<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IDX SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
VERMONT 7373 03-0222230
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION)
----------------
1400 SHELBURNE ROAD, P.O. BOX 1070, SOUTH BURLINGTON, VERMONT 05403, (802)
862-1022
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
RICHARD E. TARRANT
President and Chief Executive Officer
IDX Systems Corporation
1400 Shelburne Road, P.O. Box 1070
South Burlington, Vermont 05403
(802) 862-1022
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
ROBERT W. BAKER, JR., ESQ. PETER B. TARR, ESQ. JOSEPH P. WHITFORD, ESQ.
IDX Systems Corporation Hale and Dorr LLP Foster Pepper &
1400 Shelburne Road 60 State Street Shefelman PLLC 1111
P.O. Box 1070 Boston, Massachusetts Third Avenue
South Burlington, Vermont 02109 Suite 3400
05403 (802) 862-1022 (617) 526-6000 Seattle, Washington
98101
(206) 447-4400
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Merger Agreement are met or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruct G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE(3)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share....... 5,600,000 $21.4375 $120,050,000 $36,379
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Based upon an estimate of the number of shares of the Common Stock of the
Registrant issuable in the merger described herein to stockholders of
PHAMIS, Inc.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(c) and 475(f)(1) under the Securities Act of 1933,
as amended (the "Securities Act"), and based upon prices on the Nasdaq
National Market on May 30, 1997.
(3) A fee of $19,120 was previously paid by the Registrant pursuant to Rule
14a-6 promulgated under the Securities Exchange Act of 1934, as amended,
in connection with the filing of the preliminary Joint Proxy
Statement/Prospectus on April 25, 1997. Pursuant to Rule 457(b) under the
Securities Act, such fee is being credited against the registration fee,
and accordingly, $17,259 additional fee is being paid in connection with
this Registration Statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LOGO OF IDX]
1400 SHELBURNE ROAD
P.O. BOX 1070
BURLINGTON, VT 05402-1070
802.862.1022 FAX 802.862.6848
June 5, 1997
Dear Shareholder:
As most of you are aware, IDX Systems Corporation ("IDX") has entered into
an Agreement and Plan of Merger dated as of March 25, 1997 (the "Merger
Agreement") with Penguin Acquisition Corporation, a Washington corporation and
wholly-owned subsidiary of IDX ("Sub"), and PHAMIS, Inc., a Washington
corporation ("PHAMIS"), pursuant to which, among other things, (a) Sub will be
merged with and into PHAMIS, with PHAMIS being the surviving corporation and
becoming a wholly-owned subsidiary of IDX (the "Merger") and (b) each
outstanding share of common stock, $.0025 par value per share, of PHAMIS
("PHAMIS Common Stock") will be converted into that fraction of a share of
common stock, $.01 par value per share, of IDX ("IDX Common Stock") as is
equal to the Conversion Ratio (as defined in the Merger Agreement). As set
forth in the Merger Agreement, the Conversion Ratio, initially set at .73,
will be adjusted (i) downward (but not to less than .6811) in the event that
the average closing price per share of IDX Common Stock on the Nasdaq National
Market over the twenty consecutive trading days ending on the trading day two
trading days immediately preceding July 9, 1997, the date of the Special
Meeting of Shareholders of PHAMIS (the "IDX Stock Value"), is greater than
$34.375 per share, and (ii) upward (but not to greater than .8) in the event
that the IDX Stock Value is less than $28.125 per share. At a Special Meeting
of Shareholders of IDX on July 9, 1997 (the "IDX Special Meeting"), you will
be asked to consider and vote upon the approval and adoption of the Merger
Agreement and approval of the issuance of IDX Common Stock in the Merger and
certain related and other matters. The accompanying Joint Proxy
Statement/Prospectus presents the details of this proposed strategic Merger.
We estimate that the shares of IDX Common Stock to be issued to PHAMIS
shareholders in the Merger will represent between approximately 16 and 21% of
the outstanding IDX Common Stock after the Merger (depending on the Conversion
Ratio and the number of shares of IDX and PHAMIS Common Stock outstanding at
the time of the Merger).
IDX's Board of Directors (the "IDX Board") has unanimously approved the
Merger and recommends that you vote FOR the Merger proposal and the related
matters.
The IDX Board believes that the Merger represents a strategic fit between
two companies with similar business strategies and complementary products and
operations. The IDX Board expects the Merger to result in significant benefits
for the combined company and a number of other important advantages for IDX
shareholders. For further information regarding the Merger and the potential
benefits of the Merger, I urge that you read carefully the accompanying Joint
Proxy Statement/Prospectus and, specifically, the section "The Merger--Reasons
for the Merger; Recommendations of the Boards of Directors."
Even if you plan to attend the IDX Special Meeting in person, please
complete, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope.
Sincerely,
RICHARD E. TARRANT
President and Chief Executive
Officer
ATLANTA BOSTON BURLINGTON CHICAGO DALLAS SAN FRANCISCO
<PAGE>
LOGO
June 5, 1997
Dear Shareholder:
As most of you are aware, PHAMIS has entered into an Agreement and Plan of
Merger dated as of March 25, 1997 (the "Merger Agreement") with IDX Systems
Corporation, a Vermont corporation, and a wholly- owned subsidiary of IDX
("Sub"), pursuant to which, among other things, (a) Sub will be merged with and
into PHAMIS, with PHAMIS being the surviving corporation and becoming a wholly-
owned subsidiary of IDX (the "Merger") and (b) each outstanding share of common
stock, $.0025 par value per share, of PHAMIS ("PHAMIS Common Stock") will be
converted into that fraction of a share of common stock, $.01 par value per
share, of IDX ("IDX Common Stock"), as is equal to the Conversion Ratio (as
defined in the Merger Agreement). As set forth in the Merger Agreement, the
Conversion Ratio, initially set at .73, will be adjusted (i) downward (but not
to less than .6811) in the event that the average closing price per share of
IDX Common Stock on the Nasdaq National Market over the twenty consecutive
trading days ending on the trading day two trading days immediately preceding
the date of the PHAMIS Special Meeting (as defined below) (the "IDX Stock
Value") is greater than $34.375 per share, and (ii) upward (but not to greater
than .8) in the event that the IDX Stock Value is less than $28.125 per share.
At a Special Meeting of Shareholders of PHAMIS on July 9, 1997 (the "PHAMIS
Special Meeting"), you will be asked to consider and vote upon the approval and
adoption of the Merger Agreement. The accompanying Joint Proxy
Statement/Prospectus presents the details of this proposed strategic Merger.
We estimate that the shares of IDX Common Stock to be issued to PHAMIS
shareholders in the Merger will represent between approximately 16 and 21% of
the outstanding IDX Common Stock after the Merger (depending on the Conversion
Ratio and the number of shares of IDX and PHAMIS Common Stock outstanding at
the time of the Merger).
PHAMIS' Board of Directors (the "PHAMIS Board") has unanimously approved the
Merger Agreement and recommends that you vote FOR the approval and adoption of
the Merger Agreement.
The PHAMIS Board believes that the Merger represents a strategic fit between
two companies with similar business strategies and complementary products and
operations. The PHAMIS Board expects the Merger to result in significant
benefits for the combined company and a number of other important advantages
for PHAMIS shareholders. For further information regarding the Merger and the
potential benefits of the Merger, I urge that you read carefully the
accompanying Joint Proxy Statement/Prospectus and, specifically, the section
"The Merger--Reasons for the Merger; Recommendations of the Boards of
Directors."
Even if you plan to attend the PHAMIS Special Meeting in person, please
complete, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope.
Sincerely,
FRANK T. SAMPLE
President and Chief Executive Officer
LOGO
<PAGE>
IDX SYSTEMS CORPORATION
1400 SHELBURNE ROAD
P.O. BOX 1070
SOUTH BURLINGTON, VERMONT 05403
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JULY 9, 1997
To the Shareholders of
IDX Systems Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "IDX
Special Meeting") of IDX Systems Corporation, a Vermont corporation ("IDX"),
will be held on Wednesday, July 9, 1997, at the offices of IDX, 1400 Shelburne
Road, South Burlington, Vermont 05403, commencing at 10:00 a.m., local time,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of March 25, 1997 (the "Merger Agreement")
among IDX, Penguin Acquisition Corporation, a Washington corporation and
wholly-owned subsidiary of IDX ("Sub"), and PHAMIS, Inc., a Washington
corporation ("PHAMIS") and to approve the issuance of shares of Common
Stock, par value $.01 per share, of IDX ("IDX Common Stock"), pursuant
thereto. The Merger Agreement provides that, among other things, (a) Sub
will be merged with and into PHAMIS, with PHAMIS being the surviving
corporation and becoming a wholly-owned subsidiary of IDX and (b) each
outstanding share of Common Stock, par value $.0025 per share, of PHAMIS
(together with the associated preferred stock purchase rights) will be
converted into that fraction of a share of IDX Common Stock as is equal to
the Conversion Ratio (as defined in the Merger Agreement). As set forth in
the Merger Agreement, the Conversion Ratio, initially set at .73, will be
adjusted (i) downward (but not to less than .6811) in the event that the
average closing price per share of IDX Common Stock on the Nasdaq National
Market over the twenty consecutive trading days ending on the trading day
two trading days immediately preceding July 9, 1997, the date of the
Special Meeting of Shareholders of PHAMIS (the "IDX Stock Value"), is
greater than $34.375 per share, and (ii) upward (but not to greater than
.8) in the event that the IDX Stock Value is less than $28.125 per share.
2. To consider and vote upon a proposal to approve an amendment to IDX's
Second Amended and Restated Articles of Incorporation (the "Charter
Amendment") increasing the total number of shares of capital stock which
IDX has the authority to issue from 55,000,000 to 105,000,000 and the total
number of shares of IDX Common Stock which IDX has the authority to issue
from 50,000,000 to 100,000,000.
3. To consider and vote upon a proposal to approve an amendment to IDX's
Second Amended and Restated Articles of Incorporation (the "Second Charter
Amendment") increasing the shareholder vote required to approve certain
business combinations from a majority to two-thirds in the event that the
then current or pre-existing IDX Board of Directors does not recommend such
business combinations to the shareholders.
4. To consider and vote upon a proposal to approve an amendment to IDX's
1995 Stock Option Plan increasing the number of shares issuable thereunder
from 1,470,000 to 4,500,000 and to continue the 1995 Stock Option Plan, as
amended.
5. To consider and vote upon a proposal to approve an amendment to IDX's
1995 Employee Stock Purchase Plan increasing the number of shares issuable
thereunder from 500,000 to 1,400,000.
6. To consider and vote upon a proposal to approve an amendment to IDX's
1995 Director Stock Option Plan increasing the number of shares issuable
thereunder from 30,000 to 80,000.
7. To transact such other business as may properly come before the IDX
Special Meeting or any adjournment or postponement of the IDX Special
Meeting.
<PAGE>
Copies of the Merger Agreement, Charter Amendment and Second Charter
Amendment are attached as Annex A, Annex F and Annex G, respectively, to the
accompanying Joint Proxy Statement/Prospectus.
Shareholders of record at the close of business on June 2, 1997 are entitled
to notice of, and to vote at, the IDX Special Meeting and any adjournment or
postponement of the IDX Special Meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign and return the enclosed proxy card as promptly as possible in
the enclosed postage-prepaid envelope.
By Order of the Board of Directors
ROBERT W. BAKER, JR.
Secretary
South Burlington, Vermont
June 5, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
PHAMIS, INC.
1001 FOURTH AVENUE PLAZA, SUITE 1500
SEATTLE, WASHINGTON 98154
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JULY 9, 1997
To the Shareholders of
PHAMIS, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "PHAMIS
Special Meeting") of PHAMIS, Inc., a Washington corporation ("PHAMIS"), will
be held on Wednesday, July 9, 1997, at the Columbia Tower Club, 701 Fifth
Avenue, Suite 7600, Seattle, Washington 98104, commencing at 9:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of March 25, 1997 (the "Merger Agreement")
among IDX Systems Corporation, a Vermont corporation ("IDX"), Penguin
Acquisition Corporation, a Washington corporation and a wholly-owned
subsidiary of IDX ("Sub"), and PHAMIS, pursuant to which, among other
things, (a) Sub will be merged with and into PHAMIS, with PHAMIS being the
surviving corporation and becoming a wholly-owned subsidiary of IDX, and
(b) each outstanding share of Common Stock, par value $.0025 per share, of
PHAMIS (together with the associated preferred stock purchase rights) will
be converted into that fraction of a share of Common Stock, par value $.01
per share, of IDX ("IDX Common Stock") as is equal to the Conversion Ratio
(as defined in the Merger Agreement). As set forth in the Merger Agreement,
the Conversion Ratio, initially set at .73, will be adjusted (i) downward
(but not to less than .6811) in the event that the average closing price
per share of IDX Common Stock on the Nasdaq National Market over the twenty
consecutive trading days ending on the trading day two trading days
immediately preceding the date of the PHAMIS Special Meeting (the "IDX
Stock Value") is greater than $34.375 per share, and (ii) upward (but not
to greater than .8) in the event that the IDX Stock Value is less than
$28.125 per share.
2. To transact such other business as may properly come before the PHAMIS
Special Meeting or any adjournment or postponement of the PHAMIS Special
Meeting.
A copy of the Merger Agreement is attached as Annex A to the accompanying
Joint Proxy Statement/Prospectus.
Shareholders of record at the close of business on May 22, 1997 are entitled
to notice of, and to vote at, the PHAMIS Special Meeting and any adjournment
or postponement of the PHAMIS Special Meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign and return the enclosed proxy card as promptly as possible in
the enclosed postage-prepaid envelope.
By Order of the Board of Directors
MARK F. WHEELER
Secretary
Seattle, Washington
June 5, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE>
IDX SYSTEMS CORPORATION
AND
PHAMIS, INC.
---------------
JOINT PROXY STATEMENT
---------------
IDX SYSTEMS CORPORATION PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $.01 per share ("IDX Common Stock"), of IDX Systems
Corporation, a Vermont corporation ("IDX"), in connection with the
solicitation of proxies by the Board of Directors of IDX for use at a Special
Meeting of Shareholders of IDX (the "IDX Special Meeting") to be held on
Wednesday, July 9, 1997, at the offices of IDX, 1400 Shelburne Road, South
Burlington, Vermont 05403, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, par value $.0025 per share ("PHAMIS Common Stock"), of PHAMIS,
Inc., a Washington corporation ("PHAMIS"), in connection with the solicitation
of proxies by the Board of Directors of PHAMIS for use at the Special Meeting
of Shareholders of PHAMIS (the "PHAMIS Special Meeting") to be held on
Wednesday, July 9, 1997, at the Columbia Tower Club, 701 Fifth Avenue, Suite
7600, Seattle, Washington 98104, commencing at 9:00 a.m., local time, and at
any adjournment or postponement thereof.
IDX has filed a Registration Statement on Form S-4 (including the exhibits
and amendments thereto, the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), covering up to
5,600,000 shares of IDX Common Stock which may be issued pursuant to the
Agreement and Plan of Merger, dated as of March 25, 1997, among IDX, Penguin
Acquisition Corporation, a Washington corporation and wholly-owned subsidiary
of IDX ("Sub"), and PHAMIS (the "Merger Agreement") in exchange for
outstanding shares of PHAMIS Common Stock. This Joint Proxy
Statement/Prospectus constitutes the Prospectus of IDX comprising a part of
the Registration Statement. The Merger Agreement is attached as Annex A to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Pursuant to the Merger Agreement, Sub will be merged with and into PHAMIS (the
"Merger"), with PHAMIS being the surviving corporation (the "Surviving
Corporation") in the Merger and becoming a wholly-owned subsidiary of IDX, and
each outstanding share of PHAMIS Common Stock (together with the associated
preferred stock purchase rights) will be converted into that fraction of a
share of IDX Common Stock as is equal to the Conversion Ratio (as defined in
the Merger Agreement). As set forth in the Merger Agreement, the Conversion
Ratio, initially set at .73, will be adjusted (i) downward (but not to less
than .6811) in the event that the average closing price per share of IDX
Common Stock on the Nasdaq National Market over the twenty consecutive trading
days ending on the trading day two trading days immediately preceding the date
of the PHAMIS Special Meeting (the "IDX Stock Value") is greater than $34.375
per share, and (ii) upward (but not to greater than .8) in the event that the
IDX Stock Value is less than $28.125 per share. Based upon the number of
outstanding shares of IDX Common Stock and PHAMIS Common Stock as of March 31,
1997, and assuming Conversion Ratios of .8, .73, and .6811 the shareholders of
PHAMIS immediately prior to the consummation of the Merger will own
approximately 19.0%, 17.6% and 16.7%, respectively, of the outstanding shares
of IDX Common Stock immediately following consummation of the Merger. On June
2, 1997, the last reported sale price of the IDX Common Stock on the Nasdaq
National Market was $33.1875 per share, and the last reported sale price of
the PHAMIS Common Stock on the Nasdaq National Market was $22.375 per share.
As used herein, the term "Combined Company" means IDX and PHAMIS and their
respective subsidiaries as a consolidated entity following the Merger.
All information contained in this Joint Proxy Statement/Prospectus relating
to IDX has been supplied by IDX, and all information relating to PHAMIS has
been supplied by PHAMIS.
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY BOTH IDX AND PHAMIS SHAREHOLDERS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of IDX and PHAMIS on or about June 5,
1997.
The date of this Joint Proxy Statement/Prospectus is June 5, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION..................................................... 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 5
SUMMARY................................................................... 7
The Companies........................................................... 7
Date and Place of the Meetings.......................................... 7
Shareholders Entitled to Vote........................................... 7
Purposes of the Meetings................................................ 8
Votes Required.......................................................... 8
Effects of the Merger................................................... 8
Recommendations......................................................... 9
Opinions of Financial Advisors.......................................... 10
Interests of Certain Persons in the Merger.............................. 10
Effective Time of the Merger............................................ 11
Management and Operations of IDX Following the Merger................... 11
Conditions to the Merger................................................ 11
Termination............................................................. 11
Dissenters' Rights...................................................... 12
Certain Federal Income Tax Consequences................................. 12
Accounting Treatment.................................................... 12
Surrender of Certificates............................................... 13
Certain Effects of the Merger on the Rights of Holders of PHAMIS Common
Stock.................................................................. 13
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION.................................................... 14
COMPARATIVE PER SHARE DATA................................................ 18
MARKET PRICE INFORMATION.................................................. 19
RISK FACTORS.............................................................. 20
Risks Relating to the Merger............................................ 20
Risks Relating to IDX and PHAMIS........................................ 20
THE IDX SPECIAL MEETING................................................... 25
General................................................................. 25
Matters to be Considered................................................ 25
Boards of Directors' Recommendations.................................... 25
Record Date and Voting.................................................. 25
Proxies................................................................. 26
THE PHAMIS SPECIAL MEETING................................................ 28
General................................................................. 28
Matters to be Considered................................................ 28
Boards of Directors' Recommendations.................................... 28
Record Date and Voting.................................................. 28
Proxies................................................................. 29
THE MERGER................................................................ 30
Background of the Merger................................................ 30
Reasons for the Merger; Recommendation of the Boards of Directors....... 31
Opinions of Financial Advisors.......................................... 35
Interests of Certain Persons in the Merger.............................. 43
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Management and Operations of IDX Following the Merger.................... 45
Accounting Treatment..................................................... 45
Certain Federal Income Tax Consequences.................................. 46
Regulatory Approvals..................................................... 47
Federal Securities Law Consequences...................................... 47
Stock Market Quotation................................................... 48
Dissenters' Rights....................................................... 48
THE MERGER AGREEMENT....................................................... 51
General.................................................................. 51
Conversion of Shares..................................................... 51
Representations and Warranties........................................... 53
Certain Covenants........................................................ 53
No Solicitation.......................................................... 54
Management of IDX Following the Merger................................... 54
Related Matters After the Merger......................................... 54
Stock Options............................................................ 55
Shareholders Rights Agreement............................................ 55
Director and Officer Indemnification..................................... 56
Conditions............................................................... 56
Limitations on Transferability of IDX Common Stock....................... 57
Termination; Termination Fees and Expenses............................... 57
Amendment and Waiver..................................................... 59
IDX SYSTEMS CORPORATION.................................................... 60
Business................................................................. 60
Security Ownership of Certain Beneficial Owners and Management........... 72
PHAMIS, INC................................................................ 74
Business................................................................. 74
Security Ownership of Certain Beneficial Owners and Management........... 81
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................ 83
DESCRIPTION OF IDX CAPITAL STOCK........................................... 91
Common Stock............................................................. 91
Preferred Stock.......................................................... 91
Vermont Law and Certain Charter Provisions............................... 92
Transfer Agent........................................................... 92
COMPARISON OF SHAREHOLDER RIGHTS........................................... 93
General.................................................................. 93
Number of Directors...................................................... 93
Classification of Board of Directors..................................... 93
Removal of Directors..................................................... 94
Filling Vacancies on the Board of Directors.............................. 94
Action by Written Consent................................................ 95
Right to Call Special Meetings of Shareholders........................... 95
Shareholder Proposals and Shareholder Nominations of Directors........... 95
Business Combination Statute............................................. 95
Required Vote for Authorization of Mergers, Share Exchange, and Sale of
Assets.................................................................. 96
Amendment of Articles of Incorporation................................... 96
Amendment of Bylaws...................................................... 97
Appraisal and Dissenters' Rights......................................... 97
Limitation on Directors' Liability....................................... 98
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Indemnification of Officers, Directors and Employees.................... 98
Cumulative Voting....................................................... 99
Conflict of Interest Transactions....................................... 99
Dividends and Other Distributions....................................... 100
Shareholder Inspection Rights........................................... 100
Rights Plans and Agreements............................................. 101
FIRST AMENDMENT TO IDX'S SECOND AMENDED AND RESTATED ARTICLES OF
INCORPORATION............................................................ 102
SECOND AMENDMENT TO IDX'S SECOND AMENDED AND RESTATED ARTICLES OF
INCORPORATION............................................................ 103
AMENDMENT TO AND CONTINUANCE OF IDX'S 1995 STOCK OPTION PLAN.............. 105
Summary of the Equity Plan.............................................. 105
Federal Income Tax Consequences......................................... 106
AMENDMENT TO IDX'S 1995 EMPLOYEE STOCK PURCHASE PLAN...................... 108
Summary of the Purchase Plan............................................ 108
Federal Income Tax Consequences......................................... 109
AMENDMENT TO IDX'S 1995 DIRECTOR STOCK OPTION PLAN........................ 111
Summary of the Director Plan............................................ 111
Federal Income Tax Consequences......................................... 112
LEGAL MATTERS............................................................. 112
EXPERTS................................................................... 113
Annex A--Merger Agreement............................................... A-1
Annex B--Opinion of Alex. Brown and Sons Incorporated................... B-1
Annex C--Opinion of Bear, Stearns & Co. Inc............................. C-1
Annex D--Chapter 23B.13 of the Washington Business Corporation Act...... D-1
Annex E--Chapter 13 of the Vermont Business Corporation Act............. E-1
Annex F--Charter Amendment.............................................. F-1
Annex G--Second Charter Amendment....................................... G-1
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
IDX and PHAMIS are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by IDX and PHAMIS with the Commission
can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at 7 World Trade Center, 13th
floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, Washington, D.C. 20549. In addition, IDX and PHAMIS are each
required to file electronic versions of such material with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. IDX Common Stock and PHAMIS Common Stock are both quoted on the
Nasdaq National Market. Reports and other information concerning IDX and
PHAMIS can also be inspected at the offices of the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
IDX has filed with the Commission a Registration Statement on Form S-4 under
the Securities Act with respect to the shares of IDX Common Stock to be issued
pursuant to the Merger Agreement. This Joint Proxy Statement/Prospectus does
not contain all the information set forth in the Registration Statement. For
further information with respect to IDX, PHAMIS and the IDX Common Stock,
reference is hereby made to the Registration Statement (including the exhibits
and schedules thereto). Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated by reference in this
Joint Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
(if any) filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following IDX documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
3. Current Report on Form 8-K dated April 3, 1997; and
4. The description of IDX's capital stock contained in IDX's Registration
Statement on Form 8-A dated September 19, 1995.
The following PHAMIS documents filed with the Commission are incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1996, as
amended;
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
3. Current Report on Form 8-K dated March 28, 1997; and
4. The description of PHAMIS' capital stock and shareholder rights
contained in Registration Statements on Forms 8-A dated October 31, 1994,
as amended, and August 1, 1996.
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All documents and reports subsequently filed by IDX or PHAMIS pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the IDX Special
Meeting and the PHAMIS Special Meeting shall be deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be part hereof from
the date of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available to any person, including any
beneficial owner, to whom this Joint Proxy Statement/Prospectus is delivered,
on written or oral request, without charge, in the case of documents relating
to IDX, directed to IDX Systems Corporation, 1400 Shelburne Road, P. O. Box
1070, South Burlington, Vermont 05403 (telephone number (802) 862-1022),
Attention: Secretary, or, in the case of documents relating to PHAMIS,
directed to PHAMIS, Inc., 1001 Fourth Avenue Plaza, Suite 1500, Seattle,
Washington 98154 (telephone number (206) 662-9558), Attention: Secretary. In
order to ensure timely delivery of any of such documents, any request should
be made by July 1, 1997.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY IDX,
PHAMIS OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF IDX OR PHAMIS SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
"IDX" and the IDX logo are registered trademarks and "IDXtend," "IDXtendR @
the Site," "OutReach," "IDXrad," and "IDXview" are trademarks of IDX.
"LastWord," and "PHAMIS-LastWord" are registered trademarks and "DataBreeze,"
and "Enterprise View" are trademarks of PHAMIS.
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Joint Proxy Statement/Prospectus and the
Annexes hereto. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this Joint
Proxy Statement/Prospectus. Shareholders are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
Certain of the information contained in this Joint Proxy Statement/Prospectus
may constitute forward-looking statements, including statements as to the
benefits and synergies expected to be realized as a result of the Merger and as
to future financial performance and the analyses used by the financial advisors
to IDX and PHAMIS. See "The Merger--Reasons for the Merger; Recommendations of
the Boards of Directors" and "--Opinions of Financial Advisors." There are a
number of important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements. Such
factors include, without limitation, those set forth in this Joint Proxy
Statement/Prospectus under the heading "Risk Factors."
All share and per share data in this Joint Proxy Statement/Prospectus have
been adjusted to give effect to all stock splits of IDX Common Stock and PHAMIS
Common Stock effected prior to the date hereof.
THE COMPANIES
IDX. IDX is a leading provider of healthcare information systems to
integrated delivery networks, including group practices, MSOs, hospitals and
health plans. IDX systems meet the multi-site, multi-function needs of
integrated delivery networks and serve the needs of more than 76,000
physicians. IDX products are installed at approximately 1,000 client sites
nationwide, including approximately 190 large physician group practices, over
110 hospitals and a growing number of integrated delivery networks. The
principal executive office of IDX is located at 1400 Shelburne Road, P.O. Box
1070, South Burlington, Vermont 05403 and its telephone number is (802) 862-
1022. As used in this Joint Proxy Statement/Prospectus, the term "IDX" refers
to IDX and its wholly-owned subsidiaries, unless the context otherwise
requires.
PHAMIS. PHAMIS offers healthcare information solutions that are part of a
complete software and hardware system strategy designed for integrated
healthcare delivery enterprises. The principal executive office of PHAMIS is
located at 1001 Fourth Avenue Plaza, Suite 1500, Seattle, Washington 98154 and
its telephone number is (206) 622-9558. As used in this Joint Proxy
Statement/Prospectus, the term "PHAMIS" refers to PHAMIS, Inc. and its wholly-
owned subsidiaries, unless the context otherwise requires.
DATE AND PLACE OF THE MEETINGS
The IDX Special Meeting will be held on Wednesday, July 9, 1997 at the
offices of IDX, 1400 Shelburne Road, South Burlington, Vermont 05403,
commencing at 10:00 a.m., local time.
The PHAMIS Special Meeting will be held Wednesday, July 9, 1997 at the
Columbia Tower Club, 701 Fifth Avenue, Suite 7600, Seattle, Washington 98104,
commencing at 9:00 a.m., local time.
SHAREHOLDERS ENTITLED TO VOTE
Holders of record of shares of IDX Common Stock at the close of business on
June 2, 1997 are entitled to notice of and to vote at the IDX Special Meeting.
At such date there were 21,041,258 shares of IDX Common outstanding, each of
which will be entitled to one vote on each matter to be acted upon or which may
properly come before the IDX Special Meeting.
Holders of record of shares of PHAMIS Common Stock at the close of business
on May 22, 1997 are entitled to notice of and to vote at the PHAMIS Special
Meeting. At such date there were 6,216,753 shares of
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PHAMIS Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon or which may properly come before the PHAMIS
Special Meeting.
PURPOSES OF THE MEETINGS
IDX Special Meeting. The purpose of the IDX Special Meeting is to consider
and vote upon the following proposals: (i) the approval and adoption of the
Merger Agreement and issuance of up to 5,600,000 shares of IDX Common Stock in
exchange for shares of PHAMIS Common Stock pursuant thereto (the "Merger
Proposal"); (ii) an amendment to IDX's Second Amended and Restated Articles of
Incorporation (the "Charter Amendment") increasing the total number of shares
of capital stock which IDX has the authority to issue from 55,000,000 to
105,000,000 and the total number of shares of IDX Common Stock which IDX has
the authority to issue from 50,000,000 to 100,000,000 (the "Charter Proposal");
(iii) an amendment to IDX's Second Amended and Restated Articles of
Incorporation (the "Second Charter Amendment") increasing the shareholder vote
required to approve certain business combinations from a majority to two-thirds
in the event that the then current or pre-existing Board of Directors of IDX
does not recommend such business combinations to the shareholders (the "Second
Charter Proposal"); (iv) an amendment to IDX's 1995 Stock Option Plan
increasing the number of shares of IDX Common Stock authorized for issuance
thereunder from 1,470,000 to 4,500,000 and continuing the 1995 Stock Option
Plan, as amended (the "Plan Proposal"); (v) an amendment to IDX's 1995 Employee
Stock Purchase Plan increasing the number of shares of IDX Common Stock
authorized for issuance thereunder from 500,000 to 1,400,000 (the "ESPP
Proposal"); (vi) an amendment to IDX's 1995 Director Stock Option Plan,
increasing the number of shares of IDX Common Stock authorized for issuance
thereunder from 30,000 to 80,000 (the "DSOP Proposal"); and (vii) such other
matters as may properly be brought before the IDX Special Meeting, or any
adjournment or postponement thereof.
PHAMIS Special Meeting. The purpose of the PHAMIS Special Meeting is to
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement
and (ii) such other matters as may properly be brought before the PHAMIS
Special Meeting, or any adjournment or postponement thereof.
VOTES REQUIRED
IDX. The approval of each of the Merger Proposal, Charter Proposal, Plan
Proposal, ESPP Proposal and DSOP Proposal will require the affirmative vote of
the holders of shares representing a greater number of shares than the number
of shares represented by those voting against such proposal, assuming a quorum
is present. The approval of the Second Charter Proposal will require the
affirmative vote of the holders of shares representing two-thirds of the votes
cast on such proposal, assuming a quorum is present. The approval of each of
the Charter Proposal, Second Charter Proposal, Plan Proposal, ESPP Proposal and
DSOP Proposal is not a condition to the approval of the Merger Proposal or the
consummation of the Merger. Shareholders of IDX who beneficially own in the
aggregate 64.4% of IDX Common Stock as of March 31, 1997 have irrevocably
appointed certain officers of PHAMIS as proxies to vote all shares of IDX
Common Stock held by such shareholders in favor of the Merger Proposal at the
IDX Special Meeting. See "The Merger--Interests of Certain Persons in the
Merger."
PHAMIS. The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of PHAMIS Common
Stock outstanding on the record date. Shareholders of PHAMIS who beneficially
own in the aggregate 13.6% of PHAMIS Common Stock as of March 31, 1997 have
irrevocably appointed certain officers of IDX as proxies to vote all shares of
PHAMIS Common Stock held by such shareholders in favor of the proposal to
approve and adopt the Merger Agreement at the PHAMIS Special Meeting. See "The
Merger--Interests of Certain Persons in the Merger."
EFFECTS OF THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (i) Sub
will be merged with and into PHAMIS, with PHAMIS being the surviving
corporation in the Merger (the "Surviving Corporation"), and becoming a wholly-
owned subsidiary of IDX, and (ii) each issued and outstanding share of PHAMIS
Common
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Stock (together with the associated preferred stock purchase rights) will be
converted into that fraction of a share of IDX Common Stock as is equal to the
Conversion Ratio (as defined in the Merger Agreement). As set forth in the
Merger Agreement, the Conversion Ratio, initially set at .73, will be adjusted
(i) downward (but not to less than .6811) in the event that the average closing
price per share of IDX Common Stock on the Nasdaq National Market over the
twenty consecutive trading days ending on the trading day two trading days
immediately preceding the date of the PHAMIS Special Meeting (the "IDX Stock
Value") is greater than $34.375 per share, and (ii) upward (but not to greater
than .8) in the event that the IDX Stock Value is less than $28.125 per share.
See "The Merger Agreement--Conversion of Shares" and "--Termination;
Termination Fees and Expenses." Fractional shares of IDX Common Stock will not
be issuable in connection with the Merger. PHAMIS shareholders otherwise
entitled to a fractional share will be paid the value of such fraction in cash
determined as described below under "The Merger Agreement--Conversion of
Shares." Each outstanding share of IDX Common Stock will remain outstanding and
be unaffected by the Merger.
Based upon the number of outstanding shares of IDX Common Stock and PHAMIS
Common Stock as of March 31, 1997, and assuming Conversion Ratios of .8, .73,
and .6811 the shareholders of PHAMIS immediately prior to the consummation of
the Merger will own approximately 19.0%, 17.6% and 16.7%, respectively, of the
outstanding shares of IDX Common Stock immediately following consummation of
the Merger.
Options to purchase shares of PHAMIS Common Stock outstanding at the
Effective Time (as defined below) of the Merger will be effectively assumed by
IDX, by which assumption the optionee will have the right, on the same terms
and conditions as were applicable to such options to purchase shares of PHAMIS
Common Stock immediately prior to the Effective Time (as defined below), to
purchase that number of shares of IDX Common Stock as the optionee would have
been entitled to receive pursuant to the Merger had such optionee exercised
such PHAMIS options in full immediately prior to the Effective Time (as defined
below) (rounded down to the nearest whole number). The purchase price per share
of IDX Common Stock (rounded downward to the nearest whole cent) shall be the
aggregate price for shares of PHAMIS Common Stock purchasable pursuant to
PHAMIS stock options immediately prior to the Effective Time (as defined
below), divided by the number of full shares of IDX Common Stock purchasable in
accordance with the foregoing (subject to equitable adjustment in the event of
any stock split or similar recapitalization). See "The Merger Agreement--Stock
Options."
RECOMMENDATIONS
The Board of Directors of IDX (the "IDX Board") (a) has unanimously approved
(i) the Merger Agreement and the issuance of shares of IDX Common Stock
pursuant to the Merger Agreement, (ii) the amendment to IDX's Second Amended
and Restated Articles of Incorporation (the "IDX Articles") increasing the
total number of shares of capital stock which IDX has the authority to issue
from 55,000,000 to 105,000,000 and the authorized number of shares of IDX
Common Stock which IDX has the authority to issue from 50,000,000 to
100,000,000, (iii) the amendment to the IDX Articles increasing the shareholder
vote required to approve certain business combinations from a majority to two-
thirds in the event that the then current or pre-existing IDX Board does not
recommend such business combinations to the shareholders, (iv) the amendment to
IDX's 1995 Stock Option Plan increasing the number of shares of IDX Common
Stock issuable thereunder from 1,470,000 to 4,500,000 and the continuation of
the 1995 Stock Option Plan, as amended, (v) the amendment to IDX's 1995
Employee Stock Purchase Plan increasing the number of shares of IDX Common
Stock issuable thereunder from 500,000 to 1,400,000, and (vi) the amendment to
IDX's 1995 Director Stock Option Plan, increasing the number of shares of IDX
Common Stock issuable thereunder from 30,000 to 80,000, and (b) unanimously
recommended that holders of IDX Common Stock vote in favor of the Merger
Proposal, Charter Proposal, Second Charter Proposal, Plan Proposal, ESPP
Proposal and DSOP Proposal.
The Board of Directors of PHAMIS (the "PHAMIS Board") has unanimously
approved the Merger Agreement and unanimously recommends that holders of PHAMIS
Common Stock vote in favor of the approval and adoption of the Merger
Agreement.
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The IDX Board and the PHAMIS Board believe that the Merger represents a
strategic fit between two leading companies with similar business strategies
and complementary products and operations. Both Boards of Directors believe
that the Combined Company will have greater financial strength, operational
efficiencies, earning power and growth potential than either IDX or PHAMIS
would have on its own. See "The Merger--Reasons for the Merger; Recommendations
of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
IDX. On March 25, 1997, Alex. Brown & Sons Incorporated ("Alex. Brown")
delivered its oral opinion, subsequently confirmed in writing as of the same
date, to the IDX Board to the effect that, as of such date, the Conversion
Ratio was fair, from a financial point of view, to IDX.
The full text of the written opinion of Alex. Brown, dated March 25, 1997,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with its opinion, is attached hereto as Annex B
and is incorporated herein by reference. HOLDERS OF IDX COMMON STOCK ARE URGED
TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinions of
Financial Advisors--IDX."
PHAMIS. On March 25, 1997, Bear, Stearns & Co. Inc. ("Bear Stearns")
delivered its written opinion to the PHAMIS Board that, as of such date, the
Merger was fair, from a financial point of view, to the holders of PHAMIS
Common Stock.
The full text of the written opinion of Bear Stearns, dated March 25, 1997,
which sets forth assumptions made, matters considered and limitations on the
review undertaken, is attached hereto as Annex C and is incorporated herein by
reference. HOLDERS OF PHAMIS COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. See "The Merger--Opinions of Financial Advisors--
PHAMIS."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All outstanding stock options for the purchase of PHAMIS Common Stock granted
pursuant to the PHAMIS Amended and Restated 1983 Combined Nonqualified and
Incentive Stock Option Plan and Amended and Restated 1993 Combined Incentive
and Nonqualified Stock Option Plan will accelerate and become exercisable in
full immediately prior to the Effective Time. In addition, immediately prior to
the Effective Time (as defined below), all outstanding rights to acquire shares
of PHAMIS Common Stock under the PHAMIS 1994 Employee Stock Purchase Plan (the
"PHAMIS ESPP") will be exercisable for the purchase of shares of PHAMIS Common
Stock. See "The Merger--Interests of Certain Persons in the Merger." See also
"The Merger Agreement--Stock Options" and "PHAMIS, Inc.--Security Ownership of
Certain Beneficial Owners and Management."
Frank T. Sample, President and Chief Executive Officer of PHAMIS, is a party
to an employment agreement with PHAMIS which provides, in the event that Mr.
Sample is terminated by PHAMIS or its successor, for the continuation of Mr.
Sample's salary and benefits for one year and the payment of certain expenses.
Pursuant to the Merger Agreement, IDX has, for certain time periods specified
in the Merger Agreement, agreed to (i) indemnify each present director and
officer of PHAMIS against liabilities or expenses incurred in connection with
claims relating to matters prior to the Effective Time (as defined below) of
the Merger, (ii) maintain in effect directors' and officers' liability
insurance for the benefit of the directors and officers of PHAMIS, and (iii)
maintain in effect directors' and officers' liability insurance for the benefit
of directors and officers of PHAMIS who subsequently become directors and
officers of IDX. See "The Merger Agreement--Director and Officer
Indemnification."
On March 25, 1997, Richard E. Tarrant, who beneficially owns approximately
32.2% of the IDX Common Stock as of March 31, 1997, and Robert H. Hoehl, who
beneficially owns approximately 32.2% of the IDX Common Stock as of March 31,
1997, each irrevocably appointed Frank T. Sample, Malcolm A. Gleser, M.D.,
Ph.D. and Gregg W. Blodgett, or any of them, as proxies to vote all of their
respective shares of IDX Common Stock in favor of the Merger Proposal at the
IDX Special Meeting.
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On March 25, 1997, Frank T. Sample, who beneficially owns approximately 3.2%
of the PHAMIS Common Stock as of March 31, 1997, Malcolm A. Gleser, M.D.,
Ph.D., who beneficially owns approximately 6.6% of the PHAMIS Common Stock as
of March 31, 1997, and Mark F. Wheeler, who beneficially owns approximately
3.8% of the PHAMIS Common Stock as of March 31, 1997, each irrevocably
appointed Richard E. Tarrant, Robert H. Hoehl and John A. Kane, or any of them,
as proxies to vote all of their respective shares of PHAMIS Common Stock in
favor of the proposal to approve and adopt the Merger Agreement at the PHAMIS
Special Meeting.
See "The Merger--Interests of Certain Persons in the Merger" for a
description of the IDX Common Stock and PHAMIS Common Stock owned by IDX and
PHAMIS directors and officers and their affiliates.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing by the Surviving Corporation
and Sub of a Certificate of Merger with the Secretary of State of the State of
Washington (the time of the filing of such Certificate of Merger is referred to
herein as the "Effective Time"). The Effective Time will occur as promptly as
practicable after the requisite shareholder approvals have been obtained and
all other conditions to the Merger have been satisfied or waived. It is
currently anticipated that the Merger will be consummated on or about July 10,
1997.
MANAGEMENT AND OPERATIONS OF IDX FOLLOWING THE MERGER
It is anticipated that the Board of Directors of IDX, following the Effective
Time, will consist of the following eight (8) persons: Richard E. Tarrant, Paul
L. Egerman, Henry M. Tufo, M.D., Steven M. Lash, Robert H. Hoehl and Stuart H.
Altman, Ph.D. (all of whom are currently directors of IDX) and Malcolm A.
Gleser, M.D., Ph.D. and Frank T. Sample (both of whom are currently directors
of PHAMIS). In addition, the IDX Board may elect one additional director to
fill the vacancy created by the resignation of Larry D. Grandia effective May
19, 1997.
Upon the closing of the Merger, Frank T. Sample, who is currently President,
Chief Executive Officer and a director of PHAMIS, will become an Executive Vice
President of IDX. For additional information regarding the senior management of
IDX following the Merger, see "The Merger--Management and Operations of IDX
Following the Merger."
It is currently anticipated that PHAMIS operations will continue to be
located in Seattle, Washington, the current headquarters of PHAMIS. Shortly
following consummation of the Merger, IDX plans to combine the PHAMIS legal
entity with and into IDX creating a single legal entity representing the
Combined Company.
CONDITIONS TO THE MERGER
The obligations of IDX and PHAMIS to consummate the Merger are subject to the
satisfaction of certain conditions, including, but not limited to, obtaining
requisite approvals of the shareholders of IDX and PHAMIS, obtaining requisite
regulatory approvals (including expiration of the relevant waiting period under
the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act")), the continuing accuracy as of the Effective Time of the representations
and warranties made by IDX and PHAMIS in the Merger Agreement, the receipt of
certain legal opinions with respect to tax and other Merger related matters and
the receipt of an accountant's letter at the closing of the Merger with respect
to qualification of the Merger as a pooling of interests transaction. Each
party has the right to waive certain of the closing conditions referred to
above. See "The Merger--Accounting Treatment," "--Certain Federal Income Tax
Consequences," "--Regulatory Approvals" and "The Merger Agreement--Conditions."
TERMINATION
The Merger Agreement is subject to termination (i) by mutual written consent
of IDX and PHAMIS, (ii) by written notice provided by IDX or PHAMIS if the
Merger is not consummated on or before September 22, 1997
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by reason of the failure of certain conditions precedent to the Merger, (iii)
by either IDX or PHAMIS if the PHAMIS Board withdraws its recommendation of the
Merger, and (iv) prior to such time upon the occurrence of certain events and
circumstances set forth in the Merger Agreement, including, but not limited to,
PHAMIS' right to terminate the Merger Agreement within the period of two
trading days immediately preceding the PHAMIS Special Meeting in the event that
the IDX Stock Value drops below certain levels during the period of twenty
consecutive trading days ending on the trading day two trading days immediately
preceding the PHAMIS Special Meeting as set forth in the Merger Agreement. See
"The Merger Agreement--Termination; Termination Fees and Expenses."
Under certain circumstances, PHAMIS may be required to pay IDX a termination
fee of $6,000,000 and/or to reimburse IDX for expenses of up to $1,500,000. See
"The Merger Agreement--Termination Fees and Expenses."
DISSENTERS' RIGHTS
IDX Shareholders. Holders of IDX Common Stock who, prior to the IDX Special
Meeting, properly demand appraisal and have not voted in favor of the Second
Charter Proposal are or may be entitled to assert dissenters' rights under
Vermont Law with respect to the Second Charter Proposal. Such shareholders
would be entitled to demand and receive payment of the "fair value" of their
shares, plus accrued interest. To exercise such rights, such shareholders must
comply with all the applicable procedural requirements. IDX is not a
corporation party to the Merger pursuant to Vermont law, and no holders of IDX
Common Stock will have dissenters' rights with respect to the Merger or the
Merger Proposal. In addition, no holders of IDX Common Stock will have
dissenters' rights with respect to the Charter Proposal, the Plan Proposal, the
ESPP Proposal or the DSOP Proposal. See "The Merger--Dissenters' Rights" and
Annex E--Chapter 13 of the Vermont Business Corporation Act.
PHAMIS Shareholders. Under Washington law holders of PHAMIS Common Stock who,
prior to the PHAMIS Special Meeting, properly dissent and vote against or
abstain from voting with respect to the Merger have the right under certain
circumstances, if the Merger is nonetheless consummated, to require the
Combined Company to purchase their shares for their "fair value." To exercise
such appraisal rights, such shareholders must comply with all applicable
procedural requirements. See "The Merger--Dissenters' Rights" and Annex D-
Chapter 23B.13 of the Washington Business Corporation Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization in which no gain or
loss will be recognized by IDX or PHAMIS and no gain or loss will be recognized
by PHAMIS shareholders, except in respect of cash received in lieu of
fractional shares or cash paid to dissenting shareholders of PHAMIS. A
condition to the Merger is that IDX and PHAMIS each have received an opinion of
counsel to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For a further discussion of the federal income tax
consequences of the Merger, see "The Merger--Certain Federal Income Tax
Consequences." See also "The Merger Agreement--Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of IDX and PHAMIS will be carried forward to the Combined Company
at their recorded amounts, the operating results of the Combined Company will
include the operating results of IDX and PHAMIS for the entire year in which
the combination occurs and the reported operating results of the separate
companies for periods prior to the year in which the combination occurs will be
combined and restated as the operating results of the Combined Company. A
condition to the Merger is that IDX shall have received a letter at the closing
of the Merger from Ernst & Young LLP ("Ernst & Young"), IDX's independent
auditors, regarding its concurrence with the conclusions of IDX's management as
to the
12
<PAGE>
appropriateness of pooling of interests accounting, under Accounting Principles
Board Opinion No. 16 and related interpretations, for the Merger. See "The
Merger--Accounting Treatment" and "The Merger Agreement--Conditions."
SURRENDER OF CERTIFICATES
Following the Effective Time, IDX or its agent will mail a notice and a
transmittal form to all holders of record of PHAMIS Common Stock immediately
prior to the Effective Time containing instructions for surrendering their
stock certificates in exchange for certificates representing shares of IDX
Common Stock and a cash payment in lieu of fractional shares, if any.
Certificates should not be surrendered until the letter of transmittal is
received. See "The Merger Agreement--Conversion of Shares."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF PHAMIS COMMON STOCK
Upon consummation of the Merger, holders of PHAMIS Common Stock will become
shareholders of IDX. The internal affairs of IDX are governed by the Vermont
Business Corporation Act, the IDX Articles and the Bylaws, as amended, of IDX
(the "IDX Bylaws"). The Merger will result in certain differences in the rights
of holders of PHAMIS Common Stock. See "Description of IDX Capital Stock" and
"Comparison of Shareholder Rights."
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED AND UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected historical consolidated financial information of IDX
and PHAMIS (and their related subsidiaries) has been derived from their
respective historical consolidated financial statements, including the notes
thereto, and should be read in conjunction with such consolidated financial
statements and the notes thereto incorporated by reference herein. See
"Available Information" and "Incorporation of Certain Documents by Reference."
The IDX and PHAMIS historical financial information as of and for the interim
periods presented below has been prepared on the same basis as that derived
from historical financial statements prepared on an annual basis and, in the
opinion of management of the respective companies, includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations of the respective companies
as of such dates and for such periods.
The selected unaudited pro forma combined financial information is derived
from the selected historical consolidated financial statements, appearing
elsewhere herein, which give effect to the Merger as a pooling of interests,
and should be read in conjunction with such pro forma statements and the notes
thereto. For the purpose of the pro forma combined statement of income data,
IDX's results of operations for the fiscal years ended December 31, 1994, 1995
and 1996 and the three months ended March 31, 1996 and 1997 have been combined
with PHAMIS' results of operations for the fiscal years ended December 31,
1994, 1995 and 1996 and the three months ended March 31, 1996 and 1997,
respectively. For the purpose of the pro forma balance sheet, IDX's
consolidated balance sheet as of March 31, 1997 has been combined with PHAMIS'
consolidated balance sheet as of March 31, 1997, giving effect to the Merger as
if it had occurred on March 31, 1997.
IDX expects to incur Merger related pre-tax charges covering the costs of the
Merger, the costs of restructuring the combined operations, and for other
related costs principally in the quarter in which the Merger is consummated.
Such pre-tax charges, which are currently estimated to be in the range of $17.0
million to $20.0 million, will include: (i) the direct costs of the Merger,
including fees to financial advisors, legal counsel and independent auditors;
(ii) the costs of integrating the operations of IDX and PHAMIS; (iii) the
elimination of overlapping operations and products; and (iv) other related
items. The estimated charge is subject to change as IDX's integration plan is
developed and more accurate estimates become available. Moreover, additional
unanticipated expenses may be incurred in connection with the integration of
the business of IDX and PHAMIS.
From July 1, 1987 to November 1, 1995, IDX was treated for federal and
certain state income tax purposes as an S corporation under the Code. As a
result, IDX's shareholders, rather than IDX, were required to pay federal and
certain state income taxes based on IDX's earnings, whether or not such
earnings were distributed to such shareholders. On November 1, 1995 IDX
terminated its S corporation status and, accordingly, has become subject to
federal and state income taxes. The pro forma historical consolidated financial
information for the years ended December 31, 1994 and 1995 have been restated
to include pro forma federal and certain state income tax provisions as if the
Company had been taxed as a C corporation under the Code during such years. The
provision for income taxes set forth in the pro forma historical consolidated
financial information for the years ended December 31, 1994 and 1995 represents
income taxes in states in which IDX operated that imposed an income tax on IDX,
even though it elected S corporation status during such fiscal years.
14
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
IDX--INCOME STATEMENT
DATA
Net revenues............ $88,739 $95,543 $104,706 $128,120 $157,579 $ 37,345 $ 45,058
Cost of revenues........ 45,692 55,435 58,303 68,750 79,545 19,391 21,496
------- ------- -------- -------- -------- -------- ---------
Gross margin........... 43,047 40,108 46,403 59,370 78,034 17,954 23,562
Operating expenses:
Selling, general and
administrative......... 17,692 18,715 21,859 25,539 33,422 7,491 9,547
Research and
development............ 12,084 14,121 17,616 19,529 23,974 5,786 7,039
Write-off of acquired
in-process research and
development............ -- -- -- -- -- -- 2,290
------- ------- -------- -------- -------- -------- ---------
Total operating
expenses.............. 29,776 32,836 39,475 45,068 57,396 13,277 18,876
------- ------- -------- -------- -------- -------- ---------
Operating income........ 13,271 7,272 6,928 14,302 20,638 4,677 4,686
Other income (expense),
net.................... (61) 103 (1,911) 1,805 4,165 910 980
------- ------- -------- -------- -------- -------- ---------
Income before income
taxes.................. 13,210 7,375 5,017 16,107 24,803 5,587 5,666
Income taxes (benefit).. 665 368 325 (258) 9,921 2,234 2,266
------- ------- -------- -------- -------- -------- ---------
Net income............. $12,545 $ 7,007 $ 4,692 $ 16,365 $ 14,882 $ 3,353 $ 3,400
======= ======= ======== ======== ======== ======== =========
Net income per share.... $ 0.70 $ 0.16 $ 0.16
Weighted average shares
outstanding............ 21,403 21,282 21,539
Historical income before
income taxes........... $ 5,017 $ 16,107
Pro forma income taxes.. 2,700 6,500
-------- --------
Pro forma net income.... $ 2,317 $ 9,607
======== ========
Pro forma net income per
share.................. $ 0.13 $ 0.55
Pro forma weighted
average shares
outstanding............ 17,465 17,544
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
IDX--BALANCE SHEET DATA
Working capital......... $33,186 $35,202 $ 20,675 $ 89,515 $112,361 $ 93,835 $ 114,296
Total assets............ 66,007 71,527 66,843 128,411 158,575 130,809 161,791
Long term obligations,
excluding current
installments........... 8,357 7,687 6,500 2,907 2,600 2,907 2,600
Shareholders' equity.... 49,762 51,518 43,952 102,432 127,390 106,696 131,026
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PHAMIS--INCOME STATEMENT
DATA
Net revenues............ $24,755 $22,167 $39,101 $47,165 $49,300 $ 12,115 $ 14,602
Cost of revenues........ 16,396 15,842 24,924 28,000 28,718 7,000 8,679
------- ------- ------- ------- ------- --------- ---------
Gross margin........... 8,359 6,325 14,177 19,165 20,582 5,115 5,923
Operating expenses:
Selling, general and
administrative........ 6,373 6,746 8,800 10,533 11,395 2,869 3,183
Research and
development........... 1,592 2,106 2,957 3,896 5,793 1,473 1,329
Merger and acquisition
costs................. -- -- -- -- 292 292 --
Corporate headquarters
relocation............ -- -- -- -- 304 -- --
International market
entry costs........... -- -- -- -- 810 -- --
------- ------- ------- ------- ------- --------- ---------
Total operating
expenses.............. 7,965 8,852 11,757 14,429 18,594 4,634 4,512
------- ------- ------- ------- ------- --------- ---------
Operating income
(loss)................. 394 (2,527) 2,420 4,736 1,988 481 1,411
Other income (expense),
net.................... (68) (101) (151) 1,060 717 180 215
------- ------- ------- ------- ------- --------- ---------
Income (loss) before
income taxes and
extraordinary items.... 326 (2,628) 2,269 5,796 2,705 661 1,626
Provision for income
taxes.................. 174 -- 30 1,488 927 306 528
------- ------- ------- ------- ------- --------- ---------
Income (loss) before
extraordinary items.... 152 (2,628) 2,239 4,308 1,778 355 1,098
Extraordinary items..... 136 -- 298 -- -- -- --
------- ------- ------- ------- ------- --------- ---------
Net income (loss)...... $ 288 $(2,628) $ 2,537 $ 4,308 $ 1,778 $ 355 $ 1,098
======= ======= ======= ======= ======= ========= =========
Net income (loss) per
share before
extraordinary items.... $ 0.04 $ (0.67) $ 0.54 $ 0.68 $ 0.28 $ 0.06 $ 0.17
Net income (loss) per
share--primary......... 0.07 (0.67) 0.61 0.68 0.28 0.06 0.17
Net income (loss) per
share--fully diluted... 0.07 (0.67) 0.57 0.68 0.28 0.06 0.17
Weighted average shares
outstanding--primary... 3,982 3,916 4,165 6,320 6,361 6,389 6,420
Weighted average shares
outstanding--fully
diluted................ 3,982 3,916 4,443 6,353 6,361 6,389 6,420
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PHAMIS--BALANCE SHEET
DATA
Working capital
(deficit).............. $(1,336) $(4,278) $12,987 $21,451 $19,479 $ 20,434 $ 20,744
Total assets............ 8,167 9,525 29,170 41,106 43,747 45,185 53,928
Long term obligations,
excluding current
installments........... 720 815 570 152 51 125 28
Shareholders' equity
(deficit).............. 2,000 (595) 16,947 28,080 31,160 28,909 32,664
</TABLE>
16
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED
STATEMENT OF INCOME
Net revenues............ $113,494 $117,710 $143,807 $175,285 $206,879 $ 49,460 $ 59,660
Cost of revenues........ 62,088 71,277 83,227 96,750 108,263 26,391 30,175
-------- -------- -------- -------- -------- --------- ---------
Gross margin........... 51,406 46,433 60,580 78,535 98,616 23,069 29,485
Operating expenses:
Selling, general and
administrative........ 24,065 25,461 30,659 36,072 44,817 10,360 12,730
Research and
development........... 13,676 16,227 20,573 23,425 29,767 7,259 8,368
Merger and acquisition
costs................. -- -- -- -- 292 292 --
Corporate headquarters
relocation............ -- -- -- -- 304 -- --
International market
entry costs........... -- -- -- -- 810 -- --
Write-off of acquired
in-process research
and development....... -- -- -- -- -- -- 2,290
-------- -------- -------- -------- -------- --------- ---------
Total operating
expenses.............. 37,741 41,688 51,232 59,497 75,990 17,911 23,388
-------- -------- -------- -------- -------- --------- ---------
Operating income........ 13,665 4,745 9,348 19,038 22,626 5,158 6,097
Other income (expense),
net.................... (129) 2 (2,062) 2,865 4,882 1,090 1,195
-------- -------- -------- -------- -------- --------- ---------
Income before income
taxes and extraordinary
items.................. 13,536 4,747 7,286 21,903 27,508 6,248 7,292
Provision for income
taxes.................. 839 368 355 1,230 10,848 2,540 2,794
-------- -------- -------- -------- -------- --------- ---------
Income before
extraordinary items.... 12,697 4,379 6,931 20,673 16,660 3,708 4,498
Extraordinary items..... 136 -- 298 -- -- -- --
-------- -------- -------- -------- -------- --------- ---------
Net income............. $ 12,833 $ 4,379 $ 7,229 $ 20,673 $ 16,660 $ 3,708 $ 4,498
======== ======== ======== ======== ======== ========= =========
Net income per share.... $ 0.64 $ 0.14 $ 0.17
Weighted average shares
outstanding............ 26,047 25,946 26,226
Historical income before
income taxes and
extraordinary items.... $ 7,286 $ 21,903
Pro forma income taxes.. 2,730 7,988
-------- --------
Pro forma income before
extraordinary items.... $ 4,556 $ 13,915
-------- --------
Extraordinary items..... 298 --
-------- --------
Pro forma net income... $ 4,854 $ 13,915
======== ========
Pro forma income per
share before
extraordinary
items(1)............... $ 0.22 $ 0.63
Pro forma net income per
share(1)............... $ 0.24 $ 0.63
Pro forma weighted
average shares
outstanding............ 20,505 22,158
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED
BALANCE SHEET DATA
Working capital......... $ 31,850 $ 30,924 $ 33,662 $110,966 $131,840 $ 114,269 $ 128,260
Total assets............ 74,174 81,052 96,013 169,517 202,322 175,994 215,537
Long term obligations,
excluding current
installments........... 9,077 8,502 7,070 3,059 2,651 3,032 2,628
Shareholders' equity.... 51,762 50,923 60,899 130,512 158,550 135,605 156,910
</TABLE>
- --------
(1) In 1994 pro forma income per share before extraordinary items and pro forma
net income per share on a fully-diluted basis amounts to $0.21 and $0.23,
respectively. All other income per share amounts on a primary and fully-
diluted basis are the same.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
17
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of IDX and
PHAMIS and combined per share data on an unaudited pro forma basis after giving
effect to the Merger on a pooling of interests basis (and assuming the issuance
of .73 of a share of IDX Common Stock in the Merger in exchange for each share
of PHAMIS Common Stock). This data should be read in conjunction with the
selected historical consolidated financial data and the unaudited pro forma
combined financial statements included elsewhere in this Joint Proxy
Statement/Prospectus and the separate historical consolidated financial
statements of IDX and PHAMIS incorporated by reference herein. The pro forma
combined financial data are not necessarily indicative of the operating results
or financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
IDX. Except for S corporation distributions made by IDX prior to November 1,
1995, neither IDX nor PHAMIS has paid cash dividends on its Common Stock.
