<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-5663
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HBO & COMPANY
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 37-0986839
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(770) 393-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
CHARLES W. MCCALL
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
HBO & COMPANY
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(770) 393-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LISA A. STATER, ESQ. MATTHEW P. FEENEY, ESQ.
Jones, Day, Reavis & Pogue Snell & Wilmer L.L.P.
3500 One Peachtree Center One Arizona Center
303 Peachtree Street, N.E. Phoenix, Arizona 85004-0001
Atlanta, Georgia 30308-3242 (602) 382-6000
(404) 521-3939
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CYCARE SYSTEMS, INC.
7001 NORTH SCOTTSDALE ROAD
SUITE 1000
SCOTTSDALE, ARIZONA 85253-3644
July 18, 1996
To the Stockholders:
You are cordially invited to attend a special meeting of stockholders (the
"Meeting") of CyCare Systems, Inc. ("CyCare") to be held at 7001 North
Scottsdale Road, Suite 1000, Scottsdale, Arizona 85253-3644 at 9:00 a.m., local
time, on August 21, 1996.
At the Meeting, you will be asked to consider and take action upon a
proposal to approve an Agreement of Merger dated May 18, 1996 (the "Merger
Agreement"), among CyCare, HBO & Company, a Delaware corporation ("HBOC"), and
HBO & Company of Georgia, a Delaware corporation that is a wholly owned
subsidiary of HBOC ("HBOC-GA"), pursuant to which, among other things, (a)
CyCare will merge with and into HBOC-GA (the "Merger") and (b) each outstanding
share of Common Stock, $.01 par value per share, of CyCare ("CyCare Common
Stock"), and each right to acquire a share of CyCare Common Stock will be
converted into the right to receive .86 of a share of Common Stock, $.05 par
value per share, of HBOC, subject to possible adjustment as provided in the
Merger Agreement, and less the amount of any fractional share, which will be
paid in cash.
Details of the proposed Merger and Merger Agreement are set forth in the
accompanying Proxy Statement/Prospectus which you are urged to review carefully.
A copy of the Merger Agreement is also attached to the Proxy
Statement/Prospectus as Appendix A.
Your Board of Directors has carefully considered and unanimously approved
the Merger proposal and has determined that the Merger is fair to, and in the
best interests of, CyCare and its stockholders. Accordingly, the CyCare Board
unanimously recommends that stockholders vote FOR approval of the Merger
Agreement. The Board of Directors has been advised by Broadview Associates LLC
that, in its opinion, the consideration to be paid by HBOC in the Merger is
fair, from a financial point of view, to CyCare stockholders as of the date of
such opinion. A copy of such opinion is attached to the Proxy
Statement/Prospectus as Appendix B.
It is important that your shares be represented at the Meeting. Whether or
not you expect to attend in person, please promptly sign, date and return the
enclosed proxy card in the enclosed, postage prepaid envelope.
Sincerely,
/s/ Jim H. Houtz
Jim H. Houtz
Chief Executive Officer and
Chairman of the Board
<PAGE>
CYCARE SYSTEMS, INC.
7001 NORTH SCOTTSDALE ROAD
SUITE 1000
SCOTTSDALE, ARIZONA 85253-3644
------------------------
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
---------------------
To the Stockholders:
A Special Meeting of Stockholders (the "Meeting") of CyCare Systems, Inc., a
Delaware corporation ("CyCare"), will be held at 7001 North Scottsdale Road,
Suite 1000, Scottsdale, Arizona 85253-3644, on Wednesday, August 21, 1996, at
9:00 a.m., local time, for the following purpose:
To consider and vote upon a proposal to approve an Agreement of Merger
dated May 18, 1996 (the "Merger Agreement"), among CyCare, HBO &
Company, a Delaware corporation ("HBOC"), and HBO & Company of Georgia,
a Delaware corporation that is a wholly owned subsidiary of HBOC
("HBOC-GA"), pursuant to which, among other things (a) CyCare will merge
with and into HBOC-GA (the "Merger") and (b) each outstanding share of
Common Stock, $.01 par value per share of CyCare ("CyCare Common
Stock"), and each right to acquire a share of CyCare Common Stock will
be converted into the right to receive .86 of a share of Common Stock,
$.05 par value per share, of HBOC, subject to possible adjustment as
provided in the Merger Agreement, and less the amount of any fractional
share, which will be paid in cash.
The Board of Directors of CyCare has unanimously approved the Merger
proposal and has determined that the Merger is fair to, and in the best
interests of, CyCare and its stockholders. Accordingly, the CyCare Board
unanimously recommends that you vote FOR approval of the Merger Agreement.
The Board of Directors has fixed the close of business on July 16, 1996, as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, the Meeting. Accordingly, only stockholders of record at the
close of business on such date are entitled to notice of, and to vote at, the
Meeting or any adjournment or postponement thereof.
Details of the Merger and other important information concerning CyCare and
HBOC are more fully described in the accompanying Proxy and Proxy
Statement/Prospectus. Please give this information your careful consideration.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mark R. Schonau
Mark R. Schonau, Secretary
Scottsdale, Arizona
July 18, 1996
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY DATE, SIGN AND RETURN THE ENCLOSED
PROXY. A POSTAGE PREPAID ENVELOPE IS PROVIDED FOR MAILING. A PERSON GIVING A
PROXY HAS THE POWER TO REVOKE IT IN THE MANNER DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE MEETING.
IF YOU ATTEND THE MEETING, YOUR PROXY WILL NOT BE COUNTED WITH RESPECT TO ANY
MATTER UPON WHICH YOU VOTE IN PERSON.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED JULY 18, 1996
PROXY STATEMENT
OF
CYCARE SYSTEMS, INC.
FOR SPECIAL MEETING OF STOCKHOLDERS
---------------------
PROSPECTUS
OF
HBO & COMPANY
----------------
This Proxy Statement/Prospectus is being furnished to holders of Common
Stock, $.01 par value per share ("CyCare Common Stock"), of CyCare Systems,
Inc., a Delaware corporation ("CyCare"), as a proxy statement in connection with
the solicitation of proxies by the Board of Directors of CyCare (the "CyCare
Board") for use at the Special Meeting (the "Meeting") of stockholders of CyCare
to be held on August 21, 1996, at 7001 North Scottsdale Road, Suite 1000,
Scottsdale, Arizona 85253-3644 commencing at 9:00 a.m., local time, and at any
adjournment or postponement thereof for the purpose set forth herein and in the
accompanying Notice of Special Meeting of Stockholders of CyCare.
This Proxy Statement/Prospectus also constitutes the prospectus of HBO &
Company, a Delaware corporation ("HBOC"), with respect to up to 5,060,440 shares
(net of the aggregate amount of fractional shares which are paid in cash) of
common stock, $.05 par value per share, of HBOC (the "HBOC Common Stock") to be
issued in connection with the merger (the "Merger") of CyCare with and into HBO
& Company of Georgia, a Delaware corporation that is a wholly owned subsidiary
of HBOC ("HBOC-GA"), in exchange for all of the outstanding shares and rights to
acquire shares of CyCare Common Stock. In the Merger, subject to the terms of
the Agreement of Merger dated May 18, 1996, among CyCare, HBOC and HBOC-GA (the
"Merger Agreement"), each outstanding share of CyCare Common Stock and each
right to acquire a share of CyCare Common Stock will be converted into the right
to receive: (i) .86 of a share of HBOC Common Stock, if the average closing
market price per share of the HBOC Common Stock (the "Market Value") during the
twenty (20) consecutive trading days ending on the third trading day prior to
the date of the Meeting as reported by the Nasdaq Stock Market National Market
(the "Nasdaq NM") is at least $52.25 but not more than $65.00; (ii) a fractional
share determined by dividing $44.935 by the Market Value, if the Market Value is
less than $52.25; and (iii) a fractional share determined by dividing $55.90 by
the Market Value, if the Market Value is more than $65.00 (whatever basis is
applicable being referred to as the "Exchange Ratio"), and less the amount of
any fractional shares paid in cash.
Outstanding and unexercised vested options to purchase shares of CyCare
Common Stock will be assumed by HBOC upon completion of the Merger such that the
holder will have the right to purchase the number of shares of HBOC Common Stock
into which the shares of CyCare Common Stock subject to such options would have
been converted in the Merger.
As a result of the Merger, and assuming the Exchange Ratio is .86 of a share
of HBOC Common Stock for each share of CyCare Common Stock, holders of shares of
CyCare Common Stock or rights to acquire shares of CyCare Common Stock will
receive an aggregate of 4,842,527 shares of HBOC Common Stock (less the
aggregate amount of any fractional shares that are paid in cash) of HBOC Common
Stock. The number of shares of HBOC Common Stock issuable in the Merger is
subject to adjustment in accordance with the Merger Agreement. Assuming the
Market Value were $50.00 per share of HBOC Common Stock resulting in an Exchange
Ratio of .89870 of a share of HBOC Common Stock for each share or right to
acquire a share of CyCare Common Stock, an aggregate of 5,060,440 shares of HBOC
Common Stock would be issuable in the Merger. Assuming the Market Value were
$67.50 per share of HBOC Common Stock resulting in an Exchange Ratio of .82815
of a share of HBOC Common Stock for each share or right to acquire a share of
CyCare Common Stock, an aggregate of 4,663,184 shares of HBOC Common Stock would
be issuable in the Merger. Shares of HBOC Common Stock are currently approved
for quotation on the Nasdaq NM under the symbol "HBOC," and shares of CyCare
Common Stock are currently approved for quotation on the New York Stock
Exchange, Inc. (the "NYSE") under the symbol "CYS." On July 17, 1996, the
reported closing sale price of a share of HBOC Common Stock on the Nasdaq NM was
$62.50, and the reported closing sale price of a share of CyCare Common Stock on
the NYSE was $50.625. See "Certain Market Information."
This Proxy Statement/Prospectus and the related Notice of Special Meeting
and form of proxy are first being mailed on or about July 19, 1996, to
stockholders of record at the close of business on July 16, 1996 (the "Record
Date"). There were 5,067,670 shares of CyCare Common Stock outstanding at the
close of business on the Record Date. Only stockholders of record on the Record
Date will be entitled to notice of, and to vote at, the Meeting.
The Board of Directors of HBOC approved a two-for-one stock split effected
in the form of a stock dividend paid June 10, 1996 to all holders of record of
HBOC Common Stock on May 27, 1996 and, accordingly, all share and per share data
regarding HBOC Common Stock in this Proxy Statement/Prospectus have been
adjusted to give effect to such stock split, except as otherwise specifically
noted herein.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/
PROSPECTUS. STOCKHOLDERS OF CYCARE ARE STRONGLY URGED TO READ AND CONSIDER THIS
PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY. SEE "RISK FACTORS," BEGINNING ON
PAGE 14 OF THIS PROXY STATEMENT/PROSPECTUS, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY CYCARE STOCKHOLDERS IN DETERMINING HOW TO VOTE ON
THE MERGER AGREEMENT.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 18, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION.......................... 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 5
SUMMARY................................................................... 6
The Parties............................................................. 6
The Meeting............................................................. 7
The Merger Proposal..................................................... 7
Other................................................................... 9
Summary Financial Data.................................................. 10
Unaudited Pro Forma Summary Financial Data.............................. 11
Comparative Per Share Data.............................................. 12
RISK FACTORS.............................................................. 14
Interests of Certain Officers and Directors in the Merger............... 14
Election Concerning Employee Stock Purchase Plan........................ 14
CERTAIN MARKET INFORMATION................................................ 14
HBOC.................................................................... 14
CyCare.................................................................. 15
THE MEETING............................................................... 15
THE MERGER PROPOSAL....................................................... 16
Background of the Merger................................................ 16
Reasons of CyCare for Engaging in the Merger; Recommendation of the
CyCare Board........................................................... 22
Opinion of Financial Advisor of CyCare.................................. 23
Reasons for HBOC for Engaging in the Merger............................. 27
Terms of the Merger..................................................... 27
Effective Time........................................................ 27
General Effects of the Merger......................................... 27
Conversion of Shares.................................................. 27
Fractional Shares..................................................... 28
Stock Option and Restricted Stock Plans............................... 28
Employee Stock Purchase Plan.......................................... 28
Exchange of Certificates.............................................. 28
Payment of Dividends.................................................. 29
Limitations on Transferability of HBOC Common Stock................... 29
Conditions, Waiver.................................................... 29
Hart-Scott-Rodino..................................................... 30
No Solicitation....................................................... 30
Termination........................................................... 31
Accounting Treatment.................................................... 31
Certain Federal Income Tax Consequences................................. 31
No Appraisal Rights..................................................... 33
INTERESTS OF CERTAIN PERSONS IN EACH OF HBOC AND CYCARE................... 34
Security Ownership of Certain Beneficial Owners and Management of
HBOC................................................................... 34
Security Ownership of Certain Beneficial Owners and Management of
CyCare................................................................. 36
Interests of Certain Persons in Matters to be Acted Upon................ 37
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF HBOC COMMON STOCK AND
CYCARE COMMON STOCK...................................................... 38
Introduction............................................................ 38
Authorized Capital Stock................................................ 39
Board or Stockholder Approved Preferred Stock........................... 39
Voting Rights........................................................... 39
Number of Directors..................................................... 40
</TABLE>
2
<PAGE>
<TABLE>
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PAGE
----
<S> <C>
Election of Board of Directors.......................................... 40
Vote on Merger; Consolidation or Sale of Substantially All Assets....... 40
Special Meetings of Stockholders........................................ 40
Stockholder Action by Written Consent................................... 40
Amendment of Certificate of Incorporation............................... 41
Amendment of Bylaws..................................................... 41
Liability and Indemnification of Officers and Directors................. 41
Payment of Dividends.................................................... 42
Anti-Takeover Protection................................................ 42
Appraisal Rights........................................................ 42
BUSINESS OF HBOC.......................................................... 43
BUSINESS OF CYCARE........................................................ 43
STOCKHOLDER PROPOSALS..................................................... 44
OTHER MATTERS............................................................. 44
CERTAIN LEGAL MATTERS..................................................... 44
EXPERTS................................................................... 44
APPENDICES
APPENDIX A -- Agreement of Merger....................................... A-1
APPENDIX B -- Opinion of Broadview Associates LLC....................... B-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
Each of HBOC and CyCare is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by each of HBOC and CyCare with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also may be
obtained by mail from the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additionally, the Commission maintains a Web site on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and that is located at
http:// www.sec.gov. CyCare Common Stock is listed on the New York Stock
Exchange, Inc. and copies of CyCare's reports, proxy statements and other
information may also be requested at the office of such exchange, 20 Broad
Street, New York, New York 10005.
HBOC has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), which includes the
proxy statement of CyCare with respect to the Merger and the prospectus of HBOC
with respect to the shares of HBOC Common Stock issuable in the Merger. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, reference is made to the
exhibit or other filing for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. Copies of the Registration Statement together with exhibits may be
inspected at the office of the Commission in Washington, D.C. without charge and
copies thereof may be obtained therefrom upon payment of a prescribed fee.
All information contained in this Proxy Statement/Prospectus regarding
CyCare has been supplied by CyCare, information regarding the Merger proposal
has been supplied by CyCare and/or HBOC and all other information has been
supplied by HBOC. References to CyCare and HBOC in this Proxy
Statement/Prospectus mean the respective corporations and, in each case, its
consolidated subsidiaries except as the context may otherwise indicate.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SHARES OF HBOC
COMMON STOCK MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HBOC, CYCARE
OR ANY OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HBOC OR CYCARE SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
4
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the following documents filed by HBOC with the Commission
(File No. 0-9900) pursuant to the Exchange Act is incorporated by reference in
this Proxy Statement/ Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1995 filed with the Commission on March 13, 1996;
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
filed with the Commission on May 3, 1996;
3. Current Reports on Form 8-K: (i) dated and filed with the Commission
on June 23, 1995, as amended by Form 8-K(A), dated and filed with the
Commission on July 31, 1995, as amended by Form 8-K(A)2, dated and filed
with the Commission on August 8, 1995, and as amended by Form 8-K(A)3, dated
and filed with the Commission on June 5, 1996; (ii) dated and filed with the
Commission on February 27, 1996; and (iii) dated and filed with the
Commission on May 21, 1996;
4. Proxy Statement, dated as of April 3, 1996, filed in definitive form
on April 3, 1996 with the Commission with respect to the information
required to be included herein by Items 401 (management), 402 (executive
compensation) and 404 (certain relationships and related transactions) of
Regulation S-K promulgated under the Securities Act and the Exchange Act;
and
5. The description of Common Stock and Preferred Share Purchase Rights
contained in HBOC's Registration Statements on Form 8-A, filed with the
Commission on August 19, 1981, as amended and February 19, 1991, as amended,
respectively.
The information in the following documents filed by CyCare with the
Commission (File No. 1-9815) pursuant to the Exchange Act is incorporated by
reference in this Proxy Statement/ Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1995 filed with the Commission on April 1, 1996;
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
filed with the Commission on May 15, 1996;
3. Current Report on Form 8-K, dated and filed with the Commission on
May 31, 1996; and
4. Proxy Statement, dated as of March 29, 1996, filed in definitive
form on April 1, 1996 with the Commission with respect to the information
required to be included herein by items 401 (management), 402 (executive
compensation) and 404 (certain relationships and related transactions) of
Regulation S-K promulgated under the Securities Act and the Exchange Act.
All documents filed by HBOC and CyCare pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus
and prior to the date of the Meeting, shall be deemed to be incorporated by
reference in this Proxy Statement/Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
previously filed document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or was deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
The information relating to HBOC and CyCare contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR
ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED, IN THE CASE OF
HBOC DOCUMENTS, TO HBO & COMPANY, 301 PERIMETER CENTER NORTH, ATLANTA, GEORGIA
30346, ATTENTION: ANNE DAVENPORT, TELEPHONE: (800) 426-2411, AND, IN THE CASE OF
CYCARE DOCUMENTS, TO CYCARE SYSTEMS, INC., 7001 NORTH SCOTTSDALE ROAD, SUITE
1000, SCOTTSDALE, ARIZONA 85253-3644, ATTENTION: SECRETARY, TELEPHONE: (602)
596-4300. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE
MEETING, ANY SUCH REQUESTS SHOULD BE MADE BY AUGUST 14, 1996.
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING NOTES THERETO, AND PRO FORMA FINANCIAL INFORMATION
INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS. ALL
SHARE AND PER SHARE DATA REGARDING HBOC COMMON STOCK IN THIS PROXY
STATEMENT/PROSPECTUS HAVE BEEN ADJUSTED TO GIVE EFFECT TO A TWO-FOR-ONE STOCK
SPLIT OF THE HBOC COMMON STOCK, EFFECTED IN THE FORM OF A STOCK DIVIDEND PAID
JUNE 10, 1996 TO STOCKHOLDERS OF RECORD ON MAY 27, 1996.
THE PARTIES
HBO & COMPANY
HBOC develops integrated patient care, clinical, financial and strategic
management software solutions for the healthcare industry. These open systems
applications facilitate the integration of clinical, financial and
administrative data from a wide range of customer systems and software. HBOC's
broad product portfolio can be implemented in a variety of combinations from
stand-alone to enterprisewide, enabling customers to add incremental
capabilities to existing information systems without making prior capital
investments obsolete. HBOC also provides a full complement of network
communications technologies, including wireless capabilities, as well as
outsourcing services that are offered under contract management agreements
whereby its staff manages and operates data centers, information systems,
organizations and business offices of healthcare institutions of various sizes
and structures.
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers, pharmacies,
reference laboratories, managed care providers and payers. At December 31, 1995,
HBOC had 2,700 customers of which 2,200 were United States community hospitals.
Currently there are a total of 5,300 community hospitals in the United States.
HBOC also sells its products and services internationally through subsidiaries
and/or distribution agreements in the United Kingdom, Canada, Ireland, Saudi
Arabia, Australia, Puerto Rico and New Zealand.
On May 14, 1996, the board of directors of HBOC (the "HBOC Board") approved
a two-for-one stock split effected in the form of a stock dividend paid June 10,
1996 to holders of record of HBOC Common Stock on May 27, 1996. Accordingly, all
share and per share data regarding HBOC Common Stock in this Proxy
Statement/Prospectus have been adjusted to give effect to the stock split,
except as otherwise specifically noted herein.
The address and telephone number of the principal executive offices of HBOC
are 301 Perimeter Center North, Atlanta, Georgia 30346, (770) 393-6000.
CYCARE SYSTEMS, INC.
CyCare is a leading provider of information systems, related support
services and electronic data interchange ("EDI") services to the healthcare
industry, including physicians, medical group practices, academic practice
centers and integrated delivery networks. CyCare's services and systems are
based primarily on open-systems architecture using software developed or
acquired by CyCare to improve the productivity and profitability of its
customers. Applications include appointment scheduling, patient and member
registration information, business office management, electronic claims
processing, patient care and patient accounting.
CyCare markets its products and services through sales representatives
located in nine offices throughout the country. CyCare estimates that there are
over 570,000 practicing physicians and approximately 148,000 medical practices
in the United States. Approximately 70% of physician practices now use computers
or computer services for at least some of their information processing
requirements. CyCare's customers are principally located throughout the United
States.
The address and telephone number of the principal executive offices of
CyCare are 7001 North Scottsdale Road, Suite 1000, Scottsdale, Arizona
85253-3644, (602) 596-4300.
6
<PAGE>
THE MEETING
The Meeting will be held on August 21, 1996 at 9:00 a.m., local time, at
7001 North Scottsdale Road, Suite 1000, Scottsdale, Arizona 85253-3644. The
purpose of the Meeting is to consider and take action upon a proposal to approve
the Merger Agreement. The CyCare Board has fixed the close of business on July
16, 1996, as the record date (the "Record Date") for the determination of
stockholders entitled to vote at the Meeting. The presence at the Meeting, in
person or by proxy, of the holders of a majority of the issued and outstanding
shares of CyCare Common Stock constitutes a quorum for the transaction of
business. The Merger Agreement must be approved by holders of a majority of the
issued and outstanding shares of CyCare Common Stock. See "The Meeting."
THE MERGER PROPOSAL
RECOMMENDATION OF THE CYCARE BOARD; OPINION OF FINANCIAL ADVISOR
The CyCare Board has unanimously approved the Merger and has determined that
the Merger is fair to, and in the best interests of, CyCare and its
stockholders. Accordingly, the CyCare Board unanimously recommends that CyCare's
stockholders vote FOR approval of the Merger Agreement. In approving the Merger
Agreement, the CyCare Board considered, among other things, a report and opinion
from Broadview Associates LLC ("Broadview") regarding the fairness, from a
financial point of view, of the consideration to be received in the Merger by
the stockholders of CyCare. A copy of the opinion is attached hereto as Appendix
B. See "The Merger -- Reasons of CyCare for Engaging in the Merger;
Recommendation of the CyCare Board" and "The Merger -- Opinion of Financial
Advisor of CyCare."
TERMS OF THE MERGER
The following is a summary of certain of the terms and conditions of the
Merger Agreement, a copy of which is attached hereto as Appendix A.
EFFECTIVE TIME. The Merger shall become effective when both (i) the Merger
Agreement is adopted and approved by the stockholders of CyCare in accordance
with the applicable provisions of the Delaware General Corporation Law ("DGCL")
and (ii) a certificate of merger (the "Certificate of Merger") is filed with the
Secretary of State of Delaware (the time the Merger becomes effective being
referred to as the "Effective Time"), which is expected to occur as promptly as
practicable after the Meeting. See "The Merger Proposal -- Terms of the Merger
- -- Effective Time."
CONVERSION OF SHARES. Each outstanding share of CyCare Common Stock issued
and outstanding immediately prior to the Effective Time, shall, at the Effective
Time, be converted into the right to receive: (i) .86 of a share of HBOC Common
Stock, if the Market Value is at least $52.25 but not more than $65.00; (ii) a
fractional share determined by dividing $44.935 by the Market Value, if the
Market Value is less than $52.25; and (iii) a fractional share determined by
dividing $55.90 by the Market Value, if the Market Value is more than $65.00
(whatever basis is applicable being referred to as the "Exchange Ratio"), and
less the amount of any fractional shares paid in cash. See "The Merger Proposal
- -- Terms of the Merger -- Conversion of Shares."
FRACTIONAL SHARES. No fractional shares of HBOC Common Stock shall be
issued pursuant to the Merger, but in lieu thereof, a cash payment will be made
therefor. See "The Merger Proposal -- Terms of the Merger -- Fractional Shares."
STOCK OPTION AND RESTRICTED STOCK PLANS. Outstanding options under the
CyCare Systems, Inc. 1995 Long-Term Incentive Plan, and the predecessor CyCare
Systems, Inc. Stock Option Plan (collectively, the "Long-Term Incentive Plan"),
and outstanding options under the CyCare Systems, Inc. Director Stock Plan (the
"Director Stock Plan") that are fully vested will be assumed by HBOC, by which
assumption the optionee shall have the right to purchase the number of shares of
HBOC Common Stock into which the shares of CyCare Common Stock subject to the
options would have been converted in the Merger pursuant to the Exchange Ratio.
Additionally, at the Effective Time, all shares of Restricted Stock (as that
term is defined in the Director Stock Plan) as to which the period of
7
<PAGE>
restriction under the Director Stock Plan and related restricted stock agreement
shall have previously expired shall be exchanged for HBOC Common Stock pursuant
to the Exchange Ratio. See "The Merger Proposal -- Terms of the Merger -- Stock
Option and Restricted Stock Plans."
EMPLOYEE STOCK PURCHASE PLAN. At the written election of an employee
participating in the CyCare Systems, Inc. Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan"), each such employee's stock purchase right
outstanding as of the date of closing of the Merger (the "Closing Date") under
the Employee Stock Purchase Plan shall be cancelled and the holder thereof shall
receive the number of whole shares of HBOC Common Stock into which the shares of
CyCare Common Stock issuable to such holder as of the Closing Date would have
been converted. Absent such election, HBOC shall assume CyCare's rights and
obligations under each such stock purchase right outstanding as of the Closing
Date. See "Risk Factors -- Election Concerning Employee Stock Purchase Plan,"
and "The Merger Proposal -- Terms of the Merger -- Employee Stock Purchase
Plan."
EXCHANGE OF CERTIFICATES. Promptly after the Effective Time, SunTrust Bank,
Atlanta (the "Exchange Agent") will mail to each record holder (as of the
Effective Time) of an outstanding certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of CyCare Common
Stock (the "Certificates"), a letter of transmittal and instructions for use in
effecting the surrender of the Certificates for exchange and/or payment
therefor. Until surrendered and exchanged, each Certificate shall evidence the
ownership of the number of whole shares of HBOC Common Stock into which the
shares of CyCare Common Stock represented thereby shall have been converted, and
the right to receive cash in lieu of any fractional share. See "The Merger
Proposal -- Terms of the Merger -- Exchange of Certificates."
LIMITATIONS ON TRANSFERABILITY OF HBOC COMMON STOCK. Shares of HBOC Common
Stock received by certain persons deemed to be "affiliates" of CyCare for
purposes of Rule 145 under the Securities Act will be subject to the
restrictions imposed by such rule. In accordance with Rule 145, an affiliate of
CyCare receiving HBOC Common Stock issued in the Merger may not sell such shares
except pursuant to the volume and manner of sale limitations and other
requirements specified in such rule or pursuant to an effective registration
statement under the Securities Act. In addition, certain CyCare affiliates are
subject to certain restrictions on transfer of both CyCare Common Stock and HBOC
Common Stock prior to and following the Effective Time to support pooling of
interests accounting treatment of the transaction. See "The Merger Proposal --
Terms of the Merger -- Limitations on Transferability of HBOC Common Stock."
CONDITIONS, WAIVER. The obligations of HBOC and HBOC-GA on the one hand,
and of CyCare on the other hand, to consummate the Merger are contingent upon
and subject to the satisfaction or waiver of certain conditions including the
approval of the Merger and the Merger Agreement by holders of the requisite
number of shares of CyCare Common Stock. See "The Merger Proposal -- Terms of
the Merger -- Conditions, Waiver."
HART-SCOTT-RODINO. The Merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), which provides that certain transactions (including the Merger) may not
be consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC") and certain waiting period requirements have been
satisfied. HBOC and CyCare filed the required information and materials with the
Antitrust Division and the FTC on May 24, 1996 and responded to a written
request for additional information received on June 21, 1996. HBOC and CyCare
were notified that the waiting period was terminated on July 16, 1996. See "The
Merger Proposal -- Terms of the Merger -- Hart-Scott-Rodino."
TERMINATION. The Merger may be terminated at any time prior to the
Effective Time of the Merger by: (i) mutual consent of the HBOC Board and the
CyCare Board, notwithstanding the prior approval by the CyCare stockholders;
(ii) HBOC, in the event of material condemnation, destruction, loss or damage
due to fire or other casualty to the business assets of CyCare; (iii) HBOC-GA or
CyCare, after September 30, 1996 if the other party fails to fulfill any of its
conditions, unless fulfillment has been frustrated or made impossible by the
party seeking termination; (iv) CyCare, if, in the good faith exercise of its
fiduciary duties to the stockholders of CyCare in the context of a proposal to
acquire
8
<PAGE>
CyCare by another party, the CyCare Board decides that such termination is
required. In the event the Merger Agreement is terminated by CyCare in
accordance with (iv) above, CyCare will be obligated to pay HBOC and HBOC-GA $10
million in liquidated damages. See "The Merger Proposal -- Terms of the Merger
- -- Termination."
ACCOUNTING TREATMENT
Prior to consummation of the Merger, each of the parties to the Merger
Agreement shall have received letters, dated as of the date hereof and as of the
Closing Date, from Ernst & Young LLP and Arthur Andersen LLP regarding the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the closing of the Merger that CyCare shall have
received an opinion of its counsel, subject to the assumptions contained
therein, to the effect that no gain or loss will be recognized by a CyCare
stockholder upon the exchange of the shares of CyCare Common Stock for shares of
HBOC Common Stock pursuant to the Merger, except on the receipt of cash in lieu
of a fractional share interest in HBOC Common Stock. See "The Merger Proposal --
Certain Federal Income Tax Consequences."
NO APPRAISAL RIGHTS
Because CyCare Common Stock is listed on the NYSE, the holders of shares of
CyCare Common Stock will not be entitled to appraisal rights pursuant to Section
262 of the DGCL in connection with the Merger. See "The Merger Proposal -- No
Appraisal Rights."
OTHER
INTERESTS OF CERTAIN PERSONS
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS. As of the Record
Date, directors and executive officers of CyCare and their affiliates were
beneficial owners of 439,734 outstanding shares of CyCare Common Stock
representing approximately 8.7% of the total issued and outstanding CyCare
Common Stock. Holders of all of such shares have advised CyCare that they
presently intend to vote or direct the vote of all shares of CyCare Common Stock
over which they have voting control in favor of the Merger Agreement. Directors
and executive officers of HBOC and their affiliates beneficially owned
approximately 3.7% of the outstanding shares (giving effect to the exercise of
their presently exercisable stock options) of HBOC Common Stock at July 16,
1996. See "Interests of Certain Persons in Each of HBOC and CyCare."
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON. In considering
the Merger, stockholders of CyCare should be aware that certain members of
management and the CyCare Board have interests in the Merger that are in
addition to, or different from, the interests of stockholders of CyCare
generally. See "Interests of Certain Persons in Each of HBOC and CyCare --
Interests of Certain Persons in Matters to be Acted Upon."
COMPARISON OF STOCKHOLDER RIGHTS
HBOC and CyCare are each incorporated under Delaware law. For a summary of
material differences between the rights of holders of shares of each of CyCare
Common Stock and HBOC Common Stock, see "Comparison of Rights of Holders of
Shares of Each of HBOC Common Stock and CyCare Common Stock."
CERTAIN MARKET INFORMATION
HBOC Common Stock is traded on the Nasdaq NM under the symbol "HBOC." CyCare
Common Stock is traded on the NYSE under the symbol "CYS." The closing sales
prices per share of HBOC Common Stock and CyCare Common Stock on May 9, 1996,
the last trading day preceding the announcement of the proposed Merger, were
$56.50 and $46.00, respectively. See "Certain Market Information."
RISK FACTORS
The stockholders of CyCare should carefully review the matters set forth
under "Risk Factors."
9
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical financial data for each of HBOC and CyCare
should be read in conjunction with the financial statements and notes thereto of
HBOC and CyCare, incorporated by reference elsewhere in this Proxy
Statement/Prospectus.
HBO & COMPANY (1)
(FROM CONTINUING OPERATIONS)
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND
FOR THE
THREE MONTHS
AT AND FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 (2) 1992 1993 1994 1995 (3) 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................... $ 184,859 $ 228,988 $ 267,147 $ 357,436 $ 495,595 $ 99,183 $ 145,078
Operating Income.................. $ 6,560 $ 22,600 $ 31,883 $ 53,042 $ 95,722 $ 18,085 $ 31,763
Income Before Income Taxes........ $ 5,129 $ 22,165 $ 31,495 $ 52,592 $ 94,423 $ 17,843 $ 32,287
Net Income........................ $ 3,949 $ 14,629 $ 18,897 $ 31,555 $ 56,654 $ 10,706 $ 19,372
Primary Earnings Per Share........ $ .06 $ .21 $ .27 $ .43 $ .72 $ .14 $ .23
Fully Diluted Earnings Per
Share............................ $ .06 $ .21 $ .26 $ .43 $ .72 $ .14 $ .23
Weighted Average Shares
Outstanding (Fully Diluted)...... 64,148 69,904 72,020 73,334 79,023 74,198 83,828
Cash Dividends Per Share.......... $ .075 $ .075 $ .075 $ .08 $ .08 $ .02 $ .02
BALANCE SHEET DATA:
Working Capital................... $ 18,369 $ 23,969 $ 34,627 $ 11,160 $ 47,250 $ 23,345 $ 67,498
Total Assets...................... $ 114,490 $ 125,689 $ 156,182 $ 264,132 $ 535,134 $ 274,256 $ 545,211
Long-Term Debt.................... $ 20,752 $ -- $ -- $ 252 $ 582 $ 5,583 $ 446
Stockholders' Equity.............. $ 25,706 $ 61,608 $ 83,182 $ 124,777 $ 318,730 $ 139,174 $ 344,172
</TABLE>
- ------------------------------
(1) All share and per share amounts have been restated to reflect the 1996
two-for-one stock split effected in the form of a stock dividend.
(2) 1991 Income Statement related items exclude the nonrecurring charge of
$10,883 and include the dilutive effect of stock options. The net loss was
($4,442) and fully diluted loss per share was ($.07) including the
nonrecurring charge.
(3) 1995 Income Statement related items exclude the nonrecurring charge of
$136,481 and include the dilutive effect of stock options. The net loss was
($25,235) and fully diluted loss per share was ($.33) including the
nonrecurring charge.
CYCARE SYSTEMS, INC.
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND
FOR THE
THREE MONTHS
AT AND FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................... $ 75,444 $ 75,635 $ 71,062 $ 53,812 $ 62,922 $ 15,761 $ 15,644
Income (Loss) Before Income
Taxes............................ $ 1,350 $ 2,493 $ (6,104) $ 5,049 $ 3,088 $ 1,648 $ 1,862
Net Income (Loss)................. $ 612 $ 1,499 $ (7,761) $ 3,020 $ 1,953 $ 1,013 $ 1,173
Earnings (Loss) Per Share......... $ .11 $ .27 $ (1.39) $ .60 $ .38 $ .20 $ .23
Weighted Average Shares
Outstanding (Primary)............ 5,586 5,623 5,579 5,018 5,183 5,094 5,189
Cash Dividends Per Share.......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Working Capital................... $ 8,712 $ 9,867 $ 18,287 $ 15,255 $ 17,607 $ 17,000 $ 17,117
Total Assets...................... $ 64,558 $ 60,843 $ 48,730 $ 44,396 $ 46,273 $ 46,007 $ 46,256
Long-Term Debt.................... $ 8,305 $ 7,200 $ 5,690 $ 4,153 $ 2,853 $ 3,821 $ 2,533
Stockholders' Equity.............. $ 37,014 $ 37,738 $ 28,114 $ 25,223 $ 30,085 $ 28,365 $ 30,345
</TABLE>
10
<PAGE>
UNAUDITED PRO FORMA SUMMARY FINANCIAL DATA (1)
The following unaudited pro forma summary financial data is presented giving
effect to the Merger using the pooling of interests method of accounting.
HBO & COMPANY AND CYCARE SYSTEMS, INC.
(000 OMITTED)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED AT AND FOR THE
DECEMBER 31, THREE MONTHS ENDED
1995 (2) MARCH 31, 1996
------------ -------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenue..................................................................... $ 557,636 $ 160,531
Income Before Income Taxes.................................................. $ 97,511 $ 34,149
Net Income.................................................................. $ 58,607 $ 20,545
Weighted Average Shares Outstanding (Fully Diluted) (3)..................... 83,486 88,292
BALANCE SHEET DATA:
Working Capital............................................................. $ 84,615
Total Assets................................................................ $ 591,467
Long-Term Debt.............................................................. $ 2,979
Stockholders' Equity........................................................ $ 374,517
</TABLE>
- ------------------------
(1) The Unaudited Pro Forma Summary Financial Data provided above is not
necessarily indicative of the results of operations or the financial
position which would have been attained had the Merger been consummated as
of the indicated dates or which may be attained in the future. This
Unaudited Pro Forma Summary Financial Data should be read in conjunction
with the historical financial statements of HBOC and CyCare, which are
incorporated by reference elsewhere in this document. All share and per
share amounts have been restated to reflect the HBOC 1996 two-for-one stock
split effected in the form of a stock dividend.
