<PAGE>
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9900
HBO & COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 37-0986839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(Address of principal executive offices)
(Zip Code)
(770) 393-6000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<S> <C>
CLASS SHARES OUTSTANDING AT OCTOBER 31, 1997
Common Stock, $.05 par 199,833,622
value
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS--UNAUDITED
(000 OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents......................................................... $ 344,259 $ 199,959
Short-Term Investments............................................................ 11,966 25,639
Receivables, Net of Allowance For Doubtful Accounts of $13,588 and $10,770........ 347,673 331,598
Current Deferred Income Taxes..................................................... 22,128 25,020
Inventories....................................................................... 5,838 7,025
Prepaids and Other Current Assets................................................. 19,527 16,557
------------- ------------
Total Current Assets............................................................ 751,391 605,798
------------- ------------
INTANGIBLES
Net of Accumulated Amortization of $43,816 and $31,967............................ 166,653 181,440
CAPITALIZED SOFTWARE
Net of Accumulated Amortization of $48,729 and $38,251............................ 71,547 62,677
PROPERTY AND EQUIPMENT
Net of Accumulated Depreciation of $126,070 and $110,468.......................... 75,323 55,839
DEFERRED INCOME TAXES............................................................... 40,491 39,869
OTHER NONCURRENT ASSETS, NET........................................................ 7,158 13,724
------------- ------------
TOTAL ASSETS........................................................................ $ 1,112,563 $ 959,347
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred Revenue.................................................................. $ 87,153 $ 98,178
Other Current Liabilities......................................................... 205,299 238,212
------------- ------------
Total Current Liabilities....................................................... 292,452 336,390
------------- ------------
LONG-TERM DEBT...................................................................... 139 192
OTHER LONG-TERM LIABILITIES......................................................... 8,388 7,054
------------- ------------
Total Liabilities............................................................... 300,979 343,636
------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, 1,000 Shares Authorized and No Shares Issued..................... -- --
Common Stock, $.05 Par Value, 250,000 Shares Authorized and 199,456 and 128,574
Shares Issued................................................................... 9,973 6,428
Additional Paid-in Capital........................................................ 527,657 514,698
Retained Earnings................................................................. 273,954 171,466
------------- ------------
811,584 692,592
Treasury Stock, at Cost (0 and 31,535 Shares) -- (76,881)
------------- ------------
Total Stockholders' Equity...................................................... 811,584 615,711
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................... $ 1,112,563 $ 959,347
------------- ------------
------------- ------------
</TABLE>
All prior periods have been restated to reflect the 1997 acquisitions of
AMISYS Managed Care Systems, Inc. and Enterprise Systems, Inc. in pooling
transactions.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME--UNAUDITED
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Systems........................................................ $ 150,585 $ 114,710 $ 397,467 $ 297,116
Services....................................................... 139,015 116,646 408,655 342,278
---------- ---------- ---------- ----------
Total Revenue................................................ 289,600 231,356 806,122 639,394
OPERATING EXPENSE:
Cost of Operations............................................. 124,838 101,361 351,250 283,026
Marketing...................................................... 39,126 33,225 112,254 93,807
Research and Development....................................... 20,169 19,974 59,705 57,132
General and Administrative..................................... 24,182 24,907 71,334 73,478
Nonrecurring Charge............................................ -- 26,214 35,420 34,667
---------- ---------- ---------- ----------
Total Operating Expense...................................... 208,315 205,681 629,963 542,110
---------- ---------- ---------- ----------
OPERATING INCOME................................................. 81,285 25,675 176,159 97,284
Other Income, Net................................................ 4,108 1,289 10,579 4,172
---------- ---------- ---------- ----------
Income Before Income Taxes....................................... 85,393 26,964 186,738 101,456
Provision for Income Taxes....................................... 34,199 10,787 74,737 40,041
---------- ---------- ---------- ----------
NET INCOME....................................................... $ 51,194 $ 16,177 $ 112,001 $ 61,415
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE:
Primary........................................................ $ .25 $ .08 $ .55 $ .31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted.................................................. $ .25 $ .08 $ .55 $ .31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary........................................................ 204,720 199,772 201,958 198,731
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted.................................................. 204,720 200,409 202,786 199,476
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CASH DIVIDENDS DECLARED PER SHARE................................ $ .02 $ .01 $ .04 $ .03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
All prior periods 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 September
1997 two-for-one stock split effected in the form of a stock dividend.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(000 OMITTED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income for the Period................................................................. $ 112,001 $ 61,415
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization........................................................... 42,926 39,381
Nonrecurring Charge..................................................................... 35,420 34,667
Net Loss on Sale of Assets.............................................................. 1,448 --
Provision for Noncurrent Deferred Income Taxes.......................................... 647 11,708
Changes in Assets and Liabilities, Net of Acquisitions:
Receivables........................................................................... (20,572) (53,391)
Current Deferred Income Taxes......................................................... 3,492 714
Inventories........................................................................... 1,187 1,140
Prepaids and Other Current Assets..................................................... (9,109) (1,159)
Noncurrent Deferred Income Tax........................................................ (1,287) --
Other Noncurrent Assets............................................................... 2,755 (1,396)
Deferred Revenue...................................................................... (11,025) 15,885
Other Current Liabilities............................................................. (4,343) (28,118)
Other, Net.............................................................................. (810) 548
--------- ---------
Total Adjustments..................................................................... 40,729 19,979
--------- ---------
Net Cash Provided by Operating Activities............................................. 152,730 81,394
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Property and Equipment............................................................ 3,525 739
Capital Expenditures...................................................................... (42,463) (17,327)
Capitalized Software...................................................................... (23,747) (20,945)
Purchases of Businesses, Net of Cash Acquired............................................. (300) (17,970)
Proceeds from Sale or Maturity of Investments............................................. 58,298 35,355
Purchase of Investments................................................................... (39,968) (53,103)
Other..................................................................................... (490) 660
--------- ---------
Net Cash Used in Investing Activities................................................. (45,145) (72,591)
--------- ---------
Net Cash Provided Before Financing Activities......................................... 107,585 8,803
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock.................................................... 43,446 16,756
Short-Term Borrowings..................................................................... -- 300
Repayment of Long-Term Debt............................................................... (471) (4,527)
Repayment of Capital Leases............................................................... (207) (527)
Purchase of Treasury Stock................................................................ (441) (1,026)
Payment of Dividends...................................................................... (5,612) (7,042)
--------- ---------
Net Cash Provided by Financing Activities............................................. 36,715 3,934
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS....................................................... 144,300 12,737
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................ 199,959 103,369
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................. $ 344,259 $ 116,106
--------- ---------
--------- ---------
CASH PAID DURING THE PERIOD FOR:
Interest.................................................................................. $ 125 $ 807
Income Taxes.............................................................................. $ 30,680 $ 21,651
</TABLE>
All prior periods have been restated to reflect the 1997 acquisitions of
AMISYS Managed Care Systems, Inc. and Enterprise Systems, Inc. in pooling
transactions.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include all adjustments that, in
the opinion of management, are necessary for a fair presentation of the results
for the periods indicated. All such adjustments are of a normal recurring
nature. Quarterly results of operations are not necessarily indicative of annual
results. Certain previously reported amounts have been reclassified to conform
to the current presentation. These statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the HBO
& Company (the "Company" or "HBOC") 1996 Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
2. In the second quarter of 1997, the Company amended and restated its $50
million long-term revolving credit agreement. As of September 30, 1997, there
was no outstanding balance under the agreement. Interest is payable at the
Company's option of prime or LIBOR plus 0.5% (6.1563% as of September 30, 1997).
A commitment fee of 0.25% per annum is payable quarterly on the unused portion
of the commitment. The agreement, which expires June 30, 1999, contains certain
net worth, cash flow and financial ratio covenants. The Company is in compliance
with these covenants at September 30, 1997.
The Company had an agreement with a financial institution whereby the
Company could sell on an ongoing basis, with partial recourse, an undivided
interest in a pool of customer receivables. This agreement was canceled on April
7, 1997.
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 HBOC shares.
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. The
stockholders of ESi received 0.22895 of a share of HBOC common stock for each
share of ESi common stock, or approximately 7.6 million HBOC shares.
5. During the second quarter of 1997, the Company recorded a $35.4 million
nonrecurring charge related to the acquisitions of AMISYS and ESi. The charge
consisted of transaction costs of $5.8 million, write-downs of long-lived assets
of $10.2 million, severance and employee-related costs of $6.6 million and other
product-related costs of $12.8 million.
6. In August 1997, the Company declared a two-for-one stock split effected
in the form of a stock dividend on all common stock outstanding, paid on
September 10, 1997 to all stockholders of record on August 31, 1997. All per
share and share amounts (except for stockholders' equity) have been restated.
In addition on September 10, 1997, the Company retired all stock in the
treasury.
7. On September 29, 1997, the Company and HPR Inc. (HPR) announced they had
signed a definitive agreement for HBOC to acquire HPR, a leading provider of
clinical information systems for the managed care industry. The acquisition,
which is subject to regulatory and HPR stockholder approval, will be accounted
for as a pooling of interests and is presently anticipated to close during the
fourth quarter of 1997. Terms of the acquisition call for HPR stockholders to
receive .6 of a share of HBOC common stock for each share of HPR common stock.
8. On October 3, 1997, the Company announced it had signed a definitive
agreement to acquire National Health Enhancement Systems, Inc. (NHES), a leading
provider of health information technology
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
solutions specializing in demand and disease management products. The
acquisition, which is subject to regulatory and NHES stockholder approval, will
be accounted for as a pooling of interests and is presently anticipated to close
during the fourth quarter of 1997. The stockholders of NHES will receive shares
of HBOC common stock in the transaction, and the exchange ratio will be
determined based upon the average closing HBOC stock price for a period of 20
trading days ending shortly before the closing of the transaction.
