<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NO. 333-14357
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
Incorporation or Organization) Classification Code 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:
LISA A. STATER, ESQ. WARREN J. NIMETZ, ESQ.
Jones, Day, Reavis & Pogue Fulbright & Jaworski L.L.P.
3500 One Peachtree Center 666 Fifth Avenue
303 Peachtree Street, N.E. New York, New York 10103-3198
Atlanta, Georgia 30308-3242 (212) 318-3000
(404) 521-3939
------------------------
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>
GMIS INC.
5 COUNTRY VIEW ROAD
MALVERN, PENNSYLVANIA 19355
NOVEMBER 6, 1996
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Meeting") of GMIS Inc. ("GMIS") to be held at the Desmond Hotel and Conference
Center, One Liberty Boulevard, Malvern, Pennsylvania 19355 at 9:00 a.m., local
time, on December 9, 1996.
At the Meeting, you will be asked to consider and take action upon a
proposal to approve an Agreement of Merger dated September 23, 1996, as amended
(the "Merger Agreement"), among GMIS, 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)
GMIS will merge with and into HBOC-GA (the "Merger") and (b) each outstanding
share of common stock, $.01 par value per share, of GMIS ("GMIS Common Stock"),
and each right to acquire a share of GMIS Common Stock will be converted into
the right to receive .42 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 the 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, GMIS and its stockholders. Accordingly, the GMIS Board
unanimously recommends that stockholders vote FOR approval of the Merger
Agreement. The Board of Directors has been advised by CS First Boston
Corporation that, in its opinion, the consideration to be paid by HBOC in the
Merger is fair, from a financial point of view, to the GMIS stockholders as of
the date of such opinion. A copy of such opinion is attached to the Proxy
Statement/Prospectus as Appendix B.
The Board of Directors appreciates and encourages stockholder participation.
However, whether or not you plan to be with us at the Meeting, it is important
that your shares be represented. Accordingly, we request that you sign, date and
mail the enclosed proxy in the envelope provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
/s/ THOMAS R. OWENS,
CHAIRMAN OF BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
GMIS INC.
5 COUNTRY VIEW ROAD
MALVERN, PENNSYLVANIA 19355
------------------------
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
------------------------
A Special Meeting of Stockholders (the "Meeting") of GMIS Inc., a Delaware
corporation ("GMIS"), will be held at the Desmond Hotel and Conference Center,
One Liberty Boulevard, Malvern, Pennsylvania 19355, on Monday, December 9, 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 September 23, 1996, as amended (the "Merger Agreement"), among
GMIS, HBO & Company, a Delaware corporation ("HBOC"), and HBO & Company
of Georgia, a Delaware corporation, which is a wholly owned subsidiary
of HBOC ("HBOC-GA"), pursuant to which, among other things (a) GMIS will
merge with and into HBOC-GA (the "Merger") and (b) each outstanding
share of common stock, $.01 par value per share of GMIS ("GMIS Common
Stock"), and each right to acquire a share of GMIS Common Stock will be
converted into the right to receive .42 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 GMIS has unanimously approved the Merger proposal
and has determined that the Merger is fair to, and in the best interests of,
GMIS and its stockholders. Accordingly, the GMIS Board unanimously recommends
that you vote FOR approval of the Merger Agreement.
Stockholders of record at the close of business on November 1, 1996, 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 GMIS and
HBOC are more fully described in the accompanying Proxy Statement/Prospectus.
Please give this information your careful consideration.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO FILL IN,
DATE AND SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS
OF GMIS, AND TO MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE YOUR
SHARES PERSONALLY.
By Order of the Board of Directors
/s/ THOMAS L. SIMPSON
SECRETARY
MALVERN, PENNSYLVANIA
NOVEMBER 6, 1996
<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 ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 6, 1996
PROXY STATEMENT
OF
GMIS 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 ("GMIS Common Stock"), of GMIS Inc., a Delaware
corporation ("GMIS"), as a proxy statement in connection with the solicitation
of proxies by the Board of Directors of GMIS (the "GMIS Board") for use at the
Special Meeting of Stockholders (the "Meeting") of GMIS to be held on December
9, 1996, at the Desmond Hotel and Conference Center, One Liberty Boulevard,
Malvern, Pennsylvania 19355 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 GMIS.
This Proxy Statement/Prospectus also constitutes the prospectus of HBO &
Company, a Delaware corporation ("HBOC"), with respect to up to 4,932,624 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 GMIS with and into HBO &
Company of Georgia, a Delaware corporation, which is a wholly owned subsidiary
of HBOC ("HBOC-GA"), in exchange for all of the outstanding shares and rights to
acquire shares of GMIS Common Stock. In the Merger, subject to the terms of the
Agreement of Merger dated September 23, 1996, as amended, among GMIS, HBOC and
HBOC-GA (the "Merger Agreement"), each outstanding share of GMIS Common Stock
and each right to acquire a share of GMIS Common Stock will be converted into
the right to receive: (i) .42 of a share of HBOC Common Stock, if the average
closing market price per share of the HBOC Common Stock during the twenty (20)
consecutive trading days ending on the third trading day prior to the date of
the Meeting (the "Market Value") as reported by the Nasdaq Stock Market National
Market (the "Nasdaq NM") is at least $47.62 but not more than $64.00; (ii) a
fractional share of HBOC Common Stock determined by dividing $20.00 by the
Market Value, if the Market Value is less than $47.62 but not less than $40.00;
(iii) .50 of a share of HBOC Common Stock if the Market Value is less than
$40.00; and (iv) a fractional share of HBOC Common Stock determined by dividing
$26.88 by the Market Value, if the Market Value is more than $64.00 (whatever
basis is applicable being referred to as the "Exchange Ratio"), and less the
amount of any fractional shares paid in cash. As more fully discussed herein,
the GMIS Board will have the right, but not the obligation, to terminate the
Merger if the Market Value is less than $40.00 unless HBOC elects, in its sole
discretion, to increase the Exchange Ratio to that fraction that will allow each
stockholder of GMIS to receive a fraction of a share of HBOC Common Stock having
a Market Value of $20.00 for each share of GMIS Common Stock, in which case the
GMIS Board will not have the right to terminate the Merger.
Outstanding and unexercised options to purchase shares of GMIS Common Stock
will be assumed by HBOC upon consummation 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 GMIS Common Stock subject to such options would have been
converted in the Merger.
As a result of the Merger, holders of shares of GMIS Common Stock or rights
to acquire shares of GMIS Common Stock will receive an aggregate of up to
4,932,624 shares of HBOC Common Stock (less the aggregate amount of any
fractional shares, which are paid in cash). Shares of HBOC Common Stock and GMIS
Common Stock are currently approved for quotation on the Nasdaq NM under the
symbols "HBOC" and "GMIS," respectively. On November 5, 1996, the reported
closing sale prices of a share of HBOC Common Stock and GMIS Common Stock on the
Nasdaq NM were $56.25 and $22.25, respectively.
This Proxy Statement/Prospectus and the related Notice of Special Meeting
and form of proxy are first being mailed on or about November 6, 1996, to
stockholders of record at the close of business on November 1, 1996 (the "Record
Date"). There were 8,597,486 shares of GMIS 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 ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF GMIS ARE STRONGLY URGED TO READ AND
CONSIDER THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY. SEE "RISK FACTORS,"
BEGINNING ON PAGE 16 OF THIS PROXY STATEMENT/PROSPECTUS, FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY GMIS 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 NOVEMBER 6, 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.......................................................... 4
SUMMARY.................................................................................................... 6
The Parties............................................................................................ 6
The Meeting............................................................................................ 7
The Merger Proposal.................................................................................... 7
Other.................................................................................................. 10
Summary Financial Data................................................................................. 11
Unaudited Pro Forma Summary Financial Data............................................................. 13
Comparative Per Share Data............................................................................. 14
RISK FACTORS............................................................................................... 16
Exchange Ratio......................................................................................... 16
Interests of Certain GMIS Officers and Directors in the Merger......................................... 16
CERTAIN MARKET INFORMATION................................................................................. 16
HBOC................................................................................................... 16
GMIS................................................................................................... 17
PRO FORMA FINANCIAL INFORMATION............................................................................ 17
THE MEETING................................................................................................ 24
THE MERGER PROPOSAL........................................................................................ 24
Background of the Merger............................................................................... 24
Reasons of GMIS for Engaging in the Merger; Recommendation of the GMIS Board........................... 27
Opinion of Financial Advisor of GMIS................................................................... 29
Reasons of HBOC for Engaging in the Merger............................................................. 32
Terms of the Merger.................................................................................... 33
Effective Time..................................................................................... 33
General Effects of the Merger...................................................................... 33
Conversion of Shares............................................................................... 33
Fractional Shares.................................................................................. 33
Stock Plans........................................................................................ 33
Exchange of Certificates........................................................................... 34
Payment of Dividends............................................................................... 34
Limitations on Transferability of HBOC Common Stock................................................ 34
Conditions, Waiver................................................................................. 35
Hart-Scott-Rodino.................................................................................. 36
No Solicitation.................................................................................... 36
Termination........................................................................................ 36
Accounting Treatment................................................................................... 36
Certain Federal Income Tax Consequences................................................................ 36
No Appraisal Rights.................................................................................... 38
INTERESTS OF CERTAIN PERSONS IN EACH OF HBOC AND GMIS...................................................... 38
Security Ownership of Certain Beneficial Owners and Management of HBOC................................. 38
Security Ownership of Certain Beneficial Owners and Management of GMIS................................. 40
Interests of Certain Persons in Matters to be Acted Upon............................................... 41
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF HBOC COMMON STOCK AND GMIS COMMON STOCK............... 42
Introduction........................................................................................... 42
Authorized Capital Stock............................................................................... 42
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
PAGE
---------
Board or Stockholder Approved Preferred Stock.......................................................... 42
Voting Rights.......................................................................................... 43
Number of Directors.................................................................................... 43
Election of Board of Directors......................................................................... 43
Vote on Merger, Consolidation or Sale of Substantially All Assets...................................... 43
Special Meetings of Stockholders....................................................................... 44
Stockholder Action by Written Consent.................................................................. 44
Amendment of Certificate of Incorporation.............................................................. 44
Amendment of Bylaws.................................................................................... 45
Liability and Indemnification of Officers and Directors................................................ 45
Payment of Dividends................................................................................... 45
Anti-Takeover Protection............................................................................... 45
Appraisal Rights....................................................................................... 46
BUSINESS OF HBOC........................................................................................... 46
BUSINESS OF GMIS........................................................................................... 47
STOCKHOLDER PROPOSALS...................................................................................... 47
OTHER MATTERS.............................................................................................. 47
CERTAIN LEGAL MATTERS...................................................................................... 47
EXPERTS.................................................................................................... 47
APPENDIX A -- Agreement of Merger dated September 23, 1996, as amended..................................... A-1
APPENDIX B -- Opinion of CS First Boston Corporation....................................................... B-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
Each of HBOC and GMIS 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 GMIS 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.
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 GMIS 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., as indicated
above, without charge and copies thereof may be obtained therefrom upon payment
of a prescribed fee.
All information contained in this Proxy Statement/Prospectus regarding GMIS
has been supplied by GMIS, information regarding the Merger proposal has been
supplied by GMIS and/or HBOC and all other information has been supplied by
HBOC. References to GMIS 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, GMIS
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 GMIS SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
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;
4
<PAGE>
2. Quarterly Reports on Form 10-Q for the quarter ended March 31, 1996
filed with the Commission on May 3, 1996 and for the quarter ended June 30, 1996
filed with the Commission on July 31, 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; (iii) dated and filed with the Commission on May 21, 1996; (iv) dated
and filed with the Commission on August 27, 1996; (v) dated and filed with the
Commission on September 11, 1996; (vi) dated and filed with the Commission on
September 23, 1996; and (vii) dated and filed with the Commission on September
27, 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 GMIS with the Commission
(File No. 0-19340) 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 Reports on Form 10-Q for the quarter ended March 31, 1996
filed with the Commission on May 2, 1996 and for the quarter ended June 30, 1996
filed with the Commission on August 13, 1996;
3. Proxy Statement, dated as of March 29, 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.
All documents filed by HBOC and GMIS 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 GMIS 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
GMIS DOCUMENTS, TO GMIS INC., 5 COUNTRY VIEW ROAD, MALVERN, PENNSYLVANIA 19355,
ATTENTION: TIMOTHY M. LEONARD, TELEPHONE: (610) 296-3838. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE MEETING, ANY SUCH REQUESTS SHOULD
BE MADE BY DECEMBER 2, 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.
There were a total of 5,300 community hospitals in the United States at December
31, 1995. 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.
The address and telephone number of the principal executive offices of HBOC
are 301 Perimeter Center North, Atlanta, Georgia 30346, (770) 393-6000.
GMIS INC.
GMIS builds and licenses data quality tools and medical decision support
products that transform diverse data into useful information. This information,
and the clinical and business analyses that flow from it, is needed by
healthcare organizations to succeed in their dynamic, highly complex
environment. By combining clinical expertise and information technology, GMIS
creates tools for monitoring, evaluating and enhancing the management of
healthcare delivery. GMIS's products are designed to increase the efficiency
with which its customers manage costs and the appropriateness, quality and
efficiency of the delivery of medical care. Each of GMIS's products is designed
to address a specific aspect of healthcare management. When integrated as
building blocks, they are intended to provide a comprehensive medical management
system.
GMIS's core technologies are integrated into product offerings that break
down into two principal product lines: data quality tools and decision support
products. The data quality tool product line is designed to generate substantial
savings by reducing unnecessary payment to healthcare providers and by
decreasing overall administrative costs. The decision support products are
designed to optimize information management, enhance data analysis and identify
key actions and intervention points that will improve financial and clinical
outcomes.
GMIS's traditional markets are accident and health insurance companies, Blue
Cross and Blue Shield plans, managed care organizations, such as health
maintenance organizations and preferred provider organizations, and third-party
administrators. Large government payers, such as Medicare and Medicaid,
6
<PAGE>
are also markets that GMIS's products currently serve. GMIS is continually in
development of new modules in both product lines. In addition, GMIS is
continuing development to adapt all of its products for use by new classes of
customers including providers of care and pharmaceutical companies.
The address and telephone number of the principal executive offices of GMIS
are 5 Country View Road, Malvern, Pennsylvania 19355, (610) 296-3838.
THE MEETING
The Meeting will be held on December 9, 1996 at 9:00 a.m., local time, at
the Desmond Hotel and Conference Center, One Liberty Boulevard, Malvern,
Pennsylvania 19355. The purpose of the Meeting is to consider and take action
upon a proposal to approve the Merger Agreement. The GMIS Board has fixed the
close of business on November 1, 1996, as 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 GMIS Common Stock will constitute 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 GMIS Common Stock. See "The Meeting."
THE MERGER PROPOSAL
RECOMMENDATION OF THE GMIS BOARD; OPINION OF FINANCIAL ADVISOR
The GMIS Board has unanimously approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, GMIS and
its stockholders. Accordingly, the GMIS Board unanimously recommends that GMIS's
stockholders vote FOR approval of the Merger Agreement. In approving the Merger
Agreement, the GMIS Board considered, among other things, the opinion from CS
First Boston Corporation ("CS First Boston") regarding the fairness, from a
financial point of view, of the consideration to be received in the Merger by
the stockholders of GMIS. A copy of the opinion is attached hereto as Appendix
B. See "The Merger--Reasons of GMIS for Engaging in the Merger; Recommendation
of the GMIS Board" and "The Merger--Opinion of Financial Advisor of GMIS."
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 will become effective when both (i) the Merger
Agreement is adopted and approved by the stockholders of GMIS in accordance with
the applicable provisions of the Delaware General Corporation Law (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").
CONVERSION OF SHARES. Each outstanding share of GMIS Common Stock issued
and outstanding immediately prior to the Effective Time, will, at the Effective
Time, be converted into the right to receive: (i) .42 of a share of HBOC Common
Stock, if the average closing market price per share of the 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 at least $47.62 but not more than $64.00; (ii) a fractional share of
HBOC Common Stock determined by dividing $20.00 by the Market Value, if the
Market Value is less than $47.62 but not less than $40.00; (iii) .50 of a share
of HBOC Common Stock if the Market Value is less than $40.00; and (iv) a
fractional share of HBOC Common Stock determined by dividing $26.88 by the
Market Value, if the Market Value is more than $64.00 (whatever basis is
applicable being referred to as the "Exchange Ratio"), and less the amount of
any fractional shares paid in cash. The GMIS Board will have the right but not
the obligation to terminate the Merger if the Market Value is less than $40.00
unless HBOC elects, in its sole discretion, to increase the
7
<PAGE>
Exchange Ratio to that fraction that will allow each stockholder of GMIS to
receive a fraction of a share of HBOC Common Stock having a Market Value of
$20.00 for each share of GMIS Common Stock, in which case the GMIS Board will
not have the right to terminate the Merger. (The shares of HBOC Common Stock,
and any cash in lieu of fractions thereof, receivable by holders of GMIS Common
Stock are hereinafter referred to as the "Merger Consideration"). See "The
Merger Proposal--Terms of the Merger--Conversion of Shares."
FRACTIONAL SHARES. No certificates or scrip representing 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 PLANS. Options to purchase shares of GMIS Common Stock outstanding at
the Effective Time of the Merger will be assumed by HBOC, by which assumption
the optionee will have the right to purchase the number of shares (rounded down
to the nearest whole share) of HBOC Common Stock into which the number of shares
of GMIS Common Stock the optionee was entitled to purchase under the existing
option would have been converted pursuant to the terms of the Merger.
In addition, GMIS will amend its 1995 Employee Stock Purchase Plan (the
"GMIS Stock Purchase Plan") to provide that the current offering period shall
terminate on the date prior to the Closing Date, in the event the Closing Date
occurs prior to December 31, 1996 and, in such event, that all outstanding
purchase rights granted under the GMIS Stock Purchase Plan shall be exercised on
the day prior to the Closing Date. As a result of such amendment, upon the
consummation of the Merger, each participant in the GMIS Stock Purchase Plan on
the day prior to the Closing Date will receive (i) the number of shares of HBOC
Common Stock into which the shares of GMIS Common Stock issuable to such
participant under the GMIS Stock Purchase Plan would have been converted and
(ii) cash in lieu of any fractional shares of HBOC Common Stock, together with a
cash refund of any excess of the amount collected during the offering period,
over the amount of the purchase price of the GMIS Common Stock that otherwise
would be issuable to such participant. See "The Merger Proposal--Terms of the
Merger--Stock Plans."
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 GMIS 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, each Certificate shall represent for all purposes
only the right to receive the Merger Consideration, without any interest on the
value thereof. 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 GMIS 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 GMIS 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. In addition, GMIS affiliates are subject to certain restrictions on
transfer of both GMIS 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. 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 GMIS, 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 Agreement by holders of the requisite number of shares of
GMIS Common Stock. See "The Merger Proposal--Terms of the Merger--Conditions,
Waivers."
8
<PAGE>
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 GMIS filed the required information with the Antitrust
Division and the FTC on October 2, 1996 and were notified that the waiting
period was terminated October 15, 1996. See "The Merger Proposal--Terms of the
Merger-- Hart-Scott-Rodino."
NO SOLICITATION. GMIS has agreed, subject to certain exceptions, that prior
to the Effective Time of the Merger or earlier termination of the Merger
Agreement, GMIS shall not, directly or indirectly, solicit, initiate, endorse or
enter into any agreement with respect to, or take any other action specifically
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 or similar transactions involving GMIS or any of its
subsidiaries. See "The Merger Proposal--Terms of the Merger--No Solicitation."
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
GMIS Board, notwithstanding the prior approval of the GMIS stockholders; (ii)
the HBOC Board, in the event of material condemnation, destruction, loss or
damage to the business or assets of GMIS; (iii) the respective Boards of
Directors of HBOC-GA or GMIS, after January 31, 1997 if the other party fails to
fulfill any of its conditions to the consummation of the Merger, unless
fulfillment has been frustrated or made impossible by the party seeking
termination; (iv) the GMIS Board, if, in the good faith exercise of its
fiduciary duties to the stockholders of GMIS in the context of a proposal to
acquire GMIS by another party, the GMIS Board decides that such termination is
required; and (v) the GMIS Board, if the Market Value of HBOC Common Stock is
less than $40.00 per share unless the HBOC Board elects to increase the Exchange
Ratio to that fraction that will allow each GMIS stockholder to receive a
fraction of a share of HBOC Common Stock having a Market Value of $20.00 for
each share of GMIS Common Stock.
If the Merger is terminated by GMIS in accordance with (iv) above, or by
HBOC, HBOC-GA or GMIS because the Merger Agreement was not approved by holders
of the requisite number of shares of GMIS Common Stock, GMIS will be obligated
to reimburse all reasonable costs and expenses of HBOC and HBOC-GA incurred in
connection with the negotiation and performance of the Merger Agreement and pay
to HBOC a fee in the amount of $7,000,000. See "The Merger Proposal--Terms of
the Merger-- Termination."
