<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K (A)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
JULY 31, 1995
(JUNE 17, 1995)
Date of Report
(Date of earliest event reported)
HBO & COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-9900 37-0986839
(Commission File Number) (IRS Employer Identification No.)
301 PERIMETER CENTER NORTH
ATLANTA, GA 30346
(Address of principal executive offices) (Zip Code)
(404) 393-6000
Registrant's telephone number, including area code
Exhibit Index is on page 3
<PAGE>
ITEM 2. ACQUISITION OF ASSETS
ITEM 2 OF THE FORM 8-K OF HBO & COMPANY DATED JUNE 23, 1995, IS HEREBY AMENDED
IN ITS ENTIRETY AS FOLLOWS:
On June 17, 1995, HBO & Company of Georgia, a wholly owned subsidiary of HBO
& Company (HBOC), acquired First Data Health Systems Corporation (HSG), a
wholly owned subsidiary of First Data Corporation, in exchange for 4 million
shares of Common Stock of HBOC valued at approximately $200 million, $500,000
in cash and a promissory note for $100,000. HSG provided information systems
and services to hospitals, medical group practices and medical facilities
throughout the United States, United Kingdom, Australia, Puerto Rico and
other countries.
The transaction was accounted for as a purchase. The cost of the acquisition
has been allocated on the basis of an outside appraisal of the tangible ($58
million) and intangible assets acquired and the liabilities assumed ($83
million). HBOC recorded approximately $115 million of intangible assets,
after the purchased research and development charge, which are being
amortized on a straight line basis over periods ranging from seven to 15
years. The purchased research and development charge of $126 million relates
to research and development purchased from HSG which had not reached the
stage of technological feasibility ($115 million), severance and other
acquisition related costs ($8 million) and a mainframe capitalized research
and development net book value adjustment ($3 million). The Company is in
the process of finalizing the purchase price allocation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 7 OF THE FORM 8-K OF HBO & COMPANY DATED JUNE 23, 1995, IS HEREBY AMENDED
IN ITS ENTIRETY AS FOLLOWS:
(a) Financial statements of business acquired.
The following financial statements of HSG for the years ended December 31,
1994, 1993 and 1992 which are required by Item 7 are attached as Exhibit
99(b):
Statements of Income
Balance Sheets
Statements of Cash Flows
Statements of Stockholder's Equity
Notes to Financial Statements
Page 2
<PAGE>
The financial information included in these financial statements has been
audited by Ernst & Young LLP, independent public accountants, in accordance
with established professional standards and procedures as set forth in the
Reports of Ernst & Young LLP Independent Auditors which are attached as part
of Exhibit 99(b).
(b) Pro Forma financial information.
The following Pro Forma financial information for the six month period ended
June 30, 1995, and the year ended December 31, 1994, which is required by
Item 7 is attached as Exhibit 99(c):
HBO & Company Pro Forma Combined Income Statements (Unaudited)
HBO & Company Notes to Pro Forma Combined Income Statements
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <S> <C>
2 Stock Purchase Agreement, dated as of May 16, 1995, 5
among First Data Corporation, FDC Health Inc., First Data
Health Systems Corporation, HBO & Company, and HBO & Company
of Georgia, as amended by letter agreement dated June 17,
1995.
23 Consent of Ernst & Young LLP. 79
99(a) Press release dated June 19, 1995, announcing the acquisition 80
of HSG.
99(b) First Data Health Systems Corporation Financial Statements 81
for the years ended December 31, 1994, 1993 and 1992.
99(c) HBO & Company Pro Forma Financial Statements. 107
</TABLE>
Page 3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HBO & COMPANY
(Registrant)
Date: July 31, 1995
/s/ Jay P. Gilbertson
--------------------------------
Jay P. Gilbertson
Vice President - Finance,
Chief Financial Officer
Treasurer and Assistant Secretary
Page 4
<PAGE>
Exhibit 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 16,
1995, among FIRST DATA CORPORATION, a Delaware corporation ("FDC"); FDC
HEALTH INC., a Nebraska corporation and a wholly owned subsidiary of FDC
("FDC HEALTH"); FIRST DATA HEALTH SYSTEMS CORPORATION, a Delaware corporation
and wholly owned subsidiary of FDC Health (the "COMPANY"); HBO & COMPANY, a
Delaware corporation ("PARENT"); and HBO & COMPANY OF GEORGIA, a Delaware
corporation and wholly owned subsidiary of Parent (the "BUYER").
W I T N E S S E T H:
WHEREAS, FDC is the owner of all the outstanding shares of capital
stock of FDC Health, and FDC Health is the owner of all the outstanding
shares of capital stock of the Company;
WHEREAS, the Company and the Subsidiaries (as such term is defined in
SECTION 1.1) are collectively engaged in the business of providing health
care, patient and financial information systems and services to hospitals,
integrated health care delivery systems, medical group practices and medical
facilities (the "BUSINESS");
WHEREAS, FDC desires to sell to Buyer, and Buyer desires to purchase
from FDC, through FDC Health, all the capital stock of the Company, all on
the terms and subject to the conditions set forth herein;
WHEREAS, simultaneously with the Closing (as such term is defined in
SECTION 1.1), the Company intends to distribute to FDC Health all of the
capital stock of ACB Business Services, Inc., a Delaware corporation ("ACB"),
and The Shareholder Services Group, Inc., a Massachusetts corporation
("TSSG"), both wholly owned subsidiaries of the Company; and
WHEREAS, at the Closing, FDC and/or the Company and Parent and/or
Buyer shall enter into the FDC Ancillary Agreements and the Buyer Ancillary
Agreements, respectively, including (i) the Registration Rights Agreement
(the "REGISTRATION RIGHTS AGREEMENT") in the form attached hereto as EXHIBIT
1, (ii) the Human Resources Agreement (the "HUMAN RESOURCES AGREEMENT") in
the form attached hereto as EXHIBIT 2, (iii) the Transition Services
Agreement (the "TRANSITION SERVICES AGREEMENT") in the form attached hereto
as EXHIBIT 3, (iv) the Shareholder Agreement (the "SHAREHOLDER AGREEMENT") in
the form attached hereto as EXHIBIT 4;
Page 5
<PAGE>
(v) the Trademark License Agreement (the "TRADEMARK LICENSE AGREEMENT") in
the form attached hereto as EXHIBIT 5; and (vi) the sublease agreement
described in SECTION 9.7.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed between FDC, FDC Health
and the Company, on the one hand, and Parent and Buyer, on the other hand, as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. In this Agreement, the following terms
have the meanings specified or referred to in this SECTION 1.1 and shall be
equally applicable to both the singular and plural forms. Any agreement,
statute or regulation referred to in this Agreement shall mean such
agreement, statute or regulation as amended, supplemented and modified from
time to time, but only, in the case of any such agreement, to the extent
permitted by the applicable provisions thereof and by this Agreement.
"ACB" has the meaning specified in the fourth recital of this
Agreement.
"ACQUISITION PROPOSAL" has the meaning specified in SECTION 7.5.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"APPRAISAL" has the meaning specified in SECTION 8.3(g)(iii).
"APPRAISER" has the meaning specified in SECTION 8.3(g)(iii).
"AVERAGE STOCK PRICE" has the meaning specified in SECTION 3.1.
"BENEFIT PLANS" has the meaning specified in SECTION 5.9.
"BUSINESS" has the meaning specified in the second recital to this
Agreement.
"BUSINESS COMBINATION" has the meaning specified in SECTION 3.2.
"BUYER" has the meaning specified in the first paragraph of this
Agreement.
Page 6
<PAGE>
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Buyer or Parent under this
Agreement or in connection herewith, including, without limitation, the
Registration Rights Agreement, the Human Resources Agreement, the Transition
Services Agreement, the Shareholder Agreement and the Trademark License
Agreement.
"BUYER GROUP MEMBER" means Buyer and its Affiliates (including Parent
and, after the Closing, the Company and the Subsidiaries), directors,
officers, employees, agents, attorneys and consultants and their respective
successors and assigns.
"BUYER STOCK CONSIDERATION" has the meaning specified in SECTION
3.1(b).
"CASH CONSIDERATION" has the meaning specified in SECTION 3.1(a).
"CLAIM NOTICE" has the meaning specified in SECTION 11.3(a).
"CLOSING" means the closing of the transfer of the Shares from FDC to
Buyer in exchange for the Buyer Stock Consideration and the Cash
Consideration.
"CLOSING DATE" has the meaning specified in SECTION 4.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning specified in the first paragraph of this
Agreement.
"COMPANY SOFTWARE" has the meaning specified in SECTION 5.11(g).
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality
Agreement dated August 5, 1994, as amended by Amendment No. 1 to the
Confidentiality Agreement dated September 22, 1994, between Buyer and FDC, by
a letter dated October 4, 1994, to John S. Zieser, Esq. from Robert W. Smith,
Esq., counsel to Parent (which letter constitutes Amendment No. 2 to the
Confidentiality Agreement) and by Amendment No. 3 to the Confidentiality
Agreement dated as of the date hereof between Parent and FDC.
"COPYRIGHTS" mean United States and foreign registered copyrights and
pending applications to register the same of the Company and the Subsidiaries.
"COURT ORDER" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in
any arbitration proceeding.
Page 7
<PAGE>
"CUSTOMER CONTRACT" has the meaning specified in SECTION 5.14(A).
"DOL" means the United States Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" means, with respect to a Person, any other Person
that is required to be aggregated with such Person under Section 414(b), (c),
(m) and/or (o) of ERISA at any time prior to the Closing Date.
"ERISA PLAN" has the meaning specified in SECTION 5.9.
"ENCUMBRANCE" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention
agreement, defect in title or other restrictions of a similar kind.
"EXCLUDED TAXES" have the meaning specified in SECTION 8.3(b).
"EXPENSES" means any and all reasonable expenses incurred in
connection with investigating, defending or asserting any claim, action, suit
or proceeding incident to any matter indemnified against hereunder
(including, without limitation, court filing fees, court costs, arbitration
fees or costs, witness fees and reasonable fees and disbursements of legal
counsel, investigators, expert witnesses, accountants and other
professionals); PROVIDED, HOWEVER, that in respect of the indemnification
obligations of FDC to the Buyer Group Members under SECTION 11.1(a)(iv),
"EXPENSES" means 50% of any and all of the foregoing items incurred by any
Buyer Group Member and indemnifiable under SECTION 11.1(a)(iv).
"FDC" has the meaning specified in the first paragraph of this
Agreement.
"FDC ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by FDC, an Affiliate of FDC,
FDC Health or the Company under this Agreement or in connection herewith,
including, without limitation, the Registration Rights Agreement, the Human
Resources Agreement, the Transition Services Agreement, the Shareholder
Agreement, the Trademark License Agreement and the sublease agreement
described in SECTION 9.7.
"FDC GROUP MEMBER" means FDC and its Affiliates, directors, officers,
employees, agents, attorneys and consultants and their respective successors
and assigns.
"FDC HEALTH" has the meaning specified in the first paragraph of this
Agreement.
Page 8
<PAGE>
"FDC NOTICED BREACH" has the meaning specified in the first paragraph
of ARTICLE IX.
"FDC TAX GROUP" means the "affiliated group" (as defined in Section
1504(a) of the Code without regard to the limitations contained in Section
1504(b) of the Code) that includes FDC.
"FINANCIAL STATEMENT" means the unaudited consolidated balance sheet
of the Business as of the Financial Statement Date, and the related
statements of income, shareholder's equity and cash flows for the 3 months
then ended, included in SCHEDULE 5.5.
"FINANCIAL STATEMENT DATE" means March 31, 1995.
"FOREIGN PLANS" has the meaning specified in SECTION 5.9 (o).
"GAAP" means United States generally accepted accounting principles,
consistently applied, in effect at the applicable date, or at the date of the
financial statement to which it refers.
"GOVERNMENTAL BODY" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"GOVERNMENTAL PERMITS" have the meaning specified in SECTION 5.12.
"HAZARDOUS SUBSTANCE" has the meaning specified in SECTION 5.17.
"HBO NOTICED BREACH" has the meaning specified in the first paragraph
of ARTICLE X.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"HUMAN RESOURCES AGREEMENT" has the meaning specified in the fifth
recital to this Agreement.
"IMMIGRATION LAWS" has the meaning specified in SECTION 5.19.
"INDEMNIFIED PARTY" has the meaning specified in SECTION 11.3(a).
"INDEMNITOR" has the meaning specified in SECTION 11.3(a).
"INTELLECTUAL PROPERTY" means Copyrights, Patent Rights, Trademarks
Page 9
<PAGE>
and Trade Secrets of the Company and the Subsidiaries.
"KNOWLEDGE OF COMPANY" means, as to a particular matter, the actual
knowledge of the following persons: Larry Ferguson, Edward Bowman, Henry
Abelman, Linda Quaranto, Barbara Piatt, Jim Bodenbender, Ivan Boyd, Chuck
Miller, Norm Kessling, Eddie Quibell, Robert Levenson and David Bailis.
"KNOWLEDGE OF FDC" means, as to a particular matter, the actual
knowledge of the following persons: Henry Duques, Robert Levenson, Walter
Hoff, Larry Hain, David Treinen, David Bailis and John Zieser.
"KNOWLEDGE OF PARENT" means, as to a particular matter, the actual
knowledge of the following persons: Charles W. McCall, James A. Gilbert, Jay
P. Gilbertson and Timothy S. Heyerdahl.
"LICENSED SOFTWARE" has the meaning specified in SECTION 5.11(f).
"LOSSES" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges; PROVIDED, HOWEVER, that in respect of the
indemnification obligations of FDC to the Buyer Group Members under SECTION
11.1(a)(iv), "LOSSES" means 50% of any and all of the foregoing items
incurred by any Buyer Group Member and indemnifiable under SECTION
11.1(a)(iv).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on or
change in any of the business, financial condition, results of operations,
assets or liabilities of the Company and the Subsidiaries, in each case taken
as a whole.
"MATERIAL ADVERSE EFFECT ON PARENT AND BUYER" means a material
adverse effect on or change in any of the business, financial condition,
results of operations, assets or liabilities of Parent and Buyer, in each
case taken as a whole.
"NASDAQ" has the meaning specified in SECTION 3.1.
"NOTICE OF CONTEST" has the meaning specified in SECTION 11.4(c).
"NOTICE OF SETTLEMENT" has the meaning specified in SECTION 11.4(c).
"OWNED SOFTWARE" has the meaning specified in SECTION 5.11(e).
"PARENT COMMON STOCK" means the Common Stock, par value $.05 per
share, of Parent.
Page 10
<PAGE>
"PARENT PREFERRED STOCK" has the meaning specified in SECTION 6.3.
"PARENT SEC DOCUMENTS" have the meaning specified in SECTION 6.4.
"PARENT STOCK OPTIONS" have the meaning specified in SECTION 6.3.
"PATENT RIGHTS" mean United States and foreign patents, patent
applications, continuations, continuations-in-part, divisions or reissues.
"PENSION PLAN" means an employee pension benefit plan within the
meaning of Section 3(2) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
"PERMITTED ENCUMBRANCES" means (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business
for sums not yet due and payable and (c) other liens or imperfections on
property that would not have a Material Adverse Effect.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"PHARMACY, SCHEDULING, MEDICAL RECORDS AND RADIOLOGY SOFTWARE
PRODUCTS" means (i) the new pharmacy and radiology clinical software promised
to the PCS software customers described on SCHEDULE 8.5 at a user group
meeting in San Antonio, Texas during the Fall of 1992 by John Gaven, then
Chief Operating Officer of the Company, in the formal presentation setting
forth the terms and conditions of the offer; (ii) the new pharmacy and
radiology clinical software promised to the "The Precision Alternative"
software customers described on SCHEDULE 8.5 at a user group meeting in
Baltimore, Maryland during the Spring of 1994 by Chuck Miller, Senior Vice
President of the Company, in the formal presentation setting forth the terms
and conditions of the offer; (iii) the pharmacy and radiology clinical
software required in the written contracts with the following customers:
Ball Memorial Hospital located in Muncie, IN; City and County of Denver,
Colorado (for its Department of Health and Hospitals) a/k/a Denver General
located in Denver, CO; Medical Society Health Systems, Inc. a/k/a/ Roper
Hospital located in Charleston, SC; Saint Anthony's, Peninsula Regional
Medical Center located in Salisbury, MD; and St. Lukes Hospital located in
Chesterfield, MO; and (iv) the medical records and scheduling software
required in the written contracts with the following customers: Ball
Memorial Hospital,
Page 11
<PAGE>
Blodgett Memorial Medical Center, Blue Cross Blue Shield of Ohio, Charleston
Area Medical Center, Peninsula Regional Medical Center, Children's Hospital &
Medical Center (a/k/a Seattle Children's), Delnor Community Hospital, Denver
General Health & Hospitals, Eastern New Mexico Medical Center, Lake Hospital,
Liberty Healthcare Systems, Inc., Newcomb Medical Center, Medical Society
Health Systems, Inc. (a/k/a Roper Hospital), Providence General Medical
Center, St. Anthony's Medical Center, St. Luke's Hospital, Stormont-Vail
Regional Medical Center and Western Pennsylvania Hospital.
"PHARMACY, SCHEDULING, MEDICAL RECORDS AND RADIOLOGY SOFTWARE
CONTRACTS" has the meaning specified in SECTION 8.5.
"PURCHASE PRICE" has the meaning specified in SECTION 3.1.
"REGISTRATION RIGHTS AGREEMENT" has the meaning specified in the
fifth recital to this Agreement.
"REAL PROPERTY" has the meaning specified in SECTION 5.10.
"REPORTABLE EVENT" has the meaning specified in Section 4043 of ERISA.
"REQUIREMENTS OF LAW" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body.
"SEC" has the meaning specified in SECTION 6.2.
"SECTION 338(h)(10) ELECTION" has the meaning specified in SECTION
8.3(g)(i).
"SECURITIES ACT" has the meaning specified in SECTION 6.2.
"SHARES" has the meaning specified in SECTION 2.1.
"SOFTWARE" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level "proprietary" languages, related documentation and
materials, whether in source code, object code or human-readable form.
"SHAREHOLDER AGREEMENT" has the meaning specified in the fifth
recital to this Agreement.
Page 12
<PAGE>
"STRADDLE PERIOD" means any taxable year or period beginning before
and ending after the Closing Date.
"SUBSIDIARIES" means First Data Health Services Corporation, a
Georgia corporation; FDC Physician Services Corporation, a California
corporation; First Data Health Systems International, a Delaware corporation;
First Data Health Systems (Australia), Pty. Ltd., an Australia corporation;
First Data Health Systems (U.K.), Ltd., a United Kingdom corporation; First
Data Health Systems (Ireland), Ltd., an Ireland corporation; and First Data
Health Systems Training Services Ltd., an Ireland corporation.
"TANDEM" has the meaning specified in SECTION 8.6.
"TANDEM MATTER" means the matter between the Company and Tandem
described in SCHEDULE 5.13.
"TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") means
any federal, state, local or foreign income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, transfer or excise tax, or any
other tax, custom, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or penalty, imposed by any
Governmental Body.
"TAX PACKAGE" has the meaning specified in SECTION 8.3(c)(ii).
"TAX RETURN" means any return, report or similar statement required
to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund,
amended return and declaration of estimated Tax.
"THIRD-PERSON CLAIM" has the meaning specified in SECTION 11.4(a).
"TRADEMARKS" means the trademarks, service marks and trade names
listed on SCHEDULE 5.11(a).
"TRADEMARK LICENSE AGREEMENT" has the meaning specified in the fifth
recital to this Agreement.
"TRADE SECRETS" means all ideas, trade secrets, know-how, concepts,
methods, processes, formulae, reports, data, customer lists, mailing lists,
business plans, or other proprietary information of the Company or any of the
Subsidiaries that (i) derive independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by
proper means by, other Persons who
Page 13
<PAGE>
can obtain economic value from their disclosure or use, and (ii) are the
subject of efforts that are reasonable under the circumstances to maintain
their secrecy.
"TRANSITION SERVICES AGREEMENT" has the meaning specified in the
fifth recital to this Agreement.
ARTICLE II
PURCHASE AND SALE
SECTION 2.1. PURCHASE AND SALE OF THE SHARES. Upon the terms and
subject to the conditions of this Agreement, on the Closing Date FDC shall
cause FDC Health to, and FDC Health shall, sell, transfer, assign, convey and
deliver to Buyer, free and clear of all Encumbrances, and Buyer shall
purchase and accept from FDC Health, all of the issued and outstanding shares
of capital stock of the Company (the "SHARES").
ARTICLE III
PURCHASE PRICE
SECTION 3.1. PURCHASE PRICE. The purchase price for the Shares (the
"PURCHASE PRICE") shall be equal to:
(a) $500,000 in cash and a promissory note in the aggregate principal
amount of $100,000, in the form of EXHIBIT 6 (collectively, the "CASH
CONSIDERATION"), PLUS,
(b) the number of validly issued, fully paid and nonassessable shares
of Parent Common Stock equal to the Buyer Stock Consideration.
"BUYER STOCK CONSIDERATION" means the following:
(i) if the Average Stock Price is not less than $44, 4,000,000 shares
of Parent Common Stock; or
(ii) if the Average Stock Price is less than $44, the number of
shares of Parent Common Stock equal to the quotient of (x) $176,000,000
divided by (y) the Average Stock Price; PROVIDED, HOWEVER, that if such
quotient is greater than 4,200,000, then the Buyer Stock Consideration
shall be equal to 4,200,000 shares of Parent Common Stock;
Page 14
<PAGE>
PROVIDED, HOWEVER, that, in the event the Buyer Stock Consideration is
determined pursuant to the proviso to clause (ii) above then FDC shall have
the right, by written notice delivered to Parent, to terminate this Agreement
pursuant to SECTION 12.1(e); and PROVIDED, FURTHER, that any calculation
pursuant to such clause (ii) of the number of shares constituting the Buyer
Stock Consideration shall be rounded to the nearest whole number or, if there
is no nearest whole number, to the next higher number.
"AVERAGE STOCK PRICE" means the average of the per share closing
prices on the Nasdaq Stock Market's National Market ("NASDAQ") as reported in
THE WALL STREET JOURNAL of the Parent Common Stock during the 10 consecutive
trading days ending on the second trading day prior to the Closing Date.
SECTION 3.2. ADJUSTMENT OF AVERAGE STOCK PRICE AND/OR BUYER STOCK
CONSIDERATION. In the event of any reclassification, stock split or stock
dividend with respect to the Parent Common Stock, any change of the Parent
Common Stock into other securities or any other dividend or distribution with
respect to the Parent Common Stock, other than normal quarterly dividends as
the same may be adjusted from time to time in the ordinary course, or if a
record date with respect to any of the foregoing should occur, prior to the
Closing Date, appropriate and proportionate adjustments, if any, shall be
made to the Average Stock Price and/or the number of shares of Parent Common
Stock to be received by FDC Health as the Buyer Stock Consideration. In
addition, if between the date of this Agreement and the Closing Date, Parent
consolidates with or is merged with or into any other corporation (a
"BUSINESS COMBINATION") and the terms thereof provide that the Parent Common
Stock will be converted into or exchanged for the securities or assets of any
other corporation not controlled by Parent, then provision shall be made as
part of the terms of such Business Combination so that FDC Health will be
entitled to receive, in lieu of each share of Parent Common Stock issuable to
FDC Health as provided herein, the same kind and amount of securities or
assets as will be distributable to holders of shares of Parent Common Stock
upon consummation of such Business Combination with respect to each such
share of Parent Common Stock.
ARTICLE IV
CLOSING
SECTION 4.1. CLOSING DATE. The Closing shall be consummated at 10:00
A.M., local time, on May 31, 1995, and effective as of 11:59 P.M. on such
date, or such later date and such other time as may be agreed upon by Buyer
and FDC after the conditions set forth in ARTICLES IX and X have been
satisfied, at the offices of Jones, Day, Reavis & Pogue, Atlanta, Georgia, or
at such other place as shall be agreed upon by Buyer and FDC. The time and
date on which the Closing is actually held is referred to herein as the
"CLOSING DATE."
Page 15
<PAGE>
SECTION 4.2. PAYMENT ON THE CLOSING DATE. Subject to fulfillment or
waiver (where permissible) of the conditions set forth in ARTICLE IX, at the
Closing (i) Buyer shall pay FDC Health $500,000 by wire transfer of
immediately available funds to the bank account or accounts specified by FDC
and deliver a duly executed promissory note in the form of EXHIBIT 6 and (ii)
Parent shall, on behalf of Buyer, deliver to FDC Health a certificate or
certificates for the shares of Parent Common Stock constituting the Buyer
Stock Consideration registered in the name of FDC or, at the request of FDC,
in the name of one or more of its Affiliates.