9. During the first quarter of 1997, the Financial Accounting Standards
Board (FASB) issued Statement No. 128, Earnings Per Share. This statement sets
out new guidelines for the calculation and presentation of earnings per share
but cannot be adopted until December 31, 1997. The following table presents a
reconciliation of basic and diluted weighted average shares outstanding and a
pro forma calculation of earnings per share using the guidelines of Statement
No. 128.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ---------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- ---------- ---------
<CAPTION>
(000 OMITTED EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding............................ 198,611 191,760 196,816 191,109
ADD: Shares of common stock assumed issued upon exercise of stock
options using the "treasury stock" method as it applies to the
computation of diluted earnings per share.......................... 6,109 8,012 5,142 7,622
--------- --------- ---------- ---------
Diluted weighted average shares outstanding.......................... 204,720 199,772 201,958 198,731
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net income used in the computation of basic and diluted earnings per
share.............................................................. $ 51,194 $ 16,177 $ 112,001 $ 61,415
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Earnings per share
Basic.............................................................. $ .26 $ .08 $ .57 $ .32
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Diluted............................................................ $ .25 $ .08 $ .55 $ .31
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
Excluding all nonrecurring charges, diluted earnings per share under the
guidelines of Statement No. 128 would be as follows: $.25 and $.16 for the three
months ended September 30, 1997 and 1996, respectively; and $.66 and $.41 for
the nine months ended September 30, 1997 and 1996, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
IN THE FOLLOWING MANAGEMENT'S DISCUSSION, ALL EXPENSE, INCOME AND PER SHARE
AMOUNTS EXCLUDE THE FOLLOWING NONRECURRING CHARGES: I) $35.4 MILLION RELATED TO
THE SECOND QUARTER 1997 ACQUISITIONS OF AMISYS AND ESI; II) $8.5 MILLION RELATED
TO A SECOND QUARTER 1996 ACQUISITION COMPLETED BY ESI; AND III) $26.2 MILLION
RELATED TO THE THIRD QUARTER 1996 ACQUISITIONS OF CYCARE SYSTEMS, INC. AND
MANAGEMENT SOFTWARE, INC.
RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO QUARTER AND
NINE MONTHS ENDED SEPTEMBER 30, 1996:
SUMMARY
For the quarter and nine months ended September 30, 1997, HBOC posted
earnings per share of $.25 and $.66, respectively, a 56% increase over earnings
per share of $.16 for the third quarter of 1996 and a 61% increase over earnings
per share of $.41 for the nine-month period in 1996. Including nonrecurring
charges, earnings per share for the quarter and nine months ended September 30,
1997, was $.25 and $.55, respectively, compared to $.08 and $.31 for the quarter
and nine months ended September 30, 1996.
Total HBOC revenue for the third quarter of 1997 increased 25% to $289.6
million from $231.4 million in the third quarter of 1996, and 26% to $806.1 from
$639.4 million for the nine months ended September 30, 1997, compared to the
same period in 1996. This growth was primarily due to strong software license
fee, services and hardware revenue.
Operating expense increased 16% for the third quarter and 17% for the nine
months ended September 30, 1997, compared to the same periods in 1996. The
Company continues to make progress in the area of employee productivity, with
revenue per average employee at September 30, 1997 of $199,000, up from $172,000
at September 30, 1996.
These changes in revenue and expense combined to boost net income for the
quarter and nine months ended September 30, 1997, by 60% to $51.2 million and
62% to $133.3 million, respectively. Including nonrecurring charges, net income
increased 216% to $51.2 million for the third quarter of 1997 and 82% to $112.0
million for the nine months ended September 30, 1997, compared to the same
periods in 1996.
REVENUE
Software license fee revenue grew 31% to $103.4 million for the third
quarter of 1997 and 36% to $267.0 million for the nine months ended September
30, 1997, compared to the same periods in 1996. Contributing to these increases
was the continuing strong demand for the Pathways 2000-Registered Trademark-
line of enterprisewide solutions. The Company also experienced strong growth in
its TRENDSTAR-Registered Trademark- decision support software and HBOC's newest
acquisitions, AMISYS and ESi, continue to realize strong software sales. The
significant growth in sales from these products demonstrates not only the
Company's ability to transition and quickly integrate products into its
portfolio, but also the growing desire of customers to partner with a single
vendor for solutions that span the full continuum of care.
Hardware revenue increased 31% to $47.2 million for the third quarter and
29% to $130.5 million for the nine months ended September 30, 1997, compared to
the same periods in 1996. These increases were primarily from a continuing
effort to increase sales of add-on hardware to existing customers through an
expanded sales center and strong hardware sales in the payer market. Hardware
margins have remained stable for the quarter and nine months ended September 30,
1997 and for the same periods in 1996.
Implementation and one-time services revenue for the quarter and nine months
ended September 30, 1997 increased 32% to $47.0 million from $35.7 million, and
35% to $133.9 million from $99.5 million,
7
<PAGE>
compared to the same periods in 1996. These increases were primarily due to the
numerous implementations resulting from strong system sales of the Company's
STAR 2000 and Pathways 2000 products as well as AMISYS products for the payer
market. The Company continues to invest in programs designed to streamline the
implementation process by giving customer organizations more control over their
implementation process and the extent of HBOC involvement. As a result, the
productivity of the Company's implementation personnel continues to improve
across most business groups.
Maintenance and support revenue increased 14% to $56.8 million for the third
quarter of 1997 and 13% to $166.6 million for the nine months ended September
30, 1997, compared to the same periods in 1996. These increases were primarily
the result of new maintenance contracts from increased software sales and the
expansion of the customer base. To manage this growth, improve employee
productivity and increase customer satisfaction, the Company is now using a
single support system that allows faster resolution of issues that cross product
lines and presents users with a common "look and feel" for all HBOC support
processes.
Outsourcing revenue increased 47% for both the third quarter of 1997 and the
nine months ended September 30, 1997, compared to the same periods in 1996.
These increases were mainly a result of international outsourcing revenue from
HBOC UK's new data center, which performs computer processing operations for
healthcare providers in the South Thames region of the United Kingdom.
Systems revenue, which represents all software and hardware revenue,
increased to 52% of total revenue for the third quarter of 1997 and to 49% for
the nine months ended September 30, 1997, compared to 50% and 46% for the same
periods in 1996. These increases in systems revenue as a percent of total
revenue are expected as customers are purchasing multiple software applications
at the same time which reduces the related one-time services revenue per
product.
EXPENSE
Cost of operations as a percent of revenue decreased to 43% for the third
quarter of 1997 from 44% for the third quarter of 1996, and remained stable at
44% for the nine months ended September 30, 1997, compared to the same period in
1996. The gross margin for the third quarter of 1997 was 57% and 56% for the
nine months ended September 30, 1997, compared to 56% for the same periods in
1996. Cost of operations expense increased in both periods as compared to 1996
primarily due to increased personnel expense as a result of the overall growth
of the Company, increased hardware costs associated with the growth in hardware
sales and increased software royalties expense due to increased software sales.
Marketing expense as a percent of revenue remained stable at 14% for the
third quarter of 1997 and decreased to 14% from 15% for the nine months ended
September 30, 1997, compared to the same periods in 1996. Marketing expense
increased for both periods primarily due to higher personnel expenses and
increased user group conference attendance related to the growth in size and
revenue of the Company.
Research and development (R&D) expense as a percent of revenue decreased to
7% from 9% for both the quarter and nine months ended September 30, 1997,
compared to the same periods in 1996. The R&D capitalization rate increased to
29% from 27% for the quarter and nine months ended September 30, 1997, compared
to the same periods in 1996. The R&D capitalization rates increased due to
continued leveraging of fixed costs, restatement of prior periods due to
acquisitions, and increases in the number of capitalizable projects as the
Company continues the integration of its enterprisewide solutions. The increase
in actual R&D expense is mainly due to increases in personnel costs associated
with growth in the Company to handle the increased project load, partially
offset by reduced consulting expenditures.
General and administrative (G&A) expense as a percent of revenue decreased
to 8% in the third quarter of 1997 from 11% in the third quarter of 1996, and to
9% for the nine months ended September 30, 1997 from 12% for the same period in
1996. Actual G&A expense decreased slightly for
8
<PAGE>
both periods primarily due to realized cost savings from the integration of
operations of acquired companies.
Operating expense grew at a slower rate than revenue for both the quarter
and nine months ended September 30, 1997, compared to the same periods in 1996,
due to strong software sales, successful cost control programs and productivity
enhancements. Total operating income increased 57% for the quarter and 60% for
the nine months ended September 30, 1997, compared to the same periods in 1996.
In addition, operating income as a percent of revenue increased to 28% for the
third quarter of 1997 from 22% for the third quarter of 1996, and to 26% for the
nine months ended September 30, 1997, compared to 21% for the same period in
1996. These increases represent a significant growth in volume and increased
efficiency in operations.
Total operating income including nonrecurring charges increased 217% for the
quarter and 81% for the nine months ended September 30, 1997, compared to the
same periods in 1996. Including nonrecurring charges, operating income as a
percent of revenue increased to 28% for the third quarter of 1997 from 11% for
the third quarter of 1996, and to 22% for the nine months ended September 30,
1997, compared to 15% for the same period in 1996.
The tax rate remained constant at 40% for the quarters ended September 30,
1997 and 1996. The rate increased to 40% from 39% for the nine months ended
September 30, 1997 compared to the same period in 1996. This increase was due to
the September 1996 pooling acquisition of Management Software, Inc., which had
formerly been a Subchapter S Corporation and therefore did not provide for
corporate taxes on a historical basis.
LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 30, 1997, COMPARED TO DECEMBER 31, 1996:
The Company continues to improve the strength and quality of its balance
sheet. At September 30, 1997, with $356 million in cash and short-term
investments, no bank debt and an improving current ratio, the Company remains
well-positioned for continued growth.
During the nine-month period ended September 30, 1997, the Company generated
$152.7 million in cash flow from operations, an increase of 88% over the same
period in 1996. For the first nine months of 1997, the Company used cash of
$45.1 million in investing activities, primarily consisting of $42.5 million
used for capital expenditures and $23.7 million used for software development
capitalization, offset in part by a net $18.3 million of cash provided from
investments. An additional $36.7 million was provided from financing activities,
primarily proceeds from the issuance of common stock pursuant to employee
benefit plans. As a result, the Company's cash balance increased 72% to $344
million at September 30, 1997, from $200 million at December 31, 1996.
