<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1999.
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Parkway Place, Suite 1100, Marietta, Georgia 30067
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(Address of principal executive offices) (Zip Code)
(770) 423-8450
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(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of the Company's Common Stock, $ .01 par value
per share, together with associated preferred stock purchase rights (the "Common
Stock"), as of November 5, 1999 was 25,484,658 shares.
Exhibit Index is on Page 18 herein
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HIE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,041 $ 3,167
Trade accounts receivable, less allowance of $556 and $720 at
September 30, 1999 and December 31, 1998, respectively 13,492 12,295
Other current assets 2,126 2,555
-------- --------
Total current assets 17,659 18,017
Purchased software, net of accumulated amortization of $1,732 and $1,341
at September 30, 1999 and December 31, 1998, respectively 1,465 1,946
Capitalized software development costs, net of accumulated amortization of
$695 and $329 at September 30, 1999 and December 31, 1998, respectively 2,286 1,606
Property and equipment, net of accumulated depreciation of $2,744 and
$2,194 at September 30, 1999 and December 31, 1998, respectively 2,990 2,289
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $3,115 and $2,611 at September 30, 1999 and December 31,
1998, respectively 7,055 7,535
Other assets 222 142
-------- --------
Total assets $ 31,677 $ 31,535
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 4,405 $ 2,911
Accounts payable, principally trade 2,074 1,276
Accrued liabilities 2,284 1,718
Deferred service revenue 4,461 4,690
-------- --------
Total current liabilities 13,224 10,595
Long-term debt and obligations under capital leases, excluding current
installments 329 642
-------- --------
Total liabilities 13,553 11,237
-------- --------
Series B Cumulative Convertible Exchangeable Preferred Stock; designated
550 shares; 65 shares issued and outstanding at September 30, 1999 650 --
-------- --------
Shareholders' equity:
Preferred stock, without par value. Authorized 20,000 shares:
Designated Series A cumulative preferred stock 500 shares; issued none -- --
Common stock, $.01 par value. Authorized 50,000 shares; issued and
outstanding 25,431 and 24,972 shares at September 30, 1999 and
December 31, 1998, respectively 254 250
Additional paid-in capital 41,965 41,301
Accumulated deficit (24,745) (21,253)
-------- --------
Shareholders' equity 17,474 20,298
-------- --------
Total liabilities and shareholders' equity $ 31,677 $ 31,535
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HIE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software $ 2,371 $ 3,301 $ 4,539 $ 8,234
Services and other 4,841 3,981 14,268 10,834
-------- -------- -------- --------
Total revenue 7,212 7,282 18,807 19,068
-------- -------- -------- --------
Cost of revenue:
Software 378 122 936 601
Services and other 2,669 1,807 7,721 5,024
-------- -------- -------- --------
Total cost of revenue 3,047 1,929 8,657 5,625
-------- -------- -------- --------
Gross profit 4,165 5,353 10,150 13,443
-------- -------- -------- --------
Operating expenses:
Sales and marketing 1,693 1,734 5,252 4,782
Research and development 1,086 930 3,214 2,848
General and administrative 1,727 1,608 4,861 4,287
Merger costs -- 67 -- 1,060
-------- -------- -------- --------
Total operating expenses 4,506 4,339 13,327 12,977
-------- -------- -------- --------
Operating earnings (loss) (341) 1,014 (3,177) 466
Interest expense, net (131) (29) (315) (67)
-------- -------- -------- --------
Earnings (loss) before income taxes (472) 985 (3,492) 399
Income tax expense -- -- -- (144)
-------- -------- -------- --------
Net earnings (loss) $ (472) $ 985 $ (3,492) $ 255
======== ======== ======== ========
Shares used in the calculation
of net earnings (loss) per share:
Basic 25,375 24,089 25,308 23,826
======== ======== ======== ========
Dilutive(1) 25,375 25,497 25,308 25,047
======== ======== ======== ========
Net earnings (loss) per share of
common stock:
Basic $ (0.02) $ 0.04 $ (0.14) $ 0.01
======== ======== ======== ========
Dilutive(1) $ (0.02) $ 0.04 $ (0.14) $ 0.01
======== ======== ======== ========
</TABLE>
(1) Common stock equivalents are excluded from the earnings (loss) per share
calculation for the three and nine months ended September 30, 1999
because the effect would be anti-dilutive.
See accompanying Notes to Condensed Consolidated Financial Statements.
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HIE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $(3,492) $ 255
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Provision for (recovery of) doubtful accounts 450 (55)
Depreciation and amortization 2,006 1,656
Compensation related to stock options, net -- 73
Increase in accounts trade receivable (1,647) (5,827)
Decrease (increase) in other current assets 429 (91)
Increase in accounts payable, principally trade 948 501
Increase (decrease) in accrued liabilities 566 (823)
(Decrease) increase in deferred revenue (229) 1,010
------- -------
Net cash used in operating activities (969) (3,301)
------- -------
Cash flows from investing activities:
Purchased software (60) (534)
Capitalized software development costs (1,046) (964)
Capital expenditures (1,479) (282)
Change in other non-current assets and liabilities, net (71) 258
------- -------
Net cash used in investing activities (2,656) (1,522)
------- -------
Cash flows from financing activities:
Principal payments on long-term debt, net (319) --
Net borrowings (repayments) under line of credit 1,500 (1,794)
Proceeds from the sale of Series B Cumulative Convertible
Exchangeable Preferred Stock 650 --
Proceeds from issuances of common stock 668 691
------- -------
Net cash provided by (used in) financing activities 2,499 (1,103)
------- -------
Net decrease in cash and cash equivalents (1,126) (5,926)
Cash and cash equivalents at beginning of period 3,167 7,777
------- -------
Cash and cash equivalents at end of period $ 2,041 $ 1,851
======= =======
Supplemental disclosures of cash paid for:
Interest $ 344 $ 166
======= =======
Supplemental disclosures of non-cash investing
and financing activities:
Equipment acquired under capital lease obligations $ -- $ 517
======= =======
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
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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HIE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. Accounting Policies
The Condensed Consolidated Financial Statements as of September 30,
1999 and for the three months and nine months ended September 30, 1999
are unaudited. In the opinion of management, all adjustments consisting
of normal recurring accruals, necessary for the fair presentation of
the consolidated financial position and results of operations and cash
flows for the periods presented have been included. Results for the
interim periods are not necessarily indicative of results that may be
expected for the full year. The condensed consolidated financial
statements include the accounts of HIE, Inc. and its subsidiaries (the
"Company").
These Condensed Consolidated Financial Statements should be read in
conjunction with the Company's consolidated financial statements and
notes included in its Annual Report on Form 10-K for the year ended
December 31, 1998 (the "1998 Form 10-K") filed with the Securities and
Exchange Commission.
The accounting policies followed in the presentation of interim
financial results are the same as those followed on an annual basis.
These policies are presented in Note 1 to the consolidated financial
statements included in the 1998 Form 10-K. All significant intercompany
accounts and transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to current year
classifications.
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 and nine months ended September 30, 1999 and 1998.
2. Debt
In August 1998, the Company entered into a $5.0 million line of credit
facility (the "Credit Facility") with Silicon Valley Bank (the "Bank").
The Company was in default of two of the financial covenants under the
Credit Facility at March 31, 1999: (1) quarterly profitability; and (2)
the minimum Quick Ratio, as defined therein. Subsequent to March 31,
1999, the Company and the Bank amended the Credit Facility whereby the
Bank waived these defaults, the interest rate increased by 0.5%
annually (to 1.5% over prime) and the line of credit became secured by
the Company's intellectual property.
At June 30, 1999, the Company was in default of two of the financial
covenants under the Credit Facility: (1) quarterly profitability; and
(2) the minimum Quick Ratio, as defined therein. Subsequent to June 30,
1999, the Company and the Bank amended the Credit Facility whereby the
Bank waived the defaults, the interest rate was increased by 0.5%
annually (to 2% over prime) and the term of the Credit Facility was
extended to September 30, 1999.
