<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
REGISTRATION NO. 333-61563
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HBO & COMPANY
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 37-0986839
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
------------------------
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(770) 393-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
CHARLES W. MCCALL
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
HBO & COMPANY
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(770) 393-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LISA A. STATER, ESQ. JOSEPH A. WALSH, JR., ESQ.
JONES, DAY, REAVIS & POGUE WINSTON & STRAWN
3500 SUNTRUST PLAZA 35 WEST WACKER DRIVE
303 PEACHTREE STREET, N.E. CHICAGO, ILLINOIS 60601-9703
ATLANTA, GEORGIA 30308-3242 (312) 558-5600
(404) 521-3939
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
US SERVIS, INC.
220 DAVIDSON AVENUE, 2ND FLOOR
SOMERSET, NEW JERSEY 08873
August 21, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Meeting") of US Servis, Inc. ("USS") to be held at 220 Davidson Avenue, 2nd
Floor, Somerset, New Jersey 08873 at 9:00 a.m., local time, on September 29,
1998.
At the Meeting, you will be asked to consider and take action upon a
proposal to approve:
An Agreement of Merger dated July 20, 1998 (the "Merger Agreement") among
USS, HBO & Company, a Delaware corporation ("HBOC"), and HBO & Company of
Georgia, a Delaware corporation, which is a wholly-owned subsidiary of HBOC
("HBOC-GA"), pursuant to which, among other things, (a) USS will merge with and
into HBOC-GA (the "Merger") and (b) each outstanding share of common stock, $.01
par value per share, of USS (the "USS Common Stock"), each outstanding share of
Series A and Series B convertible preferred stock, $.01 par value of USS (the
"USS Preferred Stock;" the USS Common Stock and the USS Preferred Stock
collectively referred to herein as "USS Stock"), and each outstanding right to
acquire a share of USS Common Stock will be converted into the right to receive
a fraction of a share of common stock, $.05 par value per share, of HBOC (the
"HBOC Common Stock") determined by dividing $50 million by the product of the
(i) the average closing price per share on the Nasdaq National Market of the
HBOC Common Stock during the 20 consecutive trading days ending on the third
trading day prior to the date of the Meeting and (ii) the total number of shares
of USS Stock issued and outstanding and issuable pursuant to all options,
warrants or other rights which permit the holder to acquire USS Common Stock
(the "Exchange Ratio"), less the amount of any fractional share, which will be
paid in cash.
Details of the foregoing proposal are set forth in the accompanying Proxy
Statement/Prospectus which you are urged to review carefully. A copy of the
Merger Agreement is also attached to the Proxy Statement/Prospectus as Appendix
A.
Your Board of Directors has carefully considered and has approved the Merger
proposal by unanimous vote and has determined that the Merger is fair to, and in
the best interests of, USS and its stockholders. Accordingly, the Board of
Directors unanimously recommends that stockholders vote FOR approval of the
Merger Agreement. The Board of Directors has received the written opinion of
Volpe Brown Whelan & Company, LLC to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the Per
Share Consideration (defined as $50 million divided by the number of fully
diluted shares of USS) is fair, from a financial point of view, to the holders
of USS Stock. A copy of such opinion is attached to the Proxy
Statement/Prospectus as Appendix B and should be read carefully in its entirety.
It is important that you vote your shares whether or not you plan to attend
the Meeting. To be sure your vote is counted, we urge you to carefully review
the Proxy Statement/Prospectus and to vote your shares as you choose. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE AS
SOON AS POSSIBLE. You may revoke and change your proxy vote at any time prior to
the Meeting, and any such signed, dated and submitted proxy will supersede any
earlier proxy submitted by you. If you attend the Meeting and wish to vote in
person, the ballot that you submit at the Meeting will supersede your proxy.
Thank you for your cooperation.
Very truly yours,
GRAHAM O. KING
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
<PAGE>
US SERVIS, INC.
220 DAVIDSON AVENUE, 2ND FLOOR
SOMERSET, NEW JERSEY 08873
------------------------
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of US Servis, Inc., a Delaware corporation ("USS"), will be held on
September 29, 1998, at 9:00 a.m., local time, at 220 Davidson Avenue, 2nd Floor,
Somerset, New Jersey 08873 for the following purpose:
To consider and vote upon a proposal to approve an Agreement of Merger dated
July 20, 1998 (the "Merger Agreement") among USS, HBO & Company, a Delaware
corporation ("HBOC"), and HBO & Company of Georgia, a Delaware corporation,
which is a wholly-owned subsidiary of HBOC ("HBOC-GA"), pursuant to which, among
other things, (a) USS will merge with and into HBOC-GA (the "Merger") and (b)
each outstanding share of common stock, $.01 par value per share (the "USS
Common Stock"), of USS, each outstanding share of Series A and Series B
convertible preferred stock, $.01 par value of USS (the "USS Preferred Stock;"
the USS Common Stock and the USS Preferred Stock collectively referred to herein
as the "USS Stock"), and each outstanding right to acquire a share of USS Common
Stock will be converted into the right to receive a fraction of a share of
common stock, $.05 par value per share, of HBOC (the "HBOC Common Stock")
determined by dividing $50 million by the product of (i) the average closing
price per share on the Nasdaq National Market of the HBOC Common Stock during
the 20 consecutive trading days ending on the third trading day prior to the
date of the Meeting and (ii) the total number of shares of USS Stock issued and
outstanding and issuable pursuant to all options, warrants or other rights which
permit the holder to acquire USS Common Stock, less the amount of any fractional
share, which will be paid in cash.
The Board of Directors of USS (the "USS Board") has approved the Merger
proposal by unanimous vote and has determined that the Merger is fair to, and in
the best interests of, USS and its stockholders. Accordingly, the USS Board
unanimously recommends that you vote FOR approval of the Merger Agreement.
The USS Board has fixed the close of business on August 18, 1998 as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the Meeting. Accordingly, only stockholders of record of USS Stock at
the close of business on that date will be entitled to notice of, and to vote
at, the Meeting or any adjournment or postponement thereof.
Details of the proposed Merger and other important information concerning
USS and HBOC are more fully described in the accompanying Proxy
Statement/Prospectus. Whether or not you plan to attend the Meeting, you are
urged to study the Proxy Statement/Prospectus carefully and then to execute,
complete, date and return the proxy in the enclosed envelope.
By Order of the Board of Directors,
ROBERT E. VAN METRE
SECRETARY, TREASURER AND VICE
PRESIDENT, ACCOUNTING AND FINANCE
Somerset, New Jersey
August 21, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND
MAIL PROMPTLY THE ENCLOSED PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF USS. A RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED AUGUST 21, 1998
PROXY STATEMENT
OF
US SERVIS, INC.
FOR SPECIAL MEETING OF STOCKHOLDERS
------------------------------
PROSPECTUS
OF
HBO & COMPANY
----------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, $.01 par value per share (the "USS Common Stock"), Series A convertible
preferred stock, $.01 per share, (the "Series A Preferred Stock") and Series B
convertible preferred stock, $.01 par value per share (the "Series B Preferred
Stock"), of US Servis, Inc., a Delaware corporation ("USS"), as a proxy
statement in connection with the solicitation of proxies by the Board of
Directors of USS (the "USS Board") for use at the Special Meeting of
Stockholders (the "Meeting") of USS to be held on September 29, 1998, at 220
Davidson Avenue, 2nd Floor, Somerset, New Jersey 08873 commencing at 9:00 a.m.,
local time, and at any adjournment or postponement thereof, for the purpose set
forth herein and in the accompanying Notice of Special Meeting of Stockholders
of USS. The Series A Preferred Stock and the Series B Preferred Stock are
collectively referred to herein as the "USS Preferred Stock" and the USS Common
Stock and USS Preferred Stock are collectively referred to as the "USS Stock."
This Proxy Statement/Prospectus also constitutes the prospectus of HBO &
Company, a Delaware corporation ("HBOC"), with respect to shares of common
stock, $.05 par value per share, of HBOC (the "HBOC Common Stock") to be issued
in connection with the merger (the "Merger") of USS with and into HBO & Company
of Georgia, a Delaware corporation, which is a wholly-owned subsidiary of HBOC
("HBOC-GA"). In the Merger, subject to the terms of the Agreement of Merger
dated July 20, 1998 among USS, HBOC and HBOC-GA (the "Merger Agreement"), each
outstanding share of USS Stock and right to acquire a share of USS Common Stock
will be converted into the right to receive a fraction of a share of HBOC Common
Stock determined by dividing $50 million by the product of the Market Value (as
defined below) of the HBOC Common Stock and the total number of shares of USS
Stock issued and outstanding and issuable pursuant to all options, warrants or
other rights which permit the holder to acquire USS Common Stock (the "Fully
Diluted Shares") (the "Exchange Ratio"), less the amount of any fractional
shares, which will be paid in cash. The USS Board or the Board of Directors of
HBOC (the "HBOC Board") each may (but neither is obligated to) terminate the
Merger Agreement 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) as reported by the Nasdaq Stock Market National Market ("Nasdaq NM") for
shares of HBOC Common Stock during the 20 consecutive trading days ending on the
third trading day prior to the date of the Meeting (the "Market Value") is less
than $23.50.
Outstanding options and warrants to purchase shares of USS Common Stock will
be assumed by HBOC upon consummation of the Merger such that the holders will
have the right to purchase that number of shares of HBOC Common Stock into which
the shares of USS Common Stock subject to such options and warrants would have
been converted in the Merger.
Because there is no minimum fractional share of HBOC Common Stock issuable
in respect of each share of USS Stock or right to acquire shares of USS Common
Stock, there is no assurance as to the actual number of shares of HBOC Common
Stock issuable in the Merger. An aggregate of 2,127,659 shares of HBOC Common
Stock have been registered pursuant to the Securities Act of 1933, as amended
(the "Securities Act"). If the Merger had been consummated on August 18, 1998,
based upon the Market Value and Fully Diluted Shares on such date, the Exchange
Ratio would have been .14697. The actual Exchange Ratio will be determined at
the time of the Merger. Shares of HBOC Common Stock and USS Common Stock are
currently approved for quotation on the Nasdaq NM under the symbols "HBOC" and
"USRV," respectively. On August 20, 1998, the reported closing sale prices of a
share of HBOC Common Stock and USS Common Stock on the Nasdaq NM were $29.25 and
$4.063, respectively.
This Proxy Statement/Prospectus and the related Notice of Special Meeting
and proxy card are first being mailed on or about August 25, 1998, to
stockholders of record of USS Stock at the close of business on August 18, 1998
(the "Record Date"). There were 6,355,683 shares of USS Common Stock, 1,500,000
shares of Series A Preferred Stock and 1,000,000 shares of Series B Preferred
Stock outstanding at the close of business on the Record Date. Only holders of
USS Stock of record on the Record Date will be entitled to notice of, and to
vote at, the Meeting or any adjournment or postponement thereof. Each holder of
record may revoke and change his proxy vote at any time prior to the Meeting and
each such signed, dated and submitted proxy will supersede any earlier proxy
submitted. If a holder of record of USS Stock attends the Meeting and wishes to
vote in person, any ballot submitted by such holder at the Meeting will
supersede any earlier submitted proxy.
Under the Delaware General Corporation Law (the "DGCL") and the Amended and
Restated Certificate of Incorporation of USS (the "USS Charter"), the Merger
Agreement must be approved by the holders of a majority of the aggregate number
of the issued and outstanding shares of USS Common Stock, Series A Preferred
Stock and Series B Preferred Stock voting as a class (with such preferred stock
being entitled to the number of votes represented by the number of shares of USS
Common Stock into which it is convertible (an "as converted basis")). Currently,
each share of Series A Preferred Stock and Series B Preferred Stock is
convertible into one share of USS Common Stock.
The above matters are discussed in detail in this Proxy
Statement/Prospectus. Stockholders of USS are strongly urged to read and
consider this Proxy Statement/Prospectus in its entirety.
SEE "RISK FACTORS," ON PAGE 19 OF THIS PROXY STATEMENT/PROSPECTUS, FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY USS STOCKHOLDERS IN
DETERMINING HOW TO VOTE ON THE MERGER AGREEMENT.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
The date of this Proxy Statement/Prospectus is August 21, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION.......................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................................................... 1
SUMMARY................................................................................................... 3
The Parties........................................................................................... 3
The Meeting........................................................................................... 3
The Merger Proposal................................................................................... 4
Summary Financial Data................................................................................ 8
Pro Forma Financial Information....................................................................... 10
Comparative Per Share Data............................................................................ 16
RISK FACTORS.............................................................................................. 19
Risk of Failure to Consummate the Merger.............................................................. 19
Per Share Consideration............................................................................... 19
Interests of Certain USS Officers and Directors in the Merger......................................... 19
CERTAIN MARKET INFORMATION................................................................................ 20
HBOC.................................................................................................. 20
USS................................................................................................... 20
THE MEETING............................................................................................... 22
THE MERGER PROPOSAL....................................................................................... 22
Background of the Merger.............................................................................. 22
Reasons of USS for Engaging in the Merger; Recommendation of the USS Board............................ 25
Opinion of Financial Advisor to USS................................................................... 27
Reasons of HBOC for Engaging in the Merger............................................................ 31
Terms of the Merger................................................................................... 31
Effective Time.................................................................................... 31
General Effects of the Merger..................................................................... 31
Conversion of Shares.............................................................................. 32
Fractional Shares................................................................................. 32
Stock Plans and Warrants.......................................................................... 32
Exchange of Certificates.......................................................................... 32
Payment of Dividends.............................................................................. 33
Limitations on Transferability of HBOC Common Stock............................................... 33
Conditions; Waiver................................................................................ 33
Voting Agreements................................................................................. 34
Hart-Scott-Rodino................................................................................. 34
No Solicitation................................................................................... 34
Termination....................................................................................... 35
Accounting Treatment.................................................................................. 35
Certain Federal Income Tax Consequences............................................................... 35
No Appraisal Rights................................................................................... 37
INTERESTS OF CERTAIN PERSONS IN EACH OF HBOC AND USS...................................................... 38
Security Ownership of Certain Beneficial Owners and Management of HBOC................................ 38
Security Ownership of Certain Beneficial Owners and Management of USS................................. 40
Interests of Certain USS Persons in Matters to be Acted Upon.......................................... 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF HBOC COMMON STOCK AND USS COMMON STOCK............... 44
Introduction.......................................................................................... 44
Authorized Capital Stock.............................................................................. 44
Board or Stockholder Approved Preferred Stock......................................................... 44
Terms of USS Preferred Stock.......................................................................... 44
Voting Rights......................................................................................... 45
Number of Directors................................................................................... 45
Election of Board of Directors........................................................................ 45
Vote on Merger, Consolidation or Sale of Substantially All Assets..................................... 45
Special Meetings of Stockholders...................................................................... 46
Stockholder Action by Written Consent................................................................. 46
Amendment of Certificate of Incorporation............................................................. 46
Amendment of Bylaws................................................................................... 47
Liability and Indemnification of Officers and Directors............................................... 47
Payment of Dividends.................................................................................. 47
Anti-Takeover Protection.............................................................................. 47
Appraisal Rights...................................................................................... 48
BUSINESS OF HBOC.......................................................................................... 48
General............................................................................................... 48
Recent Developments................................................................................... 49
BUSINESS OF USS........................................................................................... 49
STOCKHOLDER PROPOSALS..................................................................................... 49
OTHER MATTERS............................................................................................. 49
CERTAIN LEGAL MATTERS..................................................................................... 49
EXPERTS................................................................................................... 49
APPENDIX A--Agreement of Merger dated July 20, 1998....................................................... A-1
APPENDIX B--Opinion of Volpe Brown Whelan & Company, LLC.................................................. B-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION AND SOURCES OF INFORMATION
Each of HBOC and USS is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by each of HBOC and USS with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also may be
obtained by mail from the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additionally, the Commission maintains a Web site on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and that is located at
http://www.sec.gov.
HBOC has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act, which includes the proxy statement of USS with respect to the
Merger and the prospectus of HBOC with respect to the shares of HBOC Common
Stock issuable in the Merger. This Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement, certain portions of
which are omitted in accordance with the rules and regulations of the Commission
and to which reference is hereby made. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, reference is made to the
exhibit or other filing for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. Copies of the Registration Statement together with exhibits may be
inspected at the office of the Commission in Washington, D.C., as indicated
above, without charge and copies thereof may be obtained therefrom upon payment
of a prescribed fee.
All information contained in this Proxy Statement/Prospectus regarding USS
has been supplied by USS, information regarding the Merger proposal has been
supplied by USS and/or HBOC and all other information has been supplied by HBOC.
References to USS and HBOC in this Proxy Statement/ Prospectus mean the
respective corporations and their respective consolidated subsidiaries except as
the context may otherwise indicate.
No persons have been authorized to give any information or to make any
representation, other than those contained in this Proxy Statement/Prospectus,
in connection with the solicitation of proxies or the offering of shares of HBOC
Common Stock made hereby and, if given or made, such information or
representation must not be relied upon as having been authorized by HBOC, USS or
any other person. This Proxy Statement/Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, any securities or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/ Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of HBOC or USS since the date
hereof or that the information herein is correct as of any time subsequent to
the date hereof.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the following documents filed by HBOC with the Commission
(File No. 0-9900) pursuant to the Exchange Act is incorporated by reference in
this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
filed with the Commission on March 12, 1998;
2. Quarterly Reports on Form 10-Q for the quarters ended: (i) March 31,
1998, dated and filed with the Commission on May 11, 1998; and (ii) June 30,
1998, dated and filed with the Commission on August 3, 1998;
1
<PAGE>
3. Current Reports on Form 8-K: (i) dated and filed with the Commission on
February 10, 1998; (ii) dated and filed with the Commission on February 12,
1998; (iii) dated and filed with the Commission on May 19, 1998; and (iv) dated
and filed with the Commission on July 27, 1998;
4. Proxy Statement dated as of April 3, 1998 and filed in definitive form on
April 2, 1998 with the Commission with respect to the information required to be
included herein by Items 401 (management), 402 (executive compensation) and 404
(certain relationships and related transactions) of Regulation S-K promulgated
under the Securities Act and the Exchange Act; and
5. The description of Common Stock and Preferred Share Purchase Rights
contained in HBOC's Registration Statements on Form 8-A, filed with the
Commission on August 19, 1981, as amended, and February 19, 1991, as amended,
respectively.
All documents filed by HBOC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Proxy Statement/Prospectus and prior
to the date of the Meeting, shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a previously filed
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or was deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
The information in the following documents filed by USS with the Commission
(File No. 0-15352) pursuant to the Exchange Act, copies of which are being
delivered herewith, is incorporated by reference in this Proxy
Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1998,
filed with the Commission on June 29, 1998;
2. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed
with the Commission on August 11, 1998; and
3. Current Report on Form 8-K dated July 20, 1998 and filed with the
Commission on July 24, 1998.
The information relating to HBOC and USS contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO HBO &
COMPANY, 301 PERIMETER CENTER NORTH, ATLANTA, GEORGIA 30346, ATTENTION: MONIKA
BROWN, TELEPHONE: (800) 426-2411. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS PRIOR TO THE MEETING, ANY SUCH REQUESTS SHOULD BE MADE BY SEPTEMBER
22, 1998.
------------------------
FORWARD-LOOKING STATEMENTS. This Proxy Statement/Prospectus and the HBOC
documents incorporated by reference herein may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements relate to expectations concerning matters that are not
historical facts. Although HBOC believes that the expectations reflected in such
forward-looking statements are reasonable, HBOC can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from such expectations ("Cautionary
Statements") are disclosed herein and therein, including, without limitation, in
conjunction with the forward-looking statements included under "Risk Factors."
All forward-looking statements attributable to HBOC are expressly qualified in
their entirety by the Cautionary Statements described herein and in HBOC's
reports filed with the Commission, including the Annual Report on Form 10-K for
the year ended December 31, 1997 and the quarterly reports on Form 10-Q for the
quarters ended March 31, 1998 and June 30, 1998.
2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING NOTES THERETO, INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS. ALL SHARE AND PER SHARE DATA REGARDING HBOC COMMON STOCK
IN THIS PROXY STATEMENT/PROSPECTUS HAVE BEEN ADJUSTED TO GIVE EFFECT TO A
TWO-FOR-ONE STOCK SPLIT OF THE HBOC COMMON STOCK EFFECTED IN THE FORM OF A STOCK
DIVIDEND PAID JUNE 9, 1998 TO STOCKHOLDERS OF RECORD ON MAY 27, 1998.
THE PARTIES
HBO & COMPANY
GENERAL. HBOC provides integrated patient care, clinical, financial,
managed care and strategic management software solutions for the healthcare
industry. These open systems applications facilitate the integration of
clinical, financial and administrative data from a wide range of customer
systems and software. HBOC's broad product portfolio can be implemented in a
variety of combinations from stand-alone to enterprisewide, enabling healthcare
organizations to add incremental capabilities to their existing information
systems without making prior capital investments obsolete. HBOC also provides a
full complement of network communications technologies, including wireless
capabilities, as well as outsourcing services that are offered under contract
management agreements whereby its staff manages and operates data centers,
information systems, medical call centers, organizations and business offices of
healthcare institutions of various sizes and structures. In addition, HBOC
offers a wide range of electronic commerce services, including electronic
medical claims and remittance advice services as well as statement processing.
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers, pharmacies,
reference laboratories, managed care providers and payors. HBOC also sells its
products and services internationally through subsidiaries and/or distribution
agreements in the United Kingdom, Canada, Ireland, Saudi Arabia, Kuwait,
Australia, Puerto Rico and New Zealand.
The address and telephone number of the principal executive offices of HBOC
are 301 Perimeter Center North, Atlanta, Georgia 30346, (770) 393-6000.
RECENT DEVELOPMENTS. HBOC has entered into an Agreement of Merger dated
July 23, 1998 among HBOC, HBOC-GA and IMNET Systems, Inc. ("IMNET") which
provides electronic information and document management solutions for the
healthcare industry. Such agreement is subject, among other things, to
regulatory and IMNET stockholder approval.
US SERVIS, INC.
USS is a management services company that provides outsourced billing,
accounts receivable and other business and information management services to
physicians and physician networks, hospital business offices, and ambulatory
care centers. USS's principal focus is providing billing and accounts receivable
management services.
The address and telephone number of the principal executive offices of USS
are 202 Davidson Avenue, 2nd Floor, Somerset, New Jersey 08873, (732) 764-9898.
THE MEETING
The Meeting will be held on September 29, 1998 at 9:00 a.m., local time, at
220 Davidson Avenue, 2nd Floor, Somerset, New Jersey 08873. The purpose of the
Meeting is to consider and take action upon a proposal to approve the Merger
Agreement. The USS Board has fixed the close of business on August 18,
3
<PAGE>
1998, as the Record Date for the determination of stockholders entitled to vote
at the Meeting. The presence at the Meeting, in person or by proxy, of the
holders of a majority of the shares of USS Common Stock, Series A Preferred
Stock, on an as converted basis, and Series B Preferred Stock, on an as
converted basis, issued and outstanding on such date is necessary to constitute
a quorum at the Meeting. The proposed Merger Agreement requires the affirmative
vote of the holders of a majority of the issued and outstanding shares of USS
Common Stock, Series A Preferred Stock and Series B Preferred Stock, on an as
converted basis, voting as a class in order to be approved. Pursuant to certain
voting agreements entered into at the same time as the Merger Agreement, HBOC
holds proxies to vote approximately 41.2% of the outstanding USS Stock in favor
of the Merger Agreement. See "The Merger Proposal--Terms of the Merger--Voting
Agreements" and "The Meeting."
THE MERGER PROPOSAL
RECOMMENDATION OF THE USS BOARD; OPINION OF FINANCIAL ADVISOR TO USS
The USS Board has unanimously approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, USS and its
stockholders. Accordingly, the USS Board unanimously recommends that USS'
stockholders vote FOR approval of the Merger Agreement. In approving the Merger
Agreement, the USS Board considered various factors described under the caption
"The Merger Proposal--Reasons of USS for Engaging in the Merger; Recommendation
of the USS Board." In addition, the USS Board has received an opinion of Volpe
Brown Whelan & Company, LLC ("VBW&Co.") regarding the fairness, from a financial
point of view, of the Per Share Consideration (defined as $50 million divided by
the Fully Diluted Shares) to the holders of USS Stock. The full text of the
opinion of VBW&Co., which is attached hereto as Appendix B and should be read
carefully in its entirety, is directed to the USS Board, addresses only the
fairness of the Per Share Consideration from a financial point of view and does
not constitute a recommendation to any stockholder as to how such stockholder
should vote at the Meeting. See "The Merger Proposal--Opinion of Financial
Advisor to USS."
TERMS OF THE MERGER
The following is a summary of certain of the terms and conditions of the
Merger Agreement, a copy of which is attached hereto as Appendix A.
EFFECTIVE TIME. The Merger will become effective when both (i) the Merger
Agreement is adopted and approved by the stockholders of USS in accordance with
the applicable provisions of the DGCL and (ii) a certificate of merger (the
"Certificate of Merger") is filed with the Secretary of State of Delaware (the
time the Merger becomes effective being referred to as the "Effective Time" and
the date on which the Effective Time occurs being referred to as the "Closing
Date").
CONVERSION OF SHARES. Each share of USS Stock issued and outstanding
immediately prior to the Effective Time will, at the Effective Time, be
converted into the right to receive a fraction of a share of HBOC Common Stock
determined by dividing the sum of $50 million by the product of the Market Value
of the HBOC Common Stock and the Fully Diluted Shares (the "Exchange Ratio");
provided however, that if the Market Value of the HBOC Common Stock is less than
$23.50, the USS Board or the HBOC Board each have the right (but not the
obligation) to terminate the Merger Agreement. The shares of HBOC Common Stock
and any cash in lieu of fractions thereof receivable by holders of USS Common
Stock are hereinafter referred to as the "Merger Consideration."
FRACTIONAL SHARES. No certificates or scrip representing fractional shares
of HBOC Common Stock shall be issued pursuant to the Merger, but in lieu
thereof, any holder of USS Stock shall be entitled to receive a cash payment
therefor, without interest, at a pro rata amount based on the Market Value.
4
<PAGE>
STOCK PLANS AND WARRANTS. Options to purchase shares of USS Common Stock
outstanding at the Effective Time of the Merger will be assumed by HBOC, and the
optionee will have the right to purchase that number of shares (rounded down to
the nearest whole share) of HBOC Common Stock into which the number of shares of
USS Common Stock the optionee was entitled to purchase under the existing option
would have been converted pursuant to the terms of the Merger. Warrants to
purchase shares of USS Common Stock outstanding at the Effective Time of the
Merger will be assumed by HBOC and shall thereafter represent the right to
acquire the number of shares of HBOC Common Stock into which the number of
shares of USS Common Stock subject to such warrants would have been converted in
the Merger. See "The Merger Proposal--Terms of the Merger--Stock Plans and
Warrants."
EXCHANGE OF CERTIFICATES. Promptly after the Effective Time, SunTrust Bank,
Atlanta (the "Exchange Agent") will mail to each record holder (as of the
Effective Time) of an outstanding certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of USS Stock (the
"Certificates") a letter of transmittal and instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consideration
payable in respect of the shares of USS Stock represented thereby. Until
surrendered, each Certificate shall represent, for all purposes, only the right
to receive the Merger Consideration, without any interest on the value thereof.
See "The Merger Proposal--Terms of the Merger--Exchange of Certificates."
LIMITATIONS ON TRANSFERABILITY OF HBOC COMMON STOCK. Shares of HBOC Common
Stock received by certain persons deemed to be "affiliates" of USS for purposes
of Rule 145 under the Securities Act will be subject to the restrictions imposed
by such rule. In accordance with Rule 145, an affiliate of USS receiving HBOC
Common Stock issued in the Merger may not sell such shares except pursuant to
the volume and manner of sale limitations and other requirements specified
therein or pursuant to an effective registration statement under the Securities
Act. In addition, USS affiliates are subject to certain restrictions on transfer
of both USS Common Stock and HBOC Common Stock prior to and following the
Effective Time of the Merger to support pooling of interests accounting
treatment of the transaction. See "The Merger Proposal--Terms of the
Merger--Limitations on Transferability of HBOC Common Stock."
CONDITIONS; WAIVER. The obligations of HBOC and HBOC-GA, on the one hand,
and of USS, on the other hand, to consummate the Merger are contingent upon and
subject to the satisfaction or waiver of certain conditions, including the
approval of the Merger Agreement by holders of the requisite number of shares of
USS Stock. See "The Merger Proposal--Terms of the Merger--Conditions; Waiver."
VOTING AGREEMENTS. Holders of all of the Series A Preferred Stock and
substantially all of the Series B Preferred Stock (the "Consenting Holders")
entered into certain voting agreements (the "Voting Agreements")
contemporaneously with the execution of the Merger Agreement. Pursuant to the
Voting Agreements, HBOC was granted proxies to vote the shares of the USS
Preferred Stock of the Consenting Holders in favor of the Merger Agreement and
any related matters. The Voting Agreements also clarified the right of the
holders of the USS Preferred Stock to receive shares of HBOC Common Stock in the
Merger and to receive accrued dividends at the Effective Time. In addition, Mr.
S. M. Caravetta, a principal stockholder of USS, entered into an agreement with
HBOC pursuant to which HBOC was granted a proxy to vote 750,000 shares of USS
Common Stock owned by Mr. Caravetta in favor of the Merger Agreement.
Accordingly, HBOC holds proxies with respect to approximately 41.2% of the
outstanding USS Stock to vote in favor of the Merger Agreement.
HART-SCOTT-RODINO. The Merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), which provides that certain transactions (including the Merger) may not
be consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC") and certain waiting period requirements have been
satisfied. HBOC and USS filed the required information with the Antitrust
Division and the FTC on July 27, 1998. USS and HBOC received
5
<PAGE>
notification of early termination of the waiting period on August 10, 1998. See
"The Merger Proposal-- Terms of the Merger--Hart-Scott-Rodino."