The Company's current ratio increased to 2.6:1 at September 30, 1997, from
1.8:1 at December 31, 1996. Current assets increased $146 million, primarily
reflecting a large increase in cash. Receivables as a percent of current assets
decreased to 46% at September 30, 1997, from 55% at December 31, 1996. The
Company's management places a high priority on the area of receivables and the
Company continues to monitor receivables performance closely. Current
liabilities decreased $44 million, mainly due to the pay-down of year-end
accruals and recognition of deferred annual maintenance fees.
The Company has access to several financing sources, including a $5 million
line of credit and a $50 million revolving credit agreement. As of September 30,
1997, there were no outstanding balances on either.
Management believes that the Company's existing cash and short-term
investment balances, anticipated future cash flow from operations and amounts
available under existing credit arrangements are
9
<PAGE>
sufficient to meet ongoing operational and capital expenditure requirements, as
well as to fund costs associated with future equity acquisitions and small
acquisitions for cash.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements, which are qualified
by the risks and uncertainties described from time to time in HBOC's reports
filed with the Securities and Exchange Commission, including the Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 and the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997.
10
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
HBO & Company:
We have reviewed the accompanying consolidated condensed balance sheet of
HBO & COMPANY (a Delaware corporation) AND SUBSIDIARIES as of September 30, 1997
and the related statement of income for the three-month and nine-month periods
ended September 30, 1997 and 1996, and the statement of cash flows for the
nine-month periods ended September 30, 1997 and 1996. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 17, 1997
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PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<S> <C> <C>
2 Agreement of Merger dated September 29, 1997, by and among HBO &
Company, HBO & Company of Georgia and HPR Inc.......................
11 Statement regarding computation of per share earnings.................
15 Letter re: unaudited interim financial information....................
27 Financial Data Schedule...............................................
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended September 30, 1997,
or subsequent to that date but prior to the filing date of this Form 10-Q:
FORM 8-K DATED OCTOBER 3, 1997:
Reporting under Item 5 that on September 29, 1997, the Company and HPR Inc.
(HPR) announced they had signed a definitive agreement for HBOC to acquire
HPR, a leading provider of clinical information systems for the managed care
industry. The acquisition, which is subject to regulatory and HPR
stockholder approval, will be accounted for as a pooling of interests and is
presently anticipated to close during the fourth quarter of 1997. Terms of
the acquisition call for HPR stockholders to receive .6 of a share of HBOC
common stock for each share of HPR common stock.
Also reporting under Item 5 that on October 3, 1997, the Company announced
it had signed a definitive agreement to acquire National Health Enhancement
Systems, Inc. (NHES), a leading provider of health information technology
solutions specializing in demand and disease management products. The
acquisition, which is subject to regulatory and NHES stockholder approval,
will be accounted for as a pooling of interests and is presently anticipated
to close during the fourth quarter of 1997. The stockholders of NHES will
receive shares of HBOC common stock in the transaction, and the exchange
ratio will be determined based upon the average closing HBOC stock price for
a period of 20 trading days ending shortly before the closing of the
transaction.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
HBO & COMPANY
(Registrant)
<S> <C> <C>
Date: November 12, 1997 By: /s/ JAY P. GILBERTSON
------------------------------------------
Jay P. Gilbertson
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER, PRINCIPAL ACCOUNTING
OFFICER AND SECRETARY
</TABLE>
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EXHIBIT 2
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, made this 27th day of September, 1997, by and
among HBO & Company, a Delaware corporation ("Parent"); HBO & Company of
Georgia, a Delaware corporation (hereinafter referred to as "Purchaser"); and
HPR 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 HPR Inc., a Delaware corporation.
1.2 "Acquired Company Information" shall have the meaning set forth in
Section 2.3.1.
1.3 "Acquired Company Reports" shall have the meaning set forth in
Section 3.21.
1.4 "Acquired Company Software" shall have the meaning set forth in
Section 3.14.2(iii).
1.5 "Acquired Company Stock" shall mean the common stock, $.01 par value
per share, of the Acquired Company.
1.6 "Agreement" shall mean this Agreement of Merger.
1.7 "Assumed Option" shall have the meaning set forth in Section 2.1.7.
1.8 "Benefit Plans" shall have the meaning set forth in Section 3.16.1.
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 "Confidentiality and Standstill Agreement" shall mean that certain
letter agreement dated July 31, 1997 entered into by and between Parent, BT
Alex. Brown Incorporated and the Acquired Company.
1.14 "Covenant Not to Compete" shall mean the non-competition agreement
referred to in Section 6.11.
1.15 "Customer Contracts" shall have the meaning set forth in Section
3.12.1.
1.16 "Delaware Code" shall mean the Delaware General Corporation Law.
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1.17 "DOL" shall mean the United States Department of Labor.
1.18 "Effective Time" shall mean the time the Merger becomes effective,
as set forth in Section 2.1.2.
1.19 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.20 "ERISA Affiliate" shall mean, with respect to a Person, any other
Person that is required to be aggregated with such Person under Tax Code
Section 414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
1.21 "ERISA Plan" shall have the meaning set forth in Section 3.16.
1.22 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.23 "Exchange Agent" shall mean the person designated by Purchaser as
the Exchange Agent pursuant to Section 2.2.1 hereof.
1.24 "Exchange Ratio" shall mean the ratio of exchange pursuant to the
Merger in respect of each share of Acquired Company Stock constituting a
fraction of a share of Parent Stock as determined pursuant to the provisions
of Section 2.1.6.
1.25 "Existing Option" shall have the meaning set forth in Section
2.1.7.
1.26 "401(k) Plan" shall mean the HPR Inc. 401(k) Plan.
1.27 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and
Improvements Act of 1976, as amended.
1.28 "Hazardous Substance" shall have the meaning set forth in Section
3.18.
1.29 "Immigration Laws" shall have the meaning set forth in Section
3.15.
1.30 "Indemnification Agreements" shall mean the indemnification
agreements entered into between the Acquired Company and its directors and
officers on or before the date of this Agreement.
1.31 "IRS" shall mean the United States Internal Revenue Service.
1.32 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
1.33 "Market Value" shall have the meaning set forth in Section
2.1.6(a).
1.34 "Material Adverse Effect" shall mean a material adverse effect on
the businesses, assets, financial condition or results of operations of the
corporation in question, taken as a whole.
1.35 "Material Contract" shall have the meaning set forth in Section
3.12.
1.36 "Merger" shall mean the merger of the Acquired Company with and
into Purchaser, as set forth in Section 2.1.1.
1.37 "Merger Consideration" shall have the meaning set forth in Section
2.1.6(c).
1.38 "Nasdaq" shall mean the Nasdaq National Market of the Nasdaq Stock
Market, Inc.
1.39 "1995, 1996 and 1997 Financial Statements" shall have the meaning
set forth in Section 3.5.1.
1.40 "1933 Act" shall mean the Securities Act of 1933, as amended.
1.41 "100% Amount" shall have the meaning set forth in Section 2.14.
1.42 "Owned Software" shall have the meaning set forth in the first
paragraph of Section 3.13.
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1.43 "Parent" shall mean HBO & Company, a Delaware corporation, which is
the sole stockholder of Purchaser.
1.44 "Parent Reports" shall have the meaning set forth in Section 4.5.
1.45 "Parent Stock" shall mean the common stock, $0.05 par value per
share, of Parent.
1.46 "PBGC" shall mean the Pension Benefit Guaranty Corporation
established under Title IV of ERISA.
1.47 "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.
1.48 "Pooling Letter" shall have the meaning set forth in Section
2.4(b).
1.49 "Purchaser" shall mean HBO & Company of Georgia, a Delaware
corporation.
1.50 "Real Property" shall have the meaning set forth in Section 3.18.
1.51 "Registration Statement" shall have the meaning set forth in
Section 2.3.1.
1.52 "Rule 145 Letters" shall have the meaning set forth in Section
2.4(a).
1.53 "SEC" shall mean the Securities and Exchange Commission.
1.54 "Stock Plans" shall mean the HPR Inc. 1991 Stock Plan, the HPR Inc.
1995 Stock Plan, and the HPR Inc. 1995 Eligible Directors Stock Plan.
1.55 "Subsidiaries" shall mean the subsidiaries of the Acquired Company,
which are listed on Exhibit 3.1 hereto.
1.56 "Surviving Corporation" shall have the meaning set forth in Section
2.1.1 hereof.
1.57 "Takeover Proposal" shall have the meaning set forth in Section
2.11 hereof.
1.58 "Tax Code" shall mean the Internal Revenue Code of 1986, as
amended.
II. COVENANTS AND UNDERTAKINGS.
2.1 TERMS AND APPROVAL OF MERGER.
2.1.1. TERMS OF THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
Code, the Acquired Company shall be merged with and into Purchaser (the
"Merger"), as soon as practicable following the satisfaction or waiver of
the conditions set forth in Articles V, VI and VII hereof. Following the
Merger, Purchaser shall continue as the surviving corporation (the
"Surviving Corporation") and the separate corporate existence of the
Acquired Company shall cease.
2.1.2. EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective when both (i) this Agreement shall be adopted and approved by the
stockholders of the Acquired Company in accordance with the applicable
provisions of the Delaware Code and (ii) a Certificate of Merger (the
"Certificate of Merger"), executed in accordance with the relevant
provisions of the Delaware Code is filed with the Secretary of State of
Delaware (the time the Merger becomes effective being referred to as the
"Effective Time"). The Merger shall have the effects set forth in the
Delaware Code.
2.1.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Purchaser as in effect immediately preceding the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation.
The Bylaws of Purchaser as in effect immediately preceding the Effective
Time shall be the Bylaws of the Surviving Corporation.
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<PAGE>
2.1.4. DIRECTORS. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
2.1.5. OFFICERS. The officers of Purchaser immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
2.1.6. CONVERSION OF SHARES.
(a) Subject to Section 2.1.6(g) below, each outstanding share of
Acquired Company Stock issued and outstanding immediately prior to the
Effective Time shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
the right to receive six tenths (.6) of a share of Parent Stock,
deliverable to the holder thereof without interest on the value thereof;
provided, however, 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 fifteen
(15) 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 $35.00 per share, then the Acquired Company shall have the
right to terminate this Agreement prior to Closing pursuant to Section
10.1.6.