Under the Credit Facility borrowing base limitation, $4.5 million was
available for borrowing under the Credit Facility at September 30,
1999. The balance outstanding under the Credit Facility was $4.0
million on September 30, 1999. The Credit Facility currently bears
interest at the Bank's prime rate (8.25% at September 30, 1999) plus
2%. On September 30, 1999, the Company and the Bank again amended the
Credit Facility, whereby the Bank extended the term of the Credit
Facility to November 30, 1999.
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HIE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
3. 8.5% Series B Cumulative Convertible Exchangeable Preferred Stock
On September 29, 1999, the Company sold 65,000 shares of a newly
designated 8.5% Series B Cumulative Convertible Exchangeable Preferred
Stock ("Series B Preferred Stock") to individuals in a private
placement for gross proceeds of $650,000. The Series B Preferred Stock
has a $10.00 per share liquidation value and provides for 8.5%
cumulative annual dividends, payable quarterly in arrears beginning on
December 31, 1999. The Series B Preferred Stock is convertible at any
time into the Company's common stock determined by dividing (1) $10.00
by (2) $2.1491 (115% of the average of the closing bid prices of the
common stock for the five business days prior to the closing date). The
conversion price will be reset on June 20, 2000 if the average closing
price for the Company's common stock on the preceding five business
days is less than $2.1491. The Series B Preferred Stock is also
exchangeable at the Company's option into subordinated notes with
substantially equal terms. The Series B Preferred Stock is redeemable
at 25% of the originally issued shares of Series B Preferred Stock on
annual redemption dates beginning on September 30, 2002.
4. Shareholders' Equity
On December 31, 1997, HIE issued warrants to purchase 50,000 shares of
HIE common stock, at $1.59 per share, and 416,000 shares of HIE common
stock to The Southern Venture Fund II, L.P. ("SVFII") (Massey Burch) in
exchange for 50% equity ownership interest in Criterion Health
Strategies, Inc. ("CHS"). In January 1999, SVFII exercised the warrants
to purchase HIE Common Stock.
5. 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 business did not separately exist. On December
31, 1998, the Consulting business was sold (see Note 3 of the Notes to
Consolidated Financial Statements included in the 1998 Form 10-K). The
Company evaluates performance of the segments based on revenue and
operating earnings (loss) of the segments. Segment information for the
three and nine months ended September 30, 1998 is as follows (in
thousands):
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HIE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
------------- -----------
(Unaudited)
<S> <C> <C>
Revenue:
Software $ 6,518 $16,389
Consulting 764 2,679
------- -------
Total revenue $ 7,282 $19,068
======= =======
Operating earnings (loss):
Software $ 1,241 $ 280
Consulting (227) 186
------- -------
Operating earnings $ 1,014 $ 466
======= =======
</TABLE>
6. Major Customers
One customer accounted for 23% of the Company's total revenue for the
three months ended September 30, 1999. That one customer accounted for
69% and 36% of the Company's software revenue for the three and nine
months ended September 30, 1999, respectively. One distributor
accounted for 21% of the Company's software revenue for the nine months
ended September 30, 1999. One distributor's accounts receivable balance
represents 29% of total trade accounts receivable at September 30,
1999.
Revenue from international sales was approximately 5% and 11% of the
Company's total revenue for the three months and nine months ended
September 30, 1999, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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"). 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 in "Item 1. Business -- Factors That May Affect Future
Performance" in the Company's 1998 Form 10-K filed with the Securities and
Exchange Commission (the "Commission"). By making these forward-looking
statements, the Company does not undertake to update them in any manner except
as may be required by its disclosure obligations in filings it makes with the
Commission under the Federal securities laws.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (1) the Company's total
revenue and (2) unless otherwise indicated, the percentage of total revenue for
each component included in the Company's Condensed Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1999 1998 1999 1998
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total HIE revenue (in thousands) $ 7,212 $ 7,282 $ 18,807 $ 19,068
======= ======= ======== ========
Revenue:
Software 33% 45% 24% 43%
Services and other 67% 55% 76% 57%
------- ------- -------- --------
Total revenue 100% 100% 100% 100%
------- ------- -------- --------
Cost of revenue:
Software (as a percentage of software revenue) 16% 4% 21% 7%
Services and other (as a percentage of
services and other revenue) 55% 45% 54% 46%
Total cost of revenue 42% 26% 46% 29%
------- ------- -------- --------
Gross profit 58% 74% 54% 71%
------- ------- -------- --------
Operating expenses:
Sales and marketing 23% 24% 28% 25%
Research and development 15% 13% 17% 15%
General and administrative 24% 22% 26% 22%
Merger costs 0% 1% 0% 6%
------- ------- -------- --------
Total operating expenses 62% 60% 71% 68%
------- ------- -------- --------
Operating earnings (loss) (5)% 14% (17)% 2%
Interest expense, net (2)% (0)% (2)% (0)%
------- ------- -------- --------
Earnings (loss) before income taxes (7)% 14% (19)% 2%
Income tax expense 0% 0% 0% (1)%
------- ------- -------- --------
Net earnings (loss) (7)% 14% (19)% 1%
======= ======= ======== ========
</TABLE>
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COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUE. Revenue decreased 1% to $7.2 million for the three months ended
September 30, 1999 from $7.3 million for the three months ended September 30,
1998. The Company experienced a decrease in software revenue, which was almost
completely offset by an increase in services and other revenue.
Software. Software revenue decreased 28% to $2.4 million for the three
months ended September 30, 1999 from $3.3 million for the three months ended
September 30, 1998. As a percentage of total revenue, software revenue decreased
to 33% in the three months ended September 30, 1999 from 45% for the three
months ended September 30, 1998. Management believes that the dollar decrease in
software revenue was primarily attributable to the impact of the Year 2000 issue
as customers or potential customers continue to expend significant resources to
correct or update their existing systems for Year 2000 compliance and continue
to delay purchases of new software until after the end of 1999 due to limited
budgets or in order to avoid implementing a formal Year 2000 compliance program
with respect to the new software. The decrease in software revenue as a
percentage of total revenue resulted from the decrease in software revenue
previously discussed and the increase in service revenue discussed below.
Services and other. Services and other revenue increased 22% to $4.8
million for the three months ended September 30, 1999 from $4.0 million for the
three months ended September 30, 1998. Services and other revenue as a
percentage of total revenue increased to 67% for the three months ended
September 30, 1999 from 55% for the three months ended September 30, 1998. The
dollar increase in services and other revenue was due to an increase in the sale
and completion of projects and an increase in maintenance revenue. The increase
in services and other revenue as a percentage of total revenue resulted
primarily from the decrease in software revenue discussed above.
COST OF REVENUE. Total cost of revenue increased 58% to $3.0 million for the
three months ended September 30, 1999 from $1.9 million for the three months
ended September 30, 1998.
Software. Cost of software revenue increased $256,000 to $378,000 for
the three months ended September 30, 1999 from $122,000 for the three months
ended September 30, 1998. As a percentage of software revenue, cost of software
revenue increased to 16% for the three months ended September 30, 1999 from 4%
for the three months ended September 30, 1998. Cost of software revenue
increased due to an increase in amortization of capitalized software for the
three months ended September 30, 1999 compared to September 30, 1998. The
increase in cost of software revenue as a percentage of software revenue was a
result of decreased software sales and the increase in amortization of
capitalized software during the three months ended September 30, 1999 compared
to September 30, 1998, as previously discussed.
Services and other. Cost of services and other revenue increased 48% to
$2.7 million for the three months ended September 30, 1999 from $1.8 million for
the three months ended September 30, 1998. As a percentage of services and other
revenue, cost of services and other revenue increased to 55% for the three
months ended September 30, 1999 from 45% for the three months ended September
30, 1998. The dollar increase in cost of services and other revenue was
attributable to an increase in personnel needed to complete service projects.
