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EXHIBIT 10.1
HEALTHSTREAM, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of the 13th day of October, 1998, by and between
HealthStream, Inc., a Tennessee corporation f/k/a NewOrder Media, Inc. (the
"Company"), and JCB HealthStream Investors, L.L.C., a Tennessee limited
liability company, and any other person or entity designated as an investor on
Schedule A hereto (each an "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of State of the
State of Tennessee on or before the Closing (as defined below) an Amended and
Restated Charter in the form attached hereto as Exhibit A (the "Restated
Charter").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor, severally and not jointly, at
the Closing the number of shares of the Company's Series A Convertible Preferred
Stock set forth opposite each Investor's name on Schedule A hereto at a purchase
price of $10.00 per share. The Series A Convertible Preferred Stock will have
the rights, preferences, privileges and restrictions set forth in the Restated
Charter.
1.2 CLOSING.
(a) The purchase and sale of the Series A Convertible Preferred Stock
shall take place at the offices of Xxxxxx Xxxxxxx Xxxxxx & Xxxxx, A Professional
Limited Liability Company, Nashville, Tennessee, at 1:00 p.m., on October 13,
1998, or at such other time and place as the Company and Investors acquiring in
the aggregate more than half the shares of Series A Convertible Preferred Stock
being sold pursuant hereto shall mutually agree, either oral or in writing
(which time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each Investor a
certificate representing the shares of Series A Convertible Preferred Stock that
such Investor is purchasing against payment of the purchase price therefor by
check, wire transfer, or such other form of payment as shall be mutually agreed
upon by such Investor and the Company.
1.3 SUBSEQUENT SALE OF SERIES A CONVERTIBLE PREFERRED STOCK.
If less than all of the authorized number of shares of Series A
Convertible Preferred Stock are sold at the Closing, then, subject to the terms
and conditions of this Agreement, the Investors shall have the right to buy the
balance of the authorized but unissued Series A Convertible Preferred Stock,
which right may be transferred by the Investors to persons reasonably acceptable
to the Company, at the same price per share as the Series A Convertible
Preferred Stock was purchased and sold at the Closing. Any
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such sale shall be made upon the same terms and conditions as those contained
herein, and such persons or entities shall become parties to this Agreement and
shall have the rights and obligations of an Investor hereunder and thereunder.
1.4 RESET PROVISION.
The Company and the Investors hereby acknowledge that the investment
called for by this Agreement is being made in connection with the engagement by
the Company of X.X. Xxxxxxxx & Co., L.L.C. ("Bradford") to act as financial
advisor to the Company. Among other things, Bradford has been retained to assist
the Company in a private placement of equity securities, which may include one
or more additional series of convertible preferred stock of the Company (any
such transaction, if consummated, a "Bradford Placement"). The Company and the
Investors agree that in the event of any Bradford Placement involving
convertible preferred stock of the Company, the rights and preferences of the
Series A Convertible Preferred Stock (but not the purchase price therefor) shall
be automatically amended to be identical to the rights and preferences agreed to
in the Bradford Placement. The Company and the Investors shall cooperate in good
faith to prepare and execute appropriate documentation regarding such amended
rights and preferences, and shall make all necessary filings in connection
therewith. In the event of any Bradford Placement not involving convertible
preferred stock of the Company, the Company and the Investors shall negotiate in
good faith to conform the rights and preferences of the Series A Convertible
Preferred Stock to the rights and preferences agreed to in the Bradford
Placement , and the Company and the Investors shall cooperate in good faith to
prepare and execute appropriate documentation regarding such amended rights and
preferences, and shall make all necessary filings in connection therewith.
2. COVENANTS AND REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby covenants, represents and warrants to each Investor
that as of the date of this Agreement, except as set forth on a Schedule of
Exceptions furnished to each Investor and special counsel for the Investors,
specifically identifying the relevant subparagraph(s) hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION; GOOD STANDING, QUALIFICATION.
