<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
NATIONAL DATA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 7389 58-0977458
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
NATIONAL DATA PLAZA
ATLANTA, GEORGIA 30329-2010
(404) 728-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
E. MICHAEL INGRAM
GENERAL COUNSEL AND SECRETARY
NATIONAL DATA CORPORATION
NATIONAL DATA PLAZA
ATLANTA, GEORGIA 30329-2010
(404) 728-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
JOEL J. HUGHEY WARREN HAUSER ROBERT A. SCHWED
MARK F. MCELREATH SOURCE INFORMATICS INC. REBOUL, MACMURRAY, HEWITT,
ALSTON & BIRD LLP 45 ROCKEFELLER PLAZA MAYNARD & KRISTOL
ONE ATLANTIC CENTER SUITE 912 45 ROCKEFELLER PLAZA
1201 WEST PEACHTREE STREET NEW YORK, NEW YORK 10111 NEW YORK, NEW YORK 10111
ATLANTA, GEORGIA 30309-3424 (212) 841-0610 (212) 841-5700
(404) 881-7000
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. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE (2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (including rights to purchase
shares of Common Stock or Series A Junior 1,555,556 $0.06 $96,962.00 $100.00
Participating Preferred Stock) shares
=========================================================================================================================
</TABLE>
(1) Represents the estimated number of shares of Common Stock, par value $.125
per share ("NDC Common Stock'), issuable by the Registrant upon
consummation of the merger (the "Merger") of a subsidiary of the Registrant
with and into Source Informatics Inc. ("Source"), assuming exercise of all
rights to purchase common stock, par value $.01 per share, of Source
("Source Common Stock").
(2) Pursuant to Rules 457(f)(2) and 457(f)(3), the registration fee was
computed on the basis of the stated value of the Source Common Stock and
the preferred stock, par value $1.00 per share, of Source ("Source
Preferred Stock") as of June 30, 1997, since Source had an accumulated
deficit as of such date.
______________
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SOURCE INFORMATICS INC.
2394 EAST CAMELBACK ROAD
PHOENIX, ARIZONA 85016
____________, 1997
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
("Special Meeting") of Source Informatics Inc. ("Source") to be held at
______________________, located at ________________________, at ______ .m.,
local time, on ___________, 1997.
At this important meeting, you will be asked to consider and vote upon the
adoption of an Agreement and Plan of Merger, dated as of August 20, 1997 (the
"Merger Agreement"), which provides for the merger (the "Merger") of a wholly-
owned subsidiary of National Data Corporation ("NDC") with and into Source. If
the proposed Merger is consummated, Source will become a wholly-owned subsidiary
of NDC and each outstanding share of Source capital stock will be converted into
the right to receive cash and shares of NDC common stock on the basis set forth
in the Merger Agreement and described in the enclosed Proxy
Statement/Prospectus. Adoption of the Merger Agreement requires the affirmative
vote of (i) the holders of a majority of the shares of Source common stock
entitled to vote at the Special Meeting and (ii) the holders of a majority of
the shares of Source preferred stock entitled to vote at the Special Meeting.
Enclosed are the: (i) Notice of Special Meeting, (ii) Proxy
Statement/Prospectus, and (iii) Proxy for the Special Meeting. The Proxy
Statement/Prospectus describes in more detail the Merger Agreement and the
Merger, including a description of the conditions to consummation of the Merger
and the effects of the Merger on the rights of Source stockholders and contains
financial and other information about Source. Please give this information your
careful attention.
The Board of Directors has unanimously approved and adopted the Merger
Agreement and consummation of the transactions contemplated therein, and
unanimously recommends that you vote FOR adoption of the Merger Agreement.
We look forward to seeing you at the Special Meeting.
Sincerely,
Handel E. Evans
Chairman of the Board
<PAGE>
SOURCE INFORMATICS INC.
2394 EAST CAMELBACK ROAD
PHOENIX, ARIZONA 85016
__________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT _____________ ON ______________, 1997
__________, 1997
To the Stockholders of Source Informatics Inc.:
NOTICE IS HEREBY GIVEN that the special meeting of stockholders ("Special
Meeting") of Source Informatics Inc. ("Source") will be held at
_________________________________________________, at ______ _______, local
time, on ___________, 1997, for the following purposes:
1. THE MERGER. To consider and vote upon a proposal to adopt the Agreement
and Plan of Merger, dated as of August 20, 1997 (the "Merger Agreement"), by and
among Source, National Data Corporation ("NDC") and Dunkirk, Inc. ("Sub"),
pursuant to which, among other matters, Sub will merge with and into Source (the
"Merger"), with Source becoming a wholly-owned subsidiary of NDC and each share
of Source capital stock being converted into the right to receive cash and
shares of common stock of NDC, all as more fully described in the accompanying
Proxy Statement/Prospectus. A copy of the Merger Agreement is set forth in Annex
A to the accompanying Proxy Statement/Prospectus and is incorporated by
reference herein.
2. OTHER BUSINESS. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on September __, 1997,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Adoption of the Merger Agreement requires
the affirmative vote of (i) the holders of a majority of the shares of Source
common stock entitled to vote at the Special Meeting and (ii) the holders of a
majority of the shares of Source preferred stock entitled to vote at the Special
Meeting.
HOLDERS OF SOURCE COMMON STOCK AND SOURCE PREFERRED STOCK ("SOURCE CAPITAL
STOCK") WHO GIVE WRITTEN DEMAND FOR APPRAISAL OF THEIR SHARES BEFORE TAKING OF
THE VOTE ON THE MERGER AGREEMENT, DO NOT VOTE IN FAVOR OF ADOPTION OF THE MERGER
AGREEMENT, AND COMPLY WITH THE FURTHER PROVISIONS OF APPLICABLE DELAWARE LAW,
WILL BE ENTITLED TO RECEIVE, IF THE MERGER IS CONSUMMATED, THE "FAIR VALUE" (AS
DEFINED BY DELAWARE LAW) OF THEIR SOURCE CAPITAL STOCK IN CASH. A VOTE AGAINST
ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL
RIGHTS, NOR WILL A FAILURE TO VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT
CONSTITUTE A WAIVER OF APPRAISAL RIGHTS. A COPY OF THE APPLICABLE DELAWARE
STATUTORY PROVISIONS IS SET FORTH IN ANNEX B TO THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND A SUMMARY OF SUCH PROVISIONS IS SET FORTH UNDER "THE
MERGER -- APPRAISAL RIGHTS."
THE BOARD OF DIRECTORS OF SOURCE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
Warren J. Hauser
Secretary
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1997
PROXY STATEMENT/PROSPECTUS
--------------------------
NATIONAL DATA CORPORATION
COMMON STOCK
(PAR VALUE $.125 PER SHARE)
_______________________
This Proxy Statement/Prospectus is being furnished to holders of common
stock, $.01 par value ("Source Common Stock"), and the holders of Series A
Convertible Preferred Stock, $1.00 par value ("Source Preferred Stock"), of
Source Informatics Inc., a Delaware corporation ("Source"), in connection with
the solicitation of proxies by the Source Board of Directors for use at the
special meeting of stockholders to be held at _______________, local time, on
______________, 1997, at _____________, located at ___________________, and any
adjournments or postponements thereof (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon, among
other things, a proposal to adopt an Agreement and Plan of Merger, dated as of
August 20, 1997 (the "Merger Agreement") by and among Source, National Data
Corporation ("NDC") and Dunkirk, Inc. ("Sub"), which provides for, among other
things, the merger of Sub with and into Source (the "Merger") with Source
becoming a wholly-owned subsidiary of NDC. See "Summary", "The Merger" and Annex
A to this Proxy Statement/Prospectus.
Upon consummation of the Merger, each outstanding share of Source Common
Stock (excluding shares held by Source or any of its subsidiaries or by NDC or
any of its subsidiaries, and excluding shares held by stockholders who perfect
their statutory dissenter's rights) shall cease to be outstanding and shall be
converted into and exchanged for the right to receive: (x) the Common Cash
Amount (hereinafter defined), if any, and that fraction of a share (the "Common
Base Exchange Ratio") of the common stock, $.125 par value of NDC (the "NDC
Common Stock") equal to 1,099,716 shares (the "Payment Shares") divided by the
total number of shares of Source Common Stock outstanding at the Closing Date
(hereinafter defined); provided, however, that the Payment Shares shall first be
reduced by that number of shares of NDC Common Stock payable to the holders of
options and warrants to purchase Source Common Stock in consideration of the
cancellation of any such outstanding options and warrants; and (y) that fraction
of a share of NDC Common Stock equal to 455,840 shares (the "Stock Escrow")
divided by the total number of shares of Source Common Stock outstanding at the
Closing Date, subject to the provisions of the Merger Agreement relating to the
working capital adjustment and indemnification and subject to the provisions of
the Escrow Agreement (hereinafter defined).
Upon consummation of the Merger each outstanding share of Source Preferred
Stock (excluding shares held by Source or any of its subsidiaries or by NDC or
any of its subsidiaries, and excluding shares held by stockholders who perfect
their statutory dissenters' rights) shall cease to be outstanding and shall be
converted and exchanged for the right to receive an amount equal to $11.33,
subject to adjustment to equal that amount such holder of Source Preferred Stock
would otherwise receive if such holder were redeemed on the Closing Date
pursuant to the terms of the Source Preferred Stock designation (the
"Designation").
Pursuant to the NDC Rights Agreement (hereinafter defined), each share of
NDC Common Stock issued in connection with the Merger upon conversion of Source
Common Stock shall be accompanied by an NDC Right. See "Certain Differences in
the Rights of NDC And Source Stockholders."
This Proxy Statement/Prospectus also constitutes a Prospectus of NDC
relating to the 1,555,556 shares of NDC Common Stock issuable to Source
stockholders in the Merger.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN NDC COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON
PAGE 23.
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 ________________, 1997, and
it is first being mailed or otherwise delivered to Source stockholders on or
about _________________, 1997.
<PAGE>
AVAILABLE INFORMATION
NDC is subject to the reporting and informational requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements,
and other information filed by NDC with the Commission may be inspected and
copied at the principal office of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and should be available at the
Commission's Regional Offices at 7 World Trade Center, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates and also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov. In addition,
reports, proxy statements and other information concerning NDC may be inspected
at the offices of the New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street,
New York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of a Registration
Statement on Form S-4 (together with any amendments thereto, the "Registration
Statement"), which has been filed by NDC with the Commission under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act"). This Proxy Statement/Prospectus omits certain
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to NDC and the securities to which this Proxy
Statement/Prospectus relates. Statements contained in this Proxy
Statement/Prospectus concerning the provisions of certain documents filed as
exhibits to the Registration Statement are necessarily brief descriptions
thereof, and are not necessarily complete, and each such statement is qualified
in its entirety by reference to the full text of such document.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
UPON REQUEST FROM: NATIONAL DATA CORPORATION, NATIONAL DATA PLAZA, ATLANTA,
GEORGIA 30329-2010, ATTN: CORPORATE SECRETARY, (404) 728-2855. SOURCE
INFORMATICS IS NOT SUBJECT TO THE REPORTING AND INFORMATIONAL REQUIREMENTS OF
THE EXCHANGE ACT AND NO SOURCE DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE
INTO THIS PROXY STATEMENT/PROSPECTUS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE
SPECIAL MEETING.
All information contained herein with respect to NDC and its subsidiaries
has been supplied by NDC. All information with respect to Source and its
subsidiaries has been supplied by Source including, but not limited to, "The
Merger--Background of the Merger," "The Merger--Reasons for the Merger," "The
Merger--Interests of Certain Persons in the Merger" and "Source Informatics
Inc."
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement/Prospectus
and, if given or made, such information or representation should not be relied
upon as having been authorized by NDC or Source. Neither the delivery of this
Proxy Statement/Prospectus nor any distribution of the securities to which this
Proxy Statement/Prospectus relates shall, under any circumstances, create any
implication that there has been no change in the affairs of NDC, Source, or any
of their respective subsidiaries since the date hereof or that the information
contained herein is correct as of any time subsequent to its date. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, any securities other than the securities to which it
relates or an offer to sell or a solicitation of an offer to purchase the
securities offered by this Proxy Statement/Prospectus in any jurisdiction in
which such an offer or solicitation is not lawful.
-2-
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by NDC with the Commission (NDC File No. 001-
12392) under Section 13(a) or 15(d) of the Exchange Act are hereby incorporated
by reference in this Proxy Statement/Prospectus:
NDC documents:
(i) NDC's Annual Report on Form 10-K for the fiscal year ended May
31, 1997;
(ii) The description of NDC Common Stock contained in NDC's
Registration Statement on Form 8-A as filed with the Commission
on October 5, 1993; and
(iii) The description of NDC Series A Junior Participating Preferred
Stock contained in NDC's Registration Statement on Form 8-A as
filed with the Commission on January 22, 1991, as amended on
October 5, 1993.
All documents filed by NDC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement/Prospectus
and prior to the date of the Special Meeting are hereby incorporated by
reference in this Proxy Statement/Prospectus and shall be deemed a part hereof
from the date of filing of such document.
Any statement contained herein, in any amendment or supplement hereto or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Proxy Statement/Prospectus to the extent that a statement
contained herein, in any amendment or supplement hereto or in any other
subsequently filed document which also is or is 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 the Registration Statement, this Proxy
Statement/Prospectus, or any amendment or supplement hereto. The information
contained in this Proxy Statement/Prospectus should be read in conjunction with
the foregoing materials.
-3-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.......................................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................................. 3
SUMMARY........................................................................................ 8
Parties to the Merger........................................................................ 8
Special Meeting; Record Date................................................................. 9
The Merger................................................................................... 10
Market Prices and Dividends.................................................................. 20
Comparison of Certain Unaudited Per Share Data............................................... 21
Selected Financial Data...................................................................... 22
SELECTED FINANCIAL DATA OF NDC (HISTORICAL).................................................... 22
SELECTED FINANCIAL DATA OF SOURCE (HISTORICAL)................................................. 23
SELECTED PRO FORMA COMBINED FINANCIAL DATA OF NDC, SOURCE AND PMSI DATABASE.................... 24
RISK FACTORS................................................................................... 25
GENERAL INFORMATION............................................................................ 27
Special Meeting.............................................................................. 27
Record Date.................................................................................. 27
Votes Required............................................................................... 28
Recommendation of Source's Board of Directors................................................ 28
THE MERGER..................................................................................... 28
General...................................................................................... 28
Background of the Merger..................................................................... 28
Reasons for the Merger....................................................................... 29
Exchange Ratios.............................................................................. 30
Common Exchange Ratio Adjustment............................................................. 31
Working Capital Adjustment................................................................... 31
Indemnification.............................................................................. 32
Escrow Agreement............................................................................. 33
The Stockholder Representative............................................................... 34
Fractional Shares............................................................................ 34
Termination of Stock Options................................................................. 35
Effective Time and Closing Date.............................................................. 35
Distribution of NDC Certificates............................................................. 35
Certain Federal Income Tax Consequences...................................................... 36
Management and Operations After the Merger................................................... 37
Interests of Certain Persons in the Merger................................................... 37
Conditions to Consummation................................................................... 38
Regulatory Approvals......................................................................... 39
Amendment, Waiver and Termination............................................................ 40
Conduct of Business Pending the Merger....................................................... 41
Expenses and Fees............................................................................ 42
Accounting Treatment......................................................................... 42
Voting Agreement............................................................................. 43
Appraisal Rights............................................................................. 43
Resales of NDC Common Stock.................................................................. 45
SOURCE INFORMATICS INC......................................................................... 47
Business..................................................................................... 47
Selected Financial Information............................................................... 47
Management's Discussion and Analysis of Financial Condition and Results of Operation......... 48
Security Ownership of Directors, Executive Officers and Principal Securityholders of Source.. 49
CERTAIN DIFFERENCES IN THE RIGHTS OF NDC AND SOURCE STOCKHOLDERS............................... 50
Directors and Classes of Directors........................................................... 52
Stockholder Meetings......................................................................... 52
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
Anti-Takeover Provisions..................................................................... 53
Stockholder Rights Plan...................................................................... 53
EXPERTS........................................................................................ 54
LEGAL MATTERS.................................................................................. 54
</TABLE>
ANNEXES:
ANNEX A - Agreement and Plan of Merger, dated as of August 20, 1997,
by and among NDC, Sub and Source
ANNEX B - Certain Provisions of Delaware Law
ANNEX C - Form of Escrow Agreement
ANNEX D - Financial Statements of Source Informatics Inc.
ANNEX E - Pro Forma Combined Financial Information
-5-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement/Prospectus and is
subject to and qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, including
the Annexes hereto, and in the documents incorporated by reference in this Proxy
Statement/Prospectus. The Merger Agreement is set forth in Annex A to this Proxy
Statement/Prospectus and reference is made thereto for a complete description of
the terms of the Merger. Stockholders are urged to read carefully the entire
Proxy Statement/Prospectus, including the Annexes. As used in this Proxy
Statement/Prospectus, the terms "NDC" and "Source" refer to such corporations,
respectively, and where the context requires, such corporations and their
respective subsidiaries, except that "Source" shall, except where noted, refer
to such corporation and its subsidiaries after giving effect to the Divestiture
(hereinafter defined).
PARTIES TO THE MERGER
NDC. NDC is a Delaware corporation that was incorporated in 1967. NDC is a
leading provider of high-volume information services and application systems to
the health care and payment systems markets. NDC serves a diverse customer base
comprised of almost 120,000 health care providers, 3,500 health care plans, more
than 750,000 merchant locations, 35,000 corporations and 400 banking
institutions, as well as federal and state government agencies. NDC markets its
services directly to merchants and health care providers and indirectly through
business alliances with a wide range of banks, insurance companies and
distributors.
NDC is one of the largest independent providers of health care information
services and integrated payment systems and services in the United States,
processing transactions at an annualized rate of approximately 3 billion at the
end of fiscal 1997. NDC provides electronic claims processing and adjudication
services, practice management systems, electronic data interchange ("EDI")
services, billing services, business office management services and clinical
data base information for pharmacies, dentists, physicians, hospitals, health
maintenance organizations, managed care companies, clinics and nursing homes, as
well as other health care providers. Management believes that NDC is the largest
independent processor of real-time health care transactions in the country, and
that it is well positioned to capitalize on the growing demand for cost
containment and improved patient care in the health care industry. By the end of
fiscal 1997, approximately 41% of NDC's total revenue was derived from NDC's
health care systems and services, which represent the fastest growing portion of
NDC's business.
NDC's Global Payment Systems LLC subsidiary ("Global Payment Systems" or
"Global") offers such services as authorization, equipment deployment, customer
support, back office processing, merchant accounting and card issuing services
on an outsourcing basis for banks and other participants in the payment systems
industry. Global also offers information reporting and EDI services, cash
management systems and services and electronic tax filing and payment services
to government and corporate customers. In recent years, NDC has expanded the
range of payment instruments services offered and distribution channels. NDC
recently introduced a purchase card processing program that provides electronic
payment capabilities for business-to-business purchasing transactions.
Approximately 29% of NDC's total revenue for fiscal 1997 was derived from
Global.
The Integrated Payment Systems business unit provides a broad range of payment
acceptance services primarily in partnership with banks. Under its Bank
Alliance Program, as well as through other distribution channels, it adds sales,
marketing and risk management services to the range of services provided by
Global Payment Systems. NDC's Integrated Payment Systems unit accounted for
approximately 30% of NDC's total revenue for fiscal 1997.
For the year ended May 31, 1997, NDC reported total revenues of $433.9
million, and net income of $38.8 million. As of May 31, 1997, NDC had total
consolidated assets of $521.7 million and consolidated stockholders' equity of
$277.5 million.
-6-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NDC's principal executive offices are located at National Data Plaza, Atlanta,
Georgia 30329-2010, and its telephone number is (404) 728-2000. For additional
information regarding NDC and its business, see "Available Information,"
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "-- Selected Financial
Data."
SOURCE. Source is a leading provider of proprietary health care information,
technology and consulting services, primarily to the pharmaceutical and retail
pharmacy markets. Source's services enable clients to better understand
individual prescriber, payer, consumer, pharmaceutical manufacturer, pharmacy
benefit manager and retail pharmacy behavior in order to compete more
effectively in the market place. Source typically enters into significant,
long-term relationships with its clients, providing integrated services to
executives in the sales, marketing, market research and information technology
areas of these organizations.
Source provides a broad array of information, data mining and integrated
marketing decision-making tools. The Source database is a repository of
intelligence on managed care organizations, prescribers, retailers,
prescriptions and non-personalized patient data. The principal database (the
"Alpha Database") contains information on 1.6 billion prescriptions dispensed by
retail and mail order pharmacies over the previous 12 months. Over 90% of the
prescriptions in the Alpha Database are matched to over 1,000,000 prescribers,
linking them at the individual script level. Source jointly exploits its
databases in an operating venture with Pharmaceutical Marketing Services Inc.
("PMSI"). Simultaneously with the consummation of the Merger, NDC will acquire
all of PMSI's interest in such operating venture. See "-The Merger - General."
Source provides critical competitive intelligence for client companies' sales
representatives, linking the dispensed prescriptions back to the prescribers in
their territory. Source also provides sales force managers with direct and
comparative benchmarks to measure sales force performance and determine
compensation at the individual territory level. Source's services enable client
companies to target prescribers by their overall prescribing habits or by the
mode of payment for prescriptions they write. Clients can identify the highest
potential prescribers and their specific characteristics, and access market
intelligence on the prescriber's practice. Other services match prescriptions
to more than 850 health care payment plans, profiling the individual managed
care plans and providing insight into their strategies. Source has recently
launched new database services to enable pharmaceutical company clients to
measure market share activity at the individual pharmacy level.
For the year ended June 30, 1997 Source generated total revenues of $59.9
million and net income of $6.5 million. Source has 400 employees. Source's
principal executive offices are located at 2394 East Camelback Road, Phoenix,
Arizona, 85016 and its telephone number is (602) 381-9500. For additional
information regarding Source and its business, see "SOURCE INFORMATICS INC." and
"__ Selected Financial Data."
As a condition to the consummation of the Merger, prior to the Effective Time,
Source shall, pursuant to that certain Securities Transfer Agreement between
Pharmaceutical Marketing Services, Inc. ("PMSI") and Source (the "Source
Divestiture Agreement"), complete the divestiture (the "Divestiture") of (i) its
business operated in Europe as of August 20, 1997 ("Source Europe"), (ii) all of
the shares of PMSI held by Source or any subsidiary of Source, and (iii) all of
the stock of those subsidiaries conducting the European business. See "__
Divestiture of Source Europe."
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held at ______________, local time on
_____________, 1997, at _________________________________________. At the
Special Meeting, Source's stockholders will consider and vote upon adoption of
the Merger Agreement and the consummation of the transactions contemplated
therein, and transact such other business as may properly come before the
Special Meeting. Source's Board of Directors has fixed the close of business on
_________, 1997, as the record date for determining the Source stockholders
entitled to receive notice of and to vote at the Special Meeting (the "Record
Date"). As of the Record Date, there were [5,800,193] shares of Source Common
Stock and [1,041,667] shares of Source Preferred Stock issued and outstanding
and entitled to be voted at the Special Meeting. For additional information with
respect to the Special Meeting, including the Record Date and votes required for
adoption, see "GENERAL INFORMATION."
-7-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THE MERGER
GENERAL. The Merger Agreement provides that Sub shall merge with and into
Source, which shall be the surviving corporation of the Merger and, as a result
thereof, become a wholly-owned subsidiary of NDC. At the time the Merger
becomes effective, (x) each outstanding share of Source Common Stock (excluding
shares held by Source or any of its subsidiaries or by NDC or any of its
subsidiaries, and excluding shares as to which dissenters' rights are perfected)
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive cash and shares of NDC Common Stock, and (y) each outstanding
share of Source Preferred Stock (excluding shares held by Source or any of its
subsidiaries or by NDC or any of its subsidiaries, and excluding shares as to
which dissenter's rights are perfected) shall be converted into the right to
receive cash. Pursuant to the NDC Rights Agreement, each share of NDC Common
Stock issued in connection with the Merger upon conversion of the Source Common
Stock shall be accompanied by an NDC Right (hereinafter defined). If the Merger
Agreement is adopted at the Special Meeting, all required governmental and other
consents and approvals are obtained, and all of the other conditions to the
obligations of the parties to consummate the Merger are either satisfied or
waived (as permitted), the Merger will be consummated. A copy of the Merger
Agreement is set forth in ANNEX A to this Proxy Statement/Prospectus. See "THE
MERGER."
Simultaneously with and as a condition to the consummation of the Merger, NDC
will consummate the acquisition (the "Stock Purchase") of all of the outstanding
shares of common stock of PMSI Database Holdings, Inc. ("PMSI Database")
pursuant to that certain Stock Purchase Agreement, dated as of August 20, 1997
(the "Stock Purchase Agreement"), by and among PMSI, PMSI Database and NDC. If
the Stock Purchase Agreement is adopted by the stockholders of PMSI at a special
meeting called therefor, all required governmental and other consents and
approvals obtained, and all of the other conditions to the obligations of the
parties to consummate the Stock Purchase are either satisfied or waived (as
permitted), the transactions contemplated by the Stock Purchase Agreement will
be consummated.
EXCHANGE RATIOS. The Merger Agreement provides that upon consummation of the
Merger:
(a) Subject to a working capital adjustment (discussed below), each
outstanding share of Source Common Stock (excluding shares held by Source or any
of its subsidiaries or by NDC or any of its subsidiaries, and excluding shares
of Source Common Stock as to which dissenters' rights are perfected) issued and
outstanding immediately prior to the Effective Time (hereinafter defined) shall
cease to be outstanding and shall be converted into and exchanged for the right
to receive the following:
(i) the amount (the "Common Cash Amount"), if any, equal to the
quotient of (A) $31,750,000 (the "Aggregate Cash Amount") less the Preferred
Stock Merger Consideration (hereinafter defined), and less Source's expenses
directly associated with this transaction (the "Transaction Expenses"), and
(B) the total number of shares of Source Common Stock outstanding as of the
Closing Date ;
(ii) that fraction of a share of NDC Common Stock equal to the quotient
of (A) 1,099,716 shares (the "Payment Shares") less the Option Shares
(hereinafter defined), and (B) the total number of shares of Source Common
Stock outstanding as of the Closing Date (the "Common Base Exchange Ratio");
provided, however, if the sum of the Preferred Stock Merger Consideration
(hereinafter defined) and the Transaction Expenses exceeds the Aggregate Cash
Amount (the "Excess Expense"), then the Payment Shares will be reduced by that
number of shares of NDC Common Stock equal to the Excess Expense divided by
the average of the daily closing sale prices of NDC Common Stock as reported
on the NYSE Composite Transactions reporting system (as reported by The Wall
Street Journal or, if not reported thereby, another authoritative source as
chosen by NDC) for the ten consecutive full trading days in which such shares
are traded on the NYSE ending at the close of trading on the last such day
(the "Average Closing Price"), as of the Closing Date; and
(iii) that fraction of a share of NDC Common Stock equal to the quotient
of 455,840 shares (the "Stock Escrow") divided by the total number of shares
of Source Common Stock outstanding as of the Closing Date (the "Common Escrow
Exchange Ratio"). The Stock Escrow will be utilized for working capital
-8-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
adjustments and for indemnification claims by NDC, all pursuant to the terms
of the Merger Agreement and an escrow agreement (the "Escrow Agreement") by
and among NDC, the representative of the holders of Source Common Stock (the
"Stockholder Representative") and an escrow agent.
At the Closing Date, Source shall prepare and deliver to NDC a schedule
indicating the expenses incurred but unpaid as of the Closing Date which are
directly associated with the transactions contemplated by the Merger Agreement,
including, without limitation, all expenses incurred in connection with Source's
termination of certain employment agreements and an executive pension plan (in
the aggregate such expenses hereinafter the "Transaction Expenses"). In
addition, also at the Closing Date, Source shall have secured the cancellation
of all outstanding options and warrants to purchase shares of Source Common
Stock and shall provide to NDC a schedule of the number of shares of NDC Common
Stock (the "Option Shares") payable to the holders of such options and warrants
in consideration of such cancellation, which Option Shares shall not exceed
[________] shares of NDC Common Stock. Pursuant to the NDC Rights Agreement,
each share of NDC Common Stock issued in connection with the Merger upon
conversion of Source Common Stock shall be accompanied by an NDC Right.
(b) Each share of Source Preferred Stock (excluding shares held by Source or
any of its subsidiaries or by NDC or any of its subsidiaries, and excluding
shares of Source Preferred Stock as to which dissenters' rights are perfected)
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted and exchanged for the right to receive an
amount equal to $11.33, subject to adjustment to equal that amount that a holder
of Source Preferred Stock would otherwise be entitled to receive for each share
of Source Preferred Stock if the Source Preferred Stock were redeemed on the
Closing Date pursuant to the Designation (such aggregate amount, as adjusted,
the "Preferred Stock Merger Consideration").
COMMON EXCHANGE RATIO ADJUSTMENT. If, at the close of trading on the tenth
trading day immediately preceding the Closing Date (the "Determination Date"),
the Average Closing Price shall be greater than $50.50 (the "Upper Threshold
Price"), the "Common Exchange Ratios" (defined to include the Common Base
Exchange Ratio and the Common Escrow Exchange Ratio) shall each be adjusted to
equal that fraction of a share of NDC Common Stock (rounded to the nearest ten
thousandth of a share) obtained by dividing the product of the Common Base
Exchange Ratio or the Common Escrow Exchange Ratio, as the case may be, and the
Upper Threshold Price by the Average Closing Price at the Determination Date.
If the Average Closing Price on the Determination Date shall be less than $37.25
(the "Lower Threshold Price"), Source shall have the right to refuse to
consummate the Merger provided that Source shall have given written notice of
such refusal to NDC not later than two trading days following the Determination
Date. During the five-day period commencing with its receipt of such notice,
NDC shall have the option, in its sole discretion, to elect to revise the Common
Exchange Ratios to equal that fraction of a share of NDC Common Stock (rounded
to the nearest ten thousandth of a share) obtained by dividing the product of
the Common Base Exchange Ratio or the Common Escrow Exchange Ratio, as the case
may be, and the Lower Threshold Price by the Average Closing Price at the
Determination Date. If NDC makes the election contemplated by the preceding
sentence within such five-day period, it shall give prompt written notice to
Source of such election and the revised Common Exchange Ratios, whereupon the
Merger Agreement shall remain in effect in accordance with its terms (except
that the Common Exchange Ratios shall have been so modified).
WORKING CAPITAL ADJUSTMENT. The Stock Escrow shall be adjusted in the manner
described below:
Preliminary Balance Sheet. Source will cause to be prepared and delivered
to NDC a balance sheet for Source as of the most recent month ending more than
ten days prior to the Closing Date (the "Preliminary Balance Sheet") and a
certificate based on such Preliminary Balance Sheet setting forth Source's
calculation of Working Capital, Current Assets and Current Liabilities
(hereinafter defined) as of such date ("Estimated Working Capital," "Estimated
Current Assets" and "Estimated Current Liabilities," respectively). The
Preliminary Balance Sheet shall include and fairly present the consolidated
financial position of Source and its subsidiaries as of the close of business on
the date of the Preliminary Balance Sheet in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent with those used in
the preparation of the consolidated balance sheet of Source and its subsidiaries
at March 31, 1997 (the "Source Balance Sheet"). As used herein, "Working
Capital"
-9-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
shall mean the amount equal to Current Assets less Current Liabilities; "Current
Assets" shall mean the amount equal to the sum of cash, accounts receivable (net
of any reserves), inventories, prepaid expenses, work-in-process, and any other
current assets recognized by GAAP; and "Current Liabilities" shall mean the
amount equal to the sum of accounts payable, accrued current liabilities of
Source (other than the current portion of capitalized lease obligations),
accrued sales commissions (but only as to revenues realized and included in the
Source statements of income prior to such date), accrued bonuses (the amount
equal to that percentage of budgeted annual bonuses for Source's fiscal year
1998 equal to the ratio of the earnings of Source through the date of
calculation to budgeted earnings for the full fiscal year), accrued vacation
pay, current portion of long-term indebtedness, pre-billed revenues and any
other current liabilities recognized by GAAP, but excluding all Transaction
Expenses.
NDC shall have five business days from the receipt of the Preliminary Balance
Sheet and the calculation of Estimated Working Capital, Estimated Current Assets
and Estimated Current Liabilities to review such statement and calculations and
following such review such statements and calculations shall be final and
binding.
If Estimated Current Assets are less than the product of 0.9416 and Estimated
Current Liabilities (such amount, the "Estimated Working Capital Adjustment") as
of the date of the Preliminary Balance Sheet, the Stock Escrow payable by NDC
shall be decreased by the number of shares of NDC Common Stock equal to the
Estimated Working Capital Adjustment divided by the Average Closing Price as of
the Closing Date; provided, however, in the event this reduction of the Stock
Escrow exceeds 113,960 shares, the Payment Shares shall then be decreased
similarly in an amount equal to such excess.
Closing Balance Sheet. As promptly as practicable, but not later than 30
days after the Closing Date, NDC will cause to be prepared and delivered to the
Stockholder Representative a balance sheet for Source as of the Closing Date
(the "Closing Balance Sheet") setting forth NDC's calculation of Working
Capital, Current Assets and Current Liabilities, each as of the Closing Date
("Closing Working Capital," "Closing Current Assets" and "Closing Current
Liabilities," respectively). The Closing Balance Sheet shall include and fairly
present the consolidated financial position of Source and its subsidiaries as of
the close of business on the Closing Date in accordance with GAAP applied on a
basis consistent with those used in the preparation of the Source Balance Sheet.
The Closing Balance Sheet and the calculation of Closing Working Capital,
Closing Current Assets and Closing Current Liabilities shall be deemed final
upon the earliest of (i) the date on which NDC and the Stockholder
Representative jointly agree that such documents are final, (ii) the 30th day
after delivery of such documents, if the Stockholder Representative has not
delivered a notice to expressing disagreement with such calculations and setting
forth its calculation of such amount(s), and (iii) the date on which all
disputes relating to such statements and calculations between the parties are
resolved.
If the Stockholder Representative shall deliver a notice of disagreement, the
Stockholder Representative and NDC, during the 30 days following such delivery,
shall use their reasonable efforts to reach agreement on the disputed items or
amounts (the "Disputed Amounts"). If, during such period, the Stockholder
Representative and NDC are unable to reach such agreement, they shall promptly
thereafter cause Price Waterhouse LLP (or if said firm shall be unwilling to act
thereunder, such other independent accountants of nationally recognized standing
reasonably satisfactory to NDC and the Stockholder Representative), promptly to
review the Merger Agreement and any other documents necessary to calculate the
Disputed Amounts (including all work papers of the parties used in calculating
the Disputed Amounts) and such accountants shall then deliver a report to NDC
and the Stockholder Representative setting forth their calculations which shall
be final and binding.
"Final Current Assets" and "Final Current Liabilities" mean (i) NDC's
calculation of Closing Current Assets and Closing Current Liabilities, if no
notice of disagreement with respect thereto is duly delivered by Source; or (ii)
if such a notice of disagreement is delivered, (a) as agreed by NDC and Source
or (b) in the absence of such agreement, as shown in the independent
accountant's calculation.
If Final Current Assets are less than the product of 0.9416 and Final Current
Liabilities, as defined below (the amount of such shortfall referred to as, the
"Final Working Capital Deficit"), the holders of Source Common Stock
-10-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
(the "Stockholders") shall pay to NDC the amount of the Final Working Capital
Deficit out of the Stock Escrow in the manner provided in the Escrow Agreement.
If Final Current Assets are greater than the product of 0.9416 and Final Current
Liabilities (the amount of such surplus referred to as, the "Final Working
Capital Surplus"), NDC shall pay to the escrow agent, to be held in accordance
with the Escrow Agreement, that number of shares of NDC Common Stock equal to
the quotient of the Final Working Capital Surplus divided by the Average Closing
Price as of the date Final Working Capital was determined.
Allocation with PMSI. NDC, Source and PMSI have agreed to the following
adjustment in order to properly allocate the working capital adjustment based on
their respective Closing Balance Sheets. For purposes of such allocation,
"Total Current Assets" shall mean the sum of Final Current Assets and "Final
Current Assets" calculated pursuant to the Stock Purchase Agreement; "Total
Current Liabilities" shall mean the sum of Final Current Liabilities and "Final
Current Liabilities" calculated pursuant to the Stock Purchase Agreement;
"Current Asset Allocation Amount" shall mean the product of (1) Final Current
Assets divided by Total Combined Assets, and (2) the Total Working Capital
Deficit or Total Working Capital Surplus, as the case may be; and "Total
Combined Assets" shall mean the sum of Final Current Assets and "Final Current
Assets" calculated under the Stock Purchase Agreement.
If Total Current Assets are less than the product of 0.9975 and Total Current
Liabilities (the "Total Working Capital Deficit"), then the Stockholders shall
pay to NDC the Current Asset Allocation Amount out of the Stock Escrow in the
manner provided in the Escrow Agreement. If Total Current Assets are greater
than the product of 0.9975 and Total Current Liabilities (the "Total Working
Capital Surplus"), then NDC shall pay to the Stockholders pursuant to the
instructions of the Stockholder Representative that number of shares of NDC
Common Stock equal to the quotient of the Current Asset Allocation Amount and
the Average Closing Price as of the date Final Working Capital was determined.
For purposes of any adjustments based on the Closing Balance Sheet, the
parties shall take into account any adjustment made at closing pursuant to the
Preliminary Balance Sheet.
INDEMNIFICATION. Pursuant to the Merger Agreement, the Stockholders jointly
and severally agree to indemnify, defend, and hold harmless NDC, Source, and
their respective officers, directors, controlling persons, affiliates and
representatives, and each of them (the "Indemnitees"), from, against, for and in
respect of any and all losses asserted against, or paid, suffered or incurred
by, an Indemnitee and resulting from, based upon, or arising out of:
(a) the inaccuracy, untruth, incompleteness or breach of any representation
or warranty of any Stockholder or Source contained in or made pursuant to the
Merger Agreement or in any certificate, schedule, or exhibit furnished by the
Stockholders or Source in connection therewith;
(b) a breach of or failure to perform any covenant or agreement of the
Stockholders or Source made in the Merger Agreement;
(c) any and all taxes arising out of or associated with the Divestiture;
(d) any and all taxes arising out of or associated with certain sales by
Source; or
(e) any and all losses relating to certain litigation ongoing as of the
date of the Merger Agreement.
The Stockholders will have no liability to the Indemnitees under or in
connection with a breach of any of the representations, warranties, covenants or
agreements made or to be performed by the Stockholders or Source contained in
the Merger Agreement unless written notice asserting an indemnification claim
based thereon is given to the Stockholder Representative prior to August 31,
1999.
The Stockholders shall have no liability with respect to the matters described
above until the total of all losses with respect thereto exceeds $200,000 in
which event the Stockholders shall be obligated to indemnify the Indemnitees for
all such losses; provided, however, that each individual claim of $10,000 or
less shall not be
-11-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
indemnifiable, and shall not be included in determining whether the $200,000
threshold has been reached. In no event shall the aggregate liability of the
Stockholders exceed the lesser of (i) the aggregate value of the Indemnification
Escrow Amount (hereinafter defined), and (ii) $20,000,000.
All disputes arising under the indemnification provisions of the Merger
Agreement (other than claims in equity) shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
ESCROW AGREEMENT. Pursuant to the terms of the Merger Agreement, the Stock
Escrow (455,840 shares of NDC Common Stock decreased by the adjustment, if any,
based on the Preliminary Balance Sheet discussed above), will be distributed to
and will be held by the escrow agent pursuant to the terms of the Escrow
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
ANNEX C.
Working Capital Escrow. A total of 113,960 of the Stock Escrow shares,
less any shares paid to NDC as the result of an adjustment based on the
Preliminary Balance Sheet, are reserved to cover an adjustment, if any, based on
the Closing Balance Sheet (the "Working Capital Escrow Amount"). The
Stockholder Representative, or the Stockholders with respect to their individual
percentage interest, may direct the escrow agent to sell, from time to time, any
or all of the shares of NDC Common Stock in the Working Capital Escrow Amount at
such prices as are commercially reasonable at the time of sale. Any and all
cash proceeds from the sale of such shares shall remain in escrow as part of the
Working Capital Escrow Amount, except that at the end of each calendar month, if
the aggregate value of the Working Capital Escrow Amount exceeds 133% of the
aggregate value of the Stock Escrow as of the Closing Date, the Escrow Agent
shall distribute to the Stockholders that amount in cash or shares of NDC Common
Stock equal to their respective percentage interest in such surplus.
If, prior to the ninetieth day after the Effective Time (the "Distribution
Date" with respect to the Working Capital Escrow Amount), NDC shall be entitled
to an adjustment based on the Closing Balance Sheet, the escrow agent shall
distribute to NDC from the Working Capital Escrow Amount an amount in cash, in
immediately available funds, equal to such adjustment claim, and, if the Working
Capital Escrow Amount does not contain any cash, or contains an amount of cash
insufficient to satisfy the claim, then the escrow agent shall distribute to NDC
from the Working Capital Escrow Amount that number of shares of NDC Common Stock
equal to the quotient (rounded to the next highest whole number) obtained by
dividing the amount of the claim not paid in cash by the Average Closing Price
as of the date Final Working Capital was determined.
If the adjustment based on the Closing Balance Sheet is pending as of the
Distribution Date with respect to the Working Capital Escrow Amount, the escrow
agent shall retain an amount equal to the disputed claim amount and promptly
deliver to the Stockholders a distribution of cash, if any, in immediately
available funds, and shares of NDC Common Stock from the Working Capital Escrow
Amount equal to any remaining amounts in the Working Capital Escrow Amount. The
disputed amount shall be paid to NDC or the Stockholders, as the case may be,
upon the final resolution as agreed by NDC and the Stockholder Representative in
writing of the amount of the adjustment claim.
Indemnification Escrow. A total of 341,880 of the Stock Escrow shares are
reserved to cover claims by NDC based on the indemnification provisions of the
Merger Agreement (the "Indemnification Escrow Amount"). The Stockholder
Representative, or the Stockholders with respect to their individual percentage
interest, may direct the escrow agent to sell, from time to time, any or all of
the shares of NDC Common Stock in the Indemnification Escrow Amount at such
prices as are commercially reasonable at the time of sale. Any and all cash
proceeds from the sale of such shares shall remain in escrow as part of the
Indemnification Escrow Amount, except that at the end of each calendar month, if
the aggregate value of the Indemnification Escrow Amount exceeds $20,000,000,
the escrow agent shall distribute to the Stockholders that amount in cash or
shares of NDC Common Stock equal to their respective percentage interest in such
surplus.
If, prior to August 31, 1999 (the "Distribution Date" with respect to the
Indemnification Escrow Amount) NDC shall be entitled to a payment based on an
indemnification claim, the escrow agent shall distribute to NDC from the
Indemnification Escrow Amount an amount in cash, in immediately available funds,
equal to such claim,
-12-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
and, if the Indemnification Escrow Amount does not contain any cash, or contains
an amount of cash insufficient to satisfy the claim, then the escrow agent shall
distribute to NDC from the Indemnification Escrow Amount that number of shares
of NDC Common Stock equal to the quotient (rounded to the next highest whole
number) obtained by dividing the amount of the claim not paid in cash by the
Average Closing Price as of the date the notice of claim was received by the
escrow agent.
If an indemnification claim is pending as of the Distribution Date with
respect to the Indemnification Escrow Amount, the escrow agent shall retain an
amount equal to the disputed claim amount and promptly deliver to the
Stockholders a distribution of cash, if any, in immediately available funds, and
shares of NDC Common Stock from the Indemnification Escrow Amount, equal to any
remaining amounts in the Indemnification Escrow Amount. The disputed amount
shall be paid to NDC or the Stockholders, as the case may be, upon the final
resolution as agreed by NDC and the Stockholder Representative in writing of the
amount of the outstanding claim.
General. Any and all cash dividends or other cash income with respect to
the Stock Escrow shall be paid into and remain in escrow and shall be available
for purposes of adjustments or distributions. Each Stockholder shall have the
right to direct the escrow agent in writing as to the exercise of voting rights
with respect to shares in the Stock Escrow held by the escrow agent on behalf of
such Stockholder, and the escrow agent shall comply with any such directions if
received in a timely manner. In the absence of such directions, the escrow
agent shall not vote any such shares in the Stock Escrow. The escrow agent
shall invest the cash amount, if any, included in the Working Capital and
Indemnification Escrow Amounts as directed by the Stockholder Representative or
the Stockholders, provided that should the Stockholder Representative or the
Stockholders fail to so direct the escrow agent, NDC shall be authorized to so
direct the escrow agent, and, provided further that such investments shall be
limited to (i) direct obligations of the United States of America, (ii)
obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal and interest, (iii)
commercial paper rated of the highest quality by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group, a division of McGraw-Hill Inc.
("S&P"), and (iv) certificates of deposit issued by a commercial bank (which may
be the escrow agent or any affiliate of the escrow agent) whose long-term debt
obligations are rated at least A2 by Moody's or at least A by S&P, in each case
having a maturity not in excess of 90 days, or a money market fund that invests
exclusively in said investments.
THE STOCKHOLDER REPRESENTATIVE. The Stockholder Representative shall mean a
committee comprised of Messrs. Dennis Turner, Handel Evans and Patrick Welsh.
The Stockholder Representative shall have the responsibility and authority to
enforce any adjustment based on the Closing Balance Sheet, the indemnification
provisions of the Merger Agreement, and the terms and conditions of the Escrow
Agreement, all on behalf of the Stockholders.
VOTES REQUIRED. Adoption of the Merger Agreement and consummation of the
transactions contemplated therein requires the affirmative vote of the holders
of a majority of the outstanding shares of Source Common Stock entitled to vote
at the Special Meeting and of the holders of a majority of the outstanding
shares of Source Preferred Stock entitled to vote at the Special Meeting. As of
the Record Date, Source's directors and executive officers, and their
affiliates, held approximately [_______]% of the outstanding shares of Source
Common Stock entitled to vote at the Special Meeting and [______]% of the
outstanding shares of Source Preferred Stock entitled to vote at the Special
Meeting. Pursuant to the Voting Agreement (hereinafter defined), NDC and
certain of its directors and executive officers have the power to vote
approximately [58]% of the outstanding shares of Source Preferred Stock in favor
of adoption of the Merger Agreement. Pursuant to the Voting Agreement, the
holders of approximately [58]% of the outstanding shares of Source Preferred
Stock have agreed to vote all of their shares of Source Preferred Stock in favor
of adoption of the Merger Agreement. See "General Information--Voting
Agreement." As of the Record Date, NDC, its directors and executive officers,
and their affiliates, held no shares of Source Common Stock or Source Preferred
Stock.
RECOMMENDATION OF THE SOURCE BOARD OF DIRECTORS. The Board of Directors of
Source believes that the Merger is in the best interests of Source and its
stockholders and has unanimously approved the Merger Agreement and the
consummation of the transactions contemplated therein. The Source Board of
Directors unanimously
-13-
- --------------------------------------------------------------------------------
<PAGE>
recommends that the stockholders vote FOR adoption of the Merger Agreement and
the consummation of the transactions contemplated therein. In deciding to
approve the Merger Agreement and the consummation of the transactions
contemplated therein, Source's Board of Directors considered a number of
factors, including the terms of the Merger, the compatibility of the operations
of Source and NDC, and the financial condition, results of operations, and
future prospects of Source and NDC. See "THE MERGER--Reasons for the Merger."
EFFECTIVE TIME AND CLOSING DATE. If the Merger is adopted by the requisite
votes of the Source stockholders, all required governmental and other consents
and approvals are obtained, and the other conditions to the obligations of the
parties to consummate the Merger are either satisfied or waived (as permitted),
the Merger will be consummated and will become effective on the date and at the
time that a Certificate of Merger, reflecting the Merger, becomes effective with
the Secretary of State of the State of Delaware (the "Effective Time"). Assuming
satisfaction of all conditions to consummation, the Merger is expected to become
effective during the fourth quarter of calendar 1997. NDC and Source each has
the right, acting unilaterally, to terminate the Merger Agreement should the
Merger not be consummated by January 31, 1998. The closing of the Merger shall
take place on the date the Effective Time occurs or such other date as the
parties shall agree (the "Closing Date"). See "THE MERGER--Effective Time and
Closing Date" and "-- Amendment, Waiver, and Termination."
DELIVERY OF NDC CERTIFICATES. Promptly after the Effective Time, each record
holder of shares of Source Common Stock and Source Preferred Stock ("Source
Capital Stock") outstanding at the Effective Time will be mailed a transmittal
letter (with instructions) to use in effecting the surrender and cancellation of
Source Capital Stock certificates in exchange for NDC Common Stock and/or cash.
NDC shall not be obligated to deliver the consideration to which any former
holder of Source Capital Stock is entitled until such holder surrenders such
holder's certificate or certificates representing such holder's shares of Source
Capital Stock for exchange. The certificate or certificates so surrendered shall
be duly endorsed as the exchange agent may require. See "THE MERGER--
Distribution of NDC Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Merger is intended to be a tax-
free reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). No opinion of counsel or Internal Revenue
Service regarding tax consequences of the Merger has been or will be secured in
connection with the Merger. Assuming the Merger qualifies as a reorganization,
no gain or loss should be recognized for federal income tax purposes by Source
stockholders as a result of the Merger, except that gain or loss will be
recognized with respect to cash received in lieu of fractional shares or as a
result of the exercise of appraisal rights. If for any reason the Merger does
not so qualify, exchanging stockholders will recognize gain or loss on a sale of
their stock. A discussion of matters regarding qualification for tax free
reorganization treatment is set forth below. See "THE MERGER - Certain Federal
Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER AND OTHER FACTORS, AND BECAUSE
VARIOUS FACTUAL MATTERS MUST BE RESOLVED FAVORABLY FOR TAX FREE REORGANIZATION
TREATMENT TO APPLY, EACH HOLDER OF SOURCE CAPITAL STOCK IS URGED TO CONSULT SUCH
HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH
HOLDER OF THE MERGER (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND
LOCAL INCOME AND OTHER TAX LAWS).
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of Source's
management and the Board of Directors of Source have interests in the Merger in
addition to their interests as stockholders of Source generally. These include,
among other things, provisions in the Merger Agreement relating to
indemnification and eligibility for certain NDC employee benefits and provisions
regarding severance in agreements between Source and certain of its executive
officers. See "The Merger--Management and Operations After the Merger" and "--
Interests of Certain Persons in the Merger."
CONDITIONS TO CONSUMMATION. Consummation of the Merger is subject to various
conditions, including among other matters: (i) adoption of the Merger Agreement
by the requisite votes of Source stockholders; (ii) receipt of all governmental
and other consents and approvals necessary to permit consummation of the Merger,
including expiration or termination of the statutory waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act
-14-
- --------------------------------------------------------------------------------
<PAGE>
of 1976 ("HSR Act"); (iii) consummation of the Stock Purchase; (iv) the
consummation of the Divestiture; (v) consummation of certain agreements related
to the Merger Agreement; (vi) cancellation by Source of all outstanding options
and warrants; and (vii) satisfaction of certain other traditional conditions.
The foregoing are the material conditions to the consummation of the Merger. See
"The Merger--Conditions to Consummation" and "-- Amendment, Waiver, and
Termination."
REGULATORY APPROVALS. The consummation of the Merger is subject to the
expiration or termination of the statutory waiting period under the HSR Act.
See "THE MERGER--Regulatory Approvals."
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement,
Source has agreed, among other things, to operate its business only in the
ordinary course and to take no action that would adversely affect its ability to
perform its covenants and agreements under the Merger Agreement. In addition,
Source has agreed not to take certain actions relating to the operation of
Source pending consummation of the Merger without the prior written consent of
NDC, except as otherwise permitted by the Merger Agreement, including: (i)
amending its Certificate of Incorporation or Bylaws; (ii) entering into,
modifying, amending or terminating any material contract; (iii) repurchasing,
redeeming or otherwise acquiring any shares of Source Capital Stock; (iv)
subject to certain exceptions, issuing any additional shares of Source Capital
Stock or giving any person the right to acquire any such shares, or issuing any
long-term debt; (v) subject to certain exceptions, granting any increase in
compensation or benefits, or paying any bonus, to any of its directors, officers
or employees; or (vi) modifying or adopting any employee benefit plans,
including any employment contract. Furthermore, Source has agreed that prior to
the Effective Time, it shall (i) consummate the Divestiture; (ii) terminate
certain employment agreements and its executive pension plan; and (iii) satisfy
all intercompany accounts in connection with the Divestiture. See "THE MERGER--
Conduct of Business Pending the Merger."