The increase in cost of services and other revenue as a percentage of services
and other revenue was primarily attributable to an increase in service personnel
and the related startup time to train and educate new staff.
OPERATING EXPENSES:
Sales and marketing. Sales and marketing expense remained relatively
constant at $1.7 million for the three months ended September 30, 1999 and for
the three months ended September 30, 1998. Sales and marketing expense as a
percentage of total revenue decreased to 23% for the three months ended
September 30, 1999 from 24% for the three months ended September 30, 1998.
Research and development. Research and development expense increased
17% to $1.1 million for the three months ended September 30, 1999 from $930,000
for the three months ended September 30, 1998. Research and development expense
as a percentage of total revenue increased to 15% for the three months ended
September 30, 1999 from 13% for the three months ended September 30, 1998.
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Research and development expense increased due to an increase in development
costs for solutions that complement existing products. Capitalized research and
development costs were $277,000 and $251,000 for the three months ending
September 30, 1999 and 1998, respectively.
General and administrative. General and administrative expense
increased 7% to $1.7 million for the three months ended September 30, 1999 from
$1.6 million for the three months ended September 30, 1998. General and
administrative expense as a percentage of total revenue increased to 24% for the
three months ended September 30, 1999 from 22% for the three months ended
September 30, 1998. The dollar increase is a result of an increased provision
for doubtful accounts made during the three months ended September 30, 1999
compared to the three months ending September 30, 1998. The increase in general
and administrative expense as a percentage of total revenue was primarily due to
the decrease in software sales for the three months ended September 30, 1999.
INTEREST EXPENSE, NET. Net interest expense increased $102,000 to $131,000 for
the three months ended September 30, 1999 from $29,000 for the three months
ended September 30, 1998. The increase in interest expense resulted from a
higher level of borrowing under the Company's line of credit during the three
months ended September 30, 1999.
INCOME TAX EXPENSE. The Company did not record any income tax benefit for the
three months ended September 30, 1999 or 1998.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUE. Revenue decreased 1% to $18.8 million for the nine months ended
September 30, 1999 from $19.1 million for the nine months ended September 30,
1998. The Company experienced a decrease in software revenue, which was almost
completely offset by an increase in services and other revenue.
Software. Software revenue decreased 45% to $4.5 million for the nine
months ended September 30, 1999 from $8.2 million for the nine months ended
September 30, 1998. As a percentage of total revenue, software revenue decreased
to 24% in the nine months ended September 30, 1999 from 43% for the nine months
ended September 30, 1998. Management believes that the dollar decrease in
software revenue was primarily attributable to the impact of the Year 2000 issue
as customers or potential customers continue to expend significant resources to
correct or update their existing systems for Year 2000 compliance and continue
to delay purchases of new software until after the end of 1999 due to limited
budgets or in order to avoid implementing a formal Year 2000 compliance program
with respect to the new software. The decrease in software revenue as a
percentage of total revenue resulted from the decrease in software revenue
previously discussed and the increase in service revenue discussed below.
Services and other. Services and other revenue increased 32% to $14.3
million for the nine months ended September 30, 1999 from $10.8 million for the
nine months ended September 30, 1998. Services and other revenue as a percentage
of total revenue increased to 76% for the nine months ended September 30, 1999
from 57% for the nine months ended September 30, 1998. The dollar increase in
services and other revenue was primarily due to an increase in the sale and
completion of projects. The increase in services and other revenue as a
percentage of total revenue resulted primarily from the decrease in software
revenue.
COST OF REVENUE. Total cost of revenue increased 54% to $8.7 million for the
nine months ended September 30, 1999 from $5.6 million for the nine months ended
September 30, 1998.
Software. Cost of software revenue increased 56% to $936,000 for the
nine months ended September 30, 1999 from $601,000 for the nine months ended
September 30, 1998. As a percentage of software revenue, cost of software
revenue increased to 21% for the nine months ended September 30, 1999 from 7%
for the nine months ended September 30, 1998. Cost of software revenue increased
due to an increase in amortization of capitalized software for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998.
The increase in cost of software revenue as a percentage of software revenue was
a result of decreased software sales and the increase in amortization of
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<PAGE> 11
capitalized software during the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998, as previously discussed.
Services and other. Cost of services and other revenue increased 54% to
$7.7 million for the nine months ended September 30, 1999 from $5.0 million for
the nine months ended September 30, 1998. As a percentage of services and other
revenue, cost of services and other revenue increased to 54% for the nine months
ended September 30, 1999 from 46% for the nine months ended September 30, 1998.
The dollar increase in cost of services and other revenue was attributable to an
increase in personnel needed to complete service projects. The increase in cost
of services and other revenue as a percentage of services and other revenue was
primarily attributable to an increase in service personnel and the related
startup time to train and educate new staff.
OPERATING EXPENSES:
Sales and marketing. Sales and marketing expense increased 10% to $5.3
million for the nine months ended September 30, 1999 from $4.8 million for the
nine months ended September 30, 1998. Sales and marketing expense as a
percentage of total revenue increased to 28% for the nine months ended September
30, 1999 from 25% for the nine months ended September 30, 1998. The dollar
increase in sales and marketing expense was primarily due to the addition of
sales personnel to market solutions developed for financial/banking markets. The
increase in sales and marketing expense as a percentage of total revenue was
primarily attributable to the addition of sales personnel, discussed above, and
to a decrease in software sales for the nine months ended September 30, 1999.
Research and development. Research and development expense increased
13% to $3.2 million for the nine months ended September 30, 1999 from $2.8
million for the nine months ended September 30, 1998. Research and development
expense as a percentage of total revenue increased to 17% for the nine months
ended September 30, 1999 from 15% for the nine months ended September 30, 1998.
Research and development expense increased due to an increase in development
costs for solutions in the financial/banking market. Additionally, research and
development increased due to development costs for solutions that complement the
Company's existing products. Capitalized research and development costs were
$1,046,000 and $964,000 for the nine months ending September 30, 1999 and 1998,
respectively.
General and administrative. General and administrative expense
increased 13% to $4.9 million for the nine months ended September 30, 1999 from
$4.3 million for the nine months ended September 30, 1998. General and
administrative expense as a percentage of total revenue increased to 26% for the
nine months ended September 30, 1999 from 22% for the nine months ended
September 30, 1998. The dollar increase is primarily the result of an increased
provision for doubtful accounts made during the nine months ended September 30,
1999 compared to the nine months ended September 30, 1998. The increase in
general and administrative expense as a percentage of total revenue was
primarily due to the decrease in software sales for the nine months ended
September 30, 1999.
INTEREST EXPENSE, NET. Net interest expense increased $248,000 to $315,000 for
the nine months ended September 30, 1999 from $67,000 for the nine months ended
September 30, 1998. The increase in interest expense resulted from a higher
level of borrowing under the Company's line of credit during the nine months
ended September 30, 1999.
INCOME TAX EXPENSE. The Company did not record any income tax benefit for the
nine months ended September 30, 1999. Income tax expense of $144,000 was
recognized for the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $4.4 million at September 30, 1999
compared to $7.4 million at December 31, 1998. The working capital decrease was
primarily attributable to operating losses, purchases of computer equipment and
office furniture and investment in internally developed software during the nine
months ended September 30, 1999.
11
<PAGE> 12
Net cash used in operating activities totaled $969,000 for the nine
months ended September 30, 1999 compared to net cash used in operating
activities of $3.3 million for the nine months ended September 30, 1998. This
decreased use of cash of $2.3 million was due primarily to a larger increase in
accounts receivable during the nine months ending September 30, 1998 compared
to the nine months ending September 30, 1999.
Net cash used in investing activities was $2.7 million for the nine
months ended September 30, 1999 compared to net cash used in investing
activities of $1.5 million for the nine months ended September 30, 1998. This
increase of $1.1 million was due primarily to expenditures for computer
equipment and furniture due to the addition of client services personnel.
