<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
March 23, 2000
----------------------------
(Date of Report)
Claimsnet.com inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 001-14665 75-2649230
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
12801 N. Central Expressway, Suite 1515, Dallas, Texas 75243
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(972) 458-1701
--------------------------------------------------
(Registrant's telephone number, including area code)
None
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
General
On March 20, 2000, Claimsnet.com inc., a Delaware corporation (the
"Company"), through its wholly-owned subsidiary, HealthExchange.com, Inc., a
Delaware corporation ("HEX"), entered into an asset purchase agreement (the
"Asset Purchase Agreement") with VHX Company, a Nevada corporation ("VHX"),
whereby HEX will acquire substantially all of the properties and assets, the
business and goodwill of VHX, including the HealthExchange.com name and
HealthExchange.com trademarks, and assume certain liabilities in exchange for
(i) 1,200,000 shares of common stock, par value $.001 per share, (ii) shares of
Series A 8% Convertible Redeemable Preferred Stock (the "Series A Preferred
Stock") and shares of Series B 8% Convertible Redeemable Preferred Stock (the
"Series B Preferred Stock," and, together with the Series A Preferred Stock, the
"Preferred Stock"), and (iii) the cancellation of certain indebtedness owed by
VHX to the Company. The Company estimates that total purchase price to be
approximately $32 million.
Pursuant to the Asset Purchase Agreement, the stated value of the
shares of each series of Preferred Stock to be issued shall be determined
immediately prior to closing in accordance with the following formula: $15.35
million less (1) the product of 600,000 and the average of the closing sale
prices of the Common Stock as quoted on the Nasdaq SmallCap Market on each
trading day during the ten-day period terminating on the date immediately prior
to March 20, 2000 (the "Trailing Average Closing Price"), and (2) the product of
(a) the principal amount of, and accrued and unpaid interest on, the debt
obligations owed by VHX to the Company and (b) 0.5.
The Preferred Stock is convertible into shares of Common Stock at a
conversion price based upon the market value of the Common Stock at a specified
time provided that the conversion price cannot be less than $14.00 or greater
than $15.00, and provided further that (i) the convertibility of the Preferred
Stock has been approved by the stockholders of the Company by March 31, 2001 and
(ii) the performance milestone for the relevant series of Preferred Stock has
been satisfied by March 31, 2001. The performance milestone for the Series A
Preferred Stock is the existence of 1,000,000 lives covered by the business
operation attributable to assets acquired. The performance milestone for the
Series B Preferred Stock is the recognition of revenue from 6,000,000
member-months attributable to assets acquired. In the event that the performance
milestone of any series of Preferred Stock is not satisfied that series of
Preferred Stock will be cancelled. In the event that the performance milestone
for any series of Preferred Stock is satisfied by such date, but the required
approval by the stockholders of the Company is not obtained by such date, the
relevant series of preferred stock will begin on April 1, 2001 to accrued
cumulative dividends at the rate of 8% per annum and will be redeemed in equal
quarterly installments thereafter for three years out of capital legally
available therefor.
In connection with the Asset Purchase Agreement, HEX will at closing
entered into employment agreements with each of Eric Hillerbrand, Jeff
Muscarella and Nan P. Smith, the Executive Vice President - Chief Knowledge
Officer, Executive Vice President - Business Development, and President,
respectively, of VHX, each of whom will serve in various managerial capacities
with the Company.
<PAGE>
About VHX
VHx is an Internet-based health care infomediary, providing all four
core health network constituents, self-insured employers, health plans, doctors
and employees/members (consumers), with highly customized administrative
services, health and disease management tools, and e-commerce opportunities. Its
business is primarily conducted through three customizable, proprietary
healthcare products; HealthExchange(TM), BenefitExchange(TM) and
CareExchange(TM). Each product is based on secure, scalable application service
provider technology that meets all currently proposed federal guidelines for
patient record confidentiality.
The Company believes that VHx's solution is the first of its kind to
supply health plans, providers, members and employers with highly customized
services, health management tools and content, and e-commerce offerings.
Together, the three products provide a comprehensive Internet-based solution
aimed at reducing costs and enhancing health plan members' health and overall
experience. Through a proprietary suite of Internet tools and e-commerce
solutions, VHx facilitates the flow of vital information and transactions
between employers, doctors and health plans, and most uniquely, ties the
employee/member into the benefit and health management process in a
personalized, confidential online relationship. The result is a reduction in
health benefit administrative costs for employers and health plans, and improved
health outcomes and satisfaction for employees/members. The management of
Claimsnet.com knows of no other company that offers an integrated, end-to-end
Internet solution that meets these needs for all four vital constituents of the
healthcare network.
VHx Company moved from development stage to operations in the fourth
quarter of 1999. John Deere Health ("JDH"), a subsidiary of industry giant,
Deere & Co. participated in the pilot development of the products. JDH
represents approximately 1,800 employers in addition to Deere & Co. Primary
revenue sources for VHx currently include subscription fees (per member per
month), transaction fees for e-commerce, co-branding and sponsorship fees and
permission marketing fees (for delivering highly focused, permission-based
marketing messages to users). VHx has signed product and marketing-related
Letters of Intent with Columbia University (clinical data repository with web-
based physician/patient access) and Employease.com (web-based HR benefits
management), and contracts with Hewlett-Packard (eSpeak(TM) Internet service
brokering platform), RX Remedy/Do Health (Healthscout.com content and health
risk assessments), VeriSign (digital encryption), Caredata.com (managed care
forecasting tools, Citeline search engine, physician credentialing), and eGain
(Web-based agent customer support technology).
The transaction described above is qualified in its entirety by the
Asset Purchase Agreement and related documents and subject to various conditions
set forth in the Asset Purchase Agreement.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
It is impractical to provide the required financial statements at the
date of the filing of this Form 8-K. The required financial statements will be
provided as soon as practicable but not later than sixty days after the date on
which this Form 8-K must be filed.
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the date of the filing of this Form 8-K. The required pro forma
financial information will be provided as soon as practicable but not later than
sixty days after the date on which this Form 8-K must be filed.
(c) Exhibits.
10.1 Form of Asset Purchase Agreement, dated as of March 20, 2000,
between Claimsnet.com inc., HealthExchange.com, Inc., and VHX
Company.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
Dated: March 28, 2000
CLAIMSNET.COM INC.
By: /s/ Bo W. Lycke
-----------------------------------
Bo W. Lycke
Chairman of the Board of Directors,
President, and Chief Executive Officer
<PAGE>
ASSET PURCHASE AGREEMENT, dated as of March 20, 2000, among
CLAIMSNET.COM INC., a Delaware corporation with offices at 12801 N. Central
Expressway, Suite 1515, Dallas, Texas 75243 (the "Purchaser");
HEALTHEXCHANGE.COM, INC., a Delaware corporation and a wholly-owned subsidiary
of the Purchaser with offices at 12801 N. Central Expressway, Suite 1515,
Dallas, Texas 75243 ("HEcom"); and VHX COMPANY, a Nevada corporation with
offices at Suite 950, 2970 Clairmont Road, Atlanta, Georgia 30329 (the
"Seller").
INTRODUCTION
The Purchaser desires to acquire, through HEcom, substantially all the
properties and assets and the portion of the business and goodwill of Seller
specified herein in exchange for (i) shares of Series A 8% Cumulative
Convertible Redeemable Preferred Stock, par value $.001 per share (the
"Purchaser Series A Preferred Stock"), of the Purchaser, (ii) shares of Series B
8% Cumulative Convertible Redeemable Preferred Stock, par value $.001 per share
(the "Purchaser Series B Preferred Stock" and, together with the Purchaser
Series A Preferred Stock, the "Purchaser Preferred Stock"), (iii) shares of
common stock, par value $.001 per share, of the Purchaser (the "Purchaser Common
Stock"), (iv) cancellation of the Bridge Note (as hereinafter defined), (v)
cancellation of the Deposit Note (as hereinafter defined), and (vi) the
assumption by HEcom of certain obligations and liabilities of Seller as
hereinafter provided, and Seller desires to effect such exchange and thereafter
to dissolve and completely liquidate.
<PAGE>
The parties hereto, intending to be legally bound, hereby agree as
follows:
I. DEFINITIONS
Accrued Benefits. Includes the value of disability, pre-retirement, and
death benefits, and all supplements, subsidized, and optional forms of benefits.
Accrued Liabilities. Includes a pro rata contribution to each Employee
Benefit Plan or with respect to each such obligation or arrangement for that
portion of a plan year or other applicable period which commences prior to, and
ends after, the date of the Closing; Accrued Liabilities for any portion of a
plan year or other applicable period shall be determined by multiplying the
liability for the entire such year or period by a fraction, the numerator of
which is the number of days preceding the date of the Closing in such year or
period and the denominator of which is the number of days in such year or
period, as the case may be.
Bridge Note. The 8% Secured Note, dated March 3, 2000, from the Seller
to the Purchaser, as amended through the date of the Closing.
Closing. As defined in Section 4.02 hereof.
Code. Internal Revenue Code of 1986, as amended, or its predecessor
statute.
Deposit Note. The Secured Note, dated the date hereof, in the principal
amount of $1.0 million, from the Seller to the Purchaser, a form of which is
attached hereto as Exhibit 5.11.
Employment Agreements. The employment agreement, dated as of the date
of the Closing, between HEcom and Eric Hillerbrand, the employment agreement,
dated as of the date of the Closing, between HEcom and Jeff Muscarella, and the
employment agreement, dated as of the date of the Closing, between HEcom and Nan
P. Smith, collectively.
Employee Benefit Plan. As defined in Section 3(3) of ERISA.
ERISA. The Employee Retirement Income Security Act of 1974, as amended.
Escrow Account. The escrow established by the Escrow Agreement.
-2-
<PAGE>
Escrow Agent. The escrow agent appointed to administer the Escrow
Account pursuant to the Escrow Agreement; initially Abrams, Garfinkel & Rosen,
New York, New York.
Escrow Agreement. The Escrow Agreement, dated as of the date of
Closing, among Purchaser, HEcom, Seller, and the Escrow Agent, a form of which
is attached hereto as Exhibit 5.13D.
Exchange Act. Securities Exchange Act of 1934, as amended, including
the rules and regulations of the SEC thereunder.
Excluded Assets. As defined in Section 4.01(a) hereof.
Excluded Liabilities. Any (a) tax or other obligation or liability
arising out of, or based upon, or in connection with any Transaction Agreement
or incurred by Seller or any stockholder of Seller by reason of the preparation
of any Transaction Agreement (including without limitation any obligation or
liability to holders of Seller Common Stock who demand and perfect any rights
they may have to demand appraisal of their shares pursuant to the laws of the
State of Nevada), (b) obligation or liability under any contract, agreement,
instrument, lease, license, understanding or arrangement which is assigned by
Seller to HEcom (i) if failure to obtain a required consent to assignment by
Seller to HEcom deprives the Purchaser or HEcom of the enjoyment of any of
Seller's rights thereunder, (ii) if such contract, agreement, lease, license,
understanding, or arrangement is not assigned by Seller to HEcom as a result of
Section 4.01(e) hereof or otherwise, or (iii) if a party is in default
thereunder as of the date hereof or as of the date of the closing, (c)
obligations other than those set forth in Schedule 4.01(a)(v) hereof, and (d)
obligation or liability arising out of, based upon or in connection with any
item referred in clauses (a) through (c) of this definition.
Hazardous Substances. Any hazardous waste, as defined by 42 U.S.C.
Section 6903(5), any hazardous substance, as defined by 42 U.S.C. Section
9601(14), any pollutant or contaminant, as defined by 42 U.S.C. Section
9601(33), and all toxic substances, hazardous materials, or other chemical
substances regulated by any other law, rule, or regulation.
-3-
<PAGE>
HEcom. As defined in the introductory paragraph hereof.
Intangibles. Any patent, patent application, trademark, trademark
application, trade name, service mark, license, copyright, franchise, or other
intangible property or asset.
Last Purchaser Balance Sheet. The consolidated balance sheet, and the
notes thereto, of Purchaser as of the Last Purchaser Balance Sheet Date.
Last Purchaser Balance Sheet Date. September 30, 1999.
Last Purchaser Financial Statements. The consolidated financial
statements of the Purchaser at and for the nine months ended September 30, 1999.
Last Seller Balance Sheet. The consolidated balance sheet, and the
notes thereto, of Seller as of the Last Seller Balance Sheet Date.
Last Seller Balance Sheet Date. November 30, 1999.
Last Seller Financial Statements. The consolidated financial statements
of the Seller at and for the 11 months ended November 30, 1999.
Participate In. As defined in Section 7.09 hereof.
Pension Plan. As defined in Section 3(2) of ERISA.
Performance Milestones. As defined in the Purchaser Series A Preferred
Stock Certificate of Designation and the Purchaser Series B Preferred Stock
Certificate of Designation, collectively. Purchaser. As defined in the
introductory paragraph hereof.
Purchaser Common Stock. As defined in the introduction hereto.
Purchaser Indemnities. The Purchaser, the Purchaser Subsidiaries, and
their respective officers, directors, employees, counsel, agents, and
stockholders, in each case past, present, or as they may exist at any time after
the date of this Agreement, and each person, if any, who controls, controlled,
or will control any of them within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Securities Exchange Act.
-4-
<PAGE>
Purchaser Preferred Stock. As defined in the introduction hereto.
Purchaser Series A Preferred Stock Certificate of Designation. The
Certificate of Designation, a form of which is attached hereto as Exhibit 3.02A,
which sets forth the designation thereof and the powers, preferences, and
relative participating, optional, voting or other special rights, and the
qualifications, limitations, or restrictions of the Purchaser Series A Preferred
Stock.
Purchaser Series B Preferred Stock Certificate of Designation. The
Certificate of Designation, a form of which is attached hereto as Exhibit 3.02B,
which sets forth the designation thereof and the powers, preferences, and
relative participating, optional, voting or other special rights, and the
qualifications, limitations, or restrictions of the Purchaser Series B Preferred
Stock.
Purchaser SEC Documents. The final prospectus contained in the
Registration Statement on Form S-1 under the Securities Act (Registration No.
333-72687) as filed with the SEC, as supplemented by all documents filed by the
Purchaser with the SEC prior to the date of the Closing pursuant to Section 13,
14(a), or 15(d) under the Exchange Act.
Purchaser Series A Preferred Stock. As defined in the introduction
hereto.
Purchaser Series B Preferred Stock. As defined in the introduction
hereto.
Purchaser Subsidiaries. As defined in Section 3.01 hereof.
Purchaser Voting Agreement. As defined in Section 8.10 hereof.
-5-
<PAGE>
Release. As defined in 42 U.S.C. Section 9601(22).
Release Time. As defined in Section 7.01 hereof.
SEC. United States Securities and Exchange Commission.
Securities Act. Securities Act of 1933, as amended, including the rules
and regulations of the SEC thereunder.
Seller. As defined in the introductory paragraph hereof.
Seller Common Stock. Common stock, par value $0.00025 per share, of
Seller.
Seller Subsidiaries. As defined in Section 2.01 hereof.
Seller Voting Agreement. As defined in Section 7.13 hereof.
Takeover Proposal. As defined in Section 7.06 hereof.
Tax Returns. Any return, report, document, statement, or form required
to be filed (whether on a consolidated, combined, separate, or unitary basis)
with respect to any Taxes (including any schedules required to be attached
thereto), including, without limitation, information returns, claims for refund,
amended returns, and declarations of estimated Tax.
Taxes. All taxes, charges, fees, levies, penalties, or other
assessments imposed by any United States federal, state, local, or foreign
taxing authority, including any interest, penalties, or additions thereto.
Trailing Average Closing Price. The average of the closing sale prices
of the Purchaser Common Stock as quoted on the Nasdaq SmallCap Market on each
trading day during the ten trading day period terminating on the date
immediately prior to the date of this Agreement.
Transaction Agreements. Collectively, this Agreement, the Employment
Agreements, the Purchaser Voting Agreement, the Seller Voting Agreement, the
Deposit Note, and the Escrow Agreement.
-6-
<PAGE>
II. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to the Purchaser and to HEcom as
follows:
Section 2.01 Organization and Qualification.
