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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
AUGUST 16, 1995
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(AUGUST 16, 1995)
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Date of Report
(Date of earliest event reported)
HBO & COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-9900 37-0986839
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(Commission File Number) (IRS Employer Identification No.)
301 PERIMETER CENTER NORTH
ATLANTA, GA 30346
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(Address of principal executive offices) (Zip Code)
(404) 393-6000
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Registrant's telephone number, including area code
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ITEM 5. OTHER EVENTS
In connection with the previously announced proposed acquisition of CliniCom
Incorporated (CliniCom) by HBO & Company (HBOC), the pro forma financial
information described below is hereby filed. The pro forma financial
information also gives effect to the recent acquisition of the Health Services
Group (HSG) of First Data Corporation (FDC) by HBOC.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS PROPOSED TO BE ACQUIRED.
The following financial statements of CliniCom are attached as Exhibits 99(a)
through 99(f):
CliniCom Incorporated Condensed Balance Sheets, Condensed Statements
of Operations, Condensed Statements of Cash Flows and Notes to Condensed
Financial Statements for the quarters ended June 30, 1995, March 31, 1995,
September 30, 1994, June 30, 1994, and March 31, 1994.
CliniCom Incorporated Report of Independent Public Accountants;
Balance Sheets as of December 31, 1994 and 1993; Statements of Operations,
Statements of Stockholders' Equity and Statements of Cash Flows for each of the
three years ended December 31, 1994 and Notes to Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION.
The following pro forma financial information is attached as Exhibit 99(g):
HBO & Company Pro Forma Combined Income Statements for the Six Months Ended
June 30, 1995, and the Year Ended December 31, 1994, HBO & Company Pro Forma
Combined Balance Sheets at June 30, 1995 and HBO & Company Notes to Pro Forma
Combined Financial Statements.
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(c) EXHIBITS.
EXHIBIT PAGE
2 Agreement of Merger by and among HBO & Company, HBO & 5
Company of Georgia, and CliniCom Incorporated, dated July 14, 1995.
23 Consent of Arthur Andersen LLP. 38
99(a) CliniCom Incorporated Condensed Balance Sheets, Condensed 39
Statements of Operations, Condensed Statements of Cash Flows and
Notes to Condensed Financial Statements for the quarter ended June
30, 1995.
99(b) CliniCom Incorporated Condensed Balance Sheets, Condensed 47
Statements of Operations, Condensed Statements of Cash Flows and
Notes to Condensed Financial Statements for the quarter ended March
31, 1995.
99(c) CliniCom Incorporated Report of Independent Public Accountants; 55
Balance Sheets as of December 31, 1994 and 1993; Statements of
Operations, Statements of Stockholders' Equity and Statements of
Cash Flows for each of the three years ended December 31, 1994 and
Notes to Financial Statements.
99(d) CliniCom Incorporated Condensed Balance Sheets, Condensed 75
Statements of Operations, Condensed Statements of Cash Flows and
Notes to Condensed Financial Statements for the quarter ended
September 30, 1994.
99(e) CliniCom Incorporated Condensed Balance Sheets, Condensed 84
Statements of Operations, Condensed Statements of Cash Flows and
Notes to Condensed Financial Statements for the quarter ended June
30, 1994.
99(f) CliniCom Incorporated Condensed Balance Sheets, Condensed 93
Statements of Operations, Condensed Statements of Cash Flows and
Notes to Condensed Financial Statements for the quarter ended March
31, 1994.
99(g) HBO & Company Pro Forma Combined Income Statements, Pro 102
Forma Combined Balance Sheets and Notes to Pro Forma Combined
Financial Statements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HBO & COMPANY
(Registrant)
Date: August 16, 1995 /s/ Jay P. Gilbertson
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Jay P. Gilbertson
Vice President - Finance,
Chief Financial Officer
Treasurer and Assistant Secretary
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EXHIBIT 2
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, made this 14th day of July, 1995, by and among HBO
& COMPANY, a Delaware corporation ("Parent"); HBO & COMPANY OF GEORGIA, a
Delaware corporation ("Purchaser"); and CLINICOM INCORPORATED, a Delaware
corporation ("Acquired Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of the Acquired Company, Parent and
Purchaser deem it advisable and in the best interests of their respective
stockholders that Purchaser acquire the Acquired Company, and, on or prior to
the date hereof, such Boards of Directors have approved the acquisition of the
Acquired Company upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
receipt, sufficiency and adequacy of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
I. DEFINITIONS.
As used herein, the following terms shall have the following meanings unless
the context otherwise requires:
1.1 "Acquired Company" shall mean Clinicom Incorporated, a Delaware
corporation.
1.2 "Acquired Company Information" shall have the meaning set forth in
Section 2.3.1.
1.3 "Acquired Company Reports" shall have the meaning set forth in Section
3.21.
1.4 "Acquired Company Software" shall have the meaning set forth in Section
3.14.2(iii).
1.5 "Acquired Company Stock" shall mean the common stock, $0.001 par value
per share, of the Acquired Company.
1.6 "Agreement" shall mean this Agreement of Merger.
1.7 "Certificate of Merger" shall have the meaning set forth in Section
2.1.2.
1.8 "Benefit Plans" shall have the meaning set forth in Section 3.16.
1.9 "Certificates" shall have the meaning set forth in Section 2.2.2 hereof.
1.10 "Closing" shall have the meaning set forth in Section 2.1.9 hereof.
1.11 "Closing Date" shall mean the date on which the Closing occurs pursuant
to Section 8.1 hereof.
1.12 "Covenants Not to Compete" shall mean the Covenants Not to Compete
referred to in Section 6.11.
1.13 "Current Plan" shall have the meaning set forth in Section 3.16.1.
1.14 "Customer Contracts" shall have the meaning set forth in Section 3.12.1.
1.15 "Director Stock Option Plan" shall mean the Clinicom Incorporated
Nonemployee Director Stock Option Plan.
1.16 "Delaware Code" shall mean the Delaware General Corporation Law.
1.17 "DOL" shall mean the United States Department of Labor.
1.18 "Effective Time" shall have the meaning set forth in Section 2.1.2.
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1.19 "Employee Stock Option Plan" shall mean the Clinicom Incorporated 1985
Employee Stock Option Plan.
1.20 "Employee Stock Purchase Plan" shall mean the Clinicom Incorporated
Employee Stock Purchase Plan.
1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
1.22 "ERISA Affiliate" shall mean, with respect to a Person, any other Person
that is required to be aggregated with such Person under Tax Code Section
414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
1.23 "ERISA Plan" shall have the meaning set forth in Section 3.16.1.
1.24 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.25 "Exchange Agent" shall have the meaning set forth in Section 2.2.1.
1.26 "Exchange Ratio" shall have the meaning set forth in Section 2.1.6(a).
1.27 "401(k) Plan" shall mean the Clinicom Incorporated 401(k) Savings Plan
and Trust.
1.28 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and Improvements
Act of 1976, as amended.
1.29 "Hazardous Substance" shall have the meaning set forth in Section 3.18.
1.30 "IRS" shall mean the United States Internal Revenue Service.
1.31 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
1.32 "Material Adverse Effect" (whether or not capitalized) shall mean a
material adverse effect on the businesses, assets (including intellectual
property rights) or operations of the corporation in question and its
subsidiaries, taken as a whole, which results from or is the consequence of any
claim, loss, damage or occurrence when aggregated with any other claims, losses,
damages or occurrences arising from the same or any substantially similar act,
failure to act, event, cause or circumstances. For purposes of this definition,
all breaches of representations and warranties set forth in Section 3.16 shall
be deemed to arise from the same act, event, cause or circumstances.
1.33 "Material Contracts" shall have the meaning set forth in Section 3.12.
1.34 "Merger" shall mean the merger of the Acquired Company with and into
Purchaser, as set forth in Section 2.1.1.
1.35 "Merger Consideration" shall have the meaning set forth in Section
2.1.6(a).
1.36 "Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotation System.
1.37 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.38 "Outside Closing Date" shall have the meaning set forth in Section
10.1.3.
1.39 "Owned Software" shall have the meaning set forth in Section 3.13.
1.40 "Parent" shall mean HBO & Company, a Delaware corporation, which is the
sole stockholder of Purchaser.
1.41 "Parent Reports" shall have the meaning set forth in Section 4.6.
1.42 "Parent Stock" shall mean the common stock, $0.05 par value per share,
of Parent.
1.43 "PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
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1.44 "Person" shall include, but is not limited to, an individual, a trust,
an estate, a partnership, an association, a company, a corporation, a sole
proprietorship, a professional corporation, a professional association or other
entity.
1.45 "Pre-Closing Parent Stock Price" shall have the meaning set forth in
Section 7.8.
1.46 "Purchaser" shall mean HBO & Company of Georgia, a Delaware corporation.
1.47 "Real Property" shall have the meaning set forth in Section 3.18.
1.48 "Registration Statement" shall have the meaning set forth in Section
2.3.1.
1.49 "SEC" shall mean the Securities and Exchange Commission.
1.50 "Stock Plans" shall mean the Director Stock Option Plan, Employee Stock
Option Plan and Employee Stock Purchase Plan.
1.51 "Surviving Corporation" shall have the meaning set forth in Section
2.1.1 hereof.
1.52 "Takeover Proposal" shall have the meaning set forth in Section 2.11
hereof.
1.53 "Tax Code" shall mean the Internal Revenue Code of 1986, as amended.
II. COVENANTS AND UNDERTAKINGS.
2.1 TERMS AND APPROVAL OF MERGER.
2.1.1. TERMS OF THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware Code, the
Acquired Company shall be merged with and into Purchaser (the "Merger"), as soon
as practicable following the satisfaction or waiver of the conditions set forth
in Articles V, VI and VII hereof. Following the Merger, Purchaser shall continue
as the surviving corporation (the "Surviving Corporation") and the separate
corporate existence of the Acquired Company shall cease.
2.1.2. EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective when both (i) this Agreement shall be adopted and approved by the
stockholders of the Acquired Company in accordance with the applicable
provisions of the Delaware Code and (ii) a Certificate of Merger (the
"Certificate of Merger"), executed in accordance with the relevant provisions of
the Delaware Code is filed with the Secretary of State of Delaware (the time the
Merger becomes effective being referred to as the "Effective Time"). The Merger
shall have the effects set forth in the Delaware Code.
2.1.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Purchaser as in effect immediately preceding the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation. The
Bylaws of Purchaser as in effect immediately preceding the Effective Time shall
be the Bylaws of the Surviving Corporation.
2.1.4. DIRECTORS. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
2.1.5. OFFICERS. The officers of Purchaser immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
2.1.6. CONVERSION OF SHARES. (a) Subject to Section 2.1.6(g) below, each
outstanding share of Acquired Company Common Stock issued and outstanding
immediately prior to the Effective Time, shall, at the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive four-tenths (4/10ths) of a share of Parent
Stock (the "Exchange Ratio"), deliverable to the holder thereof, without
interest on the value thereof, upon the
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surrender of the certificate(s) formerly representing such outstanding share.
(The shares of Parent Stock, or cash in lieu of fractions thereof, receivable by
each Acquired Company stockholder as described above are referred to hereinafter
as the "Merger Consideration.")
(b) Each share of Acquired Company Stock held in the treasury of the
Acquired Company shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and retired
and cease to exist.
(c) Subject to any applicable escheat laws, until surrendered and exchanged
pursuant hereto, each certificate that immediately prior to the Effective Time
represented outstanding shares of Acquired Company Stock shall be deemed for all
corporate purposes of Parent, subject, however, to the other provisions of this
Section 2.1.6, to evidence the ownership of the number of whole shares of Parent
Stock into which the shares of Acquired Company Stock represented thereby shall
have been converted, and shall be deemed to represent the right to receive the
amount of cash in lieu of fractional shares, if any, into which the shares of
Acquired Company Stock represented thereby shall have been converted pursuant to
subsection (a) of this Section 2.1.6. No interest shall be payable with respect
to any cash payment in lieu of fractional shares. No cash or stock dividend
payable, no certificate representing split shares deliverable, and no other
distribution payable or deliverable to holders of record of Parent Stock at any
time subsequent to the Effective Time shall be paid or delivered to the holder
of any certificate that at the Effective Time represented Acquired Company Stock
unless and until such certificate is surrendered to the Exchange Agent. However,
subject to any applicable escheat laws, upon such surrender, there shall be paid
or delivered to the holder of record of the certificate or certificates for
shares of Parent Stock issued and exchanged therefor, the certificates for
shares and/or other property resulting from any such dividends, splits, or other
distributions, as the case may be, that shall have theretofore become payable or
deliverable with respect to such shares of Parent Stock subsequent to the
Effective Time. No interest shall be payable with respect to such payment or
delivery of any dividends or other distributions upon the surrender of
certificates that represented Acquired Company Stock at the Effective Time.
(d) No certificates or scrip representing fractional shares of Parent Stock
shall be issued upon surrender of certificates representing Acquired Company
Stock converted pursuant hereto, and no dividend, stock split, or other
distribution of Parent shall relate to any such fractional share interest, and
no such fractional share interest shall entitle the owner thereof to vote or to
any other rights of a stockholder of Parent. In lieu of any such fractional
share, any holder of Acquired Company Stock shall be entitled, upon surrender in
accordance herewith of such holder's certificate or certificates representing
Acquired Company Stock, to receive a cash payment therefor, without interest, at
a PRO RATA amount based on a per share amount equal to the Pre-Closing Parent
Stock Price. No interest shall accrue with respect to any cash held for the
benefit of holders of unsurrendered certificates theretofore representing shares
of Acquired Company Stock at the Effective Time.
(e) All shares of Parent Stock into which shares of the Acquired Company
Stock have been converted pursuant to this Section 2.1.6 shall be deemed to have
been issued in full satisfaction of all rights pertaining to such converted
shares and shall, when issued pursuant to the provisions hereof, be fully paid
and nonassessable.
(f) The stock transfer books of the Acquired Company shall be closed at the
Effective Time, and thereafter no transfer of any shares of Acquired Company
Stock shall be recorded thereon. In the event a transfer of ownership of shares
of Acquired Company Stock is not recorded on the stock transfer books of the
Acquired Company, a certificate or certificates representing the number of whole
shares of the Parent Stock into which such shares of Acquired Company Stock
shall have been converted in connection with the Merger may be issued to the
transferee of such shares of Acquired Company Stock if the certificate or
certificates representing such shares of Acquired Company Stock is or are
surrendered to the Exchange Agent accompanied by all documents deemed necessary
by the Exchange Agent to evidence and effect such transfer of ownership of
shares of Acquired Company
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Stock and by the payment of any applicable stock transfer tax with respect to
such transfer, subject to compliance with any restrictions or conditions
contained herein with respect to the transfer of shares of Acquired Company
Stock.
(g) In the event that Parent at any time or from time to time after the date
of this Agreement, but prior to the Effective Time, effects a subdivision or
combination of the outstanding Parent Stock into a greater or lesser number of
shares, then and in each such event the Exchange Ratio described in Section
2.1.6(a) shall be increased or decreased proportionately. In the event that
Parent at any time or from time to time shall fix a record date, which record
date is after the date of this Agreement but prior to the Effective Time, for
the determination of holders of Parent Stock entitled to receive a dividend or
other distribution payable in additional shares of Parent Stock, cash (except
Parent's regular quarterly dividend), or any other property, then and in each
such event, regardless of whether such dividend is to be paid prior to or after
the Effective Time, the Merger Consideration payable hereunder per share of
Acquired Company Stock shall be increased to reflect such dividend or
distribution as though each stockholder of the Acquired Company were, as of such
issuance or record date, a holder of record of that number of shares of Parent
Stock comprising the Merger Consideration otherwise payable to such stockholder
pursuant to Section 2.1.6(a).
2.1.7. STOCK OPTIONS. Options granted under the Stock Option Plans,
regardless of whether such options are currently exercisable, shall be treated
as follows:
(a) At the Effective Time, Parent shall assume the Acquired Company's
rights and obligations under each of the outstanding options previously
granted under the Director Stock Option Plan and the Employee Stock Option
Plan (each such option existing immediately prior to the Effective Time
being called an "Existing Option," and each such option so assumed by Parent
being called an "Assumed Option"), by which assumption the optionee shall
have the right to purchase that number of shares of Parent Stock (rounded
down to the nearest whole) into which the number of shares of Acquired
Company Stock the optionee was entitled to purchase under the Existing
Option would have been converted pursuant to the terms of the Merger as
described in Section 2.1.6 hereof. Each Assumed Option shall constitute a
continuation of the Existing Option, substituting Parent for Acquired
Company as issuer and employment by Parent, Purchaser or one of their
respective subsidiaries for employment by the Acquired Company. The
aggregate price for the total number of shares of Parent Stock at which the
Assumed Option may be exercised shall be the aggregate price at which the
Existing Option was exercisable for the total number of shares of Acquired
Company Stock, reduced (as necessary for purposes of rounding down) to the
price that will buy the number of whole shares for which the Assumed Option
will be exercisable in accordance with this paragraph (a), and the purchase
price per share of Parent Stock thereunder shall be such aggregate price
divided by the total number of shares of Parent Stock covered thereby.
(b) Each participant in the Employee Stock Purchase Plan on the day
prior to the Effective Date shall receive (1) the number of shares of Parent
Stock into which the shares of Acquired Company Stock issuable to such
participant in accordance with the Employee Stock Purchase Plan would have
been converted and (2) cash in lieu of any fractional share of Parent Stock,
together with a cash refund of any excess of the amount collected during the
purchase period, over the amount of the purchase price of the Acquired
Company Stock that otherwise would be issuable to such participant.
2.1.8. STOCKHOLDERS' MEETING. The Acquired Company, acting through its
Board of Directors, shall:
(a) promptly furnish a copy of the proxy statement/prospectus included
in the Registration Statement (defined in Section 2.3.1 below) to each of
its stockholders after the Registration Statement has become effective with
the SEC;
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(b) duly call, give notice of, convene and hold a special meeting of its
stockholders and submit this Agreement and any related matters, as
appropriate, and the Merger to a vote of the Acquired Company's stockholders
as soon as practicable for the purpose of considering and taking action upon
this Agreement and any such related matters; and
(c) use its reasonable best efforts, subject to the provisions of
Section 2.11, to obtain the necessary approval of the Merger by its
stockholders.
2.1.9. CLOSING; FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V, VI and VII
hereof, the Acquired Company and Purchaser shall execute and file the
Certificate of Merger referred to in Section 2.1.2 in the manner required by the
Delaware Code, and the parties hereto shall take all such other and further
actions as may be required by law to make the Merger effective. Prior to the
filing referred to in this Section 2.1.9, a closing (the "Closing") will be held
as set forth in Section 8.1 hereof, for the purpose of confirming all of the
foregoing.
2.2 DELIVERY OF MERGER CONSIDERATION.
2.2.1. EXCHANGE AGENT. Prior to the Effective Time, Purchaser shall
designate a bank or trust company to act as Exchange Agent in connection with
the Merger (the "Exchange Agent"). At the Effective Time, Purchaser or Parent
shall take all steps necessary to enable and cause Parent or the Surviving
Corporation to provide the Exchange Agent with the shares of Parent Stock and
cash in respect of fractional shares necessary to deliver the Merger
Consideration to each holder of Acquired Company Stock as contemplated by
Section 2.1.6 hereof prior to the time that such deliveries are required to be
made by the Exchange Agent as provided in this Section 2.2.
2.2.2. SURRENDER OF CERTIFICATES AND DELIVERY OF MERGER
CONSIDERATION. Promptly after the Effective Time, the Exchange Agent shall mail
to each record holder (as of the Effective Time) of an outstanding certificate
or certificates that immediately prior to the Effective Time represented
outstanding shares of Acquired Company Stock (the "Certificates"), a letter of
transmittal in customary form (which specifies that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal properly completed and duly executed, together
with any other required documents, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration, and such
Certificate shall forthwith be cancelled. If payment is to be made to a Person
other than the Person in whose name the Certificate surrendered is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the Person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a Person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.2.2, each Certificate shall represent for
all purposes only the right to receive the Merger Consideration, without any
interest on the value thereof.
2.3.3. ESCHEAT LAWS. Notwithstanding any provision of this Article II to
the contrary, neither Parent nor the Surviving Corporation shall be liable to
any holder of Certificates formerly representing shares of Acquired Company
Stock for any property properly delivered or amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.3 SEC REGISTRATION.
2.3.1. The Acquired Company shall furnish to Parent such information about
the Acquired Company, including without limitation information about its
stockholders, as may be necessary to enable Parent to prepare and file with the
SEC a Registration Statement on Form S-4 under the 1933 Act, and the rules and
regulations promulgated thereunder, in respect of the Parent Stock to be issued
by reason of the Merger (such registration statement, the prospectus included
therein and the proxy
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statement to be furnished to the holders of the Acquired Company Stock, in each
case together with any amendments thereto, being referred to in this Agreement
as the "Registration Statement"). The Acquired Company Information (as defined
below) included in the Registration Statement shall not, at the time the
Registration Statement is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Effective Time any event or circumstance should come to the
attention of the Acquired Company with respect to the Acquired Company
Information that is required to be set forth in an amendment or supplement to
the Registration Statement, the Acquired Company shall immediately notify Parent
and shall assist Parent in appropriately amending or supplementing the
Registration Statement in the manner contemplated in Section 2.3.4 below. The
Registration Statement insofar as it relates to information concerning the
Acquired Company, or its business, assets, directors, officers, or stockholders
or other matters pertaining to the Acquired Company that is supplied by the
Acquired Company for inclusion in the Registration Statement (the "Acquired
Company Information") shall comply as to form and substance in all material
respects with the applicable requirements of the 1933 Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder; except that the Acquired Company shall have no liability or
obligation for any information other than the Acquired Company Information.
2.3.2. The Acquired Company shall use its reasonable best efforts to cause
its accountants, Arthur Andersen, LLP, to deliver to Parent letters dated at the
time the Registration Statement becomes effective and as of the Closing Date,
addressed to Parent, both (i) to the effect that the Acquired Company satisfies
the tests applicable to it such that the Merger can be accounted for as a
"pooling of interests"; and (ii) containing such matters as are customarily
contained in auditors' letters regarding information about the Acquired Company
furnished expressly for inclusion in the Registration Statement, and in a form
and substance reasonably satisfactory to Parent. The Parent shall use its
reasonable best efforts to cause its accountants, Arthur Andersen, LLP to
deliver to the Acquired Company letters at such times to the effect that the
Parent satisfies the applicable tests for accounting for the Merger as a
"pooling of interests."
2.3.3. Parent shall file and use its reasonable best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable,
and shall use its reasonable best efforts to take any action required to be
taken to comply with any applicable federal or state securities laws in
connection with the issuance of Parent Stock in the Merger; except that such
covenant of Parent is made, as to those portions of the Registration Statement
containing or required to contain Acquired Company Information, assuming and
relying on timely and full compliance with Sections 2.3.1 and 2.3.2.
2.3.4. Parent covenants that the Registration Statement shall not, at the
time it is declared effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; except that such covenant
of Parent is made, as to those portions of the Registration Statement containing
or required to contain Acquired Company Information, assuming and relying on
timely and full compliance with Sections 2.3.1 and 2.3.2. If at any time prior
to the Effective Time any event or circumstance should come to the attention of
Parent that is required to be set forth in an amendment or supplement to the
Registration Statement, Parent shall use its reasonable best efforts to amend or
supplement appropriately the Registration Statement. An amendment or supplement
may be accomplished, to the extent permitted by law, rule or regulation, by
including such information in a filing under the Exchange Act that is
incorporated by reference into the Registration Statement.
2.3.5. Parent covenants that the Registration Statement and all other
documents required to be filed by Parent with the SEC in connection with the
transactions contemplated herein shall comply as to form and substance in all
material respects with the applicable requirements of the 1933 Act and
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the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder; except that Parent shall have no liability or obligation
for any failure to comply with such requirements arising out of the Acquired
Company Information.