Net cash provided by financing activities was $2.5 million for the nine
months ended September 30, 1999 compared to net cash used in financing
activities of $1.1 million for the nine months ended September 30, 1998. Net
cash provided by financing activities resulted from additional borrowings under
the Company's line of credit, exercises of stock options and warrants during the
nine months ended September 30, 1999, and the sale of 65,000 shares of 8.5%
Series B Cumulative Convertible Exchangeable Preferred Stock during the three
months ended September 30, 1999. Net cash used in financing activities for the
nine months ended September 30, 1998 was primarily due to repayments of
borrowings under the line of credit.
In August 1998, the Company entered into a $5.0 million line of credit
facility (the "Credit Facility") with Silicon Valley Bank (the "Bank"). The
Company was in default of two of the financial covenants under the Credit
Facility at March 31, 1999: (1) quarterly profitability; and (2) the minimum
Quick Ratio, as defined therein. Subsequent to March 31, 1999, the Company and
the Bank amended the Credit Facility whereby the Bank waived these defaults, the
interest rate increased by 0.5% annually (to 1.5% over prime) and the line of
credit became secured by the Company's intellectual property.
At June 30, 1999, the Company was in default of two of the financial
covenants under the Credit Facility: (1) quarterly profitability; and (2) the
minimum Quick Ratio, as defined therein. Subsequent to June 30, 1999, the
Company and the Bank amended the Credit Facility whereby the Bank waived the
defaults, the interest rate was increased by 0.5% annually (to 2% over prime)
and the term of the Credit Facility was extended to September 30, 1999.
On September 30, 1999, the Company and the Bank again amended the
Credit Facility, whereby the Bank extended the term of the Credit Facility to
November 30, 1999.
Under the borrowing base limitation, $4.5 million was available for
borrowing under the Credit Facility at September 30, 1999. The balance
outstanding under the Credit Facility was $4.0 million on September 30, 1999.
The Credit Facility currently bears interest at the Bank's prime rate (8.25% at
September 30, 1999) plus 2%.
The Company is engaged in discussions with the Bank regarding an
extension or replacement of the Credit Facility as well as with other potential
financing sources to provide additional capital for the Company's ongoing and
future operations. There can be no assurance that the Company will be successful
in its negotiations with the Bank or in attracting additional capital on terms
acceptable to the Company, if at all.
As noted above, during the nine months ending September 30, 1999, the
Company experienced a reduction in anticipated software revenue that has
adversely affected the Company's current results of operations and liquidity.
The Company has implemented cost control measures and cost and personnel
reductions in its efforts to increase liquidity and strengthen its financial
position. In addition, the Company focused its commercial efforts on banking
and finance, which it expects will result in more effective use of the Company's
resources and position the Company to achieve better results in that part of its
business. Management is exploring strategic opportunities to maximize
shareholder value and strengthen the Company's capital position. This effort
could result in the raising of additional capital through the issuance of debt
or equity securities, strategic alliances, business combinations, refinancings
or some combination thereof. In this respect, the Company is currently pursuing
additional financing to fund working capital needs, potential future losses and
capital expenditures. However, there can be no assurance that the Company will
be successful in its attempt to strengthen its liquidity position.
12
<PAGE> 13
Based on the Company's business plan and business model projections,
the Company believes that currently available cash, anticipated cash flow from
operating activities, especially the collection of accounts receivable, and cash
available from the line of credit mentioned above (assuming longer-term
financing is secured), will be sufficient to meet the Company's capital
requirements for at least the next twelve months and the foreseeable future.
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.
State of Readiness
HIE formed a Year 2000 task force which has systematically evaluated
all existing 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 has completed the process of assessing
the Year 2000 readiness of all products available currently or previously sold
to customers and distributors. HIE has also completed the remediation phase of
the project.
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 continues to implement new software
for its accounting, internal network and timekeeping functions in order to
consolidate various systems under its new strategic direction and integrate
HIE's operations. Representations made by software vendors for these new
systems, including Year 2000 readiness, have already been validated. Non-IT
systems, such as telecommunications systems, as well as existing IT
13
<PAGE> 14
systems have been assessed and are Year 2000 compliant.
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. This was done in order to determine the extent to which HIE is
vulnerable to any failure by such material third parties, to resolve their
respective Year 2000 problems in a manner that is practicable. HIE has completed
the assessment and is taking the necessary remediation actions, 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.
Year 2000 Costs and Contingency Plans
To date, HIE has not incurred any material costs directly associated
with its Year 2000 readiness efforts. HIE has completed the replacement of all
systems effected by the 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, perform manual accounting and restore
working systems with backup files. HIE has finalized the development of
these contingency plans and remains in a "ready" state should such actions need
to be taken.
Risks of Year 2000 Issues
In light of its compliance efforts, HIE does not believe that the Year
2000 issue will materially adversely affect its 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 the 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 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.
14
<PAGE> 15
RECENT ACCOUNTING PRONOUNCEMENT
In December 1998, the AICPA issued Statement of Position No. 98-9 ("SOP
98-9"), Modification of SOP No. 97-2, Software Revenue Recognition, with Respect
to Certain Transactions. This SOP amends SOP 97-2 to, among other matters,
require recognition of revenue using the "residual method" in circumstances
outlined in the SOP. Under the residual method, revenue is recognized as
follows: (1) the total fair value of undelivered elements, as indicated by
vendor-specific objective evidence, is deferred and subsequently recognized in
accordance with the relevant sections of SOP 97-2 and (2) the difference between
the total arrangement fee and the amount deferred for the undelivered elements
is recognized as revenue related to the delivered elements. SOP 98-9 is
effective for fiscal years beginning after March 15, 1999. The Company does not
believe that the adoption of SOP 98-9 will have a material effect on its revenue
recognition.
ITEM 3. 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."
The Company's line of credit agreement provides for borrowings that
bear interest at variable rates based on the Bank's prime rate. At September 30,
1999, the Company had $4.0 million outstanding pursuant to the line of credit.
The Company believes that the effect, if any, of reasonably possible near-term
changes in interest rates on the Company's financial position, results of
operations, and cash flows should not be material.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On September 29, 1999, the Company issued 65,000 shares of its Series B
Preferred Stock for gross proceeds of $650,000 in a private placement to
accredited investors pursuant to an exemption from registration provided by
Regulation D. The proceeds of the offering were used to reduce the outstanding
balance under our line of credit. The Series B Preferred Stock is convertible at
any time, at the option of the holder, into the Company's common stock by
dividing (1) $10.00 by (2) $2.1491 (115% of the average closing bid prices of
the common stock for the five business days prior to the closing date). The
Company is required to file a registration statement to register the underlying
shares of common stock issuable upon conversion of the Series B Preferred Stock.
Accordingly, these shares will be eligible for resale in the market without
restriction. Any future sales of these shares could depress the market price of
our common stock and make it more difficult for us to sell stock in the future.
Furthermore, the conversion price of the Series B Preferred Stock will
be reset on June 20, 2000 if the average of the closing bid prices of the
Company's common stock on the preceding five business days is less than $2.1491.
This may obligate the Company to issue additional shares of common stock upon
conversion of the Series B Preferred Stock. To the extent that additional shares
are issuable, holders of the Company's common stock will experience dilution of
their ownership percentages.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3(i) Amended and Restated Articles of Incorporation.
10 Fourth Loan Modification Agreement dated September
30, 1999 between HIE, Inc. and Silicon Valley
Bank.
11 Statements of Computation of Per Share Loss.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated August 26, 1999,
reporting under Item 5 thereof certain modifications to its credit
facility.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIE, Inc.
November 12, 1999 By: /s/ Joseph A. Blankenship
---------------------------------
Joseph A. Blankenship
Senior Vice President - Chief Financial Officer,
Treasurer and Secretary (duly authorized officer
and principal accounting officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3(i) Amended and Restated Articles of Incorporation.