Seller owns, either directly or through one or more wholly-owned
subsidiaries, all the outstanding shares of capital stock of the corporations
listed in Schedule 2.01 hereto (the "Seller Subsidiaries"). Other than the
Seller Subsidiaries and other than as otherwise designated in Schedule 2.01
hereto, neither Seller nor any Seller Subsidiary has a subsidiary or affiliate
corporation or owns any interest in any other enterprise (whether or not such
enterprise is a corporation). Schedule 2.01 also correctly sets forth as to
Seller and as to each Seller Subsidiary its place of incorporation, principal
place of business, jurisdictions in which it is qualified to do business, and
the business which it presently conducts and which it contemplates conducting;
and as to each Seller Subsidiary its authorized capitalization, its shares of
capital stock outstanding, and the record and beneficial owner of those shares.
Each of the Seller and each of the Seller Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of its
respective jurisdiction of incorporation, with all requisite power and
authority, and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and declarations and filings
with, all federal, state, local, and other governmental authorities and all
courts and tribunals, to own, lease, license, and use its properties and assets
and to carry on the business in which it is now engaged and the business in
which it contemplates engaging. Each of the Seller and each of the Seller
Subsidiaries is duly qualified to transact the business in which it is engaged
and is in good standing as a foreign corporation in every jurisdiction in which
its ownership, leasing, licensing, or use of property or assets or the conduct
of its business makes such qualification necessary. To date, no business or
operations have been conducted by or through any Seller Subsidiary.
-7-
<PAGE>
Section 2.02 Capitalization.
The authorized capital stock of Seller consists of 200,000,000 shares
of Seller Common Stock, of which 31,037,714 shares are outstanding, 22,500,000
shares of Class B Cumulative Convertible Preferred Stock, par value $0.40 per
share, of which 16,249,999 shares are outstanding, and 50,000,000 shares of an
undesignated class of preferred stock, par value $0.40 per share, of which no
shares are outstanding. Each of such outstanding shares of Seller Common Stock
and each outstanding share of capital stock of each Seller Subsidiary is validly
authorized and issued, fully paid, and nonassessable, has not been issued and is
not owned or held in violation of any preemptive or similar right of
stockholders, and is owned of record and, to the best knowledge of the Seller,
beneficially by stockholders identified in Schedule 2.02A, in each case free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts other than those created by
stockholders of the Seller or with respect to their property, but to which
neither the Seller nor the officers or directors thereof is a party, except as
set forth in Schedule 2.02B hereto. Except as set forth in Schedule 2.02C
hereto, (a) there is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of Seller or of any Seller Subsidiary or any security or
other instrument convertible into, or exercisable or exchangeable for, capital
stock of Seller or of any Seller Subsidiary, and (b) there is outstanding no
security or other instrument convertible into, or exercisable or exchangeable
for, capital stock of Seller or of any Seller Subsidiary.
Section 2.03 Financial Condition.
Seller has delivered to the Purchaser true and correct copies of the
following, initialled by the President and a Vice President of Seller: audited
consolidated balance sheet of Seller as of December 31, 1998; the audited
consolidated statement of income and consolidated statement of retained
earnings, and consolidated statement of cash flows of Seller for the year ended
December 31, 1998; the unaudited consolidated balance sheet of the Seller at
November 30, 1999; and the unaudited consolidated statement of income of the
Seller for the 11 months ended November 30, 1999. Each such consolidated balance
sheet presents fairly the financial condition, assets, liabilities, and
stockholders' equity of Seller and the Seller Subsidiaries as of its date; each
such consolidated statement of income and consolidated statement of retained
earnings presents fairly the results of operations of Seller and the Seller
Subsidiaries for the period indicated; and each such consolidated statement of
cash flows presents fairly the information purported to be shown therein. The
financial statements referred to in this Section 2.03 have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and are in accordance with the books and records
of Seller and the Seller Subsidiaries. Except as set forth in Schedule 2.03
hereto, since December 31, 1998 and since November 30, 1999:
-8-
<PAGE>
(a) There has at no time been a material adverse change in the
financial condition, results of operations, business, properties,
assets, liabilities, or, to the best knowledge of Seller, future
prospects of Seller or any Seller Subsidiary; and each of Seller and
each of the Seller Subsidiaries has operated consistently in all
material respects with the results of operations referred to in Last
Seller Financial Statements.
(b) Neither Seller nor any Seller Subsidiary has authorized,
declared, paid, or effected any dividend or liquidating or other
distribution in respect of its capital stock or any direct or indirect
redemption, purchase, or other acquisition of any stock of Seller or
any Seller Subsidiary, except for the liquidation contemplated by
Section 4.04 hereof.
(c) The operations and business of Seller and each Seller
Subsidiary have been conducted in all material respects only in the
ordinary course of business consistent with past practices.
(d) There has been no accepted purchase order or quotation,
arrangement, or understanding for future sale of the products or
services of Seller or of any Seller Subsidiary which in the reasonable
expectation of Seller or any Seller Subsidiary will not be profitable.
(e) Neither Seller nor any Seller Subsidiary has suffered an
extraordinary loss (whether or not covered by insurance) or waived any
right of substantial value.
(f) Neither Seller nor any Seller Subsidiary has paid or
incurred any tax, other liability, or expense resulting from the
preparation of, or the transactions contemplated by, the Transaction
Agreements, it being understood that stockholders of the Seller shall
have paid or will pay all such taxes (including sales and use taxes
resulting from the Transaction Agreements or the transactions
contemplated thereby and in connection therewith), liabilities, and
expenses.
-9-
<PAGE>
There is no fact known to Seller or any Seller Subsidiary which materially
adversely affects or in the future (as far as Seller or any Seller Subsidiary
can foresee) may materially adversely affect the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
Seller, of any Seller Subsidiary, or of HEcom; provided, however, that Seller
and the Seller Subsidiaries express no opinion as to political or economic
matters of general applicability. No Seller Subsidiary owns or holds any
properties or assets, is liable for any liabilities, or has conducted any
business or operations.
Section 2.04 Tax and Other Liabilities.
Neither Seller nor any Seller Subsidiary has any liability of any
nature, accrued or contingent, including without limitation liabilities for
Taxes and liabilities to customers or suppliers, other than the following:
(a) Liabilities for which full provision has been made on the
Last Seller Balance Sheet; and
(b) Other liabilities arising since the Last Seller Balance
Sheet Date and prior to the Closing (as defined in Section 4.02) in the
ordinary course of business (which shall not include liabilities to
customers on account of defective products or services) which are not
inconsistent with the representations and warranties of Seller or any
other provision of this Agreement.
Without limiting the generality of the foregoing, the amounts set up as
provisions for Taxes on the Last Seller Balance Sheet are sufficient for all
accrued and unpaid Taxes of Seller and the Seller Subsidiaries, whether or not
due and payable and whether or not disputed, under tax laws, as in effect on the
Last Seller Balance Sheet Date or now in effect, for the period ended on such
date and for all fiscal periods prior thereto. The execution, delivery, and
performance by Seller of such of the Transaction Agreements as to which it is or
shall be party will not cause any Taxes to be payable (other than by Seller or
by stockholders of Seller or any Seller Subsidiary) or cause any lien, charge,
or encumbrance to secure any Taxes to be created either immediately or upon the
nonpayment of any Tax (other than on the properties or assets of stockholders of
Seller or any Seller Subsidiary). The Internal Revenue Service has audited and
settled or the statute of limitations has run upon all federal income Tax
Returns of Seller and the Seller Subsidiaries for all taxable years up to and
including the taxable year ended December 31, 1995. Each of Seller and each of
the Seller Subsidiaries has filed all federal, state, local, and foreign Tax
Returns required to be filed by it or has filed an extension with respect
thereto; has delivered to the Purchaser a true and correct copy of each such
return which was filed for the years ended December 31, 1997 and 1998,
initialled by the chief executive officer of Seller; has paid (or has
established on the Last Seller Balance Sheet a reserve for) all Taxes,
assessments, and other governmental charges payable or remittable by it or
levied upon it or its properties, assets, income, or franchises which are due
and payable; and has delivered to the Purchaser a true and correct copy, so
initialled, of any report as to adjustments received by it from any taxing
authority during the past six years and a statement, so initialled, as to any
litigation, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect with respect to any such
report or the subject matter of such report. Except as disclosed in Schedule
2.04, (i) no agreement extending the time for assessment of any Taxes has been
granted that currently is in effect, (ii) no protests are pending with respect
to any Taxes, and (iii) there are no liens for Taxes (other than for Taxes that
are not yet due and payable).
-10-
<PAGE>
Section 2.05 Litigation and Claims.
Except as set forth in Schedule 2.05 hereof, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, to the best knowledge of Seller threatened, or in
prospect (or any basis therefor known to Seller or any Seller Subsidiary) with
respect to Seller, any Seller Subsidiary, or any of its respective businesses,
properties, or assets, a determination adverse thereto which could have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Seller and the Seller Subsidiaries (excluding those
constituting Excluded Assets) taken as a whole. Neither Seller nor any Seller
Subsidiary is affected by any present or threatened strike or other labor
disturbance nor to the knowledge of Seller or any Seller Subsidiary is any union
attempting to represent any employee of Seller or of any Seller Subsidiary as
collective bargaining agent. To the best knowledge of Seller, neither Seller nor
any Seller Subsidiary is in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree, except for such violations or
defaults which shall not have a material adverse effect on the Seller and the
Seller Subsidiaries, taken as a whole; nor, to the best knowledge of Seller, is
Seller or any Seller Subsidiary required to take any action in order to avoid
such violation or default.
Section 2.06 Properties.
Each of Seller and each of the Seller Subsidiaries has good title to
all other properties and assets used in its business or owned by it (except such
real and other properties and assets, including Intangibles, as are held
pursuant to leases or licenses described in Schedule 2.07 or Schedule 2.09
hereto), free and clear of all liens, mortgages, security interests, pledges,
charges, and encumbrances, except such as are listed in Schedule 2.06 hereto.
Neither Seller nor any Seller Subsidiary owns any real property, and no Seller
Subsidiary owns, leases, or licenses any other property or asset.
(a) To the best of the Seller's knowledge, all accounts and
notes receivable reflected on the Last Seller Balance Sheet, or arising
since the Last Seller Balance Sheet Date, have been collected, or are
and will be good and collectible, in each case at the aggregate
recorded amounts thereof without right of recourse, defense, deduction,
return of goods, counterclaim, offset, or set off on the part of the
obligor, and, if not collected, can reasonably be anticipated to be
paid within 90 days of the date incurred, net of any reserve for bad
accounts reflected on the Last Seller Balance Sheet.
(b) All inventory of Seller and of each Seller Subsidiary is
usable and fit for the particular purpose for which it is intended.
-11-
<PAGE>
(c) Except for properties which individually or in the
aggregate are not material, attached as Schedule 2.06(c) is a true and
complete list of all real and other properties and assets owned by
Seller and the Seller Subsidiaries or leased or licensed by Seller or
by any Seller Subsidiary from or to a third party (including inventory,
but not including Intangibles), including with respect to such
properties and assets owned by Seller or by any Seller Subsidiary a
statement of cost, book value, and (except for land) reserve for
depreciation of each item for tax purposes, and net book value of each
item for financial reporting purposes, and, with respect to such
properties and assets leased or licensed by Seller or by any Seller
Subsidiary, a description of such lease or license. All such real and
other properties and assets (including Intangibles) owned by Seller or
by any Seller Subsidiary are reflected on the Last Seller Balance Sheet
(except for acquisitions and dispositions or sales in the ordinary
course of business subsequent to the Last Seller Balance Sheet Date and
prior to the Closing which are either noted in Schedule 2.06(c) or are
approved in writing by the Purchaser). All real and other tangible
properties and assets owned, leased, or licensed by Seller by any
Seller Subsidiary are in good and usable condition (reasonable wear and
tear which is not such as to affect adversely the operation of the
business of Seller and of such Seller Subsidiary taken as a whole
excepted).
(d) No real property leased or licensed by Seller or by any
Seller Subsidiary lies in an area which is, or to the knowledge of
Seller or any Seller Subsidiary will be, subject to zoning, use, or
building code restrictions which would prohibit, and no state of facts
relating to the actions or inaction of another person or entity or his
or its ownership, leasing, licensing, or use of any real or personal
property exists or will exist which would prevent, the continued
effective leasing, licensing, or use of such real property in the
business in which Seller or such Seller Subsidiary is now engaged or
the business in which it contemplates engaging.
(e) The real and other properties and assets (including
Intangibles) owned by Seller and each Seller Subsidiary or leased or
licensed by Seller or such Seller Subsidiary from a third party
constitute all such properties and assets which are necessary to the
business of Seller or such Seller Subsidiary as presently conducted or
as it contemplates conducting.
(f) Neither Seller nor any Seller Subsidiary has
caused or permitted its respective businesses, properties, or assets to
be used to generate, manufacture, refine, transport, treat, store,
handle, dispose of, transfer, produce, or process any Hazardous
Substance except in compliance with all applicable laws, rules,
regulations, orders, judgments, and decrees, and has not caused or
permitted the Release of any Hazardous Substance on or off the site of
any property of Seller or any Seller Subsidiary.
-12-
<PAGE>
Section 2.07 Contracts and Other Instruments.
Schedule 2.07 sets forth all contracts, agreements, instruments,
leases, licenses, arrangements, or understandings with respect to Seller and
each Seller Subsidiary that are material to the Seller and the Seller
Subsidiaries taken as a whole, identifying whether the matter disclosed therein
relates to Seller or to a Seller Subsidiary named therein. Seller has furnished
to the Purchaser (a) the certificate of incorporation (or other charter
document) and by-laws of Seller and each Seller Subsidiary and all amendments
thereto, as presently in effect, certified by the Secretary of the corporation
and (b) the following: (i) true and correct copies of all contracts, agreements,
and instruments referred to in Schedule 2.07; (ii) true and correct copies of
all leases and licenses referred to in Schedule 2.06 or Schedule 2.08; and (iii)
true and correct written descriptions of all supply, distribution, agency,
financing, or other arrangements or understandings referred to in Schedule 2.07.
Except as described in Schedule 2.07, neither Seller, any Seller Subsidiary,
nor, to the knowledge of Seller or any Seller Subsidiary, any other party to any
such contract, agreement, instrument, lease, or license is now or, in the
reasonable judgment of Seller, expects in the future to be in violation or
breach of, or in default with respect to complying with, any material term
thereof, and, assuming the due authorization, execution, and delivery thereof by
the other parties thereto, each such contract, agreement, instrument, lease, or
license is in full force and is the legal, valid, and binding obligation of the
parties thereto and, subject to applicable bankruptcy, insolvency, and other
laws affecting the enforceability of creditors' rights generally, is enforceable
as to them in accordance with its terms. Each such supply, distribution, agency,
financing, or other arrangement or understanding is a valid and continuing
arrangement or understanding; except as set forth in Schedule 2.07, neither
Seller, any Seller Subsidiary, nor any other party to any such arrangement or
understanding has given notice of termination or taken any action inconsistent
with the continuance of such arrangement or understanding; and the execution,
delivery, and performance by the Seller and the Seller Subsidiaries of the
Transaction Agreements to which it is or shall be a party will not prejudice any
such arrangement or understanding in any way. Each of Seller and each of the
Seller Subsidiaries enjoys peaceful and undisturbed possession in all material
respects under all leases and licenses under which it is operating. Neither
Seller nor any Seller Subsidiary is party to or bound by any contract,
agreement, instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had or, to the knowledge of
Seller or any Seller Subsidiary, may in the future have a material adverse
effect on the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of Seller, any Seller Subsidiary, or
HEcom. Neither Seller nor any Seller Subsidiary has engaged in within the last
five years, is engaging in, or intends to engage in any transaction with, or has
had within the last five years, now has, or intends to have any contract,
agreement, instrument, lease, license, arrangement, or understanding with, any
stockholder, any director, officer, or employee of Seller or of any Seller
Subsidiary (except for employment agreements listed in Schedule 2.07 and
employment and compensation arrangements described in Schedule 2.08(a), in each
case with such directors, officers, and employees who are not relatives or
affiliates described in the next clause), any relative or affiliate of any
stockholder or of any such director, officer, or employee, or any other
corporation or enterprise in which any stockholder, any such director, officer,
or employee, or any such relative or affiliate then had or now has a 5% or
greater equity or voting or other substantial interest, other than those
described in Schedule 2.07. The stock ledgers and stock transfer books and the
minute book records of Seller and the Seller Subsidiaries relating to all
issuances and transfers of stock by Seller and the Seller Subsidiaries and all
proceedings of the stockholders and the Board of Directors and committees
thereof of Seller and the Seller Subsidiaries since their respective
incorporations made available to the Purchaser's counsel are the original stock
ledgers and stock transfer books and minute book records of Seller and the
Seller Subsidiaries or exact copies thereof. Neither Seller nor any Seller
Subsidiary is in violation or breach of, or in default with respect to, any term
of its certificate of incorporation or other charter document or by-laws.