2.3.6. Parent shall use all its reasonable best efforts to file all reports
required to be filed by it on a timely basis under the 1933 Act or the Exchange
Act and the rules and regulations adopted by the SEC thereunder. Parent and the
Acquired Company shall use their reasonable best efforts to take such further
action as may be necessary to ensure that the requirements of Rule 144(c) under
the 1933 Act are satisfied so as to enable any "affiliates" of the Acquired
Company (as that term is used in Rule 145 under the 1933 Act) to offer or sell
the Parent Stock received by them in the Merger pursuant to paragraph (d) of
Rule 145 (subject to compliance with the provisions of paragraphs (e), (f) and
(g) of Rule 144).
2.3.7. Parent shall use its reasonable best efforts to obtain prior to the
effective date of the Registration Statement all necessary "Blue Sky" permits
and approvals, if any, required to consummate the Merger.
2.4 AFFILIATES.
(a) The Acquired Company shall use its reasonable best efforts to cause each
person that is an "affiliate" of the Acquired Company under the Securities Act
on the date of the Acquired Company's stockholder meeting to deliver to the
Parent at the Closing a written agreement substantially in the form attached
hereto as EXHIBIT 2.4(a) ("Rule 145 Letters").
(b) The Acquired Company shall use its reasonable best efforts to cause each
person that is an "affiliate" of the Acquired Company under the Securities Act
31 days prior to the date of the Acquired Company's stockholder meeting to
deliver to the Parent on such date a written agreement substantially in the form
attached hereto as EXHIBIT 2.4(b) ("Pooling Letters").
2.5 TRADING PROHIBITIONS. The parties hereto hereby acknowledge that as a
result of disclosures by the Acquired Company, Parent and Purchaser contemplated
under this Agreement, each of the parties and their affiliates may, from time to
time, have material, non-public information concerning the Acquired Company,
Parent, Purchaser and their respective subsidiaries or affiliated companies. The
parties confirm that they and their affiliates are aware, and have advised their
directors, officers, employees and representatives that, (i) the United States
securities laws may prohibit a person who has material, non-public information
from purchasing or selling securities of any company to which such information
relates, and (ii) material non-public information shall not be communicated to
any other person except as permitted herein.
2.6 CONDUCT OF THE BUSINESS OF THE ACQUIRED COMPANY PRIOR TO CLOSING.
2.6.1. Except (i) with the prior consent in writing of Purchaser (which
consent may not be unreasonably withheld in respect of subparagraph (e) below),
(ii) as may be required to effect the transactions contemplated by this
Agreement, or (iii) as provided otherwise in this Agreement, the Acquired
Company covenants that, between the date of this Agreement and the Effective
Time, the Acquired Company will conduct its business in the ordinary course, and
that it will:
(a) preserve the corporate organization of the Acquired Company intact
and use its reasonable best efforts to preserve the goodwill of customers
and others having business relations with the Acquired Company;
(b) use its reasonable best efforts to maintain the properties of the
Acquired Company in substantially the same working order and condition as
such properties are in as of the date of this Agreement, reasonable wear and
tear excepted;
(c) not effect any sale, assignment or transfer of any of its assets
except in the ordinary course of business and except for the transfer of
funds described on EXHIBIT 2.6.1(c) a trust under the Acquired Company's
Executive Retention Plan;
<PAGE>
(d) use its reasonable best efforts to keep in force at no less than
their present limits all existing policies of insurance or comparable
replacements thereof insuring the Acquired Company and its properties;
(e) not enter into or renew any Material Contract, enter into any
material amendment to any Material Contract or suffer, permit or incur any
of the transactions or events described in Section 3.9 hereof to the extent
such events or transactions are within the control of the Acquired Company
(except that the Acquired Company may enter into Customer Contracts in the
ordinary course of business consistent with historical practices);
(f) not make or permit any change in the Acquired Company's Certificate
of Incorporation or Bylaws, or in its authorized securities;
(g) other than pursuant to the existing terms of the Employee Stock
Purchase Plan, not grant any stock option or right to purchase any security
of the Acquired Company, issue any security convertible into such
securities, purchase, redeem, retire or otherwise acquire any of such
securities, or agree to do any of the foregoing or declare, set aside or pay
any dividend, make any other distribution or declare any split in respect of
such securities;
(h) not adopt any new Benefit Plan or amend any existing Benefit Plan,
and not make any contribution to or distribution from any employee benefit
plan, pension plan, stock bonus plan, 401(k) plan or profit sharing plan
(except for the payment of any health, disability and life insurance
premiums that may become due and except for contributions or distributions
required to be made or as consistently made in the past pursuant to the
terms of any Benefit Plans);
(i) not change the amortization or capitalization policies for Owned
Software or otherwise make any material changes in the accounting policies
of the Acquired Company;
(j) not issue any note, bond or other debt security, or create, incur,
assume or guarantee any indebtedness for borrowed money;
(k) not issue any shares of Acquired Company Stock other than shares
issuable upon exercise of presently exercisable options granted under the
Employee Stock Option Plan and the Director Stock Option Plan and shares
purchased prior to the Closing under the Employee Stock Purchase Plan;
(l) not alter in any manner not permitted herein the terms, conditions
or dates of vesting or exercise of any of the options granted under the
Stock Option Plans; and
(m) promptly advise Purchaser in writing of any matters arising or of
which the Acquired Company becomes aware after the date of this Agreement
that, if existing or known at the date hereof, would be required to be set
forth or described in this Agreement or the Exhibits hereto.
2.6.2. Except after prior notification to, and with the prior written
consent of, Purchaser, which consent shall not be unreasonably withheld, the
Acquired Company shall not make, between the date of this Agreement and the
Effective Time, any change in its banking or safe deposit arrangements or grant
any powers of attorney.
2.7 FILING OF TAX RETURNS. The Acquired Company shall cause all of the
Acquired Company's material federal, state and local tax returns required to be
timely filed before the Effective Time to be timely and accurately filed with
the appropriate taxing authorities. For purposes of this Section 2.7, such
returns shall be deemed timely filed if the Acquired Company has obtained an
extension from the appropriate taxing authority as to the time in which it may
file such tax returns. The Acquired Company shall submit all such tax returns to
Purchaser at least fifteen (15) days prior to the date they must be filed, and
Purchaser shall have the opportunity to comment on such returns. The Acquired
Company shall give reasonable and due consideration to any comments on such
returns made by Purchaser in light of the circumstances in which they are made.
<PAGE>
2.8 EXAMINATION OF PROPERTY AND RECORDS; CONFIDENTIALITY OF INFORMATION.
2.8.1. Between the date of this Agreement and the Effective Time, the
Acquired Company shall allow Purchaser, its counsel and other representatives
full access to its books, records, files, documents, assets, properties,
contracts and agreements as may be reasonably requested, and the Acquired
Company shall furnish the Purchaser, its officers and representatives during
such period with all information concerning its affairs as may be reasonably
requested. Between the date of this Agreement and the Effective Time, Parent
shall provide to the Acquired Company such information about Parent as the
executive officers of the Acquired Company reasonably request in the context of
the transactions provided for herein. All such requests shall be directed to the
Chief Financial Officer of Parent. Each party shall conduct any investigation in
a manner that will not unreasonably interfere with the businesses of the other
party.
2.8.2. All non-public information acquired by a party pursuant to this
Section 2.8 or otherwise in connection with this Agreement, whether or not in
writing, concerning the business, operations and affairs of another party, will
be kept confidential and will not be disclosed to any Person other than the
parties hereto or their authorized representatives (who shall be subject to the
same obligations) and will not be used for any purpose other than the
consummation of the Merger and the related transactions described herein,
provided that any party may, upon advice of counsel, and upon prior notice to
the party whose information is sought to be disclosed, comply with any order of
any court or governmental body. Promptly upon termination of this Agreement, and
at the request of a disclosing party, all written materials thus obtained by
another party or any of its representatives and all copies and extracts of such
materials will be delivered to the disclosing party.
2.9 CONSENTS AND APPROVALS. As and to the extent requested by Purchaser,
the Acquired Company shall use its reasonable best efforts to obtain the waiver,
consent and approval of all persons (other than customers) whose waiver, consent
or approval (i) is required in order to consummate the transactions contemplated
by this Agreement or (ii) is required by any agreement, lease, instrument,
arrangement, judgment, decree, order or license to which the Acquired Company is
a party or subject on the Effective Time and (a) that would prohibit or require
the waiver, consent or approval of any party to such transactions or (b) under
which, without such waiver, consent or approval, such transactions would
constitute an occurrence of default under the provisions thereof, result in the
acceleration of any obligation thereunder or give rise to a right of any party
thereto to terminate its obligations thereunder. The failure of the Acquired
Party to obtain any such waiver, consent or approval (after using its reasonable
best efforts to do so) shall not constitute a breach of, or default under, this
Agreement.
2.10 SUPPLYING OF FINANCIAL STATEMENTS. Parent and the Acquired Company
shall each deliver to the other all of its regularly prepared audited and
unaudited consolidated and consolidating financial statements prepared after the
date of this Agreement, in format historically published or utilized internally
(as applicable), and any financial statements prepared for filing with the SEC,
as soon as each is available.
2.11 NO SOLICITATION. The Acquired Company shall not, and the Acquired
Company shall not authorize or permit any officer, director or employee of, or
any financial advisor, attorney, accountant or other advisor or representative
retained by, the Acquired Company to, solicit, initiate, encourage (including by
way of furnishing information), endorse or enter into any agreement with respect
to, or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal (as hereafter defined). Neither the Board of Directors of the
Acquired Company nor any committee thereof shall (a) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Purchaser the approval or
recommendation by the Board of Directors of the Acquired Company of the Merger
or this Agreement or (b) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or any other acquisition of outstanding shares
of Acquired Company Stock other than pursuant to the Merger or this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall prevent
the Board of
<PAGE>
Directors of the Acquired Company from furnishing information to or entering
into discussions or negotiations with any unsolicited Person, or taking any
action described in clauses (a) and (b) of the preceding sentence, if and only
to the extent that the Board of Directors of the Acquired Company shall have
determined in good faith, after receiving written advice of its outside counsel,
that such action would be required under applicable law in the exercise of its
fiduciary duties. The Acquired Company will immediately notify the Purchaser if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with the Acquired Company. As used in this Agreement,
"Takeover Proposal" shall mean any tender or exchange offer, proposal, other
than a proposal by Purchaser or any of its affiliates, for a merger, share
exchange or other business combination involving the Acquired Company or any
proposal or offer to acquire in any manner a substantial equity interest in the
Acquired Company or a substantial portion of the assets of the Acquired Company.
2.12 HSR ACT FILINGS. Parent and the Acquired Company shall each, in
cooperation with the other, make the required filings in connection with the
transactions contemplated by this Agreement under the HSR Act with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice, and shall request early termination of the waiting period with respect
to such filings. As promptly as practicable from time to time after the date of
this Agreement, each party shall make all such further filings and submissions,
and take such further action, as may be required in connection therewith, and
shall furnish the other all information in its possession necessary therefor.
Parent and the Acquired Company shall each notify the other immediately upon
receiving any request for additional information with respect to such filings
from either the Antitrust Division of the Department of Justice or the Federal
Trade Commission, and the party receiving the request shall use its best efforts
to comply with such request as soon as possible. Neither such party shall
withdraw any such filing or submission without the written consent of the other.
2.13 TAX REPORTING. For federal and state tax purposes, Purchaser and
Parent shall report the transactions contemplated by this Agreement as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Tax Code and similar state laws. Prior to the Effective Time, the Acquired
Company will deliver to Purchaser and Parent letters to the reasonable
satisfaction of Purchaser and Parent from the Acquired Company and certain of
its stockholders that when read together provide assurance that there is no plan
or intention on the part of the stockholders of the Acquired Company (or
knowledge of such plan or intent to the extent the Acquired Company provides a
representation with respect to holders of less than five percent (5%) of the
Acquired Company Stock) to sell, exchange or otherwise dispose of a number of
shares of Parent Stock received in the Merger that would reduce the Acquired
Company's stockholders' ownership of Parent Stock received in the Merger to a
number of shares having a value, as of the Effective Time, of less than fifty
percent (50%) of the value of all of the outstanding stock of Acquired Company
immediately prior to the Effective Time. Purchaser, Parent and the Acquired
Company agree that satisfaction of the representations described above will
constitute satisfaction of the "continuity of interest" requirement for
reorganizations under Section 368(a) of the Tax Code. Each of Purchaser, Parent
and the Acquired Company shall use their reasonable best efforts to obtain the
tax opinions described in 6.6 and 7.6 hereof.
2.14 INDEMNIFICATION OF ACQUIRED COMPANY OFFICERS AND DIRECTORS. The
Purchaser agrees that it will provide to the directors and officers of the
Acquired Company indemnification in accordance with the current provisions of
the Certificate of Incorporation and By-Laws of the Acquired Company with
respect to matters occurring prior to the Effective Time, including, without
limitation, this Agreement and the transactions contemplated hereby, for a
period of five years from the Effective Time (or, in the case of matters
occurring prior to the Effective Time which have not been resolved prior to the
fifth anniversary of the Effective Time, until such matters are finally
resolved). To the fullest extent permitted by applicable law, the Purchaser
shall advance expenses in connection with the foregoing indemnification. The
Parent shall cause to be maintained in effect for twelve (12) months following
the Closing the current policies of directors' and officers' liability insurance
currently maintained by the Acquired Company, which policies are described on
EXHIBIT 3.19, at no
<PAGE>
greater than one hundred percent (100%) of the annual premiums for such coverage
as of the date hereof (as reflected on such EXHIBIT 3.19), provided that the
Parent may substitute therefor policies of at least the same coverage containing
terms and conditions that are no less advantageous. In the event that the
premiums for the continued coverage exceed 100% of the premiums for the coverage
as of the date hereof (the "100% Amount"), Purchaser shall either substitute
coverage meeting the requirements of the proviso in the preceding sentence or
continue the existing insurance but reduce the maximum amount of coverage to
that available for premiums equal to the 100% Amount.
2.15 PUBLICATION OF OPERATIONAL RESULTS. Purchaser agrees to use its
reasonable best efforts to make publicly available joint results of operations
of Parent and the Acquired Company in respect of the first full calendar month
subsequent to Closing no later than twenty (20) days following the end of such
calendar month.
2.16 CONTINGENT REGISTRATION RIGHTS. In the event that the average weekly
reported volume of trading of the Parent Stock, as reported through the
automated quotation system of the Nasdaq Stock Market National Market System,
during any four (4) calendar week period ending on any date within six months
following the Closing Date constitutes less than two percent (2%) of the number
of shares of Parent Stock outstanding as of such date, Parent shall use its best
efforts to file promptly and make effective with the SEC a Registration
Statement covering the Parent Stock owned by Wind Point Partners II, L.P. (or
its partners), Marshall D. Miller, his children, Phileona Foundation and Dorado
Investment Company (the "Selling Stockholders") on the basis set forth on the
attached EXHIBIT 2.16. Parent acknowledges and agrees that this covenant is made
for the express benefit of the Selling Stockholders.
III. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED COMPANY.
The Acquired Company represents and warrants to Purchaser and Parent as
follows:
3.1 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION.
3.1.1. The Acquired Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to carry on its business in the
places and as it is now being conducted and to own and lease the properties and
assets that it now owns or leases.
3.1.2. The Acquired Company is duly qualified and/or licensed to transact
business and in good standing as a foreign corporation in the jurisdictions
listed in EXHIBIT 3.1 hereto, and the character of the property owned or leased
by the Acquired Company and the nature of the business conducted by it does not
require such qualification and/or licensing in any other jurisdiction where the
failure to so qualify would have a Material Adverse Effect upon the Acquired
Company.
3.2 AUTHORITY AND STATUS.
3.2.1. The Board of Directors of the Acquired Company, by unanimous vote of
all directors present at a meeting duly called and held, has (i) determined that
the Merger is fair to and in the best interests of the stockholders of the
Acquired Company and (ii) resolved to submit the Merger to and recommend
approval of the Merger by the stockholders of the Acquired Company.
3.2.2. The Acquired Company has the capacity and authority to execute and
deliver this Agreement, to perform hereunder, and, upon approval of the
transactions provided for herein by its stockholders, to consummate the
transactions contemplated hereby without any other corporate or stockholder
approval. The execution, delivery and performance by the Acquired Company of
this Agreement and each and every other agreement, document and instrument
provided for herein have been duly authorized and approved by the Board of
Directors of the Acquired Company. Assuming this Agreement and each and every
agreement, document or instrument to be executed, delivered and performed by the
Acquired Company in connection herewith are valid and legally binding
obligations of Purchaser and Parent, this Agreement and each and every
agreement, document and instrument to be executed, delivered and performed by
the Acquired Company in connection herewith constitute or
<PAGE>
will, when executed and delivered, constitute the valid and legally binding
obligation of the Acquired Company enforceable against it in accordance with
their respective terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting the enforcement of
creditors' rights generally. Attached hereto as EXHIBIT 3.2 are true, correct
and complete copies of the Certificate of Incorporation and Bylaws of the
Acquired Company.
3.2.3. The Board of Directors of the Acquired Company received an opinion
from Dean Witter Reynolds Inc., its financial advisor, concurrently with the
approval described in Section 3.2.1 above to the effect that the consideration
to be received by the Acquired Company's stockholders in the Merger is fair to
such stockholders from a financial point of view.
3.3 CAPITALIZATION. The entire authorized capital stock of the Acquired
Company consists of thirty-five million (35,000,000) shares of stock, of which
thirty million (30,000,000) shares are designated Common Stock, par value $0.001
per share, and five million (5,000,000) shares are designated Preferred Stock,
par value $.001 per share. Of the total authorized Common Stock, as of June 30,
1995, eight million six hundred sixty thousand eight hundred one (8,660,801)
shares were issued and outstanding and no shares were held in the Acquired
Company's treasury. Of the total authorized Preferred Stock, no shares are
issued. As of June 30, 1995, there were options outstanding under the Director
Stock Option Plan and the Employee Stock Option Plan entitling the optionees
thereunder, upon valid exercise, to acquire in the aggregate one million two
hundred ninety-two thousand two hundred fifty-eight (1,292,258) shares of Common
Stock. All of the outstanding shares of Acquired Company Stock (and any shares
issuable pursuant to presently outstanding options, if exercised and purchased
at the applicable exercise price) were duly authorized and will be, when issued
and the option price paid, validly issued, fully paid and nonassessable. None of
the capital stock of the Acquired Company is entitled to or subject to
preemptive rights. Other than the requisite stockholder vote to consummate the
Merger, the authorization or consent of no other Person is required in order to
consummate the transactions contemplated herein by virtue of any such Person
having an equitable or beneficial interest in the capital stock of the Acquired
Company. Except as set forth on EXHIBIT 3.3, there are no outstanding options,
warrants, calls, commitments or plans by the Acquired Company or any Subsidiary
to issue any additional shares of its capital stock, to pay any dividends on
such shares or to purchase, redeem, or retire any outstanding shares of its
capital stock, nor are there outstanding any securities or obligations that are
convertible into or exchangeable for any shares of capital stock of the Acquired
Company. Other than as disclosed on EXHIBIT 3.3, there are not now, and at the
Effective Time there will not be, any voting trusts or other agreements or
understandings to which the Acquired Company is a party or is bound with respect
to the voting of the capital stock of the Acquired Company.
3.4 ABSENCE OF EQUITY INVESTMENTS. Except as described in EXHIBIT 3.4
hereto, the Acquired Company does not, either directly or indirectly, own of
record or beneficially any shares or other equity interests in any corporation,
partnership, limited partnership, joint venture, trust or other business entity.
3.5 LIABILITIES AND OBLIGATIONS OF THE ACQUIRED COMPANY.
3.5.1. Attached hereto as EXHIBIT 3.5.1 are true and complete copies of the
Acquired Company's audited balance sheets as of December 31, 1992, December 31,
1993 and December 31, 1994 and the related statements of operations,
stockholders' equity and cash flows for the years then ended, together with the
reports of Arthur Andersen, LLP thereon, and an unaudited balance sheet as of
March 31, 1995 and the related statements of operations, stockholders' equity
and cash flows for the three-month period then ended (respectively, the "1992,
1993, 1994 and Interim 1995 Acquired Company Financial Statements"). The 1992,
1993, 1994 and Interim 1995 Acquired Company Financial Statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, and fairly present in all material respects the financial
condition of the Acquired Company as of the respective dates thereof (subject,
in the case of the Interim 1995 Acquired
<PAGE>
Company Financial Statements, to the absence of footnotes and to normal year-end
adjustments). Except as set forth on EXHIBIT 3.5.1, the Acquired Company has no
liabilities, whether absolute, contingent, accrued or otherwise ("Liabilities"),
except for (i) any Liability to the extent accrued or reserved against in the
balance sheet included in the Interim 1995 Acquired Company Financial Statements
or disclosed in the notes to the 1994 Acquired Company Financial Statements;
(ii) any Liability which was incurred after March 31, 1995 in the ordinary
course of business, which Liabilities have not individually or in the aggregate
had and would not have a Material Adverse Effect; (iii) any Liabilities to the
extent disclosed in the Acquired Company Reports and (iv) any other Liabilities
which would not have a Material Adverse Effect. The Acquired Company has
delivered to Purchaser true and complete copies of interim management-prepared
financial statements for the two months ending May 31, 1995 with schedules in
respect of accrued expenses attached thereto.
3.6 TAX RETURNS.
3.6.1. The Acquired Company has, as of the date hereof, and will prior to
the Effective Time have, timely and accurately filed all federal, state, foreign
and local income, franchise, sales, real and personal property and other tax
returns and reports required to be filed by it prior to such dates and have
timely paid, or will prior to the Effective Time timely pay, all taxes shown on
such returns as owed for the periods of such returns, including all withholding
or other payroll related taxes shown on such returns, except where the failure
to so file any such return or report would not have a Material Adverse Effect
upon the Acquired Company. The tax basis of all assets of the Acquired Company
as reflected on its books and records is correct and accurate in all material
aspects. No material assessments or notices of deficiency or other
communications have been received by the Acquired Company, nor have any been
threatened, with respect to any such tax return that has not been paid,
discharged or fully reserved in the Interim 1995 Acquired Company Financial
Statements or EXHIBIT 3.6 hereto, and no amendments or applications for refund
have been filed or are planned with respect to any such return. Except as set
forth on EXHIBIT 3.6, there are no agreements between the Acquired Company and
any taxing authority, including, without limitation, the IRS, waiving or
extending any statute of limitations with respect to any tax return, and the
Acquired Company has not filed any consent or election under the Tax Code,
including, without limitation, any election under Section 341(f) of the Tax
Code.
3.6.2. The Acquired Company has not made any parachute payments as such
term is defined in Section 280G of the Tax Code, is not obligated to make any
parachute payments, and is not a party to any agreement that under certain
circumstances could obligate it, or any successor in interest, to make any
parachute payments that will not be deductible under Section 280G of the Tax
Code.
3.6.3 The Acquired Company (a) has withheld proper and accurate amounts in
compliance, in all material respects, with the tax withholding provisions of all
applicable laws for all compensation paid to the officers and employees of the
Acquired Company, (b) has correctly and properly prepared and duly and timely
filed all returns and reports relating to those amounts withheld from its
officers and employees and to its employer liability for employment taxes under
the Tax Code and applicable state and local laws and (c) has duly and timely
paid and remitted to the appropriate taxing authorities the amounts withheld
from its officers and employees and any additional material amounts that
represent its employer liability under applicable law for employment taxes.
3.6.4 The income tax returns of the Acquired Company have been audited by
the IRS or the statute of limitations for assessment has closed for all tax
years through the year ended December 31, 1990, and all taxes, deficiencies,
penalties and interest relating to such tax years have been fully paid and
satisfied by the Acquired Company.
3.6.5 No issue has been raised by the IRS, any state or local taxing
authority, or any other investigation or audit, that will have, or can be
expected to have, a Material Adverse Effect on the Acquired Company.