TERMINATION. The Merger Agreement may be terminated, and the Merger abandoned,
at any time prior to the Effective Time by mutual consent of the Boards of
Directors of Source and NDC. In addition, the Merger Agreement may be
terminated, and the Merger abandoned, prior to the Effective Time by either NDC
or Source if (i) the other party materially breaches and does not timely cure
any representation, warranty, covenant or other agreement contained in the
Merger Agreement, (ii) any consent or approval of certain regulatory authorities
is denied by final nonappealable action of such authority or if any action taken
by such authority is not appealed within the time limit for appeal, (iii) the
Source stockholders fail to adopt the Merger Agreement and the transactions
contemplated thereby at the Special Meeting, (iv) any of the conditions
precedent to the obligations of the terminating party to consummate the Merger
cannot be satisfied or fulfilled by January 31, 1998, or (v) the Merger has not
been consummated by January 31, 1998. In addition, NDC may unilaterally
terminate the Merger Agreement if the Source Board of Directors fails to
reapprove or resolves not to affirm the Merger or recommends entering into a
transaction other than the Merger involving a merger, share exchange,
consolidation or transfer of substantially all of Source's assets. Furthermore,
Source may unilaterally terminate the Merger Agreement in the event that the
Average Closing Price of the shares of NDC Common Stock is less than the Lower
Threshold Amount as of the Determination Date, subject to NDC's right to revise
the Common Exchange Ratios based on the Lower Threshold Price. See "-- Common
Exchange Ratio Adjustment" and "THE MERGER - Amendment, Waiver and Termination."
EXPENSES AND FEES. The Merger Agreement provides that each party shall be
responsible for its own costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated by the Merger
Agreement, except that each of NDC and Source shall pay one-half of the filing
fees payable in connection with the HSR filing, and NDC shall pay all costs
associated with the Registration Statement and this Proxy Statement/Prospectus
and printing costs incurred in connection with the Registration Statement and
this Proxy Statement/Prospectus.
If the Merger Agreement is terminated because (i) Source shall fail to call
the Special Meeting, (ii) the stockholders of Source fail to approve the Merger,
(iii) the Board of Directors of Source, to the exclusion of a competing
proposal, shall fail to reaffirm its approval of the Merger or shall have
affirmed, recommended or authorized another merger, share exchange,
consolidation or transfer of substantially all of the assets of Source (a
"Competing Proposal"), or (iv) Source has entered a binding agreement with
respect to a Competing Proposal, then
-15-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Source shall promptly pay NDC all the out-of-pocket costs and expenses of NDC,
including costs of counsel, investment brokers, actuaries and accountants up to
a maximum of $750,000 (the "NDC Expenses").
In addition to the foregoing, if the Merger Agreement is terminated because
(i) Source fails to call the Special Meeting, or (ii) the stockholders of Source
fail to approve the Merger Agreement, then Source shall pay to NDC the NDC
Expenses plus $3,000,000.
Further, if within twelve months following the termination of this Agreement:
(i) by NDC because Source's Board of Directors shall have failed to reaffirm its
approval of the Merger or shall have affirmed, recommended or authorized the
entering into any other merger, share exchange, consolidation or transfer of
substantially all of the assets of Source; or, (ii) by Source because it has
entered into negotiations with a third party relating to the foregoing and
pursuant to the continuing fiduciary duties of Source's Board of Directors as
required by applicable law, Source has entered into a binding agreement with
such third party; any third-party shall acquire, merge with, combine with,
purchase substantially all of the assets of, or engage in any other business
combination with, or purchase any equity securities involving an acquisition of
50% or more of the voting stock of Source, or enter into any binding agreement
to do any of the foregoing, such third-party that is a party to the business
combination shall pay to NDC, as a condition to consummation of such business
combination, an amount in cash equal to $3,000,000.
ACCOUNTING TREATMENT. It is anticipated that the Merger will be accounted for
under the "purchase" method of accounting. See "The Merger--Accounting
Treatment."
RESALE OF NDC COMMON STOCK. The NDC Common Stock issued in connection with the
Merger will be freely transferable by the holders of such shares, except for
those holders who may be deemed to be "affiliates" (generally including
directors, certain executive officers and holders of 10% or more of the
outstanding capital stock) of Source or NDC under applicable federal securities
laws. See "The Merger--Resale of NDC Common Stock."
VOTING AGREEMENT. NDC and the holders of a majority of Source Preferred Stock
(the "Preferred Stockholders") have entered into a voting agreement (the "Voting
Agreement") which provides that the Preferred Stockholders will vote such
Preferred Stockholder's shares of Source Preferred Stock in favor of the Merger,
the execution and delivery by Source of the Merger Agreement and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement, provided that the Merger Agreement has not been amended or waived so
as to in any manner (i) affect the rights of the Preferred Stockholders or their
representatives or increase the Preferred Stockholders' obligations thereunder
or (ii) increase the consideration payable to the holders of Source Common
Stock, without the prior consent of the Preferred Stockholders.
The Voting Agreement also provides that the Preferred Stockholders shall vote
(or cause to be voted) such Preferred Stockholder's shares of Source Preferred
Stock against (i) any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation, combination, sale of substantial
assets, reorganization, recapitalization, dissolution, liquidation or winding up
of or by Source or (ii) any amendment of Source's Certificate of Incorporation
or Bylaws or other proposal or transaction involving Source or any of its
subsidiaries which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify the Merger, the Merger Agreement or
any of the other transactions contemplated by the Merger Agreement. Each
Preferred Stockholder has also agreed that such Stockholder shall not (i)
transfer, or consent to any transfer of, any or all of the such stockholder's
shares or any interest therein, except pursuant to the Merger; (ii) enter into
any contract, option or other agreement or understanding with respect to any
transfer of any or all of such shares or any interest therein, (iii) grant any
proxy, power of attorney or other authorization in or with respect to such
shares, except for the Voting Agreement, or (iv) deposit such shares into a
voting trust or enter into a voting agreement or arrangement with respect to
such shares, subject to certain limited exceptions.
The Voting Agreement will terminate upon the earlier of the Effective Time,
the date upon which the Merger Agreement is terminated in accordance with its
terms, or December 15, 1997.
-16-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
APPRAISAL RIGHTS. Holders of Source Capital Stock have the right to demand
appraisal of their shares of Source Capital Stock and, upon satisfaction of
certain specified procedures, to receive cash in respect of the "fair value" (as
defined by Delaware law) of their shares of Source Capital Stock in accordance
with applicable Delaware law. The procedures to be followed by dissenting
stockholders are summarized under "The Merger -- Appraisal Rights" and a copy of
the applicable Delaware statutory provisions is set forth in Annex B to this
Proxy Statement/Prospectus. FAILURE TO FOLLOW SUCH PROVISIONS PRECISELY MAY
RESULT IN LOSS OF APPRAISAL RIGHTS.
In general, any dissenting stockholder who perfects his statutory appraisal
rights to be paid the "fair value" of his Source Capital Stock in cash will
recognize gain or loss for federal income tax purposes upon receipt of such
cash. See "The Merger -- Certain Federal Income Tax Consequences."
DIVESTITURE OF SOURCE EUROPE
Concurrent with the Merger, and as a condition of closing, Source will divest
Source Europe. Source Europe is a development stage business focused on building
a range of services similar to Source's United States operations ("Source US"),
for clients in continental Europe. While Source Europe is currently developing
software and databases to deliver prescriber-linked prescription services and
has delivered initial services to certain clients, the business will need
further funding to continue business development through cash flow self-
sufficiency. Source Europe may also require additional investment in the event
of problems with the development of the software and databases, delays in
bringing products to market or delays in obtaining government approval to launch
prescriber-based services in certain countries. Source Europe has incurred
operating losses since inception in 1994.
In June 1997, PMSI and Source commenced negotiations on a proposal for PMSI
to acquire 100% of Source Europe. Source appointed investment bankers to
negotiate on its behalf, and a specially formed committee of PMSI's independent
directors not affiliated with Source retained investment bankers to negotiate
for PMSI. On August 20, 1997, NDC, Source and PMSI executed definitive
agreements whereby PMSI will acquire 100% of Source Europe and NDC will acquire
100% of Source US (including PMSI's interest in Source) together with the Over-
the-Counter Physician Database business of PMSI (the "OTC Business"), for a
total purchase price of $153.0 million, payable 75% in registered shares of NDC
Common Stock and 25% in cash. The Merger Agreement and the Stock Purchase
Agreement are subject to the approval of the stockholders of Source and PMSI.
In negotiating the terms of the transfer of Source Europe to PMSI, Source
acknowledged that the current value of Source Europe is inherently speculative,
given the risks associated with such business, and that PMSI would be assuming
significant risks in agreeing to complete the development and commercialization
of Source Europe. Source also recognized that, if such risks could be overcome,
the projections of Source Europe's cash flows prepared by Source's management
would indicate a significantly higher discounted present value than the
negotiated current value of Source Europe, which reflected the risks to
achieving successful commercialization. Under all the circumstances, including
the desire of Source's Board to take advantage of NDC's attractive proposal to
acquire the rest of Source, the need for additional resources to complete the
development and commercialization of Source Europe and the absence of any other
offers to acquire Source Europe, the Source Board concluded that the terms of
the transfer of Source Europe were fair to Source stockholders. See"The Merger -
Background of the Merger" and "The Merger - Certain Federal Income Tax
Consequences."
-17-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARKET PRICES AND DIVIDENDS
NDC Common Stock is traded on the NYSE under the symbol "NDC." The following
table sets forth the high and low sale prices per share of NDC Common Stock on
the NYSE, and the dividends declared per share of NDC Common Stock with respect
to each quarterly period since June 1, 1996. There is no established trading
market for shares of Source Capital Stock. No cash dividends have been declared
or paid on Source Common Stock or Source Preferred Stock.
<TABLE>
<CAPTION>
SALE PRICES PER SHARE OF NDC DIVIDENDS DECLARED
COMMON STOCK PER SHARE OF
------------
NDC
HIGH LOW COMMON STOCK
---- --- ------------
<S> <C> <C> <C>
FISCAL 1996
Quarter ended August 31, 1995 26.63 20.50 .075
Quarter ended November 30, 1995 28.00 22.00 .075
Quarter ended February 29, 1996 35.00 20.00 .075
Quarter ending May 31, 1996 40.25 29.88 .075
FISCAL 1997
Quarter ended August 31, 1996 44.50 33.75 .075
Quarter ended November 30, 1996 46.63 37.88 .075
Quarter ended February 29, 1997 47.50 35.00 .075
Quarter ending May 31, 1997 44.00 33.75 .075
FISCAL 1998
Quarter ended August 31, 1997 46.50 36.3125 --
Quarter ending November 30, 1997
(through September 16, 1997) 40.25 36.8125 --
</TABLE>
On August 19, 1997, the last trading day prior to public announcement that NDC
and Source had executed the Merger Agreement, the last reported sale price per
share of NDC Common Stock on the NYSE was $36.81. On September 16, 1997, the
last reported sale prices per share of NDC Common Stock on the NYSE was
$38.875. SOURCE STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR NDC
COMMON STOCK.
The Merger Agreement provides for the filing of a listing application with the
NYSE covering the shares of NDC Common Stock issuable pursuant to the Merger. It
is a condition to consummation of the Merger that NDC use its reasonable efforts
to ensure that such shares of NDC Common Stock be authorized for listing on the
NYSE effective upon official notice of issuance. See "The Merger--Conditions to
Consummation."
-18-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following summary presents selected comparative unaudited per share data
for NDC and Source on a historical basis and on a pro forma combined basis
assuming the Merger and the Stock Purchase had been effective during the period
presented, and on an equivalent pro forma combined basis assuming the Merger and
the Stock Purchase had been effective during the period presented. The Merger
is reflected under the purchase method of accounting and pro forma data is
derived accordingly. The information shown below should be read in conjunction
with the historical financial statements of NDC and Source, including the
respective notes thereto, appearing elsewhere or incorporated by reference
herein, and with the unaudited pro forma financial information including the
notes thereto, appearing elsewhere herein. See "Available Information,"
"Incorporation of Certain Information by Reference," "Annex D - Financial
Statements of Source Informatics Inc.," and "Annex E - Pro Forma Combined
Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1997
------------
<S> <C>
NET INCOME PER SHARE:
NDC Historical...................... $ 1.38
Source Historical................... --
Pro Forma Combined.................. 1.38
Equivalent Pro Forma(a)............. 1.04
DIVIDENDS PER COMMON SHARE:
NDC Historical...................... 0.30
Source Historical................... --
Pro Forma Combined.................. 0.30
Equivalent Pro Forma(a)............. 0.23
STOCKHOLDER'S EQUITY (BOOK VALUE)
PER COMMON SHARE:
(AT PERIOD END)
NDC Historical...................... 10.45
Source Historical................... --
Pro Forma Combined.................. 11.02
Equivalent Pro Forma(a)............. 8.27
</TABLE>
- -----------
(a) Excludes the effect of the cash to be issued in conjunction with the Merger
and the Stock Purchase.
RECENT DEVELOPMENTS
On September 17, 1997, NDC reported results for the first quarter of its
fiscal year ending May 31, 1998, including revenue of $120.1 million, pre-tax
income of $17.1 million net income of $10.6 million and earnings per share of
$0.38.
-19-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
Set forth below is certain unaudited historical consolidated selected
financial data relating to NDC and Source and certain unaudited pro forma
combined selected financial data, giving effect to the Merger and the Stock
Purchase on a purchase accounting basis. This information should be read in
conjunction with the historical financial statements of NDC and Source,
including the respective notes thereto, and with the unaudited pro forma
combined financial information, appearing elsewhere in this Proxy
Statement/Prospectus or incorporated by referenced herein. See "Available
Information," "Incorporation of Certain Information by Reference," "Annex D -
Consolidated Financial Statements of Source Informatics Inc.," and "Annex E -
Pro Forma Combined Financial Data."
SELECTED FINANCIAL DATA OF NDC (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected historical financial data of NDC and
has been derived from and should be read in conjunction with NDC's Annual Report
on Form 10-K for the fiscal year ended May 31, 1997, which is incorporated by
reference herein. See "Available Information" and "Incorporation of Certain
Information by Reference."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $433,860 $325,803 $278,083 $237,659 $239,810
Operating income (loss)............ 66,656 (11,834) 28,426 18,423 14,894
Income (loss) from
continuing operations............ 38,753 (8,458) 18,421 12,226 8,045
PER SHARE DATA:
Income (loss) from
continuing operations.............. $ 1.38 $ (0.31) $ 0.79 $ 0.55 $ 0.37
Cash dividends....................... 0.30 0.30 0.30 0.29 0.29
Fully diluted weighted
average number of common
and common equivalent
shares outstanding................. 28,039 27,189 23,481 22,351 18,803
BALANCE SHEET DATA
(AT PERIOD END):
Total assets....................... $521,683 $368,039 $255,758 $214,864 $203,391
Long-term obligations.............. 155,690 13,324 26,410 21,664 20,254
Total stockholders' equity......... 277,470 233,299 164,651 134,723 124,001
</TABLE>
-20-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA OF SOURCE (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected historical financial data of Source
more fully set forth in Annex D.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30
-----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................. $ 59,885 $ 51,812 $ 48,710 $ 45,757 $ 28,831
Operating income (loss).............. 6,680 4,315 3,610 (1,797) (16,217)
Income (loss) from
continuing operations............... 6,479 3,766 2,610 (4,946) (17,680)
PER SHARE DATA:
Income (loss) from
continuing operations............... -- -- -- -- --
Cash dividends....................... -- -- -- -- --
Weighted average common
shares outstanding................. -- -- -- -- --
BALANCE SHEET DATA
(AT PERIOD END):
Total assets......................... 27,641 27,566 26,420 23,874 15,544
Long-term obligations................ 7,490 6,525 5,822 4,797 6,574
Total stockholders' equity........... (45,051) (51,530) (55,296) (57,906) (52,960)
</TABLE>
-21-
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SELECTED PRO FORMA COMBINED FINANCIAL DATA
OF NDC, SOURCE AND PMSI DATABASE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected pro forma combined financial
information as of and for the year ended May 31, 1997, giving effect to the
Merger and the consummation of the Stock Purchase using the purchase method of
accounting. The pro forma combined financial information represents the
historical operations of NDC, Source and PMSI Database adjusted for the effects
of the Merger and the Stock Purchase as well as the effects of NDC's acquisition
of NDC Healthcare EDI Services, Inc. consummated in October 1996. This
information has also been adjusted to conform presentation format and accounting
policy to those of NDC. For comparability purposes, Source and PMSI Database's
twelve months ended June 30, 1997, are used in conjunction with the NDC twelve
months ended May 31, 1997. The weighted average common shares outstanding and
related per share data has been adjusted to reflect the maximum number of shares
of NDC Common Stock issuable in the Merger and the Stock Purchase. The pro
forma combined financial information is provided for informational purposes only
and is not necessarily indicative of actual results that would have been
achieved had the Merger and the Stock Purchase been consummated at the beginning
of the period presented or of future results. The selected pro forma combined
financial information is derived from the Pro Forma Combined Financial
Information attached to this Proxy Statement/Prospectus as Annex E. This
information should be read in conjunction with the historical financial
statements of NDC and Source, including the respective notes thereto, appearing
elsewhere or incorporated by reference herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MAY 31, 1997
------------
PRO FORMA COMBINED
------------------
<S> <C>
INCOME STATEMENT DATA:
Revenues...................................... $523,605
Operating income.............................. 73,364
Income from
continuing operations........................ 42,454
PER SHARE DATA:
Income from
continuing operations....................... 1.38
Cash dividends................................ 0.30
Weighted average common
shares outstanding........................... 30,654
BALANCE SHEET DATA
(AT MAY 31, 1997):
Total assets.................................. $647,762
Long-term obligations......................... 305,134
Total stockholders' equity.................... 321,450
</TABLE>
-22-
- --------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the following factors should be considered carefully in
evaluating an investment in NDC Common Stock.
COMPETITION
The markets for the applications systems and services offered by NDC are
highly competitive. Competition in the health care transaction processing and
payment systems markets affects NDC's ability to gain new customers and the
prices it can charge. The key competitive factors for NDC are functionality of
products, quality of service and price. Many of NDC's competitors have access
to significant capital and management, marketing and technological resources
that are equal to or greater than those of NDC, and there can be no assurance
that NDC will continue to be able to compete successfully with them. In
addition, NDC competes with businesses that internally perform data processing
or other services offered by NDC.
MARKETS AND APPLICATIONS
NDC's future growth and profitability will depend, in part, upon the further
expansion of the health care transaction processing and payment systems markets,
the emergence of other markets for electronic transaction processing services
and NDC's ability to penetrate such markets. Further expansion of these markets
is dependent upon the continued growth in the number of transactions available
to be processed and the continued automation of traditional paper-based
processing systems. NDC's ability to penetrate such markets will depend, in
turn, upon its ability to apply its existing technology, or to develop new
technology, to meet the particular service needs of each new market. There can
be no assurance that markets for NDC's services will continue to expand and
develop or that NDC will be successful in its efforts, or have adequate
financial, marketing and technological resources to penetrate new markets.
INTEGRATED PAYMENT SYSTEMS BUSINESS
NDC's merchant customers have liability for charges disputed by cardholders.
However, in the case of merchant fraud, or insolvency or bankruptcy of the
merchant, NDC may be liable for any of such charges disputed by cardholders.
NDC requires cash deposits and other types of collateral by certain merchants to
minimize any such contingent liability. Based on its historical loss
experience, NDC has established reserves for estimated losses on transactions
processed which management believes are adequate. There can be no assurance,
however, that such reserves for losses will be adequate. Any such losses in
excess of reserves could have a material adverse effect on the financial
condition and results of operations of NDC.
ACQUISITION RISKS
NDC completed five acquisitions in fiscal 1997, and intends to seek additional
acquisition opportunities and alliance relationships with other businesses that
will allow it to increase its market penetration, technological capabilities,
product offerings and distribution capabilities. There can be no assurance that
NDC will be able successfully to identify suitable acquisition candidates,
complete acquisitions, integrate acquired operations into its existing
operations or expand into new markets. There can also be no assurance that
future acquisitions will not have an adverse effect upon NDC's operating
results, particularly in the fiscal quarters immediately following the
completion of such acquisitions while the operations of the acquired business
are being integrated into NDC's operations. Once integrated, acquired
operations may not achieve levels of revenues, profitability or productivity
comparable with those achieved by NDC's existing operations, or otherwise
perform as expected. In addition, NDC competes for acquisition and expansion
opportunities with companies that have substantially greater resources.
-23-
<PAGE>
FORWARD-LOOKING STATEMENTS
When used in this Proxy Statement/Prospectus and elsewhere by management or
NDC from time to time, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements
concerning NDC's operations, economic performance and financial condition,
including in particular, the likelihood of NDC's success in developing and
expanding its business. These statements are based on a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of NDC, and reflect future
business decisions which are subject to change. A variety of factors could
cause actual results to differ materially from those anticipated in NDC's
forward-looking statements, some of which include competition in the market for
NDC's services, continued expansion of NDC's processing and payment systems
markets, successfully completing and integrating acquisitions in existing and
new markets and other risk factors that are discussed from time to time in NDC's
Commission reports and other filings. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
they are made. NDC undertakes no obligations to publicly release the results of
any revisions to such forward-looking statements that may be made to reflect
events or circumstances after the date hereof, or thereof, as the case may be,
or to reflect the occurrence of unanticipated events.
-24-
<PAGE>
GENERAL INFORMATION
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished by Source to its
stockholders in connection with the Special Meeting of the stockholders of
Source to be held at _____ __.m., local time, on ________________, 1997, at
_______________________________________________, and at any adjournments and
postponements thereof, to consider and vote upon a proposal to adopt the Merger
Agreement and consummation of the transactions contemplated therein, and to
transact such other business as may properly come before the Special Meeting.
This document is also being furnished by NDC to Source stockholders as a
prospectus in connection with the issuance by NDC of shares of NDC Common Stock
upon consummation of the Merger.
The Merger Agreement provides for a transaction whereby a wholly-owned
subsidiary of NDC will merge with and into Source, with Source as the surviving
corporation of the Merger becoming a wholly-owned subsidiary of NDC. At the
Effective Time, each share of issued and outstanding Source Capital Stock
(excluding shares held by Source or any of its subsidiaries or by NDC or any of
its subsidiaries, and excluding shares as to which dissenters' rights are
perfected) shall cease to be outstanding and shall be converted into and
exchanged for the right to receive shares of NDC Common Stock and/or cash.
Pursuant to the NDC Rights Agreement, each share of NDC Common Stock issued in
connection with the Merger upon conversion of Source Common Stock shall be
accompanied by an NDC Right. See "The Merger--Exchange Ratios" and "Certain
Differences in the Rights of NDC and Source Stockholders."
If the Merger Agreement is adopted at the Special Meeting, all required
governmental and other consents and approvals are obtained, and all of the other
conditions to the obligations of the parties to consummate the Merger are either
satisfied or waived (as permitted), the Merger will be consummated. See "The
Merger--Conditions to Consummation."
RECORD DATE
The Source Board of Directors has fixed the close of business on ___________,
1997, as the record date for determining the Source stockholders entitled to
receive notice of and to vote at the Special Meeting. Only holders of record of
Source Capital Stock as of the Record Date are entitled to notice of and to vote
at the Special Meeting. As of the Record Date, there were [5,800,193] shares of
Source Common Stock issued and outstanding and held by [143] holders of record
and [1,041,667] shares of Source Preferred Stock issued and outstanding and held
by [52] holders of record. Holders of Source Common Stock are entitled to one
vote on each matter considered and voted on at the Special Meeting for each
share of Source Common Stock held of record at the close of business on the
Record Date. Holders of Source Preferred Stock are entitled to one vote on each
matter considered and voted on at the Special Meeting for each share of Source
Preferred Stock held of record at the close of business on the Record Date. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Source Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum of the holders of Source Common
Stock at the Special Meeting. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Source
Preferred Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum of the holders of Source Preferred Stock at the Special
Meeting. Abstentions will be counted as shares present for purposes of
determining the presence of a quorum but will not be counted as votes cast for
purposes of determining whether a proposal has received sufficient votes for
adoption. Consequently, abstentions will have the effect of a vote against the
Merger.
-25-
<PAGE>
VOTES REQUIRED
Adoption of the Merger Agreement and consummation of the transactions
contemplated therein requires the presence of a quorum and the affirmative vote
of: (i) the holders of a majority of the outstanding shares of Source Common
Stock entitled to vote thereon at the Special Meeting and of (ii) the holders of
a majority of the outstanding shares of Source Preferred Stock entitled to vote
thereon at the Special Meeting. Abstentions will have the effect of a vote
against the Merger. The holders of approximately [58]% of the outstanding shares
of Source Preferred Stock have agreed to vote all of such shares in favor of the
adoption of the Merger Agreement. See "The Merger-Voting Agreement."
As of the Record Date, Source directors and executive officers, and their
affiliates, beneficially owned approximately [_____]% of the outstanding shares
of Source Common Stock entitled to vote at the Special Meeting and [____]% of
the outstanding shares of Source Preferred Stock entitled to vote at the Special
Meeting. As of the Record Date, NDC and its directors and executive officers,
and their affiliates, held no shares of Source Common Stock or Source Preferred
Stock. See "THE MERGER-Voting Agreement."
RECOMMENDATION OF SOURCE'S BOARD OF DIRECTORS
For the reasons described below, the Board of Directors of Source has
unanimously adopted the Merger Agreement, believes the Merger is in the best
interests of Source and its stockholders, and unanimously recommends that
stockholders of Source vote FOR adoption of the Merger Agreement and the
consummation of the transactions contemplated therein. See "The Merger--Reasons
for the Merger."
THE MERGER
The following information describes certain information pertaining to the
Merger. This description does not purport to be complete and is qualified in its
entirely by reference to the Annexes hereto, including the Merger Agreement, a
copy of which is set forth in ANNEX A to this Proxy Statement/Prospectus and is
incorporated herein by reference. All stockholders are urged to read the Annexes
in their entirely.
GENERAL
The Merger Agreement provides that Sub will merge with and into Source, which
shall be the surviving corporation of the Merger and, as a result thereof,
become a wholly-owned subsidiary of NDC. At the time the Merger becomes
effective, each outstanding share of Source Capital Stock (excluding shares held
by Source or any of its subsidiaries or by NDC or any of its subsidiaries, and
excluding shares of Source Capital Stock as to which dissenter's rights are
perfected) shall cease to be outstanding and shall be converted into and
exchanged for the right to receive shares of NDC Common Stock and/or cash.
Pursuant to the NDC Rights Agreement, each share of NDC Common Stock issued in
connection with the Merger upon conversion of the Source Common Stock shall be
accompanied by an NDC Right. If the Merger Agreement is adopted at the Special
Meeting, all required governmental and other consents and approvals are
obtained, and all other conditions of the obligations of the parties to
consummate the Merger are either satisfied or waived (as permitted), the Merger
will be consummated.
BACKGROUND OF THE MERGER
Source was formed in April 1996 as a spin-off from Walsh International, Inc.
("Walsh") immediately prior to Walsh's initial public offering. In May 1996,
the Board of Directors of Source began considering a strategic direction for
Source with a view to maximizing shareholder value and creating avenues to
liquidity for Source stockholders.
In May, June and July 1996, Source and its investment bankers had preliminary
discussions regarding business combinations with several potentially interested
parties. In addition, during this period the Source Board of Directors
informally notified PMSI that it was evaluating strategic alternatives. From a
business and strategic
-26-
<PAGE>
perspective, Source management believed that the acquisition of Source by PMSI
might have been attractive given the significant business relationships between
the two parties. In 1991, PMSI and Walsh, as the predecessor of Source, had
entered into an operating venture to more fully exploit the databases produced
by Source. More recently, PMSI and Source had also reached agreement in
principle for PMSI's profit participation in Source's efforts to build and
commercialize similar databases in major European markets. After some
negotiations, however, Source management was informed that PMSI was unwilling to
pay a purchase price that the Source Board of Directors would accept.
During the first half of calendar 1996, Source and NDC, which has been a
significant data supplier to Source since inception of the operating venture
between Source and PMSI, commenced discussions with regard to creating a new
information service to deliver daily physician-level prescription data captured
from NDC's health care transaction processing network to Source clients in the
United States. During the course of these discussions, NDC management suggested
that, due to the complementary nature of the businesses, there be a senior
management meeting of all three companies to explore the potential for further
cooperation.
Commencing in November 1996, senior management from NDC, PMSI and Source met
several times to explore the potential synergies among their businesses. While a
possible transaction in which NDC would acquire all of PMSI and Source was
discussed, NDC did not submit an acquisition proposal to PMSI and Source. NDC
expressed the view that, since it had no significant operations outside the
United States, it believed that the greatest benefits would be derived from
cooperative ventures with Source's United States operations, the OTC Business
and NDC's health care transaction processing network, all based and operating
solely in the United States. In May 1997, NDC expressed an interest in acquiring
these parts of the PMSI and Source businesses. NDC's proposal contemplated the
acquisition by NDC of the OTC Business and all the outstanding capital stock of
Source, subject to Source's divestiture of its interest in Source Europe. The
Source Board of Directors determined that the transaction would substantially
achieve its strategic goals.
The Source Board also concluded that the transfer of Source Europe to PMSI was
the best alternative to achieve satisfaction of the divestiture condition in
NDC's proposal within the timeframe of such proposal. In exploring other
possible business combinations, Source had not received any proposals to acquire
Source Europe, which is still in the developmental stage. The Source Board
recognized that the development and commercialization of Source Europe's data
products and services would require capital beyond Source's current resources
and that successful introduction of such products and services in various
European markets would be subject to significant uncertainties. Source believed
that the acquisition of Source Europe would be attractive to PMSI because it
would complement PMSI's existing European businesses and would thereby enhance
PMSI's future market position in Europe.
In June 1997, NDC, PMSI and Source commenced negotiations on a proposal for
PMSI to acquire 100% of Source Europe and for NDC to acquire 100% of Source
(including PMSI's interest in Source) together with the OTC Business, for a
total purchase price payable to PMSI and the stockholders of Source consisting
of $153 million, payable 75% in registered shares of NDC Common Stock and 25% in
cash. Source appointed its investment bankers to negotiate on its behalf both
the allocation between Source and PMSI of the total NDC consideration to be
received in the Stock Purchase and the Merger and the terms of the transfer from
Source to PMSI of Source Europe. PMSI was represented in these negotiations by
its own investment bankers.
To date, Source has made significant investments in Source Europe, which
include researching the market potential and entry strategies, entering into
contracts with data vendors, developing databases, gaining regulatory approval
in certain markets, building infrastructure and entering into service contracts
with pharmaceutical companies. From inception on January 1, 1994, through June
30, 1997, Source Europe incurred an aggregate net loss of $42 million and had
revenues of $407,000, which were recognized in fiscal 1997. The Source Board
believes that the creation of significant value by Source Europe is subject to a
number of factors, including receipt of all required regulatory approvals, the
availability of adequate capital resources to complete development of Source
Europe's products and services and the successful introduction of such products
and services in various national markets.
In negotiating the terms of the transfer of Source Europe to PMSI, Source
acknowledged that the current value of Source Europe is inherently speculative,
given the risks associated with such business, and that PMSI would be assuming
significant risks in agreeing to complete the development and commercialization
of Source Europe. Source also recognized that, if such risks could be overcome,
the projections of Source Europe's cash flows prepared by Source's management
would indicate a significantly higher discounted present value than the
negotiated terms of the Source Divestiture Agreement, which reflected the risks
to achieving successful commercialization. Under all the circumstances,
including the desire of Source's Board to take advantage of NDC's attractive
proposal to acquire the rest of Source, the need for additional resources to
complete the development and commercialization of Source Europe and the absence
of any other offers to acquire Source Europe, the Source Board concluded that
the terms of the transfer of Source Europe were fair to Source stockholders.
Through July and August 1997, Source, PMSI and NDC continued to negotiate the
terms of the Stock Purchase and the Merger. On August 20, 1997, the Stock
Purchase Agreement, the Source Divestiture Agreement and the Merger Agreement
were executed.
REASONS FOR THE MERGER
The Source Board of Directors, after consideration of relevant business,
financial, legal and market factors, approved the Merger Agreement. Source's
Board did not assign any relative or specific weight to the factors considered.
The factors considered included:
(i) the expressed desire for liquidity of stockholders holding a majority
of the outstanding Source Capital Stock;
(ii) the prospective strategic benefits to the Source business of a
combination with an acquiror that could facilitate expansion into
other aspects of the health care information services industry;
(iii) the fact that a variety of other strategic options had been explored
since the inception of Source, without locating a strategic partner
or buyer willing to offer the potential value offered in the Merger;
(iv) the opinions, analyses and presentations of Montgomery Securities,
Source's investment bankers;
-27-
<PAGE>
(v) the structure of the Merger may permit holders of Source Capital
Stock to have their shares converted into NDC Common Stock on a tax-
free basis; and
(vi) the financial condition, cash flows and results of operations of
Source and NDC, both on an historical and a prospective basis.
THE BOARD OF DIRECTORS OF SOURCE UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREIN.
EXCHANGE RATIOS
The Merger Agreement provides that upon consummation of the Merger:
(a) Subject to a working capital adjustment (discussed below), each
outstanding share of Source Common Stock (excluding shares held by Source or any
of its subsidiaries or by NDC or any of its subsidiaries, and excluding shares
of Source Common Stock as to which dissenters' rights are perfected) issued and
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
the following:
(i) the amount, if any, equal to the quotient of (A) the Aggregate Cash
Amount less the Preferred Stock Merger Consideration, and less the Transaction
Expenses, and (B) the total number of shares of Source Common Stock
outstanding as of the Closing Date;
(ii) that fraction of a share of NDC Common Stock equal to the quotient
of (A) the Payment Shares less the Option Shares, and (B) the total number of
shares of Source Common Stock outstanding as of the Closing Date; provided,
however, if the sum of the Preferred Stock Merger Consideration and the
Transaction Expenses exceeds the Aggregate Cash Amount, then the Payment
Shares will be reduced by that number of shares of NDC Common Stock equal to
the Excess Expense divided by the Average Closing Price, as of the Closing
Date; and
(iii) that fraction of a share of NDC Common Stock equal to the quotient
of the Stock Escrow divided by the total number of shares of Source Common
Stock outstanding as of the Closing Date. The Stock Escrow will be utilized
for working capital adjustments and for indemnification claims by NDC, all
pursuant to the terms of the Merger Agreement and the Escrow Agreement.
At the Closing Date, Source shall prepare and deliver to NDC a schedule
indicating the Transaction Expenses incurred but unpaid as of the Closing Date
including, without limitation, all expenses incurred in connection with Source's
termination of certain employment agreements and an executive pension plan. In
addition, also at the Closing Date, Source shall have secured the cancellation
of all outstanding options and warrants to purchase shares of Source Common
Stock and shall provide to NDC a schedule of the Option Shares payable to the
holders of such options and warrants in consideration of such cancellation,
which Option Shares shall not exceed [________] shares of NDC Common Stock.
Pursuant to the NDC Rights Agreement, each share of NDC Common Stock issued in
connection with the Merger upon conversion of Source Common Stock shall be
accompanied by an NDC Right.
(b) Each share of Source Preferred Stock (excluding shares held by Source or
any of its subsidiaries or by NDC or any of its subsidiaries, and excluding
shares of Source Preferred Stock as to which dissenters' rights are perfected)
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be converted and exchanged for the right to receive an
amount equal to the Preferred Stock Merger Consideration.
-28-
<PAGE>
COMMON EXCHANGE RATIO ADJUSTMENT
If, at the close of trading on the Determination Date, the Average Closing
Price shall be greater than the Upper Threshold Price, the Common Exchange
Ratios shall each be adjusted to equal that fraction of a share of NDC Common
Stock (rounded to the nearest ten thousandth of a share) obtained by dividing
the product of the Common Base Exchange Ratio or the Common Escrow Exchange
Ratio, as the case may be, and the Upper Threshold Price by the Average Closing
Price at the Determination Date. If the Average Closing Price on the
Determination Date shall be less than the Lower Threshold Price, Source shall
have the right to refuse to consummate the Merger provided that Source shall
have given written notice of such refusal to NDC not later than two trading days
following the Determination Date. During the five-day period commencing with
its receipt of such notice, NDC shall have the option, in its sole discretion,
to elect to revise the Common Exchange Ratios to equal that fraction of a share
of NDC Common Stock (rounded to the nearest ten thousandth of a share) obtained
by dividing the product of the Common Base Exchange Ratio or the Common Escrow
Exchange Ratio, as the case may be, and the Lower Threshold Price by the Average
Closing Price at the Determination Date. If NDC makes the election contemplated
by the preceding sentence within such five-day period, it shall give prompt
written notice to Source of such election and the revised Common Exchange
Ratios, whereupon the Merger Agreement shall remain in effect in accordance with
its terms (except that the Common Exchange Ratios shall have been so modified).
WORKING CAPITAL ADJUSTMENT
The Stock Escrow shall be adjusted in the manner described below:
PRELIMINARY BALANCE SHEET. Source will cause to be prepared and delivered to
NDC the Preliminary Balance Sheet and a certificate based on such Preliminary
Balance Sheet setting forth Source's calculation of Estimated Working Capital,
Estimated Current Assets and Estimated Current Liabilities. The Preliminary
Balance Sheet shall include and fairly present the consolidated financial
position of Source and its subsidiaries as of the close of business on the date
of the Preliminary Balance Sheet in accordance with GAAP applied on a basis
consistent with those used in the preparation of the Source Balance Sheet.
NDC shall have five business days from the receipt of the Preliminary Balance
Sheet and the calculation of Estimated Working Capital, Estimated Current Assets
and Estimated Current Liabilities to review such statement and calculations and
following such review such statements and calculations shall be final and
binding.
If Estimated Current Assets are less than the product of 0.9416 and Estimated
Current Liabilities as of the date of the Preliminary Balance Sheet, the Stock
Escrow payable by NDC shall be decreased by the number of shares of NDC Common
Stock equal to the Estimated Working Capital Adjustment divided by the Average
Closing Price as of the Closing Date; provided, however, in the event this
reduction of the Stock Escrow exceeds 113,960 shares, the Payment Shares shall
then be decreased similarly in an amount equal to such excess.
CLOSING BALANCE SHEET. As promptly as practicable, but not later than 30 days
after the Closing Date, NDC will cause to be prepared and delivered to the
Stockholder Representative the Closing Balance Sheet setting forth NDC's
calculation of Closing Working Capital, Closing Current Assets and Closing
Current Liabilities. The Closing Balance Sheet shall include and fairly present
the consolidated financial position of Source and its subsidiaries as of the
close of business on the Closing Date in accordance with GAAP applied on a basis
consistent with those used in the preparation of the Source Balance Sheet.
The Closing Balance Sheet and the calculation of Closing Working Capital,
Closing Current Assets and Closing Current Liabilities shall be deemed final
upon the earliest of (i) the date on which NDC and the Stockholder
Representative jointly agree that such documents are final, (ii) the 30th day
after delivery of such documents, if the Stockholder Representative has not
delivered a notice to expressing disagreement with such calculations and setting
forth its calculation of such amount(s), and (iii) the date on which all
disputes relating to such statements and calculations between the parties are
resolved.
-29-
<PAGE>
If the Stockholder Representative shall deliver a notice of disagreement, the
Stockholder Representative and NDC shall, during the 30 days following such
delivery, use their reasonable efforts to reach agreement on the Disputed
Amounts. If, during such period, the Stockholder Representative and NDC are
unable to reach such agreement, they shall promptly thereafter cause Price
Waterhouse LLP (or if said firm shall be unwilling to act thereunder, such other
independent accountants of nationally recognized standing reasonably
satisfactory to NDC and the Stockholder Representative), promptly to review the
Merger Agreement and any other documents necessary to calculate the Disputed
Amounts (including all work papers of the parties used in calculating the
Disputed Amounts) and such accountants shall then deliver a report to NDC and
the Stockholder Representative setting forth their calculations which shall be
final and binding.
If Final Current Assets are less than the product of 0.9416 and Final Current
Liabilities, the Stockholders shall pay to NDC the amount of the Final Working
Capital Deficit out of the Stock Escrow in the manner provided in the Escrow
Agreement. If Final Current Assets are greater than the product of 0.9416 and
Final Current Liabilities, NDC shall pay to the escrow agent, to be held in
accordance with the Escrow Agreement, that number of shares of NDC Common Stock
equal to the quotient of the Final Working Capital Surplus divided by the
Average Closing Price as of the date Final Working Capital was determined.
ALLOCATION WITH PMSI. NDC, Source and PMSI have agreed to the following
adjustment in order to properly allocate the working capital adjustment based on
their respective Closing Balance Sheets. If Total Current Assets are less than
the product of 0.9975 and Total Current Liabilities, then the Stockholders shall
pay to NDC the Current Asset Allocation Amount out of the Stock Escrow in the
manner provided in the Escrow Agreement. If Total Current Assets are greater
than the product of 0.9975 and Total Current Liabilities, then NDC shall pay to
the Stockholders pursuant to the instructions of the Stockholder Representative
that number of shares of NDC Common Stock equal to the quotient of the Current
Asset Allocation Amount and the Average Closing Price as of the date Final
Working Capital was determined.
For purposes of any adjustments based on the Closing Balance Sheet, the
parties shall take into account any adjustment made at closing pursuant to the
Preliminary Balance Sheet.
INDEMNIFICATION
Pursuant to the Merger Agreement, the Stockholders jointly and severally agree
to indemnify, defend, and hold harmless the Indemnitees, from, against, for and
in respect of any and all losses asserted against, or paid, suffered or incurred
by, an Indemnitee and resulting from, based upon, or arising out of:
(a) the inaccuracy, untruth, incompleteness or breach of any representation
or warranty of any Stockholder or Source contained in or made pursuant to the
Merger Agreement or in any certificate, schedule, or exhibit furnished by the
Stockholders or Source in connection therewith;
(b) a breach of or failure to perform any covenant or agreement of the
Stockholders or Source made in the Merger Agreement;
(c) any and all taxes arising out of or associated with the Divestiture;
(d) any and all taxes arising out of or associated with certain sales by
Source; or
(e) any and all losses relating to certain litigation ongoing as of the
date of the Merger Agreement.
The Stockholders will have no liability to the Indemnitees under or in
connection with a breach of any of the representations, warranties, covenants or
agreements made or to be performed by the Stockholders or Source contained in
the Merger Agreement unless written notice asserting an indemnification claim
based thereon is given to the Stockholder Representative prior to August 31,
1999.
-30-
<PAGE>
The Stockholders shall have no liability with respect to the matters described
above until the total of all losses with respect thereto exceeds $200,000 in
which event the Stockholders shall be obligated to indemnify the Indemnitees for
all such losses; provided, however, that each individual claim of $10,000 or
less shall not be indemnifiable, and shall not be included in determining
whether the $200,000 threshold has been reached. In no event shall the
aggregate liability of the Stockholders exceed the lesser of (i) the aggregate
value of the Indemnification Escrow Amount, and (ii) $20,000,000.
All disputes arising under the indemnification provisions of the Merger
Agreement (other than claims in equity) shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
ESCROW AGREEMENT
Pursuant to the terms of the Merger Agreement, the Stock Escrow (455,840
shares of NDC Common Stock decreased by the adjustment, if any, based on the
Preliminary Balance Sheet discussed above), will be distributed to and will be
held by the escrow agent pursuant to the terms of the Escrow Agreement, a copy
of which is attached to this Proxy Statement/Prospectus as Annex C.
WORKING CAPITAL ESCROW. The Working Capital Escrow Amount (a total of 113,960
of the Stock Escrow shares, less any shares paid to NDC as the result of an
adjustment based on the Preliminary Balance Sheet), are reserved to cover an
adjustment, if any, based on the Closing Balance Sheet. The Stockholder
Representative, or the Stockholders with respect to their individual percentage
interest, may direct the escrow agent to sell, from time to time, any or all of
the shares of NDC Common Stock in the Working Capital Escrow Amount at such
prices as are commercially reasonable at the time of sale. Any and all cash
proceeds from the sale of such shares shall remain in escrow as part of the
Working Capital Escrow Amount, except that at the end of each calendar month, if
the aggregate value of the Working Capital Escrow Amount exceeds 133% of the
aggregate value of the Stock Escrow as of the Closing Date, the Escrow Agent
shall distribute to the Stockholders that amount in cash or shares of NDC Common
Stock equal to their respective percentage interest in such surplus.
If, prior to the Distribution Date with respect to the Working Capital Escrow
Amount, NDC shall be entitled to an adjustment based on the Closing Balance
Sheet, the escrow agent shall distribute to NDC from the Working Capital Escrow
Amount an amount in cash, in immediately available funds, equal to such
adjustment claim, and, if the Working Capital Escrow Amount does not contain any
cash, or contains an amount of cash insufficient to satisfy the claim, then the
escrow agent shall distribute to NDC from the Working Capital Escrow Amount that
number of shares of NDC Common Stock equal to the quotient (rounded to the next
highest whole number) obtained by dividing the amount of the claim not paid in
cash by the Average Closing Price as of the date Final Working Capital was
determined.
If the adjustment based on the Closing Balance Sheet is pending as of the
Distribution Date with respect to the Working Capital Escrow Amount, the escrow
agent shall retain an amount equal to the disputed claim amount and promptly
deliver to the Stockholders a distribution of cash, if any, in immediately
available funds, and shares of NDC Common Stock from the Working Capital Escrow
Amount, equal to any remaining amounts in the Working Capital Escrow Amount.
The disputed amount shall be paid to NDC or the Stockholders, as the case may
be, upon the final resolution as agreed by NDC and the Stockholder
Representative in writing of the amount of the adjustment claim.
INDEMNIFICATION ESCROW. The Indemnification Escrow Amount (a total of 341,880
of the Stock Escrow shares) are reserved to cover claims by NDC based on the
indemnification provisions of the Merger Agreement. The Stockholder
Representative, or the Stockholders with respect to their individual percentage
interest, may direct the escrow agent to sell, from time to time, any or all of
the shares of NDC Common Stock in the Indemnification Escrow Amount at such
prices as are commercially reasonable at the time of sale. Any and all cash
proceeds from the sale of such shares shall remain in escrow as part of the
Indemnification Escrow Amount, except that at the end of each calendar month, if
the aggregate value of the Indemnification Escrow Amount exceeds $20,000,000,
the
-31-
<PAGE>
escrow agent shall distribute to the Stockholders that amount in cash or
shares of NDC Common Stock equal to their respective percentage interest in such
surplus.
If, prior to the Distribution Date with respect to the Indemnification Escrow
Amount, NDC shall be entitled to a payment based on an indemnification claim,
the escrow agent shall distribute to NDC from the Indemnification Escrow Amount
an amount in cash, in immediately available funds, equal to such claim, and, if
the Indemnification Escrow Amount does not contain any cash, or contains an
amount of cash insufficient to satisfy the claim, then the escrow agent shall
distribute to NDC from the Indemnification Escrow Amount that number of shares
of NDC Common Stock equal to the quotient (rounded to the next highest whole
number) obtained by dividing the amount of the claim not paid in cash by the
Average Closing Price as of the date the notice of claim was received by the
escrow agent.
If an indemnification claim is pending as of the Distribution Date with
respect to the Indemnification Escrow Amount, the escrow agent shall retain an
amount equal to the disputed claim amount and promptly deliver to the
Stockholders a distribution of cash, if any, in immediately available funds, and
shares of NDC Common Stock from the Indemnification Escrow Amount, equal to any
remaining amounts in the Indemnification Escrow Amount. The disputed amount
shall be paid to NDC or the Stockholders, as the case may be, upon the final
resolution as agreed by NDC and the Stockholder Representative in writing of the
amount of the outstanding claim.
GENERAL. Any and all cash dividends or other cash income with respect to the
Stock Escrow shall be paid into and remain in escrow and shall be available for
purposes of adjustments or distributions. Each Stockholder shall have the right
to direct the escrow agent in writing as to the exercise of voting rights with
respect to shares in the Stock Escrow held by the escrow agent on behalf of such
Stockholder, and the escrow agent shall comply with any such directions if
received in a timely manner. In the absence of such directions, the escrow
agent shall not vote any such shares in the Stock Escrow. The escrow agent
shall invest the cash amount, if any, included in the Working Capital and
Indemnification Escrow Amounts as directed by the Stockholder Representative or
the Stockholders, provided that should the Stockholder Representative or the
Stockholders fail to so direct the escrow agent, NDC shall be authorized to so
direct the escrow agent, and, provided further that such investments shall be
limited to (i) direct obligations of the United States of America, (ii)
obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal and interest, (iii)
commercial paper rated of the highest quality by Moody's or S&P, and (iv)
certificates of deposit issued by a commercial bank (which may be the escrow
agent or any affiliate of the escrow agent) whose long-term debt obligations are
rated at least A2 by Moody's or at least A by S&P, in each case having a
maturity not in excess of 90 days, or a money market fund that invests
exclusively in said investments.
THE STOCKHOLDER REPRESENTATIVE
The Stockholder Representative shall mean a committee comprised of Messrs.
Dennis Turner, Handel Evans and Patrick Welsh. The Stockholder Representative
shall have the responsibility and authority to enforce any adjustment based on
the Closing Balance Sheet, the indemnification provisions of the Merger
Agreement, and the terms and conditions of the Escrow Agreement, all on behalf
of the Stockholders.
FRACTIONAL SHARES
Pursuant to the terms of the Merger Agreement, each holder of shares of Source
Common Stock exchanged pursuant to the Merger, who would otherwise have been
entitled to receive a fraction of a share of NDC Common Stock shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional part
of a share of NDC Common Stock multiplied by the closing price per share of NDC
Common Stock as reported on the NYSE on the last trading day immediately
preceding the Effective Time. No such holder will be entitled to dividends,
voting rights, or any other rights as a stockholder in respect of any fractional
shares.
-32-
<PAGE>
TERMINATION OF STOCK OPTIONS
The Merger Agreement provides that, at the Closing Date, Source shall have
secured the cancellation of all outstanding options and warrants to purchase
shares of Source Common Stock and shall provide to NDC a schedule of the Option
Shares payable to the holders of such options and warrants in consideration of
such cancellation, which Option Shares shall not exceed ________ shares of NDC
Common Stock.
EFFECTIVE TIME AND CLOSING DATE
If the Merger Agreement is adopted by the requisite votes of Source
stockholders, and all other required governmental and other consents and
approvals are received, and if the other conditions to the obligations of the
parties to consummate the Merger are satisfied or waived (as permitted), the
Merger will be consummated and effected on the date and at the time a
Certificate of Merger, reflecting the Merger, becomes effective with the
Secretary of State of the State of Delaware. NDC and Source have mutually
agreed to use their reasonable efforts to cause the Effective Time to occur on
the first business day following the last to occur of: (i) the effective date
(including expiration of any applicable waiting period) of the last required
approval or clearance of any regulatory authority having authority over and
approving or exempting the Merger, (ii) the date on which the stockholders of
Source approve the Merger Agreement, and (iii) the date on which the
stockholders of PMSI approve the Stock Purchase Agreement. Assuming satisfaction
of all conditions to consummation of the Merger, the Merger is expected to be
made effective during the fourth quarter of calendar 1997. Either NDC or Source
may terminate the Merger Agreement if the Merger has not been consummated by
January 31, 1998. The closing of the Merger shall take place on the date the
Effective Time occurs or such other date as the parties shall agree. See "--
Conditions to Consummation" and "--Amendment, Waiver, and Termination."
DISTRIBUTION OF NDC CERTIFICATES
Promptly after the Effective Time, NDC and Source shall cause the exchange
agent selected by NDC to mail appropriate transmittal materials to each record
holder of Source Common Stock and Source Preferred Stock for use in effecting
the surrender and cancellation of those certificates in exchange for NDC Common
Stock and/or cash (which shall specify that delivery shall be effected, and risk
of loss and title to the certificates theretofore representing shares of Source
Common Stock and Source Preferred Stock shall pass, only upon proper delivery of
such certificates to the exchange agent by the former stockholders of Source).