ACCOUNTING TREATMENT
Prior to consummation of the Merger, 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 GMIS shall have received
an opinion of its counsel, subject to the assumptions contained therein, to the
effect that the Merger will qualify as a reorganization pursuant to Section
368(a) of the Internal Revenue Code (the "Code"). Accordingly, no gain or loss
will be recognized by a GMIS stockholder upon the exchange of the shares of GMIS
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."
9
<PAGE>
NO APPRAISAL RIGHTS
Because GMIS Common Stock is a Nasdaq NM security, the holders of shares of
GMIS 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 GMIS and their affiliates were
beneficial owners of 1,029,263 outstanding shares of GMIS Common Stock
representing approximately 12.0% of the total issued and outstanding GMIS Common
Stock. Holders of over 99% of such shares have advised GMIS that they presently
intend to vote or direct the vote of such shares of GMIS 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
3.6% of the outstanding shares (giving effect to the exercise of their presently
exercisable stock options) of HBOC Common Stock at October 31, 1996. See
"Interests of Certain Persons in Each of HBOC and GMIS."
INTERESTS OF CERTAIN GMIS OFFICERS AND DIRECTORS IN THE MERGER. Certain
officers and the directors of GMIS have interests in the Merger that differ from
those of GMIS 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 Each of HBOC and GMIS--Interests
of Certain GMIS Persons in Matters to be Acted Upon."
COMPARISON OF STOCKHOLDER RIGHTS
HBOC and GMIS are each incorporated under Delaware law. For a summary of
material differences between the rights of holders of shares of each of GMIS
Common Stock and HBOC Common Stock, see "Comparison of Rights of Holders of
Shares of Each of HBOC Common Stock and GMIS Common Stock."
CERTAIN MARKET INFORMATION
HBOC Common Stock and GMIS Common Stock are traded on the Nasdaq NM under
the symbols "HBOC" and "GMIS," respectively. The closing sale prices per share
of HBOC Common Stock and GMIS Common Stock on September 23, 1996, the last
trading day preceding the announcement of the proposed Merger, were $63.75 and
$17.13, respectively. See "Certain Market Information."
RISK FACTORS
The stockholders of GMIS should carefully review the matters set forth under
"Risk Factors."
10
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical financial data for each of HBOC and GMIS
should be read in conjunction with the financial statements and notes thereto of
HBOC and GMIS, 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 YEAR ENDED DECEMBER 31,
------------------------------------------------
1991(2) 1992 1993 1994 1995(3)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue................................................... $184,859 $228,988 $267,147 $357,436 $495,595
Operating Income.......................................... $ 6,560 $ 22,600 $ 31,883 $ 53,042 $ 95,722
Income Before Income Taxes................................ $ 5,129 $ 22,165 $ 31,495 $ 52,592 $ 94,423
Net Income................................................ $ 3,949 $ 14,629 $ 18,897 $ 31,555 $ 56,654
Primary Earnings Per Share................................ $ .06 $ .21 $ .27 $ .43 $ .72
Fully Diluted Earnings Per Share.......................... $ .06 $ .21 $ .26 $ .43 $ .72
Weighted Average Shares Outstanding (Fully Diluted)....... 64,148 69,904 72,020 73,334 79,023
Cash Dividends Per Share.................................. $ .075 $ .075 $ .075 $ .08 $ .08
Balance Sheet Data:
Working Capital........................................... $ 18,369 $ 23,969 $ 34,627 $ 11,160 $ 47,250
Total Assets.............................................. $114,490 $125,689 $156,182 $264,132 $535,134
Long-Term Debt............................................ $ 20,752 $ -- $ -- $ 252 $ 582
Stockholders' Equity...................................... $ 25,706 $ 61,608 $ 83,182 $124,777 $318,730
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED JUNE
30,
------------------
1995(4) 1996
-------- --------
<S> <C> <C>
Income Statement Data:
Revenue................................................... $209,099 $307,202
Operating Income.......................................... $ 39,622 $ 69,763
Income Before Income Taxes................................ $ 38,837 $ 70,821
Net Income................................................ $ 23,302 $ 42,493
Primary Earnings Per Share................................ $ .31 $ .51
Fully Diluted Earnings Per Share.......................... $ .31 $ .50
Weighted Average Shares Outstanding (Fully Diluted)....... 75,136 84,513
Cash Dividends Per Share.................................. $ .04 $ .04
Balance Sheet Data:
Working Capital........................................... $ 11,779 $105,621
Total Assets.............................................. $475,656 $574,950
Long-Term Debt............................................ $ 880 $ 340
Stockholders' Equity...................................... $278,014 $371,735
</TABLE>
- ------------------------
(1) Does not give effect to the acquisitions of CyCare Systems, Inc. and
Management Software, Inc. in pooling transactions after June 30, 1996. See
"Pro Forma Financial Information." 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.
(4) June 1995 Income Statement related items exclude the nonrecurring charge of
$125,520 and include the dilutive effect of stock options. The net loss was
($52,010) and fully diluted loss per share was ($.73) including the
nonrecurring charge.
11
<PAGE>
GMIS INC.
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue................................................. $10,128 $15,284 $22,070 $32,239 $35,782
Net Income (Loss)....................................... $ 2,957 $ 3,413 $ 3,777 $(2,193)(1) $ 1,921(2)
Earnings (Loss) Per Share............................... $ .53 $ .51 $ .51 $ (.28)(1) $ .22(2)
Weighted Average Shares Outstanding..................... 5,625 6,759 7,386 7,896 8,564
Cash Dividends Per Share................................ $ -- $ -- $ -- $ -- $ --
Balance Sheet Data:
Working Capital......................................... $11,171 $ 9,266 $28,233 $13,140 $16,667
Total Assets............................................ $22,336 $27,305 $54,704 $63,406 $60,623
Long-Term Debt.......................................... $ -- $ -- $ -- $ -- $ --
Stockholders' Equity.................................... $19,124 $23,386 $48,782 $47,089 $51,414
<CAPTION>
AT AND FOR THE
SIX MONTHS ENDED
JUNE 30,
----------------
1995 1996
------- -------
<S> <C> <C>
Income Statement Data:
Revenue................................................. $16,156 $16,941
Net Income (Loss)....................................... $ 589 $ 1,534
Earnings (Loss) Per Share............................... $ .07 $ .19
Weighted Average Shares Outstanding..................... 8,690 8,283
Cash Dividends Per Share................................ $ -- $ --
Balance Sheet Data:
Working Capital......................................... $14,334 $19,846
Total Assets............................................ $57,107 $62,053
Long-Term Debt.......................................... $ -- $ --
Stockholders' Equity.................................... $48,747 $53,940
</TABLE>
- ------------------------
(1) Includes one-time litigation settlement of $7,200 ($4,320 after tax or $.55
per share).
(2) Includes a restructuring charge of $2,367 ($1,467 after tax or $.17 per
share).
12
<PAGE>
UNAUDITED PRO FORMA SUMMARY FINANCIAL DATA
The following unaudited pro forma summary financial data gives effect to the
Merger using the pooling of interests method of accounting. The unaudited pro
forma summary financial data provided below 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
GMIS, which are incorporated by reference elsewhere in this Proxy
Statement/Prospectus and the information set forth under "Pro Forma Financial
Information" presented elsewhere in this Proxy Statement/Prospectus. 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 AND GMIS INC. (1)
(000 OMITTED)
<TABLE>
<CAPTION>
FOR THE FOR THE AT AND FOR
YEAR ENDED YEAR ENDED THE SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED JUNE 30,
1995 1995(2) 1996
------------ ------------ ---------------
<S> <C> <C> <C>
(EXCLUDING
NONRECURRING
CHARGE)
Income Statement Data:
Revenue........................................................................... $607,243 $607,243 $365,793
Income (Loss) Before Provision (Credit) For Income Taxes.......................... $(31,917) $104,564 $ 78,637
Net Income (Loss)................................................................. $(19,150) $ 62,739 $ 47,182
Balance Sheet Data:
Working Capital................................................................... $145,348
Total Assets...................................................................... $690,441
Long-Term Debt.................................................................... $ 2,708
Stockholders' Equity.............................................................. $462,862
</TABLE>
- ------------------------
(1) Gives effect to the acquisitions of CyCare Systems, Inc. and Management
Software, Inc. in pooling transactions after June 30, 1996 and the
acquisition, accounted for as a purchase, by HBOC of First Data Health
Systems Corporation after June 17, 1995, the date of such acquisition. See
"Pro Forma Financial Information" presented elsewhere in this Proxy
Statement/Prospectus.
(2) Excludes the HBOC nonrecurring charge of $136,481 related to 1995
acquisitions.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain per share data for HBOC and GMIS 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. The unaudited pro forma combined per
share data provided below is not necessarily indicative of the results of
operations or the financial position which would have occurred had the Merger
been consummated on the indicated dates or which may be attained in the future.
The unaudited pro forma combined per share data should be read in conjunction
with the historical consolidated financial statements of HBOC and GMIS, which
are incorporated by reference elsewhere in this Proxy Statement/Prospectus.
HBO & COMPANY -- HISTORICAL(1)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR AT AND FOR THE
ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ------- ------- -----
Per Share Data:
<S> <C> <C> <C> <C> <C>
Book Value......................................................................... $1.58 $2.07 $4.15 $3.71 $4.75
Cash Dividends Declared............................................................ $.075 $ .08 $ .08 $ .04 $ .04
Fully Diluted Earnings (Loss)...................................................... $ .18 $ .49 $(.24) $(.63) $ .51
Fully Diluted Earnings Excluding Nonrecurring Charge............................... $ .18 $ .49 $ .74(2) $ .34(3) $ .51
</TABLE>
- ------------------------
(1) Gives effect to the acquisitions of CyCare Systems, Inc. and Management
Software, Inc. in pooling transactions after June 30, 1996. See "Pro Forma
Financial Information" presented elsewhere in this Proxy
Statement/Prospectus.
(2) Excluding the effect of the $136 million nonrecurring charge related to 1995
acquisitions and including the dilutive effect of stock options.
(3) Excluding the effect of the $126 million nonrecurring charge related to 1995
acquisitions and including the dilutive effect of stock options.
GMIS INC. -- HISTORICAL
<TABLE>
<CAPTION>
AT AND FOR
AT AND FOR THE YEAR THE SIX
ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------
1993 1994 1995 1995 1996
----- ------- ------- ----- -----
Per Share Data:
<S> <C> <C> <C> <C> <C>
Book Value......................................................................... $6.20 $5.94 $6.35 $6.08 $6.60
Cash Dividends Declared............................................................ $-- $ -- $ -- $-- $--
Net Income (Loss).................................................................. $ .51 $(.28)(1) $ .22(2) $ .07 $ .19
</TABLE>
- ------------------------
(1) Includes one-time litigation settlement of $7,200 ($4,320 after tax or $.55
per share).
(2) Includes a restructuring charge of $2,367 ($1,467 after tax or $.17 per
share).
14
<PAGE>
PRO FORMA COMBINED HBO & COMPANY AND GMIS INC.
(USING AN ASSUMED MARKET VALUE PER
SHARE OF HBOC COMMON STOCK OF
GREATER THAN $47.62 AND LESS THAN $64.00
AND AN ASSUMED EXCHANGE RATIO OF .42)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR SIX
ENDED MONTHS ENDED JUNE
DECEMBER 31, 30,
------------------------ -----------------
1993 1994 1995 1995 1996
------ ----- --------- --------- -----
Per Share Data:
<S> <C> <C> <C> <C> <C>
Book Value....................................................................... $ 2.14 $2.58 $ 4.57 $ 4.12 $5.17
Cash Dividends Declared.......................................................... $ .075 $ .08 $ .08 $ .04 $ .04
Fully Diluted Earnings (Loss) (1)................................................ $ .22 $ .44 $ (.23) $ (.60) $ .51
Fully Diluted Earnings Excluding Nonrecurring Charge (1)......................... $ .22 $ .44 $ .71(2) $ .32(3) $ .51
</TABLE>
- ------------------------
(1) Assumes an Exchange Ratio of .42. The maximum Exchange Ratio currently
provided for in the Merger Agreement is .50, and there is no minimum. In the
event the Market Value of HBOC Common Stock increases above $64.00, the
Exchange Ratio will decrease to a fraction determined by dividing $26.88 by
the Market Value. At an assumed Market Value of $75.00 of HBOC Common Stock
(a price which is above the historical price), the Exchange Ratio would be
.36. An Exchange Ratio of .50 represents a Market Value of HBOC Common Stock
of $40.00 per share. The GMIS Board will have the right, but not the
obligation, to terminate the Merger if the Market Value is less than $40.00
unless HBOC elects, in its sole discretion, to increase the Exchange Ratio
to that fraction that will allow each stockholder of GMIS to receive a
fraction of a share of HBOC Common Stock having a Market Value of $20.00 for
each share of GMIS Common Stock, in which case the GMIS Board will not have
the right to terminate the Merger. Exchange Ratios of .50 and .36 have an
immaterial effect on fully diluted earnings per share and accordingly, are
not presented.
(2) Excluding the effect of the HBOC $136 million nonrecurring charge related to
1995 acquisitions and including the dilutive effect of stock options.
(3) Excluding the effect of the HBOC $126 million nonrecurring charge related to
1995 acquisitions and including the dilutive effect of stock options.
15
<PAGE>
RISK FACTORS
EXCHANGE RATIO
Stockholders should consider that the minimum fractional share of HBOC
Common Stock to be issued in respect of each share of GMIS Common Stock may be
determined based upon a formula whereby an agreed upon maximum value for each
share of GMIS Common Stock ($26.88) will be divided by the Market Value of HBOC
Common Stock and thus is not subject to any minimum fractional share amount in
the event of an increase in the Market Value of the HBOC Common Stock above
$64.00. In addition, if the Market Value per share of HBOC Common Stock is less
than $40.00, holders of GMIS Common Stock will receive a maximum of .50 shares
of HBOC Common Stock for each share of GMIS Common Stock. Although the GMIS
Board has the right to terminate the Merger Agreement if the Market Value per
share of HBOC Common Stock is less than $40.00 per share, and GMIS holders are
to receive a maximum of .50 shares of HBOC Common Stock, it is not obligated to
do so. See "The Merger Proposal--Terms of the Merger."
INTERESTS OF CERTAIN GMIS OFFICERS AND DIRECTORS IN THE MERGER
Certain officers and the directors of GMIS have interests in the Merger that
differ from those of GMIS 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 Each of HBOC and
GMIS--Interests of Certain GMIS Persons in Matters to be Acted Upon."
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 1996 two-for-one stock split effected
in the form of a stock dividend.
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED PER
YEAR ENDED DECEMBER 31: HIGH LOW 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.................................................................... $ 50.97 $ 32.75 $ .02
Second Quarter................................................................... $ 68.75 $ 49.38 $ .02
Third Quarter.................................................................... $ 68.63 $ 50.50 $ .02
Fourth Quarter (through November 5, 1996)........................................ $ 72.50 $ 53.00
</TABLE>
The closing sales price for a share of HBOC Common Stock on September 23,
1996, the last trading day preceding the announcement of the proposed Merger,
was $63.75. As of November 1, 1996, there were approximately 2,256 holders of
record of shares of HBOC Common Stock.
16
<PAGE>
GMIS
GMIS Common Stock is traded on the Nasdaq NM under the symbol "GMIS." The
following table sets forth the quarterly high and low sales prices for GMIS
Common Stock as furnished by Nasdaq for the periods indicated. GMIS has never
declared a dividend on GMIS Common Stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1994
First Quarter................................................................................ $ 17.25 $ 10.75
Second Quarter............................................................................... $ 13.25 $ 9.00
Third Quarter................................................................................ $ 17.63 $ 9.75
Fourth Quarter............................................................................... $ 21.38 $ 15.50
1995
First Quarter................................................................................ $ 25.63 $ 17.75
Second Quarter............................................................................... $ 26.00 $ 19.00
Third Quarter................................................................................ $ 24.50 $ 13.00
Fourth Quarter............................................................................... $ 16.50 $ 10.50
1996
First Quarter................................................................................ $ 15.50 $ 9.75
Second Quarter............................................................................... $ 17.75 $ 11.25
Third Quarter................................................................................ $ 24.63 $ 10.75
Fourth Quarter (through November 5, 1996).................................................... $ 25.38 $ 21.75
</TABLE>
The closing sales price for a share of GMIS Common Stock on September 23,
1996, the last trading day preceding the announcement of the proposed Merger,
was $17.13. As of November 1, 1996, there were approximately 296 holders of
record of shares of GMIS Common Stock.
PRO FORMA FINANCIAL INFORMATION
The following pro forma combined condensed financial statements give effect
to: (i) the acquisition of GMIS by HBOC in the Merger accounted for as a pooling
of interests; (ii) the acquisition of Management Software, Inc. ("MSI") by HBOC
which occurred on September 19, 1996, in a merger accounted for as a pooling of
interests; (iii) the acquisition of CyCare Systems, Inc. ("CyCare") by HBOC
which occurred on August 21, 1996, in a merger accounted for as a pooling of
interests, in each case as of the date and at the beginning of the periods
indicated. The pro forma combined income statement for the year ended December
31, 1995, also gives effect to the acquisition by HBOC of First Data Health
Systems Corporation ("HSG") which occurred on June 17, 1995, assuming such
transaction, which was accounted for as a purchase, had occurred on January 1,
1995.
The pro forma combined condensed financial statements are presented for
information purposes only and are not necessarily indicative of the financial
position or results of operations which would have occurred had the transactions
been consummated on the dates indicated, nor are they necessarily indicative of
the future results or the financial position of HBOC in the future. The pro
forma combined condensed financial statements should be read in conjunction with
the historical consolidated financial statements of HBOC, GMIS and HSG
incorporated elsewhere herein.
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.
