<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997
REGISTRATION NO. 333-39525
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) 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. THOMAS H. CURZON, ESQ.
Jones, Day, Reavis & Pogue Osborn Maledon, P.A.
3500 SunTrust Plaza 2929 North Central Avenue
303 Peachtree Street, N.E. Suite 2100
Atlanta, Georgia 30308-3242 Phoenix, Arizona 85012-2794
(404) 521-3939 (602) 207-1288
--------------------------
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: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
3200 NORTH CENTRAL AVENUE
SUITE 1700
PHOENIX, ARIZONA 85012
November 24, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Meeting") of National Health Enhancement Systems, Inc. ("National") to be held
at National's corporate offices at 3200 North Central Avenue, Suite 1700,
Phoenix, Arizona 85012 at 10:00 a.m., local time, on December 29, 1997.
At the Meeting, you will be asked to consider and take action upon a
proposal to approve an Agreement of Merger dated October 2, 1997 (the "Merger
Agreement") among National, 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)
National will merge with and into HBOC-GA (the "Merger") and (b) each
outstanding share of common stock, $.001 par value per share, of National
("National Common Stock") and right to acquire a share of National Common Stock
will be converted into the right to receive .32 of a share of common stock, $.05
par value per share, of HBOC ("HBOC Common Stock"), provided however that (i) if
the average closing price per share as reported by the Nasdaq Stock Market
National Market of the HBOC Common Stock during the 20 consecutive trading days
ending on the third trading day prior to the date of the Meeting (the "Market
Value") is less than $35.37, each share of National Common Stock will be
converted into a fractional share of HBOC Common Stock determined by dividing
$11.32 by the Market Value and (ii) if the Market Value is greater than $43.23,
each share of National Common Stock will be converted into a fractional share of
HBOC Common Stock determined by dividing $13.83 by the Market Value, and less
the amount of any fractional share, which will be paid in cash.
Details of the foregoing matter 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, National and its stockholders. Accordingly, the Board of
Directors unanimously recommends that stockholders vote FOR approval of the
Merger Agreement. The Board of Directors has been advised by Broadview
Associates LLC that, in its opinion, the consideration to be received by the
National stockholders is fair, from a financial point of view, to such
stockholders as of the date of such opinion. A copy of such opinion is attached
to the Proxy Statement/Prospectus as Appendix B.
It is important that you vote your shares whether or not you plan to attend
the Meeting. To be sure your vote is counted, we urge you to carefully review
the Proxy Statement/Prospectus and to vote your choice. PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS SOON AS POSSIBLE.
You may revoke and change your proxy vote at any time prior to the Meeting, and
such signed, dated and submitted proxy will supersede any earlier proxy
submitted by you. If you attend the Meeting and wish to vote in person, the
ballot that you submit at the Meeting will supersede your proxy.
Thank you for your cooperation.
Very truly yours,
/s/ Gregory J. Petras
GREGORY J. PETRAS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
3200 NORTH CENTRAL AVENUE
SUITE 1700
PHOENIX, ARIZONA 85012
------------------------
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of National Health Enhancement Systems, Inc., a Delaware corporation
("National"), will be held on Monday, December 29, 1997, at 10:00 a.m., local
time, at National's corporate offices at 3200 North Central Avenue, Suite 1700,
Phoenix, Arizona 85012 for the following purpose:
To consider and vote upon a proposal to approve an Agreement of
Merger dated October 2, 1997 (the "Merger Agreement") among
National, 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) National will merge with and into HBOC-GA
(the "Merger") and (b) each outstanding share of common stock,
$.001 par value per share of National ("National Common Stock"),
and right to acquire a share of National Common Stock will be
converted into the right to receive .32 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 National (the "National Board") has unanimously
approved the Merger proposal and has determined that the Merger is fair to, and
in the best interests of, National and its stockholders. Accordingly, the
National Board unanimously recommends that you vote FOR approval of the Merger
Agreement.
The National Board has fixed the close of business on November 14, 1997 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Meeting. Only holders of record of National Common Stock at the
close of business on that date will be entitled to notice of, and to vote at,
the Meeting or any adjournment or postponement thereof.
Details of the proposed Merger and other important information concerning
National and HBOC are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this information your careful consideration.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID
ENVELOPE PROVIDED FOR THIS PURPOSE. ANY STOCKHOLDER GIVING A PROXY HAS THE RIGHT
TO REVOKE IT AT ANY TIME BEFORE IT IS VOTED.
By order of the Board of Directors,
/s/ Jeffrey T. Zywicki
JEFFREY T. ZYWICKI
SECRETARY
Phoenix, Arizona
November 24, 1997
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 24, 1997
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>
PROXY STATEMENT
OF
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
FOR SPECIAL MEETING OF STOCKHOLDERS
------------------
PROSPECTUS
OF
HBO & COMPANY
---------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, $.001 par value per share ("National Common Stock"), of National Health
Enhancement Systems, Inc., a Delaware corporation ("National"), as a proxy
statement in connection with the solicitation of proxies by the Board of
Directors of National (the "National Board") for use at the Special Meeting of
Stockholders (the "Meeting") of National to be held on December 29, 1997, at
National's corporate offices at 3200 North Central Avenue, Suite 1700, Phoenix,
Arizona 85012 commencing at 10:00 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.
This Proxy Statement/Prospectus also constitutes the prospectus of HBO &
Company, a Delaware corporation ("HBOC"), with respect to up to 3,223,112 shares
(net of the aggregate amount of fractional shares, which will be 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 National 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 National Common Stock. In the Merger, subject to
the terms of the Agreement of Merger dated October 2, 1997 among National, HBOC
and HBOC-GA (the "Merger Agreement"), each outstanding share of National Common
Stock and right to acquire a share of National Common Stock will be converted
into the right to receive .32 of a share of HBOC Common Stock, provided however
that (i) if the average closing price per share as reported by the Nasdaq Stock
Market National Market ("Nasdaq NM") of the HBOC Common Stock during the 20
consecutive trading days ending on the third trading day prior to the date of
the Meeting (the "Market Value") is less than $35.37, each share of National
Common Stock will be converted into a fractional share of HBOC Common Stock
determined by dividing $11.32 by the Market Value and (ii) if the Market Value
is greater than $43.23, each share of National Common Stock will be converted
into a fractional share of HBOC Common Stock determined by dividing $13.83 by
the Market Value (whichever basis is applicable being referred to as the
"Exchange Ratio"), and less the amount of any fractional shares, which will be
paid in cash. The National Board may terminate the Merger Agreement if the
Market Value is less than $25.00.
Outstanding and unexercised options and warrants to purchase shares of
National Common Stock will be assumed by HBOC upon consummation of the Merger
such that the holders will have the right to purchase that number of shares of
HBOC Common Stock into which the shares of National Common Stock subject to such
options or warrants would have been converted in the Merger.
As a result of the Merger, holders of shares of National Common Stock or
rights to acquire shares of National Common Stock will receive an aggregate of
up to 3,223,112 shares of HBOC Common Stock (less the aggregate amount of any
fractional shares, which will be paid in cash) assuming the Market Value is
$25.00. If the Merger had been consummated on November 21, 1997, the Market
Value would have been $43.56, the Exchange Ratio would have been .3175 and a
maximum of 2,260,022 shares of HBOC Common Stock would have been issuable in the
Merger. The actual Exchange Ratio and number of shares of HBOC Common Stock
issuable in the Merger will not be determined until three days prior to the
Meeting. Shares of HBOC Common Stock and National Common Stock are currently
approved for quotation on the Nasdaq NM under the symbols "HBOC" and "NHES,"
respectively. On November 21, 1997, the reported closing sale prices of a share
of HBOC Common Stock and National Common Stock on the Nasdaq NM were $46.3125
and $12.875, respectively.
This Proxy Statement/Prospectus and the related Notice of Special Meeting
and proxy card are first being mailed on or about November 24, 1997, to
stockholders of record at the close of business on November 14, 1997 (the
"Record Date"). There were 5,705,062 shares of National Common Stock outstanding
at the close of business on the Record Date. Only holders of National Common
Stock of record on the Record Date will be entitled to notice of, and to vote
at, the Meeting or any adjournment or postponement thereof. Each holder of
record may revoke and change his proxy vote at any time prior to the Meeting and
such signed, dated and submitted proxy will supersede any earlier proxy
submitted. If a holder of record of National Common Stock attends the Meeting
and wishes to vote in person, any ballot submitted by such holder at the Meeting
will supersede any earlier submitted proxy.
The above matters are discussed in detail in this Proxy
Statement/Prospectus. Stockholders of National are strongly urged to read and
consider this Proxy Statement/Prospectus in its entirety.
SEE "RISK FACTORS," ON PAGE 22 OF THIS PROXY STATEMENT/PROSPECTUS, FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY NATIONAL 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 24, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION........................................................... 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 5
SUMMARY.................................................................................................... 6
The Parties.............................................................................................. 6
The Meeting.............................................................................................. 7
The Merger Proposal...................................................................................... 7
Summary Financial Data................................................................................... 11
Pro Forma Financial Information.......................................................................... 13
Comparative Per Share Data............................................................................... 19
RISK FACTORS............................................................................................... 22
CERTAIN MARKET INFORMATION................................................................................. 22
HBOC..................................................................................................... 22
National................................................................................................. 23
THE MEETING................................................................................................ 23
THE MERGER PROPOSAL........................................................................................ 24
Background of the Merger................................................................................. 24
Reasons of National for Engaging in the Merger; Recommendation of the National Board..................... 29
Opinion of Financial Advisor of National................................................................. 30
Reasons of HBOC for Engaging in the Merger............................................................... 34
Terms of the Merger...................................................................................... 34
Effective Time......................................................................................... 34
General Effects of the Merger.......................................................................... 34
Conversion of Shares................................................................................... 34
Fractional Shares...................................................................................... 34
Stock Plans............................................................................................ 34
Warrants............................................................................................... 35
Exchange of Certificates............................................................................... 35
Payment of Dividends................................................................................... 35
Limitations on Transferability of HBOC Common Stock.................................................... 35
Conditions; Waiver..................................................................................... 36
Hart-Scott-Rodino...................................................................................... 37
No Solicitation........................................................................................ 37
Termination............................................................................................ 37
Accounting Treatment..................................................................................... 37
Certain Federal Income Tax Consequences.................................................................. 38
No Appraisal Rights...................................................................................... 39
INTERESTS OF CERTAIN PERSONS IN EACH OF HBOC AND NATIONAL.................................................. 40
Security Ownership of Certain Beneficial Owners and Management of HBOC................................... 40
Security Ownership of Certain Beneficial Owners and Management of National............................... 41
Interests of Certain National Persons in Matters to be Acted Upon........................................ 42
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF HBOC COMMON STOCK AND NATIONAL COMMON STOCK........... 43
Introduction............................................................................................. 43
Authorized Capital Stock................................................................................. 43
Board or Stockholder Approved Preferred Stock............................................................ 44
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Voting Rights............................................................................................ 44
Number of Directors...................................................................................... 44
Election of Board of Directors........................................................................... 44
Vote on Merger, Consolidation or Sale of Substantially All Assets........................................ 44
Special Meetings of Stockholders......................................................................... 45
Stockholder Action by Written Consent.................................................................... 45
Amendment of Certificate of Incorporation................................................................ 45
Amendment of Bylaws...................................................................................... 45
Liability and Indemnification of Officers and Directors.................................................. 46
Payment of Dividends..................................................................................... 46
Anti-Takeover Protection................................................................................. 46
Appraisal Rights......................................................................................... 47
BUSINESS OF HBOC........................................................................................... 47
General.................................................................................................. 47
Recent Developments...................................................................................... 48
BUSINESS OF NATIONAL....................................................................................... 48
STOCKHOLDER PROPOSALS...................................................................................... 48
OTHER MATTERS.............................................................................................. 48
CERTAIN LEGAL MATTERS...................................................................................... 48
EXPERTS.................................................................................................... 48
APPENDIX A--Agreement of Merger dated October 2, 1997...................................................... A-1
APPENDIX B--Opinion of Broadview Associates LLC............................................................ B-1
</TABLE>
3
<PAGE>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
Each of HBOC and National 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 National 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 National 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 and to which
reference is hereby made, including National's Annual Report on Form 10-KSB for
the year ended January 31, 1997 and Quarterly Report on Form 10-QSB for the
quarter ended July 31, 1997, which are being delivered herewith. 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
National has been supplied by National, information regarding the Merger
proposal has been supplied by National and/or HBOC and all other information has
been supplied by HBOC. References to National and HBOC in this Proxy
Statement/Prospectus mean the respective corporations and their respective
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,
NATIONAL 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 NATIONAL
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
4
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the following documents filed by HBOC with the Commission
(File No. 0-9900) pursuant to the Exchange Act is incorporated by reference in
this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1996
filed with the Commission on March 6, 1997;
2. Quarterly Reports on Form 10-Q for the quarters ended: (i) March 31,
1997, dated and filed with the Commission on May 15, 1997, as amended by Form
10-Q/A dated and filed with the Commission on May 15, 1997; (ii) June 30, 1997,
dated and filed with the Commission on August 6, 1997; and (iii) September 30,
1997, dated and filed with the Commission on November 12, 1997;
3. Current Reports on Form 8-K: (i) dated and filed with the Commission on
February 11, 1997; (ii) dated and filed with the Commission on March 19, 1997;
and (iii) dated and filed with the Commission on October 3, 1997;
4. Proxy Statement, dated as of April 4, 1997, filed in definitive form on
April 4, 1997 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.
All documents filed by HBOC 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.
The information in the following documents filed by National with the
Commission (File No. 33-9396-LA) pursuant to the Exchange Act, copies of which
are being delivered herewith, is incorporated by reference in this Proxy
Statement/Prospectus:
1. Annual Report on Form 10-KSB for the fiscal year ended January 31, 1997
filed with the Commission on May 1, 1997; and
2. Quarterly Report on Form 10-QSB for the quarter ended July 31, 1997
dated and filed with the Commission on September 12, 1997.
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 National contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES HBOC 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 TO HBO &
COMPANY, 301 PERIMETER CENTER NORTH, ATLANTA, GEORGIA 30346, ATTENTION: MONIKA
BROWN, TELEPHONE: (800) 426-2411. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS PRIOR TO THE MEETING, ANY SUCH REQUESTS SHOULD BE MADE BY DECEMBER 19,
1997.
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, 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 SEPTEMBER 9, 1997 TO STOCKHOLDERS OF RECORD ON AUGUST 25, 1997.
THE PARTIES
HBO & COMPANY
GENERAL. HBOC develops integrated patient care, clinical, financial,
managed care 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. In addition, HBOC offers a wide range of electronic commerce
services, including electronic medical claims and remittance advice services as
well as statement processing.
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. HBOC also sells its
products and services internationally through subsidiaries and/or distribution
agreements in the United Kingdom, Canada, Ireland, Saudi Arabia, Kuwait,
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.
RECENT DEVELOPMENTS. HBOC has entered into an Agreement of Merger dated
September 27, 1997 among HBOC, HBOC-GA and HPR Inc. ("HPR"). Such agreement is
subject, among other things, to approval by the stockholders of HPR. HPR
develops and markets software and proprietary database products incorporating
clinical knowledge that enable payers and providers of healthcare services to
better manage the financial risk associated with the delivery of healthcare and
the quality of care.
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
National develops and distributes products and services used in the delivery
of telephonic medical assistance and care management. Its products and services
are designed to link software, voice technology, health information and
strategic consulting services to assist healthcare organizations, including
employers, promote wellness behavior, educate members, increase access to
appropriate services and lower costs without compromising care.
National's products include clinical software used by licensed healthcare
professionals to assist callers via telephone with their medical concerns.
National has over 700 clients in the United States, including hospitals,
integrated delivery systems, physician group practices, HMO's, indemnity
insurance companies and self-insured employers as part of its installed base of
clients. In addition, National markets to PPO's, CHAMPUS, government programs,
children's hospitals, Medicare/Medicaid and the military. National also utilizes
its own software and employs its own licensed healthcare professionals to
deliver telephonic
6
<PAGE>
medical assistance and care management 24 hours per day, seven days per week
under outsourcing arrangements through its recently established medical call
center division.
The address and telephone number of the principal executive offices of
National are 3200 North Central Avenue, Suite 1700, Phoenix, Arizona 85012,
(602) 230-7575.
THE MEETING
The Meeting will be held on December 29, 1997 at 10:00 a.m., local time, at
National's corporate offices at 3200 North Central Avenue, Suite 1700, Phoenix,
Arizona 85012. The purpose of the Meeting is to consider and take action upon a
proposal to approve the Merger Agreement. The National Board has fixed the close
of business on November 14, 1997, 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 at least a majority of the shares of
National Common Stock issued and outstanding and entitled to vote on such date
is necessary to constitute a quorum at the Meeting. The proposed Merger
Agreement requires the affirmative vote of the holders of a majority of the
issued and outstanding shares of National Common Stock in order to be approved.
See "The Meeting."
THE MERGER PROPOSAL
RECOMMENDATION OF THE NATIONAL BOARD; OPINION OF FINANCIAL ADVISOR
The National Board has unanimously approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, National
and its stockholders. Accordingly, the National Board unanimously recommends
that National's stockholders vote FOR approval of the Merger Agreement. In
approving the Merger Agreement, the National Board considered, among other
things, the opinion of Broadview Associates LLC ("Broadview") regarding the
fairness, from a financial point of view, of the consideration to be received in
the Merger by the stockholders of National. The full text of the opinion of
Broadview (dated as indicated therein), which is substantially identical to the
opinion dated October 2, 1997, is attached hereto as Appendix B. See "The Merger
Proposal--Reasons of National for Engaging in the Merger; Recommendation of the
National Board" and "--Opinion of Financial Advisor of National."
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 National 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" and the date on which the Effective
Time occurs being referred to as the "Closing Date").
CONVERSION OF SHARES. Each share of National Common Stock issued and
outstanding immediately prior to the Effective Time, will, at the Effective
Time, be converted into the right to receive .32 of a share of HBOC Common
Stock, provided however that (i) if the Market Value is less than $35.37, each
share of National Common Stock will be converted into a fractional share of HBOC
Common Stock determined by dividing $11.32 by the Market Value and (ii) if the
Market Value is greater than $43.23, each share of National Common Stock will be
converted into a fractional share of HBOC Common Stock determined by dividing
$13.83 by the Market Value (whichever basis is applicable being referred to as
the "Exchange Ratio"), and less the amount of any fractional share, which will
be paid in cash. The shares of HBOC
7
<PAGE>
Common Stock and any cash in lieu of fractions thereof receivable by holders of
National Common Stock are hereinafter referred to as the "Merger Consideration."
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 National 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 National Common Stock
outstanding at the Effective Time of the Merger will be assumed by HBOC, and the
optionee will have the right to purchase that number of shares (rounded down to
the nearest whole share) of HBOC Common Stock into which the number of shares of
National Common Stock the optionee was entitled to purchase under the existing
option would have been converted pursuant to the terms of the Merger. See "The
Merger Proposal-- Terms of the Merger--Stock Plans."
WARRANTS. At the Effective Time, outstanding warrants (each a "Warrant") to
purchase shares of National Common Stock shall be assumed by HBOC. Each Warrant
shall thereafter evidence a warrant to purchase the number of whole shares of
HBOC Common Stock into which the number of shares of National Common Stock
issuable pursuant to such Warrant would have been converted in the Merger at an
exercise price per share equal to the amount arrived at by dividing the
aggregate exercise price under such Warrant by the number of shares of HBOC
Common Stock purchasable thereunder. See "The Merger Proposal--Terms of the
Merger--Warrants."
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 National Common
Stock (the "Certificates") a letter of transmittal and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration payable in respect of the shares of National Common Stock
represented thereby. 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 National 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
National 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, National affiliates are subject
to certain restrictions on transfer of both National 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 National, 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
National Common Stock. See "The Merger Proposal--Terms of the
Merger--Conditions; Waiver."
HART-SCOTT-RODINO. The Merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), which provides that certain transactions (including the Merger) may not
be consummated until certain information has been furnished to the
8
<PAGE>
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 National filed the required information with the
Antitrust Division and the FTC on October 17, 1997 and were notified that the
waiting period was terminated October 27, 1997. See "The Merger Proposal--Terms
of the Merger--Hart-Scott-Rodino."
NO SOLICITATION. National has agreed, subject to certain exceptions, that
prior to the Effective Time of the Merger or earlier termination of the Merger
Agreement, National shall not, and shall not permit any of its subsidiaries or
their respective representatives to solicit, initiate, encourage, endorse or
enter into any agreement with respect to, or take any other action to
facilitate, any inquiries or the making of any proposal or offer for any tender
or exchange offer, proposal for a merger, share exchange or other business
combination or similar transactions involving National 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, among other things: (i) mutual written consent
of the Board of Directors of HBOC (the "HBOC Board") and the National Board,
notwithstanding the prior approval of the National stockholders; (ii) the HBOC
Board, in the event of material condemnation, destruction, loss or damage to the
business or assets of National and its subsidiaries; (iii) the Board of
Directors of HBOC-GA (the "HBOC-GA Board") or the National Board, after January
31, 1998 if any of the conditions to its respective obligation to consummate the
Merger have not been fulfilled, unless fulfillment has been frustrated or made
impossible by the party seeking termination; (iv) the National Board, if, in the
good faith exercise of its fiduciary duties to the stockholders of National in
the context of a proposal to acquire National by another party, the National
Board decides that such termination is required; and (v) the National Board, if
the Market Value of HBOC Common Stock is less than $25.00.
If the Merger Agreement is terminated by National in accordance with (iv)
above or by any of the parties because it was not approved by the requisite
number of shares of National Common Stock, National will be obligated to pay to
HBOC-GA a fee of $3,000,000, which amount includes reimbursement of all
reasonable costs and expenses of HBOC and HBOC-GA. See "The Merger
Proposal--Terms of the Merger--Termination."
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that HBOC shall have
received letters, dated as of the date hereof and as of the Closing Date, from
Arthur Andersen LLP, in their capacity as independent public accountants for
National and HBOC, to the effect that each of National and HBOC, respectively,
satisfies the tests applicable to it such that the Merger can be accounted for
as a pooling of interests under Accounting Principles Board Opinion No. 16, if
the Merger is closed and consummated in accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
National has 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 National
stockholder upon the exchange of shares of National 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 National Common Stock was a Nasdaq NM security as of the Record
Date, the holders of shares of National 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."