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Tennessee, has all requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as now conducted and as presently proposed to be
conducted, to execute and deliver this Agreement and any other agreement to
which the Company is a party the execution and delivery of which is contemplated
hereby (the "Ancillary Agreements"), to issue and sell the Series A Convertible
Preferred Stock and the Common Stock issuable upon conversion thereof, and to
carry out the provisions of this Agreement the Restated Charter and any
Ancillary Agreement. The Company is duly qualified and is authorized to transact
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure so to qualify would have material adverse effect on its
business, properties, prospects, or financial condition.
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2.2 AUTHORIZATION.
All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement and any Ancillary Agreement, the performance of all
obligations of the Company hereunder and thereunder at the Closing and the
authorization, issuance (or reservation for issuance), sale, and delivery of the
Series A Convertible Preferred Stock being sold hereunder and the Common Stock
issuable upon conversion thereof has been taken or will be taken prior to he
Closing, and this Agreement, and any Ancillary Agreement, when executed and
delivered, will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
2.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
The Series A Convertible Preferred Stock that is being purchased by the
Investors hereunder, when issued, sold, and delivered in accordance with the
terms of this agreement for the consideration expressed herein, will be duly and
validly issued, fully paid, and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock being purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Charter, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
2.4 GOVERNMENTAL CONSENTS.
No consent, approval, qualification, order or authorization of, or
filing with, any local, state, or federal governmental authority is required on
the part of the Company in connection with the Company's valid execution,
delivery, or performance of this Agreement, the offer, sale or issuance of the
Series A Convertible Preferred Stock by the Company or the issuance of Common
Stock upon conversion of the Series A Convertible Preferred Stock, except (i)
the filing of the Restated Charter with the Secretary of State of the State of
Tennessee, and (ii) such filings as have been made prior to the Closing, except
any notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"), or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.
2.5 CAPITALIZATION AND VOTING RIGHTS.
The authorized capital of the Company consists, or will consist
immediately prior to the Closing, of:
(a) Preferred Stock. 1,000,000 shares of Preferred Stock, no par value,
of which 50,000 shares have been designated as Series A Convertible Preferred
Stock, up to all of which will be sold pursuant to this Agreement. The rights,
privileges and preferences of the Series A Convertible Preferred Stock are as
stated in the Restated Charter.
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(b) Common Stock. 20,000,000 shares of common stock, no par value
("Common Stock"), of which 1,760,166 shares are issued and outstanding. An
additional 4,000,000 shares of Common Stock are reserved for issuance pursuant
to the Employee Stock Option Plan, dated April 15, 1994 (the "Option Plan"). The
Company has granted options under the Option Plan to acquire a total of 865,276
shares of Common Stock.
(c) The outstanding shares of Common Stock and options granted under
the Option Plan are owned by the stockholders and option holders in the numbers
specified in Exhibit B hereto.
(d) The outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(e) Except for (i) the conversion privileges of the Series A
Convertible Preferred Stock, and (ii) currently outstanding options under the
Option Plan, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any kind for the purchase or acquisition
from the Company of any of its securities. Other than the Stockholder's
Agreement, dated April 15, 1994 (the "Stockholder's Agreement"), the Company is
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the Common Stock or the voting or giving of
written consents with respect to any security or the voting by a director of the
Company.
2.6 SUBSIDIARIES.
The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.7 CONTRACTS AND OTHER COMMITMENTS.
The Company does not have and is not bound by any contract, agreement,
lease, commitment, or proposed transaction, judgment, order, writ or decree,
written or oral, absolute or contingent, other than (i) contracts for the
purchase of supplies and services that were entered into in the ordinary course
of business and at do not involve more than $50,000, and do not extend for more
than one (1) year beyond the date hereof, (ii) sales contracts entered into in
the ordinary course of business, and (iii) contracts terminable at will by the
Company on no more than thirty (30) days' notice without cost or liability to
the Company and that do not involve any employment or consulting arrangement and
are not material to the conduct of the Company's business. For the purpose of
this paragraph, employment and consulting contracts and contracts with labor
unions, and license agreements and any other agreements relating to the
Company's acquisition or disposition of patent, copyright, trade secret or other
proprietary rights or technology (other than standard end-user license
agreements) shall not be considered to be contracts entered into in the ordinary
course of business.