SOURCE STOCKHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL
THEY RECEIVE SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS. After the Effective
Time, each holder of shares of Source Common Stock and Source Preferred Stock
(excluding shares held by Source or any of its subsidiaries or by NDC or any of
its subsidiaries, and excluding shares as to which dissenters' rights are
perfected) issued and outstanding at the Effective Time shall surrender the
certificate or certificates representing such shares to the exchange agent, and
the certificates thus surrendered will be canceled. Unless otherwise designated
by a Source stockholder on the transmittal letter, certificates representing
shares of NDC Common Stock and/or cash issued or deliverable to Source
stockholders in connection with the Merger will be issued and delivered to the
tendering Source stockholder at the address on record with Source. NDC shall not
be obligated to deliver the consideration to which any former holder of Source
Common Stock and Source Preferred Stock is entitled until such holder surrenders
such holder's certificate or certificates representing such holder's shares for
exchange. The certificate or certificates so surrendered shall be duly endorsed
as the exchange agent may require. No party shall be liable to a holder of
Source Common Stock and Source Preferred Stock for any property delivered in
good faith to a public official pursuant to any applicable abandoned property
law.
After the Effective Time, holders of Source certificates will have no rights
with respect to the shares of Source Common Stock and Source Preferred Stock
represented thereby other than the right to surrender such certificates and
receive in exchange therefor the shares of NDC Common Stock and/or cash to which
such holders are entitled, as described above. In addition, no dividend or other
distribution payable to holders of record of NDC Common Stock will be paid to
the holder of any Source certificates until such holder surrenders such
certificates for exchange as instructed. Subject to applicable law, upon
surrender of the certificates, such holder will receive the certificates
representing the shares of NDC Common Stock and/or cash issuable or deliverable
upon the exchange
-33-
<PAGE>
or conversion of such shares of Source Common Stock and Source Preferred Stock,
all withheld dividends or other distributions (without interest), and any
withheld cash payments (without interest) to which such stockholder is entitled.
If any certificate for NDC Common Stock is to be issued in a name other than
that in which the Source certificate surrendered for exchange is issued, the
Source certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, and the person requesting such exchange shall affix
any requisite stock transfer tax stamps to the certificates surrendered, shall
provide funds for their purchase, or shall establish to the exchange agent's
satisfaction that such taxes are not payable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax consequences
of the Merger. This discussion is based on the provisions of the Code, the
United States Department of the Treasury Regulations thereunder and rulings and
court decisions as of the date hereof, all of which are subject to change,
possibly retroactive. The discussion is included for general information
purposes only, applies only to Source stockholders, if any, who hold their stock
as a capital asset, and may not apply to Source stockholders, if any, who
received their stock upon the exercise of employee stock options or otherwise as
compensation or have a special tax status. NDC and Source have not requested a
ruling from the Service and neither party is obtaining a tax opinion from
counsel regarding the qualification of the Merger as a tax-free reorganization
within the meaning of Section 368(a) of the Code.
It is intended that the Merger will qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Code. In order to so qualify,
various factual matters must be true. Among other things, qualification as a
tax-free reorganization is based on Source holding substantially all of its
properties and substantially all of Sub's properties after the Merger. The
Service takes the position that the "substantially all" requirement will be
satisfied if at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by both Source and
Sub immediately prior to the Merger are held by Source after the Merger. Case
authorities apply somewhat different criteria. The relative values of the assets
exchanged in all of the Source and PMSI transactions is a factor in determining
whether the "substantially all" test has been satisfied. As part of the
transactions contemplated by the Merger Agreement, Source is disposing of its
ownership in Source Europe to PMSI. In connection with the preparation of a
fairness opinion rendered to a special committee of PMSI's Board, PMSI's
investment bankers performed a discounted cash flow analysis of the various
business segments to be sold and acquired by PMSI as contemplated by the Stock
Purchase Agreement and the Source Divestiture Agreement, including such an
analysis of certain projections of the cash flows of Source Europe over the next
five years prepared by Source management. The projections assumed receipt of all
required regulatory approvals, the availability of adequate capital resources to
complete development of Source Europe's products and services and the successful
introduction of such products in various national markets. The analysis assumed
a sale of Source Europe at the end of the projected period at an assumed exit
multiple and then discounted the cash flows to present value at an assumed
discount factor. Utilizing this methodology results in a mid-range value for
Source Europe of approximately $29 million. NDC and Source believe that this
value is substantially in excess of the value of Source Europe at the time of
disposition. In addition, NDC and Source believe that the negotiated terms of
the transactions are the proper basis for analyzing the "substantially all"
test. However, there can be no assurance that the Internal Revenue would not
adopt a different valuation methodology or otherwise challenge compliance with
the "substantially all" test. If Source does not hold substantially all of its
assets, as well as substantially all of Sub's assets immediately after the
Merger, or the Merger failed to qualify as a tax free reorganization for any
other reason, then the exchange of Source Common Stock for NDC Common Stock will
be a taxable sale of stock and Source stockholders will recognize gain or loss
on the transaction.
If the Merger is treated as a reorganization as defined in Section 368(a) of
the Code, the following will be the material federal income tax consequences to
the Source stockholders:
(i) No gain or loss will be recognized for federal income tax purposes by
Source stockholders upon the exchange of their shares of Source
Common Stock for shares of NDC Common Stock.
(ii) The basis of the shares of NDC Common Stock to be received by Source
stockholders will be the same as the basis of the Source Common Stock
surrendered in exchange therefor.
(iii) The holding period of the NDC Common Stock to be received by Source
stockholders will include the period during which the shares of
Source Capital Stock surrendered in exchange therefor had been held,
provided such shares were held by such stockholders as a capital
asset at the Effective Time.
(iv) The payment of cash in lieu of fractional shares of NDC Common Stock
will be treated as if the fractional shares were issued as part of
the exchange and then redeemed by NDC. These cash payments will be
treated as having been received as distributions in full payment in
exchange for the fractional shares of NDC Common Stock redeemed as
provided in Section 302(a) of the Code. Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided
the fractional share would constitute a capital asset in the hands of
the exchanging stockholder.
-34-
<PAGE>
(v) The payment of cash in respect of shares of Source Capital Stock as
to which dissenters' rights are perfected will be subject to capital
gains (loss) treatment.
Holders of Source Preferred Stock who receive solely cash in exchange for
their stock will be treated as having received such payments as distributions in
redemption of their shares of such stock subject to the provisions and
limitations of Section 302 of the Code. After such distribution, if a former
Source stockholder neither owns capital stock nor is deemed to own capital stock
under constructive ownership rules, the redemption will be a complete
termination of interest and will be treated as a distribution in full payment in
exchange for shares of such stock. Accordingly, such stockholder will recognize
gain or loss measured by the difference between the amount of cash received and
such stockholder's adjusted basis in the stock surrendered.
IN CONSIDERING THIS TRANSACTION STOCKHOLDERS SHOULD UNDERSTAND WHILE THE
COMPANY AND SOURCE BELIEVE THIS TRANSACTION WILL BE TREATED AS A TAX FREE
REORGANIZATION THERE IS NO ASSURANCE THAT THIS TRANSACTION WILL BE SO TREATED.
IT MAY BE TREATED AS A TAXABLE SALE OF STOCK RESULTING IN IMMEDIATE TAX
LIABILITY. EACH HOLDER OF SOURCE CAPITAL STOCK IS URGED TO CONSULT SUCH HOLDER'S
OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF
THE MERGER (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL
INCOME AND OTHER TAX LAWS).
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Source will be the surviving corporation resulting from the Merger and will
become a wholly-owned subsidiary of NDC. The Merger Agreement provides that from
and after the Effective Time, the Board of Directors of Source shall consist of
the directors of Sub immediately prior to the Effective Time. The Merger
Agreement further provides that the officers of Source in office immediately
prior to the Effective Time, together with such additional persons as may be
elected, shall serve as the officers of Source from and after the Effective Time
in accordance with the bylaws of Source. It is not expected that consummation of
the Merger will result in any change in the Board of Directors or management of
NDC or any of its other subsidiaries.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than as described herein, no director or executive officer of NDC or
Source, and no associate of any such person, has any substantial interest,
direct or indirect, in the Merger, other than an interest arising from the
ownership of Source Capital Stock, in which case the director or officer
receives no extra or special benefit not shared on a pro rata basis by all other
holders of Source Capital Stock. See "Source Informatics, Inc. -- Security
Ownership of Directors, Executive Officers and Principal Securityholders of
Source."
Certain members of Source's management and Board of Directors may be deemed to
have interests in the Merger in addition to their interests as stockholders of
Source generally. In each case, the Board of Directors of Source either was
aware of these factors or, with respect to interests that arose subsequent to
the Merger Agreement, was aware of their potential, and considered them, among
other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
INDEMNIFICATION. The Merger Agreement provides that NDC shall for a period of
six years after the Effective Time indemnify the present and former directors
and officers of Source or any of its subsidiaries to the full extent permitted
under the Delaware General Corporation Law (the "DGCL") and by Source's
Certificate of Incorporation and Bylaws, as in effect on the date of the Merger
Agreement, with respect to matters occurring at or prior to the Effective Time
except that as a condition to the consummation of the Merger, each director and
officer of Source shall execute and deliver a waiver of all claims under such
indemnification provisions arising out of the Divestiture and the allocation of
the total consideration between Source with respect to the Merger and PMSI with
respect to the Stock Purchase. NDC shall use its reasonable efforts to maintain
Source's existing directors' and officers' liability insurance policy (or a
policy providing at least comparable coverage) for a period of three years after
the Effective Time of the Merger; provided, that NDC shall not be obligated to
make aggregate premium payments in respect of such policy which exceed, for the
portion relating to Source's directors and officers, 150% of the annual
-35-
<PAGE>
premium payments on Source's current policy. Prior to the Closing Date, NDC
shall provide Source with a third-party estimate of the costs associated
with maintaining such policies, which amount shall constitute a liability of
Source and shall be included as a Transaction Expense.
CHANGE IN CONTROL AND SEVERANCE ARRANGEMENTS. Handel E. Evans and Dennis
M.J. Turner, directors and the Chairman of the Board and the Chief Executive
Officer, respectively, of Source, are also directors and the Chairman of the
Board and the Chief Executive Officer, respectively, of PMSI. In addition,
Patrick J. Welsh, a director of Source, is also a director of PMSI and is a
general partner of the general partner of a significant stockholder of PMSI
("WCAS") and, along with certain of its affiliated entities, is also the largest
stockholder of Source.
Assuming consummation of the Stock Purchase, Messrs. Evans and Turner are
each to receive annual bonuses from PMSI of $570,000. In determining these
bonuses, PMSI's Organization and Compensation Committee considered the
successful completion of the Stock Purchase, the Divestiture and the Merger. At
the consummation of the Merger, the employment by Source of Messrs. Evans and
Turner will be terminated and they will each receive termination payments (to be
paid jointly by PMSI and Source) under their respective employment agreements
with Source aggregating $1.2 million and $880,000, respectively, after which Mr.
Evans will enter into an employment agreement with PMSI as its full-time
Chairman of the Board and Mr. Turner will enter into an employment agreement
with PMSI as its full-time Chief Executive Officer. In the event that either
Source or PMSI do not have sufficient cash available to consummate the Stock
Purchase and the Merger, including related expenses, Messrs. Evans and Turner
have agreed to receive partial payment of their respective termination payments
in the form of registered NDC Common Stock. In addition, the annual bonuses of
four other executives of Source, including Warren J. Hauser, Vice President and
Secretary of PMSI, aggregating $565,000, will reflect the successful completion
of the Stock Purchase.
Mr. Evans, and trusts for the benefit of his family, currently own an
aggregate 247,856 shares of Source Common Stock (representing approximately
[3.6]% of the Source Capital Stock outstanding and entitled to vote on the
Merger) and options to purchase an additional 201,250 shares of Source Common
Stock, all of which are currently exercisable or become exercisable upon
consummation of the Merger. In addition, Mr. Evans beneficially owns an
aggregate 133,879 shares of PMSI common stock and options to purchase an
additional 300,000 shares of PMSI common stock, 250,000 of which are currently
exercisable.
Mr. Turner, and trusts for the benefit of his family, currently own an
aggregate 242,584 shares of Source Common Stock (representing approximately
[3.5]% of the Source Capital Stock outstanding and entitled to vote on the
Merger) and options to purchase an additional 151,250 shares of Source Common
Stock, all of which are currently exercisable or become exercisable upon
consummation of the Merger. In addition, Mr. Turner beneficially owns an
aggregate 134,384 shares of PMSI common stock and options to purchase an
additional 300,000 shares of PMSI common stock, 250,000 of which are currently
exercisable.
Mr. Welsh owns 26,550 shares of Source Common Stock (less than 1% of the
Source Capital Stock outstanding and entitled to vote on the Merger) and may be
deemed to own the aggregate 2,544,147 shares of Source Common Stock (or
approximately 37.19% of the Source Capital Stock outstanding and entitled to
vote on the Merger) owned by WCAS and certain of its affiliated entities. Mr.
Welsh also owns options to purchase an aggregate 7,500 shares of Source Common
Stock all of which will become exercisable upon consummation of the Merger. In
addition, Mr. Welsh owns 15,733 shares of PMSI common stock and may be deemed to
beneficially own an aggregate 746,315 shares of PMSI common stock, owned by WCAS
and related entitles. Mr. Welsh also owns options to purchase and aggregate
24,000 shares of PMSI common stock, 16,000 for which are currently exercisable.
POST-ACQUISITION COMPENSATION AND BENEFITS. The Merger Agreement provides
that, after the Effective Time, NDC will provide generally to officers and
employees of Source and its subsidiaries, employee benefits under employee
benefit plans, on terms and conditions that, when taken as a whole, are
substantially similar to those currently provided by NDC and its subsidiaries to
their similarly situated officers and employees. For purposes of participation
and vesting and benefit accrual (other than benefit accrual under retirement
plans) under such employee benefit plans, service with Source or its
subsidiaries prior to the Effective Time will be treated as service with NDC or
its subsidiaries. Subject to certain exceptions set forth in the Merger
Agreement, NDC will honor all employment, severance, consulting and other
compensation contracts previously disclosed to NDC between Source or any of its
subsidiaries and any current or former director, officer or employee, and all
provisions for vested amounts earned or accrued through the Effective Time under
Source's benefit plans.
CONDITIONS TO CONSUMMATION
The obligations of Source and NDC to consummate the Merger are subject to
the satisfaction or waiver (to the extent permitted) of the following
conditions: (i) the stockholders of Source shall have adopted the Merger
Agreement and the consummation of the transactions contemplated thereby by the
requisite votes; (ii) the required regulatory approvals and clearances described
under "--Regulatory Approvals" shall have been received and shall be in full
force and effect with all waiting periods required by law having expired, and no
such regulatory approval shall be conditioned or restricted in a manner which
would, in the reasonable judgment of the Board of Directors of NDC, so
materially adversely affect the economic or business benefits of the
transactions contemplated by the Merger Agreement that had NDC known of such
condition it would not, in its reasonable judgment, have entered into the Merger
Agreement; (iii) each party shall have received any required consents of third
parties; (iv) the absence of any law or order or any action taken by any court,
governmental, or regulatory authority prohibiting, restricting, or making
illegal the consummation of the Merger; (v) the Registration Statement of which
this Proxy Statement/Prospectus is a part shall have been declared effective by
the Commission and shall not be subject to a stop order or any threatened stop
order, and the shares of NDC Common Stock issuable in connection with the Merger
shall have been qualified, registered or otherwise approved for exchange under
the securities laws of the various states in which such qualification,
registration or approval is required; (vi) the shares of NDC Common Stock
issuable pursuant to the Merger shall have been approved for listing on the
NYSE, subject to effective notice of issuance; (vii) the accuracy, as of the
date of the Merger Agreement and as of the Effective Time, of the
-36-
<PAGE>
representations and warranties of the other party as set forth in the Merger
Agreement; (viii) prior to the Effective Time, the other party shall have
performed in all material respects all of the agreements, covenants, acts and
undertakings to be performed by it pursuant to the Merger Agreement; and (ix)
each party shall have received customary closing documents, including, without
limitation, an opinion of the other party's counsel, dated the closing date, as
to certain matters.
In addition, the obligations of NDC to consummate the Merger are subject to
the satisfaction or waiver (to the extent permitted) of the following further
conditions: (i) each of Messrs. Brown, Campbell, Douglass, McAferty, Silverberg,
Strimbu, and Weintraub, and Ms. Vaughn, all executive officers of Source who
shall continue in agreed capacities following the Merger, shall have executed
and delivered an employment agreement on terms substantially consistent with
those set forth in an exhibit to the Merger Agreement, (ii) Messrs. Evans and
Turner shall have executed and delivered to NDC a noncompetition agreement
substantially in form attached to the Merger Agreement, (iii) the Stock Purchase
shall have been consummated substantially simultaneously with the Effective
Time; (iv) the Divestiture shall have been consummated; (v) less than 10% of
the holders of Source Preferred Stock or Source Common Stock shall have
perfected their dissenter's rights, (vi) each of the directors and officers of
Source shall have executed and delivered the indemnification waivers discussed
above under "-Indemnification," (vii) Source shall have been released from any
and all obligations under the contracts associated with Source's European
business which is part of the Divestiture, (viii) the cancellation by Source of
all outstanding options and warrants; and (ix) the following related agreements
shall have been executed and delivered:
(a) Source European License Agreement - provides for a license
---------------------------------
by Source to PMSI the rights to use certain technology and the Source
trademark in certain European countries;
(b) East Asia License Agreement - provides for a license by
---------------------------
Source to Walsh International Inc. the rights to certain technology
and the Source trademark in certain countries of East Asia;
(c) European Services Agreement - Source and NDC will provide
---------------------------
certain transitional services to PMSI to support the European
operations Source is conveying to PMSI in the Divestiture;
(d) Lease Assignment/Subleases - various agreements
--------------------------
transferring leases to Source for office space it currently utilizes
and providing a sublease of certain portions of such space to Walsh
International Inc.; and
(e) Scott-Levin Services Agreement - provides for the transfer
------------------------------
of data and services between PMSI Scott-Levin Inc., a subsidiary of
PMSI, and Source.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Proxy Statement/Prospectus, the parties have no
reason to believe that any of the conditions set forth above will not be
satisfied.
The conditions to consummation of the Merger may be waived, in whole or in
part, to the extent permissible under applicable law, by the party for whose
benefit the condition has been imposed, without the approval of the Source
stockholders. See "--Amendment, Waiver, and Termination."
REGULATORY APPROVALS
The obligations of NDC and Source to perform under the Merger Agreement and
consummate the Merger are subject to the consent of, filings and registrations
with, and notifications to, all regulatory authorities required for consummation
of the Merger having been obtained or made and being in full force and effect
and the expiration of all waiting periods required by law. Furthermore, no
consent from any regulatory authority which is necessary to consummate the
Merger shall be conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of NDC would so materially adversely impact
the economic or business benefits of the Merger
-37-
<PAGE>
that, had such condition or requirement been known, NDC would not, in its
reasonable judgment, have entered into the Merger Agreement.
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the applicable waiting period has expired or been terminated. NDC and Source
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on ___________, 1997. At any time before or after
consummation of the Merger, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of NDC or Source. At any time before or after
the Effective Time, and notwithstanding that the waiting period under the HSR
Act has expired, any state could take such action under the antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation for the Merger or seeking divestiture of
substantial assets of NDC or Source. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on information available to them, NDC and Source believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, NDC and Source would prevail or would not be required to accept certain
adverse conditions in order to consummate the Merger.
AMENDMENT, WAIVER AND TERMINATION
To the extent permitted by law, Source and NDC, with the approval of their
respective Boards of Directors, may amend the Merger Agreement by written
agreement at any time without the approval of the stockholders of Source,
provided that after the adoption of the Merger Agreement by the Stockholders, no
amendment can be made that, pursuant to Section 251 of the DGCL, requires
further approval by the Stockholders.
Prior to or at the Effective Time, either Source or NDC, acting through its
respective Board of Directors, chief executive officer or other authorized
officer, may waive any default in the performance of any term of the Merger
Agreement by the other party, may waive or extend the time for the fulfillment
by the other party of any of its obligations under the Merger Agreement, and may
waive any of the conditions precedent to the Merger Agreement, except any
condition that, if not satisfied, would result in the violation of an applicable
law or governmental regulation.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Effective Time (a) by the mutual consent of the Boards of
Directors of Source and NDC (b) in the event of any inaccuracy of any
representation or warranty of the other party contained in the Merger Agreement
which cannot be or has not been cured within 30 days after giving written notice
to the breaching party of such inaccuracy and which inaccuracy would provide the
terminating party the ability to refuse to consummate the Merger under the
applicable standards set forth in the Merger Agreement (provided that the
terminating party is not then in breach of any representation or warranty
contained in the Merger Agreement under the applicable standards set forth in
the Merger Agreement or in material breach of any covenant or other agreement
contained in the Merger Agreement), (c) in the event of a material breach by the
other party of any covenant or agreement contained in the Merger Agreement which
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach (provided that the terminating
party is not then in breach of any representation or warranty contained in the
Merger Agreement under the applicable standards set forth in the Merger
Agreement or in material breach of any covenant or other agreement contained in
the Merger Agreement), (d) if any approval of any regulatory authority required
for consummation of the Merger and the other transactions contemplated by the
Merger Agreement has been denied by final nonappealable action, or if any action
taken by such authority is not appealed within the time limit for appeal
(provided that the terminating party is not then in breach of any representation
or warranty contained in the Merger Agreement under the applicable standards set
forth in the Merger Agreement or in material breach of any covenant or other
agreement contained in the Merger Agreement), (e) the stockholders of
-38-
<PAGE>
Source fail to vote their approval of the matters submitted for the approval by
such stockholders at the Special Meeting (provided that the terminating party is
not then in breach of any representation or warranty contained in the Merger
Agreement under the applicable standards set forth in the Merger Agreement or in
material breach of any covenant or other agreement contained in the Merger
Agreement), (f) if the Merger is not consummated by January 31, 1998, provided
that the failure to consummate is not due to the breach by the party electing to
terminate, or (g) if any of the conditions precedent to the obligations of such
party to consummate the Merger cannot be satisfied, fulfilled, or waived by the
appropriate party by January 31, 1998 (provided that the terminating party is
not then in breach of any representation or warranty contained in the Merger
Agreement under the applicable standards set forth in the Merger Agreement or in
material breach of any covenant or other agreement contained in the Merger
Agreement). See "--Expenses and Fees."
In addition, NDC may unilaterally terminate the Merger Agreement if the
Source Board of Directors fails to reapprove or resolves not to affirm the
Merger or recommends entering into a transaction other than the Merger involving
a merger, share exchange, consolidation or transfer of substantially all of
Source's assets. Furthermore, Source may unilaterally terminate the Merger
Agreement in the event that the Average Closing Price of the shares of NDC
Common Stock is less than the Lower Threshold Amount as of the Determination
Date, subject to NDC's right to revise the Common Exchange Ratios based on the
Lower Threshold Price. See "-- Common Exchange Ratio Adjustment."
CONDUCT OF BUSINESS PENDING THE MERGER
Source has agreed pursuant to the Merger Agreement, unless the prior
consent of NDC is obtained, and except as otherwise contemplated by the Merger
Agreement, to operate its business only in the ordinary course, to preserve its
business organizations and assets and to maintain its rights and franchises and
to take no action that would materially adversely affect either the ability of
either party to perform its covenants and agreements under the Merger Agreement
or the ability of either party to obtain any consents or approvals pursuant to
any contract, law, order or permit that are required for the transactions
contemplated by the Merger Agreement. Source also agreed to (i) complete the
Divestiture, (ii) amend the Designation to provide that the holders of Source
Preferred Stock shall receive the Preferred Stock Consideration upon
consummation of the Merger, (iii) terminate certain employment agreements and an
executive pension plan, (iv) transfer, to the extent not already accomplished,
all trademark registrations for the Source trademark into the name of Source,
and (v) satisfy all indebtedness or other obligations between any of the
subsidiaries involved in the Divestiture or PMSI or its subsidiaries on the one
hand and Source or its subsidiaries on the other.
In addition, the Merger Agreement contains certain other restrictions
applicable to the conduct of the business of Source prior to consummation of the
Merger, as described below.
Source has agreed pursuant to the Merger Agreement not to take certain
actions relating to the operation of its business pending consummation of the
Merger without the prior approval of NDC. Those actions generally include,
without limitation: (i) amending its Certificate of Incorporation or Bylaws;
(ii) subject to certain exceptions, incurring any additional debt or other
obligation for borrowed money on any asset of Source; (iii) acquiring or
exchanging any shares of Source Capital Stock or paying any dividend or other
distribution in respect of Source Capital Stock; (iv) subject to certain
exceptions, issuing, selling or pledging additional shares of any Source Capital
Stock, any rights to acquire any such stock or any security convertible into
such stock, except pursuant to the exercise of outstanding stock options; (v)
adjusting or reclassifying any of Source Capital Stock; (vi) subject to certain
exceptions, purchasing any securities of or acquiring control over any other
entity; (vii) granting any increase in compensation or benefits to its employees
or officers (except as previously disclosed to NDC or as required by law),
paying any bonus (except as previously disclosed to NDC or in accordance with
any existing program or plan), entering into or amending any severance
agreements with its officers or granting any increase in compensation or other
benefits to any of its directors (except as previously disclosed to NDC); (viii)
entering into or amending any employment contract that it does not have the
unconditional right to terminate without certain liability, except as previously
disclosed to NDC and except for any amendment required by law;
-39-
<PAGE>
(ix) adopting any new benefit plan or program or materially changing any
existing plan or program; (x) making any significant changes in tax or
accounting methods, except for any change required by law; (xi) commencing any
litigation other than in accordance with past practice or settling any
litigation for material money damages; or (xii) materially amending or
terminating any material contracts including, without limitation, the Source
Divestiture Agreement.
In addition, Source has agreed not to solicit, directly or indirectly, any
acquisition proposal from any other person or entity. Source also has agreed not
to negotiate with respect to any such proposal, to provide information to any
party making such a proposal or to enter into any agreement with respect to any
such proposal, except in compliance with its legal obligations or the fiduciary
obligations of its Board of Directors. Source has also agreed to cause its
advisors and other representatives not to engage in any of the foregoing
activities.
Pursuant to the Merger Agreement, NDC has agreed that, prior to the
Effective Time, it will continue to conduct its business and the business of its
subsidiaries in a manner designed in its reasonable judgment to enhance the
long-term value of the NDC Common Stock and the business prospects of NDC. NDC
further agrees that it will take no action which would materially adversely
affect either the ability of either NDC or Source to obtain the consents
required by the Merger Agreement or the ability of either NDC or Source to
perform its covenants and agreements contained in the Merger Agreement.
EXPENSES AND FEES
The Merger Agreement provides that each party shall be responsible for its
own costs and expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by the Merger Agreement, except
that each of NDC and Source shall pay one-half of the filing fees payable in
connection with the HSR filing, and NDC shall pay all costs associated with the
Registration Statement and this Proxy Statement/Prospectus and printing costs
incurred in connection with the Registration Statement and this Proxy
Statement/Prospectus.
If the Merger Agreement is terminated because (i) Source shall fail to call
the Special Meeting, (ii) the stockholders of Source fail to approve the Merger,
(iii) the Board of Directors of Source, to the exclusion of a competing
proposal, shall fail to reaffirm its approval of the Merger or shall have
affirmed, recommended or authorized a Competing Proposal, or (iv) Source has
entered a binding agreement with respect to a Competing Proposal, then Source
shall promptly pay all of the NDC Expenses.
In addition to the foregoing, if the Merger Agreement is terminated because
(i) Source fails to call the Special Meeting, or (ii) the stockholders of Source
fail to approve the Merger Agreement, then Source shall pay to NDC the NDC
Expenses plus $3,000,000.
Further, if within twelve months following the termination of this
Agreement: (i) by NDC because Source's Board of Directors shall have failed to
reaffirm its approval of the Merger or shall have affirmed, recommended or
authorized the entering into any other merger, share exchange, consolidation or
transfer of substantially all of the assets of Source; or, (ii) by Source
because it has entered into negotiations with a third party relating to the
foregoing and pursuant to the continuing fiduciary duties of Source's Board of
Directors as required by applicable law, Source has entered into a binding
agreement with such third party; any third-party shall acquire, merge with,
combine with, purchase substantially all of the assets of, or engage in any
other business combination with, or purchase any equity securities involving an
acquisition of 50% or more of the voting stock of Source, or enter into any
binding agreement to do any of the foregoing, such third-party that is a party
to the business combination shall pay to NDC, as a condition to consummation of
such business combination, an amount in cash equal to $3,000,000.
ACCOUNTING TREATMENT
The Merger is anticipated to be accounted for under the "purchase" method
of accounting, pursuant to which the assets and liabilities of Source will be
recorded at their respective fair values and added to those of NDC as of the
Effective Time. Financial Statements of NDC issued after the Effective Time will
reflect such values and will not be restated retroactively to reflect the
historical financial position or results of operations of Source. See "Summary."
-40-
<PAGE>
VOTING AGREEMENT
NDC and the Preferred Stockholders have entered into the Voting Agreement
which provides that the Preferred Stockholders will vote such Preferred
Stockholder's shares of Source Preferred Stock in favor of the Merger, the
execution and delivery by Source of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the Merger
Agreement, provided that the Merger Agreement has not been amended or waived so
as to in any manner (i) affect the rights of the Preferred Stockholders or their
representatives or increase the Preferred Stockholders' obligations thereunder
or (ii) increase the consideration payable to the holders of Source Common
Stock, without the prior consent of the Preferred Stockholders.
The Voting Agreement also provides that the Preferred Stockholders shall
vote (or cause to be voted) such Preferred Stockholder's shares of Source
Preferred Stock against (i) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation
or winding up of or by Source or (ii) any amendment of Source's Certificate of
Incorporation or Bylaws or other proposal or transaction involving Source or any
of its subsidiaries which amendment or other proposal or transaction would in
any manner impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger Agreement.
Each Preferred Stockholder has also agreed that such Stockholder shall not (i)
transfer, or consent to any transfer of, any or all of the such stockholder's
shares or any interest therein, except pursuant to the Merger; (ii) enter into
any contract, option or other agreement or understanding with respect to any
transfer of any or all of such shares or any interest therein, (iii) grant any
proxy, power of attorney or other authorization in or with respect to such
shares, except for the Voting Agreement, or (iv) deposit such shares into a
voting trust or enter into a voting agreement or arrangement with respect to
such shares, subject to certain limited exceptions.
The Voting Agreement will terminate upon the earlier of the Effective Time,
the date upon which the Merger Agreement is terminated in accordance with its
terms, or December 15, 1997.
APPRAISAL RIGHTS
The holders of Source Capital Stock are entitled to appraisal rights under
Section 262 of the Delaware General Corporation Law ("Section 262").
If the Merger is consummated, holders of Source Capital Stock who wish to
exercise their appraisal rights will be entitled to have the "fair value" of
their shares of Source Capital Stock at the Effective Time (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid to them in cash, together with interest, if any,
by complying with the provisions of Section 262.
Stockholders of record who desire to exercise their appraisal rights must
satisfy all of the following conditions. A written demand for appraisal of
their Source Capital Stock must be delivered to Source before the taking of the
vote of the Source stockholders on adoption of the Merger Agreement. Such
demand will be sufficient if it reasonably informs Source of the stockholder's
identity and that the stockholder intends thereby to demand appraisal of his
shares. This written demand for appraisal of shares must be in addition to and
separate from voting against, abstaining from voting, or failing to vote on
adoption of the Merger Agreement. Voting against, abstaining from voting, or
failing to vote on adoption of the Merger Agreement will not constitute a demand
for appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for adoption of the Merger Agreement. Voting for adoption of the
Merger Agreement, or delivering a proxy in connection with the Special Meeting
(unless the proxy specifies a vote against, or abstaining from voting on,
adoption of the Merger Agreement), will constitute a waiver of a stockholder's
right of appraisal and will nullify any written demand for appraisal submitted
by the stockholder.
-41-
<PAGE>
A demand for appraisal must be executed by or for the stockholder of
record, fully and correctly, as such stockholder's name appears on such
stockholder's Source Capital Stock certificates. If the Source Capital Stock is
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, such demand must be executed by the fiduciary. If the Source Capital
Stock is owned of record by more than one person, as in a joint tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand, he
is acting as agent for the record owner.
A record owner, such as a broker, who holds Source Capital Stock as a
nominee for others may exercise appraisal rights with respect to the shares held
for all or less than all beneficial owners of shares as to which the holder is
the record owner. In such case, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares of Source Capital Stock
outstanding in the name of such record owner.
Stockholders who elect to exercise appraisal rights should mail or deliver
their written demands to: Source Informatics, Inc., 45 Rockefeller Plaza, Suite
912, New York, New York 10111 Attention: Warren Hauser, General Counsel. The
written demand for appraisal should specify the stockholder's name and mailing
address, the number of shares of Source Common Stock and Source Preferred Stock
owned, and state that the stockholder is thereby demanding appraisal. Within
ten days after the Effective Time, Source must provide notice of the Effective
Time to all stockholders who have complied with Section 262 and have not voted
for adoption of the Merger Agreement.
Within 120 days after the Effective Time, either Source or any stockholder
who has complied with the required conditions of subsections (a) and (d) of
Section 262 and who is otherwise entitled to appraisal rights may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of shares of the dissenting stockholders. If a petition for an appraisal
is timely filed, after a hearing on such petition, the Court of Chancery will
determine which stockholders are entitled to appraisal rights and will appraise
the shares of Source Capital Stock owned by such stockholders, determining the
fair value of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value. In
determining fair value, the court is to take into account all relevant factors.
In Weinberger v. UOP, Inc., et al, decided February 1, 1983, the Delaware
Supreme Court expanded the considerations that could be considered in
determining fair value in an appraisal proceeding, stating that "...proof of
value by any techniques or methods, which are generally considered acceptable in
the financial community and otherwise admissible in court..." should be
considered, and that "...[f]air price obviously requires consideration of all
relevant factors involving the value of a company...". The Delaware Supreme
Court stated that in making this determination of fair value the court must
consider "...market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which were known or which could be
ascertained as of the date of merger and which throw any light on future
prospects of the merged corporation...". The court further stated that
"...elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and note the product
of speculation, may be considered...". However, the court noted that Section 262
provides that fair value is to be determined "...exclusive of any element of
value arising from the accomplishment or expectation of the merger...".
At the hearing on such petition filed in the Court of Chancery, the court
will determine the stockholders who have complied with Section 262 and who have
become entitled to appraisal rights. The court may require dissenting
stockholders to submit their stock certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings. Failure of a
dissenting stockholder to submit his certificates may result in the dismissal of
such stockholder's appraisal proceedings.
Stockholders considering seeking appraisal should have in mind that the
fair value of their shares determined under Section 262 could be more than, the
same as, or less than the consideration they are entitled to receive pursuant to
the Merger Agreement if they do not seek appraisal of their shares and that
investment banking opinions as to fairness from a financial point of view are
not necessarily opinions as to fair value under Section
-42-
<PAGE>
262. The cost of the appraisal proceeding may be determined by the Court of
Chancery and taxed against the parties as the court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of Source Capital Stock entitled to
appraisal. In the absence of such a determination or assessment, each party
bears its own expenses.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
shares of Source Capital Stock subject to such demand or to receive payment of
dividends or other distributions, if any, on such shares, except for dividends
or distributions payable to stockholders of record as of a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any former holder of
Source Common Stock will have the right to withdraw a demand for appraisal and
to accept the consideration offered in the Merger Agreement; after this period,
such holder may withdraw his demand for appraisal only with the consent of NDC.
If no petition for appraisal is filed with the Court of Chancery within 120 days
after the Effective Time, stockholders' rights to appraisal shall cease and all
stockholders will be entitled to receive the consideration provided in the
Merger Agreement. Inasmuch as NDC has no obligation to file such a petition,
and has no present intention to do so, any stockholder who desires such a
petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Court of Chancery demanding appraisal will be
dismissed as to any stockholder without the approval of the court, and such
approval may be conditioned upon such terms as the court deems just.
Within 120 days after the Effective Time of the Merger, any stockholder who
has complied with subsections (a) and (d) of Section 262 is entitled, upon
written request, to receive from Source a statement setting forth the aggregate
number of shares not voted in favor of the Merger and the aggregate number of
holders of shares who have demanded appraisal. Such written statement shall be
mailed to such stockholder within ten days after such request is received by
Source or within ten days of the expiration of the period for delivery of demand
for appraisal under Section 262, whichever is later.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF
SOURCE CAPITAL STOCK. ANY HOLDER OF SOURCE CAPITAL STOCK WHO INTENDS TO DISSENT
SHOULD CAREFULLY REVIEW THE TEXT OF THE DELAWARE STATUTORY LAW SET FORTH IN
ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS AND SHOULD ALSO CONSULT WITH HIS
ATTORNEY. THE FAILURE OF A SOURCE STOCKHOLDER TO FOLLOW PRECISELY THE PROCEDURES
SUMMARIZED ABOVE AND SET FORTH IN ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS,
MAY RESULT IN LOSS OF APPRAISAL RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING
RISE TO APPRAISAL RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO
HOLDERS OF SOURCE CAPITAL STOCK, EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED
BY LAW.
In general, any dissenting stockholder who perfects his right to be paid
the "fair value" of his Source Capital Stock in cash will recognize taxable gain
or loss for federal income tax purposes upon receipt of such cash. See "Certain
Federal Income Tax Consequences."
RESALES OF NDC COMMON STOCK
The shares of NDC Common Stock issued in connection with the Merger will be
freely transferable under the Securities Act, except for shares issued to any
stockholder who may be deemed to be an "affiliate" (generally including, without
limitation, directors, certain executive officers, and beneficial owners of 10%
or more of any class of capital stock) of Source for purposes of Rule 145 under
the Securities Act as of the date of the Special Meeting. Such affiliates may
not sell their shares of NDC Common Stock acquired in connection with the Merger
except pursuant to an effective registration statement under the Securities Act
or other applicable exemption from the registration requirements of the
Securities Act. NDC may place restrictive legends on certificates representing
NDC Common Stock issued to all persons who are deemed to be "affiliates" of
Source under Rule 145. In addition, Source has agreed to use its reasonable
efforts to cause each person or entity that is an "affiliate" to enter into a
written agreement in substantially the form attached to the Merger Agreement
relating to such restrictions on sale
-43-
<PAGE>
or other transfer. This Proxy Statement/Prospectus does not cover resales of NDC
Common Stock received by any person who may be deemed to be an affiliate of
Source.
-44-
<PAGE>
SOURCE INFORMATICS INC.
BUSINESS
Source is a leading provider of proprietary health care information,
technology and consulting services, primarily to the pharmaceutical and retail
pharmacy markets. Source's services enable clients to better understand
individual prescriber, payer, consumer, pharmaceutical manufacturer, pharmacy
benefit manager and retail pharmacy behavior in order to compete more
effectively in the market place. Source typically enters into significant,
long-term relationships with its clients, providing integrated services to
executives in the sales, marketing, market research and information technology
areas of these organizations.
Source provides a broad array of information, data mining and integrated
marketing decision-making tools. The Source database is a repository of
intelligence on managed care organizations, prescribers, retailers,
prescriptions and non-personalized patient data. The principal database (the
"Alpha Database") contains information on 1.6 billion prescriptions dispensed by
retail and mail order pharmacies over the previous 12 months. Over 90% of the
prescriptions in the Alpha Database are matched to over 1,000,000 prescribers,
linking them at the individual script level. Source jointly exploits its
databases in an operating venture with Pharmaceutical Marketing Services Inc.
("PMSI"). Simultaneously with the consummation of the Merger, NDC will acquire
all of PMSI's interest in such operating venture. See "-The Merger - General."
Source provides critical competitive intelligence for client companies'
sales representatives, linking the dispensed prescriptions back to the
prescribers in their territory. Source also provides sales force managers with
direct and comparative benchmarks to measure sales force performance and
determine compensation at the individual territory level. Source's services
enable client companies to target prescribers by their overall prescribing
habits or by the mode of payment for prescriptions they write. Clients can
identify the highest potential prescribers and their specific characteristics,
and access market intelligence on the prescriber's practice. Other services
match prescriptions to more than 850 health care payment plans, profiling the
individual managed care plans and providing insight into their strategies.
Source has recently launched new database services to enable pharmaceutical
company clients to measure market share activity at the individual pharmacy
level.
For the year ended June 30, 1997 Source generated total revenues of $59.9
million and net income of $6.5 million. Source has 400 employees. Source's
principal executive offices are located at 2394 East Camelback Road, Phoenix,
Arizona, 85016 and its telephone number is (602) 381-9500.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial data of Source
more fully set forth in Annex D.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30
---------------------------------------------
1997 1996 1995 1994 1993
------ -------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues....................... $59,885 $51,812 $48,710 $45,757 $28,831
Operating income (loss)........ 6,680 4,315 3,610 (1,797) (16,217)
Income (loss) from
continuing operations........ 6,479 3,766 2,610 (4,946) (17,680)
PER SHARE DATA:
Income (loss) from
continuing operations........ -- -- -- -- --
Cash dividends................. -- -- -- -- --
Weighted average common
shares outstanding........... -- -- -- -- --
</TABLE>
-45-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Total assets.................. 27,641 27,566 26,420 23,874 15,544
Long-term obligations......... 7,490 6,525 5,822 4,797 6,574
Total stockholders' equity.... (45,051) (51,530) (55,296) (57,906) (52,960)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
OPERATING RESULTS
Revenue. Revenue for the year ended June 30, 1997, was $59.9 million,
an increase of $8.1 million or 15.6% over revenue for the year ended June 30,
1996. Revenue grew significantly in the information services and research
solutions divisions, driven by increased business from existing clients and the
addition of new clients.
Revenue for the year ended June 30, 1996, was $51.8 million, an
increase of $3.1 million or 6.4% over revenue for the year ended June 30, 1995.
This growth was driven primarily by increases in the information services
division.
Production Costs. Production costs for the year ended June 30, 1997,
were $14.8 million (25% of revenue) compared to $14.7 million (28% of revenue)
for the year ended June 30, 1996. The decrease as a percentage of revenue is due
to continued implementation of programs launched during the prior year, which
were designed to reduce unit costs.
Production costs for the year ended June 30, 1996, were $14.7 million
(28% of revenue) compared to $15.5 million (32% of revenue) for the year ended
June 30, 1995. The 4% decrease as a percentage of revenue was primarily
attributable to the implementation of new programs designed to reduce unit
costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $33.2 million (55% of revenue) for the year ended
June 30, 1997, as compared to $29.7 million (57% of revenue) for the 1996
fiscal year. The increase was greater than prior years primarily due to one-time
charges for consultants retained to help Source transition from mainframe to
client server technology and the expansion of work units to support retail chain
and pharmacy market niche development.
Selling, general and administrative expenses were $29.7 million (57%
of revenue) for the year ended June 30, 1996, as compared to $27.7 million (57%
of revenue) for the 1995 fiscal year. The increase was consistent with the
growth of the business and the launch of a market niche penetration strategy, to
expand beyond the Source's traditional market focus.
Depreciation and Amortization. Computer equipment and software are
valued at their cost on the date of purchase and depreciated over periods of up
to five years. The cost of updating and maintaining Source's databases is
expensed as incurred, as is the cost of developing software for internal use.
Depreciation and amortization expenses for the year ended June 30,
1997, were $5.2 million, an increase of $2.1 million or 67.7% over depreciation
and amortization expenses for the year ended June 30, 1996. This increase
represented significant investment supporting Source's transition from a
mainframe to client server technology platform.
Depreciation and amortization expenses for the year ended June 30,
1996, were $3.1 million, an increase of $1.2 million or 63.2% over depreciation
and amortization expenses for the year ended June 30, 1995. The increased cost
was primarily attributable to Source's investment in expanded computing
capacity.
-46-
<PAGE>
Interest and Other Income/Interest Expense. Source invests its excess
cash with major banks, and cash equivalents and marketable securities in a
professionally managed fund.
For the year ended June 30, 1997, Source's net interest expense was
$0.1 million as compared to $0.4 million for the same period in 1996. The
decrease was due to reduced borrowing levels given Source's increase in cash
flow.
For the year ended June 30, 1996, Source's net interest expense was
$0.4 million as compared to $0.9 million for the 1995 fiscal year. The
decrease was due to reduced borrowing levels, given Source's increase in cash
flow.
Income Tax Provision. There were no tax provisions for the years ended
June 30, 1995, 1996 and 1997 respectively, due to net operating losses generated
in prior years and applied during this period.
QUARTERLY RESULTS.
Historically, Source's financial results have varied from quarter to
quarter, principally due to the timing of investment in new products and
services and the timing of delivery of services.
LIQUIDITY AND CAPITAL RESOURCES.
At June 30, 1997, Source's cash and cash equivalents and marketable
securities totaled $2.8 million and its current ratio was 0.25:1. During the
year ended June 30, 1997, cash and cash equivalents and short-term marketable
securities decreased due to the timing in accounts receivable collection and
investments in Source Europe.
Source anticipates that existing cash, together with internally generated
funds, will provide Source with the resources necessary to meet Source's working
capital requirements in fiscal 1998 and subsequent years.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SECURITYHOLDERS OF SOURCE
SECURITIES OWNERSHIP
The following table sets forth certain information as of June 30, 1997,
regarding the ownership of Source Common Stock and Preferred Stock by (i)
certain stockholders or groups of related stockholders who, individually or as a
group, are the beneficial owners of 5% or more of any class of the Source
Capital Stock and (ii) the executive officers and directors of Source.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------------------------------------------
Number of Number of
Shares of Shares of
Common Percent of Preferred Percent of
Stock(2) Class Stock Class
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Name(1)
- ----
Principal Stockholders:
Welsh, Carson, Anderson & Stowe V, L.P............... 1,259,239 21.7% -- --
Welsh, Carson, Anderson & Stowe IV, L.P.............. 964,505 16.6 -- --
c/o Welsh, Carson, Anderson & Stowe
One World Financial Center
New York, New York 10281
Crown Advisors, Ltd.................................. 531,360 9.2 -- --
The Lincoln Building, Suite 3405
60 East 42nd Street
New York, New York 10017
Rohit M. Desai....................................... 520,833 8.2 520,833 50.0%
c/o Desai Capital Management Incorporated
540 Madison Avenue
New York, New York 10022
Executive Officers and Directors:
James G. Andress..................................... 6,250(3) * -- --
David F. Bellet...................................... 547,675(4) 9.4% -- --
Robert R. Brown...................................... 19,000(3) * -- --
Handel K. Evans...................................... 369,856(5) 6.2% -- --
Michael A. Hauck..................................... 51,636(6) * -- --
Frank J. Pados....................................... 522,083(7) 8.3% 520,833 50.0%
Dennis M.J. Turner................................... 352,084(8) 6.0% -- --
Patrick J. Welsh..................................... 2,575,697(9) 44.4% -- --
L. John Wilkerson.................................... 310,734(10) 5.4% -- --
Warren J. Hauser..................................... 21,200(11) * -- --
All Executive Officers and Directors as a group
(10 persons)....................................... 4,776,215 72.1%
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all shares set forth in
the table. The shares listed include shares of Common Stock that may be
acquired upon exercise of presently exercisable options, or options that
will become exercisable within 60 days from the date hereof.
(2) Includes shares of outstanding Preferred Stock which are currently
convertible into shares of Common Stock on a 1-to-1 basis.
(3) Consists of shares subject to options granted under Source's Stock Option
and Restricted Stock Purchase Plan.
(4) Includes 531,360 shares held by investment partnerships affiliated with
Crown Advisors Ltd. Mr. Bellet is a general partner of the respective sole
general partners of such investment partnerships, and disclaims beneficial
ownership of such shares. Also includes 5,000 shares issuable upon exercise
of options granted under Source's Stock Option and Restricted Stock
Purchase Plan.
(5) Includes 122,000 shares issuable upon exercise of options granted under
Source's Stock Option and Restricted Stock Purchase Plan.
(6) Includes 40,250 shares issuable upon exercise of options granted under
Source's Stock Option and Restricted Stock Purchase Plan.
(7) Includes 520,833 of Preferred Stock shares held by investment partnerships
affiliated with Rohit B. Desai. Mr. Pados disclaims beneficial ownership of
such shares. Common Stock holdings also include 1,250 issuable upon
exercise of options granted under Source's Stock Option and Restricted
Stock Purchase Plan.
(8) Includes 109,500 shares issuable upon exercise of options granted under
Source's Stock Option and Restricted Stock Purchase Plan. Does not include
6,882 shares owned by immediate family members of Mr. Turner as to which
Mr. Turner disclaims beneficial ownership.
(9) Includes an aggregate 2,544,147 shares held by investment partnerships
(including, without limitation, Welsh, Carson, Anderson & Stowe V, L.P. and
Welsh, Carson, Anderson & Stowe IV, L.P.) of which Mr. Welsh is a general
partner of the sole general partner. Mr. Welsh disclaims beneficial
ownership of such shares. Also includes 5,000 shares issuable upon exercise
of options granted under Source's Stock Option and Restricted Stock
Purchase Plan.
(10) Includes 5,000 shares issuable upon exercise of options granted under
Source's Stock Option and Restricted Stock Purchase Plan.
(11) Includes 11,250 shares issuable upon exercise of options granted under
Source's Stock Option and Restricted Stock Purchase Plan.
-47-
<PAGE>
CERTAIN DIFFERENCES IN THE RIGHTS OF NDC AND SOURCE STOCKHOLDERS
At the Effective Time, Source stockholders automatically will become
stockholders of NDC, and their rights as stockholders will be determined by
NDC's Certificate of Incorporation and Bylaws. The following is a summary of the
material differences in the rights of stockholders of NDC and Source. Both NDC
and Source are Delaware corporations governed by the DGCL. Accordingly, except
as set forth below, there are no material differences between the rights of an
NDC stockholder under NDC's Certificate of Incorporation and Bylaws and the
DGCL, on the one hand, and the rights of a Source stockholder under Source's
Certificate of Incorporation and Bylaws and the DGCL, on the other hand. This
summary does not purport to be a complete discussion of, and is qualified in its
entirety by reference to, the DGCL and the Certificate of Incorporation and
Bylaws of each corporation.
AUTHORIZED CAPITAL STOCK
NDC. The authorized capital stock of NDC consists of 100,000,000 shares of
Common Stock, par value $.125 per share, and 1,000,000 shares of Preferred
Stock, par value $1.00 per share. The following description of the capital stock
is qualified in all respects by reference to the Certificate of Incorporation,
as amended, and Bylaws, as amended, of NDC, copies of which are on file at NDC's
principal executive offices.
NDC Common Stock. The holders of NDC Common Stock, subject to such
rights as may be granted to the holders of NDC Preferred Stock, elect all
directors and are entitled to one vote per share. All shares of NDC Common Stock
participate equally in dividends when, as and if declared by the Board of
Directors and share ratably, subject to the rights and preferences of any NDC
Preferred Stock, in net assets on liquidation. The shares of NDC Common Stock
outstanding are duly authorized, validly issued, fully paid and nonassessable.
The shares of NDC Common Stock have no preference, conversion, exchange,
preemptive or cumulative voting rights.
Stock Purchase Rights. Pursuant to a Rights Agreement dated as of
January 18, 1991, each share of NDC Common Stock is issued one NDC right (an
"NDC Right") which entitles the registered holder to purchase from the NDC one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, par value $1.00 per share (the "NDC Participating Preferred"), at a
purchase price of $45.00 per Unit, subject to adjustment. Until the Separation
Date (as hereinafter defined, see "-Stockholder Rights Plan"), the NDC Rights
are unexercisable and attach to and transfer with the NDC Common Stock
certificates.
The NDC Rights may have certain anti-takeover effects because the rights
will cause substantial dilution to a person or group that attempts to acquire
NDC on terms not approved by the Board of Directors of NDC unless the offer is
conditioned on a substantial number of NDC Rights being acquired. However, the
NDC Rights should not interfere with the Merger or any other business
combination approved by a majority of the directors since the NDC Rights may be
redeemed by NDC at $.01 per NDC Right at any time on or prior to a stock
acquisition. Thus, the NDC Rights are intended to encourage persons who may seek
to acquire control of NDC to initiate such an acquisition through negotiations
with the Board of Directors. However, the effect of the NDC Rights may be to
discourage a third party from making a partial tender offer or otherwise
attempting to obtain a substantial equity position in the equity securities of,
or seeking to obtain control of, NDC. To the extent any potential acquirers are
deterred by the NDC Rights, the NDC Rights may have the effect of preserving
incumbent management in office.