<PAGE>
3.6.6 The 1992, 1993, 1994 and Interim 1995 Acquired Company Financial
Statements include, and the accounts of the Acquired Company will include, for
all periods up to and including the Closing Date, adequate provision under
generally accepted accounting principles for all unpaid applicable taxes,
assessments, fees and charges relating to the Acquired Company.
3.6.7 The Acquired Company is not a "United States real property holding
corporation" as defined in Section 897(c)(2) of the Tax Code.
3.7 OWNERSHIP OF ASSETS AND LEASES. The Acquired Company has title to all
of its property and assets used or useful in its business, other than leased or
licensed property and immaterial items of personal property, free and clear of
any liens, security interests, claims, charges, options, rights of tenants or
other encumbrances, except as disclosed in EXHIBIT 3.7 or reserved against in
the Interim 1995 Acquired Company Financial Statements (to the extent and in the
amounts so disclosed or reserved against) and except for liens arising from
current taxes not yet due and payable and other immaterial liens. The Acquired
Company has not received any payment from a lessor or licensee in connection
with or as inducement for entering into a lease or license in which the Acquired
Company is a lessee or licensee, except licenses, fees and similar payment in
the ordinary course of business. All buildings and material items of machinery
and equipment owned or leased by the Acquired Company are in good operating
condition and reasonable state of repair, subject only to ordinary wear and
tear. Except as reserved against in the Interim 1995 Acquired Company Financial
Statements, or disclosed on EXHIBIT 3.7, the inventories of the Acquired Company
consist only of items of supplies and computer-related equipment of a quality
and quantity usable in the normal course of their businesses. The Acquired
Company has received no written notice of a material violation of any applicable
zoning regulation, ordinance or other law, regulation or requirement relating to
its operations and properties, whether owned or leased. All of the accounts
receivable of the Acquired Company as of the Effective Time will reflect actual
transactions and will have arisen in the ordinary course of business.
3.8 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set forth on
EXHIBIT 3.8 hereto, the execution and delivery of this Agreement by the Acquired
Company does not, and the consummation of the transactions contemplated hereby
will not, violate any provision of the Certificate of Incorporation, as amended,
or Bylaws, as amended, of the Acquired Company or violate, breach or constitute
an occurrence of default under any provision of, or result in acceleration of
any obligation under, or give rise to a right by any party to terminate its
obligations under any Material Contract, or any order, judgment or decree to
which the Acquired Company is a party or is bound or by which the Acquired
Company's assets are affected. Except for the applicable requirements of the HSR
Act, the 1933 Act, the Exchange Act and applicable Blue Sky laws, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity is required to be obtained or made by or with
respect to the Acquired Company, or any assets, properties or operations of the
Acquired Company in connection with the execution and delivery by the Acquired
Company of this Agreement or the consummation of the transactions contemplated
hereby.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on EXHIBIT
3.9, since March 31, 1995, the Acquired Company has operated in the ordinary
course of business and there has not been (i) any material damage, destruction
or other casualty loss with respect to property owned or leased by the Acquired
Company, whether or not covered by insurance; (ii) any increase in dividends or
employee compensation or benefits payable by the Acquired Company, except for
increases in compensation in the ordinary course of business consistent with
historical practices; (iii) any material change in accounting methods; or (iv)
any other event or condition that has resulted in any Material Adverse Effect.
3.10 LITIGATION. Except as otherwise set forth in EXHIBIT 3.10 hereto,
there is no suit, action, arbitration, proceeding, claim or investigation
pending or, to the knowledge of the Acquired Company, threatened against or
affecting the Acquired Company that would have a Material Adverse Effect,
<PAGE>
and, to the knowledge of the Acquired Company, there exists no reasonable basis
or grounds for any such suit, action, arbitration, proceeding, claim or
investigation that would have a Material Adverse Effect.
3.11 LICENSES AND PERMITS; COMPLIANCE WITH LAW. The Acquired Company holds
all licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of its
business and the use of its assets except for such licenses, certificates,
permits franchises and rights the absence of which would not have a Material
Adverse Effect in respect of the Acquired Company. Except as noted in EXHIBIT
3.11, and except for any matters which will not have a Material Adverse Effect
in respect of the Acquired Company, the Acquired Company presently is conducting
its business so as to comply with all applicable statutes, ordinances, rules,
regulations and orders of any governmental authority. Further, the Acquired
Company is not presently charged with, or under governmental investigation with
respect to, any actual or alleged violation of any statute, ordinance, rule or
regulation, or presently the subject of any pending or, to the knowledge of the
Acquired Company, threatened adverse proceeding by any regulatory authority
having jurisdiction over its business, properties or operations.
3.12 CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY. EXHIBIT 3.12 hereto
consists of a true and complete list as of the date hereof (identifying by
title, date and parties) of all contracts, agreements, commitments and other
instruments (whether oral or written) to which the Acquired Company is a party
(excluding all contracts between the Acquired Company and Purchaser) as follows:
3.12.1. any contracts, agreements, commitments or other instruments in
effect with any customer of the Acquired Company (excluding any customer
that has purchased products or services of the Acquired Company through the
Purchaser), including without limitation any consulting services agreements,
software license agreements, software development agreements, other
licenses, purchase commitments or installation agreements and maintenance or
service agreements in excess of $75,000 per year (hereinafter referred to as
the "Customer Contracts," and identified as such on EXHIBIT 3.12), other
than purchase orders for software modules in the ordinary course of
business;
3.12.2. any lease, rental agreement or other contract or commitment
affecting the ownership or leasing of, title to or use of any interest in
real or personal property with payments equal to or greater than $5,000 per
month and any maintenance or service agreements relating to any real or
personal property with payments equal to or greater than $5,000 per month;
3.12.3. any contract or commitment providing for payments based in any
manner upon the sales, purchases, receipts, income or profits of the
Acquired Company, other than Customer Contracts;
3.12.4. any employment contract, any plan or arrangement providing for
continuing payment of any type or nature after termination of employment,
including, without limitation, any severance, termination, parachute, or
other payments (whether due to a change in control, termination or
otherwise) and bonuses and vested commissions;
3.12.5. any contract, agreement, understanding or arrangement
restricting the Acquired Company from carrying on its business anywhere in
the world;
3.12.6. any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase-money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise providing for payments in
excess of $5,000 per month;
3.12.7. any joint product development agreement with any party other
than the Purchaser, other than Customer Contracts;
<PAGE>
3.12.8. any contract or agreement with vendors of material equipment
purchased by the Acquired Company or appointing the Acquired Company as a
reseller of equipment, other than purchase orders in the ordinary course of
business; and
3.12.9. any other contract, agreement, commitment or other instrument
that involves a receipt of or requires an expenditure by the Acquired
Company or requires the performance of services or delivery of goods to, by,
through, on behalf of or for the benefit of the Acquired Company, in excess
of $100,000.00 during the remainder of its term.
The contracts, agreements, commitments and other instruments listed or
required to be listed on EXHIBITS 3.12 AND 3.14(a)(ii) are herein referred to as
the "Material Contracts."
All of the Material Contracts are valid and binding upon the Acquired
Company and the other parties thereto and are in full force and effect and
enforceable in accordance with their terms, except as enforceability may be
affected by bankruptcy, insolvency, moratorium or similar laws affecting
creditors rights generally and general principles of equity relating to the
availability of equitable remedies. Except as listed on EXHIBIT 3.12(a), the
Acquired Company has not, and, to the knowledge of the Acquired Company, no
other party to any Material Contract has breached in any material respect any
provision of, or is in default in any material respect under, the terms thereof.
Except as listed on EXHIBIT 3.12(a) and except with respect to Customer
Contracts to which Purchaser is a party, there are no existing facts or
circumstances that would prevent the Customer Contracts from maturing upon
performance thereunder by the Acquired Company into valid accounts receivable
which are payable to the Acquired Company consistent in all material respects
with historical experience. Except as listed on EXHIBIT 3.12(a) and except
accounts receivable from the Purchaser, the Acquired Company has performed all
work and other obligations in respect of receivables outstanding for more than
ninety (90) days to fully recognize and be entitled to collect same in all
material respects. Except for terms specifically described in EXHIBIT 3.12, the
Acquired Company has not received any payment from any contracting party in
connection with or as an inducement for entering into any contract, agreement,
policy or instrument except for payment for actual services rendered or to be
rendered by the Acquired Company consistent with amount historically charged for
such services.
3.13 CUSTOMER CONTRACTS. Except as set forth on EXHIBIT 3.13A,
substantially all of the Customer Contracts (other than development contracts)
conform in all material respects to one of the forms attached hereto as EXHIBIT
3.13B (the "Customer Contract Forms"), except where such deviations would not
have a Material Adverse Effect in respect of the following terms: acceptance,
limitation of remedies, warranty limitations, commitments relative to hardware
upgrades for breach of any response time warranty, confidentiality, and
modification to comply with governmental regulation. Except as set forth on
EXHIBIT 3.13A, the Acquired Company has no material commitments to provide
existing customers products developed in the future at a credit to existing
payment obligations or for less than normal prices. Except as set forth on
EXHIBIT 3.13A, with respect to each Customer Contract, (i) each customer to
which computer software owned by the Acquired Company (the "Owned Software") has
been licensed and delivered pursuant to such Customer Contract and certified as
operational by the Acquired Company has accepted such software to the extent and
on the terms and conditions provided for in such Customer Contract except for
immaterial items of Owned Software; (ii) in each case in which the Customer
Contract pursuant to which Owned Software is licensed incorporates response(s)
by the Acquired Company to a Request for Proposal by the customer, such software
has met all material requirements set forth in such response(s); and (iii) all
performance warranties with respect to Owned Software made by the Acquired
Company in any Customer Contract, including warranties with respect to capacity,
availability, downtime and response time, have been satisfied in all material
respects upon the terms and conditions and to the extent provided for in such
Customer Contract.
3.14 INTELLECTUAL PROPERTY; COMPUTER SOFTWARE.
3.14.1. Except as listed on EXHIBIT 3.14.1, the Acquired Company is the
owner, free and clear of all material liens, claims, security interests and
encumbrances, or has the right to use without
<PAGE>
material restriction pursuant to a valid license, all trademarks, trade names,
service marks, service names, and brand names (whether or not any of the same
are registered), and all copyrights and patents, together with all registrations
and applications for registrations of the foregoing, if any, applicable to or
used in the businesses of the Acquired Company. Except as listed on EXHIBIT
3.14.1, the Acquired Company is not currently in receipt of any notice of any
violation of, and the Acquired Company is not violating (other than immaterial
violations), the rights of others in any trademark, trade name, service mark,
copyright, patent, trade secret, know-how or other intangible asset.
3.14.2.(i) EXHIBIT 3.14.2(i) contains a complete and accurate list of all
Owned Software, other than immaterial Owned Software. The Acquired Company has
title to the Owned Software, free and clear of all claims, including claims or
rights of employees, agents, consultants, customers, licensees or other parties
involved in the development, creation, marketing, maintenance, enhancement or
licensing of such computer software. Except as indicated on EXHIBIT 3.14.2(i)
and for commercially available, over-the-counter "shrink-wrap" software, the
Owned Software is not dependent on any Licensed Software (as defined in
subsection (ii) below) in order to fully operate in the manner in which it is
intended. No Owned Software has been published or disclosed to any other
parties, except pursuant to contracts requiring such other parties to keep the
Owned Software confidential and where such disclosure would not have a Material
Adverse Effect. To the knowledge of the Acquired Company, no such other party
has breached any such obligation of confidentiality.
3.14.2(ii) EXHIBIT 3.14.2(ii) contains a complete and accurate list of all
software (other than commercially available over-the-counter "shrink-wrap"
software) under which the Acquired Company is a licensee, lessee or otherwise
has obtained the right to use (the "Licensed Software"), other than immaterial
Licensed Software, and includes reference to any agreement to use, license,
lease or other instrument pursuant to which the Acquired Company has obtained
such right. The Acquired Company has the right and license to use, sublicense,
modify and copy such Licensed Software as set forth in the respective license,
lease or similar agreement pursuant to which the Licensed Software is licensed
to the Acquired Company, free of any other limitations or encumbrances.
3.14.2(iii) The Owned Software and Licensed Software and commercially
available over-the-counter "shrink-wrap" software constitute all software used
in the businesses of the Acquired Company (collectively, the "Acquired Company
Software"), other than immaterial Owned Software and immaterial Licensed
Software. The Acquired Company is not infringing (other than immaterial
infringements) any intellectual property rights of any other person or entity
with respect to the Acquired Company Software, and, to the knowledge of the
Acquired Company, no other person or entity is infringing any intellectual
property rights of the Acquired Company with respect to the Acquired Company
Software other than immaterial infringements.
3.14.2(iv) The Acquired Company has not granted marketing rights in the
Acquired Company Software to any third party other than Purchaser.
3.15 LABOR MATTERS. Within the last three (3) years the Acquired Company
has not been the subject of any union activity or labor dispute, nor has there
been any strike of any kind called or, to the knowledge of the Acquired Company,
threatened to be called against it. The Acquired Company has not violated in any
material respect any applicable federal or state law or regulation relating to
labor or labor practices. EXHIBIT 3.15(d) sets forth a true, correct and
complete list of employer loans or advances from the Acquired Company to its
employees. The Acquired Company is in compliance with all applicable
requirements of the Immigration and Nationality Act of 1952, as amended by the
Immigration Reform and Control Act of 1986 and the regulations promulgated
thereunder (hereinafter collectively referred to as the "Immigration Laws"),
except for any non-compliance that would not have a Material Adverse Effect.
3.16 BENEFIT PLANS.
3.16.1. EXHIBIT 3.16 lists every pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plan; any
<PAGE>
medical, vision, dental or other health plan; any life insurance plan or any
other employee benefit plan or fringe benefit plan; including, without
limitation, any "employee benefit plan," as that term is defined in Section 3(3)
of ERISA, that is currently maintained, sponsored in whole or in part, or
contributed to by the Acquired Company or any ERISA Affiliate of the Acquired
Company, for the benefit of, providing any remuneration or benefits to, or
covering any current or former employee, retiree, dependent, spouse or other
family member or beneficiary of such employee or retiree, director, independent
contractor, stockholder, officer or consultant of the Acquired Company (the
"Current Plans"). The Current Plans, together with any such plans or
arrangements previously adopted or sponsored, contributed to by the Acquired
Company or any ERISA Affiliate of the Acquired Company or under (or in
connection with) which the Acquired Company or an ERISA Affiliate of the
Acquired Company has any contingent or noncontingent liability of any kind
(whether or not probable of assertion) that would have a Material Adverse Effect
on the Company are collectively referred to herein as the "Benefit Plans". Any
of the Benefit Plans that is an "employee pension benefit plan," or an "employee
welfare benefit plan" as those terms are defined in Section 3(1) of ERISA, is
referred to herein as an "ERISA Plan." No Benefit Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
3.16.2. EXHIBIT 3.16 also lists, with respect to all Benefit Plans listed
in EXHIBIT 3.16: (a) all trust agreements fidelity bonds, fiduciary liability
policies, investment manager or advisory contracts, and all amendments (if any)
thereto, (b) where applicable, with respect to any such plans or plan
amendments, the most recent determination letters issued by the IRS, and (c) the
most recent summary plan descriptions and any material modifications thereto.
Except as set forth on EXHIBIT 3.16.2, the Acquired Company has delivered a true
and complete copy of each such Benefit Plan, agreement, most recent IRS letter
or ruling, opinion, return, financial statement and summary plan description
described in Sections 3.16.1 or 3.16.2 hereof, certified as such by a duly
authorized officer of the Acquired Company, together with the annual report
(Form 5500 Series) for the two most recent plan years for any Benefit Plan
subject to such reporting requirements.
3.16.3. Except where any failure to comply would not have a Material
Adverse Effect on the Acquired Company, all the Benefit Plans and any related
trusts subject to ERISA comply with and have been administered in substantial
compliance with the applicable provisions of ERISA, all applicable provisions of
the Tax Code relating to qualification and tax exemption under Tax Code Sections
401(a) and 501(a) or otherwise necessary to secure intended tax consequences,
all applicable state or federal securities laws and all other applicable laws,
rules and regulations, and the Acquired Company has not received any notice from
any governmental agency or instrumentality questioning or challenging such
compliance. Any noncompliance or failure properly to maintain, operate or
administer a Benefit Plan or related trust has not rendered nor will render such
Benefit Plan or related trust or the Parent, Purchaser or Acquired Company
subject to or liable for any material taxes, penalties, or liabilities to any
Person.
3.16.4. None of the Acquired Company, and, to the knowledge of the Acquired
Company, any administrator or fiduciary of any such Benefit Plan (or agent or
delegate of any of the foregoing) has engaged in any transaction or acted or
failed to act in any manner that could subject the Acquired Company to any
direct or indirect liability (by indemnity or otherwise) for a breach of any
fiduciary, co-fiduciary or other duty under ERISA that would have a Material
Adverse Effect on the Company. No material oral or written representation or
communication with respect to any aspect of the Benefit Plans has been or will
be made to employees of the Acquired Company prior to the Closing Date that is
not in accordance with the written or otherwise preexisting terms and provisions
of such Benefit Plans in effect immediately prior to the Closing Date, except
for any amendments or terminations required by the terms of this Agreement and
except for any such representation or communication as would not have a Material
Adverse Effect on the Acquired Company. To the knowledge of the Acquired Company
there are no pending unresolved claims or disputes under the terms of, or in
connection with, the Benefit Plans (other than routine undisputed claims for
benefits), and no action, legal or otherwise, has been commenced with respect to
any claim.
<PAGE>
3.16.5. To the knowledge of the Acquired Company, all annual reports or
returns, audited or unaudited financial statements, actuarial valuations,
summary annual reports and summary plan descriptions issued with respect to the
Benefit Plans are correct and accurate in all material respects as of the dates
thereof; and there have been no amendments filed to any of such reports,
returns, statements, valuations or descriptions or required to make the
information therein true and accurate. All annual reports (Form 5500 series)
required to be filed with respect to any Current Plan for the Plan year ending
in 1994 have been or will be timely filed prior to Closing.
3.16.6. No non-exempt "prohibited transaction" (within the meaning of
4975(c) of the Tax Code involving any Benefit Plan has occurred. None of the
assets of any ERISA Plan is an "employer security" (within the meaning of
Section 407(d)(1) of ERISA) or "employer real property" (within the meaning of
Section 407(d)(2) of ERISA).
3.16.7. The only Benefit Plan that is or has been an "employee pension
benefit plan" as defined in Section 3(2) of ERISA is the 401(k) Plan. The 401(k)
Plan is qualified under Section 401(a) of the Tax Code and its related trust is
exempt from tax under Section 501(a) of the Tax Code and no circumstances exist
that could result in a disqualification of the 401(k) Plan or loss of tax-exempt
status for its related trust that would have a Material Adverse Effect on the
Acquired Company. Neither the 401(k) Plan nor any predecessor plan has ever been
subject to the provisions of Title IV of ERISA or to the minimum funding
standards of Section 412 of the Tax Code.
3.16.8. As of March 31, 1995, the Acquired Company had no current or future
liability with respect to any events or matters occurring, arising or accruing
on or prior to such date under any Benefit Plan that was not reflected in the
Interim 1995 Acquired Company Financial Statements and that would have a
Material Adverse Effect on the Acquired Company.
3.16.9. Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has maintained, and neither now maintains, a Benefit Plan
providing welfare benefits (as defined in ERISA Section 3(1)) to employees after
retirement or other separation of service except to the extent required under
Part 6 of Title I of ERISA and Tax Code Section 4980B.
3.16.10. Except as set forth on EXHIBIT 3.16.10, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee (or any spouse, dependent or other family member of such
employee) of the Acquired Company to severance pay, unemployment compensation or
any payment contingent upon a change in control or ownership of the Acquired
Company, or (ii) accelerate the time of payment or vesting, or increase the
amount, of any compensation due to any such employee or former employee (or any
spouse, dependent or other family member of such employee).
3.17 CUSTOMERS. Except as set forth in EXHIBIT 3.17, as of the date hereof
the Acquired Company has not received any notice from, and does not have any
knowledge that, any current customer of the Acquired Company has taken or will
take any steps that could disrupt the business relationship of the Acquired
Company with such customer in any material respect. The Acquired Company will
not suffer subsequent to the date hereof and prior to the Closing any damage to
the business relationship of the Acquired Company with any current customer or
customers of the Acquired Company that would have in the aggregate a Material
Adverse Effect.
3.18 ENVIRONMENTAL MATTERS. Except with respect to chemicals contained in
products used by the Acquired Company in the ordinary course of business and
except as set forth in EXHIBIT 3.18, no real property now or previously owned,
leased or used by the Acquired Company (the "Real Property") has been used by
the Acquired Company or, to the knowledge of the Acquired Company, any other
party for the handling, treatment, storage or disposal of any Hazardous
Substance. Except as set forth in EXHIBIT 3.18, no release, discharge, spillage
or disposal into the environment of any material quantity of a Hazardous
Substance and no material soil, water or air contamination by any Hazardous
Substance has occurred or is occurring in, from or on the Real Property (a) by
virtue of the actions or failure to act of any of the Acquired Company or (b) to
the knowledge of the Acquired Company, by
<PAGE>
virtue of the actions or failure to act of any other party. Except as set forth
in EXHIBIT 3.18, the Acquired Company has complied in all material respects with
all reporting requirements under any applicable federal, state or local
environmental laws and any permits with respect to the Real Property, and there
are no existing material violations by the Acquired Company of any such
environmental laws or permits with respect to the Real Property. Except as set
forth in EXHIBIT 3.18, there are no claims, actions, suits, proceedings or
investigations related to the presence, release, production, handling,
discharge, spillage, transportation or disposal of any Hazardous Substance or
ambient air conditions or contamination of soil, water or air by any Hazardous
Substance pending or threatened (1) with respect to the Real Property (a) by
virtue of the actions or failure to act of the Acquired Company or (b) to the
knowledge of the Acquired Company, by virtue of the actions or failure to act of
any other party, or (2) otherwise against the Acquired Company, in any court or
before any state, federal or other governmental agency or private arbitration
tribunal and, to the knowledge of the Acquired Company, there is no reasonable
basis for any such claim, action, suit, proceeding or investigation (i) with
respect to the Real Property (a) by virtue of the actions or failure to act of
the Acquired Company or (b) to the knowledge of the Acquired Company, by virtue
of the actions or failure to act of any other party, or (ii) otherwise against
the Acquired Company or any Subsidiary. Except as disclosed on EXHIBIT 3.18, to
the knowledge of the Acquired Company, there are no underground storage tanks on
the Real Property. To the knowledge of the Acquired Company, no building or
other improvement included in the Real Property contains any exposed or friable
asbestos currently required to be removed or otherwise treated under applicable
law. For the purposes of this Agreement, "Hazardous Substance" shall mean any
hazardous or toxic substance or waste as those terms are defined by any
applicable federal, state or local law, ordinance, regulation, decision, order
or decree, including, without limitation, the Comprehensive Environmental
Recovery Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ., the Hazardous
Materials Transportation Act, 49 U.S.C. 1801 ET SEQ. and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 ET SEQ., and petroleum, petroleum
products and oil.
3.19 INSURANCE. Set forth in EXHIBIT 3.19 is a complete list of all
material insurance policies that the Acquired Company maintains with respect to
its businesses, properties or employees. Except as set forth in EXHIBIT 3.19,
such policies are in full force and effect and no event has occurred that would
give any insurance carrier a right to terminate any such policy. Such policies
are adequate to insure against risks to which the Acquired Company and its
properties and assets are exposed in the operation of its business in such
amounts and types of coverage as are commercially reasonable and are consistent
with practices in the industry in which the Acquired Company operates. Except as
set forth in EXHIBIT 3.19, since March 31, 1995, there has not been any change
in the Acquired Company's relationship with its insurers or in the premiums
payable pursuant to such policies.