INTERESTS OF CERTAIN PERSONS
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF NATIONAL AND
HBOC. As of the Record Date, directors and executive officers of National and
their affiliates were beneficial owners of 1,125,268 outstanding shares of
National Common Stock representing approximately 19.7% of the total issued and
outstanding National Common Stock. An aggregate of 2,261,712 of such shares of
National Common Stock, representing approximately 39.6% of the total issued and
outstanding shares of National Common Stock as of the Record Date, are subject
to agreements between the holders of such shares and HBOC-GA, which provide that
such shares will be voted in favor of approval of the Merger Agreement (the
"Voting Agreements"). Directors and executive officers of HBOC and their
affiliates beneficially owned approximately 5,707,003 or 2.8% of the outstanding
shares (giving effect to the exercise of their presently exercisable stock
options) of HBOC Common Stock as of September 30, 1997. See "Interests of
Certain Persons in Each of HBOC and National."
INTERESTS OF CERTAIN NATIONAL PERSONS IN MATTERS TO BE ACTED UPON. Certain
officers and the directors of National have interests in the Merger that differ
from those of National stockholders generally. Such interests include severance
payments, vesting of unvested and unexercisable stock options and continuing
indemnification against certain liabilities. 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
National--Interests of Certain National Persons in Matters to be Acted Upon."
COMPARISON OF STOCKHOLDER RIGHTS
HBOC and National are each incorporated under Delaware law. For a summary of
material differences between the rights of holders of shares of each of National
Common Stock and HBOC Common Stock, see "Comparison of Rights of Holders of
Shares of Each of HBOC Common Stock and National Common Stock."
CERTAIN MARKET INFORMATION
HBOC Common Stock and National Common Stock are currently traded on the
Nasdaq NM under the symbols "HBOC" and "NHES," respectively. The closing sale
prices per share of HBOC Common Stock and National Common Stock on October 2,
1997, the last trading day preceding the announcement of the proposed Merger,
were $39.00 and $12.125, respectively. See "Certain Market Information."
RISK FACTORS
The stockholders of National 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
National should be read in conjunction with the financial statements and notes
thereto of HBOC and National, incorporated by reference in this Proxy
Statement/Prospectus.
HBO & COMPANY(1)
(FROM CONTINUING OPERATIONS)
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND FOR THE NINE
AT AND FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994(2) 1995(3) 1996(4) 1996(4) 1997(5)
---------- ---------- ---------- ---------- ---------- ---------- ------------
INCOME STATEMENT DATA:
Revenue........................... $ 341,373 $ 385,124 $ 493,078 $ 672,276 $ 895,333 $ 639,394 $ 806,122
Operating Income (Loss)........... $ 31,204 $ 31,281 $ 51,676 $ (28,817) $ 121,734 $ 97,284 $ 176,159
Income (Loss) Before Income
Taxes........................... $ 31,312 $ 35,386 $ 52,353 $ (28,759) $ 127,909 $ 101,456 $ 186,738
Net Income (Loss)................. $ 20,991 $ 18,335 $ 32,927 $ (15,674) $ 77,288 $ 61,415 $ 112,001
Primary Earnings (Loss) Per
Share........................... $ .13 $ .11 $ .19 $ (.09) $ .39 $ .31 $ .55
Fully Diluted Earnings (Loss) Per
Share........................... $ .13 $ .11 $ .19 $ (.09) $ .39 $ .31 $ .55
Weighted Average Shares
Outstanding (Fully Diluted)..... 161,268 166,354 173,188 177,312 199,586 199,476 202,786
Cash Dividends Per Share.......... $ .04 $ .04 $ .04 $ .04 $ .04 $ .03 $ .04
BALANCE SHEET DATA:
Working Capital................... $ 47,145 $ 86,239 $ 49,939 $ 138,837 $ 269,408 $ 217,127 $ 458,939
Total Assets...................... $ 228,832 $ 279,236 $ 404,416 $ 734,076 $ 959,347 $ 833,126 $ 1,112,563
Long-Term Debt.................... $ 8,257 $ 6,424 $ 14,815 $ 3,642 $ 192 $ 213 $ 139
Stockholders' Equity.............. $ 128,651 $ 169,768 $ 208,619 $ 478,095 $ 615,711 $ 570,821 $ 811,584
</TABLE>
- ------------------------
(1) All prior period amounts have been restated to reflect the 1997 acquisitions
of AMISYS Managed Care Systems, Inc. and Enterprise Systems, Inc. in pooling
transactions. All share and per share amounts have been restated to reflect
the 1997 two-for-one stock split effected in the form of a stock dividend.
(2) 1994 Income Statement related items include nonrecurring charges of $6,516.
Net income was $36,836 and fully diluted earnings per share was $.21
excluding nonrecurring charges.
(3) 1995 Income Statement related items include nonrecurring charges of $136,481
and exclude the dilutive effect of stock options. Net income was $66,215 and
fully diluted earnings per share was $.36 excluding nonrecurring charges and
including the dilutive effect of stock options.
(4) Year ended December 31, 1996 Income Statement related items include
nonrecurring charges of $69,867. Net income was $119,211 and fully diluted
earnings per share was $.60 excluding nonrecurring charges. Nine months
ended September 1996 Income Statement related items include nonrecurring
charges of $34,667. Net income was $82,216 and fully diluted earnings per
share was $.41 excluding nonrecurring charges.
(5) Nine months ended September 1997 Income Statement related items include
nonrecurring charges of $35,420. Net income was $133,253 and fully diluted
earnings per share was $.66 excluding nonrecurring charges.
11
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.(1)
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND FOR THE SIX
AT AND FOR THE MONTHS ENDED
YEAR ENDED JANUARY 31, JULY 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Revenue.................................................. $ 13,350 $ 16,891 $ 25,185 $ 11,633 $ 15,774
Net Income (Loss)........................................ $ (776) $ 560 $ 736 $ (370) $ 570
Net Income (Loss) Per Share.............................. $ (.21) $ .10 $ .13 $ (.09) $ .09
Weighted Average Shares Outstanding...................... 3,780 5,458 5,640 4,270 6,599
Cash Dividends Per Share................................. $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Working Capital.......................................... $ (1,704) $ (1,350) $ 1,545 $ (1,478) $ 1,444
Total Assets............................................. $ 7,930 $ 10,768 $ 19,350 $ 12,027 $ 20,365
Long-Term Debt........................................... $ 252 $ 246 $ 434 $ 294 $ 299
Stockholders' Equity..................................... $ 446 $ 1,024 $ 5,069 $ 1,466 $ 6,023
</TABLE>
(1) On February 18, 1997, National completed the acquisition of Expert Systems,
Inc. ("Expert"), in a transaction accounted for as a pooling of interests.
Prior fiscal years have not been restated due to the insignificance of
Expert to National. Accordingly, National's pre-merger net income for the
year ended January 31, 1997 does not include a nonrecurring charge of
$597,000 taken by Expert related to the write-off of certain impaired
capitalized software. A shift in the marketing and development of products
related to certain operating systems caused the impairment of the
capitalized software.
12
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma combined condensed financial statements give effect
to the acquisition of National by HBOC in the Merger accounted for as a pooling
of interests. 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 transaction 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 and National incorporated by reference in this Proxy Statement/Prospectus.
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1997
(000 OMITTED)
<TABLE>
<CAPTION>
HBOC/NATIONAL
PRO FORMA PRO FORMA
HBOC NATIONAL(1) ADJUSTMENTS COMBINED
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents........................... $ 344,259 $ 2,679 $ $ 346,938
Short-Term Investments.............................. 11,966 -- 11,966
Receivables, Net.................................... 347,673 10,541 358,214
Current Deferred Income Taxes....................... 22,128 -- 22,128
Inventories......................................... 5,838 -- 5,838
Prepaids and Other Current Assets................... 19,527 2,267 21,794
------------ ----------- ----------- --------------
Total Current Assets.............................. 751,391 15,487 -- 766,878
------------ ----------- ----------- --------------
Capitalized Software, Net............................. 71,547 1,398 72,945
Property and Equipment, Net........................... 75,323 2,377 77,700
Intangibles, Net...................................... 166,653 676 167,329
Deferred Income Taxes................................. 40,491 -- 40,491
Other Noncurrent Assets, Net.......................... 7,158 427 7,585
------------ ----------- ----------- --------------
Total Assets............................................ $ 1,112,563 $ 20,365 $ -- $ 1,132,928
------------ ----------- ----------- --------------
------------ ----------- ----------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities................................... $ 292,452 $ 14,043 $ 306,495
Long-Term Debt........................................ 139 299 438
Other Long-Term Liabilities........................... 8,388 -- 8,388
Stockholders' Equity.................................. 811,584 6,023 817,607
------------ ----------- ----------- --------------
Total Liabilities and Stockholders' Equity.............. $ 1,112,563 $ 20,365 $ -- $ 1,132,928
------------ ----------- ----------- --------------
------------ ----------- ----------- --------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
13
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/NATIONAL
PRO FORMA PRO FORMA
HBOC NATIONAL(1) ADJUSTMENTS COMBINED
---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue................................................... $ 806,122 $ 24,046 $ $ 830,168
Operating Expense:
Cost of Operations...................................... 351,250 7,764 359,014
Marketing............................................... 112,254 8,275 120,529
Research and Development................................ 59,705 2,121 61,826
General and Administrative.............................. 71,334 4,878 76,212
Nonrecurring Charge..................................... 35,420 597 36,017
---------- ----------- ----------- --------------
Total Operating Expense............................... 629,963 23,635 -- 653,598
---------- ----------- ----------- --------------
Operating Income.......................................... 176,159 411 -- 176,570
Other Income, Net......................................... 10,579 -- 10,579
---------- ----------- ----------- --------------
Income Before Income Taxes................................ 186,738 411 -- 187,149
Income Taxes.............................................. 74,737 220 74,957
---------- ----------- ----------- --------------
Net Income................................................ $ 112,001 $ 191 $ -- $ 112,192
---------- ----------- ----------- --------------
---------- ----------- ----------- --------------
Earnings Per Share........................................ $ .55 $ .03 $ .55
---------- ----------- --------------
---------- ----------- --------------
Weighted Average Shares Outstanding....................... 202,786 6,444 (4,382)(2) 204,848
---------- ----------- ----------- --------------
---------- ----------- ----------- --------------
Excluding Nonrecurring Charge (5):
Net Income.............................................. $ 133,253 $ 468 $ 133,721
---------- ----------- --------------
---------- ----------- --------------
Earnings Per Share...................................... $ .66 $ .07 $ .65
---------- ----------- --------------
---------- ----------- --------------
Weighted Average Shares Outstanding..................... 202,786 6,444 (4,382)(2) 204,848
---------- ----------- ----------- --------------
---------- ----------- ----------- --------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
14
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/ HBOC/NATIONAL
HBOC AMISYS/ESI PRO FORMA PRO FORMA
AS REPORTED AMISYS(3) ESI(4) COMBINED NATIONAL(1) ADJUSTMENTS COMBINED
----------- ----------- --------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 796,578 $ 46,438 $ 52,317 $ 895,333 $ 25,185 $ $ 920,518
Operating Expense:
Cost of Operations......... 351,139 24,504 18,405 394,048 9,989 404,037
Marketing.................. 115,660 3,898 11,634 131,192 8,776 139,968
Research and Development... 64,096 7,390 7,053 78,539 1,227 79,766
General and
Administrative........... 86,019 5,166 8,768 99,953 4,329 104,282
Nonrecurring Charge........ 61,414 -- 8,453 69,867 -- 69,867
----------- ----------- --------- ------------ ----------- ----------- --------------
Total Operating
Expense................ 678,328 40,958 54,313 773,599 24,321 -- 797,920
----------- ----------- --------- ------------ ----------- ----------- --------------
Operating Income (Loss)...... 118,250 5,480 (1,996) 121,734 864 -- 122,598
Other Income, Net............ 4,102 1,324 749 6,175 -- 6,175
----------- ----------- --------- ------------ ----------- ----------- --------------
Income (Loss) Before Income
Taxes...................... 122,352 6,804 (1,247) 127,909 864 -- 128,773
Income Taxes................. 48,398 2,721 (498) 50,621 128 50,749
----------- ----------- --------- ------------ ----------- ----------- --------------
Net Income (Loss)............ $ 73,954 $ 4,083 $ (749) $ 77,288 $ 736 $ -- $ 78,024
----------- ----------- --------- ------------ ----------- ----------- --------------
----------- ----------- --------- ------------ ----------- ----------- --------------
Earnings Per Share........... $ .40 $ .39 $ .13 $ .39
----------- ------------ ----------- --------------
----------- ------------ ----------- --------------
Weighted Average Shares
Outstanding................ 186,324 199,586 5,640 (3,835)(2) 201,391
----------- ------------ ----------- ----------- --------------
----------- ------------ ----------- ----------- --------------
Excluding Nonrecurring
Charge (5):
Net Income................. $ 119,211 $ 736 $ 119,947
------------ ----------- --------------
------------ ----------- --------------
Earnings Per Share......... $ .60 $ .13 $ .60
------------ ----------- --------------
------------ ----------- --------------
Weighted Average Shares
Outstanding.............. 199,586 5,640 (3,835)(2) 201,391
------------ ----------- ----------- --------------
------------ ----------- ----------- --------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
15
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/ HBOC/NATIONAL
HBOC AMISYS/ESI PRO FORMA PRO FORMA
AS REPORTED AMISYS(3) ESI(4) COMBINED NATIONAL(1) ADJUSTMENTS COMBINED
----------- ----------- --------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 607,242 $ 31,786 $ 33,248 $ 672,276 $ 16,891 $ $ 689,167
Operating Expense:
Cost of Operations......... 285,756 17,877 12,833 316,466 5,668 322,134
Marketing.................. 90,852 3,038 7,710 101,600 7,064 108,664
Research and Development... 53,847 5,061 4,881 63,789 524 64,313
General and
Administrative........... 72,763 3,636 6,358 82,757 3,017 85,774
Nonrecurring Charge........ 136,481 -- -- 136,481 -- 136,481
----------- ----------- --------- ------------ ----------- ----------- --------------
Total Operating
Expense................ 639,699 29,612 31,782 701,093 16,273 -- 717,366
----------- ----------- --------- ------------ ----------- ----------- --------------
Operating Income (Loss)...... (32,457) 2,174 1,466 (28,817) 618 -- (28,199)
Other Income (Expense),
Net........................ 540 (499) 17 58 -- 58
----------- ----------- --------- ------------ ----------- ----------- --------------
Income (Loss) Before Income
Taxes...................... (31,917) 1,675 1,483 (28,759) 618 -- (28,141)
Income Taxes................. (14,348) 670 593 (13,085) 58 (13,027)
----------- ----------- --------- ------------ ----------- ----------- --------------
Net Income (Loss)............ $ (17,569) $ 1,005 $ 890 $ (15,674) $ 560 $ -- $ (15,114)
----------- ----------- --------- ------------ ----------- ----------- --------------
----------- ----------- --------- ------------ ----------- ----------- --------------
Earnings (Loss) Per Share.... $ (.10) $ (.09) $ .10 $ (.08)
----------- ------------ ----------- --------------
----------- ------------ ----------- --------------
Weighted Average Shares
Outstanding................ 168,448 177,312 5,458 (4,241)(2) 178,529
----------- ------------ ----------- ----------- --------------
----------- ------------ ----------- ----------- --------------
Excluding Nonrecurring
Charge (5):
Net Income................. $ 66,215 $ 560 $ 66,775
------------ ----------- --------------
------------ ----------- --------------
Earnings Per Share......... $ .36 $ .10 $ .36
------------ ----------- --------------
------------ ----------- --------------
Weighted Average Shares
Outstanding.............. 185,884 5,458 (3,711)(2) 187,631
------------ ----------- ----------- --------------
------------ ----------- ----------- --------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
16
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/ HBOC/NATIONAL
HBOC AMISYS/ESI PRO FORMA PRO FORMA
AS REPORTED AMISYS(3) ESI(4) COMBINED NATIONAL(1) ADJUSTMENTS COMBINED
----------- ----------- --------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 453,979 $ 14,387 $ 24,712 $ 493,078 $ 13,350 $ $ 506,428
Operating Expense:
Cost of Operations......... 225,546 7,714 9,311 242,571 4,221 246,792
Marketing.................. 64,127 738 5,984 70,849 6,063 76,912
Research and Development... 42,919 3,270 6,377 52,566 1,007 53,573
General and
Administrative........... 64,284 1,738 2,878 68,900 2,856 71,756
Nonrecurring Charge........ -- 6,516 -- 6,516 -- 6,516
----------- ----------- --------- ------------ ----------- ----------- --------------
Total Operating
Expense................ 396,876 19,976 24,550 441,402 14,147 -- 455,549
----------- ----------- --------- ------------ ----------- ----------- --------------
Operating Income (Loss)...... 57,103 (5,589) 162 51,676 (797) -- 50,879
Other Income (Expense),
Net........................ 1,154 (363) (114) 677 28 705
----------- ----------- --------- ------------ ----------- ----------- --------------
Income (Loss) Before Income
Taxes...................... 58,257 (5,952) 48 52,353 (769) -- 51,584
Income Taxes................. 21,788 (2,381) 19 19,426 7 19,433
----------- ----------- --------- ------------ ----------- ----------- --------------
Net Income (Loss)............ $ 36,469 $ (3,571) $ 29 $ 32,927 $ (776) $ -- $ 32,151
----------- ----------- --------- ------------ ----------- ----------- --------------
----------- ----------- --------- ------------ ----------- ----------- --------------
Earnings (Loss) Per Share.... $ .22 $ .19 $ (.21) $ .18
----------- ------------ ----------- --------------
----------- ------------ ----------- --------------
Weighted Average Shares
Outstanding................ 164,128 173,188 3,780 (2,360)(2) 174,608
----------- ------------ ----------- ----------- --------------
----------- ------------ ----------- ----------- --------------
Excluding Nonrecurring
Charge (5):
Net Income (Loss).......... $ 36,836 $ (776) $ 36,060
------------ ----------- --------------
------------ ----------- --------------
Earnings (Loss) Per
Share.................... $ .21 $ (.21) $ .21
------------ ----------- --------------
------------ ----------- --------------
Weighted Average Shares
Outstanding.............. 173,188 3,780 (2,360)(2) 174,608
------------ ----------- ----------- --------------
------------ ----------- ----------- --------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
17
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The fiscal year of National ends on January 31. The HBOC pro forma income
statements for the years ended December 31, 1994, 1995 and 1996 have been
completed using the National income statements for the fiscal years ended
January 31, 1995, 1996 and 1997, respectively. The HBOC pro forma income
statement for the nine months ended September 30, 1997 has been completed
using the National income statement for the nine months ended July 31, 1997.
The HBOC pro forma balance sheet as of September 30, 1997 has been completed
using the National balance sheet as of July 31, 1997. HBOC believes that the
differences in such periods in all cases mentioned has an immaterial impact
on the pro forma statements. In February 1997, National acquired Expert
Systems, Inc. in a transaction accounted for as a pooling of interests. Due
to the immateriality of the transaction, periods prior to February 1997 were
not restated.
(2) Shares of National Common Stock were converted using an assumed market value
per share of HBOC Common Stock of equal to or greater than $35.37 and less
than or equal to $43.23 and an assumed exchange ratio of .32. Exchange
Ratios of .4528 and .2766 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 (including nonrecurring charge), National weighted average shares
are adjusted to exclude the dilutive effect of stock options due to a loss
for HBOC/National Pro Forma Combined. For the 1994 Pro Forma Combined Income
Statement, National weighted average shares are adjusted to include the
dilutive effect of stock options due to net income for HBOC/National Pro
Forma Combined.
(3) On June 13, 1997, the Company completed the acquisition of AMISYS Managed
Care Systems, Inc. ("AMISYS"), a leading provider of information systems for
managed care entities and other parties that assume financial risk for
healthcare populations. The acquisition was accounted for as a pooling of
interests; therefore, all prior period amounts have been restated. AMISYS
stockholders received 0.175 of a share of HBOC Common Stock for each share
of AMISYS common stock, or approximately 5.4 million shares of HBOC Common
Stock.
(4) On June 26, 1997, the Company completed the acquisition of Enterprise
Systems, Inc. ("ESi"), a leading developer of resource management solutions,
including materials management, operating room logistics, scheduling and
financial management. The acquisition was accounted for as a pooling of
interests; therefore, all prior period amounts have been restated. ESi
stockholders received 0.22895 of a share of HBOC Common Stock for each share
of ESi common stock, or approximately 7.6 million shares of HBOC Common
Stock.
(5) Presentation is also made of Net Income, Earnings (Loss) Per Share and
Weighted Average Shares Outstanding excluding the effect of nonrecurring
acquisition-related charges because HBOC management believes that this is a
better indication of actual operating results.
18
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain per share data for HBOC and National
on a historical basis, certain historical equivalent per share data for National
and certain pro forma per share data for HBOC and National on a 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 1997
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 pro forma combined per share data should be read in
conjunction with the historical consolidated financial statements of HBOC and
National, which are incorporated by reference in this Proxy
Statement/Prospectus.
HISTORICAL
HBO & COMPANY(1)
<TABLE>
<CAPTION>
AT AND FOR THE NINE
AT AND FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value................................................. $ 1.14 $ 2.52 $ 3.17 $ 2.96 $ 4.07
Cash Dividends Declared.................................... $ .04 $ .04 $ .04 $ .03 $ .04
Fully Diluted Earnings (Loss).............................. $ .19(2) $ (.09)(3) $ .39(4) $ .31(5) $ .55(6)
</TABLE>
- ------------------------
(1) Gives effect to the 1997 acquisitions of AMISYS Managed Care Systems, Inc.
and Enterprise Systems, Inc. in pooling transactions.
(2) Including the effect of the $7 million nonrecurring charge related to 1994
acquisitions.
(3) Including the effect of the $136 million nonrecurring charge related to 1995
acquisitions and excluding the dilutive effect of stock options.
(4) Including the effect of the $70 million nonrecurring charge related to 1996
acquisitions.