10 Fourth Loan Modification Agreement dated September
30, 1999 between HIE, Inc. and Silicon Valley
Bank.
11 Statements of Computation of Per Share Loss.
27 Financial Data Schedule (for SEC use only).
</TABLE>
18
<PAGE> 1
EXHIBIT 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HIE, INC.
The original Articles of Incorporation of HIE, Inc. (f/k/a 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 Sections 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 Sections 14-2-602(d) and 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; and
(f) lacking voting rights or having limited voting rights or
enjoying special or multiple voting rights.
(g) Designation of 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 the
-2-
<PAGE> 3
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
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<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
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<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.
(h) Designation of 8.5% Series B Cumulative Convertible
Exchangeable Preferred Stock.
Of the authorized preferred stock of the Corporation, 550,000
of such shares shall be designated as 8.5% Series B Cumulative
Convertible Exchangeable Preferred Stock (the "Series B Preferred
Stock") and shall have the following designations, preferences,
limitations and relative rights:
(A) Rank. The Series B Preferred Stock shall, with respect
to payment of dividends, redemption payments and rights upon
liquidation, dissolution or winding up of the affairs of the
Corporation, (i) rank senior and prior to the Common Stock, par value
$.01 per share, together with associated preferred stock purchase
rights, of the Corporation (the "Common Stock") and any other class or
series of capital stock of the Corporation that by its terms ranks
junior to the Series B Preferred Stock as to payment of dividends,
redemption payments and rights upon liquidation,
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<PAGE> 9
dissolution or winding up of the affairs of the Corporation (such
stock, including the Common Stock, "Junior Stock"), (ii) rank on a
parity with any other class or series of capital stock of the
Corporation that by its terms does not rank senior or junior to the
Series B Preferred Stock as to payment of dividends, redemption
payments and rights upon liquidation, dissolution or winding up of the
affairs of the Corporation Stock ("Parity Stock"), and (iii) rank
junior to any other class or series of capital stock of the
Corporation that by its terms ranks senior to the Series B Preferred
Stock as to payment of dividends, redemption payments and rights upon
liquidation, dissolution or winding up of the affairs of the
Corporation Stock ("Senior Stock").
(B) Dividends.
(i) The holders of the issued and outstanding shares of
the Series B Preferred Stock shall be entitled to receive, if, as and
when declared by the Board of Directors, out of funds legally
available therefor, distributions in the form of cumulative cash
dividends at the annual rate per share of 8.5% of the sum of (x) the
Liquidation Preference (as hereinafter defined) and (y) all unpaid
dividends, if any, whether or not declared, from the date of the
initial issuance of the shares of Series B Preferred Stock (the
"Closing Date") to the applicable dividend payment date.
(ii) Dividends on shares of Series B Preferred Stock shall
accumulate, whether or not declared, on a quarterly basis from the
Closing Date and shall be payable initially on December 31, 1999 and
then quarterly on each March 31, June 30, September 30, and December
31 thereafter (each, a "Dividend Payment Date"), except that if any
Dividend Payment Date is not a business day then the Dividend Payment
Date shall be on the first immediately succeeding business day (as
used herein, the term "business day" shall mean any day except a
Saturday, Sunday or day on which banking institutions are legally
authorized to close in The City of New York). Dividends shall cease to
accumulate in respect of Series B Preferred Stock on the Redemption
Date (as hereinafter defined) or the Conversion Date (as hereinafter
defined) for such shares, as the case may be, unless, in the case of a
Redemption Date, the Corporation fails to pay the amounts necessary
for such redemption or repurchase (including any unpaid dividends
required to be paid at such time) or, in the case of a Conversion
Date, the Corporation fails to deliver certificates representing
Common Stock issuable upon such conversion or to make any payment with
respect to any unpaid dividends required to be paid at such time, as
the case may be, in which cases dividends shall continue to accumulate
from the Redemption Date or the Conversion Date, as the case may be,
until such payment and/or delivery is made, except as set forth in
Section 2(h)(D)(vi).
(iii) All dividend payments paid with respect to shares of
Series B Preferred Stock shall be paid pro rata to the holders
entitled thereto. Dividends to be paid on any Dividend Payment Date
shall be paid to the holders of record of shares of the Series B
Preferred Stock as they appear on the stock register of the
Corporation at the close of business on such record dates (each, a
"Dividend Payment Record Date"), as shall be fixed by the Board of
Directors of the Corporation.
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<PAGE> 10
(C) Liquidation.
(i) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the holders
of the Series B Preferred Stock shall be entitled to receive $10.00
per share (the "Liquidation Preference"), plus an amount equal to the
unpaid dividends thereon, if any, whether or not declared, to the
payment date.
(ii) Holders of shares of Series B Preferred Stock shall
not be entitled to receive the Liquidation Preference of the shares
held by them until payment in full or provision has been made for the
payment of all claims of creditors of the Corporation and the
liquidation preference of any Senior Stock, plus accrued and unpaid
dividends thereon, if any, whether or not declared, to the payment
date, shall have been paid in full. Upon payment in full of the
Liquidation Preference (plus unpaid dividends thereon, if any, whether
or not declared, to the payment date) to which the holders of shares
of the Series B Preferred Stock are entitled, the holders of shares of
the Series B Preferred Stock shall not be entitled to any further
participation in any distribution of assets by the Corporation. If the
assets of the Corporation are not sufficient to pay in full the
Liquidation Preference (plus unpaid dividends thereon) payable to the
holders of shares of the Series B Preferred Stock and the liquidation
preference payable to the holders of any Parity Stock, the holders of
all such shares shall share ratably in proportion to the full
respective preferential amounts payable on such shares in any
distribution.
(iii) For the purposes of this Section 2(h)(C), neither the
sale of all or substantially all of the assets of the Corporation nor
the consolidation or merger of the Corporation with or into any other
entity shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, unless such sale,
consolidation or merger shall be in connection with a plan of
liquidation, dissolution or winding up of the Corporation.
(D) Redemption.
(i) General. Except as provided in this Section 2(h)(D),
shares of the Series B Preferred Stock shall not be redeemable by the
Corporation.
(ii) Optional Redemption. The Corporation, at its option,
may within 45 days of any 200% Date (as defined below) redeem shares
of Series B Preferred Stock, in whole or in part, in the sole
discretion of the Board of Directors, to the extent it has funds
legally available therefor, at the redemption price set forth in
Section 2(h)(D)(iv) below. A "200% Date" shall mean any date as of
which the Closing Price of the Common Stock equals or exceeds 200% of
the Conversion Price (as hereinafter defined) then in effect on at
least 30 of the 45 trading days immediately preceding such date and as
of such date. As used herein, the "Closing Price" of the Common Stock
on any day means the last reported sales price on such day or, in the
case no such sale takes place on such day, the last reported sales
price of the previous trading day, of the Common Stock, in each case
on the Nasdaq National Market or, if not listed or admitted to trading
on the Nasdaq
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<PAGE> 11
National Market, as listed or quoted on the Nasdaq SmallCap Market,
American Stock Exchange ("AMEX") or the New York Stock Exchange
("NYSE"). If the Common Stock is not listed or admitted to trading on
one of the Nasdaq National Market, the Nasdaq SmallCap Market, the
NYSE or AMEX, then the Closing Price shall be determined in good faith
by the Board of Directors of the Corporation, and such determination
shall be conclusive and binding on all persons.
(iii) Mandatory Redemption. Subject to the rights of Senior
Stock, if any, the Corporation shall redeem, on each of the Scheduled
Redemption Dates set forth below, 25% of the number of shares of
Series B Preferred Stock which were issued on the Closing Date, such
redemptions to be made from funds legally available therefor, at the
redemption price set forth in Section 2(h)(D)(iv) below:
SCHEDULED
REDEMPTION DATE
September 30, 2002
September 30, 2003
September 30, 2004
September 30, 2005
If the funds of the Corporation legally available for redemption of
shares of the Series B Preferred Stock are insufficient to redeem the
total number of shares required to be redeemed on a scheduled
redemption date, those funds which are legally available will be used
to redeem the maximum possible number of shares of Series B Preferred
Stock ratably among the holders thereof. At any time thereafter when
additional funds of the Corporation are legally available for such
purpose, such funds will immediately be used to redeem the balance of
the shares of Series B Preferred Stock scheduled to have been redeemed
on the previous scheduled redemption date. Any optional redemption
pursuant to Section 2(h)(D)(ii) shall entitle the Corporation to a
credit against the number of shares the Corporation shall be obligated
to redeem under this Section 2(h)(D)(iii).