(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
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<PAGE>
any other rights of a stockholder of Parent. In lieu of any such
fractional share, any holder of Acquired Company Stock shall be entitled,
upon surrender in accordance herewith of such holder's certificate or
certificates representing Acquired Company Stock, to receive a cash
payment therefor, without interest, at a pro rata amount based on the
Market Value. No interest shall accrue with respect to any cash held for
the benefit of holders of unsurrendered certificates theretofore
representing shares of Acquired Company Stock at the Effective Time.
(e) All shares of Parent Stock into which shares of the Acquired
Company Stock have been converted pursuant to this Section 2.1.6 shall be
deemed to have been issued in full satisfaction of all rights pertaining
to such converted shares and shall, when issued pursuant to the
provisions hereof, be fully paid and nonassessable.
(f) The stock transfer books of Acquired Company Stock shall be
closed at the Effective Time, and thereafter no transfer of any such
shares of Acquired Company Stock shall be recorded thereon. In the event
a transfer of ownership of shares of Acquired Company Stock is not
recorded on the stock transfer books of the Acquired Company, a
certificate or certificates representing the number of whole shares of
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.
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 at which the Assumed Option may be exercised shall be the
aggregate price at which the Existing Option was exercisable for the total
number of shares of Acquired Company Stock, reduced (as necessary for
purposes of rounding down) to the price that will buy the number of whole
shares for which the Assumed Option will be exercisable in accordance with
this 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
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.
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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. 401(K) PLAN. Prior to the Closing Date, the Acquired Company
shall adopt appropriate resolutions and take any and all further actions
necessary to terminate the 401(k) Plan effective as of the date immediately
preceding the Closing Date. In addition, participants in the 401(k) Plan
shall make no further deferrals with respect to compensation for services
performed after such termination date and the Acquired Company shall make no
further employer contributions to the 401(k) Plan after such date, other
than (i) employee compensation deferrals and (ii) matching contributions
with respect to employee deferrals of compensation for services through the
termination date. Parent and Purchaser shall take such action that will
permit current participants in the 401(k) Plan who are employed by Purchaser
to participate in, effective as soon as reasonably practicable after the
Closing Date, the HBO & Company Profit Sharing and Savings Plan (the
"Purchaser Plan") and to effect a direct rollover of distributions from the
401(k) Plan to the Purchaser Plan, a copy of which has been furnished by
Parent to the Acquired Company. Parent and Purchaser shall also take or
cause to be taken such action as necessary to credit each 401(k) Plan
participant who becomes employed by Purchaser on the Closing Date with such
participant's service and years of service under the 401(k) Plan for
purposes of calculating eligibility for participation and vesting in
contributions under the Purchaser Plan.
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
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Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration payable in respect
of the shares of Acquired Company Stock formerly represented by such
Certificate. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal properly completed and duly executed,
together with any other required documents, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration
payable in respect of the shares of Acquired Company Stock formerly
represented by such Certificate, and such Certificate shall forthwith be
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 omit to state a 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 immediately notify Parent
and shall assist Parent in appropriately amending or supplementing the
Registration Statement in the manner contemplated in Section 2.3.4 below. An
amendment or supplement may be accomplished, to the extent permitted by law,
rule or regulation, by including such information in a filing under the
Exchange Act that is incorporated by reference into the Registration
Statement. The 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
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regulations thereunder and the Exchange Act and the rules and regulations
thereunder; except that the Acquired Company shall have no liability or
obligation for any information other than the Acquired Company Information.
The Acquired Company represents that it is eligible for registration of its
securities on Form S-3.
2.3.2. The Acquired Company shall instruct its accountants, Coopers &
Lybrand L.L.P., 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 concurrence with the
conclusion of the Acquired Company's management that no conditions exist
with respect to the Acquired Company that would preclude accounting for the
Merger as a "pooling of interests", which 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. Parent will, in a timely
manner, provide the Acquired Company with copies of any written
communications to or from the SEC and notify the Acquired Company of any
material oral communications to or from the SEC with respect to the
Registration Statement or the transactions contemplated thereby.
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 omit 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
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.
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2.3.6. Parent shall use all reasonable efforts to take such action as
may be necessary to ensure that the requirements of Rule 144(c) under the
Securities Act are satisfied so as to enable any "affiliates" of the
Acquired Company (as that term is used in Rule 145 under the Securities Act)
to offer or sell the Parent Stock received by them in the Merger pursuant to
paragraph (d) of Rule 145 (subject to compliance with the provisions of
paragraphs (e), (f) and (g) of Rule 144).
2.3.7. Parent shall use all reasonable 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 all 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.
2.3.9. Each party will provide to the other parties, or their counsel,
drafts of the information related to or customarily provided by such party
to be included in the Registration Statement on Form S-4 and will generally
cooperate with each other in the preparation thereof.
2.4 AFFILIATES.
(a) The Acquired Company shall use its reasonable best efforts to cause
each person that is an "affiliate" of the Acquired Company under the 1933
Act on the date preceding the date of the 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 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 the Closing.
(b) The Acquired Company shall use its reasonable best efforts to cause
each person that is an "affiliate" of the Acquired Company under the 1933
Act on the date preceding the date of the 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 in the event any other person (to the knowledge of the
Acquired Company) becomes an affiliate of the Acquired Company on or before
the Closing Date to cause such person to provide a Pooling Letter to Parent
at the 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) with the prior written consent of Purchaser, (ii) as
may be required to effect the transactions contemplated by this Agreement,
or (iii) as provided otherwise in this Agreement, the Acquired Company
covenants that, between the date of this Agreement and the Effective Time,
the Acquired Company and the Subsidiaries will conduct their respective
business in the ordinary course, and that they will:
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(a) preserve the organization of the Acquired Company and the
Subsidiaries intact and use its reasonable best efforts to preserve the
goodwill of customers and others having business relations with the
Acquired Company or the Subsidiaries;
(b) maintain the properties of the Acquired Company and the
Subsidiaries in substantially the same working order and condition as
such properties are in as of the date of this Agreement, reasonable wear
and tear excepted;
(c) not effect any sale, assignment or transfer of any of their
respective assets except in the ordinary course of business;
(d) keep in force at no less than their present limits all existing
policies of insurance or comparable replacements thereof insuring the
Acquired Company, the Subsidiaries and their respective properties;
(e) except as set forth on EXHIBIT 2.6.1.(E), not enter into any
contract, commitment, arrangement or transaction of the type described in
Section 3.12 hereof or suffer, permit or incur any of the transactions or
events described in Section 3.9 hereof to the extent such events or
transactions are within the control of the Acquired Company or any of the
Subsidiaries (except that the Acquired Company and the Subsidiaries may
enter into new license agreements and support and maintenance agreements
and other agreements with customers in the ordinary course of business on
terms and prices consistent with historical practices);
(f) not make or permit any change in the Acquired Company's or any of
the Subsidiaries' Articles or Certificates of Incorporation or Bylaws, or
in their authorized, issued or outstanding securities (except for the
issuance of Acquired Company Stock pursuant to exercise of stock options
pursuant to the Stock Plans);
(g) except as set forth on EXHIBIT 2.6.1(G), not grant any stock
option or right to purchase any security of the Acquired Company or any
of the Subsidiaries, issue any security convertible into such securities,
purchase, redeem, retire or otherwise acquire any of such securities, or
agree to do any of the foregoing or declare, set aside or pay any
dividend, make any other distribution or declare any split in respect of
such securities;
(h) except as set forth on EXHIBIT 2.6.1(H), not adopt any new
Benefit Plan or amend, supplement, or accelerate the timing of payments
or vesting under any existing Benefit Plan, and not make any contribution
to or distribution from any employee benefit plan, pension plan, stock
bonus plan, 401(k) plan or profit sharing plan (except for the payment of
any health, disability and life insurance premiums that may become due
and except for contributions, vesting or distributions required (and not
discretionary) pursuant to the terms of any Benefit Plans);
(i) not change the amortization or capitalization policies for Owned
Software or otherwise make any changes in the accounting policies of the
Acquired Company and the Subsidiaries;
(j) not issue any notes, bonds or other debt security, or create,
incur, assume or guarantee any indebtedness for borrowed money;
(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
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(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 be timely and
accurately filed with the appropriate taxing authorities. For purposes of this
Section 2.7, such returns shall be deemed timely filed if the Acquired Company
or the applicable Subsidiary has obtained an extension from the appropriate
taxing authority as to the time in which it may file such tax returns. The
Acquired Company shall submit all such tax returns to Purchaser at least ten
(10) 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. Except as set forth on EXHIBIT 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, or destroyed, if requested by 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,
except to the extent set forth on EXHIBIT 2.9, 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,
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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.
2.10 SUPPLYING OF FINANCIAL STATEMENTS. The Acquired Company shall deliver
to Purchaser all regularly prepared audited and unaudited consolidated and
consolidating financial statements of the Acquired Company and the Subsidiaries
prepared after the date of this Agreement, in format historically published or
utilized internally (as applicable), and any financial statements prepared for
filing with the SEC, as soon as each is available.
2.11 NO SOLICITATION. The Acquired Company shall not, and shall not permit
any of the Subsidiaries to, and the Acquired Company and the Subsidiaries shall
not authorize or permit any officer, director or employee of, or any financial
advisor, attorney, accountant or other advisor or representative retained by,
the Acquired Company or any of the Subsidiaries to, solicit, initiate, encourage
(including by way of furnishing information), endorse or enter into any
agreement with respect to, or take any other action to facilitate, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal (as hereafter defined). The Acquired Company
shall immediately advise Purchaser orally and in writing of any Takeover
Proposal or any inquiries or discussions with respect thereto. Neither the Board
of Directors of the Acquired Company nor any committee thereof shall (a)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Purchaser the approval or recommendation by the Board of Directors of the
Acquired Company of the Merger or this Agreement or (b) approve or recommend, or
propose to approve or recommend, any Takeover Proposal or any other acquisition
of outstanding shares of Acquired Company Stock other than pursuant to the
Merger or this Agreement. Notwithstanding the foregoing, nothing contained in
this Agreement shall prevent the Board of Directors of the Acquired Company from
furnishing information to or entering into discussions or negotiations with any
unsolicited person or entity if and only to the extent that the Board of
Directors of the Acquired Company shall have determined in good faith, after
receiving written advice of its outside counsel, that such action would be
required under applicable law in the exercise of its fiduciary duties. The
Acquired Company will immediately notify the Purchaser if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Acquired Company and shall promptly, but in any event within three (3) business
days 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 immediately upon
receiving any request for additional information with respect to such filings
from either the Antitrust Division of the Department of Justice or the Federal
Trade Commission. Subject to the provisions of Section 10.1 hereof, the party
receiving the request shall use its reasonable best efforts to comply with such
request, and to take such reasonable action in respect of such request to enable
the Closing to occur, as soon as possible, and neither such party shall withdraw
any such filing or submission without the written consent of the other. Each
party shall keep the other party promptly informed of all developments regarding
the filings, requests and responses referred to in this
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Section 2.12, and shall provide the other party the opportunity to participate
in all meetings with the Antitrust Division of the Department of Justice or
Federal Trade Commission in respect thereof.