(5) Including the effect of the $35 million nonrecurring charge related to 1996
acquisitions.
(6) Including the effect of the $35 million nonrecurring charge related to 1997
acquisitions.
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
<TABLE>
<CAPTION>
AT AND FOR THE SIX
AT AND FOR THE YEAR ENDED MONTHS ENDED JULY
JANUARY 31, 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value............................................................. $ .12 $ .27 $ 1.01 $ .36 $ 1.08
Cash Dividends Declared................................................ $ -- $ -- $ -- $ -- $ --
Net Income (Loss)...................................................... $ (.21) $ .10 $ .13 $ (.09) $ .09
</TABLE>
19
<PAGE>
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
HISTORICAL EQUIVALENT DATA
USING AN ASSUMED MARKET VALUE PER SHARE OF HBOC COMMON STOCK
OF $25.00 AND AN ASSUMED EXCHANGE RATIO OF .4528
<TABLE>
<CAPTION>
AT AND FOR THE SIX
AT AND FOR THE YEAR ENDED MONTHS ENDED JULY
JANUARY 31, 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value............................................................. $ .26 $ .59 $ 2.24 $ .80 $ 2.38
Cash Dividends Declared................................................ $ -- $ -- $ -- $ -- $ --
Net Income (Loss)...................................................... $ (.45) $ .23 $ .29 $ (.19) $ .19
</TABLE>
USING AN ASSUMED MARKET VALUE PER SHARE OF HBOC COMMON STOCK OF
EQUAL TO OR GREATER THAN $35.37 AND EQUAL TO OR LESS THAN $43.23 AND AN ASSUMED
EXCHANGE RATIO OF .32
<TABLE>
<CAPTION>
AT AND FOR THE SIX
AT AND FOR THE YEAR ENDED MONTHS ENDED JULY
JANUARY 31, 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value............................................................. $ .37 $ .83 $ 3.17 $ 1.13 $ 3.37
Cash Dividends Declared................................................ $ -- $ -- $ -- $ -- $ --
Net Income(Loss)....................................................... $ (.64) $ .32 $ .41 $ (.27) $ .27
</TABLE>
USING AN ASSUMED MARKET VALUE PER SHARE OF HBOC COMMON STOCK
OF $50.00 AND AN ASSUMED EXCHANGE RATIO OF .2766
<TABLE>
<CAPTION>
AT AND FOR THE SIX
AT AND FOR THE YEAR ENDED MONTHS ENDED JULY
JANUARY 31, 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Book Value............................................................. $ .43 $ .97 $ 3.67 $ 1.31 $ 3.90
Cash Dividends Declared................................................ $ -- $ -- $ -- $ -- $ --
Net Income (Loss)...................................................... $ (.74) $ .37 $ .47 $ (.31) $ .31
</TABLE>
20
<PAGE>
PRO FORMA COMBINED HBO & COMPANY AND NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
USING AN ASSUMED MARKET VALUE PER SHARE OF HBOC COMMON STOCK
OF $25.00 AND AN ASSUMED EXCHANGE RATIO OF .4528
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
AT AND FOR THE
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
PER SHARE DATA:
Book Value............................................. $ 1.13 $ 2.50 $ 3.16 $ 2.94 $ 4.05
Cash Dividends Declared................................ $ .04 $ .04 $ .04 $ .03 $ .04
Net Income (Loss)...................................... $ .18(1) $ (.08)(2) $ .39(3) $ .30(4) $ .55(5)
</TABLE>
USING AN ASSUMED MARKET VALUE PER SHARE OF HBOC COMMON STOCK OF
EQUAL TO OR GREATER THAN $35.37 AND EQUAL TO OR LESS THAN $43.23 AND AN ASSUMED
EXCHANGE RATIO OF .32
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
AT AND FOR THE
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
PER SHARE DATA:
Book Value............................................. $ 1.13 $ 2.51 $ 3.17 $ 2.95 $ 4.06
Cash Dividends Declared................................ $ .04 $ .04 $ .04 $ .03 $ .04
Net Income (Loss)...................................... $ .18(1) $ (.08)(2) $ .39(3) $ .30(4) $ .55(5)
</TABLE>
USING AN ASSUMED MARKET VALUE PER SHARE OF HBOC COMMON STOCK
OF $50.00 AND AN ASSUMED EXCHANGE RATIO OF .2766
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS ENDED
AT AND FOR THE
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
PER SHARE DATA:
Book Value............................................. $ 1.13 $ 2.51 $ 3.18 $ 2.95 $ 4.07
Cash Dividends Declared................................ $ .04 $ .04 $ .04 $ .03 $ .04
Net Income(Loss)....................................... $ .18(1) $ (.08)(2) $ .39(3) $ .30(4) $ .55(5)
</TABLE>
- ------------------------
(1) Including the effect of the $7 million nonrecurring charge related to 1994
acquisitions.
(2) Including the effect of the $136 million nonrecurring charge related to 1995
acquisitions and excluding the dilutive effect of stock options.
(3) Including the effect of the $70 million nonrecurring charge related to 1996
acquisitions.
(4) Including the effect of the $35 million nonrecurring charge related to 1996
acquisitions.
(5) Including the effect of the $35 million nonrecurring charge related to 1997
acquisitions.
21
<PAGE>
RISK FACTORS
EXCHANGE RATIO
Stockholders of National should consider that if the Market Value of HBOC
Common Stock is greater than $43.23, each share of National Common Stock will be
converted into a fraction of a share of HBOC Common Stock with a value of
$13.83, which value will not be adjusted if the Market Value of HBOC Common
Stock exceeds $43.23. Accordingly, there can be no assurance that holders of
National Common Stock will receive any minimum fractional share of HBOC Common
Stock for each share of National Common Stock. National stockholders are urged
to obtain current market quotations for HBOC Common Stock. See "Certain Market
Information" below for historical stock price information concerning HBOC Common
Stock and National Common Stock, and see "The Merger Proposal--Terms of the
Merger."
INTERESTS OF CERTAIN NATIONAL OFFICERS AND DIRECTORS IN THE MERGER
Certain officers and directors of National have interests in the Merger that
differ from those of National stockholders generally. Such interests include
severance payments, vesting of unvested and unexercisable stock options and
continuing indemnification against certain liabilities. 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 National--Interests of Certain National 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 sales prices and dividend
information for HBOC Common Stock as furnished by Nasdaq for the periods
indicated after restating for the 1997 two-for-one stock split effected in the
form of a stock dividend.
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
YEAR ENDED DECEMBER 31: HIGH LOW PER SHARE
- ----------------------------------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
1995
First Quarter.................................................................... $ 11.19 $ 8.22 $ .01
Second Quarter................................................................... $ 13.88 $ 9.88 $ .01
Third Quarter.................................................................... $ 16.13 $ 12.91 $ .01
Fourth Quarter................................................................... $ 21.63 $ 15.44 $ .01
1996
First Quarter.................................................................... $ 25.48 $ 16.38 $ .01
Second Quarter................................................................... $ 35.38 $ 23.88 $ .01
Third Quarter.................................................................... $ 35.00 $ 25.25 $ .01
Fourth Quarter................................................................... $ 36.25 $ 25.00 $ .01
1997
First Quarter.................................................................... $ 36.13 $ 23.75 $ .01
Second Quarter................................................................... $ 36.06 $ 21.25 $ .01
Third Quarter.................................................................... $ 42.25 $ 34.25 $ .02
Fourth Quarter (through November 21, 1997)....................................... $ 48.00 $ 36.75 $ .02
</TABLE>
As of October 31, 1997, there were approximately 2,935 holders of record of
shares of HBOC Common Stock.
22
<PAGE>
NATIONAL
National Common Stock has traded under the symbol "NHES" on the Nasdaq NM
since August 1, 1997 and prior thereto on the Nasdaq SmallCap Market. The
following table sets forth the quarterly high and low sales prices for National
Common Stock as furnished by Nasdaq for the periods indicated. National has
never declared a cash dividend on the National Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31: HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1996
First Quarter................................................................................ $ 1.63 $ 1.06
Second Quarter............................................................................... $ 1.63 $ 0.88
Third Quarter................................................................................ $ 2.75 $ 1.25
Fourth Quarter............................................................................... $ 9.00 $ 2.38
1997
First Quarter................................................................................ $ 11.00 $ 5.25
Second Quarter............................................................................... $ 10.25 $ 5.00
Third Quarter................................................................................ $ 9.00 $ 6.25
Fourth Quarter............................................................................... $ 13.63 $ 6.25
1998
First Quarter................................................................................ $ 12.00 $ 7.00
Second Quarter............................................................................... $ 8.50 $ 6.63
Third Quarter................................................................................ $ 13.13 $ 6.25
Fourth Quarter (through November 21, 1997)................................................... $ 12.88 $ 12.00
</TABLE>
As of November 14, 1997, there were approximately 229 holders of record of
shares of National Common Stock.
As a result of the adoption of new listing standards by The Nasdaq Stock
Market ("Nasdaq"), National was advised by Nasdaq that it must demonstrate
compliance with such new listing standards for continued inclusion on the Nasdaq
NM by November 20, 1997 or be subject to delisting from the Nasdaq NM. National
requested an extension of such listing and has received telephonic notice from
Nasdaq that such request has been granted.
The following table sets forth the closing sales price for a share of each
of the indicated stocks, on October 2, 1997, the last trading day preceding the
announcement of the proposed Merger and the National equivalent share value.
<TABLE>
<CAPTION>
CLOSING SALES
PRICE ON
OCTOBER 2,
1997
--------------
<S> <C>
HBOC.......................................................................... $ 39.000
National--Historical.......................................................... $ 12.125
National--Equivalent at an Assumed Exchange Ratio of .32...................... $ 12.480
</TABLE>
For additional information concerning the implied value per share of
National Common Stock at various assumed Market Values and Exchange Ratios, see
"Summary--Comparative Per Share Data."
THE MEETING
This Proxy Statement/Prospectus and the accompanying Notice of Special
Meeting and proxy card are being furnished to the stockholders of National in
connection with the solicitation of proxies by the National Board for the
Meeting to be held on December 29, 1997 at the time and place and for the
purpose set forth in the accompanying Notice of Special Meeting.
23
<PAGE>
Any National 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 National 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 proposals 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 National Common Stock as of the close of business
on November 14, 1997, the Record Date, will be entitled to vote at the Meeting.
At that date, there were 5,705,062 shares of National Common Stock outstanding
and entitled to vote, 1,125,268 of which, or 19.7%, were beneficially owned by
directors and executive officers of National and their affiliates. An aggregate
of 2,261,712 of such shares of National Common Stock, representing approximately
39.6% of the total issued and outstanding shares of National Common Stock as of
the Record Date, are subject to the Voting Agreements, which provide that such
shares will be voted in favor of approval of the Merger Agreement. Stockholders
of record on the Record Date are entitled to one vote for each share of National
Common Stock held on all matters to be voted upon at the Meeting. The presence
at the Meeting, in person or by proxy, of the holders of at least a majority of
the shares of National Common Stock issued and outstanding and entitled to vote
on the Record Date is necessary to constitute a quorum at the Meeting. The
Merger Agreement requires the affirmative vote of the holders of a majority of
the issued and outstanding shares of National Common Stock in order to be
approved. 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 cost of soliciting proxies in the form enclosed herewith will be borne
entirely by National. In addition to the solicitation of proxies by mail,
proxies may be solicited by directors, officers and employees of National,
without additional remuneration, by personal interviews, telephone, facsimile or
otherwise. National will request persons, firms and corporations holding shares
in their name or in the names of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from the beneficial owners
and will reimburse the holders for their reasonable expenses in doing so.
THE MERGER PROPOSAL
BACKGROUND OF THE MERGER
On May 27, 1997, at the invitation of Russell G. Overton, Senior Vice
President--Business Development of HBOC, Gregory J. Petras, Chairman and Chief
Executive Officer of National, and certain other representatives of National met
in Atlanta with Mr. Overton and representatives of HBOC to provide an overview
of National and its products and to initiate discussions regarding a potential
distribution and product development relationship between National and HBOC.
Also present at the meeting were Richard L. Nevins, M.D., Medical Director of
National, Carlton Carden, Chief Executive Officer of Expert Systems, Inc., a
wholly-owned subsidiary of National, Richard W. Hill, Senior Vice President,
Information Systems, of National, and Jay P. Gilbertson, Chief Financial Officer
of HBOC, Gail H. Raymaker, Vice President--Corporate Business Development of
HBOC, Eric B. Lindsay, Manager--Corporate Business Development of HBOC, and
Janeen R. Cook, Executive Director--Product Planning and Strategy of HBOC.
As a result of that meeting, the parties mutually agreed to continue
discussions of these possibilities in Phoenix in the near future. On June 26,
1997, representatives of HBOC, including Messrs. Overton and Lindsay, Ms. Cook,
Michael Kappel, Senior Vice President--Product Planning and Strategy, Fiona
24
<PAGE>
Craddock, Vice President--Access Management/Financials and Dan Russler,
Executive Director--Product Planning and Strategy, met with a number of the
members of National's management team, including Messrs. Petras, Nevins, A. Neal
Westermeyer, Executive Vice President and Chief Operating Officer, Connie
Riffel, Senior Vice President--New Business, Earl E. Bray, Chief Financial
Officer, and Jeffrey T. Zywicki, Senior Vice President--Corporate Development,
in Phoenix to provide HBOC with a better understanding of National's products
and services offerings, as well as National's product development and client
support functions, as they related to a potential distribution and product
development relationship between the companies.
Following that meeting, Mr. Overton spoke with Mr. Petras, and expressed
interest in holding a subsequent meeting with senior National management in
Atlanta to discuss further the possibility of a relationship between the
companies.
On August 15, 1997, Mr. Petras, Mr. Zywicki and W. Cal McGraw, a director of
National and Chief Executive Officer of National's international subsidiary, met
with Mr. Overton, Mr. Gilbertson, Ms. Raymaker and Mr. Lindsay in Atlanta for
the purpose of continuing discussions between the companies regarding a possible
relationship. At this meeting, Mr. Gilbertson indicated for the first time that
HBOC preferred that the relationship take the form of an acquisition of National
by HBOC. Mr. Gilbertson further indicated that he was authorized by the HBOC
Board to propose a merger of National into HBOC in which the stockholders of
National would receive shares of HBOC, on a tax-free pooling of interests basis,
with a value of $10 for each share of National Common Stock. Mr. Petras advised
the representatives of HBOC that National would consider the proposal.
On August 18, 1997, the National Board held a special meeting to consider
the unsolicited proposal by HBOC. All of the members of the National Board were
present in person or by telephone, except Steven D. Wood, Ph.D., who was
unavailable. Also in attendance were Messrs. Westermeyer, Bray and Zywicki and a
representative of Osborn Maledon, P.A. ("Osborn Maledon") counsel to National.
Messrs. Petras, Zywicki and McGraw reported on the August 15 meeting in Atlanta
with HBOC and the proposal made by HBOC. The National Board then engaged in a
lengthy discussion regarding the proposal, HBOC's stated intentions to enter
into and compete vigorously in the personal health management market whether or
not it engaged in a transaction or relationship with National, other competitive
factors, potential synergies, possible alternatives and publicly available
information regarding previous acquisitions by HBOC. The National Board also
expressed concerns that the price proposed by HBOC was too low. The National
Board then appointed a special subcommittee (the "Subcommittee"), consisting of
Mr. Petras, Mr. McGraw and Mark E. Liebner, a director of National, to gather
information and make recommendations to the National Board regarding the HBOC
proposal and other strategic alternatives. The National Board also discussed the
advisability of retaining a financial advisor to assist the National Board in
evaluating the HBOC proposal and National's other strategic alternatives and
discussed several possibilities. Osborn Maledon reviewed with the National Board
their fiduciary responsibilities in connection with these matters. The
Subcommittee was then directed to explore retaining a financial advisor and to
keep the National Board apprised of developments.
The Subcommittee met by telephone on August 18, 1997, following the National
Board meeting on the same date. Mr. Bray, Mr. Zywicki and a representative of
Osborn Maledon also participated in the meeting. The Subcommittee discussed at
length various possible financial advisor candidates, and in connection
therewith it was noted that Broadview had participated in several transactions
advising companies who had been acquired by HBOC. The Subcommittee determined to
follow-up with various sources of information to gain more information regarding
potential financial advisors. In addition, the Subcommittee requested Mr.
Liebner to speak with Mr. Overton to advise HBOC that the National Board had
established the Subcommittee to address strategic alternatives and the HBOC
proposal, that the Subcommittee was in the process of evaluating potential
financial advisors and the Subcommittee would respond to HBOC as soon as it was
in a position to do so.
25
<PAGE>
On August 19, 1997, Mr. Liebner spoke with Mr. Overton by telephone, and
conveyed the message outlined above.
On August 20, 1997, Mr. Petras spoke with Mr. Overton confirming the
conversation between Messrs. Liebner and Overton of the previous day. Also on
that date, Mr. McGraw spoke with Mr. Alec Ellison, a Managing Director of
Broadview, regarding Broadview's experiences with HBOC in prior transactions,
Broadview's availability to assist a company in a potential transaction with
HBOC or others on short notice and possible fee arrangements. Mr. Ellison
confirmed Broadview's availability and interest in assisting National.
On August 20, 1997, the entire Subcommittee met by telephone, with Mr.
Zywicki, Mr. Bray and a representative of Osborn Maledon also participating. Mr.
Liebner and Mr. Petras each reported on their respective conversations with Mr.
Overton, and Mr. McGraw reported on his conversation with Mr. Ellison. Mr. Bray
reported on a meeting that he and Mr. Liebner had with the former chief
financial officer of a company recently acquired by HBOC regarding that
company's experience with HBOC and the participation of Broadview as its
financial advisor in connection with that transaction. The Subcommittee
discussed at length potential financial advisors and determined to interview
Broadview.
On August 21, 1997, the Subcommittee, with Mr. Bray participating,
interviewed Mr. Ellison by telephone with respect to Broadview's qualifications
and experience, its interest and availability in assisting the National Board in
evaluating National's strategic alternatives and the unsolicited proposal by
HBOC, and potential fee arrangements. The Subcommittee determined to recommend
to the National Board that Broadview be retained as financial advisor.
On August 22, 1997, the National Board held a special meeting for the
purpose of receiving a report from the Subcommittee and the Subcommittee's
recommendation to engage Broadview as financial advisor. All of the directors
were present in person or by telephone, except Mr. James W. Myers, who was
unavailable. Also participating in the meeting were Mr. Zywicki, Mr. Bray and a
representative of Osborn Maledon. The members of the Subcommittee gave a
detailed report of the Subcommittee's work to date, and their recommendation
that Broadview be retained as a financial advisor to assist the Subcommittee and
the National Board in evaluating strategic alternatives and the HBOC proposal.
The National Board discussed the report and recommendations at length and
reviewed a proposed engagement letter received from Broadview. The National
Board then unanimously approved engagement of Broadview on the terms and
conditions reviewed by the National Board and authorized management and the
Subcommittee to proceed with the engagement. Mr. Petras indicated that Broadview
was prepared to move quickly to assist the National Board. He also reported that
Mr. McGraw would be meeting with Mr. Overton in Atlanta on August 25, 1997.
On August 25, 1997, National and Broadview entered into an engagement
letter. Also on August 25, Mr. McGraw met with Mr. Overton in Atlanta to
indicate National had retained Broadview to assist the Subcommittee and the
National Board to assess National's strategic alternatives and the HBOC
proposal.
On September 2, 1997, the Subcommittee met via conference call. All members
were present, as were Mr. Zywicki, Mr. Bray and a representative of Osborn
Maledon. Also present were Mr. Ellison, Eric Schoenberg, a Principal of
Broadview, and Paul Joachim, a Senior Associate of Broadview. At Mr. Petras's
request, the Broadview representatives presented an analysis of the proposed
transaction. In connection with this analysis, a report had been distributed
previously for the Subcommittee's consideration. This report included the
following detailed information: (i) a summary of certain alternatives National
could pursue with regards to a strategic business combination; (ii) an analysis
of the historic share performance of National; (iii) an analysis of the historic
share performance, current operating statistics, and current valuation
statistics of companies in both the healthcare information services market and
in the teleservices market; (iv) an analysis of premiums paid for public
software companies in merger and acquisition transactions; (v) information on
the operating performance, valuation, ownership and historic share performance
of HBOC; (vi) a review of equity analysts' recommendations and earnings
estimates for
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HBOC; (vii) a summary of HBOC's acquisitions since January 1, 1994; (viii) an
analysis of the historic relative share prices of HBOC and National; (ix) a
sensitivity analysis of accretion (dilution) from the proposed transaction; and
(x) information on the operating performance, valuation, ownership and historic
share performance of six alternative possible business combination partners for
National. The Broadview representatives reviewed the forgoing information in
detail with the Subcommittee and responded to extensive questions and comments
from Subcommittee members during the course of their presentation. In addition,
Osborn Maledon reviewed the Subcommittee's and the National Board's fiduciary
duties in the context of the proposed transaction and strategic alternatives.
The Subcommittee determined that the offer, in light of the then-current market
conditions, was unacceptable, and instructed National management, in conjunction
with Broadview, to determine if HBOC would be willing to enhance the terms of
its offer.
On September 5, 1997, Messrs. McGraw, Ellison and Schoenberg representing
National met with Charles W. McCall, Chief Executive Officer of HBOC, Messrs.
Gilbertson, Overton and Lindsay and Ms. Raymaker representing HBOC in Atlanta.
Mr. Gilbertson clarified that, based on the market conditions prevailing at the
time of the earlier offer, HBOC was proposing a merger of National with HBOC in
which the stockholders of National would receive 0.26 of a share of HBOC Common
Stock for each share of National Common Stock. Mr. Ellison indicated that a
higher exchange ratio would be necessary to gain National Board approval and
proposed an exchange ratio range of 0.32 to 0.34. After additional discussions
and negotiations, Mr. Gilbertson proposed two alternative structures: (i) a
fixed exchange ratio of 0.28, or (ii) an exchange ratio of 0.32 of a share of
HBOC Common Stock for each share of National Common Stock if HBOC's average
share price for a period preceding the transaction were between $34.65 and
$42.35; HBOC Common Stock with a value of $11.09 if the average price per share
of the HBOC Common Stock was below $34.65; and HBOC Common Stock with a value of
$13.55 if the average price per share of the HBOC Common Stock was above $42.35.