17
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HBOC/
HBOC/ GMIS
CYCARE/ PRO
MSI PRO FORMA FORMA
HBOC CYCARE MSI COMBINED GMIS ADJUSTMENTS COMBINED
-------- ------- ------- -------- ------- ----------- --------
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents................................ $ 91,068 $ 9,963 $ 1,960 $102,991 $ 7,395 $ $110,386
Investments Available-for-Sale........................... -- -- -- -- 5,544 5,544
Receivables, Net......................................... 182,872 14,394 3,824 201,090 12,922 214,012
Current Deferred Income Taxes............................ 16,313 561 -- 16,874 -- 16,874
Inventories.............................................. 4,683 1,038 114 5,835 -- 5,835
Prepaids and Other Current Assets........................ 6,130 3,274 69 9,473 614 10,087
-------- ------- ------- -------- ------- ----------- --------
Total Current Assets................................... 301,066 29,230 5,967 336,263 26,475 362,738
-------- ------- ------- -------- ------- ----------- --------
Intangibles, Net........................................... 179,791 1,577 -- 181,368 14,637 196,005
Capitalized Software, Net.................................. 38,886 8,641 3,686 51,213 14,735 65,948
Property and Equipment, Net................................ 31,700 9,837 1,271 42,808 3,904 46,712
Deferred Income Taxes...................................... 15,745 (3,232) -- 12,513 -- (3,673)(5) 8,840
Other Noncurrent Assets, Net............................... 7,762 34 100 7,896 2,302 10,198
-------- ------- ------- -------- ------- ----------- --------
Total Assets................................................. $574,950 $46,087 $11,024 $632,061 $62,053 $(3,673) $690,441
-------- ------- ------- -------- ------- ----------- --------
-------- ------- ------- -------- ------- ----------- --------
Liabilities and Stockholders' Equity
Current Liabilities........................................ $195,445 $12,150 $ 3,166 $210,761 $ 6,629 $ $217,390
2,189(3)
Deferred Income Taxes...................................... -- -- -- -- 1,484 (3,673)(5) --
Long-Term Debt............................................. 340 2,213 155 2,708 -- 2,708
Other Long-Term Liabilities................................ 7,430 -- 51 7,481 -- 7,481
Stockholders' Equity....................................... 371,735 31,724 7,652 411,111 53,940 (2,189)(3) 462,862
-------- ------- ------- -------- ------- ----------- --------
Total Liabilities and Stockholders' Equity................... $574,950 $46,087 $11,024 $632,061 $62,053 $(3,673) $690,441
-------- ------- ------- -------- ------- ----------- --------
-------- ------- ------- -------- ------- ----------- --------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
18
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/
CYCARE/
MSI
HBOC CYCARE MSI COMBINED GMIS
-------- ------- ------ -------- -------
(1) (2)
<S> <C> <C> <C> <C> <C>
Revenue....................................................... $307,202 $33,487 $8,163 $348,852 $16,941
Operating Expense:
Cost of Operations.......................................... 137,231 16,406 3,806 157,443 4,641
Marketing................................................... 42,584 6,163 1,596 50,343 2,612
Research and Development.................................... 24,477 2,516 519 27,512 4,004
General and Administrative.................................. 33,147 4,917 932 38,996 3,388
-------- ------- ------ -------- -------
Total Operating Expense................................... 237,439 30,002 6,853 274,294 14,645
-------- ------- ------ -------- -------
Operating Income.............................................. 69,763 3,485 1,310 74,558 2,296
Other Expense (Income), Net................................... (1,058) (411) (53) (1,522 ) (261)
-------- ------- ------ -------- -------
Income Before Provision for Income Taxes...................... 70,821 3,896 1,363 76,080 2,557
Provision for Income Taxes.................................... 28,328 1,559 -- 29,887 1,023
-------- ------- ------ -------- -------
Net Income.................................................... $ 42,493 $ 2,337 $1,363 $46,193 $ 1,534
-------- ------- ------ -------- -------
-------- ------- ------ -------- -------
Earnings Per Share:
Primary..................................................... $ .51 $ .52 $ .19
Fully Diluted............................................... $ .50 $ .51 $ .18
Weighted Average Shares Outstanding:
Primary..................................................... 84,122 89,493 8,283
Fully Diluted............................................... 84,513 89,920 8,327
<CAPTION>
HBOC/
GMIS
PRO
PRO FORMA FORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
Revenue....................................................... $ $365,793
Operating Expense:
Cost of Operations.......................................... 162,084
Marketing................................................... 52,955
Research and Development.................................... 31,516
General and Administrative.................................. 42,384
----------- --------
Total Operating Expense................................... 288,939
----------- --------
Operating Income.............................................. 76,854
Other Expense (Income), Net................................... (1,783 )
----------- --------
Income Before Provision for Income Taxes...................... 78,637
Provision for Income Taxes.................................... 545(3) 31,455
----------- --------
Net Income.................................................... $ (545) $47,182
----------- --------
----------- --------
Earnings Per Share:
Primary..................................................... $ .51
Fully Diluted............................................... $ .51
Weighted Average Shares Outstanding:
Primary..................................................... (4,804)(4) 92,972
Fully Diluted............................................... (4,830)(4) 93,417
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
19
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/
HBOC/ GMIS
CYCARE/MSI PRO FORMA PRO FORMA
HBOC CYCARE MSI COMBINED GMIS ADJUSTMENTS COMBINED
-------- ------- ------- ---------- ------- ----------- ---------
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............... $495,595 $61,358 $14,508 $571,461 $35,782 $ $607,243
Operating Expense:
Cost of
Operations........ 232,095 35,447 6,066 273,608 9,362 282,970
Marketing........... 70,591 11,298 2,520 84,409 6,051 90,460
Research and
Development....... 42,964 3,789 453 47,206 8,416 55,622
General and
Administrative.... 54,223 8,854 1,617 64,694 7,106 2,367(7) 74,167
Nonrecurring
Charge............ 136,481 -- -- 136,481 2,367 (2,367)(7) 136,481
HSG Operating
Expense........... -- -- -- -- -- --
-------- ------- ------- ---------- ------- ----------- ---------
Total Operating
Expense......... 536,354 59,388 10,656 606,398 33,302 -- 639,700
-------- ------- ------- ---------- ------- ----------- ---------
Operating Income
(Loss)............... (40,759) 1,970 3,852 (34,937) 2,480 -- (32,457)
Other (Income)
Expense, Net......... 1,299 (1,118 ) (103) 78 (618) (540)
-------- ------- ------- ---------- ------- ----------- ---------
Income (Loss) Before
Provision (Credit)
for Income Tax....... (42,058) 3,088 3,955 (35,015) 3,098 -- (31,917)
Provision (Credit) for
Income Tax........... (16,823) 1,235 -- (15,588) 1,177 1,644(3) (12,767)
-------- ------- ------- ---------- ------- ----------- ---------
Net Income (Loss)..... $(25,235) $1,853 $ 3,955 $(19,427) $ 1,921 $(1,644) $(19,150)
-------- ------- ------- ---------- ------- ----------- ---------
-------- ------- ------- ---------- ------- ----------- ---------
Earnings (Loss) Per
Share
Primary............. $ (.33) $ (.24) $ .22 $ (.23)
Fully Diluted....... $ (.33) $ (.24) $ .22 $ (.23)
Weighted Average
Shares Outstanding
Primary............. 75,645 80,861 8,564 (5,201)(4) 84,224
Fully Diluted....... 75,645 80,861 8,577 (5,214)(4) 84,224
<CAPTION>
HBOC/HSG
1/1/95 PRO
6/17/95 PRO FORMA FORMA
HSG ADJUSTMENTS COMBINED
------- ------------ --------
(6) (6)
<S> <C> <C> <C>
Revenue............... $53,429 $ 17,048(6a) $675,438
(2,282)(6b)
Operating Expense:
Cost of
Operations........ 44,263(6a) 328,885
1,652(6b)
Marketing........... 6,048(6a) 93,859
(2,649)(6b)
Research and
Development....... 4,509(6a) 55,893
(4,238)(6b)
General and
Administrative.... 12,597(6a) 82,986
(3,778)(6b)
Nonrecurring
Charge............ -- 136,481
HSG Operating
Expense........... 50,369 (50,369)(6a) --
------- ------------ --------
Total Operating
Expense......... 50,369 8,035 698,104
------- ------------ --------
Operating Income
(Loss)............... 3,060 6,731 (22,666 )
Other (Income)
Expense, Net......... 3,233 -- 2,693
------- ------------ --------
Income (Loss) Before
Provision (Credit)
for Income Tax....... (173) 6,731 (25,359 )
Provision (Credit) for
Income Tax........... 1,433 1,190(3) (10,144 )
------- ------------ --------
Net Income (Loss)..... $(1,606) $ 5,541 $(15,215)
------- ------------ --------
------- ------------ --------
Earnings (Loss) Per
Share
Primary............. $ (.17 )
Fully Diluted....... $ (.17 )
Weighted Average
Shares Outstanding
Primary............. 4,000(6c) 88,224
Fully Diluted....... 4,000(6c) 88,224
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
20
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/
CYCARE/
MSI
HBOC CYCARE MSI COMBINED GMIS
-------- ------- ------- -------- -------
(1) (2)
<S> <C> <C> <C> <C> <C>
Revenue...................................................... $357,436 $52,470 $11,834 $421,740 $32,239
Operating Expense:
Cost of Operations......................................... 186,140 27,294 3,674 217,108 8,438
Marketing.................................................. 47,815 8,602 1,692 58,109 6,018
Research and Development................................... 32,130 3,594 398 36,122 6,798
General and Administrative................................. 38,309 8,790 2,343 49,442 14,842
-------- ------- ------- -------- -------
Total Operating Expense.................................. 304,394 48,280 8,107 360,781 36,096
-------- ------- ------- -------- -------
Operating Income (Loss)...................................... 53,042 4,190 3,727 60,959 (3,857)
Other (Income) Expense, Net.................................. 450 (859) (58) (467 ) (688)
-------- ------- ------- -------- -------
Income (Loss) Before Provision (Credit) for Income Taxes..... 52,592 5,049 3,785 61,426 (3,169)
Provision (Credit) for Income Taxes.......................... 21,037 2,019 -- 23,056 (976)
-------- ------- ------- -------- -------
Net Income (Loss)............................................ $ 31,555 $ 3,030 $ 3,785 $38,370 $(2,193)
-------- ------- ------- -------- -------
-------- ------- ------- -------- -------
Earnings (Loss) Per Share:
Primary.................................................... $ .43 $ .49 $ (0.28)
Fully Diluted.............................................. $ .43 $ .49 $ (0.28)
Weighted Average Shares Outstanding:
Primary.................................................... 73,066 78,275 7,896
Fully Diluted.............................................. 73,334 78,583 7,896
<CAPTION>
HBOC/
GMIS
PRO
PRO FORMA FORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
Revenue...................................................... $ $453,979
Operating Expense:
Cost of Operations......................................... 225,546
Marketing.................................................. 64,127
Research and Development................................... 42,920
General and Administrative................................. 64,284
----------- --------
Total Operating Expense.................................. 396,877
----------- --------
Operating Income (Loss)...................................... 57,102
Other (Income) Expense, Net.................................. (1,155)
----------- --------
Income (Loss) Before Provision (Credit) for Income Taxes..... 58,257
Provision (Credit) for Income Taxes.......................... 22,080
----------- --------
Net Income (Loss)............................................ $ $ 36,177
----------- --------
----------- --------
Earnings (Loss) Per Share:
Primary.................................................... $ .44
Fully Diluted.............................................. $ .44
Weighted Average Shares Outstanding:
Primary.................................................... (4,580)(4) 81,591
Fully Diluted.............................................. (4,415)(4) 82,064
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
21
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/
CYCARE/
MSI
HBOC CYCARE MSI COMBINED GMIS
-------- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
(1) (2)
Revenue....................................................... $267,147 $66,448 $9,032 $342,627 $22,070
Operating Expense:
Cost of Operations.......................................... 142,524 43,145 3,603 189,272 4,114
Marketing................................................... 37,404 13,601 1,275 52,280 4,769
Research and Development.................................... 25,829 5,686 288 31,803 4,808
General and Administrative.................................. 29,507 13,890 902 44,299 3,357
-------- ------- ------ -------- -------
Total Operating Expense................................... 235,264 76,322 6,068 317,654 17,048
-------- ------- ------ -------- -------
Operating Income (Loss)....................................... 31,883 (9,874) 2,964 24,973 5,022
Other (Income) Expense, Net................................... 388 (3,770) (41) (3,423 ) (880)
-------- ------- ------ -------- -------
Income (Loss) Before Provision for Income Taxes............... 31,495 (6,104) 3,005 28,396 5,902
Provision for Income Taxes.................................... 12,598 1,657 -- 14,255 2,125
-------- ------- ------ -------- -------
Net Income (Loss)............................................. $ 18,897 $(7,761) $3,005 $14,141 $ 3,777
-------- ------- ------ -------- -------
-------- ------- ------ -------- -------
Earnings Per Share:
Primary..................................................... $ .27 $ .18 $ .51
Fully Diluted............................................... $ .26 $ .18 $ .51
Weighted Average Shares Outstanding:
Primary..................................................... 71,298 77,095 7,386
Fully Diluted............................................... 72,020 77,825 7,417
<CAPTION>
HBOC/
GMIS
PRO
PRO FORMA FORMA
ADJUSTMENTS COMBINED
----------- --------
<S> <C> <C>
Revenue....................................................... $ $364,697
Operating Expense:
Cost of Operations.......................................... 193,386
Marketing................................................... 57,049
Research and Development.................................... 36,611
General and Administrative.................................. 47,656
----------- --------
Total Operating Expense................................... 334,702
----------- --------
Operating Income (Loss)....................................... 29,995
Other (Income) Expense, Net................................... (4,303)
----------- --------
Income (Loss) Before Provision for Income Taxes............... 34,298
Provision for Income Taxes.................................... 16,380
----------- --------
Net Income (Loss)............................................. $ $ 17,918
----------- --------
----------- --------
Earnings Per Share:
Primary..................................................... $ .22
Fully Diluted............................................... $ .22
Weighted Average Shares Outstanding:
Primary..................................................... (4,284)(4) 80,197
Fully Diluted............................................... (4,302)(4) 80,940
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
22
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. On August 21, 1996, HBOC completed the acquisition of CyCare, a provider of
management software systems and electronic data interchange services for
medical group practices, faculty practice plans and medical enterprises.
CyCare stockholders received approximately 4.4 million shares of HBOC Common
Stock in connection with such acquisition.
2. On September 19, 1996, HBOC completed the acquisition of MSI, a
privately-held provider of software solutions for the homecare industry. MSI
stockholders received approximately 895,000 shares of HBOC Common Stock in
connection with such acquisition.
3. Taxes are provided for using the HBOC effective tax rate of 40%.
4. GMIS shares were converted using an assumed market value per share of HBOC
Common Stock of greater than $47.62 and less than $64.00 and an assumed
exchange ratio of .42. Exchange Ratios of .50 and .36 have an immaterial
effect on fully diluted earnings per share. See "Comparative Per Share Data"
presented elsewhere in this Proxy Statement/Prospectus. For the 1995 Pro
Forma Combined Income Statement, GMIS weighted average shares are adjusted
to exclude the dilutive effect of stock options due to a loss for HBOC/GMIS
Pro Forma Combined. For the 1994 Pro Forma Combined Income Statement, GMIS
weighted average shares are adjusted to include the dilutive effect of stock
options due to net income for HBOC/GMIS Pro Forma Combined.
5. The GMIS deferred tax liability is offset against the HBOC deferred tax
asset to conform to HBOC presentation.
6. Pro forma adjustments include such adjustments as are necessary to allocate
the purchase price based on the estimated fair market value of the assets
acquired and liabilities assumed and to give effect to events that are
directly attributable to the HSG transaction, are expected to have a
continuing impact on HBOC and are factually supportable.
6a. HSG revenue and expense classifications were historically broken out using
different policies than those applied by HBOC. In addition, HSG historically
netted certain costs against revenue for presentation while HBOC has
historically reported revenue as a gross number. Reclassifications are
necessary to restate HSG revenue and expenses in accordance with HBOC
policy.
6b. Adjustments are necessary to reflect the income statement impact of the
asset and liability fair market value adjustments, assuming the transaction
had been consummated on January 1, 1995.
6c. The weighted average shares outstanding have been adjusted to give effect to
the 4 million shares outstanding assuming the transaction had been
consummated on January 1, 1995.
7. Reclassification to conform to HBOC presentation.
23
<PAGE>
THE MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the GMIS Board for the Meeting to be held on December
9, 1996 at the time and place and for the purpose set forth in the accompanying
Notice of Special Meeting.
Any GMIS 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 GMIS 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 GMIS Common Stock as of the close of business on
November 1, 1996 will be entitled to vote at the Meeting. At that date, there
were 8,597,486 shares of GMIS Common Stock outstanding, 1,029,263 of which, or
approximately 12.0%, were beneficially owned by directors and executive officers
of GMIS and their affiliates. Each share of GMIS 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 GMIS Common Stock will constitute 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 GMIS 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 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.
The proxy solicitation is being made primarily by mail, although proxies may
be solicited by personal interview, facsimile or other means of communication.
GMIS 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 GMIS Common Stock. GMIS has arranged for Corporate Investor
Communications, Inc. ("CIC") to serve as its proxy solicitation agent. In such
capacity, CIC will coordinate and oversee the distribution of the proxy
materials to, and the return of the proxy cards by, registered stockholders and
beneficial owners. The fee for such services is estimated to be $4,000, plus
CIC's out-of-pocket expenses.
THE MERGER PROPOSAL
BACKGROUND OF THE MERGER
On November 30, 1995, GMIS engaged CS First Boston and Invemed Associates,
Inc. ("Invemed," and together with CS First Boston, the "Financial Advisors") to
provide investment banking and financial advisory services, to explore strategic
alternatives including potential acquisitions of provider-oriented companies in
the healthcare information services industry and to assist GMIS in evaluating,
structuring and negotiating such a strategic alliance or acquisition. Beginning
on November 30, 1995, the Financial Advisors organized general business meetings
and discussions between GMIS and various potential partners in the
pharmaceutical and healthcare information services industries, none of which
resulted in substantive discussions except as described below.
On August 8, 1996, GMIS invited management representatives from another
public company ("Company No. 1") to meet with the GMIS Board to discuss the
possibility of Company No. 1 entering into a strategic business combination with
GMIS. Subsequently, a representative of the Financial Advisors contacted Company
No. 1's investment advisor to discuss arrangements for a meeting.
24
<PAGE>
On August 12, 1996, at the request of HBOC, a representative of Smith Barney
Inc. ("Smith Barney"), HBOC's financial advisor, contacted CS First Boston and
indicated that HBOC was interested in pursuing a possible strategic alliance
with GMIS.
On August 20 and 21, 1996, Tom Owens, Chief Executive Officer, Tom Simpson,
Chief Operating Officer, Carin Carlson, Vice President of Marketing and Business
Development, and Brian Wells, Chief Information Officer, of GMIS, met with
certain members of Company No. 1's management to explore the possibility of a
strategic business combination of the two companies. The parties agreed to
engage in further discussions.
On August 29, 1996, Company No. 1 sent to GMIS an overview of a general
merger proposal outlining the synergies that Company No. 1 believed could be
achieved therefrom and a conference call was held to explain the proposal. A
second conference call was held on September 3, 1996, to review further the
proposal.
On September 5, 1996, representatives of CS First Boston met with Company
No. 1's investment advisor and such advisor proposed a merger of Company No. 1
with GMIS in which the stockholders of GMIS would receive shares of Company No.
1, on a tax-free basis, having an implied value per share of GMIS Common Stock
of $16.00 to $18.00 for each share of GMIS Common Stock in a transaction to be
accounted for as a pooling of interests.
On September 6, 1996, Messrs. Owens, Simpson, and Wells of GMIS along with
representatives of CS First Boston met in New York City with Jay Gilbertson,
Senior Vice President-Finance and Chief Financial Officer, and Russell Overton,
Senior Vice President-Business Development, of HBOC and representatives of Smith
Barney to discuss generally the possibility of a business combination of the two
companies. During that meeting, the parties began informal discussions regarding
the potential synergies and cost savings that could result from a combination of
the companies. The representatives of HBOC made a preliminary proposal, subject
to due diligence, which contemplated the merger of GMIS with HBOC in which the
GMIS stockholders would receive shares of HBOC Common Stock at an exchange ratio
of .40 (subject to a collar mechanism), which implied a value per share of GMIS
Common Stock ranging from $20.00 to $24.00 per share based on a maximum per
share price of HBOC Common Stock of $60.00.
On September 6 and 7, 1996, at the direction of the GMIS Board,
representatives of the Financial Advisors spoke with representatives of Smith
Barney and requested an increase in the HBOC exchange ratio to .45, based on a
maximum per share price of HBOC Common Stock of $60.00.
After further negotiations, on September 8, 1996, at the direction of HBOC,
representatives of Smith Barney notified representatives of the Financial
Advisors that HBOC had increased its offer to an exchange ratio of .42 (subject
to a collar mechanism) increasing the maximum per share price of HBOC Common
Stock to $64.00, which implied a value per share of GMIS Common Stock ranging
from $20.00 to $26.88.
On September 8, 1996, a special meeting of the GMIS Board was held, which
was also attended by representatives of Fulbright & Jaworski L.L.P., GMIS's
legal counsel ("Fulbright & Jaworski"), and CS First Boston. During that
meeting, Mr. Owens advised the GMIS Board of the recent discussions with HBOC
and Company No. 1, regarding the possibility of entering into a strategic
business combination with GMIS. Mr. Owens presented the GMIS Board with a
general overview of HBOC and Company No. 1, their respective operations and the
various legal alternatives for structuring such a transaction and responded to
questions from GMIS Board members regarding those subjects. Following this
discussion, the GMIS Board directed CS First Boston to contact Company No. 1 and
request an increase in the proposed merger consideration.
On September 8, 1996, CS First Boston requested another proposal from
Company No. 1's financial advisor.
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On September 9, 1996, Company No. 1 increased its offer to an implied value
per share of GMIS Common Stock of $20.00 per share with approximate collars of
10%, implying a value per share of GMIS Common Stock ranging from $18.00 to
$22.00.
On September 9, 1996, a special meeting of the GMIS Board was held which was
also attended by representatives of Fulbright & Jaworski and CS First Boston.
During that meeting, Mr. Owens briefed the GMIS Board on the prior discussions
with HBOC and Company No. 1 and concluded with an overview of each of these
companies' respective businesses, products, services, market presence and
management personnel. Following this discussion, representatives of CS First
Boston were asked to present their analysis of the proposals of the two
companies with respect to entering into a strategic business combination with
GMIS. A representative of Fulbright & Jaworski then advised the GMIS Board
members as to their fiduciary obligations in the context of reviewing
alternative stock-for-stock proposals. Following this discussion, the GMIS Board
further discussed the HBOC transaction and Company No. 1's proposal, and then
concluded that GMIS should proceed to negotiate a definitive agreement with
HBOC. At the conclusion of such meeting on September 9, 1996, the GMIS Board
authorized management to permit HBOC to conduct formal and detailed due
diligence of GMIS and to open discussions with HBOC regarding the preparation of
a definitive merger agreement. Among the factors considered by the GMIS Board in
authorizing management to pursue a transaction with HBOC was the prospect that a
strategic business combination with HBOC would enable GMIS 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. 1 from further consideration based on
various factors including the lower implied value offered by Company No. 1 for
the GMIS Common Stock and the relative values of both companies based on
publicly available information summarized by CS First Boston. The GMIS Board
also recognized that although the stock price multiple of HBOC was higher than
that of Company No. 1, which presented a greater risk of a decline in the HBOC
stock price, Company No. 1 was not in the business of providing healthcare
systems and accordingly offered a greater risk that the business of GMIS might
not succeed under Company No. 1's management. Later that day, a representative
of CS First Boston telephoned a representative of Smith Barney to advise them of
GMIS's willingness to conduct substantive negotiations regarding a strategic
business combination of the two companies.