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 when read together provide assurance that there is no plan
or intention on the part of the stockholders of the Acquired Company (or
knowledge of such plan or intent to the extent the Acquired Company provides a
representation with respect to holders of less than five percent (5%) of the
Acquired Company Stock) to sell, exchange or otherwise dispose of a number of
shares of Parent Stock received in the Merger that would reduce the Acquired
Company's stockholders' ownership of Parent Stock received in the Merger to a
number of shares having a value, as of the Effective Time, of less than fifty
percent (50%) of the value of all of the outstanding stock of Acquired Company
immediately prior to the Effective Time.
2.14 INDEMNIFICATION OF ACQUIRED COMPANY OFFICERS AND DIRECTORS. The
Purchaser agrees that subsequent to the Closing it will provide to the directors
and officers of the Acquired Company indemnification in accordance with the
current provisions of the Certificate of Incorporation and By-Laws of the
Acquired Company and the Indemnification Agreements with respect to matters
occurring prior to the Effective Time, for a period of six 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.
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.
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III. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED COMPANY.
The Acquired Company represents and warrants to Purchaser and Parent as
follows:
3.1 ORGANIZATION, STANDING AND FOREIGN QUALIFICATION.
3.1.1. Each of the Acquired Company and the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdiction of its incorporation as set forth in
EXHIBIT 3.1 and has the requisite corporate power and authority to carry on
its business in the places and as it is now being conducted and to own and
lease the properties and assets that it now owns or leases.
3.1.2. Each of the Acquired Company and the Subsidiaries is duly
qualified and/or licensed to transact business and in good standing as a
foreign corporation in the jurisdictions listed in EXHIBIT 3.1 hereto, and
the character of the property owned or leased by the Acquired Company and
the Subsidiaries and the nature of the business conducted by them do not
require such qualification and/ or licensing in any other jurisdiction where
the failure to so qualify would have a Material Adverse Effect upon the
Acquired Company.
3.2 AUTHORITY AND STATUS.
3.2.1. The Board of Directors of the Acquired Company, by unanimous
vote of all directors present at a meeting duly called and held, has (i)
determined that the Merger is fair to and in the best interests of the
stockholders of the Acquired Company and (ii) resolved to submit the Merger
to and recommend approval of the Merger by the stockholders of the Acquired
Company.
3.2.2. The Acquired Company has the capacity and authority to execute
and deliver this Agreement, to perform hereunder and, upon approval of the
transactions provided for herein by the stockholders of the Acquired
Company, to consummate the transactions contemplated hereby without any
other corporate or stockholder approval. The execution, delivery and
performance by the Acquired Company of this Agreement and each and every
other agreement, document and instrument provided for herein have been duly
authorized and approved by the Board of Directors of the Acquired Company.
Assuming this Agreement and each and every agreement, document or instrument
to be executed, delivered and performed by the Acquired Company in
connection herewith are valid and legally binding obligations of Purchaser
and Parent, this Agreement and each and every agreement, document and
instrument to be executed, delivered and performed by the Acquired Company
in connection herewith constitute or will, when executed and delivered,
constitute the valid and legally binding obligation of the Acquired Company
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by applicable equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws from
time to time in effect affecting the enforcement of creditors' rights
generally. Attached hereto as EXHIBIT 3.2 are true, correct and complete
copies of the current Articles or Certificates of Incorporation and Bylaws
of the Acquired Company and the Subsidiaries.
3.2.3. The Board of Directors of the Acquired Company received an
opinion from BT Alex. Brown Incorporated, its financial advisor,
concurrently with the approval described in Section 3.2.1 above to the
effect that the Exchange Ratio is fair, from a financial point of view, to
the Acquired Company's stockholders.
3.3 CAPITALIZATION. The entire authorized capital stock of the Acquired
Company consists of thirty-eight million (38,000,000) shares of stock, of which
thirty-five million (35,000,000) shares are designated Common Stock, par value
$.01 per share, and three million (3,000,000) shares are designated Preferred
Stock, par value $.10 per share. Of the total authorized Acquired Company Stock,
as of September 27, 1997, Fifteen Million Three Hundred Forty Thousand Three
Hundred Eighty-Five (15,340,385) shares were issued and outstanding and no
shares were held in the Acquired Company's treasury. Of the total
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authorized Preferred Stock, no shares have been issued. As of September 27,
1997, there were options outstanding under the Stock Plans entitling the
optionees thereunder upon valid exercise to acquire in the aggregate Two Million
Two Hundred Forty Thousand Five Hundred Seventy-One (2,240,571) shares of
Acquired Company Stock. With the exception of the right to acquire shares of
Acquired Company Stock pursuant to options under the Stock Plans, there are no
outstanding rights to acquire capital stock of the Acquired Company. All the
issued and outstanding shares of each of the Subsidiaries are owned by the
Acquired Company and are held free and clear of all liens, claims, charges and
encumbrances of any nature whatsoever. All of the outstanding shares of Acquired
Company Stock (and any shares issued pursuant to presently outstanding options,
if exercised and purchased at the applicable exercise price) were duly
authorized (or will be when issued and the option price paid), validly issued,
fully paid and nonassessable. None of the capital stock of the Acquired Company
is entitled to or subject to preemptive rights. Other than the requisite
stockholder vote to consummate the Merger, the authorization or consent of no
other person or entity is required in order to consummate the transactions
contemplated herein by virtue of any such person or entity having an equitable
or beneficial interest in the Acquired Company or any Subsidiary or the capital
stock of the Acquired Company or any Subsidiary. EXHIBIT 3.3 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 other terms governing exercise or receipt, and any
warrants, calls, commitments or plans by the Acquired Company or any Subsidiary
to issue any additional shares of their capital stock, to pay any dividends on
such shares or to purchase, redeem, or retire any outstanding shares of their
capital stock, nor are there outstanding any securities or obligations that are
convertible into or exchangeable for any shares of capital stock of the Acquired
Company. Following the Merger, the Acquired Company will have no obligation to
issue, transfer or sell any shares of capital stock of any of the Subsidiaries.
There are not now, and at the Effective Time there will not be, any voting
trusts or other agreements or understandings to which the Acquired Company or
any of the Subsidiaries is a party or is bound with respect to the voting of the
capital stock of the Acquired Company or any of the Subsidiaries.
3.4 ABSENCE OF EQUITY INVESTMENTS. Except for the Subsidiaries and as
described in EXHIBIT 3.4 hereto, the Acquired Company does not, either directly
or indirectly, own of record or beneficially any shares or other equity
interests in any corporation, partnership, limited partnership, joint venture,
trust or other business entity.
3.5 LIABILITIES AND OBLIGATIONS OF THE ACQUIRED COMPANY AND THE
SUBSIDIARIES.
3.5.1. Attached hereto as EXHIBIT 3.5.1 are true, correct and complete
copies of the Acquired Company's audited consolidated balance sheets as of
June 30, 1995, June 30, 1996 and June 30, 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended, together with the reports of Coopers & Lybrand L.L.P. thereon
(respectively, the "1995, 1996 and 1997 Financial Statements"). The 1995,
1996, and 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, 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 1997 Financial Statements or
EXHIBIT 3.5.2 hereto, to the extent and in the amounts so disclosed or
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reserved against, and (b) liabilities incurred or accrued in the ordinary
course of business since June 30, 1997 and liabilities incurred in
connection with the transactions referred to herein.
3.5.3. Except as disclosed in the 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, and all such liabilities or
obligations shown or reflected in the 1997 Financial Statements or EXHIBIT
3.5.2 and such liabilities incurred or accrued subsequent to June 30, 1997
have been, or are being, paid and discharged as they become due, and all
such liabilities and obligations were incurred in the ordinary course of
business except as indicated in EXHIBIT 3.5.2.
3.6 TAX RETURNS.
3.6.1. 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 3.6.1, 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 1997 Financial Statements or EXHIBIT 3.6.1 hereto, and no amendments
or applications for refund have been filed or are planned with respect to
any such return. Except as set forth on EXHIBIT 3.6.1, there are no
agreements between the Acquired Company or any Subsidiary and any taxing
authority, including, without limitation, the IRS, waiving or extending any
statute of limitations with respect to any tax return, and neither the
Acquired Company nor any Subsidiary has filed any consent or election under
the Tax Code, including, without limitation, any election under Section
341(f) of the Tax Code.
3.6.2. Except as set forth on EXHIBIT 3.6.2, 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. The Acquired Company is not obligated to make
reimbursements or gross up payments to any person in respect to excess
parachute payments.
3.6.3. The Acquired Company and the Subsidiaries (a) have withheld
proper and accurate amounts in compliance with the tax withholding
provisions of all applicable laws for all compensation paid to the officers
and employees of the Acquired Company and the Subsidiaries, (b) have
correctly and properly prepared and duly and timely filed all returns and
reports relating to those amounts withheld from their officers and employees
and to their employer liability for employment taxes under the Tax Code and
applicable state and local laws and (c) have duly and timely paid and
remitted to the appropriate taxing authorities the amounts withheld from
their officers and employees and any additional amounts that represent their
employer liability under applicable law for employment taxes.
3.6.4. The income tax returns of the Acquired Company have been audited
by the IRS for all tax years through the year ended June 30, 1995, and all
taxes, deficiencies, penalties and interest relating to such tax years have
been fully paid and satisfied by the Acquired Company.
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3.6.5. 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. The 1995, 1996 and 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.