NO SOLICITATION. USS has agreed, subject to certain exceptions, that prior
to the Effective Time of the Merger or earlier termination of the Merger
Agreement, USS shall not, and shall not permit any of its subsidiaries or their
respective representatives to solicit, initiate, encourage, endorse or enter
into any agreement with respect to, or take any other action to facilitate, any
inquiries or the making of any proposal or offer for any tender or exchange
offer, proposal for a merger, share exchange or other business combination or
similar transactions involving USS or any of its subsidiaries. See "The Merger
Proposal-- Terms of the Merger--No Solicitation."
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time of the Merger by, among other things: (i) mutual written
consent of the HBOC Board and the USS Board, notwithstanding the prior approval
by the USS stockholders; (ii) the HBOC Board, in the event of material
condemnation, destruction, loss or damage to the business or assets of USS and
its subsidiaries, taken as a whole; (iii) the Board of Directors of HBOC-GA (the
"HBOC-GA Board") or the USS Board, after November 15, 1998, if any of the
conditions to such party's obligation to consummate the Merger has not been
fulfilled or waived, unless fulfillment has been frustrated or made impossible
by the party seeking termination; (iv) the USS Board, if, in the good faith
exercise of its fiduciary duties to the stockholders of USS in the context of a
proposal to acquire USS by another party, the USS Board decides that such
termination is required; and (v) the USS Board or the HBOC Board if the Market
Value of HBOC Common Stock is less than $23.50.
If the Merger Agreement is terminated by USS in accordance with (iv) above
or by any of the parties because it was not approved by the requisite number of
shares of USS Stock, USS will be obligated to pay to HBOC-GA a fee in the amount
of $2,000,000, plus all reasonable costs and expenses of HBOC and HBOC-GA
incurred in connection with the negotiation and performance of the Merger
Agreement not to exceed $500,000.
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that HBOC shall have
received letters, dated as of the date hereof and as of the Closing Date, from
Wiss & Company, LLP, in its capacity as independent public accountants for USS,
setting forth its concurrence with the conclusion of USS's management that no
conditions exist prior to the Merger with respect to USS that would preclude
accounting for the Merger as a pooling of interests under Accounting Principles
Board Opinion No. 16, and from Arthur Andersen LLP, in its capacity as
independent public accountants for HBOC, to the effect that HBOC satisfies the
tests applicable to it such that the Merger can be accounted for as a pooling of
interests under Accounting Principles Board Opinion No. 16 and assuming that the
Merger is closed and consummated in accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
USS has received an opinion of its counsel, subject to the assumptions
contained therein, to the effect that the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Internal Revenue Code (the
"Code"). Accordingly, no gain or loss will be recognized by a USS stockholder
upon the exchange of shares of USS Stock for shares of HBOC Common Stock
pursuant to the Merger, except on the receipt of cash in lieu of a fractional
share interest in HBOC Common Stock. See "The Merger Proposal--Certain Federal
Income Tax Consequences."
NO APPRAISAL RIGHTS
Because USS Common Stock is a Nasdaq NM security and holders of USS
Preferred Stock will receive HBOC Common Stock, which is also a Nasdaq NM
security, upon consummation of the Merger,
6
<PAGE>
the holders of shares of USS Stock will not be entitled to appraisal rights
pursuant to Section 262 of the DGCL in connection with the Merger. See "The
Merger Proposal--No Appraisal Rights."
INTERESTS OF CERTAIN PERSONS
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF USS AND HBOC. As
of the Record Date, directors and executive officers of USS and their affiliates
were beneficial owners of 3,797,849 outstanding shares of USS Stock,
representing approximately 42.9% of the total issued and outstanding USS Stock.
Directors and executive officers of HBOC and their affiliates beneficially owned
approximately 5,351,642, or 1.2%, of the outstanding shares (giving effect to
the exercise of their presently exercisable stock options) of HBOC Common Stock
as of July 31, 1998. See "Interests of Certain Persons in Each of HBOC and USS."
INTERESTS OF CERTAIN USS PERSONS IN MATTERS TO BE ACTED UPON. Certain
officers and the directors of USS have interests in the Merger that differ from
those of USS stockholders generally. Such interests include severance payments,
vesting of unvested and unexercisable stock options and continuing
indemnification against certain liabilities. As a result, such officers and
directors could be more likely to favor consummation of the Merger than USS
stockholders generally. See "Interests of Certain Persons in Each of HBOC and
USS--Interests of Certain USS Persons in Matters to be Acted Upon."
COMPARISON OF STOCKHOLDER RIGHTS
HBOC and USS are each incorporated under Delaware law. For a summary of
material differences between the rights of holders of shares of each of USS
Stock and HBOC Common Stock, see "Comparison of Rights of Holders of Shares of
Each of HBOC Common Stock and USS Stock."
CERTAIN MARKET INFORMATION
HBOC Common Stock and USS Common Stock are traded on the Nasdaq NM under the
symbols "HBOC" and "USRV," respectively. The closing sale prices per share of
HBOC Common Stock and USS Common Stock on July 17, 1998, the last trading day
preceding the announcement of the proposed Merger, were $32.875 and $2.125,
respectively. See "Certain Market Information."
RISK FACTORS
The stockholders of USS should carefully review the matters set forth under
"Risk Factors."
7
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical financial data for each of HBOC and USS
should be read in conjunction with the financial statements and notes thereto of
HBOC and USS, incorporated by reference in this Proxy Statement/Prospectus.
HBO & COMPANY(1)
(FROM CONTINUING OPERATIONS)
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994(2) 1995(3) 1996(4) 1997(5) 1997(5) 1998(6)
---------- ---------- ---------- ------------ ------------ ------------ ------------
INCOME STATEMENT DATA:
Revenue...................... $ 409,354 $ 525,490 $ 715,902 $ 950,911 $ 1,203,204 $ 554,786 $ 719,539
Net Income (Loss)............ $ 19,893 $ 34,500 $ (7,895) $ 82,333 $ 143,537 $ 64,488 $ 140,474
Diluted Earnings (Loss) Per
Share...................... $ .06 $ .09 $ (.02) $ .20 $ .33 $ .15 $ .32
Weighted Average Shares
Outstanding (Diluted)...... 349,371 364,547 370,060 421,768 428,925 426,574 438,873
Cash Dividends Per Share..... $ .02 $ .02 $ .02 $ .02 $ .03 $ .01 $ .03
BALANCE SHEET DATA:
Working Capital.............. $ 89,723 $ 53,330 $ 156,488 $ 295,240 $ 519,140 $ 402,667 $ 726,148
Total Assets................. $ 296,781 $ 425,093 $ 771,550 $ 1,012,749 $ 1,312,586 $ 1,097,286 $ 1,424,124
Long-Term Debt............... $ 6,700 $ 15,067 $ 4,054 $ 769 $ 1,022 $ 448 $ 781
Stockholders' Equity......... $ 176,242 $ 215,848 $ 500,787 $ 650,646 $ 900,582 $ 765,043 $ 1,102,635
</TABLE>
- ------------------------
(1) All share and per share amounts have been restated to reflect the 1998
two-for-one stock split effected in the form of a stock dividend.
(2) 1994 Income Statement related items include nonrecurring charges of $6,927.
Net income was $38,650 and diluted earnings per share was $.11 excluding
nonrecurring charges.
(3) 1995 Income Statement related items include nonrecurring charges of $130,270
and exclude the dilutive effect of stock options. Net income was $70,321 and
diluted earnings per share was $.18 excluding nonrecurring charges and
including the dilutive effect of stock options.
(4) 1996 Income Statement related items include nonrecurring charges of $70,203.
Net income was $124,456 and diluted earnings per share was $.30 excluding
nonrecurring charges.
(5) Year ended December 31, 1997 Income Statement related items include
nonrecurring charges of $95,250. Net income was $200,664 and diluted
earnings per share was $.47 excluding nonrecurring charges. Six months ended
June 30, 1997 Income Statement related items include nonrecurring charges of
$35,420. Net income was $85,810 and diluted earnings per share was $.20
excluding nonrecurring charges.
(6) Six months ended June 30, 1998 Income Statement related items include a
nonrecurring credit of $3,000. Net income was $138,674 and diluted earnings
per share was $.32 excluding the nonrecurring credit.
8
<PAGE>
US SERVIS, INC.
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995(1) 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Revenue............................ $ 21,262 $ 15,953 $ 16,245 $ 22,009 $ 27,607 $ 6,123 $ 6,337
Net Income (Loss).................. $ (1,192) $ (8,052) $ (3,906) $ (3,039) $ 728 $ (1,207) $ 539
Diluted Earnings (Loss) Per
Share............................ $ (.21) $ (1.34) $ (.66) $ (.59) $ (.03) $ (.22) $ .04
Weighted Average Shares Outstanding
(Diluted)........................ 5,813 6,023 6,282 6,308 6,351 6,351 7,243
Cash Dividends Per Share........... $ -- $ -- $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Working Capital.................... $ 11,358 $ 7,151 $ 9,447 $ 9,512 $ 10,505 $ 8,430 $ 10,441
Total Assets....................... $ 21,878 $ 16,906 $ 19,053 $ 20,739 $ 19,864 $ 19,731 $ 20,044
Long-Term Liabilities.............. $ 976 $ 1,770 $ 1,172 $ 369 $ 196 $ 369 $ 165
Redeemable Preferred Stock......... $ -- $ -- $ 6,110 $ -- $ -- $ -- $ --
</TABLE>
- ------------------------
(1) 1995 Income Statement items include a $6.8 million restructuring charge. Net
loss was $(3,349) and net loss per share of common stock was $(.56)
excluding the restructuring charge.
9
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma combined condensed financial statements give effect
to the acquisition of USS by HBOC in the Merger, accounted for as a pooling of
interests. The pro forma combined condensed financial statements are presented
for information purposes only and are not necessarily indicative of the
financial position or results of operations which would have occurred had the
transaction been consummated on the dates indicated, nor are they necessarily
indicative of future results or financial position of HBOC. The pro forma
combined condensed financial statements should be read in conjunction with the
historical consolidated financial statements of HBOC and USS incorporated by
reference in this Proxy Statement/Prospectus.
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT JUNE 30, 1998
(000 OMITTED)
<TABLE>
<CAPTION>
HBOC/USS
PRO FORMA PRO FORMA
HBOC USS ADJUSTMENTS COMBINED
------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................ $ 491,631 $ 4,365 $ 495,996
Short-Term Investments................................... 5,223 -- 5,223
Receivables, Net......................................... 488,801 8,930 497,731
Current Deferred Income Taxes............................ 21,799 -- 21,799
Inventories.............................................. 9,746 -- 9,746
Prepaids and Other Current Assets........................ 21,994 653 22,647
------------ --------- ------------ ------------
Total Current Assets................................. 1,039,194 13,948 -- 1,053,142
Capitalized Software, Net.................................. 77,619 -- 77,619
Property and Equipment, Net................................ 108,678 1,867 110,545
Intangibles, Net........................................... 161,748 3,314 165,062
Deferred Income Taxes...................................... 31,554 -- 31,554
Other Noncurrent Assets, Net............................... 5,331 915 6,246
------------ --------- ------------ ------------
TOTAL ASSETS................................................. $ 1,424,124 $ 20,044 -- $ 1,444,168
------------ --------- ------------ ------------
------------ --------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities........................................ $ 313,046 $ 3,507 $ 316,553
Long-Term Debt............................................. 781 -- 781
Other Long-Term Liabilities................................ 7,662 165 7,827
Stockholders' Equity....................................... 1,102,635 16,372 1,119,007
------------ --------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $ 1,424,124 $ 20,044 -- $ 1,444,168
------------ --------- ------------ ------------
------------ --------- ------------ ------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
10
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/USS
PRO FORMA PRO FORMA
HBOC USS ADJUSTMENTS COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue......................................................... $ 719,539 $ 13,828 $ (147)(1) $ 733,220
Operating Expense:
Cost of Operations.......................................... 302,848 9,590 312,438
Marketing................................................... 99,385 -- 328(2) 99,713
Research and Development.................................... 45,967 644 46,611
General and Administrative.................................. 49,327 2,167 (328)(2) 51,166
Nonrecurring Credit......................................... (3,000) (522) (3,522)
---------- --------- ----------- -----------
Total Operating Expense................................. 494,527 11,879 -- 506,406
---------- --------- ----------- -----------
Operating Income................................................ 225,012 1,949 (147) 226,814
Other Income (Expense) Net...................................... 9,111 (32) 147(1) 9,226
---------- --------- ----------- -----------
Income Before Income Taxes...................................... 234,123 1,917 -- 236,040
Income Taxes.................................................... 93,649 65 93,714
---------- --------- ----------- -----------
Net Income...................................................... 140,474 1,852 -- 142,326
Preferred Stock Dividends....................................... -- 464 464
---------- --------- ----------- -----------
Net Income Applicable to Common Share Owners.................... $ 140,474 $ 1,388 $ -- $ 141,862
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Diluted Earnings Per Share...................................... $ .32 $ .19 $ .32
---------- --------- -----------
---------- --------- -----------
Weighted Average Shares Outstanding (Diluted)................... 438,873 7,218 (6,175)(3) 439,916
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Excluding Nonrecurring Credit (5):
Net Income Applicable to Common Share Owners................ $ 138,674 $ 866 $ 139,540
---------- --------- -----------
---------- --------- -----------
Diluted Earnings Per Share.................................. $ .32 $ .12 $ .32
---------- --------- -----------
---------- --------- -----------
Weighted Average Shares Outstanding (Diluted)............... 438,873 7,218 (6,175)(3) 439,916
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
11
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/USS
PRO FORMA PRO FORMA
HBOC USS(4) ADJUSTMENTS COMBINED
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue...................................................... $ 1,203,204 $ 27,607 $ (253)(1) $ 1,230,558
Operating Expense:
Cost of Operations....................................... 511,082 18,958 530,040
Marketing................................................ 176,194 -- 908(2) 177,102
Research and Development................................. 89,059 1,478 90,537
General and Administrative............................... 108,811 5,885 (908)(2) 113,788
Nonrecurring Charge...................................... 95,250 394 95,644
------------ --------- ----------- ------------
Total Operating Expense.............................. 980,396 26,715 -- 1,007,111
------------ --------- ----------- ------------
Operating Income............................................. 222,808 892 (253) 223,447
Other Income (Expense), Net.................................. 16,382 (99) 253(1) 16,536
------------ --------- ----------- ------------
Income Before Income Taxes................................... 239,190 793 -- 239,983
Income Taxes................................................. 95,653 65 95,718
------------ --------- ----------- ------------
Net Income................................................... 143,537 728 -- 144,265
Preferred Stock Dividends.................................... -- 898 898
------------ --------- ----------- ------------
Net Income (Loss) Applicable to Common Share Owners.......... $ 143,537 $ (170) $ -- $ 143,367
------------ --------- ----------- ------------
------------ --------- ----------- ------------
Diluted Earnings (Loss) Per Share............................ $ .33 $ (.03) $ .33
------------ --------- ------------
------------ --------- ------------
Weighted Average Shares Outstanding (Diluted)................ 428,925 6,351 (5,300)(3) 429,976
------------ --------- ----------- ------------
------------ --------- ----------- ------------
Excluding Nonrecurring Charge (5):
Net Income Applicable to Common Share Owners............. $ 200,664 $ 224 $ 200,888
------------ --------- ------------
------------ --------- ------------
Diluted Earnings Per Share............................... $ .47 $ .03 $ .47
------------ --------- ------------
------------ --------- ------------
Weighted Average Shares Outstanding (Diluted)............ 428,925 7,273 (6,222)(3) 429,976
------------ --------- ----------- ------------
------------ --------- ----------- ------------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
12
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/USS
PRO FORMA PRO FORMA
HBOC USS(4) ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue........................................................ $ 950,911 $ 22,009 $ (369)(1) $ 972,551
Operating Expense:
Cost of Operations......................................... 413,471 15,328 428,799
Marketing.................................................. 146,207 -- 1,653(2) 147,860
Research and Development................................... 83,984 1,872 85,856
General and Administrative................................. 107,810 7,246 (1,653)(2) 113,403
Nonrecurring Charge........................................ 70,203 436 70,639
---------- ---------- ----------- -----------
Total Operating Expense................................ 821,675 24,882 -- 846,557
---------- ---------- ----------- -----------
Operating Income (Loss)........................................ 129,236 (2,873) (369) 125,994
Other Income (Expense), Net.................................... 7,222 (166) 369(1) 7,425
---------- ---------- ----------- -----------
Income (Loss) Before Income Taxes.............................. 136,458 (3,039) -- 133,419
Income Taxes................................................... 54,125 -- 54,125
---------- ---------- ----------- -----------
Net Income (Loss).............................................. 82,333 (3,039) -- 79,294
Preferred Stock Dividends...................................... -- 675 675
---------- ---------- ----------- -----------
Net Income (Loss) Applicable to Common Share Owners............ $ 82,333 $ (3,714) $ -- $ 78,619
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Diluted Earnings (Loss) Per Share.............................. $ .20 $ (.59) $ .19
---------- ---------- -----------
---------- ---------- -----------
Weighted Average Shares Outstanding (Diluted).................. 421,768 6,308 (5,310)(3) 422,766
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Excluding Nonrecurring Charge (5):
Net Income (Loss) Applicable to Common Share Owners........ $ 124,456 $ (3,278) $ 121,178
---------- ---------- -----------
---------- ---------- -----------
Diluted Earnings (Loss) Per Share.......................... $ .30 $ (.52) $ .29
---------- ---------- -----------
---------- ---------- -----------
Weighted Average Shares Outstanding (Diluted).............. 421,768 6,308 (5,310)(3) 422,766
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
13
<PAGE>
HBO & COMPANY AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
HBOC/USS
PRO FORMA PRO FORMA
HBOC USS(4) ADJUSTMENTS COMBINED
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue.......................................................... $ 715,902 $ 16,245 $ (205)(1) $ 731,942
Operating Expense:
Cost of Operations........................................... 329,684 11,282 340,966
Marketing.................................................... 114,994 -- 1,633(2) 116,627
Research and Development..................................... 68,293 2,466 70,759
General and Administrative................................... 89,213 8,159 (1,633)(2) 95,739
Nonrecurring Charge (Credit)................................. 130,270 (590) 129,680
---------- --------- ------ -----------
Total Operating Expense.................................. 732,454 21,317 -- 753,771
---------- --------- ------ -----------
Operating Loss................................................... (16,552) (5,072) (205) (21,829)
Other Income (Expense), Net...................................... 605 (114) 205(1) 696
---------- --------- ------ -----------
Loss Before Income Taxes......................................... (15,947) (5,186) -- (21,133)
Income Tax Benefit............................................... (8,052) (1,280) (9,332)
---------- --------- ------ -----------
Net Loss......................................................... (7,895) (3,906) -- (11,801)
Preferred Stock Dividends........................................ -- 228 228
---------- --------- ------ -----------
Net Loss Applicable to Common Share Owners....................... $ (7,895) $ (4,134) $ -- $ (12,029)
---------- --------- ------ -----------
---------- --------- ------ -----------
Loss Per Share................................................... $ (.02) $ (.66) $ (.03)
---------- --------- -----------
---------- --------- -----------
Weighted Average Shares Outstanding.............................. 370,060 6,282 (5,375)(3) 370,967
---------- --------- ------ -----------
---------- --------- ------ -----------
Excluding Nonrecurring Charge (5):
Net Income (Loss) Applicable to Common Share Owners.......... $ 70,321 $ (4,724) $ 65,597
---------- --------- -----------
---------- --------- -----------
Diluted Earnings (Loss) Per Share............................ $ .18 $ (.75) $ .17
---------- --------- -----------
---------- --------- -----------
Weighted Average Shares Outstanding (Diluted)................ 391,121 6,282 (5,285)(3) 392,118
---------- --------- ------ -----------
---------- --------- ------ -----------
</TABLE>
The accompanying Notes to Pro Forma Combined Condensed Financial Statements
are an integral part of these financial statements.
14
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Reclassification of USS interest income to conform to HBOC presentation.
(2) Reclassification of USS marketing expense from general and administrative
expenses to conform to HBOC presentation.
(3) Shares of USS Common Stock were converted using an assumed Exchange Ratio of
.14444. Exchange Ratios of .18439 and .11871 have an immaterial effect on
diluted earnings per share. See "Comparative Per Share Data" presented
elsewhere in this Proxy Statement/Prospectus. For the December 31, 1997 and
1996 Pro Forma Combined Income Statements, USS weighted average shares are
adjusted to include the dilutive effect of stock options due to the net
income for HBOC/USS Pro Forma Combined. For the 1995 Pro Forma Combined
Income Statement (excluding nonrecurring charge), USS weighted average
shares are adjusted to include the dilutive effect of stock options due to
net income for HBOC/USS Pro Forma Combined.
(4) The fiscal year of USS ends on March 31. HBOC Pro Forma Combined Condensed
Income Statements for the years ended December 31, 1995, 1996 and 1997 have
been completed using the USS income statements for the fiscal years ended
March 31, 1996, 1997, and 1998, respectively. HBOC believes that the
differences in such periods in all cases mentioned has an immaterial impact
on the pro forma statements.
(5) Presentation is also made of Net Income (Loss) Applicable to Common Share
Owners, Diluted Earnings (Loss) Per Share and Weighted Average Shares
Outstanding (Diluted) excluding the effect of nonrecurring charges and
credits because HBOC management believes that this is a better indication of
actual operating results.
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain per share data for HBOC and USS on a
historical basis, certain historical equivalent per share data for USS and
certain pro forma per share data for HBOC and USS on a combined basis, giving
effect to the Merger using the pooling of interests method of accounting. All
share and per share amounts have been restated to reflect the HBOC 1998
two-for-one stock split effected in the form of a stock dividend. The unaudited
pro forma combined per share data provided below is not necessarily indicative
of the results of operations or the financial position which would have occurred
had the Merger been consummated on the indicated dates or which may be attained
in the future. The pro forma combined per share data should be read in
conjunction with the historical consolidated financial statements of HBOC and
USS incorporated by reference in this Proxy Statement/Prospectus.
HISTORICAL
HBO & COMPANY
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $1.28 $1.59 $2.13 $1.84 $2.56
Cash Dividends Declared......................................................... $ .02 $ .02 $ .03 $ .01 $ .03
Diluted Earnings (Loss)......................................................... $(.02)(1) $ .20(2) $ .33(3) $ .15(4) $ .32(5)
</TABLE>
- ------------------------
(1) Including the effect of the $130 million nonrecurring charge related to 1995
acquisitions and excluding the dilutive effect of stock options.
(2) Including the effect of the $70 million nonrecurring charge related to 1996
acquisitions.
(3) Including the effect of the $95 million nonrecurring charge related to 1997
acquisitions.
(4) Including the effect of the $35 million nonrecurring charge related to 1997
acquisitions.
(5) Including the effect of the $3 million nonrecurring credit related to 1997
acquisitions.
US SERVIS, INC.
<TABLE>
<CAPTION>
AT AND FOR
THE
AT AND FOR THE YEAR THREE MONTHS
ENDED ENDED
MARCH 31, JUNE 30,
------------------- ------------
1996 1997 1998 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value..................................................................................... $1.17 $ .67 $ .71 $ .49 $ .68
Cash Dividends Declared........................................................................ $-- $-- $-- $-- $--
Diluted Earnings (Loss)........................................................................ $(.66) $(.59) $(.03) $(.22) $ .04
</TABLE>
16
<PAGE>
US SERVIS, INC.
HISTORICAL EQUIVALENT DATA
Using an assumed Market Value per share of HBOC Common Stock
of $23.50 and an assumed Exchange Ratio of .18439
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED THREE MONTHS
MARCH 31, ENDED JUNE 30,
--------------------------- -----------------
1996 1997 1998 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $ 6.37 $ 3.64 $ 3.83 $ 2.67 $ 3.70
Cash Dividends Declared......................................................... $ -- $ -- $ -- $ -- $ --
Diluted Earnings (Loss) ........................................................ $ (3.57) $ (3.19) $ (.15) $ (1.22) $ .23
</TABLE>
Using an assumed Market Value per share of HBOC Common Stock
of $30.00 and an assumed Exchange Ratio of .14444
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED THREE MONTHS
MARCH 31, ENDED JUNE 30,
--------------------------- -----------------
1996 1997 1998 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $ 8.13 $ 4.64 $ 4.89 $ 3.41 $ 4.72
Cash Dividends Declared......................................................... $ -- $ -- $ -- $ -- $ --
Diluted Earnings (Loss)......................................................... $ (4.56) $ (4.08) $ (.19) $ (1.55) $ .29
</TABLE>
Using an assumed Market Value per share of HBOC Common Stock
of $36.50 and an assumed Exchange Ratio of .11871
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED THREE MONTHS
MARCH 31, ENDED JUNE 30,
--------------------------- -----------------
1996 1997 1998 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $ 9.89 $ 5.65 $ 5.95 $ 4.15 $ 5.75
Cash Dividends Declared......................................................... $ -- $ -- $ -- $ -- $ --
Diluted Earnings (Loss)......................................................... $ (5.54) $ (4.96) $ (.23) $ (1.89) $ .35
</TABLE>
17
<PAGE>
PRO FORMA COMBINED HBO & COMPANY AND US SERVIS, INC.
Using an assumed Market Value per share of HBOC Common Stock
of $23.50 and an assumed Exchange Ratio of .18439
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $1.30 $1.60 $2.13 $1.84 $2.56
Cash Dividends Declared......................................................... $ .02 $ .02 $ .03 $ .01 $ .03
Diluted Earnings (Loss)......................................................... $(.03)(1) $ .19(2) $ .33(3) $ .15(4) $ .32(5)
</TABLE>
Using an assumed Market Value per share of HBOC Common Stock
of $30.00 and an assumed Exchange Ratio of .14444
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $1.30 $1.60 $2.14 $1.84 $2.56
Cash Dividends Declared......................................................... $ .02 $ .02 $ .03 $ .01 $ .03
Diluted Earnings (Loss)......................................................... $(.03)(1) $ .19(2) $ .33(3) $ .15(4) $ .32(5)
</TABLE>
Using an assumed Market Value per share of HBOC Common Stock
of $36.50 and an assumed Exchange Ratio of .11871
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Data:
Book Value...................................................................... $1.30 $1.60 $2.14 $1.84 $2.57
Cash Dividends Declared......................................................... $ .02 $ .02 $ .03 $ .01 $ .03
Diluted Earnings (Loss)......................................................... $(.03)(1) $ .19(2) $ .33(3) $ .15(4) $ .32(5)
</TABLE>
- ------------------------
(1) Including the effect of HBOC's $130.3 million nonrecurring charge related to
1995 acquisitions, USS' $.6 million nonrecurring credit relating to
restructuring gains and excluding the dilutive effect of stock options.
(2) Including the effect of HBOC's $70.2 million nonrecurring charge related to
1996 acquisitions and USS' $.4 million nonrecurring loan impairment charge.
(3) Including the effect of HBOC's $95.3 million nonrecurring charge related to
1997 acquisitions and USS' $.4 million nonrecurring loan impairment charge.
(4) Including the effect of HBOC's $35.4 million nonrecurring charge related to
1997 acquisitions.
(5) Including the effect of HBOC's $3.0 million nonrecurring credit related to
1997 acquisitions and USS' $.5 million nonrecurring loan impairment credit.
18
<PAGE>
RISK FACTORS
RISKS OF FAILURE TO CONSUMMATE THE MERGER
As a result of USS entering into the Merger Agreement, IDX Systems
Corporation ("IDX"), a software systems provider to large physician networks and
a competitor of HBOC, has terminated its strategic alliance with USS. USS and
IDX had entered into the strategic alliance in December 1996 and, while USS
revenues have not been significantly impacted to date, the prospect of future
benefits from such alliance has been lost. Management believes that, in the
event the Merger is not consummated, a strategic alliance with a major software
systems provider will be critical to USS' future growth in its outsourcing
business for the physician network market. There can be no assurance that USS
can enter into another strategic alliance on satisfactory terms or at all.
Additionally, USS will incur approximately $1.3 million in extraordinary
expenses in connection with the Merger which will adversely impact its income if
USS continues as an independent company. In addition, due to the amount of time
required by USS' management in connection with the Merger, less time has been
focused on the USS' normal operations which may result adversely on USS'
operating results.
PER SHARE CONSIDERATION
Stockholders of USS should consider that they will receive a fraction of a
share of HBOC Common Stock determined by dividing $50 million by the product of
the Market Value of the HBOC Common Stock and the number of Fully Diluted Shares
for each share of USS Stock, regardless of the Market Value of the HBOC Common
Stock. In the event of any increase in the number of Fully Diluted Shares
outstanding at the Effective Time of the Merger, the fractional share of HBOC
Common Stock issuable in respect of each share of USS Stock will decrease. There
can be no assurance that the value of the fractional share of HBOC Common Stock
to be issued in respect of a share of USS Stock will equal or exceed the then
current market value of the USS Common Stock. See "Certain Market Information"
below for historical stock price information concerning HBOC Common Stock and
USS Common Stock and "The Merger Proposal--Terms of the Merger."
INTERESTS OF CERTAIN USS OFFICERS AND DIRECTORS IN THE MERGER
Certain officers and the directors of USS have interests in the Merger that
differ from those of USS stockholders generally. Such interests include
severance payments, vesting of unvested and unexercisable stock options and
continuing indemnification against certain liabilities. As a result, such
officers and directors could be more likely to favor consummation of the Merger
than USS stockholders generally. See "Interests of Certain Persons in Each of
HBOC and USS--Interests of Certain USS Persons in Matters to be Acted Upon."
19
<PAGE>
CERTAIN MARKET INFORMATION
HBOC
HBOC Common Stock is traded on the Nasdaq NM under the symbol "HBOC." The
table below presents the quarterly high and low closing sales prices and
dividend information for HBOC Common Stock as furnished by Nasdaq for the
periods indicated after restating for the 1998 two-for-one stock split effected
in the form of stock dividend.