On September 10, 1996, HBOC entered into a confidentiality agreement with
GMIS to facilitate the due diligence review process for a potential business
combination.
On September 11 and 12, 1996, representatives of HBOC, GMIS, CS First Boston
and Smith Barney met in Philadelphia to discuss the business of GMIS and its
historical and projected financial data.
On September 13, 1996, the same representatives continued their meeting in
Philadelphia to discuss the products, information systems and clinical
capabilities of GMIS.
On September 13, 1996, representatives of HBOC and Jones, Day, Reavis &
Pogue, HBOC's legal counsel, arrived in Malvern, Pennsylvania, to commence their
due diligence review of GMIS, which review continued throughout the weekend and
subsequent week. In addition, a draft of the Merger Agreement was submitted by
HBOC's legal counsel for consideration by GMIS's management and financial and
legal advisors. Thereafter, a number of telephone calls were held between GMIS'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.
On September 17, 1996, representatives of HBOC, GMIS, CS First Boston and
Smith Barney met in Atlanta to discuss the business of HBOC and its historical
and projected financial data.
On September 19, 1996, a special meeting of the GMIS Board was held which
was also attended by representatives of Fulbright & Jaworski and CS First
Boston. A representative of CS First Boston presented the GMIS Board with a
report and analysis of the HBOC offer. A representative of CS First Boston then
made a presentation with respect to the fairness, from a financial point of
view, of the
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consideration to be received by the GMIS stockholders in the transaction, and
stated that CS First Boston would be delivering a written opinion to that effect
upon finalization of the Merger Agreement. The representative of CS First Boston
reviewed various matters relating to the fairness opinion, specifically,
valuation considerations, explanations of valuation methodology, and valuation
analysis. A discussion among the GMIS Board members then ensued regarding these
matters.
In the morning and evening of September 22, 1996, two special meetings of
the GMIS Board were held which were also attended by representatives of
Fulbright & Jaworski and CS First Boston. During these meetings, Mr. Owens
apprised the GMIS Board of the recent discussions with HBOC and advised the GMIS
Board of the status of the definitive Merger Agreement. During the second
meeting, the GMIS Board generally approved the form of Merger Agreement, subject
to review of the definitive agreement.
On September 23, 1996, a special meeting of the GMIS Board was held which
was also attended by representatives of Fulbright & Jaworski and CS First
Boston. The GMIS Board approved a definitive agreement in which the stockholders
of GMIS would receive shares of HBOC based on an exchange ratio of .42 of a
share of HBOC Common Stock for each share of GMIS Common Stock and subject to a
collar mechanism that implied a value per share of GMIS Common Stock of $20.00
to $26.88. 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
$40.00 per share or exceeded $64.00 per share.
After further deliberation, the GMIS 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 GMIS Common Stock.
Subsequent to this meeting, each company executed and delivered the Merger
Agreement on September 23, 1996. The execution of the Merger Agreement was
announced on the morning of September 24, 1996 by issuance of a press release.
Over the course of the negotiations with Company No. 1 and HBOC,
representatives of GMIS, CS First Boston and Fulbright & Jaworski consulted with
representatives of Invemed with respect to the terms and conditions of the
Merger Agreement and each proposal made by the various parties.
REASONS OF GMIS FOR ENGAGING IN THE MERGER; RECOMMENDATION OF THE GMIS BOARD
The GMIS Board has unanimously approved the proposed Merger and believes the
Merger is in the best interests of GMIS 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 GMIS stockholders with HBOC Common Stock in a
tax-free exchange at a substantial premium over the historical market prices for
their shares of GMIS 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 GMIS stockholders protection by providing the GMIS
Board the right to terminate if the price of HBOC Common Stock falls below
$40.00 per share (unless HBOC elects at that time to increase the Exchange
Ratio);
(ii) The Merger offers GMIS stockholders an opportunity to acquire shares in
a significantly larger company and the opportunity to participate in the
long-term growth and appreciation of GMIS's business through their ownership
interest in HBOC;
(iii) The strategic fit between GMIS 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 GMIS's products serve the payer segment of such industry;
(iv) Potential operating synergies and cost savings, including possible
synergies and cost savings with respect to (a) the consolidation of
administrative and support functions, (b) the combination of sales forces and
research and development capabilities and (c) the elimination of public
reporting obligations of GMIS;
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(v) The opinion of CS First Boston that, as of September 23, 1996, the
transaction is fair, from a financial point of view, to the GMIS stockholders
(see "--Opinion of Financial Advisor to GMIS");
(vi) The financial and other terms of the Merger, including that the Merger
will not be subject to approval by the HBOC stockholders, and, while the Merger
Agreement contains a "no-shop" clause and a termination fee provision (see
"--Terms of the Merger--No Solicitation" and "--Termination"), the Merger
Agreement permits GMIS to provide information to or enter into discussions or
negotiations with other persons if the GMIS 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 price
and earnings performance, and the demonstrated ability of HBOC to successfully
implement its growth strategy; and
(viii) GMIS and the Financial Advisors had made contact and had preliminary
meetings with several other potential strategic partners and, with the exception
of Company No. 1, no other company had expressed an interest in acquiring GMIS.
In the course of its deliberations, the GMIS Board reviewed the following
additional factors relevant to the Merger: (i) the capital structure of HBOC;
(ii) the financial presentation and analysis of CS First Boston 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 GMIS and HBOC; and (v) the proposed terms, timing and
structure of the Merger.
The GMIS 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 GMIS 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
cost sought to be achieved as a result of the Merger might not be achieved;
(iii) the possibility of GMIS's failure to be successfully integrated into HBOC;
(iv) the downward adjustment of the Exchange Ratio if the average price of the
HBOC Common Stock exceeds $64.00 per share for certain periods prior to the
Meeting held to approve the Merger, thus capping the value holders of GMIS
Common Stock would receive upon consummation of the Merger; and (v) the high
price to earnings ratio of HBOC Common Stock and the possibility of a decrease
in the price of the HBOC Common Stock after the Merger.
The foregoing discussion of information and factors considered by the GMIS
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 GMIS
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.
After taking into consideration all of the factors set forth above, together
with an analysis of the presentations of management, CS First Boston, and legal
counsel, the GMIS Board unanimously approved the Merger and determined that the
Merger is fair to and in the best interests of GMIS and its stockholders and
that GMIS should proceed with the Merger at this time. Accordingly, the GMIS
Board unanimously recommends that GMIS's stockholders vote FOR approval of the
Merger Agreement.
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OPINION OF FINANCIAL ADVISOR OF GMIS
GMIS retained CS First Boston and Invemed to act as financial advisors in
connection with the Merger and related matters based upon their qualifications,
expertise and reputation, as well as their prior investment banking relationship
and familiarity with GMIS.
At the request of the GMIS Board, on September 19, 1996, CS First Boston
delivered an oral opinion to the GMIS Board to the effect that, as of such date,
the consideration to be received by GMIS stockholders pursuant to the Merger,
which was determined by arm's-length negotiation between GMIS and HBOC, was fair
to such stockholders from a financial point of view. CS First Boston delivered a
written opinion to the GMIS Board on September 23, 1996 confirming its oral
opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF CS FIRST BOSTON, DATED THE DATE
HEREOF, WHICH IS SUBSTANTIALLY SIMILAR TO THE OPINION DATED SEPTEMBER 23, 1996,
AND WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX B AND
SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE OPINION OF CS FIRST BOSTON WAS FURNISHED FOR THE
INFORMATION OF THE GMIS BOARD IN CONNECTION WITH ITS CONSIDERATION OF THE
MERGER, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY GMIS STOCKHOLDER AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER. THE SUMMARY OF THE OPINION OF CS
FIRST BOSTON SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED HERETO AS
APPENDIX B.
In rendering its opinion, CS First Boston (a) reviewed certain publicly
available business and financial information relating to GMIS and HBOC, as well
as the Merger Agreement, (b) reviewed certain other information, including
financial forecasts, provided to it by GMIS and HBOC, (c) met with the
managements of GMIS and HBOC to discuss the business and prospects of GMIS and
HBOC, (d) considered certain financial and stock market data of GMIS and HBOC,
(e) considered the financial terms of certain other business combinations and
other transactions which had recently been effected, (f) considered such other
information, financial studies, analyses and investigations, and financial,
economic and market criteria that it deemed relevant, and (g) relied upon the
views of GMIS management concerning the business, operational and strategic
benefits and implications of the Merger. CS First Boston assumed, with the
consent of GMIS, that the Merger will be accounted for as a pooling of interests
under generally accepted accounting principles as described in APB Opinion No.
16.
In connection with its review, CS First Boston did not assume any
responsibility for independent verification of any of the foregoing information
and relied on its being complete and accurate in all material respects. With
respect to the financial forecasts, CS First Boston assumed that such financial
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of GMIS and HBOC as to the
future financial performance of GMIS and HBOC, respectively. CS First Boston did
not conduct an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of GMIS or HBOC nor was CS First Boston furnished with
any such evaluations or appraisals. The opinion of CS First Boston is
necessarily based upon financial, economic, market and other conditions as they
existed and could be evaluated on the date of its opinion. CS First Boston did
not express and is not expressing any opinion as to what the value of the stock
of HBOC actually will be when issued to the GMIS stockholders pursuant to the
Merger or the prices at which such stock will trade subsequent to the Merger.
The following is a summary of the analyses performed by CS First Boston in
connection with its September 23, 1996 opinion:
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INTRODUCTION. The financial analyses CS First Boston used in reaching its
opinion dated September 23, 1996 and which it discussed with the GMIS Board of
Directors included (i) discounted cash flow ("DCF") analysis, which consisted of
discounting to present value the projected cash flows and terminal value of
GMIS, (ii) comparable company trading analysis, which consisted of reviewing
market statistics and financial and operating information for selected
publicly-traded companies considered comparable to the business of GMIS, (iii)
comparable acquisition analysis, which consisted of reviewing operating
statistics and purchase price information with respect to selected acquisitions
of businesses similar to those of GMIS, (iv) an analysis of HBOC's stock price
and earnings performance, including (a) an analysis of the exchange ratio of
GMIS's stock price to HBOC's stock price, (b) comparable company trading
analysis, which consisted of reviewing market statistics and financial and
operating information for selected publicly-traded companies considered
comparable to the business of HBOC, (c) an analysis of HBOC's latest twelve
months ("LTM") price to earnings ("PE") to growth rate ratio and (v) an analysis
of the pro forma effect of the merger on HBOC's fully diluted earnings per share
("EPS"). The material portions of these analyses are summarized below.
DISCOUNTED CASH FLOW ANALYSIS. CS First Boston's DCF analyses were based on
GMIS management's financial forecasts (the "Management Case") as well as a more
conservative case (the "Base Case") prepared in conjunction with GMIS management
for each of the years ending December 31 from 1996 to 2001. The Management Case
assumed strong sales growth, particularly in the decision support product line
and an improving earnings before interest and income taxes ("EBIT" or operating
income, "OI") margin that increases from 26.4% in 1996 to 30.0% in 1998 and
thereafter remains at 30.0%. The Base Case analysis assumed less aggressive
sales growth, with less margin improvement and slightly higher expenses. CS
First Boston derived the unlevered free cash flow that GMIS was expected to
generate in each year from 1996 to 2001. CS First Boston discounted these cash
flows to present values, applying discount rates ranging from 13.0% to 19.0%. CS
First Boston arrived at this range of appropriate discount rates based on its
analysis of GMIS's weighted average cost of capital, which was calculated to be
approximately 16.0%. To approximate the terminal values of GMIS in 2001, CS
First Boston applied terminal multiples of 6.0x to 9.0x earnings before
interest, taxes, depreciation and amortization ("EBITDA" or operating cash flow,
"OCF") and 14.0x to 20.0x unlevered net income in 2001. CS First Boston also
approximated the terminal value by discounting the estimated perpetual free cash
flow, assuming the estimated free cash flow in 2001 would grow at rates ranging
from 7.0% to 10.0% in perpetuity. These terminal values were then discounted to
present value using the range of discount rates described above. Based on these
assumptions, CS First Boston derived an enterprise value range (equity value
plus debt minus cash and cash equivalents, also referred to as adjusted market
value) of $145 million to $175 million using the Management Case and an
enterprise value range of $125 million to $150 million using the Base Case.
COMPARABLE COMPANY TRADING ANALYSIS. CS First Boston reviewed and compared
certain actual and forecasted financial and operating information of GMIS with
comparable information of the following publicly-traded healthcare information
services companies: AMISYS Managed Care Systems, Inc., Cerner Corporation,
Crawford & Company, Envoy Corporation, HCIA Inc., Health Management Systems,
Inc., HPR Inc., IDX System Corporation, Keane Inc., Medaphis Corporation, Medic
Computer Systems, Inc., Medicus Systems Corporation, National Data Corporation,
Oacis Healthcare Holdings Corporation, Phamis, Inc., Policy Management Systems
Corp. and Shared Medical Systems Corp. Using publicly available information, CS
First Boston determined the relationship for these companies between enterprise
value and LTM revenues, LTM OCF, and LTM OI. CS First Boston also compared the
relationship of equity value as multiples of 1996 and 1997 projected net
incomes. CS First Boston then derived a range of these multiples of revenues
(3.0x-4.5x), OCF (10.0x-14.0x), OI (15.0x-18.0x) and 1996 (20.0x-25.0x) and 1997
(18.0x-22.0x) estimated net incomes. In addition, CS First Boston also analyzed
the relationship between 1997 estimated PE and GMIS's EPS growth rate from 1996
to 1997 as well as GMIS's five-year estimated EPS growth rate. The enterprise
values derived from the above analysis ranged from $130 million to $155 million.
CS First Boston and GMIS management believe that of the companies discussed
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above, HPR Inc. is the most comparable to GMIS and therefore was the company
that CS First Boston analyzed most closely for the analyses discussed above.
COMPARABLE ACQUISITION ANALYSIS. CS First Boston analyzed certain
acquisitions of healthcare information services companies including: HCIA
Inc./LBA Health Care Management, Inc., Medic Computer Systems,
Inc./CompuSystems, Inc., Medaphis Corporation/Health Data Sciences Corporation,
HBOC/ CyCare Systems, Inc., National Data Corporation/C.I.S. Technologies, Inc.,
Medaphis Corporation/BSG Corporation, Envoy Corporation/National Electronic
Information Corporation, HBOC/CliniCom Incorporated, Medaphis
Corporation/Healthcare Recoveries, Inc., The Thompson Corporation/The MEDSTAT
Group, Inc. and Medaphis Corporation/The Atwork Companies. CS First Boston
compared the enterprise value of the businesses acquired as a multiple of LTM
revenues, LTM OCF and LTM OI and the equity value of the businesses acquired as
a multiple of LTM net income. CS First Boston then derived a range for these
multiples of LTM revenues (4.0x-6.0x), LTM OCF (19.0x-26.0x), LTM OI
(25.0x-35.0x) and LTM net income (35.0x-45.0x). The enterprise values derived
from the above analysis ranged from $160 million to $235 million. Of the
transactions listed above, CS First Boston found three, HBOC/CyCare Systems,
Inc., HBOC/CliniCom Incorporated and The Thompson Corporation/The MEDSTAT Group,
Inc., to be the most relevant comparable acquisitions for GMIS.
The discounted cash flow analysis, comparable company trading analysis and
comparable acquisition analysis yielded a CS First Boston summary enterprise
value range of $150 million to $235 million. This equates to a summary equity
value range of $163 million to $248 million, and a summary equity value per
share range of $18.72 to $27.35. The premium to the stock price of GMIS
immediately prior to the public announcement of the Merger ($17.50) ranged from
7.0% to 56.3% and to the thirty days prior stock price ($13.75) ranged from
36.1% to 98.9%. Based on an HBOC stock price of $59.00 (the stock price at the
close on September 18, 1996), GMIS stockholders would receive $24.78 (based on a
.42 exchange ratio) of value for each share of GMIS Common Stock. In addition,
the agreed upon collar established a value range for each share of GMIS Common
Stock between $20.00 and $26.88, a range that falls within CS First Boston's
summary equity value per share range.
EXCHANGE RATIO ANALYSIS. CS First Boston analyzed the implied exchange
ratio generated by taking the ratio of GMIS's and HBOC's daily stock prices from
January 2, 1995 to September 13, 1996 and compared the implied exchange ratio to
the Exchange Ratio. The analysis showed that the implied exchange ratio never
reached .42 during 1996 and that the ratio had not exceeded the Exchange Ratio
of .42 since November 1995.
CERTAIN OTHER FACTORS AND ANALYSES. In rendering its opinion, CS First
Boston considered other factors and conducted certain other analyses including,
among other things, (i) a review of the market statistics and operating and
financial information for selected publicly-traded companies considered
comparable to HBOC (in particular, CS First Boston analyzed the relationship of
HBOC's 1997 estimated PE to five year growth rate as well as to HBOC's estimated
EPS growth rate from 1996 to 1997) and (ii) an analysis of HBOC's LTM PE to
growth rate ratio since January 2, 1995.
PRO FORMA EFFECT OF MERGER ON HBOC'S FULLY DILUTED EARNINGS PER SHARE. CS
First Boston analyzed the pro forma effect of the Merger on HBOC's fully diluted
EPS based on GMIS's financial forecasts (the Management Case). The analysis
assumed a purchase price using an exchange ratio of .42 HBOC shares (at a price
of $59.00) for each GMIS share. This analysis indicated that the Merger would be
accretive to HBOC in 1997 and 1998 (1.6% and 1.2%, respectively).
In arriving at its opinion, CS First Boston performed certain financial
analyses, the material portions of which are summarized above. CS First Boston
believes that these analyses and the summary set forth above must be considered
as a whole and that selecting portions of its analyses could create an
incomplete view of the process underlying its opinion. Moreover, the summary set
forth above does not purport to be a complete description of the analyses
performed by CS First Boston. CS First Boston's opinion is addressed
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to the GMIS Board and should not be viewed as a recommendation as to how any
GMIS stockholder should vote. The analyses performed by CS First Boston are not
necessarily indicative of actual values, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect actual
market valuations or trading ranges, which may vary significantly from amounts
set forth above. Actual trading values will depend on several factors, including
events affecting the sectors of the healthcare information services industry in
which GMIS and HBOC compete, general economic, market and interest rate
conditions, and other factors that generally influence the price of securities.
With respect to the comparable company trading analysis and comparable
acquisition analysis summarized above, no company utilized as a comparison is
identical to GMIS or HBOC and such analyses necessarily involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
acquisition or trading value of the companies analyzed. In performing its
analyses, CS First Boston made numerous assumptions regarding industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of GMIS. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such
analysis was given more weight than any other analysis. CS First Boston's
opinion was only one of many factors taken into consideration by the GMIS Board.
GMIS and CS First Boston have entered into an agreement relating to the
services to be provided by CS First Boston in connection with the Merger. GMIS
has agreed to pay CS First Boston a fee equal to 1.3125% of the aggregate
consideration in connection with the Merger (or other similar transaction), not
to exceed $3,350,000. In addition, since December 1, 1995, CS First Boston has
been receiving a financial advisory fee of $100,000, payable in 12 equal monthly
installments, which will be fully creditable against the fee described above.
GMIS has also agreed to reimburse CS First Boston for its out-of-pocket
expenses, including the fees and expenses of its legal counsel and any other
advisor retained by CS First Boston, and to indemnify CS First Boston and its
affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including certain liabilities under the federal securities laws. CS First Boston
has agreed to pay to Invemed approximately one-half of the fee to be paid to CS
First Boston by GMIS. Mr. Kenneth G. Langone, a director of GMIS, is Chairman of
the Board, Chief Executive Officer and President of Invemed.
CS First Boston and Invemed are internationally recognized investment
banking firms regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. In the ordinary course of business, the Financial Advisors
and their affiliates may actively trade the debt and equity securities of both
GMIS and HBOC for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
The Financial Advisors in the past have provided financial advisory and
investment banking services to GMIS unrelated to the Merger, for which services
the Financial Advisors have received compensation, and may provide additional
services to GMIS in the future. Currently, certain affiliates of Invemed have a
long position with respect to 93,846 shares of GMIS Common Stock.
REASONS OF HBOC FOR ENGAGING IN THE MERGER
The HBOC Board believes that GMIS will give HBOC expertise in the payer data
quality and decision support arenas. In addition, the HBOC Board believes that
combining the payer-based decision support and clinical episode tools of GMIS
with the provider-based decision support products of HBOC will further its
business objective of providing healthcare information systems and technology to
meet virtually every need of healthcare enterprises.