3.20 RELATED PARTY RELATIONSHIPS. Except as set forth in EXHIBIT 3.20, to
the knowledge of the Acquired Company, no stockholder owning greater than a
five-percent (5%) interest in the Acquired Company, no affiliate or member of
the immediate family of any such stockholder, and no officer or director or
member of the immediate family of such officer or director of the Acquired
Company possesses, directly or indirectly, any beneficial interest in, or is a
director, officer or employee of, or member of the immediate family of a
director, officer or employee of, any corporation, partnership, firm,
association or business organization that is a client, supplier, customer,
lessor, lessee, lender, creditor, borrower, debtor or contracting party with or
of the Acquired Company (except as a stockholder holding less than a one-percent
1% interest in a corporation whose shares are traded on a national or regional
securities exchange or in the over-the-counter market).
3.21 INFORMATION. The Acquired Company has made accessible to Purchaser or
Parent each registration statement, schedule, report, proxy statement or
information statement it has filed with the SEC since January 1, 1993,
including, without limitation, (a) the Acquired Company's Annual Reports on Form
10-K for the years ended December 31, 1993, and December 31, 1994, including all
documents incorporated therein and (b) the Acquired Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995 and any Report on Form 8-K
filed since December 31, 1994
<PAGE>
(collectively, the "Acquired Company Reports"). As of the date of this
Agreement, the Acquired Company Reports, taken together with information
previously furnished by the Acquired Company to Parent or Purchaser, 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 made therein,
in light of the circumstances in which they were made, not misleading. As used
in this Section 3.21, "material" means material to the financial condition,
business, properties, rights or operations of the Acquired Company.
3.22 POOLING OF INTERESTS. The Acquired Company is not aware of any facts
or circumstances in respect of it or its accounting procedures which would have
the effect of precluding accounting for the transactions contemplated hereby as
a "pooling of interests."
3.23 DISCLOSURE AND ABSENCE OF UNDISCLOSED LIABILITIES. No statement
contained herein or in any certificate, schedule, list, exhibit or other
instrument furnished or required to be furnished to Parent or Purchaser pursuant
to the provisions hereof contains, or will at the time it is furnished contain,
any untrue statement of any material fact or omits to state any fact necessary
to make the statements herein or therein in light of the circumstances in which
they were made or omitted not false or misleading. As used in this Section,
"material" means material to the financial condition, business, properties,
rights or operations of the Acquired Company.
3.24 NO SPECIAL STOCKHOLDER RIGHTS. Except for the Voting Trust Agreement
and the Registration Rights Agreement referenced in Section 6.13, the Acquired
Company has no agreement with any individual or entity that grants such person
any rights as a stockholder of Acquired Company Stock that are in addition to
such holder's rights under the Acquired Company's Certificate of Incorporation
or Bylaws (including, without limitation, registration rights, preemptive
rights, put rights, rights of co-sale or rights to Board representation).
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.
Purchaser and Parent, jointly and severally, represent and warrant to the
Acquired Company as follows:
4.1 ORGANIZATION AND STANDING. Each of Purchaser and Parent is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware.
4.2 CORPORATE POWER AND AUTHORITY. Each of Purchaser and Parent has the
capacity and authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated hereby without the
necessity of any act or consent of any other Person whomsoever. The execution,
delivery and performance by Purchaser and Parent of this Agreement and each and
every agreement, document and instrument provided for herein have been duly
authorized and approved by their respective Boards of Directors (or Executive
Committees thereof). Assuming this Agreement, and each and every other
agreement, document and instrument to be executed, delivered and performed by
Purchaser and Parent in connection herewith are valid and legally binding on the
Acquired Company, this Agreement, and each and every other agreement, document
and instrument to be executed, delivered and performed by Purchaser and Parent
in connection herewith, constitute or will, when executed and delivered,
constitute the valid and legally binding obligations of Purchaser and Parent as
applicable, enforceable against each of them in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles, or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally.
4.3 CAPITALIZATION. The entire authorized capital stock of the Parent
consists of sixty-one million (61,000,000) shares of stock, of which sixty
million (60,000,000) shares are designated Common Stock, par value $.05 per
share, and one million (1,000,000) shares are designated Preferred Stock, no par
value per share ("Parent Preferred Stock"). Of the total authorized Common Stock
as of June 30, 1995, approximately fifty-three million one hundred one thousand
(53,101,000) shares were issued, of which approximately thirty-six million one
hundred ninety-seven thousand (36,197,000)
<PAGE>
shares were outstanding and approximately sixteen million nine hundred four
thousand shares were held in the Parent's treasury. Of the total authorized
Preferred Stock, none were outstanding. On February 12, 1991, Parent declared a
dividend distribution of one Preferred Share Purchase Right for each share of
Parent Stock. As of June 30, 1995 none of such Rights had been exercised. As of
June 30, 1995, Parent had an aggregate of approximately one million three
hundred sixteen thousand ninety-seven (1,316,097) shares of Common Stock
reserved for issuance under previously approved employee stock option, purchase
or benefit plans. All of the outstanding shares of Parent Stock (including any
shares issued pursuant to existing Parent stock option, purchase or benefit
plans, if exercised and purchased at the applicable exercise price) and Parent
Preferred Stock were duly authorized (or will be when issued and the option or
purchase price is paid), validly issued, fully paid and nonassessable. None of
the capital stock of the Parent is entitled or subject to preemptive rights. All
of the outstanding capital stock of the Purchaser is owned by the Parent. The
authorization or consent of no other person or entity is required in order to
consummate the transactions as contemplated herein by virtue of any such person
or entity having an equitable or beneficial interest in the Parent or the
Purchaser or in the capital stock of the Parent or the Purchaser.
4.4 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution and
delivery of this Agreement by Purchaser and Parent do not, and the consummation
of the transactions contemplated hereby will not, violate any provisions of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of Purchaser or
of Parent, and, except as set forth on EXHIBIT 4.4, violate or constitute an
occurrence of default under any provision of, or conflict with, result in
acceleration of any obligation under, or give rise to a right by any party to
terminate its obligations under, any mortgage, deed of trust, conveyance to
secure debt, note, loan, lien, lease, agreement, instrument, or any order,
judgment, decree or other arrangement to which Purchaser or Parent is a party or
is bound or by which any of their respective assets are affected. Except for the
applicable requirements of the HSR Act, the 1933 Act, the Exchange Act and
applicable Blue Sky laws, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required to
be obtained or made by or with respect to Purchaser or Parent or any assets,
properties or operations of Purchaser or Parent in connection with the execution
and delivery by Purchaser and Parent of this Agreement or the consummation of
the transactions contemplated hereby.
4.5 RESERVATION OF SHARES. Purchaser will, prior to the Merger, in
accordance with the terms thereof, have available shares of Parent Stock
sufficient to complete the Merger. The Parent Stock, when issued hereunder to
the stockholders of the Acquired Company, shall be duly authorized, validly
issued, fully paid and non-assessable.
4.6 INFORMATION. Parent has delivered to the Acquired Company each
registration statement, schedule, report, proxy statement or information
statement it has filed with the Securities and Exchange Commission since January
1, 1993, including, without limitation, (a) Parent's Annual Report on Form 10-K
for the years ended December 31, 1993, and December 31, 1994, respectively,
including all documents incorporated therein, (b) Parent's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995 and (c) Parent's Reports on Form
8-K since December 31, 1994 dated July 10, 1995 (collectively, the "Parent
Reports"). As of the date of this Agreement, the Parent Reports, taken together
with information previously furnished by Parent to the Acquired Company, 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 made therein,
in light of the circumstances in which they were made, not misleading. As used
in this Section, "material" means material to the financial condition, results
of operations, business, assets or properties of Parent together with its
subsidiaries (including Purchaser), taken as a whole.
4.7 LIABILITIES AND OBLIGATIONS OF PARENT AND THE PURCHASER. Attached
hereto as EXHIBIT 4.7 are true, correct and complete copies of the Parent's
audited consolidated balance sheets as of December 31, 1992, December 31, 1993,
and December 31, 1994 and the related consolidated statements of earnings and
retained earnings and cash flows for the years then ended, and an unaudited
consolidated balance sheet as of March 31, 1995 and the related consolidated
statement of earnings and
<PAGE>
retained earnings and cash flows for the three-month period then ended, together
with the reports of Arthur Andersen & Co. on the financial statements for the
years ended December 31, 1992, December 31, 1993 and December 31, 1994
(respectively, the "1992, 1993, 1994 and Interim 1995 Parent Financial
Statements"). The 1992, 1993, 1994 and Interim 1995 Parent Financial Statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, and fairly present in all material respects the
consolidated financial condition and statements of cash flow of the Parent and
its subsidiaries (including the Purchaser) as of the respective dates thereof
(subject, in the case of the Interim 1995 Parent Financial Statements, to the
absence of footnotes and to normal year-end adjustments).
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on EXHIBIT
4.8, since March 31, 1995, the Parent has operated in the ordinary course of
business and there has not been any transaction, commitment, dispute or other
event or condition that would result in any Material Adverse Effect.
4.9 LITIGATION. Except as otherwise set forth in EXHIBIT 4.9 hereto, there
is no suit, action, arbitration, proceeding, claim or investigation pending or,
to the knowledge of the Parent or the Purchaser, threatened against or affecting
the Parent or the Purchaser that would have a Material Adverse Effect, and, to
the knowledge of the Parent or the Purchaser, there exists no reasonable basis
or grounds for such suit, action, arbitration, proceeding, claim or
investigation that would have a Material Adverse Effect.
4.10 POOLING OF INTERESTS. The Parent and the Purchaser are not aware of
any facts or circumstances respecting either thereof or their accounting
procedures which would have the effect of precluding accounting for transaction
contemplated hereby as a "pooling of interests."
V. CONDITIONS PRECEDENT TO RESPECTIVE OBLIGATIONS OF THE PARTIES.
The obligations of Purchaser and Parent, on the one hand, and of the
Acquired Company, on the other hand, to consummate, or cause to be consummated,
the Merger shall be contingent upon and subject to the satisfaction, on or
before the Closing, of each and every one of the following conditions, any one
or more of which may be waived in writing by such parties.
5.1 ACTIONS OF GOVERNMENTAL AUTHORITIES. There shall not have been
instituted or be pending any action, proceeding, application, claim or
counterclaim by any government or governmental authority or agency, domestic or
foreign, and Purchaser, Parent or the Acquired Company shall not have been
notified by any such government, governmental authority or agency (or a
representative thereof) of its present intention to commence, or recommend the
commencement of, such an action or proceeding, that (i) challenges the
acquisition by Purchaser or Parent of the Acquired Company, restrains or
prohibits or seeks to restrain or prohibit the making or consummation of the
Merger or restrains or prohibits or seeks to restrain or prohibit the
performance of this Agreement; (ii) prohibits or limits or seeks to prohibit or
limit the ownership or operation by Purchaser or Parent of all or any
substantial portion of the business or assets of the Acquired Company or of
Purchaser, Parent or any of their respective subsidiaries or compels or seeks to
compel Purchaser or Parent to dispose of or to hold separate all or any
substantial portion of the business or assets of the Acquired Company or of
Purchaser, Parent or any of their respective subsidiaries, or imposes or seeks
to impose any material limitation on the ability of Purchaser or Parent to
conduct such business or to own such assets; or (iii) imposes or seeks to impose
limitations on the ability of Purchaser or Parent (or any other affiliate of
Purchaser) to acquire or hold or to exercise full rights of ownership of the
Surviving Corporation, including, but not limited to, the right to vote such
shares on all matters properly presented to the stockholders of the Surviving
Corporation.
5.2 OTHER LEGAL ACTIONS. No action, suit or proceeding shall be pending or
threatened before any court of any federal, state, local or foreign jurisdiction
(other than an action, suit or proceeding in
<PAGE>
which no governmental authority is a party) of the type referred to in clauses
(i) through (iii) of Section 5.1 above, in which action, suit or proceeding
there is a reasonable possibility of an adverse outcome.
5.3 LEGAL APPROVALS. The execution and the delivery of this Agreement and
the consummation of the transactions contemplated hereby shall have been
approved by all regulatory authorities whose approvals are required by law and
the waiting period under the HSR Act shall have expired or have been terminated.
5.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
adopted and approved by the affirmative vote or written consent of the holders
of the outstanding shares of Acquired Company Stock by the vote or written
consent required by, and in accordance with, the Delaware Code.
5.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC, and no stop order with respect
thereto shall have been issued. The shares of Parent Stock to be issued or sold
pursuant to the Registration Statement shall have been registered for issuance
in the Merger under all applicable Blue Sky laws or shall be exempt from such
registration, and no stop order shall have been issued with respect to the
issuance or sale of such securities by any Blue Sky authority.
5.6 NASDAQ APPROVAL. The Parent Stock issuable in the Merger shall have
been listed or approved for listing upon notice of issuance by the Nasdaq Stock
Market National Market.
VI. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND PARENT.
In addition to the conditions set forth in Article V above, all the
obligations of Purchaser and Parent to consummate, or cause to be consummated,
the Merger shall be contingent upon and subject to the satisfaction, on or
before the Closing, of each and every one of the following conditions. The
following conditions are for the sole benefit of Purchaser and Parent and may be
waived by Purchaser or Parent (which action shall be deemed a waiver by both
Purchaser and Parent), in whole or in part, at any time and from time to time,
in the sole discretion of Purchaser or Parent. The failure by either Purchaser
or Parent at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any other right, and each right shall be deemed an ongoing
right that may be asserted at any time and from time to time.
6.1 REPRESENTATIONS OF ACQUIRED COMPANY. All representations and
warranties of the Acquired Company contained in this Agreement (except as
affected by the transactions contemplated by this Agreement), in the statements
contained in the Exhibits hereto or in any certificate delivered by the Acquired
Company pursuant to this Agreement shall be true and correct in all material
respects when made, and shall be true and correct in all material respects at
and as of the Closing Date as though such representations and warranties were
made or given on and as of the Closing Date.
6.2 COVENANTS OF ACQUIRED COMPANY. The Acquired Company shall have, or
caused to be, performed and observed in all material respects all covenants,
agreements and conditions hereto to be performed or observed at or before the
Closing Date.
6.3 NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the date of this
Agreement there shall not have been any Material Adverse Effect in respect of
the Acquired Company. A Material Adverse Effect shall not be deemed to have
occurred for purposes of this Section 6.3 by reason of the inability of Acquired
Company to enter into contracts with those prospective new customers which prior
to the execution of this Agreement have been separately identified in a writing
by Acquired Company to Purchaser substantially due to the reaction of such
prospective new customers to the announcement of the transactions contemplated
by this Agreement. In addition, a Material Adverse Effect shall not be deemed to
have occurred for purposes of this Section 6.3 as a result of reductions in the
volume of
<PAGE>
revenue received by Acquired Company from Purchaser where such reduction is the
result of Purchaser's deliberate action. The exceptions to the Material Adverse
Effect condition set forth in the immediately preceding two sentences are
conditioned on the Acquired Company using its reasonable best efforts to enter
into contracts with prospective new customers.
6.4 CERTIFICATE. Purchaser shall have received a certificate of the
President of the Acquired Company, dated as of the Closing Date, certifying as
to the matters set forth in Sections 6.1 through 6.3 above. In addition, Parent
shall have received both a certificate dated as of the effective date of the
Registration Statement and a certificate dated as of the Closing Date certifying
that in particular and without modifying the certificate indicated above, the
covenants set forth in Sections 2.3.1 and 2.3.2 above have been performed and
that the representations set forth in Sections 3.21 and 3.24 above are true and
correct as of such dates, but that the agreements referenced in Section 3.24
have been (or will be) terminated prior to Closing.
6.5 OPINION OF ACQUIRED COMPANY'S COUNSEL. Purchaser and Parent shall have
received an opinion of counsel for the Acquired Company, dated as of the Closing
Date, of customary form reasonably acceptable to Purchaser.
6.6 TAX OPINION. Purchaser and Parent shall each have received an opinion
from their counsel based upon appropriate representations of the parties and
certain stockholders of the Acquired Company dated as of the Closing Date to the
effect that the Merger will qualify as a reorganization pursuant to Section
368(a) of the Tax Code.
6.7 AFFILIATES AND PRINCIPAL STOCKHOLDERS. Parent and Purchaser shall have
received the Rule 145 Letters and the Pooling Letters from the persons and at
the times specified in Section 2.4 and the letters referenced in Section 2.13.
6.8 ADDITIONAL INSTRUMENTS; CERTAIN CONSENTS. The Acquired Company shall
have delivered to Purchaser or Parent certified copies of resolutions duly
adopted by the Acquired Company's Board of Directors and stockholders, approving
the Merger and authorizing the transactions contemplated hereby, and such other
or additional instruments, endorsements and documents as Parent and Purchaser
reasonably deem to be necessary to enable the Merger to be consummated as
provided in this Agreement. The Acquired Company shall have received the
waivers, consents and approvals to the transactions contemplated herein, which
are listed on EXHIBIT 6.8.
6.9 ACCOUNTANT'S POOLING LETTERS. Parent shall have received letters from
Arthur Andersen, LLP dated as of the effective date of the Registration
Statement and as of the Closing Date addressed to Parent advising it, as set
forth in Section 2.3.2 hereof, that the Merger may be accounted for as a pooling
of interests and otherwise in such form as is customary and reasonably
acceptable to Parent.
6.10 ACCOUNTANT'S COMFORT LETTERS. Purchaser and Parent shall have
received letters from Arthur Andersen, LLP dated as of the effective date of the
Registration Statement and as of the Closing Date, addressed to Purchaser and
Parent, containing such matters as are customarily contained in auditors'
letters regarding the Acquired Company Information provided expressly for
inclusion in such Registration Statement, and in form and substance reasonably
satisfactory to Parent and Purchaser.
6.11 COVENANTS NOT TO COMPETE. Purchaser shall have received executed
non-competition agreements from William H. Brehm, Brian E. Higgins and Michael
E. Myers in the form attached hereto as EXHIBIT 6.11, or in a substantially
similar form reasonably acceptable to Purchaser, further accompanied by letters
from the Purchaser regarding the applicability of the Acquired Company's
Executive Retention Plan which have been previously agreed to.
6.12 FEE LIMITATION. The only fees and expenses to any investment banking
firm or similar entity that will be incurred by Acquired Company in connection
with the transaction with Parent and Purchaser will be in connection with the
delivery of a fairness opinion as required by Section 7.7
<PAGE>
hereof and financial advisory services and such fees shall not exceed $690,000
in the aggregate and expenses not exceed $25,000, and Purchaser shall receive
evidence of compliance with this limitation reasonably satisfactory to it.
6.13 CONTRACT CANCELLATION. The Voting Trust Agreement and Registration
Rights Agreement of the Acquired Company, each referenced on EXHIBIT 3.3, shall
have been terminated, and of no further force or effect.
6.14 RESOLUTION OF CERTAIN MATTERS. The Acquired Company shall have
obtained a complete release from liability in connection with the matter
described on EXHIBIT 6.14 (the "Matter") at no cost to the Acquired Company and
in form reasonably satisfactory to Purchaser, or those certain stockholders of
the Acquired Company listed on EXHIBIT 6.14 shall have agreed to indemnify, on a
joint and several basis, the Acquired Company, Parent and Purchaser against all
liability and expense in connection with the Matter, such indemnification to be
on terms reasonably satisfactory to Purchaser and Parent. If such
indemnification is provided, the indemnifying stockholders shall be entitled to
control the defense of any litigation relating to the Matter.
VII. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY.
All the obligations of the Acquired Company to consummate the Merger shall
be contingent upon and subject to the satisfaction, on or before the Closing, of
each and every one of the following conditions. The following conditions are for
the sole benefit of the Acquired Company and may be asserted by the Acquired
Company regardless of the circumstances giving rise to any such condition and
may be waived by the Acquired Company, in whole or in part, at any time and from
time to time, in the sole discretion of the Acquired Company for purposes of
consummating the transactions contemplated herein. The failure by the Acquired
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any other right, and each right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
7.1 REPRESENTATIONS OF PURCHASER AND PARENT. All representations and
warranties made by Purchaser and Parent in this Agreement (except as affected by
the transactions contemplated by this Agreement) shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects at and as of the Closing Date, with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date.
7.2 COVENANTS OF PURCHASER AND PARENT. Purchaser and Parent shall have, or
caused to be, performed and observed in all material respects all covenants,
agreements and conditions hereof to be performed or observed by them at or
before the Closing Date.
7.3 NO MATERIAL ADVERSE CHANGES IN BUSINESS. Since the date of this
Agreement there shall not have been any Material Adverse Effect in respect of
the Parent.
7.4 CERTIFICATE. The Acquired Company shall have received a certificate of
the President of each of Parent and Purchaser, dated as of the Closing Date,
certifying as to the matters set forth in Sections 7.1, 7.2 and 7.3 above.
7.5 OPINION OF PARENT'S AND PURCHASER'S COUNSEL. The Acquired Company
shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Parent
and Purchaser, dated as of the Closing Date, of customary form reasonably
acceptable to Acquired Company.
7.6 TAX OPINION. The Acquired Company shall have received for the benefit
of its stockholders an opinion from its tax counsel based upon appropriate
representations of the parties and certain stockholders of the Acquired Company,
dated as of the Closing Date, to the effect that the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Tax Code.
<PAGE>
7.7 FAIRNESS OPINION. The Acquired Company shall have received an opinion
dated as of the date of the mailing of the Registration Statement to the
stockholders of the Acquired Company from Dean Witter Reynolds Inc., its
financial advisor, confirming the opinion referred to in Section 3.2.3 hereof.
7.8 PARENT STOCK PRICE. The average of the per share closing prices on the
Nasdaq Stock Market's National Market as reported in THE WALL STREET JOURNAL of
the Parent Stock for the ten (10) consecutive trading days ending on the second
trading day prior to the Closing Date (the "Pre-Closing Parent Stock Price")
shall be at least $50.00.
7.9 ACCOUNTANTS' POOLING LETTERS. The Acquired Company shall have received
letters from Arthur Andersen, LLP dated as of the effective date of the
Registration Statement and as of the Closing Date, addressed to the Acquired
Company, advising it, as set forth in Section 2.3.2, that the Merger may be
accounted for as a pooling of interests and otherwise in such form as is
customary and reasonably acceptable to the Acquired Company.
VIII. CLOSING.
8.1 TIME AND PLACE OF CLOSING. Unless another place or date is agreed to
in writing by the Acquired Company and Purchaser, the Closing shall be held at
the offices of Jones, Day, Reavis & Pogue, 3500 One Peachtree Center, 303
Peachtree Street N.E., Atlanta, Georgia 30308-3242, commencing at 10:00 a.m.
Eastern Time, within two (2) business days of the last to occur of (i) the
expiration or termination of the waiting period under the HSR Act, (ii) the
Merger having been approved by the stockholders of the Acquired Company pursuant
to the Delaware Code and (iii) the satisfaction or waiver of the other
conditions set forth in Articles V, VI and VII. (The actual date of the Closing
is referred in this Agreement as the "Closing Date.")
8.2 TRANSACTIONS AT CLOSING. At the Closing, each of the following
transactions shall occur:
8.2.1. THE ACQUIRED COMPANY'S PERFORMANCE. At the Closing, the
Acquired Company shall deliver to Purchaser and Parent, in addition to the
other deliveries required by the terms and conditions of this Agreement, the
following:
(a) copies of any consents listed on Exhibit 6.8;
(b) reasonably satisfactory evidence of the approvals described in
Sections 5.4 and 5.5;
(c) the certificates described in Section 6.4 to be delivered on the
Closing Date;
(d) certificates of compliance or certificates of good standing of
the Acquired Company as of the most recent practicable date, from the
Secretary of the State of Delaware;
(e) certified copies of resolutions of the Board of Directors and
stockholders of the Acquired Company approving the transactions set forth
in this Agreement;
(f) certificates of incumbency for the officers of the Acquired
Company;
(g) resignations of each trustee of each Benefit Plan;
(h) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by the Acquired
Company;
(i) the opinion of counsel for the Acquired Company, referenced in
Section 6.5;
(j) the tax opinion described in Section 6.6;
(k) the Rule 145 Letters described in Section 2.4;
(l) the letters described in Section 2.13;
(m) the letters from Arthur Andersen, LLP to be delivered by the
Closing Date as described in Section 6.9;
<PAGE>
(n) the Covenants Not to Compete as executed by the employees of the
Acquired Company specified in Section 6.11; and
(o) such other evidence of the performance of all covenants and
satisfaction of all conditions required of the Acquired Company by this
Agreement, at or prior to the Closing, as Purchaser, Parent or their
counsel may reasonably require.