(iv) Payment of Redemption Price. All shares shall be
redeemed at the redemption price of 100% of the Liquidation Preference
thereof, plus an amount equal to the unpaid dividends thereon, if any,
whether or not declared, to the Redemption Date. The amount of the
redemption price on any shares of Series B Preferred Stock redeemed,
on any redemption provided for herein, whether allocable to the
Liquidation Preference thereon or to any unpaid dividends to be paid
on the shares of Series B Preferred Stock redeemed on such Redemption
Date, shall be paid in cash.
(v) Not less than 15 days nor more than 45 days (such date
as fixed by the Board of Directors of the Corporation is referred to
herein as the "Redemption Record Date") prior to the date fixed by the
Board of Directors of the Corporation for any redemption of shares of
the Series B Preferred Stock pursuant to this Section 2(h)(D)
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<PAGE> 12
(each such date, a "Redemption Date"), a notice specifying the time
and place of the redemption and the number of shares to be redeemed
shall be given by first class mail, postage prepaid, to the holders of
record on the Redemption Record Date of the shares of the Series B
Preferred Stock to be redeemed at their respective addresses as the
same shall appear on the books of the Corporation, calling upon each
holder of record to surrender to the Corporation on the Redemption
Date at the place designated in the notice such holder's certificate
or certificates representing the number of shares specified in the
notice of redemption. Neither failure to mail such notice, nor any
defect therein or in the mailing thereof, to any particular holder
shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any
notice mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives
the notice. On or after the Redemption Date, each holder of shares of
Series B Preferred Stock to be redeemed shall present and surrender
such holder's certificate or certificates for such shares to the
Corporation at the place designated in the redemption notice and
thereupon the redemption price of the shares, and any unpaid dividends
thereon to the Redemption Date, shall be paid to or on the order of
the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled.
In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed shares.
(vi) If a notice of redemption has been given and if, on or
before the Redemption Date, the funds necessary for such redemption
(including all dividends on the shares of Series B Preferred Stock to
be redeemed that will accumulate to the Redemption Date) shall have
been set aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the shares
of Series B Preferred Stock so called for redemption, then,
notwithstanding that any certificates for such shares of Series B
Preferred Stock have not been surrendered for cancellation, on the
Redemption Date dividends shall cease to accumulate on the shares of
the Series B Preferred Stock to be redeemed and the holders of such
shares shall cease to be stockholders with respect to those shares,
shall have no interest in or claims against the Corporation by virtue
thereof and shall have no voting or other rights with respect thereto,
except the conversion rights provided in Section 2(h)(E) below and the
right to receive the monies payable upon such redemption, without
interest thereon, upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares of Series B
Preferred Stock evidenced thereby shall no longer be outstanding.
Subject to applicable escheat laws, any monies so set aside by the
Corporation and unclaimed at the end of four years from the Redemption
Date shall revert to the general funds of the Corporation, after which
reversion the holders of such shares so called for redemption shall
look only to the general funds of the Corporation for the payment of
the redemption price, without interest. Any interest accrued on funds
so deposited shall belong to the Corporation and be paid thereto from
time to time.
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<PAGE> 13
(vii) If a notice of redemption has been given and any
holder of shares of Series B Preferred Stock shall, prior to the close
of business on the business day immediately preceding the Redemption
Date, give written notice to the Corporation pursuant to Section
2(h)(E)(ii) below of the conversion of any or all of the shares to be
redeemed held by the holder, then such redemption shall not become
effective as to such shares to be converted and such conversion shall
become effective as provided in Section 2(h)(E) below, whereupon any
funds deposited by the Corporation for the redemption of such shares
shall (subject to any right of the holder of such shares to receive
the dividend payable thereon as provided in Section 2(h)(E)(i) below)
immediately upon such conversion be returned to the Corporation or, if
then held in trust by the Corporation, shall automatically and without
further corporate action or notice be discharged from the trust.
(viii) In every case of redemption of fewer than all of the
outstanding shares of the Series B Preferred Stock pursuant to this
Section 2(h)(D), the shares to be redeemed shall be selected pro rata,
provided that only whole shares shall be selected for redemption.
(E) Optional Conversion.
(i) Holders of shares of Series B Preferred Stock may, at
any time, convert their shares of Series B Preferred Stock, unless
previously redeemed, into that number of shares of the Common Stock as
shall be determined by dividing the Liquidation Preference ($10.00) by
115% of the Average Closing Date Price (as hereinafter defined),
subject to adjustment as described below in Section 2(h)(E)(vi) (the
"Original Conversion Price"). For purposes hereof, the term "Average
Closing Date Price" shall mean the average of the Closing Prices of
the Common Stock for the five business days prior to the Closing Date.
If, on June 20, 2000, the average of the Closing Prices of the Common
Stock for the five business days prior thereto (the "Reset Price") is
less than 115% of the Average Closing Date Price, holders of Series B
Preferred Stock may thereafter at their option convert their shares of
Series B Preferred Stock, unless previously redeemed, into that number
of shares of the Common Stock as shall be determined by dividing the
Liquidation Preference ($10.00) by the Reset Price, subject to
adjustment as described below in Section 2(h)(E)(vi) (the "Reset
Conversion Price"). For purposes of this Section 2(h), the term
"Conversion Price" shall mean either the Original Conversion Price or
the Reset Conversion Price, whichever is then applicable. If more than
one share of Series B Preferred Stock shall be surrendered for
conversion at one time by the same record holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B
Preferred Stock so surrendered. In the case of shares of Series B
Preferred Stock called for redemption, conversion rights shall expire
at the close of business on the business day immediately preceding the
Redemption Date. The holders of shares of Series B Preferred Stock
that convert such shares into shares of Common Stock shall be entitled
to receive any unpaid dividends accumulating through the Conversion
Date.
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<PAGE> 14
(ii) Any holder of shares of Series B Preferred Stock
electing to convert the shares or any portion thereof in accordance
with Section 2(h)(E)(i) above shall give written notice (a "Conversion
Notice") to the Corporation (which notice may be given by facsimile
transmission) that such holder elects to convert the same and shall
state therein the number of shares of Series B Preferred Stock to be
converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued.
Promptly thereafter, the holder shall surrender the certificate or
certificates of shares of Series B Preferred Stock to be converted,
duly endorsed, at the office of the Corporation or any transfer agent
for such shares, or at such other place designated by the Corporation.
The Corporation shall issue and deliver to or upon the order of such
holder, against delivery of the certificates representing the shares
of Series B Preferred Stock that have been converted, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled (in the number(s) and denomination(s)
designated by such holder), and the Corporation shall deliver to such
holder a certificate or certificates for the number of shares of
Series B Preferred Stock that such holder has not elected to convert.
The conversion right with respect to any shares of Series B Preferred
Stock shall be deemed to have been exercised at the date upon which
the Conversion Notice is received by the Corporation (the "Conversion
Date"), and the person or persons entitled to receive the Common Stock
issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Stock upon that date;
provided, however, that nothing in this sentence shall relieve the
Corporation of its obligation to deliver to the person or persons
entitled to receive the Common Stock issuable upon conversion
certificates therefor, or its obligation, if any, to pay any dividends
accumulating after the Conversion Date pursuant to Section 2(h)(E)(i)
above.