On September 9, 1997, a special meeting of the National Board was held via
conference call. All members of the National Board participated. Also
participating were representatives of Broadview and Osborn Maledon, and Messrs.
Zywicki and Bray. During that meeting, Mr. Petras and Mr. McGraw updated the
National Board on the conversations held with HBOC and the revised terms of its
offer. Messrs. Ellison, Schoenberg and Joachim were then asked to present an
analysis of the proposed transaction alternatives. In connection with this
analysis, an updated report previously had been distributed for the National
Board's consideration. This report included a detailed analysis of the two
alternative proposals made by HBOC and information from the presentation of
September 2 updated as necessary to reflect the revised proposed terms. Messrs.
Ellison, Schoenberg and Joachim reviewed such information in detail with the
National Board and responded to extensive questions and comments from members of
the National Board during the course of their presentation. Osborn Maledon then
reviewed the National Board's fiduciary duties in the context of the National
Board's consideration of the proposed transaction and strategic alternatives.
Following these discussions, the National Board unanimously concluded that it
would be in the best interests of National and its stockholders to explore
further the possibility of a business combination with HBOC and authorized the
Subcommittee, with assistance from management and Broadview, to permit HBOC to
conduct formal and detailed due diligence of National with respect to a possible
strategic business combination of the two companies, and to enter into
negotiations with HBOC with respect to preparation of a definitive merger
agreement, for consideration by the National Board.
On September 10, 1997, Mr. Ellison and Mr. Schoenberg spoke with Messrs.
Gilbertson and Overton by telephone and agreed to base the minimum and maximum
value of HBOC Common Stock to be received by National stockholders (the
"collar") on 90% and 110%, respectively, of the HBOC average share price for the
30 trading days preceding the execution of a definitive agreement, resulting in
the final exchange ratio, and that HBOC would use its best efforts to provide an
interim financial report for the first 30 days of combined operations. Also, in
response to HBOC's request that stockholders commit to support the proposal,
National agreed to HBOC's requirement for proxies to vote in favor of the
transaction at the
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time of execution of a definitive agreement from approximately 40% of the
outstanding shares of National Common Stock.
On September 15, 1997, National held a regular board meeting. All directors
were present in person, except Mr. Gardiner Dutton, who was unavailable. Also
participating in the meeting were Mr. Zywicki, Mr. Bray, Mr. Westermeyer and a
representative of Osborn Maledon. During the meeting, Mr. Petras reported to the
National Board on the current status of negotiations with HBOC, and the National
Board continued its discussions about strategic alternatives and the
advisability of a combination with HBOC. The National Board indicated that
management and the Subcommittee should continue discussions with HBOC. On
September 15, National also received a draft of the proposed merger agreement.
On September 22, 1997, the comments of National to the draft merger
agreement were forwarded by Osborn Maledon to HBOC's counsel. Also on September
22, 1997, Messrs. Gilbertson and Overton met in Phoenix, Arizona with George J.
Bregante, Mr. Myers and Mr. Petras, members of the National Board, Messrs.
Zywicki and Bray, Rachael Thomas, Vice President--Administration of National,
James Bolin, President of Rural/Metro Corporation, a stockholder of National,
and representatives of Broadview and Osborn Maledon to present information
regarding the business and financial performance and prospects of HBOC and to
discuss their views regarding the synergies of the potential acquisition.
During the week of September 22, 1997, representatives of HBOC and National
met in Phoenix to conduct detailed due diligence of National.
On September 30, 1997, a special meeting of the National Board was held via
conference call. All members of the National Board, except Mr. Bregante,
participated in all or a portion of the meeting. Mr. Zywicki, Mr. Bray and
representatives of Broadview and Osborn Maledon also participated in the
meeting. The National Board was informed of the current status of HBOC's due
diligence activities and of the status of negotiations of the draft merger
agreement, a copy of which had previously been provided to the National Board.
Mr. Petras reported on the presentation by HBOC in Phoenix on September 22, as
did those National Board members attending that presentation. Representatives of
Broadview then updated and expanded the report and analysis previously presented
on September 9, including: (i) a detailed collar analysis with respect to the
implied offer price as a function of HBOC's share price; (ii) a comparison of
HBOC's daily closing price versus its trailing 30 day average; (iii) a
comparison of National and HBOC daily closing prices over the prior two year
period; (iv) a valuation analysis with respect to public valuations and
acquisition prices paid for comparable companies; (v) a comparison of premiums
paid for public software companies in transactions with total consideration of
under $250 million since January 1, 1994; (vi) National's daily closing price
since August 18, 1997; (vii) HBOC's and National's weekly historical closing
price and volume performance over the prior two year period; and (viii)
information and analysis regarding HPR and information available regarding
HBOC's agreement to acquire HPR, which was announced the previous day. The
National Board unanimously authorized the Subcommittee and management to
continue negotiations with HBOC.
On October 2, 1997, a special meeting of the National Board was held in
Phoenix. All members of the National Board, as well as representatives of
Broadview, Osborn Maledon and Arthur Andersen LLP, National's independent public
accountants, participated in person or by telephone. Mr. Petras informed the
National Board that the Merger Agreement, drafts of which had been distributed
previously to the National Board, had been finalized, subject to National Board
approval. Representatives of Broadview presented an oral opinion to the National
Board that the consideration to be received by National stockholders in the
Merger was fair, from a financial point of view, which opinion was subsequently
confirmed in writing. Osborn Maledon then reviewed the Merger Agreement terms
with the National Board and answered questions. After further deliberation, the
National 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 National Common Stock. Subsequent to this meeting,
each company executed and delivered the Merger Agreement. The execution of the
Merger Agreement was announced on October 2, 1997, by issuance of a press
release.
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REASONS OF NATIONAL FOR ENGAGING IN THE MERGER; RECOMMENDATION OF THE NATIONAL
BOARD
The National Board has unanimously approved the proposed Merger and the
Merger Agreement and recommends approval of the Merger Agreement by the
stockholders of National based on its belief that the Merger is in the best
interests of National and its stockholders. In reaching its decision, the
National Board considered the following material factors:
(i) The Merger offers National stockholders an opportunity to receive
shares in a significantly larger company with strong historical performance,
capital resources significantly greater than National's and demonstrated
ability to successfully implement its growth strategy that has resulted in
historical increases in revenue and earnings, while affording them the
opportunity to continue to participate in the long-term growth and
appreciation of National's business through an ownership interest in HBOC;
(ii) The increase in competition that National might experience if the
Merger was not consummated and HBOC sought a business combination with
another company offering personal health management solutions or internally
developed and began offering personal health management solutions;
(iii) The presentations, financial analyses and advice of its financial
advisor, Broadview, and the opinion of Broadview that, as of October 2,
1997, the consideration to be received in the Merger was fair, from a
financial point of view, to the National stockholders;
(iv) The strategic fit between National and HBOC and the complementary
nature of their respective businesses, particularly in light of the fact
that National's personal health management products and services will
provide a significant enhancement to the overall product lines of HBOC;
(v) Potential operating synergies and cost savings of the combined
enterprises, including (a) the consolidation of administrative and support
functions, (b) the leverage from a joint sales force and research and
development activity and (c) the elimination of public reporting obligations
and attendant costs of National;
(vi) The capital structure, customer profile, product portfolio and
integration strategy of HBOC, as well as other information on the
management, business operations and prospects of HBOC and National and the
perceived higher likelihood of achieving those prospects on a combined as
opposed to a separate basis;
(vii) The likelihood that the Merger would be consummated, including the
experience, reputation and financial capability of HBOC;
(viii) Publicly available information concerning the financial
performance, condition, prospects and operations of each of National and
HBOC; and
(ix) The proposed terms, timing and structure of the Merger and the
Merger Agreement, including the fact that the Merger is expected to be a
tax-free exchange and accounted for as a "pooling of interests."
The Board also considered the following potentially negative factors in its
deliberations concerning the Merger:
(i) The possibility that certain of the operating synergies and cost
savings sought to be achieved as a result of the Merger might not be
achieved; and
(ii) 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
National Board is not intended to be exhaustive but is intended to include the
material factors considered. In light of the wide variety of
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factors considered, the National Board 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 the advice of management, Broadview and legal counsel, the National Board
unanimously approved the Merger and determined that the Merger is fair to, and
in the best interests of, National and its stockholders and that National should
proceed with the Merger. ACCORDINGLY, THE NATIONAL BOARD UNANIMOUSLY RECOMMENDS
THAT THE NATIONAL STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR OF NATIONAL
At the meeting of the National Board on October 2, 1997, Broadview rendered
its oral opinion, subsequently confirmed in writing (the "Broadview Opinion"),
that, as of such date, based upon the various considerations set forth in the
Broadview Opinion, the consideration to be received in the Merger was fair from
a financial point of view to the National stockholders.
The full text of the Broadview Opinion (updated as of the date indicated),
which sets forth assumptions made, matters considered, and limitations on the
review undertaken, is attached as Appendix B to this Proxy Statement/Prospectus.
National stockholders are urged to read the Broadview Opinion carefully in its
entirety. The Broadview Opinion addresses only the fairness of the consideration
to be received by National stockholders in the Merger from a financial point of
view and does not constitute a recommendation to any stockholder of National as
to how such stockholder should vote at the Meeting. Broadview has advised the
National Board expressly in the Broadview Opinion that Broadview does not
believe that any person (including a stockholder of National) other than the
National Board has the legal right to rely upon its opinion to support any
claims against Broadview arising under applicable state law and that, should any
such claims be brought against Broadview by any such person, this assertion will
be raised as a defense. Should a claim arise, the availability of such a defense
would be resolved by a court of competent jurisdiction. Resolution of the
question of the availability of such a defense, however, will have no effect on
the rights and responsibilities of the National Board under applicable state
law. Nor would the availability of such a state-law defense to Broadview have
any effect on the rights and responsibilities of either Broadview or the
National Board under the federal securities laws. In addition, Broadview will
receive a fee from National contingent upon the successful conclusion of the
Merger. The summary of the Broadview Opinion set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In rendering its opinion, Broadview, among other actions: (i) reviewed the
terms of the Merger Agreement and the associated exhibits thereto; (ii) reviewed
the audited financial statements of National for its fiscal years ended January
31, 1995, 1996 and 1997 and the unaudited financial statements of National for
the six months ended July 31, 1997 included within National's Form 10-QSB for
such period; (iii) reviewed internal historical financial and operating data
concerning National prepared and provided to Broadview by National management;
(iv) reviewed financial projections for National prepared and provided to
Broadview by National management; (v) participated in discussions with National
management concerning the operations, business strategy, financial performance
and prospects for National; (vi) discussed with National management its view of
the strategic rationale for the Merger; (vii) reviewed the reported closing
prices and trading activity for National Common Stock; (viii) compared certain
aspects of the financial performance of National with public companies deemed
comparable; (ix) analyzed available information, both public and private,
concerning other mergers and acquisitions believed to be comparable in whole or
in part to the Merger; (x) reviewed HBOC's annual report and Form 10-K for the
fiscal years ended December 31, 1994, 1995 and 1996 and the unaudited financial
statements of HBOC for the six months ended June 30, 1997 included within HBOC's
Form 10-Q for such period; (xi) participated
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in discussions with HBOC management concerning the operations, business
strategy, financial performance and prospects for HBOC; (xii) discussed with
HBOC management its view of the strategic rationale for the Merger; (xiii)
reviewed the reported closing prices and trading activity for HBOC Common Stock;
(xiv) considered the total number of shares of HBOC Common Stock outstanding,
the average weekly trading volume of HBOC Common Stock, and the maximum time
period for National stockholders to liquidate their HBOC Common Stock given
securities regulations; (xv) reviewed recent equity analysts' reports covering
HBOC; (xvi) analyzed the anticipated effect of the Merger on the future
financial performance of the consolidated entity; (xvii) participated in
negotiations and discussions related to the Merger among National and HBOC; and
(xviii) conducted other financial studies, analyses and investigations as deemed
appropriate for purposes of its opinion.
In rendering the Broadview Opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Merger Agreement) that was publicly available or furnished by
National or HBOC. All analyses relying on future projections of National
utilized forecasts developed by National management, which Broadview assumed
were reasonably prepared and reflected the best available estimates and good
faith judgments of the management of National as to the future performance of
National. Broadview neither made nor obtained an independent appraisal or
valuation of any of National's assets. Broadview did not review any internal
financial projections prepared by HBOC management as such were not provided by
HBOC management.
PUBLIC COMPANY COMPARABLES ANALYSIS--Total Market Capitalization/Revenue
("TMC/R") and Price/Earnings ("P/E") multiples indicate the value public markets
place on companies in a particular market segment. Although there are a limited
number of public company "pure plays" in the markets in which National competes,
several companies are comparable to National based on revenue size, products
offered, business model, management structure and market position. Broadview
reviewed nine public company comparables in the healthcare information systems
("HCIS") market from a financial point of view including each company's:
Trailing Twelve Month ("TTM") Revenue; TTM Revenue Growth; TTM Operating Margin;
5-year Forecast EPS Compound Annual Growth Rate ("CAGR"); Equity Market
Capitalization; TTM P/E ratio; Price/Forward 1998 Calendar EPS ratio ("Forward
P/E"); and TTM TMC/R ratio. The public company comparables were selected from
the BROADVIEW BAROMETER, a proprietary database of publicly-traded Information
Technology ("IT") companies maintained by Broadview and broken down by industry
segment. In order of descending TMC/R, the public company comparables consist
of: 1) Transition Systems, Inc.; 2) Access Health Inc.; 3) IMNET Systems, Inc.;
4) IDX Systems Corp.; 5) Cerner Corp.; 6) Health Systems Design Corp.; 7) MECON
Inc.; 8) Sunquest Information Systems, Inc.; and 9) HCIA Inc.
These comparables have a TTM P/E ratio range of 23.91 to 103.72 with a
median of 41.01; Forward P/E ratio range of 11.41 to 37.90 with a median of
27.88; and TMC/R ratio range of 1.71 to 7.75 with a median of 3.44.
The per share valuation of National Common Stock implied by the median TTM
P/E multiple is $9.60. The per share valuation implied by the median Forward P/E
multiple is $24.20. The per share valuation implied by the median TMC/R multiple
is $16.46.
TRANSACTION COMPARABLES ANALYSIS--Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") and Price/Pretax
("P/Pretax") multiples acquirers have paid for comparable companies in a
particular market segment. Broadview reviewed twenty-two comparable merger and
acquisition ("M&A") transactions from 1994 through the present with
consideration over $20 million which involve sellers sharing many
characteristics with National including revenue size, products offered, business
model and management structure. Transactions were selected from Broadview's
proprietary database of published and confidential M&A transactions in the IT
industry. These transactions represent ten public sellers and twelve private
sellers or divestitures in the HCIS segment of the software market. In
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order of descending price, the public seller transactions used are the
acquisition of: 1) Medic Computer by Misys PLC (pending); 2) HPR Inc. by HBOC
(pending); 3) CyCare Systems, Inc. by HBOC; 4) Enterprise Systems, Inc. by HBOC;
5) GMIS Inc. by HBOC; 6) CliniCom, Inc. by HBOC; 7) Amisys Managed Care Systems,
Inc. by HBOC; 8) PHAMIS Inc. by IDX Systems Corp.; 9) C.I.S. Technologies, Inc.
by National Data Corp.; and 10) Serving Software, Inc. by HBOC.
In order of descending price, the private seller or divestiture transactions
used are the acquisition of: 1) Health Data Sciences Corp. by Medaphis Corp.; 2)
Confidential; 3) Confidential; 4) Versyss, Inc. by Physicians Computer Network,
Inc.; 5) Confidential; 6) Confidential; 7) Management Software, Inc. by HBOC; 8)
IBAX Healthcare Systems by HBOC; 9) Compusystems, Inc. by Medic Computer
Systems, Inc.; 10) Mediqual Systems by Cardinal Health; 11) Confidential; and
12) Community Health Computing Corp. by ADAC Laboratories.
The P/R multiples of the ten public seller transactions range from 2.42 to
9.12 with a median of 4.04. The P/Pretax multiples of the ten public seller
transactions range from 24.81 to 41.61 with a median of 32.18. The P/R multiples
of the twelve private seller transactions range from 0.60 to 10.90 with a median
of 2.91. The P/Pretax multiples of the twelve private seller transactions range
from 6.22 to 22.28 with a median of 12.82. The median P/R ratio for all
twenty-two transactions was 3.27, and the median P/Pretax multiple for all
twenty-two transactions was 28.55.
The per share valuation of National Common Stock implied by the median P/R
multiple using public comparables is $19.29. The per share valuation of National
Common Stock implied by the median P/Pretax multiple using public comparables is
$9.82. The per share valuation of National Common Stock implied by the median
P/R multiple using all comparables, public and private, is $15.64. The per share
valuation of National Common Stock implied by the median P/Pretax multiple using
all comparables is $8.71.
TRANSACTION PREMIUMS PAID ANALYSIS--Premiums paid in comparable public
seller transactions indicate the amount of consideration acquirers are willing
to pay above the seller's equity market capitalization. In this analysis, the
value of consideration paid in transactions involving stock is computed using
the buyer's stock price immediately prior to announcement, while the seller's
equity market capitalization is measured one day prior and thirty days prior to
announcement. Broadview reviewed twenty-eight comparable M&A transactions from
January 1, 1994 to the present with total consideration less than $250 million.
All transactions involved public sellers in the software sector of the IT
market. Transactions were selected from Broadview's proprietary database of
published and confidential M&A transactions in the IT industry. In order of
descending premium paid over share price 30 days prior to announcement date, the
transactions used were the acquisition of: 1) High Level Design Systems, Inc. by
Cadence Design Systems, Inc.; 2) GMIS Inc. by HBOC; 3) Softdesk Inc. by Autodesk
Inc.; 4) Triad Systems Corp. by Cooperative Computing Inc.; 5) TGV Software,
Inc. by Cisco Systems, Inc.; 6) Knowledgeware Inc. by Sterling Software Inc.; 7)
Open Environment Corp. by Borland International Inc.; 8) Hogan Systems Inc. by
Continuum Co.; 9) Aurum Software Inc. by Baan International BV; 10) Datalogix
International Inc. by Oracle Corp.; 11) PDA Engineering by Macneal-Schwendler
Corp.; 12) Intermetrics Inc. by Apollo Holdings Inc.; 13) Trinzic Corp. by
Platinum Technology Inc.; 14) Amisys Managed Care Systems, Inc. by HBOC; 15)
Saber Software Corp. by McAfee Associates Inc.; 16) CliniCom, Inc. by HBOC; 17)
Altai Inc. by Platinum Technology Inc.; 18) CIS Technologies Inc. by National
Data Corp.; 19) Wavefront Technologies Inc. by Silicon Graphics, Inc.; 20)
Microtec Research Inc. by Mentor Graphics Inc.; 21) HPR Inc. by HBOC (pending);
22)PHAMIS Inc. by IDX Systems Corp.; 23) Softimage, Inc. by Microsoft Corp.; 24)
Enterprise Systems Inc. by HBOC; 25) Technalysis Corp. by Compuware Corp.; 26)
Meta-Software Inc. by Avant! Corp.; 27) Fractal Design Corp. by MetaTools Inc.;
and 28) Firefox Communications Inc. by FTP Software Inc.
Based upon Broadview's analysis of premiums paid in comparable transactions,
Broadview found that premiums (discounts) paid to sellers' equity market
capitalizations (using the buyers' share price on the day prior to the
announcement date of the transaction to calculate consideration in stock
transactions) 30
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days prior to announcement date ranged from (47.8%) to 138.5% with a median of
43.4%. The premiums (discounts) paid to each seller's equity market
capitalization one day prior to announcement date ranged from (0.5%) to 138.3%
with a median of 32.8%.
The per share valuation of National Common Stock implied by the median
premium paid 30 days prior to the announcement date is $10.04. The per share
valuation implied by the median premium paid one day prior to announce date is
$15.94. The difference in these values is a function of a significant increase
in the price of National Common Stock during the 30 days prior to announcement.
STOCK PERFORMANCE ANALYSIS--For comparative purposes, Broadview examined the
historical volume and trading prices for both National Common Stock and HBOC
Common Stock. Broadview examined the following: 1) HBOC and National actual
share prices and trading volumes from October 6, 1995 to October 1, 1997; 2)
HBOC and National relative share price performance from October 6, 1995 to
October 1, 1997; and 3) normalized HBOC and National share prices versus an
index of Comparable Company stock prices from September 2, 1997 to October 1,
1997.
The purpose of this analysis was to examine the relative behavior of the
stock prices of National, HBOC, and an index of comparable companies.
PRO FORMA POOLING MODEL ANALYSIS--A PRO FORMA merger analysis calculates the
EPS accretion/dilution of the PRO FORMA combined entity taking into
consideration various financial affects which will result from a consummation of
the merger. This analysis relies upon certain financial and operating
assumptions provided by Broadview and National and HBOC management. Based on
these assumptions, the PRO FORMA pooling analysis indicates EPS accretion
(dilution) without acquisition expenses for the fiscal years ending December 31,
1997 and 1998 of (0.0%) and 1.6%, respectively.
CONSIDERATION OF THE DISCOUNTED CASH FLOW VALUATION METHODOLOGY--While
discounted cash flow is a commonly used valuation methodology, Broadview did not
employ such an analysis for the purposes of its opinion. Discounted cash flow
analysis is most appropriate for companies which exhibit relatively steady or
predictable streams of future cash flow. Furthermore, for companies displaying
very high growth rates, the terminal value constitutes the preponderance of the
calculated value and is itself highly dependent on assumptions regarding the
long-term projected growth rate. Based on the difficulty of estimating this
terminal growth rate, Broadview considered a discounted cash flow analysis
inappropriate for valuing National.
SUMMARY OF VALUATION ANALYSES--Taken together, the information and analyses
employed by Broadview lead to Broadview's overall opinion that the consideration
to be received by National stockholders is fair to National stockholders from a
financial point of view.