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL-IDX(1):
Net income(2)..................... -- -- $ 0.70 $ 0.16 $ 0.16
Pro forma net income(2)........... $ 0.13 $ 0.55 -- -- --
Book value........................ -- -- $ 6.07 $ 5.20 $ 6.23
Pro forma book value.............. $ 2.86 $ 4.73 -- -- --
HISTORICAL-PHAMIS:
Net income-primary................ $ 0.61 $ 0.68 $ 0.28 $ 0.06 $ 0.17
Net income-fully diluted.......... $ 0.57 $ 0.68 $ 0.28 $ 0.06 $ 0.17
Book value........................ $ 3.21 $ 4.71 $ 5.09 $ 4.79 $ 5.30
PRO FORMA COMBINED-PER IDX SHARE
(3):
Income per share before
extraordinary items.............. $ 0.22 $ 0.63 $ 0.64 $ 0.14 $ 0.17
Net income per share--primary..... $ 0.24 $ 0.63 $ 0.64 $ 0.14 $ 0.17
Net income per share--fully
diluted.......................... $ 0.23 $ 0.63 $ 0.64 $ 0.14 $ 0.17
Book value(4)..................... $ 3.19 $ 5.01 $ 6.23 $ 5.44 $ 6.15
EQUIVALENT PRO FORMA COMBINED-PER
PHAMIS SHARE(5):
Income per share before
extraordinary items.............. $ 0.16 $ 0.46 $ 0.47 $ 0.10 $ 0.12
Net income per share--primary..... $ 0.18 $ 0.46 $ 0.47 $ 0.10 $ 0.12
Net income per share--fully
diluted.......................... $ 0.17 $ 0.46 $ 0.47 $ 0.10 $ 0.12
Book value(4)..................... $ 2.33 $ 3.66 $ 4.55 $ 3.97 $ 4.49
</TABLE>
- --------
(1) From July 1, 1987 to November 1, 1995, IDX was treated for federal and
certain state income tax purposes as an S corporation under the Code. As a
result, IDX's shareholders, rather than IDX, were required to pay federal
and certain state income taxes based on IDX's earnings, whether or not such
earnings were distributed to such shareholders. On November 1, 1995, IDX
terminated its S corporation status and, accordingly, has become subject to
federal and state income taxes. The pro forma historical consolidated
financial information for the years ended December 31, 1994 and December
31, 1995 have been restated to include pro forma federal and certain state
income tax provisions as if the Company had been taxed as a C corporation
under the Code during such years.
(2) Primary and fully-diluted net income and pro forma net income per share
amounts are the same for the periods presented.
(3) Combined per share information assumes each PHAMIS share has been converted
at a .73 Conversion Ratio into IDX shares. Pursuant to the Merger
Agreement, the Conversion Ratio is subject to adjustment. See "The Merger
Agreement--Conversion of Shares." The per share amounts used for IDX are
the pro forma net income and pro forma book value.
(4) The pro forma combined balance sheet as of March 31, 1997 incudes an
adjustment to accrued expenses representing certain Merger related charges
expected by IDX. Included are transaction fees as well as employee
termination benefits costs and lease termination costs. The tax benefits
associated with the costs, exclusive of transaction fees which are not tax
deductible, is also reflected. See "Notes to Unaudited Pro Forma Combined
Condensed Financial Statements."
(5) The equivalents of PHAMIS' pro forma per share amounts are calculated by
multiplying the combined pro forma per share amounts by a Conversion Ratio
of .73 of a share of IDX Common Stock for each share of PHAMIS Common
Stock. As set forth in the Merger Agreement, the Conversion Ratio is
subject to adjustment. See "The Merger Agreement--Conversion of Shares."
18
<PAGE>
MARKET PRICE INFORMATION
IDX Common Stock is traded on the Nasdaq National Market under the symbol
"IDXC." IDX Common Stock has been traded on the Nasdaq National Exchange since
November 17, 1995. PHAMIS Common Stock is traded on the Nasdaq National Market
under the symbol "PHAM." PHAMIS Common Stock has been traded on the Nasdaq
National Market since December 16, 1994.
The table below sets forth, for the periods indicated, the reported high and
low sale prices of IDX Common Stock and PHAMIS Common Stock on the Nasdaq
National Market.
<TABLE>
<CAPTION>
IDX PHAMIS
COMMON STOCK COMMON STOCK
-------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
CALENDAR 1995
Quarter ended March 31, 1995..................... $ -- $ -- $23.38 $15.38
Quarter ended June 30, 1995...................... -- -- 26.13 17.13
Quarter ended September 30, 1995................. -- -- 29.75 24.63
Quarter ended December 31, 1995.................. 34.75* 23.25* 29.75 21.75
CALENDAR 1996
Quarter ended March 31, 1996..................... 36.63 27.25 28.75 16.75
Quarter ended June 30, 1996...................... 44.25 28.25 20.38 14.50
Quarter ended September 30, 1996................. 40.50 24.75 19.25 14.75
Quarter ended December 31, 1996.................. 35.75 22.50 19.63 11.00
CALENDAR 1997
Quarter ended March 31, 1997..................... 36.50 28.88 22.25 13.56
</TABLE>
- --------
* Sale prices represent the high and low sales price of IDX Common Stock from
November 17, 1995 to December 31, 1995.
On March 24, 1997, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the last
reported sale price of IDX Common Stock on the Nasdaq National Market was
$30.75 per share, and the last reported sale price of PHAMIS Common Stock on
the Nasdaq National Market was $18.875 per share. Based on a Conversion Ratio
of .73 shares of IDX Common Stock for each share of PHAMIS Common Stock, the
pro forma equivalent per share value of PHAMIS Common Stock on March 24, 1997
was $22.4475 per share.
On June 2, 1997, the most recent practicable date prior to the printing of
this Joint Proxy Statement/Prospectus, the last reported sale price of IDX
Common Stock on the Nasdaq National Market was $33.1875 per share, and the last
reported sale price of PHAMIS Common Stock on the Nasdaq National Market was
$22.375 per share.
Because the market price of IDX Common Stock is subject to fluctuation, the
market value of the shares of IDX Common Stock that holders of PHAMIS Common
Stock will receive in the Merger may increase or decrease prior to the Merger.
IDX AND PHAMIS SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION
FOR THE IDX COMMON STOCK AND THE PHAMIS COMMON STOCK.
19
<PAGE>
RISK FACTORS
The following risk factors, in addition to the other information contained
or incorporated by reference in this Joint Proxy Statement/Prospectus, should
be considered by holders of IDX Common Stock in evaluating whether to approve
the Merger Proposal and by holders of PHAMIS Common Stock in evaluating
whether to approve and adopt the Merger Agreement and thereby become holders
of IDX Common Stock.
RISKS RELATING TO THE MERGER
Integration of Operations. IDX and PHAMIS each have similar operations
involving the creation, sale and support of computer systems for healthcare
clients. Such operations differ primarily with respect to the nature of each
of IDX's and PHAMIS's clientele and product technologies. Integrating the
operations (including product development, installation of information and
software systems, client services, marketing plans and activities, employee
hiring and training, and expansion strategy) and management of the two
companies will be a time- consuming process, and there can be no assurance
that this integration will result in the achievement of any of the anticipated
synergies and other benefits expected to be realized from the Merger. In
addition, any required divestitures of assets or other commitments required by
the FTC (see "The Merger--Regulatory Approvals") could limit the synergies and
other benefits expected. Moreover, the integration of these organizations will
require the dedication of management resources, which may temporarily distract
attention from the day-to-day business of the Combined Company. The inability
of management to successfully integrate the operations of the two companies
could have a material adverse effect on the business and operating results of
the Combined Company. See "The Merger--Reasons for the Merger; Recommendations
of the Board of Directors."
Merger-Related Charges. IDX expects to incur Merger related pre-tax charges
covering the costs of the Merger, the costs of restructuring the combined
operations, and for other related costs principally in the quarter in which
the Merger is consummated. Such pre-tax charges, which are currently estimated
to be in the range of $17.0 million to $20.0 million, will include: (i) the
direct costs of the Merger, including fees to financial advisors, legal
counsel and independent auditors; (ii) the costs of integrating the operations
of IDX and PHAMIS; (iii) the elimination of overlapping operations and
products; and (iv) other related items. The estimated charge is subject to
change as IDX's integration plan is developed and more accurate estimates
become available. Moreover, additional unanticipated expenses may be incurred
in connection with the integration of the business of IDX and PHAMIS.
RISKS RELATING TO IDX AND PHAMIS
Because of the similar nature of the business of IDX and PHAMIS, the risks
set forth below apply to the operations of one or both companies individually,
as well as to the operations of the Combined Company following the Merger.
Fluctuations in Quarterly Operating Results. Both IDX and PHAMIS have
experienced in the past, and either company (or, following the Merger, the
Combined Company) may experience in the future, fluctuations in its quarterly
operating results. Moreover, there can be no assurance that the Combined
Company will continue to realize the earnings growth experienced by the two
companies over recent years, or that earnings in any particular quarter will
not fall short of either a prior fiscal quarter or investors' expectations.
Factors such as volume and timing of system sales and installation, the length
of sales cycles, the length of the installation process, pricing actions of
competitors, the level of advertising and promotional expenses, seasonality,
and one-time charges associated with acquisitions or other events could
contribute to quarterly variability in operating results. In addition, both
companies' expense levels are based in part on expectations of future sales
levels, and a shortfall in expected sales could therefore result in a
disproportionate decrease in net income. There can be no assurance that future
quarterly fluctuations will not have a material adverse effect on the Combined
Company's results of operations, financial condition or business.
20
<PAGE>
Risks of Changing Customer Sales and Installation Requirements. The revenues
and operating results of both IDX and PHAMIS have in the past varied, and each
company (or following the Merger the Combined Company) may in the future vary,
significantly from quarter to quarter as a result of a number of factors,
including the volume and timing of systems sales and installations, and length
of sales cycles and installation efforts. The timing of revenues from systems
sales is difficult to forecast because the Combined Company's sales cycle may
vary depending upon factors such as the size of the transaction, the changing
business plans of the customer, the effectiveness of customer's management,
and general economic conditions. In addition, because revenue is recognized at
various points during the installation process, the timing of revenue
recognition varies considerably based on a number of factors, including
available of personnel, availability of the customer's resources and
complexity of the needs of the customer's organization. The Combined Company's
initial contact with a potential customer depends in significant part on the
customer's decision to replace, expand or substantially modify its existing
information systems, or modify or add business processes or lines of business.
How and when to implement, replace, expand or substantially modify an
information system, or modify or add business processes or lines of business,
are major decisions for healthcare organizations. Accordingly, the sales cycle
for the Combined Company's systems is expected to be typically three to 24
months or more from initial contract to contract execution, and the
installation cycle is typically three to 36 months or more from contract
execution to completion of installation. During the sales cycle and the
installation cycle, each of IDX and PHAMIS expends substantial time, effort
and funds preparing a contract proposal and negotiating the contract. Because
a significant percentage of each of IDX's and PHAMIS' expenses are (and the
Combined Company's expenses are expected to be) relatively fixed, a variation
in the timing of systems sales and installations can cause significant
variations in operating results from quarter to quarter. In addition, due to
the long, complex sales cycle, and the unpredictability of customer
requirements and needs, PHAMIS' results of operations depend in large part on
maintaining an adequate backlog. Any significant or ongoing failure by PHAMIS
to effectively manage the sales process to achieve sufficient levels of system
sales to maintain an adequate backlog could have a material adverse effect on
PHAMIS' (and following the Merger, the Combined Company's) business, financial
condition and results of operations. The Combined Company's future operating
results may fluctuate as a result of these and other factors, such as customer
purchasing patterns, and the timing of new product and service introductions
and product upgrade releases.
Volatility Of Stock Prices. The market for IDX and PHAMIS Common Stock is
highly volatile. The trading price of the Combined Company's Common Stock
could be subject to wide fluctuations in response to quarterly variations in
operating results, announcements following the Merger of technological
innovations or new products by the Combined Company or its competitors,
changes in prices of the Combined Company's or its competitors' products and
services, changes in product mix, changes in revenue and revenue growth rates
for the Combined Company as a whole or for geographic areas or business units,
and other events or factors. Statements or changes in opinions, ratings, or
earnings estimates made by brokerage firms or industry analysts relating to
the markets in which the Combined Company expects to do business or relating
to IDX or PHAMIS specifically, have resulted, and could in the future result,
in an immediate and adverse effect on the market price of IDX, PHAMIS and the
Combined Company's Common Stock. Statements by financial or industry analysts
regarding the impact on the Combined Company's net income per share resulting
from the Merger and the extent to which such analysts expect potential
business synergies to impact reported results in future periods can be
expected to contribute to volatility in the market price of the Combined
Company's Common Stock. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market price for the securities of many healthcare information
systems companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Combined Company Common Stock. In addition,
there can be no assurance that the market price of the Combined Company Common
Stock on and after the closing of the Merger will not be lower than the value
of IDX Common Stock on the date of the closing of the Merger.
Seasonality. The revenues of IDX have historically followed seasonal
patterns. The revenues of IDX have historically followed a pattern of a lower
level of sales and installations occurring in the fiscal quarter ending
September 30 and a greater level of sales and installations occurring in the
fiscal quarter ending June 30
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(formerly the fiscal year end of IDX). IDX believes that such seasonal
fluctuation will continue and will continue to be attributable to a number of
factors, including the vacation schedules of clients. IDX believes that
quarterly results of operations will continue to be subject to significant
fluctuations and that IDX's results of operations for any particular quarter
or fiscal year may not be indicative of results of operations for future
periods. There can be no assurance that future seasonal and quarterly
fluctuations will continue and will not have a material adverse effect on the
Combined Company's results of operations, financial condition or business.
Rapid Technological Change and Dependence on New Product Development. As
developers of information systems, IDX and PHAMIS must anticipate and adapt to
evolving industry standards and new technological developments. The market for
IDX's and PHAMIS' products is characterized by continued and rapid
technological advances in both hardware and software development requiring
ongoing expenditures for research and development and the timely introduction
of new products and enhancements to existing products. The establishment of
standards is largely a function of user acceptance. Therefore, such standards
are subject to change. The Combined Company's future success is expected to
depend in part upon its ability to enhance its existing products, to respond
effectively to technology changes, to migrate its clients to new technologies,
to sell additional products to its existing client base and to introduce new
products and technologies to meet the evolving needs of its clients in the
healthcare information systems market. IDX and PHAMIS are currently devoting
significant resources toward the development of enhancements to their
respective existing products and the migration of existing products to new
software platforms. There can be no assurance that the Combined Company will
successfully complete the development of these products or this migration in a
timely fashion or that IDX's and PHAMIS' current, or the Combined Company's
future, products will satisfy the needs of the healthcare information systems
market. Further, there can be no assurance that products or technologies
developed by others will not adversely affect the Combined Company's
competitive position or render its products or technologies noncompetitive or
obsolete.
Dependence on Principal Products. Each of IDX and PHAMIS currently derives a
significant percentage of its revenues from sales of financial and
administrative information systems and related services. In addition, PHAMIS
also currently derives a significant percentage of its revenues from sales of
clinical systems and related services. As a result, any factor adversely
affecting sales of these products and services could have a material adverse
effect on the Combined Company's results of operations, financial condition or
business. Although each of IDX and PHAMIS has experienced increasing annual
sales, revenues associated with existing products may decline as a result of
several factors, including price competition. There can be no assurance that
the Combined Company will continue to be successful in marketing its products
or any new or enhanced products or maintaining the current pricing for its
existing products.
Dependence on Proprietary Software. Each of IDX's and PHAMIS' success is
dependent to a significant extent on its ability to maintain the
confidentiality of the software incorporated in its current products and other
products as they are released. Each of IDX and PHAMIS depends upon a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions and various security measures
to protect its proprietary rights in its products. Each of IDX and PHAMIS
distributes its products under software license agreements which grant clients
a nonexclusive license to each of IDX's and PHAMIS' products and contain terms
and conditions prohibiting the unauthorized reproduction or transfer of each
of IDX's and PHAMIS' products and proprietary information. In addition, each
of IDX and PHAMIS attempts to protect its trade secrets and other proprietary
information through agreements with employees and consultants. Each of IDX and
PHAMIS also seeks to protect the source code of its products as an unpublished
copyright work. There can be no assurance that the legal protections afforded
to each of IDX and PHAMIS or the precautions taken by each of IDX and PHAMIS
will be adequate to prevent misappropriation of IDX's, PHAMIS' or the Combined
Company's technology. In addition, these protections do not prevent
independent third-party development of functionally equivalent or superior
technologies, products or services. Any infringement or misappropriation of
IDX's or PHAMIS' proprietary software would disadvantage the Combined Company
in its efforts to retain and attract new clients in a highly competitive
market and could cause the Combined Company to lose revenues or incur
substantial litigation expense. Although each of IDX and PHAMIS believes that
its products, trademarks
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and other proprietary rights do not infringe upon the proprietary rights of
third parties, there can be no assurance that third parties will not assert
infringement claims against the Combined Company in the future and that such
claims will not have a material adverse effect on Combined Company's results
of operations, financial condition or business.
Dependence on Tandem. PHAMIS' LastWord and Enterprise View systems currently
operate solely on the Tandem computing platform. PHAMIS has entered into a
distribution agreement with Tandem that expires in January, 2002, and there
can be no assurance that this agreement will be renewed. For the last several
years, all systems sold by PHAMIS have operated on the Tandem computing
platform, and PHAMIS has derived a significant amount of its net revenues from
the resale of this platform. Therefore, termination of Tandem's relationship
with PHAMIS for any reason would have a material adverse effect on PHAMIS'
business, financial condition and results of operations and could have a
material adverse effect on the Combined Company's business, financial
condition and results of operations.
Competition in Healthcare Information System Industry is Intense. The market
for healthcare information systems is highly competitive. Each of IDX's and
PHAMIS' competitors vary in size and in the scope and breadth of the products
and services which they offer. Each of IDX and PHAMIS competes with different
companies in each of its respective target markets. Many of IDX's and PHAMIS'
competitors have greater financial, development, technical, marketing and
sales resources than IDX and PHAMIS. In addition, other entities not currently
offering products and services similar to those offered by IDX and PHAMIS,
including claims processing organizations, hospitals, third-party
administrators, insurers, healthcare organizations and others, may enter
certain markets in which the Combined Company will compete. There can be no
assurance that future competition will not have a material adverse effect on
the Combined Company's results of operations, financial condition or business.
There can also be no assurance that the Combined Company will be able to
compete successfully in the future.
Consolidation of Healthcare Industry. Many healthcare providers are
consolidating to create larger healthcare delivery enterprises with greater
regional market power. As a result, these enterprises have greater bargaining
power, which may lead to price erosion of IDX's, PHAMIS' and the Combined
Company's products. IDX's, PHAMIS' or the Combined Company's failure to
maintain adequate price levels could have a material adverse effect on the
Combined Company's business, financial condition and results of operations. In
addition, each of IDX and PHAMIS believes that once a healthcare provider has
chosen a particular healthcare information system vendor, such provider will
continue to rely on that vendor for its future information system
requirements. As the healthcare industry undergoes further consolidation, each
sale of IDX's and PHAMIS' products assumes (and each sale of the Combined
Company's products are expected to assume) even greater importance to each of
IDX's, PHAMIS' and the Combined Company's business, financial condition and
results of operations. IDX's, PHAMIS' or the Combined Company's inability to
make initial sales of its information system to healthcare providers that are
replacing or substantially modifying their healthcare information systems
could have a material adverse effect on IDX's, PHAMIS' or the Combined
Company's business, financial condition and results of operations.
Growth through Acquisitions. IDX intends to continue to grow in part through
acquisitions of complementary products, technologies and businesses or
alliances with complementary businesses. The Combined Company's ability to
expand successfully through acquisitions or alliances depends on many factors,
including the successful identification and acquisition of products,
technologies or businesses and management's ability to effectively integrate
and operate the acquired or aligned products, technologies or businesses.
There is significant competition for acquisition and alliance opportunities in
the healthcare information systems industry, which may intensify due to
consolidation in the industry, thereby increasing the costs of capitalizing on
such opportunities. The Combined Company expects to compete for acquisition
and alliance opportunities with other companies that have significantly
greater financial and management resources. There can be no assurance that the
Combined Company will be successful in acquiring or aligning with any
complementary products, technologies or businesses; or, if acquired or aligned
with, that the Combined Company will be able to
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successfully integrate any such products, technologies or businesses into its
current business and operations. The failure to successfully integrate any
significant products, technologies or businesses could have a material adverse
effect on the Combined Company's results of operations, financial condition or
business.
Uncertainty in Healthcare Industry; Government Healthcare Reform
Proposals. The healthcare industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of healthcare organizations. IDX's and PHAMIS'
products are (and the Combined Company's products will be) designed to
function within the structure of the healthcare financing and reimbursement
system currently being used in the United States. During the past several
years, the healthcare industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and
certain capital expenditures. From time to time, certain proposals to reform
the healthcare system have been considered by Congress. These proposals, if
enacted, may increase government involvement in healthcare, lower
reimbursement rates and otherwise change the operating environment for IDX's,
PHAMIS' and the Combined Company's clients. Healthcare organizations may react
to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for IDX's, PHAMIS' and
the Combined Company's products and services. Neither IDX nor PHAMIS can
predict with any certainty what impact, if any, such proposals or healthcare
reforms might have on the Combined Company's results of operations, financial
condition or business.
Risks Associated with Governmental Regulation. The U.S. Food and Drug
Administration (the "FDA") has promulgated a draft policy for the regulation
of certain computer software products as medical devices under the 1976
Medical Device Amendments to the Federal Food, Drug and Cosmetic Act (the "FDC
Act") and has indicated it may modify such draft policy or create a new
policy. To the extent that computer software is a medical device under the
policy, the manufacturers of such products could be required, depending on the
product, to (i) register and list their products with FDA, (ii) notify the FDA
and demonstrate substantial equivalence to other products on the market before
marketing such products, or (iii) obtain FDA approval by demonstrating safety
and effectiveness before marketing a product. In addition, such products would
be subject to the FDC Act's general controls, including those relating to good
manufacturing practices and adverse experience reporting. Although it is not
possible to anticipate the final form of the FDA's policy with regard to
computer software, each of IDX and PHAMIS expects that, whether or not the
draft is finalized or changed, the FDA is likely to become increasingly active
in regulating computer software that is intended for use in healthcare
settings. The FDA can impose extensive requirements governing pre- and post-
market conditions such as device investigation, approval, labeling and
manufacturing. In addition, the FDA can impose extensive requirements
governing development controls and quality assurance processes. There can be
no assurance that actions taken by the FDA to regulate computer software
products will not have a material adverse effect on the Combined Company's
results of operations, financial condition or business.
Dependence on Key Personnel. The Combined Company's future success depends
in significant part upon the continued service of its key technical, sales and
senior management personnel, as well as its skilled software development
employees. The loss of the services of one or more of these key employees or
skilled software development employees could have a material adverse effect on
the Combined Company's business and operating results. Additions of new and
departures of existing personnel, particularly in key positions, can be
disruptive. In addition, as a result of the Merger, and pursuant to the terms
of certain of PHAMIS' stock option plans, immediately prior to the Effective
Time, the exercisability of outstanding options under such plans will fully
accelerate. Such acceleration may reduce the incentive for certain PHAMIS
employees to remain with the Combined Company. See "The Merger Agreement--
Stock Options."
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THE IDX SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of IDX
Common Stock in connection with the solicitation of proxies by the IDX Board
for use at the IDX Special Meeting to be held on Wednesday, July 9, 1997, at
the offices of IDX, 1400 Shelburne Road, South Burlington, Vermont 05403,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of IDX on or about June 5, 1997.
MATTERS TO BE CONSIDERED
At the IDX Special Meeting, holders of IDX Common Stock will be asked to
consider and vote upon:
(i) the adoption and approval of the Merger Agreement and the issuance of
shares of IDX Common Stock in exchange for shares of PHAMIS Common Stock
pursuant thereto (the Merger Proposal);
(ii) an amendment to the IDX Articles to increase the total number of
shares of capital stock which IDX has the authority to issue from
55,000,000 to 105,000,000 and the total number of shares of IDX Common
Stock which IDX has the authority to issue from 50,000,000 to 100,000,000
(the Charter Proposal);
(iii) an amendment to the IDX Articles to increase the shareholder vote
required to approve certain business combinations from a majority to two-
thirds in the event that the then current or pre-existing IDX Board does
not recommend such business combinations to the shareholders (the Second
Charter Proposal);
(iv) an amendment to IDX's 1995 Stock Option Plan to increase the number
of shares of IDX Common Stock authorized for issuance thereunder from
1,470,000 to 4,500,000 and to continue the 1995 Stock Option Plan, as
amended (the Plan Proposal);
(v) an amendment to IDX's 1995 Employee Stock Purchase Plan to increase
the number of shares of IDX Common Stock authorized for issuance thereunder
from 500,000 to 1,400,000 (the ESPP Proposal);
(vi) an amendment to IDX's 1995 Director Stock Option Plan, to increase
the number of shares of IDX Common Stock authorized for issuance thereunder
from 30,000 to 80,000 (the DSOP Proposal); and
(vii) such other matters as may properly be brought before the IDX
Special Meeting, or any adjournment or postponement thereof.
BOARDS OF DIRECTORS' RECOMMENDATIONS
The IDX Board has unanimously approved each of the Merger Proposal, the
Charter Proposal, the Second Charter Proposal the Plan Proposal, ESPP Proposal
and DSOP Proposal and recommends a vote FOR approval of such proposals.
RECORD DATE AND VOTING
The IDX Board has fixed June 2, 1997 as the record date for the
determination of the IDX shareholders entitled to notice of and to vote at the
IDX Special Meeting. Accordingly, only holders of record of IDX Common Stock
on the record date will be entitled to notice of and to vote at the IDX
Special Meeting. As of June 2, 1997, there were outstanding and entitled to
vote 21,041,258 shares of IDX Common Stock (constituting all of the voting
stock of IDX), which shares were held by approximately 3,600 holders of
record. Each holder of record of shares of IDX Common Stock on the record date
is entitled to one vote per share, which may be cast either in person or by
properly executed proxy, at the IDX Special Meeting. The presence, in person
or by properly executed proxy, of the holders of a majority of the outstanding
shares of IDX Common Stock entitled to vote at the IDX Special Meeting is
necessary to constitute a quorum at the IDX Special Meeting.
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The approval of each of the Merger Proposal, Charter Proposal, Plan
Proposal, ESPP Proposal and DSOP Proposal will require the affirmative vote of
the holders of shares of IDX Common Stock representing a greater number of
shares than those shares voted against such proposal, assuming a quorum is
present. The approval of the Second Charter Proposal will require the
affirmative vote of the holders of shares representing two-thirds of the votes
cast on such proposal, assuming a quorum is present. The approval of the
issuance of shares of IDX Common Stock pursuant to the Merger may be required
by the rules of the National Association of Securities Dealers, Inc. governing
corporations with securities listed on the Nasdaq National Market. The
approval of each of the Charter Proposal, Second Charter Proposal, Plan
Proposal, ESPP Proposal and DSOP Proposal is not a condition to the approval
of the Merger Proposal or the consummation of the Merger.
Shares of IDX Common Stock represented in person or by proxy will be counted
for the purpose of determining whether a quorum is present at the IDX Special
Meeting. Shares which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the IDX Special
Meeting for purposes of determining whether a quorum exists, but will not be
counted as votes cast on such matter. If a broker or nominee holding stock in
"street name" indicates on a proxy that it does not have discretionary
authority to vote as to a particular matter ("broker non-votes"), those shares
will be treated as present and entitled to vote at the IDX Special Meeting for
purposes of determining whether a quorum exists, but will not be counted as
votes cast on such matter. Accordingly, in determining whether the Merger
Proposal, Charter Proposal, Second Charter Proposal, Plan Proposal, ESPP
Proposal and DSOP Proposal have received the requisite number of affirmative
votes, abstentions and broker non-votes will have no effect on the voting on
such proposals.
As of March 31, 1997, directors and executive officers of IDX and their
affiliates may be deemed to be beneficial owners of approximately 72.2% of the
outstanding shares of IDX Common Stock. Each of the directors and executive
officers of IDX has advised IDX that he or she intends to vote or direct the
vote of all shares of IDX Common Stock over which he or she has voting control
for approval of the Merger Proposal, the Charter Proposal, Second Charter
Proposal, the Plan Proposal, the ESPP Proposal and the DSOP Proposal. See "IDX
Systems Corporation--Security Ownership of Certain Beneficial Owners and
Management." Shareholders of IDX who beneficially own in the aggregate 64.4%
of IDX Common Stock as of March 31, 1997 have irrevocably appointed certain
officers of PHAMIS as proxies to vote all shares of IDX Common Stock held by
such shareholders in favor of the Merger Proposal at the IDX Special Meeting.
See "The Merger--Interests of Certain Persons in the Merger."
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to IDX shareholders
in connection with the solicitation of proxies by and on behalf of the IDX
Board for use at the IDX Special Meeting, and is accompanied by a form of
proxy.
All shares of IDX Common Stock which are entitled to vote and are
represented at the IDX Special Meeting by properly executed proxies received
prior to or at such meeting, and not revoked, will be voted at such meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will
be voted for approval of the Merger Proposal, Charter Proposal, Second Charter
Proposal, Plan Proposal, ESPP Proposal and DSOP Proposal.
If any other matters are properly presented at the IDX Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the enclosed forms of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of IDX, at or before the taking of the vote at the IDX
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a
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later dated proxy relating to the same shares and delivering it to the
Secretary of IDX before the taking of the vote at the IDX Special Meeting, or
(iii) attending the IDX Special Meeting and voting in person (although
attendance at the IDX Special Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to IDX Systems Corporation, 1400 Shelburne Road, P.O. Box 1070,
South Burlington, Vermont 05403, Attention: Secretary, or hand delivered to
the Secretary of IDX at or before the taking of the vote at the IDX Special
Meeting.
All expenses of IDX's solicitation of proxies, including the cost of
preparing and mailing this Joint Proxy Statement/Prospectus to IDX
shareholders, will be borne by IDX. In addition to solicitation by use of the
mails, proxies may be solicited from IDX shareholders by directors, officers
and employees of IDX in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
brokerage houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
brokerage houses, custodians, nominees and fiduciaries, and IDX will reimburse
such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
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THE PHAMIS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
PHAMIS Common Stock in connection with the solicitation of proxies by the
PHAMIS Board for use at the PHAMIS Special Meeting to be held on Wednesday,
July 9, 1997, at the Columbia Tower Club, 701 Fifth Avenue, Suite 7600,
Seattle, Washington 98104, commencing at 9:00 a.m., local time, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of PHAMIS on or about June 5, 1997.
MATTERS TO BE CONSIDERED
At the PHAMIS Special Meeting, holders of PHAMIS Common Stock will be asked
to consider and vote upon a proposal to approve and adopt the Merger Agreement
and such other matters as may properly be brought before the PHAMIS Special
Meeting, or any adjournment or postponement thereof.
BOARDS OF DIRECTORS' RECOMMENDATIONS
The PHAMIS Board has unanimously approved the Merger Agreement and
recommends a vote FOR approval and adoption of the Merger Agreement.
RECORD DATE AND VOTING
The PHAMIS Board has fixed May 22, 1997 as the record date for the
determination of the PHAMIS shareholders entitled to notice of and to vote at
the PHAMIS Special Meeting. Accordingly, only holders of record of shares of
PHAMIS Common Stock on the record date will be entitled to notice of and to
vote at the PHAMIS Special Meeting. As of May 22, 1997, there were outstanding
and entitled to vote 6,216,753 shares of PHAMIS Common Stock (constituting all
of the voting stock of PHAMIS), which shares were held by approximately 3,100
holders of record. Each holder of record of shares of PHAMIS Common Stock on
the record date is entitled to one vote per share, which may be cast either in
person or by properly executed proxy, at the PHAMIS Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of PHAMIS Common Stock entitled to vote at
the PHAMIS Special Meeting is necessary to constitute a quorum at the PHAMIS
Special Meeting.
The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the shares of PHAMIS Common
Stock outstanding on the record date.
Shares of PHAMIS Common Stock represented in person or by proxy will be
counted for the purpose of determining whether a quorum is present at the
PHAMIS Special Meeting. Shares which abstain from voting as to a particular
matter, and shares held by a broker or nominee in "street name" which
indicates on a proxy that it does not have discretionary authority to vote as
to a particular matter, will be treated as shares that are present and
entitled to vote at the PHAMIS Special Meeting for purposes of determining
whether a quorum exists. Because the Merger Agreement must be approved by the
holders of a majority of the shares of PHAMIS Common Stock outstanding on the
record date, abstentions and broker non-votes will have the same effect as a
vote against the Merger Agreement.
As of March 31, 1997, directors and executive officers of PHAMIS and their
affiliates may be deemed to have or share beneficial ownership of
approximately 16.8% of the outstanding shares of PHAMIS Common Stock. Each of
the directors and executive officers of PHAMIS has advised PHAMIS that he or
she intends to vote or direct the vote of all shares of PHAMIS Common Stock
over which he or she has or shares voting control for approval and adoption of
the Merger Agreement. See "PHAMIS, Inc.--Security Ownership of Certain
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Beneficial Owners and Management." Shareholders of PHAMIS who beneficially own
in the aggregate 13.6% of PHAMIS Common Stock as of March 31, 1997 have
irrevocably appointed certain officers of IDX as proxies to vote all shares of
PHAMIS Common Stock held by such shareholders in favor of the proposal to
approve and adopt the Merger Agreement at the PHAMIS Special Meeting. See "The
Merger--Interests of Certain Persons in the Merger."
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to PHAMIS
shareholders in connection with the solicitation of proxies by and on behalf
of the PHAMIS Board for use at the PHAMIS Special Meeting, and is accompanied
by a form of proxy.
All shares of PHAMIS Common Stock which are entitled to vote and are
represented at the PHAMIS Special Meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than in the case of broker non-votes), such
proxies will be voted for approval and adoption of the Merger Agreement.
If any other matters are properly presented at the PHAMIS Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the enclosed forms of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of PHAMIS, at or before the taking of the vote at the
PHAMIS Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of PHAMIS before the taking of the
vote at the PHAMIS Special Meeting or (iii) attending the PHAMIS Special
Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent to PHAMIS, Inc., 1001 Fourth
Avenue Plaza, Suite 1500, Seattle, Washington 98154, Attention: Secretary, or
hand delivered to the Secretary of PHAMIS at or before the taking of the vote
at the PHAMIS Special Meeting.
All expenses of PHAMIS' solicitation of proxies, including the cost of
mailing this Joint Proxy Statement/Prospectus to PHAMIS shareholders, will be
borne by PHAMIS. In addition to solicitation by use of the mails, proxies may
be solicited from PHAMIS shareholders by directors, officers and employees of
PHAMIS in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated,
but may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. PHAMIS has retained W.F. Doring and Company Incorporated, a
proxy solicitation firm, for assistance in connection with the solicitation of
proxies for the PHAMIS Special Meeting at a cost of approximately $14,000 plus
reimbursement of reasonable out-of-pocket expenses. Arrangements will also be
made with brokerage houses, custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such brokerage houses, custodians, nominees and fiduciaries, and
PHAMIS will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection therewith.
PHAMIS SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
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THE MERGER
BACKGROUND OF THE MERGER
Over the past several years, each of IDX and PHAMIS has been generally aware
of the functions and capabilities of each other's products, and
representatives of IDX and PHAMIS have from time to time had conversations
concerning the possibility of an alliance between IDX and PHAMIS. All such
conversations were exploratory in nature, and did not progress beyond the
preliminary stage.
On October 24, 1996, Richard E. Tarrant, IDX's President and Chief Executive
Officer, met with Frank T. Sample, PHAMIS' President and Chief Executive
Officer in Chicago, Illinois, to discuss a possible alliance or strategic
transaction. Mr. Sample and Mr. Tarrant agreed that demonstrations of their
respective products would be useful in determining whether to have further
discussions. On November 20, 1996 representatives of IDX and PHAMIS met in New
York, New York and demonstrated some of their respective products, and Messrs.
Tarrant and Sample agreed to consider discussing the advantages and risks of a
business combination of IDX and PHAMIS. On November 27, 1996, the parties
entered into a confidentiality agreement for the purpose of permitting the
exchange of certain information between the parties. On August 7, 1996, IDX
retained Alex. Brown to provide investment banking advice and services to IDX,
including assistance in evaluating candidates for potential business
combinations. On November 1, 1996, IDX and Alex. Brown amended the August 7,
1996 engagement letter to specify that Alex. Brown would serve as IDX's
financial advisor to assist in the exploration of this potential transaction
with PHAMIS.
In December 1996, representatives of IDX and PHAMIS held a series of
meetings to exchange information and to discuss the feasibility of, structure
of and strategic rationale for a business combination. On January 9, 1997, IDX
proposed to PHAMIS that the parties negotiate a strategic merger in which IDX
would be the surviving company and that PHAMIS refrain, subject to its
fiduciary obligations to its shareholders, from entering into negotiations for
a business combination with any other party. PHAMIS agreed to so refrain from
negotiating with other parties. On January 13 and 14, 1997, Mr. Tarrant, Mr.
Sample and members of their respective staffs met in Chicago, Illinois to
consider in more depth the technical and functional issues related to the
possible integration of their product lines and technologies, as well as the
integration of their respective organizations. These meetings did not result
in any agreement between the parties.
From January 21 through early March 1997 representatives of IDX and PHAMIS
held a series of meetings and discussions and proceeded to conduct the
financial, legal and accounting "due diligence" investigation of their
respective companies. On March 5, 1997, PHAMIS retained Bear Stearns as a
financial advisor with respect to this potential transaction with IDX.
On March 6, 1997, representatives and advisors of IDX and PHAMIS, including
their respective investment bankers, met to negotiate the principal business
terms of the Merger, including the Conversion Ratio.
At meetings of the IDX Board held on February 15, March 19, 21, 23 and 24,
1997 the IDX directors discussed with IDX's management and legal and financial
advisors the status of the merger discussions with PHAMIS, as well as the
proposed terms of the Merger and the effects of the Merger on IDX and the
combined companies. At the meeting of March 19, 1997 IDX's management and
financial advisors made presentations concerning the Merger. See "--Reasons
for the Merger; Recommendations of the Boards of Directors." The IDX Board met
again on the afternoon of March 25, 1997, at which meeting the proposed terms
of the Merger Agreement were discussed, and Alex. Brown delivered its oral
opinion, subsequently confirmed in writing as of the same date, that, as of
such date, the Conversion Ratio was fair, from a financial point of view, to
IDX. See""--Opinions of Financial Advisors--IDX." At such meeting, the IDX
Board unanimously approved the Merger Agreement and the issuance of shares of
IDX Common Stock pursuant to the Merger Agreement and unanimously recommended
that the holders of IDX Common Stock vote in favor of the Merger Proposal.
At a regularly scheduled board meeting on January 30, 1997, the PHAMIS Board
reviewed with management the ongoing discussions with IDX. Subsequent to such
meeting, PHAMIS management and
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PHAMIS Board members informally communicated as to the ongoing status of such
discussions. At a Board meeting held on March 19, 1997, the PHAMIS Board
received presentations from management and representatives of Bear Stearns
regarding the Merger and the potential terms of the business combination. In
additional meetings held on March 21, March 24 and March 25, 1997 the PHAMIS
Board further discussed and reviewed the proposed transaction. At the March
25, 1997 meeting, Bear Stearns delivered its opinion that as of such date, the
Merger was fair, from a financial point of view, to the PHAMIS shareholders.
At such meeting, the PHAMIS Board unanimously approved the Merger Agreement
and recommended that the shareholders of PHAMIS vote in favor of the Merger.
After the close of trading on March 25, 1997, following the approval of the
Merger Agreement and related matters by the respective Boards of Directors of
IDX and PHAMIS, IDX and PHAMIS finalized, executed and delivered the Merger
Agreement and related documents. Each of IDX and PHAMIS made public
announcements of the Merger immediately following delivery of the executed
Merger Agreement on March 25, 1997.
PHAMIS was not contemplating a business combination of the type proposed by
IDX when PHAMIS was first approached by IDX regarding the Merger. The PHAMIS
Board determined, as outlined above, that a business combination with IDX
would be in the best interests of the PHAMIS shareholders. As a result, during
the period referenced above, PHAMIS did not make solicitations to other
parties with regard to a possible business combination or authorize its
financial advisors to do so, and did not engage in merger discussions with any
party other than IDX.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS OF DIRECTORS
The IDX Board has unanimously determined that the Merger is in the best
interests of IDX and its shareholders and unanimously recommends that the
shareholders of IDX vote FOR approval of the Merger Proposal for the reasons
set forth below.
The PHAMIS Board has unanimously determined that the Merger is in the best
interests of PHAMIS and its shareholders and unanimously recommends that the
shareholders of PHAMIS vote FOR approval of the Merger Proposal for the
reasons set forth below.
Joint Reasons for the Merger
The IDX Board and the PHAMIS Board believe that the Merger represents a
strategic fit between two companies with similar business strategies and
complementary products and operations. Both Boards of Directors believe that
IDX and PHAMIS, as a Combined Company, will have greater financial strength,
operational efficiencies, earning power and growth potential that either IDX
or PHAMIS would have on its own. The IDX Board and the PHAMIS Board identified
a number of potential benefits of the Merger which they believe will
contribute to the success of the Combined Company and thus inure to the
benefit of shareholders of both companies, including the following:
(i) Combined Solution for Integrated Delivery Networks. Healthcare
providers, including large, multi-facility hospitals and physician
practices, are increasingly consolidating to form integrated delivery
networks ("IDNs"). In order to provide cost-effective, high-quality
healthcare, IDNs need enterprise-wide information systems to automate their
entire delivery networks. Although IDX has developed leading products for
the group practice market and PHAMIS has developed strong products in the
acute care hospital market, neither company has been able to provide a
complete solution encompassing inpatient and outpatient administrative,
clinical, financial and enterprise systems. IDX and PHAMIS believe the
Combined Company will be able to offer rapidly evolving IDNs a single
vendor solution for all of the principal administrative, clinical,
financial and enterprise processes of healthcare delivery. IDX and PHAMIS
believe the Combined Company will be able to develop significant technical
integration between their respective products, so that the combined
solution will afford IDNs a high degree of integration of their data and
business processes, allowing them to achieve greater efficiencies in the
management of care
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and the marketing of their services. The ability of the Combined Company to
provide a single solution is expected to enable it to leverage marketing
and general and administrative expense over a larger customer base.
(ii) Enhanced Competitive Position. Competitors in the healthcare
enterprise market have moved aggressively to acquire multiple businesses to
become consolidated sole suppliers of information systems to IDNs. IDX and
PHAMIS expect that, as a result of the Merger, they will be in a stronger
competitive position as a combined entity than independently competing
against consolidated competitors.
(iii) Cross Sell Opportunities. As a result of the Merger, the Combined
Company is expected to have approximately 915 medical group practices and
approximately 236 hospitals as customers. PHAMIS customers are typically
large hospitals or hospital networks, which are often aligned with
significant medical practice groups. Many of IDX's customers are large
medical group practices aligned with hospitals. IDX and PHAMIS believe the
opportunity for cross selling of their respective products to each other's
customers will be significant.
Each of the Boards of Directors of IDX and PHAMIS has identified additional
potential mutual benefits of the Merger that they believe will contribute to
the success of the Combined Company. These potential benefits include
principally the following:
(i) The combined experience, financial resources, size and breadth of the
product offerings of both IDX and PHAMIS are expected to enable the
Combined Company to respond more quickly and effectively to technological
change, increased competition and market demands.
(ii) The significant overlap in sales and marketing activities and
strategies are expected to result in additional resources available to
expand the Combined Company's competitive opportunities.
(iii) The combination of IDX's and PHAMIS' application software offerings
are expected to allow the Combined Company to offer a more comprehensive
and integrated software solution to its customers and allow its customers
to achieve significant cost savings.
(iv) The creation of a larger customer base, a higher market profile and
greater technical and financial strength may present greater opportunities
for marketing the consulting services of the Combined Company.
Each Board of Directors, however, has recognized that it is possible that
none of the potential benefits of the Merger will be realized. See "Risk
Factors."
IDX's Reasons for the Merger
In reaching its conclusion to approve the Merger Agreement, the IDX Board
consulted with management of IDX, as well as with its financial and legal
advisors, and considered the factors described above under "--Joint Reasons
for the Merger" and a number of additional factors, including the following:
(i) The IDX Board considered the effectiveness of the Merger in
implementing and accelerating IDX's basic long-term growth strategy,
including its strategy to consolidate business in its markets.
(ii) The IDX Board analyzed the financial performance and condition,
businesses and prospects of IDX and PHAMIS, including, but not limited to,
information with respect to their respective recent and historic stock
prices and earnings performance. The IDX Board considered the detailed
financial analyses presented by Alex. Brown, using the pro forma financial
information provided by the respective managements of IDX and PHAMIS, as
well as the IDX Board's own knowledge of IDX, PHAMIS and their respective
businesses.
(iii) The IDX Board considered the opinion of Alex. Brown that, as of
March 25, 1997, the Conversion Ratio was fair, from a financial point of
view, to IDX. See "--Opinions of Financial Advisors--IDX."
(iv) The IDX Board considered the terms of the Merger Agreement. The IDX
Board also considered certain other information regarding the Merger,
including the terms and structure of the Merger and the proposed
arrangements with respect to the Board of Directors and management
structure and operations of the Combined Company, and the current economic,
financial and business environment.
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(v) The IDX Board considered the effect on IDX shareholders of IDX
continuing as a stand-alone entity if it does not successfully acquire a
company with strong acute-care hospital products, compared to the effect of
IDX combining with PHAMIS, in light of the factors summarized above with
respect to the financial condition and prospects of the two companies on a
stand alone basis and of the Combined Company, and the current economic,
financial and business environment.
(vi) The IDX Board considered the likelihood of the Merger being approved
by the appropriate regulatory authorities. See "--Regulatory Approvals."
(vii) The IDX Board considered the expectation that the Merger will be a
tax-free transaction to IDX and its shareholders and will be accounted for
as a pooling of interests transaction. See "--Certain Federal Income Tax
Consequences" and "--Accounting Treatment."
The IDX Board also considered a number of potential risks relating to the
Merger, including (i) the difficulty and management effort inherent in
integrating two large and geographically dispersed operations, (ii) the risk
that the synergies and benefits sought in the Merger would not be fully
achieved, (iii) the risk that the Merger would not be consummated, and the
effect of the public announcement of the Merger on the market price of IDX
Common Stock, (iv) the risk that the announcement of the Merger would result
in a certain degree of disruption in PHAMIS' marketing efforts with potential
customers, and (v) the substantial charges expected to be incurred by IDX in
connection with the Merger. See "Risk Factors." The IDX Board believed that
these risks were outweighed by the potential benefits to be realized from the
Merger.
The foregoing discussion of the information and factors considered by the
IDX Board is not intended to be exhaustive but is believed to include all
material factors considered by the IDX Board. In view of the wide variety of
information and factors considered, the IDX Board did not find it practical
to, and did not, assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to
different factors.
PHAMIS' Reasons for the Merger
In reaching its conclusion to approve the Merger Agreement, the PHAMIS Board
consulted with management of PHAMIS, as well as with its financial and legal
advisors, and considered the factors described above under "--Joint Reasons
for the Merger" and a number of additional factors, including the following:
(i) The PHAMIS Board considered how the Merger would aid in implementing
and accelerating PHAMIS' long-term growth strategy.
(ii) The PHAMIS Board analyzed the financial performance and condition,
businesses and prospects of IDX and PHAMIS, including, but not limited to,
information with respect to their respective recent and historic stock
prices and earnings performance. The PHAMIS Board considered the detailed
financial analyses and other information with respect to IDX and PHAMIS
presented by Bear Stearns, as well as the PHAMIS Board's own knowledge of
IDX, PHAMIS and their respective businesses.
(iii) The PHAMIS Board considered the opinion of Bear Stearns that, as of
March 25, 1997, the Merger was fair, from a financial point of view, to the
PHAMIS shareholders. See "--Opinions of Financial Advisors--PHAMIS."
(iv) The PHAMIS Board considered the terms of the Merger Agreement,
including the circumstances after the signing of the Merger Agreement under
which PHAMIS could engage in discussions with other parties regarding
potential alternative transactions, the rights of both PHAMIS and IDX to
terminate the Merger Agreement and the termination fees payable by PHAMIS
to IDX under certain circumstances. See "The Merger Agreement--No
Solicitation" and "--Termination; Termination Fees and Expenses."
(v) The PHAMIS Board considered the proposed arrangements with respect to
the board of directors and management structure and operations of the
Combined Company following the Merger. See "--Management and Operations of
IDX Following the Merger."
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(vi) The PHAMIS Board considered the fact that the Merger would provide
holders of PHAMIS Common Stock with shares of IDX Common Stock having a
value that represents a significant premium over the price at which the
PHAMIS Common Stock was trading over the several months prior to the
execution of the Agreement, and the fact that the Merger would provide the
holders of PHAMIS Common Stock with the opportunity to retain an equity
interest in the Combined Company, which would have a much larger market
float and greater liquidity than PHAMIS with the potential for appreciation
based on the potential synergies between IDX and PHAMIS.
(vii) The PHAMIS Board reviewed the potential adjustments to the
Conversion Ratio in the Merger Agreement based on fluctuations in the price
of IDX Common Stock, which offers PHAMIS shareholders protection by
increasing the Conversion Ratio if the price of IDX Common Stock falls
below $28.125.
(viii) The Board reviewed the potential for IDX's greater financial and
marketing resources allowing PHAMIS to offer its products to a broader base
of end-users and to compete more effectively in the marketplace.
(ix) The PHAMIS Board considered the effect on PHAMIS shareholders of
PHAMIS continuing as a stand-alone entity compared to the effect of PHAMIS
combining with IDX, in light of the factors summarized above with respect
to the financial condition and prospects of PHAMIS on a stand-alone basis
and of the Combined Company, and the current economic, financial and
business environment.
(x) The PHAMIS Board considered the likelihood of the Merger being
approved by the appropriate regulatory authorities. See "--Regulatory
Approvals."
(xi) The PHAMIS Board considered the expectation that the Merger will be
a tax-free transaction to PHAMIS and its shareholders and will be accounted
for as a pooling of interests transaction. See "--Certain Federal Income
Tax Consequences" and "--Accounting Treatment."
(xii) The PHAMIS Board considered the effect of the Merger on PHAMIS'
other constituencies, including its customers, senior management and other
employees. See "--Interests of Certain Persons in the Merger."
The PHAMIS Board also considered a number of potential risks relating to the
Merger, including:
(i) The difficulty and management challenge inherent in integrating two
geographically dispersed operations;
(ii) The risk that the announcement of the Merger would result in a
certain degree of disruption in its marketing efforts with potential
customers;
(iii) The risk that the synergies and benefits sought in the Merger would
not be fully achieved;
(iv) The risk that the Merger would not be consummated;
(v) The risk that the conversion ratio in the Merger Agreement can also
be adjusted downward if the average price of IDX Common Stock exceeds
$34.375 for certain periods prior to completion of the Merger, thus
providing a maximum value to be received in the Merger; and
(vi) The substantial one-time charges expected to be incurred in
connection with the Merger.
The PHAMIS Board believed that these risks were outweighed by the potential
benefits to be realized from the Merger. See also "Risk Factors."
The foregoing discussion of the information and factors considered by the
PHAMIS Board is not intended to be exhaustive but is believed to include all
material factors considered by the PHAMIS Board. In view of the wide variety
of information and factors considered, the PHAMIS Board did not find it
practical to, and did not, assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights
to different factors.
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After taking into consideration all the factors set forth above, the PHAMIS
Board unanimously approved the Merger and determined that it was fair to and
in the best interests of PHAMIS and its shareholders. Accordingly, PHAMIS'
Board of Directors unanimously recommends that PHAMIS shareholders vote FOR
approval of the Merger Agreement.
OPINIONS OF FINANCIAL ADVISORS
IDX
On August 7, 1996, IDX retained Alex. Brown to provide investment banking
advice and services to IDX, including assistance in evaluating candidates for
potential business combinations. On November 1, 1996, IDX and Alex. Brown
amended the August 7, 1996 engagement letter to specify that Alex. Brown would
serve as IDX's financial advisor in connection with the Merger, including
rendering its opinion to the Board of Directors of IDX as to the fairness,
from a financial point of view, of the Conversion Ratio to IDX.
At the March 25, 1997 meeting of the IDX Board, representatives of Alex.
Brown made a presentation with respect to the Merger and rendered to the IDX
Board its oral opinion, subsequently confirmed in writing as of the same date,
that, as of such date, and subject to the assumptions made, matters considered
and limitations set forth in such opinion and summarized below, the Conversion
Ratio was fair, from a financial point of view, to IDX. No limitations were
imposed by the IDX Board upon Alex. Brown with respect to the investigations
made or procedures followed by it in rendering its opinion.
THE FULL TEXT OF ALEX. BROWN'S WRITTEN OPINION DATED MARCH 25, 1997 (THE
"ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. IDX SHAREHOLDERS
ARE URGED TO READ THE ALEX. BROWN OPINION IN ITS ENTIRETY. THE ALEX. BROWN
OPINION IS DIRECTED TO THE IDX BOARD, ADDRESSES ONLY THE FAIRNESS OF THE
CONVERSION RATIO TO IDX FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY IDX SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE
AT THE IDX MEETING. THE ALEX. BROWN OPINION WAS RENDERED TO THE IDX BOARD FOR
ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE THE MERGER AGREEMENT. THE
DISCUSSION OF THE ALEX. BROWN OPINION IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE ALEX. BROWN
OPINION.
In connection with the Alex. Brown Opinion, Alex. Brown reviewed certain
publicly available financial information and other information concerning IDX
and PHAMIS and certain internal analyses and other information furnished to it
by IDX and PHAMIS. Alex. Brown also held discussions with the members of the
senior managements of IDX and PHAMIS regarding the businesses and prospects of
their respective companies and the joint prospects of a combined company. In
addition, Alex. Brown (i) reviewed the reported prices and trading activity of
both the IDX Common Stock and PHAMIS Common Stock, (ii) compared certain
financial and stock market information for IDX and PHAMIS with similar
information for certain other companies whose securities are publicly traded,
(iii) reviewed the financial terms of certain recent business combinations
which it deemed comparable in whole or in part, (iv) reviewed the terms of the
Merger Agreement and certain related documents, and (v) performed such other
studies and analyses and considered such other factors as it deemed
appropriate. In conducting its review and arriving at its opinion, Alex. Brown
assumed and relied upon, without independent verification, the accuracy,
completeness and fairness of the information furnished to or otherwise
reviewed by or discussed with it for purposes of rendering its opinion. With
respect to the financial projections of IDX and PHAMIS and other information
relating to the prospects of IDX and PHAMIS provided to Alex. Brown by each of
IDX and PHAMIS, Alex. Brown assumed that such projections and other
information were reasonably prepared and reflected the best currently
available judgments and estimates of the respective managements of IDX and
PHAMIS as to the likely future financial performances of IDX and PHAMIS,
respectively, and of the Combined Company. Alex. Brown did not make and it was
not provided with an independent evaluation or appraisal of the assets of IDX
and PHAMIS, nor has Alex. Brown been furnished
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with any such evaluations or appraisals. The Alex. Brown Opinion is based on
market, economic, and other conditions as they existed and could be evaluated
as of the date of the opinion letter.
The following is a summary of the analyses performed and factors considered
by Alex. Brown in connection with the rendering the Alex. Brown Opinion.
Historical Financial Position. In rendering its opinion, Alex. Brown
reviewed and analyzed the historical and current financial condition of IDX
and PHAMIS which included (i) a review of IDX's and PHAMIS' recent financial
statements; (ii) an analysis of IDX's and PHAMIS' revenue, growth and
operating performance trends; and (iii) a review of IDX's and PHAMIS' margin
changes. This information was presented to give the IDX Board background
information regarding the respective financial performances of IDX and PHAMIS.
Historical Stock Price Performance. Alex. Brown reviewed and analyzed the
daily closing per share market prices and trading volume for PHAMIS Common
Stock, from December 16, 1994, the date of PHAMIS' initial public offering, to
March 11, 1997. In addition, Alex. Brown reviewed and analyzed the daily
closing per share market prices and trading volume for IDX Common Stock from
November 16, 1995, the date of IDX's initial public offering, to March 11,
1997.
Analysis of Certain Other Publicly Traded Companies. This analysis examines
a company's valuation in the public market as compared to the valuation in the
public market of other selected publicly traded companies. Alex. Brown
compared certain financial information (based on the commonly used valuation
measurements described below) relating to IDX and PHAMIS to certain
corresponding information from a group of seven publicly traded healthcare
information technology companies (consisting of Cerner Corporation, HBO &
Company, HCIA Inc., Medic Computer Systems, Inc., Physician Computer Network,
Inc., Shared Medical Systems Corporation and Transition Systems, Inc.
(collectively, the "Selected Companies")). Such financial information
included, among other things, (i) common equity market valuation; (ii)
capitalization ratios; (iii) operating performance; (iv) ratios of common
equity market value as adjusted for debt, preferred stock and cash ("Adjusted
Value") to revenues, earnings before interest expense, income taxes,
depreciation and amortization ("EBITDA"), and earnings before interest expense
and income taxes ("EBIT"), each for the latest reported twelve month period as
derived from publicly available information; and (v) ratios of common equity
market prices per share ("Equity Value") to earnings per share ("EPS") and
projected EPS. The financial information used in connection with the multiples
provided below with respect to IDX, PHAMIS and the Selected Companies was
based on the latest reported twelve month period as derived from publicly
available information and on estimated EPS for calendar years 1997 and 1998 as
reported by the Institutional Brokers Estimating System ("IBES"). Alex. Brown
noted that, on a trailing twelve month basis, the multiple of Adjusted Value
to revenues was 3.8x for IDX and 2.2x for PHAMIS, compared to a range of 1.7x
to 6.3x, with a mean of 4.3x, for the Selected Companies; the multiple of
Adjusted Value to EBITDA was 23.4x for IDX and 15.2x for PHAMIS, compared to a
range of 10.3x to 22.9x, with a mean of 15.8x, for the Selected Companies; and
the multiple of Adjusted Value to EBIT was 30.0x for IDX and 24.4x for PHAMIS,
compared to a range of 11.8x to 34.0x, with a mean of 22.8x, for the Selected
Companies. Alex. Brown further noted that the multiple of Equity Value to
trailing twelve month EPS was 45.8x for IDX and 37.7x for PHAMIS, compared to
a range of 24.2x to 59.4x, with a mean of 38.8x, for the Selected Companies;
the multiple of Equity Value to calendar year 1997 EPS was 33.8x for IDX and
26.6x for PHAMIS, compared to a range of 21.2x to 37.2x, with a mean of 27.0x,
for the Selected Companies; and the multiple of Equity Value to calendar year
1998 EPS was 26.3x for IDX and 22.2x for PHAMIS, compared to a range of 14.6x
to 26.6x, with a mean of 19.6x, for the Selected Companies. As a result of the
foregoing procedures, Alex. Brown noted that the multiples for IDX were
generally at the high end of the range of multiples for the Selected Companies
and the multiples for PHAMIS were generally within the range of the multiples
for the Selected Companies. The IBES EPS estimates, as of March 20, 1997 for
calendar year 1997 were $0.88 for IDX and $0.71 for PHAMIS and for calendar
year 1998 were $1.13 for IDX and $0.85 for PHAMIS.
Analysis of Selected Mergers and Acquisitions. Alex. Brown reviewed the
financial terms, to the extent publicly available, of fourteen proposed,
pending or completed mergers and acquisitions since December 1992
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in the healthcare information technology industry (the "Selected
Transactions"). Alex. Brown calculated various financial multiples and the
premiums over market value based on certain publicly available information for
each of the Selected Transactions and compared them to corresponding financial
multiples and the premiums over market for the Merger, based on the Conversion
Ratio of 0.7300. Alex. Brown noted that multiple of adjusted purchase price
(the value of consideration paid for common equity adjusted for debt,
preferred stock and cash ("Adjusted Purchase Price")) to trailing twelve month
revenues was 2.6x for the Merger versus a range of 0.7x to 10.3x, with a mean
of 4.4x, for the Selected Transactions; the multiple of Adjusted Purchase
Price to trailing twelve month EBITDA was 18.1x for the Merger versus a range
of 6.3x to 40.8x, with a mean of 20.5x, for the Selected Transactions; the
multiple of Adjusted Purchase Price to trailing twelve month EBIT was 29.1x
for the Merger versus a range of 9.1x to 97.0x, with a mean of 31.0x, for the
Selected Transactions. Alex. Brown further noted that the multiple of equity
purchase price to trailing twelve month net income was 44.8x for the Merger
versus a range of 18.8x to 134.4x, with a mean of 50.4x, for the Selected
Transactions. Alex. Brown also noted that the Selected Transactions were
effected at a range of the premium to the target company's per share market
price one month prior to announcement of -0.8% to 110.0%, with a mean of
49.6%, and to the target company's per share market price one day prior to
announcement of -12.0% to 56.5%, with a mean of 25.8%, versus transaction
premiums of 24.1% and 15.1%, respectively, for the Merger (based on the per
share market price one month prior to, and one day prior to, the announcement
of the proposed Merger). All multiples for the Selected Transactions were
based on public information available at the time of announcement of such
transaction, without taking into account differing market and other conditions
during the four-year period during which the Selected Transactions occurred.