Neither Seller nor any Seller Subsidiary is a member of a customer or user
organization or of a trade association other than as specified in Schedule 2.07.
-13-
<PAGE>
Section 2.08 Employees.
(a) Neither Seller nor any Seller Subsidiary has, or
contributes to, any pension, profit-sharing, option, other incentive plan, or
any other type of Employee Benefit Plan or has any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, except as set forth in Schedule
2.08(a). Seller has furnished to the Purchaser: (i) true and correct copies of
all documents evidencing plans, obligations, or arrangements referred to in
Schedule 2.08(a) (or true and correct written summaries of such plans,
obligations, or arrangements to the extent not evidenced by documents) and true
and correct copies of all documents evidencing trusts, summary plan
descriptions, and any other summaries or descriptions relating to any such
plans; (ii) the two most recent annual reports (Form 5500's), if any, including
all schedules thereto and the most recent annual and periodic accounting of
related plan assets with respect to each Employee Benefit Plan; and (iii) the
two most recent actuarial valuations with respect to each Pension Plan subject
to Title IV of ERISA.
(b) If any Employee Benefit Plan of Seller or of any Seller
Subsidiary were to be terminated on the day prior to the date of the Closing,
(i) no liability under Title IV of ERISA would be incurred by Seller, any Seller
Subsidiary, or HEcom and (ii) all Accrued Benefits to such day prior to the date
of the Closing (whether or not vested) would be fully funded in accordance with
the assumptions contained in the regulations of the Pension Benefit Guaranty
Corporation governing the funding of terminated defined benefit plans. All
Accrued Liabilities (for contributions or otherwise) of Seller or any Seller
Subsidiary as of the date of the Closing to each Employee Benefit Plan and with
respect to each obligation to or customary arrangement with employees for
bonuses, incentive compensation, vacations, severance pay, insurance, or other
benefits have been paid or accrued for all periods ending prior to the date of
the Closing and no payment to any Employee Benefit Plan or with respect to any
such obligation or arrangement since the Last Seller Balance Sheet Date has been
disproportionately large compared to prior payments.
(c) There has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Code for which a
penalty has been or may be imposed with respect to any Employee Benefit Plan of
Seller or of any Seller Subsidiary. No Employee Benefit Plan or related trust
has any liability of any nature, accrued or contingent, including without
limitation liabilities for Taxes, other than for routine payments to be made in
due course to participants and beneficiaries, except as set forth in Schedule
2.08(c). Each Employee Benefit Plan which is a group health plan within the
meaning of Section 4980 B(g)(ii) of the Code is and has been maintained in full
compliance with the applicable requirements of Section 4980 B(f) of the Code.
Other than the health care continuation requirements of Section 4980 B(f) of the
Code, neither Seller nor any Seller Subsidiary has any obligation to provide
post-retirement medical benefits or life insurance coverage to any present or
former employees. There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or
in prospect (or any basis therefor known to Seller or any Seller Subsidiary)
with respect to any Employee Benefit Plan or related trust or with respect to
any fiduciary, administrator, or sponsor (in its capacity as such) of any
Employee Benefit Plan. No Employee Benefit Plan or related trust and no such
obligation or arrangement is in violation of, or in default with respect to, any
law, rule, regulation, order, judgment, or decree nor is Seller, any Seller
Subsidiary, any Employee Benefit Plan of Seller or any Seller Subsidiary, or any
related trust required to take any action in order to avoid violation or
default. No event has occurred or is threatened or about to occur which would
constitute a prohibited transaction under Section 406 of ERISA.
-14-
<PAGE>
(d) Each Pension Plan maintained for the employees of Seller
or of any Seller Subsidiary has been qualified, from its inception, under
Section 401(a) of the Code and any related trust has been an exempt trust for
such period under Section 501 of the Code. Each such Pension Plan has been
operated in accordance with its terms. No investigation or review by the
Internal Revenue Service is currently pending or, to the knowledge of Seller or
any Seller Subsidiary, is contemplated in which the Internal Revenue Service has
asserted or may assert that any such Pension Plan is not qualified under Section
401(a) of the Code or that any related trust is not exempt under Section 501 of
the Code. No assessment of any federal taxes has been made or, to the knowledge
of Seller or any Seller Subsidiary, is contemplated against Seller, any Seller
Subsidiary, or any related trust of any such Pension Plan and nothing has
occurred which would result in the assessment of unrelated business taxable
income under the Code. Form 5500's have been timely filed with respect to all
Pension Plans of Seller and the Seller Subsidiaries. No event has occurred or,
to the knowledge of Seller or any Seller Subsidiary, is threatened or about to
occur which would constitute a reportable event within the meaning of Section
4043(b) of ERISA. No notice of termination has been filed by the plan
administrator pursuant to Section 4041 of ERISA or issued by the Pension Benefit
Guaranty Corporation pursuant to Section 4042 of ERISA with respect to any
Pension Plan of Seller and the Seller Subsidiaries.
(e) Neither Seller nor any Seller Subsidiary currently
contributes to or since September 16, 1980 has effectuated either a complete or
partial withdrawal from any multiemployer Pension Plan within the meaning of
Section 3(37) of ERISA.
(f) Schedule 2.08(f) contains a true and correct statement of
the names, relationship with Seller or any Seller Subsidiary, present rates of
compensation (whether in the form of salary, bonuses, commissions, or other
supplemental compensation now or hereafter payable), and aggregate compensation
for the fiscal year ended December 31, 1999 of (i) each director, officer, or
other employee of Seller or of any Seller Subsidiary whose aggregate
compensation for the fiscal year ended December 31, 1999 exceeded $25,000 or
whose aggregate compensation presently exceeds the rate of $25,000 per annum and
(ii) all sales agents, dealers, or distributors of Seller or of any Subsidiary.
Except as set forth in Schedule 2.08(f), since December 31, 1999, neither Seller
nor any Seller Subsidiary has changed the rate of compensation of any of its
directors, officers, employees, agents, dealers, or distributors, nor has any
Employee Benefit Plan or program been instituted or amended to increase benefits
thereunder.
-15-
<PAGE>
Section 2.09 Patents, Trademarks, Et Cetera.
Neither Seller nor any Seller Subsidiary owns or has pending, or is
licensed under, any Intangibles, other than as described in Schedule 2.09
hereto, all of which are in good standing and uncontested. Schedule 2.09
accurately sets forth with respect to Intangibles owned by Seller or by any
Seller Subsidiary, where appropriate, a statement of cost, book value and
reserve for depreciation of each item for tax purposes, and net book value of
each item for financial reporting purposes, and with respect to Intangibles
licensed by Seller or by any Seller Subsidiary from or to a third party, a
description of such license. Neither any director, officer, or employee of
Seller or of any Seller Subsidiary, any stockholder of Seller of any Seller
Subsidiary, any relative or affiliate of any such stockholder or of any such
director, officer, or employee, nor any other corporation or enterprise in which
any stockholder, any such director, officer, or employee, or any such relative
or affiliate had or now has a 5% or greater equity or voting or other
substantial interest, possesses any Intangible which relates to the business of
Seller or of any Seller Subsidiary. Schedule 2.09 sets forth all trademarks used
by Seller to identify its products and indicates whether such trademark is
protected by registration in the name of Seller on either the principal or
supplemental register in the United States Patent and Trademark Office. There is
no right under any Intangible necessary to the business of Seller or of any
Seller Subsidiary as presently conducted or as it contemplates conducting,
except such as are so designated in Schedule 2.09. To the best knowledge of
Seller and each Seller Subsidiary, neither Seller nor any Subsidiary has
infringed, is infringing, or has received notice of infringement with asserted
Intangibles of others. To the knowledge of Seller or any Seller Subsidiary,
there is no infringement by others of Intangibles of Seller or of any
Subsidiary. As far as Seller or any Seller Subsidiary can foresee, there is no
Intangible of others which may materially adversely affect the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of Seller or of any Seller Subsidiary.
Section 2.10 Questionable Payments.
Neither Seller, any Seller Subsidiary, any director, officer, agent,
employee, or other person associated with or acting on behalf of Seller or any
Seller Subsidiary, nor any stockholder of Seller or any Seller Subsidiary has,
directly or indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on the
books or records of Seller or any Seller Subsidiary; made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; given any favor
or gift which is not deductible for federal income tax purposes; or made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained.
-16-
<PAGE>
Section 2.11 Authority to Sell.
Seller has all requisite power and authority to execute, deliver, and
perform each of the Transaction Agreements to which it is or shall be party. All
necessary corporate proceedings of Seller or any Seller Subsidiary have been
duly taken to authorize the execution, delivery, and performance by Seller of
each of the Transaction Agreements to which Seller is or shall be party, except
for required corporate action by the stockholders of Seller or any Seller
Subsidiary. This Agreement has been duly authorized, executed, and delivered by
Seller, constitutes the legal, valid, and binding obligations of Seller, and,
subject to applicable bankruptcy, insolvency, and other laws affecting the
enforcement of creditors' rights generally, is enforceable as to Seller in
accordance with its terms. Each of the Transaction Agreements to which Seller is
or shall be party other than this Agreement has been duly authorized, and at
Closing will be duly executed and delivered by Seller, will constitute the
legal, valid, and binding obligation of Seller, and will be enforceable as to
Seller in accordance with its respective terms, subject to applicable
bankruptcy, insolvency, and other laws affecting the enforceability of
creditors' rights generally. Except as set forth in Sections 5.09 and 5.10, no
consent, authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by Seller or
any Seller Subsidiary for the execution, delivery, or performance by Seller of
any Transaction Agreement to which it is party. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or understanding
to which Seller or any Seller Subsidiary is a party, or to which it or any of
its respective businesses, properties, or assets are subject, is required for
the execution, delivery, or performance of any Transaction Agreement to which
Seller is or shall be a party (except such consents referred to in Schedule
2.11); and the execution, delivery, and performance of the Transaction
Agreements will not (if the consents referred to in Schedule 2.11 are obtained
prior to the Closing) violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under, entitle any party to rights and privileges
that such party was not receiving or entitled to receive immediately before this
Agreement was executed under, or create any obligation on the part of Seller or
any Seller Subsidiary that it was not paying or obligated to pay immediately
before this Agreement or any other Transaction Agreement was executed under, any
term of any such contract, agreement, instrument, lease, license, arrangement,
or understanding, or (if the conditions in Sections 5.09 and 5.10 are satisfied)
violate or result in a breach of any term of the certificate of incorporation
(or other charter document) or by-laws of Seller or any Seller Subsidiary, or
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on Seller or any Seller Subsidiary or to
which it or any of its respective businesses, properties, or assets are subject.
Upon the Closing, HEcom will have good title to all properties (other than real
properties) and assets used in the business of Seller or owned by Seller (except
such real and other properties and assets as are held pursuant to leases or
licenses described in Schedule 2.07 or Schedule 2.09 and except for the Excluded
Assets), free and clear of all liens, mortgages, security interests, pledges,
charges, and encumbrances (except such as are listed in Schedule 2.06).
-17-
<PAGE>
Section 2.12 Non-Distributive Intent.
Except in connection with the liquidation of the Seller as contemplated
by Section 4.04 hereof, Seller is acquiring the shares of Purchaser Preferred
Stock and the shares of Purchaser Common Stock to be issued hereunder for its
own account (and not for the account of others) for investment and not with a
view to the distribution thereof. Seller will not sell or otherwise dispose of
such shares (whether pursuant to a liquidating dividend or otherwise) without
registration under the Securities Act or an exemption therefrom, and the
certificate or certificates representing such shares may contain a legend to the
foregoing effect. By virtue of its position, Seller has access to the kind of
financial and other information about the Purchaser as would be contained in a
registration statement filed under the Securities Act. Seller understands that
it may not sell or otherwise dispose of such shares in the absence of either a
registration statement under the Securities Act or an exemption from the
registration provisions of the Securities Act.
Section 2.13 Completeness of Disclosure.
No representation or warranty by Seller in this Agreement contains or
on the date of the Closing will contain an untrue statement of material fact or
omits or on the Closing Date will omit to state a material fact required to be
stated therein or necessary to make the statements made therein not misleading.
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to Seller as follows:
Section 3.01 Organization.
The Purchaser owns, either directly or through one or more wholly-owned
subsidiaries, all the outstanding shares of capital stock of the corporations
listed in Schedule 3.01 hereto (the "Purchaser Subsidiaries"). Other than the
Purchaser Subsidiaries, neither Purchaser nor any Purchaser Subsidiary has a
subsidiary or affiliate corporation or owns any interest in any other enterprise
(whether or not such enterprise is a corporation). Schedule 3.01 also correctly
sets forth as to the Purchaser and as to each Purchaser Subsidiary its place of
incorporation, principal place of business, jurisdictions in which it is
qualified to do business, and the business which it presently conducts and which
it contemplates conducting; and as to each Purchaser Subsidiary its authorized
capitalization, its shares of capital stock outstanding, and the record and
beneficial owner of those shares. Each of the Purchaser and each of the
Purchaser Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of its respective jurisdiction of incorporation,
with all requisite power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and tribunals, to own, lease, license,
and use its properties and assets and to carry on the business in which it is
now engaged and the business in which it contemplates engaging. Each of the
Purchaser and each of the Purchaser Subsidiaries is duly qualified to transact
the business in which it is engaged and is in good standing as a foreign
corporation in every jurisdiction in which its ownership, leasing, licensing, or
use of property or assets or the conduct of its business makes such
qualification necessary.
-18-
<PAGE>
Section 3.02 Validity of Shares; Terms of Purchaser Preferred Stock.
The shares of Purchaser Preferred Stock and Purchaser Common Stock to
be delivered pursuant to this Agreement, when issued in accordance with the
terms and provisions of this Agreement, will be validly authorized and issued,
fully paid, and nonassessable. The designation of the Purchaser Series A
Preferred Stock and the Purchaser Series B Preferred Stock to be issued at the
Closing, and the respective powers, preferences, and relative participating,
optional, or other special rights, and the respective qualifications,
limitations, or restrictions thereof, are set forth in the Purchaser Series A
Preferred Stock Certificate of Designation and the Purchaser Series B Preferred
Stock Certificate of Designation, respectively, the forms of which are attached
hereto as Exhibit 3.02A and Exhibit 3.02B respectively.
Section 3.03 Authority to Buy.
Each of the Purchaser and HEcom has all requisite power and authority
to execute, deliver, and perform each of the Transaction Agreements to which it
is or shall be party. All necessary corporate proceedings of the Purchaser and
HEcom have been duly taken by the Purchaser and HEcom to authorize the
execution, delivery, and performance of the Transaction Agreements to which the
Purchaser and HEcom, respectively, are or shall be party. This Agreement has
been duly authorized, executed, and delivered by the Purchaser and HEcom, is the
legal, valid, and binding obligation of the Purchaser and HE.com, and is
enforceable as to them in accordance with its terms, subject to applicable
bankruptcy, insolvency, and other laws affecting creditors' rights generally.
Each of the Transaction Agreements other than this Agreement has been duly
authorized by such of the Purchaser and HEcom as are to be party thereto, and,
at the Closing, will be duly executed and delivered by such of the Purchaser and
HEcom as are party to be thereto, and shall be the legal, valid, and binding
obligation of the Purchaser, HEcom, or the Purchaser and HEcom, as applicable,
and shall be enforceable as to them in accordance with its respective terms.