SECTION 4.3. BUYER'S AND PARENT'S ADDITIONAL CLOSING DATE
DELIVERIES. Subject to fulfillment or waiver (where permissible) of the
conditions set forth in ARTICLE IX, in addition to the deliveries to be made
pursuant to SECTION 4.2, at the Closing Buyer or Parent shall deliver to FDC
all of the following:
(a) copies of Buyer's and Parent's respective Certificates of
Incorporation certified as of a recent date by the Secretary of State
of the State of Delaware;
(b) certificates of good standing of each of Buyer and Parent issued
as of a recent date by the Secretary of State of the State of Delaware;
(c) certificates of the secretary or an assistant secretary of each
of Buyer and Parent, dated the Closing Date, in form and substance
reasonably satisfactory to FDC, as to (i) the lack of amendments to
the Certificate of Incorporation of each respective corporation since
the date of the respective certificates specified in clause (a) above;
(ii) the By-laws of each respective corporation; (iii) the resolutions
of the Board of Directors of each respective corporation authorizing
the execution and performance of this Agreement, any Buyer Ancillary
Agreement to which it is a party and the transactions contemplated
hereby and thereby; and (iv) incumbency and signatures of the officers
of each respective corporation executing this Agreement and any Buyer
Ancillary Agreement to which it is a party;
(d) opinion of James A. Gilbert, Esq., Vice President and General
Counsel of Parent, in customary form to be agreed upon by the parties;
(e) the certificates contemplated by SECTIONS 10.1 and 10.2, duly
executed by duly authorized officers of Buyer and Parent, respectively;
and
(f) the Registration Rights Agreement, the Shareholder Agreement,
the
Page 16
<PAGE>
Transition Services Agreement, the Human Resources Agreement and the
Trademark License Agreement, each duly executed by Parent and/or Buyer.
SECTION 4.4. FDC'S, FDC HEALTH'S AND THE COMPANY'S CLOSING DATE
DELIVERIES. Subject to fulfillment or waiver (where permissible) of the
conditions set forth in ARTICLE X, at the Closing FDC, FDC Health or the
Company shall deliver to Buyer all of the following:
(a) copies of FDC's, FDC Health's and the Company's respective
Certificates or Articles of Incorporation, as appropriate, certified
as of a recent date by the Secretary of State of the State of each
corporation's state of incorporation;
(b) certificates of good standing of each of FDC, FDC
Health and the Company issued as of a recent date by the Secretary
of State of each corporation's state of incorporation;
(c) certificates of the secretary or an assistant secretary of
each of FDC, FDC Health and the Company, dated the Closing Date, in
form and substance reasonably satisfactory to Buyer, as to (i) the
lack of amendments to the Certificate or Articles of Incorporation
of each respective corporation since the date of the respective
certificate specified in clause (a) above; (ii) the By-laws of each
respective corporation; (iii) the resolutions of the Board of
Directors of each respective corporation authorizing the execution
and performance of this Agreement, any FDC Ancillary Agreement to
which it is a party and the transactions contemplated hereby and
thereby; and (iv) incumbency and signatures of the officers of each
respective corporation executing this Agreement and any FDC Ancillary
Agreement to which it is a party;
(d) opinion of David P. Bailis, Esq., General Counsel of FDC, in
customary form to be agreed upon by the parties;
(e) the certificate or certificates representing all the Shares,
duly endorsed to Buyer or accompanied by duly executed and witnessed
stock powers;
(f) the certificates contemplated by SECTIONS 9.1 and 9.2, duly
executed by duly authorized officers of FDC, FDC Health and the
Company, respectively;
(g) the certificates representing any shares of the Subsidiaries
held by officers or directors of such Subsidiaries pursuant to the
laws of their respective jurisdictions of incorporation, as indicated
in the definition of Subsidiaries set
Page 17
<PAGE>
forth in SECTION 1.1 hereof, duly endorsed to individuals designated
by Buyer (a list of each such individual to be delivered by Buyer to
FDC at least five days prior to the Closing Date) or accompanied by
duly executed and witnessed stock powers; and
(h) the Registration Rights Agreement, the Shareholder Agreement,
the Transition Services Agreement, the Human Resources Agreement, the
Trademark License Agreement and the sublease agreement described in
SECTION 9.7, each duly executed by FDC or an Affiliate of FDC.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FDC AND THE COMPANY
As an inducement to Buyer and Parent to enter into this Agreement and
to consummate the transactions contemplated hereby, FDC, FDC Health and the
Company, jointly and severally, represent and warrant to Buyer and Parent and
agree as follows:
SECTION 5.1. ORGANIZATION OF FDC. FDC and FDC Health are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and Nebraska, respectively.
SECTION 5.2. ORGANIZATION OF THE COMPANY AND THE SUBSIDIARIES;
CAPITAL STRUCTURE OF THE COMPANY; POWER AND AUTHORITY. (a) Each of the
Company and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation (such jurisdictions for the purposes of the
Subsidiaries being those listed in SECTION 1.1 in the definition of
"Subsidiaries"). Each of the Company and the Subsidiaries is duly qualified
to transact business and is in good standing in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified or in good standing would not have a Material Adverse Effect.
Each of the Company and the Subsidiaries has the corporate power and
corporate authority to own or lease and operate its assets and to carry on
the Business in the manner in which it was conducted immediately prior to the
date of this Agreement.
(b) The authorized capital stock of the Company consists of 1,000
shares of Common Stock, par value $1.00 per share, of which 10 shares
are issued and outstanding. Except for this Agreement, there are no
agreements, arrangements, options, warrants, calls, rights or commitments
of any character relating to the issuance, sale, purchase or redemption
of any shares of capital stock of the Company. All the outstanding
shares of capital stock of the Company are duly authorized, validly
Page 18
<PAGE>
issued, fully paid, nonassessable, free of preemptive rights and are
owned by FDC Health free from all Encumbrances.
SECTION 5.3. SUBSIDIARIES AND INVESTMENTS. Except as identified on
SCHEDULE 5.3, the Company does not, directly or indirectly, own, of record or
beneficially, any outstanding equity interests in any corporation,
partnership, joint venture or other entity which is involved in or relates to
the Business.
SECTION 5.4. AUTHORITY; CONFLICTS. (a) Each of FDC, FDC Health and
the Company has the corporate power and corporate authority to execute,
deliver and perform this Agreement and each of the FDC Ancillary Agreements
to which it is a party. The execution, delivery and performance of this
Agreement and the FDC Ancillary Agreements by FDC, FDC Health and the
Company, to the extent either corporation is a party to any such agreement,
have been duly authorized and approved by FDC's, FDC Health's and the
Company's respective boards of directors and, except for the approval of the
sole shareholder of FDC Health, do not require any further authorization or
consent of FDC, its stockholders, FDC Health or the Company. This Agreement
has been duly authorized, executed and delivered by FDC, FDC Health and the
Company and (assuming the valid authorization, execution and delivery of this
Agreement by Buyer and Parent) is the legal, valid and binding obligation of
FDC, FDC Health and the Company enforceable in accordance with its terms, and
each of the FDC Ancillary Agreements has been duly authorized by FDC, FDC
Health and the Company to the extent such corporation is a party thereto, and
upon execution and delivery by FDC, FDC Health and the Company, to the extent
such corporation is a party thereto, will be (assuming the valid
authorization, execution and delivery by Buyer and Parent, where Buyer or
Parent is a party, and any other party or parties thereto) a legal, valid and
binding obligation of FDC, FDC Health and the Company enforceable in
accordance with its terms, in each case subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating
to or affecting creditors' rights and to general equitable principles.
(b) Except as set forth in SCHEDULE 5.4, none of the execution and
delivery of this Agreement or any of the FDC Ancillary Agreements, the
consummation of any of the transactions contemplated hereby or thereby,
and compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms,conditions
or provisions of, or constitute a default, an event of default or
an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation
or imposition of any Encumbrance upon any of the Shares or any
of the assets of the Company or any Subsidiary, under (1) the
Restated Certificate of Incorporation or By-laws of FDC; (2) the
Articles of Incorporation or By-laws of FDC Health; (3) the
Certificate of Incorporation or By-laws of the Company; (4) any
note,
Page 19
<PAGE>
instrument, mortgage, contract, agreement, commitment,lease,
license, franchise or financial obligation to which FDC, FDC
Health, the Company or any of the Subsidiaries is a party or
by which FDC, FDC Health, the Company or any of the Subsidiaries
is bound, the breach or default of which would have a Material
Adverse Effect; (5) the Certificate of Incorporation, charter or
equivalent organizational document or By-laws or equivalent
document of any of the Subsidiaries; or (6) any Court Order to
which FDC, FDC Health, the Company or any of the Subsidiaries is
a party or by which FDC, FDC Health, the Company or any of the
Subsidiaries is bound; or
(ii) require the approval, consent, authorization or act of,
or the making by FDC, FDC Health, the Company or any of the
Subsidiaries of any declaration, filing or registration with, any
Person, except (A) in connection, or in compliance, with the
provisions of the HSR Act and (B) for such approvals, consents,
authorizations, declarations, filings or registrations the failure
of which to be obtained or made would not have a Material Adverse
Effect or otherwise prevent the consummation of any of the
transactions contemplated hereby.
SECTION 5.5. FINANCIAL STATEMENTS. SCHEDULE 5.5 contains (i) the
audited consolidated balance sheets of the Business as of December 31, 1994,
1993 and 1992, respectively, and the audited consolidated statements of
income, shareholder's equity and cash flows of the Business for the years
ended December 31, 1994, 1993 and 1992, respectively, and (ii) the unaudited
consolidated balance sheet of the Business as of the Financial Statement Date
and the related statements of income, shareholder's equity and cash flows for
the 3 months then ended. Except as set forth therein, such balance sheets
and related statements of income, shareholder's equity and cash flows have
been prepared in conformity with GAAP consistently applied (except that the
Financial Statement does not contain footnotes; PROVIDED that if such
Financial Statement included footnotes in accordance with GAAP such footnotes
would not disclose any liabilities required to be reflected therein by GAAP
not otherwise reflected therein, reflected in the footnotes to the financial
statements described in clause (i) above or as disclosed on SCHEDULE 5.7).
Such balance sheets and related statements of income, shareholder's equity
and cash flows present fairly in accordance with GAAP the financial position
and results of operations of the Business, as of their respective dates and
for the respective periods covered thereby.
SECTION 5.6. OPERATIONS SINCE FINANCIAL STATEMENT DATE. Except as
set forth in SCHEDULE 5.6, and except for any change resulting from general
economic, financial, industry-wide or market conditions or circumstances
generally affecting the Business, since the Financial Statement Date, the
Business has been conducted only in the ordinary course and there have been
no changes in the assets, results of operating or financial condition of the
Business that have had or are
Page 20
<PAGE>
reasonably expected to have a Material Adverse Effect. Solely for purposes
of illustrating the contents of the foregoing sentence, since the Financial
Statement Date, except as would not have a Material Adverse Effect, neither
the Company nor any of the Subsidiaries has, except as disclosed on SCHEDULE
5.6 attached hereto:
(a) transferred, assigned, conveyed or liquidated into current
assets any of its assets with a current book value in excess of $100,000;
(b) suffered, permitted or incurred the imposition of any Encumbrance,
other than Permitted Encumbrances;
(c) committed, suffered, permitted or incurred any default in
connection with borrowed money;
(d) to the Knowledge of the Company, made or agreed to any adverse
change in the terms of any contract or instrument to which it is a party;
(e) except in the ordinary course of the Business, waived, cancelled,
sold or otherwise disposed of, for less than the face amount thereof, any
claim or right that it has against others;
(f) except in the ordinary course of the Business, paid, agreed to pay
or incurred any obligation for any payment for, any contribution or other
amount to, or with respect to, any employee benefit plan, or paid any bonus
to, or granted any increase in the compensation of, its directors,
officers, agents or employees, or made any increase in the pension,
retirement or other benefits of its directors, officers, agents or other
employees;
(g) collected accounts receivable other than in the ordinary course
of the Business consistent with past practice;
(h) received any notices, or had reason to believe, that any supplier
has taken or contemplates any steps that could disrupt the business
relationship of the Company or such Subsidiary with said supplier or could
result in the diminution in the value of the Company and the Subsidiaries
as a going concern;
(i) paid, agreed to pay or incurred any obligation for any payment of
any indebtedness except current liabilities incurred in the ordinary
course of the Business and except for payments as they become due pursuant
to governing agreements as such agreements on the date hereof; or
(j) delayed or postponed the payment of any liabilities, whether
current or long-term, or failed to pay in the ordinary course of the
Business any liability on a timely basis consistent with prior practice.
Page 21
<PAGE>
SECTION 5.7. NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 5.7 or reflected on the Financial Statement, as of the Financial
Statement Date, the Company and the Subsidiaries were not subject to any
liability, whether absolute, contingent, accrued or otherwise that would be
required to be included on a balance sheet prepared in accordance with GAAP
and that would have a Material Adverse Effect. Since the Financial Statement
Date, except as set forth in SCHEDULE 5.7, the Company and the Subsidiaries
have not incurred any liability, whether absolute, contingent, accrued or
otherwise, except for liabilities incurred in the ordinary course of the
Business that have not and would not have a Material Adverse Effect.
SECTION 5.8. TAXES. (a) COMPANY AND SUBSIDIARIES. Except as set
forth on SCHEDULE 5.8(a), (i) the Company and the Subsidiaries have, as of
the date hereof, and will prior to the Closing Date have, timely filed all
Tax Returns required to have been filed on or before such dates, except such
Tax Returns which the failure to file would not have a Material Adverse
Effect; (ii) all Taxes shown to be due on the Tax Returns referred to in
clause (i), including without limitation all withholding or other
payroll-related taxes shown on such returns, have been or will be timely paid
or deposited and all required estimated taxes have been or will be timely
paid or deposited; (iii) none of the Company or the Subsidiaries has waived
in writing any statute of limitations in respect of Taxes of the Company or
the Subsidiaries or agreed in writing to an extension of time with respect to
an assessment of taxes or deficiency; (iv) the Tax Returns referred to in
clause (i) relating to federal and state income Taxes that have been filed as
of the date hereof have been examined by the appropriate Governmental Body or
the period for assessment of the Taxes in respect of which such Tax Returns
were required to be filed has expired; (v) no issues that have been raised or
threatened in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (i) are currently
pending; and (vi) all deficiencies asserted or assessments made as a result
of any examination of the Tax Returns referred to in clause (i) by a taxing
authority have been paid in full.
(b) FDC TAX GROUP. The Company and each of the U.S. Subsidiaries are
members of the FDC Tax Group that join in the filing of a consolidated
federal income tax return with FDC as the common parent. Except as set forth
on SCHEDULE 5.8(b), neither the Company nor any of the Subsidiaries has been
a member of an affiliated group filing a consolidated federal income tax
return other than the FDC Tax Group. Except as set forth in SCHEDULE 5.8(b),
(i) the FDC Tax Group has, as of the date hereof, and will prior to the
Closing Date have, timely filed, for any period during which the Company or
any of the Subsidiaries was a member of such group, all federal income Tax
Returns required to have been filed on or before such dates, except such Tax
Returns which the failure to file would not have a Material Adverse Effect;
(ii) all Taxes shown to be due on the Tax Returns referred to in clause (i)
have been or will be timely paid or deposited and all required Taxes have
been or will be timely paid or deposited; and (iii) the FDC Tax Group has not
waived in writing any statute of limitations in respect of any material
federal income Taxes or agreed in writing to an
Page 22
<PAGE>
extension of time with respect to any material assessment of federal income
Taxes or deficiency for any period during which the Company or any of the
Subsidiaries was a member of the group.
(c) Notwithstanding anything to the contrary in this Agreement,
nothing in this SECTION 5.8 shall cause FDC and FDC Health to be liable for
any Taxes for which FDC is not expressly liable pursuant to SECTION 8.3
(relating to Tax matters).
SECTION 5.9. EMPLOYEE BENEFITS. (a) SCHEDULE 5.9 lists any pension,
retirement, profit-sharing, deferred compensation, stock option, employee
stock ownership, severance pay, vacation, bonus or other incentive plan; any
medical, vision, dental or other health plan; any life insurance plan or any
other employee benefit plan or fringe benefit plan; any other material
commitment, payroll practice or method of contribution or compensation
(whether arrived at through collective bargaining or otherwise), whether
formal or informal, whether funded or unfunded, and whether legally binding
or not; including, without limitation, any "employee benefit plan" as that
term is defined in Section 3(3) of ERISA; that is currently or previously
adopted, maintained, sponsored in whole or in part, or contributed to by the
Company, any of the Subsidiaries or any ERISA Affiliate of the Company or any
of the Subsidiaries, for the benefit of, providing any remuneration or
benefits to, or covering any current or former employee or retiree, any
dependent, spouse or other family member or beneficiary of such employee or
retiree, or any director, independent contractor, stockholder, officer or
consultant of the Company or any of the Subsidiaries, or under (or in
connection with) which the Company or any of the Subsidiaries has any
contingent or noncontingent liability of any kind, whether or not probable of
assertion (collectively, the "BENEFIT PLANS"). Any of the Benefit Plans that
is an "employee pension benefit plan" as defined in Section 3(2) of ERISA or
an "employee welfare benefit plan" as defined in Section 3(1) of ERISA is
referred to herein as an "ERISA PLAN."
(b) SCHEDULE 5.9 also lists, with respect to all Benefit Plans: (i)
all trust agreements or other funding arrangements, including insurance
contracts, all annuity contracts, financial contributions, actuarial
statements or valuations, fidelity bonds, fiduciary liability policies,
investment manager or advisory contracts, and all amendments (if any)
thereto; (ii) where applicable, with respect to any such plans or plan
amendments, the most recent determination letters issued by the IRS; and
(iii) the most recent summary plan descriptions, any material modifications
thereto, and all material employee communications with respect to such
Benefit Plans. Contemporaneous with the delivery of the Schedules to this
Agreement, the Company has delivered a true and complete copy of each Benefit
Plan and each agreement, IRS letter or ruling, opinion, financial statement
and summary plan description described in this SECTION 5.9, together with the
annual report (Form 5500 Series) for the two most recent plan years for any
Benefit Plan subject to such reporting requirements.
Page 23
<PAGE>
(c) All the ERISA Plans and any related trusts comply with and have
been maintained, operated and administered in accordance with their written
terms and in substantial compliance with the provisions of ERISA, all
applicable provisions of the Code relating to qualification and tax exemption
under Code Sections 401(a) and 501(a) or otherwise necessary to secure
intended tax consequences, all applicable state or federal securities laws,
all applicable reporting and disclosure requirements, and all other
applicable laws, rules and regulations and collective bargaining agreements,
and none of the Company, any of the Subsidiaries or any ERISA Affiliate of
the Company or any of the Subsidiaries has received any notice from any
governmental agency or instrumentality questioning or challenging such
compliance. Any noncompliance or failure properly to maintain, operate or
administer an ERISA Plan or related trust has not rendered and will not
render (i) such ERISA Plan or related trust or the Company or any of the
Subsidiaries subject to or liable for any material taxes, penalties, or
liabilities to any Person; (ii) such ERISA Plan subject to disqualification;
or (iii) the trust subject to loss of tax-exempt status.
(d) No Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(e) None of the Company, any of the Subsidiaries or any ERISA
Affiliate of the Company or any of the Subsidiaries or 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 Company or any of the Subsidiaries to any
direct or indirect liability (by indemnity or otherwise) for a breach of any
fiduciary, co-fiduciary or other duty under ERISA. 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 Company or any of
the Subsidiaries 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 or otherwise required by
law or a governmental agency. Except as set forth in SCHEDULE 5.9, there are
no unresolved claims or disputes under the terms of, or in connection with,
the Benefit Plans (other than routine undisputed claims for benefits under
the health care plans), and no action, legal or otherwise, has been commenced
with respect to any claim (including claims for benefits under health care
plans).
(f) As of the Financial Statement Date, neither the Company nor any
of the Subsidiaries had any current or future liability with respect to any
services performed or any events or matters occurring, arising or accruing on
or prior to such date under any Benefit Plan that was not reflected in the
Financial Statement.
(g) None of the Company or any of the Subsidiaries maintains any
Benefit Plan providing deferred or stock-based compensation that is not
reflected in the Financial Statement.
Page 24
<PAGE>
(h) None of the Company, any of the Subsidiaries or any ERISA
Affiliate of the Company or any of Subsidiaries has maintained, and none 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 6 of ERISA and Code
Section 4980B.
(i) Except as set forth on SCHEDULE 5.9, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current
or former employee (or spouse, dependent or other family member of such
employee) of the Company or any of the Subsidiaries to severance pay,
unemployment compensation or any payment contingent upon a change in control
or ownership of the Company or any of the Subsidiaries, 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).
(j) Except as set forth on SCHEDULE 5.9, the Internal Revenue Service
has issued a favorable determination letter with respect to each Pension
Plan. The Company is not aware of any facts that would adversely affect the
qualified status of any Pension Plan that is intended to so qualify.
(k) No non-exempt "prohibited transaction" (within the meaning of
Code Section 4975(c)) involving any Benefit Plan has occurred that would have
a Material Adverse Effect. None of the assets of any ERISA Plan is an
"employer security" (within the meaning of ERISA Section 407(d)(1)) or
"employer real property" (within the meaning of ERISA Section 407(d)(2)).
(l) All contributions (including all employer contributions and
employee salary reduction contributions) that are due have been paid to each
Pension Plan, and all contributions for any period ending on or before the
Closing Date that are not yet due have been paid to each such Pension Plan or
accrued, in each case in accordance with the past custom and practice of the
Company, any of the Subsidiaries and ERISA Affiliates of the Company.
(m) No Pension Plan has been completely or partially terminated or
been the subject of a Reportable Event as to which notices would be required
to be filed with the PBGC. No proceeding by the PBGC to terminate any
Pension Plan has been instituted or threatened.
(n) None of the Company, any of the Subsidiaries or any ERISA
Affiliate of the Company or any of the Subsidiaries has incurred, or will
incur, any liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal liability) or
under the Code with respect to any Pension Plan on or prior to the Closing
Date.
Page 25
<PAGE>
(o) The Benefit Plans which are maintained outside the jurisdiction
of the United States, including any such plans required to be maintained or
contributed to by the law of the relevant jurisdiction (the "FOREIGN PLANS"),
will be listed on SCHEDULE 5.9 and delivered to Parent within 10 days
following the date hereof, a true and complete copy of each of which will be
furnished to Buyer within 10 days following the date hereof.
(1) Each of the Foreign Plans is in compliance in all material
respects with the provisions of the laws of each jurisdiction in
which any of the Foreign Plans are maintained, to the extent those
laws are applicable to the Foreign Plans.
(2) All contributions to, and payments from, the Foreign Plans
which may have been required to be made in accordance with the terms
of any such Foreign Plan, and, when applicable, the law of the
jurisdiction in which such Foreign Plan is maintained, have been
timely made. All such contributions to the Foreign Plans, and all
payments under the Foreign Plans, for any period ending before the
Closing that are not yet, but will be, required to be made, are
reflected as an accrued liability on the Financial Statement, or as
may be disclosed to Parent within 10 days following the date hereof
in SCHEDULE 5.9.
(3) All material reports, returns and similar documents with respect
to any Foreign Plan required to be filed with any Governmental Body or
distributed to any Foreign Plan participant have been duly and timely
filed or distributed and all of the Foreign Plans have obtained from the
Governmental Body having jurisdiction with respect to such plans any
required determinations that such Foreign Plans are in compliance with
the laws of the relevant jurisdiction.
(4) Each of the Foreign Plans has been administered at all times, and
in all material respects, in accordance with its terms. There are no
pending investigations by any Governmental Body involving the Foreign
Plans, and no pending claims (except for claims for benefits payable in
the normal operation of the Foreign Plans), suits or proceedings against
any Foreign Plan or asserting any rights or claims to benefits under any
Foreign Plan which could have a Material Adverse Effect.
(5) The fair market value of the assets of each of the Foreign Plans
which are funded are at least equal to the liabilities of such Foreign
Plans, and the consummation of the transactions contemplated by this
Agreement will not by itself create or otherwise result in any material
liability with respect to any Foreign Plan.
Page 26
<PAGE>
(6) SCHEDULE 5.9 shall be delivered to Parent within 10 days following
the date hereof separately identifying each Foreign Plan which is a
defined benefit pension plan and which is maintained by one of the
Subsidiaries as the sponsor of such plan and which is not reflected as
a liability on the Financial Statement.
(p) The participant and beneficiary records maintained for
transferred employees with respect to the Benefit Plans are in the custody of
the Person(s) identified on SCHEDULE 5.9, which will be delivered to Parent
within 10 days following the date hereof. All such records accurately state
the employment, salary and benefits history of each participant and
beneficiary under such Benefit Plan.
(q) Any insurance premium with respect to any Benefit Plan and any
premium imposed on the Company or any of the Subsidiaries that is required or
payable through the Closing Date will have been paid on or before the Closing
Date, and there will be no liability of the Buyer, the Company or any of the
Subsidiaries in the nature of a retroactive rate adjustment, loss sharing
arrangement or other liability arising out of events occurring prior to the
Closing Date.