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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 will become effective when both (i) the Merger
Agreement is adopted and approved by the stockholders of GMIS in accordance with
the applicable provisions of the DGCL and (ii) the Certificate of Merger is
filed with the Secretary of State of Delaware.
GENERAL EFFECTS OF THE MERGER. At the Effective Time, GMIS will be merged
with and into HBOC-GA, which will be the surviving corporation.
CONVERSION OF SHARES. Each outstanding share of GMIS Common Stock issued
and outstanding immediately prior to the Effective Time, will, at the Effective
Time, be converted into the right to receive .42 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 $47.62 per share but not less than $40.00 per share, then the
number of shares of HBOC Common Stock to be received by the stockholders of
GMIS will be a fractional share of HBOC Common Stock determined by dividing
$20.00 by the Market Value;
(2) if the Market Value is less than $40.00 per share, then stockholders
of GMIS will receive .50 of a share of HBOC Common Stock for each share of
GMIS Common Stock; provided that in such event the GMIS Board will have the
right to terminate the Merger prior to Closing pursuant to the Merger
Agreement unless HBOC elects, in its sole discretion, to increase the
exchange ratio to that fraction that will allow each stockholder of GMIS to
receive a fraction of a share of HBOC Common Stock having a Market Value of
$20.00 for each share of GMIS Common Stock in which case the GMIS Board will
not have the right to terminate the Merger pursuant to the Merger Agreement;
and
(3) if the Market Value is greater than $64.00 per share, then the
number of shares of HBOC Common Stock to be received by the stockholders of
GMIS shall be decreased so that the stockholders of GMIS will receive a
fractional share of HBOC Common Stock determined by dividing $26.88 by the
Market Value (whichever basis is applicable being referred to as the
"Exchange Ratio").
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 GMIS Common Stock shall be entitled to receive a cash
payment therefor, without interest, at a pro rata amount based on the Market
Value.
STOCK PLANS. Options to purchase shares of GMIS Common Stock outstanding at
the Effective Time of the Merger will be assumed by HBOC, by which assumption
the optionee will have the right to purchase the number of shares (rounded down
to the nearest whole share) of HBOC Common Stock into which the number of shares
of GMIS Common Stock the optionee was entitled to purchase under the existing
option would have been converted pursuant to the terms of the Merger. The
aggregate price for the total number of shares of HBOC Common Stock issuable
pursuant to an option will be the aggregate price at which the option was
exercisable for the total number of shares of GMIS Common Stock issuable
thereunder reduced (as necessary for rounding down) to that price that will buy
the number of whole shares of HBOC Common Stock issuable thereunder and the
purchase price per share of HBOC Common Stock shall be such aggregate price
divided by the total number of shares of HBOC Common Stock issuable thereunder.
No other terms of the options will be modified.
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<PAGE>
In addition, GMIS will amend the GMIS Stock Purchase Plan to provide that
the current offering period shall terminate on the date prior to the Closing
Date, in the event the Closing Date occurs prior to December 31, 1996 and, in
such event, that all outstanding purchase rights granted under the GMIS Stock
Purchase Plan shall be exercised on the day prior to the Closing Date. As a
result of such amendment, upon the consummation of the Merger, each participant
in the GMIS Stock Purchase Plan on the day prior to the Closing Date will
receive (i) the number of shares of HBOC Common Stock into which the shares of
GMIS Common Stock issuable to such participant under the GMIS Stock Purchase
Plan would have been converted and (ii) cash in lieu of any fractional shares of
HBOC Common Stock, together with a cash refund of any excess of the amount
collected during the offering period, over the amount of the purchase price of
the GMIS Common Stock that otherwise would be issuable to such participant. GMIS
will further amend the GMIS Stock Purchase Plan to provide that no purchase
rights shall be granted after December 31, 1996.
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 GMIS 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 GMIS 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.
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 GMIS 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 GMIS 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 GMIS 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 GMIS
34
<PAGE>
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 GMIS 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, GMIS affiliates are subject to
certain restrictions on transfer of both GMIS 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 GMIS, 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 GMIS 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 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 CS First Boston.
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 GMIS 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 businesses, properties, rights,
financial condition or results of or operations (a "Material Adverse Effect") of
GMIS; (ii) the performance of all covenants, agreements and conditions by GMIS
as provided in the Merger Agreement; (iii) there shall have been no change in
the business, properties, rights or operations of GMIS which constitutes a
Material Adverse Effect; (iv) receipt of a certificate of the President of GMIS
regarding certain matters, including those listed 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 Code; (vi) receipt of letters from affiliates
of GMIS regarding compliance with Rule 145 and certain pooling of interests
requirements; (vii) delivery of certain additional certificates and documents by
GMIS, including consents of third parties; (viii) receipt of letters from Ernst
& Young LLP and Arthur Andersen LLP advising that the Merger may be accounted
for as a pooling of interests; (ix) receipt of letters from Ernst & Young LLP
regarding information about GMIS included in the Registration Statement; (x)
receipt of non-competition agreements from certain key employees of GMIS; and
(xi) the absence of any fees or expenses payable to any investment banking firm
or similar entity that will be incurred by GMIS in connection with the Merger,
except fees and expenses of CS First Boston and Invemed not to exceed
$3,350,000.
The obligation of GMIS 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 in all material respects at and as of the Closing Date; (ii) the
performance of all covenants, agreements and conditions by HBOC and HBOC-GA as
provided in the Merger Agreement; (iii) receipt of a certificate of the
President of each of HBOC and HBOC-GA regarding the matters in (i) and (ii)
above; and (iv) receipt of certain legal opinions, including an opinion from
Fulbright & Jaworski to the effect that the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Code.
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<PAGE>
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 GMIS filed the required information with the Antitrust
Division and the FTC on October 2, 1996 and were notified that the waiting
period was terminated October 15, 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. GMIS has agreed that prior to the Effective Time of the
Merger or earlier termination of the Merger Agreement, GMIS shall not, directly
or indirectly, solicit, initiate, endorse or enter into any agreement with
respect to, or take any other action specifically 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
GMIS or any of its subsidiaries or any proposal or offer to acquire in any
manner a substantial equity interest in GMIS or a substantial portion of the
assets of GMIS or any of its subsidiaries with any person or entity; provided,
however, that the GMIS Board may furnish information to or enter into
discussions or negotiations with any unsolicited person or entity if, and only
to the extent that, the GMIS Board determines in good faith, after receiving
advice from its outside counsel, that such action would be required under
applicable law in the exercise of its fiduciary duties. GMIS has agreed to
advise HBOC-GA of any such proposals or any such inquiries or discussions with
respect thereto.
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
GMIS Board, notwithstanding the prior approval of the GMIS stockholders; (ii)
the HBOC Board, in the event of material condemnation, destruction, loss or
damage to the business or assets of GMIS; (iii) the respective Boards of
Directors of HBOC-GA or GMIS, after January 31, 1997 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) the GMIS Board, if, in the
good faith exercise of its fiduciary duties to the stockholders of GMIS in the
context of a proposal to acquire GMIS by another party, the GMIS Board decides
that such termination is required; and (v) the GMIS Board, if the Market Value
of HBOC Common Stock is less than $40.00 per share unless the HBOC Board elects
to increase the Exchange Ratio to that fraction that will allow each GMIS
stockholder to receive a fraction of a share of HBOC Common Stock having a
Market Value of $20.00 for each share of GMIS Common Stock.
If the Merger is terminated by GMIS in accordance with (iv) above, or by
HBOC, HBOC-GA or GMIS because the Merger Agreement was not approved by holders
of the requisite number of shares of GMIS Common Stock, GMIS will be obligated
to pay (i) all reasonable costs and expenses of HBOC and HBOC-GA incurred in
connection with the negotiation and performance of the Merger Agreement
including, without limitation, fees and expenses of counsel, fees and expenses
of independent public accountants, printing expenses and registration fees and
(ii) to HBOC a fee in the amount of $7,000,000.
ACCOUNTING TREATMENT
Prior to the consummation of the Merger, 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.
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<PAGE>
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 GMIS
Common Stock who hold their shares of GMIS Common Stock as capital assets. This
summary does not discuss all aspects of income taxation that may be relevant to
a particular holder of GMIS 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 GMIS 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 GMIS 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, Fulbright & Jaworski has
advised GMIS that in its opinion (i) the Merger will qualify as a reorganization
pursuant to Section 368(a) of the Code, (ii) no gain or loss will be recognized
by GMIS as the result of the consummation of the Merger, and (iii) no gain or
loss will be recognized by a GMIS stockholder upon the exchange of the shares of
GMIS 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 GMIS as the result of
the consummation of the Merger.
The opinions of Fulbright & Jaworski and Jones, Day, Reavis & Pogue referred
to herein are based upon certain representations and warranties of HBOC, HBOC-GA
and GMIS that are customarily made in connection with such opinions. In
addition, consummation of the Merger is conditioned upon the non-withdrawal or
material modification of the opinions described above as of the Closing Date. No
ruling, however, 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.
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 GMIS as a result
of the Merger will be the same as the aggregate adjusted tax basis of the shares
of GMIS 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 GMIS as a result of the Merger will include the
holding period of the shares of GMIS Common Stock surrendered in exchange
therefor. Any cash that a stockholder of GMIS 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 GMIS stockholder in the Merger, a GMIS 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 GMIS
stockholder in the letter of transmittal to be mailed to each holder after the
Effective Time. If the correct TIN and
37
<PAGE>
certifications are not provided, a $50.00 penalty may be imposed on a GMIS
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 GMIS 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 GMIS Common Stock is a Nasdaq NM security, the holders of shares of
GMIS 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 GMIS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HBOC
The following table sets forth, as of October 31, 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 other executive
officers who were the most highly compensated for the year ended December 31,
1995 and who continued to be employed by HBOC on September 30, 1996, 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) 5.8%
IDS Tower 10
Minneapolis, Minnesota 55440
FMR Corp. ............................................................ 5,166,500 (2) 6.0%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc. ............................................. 5,196,136 (3) 6.0%
One Post Office Square
Boston, Massachusetts 02109
Alfred C. Eckert III.................................................. 30,000 (4) *
Holcombe T. Green, Jr................................................. 1,238,860 (5) 1.4%
Philip A. Incarnati................................................... 35,000 (4) *
Alton F. Irby III..................................................... 30,000 (4) *
Gerald E. Mayo........................................................ 82,000 (4) *
Charles W. McCall..................................................... 1,476,120 (6) 1.7%
James V. Napier....................................................... 67,088 (7) *
Charles E. Thoele..................................................... 22,000 (8) *
Donald C. Wegmiller................................................... 15,000 (4) *
Jay P. Gilbertson..................................................... 25,098 (9) *
Albert J. Bergonzi.................................................... 50,372 (10) *
Russell G. Overton.................................................... 10,198 *
All Directors and Executive Officers as a Group (12 persons).......... 3,081,736 3.6%
</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.
(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
39
<PAGE>
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 440,000 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 845,322 shares that may be acquired through the exercise of
presently exercisable stock options.
(7) Includes 600 shares owned by Mr. Napier's daughter and 40,000 shares that
may be acquired through the exercise of presently exercisable stock options.
(8) Includes 20,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(9) Includes 16,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(10) Includes 48,400 shares that may be acquired through the exercise of
presently exercisable stock options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GMIS
The following table sets forth, as of November 1, 1996, unless otherwise
indicated, certain information with respect to all stockholders known to GMIS to
beneficially own more than five percent of the GMIS Common Stock, and
information with respect to GMIS Common Stock beneficially owned by each
director of GMIS, the Chief Executive Officer of GMIS and GMIS's four other most
highly compensated executive officers for the year ended December 31, 1995, and
all directors and executive officers of GMIS as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to GMIS Common Stock owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF SHARES
- ----------------------------------------------------------------------- ------------------------ ------------------
<S> <C> <C>
Thomas R. Owens........................................................ 449,947 5.2%
Walter Channing, Jr.................................................... 58,893 *
Alan B. Miller......................................................... 10,097 *
Kenneth G. Langone..................................................... 90,000 1.0%
Robert Becker, M.D..................................................... 15,625 *
John F. Kenny.......................................................... 6,075 *
Eugene L. Step......................................................... 16,500 *
John T. Kelly, M.D..................................................... 108,763 1.3%
Joseph H. Keogh........................................................ 9,000 *
Mark A. Travaglini..................................................... 5,894 *
Brad G. Mousseau....................................................... 7,500 *
All Directors and Executive Officers as a Group (15 persons)........... 1,029,263 12.0%
</TABLE>
- ------------------------
* Less than 1%
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares as of a given date which such person has the right
to acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person named above on a given
date, any security which such person or persons has the right to acquire
within 60 days after such date is
40
<PAGE>
deemed to be outstanding, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
INTERESTS OF CERTAIN GMIS PERSONS IN MATTERS TO BE ACTED UPON
In considering the Merger, holders of GMIS Common Stock should be aware that
the directors and certain executive officers of GMIS have interests in the
Merger in addition to their interests as stockholders of GMIS generally, as
described below.
HBOC and HBOC-GA have entered into a letter agreement, dated as of September
23, 1996, with Thomas R. Owens and Thomas L. Simpson, which provides that if the
employment of Mr. Owens is terminated without cause by HBOC-GA within five years
subsequent to the Merger, then HBOC-GA will pay Mr. Owens severance of $275,000
per annum for the remainder of such five-year period and if the employment of
Mr. Simpson is so terminated within 18 months of the Merger, then HBOC-GA will
pay Mr. Simpson severance of $250,000 per annum for the remainder of such
18-month period, subject, in each case, to compliance with certain agreements
relating to non-competition.
HBOC-GA has agreed that subsequent to the Closing Date, it will provide to
the directors and officers of GMIS indemnification in accordance with the
current provisions of the Certificate of Incorporation and Bylaws of GMIS 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 six years from the Effective Time or until any known matters are
resolved. See "Comparison of Rights of Holders of Shares of Each of HBOC Common
Stock and GMIS Common Stock--Liability and Indemnification of Officers and
Directors."
Pursuant to certain arrangements, Thomas R. Owens, John T. Kelly, M.D.,
Thomas L. Simpson, Carin J. Carlson and Brian P. Wells, each an officer of GMIS,
and certain former officers (each individually an "Officer," and collectively
the "Officers") purchased shares of GMIS Common Stock for investment purposes in
open market transactions beginning September 19, 1994. The purchases were made
with funds available under non-revolving lines of credit from CoreStates Bank
(each individually a "Stock Loan," and collectively the "Stock Loans"), which
are due June 30, 1997. As of September 23, 1996, the date of the Merger
Agreement, the aggregate outstanding balance under the Stock Loans was
$9,998,554. The Stock Loans bear interest, at the discretion of the Officer as
of the date the Officer receives an advance, at either (i) 1.75% over the London
Interbank Offer Rate for deposits in United States Dollars or (ii) the floating
annual rate of interest designated from time to time by CoreStates Bank as the
National Commercial Rate. Pursuant to letter agreements (the "Letter
Agreements") between GMIS and each Officer, if an Officer proposes to sell
shares to pay interest on or principal of his Stock Loan, and if a sale of
shares is not at such time permitted under Section 16(b) of the Exchange Act at
the time interest or principal of his Stock Loan is due, GMIS will advance funds
necessary to pay interest until such time as such sale may be permitted under
Section 16(b) of the Exchange Act. Decisions regarding the voting and
disposition of GMIS Common Stock held by each Officer are made independently by
such Officer. GMIS has guaranteed the Stock Loans pursuant to an agreement with
CoreStates Bank (the "Suretyship Agreement").
Pursuant to the Suretyship Agreement, GMIS is also acting as surety under a
loan made by CoreStates Bank in favor of John T. Kelly, M.D. (the "Mortgage
Loan"). As of September 23, 1996, the date of the Merger Agreement, the
outstanding balance under the Mortgage Loan was $975,000. The Mortgage Loan
bears interest at the floating annual rate of interest designated from time to
time by CoreStates Bank as the National Commercial Rate. GMIS had agreed to act
as surety for the Mortgage Loan under the Suretyship Agreement until June 30,
1997.
Pursuant to the Merger Agreement, GMIS has agreed to use its best efforts to
enter into an amendment to the Suretyship Agreement whereby (i) GMIS will be
under no obligation to guarantee any of the Stock Loans or the Mortgage Loan in
excess of the amounts outstanding on the date of the Merger Agreement for each
such loan (except to the extent of interest on amounts outstanding as of such
date),
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<PAGE>
(ii) CoreStates Bank will confirm that the underlying loans in respect of the
Suretyship Agreement will mature no later than June 30, 1997, and (iii) no
extension of such loans may be made without the written consent of HBOC-GA. In
addition, GMIS has agreed to use its best efforts to obtain the certificates
representing all shares of GMIS Common Stock owned by the officers for whose
benefit GMIS entered into the Suretyship Agreement together with stock powers or
pledge or other security agreements to secure the guarantee under the Suretyship
Agreement. The obtaining of such amendments and stock pledges and related
instruments is a condition precedent under the Merger Agreement to the
obligation of HBOC and HBOC-GA to close the transaction contemplated thereunder.
Kenneth G. Langone, a director of GMIS, is Chairman of the Board, Chief
Executive Officer and President of Invemed. Invemed receives only standard
commissions in connection with purchases under the above program. Invemed will
receive a fee of approximately one-half of $3,350,000 from CS First Boston in
connection with the Merger. See "The Merger Proposal--Opinion of Financial
Advisor of GMIS."
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF
HBOC COMMON STOCK AND GMIS COMMON STOCK
INTRODUCTION
HBOC and GMIS are each incorporated under the laws of the State of Delaware.
The holders of shares of GMIS Common Stock, whose rights as stockholders are
currently governed by Delaware law, the Amended and Restated Certificate of
Incorporation, as amended, of GMIS (the "GMIS Charter"), and the Second Amended
and Restated By-laws of GMIS (the "GMIS 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 GMIS 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 GMIS Common Stock under applicable Delaware law, the
GMIS Charter and GMIS 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 GMIS, to which holders of shares
of GMIS 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 GMIS Charter provides that GMIS has the authority to
issue (i) 30,000,000 shares of GMIS Common Stock and (ii) 2,000,000 shares of
preferred stock, par value $0.01 per share (the "GMIS Preferred Stock").
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
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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
GMIS Charter also grants such power to the GMIS Board. The GMIS Board has not
designated any series of Preferred Stock.
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
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 GMIS Common Stock are entitled to one vote per
share on all matters to be voted on by the stockholders of GMIS.
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 GMIS Bylaws provide that the GMIS Board
shall consist of one or more members and the GMIS Charter provides that the
number of directors shall be determined by resolution of the GMIS Board. The
GMIS Charter provides that the GMIS Board shall be divided into three classes.
The number of directors constituting the GMIS Board is currently seven (7).
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 GMIS 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. The
GMIS Charter does not contain a specific provision relating to business
combinations. See "--Anti-Takeover Protection."
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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 GMIS Bylaws
provide that, unless otherwise prescribed by law or the GMIS Charter, special
meetings of stockholders may be called for any purpose by the GMIS Board, the
Chairman of the GMIS Board or the Chief Executive Officer, and shall be called
by the Chief Executive Officer or Secretary at the request in writing of
stockholders owning at least a 25% interest in the capital stock of GMIS issued
and outstanding and entitled to vote. The written notice of a special meeting
shall state the purpose or purposes for which the meeting is called.
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 GMIS Charter does not prohibit such written consents.
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 GMIS Charter contains no provision requiring a
vote greater than that specified in the DGCL to amend the GMIS Charter, except
for those provisions relating to the number and classification of GMIS
directors, amendment of the GMIS Bylaws, voting for GMIS directors and the
provisions requiring such greater votes. See "--Anti-Takeover Protection."
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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 GMIS Charter also authorizes the GMIS
Board to make, alter and repeal the GMIS 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 GMIS 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 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 GMIS
Bylaws provide to directors and officers of HBOC and GMIS indemnification to the
fullest extent provided by law. Additionally, Article IX of the HBOC Bylaws and
Article XI of the GMIS Bylaws provide 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 or GMIS, as the case may be, as 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. Neither the HBOC Charter nor
the GMIS Charter has any provisions limiting the payment of dividends.
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
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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. GMIS has not
opted out of Section 203 in the GMIS Charter.
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 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 corporation. Neither the HBOC Charter nor the GMIS
Charter contains such a provision.
Because GMIS Common Stock is a Nasdaq NM security, the holders of shares of
GMIS 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.
There were a total of 5,300 community hospitals in the United States at December
31, 1995. 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, HBOC's customers included 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.
As of December 31, 1995, HBOC had 3,363 employees worldwide.