Except as set forth in Sections 6.09 and 6.10, no consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by Purchaser or any Purchaser Subsidiary for
the execution, delivery, or performance by Purchaser or HEcom of any Transaction
Agreement to which it is or shall be party. No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or understanding
to which Purchaser or any Purchaser Subsidiary is a party, or to which it or any
of its respective business, properties, or assets are subject, is required for
the execution, delivery, or performance of any Transaction Agreement to which
Purchaser or HEcom is or shall be a party (except such consents referred to in
Schedule 3.03); and the execution, delivery, and performance of the Transaction
Agreements will not (if the consents referred to in Schedule 3.03 are obtained
prior to the Closing) violate, result in breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under, entitle any party to rights and privileges
that such party was not receiving or entitled to receive immediately before this
Agreement was executed under, or create any obligation on the part of Purchaser
or any Purchaser Subsidiary that it was not paying or obligated to pay
immediately before this Agreement or any other Transaction Agreement was
executed under, any term of any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or (if the conditions in Sections 6.09
and 6.10 are satisfied) violate or result in a breach of any term of the
certificate of incorporation (or other charter document) or by-laws of Purchaser
or any Purchaser Subsidiary, or violate, result in a breach of, or conflict with
any law, rule, regulation, order, judgment, or decree binding on Purchaser or
any Purchaser Subsidiary or to which it or any of its respective businesses,
properties, or assets are subject.
-19-
<PAGE>
Section 3.04 Capitalization.
The authorized capital stock of Purchaser consists of (i) 40,000,000
shares of Purchaser Common Stock, of which 6,625,000 shares are outstanding, and
(ii) 4,000,000 shares of preferred stock, par value $.001 per share, of which no
shares are outstanding. Each of the outstanding shares of Purchaser Common Stock
and each outstanding share of capital stock of each Purchaser Subsidiary is
validly authorized and issued, fully paid, and nonassessable, has not been
issued and is not owned or held in violation of any preemptive or similar right
of stockholders, and is in each case free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and voting
trusts other than those created by stockholders of Purchaser or with respect to
their property but to which neither the Purchaser, nor the officers or directors
thereto is a party. Except as set forth in the Purchaser SEC Documents, (a)
there is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any share of
capital stock of Purchaser or of any Purchaser Subsidiary or any security or
other instrument convertible into, or exchangeable or exercisable for capital
stock of Purchaser or of any Purchaser Subsidiary, and (b) there is outstanding
no security or other instrument convertible into, or exercisable or exchangeable
for, capital stock of Purchaser or of any Purchaser Subsidiary.
Section 3.05 Financial Condition.
Purchaser has delivered to the Seller true and correct copies of the
following: audited consolidated balance sheets of Purchaser as of December 31,
1996, 1997, and 1998; the audited consolidated statement of income, consolidated
statement of retained earnings, and consolidated statement of cash flows of
Purchaser for the period ended December 31, 1996 and for the years ended
December 31, 1997 and 1998; unaudited consolidated balance sheets of Purchaser
as of March 31, 1998 and 1999, June 30, 1998 and 1999, and September 30, 1998
and 1999; the unaudited consolidated statement of income, consolidated statement
of retained earnings, and consolidated statement of cash flows of Purchaser for
the periods ended March 31, 1998 and 1999, June 30, 1998 and 1999, and September
30, 1998 and 1999. Each such consolidated balance sheet presents fairly the
consolidated financial condition, assets, liabilities, and stockholders' equity
of Purchaser and the Purchaser Subsidiaries as of its date; each such
consolidated statement of income and consolidated statement of retained earnings
presents fairly the consolidated results of operations of Purchaser and the
Purchaser Subsidiaries for the period indicated; and each such consolidated
statement of cash flows presents fairly the information purported to be shown
therein. The financial statements referred to in this Section 3.05 have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and are in accordance with
the books and records of Purchaser and the Purchaser Subsidiaries. Since
December 31, 1998 and September 30, 1999, except as set forth in the Purchaser
SEC Documents:
-20-
<PAGE>
(a) There has at no time been a material adverse change in the
financial condition, results of operations, business, properties,
assets, liabilities, or, to the best knowledge of Purchaser and HEcom,
future prospects of Purchaser or any Purchaser Subsidiary; and each of
Purchaser and each of the Purchaser Subsidiaries has operated
consistently in all material respects with the results of operations
referred to in Last Purchaser Financial Statements.
(b) Neither Purchaser nor any Purchaser Subsidiary has
authorized, declared, paid, or effected any dividend or liquidating or
other distribution in respect of its capital stock or any direct or
indirect redemption, purchase, or other acquisition of any stock of
Purchaser or any Purchaser Subsidiary.
(c) The operations and business of Purchaser and each
Purchaser Subsidiary have been conducted in all material respects only
in the ordinary course of business consistent with past practice.
(d) There has been no accepted purchase order or quotation,
arrangement, or understanding for future sale of the products or
services of Purchaser or of any Purchaser Subsidiary which in the
reasonable expectation of Purchaser will not be profitable.
(e) Neither Purchaser nor any Purchaser Subsidiary has
suffered an extraordinary loss (whether or not covered by insurance) or
waived any right of substantial value.
(f) Neither Purchaser nor any Purchaser Subsidiary has paid or
incurred any tax, other liability, or expense resulting from the
preparation of, or the transactions contemplated by, the Transaction
Agreements.
There is no fact known to Purchaser or any Purchaser Subsidiary which materially
adversely affects or in the future (as far as Purchaser or any Purchaser
Subsidiary can foresee) may materially adversely affect the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of Purchaser or of any Purchaser Subsidiary, including HEcom;
provided, however, that Purchaser and HEcom express no opinion as to political
or economic matters of general applicability.
-21-
<PAGE>
Section 3.06 Tax and Other Liabilities.
Neither Purchaser nor any Purchaser Subsidiary has any liability of any
nature, accrued or contingent, including without limitation liabilities for
Taxes and liabilities to customers or suppliers, other than the following:
(a) Liabilities for which full provision has been made on the
Last Purchaser Balance Sheet; and
(b) Other liabilities arising since the Last Purchaser Balance
Sheet Date and prior to the Closing (as defined in Section 4.02) in the
ordinary course of business (which shall not include liabilities to
customers on account of defective products or services) which are not
inconsistent with the representations and warranties of Purchaser or
any other provision of this Agreement.
Without limiting the generality of the foregoing, the amounts set up as
provisions for Taxes on the Last Purchaser Balance Sheet are sufficient for all
accrued and unpaid Taxes of Purchaser and the Purchaser Subsidiaries, whether or
not due and payable and whether or not disputed, under tax laws, as in effect on
the Last Purchaser Balance Sheet Date or now in effect, for the period ended on
such date and for all fiscal periods prior thereto. The execution, delivery, and
performance by Purchaser and HEcom of such of the Transaction Agreements to
which it is party will not cause any Taxes to be payable (other than by Seller
or stockholders of Seller or any Seller Subsidiary) or cause any lien, charge,
or encumbrance to secure any Taxes to be created either immediately or upon the
nonpayment of any Tax (other than on the properties or assets of stockholders of
Seller or any Seller Subsidiary). The Internal Revenue Service has audited and
settled or the statute of limitations has run upon all federal income tax
returns of Purchaser and the Purchaser Subsidiaries for all taxable years up to
and including the taxable year ended December 31, 1995. Each of Purchaser and
each of the Purchaser Subsidiaries has filed all federal, state, local, and
foreign Tax Returns required to be filed by it or has filed an extension with
respect thereto; has delivered to the Seller a true and correct copy of each
such return which was filed since inception, initialled by the chief executive
officer of Purchaser; has paid (or has established on the Last Purchaser Balance
Sheet a reserve for) all Taxes, assessments, and other governmental charges
payable or remittable by it or levied upon it or its properties, assets, income,
or franchises which are due and payable; and has delivered to the Seller a true
and correct copy, so initialled, of any report as to adjustments received by it
from any taxing authority during the past six years and a statement, so
initialled, as to any litigation, governmental or other proceeding (formal or
informal), or investigation pending, threatened, or in prospect with respect to
any such report or the subject matter of such report. No agreement extending the
time for assessment of any Taxes has been granted that currently is in effect,
no protests are pending with respect to any Taxes, and there are no liens for
Taxes (other than for Taxes that are not yet due and payable).
-22-
<PAGE>
Section 3.07 Litigation and Claims.
Except as set forth in Schedule 3.07 hereto, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any basis therefor known
to Purchaser or any Purchaser Subsidiary) with respect to Purchaser, any
Purchaser Subsidiary, or any of its respective businesses, properties, or
assets, a determination in which adverse to Purchaser or any Purchaser
Subsidiary could have a material adverse effect on the business, prospects,
financial condition, or results of operations thereof. Neither Purchaser nor any
Purchaser Subsidiary is affected by any present or threatened strike or other
labor disturbance nor to the knowledge of Purchaser or any Purchaser Subsidiary
is any union attempting to represent any employee of Purchaser or of any
Purchaser Subsidiary as collective bargaining agent. To the knowledge of
Purchaser and HEcom, neither Purchaser nor any Purchaser Subsidiary is in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree; nor is Purchaser or any Purchaser Subsidiary required to
take any action in order to avoid such violation or default.
Section 3.08 Properties.
Each of Purchaser and each of the Purchaser Subsidiaries has good title
to all other properties and assets used in its business or owned by it (except
such real and other properties and assets as are held pursuant to leases or
licenses described in Schedule 3.09 or Schedule 3.11 hereto), free and clear of
all liens, mortgages, security interests, pledges, charges, and encumbrances,
except such as are listed in Schedule 3.08 hereto. Neither Purchaser nor any
Purchaser Subsidiaries owns any real property.
(a) All accounts and notes receivable reflected on the Last
Purchaser Balance Sheet, or arising since the Last Purchaser Balance
Sheet Date, have been collected, or are and will be good and
collectible, in each case at the aggregate recorded amounts thereof
without right of recourse, defense, deduction, return of goods,
counterclaim, offset, or set off on the part of the obligor, and, if
not collected, can reasonably be anticipated to be paid within 90 days
of the date incurred, net of any reserve for bad accounts reflected on
the Last Purchaser Balance Sheet.
(b) All real and other properties and assets (including
Intangibles) owned by Purchaser or by any Purchaser Subsidiary are
reflected on the Last Purchaser Balance Sheet (except for acquisitions
and dispositions or sales on the ordinary course of business subsequent
to the Last Purchaser Balance Sheet Date and prior to the Closing). All
real and other tangible properties and assets owned, leased, or
licensed by Purchaser or by any Purchaser Subsidiary are in good and
usable condition (reasonable wear and tear which is not such as to
affect adversely the operation of the business of Purchaser or the
Seller Purchaser taken as a whole).
(c) No real property leased or licensed by Purchaser or by any
Purchaser Subsidiary lies in an area which is, or to the knowledge of
Purchaser or any Purchaser Subsidiary will be, subject to zoning, use,
or building code restrictions which would prohibit, and no state of
facts relating to the actions or inaction of another person or entity
or his or its leasing, licensing, or use of any real or personal
property exists or will exist which would prevent the continued
effective leasing, licensing, or use of such real property in the
business in which Purchaser or such Purchaser Subsidiary is now engaged
or the business in which it contemplates engaging.
(d) The real and other properties and assets (including
Intangibles) owned by Purchaser and each Purchaser Subsidiary or leased
or licensed by Purchaser or such Purchaser Subsidiary from a third
party constitute all such properties and assets which are necessary to
the business of Purchaser or such Purchaser Subsidiary as presently
conducted or as it contemplates conducting.
(e) Neither Purchaser nor any Purchaser Subsidiary has caused
or permitted its respective businesses, properties, or assets to be
used to generate, manufacture, refine, transport, treat, store, handle,
dispose of, transfer, produce, or process any Hazardous Substance,
except in compliance with all applicable laws, rules, regulations,
orders, judgments, and decrees, and has not caused or permitted the
Release of any Hazardous Substance on or off the site of any property
of Seller or any Subsidiary.
-23-
<PAGE>
Section 3.09 Contracts and Other Instruments.
Schedule 3.09 accurately and completely sets forth all material
contracts, agreements, instruments, leases, licenses, arrangements, or
understandings with respect to Purchaser and the Purchaser Subsidiaries taken as
a whole, identifying whether the matter disclosed therein relates to Purchaser
or to a Purchaser Subsidiary named therein. Purchaser has furnished to the
Purchaser (a) the certificate of incorporation (or other charter document) and
by-laws of Purchaser and each Purchaser Subsidiary and all amendments thereto,
as presently in effect, certified by the Secretary of the corporation and (b)
the following: (i) true and correct copies of all contracts, agreements, and
instruments referred to in Schedule 3.09; (ii) true and correct copies of all
leases and licenses referred to in Schedule 3.08 or Schedule 3.11; and (iii)
true and correct written descriptions of all supply, distribution, agency,
financing, or other arrangements or understandings referred to in Schedule 3.08.
Neither Purchaser, any Purchaser Subsidiary, nor to the knowledge of Purchaser
or HEcom any other party to any such contract, agreement, instrument, lease, or
license is now or, in the reasonable judgment of Seller, expects in the future
to be in violation or breach of, or in default with respect to complying with,
any material term thereof, and, assuming the due authorization, execution and
delivery thereof by the other parties thereto, each such contract, agreement,
instrument, lease, or license is in full force and is the legal, valid, and
binding obligation of the parties thereto and, subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors' rights
generally, is enforceable as to them in accordance with its terms. Each such
supply, distribution, agency, financing, or other arrangement or understanding
is a valid and continuing arrangement or understanding; neither Purchaser, any
Purchaser Subsidiary, nor any other party to any such arrangement or
understanding has given notice of termination or taken any action inconsistent
with the continuance of such arrangement or understanding; and the execution,
delivery, and performance by Purchaser or HEcom of the Transaction Agreements to
which it is party will not prejudice any such arrangement or understanding in
any way. Each of Purchaser and each of the Purchaser Subsidiaries enjoys
peaceful and undisturbed possession under all leases and licenses under which it
is operating. Neither Purchaser nor any Purchaser Subsidiary is party to or
bound by any contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has had or,
to the knowledge of Purchaser or any Purchaser Subsidiary, may in the future
have a material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
Purchaser or any Purchaser Subsidiary. Except as disclosed in the Purchaser SEC
Documents, neither Purchaser nor any Purchaser Subsidiary has engaged within the
last five years in, is engaging in, or intends to engage in any transaction
with, or has had within the last five years, now has, or intends to have any
contract, agreement, instrument, lease, license, arrangement, or understanding
with, any stockholder, any director, officer, or employee of Purchaser or of any
Purchaser Subsidiary (except for employment agreements listed in Schedule
3.10(a) and employment and compensation arrangements described in the Purchaser
SEC Documents, in each case with such directors, officers, and employees who are
not relatives or affiliates described in the next clause), any relative or
affiliate of any stockholder or of any such director, officer, or employee, or
any other corporation or enterprise in which any stockholder, any such director,
officer, or employee, or any such relative or affiliate then had or now has a 5%
or greater equity or voting or other substantial interest, other than those
listed and so specified in the Purchaser SEC Documents. The stock ledgers and
stock transfer books and the minute book records of Purchaser and the Purchaser
Subsidiaries relating to all issuances and transfers of stock by Purchaser and
the Purchaser Subsidiaries and all proceedings of the stockholders and the Board
of Directors and committees thereof of Purchaser and the Purchaser Subsidiaries
since their respective incorporations made available to the Seller's counsel are
the original stock ledgers and stock transfer books and minute book records of
Purchaser and the Purchaser Subsidiaries or exact copies thereof. Neither
Purchaser nor any Purchaser Subsidiary is in violation or breach of, or in
default with respect to, any term of its certificate of incorporation or other
charter document or by-laws. Neither Purchaser nor any Purchaser Subsidiary is a
member of a customer or user organization or of a trade association other than
as specified in Schedule 3.09 hereof.
-24-
<PAGE>
Section 3.10 Employees.
(a) Neither Purchaser nor any Purchaser Subsidiary has, or
contributes to, any pension, profit-sharing, option, other incentive plan, or
any other type of Employee Benefit Plan or has any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, except as set forth in Schedule
3.10(a). Purchaser has furnished to the Seller: (i) true and correct copies of
all documents evidencing plans, obligations, or arrangements referred to in
Schedule 3.10(a) (or true and correct written summaries of such plans,
obligations, or arrangements to the extent not evidenced by documents) and true
and correct copies of all documents evidencing trusts, summary plan
descriptions, and any other summaries or descriptions relating to any such
plans; (ii) the two most recent annual reports (Form 5500's), if any, including
all schedules thereto and the most recent annual and periodic accounting of
related plan assets with respect to each Employee Benefit Plan; and (iii) the
two most recent actuarial valuations with respect to each Pension Plan subject
to Title IV of ERISA.