The National Board selected Broadview as its financial advisor on the basis
of Broadview's reputation and experience in the information technology sector
and the computer software industry in particular, as well as Broadview's
specific experiences in transactions involving HBOC. Pursuant to the terms of an
engagement letter between National and Broadview, the fees payable by National
to Broadview upon completion of the Merger are calculated as $500,000 plus 1% of
the total consideration beyond $20 million. A fee of $200,000 to be paid in
connection with the delivery of the fairness opinion will be credited against
such amount. Broadview will be reimbursed by National for certain of its
expenses incurred in connection with its engagement. The terms of the fee
arrangements with Broadview, which National and Broadview believe are customary
in transactions of this nature, were negotiated at arms' length between National
and Broadview, and the National Board was aware of the nature of the fee
arrangement, including the fact that a significant portion of the fees payable
to Broadview is contingent upon completion of the Merger.
The above summary of the presentations by Broadview to the National Board
does not purport to be a complete description of such presentations or of all
the advice rendered by Broadview. Broadview believes
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that its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses, without considering all analyses,
could create an incomplete view of the process underlying the analyses set forth
in Broadview's presentations to the National Board and in the Broadview Opinion.
In performing its analyses, Broadview made numerous assumptions with respect to
software industry performance and general economic conditions, many of which are
beyond the control of National. The analyses performed by Broadview are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses.
REASONS OF HBOC FOR ENGAGING IN THE MERGER
The HBOC Board believes that the acquisition of National will expand HBOC's
enterprisewide suite of information systems by adding National's specialized
call center technology and disease management initiatives.
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 National 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, National will be
merged with and into HBOC-GA, which will be the surviving corporation.
CONVERSION OF SHARES. Each share of National Common Stock issued and
outstanding immediately prior to the Effective Time, will, at the Effective
Time, be converted into the right to receive .32 of a share of HBOC Common
Stock, provided however that (i) if the Market Value is less than $35.37, each
share of National Common Stock will be converted into a fractional share of HBOC
Common Stock determined by dividing $11.32 by the Market Value and (ii) if the
Market Value is greater than $43.23, each share of National Common Stock will be
converted into a fractional share of HBOC Common Stock determined by dividing
$13.83 by the Market Value (whichever basis is applicable being referred to as
the "Exchange Ratio"), and less the amount of any fractional share, which will
be paid in cash. The shares of HBOC Common Stock and any cash in lieu of
fractions thereof receivable by each National stockholder in the Merger are
referred to herein as the "Merger Consideration."
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 National 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 National Common Stock
outstanding at the Effective Time of the Merger will be assumed by HBOC and, as
a result of the assumption of options to purchase National Common Stock, 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
National 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 National 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
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<PAGE>
aggregate price divided by the total number of shares of HBOC Common Stock
issuable thereunder. No other terms of the options assumed by HBOC will be
modified.
WARRANTS. At the Effective Time, each outstanding Warrant to purchase
shares of National Common Stock shall be assumed by HBOC. Each Warrant shall
thereafter evidence a warrant to purchase the number of whole shares of HBOC
Common Stock into which the number of shares of National Common Stock issuable
pursuant to such Warrant would have been converted in the Merger at an exercise
price per share equal to the amount arrived at by dividing the aggregate
exercise price under such Warrant by the number of shares of HBOC Common Stock
purchaseable thereunder.
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 deliver the Merger Consideration to each holder of shares of
National 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 National Common
Stock (the "Certificates"), a letter of transmittal and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration payable in respect of the shares of National Common Stock
represented thereby.
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
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-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 National 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 National 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
National 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
National a letter agreement confirming that such person will not sell or
otherwise dispose of the shares of HBOC Common Stock received by such
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<PAGE>
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, National affiliates are subject to certain restrictions on transfer of
both National Common Stock and HBOC Common Stock during certain periods 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 National, 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 and any related
matters by holders of the requisite number of shares of National Common Stock;
(iv) the Registration Statement shall have been declared effective by the
Commission and no stop order shall have been issued with respect thereto 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) the
receipt by the National Board of an updated fairness opinion of Broadview.
The obligations of HBOC and HBOC-GA to consummate the Merger are contingent
upon and subject to the satisfaction or waiver of the following additional
conditions: (i) the representations and warranties of National shall remain true
and correct at and as of the Closing Date, other than breaches of such
representations which do not individually or in the aggregate constitute a
material adverse effect on the businesses, assets, financial condition or
results of operations (a "Material Adverse Effect") of National and its
subsidiaries, taken as a whole; (ii) the performance of all covenants,
agreements and conditions by National as provided in the Merger Agreement; (iii)
there shall have been no change in the business, assets or results of operations
of National or its subsidiaries which individually or in the aggregate
constitutes a Material Adverse Effect; (iv) receipt of a certificate of the
Chief Executive Officer of National regarding satisfaction of certain
conditions, including those listed in (i) through (iii) above; (v) receipt of
certain legal opinions, including an opinion of Jones, Day, Reavis & Pogue,
counsel to HBOC, 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 National regarding compliance with Rule 145 and certain pooling of interests
requirements; (vii) delivery of certain additional certificates and documents by
National, including consents of third parties; (viii) receipt of letters from
Arthur Andersen LLP, in their capacities as independent public accountants for
National and HBOC, advising HBOC that each of National and HBOC, respectively,
satisfies the tests applicable to it such that the Merger can be accounted for
as a pooling of interests; (ix) receipt of letters from Arthur Andersen LLP, in
its capacity as National's independent public accountants, regarding information
about National included in the Registration Statement; (x) receipt of
non-competition agreements from certain key employees of National; (xi) receipt
of employee agreements related to non-disclosure, inventions and similar matters
from substantially all of the employees of National; (xii) the absence of any
fees or expenses payable to any investment banking firm or similar entity that
will be incurred by National in connection with the Merger, except fees and
expenses of Broadview not to exceed the limitations set forth in the Merger
Agreement; (xiii) termination of certain agreements granting special rights to
certain stockholders of National; and (xiv) cancellation of certain stock
options within ten days of the date of the Merger Agreement (which condition has
been satisfied).
The obligation of National 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
36
<PAGE>
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 Osborn Maledon, counsel to
National, to the effect that the Merger will qualify as a reorganization
pursuant to Section 368(a) of the Code.
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 National filed the required information with the Antitrust
Division and the FTC on October 17, 1997 and were notified that the waiting
period was terminated October 27, 1997. 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. National has agreed that prior to the Effective Time of
the Merger or earlier termination of the Merger Agreement, National shall not,
and shall not permit any of its subsidiaries to, and National and its
subsidiaries shall not authorize or permit any officer, director, employee or
representative of National or its subsidiaries to, solicit, initiate, encourage
(including by way of furnishing information), endorse or enter into any
agreement with respect to, or take any other action to facilitate, any inquiries
or the making of any proposal or offer for any tender or exchange offer,
proposal for a merger, share exchange or other business combination involving
National or any of its subsidiaries or any proposal or offer to acquire in any
manner a substantial equity interest in National or any of its subsidiaries or a
substantial portion of the assets of National or any of its subsidiaries with
any person or entity; provided, however, that the National 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 National Board determines
in good faith, after receiving written advice of its outside counsel, that such
action would be required under applicable law in the exercise of its fiduciary
duties. National has agreed to notify HBOC-GA within one business day of its
receipt 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 written consent of the HBOC Board
and the National Board, notwithstanding the prior approval of the National
stockholders; (ii) the HBOC Board, in the event of material condemnation,
destruction, loss or damage to the business or assets of National and its
subsidiaries, taken as a whole; (iii) the HBOC-GA Board or the National Board,
after January 31, 1998 if any of the conditions to its respective obligation to
consummate the Merger have not been fulfilled, unless fulfillment has been
frustrated or made impossible by the party seeking termination; (iv) the
National Board, if, in the good faith exercise of its fiduciary duties to the
stockholders of National in the context of a proposal to acquire National by
another party, the National Board decides that such termination is required; (v)
the National Board, if the Market Value of HBOC Common Stock is less than
$25.00; and (vi) by HBOC-GA, after October 12, 1997, if certain stock options
were not cancelled prior to such date (which condition has been satisfied).
If the Merger Agreement is terminated by National in accordance with (iv)
above or by any of the parties because it was not approved by the requisite
number of shares of National Common Stock, National will be obligated to pay to
HBOC-GA a fee in the amount of $3,000,000, which amount includes reimbursement
of all reasonable costs and expenses of HBOC and HBOC-GA.
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that HBOC shall have
received letters, dated as of the date hereof and as of the Closing Date, from
Arthur Andersen LLP, in their capacities as independent public accountants for
National and HBOC, to the effect that each of National and HBOC, respectively,
satisfies the tests applicable to it such that the Merger can be accounted for
as a pooling of
37
<PAGE>
interests under Accounting Principles Board Opinion No. 16, if the Merger is
closed and consummated in accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, based upon current law, is a general discussion of
the principal federal income tax consequences of the Merger, assuming the Merger
is consummated as contemplated herein. This summary is based upon the Code,
applicable regulations promulgated under the Code by the Treasury Department 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 National Common Stock who hold their shares of National Common Stock
as capital assets. This summary does not discuss all aspects of income taxation
that may be relevant to a particular holder of National 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 National
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 National 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, Osborn Maledon has
advised National 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 National as a result of the consummation of the Merger, and
(iii) no gain or loss will be recognized by a National stockholder upon the
exchange of shares of National 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 National as the
result of the consummation of the Merger.
The opinions of Osborn Maledon and Jones, Day, Reavis & Pogue referred to
herein are based upon certain representations and warranties of HBOC, HBOC-GA,
National and certain stockholders of National that are customarily made in
connection with such opinions. In addition, consummation of the Merger is
subject to the condition that as of the Closing Date the opinions described
above shall not have been withdrawn or materially modified. 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 National as a
result of the Merger will be the same as the aggregate adjusted tax basis of the
shares of National 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 National as a result of the
Merger will include the holding period of the shares of National Common Stock
surrendered in exchange therefor. Any cash that a stockholder of National
receives in lieu of a fractional interest in a share of HBOC Common Stock will
be treated as if the fractional share were distributed in the Merger and were
then redeemed for the cash payment, 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 National stockholder in the Merger, a National 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
38
<PAGE>
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
National stockholder in the letter of transmittal to be mailed to each holder
after the Effective Time. If the correct TIN and certifications are not
provided, a $50 penalty may be imposed on a National 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 NATIONAL 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 National Common Stock was a Nasdaq NM security as of the Record
Date, the holders of shares of National 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 NATIONAL
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HBOC
The following table sets forth, as of September 30, 1997, 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, 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 and beneficial ownership
is determined in accordance with the rules of the Commission.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- ----------------------------------------------------------------------- ------------------------ -------------------
<S> <C> <C>
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109.......................................... 12,638,106(2) 6.3%
Alfred C. Eckert III................................................... 85,000(3) *
Holcombe T. Green, Jr.................................................. 2,271,720(4) 1.1%
Philip A. Incarnati.................................................... 40,000(5) *
Alton F. Irby III...................................................... 86,000(6) *
Gerald E. Mayo......................................................... 164,000(5) *
Charles W. McCall...................................................... 2,536,813(7) 1.3%
James V. Napier........................................................ 150,976(8) *
Donald C. Wegmiller.................................................... 40,000(5) *
Jay P. Gilbertson...................................................... 141,744(9) *
Albert J. Bergonzi..................................................... 135,612(10) *
Jay M. Lapine.......................................................... 24,382(11) *
Russell G. Overton..................................................... 30,756(12) *
All Directors and Executive Officers as a Group (12 persons)........... 5,707,003(13) 2.8%
</TABLE>
- ------------------------
* Less than 1%.
(1) In accordance with the rules of the Commission, a person is deemed to be
the beneficial owner of any securities such person has the right to acquire
within 60 days of the date on which beneficial ownership is determined.
Accordingly, options exercisable within such period are reported as
presently exercisable.
(2) According to the joint Schedule 13G as of December 31, 1996, of Putnam
Investments, Inc. ("PI"), its parent, Marsh & McLennan Companies, Inc. and
PI's subsidiaries, Putnam Investment Management, Inc. ("PIM") and The Putnam
Advisory Company, Inc. ("PAC"), PAC has shared voting and shared dispositive
power with respect to 1,552,600 and 2,426,130 of such shares, PIM has shared
dispositive power with respect to 10,211,976 of such shares and PI has
shared voting and shared dispositive power with respect to 1,552,600 and
12,638,106 of such shares.
(3) Includes 80,000 shares that may be acquired through the exercise of
presently exercisable stock options and 5,000 held in an IRA for the benefit
of Mr. Eckert.
(4) Includes 900,000 shares that Mr. Green may acquire through the exercise of
presently exercisable stock options; 22,920 shares held in an IRA for the
benefit of Mr. Green; 1,100,600 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 248,200 shares held by HTG Corp., which is
wholly-owned by Mr. Green.
(5) Represents shares that may be acquired through the exercise of presently
exercisable stock options.
(6) Includes 80,000 shares that may be acquired through the exercise of
presently exercisable stock options.
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<PAGE>
(7) Includes 440,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(8) Includes 1,400 shares owned by Mr. Napier's daughter and 100,000 shares
that may be acquired through the exercise of presently exercisable stock
options.
(9) Includes 124,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(10) Includes 132,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(11) Includes 24,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(12) Includes 4,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(13) Includes 2,128,000 shares that may be acquired through the exercise of
presently exercisable stock options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF NATIONAL
The following table sets forth, as of November 14, 1997, unless otherwise
indicated, certain information with respect to all stockholders known to
National to beneficially own more than five percent of the National Common
Stock, and information with respect to National Common Stock beneficially owned
by each director of National, the Chief Executive Officer of National and
National's four other most highly compensated executive officers for the year
ended January 31, 1997, and all directors and executive officers of National as
a group. Except as otherwise indicated, the stockholders listed in the table
have sole voting and investment powers with respect to National Common Stock
owned by them, subject to community property laws where applicable, and
beneficial ownership is determined in accordance with the rules of the
Commission.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT
- --------------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
Edward B. Diethrich, M.D. and Gloria D. Diethrich
P.O. Box 10000
Phoenix, Arizona 85064......................................................... 951,766(1) 13.3%
Bisgrove Financial Management LP
U.S. West Building
5090 N. 40th Street
Phoenix, Arizona 85253......................................................... 579,000 8.1%
Rural/Metro Corporation
8401 East Indian School Road
Scottsdale, Arizona 85251...................................................... 370,370 5.2%
Gregory J. Petras................................................................ 809,394(2) 11.4%
John P. Delmatoff................................................................ 0 *
Terri S. Langhans................................................................ 202,032 2.8%
W. Cal McGraw.................................................................... 184,508(3) 2.6%
A. Neal Westermeyer.............................................................. 183,398(4) 2.6%
Ian R. Lazarus................................................................... 87,936(5) 1.2%
Gardiner S. Dutton............................................................... 77,400(6) 1.1%
James W. Myers................................................................... 29,000(7) *
Steven D. Wood, Ph.D............................................................. 50,900(8) *
George J. Bregante............................................................... 0 *
Mark E. Liebner.................................................................. 0 *
All Directors and Executive Officers as a Group (12 persons)..................... 1,839,668(9) 25.8%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes shares beneficially held under a Revocable Trust Agreement dated
May 8, 1974, the trustees of which are Dr. and Mrs. Diethrich. The trust
created thereunder has sole voting and investment power and also holds all
of Dr. Diethrich's stock in The Arizona Heart Institute.
41
<PAGE>
(2) Includes 183,300 shares that may be acquired through the exercise of
presently exercisable stock options.
(3) Includes 10,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(4) Includes 181,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(5) Includes 52,500 shares that may be acquired through the exercise of
presently exercisable stock options.
(6) Includes 25,400 shares that may be acquired through the exercise of
presently exercisable stock options.
(7) Includes 29,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(8) Includes 47,400 shares that may be acquired through the exercise of
presently exercisable stock options.
(9) Includes 714,400 shares that may be acquired through the exercise of
presently exercisable stock options.
INTERESTS OF CERTAIN NATIONAL PERSONS IN MATTERS TO BE ACTED UPON
In considering the Merger, holders of National Common Stock should be aware
that the directors and executive officers of National have interests in the
Merger in addition to their interests as stockholders of National generally, as
described below.
Pursuant to certain agreements, the executive officers of National are
entitled to receive severance payments if their employment is terminated under
certain circumstances. National entered into a Key Executive Employment and
Severance Agreement (an "Employment Agreement") with each of Earl E. Bray,
Richard R. Hill, Terri S. Langhans, Ian R. Lazarus, A. Neal Westermeyer and
Jeffrey T. Zywicki (collectively, the "Officers"). Under the terms of such
Employment Agreement, each Officer is entitled to certain compensation and other
benefits, if his or her employment with National is terminated after a change of
control of National, such as the Merger. The maximum liability of HBOC, as
successor to National, under each Employment Agreement in the event of an
Officer's termination after the Merger would be the sum of all accrued benefits
of such Officer, the immediate vesting of any unvested options to purchase
National Common Stock granted to such Officer (if vesting is conditioned solely
on continued employment), bonus payments (with assumed attainment of specified
performance), the continuation of insurance coverage at National's expense for
18 months, out-placement services, relocation expenses, and payment of such
Officer's annual salary for 18 months, if such Officer's employment is
terminated within one year of the Closing Date, or for one year, if such
Officer's employment is terminated after one year subsequent to the Closing Date
(in either event, "Termination Payments"), provided that such Termination
Payments shall be reduced by half because the Merger was unanimously approved by
the National Board, except with regard to Messrs. Bray and Zywicki. Under the
terms of each Employment Agreement, each Officer other than Messrs. Bray and
Zywicki is required to attempt to obtain comparable employment and the amount of
such Officer's Termination Payments will be reduced by any compensation received
therefrom. Pursuant to the Employment Agreement, each Officer agrees that during
his or her employment and thereafter for one year or any longer period in which
he or she is receiving Termination Payments, if such Officer is terminated for
cause or voluntarily terminates his or her employment, such Officer will not act
in a similar capacity for any business which competes to a substantial degree
with National in the United States, or engage in any activity involving direct,
material competition in the United States with National's then existing products
or services, or those planned for release by National within the following 12
months of which the Officer has notice, without the prior approval of the HBOC
Board. Pursuant to the Employment Agreement between Mr. Bray and National, if
Mr. Bray's employment is terminated within one year of the Closing Date, he is
entitled to receive his annual salary for 18 months in a lump sum within 15 days
after the termination date. Currently the annual base salary of each Officer is
as
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follows: Mr. Bray: $105,000; Mr. Hill: $125,000; Ms. Langhans: $151,000; Mr.
Lazarus: $130,000; Mr. Westermeyer: $175,000; and Mr. Zywicki: $125,000.
W. Cal McGraw, a director of National and Chief Executive Officer of
National's international subsidiary, owns a minority interest in such
subsidiary. It is anticipated that such interest will be purchased by HBOC in
the future although the parties have not negotiated the terms of such potential
transaction. There can be no assurance that such purchase will occur or as to
the terms thereof.
HBOC-GA has agreed that subsequent to the Closing Date, it will provide to
the directors and officers of National indemnification in accordance with the
current provisions of the Certificate of Incorporation and Bylaws of National
with respect to matters occurring prior to the Effective Time and the Merger and
the other transactions contemplated by the Merger Agreement, 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
National Common Stock--Liability and Indemnification of Officers and Directors."
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF
HBOC COMMON STOCK AND NATIONAL COMMON STOCK
INTRODUCTION
HBOC and National are each incorporated under the laws of the State of
Delaware. The holders of shares of National Common Stock, whose rights as
stockholders are currently governed by Delaware law, the Certificate of
Incorporation of National, as amended (the "National Charter"), and the Amended
and Restated By-laws of National (the "National 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 National Common Stock and
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 National Common Stock under applicable Delaware law,
the National Charter and National 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 National, to which
holders of shares of National 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 National Charter provides that National has the
authority to issue (i) 10,000,000 shares of National Common Stock and (ii)
2,000,000 shares of preferred stock, par value $.001 per share.
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BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
The DGCL permits a corporation's certificate of incorporation to allow its
board of directors to issue, without stockholder approval, one or more series of
preferred or preference stock and to designate their rights, preferences,
privileges and restrictions. The HBOC Charter grants such power to the HBOC
Board. 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 National Charter also grants such power to the National
Board. The National Board has designated one series of preferred stock, the
Series A Convertible Preferred Stock, none of which is currently outstanding.
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 a 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 National Common Stock are entitled to one vote per share on
all matters to be submitted to a vote of the stockholders of National.
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 eight. The National Bylaws specify that the number of
directors shall be fixed from time to time by resolution of the National Board.
The number of directors constituting the National Board is currently seven.
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 National 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
National Charter does not contain any provision requiring a greater vote with
respect 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 HBOC
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
National Bylaws provide that special meetings of stockholders may be called by
the President or by a majority of the National Board. The written notice of a
special meeting shall state the time, place and object 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 National Charter does not prohibit 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
and 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 may also provide
that such provision 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. The National Charter contains no provisions
requiring a vote greater than that specified in the DGCL to amend the National
Charter.
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
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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
National Charter provides that the National Bylaws may be made, altered or
amended by the National Board or in accordance with applicable law.
Additionally, the National Bylaws provide that the stockholders of National or
the National Board may alter or repeal the National 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 National 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. The HBOC Bylaws and the National
Charter provide to directors and officers of HBOC and National, respectively,
indemnification to the fullest extent provided by law. Additionally, the HBOC
Bylaws and the National 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 National, 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 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 National Charter has provisions limiting the payment of dividends.
Additionally, the National Bylaws provide that before payment of any dividend,
the National Board may set aside out of any funds available for dividends such
amount as the National Board, in its absolute discretion, thinks proper as a
reserve for any purpose as the National Board shall think conducive to the
interest of National.
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
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super-majority votes are obtained. HBOC has opted out of Section 203 in its
Bylaws. However, the HBOC Charter places certain restrictions on "Business
Combinations" (such as a merger) with "Controlling Persons" (generally a person
holding more than 10% of the HBOC Common Stock) unless, generally speaking, the
Business Combination has been approved by the affirmative vote of the holders of
four-fifths of the outstanding HBOC Common Stock not held by the Controlling
Person or its related entities or by a majority of directors who were directors
prior to the time the Controlling Person became a Controlling Person and who are
not affiliated with the Controlling Person. Such provisions do not apply to the
Merger. National has not opted out of Section 203 in the National Charter or
National Bylaws.