(2) 1995 Income Statement related items exclude the HBOC nonrecurring charge of
$136,481 related to 1995 acquisitions and include the dilutive effect of
stock options. The loss before income taxes was ($38,970) and the net loss
was ($23,282), including the nonrecurring charge.
(3) Based on an assumed Exchange Ratio of .86 of a share of HBOC Common Stock
for each share of CyCare Common Stock.
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain per share data for HBOC and CyCare on
both a historical and pro forma combined basis, giving effect to the Merger
using the pooling of interests method of accounting. All share and per share
amounts have been restated to reflect the HBOC 1996 two-for-one stock split
effected in the form of a stock dividend.
HBO & COMPANY -- HISTORICAL
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- --------------------
1993 1994 1995 1995 1996
------------ --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value................................................. $ 1.22 $ 1.77 $ 3.97 $ 1.96 $ 4.26
Cash Dividends Declared.................................... $ .075 $ .08 $ .08 $ .02 $ .02
Fully Diluted Earnings..................................... $ .26 $ .43 $ .72(1) $ .14 $ .23
</TABLE>
- ------------------------
(1) The stated fully diluted earnings per share of $.72 excludes the effect of
the $136 million nonrecurring charge related to 1995 acquisitions and
includes the dilutive effect of stock options. Reported fully diluted loss
per share for the period was ($.33).
CYCARE SYSTEMS, INC. -- HISTORICAL
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- --------------------
1993 1994 1995 1995 1996
------------ --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value................................................. $ 5.19 $ 5.24 $ 5.90 $ 5.67 $ 6.00
Cash Dividends Declared.................................... $ -- $ -- $ -- $ -- $ --
Primary Earnings (Loss).................................... $ (1.39) $ .60 $ .38 $ .20 $ .23
</TABLE>
PRO FORMA COMBINED HBO & COMPANY AND CYCARE SYSTEMS, INC. (1)
(USING AN ASSUMED MARKET VALUE PER SHARE
OF HBOC COMMON STOCK OF $50.00 AND AN
ASSUMED EXCHANGE RATIO OF .89870)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- --------------------
1993 1994 1995 1995 1996
------------ --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value................................................. $ 1.52 $ 2.01 $ 4.11 $ 2.22 $ 4.39
Cash Dividends Declared.................................... $ .075 $ .08 $ .08 $ .02 $ .02
Fully Diluted Earnings..................................... $ .14 $ .44 $ .70(2) $ .15 $ .23
</TABLE>
12
<PAGE>
PRO FORMA COMBINED HBO & COMPANY AND CYCARE SYSTEMS, INC. (1)
(USING AN ASSUMED MARKET VALUE PER SHARE
OF HBOC COMMON STOCK OF GREATER
THAN $52.25 AND LESS THAN $65.50
AND AN ASSUMED EXCHANGE RATIO OF .86000)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value.................................................... $ 1.53 $ 2.01 $ 4.12 $ 2.22 $ 4.40
Cash Dividends Declared....................................... $ .075 $ .08 $ .08 $ .02 $ .02
Fully Diluted Earnings........................................ $ .15 $ .45 $ .70(2) $ .15 $ .23
</TABLE>
PRO FORMA COMBINED HBO & COMPANY AND CYCARE SYSTEMS, INC. (1)
(USING AN ASSUMED MARKET VALUE PER SHARE
OF HBOC COMMON STOCK OF $67.50 AND AN
ASSUMED EXCHANGE RATIO OF .82815)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value.................................................... $ 1.53 $ 2.02 $ 4.13 $ 2.23 $ 4.41
Cash Dividends Declared....................................... $ .075 $ .08 $ .08 $ .02 $ .02
Fully Diluted Earnings........................................ $ .15 $ .45 $ .70(2) $ .15 $ .23
</TABLE>
- ------------------------
(1) The unaudited Pro Forma Combined Per Share Data provided above is not
necessarily indicative of the results of operations or the financial
position which would have been attained had the Merger been consummated on
the indicated dates or which may be attained in the future. This Pro Forma
Combined Per Share Data should be read in conjunction with the historical
consolidated financial statements of HBOC and CyCare, which are incorporated
by reference elsewhere in this Proxy Statement/Prospectus.
(2) The pro forma fully diluted earnings per share for all three tables above
excludes the effect of the HBOC $136 million nonrecurring charge related to
1995 acquisitions and includes the dilutive effect of stock options. Fully
diluted loss per share for 1995 including the nonrecurring charge is as
follows:
<TABLE>
<CAPTION>
EXCHANGE RATIO OF
-------------------------------
.89870 .86000 .82815
--------- --------- ---------
<S> <C> <C> <C>
Fully Diluted Loss Per Share................................................ $ (.29) $ (.29) $ (.29)
</TABLE>
13
<PAGE>
RISK FACTORS
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE MERGER
Certain officers and the directors of CyCare have interests in the Merger
that differ from those of CyCare stockholders generally. As a result, such
officers and directors could be more likely to favor consummation of the Merger
than stockholders generally. See "Interests of Certain Persons in HBOC and
CyCare -- Interests of Certain Persons in Matters to be Acted Upon."
ELECTION CONCERNING EMPLOYEE STOCK PURCHASE PLAN
Participants in the Employee Stock Purchase Plan may elect to cancel their
stock purchase rights and receive shares of HBOC Common Stock in the Merger.
Participants in the Employee Stock Purchase Plan who do not elect to cancel
their stock purchase rights in the Merger will have the right to purchase the
increased number of shares of HBOC Common Stock purchasable pursuant to such
plan as a result of continued payroll deductions thereunder in the event that
they are still employed on December 31, 1996. However, in the event that a
participant does not elect to cancel his or her stock purchase rights and, prior
to December 31, 1996, such participant ceases to be an employee of HBOC for any
reason, such former employee will be entitled only to receive the amount of his
or her payroll deductions with interest thereon accrued at the rate of 6% per
annum.
CERTAIN MARKET INFORMATION
HBOC
HBOC Common Stock is traded on the Nasdaq NM under the symbol "HBOC." The
table below presents the quarterly high and low closing sales prices and
dividend information for HBOC Common Stock as furnished by Nasdaq for the
periods indicated after restating for the two-for-one stock split effected in
the form of a stock dividend paid June 10, 1996.
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
YEAR ENDED DECEMBER 31: HIGH LOW PER SHARE
--------------------------- --------- --------- ----------
<S> <C> <C> <C>
1994
First Quarter......................................................... $ 13.19 $ 10.44 $ .02
Second Quarter........................................................ $ 15.57 $ 10.38 $ .02
Third Quarter......................................................... $ 17.25 $ 12.25 $ .02
Fourth Quarter........................................................ $ 18.07 $ 14.50 $ .02
1995
First Quarter......................................................... $ 21.88 $ 16.75 $ .02
Second Quarter........................................................ $ 27.25 $ 20.25 $ .02
Third Quarter......................................................... $ 32.00 $ 26.41 $ .02
Fourth Quarter........................................................ $ 42.88 $ 31.13 $ .02
1996
First Quarter......................................................... $ 49.81 $ 34.38 $ .02
Second Quarter........................................................ $ 68.75 $ 49.38 $ .02
Third Quarter (through July 17, 1996)................................. $ 68.63 $ 57.00
</TABLE>
The closing sales price for a share of HBOC Common Stock on May 9, 1996, the
last trading day preceding the announcement of the proposed Merger, was $56.50.
As of July 16, 1996, there were approximately 2,029 holders of record of shares
of HBOC Common Stock.
14
<PAGE>
CYCARE
CyCare Common Stock is traded on the NYSE under the symbol "CYS." The
following table sets forth the quarterly high and low closing prices for CyCare
Common Stock as furnished by the NYSE for the periods indicated. CyCare has
never declared a dividend on CyCare Common Stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: HIGH LOW
- -------------------------------------------------- --------- ---------
<S> <C> <C>
1994
First Quarter................................... $ 11.13 $ 7.75
Second Quarter.................................. $ 12.50 $ 9.63
Third Quarter................................... $ 13.75 $ 11.50
Fourth Quarter.................................. $ 15.88 $ 10.75
1995
First Quarter................................... $ 23.38 $ 14.50
Second Quarter.................................. $ 27.50 $ 22.13
Third Quarter................................... $ 39.50 $ 27.25
Fourth Quarter.................................. $ 34.50 $ 22.63
1996
First Quarter................................... $ 32.00 $ 23.13
Second Quarter.................................. $ 52.13 $ 27.13
Third Quarter (through July 17, 1996)........... $ 53.00 $ 48.38
</TABLE>
The closing sales price for a share of CyCare Common Stock on May 9, 1996,
the last trading day preceding the announcement of the proposed Merger, was
$46.00. As of July 16, 1996, there were approximately 470 holders of record of
shares of CyCare Common Stock.
THE MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the CyCare Board for the Meeting to be held on August
21, 1996 at the time and place and for the purpose set forth in the accompanying
Notice of Special Meeting.
Any CyCare stockholder who has previously delivered a properly executed
proxy may revoke such proxy at any time before its exercise. A proxy may be
revoked either by (i) delivering to the Secretary of CyCare prior to the Meeting
either a written revocation of such proxy or a duly executed proxy bearing a
later date or (ii) attending the Meeting and voting in person, regardless of
whether a proxy has previously been given. All valid, unrevoked proxies will be
voted as directed. In the absence of any contrary directions, proxies will be
voted in favor of the proposal set forth in the Notice of Special Meeting and,
with respect to such other matters as may properly come before the Meeting, in
the discretion of the appointed proxies.
Only holders of record of CyCare Common Stock as of the close of business on
July 16, 1996 will be entitled to vote at the Meeting. At that date, there were
5,067,670 shares of CyCare Common Stock outstanding, 439,734 of which, or 8.7%,
were beneficially owned by directors and executive officers of CyCare and their
affiliates. Each share of CyCare Common Stock is entitled to one vote on all
matters on which stockholders may vote. The presence at the Meeting, in person
or by proxy, of the holders of a majority of the issued and outstanding shares
of CyCare Common Stock constitutes a quorum for the transaction of business. The
Merger Agreement must be approved by holders of a majority of the issued and
outstanding shares of CyCare Common Stock. Abstentions will be counted in
determining whether a quorum is present, will be considered present and entitled
to vote, and will thus have the effect of a negative vote. If a proxy is
returned by a broker or other stockholder who does not have authority to vote,
does not give authority to a proxy to vote, or withholds authority to vote on
one or more matters as to any shares, such shares will be considered present at
the Meeting for purposes of determining a quorum, but will not be considered for
purposes of calculating the vote with respect to such matters.
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The proxy solicitation is being made primarily by mail, although proxies may
be solicited by personal interview, facsimile or other means of communication.
CyCare will pay the cost of this solicitation, including the charges and
expenses of brokerage firms and others who forward solicitation materials to
beneficial owners of the CyCare Common Stock. CyCare has arranged for First
Chicago Trust Company of New York ("First Chicago") and Corporate Investor
Communications, Inc. ("CIC") to serve as its proxy solicitation agents. In such
capacity, First Chicago will coordinate and oversee the distribution of the
proxy materials to, and the return of the proxy cards by, registered
stockholders, and CIC will provide similar services for beneficial owners. The
fee for such services is estimated to be $1,750 for First Chicago and $1,500 for
CIC, plus their respective out-of-pocket expenses. This Proxy
Statement/Prospectus and the proxy card are being mailed to stockholders on or
about July 19, 1996.
THE MERGER PROPOSAL
BACKGROUND OF THE MERGER
CyCare has utilized Broadview for investment banking and financial advisory
services since 1978. On December 14, 1995, at a general business meeting of
representatives of Broadview and HBOC at which various topics and business
opportunities were discussed, representatives of HBOC made Broadview aware of
its interest in exploring the possibility of entering into a strategic business
combination with CyCare. Later that month, a representative of HBOC contacted
Bernard Goldstein, a Managing Director of Broadview, requesting that a meeting
be arranged between representatives of CyCare and HBOC.
On January 9, 1996, Jim H. Houtz, Chairman of the Board, President, and
Chief Executive Officer of CyCare, met with Charles W. McCall, President and
Chief Executive Officer of HBOC, Jay P. Gilbertson, Senior Vice President --
Finance and Chief Financial Officer of HBOC, and Russell G. Overton, Senior Vice
President -- Business Development of HBOC, in Phoenix, Arizona to discuss the
possibility of HBOC entering into a strategic business combination with CyCare.
At this meeting, the parties exchanged publicly available information and
presented general overviews of their respective businesses, strategic direction,
products, services, market presence, and management personnel.
On February 16, 1996, Messrs. Houtz and Goldstein met in Phoenix to discuss
the January 9 meeting. At this meeting, Messrs. Houtz and Goldstein also
developed a list of two additional public companies (hereinafter referred to as
"Company No. 1" and "Company No. 2") for CyCare's consideration as potential
candidates for a business combination. These companies were selected on the
basis of their perceived status as leading companies in the healthcare
information systems industry and because of their previous business
relationships with CyCare.
On February 22, 1996, Mr. McCall sent Mr. Houtz a letter by telecopy
inviting him to come to HBOC's corporate headquarters in Atlanta, Georgia for
further discussions regarding a possible business combination of the two
companies. Mr. Houtz called Mr. McCall that day and advised him that due to
prior business commitments he would be unable to meet with him until early
April. Thereafter, representatives of HBOC contacted Mr. Goldstein several times
during the month of February to reiterate HBOC's interest in continuing
discussions with CyCare.
On March 6, 1996, Mr. Houtz met with representatives of Company No. 1 to
explore the possibility of a business combination of the two companies. At this
meeting, the parties reviewed generally their respective product lines and
product direction. The parties agreed to continue these discussions at a later
date.
On March 7, 1996, Mr. McCall sent a draft letter to Mr. Houtz expressing
HBOC's interest in CyCare. This letter also contemplated the merger of CyCare
with HBOC in which the stockholders of CyCare would receive shares of HBOC, on a
tax free basis, based on an exchange ratio of .84 shares (or an implied value
per share of CyCare Common Stock of $48) of HBOC Common Stock for each share of
CyCare Common Stock in a transaction to be accounted for as a pooling of
interests.
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On March 12, 1996, Mr. McCall sent a letter to Mr. Houtz and to the CyCare
Board, identical to the letter previously sent on March 7. Mr. Houtz responded
in writing to Mr. McCall's letter, advising Mr. McCall that he would be
unavailable to meet until early April to discuss HBOC's interest in CyCare.
On March 18, 1996, a special meeting of the CyCare Board was held at which
all members were present except for Dr. James L. Schamadan, who was unable to
attend due to a prior commitment. During that meeting, Mr. Houtz apprised the
CyCare Board of the recent discussions with HBOC and Company No. 1, regarding
the possibility of entering into a strategic business combination with CyCare as
well as the belief that Company No. 2 could also be interested based upon
general remarks made to Mr. Houtz during the preceding eighteen months. Mr.
Houtz presented the CyCare Board with an overview of each of these companies,
their respective operations, the various legal alternatives for structuring such
a transaction, and the merits of exploring these alternatives further, and
responded to questions from CyCare Board members regarding those subjects. Mr.
Houtz then advised the CyCare Board that, subject to the CyCare Board's
approval, he and Mark R. Schonau, Chief Financial Officer of CyCare, had plans
to meet with representatives of each of these companies during the first week of
April. He also advised the CyCare Board that A. Theodore Engkvist, a member of
the CyCare Board, and Mr. Goldstein would likely participate in certain of these
meetings. Following this discussion, the CyCare Board directed Mr. Houtz to meet
with these companies in accordance with his current plans.
Also on March 18, 1996, CyCare entered into confidentiality agreements with
HBOC and with the other two public companies to facilitate the review process
for a potential business combination.
On April 2, 1996, Messrs. Houtz and Schonau met with representatives of
Company No. 1 to discuss generally the possibility of a strategic business
combination of the two companies. At this meeting, the parties began informal
discussions regarding the potential synergies that could result from a
combination of the companies, particularly the ability to offer a broader
product line and additional services to their existing markets, and expanded
sales forces and research and development capabilities. The parties discussed
generally the cost savings that could result from a combination of the
companies, focusing on the possible consolidation of office locations and the
elimination of certain management and personnel redundancies that would exist on
a post-merger basis. The parties also began preliminary pricing discussions and
discussed the impact (accretive versus dilutive) of such a transaction on
Company No. 1's stock. Following these discussions, the representatives of
Company No. 1 agreed that they would return to their offices to review the
matters discussed at this meeting and to make a determination regarding the
price they would be willing to offer CyCare in a merger transaction.
On April 3, 1996, Messrs. Houtz, Schonau, Engkvist and Goldstein met with a
representative of Company No. 2 to discuss generally the possibility of a
business combination of the two companies. During that meeting, the
representative made a preliminary proposal which contemplated the merger of
CyCare with Company No. 2 in which the CyCare stockholders would receive shares
of Company No. 2 at a value per share of CyCare Common Stock of $47. In
addition, the parties began informal discussions regarding the potential
synergies and cost savings that could result from a combination of the
companies, which synergies and cost savings included matters similar to those
discussed at the April 2 meeting described above.
On April 4, 1996, Messrs. Houtz, Schonau, Engkvist and Goldstein met in
Atlanta with Messrs. McCall, Gilbertson and Overton to discuss HBOC's interest
in acquiring CyCare and the terms set forth in Mr. McCall's letter of March 12,
1996 . During that meeting, the parties began to discuss the potential synergies
that could result from a combination of the two companies, focusing on the
complementary nature of the companies' respective products, particularly the
fact that HBOC's products serve the hospital segment of the healthcare
information systems industry and CyCare's products serve the physician practice
segment of such industry. The parties also discussed various cost savings that
could result on a post-merger basis, including the ability to combine sales
forces and
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research and development efforts, as well as elimination of certain management
and personnel redundancies. The parties also began preliminary pricing
discussions and discussed the impact (accretive versus dilutive) of such a
transaction on HBOC's stock.
On April 13, 1996, Mr. Houtz received a telephone call from a representative
of Company No. 1, who made a preliminary proposal which contemplated the merger
of CyCare with Company No. 1 in which the CyCare stockholders would receive
shares of Company No. 1 with an implied value per share of CyCare Common Stock
of $46.10.
On April 23, 1996, a special meeting of the CyCare Board was held at which
all members were present. During that meeting, Mr. Houtz briefed the CyCare
Board on the prior discussions with HBOC and the other two companies since the
CyCare Board meeting held on March 18, 1996, and concluded with an overview of
each of these companies' respective businesses, products, services, market
presence and management personnel. Following Mr. Houtz's presentation, Messrs.
Houtz, Schonau and Goldstein responded to questions from members of the CyCare
Board. Following this discussion, Mr. Goldstein and Eric J. Schoenberg, a
Principal of Broadview, were asked to present their analysis of the interest
expressed by each of the three companies with respect to entering into a
strategic business combination with CyCare. In connection with this analysis,
two separate reports were distributed for the CyCare Board's consideration.
These reports included the following detailed information: (i) a comparison
summary analysis of the three offers received to date, which analysis included a
review of the implied price of each offer as of April 19, 1996 and, based on a
30-day average of such offeror's stock price, the percentage of the combined
entity that would be held by current CyCare stockholders on a post-merger basis,
1996 earnings per share and cash flow per share accretion calculations, and
earnings per share accretion break-even prices; (ii) a review of the historical
stock performance of each company since January 1, 1993; (iii) comparative
valuation metrics for each of the companies; (iv) a review of various brokerage
analysts' buy/sell recommendations of the subject companies; (v) a summary of
historical financial, stock ownership, and management information of the subject
companies; (vi) pooling analyses and pro forma projections for each proposed
deal structure; (vii) a review of the impact of prior acquisitions made by each
company on their respective stock prices; (viii) an analysis of public
valuations and acquisition prices paid for enterprise healthcare software
companies; (ix) an analysis of financial statistics of comparable enterprise
healthcare software public companies; (x) a review of premiums paid for public
software companies in transactions with total consideration in excess of $50
million since January 1, 1993; and (xi) a review of enterprise healthcare
software transactions with consideration in excess of $10 million since January
1, 1993. Messrs. Goldstein and Schoenberg reviewed in detail each of these
reports with the CyCare Board and responded to extensive questions and comments
from members of the CyCare Board during the course of their presentation.
Following these discussions, the CyCare Board concluded that it would be in the
best interests of CyCare to explore further the possibility of a business
combination with each of these companies, and directed management to continue
such discussions.
On April 24, 1996, in a phone conversation with Mr. Goldstein, a
representative of Company No. 2 reconfirmed Company No. 2's offer to acquire
CyCare at a value per share of CyCare Common Stock of $47.
On April 25, 1996, Messrs. Houtz, Schonau, Goldstein and Schoenberg met in
Phoenix with Messrs. Gilbertson and Overton to continue their discussions
regarding a possible business combination of HBOC and CyCare. At this meeting,
the discussions focused principally on the pricing of the proposed merger and on
the organizational characteristics of each of the companies. Following these
discussions, HBOC agreed to increase its offer from .84 to .86 of a share of
HBOC Common Stock for each share of CyCare Common Stock (an implied per share
value of CyCare Common Stock of $49.93) and agreed conceptually to stock price
collars on this exchange ratio.
On April 30, 1996, Mr. Schonau met in Atlanta with Mr. Gilbertson to conduct
certain preliminary financial due diligence concerning HBOC.
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On May 1, 1996, Messrs. Houtz, Schonau and Goldstein met in Phoenix with
representatives of Company No. 1 at which meeting Company No. 1 increased its
offer from an implied value per share of CyCare Common Stock of $46.10 as of
April 13 to an implied value per share of CyCare Common Stock of $49. Also on
this date, in response to unusual activity in CyCare Common Stock, CyCare issued
a press release disclosing that it had been approached by several parties
regarding a potential acquisition.
On May 2, 1996, Mr. Gilbertson proposed that HBOC and CyCare enter into a
letter of intent regarding a potential merger.
On May 3, 1996, a special meeting of the CyCare Board was held at which all
of the CyCare Board members were present. At this meeting, Mr. Houtz briefed the
CyCare Board on his recent meetings and telephone conversations with
representatives of HBOC, Company No. 1 and Company No. 2 and responded to
questions from CyCare Board members during the course of this presentation.
Following this discussion, Mr. Goldstein advised the CyCare Board that CyCare's
strategy until that time had been to further explore the interest of each of the
three potential acquirors and that CyCare would be focusing on stock price
collars with each of the companies. Following Mr. Goldstein's presentation, Mr.
Schoenberg then distributed a report for the CyCare Board's consideration in
connection with the proposed business combinations. The Broadview report was an
updated version of the information previously provided to the Cycare Board at
its April 23, 1996 meeting (updated to May 1, 1996), and also included a chart
depicting the weekly trading volumes of each of the companies since January 1,
1996. Mr. Schoenberg reviewed the report with the CyCare Board and responded to
extensive questions and comments from members of the CyCare Board during the
course of his presentation. Issues focused on by the CyCare Board included
weekly trading volume as a percentage of newly-issued shares, accretion/dilution
analysis, stock volatility, pooling analysis, potential cost savings and
increased revenue under the various potential transactions, prior acquisition
experience and the effect thereof on stock price.
Mr. Goldstein then briefly summarized the information in the Broadview
report, focusing on the dilution analysis. Messrs. Goldstein and Schoenberg then
responded to extensive questions from CyCare Board members, including questions
regarding earnings estimates of the various parties, the relative financial
strength and risks of the parties, and the relative certainty of the transaction
closing. In this regard, Mr. Goldstein advised the CyCare Board that HBOC's
prior acquisition experience and the accretive nature of the transaction to HBOC
made the certainty of closure greater with HBOC compared with the other two
companies under consideration. In response to a question from a CyCare director,
Messrs. Houtz and Goldstein extensively discussed their respective assessments
of each of the parties' plans for CyCare's business on a post-merger basis.
Other issues discussed included CyCare's current financial position, CyCare's
new products, and the probable effect of a business combination on CyCare's
stockholders, employees and customers. The CyCare Board then discussed the
relative merits of the parties in several areas, including the probability of
consummation, dilution, stock price collars, break-up fees, stock price
volatility, stock price upside and the best "fit" for CyCare. A representative
of CyCare's legal counsel, Snell & Wilmer L.L.P. ("Snell & Wilmer"), then
reviewed the directors' fiduciary duties in the context of a potential business
combination.
At the conclusion of the May 3, 1996 meeting, the CyCare Board authorized
management to permit HBOC to conduct formal and detailed due diligence of CyCare
and to open discussions with HBOC regarding the preparation of a definitive
merger agreement. Among the factors considered by the CyCare Board in
authorizing management to pursue a transaction with HBOC was the prospect that a
strategic business combination with HBOC would enable CyCare stockholders to
continue as investors in a combined company that would have the financial
resources, diversification and liquidity for sustained growth. Further, the
Board decided to eliminate Company No. 2 from further consideration based on the
determination that Company No. 2's stock appeared to be over-valued, the company
was too close in size to CyCare, the belief that a combination with the company
did not present a good long-term synergistic growth opportunity for CyCare and
the perceived risk that such a transaction
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might not close. Mr. Houtz telephoned Mr. McCall to advise him of CyCare's
willingness to conduct substantive negotiations regarding a strategic business
combination of the two companies. Mr. Houtz then telephoned Mr. Gilbertson to
advise him that CyCare did not want to enter into a letter of intent but
preferred to negotiate a definitive merger agreement. Mr. Gilbertson requested
that CyCare enter into a letter agreement containing a no-shop provision and
that the parties proceed to negotiate the definitive agreement.
On May 4, 1996, Messrs. Houtz, Goldstein and Gilbertson talked via telephone
to clarify HBOC's position with respect to CyCare's Dubuque, Iowa data center,
the proposed stock price collars and CyCare's preference with respect to
proceeding directly to the preparation of a definitive merger agreement in lieu
of a letter of intent or no-shop agreement as proposed by HBOC.
On May 5, 1996, representatives of HBOC and Jones, Day, Reavis & Pogue,
HBOC's legal counsel, arrived in Phoenix to commence their due diligence review
of CyCare, which review continued throughout the week. In addition, a draft of
the Merger Agreement was submitted by HBOC's legal counsel for consideration by
CyCare's management and financial and legal advisors. During the next two weeks,
a number of telephone calls were held between CyCare's management and HBOC's
management, and between their respective financial and legal advisors, which
focused on, among other things, the specific terms, timing and structure of the
potential merger.
Also on May 5, 1996, Mr. Houtz received a telephone call from a
representative of Company No. 1 increasing its offer of May 1 from an implied
value per share of CyCare Common Stock of $49 to $50, along with a change in the
stock price collar structure.
On May 6, 1996, a special meeting of the CyCare Board was held at which all
of the directors were present. During this meeting, the CyCare Board extensively
discussed Company No. 1's revised offer and HBOC's request that CyCare agree not
to solicit offers from third parties for a period of time. Following this
discussion, the CyCare Board determined not to take any action at that time with
respect to Company No. 1's offer, and authorized the execution of a letter
addressed to HBOC whereby CyCare agreed not to solicit offers from third parties
for the following 20 days, which was delivered to HBOC that day.
Following the resolution of significant transaction issues and a series of
conversations between Mr. Houtz and the CyCare Board members, late in the
evening on May 9, 1996, CyCare and HBOC entered into a letter of intent which
contemplated the merger of CyCare with HBOC. Under the terms of the letter of
intent, the stockholders of CyCare would receive shares of HBOC based on an
exchange ratio of .86 of a share of HBOC Common Stock for each share of CyCare
Common Stock (or an implied value per share of CyCare Common Stock of
approximately $49). This ratio would be subject to adjustment in the event the
average stock price of HBOC Common Stock during a specified period of time fell
below $53.25 per share or exceeded $62.75 per share.
On May 10, 1996, CyCare and HBOC issued a joint press release announcing the
signing of the letter of intent. Also on May 10, Mr. Goldstein met with a
representative of Company No. 1 to inform him that the CyCare Board had decided
to decline to pursue Company No. 1's revised offer.
On May 13, 1996, a special meeting of the CyCare Board was held at which all
members were present. At this meeting, Mr. Houtz briefed the CyCare Board on the
events of the last few days and discussed the positive reaction of the market
and CyCare's customers to the news that CyCare had executed a letter of intent
with HBOC. Following this discussion, a representative of Snell & Wilmer
reviewed in detail with the CyCare Board the material terms of the draft of the
Merger Agreement, distributed a report to the CyCare Board members summarizing
the CyCare Board's fiduciary obligations and then responded to questions from
various CyCare Board members. Following this discussion, Mr. Houtz apprised the
CyCare Board that certain issues remained unresolved with HBOC, including the
scope and length of proposed covenants not to compete and the parties to whom
these agreements would apply.
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On May 14, 1996, a special meeting of the CyCare Board was held at which all
members were present. At this meeting, Mr. Houtz advised the CyCare Board that
he had received a letter earlier that day from a representative of Company No. 2
proposing to acquire CyCare at an implied per share value of CyCare Common Stock
of $59 (the implied value of the HBOC offer at that time was $53.96). The CyCare
Board then discussed the letter in detail. Following this discussion, Mr.
Goldstein reviewed the letter from a financial perspective, noting that he had
spoken with Company No. 2's chief executive officer clarifying the terms
proposed in the letter. He then discussed several factors that in his view the
CyCare Board should consider, including the fact that Company No. 2 stockholder
approval would be necessary to consummate the transaction and that HBOC
stockholder approval would not be required. He also reviewed the ownership
interest that CyCare stockholders would have in the combined entity and the
risks associated with consummating a transaction with Company No. 2. Mr. Houtz
then reviewed for the CyCare Board what he believed to be the synergies and
potential for increased value to CyCare's stockholders that would result from
CyCare combining with HBOC as opposed to Company No. 2. These synergies included
the complementary nature of each company's respective product lines and
services, the expanded sales force and research and development capabilities,
and the ability to serve markets not previously served by each company. A
representative of Snell & Wilmer then advised the CyCare Board members as to
their fiduciary obligations in the context of reviewing alternative
stock-for-stock proposals. Following this discussion, the CyCare Board further
discussed the HBOC transaction and Company No. 2's proposal, and then concluded
that CyCare should proceed towards the finalization of a definitive agreement
with HBOC and directed Mr. Goldstein to contact HBOC to attempt to negotiate
more favorable stock price collars. The CyCare Board also requested that Mr.
Goldstein contact a representative of Company No. 2 to inquire whether its offer
included a stock price collar and to verify that a vote of the stockholders of
Company No. 2 would be required.
On May 15, 1996, a representative of Company No. 2 sent a letter to the
CyCare Board by telecopy clarifying its previous offer, noting that the proposed
exchange ratio would be subject to adjustment if the average stock price of
Company No. 2 during a specified period fell to a level resulting in a value per
share of CyCare Common Stock below $56 per share or rose to a level resulting in
a value per share of CyCare Common Stock above $65.
On May 18, 1996, a special meeting of the CyCare Board was held at which all
members were present. Mr. Houtz began this meeting by advising the CyCare Board
that earlier in the day CyCare's management and legal advisors had finalized a
proposed definitive merger agreement with HBOC. Mr. Goldstein then made a
presentation with respect to the fairness, from a financial point of view, of
the consideration to be received by the CyCare stockholders in the transaction,
and stated that Broadview would be delivering a written opinion to that effect
following the conclusion of this meeting. Mr. Schoenberg then reviewed in detail
the fairness opinion, a draft of which had been provided to the CyCare Board
several days earlier, and responded to questions from members of the CyCare
Board. Mr. Schoenberg reviewed various matters relating to the fairness opinion,
specifically valuation considerations, explanations of valuation methodology,
and valuation analysis. Mr. Schoenberg then discussed at length the recent
adjustment in the HBOC stock price collars. Mr. Houtz then reviewed the terms of
the May 15, 1996 letter from Company No. 2. A discussion among the CyCare Board
members then ensued regarding these matters.
Following this discussion, Mr. Goldstein reviewed in detail the history of
Company No. 2's interest in CyCare and noted that Company No. 2's May 15 letter
had prompted CyCare to seek an adjustment in the HBOC stock price collars. Mr.
Goldstein then proceeded to analyze, from Broadview's perspective, Company No.
2's two letters of May 14 and 15, 1996 as compared to the HBOC offer. The issues
that were addressed included (i) the potential adverse impact of a combination
with Company No. 2 on CyCare's installed base and employees; (ii) Company No.
2's initial refusal to increase the consideration in its original merger
proposal ($47 per share) and Company No. 2's statement at that time that it
believed its initial proposal was on the high side; (iii) the necessity that
Company No. 2 obtain stockholder approval for the proposed combination; (iv)
CyCare's greater
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impact on the stock price of the combined company if CyCare merged with Company
No. 2 rather than HBOC; (v) Company No. 2's relative inexperience (compared to
HBOC) in consummating significant acquisitions and its apparent lack of a
financial advisor in formulating its proposals to CyCare; and (vi) the advanced
state of the proposed HBOC transaction.
Following Mr. Goldstein's presentation, a representative of Snell & Wilmer
reviewed with the CyCare Board members their fiduciary obligations and advised
the CyCare Board regarding the factors that it was entitled to consider in
reviewing these alternative stock-for-stock proposals. He then summarized the
salient terms of the Merger Agreement, noting particularly (i) that the exchange
ratio was subject to adjustment if the average stock price of HBOC during a
specified period fell below $52.25 per share or rose above $65.00 per share (a
change from the collars agreed to in the letter of intent) and (ii) the
circumstances under which CyCare would be obligated to pay a termination fee to
HBOC. It was also noted that most of the CyCare options would be assumed by HBOC
in the Merger. Mr. Houtz then reviewed with the CyCare Board the synergisms he
believed would result from a merger with HBOC, which included the fact that both
companies had client-server technologies and graphical user interface UNIX
systems, they served complementary market segments and the combination would
provide for enhanced solutions for the evolving integrated healthcare
information technology marketplace.
After further deliberation, the CyCare Board unanimously approved the Merger
and the Merger Agreement with HBOC, authorized management to execute the Merger
Agreement, and recommended its adoption by the holders of CyCare Common Stock.
Subsequent to this meeting, each company executed and delivered the Merger
Agreement on Saturday, May 18, 1996. The execution of the Merger Agreement was
announced on May 20, 1996 by issuance of a press release.
REASONS OF CYCARE FOR ENGAGING IN THE MERGER; RECOMENDATION OF THE CYCARE BOARD
The CyCare Board has unanimously approved the proposed Merger and believes
the Merger is in the best interests of CyCare and its stockholders. In reaching
their decision, the directors considered, with the assistance of management and
its legal and financial advisors, the following factors:
(i) The Merger provides CyCare stockholders with HBOC Common Stock in a
tax-free exchange at a substantial premium over the historical market prices
for their shares of CyCare Common Stock. In addition, the Merger Agreement
provides for adjustment of the Exchange Ratio based on fluctuations in the
price of HBOC Common Stock, which offers CyCare stockholders protection by
increasing the Exchange Ratio if the price of HBOC Common Stock falls below
$52.25 per share.
(ii) The Merger offers CyCare stockholders an opportunity to acquire
shares in a significantly larger company and the opportunity to participate
in the long-term growth and appreciation of CyCare's business through their
ownership interest in HBOC.
(iii) The strategic fit between CyCare and HBOC and the complementary
nature of their respective businesses, particularly in light of the fact
that HBOC's products serve the hospital segment of the healthcare
information systems industry and CyCare's products serve the physician
practice segment of such industry.
(iv) Anticipated operating synergies and cost savings, including possible
synergies and cost savings with respect to (a) the consolidation of sales
offices, corporate, administrative and support functions, (b) the addition
of sales forces and research and development capabilities and (c) the
elimination of public reporting obligations of CyCare. The CyCare Board did
not consider any quantified amount of such cost savings in reaching its
decision to engage in the Merger.
(v) The opinion of Broadview that, as of May 17, 1996, the transaction
is fair, from a financial point of view, to the CyCare stockholders. See "--
Opinion of Financial Advisor to CyCare."
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(vi) The CyCare Board considered the financial and other terms of the
Merger, including that the Merger will not be subject to the approval by
HBOC stockholders, and, while the Merger Agreement contains a "no-shop"
clause and a termination fee provision (see "-- Terms of the Merger -- No
Solicitation -- Termination"), the Merger Agreement permits CyCare to
provide information to or enter into discussions or negotiations with other
persons if the CyCare Board determines that it is appropriate in the
exercise of the directors' fiduciary duties.
(vii) Information with respect to the financial condition and business of
HBOC, including, among other things, HBOC's recent and historical stock and
earnings performance, and the demonstrated ability of HBOC to successfully
implement its growth strategy.
In the course of its deliberations, the CyCare Board reviewed the following
additional factors relevant to the Merger: (i) the capital structure of HBOC;
(ii) the financial presentation analysis of Broadview prepared in connection
with its fairness opinion; (iii) reports from management and legal advisors on
specific terms of the Merger Agreement; (iv) the public information concerning
the financial performance, condition, business operations and prospects of each
of CyCare and HBOC presented at the April 23, 1996 CyCare Board meeting; and (v)
the proposed terms, timing and structure of the Merger.
The CyCare Board also considered the following potentially negative factors
in its deliberations concerning the Merger: (i) the possibility of management
disruption associated with the Merger and the risk that, despite the efforts of
the combined company, key management personnel of CyCare might not continue
their employment with the combined company; (ii) the possibility that certain of
the operating economies of scale such as the elimination of redundant
administrative costs sought to be achieved as a result of the Merger might not
be obtained; (iii) the possibility of CyCare's failure to be successfully
integrated into HBOC; and (iv) the downward adjustment to the Exchange Ratio if
the average price of the HBOC Common Stock exceeds $65.00 per share for certain
periods prior to completion of the Merger, thus capping the value holders of
CyCare Common Stock would receive upon consummation of the Merger.