(b) If any Employee Benefit Plan of Purchaser or of any
Purchaser Subsidiary were to be terminated on the day prior to the date of the
Closing, (i) no liability under Title IV of ERISA would be incurred by Purchaser
or Purchaser Subsidiary and (ii) all Accrued Benefits to such day prior to the
date of the Closing (whether or not vested) would be fully funded in accordance
with the assumptions contained in the regulations of the Pension Benefit
Guaranty Corporation governing the funding of terminated defined benefit plans.
All Accrued Liabilities (for contributions or otherwise) of Purchaser or any
Purchaser Subsidiary as of the date of the Closing to each Employee Benefit Plan
and with respect to each obligation to or customary arrangement with employees
for bonuses, incentive compensation, vacations, severance pay, insurance, or
other benefits have been paid or accrued for all periods ending prior to the
date of the Closing and no payment to any Employee Benefit Plan or with respect
to any such obligation or arrangement since the Last Purchaser Balance Sheet
Date has been disproportionately large compared to prior payments.
(c) There has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Code for which a
penalty has been or may be imposed with respect to any Employee Benefit Plan of
Purchaser or of any Purchaser Subsidiary. No Employee Benefit Plan or related
trust has any liability of any nature, accrued or contingent, including without
limitation liabilities for Taxes, other than for routine payments to be made in
due course to participants and beneficiaries, except as set forth in Schedule
3.10(c). Each Employee Benefit Plan which is a group health plan within the
meaning of Section 4980 B(g)(ii) of the Code is and has been maintained in full
compliance with the applicable requirements of Section 4980 B(f) of the Code.
Other than the health care continuation requirements of Section 4980 B(f) of the
Code, neither Purchaser nor any Purchaser Subsidiary has any obligation to
provide post-retirement medical benefits or life insurance coverage to any
present or former employees. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending,
threatened, or in prospect (or any basis therefor known to Purchaser or any
Purchaser Subsidiary) with respect to any Employee Benefit Plan or related trust
or with respect to any fiduciary, administrator, or sponsor (in its capacity as
such) of any Employee Benefit Plan. No Employee Benefit Plan or related trust
and no such obligation or arrangement is in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree nor is
Purchaser, any Purchaser Subsidiary, any Employee Benefit Plan of Purchaser or
any Purchaser Subsidiary, or any related trust required to take any action in
order to avoid violation or default. No event has occurred or is threatened or
about to occur which would constitute a prohibited transaction under Section 406
of ERISA.
-25-
<PAGE>
(d) Each Pension Plan maintained for the employees of
Purchaser or of any Purchaser Subsidiary has been qualified, from its inception,
under Section 401(a) of the Code and any related trust has been an exempt trust
for such period under Section 501 of the Code. Each such Pension Plan has been
operated in accordance with its terms. No investigation or review by the
Internal Revenue Service is currently pending or, to the knowledge of Purchaser
or any Purchaser Subsidiary, is contemplated in which the Internal Revenue
Service has asserted or may assert that any such Pension Plan is not qualified
under Section 401(a) of the Code or that any related trust is not exempt under
Section 501 of the Code. No assessment of any federal taxes has been made or, to
the knowledge of Purchaser or any Purchaser Subsidiary, is contemplated against
Purchaser, any Purchaser Subsidiary, or any related trust of any such Pension
Plan and nothing has occurred which would result in the assessment of unrelated
business taxable income under the Code. Form 5500's have been timely filed with
respect to all Pension Plans of Purchaser and the Purchaser Subsidiaries. No
event has occurred or, to the knowledge of Purchaser or any Purchaser
Subsidiary, is threatened or about to occur which would constitute a reportable
event within the meaning of Section 4043(b) of ERISA. No notice of termination
has been filed by the plan administrator pursuant to Section 4041 of ERISA or
issued by the Pension Benefit Guaranty Corporation pursuant to Section 4042 of
ERISA with respect to any Pension Plan of Purchaser and the Purchaser
Subsidiaries.
(e) Neither Purchaser nor any Purchaser Subsidiary currently
contributes to or since September 16, 1980 has effectuated either a complete or
partial withdrawal from any multiemployer Pension Plan within the meaning of
Section 3(37) of ERISA.
(f) Schedule 3.10(f) contains a true and correct statement of
the names, relationship with Purchaser or any Purchaser Subsidiary, present
rates of compensation (whether in the form of salary, bonuses, commissions, or
other supplemental compensation now or hereafter payable), and aggregate
compensation for the fiscal year ended December 31, 1999 of (i) each director,
officer, or other employee of Purchaser or of any Purchaser Subsidiary whose
aggregate compensation for the fiscal year ended December 31, 1999 exceeded
$25,000 or whose aggregate compensation presently exceeds the rate of $25,000
per annum and (ii) all sales agents, dealers, or distributors of Purchaser or of
any Purchaser. Since December 31, 1999, neither Purchaser nor any Purchaser
Subsidiary has changed the rate of compensation of any of its directors,
officers, employees, agents, dealers, or distributors, nor has any Employee
Benefit Plan or program been instituted or amended to increase benefits
thereunder.
-26-
<PAGE>
Section 3.11 Patents, Trademarks, Et Cetera.
Neither Purchaser nor any Purchaser Subsidiary owns or has pending, or
is licensed under, any Intangibles, other than as described in Schedule 3.11,
all of which are in good standing and uncontested. Schedule 3.11 accurately sets
forth with respect to Intangibles licensed by Purchaser or by any Purchaser
Subsidiary from or to a third party, a description of such license. Neither any
director, officer, or employee of Purchaser or of any Purchaser Subsidiary, any
stockholder of Seller of any Seller Subsidiary, any relative or affiliate of any
such stockholder or of any such director, officer, or employee, nor any other
corporation or enterprise in which any stockholder, any such director, officer,
or employee, or any such relative or affiliate had or now has a 5% or greater
equity or voting or other substantial interest, possesses any Intangible which
relates to the business of Purchaser or of any Purchaser Subsidiary. Set forth
in Schedule 3.11 is a complete list of all trademarks used by Purchaser or its
affiliates to identify its products, and a designation as to whether such
trademark is protected by registration in the name of Purchaser or its
affiliates on the principal or supplemental register in the United States Patent
and Trademark Office. There is no right under any Intangible necessary to the
business of Purchaser or of any Purchaser Subsidiary as presently conducted or
as it contemplates conducting, except such as are so designated in Schedule
3.11. To the best knowledge of Purchaser, neither Purchaser nor any Purchaser
Subsidiary has infringed, is infringing, or has received notice of infringement
with asserted Intangibles of others. To the knowledge of Purchaser or any
Purchaser Subsidiary, there is no infringement by others of Intangibles of
Purchaser or of any Purchaser Subsidiary. As far as Purchaser or any Purchaser
Subsidiary can foresee, there is no Intangible of others which may materially
adversely affect the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of Purchaser or of any
Purchaser Subsidiary.
Section 3.12 Questionable Payments.
Neither Purchaser, any Purchaser Subsidiary, any director, officer,
agent, employee, or other person associated with or acting on behalf of
Purchaser or any Purchaser Subsidiary, nor any stockholder of Purchaser or any
Purchaser Subsidiary has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of Purchaser or any Purchaser
Subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; given any favor or gift which is not deductible for
federal income tax purposes; or made any bribe, kickback, or other payment of a
similar or comparable nature, whether lawful or not, to any person or entity,
private or public, regardless of form, whether in money, property, or services,
to obtain favorable treatment in securing business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
-27-
<PAGE>
Section 3.13 Completeness of Disclosure.
No representation or warranty by Purchaser or HEcom in this Agreement
contains or on the date of the Closing will contain an untrue statement of
material fact or omits or on the Closing Date will omit to state a material fact
required to be stated therein or necessary to make the statements made therein
not misleading.
Section 3.14 Continuation of Business.
Neither Purchaser, HEcom, nor any other Purchaser Subsidiary has any
plan or intention to sell or otherwise to dispose of any of the assets acquired
from Seller pursuant to Section 4.01, except for sales or dispositions made in
the ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Code. Following the closing, Purchaser and HEcom currently intend to
continue the historic business of Seller or use a significant portion of the
assets acquired from Seller pursuant to Section 4.01 in a business.
IV. THE EXCHANGE
Section 4.01 Terms of the Exchange.
On the basis of the representations, warranties, covenants, and
agreements contained in this Agreement and subject to the terms and conditions
of this Agreement:
(a) Seller shall sell, assign, transfer, and convey as a going
concern to HEcom at the Closing all properties and assets of Seller at
the date of the Closing of every kind and nature whatsoever (other than
the assets listed in Schedule 4.01(a) hereto (the "Excluded Assets")),
including the names, trademarks (including the name "HealthExchange,
Inc." and "HealthExchange.com"), as well as the universal resource
locator www.healthexchange.com, contractual rights, books and records
(other than minute books, stock ledgers and stock transfer books),
business, and goodwill of Seller; and, in consideration therefor, HEcom
shall:
(i) Deliver at the Closing to the Escrow Agent for
deposit into the Escrow Account a stock certificate
registered in the name of the Seller for 1,200,000 shares of
Purchaser Common Stock:
(ii) At the Closing cancel the Deposit Note;
(iii) At the Closing cancel the Bridge Note;
(iv) Deliver at the Closing to the Escrow Agent for
deposit into the Escrow Account (A) a stock certificate
registered in the name of the Seller for a number of shares
of Purchaser Series A Preferred Stock with an aggregate
Stated Value (as defined in the Purchaser Series A Preferred
Stock Certificate of Designation) equal to $15.35 million
less (1) the product of 600,000 and the Trailing Average
Closing Price, (2) the product of (a) the principal amount
of, and accrued and unpaid interest on, the Bridge Note and
(b) 0.5, and (3) the product of (a) the principal amount of,
and accrued and unpaid interest on, the Deposit Note and
(II) 0.5, and (B) a stock certificate registered in the name
of the Seller for a number of shares of Purchaser Series B
Preferred Stock with an aggregate Stated Value (as defined
in the Purchaser Series B Preferred Stock Certificate of
Designation) equal to $15.35 million less (A) the product of
600,000 and the Trailing Average Closing Price (2) the
product of (a) the principal amount of, and accrued and
unpaid interest on, the Bridge Note and (b) 0.5, and (3) the
product of (a) the principal amount of, and accrued and
unpaid interest on, the Deposit Note and (II) 0.5.
-28-
<PAGE>
(v) Assume at the Closing only such obligations and
liabilities of Seller (not to exceed $500,000) as are in
conformity with the representations and warranties of Seller
and are set forth in Schedule 4.01(a)(v) hereof (any
obligations and liabilities of Seller not in conformity with
the representations and warranties of Seller or not set
forth in Schedule 4.01(a)(v) hereof, the "Excluded
Liabilities").
(b) Except as set forth in Schedule 4.01(a)(v), neither the
Purchaser nor HEcom shall assume or be responsible for any obligation
or liability of Seller of any nature, accrued or contingent.
(c) The consideration paid by HEcom shall be allocated among
Seller's assets as set forth in Schedule 4.01(c) hereof.
(d) With respect to any properties or assets sold hereunder
that cannot be physically delivered to HEcom because they are in the
possession of third parties, or otherwise, Seller shall give
irrevocable instructions to the party in possession thereof, if such be
the case, with copies to the Purchaser, that all right, title, and
interest therein have been vested in HEcom and that the same are to be
held for HEcom's exclusive use and benefit.
(e) To the extent that the assignment by Seller to HEcom of
any contract, agreement, instrument, lease, license, understanding, or
arrangement to be assigned to Hecom hereunder shall require the consent
of a party other than Seller which has not been obtained by the Closing
and if the Purchaser and HEcom shall nevertheless elect to consummate
the transactions contemplated by this Agreement, this Agreement shall
not constitute an agreement to assign the same if an attempted
assignment without such consent would constitute a breach thereof
unless the Purchaser before, at, or after the Closing elects in a
writing delivered to Seller, specifically identifying such absent
consent, to waive such consent. Nothing in this Section 4.01(e)
regarding such non-assignment or such election shall limit any rights
the Purchaser or HEcom may have against Seller as a result of the
failure to obtain such consent.
Section 4.02 The Closing.
The closing of the transactions contemplated by Section 4.01 shall take
place at the offices of Brock Silverstein LLC, counsel to the Purchaser and
HEcom, 800 Third Avenue, 21st Floor, New York, New York 10022, at 10:00 a.m.,
local time, on the fifth business day after the date the conditions in Articles
V and VI have been satisfied. The closing may occur at such different place,
such different time, or such different date or a combination thereof as the
Purchaser and Seller agree in writing. The closing of the transactions
contemplated by Section 4.01, is referred to as the "Closing." If the Closing
shall not take place by April 17, 2000, then the parties not at fault shall, in
addition to all other rights and remedies available at law or in equity against
the defaulting parties, have the right to cancel and terminate this Agreement.
-29-
<PAGE>
Section 4.03 Transactions at the Closing.
The following transactions shall take place at the Closing:
(a) Seller shall deliver to HEcom all such bills of sale,
assignments, evidences of consent, certificates representing all the
outstanding shares of capital stock of the Seller Subsidiaries (other
than those constituting Excluded Assets) and certificates representing
all other securities (other than those constituting Excluded Assets)
(in each case duly endorsed in blank or accompanied by stock or other
powers duly endorsed in blank, with signatures guaranteed by medallion
signature guarantee, and with all stock transfer and any other required
documentary stamps affixed thereto), and other instruments or documents
as in the opinion of counsel to the Purchaser and HEcom may be
reasonably necessary or desirable to evidence or perfect the sale,
assignment, transfer, and conveyance of good title to all other
properties and assets to be sold to HEcom by Seller hereunder as well
as the other transaction contemplated by, and in connection with, the
Transaction Agreements, in each case free and clear of all liens,
mortgages, security interests, pledges, charges, and encumbrances
(except such as are listed in Schedule 2.06). Seller shall also deliver
to HEcom all books and records of Seller (except minute books, stock
ledgers and stock transfer books, which Seller hereby covenants and
agrees shall always be available for inspection by the Purchaser and
HEcom); provided, however, that Seller and its officers, employees,
counsel, and agents shall be afforded free and full access to its tax
and accounting records relating to periods prior to the Closing and
shall be permitted to make extracts from and copies of such records.
(b) Subject to Section 4.06 hereof, HEcom shall deliver (i) to
the Escrow Agent for deposit into the Escrow Account until the date of
the liquidation of the Seller pursuant to Section 4.04 a certificate
registered in the name of the Seller for such number of shares of
Purchaser Common Stock as shall be determined pursuant to section
4.01(a)(i) hereof, (ii) to the Escrow Agent for deposit into the Escrow
Account until the date of the liquidation of the Seller pursuant to
Section 4.04 a certificate registered in the name of the Seller for
such number of shares of Purchaser Preferred Stock as shall be
determined pursuant to Section 4.01(a)(iv) hereof, (iii) to the Seller
a cancellation of the Bridge Note, and (iv) to the Seller a
cancellation of the Deposit Note.
-30-
<PAGE>
(c) HEcom shall deliver to Seller an instrument of assumption
of the obligations and liabilities of Seller which HEcom has agreed to
assume pursuant to Section 4.01(a)(v), substantially in the form of
Exhibit 4.03(c). In addition, HEcom shall deliver a specific instrument
of assumption of any contractual obligation of Seller which HEcom has
agreed to assume pursuant to Section 4.01(a)(v) if a party thereto
(other than Seller) shall condition the assignment thereof to HEcom on
receipt of such specific instrument.
Section 4.04 Liquidation of Seller.
Subject to the effectiveness under the Securities Act of the
Registration Statement referenced in Section 8.09 hereof, within 180 days after
the Closing and at Seller's expense (or as soon thereafter as such Registration
Statement shall become effective under the Securities Act), Seller shall take
all steps necessary for the prompt distribution in liquidation of the shares of
Purchaser Common Stock received at the Closing, the shares of Purchaser
Preferred Stock received at the Closing, the Excluded Assets, and the rights of
Seller under this Agreement. Purchaser shall cooperate with and use its best
efforts to assist Seller in effecting such distribution, which assistance shall
include directing its transfer agent and registrar to participate in such
distribution and paying the costs and expenses of such transfer agent and
registrar. As soon as practicable thereafter, Seller shall, subject to Section
8.09(a) hereof, at its own expense, take all steps necessary to effect the
dissolution of Seller and any then existing Seller Subsidiaries.