2.8 RELATED-PARTY TRANSACTIONS.
No employee, officer, stockholder or director of the Company or member
of his or her immediate family is indebted to the Company, nor is the Company
indebted (or committed to make loans
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or extend or guarantee credit) to any of them, other than (i) for payment of
salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of the Company, and (iii) for other standard employee
benefits made generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the Board of
Directors of the Company). To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, stockholders, officers, or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the Company. To the best of the Company's knowledge, no officer,
director, or stockholder or any member of their immediate families is, directly
or indirectly, interested in any material contract with the Company (other than
such contracts as relate to any such person's ownership of capital stock or
other securities of the Company).
2.9 REGISTRATION RIGHTS.
The Company is presently not under any obligation and has not granted
any rights to register under the Securities Act any of its presently outstanding
securities or any of its securities that may subsequently be issued.
2.10 PERMITS.
The Company has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects, or financial condition of the Company, and believes it
can obtain, without undue burden or expense, any similar authority for the
conduct of its business as presently planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS.
The Company is not in violation or default in any material respect of
any provision of its Restated Charter or Bylaws or in any material respect of
any provision of any mortgage, indenture, agreement, instrument, or contract to
which it is a party or by which it is bound or, to the best of its knowledge, of
any federal or state judgment, order, writ, decree, statute, rule, regulation or
restriction applicable to the Company. The execution, delivery, and performance
by the Company of this Agreement, and any Ancillary Agreement, and the
consummation of the transactions contemplated hereby and thereby, will not
result in any such violation or be in material conflict with or constitute, with
or without the passage of time or giving of notice, either a material default
under any such provision or an event that results in the creation of any
material lien, charge, or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business or operations, or any of its assets or properties.
2.11 LITIGATION.
There is no action, suit, proceeding, or investigation pending or, to
the Company's knowledge, currently threatened against the Company that questions
the validity of this Agreement or any Ancillary Agreement or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any
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material adverse change in the assets, business, properties, prospects, or
financial condition of the Company, or in any material change in the current
equity ownership of the Company. The foregoing includes, without limitation, any
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, their obligations under
any agreements with prior employers, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business. The
Company is not a party to or, to the best of its knowledge, named in or subject
to any order, writ, injunction, judgment, or decree of any ours, government
agency, or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or that the Company currently
intends to initiate.
2.12 BUSINESS PLAN.
The Business Plan dated July 22, 1998 previously delivered to each
Investor (the "Business Plan") was prepared in good faith by the Company and
does not, to the best of the Company's knowledge after reasonable investigation,
contain any untrue statement of a material fact nor does it omit to state a
material fact necessary to make the statements therein not misleading, except
that with respect to assumptions, projections and expressions of opinion or
predictions contained in the Business Plan, the Company represents only that
such assumptions, projections, expressions of opinion and predictions were made
in good faith and that the Company believes there is a reasonable basis
therefor.
2.13 OFFERING.
Subject in part to the truth and accuracy of each Investor's
representations set forth in this Agreement, the offer, sale and issuance of the
Series A Convertible Preferred Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.14 FINANCIAL STATEMENTS.
The Company has delivered to each Investor its financial statements
(balance sheet and profit and loss statement, statement of stockholders' equity
and statement of cash flows including notes thereto) at December 31, 1997 and
for the fiscal year then ended and its unaudited financial statements (balance
sheet and profit and loss statement) as at, and for the six-month period ended
June 30, 1998 (the "Financial Statements"). The Financial Statements have been
consistently prepared and derived from the books and records of the Company. The
Financial Statements fairly present in all material respects the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein. Except as set forth in the Financial Statements and
to the best of the Company's knowledge, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 1998 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm, or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
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2.15 CHANGES.
