Board of
Directors of the Corporation shall consist of nine (9) natural persons of the
age of eighteen years or over and shall be divided into three classes, Class I,
Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors and any remaining directors shall be
included within such class or classes as the Board of Directors shall designate,
provided that the difference in the number of directors in any two classes shall
not exceed one (1). At the annual meeting of shareholders in 1998, Class I
Directors shall be elected for a one-year term, Class II Directors for a
two-year term and Class III Directors for a three-year term. At each succeeding
annual meeting of shareholders beginning in 1999, successors to the class of
directors whose term expires at the annual meeting shall be elected for a
three-year term.
(B) Any director of the Corporation, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote for the election of directors, voting together as a single class. No
director may be removed without cause.
(C) The number of directors constituting the Board of Directors may be
increased or decreased from time to time by the affirmative vote of a number of
directors equal to at least a majority of the then authorized number of
directors (regardless of any vacancies then existing). If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible. No decrease in the number of directors shall affect the term of any
director.
(D) Any vacancy on the Board of Directors, including any vacancy
occurring by reason of any increase in the number of directors, shall be filled
only by the Board of Directors acting by the affirmative vote of a majority of
the directors then remaining in office. If the directors remaining in office
constitute fewer than a quorum of the Board, they may fill the vacancy by the
affirmative vote of a majority of all the directors remaining in office.
(E) The provisions of this Article 6 are subject in all respects to the
rights, privileges and preferences of the holders of any class of capital stock
of the Corporation other than Common Stock.
(F) This Article 6 may be modified, amended or repealed only by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote on such modification, amendment or repeal; any provision in the Articles of
Incorporation inconsistent with this Article 6, or any provision in the Articles
of Incorporation or the By-laws of the Corporation purporting to interpret or
define the terms contained in this Article 6, may be adopted only by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote on such provision; provided that, the Board of Directors may adopt By-laws
implementing or interpreting this Article 6.
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<PAGE> 10
7.
No director shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, by reason of any act or omission occurring subsequent to the date when
this provision becomes effective, except that this provision shall not eliminate
or limit the liability of a director for (a) any appropriation, in violation of
his duties, of any business opportunity of the Corporation; (b) acts or
omissions which involve intentional misconduct or a knowing violation of law;
(c) liabilities of a director imposed by Section 14-2-832 of the Georgia
Business Corporation Code; or (d) any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this Article
shall apply to or have any effect on the liability or alleged liability of any
director or officer of the Corporation for or with respect to any acts or
omissions of such director or officer occurring prior to such amendment or
repeal; provided, however, that if further elimination or limitation of the
liability of directors is provided for or permitted by the Georgia Business
Corporation Code or other applicable law at any time, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
then so provided for or permitted by the Georgia Business Corporation Code or
other applicable law this Article 7 shall be deemed to include and have
incorporated herein provision for such further elimination or limitation of
liability of a director effective upon the enabling provision therefor in the
Georgia Business Corporation Code or other applicable law becoming effective.
Without limiting the foregoing, if the Georgia Business Corporation Code is
amended to permit the limitation of a director's liability under clause (d)
above to the amount of the financial benefit received by a director to which he
is not entitled, then any liability of a director of the Corporation not
eliminated because of said clause (d) shall be limited to the amount of any
financial benefit received by the director to which he is not entitled.
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<PAGE> 11
IN WITNESS WHEREOF, HEALTHDYNE INFORMATION ENTERPRISES, INC. has caused
its duly authorized officer to execute these Articles of Amendment as of this
24th day of February, 1999.
HEALTHDYNE INFORMATION ENTERPRISES, INC.
By: /s/ J. Edward Pearson, Jr.
------------------------------------------------
Title: Senior Vice President - Finance, Chief Financial
Officer, Secretary and Treasurer
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<PAGE> 1
EXHIBIT 10.11
LOAN AND SECURITY AGREEMENT
BETWEEN
SILICON VALLEY BANK
AND
HEALTHDYNE INFORMATION ENTERPRISES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION................................................................................. 1
----------------------------
1.1. Definitions........................................................................................ 1
-----------
1.2. Accounting and Other Terms......................................................................... 8
--------------------------
2. LOAN AND TERMS OF PAYMENT.................................................................................... 8
-------------------------
2.1. Credit Extensions.................................................................................. 8
-----------------
2.1.1. Revolving Line.......................................................................... 9
--------------
2.1.2. Letters of Credit....................................................................... 9
-----------------
2.2. Overadvances....................................................................................... 10
------------
2.3. Interest Rates, Payments, and Calculations......................................................... 10
------------------------------------------
2.4. Crediting Payments................................................................................. 11
------------------
2.5. Fees............................................................................................... 11
----
2.6. Additional Costs................................................................................... 11
----------------
2.7. Term............................................................................................... 12
----
3. CONDITIONS OF LOANS.......................................................................................... 12
-------------------
3.1. Conditions Precedent to Initial Credit Extension................................................... 12
------------------------------------------------
3.2. Conditions Precedent to all Credit Extensions...................................................... 13
---------------------------------------------
4. CREATION OF SECURITY INTEREST................................................................................ 13
-----------------------------
4.1. Grant of Security Interest......................................................................... 13
--------------------------
4.2. Delivery of Additional Documentation Required...................................................... 14
---------------------------------------------
4.3. Right to Inspect................................................................................... 14
----------------
5. REPRESENTATIONS AND WARRANTIES............................................................................... 14
------------------------------
5.1. Due Organization and Qualification................................................................. 14
----------------------------------
5.2. Due Authorization; No Conflict..................................................................... 14
------------------------------
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
5.3. No Prior Encumbrances.............................................................................. 15
---------------------
5.4. Bona Fide Eligible Accounts........................................................................ 15
---------------------------
5.5. Merchantable Inventory............................................................................. 15
----------------------
5.6. Intellectual Property.............................................................................. 15
---------------------
5.7. Name; Location of Chief Executive Office........................................................... 15
----------------------------------------
5.8. Litigation......................................................................................... 15
----------
5.9. No Material Adverse Change in Financial Statements................................................. 16
--------------------------------------------------
5.10. Solvency.......................................................................................... 16
--------
5.11. Regulatory Compliance............................................................................. 16
---------------------
5.12. Environmental Condition........................................................................... 16
-----------------------
5.13. Taxes............................................................................................. 17
-----
5.14. Subsidiaries...................................................................................... 17
------------
5.15. Government Consents............................................................................... 17
-------------------
5.16. Full Disclosure................................................................................... 17
---------------
6. AFFIRMATIVE COVENANTS........................................................................................ 17
---------------------
6.1. Good Standing...................................................................................... 17
-------------
6.2. Government Compliance.............................................................................. 18
---------------------
6.3. Financial Statements, Reports, Certificates........................................................ 18
-------------------------------------------
6.4. Inventory; Returns................................................................................. 19
------------------
6.5. Taxes.............................................................................................. 19
-----
6.6. Insurance.......................................................................................... 19
---------
6.7. Principal Depository............................................................................... 19
--------------------
6.8. Adjusted Quick Ratio............................................................................... 20
--------------------
6.9. Profitability...................................................................................... 20
-------------
6.10. Registration of Intellectual Property Rights...................................................... 20
--------------------------------------------
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
6.11. Further Assurances................................................................................ 20
------------------
6.12. Merger of Subsidiaries............................................................................ 21
----------------------
7. NEGATIVE COVENANTS........................................................................................... 21
------------------
7.1. Dispositions....................................................................................... 21
------------
7.2. Changes in Business, Ownership, or Management, Business Locations.................................. 21
-----------------------------------------------------------------
7.3. Mergers or Acquisitions............................................................................ 21
-----------------------
7.4. Indebtedness....................................................................................... 22
------------
7.5. Encumbrances....................................................................................... 22
------------
7.6. Distributions...................................................................................... 22
-------------
7.7. Investments........................................................................................ 22
-----------
7.8. Transactions with Affiliates....................................................................... 22
----------------------------
7.9. Intellectual Property Agreements................................................................... 22
--------------------------------
7.10. Inventory......................................................................................... 22
---------
7.11. Compliance........................................................................................ 22
----------
8. EVENTS OF DEFAULT............................................................................................ 23
-----------------
8.1. Payment Default.................................................................................... 23
---------------
8.2. Covenant Default................................................................................... 23
----------------
8.3. Material Adverse Change............................................................................ 23
-----------------------
8.4. Attachment......................................................................................... 23
----------
8.5. Insolvency......................................................................................... 24
----------
8.6. Other Agreements................................................................................... 24
----------------
8.7. Subordinated Debt.................................................................................. 24
-----------------
8.8. Judgments.......................................................................................... 24
---------
8.9. Misrepresentations................................................................................. 24
------------------
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
9. BANK'S RIGHTS AND REMEDIES................................................................................... 25
--------------------------
9.1. Rights and Remedies................................................................................ 25
-------------------
9.2. Power of Attorney.................................................................................. 26
-----------------
9.3. Accounts Collection................................................................................ 27
-------------------
9.4. Bank Expenses...................................................................................... 27
-------------
9.5. Bank's Liability for Collateral.................................................................... 27
-------------------------------
9.6. Remedies Cumulative................................................................................ 28
-------------------
9.7. Demand; Protest.................................................................................... 28
---------------
10. NOTICES..................................................................................................... 28
-------
11. CHOICE OF LAW AND VENUE..................................................................................... 28
-----------------------
12. GENERAL PROVISIONS.......................................................................................... 29
------------------
12.1. Successors and Assigns............................................................................ 29
----------------------
12.2. Indemnification................................................................................... 29
---------------
12.3. Time of Essence................................................................................... 30
---------------
12.4. Severability of Provisions........................................................................ 30
--------------------------
12.5. Amendments in Writing, Integration................................................................ 30
----------------------------------
12.6. Counterparts...................................................................................... 30
------------
12.7. Survival.......................................................................................... 30
--------
</TABLE>
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
Exhibit A Collateral
Exhibit B Loan Payment/Advance Telephone Request Form
Exhibit C Borrowing Base Certificate
Exhibit D Compliance Certificate
Schedules
- ---------
Schedule 5.7 Subsidiary Locations
</TABLE>
-iv-
<PAGE> 6
This LOAN AND SECURITY AGREEMENT is entered into as of August 3, 1998,
by and between SILICON VALLEY BANK, a California chartered bank ("Bank") and
HEALTHDYNE INFORMATION ENTERPRISES, INC., a Georgia corporation ("Borrower"),
with its principal place of business and chief executive office at 1850 Parkway
Place, Suite 1100, Marietta, Georgia 30067.
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1. Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNTS" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
or a Subsidiary arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower or a Subsidiary, whether or not earned by performance, and
any and all credit insurance, guaranties, and other security therefor, as well
as all merchandise returned to or reclaimed by Borrower or a Subsidiary and
Borrower's and its Subsidiaries' books relating to any of the foregoing.
"ADVANCE" OR "ADVANCES" means a loan advance under the
Committed Revolving Line.
"AFFILIATE" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, partners and, for
any Person that is a limited liability company, such Persons, managers and
members.
"BANK EXPENSES" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding)
whether or not suit is brought.
"BORROWER'S BOOKS" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral,
<PAGE> 7
business operations or financial condition; and all computer programs, or tape
files, and the equipment, containing such information.
"BORROWING BASE" means an amount equal to eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower, subject to change
based upon the initial audit of Borrower's accounts receivables.
"BUSINESS DAY" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of Georgia are authorized or required
to close.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the Georgia Uniform Commercial Code.
"COLLATERAL" means the property described on Exhibit A
attached hereto.
"COMMITTED REVOLVING LINE" means a credit extension of up to
Five Million Dollars ($5,000,000).
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"COPYRIGHTS" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"CREDIT EXTENSION" means each Advance, Letter of Credit, or
any other extension of credit by Bank for the benefit of Borrower hereunder.
-2-
<PAGE> 8
"CURRENT ASSETS" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current assets on
the consolidated balance sheet of Borrower and its Subsidiaries as at such
date.
"CURRENT LIABILITIES" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at
the option of Borrower or any Subsidiary to a date more than one year from the
date of determination, but excluding Subordinated Debt.
"ELIGIBLE ACCOUNTS" means those Accounts that arise in the
ordinary course of the business of Borrower and its Subsidiaries that comply
with all of Borrower's representations and warranties to Bank set forth in
Section 5.4; provided, that standards of eligibility may be fixed and revised
from time to time by Bank in Bank's reasonable judgment and upon thirty (30)
days prior notification thereof to Borrower in accordance with the provisions
hereof. Unless otherwise agreed to by Bank in writing, Eligible Accounts shall
not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower and its Subsidiaries
exceed twenty-five percent (25%) of all Accounts, to the extent such
obligations exceed the aforementioned percentage, except as approved in writing
by Bank;
(d) Accounts with respect to which the account debtors
do not have their principal place of business in the United States, to the
extent such foreign Accounts exceed twenty-five percent (25%) of the lesser of
the: (i) Borrowing Base; or (ii) the Committed Revolving Line;
(e) Accounts with respect to which the account debtor is
a federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower or a
Subsidiary is liable to the account debtor, but only to the extent of any
amounts owing to the account debtor (sometimes referred to as "contra"
accounts, e.g. accounts payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
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(h) Accounts with respect to which the account debtor is
an Affiliate, officer, employee, or agent of Borrower or a Subsidiary;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"EQUIPMENT" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"INDEBTEDNESS" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"INTELLECTUAL PROPERTY" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past,
present and future infringement of any of the rights included above, with the
right, but not the obligation, to sue for
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and collect such damages for said use or infringement of the intellectual
property rights identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of
the Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"INVENTORY" means all present and future inventory in which
Borrower or a Subsidiary has any interest, including merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products intended for sale or lease or to be furnished under a
contract of service, of every kind and description now or at any time hereafter
owned by or in the custody or possession, actual or constructive, of Borrower
or a Subsidiary, including such inventory as is temporarily out of its custody
or possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above.
"INVESTMENT" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"LETTER OF CREDIT" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"LETTER OF CREDIT RESERVE" has the meaning set forth in
Section 2.1.2.
"LIEN" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement, any
note or notes executed by Borrower, that certain Unconditional Guaranty of even
date from HUBLink, Inc. in favor of Bank, that certain Security Agreement of
even date by and between Bank and HUBLink, that certain Stock Pledge Agreement
of even date by and between Bank and HUBLink, Inc. and any other present or
future agreement entered into by Borrower or HUBLink for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.
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"MASK WORKS" means all mask work or similar rights available
for the protection of semiconductor chips, now owned or hereafter acquired;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
"MATURITY DATE" means the Revolving Maturity Date.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"NET INCOME (LOSS)" shall mean, for any fiscal period of
Borrower, the net income (or loss) of Borrower on a consolidated basis for such
period (taken as a single accounting period) determined in conformity with
GAAP, but excluding therefrom (to the extent otherwise included therein and
without duplication); (i) any gains or losses, together with any related
provisions for taxes, realized by Borrower upon any sale of its assets other
than in the ordinary course of business, (ii) any other non-recurring gains or
losses, including, but not limited to, one-time write-offs from acquisitions,
and (iii) any income or loss of any other Person acquired prior to the date
such other Person becomes a Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or all or substantially all of such other
Person's assets are acquired by the Borrower.
"OBLIGATIONS" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt, liability,
or obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"PATENTS" means all patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"PAYMENT DATE" means the last calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Revolving Maturity Date.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
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(d) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(e) Indebtedness secured by Permitted Liens, so long as
no Event of Default exists and as long as the incurrence of any such
Indebtedness does not cause an Event of Default.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed
in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank.
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"PERSON" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"PRIME RATE" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
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"QUICK ASSETS" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and investments with
maturities of fewer than 90 days of Borrower determined in accordance with
GAAP.
"RESPONSIBLE OFFICER" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller of
Borrower.
"REVOLVING MATURITY DATE" means August 2, 1999.
"SCHEDULE" means the schedule of exceptions attached hereto,
if any.
"SUBORDINATED DEBT" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"SUBSIDIARY" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"TOTAL LIABILITIES" means as of any applicable date, any date
as of which the amount thereof shall be determined, all obligations that
should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
"TRADEMARKS" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.
1.2. Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/ "includes" shall always be read
as meaning "including (or includes) without limitation", when used herein or in
any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1. Credit Extensions. Borrower promises to pay to the order of
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such
Advances at rates in accordance with the terms hereof.