Premiums Paid Analysis. Alex. Brown reviewed and analyzed the range of
premiums paid in 153 transactions between $100 million to $250 million in
purchase price for non-financial companies; 36 transactions between $100
million to $250 million in purchase price for healthcare companies between
January 1, 1994 and March 20, 1997; and 14 transactions between $10.7 million
and $303.1 million in purchase price for healthcare information technology
companies between November 30, 1992 to March 20, 1997. The range of premiums
paid to the target company's stock price for non-financial companies one month
prior to announcement and one day prior to announcement were -51.7% to 540.0%
with a mean of 37.6% and -42.6% to 185.0% with a mean of 23.0%, respectively;
the range for healthcare companies one month prior to announcement and one day
prior to announcement were -6.8% to 540.0% with a mean of 44.7% and -42.6% to
75.7% with a mean of 17.0%, respectively; the range for healthcare information
technology companies one month prior to announcement and one day prior to
announcement were -0.8% to 110.0% with a mean of 49.6% and -12.0% to 56.5%
with a mean of 25.8%, respectively. Based on the foregoing, Alex. Brown noted
that the premium to be paid in the Merger one month prior to announcement and
one day prior to announcement of 24.1% and 15.1%, respectively, was below the
mean of the premiums paid in the aforementioned transactions involving non-
financial companies, healthcare companies and healthcare information
technology companies.
Historical Conversion Ratio Analysis. Alex. Brown reviewed and analyzed the
historical ratio of the daily per share market closing prices of PHAMIS Common
Stock divided by the corresponding prices of the IDX Common Stock over the 120
trading days, 90 trading days, 60 trading days, 20 trading days, 5 trading
days, one month prior to March 20, 1997 and as of March 20, 1997. Such average
conversion ratios for the aforementioned time periods and as of such dates
were 0.4885, 0.4760, 0.4835, 0.5397, 0.5804, 0.5882 and 0.6345, respectively.
Alex. Brown then calculated the respective premiums over such exchange ratios
represented by the Exchange Ratio, which for the same time periods and as of
such dates were 49.4%, 53.4%, 51.0%, 35.3%, 25.8%, 24.1% and 15.1%,
respectively.
Contribution Analysis. Alex. Brown noted that on a pro forma basis PHAMIS'
shareholders would own approximately 17.7% of the Combined Company. Alex.
Brown then analyzed the relative contributions of IDX and PHAMIS to the pro
forma income statement of the combined company. This analysis showed that on a
pro forma combined basis (excluding (i) the effect of any synergies that may
be realized as a result of the Merger, and (ii) non-recurring expenses
relating to the Merger), based on the twelve month period ending September 30,
1996, IDX and PHAMIS would account for approximately 76.2% and 23.8%,
respectively, of the Combined
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Company's pro forma trailing twelve month revenue; approximately 78.4% and
21.6%, respectively, of the Combined Company's pro forma trailing twelve month
EBITDA; approximately 81.9% and 18.1%, respectively, of the Combined Company's
pro forma trailing twelve month EBIT; approximately 81.1% and 18.9%,
respectively, of the Combined Company's trailing twelve month net income;
approximately 81.0% and 19.0%, respectively, of the Combined Company's
projected 1997 net income based on IBES estimates; approximately 82.0% and
18.0%, respectively, of the Combined Company's projected 1998 net income based
on IBES estimates; and approximately 79.8% and 20.2%, respectively, of the
Combined Company's book value.
Pro Forma Combined Earnings Analysis. Alex. Brown analyzed certain pro forma
effects of the Merger. Based on such analysis, Alex. Brown computed the
resulting dilution/accretion to the Combined Company's EPS estimate for the
fiscal years ending 1997 and 1998, pursuant to the Merger before and after
taking into account any potential cost savings and other synergies that PHAMIS
and IDX could achieve if the Merger were consummated and before nonrecurring
costs relating to the Merger. Alex. Brown noted that before taking into
account any potential cost savings and other synergies that PHAMIS and IDX
could achieve if the Merger were consummated and before nonrecurring costs
relating to the Merger, the Merger would be approximately 1.9% accretive and
0.5% accretive to the Combined Company's EPS for the fiscal years ending 1997
and 1998, respectively.
Relevant Market and Economic Factors. In rendering its opinion, Alex. Brown
considered, among other factors, the condition of the U.S. stock markets,
particularly in the healthcare sector, and the current level of economic
activity.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions
summarized above is identical to IDX, PHAMIS or the Merger. Accordingly, such
analyses must take into account differences in the financial and operating
characteristics of the Selected Companies and the companies in the Selected
Transactions and other factors that would affect the public trading value and
acquisition value of the Selected Companies and the companies in the Selected
Transactions, respectively.
While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in its presentation to the IDX Board, it is not a
comprehensive description of all analyses and factors considered by Alex.
Brown. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the applications of these methods to the particular
circumstances and, therefore such an opinion is not readily susceptible to
summary description. Alex. Brown believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors, would create
an incomplete view of the evaluation process underlying the Alex. Brown
Opinion. In performing its analyses, Alex. Brown considered general economic,
market and financial conditions and other matters, many of which are beyond
the control of IDX and PHAMIS. The analyses performed by Alex. Brown are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Additionally, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business
actually may be sold. Furthermore, no opinion is being expressed as to the
prices at which shares of IDX Common Stock may trade at any further time.
Pursuant to a letter agreement dated April 7, 1997 between IDX and Alex.
Brown, the fees to date payable to Alex. Brown for rendering the Alex. Brown
Opinion have been $100,000, which amount will be credited against the final
fee of approximately $1.6 million, payable upon consummation of the Merger. In
addition, IDX has agreed to reimburse Alex. Brown for its reasonable out-of-
pocket expenses incurred in connection with rendering financial advisory
services, including fees and disbursements of its legal counsel. IDX has
agreed to indemnify Alex. Brown and its directors, officers, agents, employees
and controlling persons, for certain costs, expenses, losses, claims, damages
and liabilities related to or arising out of its rendering of services under
its engagement as financial advisor.
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The IDX Board retained Alex. Brown to act as its advisor based upon its
prior relationship with Alex. Brown, which included Alex. Brown acting as the
lead manager for IDX's initial public offering in November 1995 and based upon
Alex. Brown's qualifications, reputation, experience and expertise. Alex.
Brown is an internationally recognized investment banking firm and, as
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and
acquisitions, negotiated underwriting, private placements and valuations for
corporate and other purposes. Alex. Brown may actively trade the equity
securities of IDX and PHAMIS for its own account and for the account of its
customers and accordingly may at any time hold a long or short position in
such securities. Alex. Brown maintains a market in the Common Stock of IDX and
PHAMIS and regularly publishes research reports regarding the healthcare
industry and the businesses and securities of IDX, PHAMIS and other publicly
traded companies in the healthcare industry.
PHAMIS
The PHAMIS Board retained Bear Stearns to act as its exclusive financial
advisor in connection with PHAMIS' proposed business combination with IDX in
accordance with the terms of an engagement letter between Bear Stearns and
PHAMIS dated March 5, 1997 (the "Bear Stearns Engagement Letter"). PHAMIS
selected Bear Stearns as its financial advisor on the basis of Bear Stearns'
experience and expertise in transactions similar to the Merger and its
reputation in the investment community. Bear Stearns is an internationally
recognized investment banking firm and is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions
and other purposes.
At the March 25, 1997 meeting of the PHAMIS Board, Bear Stearns delivered
its written opinion to the effect that as of the date of such opinion and
based upon and subject to the various condition set forth therein, the Merger
was fair, from a financial point of view, to the shareholders of PHAMIS (the
"Bear Stearns Opinion").
THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED AS ANNEX C TO THIS
JOINT PROXY STATEMENT/ PROSPECTUS. PHAMIS SHAREHOLDERS ARE URGED TO, AND
SHOULD, READ THE BEAR STEARNS OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION
WITH THIS JOINT PROXY STATEMENT/PROSPECTUS FOR THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS OF THE REVIEW BY BEAR STEARNS. THE BEAR STEARNS OPINION
ADDRESSES ONLY THE FAIRNESS OF THE MERGER, FROM A FINANCIAL POINT OF VIEW, TO
THE SHAREHOLDERS OF PHAMIS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF PHAMIS AS TO HOW SUCH SHAREHOLDER SHOULD VOTE ON THE MERGER.
THE SUMMARY OF THE BEAR STEARNS OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
Although Bear Stearns evaluated the financial terms of the Merger and
participated in discussions concerning the consideration to be paid, the
Conversion Ratio was determined by arm's length negotiations between PHAMIS
and IDX after consultation by each of such parties with their respective
financial advisors.
In connection with rendering its opinion, Bear Stearns, among other things
(i) reviewed the Merger Agreement; (ii) reviewed each of PHAMIS' and IDX's
Annual Reports to Shareholders and Annual Reports on Form 10-K for the year
ended December 31, 1995 and draft financial statements for the year ended
December 31, 1996, and PHAMIS' and IDX's respective Quarterly Reports on Form
10-Q for the periods ended March 31, 1996, June 30, 1996 and September 30,
1996; (iii) reviewed certain operating and financial information provided to
Bear Stearns by the managements of PHAMIS and IDX relating to their respective
businesses, including internal projections of future financial results; (iv)
met with certain members of the senior managements of PHAMIS and IDX to
discuss their respective operations, historical financial statements and
future prospects, as well as their views of the business, operational and
strategic benefits, potential synergies and other implications of the Merger;
(v) reviewed the pro forma financial impact of the Merger on PHAMIS and IDX;
(vi) reviewed the historical stock prices and trading activity of the common
stock of PHAMIS and IDX; (vii) reviewed certain publicly available financial
information and stock market performance data of companies which Bear Stearns
deemed generally comparable to PHAMIS and IDX; (viii) reviewed the terms of
certain other recent acquisitions
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of companies which Bear Stearns deemed generally comparable to the Merger; and
(ix) conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided by PHAMIS and IDX and the reasonableness of the
assumptions made by the managements of PHAMIS and IDX with respect to the
projected financial results of such businesses and the potential synergies
which could be incurred or achieved upon consummation of the Merger, except as
provided below. PHAMIS provided Bear Stearns with a range of financial
forecasts for 1997, including: (i) a financial forecast used for internal
management purposes (the "PHAMIS Internal Forecast"), (ii) a financial
forecast which approximated estimates made by certain security analysts in
reports published on PHAMIS in the last six months prior to the date of the
announcement of the Merger (the "PHAMIS External Forecast") and was lower than
the PHAMIS Internal Forecast, and (iii) an alternative forecast prepared by
PHAMIS (the "PHAMIS Alternative Forecast") that was more conservative than the
PHAMIS Internal Forecast and the PHAMIS External Forecast. With respect to the
financial projections provided to Bear Stearns by PHAMIS, Bear Stearns
determined not to rely on the PHAMIS Internal Forecast in its analyses because
of, among other factors, the inherent uncertainty of such projections and the
fact that actual results for fiscal 1996 differed materially from past
projections for such periods for PHAMIS. With PHAMIS' consent, Bear Stearns
considered and relied upon the PHAMIS External Forecast and the PHAMIS
Alternative Forecast. Bear Stearns did not assume any responsibility for the
independent verification of such information or financial projections and Bear
Stearns further relied upon the assurances of the managements of PHAMIS and
IDX that they are unaware of any facts that would make the information or
financial projections provided to Bear Stearns incomplete or misleading. For
purposes of rendering its opinion, Bear Stearns assumed that the
representations and warranties of each party contained in the Merger Agreement
are true and correct, that each party will perform all of the covenants and
agreements required to be performed by it under the Merger Agreement and that
all conditions to the consummation of the Merger will be satisfied without
waiver thereof. In this regard, Bear Stearns further assumed that the Merger
will be accounted for in accordance with the pooling of interests method of
accounting under the requirements of APB No. 16 as set forth in the Merger
Agreement.
Bear Stearns did not perform or obtain any independent appraisal of the
assets or liabilities of PHAMIS or IDX in rendering its opinion, nor was it
furnished with any such appraisals. In addition, Bear Stearns was not
authorized by PHAMIS to solicit, and Bear Stearns did not solicit, third-party
indications of interest for the acquisition of all or part of PHAMIS. Bear
Stearns also did not express any opinion as to the price or range of prices at
which the IDX common stock may trade subsequent to the consummation of the
Merger. The Bear Stearns Opinion did not address PHAMIS' underlying decision
to pursue the Merger. The Bear Stearns Opinion is necessarily based upon the
economic, market and other conditions, and the information made available to
it, as of the date of such opinion.
The following is a brief summary of the financial analyses used by Bear
Stearns and presented to the PHAMIS Board in connection with providing the
Bear Stearns Opinion to the PHAMIS Board.
Financial Forecasts. Bear Stearns reviewed various financial forecasts
provided to it by the management of both PHAMIS and IDX. As previously
mentioned, Bear Stearns determined not to rely on certain of the internal
estimates of PHAMIS' future financial performance for the reasons set forth
above. With respect to the financial projections for PHAMIS, Bear Stearns
based its analysis on (i) the PHAMIS External Forecast and (ii) the PHAMIS
Alternative Forecast. Bear Stearns utilized IDX's 1997 financial forecast (the
"IDX Forecast") for its analysis.
Stock Premium Analysis. Bear Stearns reviewed the historical market prices
and trading volumes of PHAMIS and IDX common stock during selected time
periods prior to the announcement of the Merger. Bear Stearns based its
analysis on PHAMIS' and IDX's share price as of March 21, 1997 of $19.50 and
$31.25, respectively (the "Pre-Transaction Stock Prices"). Bear Stearns
compared such prices to the PHAMIS Pre-Transaction Stock Price after giving
effect to the Conversion Ratio. Bear Stearns observed that the implied value
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per share to be received by PHAMIS shareholders based on Pre-Transaction Stock
Prices and after giving effect to the Conversion Ratio (such amount was
calculated to be $22.81 per PHAMIS share as of March 21, 1997) was (i) 17.0%
higher than $19.50, PHAMIS' closing stock price on March 21, 1997, (ii) 107.4%
higher than $11.00, which occurred on November 14, 1996, PHAMIS' lowest
closing stock price over the last twelve months, (iii) 18.5% lower than
$28.00, which occurred on March 22, 1996, PHAMIS' highest closing stock price
over the last twelve months, and (iv) 20.1% higher than $19.00, PHAMIS'
closing stock price on February 7, 1997, which is thirty trading days prior to
March 21, 1997.
Relative Contribution Analysis. Bear Stearns reviewed and compared the
relative contribution of PHAMIS and IDX to the combined revenues, operating
cash flow, operating income and net income of the combined company utilizing
(i) the PHAMIS External Forecast and the IDX Forecast (the "External
Scenario") and (ii) the PHAMIS Alternative Forecast and the IDX Forecast (the
"Alternative Scenario"). Bear Stearns compared the percentage contributed as
described above to the percentage fully diluted ownership in the newly
combined entity by the shareholders of PHAMIS. Based upon the Conversion
Ratio, PHAMIS shareholders would own approximately 17.9% of the newly-combined
entity on a fully diluted basis and would own approximately 18.0% of the
combined enterprise value. Based on the External Scenario, PHAMIS contributed
23.3%, 21.6%, 16.4% and 17.1% of the combined revenues, operating cash flow,
operating income, and net income, respectively for the year ending December
31, 1997. Based on the Alternative Scenario, PHAMIS contributed 22.4%, 20.0%,
14.2% and 15.0% of the combined revenues, operating cash flow, operating
income, and net income, respectively for the year ending December 31, 1997.
Bear Stearns observed that the pro forma percentage ownership of PHAMIS'
shareholders in the newly combined entity (both on an equity and enterprise
basis) was greater than PHAMIS' percentage contribution to operating income
and net income for the year ending December 31, 1997 in both the External
Scenario and the Alternative Scenario, although it was less than PHAMIS'
percentage contribution to the combined revenues and operating cash flow.
Implied Transaction Multiples. Bear Stearns calculated market equity values
for each of PHAMIS and IDX of $123.8 million and $672.1 million, respectively,
based on the Pre-Transaction Stock Prices, 6.35 million shares of PHAMIS
common stock and 21.51 million shares of IDX common stock, respectively,
outstanding on a fully diluted basis (using the treasury method, which assumes
the use of options proceeds to repurchase shares). After applying the
Conversion Ratio of 0.73, which would have been applicable based on the Pre-
Transaction Stock Prices, to the market equity value of PHAMIS previously
calculated, Bear Stearns calculated an implied equity value for PHAMIS of
$146.2 million (the "PHAMIS Equity Value"). Bear Stearns calculated the
enterprise value for PHAMIS to be $127.6 million by adding $0.2 million of
debt and subtracting $18.8 million of cash to the previously calculated PHAMIS
Equity Value (the "PHAMIS Enterprise Value"). Bear Stearns then calculated
financial multiples for PHAMIS for 1996 and 1997 (using both the PHAMIS
Alternative Forecast and the PHAMIS External Forecast) based on the PHAMIS
Equity Value and the PHAMIS Enterprise Value, including the calculation of
PHAMIS Equity Value to net income (54.1x, 38.9x and 33.2x for 1996 actual, the
PHAMIS Alternative Forecast, and the PHAMIS External Forecast, respectively),
PHAMIS Enterprise Value to revenue (2.59x, 2.23x and 2.12x for 1996 actual,
the PHAMIS Alternative Forecast, and the PHAMIS External Forecast,
respectively), PHAMIS Enterprise Value to operating income (37.6x, 25.4x and
21.5x for 1996 actual, the PHAMIS Alternative Forecast, and the PHAMIS
External Forecast, respectively), and PHAMIS Enterprise Value to operating
cash flow (21.1x, 14.9x and 13.5x for 1996 actual, the PHAMIS Alternative
Forecast, and the PHAMIS External Forecast, respectively) (collectively, such
ratios are referred to as the "Transaction Multiples").
Analysis of Comparable Publicly Traded Companies. Bear Stearns reviewed and
compared the financial and stock market performance of PHAMIS and IDX to the
financial and stock market performance of certain publicly-traded companies in
the healthcare information systems industry that Bear Stearns believed were
generally comparable to PHAMIS and IDX (the "HCIS Companies"). The HCIS
Companies included: Cerner Corporation; CITATION Computer Systems, Inc.; HBO &
Company; Medic Computer Systems Inc.; Physician Computer Network, Inc.; Shared
Medical Systems Corporation; and Sunquest Information Systems Inc. For each of
the HCIS Companies, Bear Stearns reviewed certain publicly available financial
data, including revenue,
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operating cash flow, operating income and net income over various time periods
as well as certain balance sheet items, published earnings forecasts for 1997
and stock market information. For each of the HCIS Companies and based on
information available as of March 21, 1997, Bear Stearns calculated the ratio
of their equity value to their respective projected net income and the ratios
of their enterprise value to their respective revenues, operating cash flow
and operating income during the most recent last twelve month period ("LTM")
ending on December 31, 1996. Bear Stearns analysis indicated that the harmonic
mean of the ratios of the equity value of the HCIS Companies to their
respective net income for the year ending December 31, 1997 was 21.1x. The
harmonic means of the ratios of the enterprise values of the Comparable HCIS
Companies to their respective LTM revenues, operating cash flow, and operating
income was 2.19x, 11.4x, 17.6x, respectively. Bear Stearns compared such
harmonic means to the relevant Transaction Multiples and observed that the
such Transaction Multiples were higher than the harmonic means calculated
above.
Analysis of Selected Merger and Acquisition Transactions. Bear Stearns
reviewed certain publicly-available financial information related to certain
merger and acquisition transactions completed in the information systems and
services industry that it deemed to be generally comparable to the Merger (the
"Comparable Transactions"). The Comparable Transactions included (acquired
company/acquiring company): Affiliated Computer Services, Inc./Genix Group,
Amdahl Corporation/DMR Group, Inc., Automatic Data Processing,
Inc./Bankamerica Corporation--Business Services Division, The BISYS Group,
Inc./Concord Holding Corporation, Computer Associates International, Inc./The
Continuum Company, Inc., HBO & Company ("HBO")/CliniCom, Inc., HBO/CyCare
Systems, Inc., HBO/Enterprise Systems, Inc., HBO/First Data Corporation--
Health Systems Group, HBO/GMIS, Inc., HBO/IBAX Healthcare Systems, Inc.,
Medaphis Corporation/Health Data Sciences Corporation, and Systematics,
Inc./ALLTEL Corporation.
For each of the Comparable Transactions, Bear Stearns reviewed certain
publicly available financial data, including revenue, operating cash flow,
operating income, net income, certain balance sheet items (when available) for
the acquired companies involved in the Comparable Transactions. Bear Stearns
calculated the ratios of the purchase prices of each of the acquired companies
to their respective LTM net income and the ratios of the transaction value
(the total purchase price of the equity plus the acquired company's total debt
at par value, plus minority interests, less cash, cash equivalents and
investments) of each of the acquired companies to their respective LTM net
revenues, LTM operating cash flows and LTM operating income. Bear Stearns'
analysis indicated that the harmonic mean of the ratios of the purchase prices
of each of the acquired companies to their respective LTM net incomes was
40.6x. The harmonic means of the ratios of the transaction values of each of
the acquired companies to their respective LTM revenues, LTM operating cash
flow, and LTM operating income was 2.19x, 14.9x, and 21.3x, respectively. Bear
Stearns compared such harmonic means to the relevant Transaction Multiples and
observed that the such Transaction Multiples were higher than the harmonic
means calculated above.
Bear Stearns noted that no company or transaction used in the foregoing
analyses is identical to either PHAMIS, IDX or the Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and the transactions
and other factors that could affect the value of the companies or transactions
to which PHAMIS and IDX or the Merger are being compared.
Pro Forma Merger Analysis. Bear Stearns analyzed the pro forma effect of the
Merger on PHAMIS and IDX, including the affect on earnings per share for IDX
assuming the Conversion Ratio of 0.73 based on the Pre-Transaction Prices and
based on the Alternative Scenario and the External Scenario. Such pro forma
analysis did not consider any one-time costs that may be incurred nor did it
consider any potential cost savings or revenue enhancements in the combined
entity. The pro forma analysis reflected certain assumptions made by Bear
Stearns and PHAMIS, some of which may be beyond the control of PHAMIS and
which may not necessarily reflect what will actually occur upon the
consummation of the Merger. Such analysis indicated that the Merger would be
approximately 3.2% dilutive to IDX's stand-alone earnings per share under the
Alternative Scenario and approximately 0.7% dilutive to IDX's stand-alone
earnings per share under the External Scenario.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses, without considering the analysis as a whole, could
create an incomplete view of the processes underlying the Bear Stearns
Opinion. In arriving at its opinion, Bear Stearns considered the results of
all the analyses it performed. Such analyses were prepared solely for purposes
of providing its opinion as to the fairness of the Merger, from a financial
point of view, to the shareholders of PHAMIS and do not purport to be
appraisals or necessarily indicate the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than those results suggested by such
analyses. As described above, the Bear Stearns Opinion and Bear Stearns'
presentation to the PHAMIS Board was one of many factors taken into
consideration by the PHAMIS Board in making its determination to approve the
Merger. The foregoing summary does not purport to be a complete description of
the analyses performed by Bear Stearns in rendering its opinion.
In the ordinary course of its business, Bear Stearns may actively trade the
equity securities of PHAMIS or IDX for its own accounts and for the accounts
of customers and, accordingly, may, at any time, hold a long or short position
in such securities.
Pursuant to the Bear Stearns Engagement Letter, PHAMIS agreed to pay Bear
Stearns a fee of $250,000 for rendering its opinion relating to the Merger
(the "Fairness Opinion Fee"). PHAMIS has also agreed to pay Bear Stearns a fee
equal to 1.1% of the aggregate value of any consideration received by the
shareholders of PHAMIS in the Merger, such fee being payable upon consummation
of the Merger, against which fee the Fairness Opinion Fee would be credited.
PHAMIS also agreed to reimburse Bear Stearns for its out-of-pocket expenses,
including the reasonable fees and disbursements of counsel and to indemnify
Bear Stearns and certain related persons against certain liabilities in
connection with the engagement of Bear Stearns, including certain liabilities
under the federal and state securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
PHAMIS Stock Option Plans and Employee Stock Purchase Plan.
All outstanding stock options for the purchase of PHAMIS Common Stock
granted pursuant to the PHAMIS Amended and Restated 1983 Combined Nonqualified
and Incentive Stock Option Plan and Amended and Restated 1993 Combined
Incentive and Nonqualified Stock Option Plan will accelerate and become
exercisable in full immediately prior to the Effective Time. In addition,
immediately prior to the Effective Time, all outstanding rights to acquire
shares of PHAMIS Common Stock under the PHAMIS ESPP will be exercisable for
the purchase of shares of PHAMIS Common Stock.
Employment Agreements.
Frank T. Sample, President and Chief Executive Officer of PHAMIS, is a party
to an employment agreement with PHAMIS dated November 12, 1990, as amended
October 27, 1994. Such employment agreement provides for the continuation of
Mr. Sample's salary and benefits for one year, plus payment for reasonable
out-placement services expenses, if Mr. Sample is terminated by PHAMIS or a
successor to PHAMIS for any reason.
Indemnity Arrangements.
Pursuant to the Merger Agreement, IDX has, for certain time periods
specified in the Merger Agreement, agreed to, (i) indemnify each present
director and officer of PHAMIS against liabilities or expenses incurred in
connection with claims relating to matters occurring prior to the Effective
Time of the Merger, (ii) maintain in effect directors' and officers' liability
insurance for the benefit of the directors and officers of PHAMIS, and (iii)
maintain in effect directors' and officers' liability insurance for the
benefit of directors and officers of PHAMIS who subsequently become directors
and officers of IDX. See "The Merger Agreement--Director and Officer
Indemnification."
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Ownership and Voting of Stock.
As of March 31, 1997, directors and executive officers of IDX and their
affiliates may be deemed to be beneficial owners of approximately 72.2% of the
outstanding shares of IDX Common Stock. Each of the directors and executive
officers of IDX has advised IDX that he or she intends to vote or direct the
vote of all the outstanding shares of IDX Common Stock over which he or she
has voting control in favor of the approval of the Merger Proposal, the
Charter Proposal, the Second Charter Proposal, the Plan Proposal, the ESPP
Proposal and the DSOP Proposal. See "IDX Systems Corporation--Security
Ownership of Certain Beneficial Owners and Management."
As of March 31, 1997, directors and executive officers of PHAMIS and their
affiliates may be deemed to have or share beneficial ownership of
approximately 16.8% of the outstanding shares of PHAMIS Common Stock. Each of
the directors and executive officers of PHAMIS has advised PHAMIS that he or
she intends to vote or direct the vote of all the outstanding shares of PHAMIS
Common Stock over which he or she has or shares voting control in favor of the
approval and adoption of the Merger Agreement. See "PHAMIS, Inc.--Security
Ownership of Certain Beneficial Owners and Management."
As of March 31, 1997, IDX did not beneficially own any shares of PHAMIS
Common Stock and directors and executive officers of IDX and their affiliates
may be deemed to be beneficial owners of an aggregate of approximately 100
shares of PHAMIS Common Stock, or less than .01% of the outstanding shares of
PHAMIS Common Stock. As of March 31, 1997, neither PHAMIS nor its directors
and executive officers and their affiliates beneficially owned any shares of
IDX Common Stock.
On March 25, 1997, Richard E. Tarrant, who beneficially owns approximately
32.2% of the IDX Common Stock as of March 31, 1997, and Robert H. Hoehl, who
beneficially owns approximately 32.2% of the IDX Common Stock as of March 31,
1997, each irrevocably appointed Frank T. Sample, Malcolm A. Gleser, M.D.,
Ph.D., and Gregg W. Blodgett, or any of them, as proxies to vote all of their
respective shares of IDX Common Stock in favor of the Merger Proposal at the
IDX Special Meeting.
On March 25, 1997, Frank T. Sample, who beneficially owns approximately 3.2%
of the PHAMIS Common Stock as of March 31, 1997, Malcolm A. Gleser, M.D.,
Ph.D., who beneficially owns approximately 6.6% of the PHAMIS Common Stock as
of March 31, 1997, and Mark F. Wheeler, who beneficially owns approximate 3.8%
of the PHAMIS Common Stock as of March 31, 1997, each irrevocably appointed
Richard E. Tarrant, Robert H. Hoehl and John A. Kane, or any of them, as
proxies to vote all of their respective shares of PHAMIS Common Stock in favor
of a proposal to approve and adopt the Merger Agreement at the PHAMIS Special
Meeting.
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MANAGEMENT AND OPERATIONS OF IDX FOLLOWING THE MERGER
It is anticipated that the IDX Board, following the Effective Time, will
consist of the following eight (8) persons: Richard E. Tarrant, Paul L.
Egerman, Henry M. Tufo, M.D., Steven M. Lash, Robert H. Hoehl and Stuart H.
Altman, Ph.D. (all of whom are currently directors of IDX) and Malcolm A.
Gleser, M.D., Ph.D. and Frank T. Sample (both of whom are currently directors
of PHAMIS). In addition, to IDX Board may elect one additional director to
fill the vacancy created by the resignation of Larry D. Grandia effective May
19, 1997.
Upon the closing of the Merger, Frank T. Sample, who is currently President,
Chief Executive Officer and a director of PHAMIS, will become an Executive
Vice President of IDX. It is currently anticipated that the other members of
the senior management of IDX immediately following the closing of the Merger
will be as follows:
<TABLE>
<S> <C>
Richard E. Tarrant....... President and Chief Executive Officer
Robert H. Hoehl.......... Chairman of the Board of Directors
Henry M. Tufo, M.D....... Executive Vice President, Chief Operating Officer
and Chief Medical Officer
Frank T. Sample.......... Executive Vice President
Robert W. Baker, Jr.,
Esq..................... Vice President, General Counsel and Secretary
Jeffrey M. Blanchard..... Vice President, Client Services
James H. Crook, Jr....... Vice President
Robert F. Galin.......... Vice President, Sales
John A. Kane............. Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Pamela J. Pure........... Vice President, Marketing
Jeffrey V. Sutherland, Senior Vice President, Engineering and
Ph.D.................... Product Development
</TABLE>
It is currently anticipated that PHAMIS operations will continue to be
located in Seattle, Washington, the current headquarters of PHAMIS. Shortly
following consummation of the Merger, IDX plans to combine the PHAMIS legal
entity with and into IDX creating a single legal entity representing the
Combined Company.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes. Under this method of accounting, the recorded assets and
liabilities of IDX and PHAMIS will be carried forward to the Combined Company
at their recorded amounts, the operating results of the Combined Company will
include the operating results of IDX and PHAMIS for the entire year in which
the combination occurs and the reported operating results of the separate
companies for periods prior to the year in which the combination occurs will
be combined and restated as the operating results of the Combined Company. A
condition to the Merger is that IDX shall have received a letter at the
closing of the Merger from Ernst & Young regarding its concurrence with the
conclusions of IDX's management as to the appropriateness of pooling of
interests accounting, under Accounting Principles Board Opinion No. 16 and
related interpretations, for the Merger. See "The Merger Agreement--
Conditions" and "Unaudited Pro Forma Combined Condensed Financial Statements."
Each of the affiliates of IDX and PHAMIS has executed a written agreement to
the effect that such person will not transfer shares of common stock of either
IDX or PHAMIS during the period beginning 30 days prior to the Effective Time
and ending on the date that IDX publishes financial statements which reflect
30 days of operations of the Combined Company (which agreements relate to the
ability of the Combined Company to account for the Merger as a pooling of
interests).
45
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the Merger that are applicable to holders of PHAMIS Common
Stock. This discussion reflects the opinions of Hale and Dorr LLP, counsel to
IDX, and Foster Pepper & Shefelman PLLC, counsel to PHAMIS to the effect that
the Merger will constitute a "reorganization" (a "Reorganization") for federal
income tax purposes within the meaning of Section 368(a) of the Code
(collectively, the "Tax Opinions"). The Tax Opinions are based on certain
assumptions and representations and are subject to certain limitations and
qualifications as noted in the opinions.
PHAMIS shareholders should be aware that this section does not deal with all
federal income tax considerations that may be relevant to particular PHAMIS
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, who are foreign persons or who acquired their
PHAMIS Common Stock through stock option or stock purchase programs or in
other compensatory transactions. In addition, the following discussion does
not address the tax consequences of transactions effectuated prior to or after
the Merger (whether or not such transactions are in connection with the
Merger), including, without limitation, the exercise of options or rights to
purchase PHAMIS Common Stock in anticipation of the Merger. Finally, no
foreign, state or local tax considerations are addressed herein. ACCORDINGLY,
PHAMIS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM.
The following discussion is based on the interpretation, by each companies'
respective counsel, of the Code, applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
The Internal Revenue Service (the "IRS") is not bound by such discussion and
is not precluded from adopting a contrary position. In addition, there can be
no assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
IDX, PHAMIS and their respective shareholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger qualifying as a Reorganization, the respective counsel of
IDX and PHAMIS are of the opinion that:
(a) No gain or loss will be recognized by the holders of PHAMIS Common
Stock upon the receipt of IDX Common Stock solely in exchange for such
PHAMIS Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares).
(b) The aggregate tax basis of the IDX Common Stock so received by PHAMIS
shareholders in the Merger (including any fractional share of IDX Common
Stock not actually received) will be the same as the aggregate tax basis of
the PHAMIS Common Stock surrendered in exchange therefor.
(c) The holding period of the IDX Common Stock received by each PHAMIS
shareholder in the Merger will include the holding period for the PHAMIS
Common Stock surrendered in exchange therefor, provided that the PHAMIS
Common Stock so surrendered is held as a capital asset at the Effective
Time.
(d) Cash payments received by holders of PHAMIS Common Stock in lieu of a
fractional share will be treated as received in redemption of such
fractional shares, subject to the provisions of Section 302 of the Code, as
if such fractional share of IDX Common Stock had been issued in the Merger
and then redeemed by IDX.
(e) No gain or loss will be recognized by IDX, Sub or PHAMIS solely as a
result of the Merger.
Neither IDX nor PHAMIS has requested a ruling from the IRS in connection
with the Merger. However, it is a condition of the respective obligations of
IDX and PHAMIS to consummate the Merger that such parties receive the Tax
Opinions to the effect that for federal income tax purposes, the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code. These Tax Opinions neither bind the IRS nor preclude the IRS from
adopting a contrary position. The Tax Opinions will be subject to certain
assumptions
46
<PAGE>
and qualifications and will be based on the truth and accuracy of certain
representations of IDX, PHAMIS, Sub, and certain of their respective
shareholders, including representations in certain certificates of the
respective managements of IDX, PHAMIS and Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in a PHAMIS shareholder recognizing gain or loss with respect to each
share of PHAMIS Common Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the
Effective Time of the Merger, of the IDX Common Stock received in exchange
therefor. In such event, a shareholder's aggregate basis in the IDX Common
Stock so received would equal its fair market value, and the shareholder's
holding period for such stock would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
IDX Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely PHAMIS Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that a
PHAMIS shareholder was treated as receiving (directly or indirectly)
consideration other than IDX Common Stock in exchange for the shareholder's
PHAMIS Common Stock, including shareholders who exercise their dissenters'
rights.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. IDX and PHAMIS
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on April 10, 1997. The FTC granted IDX and PHAMIS early
termination of the waiting period on April 18, 1997. At any time before or
after consummation of the Merger, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of stores or other assets of IDX or PHAMIS. At any time
before or after the Effective Time of the Merger, and notwithstanding that the
HSR Act waiting period has been terminated, any state could take such action
under its antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of stores or other assets of IDX or PHAMIS.
Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
Based on information available to them, IDX and PHAMIS believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, IDX and PHAMIS would prevail or would not be required to accept certain
conditions, including the divestitures of stores or other assets, in order to
consummate the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of IDX Common Stock received by PHAMIS shareholders in the Merger
will be freely transferable, except that shares of IDX Common Stock received
by persons who are deemed to be affiliates of PHAMIS prior to the Merger may
be resold by them only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act (or Rule 144 in the case of such
persons who become affiliates of IDX) or otherwise in compliance with (or
pursuant to an exemption from) the registration requirements of the Securities
Act. Persons deemed to be affiliates of PHAMIS or IDX are those individuals or
entities that control, are controlled by, or are under common control with,
such party and generally include executive officers and directors of such
party as well as certain principal shareholders of such party. The Merger
Agreement requires PHAMIS to use its best efforts to cause each of its
affiliates to execute a written agreement to the effect that such person will
not offer or sell or otherwise dispose of any of the shares of IDX Common
Stock issued to such
47
<PAGE>
person in or pursuant to the Merger except in compliance with the Securities
Act and the rules and regulations promulgated by the Commission thereunder.
This Joint Proxy Statement/Prospectus does not cover any resales of IDX Common
Stock received by affiliates of PHAMIS in the Merger.
STOCK MARKET QUOTATION
It is a condition to the Merger that the shares of IDX Common Stock to be
issued pursuant to the Merger Agreement be approved for quotation on the
Nasdaq National Market. An application for listing the shares of IDX Common
Stock on the Nasdaq National Market was filed on May 5, 1997.
DISSENTERS' RIGHTS
IDX Shareholders. Holders of IDX Common Stock will be entitled to assert
dissenters' rights under Chapter 13 of the Vermont Business Corporation Act
(the "VBCA") with respect to the Second Charter Proposal; IDX is not a
corporation party to the Merger pursuant to Vermont law, and no holders of IDX
Common Stock will have dissenters' rights with respect to the Merger or the
Merger Proposal. In addition, no holders of IDX Common Stock will have
dissenters' rights with respect to the Charter Proposal, the Plan Proposal,
the ESPP Proposal or the DSOP Proposal.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTERS' RIGHTS UNDER THE VBCA. THE STATEMENT OF LAW PERTAINING TO
DISSENTERS' RIGHTS OF HOLDERS OF IDX COMMON STOCK IS APPLICABLE ONLY WITH
RESPECT TO THE SECOND CHARTER PROPOSAL AND IS QUALIFIED IN ITS ENTIRETY BY THE
FULL TEXT OF CHAPTER 13 OF THE VBCA, WHICH IS PRESENTED IN ITS ENTIRETY AS
ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
A record or beneficial shareholder of IDX Common Stock will have the right
to dissent with respect to the Second Charter Proposal and, subject to certain
conditions, will be entitled to receive a payment of the fair value of his or
her shares under the VBCA. Each beneficial owner asserting dissenters' rights
must assert such rights with respect to all shares of which such shareholder
is the beneficial owner or over which such shareholder has power to direct the
vote, and such shareholder must submit to IDX, with or prior to such
shareholder's assertion of dissenters' rights, the record shareholder's
written consent to such dissent. A record shareholder may assert dissenters'
rights as to fewer than all the shares registered in such shareholder's name
only if the shareholder dissents with respect to all shares beneficially owned
by any one person and notifies IDX in writing of the name and address of each
person on whose behalf such shareholder asserts dissenters' rights. An IDX
dissenting holder (i) must deliver to IDX, before the vote on the Second
Charter Proposal is taken, written notice of such shareholder's intent to
demand payment for such shareholder's shares if the Second Charter Proposal is
effectuated and (ii) must not vote such shareholder's shares in favor of the
Second Charter Proposal. Such notice should be delivered to IDX at its
principal executive offices, 1400 Shelburne Road, South Burlington, Vermont
05403, Attention: Secretary. A shareholder who does not satisfy both of these
requirements will not be entitled to dissenters' rights.
If the Second Charter Proposal is approved by shareholders of IDX, IDX shall
send written notice not later than ten days after the date on which the Second
Charter Amendment is filed with the Secretary of State of Vermont and becomes
effective (the "Amendment Effective Date") to each IDX dissenting holder (i)
stating where such shareholder must send his or her written payment demand,
(ii) stating where and when certificates representing IDX Common Stock must be
deposited, (iii) containing a form for demanding payment which requires that
the dissenter certify whether or not he or she acquired beneficial ownership
before the date this Joint Proxy Statement/Prospectus is mailed to
shareholders of IDX, on or about June 5, 1997 (the "Mail Date") and (iv)
setting a date by which such written payment demand must be received. Such
notice must be accompanied by a copy of Chapter 13 of the VBCA. An IDX
shareholder who does not demand payment, certify that such shareholder
acquired the shares before the Mail Date, and deposit his or her shares within
the time provided by such notice will not be entitled to dissenters' rights.
48
<PAGE>
IDX shall pay to each IDX dissenting shareholder who complies with the
procedures described above within 30 days after the Amendment Effective Date,
the amount that IDX estimates to be the fair value of such dissenter's shares,
plus accrued interest. IDX will provide, along with such payment, certain
financial information, including IDX balance sheet, income statement and
statement of changes in shareholders' equity as of the end of a fiscal year
ending not more than 16 months before the date of payment and IDX's latest
available interim financial statements, if any, a statement of how IDX
estimated the fair value of the shares, an explanation of how the accrued
interest was calculated, a statement of the dissenters' rights to demand
payment under the VBCA and certain other information; provided, however, that
IDX may elect to withhold such payment from any dissenter who was not the
beneficial owner of the shares of IDX Common Stock as to which dissenters'
rights are asserted before the Mail Date. Any dissenting shareholder who is
dissatisfied with such payment or such offer may, within 30 days of such
payment or offer for payment, notify IDX in writing of such shareholder's
estimate of fair value or his or her shares and the amount of interest due,
and demand payment thereof.
If any IDX dissenting shareholder's demand for payment is not settled within
30 days after receipt by IDX of such shareholder's payment described in the
last sentence, the VBCA requires that IDX commence a proceeding in Chittenden
County Superior Court in the state of Vermont, and petition the court to
determine the fair value of the shares and accrued interest, naming all IDX
dissenting shareholders whose demands remain unsettled as parties to the
proceeding. The Court may appoint one or more persons as appraisers to receive
evidence and recommend the fair value of the shares. The dissenters will be
entitled to the same discovery rights as parties in other civil actions. Each
dissenter made a party to the proceeding will be entitled to judgment for the
amount, if any, by which the court finds the fair value of his or her shares,
plus accrued interest, exceeds the amount paid by IDX.
Court costs and approval fees would be assessed against IDX, except that the
court may assess such costs against some or all of the dissenters to the
extent that the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts of the respective parties in amounts that the
court finds equitable: (i) against IDX, if the court finds that it did not
substantially comply with certain provisions of the VBCA concerning
dissenters' rights and (ii) against either the dissenter or IDX, if the court
finds that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith. If the court finds that
services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated, and that the fees should not be assessed
against IDX, the court may award to such counsel reasonable fees to be paid
out of the amounts awarded to dissenters who benefited from then proceedings.
PHAMIS Shareholders. Holders of PHAMIS Common Stock are entitled to
dissenters' rights under Chapter 23B.13 of the Washington Business Corporation
Act ("WBCA") with respect to the Merger Agreement.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTERS' RIGHTS UNDER THE WBCA AND IS QUALIFIED IN ITS ENTIRETY BY THE
FULL TEXT OF CHAPTER 23B.13 OF THE WBCA, WHICH IS REPRINTED IN ITS ENTIRETY AS
ANNEX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
A record or beneficial shareholder of PHAMIS Common Stock will have the
right to dissent with respect to the Merger and, subject to certain
conditions, will be entitled to receive a payment of the fair value of his or
her shares under the WBCA. Each beneficial owner asserting dissenters' rights
must assert such rights with respect to all shares of which such shareholder
is the beneficial owner or over which such shareholder has power to direct the
vote, and such shareholder must submit to PHAMIS, with or prior to such
shareholder's assertion of dissenters' rights, the record shareholder's
written consent to such dissent. A record shareholder may assert dissenters'
rights as to fewer than all the shares registered in such shareholder's name
only if the shareholder dissents with respect to all shares beneficially owned
by any one person and notifies PHAMIS in writing of the name and address of
each person on whose behalf such shareholder asserts dissenters' rights. A
PHAMIS dissenting holder (i) must deliver to PHAMIS, before the vote on the
Merger is taken, written notice of such shareholder's intent to demand payment
for such shareholder's shares if the Merger is effectuated and (ii) must
49
<PAGE>
not vote such shareholder's shares in favor of the Merger. Such notice should
be delivered to PHAMIS at its principal executive offices, 1001 Fourth Avenue,
Suite 1500, Seattle, Washington 98154, Attention: President. A shareholder who
does not satisfy both of these requirements will not be entitled to
dissenters' rights.
If the Merger is approved by shareholders of PHAMIS, PHAMIS shall send
written notice not later than ten days after the Effective Time to each PHAMIS
dissenting holder (i) stating where such shareholder must send his or her
written payment demand, (ii) stating where and when certificates representing
PHAMIS Common Stock must be deposited, (iii) containing a form for demanding
payment which requires that the dissenter certify whether or not he or she
acquired beneficial ownership before the first public announcement of the
Merger on March 25, 1997 and (iv) setting a date by which such written payment
demand must be received. Such notice must be accompanied by a copy of Chapter
23B.13 of the WBCA. A PHAMIS shareholder who does not demand payment, certify
that such shareholder acquired the shares before March 25, 1997, and deposit
his or her shares within the time provided by such notice will not be entitled
to dissenters' rights.
PHAMIS shall pay to each PHAMIS dissenting shareholder who complies with the
procedures described above, within 30 days after the Effective Time, the
amount that PHAMIS estimates to be the fair value of such dissenter's shares,
plus accrued interest. PHAMIS will provide, along with such payment, certain
financial information, including PHAMIS' balance sheet, income statement and
statement of changes in shareholders' equity for its last fiscal year and
PHAMIS' latest available interim financial statements, if any, an explanation
of how PHAMIS estimated the fair value of the shares, an explanation of how
the accrued interest was calculated and certain other information; provided,
however, that PHAMIS may elect to withhold such payment from any dissenter who
was not the beneficial owner of the shares of PHAMIS Common Stock as to which
dissenters' rights are asserted before the date of first public announcement
of the Merger, March 25, 1997. Any dissenting shareholder who is dissatisfied
with such payment or such offer may, within 30 days of such payment or offer
for payment, notify PHAMIS in writing of such shareholder's estimate of fair
value of his or her shares and the amount of interest due, and demand payment
thereof.
If any PHAMIS dissenting shareholder's demand for payment is not settled
within 30 days after receipt by PHAMIS of such shareholder's payment demand
(as described above), the WBCA requires that PHAMIS commence a proceeding in
King County Superior Court in the state of Washington, and petition the court
to determine the fair value of the shares and accrued interest, naming all
PHAMIS dissenting shareholders whose demands remain unsettled as parties to
the proceeding. The Court may appoint one or more persons as appraisers to
receive evidence and recommend the fair value of the shares. The dissenters
will be entitled to the same discovery rights as parties in other civil
actions. Each dissenter made a party to the proceeding will be entitled to
judgment for the amount, if any, by which the court finds the fair value of
his or her shares, plus accrued interest, exceeds the amount paid by PHAMIS.
Court costs and approval fees would be assessed against PHAMIS, except that
the court may assess such costs against some or all of the dissenters to the
extent that the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts of the respective parties in amounts that the
court finds equitable: (i) against PHAMIS, if the court finds that it did not
substantially comply with certain provisions of the WBCA concerning
dissenters' rights and (ii) against either the dissenter or PHAMIS, if the
court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith. If the court finds that
services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated, and that the fees should not be assessed
against PHAMIS, the court may award to such counsel reasonable fees to be paid
out of the amounts awarded to dissenters who benefited from the proceedings.
50
<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Shareholders
of IDX and PHAMIS are urged to read the Merger Agreement in its entirety for a
more complete description of the terms and conditions of the Merger.
GENERAL
The Merger Agreement provides that, following the approval of the Merger
Proposal by the shareholders of IDX, the approval and adoption of the Merger
Agreement by the shareholders of PHAMIS, and the satisfaction or waiver of the
other conditions to the Merger, Sub will be merged with and into PHAMIS, with
PHAMIS continuing as the Surviving Corporation, which shall be a wholly-owned
subsidiary of IDX.
If all conditions to the Merger are satisfied or waived, the Merger will
become effective at the time of the filing by the Surviving Corporation of
duly executed Articles of Merger with the Secretary of State of the State of
Washington (the Effective Time).
CONVERSION OF SHARES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of PHAMIS Common Stock (other than shares owned
by PHAMIS as treasury stock or by IDX, Sub or any other wholly-owned
subsidiary of IDX, all of which will be cancelled) will be converted into the
right to receive .73 shares (the "Conversion Ratio") of IDX Common Stock.
Notwithstanding the foregoing, (a) if the average closing price per share of
the IDX Common Stock on the Nasdaq National Market over the twenty consecutive
trading days ending on the trading day two trading days immediately preceding
the date of the PHAMIS Special Meeting (the "IDX Stock Value") is greater than
$34.375 per share (subject to equitable adjustment in the event of any stock
split or similar recapitalization), the Conversion Ratio shall be equal to .73
multiplied by a fraction the numerator of which shall be $34.375 and the
denominator of which shall be the IDX Stock Value; provided, however, that the
Conversion Ratio shall never be lower than .6811; and (b) if the IDX Stock
Value is less than $28.125 per share (subject to equitable adjustment in the
event of any stock split or similar recapitalization), the Conversion Ratio
shall be equal to .73 multiplied by a fraction, the numerator of which shall
be $28.125 and the denominator of which shall be the IDX Stock Value,
provided, however, that the Conversion Ratio shall never be higher than .8.
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<PAGE>
The chart below sets forth a range of possible IDX Stock Values and the
corresponding Conversion Ratios. The IDX Stock Values set forth below are for
illustrative purposes and are not intended to be an exhaustive list of
possible IDX Stock Values.
IDX STOCK VALUE AND CONVERSION RATIO
<TABLE>
<CAPTION>
IDX CONVERSION
STOCK VALUE RATIO
---------------- ----------
<S> <C> <C>
Fixed Conversion Ratio $24.00 and below 0.8000
$24.50 0.8000
$25.00 0.8000
$25.50 0.8000
-------------------------------------------------------
Floating Conversion Ratio $25.66 0.8000
$26.00 0.7896
$26.50 0.7747
$27.00 0.7604
$27.50 0.7465
$28.00 0.7332
-------------------------------------------------------
Fixed Conversion Ratio $28.13 0.7300
$28.50 0.7300
$29.00 0.7300
$29.50 0.7300
$30.00 0.7300
$30.50 0.7300
$31.00 0.7300
$31.50 0.7300
$32.00 0.7300
$32.50 0.7300
$33.00 0.7300
$33.50 0.7300
$34.00 0.7300
$34.38 0.7300
-------------------------------------------------------
Floating Conversion Ratio $34.50 0.7272
$35.00 0.7169
$35.50 0.7068
$36.00 0.6969
$36.50 0.6874
$36.84 0.6811
-------------------------------------------------------
Fixed Conversion Ratio $37.00 0.6811
$37.50 0.6811
$38.00 and above 0.6811
</TABLE>
Based upon the number of outstanding shares of IDX Common Stock and PHAMIS
Common Stock as of March 31, 1997, and assuming Conversion Ratios of .8, .73,
and .6811 the shareholders of PHAMIS immediately prior to the consummation of
the Merger will own approximately 19.0%, 17.6% and 16.7%, respectively, of the
outstanding shares of IDX Common Stock immediately following consummation of
the Merger.
If any holder of shares of PHAMIS Common Stock would be entitled to receive
a number of shares of IDX Common Stock that includes a fraction, then, in lieu
of a fractional share, such holder will be entitled to receive cash in an
amount equal to such fractional share of IDX Common Stock multiplied by the
average of the last
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<PAGE>
reported sales price of IDX Common Stock, as reported on the Nasdaq National
Market, on each of the ten trading days immediately preceding the date of the
Effective Time. Each share of Sub Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
common stock of the Surviving Corporation.
As soon as reasonably practicable after the Effective Time, State Street
Bank and Trust Company c/o Boston EquiServe Limited Partnership (the "Exchange
Agent") will mail transmittal forms and exchange instructions to each holder
of record of PHAMIS Common Stock to be used to surrender and exchange
certificates formerly evidencing shares of PHAMIS Common Stock for
certificates evidencing the shares of IDX Common Stock to which such holder
has become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing PHAMIS Common Stock will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the number of whole
shares of IDX Common Stock to which such holder is entitled and any cash which
may be payable in lieu of a fractional share of IDX Common Stock. PHAMIS
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate formerly representing PHAMIS
Common Stock, until so surrendered and exchanged, shall be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
IDX Common Stock which the holder of such certificate is entitled to receive
in the Merger and any cash payment in lieu of a fractional share of IDX Common
Stock. The holder of such unexchanged certificate will not be entitled to
receive any dividends or other distributions payable by IDX until the
certificate has been exchanged. Subject to applicable laws, following
surrender of such certificates, such dividends and distributions, together
with any cash payment in lieu of a fractional share of IDX Common Stock, will
be paid without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) due organization, valid
existence and good standing of each of IDX and PHAMIS and certain similar
corporate matters; (b) the capital structure of each of IDX and PHAMIS; (c)
the authorization, execution, delivery and enforceability of the Merger
Agreement, the consummation of the transactions contemplated by the Merger
Agreement and related matters; (d) conflicts under charters or by-laws,
required consents or approvals and violations of any instruments or law; (e)
documents and financial statements filed by each of IDX and PHAMIS with the
Commission and the accuracy of information contained therein; (f) undisclosed
liabilities; (g) the absence of certain material adverse events, changes or
events; (h) intellectual property; (i) litigation; (j) environmental matters
and hazardous materials; (k) compliance with laws; and (l) the accuracy of
information supplied by each of IDX and PHAMIS in connection with the
Registration Statement and this Joint Proxy Statement/Prospectus.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, PHAMIS has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by IDX or as contemplated by the Merger
Agreement, it and each of its respective subsidiaries will carry on its
business in the ordinary course in substantially the same manner as previously
conducted. Specifically, PHAMIS agreed not to (a) issue or sell any shares of
capital stock or securities convertible into shares of capital stock, subject
to certain exceptions, (b) declare or make any dividends or other distribution
on its shares of capital stock or effect a stock split, (c) incur or assume
any new debt or make any loans or capital investments in any other person or
entity, (d) adopt or amend any employee benefit plan or severance arrangement
or increase the compensation of its directors or officers or employees
generally, subject to certain exceptions, (e) sell, lease or otherwise dispose
of any assets or property other than in the ordinary course of business, (f)
amend its charter or bylaws, (g) change its accounting methods in any material
respect, (h) discharge any security interest or liability other than in the
ordinary course
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of business, (i) mortgage or pledge any of its property or assets, (j) sell,
assign, transfer or license any intellectual property other than in the
ordinary course of business, (k) enter into, amend, terminate, create or
default under or waive any rights under any material contract or agreement,
(l) make or commit to any material capital expenditure, (m) make any election
or give any consent under the Code or any state tax statute or (n) take any
action with the knowledge that such action would result in a breach of the
representations and warranties of PHAMIS in the Merger Agreement or in the
conditions of the Merger set forth in the Merger Agreement not being
satisfied.
Pursuant to the Merger Agreement, IDX has agreed that, during the period
from the date of the Merger Agreement until the Effective Time, except as
otherwise consented to in writing by PHAMIS or as contemplated by the Merger
Agreement, IDX will not acquire or agree to acquire any business or entity
which would materially delay or prevent the consummation of the transactions
contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, IDX and PHAMIS each agree to use its best
efforts, to the extent commercially reasonable, to take all actions and to do
all things necessary, proper or advisable to consummate the transactions
contemplated by the Merger Agreement; provided, however, that IDX will not be
required to sell or dispose of or hold separately (through a trust or
otherwise) any assets or businesses of IDX.
NO SOLICITATION
Pursuant to the Merger Agreement, PHAMIS has agreed that it will not, and it
will use its best efforts to cause each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, (i) encourage,
solicit, initiate, engage or participate in discussions or negotiations with
any person or entity (other than IDX) concerning any merger, consolidation,
sale of material assets, tender offer, recapitalization, accumulation of
shares of PHAMIS Common Stock, proxy solicitation or other business
combination involving PHAMIS or any of its subsidiaries or divisions or (ii)
provide any non-public information concerning the business, properties or
assets of PHAMIS or any of its subsidiaries to any person or entity (other
than IDX). Notwithstanding the foregoing, PHAMIS may furnish or cause to be
furnished non-public information concerning the business, properties or assets
of PHAMIS or any of its subsidiaries to any other person or entity, and may
engage in discussions or negotiations with another person or entity, if in
either case (i) such person or entity has submitted a bona fide written offer
for an acquisition of all or substantially all of PHAMIS on terms more
favorable in the aggregate, from a financial point of view, to the
shareholders of PHAMIS than the Merger prior to the PHAMIS Special Meeting ( a
"Higher Offer") and (ii) the PHAMIS Board determines in good faith, after
consultation with outside legal counsel, that the fiduciary duties of the
PHAMIS Board under applicable law so require. PHAMIS has agreed that it will
immediately notify IDX of any offer or proposal to make an offer of the type
described above.
MANAGEMENT OF IDX FOLLOWING THE MERGER
The Merger Agreement provides that the IDX Board, following the Effective
Time, be increased to nine persons and that Malcolm A. Gleser, M.D., Ph.D. and
Frank T. Sample (who are currently directors of PHAMIS) will become directors
of IDX.
The Merger Agreement further provides that, upon the closing of the Merger,
Frank T. Sample, who is currently President and Chief Executive Officer of
PHAMIS, will become an Executive Vice President of IDX. See also "The Merger--
Management and Operations of IDX Following the Merger."
RELATED MATTERS AFTER THE MERGER
At the Effective Time, Sub will be merged with and into PHAMIS, and PHAMIS
will be the Surviving Corporation and a wholly-owned subsidiary of IDX. Each
share of Sub Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation.
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The Articles of Incorporation of Sub, as in effect immediately prior to the
Effective Time, shall become the Articles of Incorporation of the Surviving
Corporation, except that the name shall be changed to the name of PHAMIS. The
Bylaws of Sub, as in effect immediately prior to the Effective Time, shall
become the Bylaws of the Surviving Corporation, except that the name shall be
changed to the name of PHAMIS.
After the Effective Time, all shares of PHAMIS Common Stock will cease to be
listed on the Nasdaq National Market, and the Surviving Corporation will
terminate the registration of PHAMIS Common Stock under the Exchange Act.
IDX agrees that after the Effective Time, it will use its best efforts to
cause the Surviving Corporation to maintain the former PHAMIS operations in
the general area of Seattle, Washington, for a period of at least one year,
although the timing and location of any possible relocation could be affected
by lease terminations, opportunities and/or unplanned business events or
occurrences.
STOCK OPTIONS
Options to purchase shares of PHAMIS Common Stock outstanding at the
Effective Time of the Merger will be effectively assumed by IDX, by which
assumption the optionee will have the right, on the same terms and conditions
as were applicable to such options to purchase shares of PHAMIS Common Stock
immediately prior to the Effective Time, to purchase that number of shares of
IDX Common Stock as the optionee would have been entitled to receive pursuant
to the Merger had such optionee exercised such PHAMIS options in full
immediately prior to the Effective Time (rounded down to the nearest whole
number). The purchase price per share of IDX Common Stock (rounded downward to
the nearest whole cent) shall be the aggregate price for shares of PHAMIS
Common Stock purchasable pursuant to PHAMIS stock options immediately prior to
the Effective Time, divided by the number of full shares of IDX Common Stock
purchasable in accordance with the foregoing (subject to adjustment in the
event of any stock split or similar recapitalization). No other terms of the
options will be modified. Pursuant to the terms of the PHAMIS Amended and
Restated 1993 Combined Incentive and Nonqualified Stock Plan (the "PHAMIS 1993
Plan") and the PHAMIS Amended and Restated 1983 Combined Nonqualified and
Incentive Stock Option Plan (the "PHAMIS 1983 Plan"), at the Effective Time of
the Merger, all unvested and unexercisable option grants will fully vest and
become exercisable immediately prior to the Merger. Thus, immediately after
the Effective Time, optionees who held fully vested options under the PHAMIS
1993 Plan and PHAMIS 1983 Plan, will hold fully vested options to purchase
shares of IDX Common Stock (determined as set forth in the Merger Agreement
and in accordance with the foregoing). Holders of stock options of PHAMIS are
urged to consult with their tax advisors concerning the tax consequences, if
any, of the acceleration of options immediately prior to the Merger, including
the possible exposure to a 20% excise tax with respect to any "excess
parachute payments" resulting from the acceleration of options or otherwise.