SECTION 5.10. OWNERSHIP OF ASSETS AND LEASES. Neither the Company
nor any Subsidiary owns any real property ("REAL PROPERTY"). SCHEDULE
5.10(a) lists all agreements pursuant to which the Company or any of the
Subsidiaries leases Real Property. SCHEDULE 5.10(b) attached hereto is a
list of items of personal property owned by the Company or any of the
Subsidiaries, such list being maintained by the Company in the ordinary
course of the Business as of the date indicated thereon and excluding items
included in any of the Schedules to SECTION 5.11. SCHEDULE 5.10(c) attached
hereto is a complete and correct list of all material items of personal
property leased by the Company or any of the Subsidiaries pursuant to
agreements that provide for annual rental payments of $50,000 or more, other
than items identified in any of the Schedules to SECTION 5.11. The Company
and the Subsidiaries have title to all of the property and assets listed and
described in SCHEDULES 5.10(a) and 5.10(b) in each case free and clear of any
Encumbrances, except for Permitted Encumbrances. All buildings and material
items of machinery and equipment owned or leased by the Company or any
Subsidiary, as applicable, are in good operating condition and reasonable
state of repair, subject only to ordinary wear and tear, except for such
conditions and states of repair that would not have a Material Adverse
Effect. Except as provided on SCHEDULE 5.10(d) and except as would not have
a Material Adverse Effect, the inventories of the Company and the
Subsidiaries consist only of items of supplies and computer-related equipment
of a quality and quantity usable in the normal course of the Business.
Except as set forth in SCHEDULE 5.15(1)(d), all of the accounts receivable of
the Company and the Subsidiaries as of the Closing Date will be BONA FIDE,
will reflect actual transactions and will have arisen in the ordinary course
of the Business. Except as listed on SCHEDULE 5.10(e) and any of the
Schedules to SECTION 5.11, and except pursuant to this Agreement, neither the
Company nor any of the
Page 27
<PAGE>
Subsidiaries is a party to any contract or obligation (other than contracts
or obligations entered in the ordinary course of the Business) whereby there
has been granted to anyone an absolute or contingent right to purchase,
obtain or acquire any rights in any material items of the assets, properties
or operations that are owned by the Company or any of the Subsidiaries or
that are used in connection with the Business, other than any such rights
that, if exercised, would not have a Material Adverse Effect.
SECTION 5.11. INTELLECTUAL PROPERTY; COMPUTER SOFTWARE. (a) SCHEDULE
5.11(a) contains a list of (i) all Copyrights and Patent Rights owned by the
Company or the Subsidiaries together with all registrations and applications
for registration of the foregoing, if any, and trademarks, both registered or
with respect to which applications for registration have been filed,
applicable to or used in the Business and owned by the Company and the
Subsidiaries, and trademarks that are unregistered and are material to the
Business ("TRADEMARKS") owned by the Company or the Subsidiaries; (ii) the
owner of such Intellectual Property and any registration thereof; and (iii) a
complete list of all licenses granted by or to the Company with respect to
any of the above, except for licenses granted pursuant to Customer Contracts,
licenses granted to Software developers and marketing rights granted to third
parties by the Company or the Subsidiaries or granted by third parties to the
Company or the Subsidiaries.
(b) Except as disclosed in SCHEDULE 5.11(b) and SCHEDULE 8.2, the
Company and the Subsidiaries own the entire right, title and interest in and
to the Intellectual Property owned by the Company or the Subsidiaries, free
and clear of any Encumbrance, except for Permitted Encumbrances, except for
licenses granted pursuant to Customer Contracts, licenses granted to Software
developers and marketing rights granted to third parties by the Company or
the Subsidiaries or granted by third parties to the Company or the
Subsidiaries.
(c) Except as disclosed in SCHEDULE 5.11(c), (i) all registrations
for Copyrights and Trademarks identified in SCHEDULE 5.11(a) are valid and in
force; (ii) all applications to register any unregistered Copyrights, Patent
Rights and Trademarks so identified are pending and in good standing, all
without challenge of any kind; (iii) the Company and the Subsidiaries have
the right to bring actions for infringement or unauthorized use of the
Copyrights, Trademarks and Trade Secrets owned by the Company or the
Subsidiaries; and (iv) no action has been brought in which the validity of
the Patent Rights was successfully challenged.
(d) Except as disclosed in SCHEDULE 5.11(d), neither the Company nor
any Subsidiary is currently in receipt of any written notice of any violation
of, and neither the Company nor any Subsidiary is violating, the rights of
others in any copyrights, patents, trademarks, service marks, trade names,
trade secrets, know-how or other intellectual property, except such
violations that would not have a Material Adverse Effect. Except as set
forth on Schedule 5.11(d), the Company and the Subsidiaries have obtained a
valid license or have otherwise obtained the right to
Page 28
<PAGE>
utilize all Intellectual Property used in the Business and not owned by the
Company or the Subsidiaries, except for those that would not have a Material
Adverse Effect.
(e) SCHEDULE 5.11(e) contains a complete and accurate list of
substantially all (but all material) currently marketed computer Software
owned by the Company or any of the Subsidiaries. Software used by the
Company or any Subsidiary or subject to an agreement or license whereby the
right to use has been granted by the Company or a Subsidiary to a third
party, inclusive of the Software described on SCHEDULE 5.11(e), but excluding
Licensed Software, commercially available over-the-counter "shrink-wrap"
Software, and Software of third parties marketed by the Company or any
Subsidiary pursuant to marketing agreements, is herein referred to as the
"OWNED SOFTWARE." Except as set forth on SCHEDULE 5.11(e) and except for
such claims that would not have a Material Adverse Effect, the Company or one
of the Subsidiaries has title to the Owned Software, free and clear of all
claims with respect to title or ownership, including such claims of
employees, agents, consultants, customers, licensees or other parties
involved in the development, creation, marketing, maintenance, enhancement or
licensing of such computer Software. No source code in respect of the Owned
Software has been published or disclosed by the Company or any of the
Subsidiaries or, to the Knowledge of the Company, by any other party, to any
other parties, except as set forth in SCHEDULE 5.11(e), and except pursuant
to contracts requiring such other parties to keep the source code in respect
of the Owned Software confidential. To the Knowledge of the Company, no such
other party has breached any such obligation of confidentiality, except such
breaches that would not have a Material Adverse Effect.
(f) SCHEDULE 5.11(f)(1) contains a complete and accurate summary
description of substantially all (but all material) currently marketed
Software (other than commercially available over-the-counter "shrink-wrap"
Software) under which the Company or one or more of the Subsidiaries is a
licensee, lessee or otherwise has obtained the right of use. Software used
by the Company or any Subsidiary or subject to an agreement or license
whereby the right to use has been granted by the Company or a Subsidiary to a
third party, inclusive of the Software described on SCHEDULE 5.11(f)(1), but
excluding Owned Software, commercially available over-the-counter
"shrink-wrap" Software, Software used by First Data Technologies, Inc. in
providing services of the nature provided pursuant to the Transition Services
Agreement and Software of third parties marketed by the Company or any
Subsidiary pursuant to marketing agreements, is herein referred to as the
"LICENSED SOFTWARE." SCHEDULE 5.11(f)(2) contains a complete and accurate
list of substantially all (but all material) licenses and similar agreements
pursuant to which the Company or any Subsidiary has obtained or been granted
the right to sublicense Licensed Software, except for such licenses or such
similar agreements that have expired or terminated, which expirations or
terminations would not have a Material Adverse Effect. Each of the
agreements described on SCHEDULE 5.11(f)(2) sets forth the rights of the
Company or any Subsidiary, to the extent it is a party thereto, to sublicense
the Licensed Software
Page 29
<PAGE>
referenced thereby, and the Company or a Subsidiary, as the case may be, is
in compliance with the terms of such agreement, except where the failure to
comply would not have a Material Adverse Effect. No source code in respect
of the Licensed Software has been published or disclosed by the Company or
any of the Subsidiaries or, to the Knowledge of the Company, by any other
party, to any other parties, except, in the case of Licensed Software that
the Company or a Subsidiary leases or markets to others, in accordance with
and as permitted by a license, lease or similar agreement relating to the
source code in respect of the Licensed Software, except pursuant to contracts
requiring such other parties to keep the source code in respect of the
Licensed Software confidential or except that would not have a Material
Adverse Effect. To the Knowledge of the Company, no party to whom the
Company or any Subsidiary has disclosed Licensed Software has breached such
obligation of confidentiality, except such breaches that would not have a
Material Adverse Effect.
(g) The Owned Software and Licensed Software and commercially
available over-the-counter "shrink-wrap" Software constitute all Software
used in the business of the Company and the Subsidiaries (except the Software
used by First Data Technologies, Inc. in providing services of the nature
provided pursuant to the Transition Services Agreement) (collectively, the
"COMPANY SOFTWARE"). Except as specified in SCHEDULE 5.11(g), and except for
licenses granted pursuant to Customer Contracts, licenses granted to Software
developers and marketing rights granted to third parties by the Company or
the Subsidiaries or granted by third parties to the Company or the
Subsidiaries, neither the Company nor any of the Subsidiaries has granted any
licenses, leases or other rights or has any obligation to do so with respect
to the Company Software. All contract programmers, independent contractors,
nonemployee agents and persons or other entities (other than employees) who
have performed, within the last three years, computer programming services
for the Company or any of the Subsidiaries has executed a confidentiality
agreement in favor of the Company or such Subsidiary, except for such
failures to execute that would not cause a Material Adverse Effect. Except
as disclosed on SCHEDULE 5.11(g), neither the Company nor any Subsidiary is
infringing any intellectual property rights of any person or entity with
respect to the Company Software, except for such infringements that would not
have a Material Adverse Effect. To the Knowledge of the Company, no Person
is infringing any intellectual property rights of the Company or any
Subsidiary with respect to the Company Software, which infringement by such
other Person would have a Material Adverse Effect.
(h) Except for commercially available "shrink-wrap" Software and
Software listed on SCHEDULE 5.11(f)(1) and SCHEDULE 5.11(f)(2), SCHEDULE
5.11(h)(i) contains a complete and accurate summary description of
substantially all (but all material) agreements pursuant to which the Company
and the Subsidiaries have been granted rights to market Software owned by
third parties. To the Knowledge of the Company, SCHEDULE 5.11(h)(ii)
contains a complete and accurate summary description of substantially all
(but all material) agreements pursuant to which the Company and
Page 30
<PAGE>
the Subsidiaries have granted marketing rights in the Company Software to
third parties.
(i) Except as disclosed on SCHEDULE 5.11(i), and except for Patents
and Trademarks, to the Knowledge of the Company, neither the Company nor any
of the Subsidiaries has taken or failed to take any action under the law of
any applicable foreign jurisdiction in which the Company or such Subsidiary
has marketed or licensed Company Software that would restrict or limit the
ability of the Company or such Subsidiary to protect, or prevent it from
protecting, its ownership interests in, confidentiality rights of, and rights
to market, license, modify or enhance the Company Software in such
jurisdiction, except where such action can be cured without a Material
Adverse Effect.
SECTION 5.12. LICENSES AND PERMITS; COMPLIANCE WITH LAW. Except as
listed on SCHEDULE 5.12, the Company and the Subsidiaries hold all licenses,
certificates, permits, franchises and rights from all appropriate federal,
state or other public authorities necessary for the conduct of the Business
and the use of their respective assets ("GOVERNMENTAL PERMITS"), except where
the failure to obtain the same would not have a Material Adverse Effect.
Except as noted in SCHEDULE 5.12, the Company and the Subsidiaries are
currently conducting the Business so as to comply with all applicable
Requirements of Law the violation of which would have a Material Adverse
Effect. Further, neither the Company nor any of the Subsidiaries is
currently charged with, and has not received written notice that it is under
governmental investigation with respect to, any actual or alleged violation
of any statute, ordinance, rule or regulation, or is currently the subject of
any pending or threatened adverse proceeding by any regulatory authority
having jurisdiction over the Business or its properties or operations.
Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will result in the termination of any
license, certificate, permit, franchise or right held by the Company or any
of the Subsidiaries that would have a Material Adverse Effect.
SECTION 5.13. LITIGATION; DECREES. Except as set forth in SCHEDULE
5.13:
(a) there are no orders, decrees, judgments, investigations,
inquiries or proceedings by any Governmental Body and no lawsuits,
claims or actions, either pending or, to the Knowledge of the Company,
threatened against, or affecting, the Business, the Company or any
of the Subsidiaries, and none of the same listed on SCHEDULE 5.13,
if pursued and/or resulting in a judgment, would have a Material
Adverse Effect or impair the rights of any party hereto to consummate
the transactions contemplated hereby; and
Page 31
<PAGE>
(b) there are no orders, decrees, judgments, investigations,
inquiries or proceedings by any Governmental Body and no lawsuits,
claims or actions, either pending or, to the Knowledge of the Company,
threatened, that question the legality or propriety of the transactions
contemplated by this Agreement or any of the FDC Ancillary Agreements.
SECTION 5.14. CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY.
SCHEDULE 5.14 hereto consists of a true and complete list of all oral or
written contracts, agreements, commitments and other instruments to which the
Company or any of the Subsidiaries is a party that: (a) involve a receipt or
an expenditure by the Company or such Subsidiary or require the performance
of services or delivery of goods to, by, through, on behalf of or for the
benefit of the Company or such Subsidiary, which in each case relates to such
contract, agreement, commitment or instrument that either (i) requires
payments in excess of $175,000 per year in the current, or any future year,
or (ii) in excess of $500,000 after the date hereof (in each case during the
current term, assuming no renewal thereof, other than renewals by the other
parties thereto that do not require the concurrence of the Company or such
Subsidiary); or (b) involves an obligation for the performance of services or
delivery of goods by the Company or such Subsidiary that cannot, or in
reasonable probability will not, be performed within 60 days of the date
hereof. SCHEDULE 5.14 also identifies (by title, date and parties) with
respect to the Company or any Subsidiary:
(A) any contracts, agreements, commitments or other instruments in
effect with any customer of the Company or any of the Subsidiaries, including
without limitation any consulting services agreements, Software license
agreements or other licenses, purchase commitments or installation agreements
with payments in excess of $100,000 remaining after the date hereof (each
hereinafter referred to as a "CUSTOMER CONTRACT" and identified as such on
SCHEDULE 5.14);
(B) any note receivable in excess of $10,000;
(C) any contract or commitment (except marketing agreements in
respect of Company Software) providing for payments based in any manner upon
the sales, purchases, receipts, income or profits of the Company or any
Subsidiary;
(D) any franchise agreement, marketing agreement or royalty agreement
(except marketing agreements in respect of Company Software);
(E) any contract, agreement, understanding or arrangement restricting
the Company or any Subsidiary from carrying on the Business anywhere in the
world; and
Page 32
<PAGE>
(F) any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed directly, or indirectly, by
way of purchase-money obligation, guaranty, subordination, conditional sale,
lease-purchase or otherwise by the Company or any Subsidiary, providing for
payments in excess of $20,000 per month.
All contracts, licenses, leases and agreements referenced in the
SCHEDULEs to SECTIONs 5.10, 5.11 and 5.14 are valid and binding upon the
Company or a Subsidiary and, to the Knowledge of the Company, 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
public policy principles under applicable law and by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally and general
principles of equity relating to the availability of equitable remedies,
except where the failure to be binding and enforceable would not have a
Material Adverse Effect. Except as set forth on SCHEDULE 5.14, none of the
Company, the Subsidiaries and, to the Knowledge of the Company, any other
party to any such contract, commitment or arrangement has breached any
provision of, or is in default under, the terms thereof, which breach or
default would have a Material Adverse Effect; and, to the Knowledge of the
Company, there are no existing facts or circumstances that would prevent the
work in process of the Company or any Subsidiary or its contracts and
agreements from maturing upon performance by such corporation into
collectible accounts receivable consistent with historical experience.
Except as set forth in SCHEDULE 5.14 and except for such contracts and
agreements as would not have a Material Adverse Effect, there are no
contracts or agreements that require the performance of services or provision
of goods by the Company or any Subsidiary at a direct cost or with a value
for each such contract or agreement in excess of the revenue to be derived
pursuant to the terms of such contract or agreement. Except for terms
specifically described in SCHEDULE 5.14, none of the officers, directors or
employees of the Company and the Subsidiaries has 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 such corporation consistent
with amounts historically charged for such services.
SECTION 5.15. CUSTOMER CONTRACTS. With respect to each Customer
Contract, and except as set forth in SCHEDULE 5.15, (i) with respect to Owned
Software licensed pursuant to such Customer Contract and tendered or
certified as operational by the Company or a Subsidiary, there is no dispute
pending with a customer, except such disputes that would not have a Material
Adverse Effect; and (ii) to the Knowledge of the Company, no basis exists in
respect of performance warranties with respect to Owned Software made by the
Company or a Subsidiary in any Customer Contract, including warranties with
respect to capacity, availability, downtime and response time, that would
result in a customer dispute having a Material Adverse Effect. In addition,
except as set forth on SCHEDULE 5.15, all of the Customer Contracts have
provisions which attempt to (i) limit the Company's or the applicable
Subsidiary's liability to a
Page 33
<PAGE>
maximum dollar amount, (ii) disclaim or exclude consequential damages, and
(iii) maintain the confidentiality of all information (technical and
otherwise) that the Company or the applicable Subsidiary considers
confidential and proprietary (or the customer who is a party thereto is
otherwise bound by a confidentiality agreement in favor of the Company or the
applicable Subsidiary serving such purpose).
Complete copies of all Customer Contracts set forth on SCHEDULE 5.15
have been made available to Buyer or Parent for its review.
SECTION 5.16. CUSTOMERS. Except as provided in SCHEDULE 5.16, to the
Knowledge of the Company, no customer or group of customers of the Company or
any Subsidiary has taken or is expected to take any steps that could disrupt
the business relationship of the Company or such Subsidiary with such
customer or customers and that would result in a Material Adverse Effect and
neither the Company nor any of the Subsidiaries has received any notice from
any customer or group of customers relating to such actions, PROVIDED,
HOWEVER, that no representation or warranty is made as to the response of any
customer or group of customers in connection with the discontinuation,
termination or modification, after the Closing by the Buyer, Parent or the
Company as owned by Buyer of any agreement or product of, or product under
development by, the Company or any of the Subsidiaries.
SECTION 5.17. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE
5.17, no Real Property or other real property now or previously owned or
leased by the Company or any of the Subsidiaries has been used by the Company
or any Subsidiary for the handling, treatment, storage or disposal of any
Hazardous Substance. Except as set forth in SCHEDULE 5.17, no release,
discharge, spillage or disposal into the environment of any Hazardous
Substance and no soil, water or air contamination by any Hazardous Substance
has occurred or is occurring in, from or on the Real Property by virtue of
the actions or failure to act of the Company or any of the Subsidiaries,
except for such releases, discharges, spillages, or disposals that would not
have a Material Adverse Effect. Except as set forth in SCHEDULE 5.17, the
Company has complied 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 violations by the Company of any
such environmental laws or permits with respect to the Real Property, except
for such noncompliances or violations that would not have a Material Adverse
Effect. Except as set forth in SCHEDULE 5.17, the Company has received no
notice of any claims, actions, suits, proceedings or investigations, pending
or threatened, 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 (a) with respect to the Real Property by virtue of the
actions or failure to act of the Company or any of the Subsidiaries or (b)
otherwise against the Company or any of the Subsidiaries, in any court or
before any state, federal or other governmental agency or private arbitration
tribunal and, to the Knowledge of the Company, there is
Page 34
<PAGE>
no basis for any such claim, action, suit, proceeding or investigation.
Except as disclosed on SCHEDULE 5.17, no operations of the Company or any of
the Subsidiaries have involved the use of underground storage tanks on the
Real Property. To the Knowledge of the Company, no exposed or friable
asbestos or any asbestos-containing materials have been installed or placed
by or on behalf of the Company or any of the Subsidiaries in any building or
other improvement included in the Real Property. 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, policy, judgment, 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. Section 1801 ET SEQ. and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 ET SEQ., and petroleum,
petroleum products and oil.
SECTION 5.18. INSURANCE. Set forth in SCHEDULE 5.18(i) is a complete
list of all insurance policies that FDC, the Company and the Subsidiaries
have currently in effect and that are applicable to the Business. The
policies listed in SCHEDULE 5.18(ii), being the policies owned by the Company
and the Subsidiaries, are in full force and effect and no event has occurred
that would give any insurance carrier a right to terminate any such policy.
SECTION 5.19. Labor Matters. SCHEDULE 5.19(a) sets forth all current
employees of the Company and the Subsidiaries. Except as set forth on
SCHEDULE 5.19(b), within the last three years neither the Company nor any
Subsidiary has 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 FDC and
the Company, threatened to be called against it. Except as set forth on
SCHEDULE 5.19(c) and except for such violations that would not have a
Material Adverse Effect, neither the Company nor any Subsidiary has violated
any applicable federal or state law or regulation relating to labor or labor
practices, with regard to the Business, including, without limitation, the
provision of Title VII of the Civil Rights Act of 1964 (race, color,
religion, sex, and national origin discrimination), 42 U.S.C. Section 1981
(discrimination), 42 U.S.C. SectionSection 621-634 (the Age Discrimination in
Employment Act), 29 U.S.C. Section 206 (equal pay), Executive Order 11246
(race, color, religion, sex, and national origin discrimination), Executive
Order 11141 (age discrimination), Section 503 of the Rehabilitation Act of
1973 (handicap discrimination), 42 U.S.C. SectionSection 12101-12213
(Americans with Disabilities Act), 29 U.S.C. SectionSection 2001-2654 (Family
and Medical Leave Act), and 29 U.S.C. SectionSection 651-678 (occupational
safety and health). SCHEDULE 5.19(d) sets forth a true, correct and complete
list of employer loans or advances from the Company and each of the
Subsidiaries, if any, to its employees. Each of the Company and the
Subsidiaries is, and as of the Closing Date will be, in substantial
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").
Page 35
<PAGE>
SECTION 5.20. RELATED PARTY RELATIONSHIPS. Except as set forth in
SCHEDULE 5.20, neither FDC nor any Affiliate of FDC, nor to the Knowledge of
FDC or the Company, any of the persons identified in SECTION 1.1 in the
definitions of Knowledge of FDC and Knowledge of Company, possesses, directly
or indirectly, any equity interest in any corporation, partnership, firm,
association or business organization that is a client, supplier, customer,
lessor, lessee, or contracting party with or of the Company or any of the
Subsidiaries (except as a stockholder holding less than a three-percent
interest in a corporation whose shares are traded on a national or regional
securities exchange or in the over-the-counter market).
SECTION 5.21. NO BROKERS. Except as set forth in SCHEDULE 5.21, none
of FDC, FDC Health, the Company and any Person acting on behalf of FDC, FDC
Health or the Company has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
SECTION 5.22. SECURITIES ACT COMPLIANCE. FDC is acquiring the Buyer
Stock Consideration through FDC Health for its own account and without a
present intention of reselling or distributing any such shares of Parent
Common Stock except in compliance with the registration requirements of the
Securities Act and applicable state securities laws and as contemplated by
the Registration Rights Agreement and the Shareholder Agreement.
SECTION 5.23. INVESTMENT MATTERS. FDC and FDC Health acknowledge,
represent and warrant that:
(a) The shares of Parent Common Stock to be issued to FDC as Buyer
Stock Consideration have not been registered under the Securities Act or the
securities laws of any state and are being offered pursuant to an exemption
from the registration requirements in the Securities Act;
(b) FDC is acquiring the Parent Common Stock for its own account as
principal, and, except for sales of such Parent Common Stock pursuant to the
Registration Rights Agreement and for sales made pursuant to exemptions under
the Securities Act, not with a view to, or for, resale, distribution or
fractionalization thereof, in whole or in part, and, as of the Closing Date,
no other person will have a direct or indirect beneficial interest in such
Parent Common Stock;
(c) FDC has the financial ability to bear the economic risk of owning
the Parent Common Stock, and has such experience in financial matters that it
is capable of evaluating the risks and merits of owning such shares;
Page 36
<PAGE>
(d) FDC represents, warrants and agrees that it will not sell or
otherwise transfer its Parent Common Stock or any portion thereof except
pursuant to registration under the Securities Act or an exemption therefrom;
and
(e) FDC agrees that the following legend shall be placed on the
certificate or certificates representing the Parent Common Stock issued to it:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or any state
securities law, are restricted securities as that term is defined in
Rule 144 of Securities and Exchange Commission, and may be resold
only pursuant to a registration statement effective under the Act
or in a transaction which in the opinion of the issuer's counsel is
exempt from the registration requirement of the Act and any applicable
state securities laws."
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
As an inducement to FDC, FDC Health and the Company to enter into
this Agreement and to consummate the transactions contemplated hereby, Buyer
and Parent jointly and severally hereby represent and warrant to FDC, FDC
Health and the Company and agree as follows:
SECTION 6.1. ORGANIZATION OF BUYER. Each of Buyer and Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Buyer and Parent is duly qualified to
transact business and is in good standing in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualifications necessary, except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect
on Parent and Buyer. Each of Buyer and Parent has the corporate power and
corporate authority to own or lease and operate its assets and to carry on
its businesses in the manner that they were conducted immediately prior to
the date of this Agreement.