8.2.2. PERFORMANCE BY PURCHASER AND PARENT. At the Closing, Purchaser
or Parent, as appropriate, shall deliver to the Acquired Company, in
addition to the other deliveries required by the terms and conditions of
this Agreement, the following:
(a) the certificate described in Section 7.4;
(b) certificates of incumbency of the officers of Purchaser and of
Parent who are executing this Agreement and the other documents
contemplated hereunder;
(c) certified copies of resolutions of the Boards of Directors of
each of Purchaser and Parent (or Executive Committees thereof) approving
the transactions set forth in this Agreement;
(d) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by Purchaser;
(e) the opinion of counsel for Purchaser and Parent referenced in
Section 7.5;
(f) the tax opinion described in Section 7.6;
(g) such other evidence of the performance of all the covenants and
satisfaction of all of the conditions required of Purchaser and of Parent
by this Agreement at or before the Closing as the Acquired Company or its
counsel may reasonably require.
IX. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
9.1 Except for the covenants contained in Sections 2.13, 2.14 and 11.5, all
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Closing,
and thereafter no party hereto and no officer, director or employee of any such
party shall have any liability whatsoever with respect to any such
representation, warranty or agreement except for liabilities arising from fraud,
willful misconduct or criminal acts.
X. TERMINATION.
10.1 METHOD OF TERMINATION. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, the consideration for which is (a) the covenants set forth in Article II
hereof, and (b) the obligations incurred and to be incurred by Purchaser and
Parent, on the one hand, and by the Acquired Company, on the other hand, in
respect of this Agreement, and this Agreement may be terminated or abandoned
only as follows:
10.1.1. by the mutual consent of the Boards of Directors of the
Acquired Company and Parent, notwithstanding prior approval by the
stockholders of any or all of such corporations;
10.1.2. by the Board of Directors of Purchaser in accordance with its
rights under Section 10.3;
10.1.3. by the Board of Directors of the Acquired Company after the
earlier to occur of November 15, 1995, and the date that is twenty-four (24)
business days following the date on which the Registration Statement is
declared effective by the SEC (whichever is earlier being referred to herein
as the "Outside Closing Date"), if any of the conditions set forth in
Articles V and VII hereof, to which the Acquired Company's obligations are
subject, have not been fulfilled or waived, unless such fulfillment has been
frustrated or made impossible by any act or failure to act of it;
<PAGE>
10.1.4. by Purchaser after the Outside Closing Date, if any of the
conditions set forth in Articles V and VI hereof, to which the obligations
of Purchaser and Parent are subject, have not been fulfilled or waived,
unless such fulfillment has been frustrated or made impossible by any act or
failure to act of Purchaser or Parent;
10.1.5. by the Board of Directors of the Acquired Company if in the
exercise of its good faith determination, as set forth in Section 2.11, as
to its fiduciary duties to the Acquired Company's stockholders imposed by
law, the Board of Directors of the Acquired Company decides that such
termination is required; or
10.1.6. by the Board of Directors of the Acquired Company if the
average of the per share closing prices of the Parent Stock on the Nasdaq
Stock Market's National Market as reported in THE WALL STREET JOURNAL for
any period of twenty (20) consecutive trading days ending on any date prior
to the second trading day prior to the Closing Date is less than $50.00.
10.2 EFFECT OF TERMINATION.
10.2.1. In the event of a termination of this Agreement pursuant to
Sections 10.1, each party shall pay the costs and expenses incurred by it in
connection with this Agreement, and except as provided in the next succeeding
sentence, no party (or any of its officers, directors, employees, agents,
representatives or stockholders) shall be liable to any other party for any
costs, expenses, damage or loss of anticipated profits hereunder. In the event
of a termination of this Agreement other than pursuant to Sections 10.1.1,
10.1.5, and 10.1.6, the parties shall retain any and all rights attendant to a
breach of any covenant, representation or warranty made hereunder. The parties
agree that the failure to be satisfied of any condition to Closing shall not,
absent a breach of any covenant, representation or warranty made herein,
constitute a breach of this Agreement; although a breach of any covenant,
representation or warranty that results in or constitutes the failure of any
condition to Closing shall nonetheless constitute a breach for purposes of the
immediately preceding sentence. The parties also agree that Sections 5, 6 and 7
do not in and of themselves constitute representations, warranties or covenants.
Each party further agrees not to take any actions with the intent of frustrating
the satisfaction of the conditions to its obligation to close. In the event of a
termination of this Agreement pursuant to Section 10.1.5 hereof, Section 10.2.2
shall govern.
10.2.2. In the event the Agreement is terminated by the Acquired Company in
accordance with Section 10.1.5, the Acquired Company shall promptly pay to
Purchaser (i) in an aggregate amount not to exceed $500,000, all reasonable
costs and expenses of Purchaser and Parent incurred in connection with the
negotiation and performance of this Agreement including without limitation fees
and expenses of counsel, fees and expenses of independent public accountants,
filing fees in respect of compliance with the HSR Act, printing expenses and
registration fees and (ii) a fee in the amount of $1,500,000. In the case of any
termination of this Agreement under Section 10.1.5, payment of the amounts
specified in the preceding sentence shall constitute liquidated damages and
shall be the sole and exclusive remedy of Parent and Purchaser for any and all
damages arising under or in connection with this Agreement, and, upon payment of
the amounts specified in the preceding sentence, the Acquired Company shall not
have any liability or further obligation to Parent or Purchaser under or in
connection with this Agreement or any such termination hereof.
10.2.3. Notwithstanding anything in this Agreement to the contrary, the
provisions of Section 2.8.2 shall survive any termination of this Agreement
prior to Closing.
10.3 RISK OF LOSS. The Acquired Company retains all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement up to the Effective Time. If the condemnation, destruction, loss, or
damage is such that the business of the Acquired Company, is interrupted or
curtailed or the assets of the Acquired Company are adversely affected such that
a Material Adverse Effect Occurs, then Purchaser shall have the right to
terminate this Agreement.
<PAGE>
XI. GENERAL PROVISIONS.
11.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
certified mail, return receipt requested, first class postage prepaid, or sent
by Federal Express or similar overnight delivery service with receipt
acknowledged addressed as follows:
11.1.1. If to the Acquired Company:
Clinicom Incorporated
4720 Walnut Street
Boulder, Colorado 80301-2557
Attn: Mr. William H. Brehm
and to:
Lester R. Woodward, Esq.
Davis Graham & Stubbs
370 Seventeenth Street
Suite 4700
Denver, Colorado 80201
11.1.2. If to Purchaser or Parent:
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: Mr. Jay P. Gilbertson
and to:
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attn: John E. Zamer, Esq.
11.1.3. If delivered personally, the date on which a notice, request,
instruction or document is delivered shall be the date on which such
delivery is made and, if delivered by mail or by overnight delivery service,
the date on which such notice, request, instruction or document is received
shall be the date of delivery. In the event any such notice, request,
instruction or document is mailed or shipped by overnight delivery service
to a party in accordance with this Section 11.1 and is returned to the
sender as nondeliverable, then such notice, request, instruction or document
shall be deemed to have been delivered or received on the fifth day
following the deposit of such notice, request, instruction or document in
the United States mails or the delivery to the overnight delivery service.
11.1.4. Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this
Section 11.1.
11.2 BROKERS. Purchaser and Parent, jointly and severally, represent and
warrant to the Acquired Company that except for Punk, Ziegel & Knoell, no broker
or finder has acted for them or any entity controlling, controlled by or under
common control with them in connection with this Agreement. The Acquired Company
represents and warrants to Purchaser and the Parent that, except for Dean Witter
Reynolds Inc. and except as disclosed on EXHIBIT 11.2, no broker or finder has
acted for it or any entity controlling, controlled by or under common control
with it in connection with this Agreement. Purchaser agrees to indemnify and
hold harmless the Acquired Company against any fee, loss or expense arising out
of any claim by Punk, Ziegel & Knoell or any other broker or finder
<PAGE>
employed by either of them, and the Acquired Company agrees to indemnify and
hold harmless Purchaser and Parent against any fee, loss, or expense arising out
of any claim by Dean Witter Reynolds Inc., or any other broker or finder
employed by it or any of the Acquired Company's stockholders. The fees and other
expenses of Punk, Ziegel & Knoell shall be paid by Parent and Purchaser and the
fees and expenses of Dean Witter Reynolds Inc. shall be paid by the Acquired
Company (subject to the limitations set forth in Section 6.12) all in
conjunction with such other fees as provided for in Section 11.5.
11.3 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Effective Time, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
11.4 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
11.5 EXPENSES. Except as provided in 10.2.2, all expenses incurred by the
parties hereto in connection with or related to the authorization, preparation
and execution of this Agreement and the Closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of agents, representatives, counsel and accountants employed
by any such party, shall be borne solely and entirely by the party that has
incurred the same. The Acquired Company represents and warrants that the firm of
Davis Graham & Stubbs has served as its sole legal counsel, and Parent and
Purchaser represent and warrant that the firms of Jones, Day, Reavis & Pogue and
Mazursky & Hiner have served as Parent and Purchaser's sole legal counsel, in
connection with the negotiation, execution and delivery of this Agreement, and
each of such parties acknowledges and agrees that neither the Acquired Company
nor the Parent or Purchaser shall be required to pay the fees or expenses of any
other legal counsel in such connection.
11.6 PRESS RELEASES AND DISCLOSURE. In the event that either party
proposes to issue, make or distribute any press release, public announcement or
other written publicity or disclosure prior to the Closing Date that refers to
the transactions contemplated herein, the party proposing to make such
disclosure shall provide a copy of such disclosure to the other parties and
shall afford the other parties reasonable opportunity (subject to any legal
obligation of prompt disclosure) to comment on such disclosure or the portion
thereof which refers to the transactions contemplated herein prior to making
such disclosure.
11.7 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns.
11.8 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
11.9 ENTIRE AGREEMENT. This Agreement and all agreements referenced
specifically in this Agreement and executed as required by this Agreement
constitute the entire agreement among the parties hereto and supersede and
cancel any prior agreements, representations, warranties, or communications,
whether oral or written, among the parties hereto relating to the transactions
contemplated hereby or the subject matter herein. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an agreement in writing signed by the party against whom or which the
enforcement of such change, waiver, discharge or termination is sought.
11.10 GOVERNING LAW. Except to the extent the transactions contemplated
hereby are governed by the Delaware Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
<PAGE>
11.11 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.
11.12 NO AGREEMENT UNTIL EXECUTED. This Agreement shall not constitute or
be deemed to evidence a contract or agreement among the parties hereto unless
and until executed by all parties hereto, irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement.
11.13 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.14 EXHIBITS INCORPORATED. All Exhibits attached hereto are an integral
part of this Agreement.
11.15 TIME OF ESSENCE. Time is of the essence in this Agreement.
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement
to be executed on its behalf, all on the day and year first above written.
"PURCHASER":
HBO & COMPANY OF GEORGIA
By: /s/ JAY P. GILBERTSON
----------------------------------
Jay P. Gilbertson,
VICE PRESIDENT -- FINANCE AND
CHIEF FINANCIAL OFFICER
"PARENT":
HBO & COMPANY
By: /s/ JAY P. GILBERTSON
----------------------------------
Jay P. Gilbertson,
VICE PRESIDENT -- FINANCE AND
CHIEF FINANCIAL OFFICER
"ACQUIRED COMPANY":
CLINICOM INCORPORATED
By: /s/ WILLIAM H. BREHM
----------------------------------
William H. Brehm,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 10, 1995 included in this Current Report on Form
8-K of HBO and Company into HBO & Company's previously filed Registration
Statements (Forms S-8 No. 2-75987, 33-39034, 2-92030, 33-12051, 33-67300, 33-
82962, 33-82960, 33-84034, 33-59173.
Arthur Anderson LLP
Denver, Colorado
August 15, 1995
<PAGE>
Exhibit 99(a)
CLINICOM INCORPORATED
SECOND QUARTER 1995
<PAGE>
CLINICOM INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1995 1994
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $ 7,526,326 $ 9,125,593
Trade accounts receivable, net of allowance for
doubtful accounts of $1,150,912 and $716,615,
respectively................................... 18,066,622 16,456,033
Accrued revenue receivable...................... 5,817,788 5,300,541
Inventories..................................... 3,400,577 2,246,107
Prepaid expenses and other...................... 894,808 593,401
------------- --------------
Total current assets.......................... 35,706,121 33,721,675
------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment......................... 737,430 588,757
Leasehold improvements.......................... 576,646 531,507
Manufacturing equipment and tooling............. 1,373,925 1,171,961
Research and development equipment and
software....................................... 3,024,594 2,804,215
------------- --------------
5,712,595 5,096,440
Less -- Accumulated depreciation and
amortization................................... (3,066,363) (2,591,867)
------------- --------------
Property and equipment, net................... 2,646,232 2,504,573
------------- --------------
SOFTWARE DEVELOPMENT COSTS, net................... 1,577,908 1,127,541
PURCHASED SOFTWARE, net........................... 1,912,663 2,153,401
OTHER ASSETS:
Patent costs, net............................... 23,504 26,250
Deposits and other, net......................... 111,135 134,259
------------- --------------
Total other assets............................ 134,639 160,509
------------- --------------
Total Assets...................................... $ 41,977,563 $ 39,667,699
------------- --------------
------------- --------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................ $ 3,541,440 $ 3,546,625
Accrued liabilities............................. 1,694,184 2,365,401
Accrued compensation............................ 385,000 958,224
Commissions payable............................. 88,235 735,157
Warranty and rework reserve..................... 483,859 458,859
Deferred revenue................................ 2,623,155 1,788,797
------------- --------------
Total current liabilities..................... 8,815,873 9,853,063
------------- --------------
COMMITMENTS AND CONTINGENCIES..................... -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000
shares authorized; none issued................. -- --
Common stock, $.001 par value, 30,000,000 shares
authorized; 8,660,807 and 8,561,011 shares
issued at June 30, 1995 and December 31, 1994,
respectively................................... 8,661 8,561
Additional paid-in capital...................... 43,549,876 43,158,027
Accumulated deficit............................. (10,396,847) (13,351,952)
------------- --------------
Total stockholders' equity.................... 33,161,690 29,814,636
------------- --------------
Total liabilities and stockholders equity..... $ 41,977,563 $ 39,667,699
------------- --------------
------------- --------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------- ------------------------
1995 1994 1995 1994
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
SALES:
Net system sales.............. $10,778,425 $6,406,073 $19,450,088 $12,101,916
Client support services....... 1,128,551 788,153 2,320,059 1,506,434
----------- ---------- ----------- -----------
Total Sales................. 11,906,976 7,194,226 21,770,147 13,608,350
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales and support
services..................... 6,315,079 3,413,271 11,428,993 6,656,911
Research and development...... 1,236,227 780,800 2,346,974 1,513,388
Selling and marketing......... 1,418,885 1,234,787 2,758,417 2,316,291
General and administrative.... 1,499,804 598,252 2,381,007 1,175,180
----------- ---------- ----------- -----------
10,469,995 6,027,110 18,915,391 11,661,770
----------- ---------- ----------- -----------
INCOME FROM OPERATIONS.......... 1,436,981 1,167,116 2,854,756 1,946,580
OTHER INCOME (EXPENSE):
Interest income............... 121,078 226,166 261,276 426,286
Interest expense.............. -- -- -- --
Other......................... -- 989 (3,187) 2,289
----------- ---------- ----------- -----------
NET INCOME BEFORE INCOME
TAXES.......................... 1,558,059 1,394,271 3,112,845 2,375,155
PROVISION FOR INCOME TAXES...... 80,000 130,000 157,740 200,000
----------- ---------- ----------- -----------
NET INCOME...................... $ 1,478,059 $1,264,271 $ 2,955,105 $ 2,175,155
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
INCOME PER COMMON SHARE
Primary....................... $ 0.16 $ 0.14 $ 0.33 $ 0.24
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Fully diluted................. $ 0.16 $ 0.14 $ 0.33 $ 0.24
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Primary....................... 9,051,780 8,862,878 9,006,591 8,904,684
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Fully diluted................. 9,051,780 8,862,878 9,007,360 8,907,142
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 2,955,105 $ 2,175,155
Adjustments to reconcile net income to net cash used
in operating activities --
Depreciation and amortization...................... 907,957 399,291
Loss on disposal of assets......................... 3,182 --
Net change to inventory reserve.................... 21,238 4,015
Net change to warranty and rework reserve.......... 25,000 165,703
Decrease (increase) in --
Trade accounts receivable.......................... (1,610,589) (1,160,135)
Accrued revenue receivable......................... (517,247) (1,577,516)
Inventories........................................ (1,204,099) 850,106
Prepaid expenses and other......................... (301,407) 426,482
Deposits, other, and non current accounts
receivable, net................................... (6,876) 860,739
Increase (decrease) in --
Accounts payable................................... (5,185) (205,091)
Accrued liabilities, accrued compensation and
commissions payable............................... (1,891,363) 262,447
Deferred revenue................................... 834,358 (1,703,306)
----------- -----------
Net cash flows from operating activities......... $ (789,926) $ 497,890
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. $ (591,599) $ (596,678)
Patent costs....................................... -- (7,498)
Software development costs......................... (609,691) (325,940)
Acquisition of KSH, Inc............................ -- (2,616,642)
----------- -----------
Net cash flows from investing activities......... (1,201,290) (3,546,758)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock under
employee stock purchase plan...................... 153,243 102,690
Exercise of common stock options................... 238,706 1,038,558
----------- -----------
Net cash flows from financing activities......... 391,949 1,141,248
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.............. (1,599,267) (1,907,620)
CASH AND CASH EQUIVALENTS, beginning of period....... 9,125,593 15,373,156
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............. $ 7,526,326 $13,465,536
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND
NONCASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during period for interest............... $ -- $ --
----------- -----------
----------- -----------
Inventory transferred to property and equipment.... $ 28,391 $ 44,655
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1: PRESENTATION
The accompanying financial information should be read in conjunction with
the audited financial statements and notes thereto for the year ended December
31, 1994 included in the 10-K of CliniCom Incorporated ("CliniCom" or the
"Company"). The financial information as of June 30, 1995 and for the three and
six months ended June 30, 1995 and 1994 is unaudited; however, in the opinion of
management, such information reflects all adjustments (consisting of normal
recurring adjustments) which are necessary for the fair presentation of such
information. The results of operations for the three and six months ended June
30, 1995 are not necessarily indicative of the results for the entire fiscal
year.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1995 1994
---------- ------------
<S> <C> <C>
Finished goods......................................... $2,931,852 $ 1,639,064
Raw materials and components........................... 468,725 607,043
---------- ------------
$3,400,577 $ 2,246,107
---------- ------------
---------- ------------
</TABLE>
NOTE 3: EARNINGS PER SHARE
Earnings per share calculations are based on the daily weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. The dilutive effect of common stock equivalents from stock options
and warrants is based on the treasury stock method using the average market
price for each period or, for fully diluted earnings per share, the closing
stock price for each period if higher.
NOTE 4: PUBLIC OFFERING -- HBO & COMPANY -- MERGER AGREEMENT
On May 5, 1995, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission in anticipation of an offering of
2,000,000 shares of the Company s common stock. Of this offering, 1,000,000
shares were to be sold by the Company and 1,000,000 shares were to be sold by
existing stockholders. Subsequently, on July 14, 1995 the Company entered into a
Merger Agreement with HBO & Company (HBOC), an Atlanta-based health information
systems company. As a result of the pending acquisition of CliniCom by HBOC,
CliniCom has suspended the proposed offering. The acquisition is anticipated to
be completed by mid October.
NOTE 5 KSH SYSTEMS, INC. ACQUISITION
On June 21, 1994, CliniCom purchased substantially all of the assets of KSH
Systems, Inc. The purchase price of $2,619,000 was allocated as follows:
purchased software $2,407,000, other assets $120,000, trade accounts receivable
$62,000 and property and equipment $30,000. The purchased software is being
amortized over five years and other assets is being amortized over two years.
<PAGE>
NOTE 6: MAJOR CUSTOMERS
The following customers accounted for more than 10% of total net sales for
the three and six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------- -------------
1995 1994 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
A...................................................... 19.6% 10.3%
B...................................................... 12.4%
C...................................................... 51.9% 11.0% 53.8% 14.1%
D...................................................... 29.9% 16.4%
E...................................................... 12.3%
F...................................................... 13.9%
G......................................................
H......................................................
I......................................................