2.1.1. Revolving Line.
(a) Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed (i) the
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Committed Revolving Line or the Borrowing Base, whichever is less, minus (ii)
the face amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Atlanta, Georgia time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Advances made under this Section
2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall
terminate on the Revolving Maturity Date, at which time all Advances under this
Section 2.1 and other amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and payable.
2.1.2. Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not to exceed (i)
the lesser of the Committed Revolving Line or the Borrowing Base, whichever is
less, minus (ii) the then outstanding principal balance of the Advances;
provided that the face amount of outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit Reserve) shall not
in any case exceed Five Million Dollars ($5,000,000). Each Letter of Credit
shall have an expire date no later than the Revolving Maturity Date. All
Letters of Credit shall be, in form and substance, acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank's form
of standard Application and Letter of Credit Agreement.
(b) The obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold
Bank harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection with
any Letters of Credit.
(c) Borrower may request that Bank issue a
Letter of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance to Borrower of the equivalent of
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the amount thereof (plus cable charges) in United States currency at the then
prevailing rate of exchange in San Francisco, California, for sales of that
other currency for cable transfer to the country of which it is the currency.
(d) Upon the issuance of any letter of credit
payable in a currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of credit against
fluctuations in currency exchange rates, in an amount equal to ten percent
(10%) of the face amount of such letter of credit. The amount of such reserve
may be amended by Bank from time to time to account for fluctuations in the
exchange rate. The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such reserve for so long as such letter of
credit remains outstanding.
2.2. Overadvances. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of
this Agreement is greater than the lesser of (i) the Committed Revolving Line
or (ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash,
the amount of such excess.
2.3. Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section
2.3(b), any Advances shall bear interest, on the average daily balance thereof,
at a per annum rate equal to one (1.0) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and
payable on each Payment Date. Borrower hereby authorizes Bank to debit any
accounts with Bank, including, without limitation, Account Number
_____________________ for payments of principal and interest due on the
Obligations and any other amounts owing by Borrower to Bank. Bank will notify
Borrower of all debits which Bank has made against Borrower's accounts. Any
such debits against Borrower's accounts in no way shall be deemed a set-off.
(d) Computation. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4. Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until
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such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Bank after 12:00 noon Pacific time shall be deemed to have
been received by Bank as of the opening of business on the immediately
following Business Day. Whenever any payment to Bank under the Loan Documents
would otherwise be due (except by reason of acceleration) on a date that is not
a Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable
for the period of such extension.
2.5. Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to one-half of
one percent (.5%) of $3,000,000 of the Committed Revolving Line ($15,000) shall
be due on the Closing Date and an additional Facility Fee of one-half of one
percent (.5%) on the remaining $2,000,000 of the Committed Revolving Line
($10,000) if the aggregate Credit Extensions ever exceed $3,000,000, to be paid
on the date such aggregate Credit Extensions exceed $3,000,000. All such
Facility Fees shall be fully earned and non-refundable when paid.
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's or
its Subsidiaries' Accounts, and for each appraisal of Collateral and financial
analysis and examination of Borrower or a Subsidiary performed from time to
time by Bank or its agents.
(c) Bank Expenses. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred through
the date hereof, including reasonable attorneys' fees and expenses and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
2.6. Additional Costs. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of America
or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect
to its performance under this Agreement, and the result of any of the foregoing
is to increase the cost to Bank, reduce the income receivable by Bank or impose
any expense upon Bank with respect to any loans, Bank shall notify Borrower
thereof. Borrower agrees to pay to Bank the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or
expense is incurred or determined, upon presentation by Bank of a statement of
the amount and
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setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7. Term.
(a) Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
(b) At such time as (i) the Bank is no longer obligated
under this Agreement (whether by the terms hereof or as a result of a release
of such obligations by Borrower) to make any further Credit Extensions, and
(ii) all obligations have been indefeasibly paid and satisfied in full, this
Agreement and the Loan Documents shall terminate and Bank shall release or
cause to be released, at the Borrower's cost and expense, all Liens granted by
Borrower to Bank under the Loan Documents as security for any of the
Obligations; provided, however, that any and all indemnity obligations of
Borrower arising under this Agreement or any other Loan Documents shall survive
the termination of this Agreement or such other Loan Documents.
3. CONDITIONS OF LOANS
3.1. Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) negative pledge agreement covering Intellectual
Property;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof;
(g) Certificate of Foreign Qualification (if
applicable);
(h) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate;
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(i) execution and delivery of each Loan Document by
Borrower or HUBLink, Inc.;
(j) delivery of a legal opinion from Borrower's legal
counsel in form and substance acceptable to Bank;
(k) Bank shall have completed to its satisfaction an
audit of Borrower's or its Subsidiaries' Accounts or Borrower's financial
status; and
(l) release of all UCC financing statements in favor of
Commerica, N.A. as secured party.
3.2. Conditions Precedent to all Credit Extensions. The obligation
of Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form
as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit Extension as
to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1. Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that Bank may place a "hold" on any Deposit Account
pledged as Collateral to secure the Obligations. Notwithstanding termination of
this Agreement, Bank's Lien on the Collateral shall remain in effect for so
long as any Obligations are outstanding.
4.2. Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
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4.3. Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's and
its Subsidiaries' books and to make copies thereof and to check, test, and
appraise the Collateral in order to verify Borrower's and its Subsidiaries'
financial condition or the amount, condition of, or any other matter relating
to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2. Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within the powers of Borrower and any
Subsidiary that is a party thereto, have been duly authorized, and are not in
conflict with nor constitute a breach of any provision contained in the
Articles/Certificate of Incorporation or Bylaws of Borrower or any Subsidiary,
nor will they constitute an event of default under any material agreement to
which either Borrower or any Subsidiary is a party or by which either Borrower
or any Subsidiary is bound. Neither Borrower nor any Subsidiary is in default
under any agreement to which they are a party or by which they are bound, which
default could have a Material Adverse Effect.
5.3. No Prior Encumbrances. Borrower and its Subsidiaries have
good and indefeasible title to the Collateral, free and clear of Liens, except
for Permitted Liens.
5.4. Bona Fide Eligible Accounts. The Eligible Accounts are bona
fide existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the
account debtor's agent for immediate shipment to and unconditional acceptance
by the account debtor. Neither Borrower nor any Subsidiary has received notice
of actual or imminent Insolvency Proceeding of any account debtor whose
accounts are included in any Borrowing Base Certificate as an Eligible Account.
5.5. Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6. Intellectual Property. Borrower and its Subsidiaries are the
sole owners of the Intellectual Property, except for non-exclusive licenses
granted by Borrower or a Subsidiary to its customers in the ordinary course of
business. Each of the Patents is valid and enforceable, and no part of the
Intellectual Property has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of the Intellectual Property
violates the rights of any third party. Except for and upon the filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights and
Mask Works necessary to perfect the security interests created hereunder, and
except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory
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<PAGE> 20
body is required either (i) for the grant by Borrower or its Subsidiaries of
the security interests granted hereby and by the Loan Documents or for the
execution, delivery or performance of Loan Documents by Borrower and its
Subsidiaries in the United States or (ii) for the perfection in the United
States or the exercise by Bank of its rights and remedies hereunder.
5.7. Name; Location of Chief Executive Office. Except as disclosed
in the Schedule, neither Borrower nor any Subsidiary has done business and will
without at least thirty (30) days prior written notice to Bank do business
under any name other than that specified on the signature page hereof. The
chief executive office of Borrower is located at the address indicated in
Section 10 hereof. The principal business addresses of each of the Subsidiaries
are located in the Schedule 5.7 hereof.
5.8. Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on the interest of Borrower or any Subsidiary or Bank's security
interest in the Collateral
5.9. No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank, fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10. Solvency. The fair saleable value (including goodwill minus
disposition costs) of the assets of Borrower and its Subsidiaries exceeds the
fair value of their liabilities; the Borrower is not left with unreasonably
small capital after the transactions contemplated by this Agreement; and
Borrower and each Subsidiary are able to pay their debts (including trade
debts) as they mature.
5.11. Regulatory Compliance. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from the failure of
Borrower or any Subsidiary to comply with ERISA that is reasonably likely to
result in their incurring any liability that could have a Material Adverse
Effect. Neither Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Neither Borrower nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower and each Subsidiary have complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower and each
Subsidiary have not violated any statutes, laws, ordinances or rules applicable
to it, violation of which could have a Material Adverse Effect.
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<PAGE> 21
5.12. Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of the
properties or assets of Borrower or any Subsidiary have ever been designated or
identified in any manner pursuant to any environmental protection statute as a
hazardous waste or hazardous substance disposal site, or a candidate for
closure pursuant to any environmental protection statute; no lien arising under
any environmental protection statute has attached to any revenues or to any
real or personal property owned by Borrower or any Subsidiary; and neither
Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the release, or other disposition of hazardous
waste or hazardous substances into the environment.
5.13. Taxes. Borrower and each Subsidiary have filed or caused to
be filed all tax returns required to be filed on a timely basis, and have paid,
or have made adequate provision for the payment of, all taxes reflected
therein.
5.14. Subsidiaries. Neither Borrower nor any Subsidiary owns any
stock, partnership interest or other equity securities of any Person, except
for Permitted Investments.
5.15. Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all governmental authorities that
are necessary for the continued operation of the business of Borrower and its
Subsidiaries as currently conducted.
5.16. Full Disclosure. No representation, warranty or other
statement made by Borrower or any Subsidiary in any certificate or written
statement furnished to Bank contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained in such certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in their jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit
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plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary
to comply, with all statutes, laws, ordinances and government rules and
regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3. Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within forty-five
(45) days after the end of each fiscal quarter, a company prepared consolidated
and consolidating balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form and certified by an
officer of Borrower reasonably acceptable to Bank; (b) as soon as available,
but in any event within ninety (90) days after the end of Borrower's fiscal
year, audited consolidated and consolidating financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) within five (5) days
of filing, copies of all statements, reports and notices sent or made available
generally by Borrower to its security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; (e) prompt notice of any material change
in the composition of the Intellectual Property, including, but not limited to,
any subsequent ownership right of the Borrower or any Subsidiary in or to any
Copyright, Patent or Trademark not specified in any intellectual property
security agreement between Borrower or any Subsidiary and Bank or knowledge of
an event that materially adversely effects the value of the Intellectual
Property; and (f) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
Within forty-five (45) days after the last day of each quarter,
Borrower shall deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit D hereto. Within ninety (90) days after the last day of each
fiscal year, Borrower shall deliver to Bank with the annual financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every twelve (12) months unless an Event of
Default has occurred and is continuing.
6.4. Inventory; Returns. Borrower and its Subsidiaries shall keep
all Inventory in good and marketable condition, free from all material defects.
Returns and allowances, if any, as between Borrower (or a Subsidiary) and its
account debtors shall be on the same basis and in accordance with the usual
customary practices of Borrower and its Subsidiaries, as they exist at
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<PAGE> 23
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Ten
Thousand Dollars ($10,000).
6.5. Taxes. Borrower shall make, and shall cause each Subsidiary
to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with
proof satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is (i) contested in good
faith by appropriate proceedings , (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no lien other than a Permitted Lien
results.
6.6. Insurance.
(a) Borrower and each Subsidiary, at Borrower's expense,
shall keep the Collateral insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts, as
ordinarily insured against by other owners in similar businesses conducted in
the locations where the business of Borrower or a Subsidiary is conducted on
the date hereof. Borrower and its Subsidiaries shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to the business of Borrower and
its Subsidiaries.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as are reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7. Principal Depository. Borrower and each Subsidiary shall
maintain its principal depository and operating accounts with Bank.
6.8. Adjusted Quick Ratio. Borrower shall maintain, as of the last
day of each fiscal quarter, a ratio of Quick Assets to Current Liabilities,
less current deferred maintenance revenue of at least 1.75 to 1.0.
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<PAGE> 24
6.9. Profitability. Borrower shall maintain, as of the last day of
each fiscal quarter, for each period identified below, a minimum Net Income,
less the increase in capitalized software, of at least $1.00.
6.10. Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, those additional intellectual property rights
developed or acquired by Borrower and any of its Subsidiaries from time to time
in connection with any product prior to the sale or licensing of such product
to any third party.
(b) Borrower and any Subsidiary shall execute and
deliver such additional instruments and documents from time to time as Bank
shall reasonably request to perfect Bank's security interest in the
Intellectual Property.
(c) Borrower and its Subsidiaries shall (i) protect,
defend and maintain the validity and enforceability of the Trademarks, Patents,
Copyrights, and Mask Works, (ii) use its best efforts to detect infringements
of the Trademarks, Patents, Copyrights and Mask Works and promptly advise Bank
in writing of material infringements detected and (iii) not allow any
Trademarks, Patents, Copyrights, or Mask Works to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business
practices suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation,
to take, at Borrower's sole expense, any actions that Borrower or a Subsidiary
is required under this Section 6.10 to take but which Borrower or a Subsidiary
fails to take, after fifteen (15) days' notice to Borrower. Borrower shall
reimburse and indemnify Bank for all reasonable costs and reasonable expenses
incurred in the reasonable exercise of its rights under this Section 6.10.
6.11. Further Assurances. At any time and from time to time
Borrower or a Subsidiary shall execute and deliver such further instruments and
take such further action as may reasonably be requested by Bank to effect the
purposes of this Agreement.
6.12. Merger of Subsidiaries.
(a) On or before August 1, 1998 Borrower shall make and
cause each of its Subsidiaries (other than HUBLink, Inc.) to merge into and
with the Borrower with the Borrower being the surviving corporation. Borrower
represents and warrants that its Subsidiaries (other than HUBLink, Inc.) are
Healthcare Communications, Inc., a Texas corporation, Integrated Healthcare
Solutions, Inc. (formerly known as Clinical Assessment Support System, Inc.), a
Georgia corporation and Criterion Health Strategies, Inc., a Tennessee
corporation.
(b) On or before September 30, 1999, Borrower shall make
and cause HUBLink, Inc. to merge into and with the Borrower with the Borrower
being the surviving corporation.
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<PAGE> 25
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any
Advances, neither Borrower nor any of its Subsidiaries will do any of the
following, without prior written Bank approval:
7.1. Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), all or any part of its business or
property, other than Transfers: (i) of inventory in the ordinary course of
business, (ii) of non-exclusive licenses and similar arrangements for the use
of the property of Borrower or its Subsidiaries in the ordinary course of
business; (iii) that constitute payment of normal and usual operating expenses
in the ordinary course of business; (iv) of worn-out or obsolete Equipment; or
(v) of immaterial assets which do not have a fair market value, in the
aggregate in excess of $300,000 in any calendar year.
7.2. Changes in Business, Ownership, or Management, Business
Locations. Engage in any business other than the businesses currently engaged
in by Borrower or a Subsidiary and any business substantially similar or
related thereto (or incidental thereto). Borrower will not, without at least
thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations, other than
remote offices for employees which do not include any material assets.
7.3. Mergers or Acquisitions. Merge or consolidate with or into
any other business organization, or acquire, or permit any of its Subsidiaries
to acquire, all or substantially all of the capital stock or property of
another Person; except such mergers or acquisitions that do not at all times
while the Obligations are outstanding, involve an amount that, in the aggregate
for all mergers or acquisitions, exceeds Six Hundred Thousand Dollars
($600,000) in cash, and, further, provided that the Company or its Subsidiary
must be the surviving entity in the merger.
7.4. Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7. Investments. Directly or indirectly acquire or own,or make
any Investment in or to any Person other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of the business of
Borrower or a Subsidiary, upon fair and reasonable terms that are no less
favorable to Borrower or a Subsidiary than would be obtained in an arm's length
transaction with a non-affiliated Person.
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<PAGE> 26
7.9. Intellectual Property Agreements. Permit the inclusion in any
material contract to which it becomes a party of any provisions that could or
might in any way prevent the creation of a security interest in the rights and
interests of Borrower or any Subsidiary in any property included within the
definition of the Intellectual Property acquired under such contracts.
7.10. Inventory. Store the Inventory with a bailee, warehouseman,or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower and its Subsidiaries shall keep the Inventory only at the locations
set forth in Section 10 hereof and such other locations of which Borrower gives
Bank prior written notice and as to which Borrower and its Subsidiaries, as the
case may be, signs and files a financing statement where needed to perfect
Bank's security interest.
7.11. Compliance. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for
such purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay, when due, any of
the Obligations.