-48-
<PAGE>
NDC Preferred Stock. NDC is authorized to issue 1,000,000 shares of
Preferred Stock, par value $1.00 per share, none of which is outstanding,
although 300,000 shares of Preferred Stock have been reserved for issuance
pursuant to the NDC Rights described above. NDC Preferred Stock may be issued
from time to time by the Board of Directors of NDC, without stockholder
approval, in such series and with such voting powers, full or limited, and such
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions as may be fixed by the Board
of Directors. The issuance of NDC Preferred Stock by the Board of Directors
could adversely affect the rights of holders of shares of NDC Common Stock since
NDC Preferred Stock may be issued having preference over the NDC Common Stock
with respect to dividends and in liquidation, and have voting rights, contingent
or otherwise, that could dilute the voting rights, net income per share and net
book value of the NDC Common Stock. In addition, while the Board of Directors
has no current intention of doing so, the ability of the Board of Directors to
issue shares of NDC Preferred Stock and to set the voting powers and such
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof without further
stockholder action could help to perpetuate incumbent management of NDC or
prevent a business combination involving NDC that is favored by NDC's
stockholders. As of the date of this Proxy Statement/Prospectus, other than in
connection with the NDC Rights described above, the Board of Directors has not
authorized the issuance of any shares of NDC Preferred Stock, and NDC has no
agreements, arrangements or understandings with respect to the issuance of any
shares of NDC Preferred Stock.
SOURCE. The authorized capital stock of Source consists of 12,000,000 shares
of Source Common Stock, $.01 par value, and 2,000,000 shares of Source Preferred
Stock, $1.00 par value. The following description of Source Capital Stock is
qualified in all respects by reference to the Certificate of Incorporation, as
amended, and Bylaws, as amended, of Source, copies of which are on file at
Source's principal executive offices.
Source Common Stock. The holders of Source Common Stock are entitled to
one vote per share on all matters submitted to the stockholders for a vote.
Subject to the preferences of the Source Preferred Stock, all shares of Source
Common Stock participate equally in dividends when, as and if declared by the
Board of Directors and share ratably subject to the rights and preferences of
any Source Preferred Stock, in net assets on dissolution. The shares of Source
Common Stock outstanding are duly authorized, validly issued, fully paid and
nonassessable. The shares of Source Common Stock have no preference,
conversion, exchange or cumulative voting rights.
Source Preferred Stock. The Board of Directors, pursuant to Source's
Certificate of Incorporation, has designated one series, consisting of 1,041,667
shares, of Source Preferred Stock (the "Source Preferred Stock"), all of which
shares are outstanding. The number of shares designated as Source Preferred
Stock may be increased or decreased (but not below the number then outstanding)
by resolution of the Board of Directors. The rights of the holders of Source
Preferred Stock are prior to those of the holders of Source Common Stock with
respect to dividends and amounts distributable to stockholders upon liquidation.
Pursuant to the existing terms of the Source Certificate of Incorporation,
the shares of Source Preferred Stock would be mandatorily redeemable as
follows: 520,834 shares on September 30, 1997, and the remaining outstanding
shares on June 30, 1998. Upon the occurrence of a change of control event, each
holder of Source Preferred Stock shall have the right to require Source to
redeem such holder's Shares.
Dividends. Holders of Source Preferred Stock are entitled to share
---------
ratably in all dividends declared and paid to the holders of Source Common
Stock. Furthermore, no dividend may be declared, set aside, or paid to the
holders of Source Common Stock or any other class or series of Source Capital
Stock ranking junior to the Source Preferred Stock unless the full cumulative
dividends (including the dividend, distribution, redemption, purchase or other
acquisition) on all outstanding shares of Source Preferred Stock shall have
been, or shall then be, paid.
Conversion. The shares of Source Preferred Stock are convertible, at
----------
the option of the holder thereof, into an equal number of shares of Source
Common Stock (the "Conversion Ratio"). The Conversion Ratio is automatically
proportionately adjusted in the event of a stock split, stock dividend, issuance
of warrants, issuance of convertible debt or securities, or reclassification
with respect to shares of Source Common Stock.
-49-
<PAGE>
Merger.In case of any consolidation or share exchange of Source with,
------
or merger of Source into, any other person, any merger of another person into
Source (including the Merger, but excluding any other merger which does not
result in any reclassification, conversion, exchange, or cancellation of
outstanding shares of Source Common Stock) or any sale or transfer of all or
substantially all of the assets of Source, the holders of shares of Source
Preferred Stock are entitled to receive the same consideration as if such holder
would have received had he converted his Source Preferred Stock into Source
Common Stock immediately prior to such consolidation, merger, share exchange,
sale or transfer.
Voting. Except as hereinafter described and as is required by law,
------
holders of the Source Preferred Stock have the right and power to vote on any
matter upon which, or in any proceeding at which, the holders of Source Common
Stock are entitled to vote and to be represented at and to receive notice of any
meeting of stockholders. Each holder of Preferred Stock shall be entitled to
that number of votes for each share of Common Stock obtainable upon conversion
of such Stock on the record date for the vote which is being taken, or if no
such record date is established at the date such vote is taken of any written
consent of the stockholders is solicited. The holders of shares of Preferred
Stock and shares of Common Stock shall vote together and not as separate classes
except as otherwise provided herein or by law. The holders of Series A
Preferred Stock will vote as a separate class and approval of 51% of the holders
will be required to create any additional class of preferred stock, create any
class of common stock other than the class presently authorized for issuance,
amend the Certificate of Incorporation or By-laws of the corporation or increase
the number of shares of Series A Preferred Stock authorized for issuance.
DIRECTORS AND CLASSES OF DIRECTORS
NDC. The Board of Directors of NDC is divided into three classes as nearly
equal in number as the total number of directors permits. Directors are elected
to each class at successive annual meetings to serve three-year terms. Any newly
created or eliminated directorships resulting from an increase or decrease in
the number of authorized directors are divided equally among the three classes
so as to maintain such classes as nearly equal as possible. Any director or the
entire Board of Directors of NDC may be removed from office only upon the
affirmative vote of at least 80% of the holders of all classes of NDC stock,
voting as a single class.
The above-mentioned provisions (the "NDC Board Provisions") with regard to
the Board of Directors of NDC may have certain anti-takeover effects by
preventing or delaying a change in the membership of the Board of Directors of
NDC. The NDC Board Provisions are intended to encourage persons who may seek to
acquire control of NDC to initiate such an acquisition through negotiations with
the Board of Directors of NDC. However, the effect of the NDC Board Provisions
may be to discourage a third party from making a partial tender offer or
otherwise attempting to obtain a substantial position in the equity securities
of, or seeking to obtain control of, NDC. To the extent any potential acquirers
are deterred by the NDC Board Provisions, the NDC Board Provisions may have the
effect of preserving incumbent management in office.
SOURCE. The Board of Directors of Source consists of 8 members, serving as
a single class. Directors of Source serve until their successors are elected and
qualified. Directors of Source may be removed, with or without cause, by the
affirmative vote of the holders of a majority of the shares of Source Capital
Stock entitled to vote at an election of directors.
STOCKHOLDER MEETINGS
NDC. NDC's Bylaws provide for annual meetings of stockholders to be held on
the third Thursday of October and for special meetings to be held: (i) on call
of the Chairman or President; (ii) at the request of a majority of the members
of the Board of Directors; or (iii) at the request of the holders of a majority
of the then-outstanding capital stock of NDC entitled to vote. Stockholders
entitled to vote are entitled to written notice stating the place, date, hour
and, in the case of a special meeting, the purpose of the meeting, not less than
10 nor more than 50 days before the date of the meeting. The holders of a
majority of the stock issued and outstanding and entitled to vote at a meeting,
present in person or represented by proxy, constitutes a quorum. When a quorum
is present at a meeting, the vote of the holders of a majority of the stock
having voting power, present in person or by proxy, can
-50-
<PAGE>
approve any resolution properly brought before the meeting, except for
resolutions: (i) increasing the number of authorized shares of capital stock;
(ii) approving a Business Combination (as defined in NDC's Certificate of
Incorporation; (iii) amending Article Fourth of NDC's Certificate of
Incorporation (Business Combination provisions); (iv) removing any director or
the entire Board of Directors; (v) amending Article Eighth, Thirteenth, or
Fourteenth of NDC's Certificate of Incorporation (board classes, no stockholder
action except at a meeting, and board authority to alter, amend or repeal bylaws
without stockholder approval); or (vi) requiring a greater vote than is provided
by applicable law. The foregoing resolutions must be approved by the affirmative
vote of (i) 50%; (ii) 66.67%; (iii) 66.67%; (iv) 80%; and (v) 80%, respectively
of the stockholders entitled to vote.
SOURCE. Source's bylaws provide for annual meetings to be held on such
dates and at such times as shall be designated by the Board of Directors and for
special meetings to be held (i) at the request of the Chairman or a majority of
the Board of Directors; or (ii) at the request of the President or the Secretary
of Source. Stockholders entitled to vote are entitled to written notice stating
the place, date, hour, and, in the case of a special meeting, the purpose of the
meeting, not less than 10 nor more than 60 days before the date of the meeting.
The holders of a majority of the stock issued and outstanding and entitled to
vote at a meeting, present in person or represented by proxy, constitute a
quorum. When a quorum is present at a meeting, the vote of the holders of a
majority of the stock having voting power, present in person or by proxy, can
approve any resolution properly brought before the meeting, except where a
greater vote is required by applicable law.
ANTI-TAKEOVER PROVISIONS
NDC. The provisions of NDC's Certificate, Bylaws, and the NDC Rights
Agreement contain certain protective provisions, which are intended to
facilitate stability of leadership and enhance the NDC Board of Directors' role
in connection with attempts to acquire control of NDC so that the Board may
further and protect the interests of NDC, its stockholders and its other
constituencies as appropriate under the circumstances. In particular, if the
Board determines that a sale of control is in the best interests of the
stockholders, these protective provisions are designed to enhance the Board's
ability to maximize the value to be received by the stockholders upon such a
sale. Although NDC management believes that the protective provisions are
beneficial to NDC's stockholders, such provisions may also discourage certain
acquisition proposals, which may deprive NDC's stockholders of certain
opportunities to sell their shares at a premium over prevailing market prices.
Pursuant to its authority to issue different series of NDC Preferred Stock,
the Board of Directors of NDC has established the NDC Rights Agreement and has
designated the preferences and rights of the NDC Participating Preferred to
include certain provisions which may have the effect of discouraging unsolicited
offers to acquire NDC. See "-- Stockholder Rights Plan."
SOURCE. The provision of Source's Certificate of Incorporation granting the
Source Board of Directors the authority to provide for the issuance of Source
Preferred Stock in series may discourage certain acquisition proposals, which
may deprive Source's stockholders of certain opportunities to sell their shares
at a premium over prevailing market prices. See "--Source Preferred Stock."
STOCKHOLDER RIGHTS PLAN
NDC. Each share of NDC Common Stock has attached to it an NDC Right issued
pursuant to a Rights Agreement between NDC and Wachovia Bank of North Carolina,
N.A., as Rights Agent (the "NDC Rights Agreement"). Each NDC Right entitles its
registered holder to purchase one one-hundredth of a share of NDC Participating
Preferred at a price of $45.00 (the "Rights Purchase Price"), as adjusted from
time to time under certain circumstances, after the earlier of (i) the tenth day
following the commencement of, or first public announcement of an intention to
commence, a tender offer or exchange offer which, if successful, would result in
any person or group having beneficial ownership of 15% or more of the
outstanding NDC Common Stock (an "Acquiring Person"), and (ii) the tenth day
after the first date of a public announcement that a person or group has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding NDC Common Stock (the "Stock Acquisition Date") (in either
case, the "Separation Date").
-51-
<PAGE>
The NDC Rights will not trade separately from the NDC Common Stock unless
and until the Separation Date occurs. The dividend, liquidation and voting
rights of the shares of NDC Participating Preferred, are designed so that the
value of the one one-hundredth of a share of NDC Participating Preferred
purchasable upon the exercise of each NDC Right should approximate the value of
one share of NDC Common Stock.
In the event that any person or group becomes an Acquiring Person, each
holder of an NDC Right, except an Acquiring Person or any affiliate or associate
thereof, will be entitled to purchase at the then-current Rights Purchase Price
shares of NDC Common Stock with a market value of two times the Rights Purchase
Price.
In the event that NDC is acquired in a merger or other business
combination, or 30% or more of its assets or earning power is sold to any person
or group other than NDC or its wholly-owned subsidiaries, then, in each such
case, each holder of an NDC Right, except an Acquiring Person or an affiliate or
an associate thereof, will be entitled to purchase shares of stock of the other
party to the business combination with a market value of two times the Rights
Purchase Price.
Prior to the Stock Acquisition Date the NDC Rights are redeemable for one
cent per NDC Right at the option of the Board of Directors. The NDC Rights will
expire on January 18, 2001 or at an earlier date under certain circumstances.
The NDC Rights will not prevent a takeover of NDC. The NDC Rights, however,
may cause substantial dilution to a person or group that acquires 20% or more of
the NDC Common Stock unless the NDC Rights are first redeemed or terminated by
the Board of Directors of NDC. Nevertheless, the NDC Rights should not interfere
with a transaction that is, in the opinion of NDC's Board of Directors, in the
best interests of NDC and its stockholders because the NDC Rights can be
redeemed or terminated, as hereinbefore described, before the consummation of
such a transaction.
SOURCE. Source has not adopted any rights or similar plan.
EXPERTS
The consolidated financial statements of NDC at May 31, 1996 and 1997, and
for each of the years in the three-year period ended May 31, 1997, incorporated
by reference from NDC's Annual Report on Form 10-K for the fiscal year ended May
31, 1997, have been audited by Arthur Andersen LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference in reliance upon such reports given on the authority of said firm as
experts in accounting and auditing.
The financial statements of Source's United States operations at June 30,
1997, and for the year ended June 30, 1997, have been audited by Arthur Andersen
LLP, independent certified public accountants, as set forth in their report
included herein, in reliance upon such report and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of NDC Common Stock being offered hereby is
being passed upon for NDC by Alston & Bird LLP, Atlanta, Georgia. Neil Williams,
a partner of Alston & Bird LLP, is a director and stockholder of NDC.
-52-
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATIONAL DATA CORPORATION,
DUNKIRK, INC.,
AND
SOURCE INFORMATICS INC.
DATED AS OF AUGUST 20, 1997
A-2
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 20, 1997, by and among NATIONAL DATA CORPORATION ("NDC"), a
Delaware corporation; DUNKIRK, INC. ("Sub"), a Delaware corporation; and SOURCE
INFORMATICS INC. ("Source"), a Delaware corporation.
PREAMBLE
--------
The respective Boards of Directors of Source, Sub and NDC are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective stockholders. This Agreement
provides for the acquisition of Source by NDC pursuant to the merger of Sub with
and into Source. At the effective time of such merger, the outstanding shares
of the capital stock of Source shall be converted (except as provided herein)
into the right to receive cash or shares of the common stock of NDC. As a
result, common stockholders of Source shall become stockholders of NDC and
Source shall continue to conduct the business and operations of Source as a
wholly-owned subsidiary of NDC. The transactions described in this Agreement
are subject to the approvals of the stockholders of Source, expiration of the
required waiting period under the HSR Act, the consummation of the Stock
Purchase Agreement dated as of even date herewith by and among PMSI Database
Holdings, Inc. ("Newco"), Pharmaceutical Marketing Services Inc. ("PMSI") and
NDC (the "PMSI Agreement," together with the related agreements in connection
therewith) and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
Certain terms used in this Agreement are defined in Section 12.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, Sub shall be merged with and into Source in accordance with the
provisions of Section 251 of the DGCL and with the effect provided in Sections
259 and 261 of the DGCL (the "Merger"). Source shall be the Surviving
Corporation resulting from the Merger and shall become a wholly-owned Subsidiary
of NDC and shall continue to be governed by the Laws of the State of Delaware.
The Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of Source,
Sub and NDC and by NDC, as the sole stockholder of Sub.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
-------------------------
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree (the "Closing
Date"). The Closing shall be held at such location as may be mutually agreed
upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
--------------
this Agreement shall become effective on the date and at the time the
Certificate of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Delaware (the "Effective Time"). Subject to
the terms and conditions hereof, unless otherwise mutually agreed upon in
writing by the authorized officers of each Party, the Parties shall use
A-3
<PAGE>
their reasonable efforts to cause the Effective Time to occur on the first
business day following the last to occur of (i) the effective date (including
expiration of any applicable waiting period) of the last required Consent of any
Regulatory Authority having authority over and approving or exempting the
Merger, (ii) the date on which the stockholders of Source approve this Agreement
to the extent such approval is required by applicable Law and (iii) the date on
which the stockholders of PMSI approve the PMSI Agreement.
ARTICLE 2
TERMS OF MERGER
---------------
2.1 CHARTER. The Certificate of Incorporation of Source in effect
-------
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended or repealed.
2.2 BYLAWS. The Bylaws of Source in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of Sub in office immediately
----------------------
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the directors of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation. The officers of Source in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of the Surviving Corporation from and after
the Effective Time in accordance with the Bylaws of the Surviving Corporation.
2.4 EFFECT OF STOCKHOLDER APPROVAL.
------------------------------
(a) The adoption of this Agreement by the Stockholders shall
constitute ratification of this Agreement, the appointment of the Stockholder
Representative in accordance with Section 10.10 and authorization for the
Stockholder Representative to execute and deliver the Escrow Agreement on behalf
of the Stockholders. Upon such adoption, this Agreement shall constitute the
legal, valid and binding obligations of each Stockholder. In addition, upon such
adoption and upon execution and delivery of the Escrow Agreement by the
Stockholder Representative, the Escrow Agreement shall constitute the legal,
valid and binding obligations of each Stockholder.
(b) The adoption of this Agreement by the holders of Source Preferred
Stock shall constitute ratification of this Agreement. Upon such adoption, this
Agreement shall constitute the legal, valid and binding obligation of each
holder of Source Preferred Stock.
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of NDC, Source, Sub or the stockholders of any of the foregoing:
(a) Each share of capital stock of NDC issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of Sub Common Stock issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall be
converted into one share of Source Common Stock.
(c) Each share of Source Common Stock (excluding shares held by any
Source Entity or any NDC Entity, and excluding shares held by stockholders
who perfect their statutory dissenters' rights as provided in Section 3.7)
issued and outstanding immediately prior to the Effective Time shall cease
to be outstanding
A-4
<PAGE>
and shall be converted into and exchanged for the right to receive (i) the
Common Cash Amount, if any, and that fraction of a share of NDC Common
Stock equal to 1,099,716 shares (the "Payment Shares") divided by the total
number of shares of Source Common Stock outstanding at the Closing Date
(the "Common Base Exchange Ratio"); provided, however, that the Payment
Shares shall be first reduced by the Option Shares (as defined in Section
3.1(c)(4) below), and (ii) that fraction of a share of NDC Common Stock
equal to 455,840 shares (the "Stock Escrow") divided by the total number of
shares of Source Common Stock outstanding at the Closing Date, subject to
the provisions of Section 3.2, Article 10 and the Escrow Agreement (the
"Common Escrow Exchange Ratio");
(1) At the Closing Date, the "Common Cash Amount" shall be
calculated by dividing $ 31,750,000, the aggregate cash consideration
payable by NDC hereunder (the "Aggregate Cash Amount"), less the
Preferred Stock Merger Consideration (as defined in Section 3.1(d))
and the Transaction Expenses (as defined in Section 3.1(c)(2) below),
by the total number of shares of Source Common Stock outstanding at
the Closing Date.
(2) At the Closing Date, Source shall prepare and deliver to
NDC a schedule substantially in the form of Schedule 1 attached
----------
hereto (the "Expense Schedule"), indicating the expenses incurred but
unpaid as of the Closing Date which are of the type disclosed on
Schedule 1 and which are directly associated with the transaction
----------
contemplated by this Agreement, including, without limitation, all
expenses incurred in connection with Source's termination of certain
employment agreements and an executive pension plan pursuant to
Section 7.1(d) hereof (the "Transaction Expenses") ; provided,
however, if the sum of the Preferred Stock Merger Consideration and
the Transaction Expenses exceed the Aggregate Cash Amount ("Excess
Expense"), then the Payment Shares shall be reduced by that number of
shares of NDC Common Stock equal to the quotient of (i) the Excess
Expense divided by (ii) the Average Closing Price as of the Closing
Date.
(3) If, at the close of trading on the tenth trading day
immediately preceding the Closing Date (the "Determination Date"), the
Average Closing Price shall be greater than $50.50 (the "Upper
Threshold Price"), the "Common Exchange Ratios" (defined to include
the Common Base Exchange Ratio and the Common Escrow Exchange Ratio)
shall each be adjusted to equal that fraction of a share of NDC Common
Stock (rounded to the nearest ten thousandth of a share) obtained by
dividing the product of the Common Base Exchange Ratio or the Common
Escrow Exchange Ratio, as the case may be, and the Upper Threshold
Price by the Average Closing Price at the Determination Date; provided
further, that, in the event that the Average Closing Price on the
Determination Date shall be less than $37.25 (the "Lower Threshold
Price" and, together with the Upper Threshold Price, the "Threshold
Prices"), the Common Exchange Ratios may, at the sole discretion of
NDC, and in accordance with the provisions of Section 11.1(h), each be
adjusted to equal that fraction of a share of NDC Common Stock
(rounded to the nearest ten thousandth of a share) obtained by
dividing the product of the Common Base Exchange Ratio or the Common
Escrow Exchange Ratio, as the case may be, and the Lower Threshold
Price by the Average Closing Price at the Determination Date.
(4) At the Closing Date, Source shall have secured the
cancellation of all outstanding options and warrants to purchase
shares of Source Common Stock and shall provide to NDC a schedule of
the number of shares of NDC Common Stock (the "Option Shares") payable
to the holders of such options and warrants in consideration of such
cancellation.
(5) Pursuant to the NDC Rights Agreement, each share of NDC
Common Stock issued in connection with the Merger upon conversion of
Source Common Stock shall be accompanied by a NDC Right.
(d) Each share of Source Preferred Stock (excluding shares held by any
Source Entity or any NDC Entity, and excluding shares held by stockholders
who perfect their statutory dissenters' rights as provided in Section 3.7)
issued and outstanding immediately prior to the Effective Time shall cease
to be outstanding and shall be converted and exchanged for the right to
receive an amount equal to $11.33, subject to
A-5
<PAGE>
adjustment to equal that amount such holder's shares of Source Preferred
Stock would otherwise receive if such holder were redeemed on the Closing
Date pursuant to the Designation (such aggregate amount, as adjusted, the
"Preferred Stock Merger Consideration").
3.2 PRELIMINARY BALANCE SHEET.
-------------------------
(a) Source will cause to be prepared and delivered to NDC a balance
sheet for Source, pro forma giving effect to the Divestiture, as of the most
recent month ending more than ten days prior to the Closing Date (the
"Preliminary Balance Sheet") and a certificate based on such Preliminary Balance
Sheet setting forth Source's calculation of Working Capital, Current Assets and
Current Liabilities as of such date ("Estimated Working Capital," "Estimated
Current Assets" and "Estimated Current Liabilities," respectively). The
Preliminary Balance Sheet shall (w) include the consolidated financial position
of Source and the Source Subsidiaries, (x) fairly present the financial position
of Source and the Source Subsidiaries as at the close of business on such date
in accordance with generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the balance sheet dated March
31, 1997 (the "Source Balance Sheet") previously delivered to NDC, (y) include
no material increase in long-term indebtedness, and include line items
substantially consistent with those in the Source Balance Sheet, and (z) be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Source Balance Sheet. As used in this
Agreement, "Working Capital" shall mean the amount equal to Current Assets less
Current Liabilities; "Current Assets" shall mean the amount equal to the sum of
cash, accounts receivable (net of any reserves), inventories, prepaid expenses,
work-in-process, and any other current assets recognized by GAAP; and "Current
Liabilities" shall mean the amount equal to the sum of accounts payable, accrued
current liabilities of Source (other than the current portion of capitalized
lease obligations), accrued sales commissions (but only as to revenues realized
and included in the Source and Source Subsidiaries' statements of income prior
to such date), Accrued Bonuses, accrued vacation pay, current portion of long-
term indebtedness, pre-billed revenues and any other current liabilities
recognized by GAAP, but excluding all Transaction Expenses.
(b) NDC shall have five (5) business days from the receipt of the
Preliminary Balance Sheet and the calculation of Estimated Working Capital,
Estimated Current Assets and Estimated Current Liabilities delivered pursuant to
Section 3.2(a) to review such statement and calculations and following such
review such shall be final and binding upon the parties hereto.
(c) If Estimated Current Assets are less than the product of 0.9416
times Estimated Current Liabilities (such amount, the "Estimated Working Capital
Adjustment") as of the date of the Preliminary Balance Sheet, the Escrow Shares
payable by NDC pursuant to Section 3.1(c) shall be decreased by the number of
shares of NDC Common Stock equal to the Estimated Working Capital Adjustment
divided by the Average Closing Price as of the Closing Date; provided, however,
in the event this reduction of the Escrow Shares exceeds 113,960 shares, the
Payment Shares shall then be decreased similarly in an amount equal to such
excess.
3.3 CLOSING BALANCE SHEET.
---------------------
(a) As promptly as practicable, but not later than 30 days after the
Closing Date, NDC will cause to be prepared and delivered to the Stockholder
Representative a balance sheet, giving effect to the Divestiture, for Source as
of the Closing Date (the "Closing Balance Sheet") setting forth NDC's
calculation of Working Capital, Current Assets and Current Liabilities as of the
Closing Date ("Closing Working Capital," "Closing Current Assets" and "Closing
Current Liabilities," respectively). The Closing Balance Sheet shall (w)
include the consolidated financial position of Source and the Source
Subsidiaries (x) fairly present the consolidated financial position of Source
and the Source Subsidiaries as at the close of business on the Closing Date in
accordance with generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the Source Balance Sheet, (y)
include no material increase in long term indebtedness, and include line items
substantially consistent with those in the Source Balance Sheet, and (z) be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Source Balance Sheet.
A-6
<PAGE>
(b) The Closing Balance Sheet and the calculation of Closing Working
Capital, Closing Current Assets and Closing Current Liabilities delivered
pursuant to Section 3.3(a) shall be deemed final upon the earliest of (i) the
date on which NDC and the Stockholder Representative jointly agree that such
documents are final, (ii) the 30th day after delivery of such documents pursuant
to Section 3.3(a), if the Stockholder Representative has not delivered a notice
to expressing disagreement with such calculations and setting forth its
calculation of such amount(s), and (iii) the date on which all disputes relating
to such statements and calculations between the parties are resolved in
accordance with Section 3.3(c). If the Stockholder Representative delivers a
notice of disagreement pursuant to this Section 3.3(b) it shall specify those
items or amounts as to which it disagrees, and it shall be deemed to have agreed
with all other items and amounts contained in the Closing Balance Sheet and the
calculation of Closing Working Capital delivered pursuant to Section 3.3(a)
(except to the extent resolution of the items or amounts to which it expresses
disagreement requires conforming changes to other items and amounts contained in
the Closing Balance Sheet or the calculation of Closing Working Capital).
(c) If the Stockholder Representative shall deliver a notice of
disagreement pursuant to Section 3.3(b), the Stockholder Representative and NDC
shall, during the 30 days following such delivery, use their reasonable efforts
to reach agreement on the disputed items or amounts (the "Disputed Amounts").
If, during such period, the Stockholder Representative and NDC are unable to
reach such agreement, they shall promptly thereafter cause Price Waterhouse LLP
(or if said firm shall be unwilling to act thereunder, such other independent
accountants of nationally recognized standing reasonably satisfactory to NDC and
the Stockholder Representative), promptly to review this Agreement, the
documents delivered pursuant to Section 3.3(a) and any other documents necessary
to calculate the Disputed Amounts (including all work papers of the parties used
in calculating the Disputed Amounts). In making such calculation, such
independent accountants shall act as experts and not arbitrators and shall
consider only the Disputed Amounts, solely in accordance with the terms of this
Agreement. Such independent accountants shall deliver to the Stockholder
Representative and NDC, as promptly as practicable, a report setting forth such
calculation. Such report shall be final and binding upon the Stockholders and
NDC. The cost of such review and report shall be borne by (i) the Stockholders
if the difference between Final Working Capital (defined in Section 3.4 below)
shown in the independent accountant's calculation and the Stockholder
Representative's calculation of Closing Working Capital delivered pursuant to
Section 3.3(b) is greater than the difference between Final Working Capital
shown in the independent accountant's calculation and NDC's calculation of
Closing Working Capital delivered pursuant to Section 3.3(a), (ii) by NDC if the
difference between Final Working Capital shown in the independent accountant's
calculation and the NDC's calculation of Closing Working Capital delivered
pursuant to Section 3.3(a) is greater than the difference between the Final
Working Capital Ratio shown in the independent accountant's calculation and the
Stockholder Representative's calculation of the Closing Working Capital Ratio
delivered pursuant to Section 3.3(b), and (iii) otherwise equally by the
Stockholders and NDC.
(d) The Stockholder Representative and NDC agree that they will, and
will cause their respective independent accountants and Source and its
Subsidiaries to, cooperate and assist in the preparation of the Closing Balance
Sheet and the calculation of Closing Working Capital, Closing Current Assets and
Closing Current Liabilities and in the conduct of the reviews referred to in
this Section 3.3, including, without limitation, making available, to the extent
necessary, relevant books, records, working papers, analyses and schedules, and
permitting representatives of the parties to consult with the respective
employees, auditors, actuaries, attorneys and agents of Source and its
Subsidiaries.
3.4 ADJUSTMENT OF PURCHASE PRICE.
----------------------------
(a) Subject to Section 3.4(c) below,
(i) If Final Current Assets are less than the product of 0.9416
times Final Current Liabilities (the amount of such shortfall referred to as,
the "Final Working Capital Deficit"), the Stockholders shall pay to NDC the
amount of the Final Working Capital Deficit as an adjustment to the Purchase
Price, out of the Stock Escrow in the manner provided in the Escrow Agreement.
A-7
<PAGE>
(ii) If Final Current Assets are greater than the product of 0.9416
times Final Current Liabilities (the amount of such surplus referred to as, the
"Final Working Capital Surplus"), NDC shall pay to the escrow agent, to be held
in accordance with the Escrow Agreement, that number of shares of NDC Common
Stock equal to the quotient of the Final Working Capital Surplus divided by the
Average Closing Price as of the date Final Working Capital is determined.
(iii) "Final Working Capital" means Closing Working Capital (i) as
shown in NDC's calculation delivered pursuant to Section 3.3(a), if no notice of
disagreement with respect thereto is duly delivered pursuant to Section 3.3(b);
or (ii) if such a notice of disagreement is delivered, (A) as agreed by NDC and
the Stockholder Representative pursuant to Section 3.3(b) or (B) in the absence
of such agreement, as shown in the independent accountant's calculation
delivered pursuant to Section 3.3(c); provided that, in no event shall Final
Working Capital be (i) more than the Stockholder Representative's calculation of
Closing Working Capital delivered pursuant to Section 3.3(b), if any, or (ii)
less than the lesser of NDC's calculation of Closing Working Capital delivered
pursuant to Section 3.3(a) or the Stockholder Representative's calculation of
Closing Working Capital delivered pursuant to Section 3.3(b), if any.
(b) Subject to Section 3.4(c) below,
(i) If Total Current Assets are less than the product of 0.9975
times Total Current Liabilities (the "Total Working Capital Deficit"), then the
Stockholders shall pay to NDC the Current Asset Allocation Amount as a further
adjustment to the Purchase Price, out of the Stock Escrow in the manner provided
in the Escrow Agreement.
(ii) If Total Current Assets are greater than the product of 0.9975
times Total Current Liabilities (the "Total Working Capital Surplus"), then NDC
shall pay to the Stockholders pursuant to the instructions of the Stockholder
Representative, as a further adjustment to the Purchase Price, that number of
shares of NDC Common Stock equal to the quotient of the Current Asset Allocation
Amount divided by the Average Closing Price as of the date Final Working Capital
is determined.
(iii) As used herein, "Total Current Assets" shall mean the amount
equal to the sum of Final Current Assets in this Agreement and Final Current
Assets calculated pursuant to the PMSI Agreement; "Total Current Liabilities"
shall mean the amount equal to the sum of Final Current Liabilities in this
Agreement and Final Current Liabilities calculated pursuant to the PMSI
Agreement; "Current Asset Allocation Amount" shall mean the amount equal to the
product of (A) the quotient of Final Current Assets in this Agreement divided by
Total Combined Assets multiplied by (B) the Total Working Capital Deficit or
Total Working Capital Surplus, as the case may be; and "Total Combined Assets"
shall mean the sum of Final Current Assets under this Agreement and Final
Current Assets calculated under the PMSI Agreement.
(c) For purposes of any adjustments to the Purchase Price made pursuant to
this Section, the parties shall take into account any adjustment made to the
Purchase Price at Closing pursuant to Section 3.2(c) hereof.
3.5 ANTI-DILUTION PROVISIONS. In the event NDC changes the number of
------------------------
shares of NDC Common Stock issued and outstanding prior to the Effective Time as
a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Common Exchange Ratios shall be proportionately
adjusted.
3.6 SHARES HELD BY SOURCE OR NDC. Each of the shares of Source Common
----------------------------
Stock and Source Preferred Stock held by any Source Entity or by any NDC Entity
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
3.7 DISSENTING STOCKHOLDERS. Any holder of shares of Source Common Stock
-----------------------
or Source Preferred Stock who perfects his dissenters' rights in accordance with
and as contemplated by Section 262 of the DGCL shall be
A-8
<PAGE>
entitled to receive the value of such shares in cash as determined pursuant to
such provision of Law; provided, that no such payment shall be made to any
dissenting stockholder unless and until such dissenting stockholder has complied
with the applicable provisions of the DGCL and surrendered to Source the
certificate or certificates representing the shares for which payment is being
made. In the event that after the Effective Time a dissenting stockholder of
Source fails to perfect, or effectively withdraws or loses, his right to
appraisal and of payment for his shares, NDC shall issue and deliver the
consideration to which such holder of shares of Source Common Stock or Source
Preferred Stock is entitled under this Article 3 (without interest) upon
surrender by such holder of the certificate or certificates representing shares
of Source Common Stock or Source Preferred Stock held by him. If and to the
extent required by applicable Law, Source will establish (or cause to be
established) an escrow account with an amount sufficient to satisfy the maximum
aggregate payment that may be required to be paid to dissenting stockholders.
Upon satisfaction of all claims of dissenting stockholders, the remaining
escrowed amount, reduced by payment of the fees and expenses of the escrow
agent, will be returned to the Surviving Corporation.
3.8 FRACTIONAL SHARES. Notwithstanding any other provision of this
-----------------
Agreement, each holder of shares of Source Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of NDC Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of NDC Common Stock multiplied
by the market value of one share of NDC Common Stock at the Effective Time. The
market value of one share of NDC Common Stock at the Effective Time shall be the
closing price of such common stock on the NYSE-Composite Transactions List (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by NDC) on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a stockholder in respect of any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, NDC and
-------------------
Source shall cause the exchange agent selected by NDC (the "Exchange Agent") to
mail to each holder of record of a certificate or certificates which represented
shares of Source Common Stock and Source Preferred Stock immediately prior to
the Effective Time (the "Certificates") appropriate transmittal materials and
instructions (which shall specify that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon proper delivery of
such Certificates to the Exchange Agent). The Certificate or Certificates of
Source Common Stock or Source Preferred Stock so delivered shall be duly
endorsed as the Exchange Agent may require. In the event of a transfer of
ownership of shares of Source Common Stock or Source Preferred Stock represented
by Certificates that are not registered in the transfer records of Source, the
consideration provided in Section 3.1 may be issued to a transferee if the
Certificates representing such shares are delivered to the Exchange Agent,
accompanied by all documents required to evidence such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, upon receipt of (i) an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (ii) such
bond, security or indemnity as NDC and the Exchange Agent may reasonably require
and (iii) any other documents necessary to evidence and effect the bona fide
exchange thereof, the Exchange Agent shall issue to such holder the
consideration into which the shares represented by such lost, stolen, mislaid or
destroyed Certificate shall have been converted. The Exchange Agent may
establish such other reasonable and customary rules and procedures in connection
with its duties as it may deem appropriate. After the Effective Time, each
holder of shares of Source Common Stock and Source Preferred Stock (other than
shares to be canceled pursuant to Section 3.6 or as to which statutory
dissenters' rights have been perfected as provided in Section 3.7) issued and
outstanding at the Effective Time shall surrender the Certificate or
Certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1, together with all undelivered dividends or distributions in
respect of such shares (without interest thereon) pursuant to Section 4.2. To
the extent required by Section 3.8, each holder of shares of Source Common Stock
and Source Preferred Stock issued and outstanding at the Effective Time also
shall receive, upon surrender of the Certificate or
A-9
<PAGE>
Certificates, cash in lieu of any fractional share of NDC Common Stock to which
such holder may be otherwise entitled (without interest). NDC shall not be
obligated to deliver the consideration to which any former holder of Source
Common Stock or Source Preferred Stock is entitled as a result of the Merger
until such holder surrenders such holder's Certificate or Certificates for
exchange as provided in this Section 4.1. Any other provision of this Agreement
notwithstanding, neither NDC, the Surviving Corporation nor the Exchange Agent
shall be liable to a holder of Source Common Stock or Source Preferred Stock for
any amounts paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar Law. Adoption
of this Agreement by the stockholders of Source shall constitute ratification of
the appointment of the Exchange Agent.
4.2 RIGHTS OF FORMER SOURCE STOCKHOLDERS. At the Effective Time, the
------------------------------------
stock transfer books of Source shall be closed as to holders of Source Common
Stock and Source Preferred Stock immediately prior to the Effective Time and no
transfer of Source Common Stock or Source Preferred Stock by any such holder
shall thereafter be made or recognized. Until surrendered for exchange in
accordance with the provisions of Section 4.1, each Certificate theretofore
representing shares of Source Common Stock or Source Preferred Stock (other than
shares to be canceled pursuant to Section 3.6) shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Sections 3.1 and 3.8 in exchange therefor, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which
have been declared or made by Source in respect of such shares of Source Common
Stock or Source Preferred Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by NDC on the NDC Common Stock, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares of NDC Common Stock issuable pursuant to
this Agreement, but no dividend or other distribution payable to the holders of
record of NDC Common Stock as of any time subsequent to the Effective Time shall
be delivered to the holder of any Certificate until such holder surrenders such
Certificate for exchange as provided in Section 4.1. However, upon surrender of
such Certificate, both the NDC Common Stock certificate (together with all such
undelivered dividends or other distributions without interest) and any
undelivered dividends and cash payments payable hereunder (without interest)
shall be delivered and paid with respect to each share represented by such
Certificate.
4.3 ESCROW AGREEMENT. In connection with the Closing, NDC and the
----------------
Stockholder Representative shall have executed and delivered to the other an
escrow agreement (the "Escrow Agreement"), which shall be in the form of Exhibit
1. The Stock Escrow to be paid pursuant to Section 3.1(c) shall be paid to and
held by the escrow agent pursuant to the terms of the Escrow Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SOURCE
----------------------------------------
Source hereby represents and warrants to NDC as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Source is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Assets. Source is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Source Material Adverse Effect. The minute book and other
organizational documents for Source have been made available to NDC for its
review and, except as disclosed in Section 5.1 of the Source Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
stockholders thereof.
A-10
<PAGE>
5.2 AUTHORITY OF SOURCE; NO BREACH BY AGREEMENT.
-------------------------------------------
(a) Source has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Source,
subject to the adoption of this Agreement by the holders of a majority of the
outstanding shares of Source Common Stock, and the adoption of this Agreement by
the holders of a majority of the outstanding shares of Source Preferred Stock,
which are the only stockholder votes required for approval of this Agreement and
consummation of the Merger by Source. Subject to such requisite stockholder
approval, this Agreement represents a legal, valid, and binding obligation of
Source, enforceable against Source in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Source,
nor the consummation by Source of the transactions contemplated hereby, nor
compliance by Source with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of Source's Certificate of Incorporation
or Bylaws or the certificate or articles of incorporation or bylaws of any
Source Subsidiary or any resolution adopted by the board of directors or the
stockholders of any Source Entity, or (ii) except as disclosed in Section 5.2 of
the Source Disclosure Memorandum, constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any Source Entity under, any material Contract or Permit of any Source
Entity or, (iii) subject to receipt of the requisite Consents referred to in
Section 9.1(b), constitute or result in a Default under, or require any Consent
pursuant to, any Law or Order applicable to any Source Entity or any of their
respective material Assets.
(c) Other than in connection or compliance with the provisions of
applicable state corporate and securities Laws and other than Consents required
from Regulatory Authorities, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, or under the HSR Act, no notice to,
filing with, or Consent of, any public body or authority is necessary for the
consummation by Source of the Merger and the other transactions contemplated in
this Agreement.
5.3 CAPITAL STOCK.
-------------
(a) The authorized capital stock of Source consists of (i) 12,000,000
shares of Source Common Stock, of which 5,800,193 shares are issued and
outstanding as of the date of this Agreement and not more than 7,010,187 shares,
excluding any shares of Source Common Stock issued upon conversion of Source
Preferred Stock, will be issued and outstanding at the Effective Time, and (ii)
2,000,000 shares of Source Preferred Stock, 1,041,667 shares of which are issued
and outstanding as of the date of this Agreement and not more than 1,041,667
shares will be issued and outstanding at the Effective Time. All of the issued
and outstanding shares of capital stock of Source are duly and validly issued
and outstanding and are fully paid and nonassessable under the DGCL. None of
the outstanding shares of capital stock of Source has been issued in violation
of any preemptive rights of the current or past stockholders of Source.
(b) Except as set forth in Section 5.3(a), or as disclosed in Section
5.3(b) of the Source Disclosure Memorandum, there are no shares of capital stock
or other equity securities of Source outstanding and no outstanding Equity
Rights relating to the capital stock of Source. Set forth in Section 5.3(b) of
the Source Disclosure Memorandum is the name of each of the holders of record of
Source Common Stock and Source Preferred Stock and that number of shares of
Source Common Stock and Source Preferred Stock, respectively, of which each
holder is the owner (the "Scheduled Stockholders"). Except as specifically
contemplated by this Agreement, no Person has any Contract or any right or
privilege (whether pre-emptive or contractual) capable of
A-11
<PAGE>
becoming a Contract or Equity Right for the purchase, subscription or issuance
of any securities of Source from Source.
5.4 SOURCE SUBSIDIARIES. Source has disclosed in Section 5.4 of the
-------------------
Source Disclosure Memorandum all of the Source Subsidiaries that are
corporations (identifying its jurisdiction of incorporation, each jurisdiction
in which it is qualified and/or licensed to transact business, and the number of
shares owned and percentage ownership interest represented by such share
ownership) and all of the Source Subsidiaries that are general or limited
partnerships, limited liability companies, or other non-corporate entities
(identifying the Law under which such entity is organized, each jurisdiction in
which it is qualified and/or licensed to transact business, and the amount and
nature of the ownership interest therein). Except as disclosed in Section 5.4
of the Source Disclosure Memorandum, Source or one of its wholly-owned
Subsidiaries owns all of the issued and outstanding shares of capital stock (or
other equity interests) of each Source Subsidiary. No capital stock (or other
equity interest) of any Source Subsidiary is or may become required to be issued
(other than to another Source Entity) by reason of any Equity Rights, and there
are no Contracts by which any Source Subsidiary is bound to issue (other than to
another Source Entity) additional shares of its capital stock (or other equity
interests) or Equity Rights or by which any Source Entity is or may be bound to
transfer any shares of the capital stock (or other equity interests) of any
Source Subsidiary (other than to another Source Entity). There are no Contracts
relating to the rights of any Source Entity to vote or to dispose of any shares
of the capital stock (or other equity interests) of any Source Subsidiary. All
of the shares of capital stock (or other equity interests) of each Source
Subsidiary held by a Source Entity are fully paid and nonassessable under the
applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the Source Entity free and clear of
any Lien, except for the pledge by Source of the stock of one of its
Subsidiaries to PMSI pursuant to that certain Securities Transfer Agreement,
between PMSI and Source, (the "Source Divestiture Agreement"), which pledge will
be released at Closing. Except as disclosed in Section 5.4 of the Source
Disclosure Memorandum, each Source Subsidiary is duly organized, validly
existing, and (as to corporations) in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate or
other power and authority necessary for it to own, lease, and operate its Assets
and to carry on its business as now conducted. Each Source Subsidiary is duly
qualified or licensed to transact business as a foreign corporation or other
entity, and in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Source Material
Adverse Effect. The minute book and other organizational documents for each
Source Subsidiary have been made available to NDC for its review, and, except as
disclosed in Section 5.4 of the Source Disclosure Memorandum, are true and
complete in all material respects as in effect as of the date of this Agreement
and accurately reflect in all material respects all amendments thereto and all
proceedings of the Board of Directors and stockholders thereof. Source has no
Subsidiaries other than the Source Subsidiaries and the Source Divestiture
Subsidiaries.
5.5 FINANCIAL STATEMENTS AND PROJECTIONS.
------------------------------------
(a) Each of the Source Financial Statements (including, in each case,
any related notes) was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements), and fairly presented in all material respects the
consolidated financial position of Source and its Subsidiaries, or Source and
the Source Subsidiaries, as the case may be, as at the respective dates and the
consolidated results of operations and cash flows for the periods indicated,
except that the unaudited interim financial statements do not contain certain
financial statement footnotes otherwise required by GAAP in full fiscal year
financial statements and were or are subject to normal and recurring year-end
adjustments, which were not or are not expected to be material in amount or
effect.
(b) Each of the Joint Venture Financial Statements (including, in
each case, any related notes) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements), and fairly presented in all material
respects the pro forma financial position of the Joint Venture as at the
respective dates and the combined results of operations and cash flows for the
periods indicated, except that the unaudited
A-12
<PAGE>
interim financial statements do not contain certain financial statement
footnotes otherwise required by GAAP in full fiscal year financial statements
and were or are subject to normal and recurring year-end adjustments which were
not or are not expected to be material in amount or effect.
(c) Set forth in Section 5.5 of the Source Disclosure Memorandum is a
true and correct copy of the financial projections prepared by Source with
respect to its results of operations, cash flows and capital expenditures
through June 30, 1998, including a list of the principal assumptions underlying
such projections. Source has prepared the projections in good faith and does
not have any reason to believe that the assumptions used in preparing the
projections are unrealistic under the circumstances. NDC acknowledges that the
assumptions are subject to significant business and competitive uncertainties
and are dependent upon future business decisions. Accordingly, the projections
cannot be viewed as a guarantee of future performance by Source and no assurance
can be given that the actual results of operations of Source will be comparable
to those reflected in the projections.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Joint Venture nor any
----------------------------------
Source Entity has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Source Material Adverse Effect, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Source as of March 31, 1997, included in the Source Financial
Statements delivered prior to the date of this Agreement, or reflected in the
notes thereto or in the Joint Venture Financial Statements or reflected in the
notes thereto. No Source Entity has incurred or paid any Liability since March
31, 1997, except for such Liabilities incurred or paid (i) in the ordinary
course of business consistent with past business practice and which are not
reasonably likely to have, individually or in the aggregate, a Source Material
Adverse Effect or (ii) in connection with the transactions contemplated by this
Agreement. Except as disclosed in Section 5.6 of the Source Disclosure
Memorandum, no Source Entity is directly or indirectly liable, by guarantee,
indemnity, or otherwise, upon or with respect to, or obligated, by discount or
repurchase agreement or in any other way, to provide funds in respect to, or
obligated to guarantee or assume any Liability of any Person (other than a
Source Entity) for any amount in excess of $100,000.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1997, except as
------------------------------------
disclosed in the Source Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 5.7 of the Source Disclosure Memorandum,
(i) there have been no events, changes, or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Source Material
Adverse Effect, and (ii) the Source Entities have not taken any action, or
failed to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of Source
provided in Article 7.
5.8 TAX MATTERS.
-----------
(a) All Tax Returns required to be filed by or on behalf of any of
the Source Entities for periods ended on or before June 30, 1996, have been
timely filed or requests for extensions have been timely filed, granted, and
have not expired, and all Tax Returns filed are complete and accurate in all
material respects. All Taxes shown on filed Tax Returns have been paid. There is
no audit examination or deficiency or refund Litigation current or pending with
respect to any Taxes, except as reserved against in the Source Financial
Statements or as disclosed in Section 5.8 of the Source Disclosure Memorandum.
All Taxes and other Liabilities due with respect to completed and settled
examinations or concluded Litigation have been paid. There are no Liens with
respect to Taxes upon any of the Assets of the Source Entities, except for any
such Liens which are not reasonably likely to have a Source Material Adverse
Effect.
(b) None of the Source Entities has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
(excluding such statutes that relate to years currently under examination by the
Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
A-13
<PAGE>
(c) The provision for any Taxes due or to become due for any of the
Source Entities for the period or periods through and including the date of the
respective Source Financial Statements that has been made and is reflected on
such Source Financial Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the Source Entities have been provided for in
accordance with GAAP.
(e) Except as disclosed in Section 5.8(e) of the Source Disclosure
Memorandum, none of the Source Entities is a party to any Tax allocation or
sharing agreement and none of the Source Entities has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Source) or has any Liability for Taxes of
any Person (other than Source and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
(f) Each of the Source Entities is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply, in all material respects, with all applicable
information reporting and Tax withholding requirements under federal, state, and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code.
(g) Except as disclosed in Section 5.8 of the Source Disclosure
Memorandum, none of the Source Entities has made any payments, is obligated to
make any payments, or is a party to any Contract that could obligate it to make
any payments that would be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code.
(h) The income tax basis of (i) all of the issued and outstanding
shares of the Source Divestiture Subsidiaries, in the aggregate, which are being
transferred from Source to PMSI pursuant to the Source Divestiture Agreement,
and (ii) the shares of capital stock of PMSI which are being transferred from
Source to PMSI pursuant to the Source Divestiture Agreement, are disclosed in
Section 5.8 of the Source Disclosure Memorandum.
(i) The distribution of Source from Walsh International Inc. through
a series of transactions described in that certain Master Reorganization
Agreement between Walsh International Inc. and Source dated as of April 16, 1996
and effected on or about such date ("spin-off") qualified as a tax free
distribution described in Section 355 of the Internal Revenue Code. Without
limiting the generality of the foregoing, Source did not at the time of the
spin-off have any plans or intentions of further transferring, exchanging or
otherwise selling all or any part of the capital stock of Source or the Assets
of Source. Source has supplied to NDC accurate and complete copies of all
opinions, correspondence, rulings, memoranda and other information regarding the
tax consequences of such spin-off.
5.9 ASSETS.
------
(a) Except as disclosed in Section 5.9 of the Source Disclosure
Memorandum or as disclosed or reserved against in the Source Financial
Statements delivered prior to the date of this Agreement, and except for the
pledge by Source of the stock of one of its Subsidiaries to PMSI pursuant to
that certain Source Divestiture Agreement, which pledge will be released at
Closing and the pledge by Source of shares of PMSI Common Stock held by Source
pursuant to the Source Divestiture Agreement, the Source Entities have good and
marketable title, free and clear of all Liens, to all of their respective
Assets. All tangible properties that are material to the Joint Venture are in
good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with Source's past practices.
(b) All Assets material to the Joint Venture, that are held under
leases or subleases by any of the Source Entities are held under valid Contracts
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of
A-14
<PAGE>
specific performance or injunctive relief is subject to the discretion of the
court before which any proceedings may be brought), and each such Contract is in
full force and effect.
(c) None of the Source Entities has received notice from any
insurance carrier that (i) any policy of insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policies of insurance will be substantially increased. There are
presently no claims for amounts exceeding in any individual case $100,000
pending under such policies of insurance and no notices of claims in excess of
such amounts have been given by any Source Entity under such policies.
(d) The Assets of the Joint Venture include, in the aggregate, all
Assets required to operate the business of the Joint Venture as presently
conducted.