IDX agreed to reserve for issuance a sufficient number of shares of IDX
Common Stock for delivery upon exercise of the options to purchase shares of
PHAMIS Common Stock effectively assumed as described above. As soon as
practicable after the Effective Time, IDX shall file a registration statement
on Form S-8 with respect to shares of IDX Common Stock subject to such options
and shall use its best efforts to maintain the effectiveness of such
registration statement for so long as such options remain outstanding.
SHAREHOLDERS RIGHTS AGREEMENT
PHAMIS entered into a Rights Agreement dated as of July 29, 1996 with First
Interstate Bank of Washington, N.A., as amended (the "PHAMIS Rights Plan").
The rights ("Rights") issued pursuant to the PHAMIS Rights Plan have certain
anti-takeover effects and may cause substantial dilution to a person or group
that acquires PHAMIS on terms not approved by the PHAMIS Board. The PHAMIS
Rights Plan was amended simultaneously with the execution of the Merger
Agreement to provide the transactions contemplated by the Merger Agreement are
exempt from its provisions. Consequently, at the Effective Time of the Merger,
it is not anticipated that the Rights shall have become non-redeemable,
exercisable, distributed or triggered.
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DIRECTOR AND OFFICER INDEMNIFICATION
The Merger Agreement provides that for a period of three years after the
Effective Time, IDX will cause the Surviving Corporation to maintain (to the
extent available in the market) in effect a directors' and officers' liability
insurance policy covering those persons who are currently covered by PHAMIS'
directors' and officers' liability insurance policy or policies with respect
to actions taken in their capacities as directors and officers of PHAMIS with
coverage in an amount at least equal to PHAMIS' existing coverage; provided
that in no event shall IDX or the Surviving Corporation be required to expend
in excess of two hundred percent (200%) of the annual premium currently paid
by PHAMIS for such coverage. For a period of three years after the Effective
Time, IDX will agree that any of PHAMIS' directors and officers who
subsequently become directors or officers of IDX shall be covered by the
directors' liability insurance, if any, applicable to the then current
directors and officers of IDX.
IDX agrees that, to the extent allowed by applicable law, all rights to
indemnification (including advancement of expenses) existing on the date of
the Merger Agreement in favor of the present officers and directors of PHAMIS
prior to the Effective Time as provided in the Articles of Incorporation, as
amended, of PHAMIS (the "PHAMIS Articles") or the Bylaws, as amended, of
PHAMIS (the "PHAMIS Bylaws") and indemnification agreements shall survive the
Merger and continue in full force and effect for a period of six years
following the Effective Time.
CONDITIONS
The respective obligations of IDX and PHAMIS to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Proposal shall have been approved by the shareholders of IDX and the
Merger Agreement shall have been approved and adopted by the shareholders of
PHAMIS; (b) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated; (c) the Registration
Statement shall have become effective and shall not be the subject of a stop
order or proceedings seeking a stop order; (d) no order, injunction or
judgment, or statute, rule or regulation, shall be in effect that makes the
Merger illegal or otherwise prohibits the consummation of the Merger or
adversely affects the right of IDX to own, operate or control the assets and
operations of the Surviving Corporation after the Merger; and (f) the shares
of IDX Common Stock to be issued in the Merger shall have been approved for
quotation on the Nasdaq National Market.
In addition, the obligations of IDX and Sub to effect the Merger are subject
to the satisfaction of the following conditions: (i) PHAMIS shall have
obtained all necessary waivers, permits and approvals; (ii) the
representations and warranties of PHAMIS in the Merger Agreement shall be true
and complete as of the date of the Merger Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
closing of the transactions contemplated by the Merger Agreement (the "Closing
Date") as though made on and as of the Closing Date, except for breaches
which, individually or in the aggregate, have not had a material adverse
effect upon either PHAMIS or the consummation of the transactions contemplated
by the Merger Agreement (the "PHAMIS Representation Bringdown Condition");
(iii) PHAMIS shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Closing Date; (iv) IDX shall have received a letter at the closing of the
Merger from Ernst & Young to the effect that IDX shall be entitled to treat
the Merger as a pooling of interests under Accounting Principles Board Opinion
No. 16 (see "The Merger--Accounting Treatment"); (v) IDX shall have received
an opinion from Hale and Dorr LLP to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the meaning
of Section 368(a) of the Code (see "The Merger--Certain Federal Income Tax
Consequences"); and (vi) IDX shall have received an opinion from counsel to
PHAMIS in a form satisfactory to IDX.
In addition, the obligations of PHAMIS and Sub to effect the Merger are
subject to the satisfaction of the following conditions: (i) IDX shall have
obtained all necessary waivers, permits and approvals; (ii) the
representations and warranties of IDX in the Merger Agreement shall be true
and correct as of the date of the Merger Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as
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of the Closing Date as though made on and as of the Closing Date, except for
breaches which, individually or in the aggregate, have not had a material
adverse effect upon either IDX or the consummation of the transactions
contemplated by the Merger Agreement (the "IDX Representation Bringdown
Condition"); (iii) IDX shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (iv) PHAMIS shall have received an opinion from
Foster Pepper & Shefelman PLLC to the effect that the Merger will constitute a
reorganization for federal income tax purposes within the meaning of Section
368(a) of the Code (see "The Merger--Certain Federal Income Tax
Consequences"); (v) IDX shall have received a letter at the closing of the
Merger from Ernst & Young to the effect that IDX shall be entitled to treat
the Merger as a pooling of interests under Accounting Principles Board Opinion
No. 16 (see "The Merger--Accounting Treatment"); and (vi) PHAMIS shall have
received an opinion from the general counsel of IDX in a form satisfactory to
PHAMIS.
LIMITATIONS ON TRANSFERABILITY OF IDX COMMON STOCK
Shares of IDX Common Stock received by certain persons deemed to be
"affiliates" of PHAMIS for purposes of Rule 145 under the Securities Act will
be subject to the restrictions imposed by such rule. In accordance with Rule
145, an affiliate of PHAMIS receiving IDX Common Stock issued in the Merger
may not sell such shares except pursuant to the volume and manner of sale
limitations and other requirements specified therein or pursuant to an
effective registration statement under the Securities Act. In general,
directors, officers and substantial beneficial owners of a corporation's
securities may be deemed to be "affiliates" of a corporation. In addition,
PHAMIS affiliates are subject to certain restrictions on transfer of both
PHAMIS Common Stock and IDX Common Stock during certain periods prior to and
following the Effective Time of the Merger to allow pooling of interests
accounting treatment of the transaction.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of IDX and PHAMIS:
(a) by mutual written consent of IDX and PHAMIS;
(b) IDX may terminate the Merger Agreement by giving written notice to
PHAMIS in the event PHAMIS is in breach, and PHAMIS may terminate the
Merger Agreement by giving written notice to IDX and the Sub in the event
IDX or the Sub is in breach, of any representation, warranty or covenant
contained in the Merger Agreement which has either (i) a material adverse
effect on PHAMIS in the event of a termination by IDX or (ii) a material
adverse effect on IDX in the event of a termination by PHAMIS, and in each
case, and such breach is not remedied within ten days of delivery of
written notice thereof;
(c) either IDX or PHAMIS may terminate the Merger Agreement by giving
written notice to the other parties at any time after (i) the requisite
vote of the shareholders of PHAMIS was not obtained at the PHAMIS Special
Meeting (including any adjournment or postponement thereof) or (ii) the
requisite vote of the shareholders of IDX in favor of the Merger Proposal
was not obtained at the IDX Special Meeting (or any adjournment or
postponement thereof);
(d) IDX may terminate the Merger Agreement by giving written notice to
PHAMIS if the Closing shall not have occurred on or before the 180th day
following the date of the Merger Agreement by reason of the failure of any
condition precedent to IDX's consummation of the Merger (unless the failure
results primarily from a breach by IDX or the Sub of any representation,
warranty or covenant contained in the Merger Agreement);
(e) PHAMIS may terminate the Merger Agreement by giving written notice to
IDX and the Sub if the Closing shall not have occurred on or before the
180th day following the date of the Merger Agreement by reason of the
failure of any condition precedent to PHAMIS' consummation of the Merger
(unless the failure results primarily from a breach by PHAMIS of any
representation, warranty or covenant contained in the Merger Agreement);
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(f) either IDX or PHAMIS may terminate the Merger Agreement if (i) the
PHAMIS Board withdraws its recommendation of the Merger or modifies such
recommendation in a manner adverse to IDX as permitted by the provisions of
Section 4.3(f) of the Merger Agreement which provides that the PHAMIS Board
may modify or terminate its recommendation in the event that PHAMIS
receives a Higher Offer and the PHAMIS Board determines in good faith that
the fiduciary duties of the PHAMIS Board prohibit it from fulfilling its
obligations (see "The Merger--No Solicitation") or (ii) the PHAMIS Board
has not so withdrawn its recommendation of the Merger or modified such
recommendation in a manner adverse to IDX and the PHAMIS shareholders fail
to adopt the Merger Agreement and approve the Merger at the PHAMIS Special
Meeting (or at any adjournment thereof); or
(g) PHAMIS may terminate the Merger Agreement on or before the date of
the PHAMIS Special Meeting by giving written notice to IDX and the Sub in
the event that IDX Stock Value is less than the lower of (i) $25.663 per
share or (ii) the per share price obtained by subtracting:
(A) the product of (x) the closing price of IDX Common Stock on the
Nasdaq National Market on March 24, 1997, which was $30.75 (the "Recent
IDX Price"), (y) 1.15 and (z) the Composite Index Change (as defined
below), from
(B) the Recent IDX Price.
The Composite Index Change is the difference between one (1) and a fraction
(which may not to exceed one (1)), the denominator of which is $146.3125
(being the sum of the closing prices of the Composite Common Stocks on the
Nasdaq National Market on March 24, 1997) and the numerator of which is the
sum of the per share average closing prices per share of the Composite Common
Stocks (as defined below) on the Nasdaq National Market over the twenty
consecutive trading days ending on the trading day two trading days
immediately preceding the date of the PHAMIS Special Meeting (subject to
appropriate adjustment in the event of a stock split, stock dividend, reverse
stock split or similar event affecting any of the Composite Common Stocks
between March 25, 1997 and the date of the PHAMIS Special Meeting). The
Composite Common Stocks consist of five healthcare information system provider
stocks designated in the Merger Agreement, provided however, that no Composite
Common Stock will be included in the calculation of the Composite Index Change
if, on or after March 25, 1997 and prior to the date of the PHAMIS Special
Meeting, the issuer of such Composite Common Stock is the subject of any
publicly announced acquisition proposal by a third party or such issuer
publicly announces a proposed acquisition of a third party, in one or more
transactions having a value in excess of 25% of such issuer's market
capitalization on March 25, 1997.
In the event of any termination of the Merger Agreement by either IDX or
PHAMIS as provided above, the Merger Agreement will become void and there will
be no liability or obligation (with limited exceptions) on the part of IDX,
PHAMIS, Sub or their respective officers, directors, shareholders or
affiliates, except as provided below with respect to expense reimbursements
and termination fees.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring
such expenses.
PHAMIS shall pay IDX up to $1,500,000 as reimbursement for expenses of IDX
actually incurred relating to the transactions contemplated by the Merger
Agreement prior to termination (including fees and expenses of IDX's counsel,
accountants and financial advisors), upon the termination of the Merger
Agreement by IDX or PHAMIS under the circumstances described in paragraph
(f)(i) or (ii) above.
PHAMIS shall pay IDX a termination fee of $6,000,000 in addition to the IDX
expenses referred to above in the event of the termination of the Merger
Agreement by IDX or PHAMIS under the circumstances described in paragraph
(f)(i) above.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of IDX and PHAMIS, but after
approval by the shareholders of IDX or PHAMIS of the Merger, no amendment
shall be made which by law requires further approval by such shareholders,
without such further approval. IDX and PHAMIS, by action taken or authorized
by their respective Boards of Directors, may extend the time for performance
of the obligations or other acts of the other parties to the Merger Agreement,
may waive inaccuracies in the representations or warranties contained in the
Merger Agreement and may waive compliance with any agreements or conditions
contained in the Merger Agreement.
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IDX SYSTEMS CORPORATION
BUSINESS
The information in this section pertains to the business of IDX as it is
currently conducted without giving effect to the Merger.
Overview
IDX is a leading provider of healthcare information systems to physician
groups in the United States. IDX's integrated patient registration, billing,
scheduling, managed care and other software products enable healthcare
organizations to redesign patient care and other workflow processes in order
to improve efficiency and quality. IDX's systems meet the multi-site, multi-
function needs of ambulatory providers such as physician groups and hospital
outpatient departments, as well as the multi-entity needs of integrated
delivery networks ("IDNs"), which are composed of physician groups, hospitals
and managed care organizations. As of March 31, 1997, IDX's systems were used
by, or were under contract to be used by, more than 76,000 physicians and were
installed at approximately 1,000 client sites, including approximately 190
large physician group practices, those generally with more than 75 physicians,
approximately 675 physician practices which have 75 or less physicians, over
110 hospitals and a growing number of IDNs.
IDX was incorporated in Vermont on June 2, 1969. IDX's executive offices are
located at 1400 Shelburne Road, South Burlington, Vermont 05403 and its
telephone number is (802) 862-1022.
Industry Background
Healthcare costs in the United States have risen dramatically over the past
two decades relative to the overall rate of inflation. Broad pressures to
reduce costs without sacrificing the quality of care have caused significant
changes in the healthcare industry. While reimbursement for healthcare has
historically been based on a fee-for-service model of payment, managed care
organizations and other payors are increasingly utilizing alternative
reimbursement models, including fixed fee and capitation, that shift the
financial risk of delivering healthcare from payors to both physicians and
institutional providers. Pressures to control costs have also contributed to
the movement of care from more expensive inpatient settings, such as
hospitals, to ambulatory settings. Today, ambulatory care providers,
particularly physician groups, deliver the majority of healthcare services,
bear an increasing share of the financial risk and control a substantial
portion of total healthcare resources.
In order to compete in the changing healthcare environment, individual
physicians, physician groups and other ambulatory care providers are
increasingly joining and affiliating with other physicians, managed care
organizations, hospitals and other enterprises to form larger healthcare
organizations such as IDNs. These organizations are designed to manage the
continuum of healthcare services for population groups across both inpatient
and ambulatory settings, while achieving improved quality and reduced costs
for patients and members. In the emerging managed care environment, IDNs are
increasingly entering into contracts which often define the terms under which
care is administered and may fix the amount of payment for each covered life.
To operate effectively, IDNs must organize their businesses to efficiently
manage patient care and other workflow processes which may extend across
multiple care locations and business entities.
To compete under the constraints of managed care, while maintaining the
quality of care, healthcare organizations have placed increasing demands on
their information systems. Initially, these organizations required financially
oriented systems which focused on reducing costs by automating certain
financial and administrative functions. As it became necessary to manage
patient flow processes and not just individual tasks, the need arose to
exchange information stored in disparate systems through computer-to-computer
interfaces. However, due to the limitations of such interfaces and the
complexities of these larger organizations, IDNs and physician groups began to
require fully-integrated systems that seamlessly integrate their enterprise.
Such information systems must enable the implementation of enterprise-wide
patient flow processes that create a longitudinal record of administrative,
financial and clinical information from multiple entities, while focusing on
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the physician as the primary care giver. In addition, large healthcare
organizations increasingly require information systems that can deliver high-
performance computing in environments with thousands of concurrent computer
users.
Existing hospital-based systems, which are designed primarily for
administrators in single site locations, do not fully meet these needs, nor do
systems designed for individual physicians and small group practices, because
they can neither accommodate high-volume computing environments nor operate
across multiple locations and entities. IDX believes as the healthcare
industry continues to evolve, physician groups and IDNs will also increasingly
require systems that compile structured clinical information from multiple
sources and enable measurement of outcomes and management of clinical
processes. Such systems must be integrated with financial and administrative
information systems in order to maintain patient flow, while achieving the
goals of reducing costs and improving quality of care.
As a primary controller of resources, physician group practices are expected
to be early adopters of this new technology. IDX believes that physician-based
systems which have demonstrated the ability to meet the growing requirements
of a variety of large stand-alone and integrated healthcare organizations are
best positioned to succeed in this emerging environment. IDX also believes
that physicians, given their roles as primary care providers, will become
increasingly important in the selection and design of healthcare information
systems.
The healthcare information systems market is highly fragmented, with over
1,300 vendors. It is estimated that the market, worth an estimated $8.7
billion in 1995 could grow by as much as 15% per year and could exceed $15.0
billion by the year 2000. Vendors who will survive in this competitive and
evolving environment are those that have the proven ability and the resources
to respond to the needs of the marketplace. Healthcare organizations will be
transitioning to new platforms and newer technologies in a migration over time
toward the implementation of enterprise-wide, patient-centered computing
systems leading to the computerized medical record. These organizations cannot
afford significant downtime or re-education, or the risk of choosing a system
which has not proven its ability to handle high volume transaction processing
with continuous dependability. IDX believes that successful vendors in this
market will have a large existing client base and offer the high quality,
fully integrated products and value-added services needed to expand and
support clients throughout this evolution process.
Strategy
IDX seeks to maximize value for its clients by delivering information
systems that are designed to improve the quality and reduce the cost of
healthcare delivery. IDX's strategy is to build on its success as a leading
ambulatory systems vendor and its experience with emerging IDNs to become a
leading provider of complete information systems solutions for healthcare
organizations.
Key elements of IDX's strategy are to:
INCREASE PENETRATION OF IDNS THROUGH LARGE PHYSICIAN GROUP
RELATIONSHIPS. IDX believes that its existing client base of over 190 large
group practices comprised of over 62,000 physicians (as of March 31, 1997)
will play a significant role in the formation and management of IDNs. As a
result of these relationships and the ambulatory orientation and multi-site
capability of its products, IDX anticipates that significant opportunities
will exist to sell its products, particularly its enterprise products, to
IDNs and their component organizations.
CAPITALIZE ON GROWTH OF GROUP PRACTICE MARKET. The number of physicians
practicing medicine in a group setting has increased significantly in
recent years. IDX believes the number and size of such groups will continue
to grow as economic pressures drive physicians to affiliate with or form
new larger group practices. IDX believes its position as a leading provider
of integrated information solutions to physician groups, particularly those
with 75 or more physicians, and its proven ability to meet their needs will
allow IDX to capitalize on the continued growth of the group practice
market.
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CROSS-SELL PRODUCTS AND SERVICES INTO EXISTING CLIENT BASE. IDX believes
significant opportunities exist to cross-sell current products and
professional services as well as products under development to its existing
client base at March 31, 1997 of approximately 850 physician practices,
consisting of approximately 76,000 physicians. In addition to selling to
clients products that enhance currently installed ambulatory applications,
IDX actively markets the IDXtendR(TM) Clinical Management System, and
OutReach(TM). OutReach is a web-based companion module to the ambulatory
and care management systems. It is targeted at current IDX customers with
Intranet or extranet connections as well as customers who want to provide
current IDX products to new users at affiliated sites. IDX actively markets
professional and technical services to clients as they form IDNs.
DEVELOP PRODUCT SUITES THAT AUTOMATE PROCESSES AND ELIMINATE DEPARTMENTAL
BOUNDARIES. The workflow automation tools are packaged to meet specific
site requirements of group practices, MSOs, health plans, hospitals, and
IDNs. The packaging is called IDXtendR @ the Site Series(TM) and includes
IDXtendR @ the Group Practice (Series 2000); IDXtendR @ the MSO (Series
3000); IDXtendR @ the Health Plan (Series 4000); IDXtendR @ the Hospital
(Series 5000); and IDXtendR @ the IDN (Series 6000). The @ the Site Series
includes core modules, optional modules, and complementary products. For
both existing and new clients, these product packages enable an
organization to purchase a pre-configured set of functions with a defined
installation methodology.
EXPAND PROFESSIONAL AND TECHNICAL SERVICE OFFERINGS. IDX possesses the
healthcare information systems expertise desired by the growing number of
larger and more sophisticated healthcare organizations as they reengineer
healthcare delivery processes and implement information systems to support
these processes. In January 1997, IDX announced the formation of The
Huntington Group, a unit of IDX devoted to providing information technology
solutions to healthcare organizations. The Huntington Group will provide
process redesign, organizational change management, outsourcing, and
systems integration services to IDX customers. IDX also provides additional
professional and technical services such as information systems planning,
contract programming, and project management to assist these organizations.
In the first quarter of 1997, IDX formed alliances with US Servis, Inc. for
business office outsourcing, and Daou Systems, Inc. for network design and
implementation, expand IDX's current professional and technical service
offerings. IDX markets professional and technical services primarily to
organizations that currently use IDX's information systems products.
MIGRATE CLIENTS TO PROVEN TECHNOLOGIES. In order to reduce the risks
associated with changing technologies, IDX adapts its products to technical
platforms only when these platforms are proven to perform reliably in high
volume environments. IDX's graphical user interface facilitates the
transition of clients to new technologies by creating a consistent look and
feel for the end user despite changes in the underlying business logic and
data base layers. IDX anticipates that it will eventually migrate its
clients to a three-tier client/server architecture utilizing the C++
programming language, relational data bases and object oriented technology.
The addition of the web-based OutReach software and thin client deployment
strategy provides a significant cost-saving alternative for organizations
interested in connecting remote users. IDX intends to continue to
transition its clients gradually to newer technologies in order to protect
their systems investments and minimize operational disruption.
ESTABLISH PARTNERSHIPS TO SUPPLEMENT IDX OFFERINGS. IDX has been
enhancing its product offerings through strategic alliances with vendors
developing complementary products. The complementary products and services
currently offered include integrated credit card transaction processing;
point-of-service access to eligibility, referral, and enrollment data;
integrated patient communication systems and billing office outsourcing. In
addition to increasing the range of products and services available to IDX
customers, these alliances provide recurring revenue opportunities for IDX.
Products
IDX's integrated software products enable the redesign of patient care and
other work flow processes by providing computer-based tools to capture, access
and manage information within healthcare organizations and throughout IDNs. In
January 1997, IDX introduced IDXtendR, a relational, scalable product line
that leverages
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advanced client server architecture and web-based technology to facilitate the
flow of patient data in healthcare settings. IDXtendR is built on IDX's three
proven product suites--the Ambulatory Suite focusing on the needs of physician
offices and MSOs; the Care Management Suite, an object-oriented system for
physician-centered care management and clinical documentation; and the
Enterprise Suite for connecting hospitals and other provider sites throughout
the delivery network. IDXtendR adds relational reporting and analysis
capabilities as well as OutReach that provides web-browser access to patient
data residing in an IDX database. The IDXtendR product line is packaged as the
IDXtendR @ the Site Series to meet the specific site requirements of group
practices, MSOs, health plans, hospitals, and IDNs. The following sets forth a
description of the IDXtendR product line.
IDX PRODUCTS
(AS OF MARCH 31, 1997)
Ambulatory Products
IDXTENDR @ THE GROUP PRACTICE automates the patient encounter for group
practices of all sizes. IDXTENDR @ THE MSO supports multiple business entities
and multiple reimbursement arrangements for management service organizations.
Key functions of these products are described in the table below:
PRODUCT DESCRIPTION
Patient Registration (REG) Tracks patient registration and insurance
information and facilitates the printing of
form letters and reports
Billing and Accounts Integrates billing and receivables management
Receivable (BAR) with comprehensive analysis and reporting for
single and multiple physician group practice
entities
Patient Scheduling (SCHED) Schedules patients, providers and resources in
an ambulatory setting and facilities reporting
of statistical data
Managed Care Applications Automates capitation/risk management, claims
(MCA) adjudication, enrollment, premium billing,
referral tracking and utilization review
Group Practice Management A turnkey integrated financial and
System (GPMS) administrative system for midsize physician
practices, management services organizations
and physician hospital organizations
IDXTENDR @ THE HEALTH PLAN provides a comprehensive managed care system for
a wide spectrum of managed care organizations and provider groups that are
managing risk. Its key functions are described in the table below:
PRODUCT DESCRIPTION
Enrollment Maintains member registration, demographic, and
financial data and automatically applies
benefits as defined in the member's plan
Utilization Management Provides a comprehensive referrals system with
authorization tracking, concurrent review, pre-
certification, length-of-stay assignment, and
provider selection
Case Management Provides case identification, care plan
tracking, cost simulation, form letters, and
linking of service records
Claims Adjudicates and processes claims and
statistical encounters
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PRODUCT DESCRIPTION
Premium Billing Provides billing for employer groups and self-
pay members, and manages receivables
Capitation and Risk Provides flexible risk management (fund
Management accounting), tracking, and reporting
Customer Service Provides issue tracking, responsibility
assignment, workflow management with automatic
ticklers, and letter production
Enterprise Products
IDXTENDR @ THE HOSPITAL automates the acute care episode with ADT, visit
management and patient accounting modules. Its key functions are described in
the table below:
PRODUCT DESCRIPTION
Enrollment Maintains member registration, demographic, and
financial data and automatically applies
benefits as defined in the member's plan
Admissions, Discharge, Reports information related to patient
Transfer (ADT) and Visit registration, admission (both inpatient and
Management outpatient), bed management and insurance
management
Hospital Patient Accounting Patient billing, collection and insurance
(HPA) management system that tracks a patient from
initial registration through resolution of
payment
IDXTENDR @ THE IDN extends the functions of IDX's group practice, MSO,
health plan and hospital products to the enterprise. Its key functions are
described in the table below:
PRODUCT DESCRIPTION
Enterprise-Wide Patient An enterprise-wide repository and master
Management System (EPMS) patient index to track patient and member
registration information and visit histories
across multiple locations
Enterprise-Wide Scheduling Under development; designed to provide
System (EWS)* enterprise-wide patient, provider and resource
scheduling
Enterprise-Wide Managed Care Under development; designed to manage
(EMC)* enrollment, eligibility and capitated and
packaged pricing contracts across the
enterprise
Enterprise-Wide Financial Under development; designed to provide
Management (EFM)* financial inquiry, copay collection and single-
statement billing for the entire delivery
network
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Care Management Products
IDXTENDR CLINICAL MANAGEMENT SYSTEM (CMS) provides access to clinical data
and medical knowledge at the point of care and automates routine physician
tasks principally for large physician groups. The CMS product may be purchased
to work in conjunction with the IDXtendR @ the Group Practice, IDXtendR @ the
MSO, and IDXtendR @ the Health Plan. Key functions of the Care Management
Products are described in the table below:
PRODUCT DESCRIPTION
Clinical Management System Empowers the clinician to manage the care
(CMS) process and document the clinical encounter by
providing a patient record, access to a
structured medical knowledge database that
supports protocols and outcomes management.
The radiology and imaging systems products include IDXRAD, IDXVIEW and the
ENTERPRISE MEDICAL IMAGE MANAGEMENT SYSTEM (EMIMS). These products automate
the clinical and administrative functions of the radiology department and
facilitate the distribution of images throughout the enterprise. Key functions
of IDX's radiology and imaging systems products are described in the table
below:
PRODUCT DESCRIPTION
IDXrad Maintains a radiology department's clinical,
demographic, administrative, billing,
scheduling and film information
IDXview Provides image and information tools by
displaying images and corresponding reports on
one workstation
EMIMS Extends the availability of images and
diagnostic reports from departmental systems to
points throughout the enterprise
Extension Architecture
THE EXTENSION ARCHITECTURE provides the technical framework for designing
and implementing IDX Systems. Its key functions are described in the table
below:
PRODUCT DESCRIPTION
Data Base Management System Data dictionary, screen generator and SQL
(DBMS) report writer for most IDX applications
Electronic Data Interchange Automates the computer-to-computer exchange of
(EDI) claims submittals and remittances
Data Warehouse Designed to provide a data repository,
enterprise-wide information analysis,
utilization and HEDIS reporting using a
relational data base
Relate R* Under development; a multi-dimensional tool
OLAP decision support tool to support
relational report writing and data analysis
Health Data Model Provides a comprehensive object model of the
entire healthcare industry designed around
organizations and people and the roles they
play
- --------
* Denotes product under development and expected to be released in 1997.
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Ambulatory Products
IDXTENDR @ THE GROUP PRACTICE AND IDXTENDR @ THE MSO provide back office
automation of business operations as well as "front desk" and "checkout"
functionality that facilitates the patient flow process in an efficient and
cost effective manner. The tight integration of products such as Billing and
Accounts Receivable, Patient Scheduling and Managed Care Applications allows
physician group practices, health maintenance organizations ("HMOs"),
management services organizations ("MSOs") and physician-hospital
organizations ("PHOs") to redesign patient care and other workflow processes
by empowering single users to perform multiple functions. For example, a
patient "checking out" of the physician's office could be rescheduled for a
future visit, authorized for a referral, informed of a required co-payment
and/or be admitted to the hospital all at one sitting by a single user of an
IDX system. Since products within IDX's software suites are tailored to meet
client specifications, pricing is addressed on a contract-by-contract basis.
The factors which influence pricing are the number and type of products
ordered and the number of users of the software. As of March 31, 1997, base
software license fees (excluding installation and user add-ons) for individual
products within the Ambulatory suite ranged from approximately $100,000 to
$300,000. For customers that purchase the entire Ambulatory suite of products,
license fees ranged, as of March 31, 1996, from approximately $450,000 to
$1,800,000.
IDXTENDR @ THE GROUP PRACTICE--MODEL 2010 (formerly known as Group Practice
Management System) is a medical office management system installed in over 650
physician offices as of March 31, 1997 that enables midsize group practices,
MSOs and PHOs to manage billing, accounts receivable, report generation,
appointment scheduling, chart tracking and clinical functions such as storage
and retrieval of physician transcription, referral information and basic
clinical data. The base software license fees can vary significantly based
primarily on number of users or physicians, and given the applicability of the
product to physician groups of many sizes, software license fees ranged from
approximately $50,000 to $1,425,000 as of March 31, 1997.
Care Management Products
The IDXTENDR CLINICAL MANAGEMENT SYSTEM, targeted at midsize and large
physician groups and IDNs, which is designed to automate the patient record
and document the clinical encounter, thereby enabling IDX's clients to support
clinical processes involved in the delivery, measurement and improvement of
care, including practice protocols, rules and reminders, and medical records
imaging. Since CMS is designed to be used as part of the patient care process,
it is expected to save physician time and improve the quality of patient care.
CMS is designed to provide a computerized patient record with physician notes,
medical history, problem lists and other essential information to create a
lifetime record of patient information within an IDN. In addition, CMS creates
a research data base to provide treatment data to healthcare organizations
that will assist them in negotiating managed care contracts and improving
outcomes. CMS integrates with IDX's and other vendor's systems so that access
to patient demographics, scheduling and managed care information become an
intrinsic part of the physician's clinical tools. The base software license
fees for CMS ranged from approximately $150,000 to $1,250,000 as of March 31,
1997.
In 1996, IDX introduced and implemented the web-based OUTREACH software.
Using a web-browser with an Internet or Intranet connection to the OutReach
server, patient data residing in IDXtendR is accessible via the web. This is
an optional module to the IDXtendR @ the Site Series and the IDXtendR Clinical
Management System and is targeted to IDX customer sites that want to extend
IDX functions to affiliated provider sites. OutReach is available to IDX sites
with Billing, Scheduling, Managed Care or the IDXtendR Clinical Management
System. As of March 31, 1997, the base software fees for OutReach ranged from
approximately $135,000 to $400,000. Pricing for OutReach as of March 31, 1997
was approximately $135,000 to $400,000 for 0 to 500 users.
IDXRAD maintains and manages a radiology department's clinical, demographic,
administrative, billing, scheduling and film management information. IDXrad
locates films, processes diagnostic reports, and generates patient
correspondence for follow-up purposes. IDXrad automates departmental
processes, including
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appointment and resource scheduling, charge capture, patient tracking and
equipment maintenance. The base software license fees for IDXrad ranged from
approximately $100,000 to $400,000 as of March 31, 1997.
IDXVIEW is a medical imaging system codeveloped by IDX and Brigham and
Women's Hospital in Boston, Massachusetts. The IDXview solution provides
multiple-site, simultaneous access to images for consultation and review,
virtually eliminating lost films and delayed reporting to referring or
consulting physicians. IDXview is distinguished in the marketplace by its
integration with IDXrad, a comprehensive radiology information system. The
integration automatically links digital images to patient demographics as well
as exam histories, previous studies, and diagnostic reporting. IDX has
received 510(k) clearance from the Food and Drug Administration that allows
IDX to market and sell the product as a medical device. The base software
license fees for IDXview ranged from approximately $150,000 to $500,000 as of
March 31, 1997.
The ENTERPRISE MEDICAL IMAGE MANAGEMENT SYSTEM (EMIMS) extends the
availability of images and diagnostic reports from departmental systems to
points throughout the enterprise. EMIMS combines the capabilities of IDXview
and IDXrad with EPMS, IDX's master patient index to aggregate studies across
the delivery system. Core functions of EMIMS are available today with IDXview
and the Bi-Directional Modality Link that automatically downloads demographic
data and exam information to modalities such as CT, ultrasound, and MRI
scanners and retains study status information to IDXrad. Pricing for EMIMS
varies according to the configuration of IDX products and modalities that are
packaged together for the site.
Enterprise Products
IDX's ADMISSIONS, DISCHARGE, TRANSFER AND VISIT MANAGEMENT product provides
the ability to manage patient and bed utilization from the time of hospital
admission until discharge. It provides census reports and benefit coverage
management and can be seamlessly integrated with IDX's Enterprise-Wide Patient
Management System so that a record of each admission is available throughout
the IDN. HOSPITAL PATIENT ACCOUNTING provides inpatient billing, claims
submissions, accounts receivables, insurance management, and statistical and
revenue reporting. When HPA is integrated with IDX's Billing and Accounts
Receivable product within an IDN, it provides enterprise-wide patient
accounting, thereby simplifying the billing process for patients and improving
collectability for the IDN. IDX generally markets ADT and HPA to hospitals
which are part of IDNs that use IDX's group practice systems so that
enterprise-wide integration can be achieved. As of March 31, 1997, the base
software license fee for ADT ranged from approximately $100,000 to $150,000
and for HPA from approximately $350,000 to $500,000.
IDX's ENTERPRISE-WIDE PATIENT MANAGEMENT SYSTEM supports the operations of
IDNs by providing a universal repository for patient and member registration
information and visit histories. By collecting data from other IDX products
and from other vendors' information systems into a master patient index, EPMS
creates a common patient data base, regardless of where patients and members
enter an IDN or whether or not there are multiple record numbers. As of March
31, 1997, the base software license fee for EPMS ranged from approximately
$140,000 to $800,000.
IDX is in the process of developing ENTERPRISE-WIDE SCHEDULING. This system
is an extension of IDX's ambulatory-based patient scheduling which will enable
scheduling of patient appointments and resources throughout an IDN by entering
into dialogues with diverse scheduling systems through Health Level Seven
("HL7") standard messaging and by creating a central data base for all patient
appointments. As of March 31, 1997, the base software license fee for EWS
ranged from approximately $250,000 to $800,000.
IDX is testing its ENTERPRISE-WIDE MANAGED CARE (EMC) and ENTERPRISE-WIDE
FINANCIAL MANAGEMENT SYSTEM (EFM). EMC is designed to enable IDNs to manage
capitated contracts as well as packaged pricing contracts throughout the IDN.
EFM provides financial inquiry, copay collection, and single statement billing
for the entire IDN. Pricing guidelines for EMC and EFM have not yet been
determined.
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Extension Architecture
IDX's DATA BASE MANAGEMENT SYSTEM is generally integrated into certain of
IDX's other products and contains data dictionary, screen generator and a
structured query language ("SQL") report writer for IDX applications. As of
March 31, 1997, the base software license fees for DBMS were approximately
$1,000 per user.
IDX's ELECTRONIC DATA INTERCHANGE product enables the healthcare
organization to electronically exchange data in standard formats, rather than
using traditional paper methods, thus reducing costs of paper, tapes and data
entry. Specifically, EDI automates the computer-to-computer exchange of data
such as claims submittals and remittances, in standard ANSI X12 format between
healthcare organizations and trading partners. IDX is developing the
capability to automate eligibility checks, referrals and other transactions in
standard ANSI X12 format. As of March 31, 1997, the base software license fee
for EDI was approximately $50,000.
In 1996, IDX introduced a DATA WAREHOUSE product designed to provide a data
repository, enterprise-wide information analysis, utilization reporting and
reporting pursuant to the Health Employer Data Information Set ("HEDIS")
guidelines. The Data Warehouse is based on a relational data base technology
using Microsoft Corporation's ("Microsoft") SQL Server. As of March 31, 1997,
the base software license fee for Data Warehouse ranged from $100,000 to
$150,000.
In 1997, IDX expects to introduce RELATER(TM) that provides views of IDX
transactional systems data. This module is designed to provide relational
reporting and analysis using Microsoft SQL Server and an online analytical
processing (OLAP) tool for multi-dimensional analysis in a graphical user
environment.
IDX is enhancing its Data Warehouse product to incorporate enterprise data
model technology acquired in March 1997 from Medaphis Healthcare Information
Technology Company, a wholly-owned subsidiary of Medaphis Corporation. IDX's
health data model technology ("HDM") expands IDX's existing enterprise
warehousing and enhances decision support capabilities to IDX's product
offerings. HDM serves as the blueprint for developing enterprise healthcare
data warehouses. Based on a comprehensive object model of the health delivery
system, HDM consists of more than 1,200 tables and 11,000 data elements. HDM
is designed to support transaction level and summary level data using data
marts.
Services
IDX maintains a client services organization to install, support and provide
professional, technical and other services to its client base. IDX possesses
the healthcare information systems expertise desired by the growing number of
larger and more sophisticated healthcare enterprises as they reengineer
healthcare delivery processes and implement information systems to support
these processes. This group is experienced at installing and supporting
systems in very large organizations with thousands of computer users across
multiple departments.
Installation Services. IDX's installation representatives work with clients
to tailor and optimize IDX products to meet specific business needs. Services
include project management, train-the-trainer programs, best practices
comparison to other IDX clients and systems conversion and implementation
assistance.
Maintenance Services. IDX provides ongoing software support to all of its
large clients and substantially all of its other clients under contracts that
are typically for a term of one year. These contracts generally are renewable
automatically unless terminated at the option of either the client or IDX.
Software maintenance services consist of providing the client with certain new
software releases and general support, including error corrections and
telephone consultation. For all products, maintenance services are available
either on a 24-hour a day basis or during normal business hours.
Professional and Technical Services. IDX offers professional and technical
services to assist clients in building an information infrastructure to
operate in a complex and changing healthcare environment. The work performed
by IDX includes information systems planning, process redesign, project
management, contract
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programming, network design, education and training. These value-added
services, combined with IDX's systems expertise, enable IDX to support its
clients' efforts to develop consistent enterprise-wide systems and processes.
Through these services, IDX believes it strengthens its relationship with
clients, builds a knowledge base of best practices in use of IDX's systems and
gains information regarding future client needs. IDX has expanded the services
provided by this group with the formation of The Huntington Group, a
professional services organization devoted to providing information technology
solutions to those organizations that use IDX's information systems products.
Technical Platforms and Hardware
IDX designs its software to operate on a variety of technical platforms.
IDX's product suites operate on UNIX-compatible computers from Digital
Equipment Corporation ("DEC"), IBM and Hewlett Packard Company ("HP") as well
as on DEC's VMS platform. GPMS operates on International Business Machines
Corporation's ("IBM") RS/6000 computers. IDXrad operates on computers from DEC
and was released to operate on all UNIX- compatible computers in September
1996. All client software in client/server configurations operate on personal
computers using Microsoft's Windows operating system.
IDX utilizes the M computer programming language in the development of
certain of its products. All new significant functionality written in M are
expected to be released with a graphical user interface based on Microsoft's
Windows 95 and Visual Basic V4.0. IDX is migrating its product development
efforts toward object orientation, written using the C++ programming language,
and relational data base technology using Sybase's or Microsoft's SQL Server.
By utilizing three-tier client/server architecture, the business logic can be
constructed using a combination of M and C++ programming languages and
accessed from a single graphical user interface. This architecture is expected
to enable IDX's clients to incrementally migrate from one technology to
another. IDX's graphical user interface facilitates the transition by clients
to new technologies by creating a consistent look and feel for the end user as
the underlying business logic and database layers change.
Object oriented technology is a software design methodology that utilizes
concepts and actions by describing their attributes in a programming language.
Once a concept or action has been described, that description and its
accompanying software code can be reused broadly as the building blocks for
different applications. This software design approach leads to faster
development processes and allows IDX to "plug" components together in tailored
configurations providing greater congruence with client needs and
expectations. IDX believes its current strategy of making solutions available
on both character cell and PC platforms best supports the majority of clients
who cannot yet afford to outfit large organizations with new hardware such as
personal computers and networks.
As a service to its clients, IDX sells third-party computers, terminals,
printers, storage devices and other peripheral devices. IDX also provides
value-added services to configure client systems. Hardware is purchased from
DEC, IBM and HP under renewable one-year reseller agreements. IDX does not
maintain an inventory of hardware, but relies on suppliers' inventories to
meet client delivery requirements. IDX believes that its relationships with
vendors are good.
Sales and Marketing
IDX sells its products exclusively through its direct sales force. The
majority of IDX's sales calls are in response to requests for proposals. IDX
generates these requests and other sales primarily through referrals from
clients and consultants. IDX also seeks to enhance market recognition through
participation in industry seminars and trade shows, direct mail campaigns,
telemarketing and advertisements in trade journals.
IDX's direct sales force is organized into two divisions: Enterprise Systems
("ES"), which sells the ambulatory, care management, and enterprise products
and the Radiology Information Systems Division ("RISD"), which sells IDXrad
and ES products typically have a three to 18 month sales cycle for new client
sales. RISD products typically have six to 18 month sales cycles for new
client sales.
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No single client accounted for more than 5% of IDX's annual revenues in
fiscal 1994, 1995 or 1996.
At March 31, 1997, IDX had total backlog of $127.0 million as compared to
$100.4 million at March 31, 1996.
Product Development
To ensure that its products continue to meet the evolving needs of the
healthcare industry, IDX allocates a significant portion of annual revenues to
research and development. IDX's research and development expenses for the
fiscal years 1994, 1995 and 1996 were $17.6 million, $19.6 million and $24.0
million, respectively.
IDX's product development activities include enhancement of existing
products and the development of new products, as well as the implementation of
new technologies. IDX is devoting significant resources to enhancing its
Managed Care Applications product, developing its Clinical Management System
product and expanding its Enterprise suite product line. IDX is also currently
migrating its products to client/server platforms with graphical user
interfaces and relational data bases. IDX's development process is focused on
building components for its integrated product suites rather than on stand-
alone products. These components can be integrated and configured to address
specific client needs. IDX utilizes client focus groups, user groups and
industry experts, including physicians, nurses, healthcare administrators and
consultants, for advice in developing and enhancing its products.
Competition
The market for healthcare information systems is highly competitive. IDX
believes that the principal competitive factors in this market are the ability
to effectively market, install, support and integrate systems, the resources
to support ongoing research and development, financial stability and price.
IDX believes it competes favorably with respect to these factors. Competitors
vary in size, and in the scope and breadth of the products and services
offered. IDX experiences competition from companies with strengths in various
segments of the healthcare information systems market, such as physician group
practice systems, hospital information systems, clinical information systems,
ancillary departmental systems and systems integration. In addition, other
entities not currently offering products and services similar to those offered
by IDX, including claims processing organizations, hospitals, third-party
administrators, insurers, healthcare organizations and others, may enter
certain markets in which IDX competes.
While IDX believes no vendor dominates the market for healthcare information
systems, certain of IDX's competitors have greater financial, development,
technical, marketing and sales resources than IDX and have a greater
penetration into segments of the market in which IDX competes. In addition, as
the markets for IDX's products and services develop, additional competitors
may enter those markets and competition may intensify.
Proprietary Rights and Licenses
IDX depends upon a combination of trade secret, copyright and trademark
laws, license agreements, nondisclosure and other contractual provisions and
technical measures to protect its proprietary rights in its products. IDX
distributes its products under software license agreements which grant clients
a nonexclusive, nontransferable license to use IDX's products and contain
terms and conditions prohibiting the unauthorized reproduction or transfer of
IDX's products. In addition, IDX attempts to protect its trade secrets and
other proprietary information through agreements with employees and
consultants. All current employees of IDX have signed a nondisclosure
agreement, and all current employees involved in product development have
signed an assignment of inventions agreement. There can be no assurance that
the legal protections afforded to IDX or the precautions taken by IDX will be
adequate to prevent misappropriation of IDX's technology. In addition, these
protections do not prevent independent third-party development of functionally
equivalent or superior technologies, products or services. Any infringement or
misappropriation of IDX's proprietary software would disadvantage IDX in its
efforts to retain and attract new clients in a highly competitive market and
could cause
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IDX to lose revenues or incur substantial litigation expense. IDX believes
that, due to the rapid pace of innovation within the software industry,
factors such as the technological and creative skills of its personnel and
ongoing reliable product maintenance and support are more important in
establishing and maintaining a leadership position within the industry than
are the various legal protections afforded to its technology.
Although IDX believes that its products, trademarks and other proprietary
rights do not infringe upon the proprietary rights of third parties, there can
be no assurance that third parties will not assert infringement claims against
IDX in the future and that such claims will not have a material adverse effect
on IDX's results of operations, financial condition or business.
Government Regulation
The U.S. Food and Drug Administration (the "FDA") has promulgated a draft
policy for the regulation of certain computer software products as medical
devices under the 1976 Medical Device Amendments to the Federal Food, Drug and
Cosmetic Act (the "FDC Act") and has indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical
device under the policy, the manufacturers of such products could be required,
depending on the product, to (i) register and list their products with FDA,
(ii) notify the FDA and demonstrate substantial equivalence to other products
on the market before marketing such products, or (iii) obtain FDA approval by
demonstrating safety and effectiveness before marketing a product. In
addition, such products would be subject to the FDC Act's general controls,
including those relating to good manufacturing practices and adverse
experience reporting. Although it is not possible to anticipate the final form
of the FDA's policy with regard to computer software, IDX expects that,
whether or not the draft is finalized or changed, the FDA is likely to become
increasingly active in regulating computer software that is intended for use
in healthcare settings. The FDA can impose extensive requirements governing
pre- and post-market conditions such as device investigation, approval,
labeling and manufacturing. In addition, the FDA can impose extensive
requirements governing development controls and quality assurance processes.
There can be no assurance that actions taken by the FDA to regulate computer
software products will not have a material adverse effect on IDX's results of
operations, financial condition or business.
Employees
At March 31, 1997, IDX employed 1,265 full-time and 18 part-time employees.
As of March 31, 1997, IDX's sales force was composed of 37 representatives. As
of March 31, 1997, IDX's client services group consisted of 595 employees and
IDX had 258 employees engaged primarily in program development, new technology
adaption and quality assurance. No employees are covered by any collective
bargaining agreements. IDX believes that its relationships with its employees
are good.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of IDX Common Stock as of March 31, 1997 by (i) each
shareholder known by IDX to beneficially own more than 5% of the outstanding
shares of IDX Common Stock, (ii) each director of IDX, (iii) the Chief
Executive Officer and the four other most highly compensated (for fiscal 1996)
executive officers of IDX who were serving as such at the end of fiscal 1996,
and (iv) all current directors and executive officers of IDX as a group.
The number of shares of IDX Common Stock beneficially owned by each director
or executive officer of IDX is determined under the rules of the Securities
and Exchange Commission (the "Commission"), and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days after
March 31, 1997 through the exercise of any stock option or other right. Unless
otherwise indicated, each person has sole investment and voting power (or
shares such power with his spouse) with respect to the shares set forth in the
following table. The inclusion herein of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of those shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS SHARES OF COMMON COMMON STOCK
OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED OUTSTANDING(1)
------------------- ------------------------ --------------
<S> <C> <C>
5% SHAREHOLDERS
Richard E. Tarrant(2)............... 6,750,000 32.2%
c/o IDX Systems Corporation
1400 Shelburne Road
South Burlington, VT 05403
Robert H. Hoehl(3).................. 6,750,521 32.2
c/o IDX Systems Corporation
1400 Shelburne Road
South Burlington, VT 05403
OTHER DIRECTORS
Paul L. Egerman(4).................. 980,000 4.7
Henry M. Tufo, M.D.(5).............. 194,000 *
Stuart H. Altman, Ph.D.............. 6,000 *
Larry D. Grandia.................... 4,000 *
Steven M. Lash...................... 4,000 *
OTHER SENIOR EXECUTIVES
Robert F. Galin (6)................. 50,200 *
James H. Crook, Jr.(7).............. 355,181 1.7
All Directors and executive officers
as a
group (15
persons)(2)(3)(4)(5)(6)(7)(8)...... 15,266,848 72.2
</TABLE>
- --------
* Represents holding of less than one percent.
(1) Number of shares deemed outstanding includes 21,017,420 as of March 31,
1997, plus 136,743 shares which represent any shares subject to options
held by the person or entity in question that are currently exercisable or
exercisable within 60 days after March 31, 1997.
(2) Includes 750,000 shares held by Mr. Tarrant as trustee of the Richard E.
Tarrant Grantor Retained Annuity Trust, as to which shares Mr. Tarrant
disclaims beneficial ownership and 70,920 shares held by Mr. Tarrant's
wife, Amy E. Tarrant as the trustee of five trusts (14,184 shares each),
the beneficiaries of which are the Tarrant's children, as to which shares
Mr. and Mrs. Tarrant each disclaim beneficial ownership. Includes 30,000
shares held by Amy E. Tarrant, spouse of Mr. Tarrant of which Mr. Tarrant
disclaims beneficial ownership. Also includes 6,750,500 shares which may
become subject to a voting trust upon the death or incompetence of Mr.
Tarrant. Includes 25,000 shares which are pledged as security for
guarantee to State Street Bank and Trust Company.
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<PAGE>
(3) Includes 750,000 shares held by Mr. Hoehl as trustee of the Robert H.
Hoehl Grantor Retained Annuity Trust and 750,000 shares held by Mr. Hoehl
as trustee of the Cynthia K. Hoehl Grantor Retained Annuity Trust, as to
which shares Mr. Hoehl disclaims beneficial ownership. Also includes
131,676 shares held by Mr. Hoehl's wife, Cynthia K. Hoehl as the trustee
of six trusts (21,946 shares each), the beneficiaries of which are the
Hoehl's children, as to which shares Mr. and Mrs. Hoehl each disclaim
beneficial ownership. Also includes 6,750,521 shares which may become
subject to a voting trust upon the death or incompetence of Mr. Hoehl.
Includes 25,000 shares which are pledged as security for guarantee to
State Street Bank and Trust Company.
(4) Includes 25,000 shares which are pledged as security for guarantee to
State Street Bank and Trust Company.
(5) Includes 20,000 shares held by Carleen Ann Tufo, spouse of Dr. Tufo, as to
which shares Dr. Tufo disclaims beneficial ownership.
(6) Includes 30,222 shares subject to options which are now exercisable or
which become exercisable within 60 days after March 31, 1997.
(7) Includes 59,493 shares held by Mr. Crook as trustee of the James H. Crook,
Jr. Grantor Retained Annuity Trust, as to which shares Mr. Crook disclaims
beneficial ownership. Also includes 1,515 shares jointly held by Mr. Crook
and by Mr. Crook's wife, Andrea Crook.
(8) Includes 136,743 shares of Common Stock subject to outstanding stock
options which are currently exercisable or are exercisable within 60 days
after March 31, 1997. Also includes 19,419 shares held by John A. Kane as
trustee of the John A. Kane Grantor Retained Annuity Trust, as to which
shares Mr. Kane disclaims beneficial ownership and 2,000 shares held by
Pamela J. Pure, Vice President, Marketing, jointly with her husband David
T. Pure.
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<PAGE>
PHAMIS, INC.
BUSINESS
The information in this section pertains to the business of PHAMIS as it is
currently conducted without giving effect to the Merger.
PHAMIS
PHAMIS, headquartered in Seattle, Washington, offers healthcare information
solutions that are part of a complete software and hardware system strategy
designed for integrated healthcare delivery enterprises. Products include
LastWord(R), a comprehensive computerized patient record system;
DataBreeze(TM), an integrated practice management and managed care system; and
Enterprise View(TM), a data warehouse for outcomes and strategic analysis.
Through its alliances with its third-party solution partners, PHAMIS also
offers a critical care solution from European-based Picis, S.A., and a home
healthcare solution from Point-of-Care Systems, Inc.
PHAMIS was founded in 1981 to provide computer systems and services to the
healthcare industry. Its flagship product, PHAMIS-LastWord(R), was originally
developed in the late 1970s to help the U.S. Public Health Service (USPHS), a
nationwide provider of comprehensive care, track, coordinate and manage the
medical care given to merchant seaman and certain dependents of military
personnel, as this highly mobile population moved within its national system
of hospitals and clinics.
PHAMIS has many years of experience in patient-centered, enterprise-wide
system design with the majority of its installed customer base representing
multi-facility organizations. PHAMIS has historically offered solutions which
target, and are well suited to support the large IDN marketplace.
Additionally, PHAMIS' recent introduction of new products and services has
broadened its market to include the physician practice management sector and
mid-size healthcare organizations.
In March 1996, PHAMIS acquired Data Breeze, Inc. ("Data Breeze"), a Florida-
based provider of information systems for the physician practice management
marketplace. Data Breeze became a wholly-owned subsidiary of PHAMIS and
continues to operate from its Florida headquarters.
The business needs of the complex organizations that make up PHAMIS' client
base are unique, and PHAMIS works in conjunction with its clients to provide
the very best combination of information solutions and services to meet the
evolving needs and requirements of the client.
Healthcare Industry
The healthcare marketplace continues to undergo significant change. Industry
consolidation and reorganization continues to take place, as healthcare
organizations are undergoing a major transformation in the way they operate
and conduct business. These ongoing pressures are requiring healthcare
providers to thoroughly evaluate their organizational structure and their
information system requirements. Due to the increasing influence of managed
care in the healthcare industry, financial risk is shifting from payor to
provider, creating an incentive for providers to maintain the wellness of
their patient population. In response to these shifts, many providers are
aligning themselves with other care facilities, thereby creating integrated
healthcare delivery organizations designed to more economically serve the
healthcare needs of a regional population.
As the business of providing healthcare continues to become more
challenging, healthcare information systems are becoming a critical resource
in providing the relevant information that organizations need to succeed in
the highly competitive healthcare industry.
In addition, managed care has increased the importance of comprehensive
patient-centered healthcare information, as providers must accurately measure
and track medical tests and procedures, automate patient care and
administrative processes, ensure timely access to relevant information, and
match patient needs with
74
<PAGE>
available resources. Increasingly, as healthcare organizations continue to
evolve, they are expected to rely on sophisticated information systems to
address their patient care requirements.
Target Markets
PHAMIS expanded its product offerings in 1996, through the acquisition of
Data Breeze and alliances with third-party solution partners, which broadened
the scope of PHAMIS' target market. The target market for PHAMIS' flagship
LastWord system consists of approximately 1,000 existing large- and medium-
sized healthcare providers with annual revenues in excess of $100 million,
spending an aggregate of approximately $1 billion per year on healthcare
information system purchases. Most of these healthcare delivery organizations
are focused on providing high-quality care at competitive prices, have
multiple sites operating as an integrated enterprise, and are community
healthcare providers with a major market position.
PHAMIS' Enterprise View product targets the same market. Enterprise View, an
outcomes and strategic analysis data warehouse system, offers large, complex
healthcare organizations the detailed clinical and financial outcomes data
required to operate successfully in a highly competitive marketplace.
The rapid growth of the practice management sector has created a new market
opportunity. PHAMIS is well positioned to capitalize on this high-potential
market with its DataBreeze product offering, designed to support management
service organizations (MSOs) and physician group practices ranging in size
from 50 to more than 500 physicians. These organizations may be operating as
either independent entities, or as part of an integrated delivery network.
Finally, PHAMIS' new FASTRACK implementation approach has expanded its
target market for the LastWord product to include mid-size healthcare
organizations in the 300-500 bed range. With the FASTRACK approach, clients
are able to take advantage of a fully featured LastWord product which is
delivered with predefined "starter sets," requiring minimal tailoring and can
be installed within a 12-month time frame.
PHAMIS believes that these target prospects will spend increasing amounts of
funds on healthcare information systems as (a) the consolidation of healthcare
providers into regional enterprises creates the need for new information
systems that operate in a common systems environment and that integrate
previously unautomated patient-care processes and (b) these providers view
sophisticated information systems as a key competitive element in a managed-
care environment.
Product Solutions
Comprehensive Computerized Patient Record System: LastWord(R). The LastWord
computerized patient record system is a collection of integrated applications
designed to automate the organization's workflow, and provide vital clinical,
financial and administrative information to providers at all points of care.
The patient- centered LastWord system maintains data from a wide variety of
environments, critical care, acute care, ambulatory care and home care, and
stores data permanently in a single, long-term relational database. Clients
use the LastWord lifetime medical record to achieve their goals to reduce
costs, improve work processes and improve outcomes.
LastWord operates on the fault-tolerant Tandem Computers, Inc. ("Tandem")
computing platform, which enables healthcare providers to cost-effectively
expand system capacity and increase functionality in smooth increments without
loss of computing efficiency. LastWord application groups, composed of a
variety of individual modules, include:
(i) Enterprise Scheduling
(ii) Encounter, Visit and Admission Management
(iii) Quality Management
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<PAGE>
(iv) Medical Records
(v) Patient Accounting
(vi) Clinic Billing & Receivables Management
(vii) Clinician Tools
(viii) Patient Care Documentation
(ix) Protocols
(x) Order Communication
(xi) Results Reporting
(xii) Inpatient and Outpatient Pharmacy
(xiii) Ancillary/Radiology Department Management
(xiv) Emergency Department
In order to accommodate the diverse and complex needs of its clients, PHAMIS
has acquired equity positions in, or formed alliances with, companies offering
products that expand the reach of LastWord.
Critical Care/Operating Room. Chart+ from Picis, S.A. (equity position)
integrates with LastWord at the database level to provide connections to
patient monitoring devices. The system automates the capture, recording, and
graphic display of monitor-originating data, thereby reducing the manual
recording of such information by clinicians. Chart+ runs on Microsoft's
Windows NT(TM) platform.
Home Care. Pegasus(TM) from Point-of-Care Systems, Inc. (equity position)
integrates with LastWord at the database level to provide mobile clinical
documentation and communications capabilities using a hand held device. It
enables a seamless flow of information to the enterprise from the home,
hospital or sub-acute facility, thereby contributing to a complete electronic
medical record. Modules include automated forms processing, data
communications, clinical charting and case management. Pegasus servers run on
Microsoft's Windows NT(TM) platform.
Expert System. Computer Associates' CA:DB Expert enables clients to define
and incorporate site-specific rules that govern certain processes within
LastWord. This tool is intended to provide supplemental information to users
in their decision-making processes.
Managed Care. PHAMIS' managed care solution, for organizations having their
own HMO, is provided through several standard, generic interfaces designed to
support clients' payor-related financial risk management requirements such as
member enrollment, premium billing, eligibility, claims management and
benefits administration. The interfaces can be utilized with any standards-
based managed care system.
Imaging. PHAMIS' imaging solution, the LastWord Image Engine(TM),
facilitates the management of document, medical and other images throughout a
healthcare enterprise, without regard to storage media.
Integrated Managed Care and Practice Management Solution:
DataBreeze(TM). DataBreeze provides an integrated collection of applications
designed to enhance the operation of physician practices. The system combines
practice management applications and managed care capabilities to automate the
workflow and support the complex contracting requirements of MSOs and multi-
specialty physician group practices. The core of the system, the DataBreeze
Healthcare Server(TM), is based on the open architecture of the Sybase(R) SQL
Server database.
DataBreeze is distinguished by its integration of practice management and
managed care functionality, and offers the following suite of applications:
(i) Universal Patient Record
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<PAGE>
(ii) Managed Care
(iii) Patient and Resource Scheduling
(iv) Chart Tracking
(v) Provider/Plan Management
(vi) Medical Billing
The scalable DataBreeze system runs on Digital Equipment Corporation (DEC)
hardware.