</TABLE>
<PAGE>
EXHIBIT 99(b)
CLINICOM INCORPORATED
FIRST QUARTER 1995
<PAGE>
PART I -- FINANCIAL INFORMATION
CLINICOM INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1995 1994
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 8,775,366 $ 9,125,593
Trade accounts receivable, net of allowance for doubtful accounts of $716,615
for each period............................................................. 16,932,168 16,456,033
Accrued revenue receivable................................................... 5,152,345 5,300,541
Inventories.................................................................. 2,471,743 2,246,107
Prepaid expenses and other................................................... 837,360 593,401
--------------- ---------------
Total current assets....................................................... 34,168,982 33,721,675
--------------- ---------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment...................................................... 621,039 588,757
Leasehold improvements....................................................... 567,202 531,507
Manufacturing equipment and tooling.......................................... 1,236,874 1,171,961
Research and development equipment and software.............................. 2,900,653 2,804,215
--------------- ---------------
5,325,768 5,096,440
Less -- Accumulated depreciation and amortization.............................. (2,820,276) (2,591,867)
--------------- ---------------
Property and equipment, net............................................ 2,505,492 2,504,573
--------------- ---------------
SOFTWARE DEVELOPMENT COSTS, net................................................ 1,332,143 1,127,541
PURCHASED SOFTWARE, net........................................................ 2,033,032 2,153,401
OTHER ASSETS:
Patent costs, net............................................................ 24,877 26,250
Deposits and other, net...................................................... 126,759 134,259
--------------- ---------------
Total other assets......................................................... 151,636 160,509
--------------- ---------------
Total assets................................................................... $ 40,191,285 $ 39,667,699
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 2,167,316 $ 3,546,625
Accrued liabilities.......................................................... 2,354,966 2,365,401
Accrued compensation......................................................... 205,700 958,224
Commissions payable.......................................................... 173,582 735,157
Warranty and rework reserve.................................................. 458,859 458,859
Deferred revenue............................................................. 3,305,049 1,788,797
--------------- ---------------
Total current liabilities.................................................. 8,665,472 9,853,063
--------------- ---------------
COMMITMENTS AND CONTINGENCIES.................................................. -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized; none issued..... -- --
Common stock, $.001 par value, 30,000,000 shares authorized; 8,644,641 and
8,561,011 shares issued at March 31, 1995 and December 31, 1994,
respectively.................................................................. 8,645 8,561
Additional paid-in capital..................................................... 43,392,074 43,158,027
Accumulated deficit............................................................ (11,874,906) (13,351,952)
--------------- ---------------
Total stockholders' equity................................................. 31,525,813 29,814,636
--------------- ---------------
Total liabilities and stockholder's equity..................................... $ 40,191,285 $ 39,667,699
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
SALES:
Net system sales.................................................................. $ 8,671,663 $ 5,695,843
Client support services........................................................... 1,191,508 718,281
------------- -------------
Total Sales..................................................................... 9,863,171 6,414,124
------------- -------------
COSTS AND EXPENSES:
Cost of sales and support services................................................ 5,113,914 3,243,640
Research and development.......................................................... 1,110,747 732,588
Selling and marketing............................................................. 1,339,532 1,081,504
General and administrative........................................................ 881,203 576,928
------------- -------------
8,445,396 5,634,660
------------- -------------
INCOME FROM OPERATIONS.............................................................. 1,417,775 779,464
OTHER INCOME (EXPENSE):
Interest income................................................................... 140,198 200,120
Interest expense.................................................................. -- --
Other............................................................................. (3,187) 1,300
------------- -------------
NET INCOME BEFORE INCOME TAXES...................................................... 1,554,786 980,884
PROVISION FOR INCOME TAXES.......................................................... (77,740) (70,000)
------------- -------------
NET INCOME.......................................................................... $ 1,477,046 $ 910,884
------------- -------------
------------- -------------
INCOME PER COMMON SHARE:
Primary........................................................................... $ 0.16 $ 0.10
------------- -------------
------------- -------------
Fully Diluted..................................................................... $ 0.16 $ 0.10
------------- -------------
------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary........................................................................... 8,953,473 8,925,263
------------- -------------
------------- -------------
Fully Diluted..................................................................... 9,046,458 8,927,130
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 1,477,046 $ 910,884
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization................................................. 445,250 180,677
Loss on disposition of assets................................................. 3,182 --
Net change in inventory reserve............................................... -- 18,433
Decrease (increase) in --
Trade accounts receivable..................................................... (476,135) (1,112,335)
Accrued revenue receivable.................................................... 148,196 (1,716,736)
Inventories................................................................... (241,582) 716,140
Prepaid expenses and other.................................................... (243,959) 267,013
Deposits and other, net and noncurrent trade accounts receivable.............. (7,500) 888,138
Increase (decrease) in --
Accounts payable.............................................................. (1,379,309) 112,080
Accrued liabilities, accrued compensation and commissions payable............. (1,324,534) (346,054)
Deferred revenue.............................................................. 1,516,252 (944,756)
Warranty and rework reserve................................................... -- 96,613
-------------- --------------
Net cash flows from operating activities.................................... (83,093) (929,903)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net......................................... (217,001) (258,494)
Patent costs.................................................................... -- (900)
Software development costs...................................................... (284,264) (125,692)
-------------- --------------
Net cash flows from investing activities.................................... (501,265) (385,086)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock options................................................ 234,131 1,139,932
-------------- --------------
Net cash flows from financing activities.................................... 234,131 1,139,932
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. (350,227) (175,057)
CASH AND CASH EQUIVALENTS, beginning of period.................................... 9,125,593 15,373,156
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 8,775,366 $ 15,198,099
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid during period for interest............................................ $ -- $ --
-------------- --------------
-------------- --------------
Inventory transferred to property and equipment................................. $ 15,946 $ 29,582
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1: PRESENTATION
The accompanying financial information should be read in conjunction with
the annual financial statements and notes thereto for the year ended December
31, 1994 included in the Company's 10-K. The financial information as of March
31, 1995 and for the three months ended March 31, 1995 and 1994 is unaudited;
however, in the opinion of management, such information reflects all adjustments
(consisting of normal recurring adjustments) which are necessary for the fair
presentation of such information. The results of operations for the three months
ended March 31, 1995 are not necessarily indicative of the results for the
entire fiscal year.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1995 1994
------------- -------------
<S> <C> <C>
Finished goods............................................... $ 1,247,595 $ 1,639,064
Raw materials and components................................. 1,224,148 607,043
------------- -------------
$ 2,471,743 $ 2,246,107
------------- -------------
------------- -------------
</TABLE>
NOTE 3: EARNINGS PER SHARE
Earnings per share calculations are based on the daily weighted average
number of common and common stock equivalents outstanding during each period.
The dilutive effect of common stock equivalents from stock options and warrants
is based on the treasury stock method using the average market price for each
period or, for fully diluted earnings per share, the closing stock price for
each period if higher.
NOTE 4: PUBLIC OFFERING
On May 5, 1995, the Company filed Form S-3 with the Securities and Exchange
Commission in anticipation of an offering of 2,000,000 shares of the Company s
common stock. Of the total offering, 1,000,000 shares are being sold by certain
existing shareholders and 1,000,000 shares are being sold by the Company. Up to
300,000 additional shares would also be available from existing shareholders to
cover any over-allotments. The Company will not receive any of the proceeds from
the sale of shares by the selling stockholders.
NOTE 5: KSH SYSTEMS, INC. ACQUISITION
On June 21, 1994, CliniCom Incorporated purchased substantially all of the
assets of KSH Systems, Inc. The purchase price of $2,619,277 was allocated as
follows: purchased software $2,407,367, other assets $120,000, trade accounts
receivable $61,910 and property and equipment $30,000. The purchased software is
being amortized over five years and other assets is being amortized over two
years.
NOTE 6: MAJOR CUSTOMERS
The following customers accounted for more than 10% of total net sales for
the three months ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
A............................................................. 56.0% 17.7%
B............................................................. -- 26.4%
C............................................................. -- 25.0%
</TABLE>
<PAGE>
EXHIBIT 99(c)
CLINICOM INCORPORATED
AS OF DECEMBER 31, 1994 AND 1993
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CliniCom Incorporated:
We have audited the accompanying balance sheets of CLINICOM INCORPORATED (a
Delaware corporation) as of December 31, 1994 and 1993, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CliniCom Incorporated as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
Arthur Andersen, LLP
Denver, Colorado,
February 10, 1995
F-1
<PAGE>
CLINICOM INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 9,125,593 $ 15,373,156
Trade accounts receivable, net of allowance for doubtful accounts of $716,615
and $52,124, respectively..................................................... 16,456,033 4,948,016
Accrued revenue receivable..................................................... 5,300,541 2,693,306
Inventories.................................................................... 2,246,107 2,316,400
Prepaid expenses and other..................................................... 593,401 548,358
-------------- --------------
Total current assets..................................................... 33,721,675 25,879,236
-------------- --------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment........................................................ 588,757 371,334
Leasehold improvements......................................................... 531,507 152,458
Manufacturing equipment and tooling............................................ 1,171,961 702,760
Research and development equipment and software................................ 2,804,215 2,058,899
-------------- --------------
5,096,440 3,285,451
Less- Accumulated depreciation and amortization................................ (2,591,867) (1,898,339)
-------------- --------------
2,504,573 1,387,112
-------------- --------------
SOFTWARE DEVELOPMENT COSTS, net.................................................. 1,127,541 589,012
PURCHASED SOFTWARE, net.......................................................... 2,153,401 --
OTHER ASSETS:
Patent costs, net.............................................................. 26,250 24,244
Deposits and other, net........................................................ 134,259 30,284
Noncurrent trade accounts receivable........................................... -- 905,138
-------------- --------------
Total other assets....................................................... 160,509 959,666
-------------- --------------
$ 39,667,699 $ 28,815,026
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 3,546,625 $ 1,036,102
Accrued liabilities............................................................ 2,365,401 976,183
Accrued compensation........................................................... 958,224 637,592
Commissions payable............................................................ 735,157 548,890
Warranty and rework reserve.................................................... 458,859 545,905
Deferred revenue............................................................... 1,788,797 2,833,966
-------------- --------------
Total current liabilities................................................ 9,853,063 6,578,638
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized; none issued or
outstanding................................................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized; 8,561,011 and
8,052,490 shares issued and outstanding, respectively......................... 8,561 8,052
Additional paid-in capital..................................................... 43,158,027 41,068,680
Accumulated deficit............................................................ (13,351,952) (18,840,344)
-------------- --------------
Total stockholders' equity............................................... 29,814,636 22,236,388
-------------- --------------
$ 39,667,699 $ 28,815,026
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-2
<PAGE>
CLINICOM INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
SALES:
Net system sales............................................... $ 31,668,111 $ 18,111,267 $ 12,688,586
Client support services........................................ 3,747,417 2,035,088 1,345,756
-------------- -------------- --------------
35,415,528 20,146,355 14,034,342
-------------- -------------- --------------
COSTS AND EXPENSES:
Cost of sales and support services............................. 18,186,385 9,897,822 7,903,320
Research and development....................................... 3,302,468 2,401,393 1,979,940
Selling and marketing.......................................... 5,045,584 2,772,710 1,947,518
General and administrative..................................... 3,718,725 1,741,569 1,176,005
-------------- -------------- --------------
30,253,162 16,813,494 13,006,783
-------------- -------------- --------------
INCOME FROM OPERATIONS........................................... 5,162,366 3,332,861 1,027,559
OTHER INCOME (EXPENSE):
Interest income................................................ 767,073 266,157 158,084
Interest expense............................................... -- (13,698) (30,370)
Other.......................................................... 3,953 27,854 (10,314)
-------------- -------------- --------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES..................... 5,933,392 3,613,174 1,144,959
PROVISION FOR INCOME TAXES....................................... 445,000 270,000 20,000
-------------- -------------- --------------
NET INCOME....................................................... $ 5,488,392 $ 3,343,174 $ 1,124,959
-------------- -------------- --------------
-------------- -------------- --------------
NET INCOME PER COMMON SHARE:
Primary........................................................ $ .62 $ .41 $ .18
-------------- -------------- --------------
-------------- -------------- --------------
Fully diluted.................................................. $ .62 $ .41 $ .17
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary........................................................ 8,900,982 8,098,628 6,302,470
-------------- -------------- --------------
-------------- -------------- --------------
Fully diluted.................................................. 8,901,514 8,229,592 6,640,044
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-3
<PAGE>
CLINICOM INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK
AND WARRANTS ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- --------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1991............ 4,965,666 $ 4,965 $ 24,316,869 $ (23,308,477) $ 1,013,357
Issuance of 1,750,000 shares of
common stock pursuant to an initial
public offering at $3.6875 per share
on April 27, 1992, net of stock
issuance costs of $1,346,694........ 1,750,000 1,750 5,104,681 -- 5,106,431
Warrants for the purchase of 175,000
common shares issued in conjunction
with the initial public offering.... -- 88 -- -- 88
Net income........................... -- -- -- 1,124,959 1,124,959
----------- --------- -------------- --------------- --------------
BALANCES, December 31, 1992............ 6,715,666 6,803 29,421,550 (22,183,518) 7,244,835
Issuance of 1,150,000 shares of
common stock pursuant to a public
offering at $10.25 per share on July
9, 1993, net of stock issuance costs
of $946,602......................... 1,150,000 1,150 10,839,748 -- 10,840,898
Exercise of all outstanding warrants
on July 9, 1993..................... 175,000 87 774,288 -- 774,375
Exercise of stock options............ 11,824 12 33,094 -- 33,106
Net income........................... -- -- -- 3,343,174 3,343,174
----------- --------- -------------- --------------- --------------
BALANCES, December 31, 1993............ 8,052,490 8,052 41,068,680 (18,840,344) 22,236,388
Exercise of stock options............ 482,339 483 1,371,673 -- 1,372,156
Tax effect of stock options.......... -- -- 445,000 -- 445,000
Issuance of common stock under
employee stock purchase plan........ 26,182 26 272,674 -- 272,700
Net income........................... -- -- -- 5,488,392 5,488,392
----------- --------- -------------- --------------- --------------
BALANCES, December 31, 1994............ 8,561,011 $ 8,561 $ 43,158,027 $ (13,351,952) $ 29,814,636
----------- --------- -------------- --------------- --------------
----------- --------- -------------- --------------- --------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-4
<PAGE>
CLINICOM INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................ $ 5,488,392 $ 3,343,174 $ 1,124,959
Adjustments to reconcile net income to net cash provided by (used for)
operating activities --
Depreciation and amortization..................................... 1,233,204 584,133 353,901
Provision for income taxes........................................ 445,000 -- --
Net change in inventory reserve................................... 251,918 338,484 (140,869)
Loss on disposition of assets..................................... 157 9,485 16,264
Loss on abandonment of patents.................................... -- 13,763 --
Decrease (increase) in --
Trade accounts receivables.......................................... (11,508,017) (2,439,556) (500,509)
Accrued revenue receivable.......................................... (2,545,325) (2,066,975) (603,629)
Inventories......................................................... (344,764) (684,265) (894,495)
Prepaid expenses and other.......................................... (45,043) (351,014) 29,880
Deposits and other, net and noncurrent trade accounts receivable.... 889,496 (911,687) 56,153
Increase (decrease) in --
Accounts payable.................................................... 2,510,523 (108,786) (996,049)
Accrued liabilities, accrued compensation and commissions payable... 1,896,117 1,347,869 304,634
Deferred revenue.................................................... (1,045,169) 1,183,809 336,086
Warranty and rework reserve......................................... (87,046) 321,125 (76,250)
Net change in interest payable on stockholders' notes............... -- (509,826) 10,022
------------ ----------- -----------
Net cash flows provided by (used for) operating activities...... (2,860,557) 69,733 (979,902)
------------ ----------- -----------
INVESTING ACTIVITIES:
(Purchase) sale of short-term investments............................. -- 1,500,681 (1,500,681)
Purchase of property and equipment, net............................... (1,625,861) (673,062) (633,578)
Patent costs.......................................................... (7,498) (4,316) (2,313)
Software development costs............................................ (779,226) (336,688) (163,681)
Decrease in restricted cash........................................... -- -- 42,000
Acquisition of KSH Systems, Inc. assets............................... (2,619,277) -- --
------------ ----------- -----------
Net cash flows provided by (used for) investing activities...... (5,031,862) 486,615 (2,258,253)
------------ ----------- -----------
FINANCING ACTIVITIES:
Repayments of notes payable........................................... $ -- $ (1,576) $ (167,250)
Proceeds from issuance of common stock under employee stock purchase
plan................................................................. 272,700 -- --
Repayments of stockholders' notes payable............................. -- (256,515) --
Deferred offering costs............................................... -- -- 269,099
Issuance of common stock, net of offering costs....................... -- 10,840,898 5,106,431
Issuance and exercise of common stock warrants........................ -- 774,375 88
Exercise of common stock options...................................... 1,372,156 33,106 --
------------ ----------- -----------
Net cash flows provided by financing activities................. 1,644,856 11,390,288 5,208,368
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... (6,247,563) 11,946,636 1,970,213
CASH AND CASH EQUIVALENTS, beginning of year............................ 15,373,156 3,426,520 1,456,307
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of year.................................. $ 9,125,593 $15,373,156 $ 3,426,520
------------ ----------- -----------
------------ ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING
AND FINANCING ACTIVITIES:
Cash paid during the year for interest.............................. $ -- $ 523,524 $ 18,588
------------ ----------- -----------
------------ ----------- -----------
Inventory transferred to property and equipment..................... $ 163,139 $ 37,358 $ 51,031
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-5
<PAGE>
CLINICOM INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) ORGANIZATION AND OPERATIONS
CliniCom Incorporated (the "Company") was incorporated in 1985 and its first
significant sales occurred in 1988. The Company develops, assembles, markets,
installs and supports computer based clinical information systems for use by
healthcare organizations in the management and delivery of patient care.
Clinical information is the data concerning a patient's condition, diagnosis and
treatment used by healthcare providers in rendering care. The Company provides
an information system which facilitates health care planning and enables them to
record, process, communicate and document clinical information and to deliver
documented, efficient and measurable patient care. The Company system is
marketed under the name CliniCom (the "CliniCom system").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues are primarily derived from the sale of the CliniCom
system and software licenses to hospitals and other customers. The CliniCom
system includes the Company's proprietary software and hardware which are
integrated with a variety of computers, terminals and printers manufactured by
various third parties. As part of the sale of a CliniCom system, the Company
provides the hospital with training and implementation services. The Company
also sells additional CliniCom system hardware and software components to
installed sites, in which case additional training and implementation services
are generally not required.
The Company recognizes revenue from system sales and license agreements in
accordance with AICPA Statement of Position 91-1, "Software Revenue
Recognition." Accordingly, revenues are recognized when all components necessary
for a functional system have been delivered, the Company's obligation to provide
training and support services has been substantially completed, remaining
Company obligations, if any, are deemed insignificant, there are no significant
uncertainties with respect to customer acceptance of the products and
collectibility is probable. Revenues from the sale of additional hardware and
software are recognized upon shipment, provided that no significant obligations
for additional training and implementation services exist. Revenues from ongoing
maintenance and support are billed monthly or semi-annually and are recognized
in the applicable service month.
Customer payment terms vary. Amounts collected or due prior to satisfying
the above revenue recognition criteria are reflected as deferred revenue in the
accompanying balance sheets. Related costs incurred are also deferred and
charged to costs and expenses when the deferred revenue amounts are recognized.
Accrued revenue receivable represents amounts earned and recognized but not yet
invoiced to customers per terms of the related contracts.
CASH AND CASH EQUIVALENTS
For financial statement purposes, the Company considers all highly liquid
cash investments with maturity dates of three months or less to be considered
cash equivalents.
INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or market,
and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Finished goods.................................................. $ 1,639,064 $ 828,351
Raw materials and components.................................... 607,043 1,488,049
------------- -------------
$ 2,246,107 $ 2,316,400
------------- -------------
------------- -------------
</TABLE>
F-6
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred. Major additions, replacements and improvements
are capitalized. Depreciation of property and equipment is provided using the
straight-line method over estimated useful lives ranging from three to five
years.
SOFTWARE DEVELOPMENT COSTS
Costs to produce software products are capitalized only after a detail
program design free of high-risk development issues has been developed.
Capitalization ends when the product is ready for general release. Considerable
judgment by management is required to assess the technological feasibility of
software under development, potential future sales of products produced, and
recoverability of capitalized costs. Amortization of software development costs
on a product-by-product basis commences when a product is ready for release and
is provided using the straight-line method over three years. Amortization
expense recognized was $240,697, $146,859 and $55,070 for 1994, 1993 and 1992,
respectively.
PURCHASED SOFTWARE
Purchased software was acquired in conjunction with the purchase of certain
assets of KSH Systems, Inc. (see Note 8). Amortization of purchased software is
provided using the straight-line method over five years. Amortization expense
recognized was $253,966 for 1994.
PATENT COSTS
Legal costs incurred in connection with filing patent claims are capitalized
as patent costs. Upon receiving a determination as to whether the Company's
claims have been approved or denied, these costs are either amortized over their
estimated useful lives of three years or expensed.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. These costs consist
primarily of salaries, supplies and depreciation of equipment and software used
for research and development.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") effective January 1, 1992. This
change in accounting principle had no cumulative effect on net income (see Note
7).
Under SFAS No. 109, the current provision for income taxes represents actual
or estimated amounts payable or refundable on tax returns filed or to be filed
for each year. Deferred tax assets and liabilities are recorded for the
estimated future tax effects of: (a) temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying balance
sheets, and (b) operating loss and tax credit carryforwards. The overall change
in deferred tax assets and liabilities for the period measures the deferred tax
expense (benefit) for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustments to tax expense
in the period of enactment. The measurement of deferred tax assets may be
reduced by a valuation allowance based on judgmental assessment of available
evidence if deemed more likely than not that some or all of the deferred tax
assets will not be realized.
NET INCOME PER COMMON SHARE
Primary net income per common share has been computed based upon the
weighted average number of common stock and common stock equivalents outstanding
during each period. Common stock equivalents recognize the potential dilutive
effects of the future exercise of common stock options and warrants (see Note
5). The dilutive effects of common stock options and warrants are based on the
average market price of common stock for the period during which the options
were outstanding.
F-7
<PAGE>
For fully diluted net income per common share, common stock equivalent
calculations are based on the market price at the end of the period if greater
than the average price for the period and stock options and warrants exercised
during the period are treated as outstanding for the entire period.
(3) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its office and production facilities. Rentals include
operating and maintenance charges which are periodically adjusted to reflect
actual costs. Rental expense for 1994, 1993 and 1992 was $426,755, $238,250 and
$241,440, respectively. Future minimum rentals under these leases are as
follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
1995................................................................. $ 444,000
1996................................................................. 467,000
1997................................................................. 461,000
1998................................................................. 95,000
1999................................................................. --
-------------
$ 1,467,000
-------------
-------------
</TABLE>
The Company sublet a portion of its leased space during 1993 and received
rental income of approximately $37,000. This space is no longer sublet.
LEGAL MATTERS
An entity unrelated to the Company has claimed the name "CliniCom" infringes
on the name of that entity and threatened to initiate litigation unless the
Company discontinued use of such name. In response, the Company initiated a
declaratory judgment action in the United States District Court for the District
of Colorado, in part to establish jurisdiction over the matter in Colorado. The
Company proceeded with the litigation in 1994 and intends to vigorously defend
its right to use the name CliniCom and, in any event, does not believe this
matter will ultimately have a materially adverse effect on its operating results
or financial condition.
Additionally, the Company is exposed to asserted and unasserted legal claims
encountered in the normal course of business. Management believes that the
ultimate resolution of these matters will not have a material adverse effect on
the operating results or the financial position of the Company.
EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) plan which is available to all
eligible employees. Under the 401(k) Plan, company contributions are made at the
discretion of the board of directors. No matching contributions were made by the
Company for 1994, 1993 or 1992.
EXECUTIVE RETENTION PLAN
The Company has an Executive Retention Plan with selected officers which
provides for certain payments and continuation of benefits should an officer
terminate employment as defined by the Executive Retention Plan.
(4) STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 5,000,000 shares of $.001 par value, preferred
stock which may be issued in one or more series with such powers, rights and
preferences as the board of directors may determine.
Series A preferred shares issued in 1990 and 1991 were mandatorily converted
to common stock on June 27, 1991, when Series B preferred shares were issued.
The Series B preferred shares were subsequently converted to common stock at the
effective date of the Company's initial public offering.
F-8
<PAGE>
These conversions have been given retroactive effect to the dates of issuance of
the preferred stock in determining all common share and per common share amounts
reflected in the accompanying financial statements.
COMMON STOCK
The Company effected certain reverse splits of its common stock in 1991 and
1992, prior to its initial public offering. A stock dividend in the form of a
two for one stock split was declared in 1993. All common share and per common
share amounts reflected in the accompanying financial statements and notes give
retroactive effect to these stock splits.
In April 1992, the Company received approximately $5.1 million in net
proceeds from a public offering of its common stock. In July 1993, the Company
received approximately $10.8 million in net proceeds from an additional public
offering of its common stock.
STOCKHOLDERS' NOTES AND INTEREST PAYABLE
In 1991 and prior years, investors loaned money to the Company evidenced by
demand notes with interest at 10% per annum. At December 31, 1992, the balance
was $766,341 and was due on demand, but not before June 30, 1993. These notes
and accrued interest were paid in full in July 1993. Interest expense includes
$13,494 and $11,756 in 1993 and 1992, respectively, related to these
stockholders' notes.
(5) STOCK OPTIONS AND WARRANTS
WARRANTS
The underwriter for the Company's initial public offering was issued
warrants, for a nominal price, to purchase an aggregate of 175,000 shares of
common stock at a price per share of $4.425. These warrants were exercised at
the time of the Company's public offering in July 1993.
STOCK OPTION PLAN
The Company has adopted two stock option plans (the First Plan and the
Second Plan). The First Plan provides for the grant of either incentive or
nonqualified options to purchase common stock to officers and employees of the
Company. The total number of shares subject to issuance under the First Plan is
1,620,000 shares. The option price of stock options granted under the First Plan
is determined by the Company's board of directors and is generally not less than
the fair market value of the stock at the date of grant.
The number and terms of options granted under the First Plan are determined
by the board of directors when granted. Options granted under the First Plan are
exercisable for a period determined by the board of directors but not more than
ten years following the date of grant. The options granted in 1991 and still
outstanding are 100% vested at December 31, 1994. The options granted in 1993
vest as follows: 31.25% on the grant date and 6.25% on the last day of each
fiscal quarter, beginning December 31, 1993 and ending June 30, 1996. Of the
options granted in 1994, 365,000 vest as follows: 25% on each anniversary date
until fully vested. The remaining 60,050 options granted in 1994 vest as
F-9
<PAGE>
follows: 25% at the grant date; 12.5% on the last day of June and December
beginning June 30, 1994, and ending December 31, 1996. The following summarizes
activity in the First Plan during 1994, 1993 and 1992:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
----------- ----------------
<S> <C> <C>
Granted in 1991 and outstanding at December 31, 1991.................... 821,334 $ 2.80
Canceled.............................................................. (3,060) 2.80
----------- ----------------
Outstanding at December 31, 1992........................................ 818,274 2.80
Granted............................................................... 240,000 14.50
Canceled.............................................................. (5,338) 2.80
Exercised............................................................. (11,824) 2.80
----------- ----------------
Outstanding at December 31, 1993........................................ 1,041,112 2.80-14.50
Granted............................................................... 425,050 13.875-19.75
Canceled.............................................................. (4,417) 19.75
Exercised............................................................. (469,839) 2.80-14.50
----------- ----------------
Outstanding at December 31, 1994........................................ 991,906 $ 2.80-$19.75
----------- ----------------
----------- ----------------
Exercisable at December 31, 1994........................................ 509,115 $ 2.80-$19.75
----------- ----------------
----------- ----------------
</TABLE>
The Second Plan provides for the grant of nonqualified options to purchase
up to 100,000 shares of common stock to nonemployee directors of the Company.