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 (i)
for those encumbrances or defects in title not material to the continued use or
ownership of any such properties and assets in the ordinary course, (ii) as
disclosed or reserved against in EXHIBIT 3.7 or reserved against in the 1997
Financial Statements (to the extent and in the amounts so disclosed or reserved
against) and (iii) 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 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 June 30, 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
labor trouble involving the Acquired Company or any of the Subsidiaries; (ii)
any increase in dividends or employee compensation or benefits
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payable by the Acquired Company, except for increases in compensation
consistent, in amounts and timing, with policies of the Acquired Company
approved on or prior to August 15, 1997 by its Board of Directors or the
Compensation Committee thereof; (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.
3.11 LICENSES AND PERMITS; COMPLIANCE WITH LAW. The Acquired Company and
the Subsidiaries hold all licenses, certificates, permits, franchises and rights
from all appropriate federal, state or other public authorities necessary for
the conduct of their respective businesses and the use of their respective
assets, except for such licenses, certificates, permits, franchises and rights
the absence of which would not 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 individually or in the aggregate 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, except as described on EXHIBIT
3.11, 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. Except as disclosed on EXHIBIT
3.11, or as would not individually or in the aggregate have a Material Adverse
Effect on the Acquired Company, 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
Customer Contracts which shall be subject to the threshold set forth in Section
3.12.1. below). 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 require
payments or provide for receipts (measured by total contract payments or
receipts divided by the years of the term of the contract) in excess of
$60,000 per year (hereinafter referred to as the "Customer Contracts" and
identified as such on EXHIBIT 3.12);
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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, 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 EXHIBIT
3.12, those listed variations from the standard form agreements and those
listed agreements that are not in the standard form, there are no other
agreements of the type referred to in this Section 3.12.5;
3.12.6. contracts, agreements, understandings or arrangements
restricting the Acquired Company or any Subsidiary from carrying on its
business anywhere in the world;
3.12.7. instruments or arrangements evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase-money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise providing for payments in
excess of $5,000 per month;
3.12.8. joint product development agreement with any party other than
the Purchaser, other than Customer Contracts; and
3.12.9. contracts or agreements with vendors of material equipment
purchased by the Acquired Company or appointing the Acquired Company as a
reseller of equipment, other than purchase orders in the ordinary course of
business.
The contracts, agreements, commitments and other instruments listed or
required to be listed on EXHIBIT 3.12 or listed on an Exhibit referred to in
Section 3.14 hereof are herein referred to as the "Material Contracts."
All the Material Contracts are valid and binding upon the Acquired Company
or the applicable Subsidiary and the other parties thereto and are in full force
and effect and enforceable in accordance with their terms, except as
enforceability may be affected by bankruptcy, insolvency, moratorium or similar
laws affecting creditors rights generally and general principles of equity
relating to the availability of equitable remedies. 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.
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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 executed within the five (5) year period ending on the date
hereof conforms substantially to one of the forms attached hereto as EXHIBIT
3.13(B) (the "Customer Contract Forms"). EXHIBIT 3.13(B) also includes copies of
standard forms employed by the Acquired Company and the Subsidiaries within the
five (5) year period ending on the date hereof in respect of current customers
the contracts for which do not constitute "Customer Contracts" by reason of the
dollar threshold provided for in the definition therefor in Section 3.12.1. With
respect to each Customer Contract, (i) each customer to which computer software
represented as owned 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,
response time, and Year 2000 compliance have been satisfied in all material
respects upon the terms and conditions and to the extent provided for in such
Customer Contract. In addition, except as set forth on EXHIBIT 3.13(C), 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;
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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
(i) 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 patents and
registered copyrights 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) (not inclusive of Customer Contracts
or contracts which do not constitute Customer Contracts by reason of the
dollar threshold provided for in the definition thereof in Section 3.12.1).
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 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
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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. 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, except for infringements that are unknown
or, with reasonable diligence, could not be known, to the Acquired Company
which would not individually or in the aggregate have a Material Adverse
Effect on the Acquired Company and, to the knowledge of the Acquired
Company, no other person or entity is infringing any intellectual property
rights of the Acquired Company with respect to the Acquired Company
Software.
3.14.2 (iv) EXHIBIT 3.14.2(IV)(A) lists and separately identifies all
agreements pursuant to which the Acquired Company or any Subsidiary has been
granted rights to market software owned by third parties, and EXHIBIT
3.14.2(IV)(B) lists and separately identifies all agreements pursuant to
which the Acquired Company or any Subsidiary has granted marketing rights in
the Acquired Company Software to third parties.
3.14.2 (v) None of the Acquired Company and the Subsidiaries has taken
or failed to take any actions under the law of any applicable foreign
jurisdictions where the Acquired Company or a Subsidiary has marketed or
licensed Acquired Company Software that would restrict or limit the ability
of the Acquired Company or any Subsidiary to protect, or prevent it from
protecting, its ownership interests in, confidentiality rights of, and
rights to market, license, modify or enhance, the Acquired Company Software.
3.15 LABOR MATTERS. Except as set forth on EXHIBIT 3.15, within the last
three (3) years neither the Acquired Company nor any Subsidiary has been the
subject of any known union activity or labor dispute, nor has there been any
strike of any kind called or, to the knowledge of the Acquired Company,
threatened to be called against any of them. Neither the Acquired Company nor
any Subsidiary has violated in any material respect any applicable federal or
state law or regulation relating to labor or labor practices. EXHIBIT 3.15 sets
forth a true, correct and complete list of outstanding employer loans or
advances from the Acquired Company and each Subsidiary to their respective
employees. The Acquired Company and all Subsidiaries are in substantial
compliance with all applicable requirements of the Immigration and Nationality
Act of 1952, as amended by the Immigration Reform and Control Act of 1986 and
the regulations promulgated thereunder (hereinafter collectively referred to as
the "Immigration Laws").
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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 similar 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; commitments or methods of
contribution or compensation (whether arrived at through collective
bargaining or otherwise), 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
maintained, or was adopted since June 30, 1995, sponsored in whole or in
part, or contributed to by the Acquired Company or any ERISA Affiliate of
the Acquired Company, for the benefit of, providing any remuneration or
benefits to, or covering any current or former employee, retiree, dependent,
spouse or other family member or beneficiary of such employee or retiree,
director, independent contractor, stockholder, officer or consultant of the
Acquired Company or any ERISA Affiliate of the Acquired Company or under (or
in connection with) which the Acquired Company or an ERISA Affiliate of the
Acquired Company has any contingent or noncontingent liability of any kind,
whether or not probable of assertion (collectively, the "Benefit Plans").
Any of the Benefit Plans that is an "employee pension benefit plan," or an
"employee welfare benefit plan" as that term is defined in Section 3(1) of
ERISA, is referred to herein as an "ERISA Plan." No Benefit Plan is or has
been a 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 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
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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.
None of the assets of any ERISA Plan is an "employer security" (within the
meaning of Section 407(d)(1) of ERISA) or "employer real property" (within
the meaning of Section 407(d)(2) of ERISA).
3.16.7. Each Benefit Plan that is or has been an "employee pension
benefit plan" as defined in Section 3(2) of ERISA is a defined contribution
plan qualified under Section 401(a) of the Tax Code and its related trust is
exempt from tax under Section 501(a) of the Tax Code (a "Qualified Plan")
and no circumstances exist that could result in disqualification of any
Qualified Plan or loss of tax-exempt status for its related trust. No
Qualified Plan (nor any predecessor to a Qualified Plan) has ever been
subject to the provisions of Title IV of ERISA or to the minimum funding
standards of Section 412 of the Tax Code.
3.16.8. As of June 30, 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 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
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 6.11A the form of Covenant Not to Compete attached as
EXHIBIT 6.11B and obtained their agreement to enter into same in favor of
Purchaser as of the Closing Date.
3.17 CUSTOMERS. Except as disclosed on EXHIBIT 3.17, none of the Acquired
Company and the Subsidiaries has received any notice from, or has any knowledge
that, any customer of the Acquired Company or any Subsidiary as of December 31,
1996 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
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Company, any Subsidiary, any director, officer, agent, employee, or other Person
associated with or acting on behalf of the Acquired Company or any Subsidiary
has, directly or indirectly (i) used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to domestic or foreign
government officials or employees, or to domestic or foreign political parties
or campaigns, from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; (iv) established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; (v) made any
false or fictitious entry on the books or records of Acquired Company or any
Subsidiary; (vi) made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; (vii) given any favor or gift which is not deductible
for federal income tax purposes; or (viii) made any bribe, kickback, or other
payment of a similar or comparable nature, whether lawful or not, to any person
or entity, private or public, regardless of form, whether in money, property, or
services, to obtain favorable treatment in securing business or to obtain
special concessions, or to pay for favorable treatment for business secured or
for special concessions already obtained. The Acquired Company and the
Subsidiaries have complied with all applicable statutes, ordinances, rules,
regulations and orders relating to seeking, bidding, obtaining, performing under
or otherwise complying with, contracts with governmental and quasi-governmental
authorities, agencies or other entities.
3.18 ENVIRONMENTAL MATTERS. Except as set forth in EXHIBIT 3.18, no real
property now or previously owned, leased or used by the Acquired Company or any
Subsidiary (the "Real Property") has been used by the Acquired Company or any
Subsidiary or, to the knowledge of the Acquired Company, any other party for the
handling, treatment, storage or disposal of any Hazardous Substance. Except as
set forth in EXHIBIT 3.18, no release, discharge, spillage or disposal into the
environment of any Hazardous Substance 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.
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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 December 31, 1996, there has not been any change in the
Acquired Company's or any Subsidiary's relationship with their respective
insurers or in the premiums payable pursuant to such policies.
3.20 RELATED 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 on EXHIBIT 3.20(A) copies of the Rule 145 Letters and Pooling
Letters and, except as set forth on EXHIBIT 3.20(A), obtained their written
agreement to enter into same as of the dates indicated in Section 2.4. The
Acquired Company has provided to the stockholders described on EXHIBIT
3.20(B) the form of letter referenced in Section 2.13 hereof provided by the
Purchaser and, except to the extent set forth on EXHIBIT 3.20(B), obtained
their written agreement 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 on or after June 30, 1995
(collectively, the "Acquired Company Reports"). As of the date of this
Agreement, the Acquired Company Reports, taken together with information
previously furnished by the Acquired Company to Parent or Purchaser, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. As used
in this Section 3.21, "material" means material to the financial condition,
business, properties, rights or operations of the Acquired Company together with
the Subsidiaries, taken as a whole.