SECTION 6.2. AUTHORITY OF BUYER AND PARENT; CONFLICTS. (a) Each of
Buyer and Parent has the corporate power and corporate authority to execute,
deliver and perform this Agreement and each of the Buyer Ancillary Agreements
to which such corporation is a party. The execution, delivery and
performance of this Agreement and the Buyer Ancillary Agreements by Buyer and
Parent, as applicable, have been duly authorized and approved by Buyer's
and/or Parent's board of directors, as applicable,
Page 37
<PAGE>
and do not require any further authorization or consent of Buyer, Parent or
their respective stockholders. This Agreement has been duly authorized,
executed and delivered by Buyer and Parent and (assuming the valid
authorization, execution and delivery of this Agreement by FDC and the
Company) is the legal, valid and binding agreement of Buyer enforceable in
accordance with its terms, and each of the Buyer Ancillary Agreements has
been duly authorized by Buyer or Parent, as applicable, and upon execution
and delivery by Buyer and/or Parent will be (assuming the valid
authorization, execution and delivery by FDC and the Company, where FDC
and/or the Company is a party, and the other party or parties thereto) a
legal, valid and binding obligation of Buyer and Parent, as applicable,
enforceable in accordance with its terms, in each case subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general
principles of equity. The issuance of shares of Parent Common Stock pursuant
to this Agreement and the filing of any registration statements with the
Securities and Exchange Commission (the "SEC") by Parent under the Securities
Act of 1933 (together with the rules and regulations promulgated thereunder,
the "SECURITIES ACT") for the purpose of registering the shares of Parent
Common Stock issuable pursuant to this Agreement and in accordance with the
Registration Rights Agreement have been duly authorized by Parent's board of
directors.
(b) Neither the execution and delivery of this Agreement or any of
the Buyer Ancillary Agreements or the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the
terms, conditions and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or
an event creating rights of acceleration, termination or cancellation
or a loss of rights under, or result in the creation or imposition
of any Encumbrance upon any shares of Parent Common Stock or any
assets of Parent or Buyer under (A) the Certificate of Incorporation
or By-laws of either Buyer or Parent; (B) any material note, instrument,
mortgage, contract, agreement commitment, lease, license, franchise
or financial obligation to which either Buyer or Parent is a party or
any of its properties is subject or by which Buyer or Parent is bound;
(C) any Court Order to which Buyer or Parent is a party or by which it
is bound; or (D) any Requirements of Law affecting Buyer or Parent; or
(ii) require the approval, consent, authorization or act of, or the
making by Buyer or Parent of any declaration, filing or registration
with, any Person, except for (A) in connection, or in compliance, with
the provisions of the HSR Act; (B) the registration of shares of Parent
Common Stock issuable pursuant to this Agreement under the Securities
Act and applicable state securities laws; (C) the listing of the shares
of
Page 38
<PAGE>
Parent Common Stock issuable pursuant to this Agreement with Nasdaq;
and (D) such approvals, consents, authorizations, declarations, filings
or registrations the failure of which to be obtained or made would not
materially impair the ability of Buyer or Parent to perform its obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby.
SECTION 6.3. CAPITALIZATION. As of the date hereof, the authorized
capital stock of Parent consists of 60,000,000 shares of Parent Common Stock
and 1,000,000 shares of preferred stock, no par value (the "PARENT PREFERRED
STOCK"). At the close of business on March 31, 1995 (a) 32,077,055 shares of
Parent Common Stock were issued and outstanding, all of which were duly
authorized, validly issued, fully paid and nonassessable and free of
preemptive rights, (b) 2,464,612 shares of Parent Common Stock were reserved
for issuance upon the exercise of outstanding options under the Parent Stock
Options and (c) no shares of Parent Preferred Stock were issued or
outstanding. At the Closing Date, there shall not have been any changes to
the information set forth in the immediately preceding sentence, other than
pursuant to a corporate action described in SECTION 3.2 as to which the
adjustments required by such section have been or will be made, and other
than shares of Parent Common Stock issued upon the exercise of outstanding
options under the Parent Stock Options and the grant of additional options
under the Parent Stock Options. All of the shares of Parent Common Stock
issuable pursuant to this Agreement will be, when so issued, duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights.
Except for this Agreement and except for not in excess of 614,237 stock
options available for issuance pursuant to the Parent's plans or agreements
in respect thereof (collectively, the "PARENT STOCK OPTIONS"), there are no
options, warrants, calls, rights or agreements to which Parent or any of its
subsidiaries is a party or by which they are bound (a) obligating Parent or
any of its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Parent or any of its
subsidiaries; (b) obligating Parent or any of its subsidiaries to grant,
extend or enter into any such option, warrant, call, right or agreement; or
(c) obligating Parent to register under the Securities Act any shares of
Parent Common Stock on behalf of any stockholder of Parent. Each outstanding
share of capital stock of each subsidiary of Parent is duly authorized,
validly issued, fully paid and nonassessable and, except as disclosed in the
Parent SEC Documents, each such share is owned by Parent or another
subsidiary of Parent free and clear of all Encumbrances.
SECTION 6.4. SEC DOCUMENTS AND OTHER REPORTS. Parent has filed with
the SEC since January 1, 1992 copies of all documents which are required to
be filed under the Securities Act and the Securities Exchange Act of 1934, as
amended (together with the rules and regulations promulgated thereunder, the
"EXCHANGE ACT") (the "PARENT SEC DOCUMENTS"), except for such filings which
the failure to file would not have a Material Adverse Effect on Parent and
Buyer. As of their respective dates, the
Page 39
<PAGE>
Parent SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and none of
the Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of Buyer included
in the Parent SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods involved (except
as may be indicated therein or in the notes thereto), and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
statements of cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustment described therein).
SECTION 6.5. OPERATIONS SINCE MARCH 31, 1995. To the Knowledge of
Parent, except as set forth in SCHEDULE 6.5 and except for any change
resulting from general economic, financial, industry-wide or market
conditions or circumstances generally affecting Buyer's businesses, since
March 31, 1995 there have been no changes in the assets, the businesses or
the results of operations or financial condition of Buyer and its
subsidiaries, taken as a whole, which have had or would have a Material
Adverse Effect on Parent and Buyer.
SECTION 6.6. NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 6.6 or reflected in the Parent SEC Documents, to the Knowledge of
Parent, as of March 31, 1995, neither Parent nor any of its subsidiaries was
subject to any liability, whether absolute, contingent, accrued or otherwise,
that would be required to be included on a balance sheet prepared in
accordance with GAAP and which in the aggregate would have a Material Adverse
Effect on Parent and Buyer. Since March 31, 1995, except as set forth in
SCHEDULE 6.6, to the Knowledge of Parent, neither Parent nor any of its
subsidiaries has incurred any liability, whether absolute, contingent,
accrued or otherwise, except for liabilities incurred in the ordinary course
of business that have not and would have a Material Adverse Effect on Buyer
and Parent.
SECTION 6.7. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except
as set forth in SCHEDULE 6.7:
(i) to the Knowledge of Parent, Parent and its subsidiaries have
complied in all material respects with all applicable Requirements of
Law and Court Orders, except such failures to comply that would not have
a Material Adverse Effect on Parent and Buyer;
Page 40
<PAGE>
(ii) as of the date hereof, there are no lawsuits, claims, suits,
proceedings or investigations pending or, to the Knowledge of Parent,
threatened against Parent or its subsidiaries which would have a Material
Adverse Effect on Parent and Buyer; and
(iii) as of the date hereof, there is no action, suit or proceeding
pending or, to the Knowledge of Parent, threatened that questions the
legality or propriety of the transactions contemplated by this Agreement
or any of the Buyer Ancillary Agreements.
SECTION 6.8. NO BROKERS. Except as set forth in SCHEDULE 6.8,
neither Buyer or Parent nor any Person acting on behalf of either Buyer or
Parent has paid or become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement.
SECTION 6.9. INVESTMENT INTENT. Buyer is acquiring the Shares as an
investment for its own account and not with a view to the distribution
thereof. Buyer shall not sell, transfer, assign, pledge or hypothecate any
of the Shares in the absence of registration under, or pursuant to an
applicable exemption from, federal and applicable state securities laws.
ARTICLE VII
ACTION PRIOR TO THE CLOSING DATE
The respective parties hereto covenant and agree to take the
following actions between the date hereof and the Closing Date:
SECTION 7.1. ACCESS TO INFORMATION. Each of FDC and the Company with
respect to the Company, on the one hand, and each of Buyer and Parent with
respect to Buyer and Parent, on the other hand, shall afford to the officers,
employees and authorized representatives of each of the other such parties
(including, without limitation, independent public accountants and attorneys)
reasonable access during normal business hours upon reasonable advance notice
to the offices, properties, employees and business and financial records
(including computer files, retrieval programs and similar documentation) of
the Company, the Subsidiaries, the Buyer and the Parent, as the case may be,
as to the extent such other party shall reasonably deem necessary or
desirable and shall furnish to the other party or its authorized
representatives such additional information concerning the Business, Buyer or
Parent, as the case may be, as shall be reasonably requested; PROVIDED,
HOWEVER, that none of the parties shall be required to violate any obligation
of confidentiality to which it is subject in discharging its obligations
pursuant to this SECTION 7.1. Each party
Page 41
<PAGE>
hereto agrees that such investigation shall be conducted in such a manner as
not to interfere unreasonably with the operations of the other party. If in
the course of any investigation pursuant to this SECTION 7.1, any of the
officers or employees of a party referenced in the definition of "Knowledge
of FDC," "Knowledge of the Company" or "Knowledge of Parent" set forth in
SECTION 1.1 acquires, at or prior to the Closing Date, written information
sufficient in detail both (i) to indicate that any representation or warranty
herein given by the other party has been breached and (ii) reasonably to
enable such individual to appreciate the nature of such breach and the extent
to which such breach would cause a Loss or Expense for which the party such
individual represents would otherwise be entitled to indemnification pursuant
to ARTICLE XI, then the party such individual represents covenants that it
will promptly so inform the other party.
SECTION 7.2. PRESERVATION OF ACCURACY OF REPRESENTATIONS AND
WARRANTIES. Each of the parties hereto shall refrain from taking any action
that would render any representation or warranty contained in this Agreement
inaccurate as of the Closing Date. Each party shall promptly notify the
other of any action, suit or proceeding that shall be instituted or
threatened against such party to restrain, prohibit or otherwise challenge
the legality of any transaction contemplated by this Agreement. Each party
hereto shall promptly notify the other of any lawsuit, claim, proceeding or
investigation that may be threatened, brought, asserted or commenced against
the Company, FDC the Subsidiaries, Buyer or Parent, as the case may be, that
would have been listed in SCHEDULE 5.13 or SCHEDULE 6.7, respectively, if
such lawsuit, claim, proceeding or investigation had arisen prior to the date
hereof.
SECTION 7.3. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS. (a)
Each of the parties agrees to use its commercially reasonable efforts to
obtain the waiver, consent and approval of all persons 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
Buyer, the Parent, the Company or any of the Subsidiaries is a party or is
subject on the Closing Date and (x) that would prohibit or require the
waiver, consent or approval of any person to such transactions or (y) under
which, without such waiver, consent, or approval, such transaction 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 obligation thereunder. All obtained written
waivers, consents and approvals shall be produced at Closing in form and
content reasonably satisfactory to the other party.
(b) During the period prior to the Closing Date, the parties shall
act diligently and reasonably, and shall cooperate with each other, to secure
any consents and approvals of any Governmental Body required to be obtained
by them in order to permit the consummation of the transactions contemplated
by this Agreement, or to otherwise satisfy the conditions set forth in
SECTION 9.4 and SECTION 10.4.
Page 42
<PAGE>
SECTION 7.4. OPERATIONS PRIOR TO THE CLOSING DATE. (a) FDC shall use
reasonable efforts to cause the Company and the Subsidiaries to and the
Company shall, and shall use reasonable efforts to cause the Subsidiaries to,
operate and carry on the Business in the ordinary course and substantially as
operated immediately prior to the date of this Agreement. Consistent with
the foregoing, FDC shall use reasonable efforts to cause the Company and the
Subsidiaries, and the Company shall and shall use reasonable efforts to cause
the Subsidiaries to, use their respective reasonable efforts consistent with
good business practice to preserve the goodwill of the suppliers,
contractors, licensors, employees, customers, distributors and others having
business relations with the Company or any of the Subsidiaries.
(b) Notwithstanding SECTION 7.4(a), except as expressly contemplated
by this Agreement (including SECTION 8.1) or except with the express written
approval of Buyer, FDC shall cause the Company and the Subsidiaries not to,
and the Company shall not and shall cause the Subsidiaries not to:
(i) make any material change in the Business or their respective
operations;
(ii) make any capital expenditure or enter into any contract or
commitment for any capital expenditure in excess of $150,000, except
in the ordinary course of the Business;
(iii) enter into any material contract, agreement, undertaking or
commitment, except in the ordinary course of the Business;
(iv) enter into any contract for the purchase of real property or
for the sale of any Real Property or exercise any option to purchase
real property listed in any Schedule to SECTION 5.10 or any option to
extend a lease listed in any Schedule to SECTION 5.10;
(v) create, incur or assume, or agree to create, incur or assume,
any indebtedness for borrowed money (other than money borrowed or
advances from any of its Affiliates in the ordinary course of the
Business), except in the ordinary course of the Business;
(vi) collect accounts receivable other than in the ordinary
course of the Business consistent with past practice;
(vii) institute any material increase in any profit-sharing,
bonus, incentive, deferred compensation, insurance, pension, retirement,
medical, hospital, disability, welfare or other employee benefit plan
with respect to its employees, other than in the ordinary course or as
required by any such plan or Requirements of Law;
Page 43
<PAGE>
(viii) make any material change in the compensation of its employees,
other than changes made in accordance with normal compensation practices
and consistent with past compensation practices;
(ix) make any material change in the accounting policies applied in
the preparation of the Financial Statement contained in SCHEDULE 5.5; or
(x) make any change in its Certificate of Incorporation or By-laws.
SECTION 7.5. ACQUISITION PROPOSALS. Commencing on the date of this
Agreement and until either the Closing Date or the earlier termination of
this Agreement, unless Buyer shall otherwise agree in writing, FDC shall not,
and shall not permit the Company or any of the Subsidiaries to, and shall not
authorize or permit any officer or director or employee of either FDC, the
Company or any of the Subsidiaries, or any financial advisor, attorney,
accountant, or other advisor or representative retained by any of FDC, the
Company or any of the Subsidiaries, to initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer with respect to any Acquisition Proposal (as hereinafter
defined) or engage in any negotiations concerning or provide any confidential
information or data to or have any discussions with any person or entity
relating to an Acquisition Proposal. FDC or the Company shall immediately
notify the Buyer 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 FDC, the Company or any of the
Subsidiaries. "ACQUISITION PROPOSAL" means any tender or exchange offer
proposal other than a proposal by Buyer or any of its Affiliates for a
merger, share exchange or other business combination involving the Company or
any of the Subsidiaries, or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
the Company or any of the Subsidiaries.
SECTION 7.6. ANTITRUST LAW COMPLIANCE. As promptly as practicable
after the date hereof, Parent and FDC shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice the
notifications and other information required to be filed under the HSR Act,
or any rules and regulations promulgated thereunder, with respect to the
transactions contemplated hereby. Each party warrants that all such filings
by it will be, as of the date filed, true and accurate in all material
respects and in material compliance with the requirements of the HSR Act and
any such rules and regulations. Each of Parent and FDC agrees to make
available to the other such information as each of them may reasonably
request relative to its business, assets and property as may be required of
each of them to file any additional information requested by such agencies
under the HSR Act and any such rules and regulations.
Page 44
<PAGE>
SECTION 7.7. APPROVAL OF SOLE SHAREHOLDER OF FDC HEALTH. FDC, as the
sole shareholder of FDC Health, shall take such actions as may be necessary
to approve this Agreement and the transactions contemplated hereby,
including, without limitation, the sale of the Shares under the Nebraska
Business Corporation Act.
SECTION 7.8. TRANSFER OF SHARES. The parties acknowledge and agree
that, upon notice to Parent and Buyer, FDC Health may transfer the Shares to
FDC prior to the Closing, by dividend or otherwise, in which event (a) FDC
hereby agrees to sell, transfer, assign, convey and deliver to Buyer the
Shares pursuant to the terms of SECTION 2.1 and (b) the references to FDC
Health in SECTIONS 4.2 and 8.1 and in the last sentence of SECTION 5.2(b)
shall be deemed to be FDC.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1. TRANSFER OF CAPITAL STOCK OF ACB AND TSSG AND
TRADEMARK. Simultaneously with the Closing, FDC Health shall cause the
Company to distribute to FDC Health all of the outstanding capital stock of
ACB and TSSG and the trademark FIRST DECISION.
SECTION 8.2. USE OF NAMES. Effective immediately following the
Closing, FDC grants the Company, each of the Subsidiaries and Buyer a
royalty-free license to use the service marks, trademarks and trade names
listed on SCHEDULE 8.2, subject to the provisions of the Trademark License
Agreement. On behalf of the Company, FDC shall prosecute the following
trademark applications that are now pending in the United States Patent and
Trademark Office: FIRST DIMENSION, Ser. No. 74/480,755; FIRST INFORM, Ser.
No. 74/481,409; FIRST EMPOWER, Ser. No. 74/492,551; FIRST PERSPECTIVE, Ser.
No. 74/492,610; and FIRST CONNECT, Ser. No. 74/492,611 (collectively referred
to hereinafter as the "INTENT-TO-USE MARKS"). The Company agrees to execute
all papers reasonably requested by FDC to prosecute these applications. The
Company hereby covenants that at such time as the Patent and Trademark Office
issues a notice of allowance and accepts a statement of use for any
Intent-to-use Mark(s), the Company shall assign to FDC Health all right,
title and interest in such Intent-to-use Mark(s), together with the goodwill
of the business symbolized thereby. FDC Health hereby covenants that upon
the occurrence such assignments(s) from the Company, FDC Health shall
immediately assign to FDC all right, title and interest in such Intent-to-use
Marks, together with the goodwill of the business symbolized thereby. FDC
hereby warrants that upon the occurrence of such assignment(s) from FDC
Health, FDC shall amend SCHEDULE B to the Trademark License Agreement to
include the assigned Intent-to-use Mark(s) among the Marks licensed under
that Agreement.
Page 45
<PAGE>
SECTION 8.3. TAX MATTERS. (a) TERMINATION OF PRIOR TAX SHARING
AGREEMENTS. Any agreement or arrangement regarding the sharing of Taxes that
may exist between FDC or any Affiliate of FDC, on the one hand, and the
Company or any of the Subsidiaries, on the other, other than this Agreement,
shall terminate, and any obligations to make payments under any such
agreement or arrangement shall be cancelled, as of the Closing Date.
(b) LIABILITY FOR TAXES. (i) FDC shall be liable for all Taxes
(including as set forth in paragraph (g)(ii) Taxes attributable to the
SECTION 338(h)(10) Election made in accordance with paragraph (g) of this
SECTION) (A) imposed on the FDC Tax Group or any member of the FDC Tax Group
(other than the Company or the Subsidiaries) for any taxable year, or (B)
imposed on the Company or the Subsidiaries or for which the Company or the
Subsidiaries may otherwise be liable (including any liability for the Taxes
of any Person other than the Company and the Subsidiaries (A) under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law) or (B) as a transferee or successor), for any taxable year or period
that ends on or before the Closing Date and, with respect to any Straddle
Period, the portion of such Straddle Period ending on and including the
Closing Date; PROVIDED, HOWEVER, that FDC shall not be liable and shall not
indemnify Buyer for any Taxes imposed on the Company or the Subsidiaries as a
result of transactions occurring on the Closing Date (other than transactions
in the ordinary course of the Business) that occur at the direction of Buyer
(Taxes described in this proviso are "EXCLUDED TAXES"). FDC shall be
entitled to any refund of Taxes for which it is liable pursuant to this
paragraph (b)(i).
(ii) Buyer and Parent shall be liable for (A) all Taxes imposed on
the Company or any of the Subsidiaries, or for which the Company or the
Subsidiaries may otherwise be liable, for any taxable year or period that
begins after the Closing Date and, with respect to any Straddle Period, the
portion of such Straddle Period beginning after the Closing Date and (B) any
Excluded Taxes. Buyer shall be entitled to any refund of such Taxes for
which it is liable pursuant to this paragraph (b)(ii).
(iii) For purposes of paragraphs (b)(i) and (b)(ii), whenever it is
necessary to determine the liability for Taxes of the Company or the
Subsidiaries for a portion of any Straddle Period, the determination of the
Taxes of the Company or the Subsidiaries for the portion of the Straddle
Period ending on and including, and the portion of the Straddle Period
beginning after, the Closing Date shall be determined by assuming that the
Straddle Period consisted of two taxable years or periods, one which ended at
the close of the Closing Date and the other which began at the beginning of
the day following the Closing Date, and items of income, gain, deduction,
loss or credit of the Company or the Subsidiaries for the Straddle Period
shall be allocated between such two taxable years or periods on a "closing of
the books basis" by assuming that the books of the Company or the
Subsidiaries were closed at the close of the Closing Date; PROVIDED, HOWEVER,
that (I) Taxes imposed on the Company or the Subsidiaries as a result of
transactions occurring on the Closing Date (other than transactions in the
Page 46
<PAGE>
ordinary course of the Business) that occur at the direction of Buyer shall
be allocated to the taxable year or period that is deemed to begin at the
beginning of the day following the Closing Date and (II) exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation or real estate or personal property taxes, shall
be apportioned between such two taxable years or periods on a daily basis (it
being understood that this proviso shall not apply with respect to the
incremental deductions arising by reason of the 338(h)(10) Election).
(iv) For purposes of paragraphs (a)(i) and (a)(ii), whenever it is
otherwise necessary to allocate an item of income, gain, deduction, loss or
credit to either a taxable year or period that ends on or before the Closing
Date or a taxable year or period that begins after the Closing Date, rules
consistent with those in Treas. Reg Section 1.1502-76(b) shall be applied.
(v) If, as a result of any action, suit, investigation, audit, claim,
assessment or amended Tax Return, there is any change after the Closing Date
in an item of income, gain, loss, deduction or credit that results in an
increase in a Tax liability for which FDC would otherwise be liable pursuant
to paragraph (b)(i), and such change results in a decrease in the Tax
liability of the Company, the Subsidiaries, Buyer, or any Affiliate or
successor thereof (after considering all tax attributes of such party) for
any taxable year or period beginning after the Closing Date or for the
portion of any Straddle Period beginning after the Closing Date, FDC shall
not be liable pursuant to paragraph (b)(i) with respect to such increase to
the extent of such decrease.
(vi) Buyer shall pay, and shall indemnify FDC against, and FDC shall
pay and shall indemnify Buyer against, one-half of any real property transfer
or gains tax, stamp tax, stock transfer tax, or other similar tax imposed on
the sale of the Shares pursuant to this Agreement, together with any
penalties or interest with respect to such taxes.
(c) TAX RETURNS. (i) FDC shall file or cause to be filed when due all
Tax Returns that are required to be filed by or with respect to the Company
or any of the Subsidiaries for taxable years or periods ending on or before
the Closing Date and shall remit any Taxes due in respect of such Tax
Returns, and Buyer shall file or cause to be filed when due all Tax Returns
that are required to be filed by or with respect to the Company or any of the
Subsidiaries for taxable years or periods ending after the Closing Date and
shall timely remit any Taxes due in respect of such Tax Returns. FDC or
Buyer shall reimburse the other party for the Taxes for which FDC or Buyer,
respectively, is liable pursuant to paragraph (b) of this SECTION 8.3 but
which are payable with Tax Returns to be filed by the other party pursuant to
the previous sentence upon the written request of the party entitled to
reimbursement, setting forth in detail the computation of the amount owed by
FDC or Buyer, as the case may be, but in no event shall such reimbursement be
due earlier than 10 days prior to the due date for the filing of such Tax
Returns, including extensions.
Page 47
<PAGE>
(ii) With respect to the taxable period which includes the Closing
Date, Buyer shall promptly cause the Company and the Subsidiaries to prepare
and provide to FDC a package of tax information materials, including, without
limitation, schedules and work papers (the "TAX PACKAGE"), required by FDC to
enable FDC to prepare and file all Tax Returns required to be prepared and
filed by it pursuant to paragraph (c)(i). The Tax Package shall be completed
in accordance with past practice including past practice as to providing such
information, and as to the method of computation of separate taxable income
or other relevant measure of income of the Company and the Subsidiaries.
Buyer shall cause the Tax Package to be delivered to FDC within 150 days
after the Closing Date.
(d) CONTEST PROVISIONS. (i) Buyer or FDC, as the case may be, shall
promptly notify the other party in writing upon receipt by Buyer or FDC, or
any of their respective Affiliates, of notice of any pending or threatened
federal, state, local or foreign Tax audits, examinations or assessments
which may affect any Tax liability for which FDC or Buyer, respectively, is
liable pursuant to paragraph (b) of this SECTION 8.3, PROVIDED that failure
to comply with this provision shall not affect Buyer's or FDC's right to
indemnification hereunder except to the extent such failure impairs Buyer's
or FDC's ability to contest any such Tax liabilities.