Section 4.05 Indemnity Against Liabilities.
Seller agrees to indemnify and hold harmless the Purchaser Indemnitees
against any and all losses, liabilities, damages, and expenses whatsoever (which
shall include for all purposes of this Section 4.05, Section 4.06, and Section
9.01, but not be limited to reasonable counsel fees and any and all expenses
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with
(a) (i) any breach of any representation, warranty, covenant,
or agreement of Seller contained in this Agreement or any other
Transaction Agreement, (ii) any obligation or liability of Seller or
any Seller Subsidiary of any nature, accrued or contingent, not assumed
by the Purchaser or HEcom in accordance with Section 4.01(a)(v) and not
reimbursed to HEcom and Purchaser pursuant to the Escrow Agreement and
-31-
<PAGE>
(b) if the Closing takes place, any act, alleged act,
omission, or alleged omission occurring at or prior to the Closing
(including without limitation any which arise out of, are based upon,
or are in connection with any of the transactions contemplated by any
Transaction Agreement).
The foregoing agreement to indemnify shall be in addition to any liability
Seller may otherwise have, including liabilities arising under this Agreement.
Section 4.06 Adjustments to Consideration Delivered by Purchaser and
HEcom.
(a) Subject to paragraphs (b) and (c) of this Section 4.06 and
without limiting such other rights as the Purchaser Indemnitees may have, if,
prior to the time all shares of Purchaser Common Stock delivered pursuant to
Section 4.01(a)(i), or all shares of Purchaser Preferred Stock delivered
pursuant to Section 4.01(a)(iv), are distributed by Seller pursuant to Section
4.04 hereof, the Purchaser has learned of a breach of any representation,
warranty, covenant, or agreement of Seller contained in this Agreement, the
Purchaser in its discretion can by written notice to Seller deduct from the
number of shares of Purchaser Common Stock otherwise deliverable by HEcom at
such time a number of such shares the value of which (equal to the product of
the number of such shares of Purchaser Common Stock and the Trailing Average
Closing Price) is equal to the aggregate of (a) the amount necessary to cure or
make whole such breach and (b) the amount of losses, liabilities, claims,
damages, and expenses whatsoever (as defined in Section 4.05) incurred or
demonstrably in prospect of being incurred by any Indemnitee arising out of,
based upon, or in connection with such breach. Shares of Purchaser Common Stock
shall be valued for purposes of this Section 4.06 at the Trailing Average
Closing Price.
(b) Notwithstanding Section 4.06(a), if, prior to the date 30
calendar days following the date of the Closing, the obligations of the Seller
or any Seller Subsidiary to John Deere Health, Inc. and its affiliates shall not
have been either paid in full by the Seller and the Seller Subsidiaries or
converted into, or exchanged for shares of Seller Common Stock or other equity
securities of Seller, (1) within ten days thereafter the Purchaser and HEcom
shall assume and satisfy such obligations and (2) the Purchaser and Seller shall
irrevocably instruct the Escrow Agent to release from the Escrow Account and
deliver to the Purchaser and HEcom with five days thereafter the number of
shares of Purchaser Common Stock equal to the quotient of (A) the product of (I)
the total amount paid by Purchaser and HEcom to satisfy such obligations to John
Deere Health, Inc. and its affiliates and (II) 2.3, and (B) the Trailing Average
Closing Price. Such shares of Purchaser Common Stock delivered to Purchaser and
HEcom shall be deemed to be excluded and deducted from the consideration paid to
Seller pursuant to this Agreement and shall become authorized, but unissued,
shares of Purchase Common Stock.
-32-
<PAGE>
(c) Notwithstanding Sections 4.06(a) and 4.06(b), if, prior to
the date of the liquidation of the Seller pursuant to Section 4.04 hereof, the
obligations of the Seller or any Seller Subsidiary other than to John Deere
Health, Inc. and its affiliates shall not have been either paid in full by the
Seller and the Seller Subsidiaries or converted into, or exchanged for shares of
Seller Common Stock or other equity securities of Seller, (1) within ten days
thereafter the Purchaser and HEcom shall assume and satisfy such obligations up
to a total of $700,000 and (2) the Purchaser and Seller shall irrevocably
instruct the Escrow Agent to release from the Escrow Account and deliver to the
Purchaser and HEcom with five days thereafter the number of shares of Purchaser
Common Stock equal to the quotient of (A) the product of (I) the total amount
paid by Purchaser and HEcom to satisfy such obligations and (II) 1.5, and (B)
the Trailing Average Closing Price. Such shares of Purchaser Common Stock
delivered to Purchaser and HEcom shall be deemed to be excluded and deducted
from the consideration paid to Seller pursuant to this Agreement and shall
become authorized, but unissued, shares of Purchase Common Stock.
Section 4.07 Tax Treatment.
The parties intend that the transactions contemplated by this Agreement
(and, in particular, Sections 4.01 and 4.04 hereof) will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations
promulgated under the Code. Each party will use its best efforts to cause the
transactions contemplated by this Agreement (and, in particular, Sections 4.01
and 4.04 hereof) to qualify as a reorganization under the provisions of Section
368(a) of the Code.
V. CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND HECOM
The obligations of the Purchaser and HEcom under this Agreement are
subject, at the option of the Purchaser and HEcom, to the following conditions:
Section 5.01 Accuracy of Representations and Compliance with
Conditions.
All representations and warranties of Seller contained in each of the
Transaction Agreements to which it is a party shall be accurate in all material
respects when made and, in addition, shall be accurate in all material respects
as of the Closing as though such representations and warranties were then made
in exactly the same language by Seller and regardless of knowledge or lack
thereof on the part of Seller or changes beyond its control; as of the Closing,
Seller shall have performed and complied in all material respects with all
covenants and agreements and satisfied all conditions required to be performed
and complied in all material respects with by it at or before such time by each
of the Transaction Agreements to which it is a party; and the Purchaser shall
have received certificates executed by the chief executive officer and the chief
financial officer of Seller, dated the date of the Closing, to that effect,
substantially in the form of Exhibits 5.01A and 5.01B, respectively.
-33-
<PAGE>
Section 5.02 Opinion of Counsel.
Seller shall have delivered to the Purchaser and HEcom on the date of the
Closing the opinion of Winthrop & Weinstine, P.A. counsel to Seller, dated as of
such dates, in form and substance satisfactory to counsel for the Purchaser.
Section 5.03 Due Diligence Review.
Prior to the date of the Closing, Purchaser and Hecom shall conduct a
due diligence review of the Seller, including a review of the Schedules and the
documents referenced therein of Seller delivered prior to the date hereof and
prior to the date of the Closing, and shall be reasonably satisfied with the
result of such review.
Section 5.04 Other Closing Documents.
Seller shall have delivered to the Purchaser and HEcom at or prior to
the Closing such other documents (including the Transaction Agreements (other
than this Agreement) to which it is or shall be a party and certificates of
officers of Seller or of any Seller Subsidiary) as the Purchaser may reasonably
request in order to enable the Purchaser and HEcom to determine whether the
conditions to their obligations under this Agreement have been met and otherwise
to carry out the provisions of this Agreement.
Section 5.05 Review of Proceedings.
All actions, proceedings, instruments, and documents required to carry
out each of the Transaction Agreements and each of the documents contemplated
thereby or in connection therewith and all other related legal matters shall be
subject to the reasonable approval of Brock Silverstein LLC, counsel to the
Purchaser, and Seller shall have furnished such counsel such documents as such
counsel may have reasonably requested for the purpose of enabling them to pass
upon such matters.
Section 5.06 Legal Action.
There shall not have been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise challenge the consummation of,
the transactions contemplated by the Transaction Agreements, or any document
contemplated thereby or in connection therewith, or to obtain substantial
damages with respect thereto.
Section 5.07 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transactions contemplated by, or in connection with,
any of the Transaction Agreements by any federal, state, local, or other
governmental authority or by any court or other tribunal, including the entry of
a preliminary or permanent injunction, which, in the sole judgment of the
Purchaser, (a) makes any of the transactions contemplated by any Transaction
Agreement illegal, (b) results in a delay in the ability of the Purchaser or
HEcom to consummate any of the transactions contemplated by any of the
Transaction Agreements, (c) requires the divestiture by the Purchaser or HEcom
of a material portion of the business of either the Purchaser and the Purchaser
Subsidiaries taken as a whole, or of Seller and the Seller Subsidiaries taken as
a whole, (d) imposes material limitations on the ability of the Purchaser or
HEcom effectively to exercise full rights of ownership with respect to the
properties and assets purported to be sold pursuant to this Agreement, or (e)
otherwise prohibits, restricts, or delays consummation of any of the
transactions contemplated by any of the Transaction Agreements or impairs the
contemplated benefits to the Purchaser or to HEcom of any of the transactions
contemplated by this Agreement.
-34-
<PAGE>
Section 5.08 Approval of Seller's Stockholders.
The consummation of the transactions contemplated by, and in connection
with, any of the Transaction Agreements, including the liquidation contemplated
by Section 4.04, shall have been approved at or before the Closing by the
affirmative vote of the holders of a majority of Seller Common Stock.
Section 5.09 Governmental Approval.
The parties to this Agreement shall have obtained at or prior to the
Closing all required consents and unconditional written approvals of all
governmental agencies having the legal or administrative right or obligation to
consent to, or approve, any Transaction Agreement and to the execution,
delivery, and performance thereof.
Section 5.10 Blue-Sky Law Compliance.
The Purchaser shall have received at or prior to the Closing a permit
from all appropriate blue-sky or securities law administrator(s) with regard to
the issuance of Purchaser Common Stock and Purchaser Preferred Stock as
contemplated by this Agreement.
Section 5.11 Deposit Note.
Upon the execution hereof, Seller shall execute and deliver to
Purchaser the Deposit Note, a form of which is attached hereto as Exhibit 5.11,
against delivery of $1.0 million by Purchaser.
Section 5.12 Contractual Consents Needed.
The parties to any Transaction Agreement shall have obtained at or
prior to the Closing all consents required for the consummation of the
transactions contemplated by, or in connection with, the Transaction Agreements
from any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which any of them or any Seller Subsidiary or
any Purchaser Subsidiary is a party, or to which any of them or any of their
respective businesses, properties, or assets are subject.
Section 5.13 Other Agreements.
The Employment Agreements, substantially in the form attached hereto as
Exhibits 5.13A, 5.13B, and 5.13C hereto, the Seller Voting Agreement, and the
Escrow Agreement, substantially in the form of Exhibit 5.13D hereto, shall have
been duly authorized, executed, and delivered by the parties thereto at or prior
to the Closing, at the Closing shall be in full force, valid, and binding upon
the parties thereto, and shall, subject to applicable bankruptcy, insolvency,
and other laws affecting the enforceability of creditors' rights generally, be
enforceable by them in accordance with their terms at the Closing, and no party
thereto at any time from the execution thereof until immediately after the
Closing shall have been in violation of or in default in complying with any
material term thereof.
-35-
<PAGE>
Section 5.14 Corporate Name.
Seller shall not amend its name to any name containing either the word
"Health" or "Exchange" or words similar to or susceptible of confusion with the
word "Health" or "Exchange" or any combination or abbreviation thereof.
Section 5.15 Personnel.
The individuals set forth in Schedule 2.08(f) whose aggregate
compensation for the fiscal year ended December 31, 1999, exceeded $25,000 or
whose aggregate compensation presently exceeds the rate of $25,000 per annum
shall at the Closing be actively engaged in the performance of their existing
duties for Seller and the Seller Subsidiaries and shall not have evidenced any
intention not to engage in comparable employment with HEcom after the Closing.
Section 5.16 Repayment of Loans.
Principal on premium (if any), and interest on the loans identified in
Schedule 5.16 as being owed by Seller or any Seller Subsidiary shall have been
repaid at or prior to the Closing in full or the Purchaser, in its sole
discretion, shall have consented in writing to alternate arrangements for the
repayment thereof.
Section 5.17 Releases.
The Purchaser and HEcom shall have received at or prior to the Closing
from each person who is, who before the Closing becomes, or who at any time
between that date which is one year prior to the date this Agreement is executed
and the date this Agreement is executed was an officer or a director of Seller
or any Seller Subsidiary, dated the date of the Closing, substantially in the
form of Exhibit 5.17.
Section 5.18 Officers' and Directors' Noncompetition Agreement.
The Purchaser shall have received at or prior to the Closing
from each person who is, who before the Closing becomes, or who at any time
between that date which is one year prior to the date this Agreement is executed
and the date this Agreement is executed was an officer or a director of Seller
or any Seller Subsidiary (other than those persons party to the Employment
Agreement) an agreement not to compete, substantially in the form of Exhibit
5.18.
Section 5.19 Officers' and Directors' Confidentiality Agreement.
The Purchaser shall have received at or prior to the Closing from each
person who is, who before the Closing becomes, or who at any time between that
date which is one year prior to the date this Agreement is executed and the date
this Agreement is executed was, an officer or a director of Seller or any Seller
Subsidiary (other than those persons party to the Employment Agreement) an
agreement to keep confidential certain data, substantially in the form of
Exhibit 5.19.
-36-
<PAGE>
VI. CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject, at the
option of Seller, to the following conditions:
Section 6.01 Accuracy of Representations and Compliance with
Conditions.
All representations and warranties of Purchaser and HEcom contained in
this Agreement shall be accurate in all material respects when made and, in
addition, shall be accurate as of the Closing as though such representations and
warranties were then made in exactly the same language by Purchaser or HEcom and
regardless of knowledge or lack thereof on the part of Purchaser or HEcom or
changes beyond their control; as of the Closing, each of Purchaser and HEcom
shall have performed and complied in all material respects with all covenants
and agreements and satisfied all conditions required to be performed and
complied with by it at or before such time by this Agreement; and the Seller
shall have received certificates executed by the chief executive officer and the
chief financial officer of each of Purchaser and HEcom, dated the date of the
Closing, to that effect, substantially in the form of Exhibits 6.01 A and 6.01B,
respectively.
Section 6.02 Opinion of Counsel.
Purchaser and HEcom shall have delivered to the Seller on the date of
the Closing the opinion of Brock Silverstein LLC, counsel to the Purchaser and
HEcom, dated as of such dates, in form and substance satisfactory to counsel for
the Seller.
Section 6.03 Schedules.
Prior to the Closing, Seller shall deliver to Purchaser and HEcom the
Schedules and other documents required to be delivered thereby pursuant to the
terms of the Transaction Agreements.
Section 6.04 Other Closing Documents.
Purchaser and HEcom shall have delivered to the Seller at or prior to
the Closing such other documents (including certificates of officers of
Purchaser or of any Purchaser Subsidiary) as the Seller may reasonably request
in order to enable the Seller to determine whether the conditions to their
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
Section 6.05 Review of Proceedings.
All actions, proceedings, instruments, and documents required to carry
out each of the Transaction Agreements and each of the documents contemplated
thereby or in connection therewith and all other related legal matters shall be
subject to the reasonable approval of Winthrop & Weinstine, P.A., counsel to the
Seller, and Purchaser shall have furnished such counsel such documents as such
counsel may have reasonably requested for the purpose of enabling them to pass
upon such matters.
-37-
<PAGE>
Section 6.06 Legal Action.
There shall not have been instituted or threatened any legal proceeding
relating to, or seeking to prohibit or otherwise challenge the consummation of,
the transactions contemplated by the Transaction Agreements, or any document
contemplated thereby or in connection therewith, or to obtain substantial
damages with respect thereto.
Section 6.07 No Governmental Action.
There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transactions contemplated by, or in connection with,
any of the Transaction Agreements by any federal, state, local, or other
governmental authority or by any court or other tribunal, including the entry of
a preliminary or permanent injunction, which, in the sole judgment of the
Seller, (a) makes any of the transactions contemplated by any Transaction
Agreement illegal, (b) results in a delay in the ability of the Seller to
consummate any of the transactions contemplated by any of the Transaction
Agreements, (c) requires the divestiture by the Purchaser or HEcom of a material
portion of the business of either the Purchaser and the Purchaser Subsidiaries
taken as a whole, or of Seller and the Seller Subsidiaries taken as a whole, (d)
imposes material limitations on the ability of the Purchaser or HEcom
effectively to exercise full rights of ownership with respect to the properties
and assets purported to be sold pursuant to this Agreement, or (e) otherwise
prohibits, restricts, or delays consummation of any of the transactions
contemplated by any of the Transaction Agreements or impairs the contemplated
benefits to Seller of any of the transactions contemplated by this Agreement.