Data Warehouse for Outcomes and Strategic Analysis: Enterprise
View(TM). Enterprise View is a new generation of healthcare decision support
systems enabling clinicians and executives to perform enterprise-wide clinical
and strategic analyses of issues essential to the successful management of the
organization. The depth of data facilitates clinical research, supports
financial and demographic analysis, and provides answers to questions such as
why a particular patient population requires more resources than another, or
how cost effective a particular disease management program is at meeting
objectives. Enterprise View is designed as a stand-alone data repository
enabling information to be aggregated from a wide variety of clinical and
financial database sources, including the LastWord system or external clinical
information systems, capitated plan membership databases, clinical registries
and cost accounting systems. Enterprise View users can select from an array of
commercially-available query tools to gain access to the SQL database and
measure critical outcomes data. The Enterprise View system is currently in
Alpha-testing at a client site where the product was co-developed.
Customer Service
PHAMIS believes that the quality of its products and services has a
significant impact on the customer's satisfaction and enhances its reputation.
PHAMIS provides ongoing customer support services to its clients. PHAMIS's
customers enter into software maintenance agreements, which typically have
three-year terms which can be renewed thereafter.
In December 1996, PHAMIS reorganized its Installation and Customer Support
departments into a single Client Services Organization. The new department
merges all aspects of client support into a single operating department
overseeing all implementation, maintenance and support activities. The
restructuring is intended to leverage personnel resources to ensure fast,
thorough response to clients, and streamline installations to help clients
reap early system-wide benefits. In addition, the leverage of finite resources
may reduce the overall cost of providing such services.
Implementation Services and Support. PHAMIS provides services associated
with installation of the system. These include project planning and
management; analysis of client work flows; hardware installation; tailoring
the database; specifying and developing interfaces; testing tailored modules;
integration testing; training operations personnel and training customer users
and user trainers. Each LastWord installation requires a significant
commitment of labor hours by PHAMIS and its customer. A typical LastWord
installation process lasts between 12 to 30 months. The time frame for a
DataBreeze implementation is typically six to nine months. PHAMIS believes
that the quality of its implementation services is crucial to its continued
success, because PHAMIS depends on successful installation client sites as
references for subsequent sales.
Post-Implementation Services. PHAMIS provides post-implementation services
which include routine software maintenance, user assistance and a product
upgrade release program. PHAMIS also operates a user hot-line for customers to
obtain technical support. PHAMIS provides additional services on an as-needed
basis, including application utilization audits, system customization, system
management consulting, customized user training and customized database
reports.
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<PAGE>
Computing Platforms
The PHAMIS LastWord and Enterprise View systems operate on Tandem's NonStop
computing platform, which is designed to support high-volume, mission-critical
applications, such as automation of stock exchange transactions,
telecommunications, banking transactions and airline reservations. The Tandem
platform can be expanded without adversely affecting system responsiveness or
interrupting existing on-line users, and can support systems of various sizes
and numbers of users at a competitive cost. Therefore, PHAMIS is able to cost-
effectively deliver incremental computing capacity such that the system does
not constrain a healthcare provider's growth.
The Tandem server supports large-scale, high-performance SQL database access
and is designed for inter- operability with other computing systems.
In December 1994, PHAMIS entered into a distribution agreement with Tandem
that, as most recently amended on March 12, 1997, expires in January 2002.
PHAMIS expects that such agreement will be renewed in the ordinary course of
business.
Research and Development
To maintain its highly competitive position, PHAMIS focuses its research and
development efforts on products and technologies that address the anticipated
information needs of evolving integrated healthcare delivery organizations. As
new information needs emerge in the market, PHAMIS investigates new
technologies and engages in appropriate product development activities to
enhance or add to its current suite of products. Most development activities
are conducted in cooperation with a customer to determine market reaction and
acceptance, help provide evaluation and product design suggestions and act as
an initial user site.
PHAMIS has historically made substantial investments in research and
development programs and expects to continue to allocate significant resources
to these efforts. There can be no assurance that such research and development
efforts will be successful. However, PHAMIS' commitment to product development
is critical to its long-term success.
Product development efforts in 1997 will continue to focus on the
information needs of clinicians through the addition of sets of tools designed
to manage care in the ambulatory setting. These tools will build on existing
LastWord applications to enable clinician users to better manage provider
schedules, view essential patient information and support physician workflow.
In addition, PHAMIS expects to spend significant resources on the further
development of Enterprise View and integrating solution partner products into
its enterprise-wide systems.
PHAMIS also will be devoting development resources to various technology
migration strategies, including investments in web-based technology and
incremental conversion of LastWord to a standards-based SQL database.
Sales and Marketing
PHAMIS sells its software systems through a direct sales force supported by
a product marketing staff that conducts product presentations and
demonstrations, and sales personnel who prepare sales proposals. The sales
cycle for a healthcare information system is typically 12 to 18 months or
longer from initial contact to contract execution. Prospective customers
typically organize a sizable committee to select an information system, often
with the help of an outside consultant. The committee identifies likely vendor
candidates through requests for information, and over the course of nine to 15
months, identifies the most suitable vendor with which to enter contract
negotiations. This process requires vendors to make detailed proposals,
conduct multiple demonstrations at the prospective customer's site, arrange
visits to customer reference sites and to the vendors' headquarters for
demonstrations and presentations.
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PHAMIS' product marketing specialists, most of whom are healthcare
professionals, typically spend considerable time explaining the qualities and
benefits of PHAMIS' products as they pertain to various aspects of the
prospective customer's needs. A vendor of choice is announced at the end of
this period, followed by business planning and final contract negotiations,
which conclude the sales cycle. Due to the significant time and resources
typically required to sell its systems, PHAMIS applies qualification standards
throughout the sales cycle to determine which healthcare providers to pursue.
PHAMIS expanded its direct sales force during 1996, enabling more aggressive
coverage of prospective customers. Additionally, there are sales personnel
dedicated to sales of add-on products into PHAMIS' existing customer base.
PHAMIS' marketing efforts are organized into corporate marketing, target
marketing, and customer communication programs. The corporate marketing
activities include press relations, customer testimonials, presentations at
industry tradeshows and events, and advertising. PHAMIS communicates directly
with targeted decision-makers and consultants in the healthcare community
through presentations and direct mail. PHAMIS also publishes a quarterly
newsletter for its customers and actively supports its user group.
Customers
PHAMIS generates a majority of its revenues from large, long-term, fixed-
price contracts to deliver and install its products. As of March 31, 1997, the
LastWord system was used or contracted to be used by approximately 40
healthcare providers. The DataBreeze system was used or contracted to be used
by over 30 healthcare providers as of March 31, 1997. As of March 31, 1997,
PHAMIS' customers were located throughout the United States, and in Canada and
the United Kingdom, and are major providers in their respective market areas.
PHAMIS believes that its current customer base represents a significant
opportunity to market and sell additional LastWord, DataBreeze and Enterprise
View applications, as well as new products, services and third-party products.
Backlog
PHAMIS' total backlog as of March 31, 1997 was $101.9 million, compared to
$73.2 million at March 31, 1996. Total backlog consists of signed contracts
for systems installation, support and maintenance, and additional software and
services that are not yet recognized as revenue. PHAMIS' installation
contracts generally provide that the customer may terminate its contract only
upon a material breach by PHAMIS. Occasionally, however, the customer may
negotiate provisions that do not relate to PHAMIS' performance or that allow
the customer to delay certain aspects of installation. Due to the relative
size of a typical system sale and an installation contract compared to PHAMIS'
annual revenues, a installation delay of one or more contracts could have a
adverse effect on PHAMIS' business, financial condition and results of
operations.
Competition
PHAMIS believes that the principal competitive factors in its markets are
company and product reputation and reliability, system features, proprietary
nature of methodologies and technical resources, customer service, price, and
effective marketing and sales efforts. In addition, PHAMIS believes that the
ability to anticipate and respond to evolving healthcare market needs is an
important competitive factor. PHAMIS believes that it competes favorably
within each of these areas.
The market for enterprise-wide healthcare information systems is intensely
competitive. Many of PHAMIS' competitors have significantly greater resources
than PHAMIS. Competitors vary in size and in the scope and breadth of the
products and services offered. PHAMIS' principal competitors for the LastWord
system included healthcare information systems companies such as Cerner
Corporation, HBO & Company, Medaphis Corporation and Shared Medical Services
Corporation. DataBreeze system competitors in the market serving multi-
specialty practice management organizations included HBO & Company (Cycare),
IDX Systems Corporation and
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Medic Computer Systems, Inc. The competitive environment for products such as
Enterprise View is still emerging. Companies, including Transition Systems,
Inc., and HBO & Company are positioning themselves to compete in this market,
however, their products are primarily financially-oriented and lack the depth
and breadth of integrated clinical data contained in the Enterprise View
system. Furthermore, other information systems companies not offering clinical
healthcare information services may enter the markets in which PHAMIS
competes.
Intellectual Property
PHAMIS seeks to protect its proprietary information through nondisclosure
agreements with its employees. PHAMIS' policy is to have employees enter into
a nondisclosure agreement containing provisions prohibiting the disclosure of
confidential information to anyone outside PHAMIS, requiring disclosure to
PHAMIS of any new ideas, developments, discoveries or inventions conceived
during employment, and requiring assignment to PHAMIS of proprietary rights to
such matters that are related to PHAMIS' business and technology.
PHAMIS also relies on a combination of trade secret, copyright and trademark
laws, contractual provisions and technical measures to protect its rights in
its software technology. PHAMIS has not filed any patent applications or
copyrights covering its software technology. Due to the nature of the
software, PHAMIS believes that patent, trade secret and copyright protection
are less significant than PHAMIS' ability to further develop, enhance and
modify its current products and other clinical information systems.
There can be no assurance that the legal protections and precautions taken
by PHAMIS will be adequate to prevent misappropriation of PHAMIS' technology.
In addition, these protections do not prevent independent third-party
development of functionally equivalent or superior technologies or services.
PHAMIS does not believe that its operations or products infringe on the
intellectual property rights of others; however, there can be no assurance
that others will not assert infringement or trade secret claims against PHAMIS
with respect to its current or future products or that PHAMIS will be
successful in defending any such claim.
Healthcare and Governmental Regulation
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation
of healthcare facilities. During the past several years, the healthcare
industry has been subject to an increase in governmental regulation of, among
other things, reimbursement rates and certain capital expenditures. Many
lawmakers have announced that they intend to propose programs to reform the
U.S. healthcare system. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for PHAMIS' customers. Healthcare
facilities may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including those for PHAMIS'
system and related services.
The regulatory environment also continues to increase the needs of
healthcare organizations for cost-effective data management, and thereby
enhance the marketability of PHAMIS' system and related services. PHAMIS
cannot predict with any certainty what impact, if any, such proposals or
healthcare reforms might have on PHAMIS' business, financial condition and
results of operations.
Finally, PHAMIS and its products are subject to the same potential
regulations from the FDA as may be applicable to IDX. See "IDX Systems
Corporation--Business." It appears that the FDA may choose to either exclude
or exempt financial and administrative systems from regulation. The FDA is
most concerned, however, with clinical systems and real-time clinical decision
support. PHAMIS' core product, LastWord, is a clinically-driven, tightly
integrated transaction system. New regulations could require either FDA
notification or approval of all fixes, enhancements and upgrades to the
LastWord product. Because DataBreeze provides only financial and
administrative functions, and Enterprise View is a research database, it
appears these two products may not be as directly affected by FDA oversight.
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Employees
As of March 31, 1997, PHAMIS employed 368 individuals, with 23% assigned to
research and development, 24% to Sales and Marketing, 43% to Customer Service
and 10% to Administration. None of PHAMIS' employees are represented by a
union or other bargaining group. PHAMIS believes its relationship with its
employees to be positive.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of PHAMIS Common Stock as of March 31, 1997 by (i) each
shareholder known by PHAMIS to own beneficially more than 5% of the
outstanding shares of PHAMIS Common Stock, (ii) each director of PHAMIS, (iii)
the Chief Executive Officer and the four other most highly compensated (for
fiscal 1996) executive officers of PHAMIS who were serving as such at the end
of fiscal 1996.
The number of shares of PHAMIS Common Stock beneficially owned by each
director or executive officer of PHAMIS is determined under the rules of the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which the individual has sole or shared voting power
or investment power and also any shares which the individual has the right to
acquire within 60 days after March 31, 1997 through the exercise of any stock
option or other right. Unless otherwise indicated, each person has sole
investment and voting power (or shares such power with his spouse) with
respect to the shares set forth in the following table. The inclusion herein
of any shares deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON PERCENTAGE OF COMMON
OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED STOCK OUTSTANDING
------------------- ------------------------ --------------------
<S> <C> <C>
5% SHAREHOLDERS
Kopp Investment Advisors, 808,000(1) 13.1%
Inc..........................
6600 France Avenue So., Suite
672
Edina, MN 55435
Waddell & Reed, Inc........... 520,400(2) 8.4%
2001 Third Avenue South
Birmingham, AL 35233
Malcolm A. Gleser, M.D., 408,367(3) 6.6%
Ph.D.........................
c/o PHAMIS, Inc.
1001 Fourth Avenue, Suite
1500
Seattle, WA 98154
GeoCapital Corporation........ 368,500(4) 6.0%
757 Fifth Avenue
New York, NY 10153
OTHER DIRECTORS
Daniel Dyer................... 82,955(5) 1.3%
Lonnie M. Smith............... 3,592(6) *
Timothy J. Wollaeger.......... 4,265(7) *
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON PERCENTAGE OF COMMON
OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED STOCK OUTSTANDING
------------------- ------------------------ --------------------
<S> <C> <C>
OTHER SENIOR EXECUTIVES
Mark F. Wheeler.............. 235,756(8) 3.8%
Frank T. Sample.............. 198,303(9) 3.2%
Gregg W. Blodgett............ 30,733(10) *
Thomas M. Watson............. 36,484(11) *
All directors and executive
officers as a group (10
persons).................... 1,066,653(12) 16.8%
</TABLE>
- --------
* Represents holding of less than 1%.
(1) Based on information reported in a Schedule 13G filed on January 29, 1997
by Kopp Investment Advisors, Inc. in which it reported that although it
exercises investment discretion as to these shares, it does not vote the
shares and is not the record owner of them.
(2) Based on information reported in a Schedule 13G filed on January 31, 1997
by Waddell & Reed, Inc.
(3) Includes an aggregate of 27,429 shares held as trustee for irrevocable
trusts for the benefit of members of Dr. Wheeler's family; Dr Gleser
disclaims beneficial ownership of such shares. Also includes 4,530 shares
held for Dr. Gleser's benefit under the Company's Salary Savings and
Deferral Plan (the "401(k) Plan"), and 1,866 shares issuable pursuant to
stock options exercisable within 60 days of March 31, 1997.
(4) Based on information reported in a Schedule 13G filed on February 15,
1997 by GeoCapital Corporation.
(5) Includes 2,000 shares issuable pursuant to stock options exercisable
within 60 days of March 31, 1997.
(6) Includes 1,000 shares issuable pursuant to stock options exercisable
within 60 days of March 31, 1997.
(7) Includes 2,000 shares issuable pursuant to stock options exercisable
within 60 days of March 31, 1997, and 2,265 held by a family trust for
the benefit of Mr. Wollaeger and his spouse.
(8) Includes 1,866 shares issuable pursuant to stock options exercisable
within 60 days of March 31, 1997, and 4,194 shares held for Dr. Wheeler's
benefit under the 401(k) Plan. Does not include 27,429 shares held of
record by Dr. Gleser as trustee for Dr. Wheeler's children.
(9) Includes an aggregate of 20,600 shares held as trustee for irrevocable
trusts for the members of Dr. Gleser's family and other individuals; Mr.
Sample disclaims beneficial ownership of such shares. Also includes
124,166 shares issuable pursuant to stock options exercisable within 60
days of March 31, 1997, 3,085 shares held for Mr. Sample's benefit under
the 401(k) Plan and 452 shares purchased through the Employee Stock
Purchase Plan.
(10) Includes 24,615 shares issuable pursuant to stock options exercisable
within 60 days of March 31, 1997, and 118 shares held for Mr. Blodgett's
benefit under the 401(k) Plan.
(11) Includes 559 shares held for Mr. Watson's benefit under the 401(k) Plan.
In February 1997, Mr. Watson resigned from PHAMIS.
(12) Includes, in the aggregate, 180,578 shares issuable pursuant to stock
options exercisable within 60 days of March 31, 1997, and 16,619 shares
held for the benefit of members of the group under the 401(k) Plan.
82
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between IDX and PHAMIS accounted for on a
pooling of interests basis and are based on the respective historical
consolidated financial statements and the notes thereto of IDX and PHAMIS,
which are incorporated by reference in this Joint Proxy Statement/Prospectus.
The pro forma combined condensed balance sheet combines IDX's March 31, 1997
unaudited consolidated balance sheet with PHAMIS' March 31, 1997 unaudited
consolidated balance sheet. The pro forma statements of income combine IDX's
historical operating results for the three months ended March 31, 1997 and
1996 and the years ended December 31, 1996, 1995 and 1994 with the
corresponding PHAMIS operating results for the three months ended March 31,
1997 and 1996 and the years ended December 31, 1996, 1995 and 1994,
respectively.
IDX expects to incur Merger related pre-tax charges covering the costs of
the Merger, the costs of restructuring the combined operations, and for other
related costs principally in the quarter in which the Merger is consummated.
Such pre-tax charges, which are currently estimated to be in the range of
$17.0 million to $20.0 million, will include: (i) the direct costs of the
Merger, including fees to financial advisors, legal counsel and independent
auditors; (ii) the costs of integrating the operations of IDX and PHAMIS;
(iii) the elimination of overlapping operations and products; and (iv) other
related items. The estimated charge is subject to change as IDX's integration
plan is developed and more accurate estimates become available. Moreover,
additional unanticipated expenses may be incurred in connection with the
integration of the business of IDX and PHAMIS.
The unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have been achieved if
the Merger had been consummated as of the beginning of the periods presented,
nor are they necessarily indicative of the future operating results or
financial position of IDX. No material pro forma adjustments are required to
conform the financial reporting policies of IDX and PHAMIS for the periods
presented. However, on a prospective basis IDX will review the accounting
practices of PHAMIS to ensure consistency with those of IDX. The pro forma
combined condensed financial information does not give effect to any cost
savings which may result from the integration of IDX's and PHAMIS' operations.
These pro forma combined condensed financial statements are based on, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of IDX and PHAMIS, incorporated by
reference in this Joint Proxy Statement/Prospectus. See "Available
Information" and "Incorporation of Certain Documents by Reference."
83
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
IDX PHAMIS ADJUSTMENTS(1) COMBINED(3)
-------- ------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 5,119 $ 4,085 0 $ 9,204
Securities available for sale... 83,441 19,101 0 102,542
Accounts receivable (net)....... 43,058 13,526 0 56,584
Other current assets............ 8,636 3,566 $1,520 13,722
-------- ------- ------ --------
Total current assets.......... 140,254 40,278 1,520 182,052
Property and equipment (net)...... 19,064 4,746 0 23,810
Other assets:
Other assets.................... 238 8,904 0 9,142
Deferred tax asset.............. 2,235 0 (1,702) 533
-------- ------- ------ --------
Total other................... 2,473 8,904 (1,702) 9,675
-------- ------- ------ --------
Total assets...................... $161,791 $53,928 $ (182) $215,537
======== ======= ====== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses....................... $ 14,254 $ 9,475 $8,300 $ 32,029
Taxes payable................... 2,084 0 0 2,084
Deferred revenue................ 9,120 9,959 0 19,079
Current portion of long-term
obligations.................... 500 100 0 600
-------- ------- ------ --------
Total current liabilities..... 25,958 19,534 8,300 53,792
Long-term obligations (net)....... 2,600 28 0 2,628
Deferred income taxes............. 0 1,702 (1,702) 0
Minority interest................. 2,207 0 0 2,207
Shareholders' equity.............. 131,026 32,664 (6,780) 156,910
-------- ------- ------ --------
Total liabilities and
shareholders' equity............. $161,791 $53,928 $ (182) $215,537
======== ======= ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
84
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
IDX PHAMIS COMBINED(3)
------- ------- -----------
<S> <C> <C> <C>
Net revenues...................................... $45,058 $14,602 $59,660
Cost of revenues.................................. 21,496 8,679 30,175
------- ------- -------
Gross margin.................................. 23,562 5,923 29,485
Operating expenses:
Selling, general and administrative............... 9,547 3,183 12,730
Research and development.......................... 7,039 1,329 8,368
Write-off of acquired in-process research and
development...................................... 2,290 0 2,290
------- ------- -------
Total operating expenses...................... 18,876 4,512 23,388
------- ------- -------
Operating income.................................. 4,686 1,411 6,097
Other income, net................................. 980 215 1,195
------- ------- -------
Income before income taxes........................ 5,666 1,626 7,292
Provision for income taxes........................ 2,266 528 2,794
------- ------- -------
Net income.................................... $ 3,400 $ 1,098 $ 4,498
======= ======= =======
Net income per share............................ $ 0.17
-------
Weighted average shares outstanding............. 26,226
=======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
85
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
IDX PHAMIS COMBINED(3)
------- ------- -----------
<S> <C> <C> <C>
Net revenues........................................ $37,345 $12,115 $49,460
Cost of revenues.................................... 19,391 7,000 26,391
------- ------- -------
Gross margin.................................... 17,954 5,115 23,069
Operating expenses:
Selling, general and administrative................. 7,491 2,869 10,360
Research and development............................ 5,786 1,473 7,259
Merger and acquisition costs........................ 0 292 292
------- ------- -------
Total operating expenses........................ 13,277 4,634 17,911
------- ------- -------
Operating income.................................... 4,677 481 5,158
Other income, net................................... 910 180 1,090
------- ------- -------
Income before income taxes.......................... 5,587 661 6,248
Provision for income taxes.......................... 2,234 306 2,540
------- ------- -------
Net income...................................... $ 3,353 $ 355 $ 3,708
======= ======= =======
Net income per share.............................. $ 0.14
-------
Weighted average shares outstanding............... 25,946
-------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
86
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
IDX PHAMIS COMBINED(3)
-------- ------- -----------
<S> <C> <C> <C>
Net revenues....................................... $157,579 $49,300 $206,879
Cost of revenues................................... 79,545 28,718 108,263
-------- ------- --------
Gross margin................................... 78,034 20,582 98,616
Operating expenses:
Selling, general and administrative................ 33,422 11,395 44,817
Research and development........................... 23,974 5,793 29,767
Merger and acquisition costs....................... 0 292 292
Corporate headquarters relocation.................. 0 304 304
International market entry costs................... 0 810 810
-------- ------- --------
Total operating expenses....................... 57,396 18,594 75,990
-------- ------- --------
Operating income................................... 20,638 1,988 22,626
Other income....................................... 4,165 717 4,882
-------- ------- --------
Income before income taxes......................... 24,803 2,705 27,508
Provision for income taxes......................... 9,921 927 10,848
-------- ------- --------
Net income..................................... $ 14,882 $ 1,778 $ 16,660
======== ======= ========
Net income per share.............................. $ 0.64
--------
Weighted average shares outstanding............... 26,047
--------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
87
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
IDX(2) PHAMIS OMBINED(3)
-------- ------- ----------
<S> <C> <C> <C>
Net revenues........................................ $128,120 $47,165 $175,285
Cost of revenues.................................... 68,750 28,000 96,750
-------- ------- --------
Gross margin.................................... 59,370 19,165 78,535
Operating expenses:
Selling, general and administrative................. 25,539 10,533 36,072
Research and development............................ 19,529 3,896 23,425
-------- ------- --------
Total operating expenses........................ 45,068 14,429 59,497
-------- ------- --------
Operating income.................................... 14,302 4,736 19,038
Other income........................................ 1,805 1,060 2,865
-------- ------- --------
Income before income taxes.......................... 16,107 5,796 21,903
Provision for income taxes.......................... 6,500 1,488 7,988
-------- ------- --------
Net income...................................... $ 9,607 $ 4,308 $ 13,915
======== ======= ========
Net income per share.............................. $ 0.63
--------
Weighted average shares outstanding............... 22,158
--------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
88
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
IDX(2) PHAMIS COMBINED(3)
-------- ------- -----------
<S> <C> <C> <C>
Net revenues................................... $104,706 $39,101 $143,807
Cost of revenues............................... 58,303 24,924 83,227
-------- ------- --------
Gross margin............................... 46,403 14,177 60,580
Operating expenses:
Selling, general and administrative............ 21,859 8,800 30,659
Research and development....................... 17,616 2,957 20,573
-------- ------- --------
Total operating expenses................... 39,475 11,757 51,232
-------- ------- --------
Operating income............................... 6,928 2,420 9,348
Other (expenses), net.......................... (1,911) (151) (2,062)
-------- ------- --------
Income before income taxes and extraordinary
items......................................... 5,017 2,269 7,286
Provision for income taxes..................... 2,700 30 2,730
-------- ------- --------
Income before extraordinary items.............. 2,317 2,239 4,556
Extraordinary items............................ 0 298 298
-------- ------- --------
Net income................................. $ 2,317 $ 2,537 $ 4,854
======== ======= ========
Income per share before extraordinary items.. $ 0.22
--------
Net income per share......................... $ 0.24
--------
Weighted average shares outstanding.......... 20,505
--------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
89
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1.
The pro forma adjustment to accrued expenses represents certain Merger
related charges expected by IDX. Included are transaction fees as well as
employee termination benefits costs and lease termination costs. The tax
benefit associated with the costs, exclusive of transaction fees which are not
tax deductible, is also reflected.
NOTE 2.
The 1994 and 1995 IDX provision for income taxes is presented on a pro forma
basis as if IDX, which was an S corporation, had been a C corporation for each
of these years.
NOTE 3.
On March 25, 1997, IDX and PHAMIS jointly announced the signing of the
Merger Agreement. Under its terms, each share of PHAMIS Common Stock issued
and outstanding immediately prior to the Effective Time of the Merger will be
converted to .73 shares of IDX Common Stock. The Merger is subject to
regulatory approval as well as the approval of the shareholders of IDX and
PHAMIS. The Merger is intended to be a tax-free stock-for-stock transaction
valued at approximately $150 million. IDX's pro forma consolidated results
were restated to reflect the Merger which is intended to be accounted for as a
"pooling-of-interests."
The terms of the Merger Agreement allow the .73 Conversion Ratio to "float"
between .80 shares and .6811 shares based upon the market value of IDX shares
as more fully described in the Merger Agreement. The per share values used in
the pro forma combined condensed statement of income assumes a .73 Conversion
Ratio. See "The Merger Agreement--Conversion of Shares."
90
<PAGE>
DESCRIPTION OF IDX CAPITAL STOCK
IDX's authorized capital stock consists of 50,000,000 shares of IDX Common
Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock, $.01
par value per share. In addition, assuming approval of the Charter Proposal,
the number of shares of capital stock which IDX will have the authority to
issue will be increased to 105,000,000 and the number of shares of IDX Common
Stock which IDX will have the authority to issue will be increased to
100,000,000. See "First Amendment to IDX's Second Amended and Restated
Articles of Incorporation."
COMMON STOCK
As of March 31, 1997 there were approximately 21,017,420 shares of IDX
Common Stock outstanding, held of record by approximately 3,400 shareholders.
Holders of IDX Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of shareholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of IDX Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of IDX Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the IDX Board
out of funds legally available therefor. Upon the liquidation, dissolution or
winding up of IDX, the holders of IDX Common Stock are entitled to receive
ratably the net assets of IDX available after the payment of all debts and
other liabilities. Holders of IDX Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of IDX
Common Stock are, and the shares to be issued in the Merger will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of IDX Common Stock are subject to the rights of the
holders of shares of any series of Preferred Stock which IDX may issue in the
future.
On November 1, 1995, IDX terminated its status as an S corporation under the
Code. On October 13, 1995, IDX declared a dividend (the "S Corporation
Distribution") to shareholders of record as of October 16, 1995 in an amount
equal to IDX's undistributed S corporation earnings from July 1, 1987 through
October 31, 1995. The S Corporation Distribution was calculated in two parts:
(i) $35.1 million, representing the approximate amount of undistributed S
corporation earnings from July 1, 1987 through September 30, 1995, and (ii)
$1.6 million, representing the approximate amount of undistributed S
corporation earnings from October 1, 1995 through October 31, 1995. These
amounts were paid on November 24, 1995 and December 20, 1995, respectively.
See also "Selected Historical and Unaudited Pro Forma Consolidated Financial
Information." In connection with a December 22, 1986 agreement among IDX and
its existing shareholders at that time (the "Shareholders Agreement"), IDX has
made periodic distributions to its shareholders in amounts approximately equal
to the shareholders' corresponding tax liabilities associated with IDX's S
corporation earnings. The Shareholders Agreement terminated in November 1995.
In 1995, IDX made distributions to existing shareholders of approximately $2.0
million, of which approximately $0.3 million was distributed in connection
with their 1995 income tax liabilities and approximately $1.7 million was
distributed in connection with Internal Revenue Service and state income tax
audits through the June 1993 tax period. IDX presently intends to retain
earnings for use in the operation and expansion of its business and therefore
does not anticipate paying any cash dividends in the foreseeable future.
Restrictions or limitations on the payment of dividends may be imposed in the
future under the terms of credit agreements or other contractual provisions.
In the absence of such limitations, the payment of any dividends will be at
the discretion of the IDX Board.
PREFERRED STOCK
Pursuant to the IDX Articles, the IDX Board has the authority to issue
5,000,000 shares of Preferred Stock, $.01 par value, (the "IDX Preferred
Stock"). The Board has the power to determine, in whole or in part, the
designations, preferences, limitations and relative rights of any class of
shares, including the IDX Preferred Stock, before the issuance of any shares
of that class or one or more series within a class before the issuance of any
shares of that series. The issuance of IDX Preferred Stock in certain
circumstances may have the effect of delaying, deterring or preventing a
change in control of IDX, may discourage bids for IDX's Common Stock at a
premium over the market price of the IDX Common Stock and may adversely affect
the market price of, and
91
<PAGE>
the voting and other rights of the holders of, the IDX Common Stock. As of
March 31, 1997, there were no shares of IDX Preferred Stock outstanding. At
present IDX has no plans to issue any shares of IDX Preferred Stock.
VERMONT LAW AND CERTAIN CHARTER PROVISIONS
The IDX Articles require that special meetings of shareholders may be called
only by the Board of Directors, by the Chairman of the Board, the Chief
Executive Officer or, if none, the President of IDX, or any other person
authorized to do so by the IDX Bylaws considered at the proposed special
meeting, who must sign, date and deliver to IDX's secretary one or more
written documents describing the purpose or purposes for which it is to be
held. Shareholders may remove a director only upon the affirmative vote of the
holders of at least two thirds of the total number of votes entitled to be
cast thereon. The IDX Board is classified into three classes of approximately
equal size, one of which is elected each year. Provisions of the IDX Articles
relating to (i) the number, vacancies, removal and certain powers of the
members of the IDX Board, (ii) the rights of IDX and shareholders of IDX to
call special meetings of shareholders, and (iii) indemnification of officers
and directors, may not be amended without the affirmative vote of the holders
of at least two-thirds of the total number of votes entitled to be cast
thereon. In addition, assuming approval of the Second Charter Proposal, the
affirmative vote of the holders of shares representing at least two-thirds of
the votes cast on certain business combinations will be required to approve
such business combinations in the event that the then current or pre-existing
IDX Board does not recommend such business combinations to the shareholders.
See "Second Amendment to IDX's Second Amended and Restated Articles of
Incorporation."
IDX has included in the IDX Articles and the IDX Bylaws provisions to (i)
eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
VBCA and (ii) indemnify its directors and officers to the fullest extent
permitted by the VBCA, including under circumstances in which indemnification
is otherwise discretionary. IDX believes that these provisions are necessary
to attract and retain qualified persons as directors and officers.
TRANSFER AGENT
The transfer agent for the IDX Common Stock is State Street Bank and Trust
Company c/o Boston EquiServe Limited Partnership.
92
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
The following is a summary of certain of the material differences between
the rights of holders of IDX Common Stock and the rights of holders of PHAMIS
Common Stock. Since IDX and PHAMIS are organized under the laws of the State
of Vermont and Washington, respectively, such differences arise from
differences between various provisions of the VBCA and the Washington Business
Corporation Act (the "WBCA"), as well as between the IDX Articles and the IDX
Bylaws, and the PHAMIS Articles and the PHAMIS Bylaws. The following summary
of certain terms of the capital stock of IDX does not purport to be complete
and is qualified in its entirety by reference to the IDX Articles incorporated
herein by reference.
GENERAL
The PHAMIS Articles, the PHAMIS Bylaws, the WBCA and other Washington
corporation-related laws presently govern the rights of the holders of PHAMIS
Common Stock. As a result of the Merger, holders of PHAMIS Common Stock will
become holders of IDX Common Stock and the rights to all such former holders
of PHAMIS Common Stock will thereafter be governed by the IDX Articles, the
IDX Bylaws, the VBCA and other Vermont corporation-related laws. The following
summary, which does not purport to be a complete statement of the general
differences among the rights of the shareholder of IDX and the shareholders of
PHAMIS, sets forth certain differences between the VBCA and the WBCA, between
the IDX Articles and the PHAMIS Articles and between the IDX Bylaws and the
PHAMIS Bylaws. This summary is qualified in its entirety by reference to the
full text of each of the IDX Articles, the IDX Bylaws, the PHAMIS Articles the
PHAMIS Bylaws, the VBCA, the WBCA and other corporation-related laws of
Vermont and Washington insofar as they relate to corporations organized in
such states. The IDX Articles and the IDX Bylaws have been filed as exhibits
to the material filed by IDX with the SEC; similarly, the PHAMIS Articles and
the PHAMIS Bylaws have been filed as exhibits to materials filed by PHAMIS
with the SEC. For information as to how documents may be obtained, see
"Available Information."
NUMBER OF DIRECTORS
IDX. Vermont law provides that a board of directors of a corporation which
is not a closed corporation must consist of three or more individuals, with
the number specified in or fixed in accordance with the articles of
incorporation or bylaws. The articles of incorporation or bylaws may establish
a variable range for the size of the board by fixing a minimum and maximum
number of directors. Subsequent to the issuance of shares, only shareholders
may adopt or change such a provision. If a variable range is established, the
number of directors may be fixed or changed from time to time, within the
minimum and maximum, by the shareholders or the board. The IDX Articles
provide that the IDX Board shall be composed of seven (7) directors, which
number may be increased or decreased pursuant to the IDX Bylaws. The IDX
Bylaws provide that the number of directors shall not be more than 15.
Currently, the IDX Board of Directors is composed of seven members. IDX may
increase to approximately nine (9) the number of members of its Board of
Directors after the Merger. See "The Merger--Management and Operations of IDX
Following the Merger."
PHAMIS. Washington law provides that the number of directors may be
specified in either the articles of incorporation or bylaws. Rather than
setting forth a specific number, the articles or the bylaws may specify the
process by which the number of directors will be fixed. Washington Law does
not set a minimum number of directors. The PHAMIS Bylaws provide that the
PHAMIS Board shall be composed of not less than three, and not more than ten
directors, the specific number to be set from time to time by the PHAMIS
Board. The PHAMIS Board can amend the PHAMIS Bylaws to change the number of
directors without shareholder approval. Currently, the PHAMIS Board is
composed of five members.
CLASSIFICATION OF BOARD OF DIRECTORS
IDX. IDX Articles provide for a board of directors divided into three
classes, with a three-year term of office of each class to expire, and the
resulting vacancies to be filled, so that a single class of directors will
stand for re-election in each year.
93
<PAGE>
PHAMIS. The PHAMIS Board is divided into three classes with each class
having as equal a number of directors as possible. The term of office of each
class is three years, each term expiring in a different year.
REMOVAL OF DIRECTORS
IDX. Vermont law provides that the shareholders may remove a director with
or without cause, unless the articles of incorporation provide that directors
may be removed only for cause. The VBCA further provides that a director may
be removed by the shareholders only at a meeting called for the purpose of
removing the director, and the meeting notice must state that the purpose or
one of the purposes, of the meeting is the removal of the director. If a
director is elected by a voting group of shareholders, only shareholders of
that voting group may participate in the vote to remove the director, and the
director may be removed only if the votes in favor of such director's removal
exceed the votes against such removal at a meeting at which a quorum is
present. The articles of incorporation may require a greater number of votes
to remove a director. If, however, the corporation's articles of incorporation
authorize cumulative voting, the director cannot be removed if the number of
votes sufficient to elect the director under cumulative voting is voted
against the director's removal. The IDX Articles provide that directors may be
removed without cause, only upon the affirmative vote of the holders of at
least two-thirds of the shares of stock entitled to vote thereon.
PHAMIS. Shareholders are generally free under the WBCA to remove directors
with or without cause. The articles of incorporation of a corporation may,
however, require that directors be removed only for cause. Removal of a
director under the WBCA requires that a special meeting be called for that
purpose. The notice for the special meeting, unlike that for an annual
meeting, must state the purpose of the special meeting, i.e., the removal of a
particular director or directors. Pursuant to the WBCA, a director generally
can be removed only if the number of votes cast to remove the director exceeds
the number of votes cast in opposition to removal. However, the articles of
incorporation may require a greater number of votes to remove a director. The
PHAMIS Articles provide that a director may be removed only for cause and that
such removal shall be by the holders of not less than two-thirds of the shares
entitled to elect the director or directors. Removal of a director may only
take place at a special meeting of the shareholders called expressly for that
purpose. See "--Right to Call Special Meetings of Shareholders."
FILLING VACANCIES ON THE BOARD OF DIRECTORS
IDX. Vermont law provides that a vacancy on the board of directors,
including a vacancy resulting from an increase of the number of directors, may
be filled by the shareholders or the board of directors, and that the articles
of incorporation may require that the manner of filling a vacancy on the board
of directors shall be limited to being filled by either the shareholders or
the directors. The IDX Articles provide that if a vacancy occurs on the IDX
Board, including a vacancy resulting from an increase in the number of
directors, the IDX Board may fill the vacancy, or if the directors remaining
in office constitute fewer that a quorum of the board, they may fill the
vacancy by the affirmative vote of a majority of all the directors remaining
in office. If there are no IDX directors remaining in office, the IDX
shareholders may fill the vacancy.
PHAMIS. Washington law provides that either the shareholders or the board of
directors may fill a vacancy caused by a director's resignation, removal or
other departure from the board, or because of an increase in the number of
directors. The PHAMIS Bylaws provide that a vacancy created by the removal of
a director shall be filled only by a vote of the holders of two-thirds of the
shares then entitled to elect the removed director. Such vote may be taken at
the same meeting at which the removal of the director was accomplished, or at
such later meeting, regular or special, as the shareholders may decide. Apart
from vacancy due to removal of a director, any vacancy occurring on the board
of directors may be filled by the shareholders, the board of directors or, if
the directors in office constitute fewer than a quorum, by the affirmative
vote of a majority of the remaining directors.
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ACTION BY WRITTEN CONSENT
IDX. Under the VBCA, any action required or permitted to be taken at any
meeting of the shareholders may be taken without a meeting if all shareholders
entitled to vote consent in writing. Since IDX is a publicly traded
corporation, the unanimity requirement essentially precludes use of this
provision. However, if the articles of incorporation contain specific
authority to do so, action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if the action is taken by
the holders of at least a majority of all of the shares entitled to vote on
the action, and if each shareholder is given prior notice of the action
proposed to be taken. The IDX Articles do not contain any such specific
authority.
PHAMIS. Under the WBCA, any action shareholders take at a meeting may be
taken without a meeting by unanimous written consent. Since PHAMIS is a
publicly traded corporation, the unanimity requirement essentially precludes
use of this provision.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
IDX. The VBCA provides that a special meeting of shareholders may be called
by the board of directors or the persons authorized to do so by the articles
of incorporation or bylaws, or if the holders of a least 10% of all the votes
entitled to be cast on any issue proposed to be considered at a proposed
special meeting sign, date and deliver to the corporation's secretary one or
more written demands for the meeting describing the purposes for which it is
to be held. The IDX Articles provide that special meetings of the shareholders
may be called only by the IDX Board, the Chairman of the Board of Directors,
the Chief Executive Officer or, if none, the President or any other person
authorized to do so by the IDX Bylaws, or if the holders of a least 10% of all
the votes entitled to be cast on any issue proposed to be considered at a
proposed special meeting sign, date and deliver to the corporation's secretary
one or more written demands for the meeting describing the purpose or purposes
for which it is to be held. The IDX Bylaws provide that special meetings of
the shareholders may be called by the Secretary upon request by the IDX Board,
the Chairman of the Board, President or if the holders of at least 10% of all
the votes entitled to be cast on any issue proposed to be considered at a
proposed special meeting, sign, date and deliver to the Secretary one or more
written demands for the meeting describing the purpose or purposes for which
it is to be held.
PHAMIS. The WBCA provides that a special meeting of shareholders of a
corporation may be called by its board of directors, by holders of at least
10% of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting, or by other persons authorized to
do so by the articles of incorporation or bylaws of the corporation. However,
the WBCA allows the right of shareholders to call a special meeting to be
limited or denied to the extent provided in the articles of incorporation. The
PHAMIS Articles provide that a special meeting may not be called by
shareholders and may only be called by the Chairman of the PHAMIS Board, the
President, or by the PHAMIS Board.
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS
IDX. Each of the VBCA, IDX Articles and IDX Bylaws does not contain any
provisions relative to shareholder proposals and shareholder nominations of
directors.
PHAMIS. Under the PHAMIS Bylaws, written notice of a shareholder's intent to
nominate a director must be received by the Secretary of PHAMIS not later than
120 days before the annual meeting and not more than seven (7) days following
the date of notice of the meeting in the case of a special meeting. In
addition, under the PHAMIS Bylaws, written notice of a shareholders' intent to
propose a matter of business before the annual shareholders' meeting must be
received by the Secretary of PHAMIS not fewer than 60 nor more than 90 days
prior to the date of the annual shareholder's meeting.
BUSINESS COMBINATION STATUTE
IDX. Each of the VBCA, IDX Articles and IDX Bylaws does not contain any
provisions relative to business combination transactions with interested
persons.
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PHAMIS. The WBCA contains a provision in Section 23B.19.040 which prohibits
a "target corporation," with certain exceptions, from engaging in certain
"significant business transactions" with a person or group of persons who
beneficially owns 10% or more of the voting securities of the target
corporation (an "Acquiring Person") for a period of five years after the
acquisition of such securities, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the date of the acquisition. The significant
business transactions include, merger or consolidation with, disposition of
assets to or with, or issuance or redemption of stock to or from, the
Acquiring Person, termination of five percent (5%) or more of the employees of
the target corporation employed in Washington State as a result of the
Acquiring Person's acquisition of 10% or more of the shares or allowing the
Acquiring Person to receive any disproportionate benefit as a shareholder.
Target corporations include domestic corporations with a class of voting
shares registered with the Commission. A corporation may not "opt out" of this
statute.
REQUIRED VOTE FOR AUTHORIZATION OF MERGERS, SHARE EXCHANGE, AND SALE OF ASSETS
IDX. Except as noted below, Vermont law generally requires a merger, share
exchange, consolidation or sale of substantially all of a corporation's
assets, other than in the regular course of business, to be approved by the
corporation's board of directors and its shareholders and (unless the articles
of incorporation or the board of directors requires a greater vote or a vote
by voting groups) by a majority of all votes entitled to be cast on the
transaction. Vermont law further provides that submission by a board of
directors may be conditioned on any basis. Assuming approval of the Second
Charter Proposal, the IDX Articles will require the affirmative vote of the
holders of shares representing at least two-thirds of the votes cast on
certain business combinations in order to approve such business combinations
in the event that the IDX Board does not recommend such business combinations
to the shareholders. See "Second Amendment to IDX's Second Amended and
Restated Articles of Incorporation."
With respect to a merger, no vote of the shareholders of a Vermont
corporation party to a merger is required if the corporation's separate
corporate existence does not cease as the result of the merger and (i) its
articles of incorporation will not differ from its articles before the merger,
subject to certain exceptions, (ii) each shareholder of the corporation
immediately before the merger would hold the same number of shares, with
identical designations, preferences, limitations and relative rights,
immediately after the merger, (iii) the voting power of shares outstanding
immediately after the merger plus the shares issuable as a result of the
merger will not exceed by more than 20% the voting power of shares of the
corporation outstanding immediately before the merger, and (iv) the number of
participating shares outstanding immediately after the merger plus the number
of participating shares issuable as a result of the merger, will not exceed by
more than 20% the total number of participating shares outstanding immediately
before the merger.
PHAMIS. Under the WBCA, a merger, share exchange, sale, lease, exchange or
other disposition of all or substantially all of the property of a corporation
must be approved by the affirmative vote of a majority of directors when a
quorum is present, and by two-thirds of all votes entitled to be cast on the
matter, unless another proportion is specified in the articles of
incorporation. The PHAMIS Articles provide that shareholders holding a
majority of the outstanding shares entitled to vote on such a transaction may
approve the transaction; provided the transaction has been approved by a
majority of the "Continuing Directors" of the Board of Directors. Continuing
Directors is defined in the PHAMIS Articles as any member of the PHAMIS Board
on December 1, 1994 or who is subsequently elected upon the recommendation of
a majority of the Continuing Directors. All of the current members of the
PHAMIS Board qualify as Continuing Directors and the Merger was unanimously
approved by the PHAMIS Board. Consequently, only a majority of the outstanding
shares of PHAMIS entitled to vote on the Merger are required for its approval.
AMENDMENT OF ARTICLES OF INCORPORATION
IDX. Vermont law provides that, unless the articles of incorporation provide
otherwise, the board of directors can amend a corporation's articles of
incorporation without shareholder action, for certain changes,
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including (i) changing the initial registered agent or registered office, (ii)
changing issued and unissued shares of an outstanding class with a greater
number of whole shares if the corporation has only shares of that class
outstanding, and (iii) any other change expressly permitted to be made under
the VBCA without shareholder action. A corporation can also amend its articles
of incorporation by director proposal that is submitted to the shareholders.
Unless the VBCA, the IDX Articles, or the IDX Bylaws require a greater vote,
the amendment must be approved by the majority of the votes entitled to be
cast by any voting group with respect to which the amendment would create
dissenters' rights. Provisions of the IDX Articles relating to (i) the number,
vacancies, removal and certain powers of the members of the IDX Board, (ii)
the rights of IDX and shareholders of IDX to call special meetings of
shareholders, (iii) indemnification of officers and directors, and (iv) the
elimination of liability of officers and directors, may not be amended without
the affirmative vote of the holders of at least two-thirds of the total number
of votes entitled to be cast thereon.
PHAMIS. Under the WBCA, with certain exceptions, amendments to a
corporation's articles of incorporation must be recommended to the
shareholders by the board of directors, unless the board of directors
determines that because of a conflict of interest or other special
circumstances it should make no recommendation and communicates the basis for
its determination to the shareholders with the amendment. All amendments to
the PHAMIS Articles must be approved by a majority of all the votes entitled
to be cast by any voting group entitled to vote thereon unless another
proportion is specified in the PHAMIS Articles, by the PHAMIS Board as a
condition to its recommendation or by provisions of the WBCA. The PHAMIS
Articles require an amendment to the PHAMIS Articles to receive affirmative
vote of the holders of two-thirds of the shares entitled to vote thereon at
any regular meeting or special meeting duly called for that purpose.
AMENDMENT OF BYLAWS
IDX. Vermont law provides that a corporation's bylaws may be amended or
repealed by the vote of a majority of all the board of directors unless the
articles of incorporation reserve this power exclusively to the shareholders
in whole or in part or the shareholders in amending or repealing a particular
bylaw provided expressly that the board of directors may not amend or repeal
that bylaw. A corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may be amended or repealed by its board of
directors. The IDX Bylaws provide that the IDX Board may amend the IDX Bylaws,
but any bylaw made, altered or amended by the IDX shareholders may not be
altered, amended or repealed by the IDX Board.
PHAMIS. Washington law provides that the shareholders and the board of
directors of a corporation share the power to amend or repeal bylaws. If
shareholders originally adopt a bylaw that fixes a greater than majority
quorum or voting requirement for the board of directors, only shareholders may
amend that bylaw. The PHAMIS Bylaws state that the PHAMIS Board shall have the
power to adopt, amend, or repeal the PHAMIS Bylaws at a duly called meeting or
by written consent. The shareholders shall also have the power to adopt, amend
or repeal the PHAMIS Bylaws upon the affirmative vote of the holders of two-
thirds of the outstanding shares entitled to vote thereon.
APPRAISAL AND DISSENTERS' RIGHTS
IDX. Vermont law generally provides dissenters' rights for (i) mergers if
shareholder approval is required or if the corporation is a subsidiary that is
merged with its parent, (ii) share exchanges to which the corporation is a
party as the corporation whose shares will be acquired, (iii) sales of
substantially all the assets (other than sales that are in the usual and
regular course of business and certain liquidations and court-ordered sales),
(iv) certain amendments to the articles of incorporation that materially and
adversely affect rights in respect of a dissenter's shares, and (v) any
corporate actions taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
provides that shareholders are entitled to dissenters' rights. To perfect such
dissenters' rights, the shareholder must (i) file a written objection with the
corporation, prior to the vote, stating that such shareholder intends to
demand payment for his shares if the action is taken, and (ii) not vote in
favor of the proposed action. Holders of IDX Common Stock will be entitled,
under
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certain circumstances, to assert dissenters' rights under Chapter 13 of the
VBCA with respect to the Second Charter Proposal; IDX is not a corporation
party to the Merger pursuant to Vermont law, and the provisions of the VBCA
respecting dissenters' rights in the context of a merger do not apply with
respect to the Merger or the Merger Proposal. In addition, such provisions of
the VBCA do not apply with respect to the Charter Proposal, the Plan Proposal,
the ESPP Proposal or the DSOP Proposal. See "The Merger--Dissenters' Rights."
PHAMIS. Under the WBCA, a shareholder is entitled to dissent from and, upon
perfection of the shareholder's appraisal right, to obtain the fair value of
his or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the
corporation, and certain amendments to the corporation's articles of
incorporation that materially and adversely affect shareholder rights. See
also "The Merger--Dissenters' Rights."
LIMITATION ON DIRECTORS' LIABILITY
IDX. The VBCA permits the elimination or limitation of the liability of a
director to the corporation or its shareholders for monetary damages for any
action taken, or any failure to take action, solely as a director, based on
failure to discharge his or her own duties as required by the VBCA, except
liability for the amount of a financial benefit received by a director to
which the director is not entitled, an intentional or reckless infliction of
harm on the corporation or its shareholders, unlawful distributions or an
intentional or reckless criminal act. The IDX Articles provide for the
limitation of liability for breach of fiduciary duty to the fullest extent
permitted by Vermont law.
PHAMIS. The WBCA allows a corporation to provide in its articles of
incorporation for the elimination or limitation of personal liability of
directors to the corporation or its shareholders for monetary damages for
their conduct as directors. A corporation, however, cannot eliminate or limit
the liability of a director for acts or omissions that involve intentional
misconduct, a knowing violation of law, conduct regarding liability for
unlawful distributions, or for any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is not legally entitled. The PHAMIS Articles provide for the
elimination of personal monetary liability of directors to the fullest extent
permissible under the laws of Washington and incorporates future amendments to
Washington law with respect to the elimination of such liability.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
IDX. The VBCA permits indemnification of directors for reasonable expenses
(including attorneys' fees) incurred in a proceeding and amounts paid or
incurred in satisfaction of judgments, fines and settlements of any
proceedings (other than derivative actions) if such person acted in good faith
and reasonably believed that his or her conduct was in the best interest of
the corporation (or, in some circumstances, not opposed to its best interests)
and, if a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful and the director is not found to have engaged in a
reckless or intentional unlawful act. A corporation may not, under this
statute, indemnify a director in connection with a proceeding in which he or
she was adjudged liable to the corporation, or in connection with a proceeding
in which he or she was adjudged liable on the basis that he or she received an
improper personal benefit.
Unless limited by its articles of incorporation, a corporation is required
by the VBCA to indemnify a director or officer for his or her reasonable
expenses if the director or officer is wholly successful in the defense of a
proceeding brought because he or she was a director or officer. The IDX
Articles and the IDX Bylaws provide indemnification for officers, directors,
employees and agents to the fullest extent permitted by the VBCA against all
expense, liability and loss, and authorize the advance of expenses prior to
the ultimate determination of entitlement to indemnification, to the maximum
extent permitted by the VBCA.
PHAMIS. Under the WBCA, if authorized by its articles of incorporation, a
bylaw adopted or ratified by shareholders, or a resolution adopted or
ratified, before or after the event, by the shareholders, a corporation has
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the power to indemnify a director, officer or employee made a party to a
proceeding, or advance or reimburse expenses incurred in a proceeding, under
any circumstances, except that no such indemnification shall be allowed for:
(i) acts or omissions of a director, officer or employee finally adjudged to
be intentional misconduct or a knowing violation of the law; (ii) conduct of a
director, officer or employee finally adjudged to be an unlawful distribution;
or (iii) any transaction with respect to which it was finally adjudged that
such director, officer or employee personally received a benefit in money,
property or services to which the director, officer or employee was not
legally entitled. The WBCA provides for mandatory indemnification where a
director is wholly successful, on the merits or otherwise in the defense of a
proceeding to which the director is a party because of being a director of the
corporation.
The WBCA's legislative history suggests that a corporation may indemnify its
directors, officers and employees for amounts paid in settlement of derivative
actions, provided that the director's, officer's or employee's conduct does
not fall within one of the categories set forth above. Generally, the PHAMIS
Bylaws provide that PHAMIS shall indemnify its directors and officers and may
indemnify its employees to the fullest extent permitted by the WBCA, including
indemnification of persons seeking to enforce indemnification rights through a
proceeding authorized by the PHAMIS Board and initiated by such person.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number
of directors to be elected. A shareholder may then cast all such votes for a
single nominee or may allocate among as many nominees as the shareholder may
choose. Without cumulative voting, the holders of a majority of shares present
at an annual meeting or any special meeting held to elect directors would have
the power to elect all of the directors to be elected at that meeting and no
nominee could be elected without the support of a majority of the shares
voting at such meeting.
IDX. Unless otherwise provided in the articles of incorporation, under
Vermont law, shareholders do not have a right to cumulate their votes for
directors, and directors are elected by a plurality of the votes cast by the
shares entitled to vote at a meeting at which a quorum is present. However,
the IDX Articles provide that in an election of directors each share of stock
may be voted for as many individuals as there are directors to be elected and
for whose election the share is entitled to be voted.
PHAMIS. Washington law provides for cumulative voting for the election of
directors unless the articles of incorporation of a corporation provide
otherwise. The PHAMIS Articles state that shareholders have no right to
cumulative votes in the election of directors.
CONFLICT OF INTEREST TRANSACTIONS
IDX. In the case of a director's action, Vermont law provides that a
transaction with the corporation where a director has an interest is not
voidable by the corporation solely because of the director's interest if (i)
the required disclosure of the transaction and director interest was made to
the board of directors and the transaction is authorized by a majority of the
disinterested directors, or (ii) the transaction, judged according to the
circumstances at the time of the transaction, is fair to the corporation. In
the case of a shareholders' action, a transaction with the corporation where a
director has an interest is not voidable solely because of the director's
interest if (i) notice is given to shareholders describing the director's
conflicting interest transaction, (ii) the director discloses the number, and
the identity of persons holding or controlling the vote of all shares
beneficially owned by the director or related person, and (iii) required
disclosure was made to the shareholders who voted on the transaction, or (iv)
the transaction is fair to the corporation.
IDX adopted a policy that all material transactions between IDX and its
officers, directors and other affiliates must (i) be approved by a majority of
the members of the IDX Board and by a majority of the disinterested members of
the IDX Board, and (ii) be on terms no less favorable to IDX than could be
obtained from
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unaffiliated third parties. In addition, this policy requires that any loans
by IDX to its officers, directors and other affiliates be for bona fide
business purposes only.
PHAMIS. The WBCA sets forth a safe harbor for transactions between a
corporation and one or more of its directors. A conflicting interest
transaction may not be enjoined, set aside or give rise to damages if: (i) it
is approved by a majority of qualified directors (but no fewer than two); (ii)
it is approved by the affirmative vote of the majority of all qualified shares
after notice and disclosure to the shareholders; or (iii) at the time of
commitment, the transaction is established to have been fair to the
corporation. For purposes of this provision, a "qualified director" is one who
does not have either: (a) a conflicting interest respecting the transaction or
(b) a familial, financial, professional or employment relationship with a
second director who does have a conflicting interest respecting the
transaction, which relationship would, in the circumstances, reasonably be
expected to exert an influence on the first director's judgment when voting on
the transaction. "Qualified shares" are defined generally as shares other than
those beneficially owned, or the voting of which is controlled, by a director
(or an affiliate of the director) who has a conflicting interest respecting
the transaction.
DIVIDENDS AND OTHER DISTRIBUTIONS
IDX. Under Vermont law, a corporation generally may make dividends or other
distributions to its shareholders unless after giving effect to the
distribution either the corporation would not be able to pay its debts as they
become due in the usual course of business or its assets would be less than
the sum of its total liabilities plus (unless the articles of incorporation
permits otherwise) the amount that would be needed, if the corporation were to
be dissolved at the time of the distribution, to satisfy the preferential
dissolution rights of any shareholders whose preferential rights are superior
to those receiving the distribution. Additionally, under the VBCA, the
corporation's articles of incorporation could further restrict its ability to
make distributions, however the IDX Articles contain no such provision.
PHAMIS. Under the WBCA, a corporation may make a distribution in cash or in
property to its shareholders upon the authorization of its board of directors
unless, after giving effect to such distribution, (i) the corporation would
not be able to pay its debts as they become due in the usual course of
business or (ii) the corporation's total assets would be less than the sum of
its total liabilities plus, unless the articles of incorporation permit
otherwise, the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
of shareholders whose preferential rights are superior to those receiving the
distribution.
SHAREHOLDER INSPECTION RIGHTS
IDX. Under Vermont law, a corporation's shareholders are also entitled to
inspect and copy, during regular business hours at the corporation's principal
office, the minutes of shareholder meetings, articles of incorporation,
bylaws, the most recent annual report, and certain other records of the
corporation, provided the shareholder gives the corporation written notice of
his or her demand at least five (5) business days before the date on which the
shareholder wishes to inspect and copy the records. In addition, a shareholder
who makes a demand in good faith, for a proper purpose, and describes with
reasonable particularity the shareholder's purpose and the records the
shareholder desires to inspect, and if the records are directly connected with
the shareholder's purpose, may also, upon five (5) business days' written
notice, inspect and copy accounting and shareholder records of the
corporation. A corporation's charter or bylaws cannot limit these shareholder
rights.
PHAMIS. In connection with every meeting of shareholders, shareholders are
entitled to inspect the shareholder voting list beginning 10 days prior to the
meeting and continuing through the meeting, at the corporation's principal
business office, or at a location in the city where the meeting will be held.
In order to inspect general shareholder records, the shareholder must provide
a written notice five business days prior to the date of inspection. Every
shareholder is so entitled to inspect and copy a corporation's articles of
incorporation, bylaws, shareholder minutes, annual financial statements,
general written communications to shareholders and
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names and addresses of officers and directors. A shareholder may inspect and
copy a corporation's other books and records only for a proper purpose and if
the demand is made in good faith.
RIGHTS PLANS AND AGREEMENTS
IDX. IDX has not adopted a Rights Plan or entered into a Rights Agreement.
PHAMIS. On July 24, 1996, the PHAMIS Board adopted and approved the PHAMIS
Rights Plan and declared a dividend of one Right for each share of PHAMIS
Common Stock outstanding on July 31, 1996. The Rights have certain anti-
takeover effects and are intended to discourage coercive or unfair takeover
tactics and to encourage any potential acquiror to negotiate a price fair to
all shareholders. The Rights may cause substantial dilution to an acquiring
party that attempts to acquire PHAMIS on terms not approved by the PHAMIS
Board, but they will not interfere with any negotiated merger or other
business combination.
In the event that any person or group acquires beneficial ownership of 15
percent or more of the outstanding shares of PHAMIS Common Stock other than
pursuant to a "qualifying offer," as defined in the PHAMIS Rights Plan, each
holder of a Right, other than a Right beneficially owned by the acquiring
person, will thereafter have the Right to receive upon exercise that number of
shares of PHAMIS Common Stock having a market value of two times the exercise
price of the Right. In addition, if at any time following such acquisition of
15 percent or more of the outstanding PHAMIS Common Stock, PHAMIS is acquired
in a merger or other business combination transaction or 50 percent of more of
its consolidated assets or earning power are sold, other than resulting from a
qualifying offer, each holder of a Right will receive, upon exercise of that
Right at the prevailing exercise price of the Right, that number of shares of
common stock of the acquiring company which, at the time of such transaction,
will have a market value of two times the exercise price of the Right.