(ii) FDC shall have the sole right to represent the Company's or the
Subsidiaries' interests in any Tax audit or administrative or court
proceeding relating to taxable periods ending on or before the Closing Date
(including, for these purposes, such proceedings as relate to the Section
338(h)(10) Election), and to employ counsel of its choice at its expense. In
the case of any Straddle Period, FDC shall be entitled to participate at its
expense in any Tax audit or administrative or court proceeding relating (in
whole or in part) to Taxes attributable to the portion of such Straddle
Period ending on and including the Closing Date and, with the written consent
of Buyer, and at FDC's sole expense, may assume the entire control of such
audit or proceeding.
(iii) Neither Buyer nor FDC, nor any of their respective Affiliates,
may agree to settle any Tax claim which may be the subject of indemnification
by Buyer or FDC under paragraph (b) of this SECTION 8.3 without the prior
written consent of the other party, which consent will not be unreasonably
withheld. In the event that one party desires to settle a Tax claim and the
other does not, the procedures set forth in SECTION 11.4 shall control.
(e) ASSISTANCE AND COOPERATION. After the Closing Date, each of FDC
and Parent shall (and shall cause their respective Affiliates to):
(i) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing in accordance with
paragraph (c) of this SECTION 8.3;
Page 48
<PAGE>
(ii) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax Returns of the Company or the
Subsidiaries;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to
Taxes of the Company or the Subsidiaries;
(iv) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company or the Subsidiaries
for taxable periods for which the other may have a liability under this
SECTION 8.3; and
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period.
(f) ADJUSTMENT TO PURCHASE PRICE. Any payment by Buyer or FDC under
this SECTION 8.3 will be deemed to be an adjustment to the Purchase Price for
tax purposes.
(g) ELECTION UNDER SECTION 338(h)(10). (i) FDC and Buyer shall make
and timely file a joint election for the Company (and for any or all of the
domestic Subsidiaries as specified by Buyer for which such an election can be
made) under SECTION 338(h)(10) of the Code and under any applicable similar
provisions of state or foreign law with respect to the purchase of the Shares
or the deemed purchase of the shares of the Subsidiaries (collectively, such
elections shall be referred to as the "SECTION 338(h)(10) ELECTION"). Buyer
represents to FDC that it is qualified to make an election under SECTION
338(h)(10) of the Code and FDC represents to Buyer that it is qualified to
make an election under SECTION 338(h)(10) of the Code. FDC and Buyer shall
within 180 days after the Closing Date exchange completed and executed copies
of Internal Revenue Service Forms 8023A, required schedules thereto, and any
similar state and foreign forms. If any changes are required in these forms
as a result of information which is first available after the Closing Date,
the parties will promptly agree on such changes and take all action necessary
to reflect them in any necessary governmental filings.
(ii) FDC will pay any Tax attributable to the making of the SECTION
338(h)(10) Election and will indemnify Buyer against any adverse consequences
arising out of any failure to pay such Tax. FDC will also pay any state,
local, or foreign Tax (and indemnify Buyer against any adverse consequences
arising out of any failure to pay such Tax) attributable to an election under
state, local or foreign law similar to the election available under SECTION
338(g) of the Code (or which results from the making of an election under
SECTION 338(g) of the Code) with respect to the purchase of the Shares of the
Company (or deemed purchases of the shares of the Subsidiaries)
Page 49
<PAGE>
hereunder where the state, local or foreign Tax jurisdiction (i) does not
provide or recognize a SECTION 338(h)(10) election or (ii) does not apply its
provisions corresponding to SECTION 338(h)(10) of the Code to the purchase of
the Shares of the Company (or deemed purchases of the shares of the
Subsidiaries), PROVIDED that Buyer shall only make a straight 338(g) or
similar election only for state, local and foreign tax purposes and only
under the circumstances described in clauses (i) or (ii) hereof. In the
event there is uncertainty as to whether a jurisdiction provides for or
recognizes a SECTION 338(h)(10) or comparable election, FDC shall determine
what position FDC and Buyer shall take in their respective tax returns as to
whether such an election is available and the consequences thereof and shall
have sole control over any disputes with that jurisdiction with respect to
such position; PROVIDED, HOWEVER, that if as a result of such action on the
part of FDC, Buyer is precluded from making an election it otherwise would
have been entitled to make, FDC shall pay Buyer such amounts as are necessary
to put Buyer in the same after-tax position as Buyer would have been in had
such election been made.
(iii) Buyer and FDC shall jointly appoint an independent appraiser
(the "APPRAISER") to conduct and to deliver to Buyer and FDC, within 90 days,
an appraisal (the "APPRAISAL") of the fair market value as of the Closing
Date of the assets of the Company and the Subsidiaries for which the SECTION
338(h)(10) Election will be made. The cost of the Appraisal shall be paid
one-half by FDC and one-half by Buyer.
Buyer and FDC hereby agree to allocate the Modified Adjusted Deemed
Sales Price, as defined in Treasury Regulation Section 1.338(h)(10-1(f), for
the Company and the Subsidiaries, among the assets of the Company and the
Subsidiaries for which the Section 338(h)(10) Election will be made in
accordance with Section 338(h)(10) of the Code, the regulations thereunder
and the Appraisal and agree to file all federal, state, local and foreign Tax
Returns in accordance therewith (it being understood that the parties may
take differing positions on the Modified Adjusted Deemed Sales Price).
SECTION 8.4. ASSUMPTION OF CERTAIN LIABILITIES BY FDC. FDC hereby
agrees that it shall either discharge, and provide evidence at the Closing of
such discharge, or, shall pay on behalf of the Company or the applicable
Subsidiary or reimburse the Company or such Subsidiary for the payment of,
those liabilities described or set forth on SCHEDULE 8.4.
SECTION 8.5. RADIOLOGY, SCHEDULING, MEDICAL RECORDS AND PHARMACY
SOFTWARE PRODUCTS. With respect to customers of the Business described on
SCHEDULE 8.5 who are parties to contracts, agreements, offers or options with
the Company as of the Closing Date that provide for delivery of Pharmacy,
Scheduling, Medical Records and Radiology Software Products upon the
satisfaction of certain terms (the "PHARMACY, SCHEDULING, MEDICAL RECORDS AND
RADIOLOGY SOFTWARE CONTRACTS"), from the Closing Date to the expiration of
FDC's indemnification
Page 50
<PAGE>
obligations to the Buyer Group Members under SECTION 11.1(a)(iv), Buyer will,
and will cause the Company to, offer, on terms substantially similar to those
contained in the Pharmacy, Scheduling, Medical Records and Radiology Software
Contracts, the then-current comparable software products of Buyer for
pharmacy and radiology. No Buyer Group Member shall be indemnified under
this Agreement for Buyer's, the Company's or any of their Affiliates' costs
of providing, installing or otherwise implementing, substituting, replacing
or providing alternative software, goods or services of Buyer, the Company or
any of their Affiliates to customers of the Business in fulfillment of
Buyer's obligations pursuant to this SECTION 8.5.
SECTION 8.6. TANDEM. After the Closing, FDC shall maintain control
of the negotiations with Tandem Computer Incorporated ("TANDEM") relating to
settlement of the Tandem Matter, and Buyer and the Company shall cooperate
with FDC to the extent reasonably necessary to consummate all applicable
agreements to settle the Tandem Matter. Each of FDC and Buyer will, and
Buyer will cause the Company to, use its reasonable efforts to cooperate to
obtain certain credits relative to the sale of product to current customers
of the Business who own or operate Tandem equipment to minimize the Losses
and Expenses incurred by the Buyer Group Members in connection with or
arising from the Tandem Matter; PROVIDED, HOWEVER, that Buyer shall not be
required to incur out-of-pocket expenses outside the ordinary course of
business and shall not be required to commence any adversarial proceeding, in
each case, unless fully indemnified by FDC.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND PARENT
All of the obligations of Buyer and Parent to consummate the
transactions contemplated by this Agreement shall be contingent upon and
subject to the satisfaction, on or before the Closing Date, of each and every
one of the following conditions, all and any of which may be waived, in whole
or in part, by Parent and Buyer for purposes of consummating such
transactions, but without prejudice (except as provided in the immediately
succeeding sentence) to any other right or remedy that Parent or Buyer may
have hereunder as a result of any misrepresentation by, or breach of any
covenant or warranty of, FDC, FDC Health or the Company contained in this
Agreement or in any other certificate or instrument furnished by FDC, FDC
Health or the Company hereunder. Notwithstanding the foregoing, if the
Losses and Expenses suffered or incurred from any misrepresentation or breach
as to which misrepresentation or breach Parent or Buyer has received notice
from FDC in writing (specifically stating that an event is a
misrepresentation or breach) at least ten (10) days prior to Closing (a "FDC
NOTICED BREACH") exceed, in the aggregate, $1,000,000, closing of the
transactions contemplated by this Agreement shall be deemed a waiver
Page 51
<PAGE>
by Parent and Buyer of all rights and remedies for indemnification in respect
of such FDC Noticed Breach to the extent the Losses and Expenses from such
FDC Noticed Breach exceed $1,000,000. In respect of each such FDC Noticed
Breach, Parent and Buyer shall be deemed to have agreed to limit, and not
deemed to have waived, their rights and remedies up to (and not in excess of)
$1,000,000.
SECTION 9.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND
WARRANTIES. There shall have been no material breach by FDC or the Company in
the performance of any of its covenants and agreements herein which shall not
have been remedied or cured; each of the representations and warranties of
FDC and the Company contained in this Agreement shall be true and correct in
all material respects on the Closing Date as though made on the Closing Date
(except to the extent that they expressly relate to an earlier date certain
specified) except for changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing
by Buyer or any transaction permitted by SECTION 7.4; and there shall have
been delivered to Buyer a certificate to such effect, dated the Closing Date,
signed on behalf of each of FDC and the Company by a duly authorized officer
of FDC and the Company.
SECTION 9.2. NO MATERIAL ADVERSE EFFECT. Between the date hereof and
the Closing Date, there shall have been no Material Adverse Effect; and there
shall have been delivered to Buyer a certificate to such effect, dated the
Closing Date, signed on behalf of each of FDC and the Company by a duly
authorized officer of FDC and the Company.
SECTION 9.3. NO RESTRAINT. The waiting period under the HSR Act
shall have expired or been terminated, and no action, proceeding,
investigation, injunction or restraining order shall have been issued,
instituted, threatened or proposed against or in respect of FDC, any of its
Affiliates, Parent or Buyer by or before any court or Governmental Body of
competent jurisdiction to enjoin, restrain, prohibit or obtain substantial
damages in respect of, or which is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, and be
in effect which restrains or prohibits any material transaction contemplated
hereby.
SECTION 9.4. NECESSARY GOVERNMENTAL APPROVALS. All approvals and
actions of or by all Governmental Bodies which are necessary to consummate
the transactions contemplated hereby shall have been obtained or taken place,
other than those as to which the failure to have been obtained or taken place
would not have a Material Adverse Effect.
SECTION 9.5. NECESSARY CONSENTS. Each of FDC and the Company shall
have received consents to the transactions contemplated hereby from the other
parties to contracts, leases, agreements and permits identified in SCHEDULE
9.5 and Buyer shall have received a true and correct copy of each such
consent.
Page 52
<PAGE>
SECTION 9.6. OTHER AGREEMENTS. Each of the Registration Rights
Agreement, the Human Resources Agreement, the Transition Services Agreement,
the Shareholder Agreement and the Trademark License Agreement shall have been
executed by FDC and/or the Company and shall remain in full force and effect.
SECTION 9.7. SUBLEASE. FDC and the Company shall have entered into a
sublease agreement, in customary form, effective as of the Closing Date,
pursuant to which the Company shall sublease to FDC one-quarter of the
facilities of the Company located in Charlotte, North Carolina, upon the same
terms and subject to the same conditions contained in the Company's current
lease of such facilities, it being understood that FDC shall be responsible
for one-quarter of the charges which are not solely attributable to the
facilities occupied by FDC or the Company and 100% of the charges solely
attributable to the facilities occupied by FDC.
SECTION 9.8. COMPANY CASH ACCOUNT. The Company's cash reserves shall
be at least $2,000,000 plus an amount equal to the accrued payroll
obligations of the Company and the Subsidiaries on the Closing Date. For
purposes of this SECTION 9.8, "accrued payroll obligations" shall also
include unpaid bonus compensation for pre-Closing periods as described in
Section 3.2 of the Human Resources Agreement; unpaid commissions earned
before the Closing Date as described in SECTION 3.4 of the Human Resources
Agreement; and unpaid amounts payable in respect of vacation accrued for 1994
and prior years as described in SECTION 5.1 of the Human Resources Agreement,
along with applicable unpaid employer payroll taxes attendant to such accrued
obligations.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF
FDC, FDC HEALTH AND THE COMPANY
All of the obligations of FDC, FDC Health and the Company to
consummate the transactions contemplated by this Agreement shall be
contingent upon and subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all and any of which
may be waived, in whole or in part, by FDC for purposes of consummating such
transactions, but without prejudice (except as provided in the immediately
succeeding sentence) to any other right or remedy that FDC may have hereunder
as a result of any misrepresentation by, or breach of any covenant or
warranty of, Parent or Buyer contained in this Agreement or in any other
certificate or instrument furnished by Parent or Buyer hereunder.
Notwithstanding the foregoing, if the Losses and Expenses suffered or
incurred from any misrepresentation or breach as to which misrepresentation
or breach FDC has received notice from Parent in writing (specifically
stating that an event is a misrepresentation or breach) at
Page 53
<PAGE>
least ten (10) days prior to Closing (a "HBO NOTICED BREACH") exceed, in the
aggregate, $1,000,000, closing of the transactions contemplated by this
Agreement shall be deemed a waiver by FDC of all rights and remedies for
indemnification in respect of such HBO Noticed Breach to the extent the
Losses and Expenses from such HBO Noticed Breach exceed $1,000,000. In
respect of each such HBO Noticed Breach, FDC shall be deemed to have agreed
to limit, and not deemed to have waived, its rights and remedies up to (and
not in excess of) $1,000,000.
SECTION 10.1. NO MISREPRESENTATION OR BREACH OF COVENANTS AND
WARRANTIES. There shall have been no material breach by Buyer or Parent in
the performance of any of its covenants and agreements herein which shall not
have been remedied or cured; each of the representations and warranties of
Buyer and Parent contained in this Agreement shall be true and correct in all
material respects on the Closing Date as though made on the Closing Date
(except to the extent that they expressly relate to an earlier date certain
specified) except for changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing
by FDC or any transaction contemplated by this Agreement; and there shall
have been delivered to FDC a certificate to such effect, dated the Closing
Date, signed on behalf of each of Buyer and Parent by a duly authorized
officer of Buyer and Parent.
SECTION 10.2. NO MATERIAL ADVERSE EFFECT ON PARENT OR BUYER. Between
the date hereof and the Closing Date, there shall have been no Material
Adverse Effect on Parent and Buyer; and there shall have been delivered to
FDC a certificate to such effect, dated the Closing Date, signed on behalf of
each of Parent and Buyer by a duly authorized officer of Parent and Buyer.
SECTION 10.3. NO RESTRAINT. The waiting period under the HSR Act
shall have expired or been terminated, and no action, proceeding,
investigation,injunction or restraining order shall have been issued,
instituted, threatened or proposed against or in respect of FDC, any of its
Affiliates, Parent or Buyer by or before any court or Governmental Body of
competent jurisdiction to enjoin, restrain, prohibit or obtain substantial
damages in respect of, or which is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, and be
in effect which restrains or prohibits any material transaction contemplated
hereby.
SECTION 10.4. NECESSARY GOVERNMENTAL APPROVALS. All approvals and
actions of or by all Governmental Bodies which are necessary to consummate
the transactions contemplated hereby shall have been obtained or taken place,
other than those as to which the failure to have been obtained or taken place
would not materially impair the ability of FDC or the Company to consummate
the transactions contemplated hereby.
Page 54
<PAGE>
SECTION 10.5. NECESSARY CONSENTS. Buyer shall have received consents
to the transactions contemplated hereby from the other parties to the
contracts, leases, agreements and permits identified in SCHEDULE 10.5.
SECTION 10.6. OTHER AGREEMENTS. Each of the Registration Rights
Agreement, the Human Resources Agreement, the Transition Services Agreement,
the Shareholder Agreement and the Trademark License Agreement shall have been
executed by Parent and shall remain in full force and effect.
SECTION 10.7. NASDAQ APPROVAL. The shares of Parent Common Stock
issuable pursuant to this Agreement shall have been authorized for listing on
Nasdaq, subject to official notice of issuance.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1. INDEMNIFICATION BY FDC. (a) FDC agrees to indemnify
and hold harmless each Buyer Group Member from and against any and all Losses
and Expenses incurred by such Buyer Group Member in connection with or
arising from:
(i) any breach of any warranty or the inaccuracy of any
representation of FDC or the Company contained or referred to in this
Agreement or any certificate, schedule, exhibit or other instrument
delivered or to be delivered by or on behalf of FDC or the Company
pursuant hereto, or any claim of a third party (regardless of whether
the claimant is ultimately successful) which relates to any such
warranty or representation and that, if true, would be such a breach
or inaccuracy (it being understood and agreed, however, by Parent and
Buyer, on the one hand, and FDC, on the other hand, that, notwithstanding
the foregoing, all Expenses incurred by them that relate to any such claim
of a third party who is ultimately unsuccessful and the majority of which
does not relate to any such warranty or representation will be paid by
Buyer);
(ii) any breach of any agreement or covenant on the part of FDC or
the Company under this Agreement or any other instrument delivered or to
be delivered by or on behalf of FDC or the Company pursuant hereto
(except the FDC Ancillary Agreements);
(iii) all Tax liabilities for which FDC is liable pursuant to SECTION
8.3;
(iv) satisfaction of the obligations of the Company to provide the
Pharmacy, Scheduling, Medical Records and Radiology Software Products
Page 55
<PAGE>
under the Pharmacy, Scheduling, Medical Records and Radiology Software
Products Contracts; PROVIDED, HOWEVER, that no indemnity shall be
provided to any Buyer Group Member in respect of Buyer's obligations
pursuant to SECTION 8.5; or
(v) the Tandem Matter and any breach of any covenant of FDC under
SECTION 8.6;
PROVIDED, HOWEVER, that FDC shall only be required to indemnify and hold
harmless under this SECTION 11.1(a) with respect to (a) all Losses and
Expenses from any single condition, event or act that is indemnified against
under this Agreement so long as the aggregate amount of such Losses and
Expenses is in excess of $1,000,000 and (b) all such other Losses and
Expenses to the extent that the aggregate amount of such Losses and Expenses
exceeds $1,000,000; PROVIDED, FURTHER, that the aggregate amount required to
be paid by FDC pursuant to this SECTION 11.1 shall not exceed $30,000,000;
PROVIDED, FURTHER, that, without limiting the foregoing, FDC shall not be
required to indemnify and hold harmless under this SECTION 11.1(a) with
respect to Losses and Expenses to the extent such Losses and Expenses are in
connection with or arise from the discontinuation, termination or
modification, after the Closing, of any agreement or product of, or product
under development by, the Company or any of the Subsidiaries, except as
permitted by SECTION 8.5, although nothing provided for in this sentence
shall limit or diminish any indemnification hereunder for any breach of any
warranty or the inaccuracy of any representation of FDC, FDC Health or the
Company referred to in SECTION 11.1(a)(i), or breach of any agreement or
covenant on the part of FDC, FDC Health or the Company referred to in SECTION
11.1(a)(ii); PROVIDED, FURTHER, that FDC shall be required to indemnify and
hold harmless under this SECTION 11.1 for all Losses and Expenses, up to the
$30,000,000 limit set forth in the second proviso to this SECTION, from a
breach of or inaccuracy contained in the provisions of SECTIONS 5.4(a),
5.6(g), 5.21, 7.4(b)(vi), or 13.9; and PROVIDED, FURTHER, that FDC shall be
required to indemnify and hold harmless under this SECTION 11.1 for all
Losses and Expenses, regardless of amount, from a breach of or inaccuracy
contained in the provisions of SECTIONS 5.2, 5.8, 8.3 and 8.4 and pursuant to
SECTION 11.1(a)(iv) or (v). Expenses of the Buyer Group Members that are
indemnifiable pursuant to SECTION 11.1(a)(ii), (iii), (iv) or (v) shall
include, without limitation, Expenses incurred as to any Third-Person Claim
in respect thereof even if such claim is ultimately unsuccessful.
(b) For purposes of this ARTICLE only, the definition of the term
"Material Adverse Effect" shall include the following sentence when it is
used in a warranty, representation, agreement or covenant that is the subject
of a claim for indemnification hereunder: For purposes of this definition,
(i) an effect or change with respect to any warranty, representation,
agreement or covenant that is the subject of a claim for indemnification
under this Agreement is deemed to be material if the Losses and Expenses
resulting from such effect or change are equal to $100,000 or more and (ii)
all effects and changes with respect to each sentence qualified by Material
Adverse Effect shall be added together to determine if the $100,000 threshold
is met.
Page 56
<PAGE>
(c) The indemnification provided for in SECTION 11.1(a) shall
terminate on the earlier of (i) the last day of the 27th calendar month
beginning and ending after the Closing Date or (ii) the day on which Parent
releases to the public its report of earnings for its last fiscal period
ending on or before March 31, 1997 (and no claims shall be made by any Buyer
Group Member under SECTION 11.1(a) thereafter), except that the
indemnification by FDC shall continue as to any Losses or Expenses of which
any Buyer Group Member has notified FDC in accordance with the applicable
requirements of SECTIONS 11.3 and 11.4 on or prior to the date such
indemnification would otherwise terminate in accordance with this SECTION
11.1(c), as to which the obligation of FDC shall continue until the liability
of FDC shall have been determined pursuant to this ARTICLE XI, and FDC shall
have reimbursed all Buyer Group Members for the full amount of such Losses
and Expenses in accordance with this ARTICLE XI. Notwithstanding the
foregoing, the indemnification provided for in SECTION 11.1(a) shall continue
(and claims may be made by any Buyer Group Member at any time) for Losses and
Expenses from a breach of or inaccuracy contained in the provisions of
SECTIONS 5.8, 8.3 and 8.4 and pursuant to SECTION 11.1(a)(iv) and (v). After
the Closing FDC shall not have any right of contribution from the Company or
any of the Subsidiaries with respect to any payments due from FDC pursuant to
this SECTION 11.1(a).
SECTION 11.2. INDEMNIFICATION BY BUYER AND PARENT. (a) Each of
Buyer and Parent, jointly and severally, agrees to indemnify and hold
harmless each FDC Group Member from and against any and all Losses and
Expenses incurred by such FDC Group Member in connection with or arising from:
(i) any breach of any warranty or the inaccuracy of any
representation of Buyer or Parent contained or referred to in this
Agreement or any certificate, schedule, exhibit or other instrument
delivered or to be delivered by or on behalf of Parent or Buyer pursuant
hereto, or any claim of a third party (regardless of whether the claimant
is ultimately successful) which relates to any such warranty or
representation and that, if true, would be such a breach or inaccuracy
(it being understood and agreed, however, by Parent and Buyer, on the one
hand, and FDC, on the other hand, that, notwithstanding the foregoing,
all Expenses incurred by them that relate to any such claim of a third
party who is ultimately unsuccessful and the majority of which does not
relate to any such warranty or representation will be paid by FDC);
(ii) any breach of any agreement or covenant on the part of Parent or
Buyer under this Agreement or any other instrument delivered or to be
delivered by or on behalf of Parent or Buyer pursuant hereto;
(iii) all Tax liabilities for which Parent or Buyer is liable
pursuant to SECTION 8.3; or
Page 57
<PAGE>
(iv) the discontinuation, termination or modification, after the
Closing, of any agreement or product of, or product under development by,
the Company or any of the Subsidiaries;
PROVIDED, HOWEVER, that Buyer and Parent shall only be required to indemnify
and hold harmless under this SECTION 11.2(a) with respect to (a) all Losses
and Expenses from any single condition, event or act that is indemnified
against under this Agreement so long as the aggregate amount of such Losses
and Expenses is in excess of $1,000,000 and (b) all such other Losses and
Expenses to the extent that, the aggregate amount of such Losses and Expenses
exceeds $1,000,000; PROVIDED, FURTHER, that the aggregate amount required to
be paid by Buyer and Parent pursuant to this SECTION 11.2(a) shall not exceed
$30,000,000; PROVIDED FURTHER, that Buyer and Parent, jointly and severally,
shall be required to indemnify and hold harmless under this SECTION 11.2(a)
for all Losses and Expenses, up to the $30,000,000 limit set forth in the
second proviso to this SECTION, from a breach of or inaccuracy contained in
the provisions of SECTIONS 6.2(a), 13.9; and PROVIDED, FURTHER, that Buyer
and Parent, jointly and severally, shall be required to indemnify and hold
harmless under this SECTION 11.2(a) for all Losses and Expenses, regardless
of amount, from a breach of or inaccuracy contained in the provisions of
SECTIONS 6.1 and 8.3.