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
YEAR ENDED DECEMBER 31: HIGH LOW PER SHARE
- --------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1996
First Quarter.................................................................. $ 12.74 $ 8.19 $ .005
Second Quarter................................................................. $ 17.69 $ 11.94 $ .005
Third Quarter.................................................................. $ 17.50 $ 12.63 $ .005
Fourth Quarter................................................................. $ 18.13 $ 12.50 $ .005
1997
First Quarter.................................................................. $ 18.07 $ 11.88 $ .005
Second Quarter................................................................. $ 18.03 $ 10.63 $ .005
Third Quarter.................................................................. $ 21.13 $ 17.13 $ .010
Fourth Quarter................................................................. $ 24.32 $ 18.50 $ .010
1998
First Quarter.................................................................. $ 30.47 $ 21.69 $ .010
Second Quarter................................................................. $ 35.56 $ 28.00 $ .020
Third Quarter (through August 20, 1998) $ 38.38 $ 25.44 $ .020
</TABLE>
As of August 12, 1998, there were approximately 3,983 holders of record of
shares of HBOC Common Stock.
USS
USS Common Stock has traded on the Nasdaq NM since October 3, 1986, the date
of USS's initial public offering. USS Common Stock currently trades under the
symbol "USRV." There is no public market for the Series A Preferred Stock or
Series B Preferred Stock, which is convertible by holders thereof into USS
Common Stock on a share for share basis. The following table sets forth the
quarterly high and low closing sales prices for USS Common Stock as furnished by
Nasdaq for the periods indicated. USS has never declared a cash dividend on the
USS Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31: HIGH LOW
- ------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1997
First Quarter ended June 30, 1996.................................................. $ 5.516 $ 3.875
Second Quarter ended September 30, 1996............................................ $ 5.000 $ 2.875
Third Quarter ended December 31, 1996.............................................. $ 4.250 $ 2.313
Fourth Quarter ended March 31, 1997................................................ $ 5.000 $ 2.250
1998
First Quarter ended June 30, 1997.................................................. $ 3.125 $ 1.500
Second Quarter ended September 30, 1997............................................ $ 2.000 $ 0.938
Third Quarter ended December 31, 1997.............................................. $ 2.875 $ 1.031
Fourth Quarter ended March 31, 1998................................................ $ 2.188 $ 1.375
1999
First Quarter ended June 30, 1998.................................................. $ 3.625 $ 1.250
Second Quarter ending September 30, 1998 (through August 20, 1998)................. $ 4.125 $ 2.063
</TABLE>
20
<PAGE>
As of August 18, 1998, there were approximately 363 holders of record of
shares of USS Common Stock.
The following table sets forth the closing sales price for a share of each
of the indicated stocks on July 17, 1998, the last trading day preceding the
announcement of the proposed Merger, and the USS equivalent share value.
<TABLE>
<CAPTION>
CLOSING
SALES
PRICE ON
JULY 17,
1998
------------
<S> <C>
HBOC...................................................................................... $ 32.875
USS--Historical........................................................................... $ 2.125
USS--Equivalent........................................................................... $ 4.333
</TABLE>
21
<PAGE>
THE MEETING
This Proxy Statement/Prospectus and the accompanying Notice of Special
Meeting and proxy card are being furnished to the stockholders of USS in
connection with the solicitation of proxies by the USS Board for the Meeting to
be held on September 29, 1998 at the time and place and for the purpose set
forth in the accompanying Notice of Special Meeting.
Any USS stockholder who has previously delivered a properly executed proxy
may revoke such proxy at any time before its exercise. A proxy may be revoked
either by (i) delivering to the Secretary of USS prior to the Meeting either a
written revocation of such proxy or a duly executed proxy bearing a later date
or (ii) attending the Meeting and voting in person, regardless of whether a
proxy has previously been given. All valid, unrevoked proxies will be voted as
directed. In the absence of any contrary directions, proxies will be voted in
favor of the proposal set forth in the Notice of Special Meeting and, with
respect to such other matters as may properly come before the Meeting, in the
discretion of the appointed proxy holders.
Only holders of record of USS Stock as of the close of business on August
18, 1998, the Record Date, will be entitled to vote at the Meeting. As of the
Record Date, there were (i) 6,355,683 shares of USS Common Stock outstanding,
each share of which is entitled to one vote on all matters on which stockholders
may vote, (ii) 1,500,000 shares of Series A Preferred Stock outstanding, each
share of which is entitled to one vote per share on an as converted basis, and
(iii) 1,000,000 shares of Series B Preferred Stock outstanding, each share of
which is entitled to one vote per share on an as converted basis. As of the
Record Date, the directors and executive officers of USS and their affiliates
beneficially owned approximately 42.9% of the outstanding shares of USS Stock.
The presence at the Meeting, in person or by proxy, of the holders of at least a
majority of the shares of USS Common Stock, Series A Preferred Stock, on an as
converted basis, and Series B Preferred Stock, on an as converted basis, issued
and outstanding on such date is necessary to constitute a quorum at the Meeting.
The proposed Merger Agreement requires the affirmative vote of the holders of a
majority of the issued and outstanding shares of USS Stock in order to be
approved. Abstentions will be counted in determining whether a quorum is
present, will be considered present and entitled to vote and will thus have the
effect of a negative vote. If a proxy is returned by a broker or other
stockholder who does not have authority to vote, does not give authority to a
proxy to vote, or withholds authority to vote as to any shares, such shares will
be considered present at the Meeting for purposes of determining a quorum, but
will not be considered for purposes of calculating the vote with respect to such
matters. Pursuant to the Voting Agreements entered into at the same time as the
Merger Agreement, HBOC holds proxies to vote approximately 41.2% of the
outstanding USS Stock entitled to vote in favor of the Merger Agreement.
The cost of soliciting proxies in the form enclosed herewith will be borne
entirely by USS. In addition to the solicitation of proxies by mail, proxies may
be solicited by directors, officers and employees of USS, without additional
remuneration, by personal interviews, telephone, facsimile or otherwise. USS
will request persons, firms and corporations holding shares in their name or in
the names of their nominees, which are beneficially owned by others, to send
proxy materials to and obtain proxies from the beneficial owners and will
reimburse the holders for their reasonable expenses in doing so.
THE MERGER PROPOSAL
BACKGROUND OF THE MERGER
On April 21, 1998, Graham O. King, Chairman of the Board of Directors and
Chief Executive Officer of USS, met in Atlanta with Charles W. McCall, President
and Chief Executive Officer of HBOC, to discuss potential strategic business
relationships between USS and HBOC. At this meeting, Mr. King and Mr. McCall
exchanged information with respect to their respective businesses, strategic
direction, products, services, market presence and management personnel. Mr.
McCall indicated that HBOC would prefer that any relationship between USS and
HBOC take the form of an acquisition of USS by HBOC. Mr. King informed Mr.
McCall that he would explore this possibility with the USS Board.
22
<PAGE>
Between April 21 and April 30, 1998, Mr. King discussed informally with each
member of the USS Board the possibility of USS entering into a business
combination with HBOC and the circumstances under which an acquisition of USS by
HBOC would be in the best interests of the USS stockholders. On May 1, 1998, Mr.
King spoke with Mr. McCall by telephone and expressed an interest in proceeding
on a confidential basis with further discussions with HBOC. It was decided in
this conversation that the parties would enter into a confidentiality agreement
and that USS would provide HBOC with certain financial information and
information about key management personnel of USS. On May 4, 1998, USS and HBOC
signed a confidentiality agreement pursuant to which HBOC requested and received
the above referenced confidential information about USS.
On May 7, 1998, Mr. King and Mr. McCall met in Chicago for the purpose of
continuing discussions about a possible relationship. At this meeting, Mr.
McCall discussed the valuation HBOC would place on USS indicating that in a cash
transaction HBOC would not be willing to pay as much as it would in a merger of
USS with HBOC in which the stockholders of USS would receive shares of HBOC on a
tax-free basis in a transaction accounted for as a "pooling of interests." After
discussing these two alternatives, Mr. King indicated that HBOC's proposed
valuation of USS in a cash transaction would likely be unacceptably low. Mr.
McCall and Mr. King then discussed what the potential valuation of USS shares
would be in a merger between the two parties. Mr. McCall indicated that, subject
to receipt and review of more detailed financial information from USS, he
believed HBOC's valuation for USS in a stock transaction was in the $30 million
plus range. Mr. King indicated that senior management of USS valued the company
at between $54-$57 million. Mr. McCall responded that HBOC would only consider a
merger in that price range if a more detailed financial and business due
diligence investigation of USS by HBOC supported such a valuation. It was agreed
at that meeting that HBOC would conduct a more detailed financial and business
review of USS. USS sent HBOC its response to HBOC's financial due diligence
request, including financial information to support a valuation of USS at $57
million in HBOC stock.
On May 8, 1998, an informal meeting of the members of the USS Board was held
via telephonic conference call. All members of the USS Board participated.
During the meeting, Mr. King updated the USS Board on the recent discussions
with HBOC, including the discussions concerning the proposed valuation of USS.
Mr. King also provided the USS Board members with general information on HBOC
and HBOC's strategic rationale for pursuing the possible merger. After engaging
in a lengthy discussion about a proposed merger, the members of the USS Board
were in agreement that USS should continue to pursue discussions with HBOC. The
USS Board also discussed the advisability of retaining a financial advisor to
assist USS in any possible transaction with HBOC. In light of USS' historical
relationship with VBW&Co. the Board was in agreement that Mr. King should make
contact with VBW&Co.
On May 11, 1998, Mr. McCall indicated in a telephone conversation with Mr.
King that HBOC would be interested in further pursuing a merger with USS based
on a valuation of $57 million for USS. Mr. King and Mr. McCall arranged for Mr.
King to meet with representatives of HBOC's senior management team on May 13,
1998. Also, on May 11, 1998, USS had a special telephonic meeting of its Board
of Directors. Mr. King updated the USS Board on his discussions with HBOC
concerning the possible acquisition of the company by HBOC at a valuation of $57
million in HBOC stock. Following this discussion, the USS Board decided, subject
to a satisfactory agreement on fee arrangements, to formally engage VBW&Co. as
its financial advisor to (i) advise USS on any proposed transaction, (ii) assist
senior management of USS in responding to the financial due diligence request of
HBOC and (iii) provide a fairness opinion on any proposed offer for USS. The
decision to select VBW&Co. was based primarily on VBW&Co.'s knowledge of the
industry, prior discussions with VBW&Co. about USS' long-term business strategy,
VBW&Co.'s relationship with USS and VBW&Co.'s experience in prior dealings with
HBOC.
On May 13, 1998, Mr. King met in Baltimore, Maryland with Jay P. Gilbertson,
Chief Operating Officer of HBOC, Russell G. Overton, Senior Vice President of
Corporate Planning and Business Development of HBOC and Albert J. Bergonzi,
President and Co-Chief Operating Officer of HBOC, to discuss USS' financial
information and its management personnel and provide HBOC with a better
23
<PAGE>
understanding of USS' products and services offerings. On May 14, 1998, Mr. King
sent Mr. McCall a preliminary term sheet for discussion purposes. The term sheet
contemplated a $57 million valuation of USS in a stock transaction treated as a
tax free exchange and accounted for as a pooling of interests. The term sheet
contemplated a fixed exchange ratio if the HBOC Common Stock price (based upon a
20-day average) was within a range; however, the exchange ratio was to be
adjusted if the HBOC Common Stock price was above or below the range (resulting
in implied values of $4.38 to $5.34 per USS share).
On May 15, 1998, in a telephone conversation with Mr. King, Mr. McCall
indicated that HBOC had further evaluated information regarding USS and had
decided not to proceed with the proposed business combination with USS. Mr.
McCall stated that although members of HBOC's senior management believed that a
business combination with USS would be a good strategic fit for HBOC, they
believed that $57 million was too high a valuation for USS. Following further
discussion between Mr. McCall and Mr. King, the parties agreed that since a
disagreement over the valuation of USS was the major impediment to the proposed
deal, they would arrange for a financial due diligence meeting between members
of USS' and HBOC's respective senior management teams in order for USS to
present information and answer detailed questions regarding their proposed
valuation.
On May 20, 1998, representatives of USS, including Mr. King, Robert Van
Metre-Secretary, Treasurer and Vice President, Accounting and Finance and Derek
Pickell--Vice President, Business Development met in Atlanta, Georgia with
Messrs. Gilbertson and Overton and other members of HBOC's senior management
team. At the meeting, HBOC conducted an in-depth review of USS' business plan,
including USS' lines of services and the potential synergies resulting from a
business combination between the two companies. Following that meeting, there
were conference calls between the senior management teams of HBOC and USS to
perform additional business and financial due diligence of USS.
On May 27, 1998, Mr. McCall informed Mr. King in a telephone conversation
that HBOC would be willing to proceed with the proposed merger based on a
valuation of $50 million for USS. That same day, HBOC forwarded to USS a draft
term sheet which contemplated the merger of USS with HBOC. The HBOC term sheet
provided that the transaction would be structured as a tax free exchange and
accounted for as a pooling of interests. The number of shares of HBOC to be
received by the USS stockholders was based on $50 million divided by the 20-day
average closing price of HBOC Common Stock prior to closing. Accordingly, the
implied value per USS share was $4.333. Unlike the prior preliminary term sheet
sent by USS on May 14, there was no range. The term sheet provided that it was
only to provide a basis upon which to proceed toward the execution of a
definitive merger agreement.
On May 28, 1998, a special meeting of the USS Board was held via conference
call. All members of the USS Board and representatives of VBW&Co. participated.
During that meeting, Mr. King updated the USS Board on the conversations held
with HBOC since the May 11, 1998 meeting of the USS Board. The VBW&Co.
representatives were then asked to provide a framework for valuation and their
assessment of the term sheet as then drafted and they did so. Mr. King and
representatives of VBW&Co. reviewed in detail the foregoing information with the
USS Board and responded to questions and comments from members of the USS Board
during the course of their report. Following these discussions, the USS Board
concluded that it would be in the best interests of USS and its stockholders to
explore further the possibility of a business combination with HBOC and
authorized management, in conjunction with VBW&Co., to negotiate further with
HBOC the terms of a definitive agreement.
On May 28, 1998 Mr. King sent to Mr. Gilbertson comments on the term sheet
forwarded by HBOC on May 27, 1998.
On May 29, 1998, Mr. King informed Mr. McCall and Mr. Gilbertson that USS
would be willing to proceed to negotiate a definitive merger agreement on the
basis of the term sheet.
During the period between June 3 and July 20, 1998, HBOC continued its due
diligence review and representatives of HBOC and USS continued to negotiate the
terms of the merger agreement and ancillary
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documents thereto, including the disclosure exhibits prepared by USS, as well as
the employment terms of Messrs. King, Pickell and Pesce, President of USS. Among
the terms negotiated by HBOC and USS were (i) the exchange ratio, (ii) the
circumstances under which a break-up fee would be paid to HBOC and the amount of
the break-up fee, (iii) the ability of either party to terminate the merger
agreement, including the ability of HBOC to terminate if the 20-day average
closing price of the HBOC Common Stock (used to determine the exchange ratio)
was less than $23.50, (iv) the treatment of the accrued cash dividends on the
USS Preferred Stock, and (v) the definition of "material adverse change."
On July 20, 1998, a special meeting of the USS Board was held in Chicago,
Illinois. All of the members of the USS Board were present either in person or
by telephone. Also present at the meeting were representatives of Winston &
Strawn ("W&S"), independent counsel of USS, and VBW&Co. A representative of W&S
reviewed the USS Board's fiduciary duties in the context of the proposed
transaction and presented the USS Board a report on the resolution of
outstanding issues, including the circumstances under which the parties could
terminate the agreement. Each member of the USS Board had been previously
furnished with a copy of the most recent draft of the Merger Agreement. A
representative of W&S reviewed the principal terms of the Merger Agreement with
the USS Board. VBW&Co. reviewed with the USS Board the financial analyses
performed by VBW&Co. in connection with the proposed merger including a
discussion of the following information: (i) an assessment of the financial
terms of the transaction; (ii) an overview of HBOC and the historical trading
patterns of its stock; (iii) a summary of the risks associated with the
transaction; (iv) a financial evaluation of USS; and (v) VBW&Co.'s valuation
analysis it used to support its fairness opinion. VBW&Co. also delivered to the
USS Board its written opinion (dated July 20, 1998) to the effect that, as of
such date and based upon and subject to certain matters stated therein, the Per
Share Consideration was fair, from a financial point of view, to the holders of
USS Stock. A discussion among the USS Board members then ensued regarding these
matters. After further deliberation, the USS Board unanimously approved the
Merger Agreement with HBOC and authorized USS' management to execute the Merger
Agreement. The Merger Agreement was executed by USS and HBOC and the transaction
was announced by press release immediately following the conclusion of USS'
Board meeting.
REASONS OF USS FOR ENGAGING IN THE MERGER; RECOMMENDATION OF THE USS BOARD
The USS Board has approved the proposed Merger by unanimous vote and
believes the Merger is in the best interests of USS and its stockholders. In
reaching their decision, the USS Board considered, with the assistance of
management and its legal and financial advisors, the following factors:
i. The Merger offers USS stockholders greater liquidity and an opportunity
to receive shares in a significantly larger company with strong
historical performance, capital resources significantly greater than USS'
and demonstrated ability to successfully implement its growth strategy
that has resulted in historical increases in revenue and earnings, while
affording them the opportunity to continue to participate in the
long-term growth and appreciation of USS' business through an ownership
interest in HBOC;
ii. Potential operating synergies and cost savings of the combined
enterprise, including possible synergies and cost savings with respect to
(a) the consolidation of administrative and support functions, (b) the
combination of sales forces and research and development capabilities and
(c) the elimination of public reporting obligations and attendant costs
of USS;
iii. The strategic fit between USS and HBOC and the complementary nature of
their respective businesses, particularly in light of the fact that USS'
business management services will provide a significant enhancement to
the overall product line of HBOC;
iv. The significant opportunities to increase USS' sales that would result
from access to HBOC's customer base;
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v. The increased ability of USS to recruit and retain employees that would
result from the expanded career opportunities available to employees of
USS following a merger with HBOC;
vi. The capital structure, customer profile, product portfolio and
integration strategy of HBOC, as well as other information on the
management, business operations and prospects of HBOC and USS and the
relative likelihood of achieving those prospects on both a combined and
separate basis;
vii. The increase in competition that USS might experience if the Merger was
not consummated and HBOC sought a business combination with another
company offering business management services or internally developed and
began offering business management services;
viii. The presentations, financial analyses and advice of its financial
advisor, VBW&Co., and the opinion of VBW&Co. that, as of July 20, 1998,
the Per Share Consideration to be received in the Merger was fair, from a
financial point of view, to the USS stockholders;
ix. The likelihood that the Merger would be consummated, including the
experience, reputation and financial capability of HBOC;
x. The proposed terms, timing and structure of the Merger and the Merger
Agreement, including the fact that the Merger is expected to be a
tax-free exchange and accounted for as a "pooling of interests"; and
xi. The Merger provides USS stockholders with HBOC Common Stock in a
tax-free exchange at a substantial premium over the market price of their
shares of USS Common Stock prior to the announcement of the Merger
Agreement. The Merger Agreement also permits the USS Board to terminate
the Merger Agreement if the USS Board determines that termination of the
Merger Agreement would be in the best interests of USS' stockholders and
is required in the exercise of its fiduciary duties to the stockholders
of USS, subject to payment of termination fees and expenses.
The USS Board also considered the following potentially negative factors in its
deliberations concerning the Merger:
i. The possibility that certain of the operating synergies and cost savings
sought to be achieved as a result of the Merger might not be achieved;
ii. The high price to earnings ratio of HBOC Common Stock and the
possibility of a decrease in the market value of the HBOC Common Stock
after the Merger; and
iii. The possibility that, upon announcement of the proposed merger, IDX
would terminate the strategic alliance entered into between IDX and USS
and the potential material adverse effect such a termination would have
on the financial condition, results of operations and business of USS in
the event the Merger was not consummated. See "Risk Factors--Failure to
Consummate The Merger."
The foregoing discussion of information and factors considered by the USS
Board is not intended to be exhaustive but is intended to include the material
factors considered. In light of the wide variety of factors considered, the USS
Board did not find it practical to, and did not, quantify or otherwise assign
relative weight to the specific factors considered, and individual directors may
have given differing weights to different factors.
After taking into consideration all of the factors set forth above, the USS
Board approved the Merger by unanimous vote and determined that the Merger is
fair to, and in the best interests of, USS and its stockholders and has
unanimously determined that USS should proceed with the Merger at this time.
ACCORDINGLY, THE USS BOARD UNANIMOUSLY RECOMMENDS THAT USS STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT.
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OPINION OF FINANCIAL ADVISOR TO USS
USS retained VBW&Co. to render an opinion to the USS Board as to the
fairness, from a financial point of view, of the consideration to be received by
the holders of USS Stock in the Merger. On July 20, 1998, VBW&Co. rendered its
opinion to the USS Board to the effect that, as of such date and based on and
subject to the matters stated in the opinion, the Per Share Consideration in the
Merger is fair, from a financial point of view, to holders of USS Stock. For
purposes of its opinion, VBW&Co. assumed a Per Share Consideration of $4.33 (the
"Assumed Per Share Consideration") which was determined by dividing $50 million
by the Fully Diluted Shares on July 16, 1998 of 11,539,183.
THE FULL TEXT OF VBW&CO.'s WRITTEN OPINION (UPDATED TO THE DATE HEREOF)
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B AND IS INCORPORATED HEREIN BY
REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. HOLDERS OF USS STOCK ARE URGED TO, AND SHOULD, READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. THE ENGAGEMENT OF VBW&CO. AND ITS OPINION ARE
FOR THE BENEFIT OF THE USS BOARD. VBW&CO.'S OPINION ADDRESSES ONLY THE FAIRNESS
OF THE PER SHARE CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO HOLDERS OF USS
STOCK AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF USS STOCK AS TO HOW TO VOTE WITH
RESPECT TO THE MERGER.
In arriving at its opinion, VBW&Co.: (i) reviewed the Merger Agreement; (ii)
interviewed management of USS, concerning the business prospects, financial
outlook and operating plans of the company and as combined with HBOC; (iii)
reviewed certain historical and projected financial and operating data of USS
prepared by USS' management team; (iv) reviewed the historical stock trading
patterns of both HBOC and USS and analyzed implied historical exchange ratios as
well as the premium of the Assumed Per Share Consideration in relation to
historical USS Common Stock trading ranges; (v) reviewed the valuation of
selected publicly-traded companies VBW&Co. deemed comparable and relevant to
USS; (vi) reviewed, to the extent publicly available, the financial terms of
selected merger and acquisition transactions VBW&Co. deemed comparable and
relevant to the Merger; (vii) performed a discounted cash flow analysis of USS
as a standalone entity based upon the financial projections provided or reviewed
and approved by USS management; (viii) performed a pro forma financial impact
analysis of the combined entity, based upon, in the case of USS, financial
projections provided or reviewed and approved by USS management and, in the case
of HBOC, financial projections provided by the Research Department of VBW&Co.;
and (ix) performed other such studies, analyses and inquiries and considered
other such information as VBW&Co. deemed relevant.
In rendering its opinion, VBW&Co. relied without independent verification
upon the accuracy and completeness of all of the financial, accounting, legal,
tax, operating and other information provided to VBW&Co. by USS and relied upon
the assurances of USS that all such information provided by the company was
complete and accurate in all material respects and that there was no additional
material information known to USS that would make any of the information made
available to VBW&Co. either incomplete or misleading. USS also retained outside
legal, accounting and tax advisors to advise on matters relating to the Merger.
Accordingly, VBW&Co. expressed no opinion on such matters. With respect to the
projected financial data of USS, all of which was provided by or reviewed and
approved by the management of USS, as well as the combined business plan,
VBW&Co. relied upon assurances of USS that such data was prepared in good faith
on a reasonable basis reflecting the best currently available estimates and
judgments of USS management as to the future financial performance of USS
separately and as combined with HBOC. VBW&Co. expressed no opinion and made no
investigation with respect to the validity, accuracy or completeness of the
information provided to it and does not warrant any projections included in such
information. Actual results that USS or HBOC might achieve in the future as
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standalone entities or as a combined company may vary materially from those used
in VBW&Co.'s analysis. VBW&Co. assumed that the Merger would be consummated in
accordance with the terms of the Merger Agreement without waiver of any of the
conditions to the parties' obligations thereunder. VBW&Co. did not make any
independent appraisals or valuations of any assets of USS, or HBOC, nor was
VBW&Co. furnished with any such appraisals or valuations. In addition, VBW&Co.
assumed that the Merger would be accounted for as a pooling of interests for
financial reporting purposes and the Per Share Consideration would not be
taxable to USS stockholders when received. VBW&Co.'s opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to VBW&Co. as of, the date it rendered its opinion.
For purposes of its analysis, VBW&Co. utilized an Assumed Per Share
Consideration of $4.33, which was determined by dividing $50 million by the
Fully Diluted Shares on July 16, 1998 of 11,539,183.
For purposes of its analysis, VBW&Co. assumed that the number of shares of
HBOC Common Stock into which each share of USS Stock would be converted would be
0.1443 (the "Assumed Exchange Ratio"). This ratio was based on the Assumed Per
Share Consideration divided by the closing price per share of the HBOC Common
Stock on July 16, 1998 of $30.0313. The actual Exchange Ratio will be based on
the number of Fully Diluted Shares immediately prior to the Effective Time and
the average closing price per share of the HBOC Common Stock during the twenty
consecutive trading days ending on the third trading day prior to the date of
the Meeting.
The following is a brief summary of the material analyses performed by
VBW&Co. in rendering its opinion to the USS Board.
STOCK TRADING AND EXCHANGE RATIO ANALYSIS. VBW&Co. analyzed the common
stock trading patterns of both USS and HBOC over various periods of time and
compared them historically to one another. From January 3, 1995 to July 16, 1998
(two trading days prior to the announcement of the Merger), the closing price of
USS Common Stock ranged from a low of $1.03 per share on October 31, 1997 to a
high of $5.50 per share on May 13, 1996 with a median daily closing price of
$3.25 per share. The last time the stock price exceeded the level of the Assumed
Per Share Consideration of $4.33 was February 18, 1997. On a volume basis, 81.6%
of USS trades from January 3, 1995 to July 16, 1998 were below the Assumed Per
Share Consideration and 100.0% of trades from January 2, 1998 to July 16, 1998
were below the Assumed Per Share Consideration. The exchange ratio implied from
dividing historical USS Common Stock prices by HBOC Common Stock prices
generally was in excess of the Assumed Exchange Ratio prior to June 5, 1997 and
was below the Assumed Exchange Ratio thereafter. The implied exchange ratio
ranged from 0.0444 to 0.3146 with a median of 0.0747. VBW&Co. noted that the
implied exchange ratio was 0.0749 and 0.0594 on July 16, 1998 and one month
prior to July 16, 1998, respectively. VBW&Co. placed greater weight on the more
recent implied exchange ratios on July 16, 1998 and one month prior to July 16,
1998 and noted that the Assumed Exchange Ratio is above these levels.
PREMIUM ANALYSIS. The Assumed Per Share Consideration of $4.33 represents a
premium of 92.4% and 130.9% compared to the USS Common Stock price on July 16,
1998 and one month prior to July 16, 1998, respectively.
For comparison purposes VBW&Co. analyzed the premiums paid in sixteen
Healthcare Information Services ("HCIS") transactions deemed comparable by
VBW&Co. and in merger and acquisition transactions generally and compared them
to the premium represented by the Assumed Per Share Consideration. For the HCIS
transactions deemed comparable by VBW&Co., one day premiums ranged from 0.5% to
53.3% with a median of 11.9% and one month premiums ranged from 4.1% to 110.0%
with a median of 31.4%. These values would imply stock values for USS' Common
Stock based on one day premiums ranging from $2.26 to $3.45 with a median of
$2.52 and stock values for USS Common Stock based on one month premiums ranging
from $1.95 to $3.94 with a median of $2.46. For merger and acquisition
transactions announced from January 1, 1997 through June 25, 1998 involving less
than $200 million in consideration and excluding premiums less than 0.0%, one
day premiums ranged from 0.3% to 250.3%
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with a median of 22.7% and one month premiums ranged from 1.0% to 282.7% with a
median of 33.3%. These values would imply stock values for USS Common Stock
based on one day premiums ranging from $2.26 to $7.88 with a median of $2.76 and
stock values based on one month premiums ranging from $1.89 to $7.18 with a
median of $2.50.
COMPARABLE PUBLICLY-TRADED COMPANY ANALYSIS. VBW&Co. compared certain
financial information of USS with that of two groups of publicly-traded
companies selected by VBW&Co. The companies in both panels generate a meaningful
proportion of their revenues from recurring services revenues related to
providing services to companies in the healthcare industry. The first panel is
composed of selected services providers (the "Services Panel") while the second
is composed of selected consulting companies (the "Consulting Panel"). Companies
in the Services Panel include F.Y.I. Inc., Healthcare Recoveries, Inc., Medaphis
Corp., MedQuist Inc., NCO Group, Inc. and Transcend Services, Inc. Companies in
the Consulting Panel include BRC Holdings, Inc., DAOU Systems, Inc., First
Consulting Group, Inc. and Superior Consultant Holdings Corp. In general,
VBW&Co. believes that USS is more comparable to those companies in the Services
Panel than to those in the Consulting Panel.
For both panels, the financial information reviewed by VBW&Co. included
stock price in relation to the last 12 months ("L12M") earnings per share
("EPS"), stock price in relation to the forecasted calendar year ("FCY") 1998
EPS, stock price in relation to FCY 1999 EPS, stock price in relation to book
value of stockholders' equity, as well as enterprise value (defined as market
capitalization plus funded debt less cash) in relation to L12M revenue,
enterprise value in relation to L12M EBITDA, and enterprise value in relation to
L12M EBIT. FCY 1998 EPS and FCY 1999 EPS for both panels was based on published
estimates by research organizations, including those of VBW&Co. For analytical
purposes, VBW&Co. adjusted USS' fiscal year 1998 historical financial results,
except for net income, to exclude the effect of the contract with MetroPlus
Health Plan ("the MetroPlus Contract"). MetroPlus Health Plan is an HMO and was
USS' largest customer before its contract with USS was terminated in February of
1998. Based on this adjusted analysis, multiples of L12M EBITDA and EBIT were
not meaningful due to losses.