The foregoing discussion of information and factors considered by the CyCare
Board is not intended to be exhaustive but is intended to include the material
factors considered. In view of the wide variety of factors considered, the
CyCare directors did not find it practical to, and did not, quantify or
otherwise assign relative weight to the specific factors considered and
individual directors may have given differing weights to different factors. The
CyCare Board did not, however, materially rely upon the financial projections of
CyCare prepared by CyCare management in evaluating and/or approving the Merger.
After taking into consideration all of the factors set forth above, together
with an analysis of the presentations of management, Broadview, and legal
counsel, the CyCare Board unanimously approved the Merger and determined that
the Merger is fair to and in the best interests of CyCare and its stockholders
and that CyCare should proceed with the Merger at this time. Accordingly, the
CyCare Board unanimously recommends that CyCare's stockholders vote FOR approval
of the Merger Agreement.
OPINION OF FINANCIAL ADVISOR OF CYCARE
CyCare engaged Broadview to act as its financial advisor and requested that
Broadview render an opinion regarding the fairness, from a financial point of
view, to CyCare's stockholders, of the consideration to be received by CyCare's
stockholders in the Merger. At the meeting of the CyCare Board on Saturday, May
18, 1996, Broadview rendered its written opinion (the "Broadview Opinion") that,
as of May 17, 1996, based upon and subject to the various factors and
assumptions set forth in the Broadview Opinion, the consideration to be received
by CyCare's stockholders in the Merger was fair, from a financial point of view,
to the CyCare stockholders. The amount of such consideration was determined
pursuant to negotiations between CyCare and HBOC and not pursuant to
recommendations of Broadview.
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The text of the Broadview Opinion, which sets forth assumptions made,
matters considered, and limitations on the review undertaken, was substantially
similar to their opinion dated the date of this Proxy Statement/Prospectus which
is attached as Appendix B to this Proxy Statement/Prospectus. CyCare
stockholders are urged to read the opinion set forth as Appendix B carefully and
in its entirety in their evaluation of the Merger. Such opinion addresses only
the fairness of the Exchange Ratio from a financial point of view and does not
constitute a recommendation to any stockholder of CyCare as to how such
stockholder should vote at the Meeting. Broadview has advised the CyCare Board
expressly in the Broadview Opinion that Broadview does not believe that any
person (including a stockholder of CyCare) other than the CyCare Board has the
legal right to rely upon its opinion to support any claims against Broadview
arising under applicable state law and that, should any such claims be brought
against Broadview by any such person, this assertion will be raised as a
defense. In the absence of applicable state-law authority, the availability of
such a defense would be resolved by a court of competent jurisdiction.
Resolution of the question of the availability of such a defense, however, will
have no effect on the rights and responsibilities of the CyCare Board under
applicable state law. Nor would the availability of such a state-law defense to
Broadview have any effect on the rights and responsibilities of either Broadview
or the CyCare Board under the federal securities laws. In addition, Broadview
will receive a fee from CyCare contingent upon successful conclusion of the
Merger. The summary of the Broadview Opinion set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In rendering its opinion, Broadview, among other actions: (i) reviewed the
terms of the Agreement of Merger in the form of the draft dated May 16, 1996
(the "Agreement"), which draft contained no material differences from the
definitive Merger Agreement; (ii) reviewed the financial statements of CyCare
for its fiscal years ended December 31, 1993, 1994, and 1995 audited by Ernst &
Young LLP and the unaudited financial statements of CyCare for the three months
ended March 31, 1996 included within CyCare's Form 10-Q Report for such period;
(iii) reviewed internal historical financial and operating data concerning
CyCare prepared and provided to Broadview by CyCare management; (iv) reviewed
financial projections for CyCare prepared and provided to Broadview by CyCare
management; (v) participated in discussions with CyCare management concerning
the operations, business strategy, financial performance and prospects for
CyCare; (vi) discussed with CyCare management its view of the strategic
rationale for the Merger; (vii) reviewed the reported closing prices and trading
activity for CyCare stock; (viii) compared certain aspects of the financial
performance of CyCare with public companies deemed comparable; (ix) analyzed
available information, both public and private, concerning other mergers and
acquisitions Broadview believed to be comparable in whole or in part to the
Merger; (x) reviewed HBOC's annual report and Form 10-K Report for the fiscal
years ended December 31, 1993, 1994, and 1995 and Form 10-Q Report for the three
month period ended March 31, 1996, including the financial statements included
therein; (xi) participated in discussions with HBOC management concerning the
operations, business strategy, financial performance and prospects for HBOC;
(xii) discussed with HBOC management its view of the strategic rationale for the
Merger; (xiii) reviewed the reported closing prices and trading activity for
HBOC stock; (xiv) considered the total number of shares of HBOC stock
outstanding, the average weekly trading volume of HBOC stock, and the maximum
time period for CyCare stockholders to liquidate their HBOC stock given
Commission regulations; (xv) reviewed recent equity analyst reports covering
HBOC; (xvi) analyzed the anticipated effect of the Merger on the future
financial performance of the consolidated entity; (xvii) participated in
negotiations and discussions related to the Merger among CyCare, HBOC and their
financial and legal advisors; and (xviii) conducted other financial studies,
analyses and investigations as deemed appropriate for purposes of the Broadview
Opinion.
In rendering the Broadview Opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information that was publicly available or furnished by CyCare or HBOC. All
analyses relying on future projections of CyCare utilized forecasts developed by
CyCare's management, which Broadview assumed were reasonably prepared and
reflected the best available estimates and good faith judgments of the
management of CyCare as to the future performance of CyCare. Broadview did not
materially rely upon the financial projections of
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CyCare in evaluating the Merger or rendering the Broadview Opinion. Broadview
did not make or obtain an independent appraisal or valuation of any of CyCare's
or HBOC's assets. With regard to any analyses relating to valuations of
comparable public companies, the share prices used were for the close of trading
on May 17, 1996, the last full trading day before the CyCare Board met to give
final consideration to the proposed Merger.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Broadview in conjunction with rendering
the Broadview Opinion regarding the proposed Merger.
PUBLIC COMPANY COMPARABLES ANALYSIS. Total Market Capitalization/Revenue
("TMC/R") and Price/Earnings ("P/E") multiples indicate the value public markets
place on companies in a particular market segment. Although there are a limited
number of public company "pure plays" in the markets in which CyCare competes,
several companies are comparable to CyCare based on revenue size range, products
offered, business model, management structure and market position. Broadview
reviewed ten public company comparables from a financial point of view including
each company's: Last Twelve Month (LTM) Revenue; LTM Pretax Income; LTM Pretax
Margin; LTM Primary Earnings Per Share ("EPS"); LTM P/E ratio; Projected
Calendar 1996 EPS; Price/Projected 1996 Calendar EPS ratio ("Projected P/E");
Projected 5-year EPS Growth Rate; Growth Adjusted Projected P/E ratio; Equity
Market Capitalization; Total Market Capitalization (i.e. equity market
capitalization adjusted for net debt) and TMC/R ratio. In alphabetical order,
the public company comparables were: Amisys Managed Care Systems, Inc., Cerner
Corp., Citation Computer Systems, Inc., Enterprise Systems, Inc., HBOC, IDX
Systems, Inc., Medic Computer Systems, Inc., Medicus Systems Corp., Phamis, Inc.
and Shared Medical Systems Corp. These comparables have a LTM P/E ratio range of
22.6 to 171.4 with a median of 49.1; Projected P/E ratio range of 26.6 to 73.5
with a median of 47.3; Growth Adjusted Projected P/E ratio range of 20.2 to 60.7
with a median of 47.0; and TMC/R ratio range of 1.0 to 9.1 with a median of 4.1.
The TMC/R valuation analysis places a per share value of $53.20 on CyCare.
The LTM P/E valuation analysis places a per share value of $42.21 on CyCare. The
Projected P/E analysis places a per share value of $50.62 on CyCare. The
Growth-Adjusted Projected P/E analysis places a per share value of $50.25 on
CyCare.
TRANSACTION PREMIUMS PAID ANALYSIS. Premiums paid in comparable public
seller transactions indicate the amount of consideration acquirors are willing
to pay above the seller's equity market capitalization. In this analysis, the
value of consideration paid in transactions involving stock is computed using
the buyer's stock price immediately prior to announcement, while the seller's
equity market capitalization is measured thirty days prior to announcement.
Broadview reviewed 29 transactions involving public software sellers with total
consideration greater than $50 million from January 1, 1993 to the present. In
order of descending premium paid, the transactions used were the acquisitions
of: (i) Sierra On-Line, Inc. by CUC International, Inc. (pending); (ii) Lotus
Development Corp. by IBM Corp.; (iii) Intuit, Inc. by Microsoft Corp.
(uncompleted transaction); (iv) Legent Corp. by Computer Associates
International; (v) Advance Ross Corp. by CUC International, Inc.; (vi) Aldus
Corp. by Adobe Systems, Inc.; (vii) Knowledgeware, Inc. by Sterling Software,
Inc.; (viii) TGV Software, Inc. by Cisco Systems, Inc.; (ix) Systems Center Inc.
by Sterling Software, Inc.; (x) Davidson & Associates, Inc. by CUC
International, Inc. (pending); (xi) Software Toolworks, Inc. by Pearson Plc;
(xii) Alias Research, Inc. by Silicon Graphics, Inc.; (xiii) ASK Group, Inc. by
Computer Associates International; (xiv) PDA Engineering by Macneal-Schwendler
Corp.; (xv) Integrated Silicon Systems, Inc. by Arcsys, Inc.; (xvi) Cybertek
Corp. by Policy Management Systems Corp.; (xvii) Trinzic Corp. by Platinum
Technology, Inc.; (xviii) Delrina Corp. by Symantec Corp.; (xix) Chipsoft, Inc.
by Intuit, Inc.; (xx) CliniCom Incorporated by HBOC; (xxi) Comdata Holdings
Corp. by Ceridian Corp.; (xxii) Hogan Systems by Continuum Co., Inc.; (xxiii)
C.I.S. Technologies, Inc.
by National Data Corp. (pending); (xxiv) Frame Technology Corp. by Adobe Systems
Inc.;
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(xxv) Wavefront Technologies, Inc. by Silicon Graphics, Inc.; (xxvi) Microtec
Research, Inc. by Menter Graphics Corp.; (xxvii) Powersoft Corp. by Sybase,
Inc.; (xxviii) First Financial Management Corp. by First Data Corp.; and (xxix)
Softimage, Inc. by Microsoft Corp.
Based upon Broadview's analysis of premiums paid in comparable transactions,
Broadview found that premiums paid to sellers' equity market capitalizations
(using the buyer's share price on the announcement date of the transaction to
calculate consideration in stock transactions) ranged from 21.0% to 137.1%. The
median was 50.0%, and the mean was 55.3%. Based upon the median, the price of
HBOC Common Stock on May 17, 1996 and the price per share of CyCare Common Stock
30 days preceeding May 17, 1996, the analysis places a per share value on CyCare
Common Stock of $41.63.
TRANSACTION COMPARABLES ANALYSIS. Valuation statistics from transaction
comparables indicate the Price/Revenue ("P/R") and Price/Pretax ("P/Pretax")
multiples acquirors have paid for comparable companies in a particular market
segment. Broadview reviewed ten M&A transaction comparables from 1993 through
the present which involve sellers sharing many characteristics with CyCare,
including revenue size range, products offered, business model, and management
structure. These transactions represent three public sellers and seven private
sellers or divestitures in the enterprise healthcare software segment of the
information technology market. In order of descending P/R multiples, the public
seller transactions used are the acquisitions of: (i) CliniCom Incorporated by
HBOC; (ii) Serving Software, Inc. by HBOC; and (iii) C.I.S. Technologies, Inc.
by National Data Corp.
In order of descending P/R multiples, the private seller or divestiture
transactions used are the acquisition of: (i) TDS Healthcare Systems Corp. by
Alltel Corp.'s Systematics Information Services; (ii) Elcomp Systems, Inc. by
Medic Computer Systems, Inc.; (iii) IBAX Healthcare Systems by HBOC; and (iv)
Versyss, Inc. by Physicians Computer Network, Inc. Additionally, Broadview
considered three transactions with respect to which Broadview has information
that is not publicly available.
The P/R multiples of the three public seller transactions ranged from 2.59
to 4.69, with a median of 2.79. The P/Pretax multiples of the three public
seller transactions ranged from 30.3 to 41.6, with a median of 31.8. The P/R
multiples of the seven private seller transactions ranged from 0.60 to 5.93,
with a median of 0.78. The P/Pretax multiples of the seven private seller
transactions ranged from 5.9 to 22.3 with a median of 6.5. The median P/R ratio
for all ten transactions was 2.07, and the median P/Pretax multiple for all ten
transactions was 18.1.
The per share valuation implied by the median P/R multiple (using all
comparables) is $25.77. The per share valuation implied by the median P/Pretax
multiple is $23.99.
PRO FORMA POOLING MODEL ANALYSIS. A pro forma merger analysis calculates
the EPS accretion/ dilution of the pro forma combined entity taking into
consideration various financial effects which will result from a consummation of
the merger. This analysis relies upon certain financial and operating
assumptions provided by CyCare management and on publicly available data about
HBOC. It also includes cost savings assumptions developed jointly by CyCare and
HBOC management. Based on CyCare management's forecast, the pro forma pooling
analysis indicates EPS accretion for the fiscal years ending December 31, 1996,
1997, and 1998 of 1.8%, 1.5%, and 0.5%, respectively.
STOCK PERFORMANCE ANALYSIS. For comparative purposes, Broadview examined
the historical volume and trading prices for both CyCare and HBOC Common Stock.
Broadview examined the relative relationships between: (i) HBOC and CyCare
actual stock prices and trading volumes from January 1, 1995 to May 17, 1996;
(ii) HBOC and CyCare stock price performance from January 1, 1993 to May 17,
1996; (iii) HBOC and CyCare relative stock price performance from January 1,
1995 to May 17, 1996; and (iv) the ratio of CyCare's stock price to HBOC's stock
price from January 1, 1993 to May 17, 1996.
The CyCare Board selected Broadview as its financial advisor on the basis of
Broadview's reputation and experience in the information technology sector and
the computer software industry in particular, as well as Broadview's historical
relationship with CyCare. Pursuant to the terms of an engagement letter between
CyCare and Broadview, the fees payable by CyCare to Broadview upon
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completion of the Merger are not to exceed 1% of the consideration to be
received by CyCare stockholders and option holders pursuant to the Merger.
Broadview will be reimbursed by CyCare for certain of its expenses incurred in
connection with its engagement. The terms of the fee arrangement with Broadview,
which CyCare and Broadview believe are customary in transactions of this nature,
were negotiated at arms' length between CyCare and Broadview, and the CyCare
Board was aware of the nature of the fee arrangement, including the fact that a
significant portion of the fees payable to Broadview is contingent upon
completion of the Merger.
The above summary of the presentations by Broadview to the CyCare Board does
not purport to be a complete description of such presentations or of all the
advice rendered by Broadview. Broadview believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses set forth in Broadview's
presentations to the CyCare Board and in the Broadview Opinion. In performing
its analyses, Broadview made numerous assumptions with respect to software
industry performance and general economic conditions, many of which are beyond
the control of HBOC or CyCare. The analyses performed by Broadview are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
REASONS FOR HBOC FOR ENGAGING IN THE MERGER
The HBOC Board believes that the addition of EDI services for physician
practices and physician practice management systems to its product line will
further its business objective of providing healthcare information systems and
technology to meet virtually every need of healthcare enterprises. In addition,
the HBOC Board believes CyCare's presence in the physician market will
complement its presence in the hospital market.
TERMS OF THE MERGER
The following summary of the terms and conditions of the Merger Agreement is
qualified in its entirety by reference to the full terms of the Merger
Agreement, which is attached hereto as Appendix A and is hereby incorporated by
reference herein.
EFFECTIVE TIME. The Merger shall become effective when both (i) the Merger
Agreement is adopted and approved by the stockholders of CyCare in accordance
with the applicable provisions of the DGCL and (ii) a certificate of merger (the
"Certificate of Merger") is filed with the Secretary of State of Delaware (the
time the Merger becomes effective being referred to as the "Effective Time").
GENERAL EFFECTS OF THE MERGER. At the Effective Time, CyCare will be merged
with and into HBOC-GA, which will be the surviving corporation and a wholly
owned subsidiary of HBOC.
CONVERSION OF SHARES. Each outstanding share of CyCare Common Stock issued
and outstanding immediately prior to the Effective Time, shall, at the Effective
Time, be converted into the right to receive .86 of a share of HBOC Common
Stock, provided, however, that:
(1) if the average closing market price per share (or if there is no
sale on any such day, then the average between the closing bid and ask
prices on any such day) for shares of HBOC Common Stock during the twenty
(20) consecutive trading days ending on the third trading day prior to the
date of the Meeting as reported by the Nasdaq NM (the "Market Value") is
less than $52.25 per share, then the number of shares of HBOC Common Stock
to be received by the stockholders of CyCare shall be increased so that the
stockholders of CyCare will receive for each share of CyCare Common Stock a
fractional share of HBOC Common Stock determined by dividing $44.935 by the
Market Value; and
(2) if the Market Value is more than $65.00 per share, then the number
of shares of HBOC Common Stock to be received by the stockholders of CyCare
shall be decreased so that the stockholders of CyCare will receive for each
share of CyCare Common Stock a fractional share of HBOC Common Stock
determined by dividing $55.90 by the Market Value.
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FRACTIONAL SHARES. No certificates or scrip representing fractional shares
of HBOC Common Stock shall be issued pursuant to the Merger, but in lieu
thereof, any holder of CyCare Common Stock shall be entitled to receive a cash
payment therefor, without interest, at a pro rata amount based on the Market
Value.
STOCK OPTION AND RESTRICTED STOCK PLANS. All options issued under the
Long-Term Incentive Plan will become immediately and fully exercisable in
accordance with their terms upon a change in control, as defined therein, which
will have resulted on or prior to the Effective Time of the Merger. At the
Effective Time, HBOC shall assume CyCare's rights and obligations under each of
the outstanding options previously granted under the Long-Term Incentive Plan
and the Director Stock Plan (to the extent such options shall have fully
vested), by which assumption the optionee shall have the right to purchase the
number of shares of HBOC Common Stock (rounded down to the nearest whole share)
into which the shares of CyCare Common Stock subject to the options would have
been converted in the Merger pursuant to the Exchange Ratio. The aggregate price
for the total number of shares of HBOC Common Stock at which the option may be
exercised shall be the aggregate price at which the option was exercisable for
the total number of shares of CyCare Common Stock, reduced (as necessary for
purposes of rounding down) to the price that will buy the number of whole shares
for which the option will be exercisable and the purchase price per share of
HBOC Common Stock thereunder shall be such aggregate price divided by the total
number of shares of HBOC Common Stock covered thereby.
Additionally, at the Effective Time, all shares of Restricted Stock (as that
term is defined in the Director Stock Plan) as to which the period of
restriction under such Director Stock Plan and related restricted stock
agreement shall have previously expired shall be exchanged for HBOC Common Stock
pursuant to the Exchange Ratio. All shares of Restricted Stock as to which such
period of restriction shall not, as of the Closing, have expired, shall be
forfeited on the Closing Date.
EMPLOYEE STOCK PURCHASE PLAN. At the written election of an employee
participating in the Employee Stock Purchase Plan (if received by CyCare and
forwarded to HBOC prior to the close of business on August 19, 1996), each such
employee's stock purchase right outstanding as of the Closing Date under the
Employee Stock Purchase Plan shall be cancelled and the holder thereof shall
receive the number of whole shares of HBOC Common Stock into which the shares of
CyCare Common Stock issuable to such holder as of the Closing Date would have
been converted, together with cash in lieu of any fractional share. If an
employee makes such an election, the number of shares of CyCare Common Stock
issuable to a participant as of the Closing Date shall be determined by dividing
the participant's payroll withholdings under the Employee Stock Purchase Plan as
of the Closing Date by the per share exercise price of the CyCare Common Stock
under the Employee Stock Purchase Plan as of the first day of the offering
period in progress on such date.
Absent such election received on a timely basis for any such employee, HBOC
shall assume CyCare's rights and obligations under each stock purchase right
outstanding as of the Closing Date under the Employee Stock Purchase Plan, and
each such stock purchase right shall be adjusted in the same manner as options
granted under the Long-Term Incentive Plan, described above. See "Risk Factors
- -- Election Concerning Employee Stock Plan."
EXCHANGE OF CERTIFICATES. HBOC has designated SunTrust Bank, Atlanta as
Exchange Agent in connection with the Merger. At the Effective Time, HBOC shall
provide the Exchange Agent with a sufficient number of shares of HBOC Common
Stock and cash to make payment for shares of CyCare Common Stock converted by
reason of the Merger. Promptly after the Effective Time, the Exchange Agent will
mail to each record holder (as of the Effective Time) of an outstanding
certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of CyCare Common Stock (the "Certificates"), a
letter of transmittal and instructions for use in effecting the surrender of the
Certificates for exchange and/or payment therefor.
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Upon surrender to the Exchange Agent of a Certificate, together with such
letter of transmittal properly completed and duly executed, and any other
required documents, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing the number of shares of HBOC
Common Stock equal to the product of the number of shares of CyCare Common Stock
represented by the Certificate multiplied by the Exchange Ratio and cash in lieu
of any fractional share interest (the "Merger Consideration"), and such
Certificate shall forthwith be cancelled. If payment is to be made to a person
other than the person in whose name the Certificate surrendered is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of HBOC or HBOC-GA that such tax
has been paid or is not applicable. Until surrendered, each Certificate shall
represent for all purposes only the right to receive the Merger Consideration,
without any interest on the value thereof.
Notwithstanding the foregoing, neither HBOC nor HBOC-GA shall be liable to
any holder of Certificates formerly representing shares of CyCare Common Stock
for any property properly delivered or amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
PAYMENT OF DIVIDENDS. No cash or stock dividend payable, no certificate
representing split shares deliverable, and no other distribution payable or
deliverable to holders of record of HBOC Common Stock at any time subsequent to
the Effective Time shall be paid or delivered to the holder of any Certificate
unless and until such Certificate is surrendered to the Exchange Agent. However,
subject to any applicable escheat laws, upon such surrender, there shall be paid
or delivered to the holder of record of the certificate or certificates for HBOC
Common Stock issued and exchanged therefor, the certificates for shares and/or
other property resulting from any such dividends, splits, or other
distributions, as the case may be, that shall have theretofore become payable or
deliverable with respect to HBOC Common Stock subsequent to the Effective Time,
without interest thereon.
LIMITATIONS ON TRANSFERABILITY OF HBOC COMMON STOCK. Shares of HBOC Common
Stock received by certain persons deemed to be "affiliates" of CyCare for
purposes of Rule 145 under the Securities Act will be subject to the
restrictions imposed by such rule. In accordance with Rule 145, an affiliate of
CyCare receiving HBOC Common Stock issued in the Merger may not sell such shares
except pursuant to the volume and manner of sale limitations and other
requirements specified therein or pursuant to an effective registration
statement under the Securities Act. It is a condition to the obligation of HBOC
to consummate the Merger that HBOC shall have received from each affiliate of
CyCare a letter agreement confirming that such person will not sell or otherwise
dispose of the shares of HBOC Common Stock received by such person as a result
of the Merger other than in compliance with Rule 145 or pursuant to an effective
registration statement or pursuant to any other available exemptions from the
registration requirements of the Securities Act. In general, directors, officers
and substantial beneficial owners of a corporation's securities may be deemed to
be "affiliates" of a corporation. In addition, certain CyCare affiliates are
subject to certain restrictions on transfer of both CyCare Common Stock and HBOC
Common Stock prior to and following, the Effective Time of the Merger to support
pooling of interests accounting treatment of the transaction.
CONDITIONS, WAIVER. The obligations of HBOC and HBOC-GA on the one hand,
and of CyCare on the other hand, to consummate the Merger are contingent upon
and subject to the satisfaction or waiver of the following conditions: (i) the
absence of certain legal or regulatory proceedings with respect to the Merger;
(ii) the expiration or termination of the waiting period under the HSR Act;
(iii) the approval of the Merger and the Merger Agreement by holders of the
requisite number of shares of CyCare Common Stock; (iv) the Registration
Statement shall have been declared effective and no stop order shall have been
issued with respect hereto and shares of HBOC Common Stock being issued in the
Merger shall have been registered or shall be exempt from registration under all
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applicable blue sky laws; (v) the HBOC Common Stock issuable in the Merger shall
have been listed or approved for listing upon notice of issuance by the Nasdaq
NM; and (vi) receipt of a fairness opinion of Broadview.
The obligations of HBOC and HBOC-GA to consummate the Merger are contingent
upon and subject to the satisfaction or waiver of the following additional
conditions: (i) the representations and warranties of CyCare shall remain true
and correct at and as of the Closing Date other than breaches of such
representations which cumulatively do not or could not reasonably be expected to
constitute a material adverse effect on the business, properties, rights or
operations of the corporation in question and its subsidiaries taken as a whole
(a "Material Adverse Effect"); (ii) the performance of all covenants, agreements
and conditions by CyCare as provided in the Merger Agreement; (iii) there shall
have been no change in the business, properties, rights or operations of CyCare
which constitutes a Material Adverse Effect; (iv) receipt of a certificate of
the President of CyCare regarding the matters in (i) through (iii) above; (v)
receipt of certain legal opinions, including an opinion of Jones, Day, Reavis &
Pogue to the effect that the Merger will qualify as a reorganization pursuant to
Section 368(a) of the Internal Revenue Code (the "Code"); (vi) receipt of
letters from affiliates of CyCare regarding compliance with Rule 145 and certain
pooling of interests requirements; (vii) delivery of certain additional
certificates and documents by CyCare, including certain consents of third
parties; (viii) receipt of letters from Ernst & Young LLP and Arthur Andersen
LLP advising HBOC that the Merger may be accounted for as a pooling of
interests; (ix) receipt of letters from Ernst & Young LLP regarding information
about CyCare included in the Registration Statement; (x) receipt of
non-competition agreements from certain key employees of CyCare; and (xi) the
absence of any fees or expenses payable to any investment banking firm or
similar entity that will be incurred by CyCare in connection with the Merger,
except fees and expenses of Broadview not to exceed one percent of the
consideration to be received by CyCare's stockholders in the Merger.
The obligation of CyCare to consummate the Merger is contingent upon and
subject to the satisfaction or waiver of the following additional conditions;
(i) the representations and warranties of HBOC and HBOC-GA shall remain true and
correct at and as of the Closing Date, other than breaches of such
representations which cumulatively do not or could not reasonably be expected to
have a Material Adverse Effect; (ii) the performance of covenants, agreements
and conditions by HBOC and HBOC-GA as provided in the Merger Agreement; (iii)
there shall have been no change in the business, properties, rights or
operations of HBOC which constitutes a Material Adverse Effect; (iv) receipt of
a certificate of the President of each of HBOC and HBOC-GA regarding the matters
in (i) through (iii) above; (v) receipt of certain legal opinions, including an
opinion from Snell & Wilmer to the effect that the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Code; and (vi) receipt of
letters from Ernst & Young LLP and Arthur Andersen LLP advising CyCare that the
Merger may be accounted for as a pooling of interests.
HART-SCOTT-RODINO. The Merger is subject to the requirements of the HSR
Act, which provides that certain transactions (including the Merger) may not be
consummated until certain information has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. HBOC and CyCare filed the required information and material with the
Antitrust Division and the FTC on May 24, 1996 and responded to a written
request for additional information received on June 21, 1996. HBOC and CyCare
were notified that the waiting period was terminated on July 16, 1996.
Satisfaction of the waiting period requirement does not preclude the Antitrust
Division, the FTC or any other party from challenging or seeking to delay or
enjoin the Merger on antitrust or other grounds.
NO SOLICITATION. CyCare has agreed that prior to the Effective Time of the
Merger or earlier termination of the Merger Agreement, CyCare shall not,
directly or indirectly, solicit, initiate, encourage, endorse or enter into any
agreement with respect to, or take any action to facilitate, any inquiries or
the making of any proposal or offer for any tender or exchange offer, proposal
for a merger, share exchange or other business combination involving CyCare or
any of its subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in CyCare or a substantial
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portion of the assets of CyCare or any of its subsidiaries with any person or
entity; provided, however, that the CyCare Board may furnish information to or
enter into discussions or negotiations with any unsolicited person or entity if,
and to the extent that, the CyCare Board determines in good faith, after
receiving written advice from its outside counsel, that such action would be
required under applicable law in the exercise of its fiduciary duties. CyCare
has agreed to notify HBOC-GA if any such proposals are received, any such
information is requested or any such inquiries or discussions with respect
thereto are sought to be initiated or continued.
TERMINATION. The Merger may be terminated at any time prior to the
Effective Time of the Merger by: (i) mutual consent of the HBOC Board and the
CyCare Board, notwithstanding the prior approval of the CyCare stockholders;
(ii) HBOC, in the event of material condemnation, destruction, loss or damage
due to fire or other casualty to the business assets of CyCare; (iii) HBOC-GA or
CyCare, after September 30, 1996 if the other party fails to fulfill any of its
conditions, unless fulfillment has been frustrated or made impossible by the
party seeking termination; (iv) CyCare, if, in the good faith exercise of its
fiduciary duties to the stockholders of CyCare in the context of a proposal to
acquire CyCare by another party, the CyCare Board decides that such termination
is required.
In the event the Merger Agreement is terminated by a party in accordance
with (iii) above by reason of a breach by the other party of its
representations, warranties or covenants, then the breaching party shall pay the
non-breaching party $10 million, which shall constitute liquidated damages and
shall be the sole and exclusive remedy of the non-breaching party. Further, if
the Merger Agreement is terminated in accordance with (iv) above or in
accordance with (iii) above by reason of the failure to obtain the approval of
the CyCare stockholders, CyCare will be obligated to pay HBOC and HBOC-GA their
reasonable costs and expenses incurred in connection with the negotiation and
performance of the Merger Agreement, not to exceed $500,000, and, if the Merger
Agreement is terminated in accordance with (iv) above, CyCare will be obligated
to pay HBOC and HBOC-GA $10 million, which shall constitute liquidated damages
and shall be the sole and exclusive remedy of HBOC and HBOC-GA.
ACCOUNTING TREATMENT
Prior to the consummation of the Merger, each of the parties to the Merger
Agreement shall have received letters, dated as of the date hereof and as of the
Closing Date, from Ernst & Young LLP and Arthur Andersen LLP regarding the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, based upon current law, is a general discussion of
the principal federal income tax consequences of the Merger, assuming the Merger
is consummated as contemplated herein. This summary is based upon the Code,
applicable regulations promulgated under the Code by the Treasury Department
("Treasury Regulations") and administrative rulings and judicial authority as of
the date hereof, all of which are subject to change, possibly with retroactive
effect. Any such change could affect the continuing validity of this summary.
This summary applies to holders of CyCare Common Stock who hold their shares of
CyCare Common Stock as capital assets. This summary does not discuss all aspects
of income taxation that may be relevant to a particular holder of CyCare Common
Stock in light of such holder's specific circumstances or to certain types of
holders subject to special treatment under the federal income tax laws (for
example, foreign persons, dealers in securities, banks and other financial
institutions, insurance companies, tax-exempt organizations, and holders who
acquired CyCare Common Stock pursuant to the exercise of options or otherwise as
compensation), and it does not discuss any aspect of state, local, foreign or
other tax laws. Consequently, each holder of CyCare Common Stock should consult
its own tax advisor as to the specific tax consequences of the Merger to that
stockholder.
As of the date of this Proxy Statement/Prospectus, Snell & Wilmer has
advised CyCare that in its opinion (i) the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Code, (ii) no
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gain or loss will be recognized by CyCare as the result of the consummation of
the Merger, and (iii) no gain or loss will be recognized by a CyCare stockholder
upon the exchange of the shares of CyCare Common Stock for shares of HBOC Common
Stock pursuant to the Merger, except on the receipt of cash in lieu of a
fractional share interest in HBOC Common Stock.
As of the date of this Proxy Statement/Prospectus, Jones, Day, Reavis &
Pogue has advised HBOC and HBOC-GA that in its opinion (i) the Merger will
qualify as a reorganization pursuant to Section 368(a) of the Code and (ii) no
gain or loss will be recognized by either HBOC, HBOC-GA or CyCare as the result
of the consummation of the Merger.
The opinions of Snell & Wilmer and Jones, Day, Reavis & Pogue referred to
herein are based upon certain representations and warranties of HBOC, HBOC-GA,
CyCare and one or more holders of CyCare Common Stock that are customarily made
in connection with such opinions, including representations relating to the
"continuity of interest" requirement of the Treasury Regulations. In general,
the "continuity of interest" requirement is considered to be satisfied if 50% or
more of the capital stock issued in a merger is held by the recipient
stockholders of the acquired entity following the merger other than under a plan
or intent to dispose of such shares. To assist in satisfying this requirement,
the Merger Agreement provides that, prior to the Effective Time of the Merger,
CyCare will deliver to HBOC and HBOC-GA letters to the reasonable satisfaction
of HBOC and HBOC-GA from CyCare and one or more of its stockholders that provide
assurance that there is no plan or intention on the part of the holders of
CyCare Common Stock (or knowledge of such plan or intent with respect to holders
of less than 5% of CyCare Common Stock) to sell, exchange or otherwise dispose
of a number of shares of HBOC Common Stock received in the Merger that would
reduce CyCare's stockholders' ownership of HBOC Common Stock received in the
Merger to a number of shares having a value, as of the Effective Time of the
Merger, of less than 50% of the value of all of the outstanding CyCare Common
Stock immediately prior to the Effective Time of the Merger.
No ruling has been requested from the Internal Revenue Service in connection
with the Merger, and the opinions referred to above would neither be binding
upon the Internal Revenue Service nor preclude it from adopting a contrary
position. In addition, consummation of the Merger is conditioned upon the
receipt by CyCare, HBOC and HBOC-GA of the opinions described above dated as of
the Closing Date.
Provided that the Merger constitutes a tax-free reorganization, the
aggregate adjusted tax basis of the HBOC Common Stock received (including any
fractional share interests deemed received) by a stockholder of CyCare as a
result of the Merger will be the same as the aggregate adjusted tax basis of the
shares of CyCare Common Stock surrendered in exchange therefor. The holding
period of the HBOC Common Stock received (including any fractional share
interests deemed received) by a stockholder of CyCare as a result of the Merger
will include the holding period of the shares of CyCare Common Stock surrendered
in exchange therefor. Any cash that a stockholder of CyCare receives in lieu of
a fractional interest in HBOC Common Stock will be treated as if the fractional
share were distributed in the Merger and then redeemed, resulting in gain or
loss upon receipt of such cash taxed as provided in Section 302 of the Code.
To prevent "backup withholding" of federal income tax on any payments of
cash to a CyCare stockholder in the Merger, a CyCare stockholder must, unless an
exception applies under the applicable law and regulations, provide the payor of
such cash with such holder's correct taxpayer identification number ("TIN") on a
substitute Form W-9 and certify under penalties of perjury that such number is
correct and that such holder is not subject to backup withholding. The
exceptions provide that certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, however, he or she must submit a signed
statement (I.E., Certificate of Foreign Status on Form W-8) attesting to his or
her exempt status. A Substitute Form W-9 will be provided to each CyCare
stockholder in the letter of transmittal to be mailed to each holder after the
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Effective Time. If the correct TIN and certifications are not provided, a $50
penalty may be imposed on a CyCare stockholder by the Internal Revenue Service,
and any cash received by such stockholder may be subject to backup withholding
at a rate of 31%.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF CYCARE ARE URGED TO CONSULT THEIR
TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER
(INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS).
NO APPRAISAL RIGHTS
Because CyCare Common Stock is listed on the NYSE, the holders of shares of
CyCare Common Stock will not be entitled to appraisal rights pursuant to Section
262 of the DGCL in connection with the Merger.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN EACH OF HBOC AND CYCARE
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HBOC
The following table sets forth, as of July 16, 1996, unless otherwise
indicated, certain information with respect to all stockholders known to HBOC to
beneficially own more than five percent of the HBOC Common Stock, and
information with respect to HBOC Common Stock beneficially owned by each
director of HBOC, the Chief Executive Officer of HBOC and HBOC's four other most
highly compensated executive officers for the year ended December 31, 1995, and
all directors and executive officers of HBOC as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to HBOC Common Stock owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------ ---------------------- -----------------
<S> <C> <C>
American Express Financial Corporation 5,035,614(1) 6.22%
IDS Tower 10
Minneapolis, Minnesota 55440
FMR Corp. 5,166,500(2) 6.39%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc. 5,196,136(3) 6.42%
One Post Office Square
Boston, Massachusetts 02109
Alfred C. Eckert III 20,000(4) *
Holcombe T. Green, Jr. 1,228,860(5) 1.52%
Philip A. Incarnati -0- *
Alton F. Irby III 20,000(4) *
Gerald E. Mayo 72,000(4) *
Charles W. McCall 1,436,139(6) 1.78%
James V. Napier 57,088(7) *
Charles E. Thoele 12,000(8) *
Donald C. Wegmiller 5,000(4) *
Jay P. Gilbertson 9,098 *
James A. Gilbert 76,196(9) *
Albert J. Bergonzi 34,372(10) *
Russell G. Overton 10,198 *
All Directors and Executive Officers
as a Group (13 persons) 2,980,951 3.68%
</TABLE>
- ------------------------
* Less than 1%
(1) According to the joint Schedule 13G as of December 31, 1995, of American
Express Company ("AEC") and American Express Financial Corporation ("AEFC"),
each of AEC and AEFC has shared voting power with respect to 2,123,814
shares and has shared dispositive power with respect to 5,035,614 shares.