(b) For purposes of this ARTICLE only, the definition of the term
"Material Adverse Effect on Parent and Buyer" shall include the following
sentence when it is used in a warranty, representation, agreement or covenant
that is the subject of a claim for indemnification hereunder: For purposes
of this definition, (i) an effect or change with respect to any warranty,
representation, agreement or covenant that is the subject of a claim for
indemnification under this Agreement, is deemed to be material if the Losses
and Expenses resulting from such effect or change are equal to $100,000 or
more and (ii) all effects and changes with respect to each sentence qualified
by Material Adverse Effect shall be added together to determine if the
$100,000 threshold is met.
(c) The indemnification provided for in SECTION 11.2(a) shall
terminate on the earlier of (i) the last day of the 27th calendar month
beginning and ending after the Closing Date or (ii) the day on which Parent
releases to the public its report of earnings for its last fiscal period
ending on or before March 31, 1997 (and no claims shall be made by any FDC
Group Member under SECTION 11.2(a) thereafter), except that the
indemnification by Buyer and Parent shall continue as to any Losses or
Expenses of which any FDC Group Member has notified Buyer or Parent in
accordance with the applicable requirements of SECTIONS 11.3 and 11.4 on or
prior to the date such indemnification would otherwise terminate in
accordance with this SECTION 11.2(c), as to which the obligations of Buyer
and Parent shall continue until the liability of Buyer and Parent shall have
been determined pursuant to this ARTICLE XI, and Buyer and Parent shall have
reimbursed all FDC Group Members for the full amount of such Losses and
Expenses in accordance with this ARTICLE XI. Notwithstanding the foregoing,
the
Page 58
<PAGE>
indemnification provided for in SECTION 11.2(a) shall continue (and claims
may be made by any FDC Group Member at any time) for Losses and Expenses from
a breach of or inaccuracy contained in the provisions of SECTION 8.3.
Expenses of the FDC Group Members that are indemnifiable pursuant to SECTION
11.2(a)(ii), (iii) or (iv) shall include, without limitation, Expenses
incurred as to any Third-Person Claim in respect thereof even if such claim
is ultimately unsuccessful.
SECTION 11.3. NOTICE OF CLAIMS. (a) Any Buyer Group Member or FDC
Group Member (the "INDEMNIFIED PARTY") seeking indemnification hereunder
shall give promptly to a party obligated to provide indemnification to such
Indemnified Party (the "INDEMNITOR") a written notice (a "CLAIM NOTICE")
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such Claim Notice (if then
known) the amount or the method of computation of the amount of such claim
and a reference (made in good faith) to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in
connection herewith upon which such claim is based; PROVIDED, HOWEVER, that
failure to give such notice or failure to make such reference shall not
relieve the Indemnitor of its obligations hereunder except to the extent the
Indemnitor shall have been prejudiced by such failure (it being understood
that this proviso does not modify or otherwise affect the time periods
specified in SECTIONS 11.1(a) and 11.2(a)); PROVIDED, FURTHER, that the
provisions of SECTION 11.4 shall also apply to such a Claim Notice relating
to a Third-Person Claim.
(b) In calculating any Loss or Expense there shall be deducted any
insurance recovery in respect thereof (and no right of subrogation shall
accrue hereunder to any insurer); PROVIDED that no party shall be obligated
hereby to procure or pay for insurance coverage in anticipation of such
claims or pursue any action against an insurer if a claim for insurance is
denied.
(c) After the giving of any Claim Notice pursuant hereto, the amount
of indemnification to which an Indemnified Party shall be entitled under this
ARTICLE XI shall be determined: (i) by the written agreement between the
Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of
any court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Party and the Indemnitor shall agree. The judgment or decree of
a court shall be deemed final when the time for appeal, if any, shall have
expired and no appeal shall have been taken or when all appeals taken shall
have been finally determined. The Indemnified Party shall have the burden of
proof in establishing the amount of Losses and Expenses suffered by it.
SECTION 11.4. THIRD-PERSON CLAIMS. (a) In order for an Indemnified
Party to be entitled to any indemnification provided for under this Agreement
in respect of, arising out of or involving a claim or demand made by any
third Person against the Indemnified Party (a "THIRD-PERSON CLAIM"), such
Indemnified Party shall give to an Indemnitor a Claim Notice relating to the
Third-Person Claim within 15 days after
Page 59
<PAGE>
receipt by such Indemnified Party of written notice of the Third-Person
Claim; PROVIDED, HOWEVER, that failure to give such notice shall not relieve
an Indemnitor of its obligations hereunder except to the extent the
Indemnitor shall have been prejudiced by such failure (except that the
Indemnitor shall not be liable for any Expenses incurred during the period in
excess of the initial 15 days in which the Indemnified Party failed to give
such notice) (it being understood that the Indemnified Party shall use good
faith efforts to notify the Indemnitor promptly upon receipt of any oral or
written notice of a Third-Person Claim). Thereafter, the Indemnified Party
shall deliver to the Indemnitor, within five business days after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to the
Third-Person Claim. Notwithstanding the foregoing, should an Indemnified
Party be physically served with a complaint with regard to a Third-Person
Claim, the Indemnified Party must notify an Indemnitor with a copy of the
complaint within five business days after receipt thereof and shall deliver
to the Indemnitor within seven business days after the receipt of such
complaint copies of notices and documents (including court papers) received
by the Indemnified Party relating to the Third-Person Claim; PROVIDED,
HOWEVER, that failure to give such notice shall not relieve the Indemnitor of
its obligations hereunder except to the extent the Indemnitor shall have been
prejudiced by such failure.
(b) (i) In the event of a Third-Person Claim, subject to SUBSECTION
11.4(b)(ii) an Indemnitor shall have the absolute right after the receipt of
notice, at its option and at its own expense, to be represented by counsel of
its choice (which shall be satisfactory to the Indemnified Party) and to
defend any proceeding, claim, or demand which relates to any Loss or Expense
indemnified against hereunder if the Indemnitor gives written notice to the
Indemnified Party of its intention to defend (a "Notice to Defend") within
seven business days following receipt of the Claim Notice. The Notice to
Defend must also state that the Indemnitor agrees to fully indemnify the
Indemnified Party for the Third-Person Claim to the extent provided for in
this ARTICLE XI; PROVIDED, HOWEVER, that the Indemnified Party may
participate in any such proceeding with counsel of its choice and at its
expense. The parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any such legal
proceeding, claim or demand. To the extent an Indemnitor elects not to
defend such proceeding, claim or demand or fails to give a Notice to Defend
within such seven business-day period, and the Indemnified Party defends
against or otherwise deals with any such proceeding, claim or demand, the
Indemnified Party may retain counsel, at the expense of the Indemnitor to the
extent provided for in this ARTICLE XI, and control the defense of such
proceeding. Except as provided in SECTION 11.4(c), neither the Indemnitor
nor the Indemnified Party may settle any such proceeding which settlement
obligates the other party, pursuant to such settlement or this ARTICLE XI, to
pay money, to perform obligations, to refrain from performing acts or to
admit liability without the consent of the other party.
Page 60
<PAGE>
(ii) In the event of a Third-Person Claim in which the primary remedy
sought is an injunction, or other similar equitable relief against the
Indemnified Party, that would have a Material Adverse Effect or Material
Adverse Effect on Parent and Buyer, or which principally consists of a
criminal law claim against the Indemnified Party, the Indemnified Party shall
have the rights and obligations of the Indemnitor under SECTION 11.4(b)(i)
and the Indemnitor shall have the rights and obligations of the Indemnified
Party under SECTION 11.4(b)(i).
(iii) After any final judgment or award shall have been rendered by a
court, arbitration board or administrative agency of competent jurisdiction
and the time in which to appeal therefrom has expired, or a settlement shall
have been consummated, or the Indemnified Party and the Indemnitor shall
arrive at a mutually binding agreement with respect to each separate matter
alleged to be indemnified by an Indemnitor hereunder, the Indemnified Party
shall forward to the Indemnitor notice of any sums due and owing by it with
respect to such matter and the Indemnitor shall pay all of the sums so owing
to the Indemnified Party by wire transfer, certified or bank cashier's check
within 30 days after the date of such notice.
(iv) The Indemnified Party shall neither be required to refrain from
paying or satisfying any claim which the Indemnitor has not acknowledged in
writing its obligations to indemnify the Indemnified Party, provided that the
Indemnified Party shall have given notice of such claim to the Indemnitor in
accordance with SECTIONS 11.3 and 11.4, or which has matured by court
judgment or decree, unless appeal is taken thereafter and proper appeal bond
posted by the Indemnitor, nor shall the Indemnified Party be required to
refrain from paying or satisfying any Third-Person Claim after and to the
extent that such Third-Person Claim has resulted in an unstayed permanent
injunction or other similar equitable relief against the Indemnified Party
(unless such claim shall have been discharged or enforcement thereof stayed
by the filing of a legally permitted bond by the Indemnitor or otherwise, at
its sole expense).
(c) (i) Except as provided in SECTION 11.4(b)(iv), in the event that
an Indemnitor, on the one hand, or the Indemnified Party, on the other hand,
has reached a good faith, bona fide settlement agreement or compromise that
involves only monetary payment, subject only to approval hereunder, with any
claimant regarding a matter which may be the subject of indemnification
hereunder and desires to settle on the basis of such agreement or compromise
that involves only monetary payment, such party who desires to so settle or
compromise shall notify the other party in writing of its desire setting
forth the terms of such settlement or compromise (the "NOTICE OF SETTLEMENT").
(ii) The Third-Person Claim may be settled or compromised on the
basis set forth in the Notice of Settlement unless within 20 days of the
receipt of the Notice of Settlement the party who issued the Notice of
Settlement receives a notice from the other party of its desire to continue
to contest the matter (the "NOTICE TO CONTEST") and, in such case:
Page 61
<PAGE>
(A) Should the Indemnified Party deliver a Notice to Contest, the
claim shall be so contested and the monetary liability of the Indemnitor
shall be limited as provided in subsection (C) below.
(B) If the settlement or compromise could result in a claim for
indemnification being made against the Indemnitor and if the Indemnitor
delivers the Notice to Contest, the claim shall be so contested and the
monetary liability of the Indemnified Party shall be limited as provided in
subsection (C) below.
(C) If a matter is contested as provided in subsections (A) or (B)
above and is later adjudicated, settled, compromised or otherwise disposed of
and such adjudication, compromise, settlement or disposition results in a
liability, loss, damage or injury in excess of the amount for which one party
desired previously to settle the matter as set forth in the Notice of
Settlement, then the liability of such party shall be limited to such lesser
proposed settlement amount and the party contesting the matter shall be
solely responsible for the amount in excess of such lesser proposed
settlement amount and without regard to any minimum or maximum restriction on
liability described in this Agreement.
(iii) For an Indemnitor's Notice to Contest to be effective, it must
also state that the Indemnitor acknowledges and agrees that it shall be
obligated to indemnify the Indemnified Party for any amount in excess of the
lesser proposed settlement amount as described in subsection (ii)(C) above.
Except for such obligation for the excess of the lesser proposed settlement
amount acknowledged in a Notice to Contest, the giving of or failure to give
a Notice to Contest by any party shall not be construed or implied as an
acknowledgment by such party of an obligation for indemnification under this
ARTICLE XI.
(d) To the extent of any inconsistency between this SECTION 11.4 and
SECTION 8.3(d), the provisions of SECTION 8.3(d) shall control.
SECTION 11.5. LIMITATIONS. (a) In any case where an Indemnified
Party recovers from third Persons any amount in respect of a matter with
respect to which an Indemnitor has indemnified it pursuant to this ARTICLE
XI, such Indemnified Party shall promptly pay over to the Indemnitor the
amount so recovered (after deducting therefrom the full amount of the
expenses incurred by it in procuring such recovery), but not in excess of the
sum of (i) any amount previously so paid by the Indemnitor to or on behalf of
the Indemnified Party in respect of such matter and (ii) any amount expended
by the Indemnitor in pursuing or defending any claim arising out of such
matter.
(b) Except for remedies that cannot be waived as a matter of law and
injunctive and provisional relief, if the Closing occurs, this ARTICLE XI
shall be the exclusive remedy for breach of this Agreement (including any
covenant, obligation,
Page 62
<PAGE>
representation or warranty continued in this Agreement or any certificate
delivered pursuant to this Agreement) or otherwise in respect of the sale of
the Shares.
ARTICLE XII
TERMINATION
SECTION 12.1. TERMINATION. Anything contained in this Agreement to
the contrary notwithstanding, this Agreement may be terminated at any time
prior to the Closing Date:
(a) by the mutual consent of Buyer and FDC;
(b) by Buyer or FDC if the Closing shall not have occurred on or
before July 1, 1995 (or such later date as may be agreed in writing to by
Buyer and FDC);
(c) by Buyer in the event of (i) any material inaccuracy of any of
FDC's or the Company's representations contained herein or (ii) any
material breach by FDC or the Company of any of their respective
agreements or warranties contained herein and the failure of FDC or the
Company to cure such breach on or before the earlier of the outside date
for Closing pursuant to SECTION 12.1(b) or the 30th day after receipt of
notice from Buyer requesting such breach to be cured;
(d) by FDC in the event of (i) any material inaccuracy of any of
Buyer's or Parent's representations contained herein or (ii) any material
breach by Buyer or Parent of any of their respective agreements or
warranties contained herein and the failure of Buyer or Parent to cure
such breach on or before the earlier of the outside date for Closing
pursuant to SECTION 12.1(b) or the 30th day after receipt of notice from
FDC requesting such breach to be cured;
(e) by Buyer pursuant to the penultimate proviso to SECTION 3.1; or
(f) by Buyer or FDC if any court of competent jurisdiction in the
United States or other United States Governmental Body shall have issued
an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby.
SECTION 12.2. NOTICE OF TERMINATION. Any party desiring to terminate
this Agreement pursuant to SECTION 12.1 shall give written notice of such
termination to the other party to this Agreement.
Page 63
<PAGE>
SECTION 12.3. EFFECT OF TERMINATION. In the event that FDC exercises
its right to terminate this Agreement in accordance with and pursuant solely
to paragraph (d) of SECTION 12.1 (PROVIDED that Buyer is not then eligible to
exercise its right to terminate this Agreement pursuant solely to paragraph
(c) or (f) of SECTION 12.1), FDC shall be entitled to receive from Parent,
and Parent shall pay, a fee in cash equal to $5,000,000 as liquidated
damages, and not as a penalty, the parties agreeing that the damages to FDC
resulting from such a breach of Buyer or Parent are not capable of being
estimated with accuracy and that such amount is a reasonable estimate of the
probable loss to FDC. In the event of such a termination by FDC, neither
Buyer or Parent shall have any other legal or equitable obligation to FDC,
FDC Health or the Company, in the nature of damages or otherwise; PROVIDED,
HOWEVER, that the foregoing shall not limit any remedies that FDC may have
under the Confidentiality Agreement. In the event that this Agreement shall
be terminated pursuant to any other paragraph of SECTION 12.1, nothing herein
shall relieve any party from any liability for its breach other than as
provided in this SECTION 12.3.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.1. CONFIDENTIAL NATURE OF INFORMATION. Each party hereto
agrees that all documents, materials and other information which it shall
have obtained regarding the other party during the course of the negotiations
leading to the consummation of the transactions contemplated hereby (whether
obtained before or after the date of this Agreement), the investigation
provided for herein and the preparation of this Agreement and other related
documents shall be held in confidence pursuant to the Confidentially
Agreement.
SECTION 13.2. NO PUBLIC ANNOUNCEMENT. Neither Buyer nor FDC shall,
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement,
except as and to the extent that any such party shall be so obligated by law,
in which case the other party shall be advised and the parties shall use
their best efforts to cause a mutually agreeable release or announcement to
be issued; PROVIDED, HOWEVER, that the foregoing shall not preclude
communications or disclosures necessary to implement the provisions of this
Agreement or to comply with the accounting and SEC disclosure obligations or
the rules of any stock exchange.
SECTION 13.3. NOTICES. All notices or other communications required
or permitted hereunder shall be in writing and shall be deemed given or
delivered when delivered personally or when sent by registered or certified
mail or by private courier addressed as follows:
Page 64
<PAGE>
If to Buyer or Parent, to:
301 Perimeter Center North
Atlanta, Georgia 30346
Attention: James A. Gilbert, Vice President
and General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attention: Robert W. Smith, Esq.
If to FDC or the Company, to or in care of:
First Data Corporation
401 Hackensack Avenue
Hackensack, New Jersey 07601
Attention: Robert J. Levenson, Executive Vice President
with copies to:
First Data Corporation
2121 North 117th Avenue
Omaha, Nebraska 68164
Attention: David P. Bailis, General Counsel
and
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Frederick C. Lowinger
or to such other address as such party may indicate by a notice delivered to
the other party hereto.
SECTION 13.4. SUCCESSORS AND ASSIGNS. (a) The rights of either party
under this Agreement shall not be assignable by such party hereto prior to
the Closing without the written consent of the other party, except that Buyer
may assign its rights, but not its obligations hereunder, to one or more
wholly-owned direct or indirect subsidiaries of Parent.
Page 65
<PAGE>
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon any Person other than the parties and successors and assigns
permitted by this SECTION 13.4 any right, remedy or claim under or by reason
of this Agreement.
SECTION 13.5. ACCESS TO RECORDS AFTER CLOSING. (a) For a period of
six years after the Closing Date, FDC and its representatives shall have
reasonable access to all of the books and records of the Company and the
Subsidiaries to the extent that such access may reasonably be required by FDC
in connection with matters relating to or affected by the operations of the
Company and the Subsidiaries prior to the Closing Date. Such access shall be
afforded by Buyer upon receipt of reasonable advance notice and during normal
business hours. FDC shall be solely responsible for any costs or expenses
incurred by it pursuant to this SECTION 13.5(a). If Buyer, the Company or
the Subsidiaries shall desire to dispose of any of such books and records
prior to the expiration of such six-year period, Buyer shall, prior to such
disposition, give FDC a reasonable opportunity, at FDC's expense, to
segregate and remove such books and records as FDC may select.
(b) For a period of six years after the Closing Date, Buyer and its
representatives shall have reasonable access to all of the books and records
relating to the Business which FDC or any of its Affiliates may retain after
the Closing Date. Such access shall be afforded by FDC and its Affiliates
upon receipt of reasonable advance notice and during normal business hours.
Buyer shall be solely responsible for any costs and expenses incurred by it
pursuant to this SECTION 13.5(b). If FDC or any of its Affiliates shall
desire to dispose of any of such books and records prior to the expiration of
such six-year period, FDC shall, prior to such disposition, give Buyer a
reasonable opportunity, at Buyer's expense, to segregate and remove such
books and records as Buyer may select.
SECTION 13.6. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the
Exhibits and SCHEDULES referred to herein and the documents delivered
pursuant hereto and the Confidentiality Agreement contain the entire
understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all other prior agreements,
understandings or letters of intent between or among any of the parties
hereto. This Agreement shall not be amended, modified or supplemented except
by a written instrument signed by an authorized representative of each of the
parties hereto.
SECTION 13.7. INTERPRETATION. Articles, titles and headings to
sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. The SCHEDULES and Exhibits referred to herein shall be construed
with and as an integral part of this
Page 66
<PAGE>
Agreement to the same extent as if they were set forth verbatim herein.
Neither the specification of any dollar amount in any representation or
warranty contained in this Agreement nor the inclusion of any specific item
in any Schedule hereto is intended to imply that such amount, or higher or
lower amounts, or the item so included or other items, are or are not
material, and no party shall use the fact of the setting forth of any such
amount or the inclusion of any such item in any dispute or controversy
between the parties as to whether any obligation, item or matter not
described herein or included in any Schedule is or is not material for
purposes of this Agreement. Unless this Agreement specifically provides
otherwise, neither the specification of any item or matter in any
representation or warranty contained in this Agreement nor the inclusion of
any specific item in any Schedule hereto is intended to imply that such item
or matter, or other items or matters, are or are not in the ordinary course
of business, and no party shall use the fact of the setting forth or the
inclusion of any such item or matter in any dispute or controversy between
the parties as to whether any obligation, item or matter not described herein
or included in any Schedule is or is not in the ordinary course of business
for purposes of this Agreement. FDC may, from time to time prior to or at
the Closing, by notice in accordance with the terms of this Agreement,
supplement, amend or create any Schedule, in order to add information or
correct previously supplied information. No such amendment shall be
evidence, in and of itself, that the representations and warranties in the
corresponding section are no longer true and correct in all material
respects. It is specifically agreed that such Schedules may be amended to
add immaterial, as well as material, items thereto. No such supplemental,
amended or additional Schedule shall be deemed to cure any breach for
purposes of SECTION 9.1. If, however, the Closing occurs, then, except as
provided in the first paragraph of ARTICLE IX and the first paragraph of
ARTICLE X, any such supplement, amendment or addition will be effective to
cure and correct for all other purposes any breach of any representation,
warranty or covenant which would have existed if FDC had not made such
supplement, amendment or addition, and all references to any Schedule hereto
which is supplemented or amended as provided in this SECTION 13.7 shall for
all purposes after the Closing be deemed to be a reference to such Schedule
as so supplemented or amended.
SECTION 13.8. WAIVERS. Any term or provision of this Agreement may
be waived, or the time for its performance may be extended, by the party or
parties entitled to the benefit thereof. Any such waiver shall be validly
and sufficiently authorized for the purposes of this Agreement if, as to any
party, it is authorized in writing by an authorized representative of such
party. The failure of any party hereto to enforce at any time any provision
of this Agreement shall not be construed to be a waiver of such provision,
nor in any way to affect the validity of this Agreement or any part hereof or
the right of any party thereafter to enforce each and every such provision.
No waiver of any breach of this Agreement shall be held to constitute a
waiver of any other or subsequent breach.
Page 67
<PAGE>
SECTION 13.9. EXPENSES. Except as provided in the Registration
Rights Agreement, each party hereto will pay all costs and expenses incident
to its negotiation and preparation of this Agreement and to its performance
and compliance with all agreements and conditions contained herein on its
part to be performed or complied with, including the fees, expenses and
disbursements of its counsel and independent public accountants.
SECTION 13.10. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such provision shall be ineffective to the extent, but only
to the extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or unenforceable
provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable.
SECTION 13.11. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall be considered an
original instrument, but all of which shall be considered one and the same
agreement, and shall become binding when one or more counterparts have been
signed by each of the parties hereto and delivered to each of FDC, the
Company, Buyer and Parent.
SECTION 13.12. FURTHER ASSURANCES. On and after the Closing Date
each party hereto shall take such other actions and execute such other
documents and instruments of conveyance and transfer as may be reasonably
requested by the other party hereto from time to time to effectuate or
confirm the transfer of the Shares to Buyer in accordance with the terms of
this Agreement.
SECTION 13.13. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws (as opposed to the
conflicts of law provisions) of the State of New York.
SECTION 13.14. DISCLAIMER OF WARRANTIES. FDC makes no
representations or warranties with respect to any projections, forecasts or
forward-looking information provided to Parent or Buyer. There is no
assurance that any projected or forecasted results will be achieved. EXCEPT
AS TO THOSE MATTERS EXPRESSLY COVERED BY THE REPRESENTATIONS AND WARRANTIES
IN THIS AGREEMENT AND THE CERTIFICATE DELIVERED BY FDC PURSUANT TO SECTION
4.4, FDC IS SELLING THE SHARES (AND THE BUSINESS AND ASSETS OF THE COMPANY
REPRESENTED THEREBY) ON AN "AS IS, WHERE IS" BASIS AND DISCLAIMS ALL OTHER
WARRANTIES, REPRESENTATIONS AND GUARANTIES WHETHER EXPRESS OR IMPLIED. FDC
MAKES NO REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR
Page 68
<PAGE>
ANY PARTICULAR PURPOSE AND NO IMPLIED WARRANTIES WHATSOEVER. Parent and
Buyer acknowledge that neither FDC nor any of its representatives nor any
other Person has made any representation or warranty, express or implied, as
to the accuracy or completeness of any memoranda, charts, summaries or
schedules heretofore made available by FDC or its representatives to Parent
or Buyer or any other information which is not included in this Agreement or
the Schedules hereto, and neither FDC nor any of its representatives nor any
other Person will have or be subject to any liability to Parent, any
Affiliate of Parent or any other Person resulting from the distribution of
any such information to, or use of any such information by, Parent, any
Affiliate of Parent or any of their agents, consultants, accountants, counsel
or other representatives.
Page 69
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
"BUYER":
HBO & COMPANY OF GEORGIA
By: /s/ Charles W. McCall
------------------------------
Name: Charles W. McCall
Title: President and CEO
"PARENT":
HBO & COMPANY
By: /s/ Charles W. McCall
------------------------------
Name: Charles W. McCall
Title: President and CEO
"FDC":
FIRST DATA CORPORATION
By: /s/ Henry C. Duques
------------------------------
Name: Henry C. Duques
Title: Chief Executive Officer
"FDC HEALTH":
FDC HEALTH INC.