VBW&Co. noted that, based on closing stock prices and earnings estimates as
of July 16, 1998, the Services Panel traded in a range of 28.9 to 79.0 times
L12M earnings (with a median of 38.0 times), 21.7 to 62.2 times FCY 1998
earnings (with a median of 28.5 times), 17.4 to 49.8 times FCY 1999 earnings
(with a median of 22.8 times), and 0.9 to 8.1 times book value (with a median of
5.0 times). The enterprise value of the Services Panel implied from the stock
prices provided a range of 1.1 to 6.9 times L12M revenues (with a median of 2.9
times). The implied range of stock values for USS based on the Services Panel's
stock prices in relation to L12M EPS was $2.23 to $6.08 (with a median of
$2.92), $3.18 to $9.13 (with a median of $4.17) in relation to FCY 1998 EPS,
$2.71 to $7.78 (with a median of $3.56) in relation to FCY 1999 EPS, and $1.49
to $14.27 (with a median of $8.81) in relation to book value. The implied range
of stock values for USS based on the enterprise value of the Services Panel
implied from the stock prices was $2.93 to $16.64 (with a median of $7.06) in
relation to L12M revenues.
With respect to the Consulting Panel, VBW&Co. noted that, based on closing
stock prices and earnings estimates as of July 16, 1998, the Consulting Panel
traded in a range of 36.3 to 98.3 times L12M earnings (with a median of 75.2
times), 37.6 to 51.0 times FCY 1998 earnings (with a median of 50.5 times), 24.9
to 41.7 times FCY 1999 earnings (with a median of 38.7 times), and 1.6 to 7.6
times book value (with a median of 5.3 times). The enterprise value of the
Services Panel implied from the stock prices provided a range of 2.1 to 6.0
times L12M revenues (with a median of 4.1 times). The implied range of stock
values for USS based on the Services Panel's stock prices in relation to L12M
EPS was $2.79 to $7.56 (with a median of $5.79), $5.51 to $7.48 (with a median
of $7.41) in relation to FCY 1998 EPS, $3.89 to $6.51 (with a median of $6.04)
in relation to FCY 1999 EPS, and $2.73 to $13.38 (with a median of $9.32) in
relation to book value. The implied range of stock values for USS, based on the
enterprise value of the Consulting Panel implied from the stock prices was $5.30
to $14.58 (with a median of $9.98) in relation to L12M revenues.
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COMPARABLE MERGER AND ACQUISITION TRANSACTION ANALYSIS. VBW&Co. prepared a
valuation of USS based upon 39 merger and acquisition transactions of target
companies in the HCIS industry (the "HCIS Transaction Panel"). In selecting the
HCIS Transaction Panel, VBW&Co. considered whether or not the target company
generated most of its revenues and earnings from HCIS-related businesses.
VBW&Co. also prepared a valuation of USS based upon three merger and acquisition
transactions of target companies that, in the view of VBW&Co., are most directly
comparable to USS (the "Most Comparable HCIS Transaction Panel"). The Most
Comparable HCIS Transaction Panel includes National Data Corp.'s acquisition of
Physician Support Systems Inc., NCO Group, Inc.'s acquisition of MedSource,
Inc., and QuadraMed Corp.'s acquisition of Pyramid Health Group.
VBW&Co. reviewed the HCIS Transaction Panel's financial terms, to the extent
publicly available. The enterprise value of these transactions ranged from 0.4
to 10.6 times L12M revenue (with a median of 3.1 times) and 1.1 to 6.8 times
next 12 months forecasted ("N12M") revenue (with a median of 2.9 times). The
transaction value of these transactions ranged from 2.5 to 16.8 times book value
(with a median of 5.5 times), 12.6 to 73.7 times L12M net income (with a median
of 36.3 times), and 11.0 to 44.6 times N12M net income (with a median of 33.7
times). Due to VBW&Co.'s adjustments for the MetroPlus Contract, multiples of
L12M EBITDA and EBIT were not meaningful. The implied range of stock values for
USS based on the HCIS Transaction Panel's enterprise value in relation to L12M
revenue was $1.35 to $25.48 (with a median of $7.60) and $3.78 to $21.05 (with a
median of $9.35) in relation to N12M revenue. The implied range of stock values
for USS based on the HCIS Transaction Panel's transaction value in relation to
book value was $4.41 to $29.50 (with a median of $9.64), $0.97 to $5.67 (with a
median of $2.79) in relation to L12M net income, and $1.08 to $4.37 (with a
median of $3.31) in relation to N12M net income.
VBW&Co. reviewed the Most Comparable HCIS Transaction Panel's financial
terms, to the extent publicly available. The enterprise value of these
transactions was 1.5 times L12M revenue and 1.6 times N12M revenue. The
transaction value of these transactions was 3.5 times book value, 66.1 times
L12M net income, and 44.6 times N12M net income. Due to VBW&Co.'s adjustments
for the MetroPlus Contract, multiples of L12M EBITDA and EBIT were not
meaningful. The implied stock value for USS based on the Most Comparable HCIS
Transaction Panel's enterprise value in relation to L12M revenue was $3.95 and
in relation to N12M revenue was $5.06. The implied stock value for USS based on
the Most Comparable HCIS Transaction Panel's transaction value in relation to
book value was $6.14, in relation to L12M net income was $5.08, and in relation
to N12M net income was $4.37.
DISCOUNTED CASH FLOW ANALYSIS. VBW&Co. performed a discounted cash flow
analysis of USS based on projections provided by USS management through March
1999 and extrapolated by VBW&Co. and reviewed and approved by USS management
thereafter. Unlevered free cash flows were calculated as net income available to
common stockholders plus the sum of depreciation, amortization and other
non-cash charges minus capital expenditures and plus or minus changes in working
capital and minus tax adjusted interest expense. VBW&Co. calculated terminal
values by applying exit multiples on 2003 net income; and the cash flow streams
and terminal values were then discounted to the present using a range of
discount rates deemed appropriate by VBW&Co. Based on this analysis, VBW&Co.
calculated stock values of USS ranging from $3.99 to $7.02.
PRO FORMA FINANCIAL IMPACT ANALYSIS. VBW&Co. analyzed the pro forma
combined company merger analysis which examines the impact to HBOC's EPS and
other operating results for the calendar years 1998 through 2003 as a result of
the Merger. The analysis was performed utilizing standalone operating estimates
provided by USS management through March 1999 and thereafter extrapolated by
VBW&Co. and reviewed and approved by USS management, in the case of USS, and
provided by VBW&Co.'s Research Department in the case of HBOC, whose EPS
estimates at the time VBW&Co. rendered its opinion did not differ materially
from those of First Call, a Thomson Financial Services company that provides
consensus earnings estimates. Estimates of projected cost savings resulting from
the Merger were provided by the management team of USS. VBW&Co. expresses no
opinion as to whether these
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projections and estimates would actually be obtained. VBW&Co. noted that based
on management projections, the Merger would not meaningfully impact HBOC's
overall EPS.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, VBW&Co. considered the results of all of its analyses
as a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, selecting any portion of the analysis, without
considering all of the analyses, would create an incomplete view of the process
underlying its opinion. In addition, VBW&Co. may have given various analyses and
factors more or less weight than other analyses and factors, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be VBW&Co.'s view of the actual value of USS.
The analyses performed by VBW&Co. are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as part of VBW&Co.'s analysis of
the fairness of the Per Share Consideration from a financial point of view to
holders of USS Stock. The analyses do not purport to be appraisals or to reflect
the prices at which USS might actually be sold. Because such estimates are
inherently subject to uncertainty, none of USS, HBOC, VBW&Co. nor any other
person assumes responsibility for their accuracy. Consequently, the VBW&Co.
analyses described herein should not be viewed as determinative of the opinion
of the USS Board with respect to the value of USS or of whether the HBOC Board
or the USS Board would have been willing to agree to a different level of
consideration.
VBW&Co. is a nationally recognized investment banking firm and was selected
by USS based on VBW&Co.'s experience and expertise. VBW&Co., as a customary part
of its investment banking business, engages in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, VBW&Co. and its affiliates may actively trade the equity securities of
HBOC or USS for its and their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
VBW&Co. will receive an aggregate fee of $600,000 for rendering its opinion
to USS, no portion of which is conditioned upon the opinion being favorable. In
addition, USS has agreed to reimburse VBW&Co. for its out-of-pocket costs and
expenses and to indemnify VBW&Co. and its affiliates against certain liabilities
and expenses.
REASONS OF HBOC FOR ENGAGING IN THE MERGER
The HBOC Board believes that the acquisition of USS will expand HBOC's
outsourcing service business and accelerate HBOC's entry into revenue cycle
outsourcing.
TERMS OF THE MERGER
The following summary of the terms and conditions of the Merger Agreement is
qualified in its entirety by reference to the full terms of the Merger
Agreement, which is attached hereto as Appendix A and is hereby incorporated by
reference herein.
EFFECTIVE TIME. The Merger will become effective when both (i) the Merger
Agreement is adopted and approved by the stockholders of USS in accordance with
the applicable provisions of the DGCL and (ii) the Certificate of Merger is
filed with the Secretary of State of Delaware.
GENERAL EFFECTS OF THE MERGER. At the Effective Time, USS will be merged
with and into HBOC-GA, which will be the surviving corporation.
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<PAGE>
CONVERSION OF SHARES. Each share of USS Stock issued and outstanding
immediately prior to the Effective Time, will, at the Effective Time, be
converted into the right to receive a fraction of a share of HBOC Common Stock
determined by dividing the sum of $50 million by the product of the Market Value
and the Fully Diluted Shares (the "Exchange Ratio"); provided however, that if
the Market Value of the HBOC Common Stock is less than $23.50, the USS Board or
the HBOC Board each shall have the right (but not the obligation) to terminate
the Merger Agreement. The shares of HBOC Common Stock and any cash in lieu of
fractions thereof receivable by each USS stockholder in the Merger are referred
to herein as the "Merger Consideration."
FRACTIONAL SHARES. No certificates or scrip representing fractional shares
of HBOC Common Stock shall be issued pursuant to the Merger, but in lieu
thereof, any holder of USS Common Stock shall be entitled to receive a cash
payment therefor, without interest, at a pro rata amount based on the Market
Value.
STOCK PLANS AND WARRANTS. Options to purchase shares of USS Common Stock
outstanding at the Effective Time of the Merger will be assumed by HBOC and, as
a result, the optionee will have the right to purchase the number of shares
(rounded down to the nearest whole share) of HBOC Common Stock into which the
number of shares of USS Common Stock the optionee was entitled to purchase under
the existing option would have been converted pursuant to the terms of the
Merger. The aggregate price for the total number of shares of HBOC Common Stock
issuable pursuant to an option will be the aggregate price at which the option
was exercisable for the total number of shares of USS Common Stock issuable
thereunder, reduced (as necessary for purposes of rounding down) to that price
that will buy the number of whole shares of HBOC Common Stock issuable
thereunder and the purchase price per share of HBOC Common Stock shall be such
aggregate price divided by the total number of shares of HBOC Common Stock
issuable thereunder. In accordance with option plans adopted by USS, certain
unvested options will become vested. See "Interests of Certain Persons in Each
of HBOC and USS--Interests of Certain USS Persons in Matters to be Acted Upon."
Warrants to purchase shares of USS Common Stock outstanding at the Effective
Time of the Merger will be assumed by HBOC and shall thereafter represent the
right to acquire the number of shares of HBOC Common Stock into which the number
of shares of USS Common Stock subject to such warrants would have been converted
in the Merger.
EXCHANGE OF CERTIFICATES. HBOC has designated SunTrust Bank, Atlanta as
Exchange Agent in connection with the Merger. At the Effective Time, HBOC shall
provide the Exchange Agent with a sufficient number of shares of HBOC Common
Stock and cash to deliver the Merger Consideration to each holder of shares of
USS Stock converted by reason of the Merger. Promptly after the Effective Time,
the Exchange Agent will mail to each record holder (as of the Effective Time) of
an outstanding certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of USS Stock (the "Certificates"),
a letter of transmittal and instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration payable in respect of
the shares of USS Stock represented thereby.
Upon surrender to the Exchange Agent of a Certificate, together with such
letter of transmittal properly completed and duly executed and any other
required documents, the holder of such Certificate shall be entitled to receive
the Merger Consideration payable in respect of the USS Stock formerly
represented thereby, 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 HBOC or HBOC-GA that such tax has been paid or is not
applicable. Until surrendered, each Certificate shall represent, for all
purposes, only the right to receive the Merger Consideration, without any
interest on the value thereof.
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<PAGE>
Notwithstanding the foregoing, neither HBOC nor HBOC-GA shall be liable to
any holder of Certificates formerly representing shares of USS Stock for any
property properly delivered or amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
PAYMENT OF DIVIDENDS. No cash or stock dividend payable, no certificate
representing split shares deliverable and no other distribution payable or
deliverable to holders of record of HBOC Common Stock at any time subsequent to
the Effective Time shall be paid or delivered to the holder of any Certificate
unless and until such Certificate is surrendered to the Exchange Agent. However,
subject to any applicable escheat laws, upon such surrender, there shall be paid
or delivered to the holder of record of the certificate or certificates for HBOC
Common Stock issued and exchanged therefor, the certificates for shares and/or
other property resulting from any such dividends, splits, or other
distributions, as the case may be, that shall have theretofore become payable or
deliverable with respect to HBOC Common Stock subsequent to the Effective Time,
without interest thereon.
LIMITATIONS ON TRANSFERABILITY OF HBOC COMMON STOCK. Shares of HBOC Common
Stock received by certain persons deemed to be "affiliates" of USS for purposes
of Rule 145 under the Securities Act will be subject to the restrictions imposed
by such rule. In accordance with Rule 145, an affiliate of USS receiving HBOC
Common Stock issued in the Merger may not sell such shares except pursuant to
the volume and manner of sale limitations and other requirements specified
therein or pursuant to an effective registration statement under the Securities
Act. It is a condition to the obligation of HBOC to consummate the Merger that
HBOC shall have received from each affiliate of USS a letter agreement
confirming that such person will not sell or otherwise dispose of the shares of
HBOC Common Stock received by such person as a result of the Merger other than
in compliance with Rule 145 or pursuant to an effective registration statement
or pursuant to any other available exemption from the registration requirements
of the Securities Act. In general, directors, officers and substantial
beneficial owners of a corporation's securities may be deemed to be "affiliates"
of a corporation. In addition, USS affiliates are subject to certain
restrictions on transfer of both USS Common Stock and HBOC Common Stock during
certain periods prior to and following the Effective Time of the Merger to
support pooling of interests accounting treatment of the transaction.
CONDITIONS; WAIVER. The obligations of HBOC and HBOC-GA, on the one hand,
and of USS, on the other hand, to consummate the Merger are contingent upon and
subject to the satisfaction or waiver of the following conditions: (i) the
absence of certain legal or regulatory proceedings with respect to the Merger;
(ii) the expiration or termination of the waiting period under the HSR Act;
(iii) the approval of the Merger and the Merger Agreement and any related
matters by holders of the requisite number of shares of USS Stock; (iv) the
Registration Statement shall have been declared effective by the Commission and
no stop order shall have been issued with respect thereto and shares of HBOC
Common Stock being issued in the Merger shall have been registered or shall be
exempt from registration under all applicable blue sky laws; (v) the HBOC Common
Stock issuable in the Merger shall have been listed or approved for listing upon
notice of issuance by the Nasdaq NM; and (vi) the receipt by the USS Board of a
fairness opinion of VBW&Co. dated as of the date of this Proxy
Statement/Prospectus.
The obligations of HBOC and HBOC-GA to consummate the Merger are contingent
upon and subject to the satisfaction or waiver of the following additional
conditions: (i) the representations and warranties of USS shall remain true and
correct at and as of the Closing Date, other than breaches of such
representations which do not individually or in the aggregate constitute a
material adverse effect on the business, properties, rights, financial condition
or results of operations (a "Material Adverse Effect") of USS and its
subsidiaries taken as a whole; (ii) the performance of all covenants, agreements
and conditions by USS as provided in the Merger Agreement; (iii) there shall
have been no change in the business, properties, rights or operations of USS or
its subsidiaries, which individually or in the aggregate constitute a Material
Adverse Effect on USS; (iv) receipt of a certificate of the Chairman of USS
regarding satisfaction of certain conditions, including those listed in (i)
through (iii) above; (v) receipt of certain legal
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<PAGE>
opinions, including an opinion of Jones, Day, Reavis & Pogue, counsel to HBOC
("Jones Day"), to the effect that the Merger will qualify as a reorganization
pursuant to Section 368(a) of the Code; (vi) receipt of letters from affiliates
of USS regarding compliance with Rule 145 and certain pooling of interests
requirements; (vii) delivery of certain additional certificates and documents by
USS, including consents of certain third parties; (viii) receipt of letters from
Wiss & Company, LLP and Arthur Andersen LLP, in their capacities as independent
public accountants for USS and HBOC, respectively, regarding the appropriateness
of accounting for the Merger as a pooling of interests; (ix) receipt of letters
from Wiss & Company LLP, USS' independent public accountants, regarding certain
information about USS included in the Registration Statement; (x) receipt of
covenants not to compete from certain USS executive officers; (xi) receipt from
substantially all USS employees of agreements relating to nondisclosure,
inventions and similar matters; and (xii) the absence of any fees or expenses
payable to any investment banking firm or similar entity that will be incurred
by USS in connection with the Merger, except fees and expenses of VBW& Co., not
to exceed the limitations set forth in the Merger Agreement; (xiii) receipt of
the Voting Agreements; (xiv) termination of certain agreements granting holders
of USS Stock rights in addition to such holders' rights under the USS Charter or
Bylaws; (xv) receipt from USS warrant holders of agreements clarifying the
treatment of warrants in the Merger; and (xvi) amendment of the USS Amended 1994
Stock Option Plan for Non-Employee Directors.
The obligation of USS to consummate the Merger is contingent upon, and
subject to the satisfaction or waiver of, the following additional conditions:
(i) the representations and warranties of HBOC and HBOC-GA shall remain true and
correct in all materials respects at and as of the Closing Date; (ii) the
performance of all covenants, agreements and conditions by HBOC and HBOC-GA as
provided in the Merger Agreement; (iii) receipt of a certificate of the
President of each of HBOC and HBOC-GA regarding the matters in (i) and (ii)
above; and (iv) receipt of certain legal opinions, including an opinion from
Winston & Strawn, counsel to USS, to the effect that the Merger will qualify as
a reorganization pursuant to Section 368(a) of the Code.
VOTING AGREEMENTS. The Consenting Holders entered into the Voting
Agreements contemporaneously with the execution of the Merger Agreement.
Pursuant to the Voting Agreements HBOC was granted proxies to vote the shares of
the USS Preferred Stock of the Consenting Holders in favor of the Merger
Agreement and any related matters. The Voting Agreements also clarified the
right of the holders of the USS Preferred Stock to receive shares of HBOC Common
Stock in the Merger and to receive accrued dividends at the Effective Time. In
addition, Mr. Caravetta entered into an agreement with HBOC pursuant to which
HBOC was granted a proxy to vote 750,000 shares of USS Common Stock owned by Mr.
Caravetta in favor of the Merger Agreement. Accordingly, HBOC holds proxies with
respect to approximately 41.2% of the outstanding USS Stock to vote in favor of
the Merger Agreement.
HART-SCOTT-RODINO. The Merger is subject to the requirements of the HSR
Act, which provides that certain transactions (including the Merger) may not be
consummated until certain information has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. HBOC and USS filed the required information with the Antitrust
Division and the FTC on July 27, 1998. USS and HBOC received notification of
early termination of the waiting period on August 10, 1998. Satisfaction of the
waiting period requirement does not preclude the Antitrust Division, the FTC or
any other party from challenging or seeking to delay or enjoin the Merger on
antitrust or other grounds.
NO SOLICITATION. USS has agreed that prior to the Effective Time of the
Merger or earlier termination of the Merger Agreement, USS shall not, and shall
not permit any of its subsidiaries to, and USS and its subsidiaries shall not
authorize or permit any officer, director, employee or representative of USS or
its subsidiaries to, solicit, initiate, encourage (including by way of
furnishing information), endorse or enter into any agreement with respect to, or
take any other action to facilitate, any inquiries or the making of any proposal
or offer for any tender or exchange offer, proposal for a merger, share exchange
or other business
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<PAGE>
combination involving USS or any of its subsidiaries or any proposal or offer to
acquire in any manner a substantial equity interest in USS or any of its
subsidiaries or a substantial portion of the assets of USS or any of its
subsidiaries with any person or entity; provided, however, that the USS Board
may furnish information to or enter into discussions or negotiations with any
unsolicited person or entity if, and only to the extent that, the USS Board
determines in good faith, based upon written advice of its outside counsel, that
such action would be required under applicable law in the exercise of its
fiduciary duties. USS has agreed to notify HBOC-GA immediately of its receipt of
any such proposals or any such inquiries or discussions with respect thereto.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time of the Merger by: (i) mutual written consent of the HBOC
Board and the USS Board, notwithstanding the prior approval by the USS
stockholders; (ii) the HBOC Board, in the event of material condemnation,
destruction, loss or damage to the business of USS and its subsidiaries, taken
as a whole; (iii) the HBOC-GA Board or the USS Board, after November 15, 1998,
if any of the conditions to such party's obligation to consummate the Merger
have not been fulfilled or waived, unless fulfillment has been frustrated or
made impossible by the party seeking termination; (iv) the USS Board, if, in the
good faith exercise of its fiduciary duties to the stockholders of USS in the
context of a proposal to acquire USS by another party, the USS Board decides
that such termination is required; (v) the USS Board or the HBOC Board, if the
Market Value of HBOC Common Stock is less than $23.50.
If the Merger Agreement is terminated by USS in accordance with (iv) above
or by any of the parties because it was not approved by the requisite number of
shares of USS Stock, USS will be obligated to pay to HBOC-GA a fee in the amount
of $2,000,000, plus all reasonable costs and expenses of HBOC and HBOC-GA
incurred in connection with the negotiation and performance of the Merger
Agreement not to exceed $500,000.
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that HBOC shall have
received letters, dated as of the date hereof and as of the Closing Date, from
Wiss & Company, LLP setting forth their concurrence with the conclusion of USS'
management that no conditions exist prior to the Merger with respect to USS that
would preclude accounting for the Merger as a pooling of interests under
Accounting Principles Board Opinion No. 16, and from Arthur Andersen LLP to the
effect that HBOC satisfies the tests applicable to it such that the Merger can
be accounted for as a pooling of interests under Accounting Principles Board
Opinion No. 16 and assuming that the Merger is closed and consummated in
accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary, based upon current law, is a general discussion of
the principal federal income tax consequences of the Merger, assuming the Merger
is consummated as contemplated herein. This summary is based upon the Code,
applicable regulations promulgated under the Code by the Treasury Department and
administrative rulings and judicial authority as of the date hereof, all of
which are subject to change, possibly with retroactive effect. Any such change
could affect the continuing validity of this summary. This summary applies to
holders of USS Stock who hold their shares of USS Stock as capital assets. This
summary does not discuss all aspects of income taxation that may be relevant to
a particular holder of USS Stock in light of such holder's specific
circumstances or to certain types of holders subject to special treatment under
the federal income tax laws (for example, foreign persons, dealers in
securities, banks and other financial institutions, insurance companies,
tax-exempt organizations, and holders who acquired USS Stock pursuant to the
exercise of options or otherwise as compensation), and it does not discuss any
aspect of state, local, foreign or other tax laws. Consequently, each holder of
USS Stock should consult its own tax advisor as to the specific tax consequences
of the Merger to that stockholder.
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<PAGE>
As of the date of this Proxy Statement/Prospectus, Winston & Strawn has
advised USS that in its opinion (i) the Merger will qualify as a reorganization
pursuant to Section 368(a) of the Code, (ii) no gain or loss will be recognized
by USS as a result of the Merger and (iii) no gain or loss will be recognized by
an USS stockholder upon the exchange of the shares of USS Stock for shares of
HBOC Common Stock pursuant to the Merger, except on the receipt of cash in lieu
of a fractional share interest in HBOC Common Stock.
As of the date of this Proxy Statement/Prospectus, Jones Day has advised
HBOC and HBOC-GA that in its opinion (i) the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Code and (ii) no gain or loss
will be recognized by either HBOC, HBOC-GA or USS as the result of the
consummation of the Merger.
The opinions of Winston & Strawn and Jones Day referred to herein are based
upon certain representations and warranties of HBOC, HBOC-GA and USS. In
addition, consummation of the Merger is subject to the condition that as of the
Closing Date the opinions described above shall not have been withdrawn or
materially modified. No ruling, however, has been requested from the Internal
Revenue Service in connection with the Merger, and the opinions referred to
above would neither be binding upon the Internal Revenue Service nor preclude it
from adopting a contrary position.
Provided that the Merger constitutes a tax-free reorganization, the
aggregate adjusted tax basis of the HBOC Common Stock received (including any
fractional share interests deemed received) by a stockholder of USS as a result
of the Merger will be the same as the aggregate adjusted tax basis of the shares
of USS Stock surrendered in exchange therefor. The holding period of the HBOC
Common Stock received (including any fractional share interests deemed received)
by a stockholder of USS as a result of the Merger will include the holding
period of the shares of USS Stock surrendered in exchange therefor. Any cash
that a stockholder of USS receives in lieu of a fractional interest in a share
of HBOC Common Stock will be treated as if the fractional share were distributed
in the Merger and were then redeemed for the cash payment, resulting in gain or
loss upon receipt of such cash taxed as provided in Section 302 of the Code.
To prevent "backup withholding" of federal income tax on any payments of
cash to an USS stockholder in the Merger, an USS stockholder must, unless an
exception applies under the applicable law and regulations, provide the payor of
such cash with such holder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such number is
correct and that such holder is not subject to backup withholding. The
exceptions provide that certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, however, he or she must submit a signed
statement (i.e., Certificate of Foreign Status on Form W-8) attesting to his or
her exempt status. A Substitute Form W-9 will be provided to each USS
stockholder in the letter of transmittal to be mailed to each holder after the
Effective Time. If the correct TIN and certifications are not provided, a $50
penalty may be imposed on an USS stockholder by the Internal Revenue Service,
and any cash received by such stockholder may be subject to backup withholding
at a rate of 31%.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND IS BASED ON EXISTING LAW AS OF THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF USS ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER
(INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS).
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<PAGE>
NO APPRAISAL RIGHTS
Because USS Common Stock is a Nasdaq NM security and holders of USS
Preferred Stock will receive HBOC Common Stock, which is also a Nasdaq NM
security, upon consummation of the Merger, the holders of shares of USS Stock
will not be entitled to appraisal rights pursuant to Section 262 of the DGCL in
connection with the Merger.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN EACH OF HBOC AND USS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HBOC
The following table sets forth, as of July 31, 1998, unless otherwise
indicated, certain information with respect to all stockholders known to HBOC to
beneficially own more than five percent of the HBOC Common Stock and information
with respect to HBOC Common Stock beneficially owned by each director of HBOC,
the Chief Executive Officer of HBOC and HBOC's other executive officers who were
the most highly compensated for the year ended December 31, 1997, and all
directors and executive officers of HBOC as a group. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the HBOC Common Stock owned by them and beneficial
ownership is determined in accordance with the rules of the Commission.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- --------------------------------------------------------------- ---------------------- -------------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109.................................. 22,932,430(2) 5.3%
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109.................................. 33,903,532(3) 7.9%
Alfred C. Eckert III........................................... 42,000(4) *
Philip A. Incarnati............................................ 100,000(5) *
Alton F. Irby III.............................................. 192,000(6) *
M. Christine Jacobs............................................ 20,000(5) *
Gerald E. Mayo................................................. 268,000(5) *
Charles W. McCall.............................................. 4,162,240 1.0%
James V. Napier................................................ 301,552(7) *
Donald C. Wegmiller............................................ 40,000(5) *
Jay P. Gilbertson.............................................. 109,440(8) *
Albert J. Bergonzi............................................. 12,368 *
Russell G. Overton............................................. 71,684 *
Jay M. Lapine.................................................. 32,358(9) *
All Directors and Executive Officers as a Group (12 persons)... 5,351,642(10) 1.2%
</TABLE>
- ------------------------
* Less than 1%.
(1) In accordance with the rules of the Commission, a person is deemed to be the
beneficial owner of any securities such person has the right to acquire
within 60 days of the date on which beneficial ownership is determined.
Accordingly, options exercisable within such period are reported as
presently exercisable.
(2) According to the Schedule 13G as of December 31, 1997, of FMR Corp. ("FMR"),
FMR has sole dispositive power with respect to all of such shares and sole
voting power with respect to 1,311,902 shares.
(3) According to the joint Schedule 13G as of December 31, 1997, of Putnam
Investments, Inc. ("PI"), its parent, Marsh & McLennan Companies, Inc. and
PI's subsidiaries, Putnam Investment Management, Inc. ("PIM") and The Putnam
Advisory Company, Inc. ("PAC"), PAC has shared voting and shared dispositive
power with respect to 4,018,800 and 5,767,160 of such shares, respectively,
PIM has shared dispositive power with respect to 28,136,372 of such shares
and PI has shared voting and shared dispositive power with respect to
4,018,800 and 33,903,532 of such shares, respectively.
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<PAGE>
(4) Includes 20,000 shares that may be acquired through the exercise of
presently exercisable stock options and 2,000 shares which are held by Mr.
Eckert's wife's IRA.
(5) Represents shares that may be acquired through the exercise of presently
exercisable stock options.
(6) Includes 180,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(7) Includes 220,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(8) Includes 40,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(9) Includes 30,900 shares that may be acquired through the exercise of
presently exercisable stock options.