APPRAISAL RIGHTS
Generally, no appraisal rights are available under the DGCL for shares of
any class of stock which are (i) listed on a national securities exchange or
designated as a national market system security on an inter-dealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders. Further, 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, (c) cash in lieu of fractional shares or (d) 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 National Charter contains such a provision on appraisal
rights.
The holders of shares of National Common Stock are not entitled to appraisal
rights in connection with the Merger pursuant to Section 262 of the DGCL because
the National Common Stock was designated as a national market system security on
the Nasdaq NM as of the Record Date.
BUSINESS OF HBOC
GENERAL
HBOC develops integrated patient care, clinical, financial, managed care 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 enterprise-wide, 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. In addition, HBOC offers a wide range of electronic commerce
services, including electronic medical claims and remittance advice services as
well as statement processing.
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. HBOC also sells its
products and services internationally through subsidiaries and/or distribution
agreements in the United Kingdom, Canada, Ireland, Saudi Arabia, Kuwait,
Australia, Puerto Rico and New Zealand.
As of December 31, 1996, HBOC had 4,404 employees worldwide.
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RECENT DEVELOPMENTS
HBOC has entered into an Agreement of Merger dated September 27, 1997 among
HBOC, HBOC-GA and HPR. Such agreement is subject, among other things, to
approval by the stockholders of HPR. HPR develops and markets software and
proprietary database products incorporating clinical knowledge that enable
payers and providers of healthcare services to better manage the financial risk
associated with the delivery of healthcare and the quality of care.
BUSINESS OF NATIONAL
National develops and distributes products and services used in the delivery
of telephonic medical assistance and care management. Its products and services
are designed to link software, voice technology, health information and
strategic consulting services to assist healthcare organizations, including
employers, promote wellness behavior, educate members, increase access to
appropriate services and lower costs without compromising care.
National's products include clinical software used by licensed healthcare
professionals to assist callers via telephone with their medical concerns.
National has over 700 clients in the United States, including hospitals,
integrated delivery systems, physician group practices, HMO's, indemnity
insurance companies and self-insuring employers as part of its installed base of
clients. In addition, National markets to PPO's, CHAMPUS, government programs,
children's hospitals, Medicare/Medicaid and the military. National also utilizes
its own software and employs its own licensed healthcare professionals to
deliver telephonic medical assistance and care management 24 hours per day,
seven days per week under outsourcing arrangements through its recently
established medical call center division.
As of April 15, 1997, National employed a total of approximately 225
full-time employees.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, proposals of stockholders intended to be
presented at National's 1998 annual meeting of stockholders must be received by
National by January 28, 1998 for inclusion in National's proxy materials
relating to such meeting. In the event the Merger is consummated, there will not
be a 1998 annual meeting of stockholders of National.
OTHER MATTERS
The management of National 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 have been
passed upon for HBOC by Jones, Day, Reavis & Pogue, Atlanta, Georgia. Certain
tax matters in connection with the Merger have been passed upon for National by
Osborn Maledon, P.A., Phoenix, Arizona.
EXPERTS
The audited financial statements and schedule of HBOC incorporated by
reference in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement of which this Proxy Statement/Prospectus is a part, to the extent and
for the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
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With respect to the unaudited interim financial information of HBOC for the
nine months ended September 30, 1996 and 1997, 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 audited financial statements of National incorporated by reference in
this Proxy Statement/ Prospectus and elsewhere in the Registration Statement of
which this Proxy Statement/Prospectus is a part, to the extent and for the
periods indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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APPENDIX A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, made this 2nd day of October, 1997, by and among
HBO & COMPANY, a Delaware corporation ("Parent"); HBO & COMPANY OF GEORGIA, a
Delaware corporation (hereinafter referred to as "Purchaser"); and NATIONAL
HEALTH ENHANCEMENT SYSTEMS, INC., a Delaware corporation (hereinafter referred
to as the "Acquired Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of the Acquired Company, Parent and
Purchaser deem it advisable and in the best interests of their respective
stockholders that Purchaser acquire the Acquired Company, and, on or prior to
the date hereof, such Boards of Directors have approved the acquisition of the
Acquired Company upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
receipt, sufficiency and adequacy of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
I. DEFINITIONS.
As used herein, the following terms shall have the following meanings unless
the context otherwise requires:
1.1 "Acquired Company" shall mean National Health Enhancement Systems, Inc.,
a Delaware corporation.
1.2 "Acquired Company Information" shall have the meaning set forth in
Section 2.3.1.
1.3 "Acquired Company Reports" shall have the meaning set forth in Section
3.21.
1.4 "Acquired Company Software" shall have the meaning set forth in Section
3.14.2(iii).
1.5 "Acquired Company Stock" shall mean the common stock, $.001 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 "Covenants Not to Compete" shall mean the Covenants Not to Compete
referred to in Section 6.11.
1.14 "Customer Contracts" shall mean the contracts identified on Exhibit 1.14
hereto.
1.15 "Delaware Code" shall mean the Delaware General Corporation Law.
1.16 "DOL" shall mean the United States Department of Labor.
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1.17 "Effective Time" shall mean the time the Merger becomes effective, as
set forth in Section 2.1.2.
1.18 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
1.19 "ERISA Affiliate" shall mean, with respect to a Person, any other Person
that is required to be aggregated with such Person under Tax Code Section
414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
1.20 "ERISA Plan" shall have the meaning set forth in Section 3.16.1.
1.21 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.22 "Exchange Agent" shall mean the person designated by Purchaser as the
Exchange Agent pursuant to Section 2.2.1 hereof.
1.23 "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.
1.24 "Existing Option" shall have the meaning set forth in Section 2.1.7.
1.25 "HEI" shall mean Health Enhancement Systems International, Inc., an
Arizona corporation.
1.26 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and Improvements
Act of 1976, as amended.
1.27 "Hazardous Substance" shall have the meaning set forth in Section 3.18.
1.28 "Interim 1997 Financial Statements" shall have the meaning set forth in
Section 3.5.1.
1.29 "IRS" shall mean the United States Internal Revenue Service.
1.30 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
1.31 "Material Adverse Effect" shall mean a material adverse effect on the
businesses, assets, financial condition or results of operations of the
corporation in question and its subsidiaries, taken as a whole.
1.32 "Material Contract" shall have the meaning set forth in Section 3.12.
1.33 "Merger" shall mean the merger of the Acquired Company with and into
Purchaser, as set forth in Section 2.1.1.
1.34 "Merger Consideration" shall have the meaning set forth in Section
2.1.6(a).
1.35 "Nasdaq" shall mean the Nasdaq National Market of the Nasdaq Stock
Market, Inc.
1.36 "1995, 1996 and 1997 Financial Statements" shall have the meaning set
forth in Section 3.5.1.
1.37 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.38 "Owned Software" shall have the meaning set forth in the first paragraph
of Section 3.13.
1.39 "Parent" shall mean HBO & Company, a Delaware corporation, which is the
sole stockholder of Purchaser.
1.40 "Parent Reports" shall have the meaning set forth in Section 4.5.
1.41 "Parent Stock" shall mean the common stock, $0.05 par value per share,
of Parent.
1.42 "PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
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1.43 "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.
1.44 "Pooling Letter" shall have the meaning set forth in Section 2.4(b).
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 "Rule 145 Letters" shall have the meaning set forth in Section 2.4(a).
1.49 "SEC" shall mean the Securities and Exchange Commission.
1.50 "Stock Plans" shall mean the National Health Enhancement Systems, Inc.
1988 Stock Option Plan, the Expert Systems, Inc. 1990 Stock Option Plan, the
Expert Systems, Inc. 1993 Stock Option Plan and the National Health Enhancement
Systems, Inc. 1997 Equity Incentive Plan.
1.51 "Subsidiaries" shall mean the subsidiaries of the Acquired Company,
which are listed on EXHIBIT 3.1 hereto.
1.52 "Surviving Corporation" shall have the meaning set forth in Section
2.1.1 hereof.
1.53 "Takeover Proposal" shall have the meaning set forth in Section 2.11
hereof.
1.54 "Tax Code" shall mean the Internal Revenue Code of 1986, as amended.
II. COVENANTS AND UNDERTAKINGS.
2.1 TERMS AND APPROVAL OF MERGER.
2.1.1. TERMS OF THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware Code, the
Acquired Company shall be merged with and into Purchaser (the "Merger"), as soon
as practicable following the satisfaction or waiver of the conditions set forth
in Articles V, VI and VII hereof. Following the Merger, Purchaser shall continue
as the surviving corporation (the "Surviving Corporation") and the separate
corporate existence of the Acquired Company shall cease.
2.1.2. EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective when both (i) this Agreement shall be adopted and approved by the
stockholders of the Acquired Company in accordance with the applicable
provisions of the Delaware Code and (ii) a Certificate of Merger (the
"Certificate of Merger"), executed in accordance with the relevant provisions of
the Delaware Code is filed with the Secretary of State of Delaware (the time the
Merger becomes effective being referred to as the "Effective Time"). The Merger
shall have the effects set forth in the Delaware Code.
2.1.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Purchaser as in effect immediately preceding the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation. The
Bylaws of Purchaser as in effect immediately preceding the Effective Time shall
be the Bylaws of the Surviving Corporation.
2.1.4. DIRECTORS. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
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
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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 thirty-two one hundredths
(.32) of a share of Parent Stock, deliverable to the holder thereof without
interest on the value thereof, subject to adjustment in the event that:
(i) If the average closing price per share (or if there is no sale on
such date 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 $35.37 per
share, then each share of Acquired Company Stock will be converted into a
fractional share of Parent Stock determined by dividing $11.32 by the Market
Value; provided, however, if the Market Value is less than $25.00 per share,
then the Acquired Company shall have the right to terminate the Merger prior
to Closing pursuant to Section 10.1.6 hereof;
(ii) If the Market Value is greater than $43.23 per share, then each
share of Acquired Company Stock will be converted into a fractional share of
Parent Company Stock determined by dividing $13.83 by the Market Value.
(b) Each share of Acquired Company Stock held in the treasury of the
Acquired Company shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled 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, together with the right to receive the amount of cash in
lieu of fractional shares, if any, pursuant to subsections (a) and (d) of this
Section 2.1.6. (The shares of Parent Stock, and any cash in lieu of fractions
thereof, receivable by each Acquired Company stockholder as described in Section
2.1.6(a) above and 2.1.6(d) below, are referred to hereinafter as the "Merger
Consideration.") 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,
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upon surrender in accordance herewith of such holder's certificate or
certificates representing Acquired Company Stock, to receive a cash payment
therefor, without interest, in 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 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
shall be increased or decreased proportionately and the other provisions of this
Section 2.1.6 shall be construed to give effect thereto. In the event that
Parent at any time or from time to time shall fix a record date, which record
date is after the date of this Agreement but prior to the Effective Time, for
the determination of holders of Parent Stock entitled to receive a dividend or
other distribution payable in additional shares of Parent Stock, cash (except
Parent's regular quarterly dividend), or any other property, then and in each
such event, regardless of whether such dividend is to be paid prior to or after
the Effective Time, the Merger Consideration payable hereunder per share of
Acquired Company Stock shall be increased to reflect such dividend or
distribution as though each stockholder of the Acquired Company were, as of such
issuance or record date, a holder of record of that number of shares of Parent
Stock comprising the Merger Consideration otherwise payable to such stockholder
pursuant to Section 2.1.6(a).
2.1.7. STOCK PLANS. 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 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 for 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 of Parent Stock for which the Assumed Option will be
exercisable in accordance with this Section 2.1.7, 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
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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, and lists in respect each option, award or right,
the holder, the date of grant and any vesting or similar terms.
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 Merger 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 reasonable best efforts, subject to the provisions of
Section 2.11, to obtain the necessary approval of the Merger by its
stockholders.
2.1.9. CLOSING; FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V, VI and VII
hereof, the Acquired Company and Purchaser shall execute and file the
Certificate of Merger referred to in Section 2.1.2 in the manner required by the
Delaware Code, and the parties hereto shall take all such other and further
actions as may be required by law to make the Merger effective. Prior to the
filing referred to in this Section 2.1.9, a closing (the "Closing") will be held
as set forth in Section 8.1 hereof, for the purpose of confirming all of the
foregoing.
2.1.10. TERMINATION OF 401(K) PLANS. If requested in writing by Parent,
the Acquired Company shall, prior to the Closing Date, adopt appropriate
resolutions and take any and all further actions necessary to terminate the
National Health Enhancement Systems 401(k) Plan and the Expert Systems Inc.
401(k) Profit Sharing Plan and Trust (the "401(k) Plans") effective immediately
preceding the Closing Date. Upon such termination, participants in the 401(k)
Plans 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) Plans after such date, other than
employee compensation deferrals with respect to services through the termination
date.
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
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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 canceled. 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 proxy statement/prospectus included therein which is 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 statement which, at the time and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact, or
which omits to state any material fact necessary in order to make the statements
therein not false or 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 promptly 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 Acquired Company covenants that 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 or any of the Subsidiaries 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 1933 Act and the rules and regulations thereunder and the Exchange Act
and the rules and regulations thereunder; except that the Acquired Company shall
have no liability or obligation for any information other than the Acquired
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Company Information. The Acquired Company represents that it is eligible for
registration of its securities on Form S-2.
2.3.2. The Acquired Company shall instruct its accountants, Arthur Andersen
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. 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
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or which omits
to state a material fact necessary in order to make the statements therein not
false or 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 prior to the Effective Time any event or
circumstance should come to the attention of Parent that is required to be set
forth in an amendment or supplement to the Registration Statement, Parent shall
use its reasonable best efforts to amend or supplement appropriately the
Registration Statement. An amendment or supplement may be accomplished, to the
extent permitted by law, rule or regulation, by including such information in a
filing under the Exchange Act that is incorporated by reference into the
Registration Statement.
2.3.5. 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 and the Acquired Company shall use their reasonable best
efforts to file all reports to be filed by each of them on a timely basis under
the 1933 Act or the Exchange Act and the rules and regulations adopted by the
SEC thereunder. Parent and the Acquired Company shall use their reasonable best
efforts to take such further action as may be necessary to ensure that the
requirements of Rule 144(c) under the 1933 Act are satisfied so as to enable any
"affiliates" of the Acquired Company (as that term is used in Rule 145 under the
1933 Act) to offer or sell the Parent Stock received by them in the Merger
pursuant to paragraph (d) of Rule 145 (subject to compliance with the provisions
of paragraphs (e), (f) and (g) of Rule 144).
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2.3.7. Parent shall use its reasonable best efforts to obtain prior to the
effective date of the Registration Statement all necessary "Blue Sky" permits
and approvals, if any, required to consummate the Merger.
2.3.8. As soon as reasonably practicable, but not later than thirty (30)
days following the Closing Date, Parent shall use their reasonable efforts to
file a registration statement on Form S-8 covering shares of Parent Stock
issuable pursuant to the Stock Plans; provided that such obligation is subject
to and conditional on the Acquired Company providing Parent with all information
requested by Parent in connection therewith prior to the Closing Date.
2.4 AFFILIATES.
(a) The Acquired Company shall use its reasonable best efforts (i) to cause
each person that is an "affiliate" of the Acquired Company under the 1933 Act on
the date preceding the date of filing of the Registration Statement, to deliver
to Parent on such date a written agreement substantially in the form attached
hereto as EXHIBIT 2.4(A) ("Rule 145 Letters"), and (ii) in the event that any
other person becomes an affiliate of the Acquired Company thereafter to cause
such person to provide a Rule 145 Letter to Parent at Closing.
(b) The Acquired Company shall use its reasonable best efforts (i) to cause
each person that is an "affiliate" of the Acquired Company under the 1933 Act on
the date preceding the date of filing of the Registration Statement, to deliver
to Parent on such date a written agreement substantially in the form attached
hereto as EXHIBIT 2.4(B) ("Pooling Letters"), and (ii) in the event any other
person becomes an affiliate of the Acquired Company on or before the date that
is 31 days prior to the date of the Acquired Company's stockholder meeting to
cause such person to provide a Pooling Letter to Parent at Closing.
2.5 TRADING PROHIBITIONS. Each of Parent, Purchaser and the Acquired
Company hereby acknowledges that as a result of disclosures by Parent, Purchaser
and the Acquired Company contemplated under this Agreement, Parent, Purchaser,
the Acquired Company, the Subsidiaries and their respective affiliates may, from
time to time, have material, non-public information concerning each other. Each
of Parent, Purchaser, and the Acquired Company confirms that it and its
respective affiliates are aware, and that it 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) as set forth on EXHIBIT 2.6.1, (ii) with the prior written
consent of Purchaser, (iii) as may be required to effect the transactions
contemplated by this Agreement, or (iv) as provided otherwise in this Agreement,
the Acquired Company covenants that, between the date of this Agreement and the
Effective Time, the Acquired Company and the Subsidiaries will conduct their
respective business in the ordinary course, and that they will:
(a) preserve the organization of the Acquired Company and the
Subsidiaries intact and use their 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;
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(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) except as provided in EXHIBIT 2.6.1(E), not enter into any contract,
commitment, arrangement or transaction of the type described in Section 3.12
hereof or suffer, permit or incur any of the transactions or events
described in Section 3.9 hereof to the extent such events or transactions
are within the control of the Acquired Company or any of the Subsidiaries
(except that the Acquired Company and the Subsidiaries may enter into new
license agreements and support and maintenance agreements and other
agreements with customers in the ordinary course of business, in each case
on terms, conditions and prices consistent in all material respects 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;
(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
(except under existing credit lines consistent with historical amounts),
assume or guarantee any indebtedness for borrowed money;
(k) not issue any shares of Acquired Company Stock or of any Subsidiary
other than shares of Acquired Company Stock issuable upon exercise of
presently exercisable options;
(l) not take any action with respect to any awards under the Stock Plans
and not alter in any manner the terms, conditions or dates of vesting or
exercise of any of the options to purchase or other rights with respect to
Acquired Company Stock;
(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, state and local tax returns
required to be timely filed before the Effective Time to
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be timely and accurately filed with the appropriate taxing authorities. For
purposes of this Section 2.7, such returns shall be deemed 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. Except as set forth on EXHIBIT 2.7, 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 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 Parent
shall allow any executive officer of the Acquired Company access to the Chief
Financial Officer of Parent to make inquiries and request and receive
information in respect of Parent or Purchaser deemed by such Chief Financial
Officer in the exercise of his judgment as reasonably requested by the Acquired
Company in the context of the transactions provided for herein. Each party shall
conduct any investigation in a manner that will not unreasonably interfere with
the businesses of the other party.
2.8.2. All non-public information acquired by any party hereto pursuant to
this Section 2.8 or otherwise under this Agreement, whether or not in writing,
concerning the business, operations and affairs of any other party to this
Agreement, will be kept confidential and will not be disclosed to any Person
other than the parties hereto or their authorized representatives (who shall be
subject to the same obligations) and will not be used for any purpose other than
the consummation of the Merger and the related transactions described herein,
subject to any legal disclosure obligation of any party upon advice from counsel
and prior notice to the other party. Promptly upon termination of this
Agreement, and at the request of any party hereto, all written materials thus
obtained by any other party or any of its representatives and all copies and
extracts of such materials will be delivered to the disclosing party.
2.9 CONSENTS AND APPROVALS. The Acquired Company shall use its, and shall
cause the Subsidiaries to use their, reasonable best efforts (without requiring
the payment of money) to obtain the waiver, consent and approval of all persons
whose waiver, consent or approval (i) is required in order to consummate the
transactions contemplated by this Agreement, including without limitation, the
Merger and the merger or dissolution of the Subsidiaries pursuant to Section
2.15, 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, or otherwise
conflict with or be in contravention of, the provisions thereof, result in the
acceleration of any obligation thereunder or give rise to a right of any party
thereto to terminate its obligations thereunder. All obtained written waivers,
consents and approvals shall be produced at Closing in form and content
reasonably satisfactory to Purchaser. The failure of the Acquired Company to
obtain any such waiver, consent or approval, after using its reasonable best
efforts to do so, shall not constitute a breach of or default under this
Agreement.
2.10 SUPPLYING OF FINANCIAL STATEMENTS. 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, promptly after each is available.
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2.11 NO SOLICITATION. The Acquired Company shall not, and shall not permit
any of the Subsidiaries to, and the Acquired Company and the Subsidiaries shall
not authorize or permit any officer, director or employee of, or any financial
advisor, attorney, accountant or other advisor or representative retained by,
the Acquired Company or any of the Subsidiaries to, solicit, initiate, encourage
(including by way of furnishing information), endorse or enter into any
agreement with respect to, or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal (as hereafter defined). The Acquired Company
shall advise Purchaser orally and in writing within one (1) business day of any
Takeover Proposal or any inquiries or proposals with respect thereto. Neither
the Board of Directors of the Acquired Company nor any committee thereof shall
(a) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Purchaser the approval or recommendation by the Board of Directors of the
Acquired Company of the Merger or this Agreement or (b) approve or recommend, or
propose to approve or recommend, any Takeover Proposal or any other acquisition
of outstanding shares of Acquired Company Stock other than pursuant to the
Merger or this Agreement. Notwithstanding the foregoing, nothing contained in
this Agreement shall prevent the Board of Directors of the Acquired Company from
furnishing information to or entering into discussions or negotiations with any
unsolicited person or entity if and only to the extent that the Board of
Directors of the Acquired Company shall have determined in good faith, after
receiving written advice of its outside counsel, that such action would be
required under applicable law in the exercise of its fiduciary duties. The
Acquired Company will notify the Purchaser within one (1) business day 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 and shall promptly, but in any event within
one (1) business day of receipt, furnish to Parent a copy of any such written
proposal or a written summary of any such oral proposal. 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 promptly 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 reasonable
best efforts to comply with such request as soon as possible. Neither such party
shall withdraw any such filing or submission without the written consent of the
other.