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BUSINESS OF GMIS
GMIS builds and licenses data quality tools and medical decision support
products that transform diverse data into useful information. This information,
and the clinical and business analyses that flow from it, is needed by
healthcare organizations to succeed in their dynamic, highly complex
environment. By combining clinical expertise and information technology, GMIS
creates tools for monitoring, evaluating and enhancing the management of
healthcare delivery. GMIS's products are designed to increase the efficiency
with which its customers manage costs and the appropriateness, quality and
efficiency of the delivery of medical care. Each of GMIS's products is designed
to address a specific aspect of healthcare management. When integrated as
building blocks, they are intended to provide a comprehensive medical management
system.
GMIS's core technologies are integrated into product offerings that break
down into two principal product lines: data quality tools and decision support
products. The data quality tool product line is designed to generate substantial
savings by reducing unnecessary payment to healthcare providers and by
decreasing overall administrative costs. The decision support products are
designed to optimize information management, enhance data analysis and identify
key actions and intervention points that will improve financial and clinical
outcomes.
GMIS's traditional markets are accident and health insurance companies, Blue
Cross and Blue Shield plans, managed care organizations, such as health
maintenance organizations and preferred provider organizations, and third-party
administrators. Large government payers, such as Medicare and Medicaid, are also
markets that GMIS's products currently serve. GMIS is continually in development
of new modules in both product lines. In addition, GMIS is continuing
development to adapt all of its products for use by new classes of customers
including providers of care and pharmaceutical companies.
As of December 31, 1995, GMIS had 222 employees, including approximately 212
full-time and 10 part-time employees.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, proposals of stockholders intended to be
presented at GMIS's 1997 annual meeting of stockholders must be received by GMIS
by November 19, 1996 for inclusion in GMIS'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 GMIS.
OTHER MATTERS
The management of GMIS 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 GMIS by
Fulbright & Jaworski L.L.P., New York, New York.
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
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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, and June 30, 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 GMIS Inc. incorporated by reference
in GMIS 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.
The financial statements of HSG at December 31, 1993 and 1994, and for each
of the three years in the period ended December 31, 1994 incorporated herein and
in the Registration Statement of which this Proxy Statement/Prospectus is a part
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon, and are incorporated herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
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APPENDIX A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, made this 23rd day of September, 1996, by and
among HBO & COMPANY, a Delaware corporation ("Parent"); HBO & COMPANY OF
GEORGIA, a Delaware corporation (hereinafter referred to as "Purchaser"); and
GMIS 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 GMIS 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 "Assumed Option" shall have the meaning set forth in Section 2.1.7.
1.8 "Benefit Plans" shall have the meaning set forth in Section 3.16.
1.9 "Certificate of Merger" shall have the meaning set forth in Section
2.1.2.
1.10 "Certificates" shall have the meaning set forth in Section 2.2.2
hereof.
1.11 "Closing" shall have the meaning set forth in Section 2.1.9 hereof.
1.12 "Closing Date" shall mean the date on which the Closing occurs
pursuant to Section 8.1 hereof.
1.13 "Consulting Agreement" shall mean the Consulting Agreement referred to
in Section 7.6.
1.14 "Covenants Not to Compete" shall mean the Covenants Not to Compete
referred to in Section 6.11.
1.15 "Customer Contracts" shall have the meaning set forth in Section
3.12.1.
1.16 "Delaware Code" shall mean the Delaware General Corporation Law.
1.17 "DOL" shall mean the United States Department of Labor.
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1.18 "Effective Time" shall mean the time the Merger becomes effective, as
set forth in Section 2.1.2.
1.19 "Employee Stock Purchase Plan" shall mean the GMIS Inc. 1995 Employee
Stock Purchase Plan.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.21 "ERISA Affiliate" shall mean, with respect to a Person, any other
Person that is required to be aggregated with such Person under Tax Code
Section414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
1.22 "ERISA Plan" shall have the meaning set forth in Section 3.16.
1.23 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.24 "Exchange Agent" shall mean the person designated by Purchaser as the
Exchange Agent pursuant to Section 2.2.1 hereof.
1.25 "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.
1.26 "Existing Option" shall have the meaning set forth in Section 2.1.7.
1.27 "401(k) Plan" shall mean the GMIS Inc. Retirement Savings Plan.
1.28 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and Improvements
Act of 1976, as amended.
1.29 "Hazardous Substance" shall have the meaning set forth in Section
3.18.
1.30 "Interim 1996 Financial Statements" shall have the meaning set forth
in Section 3.5.1.
1.31 "IRS" shall mean the United States Internal Revenue Service.
1.32 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
1.33 "Material Adverse Effect" shall mean a material adverse effect on the
businesses, properties, rights, financial condition or results of operations of
the corporation in question and its subsidiaries, taken as a whole.
1.34 "Material Contract" shall have the meaning set forth in Section 3.12.
1.35 "Merger" shall mean the merger of the Acquired Company with and into
Purchaser, as set forth in Section 2.1.1.
1.36 "Merger Consideration" shall have the meaning set forth in Section
2.1.6(a).
1.37 "Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotation System.
1.38 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.39 "Owned Software" shall have the meaning set forth in the first
paragraph of Section 3.13.
1.40 "Parent" shall mean HBO & Company, a Delaware corporation, which is
the sole stockholder of Purchaser.
1.41 "Parent Reports" shall have the meaning set forth in Section 4.5.
1.42 "Parent Stock" shall mean the common stock, $0.05 par value per share,
of Parent.
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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 "Stock Plans" shall mean Gabrieli Medical Information Systems, Inc.
1984 Incentive Stock Option Plan, Gabrieli Medical Information Systems, Inc.
1985 Non-Qualified Common Stock Option Plan, GMIS Inc. 1991 Stock Option Plan,
1993 Directors Stock Option Plan, The GMIS 1995 Stock Option Plan, Non-Qualified
Stock Option Agreement dated April 15, 1994 between GMIS Inc. and Josephine K.
Kaple and Non-Qualified Stock Option Agreement dated April 15, 1994 between GMIS
Inc. and Lawrence Koenig.
1.50 "Subsidiaries" shall mean the subsidiaries of the Acquired Company,
which are GMIS Investment Company, Inc., Medical Intelligence, Inc., Medical
Intelligence Review Services, Inc., GMIS Cash Management Company and GMIS
Trademark, Inc.
1.51 "Suretyship Agreement" shall mean the Suretyship Agreement dated as of
September 16, 1994 among Meridian Bank, the Acquired Company and the
Subsidiaries, as amended through the date hereof.
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.
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2.1.4. DIRECTORS. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
2.1.5. OFFICERS. The officers of Purchaser immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
2.1.6. CONVERSION OF SHARES. (a) Subject to Section 2.1.6(g) below,
each outstanding share of Acquired Company 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 forty-two hundredths (0.42) 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 Nasdaq (the "Market Value"), is less than
$47.62 per share but not less than $40.00 per share, then the number of
shares of Parent Stock to be received by the stockholders of the Acquired
Company will be a fractional share of Parent Stock determined by dividing
$20.00 by the Market Value;
(ii) if the Market Value is less than $40 per share, then the Acquired
Company stockholders shall receive one-half (0.50) of a share of Parent
Stock for each share of Acquired Company Stock; PROVIDED that in such event
the Acquired Company shall have the right to terminate the Merger prior to
Closing pursuant to Section 10.1.6 hereof unless Parent elects, in its sole
discretion, to increase the exchange ratio to that fraction that will allow
each stockholder of the Acquired Company to receive a fraction of a share of
Parent Stock having a Market Value of $20.00 for each share of Acquired
Company Stock in which case the Acquired Company shall not have the right to
terminate the Merger pursuant to Section 10.1.6; and
(iii) if the Market Value is greater than $64.00 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 a fractional share of Parent Stock determined by
dividing $26.88 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, if any, 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
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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.
(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 the date
of this Agreement but prior to the Effective Time effects a subdivision or
combination of the outstanding Parent Stock into a greater or lesser number of
shares, then and in each such event the Exchange Ratio 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. The Stock Plans shall be treated as follows:
(a) At the Effective Time, Parent shall assume the Acquired Company's rights
and obligations under each of the outstanding options previously granted under
the Stock Plans (each such option existing immediately prior to the Effective
Time being called an "Existing Option," and each such option so assumed by
Parent being called an "Assumed Option"), by which assumption the optionee shall
have the right to purchase that number of shares of Parent Stock (rounded down
to the nearest whole) into which the number of shares of Acquired Company Stock
the optionee was entitled to purchase under the Existing
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Option would have been converted pursuant to the terms of the Merger as
described in Section 2.1.6 hereof. Each Assumed Option shall constitute a
continuation of the Existing Option, substituting Parent for Acquired Company as
issuer and employment by Parent, Purchaser or one of their respective
subsidiaries for employment by the Acquired Company. The aggregate price for the
total number of shares of Parent Stock at which the Assumed Option may be
exercised shall be the aggregate price at which the Existing Option was
exercisable for the total number of shares of Acquired Company Stock, reduced
(as necessary for purposes of rounding down) to the price that will buy the
number of whole shares for which the Assumed Option will be exercisable in
accordance with this paragraph (a), and the purchase price per share of Parent
Stock thereunder shall be such aggregate price divided by the total number of
shares of Parent Stock covered thereby. The assumption of the Assumed Options by
Parent as provided in this Section 2.1.7 shall not, except as provided herein,
provide the holders thereof additional benefits which they did not have
immediately prior to the Effective Time or relieve the holders thereof of any
obligations or restrictions applicable to the Assumed Options or the shares of
Parent Stock obtainable upon exercise of the Assumed Options. EXHIBIT 2.1.7 sets
forth all outstanding stock options, stock appreciation rights, phantom stock
awards, performance share unit awards, equity participation rights, or similar
awards outstanding under the Stock Plans or any other Benefit Plan as of the
date hereof.
(b) The Acquired Company shall amend the Employee Stock Purchase Plan to
provide that the current offering period shall terminate on the date prior to
the Closing Date, in the event the Closing Date occurs prior to December 31,
1996 and, in such event, that all outstanding purchase rights granted under the
Employee Stock Purchase Plan shall be exercised on the day prior to the Closing
Date. As a result of such amendment, upon the consummation of the Merger, each
participant in the Employee Stock Purchase Plan on the day prior to the Closing
Date shall receive (i) the number of shares of Parent Stock into which the
shares of Acquired Company Stock issuable to such participant under the Employee
Stock Purchase Plan would have been converted and (ii) cash in lieu of any
fractional shares of Parent Stock, together with a cash refund of any excess of
the amount collected during the offering period, over the amount of the purchase
price of the Acquired Company Stock that otherwise would be issuable to such
participant. The Acquired Company shall further amend the Employee Stock
Purchase Plan to provide that no purchase rights shall be granted after December
31, 1996.
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 the transactions contemplated hereby
and any related matters, as appropriate, 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 best efforts, subject to the provisions of Section 2.11, to
obtain the necessary approval of the Merger by its stockholders.
2.1.9. CLOSING; FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V, VI and VII
hereof, the Acquired Company and Purchaser shall execute and file the
Certificate of Merger referred to in Section 2.1.2 in the manner required by the
Delaware Code, and the parties hereto shall take all such other and further
actions as may be required by law to make the Merger effective. Prior to the
filing referred to in this Section 2.1.9, a closing (the "Closing") will be held
as set forth in Section 8.1 hereof, for the purpose of confirming all of the
foregoing.
2.1.10. TERMINATION OF 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
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effective as of the date immediately preceding the Closing Date. In addition,
participants in the 401(k) Plan shall make no further deferrals with respect to
compensation for services performed after such termination date and the Acquired
Company shall make no further employer contributions to the 401(k) Plan after
such date, other than (i) employee compensation deferrals and (ii) matching
contributions with respect to employee deferrals of compensation for services
through the termination date. Parent and Purchaser shall take such action that
will permit current participants in the 401(k) Plan who are employed by
Purchaser to (x) participate in the HBO & Company Profit Sharing and Savings
Plan within ten (10) business days after the Closing Date and (y) credit each
such 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 (5) 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, 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), 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, including the prospectus and included
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therein 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 Acquired Company's
stockholders held to approve the Merger Agreement, contain any untrue statement
of a material fact, 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, Ernst &
Young LLP, to deliver and shall use its reasonable best efforts to cause such
accountants 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", which opinion letters shall be substantially in the
form of the opinion letter attached as EXHIBIT 2.3.2(A) hereto; and (ii) such
matters as are customarily contained in auditors' letters regarding information
about the Acquired Company included in the Registration Statement, which
auditors' letters shall be 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", which
letters shall be substantially in the form of the letter attached as EXHIBIT
2.3.2(B) hereto.
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 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 Acquired Company's stockholders 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 Parent makes no covenant as to those
portions of the Registration Statement containing or required to contain
Acquired Company Information. If at any time
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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 give reasonably prompt
notice to the Acquired Company and shall use its reasonable 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 covenants 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 Stock Plans, 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. Each of the Parent, the Purchaser and the
Acquired Company hereby acknowledge that as a result of disclosures by Parent,
Purchaser and the Acquired Company contemplated under this Agreement, the
Parent, Purchaser, the Acquired Company, the Subsidiaries and their affiliates
may, from time to time, have material, non-public information concerning such
parties and their respective subsidiaries or affiliated companies. Each of the
Acquired Company, the Parent and the Purchaser confirms that it, each of the
Subsidiaries and their affiliates are aware, and each party 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 Acquired
Company covenants that, between the date of this Agreement and the Effective
Time, the
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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) 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) 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) 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 new management agreements, data processing agreements, maintenance
agreements, license agreements and other agreements with customers in the
ordinary course of business on terms and prices consistent with historical
practices);
(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 Plans);
(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, 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, except as required by the GMIS Inc. 1991 Employee Stock Purchase
Plan and the GMIS Inc. 1995 Employee Stock Purchase Plan (in each case as in
effect on the date hereof);
(h) not adopt any new Benefit Plan or amend, supplement, or accelerate the
timing of payments or vesting under 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, vesting or distributions required (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 unless approved in
writing by Purchaser;
(k) not issue any shares of Acquired Company Stock other than shares issued
upon exercise of presently exercisable options or as required by the GMIS Inc.
1991 Employee Stock Purchase Plan or the GMIS Inc. 1995 Employee Stock Purchase
Plan (in each case as in effect on the date hereof);
(l) not alter in any manner not permitted herein the terms, conditions or
dates of vesting or exercise of any of the Options;
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(m) not effect any acquisition, by purchase of stock, assets or otherwise, of
any business or portion thereof or of any Person; 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 cause all of the
Acquired Company's and the Subsidiaries' federal, material state and material
local tax returns required to be timely filed before the Effective Time to be
timely and accurately filed with the appropriate taxing authorities. For
purposes of this Section 2.7, such returns shall be deemed timely filed if the
Acquired Company or the applicable Subsidiary has obtained an extension from the
appropriate taxing authority as to the time in which it may file such tax
returns. The Acquired Company shall submit all such tax returns to Purchaser at
least fifteen (15) days prior to the date they must be filed, and Purchaser
shall have the opportunity to comment on and approve such returns, which
approval shall not unreasonably be withheld.
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, upon reasonable prior notice, 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, upon reasonably prior
notice, 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, 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 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
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obligations thereunder. All obtained written waivers, consents and approvals
shall be produced at Closing in form and content reasonably satisfactory to
Purchaser.
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, endorse
or enter into any agreement with respect to, or take any other action
specifically to facilitate (including by way of furnishing information), 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 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, or 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.
2.13 TAX REPORTING. For federal and state tax purposes, Purchaser and
Parent shall report the transactions contemplated by this Agreement as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Tax Code and similar state laws. Prior to the Effective Time, the Acquired
Company will use its best efforts to deliver to Purchaser and Parent letters to
the reasonable
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satisfaction of Purchaser and Parent from certain holders of five percent (5%)
or more of the outstanding shares of Acquired Company Stock that provide
assurance that the Merger will satisfy the continuity-of-interest requirement
set forth in Treasury Regulations Section 1.368-1.
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, but not limited to this Agreement and the transactions contemplated
hereby, for a period of six years from the Effective Time (or, in the case of
matters occurring prior to the Effective Time which have come to the attention
of the Purchaser pursuant to written notice to Purchaser prior to the sixth
anniversary of the Effective Time but which have not been resolved prior to the
sixth anniversary of the Effective Time, until such matters are finally
resolved). Purchaser acknowledges that by virtue of the Merger it will become
obligated to perform the duties and obligations of the Acquired Company under,
but subject to the terms and conditions of, those certain indemnification
agreements of the Acquired Company set forth on EXHIBIT 2.14. 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 Date 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 CERTAIN REPORTS. Parent agrees to 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 first full calendar
month subsequent to Closing as soon as reasonably practicable.
2.16 GUARANTIES OF ACQUIRED COMPANY. Prior to or at the Closing, (a) all
loans and advances made by the Acquired Company to officers or directors of the
Acquired Company or any entity controlled by any of them, other than loans by
the Acquired Company to officers to pay interest owing to Meridian Bank on loans
to such officers for purposes of purchasing Acquired Company Stock, shall be
repaid along with all accrued interest and (b) as of the Closing, no outstanding
amounts shall be due to the Acquired Company from such officers, directors or
any such controlled entity. The Acquired Company shall not forgive any such
indebtedness nor shall it disperse funds by way of bonus or otherwise to such
officers or directors for the direct or indirect purpose of providing funds to
repay such loans or advances. The Acquired Company also shall use its reasonable
best efforts to (w) obtain the waiver and consent of Meridian Bank to the
transactions contemplated by this Agreement, which waiver and consent shall be
in form reasonably satisfactory to Purchaser and its counsel, (x) enter into a
further amendment to the Suretyship Agreement whereby the Acquired Company shall
be under no obligation to guarantee any loans in excess of the amounts
outstanding on the date hereof (except to the extent of interest on amounts
outstanding on the date hereof), (y) confirmation that each of the underlying
loans in respect of the Suretyship Agreement matures no later than June 30, 1997
and that no extension of such loans may be made without the prior written
consent of Purchaser, and (z) obtain the certificate(s) representing all shares
of Acquired Company Stock owned by the employees of the Acquired Company for
whose benefit the Acquired Company entered into the Suretyship Agreement,
together with stock powers executed in blank and pledge or other security
agreements sufficient to grant Purchaser a perfected security interest in such
shares to secure the Acquired Company's guaranty under the Suretyship Agreement
and any advances made by the Acquired
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Company to its employees in connection with loans made by Meridian Bank, all of
which documents shall be in form reasonably satisfactory to Purchaser and its
counsel.
2.17 DISSOLUTION OR MERGER. The parties hereto acknowledge and agree that
on the Closing Date, Purchaser will cause the Subsidiaries to be liquidated,
which may be effected, at the option of Purchaser, by corporate merger of the
Subsidiaries with and into Purchaser or any subsidiary of Purchaser or by
corporate dissolution of the Subsidiaries.
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 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 CS First Boston Corporation, 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.
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3.3 CAPITALIZATION. The entire authorized capital stock of the Acquired
Company consists of thirty-two million (32,000,000) shares of stock, of which
thirty million (30,000,000) shares are designated Common Stock, par value $.01
per share, and two million (2,000,000) shares are designated Preferred Stock,
par value $.01 per share. Of the total authorized Common Stock, as of September
5, 1996, 8,195,750 shares were issued and outstanding and no shares were held in
the Acquired Company's treasury. Of the total authorized Preferred Stock, no
shares have been issued. As of September 5, 1996, there were options outstanding
under the Stock Plans and the Employee Stock Purchase Plan entitling the
optionees thereunder upon valid exercise to acquire in the aggregate 1,668,517
shares of Common Stock. Since September 5, 1996, no options or other rights to
acquire Acquired Company Stock have been issued by the Acquired Company. 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 audited consolidated balance sheets as
of December 31, 1993, December 31, 1994 and December 31, 1995 and the related
consolidated statements of income, 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 June 30, 1996 and the related
consolidated statements of income, and cash flows for the six-month period then
ended (respectively, the "1993, 1994, 1995 and Interim 1996 Financial
Statements"). The 1993, 1994, 1995 and 1996 Interim Financial Statements are
complete, have been prepared in accordance with generally accepted accounting
principles, consistently applied, 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 disclose all liabilities of the
Acquired Company and the Subsidiaries, whether absolute, contingent, accrued or
otherwise, existing as of the date thereof that are of a nature required to be
reflected in financial statements prepared in accordance with generally accepted
accounting principles.