(10) Includes 818,900 shares that may be acquired through the exercise of
presently exercisable stock options.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF USS
The following table sets forth, as of the Record Date, 1998, unless
otherwise indicated, certain information with respect to all stockholders known
to USS to beneficially own five percent or more of the issued and outstanding
USS Common Stock, and information with respect to USS Common Stock beneficially
owned by each director of USS, the Chief Executive Officer of USS and USS's
other executive officers for the year ended March 31, 1998, and all directors
and executive officers of USS as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to USS Common Stock owned by them. The number of shares shown for each
person represents the number of shares of USS Common Stock the person holds, the
number of shares of USS Common Stock the person has the right to acquire upon
exercise of certain options to purchase USS Common Stock, the number of shares
of USS Common Stock into which Series A Preferred Stock and Series B Preferred
Stock held by the person are convertible and the number of shares of USS Common
Stock issuable upon exercise of warrants held by the person. Except as noted,
all addresses are 220 Davidson Avenue, 2nd floor, Somerset, New Jersey 08873.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(1) PERCENT OF CLASS(2)
- ------------------------------------------------------------ ---------------------- ---------------------
<S> <C> <C>
S.M. Caravetta(3)........................................... 1,064,028 12.0%
Frederick R. Blume(4)
c/o American Healthcare Fund
122 S. Michigan Ave.
Chicago, Il 60603......................................... 200,821 2.3%
Graham O. King(5)........................................... 733,333 7.8%
James A. Pesce(6)........................................... 257,650 2.9%
Robert E. Van Metre(7)...................................... 102,000 1.1%
Stanford J. Goldblatt....................................... -- --
Robert E. King(8)(9)........................................ 297,500 3.3%
Robert C. Bowers(9)......................................... 30,000 *
James E. Cowie(10)
c/o Frontenac VI Limited Partnership
135 S. LaSalle Street
Chicago, IL 60603......................................... 2,557,500 27.4%
All Executive Officers and Directors as a Group
(9 persons) (11).......................................... 5,242,832 50.9%
</TABLE>
- ------------------------
* Less than 1%
(1) David Vanco, 4 South Piermont Drive, North Barrington, IL 60010, may own in
excess of 5% (but less than 8%) of the outstanding shares of USS Common
Stock, however, USS has been unable to verify the exact holdings of Mr.
Vanco either by filings with the Commission or from Mr. Vanco directly.
(2) Information presented gives effect to 6,355,683 shares of USS Common Stock
issued and outstanding as of July 31, 1998 and assumes the issuance of
2,500,000 shares of USS Common Stock upon conversion of all outstanding
Series A Preferred Stock and Series B Preferred Stock.
(3) Includes 116,000 shares of USS Common Stock owned by the children of Mr.
Caravetta. Mr. Caravetta disclaims beneficial ownership of such shares.
Includes 198,028 shares of USS Common Stock owned by trusts, of which the
children of Mr. Caravetta are the beneficiaries and Mr. Stephen J. Feinberg
and the wife of Mr. Caravetta are trustees. Mr. Caravetta disclaims
beneficial ownership of such shares. Mr. Caravetta may be deemed to be the
promoter or founder of USS as such term is defined under the federal
securities laws.
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(4) Includes 45,000 shares issuable upon exercise of vested stock options and
125,000 shares issuable upon conversion of Series B Preferred Stock. Does
not include options to purchase 20,000 shares which might be issued upon
exercise of stock options which have not yet vested.
(5) Includes 533,333 shares issuable upon exercise of vested stock options. Does
not include 266,667 shares issuable upon exercise of stock.
(6) Includes 167,650 shares issuable upon exercise of vested stock options. Does
not include 107,350 shares which might be issued upon exercise of a stock
option which has not yet vested.
(7) Includes 100,000 shares issuable upon exercise of vested stock options. Does
not include 50,000 shares which might be issued upon exercise of a stock
option which has not yet vested.
(8) Includes 20,500 shares owned by Mr. King's wife and 73,000 shares held in
trust for the benefit of Mr. King's children. Mr. King disclaims beneficial
ownership of all such shares. Also includes 18,000 shares issued, and 49,000
shares issuable upon exercise of warrants, and 125,000 shares issuable upon
conversion of Series A Preferred Stock, held in trust for the benefit of Mr.
King's children. Mr. King disclaims beneficial ownership of all such shares.
(9) Includes 30,000 shares issuable upon exercise of vested stock options. Does
not include 20,000 shares which might be issued upon exercise of a stock
option which has not yet vested.
(10) Represents shares owned by Frontenac VI Limited Partnership. Mr. Cowie
disclaims beneficial ownership of such shares. Includes 490,000 shares
issuable upon exercise of warrants, 1,250,000 shares issuable upon
conversion of Series A Preferred shares and 817,500 shares issuable upon
conversion of Series B Preferred Stock.
(11) Includes 905,983 shares issuable upon exercise of vested stock options and
539,000 shares issuable upon exercise of warrants.
INTERESTS OF CERTAIN USS PERSONS IN MATTERS TO BE ACTED UPON
In considering the Merger, holders of USS Common Stock should be aware that
the directors and executive officers of USS have interests in the Merger in
addition to their interests as stockholders of USS generally, as described
below.
USS is a party to an employment agreement with Graham O. King for a term
extending through March 31, 1999 (the "King Employment Agreement"). The
agreement provides that if Mr. King's employment is terminated by USS other than
for "cause" (as defined therein) or by Mr. King for "good reason" (as defined
therein and which includes a "change of control" other than with Mr. King's
prior written consent), Mr. King is entitled a lump sum equal to one year's
salary and reimbursement of certain insurance premiums. Mr. King's current
salary is $288,000. The Merger would have constituted a change of control for
purposes of the King Employment Agreement entitling Mr. King to terminate his
employment for good reason, however, Mr. King has consented to the Merger and
thus will not receive the lump sum payment.
Pursuant to an Option Agreement dated as of October 12, 1994 between USS and
Mr. King, as amended on July 23, 1997 (the "King Option Agreement"), Mr. King
was issued options to acquire 800,000 shares of USS Common Stock. At July 31,
1998, such option was unvested with respect to 266,667 shares, the vesting of
which will accelerate upon effectiveness of the Merger.
On July 20, 1998 the USS Board approved the payment of $150,000 to Mr. King
for services to USS on the earlier of the Effective Date of the Merger or March
31, 1999.
Mr. King has received an employment offer letter from HBOC contingent upon
the closing of the Merger, which would terminate and supersede the current King
Employment Agreement, except for the benefits accruing prior to or as a result
of the Merger. Pursuant thereto, HBOC has offered Mr. King the
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position of Senior Vice President of HBOC's Strategic Services Group, an annual
salary of $288,000, a grant of options to purchase 150,000 shares of HBOC Common
Stock on the date of hire at the then market price of HBOC Common Stock,
participation in the HBOC Management Incentive Plan and life insurance in an
amount not to exceed $1,000,000 paid for by HBOC.
James A. Pesce is a party to an employment agreement with USS, as amended
October 9, 1996. The agreement provides that if there is a material reduction in
Mr. Pesce's responsibilities or he is terminated other than for cause (as
specified in the agreement), Mr. Pesce is entitled to receive his base salary
and payment of certain healthcare benefits for 16 months as severance, subject
to certain conditions and limitations. Mr. Pesce's current base salary is
$195,000. In certain circumstances if Mr. Pesce's employment is terminated
following the Merger, he may be entitled to severance under his employment
agreement.
Mr. Pesce has options to acquire 275,000 shares of USS Common Stock. As of
July 31, 1998, such option was unvested with respect to 107,350 shares of USS
Common Stock. Under the terms of Mr. Pesce's option, as a result of the Merger,
all unvested shares become fully vested within one year after the Merger or upon
his termination, subject to certain conditions, within one year after the
Merger.
Mr. Pesce has received an employment offer letter from HBOC contingent upon
closing of the Merger which would terminate and supersede his current agreement
with USS, except for the benefits accruing prior to or as a result of the
Merger. Pursuant thereto, HBOC has offered Mr. Pesce the position of Vice
President of Operations of HBOC's Strategic Services Group, an annual salary of
$195,000, a grant of options to purchase 50,000 shares of HBOC Common Stock on
the date of hire at the then market price of HBOC Common Stock, participation in
the HBOC Management Incentive Plan and life insurance in an amount not to exceed
$1,000,000 paid for by HBOC.
Derek A. Pickell has a month to month employment agreement with USS. Mr.
Pickell is currently the Vice President, Business Development of USS and is paid
an annual salary of $170,000.
Mr. Pickell has options to acquire 250,000 shares of USS Common Stock. As of
July 31, 1998, such option was unvested with respect to 163,650 shares of USS
Common Stock. Under the terms of Mr. Pickell's option, as a result of the
Merger, all unvested shares become fully vested within one year after the Merger
or upon his termination, subject to certain conditions, within one year after
the Merger.
Mr. Pickell has received an employment offer letter from HBOC contingent
upon the closing of the Merger which would terminate and supersede his current
agreement with USS, except for the benefits accruing prior to or as a result of
the Merger. Pursuant thereto, HBOC has offered Mr. Pickell the position of Vice
President of Operations and Sales for HBOC's Strategic Services Group, an annual
salary of $170,000, a grant of options to purchase 50,000 shares of HBOC Common
Stock on the date of hire at the then market price of HBOC Common Stock and
participation in the HBOC Management Incentive Plan.
Robert E. Van Metre is currently the Secretary, Treasurer and Vice
President, Accounting and Finance of the Company and is paid an annual salary of
$150,000. Mr. Van Metre has entered into an agreement with USS which provides
that if Mr. Van Metre is terminated within one year after the effective date of
the Merger, he is entitled to a lump sum severance payment of $112,500. Mr. Van
Metre has options to acquire 150,000 shares of USS Common Stock. As of July 31,
1998, such option was unvested with respect to 50,000 shares of USS Common
Stock. Under the terms of Mr. Van Metre's options, all unvested shares become
fully vested within one year after the Merger or upon his termination within one
year after the Merger.
The following non-management members of the USS Board have options to
acquire the following number of shares of USS Common Stock indicated: Frederick
R. Blume--65,000 shares; Robert C. Bowers--50,000 shares; and Robert F.
King--50,000 shares. As of July 31, 1998, the following number of shares of USS
Common Stock were exercisable under such options: Mr. Blume--45,000 shares; Mr.
Bowers--30,000 shares; and Mr. King--30,000 shares. Under the terms of USS'
Amended 1994 Stock Option Plan for Non-Employee Directors, upon the
effectiveness of the Merger, each such option
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(whether or not then exercisable) will be converted into the right to receive
shares of HBOC Common Stock having a fair market value equal to the difference
between the total fair market value of the shares of USS Common Stock subject to
the option and the total exercise price under the option.
On May 11, 1998, USS approved a special bonus of $100,000 payable to Mr.
Bowers for his services as a Director and the Chairman of the Audit Committee.
Such amount is payable to Mr. Bowers on the earlier of the effective date of the
Merger or March 31, 1999.
HBOC has agreed that subsequent to the Closing Date, it will provide to the
directors and executive officers of USS indemnification in accordance with the
current provisions of the USS Charter and the Bylaws of USS with respect to the
matters occurring prior to the Effective Time, including, without limitation,
the Merger Agreement and the transactions contemplated thereby, for a period of
six years from the Effective Time or until any known matters are resolved.
Additionally, HBOC has agreed to maintain in effect for twelve months following
the Closing Date the policies of directors' and officers' liability insurance
currently maintained by USS, or an equivalent substitute, provided that the
premiums are no more than 105% of the annual premiums for such coverage as of
the date of the Merger Agreement. If the premiums exceed such 105% limit, HBOC
has the option to substitute insurance or to reduce the maximum amount of
coverage to that available for such amount.
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COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF EACH OF
HBOC COMMON STOCK AND USS STOCK
INTRODUCTION
HBOC and USS are each incorporated under the laws of the State of Delaware.
The holders of shares of USS Stock, whose rights as stockholders are currently
governed by Delaware law, the USS Charter, the Bylaws of USS, as amended (the
"USS Bylaws"), the Certificate of Designation relating to the Series A Preferred
Stock ("Series A Designation"), in the case of the Series A Preferred Stock, and
the Certificate of Designation relating to the Series B Preferred Stock ("Series
B Designation"), in the case of the Series B Preferred Stock, will, upon the
exchange of their shares pursuant to the Merger, become holders of shares of
HBOC Common Stock, and their rights as such will be governed by Delaware law,
the HBOC Certificate of Incorporation, as amended (the "HBOC Charter"), and the
Amended and Restated Bylaws of HBOC (the "HBOC Bylaws"). The material
differences between the rights of holders of shares of USS Stock and the rights
of holders of shares of HBOC Common Stock result from differences in their
governing corporate documents and are summarized below.
The following summary does not purport to be a complete statement of the
rights of holders of shares of HBOC Common Stock under applicable Delaware law,
the HBOC Charter and HBOC Bylaws or a comprehensive comparison with the rights
of the holders of shares of USS Stock under applicable Delaware law, the USS
Charter, USS Bylaws, the Series A Designation, in the case of the Series A
Preferred Stock, and the Series B Designation, in the case of the Series B
Preferred Stock, or a complete description of the specific provisions referred
to herein. The identification of specific differences is not meant to indicate
that other equally or more significant differences do not exist. This summary is
qualified in its entirety by reference to the DGCL and the governing corporate
documents of HBOC and USS, to which holders of shares of USS Stock are referred.
See "Incorporation of Certain Information by Reference."
AUTHORIZED CAPITAL STOCK
The DGCL requires that a corporation's certificate of incorporation set
forth the total number of shares of all classes of stock which the corporation
has authority to issue and a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof. The HBOC Charter provides that HBOC has authority to issue (i)
1,000,000,000 shares of HBOC Common Stock and (ii) 1,000,000 shares of preferred
stock, no par value. The USS Charter provides that USS has the authority to
issue (i) 30,000,000 shares of USS Common Stock, par value $.01 per share, and
(ii) 10,000,000 shares of preferred stock, par value $.01 per share.
BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
The DGCL permits a corporation's certificate of incorporation to allow its
board of directors to issue, without stockholder approval, one or more series of
preferred or preference stock and to designate their rights, preferences,
privileges and restrictions. The HBOC Charter grants such power to the HBOC
Board. The HBOC Board has designated one series of preferred stock, the Series A
Junior Participating Preferred Stock. See "Incorporation of Certain Information
by Reference." The USS Charter also grants such power to the USS Board. The USS
Board has designated two series of preferred stock, the Series A Preferred Stock
and the Series B Preferred Stock. USS has designated a total of 1,500,000 shares
of Series A Preferred Stock and 1,000,000 shares of Series B Preferred Stock.
TERMS OF USS PREFERRED STOCK
Except as required by the USS Charter or the DGCL, the Series A Preferred
Stock and Series B Preferred Stock vote together with the USS Common Stock as a
single class as specified the Series A Designation and Series B Designation.
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At any time, any holder of USS Preferred Stock may convert all or any
portion of such shares into an equivalent number of shares of USS Common Stock.
In the event of a liquidation, dissolution or winding up, the holders of USS
Preferred Stock are entitled to a preferential distribution in an amount equal
to $4.00 per share (the "Liquidation Value"), plus all accrued but unpaid
dividends. The certificates of designation for the USS Preferred Stock provide
that upon the merger or consolidation, exchange of shares or sale or transfer of
more than 80% of USS's assets (a "Corporate Change"), USS will, prior to the
consummation of such transaction, make appropriate provisions to ensure that the
holders of USS Preferred Stock will have the right to receive such securities or
assets as such holder would have received if the holder had converted the USS
Preferred Stock prior to the Corporate Change.
VOTING RIGHTS
The DGCL states that, unless a corporation's certificate of incorporation
or, with respect to clauses (ii) and (iii), the bylaws, specify otherwise, (i)
each share of its capital stock is entitled to one vote, (ii) a majority of
voting power of the shares entitled to vote, present in person or represented by
proxy, shall constitute a quorum at a stockholders' meeting and (iii) in all
matters other than the election of directors, the affirmative vote of a majority
of the voting power of shares, present in person or represented by proxy at the
meeting and entitled to vote on the subject matter, shall be the action of the
stockholders. The holders of shares of HBOC Common Stock are entitled to one
vote per share on all matters to be voted on by the stockholders of HBOC. Each
share of USS Common Stock has one vote on all matters to be voted on by the
holders of the USS Common Stock. Each series of preferred stock has the voting
rights required by the DGCL and on all matters submitted to a vote of the
stockholders of USS, each share of Series A Preferred Stock and Series B
Preferred Stock is entitled to cast the number of votes equal to the number of
shares of USS Common Stock which would be issuable upon conversion of such share
(including any fractional share) as of the record date for determining
eligibility to vote, voting together with the USS Common Stock as a single
class.
NUMBER OF DIRECTORS
Under the DGCL, unless a corporation's certificate of incorporation
specifies the number of directors, such number shall be fixed by, or in the
manner provided in, its bylaws. If a corporation's certificate of incorporation
expressly authorizes its board of directors to amend its bylaws, its board of
directors may change the authorized number of directors by an amendment to the
corporation's bylaws, if fixed therein, or in such manner as is provided
therein. If such certificate of incorporation specifies the number of directors,
the number of directors can only be changed by amending the certificate of
incorporation. The HBOC Bylaws provide that the number of members of the HBOC
Board shall be not less than three nor more than fifteen, such number to be
established by the HBOC Board or stockholders. The number of directors on the
HBOC Board is currently eight. The USS Bylaws provide that the number of
directors shall be eleven directors. The number of directors constituting the
USS Board is currently eight.
ELECTION OF BOARD OF DIRECTORS
The DGCL provides that a corporation's directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Under the
DGCL, a corporation's certificate of incorporation may provide that stockholders
of a corporation can elect directors by cumulative voting. The holders of the
Series A Preferred Stock have the right to elect one director of USS while the
remaining directors of USS are elected by a plurality of the votes cast in an
election. Neither the HBOC Charter nor the USS Charter provides for cumulative
voting.
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
The DGCL generally requires approval of any merger, consolidation or sale of
substantially all the assets of a corporation at a meeting of stockholders by
vote of the holders of a majority of all outstanding
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shares of the corporation entitled to vote thereon. The certificate of
incorporation of a Delaware corporation may provide for a greater vote. The HBOC
Charter generally requires the affirmative vote of four-fifths of the
outstanding HBOC Common Stock to approve certain business combinations, except
under certain circumstances. The USS Charter does not provide for a greater vote
than required by the DGCL to approve a merger, consolidation or sale of
substantially all assets of USS.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special stockholder meetings of a corporation may be called
by its board of directors and by any person or persons authorized to do so by
its certificate of incorporation or bylaws. Under the HBOC Charter and HBOC
Bylaws, special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Chairman of the
Board or the President or by holders of four-fifths of the outstanding shares of
HBOC Common Stock and shall be called by the Chairman of the Board or President
at the request in writing of three-fourths of the directors of HBOC. Such
requests shall state the purpose or purposes of the proposed meeting. The USS
Bylaws provide that special meetings of stockholders may be called by the
Chairman or by the USS Board upon a request in writing by the holders of a
majority of outstanding shares of USS Stock stating the purpose or purposes of
the meeting. The written notice of a special meeting shall state the time, place
and object for which the meeting is called.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the DGCL, any action by a corporation's stockholders must be taken at
a meeting of such stockholders, unless a consent in writing setting forth the
action so taken is signed by the stockholders having not less than the minimum
number of votes necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Actions by written
consent, however, may not be taken if otherwise provided for in the certificate
of incorporation. The USS Charter permits written consents by stockholders while
the HBOC Charter expressly prohibits written consents by stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The DGCL allows amendment of a corporation's certificate of incorporation if
its board of directors adopts a resolution setting forth the amendment proposed
and declaring its advisability and the stockholders thereafter approve such
proposed amendment, either at a special meeting called by the board for the
purpose of approval of such amendment by the stockholders or, if so directed by
the board, at the next annual stockholders' meeting. At any such meeting, the
proposed amendment generally must be approved by a majority of the outstanding
shares entitled to vote. The holders of the outstanding shares of a class are
entitled to vote as a separate class upon a proposed amendment, whether or not
entitled to vote thereon by the certificate of incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class or alter
or change the powers, preferences or special rights of the shares of such class
so as to affect them adversely. If any proposed amendment would alter or change
the powers, preferences or special rights of one or more series of any class so
as to affect them adversely, but not affect the entire class, then only the
shares of the series so affected by the amendment will be considered a separate
class for the purposes of a vote on the amendment. Under the DGCL, a
corporation's certificate of incorporation also may require, for action by the
board or by the holders of any class or series of voting securities, the vote of
a greater number or proportion than is required by the DGCL and the provision of
the certificate of incorporation requiring such greater vote may also provide
that such provision cannot be altered, amended or repealed except by such
greater vote.
The HBOC Charter contains no provisions requiring a vote greater than that
specified in the DGCL to amend the HBOC Charter, except for those provisions
relating to business combinations discussed
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above. The USS Charter contains no provisions requiring a vote greater than that
specified in the DGCL to amend the USS Charter.
AMENDMENT OF BYLAWS
Under the DGCL, the power to adopt, amend or repeal a corporation's bylaws
resides with the stockholders entitled to vote thereon, and with the directors
of such corporation if such power is conferred upon the board of directors by
the certificate of incorporation. The HBOC Charter authorizes the HBOC Board to
make, alter or repeal the HBOC Bylaws. The USS Charter provides that the USS
Board may amend the USS Bylaws provided that no amended bylaw shall invalidate
any prior act of the directors which would have been valid if such bylaw had not
been adopted. The USS Bylaws provide that the USS Board or the stockholders of
USS may alter, amend or repeal the USS Bylaws.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL provides that a corporation may limit or eliminate a director's
personal liability for monetary damages to the corporation or its stockholders
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to such corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying or
approving a stock repurchase in violation of Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit.
Both the HBOC Charter and the USS Charter provide for elimination of personal
liability subject to the statutory exceptions.
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful. The HBOC Bylaws and the
USS Charter provide to directors and officers of HBOC and USS, respectively,
indemnification to the fullest extent provided by law. Additionally, the HBOC
Bylaws provide that expenses incurred by a person in defending a civil or
criminal action, suit or proceeding by reason of the fact that he or she is a
director, officer, employee or agent may be paid in advance of the final
disposition of such action, suit or proceeding, upon receipt of an undertaking
by or on behalf of such director, officer, employee or agent to repay such
amount, unless it shall ultimately be determined that he or she is entitled to
be indemnified by HBOC as authorized by relevant Delaware law.
PAYMENT OF DIVIDENDS
The DGCL permits the payment of dividends and the redemption of shares out
of a corporation's surplus. Under the DGCL, if a dividend is paid out of capital
surplus, stockholders need not be notified, and the dividends may, in certain
cases, also be paid out of net profits for the fiscal year in which declared or
out of net profits for the preceding fiscal year. Holders of the USS Preferred
Stock are entitled to a preferential dividend on each issued and outstanding
share of USS Preferred Stock at 8% per annum of the Liquidation Value. Such
dividend will be prior and in preference to the payment of any dividend on USS
Common Stock. Neither the HBOC Charter nor the USS Charter has provisions
limiting the payment of dividends.
ANTI-TAKEOVER PROTECTION
Under the DGCL, a merger or consolidation generally must be approved by the
affirmative vote of the holders of a majority of all of the outstanding shares
of stock entitled to vote thereon. However, no
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stockholder approval is required if the acquiring corporation owns 90% or more
of the outstanding shares of the acquired corporation.
In addition to the DGCL's general requirements, Section 203 of the DGCL,
"Business Combinations with Interested Stockholders," prohibits a corporation
that does not opt out of its provisions from entering into certain business
combination transactions with "interested stockholders" (generally defined to
include persons beneficially owning 15% or more of the corporation's outstanding
capital stock) unless certain super-majority votes are obtained. HBOC has opted
out of Section 203 in its Bylaws. However, the HBOC Charter places certain
restrictions on "Business Combinations" (such as a merger) with "Controlling
Persons" (generally a person holding more than 10% of the HBOC Common Stock)
unless, generally speaking, the Business Combination has been approved by the
affirmative vote of the holders of four-fifths of the outstanding HBOC Common
Stock not held by the Controlling Person or its related entities or by a
majority of directors who were directors prior to the time the Controlling
Person became a Controlling Person and who are not affiliated with the
Controlling Person. Such provisions do not apply to the Merger. USS has not
opted out of Section 203 in the USS Charter or USS Bylaws.
APPRAISAL RIGHTS
Generally, no appraisal rights are available under the DGCL for shares of
any class of stock which are (i) listed on a national securities exchange or
designated as a national market system security on an inter-dealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders. Further, under the DGCL, stockholders of
corporations being acquired pursuant to a merger have the right to serve upon
the corporation a written demand for appraisal of their shares when the
stockholders receive any form of consideration for their shares other than (a)
shares of the surviving corporation, (b) shares of any other corporation (i)
listed on a national securities exchange, (ii) designated as a national market
system security on an inter-dealer quotation system by the National Association
of Securities Dealers, Inc. or (iii) held of record by more than 2,000
stockholders, (c) cash in lieu of fractional shares or (d) any combination
thereof. Stockholders entitled to appraisal rights subsequently receive cash
from the corporation equal to the value of their shares as established by
judicial appraisal. Corporations may enlarge these statutory rights by including
in their certificate of incorporation a provision allowing appraisal rights in
any merger in which the corporation is a constituent corporation. Neither the
HBOC Charter nor the USS Charter contains such a provision on appraisal rights.
BUSINESS OF HBOC
GENERAL
HBOC provides integrated patient care, clinical, financial, managed care and
strategic management software solutions for the healthcare industry. These open
systems applications facilitate the integration of clinical, financial and
administrative data from a wide range of customer systems and software. HBOC's
broad product portfolio can be implemented in a variety of combinations from
stand-alone to enterprisewide, enabling healthcare organizations to add
incremental capabilities to their existing information systems without making
prior capital investments obsolete. HBOC also provides a full complement of
network communications technologies, including wireless capabilities, as well as
outsourcing services that are offered under contract management agreements
whereby its staff manages and operates data centers, information systems,
medical call centers, organizations and business offices of healthcare
institutions of various sizes and structures. In addition, HBOC offers a wide
range of electronic commerce services, including electronic medical claims and
remittance advice services as well as statement processing.
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers, pharmacies,
reference laboratories, managed care providers and payors.
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HBOC also sells its products and services internationally through subsidiaries
and/or distribution agreements in the United Kingdom, Canada, Ireland, Saudi
Arabia, Kuwait, Australia, Puerto Rico and New Zealand.
As of December 31, 1997, HBOC had 6,286 employees worldwide.
RECENT DEVELOPMENTS
HBOC has entered into an Agreement of Merger dated July 23, 1998 among HBOC,
HBOC-GA and IMNET which provides electronic information and document management
solutions for the healthcare industry. Such agreement is subject, among other
things, to regulatory and IMNET stockholder approval.
BUSINESS OF USS
USS is a management services company that provides outsourced billing,
accounts receivable and other business and information management services to
physicians and physician networks, hospital business offices, and ambulatory
care centers. USS's principal focus is providing billing and accounts receivable
management services.
As of June 15, 1998, USS employed 381 individuals.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, proposals of stockholders intended to be
presented at USS' 1999 annual meeting of stockholders must be received by USS by
March 12, 1999 for inclusion in USS' proxy materials relating to such meeting.
In the event the Merger is consummated, there will not be a 1999 annual meeting
of stockholders of USS.
OTHER MATTERS
The management of USS knows of no other matters that may come before the
Meeting. However, if matters other than those referred to above should properly
come before the Meeting, it is the intention of the persons named on the
enclosed form of proxy to vote such proxy in accordance with their best
judgment.
CERTAIN LEGAL MATTERS
The validity of the shares of HBOC Common Stock offered hereby have been
passed upon for HBOC by Jones, Day, Reavis & Pogue, Atlanta, Georgia. Certain
tax matters in connection with the Merger have been passed upon for USS by
Winston & Strawn, Chicago, Illinois.
EXPERTS
The audited financial statements and schedule of HBOC incorporated by
reference in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement of which this Proxy Statement/Prospectus is a part, to the extent and
for the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
With respect to the unaudited interim financial information of HBOC for the
three and six months ended June 30, 1997 and 1998, which are incorporated by
reference herein, Arthur Andersen LLP has applied limited procedures in
accordance with professional standards for a review of that information.
However, their separate report thereon states that they did not audit and they
do not express an opinion on that interim financial information. Accordingly,
the degree of reliance on their report on that information should be restricted
in light of the limited nature of the review procedure applied. In addition,
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the accountants are not subject to the liability provisions of Section 11 of the
Securities Act, for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the Registration Statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act.
The US Servis, Inc. consolidated balance sheets as of March 31, 1998 and
1997, and the consolidated statements of income, retained earnings, and cash
flows for each of the three years in the period ended March 31, 1998,
incorporated by reference in this Proxy Statement/Prospectus, have been
incorporated herein in reliance on the report of Wiss & Company, LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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APPENDIX A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, made this 20th day of July, 1998, by and among
HBO & COMPANY, a Delaware corporation ("Parent"); HBO & COMPANY OF GEORGIA, a
Delaware corporation (hereinafter referred to as "Purchaser"); and US SERVIS,
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 US Servis, 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 collectively the Common Stock and
Preferred Stock 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(a).
1.8 "Benefit Plans" shall have the meaning set forth in Section 3.16.
1.9 "Certificate of Merger" shall have the meaning set forth in Section
2.1.2.
1.10 "Certificates" shall have the meaning set forth in Section 2.2.2
hereof.
1.11 "Closing" shall have the meaning set forth in Section 2.1.9 hereof.
1.12 "Closing Date" shall mean the date on which the Closing occurs pursuant
to Section 8.1 hereof.
1.13 "Common Stock" shall mean the common stock, $.01 par value per share,
of the Acquired Company.
1.14 "Covenants Not to Compete" shall mean the Covenants Not to Compete
referred to in Section 6.11.
1.15 "Customer Contracts" shall have the meaning set forth in Section
3.12.1.
1.16 "Delaware Code" shall mean the Delaware General Corporation Law.
1.17 "DOL" shall mean the United States Department of Labor.
1.18 "Employee Agreements" shall mean Employee Agreements referred to in
Section 6.12.
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1.19 "Effective Time" shall mean the time the Merger becomes effective, as
set forth in Section 2.1.2.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
1.21 "ERISA Affiliate" shall mean, with respect to a Person, any other
Person that is required to be aggregated with such Person under Tax Code Section
414(b), (c), (m) and/or (o) at any time prior to the Closing Date.
1.22 "ERISA Plan" shall have the meaning set forth in Section 3.16.
1.23 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.24 "Exchange Agent" shall mean the person designated by Purchaser as the
Exchange Agent pursuant to Section 2.2.1 hereof.
1.25 "Exchange Ratio" shall mean the ratio of exchange pursuant to the
Merger in respect of each share of Acquired Company Stock constituting a
fraction of a share of Parent Stock as determined pursuant to the provisions of
Section 2.1.6.