8.2. Covenant Default.
(a) If Borrower or any Subsidiary fails to perform any
obligation under Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the
covenants contained in Article 7 of this Agreement, or
(b) If Borrower or any Subsidiary fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower or any
Subsidiary and Bank and as to any default under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure such
default within ten (10) days after the occurrence thereof; provided, however,
that if the default cannot by its nature be cured within the ten (10) day
period or cannot after diligent attempts by Borrower be cured within such ten
(10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and
within such reasonable time period the
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<PAGE> 27
failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure
period);
8.3. Material Adverse Change. If there (i) occurs a material
adverse change in the business, operations, or condition (financial or
otherwise) of the Borrower or any Subsidiary, or (ii) is a material impairment
of the prospect of repayment of any portion of the Obligations or (iii) is a
material impairment of the value or priority of Bank's security interests in
the Collateral;
8.4. Attachment. If any material portion of Borrower's or any
Subsidiaries' assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any trustee,
receiver or person acting in a similar capacity and such attachment, seizure,
writ or distress warrant or levy has not been removed, discharged or rescinded
within ten (10) days, or if Borrower or any Subsidiary is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs, or if a judgment or other claim becomes
a lien or encumbrance upon any material portion of Borrower's or any
Subsidiaries' assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's or any Subsidiaries' assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower or any Subsidiary receives
notice thereof, provided that none of the foregoing shall constitute an Event
of Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower or any Subsidiary (provided
that no Credit Extensions will be required to be made during such cure period);
8.5. Insolvency. If Borrower or any Subsidiary becomes insolvent,
or if an Insolvency Proceeding is commenced by Borrower or any Subsidiary, or
if an Insolvency Proceeding is commenced against Borrower or any Subsidiary and
is not dismissed or stayed within 30 days (provided that no Advances will be
made prior to the dismissal of such Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to
which Borrower or any Subsidiary is a party with a third party or parties
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount in excess of Fifty
Thousand Dollars ($50,000) or that could have a Material Adverse Effect;
8.7. Subordinated Debt. If Borrower or any Subsidiary makes any
payment on account of Subordinated Debt, except to the extent such payment is
allowed under any subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower or any Subsidiary
and shall remain unsatisfied and unstayed for a period of ten (10) days
(provided that no Credit Extensions will be made prior to the satisfaction or
stay of such judgment); or
8.9. Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or
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writing delivered to Bank by Borrower or any Subsidiary or any Person acting on
Borrower's or any Subsidiaries' behalf pursuant to this Agreement or to induce
Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in Section 8.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in
an amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Liquidate any Exchange Contracts not yet settled and
demand that Borrower immediately deposit cash with Bank in an amount sufficient
to cover any losses incurred by Bank due to liquidation of the Exchange
Contracts at the then prevailing market price;
(e) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(f) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's premises, Borrower hereby grants
Bank a license to enter such premises and to occupy the same, without charge;
(g) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower or any Subsidiary
held by Bank, or (ii) indebtedness at any time owing to or for the credit or
the account of Borrower or any Subsidiary held by Bank;
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(h) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a non-exclusive,
royalty-free license or other right, solely pursuant to the provisions of this
Section 9.1, to use, without charge, Borrower's labels, patents, copyrights,
mask works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Bank determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale,
or at any private sale as permitted by law;
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower; and
(l) Bank shall have a non-exclusive, royalty-free
license to use the Intellectual Property to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2. Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's or any Subsidiaries' name on any checks or other forms
of payment or security that may come into Bank's possession; (c) sign
Borrower's or any Subsidiaries' name on any invoice or bill of lading relating
to any Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d) make,
settle, and adjust all claims under and decisions with respect to Borrower's or
any Subsidiaries' policies of insurance; and (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature
to such modification by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit
D, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks, Mask Works acquired by
Borrower after the execution hereof or to delete any reference to any right,
title or interest in any Copyrights, Patents, Trademarks, or Mask Works in
which Borrower no longer has or claims any right, title or interest; (g) to
file, in its sole discretion, one or more financing or continuation statements
and amendments thereto, relative to any of the Collateral without the signature
of Borrower where permitted by law; and (h) to transfer the Intellectual
Property into the name of Bank or a third party to the extent
-24-
<PAGE> 30
permitted under the California Uniform Commercial Code provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3. Accounts Collection. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower or any Subsidiary of Bank's security interest in such funds and verify
the amount of such Account. Borrower shall collect all amounts owing to
Borrower or nay Subsidiary for Bank, receive in trust all payments as Bank's
trustee, and if requested or required by Bank, immediately deliver such
payments to Bank in their original form as received from the account debtor,
with proper endorsements for deposit.
9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable
rate hereinabove provided, and shall be secured by the Collateral. Any payments
made by Bank shall not constitute an agreement by Bank to make similar payments
in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies
with reasonable banking practices, Bank shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss
or damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7. Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents,
-25-
<PAGE> 31
instruments, chattel paper, and guarantees at any time held by Bank on which
Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: Healthdyne Information Enterprises, Inc.
1850 Parkway Place, Suite 1100
Marietta, Georgia 30067
Attn: Robert Murrie
FAX: (770) 423-8440
If to Bank Silicon Valley Bank
3343 Peachtree Road, N.E.
East Tower, Suite 312
Atlanta, Georgia 30326
Attn.: Mr. Tom Vertin
FAX: (404) 261-2202
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of Georgia, without regard to principles
of conflicts of law. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OR
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THE BORROWER AND THE BANK ALSO AGREE
THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST THE
-26-
<PAGE> 32
BORROWER IN CONNECTION WITH THIS AGREEMENT OR SUCH OTHER LOAN DOCUMENT, MAY BE
BROUGHT BY THE BANK OR BORROWER IN ANY STATE OR FEDERAL COURT SITTING IN THE
COUNTY OF THE STATE IN WHICH BANK'S ADDRESS SHOWN IN SECTION 10 ABOVE IS
LOCATED, OR IN ANY OTHER COURT TO THE JURISDICTION OF WHICH SUCH BORROWER OR
ANY OF ITS PROPERTY IS OR MAY BE SUBJECT. EACH OF THE BORROWER AND THE BANK
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE AFORESAID STATE AND FEDERAL
COURTS, AND IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY
SUCH COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
12. GENERAL PROVISIONS
12.1. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and permitted assigns of each of
the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2. Indemnification. Borrower shall , indemnify ,defend, protect
and hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential
to transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3. Time of Essence. Time is of the essence for the performance
of all obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5. Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this
Agreement, if any, are merged into this Agreement and the Loan Documents.
-27-
<PAGE> 33
12.6. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
HEALTHDYNE INFORMATION
ENTERPRISES, INC.
By: /s/Cheryl Blanco
--------------------------------------
Title: VP - Controller
--------------------------------
[CORPORATE SEAL]
SILICON VALLEY BANK
By: /s/Tom Vertin
--------------------------------------
Title: SVP
--------------------------------
-28-
<PAGE> 34
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter
acquired, including, without limitation, all machinery, fixtures, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;
(b) All inventory, now owned or hereafter acquired,
including, without limitation, all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products including
such inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now
owned or hereafter acquired, including, without limitation, goodwill,
trademarks, servicemarks, trade styles, trade names, patents, patent
applications, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights
to payment of any kind;
(d) All now existing and hereafter arising accounts,
contract rights, royalties, license rights and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities,
investment property, letters of credit, certificates of deposit, instruments
and chattel paper now owned or hereafter acquired and Borrower's Books relating
to the foregoing;
(f) All copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, now owned or
hereafter acquired; all trade secret rights, including all rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; all mask work or
similar rights available for the protection of semiconductor chips, now owned
or hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing and
any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
<PAGE> 35
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
--------------------
FAX#: ( ) TIME:
--- ---------------- --------------------
FROM: HEALTHDYNE INFORMATION ENTERPRISES, INC.
-----------------------------------------------------------------
BORROWER'S NAME
FROM:
-----------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
-----------------------------------------------------------------
AUTHORIZED SIGNATURE
PHONE:
----------------------------------------------------------------
FROM ACCOUNT #
---------------------------------------
TO ACCOUNT#
------------------------------------------
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
------------------------------
PRINCIPAL PAYMENT (ONLY) $
------------------------------
INTEREST PAYMENT (ONLY) $
------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
------------------------------
OTHER INSTRUCTIONS:
</TABLE>
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as
of the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
Authorized Requester
-----------------------------------
Authorized Signature (Bank)
Phone #
----------------------------
<PAGE> 36
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Healthdyne Information Enterprises, Inc. Bank: Silicon Valley Bank
Commitment Amount: $5,000,000
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of ______ $
----------
2. Additions (please explain on reverse) $
----------
3. TOTAL ACCOUNTS RECEIVABLE $
----------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
-----------
5. Balance of 50% over 90 day accounts $
-----------
6. Concentration Limits $
-----------
7. Foreign Accounts exceeding 25% of Borrowing
Base or Credit Limit $
-----------
8. Governmental Accounts $
-----------
9. Contra Accounts $
-----------
10. Promotion or Demo Accounts $
-----------
11. Intercompany/Employee Accounts $
-----------
12. Other (please explain on reverse) $
-----------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
-----------
14. Eligible Accounts (#3 minus #13) $
-----------
15. LOAN VALUE OF ACCOUNTS (75% of #14) $
-----------
BALANCES
16. Maximum Loan Amount $
-----------
17. Total Funds Available [Lesser of #16 or #15] $
-----------
18. Present balance owing on Line of Credit $
-----------
19. Outstanding under Sublimits ( ) $
----------
20. RESERVE POSITION (#17 minus #18 and #19) $
-----------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Silicon Valley Bank.
<TABLE>
<CAPTION>
COMMENTS: BANK USE ONLY
---- --- ----
<S> <C>
HEALTHDYNE INFORMATION ENTERPRISES, INC. REC'D BY:
------------
AUTH. SIGNER
BY: DATE:
------------------------------- ----------------
Authorized Signer VERIFIED:
------------
AUTH. SIGNER
DATE:
----------------
---------------------
</TABLE>
<PAGE> 37
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: HEALTHDYNE INFORMATION ENTERPRISES, INC.
The undersigned authorized officer of Healthdyne Information
Enterprises, Inc. hereby certifies that in accordance with the terms and
conditions of the Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
________________ with all required covenants except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof. Attached herewith are
the required documents supporting the above certification. The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistently applied from one period to
the next except as explained in an accompanying letter or footnotes. The
Officer expressly acknowledges that h no borrowings may be requested by the
Borrower at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that such compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- ---------
<S> <C> <C> <C>
Quarterly financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
A/R Agings Monthly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Adjusted Quick Ratio* 1.75:1.0 _____:1.0 Yes No
Profitability $1.00 $ Yes No
--------
</TABLE>
* "Quick Ratio" means, as of an applicable date, the ratio of (i) Quick
Assets to (ii) Current Liabilities less current deferred maintenance revenue.
BANK USE ONLY
RECEIVED BY:
--------------------
DATE:
----------------
REVIEWED BY:
--------------------
COMPLIANCE STATUS: YES / NO
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
Date:
- ------------------------------ ---------------
SIGNATURE
- ------------------------------
TITLE
<PAGE> 38
SCHEDULE
Chief Executive Office
Healthdyne Information Enterprises, Inc.
1850 Parkway Place, Suite 1100
Marietta, Georgia 30067
HUBLink, Inc.
100 E. Campus View Boulevard
Suite 150
Columbus, Ohio 43235
<PAGE> 1
EXHIBIT 10.12
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of November 13,
1998 by and between Healthdyne Information Enterprises, Inc., a Georgia
corporation ("Borrower") whose address is 1850 Parkway Place, Suite 1100,
Marietta, Georgia 30067 and Silicon Valley Bank, a California-chartered bank
("Lender") with a loan production office located at 3343 Peachtree Road, N.E.,
Suite 312, Atlanta, Georgia 30326.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement, dated August 3, 1998, as
may be further amended from time to time (the "Loan Agreement") and Promissory
Note in the principal amount of $5,000,000 dated August 3, 1998 (the "Note").
The Loan Agreement and Note provide for, among other things, a line of credit
in the original principal amount of Five Million Dollars ($5,000,000). Defined
terms used herein without definition shall have the same meaning ascribed
thereto in the Loan Agreement and Note.
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the obligations
is secured by the Collateral as described in the Loan Agreement and is
guaranteed by HubLink, Inc. ("HubLink") a subsidiary of Borrower. The
obligations are also secured by all the assets of HubLink pursuant to a
Security Agreement dated August 3, 1998 between HubLink and Bank and a pledge
of the stock of HubLink pursuant to a Stock Pledge Agreement dated August 3,
1998 between Borrower and Bank. Hereinafter, the above-described security
documents, together with all other documents securing repayment of the Note
shall be referred to as the "Security Documents". Hereinafter, the Loan
Agreement, the Security Documents, together with all other documents evidencing
or securing the Committed Revolving Line, shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification to Loan Agreement.
1. In Section 1.1 of the Loan Agreement the definition
of a 'Borrowing Base" is amended by deleting all
references to "eighty percent (80%)" and replacing
such references with "seventy-five percent (75%)."
2. Exhibit C to the Loan Agreement is deleted and
replaced with the new Exhibit C attached hereto as
Schedule 1.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
-1-
<PAGE> 2
(a) Borrower has adequate corporate power and authority to
execute and deliver this Loan Modification Agreement and the other documents
executed and/or delivered in connection herewith (collectively, the
"Modification Documents") and to perform its respective obligations hereunder
and thereunder, and under the Existing Loan Documents, as amended hereby. Each
of this Loan Modification Agreement and the other Modification Documents has
been duly authorized, executed and delivered by Borrower, and does not
contravene any law, rule or regulation applicable to Borrower or any of the
terms of its Certificate of Incorporation or bylaws, or any other indenture,
agreement or undertaking to which Borrower is a party. This Loan Modification
Agreement and the other Modification Documents effectively amend the Existing
Loan Documents in accordance with the terms hereof and thereof. Borrower's
obligations hereunder and under the other Modification Documents, and under the
Loan Agreement and the other Existing Loan Documents, each as amended hereby
and thereby, constitute legally valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors generally
and by equitable principles.
(b) All of the representations and warranties made by Borrower in
the Loan Agreement and the other Existing Loan Documents are true and correct
on the date hereof as if made on and as of the date hereof and are so repeated
herein, except that representations and warranties of financial statements or
conditions as of an earlier date relate solely to such earlier date.
(c) Upon the execution and delivery of this Loan Modification
Agreement and the satisfaction of the conditions precedent set forth in Section
6 hereof, no Event of Default shall exist and be continuing.
6. CONDITIONS PRECEDENT.
The agreements contained herein and the amendments contemplated hereby
shall not be effective unless each of the following conditions precedent is
satisfied:
(1) All of the representations and warranties made by
Borrower in Section 6 hereof shall be true and correct; and
(2) Bank shall have received, in form and substance
satisfactory to Bank, such other documents as Bank shall deem
necessary and/or appropriate.
Upon satisfaction of each of the conditions precedent set forth in this Section
6, the agreements contained herein and the amendments contemplated hereby shall
be deemed effective as of the date hereof.
7. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses
against the obligations to pay any amounts under the Loan Agreement or Note.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the Existing Loan Documents, Bank is relying upon Borrower's representations,
warranties,
-2-
<PAGE> 3
and agreements, as set forth in the Existing Loan Documents and herein, and
Borrower hereby ratifies and affirms all such representations and warranties as
if fully restated herein. Except as expressly modified pursuant to this Loan
Modification Agreement, the terms of the Existing Loan Documents remain
unchanged and in full force and effect. Bank's agreement to modification of the
Existing Loan Documents pursuant to this Loan Modification Agreement in no way
shall obligate Bank to make any future amendments or modifications to the
Existing Loan Documents. Nothing in this Loan Modification Agreement shall
constitute a novation or satisfaction of the Borrower's Obligations to Bank. It
is the intention of Bank and Borrower to retain as liable parties all makers
and endorsers of Existing Loan Documents, unless the party is expressly
released by Bank in writing. No maker, endorser, or guarantor will be released
by virtue of this Loan Modification Agreement. The terms of this paragraph
apply not only to this Loan Modification Agreement, but also to all subsequent
loan modification agreements.