To the best of the Company's knowledge, since June 30, 1998, there has
not been:
(a) any change in the assets, liabilities, financial condition, or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is presently proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects, or
financial condition of the Company (as such business is presently conducted and
as it is presently proposed to be conducted);
(e) any material change to a material contract or arrangement by which
the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder other than in the ordinary
course of business;
(g) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets, or other intangible assets;
(h) any resignation or termination of employment of any key officer of
the Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable or contested by the
Company in good faith;
(k) any loans or guarantees made by the Company to or for the benefit
of its employees, stockholders, officers, or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside, or payment of any dividend or other
distribution of the Company's assets in respect of any of the Company's capital
stock, or any direct or indirect redemption, purchase, or other acquisition of
any of such stock by the Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects, or financial condition of
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the Company (as such business is presently conducted and as it is presently
proposed to be conducted); or
(n) any agreement or commitment by the Company to do any of the things
described in this paragraph 2.19.
2.16 INTELLECTUAL PROPERTY.
To the best of its knowledge (but without having conducted any special
investigation or patent search), the Company owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, and proprietary rights and processes necessary
for its business as now conducted without any conflict with, or infringement of
the rights of, others which would have a material adverse effect on the
business, properties, prospects or financial condition of the Company. The
Schedule of Exceptions contains a complete list of patents and pending patent
applications of the Company. Except for agreements with its own employees or
consultants, substantially in the form referenced in paragraph 2.23 below, and
standard end-user license agreements, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses, or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, and proprietary rights and processes of
any other person or entity. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets, or other proprietary rights or processes of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants, or commitments
of any nature) or other agreement, or subject to any judgment, decree, or order
of any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant, or instrument under which
any if such employees is now obligated. The Company does not believe it is or
will be necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by the Company. The
Company has taken reasonable efforts to identify any possible liabilities,
losses, costs expenses, or other adverse effects it may experience as a result
of the potential inability of computer systems to recognize the "Year 2000"and
has determined that it will have no material loss, cast, liability, or expense.
2.17 MANUFACTURING AND MARKETING RIGHTS.
The Company has not granted rights to manufacture, produce, assemble,
license, market, or sell its products to any other person and is not bound by
any agreement that affects the Company's exclusive right to develop,
manufacture, assemble, distribute, market, or sell its products.
2.18 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of the Company's knowledge, there is no strike, labor
dispute or union organization activities pending or threatened between it and
its employees. None of the Company's employees belongs to any union or
collective bargaining unit. To the best of its knowledge, the Company has
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complied in all material respects with all applicable state and federal equal
opportunity and other laws related to employment. To the best of the Company's
knowledge, no employee of the Company is or will be in violation of any
judgment, decree, or order, or any term of any employment contract, patent
disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Company, or any other party because
of the nature of the business conducted or presently proposed to be conducted by
the Company or to the use by the employee of his or her best efforts with
respect to such business. Other than the Option Plan, the Company is not a party
to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
2.19 TAX RETURNS, PAYMENTS, AND ELECTIONS.
The Company has timely filed all tax returns and reports (federal,
state and local) as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due and payable, except those contested by it in good faith. The
provision for taxes of the Company as shown in the Financial Statements is
adequate for taxes due or accrued as of the date thereof. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as a collapsible corporation pursuant to the Code, nor has it made
any other elections pursuant to the Code (other than its "S corporation"
election or that relate solely to methods of accounting, depreciation, or
amortization) that would have a material effect on the business, properties,
prospects, or financial condition of the Company. The Company has never had any
tax deficiency proposed or assessed against it and has not executed any waiver
of any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial Statements,
the Company has made adequate provisions on its books of account for all taxes,
assessments, and governmental charges with respect to its business, properties,
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes, including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
2.20 ENVIRONMENTAL AND SAFETY LAWS.
To the best of its knowledge, the Company is not in violation of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety which would have a material adverse effect on the
business, properties, prospects or financial condition of the Company, and to
the best of its knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law, or regulation.
2.21 SECTION 83(B) ELECTIONS.
To the best of the Company's knowledge, all individuals who have
purchased shares of the Company's Common Stock under agreements that provide for
the vesting of such shares have filed
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timely elections under Section 83(b) of he Internal Revenue Code and any
analogous provisions of applicable state tax laws.
2.22 MINUTE BOOKS.
The copy of the minute books of the Company provided to the Investors'
special counsel contains minutes of all meetings of directors and stockholders
and all actions by written consent without a meeting by the directors and
stockholders since the date of incorporation and accurately reflects all actions
by the directors (and any committee of directors) and stockholders with respect
to all transactions referred to in such minutes in all material respects.