2.13 TAX REPORTING. For federal and state tax purposes, Purchaser and
Parent shall report the transactions contemplated by this Agreement as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Tax Code and similar state laws. Prior to the Effective Time, the Acquired
Company will deliver to Purchaser and Parent letters to the reasonable
satisfaction of Purchaser and Parent from the Acquired Company and/or certain of
its stockholders that provide assurance that there is no plan or intention on
the part of the stockholders of the Acquired Company (or knowledge of such plan
or intent to the extent the Acquired Company provides a representation with
respect to holders of less than five percent (5%) of the Acquired Company Stock)
to sell, exchange or otherwise dispose of a number of shares of Parent Stock
received in the Merger that would reduce the Acquired Company's stockholders'
ownership of Parent Stock received in the Merger to a number of
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shares having a value, as of the Effective Time, of less than fifty percent
(50%) of the value of all of the outstanding stock of Acquired Company
immediately prior to the Effective Time.
2.14 INDEMNIFICATION OF ACQUIRED COMPANY OFFICERS AND DIRECTORS. The
Purchaser agrees that subsequent to the Closing it will provide to the directors
and officers of the Acquired Company indemnification in accordance with the
current provisions of the Certificate of Incorporation and By-Laws of the
Acquired Company with respect to matters occurring prior to the Effective Time
and the Merger and the other transactions contemplated by this Agreement, for a
period of six (6) years from the Effective Time (or, in the case of matters
occurring prior to the Effective Time which have not been resolved prior to the
sixth anniversary of the Effective Time, until such matters are finally
resolved). 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 SUBSIDIARIES. The parties hereto agree that on the Closing Date,
Purchaser and Acquired Company 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 or subsidiaries of
Purchaser or by corporate dissolution of the Subsidiaries. In connection with
the foregoing, the Acquired Company shall acquire the shares of capital stock of
HEI which it does not own on terms reasonably satisfactory to Purchaser.
2.16 CERTAIN REPORTS. If the Merger is effective in the month of December,
1997, Parent will use its reasonable best efforts to make publicly available
through a filing with the SEC the combined results of operations of Parent,
Purchaser and the Acquired Company for the calendar month following the Closing
on or before the twentieth (20th) day of the second calendar month following the
Closing. If the Merger is effective in the month of January, 1998, Parent will
use its reasonable best efforts to include the combined results of operations of
Parent, Purchaser and the Acquired Company for the first full calendar month
following the effective date of the Merger in Parent's Annual Report on Form
10-K for the year ending December 31, 1997. If the Merger is effective later
than January, 1998, Parent will use its reasonable best efforts to make publicly
available through a filing with the SEC the combined results of operations of
Parent, Purchaser and the Acquired Company for the calendar month following the
Closing on or before the twentieth (20th) day of the second calendar month
following Closing.
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.
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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.
3.2 AUTHORITY AND STATUS.
3.2.1. The Board of Directors of the Acquired Company, by unanimous vote of
all directors present at a meeting duly called and held, has (i) determined that
the Merger is fair to and in the best interests of the stockholders of the
Acquired Company and (ii) resolved to submit the Merger to and recommend
approval of the Merger by the stockholders of the Acquired Company.
3.2.2. The Acquired Company has the capacity and authority to execute and
deliver this Agreement, to perform hereunder and, upon approval of the
transactions provided for herein by the stockholders of the Acquired Company, to
consummate the transactions contemplated hereby without any other corporate or
stockholder approval. The execution, delivery and performance by the Acquired
Company of this Agreement and each and every other agreement, document and
instrument to which the Acquired Company is a party provided for herein have
been duly authorized and approved by the Board of Directors of the Acquired
Company. Assuming this Agreement and each and every agreement, document or
instrument to be executed, delivered and performed by the Acquired Company in
connection herewith are valid and legally binding obligations of Purchaser and
Parent, this Agreement and each and every agreement, document and instrument to
be executed, delivered and performed by the Acquired Company in connection
herewith constitute or will, when duly 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 general equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally. Attached hereto as
EXHIBIT 3.2 are true, correct and complete copies of the current Articles or
Certificates of Incorporation and Bylaws of the Acquired Company and the
Subsidiaries.
3.2.3. The Board of Directors of the Acquired Company received an opinion
from Broadview Associates LLC, its financial advisor, concurrently with the
approval described in Section 3.2.1 above to the effect that the consideration
to be received by the Acquired Company's stockholders in the Merger is fair to
such stockholders from a financial point of view.
3.3 CAPITALIZATION. The entire authorized capital stock of the Acquired
Company consists of twelve million (12,000,000) shares of stock, of which ten
million (10,000,000) shares are designated Common Stock, par value $.001 per
share, and two million (2,000,000) shares are designated Series A Convertible
Preferred Stock, par value $.001 per share. Of the total authorized Acquired
Company Stock, as of September 19, 1997, Five Million Six Hundred Forty Thousand
Three Hundred Sixty-Two (5,640,362) shares were issued and outstanding and no
shares were held in the Acquired Company's treasury. Of the total authorized
Preferred Stock, no shares are issued and outstanding. As of September 19, 1997,
there were options outstanding under the Stock Plans entitling the optionees
thereunder upon valid exercise to acquire in the aggregate One Million Five
Hundred Sixty-Five Thousand Six Hundred Eighteen (1,565,618) shares of Acquired
Company Stock, and outstanding warrants and other options to purchase an
aggregate of Ninety-Five Thousand Seven Hundred Fifty (95,750) shares of
Acquired Company Stock, a list of which warrants and the holders thereof is set
forth on EXHIBIT 2.1.7. With the exception of the right to acquire shares of
Acquired Company Stock pursuant to the Stock Plans or pursuant to such warrants
and the rights described on EXHIBIT 3.3, there are no outstanding rights to
acquire any capital stock of the Acquired Company. Except as set forth on
EXHIBIT 3.3, 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
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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
2.1.7, 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. Except as set forth
on EXHIBIT 3.3, there are not now, and at the Effective Time there will not be,
any voting trusts or other agreements or understandings to which the Acquired
Company 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
January 31, 1995, January 31, 1996 and January 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended, together with the reports of Arthur Andersen thereon, and the
unaudited consolidated balance sheet as of July 31, 1997 and the related
consolidated statements of income, stockholder's equity and cash flow for the
six-month period then ended (respectively, the "1995, 1996 and 1997 Financial
Statements" and the "Interim 1997 Financial Statements"). The 1995, 1996 and
1996 Financial Statements and Interim 1997 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 1997 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
obligations of the Acquired Company and the Subsidiaries that are disclosed or
reserved against in the Interim 1997 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
July 31, 1997 and liabilities incurred in connection with the transactions
referred to herein.
3.5.3. Except as disclosed in the Interim 1997 Financial Statements or
EXHIBIT 3.5.2, neither the Acquired Company nor any Subsidiary is in default
with respect to any liabilities or obligations, except for immaterial defaults,
and all such liabilities or obligations shown or reflected in the Interim 1997
Financial Statements or EXHIBIT 3.5.2 and such liabilities incurred or accrued
subsequent to July 31, 1997 have been,
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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 3.5.2, 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 individually or in the aggregate have a Material
Adverse Effect upon the Acquired Company. 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. Except as described on EXHIBIT
3.6, neither the Acquired Company nor any Subsidiary is, nor will any of them
become, subject to any additional taxes, interest, penalties or other similar
charges with respect to the tax returns and reports referred to in the first
sentence of this Section 3.6. No 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 1997 Financial Statements or EXHIBIT
3.6 hereto, and no amendments or applications for refund have been filed or are
planned with respect to any such return, except as set forth on EXHIBIT 3.6.
Except as set forth on EXHIBIT 3.6, 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, neither 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. The income tax returns of the Acquired Company have not been audited
by the IRS.
3.6.5. No issue has been raised by the IRS, any state or local taxing
authority, or any other investigation or audit, that will have, or can be
expected to have, a Material Adverse Effect on the Acquired Company.
3.6.6. Except as set forth on EXHIBIT 3.5.2, the 1995, 1996 and 1997
Financial Statements and Interim 1997 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.
3.6.7. Neither the Acquired Company nor any Subsidiary is a "United States
real property holding corporation" as defined in Section 897(c)(2) of the Tax
Code.
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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
1997 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 1997 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 all of the transactions contemplated
hereby will not, violate any provision of the Articles of Incorporation or
Certificate of Incorporation, as amended, or Bylaws, as amended, of the Acquired
Company or any Subsidiary or 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 July 31, 1997, 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
similar 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 individually or in the aggregate resulted in any Material
Adverse Effect in respect of the Acquired Company.
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 individually or in
the aggregate have a Material Adverse Effect on the Acquired Company, 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.
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3.11 LICENSES AND PERMITS; COMPLIANCE WITH LAW. Except as set forth on
EXHIBIT 3.11, 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
individually or in the aggregate have a Material Adverse Effect on the Acquired
Company. Except as noted in EXHIBIT 3.11, and except for any matters which will
not have a Material Adverse Effect in respect of the Acquired Company, the
Acquired Company 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 (identified by title, date and parties)(whether oral or
written) to which the Acquired Company or any Subsidiary is a party that 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 provides for receipts in excess of $60,000 per year, except for
contracts, arrangements and commitments with customers. EXHIBIT 3.12 also
identifies (identified by title, date and parties)(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, which constitute Customer Contracts;
3.12.2. leases, rental agreements or other contracts or commitments
affecting the ownership or leasing of, title to or use of any interest in real
or personal property with payments equal to or greater than $5,000 per month and
all maintenance or service agreements relating to any real or personal property
with payments equal to or greater than $5,000 per month;
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, distribution agreements, marketing agreements
or royalty agreements (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);
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
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EXHIBIT 3.12, those listed variations from the standard form agreements and
those listed agreements that are not in the standard form, there are no other
agreements of the type referred to in this Section 3.12.5;
3.12.6. contracts, agreements, understandings or arrangements restricting
the Acquired Company or any Subsidiary from carrying on its business anywhere in
the world;
3.12.7. instruments or arrangements evidencing or related to indebtedness
for money borrowed or to be borrowed, whether directly or indirectly, by way of
purchase-money obligation, guaranty, subordination, conditional sale,
lease-purchase or otherwise providing for payments in excess of $5,000 per
month;
3.12.8. joint product development agreement with any party other than the
Purchaser, other than Customer Contracts; and
3.12.9. contracts or agreements with vendors of material equipment
purchased by the Acquired Company or appointing the Acquired Company as a
reseller of equipment, other than purchase orders in the ordinary course of
business.
The contracts, agreements, commitments and other instruments listed or
required to be listed on EXHIBIT 3.12 or listed on an Exhibit referred to in
Section 3.14 hereof are herein referred to as the "Material Contracts."
All the Material Contracts are valid and binding upon the Acquired Company
or the applicable Subsidiary and to the knowledge of the Acquired Company, the
other parties thereto and are in full force and effect and enforceable in
accordance with their terms, except as enforceability may be affected by
bankruptcy, insolvency, moratorium or similar laws affecting creditors rights
generally and general principles of equity. Except as set forth in EXHIBIT 3.12,
none of the Acquired Company, the applicable Subsidiary and, to the knowledge of
the Acquired Company, any other party to any such contract, commitment or
arrangement has breached any provision of, or is in default under, the terms
thereof; and 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"). Except as set forth on EXHIBIT
3.13(A), with respect to each Customer Contract, (i) each customer to which
computer software represented as owned by or proprietary to the Acquired Company
or a Subsidiary (the "Owned Software") has been licensed pursuant to such
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
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Contract. In addition, except as set forth on EXHIBIT 3.13, 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.
3.14.1. EXHIBIT 3.14.1 hereto sets forth 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 (identified
by title, date and parties). Except as described on EXHIBIT 3.14.1, all such
trademarks, trade names, service marks, service names, brand names, copyrights
and patents are owned by the Acquired Company or a Subsidiary free and clear of
all liens, 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
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the Acquired Company nor any Subsidiary is violating, 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"), and
identifies by title, date and party, the license or other agreement by which
such right to use has been obtained, and the duration or term thereof. 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 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. 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"). EXHIBIT 3.14.2(iii) sets forth a list of 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 programming services for the Acquired Company or any
Subsidiary and identifies all contracts and agreements pursuant to which such
services were performed. Except as disclosed on EXHIBIT 3.8, the transactions
contemplated herein will not cause a breach or default under any licenses,
leases or similar agreements relating to the Acquired Company Software or impair
Purchaser's, the Acquired Company's or any Subsidiary's ability to use the
Acquired Company Software in the same manner as such computer software is
currently used by the Acquired Company or the Subsidiaries. Neither the Acquired
Company nor any Subsidiary is infringing 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
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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.
3.14.2 (vi) Except as set forth in EXHIBIT 3.14.2(i), the Owned Software
and Licensed Software (a) includes Year 2000 date conversion and capabilities
including, but not limited to: date data century recognition; calculations which
accommodate same century and multi-century formulas and date values; correct
sort ordering; and date data interface values that reflect the century; (b)
automatically compensates for and manages and manipulates data involving dates,
including single century formulas and multi-century formulas, and will not cause
an abnormal abend or abort within the application or result in the generation of
incorrect values or invalid outputs involving such date; (c) provides that all
date related user interface functionalities and data fields include the
indication of the correct century; (d) provides that all date related system to
system or application to application data interface functionalities will include
the indication of the correct century; and (e) will continue to comply with
clauses (a) through (d) above. Except as set forth in EXHIBIT 3.14.2(i), all
date processing by Owned Software and Licensed Software will include four digit
year format and recognize and correctly process dates for leap years.
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 organized 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 outstanding employer loans or
advances (excluding advances on commissions consistent with historical
practices), 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, stock award, 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 payroll practice; any other written or
unwritten employee program, arrangement, agreement or understanding; commitments
or methods of contribution or compensation (whether arrived at through
collective bargaining or otherwise), whether formal or informal, whether funded
or unfunded, and whether legally binding or not; including, without limitation,
any "employee benefit plan," as that term is defined in Section 3(3) of ERISA;
that is currently or previously adopted, maintained, sponsored in whole or in
part, or contributed to by the Acquired Company or any ERISA Affiliate of the
Acquired Company, for the benefit of, providing any remuneration or benefits to,
or covering any current or former employee, retiree, dependent, spouse or other
family member or beneficiary of such employee or retiree, director, independent
contractor, stockholder, officer or consultant of the Acquired Company or any
ERISA Affiliate of the Acquired Company or under (or in connection with) which
the Acquired Company or an ERISA Affiliate of the Acquired Company has any
contingent or noncontingent liability of any kind, whether or not probable of
assertion (collectively, the "Benefit Plans"). Any of the Benefit Plans that is
an "employee pension benefit plan," or an "employee welfare benefit plan" as
that term is defined in
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Section 3(1) of ERISA, is referred to herein as an "ERISA Plan." No Benefit Plan
is or has been a multi-employer 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, certified as such by the Chief
Financial Officer of the Acquired Company, together with the annual report (Form
5500 Series) for the two most recent plan years for any Benefit Plan subject to
such reporting requirements.
3.16.3. All the Benefit Plans and any related trusts subject to ERISA
comply with and have been administered in substantial compliance with the
provisions of ERISA, all applicable provisions of the Tax Code relating to
qualification and tax exemption under Tax Code Sections 401(a) and 501(a) or
otherwise necessary to secure intended tax consequences, all applicable state or
federal securities laws and all other applicable laws, rules and regulations,
and the Acquired Company has not received any notice from any governmental
agency or instrumentality questioning or challenging such compliance. Any
noncompliance or failure properly to maintain, operate or administer a Benefit
Plan or related trust has not rendered nor will render (i) such Benefit Plan or
related trust or the Parent, Purchaser or Acquired Company subject to or liable
for any material taxes, penalties, or liabilities to any Person; (ii) the
Benefit Plan subject to disqualification; or (iii) the trust subject to loss of
tax-exempt status.
3.16.4. None of the Acquired Company, any of the Subsidiaries, and, to the
knowledge of the Acquired Company, any administrator or fiduciary of any such
Benefit Plan (or agent or delegate of any of the foregoing) has engaged in any
transaction or acted or failed to act in any manner that could subject the
Acquired Company to any material 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. 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 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. Except
as set forth on EXHIBIT 3.16.6, 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
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its related trust is exempt from tax under Section 501(a) of the Tax Code (a
"Qualified Plan") and no circumstances exist that could result in
disqualification of any Qualified Plan or loss of tax-exempt status for its
related trust, except to the extent that such disqualification could be avoided
through the payment of monetary sanctions and other corrective costs which (in
the aggregate with respect to all Qualified Plans) would be material. 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 July 31, 1997, 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 1997 Financial Statements.
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 1997
Financial Statements.
3.16.10. Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has maintained, and neither now maintains, a Benefit Plan
providing welfare benefits (as defined in ERISA Section 3(1)) to employees after
retirement or other separation of service except to the extent required under
Part 6 of Title I of ERISA and Tax Code Section 4980B.
3.16.11. Except as set forth on EXHIBIT 3.16.11, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee (or any spouse, dependent or other family member of such
employee) of the Acquired Company or any of the Subsidiaries to severance pay,
unemployment compensation or any payment contingent upon a change in control or
ownership of the Acquired Company, or (ii) accelerate the time of payment or
vesting, or increase the amount, of any compensation due to any such employee or
former employee (or any spouse, dependent or other family member of such
employee).
3.16.12. The Acquired Company has provided to each of those persons listed
on EXHIBIT 6.11(A) the form of Covenant Not to Compete attached as EXHIBIT
6.11(B) and obtained their agreement to enter into same in favor of Purchaser as
of the Closing Date.
3.17 CUSTOMERS. None of the Acquired Company and the Subsidiaries has
received any notice from, or has any knowledge (which, for the purpose of this
Section 3.17, means the knowledge of the Acquired Company after having made
reasonable inquiry of managerial and customer account employees) that, any
customer of the Acquired Company or any Subsidiary as of January 31, 1997 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 or any Subsidiary, or 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
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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 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. Section 1801 ET. SEQ. and the Resource Conservation and Recovery
Act, 42 U.S.C. 6901 ET SEQ., and petroleum, petroleum products and oil.
3.19 INSURANCE. Set forth in EXHIBIT 3.19 is a complete list of all
material insurance policies that the Acquired Company 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 January 31, 1997, 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.
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3.20 RELATED PARTIES.
(a) Except as set forth in EXHIBIT 3.20, no stockholder owning greater than
a five-percent (5%) interest in the Acquired Company, or officer or director of
the Acquired Company or any Subsidiary, and, to the knowledge of the Acquired
Company, no affiliate or member of the immediate family of any such stockholder,
officer or director, 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).
(b) The Acquired Company has provided to each of its "affiliates" as
identified in Section 2.4 copies of the Rule 145 Letters and Pooling Letters and
obtained their written agreement (delivered herewith to Parent) to enter into
same as of the dates indicated in Section 2.4. The Acquired Company has provided
to the stockholders described in Section 2.13 the form of letter referenced
therein provided by the Purchaser and obtained their written agreement
(delivered herewith to Parent) to enter into same as of the Closing Date.
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 February 1, 1995,
including, without limitation, (a) the Acquired Company's Annual Reports on Form
10-KSB for the years ended January 31, 1996 and January 31, 1997, including all
documents incorporated therein, (b) the Acquired Company's Quarterly Reports on
Form 10-QSB for the quarters ended April 30, and July 31, 1997, and (c) all
Reports of Acquired Company on Form 8-K since January 31, 1997 (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, assets or
results of operation of the Acquired Company together with the Subsidiaries,
taken as a whole.
3.22 POOLING OF INTERESTS. The Acquired Company is not aware of any facts
or circumstances in respect of it or its accounting procedures which would have
the effect of precluding accounting for the transactions contemplated hereby as
a "pooling of interests."
3.23 DISCLOSURE AND ABSENCE OF UNDISCLOSED LIABILITIES. No statement
contained herein or in any certificate, schedule, list, exhibit or other
instrument furnished or required to be furnished to Purchaser pursuant to the
provisions hereof contains, or will at the time it is furnished contain, any
untrue statement of any material fact or omits or omit to state a material fact
necessary to make the statements herein or therein not false or misleading. As
used in this Section, "material" means material to the financial condition,
business, assets or results of operation of the Acquired Company and its
Subsidiaries, taken as a whole.
3.24 NO SPECIAL STOCKHOLDER RIGHTS. Except as disclosed on Exhibit 3.24,
the Acquired Company has no agreement with any individual or entity that grants
such person any rights as a stockholder of Acquired Company Stock that are in
addition to such holder's rights under the Acquired Company's Certificate of
Incorporation or Bylaws (including, without limitation, registration rights,
preemptive rights, put rights, rights of co-sale or rights to Board
representation).
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IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.
Purchaser and Parent, jointly and severally, represent and warrant to the
Acquired Company as follows:
4.1 ORGANIZATION AND STANDING.
4.1.1. Each of Purchaser and Parent is a corporation duly organized,
validly existing and is in good standing under the laws of the respective
jurisdiction of its incorporation and has the requisite corporate power and
authority to carry on its business in the places and as it is now being
conducted and to own and lease the properties and assets that it now owns or
leases.
4.1.2. Each of Purchaser and Parent is duly qualified and/or licensed to
transact business and is in good standing as a foreign corporation in
jurisdictions where the character of the property owned or leased by Purchaser
and Parent and the nature of the business conducted by them requires such
qualification and/ or licensing, except where the failure to do so qualify would
not individually or in the aggregate have a Material Adverse Effect upon Parent.
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. 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, except as set forth on EXHIBIT 4.3, 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,
applicable Blue Sky laws, and as set forth on EXHIBIT 4.3, 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 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
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Commission since January 1, 1995, including, without limitation, (a) Parent's
Annual Report on Form 10-K for the years ended December 31, 1995, and December
31, 1996, respectively, including all documents incorporated therein, (b)
Parent's Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 1997, and (c) Reports of Parent on Form 8-K since December 31, 1996
(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 December 31, 1996, the Parent has made all filings with the SEC in
a timely manner as required by law and no event has occurred that requires an
additional filing or any amendment to a prior filing.
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 $0.05 per share, and 1,000,000 shares are
designated Preferred Stock, without par value. Of the total authorized Common
Stock, as of August 31, 1997, One Hundred Ninety-Nine Million Eighty-Seven
Thousand Nine Hundred Twenty (199,087,920) shares were issued and outstanding
and Twenty-Nine Million One Hundred Seventy Thousand Six Hundred Sixty-One
(29,170,661) shares were held in the Parent's treasury. Of the total authorized
Preferred Stock, no shares have been issued. As of August 31, 1997, there were
options outstanding entitling the optionees thereunder, to acquire in the
aggregate approximately Twelve Million Two Hundred Fifty-Two Thousand Nine
Hundred Fifty (12,252,950) 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 shares of Parent
Stock (and any shares issued pursuant to presently outstanding options, if
exercised and purchased at the applicable exercise price) where 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
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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.