3.22 POOLING OF INTERESTS. The Acquired Company is not aware of any facts
or circumstances in respect of it or its accounting procedures which would have
the effect of precluding accounting for the transactions contemplated hereby as
a "pooling of interests."
3.23 EXHIBITS. All Exhibits attached hereto are true, correct and complete
as of the date of this Agreement and will be true, correct and complete as of
the Closing Date, except to the extent that such Exhibits may be untrue,
incorrect or incomplete due to changes occurring due to the operation of the
Acquired Company and the Subsidiaries in the ordinary course, which shall not
individually or in the aggregate have a Material Adverse Effect. Matters
disclosed on each Exhibit shall be deemed disclosed only for purposes of the
matters to be disclosed on such Exhibit and shall not be deemed to be disclosed
for any other purpose unless expressly provided therein.
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3.24 DISCLOSURE AND ABSENCE OF UNDISCLOSED LIABILITIES. No statement
contained herein or in any certificate, schedule, list, exhibit or other
instrument furnished or required to be furnished to Purchaser pursuant to the
provisions hereof contains, or will at the time it is furnished contain, any
untrue statement of any material fact or omits or omit to state 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, properties, rights or operations of the Acquired Company and its
Subsidiaries, taken as a whole.
3.25 NO SPECIAL STOCKHOLDER RIGHTS. Except as disclosed on EXHIBIT 3.25,
the Acquired Company has no agreement with any individual or entity that grants
such person any rights as a stockholder of Acquired Company Stock that are in
addition to such holder's rights under the Acquired Company's Certificate of
Incorporation or Bylaws (including, without limitation, registration rights,
preemptive rights, put rights, rights of co-sale or rights to Board
representation).
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.
Purchaser and Parent, jointly and severally, represent and warrant to the
Acquired Company as follows:
4.1 ORGANIZATION AND STANDING.
4.1.1. Each of the Purchaser 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 the Purchaser and the 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 the Purchaser and the Parent and the nature of the business
conducted by them requires such qualification and/or licensing, except where
the failure to so qualify would not individually or in the aggregate have a
Material Adverse Effect upon the Purchaser and the Parent, taken as a whole.
4.2 CORPORATE POWER AND AUTHORITY. Each of Purchaser and Parent has the
capacity and authority to execute and deliver this Agreement, to perform
hereunder and to consummate the transactions contemplated hereby without the
necessity of any act or consent of any other Person whomsoever. The execution,
delivery and performance by Purchaser and Parent of this Agreement and each and
every agreement, document and instrument provided for herein have been duly
authorized and approved by their respective Boards of Directors (or Executive
Committees thereof). No approval of the stockholders of either Parent or
Purchaser is required to consummate the Merger. 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. Purchaser is a
wholly-owned subsidiary of Parent.
4.3 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution and
delivery of this Agreement by Purchaser and Parent do not, and the consummation
of the transactions contemplated hereby will not, violate any provisions of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of Purchaser or
of Parent, and violate or constitute an occurrence of default under any
provision of, or
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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, 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 will, upon
issuance in the Merger, be validly issued, fully paid and non-assessable.
4.5 INFORMATION. Parent has made available to the Acquired Company each
registration statement, schedule, report, proxy statement or information
statement it has filed with the Securities and Exchange Commission since January
1, 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, business, properties, rights or operations
of Parent together with its subsidiaries (including Purchaser), taken as a
whole.
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
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intention to commence, or recommend the commencement of, such an action or
proceeding, that (i) challenges the acquisition by Purchaser or Parent of the
Acquired Company Stock, restrains or prohibits or seeks to restrain or prohibit
the making or consummation of the Merger or restrains or prohibits or seeks to
restrain or prohibit the performance of this Agreement; (ii) prohibits or limits
or seeks to prohibit or limit the ownership or operation by Purchaser or Parent
of all or any substantial portion of the business or assets of the Acquired
Company or any of the Subsidiaries or of Purchaser, Parent or any of their
respective subsidiaries or compels or seeks to compel Purchaser or Parent to
dispose of or to hold separate all or any substantial portion of the business or
assets of the Acquired Company or any of the Subsidiaries or of Purchaser,
Parent or any of their respective subsidiaries, or imposes or seeks to impose
any material limitation on the ability of Purchaser or Parent to conduct such
business or to own such assets; or (iii) imposes or seeks to impose limitations
on the ability of Purchaser or Parent (or any other affiliate of Purchaser) to
acquire or hold or to exercise full rights of ownership of the Surviving
Corporation, including, but not limited to, the right to vote such shares on all
matters properly presented to the stockholders of the Surviving Corporation.
5.2 OTHER LEGAL ACTIONS. There shall not have been any statute, rule,
regulation, order or injunction enacted, promulgated, entered, enforced, deemed
applicable to the Merger or this Agreement or proposed by any government,
governmental authority or agency or court, domestic or foreign, and no claim or
action shall have been instituted by any Person before a court, government or
governmental authority or agency, that could in the reasonable expectation of
Purchaser and Parent on the one hand, or the Acquired Company on the other hand,
result in any of the consequences specifically set forth 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 Board of Directors of the Acquired Company shall
have received an opinion from BT Alex. Brown Incorporated, its financial
advisor, dated as of the date of the mailing to the stockholders of the Acquired
Company of the proxy statement/prospectus included within the Registration
Statement 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
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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 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 CHANGE TO THE ACQUIRED COMPANY. Since the date of this Agreement
there shall not have been any change or changes in the business, properties,
rights or operations 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, dated as of the Closing Date,
certifying as to the matters set forth in Sections 6.1 through 6.3 above. In
addition, Parent shall have received both a certificate dated as of the
effective date of the Registration Statement and a certificate dated as of the
Closing Date certifying that the covenants set forth in Sections 2.3.1 and 2.3.2
hereof have been performed and that the representations set forth in Sections
3.21 and 3.24 hereof are true and correct as of such dates.
6.5 OPINION OF ACQUIRED COMPANY'S COUNSEL. Purchaser and Parent shall have
received an opinion of counsel for the Acquired Company in customary form
reasonably acceptable to Purchaser.
6.6 TAX OPINION. Purchaser and Parent shall have received an opinion from
their counsel, dated as of the date the Registration Statement is declared
effective and not withdrawn or materially modified as of the Closing Date, to
the effect that the Merger will qualify as a reorganization pursuant to Section
368(a) of the Tax Code, which opinion shall be substantially in the form of
EXHIBIT 6.6 hereto.
6.7 AFFILIATES AND PRINCIPAL STOCKHOLDERS. Purchaser and Parent shall have
received the Rule 145 Letters and the Pooling Letters from the persons and at
the times specified in Section 2.4, and the letters referenced in Section 2.13.
6.8 ADDITIONAL INSTRUMENTS. The Acquired Company shall have delivered to
Purchaser or Parent certified copies of resolutions duly adopted by the Acquired
Company's Board of Directors and stockholders, approving the Merger and
authorizing the transactions contemplated hereby, and such other or additional
instruments, consents, waivers, approvals, endorsements and documents as Parent
and Purchaser reasonably deem to be necessary to enable the Merger to be
consummated as provided in this Agreement. All other proceedings in connection
with the Merger and the other transactions contemplated hereby, and all
instruments, consents, waivers, approvals, endorsements and documents referred
to hereunder or otherwise incident to such transactions, shall 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.
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6.9 ACCOUNTANTS' POOLING LETTERS. Parent shall have received letters from
Coopers & Lybrand L.L.P. and Arthur Andersen LLP, dated as of the effective date
of the Registration Statement and as of the Closing Date, in each case addressed
to Parent advising it, as set forth in Section 2.3.2 hereof, regarding the
appropriateness of accounting for the Merger 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 Coopers & Lybrand L.L.P. dated as of the effective date of
the Registration Statement and as of the Closing Date, in each case addressed to
Purchaser and Parent, containing such matters as are customarily contained in
auditors' letters regarding the Acquired Company Information provided expressly
for inclusion in such Registration Statement, and in form and substance
reasonably satisfactory to Parent.
6.11 COVENANTS NOT TO COMPETE. Purchaser shall have received executed
non-competition agreements from each of those persons listed on EXHIBIT 6.11(A),
with each such agreement in the form of EXHIBIT 6.11(B) hereto (a "Covenant Not
to Compete").
6.12 FEE LIMITATION. The only fees and expenses to any investment banking
firm or similar entity that will be incurred by Acquired Company in connection
with the transaction with Parent and Purchaser will be the fees and expenses of
BT Alex. Brown Incorporated, Hambrecht & Quist LLC and The G.W. Carmany Co.,
Inc., which shall be consistent with the engagement letters entered into by BT
Alex. Brown Incorporated, Hambrecht & Quist LLC and The G.W. Carmany Co., Inc.,
dated April 4, 1997, May 26, 1997 and April 14, 1997, respectively, and shall
not exceed the sums set forth on EXHIBIT 6.12 hereto.
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), in the statements contained in
the exhibits hereto or in any certificate delivered by the Purchaser and Parent
pursuant to this Agreement shall be true and correct when made, at and as of the
Closing Date as though such representations and warranties were made or given on
and as of the Closing Date, in each case 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
Purchaser and Parent taken as a whole.
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.
31
<PAGE>
7.4 OPINION OF PARENT'S AND PURCHASER'S COUNSEL. The Acquired Company
shall have received an opinion of 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 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 counsel to Parent and Purchaser, in Atlanta, Georgia, 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;
(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
inSection 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 Coopers & Lybrand L.L.P. to be delivered by the
Closing Date as described in Section 6.9;
(o) the Covenant Not to Compete fully executed and delivered; and
32
<PAGE>
(p) such other evidence of the performance of all covenants and
satisfaction of all conditions required of the Acquired Company by this
Agreement, at or prior to the Closing, as Purchaser, Parent or their
counsel may reasonably require.