Neither has sole voting nor sole dispositive power with respect to such
shares. AEC, the parent holding company of AEFC, disclaims beneficial
ownership of all such shares.
(2) According to the Schedule 13G as of December 31, 1995, of FMR Corp.
("FMR"), FMR has sole dispositive power with respect to all of such shares
and sole voting power with respect to 499,700 shares.
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<PAGE>
(3) According to the joint Schedule 13G as of December 31, 1995, of Putnam
Investments, Inc. ("PI"), its parent, Marsh & McLennan Companies, Inc. and
PI's subsidiaries, Putnam Investment Management, Inc. ("PIM") and The Putnam
Advisory Company, Inc. ("PAC"), PAC has shared voting and shared dispositive
power with respect to 4,419,136 of such shares and PI has shared voting and
shared dispositive power with respect to 535,300 and 5,196,136 of such
shares.
(4) Represents shares that may be acquired through the exercise of presently
exercisable stock options.
(5) Includes 430,000 shares that Mr. Green may acquire through the exercise of
presently exercisable stock options; 11,460 shares held in an IRA for the
benefit of Mr. Green; 663,300 shares held by a limited partnership of which
Mr. Green's wife is a general partner and with respect to which beneficial
ownership is disclaimed, except to the extent of his pecuniary interest
therein; and 124,100 shares held by HTG Corp. which is wholly owned by Mr.
Green.
(6) Includes 1,205,332 shares that may be acquired through the exercise of
presently exercisable stock options.
(7) Includes 600 shares owned by Mr. Napier's daughter and 30,000 shares that
may be acquired through the exercise of presently exercisable stock options.
(8) Includes 10,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(9) Includes 1,500 shares owned by Mr. Gilbert's son, 29,000 shares owned by
his wife and 12,000 shares that Mr. Gilbert may acquire through the exercise
of presently exercisable stock options.
(10) Includes 32,400 shares that may be acquired through the exercise of
presently exercisable stock options.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CYCARE
The following table sets forth, as of July 16, 1996, unless otherwise
indicated, certain information with respect to all stockholders known to CyCare
to beneficially own more than five percent of the CyCare Common Stock, and
information with respect to CyCare Common Stock beneficially owned by each
director of CyCare, the Chief Executive Officer of CyCare and CyCare's four
other most highly compensated executive officers for the year ended December 31,
1995, and all directors and executive officers of CyCare as a group. Except as
otherwise indicated, the stockholders listed in the table have sole voting and
investment powers with respect to CyCare Common Stock owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------------------------ ---------------------- -----------------
<S> <C> <C>
AIM Management Group Inc. 491,900(1) 9.71%
11 Greenway Plaza
Suite 1919
Houston, Texas 77046
Jim H. Houtz 340,720(2) 6.72%
Richard J. Burgmeier 63,000(3) 1.24%
Mark R. Schonau 31,889(4) *
David H. Koeller 21,339(5) *
Frank H. Bertsch 12,223(6) *
Randy L. Skemp 5,176(7) *
Bill W. Childs 7,870(8) *
James L. Schamadan, M.D. 6,125(9) *
A. Theodore Engkvist 4,125(10) *
All Directors and Executive Officers as a
Group (10 persons) 504,234(11) 9.95%
</TABLE>
- ------------------------
* Less than 1%
(1) According to the Schedule 13G as of February 12, 1996, of AIM Management
Group Inc. ("AIM"), on behalf of itself and its wholly owned subsidiaries,
AIM Advisors, Inc. and AIM Capital Management, Inc., beneficially owned
491,900 shares at December 31, 1995. According to the Schedule 13G, AIM had
shared voting and dispositive power over all 491,900 shares.
(2) Includes 20,000 shares that may be acquired through the exercise of
presently exercisable stock options and 37,500 shares held by Mr. Houtz's
wife for herself, over which Mr. Houtz shares voting and investment power.
(3) Includes 25,000 shares held by Mr. Burgmeier's wife, with respect to which
beneficial ownership is disclaimed.
(4) Includes 22,500 shares that may be acquired through the exercise of
presently exercisable stock options.
(5) Includes 4,375 shares that may be acquired through the exercise of
presently exercisable stock options.
(6) Includes 625 shares that may be acquired through the exercise of presently
exercisable stock
options.
(7) Includes 3,750 shares that may be acquired through the exercise of
presently exercisable stock options.
(8) Includes 6,250 shares that may be acquired through the exercise of
presently exercisable stock options.
(9) Includes 625 shares that may be acquired through the exercise of presently
exercisable stock options.
(10) Includes 625 shares that may be acquired through the exercise of presently
exercisable stock options.
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<PAGE>
(11) Includes 64,500 shares which executive officers and directors have the
right to acquire beneficial ownership of within 60 days.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In considering the Merger, holders of CyCare Common Stock should be aware
that the directors and executive officers of CyCare have interests in the Merger
in addition to their interests as stockholders of CyCare generally, as described
below.
Pursuant to the Merger Agreement, HBOC has agreed to the payment of
additional compensation in the amount of $10,000 to each member of the CyCare
Board, except Mr. Houtz, for extraordinary service and availability during the
period from March 1996 through consummation of the Merger.
HBOC-GA has agreed that subsequent to the Closing Date, it will provide to
the directors and officers of CyCare indemnification in accordance with the
current provisions of the Restated Certificate of Incorporation and Bylaws of
CyCare with respect to matters occurring prior to the Effective Time, including,
without limitation, the Merger Agreement and the transactions contemplated
thereby, for a period of five years from the Effective Time. See "Comparison of
Rights of Holders of Shares of Each of HBOC Common Stock and CyCare Common Stock
- -- Liability and Indemnification of Officers and Directors."
CyCare, HBOC and HBOC-GA have entered into a letter agreement dated May 18,
1996 pursuant to which HBOC will grant certain stock options and other rights to
certain officers of CyCare contingent upon the consummation of the Merger.
Pursuant to such letter agreement, among other grants to officers of CyCare or
its subsidiary, HBOC will grant options to acquire HBOC Common Stock to the
following executive officers: David Koeller, President-Group Practice, options
to purchase 30,000 shares; Randy Skemp, Senior Vice President-Sales and Account
Management, options to purchase 10,000 shares; and Carolyn Haupert, Senior Vice
President, options to purchase 10,000 shares, which in each case will vest over
a period of five years at twenty percent per year. Additionally, HBOC-GA has
agreed to provide Mr. Koeller and Ms. Haupert with severance protection whereby
if their employment is terminated without cause by HBOC-GA within three years of
the Closing Date, HBOC-GA will continue to pay Mr. Koeller's salary for the
remaining portion of such three year period and HBOC-GA will continue to pay Ms.
Haupert's salary for twelve months subsequent to such termination. Finally, HBOC
has agreed that contemporaneous with the granting of stock options to HBOC
officers and executives in early 1997, HBOC will grant stock options to certain
officers of CyCare or its subsidiary, including Messrs. Koeller and Skemp and
Ms. Haupert, on such terms and in such amounts as are granted to HBOC officers
and employees with like responsibility, without giving regard to the stock
options granted in connection with the closing of the Merger. The length of time
such persons have been employed by HBOC will not be a controlling factor in
determining the number of stock options granted in 1997, but will be one factor
considered.
In November 1995 and February 1996, the Compensation Committee of the CyCare
Board considered proposed changes to Mr. Houtz's retirement benefits.
Thereafter, effective April 23, 1996, CyCare agreed to amend Mr. Houtz's
supplemental executive retirement benefit plan. The plan provides that, upon Mr.
Houtz's retirement from CyCare or attainment of age 65, whichever is later,
CyCare will pay him monthly retirement benefits until he attains age 70. Upon
attainment of age 70, Mr. Houtz is entitled to CyCare's interest in the joint
life insurance policies on Mr. Houtz and his wife. Prior to the amendment, the
monthly retirement benefit payable to Mr. Houtz was equal to one-twelfth of 60%
of his average annual compensation during his last two years of employment, less
his Social Security benefits and less the retirement benefits attributable to
his account under the CyCare Systems, Inc. 401(k) Savings Plan. Under the
amendment, the monthly retirement benefit is fixed at $25,154 and is not subject
to change based on increases or decreases in Mr. Houtz's annual compensation or
subject to reduction for other retirement benefits. The amendment also provides
that, in the event of Mr. Houtz's death prior to age 65, CyCare will pay the
retirement benefits to his designated beneficiaries, beginning on the date that
Mr. Houtz would have attained age 65. Prior to the amendment, no benefits would
be paid if Mr. Houtz were to die before age 65.
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<PAGE>
On July 15, 1996, HBOC-GA and Mr. Houtz entered into a consulting agreement
(the "Consulting Agreement"). Pursuant to the terms of the Consulting Agreement,
Mr. Houtz will perform consulting services for up to 100 hours per month for a
twelve month period commencing on September 1, 1996. Such services will be
limited to issues regarding medical group practice, future technology direction,
EDI and customer relationships. As compensation for such services, HBOC-GA will
pay Mr. Houtz $427,000 and HBOC-GA will provide Mr. Houtz with the fringe
benefits Mr. Houtz received during the twelve months prior to the commencement
of such agreement. Should Mr. Houtz die during the term of the Consulting
Agreement, Mr. Houtz's designated beneficiary shall receive any remaining
payments due thereunder.
In 1992, CyCare and Mark R. Schonau entered into an Executive Severance
Agreement (the "Severance Agreement"). Pursuant to such agreement, should Mr.
Schonau terminate his employment with HBOC, as the successor to CyCare, for good
reason (as defined) following the Merger or should HBOC terminate Mr. Schonau's
employment without cause (as defined) following the Merger, HBOC shall pay to
Mr. Schonau a lump sum payment, the present value of which shall equal 299% of
Mr. Schonau's base salary. In such case, HBOC shall continue to provide Mr.
Schonau and his eligible beneficiaries the employee benefits he was entitled to
receive prior to termination. These benefits shall continue until the first to
occur of his attainment of alternate employment or 24 months. In addition, if,
following the Merger, Mr. Schonau terminates his employment or his employment is
terminated by HBOC without cause, then Mr. Schonau shall be given the right, for
a period of twelve months, to cause HBOC to purchase all of the HBOC Common
Stock held by him at a price equal to the higher of (i) the average closing
price for the HBOC Common Stock trading on the Nasdaq NM for the 10 days
preceding the termination date, and (ii) the closing price on the Nasdaq NM on
the last trading day preceding the Merger.
Additionally, in November 1995, CyCare and Mr. Schonau entered into a two
year employment agreement. Commencing on May 1, 1996, and on each subsequent day
thereafter, Mr. Schonau's term of employment shall automatically be extended for
additional eighteen month periods. If Mr. Schonau's employment is terminated by
HBOC without cause (as defined) or if Mr. Schonau resigns with good reason (as
defined), HBOC, as the successor to CyCare after the Merger, shall pay Mr.
Schonau twelve monthly payments equal to one-twelfth of the sum of his base
salary in effect immediately prior to his termination, plus the average of the
annual incentive bonuses paid to Mr. Schonau for the two prior fiscal years. In
addition, HBOC shall pay Mr. Schonau six monthly payments equal to one-twelfth
of his base salary immediately prior to the time such termination occurs. Should
Mr. Schonau attain alternate employment during the last six months of the
eighteen month payment period, HBOC's obligations will be reduced by the amount
of Mr. Schonau's compensation from his new employer during this six month
period. HBOC also shall provide Mr. Schonau and his eligible beneficiaries all
employee benefits he was entitled to receive prior to termination. These
benefits shall continue until the first to occur of his attainment of alternate
employment or eighteen months. Mr. Schonau also will be allowed to continue to
vest in any unvested stock options for a period of six months following his
termination, as if he remained an employee during that period.
Under CyCare's Long-Term Incentive Plan, if a change in control, such as the
Merger, occurs, all outstanding options, stock appreciation rights and other
awards in the nature of rights that may be exercised shall become fully
exercisable and all restrictions on outstanding awards shall lapse. In addition,
HBOC has agreed to assume all options granted under the predecessor plan. The
following executive officers hold options to purchase the number of shares of
CyCare Common Stock set forth below, which will vest, and be assumed by HBOC,
upon consummation of the Merger: Jim H. Houtz: 72,500; David H. Koeller: 51,250;
Mark R. Schonau: 46,250; Randy L. Skemp: 41,250; Carolyn S. Haupert: 26,250; and
Bill W. Childs: 31,250.
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<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF
HBOC COMMON STOCK AND CYCARE COMMON STOCK
INTRODUCTION
HBOC and CyCare are each incorporated under the laws of the State of
Delaware. The holders of shares of CyCare Common Stock, whose rights as
stockholders are currently governed by Delaware law, the Restated Certificate of
Incorporation, as amended, of CyCare (the "CyCare Charter"), and the By-laws of
CyCare (the "CyCare Bylaws"), will, upon the exchange of their shares pursuant
to the Merger, become holders of shares of HBOC Common Stock, and their rights
as such will be governed by Delaware law, the HBOC Certificate of Incorporation,
as amended (the "HBOC Charter"), and the Amended and Restated Bylaws of HBOC
(the "HBOC Bylaws"). The material differences between the rights of holders of
shares of CyCare Common Stock and of the rights of holders of shares of HBOC
Common Stock result from differences in their governing corporate documents and
are summarized below.
The following summary does not purport to be a complete statement of the
rights of holders of shares of HBOC Common Stock under applicable Delaware law,
the HBOC Charter and HBOC Bylaws or a comprehensive comparison with the rights
of the holders of shares of CyCare Common Stock under applicable Delaware law,
the CyCare Charter and CyCare Bylaws, or a complete description of the specific
provisions referred to herein. The identification of specific differences is not
meant to indicate that other equally or more significant differences do not
exist. This summary is qualified in its entirety by reference to the DGCL and
the governing corporate documents of HBOC and CyCare, to which holders of shares
of CyCare Common Stock are referred. See "Incorporation of Certain Information
by Reference."
AUTHORIZED CAPITAL STOCK
The DGCL requires that a corporation's certificate of incorporation set
forth the total number of shares of all classes of stock which the corporation
has authority to issue and a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof. The HBOC Charter provides that HBOC has authority to issue (i)
250,000,000 shares of HBOC Common Stock and (ii) 1,000,000 shares of preferred
stock, no par value. The CyCare Charter provides that CyCare has the authority
to issue (i) 10,000,000 shares of CyCare Common Stock, (ii) 1,000,000 shares of
preferred stock, par value $1.00 per share (the "CyCare Preferred Stock") and
(iii) 300,000 shares of Series A preferred stock, par value $.01 per share (the
"CyCare Series A Stock"). While the stockholders of CyCare at the 1996 Annual
Meeting approved an amendment to the CyCare Charter increasing the number of
authorized shares of CyCare Common Stock to 25,000,000, such amendment will not
be filed if the Merger is consummated.
BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
The DGCL permits a corporation's certificate of incorporation to allow its
board of directors to issue, without stockholder approval, one or more series of
preferred or preference stock and to designate their rights, preferences,
privileges and restrictions. The HBOC Charter grants such power to the HBOC
Board of Directors (the "HBOC Board"). The HBOC Board has designated one series
of preferred stock, the Series A Junior Participating Preferred Stock. See
"Incorporation of Certain Information by Reference." The CyCare Charter also
grants such power to the CyCare Board, provided that no Preferred Stock having
rights senior to those of the CyCare Series A Stock may be issued unless first
approved by the holders of a majority of the share of CyCare Series A Stock
entitled to vote. The CyCare Board has designated one series of preferred stock,
the Series A Stock, in connection with a rights plan previously adopted by
CyCare, no shares of which have been issued.
VOTING RIGHTS
The DGCL states that, unless a corporation's certificate of incorporation
or, with respect to clauses (ii) and (iii), the bylaws, specify otherwise, (i)
each share of its capital stock is entitled to one vote, (ii) a majority of
voting power of the shares entitled to vote, present in person or represented by
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proxy, shall constitute a quorum at a stockholders' meeting, and (iii) in all
matters other than the election of directors, the affirmative vote of the
majority of the voting power of shares, present in person or represented by
proxy at the meeting and entitled to vote on the subject matter, shall be the
action of the stockholders. The holders of shares of HBOC Common Stock are
entitled to one vote per share on all matters to be voted on by the stockholders
of HBOC. The holders of shares of CyCare Common Stock are entitled to one vote
per share on all matters to be voted on by the stockholders of CyCare.
NUMBER OF DIRECTORS
Under the DGCL, unless a corporation's certificate of incorporation
specifies the number of directors, such number shall be fixed by, or in the
manner provided in, its bylaws. If a corporation's certificate of incorporation
expressly authorizes its board of directors to amend its bylaws, its board of
directors may change the authorized number of directors by an amendment to the
corporation's bylaws, if fixed therein, or in such manner as is provided
therein. If such certificate of incorporation specifies the number of directors,
the number of directors can only be changed by amending the certificate of
incorporation. The HBOC Bylaws provide that the number of members of the HBOC
Board shall be not less than three nor more than fifteen, such number to be
established by the HBOC Board or stockholders. The number of directors on the
HBOC Board is currently nine (9). The CyCare Bylaws provide that the number of
directors shall not be less than three, which number may be changed from time to
time by resolution of the CyCare Board. The CyCare Charter provides that the
CyCare Board shall be divided into three classes, each class to be as nearly
equal in number as possible and that, subject to that qualification, the number
of directors may be increased or decreased from time to time. The number of
directors constituting the CyCare Board is currently five (5).
ELECTION OF BOARD OF DIRECTORS
The DGCL provides that a corporation's directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Under the
DGCL, a corporation's certificate of incorporation may provide that stockholders
of a corporation can elect directors by cumulative voting. Neither the HBOC
Charter nor the CyCare Charter provides for cumulative voting.
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The DGCL generally requires approval of any merger, consolidation or sale of
substantially all the assets of a corporation at a meeting of stockholders by
vote of the holders of a majority of all outstanding shares of the corporation
entitled to vote thereon. The certificate of incorporation of a Delaware
corporation may provide for a greater vote. The HBOC Charter generally requires
the affirmative vote of four-fifths of the outstanding HBOC Common Stock to
approve certain business combinations, except under certain circumstances. See
"-- Anti-Takeover Protection." The CyCare Charter generally requires the
affirmative vote of two-thirds of the outstanding CyCare Common Stock entitled
to vote to approve certain business combinations, except under certain
circumstances. See "-- Anti-Takeover Protection."
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special stockholder meetings of a corporation may be called
by its board of directors and by any person or persons authorized to do so by
its certificate of incorporation or bylaws. Under the HBOC Charter and Bylaws,
special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the Chairman of the Board or
the President or by holders of four-fifths of the outstanding shares of HBOC
Common Stock and shall be called by the Chairman of the Board or President at
the request in writing of three-fourths of the directors of HBOC. Such requests
shall state the purpose or purposes of the proposed meeting. The CyCare Bylaws
provide that special meetings of stockholders may be called by written notice
for any purpose by the CyCare Board, the Chairman or Vice Chairman of the CyCare
Board or the President. The written notice of a special meeting shall state the
purpose or purposes for which the meeting is called.
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STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the DGCL, any action by a corporation's stockholders must be taken at
a meeting of such stockholders, unless a consent in writing setting forth the
action so taken is signed by the stockholders having not less than the minimum
number of votes necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Actions by written
consent, however, may not be taken if otherwise provided for in the certificate
of incorporation. The HBOC Charter expressly prohibits written consents by
stockholders; the CyCare Bylaws expressly provides for action by written
consents by stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The DGCL allows amendment of a corporation's certificate of incorporation if
its board of directors adopts a resolution setting forth the amendment proposed,
declaring its advisability, and the stockholders thereafter approve such
proposed amendment, either at a special meeting called by the board for the
purpose of approval of such amendment by the stockholders or, if so directed by
the board, at the next annual stockholders' meeting. At any such meeting, the
proposed amendment generally must be approved by a majority of the outstanding
shares entitled to vote. The holders of the outstanding shares of a class are
entitled to vote as a separate class upon a proposed amendment, whether or not
entitled to vote thereon by the certificate of incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or alter
or change the powers, preferences, or special rights of the shares of such class
so as to affect them adversely. If any proposed amendment would alter or change
the powers, preferences, or special rights of one or more series of any class so
as to affect them adversely, but not affect the entire class, then only the
shares of the series so affected by the amendment will be considered a separate
class for the purposes of a vote on the amendment. Under the DGCL, a
corporation's certificate of incorporation also may require, for action by the
board or by the holders of any class or series of voting securities, the vote of
a greater number or proportion than is required by the DGCL and the provision of
the certificate of incorporation requiring such greater vote cannot be altered,
amended or repealed except by such greater vote. The HBOC Charter contains no
provisions requiring a vote greater than that specified in the DGCL to amend the
HBOC Charter, except for those provisions relating to business combinations. See
"-- Anti-Takeover Protection." The CyCare Charter contains no provision
requiring a vote greater than that specified in the DGCL to amend the CyCare
Charter, except for those provisions relating to the classification of the
CyCare Board and relating to business combinations. See "-- Anti-Takeover
Protection."
AMENDMENT OF BYLAWS
Under the DGCL, the power to adopt, amend or repeal a corporation's bylaws
resides with the stockholders entitled to vote thereon, and with the directors
of such corporation if such power is conferred upon the board of directors by
the certificate of incorporation. The HBOC Charter authorizes the HBOC Board to
make, alter or repeal the HBOC Bylaws. The CyCare Charter also authorizes the
CyCare Board to make, alter and repeal the CyCare Bylaws.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL provides that a corporation may limit or eliminate a director's
personal liability for monetary damages to the corporation or its stockholders
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to such corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying or
approving a stock repurchase in violation of Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. Both the HBOC Charter and the CyCare Charter provide for elimination of
personal liability subject to the statutory exceptions.
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in
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settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation as a derivative action) if they acted in good faith
and in a manner they reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. Both the HBOC Bylaws and the CyCare Bylaws provide to directors and
officers of HBOC and CyCare indemnification to the fullest extent provided by
law. Additionally, Article IX of the HBOC Bylaws provides that expenses incurred
by a person in defending a civil or criminal action, suit or proceeding by
reason of the fact that he or she is a director, officer, employee or agent may
be paid in advance of the final disposition of such action, suit or proceeding,
upon receipt of an undertaking by or on behalf of such director, officer,
employee or agent to repay such amount unless it shall ultimately be determined
that he or she is entitled to be indemnified by HBOC as authorized by relevant
Delaware law. Article V of the CyCare Bylaws provides for indemnification by
CyCare to the fullest extent authorized by relevant Delaware law.
PAYMENT OF DIVIDENDS
The DGCL permits the payment of dividends and the redemption of shares out
of a corporation's surplus. Under the DGCL, if a dividend is paid out of capital
surplus, stockholders need not be so notified, and the dividends may in certain
cases also be paid out of net profits for the fiscal year in which declared or
out of net profits for the preceding fiscal year. The HBOC Charter has no
provisions limiting the payment of dividends. The CyCare Charter does not limit
the payment of dividends, but the CyCare Charter provides that dividends (other
than dividends payable in stock) may not be paid to holders of CyCare Common
Stock unless dividends are also paid to holders of CyCare Series A Stock.
ANTI-TAKEOVER PROTECTION
Under the DGCL, a merger or consolidation generally must be approved by the
affirmative vote of the holders of a majority of all of the outstanding shares
of stock entitled to vote thereon. However, no stockholder approval is required
if the acquiring corporation owns 90% or more of the outstanding shares of the
acquired corporation.
In addition to the DGCL's general requirements, Section 203 of the DGCL,
"Business Combinations with Interested Stockholders," prohibits a corporation
that does not opt out of its provisions from entering into certain business
combination transactions with "interested stockholders" (generally defined to
include persons beneficially owning 15% or more of the corporation's outstanding
capital stock) unless certain super-majority votes are obtained. HBOC has opted
out of Section 203 in its Bylaws. However, the HBOC Charter places certain
restrictions on "Business Combinations" (such as a merger) with "Controlling
Persons" (generally, a person holding more than 10% of the HBOC Common Stock)
unless, generally speaking, the Business Combination has been approved by the
affirmative vote of the holders of four-fifths of the outstanding HBOC Common
Stock not held by the Controlling Person or its related entities or by a
majority of directors who were directors prior to the time the Controlling
Person became a Controlling Person and who are not affiliated with the
Controlling Person. Such provisions do not apply to the Merger. CyCare has not
opted out of Section 203 in the CyCare Charter. Additionally, the CyCare Charter
places certain restrictions on certain transactions, such as mergers and sales
of substantially all of the assets of CyCare, with a "Related Entity"
(generally, a person holding more than 10% of the shares entitled to vote to
elect directors ) or an affiliate of a Related Entity unless such transaction is
approved by two-thirds of the shares of CyCare voting as a single class. Such
provisions do not apply to the Merger.
APPRAISAL RIGHTS
Under the DGCL, stockholders of corporations being acquired pursuant to a
merger have the right to serve upon the corporation a written demand for
appraisal of their shares when the stockholders receive any form of
consideration for their shares other than (a) shares of the surviving
corporation, (b) shares of any other corporation (i) listed on a national
securities exchange, (ii) designated as a national market system security on an
inter-dealer quotation system by the National Association of Securities Dealers,
Inc. or (iii) held of record by more than 2,000 stockholders or (c) cash in lieu
of
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fractional shares, or any combination thereof. Stockholders entitled to
appraisal rights subsequently receive cash from the corporation equal to the
value of their shares as established by judicial appraisal. Corporations may
enlarge these statutory rights by including in their certificate of
incorporation a provision allowing appraisal rights in any merger in which the
corporation is a constituent corpora-tion. Neither the HBOC Charter nor the
CyCare Charter contains such a provision.
Because CyCare Common Stock is listed on the NYSE, the holders of shares of
CyCare Common Stock will not be entitled to appraisal rights pursuant to Section
262 of the DGCL in connection with the Merger.
BUSINESS OF HBOC
HBOC develops integrated patient care, clinical, financial and strategic
management software solutions for the healthcare industry. These open systems
applications facilitate the integration of clinical, financial and
administrative data from a wide range of customer systems and software. HBOC's
broad product portfolio can be implemented in a variety of combinations from
stand-alone to enterprisewide, enabling customers to add incremental
capabilities to existing information systems without making prior capital
investments obsolete. HBOC also provides a full complement of network
communications technologies, including wireless capabilities, as well as
outsourcing services that are offered under contract management agreements
whereby its staff manages and operates data centers, information systems,
organizations and business offices of healthcare institutions of various sizes
and structures.
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers, pharmacies,
reference laboratories, managed care providers and payers. At December 31, 1995,
HBOC had 2,700 customers of which 2,200 were United States community hospitals.
Currently there are a total of 5,300 community hospitals in the United States.
HBOC also sells its products and services internationally through subsidiaries
and/or distribution agreements in the United Kingdom, Canada, Ireland, Saudi
Arabia, Australia, Puerto Rico and New Zealand.
As of December 31, 1995, the Company's customers include 897 active users of
patient care systems, 986 active users of clinical/departmental systems, 1,298
active users of financial systems, 755 active users of decision support systems
and 68 active users of enterprise information systems. In addition, HBOC had 183
networking technology customers and 15 outsourcing services sites.
On May 14, 1996, the HBOC Board approved a two-for-one stock split effected
in the form of a stock dividend paid June 10, 1996 to all holders of record of
HBOC Common Stock on May 27, 1996.
As of December 31, 1995, HBOC had 3,363 employees worldwide.
BUSINESS OF CYCARE
CyCare is a leading provider of information systems, related support service
and EDI services to the healthcare industry, including physicians, medical group
practices, academic practice centers and integrated delivery networks. CyCare's
services and systems are based primarily on open-systems architecture using
software developed or acquired by CyCare to improve the productivity and
profitability of its customers. Applications include appointment scheduling,
patient and member registration information, business office management,
electronic claims processing, patient care and patient accounting.
CyCare markets its products and services through sales representatives
located in nine offices throughout the country. CyCare estimates that there are
over 570,000 practicing physicians and approximately 148,000 medical practices
in the United States. Approximately 70% of physician practices now use computers
or computer services for at least some of their information processing
requirements. CyCare's customers are principally located throughout the United
States.
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As of March 8, 1996, CyCare employed approximately 486 persons.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, proposals of stockholders intended to be
presented at CyCare's 1997 Annual Meeting of Stockholders must be received by
CyCare by November 29, 1996 for inclusion in CyCare's proxy materials relating
to such meeting. In the event the Merger is consummated, there will not be a
1997 Annual Meeting of Stockholders of CyCare.
OTHER MATTERS
The management of CyCare knows of no other matters that may come before the
Meeting. However, if matters other than those referred to above should properly
come before the Meeting, it is the intention of the persons named on the
enclosed form of proxy to vote such proxy in accordance with their best
judgment.
CERTAIN LEGAL MATTERS
The validity of the shares of HBOC Common Stock offered hereby will be
passed upon for HBOC by Jones, Day, Reavis & Pogue, Atlanta, Georgia. Certain
tax matters in connection with the Merger have been passed upon for CyCare by
Snell & Wilmer L.L.P, Phoenix, Arizona.
EXPERTS
The audited financial statements and schedule of HBOC incorporated by
reference in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement of which this Proxy Statement/ Prospectus is a part, to the extent and
for the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
With respect to the unaudited interim financial information of HBOC for the
quarters ended March 31, 1995 and 1996, which are incorporated by reference
herein, Arthur Andersen LLP has applied limited procedures in accordance with
professional standards for a review of that information. However, their separate
report thereon states that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance on
their report on that information should be restricted in light of the limited
nature of the review procedure applied. In addition, the accountants are not
subject to the liability provisions of Section 11 of the Securities Act, for
their report on the unaudited interim financial information because that report
is not a "report" or a "part" of the Registration Statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements of CyCare Systems, Inc. incorporated
by reference in CyCare Systems, Inc.'s Annual Report (Form 10-K) for the year
ended December 31, 1995, which is referred to and made a part of this Proxy
Statement/Prospectus and the Registration Statement, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by reference, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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APPENDIX A
EXPLANATORY NOTE
The Merger Agreement was executed prior to May 27, 1996, the record date for
a two-for-one stock split effected in the form of a stock dividend paid June 10,
1996. Accordingly, all share and per share data regarding HBOC Common Stock
herein have not been adjusted to give effect to such stock split.
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, made this 18th day of May, 1996, by and among HBO
& COMPANY, a Delaware corporation ("Parent"); HBO & COMPANY OF GEORGIA, a
Delaware corporation (hereinafter referred to as "Purchaser"); and CYCARE
SYSTEMS, INC., a Delaware corporation (hereinafter referred to as the "Acquired
Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of the Acquired Company, Parent and
Purchaser deem it advisable and in the best interests of their respective
stockholders that Purchaser acquire the Acquired Company, and, on or prior to
the date hereof, such Boards of Directors have approved the acquisition of the
Acquired Company upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
receipt, sufficiency and adequacy of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
I. DEFINITIONS.
As used herein, the following terms shall have the following meanings unless
the context otherwise requires:
1.1 "Acquired Company" shall mean CyCare Systems, Inc., a Delaware
corporation.
1.2 "Acquired Company Information" shall have the meaning set forth in
Section 2.3.1.
1.3 "Acquired Company Reports" shall have the meaning set forth in Section
3.21.
1.4 "Acquired Company Software" shall have the meaning set forth in Section
3.14.2(iii).
1.5 "Acquired Company Stock" shall mean the common stock, $.01 par value
per share, of the Acquired Company.
1.6 "Agreement" shall mean this Agreement of Merger.
1.7 "Benefit Plans" shall have the meaning set forth in Section 3.16.
1.8 "Certificate of Merger" shall have the meaning set forth in Section
2.1.2.
1.9 "Certificates" shall have the meaning set forth in Section 2.2.2
hereof.
1.10 "Closing" shall have the meaning set forth in Section 2.1.9 hereof.
1.11 "Closing Date" shall mean the date on which the Closing occurs
pursuant to Section 8.1 hereof.
1.12 "Covenants Not to Compete" shall mean the Covenants Not to Compete
referred to in Section 6.11.
1.13 "Customer Contracts" shall have the meaning set forth in Section
3.12.1.
1.14 "Delaware Code" shall mean the Delaware General Corporation Law.
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1.15 "Director Stock Plan" shall mean the CyCare Systems, Inc. Director
Stock Plan, effective October 18, 1994.
1.16 "DOL" shall mean the United States Department of Labor.
1.17 "Effective Time" shall mean the time the Merger becomes effective, as
set forth in Section 2.1.2.
1.18 "Employee Stock Purchase Plan" shall mean the CyCare Systems, Inc.
Employee Stock Purchase Plan.
1.19 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.20 "ERISA Affiliate" shall mean, with respect to a Person, any other
Person that is required to be aggregated with such Person under Tax Code Section
414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
1.21 "ERISA Plan" shall have the meaning set forth in Section 3.16.1.
1.22 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.23 "Exchange Agent" shall mean the person designated by Purchaser as the
Exchange Agent pursuant to Section 2.2.1 hereof.
1.24 "Exchange Ratio" shall mean the ratio of exchange pursuant to the
Merger in respect of each share of Acquired Company Stock constituting a
fraction of a share of Parent Stock as determined pursuant to the provisions of
Section 2.1.6.
1.25 "401(k) Plan" shall mean the CyCare Systems, Inc. 401(k) Savings Plan.
1.26 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and Improvements
Act of 1976, as amended.
1.27 "Hazardous Substance" shall have the meaning set forth in Section
3.18.
1.28 "Interim 1996 Financial Statements" shall have the meaning set forth
in Section 3.5.1.
1.29 "IRS" shall mean the United States Internal Revenue Service.
1.30 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
1.31 "Long-Term Incentive Plan" shall mean the CyCare Systems, Inc.
Long-Term Incentive Plan, effective March 1, 1995.
1.32 "Material Adverse Effect" shall mean a material adverse effect on the
businesses, properties, rights or operations of the corporation in question and
its subsidiaries, taken as a whole.
1.33 "Material Contracts" shall have the meaning set forth in Section
3.12.9.
1.34 "Merger" shall mean the merger of the Acquired Company with and into
Purchaser, as set forth in Section 2.1.1.
1.35 "Merger Consideration" shall have the meaning set forth in Section
2.1.6(a).
1.36 "NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation System.
1.37 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.38 "Owned Software" shall have the meaning set forth in the first
paragraph of Section 3.13.
1.39 "Parent" shall mean HBO & Company, a Delaware corporation, which is
the sole stockholder of Purchaser.
1.40 "Parent Reports" shall have the meaning set forth in Section 4.6.
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1.41 "Parent Stock" shall mean the common stock, $0.05 par value per share,
of Parent.
1.42 "Parent Subsidiaries" shall mean the current subsidiaries of the
Parent, as the same are identified in the Parent Reports.
1.43 "PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
1.44 "Person" shall include, but is not limited to, an individual, a trust,
an estate, a partnership, an association, a company, a corporation, a sole
proprietorship, a professional corporation or a professional association.
1.45 "Purchaser" shall mean HBO & Company of Georgia, a Delaware
corporation.
1.46 "Real Property" shall have the meaning set forth in Section 3.18.
1.47 "Registration Statement" shall have the meaning set forth in Section
2.3.1.
1.48 "SEC" shall mean the Securities and Exchange Commission.
1.49 "Specified Customer Contract" shall have the meaning set forth in
Section 3.13 hereof
1.50 "Stock Plans" shall mean the Director Stock Plan, Employee Stock
Purchase Plan and Long-Term Incentive Plan.
1.51 "Subsidiaries" shall mean the subsidiaries of the Acquired Company,
which are: CyData, Inc.
1.52 "Surviving Corporation" shall have the meaning set forth in Section
2.1.1 hereof.
1.53 "Takeover Proposal" shall have the meaning set forth in Section 2.11
hereof.
1.54 "Tax Code" shall mean the Internal Revenue Code of 1986, as amended.
II. COVENANTS AND UNDERTAKINGS.
2.1 TERMS AND APPROVAL OF MERGER.
2.1.1. TERMS OF THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware Code, the
Acquired Company shall be merged with and into Purchaser (the "Merger"), as soon
as practicable following the satisfaction or waiver of the conditions set forth
in Articles V, VI and VII hereof. Following the Merger, Purchaser shall continue
as the surviving corporation (the "Surviving Corporation") and the separate
corporate existence of the Acquired Company shall cease.
2.1.2. EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective when both (i) this Agreement shall be adopted and approved by the
stockholders of the Acquired Company in accordance with the applicable
provisions of the Delaware Code and (ii) a Certificate of Merger (the
"Certificate of Merger"), executed in accordance with the relevant provisions of
the Delaware Code is filed with the Secretary of State of Delaware (the time the
Merger becomes effective being referred to as the "Effective Time"). The Merger
shall have the effects set forth in the Delaware Code.
2.1.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Purchaser as in effect immediately preceding the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation. The
Bylaws of Purchaser as in effect immediately preceding the Effective Time shall
be the Bylaws of the Surviving Corporation.