2.23 REAL PROPERTY HOLDING CORPORATION.
The Company is not a real property holding corporation within the
meaning of Internal Revenue Code Section 897(c)(2) and any regulations
promulgated thereunder.
3. ACKNOWLEDGMENTS, COVENANTS, AND REPRESENTATIONS AND WARRANTIES OF
THE INVESTORS.
The Investors hereby represent and warrant to the Company that as of
the date of this Agreement:
3.1 AUTHORIZATION.
Such Investor has full power and authority to enter into this
Agreement, and that this Agreement, when executed and delivered, will constitute
a valid and legally binding obligation of such Investor enforceable in
accordance with its terms.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with each Investor in reliance upon such
Investor's representation to the Company, which by such Investor's execution of
his Agreement such Investor hereby confirms, that the Series A Convertible
Preferred Stock to be purchased by such Investor and the Common Stock issuable
upon conversion thereof (collectively, the "Securities") will be acquired for
investment for such Investor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that such
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, each Investor
further represents that such Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 RELIANCE UPON INVESTORS' REPRESENTATIONS.
Each Investor understands that the Series A Convertible Preferred Stock
is not, and any Common Stock acquired on conversion thereof at the time of
issuance may not be, registered under the Securities Act on the ground that the
sale provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is predicated on the
Investors' representations set forth herein. Each Investor realizes that the
basis for the exemption may not be present if, notwithstanding such
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representations, the Investor has in mind merely acquiring shares of the Series
A Convertible Preferred Stock for a fixed or determinable period in the future,
or for a market rise, or for sale if the market does not rise. No Investor has
any such intention.
3.4 RECEIPT OF INFORMATION.
Each Investor believes such Investor has received all the information
such Investor considers necessary or appropriate for deciding whether to
purchase the Series A Convertible Preferred Stock. Each Investor further
represents that such Investor has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Series A Convertible Preferred Stock and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to such Investor or to which such Investor
had access. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.5 INVESTMENT EXPERIENCE.
Each Investor represents that such Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development and acknowledges that such Investor
is able to fend for himself, herself or itself, can bear the economic risk of
such Investor's investment, and has such knowledge and experience in financial
and business matters that such Investor is capable of evaluating the merits and
risks of the investment in the Series A Convertible Preferred Stock. If other
than an individual, Investor also represents that each record or beneficial
owner of any equity interest in Investor (each an "Investor Owner") meets the
requirements of the preceding sentence..
3.6 ACCREDITED INVESTOR.
(a) The term "Accredited Investor" as used herein refers to:
(i) A person or entity who is a director or executive officer
of the Company;
(ii) Any bank as defined in Section 3(a)(2) of the Securities
Act, or any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; any insurance company as defined in Section
2(13) of the Securities Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
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(iii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of the purchase exceeds
$1,000,000;
(vi) Any natural person who had an individual income in excess
of $200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a person who has such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of the prospective investment; or
(viii) Any entity in which all of the equity owners are
accredited investors.
As used in this Paragraph 3.6(a), the term "net worth" means the excess
of total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual should be
valued at fair market value, including the cost of improvements, net of current
encumbrances. As used in this Paragraph 3.6(a), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, each Investor should consider whether such Investor should add any
or all of the following items to such Investor's adjusted gross income for
income tax purposes in order to reflect more accurately such Investor's actual
economic income: any amounts attributable to tax-exempt income received, losses
claimed as a limited partner in any limited partnership, deductions claimed for
depletion, contributions to an XXX or Xxxxx retirement plan, and alimony
payments.
(b) Each Investor as to such Investor severally and not jointly further
represents to the Company that except as otherwise disclosed to the Company, in
writing, prior to such Investor's execution hereof, such Investor and each
Investor Owner is an Accredited Investor.