The option price of shares granted under the Second Plan is the fair market
value of the common stock on the date of grant. The Second Plan provides that
each existing nonemployee director at the time the Second Plan was adopted and
all future nonemployee directors will receive options to purchase 10,000 shares
initially and 2,000 shares of common stock upon reelection to the board of
directors. The terms of the options granted are determined by a committee
appointed by the board of directors. An option shall expire no later than five
years after the date it was granted. Options issued under the Second Plan vest
at the rate of 50% of the total number of shares on the date of grant and 12.5%
annually thereafter. The following summarizes activity in the Second Plan during
1994, 1993 and 1992:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE PER SHARE
----------- ---------------
<S> <C> <C>
Outstanding at December 31, 1991........................................... -- $ --
Granted.................................................................. 50,000 3.60-3.66
----------- ---------------
Outstanding at December 31, 1992........................................... 50,000 3.60-3.66
Granted.................................................................. 10,000 10.00
----------- ---------------
Outstanding at December 31, 1993........................................... 60,000 3.60-10.00
Granted.................................................................. 10,000 13.88
Canceled................................................................. (3,750) 3.60
Exercised................................................................ (12,500) 3.60-3.66
----------- ---------------
Outstanding at December 31, 1994........................................... 53,750 $ 3.66-$13.88
----------- ---------------
----------- ---------------
Exercisable at December 31, 1994 35,000 $ 3.66-$13.88
----------- ---------------
----------- ---------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In March 1993, the Company's board of directors approved an Employee Stock
Purchase Plan (the Plan). The Plan authorizes the issuance of up to 200,000
shares of common stock for purchase by the Plan's participants, as defined, and
is intended to qualify as an Employee Stock Purchase Plan within the meaning of
Section 423 of the Internal Revenue Code. Payroll deductions are made from
participating employees' salaries to automatically purchase shares of common
stock on the last day of
F-10
<PAGE>
the purchase period, as defined. All amounts withheld from employees' salaries
through December 31, 1994, are reflected in stockholders' equity. As of December
31, 1994, 173,818 shares of common stock are available to be issued under the
Plan.
(6) MAJOR CUSTOMERS
Because of the high price of the CliniCom system relative to total Company
revenues to date, sales to various customers have accounted for more than 10% of
total net sales for 1994, 1993 and 1992 as shown below:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
CUSTOMER 1994 1993 1992
------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
A...................................................... 29.2% 19.3% --
B...................................................... -- -- 13.5%
C...................................................... -- -- 11.8%
</TABLE>
In December 1993, the Company entered into a three-year mutually exclusive
license and distribution agreement with HBO & Company of Georgia ("HBOC"), a
leading healthcare information systems company, whereby HBOC agreed to
distribute certain Company software to new and existing HBOC customers who
require nursing application software. The sale and delivery to HBOC of a
software master license for sublicensing to then existing HBOC customers
represented 19% of total 1993 revenues. HBOC purchases software, hardware and
installation and support services from the Company. Total 1994 revenues
attributable to the HBOC agreement were approximately 29% of sales for the
period. As of December 31, 1994, accrued revenues and receivables from HBOC were
approximately $12,054,000.
(7) INCOME TAXES
As of December 31, 1994, the Company had approximately $12,700,000 of net
operating loss carryovers for tax purposes. Utilization of the carryovers is
subject to limitations for federal alternative minimum tax purposes. Further,
the Company has approximately $750,000 of research and development and
alternative minimum tax credits available to offset future federal tax. The net
operating loss and credit carryovers expire through 2009 and are subject to
examination by tax authorities.
A greater than 50% change in ownership within a three year period results in
an annual limitation on a company's ability to utilize net operating loss
("NOL") carryforwards from tax periods prior to the ownership change. Such a
change in ownership occurred with respect to the Company in February 1988.
Restrictions have lapsed for all but approximately $685,000 of such restricted
NOL. Remaining restrictions will lapse in 1995.
In adopting SFAS No. 109, the Company determined that approximately
$6,900,000 of previously unrecognized deferred tax assets as of January 1, 1992,
did not satisfy the realization criteria set forth in the standard. Accordingly,
a valuation allowance was recorded equal to aggregate net deferred tax assets.
Realization of these benefits depends on future taxable income, the attainment
of which, is uncertain. Accordingly, no cumulative adjustment to income was made
upon adoption of SFAS No. 109.
F-11
<PAGE>
The Company's deferred tax assets and liabilities at December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Deferred tax assets --
Depreciation differences................................. $ 40,000 $ 70,000
Deferred revenue......................................... 96,000 964,000
Allowance for doubtful accounts.......................... 274,000 16,000
Inventory reserves....................................... 415,000 439,000
Accrued expenses not yet deductible for tax.............. 329,000 166,000
Net operating loss carryforwards......................... 4,860,000 3,525,000
Tax credit carryforwards................................. 750,000 670,000
Other.................................................... 17,000 25,000
-------------- --------------
6,781,000 5,875,000
-------------- --------------
Deferred tax liabilities --
Software development costs............................... (431,000) (200,000)
-------------- --------------
Net deferred tax assets.................................... 6,350,000 5,675,000
Less -- Valuation allowance................................ (6,350,000) (5,675,000)
-------------- --------------
$ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
Although the Company achieved profitability for the third consecutive year
in fiscal 1994, management believes the Company must continue to generate
profits for at least another year before sufficient evidence exists to conclude
that the Company's deferred tax assets are realizable. As such, an adjustment to
the valuation allowance was recorded in 1994 to maintain the valuation allowance
sufficient to offset the aggregate net deferred tax assets.
The components of the provision for federal income taxes attributable to
income from operations as of December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Current --
Federal (alternative minimum tax)........................ $ 120,000 $ 110,000
State.................................................... 325,000 160,000
Deferred (change in net deferred assets)................. 1,523,000 961,000
Adjustment to valuation allowance........................ (1,523,000) (961,000)
-------------- --------------
Income tax expense......................................... $ 445,000 $ 270,000
-------------- --------------
-------------- --------------
</TABLE>
F-12
<PAGE>
A reconciliation of income tax provision computed by applying the Federal
income tax rate of 34% to net income as of December 31, 1994 and 1993,
respectively is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1994 1993
-------------- -------------
<S> <C> <C>
Computed normal tax provision............................... $ 2,017,000 $ 1,228,000
Tax effect of permanent differences......................... 53,000 53,000
Alternative minimum tax..................................... 120,000 110,000
State taxes, net of federal tax benefit..................... 204,000 106,000
Increase in tax credit carryforwards........................ (254,000) (270,000)
Decrease in valuation allowance related to amounts reported
in consolidated income..................................... (1,523,000) (961,000)
Other....................................................... (172,000) 4,000
-------------- -------------
Income tax expense.......................................... 445,000 270,000
-------------- -------------
Tax effect of deductions for stock option compensation...... (2,653,000) --
Increase in valuation allowance for portion of NOL
representing stock option compensation..................... 2,208,000 --
-------------- -------------
Tax effect of stock options credited to additional paid-in
capital.................................................. (445,000) --
-------------- -------------
Total provision for income taxes........................ $ -- $ 270,000
-------------- -------------
-------------- -------------
</TABLE>
The Company will claim tax deductions of approximately $6,300,000 for 1994
related to taxable stock option compensation not charged against reported
earnings. For 1994, the related tax benefit recognized and included in
additional paid-in capital was limited to income tax expense applicable to
operations. These deductions form a part of the Company's NOL carryforward and
related deferred tax asset, against which a valuation allowance has been
provided. Future reversals of this portion of the valuation allowance,
approximately $2,000,000, will be added to additional paid-in capital. Reversals
of the remainder of the valuation allowance will reduce future income tax
expense.
(8) KSH SYSTEMS, INC. ACQUISITION
On June 21, 1994, the Company purchased substantially all of the assets of
KSH Systems, Inc. The acquisition was accounted for in accordance with the
purchase method of accounting for business combinations and, accordingly, the
results of operations of KSH Systems, Inc. are included in the financial
statements from the date of the purchase. The purchase price of $2,619,277 was
allocated as follows: purchased software of $2,407,367, other assets of
$120,000, trade accounts receivable of $61,910 and property and equipment of
$30,000. The purchased software is being amortized over five years (see Note 2).
F-13
<PAGE>
(9) UNAUDITED SUPPLEMENTARY DATA
The following is a summary of selected quarterly financial information:
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------
THREE MONTHS ENDED
----------------------------------------------------------- YEAR ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 6,414,124 $ 7,194,226 $ 6,529,962 $ 15,277,216 $ 35,415,528
Gross profit....................... $ 3,170,484 $ 3,780,955 $ 2,867,006 $ 7,410,698 $ 17,229,143
Income from continuing
operations........................ $ 779,464 $ 1,167,116 $ 151,018 $ 3,064,768 $ 5,162,366
Net income applicable to common
stock............................. $ 910,884 $ 1,264,271 $ 291,266 $ 3,021,971 $ 5,488,392
Net income per common share........ $ 0.10 $ 0.14 $ 0.04 $ 0.34 $ 0.62
Weighted average shares
outstanding....................... 8,927,130 8,862,878 8,928,428 8,832,618 8,901,514
</TABLE>
<TABLE>
<CAPTION>
1993
----------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------- YEAR ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 4,070,625 $ 4,824,674 $ 5,757,787 $ 5,493,269 $ 20,146,355
Gross profit......................... $ 1,806,220 $ 2,228,907 $ 2,863,253 $ 3,350,153 $ 10,248,533
Income from continuing operations.... $ 336,137 $ 671,519 $ 1,050,644 $ 1,274,561 $ 3,332,861
Net income applicable to common
stock............................... $ 332,662 $ 661,193 $ 1,032,068 $ 1,317,251 $ 3,343,174
Net income per common share.......... $ 0.05 $ 0.09 $ 0.12 $ 0.15 $ 0.41
Weighted average shares
outstanding......................... 7,365,054 7,453,324 8,763,823 8,873,141 8,229,592
</TABLE>
F-14
<PAGE>
EXHIBIT 99(d)
CLINICOM INCORPORATED
THIRD QUARTER 1994
<PAGE>
PART I -- FINANCIAL INFORMATION
CLINICOM INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1994 1993
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 12,210,462 $ 15,373,156
Trade accounts receivable.................................................... 7,146,394 4,948,016
Accrued revenue receivable................................................... 5,111,661 2,693,306
Inventories.................................................................. 3,965,556 2,316,400
Prepaid expenses............................................................. 190,476 548,358
--------------- ---------------
Total current assets....................................................... 28,624,549 25,879,236
--------------- ---------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment...................................................... 559,545 371,334
Leasehold improvements....................................................... 373,897 152,458
Manufacturing equipment and tooling.......................................... 1,058,438 702,760
Research and development equipment and software.............................. 2,537,061 2,058,899
--------------- ---------------
4,528,941 3,285,451
Less -- Accumulated depreciation and amortization............................ (2,366,786) (1,898,339)
--------------- ---------------
2,162,155 1,387,112
--------------- ---------------
INTERNAL SOFTWARE DEVELOPMENT COSTS, net....................................... 1,016,858 589,012
PURCHASED SOFTWARE, net........................................................ 2,273,770 --
--------------- ---------------
OTHER ASSETS:
Patent costs, net............................................................ 27,623 24,244
Deposits and other, net...................................................... 150,436 30,284
Non current trade accounts receivable........................................ -- 905,138
--------------- ---------------
Total other assets......................................................... 178,059 959,666
--------------- ---------------
$ 34,255,391 $ 28,815,026
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,099,566 $ 1,036,102
Accrued liabilities.......................................................... 1,498,436 976,183
Accrued compensation......................................................... 728,224 637,592
Commissions payable.......................................................... 250,161 548,890
Warranty and rework reserve.................................................. 691,774 545,905
Deferred revenue............................................................. 1,776,487 2,833,966
--------------- ---------------
Total current liabilities.................................................. 8,044,648 6,578,638
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized; none issued... -- --
Common stock, $.001 par value, 30,000,000 shares authorized; 8,546,367 and
8,052,490 shares issued at September 30, 1994 and December 31, 1993,
respectively................................................................ 8,546 8,052
Additional paid-in capital................................................... 42,576,120 41,068,680
Accumulated deficit.......................................................... (16,373,923) (18,840,344)
--------------- ---------------
Total stockholders' equity................................................. 26,210,743 22,236,388
--------------- ---------------
$ 34,255,391 $ 28,815,026
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------------- ------------------------------
1994 1993 1994 1993
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
SALES:
Net system sales................................. $ 5,370,162 $ 5,222,094 $ 17,472,078 $ 13,218,867
Client support services.......................... 1,159,800 535,693 2,666,234 1,434,219
------------- ------------- -------------- --------------
6,529,962 5,757,787 20,138,312 14,653,086
------------- ------------- -------------- --------------
COSTS AND EXPENSES:
Cost of sales and support services............... 3,662,956 2,894,534 10,319,867 7,754,706
Research and development......................... 835,731 622,102 2,349,119 1,700,387
Selling and marketing............................ 1,071,194 793,447 3,387,485 1,900,902
General and administrative....................... 809,063 397,060 1,984,243 1,238,793
------------- ------------- -------------- --------------
6,378,944 4,707,143 18,040,714 12,594,788
------------- ------------- -------------- --------------
INCOME FROM OPERATIONS............................. 151,018 1,050,644 2,097,598 2,058,298
OTHER INCOME (EXPENSE):
Interest income.................................. 162,248 83,473 588,534 151,407
Interest expense................................. -- (774) -- (13,698)
Other............................................ -- 5,725 2,289 16,916
------------- ------------- -------------- --------------
NET INCOME BEFORE INCOME TAXES..................... 313,266 1,139,068 2,688,421 2,212,923
PROVISION FOR INCOME TAXES......................... (22,000) (107,000) (222,000) (187,000)
------------- ------------- -------------- --------------
NET INCOME......................................... $ 291,266 $ 1,032,068 $ 2,466,421 $ 2,025,923
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
INCOME PER COMMON SHARE
Primary.......................................... $ 0.03 $ 0.12 $ 0.28 $ 0.26
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Fully diluted.................................... $ 0.03 $ 0.12 $ 0.28 $ 0.26
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary.......................................... 8,926,891 8,736,662 8,918,029 7,796,399
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Fully diluted.................................... 8,928,428 8,763,823 8,918,757 7,881,417
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 2,466,421 $ 2,025,923
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization...................................................... 766,009 406,452
Loss on disposal of assets......................................................... -- 9,485
Additions to inventory reserve..................................................... 4,015 323,930
Loss on abandonment of patents..................................................... -- 13,763
Additions to warranty reserve...................................................... 165,703 356,411
Increase in stockholders' notes and interest payable............................... -- 13,494
Decrease (increase) in --
Trade accounts receivable.......................................................... (2,198,378) (2,691,636)
Accrued revenue receivable......................................................... (2,356,445) (1,754,232)
Inventories........................................................................ (1,722,499) (61,539)
Prepaid expenses................................................................... 357,882 68,671
Deposits, other, and non current accounts receivable............................... 888,319 (6,549)
Increase (decrease) in --
Accounts payable................................................................... 2,063,464 (168,137)
Accrued liabilities................................................................ 314,156 485,749
Warranty reserve................................................................... (19,834) (56,529)
Deferred revenue................................................................... (1,057,479) (1,060,803)
----------- -----------
Net cash flows from operating activities......................................... $ (328,666) $(2,095,547)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................................... $(1,144,161) $ (579,278)
Patent costs......................................................................... (7,498) (1,799)
Internal software development costs.................................................. (571,026) (237,899)
Short-term investments............................................................... -- 1,500,681
Proceeds from sale of fixed assets................................................... -- 31,150
Acquisition of KSH Systems, Inc...................................................... (2,619,277) --
----------- -----------
Net cash flows from investing activities........................................... (4,341,962) 712,855
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable.......................................................... -- (1,576)
Payment of stockholders' notes and interest payable.................................. -- (779,835)
Issuance of common stock, net of offering costs...................................... -- 10,840,897
Proceeds from exercise of warrants................................................... -- 774,375
Exercise of common stock options and employee stock purchases........................ 1,507,934 31,707
----------- -----------
Net cash flows from financing activities........................................... 1,507,934 10,865,568
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................ (3,162,694) 9,482,876
CASH AND CASH EQUIVALENTS, beginning of period......................................... 15,373,156 3,426,520
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............................................... $12,210,462 $12,909,396
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING AND FINANCING
ACTIVITIES:
Cash paid during period for interest................................................. -- $ 523,524
----------- -----------
----------- -----------
Inventory transferred to property and equipment...................................... $ 69,326 $ 31,742
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1: PRESENTATION
The accompanying financial information should be read in conjunction with
the annual financial statements and notes thereto for the year ended December
31, 1993 included in the Company's 10-K. The financial information as of
September 30, 1994 and for the three and nine months ended September 30, 1994
and 1993 is unaudited; however, in the opinion of management, such information
reflects all adjustments (consisting of normal recurring adjustments) which are
necessary for the fair presentation of such information. The results of
operations for the three and nine months ended September 30, 1994 are not
necessarily indicative of the results for the entire fiscal year.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1994 1993
------------- -------------
<S> <C> <C>
Finished goods.................................................. $ 2,698,818 $ 828,351
Raw materials and components.................................... 1,266,738 1,488,049
------------- -------------
$ 3,965,556 $ 2,316,400
------------- -------------
------------- -------------
</TABLE>
NOTE 3: EARNINGS PER SHARE
Earnings per share calculations are based on the daily weighted average
number of common and common stock equivalents outstanding during each period.
The dilutive effect of common stock equivalents from stock options and warrants
is based on the treasury stock method using the average market price for each
period or, for fully diluted earnings per share, the closing stock price for
each period if higher.
NOTE 4: PUBLIC OFFERING
In July, 1993, the Company completed a stock offering. In conjunction with
this offering, all outstanding common stock purchase warrants were exercised.
This increased the number of shares of common stock outstanding by 662,500.
Subsequently, the exercise of common stock options has increased the number of
common shares outstanding to 8,546,367.
NOTE 5: KSH SYSTEMS, INC. ACQUISITION
On June 21, 1994, CliniCom Incorporated purchased substantially all of the
assets of KSH Systems, Inc. The purchase price of $2,619,277 was allocated as
follows: purchased software $2,407,367, other assets $120,000, trade accounts
receivable $61,910 and property and equipment $30,000. The purchased software is
being amortized over five years and other assets is being amortized over two
years.
<PAGE>
NOTE 6: MAJOR CUSTOMERS
The following customers accounted for more than 10% of total net sales for
the three and nine months ended September 30, 1994 and 1993:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A................................ 24.9% 17.6%
B................................ 15.8%
C................................ 10.0%
D................................ 25.8%
E................................ 24.5%
F................................ 12.6%
G................................ 11.2%
H................................ 10.9%
I................................
</TABLE>
<PAGE>
EXHIBIT 99(e)
CLINICOM INCORPORATED
SECOND QUARTER 1994
<PAGE>
PART 1 -- FINANCIAL INFORMATION
CLINICOM INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 13,465,536 $ 15,373,156
Trade accounts receivable................................................. 6,170,061 4,948,016
Accrued revenue receivable................................................ 4,270,822 2,693,306
Inventories............................................................... 1,417,624 2,316,400
Prepaid expenses.......................................................... 121,876 548,358
--------------- ---------------
Total current assets.................................................... 25,445,919 25,879,236
--------------- ---------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment................................................... 487,322 371,334
Leasehold improvements.................................................... 193,719 152,458
Manufacturing equipment and tooling....................................... 965,684 702,760
Research and development equipment and software........................... 2,310,060 2,058,899
--------------- ---------------
3,956,785 3,285,451
Less -- Accumulated depreciation and amortization......................... (2,184,403) (1,898,339)
--------------- ---------------
1,772,382 1,387,112
--------------- ---------------
INTERNAL SOFTWARE DEVELOPMENT COSTS, net.................................... 819,498 589,012
--------------- ---------------
PURCHASED SOFTWARE, net..................................................... 2,391,372 --
--------------- ---------------
OTHER ASSETS:
Patent costs, net......................................................... 28,997 24,244
Deposits and other, net................................................... 193,010 30,284
Non current trade accounts receivable..................................... -- 905,138
--------------- ---------------
Total other assets...................................................... 222,007 959,666
--------------- ---------------
$ 30,651,178 $ 28,815,026
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 831,011 $ 1,036,102
Accrued liabilities....................................................... 1,467,796 976,183
Accrued compensation...................................................... 723,224 637,592
Commissions payable....................................................... 234,092 548,890
Warranty and rework reserve............................................... 711,608 545,905
Deferred revenue.......................................................... 1,130,660 2,833,966
--------------- ---------------
Total current liabilities............................................... 5,098,391 6,578,638
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized; none
issued................................................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized; 8,443,860 and
8,052,490 shares issued at June 30, 1994 and December 31, 1993,
respectively............................................................. 8,444 8,052
Additional paid-in capital................................................ 42,209,532 41,068,680
Accumulated deficit....................................................... (16,665,189) (18,840,344)
--------------- ---------------
Total stockholders' equity.............................................. 25,552,787 22,236,388
--------------- ---------------
$ 30,651,178 $ 28,815,026
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------------- -----------------------------
1994 1993 1994 1993
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
SALES:
Net system sales.................................. $ 6,406,073 $ 4,345,263 $ 12,101,916 $ 7,996,773
Client support services........................... 788,153 479,411 1,506,434 898,526
------------- ------------- -------------- -------------
7,194,226 4,824,674 13,608,350 8,895,299
------------- ------------- -------------- -------------
COSTS AND EXPENSES:
Cost of sales and support services................ 3,413,271 2,595,767 6,656,911 4,860,172
Research and development.......................... 780,800 557,047 1,513,388 1,078,285
Selling and marketing............................. 1,234,787 593,071 2,316,291 1,107,455
General and administrative........................ 598,252 407,270 1,175,180 841,733
------------- ------------- -------------- -------------
6,027,110 4,153,155 11,661,770 7,887,645
------------- ------------- -------------- -------------
INCOME FROM OPERATIONS.............................. 1,167,116 671,519 1,946,580 1,007,654
OTHER INCOME (EXPENSE):
Interest income................................... 226,166 30,805 426,286 67,934
Interest expense.................................. -- (6,395) -- (12,924)
Other............................................. 989 10,264 2,289 11,191
------------- ------------- -------------- -------------
NET INCOME BEFORE INCOME TAXES...................... 1,394,271 706,193 2,375,155 1,073,855
PROVISION FOR INCOME TAXES.......................... 130,000 45,000 200,000 80,000
------------- ------------- -------------- -------------
NET INCOME.......................................... $ 1,264,271 $ 661,193 $ 2,175,155 $ 993,855
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
INCOME PER COMMON SHARE
Primary........................................... $ 0.14 $ 0.09 $ 0.24 $ 0.13
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Fully diluted..................................... $ 0.14 $ 0.09 $ 0.24 $ 0.13
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary........................................... 8,862,878 7,410,564 8,904,684 7,389,204
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Fully diluted..................................... 8,862,878 7,453,324 8,907,142 7,453,308
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 2,175,155 $ 993,855
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization................................................ 399,291 261,304
Loss on disposal of assets................................................... -- 4,890
Additions to inventory reserve............................................... 4,015 224,689
Loss on abandonment of patents............................................... -- 13,763
Additions to warranty reserve................................................ 165,703 169,321
Increase in stockholders' notes and interest payable......................... -- 12,720
Decrease (increase) in --
Trade accounts receivable.................................................... (1,160,135) (632,768)
Accrued revenue receivable................................................... (1,577,516) (1,603,117)
Inventories.................................................................. 850,106 (148,499)
Prepaid expenses............................................................. 426,482 45,562
Deposits, other, and non current accounts receivable......................... 860,739 (5,248)
Increase (decrease) in --
Accounts payable............................................................. (205,091) 750,813
Accrued liabilities.......................................................... 262,447 224,671
Warranty reserve............................................................. -- (47,266)
Deferred revenue............................................................. (1,703,306) (802,176)
-------------- --------------
Net cash flows from operating activities................................... $ 497,890 $ (537,486)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................. $ (596,678) $ (259,259)
Patent costs................................................................... (7,498) (1,585)
Internal software development costs............................................ (325,940) (166,965)
Short-term investments......................................................... -- 1,500,681
Acquisition of KSH, Inc........................................................ (2,616,642) --
-------------- --------------
Net cash flows from investing activities................................... (3,546,758) 1,072,872
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable.................................................... -- (1,576)
Change in interest receivable.................................................. -- (304,254)
Exercise of common stock options and employee stock purchases.................. 1,141,248 -- --
-------------- --------------
Net cash flows from financing activities................................... 1,141,248 (305,830)
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................................... (1,907,620) 229,556
CASH AND CASH EQUIVALENTS, beginning of period................................... 15,373,156 3,426,520
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 13,465,536 $ 3,656,076
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid during period for interest........................................... -- $ 203
-------------- --------------
-------------- --------------
Inventory transferred to property and equipment................................ $ 44,655 $ 16,479
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE 1: PRESENTATION
The accompanying financial information should be read in conjunction with
the annual financial statements and notes thereto for the year ended December
31, 1993 included in the Company's 10-K. The financial information as of June
30, 1994 and for the three and six months ended June 30, 1994 and 1993 is
unaudited; however, in the opinion of management, such information reflects all
adjustments (consisting of normal recurring adjustments) which are necessary for
the fair presentation of such information. The results of operations for the
three and six months ended June 30, 1994 are not necessarily indicative of the
results for the entire fiscal year.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
------------- -------------
<S> <C> <C>
Finished goods.................................................. $ 389,691 $ 828,351
Raw materials and components.................................... 1,027,933 1,488,049
------------- -------------
$ 1,417,624 $ 2,316,400
------------- -------------
------------- -------------
</TABLE>
NOTE 3: EARNINGS PER SHARE
Earnings per share calculations are based on the daily weighted average
number of common and common stock equivalents outstanding during each period.