1.26 "Existing Option" shall have the meaning set forth in Section 2.1.7
(a).
1.27 "401(k) Plan" shall mean the US Servis, Inc. defined contribution
401(k) plan.
1.28 "Fully Diluted Shares" means the total number of shares of Acquired
Company Stock issued and outstanding immediately prior to the Effective Time,
plus the number of shares of Acquired Company Stock issuable pursuant to all
options, warrants or other rights which permit the holder thereof to acquire or
convert into shares of Acquired Company Stock outstanding immediately prior to
the Effective Time.
1.29 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and Improvements
Act of 1976, as amended.
1.30 "Hazardous Substance" shall have the meaning set forth in Section 3.18.
1.31 "IRS" shall mean the United States Internal Revenue Service.
1.32 "King Option Agreement" shall mean that certain Option Agreement
between the Acquired Company and Graham O. King dated October 12, 1994.
1.33 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
1.34 "Market Value" shall mean the average closing price per share (or if
there is no sale on such date then the average between the closing bid and ask
prices on any such day) for shares of Parent Stock during the twenty (20)
consecutive trading days ending on the third trading day prior to the date of
the Special Meeting of stockholders of the Acquired Company held to approve the
Merger as reported by Nasdaq.
1.35 "Material Adverse Effect" shall mean a material adverse effect on the
businesses, properties, rights, financial condition or results of operations of
the corporation in question and its subsidiaries, taken as a whole.
1.36 "Material Contract" shall have the meaning set forth in Section 3.12.
1.37 "Merger" shall mean the merger of the Acquired Company with and into
Purchaser, as set forth in Section 2.1.1.
1.38 "Merger Consideration" shall have the meaning set forth in Section
2.1.6(c).
1.39 "Nasdaq" shall mean the Nasdaq National Market of the Nasdaq Stock
Market, Inc.
1.40 "1996, 1997, and 1998 Financial Statements" shall have the meaning set
forth in Section 3.5.1.
1.41 "1933 Act" shall mean the Securities Act of 1933, as amended.
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1.42 "Option Agreements" shall mean collectively the King Option Agreement
and Sullivan Option Agreement.
1.43 "Owned Software" shall have the meaning set forth in the first
paragraph of Section 3.13.
1.44 "Parent" shall mean HBO & Company, a Delaware corporation, which is the
sole stockholder of Purchaser.
1.45 "Parent Reports" shall have the meaning set forth in Section 4.5.
1.46 "Parent Stock" shall mean the common stock, $0.05 par value per share,
of Parent.
1.47 "PBGC" shall mean the Pension Benefit Guaranty Corporation established
under Title IV of ERISA.
1.48 "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.
1.49 "Pooling Letter" shall have the meaning set forth in Section 2.4(b).
1.50 "Preferred Stock" shall mean the Series A and Series B preferred stock,
$.01 par value per share, of the Acquired Company.
1.51 "Purchaser" shall mean HBO & Company of Georgia, a Delaware
corporation.
1.52 "Real Property" shall have the meaning set forth in Section 3.18.
1.53 "Registration Statement" shall have the meaning set forth in Section
2.3.1.
1.54 "Rule 145 Letters" shall have the meaning set forth in Section 2.4(a).
1.55 "SEC" shall mean the Securities and Exchange Commission.
1.56 "Stock Plans" shall mean the US Service, Inc. 1986 Incentive Stock
Option Plan, the US Servis, Inc. Amended 1993 Stock Option Plan, the US Servis,
Inc. Amended 1994 Stock Option Plan for Non-Employee Directors, and the Option
Agreements.
1.57 "Subsidiaries" shall mean the subsidiaries of the Acquired Company,
which are set forth on EXHIBIT 3.1 hereto.
1.58 "Sullivan Option Agreement" shall mean that certain Employment
Agreement among the Acquired Company, Stephen G. Sullivan and Receivables
Management Corp. dated June 14, 1991, as amended.
1.59 "Surviving Corporation" shall have the meaning set forth in Section
2.1.1 hereof.
1.60 "Takeover Proposal" shall have the meaning set forth in Section 2.11
hereof.
1.61 "Tax Code" shall mean the Internal Revenue Code of 1986, as amended.
1.62 "Voting Agreements" shall have the meaning set forth in Section 6.14.
1.63 "Warrants" shall mean the outstanding Series A Warrants and Series B
Warrants to purchase Acquired Company Stock dated October 12, 1995 described on
EXHIBIT 2.1.7 hereof.
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II. COVENANTS AND UNDERTAKINGS.
2.1 TERMS AND APPROVAL OF MERGER.
2.1.1. TERMS OF THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
Code, the Acquired Company shall be merged with and into Purchaser (the
"Merger"), as soon as practicable following the satisfaction or waiver of
the conditions set forth in Articles V, VI and VII hereof. Following the
Merger, Purchaser shall continue as the surviving corporation (the
"Surviving Corporation") and the separate corporate existence of the
Acquired Company shall cease.
2.1.2. EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective when both (i) this Agreement shall be adopted and approved by the
stockholders of the Acquired Company in accordance with the applicable
provisions of the Delaware Code and (ii) a Certificate of Merger (the
"Certificate of Merger"), executed in accordance with the relevant
provisions of the Delaware Code is filed with the Secretary of State of
Delaware (the time the Merger becomes effective being referred to as the
"Effective Time"). The Merger shall have the effects set forth in the
Delaware Code.
2.1.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Purchaser as in effect immediately preceding the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation.
The Bylaws of Purchaser as in effect immediately preceding the Effective
Time shall be the Bylaws of the Surviving Corporation.
2.1.4. DIRECTORS. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and shall
hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
2.1.5. OFFICERS. The officers of Purchaser immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and shall
hold office from the Effective Time until their respective 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 a
fraction of a share of Parent Stock, determined by dividing the sum of $50
million by the product of the Market Value and the Fully Diluted Shares, which
shall be deliverable to the holder thereof without interest on the value
thereof, upon the surrender of the certificate(s) formerly representing such
outstanding share, provided, however, that if the Market Value is less than
$23.50 per share, then either Parent or the Acquired Company shall have the
right, but not the obligation, to terminate the Merger prior to Closing pursuant
to Section 10.1.6 hereof.
(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)
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and (d) of this Section 2.1.6. (The shares of Parent Stock, and any cash in lieu
of fractions thereof, receivable by each Acquired Company stockholder as
described in Section 2.1.6(a) above and 2.1.6(d) below, are referred to
hereinafter as the "Merger Consideration.") No cash or stock dividend payable,
no certificate representing split shares deliverable, and no other distribution
payable or deliverable to holders of record of Parent Stock at any time
subsequent to the Effective Time shall be paid or delivered to the holder of any
certificate that at the Effective Time represented Acquired Company Stock unless
and until such certificate is surrendered to the Exchange Agent. However,
subject to any applicable escheat laws, upon such surrender, there shall be paid
or delivered to the holder of record of the certificate or certificates for
Parent Stock issued and exchanged therefor, the certificates for shares and/or
other property resulting from any such dividends, splits, or other
distributions, as the case may be, that shall have theretofore become payable or
deliverable with respect to Parent Stock subsequent to the Effective Time. No
interest shall be payable with respect to such payment or delivery of any
dividends or other distributions upon the surrender of certificates that
represented Acquired Company Stock at the Effective Time.
(d) No certificates or scrip representing fractional shares of Parent Stock
shall be issued upon surrender of certificates representing Acquired Company
Stock converted pursuant hereto, and no dividend, stock split, or other
distribution of Parent shall relate to any such fractional share interest, and
no such fractional share interest shall entitle the owner thereof to vote or to
any other rights of a stockholder of Parent. In lieu of any such fractional
share, any holder of Acquired Company Stock shall be entitled, 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 (by
means of a stock split, stock dividend or similar event) 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 AND WARRANTS.
(a) At the Effective Time, Parent shall assume the Acquired Company's rights
and obligations under each of the outstanding options previously granted under
the Stock Plans (each such option existing immediately prior to the Effective
Time being called an "Existing Option," and each such option so
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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
(i) with any less benefits than they have immediately prior to the Effective
Time, or (ii) additional benefits which they did not have immediately prior to
the Effective Time or relieve the holders thereof of any obligations or
restrictions applicable to the Assumed Options or the shares of Parent Stock
obtainable upon exercise of the Assumed Options. EXHIBIT 2.1.7 sets forth all
outstanding warrants, 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 warrant, option, award or right, the
holder, the date of grant and any vesting schedule with respect thereto.
(b) At the Effective Time, Parent shall assume the Acquired Company's rights
and obligations under the Warrants, subject to the provisions of the agreements
to be executed in respect thereof pursuant to Section 6.15 hereof.
2.1.8. STOCKHOLDERS' MEETING. The Acquired Company, acting through its
Board of Directors, shall:
(a) promptly furnish a copy of the proxy statement/prospectus included in
the Registration Statement to each of its stockholders after the Registration
Statement has become effective with the SEC;
(b) duly call, give notice of, convene and hold a special meeting of its
stockholders and submit this Agreement and the Merger and any related matters,
as appropriate, to a vote of the Acquired Company's stockholders as soon as
practicable for the purpose of considering and taking action upon this Agreement
and any such related matters; and
(c) use its reasonable best efforts, subject to the provisions of Section
2.11, to obtain the necessary approval of the Merger by its stockholders.
2.1.9. CLOSING, FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V, VI and VII
hereof, the Acquired Company and Purchaser shall execute and file the
Certificate of Merger referred to in Section 2.1.2 in the manner required by
the Delaware Code, and the parties hereto shall take all such other and
further actions as may be required by law to make the Merger effective.
Prior to the filing referred to in this Section 2.1.9, a closing (the
"Closing") will be held as set forth in Section 8.1 hereof, for the purpose
of confirming all of the foregoing.
2.1.10. TERMINATION OF 401(K) PLAN. Prior to the Closing Date, unless
otherwise requested by Parent, the Acquired Company shall adopt appropriate
resolutions to terminate the 401(k) Plan effective immediately preceding the
Closing Date, and shall take all further actions to implement the
termination that it can reasonably take prior to the Closing Date. After the
Closing Date, Parent or Purchaser or both of them will finish implementing
the termination of the 401(k) Plan with all reasonable dispatch. In
addition, participants in the 401(k) Plan shall make no further deferrals
with
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respect to compensation for services performed after the termination date of
the 401(k) Plan, 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, in each case for services through the
termination date. Parent and Purchaser shall take such action with respect
to employees of the Acquired Company who are employed by Purchaser or Parent
that will (x) credit them with their years of eligibility and vesting
service under the 401(k) Plan for purposes of calculating eligibility for
participation and vesting in contributions under the HBO & Company Profit
Sharing and Savings Plan ("Purchaser's 401(k) Plan"), up to a maximum of
five (5) years and each other qualified retirement plan of Parent or
Purchaser (collectively, the "Purchaser's Plans"); (y) permit each of them
that was a current participant in the 401(k) Plan immediately before its
termination date and each of them that is then eligible based on the service
crediting rules described in clause (x) to participate in the Purchaser's
Plans within ten (10) days after the Closing Date; and (z) permit each of
them that receives a distribution from the 401(k) Plan that is an eligible
rollover distribution within the meaning of Code Section 402(c)(4) to effect
a direct rollover of the distribution into Purchaser's 401(k) 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
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.
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2.3 SEC REGISTRATION.
2.3.1. The Acquired Company shall furnish to Parent such information,
including information about the Acquired Company and the Subsidiaries
(including the respective affiliates of any of them), as may be necessary to
enable Parent to prepare and file with the SEC a Registration Statement on
Form S-4 under the 1933 Act, and the rules and regulations promulgated
thereunder, in respect of the Parent Stock to be issued by reason of the
Merger (such registration statement, including the prospectus and included
therein the proxy statement to be furnished to the holders of the Acquired
Company Stock, in each case together with any amendments or supplements
thereto, being referred to in this Agreement as the "Registration
Statement"). The Acquired Company covenants that the Acquired Company
Information (as defined below) included in the Registration Statement shall
not, at the time the Registration Statement is declared effective, at the
time the proxy statement/ prospectus contained therein is first mailed to
the Acquired Company's stockholders, or at the time of the meeting of the
Acquired Company's stockholders held to approve the Merger Agreement,
contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or which omits to state any material fact necessary in order to make
the statements therein not false or misleading. If at any time prior to the
Effective Time any event or circumstance should come to the attention of the
Acquired Company with respect to the Acquired Company Information that is
required to be set forth in an amendment or supplement to the Registration
Statement, the Acquired Company shall immediately notify Parent and shall
assist Parent in appropriately amending or supplementing the Registration
Statement in the manner contemplated in Section 2.3.4 below. An amendment or
supplement may be accomplished, to the extent permitted by law, rule or
regulation, by including such information in a filing under the Exchange Act
that is incorporated by reference into the Registration Statement. The
Registration Statement insofar as it relates to information concerning the
Acquired Company, the Subsidiaries or any of their respective businesses,
assets, directors, officers, or stockholders or any other affiliates or
other matters pertaining to the Acquired Company or any of the Subsidiaries
that is supplied by the Acquired Company for inclusion in the Registration
Statement, including by incorporation by reference to SEC filings (the
"Acquired Company Information") shall comply as to form and substance in all
material respects with the applicable requirements of the 1933 Act and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder; except that the Acquired Company shall have no
liability or obligation for any information other than the Acquired Company
Information.
2.3.2. The Acquired Company shall instruct its accountants, Wiss &
Company, LLP, to deliver and shall use its reasonable best efforts to cause
such accountants to deliver to Parent letters dated at the time the
Registration Statement becomes effective and as of the Closing Date,
addressed to Parent, each containing both (i) its opinion to the effect that
the Acquired Company satisfies the tests applicable to it such that the
Merger can be accounted for as a "pooling of interests", which opinion
letters shall be substantially in the form of the opinion letter attached as
EXHIBIT 2.3.2(A) hereto; and (ii) such matters as are customarily contained
in auditors' letters regarding information about the Acquired Company
included in the Registration Statement, which auditors' letters shall be in
form and substance reasonably satisfactory to Parent. Parent shall use its
reasonable best efforts to cause its accountants, Arthur Andersen LLP, to
deliver to the Acquired Company letters at such times to the effect that the
Parent satisfies the tests applicable to it such that the Merger can be
accounted for as a "pooling of interests", which letters shall be
substantially in the form of the letter attached as EXHIBIT 2.3.2(B) hereto.
The Acquired Company represents that it is eligible for registration of its
securities on Form S-3.
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
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state securities laws in connection with the issuance of Parent Stock in the
Merger; except that such covenant of Parent is made, as to those portions of
the Registration Statement containing or required to contain Acquired
Company Information, assuming and relying solely on timely and full
compliance with Sections 2.3.1 and 2.3.2.
2.3.4. Parent covenants that the information included in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, at the time the proxy statement/prospectus contained
therein is first mailed to the Acquired Company's stockholders, or at the
time of the meeting of the Acquired Company's stockholders held to approve
the Merger, contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to
any material fact, or which omits to state any 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.
2.3.6. Parent shall use its reasonable best efforts 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 its reasonable best efforts to cause, prior to
Closing, the Parent Stock issuable in the Merger to be approved for listing,
subject to notice of issuance, by Nasdaq.
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
obligations are subject to and conditioned on the Acquired Company providing
Parent with all information requested by Parent in connection therewith
prior to the Closing Date.
2.4 AFFILIATES.
(a) The Acquired Company shall use its reasonable best efforts to cause each
person that is an "affiliate" of the Acquired Company under the 1933 Act on the
date immediately 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 any
other person becomes an affiliate of the Acquired Company thereafter, to cause
such person to provide a Rule 145 Letter to Parent as soon as practicable but in
any event at 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 immediately preceding the date of the filing of the Registration Statement
to deliver to the 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
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becomes an affiliate of the Acquired Company thereafter, to cause such person to
provide a Pooling Letter to Parent as soon as practicable but in any event 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 consent in writing of Purchaser, (ii)
as may be required to effect the transactions contemplated by this
Agreement, or (iii) as provided otherwise in this Agreement, the Acquired
Company covenants that, between the date of this Agreement and the Effective
Time, the Acquired Company and the Subsidiaries will conduct their
respective business in the ordinary course, and that they will:
(a) except as disclosed on EXHIBIT 2.6 hereto, 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 disclosed on EXHIBIT 2.6 hereto, not enter into any Material
Contract, 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 service 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 (i) stock options pursuant to the
Stock Plans or (ii) the Warrants);
(g) not grant any stock option or right to purchase any security of the
Acquired Company or any of the Subsidiaries, issue any security convertible into
such securities, purchase, redeem, retire or otherwise acquire any of such
securities, or agree to do any of the foregoing or declare, set aside or pay any
dividend, make any other distribution or declare any split in respect of such
securities;
(h) not adopt any new Benefit Plan or amend, supplement, or accelerate the
timing of payments or vesting under any existing Benefit Plan, and not make any
contribution to or distribution from any employee benefit plan, pension plan,
stock bonus plan, 401(k) plan or profit sharing plan (except for the payment of
any health, disability and life insurance premiums that may become due and
except for
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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 pursuant to the Stock Plans or the Warrants;
(l) not alter in any manner the terms, conditions or dates of vesting or
exercise of any of the options to purchase Acquired Company Stock;
(m) not effect any acquisition, by purchase of stock, assets or otherwise,
of any business or portion thereof or of any Person; and
(n) promptly advise Purchaser in writing of any matters arising or of which
the Acquired Company becomes aware after the date of this Agreement that, if
existing or known at the date hereof, would be required to be set forth or
described in this Agreement or the Exhibits hereto.
2.6.2. Except after prior notification to, and with the prior written
consent of, Purchaser, which consent shall not be unreasonably withheld, the
Acquired Company shall not make or permit any Subsidiary to make, between
the date of this Agreement and the Effective Time, any change in its banking
or safe deposit arrangements or grant any powers of attorney.
2.7 FILING OF TAX RETURNS. The Acquired Company shall cause all of the
Acquired Company's and the Subsidiaries' federal, state and local tax returns
required to be timely filed before the Effective Time to 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 material tax returns to Purchaser at least
fifteen (15) days prior to the date they must be filed, and Purchaser shall have
the opportunity to comment on and approve such returns, which approval shall not
unreasonably be withheld. Non-material returns shall include, but not be limited
to, payroll tax returns filed by ADP Company for the Acquired Company, or sales
tax returns where the taxes due are less than $10,000 for the period covered
thereby.
2.8 EXAMINATION OF PROPERTY AND RECORDS; CONFIDENTIALITY OF INFORMATION.
2.8.1. Between the date of this Agreement and the Effective Time, the
Acquired Company shall allow Purchaser, its counsel and other
representatives full access to all the books, records, files, documents,
assets, properties, contracts and agreements of the Acquired Company and the
Subsidiaries that may be reasonably requested, and the Acquired Company
shall furnish Purchaser, its officers and representatives during such period
with all information concerning the affairs of the Acquired Company and the
Subsidiaries that may be reasonably requested. Between the date of this
Agreement and the Effective Time Parent shall allow any executive officer of
the Acquired Company access to the Chief Financial Officer of Parent to make
inquiries and request and receive information in respect of Parent or
Purchaser deemed by such Chief Financial Officer in the exercise of his
judgment as reasonably requested by the Acquired Company in the context of
the transactions provided for herein. Each party shall conduct any
investigation in a manner that will not unreasonably interfere with the
businesses of the other party.
2.8.2. All non-public information acquired by any party hereto pursuant
to this Section 2.8 or otherwise under this Agreement, whether or not in
writing, concerning the business, operations and
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affairs of any other party to this Agreement, will be kept confidential and
will not be disclosed to any Person other than the parties hereto or their
authorized representatives (who shall be subject to the same obligations)
and will not be used for any purpose other than the consummation of the
Merger and the related transactions described herein, subject to any legal
disclosure obligation of any party upon advice from counsel and prior notice
to the other party. Promptly upon termination of this Agreement, and at the
request of any party hereto, all written materials thus obtained by any
other party or any of its representatives and all copies and extracts of
such materials will be delivered to the disclosing party.
2.9 CONSENTS AND APPROVALS. The Acquired Company shall use its, and shall
cause the Subsidiaries to use their, reasonable best efforts (without requiring
the payment of money) to obtain the waiver, consent and approval of all persons
whose waiver, consent or approval (i) is required in order to consummate the
transactions contemplated by this Agreement, including without limitation, the
Merger and the merger or dissolution of the Subsidiaries pursuant to Section
2.15, or (ii) is required by any Material Contract or any judgment, decree,
order or license to which the Acquired Company or any Subsidiary is a party or
subject on the Effective Time and (a) that would prohibit or require the waiver,
consent or approval of any person to such transactions or (b) under which,
without such waiver, consent or approval, such transactions would constitute an
occurrence of default under, or otherwise conflict with or be in contravention
of, the provisions thereof, result in the acceleration of any obligation
thereunder or give rise to a right of any party thereto to terminate its
obligations thereunder. All obtained written waivers, consents and approvals
shall be produced at Closing in form and content reasonably satisfactory to
Purchaser.
2.10 SUPPLYING OF FINANCIAL STATEMENTS. The Acquired Company shall deliver
to Purchaser all regularly prepared audited and unaudited consolidated 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
(i) furnishing information to or entering into discussions or negotiations with
any unsolicited person or entity or taking any action described in clauses (a)
and (b) of the preceding sentence if and only to the extent that the Board of
Directors of the Acquired Company shall have determined in good faith, that such
action is required in the exercise of its fiduciary duties, based upon the
written advice of its outside counsel, or (ii) complying with Rule 14e-2
promulgated under the Exchange Act. 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 two (2) business days of receipt, furnish to
Parent a copy of any such written proposal or a written
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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, and the party receiving the request shall use its reasonable
best efforts to comply with such request as soon as possible. Neither such party
shall withdraw any such filing or submission without the written consent of the
other.
2.13 TAX REPORTING. For federal and state tax purposes, Purchaser and
Parent shall report the transactions contemplated by this Agreement as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Tax Code and similar state laws.
2.14 INDEMNIFICATION OF ACQUIRED COMPANY OFFICERS AND DIRECTORS. The
Purchaser agrees that subsequent to the Closing it will provide to the
directors, officers, employees or agents of the Acquired Company and its
Subsidiaries indemnification in accordance with the current provisions of the
Certificate of Incorporation/Articles of Incorporation and By-Laws of the
Acquired Company and its Subsidiaries with respect to matters occurring prior to
the Effective Time, for a period of six (6) years from the Effective Time (or,
in the case of matters occurring prior to the Effective Time which have not been
resolved prior to the sixth anniversary of the Effective Time, until such
matters are finally resolved). The Parent shall cause to be maintained in effect
for twelve (12) months following the Closing Date the 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
five percent (105%) 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
105% of the premiums for the coverage as of the date hereof (the "105% 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 105%
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.
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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, except as provided in EXHIBIT
3.2.2. 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 Volpe Brown Whelan & Company, LLC, its financial advisor,
concurrently with the approval described in Section 3.2.1 above to the
effect that the consideration to be received by the Acquired Company's
stockholders in the Merger is fair to such stockholders from a financial
point of view.
3.3 CAPITALIZATION. The entire authorized capital stock of the Acquired
Company consists of forty million (40,000,000) shares of stock, of which thirty
million (30,000,000) shares are designated common stock, par value $.01 per
share, and ten million (10,000,000) shares are designated preferred stock, par
value $.01 per share. Of the total authorized common stock, as of June 15, 1998,
six million three hundred fifty-five thousand six hundred eighty-three
(6,355,683) shares were issued and outstanding and fifteen thousand seven
hundred (15,700) shares were held in the Acquired Company's treasury. Of the
total
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authorized preferred stock, as of June 15, 1998, one million five hundred
thousand (1,500,000) shares were designated as Series A Preferred Stock, all of
which were issued and outstanding, and one million (1,000,000) shares were
designated as Series B Preferred Stock, all of which were issued and
outstanding, and no shares of any series were held in the Acquired Company's
treasury. All outstanding shares of Preferred Stock as of the date hereof and as
of the Closing Date, are convertible into Common Stock on a one-for-one basis.
As of June 15, 1998 there were Warrants outstanding entitling the holders
thereof upon valid exercise to acquire in the aggregate 588,000 shares of Common
Stock. As of July 15, 1998, there were options outstanding under the Stock Plans
entitling the optionees thereunder upon valid exercise to acquire in the
aggregate two million ninety-five thousand five hundred (2,095,500) shares of
Common Stock. 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 and warrants, 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. Except as set
forth on EXHIBIT 3.3, none of the capital stock of the Acquired Company is
entitled to or subject to preemptive rights. Other than the requisite
stockholder vote to consummate the Merger, the authorization or consent of no
other person or entity is required in order to consummate the transactions
contemplated herein by virtue of any such person or entity having an equitable
or beneficial interest in the Acquired Company or any Subsidiary or the capital
stock of the Acquired Company or any Subsidiary. Except as set forth on EXHIBIT
3.3, there are no outstanding options, warrants, calls, commitments or plans by
the Acquired Company or any Subsidiary to issue any additional shares of their
capital stock, to pay any dividends on such shares or to purchase, redeem, or
retire any outstanding shares of their capital stock, nor are there outstanding
any securities or obligations that are convertible into or exchangeable for any
shares of capital stock of the Acquired Company. Following the Merger, the
Acquired Company will have no obligation to issue, transfer or sell any shares
of capital stock of any of the Subsidiaries. Except as set forth on EXHIBIT 3.3,
there are not now, and at the Effective Time there will not be, any voting
trusts or other agreements or understandings to which the Acquired Company or
any of the Subsidiaries is a party or is bound with respect to the voting of the
capital stock of the Acquired Company or any of the Subsidiaries.
3.4 ABSENCE OF EQUITY INVESTMENTS. Except for the Subsidiaries and as
described in EXHIBIT 3.4 hereto, the Acquired Company does not, either directly
or indirectly, own of record or beneficially any shares or other equity
interests in any corporation, partnership, limited partnership, joint venture,
trust or other business entity.
3.5 LIABILITIES AND OBLIGATIONS OF THE ACQUIRED COMPANY AND THE
SUBSIDIARIES.
3.5.1. Attached hereto as EXHIBIT 3.5.1 are true, correct and complete
copies of the Acquired Company's audited consolidated balance sheets as of
March 31, 1996, March 31, 1997, March 31, 1998, the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended, together with the reports of Wiss & Company, LLP thereon
(respectively, the "1996, 1997 and 1998 Financial Statements"). The 1996,
1997 and 1998 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 its 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
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1998 Financial Statements or EXHIBIT 3.5.2 hereto, to the extent and in the
amounts so disclosed or reserved against, and (b) liabilities incurred or
accrued in the ordinary course of business since March 31, 1998, liabilities
incurred in connection with the transactions referred to herein and
obligations under executory contracts not in the nature of penalties or
liabilities for breach or default thereunder; and (c) any other liabilities
that would not individually or in the aggregate have a Material Adverse
Effect on the Acquired Company.
3.5.3. Except as disclosed in the 1998 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 1998 Financial Statements or EXHIBIT
3.5.2 and such liabilities incurred or accrued subsequent to March 31, 1998
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 3.6.1. 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 1998 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 referred 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, in connection with the transactions contemplated by
this Agreement, 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. Except as set forth on EXHIBIT 3.6.2, the Acquired Company is not
obligated to make reimbursement or gross-up payments to any person in
respect to excess parachute payments.
3.6.3. Except as provided in EXHIBIT 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
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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 March 31, 1996, and all
taxes, deficiencies, penalties and interest relating to such tax years have
been fully paid and satisfied by the Acquired Company.
3.6.5. No issue has been raised by the IRS, any state or local taxing
authority, or any other investigation or audit, that will have, or can be
expected to have, a Material Adverse Effect on the Acquired Company.
3.6.6. Except as set forth on EXHIBIT 3.6.6, the 1996, 1997 and 1998
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 as
disclosed or reserved against in EXHIBIT 3.7 or reserved against in the 1998
Financial Statements (to the extent and in the amounts so disclosed or reserved
against) and except for liens arising from current taxes not yet due and payable
and other immaterial liens and encumbrances. 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 1998 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.
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3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed on EXHIBIT
3.9, since March 31, 1998, the Acquired Company and each of the Subsidiaries has
operated in the ordinary course of business and there has not been (i) any
material damage, destruction or other casualty loss with respect to property
owned or leased by the Acquired Company or any of the Subsidiaries, whether or
not covered by insurance, or any strike, work stoppage or slowdown or other
labor trouble involving the Acquired Company or any of the Subsidiaries; (ii)
any increase in dividends or employee compensation or benefits payable by the
Acquired Company, except for normal increases in compensation consistent, in
amounts and timing, with historical practices; (iii) any change in accounting
methods; or (iv) any transaction, commitment, dispute or other event or
condition that has 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 have a Material Adverse Effect in respect
of the Acquired Company, the Acquired Company and the Subsidiaries presently are
conducting their respective businesses so as to comply with all applicable
statutes, ordinances, rules, regulations and orders of any governmental
authority. Further, the Acquired Company and the Subsidiaries are not presently
charged with, or to their knowledge under governmental investigation with
respect to, any actual or alleged violation of any statute, ordinance, rule or
regulation, or presently the subject of any pending or, to the knowledge of the
Acquired Company, threatened adverse proceeding by any regulatory authority
having jurisdiction over their respective businesses, properties or operations.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the termination of any license,
certificate, permit, franchise or right held by the Acquired Company or any
Subsidiary, and all such licenses, certificates, permits, franchises and rights
will inure to the benefit of the Surviving Corporation after the consummation of
the transactions contemplated by this Agreement.