5.10 INTELLECTUAL PROPERTY. Section 5.10 of the Source Disclosure
---------------------
Memorandum sets forth a complete and accurate list of, and a brief description
of all governmental registrations or applications for governmental registrations
of, all Intellectual Property owned, used or licensed by or to Source or any
Source Entity, which are used in or necessary for the conduct of the Joint
Venture's business, except as to which the absence thereof would not have a
Source Material Adverse Effect ("Source Intellectual Property"). No Source
Entity is in Default under any of its Source Intellectual Property licenses. No
proceedings have been instituted, or are pending or to the Knowledge of Source
threatened, which challenge the rights of any Source Entity with respect to
Source Intellectual Property used, sold or licensed by such Source Entity in the
course of its business, nor has any person claimed or alleged any rights to such
Source Intellectual Property. The conduct of the business of the Joint Venture
does not infringe any Intellectual Property of any other person. Except as
disclosed in Section 5.10 of the Source Disclosure Memorandum, the Joint Venture
is not obligated to pay any recurring royalties to any Person with respect to
any such Source Intellectual Property. Except as disclosed in Section 5.10 of
the Source Disclosure Memorandum, every officer, director, or employee of any
Source Entity is a party to a Contract which requires such officer, director or
employee to assign any interest in any Intellectual Property developed while in
the employ of Source to a Source Entity and to keep confidential any trade
secrets, proprietary data, customer information, or other business information
of the Joint Venture, and, to the Knowledge of Source, no such officer, director
or employee is party to any Contract with any Person other than a Source Entity
which requires such officer, director or employee to assign any interest in any
Intellectual Property to any Person other than a Source Entity or to keep
confidential any trade secrets, proprietary data, customer information, or other
business information of any Person other than a Source Entity. Except as
disclosed in Section 5.10 of the Source Disclosure Memorandum, to the Knowledge
of Source, no officer, director or employee of any Source Entity is party to any
Contract which restricts or prohibits such officer, director or employee from
engaging in activities competitive with any Person, including any Source Entity.
Except as disclosed in Section 5.10 of the Source Disclosure Memorandum, Source
has plans to modify its software systems to include calendar year 2000 date
conversion and compatibility capabilities, including, but not limited to, date
data century recognition, same century and multiple century formula and date
value calculations, and user interface date data values that reflect the
century.
5.11 ENVIRONMENTAL MATTERS.
---------------------
(a) Each Source Entity, its Participation Facilities, and its
Operating Properties are, and have been, in compliance in all material respects
with all Environmental Laws.
(b) There is no Litigation pending or, to the Knowledge of Source,
threatened before any court, governmental agency, or authority or other forum in
which any Source Entity or any of its Operating Properties or Participation
Facilities (or Source in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by any Source Entity or any of its Operating
Properties or Participation Facilities, nor is there any reasonable basis for
any Litigation of a type described in this sentence.
A-15
<PAGE>
(c) During the period of (i) any Source Entity's ownership or
operation of any of their respective current properties, (ii) any Source
Entity's participation in the management of any Participation Facility, or (iii)
any Source Entity's holding of a security interest in a Operating Property,
there have been no material releases, discharges, spillages, or disposals of
Hazardous Material in, on, under, adjacent to, or affecting (or potentially
affecting) such properties. Prior to the period of (i) any Source Entity's
ownership or operation of any of their respective current properties, (ii) any
Source Entity's participation in the management of any Participation Facility,
or (iii) any Source Entity's holding of a security interest in a Operating
Property, to the Knowledge of Source, there were no material releases,
discharges, spillages, or disposals of Hazardous Material in, on, under, or
affecting any such property, Participation Facility or Operating Property.
5.12 COMPLIANCE WITH LAWS. The Joint Venture has in effect all Permits
--------------------
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, and there has occurred no Default under any such
Permit. Except as disclosed in Section 5.12 of the Source Disclosure
Memorandum, none of the Source Entities nor the Joint Venture:
(a) is in Default under any of the provisions of its Certificate of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business; or
(c) since January 1, 1993, has received any notification or communication
from any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any Source
Entity or the Joint Venture is not in compliance in any material respect with
any of the Laws or Orders which such governmental authority or Regulatory
Authority enforces, (ii) threatening to revoke any Permits, or (iii)
requiring any Source Entity or the Joint Venture to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or to adopt any Board resolution
or similar undertaking.
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to NDC.
5.13 LABOR RELATIONS. No Source Entity is the subject of any Litigation
---------------
asserting that it or any other Source Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other Source Entity to bargain with
any labor organization as to wages or conditions of employment, nor is any
Source Entity party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any Source Entity, pending or
threatened, or to the Knowledge of Source, is there any activity involving any
Source Entity's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Source has disclosed in Section 5.14 of the Source Disclosure
Memorandum, and has delivered or made available to NDC prior to the execution of
this Agreement copies in each case of, all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus, or other incentive plan, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other health plans,
all life insurance plans, and all other employee benefit plans or fringe benefit
plans, including "employee benefit plans" as that term is defined in Section
3(3) of ERISA, which is currently, or within the six (6) years preceding the
Closing Date has been, adopted, maintained by, sponsored in whole or in part by,
or contributed to by any Source Entity or ERISA Affiliate (including any entity
which was an ERISA Affiliate during such six (6) year period) thereof for the
benefit of employees, retirees, dependents, spouses, directors,
A-16
<PAGE>
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "Source Benefit
Plans"). Any of the Source Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "Source ERISA Plan." Each Source ERISA Plan which is also a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "Source Pension Plan." No Source Pension Plan is or has
been a multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) All Source Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Source Material Adverse Effect. Each Source ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
Source is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. No Source Entity has engaged in a
transaction with respect to any Source Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject any
Source Entity to a Tax imposed by either Section 4975 of the Internal Revenue
Code or Section 502(i) of ERISA.
(c) No Source Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value
of the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Source Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Source Pension Plan, and (iii) no increase in
benefits under any Source Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, a Source Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any Source Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Source Entity, or the single-employer
plan of any entity which is considered one employer with Source under Section
4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code or
Section 302 of ERISA. No Source Entity has provided, or is required to provide,
security to a Source Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code.
(d) No Liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by any Source Entity with respect to any ongoing,
frozen, or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate. No Source Entity has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No notice
of a "reportable event," within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any Source Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) Except as disclosed in Section 5.14 of the Source Disclosure
Memorandum, no Source Entity has any Liability for retiree health and life
benefits under any of the Source Benefit Plans and there are no restrictions on
the rights of such Source Entity to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder.
(f) Except as disclosed in Section 5.14 of the Source Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Source Entity
from any Source Entity under any Source Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any Source Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any Source Entity and their respective beneficiaries, other than
entitlements accrued
A-17
<PAGE>
pursuant to funded retirement plans subject to the provisions of Section 412 of
the Internal Revenue Code or Section 302 of ERISA, have been fully reflected on
the Source Financial Statements to the extent required by and in accordance with
GAAP.
(h) Neither NDC nor any ERISA Affiliate of NDC shall have any
liability or obligation with respect to (i) employment-related liabilities,
whether contingent or otherwise, arising out of any individual's employment or
working relationship with any ERISA Affiliate of Source or any other entity
which participated in or contributed to any Source ERISA Plan other than Source
or any Source Subsidiary; or (ii) any benefit plan, program, arrangement or
policy maintained or contributed to by any ERISA Affiliate of Source other than
Source or any Source Subsidiary.
5.15 MATERIAL CONTRACTS. Except as disclosed in Section 5.15 of the
------------------
Source Disclosure Memorandum or otherwise reflected in the Source Financial
Statements or the Joint Venture Financial Statements, none of the Source
Entities, the Joint Venture nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, or retirement Contract, (ii)
any Contract relating to the borrowing of money by any Source Entity or the
guarantee by any Source Entity or the Joint Venture of any such obligation
(other than Contracts evidencing trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any Source Entity or the Joint Venture
from engaging in any business activities in any geographic area, line of
business or otherwise in competition with any other Person, (iv) any Contract
between or among Source Entities, or other Affiliates of Source, (v) any
Contract involving Intellectual Property (other than Contracts entered into in
the ordinary course with customers and "shrink-wrap" software licenses), (vi)
any Contract relating to the provision of data processing, network
communication, or other technical services to or by any Source Entity or the
Joint Venture, (vii) any Contract relating to the purchase or sale of any goods
or services, including customer contracts, (viii) consulting Contracts, (ix) and
all Contracts referred to in Sections 5.9 and 5.14(a) (other than Contracts in
the case of (iv), (v), (vi), (vii), (viii) and (ix), entered into in the
ordinary course of business and involving payments under any individual Contract
not in excess of $100,000), as of the date of this Agreement (collectively, the
"Source Contracts"). With respect to each Source Contract and except as
disclosed in Section 5.15 of the Source Disclosure Memorandum: (i) the Contract
is in full force and effect; (ii) no Source Entity nor the Joint Venture is in
Default thereunder; (iii) no Source Entity has repudiated or waived any material
provision of any such Contract; (iv) no other party to any such Contract is, to
the Knowledge of Source, in Default in any respect or has repudiated or waived
any material provision thereunder; (v) there exists no actual, or to the
Knowledge of Source, threatened, cancellation, termination, or limitation of, or
any amendment, modification, or change to any Contract; (vi) no Source Entity
has received formal notice that any party to a Contract will not renew such
Contract at the end of its existing term; and (vi) no Source Contract requires
consent for assignment in connection with the transactions contemplated by this
Agreement. All of the indebtedness of any Source Entity for money borrowed is
prepayable at any time by such Source Entity without penalty or premium.
5.16 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
-----------------
to the Knowledge of Source, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any Source Entity, or against any director,
employee or employee benefit plan of any Source Entity, or against any Asset,
interest, or right of any of them or the Joint Venture, that is reasonably
likely to have, individually or in the aggregate, a Source Material Adverse
Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any Source Entity
or the Joint Venture, that are reasonably likely to have, individually or in the
aggregate, a Source Material Adverse Effect. Section 5.16 of the Source
Disclosure Memorandum contains a summary of all Litigation as of the date of
this Agreement to which any Source Entity is a party and which names a Source
Entity as a defendant or cross-defendant or for which any Source Entity or the
Joint Venture has any potential Liability.
5.17 STATEMENTS TRUE AND CORRECT. None of the information supplied or to
---------------------------
be supplied by any Source Entity or any Affiliate thereof for inclusion in the
Registration Statement to be filed by NDC with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information
A-18
<PAGE>
supplied or to be supplied by any Source Entity or any Affiliate thereof for
inclusion in any documents to be filed by a Source Entity or any Affiliate
thereof with any Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All documents that any
Source Entity or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law.
5.18 REGULATORY MATTERS. No Source Entity or any Affiliate thereof has
------------------
taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to materially impede or delay receipt of
any Consents of Regulatory Authorities referred to in Section 9.1(b) or result
in the imposition of a condition or restriction of the type referred to in the
last sentence of such Section.
5.19 STATE TAKEOVER LAWS. Each Source Entity has taken all necessary
-------------------
action to exempt the transactions contemplated by this Agreement from, or if
necessary to challenge the validity or applicability of, any applicable
"moratorium," "fair price," "business combination," "control share," or other
anti-takeover Laws (collectively, "Takeover Laws"), including Section 203 of the
DGCL.
5.20 CHARTER PROVISIONS. Each Source Entity has taken all action so that
------------------
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Certificate of Incorporation,
Bylaws or other governing instruments of any Source Entity or restrict or impair
the ability of NDC or any of its Subsidiaries to vote, or otherwise to exercise
the rights of a stockholder with respect to, shares of any Source Entity that
may be directly or indirectly acquired or controlled by them.
5.21 STOCKHOLDERS' VOTING AGREEMENTS. The holders of 51% or more of
-------------------------------
Source Preferred Stock have executed and delivered to NDC, as of the date
hereof, an agreement in substantially the form of Exhibit 2 (the "Voting
Agreements").
5.22 BOARD RECOMMENDATION. The Board of Directors of Source, at a meeting
--------------------
duly called and held, has by unanimous vote of the directors present (who
constituted all of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger and the
Voting Agreements and the transactions contemplated thereby, taken together, are
fair to and in the best interests of the stockholders and (ii) resolved to
recommend that the holders of the shares of Source Common Stock and the holders
of Source Preferred Stock adopt this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF NDC
------------------------------------
NDC hereby represents and warrants to Source and the Stockholders as
follows:
6.1 ORGANIZATION, STANDING, AND POWER. NDC is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. NDC is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a NDC Material Adverse Effect.
A-19
<PAGE>
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
---------------------------------
(a) NDC has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of NDC. This Agreement
represents a legal, valid, and binding obligation of NDC, enforceable against
NDC in accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by NDC, nor
the consummation by NDC of the transactions contemplated hereby, nor compliance
by NDC with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of NDC's Certificate of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any NDC Entity under, any
Contract or Permit of any NDC Entity, or, (iii) subject to receipt of the
requisite Consents referred to in Section 9.1(b), constitute or result in a
Default under, or require any Consent pursuant to, any Law or Order applicable
to any NDC Entity or any of their respective material Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NYSE, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, no notice to, filing with, or Consent of, any public body
or authority is necessary for the consummation by NDC of the Merger and the
other transactions contemplated in this Agreement.
6.3 CAPITAL STOCK.
-------------
(a) The authorized capital stock of NDC consists of (i) 100,000,000
shares of NDC Common Stock, of which 26,629,947 shares are issued and
outstanding as of August 18, 1997, and (ii) 1,000,000 shares of NDC Preferred
Stock, of which no shares are issued and outstanding. All of the issued and
outstanding shares of NDC Capital Stock are, and all of the shares of NDC Common
Stock to be issued in exchange for shares of Source Common Stock upon
consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL. None of the outstanding shares of NDC Capital
Stock has been, and none of the shares of NDC Common Stock to be issued in
exchange for shares of Source Common Stock upon consummation of the Merger will
be, issued in violation of any preemptive rights of the current or past
stockholders of NDC.
(b) Except as set forth in Section 6.3(a), or as provided pursuant to
the NDC Rights Agreement, or as disclosed in Section 6.3 of the NDC Disclosure
Memorandum, there are no shares of capital stock or other equity securities of
NDC outstanding and no outstanding Equity Rights relating to the capital stock
of NDC.
6.4 SEC FILINGS; FINANCIAL STATEMENTS.
---------------------------------
(a) NDC has timely filed and made available to Source all SEC
Documents required to be filed by NDC since May 31, 1993 (the "NDC SEC
Reports"). The NDC SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Laws and other
applicable Laws and (ii) did not, at the time they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such NDC SEC Reports or necessary in
order to make the statements in such NDC SEC Reports, in light of the
circumstances under which they were made, not misleading. No NDC Subsidiary is
required to file any SEC Documents.
A-20
<PAGE>
(b) Each of the NDC Financial Statements (including, in each case,
any related notes) contained in the NDC SEC Reports, including any NDC SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of NDC
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring year-
end adjustments which were not or are not expected to be material in amount or
effect.
6.5 ABSENCE OF UNDISCLOSED LIABILITIES. No NDC Entity has any Liabilities
----------------------------------
that are reasonably likely to have, individually or in the aggregate, a NDC
Material Adverse Effect, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of NDC as of May 31, 1996 and
February 28, 1997, included in the NDC Financial Statements delivered prior to
the date of this Agreement or reflected in the notes thereto. No NDC Entity has
incurred or paid any Liability since February 28, 1997, except for such
Liabilities incurred or paid (i) in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a NDC Material Adverse Effect or (ii) in
connection with the transactions contemplated by this Agreement.
6.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 31, 1996, except as
------------------------------------
disclosed in the NDC Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 6.6 of the NDC Disclosure Memorandum, (i)
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a NDC Material
Adverse Effect, and (ii) the NDC Entities have not taken any action, or failed
to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of NDC
provided in Article 7.
6.7 COMPLIANCE WITH LAWS. Each NDC Entity has in effect all Permits
--------------------
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, and there has occurred no Default under any such
Permit. Except as disclosed in Section 6.7 of the NDC Disclosure Memorandum,
none of the NDC Entities:
(a) is in Default under its Certificate of Incorporation or Bylaws
(or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business; or
(c) since May 31, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any NDC Entity is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, or (iii)
requiring any NDC Entity to enter into or consent to the issuance of a cease
and desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business.
6.8 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
-----------------
to the Knowledge of NDC, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any NDC Entity, or against any director,
employee or employee benefit plan of any NDC Entity, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a NDC Material Adverse Effect, nor are there
any Orders of any
A-21
<PAGE>
Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any NDC Entity, that are reasonably likely to have,
individually or in the aggregate, a NDC Material Adverse Effect.
6.9 STATEMENTS TRUE AND CORRECT. None of the information supplied or to
---------------------------
be supplied by any NDC Entity or any Affiliate thereof for inclusion in the
Registration Statement to be filed by NDC with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any NDC Entity or any Affiliate thereof for inclusion in any
documents to be filed by any NDC Entity or any Affiliate thereof with the SEC or
any other Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All documents that any NDC Entity or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
6.10 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
----------------
existing and in good standing under the Laws of the State of Delaware as a
wholly owned Subsidiary of NDC. The authorized capital stock of Sub shall
consist of 1,000 shares of Sub Common Stock, all of which is validly issued and
outstanding, fully paid and nonassessable and is owned by NDC free and clear of
any Lien. Sub has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Sub. This Agreement
represents a legal, valid, and binding obligation of Sub, enforceable against
Sub in accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). NDC, as the sole stockholder of Sub, has voted
prior to the Effective Time the shares of Sub Common Stock in favor of adoption
of this Agreement, as and to the extent required by applicable Law.
6.11 TAX AND REGULATORY MATTERS. No NDC Entity or any Affiliate thereof
--------------------------
has taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.12 RIGHTS AGREEMENT. Execution of this Agreement and consummation of the
----------------
Merger and the other transactions contemplated by this Agreement will not result
in the grant of any rights to any Person under the NDC Rights Agreement (other
than as contemplated by Section 3.1) or enable or require the NDC Rights to be
exercised, distributed or triggered.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 AFFIRMATIVE COVENANTS OF SOURCE.
-------------------------------
(a) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, except as provided in
Section 7.1(b) below, unless the prior written consent of NDC shall have
been obtained, and except as otherwise expressly contemplated herein,
Source shall and shall cause each of its Subsidiaries to (a) operate its
business only in the usual, regular, and ordinary course, (b) preserve
intact its business organization and Assets and maintain its rights and
franchises, and (c) take no action which would (i) materially adversely
affect the ability of any Party to obtain any Consents required for the
A-22
<PAGE>
transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b)
or 9.1(c), or (ii) materially adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement.
(b) Prior to the Effective Time, Source shall, pursuant to the Source
Divestiture Agreement between Source and PMSI the terms and conditions of
which will have been approved by NDC, complete the divestiture (the
"Divestiture") of (i) its business operated in Europe as of the date of
this Agreement (the "European Business"), (ii) all of the shares of PMSI
held by Source or any Subsidiary of Source, and (iii) all of the stock of
those subsidiaries listed in Section 7.1(b) of the Source Disclosure
Memorandum (the "Source Divestiture Subsidiaries"). In connection with the
Divestiture, Source shall assign all of its interest in and obligations
under any and all Contracts related to the European Business, including but
not limited to those listed in Section 7.1(b) of the Source Disclosure
Memorandum (the "European Contracts"), to the purchaser of the European
Business, and shall obtain a release of all obligations of Source under the
European Contracts from the parties thereto. Other than as required under
the terms of the Target Divestiture Agreement or in connection with the
operation of the European Business in the ordinary course, any matters
regarding the conduct, ownership or divestiture of the European Business
shall be undertaken only with the advance written consent of NDC, which
consent will not be unreasonably withheld.
(c) Prior to the Effective Time, Source shall amend the designation
contained in the Source Certificate of Incorporation relating to the Source
Preferred Stock (such designation, as amended, the "Designation") to
provide that the holders of Source Preferred Stock shall receive the
Preferred Stock Merger Consideration upon consummation of the Merger.
(d) Prior to Closing, Source shall terminate the employment
agreements set forth in Section 5.15(Nos. 1-14) of the Source Disclosure
Memorandum and the executive pension plan set forth in Section 5.14(9) of
the Source Disclosure Memorandum and shall satisfy any liabilities or
obligations arising out of the termination of such. In addition, prior to
Closing Source agrees to cause the trademark registrations set forth in
Section 5.10 of the Source Disclosure Memorandum, to the extent not already
accomplished, to be transferred into the name of Source.
(e) Prior to Closing, all indebtedness or other obligations or
accounts of any kind between a Source Divestiture Subsidiary or PMSI or its
Subsidiaries, on the one hand and Source or a Source Subsidiary on the
other hand will have satisfied in accordance with Schedule 2 hereto.
7.2 NEGATIVE COVENANTS OF SOURCE. From the date of this Agreement until
----------------------------
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of NDC shall have been obtained, and except as
otherwise expressly contemplated herein, Source covenants and agrees that it
will not do or agree or commit to do, or permit any of its Subsidiaries to do or
agree or commit to do, any of the following:
(a) amend the Certificate of Incorporation, Bylaws or other governing
instruments of any Source Entity, including the Certificate of Designation
for the Source Preferred Stock except for the amendment of the Source
Preferred Stock designation provided in Section 7.1(c) above, which may
include a provision to postpone any mandatory redemption provisions, or
(b) except as provided in Section 5.5 of the Source Disclosure
Memorandum and the Source Divestiture Agreement for the purposes set forth
therein, incur any additional debt obligation, capital lease obligation or
other obligation for borrowed money, or make any capital expenditures or
impose, or suffer the imposition, on any Asset of any Source Entity or the
Joint Venture of any Lien or permit any such Lien to exist (other than in
connection with Liens in effect as of the date hereof that are disclosed in
the Source Disclosure Memorandum, the pledge by Source of the stock of one
of its Subsidiaries to PMSI pursuant to the Source Divestiture Agreement,
which pledge will be released at Closing, and the pledge by Source of
shares of PMSI Common Stock held by Source pursuant to the Source
Divestiture Agreement); or
A-23
<PAGE>
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any Source Entity, or declare or pay any dividend or
make any other distribution in respect of Source's capital stock, excluding
for purposes of this Section 7.2(c) the redemption of Source Preferred
Stock pursuant to Section 3.1(d); or
(d) except as provided for in this Agreement and in the Source
Divestiture Agreement, or pursuant to the exercise of stock options or
warrants outstanding as of the date hereof and pursuant to the terms
thereof in existence on the date hereof, or as disclosed in Section 7.2(d)
of the Source Disclosure Memorandum, issue, sell, pledge, encumber,
authorize the issuance of, enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Source Common Stock or Source
Preferred Stock or any other capital stock of any Source Entity, or any
stock appreciation rights, or any option, warrant, or other Equity Right;
or
(e) adjust, split, combine or reclassify any capital stock of any
Source Entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Source Common Stock or Source
Preferred Stock, or sell, lease, mortgage or otherwise dispose of or
otherwise encumber (x) any shares of capital stock of any Source Subsidiary
(unless any such shares of stock are sold or otherwise transferred to
another Source Entity and except for the pledge by Source of the stock of
one of its Subsidiaries to PMSI pursuant to the Source Divestiture
Agreement, which pledge will be released at Closing) or (y) any Asset other
than in the ordinary course of business for reasonable and adequate
consideration (except for the pledge by Source of shares of PMSI Common
Stock held by Source pursuant to the Source Divestiture Agreement),
excluding for purposes of this Section 7.2(e) the Divestiture; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any material investment,
either by purchase of stock of securities, contributions to capital, Asset
transfers, or purchase of any Assets, in any Person other than a wholly
owned Source Subsidiary, or otherwise acquire direct or indirect control
over any Person, other than in connection with (i) foreclosures in the
ordinary course of business, or (ii) the creation of new wholly owned
Subsidiaries organized to conduct or continue activities otherwise
permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees
or officers of any Source Entity, except in accordance with past practice
disclosed in Section 7.2(g) of the Source Disclosure Memorandum or as
required by Law; pay any severance or termination pay or any bonus other
than pursuant to written policies or written Contracts in effect on the
date of this Agreement and disclosed in Section 7.2(g) of the Source
Disclosure Memorandum; enter into or amend any severance agreements with
officers of any Source Entity; or grant any material increase in fees or
other increases in compensation or other benefits to directors of any
Source Entity except in accordance with past practice disclosed in Section
7.2(g) of the Source Disclosure Memorandum; or
(h) enter into or amend any employment Contract between any Source
Entity and any Person that the Source Entity does not have the
unconditional right to terminate without Liability (other than Liability
for services already rendered), at any time on or after the Effective Time;
or
(i) adopt any new employee benefit plan of any Source Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Source Entity other than any such
change that is required by Law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except as
required by Law, the terms of such plans or consistent with past practice;
or
A-24
<PAGE>
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(k) commence any Litigation other than in accordance with past practice,
settle any Litigation involving any Liability of any Source Entity or the
Joint Venture for material money damages or restrictions upon the operations
of any Source Entity or the Joint Venture;
(l) without the prior written consent of NDC, which consent shall not be
unreasonably withheld, enter into, modify, amend or terminate any Source
Contract and any other material Contract or waive, release, compromise or
assign any material rights or claims; or
(m) amend the Source Divestiture Agreement or, without the prior written
consent of NDC, waive any conditions to the closing of the transactions
contemplated by the Source Divestiture Agreement.
7.3 COVENANTS OF NDC. From the date of this Agreement until the earlier
----------------
of the Effective Time or the termination of this Agreement, unless the prior
written consent of Source shall have been obtained, and except as otherwise
expressly contemplated herein, NDC covenants and agrees that it shall (a)
continue to conduct its business and the business of its Subsidiaries in a
manner designed, in its reasonable judgment, to enhance the long-term value of
the NDC Common Stock and the business prospects of the NDC Entities and to the
extent consistent therewith use all reasonable efforts to preserve intact the
NDC Entities' core businesses and goodwill with their respective employees and
the communities they serve, and (b) take no action which would (i) materially
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b) or
9.1(c), or (ii) materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement; provided, that the foregoing
shall not prevent any NDC Entity from acquiring any Assets or other businesses
or from discontinuing or disposing of any of its Assets or business if such
action is, in the judgment of NDC, desirable in the conduct of the business of
NDC and its Subsidiaries, provided that such actions shall not materially delay
the Effective Time or materially hinder consummation of the Merger. NDC further
covenants and agrees that it will not, without the prior written consent of
Source, which consent shall not be unreasonably withheld, amend the Certificate
of Incorporation or Bylaws of NDC or, except as expressly contemplated by this
Agreement, the NDC Rights Agreement, in each case, in any manner adverse to the
holders of Source Common Stock as compared to rights of holders of NDC Common
Stock generally as of the date of this Agreement.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Source Material Adverse Effect or a NDC Material Adverse Effect, as
applicable, or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all reports
-------
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in stockholders' equity, and cash flows for the periods then ended in
accordance with GAAP consistently applied (subject in the case of interim
financial statements to normal recurring year-end adjustments that are not
material). As of their respective dates, such reports filed with the SEC will
comply in all material respects with the Securities Laws and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
A-25
<PAGE>
ARTICLE 8
ADDITIONAL AGREEMENTS
---------------------
8.1 REGISTRATION STATEMENT; STOCKHOLDER APPROVAL. As soon as reasonably
--------------------------------------------
practicable after execution of this Agreement, NDC shall prepare and file the
Registration Statement with the SEC, and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and take
any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of NDC Common
Stock upon consummation of the Merger. Source shall cooperate in the
preparation and filing of the Registration Statement and shall furnish all
information concerning it and the holders of its capital stock as NDC may
reasonably request in connection with such action. Source shall call
Stockholders' Meetings for the holders of Source Common Stock and Source
Preferred Stock, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon adoption of this Agreement and such other related matters as it
deems appropriate. In connection with such Stockholders' Meetings, (i) Source
shall prepare and mail a notice of meeting to its stockholders, (ii) Newco and
NDC shall furnish to Source all information that Source may reasonably request
in preparation of such notice of meeting, (iii) the Board of Directors of Source
shall recommend to its stockholders the approval of the matters submitted for
approval, subject only to the Board of Directors' legal obligations (if any) as
directors of Source, and (iv) the Board of Directors and officers of Source
shall use their reasonable efforts to obtain such stockholders' approval. NDC
and Source shall make all necessary filings with respect to the Merger under the
Securities Laws.
8.2 EXCHANGE LISTING. NDC shall use its reasonable efforts to list, prior
----------------
to the Effective Time, on the NYSE, subject to official notice of issuance, the
shares of NDC Common Stock to be issued to the holders of Source Common Stock
pursuant to the Merger, and NDC shall give all notices and make all filings with
the NYSE required in connection with the transactions contemplated herein.
8.3 APPLICATIONS; ANTITRUST NOTIFICATION. NDC shall promptly prepare and
------------------------------------
file, and Source shall cooperate in the preparation and, where appropriate,
filing of, applications with all Regulatory Authorities having jurisdiction over
the transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement. To the
extent required by the HSR Act, each of the Parties will promptly file with the
United States Federal Trade Commission and the United States Department of
Justice the notification and report form required for the transactions
contemplated hereby and any supplemental or additional information which may
reasonably be requested in connection therewith pursuant to the HSR Act and will
comply in all material respects with the requirements of the HSR Act. The
Parties shall deliver to each other copies of all filings, correspondence and
orders to and from all Regulatory Authorities in connection with the
transactions contemplated hereby.
8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
--------------------------
conditions of this Agreement, Source shall execute and file the Certificate of
Merger with the Secretary of State of the State of Delaware in connection with
the Closing.
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use,
and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
A-26
<PAGE>
8.6 INVESTIGATION AND CONFIDENTIALITY.
---------------------------------
(a) Prior to the Effective Time, each Party shall keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other Party concerning its and its Subsidiaries' businesses, operations, and
financial positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Source shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Proposal with respect to Source to preserve the
confidentiality of the information relating to the Source Entities provided to
such Persons and their Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Source Material Adverse
Effect or a NDC Material Adverse Effect, as applicable.
8.7 PRESS RELEASES. Prior to the Effective Time, Source and NDC shall
--------------
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 CERTAIN ACTIONS. Except with respect to this Agreement and the
---------------
transactions contemplated hereby, no Source Entity nor any Stockholder nor any
Affiliate thereof nor any Representatives thereof retained by any Source Entity
shall directly or indirectly solicit any Acquisition Proposal by any Person.
Except to the extent the Board of Directors of Source, after having consulted
with and considered the advice of outside counsel, reasonably determines in good
faith that the failure to take such actions would constitute a breach of
fiduciary duties of the members of such Board of Directors to Source's
stockholders under applicable law, no Source Entity, any Stockholder or any
Affiliate or Representative thereof shall furnish any non-public information
that it is not legally obligated to furnish, negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal, but Source may
communicate information about such an Acquisition Proposal to its stockholders
if and to the extent that it is required to do so in order to comply with its
legal obligations as advised by outside counsel. Each Stockholder and Source
shall promptly advise NDC following the receipt of any Acquisition Proposal and
the details thereof, and advise NDC of any developments with respect to such
Acquisition Proposal promptly upon the occurrence thereof. Each Stockholder and
Source shall (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and (ii) direct and use its reasonable
efforts to cause all of its Affiliates and Representatives not to engage in any
of the foregoing.
8.9 TAX TREATMENT. NDC undertakes and agrees to use its reasonable
-------------
efforts to cause the Merger, and to take no action which would cause the Merger
not, to qualify for or as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
A-27
<PAGE>
8.10 STATE TAKEOVER LAWS. Each Source Entity shall take all necessary
-------------------
steps to exempt the transactions contemplated by this Agreement from, or if
necessary to challenge the validity or applicability of, any applicable Takeover
Law, including Section 203 of the DGCL.
8.11 CHARTER PROVISIONS. Each Source Entity shall take all necessary
------------------
action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Certificate of
Incorporation, Bylaws or other governing instruments of any Source Entity or
restrict or impair the ability of NDC or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares of any
Source Entity that may be directly or indirectly acquired or controlled by them.
8.12 AGREEMENT OF AFFILIATES. Source has disclosed in Section 8.12 of the
-----------------------
Source Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of Source for purposes of Rule 145 under the 1933 Act. Source shall
use its reasonable efforts to cause each such Person to deliver to NDC not later
than 30 days after the date of this Agreement, a written agreement,
substantially in the form of Exhibit 3, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of Source Common
Stock or Source Preferred Stock held by such Person except as contemplated by
such agreement or by this Agreement and will not sell, pledge, transfer, or
otherwise dispose of the shares of NDC Common Stock to be received by such
Person upon consummation of the Merger except in compliance with applicable
provisions of the 1933 Act and the rules and regulations thereunder. NDC shall
be entitled to place restrictive legends upon certificates for shares of NDC
Common Stock issued to affiliates of Source pursuant to this Agreement to
enforce applicable provisions of Law. NDC shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of NDC Common Stock by such affiliates.
8.13 EMPLOYEE BENEFITS AND CONTRACTS. Following the Effective Time, NDC
-------------------------------
shall provide generally to officers and employees of the Source Entities
employee benefits under employee benefit and welfare plans on terms and
conditions which when taken as a whole are substantially similar to those
currently provided by the NDC Entities to their similarly situated officers and
employees. For purposes of participation, vesting and (except in the case of
NDC retirement plans) benefit accrual under NDC's employee benefit plans, the
service of the employees of the Source Entities prior to the Effective Time
shall be treated as service with a NDC Entity participating in such employee
benefit plans. NDC also shall cause the Surviving Corporation and its
Subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation Contracts disclosed in Section 8.13 of the
Source Disclosure Memorandum to NDC between any Source Entity and any current or
former director, officer, or employee thereof, and all provisions for vested
benefits or other vested amounts earned or accrued through the Effective Time
under the Source Benefit Plans. If so advised by NDC at least 30 days prior to
the Effective Time, Source, on behalf of itself and each Source Entity, shall
terminate its participation in the Source Informatics America, PMSI Scott-Levin,
and Walsh America Retirement Plan (the "401(k) Plan"), effective no later than
the day preceding the Effective Time. The amendment to the 401(k) Plan which
effects such termination shall be adopted no later than ten (10) days prior to
the Effective Time. Immediately following its adoption, Source shall provide
NDC with a copy of such amendment which (i) terminates Source's participation in
the plan, (ii) fully vests employees of each Source Entity in their account
balances under the 401(k) Plan as of the effective date of the termination; and
(iii) provides for lump sum distributions (which shall be "eligible rollover
distributions," within the meaning of Section 402(c)(4) of the Internal Revenue
Code) of the participants' accrued benefits as soon as practicable following
Source's or its successor's receipt of a letter from the Internal Revenue
Service to the effect that the Source Entities' termination of participation in
the 401(k) Plan and the subsequent distribution of the participants' accounts
thereunder does not adversely affect the 401(k) Plan's qualified status under
Section 401(a) of the Internal Revenue Code. The effectiveness of Source's
termination of its participation in the 401(k) Plan may be contingent upon the
receipt of such a letter from the IRS. Under no circumstances may an employee
of any Source Entity, prior to the receipt of such a determination letter,
receive a distribution from the 401(k) Plan on account of Source's termination
of its participation in the plan.
A-28
<PAGE>
8.14 INDEMNIFICATION.
---------------
(a) Except as set forth in the Waivers, for a period of six years
after the Effective Time, NDC shall, and shall cause the Surviving Corporation
to, indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of the Source Entities (each, an "Indemnified
Party") against all Liabilities arising out of actions or omissions arising out
of the Indemnified Party's service or services as directors, officers, employees
or agents of Source or, at Source's request, of another corporation,
partnership, joint venture, trust or other enterprise occurring at or prior to
the Effective Time to the fullest extent permitted under Delaware Law and by
Source's Certificate of Incorporation and Bylaws as in effect on the date
hereof, including provisions relating to advances of expenses incurred in the
defense of any Litigation and whether or not any NDC Entity is insured against
any such matter. Without limiting the foregoing, in any case in which approval
by the Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between NDC and the Indemnified Party.
(b) NDC shall, or shall cause the Surviving Corporation to, use its
reasonable efforts (and Source shall cooperate prior to the Effective Time in
these efforts) to maintain in effect for a period of three years after the
Effective Time Source's existing directors' and officers' liability insurance
policy (provided that NDC may substitute therefor (i) policies of at least the
same coverage and amounts containing terms and conditions which are
substantially no less advantageous or (ii) with the consent of Source given
prior to the Effective Time, any other policy) with respect to claims arising
from facts or events which occurred prior to the Effective Time and covering
persons who are currently covered by such insurance; provided, that neither NDC
nor the Surviving Corporation shall be obligated to make aggregate premium
payments for such three-year period in respect of such policy (or coverage
replacing such policy) which exceed, for the portion related to Source's
directors and officers, 150% of the annual premium payments on Source's current
policy in effect as of the date of this Agreement (the "Maximum Amount"). If
the amount of the premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, NDC shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount. Prior to the
Closing Date, NDC shall provide Source with an estimate of the costs associated
with maintaining a directors' and officers' liability insurance policy as
discussed above, which estimate shall have been prepared by an independent third
party and which amount shall be listed as a Transaction Expense on Schedule 1
----------
hereof.
(c) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 8.14, upon learning of any such Liability or
Litigation, shall promptly notify NDC thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), (i) NDC or the
Surviving Corporation shall have the right to assume the defense thereof and
neither NDC nor the Surviving Corporation shall be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if NDC or the Surviving Corporation elects not to assume
such defense or counsel for the Indemnified Parties advises that there are
substantive issues which raise conflicts of interest between NDC or the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and NDC or the Surviving Corporation shall
pay all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, that NDC and the
Surviving Corporation shall be obligated pursuant to this paragraph (c) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction,
(ii) the Indemnified Parties will cooperate in the defense of any such
Litigation, and (iii) neither NDC nor the Surviving Corporation shall be liable
for any settlement effected without its prior written consent; and provided
further that neither NDC nor the Surviving Corporation shall have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable Law.
(d) If NDC or the Surviving Corporation or any successors or assigns
shall consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or shall transfer
all or substantially all of its assets to any Person, then and in each case,
proper provision shall be made so
A-29
<PAGE>
that the successors and assigns of NDC or the Surviving Corporation shall assume
the obligations set forth in this Section 8.14.
(e) The provisions of this Section 8.14 are intended to be for the
benefit of and shall be enforceable by, each Indemnified Party and its
respective heirs and representatives.
8.15 TRANSACTION EXPENSES. NDC agrees that it will cause Source to pay the
--------------------
Transaction Expenses when due and payable.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
--------------------------------------------------
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
---------------------------------------
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 12.6:
(A) STOCKHOLDER APPROVAL. The stockholders of Source shall have
--------------------
adopted this Agreement, and the consummation of the transactions contemplated
hereby, including the Merger, as and to the extent required by Law or by the
provisions of any governing instruments. The stockholders of Source shall
have agreed to terminate, without recourse, the Source Common Stockholders
Agreement and the Source Preferred Stockholders Agreement, as applicable, as
of the Effective Time.
(B) REGULATORY APPROVALS. All Consents of, filings and registrations
--------------------
with, and notifications to, all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner (including requirements relating to the
raising of additional capital or the disposition of Assets) which in the
reasonable judgment of the Board of Directors of NDC would so materially
adversely impact the economic or business assumptions of the transactions
contemplated by this Agreement that, had such condition or requirement been
known, such Party would not, in its reasonable judgment, have entered into
this Agreement.
(C) CONSENTS AND APPROVALS. Each Party shall have obtained any and
----------------------
all Consents required for consummation of the Merger (other than those
referred to in Section 9.1(b)) or for the preventing of any Default under any
Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Source
Material Adverse Effect or a NDC Material Adverse Effect, as applicable. No
Consent so obtained which is necessary to consummate the transactions
contemplated hereby shall be conditioned or restricted in a manner which in
the reasonable judgment of the Board of Directors of NDC would so materially
adversely impact the economic or business assumptions of the transactions
contemplated by this Agreement that, had such condition or requirement been
known, such Party would not, in its reasonable judgment, have entered into
this Agreement.
(D) LEGAL PROCEEDINGS. No court or governmental or regulatory
-----------------
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes
illegal consummation of the transactions contemplated by this Agreement.
(E) REGISTRATION STATEMENT. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of
the Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to
A-30
<PAGE>
the issuance or trading of the shares of NDC Common Stock issuable pursuant
to the Merger shall have been received.
(F) EXCHANGE LISTING. The shares of NDC Common Stock issuable
----------------
pursuant to the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
9.2 CONDITIONS TO OBLIGATIONS OF NDC. The obligations of NDC to perform
--------------------------------
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by NDC pursuant to Section 12.6(a):
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
------------------------------
9.2(a), the accuracy of the representations and warranties of Source set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties set forth in Section 5.3 shall be true and correct (except for
inaccuracies which are de minimus in amount). The representations and
warranties set forth in Sections 5.18, 5.19, and 5.20 shall be true and
correct in all material respects. There shall not exist inaccuracies in the
representations and warranties of Source set forth in this Agreement
(including the representations and warranties set forth in Sections 5.3,
5.18, 5.19, and 5.20) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a Source Material Adverse Effect;
provided that, for purposes of this sentence only, those representations and
warranties which are qualified by references to "material" or "Material
Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to
include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of Source to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
material respects.
(C) CERTIFICATES. Source shall have delivered to NDC (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to Source and in Section
9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Source's Board of Directors and stockholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as NDC
and its counsel shall request.
(D) OPINION OF COUNSEL. NDC shall have received an opinion of Reboul,
------------------
MacMurray, Hewitt, Maynard & Kristol, counsel to Source, dated as of the
Closing, in form reasonably satisfactory to NDC, as to the matters set forth
in Exhibit 4.
(E) EMPLOYMENT AGREEMENTS. Each of the persons identified in Section
---------------------
9.2(e) of the Source Disclosure Memorandum shall have executed and delivered
to NDC an employment agreement on terms substantially consistent with those
set forth on Exhibit 5 (collectively, the "Employment Agreements").
(F) NONCOMPETITION AGREEMENTS. Each of the persons identified in
-------------------------
Section 9.2(f) of the Source Disclosure Memorandum shall have executed and
delivered to NDC a noncompetition agreement in substantially the form of
Exhibit 6 (collectively, the "Noncompetition Agreements").
(G) PMSI AGREEMENT. Each and all of the agreements and covenants of
--------------
the parties to the PMSI Agreement to be performed and complied with shall be
duly performed and complied with, or duly waived by the appropriate party
thereto, prior to or substantially simultaneously with the Effective Time.
All
A-31
<PAGE>
conditions to the closing of the transactions contemplated under the PMSI
Agreement shall have been satisfied or waived and the consummation of such
transactions shall have occurred concurrently with the Closing.
(H) ADDITIONAL AGREEMENTS. Each of the following agreements, in the
---------------------
form attached hereto as an Exhibit, with such additions and changes as may be
approved by NDC and all parties thereto, shall have been executed and
delivered to NDC:
(i) Source Europe License Agreement - Exhibit 7.
(ii) East Asia License Agreement Exhibit 8
(ii) Source Europe Transition Services
Agreement - Exhibit 9.
(iii) Assignment of Lease for Source
property in Newtown, PA - Exhibit 10.
(iv) Sublease for use of
property in Newtown, PA - Exhibit 11.
(v) Sublease for use of
property in Phoenix, AZ - Exhibit 12.
(vi) SL Services Agreement - Exhibit 13.
(I) STOCKHOLDER DISSENT. Less than 10% of the holders of Source
-------------------
Preferred Stock or Source Common Stock shall have perfected his dissenters'
rights pursuant to Section 3.6 hereof and Section 262 of the DGCL.
(J) INDEMNIFICATION WAIVERS. Each director and officer of Source
-----------------------
shall have executed and delivered to NDC Waivers in substantially the form of
Exhibit 14 which will provide that such director or officer release their
rights of indemnification under the bylaws of Source or Sub or the DGCL or
otherwise with respect to claims arising from their acting or failing to act
in connection with the Divestiture or with the allocation of consideration to
be paid by NDC pursuant to the transactions contemplated by this Agreement
and the PMSI Agreement, except and to the extent such is covered by
directors' and officers' insurance.
(K) EUROPEAN CONTRACT RELEASES. Source shall have been released from
--------------------------
any and all obligations under the European Contracts to the reasonable
satisfaction of NDC.
(L) SOURCE DIVESTITURE AGREEMENT. Each and all of the agreements and
----------------------------
covenants of the parties to the Source Divestiture Agreement to be performed
and complied with shall be duly performed and complied with in all material
respects prior to or substantially simultaneous with the Closing. All
conditions to the closing of the transactions contemplated under the Source
Divestiture Agreement shall have been satisfied or waived and the
consummation of such transactions shall have occurred concurrently with the
Closing.
(m) SOURCE OPTIONS AND WARRANTS. Source shall have secured the
---------------------------
cancellation of all outstanding options and warrants to purchase shares of
Source Common Stock and shall provide to NDC a schedule of the number of
Option Shares payable to the holders of such options and warrants in
consideration of such cancellation.
9.3 CONDITIONS TO OBLIGATIONS OF SOURCE. The obligations of Source to
-----------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Source pursuant to Section 12.6(b):
A-32
<PAGE>
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
------------------------------
9.3(a), the accuracy of the representations and warranties of NDC set forth
in this Agreement shall be assessed as of the date of this Agreement and as
of the Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of NDC set
forth in Sections 6.3, 6.4 and 6.11 shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations and
warranties of NDC set forth in this Agreement (including the representations
and warranties set forth in Sections 6.3, 6.4 and 6.11) such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have, a
NDC Material Adverse Effect; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by references
to "material" or "Material Adverse Effect" or to the "Knowledge" of any
Person shall be deemed not to include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of NDC to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
material respects.
(C) CERTIFICATES. NDC shall have delivered to Source (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to NDC and in Section
9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by NDC's Board of Directors and Sub's Board of
Directors and sole stockholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all
in such reasonable detail as Source and its counsel shall request.
(D) OPINION OF COUNSEL. Source shall have received an opinion of
------------------
either the General Counsel of NDC or Alston & Bird LLP, counsel to NDC,
dated as of the Effective Time, in form reasonably acceptable to Source, as
to the matters set forth in Exhibit 15.
ARTICLE 10
INDEMNIFICATION
---------------
10.1 AGREEMENT OF INDEMNITORS TO INDEMNIFY. Subject to the terms and
-------------------------------------
conditions of this Article 10, Indemnitors jointly and severally agree to
indemnify, defend, and hold harmless Indemnitees, and each of them, from,
against, for and in respect of any and all Losses asserted against, or paid,
suffered or incurred by, an Indemnitee and resulting from, based upon, or
arising out of:
(a) the inaccuracy, untruth, incompleteness or breach of any
representation or warranty of any Indemnitor or Source contained in or made
pursuant to this Agreement or in any certificate, Schedule, or Exhibit
furnished by Indemnitors or Source in connection herewith (except that Source
shall not be obligated to indemnify NDC for Losses arising out of the
termination or cancellation of a Source Contract by a third party prior to
Closing; provided that such termination or cancellation was not due to any
breach of such Contract by Source), and for purposes of this Section 10.1(a)
any qualification of such representations and warranties by reference to the
materiality of matters stated therein or as to matters having or not having a
"Material Adverse Effect,", and any limitation of such representations and
warranties as being "to the knowledge of," or "known to" or words of similar
effect, shall be disregarded, in determining any inaccuracy, untruth,
incompleteness or breach thereof;
(b) a breach of or failure to perform any covenant or agreement of
Indemnitors or Source made in this Agreement;
A-33
<PAGE>
(c) any and all Taxes arising out of or associated with the
Divestiture, as provided in Section 7.1(b) and determined as provided in
Section 10.12;
(d) any and all Taxes arising out of or associated with the matters
set forth on Section 5.8(a)(ii) of the Source Disclosure Memorandum to the
extent that, after using commercially reasonable efforts, NDC has been unable
to collect such amounts from Walsh International Inc. or the customers
involved in the transactions resulting in such Taxes; provided that NDC shall
not pay such amounts to the applicable governmental authorities without
direct assessment, or similar notice, from such authority directing payment
thereof; or
(e) any and all Losses relating to the matter set forth in Section
5.16(2) of the Source Disclosure Memorandum.
10.2 PROCEDURES FOR INDEMNIFICATION.
------------------------------
(a) An Indemnification Claim shall be made by an Indemnitee by
delivery of a written notice to the Stockholder Representative requesting
indemnification and specifying the basis on which indemnification is sought and
the amount of asserted Losses and, in the case of a Third Party Claim,
containing (by attachment or otherwise) such other information as such
Indemnitee shall have concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim the
procedures set forth in Section 10.3 shall be observed by the Indemnitee and the
Stockholder Representative.
(c) If the Indemnification Claim involves a matter other than a Third
Party Claim, the Stockholder Representative shall have 30 days to object to such
Indemnification Claim by delivery of a written notice of such objection to such
Indemnitee specifying in reasonable detail the basis for such objection. Failure
to timely so object shall constitute a final and binding acceptance of the
Indemnification Claim by the Stockholder Representative on behalf of all
Indemnitors, and the Indemnification Claim shall be paid in accordance with
subsection (d) hereof. If an objection is timely interposed by the Stockholder
Representative and the dispute is not resolved by such Indemnitee and the
Stockholder Representative within 15 days from the date the Indemnitee receives
such objection, such dispute shall be resolved by arbitration as provided in
Section 10.11.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between the Stockholder Representative and the Indemnitee
or by an arbitration award or by any other final adjudication, such
Indemnification Claim shall be paid out of the Stock Escrow pursuant to the
provisions of the Escrow Agreement.
10.3 THIRD PARTY CLAIMS. The obligations and liabilities of the parties
------------------
hereunder with respect to a Third Party Claim shall be subject to the following
terms and conditions:
(a) The Indemnitee shall give the Stockholder Representative written
notice of a Third Party Claim promptly after receipt by the Indemnitee of
notice thereof, and the Stockholder Representative, on behalf of the
Indemnitors, may undertake the defense, compromise and settlement thereof by
representatives of its own choosing reasonably acceptable to the Indemnitee.
The failure of the Indemnitee to notify the Stockholder Representative of
such claim shall not relieve the Indemnitors of any liability that they may
have with respect to such claim except to the extent the Stockholder
Representative demonstrates that the defense of such claim is prejudiced by
such failure. The assumption of the defense, compromise and settlement of
any such Third Party Claim by the Stockholder Representative shall be an
acknowledgment of the obligation of the Indemnitors to indemnify the
Indemnitee with respect to such claim hereunder. If the Indemnitee desires
to participate in, but not control, any such defense, compromise and
settlement, it may do so at its sole cost and expense. If, however, the
Stockholder Representative fails or refuses to undertake the
A-34
<PAGE>
defense of such Third Party Claim within ten (10) days after written notice
of such claim has been given to the Stockholder Representative by the
Indemnitee, the Indemnitee shall have the right to undertake the defense,
compromise and settlement of such claim with counsel of its own choosing. In
the circumstances described in the preceding sentence, the Indemnitee shall,
promptly upon its assumption of the defense of such claim, make an
Indemnification Claim as specified in Section 10.2 which shall be deemed an
Indemnification Claim that is not a Third Party Claim for the purposes of the
procedures set forth herein. For purposes of this paragraph, the Stockholder
Representative shall be deemed to have received notice of the claim specified
in Section 5.16(2) of the Source Disclosure Memorandum and to have agreed to
assume the defense thereof following the Closing; provided, however, that
such claim is still subject to the provisions of Section 10.7 hereof.
(b) If, in the reasonable opinion of the Indemnitee, any Third Party
Claim or the litigation or resolution thereof involves an issue or matter
which could have a material adverse effect on the business, operations,
assets, properties or prospects of the Indemnitee (including, without
limitation, the administration of the tax returns and responsibilities under
the tax laws of the Indemnitee), the Indemnitee shall have the right to
control the defense, compromise and settlement of such Third Party Claim
undertaken by the Stockholder Representative, and the costs and expenses of
the Indemnitee in connection therewith shall be included as part of the
indemnification obligations of the Indemnitors hereunder. If the Indemnitee
shall elect to exercise such right, the Stockholder Representative shall have
the right to participate in, but not control, the defense, compromise and
settlement of such Third Party Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of the Indemnitors under this Article shall be made without the
prior written consent by or on behalf of the Stockholder Representative,
which consent shall not be unreasonably withheld or delayed. Consent shall be
presumed in the case of settlements of $20,000 or less where the Stockholder
Representative has not responded within five business days of notice of a
proposed settlement. If the Stockholder Representative assumes the defense of
such a Third Party Claim, (a) no compromise or settlement thereof may be
effected by the Stockholder Representative without the Indemnitee's consent
unless (i) there is no finding or admission of any violation of law or any
violation of the rights of any person and no effect on any other claim that
may be made against the Indemnitee, (ii) the sole relief provided is monetary
damages that are paid in full by the Indemnitors, and (iii) the compromise or
settlement includes, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnitee of a release, in form and
substance satisfactory to the Indemnitee, from all liability in respect of
such Third Party Claim, and (b) the Indemnitee shall have no liability with
respect to any compromise or settlement thereof effected without its consent.