(iii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series B Preferred Stock. Instead of any
fractional share of Common Stock otherwise issuable upon conversion of
any shares of Series B Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fraction in an amount equal to the
same fraction of the Closing Price of the Common Stock on the
Conversion Date. In the absence of a Closing Price, the Board of
Directors shall in good faith determine the current market price on
such basis as it reasonably considers appropriate and such current
market price shall be used to calculate the cash adjustment.
(iv) If a holder converts shares of Series B Preferred
Stock, the holder shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of Common Stock upon the conversion or
due upon the issuance of a new certificate or certificates for any
shares of Series B Preferred Stock not converted.
(v) The Corporation shall at all times keep reserved out
of its authorized but unissued Common Stock a sufficient number of
shares of Common Stock to permit the conversion of all of the
then-outstanding shares of Series B Preferred Stock. For the purposes
of this Section 2(h)(E), the full number of shares of Common Stock
then
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<PAGE> 15
issuable upon the conversion of all then-outstanding shares of Series
B Preferred Stock shall be computed as if at the time of computation
all outstanding shares of Series B Preferred Stock were held by a
single holder. The Corporation shall from time to time, in accordance
with the laws of the State of Georgia and these Articles of
Incorporation, increase the authorized amount of its Common Stock if
at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all
shares of Series B Preferred Stock at the time outstanding.
(vi) In case the Corporation shall (x) pay a dividend on
any class of its capital stock in shares of Common Stock, (y)
subdivide the outstanding shares of Common Stock into a greater number
of shares or (z) combine the outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately
prior thereto shall be adjusted by multiplying the Conversion Price at
which the shares of Series B Preferred Stock were theretofore
convertible by a fraction of which the denominator shall be the number
of shares of Common Stock outstanding immediately following such
action and of which the numerator shall be the number of shares of
Common Stock outstanding immediately prior thereto. Such adjustment
shall be made whenever any event listed above shall occur and shall
become effective retroactively immediately after the record date in
the case of a dividend and immediately after the effective date in the
case of a subdivision or combination. No adjustment in the Conversion
Price shall be required unless the adjustment would require an
increase or decrease of at least 1% in the Conversion Price then in
effect. All calculations under this Section 2(h)(E)(vi) shall be made
to the nearest cent.
(vii) In case of any reclassification of the Common Stock,
any consolidation of the Corporation with, or merger of the
Corporation into, any other entity, any merger of another entity into
the Corporation (other than a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Corporation), any sale or transfer of
all or substantially all of the assets of the Corporation or any
compulsory share exchange pursuant to which share exchange the Common
Stock is converted into other securities, cash or other property, then
lawful provision shall be made as part of the terms of such
transaction whereby the holder of each share of Series B Preferred
Stock outstanding immediately prior thereto shall have adequate
written notice and the right thereafter, during the period such share
of Series B Preferred Stock shall be convertible, to convert such
share into the kind and amount of securities, cash and other property
receivable upon the reclassification, consolidation, merger, sale,
transfer or share exchange by a holder of the number of shares of
Common Stock of the Corporation into which a share of Series B
Preferred Stock would have been convertible immediately prior to the
reclassification, consolidation, merger, sale, transfer or share
exchange.
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<PAGE> 16
(F) Exchange.
(i) Shares of Series B Preferred Stock shall be
exchangeable for Convertible Debt (as defined below), in whole but not
in part, out of surplus of the Corporation legally available for such
exchange, at any time and from time to time at the option of the
Corporation. All unpaid dividends on the shares of Series B Preferred
Stock, including dividends accumulated from the last preceding
Dividend Payment Date through the date fixed for such exchange, shall
be declared and paid prior to or on the same date as the date of any
exchange pursuant to this Section 2(h)(F). The Corporation shall cause
the Convertible Debt to be issued on and dated the date which
coincides with the date of exchange of the Series B Preferred Stock.
"Convertible Debt" means the 8.5% Convertible Debentures of the
Corporation to be issued pursuant to the Convertible Debt Indenture,
as amended, modified, supplemented, restructured, replaced, extended
or refinanced from time to time in accordance with the terms hereof
and thereof. "Convertible Debt Indenture" means the indenture pursuant
to which the Convertible Debt is to be issued, having terms in
accordance with this Section 2(h)(F) and otherwise in form and
substance acceptable to holders of a majority of Series B Preferred
Stock immediately prior to the effectiveness of such indenture.
(ii) Any notice of any exchange of the Series B Preferred
Stock given by the Corporation shall be mailed to each holder of
shares of Series B Preferred Stock to be exchanged at such holder's
address as it appears on the books of the Corporation. Such notice
shall set forth the procedures for exchanging certificates
representing Series B Preferred Stock for Convertible Debt with a
principal amount equal to 100% of the aggregate Liquidation Preference
of the shares of Series B Preferred Stock being exchanged. The
Corporation shall as promptly as practicable thereafter mail to each
such holder a notice setting forth the procedures for exchanging
certificates representing Series B Preferred Stock for Convertible
Debt. Upon such exchange, the rights of the holders of Series B
Preferred Stock to be exchanged as stockholders of the Corporation
shall cease, and the person or persons entitled to receive the
Convertible Debt issuable upon such exchange shall be treated for all
purposes as the registered holder or holders of such Convertible Debt.
(iii) The shares of Series B Preferred Stock which have been
exchanged shall no longer be deemed to be outstanding and shall be
retired and all rights with respect to such shares, including, without
limitation, the rights, if any, to receive dividends (and interest
thereon) and to receive notices and to vote or consent (except for the
right of the holders to receive unpaid dividends, if any, and
Convertible Debt and Common Stock, as provided herein, in exchange
therefor) shall forthwith cease.
(iv) Upon any exchange of shares of Series B Preferred
Stock into Convertible Debt, as provided herein, in accordance with
this Section 2(h)(F), the Corporation will pay any documentary, stamp
or similar issue or transfer taxes which may be due with respect to
the transfer and exchange of such exchanged shares, if any; provided,
however,
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<PAGE> 17
that if the Convertible Debt into which the shares of Series B
Preferred Stock is exchangeable pursuant to this Section 2(h)(F) is to
be issued in the name of any person other than the holder of the
shares of Series B Preferred Stock to be so exchanged, the amount of
any transfer taxes (whether imposed on the Corporation, the holder or
such other person) payable on account of the transfer to such person
will be payable by the holder.
(v) Unless otherwise agreed by the Corporation and each
holder of shares of Series B Preferred Stock, any shares exchanged at
the Corporation's election shall be called for exchange on a pro rata
basis from all holders of Series B Preferred Stock. Any exchange for
which shares are called for exchange on a pro rata basis (whether or
not some of such shares so called are subsequently converted pursuant
to Section 2(h)(E)) shall comply with this Section 2(h)(F). Any
fractional share of Series B Preferred Stock which would otherwise be
issuable as a result of any exchange of less than all shares held
shall be included in the shares exchanged.
(vi) The Convertible Debt shall have a maturity date of the
September 30, 2005; a principal amount equal to the Liquidation
Preference multiplied by the number of shares of Series B Preferred
Stock exchanged for such Convertible Debt (and a proportionate
principal amount for any fractional share exchanged); shall provide
for payment of interest at the rate of 8.5% per annum, payable
quarterly in cash; and shall be convertible and redeemable on terms
substantially the same as those of the Series B Preferred Stock, in
each case, on the terms and conditions set forth in the Convertible
Debt Indenture and shall otherwise be on the terms set forth in the
Convertible Debt Indenture.
(G) Status of Shares.
All shares of the Series B Preferred Stock that are at any
time redeemed pursuant to Section 2(h)(D), converted pursuant to
Section 2(h)(E) or exchanged pursuant to Section 2(h)(F) and all
shares of the Series B Preferred Stock that are otherwise reacquired
by the Corporation and subsequently canceled by the Board of Directors
of the Corporation shall have the status of authorized but unissued
shares of Preferred Stock, without designation as to series, subject
to reissuance by the Board of Directors of the Corporation as shares
of any one or more other series.