5.4 STOCKHOLDER APPROVAL. This Agreement and the Merger and any related
matters shall have been adopted and approved by the affirmative vote of the
holders of the outstanding shares of Acquired Company Stock by the vote 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
under all applicable Blue Sky laws or shall be exempt from such registration,
and no stop order shall have been issued with respect to the issuance or sale of
such securities by any Blue Sky authority.
5.6 NASDAQ APPROVAL. The Parent Stock issuable in the Merger shall have
been listed or approved for listing upon notice of issuance by the Nasdaq Stock
Market, Inc.
5.7 FAIRNESS OPINION. The Acquired Company shall have received an opinion
dated as of a date not more than three (3) business days prior to the mailing of
the proxy statement/prospectus included within the Registration Statement to the
stockholders of the Acquired Company from Broadview Associates LLC, 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 (except as
affected by the transactions contemplated by this Agreement), in the statements
contained in the Exhibits hereto or in any certificate delivered by the Acquired
Company pursuant to this Agreement shall be true and correct 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
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and as of the Closing Date, in each case as if none of such representations and
warranties contained any qualifications as to materiality or the absence of
Material Adverse Effect, 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 the foregoing, do not
individually or in the aggregate constitute a Material Adverse Effect on the
Acquired Company.
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 or changes in the business, assets or results of
operation of the Acquired Company or its Subsidiaries, which individually or in
the aggregate constitute a Material Adverse Effect on the Acquired Company.
6.4 CERTIFICATE. Purchaser shall have received a certificate of the Chief
Executive Officer of the Acquired Company, on behalf of the Acquired Company,
dated as of the Closing Date, certifying as to the satisfaction of the
conditions set forth in Sections 6.1 through 6.3 above. In addition, Parent
shall have received both a certificate dated as of the effective date of the
Registration Statement and a certificate dated as of the Closing Date certifying
that 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 substantially in the
form of EXHIBIT 6.5 hereto.
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 have been
obtained and 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
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 Arthur Andersen 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
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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 EMPLOYEE AGREEMENTS. The Acquired Company shall have obtained from
substantially all of its employees executed "Employee Agreements," to be
effective as of the Closing Date, in the form customarily used by Purchaser
(which has been furnished to Acquired Company) relating to non-disclosure,
inventions and similar matters.
6.13 FEE LIMITATION. The only fees and expenses to any investment banking
firm or similar entity that will be incurred by Acquired Company in connection
with the transaction with Parent and Purchaser will be the fees and expenses of
Broadview Associates LLC and shall not exceed the sums resulting from the
formulations set forth on EXHIBIT 6.13 hereto.
6.14 TERMINATION OF CERTAIN AGREEMENT. Each of the agreements described on
EXHIBIT 3.24 shall have been terminated.
6.15 CERTAIN ACTIONS. The Acquired Company shall have taken the actions
described on EXHIBIT 6.15 and shall have provided written evidence thereof to
Purchaser within ten (10) days of the date of this Agreement.
VII. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY.
All the obligations of the Acquired Company to consummate the Merger shall
be contingent upon and subject to the satisfaction, on or before the Closing, of
each and every one of the following conditions. The following conditions are for
the sole benefit of the Acquired Company and may be asserted by the Acquired
Company regardless of the circumstances giving rise to any such condition and
may be waived by the Acquired Company, in whole or in part, at any time and from
time to time, in the sole discretion of the Acquired Company for purposes of
consummating the transactions contemplated herein. The failure by the Acquired
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any other right, and each right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
7.1 REPRESENTATIONS OF PURCHASER AND PARENT. All representations and
warranties made by Purchaser and Parent in this Agreement (except as affected by
the transactions contemplated by this Agreement) shall be true and correct in
all material respects 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, in 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
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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 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 Arthur Andersen, 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;
(p) the executed Employee Agreements described in Section 6.12;
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(q) 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; and
(r) evidence of the termination of the agreements described in Section
6.14.
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) such other evidence of the performance of all the covenants and
satisfaction of all of the conditions required of Purchaser and of Parent by
this Agreement at or before the Closing as the Acquired Company or its
counsel may reasonably require.
IX. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
9.1 Except for the covenants contained in Sections 2.1.7, 2.2.2, 2.3.6,
2.13, 2.14, and 11.5, all representations, warranties and agreements of the
parties in this Agreement or in any instrument or certificate 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 written 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,
1998, 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, 1998, 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.
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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, if the Market
Value of the Parent Stock is less than $25.00 per share.
10.1.7. By Purchaser after October 12, 1997, if the condition set forth in
Section 6.15 is not fulfilled on or prior thereto.
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 this Agreement is terminated by the Acquired Company
in accordance with 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 Acquired Company shall
promptly pay to Purchaser a fee in the amount of $3,000,000, which amount
includes reimbursement of all costs and expenses of Purchaser and Parent.
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 and
adversely 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:
National Health Enhancement Systems, Inc.
3200 North Central Avenue
Phoenix, Arizona 85012
Attn: Mr. Gregory J. Petras
and to:
Osborn Maledon
2929 North Central Avenue
Suite 2100
Phoenix, Arizona 85012-2794
Attn: Thomas H. Curzon, Esq.
A-34
<PAGE>
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 SunTrust Plaza
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.
11.1.4. Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
11.1.
11.2 BROKERS. Purchaser and Parent, jointly and severally, represent and
warrant to the Acquired Company that no broker or finder has acted for them or
any entity controlling, controlled by or under common control with them in
connection with this Agreement. The Acquired Company represents and warrants to
Purchaser and Parent that, except for Broadview Associates LLC, no broker or
finder has acted for it or any entity controlling, controlled by or under common
control with it in connection with this Agreement. The Acquired Company agrees
to indemnify and hold harmless Purchaser and Parent against any fee, loss, or
expense arising out of any claim by Broadview Associates LLC, 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 Broadview Associates LLC and any other broker or finder shall be
paid by the Acquired Company, subject to the limitations set forth in Section
6.12 in conjunction with such other fees set forth in Section 11.5.
11.3 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Effective Time, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
11.4 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
11.5 EXPENSES. Except as provided in 10.2.2, all expenses incurred by the
parties hereto in connection with or related to the authorization, preparation
and execution of this Agreement and the closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of agents, representatives, counsel and accountants employed
by any such party, shall be borne solely and entirely by the party that has
incurred the same.
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<PAGE>
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. Except as provided in EXHIBIT
11.9 hereto, neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by an agreement in writing
signed by the party against whom or which the enforcement of such change,
waiver, discharge or termination is sought.
11.10 GOVERNING LAW. Except to the extent the transactions contemplated
hereby are governed by the Delaware Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of 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.
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<PAGE>
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement
to be executed on its behalf, all on the day and year first above written.
<TABLE>
<S> <C> <C>
"PURCHASER":
HBO & COMPANY OF GEORGIA
By: /s/ JAY P. GILBERTSON
-----------------------------------------
Jay P. Gilbertson
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
"PARENT":
HBO & COMPANY
By: /s/ JAY P. GILBERTSON
-----------------------------------------
Jay P. Gilbertson
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
"ACQUIRED COMPANY":
NATIONAL HEALTH ENHANCEMENT
SYSTEMS, INC.
By: /s/ GREGORY J. PETRAS
-----------------------------------------
Gregory J. Petras
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
A-37
<PAGE>
APPENDIX B
[LETTERHEAD OF BROADVIEW ASSOCIATES LLC]
November 20, 1997
Board of Directors
National Health Enhancement Systems, Inc.
3200 North Central Avenue
Suite 1740
Phoenix, AZ 85012
Dear Members of the Board:
We understand that National Health Enhancement Systems, Inc. ("NHES" or the
"Company"), HBO & Company ("HBOC") and HBO & Company of Georgia (the
"Purchaser") are proposing a transaction (the "Transaction") pursuant to which,
through the merger of NHES with and into the Purchaser, each share of issued and
outstanding NHES common stock shall be converted into the right to receive a
fraction of a share of HBOC common stock, $0.05 par value per share ("HBOC
Common Stock"), as determined in accordance with the terms of the Agreement (as
defined below). The Transaction is intended to be a tax-free reorganization
within the meaning of section 368(a) of the United States Internal Revenue Code
of 1986, as amended, and to be accounted for as a pooling of interests pursuant
to Opinion No. 16 of the Accounting Principles Board. The terms and conditions
of the Transaction are more fully detailed in the Agreement.
You have requested our opinion as to whether the consideration to be
received by NHES shareholders in the Transaction is fair, from a financial point
of view, to NHES shareholders.
Broadview Associates focuses on providing merger and acquisition advisory
services to information technology ("IT") companies. In this capacity, we are
continually engaged in valuing such businesses, and we maintain an extensive
database of IT mergers and acquisitions for comparative purposes. We are
currently acting as financial advisor to NHES's Board of Directors and will
receive a fee from NHES upon the successful conclusion of the Transaction.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement of Merger and the associated
exhibits thereto dated October 2, 1997 (the "Agreement");
2.) reviewed the audited financial statements of NHES for its fiscal years
ended January 31, 1995, 1996 and 1997 prepared by Arthur Andersen LLP
and the unaudited financial statements of NHES for the six months ended
July 31, 1997 included within NHES' Form 10-QSB for such period;
3.) reviewed internal historical financial and operating data concerning
NHES prepared and provided to us by NHES management;
4.) reviewed financial projections for NHES prepared and provided to us by
NHES management;
5.) participated in discussions with NHES management concerning the
operations, business strategy, financial performance and prospects for
NHES;
6.) discussed with NHES management its view of the strategic rationale for
the Transaction;
7.) reviewed the reported closing prices and trading activity for NHES
common stock;
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<PAGE>
8.) compared certain aspects of the financial performance of NHES with
public companies we deemed comparable;
9.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part to the Transaction;
10.) reviewed HBOC's annual report and Form 10-K for the fiscal years ended
December 31, 1994, 1995 and 1996 and Form 10-Q for the six month period
ended June 30, 1997 including the financial statements included
therein;
11.) participated in discussions with HBOC management concerning the
operations, business strategy, financial performance and prospects for
HBOC;
12.) discussed with HBOC management its view of the strategic rationale for
the Transaction;
13.) reviewed the reported closing prices and trading activity for HBOC
Common Stock;
14.) considered the total number of shares of HBOC Common Stock outstanding,
the average weekly trading volume of HBOC Common Stock, and the maximum
time period for NHES shareholders to liquidate their HBOC Common Stock
given SEC regulations;
15.) reviewed recent equity analyst reports covering HBOC;
16.) analyzed the anticipated effect of the Transaction on the future
financial performance of the consolidated entity;
17.) participated in negotiations and discussions related to the Transaction
among NHES and HBOC; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by NHES or HBOC.
With respect to the financial projections examined by us, we have assumed that
they were reasonably prepared and reflected the best available estimates and
good faith judgments of the management of NHES as to the future performance of
NHES. We have neither made nor obtained an independent appraisal or valuation of
any of NHES' assets. We have not reviewed any internal financial projections
prepared by HBOC management as such projections have not been made available to
us.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received by NHES shareholders in the Transaction is fair,
from a financial point of view, to NHES shareholders.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of NHES in connection
with its consideration of the Transaction and does not constitute a
recommendation to any NHES shareholder as to how such shareholder should vote on
the Transaction. Broadview Associates does not believe that any other person
other than the Board of Directors of NHES has the legal right under state law to
rely on this opinion, and, in the absence of any governing precedents, we would
resist any assertion otherwise by any such person. This opinion may not be
published or referred to, in whole or part, without our prior written
permission, which shall not be unreasonably withheld. Broadview Associates
hereby consents to references to and the inclusion of this opinion in its
entirety in the Proxy Statement/Prospectus to be distributed to NHES
shareholders in connection with the Transaction.
Sincerely,
/s/ Broadview Associates LLC__________
Broadview Associates LLC
B-2
<PAGE>
PROXY
NATIONAL HEALTH ENHANCEMENT SYSTEMS, INC.
3200 NORTH CENTRAL AVENUE, SUITE 1700
PHOENIX, ARIZONA 85012
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gregory J. Petras and Jeffrey T. Zywicki,
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 National Health
Enhancement Systems, Inc. ("National"), held of record by the undersigned on
November 14, 1997, at a Special Meeting of Stockholders to be held on December
29, 1997, or any postponement or adjournment thereof upon the following matter,
as set forth in the Notice of said Meeting dated November 24, 1997, a copy of
which has been received by the undersigned.
1. APPROVAL OF AGREEMENT OF MERGER dated October 2, 1997, by and among National,
HBO & Company and HBO & Company of Georgia.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
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.
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
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
and pursuant to any procedure specified in the General Corporation Law of the
State of Delaware, as amended from time to time, against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines and amounts
paid or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
that may be enforced in any manner by such person. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or thereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under such article.
Article IX, Section 2 of the Company's By-Laws provides that the Board of
Directors may cause the corporation to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred in any such capacity or arising out of such status, whether or not the
corporation would have the power to indemnify such person.
With respect to indemnification of officers and directors, Section 145 of
the Delaware General Corporation Law provides that a corporation shall have the
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or 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 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 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 Delaware General Corporation Law 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 October 2, 1997 by and among HBO & Company, HBO & Company of Georgia and
National Health Enhancement Systems, Inc. (included as Appendix A to the Proxy Statement/Prospectus
contained in Part I of this Registration Statement).
5 Opinion of Jones, Day, Reavis & Pogue re legality.
8 Opinion of Osborn Maledon, P.A. re tax matters.
13.1 Annual Report on Form 10-KSB for the year ended January 31, 1997 of National Health Enhancement Systems,
Inc. (filed on May 1, 1997 (File No. 333-9396-LA) and incorporated herein by reference).
13.2 Quarterly Report on Form 10-QSB for the quarter ended July 31, 1997 of National Health Enhancement
Systems, Inc. (filed on September 12, 1997 (File No. 333-9396-LA) and incorporated herein by reference).
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(d) Consent of Osborn Maledon, P.A. (included in Exhibit 8).
23(e) Consent of Broadview Associates LLC (included in Appendix B to the Proxy Statement/ Prospectus contained
in Part I of this Registration Statement).
24* Power of Attorney.
</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 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 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:
3 -- Amended HBO & Company 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 of HBO & Company.
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 OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63213):
4 -- 1985 Employee Stock Option Plan of CliniCom Incorporated.
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) -- HBO & Company Certificate of Incorporation, as amended.
ON AUGUST 22, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10603):
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------
<C> <C> <S>
4 -- CyCare Systems, Inc. 1995 Long-term Incentive Plan (including the predecessor CyCare Systems,
Inc. Stock Option Plan).
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17583):
4(a) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Josephine G. Kaple.
4(b) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Lawrence Keonig.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17551):
4 -- GMIS Inc. 1991 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17579):
4 -- Gabreili Medical Information Systems, Inc. 1984 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17555):
4 -- GMIS Inc. 1995 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10479):
4 -- Gabreili Medical Information Systems, Inc. 1985 Non-Qualified Common Stock Option Plan.
ON JUNE 17, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-29365):
4 -- AMISYS Managed Care System, Inc. Directors' Stock Option Plan.
ON JUNE 17, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-29367):
4 -- AMISYS Managed Care System, Inc. 1994 Equity Incentive Plan.
ON JUNE 30, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-30373):
4 -- Enterprise Systems, Inc. Long Term Incentive Plan
-- (b) Financial Statement Schedules.
</TABLE>
No financial statement schedules are required to be filed herewith.
(c) The opinion of Broadview Associates LLC 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
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<PAGE>
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
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, in
the State of Georgia, on the 21st day of November, 1997.
<TABLE>
<S> <C> <C>
HBO & COMPANY
By: /s/ CHARLES W. MCCALL
-----------------------------------------
Charles W. McCall
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director, President and
/s/ CHARLES W. MCCALL Chief Executive Officer
- ------------------------------ (Principal Executive November 21, 1997
(Charles W. McCall) Officer)
President, Co-Chief
Operating Officer, Chief
Financial Officer,
/s/ JAY P. GILBERTSON Principal Accounting
- ------------------------------ Officer, Treasurer and November 21, 1997
(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)
*
- ------------------------------ Director
(Alton F. Irby III)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director
(Gerald E. Mayo)
*
- ------------------------------ Director
(James V. Napier)
*
- ------------------------------ Director
(Donald C. Wegmiller)
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ CHARLES W. MCCALL November 21, 1997
------------------------------------------
* Charles W. McCall
ATTORNEY-IN-FACT
By: /s/ JAY P. GILBERTSON November 21, 1997
------------------------------------------
* Jay P. Gilbertson
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ---------
<S> <C> <C>
2 Agreement of Merger dated October 2, 1997 by and among HBO & Company, HBO & Company of
Georgia and National Health Enhancement Systems, Inc. (included as Appendix A to the Proxy
Statement/Prospectus contained in Part I of this Registration Statement).
5 Opinion of Jones, Day, Reavis & Pogue re legality.
8 Opinion of Osborn Maledon, P.A. re tax matters.
13.1 Annual Report on Form 10-KSB for the year ended January 31, 1997 of National Health
Enhancement Systems, Inc. (filed on May 1, 1997 (File No. 333-9396-LA) and incorporated
herein by reference).
13.2 Quarterly Report on Form 10-QSB for the quarter ended July 31, 1997 of National Health
Enhancement Systems, Inc. (filed on September 12, 1997 (File No. 333-9396-LA) and
incorporated herein by reference).
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Arthur Andersen LLP.
23(c) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(d) Consent of Osborn Maledon, P.A. (included in Exhibit 8).
23(e) Consent of Broadview Associates LLC (included in Appendix B to the Proxy Statement/Prospectus
contained in Part I of this Registration Statement).
24* Power of Attorney.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
JONES, DAY, REAVIS & POGUE
3500 SUNTRUST PLAZA
303 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308
(404) 521-3939
NOVEMBER 21, 1997
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 3,223,112 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.
333-39525) (the "Registration Statement"), filed with the Securities and
Exchange Commission to which this opinion appears as Exhibit 5.
We have examined originals or certified or photostatic copies of such
records of the Company, certificates of officers of the Company, and public
officials and such other documents as we have deemed relevant or necessary as
the basis of the opinion set forth below in this letter. In such examination, we
have assumed the genuineness of all signatures, the conformity to original
documents submitted as certified or photostatic copies, and the authenticity of
originals of such latter documents. Based on the foregoing, we are of the
following opinion:
The Shares have been duly authorized and, when issued by the Company in the
manner described in the Registration Statement, 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
OSBORN MALEDON, P.A.
2929 NORTH CENTRAL AVENUE
SUITE 2100
PHOENIX, ARIZONA 85012-2794
NOVEMBER 24, 1997
National Health Enchancement Systems, Inc.
3200 North Central Avenue
Suite 1700
Phoenix, Arizona 85012
Ladies and Gentlemen:
This opinion is being delivered in connection with the Agreement of Merger
("Merger Agreement"), dated as of October 2, 1997, by and among HBO & Company
("Parent"), HBO & Company of Georgia ("Purchaser"), and National Health
Enhancement Systems, Inc. ("Acquired Company"). Pursuant to the Merger
Agreement, Acquired Company will merge with and into Purchaser (the "Merger"),
and Purchaser will be the surviving corporation. This opinion is issued with
respect to certain Federal income tax consequences of the Merger. Reference to
such opinion is made in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") contained in the Registration Statement of Parent (File
No. 333-39525) (the "Registration Statement") dated November 24, 1997.
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 Acquired Company in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have examined
and are relying upon (without any 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;
3. Representations made to us by Parent and Purchaser;
4. Representations made to us by Acquired Company;
5. Representations made to us by certain holders of five percent (5%) or
more of the Acquired Company stock in continuity of interest certificates;
and
6. Such other documents, records, legal opinions and matters of law as
in our judgment were necessary or 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. We have
assumed that the Merger will be consummated pursuant to applicable state law in
accordance with the Merger Agreement and as described in the Proxy
Statement/Prospectus.
<PAGE>
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 Acquired Company as the result
of the consummation of the Merger;
3. No gain or loss will be recognized by an Acquired Company stockholder
upon the exchange of the shares of Acquired Company Common Stock for shares
of Parent Common Stock pursuant to the Merger, except on the receipt of cash
in lieu of a fractional share interest in Parent Common Stock;
4. The aggregate adjusted tax basis of shares of Parent Common Stock
received (including fractional share interests deemed received) by an
Acquired Company stockholder as the result of the Merger will be the same as
the aggregate adjusted tax basis of the shares of Acquired Company Common
Stock surrendered in exchange therefor;
5. The holding period of the shares of Parent Common Stock received
(including fractional share interests deemed received) by an Acquired
Company stockholder as a result of the Merger will include the holding
period of the shares of Acquired Company Common Stock surrendered in
exchange therefor, provided that such Acquired Company Common Stock is held
as a capital asset by the Acquired Company stockholder at the consummation
of the Merger; and
6. An Acquired Company stockholder who receives cash in lieu of a
fractional interest in a share of Parent Common Stock will be treated as if
the fractional share were distributed as part of the exchange and were then
redeemed for the cash payment, resulting in gain or loss equal to the
difference between the cash amount received and the portion of the
stockholder's basis in Acquired Company Common Stock allocable to the
fractional share.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment regarding
the application of Federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and 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 federal income tax
consequences listed above. The opinion does not address any other federal or
any 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 the
representations, warranties, statements or assumptions upon which we have
relied is incorrect, this opinion may be adversely affected and some or all
of the conclusions stated above may not apply.
2
<PAGE>
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 prior written consent.
5. We hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement 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,
OSBORN MALEDON, P.A.
By: /s/ Thomas H Curzon_______________
Thomas H. Curzon
3
<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 on Form S-4 of our reports dated
February 6, 1997 included or incorporated by reference in HBO & Company's Form
10-K for the year ended December 31, 1996 and to all references to our firm
included in this registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 17, 1997
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 28, 1997,
included in National Health Enhancement Systems, Inc.'s Form 10-KSB for the
fiscal year ended January 31, 1997, and to all references to our firm included
in this registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
November 19, 1997.