(d) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties to this Agreement shall execute such powers of
attorney as may reasonably be necessary or appropriate to permit
participation of counsel selected by any party hereto and, as may reasonably
be related to any such claim or action, shall provide access to the counsel,
accountants and other representatives of each party during normal business
hours to all properties, personnel, books, tax records, contracts,
commitments and all other business records of such other party and will
furnish to such other party copies of all such documents as may reasonably be
requested (certified, if requested).
10.4 OTHER RIGHTS AND REMEDIES NOT AFFECTED. The rights of the Indemnitees
--------------------------------------
under this Article 10 are independent of and in addition to such rights and
remedies as the Indemnitees may have at law or in equity or otherwise based upon
any inaccuracy, untruth, incompleteness or breach of any representation or
warranty of any Indemnitor contained herein or in any certificate, schedule or
exhibit furnished by such party in connection herewith, or based upon the
failure of an Indemnitor to perform any covenant, agreement or undertaking
required by the terms hereof to be performed by such Indemnitor, including
without limitation the right to seek specific performance, recession or
restitution, none of which rights or remedies shall be affected or diminished
hereby.
10.5 SURVIVAL. Subject to the time limitations set forth in Section 10.6
--------
below, all representations, warranties and agreements contained in this
Agreement or in any certificate delivered pursuant to this Agreement
A-35
<PAGE>
shall survive the Closing notwithstanding any investigation conducted with
respect thereto or any knowledge acquired as to the accuracy or inaccuracy of
any such representation or warranty.
10.6 TIME LIMITATIONS. The Indemnitors will have no liability to the
----------------
Indemnitees under or in connection with a breach of any of the representations,
warranties, covenants or agreements made or to be performed by the Indemnitors
or Source contained in this Agreement unless written notice asserting an
Indemnification Claim based thereon is given to the Stockholder Representative
prior to August 31, 1999.
10.7 LIMITATIONS AS TO AMOUNT.
------------------------
(a) Indemnitors shall have no liability with respect to the matters
described in Section 10.1 (other than the agreements in Sections 3.2 and 3.4)
until the total of all Losses with respect thereto exceeds $200,000 in which
event Indemnitors shall be obligated to indemnify the Indemnitees as provided in
this Article 10 for all such Losses; provided, however, that each individual
claim of $10,000 or less shall not be indemnifiable, and shall not be includable
in determining whether the $200,000 threshold has been reached.
(b) In no event shall the aggregate liability of the Indemnitors under
this Article 10 exceed the lesser of (i) the Aggregate Value (as defined in the
Escrow Agreement) of the Indemnification Escrow Amount (as defined in the Escrow
Agreement), and (ii) $20,000,000.
10.8 TAX EFFECT AND INSURANCE. The liability of the Indemnitors with
------------------------
respect to any Indemnification Claim shall be reduced by the tax benefit
actually realized and any insurance proceeds received by the Indemnitees as a
result of any Losses upon which such Indemnification Claim is based, and shall
include any tax detriment actually suffered by the Indemnitees as a result of
such Losses or the claims hereunder. The amount of any such tax benefit or
detriment shall be determined by taking into account the effect, if any and to
the extent determinable, of timing differences resulting from the acceleration
or deferral of items of gain or loss resulting from such Losses and shall
otherwise be determined so that payment by the Indemnitors of the
Indemnification Claim, as adjusted to give effect to any such tax benefit or
detriment, will make the Indemnitee as economically whole as is reasonably
practical with respect to the Losses upon which the Indemnification Claim is
based. Any dispute as to the amount of such tax benefit or detriment shall be
resolved by arbitration as provided in Section 10.11 of this Agreement.
10.9 SUBROGATION. Upon payment in full of any Indemnification Claim,
-----------
whether such payment is effected by set-off or otherwise, or the payment of any
judgment or settlement with respect to a Third Party Claim, the Indemnitors
shall be subrogated to the extent of such payment to the rights of the
Indemnitee against any person or entity with respect to the subject matter of
such Indemnification Claim or Third Party Claim.
10.10 APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. Each Indemnitor
-----------------------------------------
constitutes and appoints the Stockholder Representative as his or her true and
lawful attorney-in-fact to act for and on behalf of such Indemnitor in all
matters relating to or arising out of this Article 10 and the liability or
asserted liability of such Indemnitor hereunder, including specifically, but
without limitation, accepting and agreeing to the liability of such Indemnitor
with respect to any Indemnification Claim, objecting to any Indemnification
Claim, disputing the liability of such Indemnitor, or the amount of such
liability, with respect to any Indemnification Claim and prosecuting and
resolving such dispute as herein provided, accepting the defense, compromise and
settlement of any Third Party Claim on behalf of such Indemnitor or refusing to
accept the same, settling and compromising the liability of such Indemnitor
hereunder, instituting and prosecuting such actions (including arbitration
proceedings) as the Stockholder Representative shall deem appropriate in
connection with any of the foregoing, retaining counsel, accountants, appraisers
and other advisers in connection with any of the foregoing, all for the account
of the Indemnitor, such Indemnitor agreeing to be fully bound by the acts,
decisions and agreements of the Stockholder Representative taken and done
pursuant to the authority herein granted. Each Indemnitor hereby agrees to
indemnify and to save and hold harmless the Stockholder Representative from any
liability incurred by the Stockholder Representative based upon or arising out
of any act, whether of omission or commission, of the Stockholder Representative
pursuant to the authority herein granted, other than acts, whether of omission
or
A-36
<PAGE>
commission, of the Stockholder Representative that constitute gross negligence
or willful misconduct in the exercise by the Stockholder Representative of the
authority herein granted.
10.11 ARBITRATION. All disputes arising under this Article 10 (other than
-----------
claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Stockholder Representative and NDC in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be held in such place in Washington, D.C. as may be specified
by the arbitrator (or any place agreed to by the Stockholder Representative, NDC
and the arbitrator). The decision of the arbitrator shall be final and binding
as to any matters submitted under this Article 10; provided, however, if
necessary, such decision and satisfaction procedure may be enforced by either
the Stockholder Representative or NDC in any court of record having jurisdiction
over the subject matter or over any of the parties to this Agreement. All costs
and expenses incurred in connection with any such arbitration proceeding
(including reasonable attorneys fees) shall be borne by the party against which
the decision is rendered, or, if no decision is rendered, such costs and
expenses shall be borne equally by the Indemnitors as one party and the
Indemnitees as the other party. If the arbitrator's decision is a compromise,
the determination of which party or parties bears the costs and expenses
incurred in connection with any such arbitration proceeding shall be made by the
arbitrator on the basis of the arbitrator's assessment of the relative merits of
the parties' positions.
10.12 DIVESTITURE TAXES.
-----------------
(a) For purposes of 10.1(c) above, a "Tax" shall mean any federal,
state, local or foreign Tax and shall be determined by assuming (i) that the
only net operating loss available to offset income or gain related to the
Divestiture is equal to 30% of the combined net operating loss of the Source
Entities computed as of the Closing Date (determined by assuming that Tax
Returns would have been filed for a period ending on the Closing Date and
exclusive of any loss related to the Divestiture), and (ii) that such Tax
attributable to the Divestiture is represented by the difference between (x) the
Tax liability of Source for a hypothetical reporting period ending on the
Closing Date and including the Divestiture computed based on the assumption
contained in paragraph (i), and (y) the Tax liability of Source for such a
period computed assuming that no taxable income or gain had resulted from the
Divestiture.
(b) Tax Returns for any period including the Divestiture shall be
prepared by NDC and subject to review and approval of the Stockholder
Representative with respect to the treatment of the Divestiture in the Tax
Returns and the determination of the combined net operating loss of the Source
Entities.
(c) The Stockholder Representative and NDC agree to cooperate in a
commercially reasonable manner in the preparation and filing of the Tax Returns
for Source for any period including the Divestiture such that such Tax Returns
shall be filed within the applicable filing deadlines.
ARTICLE 11
TERMINATION
-----------
11.1 TERMINATION. Notwithstanding any other provision of this Agreement,
-----------
and notwithstanding the approval of this Agreement by the stockholders of
Source, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of NDC and Source; or
(b) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any representation or warranty contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach and which breach is
reasonably likely, in the opinion of the non-breaching Party, to have,
A-37
<PAGE>
individually or in the aggregate, a Source Material Adverse Effect or a NDC
Material Adverse Effect, as applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
stockholders of Source fail to vote their approval of the matters relating to
this Agreement and the transactions contemplated hereby at the Stockholders'
Meeting where such matters were presented to such stockholders for approval
and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by January 31, 1998, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by any
breach of this Agreement by the Party electing to terminate pursuant to this
Section 11.1(e); or
(f) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Merger cannot be satisfied or fulfilled by the date specified in Section
11.1(e); or
(g) By NDC, in the event that the Board of Directors of Source shall
have failed to reaffirm its approval of the Merger and the transactions
contemplated by this Agreement (to the exclusion of any other Acquisition
Proposal), or shall have resolved not to reaffirm the Merger, or shall have
affirmed, recommended or authorized entering into any other Acquisition
Proposal or other transaction involving a merger, share exchange,
consolidation or transfer of substantially all of the Assets of Source; or
(h) By Source if the Average Closing Price on the Determination Date
of shares of NDC Common Stock shall be less than the Lower Threshold Amount;
subject, however, to the following three sentences. If Source elects to
refuse to consummate the Merger pursuant to this Section 11.1(h), it shall
give written notice thereof to NDC not later than two trading days following
the Determination Date. During the five-day period commencing with its
receipt of such notice, NDC shall have the option, in its sole discretion, to
elect to revise the Common Exchange Ratios to equal that fraction of a share
of NDC Common Stock (rounded to the nearest ten thousandth of a share)
obtained by dividing the product of the Common Base Exchange Ratio or the
Common Escrow Exchange Ratio, as the case may be, and the Lower Threshold
Price by the Average Closing Price at the Determination Date. If NDC makes an
election contemplated by the preceding sentence, within such five-day period,
it shall give prompt written notice to Source of such election and the
revised Common Exchange Ratios, whereupon the condition to consummation
provided in this Section 11.1(h) shall be deemed to be satisfied and this
Agreement shall remain in effect in accordance with its terms (except as the
Common Exchange Ratios shall have been so modified), and any references in
this Agreement to "Common Exchange Ratios" shall thereafter be deemed to
refer to the Common Exchange Ratios as adjusted pursuant to this Section
11.1(h); or
(i) By Source in the event that Source has entered into negotiations
with a third party in accordance with Sections 8.1 and 8.8 of this Agreement,
and pursuant to the continuing fiduciary duties of the Source's Board of
Directors as required by applicable Law, Source has entered into a binding
Acquisition Proposal with a third party.
A-38
<PAGE>
11.2 EFFECT OF TERMINATION. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 11.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
11.2 and Article 12 and Section 8.6(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 11.1(b), 11.1(c) or
11.1(f) shall not relieve the breaching Party from Liability for an uncured
willful breach of a representation, warranty, covenant, or agreement giving rise
to such termination.
ARTICLE 12
MISCELLANEOUS
--------------
12.1 DEFINITIONS.
-----------
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"ACCRUED BONUSES" shall mean the amount equal to that percentage of
budgeted annual bonuses for Source's fiscal year 1998 equal to the ratio of
the earnings of Source through the date of calculation to budgeted earnings
for the full fiscal year. All budgeted amounts used herein to be as set
forth in Schedule 5.5 of the Source Disclosure Memorandum.
"ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of,
such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity
or voting interest of such Person; or (iii) any other Person for which a
Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"AMENDED AND RESTATED ALPHA DATABASE LICENSE AGREEMENT" shall mean that
certain Amended and Restated Alpha Database License Agreement dated July 1,
1994 by and among Walsh International Holdings Limited and Walsh America
Limited and PMSI and all customer, data provider and service contracts,
agreements or understandings relating thereto.
"ASSETS" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or
contingent, or otherwise relating to or utilized in such Person's business,
directly or indirectly, in whole or in part, whether or not carried on the
books and records of such Person, and whether or not owned in the name of
such Person or any Affiliate of such Person and wherever located.
"AVERAGE CLOSING PRICE" shall mean the average of the daily closing sales
prices of NDC Common Stock as reported on the NYSE Composite Transactions
reporting system (as reported by The Wall Street Journal or, if not reported
thereby, another authoritative source as chosen by NDC) for the ten
consecutive
A-39
<PAGE>
full trading days in which such shares are traded on the NYSE ending at the
close of trading on the date specified.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be
executed by Source and filed with the Secretary of State of the State of
Delaware relating to the Merger as contemplated by Section 1.1.
"CLOSING BALANCE SHEET" shall mean the balance sheet which includes the
consolidated financial position of Source and the Source Subsidiaries as of
the Closing Date delivered to the Stockholder Representative.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CLOSING WORKING CAPITAL" shall mean the Working Capital determined based
on the Closing Balance Sheet.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of any
kind or character, or other document to which any Person is a party or that
is binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current terms of, or renegotiate, or to accelerate the
maturity or performance of, or to increase or impose any Liability under, any
Contract, Law, Order, or Permit, where, in any such event, such Default is
reasonably likely to have, individually or in the aggregate, a Source
Material Adverse Effect or a NDC Material Adverse Effect, as applicable.
"DETERMINATION DATE" shall mean the close of trading on the tenth trading
day immediately preceding the Closing Date.
"DGCL" shall mean the Delaware General Corporation Law.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata) and which are
administered, interpreted, or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response Compensation
and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.
("RCRA"), and other Laws relating to emissions, discharges, releases, or
threatened releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of any Hazardous Material.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants,
or other binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Equity Rights.
A-40
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EXHIBITS" 1 through 15, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred
to in this Agreement and any other related instrument or document without
being attached hereto.
"FINAL WORKING CAPITAL" shall mean Closing Working Capital (i) as shown
in NDC's calculation delivered pursuant to Section 3.3(a), if no notice of
disagreement with respect thereto is duly delivered pursuant to Section
3.3(b); or (ii) if such a notice of disagreement is delivered, (A) as agreed
by NDC and the Stockholder Representative pursuant to Section 3.3(b) or (B)
in the absence of such agreement, as shown in the independent accountant's
calculation delivered pursuant to Section 3.3(c); provided that, in no event
shall Final Working Capital be (i) more than the Stockholder Representative's
calculation of Closing Working Capital delivered pursuant to Section 3.3(b),
if any, or (ii) less than the lesser of NDC's calculation of Closing Working
Capital delivered pursuant to Section 3.3(a) or the Stockholder
Representatives calculation of Closing Working Capital delivered pursuant to
Section 3.3(b), if any.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance, or toxic substance (as those
terms are defined by any applicable Environmental Laws) and (ii) any
chemicals, pollutants, contaminants, petroleum, petroleum products, or oil
(and specifically shall include asbestos requiring abatement, removal, or
encapsulation pursuant to the requirements of governmental authorities and
any polychlorinated biphenyls).
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by Title II
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder.
"INDEMNIFICATION CLAIM" shall mean a claim for indemnification under
Article 10.
"INDEMNITEES" shall mean NDC, Source and their respective officers,
directors, controlling persons, Affiliates and Representatives.
"INDEMNITORS" shall mean the Stockholders.
"INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor, technology
rights and licenses, computer software (including any source or object codes
therefor or documentation relating thereto), trade secrets, franchises, know-
how, inventions, and other intellectual property rights.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"JOINT VENTURE FINANCIAL STATEMENTS" shall mean a balance sheet of the
Joint Venture (including related notes and schedules, if any), and the
related statements of income and cash flows for the Joint Venture (including
related notes and schedules, if any) for the period ended March 31,1997.
"JOINT VENTURE" shall mean the combination of the business conducted in
the United States by Source and its subsidiaries as of the date of this
Agreement and the PMSI Joint Venture Interest.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that
are known or should reasonably have been known after due
A-41
<PAGE>
inquiry by the chairman, president, chief financial officer, chief accounting
officer, chief operating officer, general counsel, any assistant or deputy
general counsel, or any senior, executive or other vice president or general
manager of such Person and the knowledge of any such persons obtained or
which would have been obtained from a reasonable investigation.
"LAW" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted or enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency, guaranty
or endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course
of business) of any type, whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, and (iii) Liens which do not materially impair
the use of or title to the Assets subject to such Lien.
"LITIGATION" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, governmental or other examination or
investigation, hearing, administrative or other proceeding relating to or
affecting a Party, its business, its Assets (including Contracts related to
it), or the transactions contemplated by this Agreement.
"LOSSES" shall mean any and all demands, claims, actions or causes of
action, assessments, losses, diminution in value, damages (including special
and consequential damages), liabilities, costs, and expenses, including
interest, penalties, cost of investigation and defense, and reasonable
attorneys' and other professional fees and expenses.
"MATERIAL" for purposes of this Agreement shall be determined in light of
the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine materiality
in that instance.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ NATIONAL MARKET" shall mean the Nasdaq National Market, a
district tier of The Nasdaq Stock Market operated by The Nasdaq Stock Market,
Inc., a wholly-owned subsidiary of the National Association of Securities
Dealers Automated Quotations System.
"NDC CAPITAL STOCK" shall mean, collectively, the NDC Common Stock, the
NDC Preferred Stock and any other class or series of capital stock of NDC.
"NDC COMMON STOCK" shall mean the $0.125 par value common stock of NDC.
"NDC DISCLOSURE MEMORANDUM" shall mean the written information entitled
"National Data Corporation Disclosure Memorandum" delivered prior to the date
of this Agreement to Source describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made unless such disclosure is reasonably adequate to
inform the other party that each matter disclosed would be responsive to
another section of disclosure in the Disclosure Memorandum.
A-42
<PAGE>
"NDC ENTITIES" shall mean, collectively, NDC and all NDC Subsidiaries.
"NDC FINANCIAL STATEMENTS" shall mean (i) the consolidated balance sheets
(including related notes and schedules, if any) of NDC as of February 28,
1997, and as of May 31, 1996 and 1995, and the related statements of income,
changes in stockholders' equity, and cash flows (including related notes and
schedules, if any) for the nine months ended February 28, 1997, and for each
of the three fiscal years ended May 31, 1996, 1995 and 1994, as filed by NDC
in SEC Documents, and (ii) the consolidated balance sheets of NDC (including
related notes and schedules, if any) and related statements of income,
changes in stockholders' equity, and cash flows (including related notes and
schedules, if any) included in SEC Documents filed with respect to periods
ended subsequent to February 28, 1997.
"NDC MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence,
has a material adverse impact on (i) the financial position, business, or
results of operations of NDC and its Subsidiaries, taken as a whole, or (ii)
the ability of NDC to perform its obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this
Agreement, provided that "Material Adverse Effect" shall not be deemed to
include the impact of (a) actions and omissions of NDC (or any of its
Subsidiaries) taken with the prior informed written Consent of Source in
contemplation of the transactions contemplated hereby, and (b) the direct
effects of compliance with this Agreement on the operating performance of
NDC, including expenses incurred by NDC in consummating the transactions
contemplated by this Agreement.
"NDC PREFERRED STOCK" shall mean the $1.00 par value preferred stock of
NDC.
"NDC RIGHTS AGREEMENT" shall mean that certain Rights Agreement, dated
January 18, 1991, between NDC and Wachovia Bank of North Carolina, N.A., as
Rights Agent.
"NDC RIGHTS" shall mean the preferred stock purchase rights issued
pursuant to the NDC Rights Agreement.
"NDC SUBSIDIARIES" shall mean the Subsidiaries of NDC and any corporation
or other organization acquired as a Subsidiary of NDC in the future and held
as a Subsidiary by NDC at the Effective Time.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OPERATING PROPERTY" shall mean any property owned, leased, or operated
by the Party in question or by any of its Subsidiaries or in which such Party
or Subsidiary holds a security interest or other interest (including an
interest in a fiduciary capacity), and, where required by the context,
includes the owner or operator of such property, but only with respect to
such property.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
and, where required by the context, said term means the owner or operator of
such facility or property, but only with respect to such facility or
property.
"PARTY" shall mean either Source or NDC, and "PARTIES" shall mean both
Source and NDC.
"PERMIT" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets,
or business.
A-43
<PAGE>
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in
a representative capacity.
"PMSI JOINT VENTURE INTEREST" shall mean all of the rights, benefits,
obligations and interests of PMSI under the Amended and Restated Alpha
Database License Agreement.
"PRELIMINARY BALANCE SHEET" shall mean the balance sheet which includes
the consolidated financial position of Source and the Source Subsidiaries as
of the most recent month ending more than ten days prior to the Closing Date
delivered to NDC.
"PURCHASE PRICE" shall mean the total consideration to be paid to the
Stockholders by NDC for the purchase of the Source Common Stock and the
Source Preferred Stock, pursuant to Section 3.1 of this Agreement.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-
4, or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by NDC under the 1933
Act with respect to the shares of NDC Common Stock to be issued to the
stockholders of Source in connection with the transactions contemplated by
this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NYSE, the
NASD, the Federal Trade Commission, the United States Department of Justice,
and all other federal, state, county, local or other governmental or
regulatory agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having jurisdiction over the
Parties and their respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC DOCUMENTS" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"SIGNIFICANT SUBSIDIARY" shall mean any present or future consolidated
Subsidiary of the Party in question, the assets of which constitute ten
percent (10%) or more of the consolidated assets of such Party as reflected
on such Party's consolidated statement of condition prepared in accordance
with GAAP.
"SOURCE BALANCE SHEET" shall mean the balance sheet which includes the
consolidated financial position of Source and the Source Subsidiaries at
March 31, 1997.
"SOURCE COMMON STOCK" shall mean the $0.01 par value common stock of
Source.
"SOURCE DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Source Informatics Inc. Disclosure Memorandum" delivered prior to
the date of this Agreement to NDC describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made unless such disclosure is reasonably adequate to
inform the other party that each matter disclosed would be responsive to
another section of disclosure in the Disclosure Memorandum.
A-44
<PAGE>
"SOURCE ENTITIES" shall mean, collectively, Source and all Source
Subsidiaries.
"SOURCE FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheet (including related notes and schedules, if any) of Source and its
Subsidiaries as of June 30, 1996, and the related statement of income,
changes in stockholders' equity, and cash flows (including related notes and
schedules, if any) for the fiscal year ended June 30, 1996, and (ii) the
consolidated balance sheet of Source and the Source Subsidiaries (including
related notes and schedules, if any) as of March 31, 1997, and related
statement of income and cash flows (including related notes and schedules, if
any) with respect to the nine month period ended March 31, 1997.
"SOURCE MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of the Joint Venture, or (ii) the ability
of Source to perform its obligations under this Agreement or to consummate
the Merger or the other transactions contemplated by this Agreement, provided
that "Material Adverse Effect" shall not be deemed to include the impact of
(a) actions and omissions of Source (or any of its Subsidiaries) taken with
the prior informed written Consent of NDC in contemplation of the
transactions contemplated hereby, and (b) the direct effects of compliance
with this Agreement on the operating performance of Source, including
expenses incurred by Source in consummating the transactions contemplated by
this Agreement.
"SOURCE PREFERRED STOCK" shall mean the $1.00 par value preferred stock
of Source.
"SOURCE SUBSIDIARIES" shall mean the Subsidiaries of Source, which shall
include the Source Subsidiaries described in Section 5.4 and any corporation
or other organization acquired as a Subsidiary of Source in the future and
held as a Subsidiary by Source at the Effective Time but which exclude the
Source Divestiture Subsidiaries.
"STOCKHOLDER REPRESENTATIVE" shall mean a committee comprised of Messrs.
Dennis Turner, Handel Evans and Patrick Welsh.
"STOCKHOLDERS" shall mean the holders of Source Common Stock.
"STOCKHOLDERS' MEETINGS" shall mean either or both, as indicated, of the
meeting of the holders of Source Common Stock and Source Preferred Stock to
be held pursuant to Section 8.1, including any adjournment or adjournments
thereof.
"SUB COMMON STOCK" shall mean the $0.01 par value common stock of Sub.
"SUBSIDIARIES" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through
an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities
of which are owned or controlled in a fiduciary capacity), (ii) in the case
of partnerships, serves as a general partner, (iii) in the case of a limited
liability company, serves as a managing member, or (iv) otherwise has the
ability to elect a majority of the directors, trustees or managing members
thereof.
"SURVIVING CORPORATION" shall mean Source as the surviving corporation
resulting from the Merger.
"TAX RETURN" shall mean any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group
that includes a Party or its Subsidiaries.
A-45
<PAGE>
"TAX" or "TAXES" shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments,
including income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single
business and unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
estimated, or other tax or governmental fee of any kind whatsoever, imposes
or required to be withheld by the United States or any state, county, local
or foreign government or subdivision or agency thereof, including any
interest, penalties, and additions imposed thereon or with respect thereto.
"THIRD PARTY CLAIM" shall mean any Litigation (including, without
limitation, a binding arbitration or an audit by any taxing authority) that
is instituted against an Indemnitee by a Person other than an Indemnitor and
which, if prosecuted successfully, would result in a Loss for which such
Indemnitee is entitled to indemnification hereunder.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
<TABLE>
<S> <C>
Aggregate Cash Amount Section 3.1(c)
Certificates Section 4.1
Closing Section 1.2
Closing Current Assets Section 3.3(a)
Closing Current Liabilities Section 3.3(a)
Closing Date Section 1.2
Common Base Exchange Ratio Section 3.1(c)
Common Cash Amount Section 3.1(c)
Common Escrow Exchange Ratio Section 3.1(c)
Common Exchange Ratio Section 3.1(c)
Current Asset Allocation Section 3.4(b)
Current Assets Section 3.2(a)
Current Liabilities Section 3.2(a)
Disputed Amounts Section 3.3(c)
Divestiture Section 7.1(b)
Effective Time Section 1.3
Employment Agreements Section 9.1(k)
ERISA Affiliate Section 5.14(b)
Escrow Agreement Section 4.3
Estimated Current Assets Section 3.2(a)
Estimated Current Liabilities Section 3.2(a)
Estimated Working Capital Section 3.2(a)
Estimated Working Capital Adjustment Section 3.2(c)
European Business Section 7.1(b)
European Contracts Section 7.1(b)
Excess Expense Section 3.1(c)
Exchange Agent Section 4.1
Expense Schedule Section 3.1(c)
Final Working Capital Deficit Section 3.4(a)
Final Working Capital Surplus Section 3.4(a)
Indemnified Party Section 8.14(a)
Lower Threshold Amount Section 3.1(c)
Maximum Amount Section 8.14
Merger Section 1.1
NDC SEC Reports Section 6.4(a)
Noncompetition Agreements Section 9.2(k)
</TABLE>
A-46
<PAGE>
<TABLE>
<S> <C>
Option Shares Section 3.1(c)
Payment Shares Section 3.1(c)
Preferred Stock Merger Consideration Section 3.1(d)
PMSI Agreement Section 3.1(c)
Scheduled Stockholders Section 5.3
Source Benefit Plans Section 5.14
Source Contracts Section 5.15
Source Divestiture Agreement Section 5.4
Source Divestiture Subsidiaries Section 7.1(b)
Source ERISA Plan Section 5.14
Source Intellectual Property Section 5.10
Source Pension Plan Section 5.14
Stock Escrow Section 3.1(c)
Takeover Laws Section 5.19
Threshold Prices Section 3.1(c)
Total Combined Assets Section 3.4(b)
Total Current Assets Section 3.4(b)
Total Current Liabilities Section 3.4(b)
Total Working Capital Deficit Section 3.4(b)
Total Working Capital Surplus Section 3.4(b)
Transaction Expenses Section 3.1(c)
Upper Threshold Amount Section 3.1(c)
Voting Agreements Section 5.21
Working Capital Section 3.2(a)
</TABLE>
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
12.2 EXPENSES.
--------
(a) Excluding the Transaction Expenses and except as otherwise provided
in this Section 12.2, each of the Parties shall bear and pay all direct costs
and expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including filing, registration and application fees,
printing fees, and fees and expenses of its own financial or other consultants,
investment bankers, accountants, and counsel, except that each of the Parties
shall bear and pay one-half of the filing fees payable in connection with the
HSR Act.
(b) Notwithstanding the foregoing,
(i) if this Agreement is terminated pursuant to any of Sections
11.1(c) (but only on the basis of failure of the agreement provided in
Section 8.1 that Source shall call meetings of the Stockholders of Source for
the purpose of voting on the adoption of this Agreement), 11.1(d)(ii) (but
only as it relates to approval of Source's stockholders), or
(ii) if this Agreement is terminated by NDC pursuant to Section
11.1(g), or
(iii) if this Agreement is terminated by Source pursuant to Section
11.1(i),
and the conditions to the obligations of Source hereunder pursuant to Section
9.1, except for the provisions of Section 9.1(a), and Section 9.3(a) and 9.3(b),
have been satisfied, then Source shall promptly pay NDC all documented out-of-
pocket costs and expenses of NDC, including costs of counsel, investment
bankers, actuaries and accountants up to a maximum amount of $750,000.
A-47
<PAGE>
(c) In addition to the foregoing, if, this Agreement is terminated
pursuant to Section 11.1 (c) (but only on the basis of failure of the agreement
provided in Section 8.1 that Source shall call meetings of the Stockholders of
Source for the purpose of voting on the adoption of this Agreement) or Section
11.1(d)(ii) (but only with respect to approval of the stockholders of Source),
Source shall pay to NDC an amount in cash equal to the sum of $3,000,000, which
sum represents compensation for NDC's loss as the result of the transactions
contemplated by this Agreement not being consummated.
(d) In addition to the foregoing, if, after the date of this Agreement
and within twelve (12) months following any termination of this Agreement by NDC
pursuant to Section 10.1(g) or any termination of this Agreement by Source
pursuant to Section 10.1(i) of this Agreement, any third-party shall acquire,
merge with, combine with, purchase substantially all of the Assets of, or
engage in any other business combination with, or purchase any equity securities
involving an acquisition of 50% or more of the voting stock of Source, or enter
into any binding agreement to do any of the foregoing (collectively, a "Business
Combination"), such third-party that is a party to the business combination
shall pay to NDC, as a condition consummation of the Business Combination, an
amount in cash equal to $3,000,000, which sum represents additional combination
for NDC's loss as a result of the transactions contemplated by this Agreement
not being consummated. In the event such third-party shall refuse to pay such
amounts within ten days of demand therefore by NDC, the amount shall be an
obligation of Source and shall be paid by Source promptly upon notice to Source
by NDC. Notwithstanding the foregoing, the payment required by this Section
12.2(d) will only come due if a third party that was involved in discussions or
negotiations with Source on or before the termination of this agreement
consummates the Business Combination.
(e) Nothing contained in this Section 12.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the nonbreaching Party.
12.3 BROKERS AND FINDERS. Except for Montgomery Securities Corporation as
-------------------
to Source and except for Lazard Freres & Co. LLC as to NDC, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by Source or any Stockholder or by NDC, each of
Source and the Stockholders and NDC, as the case may be, agrees to indemnify and
hold the other Party harmless of and from any Liability in respect of any such
claim.
12.4 ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
----------------
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, other than as provided in
Sections 8.13 and 8.14.
12.5 AMENDMENTS. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after stockholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of Source Common Stock, there shall be made no amendment that pursuant
to Section 251 of the DGCL requires further approval by such stockholders.
12.6 WAIVERS.
-------
(a) Prior to or at the Effective Time, NDC, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Source or the Stockholders, to waive or extend the time for the compliance or
fulfillment by Source or the Stockholders of any and all of its obligations
under this Agreement, and to waive any or all of the conditions
A-48
<PAGE>
precedent to the obligations of NDC under this Agreement, except any condition
which, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized officer
of NDC.
(b) Prior to or at the Effective Time, Source, acting through its Board
of Directors, chief executive officer or other authorized officer, shall have
the right to waive any Default in the performance of any term of this Agreement
by NDC, to waive or extend the time for the compliance or fulfillment by NDC of
any and all of its obligations under this Agreement, and to waive any or all of
the conditions precedent to the obligations of Source and the Stockholders under
this Agreement, except any condition which, if not satisfied, would result in
the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of Source.
(c) The failure of any Party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
12.7 ASSIGNMENT. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
12.8 NOTICES. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
Source or
any Stockholder: Source Informatics Inc.
Suite 912
45 Rockefeller Plaza
New York, New York 10111
Telecopy Number: (212) 841-5760
Attention: Mr. Warren Hauser, Esq.
Copy to Counsel: Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telecopy Number: (212) 841-5725
Attention: Mr. Robert A. Schwed, Esq.
NDC: National Data Corporation
National Data Plaza
Atlanta, Georgia 30329
Telecopy Number: (404) 728-2990
Attention: E. Michael Ingram, Esq.
A-49
<PAGE>
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-7777
Attention: B. Harvey Hill, Jr., Esq.
12.9 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
12.10 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12.11 CAPTIONS; ARTICLES AND SECTIONS. The captions contained in this
-------------------------------
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
12.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
12.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
12.14 SEVERABILITY. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
A-50
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
NATIONAL DATA CORPORATION
By: /s/ E. Michael Ingram
Name: E. Michael Ingram
Title: Senior Vice President
DUNKIRK, INC.
By: /s/ E. Michael Ingram
Name: E. Michael Ingram
Title: Senior Vice President
SOURCE INFORMATICS INC.
By: /s/ Warren Hauser
Name: Warren Hauser
Title: Vice President
A-51
<PAGE>
ANNEX B
DISSENTERS' RIGHTS
B-1
<PAGE>
DELAWARE STATUTORY LAW RELATING TO APPRAISAL RIGHTS
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this Section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S)228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this Section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a non-stock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this
chapter:
(1) Provided, however, that no appraisal rights under this
Section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and
264 of this title to accept for such stock anything except: (a) shares
of stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipts in respect thereof; (b) shares
of stock of any other corporation or depository receipts in respect
thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
(c) cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or (d) any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the
merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this Section, including those set forth in subsections (d) and
(e), shall apply as nearly as is practicable.
B-2
<PAGE>
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this Section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this Section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand
for appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with
this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation
has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of the
holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available
for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this Section; provided that, if the
notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of
stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger
or consolidation, either (i) each such constituent corporation shall
send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20
days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary and
assistant secretary or of the transfer agent of the corporation that
is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on
or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for
B-3
<PAGE>
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publications
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this Section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate in all proceedings until it is finally determined that he is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
B-4
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this Section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-5
<PAGE>
ANNEX C
FORM OF ESCROW AGREEMENT
C-1
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
_______, 1997, by and among National Data Corporation, a Delaware corporation
("NDC") and _______________, the representative (the "Stockholder
Representative") of the common stockholders of Source Informatics Inc., a
Delaware corporation ("Source"), identified on Schedule I hereto (each a
"Stockholder" and collectively the "Stockholders").
W I T N E S S E T H
- - - - - - - - - -
Dunkirk, Inc. ("Sub") is a wholly owned subsidiary of NDC and each of NDC and
Sub is a party to an Agreement and Plan of Merger (the "Merger Agreement") with
Source, dated as of August __, 1997, pursuant to which Sub has on this date
merged (the "Merger") with and into Source with Source surviving the Merger and
becoming a wholly owned subsidiary of NDC. Pursuant to Section 3.1(c) of the
Merger Agreement, the Stockholders each received in exchange for each share of
Source Common Stock, (i) the Common Cash Amount, if any, and the Payment Shares,
and (ii) the contingent right to receive shares of NDC Common Stock.
Pursuant to the terms of the Merger Agreement, 455,840 shares of NDC Common
Stock, decreased by the number of shares of NDC Common Stock equal to the
Estimated Working Capital Adjustment divided by the Average Closing Price as of
the Closing Date (the "Stock Escrow"), have been distributed to and will be held
by the Escrow Agent pursuant to the terms of this Agreement until termination of
this Agreement as provided herein.
The Stockholders have agreed to adjust the purchase price of their shares of
Source Common Stock pursuant to Section 3.4 of the Merger Agreement, and to
indemnify NDC pursuant to Article 10 of the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
1.1 ESCROW AMOUNT. On this date, NDC has delivered an executed stock
-------------
certificate in negotiable form representing the Stock Escrow to the Escrow Agent
and hereby names the Stockholder Representative the representative of the pro
rata interests of the Stockholders in the Stock Escrow. The Escrow Agent
acknowledges receipt of the Stock Escrow and agrees to hold and disburse the
Stock Escrow for the benefit of NDC and the Stockholders, as the case may be, in
accordance with the provisions of this Agreement with the same force and effect
as if the Stock Escrow had been delivered by NDC to each Stockholder and
subsequently delivered by such Stockholder to the Escrow Agent.
1.2 STOCKHOLDER PERCENTAGE INTERESTS. As soon as practicable after receipt
--------------------------------
of executed transmittal materials from all record holders of Source Common Stock
as of the Effective Time, the Escrow Agent shall prepare and deliver to the
Stockholder Representative and NDC a schedule, substantially in the form of
Schedule I hereto, showing for each Stockholder (i) the respective percentage
interest (the "Percentage Interest") of each such Stockholder in the Stock
Escrow, and (ii) the corresponding interest of each Stockholder in the Working
Capital Escrow Amount and the Indemnification Escrow Amount (hereinafter the
"Stockholder Accounts"), initially expressed in shares of NDC Common Stock, and
thereafter, expressed in cash, if any, and shares of NDC Common Stock. Such
schedule shall be revised and re-distributed after any sale of Escrow Shares or
any distribution of any portion of the Escrow Amount pursuant to this Agreement.
C-2
<PAGE>
ARTICLE 2
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
2.1 "AGGREGATE VALUE" with respect to either the Working Capital Escrow
Amount or the Indemnification Escrow Amount, as indicated, shall mean the cash
amount, if any, in such escrow and the shares of NDC Common Stock in such
escrow, valued at the Average Closing Price as of the date specified.
2.2 "DISTRIBUTION DATE" shall mean with regard to the Working Capital Escrow
Amount, the date that is ninety (90) calendar days from the date of the
Effective Time, and with regard to the Indemnification Escrow Amount, August 31,
1999.
2.3 "ESCROW AMOUNT" shall mean the Indemnification Escrow Amount and the
Working Capital Escrow Amount.
2.4 "ESCROW SHARES" shall mean the Indemnification Shares and the Working
Capital Shares.
2.5 "INDEMNIFICATION ESCROW AMOUNT" shall mean, as of the date of this
Agreement, the Indemnification Shares, and from and after the date of this
Agreement, in accordance with Article 4 hereof, the cash, if any, from the sale
of Indemnification Shares and any remaining Indemnification Shares.
2.6 "INDEMNIFICATION SHARES" shall mean, as of the date of this Agreement,
341,880 shares of NDC Common Stock included in the Stock Escrow, and from and
after the date hereof, in accordance with Article 4 hereof, any Indemnification
Shares remaining in escrow.
2.7 "STOCKHOLDER REPRESENTATIVE" shall mean a committee comprised of Messrs.
Dennis Turner, Handel Evans and Patrick Welsh.
2.8 "WORKING CAPITAL ESCROW AMOUNT" shall mean, as of the date of this
Agreement, the Working Capital Shares, and from and after the date of this
Agreement, in accordance with Article 4 hereof, the cash, if any, from the sale
of Working Capital Shares and any remaining Working Capital Shares.
2.9 "WORKING CAPITAL SHARES" shall mean, as of the date of this Agreement,
113,960 shares of NDC Common Stock, less any shares paid to NDC as an Estimated
Working Capital Adjustment, included in the Stock Escrow, and from and after the
date hereof, in accordance with Article 4 hereof, any Working Capital Shares
remaining in escrow.
2.10 Any other capitalized term used herein but not defined herein shall
have the same meaning as provided in the Merger Agreement.
ARTICLE 3
TERM; DISTRIBUTION OF ESCROW AMOUNT; LIMITS
3.1 TERM. The term of this Agreement shall commence at the Effective Time
----
and shall terminate at such time as all of the Escrow Amount has been
distributed to the Stockholders or NDC pursuant to the terms of this Agreement.
3.2 ADJUSTMENT OF ESCROW AMOUNT. The Escrow Amount subject to this Agreement
---------------------------
shall be adjusted as follows: If, between the date of this Agreement and the
Distribution Date with respect to the Working Capital Escrow Amount, NDC shall
be entitled to an adjustment pursuant to Section 3.4 of the Merger Agreement (an
C-3
<PAGE>
"Adjustment Claim"), then NDC shall deliver to the Escrow Agent a notice thereof
(a "Notice of Obligation") setting forth the Adjustment Claim amount, and upon
receipt of such Notice of Obligation by the Escrow Agent,
(i) the Escrow Agent shall distribute to NDC from the Escrow Amount an
amount in cash, in immediately available funds, equal to such Adjustment Claim,
and, if the Escrow Amount does not contain any cash, or contains an amount of
cash insufficient to satisfy the Adjustment Claim, then
(ii) the Escrow Agent shall distribute to NDC from the Escrow Amount
that number of shares of NDC Common Stock equal to the quotient (rounded to the
next highest whole number) obtained by dividing the amount of the Adjustment
Claim not paid in cash pursuant to Section 3.2(i) above, by the Average Closing
Price as of the date Final Working Capital is determined pursuant to Section
3.3(b) of the Merger Agreement.
3.3 DISTRIBUTION OF WORKING CAPITAL ESCROW AMOUNT. If the adjustment
---------------------------------------------
provided for in Section 3.4 of the Merger Agreement is pending as of the
Distribution Date with respect to the Working Capital Escrow Amount, the
disputed Adjustment Claim (the "Disputed Working Capital Escrow Amount") for
purposes of the calculations in the following sentence of this Section 3.3 shall
be based on the Closing Balance Sheets prepared by NDC pursuant to Section
3.3(a) of the Merger Agreement and Section 1.3(a) of the PMSI Agreement, and
equal to the sum of (i) the Final Working Capital Deficit, and (ii) the Current
Asset Allocation Amount. Upon determination of the Disputed Working Capital
Escrow Amount in accordance with the preceding sentence, the Escrow Agent shall
promptly deliver to the Stockholders a distribution of cash, if any, in
immediately available funds, and shares of NDC Common Stock from the Working
Capital Escrow Amount, equal to the difference between the Aggregate Value as of
the Distribution Date of the Working Capital Escrow Amount and the aggregate
Disputed Working Capital Escrow Amount with respect to the pending Adjustment
Claim (the "Undisputed Working Capital Escrow Amount"), and such amount shall be
paid to the respective Stockholders in accordance with their respective
Percentage Interests. Any delivery of NDC Common Stock to Stockholders shall be
of full shares and any fractional portions shall be rounded to a whole number by
the Escrow Agent so that the number of shares remaining in escrow to be
delivered will be fully allocated among such Stockholders. Upon the final
resolution as agreed by NDC and the Stockholder Representative in writing of the
amount of the Adjustment Claim (the "Final Claim Amount") for which a Disputed
Working Capital Escrow Amount was retained in escrow after the Distribution
Date, the Escrow Agent shall promptly distribute to NDC an amount in cash, if
any, in immediately available funds, and shares of NDC Common Stock from the
Escrow Amount with an Aggregate Value as of the date of final resolution equal
to the Final Claim Amount and shall deliver any remaining Disputed Working
Capital Escrow Amount to the Stockholders in accordance with their respective
Percentage Interests.
3.4 ADJUSTMENT OF INDEMNIFICATION ESCROW AMOUNT. The Indemnification
-------------------------------------------
Escrow Amount subject to this Agreement shall be adjusted from time to time, as
follows: If, between the date of this Agreement and the Distribution Date with
respect to the Indemnification Escrow Amount, NDC shall be entitled to be
indemnified pursuant to an Indemnification Claim under Article 10 of the Merger
Agreement, then NDC shall deliver to the Escrow Agent a Notice of Obligation
setting forth the amount of the Indemnification Claim, and upon receipt of such
Notice of Obligation by the Escrow Agent,
(i) the Escrow Agent shall distribute to NDC from the Indemnification
Escrow Amount an amount in cash, in immediately available funds, equal to such
Indemnification Claim; provided that such distribution of cash from the
Indemnification Escrow Amount shall be distributed in equal proportions from
each Stockholder Account, and provided further that the Escrow Agent shall have
the authority to sell shares of NDC Common Stock in any Stockholder Account in
order to satisfy such proportional distribution requirement; and, if the
Indemnification Escrow Amount does not contain any cash, or contains an amount
of cash insufficient to satisfy the Indemnification Claim, then
(ii) the Escrow Agent shall distribute to NDC from the Indemnification
Escrow Amount that number of shares of NDC Common Stock equal to the quotient
(rounded to the next highest whole number) obtained by dividing the amount of
the Losses asserted in the Indemnification Claim and not paid in cash pursuant
to Section 3.4(i) above, by the Average Closing Price as of the date of the
Notice of Obligation.
C-4
<PAGE>
3.5 DISTRIBUTION OF INDEMNIFICATION ESCROW AMOUNT. If there are
---------------------------------------------
Indemnification Claims pending as of the Distribution Date with respect to the
Indemnification Escrow Amount, the amount of Losses under such disputed
Indemnification Claims (the "Disputed Indemnification Escrow Amount") for
purposes of the calculations in the following sentence of this Section 3.5 shall
be as decided in writing by NDC and the Stockholder Representative; provided,
that if NDC and the Stockholder Representative are not able to agree on the
Disputed Indemnification Escrow Amount by such Distribution Date, the Disputed
Indemnification Escrow Amount shall be the amount claimed by NDC in its notice
of Indemnification Claim. Upon determination of the Disputed Indemnification
Escrow Amount in accordance with the preceding sentence, the Escrow Agent shall
promptly deliver to the Stockholders a distribution of cash, if any, in
immediately available funds, and shares of NDC Common Stock from the
Indemnification Escrow Amount, equal to the difference between the Aggregate
Value as of the Distribution Date of the Indemnification Escrow Amount and the
Disputed Indemnification Escrow Amount (the "Undisputed Indemnification Escrow
Amount"), and such amount shall be paid to the respective Stockholders in
accordance with their respective Percentage Interests. Any delivery of NDC
Common Stock to Stockholders shall be of full shares and any fractional portions
shall be rounded to a whole number by the Escrow Agent so that the number of
shares remaining in escrow to be delivered will be fully allocated among such
Stockholders. Upon the final resolution as agreed by NDC and the Stockholder
Representative in writing of the amount of the Losses under Indemnification
Claims pending as of the Distribution Date with respect to the Indemnification
Escrow Amount (the "Final Indemnification Claim") for which a Disputed
Indemnification Escrow Amount was retained in escrow, the Escrow Agent shall
promptly distribute to NDC an amount in cash, if any, in immediately available
funds, and shares of NDC Common Stock from the Indemnification Escrow Amount
with an Aggregate Value as of the date of final resolution equal to the Final
Indemnification Claim and shall deliver any remaining Disputed Indemnification
Escrow Amount to the Stockholders in accordance with their respective Percentage
Interests.
3.6 EFFECT OF FINAL DELIVERY. This Agreement shall continue in full force
------------------------
and effect until the Escrow Agent has distributed all of the Escrow Amount
pursuant to the terms hereof. After all of the Escrow Amount has been
distributed, all rights, duties and obligations of the respective parties
hereunder shall terminate.
ARTICLE 4
SALE OF ESCROW SHARES;
ESCROW STOCK CERTIFICATES
4.1 SALE OF ESCROW SHARES. The Stockholder Representative, or the
---------------------
Stockholders with respect to their individual Stockholder Accounts and acting
through the Stockholder Representative, may direct the Escrow Agent to sell,
from time to time, any or all of the Escrow Shares at such prices as are
commercially reasonable at the time of sale. On a monthly basis, the Escrow
Agent shall provide the Stockholder Representative and NDC with a sales report
detailing the number of Escrow Shares sold, the date of sale, the aggregate
sales price, any associated brokerage fees or expenses, any and all other
expenses, and such other information as the Stockholder Representative or NDC
shall reasonably request, and shall provide the Stockholder Representative and
NDC with a revised schedule as provided in Section 1.2 hereof. The proceeds of
such sale or sales, net of any underwriting commissions or brokers fees and all
other expenses of sale, shall be applied as follows:
(i) Any and all cash proceeds from the sale of Working Capital Shares
shall remain in escrow as part of the Working Capital Escrow Amount and subject
to the provisions of this Agreement, except that at the end of each calendar
month, if the Aggregate Value of the Working Capital Escrow Amount exceeds 133%
of the Aggregate Value of the Escrow Shares as of the date of this Agreement
(the "Surplus Working Capital Escrow Amount"), the Escrow Agent shall distribute
to the Stockholders that amount in cash or shares of NDC Common Stock equal to
their respective Percentage Interest in the Surplus Working Capital Escrow
Amount; and
(ii) Any and all cash proceeds from a sale of Indemnification Shares
shall remain in escrow as part of the Indemnification Escrow Amount and subject
to the provisions of this Agreement, except that at the end of each calendar
month, if the Aggregate Value of the Indemnification Escrow Amount exceeds
$20,000,000 (the "Surplus Indemnification Escrow Amount"), the Escrow Agent
shall distribute to the Stockholders that amount in cash or
C-5
<PAGE>
shares of NDC Common Stock equal to their respective Percentage Interests in the
Surplus Indemnification Escrow Amount.
4.2 METHOD OF DISTRIBUTION OF SHARES. If a registration statement is
--------------------------------
required by applicable law, the Escrow Shares may be distributed by the Escrow
Agent pursuant to a registration statement filed pursuant to the Securities Act
of 1933, as amended (the "Act") or any state securities laws, or in the
alternative, the Escrow Shares may be distributed under any applicable exemption
from the Act or such laws, in the sole discretion of the Escrow Agent, but in
all instances the Escrow Shares shall be distributed in compliance with the Act
and applicable state securities laws. NDC hereby agrees, if requested by the
Escrow Agent, to file or prepare such statements, forms or registrations to
satisfy any exemption from the Act or any state securities laws.
4.3 NEW CERTIFICATES. The Escrow Agent may at any time request NDC to issue
----------------
new certificates representing the Stock Escrow in such denominations as may be
necessary or appropriate in carrying out the Escrow Agent's obligations under
this Agreement.
ARTICLE 5
DIVIDENDS; VOTING RIGHTS;
INVESTMENT OF CASH AMOUNTS
5.1 CASH DIVIDENDS; VOTING RIGHTS. Any and all cash dividends or other cash
-----------------------------
income with respect to Escrow Amount shall be paid into and remain in the Escrow
Amount and shall be available for purposes of adjustments or distributions
pursuant to Section 3 hereof. Each Stockholder shall have the right to direct
the Escrow Agent in writing as to the exercise of voting rights with respect to
shares in the Stock Escrow held by the Escrow Agent on behalf of such
Stockholder, and the Escrow Agent shall comply with any such directions if
received in a timely manner. In the absence of such directions, the Escrow
Agent shall not vote any such shares in the Stock Escrow.
5.2 STOCK SPLITS; STOCK DIVIDENDS. In the event of any stock split or stock
-----------------------------
dividend with respect to NDC Common Stock that becomes effective during the term
of this Agreement, the additional shares so issued with respect to the Stock
Escrow shall be added to the Stock Escrow and any other references herein to a
specific number of shares of NDC Common Stock or references herein to prices for
or the fair market value of NDC Common Stock shall be adjusted accordingly.
5.3 INVESTMENT OF ESCROW FUNDS. The Escrow Agent shall invest the cash
--------------------------
amount, if any, included in the Escrow Amount as directed by the Stockholder
Representative or the Stockholders, provided that should the Stockholder
Representative or the Stockholders fail to so direct the Escrow Agent, NDC shall
be authorized to so direct the Escrow Agent, and, provided further that such
investments shall be limited to (i) direct obligations of the United States of
America, (ii) obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest, (iii) commercial paper rates of the highest qualify by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group, a
division of McGraw-Hill Inc. ("S&P"), and (iv) certificates of deposit issued by
a commercial bank (which may be the Escrow Agent or any affiliate of the Escrow
Agent) whose long-term debt obligations are rated at least A2 by Moody's or at
least A by S&P, in each case having a maturity not in excess of 90 days, or a
money market fund that invests exclusively in said investments. The Escrow
Agent shall have no liability or responsibility for loss of interest or any
penalties which are imposed because of early withdrawal of the securities or
certificates in which any cash portion of the Escrow Amount may be invested and
the Escrow Agent is hereby authorized to make such early withdrawal if necessary
to make a distribution from the Escrow Amount in accordance with this Agreement.