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FIRST AMENDMENT TO IDX'S SECOND AMENDED AND
RESTATED ARTICLES OF INCORPORATION
At the IDX Special Meeting, IDX shareholders will be asked to consider and
vote upon a proposal to amend the IDX Articles (the "Charter Amendment") to
increase the number of shares of capital stock which IDX has the authority to
issue from 55,000,000 to 105,000,000 and the number of shares of IDX Common
Stock which IDX has the authority to issue from 50,000,000 to 100,000,000 (the
"Charter Proposal").
The IDX Board believes the approval of the Charter Proposal is in the best
interests of IDX and its shareholders and recommends a vote FOR the proposal.
The approval of the Charter Proposal will require the affirmative vote of the
holders of shares representing a greater number of shares than the number of
shares represented by those voting against such proposal, assuming a quorum is
present. A copy of the Charter Amendment is attached hereto as Annex F and
incorporated herein by reference.
IDX may use authorized and unissued shares of IDX Common Stock for various
corporate purposes, including, but not limited to, possible future financing
and acquisition transactions, possible recapitalizations through stock splits
or stock dividends, issuances of additional stock options or awards, and other
corporate purposes. Authorized and unissued shares of IDX Common Stock may be
issued for the foregoing purposes by the IDX Board without further shareholder
action unless the issuance is in connection with a transaction for which
shareholder approval is otherwise required under the IDX Articles, applicable
law, regulation or agreement. The issuance of the additional shares of IDX
Common Stock proposed for authorization may have the effect of diluting
existing shareholder earnings per share, book value per share and voting
power. In addition, issuance of the shares of IDX Common Stock proposed for
authorization may be used to make a change in control of IDX more difficult or
costly by diluting stock ownership of persons seeking to obtain control of IDX
or by permitting the IDX Board to issue shares to purchasers favorable to the
IDX Board in opposing an effort to obtain control of IDX. For a discussion of
the potential anti-takeover effects of certain provisions of the IDX Articles
and the Second Charter Amendment see "Description of IDX Capital Stock" and
"Second Amendment to IDX's Amended and Restated Articles of Incorporation."
The approval of the Charter Proposal is not a condition to the approval of
the Merger Proposal or the consummation of the Merger. The approval of the
Merger Proposal and the consummation of the Merger are not conditions to the
filing of the Charter Amendment.
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SECOND AMENDMENT TO IDX'S SECOND AMENDED AND
RESTATED ARTICLES OF INCORPORATION
At the IDX Special Meeting, IDX shareholders will be asked to consider and
vote upon a proposal to amend the IDX Articles (the "Second Charter
Amendment") to increase the shareholder vote required from a majority to two-
thirds for approval of a Business Combination (as defined below) in the event
that the then current or pre-existing IDX Board does not recommend such a
Business Combination (as defined below) to the shareholders (the "Second
Charter Proposal").
The IDX Board believes the approval of the Second Charter Proposal is in the
best interests of IDX and its shareholders and recommends a vote FOR the
proposal. The approval of the Second Charter Proposal will require the
affirmative vote of the holders of shares representing at least two-thirds of
the shares cast on such proposal, assuming a quorum is present. A copy of the
Second Charter Amendment is attached hereto as Annex G and incorporated herein
by reference.
Holders of IDX Common Stock who, prior to the IDX Special Meeting, properly
demand appraisal and have not voted in favor of the Second Charter Proposal
are or may be entitled to assert dissenters' rights under Vermont Law with
respect to the Second Charter Proposal. See "The Merger--Dissenters' Rights"
and Annex E--Chapter 13 of the Vermont Business Corporation Act.
The IDX Articles are currently silent with respect to the shareholder vote
required in the event of a merger, share exchange or consolidation of IDX with
any other corporation, or the sale, lease, exchange or other disposition or
encumbrance, whether in one transaction or a series of transactions, by IDX of
all or a substantial part of IDX's assets, other than in the usual and regular
course of business (a "Business Combination"). The VBCA requires a Business
Combination to be approved by a majority of the votes entitled to be cast on
such Business Combination of each voting group entitled to vote separately on
such Business Combination. The Second Charter Amendment will not effect that
vote requirement with respect to Business Combinations recommended to the
shareholders by the IDX Board. It would, however, increase the vote required
to approve Business Combinations not recommended to the shareholders by the
then current or pre-existing IDX Board. The required vote would be increased
from a majority to two-thirds of the votes entitled to be cast on a Business
Combination of each voting group entitled to vote separately on such Business
Combination.
The IDX Board believes that the Second Charter Proposal may enhance its
ability to protect shareholders against attempts to acquire control of IDX by
means of unfair or abusive tactics that exist in many unsolicited takeover
attempts. The IDX Board believes that the Second Charter Proposal may
encourage persons seeking to acquire control of IDX to engage in good faith,
arms'-length negotiations with the IDX Board regarding the structure of their
proposal and may permit the IDX Board to engage in such negotiations from a
stronger position. The IDX Board believes that the Second Charter Proposal may
help to ensure that adequate consideration is received by the shareholders in
the event that IDX is ultimately acquired by a third party.
The Second Charter Amendment, if approved, may (i) have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of IDX, including transactions in which shareholders might
otherwise receive a premium for their shares over then current market prices,
(ii) limit the ability of shareholders to approve transactions that they may
deem to be in their best interests, and (iii) make the removal of members of
management more difficult. In addition, the Second Charter Amendment, if
approved, would allow a shareholder or group of shareholders, including
certain executive officers of IDX, owning or controlling more than one-third
of the shares of IDX Common Stock to block a proposed Business Combination.
Following consummation of the Merger, based on the number of outstanding
shares of IDX Common Stock and PHAMIS Common Stock as of March 31, 1997 and
assuming a Conversion Ratio of .73, (i) Messrs. Tarrant and Hoehl will
beneficially own in the aggregate approximately 52.9% of the outstanding
shares of IDX Common Stock, (ii) the executive officers of IDX as a group will
beneficially own in the aggregate approximately 55.9% of the
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outstanding shares of IDX Common Stock, and (iii) the directors of IDX as a
group will beneficially own in the aggregate approximately 57.6% of the
outstanding shares of IDX Common Stock.
Other provisions of the IDX Articles, including but not limited to those
relating to the authorization of "blank check" preferred stock, officers
entitled to call special meetings of shareholders, removal of directors,
classification of the IDX Board and the shareholder vote required to approve
certain amendments to the IDX Articles may (i) have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management
of IDX, (ii) limit the ability of shareholders to approve transactions that
they may deem to be in their best interests, and (iii) make the removal of
members of management more difficult. See "Description of IDX Capital Stock."
Although there is no specific relationship among these provisions of the IDX
Articles and proposed amendments thereto, each such provision of the IDX
Articles individually, the Charter Amendment individually, the Second Charter
Amendment individually and all such provisions of the IDX Articles and
proposed amendments thereto in the aggregate, may have anti-takeover effects
as described above. See "Description of IDX Capital Stock" and "First
Amendment to IDX's Second Amended and Restated Articles of Incorporation."
The Second Charter Proposal is not part of any plan on the part of the
management of IDX or the IDX Board to adopt a series of amendments to the IDX
Articles having potential anti-takeover effects. In addition, neither the
management of IDX nor the IDX Board presently intends to propose other anti-
takeover measures in the future. The Second Charter Proposal is not being made
as a result of any specific effort known to the management of IDX or the IDX
Board to accumulate shares of IDX Common Stock, obtain control of IDX, or
engage in a hostile takeover of IDX.
The approval of the Second Charter Proposal is not a condition to the
approval of the Merger Proposal or the consummation of the Merger. The
approval of the Merger Proposal and the consummation of the Merger are not
conditions to the filing of the Second Charter Amendment.
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AMENDMENT TO AND CONTINUANCE OF IDX'S 1995 STOCK OPTION PLAN
At the IDX Special Meeting, IDX shareholders will be asked to consider and
vote upon a proposal to amend the 1995 Stock Option Plan of IDX (the "Option
Plan") to increase the number of shares of IDX Common Stock authorized for
issuance thereunder from 1,470,000 shares to 4,500,000 shares and to continue
the Option Plan, as amended (the Plan Proposal). The Board of Directors of IDX
believes the approval of the Plan Proposal is in the best interest of IDX and
its shareholders and recommends a vote FOR this proposal.
The IDX Board believes that stock options which may be granted under the
Option Plan have been, and will continue to be, an important compensation
element in attracting and retaining key employees who are expected to
contribute to IDX's growth and success. As a result of the proposed Merger
between IDX and PHAMIS, the number of outstanding shares of IDX Common Stock
and the number of employees of IDX (including employees of its subsidiaries)
are expected to increase. In addition, IDX will not be permitted to grant any
options which remained available for grant under PHAMIS' option plans. To
ensure that IDX has the ability to continue to provide incentive to employees
in the form of stock options following the Merger, the IDX Board has
determined that the number of shares of IDX Common Stock available for
issuance under the Option Plan should be increased to 4,500,000 shares.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance-based compensation is not subject to the deduction
limit if certain requirements are met. In particular, income recognized upon
the exercise of a stock option is not subject to the deduction limit if the
option was issued under a plan approved by shareholders that provides a limit
to the number of shares that may be issued under the plan to any individual.
In order for options awarded under the Option Plan, as amended, to comply
with Section 162(m) after the IDX Special Meeting, the continuance of the
Option Plan must be approved by shareholders. Accordingly, the IDX Board
voted, subject to shareholder approval, to continue the Option Plan. If the
shareholders do not vote to continue the Option Plan, IDX will not grant any
further options under the Option Plan.
The Plan Proposal is being presented to the shareholders of IDX as a
separate proposal from the Merger Proposal, and the approval of the Plan
Proposal is not a condition to the approval of the Merger Proposal or the
consummation of the Merger.
The Option Plan is summarized below. This summary is qualified in all
respects by reference to the full text of the Option Plan, copies of which are
available upon request to the Secretary of IDX.
SUMMARY OF THE EQUITY PLAN
The Option Plan was adopted by the IDX Board and approved by the
shareholders of IDX in September 1995. The Option Plan provides for the grant
of stock options to employees, officers and directors of, and consultants or
advisers to, IDX and its subsidiaries. Under the Option Plan, IDX may grant
options that are intended to qualify as incentive stock options within the
meaning of Section 422 of the Code ("incentive stock options"), or options not
intended to qualify as incentive stock options ("non-statutory options").
Incentive stock options may only be granted to employees of IDX. A total of
1,470,000 shares of IDX Common Stock may be issued upon the exercise of
options granted under the Option Plan. As of March 31, 1997, 14,650 shares of
IDX Common Stock had been issued under the Option Plan, 1,013,692 shares of
IDX Common Stock were subject to outstanding stock options under to Option
Plan and 441,658 shares of IDX Common Stock remained available for future
option grants under the Option Plan. The maximum number of shares with respect
to which options may be granted to any employee under the Option Plan shall
not exceed 147,000 shares of IDX Common Stock during any calendar year.
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The Compensation Committee of the IDX Board may, in its sole discretion,
include additional provisions in any option or award granted or made under the
Option Plan, including without limitation restrictions on transfer, repurchase
rights, commitments to pay cash bonuses, to make, arrange for or guaranty
loans or to transfer other property to optionees upon exercise of options, or
such other provisions as shall be determined by the Compensation Committee of
the IDX Board, so long as not inconsistent with the Option Plan or applicable
law. The Compensation Committee of the IDX Board may also, in its sole
discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the Option Plan may be exercised.
Unless sooner terminated in accordance with the provisions of the Option Plan,
the Option Plan will terminate upon the close of business on the day next
preceding the tenth anniversary of the date of its adoption by the IDX Board.
As of March 31, 1997, IDX had approximately 1,283 employees, all of whom
were eligible to participate in the IDX Option Plan (although this number will
increase by approximately 368 if the Merger is consummated). During the fiscal
year ended December 31, 1996 (i) Mr. Galin received options to purchase 69,671
shares of IDX Common Stock under the Option Plan, (ii) all executive officers
as a group received options to purchase an aggregate of 198,441 shares of IDX
Common Stock under the Option Plan, (iii) all non-executive directors as a
group received no shares of IDX Common Stock under the Option Plan, and (iv)
all non-executive employees as a group received options to purchase an
aggregate of 508,135 shares of IDX Common Stock under the Option Plan. The
number of individuals receiving stock options varies from year to year
depending on various factors, such as the number of promotions and IDX's
hiring needs during the year, and thus the Company cannot now determine the
number or nature of awards to be granted to any particular executive officer,
executive officers as a group, non-executive directors as a group, or non-
executive employees as a group under the Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to the grant and exercise
of stock options under the Option Plan and with respect to the sale of IDX
Common Stock acquired under the Option Plan. It does not address the tax
consequences that may arise with respect to any gift or disposition other than
by sale of IDX Common Stock acquired under the Option Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option.
Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of IDX Common Stock acquired through
the exercise of the option ("ISO Stock"). Nevertheless, in the case of a
participant who has not been an employee of IDX at all times between the date
on which a particular option was granted (the "Grant Date") and the date that
is three months before the date on which the option is exercised (the
"Exercise Date"), and for purposes of the alternative minimum tax, an option
will be treated as though it were a non-statutory option and taxed as
described below under "Non-Statutory Options." While a participant will pay
alternative minimum tax only to the extent of the excess of that tax over the
participant's regular tax, the treatment of an option as a non-statutory
option for purposes of the alternative minimum tax could create such an
excess.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least
two years from the Grant Date and one year from the Exercise Date, then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock prior to having owned it for at least two
years from the Grant Date and one year from the Exercise Date (a
"Disqualifying Disposition"), then the participant generally will recognize
ordinary compensation income in an amount equal to the lesser of:
(i) the excess of the fair market value of the ISO Stock on the Exercise
Date over the exercise price; and
(ii) the excess of the sale price of the ISO Stock over the exercise
price.
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A participant making a Disqualifying Disposition will also recognize capital
gain in an amount equal to the excess of the sale price of the ISO Stock over
the fair market value of the ISO Stock on the Exercise Date. This capital gain
will be a long-term capital gain if the participant has held the ISO Stock for
more than one year prior to the date of the sale and will be a short-term
capital gain if the participant has held the ISO Stock for a shorter period.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the participant has held the ISO Stock for more than one
year prior to the date of the sale and will be a short-term capital loss if
the participant has held the ISO Stock for a shorter period.
Non-Statutory Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a non-
statutory option. Unlike the case of an incentive stock option, however, a
participant will recognize taxable income upon the exercise of a non-statutory
option. In particular, a participant who exercises a non-statutory option
generally will recognize ordinary compensation income in an amount equal to
the excess of the fair market value of the IDX Common Stock acquired through
the exercise of the option (the "NSO Stock") on the Exercise Date over the
exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will
be a long-term capital gain or loss if the participant has held the NSO Stock
for more than one year prior to the date of the sale and will be a short-term
capital gain or loss if the participant has held the NSO Stock for a shorter
period.
Tax Consequences to IDX. The grant of a stock option under the Option Plan
will have no tax consequences to IDX. Moreover, in general, neither the
exercise of an incentive stock option acquired under the Option Plan nor the
sale of any IDX Common Stock acquired under the Option Plan will have any tax
consequences to IDX. IDX generally will be entitled to a business-expense
deduction, however, with respect to any ordinary compensation income
recognized by a participant under the Option Plan. Any such deduction will be
subject to the limitations of Section 162(m) of the Code.
Withholding. While a participant's Disqualifying Disposition of ISO Stock
will result in the recognition of ordinary compensation income, IDX will have
no withholding obligation with respect to that income. Nevertheless, IDX will
have a withholding obligation with respect to ordinary compensation income
recognized upon the exercise of a non-statutory option by a participant who is
employed by IDX. IDX will require any such participant to make arrangements to
satisfy this withholding obligation.
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AMENDMENT TO IDX'S 1995 EMPLOYEE STOCK PURCHASE PLAN
At the IDX Special Meeting, IDX shareholders will be asked to consider and
vote upon a proposal to amend the 1995 Employee Stock Purchase Plan of IDX
(the "Purchase Plan") to increase the number of shares of IDX Common Stock
authorized for issuance thereunder from 500,000 shares to 1,400,000 shares
(the ESPP Proposal). The Board of IDX believes the approval of the ESPP
Proposal is in the best interest of IDX and its shareholders and recommends a
vote FOR this proposal.
The IDX Board believes that stock which may be purchased under the ESPP Plan
has been, and will continue to be, an important compensation element in
attracting and retaining key employees who are expected to contribute to IDX's
growth and success. As a result of the proposed Merger between IDX and PHAMIS,
the number of outstanding shares of IDX Common Stock and the number of
employees of IDX (including employees of its subsidiaries) are expected to
increase. To ensure that IDX has the ability to continue to provide incentive
to employees in the form of shares of IDX Common Stock following the Merger,
the IDX Board has determined that the number of shares of IDX Common Stock
available for purchase under the Purchase Plan should be increased to
1,400,000 shares.
The ESPP Proposal is being presented to the shareholders of IDX as a
separate proposal from the Merger Proposal, and the approval of the ESPP
Proposal is not a condition to the approval of the Merger Proposal or the
consummation of the Merger.
The Purchase Plan is summarized below. This summary is qualified in all
respects by reference to the full text of the Purchase Plan, copies of which
are available upon request to the Secretary of IDX.
SUMMARY OF THE PURCHASE PLAN
The Purchase Plan was adopted by the IDX Board and approved by the
shareholders of IDX in September 1995. All employees of IDX, including
directors of IDX who are employees, and all employees of any participating
subsidiaries whose customary employment is more than 20 hours per week and who
have been employed by IDX for more than one month prior to the commencement of
any option period are eligible to participate in the Purchase Plan. Employees
who would immediately after the grant own 5% or more of the total combined
voting power or value of the stock of IDX or any subsidiary are not eligible
to participate.
On the first day of a designated payroll deduction period (the "Offering
Period"), IDX will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of IDX Common
Stock as follows: the employee may authorize an amount up to 10% of such
employee's regular pay to be deducted by IDX from such pay during the Offering
Period (the "Offering"). On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase
Plan, the option price is an amount equal to 85% of the fair market value per
share of the IDX Common Stock on either the first day or the last day of the
Offering Period, whichever is lower. In no event may an employee purchase in
any one Offering Period a number of shares which is more than 12% of the
employee's annualized base pay divided by 85% of the market value of a share
of IDX Common Stock on the commencement date of the Offering Period. The
Compensation Committee at the IDX Board may, in its discretion, choose an
Offering Period of 12 months or less for each Offering and choose a different
Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases employment for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares which the accumulated payroll deductions in the
participant's account would purchase at the time of death. A total of 500,000
shares of IDX Common Stock may be issued to participating employees under the
Purchase
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Plan. As of March 31, 1997, 159,929 shares of IDX Common Stock had been issued
under the Purchase Plan and 340,071 shares of IDX Common Stock remained
available for future issuance under the Purchase Plan.
The IDX Board may at any time amend the Purchase Plan in any respect, except
that (i) if approval of any such amendment by the shareholders of IDX is
required by Section 423 of the Code or by Rule 16b-3 under the Exchange Act,
such amendment shall not be effected without such approval, and (ii) no
amendment shall be made which would cause the Purchase Plan to fail to comply
with Section 16 of the Exchange Act and the rules thereunder, or Section 423
of the Code.
As of March 31, 1997, IDX had approximately 1,283 employees, all of whom
were eligible to participate in the Purchase Plan (although this number will
increase by approximately 368 if the Merger is consummated). During the fiscal
year ended December 31, 1996 (i) Mr. Crook purchased 1,965 shares of IDX
Common Stock under the Purchase Plan, (ii) all executive officers as a group
purchased an aggregate of 5,848 shares of IDX Common Stock under the Purchase
Plan, (iii) all non-executive directors as a group purchased no shares of IDX
Common Stock under the Purchase Plan, and (iv) all non-executive employees as
a group purchased an aggregate of 154,081 shares of IDX Common stock under the
Purchase Plan. The number of individuals purchasing IDX Common Stock varies
from year to year depending on various factors, such as the number of
promotions and IDX's hiring needs during the year, and thus the Company cannot
now determine the number of shares of IDX Common Stock to be purchased by any
particular executive officer, executive officers as a group, non-executive
directors as a group, or non-executive employees as a group under the Purchase
Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to participation in the
Purchase Plan and with respect to the sale of IDX Common Stock acquired under
the Purchase Plan. It does not address the tax consequences that may arise
with respect to any gift or disposition other than by sale of IDX Common Stock
acquired under the Purchase Plan. FOR PRECISE ADVICE AS TO ANY SPECIFIC
TRANSACTION OR SET OF CIRCUMSTANCES, PARTICIPANTS SHOULD CONSULT WITH THEIR
OWN TAX ADVISORS. PARTICIPANTS SHOULD ALSO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE APPLICATION OF ANY STATE, LOCAL, AND FOREIGN TAXES AND ANY
FEDERAL GIFT, ESTATE, AND INHERITANCE TAXES.
The Purchase Plan is intended to qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Code. The Purchase Plan is not
a qualified plan under Section 401(a) of the Code.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the Purchase Plan or upon
purchasing shares of IDX Common Stock at the end of an Offering. Instead, if a
participant sells IDX Common Stock acquired under the Purchase Plan at a sale
price that exceeds the price at which the participant purchased the IDX Common
Stock, then the participant will recognize taxable income. A portion of that
taxable income will be ordinary income, and a portion may be capital gain.
If the participant sells the IDX Common Stock more than one year after
acquiring it and more than two years after the date on which the Offering
commenced (the "Offering Date"), then the participant will be taxed as
follows. If the sale price of the IDX Common Stock is higher than the price at
which the participant purchased the IDX Common Stock, then participant will
recognize ordinary compensation income in an amount equal to the lesser of:
(i) the excess of the fair market value of the IDX Common Stock on the
Offering Date over the price at which the participant purchased the IDX
Common Stock; and
(ii) the excess of the sale price of the IDX Common Stock over the price
at which the participant purchased the IDX Common Stock.
Any further income will be long-term capital gain. If the sale price of the
IDX Common Stock is less than the price at which the participant purchased the
IDX Common Stock, then the participant will recognize long-
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term capital loss in an amount equal to the excess of the price at which the
participant purchased the IDX Common Stock over the sale price of the IDX
Common Stock.
If the participant sells the IDX Common Stock within one year after
acquiring it or within two years after the Offering Date (again, a
"Disqualifying Disposition"), then the participant will recognize ordinary
compensation income in an amount equal to the excess of the fair market value
of the IDX Common Stock on the date that it was purchased over the price at
which the participant purchased the IDX Common Stock. The participant will
also recognize capital gain in an amount equal to the excess of the sale price
of the IDX Common Stock over the fair market value of the IDX Common Stock on
the date that it was purchased, or capital loss in an amount equal to the
excess of the fair market value of the IDX Common Stock on the date that it
was purchased over the sale price of the IDX Common Stock. This capital gain
or loss will be a long-term capital gain or loss if the participant has held
the IDX Common Stock for more than one year prior to the date of the sale and
will be a short-term capital gain or loss if the participant has held the IDX
Common Stock for a shorter period.
Tax Consequences to IDX. The offering of IDX Common Stock under the Purchase
Plan will have no tax consequences to IDX. Moreover, in general, neither the
purchase nor the sale of IDX Common Stock acquired under the Purchase Plan
will have any tax consequences to IDX except that IDX will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant upon making a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
Withholding. The amount that a participant elects to have deducted from his
or her base pay for the purchase of IDX Common Stock under the Purchase Plan
constitutes taxable wages and is subject to withholding. Moreover, IDX may
have a withholding obligation with respect to ordinary compensation income
recognized by a participant upon making a Disqualifying Disposition. IDX will
require any affected participant to make arrangements to satisfy this
withholding obligation, if any.
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AMENDMENT TO IDX'S 1995 DIRECTOR STOCK OPTION PLAN
At the IDX Special Meeting, IDX shareholders will be asked to consider and
vote upon a proposal to amend the 1995 Director Stock Option Plan of IDX (the
"Director Plan") to increase the number of shares of IDX Common Stock
authorized for issuance thereunder from 30,000 shares to 80,000 shares (the
DSOP Proposal). The Board of Directors of IDX believes the approval of the
DSOP Proposal is in the best interest of IDX and its shareholders and
recommends a vote FOR this proposal.
The Board of Directors believes that stock options which may be granted
under the Director Plan have been, and will continue to be, an important
compensation element in attracting and retaining non-employee directors who
are expected to contribute to IDX's growth and success. As a result of the
proposed Merger between IDX and PHAMIS, the number of outstanding shares of
IDX Common Stock and the number of directors of IDX are expected to increase.
In addition, IDX will not be permitted to grant any options which remained
available for grant under PHAMIS' option plans. To ensure that IDX has the
ability to continue to provide incentive to non-employee directors in the form
of stock options following the Merger, the IDX Board has determined that the
number of shares of IDX Common Stock available for issuance under the Director
Plan should be increased to 80,000 shares.
The DSOP Proposal is being presented to the shareholders of IDX as a
separate proposal from the Merger Proposal, and the approval of the DSOP
Proposal is not a condition to the approval of the Merger Proposal or the
consummation of the Merger.
The Director Plan is summarized below. This summary is qualified in all
respects by reference to the full text of the Director Plan, copies of which
are available upon request to the Secretary of IDX.
SUMMARY OF THE DIRECTOR PLAN
The Director Plan was adopted by the IDX Board and approved by the
shareholders of IDX in September 1995. Under the terms of the Director Plan,
directors of IDX who are not employees of IDX or any subsidiary of IDX, are
eligible to receive non-statutory options to purchase shares of IDX Common
Stock. The granting of options under the Director Plan is at the discretion of
and must be approved by (i) the IDX Board, or (ii) a committee of the IDX
Board that is comprised solely of two or more "non-employee directors" (as
defined in Rule 16b-3 under the Exchange Act). As set forth in the Director
Plan, annual options to purchase that number of shares of IDX Common Stock
equal to four times the cash value of a director's annual retainer (such cash
value is approximately $15,000) divided by the average of the high and low per
share price of IDX Common Stock on the Nasdaq National Market on the date of
the annual meeting of shareholders, are granted to each eligible director on
the date of each annual meeting of shareholders. All options will vest on the
first anniversary of the date of grant (or, in the case of annual options, the
day prior to the first annual meeting of shareholders of IDX following the
date of grant, if earlier). With the exception of the options granted on
November 17, 1995, the effective date of IDX's initial public offering of
shares of Common Stock, the exercise price of options granted under the
Director Plan equal the lesser of (i) the closing price of the IDX Common
Stock on the date of grant or (ii) if the IDX Common Stock is not traded on
the Nasdaq National Market or a securities exchange, the fair market value per
share on the date of grant as determined by the IDX Board.
Options granted under the Director Plan are not transferrable by the
optionee except by will or by the laws of descent and distribution. In the
event an optionee ceases to serve as a director, each option may be exercised
by the optionee for the portion then exercisable at any time within one year
after the optionee ceases to serve as a director for any reason. No option is
exercisable after the expiration of ten years from the date of grant. A total
of 30,000 shares of IDX Common Stock may be issued upon the exercise of
options granted under the Director Plan. As of March 31, 1997, no shares of
IDX Common Stock had been issued under the Director Plan, 12,000 shares of IDX
Common Stock were subject to outstanding stock options under the Director Plan
and 18,000 shares of IDX Common Stock remained available for future option
grants under the Director Plan.
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The Director Plan is administered by the IDX Board. The IDX Board may
suspend or discontinue the Director Plan or revise or amend it in any respect;
provided, however, that without approval of the shareholders, no revision or
amendment may change the number of shares subject to the Director Plan (except
as otherwise provided in the Director Plan). Provisions of the Director Plan
relating to option grant dates and the option exercise price may not be
amended more than once in any six-month period.
As of March 31, 1997, IDX had four (4) directors who were eligible to
participate in the IDX Director Plan (although this number may increase by
approximately one (1) if the Merger is consummated). During the fiscal year
ended December 31, 1996 (i) each of Messrs. Tarrant, Hoehl, Tufo, Crook and
Galin received no shares of IDX Common Stock under the Director Plan, (ii) all
executive officers as a group received no options to purchase shares of IDX
Common Stock under the Director Plan, (iii) all non-executive directors as a
group received an aggregate of 6,000 shares of IDX Common Stock under the
Director Plan, and (iv) all non-executive employees as a group received no
options to purchase shares of IDX Common Stock under the Director Plan. The
number of directors receiving stock options varies from year to year depending
on various factors, such as the number of directors during the year, and thus
IDX cannot now determine the number of awards to be granted to any particular
executive officer, executive officers as a group, non-executive directors as a
group, or non-executive employees as a group under the Director Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to the grant and exercise
of stock options under the Director Plan and with respect to the sale of IDX
Common Stock acquired under the Director Plan. It does not address the tax
consequences that may arise with respect to any gift or disposition other than
by sale of IDX Common Stock acquired under the Director Plan. FOR PRECISE
ADVICE AS TO ANY SPECIFIC TRANSACTION OR SET OF CIRCUMSTANCES, PARTICIPANTS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS. PARTICIPANTS SHOULD ALSO CONSULT
WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF ANY STATE, LOCAL, AND
FOREIGN TAXES AND ANY FEDERAL GIFT, ESTATE, AND INHERITANCE TAXES. The
Director Plan is not a qualified plan under Section 401(a) of the Code.
Tax Consequences to Participants. A participant will not recognize taxable
income upon the grant of an option under the Director Plan. However, a
participant will recognize ordinary compensation income upon the exercise of
the option in an amount equal to the excess of the fair market value of the
IDX Common Stock acquired through the exercise of the option (the "Option
Stock") on the exercise date over the exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the Option Stock
over the participant's tax basis in the Option Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
Option Stock for more than one year prior to the date of the sale and will be
a short-term capital gain or loss if the participant has held the Option Stock
for a shorter period.
Tax Consequences to the Company. The grant of a stock option under the
Director Plan will have no tax consequences to IDX except that IDX generally
will be entitled to a business-expense deduction with respect to any ordinary
compensation income recognized by a participant under the Director Plan.
LEGAL MATTERS
The validity of the shares of IDX Common Stock to be issued in connection
with the Merger will be passed upon for IDX by Robert W. Baker Jr., Esq., Vice
President and General Counsel to IDX. As of March 31, 1997, Mr. Baker held
1,064 shares of IDX Common Stock and held options to acquire 46,371 additional
shares of IDX Common Stock. Foster Pepper & Shefelman PLLC, Seattle,
Washington, is acting as counsel for PHAMIS in connection with certain legal
matters relating to the merger and the transaction contemplated thereby.
112
<PAGE>
EXPERTS
The consolidated financial statements of IDX at December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996
incorporated in this Joint Proxy Statement/Prospectus and Registration
Statement by reference to IDX's Annual Report on Form 10-K for the year ended
December 31, 1996 have been audited by Ernst & Young, independent auditors, as
set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
Representatives of Ernst & Young are expected to be present at the IDX
Special Meeting and will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from shareholders.
The consolidated financial statements of PHAMIS, Inc. and subsidiaries as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been incorporated by reference in this Joint
Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
PHAMIS Special Meeting and will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from shareholders.
113
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
IDX SYSTEMS CORPORATION, PENGUIN ACQUISITION CORPORATION,
AND
PHAMIS, INC.
MARCH 25, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<C> <S> <C>
ARTICLE I--THE MERGER................................................... A-1
1.1 The Merger..................................................... A-1
1.2 The Closing.................................................... A-1
1.3 Actions at the Closing......................................... A-1
1.4 Additional Action.............................................. A-1
1.5 Conversion of Shares........................................... A-2
1.6 Dissenting Shares.............................................. A-3
1.7 Exchange of Shares............................................. A-3
1.8 Dividends...................................................... A-4
1.9 Fractional Shares.............................................. A-4
1.10 Options; Employee Stock Purchase Plan; Salary Savings and
Deferral Plan................................................. A-4
1.11 Articles of Incorporation...................................... A-5
1.12 Bylaws......................................................... A-5
1.13 Directors and Officers......................................... A-5
1.14 No Further Rights.............................................. A-5
1.15 Closing of Transfer Books...................................... A-5
1.16 Tax-Free Reorganization........................................ A-5
1.17 Accounting Treatment........................................... A-5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-5
2.1 Organization, Qualification and Corporate Power................ A-6
2.2 Capitalization................................................. A-6
2.3 Authorization of Transaction................................... A-7
2.4 Noncontravention............................................... A-7
2.5 Subsidiaries................................................... A-8
2.6 Reports and Financial Statements............................... A-8
2.7 Absence of Certain Changes..................................... A-8
2.8 No Undisclosed Liabilities..................................... A-8
2.9 Tax Matters.................................................... A-8
2.10 Assets......................................................... A-9
2.11 Owned Real Property............................................ A-9
2.12 Intellectual Property.......................................... A-9
2.13 Real Property Leases........................................... A-11
2.14 Contracts...................................................... A-11
2.15 Accounts Receivable............................................ A-12
2.16 Powers of Attorney............................................. A-13
2.17 Insurance...................................................... A-13
2.18 Litigation..................................................... A-13
2.19 Company Customer Contracts..................................... A-13
2.20 Employees...................................................... A-14
2.21 Employee Benefits.............................................. A-14
2.22 Environmental Matters.......................................... A-15
2.23 Legal Compliance............................................... A-16
2.24 Permits........................................................ A-16
2.25 Certain Business Relationships With Affiliates................. A-17
2.26 Brokers' Fees.................................................. A-17
2.27 Books and Records.............................................. A-17
2.28 Customers and Suppliers........................................ A-17
2.29 Pooling........................................................ A-17
</TABLE>
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2.30 Company Action................................................. A-17
2.31 Rights Plan.................................................... A-17
2.32 Disclosure..................................................... A-18
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY...................................... A-18
3.1 Organization, Qualification and Corporate Power................ A-18
3.2 Capitalization................................................. A-18
3.3 Authorization of Transaction................................... A-18
3.4 Noncontravention............................................... A-19
3.5 Reports and Financial Statements............................... A-19
3.6 Absence of Material Adverse Changes............................ A-19
3.7 No Undisclosed Liabilities..................................... A-19
3.8 Intellectual Property.......................................... A-20
3.9 Litigation..................................................... A-20
3.10 Environmental Matters.......................................... A-20
3.11 Legal Compliance............................................... A-20
3.12 Disclosure..................................................... A-20
ARTICLE IV--COVENANTS................................................... A-20
4.1 Best Efforts................................................... A-20
4.2 Notices and Consents........................................... A-21
4.3 Special Meeting Prospectus/Proxy Statement and Registration
Statement..................................................... A-21
4.4 Hart-Scott-Rodino Act.......................................... A-22
4.5 Operation of Company Business.................................. A-22
4.5A Operation of Buyer Business.................................... A-24
4.6 Full Access.................................................... A-24
4.7 Notice of Breaches............................................. A-24
4.8 Exclusivity.................................................... A-24
4.9 Agreements from Certain Affiliates of the Company.............. A-25
4.10 Listing of Merger Shares....................................... A-25
4.11 Rights Agreement............................................... A-25
4.12 Pooling Accounting............................................. A-25
4.13 Company Equity Plans........................................... A-25
4.14 Representations of Principal Stockholders...................... A-26
4.15 Directors' and Officers' Liability Insurance; Indemnification.. A-26
4.16 Relocation of Facilities....................................... A-26
4.17 Company Savings Plan........................................... A-27
ARTICLE V--CONDITIONS TO CONSUMMATION OF MERGER......................... A-27
5.1 Conditions to Each Party's Obligations......................... A-27
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary.................................................... A-27
5.3 Conditions to Obligations of the Company....................... A-28
ARTICLE VI--TERMINATION................................................. A-29
6.1 Termination of Agreement....................................... A-29
6.2 Effect of Termination.......................................... A-30
6.3 Termination Fees............................................... A-30
ARTICLE VII--DEFINITIONS................................................ A-31
</TABLE>
ii
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ARTICLE VIII--MISCELLANEOUS............................................... A-33
8.1 Press Releases and Announcements................................. A-33
8.2 No Third Party Beneficiaries..................................... A-33
8.3 Entire Agreement................................................. A-33
8.4 Succession and Assignment........................................ A-33
8.5 Counterparts..................................................... A-33
8.6 Headings......................................................... A-33
8.7 Notices.......................................................... A-33
8.8 Governing Law.................................................... A-34
8.9 Amendments and Waivers........................................... A-34
8.10 Severability..................................................... A-34
8.11 Expenses......................................................... A-34
8.12 Specific Performance............................................. A-34
8.13 Submission to Jurisdiction....................................... A-35
8.14 Construction..................................................... A-35
8.15 Incorporation of Exhibits and Schedules.......................... A-35
8.16 Nonsurvival of Representations, Warranties and Agreements........ A-35
EXHIBITS
Exhibit A--Rights Plan Amendment
Exhibit B--Affiliate Agreement
Exhibit C--Opinion of Counsel to the Company
Exhibit D--Opinion of Counsel to the Transitory Subsidiary and the
Buyer
Schedule 4.5--Certain Permitted Actions
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of March 25, 1997 by and among IDX SYSTEMS
CORPORATION, a Vermont corporation (the "Buyer"), PENGUIN ACQUISITION
CORPORATION, a Washington corporation and a wholly-owned subsidiary of the
Buyer (the "Transitory Subsidiary"), and PHAMIS, INC., a Washington
corporation (the "Company"). The Buyer, the Transitory Subsidiary and the
Company are referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), of the Buyer,
the Transitory Subsidiary and the Company. In the Merger, the stockholders of
the Company will receive capital stock of the Buyer in exchange for their
capital stock of the Company. It is intended that the Merger shall be
accounted for as a pooling of interests basis.
Now, therefore, in consideration of the representations, warranties and
covenants contained herein, the Parties agree as follows.
ARTICLE I
The Merger
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company
(with such merger referred to herein as the "Merger") at the Effective Time
(as defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary file the articles of merger or other appropriate
documents prepared and executed in accordance with the relevant provisions of
the Washington Business Corporation Act (the "Articles of Merger") with the
Secretary of State of the State of Washington. The Merger shall have the
effects set forth in Section 23B.11 of the Washington Business Corporation Act
(the "Washington Act").
1.2 The Closing. Unless this Agreement is terminated and the transactions
abandoned pursuant to Section 6.1 hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Foster Pepper & Shefelman in Seattle, Washington, commencing at 9:00 a.m.
local time on July 10, 1997, or, if all of the conditions to the obligations
of the Parties to consummate the transactions contemplated hereby have not
been satisfied or waived by such date, on such mutually agreeable later date
as soon as practicable after the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (the "Closing Date").
1.3 Actions at the Closing. At the Closing, (a) the Company shall deliver to
the Buyer and the Transitory Subsidiary the various certificates, instruments
and documents referred to in Section 5.2, (b) the Buyer and the Transitory
Subsidiary shall deliver to the Company the various certificates, instruments
and documents referred to in Section 5.3, (c) the Company and the Transitory
Subsidiary shall file with the Secretary of State of the State of Washington
the Articles of Merger, and (d) the Buyer shall deliver a certificate for the
Merger Shares (as defined below) to a bank trust company or other entity
reasonably satisfactory to the Company appointed by the Buyer to act as the
exchange agent (the "Exchange Agent") in accordance with Section 1.7. If the
Washington Secretary of State requires any changes in the Articles of Merger
as a condition to filing the Articles of Merger or issuing its certificate to
the effect that the Merger is effective, the Parties shall execute any
necessary revisions incorporating such changes, provided such changes are not
inconsistent with and do not result in any substantial change in the terms of
this Agreement.
1.4 Additional Action. The Surviving Corporation may, at any time after the
Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
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<PAGE>
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of any Party or the holder of any of the
following securities:
(a) (i) Each share of common stock, $0.0025 par value per share, of the
Company ("Company Shares") issued and outstanding immediately prior to the
Effective Time (other than Company Shares owned beneficially by the Buyer
or the Transitory Subsidiary, Dissenting Shares (as defined below) and
Company Shares held in the Company's treasury) shall be converted into such
number of newly issued shares of common stock, $.01 par value per share, of
the Buyer ("Buyer Common Stock") as is equal to the Conversion Ratio. As
used in this Agreement, the term "Merger Shares" shall mean the shares of
Buyer Common Stock issued by the Buyer upon conversion of the Company
Shares. The "Conversion Ratio" shall initially be 0.73, and shall be
subject to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split or similar event affecting the Buyer Common
Stock between the date of this Agreement and the Effective Time
(collectively, a "Recapitalization"). All such Company Shares when so
converted shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of Buyer Common
Stock and any cash in lieu of fractional shares of Buyer Common Stock to be
issued in consideration therefor upon the surrender of such certificate in
accordance with Section 1.7, without interest.
(ii) Notwithstanding the foregoing (A) if the average closing price per
share of the Buyer Common Stock on the Nasdaq National Market over the
twenty consecutive trading days ending on the trading day two trading days
immediately preceding the date of the Company Special Meeting (the "Buyer
Stock Value") is greater than $34.375 per share (subject to equitable
adjustment in the event of any Recapitalization), the Conversion Ratio
shall be equal to .73 multiplied by a fraction the numerator of which shall
be $34.375 and the denominator of which shall be the Buyer Stock Value;
provided, however, that the Conversion Ratio shall never be lower than
.6811; and (B) if the Buyer Stock Value is less than $28.125 per share
(subject to equitable adjustment in the event of any Recapitalization), the
Conversion Ratio shall be equal to .73 multiplied by a fraction, the
numerator of which shall be $28.125 and the denominator of which shall be
the Buyer Stock Value, provided, however, that the Conversion Ratio shall
never be higher than .8.
(iii) Further notwithstanding the foregoing, the Company shall have the
right to terminate this Agreement pursuant to Section 6.1(g) if the Buyer
Stock Value is less than the lower of (A) $25.663 per share (subject to
equitable adjustment in the event of any Recapitalization), or (B) the
"Index Floor Price" per share (as defined below). For purposes of this
Section 1.5, the Index Floor Price shall equal the difference between (I)
the closing sale price of the Buyer Common Stock on the Nasdaq National
Market on March 24, 1997 (the "Current Buyer Price") and (II) the Current
Buyer Price multiplied by the product of (X) 1.15 and (Y) the "Composite
Index Change" (as defined below). For purposes of this Section 1.5, the
Composite Index Change shall equal the difference between (I) one (1) and
(II) a fraction (which may not exceed one (1)), the denominator of which is
the sum of the closing prices on the Nasdaq National Market on March 24,
1997 of the common stock, par value $.01 per share, of Cerner Corporation,
the common stock, $.05 par value per share, of HBO & Company, the common
stock, $.01 par value per share, of HCIA, Inc., the common stock, $.01 par
value per share, of Physician Computer Network, Inc. and the common stock,
$.01 par value per share, of Shared Medical Systems Corporation
(collectively, the "Composite Common Stocks") and the numerator of which is
the sum of the average closing prices per share of the Composite Common
Stocks on the Nasdaq National Market over the twenty consecutive trading
days ending on the trading day two trading days immediately preceding the
date of the Company Special Meeting, in each case subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split or similar event affecting any of the Composite Common Stocks between
the date of this Agreement and the date of the Company Special Meeting;
provided, that if on or after the date of this Agreement and prior to the
close of business on the date of the Company Special Meeting the issuer of
any of the Composite Common Stocks is the subject of any publicly announced
acquisition proposal by a third party or such issuer publicly announces a
proposed acquisition of a third party in one or more transactions having a
value in excess of 25% of such issuer's market capitalization on the date
of this Agreement, such issuer's common stock shall be removed from the
Composite Common Stocks.
A-2
<PAGE>
(b) Each Company Share held in the Company's treasury immediately prior
to the Effective Time and each Company Share owned beneficially by the
Buyer or the Transitory Subsidiary shall be canceled and retired without
payment of any consideration therefor.
(c) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation and
the separate existence of the Transitory Subsidiary shall cease.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means Company Shares
held as of the Effective Time by a Company Stockholder who has not voted such
Company Shares in favor of the adoption of this Agreement and the Merger and
with respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 23B.13 of the Washington Act and not effectively
withdrawn or forfeited prior to the Effective Time. Dissenting Shares shall
not be converted into or represent the right to receive Merger Shares, unless
such Company Stockholder shall have forfeited his right to appraisal under the
Washington Act or withdrawn, with the consent of the Company, his demand for
appraisal. If such Company Stockholder has so forfeited or withdrawn his right
to appraisal of Dissenting Shares, then (i) as of the occurrence of such
event, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive the Merger Shares
issuable in respect of such Company Shares pursuant to Section 1.5(a), and
(ii) promptly following the occurrence of such event, the Buyer shall deliver
to the Exchange Agent a certificate representing the Merger Shares to which
such holder is entitled pursuant to Section 1.5(a).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the Washington Act. The Company shall not,
except with the prior written consent of the Buyer, make any payment with
respect to any demands for appraisal of Company Shares or offer to settle or
settle any such demands.
1.7 Exchange of Shares.
(a) Prior to the Effective Time, the Buyer shall appoint the Exchange Agent
to effect the exchange for the certificates that, immediately prior to the
Effective Time, represented Company Shares converted into Merger Shares
pursuant to Section 1.5 (including any Company Shares referred to in the last
sentence of Section 1.6(a)) ("Certificates"). On the Closing Date, the Buyer
shall deliver to the Exchange Agent, in trust for the benefit of holders of
Certificates, a stock certificate (issued in the name of the Exchange Agent or
its nominee) representing the Merger Shares, as described in Section 1.5(a).
As soon as practicable after the Effective Time, the Buyer shall cause the
Exchange Agent to send a notice and a transmittal form to each holder of a
Certificate advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent such Certificate in exchange
for the Merger Shares issuable pursuant to Section 1.5(a). Each holder of a
Certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any taxes required to be withheld) the Merger Shares
issuable pursuant to Section 1.5(a). Until properly surrendered, each such
Certificate shall be deemed for all purposes to evidence only the right to
receive the Merger Shares issuable pursuant to Section 1.5(a). Holders of
Certificates shall not be entitled to receive certificates for the Merger
Shares to which they would otherwise be entitled until such Certificates are
properly surrendered.
(b) If any Merger Shares are to be issued in the name of a person other than
the person in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition to the issuance of such Merger Shares that
(i) the Certificate so surrendered shall be transferable, and shall be
properly assigned, endorsed or accompanied by appropriate stock powers, (ii)
such transfer shall otherwise be proper and (iii) the person
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<PAGE>
requesting such transfer shall pay to the Exchange Agent any transfer or other
taxes payable by reason of the foregoing or establish to the satisfaction of
the Exchange Agent that such taxes have been paid or are not required to be
paid. Notwithstanding the foregoing, no Affiliate (as defined below) of the
Company may transfer his or her Merger Shares pursuant to this paragraph (b).
Notwithstanding the foregoing, neither the Exchange Agent nor any Party shall
be liable to a holder of Company Shares for any Merger Shares issuable to such
holder pursuant to Section 1.5(a) (or dividends or distributions with respect
thereto) that are delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, the Buyer shall issue in exchange
for such lost, stolen or destroyed Certificate the Merger Shares issuable in
exchange therefor pursuant to Section 1.5(a). The Buyer may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed Certificate to give the Buyer a bond in such
sum as it may direct as indemnity against any claim that may be made against
the Buyer with respect to the Certificate alleged to have been lost, stolen or
destroyed.
(d) Promptly following the date which is six months after the Closing Date,
the Exchange Agent shall return to the Buyer all Merger Shares in its
possession, and the Exchange Agent's duties shall terminate. Thereafter, each
holder of a Certificate may surrender such Certificate to the Buyer and,
subject to applicable abandoned property, escheat and similar laws, receive in
exchange therefor the Merger Shares issuable with respect thereto pursuant to
Section 1.5(a).
1.8 Dividends. No dividends or other distributions that are payable to the
holders of record of Buyer Common Stock as of a date on or after the Closing
Date shall be paid to former Company Stockholders entitled by reason of the
Merger to receive Merger Shares until such holders surrender their
Certificates in accordance with Section 1.7. Upon such surrender, the Buyer
shall pay or deliver to the persons in whose name the certificates
representing such Merger Shares are issued any dividends or other
distributions that are payable to the holders of record of Buyer Common Stock
as of a date on or after the Closing Date and which were paid or delivered
between the Effective Time and the time of such surrender; provided that no
such person shall be entitled to receive any interest on such dividends or
other distributions.
1.9 Fractional Shares. No certificate or script representing fractional
Merger Shares shall be issued to former Company Stockholders upon the
surrender for exchange of Certificates, and such former Company Stockholders
shall not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of the Buyer with respect to
any fractional Merger Shares that would otherwise be issued to such former
Company Stockholders. In lieu of any fractional Merger Shares that would
otherwise be issued, each former Company Stockholder that would have been
entitled to receive a fractional Merger Share shall, upon proper surrender of
such person's Certificates, receive a cash payment equal to the closing price
per share of the Buyer Common Stock on the Nasdaq National Market, as reported
by Nasdaq, on the business day immediately preceding the Closing Date,
multiplied by the fraction of a share that such Company Stockholder would
otherwise be entitled to receive.
1.10 Options; Employee Stock Purchase Plan; Salary Savings and Deferral
Plan. At the Effective Time, all then outstanding options to purchase Company
Shares issued under the Company's Amended and Restated 1993 Combined
Nonqualified and Incentive Stock Option Plans, Amended and Restated 1983
Combined Nonqualified and Incentive Stock Option Plan and 1994 Non-Employee
Director Stock Option Plan (collectively, the "Company Option Plans") shall be
assumed by the Buyer in accordance with Section 4.13. Immediately prior to the
Effective Time, the Company shall (i) apply the funds credited as of such date
under the Company's 1994 Employee Stock Purchase Plan (the "Company Purchase
Plan") within each participant's payroll account to the purchase of whole
Company Shares in accordance with the terms of the Company Purchase Plan; (ii)
contribute to the Company Salary Savings and Deferral Plan (the "Company
Savings Plan") sufficient Company Shares to fulfill the Company's obligation
under the Company Savings Plan to make matching contributions with
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<PAGE>
respect to the salary deferral contributions paid or payable to such plan for
the period from January 1, 1997 until the Closing Date.
1.11 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the same as the Articles of Incorporation of
the Transitory Subsidiary immediately prior to the Effective Time, except that
the name of the corporation set forth therein shall be changed to the name of
the Company.
1.12 Bylaws. The bylaws of the Surviving Corporation shall be the same as
the bylaws of the Transitory Subsidiary immediately prior to the Effective
Time, except that the name of the corporation set forth therein shall be
changed to the name of the Company.
1.13 Directors and Officers. The directors of the Transitory Subsidiary
shall become the initial directors of the Surviving Corporation as of the
Effective Time, and the officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualify. Prior to the Effective Time, the Buyer shall (i) increase the number
of the members of the Board of Directors of the Buyer to nine and take such
action as is necessary such that immediately following the Effective Time,
Malcolm Gleser shall become a Class III director of the Buyer and Frank T.
Sample shall become a Class I Director of the Buyer and (ii) take such action
so that upon the Effective Time, Frank T. Sample shall be elected to the
position of Executive Vice President of the Buyer.
1.14 No Further Rights. From and after the Effective Time, no Company Shares
shall be deemed to be outstanding, and holders of Certificates shall cease to
have any rights with respect thereto, except as provided herein or by law.
1.15 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented
to the Surviving Corporation or the Exchange Agent, they shall be canceled and
exchanged for Merger Shares in accordance with Section 1.5(a), subject to
Section 1.7 and to applicable law in the case of Dissenting Shares.
1.16 Tax-Free Reorganization. The Merger is intended to be a reorganization
within the meaning of Section 368 of the Code, and this Agreement is intended
to be a "plan of reorganization" within the meaning of the regulations
promulgated under Section 368 of the Code.
1.17 Accounting Treatment. The business combination to be effected by the
Merger is intended to be treated for accounting purposes as a "pooling of
interests."
ARTICLE II
Representations and Warranties of the Company
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and complete as of the date hereof and
shall be true and complete as of the Effective Time, except as set forth in
the disclosure schedule delivered by the Company to the Buyer on or before the
date of this Agreement (the "Company Disclosure Schedule"). The Company
Disclosure Schedule shall be signed by the Parties and shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II, and the disclosures in any paragraph of the Company
Disclosure Schedule shall qualify only the corresponding paragraph in this
Article II.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. The Company is duly qualified to
conduct business and is in good standing under the laws of each jurisdiction
in which the nature of
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its businesses or the ownership or leasing of its properties requires such
qualification, except as set forth on Section 2.21 of the Company Disclosure
Schedule, where the failure to be so qualified individually or in the
aggregate would not have a Company Material Adverse Effect (as defined below).
As used herein, the term "Company Material Adverse Effect" shall mean any
change or effect that, individually or when taken together with all other such
changes or effects that have occurred prior to the date of determination of
the occurrence of the Company Material Adverse Effect, is or is reasonably
likely to be, materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, or that is or is reasonably likely to have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement; provided, however, that a Company
Material Adverse Effect shall not include any changes that are the effect of
or result exclusively from economic factors affecting the medical information
software industry generally. The Company has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Company has furnished to the Buyer
true and complete copies of its Articles of Incorporation and bylaws, each as
amended and as in effect on the date hereof. The Company is not in default
under or in violation of any provision of its Articles of Incorporation or
bylaws.
2.2 Capitalization. The entire authorized capital stock of the Company
consists of 25,000,000 Company Shares, of which 6,161,745 shares are issued
and outstanding and no shares are held in the treasury of the Company as of
March 21, 1997. The Company has authorized 4,000,000 shares of preferred
stock, none of which are issued and outstanding or will be issued and
outstanding as of or at any time prior to the Effective Time. No material
change in the capitalization of the Company has occurred between March 21,
1997 and the date of this Agreement. For purposes of the foregoing sentence,
the issuance of Company Shares upon the exercise of outstanding Options or
pursuant to the Company Purchase Plan shall not be considered to be a
"material change in capitalization." Section 2.2 of the Company Disclosure
Schedule sets forth a complete and accurate list as of the date of this
Agreement of (i) all Company Shares reserved for future issuance pursuant to
stock options granted and outstanding under the Company Option Plans, (ii) all
Company Shares reserved for future issuance pursuant to the rights outstanding
under the Company Purchase Plan, (iii) all Company Shares reserved for future
issuance upon exercise of purchase rights (the "Company Rights") under the
Rights Agreement dated as of July 24, 1996 by and between the Company and
First Interstate Bank of Washington, N.A. as Rights Agent (the "Company Rights
Agreement") and (iv) all holders of options, warrants or other rights to
purchase shares of Company Shares ("Options"), indicating the number of
Company Shares subject to each Option. All of the issued and outstanding
Company Shares are, and all Company Shares that may be issued as specified on
Section 2.2 of the Company Disclosure Schedule will be, duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
There are no outstanding or authorized options, warrants, rights, agreements
or commitments to which the Company is a party or which are binding upon the
Company providing for the issuance, disposition, repurchase or acquisition of
any of its capital stock, other than the Options listed in Section 2.2 of the
Company Disclosure Schedule or issuances as contemplated in this Agreement.
There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company. There are no agreements or
understandings with respect to registration under the Securities Act of 1933,
as amended (the "Securities Act") or, to the knowledge of the Company, with
respect to voting, of any Company Shares. All of the issued and outstanding
Company Shares were issued in compliance with applicable federal and state
securities laws.
2.3 Authorization of Transaction. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by a
majority of the votes represented by the outstanding Company Shares entitled
to vote on this Agreement and the Merger (the "Requisite Stockholder
Approval"), the performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
the Company. This Agreement has been duly and validly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
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2.4 Noncontravention. Subject to compliance with the applicable requirements
of the Securities Act and any applicable state securities laws, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-Rodino Act")
and the filing of the Articles of Merger as required by the Washington Act,
neither the execution and delivery of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby, will (a)
conflict with or violate any provision of the Articles of Incorporation or
bylaws of the Company, (b) require on the part of the Company or any
corporation with respect to which the Company, directly or indirectly, has the
power to vote or direct the voting of sufficient securities to elect a
majority of the directors (a "Subsidiary") any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), other than any filing, permit,
authorization, consent or approval which if not obtained or made would not
have a Company Material Adverse Effect, (c) conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of their assets is subject, other than any
conflict, breach, default, acceleration, termination, modification or
cancellation which individually or in the aggregate would not have a Company
Material Adverse Effect, (d) result in the imposition of any Security Interest
upon any assets of the Company or any Subsidiary or (e) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the
Company, any Subsidiary or any of their properties or assets. For purposes of
this Agreement, "Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien (whether arising by contract or
by operation of law), other than (i) mechanic's, materialmen's, and similar
liens, (ii) liens arising under workers compensation, unemployment insurance,
social security, retirement, and similar legislation, and (iii) liens on goods
in transit incurred pursuant to documentary letters of credit, in each case
arising in the ordinary course of business consistent with past custom and
practice (including with respect to frequency and amount) ("Ordinary Course of
Business") of the Company and not material to the Company.
2.5 Subsidiaries. Section 2.5 of the Company Disclosure Schedule sets forth
for each Subsidiary (a) its name and jurisdiction of incorporation, (b) the
number of shares of authorized capital stock of each class of its capital
stock, (c) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof and the number of shares held
by each such holder, (d) the number of shares of its capital stock held in
treasury, and (e) its directors and officers. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to
conduct business and is in good standing under the laws of each jurisdiction
in which the nature of its businesses or the ownership or leasing of its
properties requires such qualification, except where the failure to be so
qualified would not have a Company Material Adverse Effect. Each Subsidiary
has all requisite corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
The Company has delivered to the Buyer correct and complete copies of the
charter and bylaws of each Subsidiary, as amended to date. No Subsidiary is in
default under or in violation of any provision of its charter or bylaws. All
of the issued and outstanding shares of capital stock of each Subsidiary are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. All shares of each Subsidiary that are held of record or
owned beneficially by either the Company or any Subsidiary are held or owned
free and clear of any restrictions on transfer (other than restrictions under
the Securities Act and state securities laws), claims, Security Interests,
options, warrants, rights, contracts, calls, commitments, equities and
demands. There are no outstanding or authorized options, warrants, rights,
agreements or commitments to which the Company or any Subsidiary is a party or
which are binding on any of them providing for the issuance, disposition or
acquisition of any capital stock of any Subsidiary. There are no outstanding
stock appreciation, phantom stock or similar rights with respect to any
Subsidiary. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any
Subsidiary. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a Subsidiary.
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2.6 Reports and Financial Statements. The Company has previously furnished
to the Buyer complete and accurate copies, as amended or supplemented, of its
(a) Annual Report on Form 10-K for the fiscal years ended 1994 and 1995, as
filed with the Securities and Exchange Commission (the "SEC"), (b) proxy
statements relating to all meetings of its stockholders (whether annual or
special) since December 16, 1994 and (c) all other reports or registration
statements, other than Registration Statements on Form S-8, filed by the
Company with the SEC since December 16, 1994 (such annual reports, proxy
statements, registration statements and other filings, together with any
amendments or supplements thereto, are collectively referred to herein as the
"Company Reports"). The Company Reports constitute all of the documents filed
or required to be filed by the Company with the SEC since December 16, 1994,
other than any Registration Statement on Form S-8. As of their respective
dates, the Company Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited financial statements and
unaudited interim financial statements of the Company included in the Company
Reports, including any Company Reports filed after the date of this Agreement
until the Closing (together, the "Company Financial Statements") (i) comply or
will comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared or will be prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of the Company and the Subsidiaries as of the respective dates
thereof and for the periods referred to therein, and (iv) are consistent with
the books and records of the Company and the Subsidiaries, including the
audited financial statements of the Company as of December 31, 1996 which have
been provided to the Buyer and which shall be substantially identical to the
audited financial statements to be filed by the Company with the SEC as part
of its Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(the "Most Recent Company Financial Statements"), except that such financial
statements may include a footnote describing the Merger.
2.7 Absence of Certain Changes. Since December 31, 1996 (the "Most Recent
Fiscal Quarter End") the Company has operated in the Ordinary Course of
Business and, (a) there has not been any Company Material Adverse Effect and
(b) neither the Company nor any Subsidiary has taken any of the actions set
forth in paragraphs (a) through (o) of Section 4.5 except as set forth on
Section 2.7 of the Company Disclosure Schedule.