3.7 RESTRICTED SECURITIES.
Each Investor understands that the Series A Convertible Preferred Stock
(and any Common Stock issued on conversion thereof) may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Stock (or the Common Stock issued on
conversion thereof) or an available exemption from registration under the
Securities Act, the Series A Convertible Preferred Stock (and any Common Stock
issued on conversion thereof) must be held indefinitely. In particular, each
Investor is aware that the Series A Convertible Preferred Stock (and any Common
Stock issued on conversion thereof) may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that Rule
are met. Among the conditions for use of Rule 144 may be the availability of
current information to the public about the Company. Such information is not now
available and the Company has no present plans to make such information
available.
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3.8 LEGENDS.
To the extent applicable, each certificate or other document evidencing
any of the Series A Convertible Preferred Stock or any Common Stock issued upon
conversion thereof shall be endorsed with the legends substantially in the form
set forth below: (a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend imposed or required by the Company's Bylaws or
applicable state securities laws.
3.9 PUBLIC SALE.
Each Investor agrees not to make, without the prior written consent of
the Company, any public offering or sale of the Series A Convertible Preferred
Stock, or any Common Stock issued upon the conversion thereof, although
permitted to do so pursuant to Rule 144(k) promulgated under the Securities Act,
until the earlier of (i) the date on which the Company effects its initial
registered public offering pursuant to the Securities Act or (ii) the date on
which it becomes a registered company pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, or (iii) three years after the
Closing of the sale of the Series A Convertible Preferred Stock to such Investor
by the Company.
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING.
The obligations of each Investor under subparagraph 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which shall not be effective against any
Investor who does not consent in writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in Section
2 shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
4.2 PERFORMANCE.
The Company shall have performed and complied with all agreements,
obligations, and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.
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4.3 COMPLIANCE CERTIFICATE.
The President of the Company shall deliver to each Investor at the
Closing a certificate certifying that the conditions specified in paragraphs
4.1, 4.2, 4.4, and 4.5 have been fulfilled.
4.4 QUALIFICATIONS.
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Series A
Convertible Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Investors' special counsel,
which shall have received all such counterpart original and certified or other
copies of such documents as it may reasonably request.
4.6 MINIMUM INVESTMENT.
The Company shall sell an aggregate of at least 10,000 shares of
Series A Convertible Preferred Stock at the Closing.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to each Investor under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions by that Investor.
5.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Investor contained in
Section 3 shall be true on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
5.2 QUALIFICATIONS.
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Stock pursuant
to this Agreement shall be duly obtained and effective as of the Closing.
5.3 MINIMUM INVESTMENT.
The Investors shall purchase an aggregate of at least 10,000 shares of
Series A Convertible Preferred Stock at the Closing.
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6. GENERAL PROVISIONS.
6.1 ENTIRE AGREEMENT.
This Agreement and the documents referred to herein constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
6.2 SURVIVAL OF WARRANTIES.
The warranties, representations, and covenants of the Company and the
Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
6.3 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including permitted transferees of any
shares of Series A Convertible Preferred Stock sold hereunder or any Common
Stock issued upon conversion thereof). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.4 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of Tennessee as applied to agreements among Tennessee residents entered
into and to be performed entirely within Tennessee.
6.5 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.6 TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
6.7 NOTICES.
Unless otherwise provided, all notices and other communications
required or permitted under this Agreement shall be in writing and shall be
mailed by United States first class mail, postage prepaid, sent by facsimile or
delivered personally by hand or by a nationally recognized courier addressed to
the party to be notified at the address or facsimile number indicated for such
person on the signature page hereof, or at such other address or facsimile
number as such party may designate by ten (10) days'
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advance written notice to the other parties hereto. All such notices and other
written communications shall be effective on the date of mailing, confirmed
facsimile transfer or delivery.
6.8 FINDER'S FEES.
Each party represents that it neither is nor will be obligated for any
finder's fee or commission in connection with the purchase by the Investor of
the Series A Convertible Preferred Stock.
Each Investor agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the cost and expenses of defending against such liability or asserted
liability) for which the Investor or any of its officers, partners, employees,
or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
6.9 EXPENSES.
Irrespective of whether the Closing is effected, the Company shall pay
all costs and expenses that it incurs with respect to the negotiation,
execution, delivery, and performance of this Agreement. If the Closing is
effected, the Company shall, at the Closing, reimburse the fees of one special
counsel for the Investors not to exceed $2500.00 and shall in addition, upon
receipt of a xxxx therefor, reimburse the out-of-pocket expenses of such
counsel.