9. MISCELLANEOUS. This Loan Modification Agreement shall be considered a
"Loan Document" under and as defined in the Loan Agreement. TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OR ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THE BORROWER AND THE BANK ALSO AGREE THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR
TO ENFORCE ANY JUDGMENT OBTAINED AGAINST THE BORROWER IN CONNECTION WITH THIS
AGREEMENT OR SUCH OTHER LOAN DOCUMENT, MAY BE BROUGHT BY THE BANK OR BORROWER
IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF THE STATE IN WHICH
BANK'S ADDRESS SHOWN IN SECTION 10 ABOVE IS LOCATED, OR IN ANY OTHER COURT TO
THE JURISDICTION OF WHICH SUCH BORROWER OR ANY OF ITS PROPERTY IS OR MAY BE
SUBJECT. EACH OF THE BORROWER AND THE BANK IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE AFORESAID STATE AND FEDERAL COURTS, AND IRREVOCABLY WAIVES
ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY SUCH COURT, AND ANY PRESENT OR
FUTURE CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM, IN CONNECTION WITH
ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS.
-3-
<PAGE> 4
This Loan Modification Agreement is executed as of the date first
written above.
<TABLE>
<CAPTION>
BORROWER: BANK:
<S> <C>
HEALTHDYNE INFORMATION SILICON VALLEY BANK
ENTERPRISES, INC.
By: /s/ Cheryl Blanco By: /s/ T. Vertin
------------------------------- -------------------------------
Its: VP - Controller Its: SVP
------------------------------ ------------------------------
[CORPORATE SEAL]
Agreed and consented to as guarantor:
HUBLINK, INC.
By: /s/ Robert Murrie
-------------------------------
Its: President
------------------------------
[CORPORATE SEAL]
</TABLE>
-4-
<PAGE> 5
SCHEDULE 1
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Healthdyne Information Enterprises, Inc. Bank: Silicon Valley Bank
Commitment Amount: $5,000,000
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C>
1. Accounts Receivable Book Value as of _________ $
---------------
2. Additions (please explain on reverse) $
---------------
3. TOTAL ACCOUNTS RECEIVABLE $
---------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
---------------
5. Balance of 50% over 90 day accounts $
---------------
6. Concentration Limits $
---------------
7. Foreign Accounts exceeding 25% of Borrowing
Base or Credit Limit $
---------------
8. Governmental Accounts $
---------------
9. Contra Accounts $
---------------
10. Promotion or Demo Accounts $
---------------
11. Intercompany/Employee Accounts $
---------------
12. Other (please explain on reverse) $
---------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
---------------
14. Eligible Accounts (#3 minus #13) $
---------------
15. LOAN VALUE OF ACCOUNTS (75% of #14) $
---------------
BALANCES
16. Maximum Loan Amount $
---------------
17. Total Funds Available [Lesser of #16 or #15] $
---------------
18. Present balance owing on Line of Credit $
---------------
19. Outstanding under Sublimits ( ) $
---------------
20. RESERVE POSITION (#17 minus #18 and #19) $
---------------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Silicon Valley Bank.
<TABLE>
<CAPTION>
COMMENTS: BANK USE ONLY
---- --- ----
<S> <C>
HEALTHDYNE INFORMATION ENTERPRISES, INC. REC'D BY:
------------
AUTH. SIGNER
BY: DATE:
------------------------------- ----------------
Authorized Signer VERIFIED:
------------
AUTH. SIGNER
DATE:
----------------
---------------------
</TABLE>
-5-
<PAGE> 1
EXHIBIT 10.13
[PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED AND ARE SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST FILED WITH THE SECRETARY OF THE COMMISSION PURSUANT TO RULE
24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE REDACTED
MATERIAL IS INDICATED BY AN "{*}" AND WAS FILED SEPARATELY WITH THE COMMISSION.]
HBO & COMPANY
AND
HEALTHDYNE INFORMATION ENTERPRISES, INC.
VALUE ADDED MARKETING AGREEMENT
This Value-Added Marketing Agreement ("Agreement") is made and entered
into as of this 8th day of September, 1998, ("Effective Date") by and between
Healthdyne Information Enterprises, Inc. ("Business Partner"), a Georgia
corporation with its principal place of business at 1850 Parkway Place, Suite
1100, Marietta, Georgia, 30067 , and HBO & Company of Georgia ("HBOC"), a
Delaware corporation with its principal place of business at 301 Perimeter
Center North, Atlanta, Georgia 30346.
STATEMENT OF PURPOSE
A. HBOC is in the business of developing proprietary computer
software applications, integrating them with software
developed by others and distributing the integrated software
product together with associated hardware and services in
order to provide comprehensive information solutions desired
by healthcare providers.
B. Business Partner owns, distributes and supports certain
computer software known and marketed as the Cloverleaf(R)
Integration Engine Tool -- which transports data among
disparate information systems.
C. HBOC desires to acquire and Business Partner desires to grant
to HBOC a license to integrate the Cloverleaf Integration
Engine Tool with HBOC proprietary software and software
developed by third parties and to market and distribute the
Integrated Software (as defined below) together with other
HBOC products and services to HBOC customers and prospects
under the terms and conditions of this Agreement.
AGREEMENT
In consideration for the mutual promises set forth below, and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. The following capitalized terms used in this Agreement
shall have the following meanings:
1.1 "Affiliates" means any entity controlling, controlled by, or
under common control with, either party to this Agreement.
1.2 "BP Software" means the operating system software, application
software or other software products which are proprietary to
Business Partner or for which Business Partner has the right
to distribute and which comprise the software set forth on
Exhibit A, including: (a) the machine-executable object code
version of the user-loadable programs which Business Partner
makes generally available to its customers including all
options, database interfaces, operating system and hardware
versions, now or hereinafter developed; (b) Documentation; (c)
any modifications, revisions, Corrections, Enhancements, New
Releases or replacements for all of the foregoing items; and
(d) authorized copies of all of the foregoing items.
1.3 "Consumer Price Index" means, as of any date, the Consumer
Price Index for All Urban Consumers, U.S. City Average,
published by the U.S. Bureau of Labor Statistics (base year
1982-84=100, except that, if the base for the Index is so
changed that 1982-84 prices no longer represent 100, an
appropriate adjustment will be applied to the published
indices so as to relate them to the aforesaid base in which
1982-84 prices represent 100), as published by the Bureau of
Labor Statistics of the U.S. Department of Labor as of the
most recent calendar
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month for which the Index is published prior to such date. In
the event that the Consumer Price Index is discontinued, the
parties shall agree to a substantially similar government
index or publication as a reasonable replacement.
1.4 "Correction(s)" means a modification, revision or supplement
to the BP Software which makes such software perform functions
it was designed to perform or corrects defects or "bugs".
1.5 "Distributor(s)" means HBOC and those entities which (at the
time in question) are authorized by HBOC either as distributor
or agent to distribute software marketed by HBOC. Additional
Distributors may be added by HBOC during the term of this
Agreement. HBOC shall require all such entities to execute a
written agreement with HBOC containing terms and conditions
substantially similar to those contained in this Agreement for
the protection of Proprietary Information.
1.6 "Documentation" means the documentation in any media and form
(CD, hard copy, electronic, etc.) for BP Software, including
all documents and manuals relating to an end-user's
installation, training, and use of the BP Software and those
documents and manuals necessary for HBOC to integrate, test,
and support the Integrated Software, together with all
revisions, updates and other modifications thereto as Business
Partner may make from time to time.
1.7 "Enhancement(s)" means modifications, revisions, additions or
supplements to the BP Software which enables such software to
provide or perform services or functions it could not
previously perform or materially improves the manner in which
the BP Software performs existing functions.
1.8 "HBOC Customer(s)" means the (i) current customers of HBOC
which have licensed HBOC Software or purchased from HBOC
services or hardware, and (ii) prospective customers to whom
HBOC is marketing or with whom HBOC is negotiating for the
license of HBOC Software or the sale of hardware or HBOC
services. The term "HBOC Customer" shall include Affiliates of
any HBOC Customer.
1.9 "HBOC Software" means the computer software now or hereafter
marketed and licensed by HBOC (whether developed by HBOC or
licensed to HBOC with a right to sublicense to HBOC Customers,
excluding BP Software) for use by HBOC Customers.
1.10 "Integrated Software" means HBOC Software which operates in
conjunction with BP Software and which accomplishes a business
application extending the features and functions of the HBOC
Software.
1.11 "List Price(s)" means Business Partner's lowest,
non-discounted, standard charges to third parties for BP
Software, as contained in the price list, a current copy of
which is attached hereto as Exhibit B, and which may be
updated from time to time during the term of this Agreement.
1.12 "New Release(s)" means all modifications, revisions,
Enhancements, Corrections or replacements for BP Software and
related Documentation which Business Partner has agreed to
provide pursuant to this Agreement or which Business Partner
makes available to its customers in general from time to time
at no additional license fee.
1.13 "Proprietary Information" means any data or information,
including but not limited to any and all confidential
information and trade secrets, pertaining to (i) the business
operations of a party which is not generally known to the
public and affords such party a competitive advantage,
including but not limited to, information regarding its
products and product development, suppliers, marketing
strategies, finance, operations, customers, sales, and
internal performance results; (ii) the proprietary software,
including but not limited to: concepts, designs,
documentation, reports, data, specifications, source code,
object code, flow charts, file record layouts, databases,
inventions, know-how, and show-how, whether or not patentable
or copyrightable; and (iii) the terms and conditions of this
Agreement.
1.14 "Royalty(ies)" means an amount, calculated in U.S. Dollars,
equal to a percentage of Business Partner's List Price or a
fixed fee for BP Software, as set forth on Exhibit C, which is
due Business Partner for each Sublicense.
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1.15 "Source Code" means the statements which define the BP
Software functions which, when assembled or compiled become
the executable code of the BP Software and includes both the
human readable and machine readable forms; however, it shall
not include the source code for any third party software
contained in the BP Software.
1.16 "Sublicense(s)" means a non-exclusive, non-transferable
(except as set forth in Section 15.11) right granted by HBOC
to a HBOC Customer under a Sublicense Agreement to use an
object code copy of the BP Software in connection with the
license and use of the Integrated Software.
1.17 "Sublicense Agreement" means the terms and conditions pursuant
to which HBOC Customer will be licensed to use Integrated
Software, such terms and conditions to include at a minimum
the terms and conditions set forth in Exhibit D.
1.18 "Territory" means the geographical area and territories listed
in Exhibit E. The Territory may be extended pursuant to the
mutual written agreement of the parties.
2. TERM.
2.1 Term. This Agreement shall commence on the Effective Date and
shall continue in full force and effect for a period of {*}
years ("Initial Term"), unless earlier terminated as provided
for below in Article 14. Thereafter, this Agreement will
automatically renew for successive terms of one (1) year each
("Renewal Terms"). Either party may terminate this Agreement
without cause at the end of the Initial Term or any Renewal
Term by providing at least twelve (12) months prior written
notice to the other party.
3. LICENSE.
3.1 License Grant. Subject to the terms and conditions of this
Agreement, Business Partner hereby grants HBOC, its Affiliates
and Distributors, a non-exclusive, non-transferable (except as
set forth in Section 15.11), license to use BP Software in the
Territory on any computer system operated by HBOC for the
purposes of testing, developing, interfacing and integrating
the BP Software with HBOC Software and for marketing,
demonstrating, educating, installing and supporting and
maintaining Integrated Software. Additionally, HBOC shall have
the right to incorporate all or portions of the Documentation
pertaining to an end-user's installation, training, and use of
the BP Software or pertaining to HBOC's integration, testing,
and support of the BP Software into documentation created by
HBOC for the Integrated Software, provided that HBOC
identifies such Documentation or portions thereof as being
proprietary to Business Partner. HBOC shall not attempt to
reverse engineer the BP Software in any way, including but not
limited to disassembly of the BP Software, to derive an
equivalent of the BP Software. Ownership of all copyrights,
trade secrets, patents, patents pending, trademarks and other
intellectual and property rights in the BP Software and all
other items licensed to HBOC hereunder is and remains in
Business Partner. Nothing in this Agreement shall be construed
as conveying or transferring ownership or title of the BP
Software or the other items licensed hereunder to HBOC.
3.2 Sublicenses. Business Partner further grants HBOC, its
Affiliates and Distributors, a non-exclusive, non-transferable
(except as set forth in Section 15.11), license to (a)
distribute the Integrated Software in the Territory to HBOC
Customers, provided HBOC first obtains a written Sublicense
Agreement (the license term of which may be perpetual); and
(b) provide data processing and facility management or
outsourcing services to HBOC Customers. HBOC, its Affiliates
and Distributors may also grant Sublicenses which permit HBOC
Customers to access their data within the Integrated Software
by means of remote access (e.g., electronic transfer, remote
dial-in, etc.) for the purposes of supplementing, modifying,
deleting, reporting or reviewing data. HBOC Customers shall be
prohibited from using Integrated Software to process data for
unrelated third parties; however, this restriction, with
respect to the processing of data, shall not apply to local or
remote access by Affiliates of HBOC Customers, such as
physicians and outpatient facilities or any agent of an HBOC
Customer which is operating, supporting or using Integrated
Software for or on behalf of HBOC Customers, which access and
use is expressly permitted. HBOC shall be solely responsible
for negotiating the terms of the Sublicense Agreements.
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3.3 Copies. HBOC and its Affiliates and Distributors may make
copies of BP Software for the functions required or permitted
in this Article 3 and may also make a reasonable number of
copies of BP Software for purposes for archival, backup and
disaster recovery. HBOC shall reproduce, on each copy of BP
Software, all Business Partner patent, patent pending,
trademark, copyright, confidentiality and proprietary notices,
or legends, as may be established, revised, and provided in
guidelines to HBOC from time to time by Business Partner.
3.4 Trademarks.
3.4.1 Business Partner grants HBOC a non-exclusive,
non-transferable (except as set forth in Section
15.11) right to use and display, at HBOC's
discretion, Business Partner's trademarks to
advertise and promote the Integrated Software. HBOC
shall use such trademarks in accordance with Business
Partner's published guidelines, a copy of which shall
be delivered to HBOC promptly following execution of
this Agreement. HBOC shall not receive any ownership
in or to Business Partner's trademarks as a result of
such use. HBOC shall not use any of Business
Partner's trademarks, service marks, logos, or
slogans in any manner likely to confuse, mislead, or
deceive the public, or to be adverse to the best
interests of Business Partner.
3.4.2 HBOC grants to Business Partner limited permission to
use the HBOC's trademarks solely to identify itself
as a partner of HBOC. Business Partner shall use such
trademarks in accordance with the guidelines
established by HBOC (from time to time), a current
copy of which is attached to this Agreement as
Exhibit F. Business Partner shall submit all such
materials to HBOC for prior review and approval.
Business Partner shall not use any of HBOC's
trademarks, service marks, logos, or slogans in any
manner likely to confuse, mislead, or deceive the
public, or to be adverse to the best interests of
HBOC.
3.5 Private-Label Option. Notwithstanding anything to the contrary
in this Agreement, HBOC shall have the right, exercisable at
its option, to market and sublicense the Integrated Software
(and the BP Software, if HBOC exercises the option granted in
Section 3.5) under HBOC's private label Should HBOC desire to
exercise this right, it will provide written notice to
Business Partner and submit to Business Partner for approval,
a private-label marketing plan. HBOC shall reproduce, on each
copy of the BP Software or the Integrated Software, all
Business Partner patent, patent pending, trademark, copyright,
confidentiality and proprietary notices, or legends, as may be
established, revised, and provided in guidelines to HBOC from
time to time by Business Partner.
4. SOURCE CODE ESCROW.
4.1 Escrow Account. Within thirty (30) days following the
execution of this Agreement, Business Partner shall place the
Source Code into an escrow account with a reputable,
financially sound, industry recognized third party consented
to by HBOC to act as the escrow agent ("Escrow Agent") under
the terms of a mutually acceptable escrow agreement (the
"Escrow Agreement"). A fully executed copy of the Escrow
Agreement, together with a receipt from the Escrow Agent
acknowledging receipt of the Source Code, shall be delivered
to HBOC within five (5) days after execution of the Escrow
Agreement. In addition to the initial delivery of Source Code,
Business Partner shall deliver to the Escrow Agent, within
thirty (30) days following general availability, copies of all
New Releases of the BP Software, and shall provide HBOC with
receipts of such additional deposits, executed by the Escrow
Agent. Business Partner shall be responsible for all costs
incurred in connection with the Escrow Agreement.