2.8 No Undisclosed Liabilities. Except as disclosed in the Company Reports,
none of the Company and its Subsidiaries has any liability (whether known or
unknown, whether absolute or contingent, whether liquidated or unliquidated
and whether due or to become due), except for (a) liabilities shown on the
Most Recent Company Financial Statements, (b) liabilities which have arisen
since the Most Recent Fiscal Quarter End in the Ordinary Course of Business,
(c) contractual liabilities incurred in the Ordinary Course of Business which
are not required by GAAP to be reflected on a balance sheet, (d) liabilities
incurred in connection with this Agreement set forth on Section 2.8 of the
Company Disclosure Schedule and (e) other liabilities that are not reasonably
likely to have a Company Material Adverse Effect.
2.9 Tax Matters.
(a) Each of the Company and the Subsidiaries has filed all Tax Returns (as
defined below) that it was required to file and all such Tax Returns were
correct and complete in all material respects. Each of the Company and the
Subsidiaries has paid all Taxes (as defined below) that are shown to be due on
any such Tax Returns. The unpaid Taxes of the Company and the Subsidiaries for
tax periods through the date of the Most Recent Company Financial Statements
do not exceed the accruals and reserves for Taxes (other than any reserves for
deferred Taxes) set forth on the Most Recent Company Financial Statements.
Neither the Company nor any Subsidiary has any actual or potential liability
for any Tax obligation of any taxpayer (including without limitation any
affiliated group of corporations or other entities that included the Company
or any Subsidiary during a prior period) other than the Company and the
Subsidiaries. All Taxes that the Company or any Subsidiary is or was required
by law to withhold or collect have been duly withheld or collected and, to the
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extent required, have been paid to the proper Governmental Entity. For
purposes of this Agreement, "Taxes" means all taxes, charges, fees, levies or
other similar assessments or liabilities, including without limitation income,
gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, payroll and
franchise taxes imposed by the United States of America or any state, local or
foreign government, or any agency thereof, or other political subdivision of
the United States or any such government, and any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof. For purposes of
this Agreement, "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority
in connection with Taxes.
(b) The Company has delivered to the Buyer correct and complete copies of
all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by any of the Company or any
Subsidiary for tax years ended December 31, 1992 through December 31, 1995.
The federal income Tax Returns of the Company have been audited by the
Internal Revenue Service or are closed by the applicable statute of
limitations for all taxable years through 1992. No examination or audit of any
Tax Returns of the Company or any Subsidiary by any Governmental Entity is
currently in progress or, to the knowledge of the Company and the
Subsidiaries, threatened or contemplated except as set forth in Section 2.9 of
the Company Disclosure Schedule. Neither the Company nor any Subsidiary has
waived any statute of limitations with respect to taxes or agreed to an
extension of time with respect to a tax assessment or deficiency.
(c) Neither the Company nor any Subsidiary is a "consenting corporation"
within the meaning of Section 341(f) of the Code and none of the assets of the
Company or the Subsidiaries are subject to an election under Section 341(f) of
the Code. Neither the Company nor any Subsidiary has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the
Code. Neither the Company nor any Subsidiary is a party to any Tax allocation
or sharing agreement. The Company is not a party to any agreement which
requires the Company to make any payment that is not deductible pursuant to
Sections 280G or 404(b) of the Code.
(d) Neither the Company nor any Subsidiary is or has ever been a member of
an "affiliated group" of corporations (within the meaning of Section 1504 of
the Code), other than a group of which only the Company and the Subsidiaries
are members. Neither the Company nor any Subsidiary has made an election under
Treasury Reg. Section 1.1502-20(g). Neither the Company nor any Subsidiary is
or has been required to make a basis reduction pursuant to Treasury Reg.
Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
2.10 Assets. Each of the Company and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset
is free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to
normal wear and tear) and is suitable for the purposes for which it presently
is used. No asset of the Company (tangible or intangible) is subject to any
Security Interest.
2.11 Owned Real Property. None of the Company or any Subsidiary owns or has
owned any real property.
2.12 Intellectual Property.
(a) Each of the Company and the Subsidiaries owns, or has valid licenses to,
or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, trade secrets, and any
applications for such patents, trademarks, trade names, service marks and
copyrights, schematics, technology, know-how, and tangible or intangible
proprietary information or materials, applicable to or that are used in its
business as currently conducted or planned to be conducted (collectively,
"Company Intellectual Property").
(b) Section 2.12(b) of the Company Disclosure Schedule hereto sets forth (i)
a complete and correct list of all registered trademarks, trade names, service
marks, service names, and brand names; all material unregistered trademarks,
trade names, service marks, service names and brand names; all patents and
registered copyrights;
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and all applications for the foregoing, if any, (setting forth the
registration, issue or serial number of the same and a description of the
same) applicable to or used in the businesses of and owned by, the Company or
any Subsidiary; and (ii) the owner of such intellectual property listed in
clause (i) and any registration thereof or application therefor. Except
pursuant to the Company Customer Contracts (as defined below), neither the
Company nor any Subsidiary has granted any licenses to third parties with
respect to any of the foregoing.
(c) All Company Intellectual Property claimed to be owned by the Company or
its Subsidiaries is owned free and clear of all liens, security interests,
encumbrances and claims, of any kind or nature, including without limitation,
claims or rights of employees, agents, consultants, inventors, customers,
licensees or other parties involved in the development, creation, marketing,
maintenance, enhancement or licensing thereof. Neither the Company nor any
Subsidiary is currently in receipt of, or has any knowledge of, any notice of
any violation of, and neither the Company nor any Subsidiary is violating, in
any respect, the rights of others in any trademark, trade name, service mark,
copyright, patent, trade secret, know-how or other intangible asset.
(d) Section 2.12(d) of the Company Disclosure Schedule contains a complete
and accurate list of all computer software represented or claimed by the
Company or any of its Subsidiaries to be owned by the Company or such
Subsidiary ("Company Owned Software") other than immaterial Company Owned
Software, which list specifies which of the Company and the Subsidiaries is
the owner thereof. The Company or one of the Subsidiaries has title to the
Company Owned Software, free and clear of all liens, security interests,
encumbrances and claims, including without limitation, claims or rights of
employees, agents, consultants, inventors, customers, licensees or other
parties involved in the development, creation, marketing, maintenance,
enhancement or licensing of such computer software. Except for commercially
available, over-the-counter "shrink-wrap" software, the Company Owned Software
is not dependent on any Company Licensed Software (as defined in Subsection
(e) below) in order to operate fully in the manner in which it is intended. No
Company Owned Software has been published or disclosed to any other parties
except pursuant to contracts requiring such other parties to keep the Company
Owned Software confidential and except where such disclosures were both
incidental and immaterial. To the knowledge of the Company, no such other
party has breached any such obligation of confidentiality.
(e) Section 2.12(e) of the Company Disclosure Schedule contains a complete
and accurate list of all software (other than commercially available over-the-
counter "shrink-wrap" software and immaterial Company Licensed Software) under
which the Company or any Subsidiary is a licensee, lessee or otherwise has
obtained the right to use (the "Company Licensed Software"). Section 2.12(e)
of the Company Disclosure Schedule states with respect to any items disclosed
thereon the duration of the applicable license. The Company and each of the
Subsidiaries are in compliance in all material respects with all applicable
provisions of such agreements, except where instances of non-compliance would
not, in the aggregate, have a Company Material Adverse Effect. None of the
Company Licensed Software has been incorporated into or made a part of any
Company Owned Software or any other Company Licensed Software by the Company
or Subsidiary. Neither the Company nor any Subsidiary has published or
disclosed any Company Licensed Software to any other party except in
accordance with and as permitted by any license, lease or similar agreement
relating to such Company Licensed Software. No party to whom the Company or a
Subsidiary has disclosed Company Licensed Software has, to the knowledge of
the Company, breached any obligation of confidentiality imposed on them by the
Company or a Subsidiary relating thereto.
(f) The Company and the Subsidiaries are in compliance with the owner's
terms and conditions for all commercially available over-the-counter, shrink-
wrap software used by the Company or the Subsidiaries except as set forth in
Section 2.12(f) of the Company Disclosure Schedule.
(g) The Company Owned Software and Company Licensed Software and
commercially available over-the-counter "shrink-wrap" software constitute all
software used in the businesses of the Company and the Subsidiaries
(collectively, the "Company Software"), other than immaterial Company Owned
Software and immaterial Company Licensed Software.
(h) The transactions contemplated herein will not cause a breach or default
under any licenses, leases or similar agreements relating to the Company
Software or impair the Company's or any Subsidiary's ability to use
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the Company Software in the same manner after the Merger as such computer
software is currently used by the Company or the Subsidiaries except as set
forth in Section 2.12(h) of the Company Disclosure Schedule.
(i) The Company has rights to all Intellectual Property developed for it by
all persons, firms or entities that have provided the Company or any
Subsidiary, within the past five (5) years, with any computer systems design
services, computer programming services, or any other program or product
development services.
(j) Neither the Company nor any of the Subsidiaries has received notice of
being named in any suit, action or proceeding filed with any Governmental
Entity which involves a claim of infringement of any intellectual property
right of any third party that has not been finally resolved, nor has the
Company or any of the Subsidiaries received notice of any such claim of
infringement. The manufacturing, marketing, licensing or sale of the products
or performance of the service offerings of the Company and the Subsidiaries do
not infringe any intellectual property right of any third party; and to the
knowledge of the Company and the Subsidiaries, the Company Intellectual
Property rights of the Company and the Subsidiaries are not being infringed by
activities, products or services of any third party except as set forth in
Section 2.12(j) of the Company Disclosure Schedule.
(k) None of the Company and the Subsidiaries has taken or failed to take any
actions under the law of any foreign jurisdiction where the Company or a
Subsidiary has marketed or licensed Company Software that would materially
restrict or limit the ability of the Company or any Subsidiary to protect, or
prevent it from protecting, its ownership interests in, confidentiality rights
of, and rights to market, license, modify or enhance, the Company Software.
2.13 Real Property Leases. Section 2.13 of the Company Disclosure Schedule
lists and describes briefly all real property leased or subleased to the
Company or any Subsidiary and lists the term of such lease, any extension and
expansion options, and the rent payable thereunder. The Company has delivered
to the Buyer correct and complete copies of the leases and subleases (as
amended to date) listed in Section 2.13 of the Company Disclosure Schedule.
With respect to each lease and sublease listed in Section 2.13 of the Company
Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect prior to the Closing;
(c) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(d) there are no disputes, oral agreements or forbearance programs in
effect as to the lease or sublease;
(e) neither the Company nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said
facilities; and
(g) to the knowledge of the Company, the owner of the facility leased or
subleased has good and clear record and marketable title to the parcel of
real property, free and clear of any Security Interest, easement, covenant
or other restriction, except for recorded easements, covenants, and other
restrictions which do not impair the Intended Uses, occupancy or value of
the property subject thereto.
2.14 Contracts. Section 2.14 of the Company Disclosure Schedule lists the
following written arrangements (including without limitation written
agreements) to which the Company or any Subsidiary is a party:
(a) any written arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties providing for
lease payments in excess of $2,000 per month;
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(b) any written arrangement (or group of related written arrangements)
for the purchase or sale of raw materials, commodities, supplies, products
or other personal property or for the furnishing or receipt of services (i)
which calls for performance over a period of more than one year, (ii) which
involves more than the sum of $60,000, or (iii) in which the Company or any
Subsidiary has granted distribution rights relating to any products or
territory or has agreed to purchase a minimum quantity of goods or services
or has agreed to purchase goods or services exclusively from a certain
party;
(c) any written arrangement establishing a partnership or joint venture;
(d) any written arrangement based in any manner upon the sales,
purchases, receipts, revenues, income or profits of the Company or any
Subsidiary;
(e) any written arrangement restricting the Company or any Subsidiary
from carrying on its business anywhere in the world;
(f) any written arrangement for joint product development with any party,
other than Company Customer Contracts;
(g) any written arrangements with vendors of material equipment purchased
by the Company or any Subsidiary as reseller of equipment, other than
purchase orders in the ordinary course of business;
(h) any written franchise arrangement, marketing arrangement, royalty
arrangement that requires payments or results in recurring revenues and
with respect to each such arrangement, Section 2.14 of the Company
Disclosure Schedule sets forth or describes the aggregate royalties or
similar payment paid or payable thereunder by the Company or any Subsidiary
as of the date hereof;
(i) any written arrangement as of the date of this Agreement (or group of
related written arrangements) under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations) involving more than
$60,000 or under which it has imposed (or may impose) a Security Interest
on any of its assets, tangible or intangible;
(j) any written arrangement as of the date of this Agreement relating to
the evaluation of the Company by any other company, person or entity who
was or is considering acquiring all or a significant part of the Company's
business by acquisition, merger, joint venture or otherwise;
(k) any written arrangement (other than those described in the Company
Reports) involving any of the Company Stockholders or their affiliates, as
defined in Rule 12b-2 under the Exchange Act ("Affiliates"); and
(l) any written arrangement under which the consequences of a default or
termination could have a Company Material Adverse Effect.
The Company has delivered to the Buyer a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.14 of the Company
Disclosure Schedule. With respect to each written arrangement so listed: (i)
the written arrangement is legal, valid, binding and enforceable and in full
force and effect; (ii) the written arrangement will continue to be legal,
valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior
to the Closing; and (iii) except as described in Section 2.14 of the Company
Disclosure Schedule under the heading "Known Defaults," the Company and the
Subsidiaries are not, and to the knowledge of the Company, no third party is
in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration, under the written arrangement. To the knowledge of the
Company, neither the Company nor any Subsidiary is a party to any oral
contract, agreement or other arrangement which, if reduced to written form,
would be required to be listed in Section 2.14 of the Company Disclosure
Schedule under the terms of this Section 2.14.
2.15 Accounts Receivable. All accounts receivable of the Company and the
Subsidiaries reflected on the Most Recent Company Financial Statements are
valid receivables subject to no setoffs or counterclaims and are current and
are collectible, net of the applicable reserve for bad debts on the Most
Recent Company Financial
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Statements except as set forth in Section 2.15 of the Company Disclosure
Schedule. All accounts receivable reflected in the financial or accounting
records of the Company that have arisen since the Most Recent Fiscal Quarter
End are valid receivables subject to no setoffs or counterclaims and are
collectible, net of a reserve for bad debts in an amount proportionate to the
reserve shown on the Most Recent Company Financial Statements.
2.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company or any Subsidiary except as set forth in
Section 2.16 of the Company Disclosure Schedule.
2.17 Insurance. The Company has delivered the Buyer a correct and complete
summary of each insurance policy (including fire, theft, casualty, general
liability, workers compensation, business interruption, environmental, product
liability and automobile insurance policies and bond and surety arrangements)
to which the Company or any Subsidiary has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past three years.
With respect to each such policy in effect as of the date of this Agreement:
(i) each such insurance policy is enforceable and in full force and effect;
(ii) such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing; (iii) neither the Company nor any Subsidiary is
in breach or default (including with respect to the payment of premiums or the
giving of notices) under such policy, and no event has occurred which, with
notice or the lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration, under such policy; and (iv)
neither the Company nor any Subsidiary has received any notice from the
insurer disclaiming coverage or reserving rights with respect to a particular
claim or such policy in general. Neither the Company nor any Subsidiary has
incurred any material loss, damage, expense or liability covered by any such
insurance policy for which it has not properly asserted a claim under such
policy. Each of the Company and the Subsidiaries is covered by insurance in
scope and amount customary and reasonable for the businesses in which it is
engaged.
2.18 Litigation. Section 2.18 of the Company Disclosure Schedule identifies,
and contains a brief description of, (a) any unsatisfied judgment, order,
decree, stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of, in or before any Governmental Entity
or before any arbitrator to which the Company or any Subsidiary is a party or,
to the knowledge of the Company and the Subsidiaries, is threatened to be made
a party.
2.19 Company Customer Contracts.
(a) Section 2.19(a) of the Company Disclosure Schedule sets forth a list of
all written arrangements (including without limitation written agreements) as
of the date of this Agreement and as of the Closing Date, as updated by
Section 4.5, to which the Company or any Subsidiary is a party with any
customer of the Company or any Subsidiary (the "Company Customer Contracts"),
and states with respect to each such contract, (i) the name of the customer of
the Company or any Subsidiary which is party to the contract, (ii) the date of
the contract and each material change or modification thereto, (iii) whether
or not all products licensed or intended to be licensed under such contract
have been accepted by the customer that is a party to such contract, as of the
date of this Agreement and as of the Effective Time, and (iv) the name or
other description of each product not so accepted.
(b) The Company has delivered to the Buyer true and complete copies of all
Company Customer Contracts.
(c) Except as disclosed on Section 2.19(c) of the Company Disclosure
Schedule under the heading "Known Customer Contract Defaults", the Company and
its Subsidiaries are not, and to the knowledge of the Company, no third party
is in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification, or acceleration, under any of the Company Customer Contracts.
(d) Except as disclosed on Section 2.19(d) of the Company Disclosure
Schedule, none of the Company Customer Contracts contains any term or
provision granting an ownership interest (other than a license) in any Company
Owned Software to any person.
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(e) Neither the Company nor any Subsidiary has any obligation or liability
under any oral contract, agreement or other arrangement with a customer of the
Company or any Subsidiary which, if reduced to written form, would be required
to be listed in Section 2.19(a) of the Company Disclosure Schedule.
2.20 Employees. The Company has delivered to the Buyer a true and complete
list of all employees and officers of the Company and each Subsidiary, along
with the position as set forth in Section 2.20 of the Company Disclosure
Schedule as of the date of this Agreement. Each such employee has entered into
confidentiality and assignment of inventions agreement with the Company or a
Subsidiary, a copy of which has previously been delivered to the Buyer. To the
knowledge of the Company and its Subsidiaries, as of the date of this
Agreement and as of the date of Closing, except as updated by Section 4.5, no
key employee or group of employees has any plans to terminate employment with
the Company or any Subsidiary. Neither the Company nor any Subsidiary is a
party to or bound by any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes. The Company and the Subsidiaries have no
knowledge of any organizational effort made or threatened, either currently or
within the past two years, by or on behalf of any labor union with respect to
employees of the Company or any Subsidiary.
2.21 Employee Benefits.
(a) Section 2.21(a) of the Company Disclosure Schedule contains a complete
and accurate list of all material Employee Benefit Plans (as defined below),
including unwritten Employee Benefit Plans, maintained, or contributed to, by
the Company, any Subsidiary, or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), and any other written or
oral plan, agreement or arrangement involving direct or indirect compensation
(other than regular salary or wages paid in the Ordinary Course of Business
and not paid pursuant to an employment agreement), including without
limitation insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA Affiliate" means any
entity which is a member of (i) a controlled group of corporations (as defined
in Section 414(b) of the Code), (ii) a group of trades or businesses under
common control (as defined in Section 414(c) of the Code), or (iii) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes the
Company or a Subsidiary. Complete and accurate copies of (i) all Employee
Benefit Plans which have been reduced to writing, (ii) any existing written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for the last five plan
years for each Employee Benefit Plan, have been delivered to the Buyer. Each
Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company and all Employee Benefit Plans are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code and
the regulations thereunder.
(b) There are no investigations by any Governmental Entity, termination
proceedings or other claims (except claims for benefits payable in the normal
operation of the Employee Benefit Plans and proceedings with respect to
qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(c) All the Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has
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not been threatened, and no such Employee Benefit Plan has been amended since
the date of its most recent determination letter or application therefor in
any respect, and no act or omission has occurred, that would adversely affect
its qualification or materially increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
400 1(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code and insurance conversion privileges
under state law.
(g) No act or omission has occurred and no condition exists with respect to
any Employee Benefit Plan maintained by the Company, any Subsidiary or any
ERISA Affiliate that would subject the Company, any Subsidiary or any ERISA
Affiliate to any material fine, penalty, tax or liability of any kind imposed
under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related to a
"voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees
by its terms prohibits the Company from amending or terminating any such
Employee Benefit Plan.
(j) Section 2.21(j) of the Company Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other key employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan, or
any Employee Benefit Plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
2.22 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied with all
applicable Environmental Laws (as defined below). There is no pending or, to
the knowledge of the Company and the Subsidiaries, threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any
Governmental Entity, relating to any Environmental Law involving the Company
or any Subsidiary. For purposes of this Agreement, "Environmental Law" means
any federal, state or local law, statute, rule or regulation or the common law
relating to the environment or occupational health and safety, including
without limitation any statute, regulation or order pertaining to (i)
treatment, storage, disposal, generation and transportation of industrial,
toxic or hazardous substances or solid or hazardous waste; (ii) air,
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water and noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life, marine
sanctuaries and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels and containers; (vii)
underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or oil or petroleum products or solid or hazardous waste. As used
above, the terms "release" and "environment" shall have the meaning set forth
in the federal Comprehensive Environmental Compensation, Liability and
Response Act of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental Concern
(as defined below) into the environment at any parcel of real property or any
facility formerly or currently owned, operated or controlled by the Company or
a Subsidiary. With respect to any such releases of Materials of Environmental
Concern, the Company or such Subsidiary has given all required notices to
Governmental Entities (copies of which have been provided to the Buyer).
Neither the Company nor any Subsidiary is aware of any releases of Materials
of Environmental Concern at parcels of real property or facilities other than
those owned, operated or controlled by the Company or a Subsidiary that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Company or a Subsidiary. For purposes of
this Agreement, "Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is defined
under CERCLA), solid wastes and hazardous wastes (as such terms are defined
under the federal Resources Conservation and Recovery Act), toxic materials,
oil or petroleum and petroleum products, or any other material subject to
regulation under any Environmental Law.
(c) Set forth in Section 2.22(c) of the Company Disclosure Schedule is a
list of all environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Company or a
Subsidiary (whether conducted by or on behalf of the Company or a Subsidiary
or a third party, and whether done at the initiative of the Company or a
Subsidiary or directed by a Governmental Entity or other third party) which
were issued or conducted during the past five years and which the Company has
possession of or access to. Complete and accurate copies of each such report,
or the results of each such investigation or audit, have been provided to the
Buyer.
(d) Set forth in Section 2.22(d) of the Company Disclosure Schedule is a
list of all of the solid and hazardous waste transporters and treatment,
storage and disposal facilities that have been utilized by the Company or a
Subsidiary since November 19, 1980. Neither the Company nor any Subsidiary is
aware of any material environmental liability of any such transporter or
facility.
2.23 Legal Compliance. Each of the Company and the Subsidiaries, and the
conduct and operations of their respective businesses, are in compliance with
each law (including rules and regulations thereunder) of any federal, state,
local or foreign government, or any Governmental Entity, which (a) affects or
relates to this Agreement or the transactions contemplated hereby or (b) is
applicable to the Company or such Subsidiary or business, except for any
violation of or default under a law referred to in clause (b) above which
reasonably may be expected not to have a Company Material Adverse Effect.
2.24 Permits. The Company and each Subsidiary has all permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
relating to the operation of the Company's or any Subsidiary's business and
the occupancy of its leased real property (including without limitation those
issued or required under Environmental Laws, by the United States Food and
Drug Administration, and those relating to the occupancy or use of owned or
leased real property) ("Permits") that are material to the operation of the
Company's or any Subsidiary's business. Such Permits are the only Permits that
are required for the Company and the Subsidiaries to conduct their respective
businesses as presently conducted or as proposed to be conducted, except for
those the absence of which would not have a Company Material Adverse Effect.
Each
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such Permit is in full force and effect and, to the best of the knowledge of
the Company or any Subsidiary, no suspension or cancellation of such Permit is
threatened and there is no basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in full force and
effect following the Closing.
2.25 Certain Business Relationships With Affiliates. No Affiliate of the
Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary,
(b) has any claim or cause of action against the Company or any Subsidiary, or
(c) owes any money to the Company or any Subsidiary. Section 2.25 of the
Company Disclosure Schedule describes any transactions or relationships
between the Company and any Affiliate thereof which are reflected in the
statements of operations of the Company included in the Financial Statements.
2.26 Brokers' Fees. Except as disclosed on Section 2.26 of the Company
Disclosure Schedule, neither the Company nor any Subsidiary has any liability
or obligation to pay any fees or commissions to any broker, finder or agent
with respect to the transactions contemplated by this Agreement.
2.27 Books and Records. The minute books and other similar records of the
Company and each Subsidiary contain true and complete records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders,
Board of Directors or any committee thereof and of all written consents
executed in lieu of the holding of any such meeting. The books and records of
the Company and each Subsidiary accurately reflect in all material respects
the assets, liabilities, business, financial condition and results of
operations of the Company or such Subsidiary and have been maintained in
accordance with good business and bookkeeping practices.
2.28 Customers and Suppliers. No material supplier of the Company or any
Subsidiary has indicated within the past year that it will stop, or decrease
the rate of, supplying materials, products or services to them and no material
customer of the Company or any Subsidiary has indicated within the past year
that it will stop, or decrease the rate of, buying, leasing or licensing
materials, products or services from them. Section 2.28 of the Company
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more than 1% of the consolidated revenues of the Company during the last full
fiscal year or the interim period through the Most Recent Fiscal Quarter End
and the amount of revenues accounted for by such customer during each such
period and (b) each supplier that is the sole supplier of any significant
product or component to the Company or a Subsidiary.
2.29 Pooling. To the best knowledge of the Company, neither the Company nor
any of its Affiliates has through the date of this Agreement taken or agreed
to take any action that would prevent the Company and the Buyer from
accounting for the business combination to be effected by the Merger as a
"pooling of interests" in conformity with GAAP.
2.30 Company Action.
(a) The Board of Directors of the Company, at a meeting duly called and
held, has by the unanimous vote of all directors present (i) determined that
the Merger is fair and in the best interests of the Company and its
stockholders, (ii) adopted this Agreement in accordance with the provisions of
the Washington Act, and (iii) directed that this Agreement and the Merger be
submitted to the Company Stockholders for their adoption and approval and
resolved to recommend that Company Stockholders vote in favor of the adoption
of this Agreement and the approval of the Merger.
(b) The financial advisors to the Company have delivered to the Company an
opinion, dated the date hereof, to the effect that the terms of the Merger are
fair to the Company Stockholders from a financial point of view and will
deliver to the Buyer as soon as it is received a copy of such opinion in the
form reduced to writing and signed by the Company's financial advisor dated
the date of this Agreement.
2.31 Rights Plan. The Company has adopted the amendment to the Company's
Rights Agreement set forth on Exhibit A subject only to the execution of such
amendment by the Rights Agent (as defined therein).
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2.32 Disclosure. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Schedule
or any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Company pursuant to this Agreement, and no
other statement made by the Company or any of its representatives in
connection with this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements herein or therein not misleading. The Company has
disclosed to the Buyer all material information relating to the business of
the Company or any Subsidiary or the transactions contemplated by this
Agreement.
ARTICLE III
Representations and Warranties of the Buyer and the Transitory Subsidiary
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company as follows:
3.1 Organization, Qualification and Corporate Power. Each of the Buyer and
the Transitory Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. Each of
the Buyer and the Transitory Subsidiary is duly qualified to conduct business
and is in good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified
individually or in the aggregate would not have a Buyer Material Adverse
Effect (as defined below). As used herein, the term "Buyer Material Adverse
Effect" shall mean any change or effect that, individually or when taken
together with all other such changes or effects that have occurred prior to
the date of determination of the occurrence of the Buyer Material Adverse
Effect, is or is reasonably likely to be materially adverse to the business,
assets (including intangible assets), financial condition or results of
operations of the Buyer, taken as a whole, or that is or is reasonably likely
to have a material adverse effect on the ability of the Parties to consummate
the transactions contemplated by this Agreement; provided, however, that a
Buyer Material Adverse Effect shall not include any changes that are the
effect of or result exclusively from economic factors affecting the medical
information software industry generally. The Buyer has all requisite corporate
power and authority to carry on the businesses in which it is engaged and to
own and use the properties owned and used by it. The Buyer has furnished to
the Company true and complete copies of its Articles of Incorporation and
bylaws, each as amended and as in effect on the date hereof. The Buyer is not
in default under or in violation of any provision of its Articles of
Incorporation or bylaws.
3.2 Capitalization. The authorized capital stock of the Buyer as of the date
of this Agreement consists of 55,000,000 shares of stock, of which 50,000,000
shares are designated Common Stock, par value $0.01 per share and 5,000,000
are designated Preferred Stock, par value $0.01 per share. Of the total
authorized Common Stock, 21,016,535 shares were issued and outstanding and no
shares were held in the treasury of the Buyer as of February 26, 1997. No
material change in the capitalization of the Buyer has occurred between
February 26, 1997 and the date of this Agreement. For purposes of the
foregoing sentence, the issuance of shares of Buyer Common Stock upon the
exercise of outstanding options or pursuant to the terms of the Buyer's 1995
Employee Stock Purchase Plan shall not be considered to be a "material change
in capitalization." All of the issued and outstanding shares of Buyer Common
Stock are duly authorized, validly issued, fully paid, nonassessable and free
of all preemptive rights. All of the Merger Shares will be, when issued in
accordance with this Agreement, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Buyer and the
Transitory Subsidiary and the performance of this Agreement, the consummation
of the transactions contemplated hereby and thereby by the Buyer and the
Transitory Subsidiary have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and Transitory Subsidiary. This
Agreement has been duly and validly executed and
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delivered by the Buyer and the Transitory Subsidiary and constitutes a valid
and binding obligation of the Buyer and the Transitory Subsidiary, enforceable
against them in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable requirements
of the Securities Act and any applicable state securities laws, the Exchange
Act, the Hart-Scott-Rodino Act and the filing of the Articles of Merger as
required by the Washington Act, neither the execution and delivery of this
Agreement, nor the consummation by the Buyer or the Transitory Subsidiary of
the transactions contemplated hereby or thereby, will (a) conflict or violate
any provision of the Articles of Incorporation or bylaws of the Buyer or the
Transitory Subsidiary, (b) require on the part of the Buyer or the Transitory
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, other than any filing, permit, authorization, consent
or approval which if not obtained or made would not have a Buyer Material
Adverse Effect, (c) conflict with, result in breach of, constitute (with or
without due notice or lapse of time or both) a default under, result in the
acceleration of, create in any party any right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest or other arrangement to which the Buyer or Transitory Subsidiary is a
party or by which either is bound or to which any of their assets are subject,
other than any conflict, breach, default, acceleration, termination,
modification or cancellation which individually or in the aggregate would not
have a Buyer Material Adverse Effect or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer or the
Transitory Subsidiary or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously furnished to
the Company complete and accurate copies, as amended or supplemented, of its
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as
filed with the SEC, (b) proxy statement relating to stockholders (whether
annual or special) since November 17, 1995, (c) all other reports or
registration statements, other than Registration Statements on Form S-8, filed
by the Buyer with the SEC since November 17, 1995, (d) all other reports filed
by the Buyer under Section 13 of the Exchange Act with the SEC since November
17, 1995 and (e) the Most Recent Financial Statements (such financial
statements, annual reports, proxy statements, registration statements and
filings, together with any amendments or supplements thereto, are collectively
referred to herein as the "Buyer Reports"). The Buyer Reports (except for the
Most Recent Financial Statements) constitute all of the documents required to
be filed by the Buyer under Section 13 of the Exchange Act with the SEC since
November 17, 1995. As of their respective dates, the Buyer Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited financial statements and unaudited interim financial
statements of the Buyer included in the Buyer Reports (i) comply or will
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared or will be prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby (except
as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act), (iii) fairly present the consolidated financial condition, results of
operations and cash flows of the Buyer as of the respective dates thereof and
for the periods referred to therein, and (iv) are consistent with the books
and records of the Buyer, including the financial statements of the Buyer as
of December 31, 1996 which have been provided to the Company and which shall
be substantially identical to the audited financial statements to be filed by
the Buyer with the SEC as part of its Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
3.6 Absence of Material Adverse Changes. Since December 31, 1996, there has
not been any Buyer Material Adverse Effect.
3.7 No Undisclosed Liabilities. Except as disclosed in the Buyer Reports,
the Buyer has no liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities shown on the Most Recent Financial
Statements, (b) liabilities which have arisen since the Most Recent Fiscal
Quarter End in the Ordinary Course of Business, (c) contractual
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liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on a balance sheet, (d) liabilities incurred in
connection with this Agreement, and (e) other liabilities that are not
reasonably likely to have a Buyer Material Adverse Effect.
3.8 Intellectual Property. The Buyer owns, or is licensed or otherwise
possesses legally enforceable rights to use, all trademarks, trade names,
service marks, copyrights, and any applications for such trademarks, trade
names, service marks and copyrights, know-how, computer software programs or
applications, and tangible or intangible proprietary information or material
that are necessary to conduct the business of the Buyer as currently
conducted, subject to such exceptions that would not be reasonably likely to
have a Buyer Material Adverse Effect.
3.9 Litigation. Except as described in the Buyer Reports filed prior to the
date hereof, there is no action, suit or proceedings, claim, arbitration or
investigation against the Buyer pending or as to which the Buyer has received
any written notice of assertion, which, individually or in the aggregate, is
reasonably likely to have a Buyer Material Adverse Effect.
3.10 Environmental Matters. Except as disclosed in the Buyer Reports filed
prior to the date hereof and except for such matters that, individually or in
the aggregate, are not reasonably likely to have a Buyer Material Adverse
Effect: (a) the Buyer complied with all applicable Environmental Laws; (b) the
properties currently owned or operated by the Buyer (including soils,
groundwater, surface water, buildings or other structures) are not
contaminated with any Hazardous Substances; (c) the properties formerly owned
or operated by were not contaminated with Hazardous Substances during the
period of ownership or operation by the Buyer; (d) the Buyer is not subject to
liability for any Hazardous Substance disposal or contamination on any third
party property; (e) The Buyer has not been associated with any release or
threat of release of any Hazardous Substance; (f) the Buyer has not received
notice, demand, letter, claim or request for information alleging that the
Buyer may be in violation of or liable under any Environmental Law; (g) the
Buyer is not subject to any orders, decrees, injunctions or other arrangements
with any Governmental Entity or is subject to any indemnity or other agreement
with any third party relating to liability under any Environmental Law or
related to Hazardous Substances; and (h) there are no circumstances or
conditions involving the Buyer that could reasonably be expected to result in
any claims, liability, investigations, costs or restrictions on the ownership,
use of transfer of any property pursuant to any Environmental Law.
3.11 Legal Compliance. The Buyer and the conduct and operations of its
business are in compliance with each law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Buyer or its
business, except for any violation of or default under a law referred to in
clause (b) above which reasonably may be expected not to have a Buyer Material
Adverse Effect.
3.12 Disclosure. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in any document, certificate or
other instrument delivered to, or to be delivered by or on behalf of, the
Buyer pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omit or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in order to make the statements herein or therein not misleading.
ARTICLE IV
Covenants
4.1 Best Efforts. Each of the Parties shall use its best efforts, to the
extent commercially reasonable, to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement; provided, however, that notwithstanding anything in this
Agreement to the contrary, the Buyer shall not be required to sell or dispose
of or hold separately (through a trust or otherwise) any assets or businesses
of the Buyer or its Affiliates.
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4.2 Notices and Consents. Each of the Company, the Transitory Subsidiary and
the Buyer shall use its respective best efforts to obtain, at its expense, all
such waivers, permits, consents, approvals or other authorizations from third
parties and Governmental Entities, and to effect all such registrations,
filings and notices with or to third parties and Governmental Entities, as may
be required by or with respect to the Company, respectively, in connection
with the transactions contemplated by this Agreement (including without
limitation, with respect to the Company, those listed in Section 2.4 or
Section 2.24 of the Company Disclosure Schedule).
4.3 Special Meeting Prospectus/Proxy Statement and Registration Statement.
(a) The Buyer and the Company shall jointly prepare, and the Company shall
file with the SEC under the Exchange Act, preliminary proxy materials for the
purpose of soliciting proxies from Company Stockholders to vote in favor of
the adoption of this Agreement (including without limitation the matters
referred to in Article VI) and the approval of the Merger at a special meeting
of Company Stockholders to be called and held for such purpose (the "Company
Special Meeting"), and in connection with the meeting of the Buyer's
stockholders to consider the issuance of the Merger Shares pursuant to the
Merger and certain other actions which may include increasing the authorized
number of shares of Buyer Common Stock and the authorized number of shares
available for issuance under the Buyer's option plans (the "Buyer Special
Meeting"). Such proxy materials shall be in the form of a prospectus/proxy
statement to be used for the purpose of offering the Merger Shares to Company
Stockholders and for the purpose of soliciting proxies from the Buyer's
stockholders and soliciting such proxies from Company Stockholders (such
prospectus/proxy statement, together with any accompanying letter to
stockholders, notice of meeting and form of proxy, shall be referred to herein
as the "Prospectus/Proxy Statement"). The Company, with the assistance of the
Buyer, shall promptly respond to any SEC comments on the Prospectus/Proxy
Statement and shall otherwise use its best efforts to resolve as promptly as
practicable all SEC comments to the satisfaction of the SEC.
(b) Promptly following the resolution to the satisfaction of the SEC of all
SEC comments on the Prospectus/Proxy Statement (or the expiration of the ten-
day period under Rule 14a-6(a) under the Exchange Act, if no SEC comments are
received by such date), (i) the Company shall distribute the Prospectus/Proxy
Statement to its stockholders and, pursuant thereto, shall call the Company
Special Meeting in accordance with the Washington Act and solicit proxies from
Company Stockholders to vote in favor of the adoption of this Agreement and
the approval of the Merger at the Company Special Meeting, and (ii) the Buyer
shall distribute the Prospectus/Proxy Statement to its stockholders and,
pursuant thereto, shall call the Buyer Special Meeting in accordance with the
Washington Act and solicit proxies from Buyer's stockholders to vote in favor
of the adoption of this Agreement and the approval of the Merger at the Buyer
Special Meeting.
(c) Promptly following the resolution to the satisfaction of the SEC of all
SEC comments on the Prospectus/Proxy Statement (or the expiration of the ten-
day period under Rule 14a-6(a) under the Exchange Act, if no SEC comments are
received by such date), the Buyer shall file with the SEC under the Securities
Act a Registration Statement on Form S-4 (the "Registration Statement"), which
shall include the Prospectus/Proxy Statement as a part thereof. The Buyer,
with the assistance of the Company, shall promptly respond to any SEC comments
on the Registration Statement and shall otherwise use its best efforts to
cause the Registration Statement to be declared effective as promptly as
practicable. The Buyer shall also take any and all such actions as may be
necessary or as it may deem advisable for the purpose of complying with all
applicable state securities laws in connection with the offering and issuance
of the Merger Shares.
(d) The Company shall comply with all applicable provisions of and rules
under the Exchange Act and all applicable provisions of the Washington Act in
the preparation, filing and distribution of the Prospectus/Proxy Statement,
the solicitation of proxies thereunder, and the calling and holding of the
Company Special Meeting. Without limiting the foregoing, the Company shall
ensure that the Prospectus/Proxy Statement does not, as of the date on which
it is distributed to Company Stockholders, and as of the date of the Special
Meeting, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information furnished by the Buyer in writing for inclusion in the
Prospectus/Proxy Statement).
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(e) The Buyer shall comply with all applicable provisions of and rules under
the Securities Act and state securities laws in the preparation and filing of
the Registration Statement and the offering and issuance of the Merger Shares.
Without limiting the foregoing, the Buyer shall ensure that the Registration
Statement does not, as of its effective date, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (provided that the
Buyer shall not be responsible for the accuracy or completeness of any
information relating to the Company or any other information furnished by the
Company in writing for inclusion in the Registration Statement or the
Prospectus/Proxy).
(f) The Company, acting through its Board of Directors, shall include in the
Prospectus/Proxy Statement the recommendation of its Board of Directors that
the Company Stockholders vote in favor of the adoption of this Agreement and
the approval of the Merger, and shall otherwise use its best efforts to obtain
the Requisite Stockholder Approval. Notwithstanding the foregoing, the
obligations set forth in this paragraph (f) shall not apply (and the Board of
Directors shall be permitted to modify or withdraw any such recommendation
previously made) if (i) the Company receives a bona fide written offer,
subject only to customary conditions (excluding any financing condition), for
an acquisition of all or substantially all of the Company on terms more
favorable in the aggregate, from a financial point of view, to Company
Stockholders than the terms of the Merger (a "Higher Offer") and (ii) the
Board of Directors of the Company determines in good faith, after consultation
with outside legal counsel, that the fiduciary duties of the Board of
Directors under applicable law prohibit it from fulfilling the foregoing
obligations.
(g) Richard E. Tarrant and Robert H. Hoehl each agree to execute and deliver
an irrevocable proxy to Frank T. Sample, Malcolm A. Gleser, Gregg Blodgett, or
any of them, to vote all shares of Buyer Common Stock that are beneficially
owned by him, or for which he has voting authority, in favor of the approval
of the issuance of the Merger Shares; provided however that nothing in this
subparagraph shall affect any individual's obligations to act in a manner to
exercise such individual's fiduciary duties as a director.
(h) Malcolm A. Gleser, Frank T. Sample and Mark F. Wheeler each agree to
execute and deliver an irrevocable proxy to Richard E. Tarrant, Robert H.
Hoehl, John A. Kane, or any of them, to (i) vote all Company Shares that are
beneficially owned by him, or for which he has voting authority, in favor of
the adoption of this Agreement and the approval of the Merger and (ii)
otherwise use his best efforts to obtain the Requisite Stockholder Approval;
provided however that nothing in this subparagraph shall affect any
individual's obligations to act in a manner to exercise such individual's
fiduciary duties as a director, if applicable.
4.4 Hart-Scott-Rodino Act. Each of the Parties shall promptly file any
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the Hart-Scott-Rodino Act, shall use
its best efforts to obtain an early termination of the applicable waiting
period, and shall make any further filings or information submissions pursuant
thereto that may be necessary, proper or advisable.
4.5 Operation of Company Business. Except as contemplated by this Agreement
or expressly set forth on Schedule 4.5 hereof, during the period from the date
of this Agreement to the Effective Time, unless earlier terminated pursuant to
Section 6.1 hereof, the Company shall (and shall cause each Subsidiary to)
conduct its operations in the Ordinary Course of Business and in compliance
with all applicable laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its current business
organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, unless earlier terminated pursuant to
Section 6.1 hereof, neither the Company nor any Subsidiary shall, without the
written consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize
the
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issuance, sale or delivery of, or redeem or repurchase, any stock of any
class or any other securities or any rights, warrants or options to acquire
any such stock or other securities (except pursuant to the exercise of
Options outstanding on the date hereof or the grant of Options under the
Company Option Plans consistent with past practice to newly hired
employees, which Options shall represent in the aggregate the right to
acquire no more than the average number of Company Shares subject to
Options granted in the comparable period of time during the preceding 12-
month period), or amend any of the terms of any such convertible securities
or Options;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock;
(c) create, incur or assume any debt not currently outstanding (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any
loans, advances or capital contributions to, or investments in, any other
person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.21(j) or (except for normal increases in the Ordinary Course of
Business or making severance payments to non-officers pursuant to the terms
of severance agreements existing on the date hereof and disclosed on the
Disclosure Schedule or consistent with past practice) increase in any
manner the compensation or fringe benefits of, or materially modify the
employment terms of, its directors, officers or employees, generally or
individually, or pay any benefit not required by the terms in effect on the
date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association
or other business organization or division thereof), other than purchases
and sales of assets in the Ordinary Course of Business;
(f) amend its charter or bylaws;
(g) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable
change in GAAP;
(h) discharge or satisfy any Security Interest or pay any obligation or
liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any such
assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual Property, other
than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights
under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of $125,000
per item;
(m) make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination,
revocation or cancellation of any such election or any consent or
compromise or settle any claim for past or present tax due;
(n) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the
Company set forth in this Agreement becoming untrue or (ii) any of the
conditions to the Merger set forth in Article V not being satisfied; or
(o) agree in writing or otherwise to take any of the foregoing actions.
The Company further agrees to forward to the attention of the Chief Financial
Officer of the Buyer true and complete copies of each Company Customer
Contract signed by the Company after the date hereof within ten
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days of the date such Company Customer Contract is signed by the Company. The
list of Customer Contracts set forth on Section 2.19 of the Company Disclosure
Schedule shall be deemed to be updated to include any Company Customer
Contract received by the Chief Financial Officer of the Buyer pursuant to the
provisions of the foregoing sentence. The Company further agrees to promptly
forward to the attention of the Chief Financial Officer of the Buyer the name
and position of any key employee or group of employees which has any plans to
terminate employment with the Company or any Subsidiary if the Company has or
obtains knowledge of such plans after the date hereof. Section 2.20 of the
Company Disclosure Schedule shall be deemed to be updated to include any
disclosure received by the Chief Financial Officer of the Buyer pursuant to
the provisions of the foregoing sentence.
4.5A Operation of Buyer Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time,
unless earlier terminated pursuant to Section 6.1 hereof, the Buyer shall not
acquire or agree to acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, which would materially delay or prevent the
consummation of the transactions contemplated by this Agreement.
4.6 Full Access. Each of the Company and the Buyer shall (and shall cause
their respective Subsidiaries to) permit representatives of the other Party to
have full access (at all reasonable times, and in a manner so as not to
substantively interfere with the normal business operations of the such other
Party) to all premises, properties, financial and accounting records,
contracts, other records and documents, and personnel, of or pertaining to the
Company or the Buyer, and their respective Subsidiaries, as the case may be.
Each Party agrees that any nonpublic information obtained pursuant to this
Section 4.6 will be held in confidence and treated as "Confidential
Information" under the letter agreement between the Buyer and the Company
dated November 27, 1996 (the "Confidentiality Agreement").
4.7 Notice of Breaches. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any
statement, representation or warranty of the Company in this Agreement
(including the Company Disclosure Schedule) inaccurate or incomplete in any
material respect, or (b) constitute or result in a breach by the Company of,
or a failure by the Company to comply with, any agreement or covenant in this
Agreement applicable to such party. The Buyer or the Transitory Subsidiary
shall promptly deliver to the Company written notice of any event or
development that would (i) render any statement, representation or warranty of
the Buyer or the Transitory Subsidiary in this Agreement inaccurate or
incomplete in any material respect, or (ii) constitute or result in a breach
by the Buyer or the Transitory Subsidiary of, or a failure by the Buyer or the
Transitory Subsidiary to comply with, any agreement or covenant in this
Agreement applicable to such party. No such disclosure shall be deemed to
avoid or cure any such misrepresentation or breach.
4.8 Exclusivity.
(a) The Company shall not, and the Company shall use its best efforts to
cause its Affiliates and each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, (i) encourage,
solicit, initiate, engage or participate in discussions or negotiations with
any person or entity (other than the Buyer) concerning any merger,
consolidation, sale of material assets, tender offer, recapitalization,
accumulation of Company Shares, proxy solicitation or other business
combination involving the Company, any Subsidiary or any division of the
Company or any Subsidiary or (ii) provide any non-public information
concerning the business, properties or assets of the Company or any Subsidiary
to any person or entity (other than the Buyer).
(b) Notwithstanding the foregoing, the Company may furnish or cause to be
furnished non-public information concerning the business, properties or assets
of the Company or a Subsidiary to any other person or entity, and may engage
in discussions or negotiations with another person or entity, if in either
case (i) such person or entity has submitted a Higher Offer to the Company
prior to the Special Meeting and (ii) the Board of Directors of the Company
determines in good faith, after consultation with outside legal counsel, that
the fiduciary duties of the Board of Directors under applicable law so
require.
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(c) The Company shall immediately notify the Buyer of, and shall disclose to
the Buyer the name of the offeror, price and material terms or provisions of
any offer or proposal to make or consider an offer of the nature described in
this Section 4.8.
4.9 Agreements from Certain Affiliates of the Company. Concurrently with the
execution of this Agreement, the Company shall deliver to the Buyer a list of
all persons or entities who are at such time Affiliates of the Company (the
"Company Affiliates"). In order to help ensure that the Merger will be
accounted for as a "pooling of interests", that the issuance of Merger Shares
will comply with the Securities Act and that the Merger will be treated as a
tax-free reorganization, the Company shall use its best efforts to cause each
Company Affiliate to execute and deliver to the Buyer, prior to the
distribution of the Prospectus/Proxy Statement in accordance with Section
4.3(b), a written agreement substantially in the form attached hereto as
Exhibit B (the "Affiliate Agreement"). If any Company Affiliate fails to
execute and deliver an Affiliate Agreement, the Buyer shall be entitled to
place appropriate legends on the certificates evidencing the Merger Shares to
be issued to such person or entity and any other shares of Buyer Common Stock
issued to such person or entity upon exercise of an Option, and to issue
appropriate stock transfer instructions to the transfer agent for the Buyer
Common Stock, to the effect that (a) such shares may only be sold, transferred
or otherwise disposed of, and the holder thereof may only reduce his or its
interest in or risk relating to such shares, after financial results covering
at least 30 days of combined operations of the Company and the Buyer after the
Effective Time shall have been publicly released, and (b) such shares may be
sold publicly only in compliance with Rule 145 under the Securities Act.
4.10 Listing of Merger Shares. The Buyer shall use its best efforts to list
the Merger Shares on the Nasdaq National Market prior to the Effective Time.
4.11 Rights Agreement. The Company shall cause the amendment to the
Company's Rights Agreement set forth on Exhibit A to become effective as soon
as practicable after the date of this Agreement. The Company shall not redeem
the Company's Rights, or amend or modify the Company's Rights Agreement (other
than to delay the Distribution Date (as defined therein) or take any action
permitted under this Agreement), or terminate the Company's Rights Agreement,
prior to the Effective Time unless required to do so by order of a court of
competent jurisdiction.
4.12 Pooling Accounting. From and after the date hereof and until the
Effective Time, neither the Company nor the Buyer, nor any of their respective
Subsidiaries, shall knowingly take any action that is reasonably likely to
jeopardize the treatment of the Merger as a "pooling of interests" for
accounting purposes.
4.13 Company Equity Plans.
(a) At the Effective Time, each outstanding Option to purchase Company
Shares (a "Company Stock Option") under the Company Option Plans, whether
vested or unvested, shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Company Stock Option,
the same number shares of Buyer Common Stock as the holder of such Company
Stock Option would have been entitled to receive pursuant to the Merger had
such holder exercised such option in full immediately prior to the Effective
Time (rounded downward to the nearest whole number), at a price per share
(rounded upward to the nearest whole cent) equal to (y) the aggregate exercise
price for the Company Shares purchasable pursuant to such Company Stock Option
immediately prior to the Effective Time divided by (z) the number of full
shares of Buyer Common Stock deemed purchasable pursuant to such Company Stock
Option in accordance with the foregoing.
(b) No later than the date the Company first gives notice to the Company
Stockholders of the Company Special Meeting, the Company shall deliver a
notice to each holder of outstanding Company Stock Option of the effect of the
Merger on such Options and shall advise participants of the federal tax
consequences of the assumption of Company Option Plans by the Buyer. As soon
as practicable after the Effective Time, the Buyer shall deliver to the
participants in Company Option Plans appropriate notice setting forth such
participants' rights
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pursuant thereto and the grants pursuant to Company Option Plans shall
continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 4.13 after giving effect to the Merger).
(c) Buyer shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Buyer Common Stock for delivery under Company
Option Plans assumed in accordance with this Section 4.13. As soon as
practicable after the Effective Time, Buyer shall file a registration
statement on Form S-8 (or any successor or other appropriate forms), or
another appropriate form with respect to the shares of Buyer Common Stock
subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
(d) The Board of Directors of the Company shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Company Option Plans and the instruments evidencing the
Company Stock Options, to provide for the conversion of the Company Stock
Options into options to acquire Buyer Common Stock in accordance with this
Section 4.13. The Company hereby certifies that no consent of the holders of
the Company Stock Options is required in connection with such conversion.
(e) The Board of Directors of the Company shall, prior to or as of the
Effective Time, take appropriate action to approve the deemed cancellation of
the Company Stock Options for purposes of Section 16(b) of the Exchange Act.
The Board of Directors of the Buyer shall, prior to or as of the Effective
Time, take appropriate action to approve the deemed grant of options to
purchase Buyer Common Stock under the Company Stock Options (as converted
pursuant to this Section 4.13) for purposes of Section 16(b) of the Exchange
Act.
(f) The Company shall not credit any additional funds to any participant's
payroll account under the Company Purchase Plan subsequent to the Effective
Time.
4.14 Representations of Principal Stockholders. Each of the Buyer and the
Company will use reasonable efforts to cause each of its principal
stockholders who is the beneficial owner of five percent (5%) or more of its
common stock to cooperate with counsel to the Buyer and the Company to assist
them in preparing the tax opinions called for herein.
4.15 Directors' and Officers' Liability Insurance; Indemnification.
(a) For a period of three years after the Effective Time, the Buyer shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by the Company's directors'
and officers' liability insurance policy or policies (copies of which have
been heretofore delivered to the Buyer) with respect to actions taken in their
capacities as directors and officers of the Company with coverage in an amount
at least equal to the Company's existing coverage; provided that in no event
shall the Buyer or the Surviving Corporation be required to expend in excess
of two hundred percent (200%) of the annual premium currently paid by the
Company for such coverage (currently, approximately $45,000 per year). For a
period of three years after the Effective Time, the Buyer shall agree that any
of the Company's directors and officers who subsequently become directors or
officers of the Buyer shall be covered by the directors' liability insurance,
if any, applicable to the then current directors and officers of the Buyer.
(b) The Buyer agrees that, to the extent allowed by applicable law, all
rights to indemnification (including advancement of expenses) existing on the
date hereof in favor of the present officers and directors of Company prior to
the Effective Time as provided in Company's Articles of Incorporation or
bylaws and indemnification agreements shall survive the Merger and continue in
full force and effect for a period of six years following the Effective Time.
4.16 Relocation of Facilities. The Buyer agrees that after the Effective
Time, it will use its best efforts to cause the Surviving Corporation to
maintain the former Company operations in the general area of Seattle,
Washington, for a period of at least one year. The Parties acknowledge the
timing and location of any possible
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relocation could be affected by lease terminations and/or opportunities and/or
unplanned business events or occurrences. This Section 4.16 is not intended to
confer upon any person, other than the Parties to this Agreement, any rights
or remedies hereunder.
4.17 Company Savings Plan. Prior to the Closing, the Company shall determine
whether any participant in the Company Savings Plan received an insufficient
matching contribution as a result of the failure to comply with the terms of
the Company Savings Plan in effect in 1994. At the Closing, the Company shall
provide Buyer with a certification that either (i) no participant received an
insufficient matching contribution; or (ii) any shortfall in matching
contributions was eligible to be corrected and was corrected fully pursuant to
the Administrative Policy Regarding Self Correction of the Internal Revenue
Service; or (iii) any shortfall in matching contributions is eligible to be
corrected and either (x) was corrected fully pursuant to the Voluntary
Compliance Resolution Program of the Internal Revenue Service, and an
appropriate compliance statement was issued by the Internal Revenue Service or
(y) an appropriate application for a compliance statement was submitted to the
Internal Revenue Service.
ARTICLE V
Conditions to Consummation of Merger
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) (i) this Agreement and the Merger shall have received the Requisite
Stockholder Approval by the Company Stockholders and (ii) the issuance of
the Merger Shares shall have received the approval of the stockholders of
the Buyer;
(b) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated;
(c) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
SEC and remain in effect;
(d) (i) no action, suit or proceeding shall be pending or threatened by
any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (a) prevent consummation of any of the
transactions contemplated by this Agreement, (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (c) affect adversely the right of the Buyer to own, operate
or control any of the assets and operations of the Surviving Corporation
and the Subsidiaries following the Merger, and no such judgment, order,
decree, stipulation or injunction shall be in effect, (ii) no action, suit
or proceeding shall be pending or threatened before any Governmental
Entity, or before any arbitrator pursuant to an agreement to arbitrate, by
any party other than a Governmental Entity in which it is reasonably likely
that an unfavorable judgment, order, decree, stipulation or injunction
would result and in which such judgment, order, decree, stipulation or
injunction would (a) prevent consummation of any of the transactions
contemplated by this Agreement, (b) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or
(c) affect adversely the right of the Buyer to own, operate or control any
of the assets and operations of the Surviving Corporation and the
Subsidiaries following the Merger, and no such judgment, order, decree,
stipulation or injunction shall be in effect; and
(e) the Merger Shares shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance.
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory Subsidiary
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
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(a) the Company and the Subsidiaries shall have obtained all of the
waivers, permits, consents, approvals or other authorizations, and effected
all of the registrations, filings and notices, referred to in Section 4.2
(with respect to the Company and any of its Subsidiaries);
(b) the representations and warranties of the Company set forth in
Article II shall be true and complete when made on the date hereof and
shall be true and complete as of the Effective Time as if made as of the
Effective Time, except for representations and warranties made as of a
specific date, which shall be true and complete as of such date, and except
where failures of representations to be true and complete, individually or
in the aggregate, have not had a Company Material Adverse Effect;
(c) the Company shall have performed or complied with in all material
respects its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Effective Time;
(d) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (without qualification) to the effect that each of
the conditions specified in clauses (a)(i), (b) and (d) of Section 5.1 and
clauses (a) through (c) of this Section 5.2 is satisfied in all respects;
(e) the Buyer shall have received a "cold comfort" letter dated as of a
date not more than two days prior to the date that the Registration
Statement is declared effective and shall have received a subsequent
similar letter dated as of a date not more than two days prior to the
Effective Time, from KPMG Peat Marwick LLP, auditors for the Company,
addressed to the Buyer and the Company in a customary form reasonably
satisfactory to the Buyer;
(f) the Buyer shall have received a letter from Ernst & Young LLP,
auditors for the Buyer, in a form reasonably satisfactory to the Buyer,
dated the Closing Date, to the effect that the Buyer shall be entitled to
treat the Merger as a "pooling of interests" for accounting purposes as
provided for in Accounting Principles Board Opinion No. 16 (it is a
condition for Ernst & Young LLP to deliver such letter that it receives a
letter from KPMG Peat Marwick LLP addressing "pooling of interests"
treatment of the Merger);
(g) the Buyer shall have received an opinion from Hale and Dorr LLP, in a
form reasonably satisfactory to the Buyer, dated the Closing Date, based
upon certain factual representations of the Company, the Transitory
Subsidiary and the Buyer reasonably requested by such counsel, to the
effect that the Merger will constitute a reorganization for federal income
tax purposes within the meaning of Section 368(a) of the Code;
(h) all actions to be taken by the Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Buyer and the Transitory Subsidiary;
(i) (i) The Company Rights Agreement shall have been terminated or the
rights under the Company Rights Agreement shall not have become non-
redeemable, exercisable, distributed or triggered and (ii) the holders of
the Company's capital stock shall have no rights under the Company's Rights
Agreement as a result of the transactions contemplated by this Agreement;
and
(j) the Buyer and the Transitory Subsidiary shall have received from
counsel to the Company an opinion with respect to the matters set forth in
Exhibit C attached hereto, addressed to the Buyer and the Transitory
Subsidiary and dated as of the Closing Date.
5.3 Conditions to Obligations of the Company. The obligation of the Company
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Buyer and the Transitory Subsidiary shall have obtained all of
the waivers, permits, consents, approvals or authorization, and effected
all of the registrations, filings and notices referred to in Section 4.2
(with respect to the Buyer and the Transitory Subsidiary);
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<PAGE>
(b) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in Article III shall be true and complete when made on
the date hereof and shall be true and complete as of the Effective Time as
if made as of the Effective Time, except for representations and warranties
made as of a specific date, which shall be true and complete as of such
date, and except for representations and warranties made as of a specific
date, which shall be true and complete as of such date, except where
failures of representations to be true and complete, individually or in the
aggregate, have not had a Buyer Material Adverse Effect;
(c) each of the Buyer and the Transitory Subsidiary shall have performed
or complied with its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(d) each of the Buyer and the Transitory Subsidiary shall have delivered
to the Company a certificate (without qualification) to the effect that
each of the conditions specified in clauses (a)(ii), and (e) of Section 5.1
(insofar as they relate to the Buyer or the Transitory Subsidiary) and
clauses (a), (b) and (c) of this Section 5.3 is satisfied in all respects;
(e) the Company shall have received an opinion from Foster Pepper and
Shefelman, in a form reasonably satisfactory to the Company, dated the
Closing Date, based upon certain factual representations of the Company,
the Transitory Subsidiary and the Buyer reasonably requested by such
counsel, to the effect that the Merger will constitute a reorganization for
federal income tax purposes within the meaning of Section 368(a) of the
Code and no Company Stockholder who received Merger Shares in exchange for
Company Shares in the Merger shall recognize taxable gain or loss upon such
exchange;
(f) all actions to be taken by the Buyer and the Transitory Subsidiary in
connection with the consummation of the transactions contemplated hereby
and all certificates, opinions, instruments and other documents required to
effect the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Company;
(g) the Buyer shall have received a letter from Ernst & Young LLP,
auditors for the Buyer, in a form reasonably satisfactory to the Buyer,
dated the Closing Date, to the effect that the Buyer shall be entitled to
treat the Merger as a "pooling of interests" for accounting purposes as
provided for in Accounting Principles Board Opinion No. 16 (it is a
condition for Ernst & Young LLP to deliver such letter that it receives a
letter from KPMG Peat Marwick LLP addressing "pooling of interests"
treatment of the Merger); and
(h) the Company shall have received from the General Counsel of the Buyer
and the Transitory Subsidiary an opinion with respect to the matters set
forth in Exhibit D attached hereto, addressed to the Company and dated as
of the Closing Date.