2.1.4. DIRECTORS. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
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2.1.5. OFFICERS. The officers of Purchaser immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
2.1.6. CONVERSION OF SHARES. (a) Subject to Section 2.1.6(g) below, each
outstanding share of Acquired Company Stock issued and outstanding immediately
prior to the Effective Time, shall, at the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive .43 of a share of Parent Stock, deliverable to the
holder thereof, without interest on the value thereof, upon the surrender of the
certificate(s) formerly representing such outstanding share, provided, however,
that:
(i) if the average closing market price per share (or if there is no
sale on any such day, then the average between the closing bid and ask
prices on any such day) for shares of Parent Stock during the twenty (20)
consecutive trading days ending on the third trading day prior to the date
of the special meeting of stockholders of the Acquired Company held to
approve the Merger, as reported by the NASDAQ (the "Market Value"), is less
than $104.50 per share, then the number of shares of Parent Stock to be
received by the stockholders of the Acquired Company shall be increased so
that the stockholders of the Acquired Company will receive for each share of
Acquired Company Stock a fractional share of Parent Stock determined by
dividing $44.935 by the Market Value; and
(ii) if the Market Value is more than $130.00 per share, then the number
of shares of Parent Stock to be received by the stockholders of the Acquired
Company shall be decreased so that the stockholders of the Acquired Company
will receive for each share of Acquired Company Stock a fractional share of
Parent Stock determined by dividing $55.90 by the Market Value.
(The shares of Parent Stock, and any cash in lieu of fractions thereof,
receivable by each Acquired Company stockholder as described above and in
Section 2.1.6(d) below, are referred to hereinafter as the "Merger
Consideration.")
(b) Each share of Acquired Company Stock held in the treasury of the
Acquired Company shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and retired
and cease to exist.
(c) Subject to any applicable escheat laws, until surrendered and exchanged
pursuant hereto, each certificate that immediately prior to the Effective Time
represented outstanding shares of Acquired Company Stock shall be deemed for all
corporate purposes of Parent, subject, however, to the other provisions of this
Section 2.1.6, to evidence the ownership of the number of whole shares of Parent
Stock into which the shares of Acquired Company Stock represented thereby shall
have been converted, and shall be deemed to represent the right to receive the
amount of cash in lieu of fractional shares, if any, into which the shares of
Acquired Company Stock represented thereby shall have been converted pursuant to
subsection (a) of this Section 2.1.6. No interest shall be payable with respect
to any cash payment in lieu of fractional shares. No cash or stock dividend
payable, no certificate representing split shares deliverable, and no other
distribution payable or deliverable to holders of record of Parent Stock at any
time subsequent to the Effective Time shall be paid or delivered to the holder
of any certificate that at the Effective Time represented Acquired Company Stock
unless and until such certificate is surrendered to the Exchange Agent. However,
subject to any applicable escheat laws, upon such surrender, there shall be paid
or delivered to the holder of record of the certificate or certificates for
Parent Stock issued and exchanged therefor, the certificates for shares and/or
other property resulting from any such dividends, splits, or other
distributions, as the case may be, that shall have theretofore become payable or
deliverable with respect to Parent Stock subsequent to the Effective Time. No
interest shall be payable with respect to such payment or delivery of any
dividends or other distributions upon the surrender of certificates that
represented Acquired Company Stock at the Effective Time.
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(d) No certificates or scrip representing fractional shares of Parent Stock
shall be issued upon surrender of certificates representing Acquired Company
Stock converted pursuant hereto, and no dividend, stock split, or other
distribution of Parent shall relate to any such fractional share interest, and
no such fractional share interest shall entitle the owner thereof to vote or to
any other rights of a stockholder of Parent. In lieu of any such fractional
share, any holder of Acquired Company Stock shall be entitled, upon surrender in
accordance herewith of such holder's certificate or certificates representing
Acquired Company Stock, to receive a cash payment therefor, without interest, at
a PRO RATA amount based on the Market Value. No interest shall accrue with
respect to any cash held for the benefit of holders of unsurrendered
certificates theretofore representing shares of Acquired Company Stock at the
Effective Time.
(e) All shares of Parent Stock into which shares of the Acquired Company
Stock have been converted pursuant to this Section 2.1.6 shall be deemed to have
been issued in full satisfaction of all rights pertaining to such converted
shares and shall, when issued pursuant to the provisions hereof, be fully paid
and nonassessable.
(f) The stock transfer books of Acquired Company Stock shall be closed at
the Effective Time, and thereafter no transfer of any such shares of Acquired
Company Stock shall be recorded thereon. In the event a transfer of ownership of
shares of Acquired Company Stock is not recorded on the stock transfer books of
the Acquired Company, a certificate or certificates representing the number of
whole shares of the Parent Stock into which such shares of Acquired Company
Stock shall have been converted in connection with the Merger may be issued to
the transferee of such shares of Acquired Company Stock if the certificate or
certificates representing such shares of Acquired Company Stock is or are
surrendered to the Exchange Agent accompanied by all documents deemed necessary
by the Exchange Agent to evidence and effect such transfer of ownership of
shares of Acquired Company Stock and by the payment of any applicable stock
transfer tax with respect to such transfer, subject to compliance with any
restrictions or conditions contained herein with respect to the transfer of
shares of Acquired Company Stock.
(g) In the event that Parent at any time or from time to time after May 13,
1996 but prior to the Effective Time effects a subdivision or combination of the
outstanding Parent Stock into a greater or lesser number of shares, inclusive
without limitation of the stock split referenced in Section 4.3 hereof, then and
in each such event the Exchange Ratio and the Market Value described in Section
2.1.6(a) shall be increased or decreased proportionately and the other
provisions of this Section 2.1.6 shall be construed to give effect thereto.
2.1.7. STOCK PLANS.
(a) At the Effective Time, Parent shall assume the Acquired Company's rights
and obligations under each of the outstanding options previously granted under
the Long-Term Incentive Plan (each such option existing immediately prior to the
Effective Time being called an "Existing LTI Option," and each such option so
assumed by Parent being called an "Assumed LTI Option"), by which assumption the
optionee shall have the right to purchase that number of shares of Parent Stock
(rounded down to the nearest whole) into which the number of shares of Acquired
Company Stock the optionee was entitled to purchase under the Existing LTI
Option would have been converted pursuant to the terms of the Merger as
described in Section 2.1.6 hereof. Each Assumed LTI Option shall constitute a
continuation of the Existing LTI Option, substituting Parent for Acquired
Company as issuer and employment by Parent, Purchaser or one of their respective
subsidiaries for employment by the Acquired Company. The aggregate price for the
total number of shares of Parent Stock at which the Assumed LTI Option may be
exercised shall be the aggregate price at which the Existing LTI Option was
exercisable for the total number of shares of Acquired Company Stock, reduced
(as necessary for purposes of rounding down) to the price that will buy the
number of whole shares for which the Assumed LTI Option will be exercisable in
accordance with this paragraph (a), and the purchase price per share of Parent
Stock thereunder shall be such aggregate price divided by the total number of
shares of Parent Stock covered thereby. Parent and Purchaser acknowledge that
the
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Acquired Company has advised Parent and Purchaser that all options issued under
the Long-Term Incentive Plan will become immediately and fully exercisable in
accordance with their terms upon a "change in control" of the Acquired Company,
as such term is defined in such plan, and that such a change of control will
have resulted on or prior to the Effective Time.
(b) At the Effective Time, Parent shall assume the Acquired Company's rights
and obligations under each of the outstanding options previously granted under
the Director Stock Plan that will have fully vested prior to Closing and not
forfeited pursuant to the terms of the Director Stock Plan. Such assumed options
shall be treated in the manner provided for in subsection (a) hereinabove in
respect of Assumed LTI Options.
(c) Parent and Purchaser acknowledge and agree that at the Effective Time,
all shares of Restricted Stock (as that term is defined in the Director Stock
Plan) as to which the period of restriction under such Director Stock Plan and
related Restricted Stock Agreement shall have previously expired shall be
exchanged for Merger Consideration in respect of the shares of Acquired Company
Stock represented thereby in accordance with the provisions of Section 2.1
hereof. The Acquired Company acknowledges and agrees that all shares of
Restricted Stock as to which such period of restriction shall not, as of the
Closing, have expired, shall be forfeited to the Acquired Company on the Closing
Date, and the Acquired Company shall cause the holders thereof to reconvey such
shares and deliver the certificates therefor and execute such stock assignments
or other instruments as are reasonably acceptable to Purchaser to effect such
reconveyance and forfeiture.
(d) At the written election of an employee participating in the Employee
Stock Purchase Plan (if received by Acquired Company and forwarded to Parent at
least fifteen (15) days prior to the stockholders' meeting held to approve the
Merger), each option of such employee outstanding as of the Closing Date under
the Employee Stock Purchase Plan shall be cancelled and the holder thereof shall
receive the number of whole shares of Parent Stock into which the shares of
Acquired Company Stock issuable to such holder as of the Closing Date would have
been converted, together with cash in lieu of any fractional shares. Absent such
election received on a timely basis for any such employee, Parent shall assume
the Acquired Company's rights and obligations under each option of such employee
outstanding as of the Closing Date under the Employee Stock Purchase Plan, and
each such option shall be adjusted in the manner provided for in subsection (a)
hereinabove in respect of Assumed LTI Options. With respect to elections of
employees to cancel options at the Closing Date, the number of shares of
Acquired Company Stock issuable to a participant as of the Closing Date shall be
determined by dividing the participant's payroll withholdings under the Employee
Stock Purchase Plan as of the Closing Date by the per share exercise price of
the Acquired Company Stock under the Plan as of the first day of the offering
period in progress on such date.
2.1.8. STOCKHOLDERS' MEETING. The Acquired Company, acting through its
Board of Directors, shall:
(a) promptly furnish a copy of the proxy statement/prospectus included
in the Registration Statement to each of its stockholders after the
Registration Statement has become effective with the SEC;
(b) duly call, give notice of, convene and hold a special meeting of its
stockholders and submit this Agreement and any related matters, as
appropriate, and the Merger to a vote of the Acquired Company's stockholders
as soon as practicable for the purpose of considering and taking action upon
this Agreement and any such related matters; and
(c) use its reasonable best efforts, subject to the provisions of
Section 2.11, to obtain the necessary approval of the Merger by its
stockholders.
2.1.9. CLOSING; FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V, VI and VII
hereof, the Acquired Company and Purchaser shall execute and file the
Certificate of Merger referred to in Section 2.1.2 in the manner required by the
Delaware Code, and
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the parties hereto shall take all such other and further actions as may be
required by law to make the Merger effective. Prior to the filing referred to in
this Section 2.1.9, a closing (the "Closing") will be held as set forth in
Section 8.1 hereof, for the purpose of confirming all of the foregoing.
2.1.10. 401(K) PLAN. Prior to the Closing Date, the Acquired Company shall
adopt appropriate resolutions and take any and all further actions necessary to
terminate the 401(k) Plan effective as of the date immediately preceding the
Closing Date. In addition, participants in the 401(k) Plan shall make no further
deferrals under such plan and the Acquired Company shall make no further
contributions to the 401(k) Plan, except for contributions necessary to fulfill
obligations incurred through the termination date of the 401(k) Plan. Parent and
Purchaser shall take such action that will permit current participants in the
401(k) Plan who are employed by Purchaser to (i) participate in the HBO &
Company Profit Sharing and Savings Plan within 10 business days after the
Closing Date and (ii) credit the Participant's Years of Service under the 401(k)
Plan toward vesting in contributions under the HBO & Company Profit Sharing and
Savings Plan, up to a maximum of five years.
2.2 DELIVERY OF MERGER CONSIDERATION.
2.2.1. EXCHANGE AGENT. Prior to the Effective Time, Purchaser shall
designate a bank or trust company to act as exchange agent in connection with
the Merger (the "Exchange Agent"). At the Effective Time, Purchaser or Parent
shall take all steps necessary to enable and cause Parent or the Surviving
Corporation to provide the Exchange Agent with the shares of Parent Stock and
cash in respect of fractional shares necessary to deliver the Merger
Consideration to each holder of Acquired Company Stock as contemplated by
Section 2.1.6 hereof prior to the time that such deliveries are required to be
made by the Exchange Agent as provided in this Section 2.2.
2.2.2. SURRENDER OF CERTIFICATES AND DELIVERY OF MERGER
CONSIDERATION. Promptly after the Effective Time, the Exchange Agent shall mail
to each record holder (as of the Effective Time) of an outstanding certificate
or certificates that immediately prior to the Effective Time represented
outstanding shares of Acquired Company Stock (the "Certificates"), a letter of
transmittal in customary form (which specifies that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration payable in respect of the shares of Acquired Company Stock
formerly represented by such Certificate. Upon surrender to the Exchange Agent
of a Certificate, together with such letter of transmittal properly completed
and duly executed, together with any other required documents, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration payable in respect of the shares of Acquired Company Stock
formerly represented by such Certificate, and such Certificate shall forthwith
be cancelled. If payment is to be made to a Person other than the Person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a Person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of Parent or the Surviving Corporation that such
tax has been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.2.2, each Certificate shall represent for all
purposes only the right to receive the Merger Consideration, payable in respect
of the shares of Acquired Company Stock formerly represented by such
Certificate, without any interest on the value thereof.
2.2.3. ESCHEAT LAWS. Notwithstanding any provision of this Article II to
the contrary, neither Parent nor the Surviving Corporation shall be liable to
any holder of Certificates formerly representing shares of Acquired Company
Stock for any property properly delivered or amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.3 SEC REGISTRATION.
2.3.1. The Acquired Company shall furnish to Parent such information,
including information about the Acquired Company and the Subsidiaries (including
the respective affiliates of any of them),
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as may be necessary to enable Parent to prepare and file with the SEC a
Registration Statement on Form S-4 under the 1933 Act, and the rules and
regulations promulgated thereunder, in respect of the Parent Stock to be issued
by reason of the Merger (such registration statement, the prospectus included
therein and the proxy statement to be furnished to the holders of the Acquired
Company Stock, in each case together with any amendments or supplements thereto,
being referred to in this Agreement as the "Registration Statement"). The
Acquired Company covenants that the Acquired Company Information (as defined
below) included in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the proxy
statement/prospectus contained therein is first mailed to the Acquired Company's
stockholders, or at the time of the meeting of the stockholders of the Acquired
Company held to approve the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein, or
necessary in order to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstance should come to the
attention of the Acquired Company with respect to the Acquired Company
Information that is required to be set forth in an amendment or supplement to
the Registration Statement, the Acquired Company shall immediately notify Parent
and shall assist Parent in appropriately amending or supplementing the
Registration Statement in the manner contemplated in Section 2.3.4 below. An
amendment or supplement may be accomplished, to the extent permitted by law,
rule or regulation, by including such information in a filing under the Exchange
Act that is incorporated by reference into the Registration Statement. The
Registration Statement insofar as it relates to information concerning the
Acquired Company, the Subsidiaries or any of their respective businesses,
assets, directors, officers, or stockholders or any other affiliates or other
matters pertaining to the Acquired Company that is supplied by the Acquired
Company for inclusion in the Registration Statement, including by incorporation
by reference to SEC filings (the "Acquired Company Information") shall comply as
to form and substance in all material respects with the applicable requirements
of the Securities Act and the rules and regulations thereunder and the Exchange
Act and the rules and regulations thereunder; except that the Acquired Company
shall have no liability or obligation for any information other than the
Acquired Company Information.
2.3.2. The Acquired Company shall instruct its accountants to deliver and
shall use its reasonable best efforts to cause its accountants, Ernst & Young
LLP, to deliver to Parent letters dated at the time the Registration Statement
becomes effective and as of the Closing Date, addressed to Parent, each
containing both (i) its opinion to the effect that the Acquired Company
satisfies the tests applicable to it such that the Merger can be accounted for
as a "pooling of interests"; and (ii) such matters as are customarily contained
in auditors' letters regarding information about the Acquired Company included
in the Registration Statement, and each in form and substance reasonably
satisfactory to Parent. The Parent shall use its reasonable best efforts to
cause its accountants, Arthur Andersen, LLP to deliver to the Acquired Company
letters at such times to the effect that the Parent satisfies the tests
applicable to it such that the Merger can be accounted for as a "pooling of
interests."
2.3.3. Parent shall file the Registration Statement and use its reasonable
best efforts to have it declared effective by the SEC as promptly as
practicable, and shall use its reasonable best efforts to take any action
required to be taken to comply in all material respects with any applicable
federal or state securities laws in connection with the issuance of Parent Stock
in the Merger; except that such covenant of Parent is made, as to those portions
of the Registration Statement containing or required to contain Acquired Company
Information, assuming and relying solely on timely and full compliance with
Sections 2.3.1 and 2.3.2.
2.3.4. Parent covenants that the information included in the Registration
Statement, including Parent Reports and other Parent SEC filings incorporated by
reference therein, shall not, at the time the Registration Statement is declared
effective, at the time the proxy statement/prospectus contained therein is first
mailed to the Acquired Company's stockholders, or at the time of the meeting of
the stockholders of the Acquired Company held to approve the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; except that such covenant of Parent is made, as to
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those portions of the Registration Statement containing or required to contain
Acquired Company Information, assuming and relying solely on timely and full
compliance with Sections 2.3.1 and 2.3.2. If at any time prior to the Effective
Time any event or circumstance should come to the attention of Parent that is
required to be set forth in an amendment or supplement to the Registration
Statement, Parent shall immediately notify Acquired Company and shall use its
reasonable best efforts to amend or supplement appropriately the Registration
Statement. An amendment or supplement may be accomplished, to the extent
permitted by law, rule or regulation, by including such information in a filing
under the Exchange Act that is incorporated by reference into the Registration
Statement.
2.3.5. Parent covenants that the Registration Statement and all other
documents required to be filed by Parent with the SEC in connection with the
transactions contemplated herein shall comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder; except that Parent shall have no liability or obligation
for any failure to comply with such requirements arising out of the Acquired
Company Information.
2.3.6. Parent shall use all reasonable best efforts to take such action as
may be necessary to ensure that the requirements of Rule 144(c) under the
Securities Act are satisfied so as to enable any "affiliates" of the Acquired
Company (as that term is used in Rule 145 under the Securities Act) to offer or
sell the Parent Stock received by them in the Merger pursuant to paragraph (d)
of Rule 145 (subject to compliance with the provisions of paragraphs (e), (f)
and (g) of Rule 144).
2.3.7. Parent shall use all reasonable best efforts to obtain prior to the
effective date of the Registration Statement all necessary "Blue Sky" permits
and approvals, if any, required to consummate the Merger.
2.3.8. Within five (5) days following the Closing Date, Parent shall file a
registration statement covering shares of Parent Stock issuable pursuant to the
Long-Term Incentive Plan and the Employee Stock Purchase Plan; although such
obligation is subject to and conditional on the Acquired Company providing
Parent with all information requested by Parent in connection therewith.
2.4 AFFILIATES.
(a) The Acquired Company shall use its reasonable best efforts to cause each
person that is an "affiliate" of the Acquired Company under the Securities Act
on the date of the Acquired Company's stockholder meeting held to approve the
Merger to deliver to Parent at the Closing a written agreement substantially in
the form attached hereto as EXHIBIT 2.4(A) ("Rule 145 Letters").
(b) The Acquired Company shall use its reasonable best efforts to cause each
person that is an "affiliate" of the Acquired Company under the Securities Act
31 days prior to the date of the Acquired Company's stockholder meeting to
deliver to the Parent on such date a written agreement substantially in the form
attached hereto as EXHIBIT 2.4(B) ("Pooling Letters").
2.5 TRADING PROHIBITIONS. The Acquired Company hereby acknowledges that as
a result of disclosures by Parent and Purchaser contemplated under this
Agreement, the Acquired Company, the Subsidiaries and their affiliates may, from
time to time, have material, non-public information concerning Parent, Purchaser
and their respective subsidiaries or affiliated companies. The Acquired Company
confirms that it, each of the Subsidiaries and their affiliates are aware, and
the Acquired Company has advised its representatives that, (i) the United States
securities laws may prohibit a person who has material, non-public information
from purchasing or selling securities of any company to which such information
relates, and (ii) material non-public information shall not be communicated to
any other person except as permitted herein.
2.6 CONDUCT OF THE BUSINESS OF THE ACQUIRED COMPANY AND ITS SUBSIDIARIES
PRIOR TO CLOSING.
2.6.1. Except (i) with the prior consent in writing of Purchaser, (ii) as
may be required to effect the transactions contemplated by this Agreement, or
(iii) as provided otherwise in this Agreement, the
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Acquired Company covenants that, between the date of this Agreement and the
Effective Time, the Acquired Company and the Subsidiaries will conduct their
respective business in the ordinary course, and that they will:
(a) preserve the organization of the Acquired Company and the
Subsidiaries intact and use its reasonable best efforts to preserve the
goodwill of customers and others having business relations with the Acquired
Company or the Subsidiaries;
(b) use its reasonable best efforts to maintain the properties of the
Acquired Company and the Subsidiaries in substantially the same working
order and condition as such properties are in as of the date of this
Agreement, reasonable wear and tear excepted;
(c) not effect any sale, assignment or transfer of any of their
respective assets except in the ordinary course of business;
(d) use its reasonable best efforts to keep in force at no less than
their present limits all existing policies of insurance or comparable
replacements thereof insuring the Acquired Company, the Subsidiaries and
their respective properties;
(e) except as set forth on EXHIBIT 2.6.1(E), not enter into any
contract, commitment, arrangement or transaction of the type described in
Section 3.12 hereof or suffer, permit or incur any of the transactions or
events described in Section 3.9 hereof to the extent such events or
transactions are within the control of the Acquired Company or any of the
Subsidiaries (except that the Acquired Company and the Subsidiaries may
enter into (i) new (or renew) license, maintenance, service and similar
agreements with customers entered into (or renewed) in the ordinary course
of business on terms and prices consistent with historical practices, (ii)
contracts with software vendors requiring payments, in the aggregate, of
less than $50,000) and (iii) with the prior written consent of the
Purchaser, which shall not be unreasonably withheld, other contracts,
commitments, arrangements, or transactions of the type described in this
Section 2.6.1(e) and which are with customers or software vendors that would
not otherwise be permitted under subparagraphs (i) or (ii) hereof;
(f) not make or permit any change in the Acquired Company's or any of
the Subsidiaries' Articles or Certificates of Incorporation or Bylaws, or in
their authorized, issued or outstanding securities (except for the issuance
of Acquired Company Stock pursuant to exercise of stock options pursuant to
the Stock Option Plans and except as described on EXHIBIT 2.6.1(G));
(g) except as set forth on EXHIBIT 2.6.1(G), not grant any stock option
or right to purchase any security of the Acquired Company or any of the
Subsidiaries, issue any security convertible into such securities, purchase,
redeem, retire or otherwise acquire any of such securities (except for the
acquisition of Acquired Company Stock as full or partial payment for the
exercise of options), or agree to do any of the foregoing or declare, set
aside or pay any dividend, make any other distribution or declare any split
in respect of such securities;
(h) except as set forth on EXHIBIT 2.6.1(H), not adopt any new Benefit
Plan or amend or supplement any existing Benefit Plan, and not make any
contribution to or distribution from any employee benefit plan, pension
plan, stock bonus plan, 401(k) plan or profit sharing plan (except for the
payment of any health, disability and life insurance premiums that may
become due and except for contributions or distributions required to be made
(and not discretionary) pursuant to the terms of any Benefit Plans);
(i) not change the amortization or capitalization policies for Owned
Software or otherwise make any changes in the accounting policies of the
Acquired Company and the Subsidiaries;
(j) not issue any notes, bonds or other debt security, or create,
incur, assume or guarantee any indebtedness for borrowed money without the
prior written consent of Purchaser, which consent may not be unreasonably
withheld;
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(k) not issue any shares of Acquired Company Stock other than shares
issued upon exercise of options or the issuance of shares of restricted
stock on July 1, 1996 pursuant to the Director Stock Plan in accordance with
its terms which shares are the subject of Section 2.1.7(c) hereof;
(l) not alter in any manner not permitted herein the terms, conditions
or dates of vesting or exercise of any option to acquire stock or restricted
stock or other equity awards;
(m) not effect any acquisition, by purchase of stock, assets or
otherwise, of any business or portion thereof or of any Person without the
prior written consent of Purchaser, which consent may not be unreasonably
withheld; and
(n) promptly advise Purchaser in writing of any matters arising or of
which the Acquired Company becomes aware after the date of this Agreement
that, if existing or known at the date hereof, would be required to be set
forth or described in this Agreement or the Exhibits hereto.
2.6.2. Except after prior notification to, and with the prior written
consent of, Purchaser, which consent shall not be unreasonably withheld, the
Acquired Company shall not make or permit any Subsidiary to make, between the
date of this Agreement and the Effective Time, any change in its banking or safe
deposit arrangements or grant any powers of attorney.
2.7 FILING OF TAX RETURNS. The Acquired Company shall submit all material
federal, state and local tax returns to Purchaser at least fifteen (15) days
prior to the date they must be filed, and Purchaser shall have the opportunity
to comment on such returns. The Acquired Company shall give reasonable and due
consideration to any comments on such returns made by Purchaser in light of the
circumstances in which they were made.
2.8 EXAMINATION OF PROPERTY AND RECORDS; CONFIDENTIALITY OF INFORMATION.
2.8.1. Between the date of this Agreement and the Effective Time, the
Acquired Company shall allow Purchaser, its counsel and other representatives
full access to all the books, records, files, documents, assets, properties,
contracts and agreements of the Acquired Company and the Subsidiaries that may
be reasonably requested, and the Acquired Company shall furnish Purchaser, its
officers and representatives during such period with all information concerning
the affairs of the Acquired Company and the Subsidiaries that may be reasonably
requested. Between the date of this Agreement and the Effective Time the Parent
shall provide to the Acquired Company such information about the Parent as the
executive officers of the Acquired Company reasonably request in the context of
the transactions provided for herein. All such requests shall be directed to the
Chief Financial Officer of the Parent. Each party shall conduct any
investigation in a manner that will not unreasonably interfere with the
businesses of the other party.
2.8.2. All non-public information acquired by any party hereto pursuant to
this Section 2.8 or otherwise under this Agreement, whether or not in writing,
concerning the business, operations and affairs of any other party to this
Agreement, will be kept confidential and will not be disclosed to any Person
other than the parties hereto or their authorized representatives (who shall be
subject to the same obligations) and will not be used for any purpose other than
the consummation of the Merger and the related transactions described herein,
subject to any legal disclosure obligation of any party upon advice from counsel
and prior notice to the other party. Promptly upon termination of this
Agreement, and at the request of any party hereto, all written materials thus
obtained by any other party or any of its representatives and all copies and
extracts of such materials will be delivered to the disclosing party.
2.9 CONSENTS AND APPROVALS. The Acquired Company shall use its, and shall
cause the Subsidiaries to use their, reasonable best efforts (without requiring
the payment of money) 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 Acquired Company or any Subsidiary is a party or subject on the
Effective Time and (a) that would prohibit or require the
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waiver, consent or approval of any person to such transactions or (b) under
which, without such waiver, consent or approval, such transactions would
constitute an occurrence of default under the provisions thereof, result in the
acceleration of any obligation thereunder or give rise to a right of any party
thereto to terminate its obligations thereunder. All obtained written waivers,
consents and approvals shall be produced at Closing in form and content
reasonably satisfactory to Purchaser. The failure of the Acquired Party to
obtain any such waiver, consent or approval (after using its reasonable best
efforts to do so) shall not constitute a breach of, or a default under, this
Agreement.
2.10 SUPPLYING OF FINANCIAL STATEMENTS. The Acquired Company shall deliver
to Purchaser all regularly prepared audited and unaudited consolidated and
consolidating financial statements of the Acquired Company and the Subsidiaries
prepared after the date of this Agreement, in format historically published or
utilized internally (as applicable), and any financial statements prepared for
filing with the SEC, as soon as each is available.
2.11 NO SOLICITATION. The Acquired Company shall not, and shall not permit
any of the Subsidiaries to, and the Acquired Company and the Subsidiaries shall
not authorize or permit any officer, director or employee of, or any financial
advisor, attorney, accountant or other advisor or representative retained by,
the Acquired Company or any of the Subsidiaries to, solicit, initiate, encourage
(including by way of furnishing information), endorse or enter into any
agreement with respect to, or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal (as hereafter defined). The Acquired Company
shall immediately advise Purchaser orally and in writing of any Takeover
Proposal or any inquiries or discussions with respect thereto. Neither the Board
of Directors of the Acquired Company nor any committee thereof shall (a)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Purchaser the approval or recommendation by the Board of Directors of the
Acquired Company of the Merger or this Agreement or (b) approve or recommend, or
propose to approve or recommend, any Takeover Proposal or any other acquisition
of outstanding shares of Acquired Company Stock other than pursuant to the
Merger or this Agreement. Notwithstanding the foregoing, nothing contained in
this Agreement shall prevent the Board of Directors of the Acquired Company from
furnishing information to or entering into discussions or negotiations with any
unsolicited person or entity if and only to the extent that the Board of
Directors of the Acquired Company shall have determined in good faith, after
receiving written advice of its outside counsel, that such action would be
required under applicable law in the exercise of its fiduciary duties. The
Acquired Company will immediately notify the Purchaser if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Acquired Company. As used in this Agreement, "Takeover Proposal" shall mean any
tender or exchange offer, proposal, other than a proposal by Purchaser or any of
its affiliates, for a merger, share exchange or other business combination
involving the Acquired Company or any of the Subsidiaries or any proposal or
offer to acquire in any manner a substantial equity interest in the Acquired
Company or any of the Subsidiaries or a substantial portion of the assets of the
Acquired Company or any of the Subsidiaries.
2.12 HSR ACT FILINGS. Parent and the Acquired Company shall each, in
cooperation with the other, make the required filings in connection with the
transactions contemplated by this Agreement under the HSR Act with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice, and shall request early termination of the waiting period with respect
to such filings. As promptly as practicable from time to time after the date of
this Agreement, each party shall make all such further filings and submissions,
and take such further action, as may be required in connection therewith, and
shall furnish the other all information in its possession necessary therefor.
Parent and the Acquired Company shall each notify the other immediately upon
receiving any request for additional information with respect to such filings
from either the Antitrust Division of the Department of Justice or the Federal
Trade Commission, and the party receiving the request shall use its best efforts
to comply with such request as soon as possible. Neither such party shall
withdraw any such filing or submission without the written consent of the other.
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2.13 TAX REPORTING.
2.13.1. For federal and state tax purposes, Purchaser and Parent shall
report the transactions contemplated by this Agreement as a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Tax Code and
similar state laws.
2.13.2. Prior to the Effective Time, the Acquired Company will deliver to
Purchaser and Parent letters to the reasonable satisfaction of Purchaser and
Parent from the Acquired Company and certain of its stockholders that when read
together provide assurance that there is no plan or intention on the part of the
stockholders of the Acquired Company (or knowledge of such plan or intent to the
extent the Acquired Company provides a representation with respect to holders of
less than five percent (5%) of the Acquired Company Stock) to sell, exchange or
otherwise dispose of a number of shares of Parent Stock received in the Merger
that would reduce the Acquired Company's stockholders' ownership of Parent Stock
received in the Merger to a number of shares having a value, as of the Effective
Time, of less than fifty percent (50%) of the value of all of the outstanding
stock of Acquired Company immediately prior to the Effective Time.
2.14 INDEMNIFICATION OF ACQUIRED COMPANY OFFICERS AND DIRECTORS. The
Purchaser agrees that subsequent to the Closing it will provide to the directors
and officers of the Acquired Company indemnification in accordance with the
current provisions of the Certificate of Incorporation and By-Laws of the
Acquired Company with respect to matters occurring prior to the Effective Time,
including, without limitation, this Agreement and the transactions contemplated
hereby, for a period of five years from the Effective Time (or, in the case of
matters occurring prior to the Effective Time which have not been resolved prior
to the fifth anniversary of the Effective Time, until such matters are finally
resolved). To the fullest extent permitted by applicable law, the Purchaser
shall advance expenses in connection with the foregoing indemnification. The
Parent shall cause to be maintained in effect for twelve (12) months following
the Closing the current policies of directors' and officers' liability insurance
currently maintained by the Acquired Company, which policies are described on
EXHIBIT 3.19, at no greater than one hundred percent (100%) of the annual
premiums for such coverage as of the date hereof (as reflected on such EXHIBIT
3.19), provided that the Parent may substitute therefor policies of at least the
same coverage containing terms and conditions that are no less advantageous
(including, without limitation, coverage under Parent's existing policies of
directors' and officers' liability insurance). In the event that the premiums
for the continued coverage exceed 100% of the premiums for the coverage as of
the date hereof (the "100% Amount"), Purchaser shall either substitute coverage
meeting the requirements of the proviso in the preceding sentence or continue
the existing insurance but reduce the maximum amount of coverage to that
available for premiums equal to the 100% Amount.
2.15 IOWA FACILITY. In light of the fact that upon consummation of the
Merger it is anticipated that the only electronic data interchange facilities of
the Purchaser will be located at the Acquired Company's processing and
development operation in Dubuque, Iowa, it is the present intention of Purchaser
to indefinitely continue in operation subsequent to the Closing such facility of
the Acquired Company in Dubuque, Iowa.
2.16 CERTAIN REPORTS. In the event the Merger is effective in the month of
July, 1996, Parent will use its reasonable best efforts to make publicly
available through a filing with the SEC the combined results of operations of
Parent, Purchaser and Acquired Company for the month of August, 1996 by
September 20, 1996. In the event the Merger is effective later than July 31,
1996, Parent will use its reasonable best efforts to include the combined
results of operations of Parent, Purchaser and Acquired Company for the thirty
(30) days following the effective date of the Merger in Parent's 10-Q Quarterly
Report for the quarter ending September 30, 1996.
2.17 REASONABLE BEST EFFORTS. Parent, Purchaser and the Acquired Company
shall use their respective reasonable best efforts to (a) promptly make all
filings and seek to obtain all authorizations required under all applicable law
with respect to the Merger and the other transactions contemplated hereby and
will cooperate with each other with respect thereto; (b) promptly take, or cause
to be
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taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to satisfy the conditions set forth in Articles
V, VI, and VII and to consummate and make effective the transactions
contemplated by this Agreement on the terms and conditions set forth herein as
soon as practicable; and (c) subject to the exercise in good faith by the
Directors or any officer of such party of their fiduciary duties to such party
or its stockholders, not take any action which might reasonably be expected to
impair the ability of the parties to consummate the Merger prior to September 30
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder).
III. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED COMPANY.
The Acquired Company represents and warrants to Purchaser and Parent as
follows:
3.1 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION.
3.1.1. Each of the Acquired Company and the Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
respective jurisdiction of its incorporation as set forth in EXHIBIT 3.1 and has
the requisite corporate power and authority to carry on its business in the
places and as it is now being conducted and to own and lease the properties and
assets that it now owns or leases.
3.1.2. Each of the Acquired Company and the Subsidiaries is duly qualified
and/or licensed to transact business and in good standing as a foreign
corporation in the jurisdictions listed in EXHIBIT 3.1 hereto, and the character
of the property owned or leased by the Acquired Company and the Subsidiaries and
the nature of the business conducted by them do not require such qualification
and/or licensing in any other jurisdiction where the failure to so qualify would
have a Material Adverse Effect upon the Acquired Company or Subsidiary.
3.2 AUTHORITY AND STATUS.
3.2.1. The Board of Directors of the Acquired Company, by unanimous vote of
all directors present at a meeting duly called and held, has (i) determined that
the Merger is fair to and in the best interests of the stockholders of the
Acquired Company and (ii) resolved to submit the Merger to and recommend
approval of the Merger by the stockholders of the Acquired Company.
3.2.2. The Acquired Company has the capacity and authority to execute and
deliver this Agreement, to perform hereunder and, upon approval of the
transactions provided for herein by the stockholders of the Acquired Company, to
consummate the transactions contemplated hereby without any other corporate or
stockholder approval. The execution, delivery and performance by the Acquired
Company of this Agreement and each and every other agreement, document and
instrument to which the Acquired Company is a party provided for herein have
been duly authorized and approved by the Board of Directors of the Acquired
Company. Assuming this Agreement and each and every agreement, document or
instrument to be executed, delivered and performed by the Acquired Company in
connection herewith are valid and legally binding obligations of Purchaser and
Parent, this Agreement and each and every agreement, document and instrument to
be executed, delivered and performed by the Acquired Company in connection
herewith constitute or will, when executed and delivered, constitute the valid
and legally binding obligation of the Acquired Company enforceable against it in
accordance with their respective terms, except as enforceability may be limited
by applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally. Attached hereto as EXHIBIT 3.2 are
true, correct and complete copies of the current Articles or Certificates of
Incorporation and Bylaws of the Acquired Company and the Subsidiaries.
3.2.3. The Board of Directors of the Acquired Company received an opinion
from Broadview Associates, L.P., its financial advisor, concurrently with the
approval described in Section 3.2.1 above to the effect that the consideration
to be received by the Acquired Company's stockholders in the Merger is fair to
such stockholders from a financial point of view.