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
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obligations of the Acquired Company and the Subsidiaries that are disclosed or
reserved against in the Interim 1996 Financial Statements or EXHIBIT 3.5.2
hereto, to the extent and in the amounts so disclosed or reserved against, and
(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 not known to the Acquired Company
which would not in the aggregate 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, 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, 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. Except as set forth on EXHIBIT 3.6.1 hereto, 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. Except as set forth on EXHIBIT 3.6.2 hereto, the Acquired
Company nor any Subsidiary has made any parachute payments as such term is
defined in Section 280G of the Tax Code, neither is obligated to make any
parachute payments, and neither is a party to any agreement that under certain
circumstances could obligate it, or any successor in interest, to make any
parachute payments that will not be deductible under Section 280G of the Tax
Code.
3.6.3. The Acquired Company 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. No issue has been raised in writing or, to the knowledge of
the Acquired Company, other than in writing, 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.
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3.6.5. The Audited Financial Statements and the Interim 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.
3.6.6. 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, other than leased or
licensed property, 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 and in the amounts so disclosed or
reserved against) and except for liens arising from current taxes not yet due
and payable. Neither the Acquired Company, nor any Subsidiary, has received any
payment from a lessor or licensor in connection with or as inducement for
entering into a lease or license in which the Acquired Company or a Subsidiary
is a lessee or licensee, except licenses, fees and similar payment in historical
amounts and in the ordinary course of business. 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 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
(including, without limitation, the transactions described in Section 2.17) 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 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. Except for the applicable requirements of the
HSR Act, the 1933 Act, the Exchange Act and applicable Blue Sky laws, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental entity is required to be obtained or made by or
with respect to the Acquired Company, 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 June 30, 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 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.
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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 license, certificate, permit, franchise or
right held by the Acquired Company or any Subsidiary, 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: (i) involve a receipt 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 receipts in excess
of $100,000.00 per year. EXHIBIT 3.12 also identifies (by title, date, parties
and term) (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 management agreements, data processing agreements,
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 in excess of
$100,000.00 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 $100,000.00 per year
and all maintenance or service agreements relating to any real or personal
property with payments equal to or greater than $100,000.00 per year;
3.12.3. contracts or commitments providing for payments 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 in excess of $100,000.00 per year (and with respect to each such
agreement, EXHIBIT 3.12 sets forth the aggregate royalties or similar payment
paid or payable thereunder by the Acquired Company or any Subsidiary as of the
date hereof);
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3.12.5. employment contracts or arrangements regarding employees or
independent contractors (including without limitation any standard form
contracts such as employee nondisclosure agreements), or 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 $100,000.00 per year;
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. None of the Acquired
Company, the applicable Subsidiary and, to the best knowledge and belief 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 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 collectible accounts receivable in the aggregate in
amounts consistent 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 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. Except as set forth on EXHIBIT 3.13(A), each
Customer Contract conforms substantially to one of the forms attached hereto as
EXHIBIT 3.13(B) (the "Customer Contract Forms"). EXHIBIT 3.13(B) also includes
copies of standard forms employed by the Acquired Company and the Subsidiaries
in respect of current customers the contracts for which do not constitute
"Customer Contracts" by reason of the dollar threshold provided for in the
definition therefor in Section 3.12.1. With respect to each Customer Contract,
(i) each customer to which computer software represented as owned
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by or proprietary to the Acquired Company or a Subsidiary (the "Owned Software")
has been licensed pursuant to such 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
Customer Contract; (ii) in each case in which the 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 Customer Contract, including
warranties with respect to capacity, availability, downtime and response time,
have been satisfied in all material respects upon the terms and conditions and
to the extent provided for in such Customer Contract. In addition, none of the
Customer Contracts contains any of the following deviations from the Customer
Contract Forms:
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 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 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 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;
3.13.12. any commitment by the Vendor to sell or maintain 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.
3.14 INTELLECTUAL PROPERTY; COMPUTER SOFTWARE.
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3.14.1. EXHIBIT 3.14.1 hereto sets forth (i) a complete and correct
list of all trademarks, trade names, service marks, service names, and brand
names (whether or not any of the same are registered), and all patent 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 the Acquired Company or any
Subsidiary; (ii) the owner of such intellectual property and any registration
thereof or application therefor; and (iii) a complete list of all licenses
granted by or to the Acquired Company or any Subsidiary with respect to any of
the above. 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, claims, security interests and encumbrances. 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,
in the aggregate, 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, 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 as set forth on EXHIBIT 3.14.2(I) and except for
commercially available, over-the-counter "shrink-wrap" software, the Owned
Software is not dependent on any Licensed Software (as defined in subsection
(ii) below) in order to operate fully in the manner in which it is intended. No
Owned Software has been published or disclosed to any other parties, except as
set forth on EXHIBIT 3.14.2(I), and except pursuant to contracts requiring such
other parties to keep the Owned Software confidential. To the knowledge of the
Acquired Company, no such other party has breached any such obligation of
confidentiality.
3.14.2(ii) EXHIBIT 3.14.2(II) contains a complete and accurate list
of all software (other than commercially available over-the-counter
"shrink-wrap" software) under which the Acquired Company or any Subsidiary is a
licensee, lessee or otherwise has obtained the right to use (the "Licensed
Software"). The Acquired Company and any Subsidiary utilizing such Licensed
Software has the right and license to use, sublicense, modify and copy Licensed
Software as set forth in the respective license, lease or similar agreement
pursuant to which the Licensed Software is licensed to the Acquired Company or
any Subsidiary, free of any other limitations or encumbrances, and the Acquired
Company and each of the Subsidiaries are in full compliance with all applicable
provisions of such agreements, except with respect to any non-compliances which
would not have, in the aggregate, 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 Licensed Software. EXHIBIT
3.13.2(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 the
case of Licensed Software that the Acquired Company or a Subsidiary leases or
markets to others, in accordance with and as permitted by any license, lease or
similar agreement relating to the Licensed Software and except pursuant to
contracts requiring such other parties to keep the Licensed Software
confidential. No party to whom the Acquired Company or a Subsidiary has
disclosed Licensed Software has, to the knowledge of the Acquired Company,
breached such obligation of confidentiality.
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"). Except as disclosed on EXHIBIT 3.14.2(III)(A),
all contract programmers, independent contractors, nonemployee agents and
persons or other entities (other than employees) who have performed, within the
last three (3) years, computer
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programming services for the Acquired Company or any Subsidiary have executed an
agreement substantially in the form of EXHIBIT 3.14.2(III)(B). 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 any intellectual property rights of any
other person or entity with respect to the Acquired Company Software, and, to
the knowledge of the Acquired Company, no other person or entity is infringing
any intellectual property rights of the Acquired Company 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 to third parties.
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 applicable foreign jurisdictions where the Acquired Company
or a Subsidiary has marketed or licensed Acquired Company Software that would
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 from the Acquired
Company and each Subsidiary to their respective employees. The Acquired Company
and all Subsidiaries are in substantial compliance with all applicable
requirements of the Immigration and Nationality Act of 1952, as amended by the
Immigration Reform and Control Act of 1986 and the regulations promulgated
thereunder (hereinafter collectively referred to as the "Immigration Laws").
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 (i) is, or within the past
six years prior to the date hereof was, 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 (ii) 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
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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, actuarial statements or
valuations, fidelity bonds, fiduciary liability policies, investment manager or
advisory contracts, and all amendments (if any) thereto, (b) where applicable,
with respect to any such plans or plan amendments, the most recent determination
letters issued by the IRS, and (c) the most recent summary plan descriptions,
any material modifications thereto, and all material employee communications
with respect to such Benefit Plans. 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. Except as set forth on EXHIBIT 3.16, 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 is it likely to render such Benefit Plan or related trust or the Parent,
Purchaser or Acquired Company subject to or liable for any material taxes,
penalties, or liabilities to any Person.
3.16.4. None of the Acquired Company, 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 would 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. 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, (i) 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), and (ii) no action, legal or otherwise, has been commenced
with respect to any claim.
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. All
annual reports (Form 5500 series) required to be filed with respect to any
Benefit Plan have been or will be timely filed.
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. Each Benefit Plan that is or has been an "employee pension
benefit plan" as defined in Section 3(2) of ERISA is a defined contribution plan
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 (a "Qualified Plan") and no
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circumstances exist that are likely to result in disqualification of any
Qualified Plan or loss of tax-exempt status for its related trust or in the
imposition of any material monetary sanction to avoid disqualification. No
Qualified Plan (nor any predecessor to a Qualified 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 June 30, 1996, the Acquired Company had no current or
future liability with respect to any events or matters occurring, arising or
accruing on or prior to such date under any Benefit Plan that was not reflected
in the Interim 1996 Financial Statements, except for any liabilities which would
not have, in the aggregate, 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. 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. None of the Acquired Company and the Subsidiaries has
received any notice from, or has any knowledge that, any customer of the
Acquired Company or any Subsidiary as of December 31, 1995 or any date
subsequent thereto 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, including without limitation any cancellation
of contract, diminution of business or failure to renew, or any intention to do
any of the foregoing. None of the Acquired Company, any Subsidiary, any
director, officer, agent, employee, or other Person associated with or acting on
behalf of the Acquired Company or any Subsidiary has, directly or indirectly (i)
used any corporate funds for unlawful contributions, gifts, entertainment, or
other unlawful expenses relating to political activity; (ii) made any unlawful
payment to domestic or foreign government officials or employees, or to domestic
or foreign political parties or campaigns, from corporate funds; (iii) violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended; (iv)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; (v) made any false or fictitious entry on the books or records of
Acquired Company or any Subsidiary; (vi) made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment; (vii) given any favor or
gift which is not deductible for federal income tax purposes; or (viii) made any
bribe, kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless of form,
whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained. The
Acquired Company and the Subsidiaries have complied with all applicable
statutes, ordinances, rules, regulations and orders relating to seeking,
bidding, obtaining, performing under or otherwise complying with, contracts with
governmental and quasi-governmental authorities, agencies or other entities.
3.18 ENVIRONMENTAL MATTERS. Except as set forth in Exhibit 3.18, no real
property now or previously owned, leased or used 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
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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 or any asbestos-containing materials,
and such buildings and improvements are free from radon contamination. For the
purposes of this Agreement, "Hazardous Substance" shall mean any hazardous or
toxic substance or waste as those terms are defined by any applicable federal,
state or local law, ordinance, regulation, policy, judgment, decision, order or
decree, including, without limitation, the Comprehensive Environmental Recovery
Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ., the Hazardous Materials
Transportation Act, 49 U.S.C. Section1801 ET SEQ. and the Resource Conservation
and Recovery Act, 42 U.S.C. 6901 ET SEQ., and petroleum, petroleum products and
oil.
3.19 INSURANCE. Set forth in EXHIBIT 3.19 is a complete list of all
material insurance policies that the Acquired Company and the Subsidiaries
maintained with respect to its 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 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
Acquired Company's or any Subsidiary's relationship with their respective
insurers or in the premiums payable pursuant to such policies.
3.20 RELATED PARTY RELATIONSHIPS. Except as set forth in EXHIBIT 3.20, no
stockholder owning greater than a five-percent (5%) interest in the Acquired
Company, no affiliate or member of the immediate family of any such stockholder,
and no officer or director or member of the immediate family of such officer or
director of the Acquired Company 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). The Acquired Company has not breached and to date has
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fulfilled all of its duties and obligations under those certain indemnification
agreements of the Acquired Company listed on EXHIBIT 2.14 hereof, and there are
no claims pending or sums due but unpaid thereunder.
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 Reports on Form 10-Q for the quarters ended March 31 and June 30,
1996, and (c) 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, taken together with information
previously furnished by the Acquired Company to Parent or Purchaser, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. As used
in this Section 3.21, "material" means material to the financial condition,
business, properties, rights or operations of the Acquired Company 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 EXHIBITS. All Exhibits attached hereto are true, correct and complete
as of the date of this Agreement and will be true, correct and complete as of
the Closing Date, except to the extent that such Exhibits may be untrue,
incorrect or incomplete due to changes occurring due to the operation of the
Acquired Company and the Subsidiaries in the ordinary course, which shall not
individually or in the aggregate have a Material Adverse Effect. Matters
disclosed on each Exhibit shall be deemed disclosed only for purposes of the
matters to be disclosed on such Exhibit and shall not be deemed to be disclosed
for any other purpose unless expressly provided therein.
3.24 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 furnished contain, any
untrue statement of any material fact or omits or omit to state any 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.
3.25 NO SPECIAL STOCKHOLDER RIGHTS. The Acquired Company has no agreement
with any individual or entity that grants such person any rights as a
stockholder of Acquired Company Stock that are in addition to such holder's
rights under the Acquired Company's Certificate of Incorporation or Bylaws
(including, without limitation, registration rights, preemptive rights, put
rights, rights of co-sale or rights to Board representation).
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.
Purchaser and Parent, jointly and severally, represent and warrant to the
Acquired Company as follows:
4.1 ORGANIZATION AND STANDING. Each of Purchaser and Parent is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware 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. Each of the
Purchaser and the Parent 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 and the Parent and
the
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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 and the Parent, 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.
4.3 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution and
delivery of this Agreement by Purchaser and Parent do not, and the consummation
of the transactions contemplated hereby will not, violate any provisions of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of Purchaser or
of Parent, and violate or constitute an occurrence of default under any
provision of, or conflict with, result in acceleration of any obligation under,
or give rise to a right by any party to terminate its obligations under, any
mortgage, deed of trust, conveyance to secure debt, note, loan, lien, lease,
agreement, instrument, or any order, judgment, decree or other arrangement to
which Purchaser or Parent is a party or is bound or by which any of their
respective assets are affected. Except for the applicable requirements of the
HSR Act, the 1933 Act, the Exchange Act and applicable Blue Sky laws, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental entity is required to be obtained or made by or
with respect to Purchaser or Parent or any assets, properties or operations of
Purchaser or Parent in connection with the execution and delivery by Purchaser
and Parent of this Agreement or the consummation of the transactions
contemplated hereby.
4.4 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.
4.5 INFORMATION. Parent has made available to the Acquired Company each
registration statement, schedule, report, proxy statement or information
statement it has filed with the Securities and Exchange Commission since January
1, 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 Reports on
Form 10-Q for the quarters ended March 31 and June 30, 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 its
subsidiaries (including Purchaser), taken as a whole. Since June 30, 1996, the
Parent has made all material filings with the SEC in a timely manner as required
by law and no event has occurred that requires an additional material filing or
an amendment to a prior material filing.
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4.6 CAPITALIZATION. The entire authorized capital stock of the Parent
consists of 251,000,000 shares of stock, of which 250,000,000 shares are
designated Common Stock, par value $.05 per share, and 1,000,000 shares are
designated Preferred Stock, without par value. Of the total authorized Common
Stock, as of August 31, 1996, approximately 85,276,757 shares were issued and
outstanding and approximately 32,276,933 shares were held in the Parent's
treasury. Of the total authorized Preferred Stock, no shares have been issued.
As of August 31, 1996, there were options outstanding entitling the optionees
thereunder, to acquire in the aggregate approximately 6,312,037 shares of the
Parent Stock. 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 share 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 issued, 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.
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, deemed
applicable to the Merger or this Agreement or proposed by any government,
governmental authority or agency or court, domestic or foreign, and no claim or
action shall have been instituted by any Person before a court, government or
governmental authority or agency, 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.
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5.4 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
adopted and approved by the affirmative vote or written consent of the holders
of the outstanding shares of Acquired Company Stock by the vote or written
consent required by, and in accordance with, the Delaware Code.
5.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC, and no stop order 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.
5.7 FAIRNESS OPINION. The Acquired Company shall have received an opinion
dated as of the date of the mailing of the proxy statement/prospectus included
within the Registration Statement to the stockholders of the Acquired Company
from CS First Boston Corporation, 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.
6.2 COVENANTS OF ACQUIRED COMPANY. The Acquired Company shall have, or
caused to be, performed and observed 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. In addition, Parent
shall have received both a certificate dated as of the effective date of the
Registration
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Statement and a certificate dated as of the Closing Date certifying that the
covenants set forth in Sections 2.3.1 and 2.3.2 hereof have been performed and
that the representations set forth in Sections 3.21 and 3.24 hereof are true and
correct as of such dates.
6.5 OPINION OF ACQUIRED COMPANY'S COUNSEL. Purchaser and Parent shall have
received an opinion of counsel for the Acquired Company in customary form
reasonably acceptable to Purchaser.
6.6 TAX OPINION. Purchaser and Parent shall have received an opinion from
their counsel, dated as of the date the Registration Statement is declared
effective and not withdrawn or materially modified 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, which opinion shall be substantially in the form of
EXHIBIT 6.6 hereto.
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.
6.8 ADDITIONAL INSTRUMENTS. 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, consents, waivers, approvals, endorsements and documents as Parent
and Purchaser reasonably deem to be necessary to enable the Merger to be
consummated as provided in this Agreement. All other proceedings in connection
with the Merger and the other transactions contemplated hereby, and all
instruments, consents, waivers, approvals, endorsements and documents referred
to hereunder or otherwise incident to such transactions, shall be reasonably
satisfactory in form and substance to Parent and Purchaser and their counsel,
including, without limitation, those consents, waivers and approvals referred to
in Section 2.9 hereof.
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, in each case 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, which letters shall be substantially in
the form of EXHIBITS 2.3.2(A) and 2.3.2(B), respectively.
6.10 ACCOUNTANT'S COMFORT LETTERS. Purchaser and Parent shall have
received letters from Ernst & Young LLP dated as of the effective date of the
Registration Statement and as of the Closing Date, in each case 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 6.11(A),
with each such agreement in the form of EXHIBIT 6.11(B) hereto (a "Covenant Not
to Compete").
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
CS First Boston Corporation and Invemed Associates which shall not be in excess
of the sum identified on EXHIBIT 6.12 attached hereto.
6.13 GUARANTIES. The Acquired Company shall have delivered to Purchaser
the instruments, documents and agreements described in Section 2.16, in each
case duly executed by the parties thereto.
VII. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY.
All the obligations of the Acquired Company to consummate the Merger shall
be contingent upon and subject to the satisfaction, on or before the Closing, of
each and every one of the following conditions. The
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following conditions are for the sole benefit of the Acquired Company and may be
asserted by the Acquired Company regardless of the circumstances giving rise to
any such condition and may be waived by the Acquired Company, in whole or in
part, at any time and from time to time, in the sole discretion of the Acquired
Company for purposes of consummating the transactions contemplated herein. The
failure by the Acquired Company at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any other right, and each right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
7.1 REPRESENTATIONS OF PURCHASER AND PARENT. All representations and
warranties made by Purchaser and Parent in this Agreement (except as affected by
the transactions contemplated by this Agreement) shall be true and correct in
all material respects at the Closing Date, with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date.
7.2 COVENANTS OF PURCHASER AND PARENT. Purchaser and Parent shall have, or
caused to be, performed and observed in all respects all covenants, agreements
and conditions hereof to be performed or observed by them at or before the
Closing Date.
7.3 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 and 7.2 above.
7.4 OPINION OF PARENT'S AND PURCHASER'S COUNSEL. The Acquired Company
shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Parent
and Purchaser, dated as of the Closing Date, of customary form reasonably
acceptable to Acquired Company.
7.5 TAX OPINION. The Acquired Company shall have received for the benefit
of its stockholders an opinion from its tax counsel, dated as of the date the
Registration Statement is declared effective and not withdrawn or materially
modified 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, which opinion shall
be substantially in the form of EXHIBIT 7.5 hereto.
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 certificates described in Section 6.4 to be delivered on the
Closing Date;
(d) certificates of compliance or certificates of good standing of
the Acquired Company and of the Subsidiaries, as of the most recent
practicable date, from the appropriate governmental
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authority of the jurisdiction of their respective incorporation and any
other jurisdiction that is set forth in EXHIBIT 3.1 hereto;
(e) certified copies of resolutions of the Board of Directors and
stockholders of the Acquired Company approving the transactions set forth
in this Agreement;
(f) certificates of incumbency for the officers of the Acquired
Company;
(g) resignations of each trustee of each Benefit Plan;
(h) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by the Acquired
Company;
(i) the opinion of counsel for the Acquired Company, referenced in
Section 6.5;
(j) the tax opinion described in Section 6.6;
(k) the Rule 145 Letters and Pooling Letters described in Section
2.4;
(l) the letters described in Section 2.13 hereof;
(m) the letters described in Section 2.3.2 hereof;
(n) the letters from Ernst & Young LLP to be delivered by the
Closing Date as described in Section 6.9;
(o) each of the Covenants Not to Compete fully executed and
delivered; and
(p) 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 certificate described in Section 7.3;
(b) certificates of incumbency of the officers of Purchaser and of
Parent who are executing this Agreement and the other documents
contemplated hereunder;
(c) certified copies of resolutions of the Boards of Directors of
each of Purchaser and Parent (or Executive Committees thereof) approving
the transactions set forth in this Agreement;
(d) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by Purchaser;
(e) the opinion of counsel for Purchaser and Parent referenced in
Section 7.4; and
(f) 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;
(g) such other evidence of the performance of all the covenants and
satisfaction of all of the conditions required of Purchaser and of Parent
by this Agreement at or before the Closing as the Acquired Company or its
counsel may reasonably require.