4.2 Release of Source Code from Escrow Account. In the event that
Business Partner (a) becomes insolvent or ceases to carry on
business, and the business of Business Partner is not carried
on by a receiver or trustee or assignee; or (b) Business
Partner discontinues or fails to provide the BP Software or
support or maintenance of the BP Software in accordance with
the terms of this Agreement for any reason whatsoever, then
HBOC shall have the right to receive, possess, and use (but not
own) a copy of the Source Code released from the Escrow Account
for the purpose of developing, maintaining, modifying and
marketing the Integrated Software in accordance with the terms
of this Agreement so long as HBOC continues to pay the
appropriate fees due to Business Partner hereunder times a
factor of {*}.
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5. DELIVERY.
5.1 Initial Delivery. Business Partner shall deliver to HBOC, at
no charge, a reasonable number of copies of the most recent
version (unless HBOC specifies a different available version)
of BP Software and Documentation for use by HBOC in accordance
with Section 3.1 within fifteen (15) days after the Effective
Date.
5.2 New Releases. Business Partner shall deliver to HBOC, at no
additional charge and within thirty (30) days after general
availability by Business Partner a reasonable number of copies
of New Releases and Documentation related to such New Releases
for use by HBOC in accordance with Section 3.1.
5.3 Customer Delivery. HBOC shall deliver the Integrated Software
to HBOC Customers subject to a Sublicense Agreement. HBOC
shall be responsible for installation and implementation at
HBOC Customer sites. HBOC may copy BP Software to electronic
media for delivery or may deliver BP Software and
Documentation via electronic interchange.
5.4 Development and Delivery of Enhancements. Business Partner
shall use its best efforts to deliver the Enhancements
described on Exhibit G within ninety (90) days (but in any
case no later one hundred eighty (180) days) from the
Effective Date.
6. MARKETING.
6.1 Generally. HBOC will use reasonable efforts to market the
Integrated Software. It is the parties' intention that HBOC,
or its Affiliates or Distributors, be the single channel
through which HBOC Customers procure Integrated Software; and
that all agreements, licenses, orders and invoices for the
Integrated Software shall be by and between HBOC (or its
Affiliate or Distributor) and an HBOC Customer.
Notwithstanding the foregoing, if requested by the customer
Business Partner shall not be prohibited from fulfilling
orders for add-on sales to an HBOC Customer that is one of
Business Partner's existing customers listed on Exhibit J.
Business Partner shall at all times during the term of this
Agreement maintain policies and procedures with regard to its
sales force such that Business Partner's sales representatives
are given incentive and compensation for sales made by HBOC to
HBOC Customers.
6.2 HBOC and Business Partner are both currently in the process of
developing and marketing solutions that, generally, may be
described as "enterprise master patient index" (EMPI)
solutions. By execution of this Agreement, the parties agree
to reduce the potential for channel conflict and further the
business relationship by exploring additional avenues to work
together. As such, the parties intend to reach agreement to
reduce the potential for conflicts within a period of ninety
(90) days following the Effective Date. The parties will use
reasonable efforts to share the necessary and appropriate
information about their respective EMPI products and
strategies in order to enter into a mutually acceptable
agreement.
In the event the parties are unable to reach a mutual
agreement within the time period specified above, Business
Partner shall immediately cease marketing of its EMPI product
and shall enter into an agreement (the "EMPI Agreement")
containing terms and conditions substantially similar to the
terms and conditions set forth in this Agreement, pursuant to
which Business Partner shall remarket and sublicense HBOC's
EMPI product. Unless otherwise expressly agreed, the EMPI
Agreement shall include the following provisions: (a) Business
Partner shall be permitted to support its own EMPI product
indefinitely for its existing customers, (b) Business Partner
shall remit to HBOC a royalty equal to {*}% of the list price
for sublicenses of HBOC's EMPI, except that the first
twenty-four (24) such sublicenses by Business Partner shall be
royalty-free, (c) Business Partner shall provide first level
support for its customers and shall be entitled to retain {*}%
of the maintenance fees associated with those sublicenses, and
(d) for a period of twenty four (24) months from the effective
date of the EMPI Agreement, Business Partner shall have a
royalty-free license to convert any of its existing EMPI
customers to HBOC's EMPI.
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6.3 Marketing Activities. HBOC and Business Partner, as
appropriate, may perform some or all of the following
marketing activities:
6.3.1 Press Releases. Subject to each party's prior written
approval, issue a press release announcing the
creation of the marketing relationship and additional
press releases from time to time to publicize other
significant events regarding joint business
developments.
6.3.2 Marketing Collateral. Work together to develop
articles or entries regarding Integrated Software for
the HBOC marketing publications, including without
limitation: Fact Sheets, Business Partner Solutions
Directory, HBOC Sales Manual and For Your Arsenal,
and any other marketing publications released by HBOC
from time to time during the term of this Agreement.
HBOC shall include references to the BP Software in
presentations, as appropriate, and shall be
responsible for the design and development of
marketing collateral for the Integrated Software.
6.3.3 RFP Responses. Recommend Integrated Software as a
solution in responses to requests for proposals
("RFP's") from HBOC Customers, provided Business
Partner cooperates with HBOC in the preparation of
such responses, such cooperation to include, without
limitation, ensuring the accuracy of HBOC's responses
to questions regarding BP Software contained in
RFP's, the development and update of standard
information required to support HBOC responses to
RFP's, and support to HBOC's RFP Specialists as
required in connection with clarifications to RFP
responses.
6.3.4 Demonstrations. Business Partner shall provide HBOC a
reasonable amount of sales support which may include
demonstrations of the BP Software, either at an HBOC
or HBOC Customer site, and attendance at sales
presentations by HBOC.
6.3.5 Representatives. Each party shall assign a
representative who shall serve as that party's
point-of-contact or facilitator between the parties
on all matters arising under this Agreement. The
representatives shall meet on a mutually agreed upon
basis to review and coordinate all activities under
this Agreement, including development, support,
marketing, and sales, and to amicably resolve any
disputes which may arise under this Agreement.
6.3.6 Sales Training and Assistance. From time to time and
at no charge to HBOC, upon mutually agreeable terms
and conditions, HBOC and Business Partner may
organize and hold sales training workshops for the BP
Software and/or the Integrated Software. Business
Partner agrees to respond timely and effectively to
reasonable requests for assistance from HBOC in order
to promote the license of the Integrated Software by
HBOC.
6.3.7 Business Partner Database. HBOC will include
information about Business Partner, BP Software and
Integrated Software in HBOC's Business Partner
Database for use by HBOC sales representatives,
Affiliates, Distributors and others.
6.3.8 Trade Show Attendance. Upon HBOC's reasonable
request, Business Partner shall participate with HBOC
at vendor fairs and healthcare informatics industry
trade shows, seminars and selected user group events.
6.3.9. Web Page References. It is the intent of the parties
to establish a web page link on each party's home
page to the home page of the other party within a
reasonable period of time following execution of this
Agreement.
7. BUSINESS PARTNER RESPONSIBILITIES. During the term of this Agreement,
Business Partner shall provide the following support and resources to
HBOC:
7.1. Technical Support for HBOC. Business Partner shall provide to
HBOC, at no additional charge, reasonable technical support
and consultation from Business Partner's designated offices by
way of telephone, bulletin boards or other electronic means,
to assist HBOC in the resolution of problems encountered by
HBOC or HBOC Customers in the operation, configuration,
implementation and support of BP Software seven (7) days per
week,
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twenty-four (24) hours each day. Such support shall include
commercially reasonable efforts by Business Partner to verify,
diagnose and correct errors and defects in the BP Software in
accordance with the support and escalation procedures set
forth at Exhibit H. Business Partner agrees to support the
release immediately prior to the New Release of the BP
Software for a minimum of twelve (12) months after the general
availability of a New Release.
7.1.1 Initial Staffing for HBOC Support Desk. Within
forty-five (45) days of the Effective Date and for a
period of one (1) year thereafter, Business Partner
shall provide to HBOC, at no additional charge, two
(2) qualified full-time personnel to reside at HBOC's
facilities in Atlanta, Georgia (Windward office) to
augment HBOC's staff in providing support to HBOC's
Customers regarding the BP Software. These Business
Partner personnel shall be available for emergency
after hours support twenty-four (24) hours per day,
seven (7) days per week as required. HBOC shall be
responsible for reasonable travel and lodging
expenses incurred by Business Partner under this
Section 7.1.1, which in any case shall not exceed one
thousand dollars ($1,000) per person per month.
7.2 Pre-releases. Upon HBOC's reasonable request, Business Partner
shall provide newly developed or beta versions
("Pre-releases") of BP Software for review, evaluation,
training and planning purposes, provided that HBOC makes
available to Business Partner a written critique of such
Pre-release software after completing its evaluation. Business
Partner shall make Pre-releases available to HBOC no later
than when Business Partner makes the same available to other
value added resellers of the BP Software. ANY PRE-RELEASE
SOFTWARE IS PROVIDED TO HBOC "AS IS" AND BUSINESS PARTNER
MAKES NO WARRANTIES AND SPECIFICALLY DISCLAIMS ALL IMPLIED
WARRANTIES REGARDING THE PRE-RELEASE SOFTWARE.
7.3 Participation in Development. HBOC may participate in any
development councils or other customer steering committees
which Business Partner may establish to gather input for the
future direction and ongoing development of BP Software.
Business Partner shall also provide HBOC with frequent
communication regarding contemplated New Releases,
Enhancements, and other product directions, including
providing HBOC with copies of BP Software under development in
order that HBOC may fully utilize all the features of the BP
Software as early as is technically feasible, all of which
shall be provided to HBOC no later than provided to any third
party.
7.4 HBOC Training. Business Partner shall provide to HBOC, at no
additional charge, adequate initial training and re-training
as reasonably necessary and requested by HBOC on the use,
operation and installation of BP Software. All training shall
be conducted by qualified personnel at such facilities and at
such times mutually agreed to by the parties, it being
contemplated that initially Business Partner's personnel shall
provide such training in one or more sessions at HBOC's
offices. Unless otherwise expressly agreed, travel and living
expenses incurred by each party in connection with the
training shall be the responsibility of the party incurring
the expenses.
7.5 Professional Services. Business Partner shall make
professional services available to HBOC beyond the scope of
those provided in this Article 7 as set forth in Exhibit I.
7.6 Continued Development of BP Software. Recognizing that a
significant portion of a customer's perceived value in any
software is the developer's continued investment in improved
and enhanced versions thereof, Business Partner shall devote
appropriate resources to developing improved and enhanced
versions of the BP Software (including versions designed to be
compatible with new hardware, database,
presentation/windowing, and operating system features and
versions with improved and additional features).
7.7 Sale of Line of Business. In the event that HBOC should
transfer any line of business whose software products are
dependent on the BP Software, Business Partner shall not
unreasonably refuse to enter into a distributorship agreement
with the buyer of such product line on terms comparable to
Business Partner's then current terms for such a relationship.
8. HBOC RESPONSIBILITIES. During the term of this Agreement, HBOC shall
provide the following resources:
8.1 Customer Support. HBOC shall provide HBOC Customer with their
sole contact point for maintenance and support, and may either
perform the installation of the Integrated Software and the
training of HBOC Customer personnel in
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the use of the Integrated Software or sub-contract with
Business Partner for such services. Business Partner shall
provide appropriate levels (both in quantities and experience)
of staff to support HBOC in answering technical questions, as
specifically set forth in Section 7.1 of this Agreement,
identifying and resolving errors in the BP Software, and
providing temporary solutions to BP Software errors which are
not immediately resolvable. In accordance with procedures
established by the parties, Business Partner shall prioritize
work on error corrections and shall from time to time provide
HBOC with New Releases incorporating such error corrections.
8.2 New Releases. HBOC shall use reasonable efforts to incorporate
New Releases into the Integrated Software for distribution to
HBOC Customers which have purchased software support services
for the Integrated Software from HBOC. While it is the
parties' desire that the Integrated Software contain the New
Releases, they acknowledge that the Integrated Software is
complex and that such changes may require substantial
development efforts on behalf of HBOC, third parties and HBOC
Customers, and that whether the New Releases are incorporated
into the Integrated Software is in the sole discretion of
HBOC.
8.3 Sublicense Agreement Enforcement. In the event HBOC becomes
aware of a breach of a Sublicense Agreement by an HBOC
Customer which affects Business Partner's rights it shall use
commercially reasonable efforts to enforce the terms of the
Sublicense Agreement, using no less efforts that HBOC would
use to protect its own rights under similar circumstances.
9. PRICES AND PAYMENT.
9.1 Customer Fees. HBOC shall unilaterally determine the fees to
be charged to HBOC Customers for the Integrated Software,
including without limitation, software license,
implementation, customization and support fees. There will be
no additional fees payable by HBOC for any Corrections
delivered to HBOC or HBOC Customers during the term of this
Agreement and for so long as support fees are paid to Business
Partner by or on behalf of HBOC Customers.
9.2 Royalty and Royalty Reports. For each Sublicense granted
pursuant to this Agreement, Business Partner shall be entitled
to the applicable Royalty, as set forth in Exhibit C. HBOC
shall report Royalties due Business Partner for each calendar
quarter within thirty (30) days following the last day of the
quarter (e.g., a royalty report for the calendar quarter
beginning January 1 and ending March 31 would be due on April
30). Such royalty report shall include the following
information for each Sublicense: HBOC Customer name and
address, BP Software and Integrated Software licensed,
effective date of the Sublicense Agreement, Royalty and
software support fees due Business Partner, and an estimated
effective date for the commencement of software support
services. Upon receipt of a royalty report, Business Partner
shall issue an invoice to HBOC for the total Royalties and for
that portion of the software support fees which are due and
payable. Payments shall be made within thirty (30) days
following HBOC's receipt of the invoice. The identities of
HBOC Customers disclosed in the royalty report shall be deemed
Proprietary Information for purposes of this Agreement.
9.3 Software Support Fee. In consideration for the technical
support provided by Business Partner pursuant to Section 7.1,
HBOC shall pay Business Partner a software support fee as set
forth in Exhibit C. No software support fee shall be due to
Business Partner for Sublicenses which are not supported by
HBOC. The software support fees shall be paid by HBOC on an
annual basis beginning March 1 of each year during the term of
this Agreement.
9.4 Business Partner Prices; Discounts. Current Agreement List
Prices for BP Software and support and maintenance for the BP
Software are set forth on Exhibit B. Business Partner reserves
the right to increase these Agreement List Prices no more than
once in any consecutive twelve (12) month period, upon at
least 120 days prior written notice to HBOC; however, there
will be no increase during the first twelve months of the term
of this Agreement. No annual increase for any prices shall
exceed the lesser of (i) an amount no greater than the
percentage of any increase over the preceding 12-month period
in the Consumer Price Index or (ii) five percent (5%), and
during the Initial Term of this Agreement, the cumulative
increases will not exceed {*}. The List Price in effect when
the HBOC Customer enters into the Sublicense Agreement shall
control, except that where HBOC (or its Affiliate or
Distributor) has quoted a price and the HBOC Customer enters
into a Sublicense Agreement within 120 days of such quotation
and a price increase would otherwise go into effect, the List
Price in effect as of the date of such quote shall be used. In
the event Business Partner provides discounts
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greater than the discounts provided herein to any similarly
situated so-called reseller or distributor, HBOC shall be
entitled to receive the benefit of such discount for as long
as such discount is in effect. Business Partner shall notify
HBOC of all such transactions for which HBOC either qualifies
or which it might qualify for if it agreed to the conditions
of such other transaction.
9.5 Payment Terms; Conversion Methods.
9.5.1 HBOC shall collect all fees directly from HBOC
Customers and distribute Business Partner's portion
of such fees to Business Partner. Except as otherwise
permitted herein, HBOC shall pay all invoices
submitted by Business Partner within thirty (30) days
of receipt. In addition, HBOC reserves the right to
withhold payment to Business Partner for other
invoices, in whole or in part, which HBOC disputes in
good faith and in writing to Business Partner. The
parties agree to use reasonable efforts to settle
such payment disputes. If HBOC, in its reasonable
discretion, must refund all or a portion of the fees
collected for BP Software to an HBOC Customer and
Business Partner has been paid by HBOC in accordance
with this section, then HBOC shall deduct from the
next payment to Business Partner the amounts refunded
to the HBOC Customer.
9.5.2 For the purposes of calculating currency conversions
in the event Business Partner establishes different
prices in different countries HBOC shall either use
the method it uses for its own internal accounting,
which must conform to Generally Accepted Accounting
Principles (GAAP), or an exchange rate for each
calendar month based upon the exchange rates printed
in The Wall Street Journal (Eastern Edition) on the
last day in each calendar quarter. Business Partner's
List Prices outside of the United States for
countries in which Business Partner does not have a
distributor shall not exceed the ratio established by
HBOC for its products in such country compared to its
United States charges. Business Partner may from time
to time obtain such ratios from HBOC which shall be
binding on the parties until a new ratio is
established by notice from HBOC or upon Business
Partner's request.