3.3 CAPITALIZATION. The entire authorized capital stock of the Acquired
Company consists of Eleven Million Three Hundred Thousand (11,300,000) shares of
stock, of which Ten Million
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(10,000,000) shares are designated Common Stock, par value $0.01 per share, and
One Million (1,000,000) shares are designated Preferred Stock, par value $1.00
per share and Three Hundred Thousand (300,000) shares are designated Series A
Preferred Stock, par value $0.01 per share. Of the total authorized Common
Stock, as of May 3, 1996, Five Million Sixty Four Thousand Six Hundred Seventy
(5,064,670) shares were issued and outstanding and One Million Thirty Three
Thousand Two Hundred Eighty Seven (1,033,287) shares were held in the Acquired
Company's treasury. Of the total authorized Preferred Stock and Preferred A
Stock, no shares have been issued. As of May 3, 1996, there were options
outstanding under the Long-Term Incentive Plan and the Director Stock Plan
entitling the optionees thereunder, upon valid exercise, to acquire in the
aggregate Five Hundred Thirty Eight Thousand Two Hundred Fifty (538,250) shares
of Common Stock. As of May 3, 1996, there were Three Thousand (3,000) shares of
restricted stock outstanding under the Director Stock Plan. All the issued and
outstanding shares of each of the Subsidiaries are owned by the Acquired Company
and are held free and clear of all liens, claims, charges and encumbrances of
any nature whatsoever. All of the outstanding shares of Acquired Company Stock
(and any shares issued pursuant to presently outstanding options, if exercised
and purchased at the applicable exercise price) were duly authorized (or will be
when issued and the option price paid), validly issued, fully paid and
nonassessable. None of the capital stock of the Acquired Company is entitled to
or subject to preemptive rights. Other than the requisite stockholder vote to
consummate the Merger, the authorization or consent of no other person or entity
is required in order to consummate the transactions contemplated herein by
virtue of any such person or entity having an equitable or beneficial interest
in the Acquired Company or any Subsidiary or the capital stock of the Acquired
Company or any Subsidiary. Except as set forth on EXHIBIT 3.3, there are no
outstanding options, warrants, calls, commitments or plans by the Acquired
Company or any Subsidiary to issue any additional shares of their capital stock,
to pay any dividends on such shares or to purchase, redeem, or retire any
outstanding shares of their capital stock, nor are there outstanding any
securities or obligations that are convertible into or exchangeable for any
shares of capital stock of the Acquired Company. Following the Merger, the
Acquired Company will have no obligation to issue, transfer or sell any shares
of capital stock of any of the Subsidiaries. There are not now, and at the
Effective Time there will not be, any voting trusts or other agreements or
understandings to which the Acquired Company or any of the Subsidiaries is a
party or is bound with respect to the voting of the capital stock of the
Acquired Company or any of the Subsidiaries.
3.4 ABSENCE OF EQUITY INVESTMENTS. Except for the Subsidiaries and as
described in EXHIBIT 3.4 hereto, the Acquired Company does not, either directly
or indirectly, own of record or beneficially any shares or other equity
interests in any corporation, partnership, limited partnership, joint venture,
trust or other business entity.
3.5 LIABILITIES AND OBLIGATIONS OF THE ACQUIRED COMPANY AND THE
SUBSIDIARIES.
3.5.1. Attached hereto as EXHIBIT 3.5.1 are true, correct and complete
copies of the Acquired Company's consolidated audited balance sheets as of
December 31, 1993, December 31, 1994 and December 31, 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended, together with the reports of Ernst & Young LLP thereon,
and an unaudited consolidated balance sheet as of March 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the three-month period then ended (respectively, the "1993, 1994, 1995 and
Interim 1996 Financial Statements"). The 1993, 1994, 1995 and 1996 Interim
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, and fairly present in all material
respects the financial condition of the Acquired Company and the Subsidiaries as
of the respective dates thereof (subject, in the case of the Interim 1996
Financial Statements, to the absence of footnotes and to normal year-end
adjustments).
3.5.2. Neither the Acquired Company nor any Subsidiary has any liability or
obligation (whether accrued, absolute, contingent or otherwise) including,
without limitation, any liability that might result from an audit of their tax
returns by any appropriate authority, except for (a) the liabilities and
obligations of the Acquired Company and the Subsidiaries that are disclosed or
reserved
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against in the Interim 1996 Financial Statements, EXHIBIT 3.5.2 hereto, or the
notes to the 1995 Financial Statements, in each case to the extent and (except
in the case of EXHIBIT 3.5.2) in the amounts so disclosed or reserved against,
(b) liabilities incurred or accrued in the ordinary course of business since
March 31, 1996 and liabilities incurred in connection with the transactions
referred to herein, (c) any liabilities to the extent disclosed in the Acquired
Company Reports, and (d) any other liabilities which would not have a Material
Adverse Effect.
3.5.3. Except as disclosed in the Interim 1996 Financial Statements or
EXHIBIT 3.5.2, neither the Acquired Company nor any Subsidiary is in default
with respect to any liabilities or obligations, the default of which would have
a Material Adverse Effect, and all such liabilities or obligations shown or
reflected in the Interim 1996 Financial Statements or EXHIBIT 3.5.2 and such
liabilities incurred or accrued subsequent to March 31, 1996 have been, or are
being, paid and discharged as they become due (except as disclosed in EXHIBIT
3.5.2), and all such liabilities and obligations were incurred in the ordinary
course of business except as indicated in EXHIBIT 3.5.2.
3.6 TAX RETURNS.
3.6.1. The Acquired Company and the Subsidiaries have, as of the date
hereof, and will prior to the Effective Time have, timely and accurately filed
all federal, state, foreign and local income, franchise, sales, real and
personal property and other tax returns and reports required to be filed by them
prior to such dates and have timely paid, or will prior to the Effective Time
timely pay, all taxes shown on such returns as owed for the periods of such
returns, including all withholding or other payroll related taxes shown on such
returns, except where the failure to so file any such return or report would not
have a Material Adverse Effect upon the Acquired Company or any Subsidiary. The
tax basis of all assets of the Acquired Company and the Subsidiaries as
reflected on their books and records is correct and accurate in all material
aspects. No material assessments or notices of deficiency or other
communications have been received by the Acquired Company, nor have any been
threatened, with respect to any such tax return that has not been paid,
discharged or fully reserved in the Interim 1996 Financial Statements or EXHIBIT
3.6.1 hereto, and no amendments or applications for refund have been filed or
are planned with respect to any such return. Except as set forth on EXHIBIT
3.6.1, there are no agreements between the Acquired Company or any Subsidiary
and any taxing authority, including, without limitation, the IRS, waiving or
extending any statute of limitations with respect to any tax return, and neither
the Acquired Company nor any Subsidiary has filed any consent or election under
the Tax Code, including, without limitation, any election under Section 341(f)
of the Tax Code.
3.6.2. Listed on EXHIBIT 3.6.2 are all employment related agreements
executed by or in favor of or benefits in favor of the officers of the Acquired
Company, including without limitation any and all agreements or benefits that
could obligate the Acquired Company or any Subsidiary, or any successor in
interest, to make any parachute payments as such term is defined in Section 280G
of the Code. No such agreement or benefit, or any other agreement or benefit,
obligate the Acquired Company or any Subsidiary, or any successor in interest,
to make payments to any officers of the Acquired Company on account of any taxes
owed by such officers.
3.6.3. The Acquired Company and the Subsidiaries (a) have withheld proper
and accurate amounts in compliance with the tax withholding provisions of all
applicable laws for all compensation paid to the officers and employees of the
Acquired Company and the Subsidiaries, (b) have correctly and properly prepared
and duly and timely filed all returns and reports relating to those amounts
withheld from their officers and employees and to their employer liability for
employment taxes under the Tax Code and applicable state and local laws and (c)
have duly and timely paid and remitted to the appropriate taxing authorities the
amounts withheld from their officers and employees and any additional amounts
that represent their employer liability under applicable law for employment
taxes.
3.6.4. The income tax returns of the Acquired Company have been audited by
the IRS for all tax years through the year ended December 31,1992, and all
taxes, deficiencies, penalties and interest relating to such tax years have been
fully paid and satisfied by the Acquired Company.
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3.6.5. To the knowledge of the Acquired Company no issue has been raised by
the IRS, any state or local taxing authority, or any other investigation or
audit, that will have, or can be expected to have, a Material Adverse Effect on
the Acquired Company or any Subsidiary.
3.6.6. The 1993, 1994, 1995 and the Interim 1996 Financial Statements
include, and the accounts of the Acquired Company and the Subsidiaries will
include, for all periods up to and including the Closing Date, adequate
provision for all unpaid applicable taxes, assessments, fees and charges
relating to the Acquired Company and the Subsidiaries known to the Acquired
Company.
3.6.7. Neither the Acquired Company nor any Subsidiary is a "United States
real property holding corporation" as defined in Section 897(c)(2) of the Tax
Code.
3.7 OWNERSHIP OF ASSETS. The Acquired Company and the Subsidiaries have
title to all of their respective properties and assets used or useful in their
respective businesses, other than leased property, licensed property and
immaterial items of personal property (which in each case the Acquired Company
or the Subsidiary has the right to use), in each case free and clear of any
liens, security interests, claims, charges, options, rights of tenants or other
encumbrances, except as disclosed or reserved against in Exhibit 3.7 or reserved
against in the Interim 1996 Financial Statements (to the extent so disclosed or
reserved against) and except for liens arising from current taxes not yet due
and payable and other immaterial liens. Except as disclosed on Exhibit 3.7,
neither the Acquired Company, nor any Subsidiary, has received any payment from
a lessor in connection with or as inducement for entering into a lease in which
the Acquired Company or a Subsidiary is a lessee or licensee, except fees and
similar payment in historical amounts and in the ordinary course of business.
Except as disclosed on EXHIBIT 3.7, all buildings and material items of
machinery and equipment owned or leased by the Acquired Company or any
Subsidiary are in good operating condition and reasonable state of repair,
subject only to ordinary wear and tear. Except as reserved against in the
Interim 1996 Financial Statements, the inventories of the Acquired 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 their
businesses. Neither the Acquired Company nor any Subsidiary has received any
notice of violation of any applicable zoning regulation, ordinance or other law,
regulation or requirement relating to their operations and properties, whether
owned or leased. All of the accounts receivable of the Acquired Company and the
Subsidiaries as of the Effective Time will reflect actual transactions and will
have arisen in the ordinary course of business.
3.8 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set forth on
EXHIBIT 3.8 hereto, the execution and delivery of this Agreement by the Acquired
Company does not, and the consummation of the transactions contemplated hereby
will not, violate any provision of the Articles of Incorporation or Certificate
of Incorporation, as amended, or Bylaws, as amended, of the Acquired Company or
any Subsidiary or, except as set forth on EXHIBIT 3.8, violate or constitute an
occurrence of default under any provision of, or conflict with, or result in
acceleration of any obligation under, or give rise to a right by any party to
terminate its obligations under, any Material Contract, or any order, judgment
or decree to which the Acquired Company or any Subsidiary is a party or is bound
or by which the Acquired Company's or any Subsidiaries' assets are affected;
provided that for purposes of this Section 3.8, "Material Contract" shall not
include any contracts or agreements identified on EXHIBIT 3.14.2(IV)(B). Except
for the applicable requirements of the HSR Act, the 1933 Act, the Exchange Act,
applicable Blue Sky laws, and except as set forth on EXHIBIT 3.8, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity is required to be obtained or made by or with
respect to the Acquired Company, any Subsidiary or any assets, properties or
operations of the Acquired Company or any Subsidiary in connection with the
execution and delivery by the Acquired Company of this Agreement or the
consummation of the transactions contemplated hereby.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on EXHIBIT
3.9, since March 31, 1996, the Acquired Company and each of the Subsidiaries has
operated in the ordinary course of business and there has not been (i) any
material damage, destruction or other casualty loss with
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respect to property owned or leased by the Acquired Company or any of the
Subsidiaries, whether or not covered by insurance, or any strike, work stoppage
or slowdown or other labor trouble involving the Acquired Company or any of the
Subsidiaries; (ii) any increase in dividends or employee compensation or
benefits payable by the Acquired Company, except for normal increases in
compensation consistent, in amounts and timing, with historical practices; (iii)
any change in accounting methods; or (iv) any transaction, commitment, dispute
or other event or condition that has resulted in any Material Adverse Effect in
respect of the Acquired Company or any of the Subsidiaries.
3.10 LITIGATION. Except as otherwise set forth in EXHIBIT 3.10 hereto,
there is no suit, action, arbitration, proceeding, claim or investigation
pending or, to the knowledge of the Acquired Company, threatened against or
affecting the Acquired Company or any Subsidiary that would have a Material
Adverse Effect, and, to the knowledge of the Acquired Company, there exists no
reasonable basis or grounds for any such suit, action, arbitration, proceeding,
claim or investigation.
3.11 LICENSES AND PERMITS; COMPLIANCE WITH LAW. The Acquired 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 their respective businesses and the use of their respective
assets, except for such licenses, certificates, permits, franchises and rights
the absence of which would not have a Material Adverse Effect. Except as noted
in EXHIBIT 3.11, and except for any matters which will not have a Material
Adverse Effect in respect of the Acquired Company and the Subsidiaries, the
Acquired Company and the Subsidiaries presently are conducting their respective
businesses so as to comply with all applicable statutes, ordinances, rules,
regulations and orders of any governmental authority. Further, the Acquired
Company and the Subsidiaries are not presently charged with, or under
governmental investigation with respect to, any actual or alleged violation of
any statute, ordinance, rule or regulation, or presently the subject of any
pending or, to the knowledge of the Acquired Company, threatened adverse
proceeding by any regulatory authority having jurisdiction over their respective
businesses, 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 such license, certificate, permit, franchise or
right held by the Acquired Company or any Subsidiary, the termination of which
would have a Material Adverse Effect, and all such licenses, certificates,
permits, franchises and rights will inure to the benefit of the Surviving
Corporation after the consummation of the transactions contemplated by this
Agreement.
3.12 CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY. EXHIBIT 3.12 hereto
consists of a true and complete list of all contracts, agreements, commitments
and other instruments (whether oral or written) to which the Acquired Company or
any Subsidiary is a party that involve the receipt of recurring revenues or an
expenditure by the Acquired Company or any Subsidiary or require the performance
of services or delivery of goods to, by, through, on behalf of or for the
benefit of the Acquired Company or any Subsidiary, which in each case relates to
a contract, agreement, commitment or instrument that requires payments or
results in recurring revenues in excess of $60,000 per year. EXHIBIT 3.12 also
identifies (by parties and, in the case of Customer Contracts, by revenues or
expenditures and expiration dates) (whether oral or written) all:
3.12.1. contracts, agreements, commitments or other instruments in effect
with any customer of the Acquired Company or any Subsidiary, including without
limitation all consulting services agreements, software license agreements or
other licenses, software development agreements, purchase commitments or
installation agreements and maintenance or service agreements, if any, in each
case that result in recurring revenues in excess of $60,000 per year, and
including all CS3000 agreements, whether or not involving recurring revenues in
excess of $60,000 per year (hereinafter referred to as the "Customer Contracts"
and identified as such on EXHIBIT 3.12);
3.12.2. leases, rental agreements or other contracts or commitments
affecting the ownership or leasing of, title to or use of any interest in real
or personal property with payments equal to or greater than $5,000 per month and
all maintenance or service agreements relating to any real or personal property
with payments equal to or greater than $5,000 per month;
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3.12.3. contracts or commitments providing for payments by the Acquired
Company or any Subsidiary based in any manner upon the sales, purchases,
receipts, income or profits of the Acquired Company or any Subsidiary;
3.12.4. franchise agreements, marketing agreements or royalty agreements
that require payments or result in recurring revenues in excess of $5,000 per
month (and with respect to each such agreement, EXHIBIT 3.12 sets forth or
describes the aggregate royalties or similar payment paid or payable thereunder
by the Acquired Company or any Subsidiary as of the date hereof);
3.12.5. employment contracts or commitments (including without limitation
any standard form contracts such as employee nondisclosure agreements), and any
other contracts, plans or commitments providing for any continuing payment of
any type or nature, including, without limitation, any severance, termination,
parachute, or other payments (whether due to a change in control, termination or
otherwise) and bonuses and vested commissions. EXHIBIT 3.12 also includes a
listing of all such agreements, if any, for which the standard form was
materially or substantially modified or materially or substantially altered, and
any contracts that are not in the standard form. Other than the standard form
agreements listed on EXHIBIT 3.12, those listed variations from the standard
form agreements and those listed agreements that are not in the standard form,
there are no other agreements of the type referred to in this Section 3.12.5;
3.12.6. contracts, agreements, understandings or arrangements restricting
the Acquired Company or any Subsidiary from carrying on its business anywhere in
the world;
3.12.7. instruments or arrangements evidencing or related to indebtedness
for money borrowed or to be borrowed, whether directly or indirectly, by way of
purchase-money obligation, guaranty, subordination, conditional sale,
lease-purchase or otherwise providing for payments in excess of $5,000 per
month;
3.12.8. joint product development agreement with any party other than the
Purchaser, other than Customer Contracts; and
3.12.9. contracts or agreements with vendors of material equipment
purchased by the Acquired Company or appointing the Acquired Company as a
reseller of equipment, other than purchase orders in the ordinary course of
business.
The contracts, agreements, commitments and other instruments listed or
required to be listed on EXHIBIT 3.12 or listed on an Exhibit referred to in
Section 3.14 hereof are herein referred to as the "Material Contracts."
All the Material Contracts are valid and binding upon the Acquired Company
or the applicable Subsidiary and the other parties thereto and are in full force
and effect and enforceable in accordance with their terms, except as
enforceability may be affected by bankruptcy, insolvency, moratorium or similar
laws affecting creditors rights generally and general principles of equity
relating to the availability of equitable remedies. Except as listed on EXHIBIT
3.12, none of the Acquired Company, the applicable Subsidiary and, to the
knowledge of the Acquired Company, any other party to any such contract,
commitment or arrangement has breached any provision of, or is in default under,
the terms thereof; and, except as listed on EXHIBIT 3.12, there are no existing
facts or circumstances that would prevent the work in process of the Acquired
Company or any Subsidiary or their contracts and agreements from maturing upon
performance by the Acquired Company or the applicable Subsidiary into accounts
receivable collectible in the aggregate in amounts consistent in all material
respects with historical experience. Except as set forth on EXHIBIT 3.12, there
are no contracts or commitments that require the performance of services or
provision of goods by the Acquired Company at a direct cost or with a value for
each such contract or commitment in excess of the revenue to be derived pursuant
to the terms of such contract or commitment. Except for terms specifically
described in EXHIBIT 3.12, neither the Acquired Company nor any Subsidiary has
received any payment from any
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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 Acquired Company or Subsidiary consistent
with amount historically charged for such services.
3.13 CUSTOMER CONTRACTS. A substantial majority of the Customer Contracts
entered into within the prior two (2) years conform substantially to one of the
forms attached hereto as EXHIBIT 3.13(A) (the "Customer Contract Forms"). Except
as described on EXHIBIT 3.12 under the heading "Known Contract Defaults" and on
Attachment A to EXHIBIT 3.13(B), with respect to each Specified Customer
Contract, (i) each customer to which computer software represented as owned by
or proprietary to the Acquired Company or a Subsidiary (the "Owned Software")
has been licensed pursuant to such Specified Customer Contract and tendered or
certified as operational by the Acquired Company or any Subsidiary (whichever is
the case being referred to in this Section 3.13 as the "Vendor") has accepted
such software to the extent and on the terms and conditions provided for in such
Specified Customer Contract; (ii) in each case in which the Specified Customer
Contract pursuant to which Owned Software is licensed incorporates response(s)
by Vendor to a Request for Proposal by the customer, such software has met all
material requirements set forth in such response(s); and (iii) all performance
warranties with respect to Owned Software made by the Vendor in any Specified
Customer Contract, including warranties with respect to capacity, availability,
downtime and response time, have been satisfied in all material respects upon
the terms and conditions and to the extent provided for in such Specified
Customer Contract. Except as noted on EXHIBIT 3.13(B), none of the Specified
Customer Contracts contains any of the following terms:
3.13.1. any term for acceptance of any Owned Software that fails to specify
a period of time or date for acceptance or standards applicable thereto;
3.13.2. any provision granting the customer a right to a whole or partial
refund of fees previously paid upon the non-acceptance or failure of any Owned
Software to perform as warranted;
3.13.3. any provision obligating the Vendor to indemnify a customer against
consequential damages;
3.13.4. any commitment by the Vendor to provide a hardware upgrade in
response to or as a remedy for a breach of any software-related response-time
warranty unless the customer party to the Specified Customer Contract in which
the commitment is made is required to pay the cost of such upgrade and such
costs are specified or described in such contract;
3.13.5. any material deviation from the provisions in the applicable
standard contract regarding confidentiality of the Owned Software;
3.13.6. any provision granting an ownership interest (other than a license)
in any Owned Software to a customer;
3.13.7. any license for use by more than a single entity of any Owned
Software unless the customer that is a party to such Customer Contract has
agreed to pay a fee or fees with respect to each entity's use thereof;
3.13.8. any provision naming a customer as an insured on any policy of
insurance owned by the Vendor;
3.13.9. any joint product development agreement with any other party;
3.13.10. any commitment or warranty made or given by the Vendor to design
or modify any Owned Software so as to comply with any governmental regulations;
3.13.11. any restrictions in any Specified Customer Contract on the ability
of the Vendor to increase the fees for maintenance of any Owned Software
applicable to any period beyond the period specified in such contract during
which the customer that is a party to such contract is obligated to pay
maintenance fees;
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3.13.12. any commitment by the Vendor to sell computer hardware;
3.13.13. any commitment by the Vendor to provide emergency back-up for
either software or hardware; or
3.13.14. any commitment by the Vendor to provide existing customers
products developed in the future as a credit to existing payment obligations or
for less than normal prices.
As used herein "Specified Customer Contracts" means all contracts,
agreements,commitments or other instruments listed on EXHIBIT 3.13(C).
3.14 INTELLECTUAL PROPERTY; COMPUTER SOFTWARE.
3.14.1. EXHIBIT 3.14.1 hereto sets forth (i) a complete and correct list of
all registered trademarks, trade names, service marks, service names, and brand
names; all material unregistered trademarks, trade names, service marks, service
names and brand names; all patents and registered copyrights; and all
applications for the foregoing, if any, (setting forth the registration, issue
or serial number of the same and a description of the same) applicable to or
used in the businesses of, and owned by, the Acquired Company or any Subsidiary;
and (ii) the owner of such intellectual property and any registration thereof or
application therefor. Except pursuant to Customer Contracts and agreements
between the Acquired Company and a Subsidiary with remarketers, dealers or
distributors of the products of the Acquired Company or a Subsidiary identified
on EXHIBIT 3.12, or pursuant to other customer contracts or agreements with
remarketers, dealers or distributors that would have been required to be listed
in EXHIBIT 3.12 but for the recurring revenues with respect to the same, neither
the Acquired Company nor any Subsidiary has granted any licenses to third
parties of any of the foregoing. Except as noted on EXHIBIT 3.14.1, all such
trademarks, trade names, service marks, service names, brand names, copyrights
and patents are owned by the Acquired Company or a Subsidiary free and clear of
all liens and security interests. Except as set forth on EXHIBIT 3.14.1, neither
the Acquired Company nor any Subsidiary is currently in receipt of any notice of
any violation of, and neither the Acquired Company nor any Subsidiary is
violating in any respect that would have a Material Adverse Effect, the rights
of others in any trademark, trade name, service mark, copyright, patent, trade
secret, know-how or other intangible asset.
3.14.2.(i) EXHIBIT 3.14.2(I) contains a complete and accurate list of all
Owned Software, other than immaterial Owned Software, which list specifies which
of the Acquired Company and the Subsidiaries is the owner thereof. Except as set
forth on EXHIBIT 3.14.2(I), the Acquired Company or one of the Subsidiaries has
title to the Owned Software, free and clear of all claims, including claims or
rights of employees, agents, consultants, inventors, customers, licensees or
other parties involved in the development, creation, marketing, maintenance,
enhancement or licensing of such computer software, except claims that would
have not a Material Adverse Effect. Except as set forth on EXHIBIT 3.14.2(I) and
except for commercially available, over-the-counter "shrink-wrap" software, the
Owned Software utilized for the CS3000 product is not dependent on any Licensed
Software (as defined in subsection (ii) below) in order to operate fully in the
manner in which it is intended. No Owned Software has been published or
disclosed to any other parties except pursuant to contracts requiring such other
parties to keep the Owned Software confidential and except where such
disclosures were both incidental and immaterial. To the knowledge of the
Acquired Company, no such other party has breached any such obligation of
confidentiality.
3.14.2(ii) EXHIBIT 3.14.2(II) contains a complete and accurate list of all
software (other than commercially available over-the-counter "shrink-wrap"
software and immaterial Licensed Software) under which the Acquired Company or
any Subsidiary is a licensee, lessee or otherwise has obtained the right to use
(the "Licensed Software"). Except as disclosed on EXHIBIT 3.12, the Acquired
Company and each of the Subsidiaries are in compliance in all material respects
with all applicable provisions of such agreements, and such instances of
non-compliance disclosed on EXHIBIT 3.12 would not, in the aggregate, have a
Material Adverse Effect. Except as disclosed on EXHIBIT 3.14.2(II), none of the
Licensed Software has been incorporated into or made a part of any Owned
Software or any other
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Licensed Software by the Acquired Company or Subsidiary. EXHIBIT 3.14.2(II)
states with respect to any items disclosed thereon the duration of the
applicable license. Neither the Acquired Company nor any Subsidiary has
published or disclosed any Licensed Software to any other party except in
accordance with and as permitted by any license, lease or similar agreement
relating to the Licensed Software. No party to whom the Acquired Company or a
Subsidiary has disclosed Licensed Software has, to the knowledge of the Acquired
Company, breached any obligation of confidentiality imposed on them by the
Acquired Company or a Subsidiary relating thereto.
3.14.2(iii) The Owned Software and Licensed Software and commercially
available over-the-counter "shrink-wrap" software constitute all software used
in the businesses of the Acquired Company and the Subsidiaries (collectively,
the "Acquired Company Software"), other than immaterial Owned Software and
immaterial Licensed Software. EXHIBIT 3.14.2(III) sets forth a list of all
Persons that have provided the Acquired Company or any Subsidiary with contract
programmers (other than employees of the Acquired Company or a Subsidiary),
independent contractors and nonemployee agents who have performed, within the
last three (3) years, computer programming services for the Acquired Company or
any Subsidiary and identifies all contracts and agreements pursuant to which
such services were performed. Except as disclosed on EXHIBIT 3.8, the
transactions contemplated herein will not cause a breach or default under any
licenses, leases or similar agreements relating to the Acquired Company Software
or impair Purchaser's, the Acquired Company's or any Subsidiary's ability to use
the Acquired Company Software in the same manner as such computer software is
currently used by the Acquired Company or the Subsidiaries. Neither the Acquired
Company nor any Subsidiary is infringing in any material respect any
intellectual property rights of any other person or entity with respect to the
Acquired Company Software, and, to the knowledge of the Acquired Company (ii) no
other person or entity is infringing any intellectual property rights of the
Acquired Company or any Subsidiary with respect to the Acquired Company
Software.
3.14.2(iv) EXHIBIT 3.14.2(IV)(A) lists and separately identifies all
agreements pursuant to which the Acquired Company or any Subsidiary has been
granted rights to market software owned by third parties, and EXHIBIT
3.14.2(IV)(B) lists and separately identifies all agreements pursuant to which
the Acquired Company or any Subsidiary has granted marketing rights in the
Acquired Company Software ("Marketing Rights") to third parties; provided,
however, that EXHIBIT 3.14.2(IV)(B) excludes all agreements pursuant to which
Marketing Rights have been granted with respect to Acquired Company Software
offered as products of the Acquired Company and the Subsidiaries' Software
Publishing business unit, other than agreements pursuant to which the third
party to such agreement has been granted Marketing Rights to the exclusion of
the Acquired Company or a Subsidiary; provided, further, that, of the agreements
pursuant to which Marketing Rights have been granted with respect to the
Acquired Company Software offered as products of the Acquired Company and the
Subsidiaries' Group Practice business unit, EXHIBIT 3.14.2(IV)(B) lists only
those constituting Customer Contracts entered into during the three (3)-year
period immediately prior to the date of this Agreement.
3.14.2(v) To the knowledge of the Acquired Company, none of the Acquired
Company and the Subsidiaries has taken or failed to take any actions under the
law of any foreign jurisdiction (other than the United States or any political
subdivision thereof) where the Acquired Company or a Subsidiary has marketed or
licensed Acquired Company Software that would materially restrict or limit the
ability of the Acquired Company or any Subsidiary to protect, or prevent it from
protecting, its ownership interests in, confidentiality rights of, and rights to
market, license, modify or enhance, the Acquired Company Software.
3.15 LABOR MATTERS. Except as set forth on EXHIBIT 3.15, within the last
three (3) years neither the Acquired 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 the Acquired Company, threatened to be
called against any of them. Neither the Acquired Company nor any Subsidiary has
violated in any material respect any applicable federal or state law or
regulation relating to labor or labor practices. EXHIBIT 3.15 sets forth a true,
correct and complete list of employer loans or advances
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from the Acquired Company and each Subsidiary to their respective employees. The
Acquired Company and all Subsidiaries are in compliance with all applicable
requirements of the Immigration and Nationality Act of 1952, as amended by the
Immigration Reform and Control Act of 1986 and the regulations promulgated
thereunder (hereinafter collectively referred to as the "Immigration Laws"),
except for any such noncompliance that would not have a Material Adverse Effect.
3.16 BENEFIT PLANS.
3.16.1. EXHIBIT 3.16 lists every pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plan; any medical, vision, dental or other
health plan; any life insurance plan or any other employee benefit plan or
fringe benefit plan; any other written or unwritten employee program,
arrangement, agreement or understanding; commitments or methods 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
Acquired Company or any ERISA Affiliate of the Acquired Company, for the benefit
of, providing any remuneration or benefits to, or covering any current or former
employee, retiree, dependent, spouse or other family member or beneficiary of
such employee or retiree, director, independent contractor, stockholder, officer
or consultant of the Acquired Company or any ERISA Affiliate of the Acquired
Company or under (or in connection with) which the Acquired Company or an ERISA
Affiliate of the Acquired Company has any contingent or noncontingent liability
of any kind, whether or not probable of assertion (collectively, the "Benefit
Plans"). Any of the Benefit Plans that is an "employee pension benefit plan," or
an "employee welfare benefit plan" as that term is defined in Section 3(1) of
ERISA, is referred to herein as an "ERISA Plan." No Benefit Plan is or has been
a multiemployer plan within the meaning of Section 3(37) of ERISA.
3.16.2. EXHIBIT 3.16 also lists, with respect to all Benefit Plans listed
in EXHIBIT 3.16: (a) all trust agreements or other funding arrangements,
including insurance contracts, all annuity contracts, most recent actuarial
statements or valuations (if such actuarial statements or valuations are
required to be prepared by applicable law), fidelity bonds, fiduciary liability
policies, investment manager or advisory contracts, and all amendments (if any)
thereto, (b) where applicable, with respect to any such plans or plan
amendments, the most recent determination letters issued by the IRS, and (c)
where applicable, the most recent summary plan descriptions, any material
modifications thereto. Contemporaneous with the delivery of the Exhibits to this
Agreement, the Acquired Company has delivered a true and complete copy of each
such Benefit Plan, agreement, most recent IRS letter or ruling, opinion, return,
financial statement and summary plan description described in Sections 3.16.1 or
3.16.2 hereof, together with the annual report (Form 5500 Series) for the two
most recent plan years for any Benefit Plan subject to such reporting
requirements.
3.16.3. All the Benefit Plans and any related trusts subject to ERISA
comply with and have been administered in substantial compliance with the
provisions of ERISA, all applicable provisions of the Tax Code relating to
qualification and tax exemption under Tax Code Sections 401(a) and 501(a) or
otherwise necessary to secure intended tax consequences, all applicable state or
federal securities laws and all other applicable laws, rules and regulations,
and the Acquired Company has not received any notice from any governmental
agency or instrumentality questioning or challenging such compliance. Any
noncompliance or failure properly to maintain, operate or administer a Benefit
Plan or related trust has not rendered nor will render (i) such Benefit Plan or
related trust or the Parent, Purchaser or Acquired Company subject to or liable
for any material taxes, penalties, or liabilities to any Person; (ii) the
Benefit Plan subject to disqualification; or (iii) the trust subject to loss of
tax-exempt status.
3.16.4. None of the Acquired Company, any of the Subsidiaries, and, to the
knowledge of the Acquired Company, any administrator or fiduciary of any such
Benefit Plan (or agent or delegate of any of the foregoing) has engaged in any
transaction or acted or failed to act in any manner that could
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subject the Acquired Company to any direct or indirect liability (by indemnity
or otherwise) for a breach of any fiduciary, co-fiduciary or other duty under
ERISA. To the knowledge of the Acquired Company, no material oral or written
representation or communication with respect to any aspect of the Benefit Plans
has been or will be made to employees of the Acquired Company prior to the
Closing Date that is not in accordance with the written or otherwise preexisting
terms and provisions of such Benefit Plans in effect immediately prior to the
Closing Date, except for any amendments or terminations required by the terms of
this Agreement. To the knowledge of the Acquired Company, 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).
3.16.5. All annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports and summary plan
descriptions issued with respect to the Benefit Plans are correct and accurate
in all material respects as of the dates thereof; and there have been no
amendments filed to any of such reports, returns, statements, valuations or
descriptions or required to make the information therein true and accurate.
Except as disclosed on EXHIBIT 3.16.5, all annual reports (Form 5500 series)
required to be filed with respect to any Benefit Plan have been or will be
timely filed prior to Closing.
3.16.6. No non-exempt "prohibited transaction" (within the meaning of
Section 4975(c) of the Tax Code) involving any Benefit Plan has occurred. None
of the assets of any ERISA Plan is an "employer security" (within the meaning of
Section 407(d)(1) of ERISA) or "employer real property" (within the meaning of
Section 407(d)(2) of ERISA).
3.16.7. The only Benefit Plan that is or has been an "employee pension
benefit plan" as defined in Section 3(2) of ERISA is the 401(k) Plan. The 401(k)
Plan is qualified under Section 401(a) of the Tax Code and its related trust is
exempt from tax under Section 501(a) of the Tax Code and no circumstances exist
that could result in a disqualification of the 401(k) Plan or loss of tax-exempt
status for its related trust. Neither the 401(k) Plan nor any predecessor plan
has ever been subject to the provisions of Title IV of ERISA or to the minimum
funding standards of Section 412 of the Tax Code.
3.16.8. As of March 31, 1996, neither the Acquired Company nor any
Subsidiary had any current or future liability with respect to any events or
matters occurring, arising or accruing on or prior to such date under any
Benefit Plan that was not reflected in the Interim 1996 Financial Statements,
except for any liability which would not have a Material Adverse Effect.
3.16.9. The Acquired Company does not maintain any Benefit Plan providing
deferred or stock based compensation that is not reflected in the Interim 1996
Financial Statements.
3.16.10. Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has maintained, and neither now maintains, a Benefit Plan
providing welfare benefits (as defined in ERISA Section 3(1)) to employees after
retirement or other separation of service except to the extent required under
Part 6 of Title I of ERISA and Tax Code Section 4980B.
3.16.11. Except as set forth on EXHIBIT 3.16.11, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee (or any spouse, dependent or other family member of such
employee) of the Acquired Company or any of the Subsidiaries to severance pay,
unemployment compensation or any payment contingent upon a change in control or
ownership of the Acquired Company, or (ii) accelerate the time of payment or
vesting, or increase the amount, of any compensation due to any such employee or
former employee (or any spouse, dependent or other family member of such
employee).
3.17 CUSTOMERS. Except as disclosed on EXHIBIT 3.17, none of the Acquired
Company and the Subsidiaries has received any notice from, or has any knowledge
that, any current customer of the Acquired Company or any Subsidiary as of March
31, 1996 or any date subsequent thereto, that is a party to a Customer Contract,
has taken or will take any steps that could disrupt the business relationship of
the Acquired Company or the Subsidiaries with such customer in any material
respect.
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3.18 ENVIRONMENTAL MATTERS. Except as set forth in EXHIBIT 3.18, no real
property now or previously owned or used by the Acquired Company or any
Subsidiary or now or previously owned or leased by the Acquired Company or any
Subsidiary (the "Real Property") has been used by the Acquired Company or any
Subsidiary or, to the knowledge of the Acquired Company, any other party for the
handling, treatment, storage or disposal of any Hazardous Substance. Except as
set forth in EXHIBIT 3.18, no release, discharge, spillage or disposal into the
environment of any 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 (a) by virtue of the actions or failure to act of any of the Acquired
Company or any Subsidiary or (b) to the knowledge of the Acquired Company, by
virtue of the actions or failure to act of any other party. Except as set forth
in EXHIBIT 3.18, the Acquired Company and all Subsidiaries have complied in all
material respects with all reporting requirements under any applicable federal,
state or local environmental laws and any permits with respect to the Real
Property, and there are no existing violations by the Acquired Company or any
Subsidiary of any such environmental laws or permits with respect to the Real
Property. Except as set forth in EXHIBIT 3.18, there are no claims, actions,
suits, proceedings or investigations related to the presence, release,
production, handling, discharge, spillage, transportation or disposal of any
Hazardous Substance or ambient air conditions or contamination of soil, water or
air by any Hazardous Substance pending or threatened (1) with respect to the
Real Property (a) by virtue of the actions or failure to act of the Acquired
Company or any Subsidiary or (b) to the knowledge of the Acquired Company, by
virtue of the actions or failure to act of any other party, or (2) otherwise
against the Acquired Company or any Subsidiary, in any court or before any
state, federal or other governmental agency or private arbitration tribunal and,
to the knowledge of the Acquired Company, there is no basis for any such claim,
action, suit, proceeding or investigation (i) with respect to the Real Property
(a) by virtue of the actions or failure to act of the Acquired Company or any
Subsidiary or (b) to the knowledge of the Acquired Company, by virtue of the
actions or failure to act of any other party, or (ii) otherwise against the
Acquired Company or any Subsidiary. Except as disclosed on EXHIBIT 3.18, to the
knowledge of the Acquired Company or any Subsidiary, there are no underground
storage tanks on the Real Property. To the knowledge of the Acquired Company, no
building or other improvement included in the Real Property contains any exposed
or friable asbestos currently required to be removed or otherwise treated under
applicable law. For the purposes of this Agreement, "Hazardous Substance" shall
mean any hazardous or toxic substance or hazardous or toxic waste as those terms
are defined by any applicable federal, state or local law, ordinance,
regulation, 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. 1801
ET. SEQ. and the Resource Conservation and Recovery Act, 42 U.S.C. 6901 ET SEQ.,
and petroleum, petroleum products and oil. The environmental condition of the
property located at 520 CyCare Plaza, Dubuque, Iowa has not changed in any
material respect from the condition thereof as described in the Phase I Report
(as defined on EXHIBIT 3.18).