By: /s/ David P. Bailis
------------------------------
Name: David P. Bailis
Title: Secretary
Page 70
<PAGE>
"COMPANY":
FIRST DATA HEALTH SYSTEMS
CORPORATION
By: /s/ David P. Bailis
------------------------------
Name: David P. Bailis
Title: Secretary
Page 71
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
TO THE STOCK PURCHASE AGREEMENT
DATED AS OF MAY 16, 1995 AMONG FDC,
FDC HEALTH, THE COMPANY, PARENT AND BUYER
EXHIBITS
1 Form of Registration Rights Agreement
2 Form of Human Resources Agreement
3 Form of Transition Services Agreement
4 Form of Shareholder Agreement
5 Form of Trademark License Agreement
6 Form of Promissory Note
SCHEDULES
5.3 Subsidiaries and Investments
5.4 Authority; Conflicts
5.5 Financial Statements
5.6 Operations of the Company Since Financial Statement Date
5.7 Undisclosed Liabilities of the Company and the Subsidiaries
5.8(a) Tax Returns of the Company and the Subsidiaries
5.8(b) Matters Relating to the FDC Tax Group
5.9 Employee Benefits
5.10(a) Leased Real Property
5.10(b) Owned Personal Property
5.10(c) Leased Personal Property
Page 72
<PAGE>
5.10(d) Inventories Not Usable and Accounts Receivables Not Arising
in the Ordinary Course of the Business
5.10(e) Other Agreements Relating to Assets or Property
5.11(a) List of Owned Intellectual Property
5.11(b) Exceptions to Entire Ownership of Right, Title and Interest
in Intellectual Property
5.11(c) Exceptions to Enforceability of Intellectual Property Rights
5.11(d) Infringement of Intellectual Property
5.11(e) List of Software Owned by the Company or Subsidiaries
5.11(f)(1) Summary of Software Licensed by the Company or Subsidiaries
5.11(f)(2) List of Sublicensed Software
5.11(g) Software Licenses or Leases Granted by the Company or any
Subsidiaries
5.11(h)(i) Summary Description of Third Party Software Marketing
Agreements Granted to the Company or Subsidiaries
5.11(h)(ii) Third Party Marketing Rights Granted by the Company or
Subsidiaries
5.11(i) Absence of Certain Action Regarding Company Software
5.12 Compliance with Laws and Licensing
5.13 Litigation or Claims Against the Company
5.14 List of Contracts, Agreements and Instruments Generally
5.15 Customer Contract Exceptions
5.16 Disruption of Customer Relationships
5.17 Environmental Matters
5.18(i) Insurance Policies Held by FDC, the Company and Subsidiaries
Page 73
<PAGE>
5.18(ii) Insurance Policies Owned by Company and Subsidiaries
5.19(a) List of Employees and Independent Contractors
5.19(b) Labor Disputes
5.19(c) Compliance with Employment Laws
5.19(d) Loans and Advances to Employees
5.20 Related Party Transactions
5.21 Brokers Acting on Behalf of FDC, FDC Health or the Company
6.5 Operations of Buyer Since March 31, 1995
6.6 Undisclosed Liabilities of Parent
6.7 Compliance with Laws and Litigation and Regulatory Action
Involving Parent
6.8 Brokers Acting on Behalf of Parent or Buyer
8.2 List of Trademarks, Tradenames and Service Marks of the
Company and Subsidiaries
8.4 Assumption of Certain Liabilities by FDC
8.5 Radiology and Pharmacy Software Customers
9.5 Necessary Consents (FDC and the Company)
10.5 Necessary Consents (Parent and Buyer)
Pursuant to Item 601 of Regulation S-K, the Registrant has excluded from
Exhibit 2 to its Form 8-K dated June 22, 1995, the Exhibits and Schedules
listed above and the Registrant agrees to furnish copies of such Exhibits and
Schedules to the Commission upon request.
Page 74
<PAGE>
June 17, 1995
HBO & Company
HBO & Company of Georgia
301 Perimeter Center North
Atlanta, Georgia 30346
Ladies and Gentlemen:
Reference is made to the Stock Purchase Agreement (the "AGREEMENT"),
dated as of May 16, 1995, among First Data Corporation, a Delaware
corporation ("FDC"); FDC Health Inc., a Nebraska corporation and a wholly
owned subsidiary of FDC ("FDC HEALTH"); First Data Health Systems
Corporation, a Delaware corporation and wholly owned subsidiary of FDC Health
(the "COMPANY"); HBO & Company, a Delaware corporation ("PARENT"); and HBO &
Company of Georgia, a Delaware corporation and wholly owned subsidiary of
Parent (the "BUYER")
FDC, FDC Health, the Company, Parent and Buyer desire to amend the
Agreement as follows:
Section 8.5 of the Agreement is hereby amended by deleting such
Section in its entirety and substituting therefor the following:
SECTION 8.5. RADIOLOGY, SCHEDULING, MEDICAL RECORDS AND PHARMACY
SOFTWARE PRODUCTS. With respect to customers of the Business described on
SCHEDULE 8.5 who are parties to contracts, agreements, offers or options
with the Company as of the Closing Date that provide for delivery of
Pharmacy, Scheduling, Medical Records and Radiology Software Products
upon the satisfaction of certain terms (the "PHARMACY, SCHEDULING,
MEDICAL RECORDS AND RADIOLOGY SOFTWARE CONTRACTS"), from the Closing Date
to the expiration of FDC's indemnification obligations to the Buyer Group
Members under SECTION 11.1(a)(iv), Buyer will, and will cause the Company
to, offer, on terms substantially similar to those contained in the
Pharmacy, Scheduling, Medical Records and Radiology Software Contracts,
the then-current comparable software products of Buyer for pharmacy,
scheduling, medical records and
Page 75
<PAGE>
radiology. No Buyer Group Member shall be indemnified under this
Agreement for Buyer's, the Company's or any of their Affiliates' costs of
providing, installing or otherwise implementing, substituting, replacing
or providing alternative software, goods or services of Buyer, the
Company or any of their Affiliates to customers of the Business in
fulfillment of Buyer's obligations pursuant to this SECTION 8.5.
Section 9.8 of the Agreement is hereby amended by deleting such
Section in its entirety and substituting therefor the following:
SECTION 9.8. COMPANY CASH ACCOUNT. The cash reserves of the Company
and the Subsidiaries shall, in the aggregate, be at least $2,000,000 plus
an amount equal to the accrued payroll obligations of the foreign
Subsidiaries on the Closing Date. For purposes of this SECTION 9.8,
"accrued payroll obligations" shall also include unpaid bonus
compensation for pre-Closing periods as described in Section 3.2 of the
Human Resources Agreement; unpaid commissions earned before the Closing
Date as described in Section 3.4 of the Human Resources Agreement; and
unpaid amounts payable in respect of vacation accrued for 1994 and prior
years as described in Section 5.1 of the Human Resources Agreement.
Set forth as Annex A hereto are materials that, pursuant to Section
13.7 of the Agreement, the parties hereby agree constitute amendments and
supplements to the SCHEDULES to the Agreement.
Except as herein expressly amended, the Agreement is ratified and
confirmed in all respects and shall remain in full force and effect in
accordance with its terms. Each reference in the Agreement to "this
Agreement" shall mean the Agreement as amended by this letter agreement, and
as hereafter amended or restated.
This letter agreement may be executed in one or more counterparts,
each of which shall be considered an original instrument, but all of which
shall be considered one and the same agreement, and shall become binding when
one or more counterparts have been signed by each of the parties hereto and
delivered to each of FDC, FDC Health, the Company, Parent and Buyer.
This letter agreement shall not be amended, modified or supplemented
except by a written instrument signed by an authorized representative of each
of the parties hereto. In the event of any conflict between the provisions
of this letter agreement and the provisions of the Agreement, the provisions
of this letter agreement shall control.
Page 76
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement among FDC, FDC
Health, the Company, Parent and Buyer.
Very truly yours,
FIRST DATA CORPORATION
By: ____________________________
Name:
Title:
FDC HEALTH INC.
By: ____________________________
Name:
Title:
FIRST DATA HEALTH
SYSTEMS CORPORATION
By: ____________________________
Name:
Title:
Page 77
<PAGE>
The foregoing agreement is hereby confirmed and accepted as of the date of
this letter.
HBO & COMPANY
By: ______________________________
Name:
Title:
HBO & COMPANY OF GEORGIA
By: ______________________________
Name:
Title:
Page 78
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 2-75987, 33-39034, 2-92030, 33-12051, 33-67300, 33-82962,
33-82960, 33-84034, 33-59173) of HBO & Company of our reports dated January
26, 1995 (except for Note 12, as to which the date is June 17, 1995) and
March 31, 1995 (except for Note 11, as to which the date is June 17, 1995),
with respect to the financial statements of the Health Services Business of
First Data Health Systems Corporation included in this Current Report on Form
8-K of HBO & Company dated July 31, 1995.
ERNST & YOUNG LLP
Denver, Colorado
July 31, 1995
Page 79
<PAGE>
Exhibit 99(a)
NEWS RELEASE
Contact: Monika Brown 301 Perimeter Center North
Investor Relations Atlanta, GA 30346
(404) 668-5926
HBOC COMPLETES ACQUISITION OF FDC HEALTH SYSTEMS GROUP
ATLANTA, June 19, 1995 -- HBO & Company (Nasdaq:HBOC) today announced
it has completed the acquisition of the Charlotte-based Health Systems Group
of First Data Corporation (HSG). HBOC purchased HSG for 4 million shares of
HBOC stock. The transaction will be accounted for as a purchase of assets.
During the second quarter, HBOC will take a one-time pretax charge of
approximately $125 million for the acquisition, primarily related to
purchased research and development for HSG.
With 1994 revenue of approximately $121 million, HSG has more than
500 customers.
"The acquisition of HSG is a continuation of HBOC's strategy to
deliver new enterprisewide solutions while continuing to support and enhance
our customers existing products ," said Charles W. McCall, HBOC president
and chief executive officer. "We believe the combination of our product
strength, customer base and financial position gives us a strategic advantage
in the healthcare informatics industry."
HBOC announced its plans to acquire HSG on May 16, 1995. Since then,
the company has been working to ensure a smooth transition of the HSG
business to HBOC, says vice president James A. Gilbert. "Our overriding goal
is to provide uninterrupted, high-quality service to every HSG customer," he
said. "At the same time, we've taken steps to eliminate redundancies and
streamline processes to ensure future profitability."
Gilbert said that HBOC will operate HSG as a business unit under the
leadership of Chuck Miller, a former HSG vice president, who will report to
Gilbert.
HBO & Company delivers underpriced patient care, clinical, financial
and strategic management software solutions, as well as networking
technologies, outsourcing and other services to healthcare organizations in
the United States, United Kingdom, Canada, Australia and New Zealand.
Page 80
<PAGE> EXHIBIT 99 (b)
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
REVENUES
Fee revenues, net $121,241
--------
EXPENSES
Human resources 58,456
Equipment, facilities, and data processing 14,240
Depreciation and amortization 8,920
Travel and other expenses 19,303
--------
TOTAL 100,919
--------
OPERATING INCOME 20,322
Interest expense 6,703
--------
PRETAX INCOME 13,619
Income taxes 7,877
--------
NET INCOME $ 5,742
========
</TABLE>
See notes to financial statements.
Page 81
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
BALANCE SHEET
DECEMBER 31, 1994
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,248
Accounts receivable, less allowance of $4,757 30,881
Deferred income taxes 7,474
Inventories, less allowance of $3,117 2,530
Other current assets 2,152
----------
Total current assets 45,285
----------
Equipment, furniture, and leasehold improvements at cost, net
of accumulated depreciation of $21,425 7,942
Deferred income taxes 1,689
Goodwill, net of accumulated amortization of $9,197 87,745
Other intangibles, net of accumulated amortization of $4,228 4,547
Other assets 3,886
---------
Total assets $151,094
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 7,401
Intercompany payables -- FDC and subsidiaries, net 756
Long-term debt -- current portion 814
Employee-related liabilities 3,279
Deferred revenue 6,240
Other current liabilities 15,578
---------
Total current liabilities 34,068
---------
Intercompany loan -- FDC, net 63,571
Long-term debt 989
Deferred revenue 11,285
Accrued and other liabilities 8,698
---------
Total liabilities 118,611
---------
Stockholder's equity:
Common stock, par value $1.00 per share, authorized
1,000 shares; issued and outstanding 10 shares --
Capital surplus 29,918
Foreign currency translation adjustment (456)
Retained earnings 3,021
---------
Total stockholder's equity 32,483
---------
Total liabilities and stockholder's equity $151,094
=========
</TABLE>
See notes to financial statements.
Page 82
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
($ IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,742
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,119
Amortization 4,801
Other noncash credits, net (including reversal
of excess accruals) (3,337)
Changes in operating assets and liabilities:
Accounts receivable 127
Other assets 9,364
Accounts payable and other liabilities (6,554)
Intercompany, net (251)
--------
Net cash provided by operating activities 14,011
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture (2,961)
Proceeds from sale of equipment and furniture 845
Proceeds from escrow settlement 8,040
Acquisition-related payments (10,895)
--------
Net cash used by investing activities (4,971)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,197)
Decrease in intercompany loan -- FDC (2,939)
Dividends paid to FDC (5,697)
--------
Net cash used by financing activities (9,833)
--------
Effect of exchange rate changes on cash 298
NET DECREASE IN CASH AND CASH EQUIVALENTS (495)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,743
--------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,248
========
</TABLE>
See notes to financial statements.
Page 83
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1994
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Foreign
Currency
Common Capital Translation Retained
Stock Surplus Adjustment Earnings Total
------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ -- $ 29,918 $ (750) $ 3,463 $ 32,631
Net income -- -- -- 5,742 5,742
Cash dividends -- -- -- (5,697) (5,697)
Equipment and furniture dividend -- -- -- (487) (487)
Foreign currency translation adjustment -- -- 294 -- 294
-------- -------- ------- -------- --------
Balance at December 31, 1994 $ -- $ 29,918 $ (456) $ 3,021 $ 32,483
======== ======== ======= ======== ========
</TABLE>
See notes to financial statements.
Page 84
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1: BUSINESS AND BASIS OF PRESENTATION
First Data Health Systems Corporation ("HSC") is a wholly-owned subsidiary of
First Data Corporation ("FDC").
Through its wholly-owned domestic and international subsidiary companies, HSC
provides management information systems and services to hospitals, medical
group practices, and medical facilities throughout the United States, as well
as Australia, Puerto Rico, the United Kingdom and other countries
(collectively, the "Health Services Business" or the "Company"). The Company
offers a comprehensive range of computer-based services, including
computerized patient records, medical records imaging, on-line patient file
management, account billing, scheduling, accounting, payroll, and insurance
and claims processing.
In addition to its ownership of the Company, HSC is the parent company of ACB
Business Services, Inc. ("ACB") and The Shareholder Services Group, Inc.
("TSSG") which provide services in and to the accounts receivable management
and mutual fund industries, respectively. The accompanying financial
statements present the financial position, results of operations, and cash
flows of HSC's Health Services Business and do not include the accounts of
ACB and TSSG. All material intercompany accounts and transactions within the
Health Services Business have been eliminated in the preparation of the
accompanying financial statements.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company has principally defined cash and cash equivalents as cash, time
deposits, and certain highly liquid instruments with maturities of three
months or less at the date of purchase.
INVENTORY
Inventory consists of data processing equipment components for assembly and
repair parts and is carried at lower of cost (first-in, first-out method) or
market.
EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment and furniture are depreciated over their estimated useful lives
ranging from 3 to 8 years. Leasehold improvements are amortized over the
shorter of their estimated lives (ranging from 3 to 10 years) or the
remaining lease term. Depreciation is computed using the straight-line
Page 85
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
method. Included in equipment, furniture and leasehold improvements are
assets held under capital lease agreements of $918,000, net of accumulated
amortization of $1,485,000 as of December 31, 1994.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of purchase price over the fair value of
tangible and other identifiable assets acquired less liabilities assumed
arising from the acquisitions of McDonnell Douglas Health Systems Company in
1989 and Gerber Alley & Associates, Inc. ("Gerber Alley") in 1992 and is
being amortized over estimated useful lives of 40 and 25 years, respectively.
Other intangible assets principally consist of software related to these
acquisitions. These costs are amortized on a straight-line basis over the
estimated length of the benefit period, from 5 to 10 years.
SOFTWARE DEVELOPMENT COSTS
The Company has expensed software development costs since the capitalization
and subsequent amortization thereof, as required under Statement of Financial
Accounting Standards ("SFAS") No. 86, would not have a material impact on the
Company's financial condition or results of operations.
REVENUE RECOGNITION
The Company provides its customers with information systems solutions either
in a service bureau capacity ("Host Based Services") or through the sale of
integrated minicomputer hardware and software solutions ("Turnkey Services").
Revenue attributable to Host Based Services is based principally upon
transaction volumes and is recognized as services are performed. Revenue
attributable to Turnkey Services is generally recognized as follows:
Software license fees -- For those agreements for which the
Company's remaining obligations are insignificant, software license
fees are recognized at the installation date. In situations where
the Company's remaining obligations are significant, the license
fees are deferred and amortized over the contract term which is
generally seven years.
Hardware -- Hardware sales and the related cost of sales are
generally recognized upon delivery of the equipment.
Services -- Implementation, installation, monthly software support
and other fees are recognized upon billing which generally occurs
as work is performed.
With respect to Turnkey products under development, all revenues have been
deferred.
Page 86
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method required by
SFAS No. 109, "Accounting for Income Taxes." The taxable income of the
Company is included in the consolidated U.S. federal income tax return of
FDC. Under an agreement with FDC, the provision for income taxes and tax
benefits is determined by the Company on a stand-alone basis. Current income
taxes are remitted to, and benefits received from, FDC.
NOTE 3: RELATED PARTY TRANSACTIONS
"Intercompany loan -- FDC, net" on the Balance Sheet includes a
noninterest-bearing intercompany receivable of approximately $18 million.
"Interest Expense" on the Statement of Income primarily represents interest
paid on the interest-bearing portion of the intercompany loan from FDC. The
loan bears interest at an annually adjusted floating rate (8.25% for 1994)
reflective of FDC's cost of external debt and is repaid based upon available
cash flows of the Company.
In December 1993, FDC announced its decision to consolidate its data center
operations and recorded a charge to earnings with respect thereto. Included
therein was the decision to relocate the Company's and other FDC affiliates'
data center assets and operations to a shared FDC facility. This relocation
occurred in early 1994 and effectively resulted in an outsourcing agreement
with an FDC affiliate. The Company is charged based upon usage. The
accompanying Statement of Income reflects approximately $4.5 million of
charges related to data processing services. As this relocation was part of
an FDC companywide initiative, the Company's financial statements do not
reflect any expenses associated therewith.
In addition, the accompanying Statement of Income reflects charges from FDC
and its subsidiaries of approximately $7.3 million for the year ended
December 31, 1994, which are principally attributable to the Company's
participation in certain FDC insurance, benefit and incentive plans, as well
as certain other services provided during those years. The majority of the
expenses are charged based on usage and/or actual costs. Management does not
believe that, had the Company been operating other than as an affiliate of
FDC, there would have been a material impact on net income.
Page 87
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: DEBT AND BORROWING AGREEMENTS
Long-term debt at December 31, 1994 consists of (thousands):
<TABLE>
<CAPTION>
<S> <C>
Capital lease obligations, at various rates and maturities $1,327
Other 476
------
Total 1,803
Less current maturities 814
------
Long-term debt $ 989
======
</TABLE>
Aggregate annual maturities of long-term debt are as follows (thousands):
1995, $814; 1996, $761; 1997, $228. Carrying values approximate fair values
as of December 31, 1994.
Interest paid on debt during 1994 was $174,000.
NOTE 5: INCOME TAXES
The provision for income taxes for the year ended December 31, 1994 consists
of the following (thousands):
<TABLE>
<CAPTION>
<S> <C>
Federal $5,941
State and local 1,924
Foreign 12
------
Total $7,877
======
</TABLE>
Deferred income taxes result from the recognition of temporary differences.
Temporary differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for
financial statement purposes in future years. The provision for income taxes
for the year ended December 31, 1994 is comprised of the following
(thousands):
<TABLE>
<CAPTION>
<S> <C>
Current $11,126
Deferred (3,249)
--------
Total $ 7,877
========
</TABLE>
Page 88
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: INCOME TAXES (CONTINUED)
At December 31, 1994, the Company's net deferred tax assets consist of the
following (thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Deferred revenue $ 5,710
Accrued expenses, losses and other 7,370
-------
Total deferred tax assets 13,080
-------
Deferred tax liabilities:
Depreciation and amortization 2,491
Other liabilities 1,426
-------
Total deferred tax liabilities 3,917
-------
Net deferred tax assets $ 9,163
=======
</TABLE>
At December 31, 1994, Gerber Alley has a $20 million net operating loss
carryforward expiring in 2006 and 2007, which arose prior to the Company's
acquisition of Gerber Alley. No benefit has been recognized for this loss.
Benefits received from FDC for net income taxes during 1994 were $1.7
million. Included in "Intercompany payables -- FDC and subsidiaries, net" at
December 31, 1994 was an income tax payable of $1.5 million.
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rate to income tax expense for the
year ended December 31, 1994 is (thousands):
<TABLE>
<CAPTION>
<S> <C>
Tax at U.S. statutory rate $4,767
Increases in taxes resulting from:
State and local taxes, net of federal
income tax benefit 1,251
Amortization of goodwill 1,357
Loss on foreign subsidiaries 282
All other 220
------
Income tax expense $7,877
======
</TABLE>
Page 89
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: RETIREMENT PLANS
DEFINED BENEFIT PLAN
Eligible employees of the Company participate in FDC's U.S. defined benefit
pension plan. Net pension costs for the year ended December 31, 1994 were
approximately $1.0 million. Such amounts are included in the charges from FDC
in Note 3.
DEFINED CONTRIBUTION PLAN
FDC has an incentive savings plan which allows eligible employees of FDC and
its subsidiaries to contribute a percentage of their compensation and
provides for certain matching and service related contributions. The
Company's matching and service related contributions associated with the plan
were approximately $1.5 million in 1994. Such amounts are included in the
charges from FDC in Note 3.
NOTE 7: STOCK COMPENSATION PLAN
Certain of the Company's officers, key employees and other individuals
participate in the First Data Corporation 1992 Long-Term Incentive Plan (the
"1992 Plan"). Awards under the 1992 Plan may be in the form of stock options,
stock appreciation rights, restricted stock, performance grants and other
types of awards that the Compensation and Benefits Committee of FDC's Board
of Directors deems to be consistent with the purposes of the 1992 Plan. FDC
options granted to the Company's employees are generally at a price
equivalent to the fair market value at the date of grant.
NOTE 8: OPERATING LEASE COMMITMENTS
The Company leases certain office facilities and operating equipment under
cancelable and noncancelable agreements. Total rent expense was $6.6 million
for the year ended December 31, 1994.
At December 31, 1994, the minimum aggregate rental commitment under all
noncancelable leases was (thousands): 1995, $5,950; 1996, $5,928; 1997,
$5,083; 1998, $4,510; 1999, $4,461; and $4,763 for years thereafter. Most
leases contain standard renewal clauses.
NOTE 9: CONTINGENCIES
The Company is involved in litigation primarily arising in the normal course
of its business. In the opinion of management, the Company's recovery or
liability, if any, under any pending litigation, would not materially affect
its financial condition or operations.
Page 90
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: CONTINGENCIES (CONTINUED)
The company is and has been an authorized value-added reseller ("VAR") of
Tandem Computers Incorporated ("Tandem") through a VAR agreement. The Company
markets and sells its proprietary systems with with Tandem computer hardware
and software, thereby sublicensing Tandem's software to its clients. Tandem
has asserted a claim against the Company for license and maintenance fees
related to software for which it believes the Company did not possess a
licensing arrangement. The Company is currently in negotiations with Tandem
to extend its VAR agreement and provide remedies to Tandem's claim. These
remedies are intended to include continued and expanded use of Tandem
hardware and software with the Company's systems, including its newly
developed systems. The Company believes that settlement of this licensing
issue with Tandem as presently contemplated will not result in a material
adverse impact to the Company's financial position. Should circumstances
arise which would preclude the Company from entering into the presently
contemplated settlement, the Company could be subject to a material financial
obligation.
The Company has entered into contractual agreements to provide turnkey
products to a number of customers which turnkey products are in various
stages of development. All software license fees received to date for these
products have been deferred as has the gross profit on hardware deliveries to
date. In the event the Company is unable to fulfill its obligations under
these contractual agreements, the remedies available to the affected
customers are generally limited to a recovery of amounts paid to the Company.