ARTICLE 6
THE ESCROW AGENT
6.1 LIABILITY. The Escrow Agent, in its capacity as Escrow Agent, or any
---------
successor Escrow Agent, shall be liable only to hold the Escrow Amount and to
deliver the same to the persons named herein in accordance with the
C-6
<PAGE>
provisions of this Agreement. By acceptance of this Escrow Agreement, the Escrow
Agent, in its capacity as Escrow Agent, or any successor Escrow Agent, is acting
in the capacity of a depository only, and shall not be liable or responsible for
any damages, losses or expenses unless such damages, losses or expenses shall be
caused by the gross negligence or malfeasance of the Escrow Agent or any
successor Escrow Agent. Neither the Escrow Agent, in its capacity as Escrow
Agent, nor any successor Escrow Agent, shall incur any liability with respect to
(i) any action taken or omitted in good faith upon the advice of its counsel
with respect to any questions relating to the duties and responsibilities of the
Escrow Agent under this Agreement; or (ii) any action taken or omitted in
reliance upon any instrument, including the written instructions provided for
herein, not only as to the due execution of such instrument, or the identity, or
authority of any person executing such instrument, or the validity and
effectiveness of such instrument, but also as to the truth and accuracy of any
information contained therein, provided that the Escrow Agent shall in good
faith believe such instrument to be genuine, to have been signed by a proper
person or persons, and to conform to the provisions of this Agreement. In the
event of any disagreement or the presentation of adverse claims or demands in
connection with or for any item affected hereby, the Escrow Agent shall, at its
option, be entitled to refuse to comply with any such claims or demands during
the continuance of such disagreement and may refrain from delivering any item
affected hereby, and in so doing the Escrow Agent shall not become liable to the
parties, or to any other person, due to its failure to comply with any such
adverse claim or demand. The Escrow Agent shall be entitled to continue, without
liability, to refrain and refuse to act until all of the rights of the adverse
claimants have been either fully resolved among themselves, arbitrated to a
final award, or finally adjudicated by a court having jurisdiction over the
dispute. The Escrow Agent shall be held harmless and indemnified by the parties
hereto in connection with any claims against it in connection with its service
as escrow agent hereunder. Any action requested to be taken by the Escrow Agent
hereunder and not otherwise specifically set forth herein shall require the
agreement in writing of the Stockholder Representative, NDC and any successor
Escrow Agent.
6.3 SUCCESSOR. The Escrow Agent, with the prior written consent of the
---------
Stockholder Representative, may by written instrument designate a bank or trust
company to act as successor Escrow Agent. Any such successor Escrow Agent must
agree to be and shall be bound by, and shall have all the rights, duties and
responsibilities of the Escrow Agent under, this Agreement.
6.4 EXPENSES. Compensation for the normal services of the Escrow Agent or
--------
any successor Escrow Agent, if any, shall be borne by the Stockholders and NDC
equally and, with regard to the Stockholders obligations, shall be deducted from
the Escrow Amount. The Escrow Agent and any successor Escrow Agent shall be
reimbursed for any reasonable expenses, including the actual out-of-pocket cost
of outside legal services should the Escrow Agent deem it necessary in its
reasonable discretion to retain an outside attorney, and NDC and the
Stockholders shall share equally the reimbursement of such expenses of such
Escrow Agent, except that (a) if NDC is unsuccessful in any litigation relating
to such Escrow Agent, then the fees and expenses of such Escrow Agent in
connection therewith shall be paid by NDC, or (b) should the Stockholders be the
unsuccessful party in any such litigation, then the Stockholders will bear the
fees and expenses of such Escrow Agent in connection therewith. The Escrow
Agent and any successor Escrow Agent shall not be liable for any action taken in
good faith in accordance with the advice of an attorney.
ARTICLE 7
STOCKHOLDER REPRESENTATIVE
7.1 POWER AND AUTHORITY. The adoption of the Merger Agreement by the
-------------------
Stockholders shall constitute ratification of this Escrow Agreement, and the
Stockholder Representative shall have full power and authority to represent the
Stockholders and their successors with respect to all matters arising under this
Agreement, and all action taken by the Stockholder Representative hereunder
shall be binding upon such Stockholders and their successors as if expressly
ratified and confirmed in writing by each of them. Without limiting the
generality of the foregoing, the Stockholder Representative shall have full
power and authority, on behalf of all the Stockholders and their successors, to
interpret all the terms and provisions of this Agreement, to dispute or fail to
dispute any Adjustment Claim or Indemnification Claim, to negotiate and
compromise any dispute which may arise under this
C-7
<PAGE>
Agreement, to sign any releases or other documents with respect to any such
dispute, and to authorize payments to be made with respect thereto.
7.2 RESIGNATION; SUCCESSORS. The Stockholder Representative, or any
-----------------------
successor hereafter appointed, may resign and shall be discharged of his duties
hereunder upon the appointment of a successor Stockholder Representative as
hereinafter provided. In case of such resignation, or in the event of the death
or inability to act of the Stockholder Representative, a successor shall be
named from among the Stockholders by a majority of the members of the Board of
Directors of Source who served on such board prior to the Merger. Each such
successor Stockholder Representative shall have all the power, authority, rights
and privileges hereby conferred upon the original Stockholder Representative,
and the term "Stockholder Representative" as used herein shall be deemed to
include such successor Stockholder Representative.
7.3 INDEMNIFICATION OF STOCKHOLDER REPRESENTATIVE. NDC shall indemnify and
---------------------------------------------
hold harmless the Stockholder Representative from and against any loss, expense
or liability incurred in connection with the performance of his duties
hereunder, including the advancement of expenses incurred in connection with
investigating or defending any claim or action.
ARTICLE 8
MISCELLANEOUS
8.1 TRANSFERABILITY. A Stockholder may not transfer any interest in the
---------------
Escrow Amount or any other right under this Escrow Agreement to any other party,
except that upon written notice from the legal representative of the estate of a
deceased Stockholder to the Escrow Agent, the rights of such Stockholder under
this Escrow Agreement shall be transferred to the estate of such Stockholder,
and subsequently to any beneficiary thereof, in the event of the Stockholder's
death; provided, however, that any such beneficiary or the legal representative
of any such estate shall be bound by the provisions of this Escrow Agreement
without taking any further action. The Escrow Agent shall be entitled to treat
the legal representative of the estate of such Stockholder, and subsequently any
beneficiary thereof, as the absolute owner of the rights of such Stockholder
under this Escrow Agreement in all respects and shall incur no liability for
distributions made in good faith to the legal representatives of such
Stockholder or such beneficiary in accordance with the terms of this Escrow
Agreement. The contingent right to receive Escrow Amount shall not be
transferable by the Stockholders otherwise than by will or by the laws of
descent and distribution.
8.2 NOTICES. Each party shall keep each of the other parties hereto advised
-------
in writing of all transactions pursuant to this Agreement. Any notices or other
communications required or permitted under this Agreement shall be in writing
and shall be sufficiently given if sent by registered or certified mail, postage
prepaid, addressed as follows, or if sent by facsimile to the facsimile numbers
identified below:
If to NDC:
National Data Corporation
National Data Plaza
Atlanta, Georgia 30329
Attn: E. Michael Ingram
Telecopy: (404) 728-2990
C-8
<PAGE>
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: B. Harvey Hill, Jr.
Telecopy: (404) 881-7777
If to the Stockholders or the Stockholder Representative:
________________
________________
________________
Telecopy: (___) ___-____
with a copy to:
________________
________________
________________
________________
Attn: ___________
Telecopy: (___) ___-____
If to the Escrow Agent:
Escrow Agent
______________
________, ______ ____
Attn: ___________
Telecopy: (___) ___-____
or such other person or address as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so mailed.
8.3 CONSTRUCTION. This Agreement shall be governed by and construed in
------------
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of laws.
8.4 BINDING EFFECT. This Agreement shall inure to the benefit of and be
--------------
binding upon the respective heirs, executors, administrators, successors and
assigns of the parties hereto.
8.5 SEPARABILITY. If any provision or section of this Agreement is
------------
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain unenforceable in accordance with their terms.
8.6 HEADINGS. The headings and subheadings contained in this Agreement are
--------
for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
8.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
-------------------------
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
C-9
<PAGE>
8.8 AMENDMENTS. This Agreement may be amended from time to time but only by
----------
written agreement signed by all of the parties hereto.
8.9 THIRD PARTY BENEFICIARIES. Each Subsidiary of NDC and each of the
-------------------------
directors, officers and employees of NDC and each of its Subsidiaries are
expressly intended to be third party beneficiaries of the indemnities and
obligations of the Stockholders as if they were parties to this Agreement.
C-10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of the
day and year first above written.
NATIONAL DATA CORPORATION
By:____________________
ESCROW AGENT
By:____________________
STOCKHOLDER REPRESENTATIVE
_____________________(SEAL)
C-11
<PAGE>
ANNEX D
FINANCIAL STATEMENTS OF SOURCE INFORMATICS INC.
D-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS D-3
FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1997 (Audited) and 1996 (Unaudited) D-4
Statements of Operations for the Years Ended June 30, 1997
(Audited), 1996 (Unaudited), and 1995 (Unaudited) D-5
Statements of Accumulated Deficit for the Years Ended June30, 1997
(Audited), 1996 (Unaudited), and 1995 (Unaudited) D-6
Statements of Cash Flows for the Years Ended June 30, 1997
(Audited), 1996 (Unaudited), and 1995 (Unaudited) D-7
NOTES TO FINANCIAL STATEMENTS D-8
</TABLE>
D-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Source Informatics Inc.:
We have audited the accompanying balance sheet of SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS as of June 30, 1997 and the related statements of
operations, accumulated deficit, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Source Informatics
Inc.'s United States Operations as of June 30, 1997 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Atlanta, Georgia
September 5, 1997
D-3
<PAGE>
SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS
BALANCE SHEETS
JUNE 30, 1997 AND 1996
(In THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ --------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,108 $ 7,774
Short-term investment 680 1,167
Accounts receivable, less allowance for doubtful accounts of $200 and $200 in
1997 and 1996, respectively 11,426 7,031
Deferred data costs 1,300 1,194
Prepaid expenses 619 652
Due from Walsh 383 253
------------ --------------
Total current assets 16,516 18,071
PROPERTY AND EQUIPMENT, NET 10,761 9,143
OTHER ASSETS 364 352
------------ --------------
Total assets $ 27,641 $ 27,566
============ ==============
LIABILITIES AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,425 $ 1,110
Accrued liabilities 7,980 7,856
Unearned revenue 11,056 11,577
Notes payable 96 235
Current portion of capital lease obligations 4,533 3,021
Due to PMSI 1,208 377
Due to parent company 38,904 48,395
------------ --------------
Total current liabilities 65,202 72,571
------------ --------------
LONG TERM LIABILITIES:
Capital lease obligations 5,510 4,601
Deferred rent 1,980 1,924
------------ --------------
Total long-term liabilities 7,490 6,525
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
ACCUMULATED DEFICIT (45,051) (51,530)
------------ --------------
Total liabilities and accumulated deficit $ 27,641 $ 27,566
============ ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
D-4
<PAGE>
SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C>
REVENUES $59,885 $51,812 $48,710
------------ ----------- -----------
OPERATING EXPENSES:
Production costs 14,836 14,686 15,494
Selling, general, and administrative 33,200 29,690 27,673
Depreciation and amortization 5,169 3,121 1,933
------------ ----------- -----------
Total operating expenses 53,205 47,497 45,100
------------ ----------- -----------
OPERATING INCOME 6,680 4,315 3,610
============ =========== ===========
OTHER INCOME (EXPENSE):
Interest income 780 315 0
Interest expense (912) (671) (861)
Other expense (69) (193) (139)
------------ ----------- -----------
(201) (549) (1,000)
------------ ----------- -----------
INCOME BEFORE INCOME TAX 6,479 3,766 2,610
INCOME TAX PROVISION 0 0 0
------------ ----------- -----------
NET INCOME $ 6,479 $ 3,766 $ 2,610
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
D-5
<PAGE>
SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS
STATEMENTS OF ACCUMULATED DEFICIT
FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<S> <C>
BALANCE, JUNE 30, 1994 (UNAUDITED) $(57,906)
Net income 2,610
----------
BALANCE, JUNE 30, 1995 (UNAUDITED) (55,296)
Net income 3,766
----------
BALANCE, JUNE 30, 1996 (UNAUDITED) (51,530)
Net income 6,479
----------
BALANCE, JUNE 30, 1997 $(45,051)
==========
</TABLE>
The accompanying notes are an integral part of these statements.
D-6
<PAGE>
SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
(In THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,479 $ 3,766 $ 2,610
-------- -------- --------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,169 3,121 1,933
Rent payments less than (in excess of) rent expense 56 (146) (344)
Changes in operating assets and liabilities:
Accounts receivable (4,395) 755 6,083
Deferred data costs (106) (39) 46
Prepaid expenses 33 (337) 34
Due from Walsh (130) (253) 0
Other assets (12) 867 (71)
Accounts payable 315 (3,827) 2,527
Accrued liabilities 124 (1,230) (8,062)
Unearned revenue (521) (3,553) 1,997
Due to PMSI 831 (402) (1,414)
-------- -------- --------
Total adjustments 1,364 (5,044) 2,729
-------- -------- --------
Net cash (used in) provided by operating activities 7,843 (1,278) 5,339
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (137) (840) (441)
Sale of investment 487 349 189
-------- -------- --------
Net cash (used in) provided by investing activities 350 (491) (252)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 0 235 0
Repayments of note payable (139) 0 0
Principal payments on capital leases (4,229) (2,736) (6,599)
Change in due to parent (9,491) 4,188 8,877
-------- -------- --------
Net cash provided by (used in) financing activities (13,859) 1,687 2,278
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,666) (82) 7,365
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,774 7,856 491
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,108 $ 7,774 $ 7,856
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 910 $ 671 $ 861
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets purchased under capital leases $ 6,650 $ 4,851 $ 2,954
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-7
<PAGE>
SOURCE INFORMATICS INC.'S
UNITED STATES OPERATIONS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (AUDITED), 1996 (UNAUDITED), AND 1995 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Walsh International Inc. ("Walsh") acquired a division of PCS Inc. in
February 1990 that provided a range of data services, primarily based on a
proprietary database of prescriptions dispensed, which are used by
pharmaceutical companies in sales force compensation, territory realignment
and focused promotion. On April 16, 1996, Walsh formed Source Informatics
Inc. ("Source"), a Delaware corporation, for the purpose of creating the
holding company for the entities engaged in such businesses (the "Source
Business"). Effective as of that same date, Walsh transferred all of the
assets and liabilities of the Source Business, together with cash, marketable
securities, convertible preferred stock obligations, and other corporate
assets to Source. In conjunction with the transfer of such assets and
liabilities, all of the issued and outstanding capital stock of Source was
spun off to the then current stockholders of Walsh.
The financial statements and related footnotes contained herein reflect the
operations of Source's United States Operations ("Source U.S."). As
discussed in Note 9, Source entered into a stock purchase agreement with
National Data Corporation ("NDC") in August 1997 to sell the stock of Source
to NDC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The financial statements of Source U.S. have been derived from the
consolidated financial statements of Source and have been prepared to present
its financial position, results of operations, and cash flows on a stand-
alone basis. Accordingly, the accompanying financial statements include
certain costs and expenses that have been allocated on a pro rata basis,
primarily on distribution of management's time. Such allocated expenses may
not be indicative of what such expenses would have been had the United States
operations been operated as a separate entity.
The balance sheet as of June 30, 1996 and the related statements of
operations, accumulated deficit, and cash flows for the two years ended June
30, 1996 are unaudited and, in the opinion of management, contain all
adjustments (consisting of only normal recurring items) necessary for the
fair presentation of the financial position and results of operations for
such periods.
D-8
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Source U.S. considers all highly liquid investments with maturity dates of
three months or less from the date of acquisition by Source U.S. to be cash
equivalents.
INVESTMENTS
Source U.S. holds an investment in a one-year Treasury bill that is
classified as a held-to-maturity security. The amount is restricted as the
investment secures certain assets under capital lease.
REVENUE RECOGNITION
Revenue is recognized on the delivery of a product or as the service is
rendered. Prebillings for products that have not yet been delivered or for
services not yet rendered are classified as unearned revenue until the
earnings process is complete.
CREDIT RISK
Financial instruments which potentially subject Source U.S. to concentrations
of credit risk consist principally of cash balances and trade receivables.
Source U.S. invests its excess cash with major banks. Source U.S.'s customer
base principally comprises companies within the pharmaceutical industry.
Source U.S. maintains reserves for potential credit losses, and such losses
have been within management's expectations, given the generally strong credit
ratings of the customers. Source U.S. does not require collateral from its
customers.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. All maintenance and repairs are
expensed as incurred. Depreciation is provided using the straight-line
method. Furniture, office equipment, and computer equipment are depreciated
over five years. Leasehold improvements are amortized over the estimated
lives of the assets or the lease terms, whichever are shorter.
Upon disposal, cost and accumulated depreciation are removed from the
accounts and gains (losses) are recognized in the statement of operations.
DATABASES AND SOFTWARE COSTS
Costs associated with maintenance and updating of databases and all costs
associated with internally developed software are expensed as incurred.
D-9
<PAGE>
DEFERRED DATA COSTS
Deferred data costs consist of costs incurred by Source U.S. to obtain
prescription data information used in Source U.S.'s products. Source U.S.
purchases data monthly and delivers products based on this information in the
following month. In order to match the cost of these products with the
associated revenue, Source U.S. defers approximately one month's cost of
prescription data.
INCOME TAXES
The income tax returns of Source include the operations of the United States
business. For purposes of these financial statements, income taxes related
to Source U.S. have been computed and recorded on a separate return basis
based on the statutory rates in effect.
Deferred income taxes are recorded using enacted tax laws and rates for the
years in which the taxes are expected to be paid. Deferred income taxes are
provided for items when there is a temporary difference in recording such
items for financial reporting and income tax reporting.
LONG-LIVED ASSETS
Source U.S. periodically reviews the values assigned to long-lived assets
such as property and equipment to determine whether any impairments are other
than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
DUE TO PARENT COMPANY
"Due to parent company" represents the amount of net funds advanced to Source
U.S. by Source.
ADVERTISING
Source U.S. expenses all advertising costs as they are incurred.
CONCENTRATION OF REVENUES
Source U.S. derived approximately 49%, 47%, and 41% of its revenues from
three customers in 1997, 1996, and 1995, respectively.
3. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH PMSI
Source U.S. has a licensing agreement with the Pharmaceutical Marketing
Services, Inc. ("PMSI") to market certain services. Additionally, Source
U.S. provides certain services to PMSI and its subsidiaries. The principal
agreements and terms are as follows:
D-10
<PAGE>
ALPHA DATABASE (PRESCRIPTION) LICENSE AGREEMENT
The Alpha Database license agreement, as amended and restated July 1,
1994, grants PMSI the sharing of revenue and expenses for a period of
three years through June 30, 1997. Thereafter, the agreement will be
automatically renewed for three additional five-year periods unless PMSI
or Source U.S., for cause, terminates the agreement. The database
license fee amounts received by Source U.S. were approximately
$3,126,000, $3,094,000, and $2,663,000 for the years ended June 30,
1997, 1996, and 1995, respectively. Revenues earned under these
agreements are allocated to both parties based upon historical
percentages of revenue derived from Alpha Database.
DATA PROCESSING AGREEMENT
Source provides specific data processing services to PMSI. Costs
charged to PMSI totaled approximately $711,000, $1,191,000, and
$1,883,000 for the years ended June 30, 1997, 1996, and 1995,
respectively.
FACILITIES AGREEMENT
PMSI sublets space from Source U.S. The revenue from PMSI under this
sublet agreement was approximately $367,000, $492,000, and $259,000 for
the years ended June 30, 1997, 1996, and 1995, respectively.
MANAGEMENT AND EXECUTIVE SERVICES AGREEMENT
Source U.S. provides administrative, management, and executive services
to PMSI. The costs charged by Source U.S. for these services are
treated as a reduction of the related expenses. The amounts charged
under this agreement were $1,384,000, $2,240,000, and $1,299,000 for the
years ended June 30, 1997, 1996, and 1995.
At June 30, 1997 and 1996, Source U.S. had a net current payable to PMSI
of $1,208,000 and $377,000 respectively. Prior to the closing of the
Acquisition (Note 9), all intercompany balances between PMSI and Source
U.S. are expected to be paid in full.
OTHER RELATED-PARTY TRANSACTIONS
TRANSACTIONS WITH SOURCE EUROPE
Source operates certain businesses in Europe to which the U.S.
operations of Source provide certain services such as data processing,
human resources, facilities, and finance. At June 30, 1997 and 1996,
Source U.S. has a receivable from the Source Europe business of
$11,299,000 and $3,566,000, respectively, included net within due from
parent in the accompanying balance sheets.
TRANSACTIONS WITH WALSH
Source U.S. provides facility space and telecommunications
infrastructure to Walsh, a company which has certain common management
personnel with Source.
D-11
<PAGE>
The amounts charged under this agreement were approximately $746,000,
and $788,000 for the years ended June 30, 1997 and 1996. Prior to April
1996, Source was a division of Walsh (Note 1).
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Assets under capital lease $ 16,863 $11,277
Furniture and office equipment 453 447
Computer equipment 4,528 4,248
Leasehold improvements 73 49
----------- ------------
21,917 16,021
Less accumulated depreciation and amortization
(11,156) (6,878)
----------- ------------
$ 10,761 $ 9,143
=========== ============
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Data costs $3,706 $3,623
Compensation 2,159 1,657
Other liabilities 2,115 2,576
----------- ------------
$7,980 $7,856
=========== ============
</TABLE>
D-12
<PAGE>
6. INCOME TAXES
Deferred tax assets (liabilities) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------ ----------------
(Unaudited)
<S> <C> <C>
Deferred tax liabilities $ (120) $ (264)
------------ ----------------
Deferred tax assets:
Net operating loss carryforwards 2,875 4,438
Accrued expenses 930 1,140
Accounts receivable 82 80
------------ ----------------
Gross deferred tax assets 3,887 5,658
------------ ----------------
Net deferred tax asset 3,767 5,394
Valuation allowance (3,767) (5,394)
------------ ----------------
Deferred taxes, net $ 0 $ 0
============ ================
</TABLE>
The effective tax rates differ from the federal statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
U.S. statutory rate 34% 34% 34%
State taxes, net of federal benefit 6 6 6
Reversal of valuation allowance (40) (40) (40)
------- ------- -------
Provision for income taxes 0% 0% 0%
======= ======= =======
</TABLE>
At June 30, 1997, approximately $7 million in U.S. federal income tax
operating loss carryforwards, which may provide future tax benefits for U.S.
federal income tax purposes, was available. These carryforwards expire in
the years from 2008 to 2011. At June 30, 1997, approximately $500,000 in
state net operating loss carryforwards, which expire in 1998 and 1999, was
available.
7. EMPLOYEE BENEFIT PLANS
Source U.S. operates a defined contribution profit-sharing plan. The
employers' contribution is a discretionary amount to match employee
contributions. The total cost associated with these plans for the years
ended June 30, 1997, 1996, and 1995 was approximately $337,000, $229,000, and
$181,000, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES
Source U.S. leases certain equipment and facilities under agreements that are
classified as capital leases and operating leases.
D-13
<PAGE>
Obligations under long-term and noncancelable lease agreements at June 30,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- --------
<S> <C> <C>
1998 $ 5,145 $ 3,113
1999 4,057 2,824
2000 1,616 2,676
2001 373 2,660
2002 0 2,789
Thereafter 0 1,712
-------- --------
Total minimum lease payments 11,191 $15,744
========
Less amount representing interest (1,148)
--------
Present value of minimum lease payments 10,043
Less current portion (4,533)
========
</TABLE>
Rent expense for the years ended June 30, 1997, and 1995 was approximately
$4,140, $4,650,000, and $5,732,000, respectively.
LEGAL PROCEEDINGS
Source U.S. is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
outcome of any pending matters will not have a material adverse effect on the
results of operations or financial position of Source U.S.
9. SUBSEQUENT EVENT
In August 1997, Source entered into a stock purchase agreement with NDC to
sell the stock of Source to NDC in exchange for a combination of cash and NDC
common stock. Prior to closing of the purchase, all non-U.S. operations of
Source will be transferred to other entities. The transaction is expected to
close in November 1997.
D-14
<PAGE>
Annex E
Pro Forma Combined
Financial Information
E-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected pro forma condensed consolidated
financial information as of and for the year ended May 31, 1997, giving effect
to the Merger and the consummation of the Stock Purchase using the purchase
method of accounting. The pro forma condensed consolidated financial
information represents the historical operations of NDC, Source and PMSI
Database adjusted for the effects of the Stock Purchase and the Merger as well
as the effects of the acquisition of Health EDI completed in October 1997. This
information has also been adjusted to conform to the presentation format of NDC.
For comparability purposes, Source and PMSI Database's twelve months ended June
30, 1997 are used in conjunction with the NDC twelve months ended May 31, 1997.
Source and PMSI Database share operations and record revenues and expenses in
accordance with the Alpha Database (Prescription) License Agreement. As the
results of these shared operations represent the majority of PMSI Database's
results of operations and net assets, combined with the fact that these entities
will be combined subsequent to the Merger and consummation of the stock purchase
by NDC, these entities are presented as a single operating entity, to best
reflect the nature of the entities operations.
E-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MAY 31, 1997
<TABLE>
<CAPTION>
SOURCE/
PMSI
DATABASE
NDC HISTORICAL PRO FORMA PRO FORMA
HISTORICAL COMBINED ADJUSTMENTS CONSOLIDATED
------------ ------------- --------------- -----------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 19,240 $ 3,451 $ (1,343)(a) $ 21,348
Accounts receivable, net of allowance 78,269 18,210 0 96,479
Other current assets 11,115 5,630 (1,409)(b) 15,336
----------- ------------- --------------- -----------------
Total current assets 108,624 27,291 (2,752) 133,163
----------- ------------- --------------- -----------------
PROPERTY, PLANT, AND EQUIPMENT, NET 49,907 14,189 0 64,096
INTANGIBLE ASSETS, NET 348,476 0 80,616 (c) 429,092
OTHER 14,676 370 6,365 (c) 21,411
----------- ------------- --------------- -----------------
Total assets $521,683 $ 41,850 $84,229 $647,762
=========== ============= =============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued liabilities $ 51,789 $ 13,110 $ (1,812)(b) $ 63,087
Due to Parent 0 39,575 (39,575)(b) 0
Line of credit payable 0 0 42,250 (d) 42,250
Notes and earn-out payable 1,372 96 0 1,468
Income taxes payable 4,282 0 0 4,282
Obligations under capital leases 2,513 4,831 0 7,344
Deferred income 7,389 15,358 0 22,747
----------- ------------- --------------- -----------------
Total current liabilities 67,345 72,970 863 141,178
Long-Term Debt 149,750 0 0 149,750
Obligations under capital leases 2,287 6,023 0 8,310
Other long-term liabilities 3,653 2,243 0 5,896
----------- ------------- --------------- -----------------
Total liabilities 223,035 81,236 863 305,134
----------- ------------- --------------- -----------------
MINORITY INTEREST 21,178 0 0 21,178
STOCKHOLDERS' EQUITY:
Common and preferred stock $ 3,321 $ 0 $ 327 (e) $ 3,648
Additional paid-in capital 182,695 0 104,288 (e) 286,983
Retained earnings (accumulated deficit) 93,099 (39,386) (60,635)(c) 32,464
39,386 (f)
Equity adjustments (1,645) 0 0 (1,645)
----------- ------------- --------------- -----------------
Total stockholders' equity 277,470 (39,386) 83,366 321,450
----------- ------------- --------------- -----------------
Total liabilities and stockholders' equity $521,683 $ 41,850 $84,229 $647,762
=========== ============= =============== =================
</TABLE>
Adjustments:
(a) Reflects the repayment and/or forgiveness of all intercompany and affiliate
accounts.
(b) Reflects the PMSI Database cash, after the effects of settling all
intercompany and affiliate accounts in (b), that is not being acquired by
NDC under the terms of the Merger and Stock Purchase agreements.
(c) Reflects the excess of the purchase price ($146.9 million, assuming a $40
stock price and $4 million in offering expenses) over the net liabilities
($0.8 million) assumed in the acquisitions. This amount is net of a
projected non-recurring charge of approximately $67.0 million ($60.6 million
after-tax) related to purchased in-process research and development costs.
(d) Reflects borrowings on NDC's line of credit to fund the cash portion of the
purchase price ($38.25 million) and the payment of estimated acquisition
costs of $4 million.
(e) Reflects the issuance of 1,555,556 (including 455,840 escrowed shares) and
1,059,829 shares of NDC stock to Source and PMSI Database, respectively,
under the terms of the Stock Purchase agreement
(f) Reflects the elimination of Source and PMSI Database's historical equity
balances.
E-3
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MAY 31, 1997
<TABLE>
<CAPTION>
EQUIFAX
SOURCE/ HEALTH EDI
PMSI FOUR MONTHS
DATABASE ENDED
NDC COMBINED SEPTEMBER 30, PRO FORMA PRO FORMA
HISTORICAL HISTORICAL 1996 ADJUSTMENTS (a) CONSOLIDATED (a)
------------- ------------ --------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
REVENUES $433,860 $84,894 $4,851 $ 0 $523,605
COST OF SERVICE 207,754 27,034 2,218 4,031 (b) 241,037
SALES, GENERAL AND ADMINISTRATIVE 159,450 45,262 2,262 2,230 (c) 209,204
------------- ------------ --------------- ------------- --------------------
367,204 72,296 4,480 6,261 450,241
------------- ------------ --------------- ------------- --------------------
OPERATING INCOME 66,656 12,598 371 (6,261) 73,364
OTHER INCOME (EXPENSE):
Interest and other income 2,403 871 0 0 3,274
Interest and other expense (6,814) (1,128) 0 (2,429) (d) (10,371)
Minority interest (1,694) 0 0 0 (1,694)
------------- ------------ --------------- ------------- --------------------
Total other income (expense) (6,105) (257) 0 (2,429) (8,791)
------------- ------------ --------------- ------------- --------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 60,551 12,341 371 (8,690) 64,573
PROVISION FOR INCOME TAXES (21,798) (2,333) (141) 2,153 (e) (22,119)
------------- ------------ --------------- ------------- --------------------
INCOME FROM CONTINUING OPERATIONS $ 38,753 $10,008 $ 230 $(6,537) $ 42,454
============= ============ =============== ============= ====================
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 28,039 0 0 2,615 (f) 30,654
INCOME FROM CONTINUING OPERATIONS PER
SHARE 1.38 1.38
</TABLE>
Adjustments:
(a) Excludes the impact of the non-recurring charge related to purchased in-
process research and development costs of $67.0 million ($60.6 million
after-tax), or $(1.98) per share.
(b) Reflects the amortization of intangibles resulting from the Stock Purchase
and merger assuming a weighted average life of 20 years.
(c) Reflects increase to historical selling, general, and administrative
expenses to reflect certain increased allocated costs, primarily corporate
level expenses, that were previously allocated to other related entities.
(d) Represents additional interest expense on the borrowings on NDC's line of
credit using NDC's weighted average interest rate of 5.75% for fiscal 1997.
(e) Reflects the income tax effects of the pro forma adjustments above.
(f) Reflects the issuance of 1,555,556 (including 455,840 escrowed shares) and
1,059,829 shares of NDC stock to Source and PMSI Database, respectively,
under the terms of the Stock Purchase agreement.
E-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws provide for indemnification of directors and officers
of the Registrant to the full extent permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may 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, 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 its request in such capacity in another
corporation or business association, 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.
In addition, pursuant to the authority of Delaware law, the Certificate of
Incorporation of the Registrant also eliminates the monetary liability of
directors to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers or persons controlling
the Registrant pursuant to the foregoing provisions, the Registrant has been
informed 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
*2.1 Agreement and Plan of Merger, dated as of April 15, 1997, by and
among NDC, Source, and Sub.
3.1 Certificate of Incorporation, as amended (included as Exhibit
4(a) to the Registrant's Registration Statement on Form S-8
(Registration No. 333-05427), previously filed with the
Commission and incorporated by reference herein)
3.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant, dated October 28, 1996 (filed as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K dated October 29, 1996,
file No. 001-12392, and incorporated herein by reference).
3.3 Amended Certificate of Designations of the Registrant, dated
October 28, 1996 (filed as Exhibit 3.2 to the Registrant's
Current Report on Form 8-K dated October 29, 1996, file No. 001-
12392, and incorporated herein by reference).
3.4 Bylaws, as amended (included as Exhibit 3(ii) to the Registrant's
Form 10-K for the fiscal year ended May 31, 1991, previously
filed with the Commission and incorporated by reference herein)
3.5 Amendment to Bylaws (included as Exhibit 3(iii) to the
Registrant's Form 10-K for the fiscal year ended May 31, 1996,
previously filed with the Commission and incorporated by
reference herein)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.1 See Exhibits 3.1 through 3.5 for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant
4.2 Rights Agreement (included as Exhibit 1 to the Registrant's Form
8-A filed with the Commission on January 22, 1991, as amended on
October 5, 1993 (file No. 001-12392) and incorporated by
reference herein)
**5.1 Opinion of Alston & Bird LLP
11.1 Statement regarding computation of per share earnings (included
as Exhibit 11 to the Registrant's Form 10-K for the fiscal year
ended May 31, 1997, previously filed with the Commission and
incorporated by reference herein)
21 Subsidiaries of the Registrant (included as Exhibit 21 to the
Registrant's Form 10-K for the fiscal year ended May 31, 1997,
previously filed with the Commission and incorporated by
reference herein).
*23.1 Consent of Alston & Bird LLP (included in Exhibit 5.1 hereto)
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on signature page hereof)
99.1 Form of Proxy for Source Common Stock
99.2 Form of Proxy for Source Series A Preferred Stock
</TABLE>
_______________
* Exhibits to Agreement and Plan of Merger to be filed by amendment.
** To be filed by amendment.
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable, or
the required information is shown in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers for sales are being made, a
post-effective amendment to this registration statement:
(i) To include any Proxy Statement/Prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Proxy Statement/Prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose 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.
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) 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 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.
(c) 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 Registrant's Certificate of Incorporation or
Bylaws, 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 Securities Act of 1933 and is, therefor, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment for 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, 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.
(e) 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on September 17, 1997.
NATIONAL DATA CORPORATION
By: /s/ Robert A. Yellowlees
------------------------
Robert A. Yellowlees
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Robert A. Yellowlees and E. Michael Ingram, and either
of them (with full power in each to act alone), as true and lawful attorneys-in-
fact, with full power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any amendments to this Registration Statement
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on September 17, 1997.
SIGNATURE TITLE
- --------- -----
/s/ Robert A. Yellowlees Chairman of the Board and Chief Executive
- --------------------------
Robert A. Yellowlees Officer (principal executive officer)
/s/ M. P. Stephenson Chief Financial Officer
- --------------------------
M. P. Stephenson (principal financial and accounting officer)
/s/ Edward L. Barlow Director
- --------------------------
Edward L. Barlow
/s/ J. Veronica Biggins Director
- --------------------------
J. Veronica Biggins
/s/ James B. Edwards Director
- --------------------------
James B. Edwards
Director
- --------------------------
Don W. Sands
/s/ Neil Williams Director
- --------------------------
Neil Williams
II-4
<PAGE>
INDEX
TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
*2.1 Agreement and Plan of Merger, dated as of April 15, 1997, by and
among NDC, Source, and Sub.
3.1 Certificate of Incorporation, as amended (included as Exhibit
4(a) to the Registrant's Registration Statement on Form S-8
(Registration No. 333-05427), previously filed with the
Commission and incorporated by reference herein)
3.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant, dated October 28, 1996 (filed as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K dated October 29, 1996,
file No. 001-12392, and incorporated herein by reference).
3.3 Amended Certificate of Designations of the Registrant, dated
October 28, 1996 (filed as Exhibit 3.2 to the Registrant's
Current Report on Form 8-K dated October 29, 1996, file No. 001-
12392, and incorporated herein by reference).
3.4 Bylaws, as amended (included as Exhibit 3(ii) to the Registrant's
Form 10-K for the fiscal year ended May 31, 1991, previously
filed with the Commission and incorporated by reference herein)
3.5 Amendment to Bylaws (included as Exhibit 3(iii) to the
Registrant's Form 10-K for the fiscal year ended May 31, 1996,
previously filed with the Commission and incorporated by
reference herein)
4.1 See Exhibits 3.1 through 3.5 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant
4.2 Rights Agreement (included as Exhibit 1 to the Registrant's Form
8-A filed with the Commission on January 22, 1991, as amended on
October 5, 1993 (file No. 001-12392) and incorporated by
reference herein)
**5.1 Opinion of Alston & Bird LLP
11.1 Statement regarding computation of per share earnings (included
as Exhibit 11 to the Registrant's Form 10-K for the year ended
May 31, 1997, previously filed with the Commission and
incorporated by reference herein)
21 Subsidiaries of the Registrant (included as Exhibit 21 to the
Registrant's Form 10-K for the fiscal year ended May 31, 1997,
previously filed with the Commission and incorporated by
reference herein).
**23.1 Consent of Alston & Bird LLP (included in Exhibit 5.1 hereto)
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on signature page hereof)
99.1 Form of Proxy for Source Common Stock
99.2 Form of Proxy for Source Series A Preferred Stock
</TABLE>
____________
* Exhibits to Agreement and Plan of Merger to be filed by amendment.
** To be filed by amendment.
<PAGE>
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATIONAL DATA CORPORATION,
DUNKIRK, INC.,
AND
SOURCE INFORMATICS INC.
DATED AS OF AUGUST 20, 1997
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 20, 1997, by and among NATIONAL DATA CORPORATION ("NDC"), a
Delaware corporation; DUNKIRK, INC. ("Sub"), a Delaware corporation; and SOURCE
INFORMATICS INC. ("Source"), a Delaware corporation.
PREAMBLE
--------
The respective Boards of Directors of Source, Sub and NDC are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective stockholders. This Agreement
provides for the acquisition of Source by NDC pursuant to the merger of Sub with
and into Source. At the effective time of such merger, the outstanding shares of
the capital stock of Source shall be converted (except as provided herein) into
the right to receive cash or shares of the common stock of NDC. As a result,
common stockholders of Source shall become stockholders of NDC and Source shall
continue to conduct the business and operations of Source as a wholly-owned
subsidiary of NDC. The transactions described in this Agreement are subject to
the approvals of the stockholders of Source, expiration of the required waiting
period under the HSR Act, the consummation of the Stock Purchase Agreement dated
as of even date herewith by and among PMSI Database Holdings, Inc. ("Newco"),
Pharmaceutical Marketing Services Inc. ("PMSI") and NDC (the "PMSI Agreement,"
together with the related agreements in connection therewith) and the
satisfaction of certain other conditions described in this Agreement. It is the
intention of the parties to this Agreement that the Merger for federal income
tax purposes shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code.
Certain terms used in this Agreement are defined in Section 12.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 MERGER. Subject to the terms and conditions of this Agreement, at
------
the Effective Time, Sub shall be merged with and into Source in accordance with
the provisions of Section 251 of the DGCL and with the effect provided in
Sections 259 and 261 of the DGCL (the "Merger"). Source shall be the Surviving
Corporation resulting from the Merger and shall become a wholly-owned Subsidiary
of NDC and shall continue to be governed by the Laws of the State of Delaware.
The Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of Source,
Sub and NDC and by NDC, as the sole stockholder of Sub.
-1-
<PAGE>
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
-------------------------
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree (the "Closing
Date"). The Closing shall be held at such location as may be mutually agreed
upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
--------------
this Agreement shall become effective on the date and at the time the
Certificate of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Delaware (the "Effective Time"). Subject to
the terms and conditions hereof, unless otherwise mutually agreed upon in
writing by the authorized officers of each Party, the Parties shall use their
reasonable efforts to cause the Effective Time to occur on the first business
day following the last to occur of (i) the effective date (including expiration
of any applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, (ii) the
date on which the stockholders of Source approve this Agreement to the extent
such approval is required by applicable Law and (iii) the date on which the
stockholders of PMSI approve the PMSI Agreement.
ARTICLE 2
TERMS OF MERGER
---------------
2.1 CHARTER. The Certificate of Incorporation of Source in effect
-------
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended or repealed.
2.2 BYLAWS. The Bylaws of Source in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of Sub in office
----------------------
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of Source in office immediately prior
to the Effective Time, together with such additional persons as may thereafter
be elected, shall serve as the officers of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
2.4 EFFECT OF STOCKHOLDER APPROVAL.
------------------------------
(a) The adoption of this Agreement by the Stockholders shall
constitute ratification of this Agreement, the appointment of the Stockholder
Representative in accordance with Section 10.10 and authorization for the
Stockholder Representative to execute and deliver the Escrow Agreement on behalf
of the Stockholders. Upon such adoption, this Agreement shall
-2-
<PAGE>
constitute the legal, valid and binding obligations of each Stockholder. In
addition, upon such adoption and upon execution and delivery of the Escrow
Agreement by the Stockholder Representative, the Escrow Agreement shall
constitute the legal, valid and binding obligations of each Stockholder.
(b) The adoption of this Agreement by the holders of Source Preferred
Stock shall constitute ratification of this Agreement. Upon such adoption, this
Agreement shall constitute the legal, valid and binding obligation of each
holder of Source Preferred Stock.
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of NDC, Source, Sub or the stockholders of any of the foregoing:
(a) Each share of capital stock of NDC issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of Sub Common Stock issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall be
converted into one share of Source Common Stock.
(c) Each share of Source Common Stock (excluding shares held by any
Source Entity or any NDC Entity, and excluding shares held by stockholders
who perfect their statutory dissenters' rights as provided in Section 3.7)
issued and outstanding immediately prior to the Effective Time shall cease to
be outstanding and shall be converted into and exchanged for the right to
receive (i) the Common Cash Amount, if any, and that fraction of a share of
NDC Common Stock equal to 1,099,716 shares (the "Payment Shares") divided by
the total number of shares of Source Common Stock outstanding at the Closing
Date (the "Common Base Exchange Ratio"); provided, however, that the Payment
Shares shall be first reduced by the Option Shares (as defined in Section
3.1(c)(4) below), and (ii) that fraction of a share of NDC Common Stock
equal to 455,840 shares (the "Stock Escrow") divided by the total number of
shares of Source Common Stock outstanding at the Closing Date, subject to the
provisions of Section 3.2, Article 10 and the Escrow Agreement (the "Common
Escrow Exchange Ratio");
(1) At the Closing Date, the "Common Cash Amount" shall be calculated
by dividing $ 31,750,000, the aggregate cash consideration payable by NDC
hereunder (the "Aggregate Cash Amount"), less the Preferred Stock Merger
Consideration (as defined in Section 3.1(d)) and the Transaction Expenses
(as defined in Section 3.1(c)(2) below), by the total number of shares of
Source Common Stock outstanding at the Closing Date.
-3-
<PAGE>
(2) At the Closing Date, Source shall prepare and deliver to NDC a
schedule substantially in the form of Schedule 1 attached hereto (the
----------
"Expense Schedule"), indicating the expenses incurred but unpaid as of
the Closing Date which are of the type disclosed on Schedule 1 and which
----------
are directly associated with the transaction contemplated by this
Agreement, including, without limitation, all expenses incurred in
connection with Source's termination of certain employment agreements and
an executive pension plan pursuant to Section 7.1(d) hereof (the
"Transaction Expenses") ; provided, however, if the sum of the Preferred
Stock Merger Consideration and the Transaction Expenses exceed the
Aggregate Cash Amount ("Excess Expense"), then the Payment Shares shall
be reduced by that number of shares of NDC Common Stock equal to the
quotient of (i) the Excess Expense divided by (ii) the Average Closing
Price as of the Closing Date.
(3) If, at the close of trading on the tenth trading day immediately
preceding the Closing Date (the "Determination Date"), the Average
Closing Price shall be greater than $50.50 (the "Upper Threshold Price"),
the "Common Exchange Ratios" (defined to include the Common Base Exchange
Ratio and the Common Escrow Exchange Ratio) shall each be adjusted to
equal that fraction of a share of NDC Common Stock (rounded to the
nearest ten thousandth of a share) obtained by dividing the product of
the Common Base Exchange Ratio or the Common Escrow Exchange Ratio, as
the case may be, and the Upper Threshold Price by the Average Closing
Price at the Determination Date; provided further, that, in the event
that the Average Closing Price on the Determination Date shall be less
than $37.25 (the "Lower Threshold Price" and, together with the Upper
Threshold Price, the "Threshold Prices"), the Common Exchange Ratios may,
at the sole discretion of NDC, and in accordance with the provisions of
Section 11.1(h), each be adjusted to equal that fraction of a share of
NDC Common Stock (rounded to the nearest ten thousandth of a share)
obtained by dividing the product of the Common Base Exchange Ratio or the
Common Escrow Exchange Ratio, as the case may be, and the Lower Threshold
Price by the Average Closing Price at the Determination Date.
(4) At the Closing Date, Source shall have secured the cancellation
of all outstanding options and warrants to purchase shares of Source
Common Stock and shall provide to NDC a schedule of the number of shares
of NDC Common Stock (the "Option Shares") payable to the holders of such
options and warrants in consideration of such cancellation.
(5) Pursuant to the NDC Rights Agreement, each share of NDC Common
Stock issued in connection with the Merger upon conversion of Source
Common Stock shall be accompanied by a NDC Right.
(d) Each share of Source Preferred Stock (excluding shares held by
any Source Entity or any NDC Entity, and excluding shares held by
stockholders who perfect their statutory dissenters' rights as provided in
Section 3.7) issued and outstanding
-4-
<PAGE>
immediately prior to the Effective Time shall cease to be outstanding and
shall be converted and exchanged for the right to receive an amount equal to
$11.33, subject to adjustment to equal that amount such holder's shares of
Source Preferred Stock would otherwise receive if such holder were redeemed
on the Closing Date pursuant to the Designation (such aggregate amount, as
adjusted, the "Preferred Stock Merger Consideration").
3.2 PRELIMINARY BALANCE SHEET.
-------------------------
(a) Source will cause to be prepared and delivered to NDC a
balance sheet for Source, pro forma giving effect to the Divestiture, as of the
most recent month ending more than ten days prior to the Closing Date (the
"Preliminary Balance Sheet") and a certificate based on such Preliminary Balance
Sheet setting forth Source's calculation of Working Capital, Current Assets and
Current Liabilities as of such date ("Estimated Working Capital," "Estimated
Current Assets" and "Estimated Current Liabilities," respectively). The
Preliminary Balance Sheet shall (w) include the consolidated financial position
of Source and the Source Subsidiaries, (x) fairly present the financial position
of Source and the Source Subsidiaries as at the close of business on such date
in accordance with generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the balance sheet dated March
31, 1997 (the "Source Balance Sheet") previously delivered to NDC, (y) include
no material increase in long-term indebtedness, and include line items
substantially consistent with those in the Source Balance Sheet, and (z) be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Source Balance Sheet. As used in this
Agreement, "Working Capital" shall mean the amount equal to Current Assets less
Current Liabilities; "Current Assets" shall mean the amount equal to the sum of
cash, accounts receivable (net of any reserves), inventories, prepaid expenses,
work-in-process, and any other current assets recognized by GAAP; and "Current
Liabilities" shall mean the amount equal to the sum of accounts payable, accrued
current liabilities of Source (other than the current portion of capitalized
lease obligations), accrued sales commissions (but only as to revenues realized
and included in the Source and Source Subsidiaries' statements of income prior
to such date), Accrued Bonuses, accrued vacation pay, current portion of long-
term indebtedness, pre-billed revenues and any other current liabilities
recognized by GAAP, but excluding all Transaction Expenses.
(b) NDC shall have five (5) business days from the receipt of the
Preliminary Balance Sheet and the calculation of Estimated Working Capital,
Estimated Current Assets and Estimated Current Liabilities delivered pursuant to
Section 3.2(a) to review such statement and calculations and following such
review such shall be final and binding upon the parties hereto.
(c) If Estimated Current Assets are less than the product of 0.9416
times Estimated Current Liabilities (such amount, the "Estimated Working Capital
Adjustment") as of the date of the Preliminary Balance Sheet, the Escrow Shares
payable by NDC pursuant to Section 3.1(c) shall be decreased by the number of
shares of NDC Common Stock equal to the Estimated Working Capital Adjustment
divided by the Average Closing Price as of the Closing Date; provided, however,
in the event this reduction of the Escrow Shares exceeds 113,960 shares, the
Payment Shares shall then be decreased similarly in an amount equal to such
excess.
-5-
<PAGE>
3.3 CLOSING BALANCE SHEET.
---------------------
(a) As promptly as practicable, but not later than 30 days after
the Closing Date, NDC will cause to be prepared and delivered to the Stockholder
Representative a balance sheet, giving effect to the Divestiture, for Source as
of the Closing Date (the "Closing Balance Sheet") setting forth NDC's
calculation of Working Capital, Current Assets and Current Liabilities as of the
Closing Date ("Closing Working Capital," "Closing Current Assets" and "Closing
Current Liabilities," respectively). The Closing Balance Sheet shall (w) include
the consolidated financial position of Source and the Source Subsidiaries (x)
fairly present the consolidated financial position of Source and the Source
Subsidiaries as at the close of business on the Closing Date in accordance with
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the Source Balance Sheet, (y) include no
material increase in long term indebtedness, and include line items
substantially consistent with those in the Source Balance Sheet, and (z) be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Source Balance Sheet.
(b) The Closing Balance Sheet and the calculation of Closing Working
Capital, Closing Current Assets and Closing Current Liabilities delivered
pursuant to Section 3.3(a) shall be deemed final upon the earliest of (i) the
date on which NDC and the Stockholder Representative jointly agree that such
documents are final, (ii) the 30th day after delivery of such documents pursuant
to Section 3.3(a), if the Stockholder Representative has not delivered a notice
to expressing disagreement with such calculations and setting forth its
calculation of such amount(s), and (iii) the date on which all disputes relating
to such statements and calculations between the parties are resolved in
accordance with Section 3.3(c). If the Stockholder Representative delivers a
notice of disagreement pursuant to this Section 3.3(b) it shall specify those
items or amounts as to which it disagrees, and it shall be deemed to have agreed
with all other items and amounts contained in the Closing Balance Sheet and the
calculation of Closing Working Capital delivered pursuant to Section 3.3(a)
(except to the extent resolution of the items or amounts to which it expresses
disagreement requires conforming changes to other items and amounts contained in
the Closing Balance Sheet or the calculation of Closing Working Capital).
(c) If the Stockholder Representative shall deliver a notice of
disagreement pursuant to Section 3.3(b), the Stockholder Representative and NDC
shall, during the 30 days following such delivery, use their reasonable efforts
to reach agreement on the disputed items or amounts (the "Disputed Amounts").
If, during such period, the Stockholder Representative and NDC are unable to
reach such agreement, they shall promptly thereafter cause Price Waterhouse LLP
(or if said firm shall be unwilling to act thereunder, such other independent
accountants of nationally recognized standing reasonably satisfactory to NDC and
the Stockholder Representative), promptly to review this Agreement, the
documents delivered pursuant to Section 3.3(a) and any other documents necessary
to calculate the Disputed Amounts (including all work papers of the parties used
in calculating the Disputed Amounts). In making such calculation, such
independent accountants shall act as experts and not arbitrators and shall
consider only the Disputed Amounts, solely in accordance with the terms of this
Agreement. Such independent accountants shall deliver to the Stockholder
Representative and NDC, as promptly as practicable,
-6-
<PAGE>
a report setting forth such calculation. Such report shall be final and binding
upon the Stockholders and NDC. The cost of such review and report shall be borne
by (i) the Stockholders if the difference between Final Working Capital (defined
in Section 3.4 below) shown in the independent accountant's calculation and the
Stockholder Representative's calculation of Closing Working Capital delivered
pursuant to Section 3.3(b) is greater than the difference between Final Working
Capital shown in the independent accountant's calculation and NDC's calculation
of Closing Working Capital delivered pursuant to Section 3.3(a), (ii) by NDC if
the difference between Final Working Capital shown in the independent
accountant's calculation and the NDC's calculation of Closing Working Capital
delivered pursuant to Section 3.3(a) is greater than the difference between the
Final Working Capital Ratio shown in the independent accountant's calculation
and the Stockholder Representative's calculation of the Closing Working Capital
Ratio delivered pursuant to Section 3.3(b), and (iii) otherwise equally by the
Stockholders and NDC.