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IX. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
9.1 Except for the covenants contained in Sections 2.1.10, 2.2.2, 2.3.6,
2.3.8, 2.13, 2.14, 2.15 and 11.5, all representations, warranties and agreements
of the parties 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 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
January 31, 1997, 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 January 31, 1997, 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.
10.1.6. By the Board of Directors of the Acquired Company after
January 31, 1997, if the Market Value of the Parent Stock is less than $40.00
per share unless the Parent elects to take the action set forth in Section
2.1.6(a)(ii).
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 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. In the event of any termination of this
Agreement, the parties shall retain any and all rights attendant to a breach of
any covenant, representation or warranty made hereunder.
10.2.2. In the event the Agreement is terminated by the Acquired
Company in accordance with the Section 10.1.5, or 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
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Acquired Company shall promptly pay (i) 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 $7,000,000.00.
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: GMIS Inc.
5 Country View Road
Malvern, Pennsylvania 19355
Attn: Mr. Thomas R. Owens
and to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attn: Warren J. Nimetz, 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.
A-34
<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, except for Smith Barney, 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 Parent that, except for CS First Boston
Corporation, 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 CS First Boston
Corporation and/or Invemed Associates 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 fees and expenses of CS First Boston
Corporation and/or Invemed Associates, and any other broker or finder shall be
paid by the Acquired Company, subject to the limitations set forth in Section
6.13 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.
A-35
<PAGE>
11.10 GOVERNING LAW. Except to the extent the transactions contemplated
hereby are governed by the Delaware Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of Georgia.
11.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.12 NO AGREEMENT UNTIL EXECUTED. This Agreement shall not constitute or
be deemed to evidence a contract or agreement among the parties hereto unless
and until executed by all parties hereto, irrespective, of negotiations among
the parties or the exchanging of drafts of this Agreement.
11.13 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.14 EXHIBITS INCORPORATED. All Exhibits attached hereto are an integral
part of this Agreement.
11.15 TIME OF ESSENCE. Time is of the essence in this Agreement.
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement
to be executed on its behalf, all on the day and year first above written.
"PURCHASER":
HBO & COMPANY OF GEORGIA
By: /S/ JAY P. GILBERTSON_____________
Title: Senior Vice President Finance
and____________________________
Chief Financial Officer________
"PARENT":
HBO & COMPANY
By: /S/ JAY P. GILBERTSON_____________
Title: Senior Vice President Finance
and____________________________
Chief Financial Officer________
"ACQUIRED COMPANY":
GMIS INC.
By: /S/ THOMAS R. OWENS_______________
Title: President______________________
A-36
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT OF MERGER, made as of the 1st day of
November, 1996, by and among HBO & COMPANY, a Delaware corporation, HBO &
COMPANY OF GEORGIA, a Delaware corporation and GMIS INC., a Delaware
corporation.
All capitalized terms used herein shall have the meaning ascribed to same in
that certain Agreement of Merger by and among the parties hereto dated September
23, 1996 ("Merger Agreement").
For good and valuable consideration, the sufficiency of which is hereby
acknowledged by the parties hereto, the parties hereto agree to an amendment to
clause (x) of Section 2.1.10 of the Merger Agreement wherein such clause is
restated in its entirety to provide as follows:
"(x) participate in the HBO & Company Profit Sharing and Savings
Plan within ten (10) business days after the Closing Date should the
Closing occur after December 31, 1996, or so participate as of January
1, 1997 if the Closing occurs on or prior to December 31, 1996 and"
Further, Parent and Purchaser agree that Acquired Company may effect the
payment of its December 15, 1996 payroll during December, 1996 on any day prior
to December 15, 1996, and such payment shall not be deemed to be a violation of
Section 2.6 of the Merger Agreement or any other provision thereof.
IN WITNESS WHEREOF, each party hereto has executed or caused this First
Amendment to be executed on its behalf, all as of the day first above written.
HBO & COMPANY
By: /S/ JAY P. GILBERTSON_____________
HBO & COMPANY OF GEORGIA
By: /S/ JAY P. GILBERTSON_____________
GMIS INC.
By: /S/ THOMAS L. SIMPSON_____________
A-37
<PAGE>
APPENDIX B
[LOGO] CS FIRST BOSTON CORPORATION
55 EAST 52ND STREET
NEW YORK, NY 10055-0186
TELEPHONE 212 909 2000
November 6, 1996
GMIS Inc.
5 Country View Road
Malvern, PA 19355
Dear Sirs:
You have asked us to advise you with respect to the fairness to the
stockholders of GMIS Inc. (the "Company") from a financial point of view of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement of Merger, dated as of September 23, 1996 (the "Acquisition
Agreement"), among the Company, HBO & Company (the "Acquiror"), and a wholly
owned subsidiary of the Acquiror (the "Sub"). The Acquisition Agreement provides
for the merger (the "Merger") of the Company with and into the Sub pursuant to
which the Company will become a wholly owned subsidiary of the Acquiror and each
outstanding share of common stock, par value $0.01 per share, of the Company
will be converted into 0.42 of a share of common stock of the Acquiror, subject
to adjustment pursuant to the Acquisition Agreement.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as the Acquisition Agreement. We have also reviewed certain other
information, including financial forecasts, provided to us by the Company and
the Acquiror, and have met with the Company's and the Acquiror's managements to
discuss the business and prospects of the Company and the Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared that data with similar data for
other publicly held companies in businesses similar to those of the Company and
the Acquiror and we have considered the financial terms of certain other
business combinations and other transactions which have recently been effected.
We also considered such other information, financial studies, analyses and
investigations and financial economic and market criteria which we deemed
relevant. We have also relied upon the views of the Company's management
concerning the business, operational and strategic benefits and implications of
the Merger. We have assumed, with your consent, that the Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and the Acquiror's managements as to the future financial performance
of the Company and the Acquiror. In addition, we have not made an independent
evaluation or appraisal of the assets or liabilities (contingent
B-1
<PAGE>
or otherwise) of the Company or the Acquiror, nor have we been furnished with
any such evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to what the
value of the stock of the Acquiror actually will be when issued to the Company's
stockholders pursuant to the Merger or the prices at which such stock will trade
subsequent to Merger.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and the
Acquiror for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Merger,
does not constitute a recommendation to any stockholder as to how such
stockholders should vote on the proposed Merger and is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus or
proxy statement, or in any other document used in connection with the offering
or sale of securities, nor shall this letter be used for any other purposes,
without CS First Boston's prior written consent, which will not be unreasonably
withheld.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the Company
in the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: /s/ ANDREW R. TAUSSIG
----------------------------------
Andrew R. Taussig
Managing Director
B-2
<PAGE>
PROXY
GMIS INC.
5 COUNTRY VIEW ROAD
MALVERN, PENNSYLVANIA 19355
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. Owens and Thomas L. Simpson, 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 GMIS Inc. held of record by
the undersigned on November 1, 1996, at a Special Meeting of Stockholders to be
held on December 9, 1996 or any adjournment thereof upon the following matter,
as set forth in the Notice of said Meeting dated November 6, 1996, a copy of
which has been received by the undersigned.
<TABLE>
<S> <C> <C>
1. APPROVAL OF AGREEMENT OF MERGER dated September 23, 1996, as amended, by and among GMIS 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 adjournments thereof.
</TABLE>
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 MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY 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
whomhe 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 proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, 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 in respect of any
claim, issue or matter as to
II-1
<PAGE>
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. The following exhibits are filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
2 Agreement of Merger dated September 23, 1996, as amended, by and among HBO & Company, HBO & Company of
Georgia and GMIS 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 Fulbright & Jaworski L.L.P. re tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Ernst & Young LLP.
23(d) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(e) Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 8).
23(f) Consent of CS First Boston Corporation.
*24 Power of Attorney (included in signature page).
99 Side letter dated as of September 23, 1996 by and among HBO & Company, HBO & Company of Georgia, Thomas
R. Owens and Thomas L. Simpson.
</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
- ----------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
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 CS First Boston Corporation 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
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
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<PAGE>
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Admendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, State of Georgia, on the 5th day of November, 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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director, President and
/s/ CHARLES W. MCCALL Chief Executive Officer
- ------------------------------ (Principal Executive November 5, 1996
(Charles W. McCall) Officer)
Senior Vice President --
Finance, Chief Financial
Officer, Principal
/s/ JAY P. GILBERTSON Accounting Officer,
- ------------------------------ Treasurer and Assistant November 5, 1996
(Jay P. Gilbertson) Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
*
- ------------------------------ Chairman of the Board of
(Holcombe T. Green, Jr.) Directors
*
- ------------------------------ Director
(Alfred C. Eckert III)
*
- ------------------------------ Director
(Philip A. Incarnati)
II-6
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Director
(Alton F. Irby III)
*
- ------------------------------ Director
(Gerald E. Mayo)
*
- ------------------------------ Director
(James V. Napier)
- ------------------------------ Director
(Charles E. Thoele)
*
- ------------------------------ Director
(Donald C. Wegmiller)
<TABLE>
<S> <C> <C> <C>
/s/ CHARLES W. MCCALL
---------------------------------------
*Charles W. McCall November 5, 1996
By: Attorney-in-Fact
/s/ JAY P. GILBERTSON
---------------------------------------
*Jay P. Gilbertson November 5, 1996
Attorney-in-Fact
By:
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ---------
<S> <C> <C>
2 Agreement of Merger dated September 23, 1996, as amended, by and among HBO & Company, HBO &
Company of Georgia and GMIS 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 Fulbright & Jaworski L.L.P. re tax matters..........................................
23(a) Consent of Arthur Andersen LLP.................................................................
23(b) Consent of Ernst & Young LLP...................................................................
23(c) Consent of Ernst & Young LLP...................................................................
23(d) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5)..................................
23(e) Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 8).................................
23(f) Consent of CS First Boston Corporation.........................................................
*24 Power of Attorney (included in signature page).................................................
99 Side letter dated as of September 23, 1996 by and among HBO & Company, HBO & Company of
Georgia, Thomas R. Owens and Thomas L. Simpson...............................................
</TABLE>
- ------------------------
*Previously filed.
<PAGE>
EXHIBIT 5
JONES, DAY, REAVIS, & POGUE
3500 One Peachtree Center
303 Peachtree Street
Atlanta, Georgia 30308-3242
404-521-3939
November 5, 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 4,932,624 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.
333-14357) (the "Registration Statement"), filed with the Securities and
Exchange Commission.
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
<TABLE>
<S> <C> <C>
FULBRIGHT & JAWORSKI
L.L.P.
TELEPHONE: A REGISTERED LIMITED HOUSTON
212/318-3000 LIABILITY PARTNERSHIP WASHINGTON,
FACSIMILE: 666 FIFTH AVENUE D.C.
212/752-5958 NEW YORK, NEW YORK AUSTIN
WRITER'S INTERNET 10103-3198 SAN ANTONIO
ADDRESS: DALLAS
HTTP://WWW.FULBRIGHT.COM NEW YORK
WRITER'S DIRECT DIAL LOS ANGELES
NUMBER: LONDON
212/318-3000 HONG KONG
</TABLE>
November 6, 1996
GMIS Inc.
5 Country View Road
Malvern, PA 19355
Ladies and Gentlemen:
This opinion is being delivered in connection with the Agreement of Merger
("Merger Agreement"), dated as of September 23, 1996, by and among HBO & Company
("HBOC"), HBO & Company of Georgia ("HBOC-GA"), and GMIS Inc. ("GMIS"). Pursuant
to the Merger Agreement, GMIS will merge with and into HBOC-GA (the "Merger")
and HBOC-GA will be the survivor. This opinion is issued with respect to certain
Federal income tax consequences of the Merger. References to such opinion is
made in Proxy Statement/Prospectus of GMIS and HBOC, dated November 6, 1996.
All capitalized terms not otherwise defined herein have the meaning assigned
to them in the Merger Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to GMIS in connection with the Merger. As
such, and 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 independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents:
1. The Merger Agreement;
2. The Proxy Statement/Prospectus of HBOC and GMIS, dated November 6,
1996;
3. Representations made to us by HBOC and HBOC-GA in a letter
reproduced as Attachment A hereto;
4. Representations made to us by GMIS in a letter reproduced as
Attachment B hereto;
5. Such other documents, records and matters of law as in our judgement
were necessary of appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that original documents (including
signatures) are authentic, that documents submitted to us as copies conform to
the original documents, and that 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 the effectiveness thereof.
<PAGE>
November 6, 1996
Page 2
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:
1. The Merger will qualify as a reorganization pursuant to Section
368(a) of the Code;
2. No gain or loss will be recognized by GMIS as the result of the
consummation of the Merger;
3. No gain or loss will be recognized by a GMIS stockholder upon the
exchange of the shares of GMIS 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;
4. The aggregate adjusted tax basis of shares of HBOC Common Stock
received (including fractional share interest deemed received) by a GMIS
stockholder as the result of the Merger will be the same as the aggregate
adjusted tax basis of the shares of GMIS Common Stock surrendered in
exchange therefor;
5. The holding period of the shares of HBOC Common Stock received
(including fractional share interests deemed received) by a GMIS stockholder
as a result of the Merger will include the holding period of the shares of
GMIS Common Stock surrendered in exchange therefor, provided that such GMIS
Common Stock is held as a capital asset by the GMIS stockholder at the
consummation of the Merger; and
6. A GMIS stockholder who receives cash in lieu of a fractional
interest in shares of HBOC Common Stock will be treated as if the fractional
share were distributed as part of the exchange and then as having received a
cash distribution in redemption of such fractional share, which would be
taxed as provided in Section 302 of the Code.
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 judgement 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 we cannot provide assurance that the Internal Revenue Service will
not assert a contrary position. Furthermore, we cannot provide assurance that
future legislative, judicial or administrative changes would not, on either a
prospective or retroactive basis, adversely affect the accuracy of the
conclusions stated herein. Moreover, we undertake no responsibility to advise
you of any new developments in the application or interpretation of the Federal
income tax laws as they might relate to this opinion.
2. This opinion addresses only whether the Merger will qualify as a
reorganization under Section 368(a) of the Code and the tax consequences listed
above. The opinion does not address any other Federal, state, local or foreign
tax consequences that may result from the Merger or any other transaction.
3. No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement. Moreover, we have assumed that all the
transactions described in the Agreements have been or will be consummated in
accordance with the terms of such Agreements and without waiver or breach of any
material provision thereof and that all of the representations, warranties,
statements and assumptions upon which we have relied remain true and accurate at
all relevant times. In the event that any of these assumptions upon which we
have relied is incorrect, this opinion may be adversely affected and be unable
to be relied upon.
<PAGE>
November 6, 1996
Page 3
4. This opinion has been delivered to you for the purpose of satisfying the
condition set forth in Section 7.5 of the Merger Agreement 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 written consent.
5. We hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement on Form S-4 (File No. 333-14357) filed with the
Securities and Exchange Commission by HBO & Company and the reference to this
firm under the headings "Certain Federal Income Tax Consequences" and "Certain
Legal Matters" in such Registration Statement.
Very truly yours,
/s/ Fulbright & Jaworski 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
included or 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.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 4, 1996
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our report dated February 6, 1996, with
respect to the consolidated financial statements of GMIS Inc. incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 31, 1995,
in the Proxy Statement of GMIS Inc. that is made a part of Amendment No. 1 to
the Registration Statement (Form S-4) and related Prospectus of HBO & Company
for the registration of 4,932,624 shares of its common stock.
We also consent to the incorporation by reference therein of our report
dated March 25, 1996 with respect to the financial statement schedule of GMIS
Inc. for the years ended December 31, 1995, 1994, and 1993 included in the
Annual Report (Form 10-K) for 1995 filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 4, 1996
<PAGE>
EXHIBIT 23(C)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Proxy Statement of GMIS Inc. which is made
a part of the Registration Statement (Form S-4) and related Prospectus of HBO &
Company for the registration of 4,932,624 shares of its common stock, of our
reports dated January 26, 1995 (except for Note 12, as to which the date is June
17, 1995) and March 31, 1995 (except for Note 11, as to which the date is June
17, 1995), with respect to the financial statements of the Health Services
Business of First Data Health Systems Corporation included in the Current Report
on Form 8-K of HBO & Company dated July 31, 1995.
ERNST & YOUNG LLP
Denver, Colorado
November 4, 1996
<PAGE>
[LOGO] CS FIRST BOSTON CORPORATION
55 EAST 52ND STREET
NEW YORK, NY 10055-0186
TELEPHONE 212 909 2000
EXHIBIT 23(f)
CONSENT
OF
CS FIRST BOSTON CORPORATION
Board of Directors
GMIS Inc.
5 Country View Road
Malvern, PA 19355
Members of the Board:
We hereby consent to the inclusion of (i) our opinion letter to the Board of
Directors of GMIS Inc. (the "Company") as Appendix B in the Proxy
Statement/Prospectus dated the date thereof included in the Registration
Statement of HBO & Company on Form S-4 (the "Registration Statement") relating
to the proposed merger involving the Company and a wholly owned subsidiary of
HBO & Company, and (ii) references made to our firm and such opinion in the
Registration Statement under the captions entitled "SUMMARY--The Merger
Proposal," "THE MERGER PROPOSAL--Background of the Merger," "THE MERGER
PROPOSAL--Reasons of GMIS for Engaging in the Merger; Recommendation of the GMIS
Board" and "THE MERGER PROPOSAL--Opinion of Financial Advisor of GMIS". In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under, nor do we admit that we are "experts" for
purposes of, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
CS FIRST BOSTON CORPORATION
By: /s/ ANDREW R. TAUSSIG
----------------------------------
Andrew R. Taussig
Managing Director
November 6, 1996
<PAGE>
EXHIBIT 99
HBO & COMPANY
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
AS OF SEPTEMBER 23, 1996
Mr. Thomas R. Owens
c/o GMIS Inc.
5 Country View Road
Malvern, Pennsylvania 19355
Dear Mr. Owens:
In connection with the Agreement of Merger (the "Merger Agreement"), dated
as of even date herewith, among GMIS Inc. ("GMIS"), HBO & Company ("HBOC") and
HBO & Company of Georgia ("HBOG"), this letter confirms the agreement of HBOC,
HBOG, you and Mr. Thomas L. Simpson to the following:
1. HBOG agrees to provide you with severance protection wherein if your
employment with HBOG is terminated without cause by HBOG within five (5) years
subsequent to the Merger, HBOG will continue to pay your salary on a
semi-monthly basis for the remaining portion of such five-year term. The term
"terminated without cause" shall mean termination of your employment by HBOG for
reasons other than misconduct involving fraud, conviction, and the exhaustion of
all appeals in respect thereof, of a felony or a misdemeanor involving moral
turpitude or breach of the agreement regarding non-competition, confidentiality
and inventions to be entered into by you pursuant to Section 6.11 of the Merger
Agreement ("Non-Compete Agreement"). Such severance protection will be further
conditioned on you not competing with HBOG during the two-year period succeeding
termination of employment in contravention of the terms of the Non-Compete
Agreement, and thereafter by not competing with HBOG by working for, consulting
with, or otherwise participating (including, without limitation, by ownership
(other than solely by virtue of owning one percent (1%) or less of the
outstanding capital stock of a corporation whose shares are traded on a national
or regional securities exchange or the over-the-counter market)) in the business
of those competitors of HBOG set forth on Exhibit A hereto. This agreement is
subject to you and HBOG (prior to or as of Closing) entering into an agreement
as to the foregoing in a form reasonably acceptable to HBOG. Your salary for
purposes of severance protection will be $275,000 per annum. HBOG further agrees
that you will be eligible for a bonus for calendar year 1996 in accordance with
the terms and conditions of the GMIS bonus plan as it exists on the date hereof.
<PAGE>
AS OF SEPTEMBER 23, 1996
PAGE 2
2. HBOG further agrees to provide Mr. Thomas L. Simpson, Chief Operating
Officer of GMIS, with severance protection in the same manner as to be provided
you as outlined in the paragraph 1, although the period of severance protection
shall be eighteen months, and salary for purposes of severance protection will
be $250,000 per annum.
3. The foregoing agreements are being made to induce each of you and Mr.
Simpson to accept employment with HBOG upon closing of the Merger.
4. The agreements contained in this letter are conditioned upon and shall
be effective upon closing of the Merger. Should the Merger not be consummated
for any reason, such agreements will terminate and have no effect.
Sincerely,
HBO & COMPANY
HBO & COMPANY OF GEORGIA
/s/ JAY P. GILBERTSON
Jay P. Gilbertson
Senior Vice President
Agreed to:
/s/ THOMAS R. OWENS
- ---------------------------------------------
Thomas R. Owens
/s/ THOMAS L. SIMPSON
- ---------------------------------------------
Thomas L. Simpson