6.10 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, any Ancillary Agreement or the Restated Charter,
the prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
6.11 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investors (or their transferees) holding more
than 50% of the Common Stock not previously sold to the public that is issued or
issuable upon conversion of the Series A Convertible Preferred Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and the Company.
6.12 SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
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6.13 TENNESSEE SECURITIES LAW.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE SECURITIES DIVISION OF THE TENNESSEE DEPARTMENT OF
COMMERCE AND INSURANCE OF THE STATE OF TENNESSEE AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH
SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY TENNESSEE LAW. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED,
UNLESS THE SALE IS SO EXEMPT.
6.14 EFFECT OF AMENDMENT OR WAIVER.
Each Investor acknowledges that by the operation of paragraph 6.11
hereof the Investors (or their transferees) holding more than fifty percent
(50%) of the Common Stock not previously sold to the public that is issued or
issuable upon conversion of the Series A Convertible Preferred Stock will have
the right and power to diminish or eliminate all rights of such Investor under
this Agreement.
6.15 RIGHTS OF INVESTORS.
Each holder of Series A Convertible Preferred Stock (and Common Stock
issued upon conversion thereof) shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement or any Series A Convertible Preferred Stock, including without
limitation the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Series A Convertible Preferred Stock (or Common Stock issued upon
exercise thereof) with respect to exercising or refraining from exercising any
such right or rights.
6.16 EXCULPATION AMONG INVESTORS.
Each Investor acknowledges that such Investor is not relying upon any
person, firm, or corporation, other than the Company and its officers and
directors, in making its investment or decision to invest in the Company. Each
Investor agrees that no Investor nor the respective controlling persons,
officers, directors, partners, agents, or employees of any Investor shall be
liable for any action heretofore or hereafter taken or omitted to be taken by
any of them in connection with the Series A Convertible Preferred Stock (and
Common Stock issued upon conversion thereof).
[SIGNATURES FOLLOW THIS PAGE]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HEALTHSTREAM, INC.
By /s/ Xxxxxx X Xxxxx, Xx.
----------------------------------
Xxxxxx X Xxxxx, Xx.
Chief Executive Officer
Address: HealthStream
000 00xx Xxx. Xxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
INVESTORS:
JCB HEALTHSTREAM INVESTORS, L.L.C
By: /s/ Xxx Xxxxxx
---------------------------------
Xxx Xxxxxx
Title: Chief Manager
Address: x/x X.X. Xxxxxxxx & Xx., X.X.X.
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
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SCHEDULE A
INVESTORS
NAME NUMBER OF SHARES
---- ----------------
JCB Healthstream Investors, LLC 11,000
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SCHEDULE OF EXCEPTIONS
2.8 RELATED-PARTY TRANSACTIONS.
Indebtedness to Company by Shareholders
MacDonald Xxxxxxxxxx owes the Company $1,248.03 due to an outstanding balance of
a loan from the Company to purchase shares.
Indebtedness to Shareholders by Company
The Company owes Xxxxxx Xxxxx, Xx. $2,773,947.02 for loans made to the Company.
The Company owes Xxxxx Xxxxxx $60,000.00 for loans made to the Company.
In addition, Xxxxxx Xxxxx, Xx. serves on the Board of Directors of Passport
Health Communications. This firm does not directly compete with the Company, but
it does do business in the Internet healthcare information industry.
2.14 FINANCIAL STATEMENTS.
The Company has retained the services of Ernst & Young to conduct an audit of
its financial statements ending December 31, 1997 and to review its financial
statements ending June 30, 1998. This audit is in process and should be
completed by October 31, 1998.
2.17 MANUFACTURING AND MARKETING RIGHTS.
The Company has relationships with many Value Added Resellers ("VARs"). The most
significant is Lippincott Xxxxxxxx & Xxxxxxx, a large medical publisher based in
Baltimore, Maryland, that sells its regulatory training content bundled with the
Company's Training Navigator. These VARs will continue to play an integral
role in the Company's ongoing business strategy.
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