3.19 INSURANCE. Set forth in EXHIBIT 3.19 is a complete list of all
material insurance policies that the Acquired Company and the Subsidiaries
maintain with respect to their respective businesses, properties or employees
within the preceding thirty-six (36) months. Except as set forth in EXHIBIT
3.19, such policies are in full force and effect and, to the knowledge of the
Acquired Company, no event has occurred that would give any insurance carrier a
right to terminate any such policy. Such policies are adequate to insure against
risks to which the Acquired Company, and any Subsidiaries and their respective
properties and assets are exposed in the operation of their respective
businesses in such amounts and types of coverage as are commercially reasonable
and are consistent with practices in the industry in which the Acquired Company
and the Subsidiaries operate. Except as set forth in EXHIBIT 3.19, since March
31, 1996, there has not been any change in the premiums payable pursuant to such
policies.
3.20 RELATED PARTY RELATIONSHIPS. Except as set forth in EXHIBIT 3.20, to
the knowledge of the Acquired Company, no stockholder owning greater than a
five-percent (5%) interest in the Acquired Company, no affiliate or member of
the immediate family of any such stockholder, and no officer or
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director or member of the immediate family of such officer or director of the
Acquired Company or any Subsidiary possesses, directly or indirectly, any
beneficial interest in, or is a director, officer or employee of, or member of
the immediate family of a director, officer or employee of, any corporation,
partnership, firm, association or business organization that is a client,
supplier, customer, lessor, lessee, lender, creditor, borrower, debtor or
contracting party with or of the Acquired Company or any Subsidiary (except as a
stockholder holding less than a one-percent 1% interest in a corporation whose
shares are traded on a national or regional securities exchange or in the
over-the-counter market).
3.21 INFORMATION. The Acquired Company has made accessible to Purchaser or
Parent each registration statement, schedule, report, proxy statement or
information statement it has filed with the SEC since January 1, 1994,
including, without limitation, (a) the Acquired Company's Annual Reports on Form
10-K for the years ended December 31, 1993, December 31, 1994, and December 31,
1995, including all documents incorporated therein, (b) the Acquired Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, (c) the
Acquired Company's Proxy Statement dated March 29, 1996 and (d) all Reports of
Acquired Company on Form 8-K since December 31, 1995 (collectively, the
"Acquired Company Reports"). As of the date of this Agreement, the Acquired
Company Reports did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. As used in this Section 3.21, "material" means material to the
financial condition, business, properties, rights or operations of the Acquired
Company together with the Subsidiaries, taken as a whole.
3.22 POOLING OF INTERESTS. The Acquired Company is not aware of any facts
or circumstances in respect of it or its accounting procedures which would have
the effect of precluding accounting for the transactions contemplated hereby as
a "pooling of interests."
3.23 DISCLOSURE AND ABSENCE OF UNDISCLOSED LIABILITIES. No statement
contained herein or in any certificate, schedule, list, exhibit or other
instrument furnished or required to be furnished to Purchaser pursuant to the
provisions hereof contains, or will at the time it is finished contain, any
untrue statement of any material fact or omits or omit to state any material
fact necessary to make the Statements herein or therein not false or misleading.
As used in this Section, "material" means material to the financial condition,
business, properties, rights or operations of the Acquired Company and its
Subsidiaries, taken as a whole.
3.24 NO SPECIAL STOCKHOLDER RIGHTS. Except as disclosed on EXHIBIT 3.24,
the Acquired Company has no agreement with any individual or entity that grants
such person any rights as a stockholder of Acquired Company Stock that are in
addition to such holder's rights under the Acquired Company's Certificate of
Incorporation or Bylaws (including, without limitation, registration rights,
preemptive rights, put rights, rights of co-sale or rights to Board
representation).
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.
Purchaser and Parent, jointly and severally, represent and warrant to the
Acquired Company as follows:
4.1 ORGANIZATION AND STANDING.
4.1.1. Each of the Purchaser, the Parent and the Parent Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the respective jurisdiction of its incorporation and has the requisite
corporate power and authority to carry on its business in the places and as it
is now being conducted and to own and lease the properties and assets that it
now owns or leases.
4.1.2. Each of the Purchaser, the Parent and the Parent Subsidiaries is
duly qualified and/or licensed to transact business and in good standing as a
foreign corporation in jurisdictions where the character of the property owned
or leased by the Purchaser, the Parent and the Parent Subsidiaries
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and the nature of the business conducted by them requires such qualification
and/or licensing, except where the failure to so qualify would not have a
Material Adverse Effect upon the Purchaser, the Parent and the Parent
Subsidiaries, taken as a whole.
4.2 CORPORATE POWER AND AUTHORITY. Each of Purchaser and Parent has the
capacity and authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated hereby without the
necessity of any act or consent of any other Person whomsoever. The execution,
delivery and performance by Purchaser and Parent of this Agreement and each and
every agreement, document and instrument provided for herein have been duly
authorized and approved by their respective Boards of Directors (or Executive
Committees thereof). Assuming this Agreement, and each and every other
agreement, document and instrument to be executed, delivered and performed by
Purchaser and Parent in connection herewith are valid and legally binding on the
Acquired Company, this Agreement, and each and every other agreement, document
and instrument to be executed, delivered and performed by Purchaser and Parent
in connection herewith, constitute or will, when executed and delivered,
constitute the valid and legally binding obligations of Purchaser and Parent as
applicable, enforceable against each of them in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles, or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally. The Parent has provided to counsel for Acquired Company a true and
correct copy of the Certificate of Incorporation and Bylaws, each as amended, of
the Parent and Purchaser.
4.3 CAPITALIZATION. The entire authorized capital stock of the Parent
consist of two hundred fifty one million (251,000,000) shares of stock, of which
two hundred fifty million (250,000,000) shares are designated Common Stock, par
value $.05 per share, and one million (1,000,000) shares are designated
preferred Stock, without par value. Of the total authorized Common Stock, as of
April 30, 1996, approximately 40,386,274 were issued and outstanding and
approximately 16,210,676 shares were held in the Parent's treasury. Of the total
authorized Preferred Stock, no shares have been issued. As of April 30, 1996,
there were options outstanding entitling the optionees thereunder, to acquire in
the aggregate approximately 2,650,960 shares of Parent Stock. On May 14, 1996,
the Board of Directors of the Parent authorized a stock split by means of a
stock dividend providing for the issuance of one share of Parent Stock for each
outstanding share of Parent Stock, with such dividend to be issued on June 10,
1996 to stockholders of record on May 27, 1996; and none of the share amounts
provided in this Section 4.3 or elsewhere in this Agreement have been adjusted
for such stock split. All the issued and outstanding shares of each of the
Parent Subsidiaries are owned directly or indirectly by the Parent free and
clear of all liens, claims, charges and encumbrances of any nature whatsoever.
All of the outstanding shares of Parent Stock (and any shares issued pursuant to
presently outstanding options, if exercised and purchased at the applicable
exercise price) were duly authorized (or will be when issued and the option
price paid), validly issues, fully paid and nonassessable. None of the capital
stock of the Parent is entitled to or subject to preemptive rights. The
authorization or consent of no other person or entity is required in order to
consummate the transaction contemplated herein by virtue of any such person or
entity having an equitable or beneficial interest in the Parent or any
Subsidiary.
4.4 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution and
delivery of this Agreement by Purchaser and Parent do not, and the consummation
of the transactions contemplated hereby will not, violate any provisions of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of Purchaser,
Parent or of any Parent Subsidiary, or, violate or constitute an occurrence of
default under any provision of, or conflict with, result in acceleration of any
obligation under, or give rise to a right by any party to terminate its
obligations under, any mortgage, deed of trust, conveyance to secure debt, note,
loan, lien, lease, agreement, instrument, or any order, judgment, decree or
other arrangement to which Purchaser, Parent or any Parent Subsidiary is a party
or is bound or by which any of their respective assets are affected. Except for
the applicable requirements of the HSR Act, the
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1933 Act, the Exchange Act, and applicable Blue Sky laws, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental entity is required to be obtained or made by or with respect to
Purchaser, Parent or any Parent Subsidiary, or any assets, properties or
operations of Purchaser or Parent in connection with the execution and delivery
by Purchaser and Parent of this Agreement or the consummation of the
transactions contemplated hereby.
4.5 RESERVATION OF SHARES. Purchaser will, prior to the Merger, in
accordance with the terms thereof, have available shares of Parent Stock
sufficient to complete the Merger. The shares of the Parent Stock issued
pursuant to Article II will, when issued, be duly authorized, validly issued,
fully paid and nonassessable and no stockholder of the Parent will have any
preemptive rights of subscription or purchase in respect thereof.
4.6 INFORMATION. Parent has made available to the Acquired Company each
registration statement, schedule, report, proxy statement or information
statement it has filed with the SEC since January 1, 1994, including, without
limitation, (a) Parent's Annual Report on Form 10-K for the years ended December
31, 1994, and December 31, 1995, respectively, including all documents
incorporated therein, (b) Parent's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and (c) Reports of Parent on Form 8-K since December 31,
1995 (collectively, the "Parent Reports"). As of the date of this Agreement, the
Parent Reports, taken together with information previously furnished by Parent
to the Acquired Company, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. As used in this Section, "material" means material to
the financial condition, results of operations, business, assets or properties
of Parent together with the Parent Subsidiaries (including Purchaser), taken as
a whole.
V. CONDITIONS PRECEDENT TO RESPECTIVE OBLIGATIONS OF THE PARTIES.
The obligations of Purchaser and Parent, on the one hand, and of the
Acquired Company, on the other hand, to consummate, or cause to be consummated,
the Merger shall be contingent upon and subject to the satisfaction, on or
before the Closing, of each and every one of the following conditions, any one
or more of which may be waived in writing by such parties.
5.1 ACTIONS OF GOVERNMENTAL AUTHORITIES. There shall not have been
instituted or be pending any action, proceeding, application, claim or
counterclaim by any government or governmental authority or agency, domestic or
foreign, and Purchaser, Parent or the Acquired Company shall not have been
notified by any such government, governmental authority or agency (or a
representative thereof) of its present intention to commence, or recommend the
commencement of, such an action or proceeding, that (i) challenges the
acquisition by Purchaser or Parent of the Acquired Company Stock, restrains or
prohibits or seeks to restrain or prohibit the making or consummation of the
Merger or restrains or prohibits or seeks to restrain or prohibit the
performance of this Agreement; (ii) prohibits or limits or seeks to prohibit or
limit the ownership or operation by Purchaser or Parent of all or any
substantial portion of the business or assets of the Acquired Company or any of
the Subsidiaries or of Purchaser, Parent or any of their respective subsidiaries
or compels or seeks to compel Purchaser or Parent to dispose of or to hold
separate all or any substantial portion of the business or assets of the
Acquired Company or any of the Subsidiaries or of Purchaser, Parent or any of
their respective subsidiaries, or imposes or seeks to impose any material
limitation on the ability of Purchaser or Parent to conduct such business or to
own such assets; or (iii) imposes or seeks to impose limitations on the ability
of Purchaser or Parent (or any other affiliate of Purchaser) to acquire or hold
or to exercise full rights of ownership of the Surviving Corporation, including,
but not limited to, the right to vote such shares on all matters properly
presented to the stockholders of the Surviving Corporation.
5.2 OTHER LEGAL ACTIONS. There shall not have been any statute, rule,
regulation, order or injunction enacted, promulgated, entered, enforced or
deemed applicable to the Merger or this Agreement by any government,
governmental authority or agency or court, domestic or foreign, and no claim or
action for such shall have been instituted before a court, government or
governmental
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authority or agency, and such shall not have been proposed before a legislative
or regulatory body, that could be reasonably expected to result in any of the
consequences referred to in clauses (i) through (iii) of Section 5.1 above.
5.3 LEGAL APPROVALS. The execution and the delivery of this Agreement and
the consummation of the transactions contemplated hereby shall have been
approved by all regulatory authorities whose approvals are required by law and
the waiting period under the HSR Act shall have expired or have been terminated.
5.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
adopted and approved by the affirmative vote or written consent of the holders
of the outstanding shares of Acquired Company Stock by the vote or written
consent required by, and in accordance with, the Delaware Code.
5.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC at the Effective Time, no stop
order suspending effectiveness shall have been issued, and no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing. The shares of Parent Stock to be
issued or sold pursuant to the Registration Statement shall have been registered
for issuance in the Merger under all applicable Blue Sky laws or shall be exempt
from such registration, and no stop order shall have been issued with respect to
the issuance or sale of such securities by any Blue Sky authority.
5.6 NASDAQ APPROVAL. The Parent Stock issuable in the merger shall have
been listed or approved for listing upon notice of issuance by NASDAQ Stock
Market National Market.
5.7 FAIRNESS OPINION. The Acquired Company shall have received an opinion
dated as of the date of the mailing of the proxy statement and prospectus
included within the Registration Statement to the stockholders of the Acquired
Company from Broadview Associates, L.P., its financial advisor, confirming the
opinion referred to in Section 3.2.3 hereof.
VI. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND PARENT.
In addition to the conditions set forth in Article V above, all the
obligations of Purchaser and Parent to consummate, or cause to be consummated,
the Merger shall be contingent upon and subject to the satisfaction, on or
before the Closing, of each and every one of the following conditions. The
following conditions are for the sole benefit of Purchaser and Parent and may be
asserted by Purchaser or Parent regardless of the circumstances giving rise to
any such condition and may be waived by Purchaser or Parent (which action shall
be deemed a waiver by both Purchaser and Parent), in whole or in part, at any
time and from time to time, in the sole discretion of Purchaser or Parent. The
failure by either Purchaser or Parent at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any other right, and each right
shall be deemed an ongoing right that may be asserted at any time and from time
to time.
6.1 REPRESENTATIONS OF ACQUIRED COMPANY. All representations and
warranties of the Acquired Company contained in this Agreement, in the
statements contained in the Exhibits hereto or in any certificate delivered by
the Acquired Company pursuant to this Agreement shall be true and correct when
made, and shall be true and correct at and as of the Closing Date as though such
representations and warranties were made or given on and as of the Closing Date,
in each case (i) as if none of such representations and warranties contained any
qualifications as to materiality or the absence of Material Adverse Effect, and
(ii) except for changes arising in connection with or contemplated by this
Agreement; PROVIDED HOWEVER, that notwithstanding the foregoing, this condition
shall be deemed to be satisfied if all breaches of such representations and
warranties, after giving effect to clauses (i) and (ii) above, do not
cumulatively constitute, or cumulatively could not reasonably be expected to
have, a Material Adverse Effect.
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6.2 COVENANTS OF ACQUIRED COMPANY. The Acquired Company shall have, or
caused to be, performed and observed in all respects all covenants, agreements
and conditions hereto to be performed or observed at or before the Closing Date.
6.3 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement there
shall not have been any change in the business, properties, rights or operations
of the Acquired Company or its Subsidiaries, taken as a whole, which constitute
a Material Adverse Effect on the Acquired Company and the Subsidiaries.
6.4 CERTIFICATE. Purchaser shall have received a certificate of the
President of the Acquired Company, dated as of the Closing Date, certifying as
to the matters set forth in Sections 6.1 through 6.3 above.
6.5 OPINION OF ACQUIRED COMPANY'S COUNSEL. Purchaser and Parent shall have
received an opinion of Snell & Wilmer L.L.P., counsel for the Acquired Company,
dated as of the Closing Date substantially in the form set forth in EXHIBIT 6.5.
6.6 TAX OPINION. Purchaser and Parent shall each have received an opinion
from their counsel based upon appropriate representations of the parties and
certain stockholders of the Acquired Company, dated as of the Closing Date, to
the effect that the Merger will qualify as a reorganization pursuant to Section
368(a) of the Tax Code.
6.7 AFFILIATES AND PRINCIPAL STOCKHOLDERS. Purchaser and Parent shall have
received the Rule 145 Letters and the Pooling Letters from the persons and at
the times specified in Section 2.4, and the letters referenced in Section
2.13.2.
6.8 ADDITIONAL INSTRUMENTS; CERTAIN CONSENTS. The Acquired Company shall
have delivered to Purchaser or Parent certified copies of resolutions duly
adopted by the Acquired Company's Board of Directors and stockholders, approving
the Merger and authorizing the transactions contemplated hereby, and such other
or additional instruments, endorsements and documents as Parent and Purchaser
reasonably deem to be necessary to enable the Merger to be consummated as
provided in this Agreement. Subject to the last three sentences of this Section
6.8, the Acquired Company shall have received the (i) waivers, consents and
approvals to the transactions contemplated herein, which are listed on EXHIBIT
6.8(A), each in form and substance reasonably satisfactory to Parent and
Purchaser and their counsel, and (ii) an assignment of all copyright and other
rights of ownership in and to the products of the Acquired Company and the
Subsidiaries from each of the entities described in EXHIBIT 3.14.2(III) that are
also listed on EXHIBIT 6.8(B) in a form reasonably acceptable to Parent,
Purchaser and their counsel. Further the Acquired Company shall have received a
release and waiver in respect of the agreement identified on EXHIBIT 3.24 as to
the matters listed on EXHIBIT 6.8(C) in a form reasonably acceptable to Parent,
Purchaser and their counsel. With respect to those agreements among the
"Licensing and Remarketing Agreements" identified on EXHIBIT 6.8(A) that involve
the licensing by the Acquired Company or a Subsidiary of Licensed Software, in
the event that the Acquired Company or a Subsidiary (whichever is a party
thereto) notifies Purchaser no later than thirty (30) days following the date
hereof that, notwithstanding its reasonable best efforts to do so, it will be
unable to obtain a consent to assignment of the same to Purchaser by the Closing
Date, then Acquired Company and Purchaser shall use their respective reasonable
best efforts to arrange for the acquisition of a product or products comparable
to those licensed to the Acquired Company or such Subsidiary thereunder at
comparable cost; provided, however, that the inability of such parties to
arrange for the same shall not relieve the Acquired Company or such Subsidiary
of its obligations described above, unless the failure to obtain such consent,
together with the failures, if any, to obtain consents with respect to such
other "Licensing and Remarketing Agreements," would not have a Material Adverse
Effect. With respect to each agreement included within such "Licensing and
Remarketing Agreements" pursuant to which the Acquired Company or a Subsidiary
has been granted the right to remarket the products of others, the inability of
the Acquired Company or a Subsidiary (whichever is party to the same) to obtain
the consent of the third party thereto to assign such agreement to the Purchaser
shall not constitute a breach of this Section 6.8 unless such failure,
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together with the failure to obtain consents with respect to all other
"Licensing and Remarketing Agreements," would have a Material Adverse Effect.
The failure of the Acquired Company or a Subsidiary to obtain the consents to
assignment to Purchaser of the "Customer Contracts" identified on EXHIBIT 6.8(A)
shall not constitute a failure to fulfill the obligation set forth in this
Section 6.8 with respect to the same provided that the Customer Contracts with
respect to which such consents have not been obtained do not involve in the
aggregate the receipt of recurring revenue of greater than $613,000 on an annual
basis and do not constitute three or more Customer Contracts.
6.9 ACCOUNTANTS' POOLING LETTERS. Parent shall have received letters from
Ernst & Young LLP and Arthur Andersen, LLP, dated as of the effective date of
the Registration Statement and as of the Closing Date addressed to Parent
advising it, as set forth in Section 2.3.2 hereof, that the Merger may be
accounted for as a pooling of interests and otherwise in such form as is
customary and reasonably acceptable to Parent.
6.10 ACCOUNTANT'S COMFORT LETTERS. Purchaser and Parent shall have
received letters from Ernst & Young dated as of the effective date of the
Registration Statement and as of the Closing Date, addressed to Purchaser and
Parent, containing such matters as are customarily contained in auditors'
letters regarding the Acquired Company Information provided expressly for
inclusion in such Registration Statement, and in form and substance reasonably
satisfactory to Parent.
6.11 COVENANTS NOT TO COMPETE. Purchaser shall have received executed
non-competition agreements from each of those persons listed on EXHIBIT 6.11A,
with each such agreement in the form of EXHIBIT 6.11B hereto.
6.12 FEE LIMITATION. The only fees and expenses to any investment banking
firm or similar entity that will be incurred by Acquired Company in connection
with the transaction with Parent and Purchaser will be the fees and expenses of
Broadview Associates, L.P. and shall not exceed one percent (1%) of the
consideration to be received by the Acquired Company's stockholders pursuant to
the Merger.
VII. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY.
In addition to the conditions set forth in Article V above, all the
obligations of the Acquired Company to consummate the Merger shall be contingent
upon and subject to the satisfaction, on or before the Closing, of each and
every one of the following conditions. The following conditions are for the sole
benefit of the Acquired Company and may be asserted by the Acquired Company
regardless of the circumstances giving rise to any such condition and may be
waived by the Acquired Company, in whole or in part, at any time and from time
to time, in the sole discretion of the Acquired Company for purposes of
consummating the transactions contemplated herein. The failure by the Acquired
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any other right, and each right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
7.1 REPRESENTATIONS OF PURCHASER AND PARENT. All representations and
warranties made by Purchaser and Parent in this Agreement, in the statements
contained in the Exhibits hereto or in any certificate delivered by the
Purchaser or the Parent pursuant to this Agreement shall be true and correct
when made, and shall be true and correct at and as of the Closing Date as though
such representations and warranties were made or given on and as of the Closing
Date, in each case (i) as if none of such representations and warranties
contained any qualifications as to materiality or the absence of Material
Adverse Effect, and (ii) except for changes arising in connection with or
contemplated by this Agreement; PROVIDED HOWEVER, that notwithstanding the
foregoing, this condition shall be deemed to be satisfied if all breaches of
such representations and warranties, after giving effect to clauses (i) and (ii)
above, do not cumulatively constitute, or cumulatively could not reasonably be
expected to have, a Material Adverse Effect.
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7.2 COVENANTS OF PURCHASER AND PARENT. Purchaser and Parent shall have, or
caused to be, performed and observed in all respects all covenants, agreements
and conditions hereof to be performed or observed by them at or before the
Closing Date.
7.3 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement there
shall not have been any change in the business, properties, rights or operations
of the Parent or the Parent Subsidiaries, taken as a whole, which constitute a
Material Adverse Effect on the Parent and the Parent Subsidiaries.
7.4 CERTIFICATE. The Acquired Company shall have received a certificate of
the President of each of Parent and Purchaser, dated as of the Closing Date,
certifying as to the matters set forth in Sections 7.1 through 7.3 above.
7.5 OPINION OF PARENT'S AND PURCHASER'S COUNSEL. The Acquired Company
shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Parent
and Purchaser, dated as of the Closing Date, substantially in the form set forth
in EXHIBIT 7.4.
7.6 TAX OPINION. The Acquired Company shall have received for the benefit
of its stockholders an opinion from its tax counsel based upon appropriate
assumptions and representations of the parties and certain stockholders of the
Acquired Company, dated as of the Closing Date, to the effect that the Merger
will qualify as a reorganization pursuant to Section 368(a) of the Tax Code.
7.7 ACCOUNTANT'S POOLING LETTERS. The Acquired Company shall have received
letters from Ernst & Young LLP and Arthur Andersen,LLP, dated as of the
effective date of the Registration Statement and as of the Closing Date
addressed to the Acquired Company advising it, as set forth in Section 2.3.2
hereof, that the Merger may be accounted for as a pooling of interests and
otherwise in such form as is customary and reasonably acceptable to the Acquired
Company.
VIII. CLOSING.
8.1 TIME AND PLACE OF CLOSING. Unless another place or date is agreed to
in writing by the Acquired Company and Purchaser, the Closing shall be held at
the offices of Jones, Day, Reavis & Pogue, 3500 One Peachtree Center, 303
Peachtree Street N.E., Atlanta, Georgia 30308-3242, commencing at 10:00 a.m.
Eastern Time, within two (2) business days of the last to occur of (i) the
expiration or termination of the waiting period under the HSR Act, (ii) the
Merger having been approved by the stockholders of the Acquired Company pursuant
to the Delaware Code and (iii) the satisfaction or waiver of the other
conditions set forth in Articles V, VI and VII. (The actual date of the Closing
is referred in this Agreement as the "Closing Date.")
8.2 TRANSACTIONS AT CLOSING. At the Closing, each of the following
transactions shall occur:
8.2.1. THE ACQUIRED COMPANY'S PERFORMANCE. At the Closing, the Acquired
Company shall deliver to Purchaser and Parent, the following:
(a) copies of the consents and waivers described in Section 2.9;
(b) satisfactory evidences of the approvals described in Section 5.4;
(c) the certificate described in Section 6.4 to be delivered on the
Closing Date;
(d) certificates of compliance or certificates of good standing of the
Acquired Company and of the Subsidiaries, as of the most recent practicable
date, from the appropriate governmental authority of the jurisdiction of
their respective incorporation;
(e) certified copies of resolutions of the Board of Directors and
stockholders of the Acquired Company approving the transactions set forth in
this Agreement;
(f) certificates of incumbency for the officers of the Acquired Company;
(g) resignations of each trustee of each Benefit Plan;
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(h) Certificate of Merger and a Plan of Merger, each in form and content
that complies with the Delaware Code, executed by the Acquired Company;
(i) the opinion of counsel for the Acquired Company, referenced in
Section 6.5;
(j) the Rule 145 Letters and Pooling Letters described in Section 2.4;
(k) the letters described in Section 2.13.1 hereof;
(l) the letters described in Section 2.3.2 hereof;
(m) the letters from Ernst & Young LLP to be delivered by the Closing
Date as described in Section 6.9;
(n) each of the Covenants Not to Compete fully executed and delivered;
and
(o) such other evidence of the performance of all covenants and
satisfaction of all conditions required of the Acquired Company by this
Agreement, at or prior to the Closing, as Purchaser, Parent or their counsel
may reasonably require.
8.2.2. PERFORMANCE BY PURCHASER AND PARENT. At the Closing, Purchaser or
Parent, as appropriate, shall deliver to the Acquired Company the following:
(a) the certificates described in Section 7.4;
(b) certificates of incumbency of the officers of Purchaser and of
Parent who are executing this Agreement and the other documents contemplated
hereunder;
(c) certified copies of resolutions of the Boards of Directors of each
of Purchaser and Parent (or Executive Committees thereof) approving the
transactions set forth in this Agreement;
(d) certificates of compliance or certificates of good standing of the
Parent and the Purchaser, as of the most recent practicable date, from the
appropriate governmental authority of the jurisdiction of their respective
incorporation;
(e) Certificate of Merger and a Plan of Merger, each in form and content
that complies with the Delaware Code, executed by Purchaser;
(f) certificates of incumbency for the officers of the Parent and the
Purchaser;
(g) the opinion of counsel for Purchaser and Parent referenced in
Section 7.5; and
(h) the letters from Arthur Andersen, LLP, to be delivered by the
Closing Date as described in Section 7.7;
(i) such other evidence of the performance of all the covenants and
satisfaction of all of the conditions required of Purchaser and of Parent by
this Agreement at or before the Closing as the Acquired Company or its
counsel may reasonably require.
IX. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
9.1 Except for the covenants contained in Sections 2.1.7(d), 2.1.10, 2.2.2,
2.3.6, 2.3.8, 2.13.1, 2.14 and 2.16, all representations, warranties and
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement (other than the Covenants Not To Compete) shall not survive the
Closing, and thereafter no party hereto and no officer, director or employee of
any such party shall have any liability whatsoever with respect to any such
representation, warranty or agreement except for liabilities arising from fraud,
willful misconduct or criminal acts.
X. TERMINATION.
10.1 METHOD OF TERMINATION. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, the consideration for which is (a) the covenants set forth in Article II
hereof, and (b) expenditures and obligations incurred and to
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be incurred by Purchaser and Parent, on the one hand, and by the Acquired
Company, on the other hand, in respect of this Agreement, and this Agreement may
be terminated or abandoned only as follows:
10.1.1. By the mutual consent of the Boards of Directors of the Acquired
Company and Parent, notwithstanding prior approval by the stockholders of any or
all of such corporations;
10.1.2. By the Board of Directors of the Parent in accordance with its
rights under Section 10.3;
10.1.3. By the Board of Directors of the Acquired Company after September
30, 1996, if any of the conditions set forth in Articles V and VII hereof, to
which the Acquired Company's obligations are subject, have not been fulfilled or
waived, unless such fulfillment has been frustrated or made impossible by any
act or failure to act of it or the Subsidiaries;
10.1.4. By Purchaser after September 30, 1996, if any of the conditions set
forth in Articles V and VI hereof, to which the obligations of Purchaser and
Parent are subject, have not been fulfilled or waived, unless such fulfillment
has been frustrated or made impossible by any act or failure to act of Purchaser
or Parent.
10.1.5. By the Board of Directors of the Acquired Company if in the
exercise of its good faith determination, as set forth in Section 2.11, as to
its fiduciary duties to the Acquired Company's stockholders imposed by law, the
Board of Directors of the Acquired Company decides that such termination is
required.
10.2 EFFECT OF TERMINATION.
10.2.1. Except as provided in Section 10.2.2, and except as provided in the
immediately succeeding sentence, in the event of a termination of this Agreement
pursuant to Section 10.1.1, Section 10.1.2, Section 10.1.3 or Section 10.1.4
hereof, each party shall pay the costs and expenses incurred by it in connection
with this Agreement, and no party (or any of its officers, directors, employees,
agents, representatives or stockholders) shall be liable to any other party for
any costs, expenses, damage or loss of anticipated profits hereunder. Except as
provided in Section 10.2.2, in the event of a termination of this Agreement by
Acquired Company pursuant to Section 10.1.3 hereof by reason of a breach by
Parent and/or Purchaser of one or more of their respective representations,
warranties or covenants contained herein (which, in turn, causes one or more of
the conditions in Sections 7.1, 7.2 or 7.4 not to be fulfilled), or a
termination of this Agreement by Purchaser pursuant to Section 10.1.4 hereof by
reason of a breach by Acquired Company of one or more of its representations,
warranties or covenants contained herein (which, in turn, causes one or more of
the conditions in Sections 6.1, 6.2 or 6.4 not to be fulfilled), then such
breaching party (the "Breaching Party" (and if either Parent or Purchaser has so
breached, then Parent and Purchaser shall be deemed to be a single Breaching
Party for all purposes hereunder)) shall pay to the non-breaching party (the
"Non-Breaching Party") the sum of $10,000,000, which shall constitute liquidated
damages and shall be the sole and exclusive remedy of the Non-Breaching Party
for any and all damages arising under or in connection with this Agreement, and,
upon payment of such amount, neither the Breaching Party nor any of its
officers, directors, employees, agents, representatives or stockholders shall
have any liability or further obligation to the Non-Breaching Party under or in
connection with this Agreement or any such termination thereof.
10.2.2. In the event the Agreement is terminated (a) by the Acquired
Company in accordance with Section 10.1.5, or (b) by the Parent, Purchaser or
Acquired Company in accordance with Section 10.1.3 or 10.1.4 by reason of the
failure of the condition set forth in Section 5.4 hereof, then the Acquired
Company shall promptly pay (i) in an aggregate amount not to exceed $500,000,
all reasonable costs and expenses of Purchaser and Parent incurred in connection
with the negotiation and performance of this Agreement including without
limitation fees and expenses of counsel, fees and expenses of independent public
accountants, printing expenses and registration fees and (ii) to Purchaser a fee
in the amount of $10,000,000 in the case of a termination as described in clause
(a) above. In the case of any termination of this Agreement under Section 10.1.5
(and solely by reason
A-34
<PAGE>
thereof), payment of the amount specified in the preceding sentence shall
constitute liquidated damages and shall be the sole and exclusive remedy of the
Parent and the Purchaser for any and all damages arising under or in connection
with this Agreement, and, upon payment of the amount specified in the preceding
sentence, neither the Acquired Company nor any officers, directors, employees,
agents, representatives or stockholders of the Acquired Company shall have any
liability or further obligation to the Parent or the Purchaser under or in
connection with this Agreement or any such termination hereof.
10.3 RISK OF LOSS. The Acquired Company retains all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement up to the Effective Time. If the condemnation, destruction, loss, or
damage is such that the business of the Acquired Company and the Subsidiaries,
taken as a whole, is materially interrupted or curtailed or the assets of the
Acquired Company and the Subsidiaries, taken as a whole, are materially
affected, then Purchaser shall have the right to terminate this Agreement.
XI. GENERAL PROVISIONS.
11.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
certified mail, return receipt requested, first class postage prepaid, or sent
by Federal Express or similar overnight delivery service with receipt
acknowledged addressed as follows:
11.1.1. If to the Acquired Company:
CyCare Systems,Inc.
7001 North Scottsdale Road, Suite 1000
Scottsdale, Arizona 85323-3644
Attn: Mr. Jim H. Houtz
and to:
Snell & Wilmer LLP
One Arizona Center
Phoenix, Arizona 85004-0001
Attn: Matthew P. Feeney, Esq.
11.1.2. If to Purchaser or Parent:
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: Mr. Jay P. Gilbertson
and to:
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attention: John E. Zamer, Esq.
11.1.3. If delivered personally, the date on which a notice, request,
instruction or document is delivered shall be the date on which such delivery is
made and, if delivered by mail or by overnight delivery service, the date on
which such notice, request, instruction or document is received shall be the
date of delivery. In the event any such notice, request, instruction or document
is mailed or shipped by overnight delivery service to a party in accordance with
this Section 11.1 and is returned to the sender as nondeliverable, then such
notice, request, instruction or document shall be deemed to have been delivered
or received on the fifth day following the deposit of such notice, request,
instruction or document in the United States mails or the delivery to the
overnight delivery service.
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<PAGE>
11.1.4. Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
11.1.
11.2 BROKERS. Purchaser and Parent, jointly and severally, represent and
warrant to the Acquired Company that no broker or finder has acted for them or
any entity controlling, controlled by or under common control with them in
connection with this Agreement. The Acquired Company represents and warrants to
Purchaser and the Parent that, except for Broadview Associates, L.P., no broker
or finder has acted for it or any entity controlling, controlled by or under
common control with it in connection with this Agreement. The Acquired Company
agrees to indemnify and hold harmless Purchaser and Parent against any fee,
loss, or expense arising out of any claim by Broadview Associates, L.P., or any
other broker or finder employed or alleged to have been employed by it or any of
the Subsidiaries or any of the Acquired Company's stockholders. The Parent and
Purchaser agree to indemnify and hold harmless the Acquired Company against any
fee,loss or expense arising out of any claim by any broker or finder employed or
alleged to have been employed by Parent, Purchaser or any of the Parent
Subsidiaries. The fees and expenses of Broadview Associates, L.P. and any other
broker or finder shall be paid by the Acquired Company, subject to the
limitations set forth in Section 6.12, in conjunction with such other fees set
forth in Section 11.5.
11.3 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Effective Time, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
11.4 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
11.5 EXPENSES. Except as provided in 10.2.2, all expenses incurred by the
parties hereto in connection with or related to the authorization, preparation
and execution of this Agreement and the Closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of agents, representatives, counsel and accountants employed
by any such party, shall be borne solely and entirely by the party that has
incurred the same.
11.6 PRESS RELEASES AND DISCLOSURE. In the event that either party
proposes to issue, make or distribute any press release, public announcement or
other written publicity or disclosure prior to the Closing Date that refers to
the transactions contemplated herein, the party proposing to make such
disclosure shall provide a copy of such disclosure to the other parties and
shall afford the other parties reasonable opportunity (subject to any legal
obligation of prompt disclosure) to comment on such disclosure or the portion
thereof which refers to the transactions contemplated herein prior to making
such disclosure.
11.7 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns.
11.8 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
11.9 ENTIRE AGREEMENT. This Agreement and all agreements referenced
specifically in this Agreement and executed as required by this Agreement
constitute the entire agreement among the parties hereto and supersede and
cancel any prior agreements, representations, warranties, or communications,
whether oral or written, among the parties hereto relating to the transactions
contemplated hereby or the subject matter herein. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an agreement in writing signed by the party against whom or which the
enforcement of such change, waiver, discharge or termination is sought.
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<PAGE>
11.10 REMEDIES CUMULATIVE. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any such other right, power or remedy by such party.
11.11 SPECIFIC PERFORMANCE. The parties acknowledge that, except as
provided in Section 10.2, money damages are not an adequate remedy for
violations of this Agreement and that any party may, in its sole discretion,
apply to a court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection to the imposition
of such relief.
11.12 GOVERNING LAW. Except to the extent the transactions contemplated
hereby are governed by the Delaware Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of Georgia.
11.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.14 NO AGREEMENT UNTIL EXECUTED. This Agreement shall not constitute or
be deemed to evidence a contract or agreement among the parties hereto unless
and until executed by all parties hereto, irrespective, of negotiations among
the parties or the exchanging of drafts of this Agreement.
11.15 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.16 EXHIBITS INCORPORATED. All Exhibits attached hereto are an integral
part of this Agreement.
11.17 TIME OF ESSENCE. Time is of the essence in this Agreement.
11.18 KNOWLEDGE. The term "knowledge" when applied to any party to this
Agreement shall refer only to the actual knowledge of that party (or in the case
of either Parent, Purchaser or Acquired Company, the actual knowledge of its
respective employees listed or described on EXHIBIT 11.18), but no information
known by any other employee, or any attorney, accountant or other
representative, of such party shall be imputed to such party.