9.6 Taxes. HBOC shall be responsible for payment of any sales or
use or similar taxes (except those based on income to Business
Partner) relating to the Sublicenses.
9.7 Expenses. Except as otherwise specified in this Agreement or
agreed to by the parties, each party shall be solely
responsible for its own travel and out-of-pocket expenses
incurred in the performance of its obligations under this
Agreement.
10. PROPRIETARY RIGHTS AND CONFIDENTIALITY.
10.1 Ownership and Protection. Each party agrees that it has no
interest in or right to use the Proprietary Information of the
other except in accordance with the terms of this Agreement.
Each party acknowledges that it may disclose Proprietary
Information to the other in the performance of this Agreement.
The party receiving the Proprietary Information shall: (i)
maintain it in strict confidence and take all reasonable steps
to prevent its disclosure to third parties, except to the
extent necessary to carry out the purposes of this Agreement,
in which case these confidentiality restrictions shall be
imposed upon the third parties, through written agreement with
said third parties, to whom the disclosures are made, (ii) use
at least the same degree of care as it uses in maintaining the
secrecy of its own Proprietary Information (but no less than a
reasonable degree of care) and (iii) prevent the removal of
any proprietary, confidential, copyright, patent, patent
pending, or trademark notices placed on the Proprietary
Information. Proprietary Information shall be maintained as
confidential during the term of this Agreement and for a
period of two (2) years after expiration or earlier
termination of this Agreement, except that any and all
Proprietary Information which constitutes a trade secret shall
be maintained as confidential for as long as such Proprietary
Information remains a trade secret.
10.2 Limitation. Neither party shall have any obligation concerning
any portion of the Proprietary Information of the other which:
(i) is publicly known prior to or after disclosure hereunder
other than through acts or omissions attributable to the
recipient or its employees or representatives; (ii) as
demonstrated by prior written records, is already known to the
recipient at the time of disclosure hereunder; (iii) is
disclosed in good faith to the recipient
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by a third party having a lawful right to do so; or (iv) is
the subject of written consent of the party which supplied
such information authorizing disclosure; or (v) is required to
be disclosed by the receiving party by applicable law or legal
process, provided that the receiving party shall immediately
notify the other party so that it can take steps to prevent
its disclosure.
10.3 Remedies for Breach. In the event of a breach of this Article
10, the parties agree that the non-breaching party may suffer
irreparable harm and the total amount of monetary damages for
any injury to the non-breaching party may be impossible to
calculate and may therefore be an inadequate remedy.
Accordingly, the parties agree that the non-breaching party
may be entitled to temporary, preliminary and permanent
injunctive relief against the breaching party, its officers or
employees, in addition to such other rights and remedies to
which it may be entitled at law or in equity.
10.4 Rights to Additional Applications. Business Partner
acknowledges that HBOC shall have the right (without
obligation to Business Partner) to develop and market software
which operates in conjunction with the BP Software (but does
not include the BP Software) which performs other
applications, interfaces the BP Software to other software, or
improves the ease of use of the BP Software (such as front-end
software); even though such software requires the BP Software
to operate. Nothing in this Agreement shall be construed as
restraining the either party or its Affiliates from developing
or otherwise acquiring for its own purposes or for marketing
computer software similar or identical in function to that of
the other party, except that such development shall not make
use of any Proprietary Information disclosed pursuant to this
Agreement and that such computer software shall not violate
any intellectual property rights of the other party.
11. WARRANTIES.
11.1 Business Partner Warranties.
11.1.1 Warranties of Authority and Title. Business Partner
hereby warrants and represents that (i) it is a
corporation duly organized, validly existing and in
good standing under the laws of the state in which it
was organized and has full power and authority to
enter into and consummate the transactions
contemplated in this Agreement; (ii) the execution,
delivery and performance of this Agreement does not
violate the terms of any security agreement, license,
or any other contract or written instrument to which
Business Partner is bound; (iii) the BP Software does
not infringe any patent, trademark, copyright or
trade secret of a third party; and (iv) it is not
aware of any third party infringing on the rights of
Business Partner with respect to the BP Software.
11.1.2 Product Warranties. Business Partner hereby warrants
and represents that BP Software, including all
modifications, Corrections, Enhancements and New
Releases will have the functions and features and
perform in material respects as described in the
Documentation and other marketing material provided
to HBOC or to HBOC Customers by Business Partner
during the term of this Agreement. Business Partner
further warrants that prior to delivery, the BP
Software has been audited and tested in accordance
with Business Partner's internal quality control
processes and will be free from any virus, worm, trap
door, back door, timer, clock, counter or other
limiting routine, instruction or design that would
erase data or programming or otherwise cause the BP
Software or HBOC Software to become inoperable or
incapable of being used in accordance with its
documentation, and that the BP Software contains no
third party software which would require HBOC to
agree to any terms and conditions in addition to
those set forth in this Agreement. In the event that
the BP Software fails to conform to such warranties,
Business Partner shall promptly and continuously
provide such software support as necessary to cause
the BP Software to perform as warranted. Business
Partner warrants that the BP Software shall meet all
Federal, state and local laws regulations and
policies. HBOC agrees not to make any representations
or warranties with respect to the BP Software other
than the limited warranties made by Business Partner
herein.
11.1.3 Pass-Through Warranty. HBOC may assign to HBOC
Customers to whom it has granted Sublicenses, its
rights in, to and under the warranties and
infringement indemnification set forth in this
Article 11, and upon such assignment, such HBOC
Customers shall have the benefit of the warranties
and be subject to the limitations thereon.
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11.1.4 Business Partner Disclaimer. EXCEPT AS EXPRESSLY
PROVIDED IN THIS ARTICLE 11 OR OTHERWISE UNDER THIS
AGREEMENT (OR ANY OTHER AGREEMENT BETWEEN THE
PARTIES) OR IN ANY OTHER BUSINESS PARTNER MATERIALS
OR DOCUMENTATION PROVIDED TO LICENSEES OF BP
SOFTWARE, BUSINESS PARTNER DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, ARISING BY LAW OR
CUSTOM, INCLUDING BUT NOT LIMITED TO, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11.1.5 Year 2000 Warranty: Both parties warrant that the
occurrence in or use by any of its software included
in the Integrated Software of dates on or after
January 1, 2000 (the "Millennial Dates") will not
adversely affect the performance of its Software with
respect to date-dependent data, computations, output
or other functions (including, without limitation,
calculating, computing or sequencing), and its
Software will create, store and generate output data
related to or including the Millennial Dates without
errors or omissions. In the event that BP Software
fails to conform to such warranty, Business Partner
shall provide software support as necessary to cause
BP Software to conform to such warranty. In the event
that HBOC's software fails to conform to such
warranty, HBOC shall indemnify, defend, and hold
harmless Business Partner from any claims, demands,
liabilities, losses, damages, judgments, or
settlements, including all reasonable costs and
expenses related thereto including attorney's fees,
directly or indirectly resulting from any claimed
breach of such warranty.
11.2 HBOC Warranties.
11.2.1 Warranties of Authority. HBOC hereby warrants and
represents that (i) it is a corporation duly
organized, validly existing and in good standing
under the laws of the state in which it was organized
and has full power and authority to enter into and
consummate the transactions contemplated in this
Agreement; and (ii) the execution and performance of
this Agreement does not violate the terms of any
security agreement, license, or any other contract or
written instrument and that it possesses or will
possess, prior to granting the first Sublicense, the
appropriate licenses and agreements with third
parties necessary for the development and
distribution of the Integrated Software.
11.2.2 HBOC Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS
SECTION 11.2 OR OTHERWISE UNDER THIS AGREEMENT (OR
ANY OTHER AGREEMENT BETWEEN THE PARTIES) HBOC
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
ARISING BY LAW OR CUSTOM, INCLUDING BUT NOT LIMITED
TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
12. INTELLECTUAL PROPERTY INDEMNIFICATION.
Business Partner shall indemnify, defend and hold harmless HBOC, its
Affiliates and Distributors, and HBOC Customers and their officers,
directors, employees agents and affiliates (collectively, for purposes
of this Section 12, "HBOC Persons") from all damages, liabilities and
expenses (and all legal costs including attorneys' fees, court costs,
expenses and settlements resulting from any action or claim) arising
out of, connected with or resulting in any way from: (i) any allegation
that the possession, distribution or use (by HBOC, its Affiliates,
Distributors or HBOC Customers) of BP Software infringes a patent,
trademark, copyright, trade secret or other intellectual property right
of a third party and (ii) the performance or use of BP Software (by
HBOC, its Affiliates, Distributors or HBOC Customers). If any such
claim or proceeding arises, HBOC Persons seeking indemnification
hereunder shall give timely notice of the claim to Business Partner
after it receives actual notice of the existence of the claim. Business
Partner shall have the option, at its expense, to employ counsel
reasonably acceptable to HBOC Persons to defend against such claim and
to compromise, settle or otherwise dispose of the claim; provided,
however, that no compromise or settlement of any claim admitting
liability of or imposing any obligations upon HBOC Persons may be
affected without the prior written consent of HBOC Persons. In
addition, and at the option and expense of Business Partner, Business
Partner may, at any time after any such claim has been asserted, and
shall, in the event any BP Software is held to constitute an
infringement, either procure for HBOC Persons the right to continue
using that the BP Software, or replace or modify the BP Software so
that it becomes non-infringing, provided that such replacement or
modified BP Software has the same functional characteristics as the
infringing BP Software, or, if the prior two remedies are
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commercially impractical, refund to HBOC all fees, costs, and charges
paid by HBOC to Business Partner for that BP Software and any other BP
Software reasonably rendered ineffective as the result of said
infringement. HBOC shall cooperate fully in such actions, making
available books or records reasonably necessary for the defense of such
claim. If Business Partner refuses to defend or does not make known to
HBOC Persons its willingness to defend against such claim within ten
(10) days after it receives notice thereof, then HBOC Persons shall be
free to investigate, defend, compromise, settle or otherwise dispose of
such claim in its best interest and incur other costs in connection
therewith, all at the expense of Business Partner.
13. LIMITATION OF LIABILITY.
13.1. Exclusion of Consequential Damages. NEITHER PARTY WILL BE
LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INDIRECT OR SPECIAL
DAMAGES, WHETHER FORESEEABLE OR UNFORESEEABLE, BASED ON CLAIMS
OF THE OTHER PARTY OR ITS CLIENTS OR CUSTOMERS (INCLUDING
WITHOUT LIMITATION CLAIMS FOR GOODWILL, LOST PROFITS OR USE OF
MONEY) ARISING OUT OF BREACH OF EXPRESS OR IMPLIED WARRANTIES,
BREACH OF CONTRACT, MISREPRESENTATION, NEGLIGENCE, STRICT
LIABILITY IN TORT OR OTHERWISE IN CONNECTION WITH OR ARISING
OUT OF THIS AGREEMENT, EXCEPT ONLY IN THE CASE OF PERSONAL
INJURY WHERE AND TO THE EXTENT THAT APPLICABLE LAW REQUIRES
SUCH LIABILITY; PROVIDED, HOWEVER, THAT NOTHING CONTAINED
HEREIN SHALL IMPAIR OR LIMIT BUSINESS PARTNER'S
INDEMNIFICATION OBLIGATIONS UNDER SECTION 12.
13.2. Limitation of HBOC's Obligations. HBOC reserves the right to
withhold service or otherwise cease performance of its
development, marketing, maintenance and support obligations
hereunder with respect to any HBOC Customer which is found by
HBOC to be in default or breach of any agreement with HBOC.
Upon such cessation of services to an HBOC Customer, HBOC
shall be relieved of its performance obligations contained in
this Agreement with respect to such HBOC Customer, and shall
not be found to be in breach of this Agreement by Business
Partner. HBOC's aggregate liability to Business Partner for
damages concerning performance or nonperformance by HBOC or in
any way related to the subject matter of this Agreement,
regardless of whether the claim for such damages is based on
contract or tort, shall not exceed the amount received by
Business Partner from HBOC during the previous twelve months
for the BP Software giving rise to such claim.
13.3 Limitation of Business Partner Obligations. Business Partner
reserves the right to withhold performance hereunder with
respect to any HBOC Customer which is found by HBOC to be in
default or breach of any agreement with HBOC. HBOC shall
promptly notify Business Partner of any such HBOC Customer.
Upon cessation of services by HBOC pursuant to Section 13.2,
Business Partner shall be relieved of its obligations
contained in this Agreement with respect to said HBOC
Customer. Business Partner's aggregate liability to HBOC for
damages concerning performance or nonperformance by Business
Partner or in any way related to the subject matter of this
Agreement, regardless of whether the claim for such damages is
based on contract or tort, shall not exceed, with respect to
each HBOC Customer, the amount received by Business Partner
from HBOC for BP Software sublicensed to each said respective
HBOC Customer.
14. TERMINATION; DISPUTE RESOLUTION.
14.1 Early Termination. Either party may terminate this Agreement
immediately by notice to the other party upon the occurrence
of any of the following events of default by the other party:
(i) The other party fails to observe, perform or fulfill
any of its obligations or warranties (other than
confidentiality obligations) under the Agreement and
fails to cure such default within thirty (30) days
after the non-defaulting party gives notice of such
failure;
(ii) The other party fails to observe, perform or fulfill
any confidentiality obligation imposed hereunder and
fails to cure such default within ten (10) days after
the non-defaulting party gives notice of such
failure;
(iii) The other party's business is liquidated, dissolved
or suspended;
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(iv) The other party is prevented from performing any of
its material obligations hereunder for more than
ninety (90) days due to an event beyond its
reasonable control as described in Section 15.12; or
(v) Any representation or warranty made herein by the
other party is false or misleading in any material
respect as of the date on which it was made or
becomes false or misleading in any material respect
at any time thereafter.
14.1.1 Termination By Either Party. Either party may terminate this
Agreement without cause at the halfway point {*} years of the
Initial Term by providing at least six (6) months written
notice to the other party.
14.2 Termination by HBOC. HBOC may, in its reasonable discretion,
terminate this Agreement immediately by providing notice to
Business Partner upon the occurrence of a change in the direct
or indirect ownership or control of Business Partner which in
HBOC's opinion may adversely affect HBOC's rights, goodwill,
HBOC Customer relationships or competitive position.
14.3 Obligations After Expiration or Termination. Upon the
expiration or termination of this Agreement for any reason:
(i) Except as otherwise specified below in clause (ii),
each party will promptly cease using and destroy or
return to the other party all advertisements and
promotional materials that bear a trademark of the
other party and all Proprietary Information of such
other party.
(ii) HBOC may retain the BP Software and other Proprietary
Information provided by Business Partner during the
term of this Agreement solely for the purpose of
performing the functions permitted under this Agreement
as necessary to fulfill the provisions of Sublicense
Agreements existing on the date of expiration or
termination until such time as the last Sublicense
Agreement expires or terminates.
(iii) Business Partner shall continue to perform all
applicable warranty and technical support and other
obligations regarding that BP Software in accordance
with the provisions of this Agreement for the fees
negotiated in this Agreement as necessary to enable
HBOC to fulfill the provisions of Sublicense Agreements
existing on the date of expiration or termination of
this Agreement until such time as the last Sublicense
Agreement expires or terminates.
(iv) HBOC Customers may continue to use the BP Software
provided to them pursuant to this Agreement, so long as
such HBOC Customers have in effect a Sublicense
Agreement on the effective date of expiration or
termination of this Agreement.
14.4 Survival. The following provisions of the Agreement shall
survive expiration or termination of this Agreement: Articles
4, 10, 12 and 14 and Sections 9.1, 9.3, 9.6, 9.7, and 15.4.
14.5 Dispute Resolution. Except when seeking equitable relief, in
the event of a dispute between the parties and for which
dispute the parties are unable to reach a mutually agreeable
resolution, the dispute shall be submitted to arbitration
under the commercial arbitration rules of the American
Arbitration Association then in effect. There shall be one
arbitrator mutually agreed to by both parties; such arbitrator
shall have experience in the area of controversy. After the
hearing, the arbitrator shall decide the controversy and
render a written decision setting forth the issues
adjudicated, the resolution thereof and the reasons for the
award. The award of the arbitrator shall be conclusive. Each
party shall be responsible for its own attorney's fees in
connection with the arbitration. Payment of the expenses of
arbitration, including the fee of the arbitrator and exclusive
of the attorney's fees of the parties, shall be borne equally
by the parties.