3.12 CONTRACTS, AGREEMENTS AND INSTRUMENTS GENERALLY. EXHIBIT 3.12 hereto
consists of a true and complete list of all contracts, agreements, commitments
and other instruments (identified by title, date and parties)(whether oral or
written) to which the Acquired Company or any Subsidiary is a party that involve
a receipt or an expenditure by the Acquired Company or any Subsidiary or require
the performance of services or delivery of goods to, by, through, on behalf of
or for the benefit of the Acquired Company or any Subsidiary, which in each case
relates to a contract, agreement, commitment or instrument that requires
payments or provides for receipts in excess of $500,000 per year, which
contracts comprise the substantial majority of the revenues and activities of
the Acquired Company's business. 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 in excess of $500,000 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 $20,000 per
month and all maintenance or service agreements relating to any real or
personal property with payments equal to or greater than $20,000 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 $20,000 per month;
3.12.8. joint product development agreement with any party other than
the Purchaser, other than Customer Contracts; and
3.12.9. contracts or agreements with vendors of material equipment
purchased by the Acquired Company or appointing the Acquired Company as a
reseller of equipment, other than purchase orders in the ordinary course of
business.
The contracts, agreements, commitments and other instruments listed or
required to be listed on EXHIBIT 3.12 or listed on an Exhibit referred to in
Section 3.14 hereof are herein referred to as the "Material Contracts."
All the Material Contracts are valid and binding upon the Acquired Company
or the applicable Subsidiary and to the knowledge of the Acquired Company the
other parties thereto and are in full force and effect and enforceable in
accordance with their terms, except as enforceability may be affected by
bankruptcy, insolvency, moratorium or similar laws affecting creditors rights
generally and general principles of equity 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 Material
Contract 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 Material
Contracts 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
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contract or commitment. Except for terms specifically described in EXHIBIT 3.12,
neither the Acquired Company nor any Subsidiary has received any payment from
any contracting party in connection with or as an inducement for entering into
any contract, agreement, policy or instrument except for payment for actual
services rendered or to be rendered by such Acquired Company or Subsidiary
consistent with amount historically charged for such services.
3.13 CERTAIN REGULATORY MATTERS. The Acquired Company's business is not
subject to the Fair Debt Collection Practices Act.
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 same and a
description of the same) applicable to or used in the businesses of the
Acquired Company or any Subsidiary; (ii) the owner of such intellectual
property and any registration thereof or application therefor; and (iii) a
complete list of all licenses granted by or to the Acquired Company or any
Subsidiary with respect to any of the above (identified by title, date and
parties). 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 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
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by any license, lease or similar agreement relating to the Licensed Software
and except pursuant to contracts requiring such other parties to keep the
Licensed Software confidential. No party to whom the Acquired Company or a
Subsidiary has disclosed Licensed Software has, to the knowledge of the
Acquired Company, breached such obligation of confidentiality.
3.14.2(iii) The Owned Software and Licensed Software and commercially
available over-the-counter "shrink-wrap" software constitute all software
used in the businesses of the Acquired Company and the Subsidiaries
(collectively, the "Acquired Company Software"). EXHIBIT 3.14.2(III) sets
forth a list of all contract programmers, independent contractors,
nonemployee agents and persons or other entities (other than employees) who
have performed, within the last three (3) years, computer programming
services for the Acquired Company or any Subsidiary and identifies all
contracts and agreements pursuant to which such services were performed.
Except as set forth on EXHIBIT 2.6, the transactions contemplated herein
will not cause a breach or default under any licenses, leases or similar
agreements relating to the Acquired Company Software or impair Purchaser's,
the Acquired Company's or any Subsidiary's ability to use the Acquired
Company Software in the same manner as such computer software is currently
used by the Acquired Company or the Subsidiaries. Neither the Acquired
Company nor any Subsidiary is infringing any intellectual property rights of
any other person or entity with respect to the Acquired Company Software,
and, to the knowledge of the Acquired Company, no other person or entity is
infringing any intellectual property rights of the Acquired Company or any
Subsidiary with respect to the Acquired Company Software.
3.14.2(iv) EXHIBIT 3.14.2(IV)(A) lists and separately identifies all
agreements pursuant to which the Acquired Company or any Subsidiary has been
granted rights to market software owned by third parties, and EXHIBIT
3.14.2(IV)(B) lists and separately identifies all agreements pursuant to
which the Acquired Company or any Subsidiary has granted marketing rights in
the Acquired Company Software to third parties.
3.14.2(v) None of the Acquired Company and the Subsidiaries has taken
or failed to take any actions under the law of any applicable foreign
jurisdictions where the Acquired Company or a Subsidiary has marketed or
licensed Acquired Company Software that would restrict or limit the ability
of the Acquired Company or any Subsidiary to protect, or prevent it from
protecting, its ownership interests in, confidentiality rights of, and
rights to market, license, modify or enhance, the Acquired Company Software.
3.15 LABOR MATTERS. Except as set forth on EXHIBIT 3.15, within the last
three (3) years neither the Acquired Company nor any Subsidiary has been the
subject of any union activity or labor dispute, nor has there been any strike of
any kind called or, to the knowledge of the Acquired Company, threatened to be
called against any of them. Neither the Acquired Company nor any Subsidiary has
violated in any material respect any applicable federal or state law or
regulation relating to labor or labor practices. EXHIBIT 3.15 sets forth a true,
correct and complete list of employer loans or advances from the Acquired
Company and each Subsidiary to their respective employees. The Acquired Company
and all Subsidiaries are in compliance in all material respects with all
applicable requirements of the Immigration and Nationality Act of 1952, as
amended by the Immigration Reform and Control Act of 1986 and the regulations
promulgated thereunder (hereinafter collectively referred to as the "Immigration
Laws").
3.16 BENEFIT PLANS.
3.16.1. EXHIBIT 3.16.1 lists every pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance
pay, vacation, bonus or other incentive plan; any medical, vision, dental or
other health plan; any life insurance plan or any other employee benefit
plan or fringe benefit plan; any payroll practice; any other written or
unwritten employee program, arrangement or understanding; commitments or
methods of contribution or compensation (whether arrived at through
collective bargaining or otherwise), whether formal or informal, and whether
funded or unfunded; including, without limitation, any "employee benefit
plan," as that term is
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defined in Section 3(3) of ERISA; that is currently or previously adopted,
maintained, sponsored in whole or in part, or contributed to by the Acquired
Company or any ERISA Affiliate of the Acquired Company, for the benefit of,
providing any remuneration or benefits to, or covering any current or former
employee, retiree, dependent, spouse or other family member or beneficiary
of such employee or retiree, director, independent contractor, stockholder,
officer or consultant of the Acquired Company or any ERISA Affiliate of the
Acquired Company or under (or in connection with) which the Acquired Company
or an ERISA Affiliate of the Acquired Company has any contingent or
noncontingent liability of any kind, whether or not probable of assertion
(collectively, the "Benefit Plans"). Any of the Benefit Plans that is an
"employee pension benefit plan," or an "employee welfare benefit plan" as
that term is defined in Section 3(1) of ERISA, is referred to herein as an
"ERISA Plan." No Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA.
3.16.2. EXHIBIT 3.16.1 also lists, with respect to all Benefit Plans
listed in EXHIBIT 3.16.1: (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 that are currently
applicable 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. Except as indicated in EXHIBIT 3.16.3, all the Benefit Plans
and any related trusts subject to ERISA comply with and have been
administered in compliance in all material respects 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. Except as indicated in EXHIBIT 3.16.3, 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 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.
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3.16.5. Except as indicated in EXHIBIT 3.16.5, all annual reports or
returns, audited or unaudited financial statements, actuarial valuations,
summary annual reports and summary plan descriptions issued with respect to
the Benefit Plans are correct and accurate in all material respects as of
the dates thereof; and there have been no amendments filed to any of such
reports, returns, statements, valuations or descriptions or required to make
the information therein true and accurate. Except as indicated in EXHIBIT
3.16.5, all annual reports (Form 5500 series) required to be filed with
respect to any Benefit Plan have been or will be timely filed.
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 December 31, 1997, the Acquired Company had no current or
future liability with respect to any events or matters occurring, arising or
accruing on or prior to such date under any Benefit Plan that was not
reflected in the 1998 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
1998 Financial Statements.
3.16.10. Except as set forth in EXHIBIT 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 in 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. EXHIBIT 3.16 also lists, with respect to all Benefit Plans
listed in EXHIBIT 3.16.1: (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.
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3.16.13. The Acquired Company has obtained from each of those persons
listed on EXHIBIT 6.11(A) an executed Covenant Not to Compete in the form of
EXHIBIT 6.11(B), and from each of those persons listed on EXHIBIT 6.14(A) an
executed Voting Agreement in the form of EXHIBIT 6.14(B).
3.17 CUSTOMERS. None of the Acquired Company and the Subsidiaries has
received any notice from, or has any knowledge that, any customer of the
Acquired Company or any Subsidiary with whom the Acquired Company or such
Subsidiary has a Material Contract as of December 31, 1997 or any date
subsequent thereto has taken or will take any steps that could disrupt the
business relationship of the Acquired Company or the Subsidiaries with such
customer in any material respect, including without limitation any cancellation
of contract, diminution of business or failure to renew, or any intention to do
any of the foregoing. None of the Acquired Company, 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 in all material respects
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 which individually or in the aggregate could have a Material Adverse
Effect on the Acquired Company. 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 to the Acquired
Company's knowledge 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
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actions or failure to act of any other party, or (ii) otherwise against the
Acquired Company or any Subsidiary. Except as disclosed on EXHIBIT 3.18, to the
knowledge of the Acquired Company or any Subsidiary, there are no underground
storage tanks on the Real Property. To the knowledge of the Acquired Company, no
building or other improvement included in the Real Property contains any exposed
or friable asbestos or any asbestos-containing materials, and such buildings and
improvements are free from radon contamination. For the purposes of this
Agreement, "Hazardous Substance" shall mean any hazardous or toxic substance or
waste as those terms are defined by any applicable federal, state or local law,
ordinance, regulation, policy, judgment, decision, order or decree, including,
without limitation, the Comprehensive Environmental Recovery Compensation and
Liability Act, 42 U.S.C. 9601 ET SEQ., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 ET. SEQ. and the Resource Conservation and Recovery
Act, 42 U.S.C. 6901 ET SEQ., and petroleum, petroleum products and oil.
3.19 INSURANCE. Set forth in EXHIBIT 3.19 is a complete list of all
material insurance policies that the Acquired Company and the Subsidiaries
maintained with respect to its businesses, properties or employees within the
preceding thirty-six (36) months. Except as set forth in EXHIBIT 3.19, such
policies are in full force and effect and no event has occurred that would give
any insurance carrier a right to terminate any such policy. Such policies are
adequate to insure against risks to which the Acquired Company, and any
Subsidiaries and their respective properties and assets are exposed in the
operation of their respective businesses in such amounts and types of coverage
as are commercially reasonable and are consistent with practices in the industry
in which the Acquired Company and the Subsidiaries operate. Since January 1,
1996, the Acquired Company has not (i) had any material insurance policies
terminated or not renewed by the insurance company; or (ii) been required to pay
in excess of 125% of the premium then in effect to renew any material insurance
policy.
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, and no officer or director
or member of the immediate family of such officer or director, and to the
knowledge of the Acquired Company no affiliate or member of the immediate family
of any such affiliate of the Acquired Company or any Subsidiary possesses,
directly or indirectly, any beneficial interest in, or is a director, officer or
employee of, or member of the immediate family of a director, officer or
employee of, any corporation, partnership, firm, association or business
organization that is a client, supplier, customer, lessor, lessee, lender,
creditor, borrower, debtor or contracting party with or of the Acquired Company
or any Subsidiary (except as a stockholder holding less than a one-percent 1%
interest in a corporation whose shares are traded on a national or regional
securities exchange or in the over-the-counter market).
(b) The Acquired Company has provided to each of its "affiliates" as
identified in Section 2.4 copies of the Rule 145 Letters and Pooling Letters and
obtained their written agreement (delivered herewith to Parent) to enter into
the same as of the dates indicated in Section 2.4
3.21 INFORMATION. The Acquired Company has made accessible to Purchaser or
Parent each registration statement, schedule, report, proxy statement or
information statement it has filed with the SEC since January 1, 1997,
including, without limitation, (a) the Acquired Company's Annual Report on Form
10-K for the year ended March 31, 1997, including all documents incorporated
therein, (b) the Acquired Company's Quarterly Reports on Form 10-Q for the
quarters ended June 30, September 30, and December 31, 1997, and (c) all Reports
of Acquired Company on Form 8-K since December 31, 1997 (collectively, the
"Acquired Company Reports"). As of the date of this Agreement, the Acquired
Company Reports, taken together with information previously furnished by the
Acquired Company to Parent or Purchaser, did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading. As used in this Section 3.21,
"material" means material to the
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financial condition, business, properties, rights or operations of the Acquired
Company together with the Subsidiaries, taken as a whole.
3.22 POOLING OF INTERESTS. The Acquired Company is not aware of any facts
or circumstances in respect of it or its accounting procedures which would have
the effect of precluding accounting for the transactions contemplated hereby as
a "pooling of interests."
3.23 EXHIBITS. All Exhibits attached hereto are true, correct and complete
as of the date of this Agreement and will be true, correct and complete as of
the Closing Date, except to the extent that such Exhibits may be untrue,
incorrect or incomplete due to changes occurring due to the operation of the
Acquired Company and the Subsidiaries in the ordinary course, which shall not
individually or in the aggregate have a Material Adverse Effect. Matters
disclosed on each Exhibit shall be deemed disclosed only for purposes of the
matters to be disclosed on such Exhibit and shall not be deemed to be disclosed
for any other purpose unless expressly provided therein.
3.24 DISCLOSURE. No statement contained herein or in any certificate,
schedule, list, exhibit or other instrument furnished or required to be
furnished to Purchaser pursuant to the provisions hereof contains, or will at
the time it is furnished contain, any untrue statement of any material fact or
omits or omit to state any 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 set forth in 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. Each of Purchaser and Parent is a duly
organized and validly existing corporation in good standing under the laws of
the State of Delaware.
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.
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4.3 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution and
delivery of this Agreement by Purchaser and Parent do not, and the consummation
of the transactions contemplated hereby will not, violate any provisions of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of Purchaser or
of Parent, and, except as set forth on EXHIBIT 4.3, violate or constitute an
occurrence of default under any provision of, or conflict with, result in
acceleration of any obligation under, or give rise to a right by any party to
terminate its obligations under, any mortgage, deed of trust, conveyance to
secure debt, note, loan, lien, lease, agreement, instrument, or any order,
judgment, decree or other arrangement to which Purchaser or Parent is a party or
is bound or by which any of their respective assets are affected. Except for the
applicable requirements of the HSR Act, the 1933 Act, the Exchange Act,
applicable Blue Sky laws, and as set forth on EXHIBIT 4.3, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental entity is required to be obtained or made by or with respect to
Purchaser or Parent or any assets, properties or operations of Purchaser or
Parent in connection with the execution and delivery by Purchaser and Parent of
this Agreement or the consummation of the transactions contemplated hereby.
4.4 RESERVATION OF SHARES. Purchaser will, prior to the Merger, in
accordance with the terms thereof, have available shares of Parent Stock
sufficient to complete the Merger. The shares of Parent Stock 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, 1997, including, without limitation, (a) Parent's Annual Report on Form 10-K
for the year ended December 31, 1997, including all documents incorporated
therein, (b) Parent's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, and (c) Reports of Parent on Form 8-K since March 31, 1998
(collectively, the "Parent Reports"). As of the date of this Agreement, the
Parent Reports, taken together with information previously furnished by Parent
to the Acquired Company, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading. As used in this Section, "material" means material to
the financial condition, results of operations, business, assets or properties
of Parent together with its subsidiaries (including Purchaser), taken as a
whole.
4.6 CAPITALIZATION. The entire authorized capital stock of the Parent
consists of 1,001,000,000 shares of stock, of which 1,000,000,000 shares are
designated Common Stock, par value of $0.05 per share, and 1,000,000 shares are
designated as Preferred Stock, without par value. Of the total authorized Common
Stock, as of June 30, 1998, four hundred thirty million seven hundred
seventy-six thousand one hundred twenty-five (430,776,125) shares were issued
and outstanding and no shares were held in the Parent's treasury. Of the total
authorized Preferred Stock, no shares have been issued. As of June 30, 1998,
there were options outstanding entitling the optionees thereunder, to acquire in
the aggregate approximately twenty-four million one hundred ninety thousand and
four hundred seventy-four (24,190,474) shares of the Parent Stock. 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.
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.
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5.1 ACTIONS OF GOVERNMENTAL AUTHORITIES. There shall not have been
instituted or be pending any action, proceeding, application, claim or
counterclaim by any government or governmental authority or agency, domestic or
foreign, and Purchaser, Parent or the Acquired Company shall not have been
notified by any such government, governmental authority or agency (or a
representative thereof) of its present intention to commence, or recommend the
commencement of, such an action or proceeding, that (i) challenges the
acquisition by Purchaser or Parent of the Acquired Company Stock, restrains or
prohibits or seeks to restrain or prohibit the making or consummation of the
Merger or restrains or prohibits or seeks to restrain or prohibit the
performance of this Agreement; (ii) prohibits or limits or seeks to prohibit or
limit the ownership or operation by Purchaser or Parent of all or any
substantial portion of the business or assets of the Acquired Company or any of
the Subsidiaries or of Purchaser, Parent or any of their respective subsidiaries
or compels or seeks to compel Purchaser or Parent to dispose of or to hold
separate all or any substantial portion of the business or assets of the
Acquired Company or any of the Subsidiaries or of Purchaser, Parent or any of
their respective subsidiaries, or imposes or seeks to impose any material
limitation on the ability of Purchaser or Parent to conduct such business or to
own such assets; or (iii) imposes or seeks to impose limitations on the ability
of Purchaser or Parent (or any other affiliate of Purchaser) to acquire or hold
or to exercise full rights of ownership of the Surviving Corporation, including,
but not limited to, the right to vote such shares on all matters properly
presented to the stockholders of the Surviving Corporation.
5.2 OTHER LEGAL ACTIONS. There shall not have been any statute, rule,
regulation, order or injunction enacted, promulgated, entered, enforced, deemed
applicable to the Merger or this Agreement or proposed by any government,
governmental authority or agency or court, domestic or foreign, and no claim or
action shall have been instituted by any Person before a court, government or
governmental authority or agency, that could be reasonably expected to result in
any of the consequences referred to in clauses (i) through (iii) of Section 5.1
above.
5.3 LEGAL APPROVALS. The execution and the delivery of this Agreement and
the consummation of the transactions contemplated hereby shall have been
approved by all regulatory authorities whose approvals are required by law and
the waiting period under the HSR Act shall have expired or have been terminated.
5.4 STOCKHOLDER APPROVAL. This Agreement and the Merger and any related
matters shall have been adopted and approved by the affirmative vote or written
consent of the holders of the outstanding shares of Acquired Company Stock by
the vote or written consent required by, and in accordance with, the Delaware
Code.
5.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have been declared effective by the SEC, and no stop order suspending
effectiveness shall have been issued, and no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing. The shares of Parent Stock to be issued or sold
pursuant to the Registration Statement shall have been registered for issuance
under all applicable Blue Sky laws or shall be exempt from such registration,
and no stop order shall have been issued with respect to the issuance or sale of
such securities by any Blue Sky authority.
5.6 NASDAQ APPROVAL. The Parent Stock issuable in the Merger shall have
been listed or approved for listing upon notice of issuance by the Nasdaq Stock
Market, Inc.
5.7 FAIRNESS OPINION. The Acquired Company shall have received an opinion
dated as of the date of the mailing of the proxy statement/prospectus included
within the Registration Statement to the stockholders of the Acquired Company
from Volpe Brown Whelan & Company, LLC, its financial advisor, confirming the
opinion referred to in Section 3.2.3 hereof.
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VI. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND PARENT.
In addition to the conditions set forth in Article V above, all the
obligations of Purchaser and Parent to consummate, or cause to be consummated,
the Merger shall be contingent upon and subject to the satisfaction, on or
before the Closing, of each and every one of the following conditions. The
following conditions are for the sole benefit of Purchaser and Parent and may be
asserted by Purchaser or Parent regardless of the circumstances giving rise to
any such condition and may be waived by Purchaser or Parent (which action shall
be deemed a waiver by both Purchaser and Parent), in whole or in part, at any
time and from time to time, in the sole discretion of Purchaser or Parent. The
failure by either Purchaser or Parent at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any other right, and each right
shall be deemed an ongoing right that may be asserted at any time and from time
to time prior to Closing.
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 CHANGE TO 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,
except for the matters specifically disclosed on EXHIBIT 6.3.
6.4 CERTIFICATE. Purchaser shall have received a certificate of the
Chairman 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 substantially the
form set forth in EXHIBIT 6.5.
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.
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
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additional instruments, consents, waivers, approvals, endorsements and documents
as Parent and Purchaser reasonably deem to be necessary to enable the Merger to
be consummated as provided in this Agreement. All other proceedings in
connection with the Merger and the other transactions contemplated hereby, and
all instruments, consents, waivers, approvals, endorsements and documents
referred to hereunder or otherwise incident to such transactions, shall have
been obtained and be reasonably satisfactory in form and substance to Parent and
Purchaser and their counsel, including, without limitation, those consents,
waivers and approvals referred to in Section 2.9 hereof.
6.9 ACCOUNTANTS' POOLING LETTERS. Parent shall have received letters from
Wiss & Company, LLP and Arthur Andersen LLP, dated as of the effective date of
the Registration Statement and as of the Closing Date, in each case addressed to
Parent advising it, as set forth in Section 2.3.2 hereof, that the Merger may be
accounted for as a pooling of interests, which letters shall be substantially in
the form of EXHIBITS 2.3.2(A) and 2.3.2(B), respectively.
6.10 ACCOUNTANT'S COMFORT LETTERS. Purchaser and Parent shall have
received letters from Wiss & Company, LLP dated as of the effective date of the
Registration Statement and as of the Closing Date, in each case addressed to
Purchaser and Parent, containing such matters as are customarily contained in
auditors' letters regarding the Acquired Company Information provided expressly
for inclusion in such Registration Statement, and in form and substance
reasonably satisfactory to Parent.
6.11 COVENANTS NOT TO COMPETE. Purchaser shall have received from each of
those persons listed on EXHIBIT 6.11(A) hereto, originals of the Covenants Not
to Compete in the form of EXHIBIT 6.11(B) hereto ("Covenants Not to Compete"),
which were executed contemporaneously with this Agreement, and such Covenants
Not to Compete shall be in full forth and effect.
6.12 EMPLOYEE AGREEMENTS. The Acquired Company shall have obtained from
substantially all of its employees executed "Employee Agreements," to be
effective as of the Closing Date, in the form customarily used by Purchaser
(which has been furnished to Acquired Company) relating to non-disclosure,
inventions and similar matters.
6.13 FEE LIMITATION. The only fees and expenses to any investment banking
firm or similar entity that will be incurred by Acquired Company in connection
with the transaction with Parent and Purchaser will be the fees and expenses of
Volpe Brown Whelan & Company, LLC which shall be consistent with engagement
letter dated June 12, 1998 attached hereto as EXHIBIT 6.13.
6.14 VOTING AGREEMENTS. Purchaser and Parent shall have received from the
stockholders of the Company identified on EXHIBIT 6.14(A) hereto, originals of
the Voting Agreements in the form of EXHIBIT 6.14(B) hereto (the "Voting
Agreements"), which were executed contemporaneously with this Agreement and such
Voting Agreements shall be in full force and effect.
6.15 OTHER AGREEMENTS. The agreements and rights listed on EXHIBIT 3.25
and which are indicated will be terminated shall have been so terminated. In
addition, prior to the filing of the Registration Statement, the holders of the
Warrants shall have entered into agreements clarifying the treatment of the
Warrants in the Merger on terms and conditions satisfactory to Purchaser and
Parent, and the US Servis, Inc. Amended 1994 Stock Option Plan for Non-Employee
Directors shall have been amended to eliminate therefrom any cash payments to
the holders of options thereunder.
VII. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY.
In addition to the conditions set forth in Article V above, all the
obligations of the Acquired Company to consummate the Merger shall be contingent
upon and subject to the satisfaction, on or before the Closing, of each and
every one of the following conditions. The following conditions are for the sole
benefit of the Acquired Company and may be asserted by the Acquired Company
regardless of the circumstances giving rise to any such condition and may be
waived by the Acquired Company, in whole or
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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 prior to Closing.
7.1 REPRESENTATIONS OF PURCHASER AND PARENT. All representations and
warranties made by Purchaser and Parent in this Agreement (except as affected by
the transactions contemplated by this Agreement) shall be true and correct in
all material respects at the Closing Date, with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date.
7.2 COVENANTS OF PURCHASER AND PARENT. Purchaser and Parent shall have, or
caused to be, performed and observed in all respects all covenants, agreements
and conditions hereof to be performed or observed by them at or before the
Closing Date.
7.3 CERTIFICATE. The Acquired Company shall have received a certificate of
the President of each of Parent and Purchaser, dated as of the Closing Date,
certifying as to the matters set forth in Sections 7.1 and 7.2 above.
7.4 OPINION OF PARENT'S AND PURCHASER'S COUNSEL. The Acquired Company
shall have received an opinion of Jones, Day, Reavis & Pogue, counsel to Parent
and Purchaser, dated as of the Closing Date, in the form set forth in EXHIBIT
7.4.
7.5 TAX OPINION. The Acquired Company shall have received for the benefit
of its stockholders an opinion from its tax counsel, dated as of the date the
Registration Statement is declared effective and not withdrawn or materially
modified as of the Closing Date, to the effect that the Merger will qualify as a
reorganization pursuant to Section 368(a) of the Tax Code, which opinion shall
be substantially in the form of EXHIBIT 7.5 hereto.
VIII. CLOSING.
8.1 TIME AND PLACE OF CLOSING. Unless another place or date is agreed to
in writing by the Acquired Company and Purchaser, the Closing shall be held at
the offices of Jones, Day, Reavis & Pogue, 3500 One Peachtree Center, 303
Peachtree Street N.E., Atlanta, Georgia 30308-3242, commencing at 10:00 a.m.
Eastern Time, within two (2) business days of the last to occur of (i) the
expiration or termination of the waiting period under the HSR Act, (ii) the
Merger having been approved by the stockholders of the Acquired Company pursuant
to the Delaware Code and (iii) the satisfaction or waiver of the other
conditions set forth in Articles V, VI and VII. (The actual date of the Closing
is referred in this Agreement as the "Closing Date.")
8.2 TRANSACTIONS AT CLOSING. At the Closing, each of the following
transactions shall occur:
8.2.1. THE ACQUIRED COMPANY'S PERFORMANCE. At the Closing, the
Acquired Company shall deliver to Purchaser and Parent, the following:
(a) copies of the consents and waivers described in Section 2.9;
(b) satisfactory evidences of the approvals described in Section 5.4;
(c) the certificates described in Section 6.4 to be delivered on the
Closing Date;
(d) certificates of compliance or certificates of good standing of
the Acquired Company and of the Subsidiaries, as of the most recent
practicable date, from the appropriate governmental authority of the
jurisdiction of their respective incorporation and any other jurisdiction
that is set forth in EXHIBIT 3.1 hereto;
(e) certified copies of resolutions of the Board of Directors and
stockholders of the Acquired Company approving the transactions set forth
in this Agreement;
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(f) certificates of incumbency for the officers of the Acquired
Company;
(g) resignations of each trustee of each Benefit Plan;
(h) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by the Acquired
Company;
(i) the opinion of counsel for the Acquired Company, referenced in
Section 6.5;
(j) the tax opinion described in Section 6.6;
(k) the Rule 145 Letters and Pooling Letters described in Section
2.4;
(l) the letters described in Section 2.13 hereof;
(m) the letters described in Section 2.3.2 hereof;
(n) the letters from Wiss & Company, LLP to be delivered by the
Closing Date as described in Section 6.9;
(o) each of the Covenants Not to Compete fully executed and
delivered;
(p) the executed Employee Agreements described in Section 6.12;
(q) each of the Voting Agreements fully executed and delivered; and
(r) 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, 2.15 and 11.5, all representations, warranties
and agreements of the parties in this Agreement or in any instrument delivered
pursuant to this Agreement (other than the Covenants Not To Compete) shall not
survive the Closing, and thereafter no party hereto and no officer, director or
employee of any such party shall have any liability whatsoever with respect to
any such representation, warranty or agreement except for liabilities arising
from fraud, willful misconduct or criminal acts.
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<PAGE>
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
November 15, 1998, if any of the conditions set forth in Articles V and VII
hereof, to which the Acquired Company's obligations are subject, have not
been fulfilled or waived, unless such fulfillment has been frustrated or
made impossible by any act or failure to act of it or the Subsidiaries;
10.1.4. By Purchaser after November 15, 1998, if any of the conditions
set forth in Articles V and VI hereof, to which the obligations of Purchaser
and Parent are subject, have not been fulfilled or waived, unless such
fulfillment has been frustrated or made impossible by any act or failure to
act of Purchaser or Parent.
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 Parent or the Acquired Company, if
the Market Value of the Parent Stock is less than $23.50 per share.
10.2 EFFECT OF TERMINATION.
10.2.1. Except as provided in Section 10.2.2, and except as provided in
the immediately succeeding sentence, in the event of a termination of this
Agreement pursuant to Section 10.1 hereof, each party shall pay the costs
and expenses incurred by it in connection with this Agreement, and no party
(or any of its officers, directors, employees, agents, representatives or
stockholders) shall be liable to any other party for any costs, expenses,
damage or loss of anticipated profits hereunder. In the event of any
termination of this Agreement, the parties shall retain any and all rights
attendant to a breach of any covenant, representation or warranty made
hereunder.
10.2.2. In the event this Agreement is terminated by the Acquired
Company in accordance with Section 10.1.5, or by the Parent, Purchaser or
Acquired Company in accordance with Section 10.1.3 or 10.1.4 by reason of
the failure of the condition set forth in Section 5.4 hereof, then the
Acquired Company shall promptly pay (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 up to a maximum amount of $500,000 and (ii)
to Purchaser a fee in the amount of $2,000,000. In the case of any
termination of this Agreement under this Section 10.2.2 and provided the
Acquired Company has not breached any of the covenants provided for in
Section 2.1.8 or 2.11 hereof, payment of the amount specified in the
preceding sentence 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 the amount
specified in the preceding sentence, neither the Acquired Company nor any
officers, directors, employees, agents, representatives or stockholders of
the Acquired Company shall have any liability or further obligation
A-33
<PAGE>
to the Parent or the Purchaser under or in connection with this Agreement or
any such termination hereof.