Section 6.08 Approval of Seller's Stockholders.
The consummation of the transactions contemplated by, and in connection
with, any of the Transaction Agreements, including the liquidation contemplated
by Section 4.04, shall have been approved at or before the Closing by the
affirmative vote of the holders of a majority of Seller Common Stock.
Section 6.09 Governmental Approval.
The parties to this Agreement shall have obtained at or prior to the
Closing the consent and unconditional written approval of all governmental
agencies having the legal or administrative right or obligation to consent to,
or approve, any Transaction Agreement and the execution, delivery, and
performance of any Transaction Agreement.
-38-
<PAGE>
Section 6.10 Blue-Sky Law Compliance.
The Purchaser shall have received at or prior to the Closing a permit
from all appropriate blue-sky or securities law administrator(s) with regard to
the issuance of Purchaser Common Stock and Purchaser Preferred Stock as
contemplated by this Agreement.
Section 6.11 Contractual Consents Needed.
The parties to any Transaction Agreement shall have obtained at or
prior to the Closing all consents required for the consummation of the
transactions contemplated by, or in connection with, the Transaction Agreements
from any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which any of them or any Seller Subsidiary or
any Purchaser Subsidiary is a party, or to which any of them or any of their
respective businesses, properties, or assets are subject.
Section 6.12 Other Agreements.
The Employment Agreements, the Purchaser Voting Agreement, and the
Escrow Agreement shall have been duly authorized, executed, and delivered by the
parties thereto at or prior to the Closing, at the Closing shall be in full
force, valid, and binding upon the parties thereto, and shall, subject to
applicable bankruptcy, insolvency, and other laws affecting the enforceability
of creditors' rights generally, be enforceable by them in accordance with their
terms at the Closing, and no party thereto at any time from the execution
thereof until immediately after the Closing shall have been in violation of or
in default in complying with any material term thereof.
Section 6.13 Due Diligence Review.
Prior to the date of the Closing, Seller shall conduct a due diligence
review of the Purchaser and HEcom, including a review of the Schedules and the
documents referenced therein of Purchaser and HEcom delivered prior to the date
hereof and prior to the date of the Closing, and shall be reasonably satisfied
with the result of such review.
-39-
<PAGE>
VII. COVENANTS AND AGREEMENTS OF SELLER
Seller covenants and agree as follows:
Section 7.01 Access.
Until the earlier of the Closing and the rightful abandonment or
termination of this Agreement pursuant to the terms of this Agreement (the
"Release Time"), Seller will afford the officers, employees, counsel, agents,
investment bankers, accountants, and other representatives of the Purchaser and
HEcom and lenders, investors, and prospective lenders and investors free and
full access to the plants, properties, books, and records of Seller and the
Seller Subsidiaries, will permit them to make extracts from and copies of such
books and records, and will from time to time furnish the Purchaser and HEcom
with such additional financial and operating data and other information as to
the financial condition, results of operations, businesses, properties, assets,
liabilities, or future prospects of Seller and the Seller Subsidiaries as the
Purchaser from time to time may request.
Section 7.02 Conduct of Business.
Until the Release Time, Seller will conduct its affairs and the affairs
of the Seller Subsidiaries so that at the Closing no representation or warranty
of Seller will be inaccurate in any material respects, no covenant or agreement
of Seller will be breached in any material respects, and no condition in any
Transaction Agreement will remain unfulfilled in any material respects by reason
of the actions or omissions of Seller or any Subsidiary. Except as otherwise
requested by the Purchaser in writing, until the Release Time, Seller and the
Seller Subsidiaries will, use their best efforts to preserve the business
operations of Seller and the Seller Subsidiaries intact, to keep available the
services of their present personnel, to preserve in full force and effect the
contracts, agreements, instruments, leases, licenses, arrangements, and
understandings of Seller and the Seller Subsidiaries, and to preserve the good
will of their suppliers, customers, and others having business relations with
any of them. Until the Release Time, Seller and the Seller Subsidiaries will
conduct their business and operations in all respects only in the ordinary
course.
Section 7.03 Advice of Changes.
Until the Release Time, Seller will immediately advise the Purchaser in
a detailed written notice of any fact or occurrence or any pending or threatened
occurrence of which it obtains knowledge and which (if existing and known at the
date of the execution of this Agreement) would have been required to be set
forth or disclosed in or pursuant to this Agreement or a Schedule or an Exhibit
hereto, which (if existing and known at any time prior to or at the Closing)
would make the performance by any party of a covenant contained in this
Agreement or any other Transaction Agreement impossible or make such performance
materially more difficult than in the absence of such fact or occurrence, or
which (if existing and known at the time of the Closing) would cause a condition
to any party's obligations under any Transaction Agreement not to be fully
satisfied.
-40-
<PAGE>
Section 7.04 Confidentiality.
Seller shall insure that all confidential information which Seller, any
Seller Subsidiary, any of their respective officers, directors, employees,
counsel, agents, investment bankers, or accountants, or any stockholder of the
Seller or any Seller Subsidiary, any of their respective counsel, agents,
investment bankers, or accountants may now possess or may hereafter create or
obtain relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Purchaser, or any
Purchaser Subsidiary, any affiliate of any of them, or any customer or supplier
of any of them or any such affiliate shall not be published, disclosed, or made
accessible by any of them to any other person or entity at any time or used by
any of them except pending the Closing in the business and for the benefit of
Seller and the Seller Subsidiaries, in each case without the prior written
consent of the Purchaser; provided, however, that the restrictions of this
sentence shall not apply (a) after this Agreement is rightfully terminated, but
only to the extent such confidential information relates to the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of Seller, of any Seller Subsidiary, of any affiliate of any of
them, or (insofar as such confidential information was obtained directly by
Seller, any Seller Subsidiary, or any such affiliate from any customer or
supplier of any of them) of any such customer or supplier, (b) as may otherwise
be required by law, (c) as may be necessary or appropriate in connection with
the enforcement of any Transaction Agreement, or (d) to the extent such
information shall have otherwise become publicly available. Seller shall, and
shall cause all other such persons and entities to, deliver to the Purchaser all
tangible evidence of such confidential information to which the restrictions of
the foregoing sentence apply at the Closing or the earlier rightful termination
of this Agreement.
Section 7.05 Public Statements.
Before Seller shall release any information concerning any Transaction
Agreement or any document contemplated thereby or in connection therewith, or
the transactions contemplated by, which is intended for or may result in public
dissemination thereof, it shall cooperate with the Purchaser, shall furnish
drafts of all documents or proposed oral statements to the Purchaser for
comments, and shall not release any such information without the written consent
of the Purchaser. Nothing contained herein shall prevent Seller from releasing
any information to any governmental authority if required to do so by law.
Section 7.06 Other Proposals.
Until the earlier of March 31, 2000 and Release Time, Seller shall not,
and shall neither authorize nor permit any officer, director, employee, counsel,
agent, investment banker, accountant, or other representative of Seller or of
any Seller Subsidiary, directly or indirectly, to: (a) initiate contact with any
person or entity (other than Purchaser or any Purchaser Subsidiary) in an effort
to solicit any Takeover Proposal (as such term is defined in this Section 7.06);
(b) cooperate with, or furnish or cause to be furnished any non-public
information concerning the business, properties, or assets of Seller or any
Seller Subsidiary to, any person or entity (other than Purchaser or any
Purchaser Subsidiary) in connection with any Takeover Proposal; (c) negotiate
with any person or entity (other than Purchaser or any Purchaser Subsidiary)
with respect to any Takeover Proposal; or (d) enter into any agreement or
understanding (other than the Transaction Agreements) with the intent to effect
a Takeover Proposal. Seller will immediately give written notice to the
Purchaser of the details of any Takeover Proposal of which any of them becomes
aware. As used in this Section 7.06, "Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, (e) for a merger,
consolidation, reorganization, other business combination, or recapitalization
involving Seller or any Seller Subsidiary, for the acquisition of a 5% or
greater interest in the equity or in any class or series of capital stock of
Seller or any Seller Subsidiary, for the acquisition of the right to cast 5% or
more of the votes on any matter with respect to Seller or any Seller Subsidiary,
or for the acquisition of a substantial portion of any of their respective
assets other than in the ordinary course of their respective businesses, or (f)
the effect of which may be to prohibit, restrict, or delay the consummation of
any of the transactions contemplated by this Agreement or impair the
contemplated benefits to the Purchaser or HEcom of any of the transactions
contemplated by the Transaction Agreements.
-41-
<PAGE>
Section 7.07 Bulk Sales.
The Purchaser hereby waives compliance by Seller with the provisions of
any applicable bulk sales laws and bulk sales tax laws.
Section 7.08 Consents Without Any Condition.
Seller shall not make any agreement or reach any understanding not
approved in writing by the Purchaser as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by the Transaction Agreements.
Section 7.09 Noncompetition.
If the Closing takes place, Seller agrees, in consideration of the
obligations of the Purchaser and HEcom hereunder: (a) for a period of five years
after the date of the Closing, Seller will not (i) compete with or be engaged in
the same business as, or Participate In (as hereinafter defined in this Section
7.09) any other business or organization which at any time during the five year
period after the date of the Closing competes with or is engaged in the same
business as, that entity which operates the business acquired under this
Agreement or any Seller Subsidiary, with respect to any product or service sold
or activity engaged in up to the time of the Closing in any geographical area in
which at the time of the Closing such product or service is sold or activity
engaged in or (ii) Participate In any other business or organization which at
any time during the five-year period after the date of the Closing uses a name
containing either the word "Health" or "Exchange" or words similar to or
susceptible of confusion with the word or any combination or abbreviation
thereof; (b) Seller will not directly or indirectly reveal the name of, solicit
or interfere with, or endeavor to entice away from that entity which operates
the business acquired under this Agreement, any Seller Subsidiary, the
Purchaser, or HEcom, any of their respective suppliers, customers, or employees;
and (c) Seller will not directly or indirectly employ any person who, at any
time up to the date of the Closing, was an employee of Seller, any Seller
Subsidiary, the Purchaser, or any Purchaser Subsidiary, within a period of five
years after such person leaves the employ of such corporation. As used in this
Section 7.09, "Participate In" shall mean "directly or indirectly, for its or
his own benefit or for, with, or through any other person or entity, own,
manage, operate, control, loan money to, or participate in the ownership,
management, operation, or control of, or be connected as a director, officer,
employee, partner, consultant, agent, independent contractor, or otherwise with,
or acquiesce in the use of its name in." Seller agrees that the provisions of
this Section 7.09 are necessary and reasonable to protect that entity which
operates the business acquired under this Agreement, the Seller Subsidiaries,
the Purchaser, and HEcom in the conduct of their businesses. If any restriction
contained in this Section 7.09 shall be deemed to be invalid, illegal, or
unenforceable by reason of the extent, duration, or geographical scope thereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions hereof,
and in its reduced form such restriction shall then be enforceable in the manner
contemplated hereby.
-42-
<PAGE>
Section 7.11 Future Name.
Seller will not use or adopt, or cause or give permission to any person
or entity to use or adopt, a name containing either the word "Health" or
"Exchange" or words similar to or susceptible of confusion with the word or
"Health" or "Exchange" or any combination or abbreviation thereof.
Section 7.12 File Tax Return.
If the Closing takes place, Seller agrees to file, within the time
allowed by law, all federal, state, local, and foreign Tax Returns with the
appropriate jurisdictions, for the period January 1, 2000 through the date of
the Closing, to include therein all information required to be contained therein
relating to Seller and the Seller Subsidiaries for such period, and to pay all
Taxes with respect to Seller and the Seller Subsidiaries for such period in a
manner consistent with the allocation of the consideration paid by HEcom made
pursuant to Section 4.01(c).
Section 7.13 Voting by Stockholders.
Prior to Closing, Seller shall deliver to Purchaser and HEcom the
agreement (the "Seller Voting Agreement") of the holders of a majority of the
outstanding Seller Common Stock to the effect that, until the Release Time, they
will vote all securities of Seller which they are entitled to vote against (a)
any merger, consolidation, reorganization, other business combination, or
recapitalization involving Seller or any Seller Subsidiary, (b) any sale of
assets of Seller or any Seller Subsidiary, except as contemplated by this
Agreement, (c) any stock split, stock dividend, or reverse stock split relating
to any class or series of Seller's stock, (d) any issuance of any shares of
capital stock of Seller or any Seller Subsidiary, any option, warrant, or other
right calling for the issuance of any such share of capital stock, or any
security convertible into or exchangeable for any such share of capital stock,
(e) any authorization of any other class or series of stock of Seller or any
Seller Subsidiary, (f) the amendment of the certificate of incorporation (or
other charter document) or the by-laws of Seller or any Seller Subsidiary, or
(g) any proposition the effect of which may be to prohibit, restrict, or delay
the consummation of any of the transactions contemplated by this Agreement or
impair the contemplated benefits to the Purchaser or HEcom of the transactions
contemplated by this Agreement, and in favor of (h) the transactions
contemplated by, and in connection with, the Transaction Agreements.
Section 7.14 Break-Up Fee.
In the event that prior to the Release Time Seller shall terminate this
Agreement for any reason, including failure to use best efforts to perform its
obligations hereunder and satisfy the conditions required to be satisfied by it
prior to Closing pursuant hereto, but excluding the breach hereof by Purchaser
or HEcom, Seller shall be obligated to immediately pay to Purchaser by
electronic wire transfer or official bank or certified check next day New York
clearing house funds, an amount equal to the sum of $5.0 million plus all
accountable expenses of Purchaser incurred in connection with the transactions
contemplated by the Transaction Agreements.
-43-
<PAGE>
Section 7.15 Restrictions on Resale.
Notwithstanding anything herein to the contrary, the Seller agrees
that, commencing on the Closing Date, the shares of Purchaser Common Stock or
Purchaser Preferred Stock issued and delivered pursuant to Section 4.01 hereof
shall be subject to the restrictions on resale set forth in this Section 7.15.
In connection with the liquidation of Seller pursuant to Section 4.04 hereof,
Seller shall distribute such securities to the stockholders of Seller upon the
effectiveness under the Securities Act of, pursuant to, and in accordance with,
the Registration Statement described in Section 8.09 hereof. Following such
distribution, (a) the number shares of Purchaser Common Stock and Purchaser
Preferred Stock held by the persons identified in Schedule 7.15(a) hereof and
set forth opposite their respective names therein shall be subject to no
additional restrictions on resale, which is anticipated to principally consist
of holders of Seller Common Stock received in satisfaction of indebtedness
except John Deere Health, Inc; (b) the number shares of Purchaser Common Stock
and Purchaser Preferred Stock held by the persons identified in Schedule 7.15(b)
hereof and set forth opposite their respective names therein shall not be
offered, sold, subject to any contract to sell, subject to any option for the
sale of, or otherwise disposed of, for the period commencing on the date of such
liquidating distribution and terminating at the close of business on the date
one calendar month thereafter, which is anticipated to principally consist of de
minim's holders of Seller Common Stock; (c) the number shares of Purchaser
Common Stock and Purchaser Preferred Stock held by the persons identified in
Schedule 7.15(c) hereof and set forth opposite their respective names therein
shall not be offered, sold, subject to any contract to sell, subject to any
option for the sale of, or otherwise disposed of, for the period commencing on
the date of such liquidating distribution and terminating at the close of
business on the date six calendar months thereafter, which is anticipated to
consist of holders of Seller Common Stock other than those named in clause
(a),(b), and (d) hereto; and (d) the remaining shares of Purchaser Common Stock
and Purchaser Preferred Stock shall not be offered, sold, subject to any
contract to sell, subject to any option for the sale of, or otherwise disposed
of, for the period commencing on the date of such liquidating distribution and
terminating at the close of business on the date one year thereafter, which is
anticipated to consist principally of officers, directors, and other affiliates
of the Seller. Further, until the close of business on the date one year
following each liquidating distribution, the Purchaser, if so requested by any
underwriter, placement agent, investment banker, or similar professions
assisting Purchaser in connection with any transaction thereby, shall have the
right to require such persons to cease all sales of such securities owned
thereby (as well as the shares of Purchaser Common Stock, if any, issued upon
conversion of the Purchaser Preferred Stock) for a period of 135 days in the
event that the Purchaser shall be engaged in any transaction, that, in the
discretion of such underwriter, placement agent, investment banker, or similar
professional, could be materially adversely affected by sales of such securities
by such persons. In order to enable Purchaser to enforce the aforesaid
restrictions on transfer, Purchaser shall be entitled to impose stop-transfer
instructions with respect to the securities of the shares of Purchaser Common
Stock and Purchaser Preferred Stock owned beneficially or of record by Seller or
the stockholders thereof until the end of the relevant period described in this
Section 7.15 and may require that restrictive legends with respect to such
restrictions on transfer be affixed to the stock certificates representing such
securities.