A-37
<PAGE>
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement
to be executed on its behalf, all on the day and year first above written.
"PURCHASER":
HBO & COMPANY OF GEORGIA
By: /s/ JAY P. GILBERTSON
--------------------------------------------
Title: Sr. V. P. - Finance and Chief Financial Officer
--------------------------------------------
"PARENT":
HBO & COMPANY
By: /s/ JAY P. GILBERTSON
--------------------------------------------
Title: Sr. V. P. - Finance and Chief Financial Officer
--------------------------------------------
"ACQUIRED COMPANY":
CYCARE SYSTEMS, INC.
By: /s/ J. H. HOUTZ
--------------------------------------------
Title: Chief Executive Officer and Chairman
--------------------------------------------
A-38
<PAGE>
APPENDIX B
BROADVIEW ASSOCIATES LLC
One Bridge Plaza
Fort Lee, New Jersey 07024
201/346-9000
FAX 201/346-9191
http://www.broadview.com
July 18, 1996
CONFIDENTIAL
Board of Directors
CyCare Systems, Inc.
7001 North Scottsdale Rd., Suite 1000
Scottsdale, AZ 85253
Dear Members of the Board:
We understand that CyCare Systems, Inc. ("CyCare"), HBO & Company ("HBOC"), and
HBO & Company of Georgia (the "Purchaser") are proposing a transaction (the
"Transaction") pursuant to which, through the merger of CyCare with and into the
Purchaser, each share of CyCare stock issued and outstanding shall be converted
into the right to receive 0.86 of a share of HBOC stock, subject to adjustment
as provided in the Agreement (as defined below). The proposed Transaction is
intended to be a tax-free reorganization within the meaning of section 368(a) of
the United States Internal Revenue Service Code of 1986, as amended, and to be
accounted for as a pooling of interests pursuant to Opinion No. 16 of the
Accounting Principles Board. The terms and conditions of the Transaction are
more fully detailed in the Agreement.
You have requested our opinion as to whether the consideration to be received by
CyCare's shareholders in the Transaction is fair, from a financial point of
view, to CyCare's shareholders.
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. In this capacity, we are
continually engaged in valuing such businesses, and we maintain an extensive
database of IT mergers and acquisitions for comparative purposes. We are
currently acting as financial advisor to CyCare's Board of Directors and will
receive a fee from CyCare upon the successful conclusion of the Transaction.
San Mateo, CA Fort Lee, NJ London
Member, National Association of Securities Dealers, Inc.
<PAGE>
BROADVIEW ASSOCIATES LLC
CyCare Systems, Inc. Board of Directors July 18, 1996
Page 2
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement of Merger (the "Agreement") furnished
to us by Snell & Wilmer L.L.P.;
2.) reviewed the financial statements of CyCare for its fiscal years ended
December 31, 1993, 1994, and 1995 audited by Ernst & Young LLP and the
unaudited financial statements of CyCare for the three months ended March
31, 1996 included within CyCare's Form 10-Q for such period;
3.) reviewed internal historical financial and operating data concerning CyCare
prepared and provided to us by CyCare management;
4.) reviewed financial projections for CyCare prepared and provided to us by
CyCare management;
5.) participated in discussions with CyCare management concerning the
operations, business strategy, financial performance and prospects for
CyCare;
6.) discussed with CyCare management its view of the strategic rationale for
the Transaction;
7.) reviewed the reported closing prices and trading activity for CyCare stock;
8.) compared certain aspects of the financial performance of CyCare with public
companies we deemed comparable;
9.) analyzed available information, both public and private, concerning other
mergers and acquisitions we believe to be comparable in whole or in part to
the Transaction;
10.) reviewed HBOC's annual report and Form 10-K for the fiscal years ended
December 31, 1993, 1994, and 1995 and Form 10-Q for the three month period
ended March 31, 1996 including the financial statements included therein;
11.) participated in discussions with HBOC management concerning the operations,
business strategy, financial performance and prospects for HBOC;
12.) discussed with HBOC management its view of the strategic rationale for the
Transaction;
13.) reviewed the reported closing prices and trading activity for HBOC stock;
14.) considered the total number of shares of HBOC stock outstanding, the
average weekly trading volume of HBOC stock, and the maximum time period
for CyCare stockholders to liquidate their HBOC stock given SEC regulations
and the registration rights outlined in the Agreement;
15.) reviewed recent equity analyst reports covering HBOC;
16.) analyzed the anticipated effect of the Transaction on the future financial
performance of the consolidated entity;
17.) participated in negotiations and discussions related to the Transaction
among CyCare, HBOC and their financial and legal advisors; and
B-2
<PAGE>
BROADVIEW ASSOCIATES LLC
CyCare Systems, Inc. Board of Directors July 18, 1996
Page 3
18.) conducted other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained
in the Agreement) that was publicly available or furnished to us by CyCare
or HBOC. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared and reflected the best available
estimates and good faith judgments of the management of CyCare as to the
future performance of CyCare. We have neither made nor obtained an
independent appraisal or valuation of any of CyCare's assets. We have not
reviewed any internal financial projections prepared by HBOC management as
such projections have not been made available to us.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received by CyCare's shareholders in the Transaction is
fair, from a financial point of view, to CyCare's shareholders.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of CyCare in
connection with its consideration of the Transaction, and does not
constitute a recommendation to any CyCare stockholder as to how such
stockholder should vote on the Transaction. Broadview Associates does not
believe that any other person other than the Board of Directors of CyCare
has the legal right under state law to rely on this opinion and, in the
absence of any governing precedents, we would resist any assertion
otherwise by any such person. This opinion may not be published or referred
to, in whole or part, without our prior written permission, which shall not
be unreasonably withheld. Broadview Associates hereby consents to
references to and the inclusion of this opinion in its entirety in the
Proxy Statement/ Prospectus to which this opinion appears as Appendix B.
Sincerely,
/s/ Broadview Associates LLC
Broadview Associates LLC
B-3
<PAGE>
PROXY
CYCARE SYSTEMS, INC.
7001 NORTH SCOTTSDALE ROAD, SUITE 1000
SCOTTSDALE, ARIZONA 85253-3644
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jim H. Houtz and Mark R. Schonau, and each
of them, as Proxies, each with the power to appoint his or her substitute, and
hereby authorizes them to represent, and to vote as designated on the reverse
side, all of the shares of Common Stock of CyCare Systems, Inc. held of record
by the undersigned on July 16, 1996, at a Special Meeting of Stockholders to be
held on Wednesday, August 21, 1996, at 9:00 a.m., local time, at 7001 North
Scottsdale Road, Suite 1000, Scottsdale, Arizona, or any adjournment or
postponement thereof upon the following matter, as set forth in the Notice of
said Meeting dated July 18, 1996, a copy of which has been received by the
undersigned.
1. APPROVAL OF AGREEMENT OF MERGER dated May 18, 1996, by and among
CyCare Systems, Inc., HBO & Company and HBO & Company of Georgia.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such
other matters that may properly come before the meeting or any
adjournment or postponement thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL.
PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE
ENCLOSED POSTAGE PRE-PAID ENVELOPE.
Signature: _______________________
Date _____________________________
Signature: _______________________
Date _____________________________
Please sign exactly as your name
appears on this proxy. If the
shares represented by this proxy
are held by joint tenants, both
must sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If stockholder
is a corporation, please sign in
full corporate name by President
or other authorized officer. If
stockholder is a partnership,
please sign in partnership name by
authorized person.
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
HBO & Company's (the "Company") By-Laws (Article IX, Section 1) provide that
every person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
and pursuant to any procedure specified in the General Corporation Law of the
State of Delaware, as amended from time to time, against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines and amounts
paid or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
that may be enforced in any manner by such person. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or thereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under such article.
Article IX, Section 2 of the Company's By-Laws provides that the Board of
Directors may cause the corporation to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred in any such capacity or arising out of such status, whether or not the
corporation would have the power to indemnify such person.
With respect to indemnification of officers and directors, Section 145 of
the Delaware General Corporation Law provides that a corporation shall have the
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Under this provision of
the Delaware General Corporation Law, the termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Furthermore, the Delaware General Corporation Law provides that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation except that no indemnification shall be made
II-1
<PAGE>
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
In addition, the General Corporation Law of Delaware enables a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to the corporation or its
stockholders for monetary damages for breaches of a director's fiduciary duty as
a director. The statute provides, however, that liability for (a) breach of the
director's duty of loyalty, (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, (c) the unlawful purchase
or redemption of stock or unlawful dividends or (d) transactions from which a
director derived an improper personal benefit cannot be eliminated or limited in
this manner. The Company's Certificate of Incorporation contains such
provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. Items marked with an asterisk, "*," relate to management
contracts or compensatory plans or arrangements. The following exhibits are
filed as part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------
<S> <C>
2 Agreement of Merger dated May 18, 1996 by and among HBO & Company, HBO & Company
of Georgia and CyCare Systems, Inc. (included as Appendix A to the Proxy
Statement/Prospectus contained in Part I of this Registration Statement).
5 Opinion of Jones, Day, Reavis & Pogue re legality.
8 Opinion of Snell & Wilmer L.L.P. re tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(d) Consent of Snell & Wilmer L.L.P. (included in Exhibit 8).
23(e) Consent of Broadview Associates LLC (included as Appendix B to the Proxy
Statement/Prospectus contained in Part I of this Registration Statement).
24+ Power of Attorney (included in signature page).
99.1+ Letter Agreement, dated May 18, 1996, by and among HBO & Company, HBO & Company
of Georgia and CyCare Systems, Inc.
99.2+ Letter Agreement, dated June 10, 1996, by and among HBO & Company, HBO & Company
of Georgia and CyCare Systems, Inc.
99.3 Consulting Agreement, dated July 15, 1996, by and between HBO & Company of
Georgia and Jim H. Houtz.
</TABLE>
- ------------------------
+ Previously filed.
II-2
<PAGE>
The following exhibits filed with the Securities and Exchange Commission are
incorporated by reference as shown below.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
<S> <C> <C>
ON MAY 13, 1981, AS PART OF ITS REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION
NUMBER 2-72275):
4(a) -- Specimen forms of certificates for Common Stock of Registrant.
ON FEBRUARY 15, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-75987):
*4 -- HBO & Company 1981 Incentive Stock Option Plan, as amended.
ON FEBRUARY 22, 1991, AS PART OF ITS FORM 8-K:
*4 -- HBO & Company Rights Agreement.
ON MARCH 26, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-92030):
*4 -- HBO & Company Nonqualified Stock Option Plan, as amended.
ON MARCH 27, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-12051):
*4 -- HBO & Company 1986 Employee Nonqualified Stock Option Plan, as amended.
ON AUGUST 12, 1993, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-67300):
*4 -- HBO & Company 1993 Stock Option Plan for Nonemployee Directors.
ON JUNE 14, 1994, AS PART OF ITS FORM 8-K REPORT DATED JUNE 13, 1994, AS AMENDED
BY FORM 8-KA DATED JUNE 30, 1994 AND FILED WITH THE COMMISSION ON JULY 1, 1994:
2 -- Asset Purchase Agreement among IBAX Healthcare Systems, Baxter Healthcare
Corporation, International Business Machines Corporation, Baxter Systems, Inc.,
HCPG Corporation, HBO & Company and HBO & Company of Georgia dated May 31,
1994.
ON JULY 20, 1994, AS PART OF THE FORM S-4 REGISTRATION STATEMENT DATED JULY 19,
1994, AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AUGUST 10, 1994, AND
FILED WITH THE COMMISSION ON AUGUST 11, 1994, AND FURTHER AMENDED BY AMENDMENT
NO. 2 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE COMMISSION AUGUST
11, 1994:
2 -- Agreement of Merger dated June 30, 1994, by and among HBO & Company, HBO &
Company of Georgia and Serving Software, Inc.
3 -- Amended Bylaws.
ON AUGUST 17, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-82962):
*4 -- HBO & Company 1990 Executive Incentive Plan, as amended.
ON SEPTEMBER 15, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-84034):
*4 -- 1986 Incentive Stock Option Plan of Serving Software, Inc.
ON MARCH 17, 1995, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1994:
*4 -- Chief Executive Officer Incentive Plan.
ON MAY 9, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-59173):
*4 -- HBO & Company 1986 Nonqualified Stock Option Agreement, HBO & Company 1991
Nonqualified Stock Option Agreement 1 and HBO & Company 1991 Nonqualified Stock
Option Agreement 2.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
<S> <C> <C>
ON JUNE 23, 1995, AS PART OF ITS FORM 8-K DATED JUNE 23, 1995, AS AMENDED BY
FORM 8-KA DATED JULY 31, 1995, AND FILED WITH THE COMMISSION ON JULY 31, 1995,
AS FURTHER AMENDED BY FORM 8-KA2 DATED AUGUST 8, 1995 AND FILED WITH THE
COMMISSION ON AUGUST 8, 1995:
2 -- Stock Purchase Agreement, dated as of May 16, 1995, 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.
ON AUGUST 17, 1995, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED AUGUST
17, 1995, AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED SEPTEMBER 1, 1995,
AND FILED WITH THE COMMISSION ON SEPTEMBER 1, 1995:
2 -- Agreement of Merger dated July 14, 1995, by and among HBO & Company, HBO &
Company of Georgia and CliniCom Incorporated.
ON OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63213):
*4 -- 1985 Employee Stock Option Plan of CliniCom Incorporated.
ON MARCH 13, 1996, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1995:
*4 -- HBO & Company 1983 Employee Discount Stock Purchase Plan, as restated.
ON MAY 21, 1996, AS PART OF ITS FORM 8-K DATED MAY 21, 1996, AND FILED WITH THE
COMMISSION ON MAY 21, 1996:
3(i) -- Amended and Restated Certificate of Incorporation of Registrant.
</TABLE>
(b) Financial Statement Schedules.
No financial statement schedules are required to be filed herewith.
(c) The opinion of Broadview Associates, L.P. is included as Appendix B to
the Proxy Statement/ Prospectus contained in Part I of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(a) (i) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(ii) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability
II-4
<PAGE>
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(iii) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, in
the State of Georgia, on the 17th day of July, 1996.
HBO & COMPANY
By: /s/ CHARLES W. MCCALL
-----------------------------------
Charles W. McCall
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------------------------------- -------------
<S> <C> <C>
/s/ CHARLES W. MCCALL Director, President and Chief Executive Officer July 17, 1996
- ------------------------------ (Principal Executive Officer)
(Charles W. McCall)
/s/ JAY P. GILBERTSON Senior Vice President -- Finance, Chief Financial July 17, 1996
- ------------------------------ Officer, Principal Accounting Officer, Treasurer
(Jay P. Gilbertson) and Assistant Secretary (Principal Financial
Officer and Principal Accounting Officer)
* Chairman of the Board of Directors
- ------------------------------
(Holcombe T. Green, Jr.)
* Director
- ------------------------------
(Alfred C. Eckert III)
* Director
- ------------------------------
(Philip A. Incarnati)
* Director
- ------------------------------
(Alton F. Irby III)
* Director
- ------------------------------
(Gerald E. Mayo)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------------------------------- -------------
<S> <C> <C>
* Director
- ------------------------------
(James V. Napier)
* Director
- ------------------------------
(Charles E. Thoele)
* Director
- ------------------------------
(Donald C. Wegmiller)
By: /s/ CHARLES W. July 17, 1996
MCCALL
- ------------------------------
*Charles W. McCall,
Attorney-in-Fact
By: /s/ JAY P. July 17, 1996
GILBERTSON
- ------------------------------
*Jay P. Gilbertson,
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ----
<S> <C> <C>
2 Agreement of Merger dated May 18, 1996 by and among HBO & Company, HBO & Company
of Georgia and CyCare Systems, Inc. (included as Appendix A to the Proxy
Statement/Prospectus contained in Part I of this Registration Statement).
5 Opinion of Jones, Day, Reavis & Pogue re legality.
8 Opinion of Snell & Wilmer L.L.P. re tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(d) Consent of Snell & Wilmer L.L.P. (included in Exhibit 8).
23(e) Consent of Broadview Associates LLC (included as Appendix B to the Proxy
Statement/Prospectus contained in Part I of this Registration Statement).
24+ Power of Attorney (included in signature page).
99.1+ Letter Agreement, dated May 18, 1996, by and among HBO & Company, HBO & Company
of Georgia and CyCare Systems, Inc.
99.2+ Letter Agreement, dated June 10, 1996, by and among HBO & Company, HBO & Company
of Georgia and CyCare Systems, Inc.
99.3 Consulting Agreement, dated July 15, 1996, by and between HBO & Company of
Georgia and Jim Houtz.
</TABLE>
- ------------------------
+ Previously filed.
<PAGE>
The following exhibits filed with the Securities and Exchange Commission are
incorporated by reference as shown below.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------
<S> <C> <C>
ON MAY 13, 1981, AS PART OF ITS REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NUMBER
2-72275):
4(a) Specimen forms of certificates for Common Stock of Registrant.
ON FEBRUARY 15, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-75987):
*4 HBO & Company 1981 Incentive Stock Option Plan, as amended.
ON FEBRUARY 22, 1991, AS PART OF ITS FORM 8-K:
*4 HBO & Company Rights Agreement.
ON MARCH 26, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-92030):
*4 HBO & Company Nonqualified Stock Option Plan, as amended.
ON MARCH 27, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-12051):
*4 HBO & Company 1986 Employee Nonqualified Stock Option Plan, as amended.
ON AUGUST 12, 1993, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-67300):
*4 HBO & Company 1993 Stock Option Plan for Nonemployee Directors.
ON JUNE 14, 1994, AS PART OF ITS FORM 8-K REPORT DATED JUNE 13, 1994, AS AMENDED BY FORM
8-KA DATED JUNE 30, 1994 AND FILED WITH THE COMMISSION ON JULY 1, 1994:
2 Asset Purchase Agreement among IBAX Healthcare Systems, Baxter Healthcare Corporation,
International Business Machines Corporation, Baxter Systems, Inc., HCPG Corporation, HBO
& Company and HBO & Company of Georgia dated May 31, 1994.
ON JULY 20, 1994, AS PART OF THE FORM S-4 REGISTRATION STATEMENT DATED JULY 19, 1994, AS
AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE
COMMISSION ON AUGUST 11, 1994, AND FURTHER AMENDED BY AMENDMENT NO. 2 TO FORM S-4 DATED
AUGUST 10, 1994, AND FILED WITH THE COMMISSION AUGUST 11, 1994:
2 Agreement of Merger dated June 30, 1994, by and among HBO & Company, HBO & Company of
Georgia and Serving Software, Inc.
3 Amended Bylaws.
ON AUGUST 17, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-82962):
*4 HBO & Company 1990 Executive Incentive Plan, as amended.
ON SEPTEMBER 15, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-84034):
*4 1986 Incentive Stock Option Plan of Serving Software, Inc.
ON MARCH 17, 1995, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994:
*4 Chief Executive Officer Incentive Plan.
ON MAY 9, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-59173):
*4 HBO & Company 1986 Nonqualified Stock Option Agreement, HBO & Company 1991 Nonqualified
Stock Option Agreement 1 and HBO & Company 1991 Nonqualified Stock Option Agreement 2.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------
<S> <C> <C>
ON JUNE 23, 1995, AS PART OF ITS FORM 8-K DATED JUNE 23, 1995, AS AMENDED BY FORM 8-KA
DATED JULY 31, 1995, AND FILED WITH THE COMMISSION ON JULY 31, 1995, AS FURTHER AMENDED
BY FORM 8-KA2 DATED AUGUST 8, 1995 AND FILED WITH THE COMMISSION ON AUGUST 8, 1995:
2 Stock Purchase Agreement, dated as of May 16, 1995, 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.
ON AUGUST 17, 1995, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED AUGUST 17, 1995,
AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED SEPTEMBER 1, 1995, AND FILED WITH THE
COMMISSION ON SEPTEMBER 1, 1995:
2 Agreement of Merger dated July 14, 1995, by and among HBO & Company, HBO & Company of
Georgia and CliniCom Incorporated.
ON OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63213):
*4 1985 Employee Stock Option Plan of CliniCom Incorporated.
ON MARCH 13, 1996, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995:
*4 HBO & Company 1983 Employee Discount Stock Purchase Plan, as restated.
ON MAY 21, 1996, AS PART OF ITS FORM 8-K DATED MAY 21, 1996, AND FILED WITH THE COMMISSION
ON MAY 21, 1996:
3(i) Amended and Restated Certificate of Incorporation of Registrant.
</TABLE>
<PAGE>
EXHIBIT 5
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street
Atlanta, Georgia 30308-3242
July 17, 1996
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Gentlemen:
We have acted as counsel to HBO & Company, a Delaware corporation (the
"Company"), in connection with the registration of 5,060,440 shares of Common
Stock, $.05 par value per share, of the Company (the "Shares"), to be issued
by the Company pursuant to a Registration Statement on Form S-4 (File No.
333-5663) (the "Registration Statement"), filed with the Securities and
Exchange Commission to which this opinion appears as Exhibit 5.
We have examined originals or certified or photostatic copies of such
records of the Company, certificates of officers of the Company, and public
officials and such other documents as we have deemed relevant or necessary as
the basis of the opinion set forth below in this letter. In such examination,
we have assumed the genuineness of all signatures, the conformity to original
documents submitted as certified or photostatic copies, and the authenticity
of originals of such latter documents. Based on the foregoing, we are of the
following opinion:
The Shares have been duly authorized and, when issued by the Company,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and the reference to this Firm under the heading
"Certain Legal Matters" in the Proxy Statement/Prospectus constituting part
of the Registration Statement.
Sincerely,
/s/ Jones, Day, Reavis & Pogue
JONES, DAY, REAVIS & POGUE
<PAGE>
EXHIBIT 8
SNELL & WILMER L.L.P
ONE ARIZONA CENTER
PHOENIX, ARIZONA 85004-0001
July 17, 1996
CyCare Systems, Inc.
7001 North Scottsdale Road
Suite 1000
Scottsdale, Arizona 85253-3644
Re: Merger Opinion
Ladies and Gentlemen:
We have acted as tax counsel to CyCare Systems, Inc., a Delaware
corporation ("CyCare"), in connection with the Agreement of Merger dated May
18, 1996 (the "Agreement") by and among CyCare, HBO & Company, a
Delaware corporation ("HBOC"), and HBO & Company of Georgia, a Delaware
corporation and wholly-owned subsidiary of Parent ("HBOC-GA"). Pursuant to
the Agreement, CyCare will merge with and into HBOC-GA (the "Merger").
Our opinion regarding certain of the federal income tax consequences of
the Merger is required in connection with the filing with the Securities and
Exchange Commission of a registration statement (the "Registration
Statement") which includes the Proxy Statement-Prospectus relating to
the Merger. Our opinion is also required pursuant to Section 7.6 of the
Agreement as a condition to the consummation of the Merger.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
For the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Time of the Merger) and are relying (or
will rely) upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
<PAGE>
representations and warranties contained in the following documents:
1. The Agreement.
2. Representations made by us to CyCare in a letter reproduced as
Exhibit A hereto.
3. Representations made to us by HBOC and HBOC-GA in a letter
reproduced as Exhibit B hereto.
4. Representations made in that certain Continuity of Interest
Certificate executed by Jim H. Houtz.
5. Such other instruments and documents related to the formation,
organization, and operation of CyCare, HBOC, and HBOC-GA, and/or to the
consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites
to effectiveness thereof.
2. The Merger will be effective under the laws of Delaware.
3. At the Effective Time of the Merger, no outstanding indebtedness of
CyCare will represent equity for tax purposes and no outstanding equity of
CyCare, HBOC, or HBOC-GA will represent indebtedness for tax purposes.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations, and qualifications set forth herein, we
are of the opinion that, for federal income tax purposes, the Merger will
qualify as a "reorganization" as defined in Section 368(a) of the Code.
Assuming that the Merger will qualify as a "reorganization" within the
meaning of Section 368(a) and subject to the assumptions, exceptions,
limitations, and qualifications set forth herein, the following are among the
federal income tax consequences of the Merger:
a. No gain or loss will be recognized by CyCare as a result of the
consummation of the Merger.
<PAGE>
b. No gain or loss will be recognized by a CyCare stockholder upon the
exchange of shares of CyCare Common Stock for shares of HBOC Stock
pursuant to the Merger, except on the receipt of cash in lieu of a fractional
share interest in HBOC Stock.
In addition to the assumptions set forth above, this opinion is
subject to the exceptions, limitations, and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations, and published
rulings and procedures. Our opinion is not binding upon the Internal Revenue
Service or the courts, and there is no assurance that the Internal Revenue
Service will not successfully assert a contrary position. Furthermore, no
assurance can be given that future legislative, judicial, or administrative
changes, on either a prospective or retroactive basis, would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
2. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code and the consequences of the
Merger as described above, and does not address any other federal or any
state, local, or foreign tax consequences that may result from the Merger or
any other transaction (including any transaction undertaken in connection
with the Merger). Further, this opinion does not address the tax consequences
of the Merger that may be relevant to particular classes of CyCare
stockholders subject to special treatment under the federal income tax laws
such as dealers in securities, shareholders subject to the alternative
minimum tax, foreign persons, banks and other financial institutions,
insurance companies, tax-exempt organizations, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions, if any.
3. No opinion is expressed as to any transaction other than the
Merger as described in the Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Agreement are
not consummated in accordance with the terms of the Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties, or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
<PAGE>
4. The opinion set forth herein is intended solely for the purpose of
including this opinion as an exhibit to the Registration Statement and is
intended solely for your benefit; it may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to
any other person or entity without our prior written consent.
Yours truly,
/s/ Snell & Wilmer L.L.P.
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 6, 1996
incorporated by reference in HBO & Company's Form 10-K for the year ended
December 31, 1995 and to all references to our firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 17, 1996
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 14, 1996 with respect to the consolidated
financial statements of CyCare Systems, Inc. incorporated by reference in its
Annual Report (Form 10-K) for the year ended December 31, 1995 and the related
financial statement schedules included therein, filed with the Securities and
Exchange Commission incorporated by reference herein in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-5663) and related Prospectus of HBO &
Company for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Phoenix, Arizona
July 17, 1996
<PAGE>
CONSULTING AGREEMENT
CONSULTING AGREEMENT (this "Agreement") made and entered into as of July
15, 1996 to be effective on September 1, 1996, by and between HBO & COMPANY
OF GEORGIA, a Delaware corporation (the "Company"), and JIM H. HOUTZ
("Consultant").
WHEREAS, Consultant is a founder of Cycare Systems,
Inc. ("Cycare") and has been its CEO for over twenty-five (25) years; and
WHEREAS, Company has acquired Cycare; and
WHEREAS, Company and Consultant mutually agree that it is in Company's
best interest for Consultant to terminate his full-time employment
relationship with Cycare and perform consulting services for Company for a
twelve (12) month period after the acquisition of Cycare has been completed;
and
WHEREAS, Company and Consultant agree that at the end of this twelve
(12) month period, Consultant shall retire and commence receiving payments
under the Retirement Agreement between Cycare and Consultant dated July 17,
1992.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein made and contained, the parties hereto do hereby covenant, promise and
agree as follows:
1. CONSULTING SERVICES. If the Company requests, Consultant agrees to
perform reasonable consulting services for Company. Such services shall not
exceed one hundred (100) hours per month, and shall be limited to issues
regarding medical group practice, future technology direction, EDI and
customer relationships.
2. TERM. The term of this Agreement shall commence on September 1,
1996 and shall end twelve (12) months thereafter.
3. PAYMENTS. Consultant shall be paid Four Hundred Twenty-Seven
Thousand Dollars ($427,000) for the term of this Agreement. This amount
shall be paid as follows:
(a) Consultant shall receive four (4) monthly payments on the
first business day of September, October, November and December, 1996, in an
amount equal to one-fourth (1/4) of the difference between Four Hundred
Twenty-Seven Thousand
<PAGE>
Dollars ($427,000) and the amount of W-2 compensation paid to Consultant for
the period between January 1, 1996 and the date that the Company acquires
Cycare.
(b) Consultant shall receive eight (8) monthly payments on the
first business day of January through August, 1997, in an amount equal to
one-eighth (1/8) of the difference between Four Hundred Twenty-Seven Thousand
Dollars ($427,000) and the amount that was paid to Consultant under Section
3(a) above.
4. FRINGE BENEFITS. During the term of this Agreement, Company shall
continue to provide Consultant with the fringe benefits he received for the
twelve (12) month period immediately preceding the commencement of this
Agreement.
5. DEATH OF CONSULTANT. If Consultant dies prior to the end of the
term of this Agreement, any remaining payments due hereunder pursuant to
Section 3 hereof shall be paid to his designated beneficiary on the dates
such payments would have been paid to the Consultant under Section 3 hereof.
6. CONSULTING FOR OTHER CORPORATIONS. Subject to the terms of the
Restrictive Covenant between Consultant and the Company, Consultant shall not
be prevented from performing consulting services for other corporations
during the term of this Agreement.
7. NO SET-OFF. The Company's set-off rights shall be determined as
follows:
(a) The Company's obligation to make the payments provided for in
this Agreement prior to January 1, 1997 under Section 3(a) hereof shall not
be affected by any set-off, counterclaim, recoupment defense or other claim
or action which the Company may have against the Consultant.
(b) If the Company has a right of set-off, counterclaim,
recoupment defense or other claim or action against the Consultant, it may
exercise such rights against its obligation to Consultant under Section 3(b)
hereof.
8. RETIREMENT. At the end of the term of this Agreement, Consultant
shall retire and commence receiving monthly retirement benefits under the
terms and conditions of the Retirement Agreement between Consultant and
Cycare dated July 17, 1992.
9. MITIGATION OF DAMAGES; NO SET-OFF; DISPUTE RESOLUTION. If there
shall be any dispute between the Company and Consultant under this Agreement,
the dispute shall be resolved in accordance with the dispute resolution
procedures set forth in Exhibit A hereto, the provisions of which are
incorporated as a part hereof, and the parties hereto hereby agree that such
dispute resolution procedures shall be the exclusive method for resolution of
disputes under this Agreement. In the event of a dispute hereunder, the
Company shall pay all amounts, and provide all benefits, to Consultant and/or
Consultant's family or other beneficiaries, as the case may be, that the
Company would be required to pay or provide
<PAGE>
hereunder; provided, however, that the Company shall not be required to pay
any disputed amounts pursuant to this Section 9 except upon receipt of a
written undertaking by or on behalf of Consultant (and/or Consultant's family
or other beneficiaries, as the case may be) to repay, with interest at the
short term Applicable Federal Rate in effect for each month that a disputed
payment was made to Consultant, as soon as practicable after completion of
the dispute resolution all such amounts to which Consultant (or Consultant's
family or other beneficiaries, as the case may be) is ultimately adjudged not
to be entitled with respect to the payment of such disputed amount(s).
10. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon any successor to the Company and shall inure to the benefit of and be
enforceable by Consultant's personal or legal representatives, beneficiaries,
designees, executors, administrators, heirs, distributees, devisees and
legatees.
11. MODIFICATION; NO WAIVER. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto. No
term or condition of this Agreement shall be deemed to have been waived, nor
shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument by the party charged with such waiver
or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only
as to the specific term or condition waived and shall not constitute a waiver
of such term or condition for the future or as to any other term or condition.
12. SEVERABILITY. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or
more of such covenants or agreements, if not material to the employment
arrangement that is the basis for this Agreement, shall not affect the
validity or enforceability of any other covenant or agreement contained
herein.
13. NOTICES. All the notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the
parties hereto at the following addresses:
If to the Company, to it at:
HBO & COMPANY OF GEORGIA
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: Chief Financial Officer
If Consultant, to him at:
JIM H. HOUTZ
<PAGE>
7033 East Belmont Avenue
Paradise Valley, Arizona 85253
Gilbert, Arizona 85254
<PAGE>
14. ASSIGNMENT. This Agreement and any rights hereunder shall not be
assignable by either party without the prior written consent of the other
party except as otherwise specifically provided for herein.
15. ENTIRE UNDERSTANDING. This Agreement (together with the Exhibit
incorporated as a part hereof) constitutes the entire understanding between
the parties hereto with respect to Consultant's consulting responsibilities
to the Company during the twelve (12) month term of this Agreement, and no
agreement, representation, warranty or covenant has been made by either party
except as expressly set forth herein.
16. CONSULTANT'S REPRESENTATIONS. Consultant represents and warrants
that neither the execution and delivery of this Agreement nor the performance
of his duties hereunder violates the provisions of any other agreement to
which he is a party or by which he is bound.
17. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Arizona
applicable to contracts executed and wholly performed within such state.
18. HEADINGS. The headings and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
COMPANY:
HBO & COMPANY OF GEORGIA
By: /s/ JAY GILBERTSON
------------------------------------
Name: Jay Gilbertson
Title: Chief Financial Officer
CONSULTANT:
JIM H. HOUTZ
/s/ JIM H. HOUTZ
---------------------------------------
Jim H. Houtz
<PAGE>
EXHIBIT A
DISPUTE RESOLUTION PROCEDURES
A. If a controversy should arise which is covered by Section 9, then
not later than thirty (30) days from the date of the event which is the
subject of dispute either party may serve on the other a written notice
specifying the existence of such controversy and setting forth in reasonably
specific detail the grounds thereof ("Notice of Controversy"); PROVIDED THAT,
in any event, the other party shall have at least thirty (30) days from and
after the date of the Notice of Controversy to serve a written notice of any
counterclaim ("Notice of Counterclaim"). The Notice of Counterclaim shall
specify the claim or claims in reasonably specific detail. If the Notice of
Controversy or the Notice of Counterclaim, as the case may be, is not served
within the applicable period, the claim set forth therein will be deemed to
have been waived, abandoned and rendered unenforceable.
B. Following receipt of the Notice of Controversy (or the Notice of
Counterclaim, as the case may be), there shall be a three week period during
which the parties will make a good faith effort to resolve the dispute
through negotiation ("Period of Negotiation"). Neither party shall take any
action during the Period of Negotiation to initiate arbitration proceedings.
C. If the parties should agree during the Period of Negotiation to
mediate the dispute, then the Period of Negotiation shall be extended by an
amount of time to be agreed upon by the parties to permit such mediation. In
no event, however, may the Period of Negotiation be extended by more than
five weeks or, stated differently, in no event may the Period of Negotiation
be extended to encompass more than a total of eight (8) weeks.
D. If the parties agree to mediate the dispute but are thereafter
unable to agree within one (1) week on the format and procedures for the
mediation, then the effort to mediate shall cease, and the Period of
Negotiation shall terminate four (4) weeks from the Notice of Controversy (or
the Notice of Counterclaim, as the case may be).
E. Following the termination of the Period of Negotiation, the dispute
(including the main claim and counterclaim, if any) shall be settled by
arbitration, and judgment upon the award may be entered in any court having
jurisdiction thereof. The format and procedures of the arbitration are set
forth below (referred to below as the "Arbitration Agreement").
F. A notice of intention to arbitrate ("Notice of Arbitration") shall
be served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of
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Arbitration is not served within this period, the claim set forth in the
Notice of Controversy (or the Notice of Counterclaim, as the case may be)
will be deemed to have been waived, abandoned and rendered unenforceable.
G. The arbitration, including the Notice of Arbitration, will be
governed by the Commercial Rules of the American Arbitration Association
except that the terms of this Arbitration Agreement shall control in the
event of any difference or conflict between such Rules and the terms of this
Arbitration Agreement.
H. The dispute resolver shall reach a decision on the merits on the
basis of applicable legal principles as embodied in the law of the State of
Arizona.
I. There shall be one dispute resolver, regardless of the amount in
controversy. The dispute resolver will be empowered to render an award and
interim decisions and shall be a member of the bar of any of the fifty States
of the United States or of the District of Columbia. The dispute resolver
shall be promptly appointed pursuant to Rule 13 of the Commercial Rules of
the American Arbitration Association ("AAA"). If the dispute resolver has
not been appointed within forty-five (45) days of the AAA's initial
transmission of lists of potential arbitrators, then the AAA shall
unilaterally designate the dispute resolver.
J. At the time of appointment and as a condition thereto, the dispute
resolver will be apprised of the time limitations and other provisions of
this Arbitration Agreement and shall indicate such dispute resolver's
agreement to the Tribunal Administrator to comply with such provisions and
time limitations.
K. During the thirty (30) day period following appointment of the
dispute resolver, either party may serve on the other a request for limited
numbers of documents directly related to the dispute. Such documents will be
produced within seven (7) days of the request.
L. Following the thirty (30) day period of document production, there
will be a forty-five (45) day period during which limited depositions will be
permissible. Neither party will take more than five (5) depositions, and no
deposition will exceed three (3) hours of direct testimony.
M. Disputes as to discovery or prehearing matters of a procedural
nature shall be promptly submitted to the dispute resolver pursuant to
telephone conference call or otherwise. The dispute resolver shall make
every effort to render a ruling on such interim matters at the time of the
hearing (or conference call) or within five (5) business days thereafter.
N. Following the period of depositions, the arbitration hearing shall
promptly commence. The dispute resolver will make every effort to commence
the hearing within
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thirty (30) days of the conclusion of the deposition period and, in addition,
will make every effort to conduct the hearing on consecutive business days to
conclusion.
O. An award will be rendered, at the latest, within one hundred twenty
(120) days of the date of the Notice of Arbitration and within thirty (30)
days of the close of the arbitration hearing. The award shall set forth the
grounds for the decision in reasonably specific detail. The award shall be
final and nonappealable except as provided in Arizona Revised Statutes
Sections 12-1512 and 12-2101-01.