15. MISCELLANEOUS PROVISIONS.
15.1 Independent Contractors. It is expressly agreed that Business
Partner and HBOC are acting under this Agreement as
independent contractors, and the relationship established
under this Agreement shall not be construed as a partnership,
joint venture or other form of joint enterprise, nor shall one
party be considered an
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agent of the other. Neither party is authorized to make any
representations or create any obligation or liability,
expressed or implied, on behalf of the other party, except as
may be expressly provided for in this Agreement.
15.2 Comparable Terms. The List Prices and Royalties of this
Agreement shall not at any time be less favorable than any
price terms offered by Business Partner to any
similarly-situated third party which distributes BP Software
in comparable volumes. In the event that Business Partner
offers any third party more favorable price or non-price terms
than those offered hereunder to HBOC, the Business Partner
shall so notify HBOC, and the more favorable terms shall be
immediately extended to HBOC.
15.3 Non-Exclusive. The parties reserve the right to enter into
similar agreements with third parties for the purpose of
marketing and distributing their respective products which are
the subject of this Agreement or any other products providing
the same or similar functions.
15.4 Access to Books and Records. The parties shall keep complete,
accurate, and up-to-date books and records in accordance with
generally accepted accounting principles and sound business
practices covering all transactions relating to this
Agreement. Either party and/or its qualified authorized
representatives shall upon reasonable notice have the right
(not more than once annually) to inspect, audit, and/or copy
appropriate records in order to determine whether all
provisions of this Agreement have been met. The parties agree
that all information and records obtained in such audit shall
be considered Proprietary Information and that individuals
performing such audits shall be required to execute
confidentiality agreements pertaining to the Proprietary
Information (and including provisions substantially similar to
the provisions herein relating to the Proprietary Information)
prior to the performance of any such audits. This right to
audit shall be available to either party for up to two (2)
years following the termination or expiration of this
Agreement.
15.5 Omnibus Reconciliation Act of 1980. If the provisions of
Section 952 of the Omnibus Reconciliation Act of 1980, as
amended (currently codified at 42 U.S.C. 1395x(v)1(I)), are or
become applicable to this Agreement, then, until the
expiration of four (4) years after the furnishing of services
pursuant to this Agreement, Business Partner shall, upon
written request, make available to the Secretary of Health and
Human Services, the U. S. Comptroller General, or any other
duly authorized representative of the federal government, the
contracts and books, documents and records of Business Partner
that are necessary to certify the nature and extent of costs
related to this Agreement.
15.6 Compliance with Laws. Both parties, their employees and agents
shall comply with applicable federal, state and local laws,
ordinances, regulations and codes, including the
identification and procurement of required permits,
certificates, approvals and inspections, in the performance of
this Agreement.
15.7 Export Assurance. HBOC hereby acknowledges and agrees that it
will first obtain any export license or approval required by
the United States Department of Commerce pursuant to the
Export Administrative Regulation prior to exporting the
Integrated Software. HBOC shall indemnify, defend and hold
harmless Business Partner from all damages, liabilities, and
expenses (and all legal costs including attorneys' fees, court
costs, expenses and settlements resulting from any action or
claim) arising out of, connected with or resulting in any way
from HBOC's failure to comply with any export laws or
regulations.
15.8 Headings/Days. The headings of the paragraphs of this
Agreement are for convenience only and shall not be a part of
or affect the meaning or interpretation of this Agreement. All
references to "days" within this Agreement shall mean days
during the standard business work week, excluding Saturdays
and Sundays and including holidays of any kind.
15.9 Exhibits. This Agreement incorporates the attached Exhibits A,
B, C, D, E, F, G, H, and I and any subsequent Exhibits or
schedules referencing this Agreement.
15.10 Non-Solicitation of Employees. During the term of this
Agreement and for a period of one (1) year thereafter, each
party agrees that without the other party's prior written
consent neither it nor its Affiliates shall solicit, hire or
otherwise retain as an employee or independent contractor any
person who during the previous twelve (12) months was an
employee of the other party.
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15.11 Assignment. This Agreement and any interest hereunder shall
inure to the benefit of and be binding upon the parties and
their respective successors, legal representatives and
permitted assigns. Upon prior notice to the other party,
either party may assign this Agreement: (i) to any legal
entity in connection with the merger or consolidation of the
assigning Party into such entity or the sale of all or
substantially all of the assets of the assigning Party to such
entity or (ii) to any direct or indirect subsidiary of the
assigning party in connection with any corporate
reorganization. Except as stated in the previous sentence,
neither party may assign or delegate this Agreement without
the other party's prior written consent, which consent shall
not be unreasonably withheld. Any attempt to assign, delegate
or otherwise transfer the Agreement in violation of this
Section 15.11 is voidable by the other party.
15.12 Force Majeure. Neither party shall be responsible or
considered in breach of this Agreement for any delay or
failure in the performance of any obligation of this Agreement
to the extent that such failure or delay is caused by acts of
God, fires, explosions, labor disputes, accidents, civil
disturbances, material shortages or other similar causes
beyond its reasonable control, even if such delay or failure
is foreseeable. Provided, however, that the non-performing
party provides notice of such cause preventing or delaying
performance and resumes its performance as soon as practicable
and provided further that the other party may terminate this
Agreement upon notice if such non-performance continues for a
period of ninety (90) days.
15.13 Governing Law; Statute of Limitations. The validity and
construction of this Agreement shall be governed by, subject
to and construed in accordance with the laws of the state of
Georgia, excluding its conflicts of law rules. Subject to
Section 14.5, in the event either party employs attorneys to
enforce any right arising out of or relating to this
Agreement each party shall be responsible for its own
attorney's fees and costs. Any claim arising out of or
relating to this Agreement shall be commenced within one year
of the date upon which the cause of action accrued (or, if one
year is shorter than the maximum allowed by law, then the
maximum period allowed by law shall apply).
15.14 Notices. All notices, requests, demands and other
communications (collectively, "Notices") required or permitted
by this Agreement shall be in writing and shall be delivered
by hand, telex, telegraph, facsimile or like method of
transmission or mailed by registered or certified mail, return
receipt requested, first class postage prepaid, addressed as
follows:
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A. If to HBOC:
HBO & Company of Georgia
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: General Counsel
FAX: 404/393-6092
with a copy to: Vice President, Business Development
B. If to Business Partner:
Healthdyne Information Enterprises, Inc.
1850 Parkway Place, Suite 1100
Marietta, Georgia 30067
Attn: President and Chief Executive Officer
FAX: 770/423-8580
If delivered by hand, telex, telegraph, facsimile or like method of
transmission, the date on which a Notice is actually delivered
shall be deemed the date of receipt and if delivered by mail,
the date on which a Notice is actually received shall be
deemed the date of receipt. Either party may change the
address or designated person for receiving Notices by
providing notice in accordance with this Section 15.14.
15.15 Severability. If any term of this Agreement is held as invalid
or unenforceable, the remainder of this Agreement shall not be
affected, and each term and provision shall be valid and
enforced to the fullest extent permitted by law.
15.16 Entire Agreement/Amendments. This Agreement, including all
Exhibits attached hereto, contains the entire agreement
between the parties and supersedes all prior and
contemporaneous proposals, discussions and writings by and
between the parties and relating to the subject matter hereof.
None of the terms of this Agreement shall be deemed to be
waived by either party or amended or supplemented unless such
waiver, amendment or supplement is written and signed by both
parties. The invalidity or unenforceability of any particular
provision of this Agreement, as determined by any court of
competent jurisdiction or any appropriate legislature, shall
not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or
unenforceable provision had been omitted. No usage of trade or
industry course of dealing shall be relevant to explain or
supplement any term expressed in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
HBO & COMPANY OF GEORGIA HEALTHDYNE INFORMATION ENTERPRISES, INC.
Signature: /s/ Albert J. Bergonzi Signature: /s/ Robert I. Murrie
-------------------------- -----------------------------
By: By:
--------------------------------- ------------------------------------
Title: President Title: President
Date: 9/8/98 Date: 9/8/98
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EXHIBIT A
BP SOFTWARE
<TABLE>
<CAPTION>
BP SOFTWARE ID DESCRIPTION PLATFORM AVAILABILITY*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HIE-001 Cloverleaf(R) Integration Engine Tool 1,2,3,4,5
HIE-001-HA Cloverleaf(R) HACMP (High Availability) 1,2,3
HIE-001DV Cloverleaf(R)_Testing & Development License 1,2,3,4,5
HIE-006 Cloverleaf(R) 6-Server pack (single customer) 1,2,3,4,5
HIE-012 Cloverleaf(R)_12-Server pack (single customer) 1,2,3,4,5
HIE-001DB Cloverleaf(R)_ODBC Single Client Driver 1,2,5
HIE-002 Cloverleaf(R)_Gateway (runtime) 1,2,3,4,5
HIE-003 Cloverleaf(R)_Gateway 10-Server pack (single customer) 1,2,3,4,5 HIE-001-LTD*
Cloverleaf(R) Integration Engine Tool Limited Use 1,2,3,4,5
HIE-001-LTD-RMG** Cloverleaf(R) Integration Engine Tool Limited Use for RMG 1,2,3,4,5
</TABLE>
PLATFORMS:
<TABLE>
<CAPTION>
VENDOR O/S
---------------------------------
<S> <C> <C>
1. Hewlett Packard HP-UX
2. IBM AIX
3. Digital Digital UNIX
4. Data General DG-UX (Intel)***
5. (Intel) Windows NT
</TABLE>
* Limited Use version restricts to ten (10) the number of connections to
non-HBOC software applications
** Limited Use version for RMG restricts the customer to interfaces only
between HBOC's Resource Management Group (RMG) Products and other software
products or applications. RMG Products means, collectively, the following HBOC
software applications (which list may be modified or added to from time to time
upon mutual written agreement of HBOC and Business Partner):
1. ESi Enterprise Scheduling (ES)
2. Pathways Materials Management
3. Pathways Financial Management
4. Nova
5. Titan
6. Orbit
7. Pathways Staff Scheduling (formerly ESP)
8. CCS (group reporting module)
9. TS2000 (TouchScan 2000 floor issuing)
10. Matkon
*** Business Partner is to port Cloverleaf to Data General platform as per terms
and conditions of this Agreement
Page 17
<PAGE> 18
EXHIBIT B
AGREEMENT LIST PRICES
{*} THE NEXT FOUR PAGES HAVE BEEN REDACTED IN ACCORDANCE WITH THE COMPANY'S
REQUEST FOR CONFIDENTIAL TREATMENT.
Page 18
<PAGE> 19
EXHIBIT C
ROYALTIES & MAINTENANCE FEES
{*} THIS PAGE HAS BEEN REDACTED IN ACCORDANCE WITH THE COMPANY'S REQUEST FOR
CONFIDENTIAL TREATMENT.
Page 19
<PAGE> 20
EXHIBIT D
REQUIRED SUBLICENSE TERMS
The provisions of HBOC's form of Information Systems Agreement in use in the
country in which the Integrated Software will be licensed shall be used by HBOC
or its Affiliates or distributors. Those provisions shall include terms
providing, at minimum, protection for Business Partner's rights and interests,
including but not limited to terms related to intellectual property, Proprietary
Information, warranties, disclaimers, limitations of liability, statutes of
limitation, and indemnification, that are substantially similar to and not
inconsistent with similar terms included herein.
Page 20
<PAGE> 21
EXHIBIT E
TERRITORY
Worldwide
Page 21
<PAGE> 22
EXHIBIT F
BUSINESS PARTNER TRADEMARK/LOGO REQUIREMENTS
(TO BE SUPPLIED BY BUSINESS PARTNER TO HBOC)
Page 22
<PAGE> 23
EXHIBIT G
ENHANCEMENTS TO BE DEVELOPED
(THIS EXHIBIT G REFERENCES AND INCLUDES THE ATTACHED EIGHT (8) PAGES)
Business Partner shall port the Cloverleaf(R) Integration Engine to the
Intel-based Data General UNIX platform and shall make this version of the BP
Software available to HBOC under the terms and conditions of this Agreement. As
with other versions of the BP Software, the Data General UNIX version shall be
tested and certified in accordance with Business Partner's standard policies and
procedures.
In addition, Business Partner shall develop the interfaces described on the
attached seven (7) pages and shall make them available to HBOC in conjunction
with the BP Software being provided under the terms and conditions of this
Agreement. HBOC shall provide reasonable assistance to Business Partner in this
effort which shall include (a) providing specifications for the applicable HBOC
Software, (b) providing other product specifications known to HBOC (c) providing
a development environment at HBOC's facilities to accommodate Business Partner.
Although these interfaces shall be developed and provided to HBOC free of
charge, HBOC shall pay any travel and lodging expenses incurred by Business
Partner in this effort.
Page 23
<PAGE> 24
PRIORITIZED INTERFACE MAPPINGS FOR HNS
<TABLE>
<CAPTION>
FORMAT TYPE DIRECTION INTERIM DIRECTION TYPE FORMAT DATA CHGS SEQ NOTES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STAR 17.1 ADT > HBOCHI 2.2b 1 sales
STAR 17.1 Orders > HBOCHI 2.2b 1 sales
STAR 17.1 Results > HBOCHI 2.2b 1 sales
HBOCHI 2.2b > ADT HNS 4.0 4.0.0 2 sales
HBOCHI 2.2b > Orders HNS 4.0 4.0.0 2 sales
HBOCHI 2.2b > Pharmacy HNS 4.0 4.0.0 2 sales
HBOCHI 2.2b > Results HNS 4.0 4.0.0 2 sales
HBOCHI 2.2b > Transcription HNS 4.0 4.0.0 2 sales
PCM 6.2 Orders > HBOCHI 2.2b 3 sales
PCM 6.2 Results > HBOCHI 2.2b 3 sales
PHC 1.0 ADT > HBOCHI 2.2b 4 sales - cert (12/31/97)
SMR 4.0 Results > HBOCHI 2.2b 5 sales
SMR 4.0 Transcription > HBOCHI 2.2b 5 sales
Series 6.1 ADT > HBOCHI 2.2b 6 sales - cert (12/31/97)
Series 6.1 Orders > HBOCHI 2.2b 6 sales - cert ( 3/01/98)
Series 6.1 Pharmacy > HBOCHI 2.2b 6 sales - 47% mappings
Series 6.1 Results > HBOCHI 2.2b 6 sales - cert ( 3/01/98)
PPM 3.2 ADT > HBOCHI 2.2b 7 sales
PMC 5.0 ADT Mship > HBOCHI 2.2b 8 sales - cert ( 3/31/98)
HBOCHI 2.2b > ADT HNS 3.0 3.0.3 9
HBOCHI 2.2b > Orders HNS 3.0 3.0.3 9
HBOCHI 2.2b > Pharmacy HNS 3.0 3.0.3 9
HBOCHI 2.2b > Results HNS 3.0 3.0.3 9
HBOCHI 2.2b > Transcription HNS 3.0 3.0.3 9
HBOCHI 2.2b < ADT HNS 3.0 10
HBOCHI 2.2b < ADT HNS 4.0 10
HQ 3.0 ADT > HBOCHI 2.2b 11 21-Aug
PWLab ER4.0 Orders > HBOCHI 2.2b 12 11-Sep
PWLab ER4.0 Results > HBOCHI 2.2b 12 11-Sep
PHS 7.0 ADT > HBOCHI 2.2b 13 9-Oct ?