-44-
<PAGE>
Section 7.16 Repayment of Loans; Release of Liens.
At or prior to Closing, (a) Seller shall repay the principal of,
premium (if any), and interest on the loans identified in Schedule 5.17 as being
owed by Seller or any Seller Subsidiary and (b) the secured party of any liens
on any assets (other than Excluded Assets) of the Seller or any Seller
Subsidiary shall have released such liens or executed and delivered to Purchaser
documentation reasonably satisfactory to purchaser and HEcom irrevocably
terminating such liens.
Section 7.17 Other Agreements
At or prior to the Closing, Seller shall execute and deliver to
Purchaser and HEcom each of the Transaction Agreements (other than this
Agreement) to which it is or shall be party.
VIII. COVENANTS AND AGREEMENTS OF THE PURCHASER AND HECOM
The Purchaser and HEcom covenant and agree as follows:
Section 8.01 Capital Stock Changes.
If, prior to the time for issuance of any shares of Purchaser
Common Stock or shares of Purchaser Preferred Stock pursuant to Section 4.01,
the Purchaser Common Stock shall be recapitalized or reclassified or the
Purchaser shall effect any stock dividend, stock split, or reverse stock split
of the Purchaser Common Stock or the Purchaser shall merge, consolidate,
reorganize, or enter into another business combination with any other
corporation or shall sell or exchange all or substantially all of its assets,
then the shares of Purchaser Common Stock to be delivered thereafter under
Section 4.01 shall be appropriately and equitably adjusted to the kind and
amount of shares of stock and other securities and property which the holders of
such shares of Purchaser Common Stock would have been entitled to receive had
such stock been issued and outstanding as of the record date for determining
stockholders entitled to participate in such corporate event. The provisions of
this Section 8.01 shall apply to successive mergers, consolidations,
reorganizations, and combinations.
Section 8.02 Access.
Until the Release Time, Purchaser and HEcom will afford the officers,
employees, counsel, agents, investment bankers, accountants, and other
representatives of the Seller and lenders, investors, and prospective lenders
and investors free and full access to the plants, properties, books, and records
of Purchaser and the Purchaser Subsidiaries, will permit them to make extracts
from and copies of such books and records, and will from time to time furnish
the Seller with such additional financial and operating data and other
information as to the financial condition, results of operations, businesses,
properties, assets, liabilities, or future prospects of Purchaser and the
Purchaser Subsidiaries as the Seller from time to time may request. Until the
Release Time, Purchaser will cause the independent certified public accountants
of Purchaser to make available to the Seller and its independent certified
public accountants the work papers relating to the audits of Purchaser and the
Purchaser Subsidiaries referred to in Section 3.06.
-45-
<PAGE>
Section 8.03 Advice of Changes.
Until the Release Time, Purchaser and HEcom will immediately advise the
Seller in a detailed written notice of any fact or occurrence or any pending or
threatened occurrence of which it obtains knowledge and which (if existing and
known at the date of the execution of this Agreement) would have been required
to be set forth or disclosed in or pursuant to this Agreement or a Schedule or
an Exhibit hereto, which (if existing and known at any time prior to or at the
Closing) would make the performance by any party of a covenant contained in any
Transaction Agreement impossible or make such performance materially more
difficult than in the absence of such fact or occurrence, or which (if existing
and known at the time of the Closing) would cause a condition to any party's
obligations under any Transaction Agreement not to be fully satisfied.
Section 8.04 Confidentiality.
Purchaser shall insure that all confidential information which
Purchaser, any Purchaser Subsidiary, any of their respective officers,
directors, employees, counsel, agents, investment bankers, or accountants, or
any stockholder or of the Purchaser or any Purchaser Subsidiary, any of their
respective counsel, agents, investment bankers, or accountants may now possess
or may hereafter create or obtain relating to the financial condition, results
of operations, business, properties, assets, liabilities, or future prospects of
the Seller or any Seller Subsidiary, any affiliate of any of them, or any
customer or supplier of any of them or any such affiliate shall not be
published, disclosed, or made accessible by any of them to any other person or
entity at any time or used by any of them except pending the Closing in the
business and for the benefit of Seller and the Seller Subsidiaries, in each case
without the prior written consent of the Seller; provided, however, that the
restrictions of this sentence shall not apply (a) after this Agreement is
rightfully terminated, but only to the extent such confidential information
relates to the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of Purchaser, of any Purchaser
Subsidiary, of any affiliate of any of them, or (insofar as such confidential
information was obtained directly by Purchaser, any Purchaser Subsidiary, or any
such affiliate from any customer or supplier of any of them) of any such
customer or supplier, (b) as may otherwise be required by law, (c) as may be
necessary or appropriate in connection with the enforcement of any Transaction
Agreement, or (d) to the extent such information shall have otherwise become
publicly available. Purchaser shall, and shall cause all other such persons and
entities to, deliver to the Seller all tangible evidence of such confidential
information to which the restrictions of the foregoing sentence apply at the
Closing or the earlier rightful termination of this Agreement.
Section 8.05 Public Statements.
Before Purchaser or HEcom shall release any information concerning any
Transaction Agreement or any document contemplated thereby or in connection
therewith, or the transactions contemplated by, which is intended for or may
result in public dissemination thereof, it shall cooperate with the Seller,
shall furnish drafts of all documents or proposed oral statements to the Seller
for comments, and shall not release any such information without the written
consent of the Seller. Nothing contained herein shall prevent Purchaser from
releasing any information to any governmental authority if required to do so by
law.
-46-
<PAGE>
Section 8.06 Consents Without Any Condition.
Purchaser shall not make any agreement or reach any understanding not
approved in writing by the Seller as a condition for obtaining any consent,
authorization, approval, order, license, certificate, or permit required for the
consummation of the transactions contemplated by this Agreement.
Section 8.07 Additional Agreements.
At or prior to the Closing, Purchaser and HEcom will execute and
deliver such of the Employment Agreements and the Escrow Agreement to which it
shall be party and shall deliver the Purchaser Voting Agreement.
Section 8.08 Stock Options; Warrants.
As of the date of the Closing, Purchaser shall grant to the individuals
identified in Schedule 8.08 hereof non-qualified or incentive stock options or
warrants, in its sole discretion, exercisable for the number of shares of
Purchaser Common Stock and upon the terms and conditions set forth in Schedule
8.08 hereof.
Section 8.09 Registration Statement.
The Purchaser shall prepare and file with the SEC within 120 days
following the date of the Closing, and shall use reasonable best efforts to
cause to become effective, a Registration Statement under the Securities Act
relating to the distribution of the shares of Purchaser Common Stock referenced
in Section 4.01(a)(i) and the shares of Purchaser Preferred Stock referenced in
Section 4.01(a)(iv) (and the shares of Purchaser Common Stock, if any, issuable
upon the conversion thereof) from the Seller to the stockholders thereof in
connection with the liquidation and distribution of the Seller and any Seller
Subsidiaries included in the Excluded Assets pursuant to Section 4.04 hereof.
Section 8.10 Vote of Stockholders of Purchaser.
Prior to Closing, Purchaser shall deliver to Seller the agreement (the
"Purchaser Voting Agreement") of the executive officers and directors of
Purchaser that they will vote all shares of Purchaser Common Stock in favor of
the transactions contemplated by, and in connection with the Transaction
Agreements. Purchaser agrees that the issues referred to in the Purchaser Voting
Agreement will be presented for the consideration of the stockholders of
Purchaser at the next meeting of stockholders of Purchaser and that the Board of
Directors of Purchaser recommends that the stockholders vote in favor of the
issues described in the Purchaser Voting Agreement.
Section 8.11 Performance Milestones.
Purchaser and Seller agree to develop an operating plan and Purchaser
agrees to use commercially reasonable efforts to ensure that the Performance
Milestones are satisfied.
-47-
<PAGE>
Section 8.12 Conduct of Business.
Until the Release Time, Purchaser will conduct its affairs and the
affairs of the Purchaser Subsidiaries so that at the Closing no representation
or warranty of Purchaser will be inaccurate in any material respect, no covenant
or agreement of Purchaser will be breached in any material respect, and no
condition in any Transaction Agreement will remain unfulfilled in any material
respect by reason of the actions or omissions of Purchaser or any Purchaser
Subsidiary. Except as otherwise requested by the Seller in writing, until the
Release Time, Purchaser and the Purchaser Subsidiaries will use their best
efforts to preserve the business operations of Purchaser and the Purchaser
Subsidiaries intact, to keep available the services of their present personnel,
to preserve in full force and effect the contracts, agreements, instruments,
leases, licenses, arrangements, and understandings of Purchaser and the
Purchaser Subsidiaries, and to preserve the good will of their suppliers,
customers, and others having business relations with any of them. Until the
Release Time, Purchaser and the Purchaser Subsidiaries will conduct their
business and operations in all respects only in the ordinary course.
Section 8.13 Schedules.
Prior to the Closing, Purchaser and HEcom shall deliver to Seller the
Schedules and other documents required to be delivered thereby pursuant to the
terms of the Transaction Agreements.
IX. MISCELLANEOUS
Section 9.01 Brokerage Fees.
If any person (other than Ryan, Beck & Co.) shall assert a
claim to a fee, commission, or other compensation on account of alleged
employment as a broker or finder, or alleged performance of services as a broker
or finder, in connection with or as a result of any of the transactions
contemplated any Transaction Agreement, Seller shall (subject to the next
sentence) indemnify and hold harmless the Purchaser Indemnitees against any and
all losses, liabilities, claims, damages, and expenses whatsoever as and when
incurred arising out of, based upon, or in connection with such claim by such
person, and Seller shall at its sole expense defend any and all suits, actions,
proceedings (formal or informal), or investigations involving such claim that
may at any time be brought against any Indemnitee and satisfy promptly any
settlement or judgment arising therefrom; but if Seller fails to defend such
suit, action, proceeding, or investigation in a timely manner, the Purchaser or
any Purchaser Indemnitee made a defendant therein or a party thereto shall have
the right to defend and settle the same and pay any judgment or settlement
pertaining thereto as it or he may reasonably deem appropriate at the cost and
expense of Seller. If, however, it is ultimately determined in any such suit,
action, or proceeding (in which the Purchaser and all Purchaser Indemnitees made
a defendant therein or a party thereto were afforded the opportunity to have
their counsel participate in the defense) that the Purchaser or any Purchaser
Indemnitee made a defendant therein or a party thereto was the sole employer of
such broker or finder or services were performed solely for the Purchaser or any
Purchaser Indemnitee made a defendant therein or a party thereto, then Seller
shall not be responsible under this Section 9.01 and amounts theretofore paid by
them by reason of this Section 9.01 shall be reimbursed by the Purchaser or the
Indemnitee, as the case may be, who was the sole employer. All fees,
commissions, or other compensation on account of employment as a broker or
finder, or performance of services as a broker or finder, in connection with or
as a result of any of the transactions contemplated any Transaction Agreement by
Ryan, Beck & Co. shall be the liability and obligation of Purchaser.
-48-
<PAGE>
Section 9.02 Further Actions.
At any time and from time to time, each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of any Transaction Agreement.
Section 9.03 Availability of Equitable Remedies.
Since a breach of the provisions of this Agreement could not adequately
be compensated by money damages, any party shall be entitled, either before or
after the Closing, in addition to any other right or remedy available to it, to
an injunction restraining such breach or a threatened breach and to specific
performance of any such provision of this Agreement, and in either case no bond
or other security shall be required in connection therewith, and the parties
hereby consent to the issuance of such an injunction and to the ordering of
specific performance.
Section 9.04 Survival.
The covenants, agreements, representations, and warranties contained in
or made pursuant to this Agreement shall survive the Closing and any delivery of
the consideration described in Section 4.01 hereof by the Purchaser or HEcom,
irrespective of any investigation made by or on behalf of any party. The
statements contained in the Transaction Agreements other than this Agreement or
in any document executed by Seller or any Seller Subsidiary relating hereto or
thereto or delivered to the Purchaser or HEcom in connection with the
transactions contemplated hereby or thereby, or in any statement, certificate,
or other instrument delivered by or on behalf of Seller or any Seller
Subsidiary, pursuant hereto or thereto or delivered to the Purchaser or HEcom in
connection with the transactions contemplated hereby or thereby shall be deemed
representations and warranties, covenants and agreements, or conditions, as the
case may be, of Seller hereunder for all purposes of this Agreement (including
all statements, certificates, or other instruments delivered pursuant hereto or
thereto or delivered in connection with the transactions contemplated hereby or
thereby).
Section 9.05 Modification.
This Agreement and the Schedules and Exhibits hereto set forth the
entire understanding of the parties with respect to the subject matter hereof
(except as provided in Section 9.04), supersede all existing agreements among
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party with the approval of the Board of
Directors or by an officer of each corporate party.
-49-
<PAGE>
Section 9.06 Notices.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States) or by Federal Express, Express Mail, or
similar overnight delivery or courier service or delivered (in person or by
telecopy, telex, or similar telecommunications equipment) against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 9.06)
with a copy to each of the other parties hereto. Any notice given to any
corporate party shall be addressed to the attention of the Corporate Secretary.
Notice to the estate of any party shall be sufficient if addressed to the party
as provided in this Section 9.06. Any notice or other communication given by
certified mail (or by such comparable method) shall be deemed given at the time
of certification thereof (or comparable act), except for a notice changing a
party's address which will be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 9.06 shall be deemed given
at the time of receipt thereof. A copy of any notice to Purchaser or HEcom shall
simultaneously be delivered in accordance with this Section 9.06 to Brock
Silverstein LLC, 800 Third Avenue, 21st Floor, New York, New York 10022. A copy
of any notice to Seller shall simultaneously be delivered in accordance with
this Section 9.06 to Winthrop & Weinstine, P.A., 3000 Dain Rauscher Plaza, 60
South Sixth Street, Minneapolis, Minnesota 55402.
Section 9.07 Waiver.
Any waiver by any party of a breach of any term of this Agreement shall
not operate as or be construed to be a waiver of any other breach of that term
or of any breach of any other term of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on one or more
occasions will not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing and, in the case of a corporate
party, be authorized by a resolution of the Board of Directors or by an officer
of the waiving party.
Section 9.09 Binding Effect.
The provisions of this Agreement shall be binding upon and inure to the
benefit of Seller, the Purchaser, and HEcom and their respective successors and
shall inure to the benefit of each Purchaser Indemnitee and its successors and
assigns (if not a natural person) and his assigns, heirs, and personal
representatives (if a natural person).
Section 9.10 No Third Party Beneficiaries.
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 9.10).
-50-
<PAGE>
Section 9.11 Separability.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 9.12 Headings.
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
Section 9.14 Counterparts; Governing Law.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall be governed by and construed in accordance
with the laws of New York, without giving effect to conflict of laws. Any
action, suit, or proceeding arising out of, based on, or in connection with this
Agreement or the transactions contemplated hereby may be brought in the United
States District Court for the Southern District of New York and each party
covenants and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such action, suit, or proceeding, any claim that it or he is
not subject personally to the jurisdiction of such court, that its or his
property is exempt or immune from attachment or execution, that the action,
suit, or proceeding is brought in an inconvenient forum, that the venue of the
action, suit, or proceeding is improper, or that this Agreement or the subject
matter hereof may not be enforced in or by such court.
-51-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
CLAIMSNET.COM, INC.
By: ________________________________
Name: Bo W. Lycke
Title: Chairman of the Board of
Directors, President and Chief
Executive Officer
HEALTHEXCHANGE.COM, INC.
By: ________________________________
Name: Bo W. Lycke
Title: Chairman of the Board of
Directors, President and Chief
Executive Officer
VHX COMPANY
By: ________________________________
Name:
Title:
-52-