In the case of hardware, the amount to be refunded by the Company could be in
excess of market value of the hardware. In order to remedy potential breaches
of contract, the Company has negotiated modifications to certain customer
contracts and expects to enter into further negotiations. The Company does
not believe that the final resolution of issues pertaining to these contracts
will have a material adverse impact on its financial position.
In conjunction with the renewal of certain client contracts, the Company
committed to provide certain replacement software without charge. Such
replacement software may be developed by the Company or more likely, in the
alternative, purchased from third parties in which case the estimated costs
would range from approximately $1.8 million to $3.1 million through 1997.
NOTE 10: CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company is exposed to credit risk
resulting from the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract. The Company
regularly monitors credit risk exposures and takes steps to mitigate the
likelihood of these exposures resulting in a loss. The primary counterparties
to the Company's accounts receivable and sources of the Company's revenues
consist of healthcare providers.
Page 91
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: SUBSEQUENT EVENT
On June 17, 1995, FDC sold its entire ownership interest in the common stock
of HSC to HBO & Company. Immediately prior to closing, HSC's ownership
interest in the capital stock of ACB and TSSG was distributed to a
wholly-owned subsidiary of FDC.
Page 92
<PAGE>
Report of Ernst & Young LLP Independent Auditors
The Board of Directors and Stockholder
First Data Health Systems Corporation
We have audited the accompanying balance sheet of the Health Services
Business of First Data Health Systems Corporation (the "Health Services
Business") as of December 31, 1994, and the related statements of income,
stockholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of management of the Health Services
Business. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable 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 audit provides 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 the Health Services Business
at December 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
March 31, 1995
except for Note 11, as to
which the date is June 17, 1995
Page 93
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
STATEMENT OF INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------
1993 1992
-------- --------
<S> <C> <C>
REVENUES
Fee revenues, net $124,279 $ 98,614
-------- --------
EXPENSES
Human resources 60,902 40,890
Equipment, facilities, and data processing 16,134 14,592
Depreciation and amortization 8,842 4,078
Travel and other expenses 16,423 11,477
-------- --------
TOTAL 102,301 71,037
-------- --------
OPERATING INCOME 21,978 27,577
Interest expense 6,936 2,244
-------- --------
PRETAX INCOME 15,042 25,333
Income taxes 6,919 10,196
-------- --------
NET INCOME $ 8,123 $ 15,137
======== ========
</TABLE>
See notes to financial statements.
Page 94
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,743 $ 2,678
Accounts receivable, less allowance: 1993, $5,472; 1992, $5,203 31,701 31,580
Deferred income taxes 4,105 8,379
Inventories, less allowance: 1993, $3,517; 1992, $4,529 2,572 2,785
Other current assets 429 2,404
-------- --------
Total current assets 41,550 47,826
-------- --------
Equipment, furniture, and leasehold improvements at cost, net of
accumulated depreciation: 1993, $21,149; 1992, $23,154 11,610 15,976
Deferred income taxes 9,879 13,529
Goodwill, net of accumulated amortization: 1993, $5,415; 1992, $2,661 98,518 91,448
Other intangibles, net of accumulated amortization: 1993, $4,742;
1992, $3,365 5,688 5,804
Other assets 3,769 4,173
-------- --------
Total assets $171,014 $178,756
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 8,234 $ 10,487
Intercompany payables -- FDC and subsidiaries, net 589 663
Long-term debt -- current portion 1,164 1,346
Employee-related liabilities 4,278 4,744
Deferred revenue 6,537 6,781
Other current liabilities 16,254 30,422
-------- --------
Total current liabilities 37,056 54,443
-------- --------
Intercompany loan -- FDC, net 66,510 49,681
Long-term debt 1,836 2,838
Deferred revenue 16,298 21,074
Accrued and other liabilities 16,683 19,512
-------- --------
Total liabilities 138,383 147,548
-------- --------
Stockholder's equity:
Common stock, par value $1.00 per share, authorized
1,000 shares; issued and outstanding 10 shares -- --
Capital surplus 29,918 29,918
Foreign currency translation adjustment (750) (344)
Retained earnings 3,463 1,634
-------- --------
Total stockholder's equity 32,631 31,208
-------- --------
Total liabilities and stockholder's equity $171,014 $178,756
======== ========
</TABLE>
See notes to financial statements.
Page 95
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
STATEMENT OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------
1993 1992
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,123 $15,137
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,631 2,465
Amortization 4,211 1,613
Other noncash (credits) charges, net (including, in 1993,
reversal of excess accruals) (4,461) 2,141
Changes in operating assets and liabilities:
Accounts receivable (936) 10,254
Other assets 12,617 2,202
Accounts payable and other liabilities (13,858) (19,740)
Intercompany, net (55) 610
------- -------
Net cash provided by operating activities 10,272 14,682
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture (3,677) (3,004)
Proceeds from sale of equipment and furniture 1,048 279
Acquisition related payments (16,858) (26,158)
------- -------
Net cash used by investing activities (19,487) (28,883)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,184) (17,513)
Increase in intercompany loan -- FDC 16,829 40,644
Dividends paid to FDC (6,294) (6,266)
------- -------
Net cash provided by financing activities 9,351 16,865
------- -------
Effect of exchange rate changes on cash (71) --
NET INCREASE IN CASH AND CASH EQUIVALENTS 65 2,664
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,678 14
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,743 $ 2,678
======= =======
</TABLE>
See notes to financial statements.
Page 96
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1993
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Foreign
Currency
Common Capital Translation Retained
Stock Surplus Adjustment Earnings Total
------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1,1992 $ -- $ 29,918 $ -- $ (7,237) $ 22,681
Net income -- -- -- 15,137 15,137
Cash dividends -- -- -- (6,266) (6,266)
Foreign currency translation adjustment -- -- (344) -- (344)
------- -------- ----------- -------- --------
Balance at December 31, 1992 $ -- $ 29,918 $ (344) $ 1,634 $ 31,208
------- -------- ----------- -------- --------
Net income -- -- -- 8,123 8,123
Cash dividends -- -- -- (6,294) (6,294)
Foreign currency translation adjustment -- -- (406) -- (406)
------- -------- ----------- -------- --------
Balance at December 31, 1993 $ -- $ 29,918 $ (750) $ 3,463 $ 32,631
======= ======== =========== ======== ========
</TABLE>
See notes to financial statements.
Page 97
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
NOTE 1: BUSINESS AND BASIS OF PRESENTATION
First Data Health Systems Corporation ("HSC") is a wholly-owned subsidiary of
First Data Corporation ("FDC"). FDC was a wholly-owned subsidiary of American
Express Company ("American Express") prior to an initial public offering in
April 1992 ("the IPO").
Through its wholly-owned domestic and international subsidiary companies, HSC
provides management information systems and services to hospitals, medical
group practices, and medical facilities throughout the United States, as well
as Australia, Puerto Rico, the United Kingdom and other countries
(collectively, the "Health Services Business" or the "Company"). The Company
offers a comprehensive range of computer-based services, including
computerized patient records, medical records imaging, on-line patient file
management, account billing, scheduling, accounting, payroll, and insurance
and claims processing.
In addition to its ownership of the Company, HSC is the parent company of ACB
Business Services, Inc. ("ACB") and The Shareholder Services Group, Inc.
("TSSG") which provide services in and to the accounts receivable management
and mutual fund industries, respectively. The accompanying financial
statements present the financial position, results of operations, and cash
flows of HSC's Health Services Business and do not include the accounts of
ACB and TSSG. All material intercompany accounts and transactions within the
Health Services Business have been eliminated in the preparation of the
accompanying financial statements.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company has principally defined cash and cash equivalents as cash, time
deposits, and certain highly liquid instruments with maturities of three
months or less at the date of purchase.
INVENTORY
Inventory consists of data processing equipment components for assembly and
repair parts and is carried at lower of cost (first-in, first-out method) or
market.
EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment and furniture are depreciated over their estimated useful lives
ranging from 3 to 8 years. Leasehold improvements are amortized over the
shorter of their estimated lives (ranging from 3 to 10 years) or the
remaining lease term. Depreciation is computed using the straight-line
Page 98
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
method. Included in equipment, furniture and leasehold improvements are
assets held under capital lease agreements of $1,589,000 and $2,366,000, net
of accumulated amortization of $777,000 and $0 as of December 31, 1993 and
1992, respectively.
In 1992, the Company completed the sale of a building for approximately $3
million primarily in exchange for a note. This transaction is excluded from
the Statement of Cash Flows because it did not involve cash.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of purchase price over the fair value of
tangible and other identifiable assets acquired less liabilities assumed
arising from the acquisitions of McDonnell Douglas Health Systems Company in
1989 and Gerber Alley & Associates, Inc. in 1992 and is being amortized over
estimated useful lives of 40 and 25 years, respectively. Other intangible
assets principally consist of software related to these acquisitions. These
costs are amortized on a straight-line basis over the estimated length of the
benefit period, from 5 to 10 years.
SOFTWARE DEVELOPMENT COSTS
The Company has expensed software development costs since the capitalization
and subsequent amortization thereof, as required under Statement of Financial
Accounting Standards No. 86, would not have a material impact on the
Company's financial condition or results of operations.
REVENUE RECOGNITION
The Company provides its customers with information systems solutions either
in a service bureau capacity ("Host Based Services") or through the sale of
integrated minicomputer hardware and software solutions ("Turnkey
Services"). Revenue attributable to Host Based Services is based principally
upon transaction volumes and is recognized as services are performed. Revenue
attributable to Turnkey Services is recognized as follows:
Software license fees -- For those agreements for which the Company's
remaining obligations are insignificant, software license fees are
recognized at the installation date. In situations where the
Company's remaining obligations are significant, the license fees
are deferred and amortized over the contract term which is generally
seven years.
Hardware -- Hardware sales and the related cost of sales are
generally recognized upon delivery of the equipment.
Services -- Implementation, installation, monthly software support
and other fees are recognized upon billing which generally occurs
as work is performed.
Page 99
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," as of January 1, 1992. The adoption of
SFAS No. 109 did not have a material impact on the Company's financial
condition or its results of operations.
The taxable income of the Company is included in the consolidated U.S.
federal income tax return of FDC. Under an agreement with FDC, the provision
for income taxes and tax benefits is determined by the Company on a
stand-alone basis. Current income taxes are remitted to, and benefits
received from, FDC. Prior to the IPO, the taxable income of FDC (including
the Company) was included in the consolidated U.S. federal income tax return
of American Express.
NOTE 3: RELATED PARTY TRANSACTIONS
"Intercompany loan -- FDC, net" on the Balance Sheet includes a
noninterest-bearing intercompany receivable of approximately $18 million.
"Interest Expense" on the Statement of Income primarily represents interest
paid on the interest-bearing portion of the intercompany loan from FDC. The
loan bears interest at an annually adjusted floating rate (9% for 1993 and
1992) reflective of FDC's cost of external debt and is repaid based upon
available cash flows of the Company.
The accompanying Statement of Income reflects charges from FDC and its
subsidiaries of approximately $9.3 million and $6.9 million for the years
ended December 31, 1993 and 1992, respectively. Such amounts are principally
attributable to the Company's participation in certain FDC insurance, benefit
and incentive plans, as well as certain other services provided during those
years. The majority of the expenses are charged based on usage and/or actual
costs. Management does not believe that, had the Company been operating other
than as an affiliate of FDC, there would have been a material impact on net
income.
In December 1993, FDC announced its decision to consolidate its data center
operations and recorded a charge to earnings with respect thereto. Included
therein was the decision to relocate the Company's and other FDC
affiliates' data center assets and operations to a shared FDC facility. This
relocation occurred in early 1994 and effectively resulted in an outsourcing
agreement with an FDC affiliate. The Company will be charged based upon
usage. As this relocation was part of an FDC companywide initiative, the
Company's financial statements do not reflect any expenses associated
therewith.
Page 100
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: ACQUISITIONS
The Company completed the purchase of Gerber Alley & Associates, Inc.
("Gerber Alley") in December 1992 for a cash purchase price of approximately
$24 million. A summary of the initial purchase price paid for this
acquisition and the initial allocation thereof to the fair value of the
tangible assets acquired less liabilities assumed is as follows (thousands):
<TABLE>
<CAPTION>
<S> <C>
Total consideration paid $24,442
Tangible assets acquired less liabilities assumed at fair value (53,680)
-------
Excess of purchase price over tangible assets acquired less liabilities assumed $78,122
=======
</TABLE>
During 1993, the initial purchase price and allocation thereof were finalized
which had the effect of increasing the excess of purchase price over the fair
value of tangible assets acquired less liabilities assumed to $89 million.
This acquisition was accounted for using the purchase method.
NOTE 5: DEBT AND BORROWING AGREEMENTS
Long-term debt at December 31 consists of (thousands):
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Capital lease obligations, at various
rates and maturities $1,205 $1,629
Other 1,795 2,555
------ ------
Total 3,000 4,184
Less current maturities 1,164 1,346
------ ------
Long-term debt $1,836 $2,838
====== ======
</TABLE>
Aggregate annual maturities of long-term debt are as follows (thousands):
1995, $897; 1996, $670; 1997, $269. Carrying values approximate fair values
as of December 31, 1993 and 1992.
Interest paid on debt during 1993 was $274,000. No interest was paid in 1992
as the debt relates to the acquisition of Gerber Alley discussed in Note 4.
Page 101
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: INCOME TAXES
The provision for income taxes for the years ended December 31 consists of
the following (thousands):
<TABLE>
<CAPTION>
1993 1992
------ -------
<S> <C> <C>
Federal $ 4,642 $ 8,126
State and local 2,277 2,070
------- -------
Total $ 6,919 $10,196
======= =======
</TABLE>
Deferred income taxes result from the recognition of temporary differences.
Temporary differences are differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for
financial statement purposes in future years. The provision for income taxes
for the years ended December 31 is comprised of the following (thousands):
<TABLE>
<CAPTION>
1993 1992
------ -------
<S> <C> <C>
Current $ 9,171 $ 9,290
Deferred (2,252) 906
------- -------
Total $ 6,919 $10,196
======= =======
</TABLE>
At December 31, 1993 and 1992, the Company's net deferred tax assets consist
of the following (thousands):
<TABLE>
<CAPTION>
1993 1992
------ -------
<S> <C> <C>
Deferred tax assets:
Deferred revenue $ 6,537 $ 8,777
Other liabilities 9,819 14,276
------- -------
Total deferred tax assets 16,356 23,053
------- -------
Deferred tax liabilities:
Depreciation and amortization 1,509 833
Other liabilities 863 312
------- -------
Total deferred tax liabilities 2,372 1,145
------- -------
Net deferred tax assets $13,984 $21,908
======= =======
</TABLE>
At December 31, 1993, Gerber Alley has a $20 million net operating loss
carryforward expiring in 2006 and 2007, which arose prior to the Company's
acquisition of Gerber Alley. No benefit has been recognized for this loss.
Cash payments to FDC for net income taxes during 1993 and 1992 were $101,000
and $7,690,000, respectively. Included in "Intercompany payables -- FDC and
subsidiaries, net" at December 31, 1993 and 1992 were an income tax
receivable of $19,000 and an income tax payable of $1,061,000, respectively.
Page 102
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rate to income tax expense is
(thousands):
<TABLE>
<CAPTION>
1993 1992
------ -------
<S> <C> <C>
Tax at U.S. statutory rate $ 5,265 $ 8,613
Increases in taxes resulting from:
State and local taxes, net of federal
income tax benefit 1,479 1,366
Amortization of goodwill 992 217
Revaluation of deferred taxes (1,038) --
All other 221 --
------- -------
Income tax expense $ 6,919 $10,196
======= =======
</TABLE>
NOTE 7: RETIREMENT PLAN
Eligible employees of the Company participate in FDC's U.S. defined benefit
pension plan that covers substantially all full-time employees of FDC and its
participating subsidiaries. Net pension costs for the years ended December
31, 1993 and 1992 were approximately $1,143,000 and $1,118,000, respectively.
Such amounts are included in the charges from FDC in Note 3.
NOTE 8: EMPLOYEE STOCK PLANS
LONG-TERM INCENTIVE PLAN
Certain of the Company's officers, key employees and other individuals
participate in the First Data Corporation 1992 Long-Term Incentive Plan (the
"1992 Plan'). Awards under the 1992 Plan may be in the form of stock options,
stock appreciation rights, restricted stock, performance grants and other
types of awards that the Compensation and Benefits Committee of FDC's Board
of Directors deems to be consistent with the purposes of the 1992 Plan. FDC
options granted to the Company's employees are generally at a price
equivalent to the fair market value at the date of grant.
INCENTIVE SAVINGS PLAN
FDC has an incentive savings plan which allows eligible employees of FDC and
its subsidiaries to contribute a percentage of their compensation and
provides for certain matching and service related contributions. The
Company's matching and service related contributions associated with the plan
were approximately $1,568,000 and $975,000 in 1993 and 1992, respectively.
Such amounts are included in the charges from FDC in Note 3.
Page 103
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: OPERATING LEASE COMMITMENTS
The Company leases certain office facilities and operating equipment under
cancelable and noncancelable agreements. Total rent expense was $7,662,000
and $6,784,000 for the years ended December 31, 1993 and 1992, respectively.
At December 31, 1993, the minimum aggregate rental commitment under all
noncancelable leases was (thousands): 1994, $7,645; 1995, $6,944; 1996,
$6,679; 1997, $6,246; 1998, $5,919; and $13,518 for years thereafter. Most
leases contain standard renewal clauses.
NOTE 10: CONTINGENCIES
The Company is involved in litigation primarily arising in the normal course
of its business. In the opinion of management, the Company's recovery or
liability, if any, under any pending litigation, would not materially affect
its financial condition or operations.
The company is and has been an authorized value-added reseller ("VAR") of
Tandem Computers Incorporated ("Tandem") through a VAR agreement. The Company
markets and sells its proprietary systems with Tandem computer hardware and
software, thereby sublicensing Tandem's software to its clients. Tandem has
asserted a claim against the Company for license and maintenance fees related
to software for which it believes the Company did not possess a licensing
arrangement. The Company is currently in negotiations with Tandem to extend
its VAR agreement and provide remedies to Tandem's claim. These remedies are
intended to include continued and expanded use of Tandem hardware and
software with the Company's systems, including its newly developed systems.
The Company believes that settlement of this licensing issue with Tandem as
presently contemplated will not result in a material adverse impact to the
Company's financial position. Should circumstances arise which would preclude
the Company from entering into the presently contemplated settlement, the
Company could be subject to a material financial obligation.
In conjunction with the renewal of certain client contracts, the Company
committed to provide certain replacement software without charge. Such
replacement software may be developed by the Company or more likely, in the
alternative, purchased from third parties in which case the estimated costs
would range from approximately $1.8 million to $3.5 million through 1997.
NOTE 11: CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company is exposed to credit risk
resulting from the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract. The Company
regularly monitors credit risk exposures and takes steps to mitigate the
likelihood of these exposures resulting in a loss. The primary counterparties
to the Company's accounts receivable and sources of the Company's revenues
consist of healthcare providers.
Page 104
<PAGE>
FIRST DATA HEALTH SYSTEMS CORPORATION
HEALTH SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: SUBSEQUENT EVENT
On June 17, 1995, FDC sold its entire ownership interest in the common stock
of HSC to HBO & Company. Immediately prior to closing, HSC's ownership
interest in the capital stock of ACB and TSSG was distributed to a
wholly-owned subsidiary of FDC.
Page 105
<PAGE>
Report of Ernst & Young LLP Independent Auditors
The Board of Directors and Stockholder
First Data Health Systems Corporation
We have audited the accompanying balance sheets of the Health Services
Business of First Data Health Systems Corporation (the "Health Services
Business") as of December 31, 1993 and 1992, and the related statements of
income, stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of management of the Health
Services Business. 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 the Health Services Business
at December 31, 1993 and 1992, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
January 26, 1995,
except for Note 12, as to
which the date is June 17, 1995
Page 106
<PAGE>
<TABLE>
<CAPTION>
HBO & COMPANY AND SUBSIDIARIES Exhibit 99(c)
PRO FORMA COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
===============================================================================================================
PRO FORMA PRO FORMA
(000 Omitted) HBOC HSG ADJUSTMENTS COMBINED
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $190,245 $53,429 $17,048 (2) $ 258,440
(2,282) (3)
- ---------------------------------------------------------------------------------------------------------------
Operating Expense:
Cost of Operations 91,279 -- 44,263 (2) 137,194
(296) (3)
130 (3)
3,334 (3)
(456) (3)
(1,060) (3)
Marketing 26,411 -- 6,048 (2) 29,810
(2,649) (3)
Research and Development 16,453 -- 4,509 (2) 16,724
(4,238) (3)
General and Administrative 20,490 -- 12,597 (2) 29,309
(1,896) (3)
767 (3)
(2,649) (3)
Purchased Research and Development Charge 125,520 -- (125,520) (5) 0
HSG Operating Expense -- 50,369 (50,369) (2) 0
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expense 280,153 50,369 (117,485) 213,037
- ---------------------------------------------------------------------------------------------------------------
Operating Income (89,908) 3,060 132,251 45,403
Other Expense, Net 1,026 3,233 -- 4,259
- ---------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes (90,934) (173) 132,251 41,144
Provision for Income Taxes (36,373) 1,433 51,398 (6) 16,458
- ---------------------------------------------------------------------------------------------------------------
NET INCOME ($54,561) ($1,606) $ 80,853 $ 24,686
===============================================================================================================
EARNINGS PER SHARE:
Primary ($1.69) $0.66
Fully Diluted ($1.69) $0.66
===============================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 32,333 5,149 (7) 37,482
Fully Diluted 32,333 5,323 (7) 37,656
===============================================================================================================
</TABLE>
Page 107
<PAGE>
<TABLE>
<CAPTION>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================================================
PRO FORMA PRO FORMA
(000 Omitted) HBOC HSG ADJUSTMENTS COMBINED
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $327,201 $121,241 $36,732 (2) $ 480,546
(4,628) (3)
- ---------------------------------------------------------------------------------------------------------------
Operating Expense:
Cost of Operations 172,894 -- 93,480 (2) 273,131
(746) (3)
260 (3)
6,668 (3)
(925) (3)
(1,500) (4)
Marketing 42,769 -- 14,625 (2) 52,825
(4,569) (3)
Research and Development 28,928 -- 9,153 (2) 37,125
(956) (3)
General and Administrative 34,590 -- 20,393 (2) 50,476
(3,879) (3)
1,534 (3)
(2,162) (3)
HSG Operating Expense -- 100,919 (100,919) (2) 0
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expense 279,181 100,919 33,457 413,557
- ---------------------------------------------------------------------------------------------------------------
Operating Income 48,020 20,322 (1,353) 66,989
Other Expense, Net 1,031 6,703 -- 7,734
- ---------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 46,989 13,619 (1,353) 59,255
Provision for Income Taxes 18,830 7,877 (3,005) (6) 23,702
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $28,159 $5,742 $ 1,652 $ 35,553
===============================================================================================================
EARNINGS PER SHARE:
Primary $0.85 $0.96
Fully Diluted $0.85 $0.96
===============================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 32,973 4,000 (7) 36,973
Fully Diluted 33,106 4,000 (7) 37,106
===============================================================================================================
</TABLE>
Page 108
<PAGE>
NOTES TO PRO FORMA COMBINED INCOME STATEMENTS
(000 Omitted)
1. The attached 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 First Data Health Systems Corporation (HSG) which was
completed on June 17, 1995. The adjustments related to the Pro Forma
Combined Income Statements assume the transaction was consummated January 1
of each year presented.
No Pro Forma Combined Balance Sheets are included in these Pro Forma
Statements since the HBO & Company Balance Sheet at June 30, 1995, includes
HSG.
HBO & Company accounted for the acquisition as a purchase. Accordingly, pro
forma adjustments include such adjustments as are necessary to allocate the
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 transaction, expected to have a continuing
impact on HBOC and are factually supportable.
The Pro Forma Combined Income Statements are not necessarily indicative of
the results of operations which would have been attained had the acquisition
been consummated on the dates indicated or which may be attained in the
future. The Pro Forma Combined Income Statements should be read in
conjunction with the historical consolidated financial statements of HBOC and
the historical financial statements of HSG.
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>
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 transaction had been consummated on
January 1 of each year presented:
Page 109
<PAGE>
NOTES TO PRO FORMA COMBINED INCOME STATEMENTS
(000 Omitted)
3. (Continued)
<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 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 First Data
Corporation'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 purchased research
and development charge directly attributable to the purchase of HSG. Since
this amount is a nonrecurring charge, it has been excluded from these Pro
Forma Statements.
6. The provision for income tax was derived by using the HBOC effective tax
rate of 40%.
Page 110
<PAGE>
NOTES TO PRO FORMA COMBINED INCOME STATEMENTS
(000 Omitted)
7. The weighted average shares outstanding have been adjusted to give effect
to the 4 million shares outstanding assuming the transaction had been
consummated on January 1 of each year presented and to give effect to the
dilutive effect of stock options outstanding at June 30, 1995, assuming that
HBOC had net income instead of a net loss.
Page 111