ARTICLE VI
Termination
6.1 Termination of Agreement. The Parties may terminate this Agreement prior
to the Effective Time (whether before or after Requisite Stockholder Approval
or approval of the Buyer's stockholders) as provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach, and the Company may
terminate this Agreement by giving written notice to the Buyer and the
Transitory Subsidiary in the event the Buyer or the Transitory Subsidiary
is in breach, of any representation, warranty or covenant contained in this
Agreement which has either (i) a Company Material Adverse Effect, in the
event of a termination by the Buyer or (ii) a Buyer Material Adverse
Effect, in the event of a termination by the Company, and in each case, and
such breach is not remedied within 10 days of delivery of written notice
thereof;
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<PAGE>
(c) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after (i) the Company Stockholders have voted
on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Stockholder
Approval or (ii) the holders of the Buyer Common Stock have voted on
whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the approval of a majority of
the shares of Buyer Common Stock entitled to vote thereon;
(d) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before the 180th
day following the date of this Agreement by reason of the failure of any
condition precedent under Section 5.1 or 5.2 hereof (unless the failure
results primarily from a breach by the Buyer or the Transitory Subsidiary
of any representation, warranty or covenant contained in this Agreement);
(e) the Company may terminate this Agreement by giving written notice to
the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before the 180th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5.1 or 5.3
hereof (unless the failure results primarily from a breach by the Company
of any representation, warranty or covenant contained in this Agreement);
(f) the Buyer or the Company may terminate this Agreement if (i) the
Board of Directors of the Company withdraws its recommendation of the
Merger or modifies such recommendation in a manner adverse to the Buyer as
permitted by the provisions of Section 4.3(f) or (ii) the Board of
Directors of the Company has not withdrawn its recommendation of the Merger
or modified such recommendation in a manner adverse to the Buyer as
permitted by the provisions of Section 4.3(f) and the Company Stockholders
fail to adopt this Agreement and approve the Merger at the Special Meeting
(or at any adjournment thereof); or
(g) the Company may terminate this Agreement on or before the date of the
Company Special Meeting by giving written notice to the Buyer and the
Transitory Subsidiary upon the circumstances set forth in Section 1.5
(a)(iii).
6.2 Effect of Termination. If any Party terminates this Agreement pursuant
to Section 6.1, all obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party (except for any
liability of any Party for breaches of this Agreement and except as set forth
in Section 6.3 and Section 8.11) provided, however, that the confidentiality
provisions contained in the Confidentiality Agreement shall survive any such
termination.
6.3 Termination Fees. Notwithstanding the foregoing, in the event of the
termination of this Agreement by the Buyer or the Company pursuant to Section
6.1(f)(i), the Company shall, immediately upon such termination, pay to the
Buyer in cash a termination fee in the amount of $6,000,000, plus an amount
equal to all of the Buyer's out-of-pocket expenses incurred in connection with
the transactions contemplated by this Agreement (including without limitation
fees and expenses of legal counsel, investment bankers and accountants)
whether incurred before or after the date of this Agreement ("Buyer Expenses")
up to a maximum aggregate amount of Buyer Expenses of $1,500,000.
Notwithstanding the foregoing, in the event of the termination of the
Agreement by the Buyer or the Company pursuant to Section 6.1(f)(ii), the
Company shall immediately upon such termination, pay to the Buyer in cash an
amount equal to the Buyer Expenses up to a maximum aggregate amount of Buyer
Expenses of $1,500,000.
A-30
<PAGE>
ARTICLE VII
Definitions
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Affiliates............................................... 2.14(k)
Affiliate Agreement...................................... 4.9
Articles of Merger....................................... 1.1
Buyer.................................................... Introduction
Buyer Common Stock....................................... 1.5(a)(i)
Buyer Current Price...................................... 1.5(a)(iii)
Buyer Expenses........................................... 6.3
Buyer Material Adverse Effect............................ 3.1
Buyer Reports............................................ 3.5
Buyer Special Meeting.................................... 4.3(a)
Buyer Stock Value........................................ 1.5(a)(ii)
CERCLA................................................... 2.22(a)
Certificates............................................. 1.7(a)
Closing.................................................. 1.2
Closing Date............................................. 1.2
Code..................................................... Introduction
Company.................................................. Introduction
Company Affiliates....................................... 4.9
Company Customer Contracts............................... 2.19(a)
Company Disclosure Schedule.............................. Article II
Company Financial Statements............................. 2.6
Company Intellectual Property............................ 2.12(a)
Company Licensed Software................................ 2.12(e)
Company Material Adverse Effect.......................... 2.1
Company Option Plans..................................... 1.10
Company Owned Software................................... 2.12(d)
Company Purchase Plan.................................... 1.10
Company Rights........................................... 2.2
Company Rights Agreement................................. 2.2
Company Reports.......................................... 2.6
Company Savings Plan..................................... 1.10
Company Shares........................................... 1.5(a)(i)
Company Special Meeting.................................. 4.3(a)
Company Software......................................... 2.12(g)
Company Stockholder...................................... 1.6(a)
Company Stock Option..................................... 4.13(a)
Composite Common Stock................................... 1.5(a)(iii)
Composite Index Change................................... 1.5(a)(iii)
Confidential Information................................. 4.6
Confidentiality Agreement................................ 4.6
Conversion Ratio......................................... 1.5(a)(i)
Dissenting Shares........................................ 1.6(a)
Effective Time........................................... 1.1
Employee Benefit Plan.................................... 2.21(a)
Environmental Law........................................ 2.22(a)
</TABLE>
A-31
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
ERISA.................................................... 2.21(a)
ERISA Affiliate.......................................... 2.21(a)
Exchange Act............................................. 2.4
Exchange Agent........................................... 1.3
GAAP..................................................... 2.6
Governmental Entity...................................... 2.4
Hart-Scott-Rodino Act.................................... 2.4
Higher Offer............................................. 4.3(f)
Index Floor Price........................................ 1.5(a)(iii)
Intended Uses............................................ 2.13(g)
Materials of Environmental Concern....................... 2.22(b)
Merger................................................... 1.1
Merger Shares............................................ 1.5(a)(i)
Most Recent Company Financial Statements................. 2.6
Most Recent Fiscal Quarter End........................... 2.7
Options.................................................. 2.2
Ordinary Course of Business.............................. 2.4
Party.................................................... Introduction
Permits.................................................. 2.24
Prospectus/Proxy Statement............................... 4.3(a)
Recapitalization......................................... 1.5(a)(i)
Registration Statement................................... 4.3(c)
Requisite Stockholder Approval........................... 2.3
SEC...................................................... 2.6
Securities Act........................................... 2.2
Security Interest........................................ 2.4
Subsidiary............................................... 2.4
Surviving Corporation.................................... 1.1
Taxes.................................................... 2.9(a)
Tax Returns.............................................. 2.9(a)
Transitory Subsidiary.................................... Introduction
Washington Act........................................... 1.1
</TABLE>
A-32
<PAGE>
ARTICLE VIII
Miscellaneous
8.1 Press Releases and Announcements. No Party shall issue any press release
or public disclosure relating to the subject matter of this Agreement without
the prior written approval of the other Parties; provided, however, that any
Party may make any public disclosure it believes in good faith is required by
law or regulation (in which case the disclosing Party shall advise the other
Parties and provide them with a copy of the proposed disclosure prior to
making the disclosure).
8.2 No Third Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Article I concerning issuance of the Merger Shares are intended for the
benefit of the Company Stockholders and the provisions of Section 4.15 are
intended for the benefit of the Company officers and directors.
8.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement shall remain in full force and effect until the
Effective Time and shall survive termination of this Agreement.
8.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the Parties named herein and
their respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Parties; provided that the
Transitory Subsidiary may assign its rights, interests and obligations
hereunder to the Buyer or a Subsidiary of the Buyer.
8.5 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.
8.6 Headings. The Section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to the Company:
Phamis, Inc.
1001 Fourth Avenue Plaza, Suite 1500
Seattle, Washington, 98154-1144
Attn: President
Copy to:
Joseph P. Whitford, Esq.
Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, WA 98101
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<PAGE>
If to the Buyer or the Transitory Subsidiary:
IDX Systems Corporation
1400 Shelburne Road
P.O. Box 1070
Burlington, Vermont 05402-1070
Attn: President
Copy to:
Robert W. Baker, Jr.,
IDX Systems Corporation
1400 Shelburne Road
P.O. Box 1070
Burlington, Vermont 05402-1070
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
8.8 Governing Law. Except with respect to the corporate governance of the
Company, this Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Vermont without giving effect to any choice
or conflict law (whether of the State of Vermont or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than
the State of Vermont.
8.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time; provided, however,
that any amendment effected subsequent to the Requisite Stockholder Approval
shall be subject to any restrictions contained in applicable law. No amendment
of any provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
8.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision,
and this Agreement shall be enforceable as so modified after the expiration of
the time within which the judgment may be appealed.
8.11 Expenses. Except as set forth in Section 6.3, each of the Parties shall
bear its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby.
8.12 Specific Performance. Each of the Parties acknowledges and agrees that
one or more of the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in
A-34
<PAGE>
accordance with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States
or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions of Section 8.13), in addition to any other remedy
to which it may be entitled, at law or in equity.
8.13 Submission to Jurisdiction. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in Vermont in any action or
proceeding arising out of or relating to this Agreement, (b) agrees that all
claims in respect of the action or proceeding may be heard and determined in
any such court, and (c) agrees not to bring any action or proceeding arising
out of or relating to this Agreement in any other court unless injunctive
relief is being sought and the Party seeking injunctive relief desires to seek
it in another jurisdiction. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other Party with respect thereto. Any Party may make service on another Party
by sending or delivering a copy of the process to the Party to be served at
the address and in the manner provided for the giving of notices in Section
8.7. Nothing in this Section 8.13, however, shall affect the right of any
Party to serve legal process in any other manner permitted by law.
8.14 Construction. The language used in this Agreement shall be deemed to be
the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
8.15 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
8.16 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements contained in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Closing
and the Effective Time, except for the agreements contained in Sections 1.4,
1.6, 1.7, 1.8, 1.9, 4.11, 4.13, 4.15, 4.16, 6.2, 6.3, and the agreements of
the Affiliates of the Company delivered pursuant to Section 4.9.
A-35
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
IDX Systems Corporation
/s/ Richard E. Tarrant
By:__________________________________
Title: President and Chief Executive
Officer
Penquin Acquisition Corporation
/s/ Richard E. Tarrant
By:__________________________________
Title: President and Chief Executive
Officer
Phamis, Inc.
/s/ Frank T. Sample
By:__________________________________
Title: President and Chief Executive
Officer
A-36
<PAGE>
ANNEX B
LOGO
March 25, 1997
Board of Directors
IDX Systems Corporation
1400 Shelburne Road
South Burlington, VT 05402
Dear Sirs:
IDX Systems Corporation ("Buyer" or the "Company"), PHAMIS, Inc. ("Target")
and Penguin Acquisition Corporation, a Washington Corporation and a wholly-
owned subsidiary of Buyer (the "Merger Sub"), have entered into an Agreement
and Plan of Merger dated as of March 25, 1997 (the "Agreement"). Pursuant to
the Agreement, Merger Sub will be merged with Target (the "Merger"), and each
share of Target common stock issued and outstanding immediately prior to the
effective time of the Merger will be converted into 0.7300 shares (the
"Exchange Ratio") of common stock of Buyer, subject to adjustment as provided
in the Agreement. We have assumed, with your consent, that the Merger will
qualify for pooling-of-interests accounting treatment. You have requested our
opinion as to whether the Exchange Ratio is fair, from a financial point of
view, to Buyer.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors
of Buyer in connection with the transaction described above and will receive a
fee for our services, a portion of which is contingent upon the consummation
of the Merger. We have also in the past provided financial advisory and
underwriting services for Buyer and Target. Alex. Brown maintains a market in
the Common Stock of Target and Buyer and regularly publishes research reports
regarding the health care information technology industry and the businesses
and securities of Buyer, Target and other publicly owned companies in the
health care information technology industry. In the ordinary course of
business, Alex. Brown may actively trade the securities of both the Company
and the Target for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in securities of
the Company and the Buyer.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning Target and Buyer and
certain internal analyses and other information furnished to us by Target and
Buyer. We have also held discussions with the members of the senior
managements of Target and Buyer regarding the businesses and prospects of
their respective companies and the joint prospects of a combined company. In
addition, we have (i) reviewed the reported prices and trading activity for
the common stock of both Target and Buyer, (ii) compared certain financial and
stock market information for Target and Buyer with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed
the financial terms of certain recent business combinations which we deemed
comparable in whole or in part, (iv) reviewed the terms of the Agreement and
certain related documents, and (v) performed such other studies and analyses
and considered such other factors as we deemed appropriate.
LOGO
B-1
<PAGE>
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
hereof. With respect to the information relating to the prospects of Target
and Buyer, we have assumed that such information reflects the best currently
available judgments and estimates of the managements of Target and Buyer as to
the likely future financial performances of their respective companies and of
the combined entity. In addition, we have not made nor been provided with an
independent evaluation or appraisal of the assets of Target and Buyer, nor
have we been furnished with any such evaluations or appraisals. Our opinion is
based on market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of Buyer and do not constitute a recommendation
to Buyer's stockholders as to how they should vote at the stockholders'
meeting in connection with the Merger. We hereby consent, however, to the
inclusion of this opinion as an exhibit to any proxy or registration statement
distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of
view, to Buyer.
Very truly yours,
Alex. Brown & Sons Incorporated
/s/ Stuart F. Smith
By: _________________________________
Stuart F. Smith
Name: _______________________________
Managing Director
B-2
<PAGE>
ANNEX C
LOGO
March 25, 1997
Board of Directors
PHAMIS, Inc.
1001 Fourth Avenue Plaza
Suite 1500
Seattle, WA 98154-1144
Dear Sirs:
We understand that pursuant to an Agreement and Plan of Merger dated as of
March 25, 1997 (the "Merger Agreement") among PHAMIS, Inc. ("PHAMIS"), IDX
Systems Corporation ("IDX") and Penguin Acquisition Corporation, a wholly-owned
subsidiary of IDX, IDX and PHAMIS are considering a merger transaction (the
"Merger") pursuant to which each share of common stock of PHAMIS will be
converted into 0.73 shares of common stock of IDX, subject to adjustment based
on the average market price per share of IDX as more fully set forth in the
Merger Agreement. We further understand that the Merger will be accounted for
as a pooling of interests as contemplated by the Merger Agreement.
You have asked us to render our opinion as to whether the Merger is fair,
from a financial point of view, to the stockholders of PHAMIS.
In the course of our analysis for rendering this opinion, we have:
1. reviewed the Merger Agreement in substantially final form as provided
by you to us and have assumed that the final form of such agreement will
not vary in any regard that is material to our analysis;
2. reviewed the Annual Report to Shareholders and the Annual Report on
Form 10-K for the year ended December 31, 1995, the Quarterly Reports on
Form 10-Q for the periods ended March 31, June 30 and September 30, 1996,
and draft financial statements for the year ended December 31, 1996 for
PHAMIS;
3. reviewed the Annual Report to Shareholders and the Annual Report on
Form 10-K for the year ended December 31, 1995 and the Quarterly Reports on
Form 10-Q for the periods ended March 31, June 30 and September 30, 1996,
and the draft financial statements for the year ended December 31, 1996 for
IDX;
4. reviewed certain operating and financial information provided to us by
the managements of PHAMIS and IDX relating to such businesses, including
internal projections of future financial results;
5. met with certain members of PHAMIS's senior management to discuss
PHAMIS's operations, historical financial statements and future prospects,
as well as their views of the business, operational and strategic benefits,
potential synergies and other implications of the Merger;
6. met with certain members of IDX's senior management to discuss IDX's
operations, historical financial statements and future prospects, and their
views of the business, operational, and strategic benefits, potential
synergies and other implications of the Merger.
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7. reviewed the pro forma financial impact of the Merger on PHAMIS and
IDX;
8. reviewed the historical stock prices and trading volumes of the common
stock of PHAMIS and IDX;
9. reviewed certain publicly available financial information and stock
market performance data of other publicly-held companies which we deemed
generally comparable to PHAMIS and IDX;
10. reviewed the financial terms of certain other recent acquisitions of
companies which we deemed generally comparable to PHAMIS; and
11. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us or
reviewed for us by PHAMIS and IDX and the reasonableness of the assumptions
made by the managements of PHAMIS and IDX with respect to the projected
financial results of such businesses and the potential synergies which could
be incurred or achieved upon consummation of the Merger, except as provided
below. With respect to the financial projections provided to us by PHAMIS, we
determined not to rely on certain of the internal estimates of PHAMIS's future
financial performance in our analyses because of, among other things, the
inherent uncertainty of such projections and the fact that actual results for
fiscal 1996 differed materially from past projections for such periods for
PHAMIS; with your consent we relied on estimates made by certain security
analysts in reports published in the last six months. We have not assumed any
responsibility for independent verification of such information and have
relied upon the assurances of the management of PHAMIS and the management of
IDX that they are unaware of any facts that would make the information
provided to us or reviewed for us incomplete or misleading. In arriving at our
opinion, we have not performed or obtained any independent appraisal of the
assets or liabilities of PHAMIS or IDX nor have we been furnished with any
such appraisals. In addition, we have not been authorized by PHAMIS to
solicit, nor have we solicited, third-party indications of interest for the
acquisition of all or part of PHAMIS. Our opinion is necessarily based on the
economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof. This opinion does not address
PHAMIS's underlying decision to effect the Merger.
For purposes of rendering our opinion we have assumed that the
representations and warranties of each party contained in the Merger Agreement
are true and correct, that each party will perform all of the covenants and
agreements required to be performed by it under the Merger Agreement and that
all conditions to the consummation of the Merger will be satisfied without
waiver thereof.
We have acted as financial advisor to PHAMIS in connection with the Merger
and will receive a fee for such advisory services, including the rendering of
this opinion, payment of a significant portion of which is contingent upon the
consummation of the Merger.
In the ordinary course of our business, we may actively trade the securities
of PHAMIS and IDX for our own account and for the accounts of customers and
accordingly, may, at any time, hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of PHAMIS and is not to be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, in any manner for any purpose without our prior written consent, which
shall not be unreasonably withheld. This letter does not constitute a
recommendation to any shareholder as to how such shareholder should vote on
the Merger.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger is fair, from a financial point of view, to the
stockholders of PHAMIS.
Very truly yours,
Bear, Stearns & Co. Inc.
/s/ Edward M. Rimland
By: _________________________________
Managing Director
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ANNEX D
DISSENTERS' RIGHTS
23B.13.010. DEFINITIONS.
As used in this chapter:
1. "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
2. "Dissenter" means a shareholder who is entitled to dissent from corporate
action under RCW 23B.13.020 and who exercises that right when and in the
manner required by RCW 23B.13.200 through 23B.13.280.
3. "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
4. "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
5. "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the
extent of the rights granted by a nominee certificate on file with a
corporation.
6. "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
7. "Shareholder" means the record shareholder or the beneficial shareholder.
23B.13.020. RIGHT TO DISSENT
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 230.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled
to vote on the merger, or (ii) if the corporation is a subsidiary that is
merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if the
fractional share so treated is to be acquired for cash under RCW 23B.06.040;
or
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(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the dissenter dissents and the dissenter's other shares were registered
in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200. NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210. NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must (a) deliver to the corporation
before the vote is taken written notice of the shareholders' intent to demand
payment for the shareholder's shares if the proposed action is effected, and
(b) not vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter.
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23B.13.220. DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230. DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial ownership
of the shares before the date required to be set forth in the dissenters'
notice pursuant to RCW 23B.13.220(2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of
a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240. SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
23B.13.250. PAYMENT
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of
the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of
the shareholder's shares, plus accrued interest.
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(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260. FAILURE TO TAKE ACTION
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any
transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270. AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
23B.13.280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
RCW 23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and
demand payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
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23B.13.300. COURT ACTION
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
RCW 23B.13.270.
23B.13.310. COURT COSTS AND COUNSEL FEES
(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine
all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously,
or not in good faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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ANNEX E
DISSENTERS' RIGHTS
Subchapter 1. Right to Dissent and Obtain Payment for Shares
(S) 13.01. DEFINITIONS
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 13.02 of this title and who exercises that
right when and in the manner required by sections 13.20 through 13.28 of this
title.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(S) 13.02. RIGHT TO DISSENT
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his or her shares in the event of, any of the following
corporate actions:
(1) Merger. Consummation of a plan of merger to which the corporation is
a party;
(A) if shareholder approval is required for the merger by section
11.03 of this title or the articles of incorporation and the
shareholder is entitled to vote on the merger; or
(B) if the corporation is a subsidiary that is merged with its parent
under section 11.04 of this title;
(2) Share exchange. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
(3) Sale of assets. Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is entitled to
vote on the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
(4) Amendment to articles. An amendment of the articles of incorporation
that materially and adversely affects rights in respect of a dissenter's
shares because it:
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(A) alters or abolishes a preferential right of the shares;
(B) creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under section 6.04 of this title; or
(5) Market exception. Any corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this chapter may not challenge the corporate action creating his
or her entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
(S) 13.03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his or her name only if he or she dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
he or she asserts dissenters' rights. The rights of a partial dissenter under
this subsection are determined as if the shares as to which the shareholder
dissents and the shareholder's other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his or her behalf only if:
(1) he or she submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) he or she does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the
vote.
Subchapter 2. Procedure for Exercise of Dissenters' Rights
(S) 13.20. NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under section
13.02 of this title is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(b) If corporate action creating dissenters' rights under section 13.02 of
this title is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in section
13.22 of this title.
(S) 13.21. NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under section
13.02 of this title is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights
(1) must deliver to the corporation before the vote is taken written
notice of his or her intent to demand payment of his or her shares if the
proposed action is effectuated; and
(2) must not vote his or her shares in favor of the proposed action.
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(b) A shareholder who does not satisfy the requirements of subsection (a) of
this section is not entitled to payment for his or her shares under this
chapter.
(S) 13.22. DISSENTERS' NOTICE
(a) If proposed corporate action creating dissenters' rights under section
13.02 of this title is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of section 13.21 of this title.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken, and must:
(1) state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the share before that date;
(4) set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 or more than 60 days after the date the
subsection (a) notice is delivered; and
(5) be accompanied by a copy of this chapter.
(S) 13.23. DUTY TO DEMAND PAYMENT
(a) A shareholder sent a dissenters' notice described in section 13.22 of
this title must demand payment, certify whether he or she acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to section 13.22(b) (3) of this title, and deposit
his or her certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his or her share
certificates under subsection (a) of this section retains all other rights of
a shareholder until these rights are cancelled or modified by the taking of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his or her share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment of his or her shares under this chapter.
(S) 13.24. SHARE RESTRICTIONS
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section 13.26 of this
title.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
(S) 13.25. PAYMENT
(a) Except as provided in section 13.27 of this title, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with section 13.23 of this
title the amount the corporation estimates to be the fair value of his or her
shares, plus accrued interest.
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(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
shares and how such estimate was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand payment under section
13.28 of this title; and
(5) a copy of this chapter.
(S) 13.26. FAILURE TO TAKE ACTION
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 13.22 of this title and repeat the payment
demand procedure.
(S) 13.27. AFTER-ACQUIRED SHARES
(a) A corporation may elect to withhold payment required by section 13.25 of
this title from a dissenter unless the dissenter was the beneficial owner of
the shares before the date set forth in the dissenters' notice as the date of
the first announcement of news media or to shareholders of the terms of the
proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his or her demand. The corporation shall send with its offer a statement of
its estimate and calculation of the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under section 13.28 of this title.
(S) 13.28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due,
and demand payment of his or her estimate (less any payment under section
13.25 of this title), or reject the corporation's offer under section 13.27 of
this title and demand payment of the fair value of his or her shares and
interest due, if:
(1) the dissenter believes that the amount paid under section 13.25 or
offered under section 13.27 is less than the fair value of his or her
shares or that the interest due is incorrectly calculated;
(2) the corporation fails to make payment under section 13.25 within 60
days after the date set for demanding payment; or
(3) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this section
unless he or she notifies the corporation of his or her demand in writing
under subsection (a) of this section within 30 days after the corporation made
or offered payment for his or her shares.
E-4
<PAGE>
Subchapter 3. Judicial Appraisal of Shares
(S) 13.30. COURT ACTION
(a) If a demand for payment under section 13.28 of this title remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the 60-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court of
the county where the corporation's principal office (or, if none in this
state, its registered office) is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
complaint. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) for the amount, if any, by which the court finds the fair value of
his or her shares, plus interest, exceeds the amount paid by the
corporation; or
(2) for the fair value, plus accrued interest, of his or her after-
acquired shares for which the corporation elected to withhold payment under
section 13.27 of this title.
(S) 13.31. COURT COSTS AND COUNSEL FEES
(a) The court in an appraisal proceeding commenced under section 13.30 of
this title shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
section 13.28 of this title.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the
court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith with respect to the
rights provided by this chapter.
(2) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
E-5
<PAGE>
ANNEX F
VERMONT SECRETARY OF STATE
LOCATION: 81 RIVER STREET MAIL: 109 STATE STREET
MONTPELIER, VT 05609-1104 (802) 828-2386
ARTICLES OF AMENDMENT
(VERMONT DOMESTIC FOR-PROFIT CORPORATION)
Name of corporation IDX SYSTEMS CORPORATION
- -------------------------------------------------------------------------------
A Vermont domestic for-profit corporation may amend its articles of
incorporation at anytime to add or change a provision that is required or
permitted in the articles of incorporation or to delete a provision not
required. If a corporation has not yet issued shares, its incorporators or
board of directors may adopt one or more amendments to the corporation's
articles of incorporation.
The text and date of each amendment adopted. See attachment A.
---------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the amendment provides for an exchange, reclassification, or cancellation
of issued shares, state the provisions for implementing the amendment if not
contained in the amendment itself.
These Articles of Amendment do not provide for any exchange, reclassification,
- -------------------------------------------------------------------------------
or cancellation of the issued shares of the corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the amendment was adopted by the incorporators or board of directors,
without shareholder action, make a statement to that effect and that
shareholder action was not required.
The dates of adoption of these Articles of Amendment by the shareholders was
- -------------------------------------------------------------------------------
, 1997.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the amendment was approved by shareholders.
(A) the designation, number of outstanding shares, number of votes entitled
to be cast by each voting group entitled to vote separately on the amendment,
and number of votes of each voting group represented at the meeting.
<PAGE>
The number of shares outstanding of the Corporation at the time of adoption
- -------------------------------------------------------------------------------
of these Articles of Amendment by the shareholders was shares of Common Stock,
- -------------------------------------------------------------------------------
and the number of shares entitled to vote thereon was shares of Common Stock.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(B) either the total number of votes cast for and against the amendment by
each voting group entitled to vote separately on the amendment or the total
number of undisputed votes cast for the amendment by each voting group and a
statement that the number cast for the amendment by each voting group was
sufficient for approval by that voting group.
The number of shares voted for adoption of the Articles of Amendment was
- -------------------------------------------------------------------------------
and the number of shares voted against these Articles was .
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature _______________________ Title _______________ Date ________________
$25.00 FEE MUST BE ATTACHED.
THIS APPLICATION MUST BE TYPEWRITTEN OR PRINTED AND MUST BE FILED IN
DUPLICATE.
OFFICE OF SECRETARY OF STATE
FILED _______________________________
_____________________________________
fee of $ has been paid.
F-2
<PAGE>
ATTACHMENT A
TO ANNEX F
Article V of the Second Amended and Restated Articles of Incorporation is
hereby deleted in its entirety and replaced with:
ARTICLE V
AUTHORIZED STOCK
The total number of shares of stock which the Corporation has authority to
issue is One Hundred Five Million (105,000,000), consisting of One Hundred
Million (100,000,000) shares of common stock, $0.01 par value per share (the
"Common Stock") and Five Million (5,000,000) shares of preferred stock, $0.01
par value per share (the "Preferred Stock") which shall have the preferences,
limitations, relative rights and other terms as determined by the board of
directors of the Corporation from time to time in accordance with Article VI.
F-3
<PAGE>
ANNEX G
VERMONT SECRETARY OF STATE
LOCATION: 81 RIVER STREET MAIL: 109 STATE STREET
MONTPELIER, VT 05609-1104 (802) 828-2386
ARTICLES OF AMENDMENT
(VERMONT DOMESTIC FOR-PROFIT CORPORATION)
Name of corporation IDX SYSTEMS CORPORATION
- -------------------------------------------------------------------------------
A Vermont domestic for-profit corporation may amend its articles of
incorporation at anytime to add or change a provision that is required or
permitted in the articles of incorporation or to delete a provision not
required. If a corporation has not yet issued shares, its incorporators or
board of directors may adopt one or more amendments to the corporation's
articles of incorporation.
The text and date of each amendment adopted. See attachment A.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the amendment provides for an exchange, reclassification, or cancellation
of issued shares, state the provisions for implementing the amendment if not
contained in the amendment itself.
These Articles of Amendment do not provide for any exchange, reclassification,
- -------------------------------------------------------------------------------
or cancellation of the issued shares of the corporation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the amendment was adopted by the incorporators or board of directors,
without shareholder action, make a statement to that effect and that
shareholder action was not required.
The dates of adoption of these Articles of Amendment by the shareholders was
- -------------------------------------------------------------------------------
, 1997.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
G-1
<PAGE>
If the amendment was approved by shareholders.
(A) the designation, number of outstanding shares, number of votes entitled to
be cast by each voting group entitled to vote separately on the amendment, and
number of votes of each voting group represented at the meeting.
The number of shares outstanding of the Corporation at the time of adoption
- -------------------------------------------------------------------------------
of these Articles of Amendment by the shareholders was shares of Common Stock,
- -------------------------------------------------------------------------------
and the number of shares entitled to vote thereon was shares of Common Stock.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(B) either the total number of votes cast for and against the amendment by
each voting group entitled to vote separately on the amendment or the total
number of undisputed votes cast for the amendment by each voting group and a
statement that the number cast for the amendment by each voting group was
sufficient for approval by that voting group.
The number of shares voted for adoption of the Articles of Amendment was
- -------------------------------------------------------------------------------
and the number of shares voted against these Articles was .
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature ___________________________ Title ______________ Date _______________
$25.00 FEE MUST BE ATTACHED.
THIS APPLICATION MUST BE TYPEWRITTEN OR PRINTED AND MUST BE FILED IN
DUPLICATE.
OFFICE OF SECRETARY OF STATE
FILED _________________
-----------------------------------
fee of $ has been paid.
G-2
<PAGE>
ATTACHMENT A
TO ANNEX G
Article VII of the Second Amended and Restated Articles of Incorporation is
hereby deleted in its entirety and replaced with:
ARTICLE VII
PROVISIONS CONCERNING CERTAIN RIGHTS
OF THE CORPORATION AND THE SHAREHOLDERS
SECTION 1. SPECIAL MEETINGS OF SHAREHOLDERS.
The Corporation shall hold a special meeting of shareholders on call of its
board of directors, the chairman of the board, the chief executive officer, or
if none, the president or any other person authorized to do so by the bylaws
of the Corporation, or if the holders of at least ten percent of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date and deliver to the Corporation's secretary one or
more written demands for the meeting describing the purpose or purposes for
which it is to be held.
SECTION 2. SPECIAL VOTING REQUIREMENTS.
In addition to any affirmative vote required by law, any "Business
Combination" (as herein defined) involving the Corporation shall be subject to
approval in the manner set forth in this Article VII.
Section 2.1 Vote Required for Business Combinations.
This Section governs only those Business Combinations (as herein defined)
involving the Corporation for which shareholder approval would otherwise be
required pursuant to the provisions of the Vermont Business Corporation Act
without giving effect to this Section 2.1. Where approval of a Business
Combination is required by the shareholders of the Corporation under the
Vermont Business Corporation Law, the vote required for such approval shall be
as follows:
2.1.1 Supermajority Vote. Except as provided in subsection 2.1.2 hereof,
a Business Combination must be approved by each voting group entitled to
vote separately on the Business Combination by an affirmative vote of not
less than two-thirds of the votes entitled to be cast on the Business
Combination by that voting group.
2.1.2 Majority Vote. If the then current or a preexisting board of
directors has by resolution adopted at a meeting of such board of directors
approved a Business Combination and shall have determined to recommend it
for approval by the shareholders entitled to vote on the Business
Combination, the provisions of subsection 2.1.1 hereof shall not apply, and
the Business Combination must be approved by each voting group entitled to
vote separately on the Business Combination by a majority of the votes
entitled to be cast on the Business Combination by that voting group.
Section 2.2 Definition of Business Combination. For the purposes of this
Article VII, "Business Combination" means (i) a merger, share exchange or
consolidation of the Corporation with any other corporation, or (ii) the sale,
lease, exchange or other disposition, whether in one transaction or a series
of transactions, by the Corporation of all or a substantial part of the
Corporation's assets other than in the usual and regular course of business.
G-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 8.50 through 8.58 of the Vermont Business Corporation Act contain
provisions governing the indemnification of corporate directors and officers.
In general, the statute permits a corporation to indemnify any person who was
or is a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or entity, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation. With respect to any criminal action
or proceeding, the indemnified individual must have had no reasonable cause to
believe his conduct was unlawful. With respect to action or suits by or in the
right of the corporation, such indemnification is limited to expenses
(including attorney's fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit.
Indemnification is not permitted with respect to any claim, issue or matter as
to which such person has been adjudged to be liable to the corporation unless
and only to the extent that the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Additionally, a corporation is required to indemnify its directors and
officers against expenses to the extent that such directors or officers have
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein.
Indemnification can be made by a corporation only upon a determination made
in the manner prescribed by the statute that indemnification is proper in the
circumstances because the party seeking indemnification has met the applicable
standard of conduct as set forth in the Vermont Business Corporation Act. That
statutory indemnification is not deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors, or otherwise. A
corporation also has the power to purchase and maintain insurance on behalf of
any person covering any liability incurred by such person in his capacity as a
director, officer, employee or agent of the corporation, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability. The indemnification provided by the
Vermont Business Corporation Act, unless otherwise provided when authorized or
ratified, continues as to a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
The Registrant's Bylaws generally allow indemnification of officers and
directors to the fullest extent permitted by law.
The Registrant has obtained directors' and officers' liability insurance
coverage from Genesis Insurance Co. The policy covers up to $2,000,000 for
each claim during each policy year, and up to $25,000 of corporate
reimbursement.
Pursuant to Section 4.15 of the Merger Agreement, the Registrant, for a
period of three years after the effective time of the Merger, has agreed that
any of PHAMIS, Inc.'s directors and officers who subsequently become directors
or officers of the Registrant shall be covered by the directors' and officers'
liability insurance, if any, applicable to the then current directors and
officers of the Registrant. See "The Merger Agreement--Director and Officer
Indemnification."
The Registrant has entered into a Tax Indemnification Agreement with certain
persons that were shareholders of the Registrant while it was an S corporation
(the "Existing Shareholders") that provides for,
II-1
<PAGE>
among other things, the indemnification of the Registrant by such shareholders
for any federal and state income taxes (including interest) incurred by the
Registrant if for any reason the Registrant is deemed to be treated as a C
corporation during any period which it reported its taxable income as an S
corporation. The Tax Indemnification Agreement further provides for the cross-
indemnification of the Registrant and of each Existing Shareholder for any
losses or liabilities with respect to certain additional taxes (including
interest and, in the case of Existing Shareholders, penalties) resulting from
the Registrant's operations during the period in which it was an S
corporation.
The Amended and Restated Consulting/Employment Agreement between the
Registrant and Dr. Tufo provides that the Registrant will indemnify Dr. Tufo
against all costs and expenses, reasonably incurred by him in connection with
any action, suit or other proceeding, to which he is a party in his capacity
as a director, officer, shareholder, consultant, or employee of the
Registrant, except for expenses and costs incurred because of Dr. Tufo's gross
negligence or willful misconduct.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C>
2.1(1) --Agreement and Plan of Merger dated as of March 25, 1997 by and among
the Registrant, Penguin Acquisition Corporation and PHAMIS, Inc.
("PHAMIS").
3.1(2) --First proposed Amendment to Second Amended and Restated Articles of
Incorporation of the Registrant.
3.2(3) --Second proposed Amendment to Second Amended and Restated Articles of
Incorporation of the Registrant.
5.1 --Opinion of Robert W. Baker, Jr., Esq.
8.1 --Opinion of Hale and Dorr LLP as to Tax Matters.
8.2 --Opinion of Foster Pepper & Shefelman PLLC as to Tax Matters.
23.1 --Consent of Robert W. Baker, Jr., Esq. (included in Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of KPMG Peat Marwick LLP.
23.4 --Consent of Hale and Dorr LLP (included in Exhibit 8.1).
23.5 --Consent of Foster Pepper & Shefelman PLLC (included in Exhibit 8.2).
24.1 --Power of Attorney (See page II-4).
99.1(4) --Opinion of Alex. Brown & Sons Incorporated.
99.2(5) --Opinion of Bear, Stearns & Co. Inc.
99.3 --Form of Proxy Card of the Registrant.
99.4 --Form of Proxy Card of PHAMIS.
</TABLE>
- --------
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Attached as Annex F to the Joint Proxy Statement/Prospectus.
(3) Attached as Annex G to the Joint Proxy Statement/Prospectus.
(4) Attached as Annex B to the Joint Proxy Statement/Prospectus.
(5) Attached as Annex C to the Joint Proxy Statement/Prospectus.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and, therefore, have been
omitted.
ITEM 22. UNDERTAKINGS.
A. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "Securities Act"),
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (and where
II-2
<PAGE>
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act), that is incorporated by reference in
this Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. The Registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant) of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
D. The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the
date of responding to the request.
E. The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of South Burlington, State
of Vermont on the 3rd day of June, 1997.
IDX Systems Corporation
/s/ Richard E. Tarrant
By: _________________________________
RICHARD E. TARRANT
President and Chief Executive
Officer
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Richard
E. Tarrant, John A. Kane, Robert W. Baker, Jr. and Peter B. Tarr, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them, for him and in his name,
place and stead, and in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form
S-4 of IDX Systems Corporation and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Richard E. Tarrant President, Chief June 3, 1997
- ------------------------------------- Executive Officer
RICHARD E. TARRANT and Director
/s/ John A. Kane Vice President, June 3, 1997
- ------------------------------------- Finance and
JOHN A. KANE Administration,
Chief Financial
Officer and
Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Robert H. Hoehl Director June 3, 1997
- -------------------------------------
ROBERT H. HOEHL
/s/ Paul L. Egerman Director June 3, 1997
- -------------------------------------
PAUL L. EGERMAN
II-4
<PAGE>
SIGNATURE TITLE DATE
/s/ Henry M. Tufo, M.D. Director June 3, 1997
- -------------------------------------
HENRY M. TUFO, M.D.
/s/ Steven M. Lash Director June 3, 1997
- -------------------------------------
STEVEN M. LASH
/s/ Stuart H. Altman, Ph.D. Director June 3, 1997
- -------------------------------------
STUART H. ALTMAN, PH.D.
/s/ Larry D. Grandia Director June 3, 1997
- -------------------------------------
LARRY D. GRANDIA
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------------
<S> <C>
2.1(1) --Agreement and Plan of Merger dated as of March 25, 1997 by and among
the Registrant, Penguin Acquisition Corporation and PHAMIS, Inc.
("PHAMIS").
3.1(2) --First proposed Amendment to Second Amended and Restated Articles of
Incorporation of the Registrant.
3.2(3) --Second proposed Amendment to Second Amended and Restated Articles of
Incorporation of the Registrant.
5.1 --Opinion of Robert W. Baker, Jr., Esq.
8.1 --Opinion of Hale and Dorr LLP as to Tax Matters.
8.2 --Opinion of Foster Pepper & Shefelman PLLC as to Tax Matters.
23.1 --Consent of Robert W. Baker, Jr., Esq. (included in Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of KPMG Peat Marwick LLP.
23.4 --Consent of Hale and Dorr LLP (included in Exhibit 8.1).
23.5 --Consent of Foster Pepper & Shefelman PLLC (included in Exhibit 8.2).
24.1 --Power of Attorney (See page II-4).
99.1(4) --Opinion of Alex. Brown & Sons Incorporated.
99.2(5) --Opinion of Bear, Stearns & Co. Inc.
99.3 --Form of Proxy Card of the Registrant.
99.4 --Form of Proxy Card of PHAMIS.
</TABLE>
- --------
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Attached as Annex F to the Joint Proxy Statement/Prospectus.
(3) Attached as Annex G to the Joint Proxy Statement/Prospectus.
(4) Attached as Annex B to the Joint Proxy Statement/Prospectus.
(5) Attached as Annex C to the Joint Proxy Statement/Prospectus.
<PAGE>
EXHIBIT 5.1
[Letterhead of IDX Systems Corporation]
LEGAL DEPARTMENT
Telecopier (802) 862-6351
June 3, 1997
IDX Systems Corporation
P.O. Box 1070
1400 Shelburne Road
South Burlington, Vermont 05402-1070
Attention: Jack A. Kane, Chief Financial Officer
Dear Mr. Kane:
This opinion is furnished to you in connection with a Registration
Statement on Form S-4 (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of up to an aggregate of 5,600,000 shares of
Common Stock (the "Common Stock"), $.01 par value per share of IDX Systems
Corporation (the "Company").
I have acted as counsel for the Company in connection with the issuance
of the shares of Common Stock pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") dated as of March 25, 1997, among the Company, Penguin
Acquisition Corporation (the "Sub") and PHAMIS, Inc. I have examined and relied
upon the originals or copies of the signed Registration Statement and exhibits
thereto, the Merger Agreement, minutes of meetings of the stockholders and board
of directors of the Company and the Sub, as amended and/or restated, stock
record books of the Company and the Sub, copies of the bylaws of the Company and
the Sub as amended and/or restated, copies of the Articles of Incorporation of
the Company and the Sub, as amended and/or restated, and such other documents as
I have deemed material to my opinion set forth below. In my examination of
documents in connection with this opinion. I have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of
documents submitted to me as originals and the conformity to original documents
of all documents submitted to me as copies.
Based upon the foregoing, I am of the opinion that the shares of Common
Stock to be issued pursuant to the Merger Agreement are duly authorized and,
when issued in accordance with the terms of the Merger Agreement, will be
legally issued, fully paid and nonassessable.
I advised you that I am a member of the Bar of Vermont and that
accordingly. I express no opinion on the laws of any jurisdiction other than
Vermont.
<PAGE>
IDX Systems Corporation
June 3, 1997
Page 2
I hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of my name therein and in the related
Joint Proxy Statement/Prospectus under the caption "Legal Matters."
This opinion is to be used only in connection with the issuance of
Common Stock while the Registration Statement is in effect.
Very truly yours,
/s/ Robert W. Baker
Robert W. Baker, Jr.
Vice President and General Counsel
RWB/mps
<PAGE>
EXHIBIT 8.1
[Hale and Dorr LLP letterhead]
June 3, 1997
IDX Systems Corporation
1400 Shelburne Road
P.O. Box 1070
Burlington, VT 05402-1070
Re: Merger pursuant to Agreement and Plan of Merger among IDX Systems
Corporation, Penguin Acquisition Corporation, and PHAMIS, Inc.
-----------------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of March 25, 1997 (the "Merger Agreement"), by and among
IDX Systems Corporation, a Vermont corporation ("Parent"), Penguin Acquisition
Corporation, a Washington corporation and wholly owned subsidiary of Parent
("Sub"), and PHAMIS, Inc., a Washington corporation ("Target"). Pursuant to the
Merger Agreement, Sub will merge with and into Target (the "Merger"). Except as
otherwise provided, capitalized terms not defined herein have the meanings set
forth in the Merger Agreement and the exhibits thereto or in the letters
delivered to Hale and Dorr LLP by Parent and Target and certain Target
shareholders containing certain representations of Parent and Target and certain
Target shareholders relevant to this opinion (the "Representation Letters").
All section references, unless otherwise indicated, are to the United States
Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Parent in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Affiliates's
Agreements, the Representation Letters, and such other documents as we
considered relevant to our analysis. In our examination of documents, we have
assumed the authenticity of original documents, the accuracy of copies, the
genuineness of signatures, and the legal capacity of signatories.
<PAGE>
IDX Systems Corporation
June 3, 1997
Page 2
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person
or entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
Target that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for Target stock.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Parent, Sub, or Target as a
result of the Merger;
3. No gain or loss will be recognized by the shareholders of Target upon
the exchange of Target stock solely for shares of Parent stock in the Merger;
4. Cash received by the shareholders of Target in lieu of fractional
shares of Parent stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section 302,
as if such fractional shares had been issued in the Merger and then redeemed by
Parent;
5. The tax basis of the shares of Parent stock received by the
shareholders of Target in the Merger will be equal to the tax basis of the
shares of Target stock exchanged therefor in the Merger, reduced by any basis
allocable to a fractional share of Parent stock treated as sold or exchanged
under Section 302; and
6. The holding period for the shares of Parent stock received by the
shareholders of Target will include the holding period for the shares of Target
stock exchanged therefor in the Merger, provided that the shares of Target stock
are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Foster Pepper & Shefelman
PLLC has delivered, and has not withdrawn, an opinion that is substantially
similar to this one. No opinion is expressed as to any federal income tax
consequence of the Merger except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as
<PAGE>
IDX Systems Corporation
June 3, 1997
Page 3
an exhibit to the Registration Statement and further consent to the use of our
name in the Registration Statement in connection with references to this opinion
and the tax consequences of the Merger. In giving this consent, however, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
<PAGE>
EXHIBIT 8.2
[FOSTER PEPPER & SHEFELMAN PLLC LETTERHEAD]
June 3, 1997 Direct Phone
206-447-2818
Direct Facsimile
206-749-1979
PHAMIS, Inc.
1001 Fourth Avenue Plaza E-Mail
Suite 1500 [email protected]
Seattle, WA 98154-1144
Re: Merger Pursuant to Agreement and Plan of Merger Among IDX Systems
Corporation, Penguin Acquisition, and PHAMIS, Inc.
Ladies and Gentlemen:
We have acted as counsel to PHAMIS, Inc., a Washington corporation
("Target"), in connection with the proposed merger (the "Merger") of Penguin
Acquisition Corporation, a Washington corporation ("Sub") and a wholly owned
subsidiary of IDX Systems Corporation, a Vermont corporation ("Parent"), with
and into Target, pursuant to the terms of the Agreement and Plan of Merger
dated as of March 25, 1997 (the "Merger Agreement") by and among Parent, Sub,
and Target. This opinion is being delivered to you in connection with the
filing of a registration statement (the "Registration Statement") on Form S-4,
which includes the Joint Proxy Statement and Prospectus relating to the Merger
Agreement. Except as otherwise provided, capitalized terms not defined herein
have the meanings set forth in the Merger Agreement and the exhibits thereto or
in the letter delivered to Foster Pepper & Shefelman PLLC by Parent and Target
and certain Target shareholders containing certain representations of Parent
and Target and certain Target shareholders relevant to the opinion (the
"Representations Letters"). All section references, unless otherwise
indicated, are to the United States Internal Revenue Code of 1986, as amended
(the "Code").
You have requested our opinion regarding certain federal income tax
consequences of the Merger. In our capacity as counsel to Target in the
Merger, and for purposes of rendering this opinion, we have examined and relied
upon the Registration Statement, the Merger Agreement and the exhibits thereto,
Affiliate's Agreements, the Representation Letters, and such other documents as
we considered relevant for purposes of this opinion. In our examination, we
have assumed the authenticity of all documents submitted to us as originals,
the accuracy of all documents submitted to us as copies and the authenticity of
the originals of such copies, the genuineness of signatures, and the legal
capacity of signatures.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person
or entity has represented that such person or entity is not a party to, does
not have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of
our representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations promulgated or proposed thereunder (the
"Regulations"), current published administrative positions of the Internal
Revenue Service ("Rulings"), and existing judicial authorities. New
developments in the Regulations, Rulings, judicial authorities or legislative
changes occuring after the Effective Time may have an adverse impact upon the
opinions expressed herein. Nevertheless, we undertake no responsibility to
advise you of any developments after the Effective Time in the application or
interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
Internal Revenue Service ("IRS") or any court. Thus, no assurances can be
given that a position taken in reliance on our opinion will not be challenged
by the IRS or rejected by a court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use,
or other tax consequences that may result from the Merger or any other
transaction (including any transaction undertaken in connection with the
Merger). We express no opinion regarding the tax consequences of the Merger to
shareholders of Target that are subject to special tax rules, and we express no
<PAGE>
PHAMIS, Inc.
June 3, 1997
Page 2
Merger Agreement and documents and that the Merger will be consummated at the
Effective Time pursuant to the terms and conditions set forth in the Merger
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the Merger
Agreement, as well as those representations contained in the Representation
Letters, are, and at the Effective Time will be, true and complete in all
material respects, and that any representation made in any of the documents
referred to herein "to the best of the knowledge and belief" (or similar
qualification) of any person or party is correct without such qualification.
We have also assumed that as to all matters for which a person or entity has
represented that such person or entity is not a party to, does not have, or is
not aware of, any plan, intention, understanding, or agreement, there is no
such plan, intention, understanding, or agreement. We have not attempted to
verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations promulgated or proposed thereunder (the
"Regulations"), current published administrative positions of the Internal
Revenue Service ("Rulings"), and existing judicial authorities. New
developments in the Regulations, Rulings, judicial authorities or legislative
changes occuring after the Effective Time may have an adverse impact upon the
opinions expressed herein. Nevertheless, we undertake no responsibility to
advise you of any developments after the Effective Time in the application or
interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
Internal Revenue Service ("IRS") or any court. Thus, no assurances can be
given that a position taken in reliance on our opinion will not be challenged
by the IRS or rejected by a court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use,
or other tax consequences that may result from the Merger or any other
transaction (including any transaction undertaken in connection with the
Merger). We express no opinion regarding the tax consequences of the Merger to
shareholders of Target that are subject to special tax rules, and we express no
opinion regarding the tax consequences of the Merger arising in connection with
the ownership of options or warrants for Target stock.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code and Parent, Sub and Target will be parties to
such reorganization within the meaning of Section 368(b);
<PAGE>
PHAMIS, Inc.
June 3, 1997
Page 3
2. No gain or loss will be recognized by Parent, Sub, or Target as a
result of the Merger;
3. No gain or loss will be recognized by the shareholders of Target upon
the exchange of Target stock solely for shares of Parent stock in the Merger,
except that gain or loss will be recognized on the receipt of cash, if any,
received in lieu of fractional shares;
4. Cash received by the shareholders of Target in lieu of fractional
shares of Parent stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section 302,
as if such fractional shares had been issued in the Merger and then redeemed by
Parent;
5. The tax basis of the shares of Parent stock received by the
shareholders of Target in the Merger will be equal to the tax basis of the
shares of Target stock exchanged therefor in the Merger, reduced by any basis
allocable to a fractional share of Parent stock treated as sold or exchanged
under Section 302; and
6. The holding period for the shares of Parent stock received by the
shareholders of Target will include the holding period for the shares of Target
stock exchanged therefor in the Merger, provided that the shares of Target
stock are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Hale and Dorr LLP has
delivered, and has not withdrawn, an opinion that is substantially similar to
this one. No opinion is expressed as to any federal income tax consequence of
the Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and further
consent to the use of our name in the Registration Statement in connection with
references to this opinion and the tax consequences of the Merger. In giving
this consent, however, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
/s/ Foster Pepper & Shefelman PLLC
FOSTER PEPPER & SHEFELMAN PLLC
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and the related Joint Proxy
Statement/Prospectus of IDX Systems Corporation for the registration of
5,600,000 shares of its common stock and to the incorporation by reference
therein of our report dated February 5, 1997, except for Note 13, as to which
the date is March 25, 1997, with respect to the consolidated financial
statements of IDX Systems Corporation included in its Annual Report (Form 10-K)
for the year ended December 31, 1996, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
May 30, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors PHAMIS, Inc.:
We consent to the use of our report dated January 31, 1997, except for note
14 which is as of March 25, 1997, incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus contained
in the Registration Statement on Form S-4 of IDX Systems Corporation.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
June 2, 1997
<PAGE>
EXHIBIT 99.3
PROXY PROXY
IDX SYSTEMS CORPORATION
PROXY APPOINTMENT FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
JULY 9, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF IDX SYSTEMS
CORPORATION
The undersigned, revoking all prior proxies, hereby appoint(s) Richard E.
Tarrant, John A. Kane and Robert W. Baker, Jr., and each of them, with full
power of substitution, as proxies (the "Proxies") to represent and to vote, as
designated herein, all shares of Common Stock of IDX Systems Corporation
("IDX") which the undersigned would be entitled to vote if personally present
at the Special Meeting of Shareholders of the IDX (the "IDX Special Meeting")
to be held at the offices of IDX, 1400 Shelburne Road, P.O. Box 1070, South
Burlington, Vermont 05403, on Wednesday, July 9, 1997 at 10:00 a.m., local
time, and at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE IDX SPECIAL MEETING OR ANY ADJOURNMENT THEREOF.
This proxy appointment form, when properly executed, will be voted in the
manner directed by the undersigned shareholder(s). The Board of Directors of
IDX recommends a vote "FOR" proposals 1, 2, 3, 4, 5 and 6. IF NO DIRECTION IS
GIVEN, THE PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, AND 6. Attendance
of the undersigned at the meeting or any adjournment thereof will not be
deemed to revoke this proxy unless the undersigned shall revoke this proxy in
writing before it is exercised or affirmatively indicate his intent to vote in
person.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) hereon. When shares are held by
joint owners, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation or partnership, please sign by authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
1. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AND [_] [_] [_]
ADOPT AN AGREEMENT AND PLAN OF MERGER DATED AS OF MARCH
25, 1997 (THE "MERGER AGREEMENT") AMONG IDX, PENGUIN
ACQUISITION CORPORATION, A WASHINGTON CORPORATION AND
WHOLLY-OWNED SUBSIDIARY OF IDX ("SUB"), AND PHAMIS,
INC., A WASHINGTON CORPORATION ("PHAMIS") AND TO AP-
PROVE THE ISSUANCE OF SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE, OF IDX ("IDX COMMON STOCK"), PURSUANT
THERETO. THE MERGER AGREEMENT PROVIDES THAT, AMONG
OTHER THINGS (A) SUB WILL BE MERGED WITH AND INTO
PHAMIS, WITH PHAMIS BEING THE SURVIVING CORPORATION AND
BECOMING A WHOLLY-OWNED SUBSIDIARY OF IDX, AND (B) EACH
OUTSTANDING SHARE OF COMMON STOCK, PAR VALUE $.0025 PER
SHARE, OF PHAMIS (TOGETHER WITH THE ASSOCIATED PRE-
FERRED STOCK PURCHASE RIGHT(S) WILL BE CONVERTED INTO
THAT FRACTION OF A SHARE OF IDX COMMON STOCK AS IS
EQUAL TO THE CONVERSION RATIO (AS DEFINED IN THE MERGER
AGREEMENT). AS SET FORTH IN THE MERGER AGREEMENT, THE
CONVERSION RATIO, INITIALLY SET AT .73, WILL BE AD-
JUSTED (I) DOWNWARD (BUT NOT LESS THAN .6811) IN THE
EVENT THAT THE AVERAGE CLOSING PRICE PER SHARE OF IDX
COMMON STOCK ON THE NASDAQ NATIONAL MARKET OVER THE
TWENTY CONSECUTIVE TRADING DAYS ENDING ON THE TRADING
DAY TWO TRADING DAYS IMMEDIATELY PRECEDING JULY 8,
1997, THE DATE OF THE SPECIAL MEETING OF SHAREHOLDERS
OF PHAMIS (THE "IDX STOCK VALUE"), IS GREATER THAN
$34.375 PER SHARE, AND (II) UPWARD (BUT NOT TO GREATER
THAN .8) IN THE EVENT THAT THE IDX STOCK VALUE IS LESS
THAN $28.125 PER SHARE.
2. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AN [_] [_] [_]
AMENDMENT TO IDX'S SECOND AMENDED AND RESTATED ARTICLES
OF INCORPORATION INCREASING THE TOTAL NUMBER OF SHARES
OF CAPITAL STOCK WHICH IDX HAS THE AUTHORITY TO ISSUE
FROM 55,000,000 TO 105,000,000 AND THE TOTAL NUMBER OF
SHARES OF IDX COMMON STOCK FROM 50,000,000 TO
100,000,000.
3. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AN [_] [_] [_]
AMENDMENT TO IDX'S SECOND AMENDED AND RESTATED ARTICLES
OF INCORPORATION INCREASING THE SHAREHOLDER VOTE
REQUIRED TO APPROVE CERTAIN BUSINESS COMBINATIONS FROM
A MAJORITY TO TWO-THIRDS IN THE EVENT THAT THE BOARD OF
DIRECTORS OF IDX DOES NOT RECOMMEND SUCH BUSINESS
COMBINATIONS TO THE SHAREHOLDERS.
4. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AN [_] [_] [_]
AMENDMENT TO IDX'S 1995 STOCK OPTION PLAN INCREASING
THE NUMBER OF SHARES ISSUABLE THEREUNDER FROM 1,470,000
TO 4,500,000.
5. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AN [_] [_] [_]
AMENDMENT TO IDX'S 1995 EMPLOYEE STOCK PURCHASE PLAN
INCREASING THE NUMBER OF SHARES ISSUABLE THEREUNDER
FROM 500,000 TO 1,400,000.
6. TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AN [_] [_] [_]
AMENDMENT TO IDX'S 1995 DIRECTOR STOCK OPTION PLAN
INCREASING THE NUMBER OF SHARES ISSUABLE THEREUNDER
FROM 30,000 TO 80,000.
MARK BOX AT RIGHT IF AN ADDRESS CHANGE OR COMMENT HAS [_]
BEEN NOTED ON THE REVERSE SIDE.
</TABLE>
PLEASE BE SURE TO SIGN AND DATE THIS PROXY. DATE
-------------------
SHAREHOLDER SIGN HERE CO-OWNER SIGN HERE
---------------------- -------------------
---------------------------------------------------
IDX SYSTEMS CORPORATION
---------------------------------------------------
DETACH CARD DETACH CARD
<PAGE>
EXHIBIT 99.4
PHAMIS, INC.
1001 Fourth Avenue Plaza, Suite 1500, Seattle, WA 98154
PROXY FOR THE JULY 9, 1997 SPECIAL MEETING OF SHAREHOLDERS
This Proxy is solicited by the Board of Directors of PHAMIS, Inc.
The undersigned shareholder(s) of PHAMIS, Inc. (the "Company") hereby
appoints Frank T. Sample and Gregg W. Blodgett, and each of them, as proxies,
each with the power of substitution to represent and to vote, as designated on
the reverse side, all the shares of Common Stock of the Company held of record
by the undersigned on May 22, 1997 at the Special Meeting of Shareholders to be
held on July 9, 1997, and at any and all adjournments thereof.
FOLD AND DETACH HERE
<PAGE>
1. Agreement and Plan of Merger between the Company and IDX Systems Corporation:
FOR AGAINST ABSTAIN
Shares represented by properly executed proxies will be voted in accordance
with instructions appearing on the proxy and in the discretion of the proxy
holders as to any other matters that may properly come before the Special
Meeting of Shareholders. THE BOARD OF DIRECTORS RECOMMENDS VOTE "FOR" THE
MATTER LISTED IN ITEM 1. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL
BE VOTED FOR THE MATTER LISTED IN ITEM 1, AND IN THE DISCRTION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING
OF SHAREHOLDERS;
Dated: , 1997
-------------------
-------------------------------
Signature(s)
-------------------------------
Signature(s)
Please sign as name(s) appears on this
proxy and date this proxy, if a joint
account, each joint owner must sign. If
signing for a corporation or partnership
or as agent, attorney or fiduciary,
indicate the capacity in which you are
signing.
FOLD AND DETACH HERE