8.2.2. PERFORMANCE BY PURCHASER AND PARENT. At the Closing, Purchaser
or Parent, as appropriate, shall deliver to the Acquired Company the
following:
(a) the certificate described in Section 7.3;
(b) certificates of incumbency of the officers of Purchaser and of
Parent who are executing this Agreement and the other documents
contemplated hereunder;
(c) certified copies of resolutions of the Boards of Directors of
each of Purchaser and Parent (or Executive Committees thereof) approving
the transactions set forth in this Agreement;
(d) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by Purchaser;
(e) the opinion of counsel for Purchaser and Parent referenced in
Section 7.4; and
(f) 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 2.1.6, 2.1.7, 2.1.10,
2.2.2, 2.3.6, 2.3.8, 2.13, 2.14, 2.16 and 11.5, all representations, warranties
and agreements of the parties in this Agreement or in any instrument delivered
pursuant to this Agreement (other than the Covenants Not To Compete) shall not
survive the Closing, and thereafter no party hereto and no officer, director or
employee of any such party shall have any liability whatsoever with respect to
any such representation, warranty or agreement except for liabilities arising
from fraud, willful misconduct or criminal acts.
X. TERMINATION.
10.1 METHOD OF TERMINATION. This Agreement constitutes the binding and
irrevocable agreement of the parties to consummate the transactions contemplated
hereby, the consideration for which is (a) the covenants set forth in Article II
hereof, and (b) expenditures and obligations incurred and to be incurred by
Purchaser and Parent, on the one hand, and by the Acquired Company, on the other
hand, in respect of this Agreement, and this Agreement may be terminated or
abandoned only as follows:
10.1.1. By the mutual consent of the Boards of Directors of the
Acquired Company and Parent, notwithstanding prior approval by the
stockholders of any or all of such corporations;
10.1.2. By the Board of Directors of the Parent in accordance with its
rights under Section 10.3;
10.1.3. By the Board of Directors of the Acquired Company after January
31, 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; PROVIDED,
HOWEVER, that this Section 10.1.3 shall not be invoked by reason of a
failure to satisfy the condition set forth in Section 5.3 hereof until the
earlier to occur of (i) 45 days after the date on which the Acquired Company
has substantially complied with any request for additional information with
respect to its filing under the HSR Act or (ii) February 16, 1998;
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
33
<PAGE>
waived, unless such fulfillment has been frustrated or made impossible by
any act or failure to act of Purchaser or Parent; PROVIDED, HOWEVER, that
this Section 10.1.4 shall not be invoked by reason of a failure to satisfy
the condition set forth in Section 5.3 hereof until the earlier to occur of
(i) 45 days after the date on which both Parent and Purchaser have
substantially complied with any request for additional information with
respect to the Parent's filing under the HSR Act or (ii) February 16, 1998;
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 $35.00 per share;
10.1.7. By the Board of Directors of Parent if it reasonably estimates
that the aggregate external cost to Parent and Purchaser (e.g., attorneys,
consultants and out-of-pocket copies) of antitrust compliance after the
initial filing required under the HSR Act will exceed $500,000; or
10.1.8. By the Board of Directors of the Acquired Company if it
reasonably estimates that the aggregate external cost to the Acquired
Company (e.g., attorneys, consultants and out-of-pocket copies) of antitrust
compliance after the initial filing required under the HSR Act will exceed
$500,000.
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. Section 2.8.2 of this Agreement shall survive termination hereof.
10.2.2. In the event this Agreement is terminated by the Acquired
Company in accordance with Section 10.1.5, then the Acquired Company shall
promptly pay (i) all reasonable costs and expenses of Purchaser and Parent
incurred in connection with the negotiation and performance of this
Agreement including without limitation fees and expenses of counsel, fees
and expenses of independent public accountants, printing expenses and
registration fees and (ii) to Purchaser a fee in the amount of $10,000,000.
In the case of the payment of the fee described in the preceding sentence,
and provided the Acquired Company has not breached any of the covenants
provided for in Section 2.1.8 or 2.11 hereof other than in an immaterial
respect, payment of such amount shall constitute liquidated damages and
shall be the sole and exclusive remedy of Parent and Purchaser for any and
all damages arising under or in connection with this Agreement, and, upon
payment of such amount, neither the Acquired Company nor any officers,
directors, employees, agents, representatives or stockholders of the
Acquired Company shall have any liability or further obligation to Parent or
Purchaser under or in connection with this Agreement or any termination
hereof.
10.3 RISK OF LOSS. The Acquired Company retains all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement up to the Effective Time. If the condemnation, destruction, loss, or
damage is such that the business of the Acquired Company and the Subsidiaries,
taken as a whole, is materially interrupted or curtailed or the assets of the
Acquired Company and the Subsidiaries, taken as a whole, are materially
affected, then Purchaser shall have the right to terminate this Agreement.
34
<PAGE>
XI. GENERAL PROVISIONS.
11.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
certified mail, return receipt requested, first class postage prepaid, or sent
by Federal Express or similar overnight delivery service with receipt
acknowledged addressed as follows:
<TABLE>
<C> <S>
11.1.1. If to the Acquired Company:
HPR Inc.
245 First Street
Cambridge, MA 02142
Attn: Marcia J. Radosevich, Ph.D.
and to:
Hill & Barlow
One International Place
Boston, MA 02110-2607
Attn: Thomas C. Chase, Esq.
11.1.2. If to Purchaser or Parent:
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: Mr. Jay P. Gilbertson
and to:
Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attn: John E. Zamer, Esq.
</TABLE>
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 BT Alex. Brown Incorporated, Hambrecht &
Quist LLC and The G.W. Carmany Co., Inc., 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 BT Alex. Brown Incorporated, Hambrecht & Quist LLC and The G.W.
Carmany Co., Inc., or any
35
<PAGE>
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 BT Alex. Brown Incorporated, Hambrecht & Quist LLC and The G.W.
Carmany Co., Inc., and any other broker or finder shall be paid by the Acquired
Company, subject to the limitations set forth in Section 6.12 in conjunction
with such other fees set forth in Section 11.5.
11.3 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Effective Time, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
11.4 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
11.5 EXPENSES. Except as provided in 10.2.2, all expenses incurred by the
parties hereto in connection with or related to the authorization, preparation
and execution of this Agreement and the closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of agents, representatives, counsel and accountants employed
by any such party, shall be borne solely and entirely by the party that has
incurred the same.
11.6 PRESS RELEASES AND DISCLOSURE. In the event that either party
proposes to issue, make or distribute any press release, public announcement or
other written publicity or disclosure prior to the Closing Date that refers to
the transactions contemplated herein, the party proposing to make such
disclosure shall provide a copy of such disclosure to the other parties and
shall afford the other parties reasonable opportunity (subject to any legal
obligation of prompt disclosure) to comment on such disclosure or the portion
thereof which refers to the transactions contemplated herein prior to making
such disclosure.
11.7 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns.
11.8 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
11.9 ENTIRE AGREEMENT. This Agreement and all agreements referenced
specifically in this Agreement and executed as required by this Agreement
constitute the entire agreement among the parties hereto and supersede and
cancel any prior agreements, representations, warranties, or communications,
whether oral or written (except for the Confidentiality and Standstill Agreement
which shall remain in full force and effect according to the terms thereof),
among the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an agreement in
writing signed by the party against whom or which the enforcement of such
change, waiver, discharge or termination is sought.
11.10 GOVERNING LAW. Except to the extent the transactions contemplated
hereby are governed by the Delaware Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of Georgia.
11.11 CONSENT TO ACQUISITION OF VOTING SECURITIES. Pursuant to Section 8
of the Confidentiality and Standstill Agreement, the Acquired Company hereby
consents to the acquisition of the voting securities of the Acquired Company
pursuant to the terms of this Agreement.
11.12 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.
36
<PAGE>
11.13 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.
11.14 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.15 EXHIBITS INCORPORATED. All Exhibits attached hereto are an integral
part of this Agreement.
11.16 TIME OF ESSENCE. Time is of the essence in this Agreement.
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement
to be executed on its behalf, all on the day and year first above written.
<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":
HPR INC.
By: /s/ MARCIA RADOSEVICH
-----------------------------------------
Marcia Radosevich
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
37
<PAGE>
EXHIBIT 11
HBO & COMPANY
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............. 198,611 191,760 196,816 191,109
ADD: Shares of common stock assumed issued upon exercise of stock
options using the "treasury stock" method as it applies to
the computation of primary earnings per share............... 6,109 8,012 5,142 7,622
---------- ---------- ---------- ----------
NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING........ 204,720 199,772 201,958 198,731
ADD: Additional shares of common stock assumed issued upon
exercise of stock options using the "treasury stock" method
as it applies to the computation of fully diluted earnings
per share................................................... -- 637 828 745
---------- ---------- ---------- ----------
NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
ASSUMING FULL DILUTION......................................... 204,720 200,409 202,786 199,476
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET EARNINGS FOR PRIMARY AND FULLY DILUTED EARNINGS PER SHARE.... $ 51,194 $ 16,177 $ 112,001 $ 61,415
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE:
PRIMARY........................................................ $ .25 $ .08 $ .55 $ .31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULLY DILUTED.................................................. $ .25 $ .08 $ .55 $ .31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
All prior periods 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.
14
<PAGE>
EXHIBIT 15
ARTHUR ANDERSEN LLP
To HBO & Company:
We are aware that HBO & Company has incorporated by reference in its
previously filed registration statements on Form S-8 its Form 10-Q for the
quarter ended September 30, 1997, which includes our report dated October 17,
1997 covering the unaudited interim consolidated financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933 (the "Act"),
that report is not considered a part of the registration statement prepared or
certified by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 17, 1997
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HBO &
Company Consolidated Statement of Income for the Nine Months Ended 9/30/97 and
HBO & Company Consolidated Balance Sheet at 9/30/97 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 344,259
<SECURITIES> 11,966
<RECEIVABLES> 361,261
<ALLOWANCES> 13,588
<INVENTORY> 5,838
<CURRENT-ASSETS> 751,391
<PP&E> 201,393
<DEPRECIATION> 126,070
<TOTAL-ASSETS> 1,112,563
<CURRENT-LIABILITIES> 292,452
<BONDS> 139
0
0
<COMMON> 9,973
<OTHER-SE> 801,611
<TOTAL-LIABILITY-AND-EQUITY> 1,112,563
<SALES> 397,467
<TOTAL-REVENUES> 806,122
<CGS> 143,445
<TOTAL-COSTS> 594,543
<OTHER-EXPENSES> 24,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 186,738
<INCOME-TAX> 74,737
<INCOME-CONTINUING> 112,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,001
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