(H) Voting Rights.
Holders of shares of the Series B Preferred Stock shall have
no voting rights, except as may be otherwise required by these
Articles of Incorporation, the Corporation's by-laws or applicable
law.
-17-
<PAGE> 18
(I) Preemptive Rights.
The holders of the Series B 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.
(J) Information Rights.
Each holder of shares of the Series B Preferred Stock shall
be furnished with annual audited and quarterly unaudited financial
statements of the Corporation consistent with reports provided to
holders of the Common Stock.
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.
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
-18-
<PAGE> 19
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.
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
-19-
<PAGE> 20
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, and 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.
-20-
<PAGE> 21
IN WITNESS WHEREOF, HIE, Inc. has caused its duly authorized
officer to execute these Amended and Restated Articles of Incorporation as of
this 28th day of September, 1999.
HIE, INC.
By: /s/ Joseph A. Blankenship
-------------------------------------------------
Name: Joseph A. Blankenship
Title: Senior Vice President -- Finance, Chief Financial
Officer, Secretary and Treasurer
-21-
<PAGE> 1
EXHIBIT 10
FOURTH LOAN MODIFICATION AGREEMENT
This Fourth Loan Modification Agreement is entered into as of September
30, 1999 by and between HIE, Inc., formerly known as 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 ("Bank") 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 by and
between Borrower and Bank, as amended by that certain Loan Modification
Agreement dated November 13, 1998 between Borrower and Bank, that certain Second
Loan Modification Agreement dated May 13, 1999 between Borrower and Bank, that
certain Third Loan Modification Agreement dated August 2, 1999 between Borrower
and Bank, and 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. ("Guarantor") a subsidiary of Borrower. The
obligations are also secured by all the assets of Guarantor pursuant to a
Security Agreement dated August 3, 1998 between Guarantor and Bank, a pledge of
the stock of Guarantor pursuant to a Stock Pledge Agreement dated August 3, 1998
between Borrower and Bank, and certain Intellectual Property Security Agreements
by and between Borrower and the Bank and by and between Guarantor and the Bank
(the "IP Security Agreements"), filed with the U.S. Patent and Trademark Office.
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 of Committed Revolving Line.
(1) The Committed Revolving Line is hereby renewed until
November 30, 1999.
<PAGE> 2
B. Modification to Loan Agreement.
(a) Section 1.1 of the Loan Agreement shall be amended by
deleting the definition in the Loan Agreement for "Revolving
Maturity Date" and replacing it with the following:
"Revolving Maturing Date" means November 30, 1999."
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. In connection with this Agreement, Borrower shall
pay a fee equal to One Thousand ($1,000.00), which facility fee shall be fully
earned and non-refundable (the "Loan Fee").
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants
to Bank as follows:
(a) Borrower has adequate corporate power and authority to execute
and deliver this Fourth 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 Fourth 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 Fourth 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 Fourth Loan
Modification Agreement and the satisfaction of the conditions precedent set
forth in Section 7 hereof, no Event of Default shall exist and be continuing.
2
<PAGE> 3
7. CONDITIONS PRECEDENT.
(a) 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;
(2) Bank shall receive in form and substance satisfactory
to Bank, a Certificate of Officer of Borrower and Guarantor, as to the
satisfaction of the condition specified in paragraph (1) of this
Section 7(a);
(3) Borrower's payment of the Loan Fee;
(4) Delivery of a Certificate of Good Standing of
Borrower issued by the State of Georgia, and Certificates of Authority
to transact business issued by the States of Tennessee and Texas;
(5) Delivery of a Certificate of Good Standing of
Guarantor issued by the State of Ohio, and Certificate of Authority to
transact business issued by the State of Georgia;
(6) Amended and Restated Revolving Credit Note; and
(7) 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
7, the agreements contained herein and the amendments contemplated hereby shall
be deemed effective as of the date hereof.
(b) From and after the satisfaction of the conditions precedent
set forth in Section 7(a) hereof, Bank's obligations to make any Advances to
Borrower under the Loan Agreement and the other Loan Documents shall be subject
to the additional conditions that (i) all of the representations and warranties
made by Borrower herein, whether directly or incorporated herein by reference,
shall be true and correct immediately prior to the time of the proposed Advance
as if made at and as of such time, except that representations and warranties of
financial statements or conditions as of an earlier date relate solely to such
earlier date, and (ii) no Event of Default, or event or condition which, with
notice or lapse of time, or both, would constitute an Event of Default, would
occur after giving effect to the making of such Advance. From and after the
satisfaction of the conditions precedent set forth in Section 7(a) hereof, each
request by Borrower for a Advance under the Loan Agreement and the other Loan
Documents shall be deemed to be a representation and warranty by Borrower that
all of the conditions precedent in this Section 7(b) have been met.
3
<PAGE> 4
8. NO DEFENSES OF BORROWER. Borrower agrees that it has no defenses
against the obligations to pay any amounts under the Loan Agreement or Note.
9. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the Existing Loan Documents, Bank is relying upon Borrower's representations,
warranties, 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 Fourth 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 Fourth Loan
Modification Agreement in no way shall obligate Bank to make any future
amendments or modifications to the Existing Loan Documents. Nothing in this
Fourth 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 Fourth Loan Modification
Agreement. The terms of this paragraph apply not only to this Fourth Loan
Modification Agreement, but also to all subsequent loan modification agreements.
10. 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
OF THE LOAN AGREEMENT 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
4
<PAGE> 5
AN INCONVENIENT FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
HIE, INC. F/K/A
HEALTHDYNE INFORMATION SILICON VALLEY BANK
ENTERPRISES, INC.
By: By:
----------------------------------- -------------------------------
Its: Its:
---------------------------------- -------------------------------
[CORPORATE SEAL]
Agreed and consented to as Guarantor:
HUBLINK, INC.
By:
-----------------------------------
Its:
----------------------------------
[CORPORATE SEAL]
5
<PAGE> 1
EXHIBIT 11
HIE, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
1999 1998 1999 1998
-------- ------- ---------- -------
<S> <C> <C> <C> <C>
Net earnings (loss) $ (472) $ 985 $ (3,492) $ 255
======== ======= ========== =======
Weighted average number of common
shares outstanding 25,375 24,089 25,308 23,826
======== ======= ========== =======
Basic net earnings (loss) per common share $ (0.02) $ 0.04 $ (0.14) $ 0.01
======== ======= ========== =======
Shares used in diluted net earnings (loss) per
share calculation:
Weighted average number of common
shares outstanding 25,375 24,089 25,308 23,826
Additional shares assumed outstanding
from dilutive stock options and warrants
used in diluted earnings (loss) per share
calculation(1) -- 1,408 -- 1,221
-------- ------- ---------- -------
25,375 25,497 25,308 25,047
======== ======= ========== =======
Diluted net earnings (loss) per common share $ (0.02) $ 0.04 $ (0.14) $ 0.01
======== ======= ========== =======
</TABLE>
(1) Since stock options and warrants are antidilutive to the diluted loss per
common share calculations, stock options and warrants are not considered in
such diluted loss per share calculations for the three and nine months ended
September 30, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HIE,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE CONDENSED CONSOLIDATED BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,041
<SECURITIES> 0
<RECEIVABLES> 14,048
<ALLOWANCES> 556
<INVENTORY> 0
<CURRENT-ASSETS> 17,659
<PP&E> 5,734
<DEPRECIATION> 2,744
<TOTAL-ASSETS> 31,677
<CURRENT-LIABILITIES> 13,224
<BONDS> 0
0
0
<COMMON> 254
<OTHER-SE> 17,220
<TOTAL-LIABILITY-AND-EQUITY> 31,677
<SALES> 0
<TOTAL-REVENUES> 18,807
<CGS> 0
<TOTAL-COSTS> 8,657
<OTHER-EXPENSES> 13,327
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> (3,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,492)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,492)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