10.3 RISK OF LOSS. The Acquired Company retains all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement up to the Effective Time. If the condemnation, destruction, loss, or
damage is such that the business of the Acquired Company and the Subsidiaries,
taken as a whole, is materially interrupted or curtailed or the assets of the
Acquired Company and the Subsidiaries, taken as a whole, are materially
affected, then Purchaser shall have the right to terminate this Agreement.
XI. GENERAL PROVISIONS.
11.1 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
certified mail, return receipt requested, first class postage prepaid, or sent
by Federal Express or similar overnight delivery service with receipt
acknowledged addressed as follows:
11.1.1. If to the Acquired Company:
US Servis, Inc.
220 Davidson Avenue
Somerset, New Jersey 08873
Attn: Mr. Graham O. King
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Stanford J. Goldblatt, Esq.
11.1.2. If to Purchaser or Parent:
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: Mr. Jay P. Gilbertson
and to:
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attention: John E. Zamer, Esq.
11.1.3. If delivered personally, the date on which a notice, request,
instruction or document is delivered shall be the date on which such
delivery is made and, if delivered by mail or by overnight delivery service,
the date on which such notice, request, instruction or document is received
shall be the date of delivery. In the event any such notice, request,
instruction or document is mailed or shipped by overnight delivery service
to a party in accordance with this Section 11.1 and is returned to the
sender as nondeliverable, then such notice, request, instruction or document
shall be deemed to
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<PAGE>
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 Volpe Brown Whelan & Company, LLC, no
broker or finder has acted for it or any entity controlling, controlled by or
under common control with it in connection with this Agreement. The Acquired
Company agrees to indemnify and hold harmless Purchaser and Parent against any
fee, loss, or expense arising out of any claim by Volpe Brown Whelan & Company,
LLC, or any other broker or finder employed or alleged to have been employed by
it or any of the Subsidiaries or any of the Acquired Company's stockholders. The
fees and expenses of Volpe Brown Whelan & Company, LLC and any other broker or
finder shall be paid by the Acquired Company, subject to the limitations set
forth in Section 6.13 in conjunction with such other fees set forth in Section
11.5.
11.3 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Effective Time, it will execute such additional
instruments and take such actions as may be reasonably requested by the other
parties to confirm or perfect or otherwise to carry out the intent and purposes
of this Agreement.
11.4 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
11.5 EXPENSES. Except as provided in 10.2.2, all expenses incurred by the
parties hereto in connection with or related to the authorization, preparation
and execution of this Agreement and the closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of agents, representatives, counsel and accountants employed
by any such party, shall be borne solely and entirely by the party that has
incurred the same.
11.6 PRESS RELEASES AND DISCLOSURE. In the event that either party
proposes to issue, make or distribute any press release, public announcement or
other written publicity or disclosure prior to the Closing Date that refers to
the transactions contemplated herein, the party proposing to make such
disclosure shall provide a copy of such disclosure to the other parties and
shall afford the other parties reasonable opportunity (subject to any legal
obligation of prompt disclosure) to comment on such disclosure or the portion
thereof which refers to the transactions contemplated herein prior to making
such disclosure.
11.7 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
executors, administrators, successors and assigns.
11.8 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
11.9 ENTIRE AGREEMENT. This Agreement and all agreements referenced
specifically in this Agreement and executed as required by this Agreement
constitute the entire agreement among the parties hereto and supersede and
cancel any prior agreements, representations, warranties, or communications,
whether oral or written, among the parties hereto relating to the transactions
contemplated hereby or the subject matter herein. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an agreement in writing signed by the party against whom or which the
enforcement of such change, waiver, discharge or termination is sought.
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<PAGE>
11.10 GOVERNING LAW. Except to the extent the transactions contemplated
hereby are governed by the Delaware Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of Georgia.
11.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.12 NO AGREEMENT UNTIL EXECUTED. This Agreement shall not constitute or
be deemed to evidence a contract or agreement among the parties hereto unless
and until executed by all parties hereto, irrespective, of negotiations among
the parties or the exchanging of drafts of this Agreement.
11.13 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.14 EXHIBITS INCORPORATED. All Exhibits attached hereto are an integral
part of this Agreement.
11.15 TIME OF ESSENCE. Time is of the essence in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement
to be executed on its behalf, all on the day and year first above written.
<TABLE>
<S> <C>
"PURCHASER":
HBO & COMPANY OF GEORGIA
By: /s/ JAY P. GILBERTSON
Title: PRESIDENT, CO-CHIEF OPERATING
OFFICER AND CHIEF FINANCIAL OFFICER
"PARENT":
HBO & COMPANY
By: /s/ JAY P. GILBERTSON
Title: PRESIDENT, CO-CHIEF OPERATING
OFFICER AND CHIEF FINANCIAL OFFICER
"ACQUIRED COMPANY":
US SERVIS, INC.
By: /s/ GRAHAM O. KING
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
A-37
<PAGE>
APPENDIX B
VOLPE BROWN WHELAN & COMPANY, LLC
INVESTMENT BANKERS
ONE MARITIME PLAZA, SAN FRANCISCO, CA 94111
(415) 956-8120 FAX (415) 986-6754
August 21, 1998
The Board of Directors
US Servis, Inc.
220 Davidson Avenue
Somerset, NJ 08873
Members of the Board:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, to the stockholders of US Servis, Inc. ("US Servis" or
the "Company") of the consideration to be received pursuant to the Agreement of
Merger (the "Agreement") by and among US Servis, HBO & Company ("HBOC") and a
wholly owned subsidiary of HBOC established for purposes of the Merger ("Merger
Sub").
The Agreement provides, in general, that (i) US Servis will be merged with
and into Merger Sub (the "Merger") and the shares of US Servis common stock,
$0.01 par value ("US Servis Common Stock") and Series A and Series B Convertible
Preferred Stock ("US Servis Preferred Stock") will be converted into the right
to receive shares of HBOC common stock, $0.01 par value ("HBOC Common Stock"),
(ii) the value of each share of US Servis Common Stock (the "Per Share
Consideration") will be $50,000,000 in HBOC Common Stock divided by the sum
immediately prior to the effective time of the Merger of the total number of:
(a) outstanding shares of US Servis Common Stock, (b) outstanding options to
purchase US Servis Common Stock, (c) outstanding Series A and Series B Warrants
to purchase US Servis Common Stock and (d) outstanding shares of US Servis
Preferred Stock and (iii) each share of US Servis Common Stock and US Servis
Preferred Stock will be converted into that fraction of a share of HBOC Common
Stock that is equal to the Per Share Consideration divided by the average
closing price per share for HBOC Common Stock during the twenty consecutive
trading days ending on the third trading day prior to the date of the special
meeting of stockholders of US Servis held to approve the Merger (the "Exchange
Ratio").
It is our understanding that the transaction will be accounted for as a
pooling of interests for financial reporting purposes and as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended.
For the purposes of formulating the Opinion, we have, among other things:
(i) reviewed a copy of the executed Agreement dated as of July 20, 1998;
(ii) interviewed management of US Servis concerning its business
prospects, financial outlook and operating plans as a standalone concern and
as combined with HBOC;
(iii) reviewed certain historical and projected US Servis financial
statements and other relevant financial and operating data of US Servis
prepared by US Servis' management team;
(iv) reviewed the historical stock trading patterns of both HBOC and US
Servis and analyzed implied historical exchange ratios as well as the
premium of the Per Share Consideration in relation to historical US Servis
stock trading ranges;
(v) reviewed the valuation of selected publicly traded companies we
deemed comparable and relevant to US Servis;
(vi) reviewed, to the extent publicly available, the financial terms of
selected merger and acquisition transactions that we deemed comparable and
relevant to the Merger;
<PAGE>
US Servis, Inc.
August 21, 1998
Page 2
(vii) performed a discounted cash flow analysis of US Servis as a
standalone entity based upon the financial projections provided by US Servis
management through March 1999 and as extrapolated by Volpe Brown Whelan &
Company, LLC ("VBW&Co.") and reviewed and approved by US Servis management
thereafter;
(viii) performed a pro forma financial impact analysis of the combined
entity, based upon, in the case of US Servis, financial projections provided
by US Servis management through March 1999 and as extrapolated by VBW&Co.
and reviewed and approved by US Servis management thereafter and, in the
case of HBOC, financial projections provided by the Research Department of
VBW&Co.; and
(ix) performed such other studies, analyses and inquiries and considered
such other information as we deemed relevant.
VBW&Co. relied without independent verification upon the accuracy and
completeness of all of the financial, accounting, legal, tax, operating and
other information provided to VBW&Co. by US Servis and has relied upon the
assurances of US Servis that all such information is complete and accurate in
all material respects and that there is no additional material information known
to US Servis that would make any of the information made available to VBW&Co.
either incomplete or misleading. US Servis has also retained outside legal,
accounting and tax advisors to advise on matters relating to the Merger.
Accordingly, VBW&Co. has not reviewed, and expresses no opinion, on such
matters.
We were not asked to, and we did not, contact any other potential acquiror
of US Servis. Although we were informed by US Servis of certain inquiries
received from third parties over time concerning possible business combinations,
we were not requested to consider, and we are expressing no opinion as to, the
relative merits of the Merger as compared to any alternative business strategies
that might exist for US Servis or the effect of any other transaction in which
US Servis might engage.
With respect to the projected financial data of US Servis, all of which has
been provided by or reviewed and approved by the management of US Servis, as
well as the combined business plan, VBW&Co. has relied upon the assurances of US
Servis that such data has been prepared in good faith on a reasonable basis
reflecting the best currently available estimates and judgments of US Servis
management as to the future financial performance of US Servis separately and as
combined with HBOC. Our Opinion is based, in large part, on these projected
financial data and estimates.
VBW&Co. is relying upon the information provided to it by US Servis for the
purposes of rendering the Opinion. VBW&Co. expresses no opinion and has made no
investigation with respect to the validity, accuracy or completeness of the
information provided to it and does not warrant any projections included in such
information. Actual results that US Servis or HBOC might achieve in the future
as standalone entities or as a combined company may vary materially from those
used in VBW&Co.'s analysis.
VBW&Co. has assumed that the Merger will be consummated in accordance with
the terms of the Agreement without waiver of any of the conditions to the
parties' obligations thereunder.
VBW&Co. has, furthermore, not made any independent appraisals or valuations
of any assets of US Servis or HBOC, nor has VBW&Co. been furnished with any such
appraisals or valuations. VBW&Co. has performed no investigations relating to
the representations and warranties made by US Servis or HBOC, including any
representations or warranties with respect to its intellectual property and
status of any litigation pending or threatened against either company,
respectively. While VBW&Co. believes that its review, as described herein, is an
adequate basis for the Opinion it has expressed, the Opinion is necessarily
based upon market, economic and other conditions that exist and can be evaluated
as of the date of the Opinion, and any change in such conditions would require a
re-evaluation of the Opinion.
B-2
<PAGE>
US Servis, Inc.
August 21, 1998
Page 3
The Opinion addresses only the financial fairness of the Per Share
Consideration and does not address the relative merits of the Merger and any
alternatives to the Merger, US Servis' decision to proceed with or the effect of
the Merger, or any other aspect of the Merger.
The preparation of a fairness opinion involves various judgments as to
appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, we believe our analyses and the factors utilized in
such analyses must be considered as a whole and that considering any portion of
such analyses or factors, without considering all analyses and factors could
create a misleading or incomplete view of the process underlying the Opinion. In
our analyses, we made numerous assumptions with respect to industry performance,
general business and other conditions and matters, many of which are beyond US
Servis' or HBOC's control and are not susceptible to accurate prediction.
As a customary part of its investment banking business, VBW&Co. engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, VBW&Co. and its affiliates may actively trade
the equity securities of US Servis or HBOC for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Certain directors and officers of VBW&Co. own
shares of US Servis Preferred Stock. Such shares constitute approximately 2.0%
of the outstanding shares of US Servis, and approximately 0.6% of the aggregate
number of outstanding shares of US Servis Common Stock and US Servis Preferred
Stock.
VBW&Co. will receive a fee of $600,000 for rendering its Opinion, no portion
of which is conditioned upon the Opinion being favorable.
No opinion is expressed herein as to the future trading price or range of
prices of any securities of HBOC issued prior to or in conjunction with the
Merger. Furthermore, the Opinion does not constitute a recommendation as to the
Board of Director's decision on whether to support the Merger and recommend it
to US Servis' stockholders and does not constitute a recommendation to
stockholders as to whether to vote in favor of the Merger. The Opinion and
related materials have been prepared for the use and benefit of the Board of
Directors of US Servis.
Based upon and subject to the foregoing limitations and restrictions and
after considering such other matters as we deem relevant, it is our opinion
that, as of the date hereof, the Per Share Consideration in the Merger is fair,
from a financial point of view, to the stockholders of US Servis.
Very truly yours,
VOLPE BROWN WHELAN & COMPANY, LLC
<TABLE>
<S> <C>
By: Steve Piper
Date: August 21, 1998
</TABLE>
B-3
<PAGE>
PROXY
US SERVIS, INC.
220 DAVIDSON AVENUE, 2ND FLOOR
SOMERSET, NEW JERSEY 08873
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Graham O. King and Robert E. Van Metre, and
each of them, as Proxies, each with the power to appoint his or her substitute,
and hereby authorizes them to represent, and to vote as designated on the
reverse side, all of the shares of US Servis, Inc. ("USS"), held of record by
the undersigned on August 18, 1998, at a Special Meeting of Stockholders to be
held on September 29, 1998, or any adjournment thereof upon the following matter
as set forth in the Notice of said Meeting, a copy of which has been received by
the undersigned.
1. APPROVAL OF AGREEMENT OF MERGER dated July 20, 1998, by and among USS, HBO &
Company and HBO & Company of Georgia.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
2. In their discretion, the Proxies are authorized to vote upon such other
matters that may properly come before the meeting or any adjournments
thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE PRE-PAID ENVELOPE.
--------------------------------------
SIGNATURE: DATE
--------------------------------------
SIGNATURE: DATE
Please sign exactly as your name
appears on this proxy. If the shares
represented by this proxy are held by
joint tenants, both must sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
stockholder is a corporation, please
sign in full corporate name by
President or other authorized officer.
If stockholder is a partnership,
please sign in partnership name by
authorized person.
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
HBO & Company's (the "Company") By-Laws (Article IX, Section 1) provide that
every person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
and pursuant to any procedure specified in the General Corporation Law of the
State of Delaware, as amended from time to time, against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines and amounts
paid or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
that may be enforced in any manner by such person. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or thereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under such article.
Article IX, Section 2 of the Company's By-Laws provides that the Board of
Directors may cause the corporation to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred in any such capacity or arising out of such status, whether or not the
corporation would have the power to indemnify such person.
With respect to indemnification of officers and directors, Section 145 of
the Delaware General Corporation Law provides that a corporation shall have the
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Under this provision of
the Delaware General Corporation Law, the termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Furthermore, the Delaware General Corporation Law provides that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to
II-1
<PAGE>
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine, upon application, that, despite
the adjudication of liability, but in view of all circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
In addition, the Delaware General Corporation Law enables a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to the corporation or its
stockholders for monetary damages for breaches of a director's fiduciary duty as
a director. The statute provides, however, that liability for (a) breach of the
director's duty of loyalty, (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, (c) the unlawful purchase
or redemption of stock or unlawful dividends or (d) transactions from which a
director derived an improper personal benefit cannot be eliminated or limited in
this manner. The Company's Certificate of Incorporation contains such
provisions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following exhibits are filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2 Agreement of Merger dated July 20, 1998 by and among HBO & Company, HBO & Company of Georgia and US
Servis, Inc. (included as Appendix A to the Proxy Statement/ Prospectus contained in Part I of this
Registration Statement).
5 Opinion of Jones, Day, Reavis & Pogue re: legality.
8 Opinion of Winston & Strawn re: tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Wiss & Company, LLP.
23(c) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(d) Consent of Winston & Strawn (included in Exhibit 8).
23(e) Consent of Volpe Brown Whelan & Company, LLC.
24* Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* Previously filed
II-2
<PAGE>
The following exhibits filed with the Securities and Exchange Commission are
incorporated by reference as shown below.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
ON MAY 13, 1981, AS PART OF ITS REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NUMBER 2-72275):
4(a) -- Specimen forms of certificates for Common Stock of Registrant.
ON FEBRUARY 15, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-75987):
4 -- HBO & Company 1981 Incentive Stock Option Plan, as amended.
ON FEBRUARY 22, 1991, AS PART OF ITS FORM 8-K:
4 -- HBO & Company Rights Agreement.
ON MARCH 27, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-12051):
4 -- HBO & Company 1986 Employee Nonqualified Stock Option Plan, as amended.
ON AUGUST 12, 1993, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-67300):
4 -- HBO & Company 1993 Stock Option Plan for Nonemployee Directors.
ON JULY 20, 1994, AS PART OF THE FORM S-4 REGISTRATION STATEMENT DATED JULY 19, 1994, AS AMENDED BY
AMENDMENT NO. 1 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE COMMISSION ON AUGUST 11, 1994,
AND FURTHER AMENDED BY AMENDMENT NO. 2 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE
COMMISSION AUGUST 11, 1994:
3 -- Amended HBO & Company Bylaws.
ON AUGUST 17, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-82962):
4 -- HBO & Company 1990 Executive Incentive Plan, as amended.
ON SEPTEMBER 15, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-84034):
4 -- 1986 Incentive Stock Option Plan of Serving Software, Inc.
ON MARCH 17, 1995, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994:
4 -- Chief Executive Officer Incentive Plan of HBO & Company.
ON MAY 9, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-59173):
4 -- HBO & Company 1986 Nonqualified Stock Option Agreement, HBO & Company 1991 Nonqualified Stock Option
Agreement 1 and HBO & Company 1991 Nonqualified Stock Option Agreement 2.
ON OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63213):
4 -- 1985 Employee Stock Option Plan of CliniCom Incorporated.
ON AUGUST 22, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10603):
4 -- CyCare Systems, Inc. 1995 Long-term Incentive Plan (including the predecessor CyCare Systems, Inc.
Stock Option Plan).
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17583):
4(a) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Josephine G. Kaple.
4(b) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Lawrence Keonig.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17551):
4 -- GMIS Inc. 1991 Stock Option Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17579):
4 -- Gabreili Medical Information Systems, Inc. 1984 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17555):
4 -- GMIS Inc. 1995 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10479):
4 -- Gabreili Medical Information Systems, Inc. 1985 Non-Qualified Common Stock Option Plan.
ON JUNE 17, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-29365):
4 -- AMISYS Managed Care System, Inc. Directors' Stock Option Plan.
ON JUNE 17, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-29367):
4 -- AMISYS Managed Care System, Inc. 1994 Equity Incentive Plan.
ON JUNE 30, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-30373):
4 -- Enterprise Systems, Inc. Long Term Incentive Plan
ON DECEMBER 22, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-42871):
4 -- HBO & Company 1998 Employee Discount Stock Purchase Plan.
ON DECEMBER 29, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43375):
4 -- HPR Inc. HPR 1995 Eligible Directors Stock Plan.
ON DECEMBER 29, 1997, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43377):
4 -- HPR Inc. Amended and Restated USS 1995 Stock Plan, HPR Inc. Amended and Restated 1991 Stock Plan.
ON JANUARY 2, 1998, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43673):
4 -- National Health Enhancement Systems, Inc. Amended 1998 Stock Option Plan.
ON JANUARY 2, 1998, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-43679):
4 -- Expert Systems, Inc. 1993 Stock Option Plan.
ON MAY 19, 1998, AS PART OF ITS FORM 8-K, DATED AND FILED WITH THE COMMISSION ON MAY 19, 1998:
3(i) -- HBO & Company Certificate of Incorporation, as amended.
ON JUNE 11, 1998, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-56579):
4(a) -- Non-Qualified Stock Option Agreement, dated May 26, 1998, by and between HBO & Company and Duane
Tiseth.
4(b) -- Non-Qualified Stock Option Agreement, dated May 26, 1998, by and between HBO & Company and David S.
Tiseth.
</TABLE>
(b) Financial Statement Schedules.
No financial statement schedules are required to be filed herewith.
(c) The opinion of Volpe Brown Whelan & Company, LLC is included as Appendix
B to the Proxy Statement/Prospectus contained in Part I of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(a) (i) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
II-4
<PAGE>
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(ii) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(iii) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Atlanta, in the State of Georgia, on
the 20th day of August, 1998.
<TABLE>
<S> <C> <C>
HBO & COMPANY
BY: /s/ JAY P. GILBERTSON
-----------------------------------------
Jay P. Gilbertson
PRESIDENT, CO-CHIEF OPERATING OFFICER
AND CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ ---------------------------
<C> <S> <C>
Chairman, President and , 1998
* Chief Executive Officer
- ------------------------------ (Principal Executive
(Charles W. McCall) Officer)
President, Co-Chief August 20, 1998
Operating Officer, Chief
Financial Officer,
/s/ JAY P. GILBERTSON Principal Accounting
- ------------------------------ Officer, Treasurer and
(Jay P. Gilbertson) Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
* Director , 1998
- ------------------------------
(Alfred C. Eckert III)
* Director , 1998
- ------------------------------
(Philip A. Incarnati)
Director , 1998
- ------------------------------
(Alton F. Irby III)
* Director , 1998
- ------------------------------
(M. Christine Jacobs)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ ---------------------------
<C> <S> <C>
* Director , 1998
- ------------------------------
(Gerald E. Mayo)
Director , 1998
- ------------------------------
(James V. Napier)
* Director , 1998
- ------------------------------
(Donald C. Wegmiller)
- ------------------------------
*Charles W. McCall,
Attorney-in-Fact
/s/ JAY P. GILBERTSON August 20, 1998
- ------------------------------
*Jay P. Gilbertson,
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------- -----
<C> <S> <C>
2 Agreement of Merger dated July 20, 1998 by and among HBO & Company, HBO & Company of Georgia
and US Servis, Inc. (included as Appendix A to the Proxy Statement/Prospectus contained in
Part I of this Registration Statement).
5 Opinion of Jones, Day, Reavis & Pogue re: legality.
8 Opinion of Winston & Strawn re: tax matters.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Wiss & Company LLP.
23(c) Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
23(d) Consent of Winston & Strawn (included in Exhibit 8).
23(e) Consent of Volpe Brown Whelan & Company, LLC.
24* Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* Previously Filed
II-8
<PAGE>
Exhibit 5
JONES, DAY, REAVIS & POGUE
3500 One SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308
(404) 521-3939
August 20, 1998
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Gentlemen:
We have acted as counsel to HBO & Company, a Delaware
corporation (the "Company"), in connection with the registration of 2,127,659
shares of Common Stock, $.05 par value per share, of the Company (the "Shares"),
to be issued by the Company pursuant to a Registration Statement on Form S-4
(File No. 333-61563) (the "Registration Statement"), filed with the Securities
and Exchange Commission to which this opinion appears as Exhibit 5.
We have examined originals or certified or photostatic copies
of such records of the Company, certificates of officers of the Company, and
public officials and such other documents as we have deemed relevant or
necessary as the basis of the opinion set forth below in this letter. In such
examination, we have assumed the genuineness of all signatures, the conformity
to original documents submitted as certified or photostatic copies, and the
authenticity of originals of such latter documents. Based on the foregoing, we
are of the following opinion:
The Shares have been duly authorized and, when issued by the Company in
the manner described in the Registration Statement, will be validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and the reference to this Firm under the heading
"Certain Legal Matters" in the Proxy Statement/Prospectus constituting part of
the Registration Statement.
Sincerely,
JONES, DAY, REAVIS & POGUE
<PAGE>
EXHIBIT 8
[WINSTON & STRAWN LETTERHEAD]
August 21, 1998
US Servis, Inc.
220 Davidson Avenue
Somerset, New Jersey 08873
Re: Opinion as to Federal Income Tax Consequences of Merger
Dear Ladies and Gentlemen:
We have acted as counsel for you in connection with the transactions
contemplated by that certain Agreement of Merger (the "Merger Agreement"),
dated as of July 20, 1998 by and among HBO & Company, a Delaware corporation
("Parent"), HBO & Company of Georgia, a Delaware corporation ("Purchaser"),
and US Servis, Inc., a Delaware corporation ("Acquired Company"). This
opinion letter addresses the federal income tax issues on which you have
requested our opinion and is being delivered to you pursuant to Section
7.5(e) of the Merger Agreement and in connection with the Proxy
Statement/Prospectus of Parent and Acquired Company dated August 21, 1998
(the "Proxy").
Capitalized terms not defined herein shall have the meaning set forth in
the Merger Agreement. All section references in this letter are to the
Internal Revenue Code of 1986, as amended (the "Code"), unless otherwise
provided.
In connection with our opinions herein, we have examined and relied upon
the descriptions of various entities and their respective investments,
activities, operations and governance, as set forth in the following
documents:
(a) the Merger Agreement;
(b) the Proxy;
(c) the representation letter from Parent and Purchaser to us; and
<PAGE>
US Servis, Inc.
August 21, 1998
Page 2
(d) the representation letter from Acquired Company to us;
together with such other documents, records, and matters of law as we have
deemed relevant or necessary (the "Relevant Documents"). We have assumed the
authenticity of original documents, the accuracy of copies, the genuineness
of signatures, and the capacity of each party executing a document to so
execute such document. We have also relied upon certificates of public
officials.
As to any facts material to our opinions, we have, with your consent,
relied on the representations, warranties, covenants, assumptions, and
opinions made in the Relevant Documents by the respective parties thereto. To
the extent our opinions refer to the existence or absence of facts based upon
our knowledge or of which we are aware, we are referring to the actual
knowledge of Winston & Strawn attorneys who have actively represented
Acquired Company or its affiliates during the course of our representation of
such parties with respect to these opinions. We have not undertaken any
independent investigation or verification to determine the existence or
absence of any facts, and no inference as to our knowledge concerning any
facts should be drawn as a result of the representation undertaken by us. We
have consequently relied upon your factual representations that the
information presented in the Relevant Documents or otherwise furnished to us
accurately and completely describes all material facts relevant to these
opinions. Any alternation of such facts may adversely affect our opinions.
In rendering these opinions, we have assumed that the transactions
contemplated by the Merger Agreement and the Proxy will be consummated in
accordance with the Relevant Documents, and such documents accurately reflect
the material facts of such transactions.
Subject to the foregoing, we express the following opinions:
1. The Merger will qualify as a reorganization within the meaning of Code
section 368(a);
2. No gain or loss will be recognized by Acquired Company as a result of
the Merger;
3. No gain or loss will be recognized by an Acquired Company stockholder
upon the exchange of shares of Acquired Company Stock solely for shares of
Parent Stock pursuant to the Merger;
<PAGE>
US Servis, Inc.
August 21, 1998
Page 3
4. The aggregate initial tax basis of shares of Parent Stock
received by a holder of Acquired Company Stock pursuant to the Merger
(including fractional shares deemed to be received) will be the same as
the adjusted tax basis of the shares of Acquired Company Stock exchanged
therefor;
5. The holding period for shares of Parent Stock received in
exchange for shares of Acquired Company Stock pursuant to the Merger
(including fractional shares deemed to be received) will include the
period that such shares of Acquired Company Stock were held by the
holder; and
6. A holder of Acquired Company Stock who receives cash in lieu of
fractional shares of Parent Stock pursuant to the Merger will recognize
gain or loss upon such exchange to the extent the amount of cash
received is greater than or less than such holder's adjusted tax basis
in such fractional shares.
These opinions are rendered only as to the date hereof, and we undertake
no obligation to update these opinions. Pursuant to the analysis described in
Treasury Regulation section 1.6662-4(d)(3)(ii), our opinions are based upon
the current provisions of the code, as amended; currently applicable Treasury
Regulations promulgated or proposed under the Code; currently published
administrative rulings and procedures; judicial decisions; and other
applicable authorities, all as in effect on the date hereof. All of the
foregoing authorities are subject to change or new interpretations, both
prospectively and retroactively, and such changes or interpretations, as well
as any change in the facts as they have been represented to us or assumed by
us, could affect our opinions. Our opinions are rendered only as of the date
hereof, and we take no responsibility to update these opinions after the
Effective Time of the Merger.
Our opinions do not foreclose the possibility of a contrary determination
by the Internal Revenue Service (the "IRS") or by a court of competent
jurisdiction, or of a contrary position by the IRS or Treasury Department in
regulations, rulings, or procedures issued in the future.
These opinions are rendered only to you and may not be quoted in whole or
in part or otherwise referred to, used by, or relied upon, nor be filed with,
or furnished to, any other person or entity, other than for the benefit of a
holder of Acquired Company Stock in connection with the Merger, without our
prior written consent. Notwithstanding the foregoing, we hereby consent to
the use of this opinion as Exhibit 8 to the Registration Statement on Form
S-4 (File No. 333-61563) filed
<PAGE>
US Servis, Inc.
August 21, 1998
Page 4
with the Securities and Exchange Commission by Parent and the reference to
our name under the headings "Certain Federal Income Tax Consequences" and
"Certain Legal Matters" in such Registration Statement. In giving this
consent, we do not admit that we are included in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission.
Very truly yours,
WINSTON & STRAWN
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our reports dated
February 6, 1998 included or incorporated by reference in HBO & Company's
Form 10-K for the year ended December 31, 1997 and to all references to our
firm included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 20, 1998
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our report dated June 2, 1998, relating
to the consolidated financial statements and schedules of US Servis, Inc.
which are incorporated by reference.
We also consent to reference to us under the heading "Experts" in such
Prospectus.
/s/ Wiss & Company
.........................
WISS & COMPANY, LLP
Livingston, New Jersey
August 19, 1998
<PAGE>
EXHIBIT 23(e)
We consent to the filing of our opinion dated August 21, 1998 to the US Servis
Board of Directors attached as Appendix B to the Proxy Statement/Prospectus,
which is part of this Registration Statement, and to the references to our
firm name under the headings "Opinion of Financial Advisor to USS,"
"Background of the Merger," and "Reasons of USS for Engaging in the Merger;
Recommendation of the USS Board."
Volpe Brown Whelan & Company, LLC
San Francisco, California
/s/ Steve D. Piper
- -----------------------
Dated: August 20, 1998