TPA 7.0 ADT > HBOCHI 2.2b 14 4-Dec
PCM 5.1.6 Orders > HBOCHI 2.2b 15 31-Dec
PCM 5.1.6 Results > HBOCHI 2.2b 15 31-Dec
AdV 4.3 Orders > HBOCHI 2.2b 16 21-Jul
AdV 4.3 Results > HBOCHI 2.2b 16 21-Jul
STAR 16.1 ADT > HBOCHI 2.2b 17 98%
STAR 16.1 Orders > HBOCHI 2.2b 17 95%
STAR 16.1 Results > HBOCHI 2.2b 17 95%
STAR 15.1 ADT > HBOCHI 2.2b 18 12/31/97
</TABLE>
Page 1 of 2
<PAGE> 25
Prioritized Interface Mappings for HNS
<TABLE>
<CAPTION>
FORMAT TYPE DIRECTION INTERIM DIRECTION TYPE FORMAT DATA CHGS SEQ NOTES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STAR 15.1 Orders > HBOCHI 2.2b 18 95%
STAR 15.1 Results > HBOCHI 2.2b 18 95%
SMR 3.5 Results > HBOCHI 2.2b 18 98%
SMR 3.5 Transcription > HBOCHI 2.2b 18 98%
SMR 3.51 Results > HBOCHI 2.2b 19
SMR 3.51 Transcription > HBOCHI 2.2b 19
PWLab 6.0 Orders > HBOCHI 2.2b 20
PWLab 6.0 Results > HBOCHI 2.2b 20
HBOCHI 2.2b > ADT HNS 3.0 3.0.2 21
STAR 15.1 Pharmacy > HBOCHI 2.2b 23
STAR 16.1 Pharmacy > HBOCHI 2.2b 24
</TABLE>
Page 2 of 2
<PAGE> 26
HBOC TO HBOC Interfaces
<TABLE>
<CAPTION>
SENDING MSG. TYPE RECEIVING
<S> <C> <C>
CORE HIS*
Core HIS ADT HNS
Orders
Results
Core HIS ADT Caremanager
Orders
Results
Core HIS ADT PHS
Core HIS ADT Pathways Matl. Mgmt.
Pat Refunds
Core HIS ADT Image Mgr
Core HIS ADT Pathways Lab
Orders
Results
Core HIS ADT Advantage Lab
Orders
Results
Core HIS ADT Pathways Surg. Mgr.
Core HIS ADT SMR
Core HIS ADT Core HIS II
Orders
Results
Charges
CARE MANAGER (CM) 6.2
Care Manager Orders Core HIS
Results
Care Manager Orders HNS
Results
PHS
PHS ADT Core HIS
ADT HNS
ADT Pathways Lab
ADT Advantage Lab
ADT SMR
ADT Pathways Matl. Mgmt.
ADT Pathways Surg. Mgr.
ADT Caremanager
ADT Image Mgr
PATHWAYS FIN MGMT.
Pathway Fin. Mgmt. GL Issues Core HIS
Journal Entry
PATHWAYS MATL. MGMT.
Pathways Matl. Mgmt. Accrued Receipts Core HIS
Charges
</TABLE>
<PAGE> 27
HBOC TO HBOC Interfaces
<TABLE>
<CAPTION>
SENDING MSG. TYPE RECEIVING
<S> <C> <C>
Matched Invoices
PATHWAYS HOMECARE 4.1
Pathways HomeCare ADT Core HIS
ADT Pathways Lab
ADT ALG
ADT Caremanager
ADT HNS
ADT Image Mgr
ADT Pathways Matl. Mgmt.
ADT PHS
ADT Pathways Surg. Mgr.
ADT SMR
PATHWAYS SURG. MGR. 3.0
Pathways Surg. Mgr. Charges Core HIS
SMR 4.0
SMR Orders ALG
Orders Caremanager
Orders Core HIS
Orders HNS
PPM 3.2, 3.3
PPM ADT ALG
ADT Caremanager
ADT Core HIS
ADT HNS
ADT Image Mgr
ADT Pathways Matl. Mgmt.
ADT PHS
ADT SMR
ADT Pathways Surg. Mgr.
ALG 4.3
AdVantage Lab Lab Results Core HIS
Orders
Charges
Status Changes
Orders Caremanager
Results
Orders HNS
Charges Pathways HomeCare
*CORE HIS: Series 6.1, STAR 15.1, 16.1, 17.1, Saint Express**, Paragon 1.0
Precision 2000 7.0, Healthquest 3.0
**SAINT EXPRESS:
</TABLE>
<PAGE> 28
HBOC TO HBOC Interfaces
<TABLE>
<CAPTION>
SENDING MSG. TYPE RECEIVING
<S> <C> <C>
PF 3.4
PC 3.3
GF 3.1
RadCom 7.0
Payroll 7.0
Payroll/HR 1.1
</TABLE>
<PAGE> 29
HBOC TO Foreign System Interfaces
<TABLE>
<CAPTION>
SENDING MSG. TYPE RECEIVING
<S> <C> <C>
STAR 15.1, 16.1, 17.1
Pt. Care ADT Foreign Systems*
Pt. Care Orders Foreign Systems*
Pt. Care MFN Foreign Systems*
Pharmacy Orders Foreign Systems*
Pharmacy Disp. Msg. Foreign Systems*
Pharmacy Charges Foreign Systems*
Med. Rec. Transcription Foreign Systems*
Lab Orders Foreign Systems*
Lab Results Foreign Systems*
Lab Charges Foreign Systems*
CARE MANAGER (CM) 6.2
CM Orders Foreign Systems*
CM Results Foreign Systems*
PHS 7.0
PHS ADT Foreign Systems*
PATHWAYS MATL. MGMT. 2.0, 3.0
ESI Charges Foreign Systems*
ALG LAB 4.3
ALG Lab Orders Foreign Systems*
ALG Lab Charges Foreign Systems*
ALG Lab Results Foreign Systems*
PPM 3.2, 3.3
PPM ADT Foreign Systems*
PPM Elig Reply Foreign Systems*
MedCare Elig Query Foreign Systems*
SERIES 4000 6.1
Pt. Care ADT Foreign Systems*
Pt. Care Orders Foreign Systems*
Lab Orders Foreign Systems*
Lab Results Foreign Systems*
Lab Charges Foreign Systems*
Pharmacy Order Foreign Systems*
Pharmacy Disp. Msg. Foreign Systems*
Pharmacy Charges Foreign Systems*
Med. Rec. Transcription Foreign Systems*
SERIES 5000 6.1
Pt. Care ADT Foreign Systems*
</TABLE>
<PAGE> 30
HBOC TO Foreign System Interfaces
<TABLE>
<CAPTION>
SENDING MSG. TYPE RECEIVING
<S> <C> <C>
Pt. Care Orders Foreign Systems*
Pharmacy Orders Foreign Systems*
Pharmacy Disp. Msg. Foreign Systems*
Pharmacy Charges Foreign Systems*
Lab Orders Foreign Systems*
Lab Results Foreign Systems*
Lab Charges Foreign Systems*
Med. Rec. Transcription Foreign Systems*
HEALTHQUEST 3.0
Pt. Care ADT Foreign Systems*
Pt. Care Orders Foreign Systems*
Lab Orders Foreign Systems*
Lab Results Foreign Systems*
Lab Charges Foreign Systems*
Pharmacy Orders Foreign Systems*
Pharmacy Disp. Msg. Foreign Systems*
Pharmacy Charges Foreign Systems*
Med. Rec. Transcription Foreign Systems*
Med. Rec. Foreign Systems*
PRECISION 7.0
Precision ADT Foreign Systems*
Precision Orders Foreign Systems*
PARAGON 1.0, 2.0/SAINT EXPRESS ***
Pt. Care ADT Foreign Systems*
Pt. Care Orders Foreign Systems*
Lab ADT Foreign Systems*
Lab Orders Foreign Systems*
Pharmacy ADT Foreign Systems*
Pharmacy Orders Foreign Systems*
Med. Rec. ADT Foreign Systems*
Med. Rec. Orders Foreign Systems*
FOREIGN SYSTEMS*
ADT HBOC Product List**
Orders HBOC Product List**
Results HBOC Product List**
Charges HBOC Product List**
Transcription HBOC Product List**
Disp. Msg. HBOC Product List**
</TABLE>
<PAGE> 31
HBOC TO Foreign System Interfaces
<TABLE>
<CAPTION>
SENDING MSG. TYPE RECEIVING
<S> <C> <C>
*FOREIGN SYSTEMS: Sunquest Lab, Cerner Lab, Cerner RX, Pyxis RX,
Softmed Chart Tracking, Softmed Transcription,
Dictaphone Transcription, Citation Lab, Per-Se
Scheduling, IDX Rad, IDS RX
** HBOC PRODUCT LIST Star 15.1, 16.1, 17.1, Care Management (CM) 6.2, PHS
7.0, ALG 4.3, Lab 4.3, PPM 3.2, 3.3, Series 4000 6.1,
Series 5000 6.1, Healthquest 3.0, Precision 7.0,
Paragon 1.0, 2.0, Financial Management 3.4, Matl.
Management 2.0, 3.0
*** SAINT EXPRESS:
PF 3.4
PC 3.3
GF 3.1
RadCom 7.0
Payroll 7.0
Payroll/HR 1.1
</TABLE>
<PAGE> 32
EXHIBIT H
SOFTWARE SUPPORT AND ESCALATION PROCEDURES
Software Support twenty-four (24) hours per day, seven (7) days per week.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ESCALATION RESPONSE TIMES
- ------------------------------------------------------------------------------------------------------------------------------------
PRIORITY DEFINITION INITIAL RESPONSE NEXT FOLLOW-UP
- ----------------------------------- --------------------------------- --------------------------------------------------------------
<S> <C> <C> <C>
Critical Issue Any issue that directly affects 15 minutes Every hour until resolution.
the delivery of care to the
patient or significantly
affects the financial
operations of the institution.
- ----------------------------------- --------------------------------- --------------------------------------------------------------
High Issue Any issue that affects the One hour Every 4 hours or next scheduled
operations of the customer and contact time until resolution.
no acceptable means of "working
around" the problem exist. The
issue is important due to the
frequency of client usage or data
integrity, but does not have
critical implications.
- ----------------------------------- --------------------------------- --------------------------------------------------------------
Standard Issue Any other issue. Same business day Next scheduled contact time
until resolution.
- ----------------------------------- --------------------------------- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DEFECT RESOLUTION TIMES
- ------------------------------------------------------------------------------------------------------------------------------------
PRIORITY DEFINITION EXPECTED RESPONSE
- ---------------------------------------------- -------------------------------------------- ----------------------------------------
<S> <C> <C>
High Software Issue The issue is important due to the Identification: 2 business days
frequency of client usage or data Interim fix: 5 business days
integrity, but does not have critical Final fix: Next software release
implications.
- ---------------------------------------------- -------------------------------------------- ----------------------------------------
Standard Software Issue Identification: 5 business days
Interim fix: 15 business days
Closure: Next software release
- ---------------------------------------------- -------------------------------------------- ----------------------------------------
</TABLE>
Page 24
<PAGE> 33
EXHIBIT I
BUSINESS PARTNER PROFESSIONAL SERVICES
Implementation Services for HBOC Customers shall be available from Business
Partner at the following rates:
FOR EXISTING INSTALLED* HBOC PATHWAYS INTERFACE MANAGER CUSTOMERS CONVERTING TO
BP SOFTWARE: Implementation Services for HBOC-to-HBOC interfaces: No hourly
charge, only travel & lodging Implementation Services for all other existing
interfaces: $46/hour plus travel & lodging
FOR EXISTING UNINSTALLED** HBOC PATHWAYS INTERFACE MANAGER CUSTOMERS CONVERTING
TO BP SOFTWARE: $125/hour plus travel & lodging for all implementation services
FOR NEW SALES OF BP SOFTWARE TO HBOC CUSTOMERS:
$125/hour plus travel & lodging for all implementation services
* An installed HBOC Pathways Interface Manager Customer has either completed
implementation or is in the process of implementing the Pathways Interface
Manager software as of the Effective Date.
** An uninstalled HBOC Pathways Interface Manager Customer has licensed Pathways
Interface Manager but has not yet begun implementation of the software.
Page 25
<PAGE> 34
EXHIBIT J
BUSINESS PARTNER EXISTING CUSTOMERS REFERENCED IN SECTION 6.1
{*} THE NEXT SEVEN PAGES HAVE BEEN REDACTED IN ACCORDANCE WITH THE COMPANY'S
REQUEST FOR CONFIDENTIAL TREATMENT.
Page 26
<PAGE> 1
Exhibit 10.14
FIRST AMENDMENT TO VALUE ADDED MARKETING AGREEMENT
This AMENDMENT TO VALUE ADDED MARKETING AGREEMENT (the "Amendment"),
dated as of March 3, 1999, is entered into by and between HIE, Inc. (formerly
Healthdyne Information Enterprises, Inc.) ("HIE"), a Georgia corporation, and
HBO & Company of Georgia ("HBOC"), a Delaware corporation.
WHEREAS, HIE and HBOC are parties to that certain Value Added Marketing
Agreement dated as of __________, 1998 (the "Agreement"), pursuant to which,
among other things, HIE has granted to HBOC a license to integrate the
Cloverleaf Integration Engine Tool with HBOC proprietary software; and
WHEREAS, the parties desire to amend the Agreement in order to modify
certain provisions with respect to EMPI products;
NOW, THEREFORE, in consideration of the mutual promises set forth below
and for other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows (capitalized terms not
otherwise defined to have the meanings ascribed thereto in the Agreement):
1. Section 6.2 of the Agreement be and hereby is deleted in its
entirety, and the following be and hereby is substituted in lieu thereof:
6.2 HBOC and Business Partner are both currently in the
process of developing and marketing solutions that,
generally, may be described as "enterprise master
patient index" (EMPI) solutions. By execution of this
Agreement, the parties agree to reduce the potential
for channel conflict and further the business
relationship by exploring additional avenues to work
together. The parties will use reasonable efforts to
share the necessary and appropriate information about
their respective EMPI products and strategies in
order to enter into a mutually acceptable agreement.
2. Except as specifically amended herein, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Amendment as of the date first written above.
HIE, INC. HBO & COMPANY OF GEORGIA
By: /s/Robert Murrie By: /s/Albert J. Bergonzi
---------------------------- -----------------------------
Name: Robert Murrie Name: Albert J. Bergonzi
Title: President Title: President
Date: 3/3/99 Date: 3/3/99
--------------------------- ---------------------------
<PAGE> 1
Exhibit 11
HIE, INC. AND SUBSIDIARIES
(FORMERLY HEALTHDYNE INFORMATION ENTERPRISES, INC.)
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1998 1997 1996
--------------- --------------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
Net earnings (loss)............................................. $ 1,498 $(8,596) $ 107
======= ======= =======
Weighted average number of common shares outstanding............ 24,031 22,587 19,863
======= ======= =======
Basic net earnings (loss) per common share...................... $ 0.06 $ (0.38) $ 0.01
======= ======= =======
Shares used in diluted net earnings (loss) per share
calculation:
Weighted average number of common shares outstanding.......
24,031 22,587 19,863
Additional shares assumed outstanding from dilutive
stock options used in diluted earnings (loss) per share
calculation............................................ 836 -- * 1,414
------- ------- -------
24,867 22,587 21,277
======= ======= =======
Diluted net earnings (loss) per common share.................... $ 0.06 $ (0.38) $ 0.01
======= ======= =======
</TABLE>
* Since stock options are antidilutive to the loss per common share
calculation, stock options are not considered in such loss per share calculation
in 1997.
<PAGE> 1
Exhibit 21
HIE, Inc.
Subsidiaries of the Company
As of December 31, 1998
Names Under Which
Such Subsidiary Does
Subsidiary State of Incorporation Business
- ----------------------- --------------------------- ------------------------
HUBLink, Inc. Ohio HIE, Inc.
<PAGE> 1
Exhibit 23
Accountants' Consent
The Board of Directors
HIE, Inc.
We consent to incorporation by reference in the registration statements
(Registration Nos. 33-99034, 333-08295, 333-08293, 333-08287, 333-08283,
333-08279, 333-08271, 333-52165, 333-52155 and 333-52145) on Form S-8 and the
registration statement (Registration No. 333-55703) on Form S-3 of HIE, Inc. of
our reports dated January 26, 1999, relating to the consolidated balance sheets
of HIE, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows and
related schedule for each of the years in the three-year period ended December
31, 1998, which reports appear in the December 31, 1998 annual report on Form
10-K of HIE, Inc.
KPMG LLP
Atlanta, Georgia
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE HIE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE HIE, INC. CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,167
<SECURITIES> 0
<RECEIVABLES> 13,015
<ALLOWANCES> 720
<INVENTORY> 0
<CURRENT-ASSETS> 18,017
<PP&E> 4,483
<DEPRECIATION> 2,194
<TOTAL-ASSETS> 31,535
<CURRENT-LIABILITIES> 10,595
<BONDS> 0
0
0
<COMMON> 250
<OTHER-SE> 20,048
<TOTAL-LIABILITY-AND-EQUITY> 31,535
<SALES> 27,184
<TOTAL-REVENUES> 27,184
<CGS> 7,954
<TOTAL-COSTS> 24,525
<OTHER-EXPENSES> 1,060
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 1,498
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,498
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