The dilutive effect of common stock equivalents from stock options and warrants
is based on the treasury stock method using the average market price for each
period or, for fully diluted earnings per share, the closing stock price for
each period if higher.
NOTE 4: PUBLIC OFFERING
In July, 1993, the Company completed a stock offering. In conjunction with
this offering, all outstanding common stock purchase warrants were exercised.
This increased the number of shares of common stock outstanding by 662,500.
Subsequently, the exercise of common stock options has increased the number of
common shares outstanding to 8,443,860.
NOTE 5: KSH SYSTEMS, INC. ACQUISITION
On June 21, 1994, CliniCom Incorporated purchased substantially all of the
assets of KSH Systems, Inc. The purchase price of $2,616,642 was allocated as
follows: purchased software $2,404,732, other assets $120,000, trade accounts
receivable $61,910 and property and equipment $30,000. The purchased software is
being amortized over five years and other assets is being amortized over two
years.
<PAGE>
NOTE 6: MAJOR CUSTOMERS
The following customers accounted for more than 10% of total net sales for
the three and six months ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED
ENDED JUNE 30 JUNE 30
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A................................ 19.6% 10.3%
B................................ 12.4%
C................................ 11.0% 14.1%
D................................ 13.9%
E................................ 12.3%
F................................ 16.7%
G................................ 10.9%
H................................ 10.3% 17.7%
I................................ 14.8%
</TABLE>
<PAGE>
EXHIBIT 99(f)
CLINICOM INCORPORATED
FIRST QUARTER 1994
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLINICOM INCORPORATED
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1994 1993
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 15,198,099 $ 15,373,156
Trade accounts receivable................................................. 6,060,351 4,948,016
Accrued revenue receivable................................................ 4,410,042 2,693,306
Inventories............................................................... 1,552,245 2,316,400
Prepaid expenses.......................................................... 281,345 548,358
--------------- ---------------
Total current assets.................................................... 27,502,082 25,879,236
--------------- ---------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment................................................... 472,765 371,334
Leasehold improvements.................................................... 166,524 152,458
Manufacturing equipment and tooling....................................... 788,196 702,760
Research and development equipment and software........................... 2,191,042 2,058,899
--------------- ---------------
3,573,527 3,285,451
Less -- Accumulated depreciation and amortization......................... (2,029,916) (1,898,339)
--------------- ---------------
1,543,611 1,387,112
--------------- ---------------
SOFTWARE DEVELOPMENT COSTS, net............................................. 666,977 589,012
--------------- ---------------
OTHER ASSETS:
Patent costs, net......................................................... 23,771 24,244
Deposits and other, net................................................... 47,284 30,284
Noncurrent trade accounts receivable...................................... -- 905,138
--------------- ---------------
Total other assets...................................................... 71,055 959,666
--------------- ---------------
$ 29,783,725 $ 28,815,026
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 1,148,182 $ 1,036,102
Accrued liabilities....................................................... 1,248,867 976,183
Accrued compensation...................................................... 368,224 637,592
Commissions payable....................................................... 199,520 548,890
Warranty and rework reserve............................................... 642,518 545,905
Deferred revenue.......................................................... 1,889,210 2,833,966
--------------- ---------------
Total current liabilities............................................... 5,496,521 6,578,638
--------------- ---------------
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized; none
issued................................................................... -- --
Common stock, $.001 par value, 15,000,000 shares authorized; 8,443,390 and
8,052,490 shares issued at March 31, 1994 and December 31, 1993,
respectively............................................................. 8,443 8,052
Additional paid-in capital................................................ 42,208,221 41,068,680
Accumulated deficit....................................................... (17,929,460) (18,840,344)
--------------- ---------------
Total stockholders' equity.............................................. 24,287,204 22,236,388
--------------- ---------------
$ 29,783,725 $ 28,815,026
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
SALES:
Net system sales............................................................... $ 5,695,843 $ 3,651,510
Client support services........................................................ 718,281 419,115
------------- -------------
6,414,124 4,070,625
------------- -------------
COSTS AND EXPENSES:
Cost of sales and support services............................................. 3,243,640 2,264,405
Research and development....................................................... 732,588 521,238
Selling and marketing.......................................................... 1,081,504 514,384
General and administrative..................................................... 576,928 434,461
------------- -------------
5,634,660 3,734,488
------------- -------------
INCOME FROM OPERATIONS........................................................... 779,464 336,137
OTHER INCOME (EXPENSE):
Interest income................................................................ 200,120 37,129
Interest expense............................................................... -- (6,529)
Other.......................................................................... 1,300 1,131
------------- -------------
NET INCOME BEFORE INCOME TAXES................................................... 980,884 367,868
PROVISION FOR INCOME TAXES....................................................... 70,000 35,206
------------- -------------
NET INCOME....................................................................... $ 910,884 $ 332,662
------------- -------------
------------- -------------
INCOME PER COMMON SHARE:
Primary........................................................................ $ 0.10 $ 0.05
------------- -------------
------------- -------------
Fully Diluted.................................................................. $ 0.10 $ 0.05
------------- -------------
------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary........................................................................ 8,925,263 7,365,045
------------- -------------
------------- -------------
Fully Diluted.................................................................. 8,927,130 7,365,054
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
-----------------------------
1994 1993
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 910,884 $ 332,662
Adjustments to reconcile net income to net cash used in operating activities
--
Depreciation and amortization............................................... 180,677 127,586
Loss on disposal of fixed assets............................................ -- 216
Net change in warranty reserve.............................................. 96,613 106,292
Net change in inventory reserve............................................. 18,433 109,689
Loss on abandonment of patents.............................................. -- 13,763
Decrease (increase) in --
Trade accounts receivable................................................... (1,112,335) (27,100)
Accrued revenue receivable.................................................. (1,716,736) (355,393)
Inventories................................................................. 716,140 (13,071)
Prepaid expenses............................................................ 267,013 38,971
Deposits and noncurrent trade accounts receivable........................... 888,138 (5,249)
Increase (decrease) in --
Accounts payable............................................................ 112,080 (276,224)
Accrued liabilities......................................................... (346,054) 129,023
Deferred revenue............................................................ (944,756) (827,648)
Interest payable on stockholders' notes..................................... -- 6,325
-------------- -------------
Net cash flows from operating activities.................................. $ (929,903) $ (640,158)
-------------- -------------
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short term investments................................................ $ -- $ 1,500,681
Purchase of property and equipment............................................ (258,494) (72,096)
Patent costs.................................................................. (900) (1,585)
Software development costs.................................................... (125,692) (77,650)
-------------- -------------
Net cash flows from investing activities.................................... (385,086) 1,349,350
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................................................... -- (1,576)
Exercise of common stock options.............................................. 1,139,932 --
-------------- -------------
Net cash flows from financing activities.................................... 1,139,932 (1,576)
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (175,057) 707,614
CASH AND CASH EQUIVALENTS, beginning of period.................................. 15,373,156 3,426,520
-------------- -------------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 15,198,099 $ 4,134,134
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid during period for interest.......................................... $ -- $ 203
-------------- -------------
-------------- -------------
Inventory transferred to property and equipment............................... $ 29,582 $ 15,821
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these condensed statements.
<PAGE>
CLINICOM INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1994
NOTE 1: PRESENTATION
The financial information should be read in conjunction with the annual
financial statements and notes thereto for the year ended December 31, 1993
included in the Company's 10-K. The financial information as of March 31, 1994,
and for the three months ended March 31, 1994 and 1993 is unaudited; however, in
the opinion of management, all adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of such information have been
made. Certain prior year amounts have been reclassified to conform to the
current year presentation. The results of operations for the three months ended
March 31, 1994 are not necessarily indicative of the results for the entire
fiscal year.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1994 1993
------------- -------------
<S> <C> <C>
Finished goods.................................................. $ 544,399 $ 828,351
Raw materials and components.................................... 1,007,846 1,488,049
------------- -------------
$ 1,552,245 $ 2,316,400
------------- -------------
------------- -------------
</TABLE>
NOTE 3: EARNINGS PER SHARE
Earnings per share calculations are based on the daily weighted average
number of common stock and common stock equivalents outstanding during each
period. The dilutive effect of common stock equivalents from stock options is
based on the treasury stock method.
NOTE 4: MAJOR CUSTOMERS
The following customers accounted for more than 10% of total net sales for
the quarters ended March 31, 1994 and 1993:
<TABLE>
<CAPTION>
MARCH 31
------------------------
1994 1993
----------- -----------
<S> <C> <C>
A....................................................... 26.4% --
B....................................................... 25.0% --
C....................................................... 17.7% --
D....................................................... -- 26.4%
E....................................................... -- 22.9%
F....................................................... -- 12.6%
</TABLE>
NOTE 5: EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors and stockholders have approved an Employee
Stock Purchase Plan (The "Plan"). The Plan authorizes the issuance of 200,000
shares of common stock for purchase by the Plan participants. The Plan is
intended to qualify as an Employee Stock Purchase Plan within the meaning of
Section 423 of the Internal Revenue Code.
<PAGE>
Exhibit 99(g)
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Income Statements for the six months
ended June 30, 1995, and the year ended December 31, 1994, have been prepared to
reflect adjustments to HBOC's historical results of operations to five effect to
the acquisition of HSG and the proposed Merger as if each had occurred on
January 1 of each period presented. The attached Pro Forma Combined Balance
Sheets as of June 30, 1995, give effect to the Merger as if it had occurred on
that date.
These pro forma statements have been prepared by HBOC based on the audited
financial statements of HSG and CliniCom for the year ended December 31, 1994,
and the unaudited financial statements of HSG for the period from January 1
through June 17, 1995, and of CliniCom for the six months ended June 30, 1995,
which statements are incorporated by reference or included herein.
These pro forma statements are not necessarily indicative of the results of
operations which would have been attained had each of the acquisitions been
consummated on the dates indicated or which may be attained in the future.
These pro forma statements should be read in conjunction with the historical
financial statements and notes thereto of HBOC, HSG, and CliniCom incorporated
by reference or included herein.
<PAGE>
<TABLE>
<CAPTION>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
(In Thousands, Except for Per Share Data) HBOC HSG Adjustments Combined CliniCom Adjustments Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $190,245 $53,429 $17,048 (2) $258,440 $21,770 ($2,813) (8) $277,397
(2,282) (3)
------------------------------------------------------------------------------------------------------------------------------------
Operating Expense:
Cost of Operations 91,279 - 44,263 (2) 137,194 11,429 (4,231) (8) 145,510
(296) (3) 1,418 (8)
130 (3) (300) (9)
3,334 (3)
(456) (3)
(1,060) (3)
Marketing 26,411 - 6,048 (2) 29,810 2,758 (390) (9) 32,178
(2,649) (3)
Research and Development 16,453 - 4,509 (2) 16,724 2,347 (600) (9) 18,471
(4,238) (3)
General and Administrative 20,490 - 12,597 (2) 29,309 2,381 (760) (9) 30,930
(1,896) (3)
767 (3)
(2,649) (3)
Purchased Research and
Development Charge 125,520 - (125,520) (5) 0 - - 0
HSG Operating Expense - 50,369 (50,369) (2) 0 - - 0
------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expense 280,153 50,369 (117,485) 213,037 18,915 (4,863) 227,089
------------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (89,908) 3,060 132,251 45,403 2,855 2,050 50,308
Other Expense, Net 1,026 3,233 - 4,259 (258) - 4,001
------------------------------------------------------------------------------------------------------------------------------------
Income (Credit) Before
Provision for Income Taxes (90,934) (173) 132,251 41,144 3,113 2,050 46,307
Provision (Credit) for
Income Taxes (36,373) 1,433 51,398 (6) 16,458 158 1,907 (10) 18,523
------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) ($54,561) ($1,606) $80,853 $24,686 $2,955 $143 $27,784
------------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share:
Primary ($1.69) $0.66 $0.33 $0.68
Fully Diluted ($1.69) $0.66 $0.33 $0.67
------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding:
Primary 32,333 5,149 (7) 37,482 9,007 (5,404) (11) 41,085
Fully Diluted 32,333 5,323 (7) 37,656 9,007 (5,404) (11) 41,259
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
(In Thousands, Except for Per Share Data) HBOC HSG Adjustments Combined CliniCom Adjustments Combined
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $327,201 $121,241 $36,732 (2) $480,546 $35,416 ($5,440) (8) $510,522
(4,628) (3)
-----------------------------------------------------------------------------------------------------------------------------------
Operating Expense:
Cost of Operations 172,894 - 93,480 (2) 273,131 18,186 (5,005) (8) 285,277
(746) (3) (435) (8)
260 (3) (600) (9)
6,668 (3)
(925) (3)
1,500 (4)
Marketing 42,769 - 14,625 (2) 52,825 5,046 (780) (9) 57,091
(4,569) (3)
Research and Development 28,928 - 9,153 (2) 37,125 3,303 (1,200) (9) 39,228
(956) (3)
General and Administrative 34,590 - 20,393 (2) 50,476 3,719 (1,520) (9) 52,675
(3,879) (3)
1,534 (3)
(2,162) (3)
HSG Operating Expense - 100,919 (100,919) (2) 0 - - 0
------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expense 279,181 100,919 33,457 413,557 30,254 (9,540) 434,271
------------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 48,020 20,322 (1,353) 66,989 5,162 4,100 76,251
Other Expense, Net 1,031 6,703 - 7,734 (771) - 6,963
------------------------------------------------------------------------------------------------------------------------------------
Income (Credit) Before Provision for 46,989 13,619 (1,353) 59,255 5,933 4,100 69,288
Income Taxes
Provision (Credit) for Income Taxes 18,830 7,877 (3,005) (6) 23,702 445 3,568 (10) 27,715
------------------------------------------------------------------------------------------------------------------------------------
Net Income $28,159 $5,742 $1,652 $35,553 $5,488 $532 $41,573
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Primary $0.85 $0.96 $0.62 $1.03
Fully Diluted $0.85 $0.96 $0.62 $1.02
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding:
Primary 32,973 4,000 (7) 36,973 8,901 (5,341) (11) 40,533
Fully Diluted 33,106 4,000 (7) 37,106 8,902 (5,341) (11) 40,667
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEETS
JUNE 30, 1995
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
(In Thousands) HBOC CliniCom Adjustments Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $8,232 $7,526 - $15,758
Receivables, Net 131,709 23,884 (13,486) (8) 142,107
Current Deferred Income Taxes 9,130 - - 9,130
Inventories 1,868 3,401 - 5,269
Prepaids and Other Current Assets 12,061 895 (1,879) (8) 11,077
------------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 163,000 35,706 (15,365) 183,341
------------------------------------------------------------------------------------------------------------------------------------
Intangibles, Net 181,293 - - 181,293
Deferred Income Taxes 33,096 - - 33,096
Property and Equipment, Net 31,983 2,646 - 34,629
Capitalized Software, Net 25,626 3,491 (400) (8) 28,717
Other Noncurrent Assets, Net 6,457 135 - 6,592
------------------------------------------------------------------------------------------------------------------------------------
Total Assets $441,455 $41,978 ($15,765) $467,668
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities $175,370 $8,816 ($12,209) (8) $171,977
Long-Term Debt 879 - - 879
Other Long-Term Liabilities 23,437 - - 23,437
Stockholders' Equity 241,769 33,162 (3,556) (8) 271,375
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $441,455 $41,978 ($15,765) $467,668
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(In Thousands)
GENERAL
1. The foregoing Pro Forma Combined Income Statements for the six months ended
June 30, 1995, and the year ended December 31, 1994, give effect to the
acquisition of HSG which was completed on June 17, 1995, and the Merger. The
foregoing Pro Forma Combined Balance Sheets as of June 30, 1995, give effect to
the Merger as if it had occurred on that date. No pro forma adjustments are
necessary for the HSG acquisition on the attached June 30, 1995, Pro Forma
Combined Balance Sheets since that transaction was completed on June 17, 1995.
HBOC accounted for the acquisition of HSG as a purchase. The Merger, which is
subject to certain conditions including CliniCom stockholder approval, is
expected to close in the early fourth quarter of 1995. The transaction will be
accounted for as a pooling of interests.
Adjustments to the Pro Forma Combined Income Statements include such adjustments
as are necessary to allocate the HSG purchase price based on the estimated fair
market value of the assets acquired and the liabilities assumed and to give
effect to events that are directly attributable to the HSG transaction and the
Merger, which are expected to have a continuing impact on HBOC and are factually
supportable. The adjustments related to the Pro Forma Combined Income Statements
assume the transactions were consummated on January 1 of each period presented.
Adjustments to the Pro Forma Combined Balance Sheets include such adjustments as
are necessary to give effect to events that are directly attributable to the
transaction and factually supportable. The adjustments related to the Pro Forma
Combined Balance Sheets assume the transaction was consummated on June 30, 1995.
HSG ACQUISITION
2. HSG revenue and expense classifications were historically broken out using
different policies than those applied by HBOC. The adjustments necessary to
reclassify HSG revenue and expenses in accordance with HBOC policies are:
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- --------
<S> <C> <C>
Revenue $17,048 $36,732
Cost of Operations $44,263 $93,480
Marketing $6,048 $14,625
Research and Development $4,509 $9,153
General and Administrative $12,597 $20,393
HSG Operating Expense $(50,369) $(100,919)
</TABLE>
<PAGE>
Historically, HSG netted certain costs against revenue for presentation, while
HBOC has historically reported revenue as a gross number.
3. The following adjustments are necessary to adjust the June 30, 1995, and
December 31, 1994, income statement impact of the asset and liability fair
market value adjustments assuming the purchase of HSG had been consummated on
January 1 of each period presented:
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- --------
<S> <C> <C>
HSG Capitalized Software $(296) $(746)
HSG Goodwill $(1,896) $(3,879)
HBOC Capitalized Software $130 $260
HBOC Customer Lists-
to amortize over 15 years $3,334 $6,668
HBOC Goodwill-
to amortize over seven years $767 $1,534
Deferred Revenue:
Revenue $(2,282) $(4,628)
Cost of Operations $(456) $(925)
Terminated Employees:
Cost of Operations $(1,060) $-
Marketing $(2,649) $ (4,569)
Research and Development $(4,238) $(956)
General and Administrative $(2,649) $(2,162)
</TABLE>
HBOC recorded the HSG deferred revenue acquired at its cost (the cost to service
remaining commitment). The net profit which had been deferred has been
eliminated.
The reduction of expense related to terminated employees results from the
permanent termination of certain HSG employees in order to eliminate certain
redundant positions and increase the efficiency of the combined operations.
4. HSG was charged an allocated amount for the use of FDC's Data Center. In
1994, the amount charged was less than that deemed reasonable by management by
$1,500. The adjusted charge reflects that which will be charged to HBOC in the
future. The 1995 charge has been deemed reasonable by management.
5. In the second quarter of 1995, HBOC recorded a $125,520 charge primarily
related to purchased research and development of HSG. This nonrecurring charge
has been eliminated from the June 30, 1995, Pro Forma Combined Income
Statements.
6. The provision for income tax was derived by using the HBOC effective tax
rate of 40%.
<PAGE>
7. The weighted average shares outstanding have been adjusted for the HSG
acquisition to give effect to the additional 4 million shares of HBOC Common
Stock outstanding assuming the transaction had been consummated on January 1 of
each period presented and to give effect to the dilutive effect of stock options
outstanding at June 30, 1995, assuming that HBOC had had net income.
THE MERGER
8. Beginning in 1988, HBOC and CliniCom were parties to various distribution
arrangements. Accordingly, certain intercompany transactions and balances are
included in the historical financial statements of HBOC and CliniCom. The
adjustments necessary to eliminate intercompany transactions assuming the
pooling of interests had been consummated on January 1 of each period presented
are:
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- --------
<S> <C> <C>
Revenue $(2,813) $(5,440)
Cost of Operations $(4,231) $(5,005)
</TABLE>
The following adjustments are necessary to correctly match revenue and expenses
according to HBOC policies assuming the pooling of interests had been
consummated on January 1 of each period presented:
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- --------
<S> <C> <C>
Cost of Operations $1,418 $(435)
</TABLE>
The adjustments necessary to eliminate intercompany balances assuming the
pooling of interests had been consummated on June 30, 1995, are:
<TABLE>
<CAPTION>
6/30/95
-------
<S> <C>
Receivables $(13,486)
Prepaids and Other Current Assets $(1,879)
Capitalized Software $(400)
Current Liabilities $(12,209)
Retained Earnings $(3,556)
</TABLE>
9. The following adjustments are necessary to adjust the June 30, 1995, and
December 31, 1994, income statement to give effect to employee terminations.
The reduction of expense related to terminated employees results from the
permanent termination of certain CliniCom employees in order to eliminate
certain redundant positions and increase the efficiency of the combined
operations. The adjustments, assuming the pooling of interests had been
consummated on January 1 of each period presented, are:
<PAGE>
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- --------
<S> <C> <C>
Cost of Operations $(300) $(600)
Marketing $(390) $(780)
Research and Development $(600) $(1,200)
General and Administrative $(760) $(1,520)
</TABLE>
10. The provision for income tax was derived by using the HBOC effective tax
rate of 40%.
11. The Merger agreement provides for the exchange of .4 of a share of HBOC
Common Stock for each share of currently outstanding CliniCom common stock.