(d) The Stockholder Representative and NDC agree that they will, and
will cause their respective independent accountants and Source and its
Subsidiaries to, cooperate and assist in the preparation of the Closing Balance
Sheet and the calculation of Closing Working Capital, Closing Current Assets and
Closing Current Liabilities and in the conduct of the reviews referred to in
this Section 3.3, including, without limitation, making available, to the extent
necessary, relevant books, records, working papers, analyses and schedules, and
permitting representatives of the parties to consult with the respective
employees, auditors, actuaries, attorneys and agents of Source and its
Subsidiaries.
3.4 ADJUSTMENT OF PURCHASE PRICE.
----------------------------
(a) Subject to Section 3.4(c) below,
(i) If Final Current Assets are less than the product of
0.9416 times Final Current Liabilities (the amount of such shortfall referred to
as, the "Final Working Capital Deficit"), the Stockholders shall pay to NDC the
amount of the Final Working Capital Deficit as an adjustment to the Purchase
Price, out of the Stock Escrow in the manner provided in the Escrow Agreement.
(ii) If Final Current Assets are greater than the product of
0.9416 times Final Current Liabilities (the amount of such surplus referred to
as, the "Final Working Capital Surplus"), NDC shall pay to the escrow agent, to
be held in accordance with the Escrow Agreement, that number of shares of NDC
Common Stock equal to the quotient of the Final Working Capital Surplus divided
by the Average Closing Price as of the date Final Working Capital is determined.
(iii) "Final Working Capital" means Closing Working Capital (i)
as shown in NDC's calculation delivered pursuant to Section 3.3(a), if no notice
of disagreement with respect thereto is duly delivered pursuant to Section
3.3(b); or (ii) if such a notice of disagreement is delivered, (A) as agreed by
NDC and the Stockholder Representative pursuant to Section 3.3(b) or (B) in the
absence of such agreement, as shown in the independent accountant's calculation
delivered pursuant to Section 3.3(c); provided that, in no event shall Final
Working Capital be
-7-
<PAGE>
(i) more than the Stockholder Representative's calculation of Closing Working
Capital delivered pursuant to Section 3.3(b), if any, or (ii) less than the
lesser of NDC's calculation of Closing Working Capital delivered pursuant to
Section 3.3(a) or the Stockholder Representative's calculation of Closing
Working Capital delivered pursuant to Section 3.3(b), if any.
(b) Subject to Section 3.4(c) below,
(i) If Total Current Assets are less than the product of 0.9975
times Total Current Liabilities (the "Total Working Capital Deficit"), then the
Stockholders shall pay to NDC the Current Asset Allocation Amount as a further
adjustment to the Purchase Price, out of the Stock Escrow in the manner provided
in the Escrow Agreement.
(ii) If Total Current Assets are greater than the product of
0.9975 times Total Current Liabilities (the "Total Working Capital Surplus"),
then NDC shall pay to the Stockholders pursuant to the instructions of the
Stockholder Representative, as a further adjustment to the Purchase Price, that
number of shares of NDC Common Stock equal to the quotient of the Current Asset
Allocation Amount divided by the Average Closing Price as of the date Final
Working Capital is determined.
(iii) As used herein, "Total Current Assets" shall mean the
amount equal to the sum of Final Current Assets in this Agreement and Final
Current Assets calculated pursuant to the PMSI Agreement; "Total Current
Liabilities" shall mean the amount equal to the sum of Final Current Liabilities
in this Agreement and Final Current Liabilities calculated pursuant to the PMSI
Agreement; "Current Asset Allocation Amount" shall mean the amount equal to the
product of (A) the quotient of Final Current Assets in this Agreement divided by
Total Combined Assets multiplied by (B) the Total Working Capital Deficit or
Total Working Capital Surplus, as the case may be; and "Total Combined Assets"
shall mean the sum of Final Current Assets under this Agreement and Final
Current Assets calculated under the PMSI Agreement.
(c) For purposes of any adjustments to the Purchase Price made
pursuant to this Section, the parties shall take into account any adjustment
made to the Purchase Price at Closing pursuant to Section 3.2(c) hereof.
3.5 ANTI-DILUTION PROVISIONS. In the event NDC changes the number of
------------------------
shares of NDC Common Stock issued and outstanding prior to the Effective Time as
a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Common Exchange Ratios shall be proportionately
adjusted.
3.6 SHARES HELD BY SOURCE OR NDC. Each of the shares of Source Common
----------------------------
Stock and Source Preferred Stock held by any Source Entity or by any NDC Entity
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor.
-8-
<PAGE>
3.7 DISSENTING STOCKHOLDERS. Any holder of shares of Source Common
-----------------------
Stock or Source Preferred Stock who perfects his dissenters' rights in
accordance with and as contemplated by Section 262 of the DGCL shall be entitled
to receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, that no such payment shall be made to any dissenting
stockholder unless and until such dissenting stockholder has complied with the
applicable provisions of the DGCL and surrendered to Source the certificate or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting stockholder of Source fails to
perfect, or effectively withdraws or loses, his right to appraisal and of
payment for his shares, NDC shall issue and deliver the consideration to which
such holder of shares of Source Common Stock or Source Preferred Stock is
entitled under this Article 3 (without interest) upon surrender by such holder
of the certificate or certificates representing shares of Source Common Stock or
Source Preferred Stock held by him. If and to the extent required by applicable
Law, Source will establish (or cause to be established) an escrow account with
an amount sufficient to satisfy the maximum aggregate payment that may be
required to be paid to dissenting stockholders. Upon satisfaction of all claims
of dissenting stockholders, the remaining escrowed amount, reduced by payment of
the fees and expenses of the escrow agent, will be returned to the Surviving
Corporation.
3.8 FRACTIONAL SHARES. Notwithstanding any other provision of this
-----------------
Agreement, each holder of shares of Source Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of NDC Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of NDC Common Stock multiplied
by the market value of one share of NDC Common Stock at the Effective Time. The
market value of one share of NDC Common Stock at the Effective Time shall be the
closing price of such common stock on the NYSE-Composite Transactions List (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by NDC) on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a stockholder in respect of any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, NDC and
-------------------
Source shall cause the exchange agent selected by NDC (the "Exchange Agent") to
mail to each holder of record of a certificate or certificates which represented
shares of Source Common Stock and Source Preferred Stock immediately prior to
the Effective Time (the "Certificates") appropriate transmittal materials and
instructions (which shall specify that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon proper delivery of
such Certificates to the Exchange Agent). The Certificate or Certificates of
Source Common Stock or Source Preferred Stock so delivered shall be duly
endorsed as the Exchange Agent may require. In the event of a transfer of
ownership of shares of Source Common Stock or Source Preferred Stock represented
by Certificates that are not registered in the transfer records of Source, the
consideration provided in Section 3.1 may be issued to a transferee if the
Certificates representing
-9-
<PAGE>
such shares are delivered to the Exchange Agent, accompanied by all documents
required to evidence such transfer and by evidence satisfactory to the Exchange
Agent that any applicable stock transfer taxes have been paid. If any
Certificate shall have been lost, stolen, mislaid or destroyed, upon receipt of
(i) an affidavit of that fact from the holder claiming such Certificate to be
lost, mislaid, stolen or destroyed, (ii) such bond, security or indemnity as NDC
and the Exchange Agent may reasonably require and (iii) any other documents
necessary to evidence and effect the bona fide exchange thereof, the Exchange
Agent shall issue to such holder the consideration into which the shares
represented by such lost, stolen, mislaid or destroyed Certificate shall have
been converted. The Exchange Agent may establish such other reasonable and
customary rules and procedures in connection with its duties as it may deem
appropriate. After the Effective Time, each holder of shares of Source Common
Stock and Source Preferred Stock (other than shares to be canceled pursuant to
Section 3.6 or as to which statutory dissenters' rights have been perfected as
provided in Section 3.7) issued and outstanding at the Effective Time shall
surrender the Certificate or Certificates representing such shares to the
Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. To the extent required by Section
3.8, each holder of shares of Source Common Stock and Source Preferred Stock
issued and outstanding at the Effective Time also shall receive, upon surrender
of the Certificate or Certificates, cash in lieu of any fractional share of NDC
Common Stock to which such holder may be otherwise entitled (without interest).
NDC shall not be obligated to deliver the consideration to which any former
holder of Source Common Stock or Source Preferred Stock is entitled as a result
of the Merger until such holder surrenders such holder's Certificate or
Certificates for exchange as provided in this Section 4.1. Any other provision
of this Agreement notwithstanding, neither NDC, the Surviving Corporation nor
the Exchange Agent shall be liable to a holder of Source Common Stock or Source
Preferred Stock for any amounts paid or property delivered in good faith to a
public official pursuant to any applicable abandoned property, escheat or
similar Law. Adoption of this Agreement by the stockholders of Source shall
constitute ratification of the appointment of the Exchange Agent.
4.2 RIGHTS OF FORMER SOURCE STOCKHOLDERS. At the Effective Time, the
------------------------------------
stock transfer books of Source shall be closed as to holders of Source Common
Stock and Source Preferred Stock immediately prior to the Effective Time and no
transfer of Source Common Stock or Source Preferred Stock by any such holder
shall thereafter be made or recognized. Until surrendered for exchange in
accordance with the provisions of Section 4.1, each Certificate theretofore
representing shares of Source Common Stock or Source Preferred Stock (other than
shares to be canceled pursuant to Section 3.6) shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Sections 3.1 and 3.8 in exchange therefor, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which
have been declared or made by Source in respect of such shares of Source Common
Stock or Source Preferred Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by NDC on the NDC Common Stock, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares of NDC Common Stock issuable
-10-
<PAGE>
pursuant to this Agreement, but no dividend or other distribution payable to the
holders of record of NDC Common Stock as of any time subsequent to the Effective
Time shall be delivered to the holder of any Certificate until such holder
surrenders such Certificate for exchange as provided in Section 4.1. However,
upon surrender of such Certificate, both the NDC Common Stock certificate
(together with all such undelivered dividends or other distributions without
interest) and any undelivered dividends and cash payments payable hereunder
(without interest) shall be delivered and paid with respect to each share
represented by such Certificate.
4.3 ESCROW AGREEMENT. In connection with the Closing, NDC and the
----------------
Stockholder Representative shall have executed and delivered to the other an
escrow agreement (the "Escrow Agreement"), which shall be in the form of Exhibit
1. The Stock Escrow to be paid pursuant to Section 3.1(c) shall be paid to and
held by the escrow agent pursuant to the terms of the Escrow Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SOURCE
----------------------------------------
Source hereby represents and warrants to NDC as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Source is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Assets. Source is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Source Material Adverse Effect. The minute book and other
organizational documents for Source have been made available to NDC for its
review and, except as disclosed in Section 5.1 of the Source Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
stockholders thereof.
5.2 AUTHORITY OF SOURCE; NO BREACH BY AGREEMENT.
-------------------------------------------
(a) Source has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Source,
subject to the adoption of this Agreement by the holders of a majority of the
outstanding shares of Source Common Stock, and the adoption of this Agreement by
the holders of a majority of the outstanding shares of Source Preferred Stock,
which are the only stockholder votes required for approval of this Agreement and
consummation of the Merger by Source. Subject to such
-11-
<PAGE>
requisite stockholder approval, this Agreement represents a legal, valid, and
binding obligation of Source, enforceable against Source in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Source,
nor the consummation by Source of the transactions contemplated hereby, nor
compliance by Source with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of Source's Certificate of Incorporation
or Bylaws or the certificate or articles of incorporation or bylaws of any
Source Subsidiary or any resolution adopted by the board of directors or the
stockholders of any Source Entity, or (ii) except as disclosed in Section 5.2 of
the Source Disclosure Memorandum, constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any Source Entity under, any material Contract or Permit of any Source
Entity or, (iii) subject to receipt of the requisite Consents referred to in
Section 9.1(b), constitute or result in a Default under, or require any Consent
pursuant to, any Law or Order applicable to any Source Entity or any of their
respective material Assets.
(c) Other than in connection or compliance with the provisions of
applicable state corporate and securities Laws and other than Consents required
from Regulatory Authorities, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, or under the HSR Act, no notice to,
filing with, or Consent of, any public body or authority is necessary for the
consummation by Source of the Merger and the other transactions contemplated in
this Agreement.
5.3 CAPITAL STOCK.
-------------
(a) The authorized capital stock of Source consists of (i) 12,000,000
shares of Source Common Stock, of which 5,800,193 shares are issued and
outstanding as of the date of this Agreement and not more than 7,010,187 shares,
excluding any shares of Source Common Stock issued upon conversion of Source
Preferred Stock, will be issued and outstanding at the Effective Time, and (ii)
2,000,000 shares of Source Preferred Stock, 1,041,667 shares of which are issued
and outstanding as of the date of this Agreement and not more than 1,041,667
shares will be issued and outstanding at the Effective Time. All of the issued
and outstanding shares of capital stock of Source are duly and validly issued
and outstanding and are fully paid and nonassessable under the DGCL. None of
the outstanding shares of capital stock of Source has been issued in violation
of any preemptive rights of the current or past stockholders of Source.
(b) Except as set forth in Section 5.3(a), or as disclosed in Section
5.3(b) of the Source Disclosure Memorandum, there are no shares of capital stock
or other equity securities of Source outstanding and no outstanding Equity
Rights relating to the capital stock of Source. Set forth in Section 5.3(b) of
the Source Disclosure Memorandum is the name of each of
-12-
<PAGE>
the holders of record of Source Common Stock and Source Preferred Stock and that
number of shares of Source Common Stock and Source Preferred Stock,
respectively, of which each holder is the owner (the "Scheduled Stockholders").
Except as specifically contemplated by this Agreement, no Person has any
Contract or any right or privilege (whether pre-emptive or contractual) capable
of becoming a Contract or Equity Right for the purchase, subscription or
issuance of any securities of Source from Source.
5.4 SOURCE SUBSIDIARIES. Source has disclosed in Section 5.4 of the
-------------------
Source Disclosure Memorandum all of the Source Subsidiaries that are
corporations (identifying its jurisdiction of incorporation, each jurisdiction
in which it is qualified and/or licensed to transact business, and the number of
shares owned and percentage ownership interest represented by such share
ownership) and all of the Source Subsidiaries that are general or limited
partnerships, limited liability companies, or other non-corporate entities
(identifying the Law under which such entity is organized, each jurisdiction in
which it is qualified and/or licensed to transact business, and the amount and
nature of the ownership interest therein). Except as disclosed in Section 5.4
of the Source Disclosure Memorandum, Source or one of its wholly-owned
Subsidiaries owns all of the issued and outstanding shares of capital stock (or
other equity interests) of each Source Subsidiary. No capital stock (or other
equity interest) of any Source Subsidiary is or may become required to be issued
(other than to another Source Entity) by reason of any Equity Rights, and there
are no Contracts by which any Source Subsidiary is bound to issue (other than to
another Source Entity) additional shares of its capital stock (or other equity
interests) or Equity Rights or by which any Source Entity is or may be bound to
transfer any shares of the capital stock (or other equity interests) of any
Source Subsidiary (other than to another Source Entity). There are no Contracts
relating to the rights of any Source Entity to vote or to dispose of any shares
of the capital stock (or other equity interests) of any Source Subsidiary. All
of the shares of capital stock (or other equity interests) of each Source
Subsidiary held by a Source Entity are fully paid and nonassessable under the
applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the Source Entity free and clear of
any Lien, except for the pledge by Source of the stock of one of its
Subsidiaries to PMSI pursuant to that certain Securities Transfer Agreement,
between PMSI and Source, (the "Source Divestiture Agreement"), which pledge will
be released at Closing. Except as disclosed in Section 5.4 of the Source
Disclosure Memorandum, each Source Subsidiary is duly organized, validly
existing, and (as to corporations) in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate or
other power and authority necessary for it to own, lease, and operate its Assets
and to carry on its business as now conducted. Each Source Subsidiary is duly
qualified or licensed to transact business as a foreign corporation or other
entity, and in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Source Material
Adverse Effect. The minute book and other organizational documents for each
Source Subsidiary have been made available to NDC for its review, and, except as
disclosed in Section 5.4 of the Source Disclosure Memorandum, are true and
complete in all material respects as in effect as of the date of this Agreement
and accurately reflect in all material respects all amendments thereto and all
proceedings of the Board
-13-
<PAGE>
of Directors and stockholders thereof. Source has no Subsidiaries other than the
Source Subsidiaries and the Source Divestiture Subsidiaries.
5.5 FINANCIAL STATEMENTS AND PROJECTIONS.
------------------------------------
(a) Each of the Source Financial Statements (including, in each case,
any related notes) was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements), and fairly presented in all material respects the
consolidated financial position of Source and its Subsidiaries, or Source and
the Source Subsidiaries, as the case may be, as at the respective dates and the
consolidated results of operations and cash flows for the periods indicated,
except that the unaudited interim financial statements do not contain certain
financial statement footnotes otherwise required by GAAP in full fiscal year
financial statements and were or are subject to normal and recurring year-end
adjustments, which were not or are not expected to be material in amount or
effect.
(b) Each of the Joint Venture Financial Statements (including, in
each case, any related notes) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements), and fairly presented in all material
respects the pro forma financial position of the Joint Venture as at the
respective dates and the combined results of operations and cash flows for the
periods indicated, except that the unaudited interim financial statements,
except that the unaudited interim financial statements do not contain certain
financial statement footnotes otherwise required by GAAP in full fiscal year
financial statements and were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount or
effect.
(c) Set forth in Section 5.5 of the Source Disclosure Memorandum is a
true and correct copy of the financial projections prepared by Source with
respect to its results of operations, cash flows and capital expenditures
through June 30, 1998, including a list of the principal assumptions underlying
such projections. Source has prepared the projections in good faith and does
not have any reason to believe that the assumptions used in preparing the
projections are unrealistic under the circumstances. NDC acknowledges that the
assumptions are subject to significant business and competitive uncertainties
and are dependent upon future business decisions. Accordingly, the projections
cannot be viewed as a guarantee of future performance by Source and no assurance
can be given that the actual results of operations of Source will be comparable
to those reflected in the projections.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Joint Venture nor
----------------------------------
any Source Entity has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Source Material Adverse Effect, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Source as of March 31, 1997, included in the Source Financial
Statements delivered prior to the date of this Agreement, or reflected in the
notes thereto or in the Joint Venture Financial Statements or reflected in the
notes thereto. No Source Entity has incurred or paid any Liability since March
31, 1997, except for such Liabilities incurred or paid
-14-
<PAGE>
(i) in the ordinary course of business consistent with past business practice
and which are not reasonably likely to have, individually or in the aggregate, a
Source Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement. Except as disclosed in Section 5.6 of the Source
Disclosure Memorandum, no Source Entity is directly or indirectly liable, by
guarantee, indemnity, or otherwise, upon or with respect to, or obligated, by
discount or repurchase agreement or in any other way, to provide funds in
respect to, or obligated to guarantee or assume any Liability of any Person
(other than a Source Entity) for any amount in excess of $100,000.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1997, except
------------------------------------
as disclosed in the Source Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 5.7 of the Source Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Source Material Adverse Effect, and (ii) the Source Entities have not taken any
action, or failed to take any action, prior to the date of this Agreement, which
action or failure, if taken after the date of this Agreement, would represent or
result in a material breach or violation of any of the covenants and agreements
of Source provided in Article 7.
5.8 TAX MATTERS.
-----------
(a) All Tax Returns required to be filed by or on behalf of any of
the Source Entities for periods ended on or before June 30, 1996, have been
timely filed or requests for extensions have been timely filed, granted, and
have not expired, and all Tax Returns filed are complete and accurate in all
material respects. All Taxes shown on filed Tax Returns have been paid. There is
no audit examination or deficiency or refund Litigation current or pending with
respect to any Taxes, except as reserved against in the Source Financial
Statements or as disclosed in Section 5.8 of the Source Disclosure Memorandum.
All Taxes and other Liabilities due with respect to completed and settled
examinations or concluded Litigation have been paid. There are no Liens with
respect to Taxes upon any of the Assets of the Source Entities, except for any
such Liens which are not reasonably likely to have a Source Material Adverse
Effect.
(b) None of the Source Entities has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
(excluding such statutes that relate to years currently under examination by the
Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
(c) The provision for any Taxes due or to become due for any of the
Source Entities for the period or periods through and including the date of the
respective Source Financial Statements that has been made and is reflected on
such Source Financial Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the Source Entities have been provided for in
accordance with GAAP.
-15-
<PAGE>
(e) Except as disclosed in Section 5.8(e) of the Source Disclosure
Memorandum, none of the Source Entities is a party to any Tax allocation or
sharing agreement and none of the Source Entities has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Source) or has any Liability for Taxes of
any Person (other than Source and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
(f) Each of the Source Entities is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply, in all material respects, with all applicable
information reporting and Tax withholding requirements under federal, state, and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code.
(g) Except as disclosed in Section 5.8 of the Source Disclosure
Memorandum, none of the Source Entities has made any payments, is obligated to
make any payments, or is a party to any Contract that could obligate it to make
any payments that would be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code.
(h) The income tax basis of (i) all of the issued and outstanding
shares of the Source Divestiture Subsidiaries, in the aggregate, which are being
transferred from Source to PMSI pursuant to the Source Divestiture Agreement,
and (ii) the shares of capital stock of PMSI which are being transferred from
Source to PMSI pursuant to the Source Divestiture Agreement, are disclosed in
Section 5.8 of the Source Disclosure Memorandum.
(i) The distribution of Source from Walsh International Inc. through
a series of transactions described in that certain Master Reorganization
Agreement between Walsh International Inc. and Source dated as of April 16, 1996
and effected on or about such date ("spin-off") qualified as a tax free
distribution described in Section 355 of the Internal Revenue Code. Without
limiting the generality of the foregoing, Source did not at the time of the
spin-off have any plans or intentions of further transferring, exchanging or
otherwise selling all or any part of the capital stock of Source or the Assets
of Source. Source has supplied to NDC accurate and complete copies of all
opinions, correspondence, rulings, memoranda and other information regarding the
tax consequences of such spin-off.
5.9 ASSETS.
------
(a) Except as disclosed in Section 5.9 of the Source Disclosure
Memorandum or as disclosed or reserved against in the Source Financial
Statements delivered prior to the date of this Agreement, and except for the
pledge by Source of the stock of one of its Subsidiaries to PMSI pursuant to
that certain Source Divestiture Agreement, which pledge will be released at
Closing and the pledge by Source of shares of PMSI Common Stock held by Source
pursuant to the Source Divestiture Agreement, the Source Entities have good and
marketable title, free and clear of all Liens, to all of their respective
Assets. All tangible properties that are material to the
-16-
<PAGE>
Joint Venture are in good condition, reasonable wear and tear excepted, and are
usable in the ordinary course of business consistent with Source's past
practices.
(b) All Assets material to the Joint Venture, that are held under
leases or subleases by any of the Source Entities are held under valid Contracts
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought), and each such Contract is in full force and effect.
(c) None of the Source Entities has received notice from any
insurance carrier that (i) any policy of insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policies of insurance will be substantially increased. There are
presently no claims for amounts exceeding in any individual case $100,000
pending under such policies of insurance and no notices of claims in excess of
such amounts have been given by any Source Entity under such policies.
(d) The Assets of the Joint Venture include, in the aggregate, all
Assets required to operate the business of the Joint Venture as presently
conducted.
5.10 INTELLECTUAL PROPERTY. Section 5.10 of the Source Disclosure
---------------------
Memorandum sets forth a complete and accurate list of, and a brief description
of all governmental registrations or applications for governmental registrations
of, all Intellectual Property owned, used or licensed by or to Source or any
Source Entity, which are used in or necessary for the conduct of the Joint
Venture's business, except as to which the absence thereof would not have a
Source Material Adverse Effect ("Source Intellectual Property"). No Source
Entity is in Default under any of its Source Intellectual Property licenses. No
proceedings have been instituted, or are pending or to the Knowledge of Source
threatened, which challenge the rights of any Source Entity with respect to
Source Intellectual Property used, sold or licensed by such Source Entity in the
course of its business, nor has any person claimed or alleged any rights to such
Source Intellectual Property. The conduct of the business of the Joint Venture
does not infringe any Intellectual Property of any other person. Except as
disclosed in Section 5.10 of the Source Disclosure Memorandum, the Joint Venture
is not obligated to pay any recurring royalties to any Person with respect to
any such Source Intellectual Property. Except as disclosed in Section 5.10 of
the Source Disclosure Memorandum, every officer, director, or employee of any
Source Entity is a party to a Contract which requires such officer, director or
employee to assign any interest in any Intellectual Property developed while in
the employ of Source to a Source Entity and to keep confidential any trade
secrets, proprietary data, customer information, or other business information
of the Joint Venture, and, to the Knowledge of Source, no such officer, director
or employee is party to any Contract with any Person other than a Source Entity
which requires such officer, director or employee to assign any interest in any
Intellectual Property to any Person other than a Source Entity or to keep
confidential any trade secrets, proprietary data, customer information, or other
business information of any Person other than a Source Entity. Except as
disclosed in Section 5.10 of the Source Disclosure Memorandum, to the Knowledge
of Source, no officer, director or
-17-
<PAGE>
employee of any Source Entity is party to any Contract which restricts or
prohibits such officer, director or employee from engaging in activities
competitive with any Person, including any Source Entity. Except as disclosed in
Section 5.10 of the Source Disclosure Memorandum, Source has plans to modify its
software systems to include calendar year 2000 date conversion and compatibility
capabilities, including, but not limited to, date data century recognition, same
century and multiple century formula and date value calculations, and user
interface date data values that reflect the century.
5.11 ENVIRONMENTAL MATTERS.
---------------------
(a) Each Source Entity, its Participation Facilities, and its
Operating Properties are, and have been, in compliance in all material respects
with all Environmental Laws.
(b) There is no Litigation pending or, to the Knowledge of Source,
threatened before any court, governmental agency, or authority or other forum in
which any Source Entity or any of its Operating Properties or Participation
Facilities (or Source in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by any Source Entity or any of its Operating
Properties or Participation Facilities, nor is there any reasonable basis for
any Litigation of a type described in this sentence.
(c) During the period of (i) any Source Entity's ownership or
operation of any of their respective current properties, (ii) any Source
Entity's participation in the management of any Participation Facility, or (iii)
any Source Entity's holding of a security interest in a Operating Property,
there have been no material releases, discharges, spillages, or disposals of
Hazardous Material in, on, under, adjacent to, or affecting (or potentially
affecting) such properties. Prior to the period of (i) any Source Entity's
ownership or operation of any of their respective current properties, (ii) any
Source Entity's participation in the management of any Participation Facility,
or (iii) any Source Entity's holding of a security interest in a Operating
Property, to the Knowledge of Source, there were no material releases,
discharges, spillages, or disposals of Hazardous Material in, on, under, or
affecting any such property, Participation Facility or Operating Property.
5.12 COMPLIANCE WITH LAWS. The Joint Venture has in effect all Permits
--------------------
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, and there has occurred no Default under any such
Permit. Except as disclosed in Section 5.12 of the Source Disclosure
Memorandum, none of the Source Entities nor the Joint Venture:
(a) is in Default under any of the provisions of its Certificate of
Incorporation or Bylaws (or other governing instruments);
-18-
<PAGE>
(b) is in Default under any Laws, Orders, or Permits applicable to
its business or employees conducting its business; or
(c) since January 1, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any Source Entity or the Joint Venture is not in compliance in any
material respect with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, (ii) threatening to revoke any
Permits, or (iii) requiring any Source Entity or the Joint Venture to enter
into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment, or memorandum of understanding, or to adopt
any Board resolution or similar undertaking.
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to NDC.
5.13 LABOR RELATIONS. No Source Entity is the subject of any Litigation
---------------
asserting that it or any other Source Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other Source Entity to bargain with
any labor organization as to wages or conditions of employment, nor is any
Source Entity party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any Source Entity, pending or
threatened, or to the Knowledge of Source, is there any activity involving any
Source Entity's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Source has disclosed in Section 5.14 of the Source Disclosure
Memorandum, and has delivered or made available to NDC prior to the execution of
this Agreement copies in each case of, all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus, or other incentive plan, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other health plans,
all life insurance plans, and all other employee benefit plans or fringe benefit
plans, including "employee benefit plans" as that term is defined in Section
3(3) of ERISA, which is currently, or within the six (6) years preceding the
Closing Date has been, adopted, maintained by, sponsored in whole or in part by,
or contributed to by any Source Entity or ERISA Affiliate (including any entity
which was an ERISA Affiliate during such six (6) year period) thereof for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate (collectively, the "Source Benefit Plans"). Any of
the Source Benefit Plans which is an "employee pension benefit plan," as that
term is defined in Section 3(2) of ERISA, is referred to herein as a "Source
ERISA Plan." Each Source ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j) of the Internal Revenue Code) is referred to herein as
a "Source Pension Plan." No Source Pension Plan is or has been a multiemployer
plan within the meaning of Section 3(37) of ERISA.
-19-
<PAGE>
(b) All Source Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Source Material Adverse Effect. Each Source ERISA Plan which
is intended to be qualified under Section 401(a) of the Internal Revenue Code
has received a favorable determination letter from the Internal Revenue Service,
and Source is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. No Source Entity has engaged in a
transaction with respect to any Source Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject any
Source Entity to a Tax imposed by either Section 4975 of the Internal Revenue
Code or Section 502(i) of ERISA.
(c) No Source Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value
of the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Source Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Source Pension Plan, and (iii) no increase in
benefits under any Source Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, a Source Material Adverse Effect or materially adversely affect the
funding status of any such plan. Neither any Source Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Source Entity, or the single-employer
plan of any entity which is considered one employer with Source under Section
4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code or
Section 302 of ERISA. No Source Entity has provided, or is required to provide,
security to a Source Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code.
(d) No Liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by any Source Entity with respect to any ongoing,
frozen, or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate. No Source Entity has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No notice
of a "reportable event," within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any Source Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(e) Except as disclosed in Section 5.14 of the Source Disclosure
Memorandum, no Source Entity has any Liability for retiree health and life
benefits under any of the Source Benefit Plans and there are no restrictions on
the rights of such Source Entity to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder.
-20-
<PAGE>
(f) Except as disclosed in Section 5.14 of the Source Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Source Entity
from any Source Entity under any Source Benefit Plan or otherwise, (ii) increase
any benefits otherwise payable under any Source Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any Source Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the Source Financial Statements to the extent
required by and in accordance with GAAP.
(h) Neither NDC nor any ERISA Affiliate of NDC shall have any
liability or obligation with respect to (i) employment-related liabilities,
whether contingent or otherwise, arising out of any individual's employment or
working relationship with any ERISA Affiliate of Source or any other entity
which participated in or contributed to any Source ERISA Plan other than Source
or any Source Subsidiary; or (ii) any benefit plan, program, arrangement or
policy maintained or contributed to by any ERISA Affiliate of Source other than
Source or any Source Subsidiary.
5.15 MATERIAL CONTRACTS. Except as disclosed in Section 5.15 of the
------------------
Source Disclosure Memorandum or otherwise reflected in the Source Financial
Statements or the Joint Venture Financial Statements, none of the Source
Entities, the Joint Venture nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, or retirement Contract, (ii)
any Contract relating to the borrowing of money by any Source Entity or the
guarantee by any Source Entity or the Joint Venture of any such obligation
(other than Contracts evidencing trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any Source Entity or the Joint Venture
from engaging in any business activities in any geographic area, line of
business or otherwise in competition with any other Person, (iv) any Contract
between or among Source Entities, or other Affiliates of Source, (v) any
Contract involving Intellectual Property (other than Contracts entered into in
the ordinary course with customers and "shrink-wrap" software licenses), (vi)
any Contract relating to the provision of data processing, network
communication, or other technical services to or by any Source Entity or the
Joint Venture, (vii) any Contract relating to the purchase or sale of any goods
or services, including customer contracts, (viii) consulting Contracts, (ix) and
all Contracts referred to in Sections 5.9 and 5.14(a) (other than Contracts in
the case of (iv), (v), (vi), (vii), (viii) and (ix), entered into in the
ordinary course of business and involving payments under any individual Contract
not in excess of $100,000), as of the date of this Agreement (collectively, the
"Source Contracts"). With respect to each Source Contract and except as
disclosed in Section 5.15 of the Source Disclosure Memorandum: (i) the Contract
is in
-21-
<PAGE>
full force and effect; (ii) no Source Entity nor the Joint Venture is in Default
thereunder; (iii) no Source Entity has repudiated or waived any material
provision of any such Contract; (iv) no other party to any such Contract is, to
the Knowledge of Source, in Default in any respect or has repudiated or waived
any material provision thereunder; (v) there exists no actual, or to the
Knowledge of Source, threatened, cancellation, termination, or limitation of, or
any amendment, modification, or change to any Contract; (vi) no Source Entity
has received formal notice that any party to a Contract will not renew such
Contract at the end of its existing term; and (vi) no Source Contract requires
consent for assignment in connection with the transactions contemplated by this
Agreement. All of the indebtedness of any Source Entity for money borrowed is
prepayable at any time by such Source Entity without penalty or premium.
5.16 LEGAL PROCEEDINGS. There is no Litigation instituted or pending,
-----------------
or, to the Knowledge of Source, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any Source Entity, or against any
director, employee or employee benefit plan of any Source Entity, or against any
Asset, interest, or right of any of them or the Joint Venture, that is
reasonably likely to have, individually or in the aggregate, a Source Material
Adverse Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any Source Entity
or the Joint Venture, that are reasonably likely to have, individually or in the
aggregate, a Source Material Adverse Effect. Section 5.16 of the Source
Disclosure Memorandum contains a summary of all Litigation as of the date of
this Agreement to which any Source Entity is a party and which names a Source
Entity as a defendant or cross-defendant or for which any Source Entity or the
Joint Venture has any potential Liability.
5.17 STATEMENTS TRUE AND CORRECT. None of the information supplied or
---------------------------
to be supplied by any Source Entity or any Affiliate thereof for inclusion in
the Registration Statement to be filed by NDC with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Source Entity or any Affiliate thereof for inclusion in any
documents to be filed by a Source Entity or any Affiliate thereof with any
Regulatory Authority in connection with the transactions contemplated hereby,
will, at the respective time such documents are filed, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. All documents that any Source Entity or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
5.18 REGULATORY MATTERS. No Source Entity or any Affiliate thereof has
------------------
taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to materially impede or delay receipt of
any Consents of Regulatory Authorities referred to in Section 9.1(b) or result
in the imposition of a condition or restriction of the type referred to in the
last sentence of such Section.
-22-
<PAGE>
5.19 STATE TAKEOVER LAWS. Each Source Entity has taken all necessary
-------------------
action to exempt the transactions contemplated by this Agreement from, or if
necessary to challenge the validity or applicability of, any applicable
"moratorium," "fair price," "business combination," "control share," or other
anti-takeover Laws (collectively, "Takeover Laws"), including Section 203 of the
DGCL.
5.20 CHARTER PROVISIONS. Each Source Entity has taken all action so
------------------
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Certificate of Incorporation,
Bylaws or other governing instruments of any Source Entity or restrict or impair
the ability of NDC or any of its Subsidiaries to vote, or otherwise to exercise
the rights of a stockholder with respect to, shares of any Source Entity that
may be directly or indirectly acquired or controlled by them.
5.21 STOCKHOLDERS' VOTING AGREEMENTS. The holders of 51% or more of
-------------------------------
Source Preferred Stock have executed and delivered to NDC, as of the date
hereof, an agreement in substantially the form of Exhibit 2 (the "Voting
Agreements").
5.22 BOARD RECOMMENDATION. The Board of Directors of Source, at a
--------------------
meeting duly called and held, has by unanimous vote of the directors present
(who constituted all of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger and the
Voting Agreements and the transactions contemplated thereby, taken together, are
fair to and in the best interests of the stockholders and (ii) resolved to
recommend that the holders of the shares of Source Common Stock and the holders
of Source Preferred Stock adopt this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF NDC
-------------------------------------
NDC hereby represents and warrants to Source and the Stockholders as
follows:
6.1 ORGANIZATION, STANDING, AND POWER. NDC is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. NDC is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a NDC Material Adverse Effect.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
---------------------------------
(a) NDC has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions
-23-
<PAGE>
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein, including the
Merger, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of NDC. This Agreement represents a legal, valid,
and binding obligation of NDC, enforceable against NDC in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by NDC, nor
the consummation by NDC of the transactions contemplated hereby, nor compliance
by NDC with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of NDC's Certificate of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any NDC Entity under, any
Contract or Permit of any NDC Entity, or, (iii) subject to receipt of the
requisite Consents referred to in Section 9.1(b), constitute or result in a
Default under, or require any Consent pursuant to, any Law or Order applicable
to any NDC Entity or any of their respective material Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NYSE, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, no notice to, filing with, or Consent of, any public body
or authority is necessary for the consummation by NDC of the Merger and the
other transactions contemplated in this Agreement.
6.3 CAPITAL STOCK.
-------------
(a) The authorized capital stock of NDC consists of (i) 100,000,000
shares of NDC Common Stock, of which 26,629,947 shares are issued and
outstanding as of August 18, 1997, and (ii) 1,000,000 shares of NDC Preferred
Stock, of which no shares are issued and outstanding. All of the issued and
outstanding shares of NDC Capital Stock are, and all of the shares of NDC Common
Stock to be issued in exchange for shares of Source Common Stock upon
consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL. None of the outstanding shares of NDC Capital
Stock has been, and none of the shares of NDC Common Stock to be issued in
exchange for shares of Source Common Stock upon consummation of the Merger will
be, issued in violation of any preemptive rights of the current or past
stockholders of NDC.
(b) Except as set forth in Section 6.3(a), or as provided pursuant to
the NDC Rights Agreement, or as disclosed in Section 6.3 of the NDC Disclosure
Memorandum, there are
-24-
<PAGE>
no shares of capital stock or other equity securities of
NDC outstanding and no outstanding Equity Rights relating to the capital stock
of NDC.
6.4 SEC FILINGS; FINANCIAL STATEMENTS.
---------------------------------
(a) NDC has timely filed and made available to Source all SEC
Documents required to be filed by NDC since May 31, 1993 (the "NDC SEC
Reports"). The NDC SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Laws and other
applicable Laws and (ii) did not, at the time they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such NDC SEC Reports or necessary in
order to make the statements in such NDC SEC Reports, in light of the
circumstances under which they were made, not misleading. No NDC Subsidiary is
required to file any SEC Documents.
(b) Each of the NDC Financial Statements (including, in each case,
any related notes) contained in the NDC SEC Reports, including any NDC SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of NDC
and its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring year-
end adjustments which were not or are not expected to be material in amount or
effect.
6.5 ABSENCE OF UNDISCLOSED LIABILITIES. No NDC Entity has any
----------------------------------
Liabilities that are reasonably likely to have, individually or in the
aggregate, a NDC Material Adverse Effect, except Liabilities which are accrued
or reserved against in the consolidated balance sheets of NDC as of May 31, 1996
and February 28, 1997, included in the NDC Financial Statements delivered prior
to the date of this Agreement or reflected in the notes thereto. No NDC Entity
has incurred or paid any Liability since February 28, 1997, except for such
Liabilities incurred or paid (i) in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a NDC Material Adverse Effect or (ii) in
connection with the transactions contemplated by this Agreement.
6.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 31, 1996, except as
------------------------------------
disclosed in the NDC Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 6.6 of the NDC Disclosure Memorandum, (i)
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a NDC Material
Adverse Effect, and (ii) the NDC Entities have not taken any action, or failed
to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of NDC
provided in Article 7.
-25-
<PAGE>
6.7 COMPLIANCE WITH LAWS. Each NDC Entity has in effect all Permits
--------------------
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, and there has occurred no Default under any such
Permit. Except as disclosed in Section 6.7 of the NDC Disclosure Memorandum,
none of the NDC Entities:
(a) is in Default under its Certificate of Incorporation or Bylaws
(or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business; or
(c) since May 31, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any NDC Entity is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, or (iii)
requiring any NDC Entity to enter into or consent to the issuance of a cease
and desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business.
6.8 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
-----------------
to the Knowledge of NDC, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any NDC Entity, or against any director,
employee or employee benefit plan of any NDC Entity, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a NDC Material Adverse Effect, nor are there
any Orders of any Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against any NDC Entity, that are reasonably likely to
have, individually or in the aggregate, a NDC Material Adverse Effect.
6.9 STATEMENTS TRUE AND CORRECT. None of the information supplied or to
---------------------------
be supplied by any NDC Entity or any Affiliate thereof for inclusion in the
Registration Statement to be filed by NDC with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any NDC Entity or any Affiliate thereof for inclusion in any
documents to be filed by any NDC Entity or any Affiliate thereof with the SEC or
any other Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All documents that any NDC Entity or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
-26-
<PAGE>
6.10 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
----------------
existing and in good standing under the Laws of the State of Delaware as a
wholly owned Subsidiary of NDC. The authorized capital stock of Sub shall
consist of 1,000 shares of Sub Common Stock, all of which is validly issued and
outstanding, fully paid and nonassessable and is owned by NDC free and clear of
any Lien. Sub has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Sub. This Agreement
represents a legal, valid, and binding obligation of Sub, enforceable against
Sub in accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). NDC, as the sole stockholder of Sub, has voted
prior to the Effective Time the shares of Sub Common Stock in favor of adoption
of this Agreement, as and to the extent required by applicable Law.
6.11 TAX AND REGULATORY MATTERS. No NDC Entity or any Affiliate thereof
--------------------------
has taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.12 RIGHTS AGREEMENT. Execution of this Agreement and consummation of
----------------
the Merger and the other transactions contemplated by this Agreement will not
result in the grant of any rights to any Person under the NDC Rights Agreement
(other than as contemplated by Section 3.1) or enable or require the NDC Rights
to be exercised, distributed or triggered.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 AFFIRMATIVE COVENANTS OF SOURCE.
-------------------------------
(a) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, except as provided in
Section 7.1(b) below, unless the prior written consent of NDC shall have been
obtained, and except as otherwise expressly contemplated herein, Source shall
and shall cause each of its Subsidiaries to (a) operate its business only in
the usual, regular, and ordinary course, (b) preserve intact its business
organization and Assets and maintain its rights and franchises, and (c) take
no action which would (i) materially adversely affect the ability of any
Party to obtain any Consents required for the transactions contemplated
hereby without imposition of a condition or restriction of the type referred
to in the last sentences of Section 9.1(b) or 9.1(c), or (ii) materially
-27-
<PAGE>
adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
(b) Prior to the Effective Time, Source shall, pursuant to the
Source Divestiture Agreement between Source and PMSI the terms and conditions
of which will have been approved by NDC, complete the divestiture (the
"Divestiture") of (i) its business operated in Europe as of the date of this
Agreement (the "European Business"), (ii) all of the shares of PMSI held by
Source or any Subsidiary of Source, and (iii) all of the stock of those
subsidiaries listed in Section 7.1(b) of the Source Disclosure Memorandum
(the "Source Divestiture Subsidiaries"). In connection with the Divestiture,
Source shall assign all of its interest in and obligations under any and all
Contracts related to the European Business, including but not limited to
those listed in Section 7.1(b) of the Source Disclosure Memorandum (the
"European Contracts"), to the purchaser of the European Business, and shall
obtain a release of all obligations of Source under the European Contracts
from the parties thereto. Other than as required under the terms of the
Target Divestiture Agreement or in connection with the operation of the
European Business in the ordinary course, any matters regarding the conduct,
ownership or divestiture of the European Business shall be undertaken only
with the advance written consent of NDC, which consent will not be
unreasonably withheld.
(c) Prior to the Effective Time, Source shall amend the designation
contained in the Source Certificate of Incorporation relating to the Source
Preferred Stock (such designation, as amended, the "Designation") to provide
that the holders of Source Preferred Stock shall receive the Preferred Stock
Merger Consideration upon consummation of the Merger.
(d) Prior to Closing, Source shall terminate the employment
agreements set forth in Section 5.15(Nos. 1-14) of the Source Disclosure
Memorandum and the executive pension plan set forth in Section 5.14(9) of the
Source Disclosure Memorandum and shall satisfy any liabilities or obligations
arising out of the termination of such. In addition, prior to Closing Source
agrees to cause the trademark registrations set forth in Section 5.10 of the
Source Disclosure Memorandum, to the extent not already accomplished, to be
transferred into the name of Source.
(e) Prior to Closing, all indebtedness or other obligations or
accounts of any kind between a Source Divestiture Subsidiary or PMSI or its
Subsidiaries, on the one hand and Source or a Source Subsidiary on the other
hand will have satisfied in accordance with Schedule 2 hereto.
7.2 NEGATIVE COVENANTS OF SOURCE. From the date of this Agreement until
----------------------------
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of NDC shall have been obtained, and except as
otherwise expressly contemplated herein, Source covenants and agrees that it
will not do or agree or commit to do, or permit any of its Subsidiaries to do or
agree or commit to do, any of the following:
-28-
<PAGE>
(a) amend the Certificate of Incorporation, Bylaws or other
governing instruments of any Source Entity, including the Certificate of
Designation for the Source Preferred Stock except for the amendment of the
Source Preferred Stock designation provided in Section 7.1(c) above, which
may include a provision to postpone any mandatory redemption provisions, or
(b) except as provided in Section 5.5 of the Source Disclosure
Memorandum and the Source Divestiture Agreement for the purposes set forth
therein, incur any additional debt obligation, capital lease obligation or
other obligation for borrowed money, or make any capital expenditures or
impose, or suffer the imposition, on any Asset of any Source Entity or the
Joint Venture of any Lien or permit any such Lien to exist (other than in
connection with Liens in effect as of the date hereof that are disclosed in
the Source Disclosure Memorandum, the pledge by Source of the stock of one of
its Subsidiaries to PMSI pursuant to the Source Divestiture Agreement, which
pledge will be released at Closing, and the pledge by Source of shares of
PMSI Common Stock held by Source pursuant to the Source Divestiture
Agreement); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any Source Entity, or declare or pay any dividend or make
any other distribution in respect of Source's capital stock, excluding for
purposes of this Section 7.2(c) the redemption of Source Preferred Stock
pursuant to Section 3.1(d); or
(d) except as provided for in this Agreement and in the Source
Divestiture Agreement, or pursuant to the exercise of stock options or
warrants outstanding as of the date hereof and pursuant to the terms thereof
in existence on the date hereof, or as disclosed in Section 7.2(d) of the
Source Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
issuance of, enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional shares of Source Common Stock or Source Preferred Stock or any
other capital stock of any Source Entity, or any stock appreciation rights,
or any option, warrant, or other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any
Source Entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Source Common Stock or Source
Preferred Stock, or sell, lease, mortgage or otherwise dispose of or
otherwise encumber (x) any shares of capital stock of any Source Subsidiary
(unless any such shares of stock are sold or otherwise transferred to another
Source Entity and except for the pledge by Source of the stock of one of its
Subsidiaries to PMSI pursuant to the Source Divestiture Agreement, which
pledge will be released at Closing) or (y) any Asset other than in the
ordinary course of business for reasonable and adequate consideration (except
for the pledge by Source of shares of PMSI Common Stock
-29-
<PAGE>
held by Source pursuant to the Source Divestiture Agreement), excluding for
purposes of this Section 7.2(e) the Divestiture; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any material investment,
either by purchase of stock of securities, contributions to capital, Asset
transfers, or purchase of any Assets, in any Person other than a wholly owned
Source Subsidiary, or otherwise acquire direct or indirect control over any
Person, other than in connection with (i) foreclosures in the ordinary course
of business, or (ii) the creation of new wholly owned Subsidiaries organized
to conduct or continue activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees
or officers of any Source Entity, except in accordance with past practice
disclosed in Section 7.2(g) of the Source Disclosure Memorandum or as
required by Law; pay any severance or termination pay or any bonus other than
pursuant to written policies or written Contracts in effect on the date of
this Agreement and disclosed in Section 7.2(g) of the Source Disclosure
Memorandum; enter into or amend any severance agreements with officers of any
Source Entity; or grant any material increase in fees or other increases in
compensation or other benefits to directors of any Source Entity except in
accordance with past practice disclosed in Section 7.2(g) of the Source
Disclosure Memorandum; or
(h) enter into or amend any employment Contract between any Source
Entity and any Person that the Source Entity does not have the unconditional
right to terminate without Liability (other than Liability for services
already rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any Source Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Source Entity other than any such
change that is required by Law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such plan,
or make any distributions from such employee benefit plans, except as
required by Law, the terms of such plans or consistent with past practice; or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any Source Entity
or the Joint Venture for material money damages or restrictions upon the
operations of any Source Entity or the Joint Venture;
(l) without the prior written consent of NDC, which consent shall
not be unreasonably withheld, enter into, modify, amend or terminate any
Source Contract and any
-30-
<PAGE>
other material Contract or waive, release, compromise or assign any material
rights or claims; or
(m) amend the Source Divestiture Agreement or, without the prior
written consent of NDC, waive any conditions to the closing of the
transactions contemplated by the Source Divestiture Agreement.
7.3 COVENANTS OF NDC. From the date of this Agreement until the earlier
----------------
of the Effective Time or the termination of this Agreement, unless the prior
written consent of Source shall have been obtained, and except as otherwise
expressly contemplated herein, NDC covenants and agrees that it shall (a)
continue to conduct its business and the business of its Subsidiaries in a
manner designed, in its reasonable judgment, to enhance the long-term value of
the NDC Common Stock and the business prospects of the NDC Entities and to the
extent consistent therewith use all reasonable efforts to preserve intact the
NDC Entities' core businesses and goodwill with their respective employees and
the communities they serve, and (b) take no action which would (i) materially
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b) or
9.1(c), or (ii) materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement; provided, that the foregoing
shall not prevent any NDC Entity from acquiring any Assets or other businesses
or from discontinuing or disposing of any of its Assets or business if such
action is, in the judgment of NDC, desirable in the conduct of the business of
NDC and its Subsidiaries, provided that such actions shall not materially delay
the Effective Time or materially hinder consummation of the Merger. NDC further
covenants and agrees that it will not, without the prior written consent of
Source, which consent shall not be unreasonably withheld, amend the Certificate
of Incorporation or Bylaws of NDC or, except as expressly contemplated by this
Agreement, the NDC Rights Agreement, in each case, in any manner adverse to the
holders of Source Common Stock as compared to rights of holders of NDC Common
Stock generally as of the date of this Agreement.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Source Material Adverse Effect or a NDC Material Adverse Effect, as
applicable, or (ii) would cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and to use its
reasonable efforts to prevent or promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all reports
-------
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in stockholders' equity, and cash flows for the periods then ended in
accordance with GAAP consistently applied (subject in
-31-
<PAGE>
the case of interim financial statements to normal recurring year-end
adjustments that are not material). As of their respective dates, such reports
filed with the SEC will comply in all material respects with the Securities Laws
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any financial statements contained in any other reports to
another Regulatory Authority shall be prepared in accordance with Laws
applicable to such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
---------------------
8.1 REGISTRATION STATEMENT; STOCKHOLDER APPROVAL. As soon as reasonably
--------------------------------------------
practicable after execution of this Agreement, NDC shall prepare and file the
Registration Statement with the SEC, and shall use its reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and take
any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of NDC Common
Stock upon consummation of the Merger. Source shall cooperate in the
preparation and filing of the Registration Statement and shall furnish all
information concerning it and the holders of its capital stock as NDC may
reasonably request in connection with such action. Source shall call
Stockholders' Meetings for the holders of Source Common Stock and Source
Preferred Stock, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon adoption of this Agreement and such other related matters as it
deems appropriate. In connection with such Stockholders' Meetings, (i) Source
shall prepare and mail a notice of meeting to its stockholders, (ii) Newco and
NDC shall furnish to Source all information that Source may reasonably request
in preparation of such notice of meeting, (iii) the Board of Directors of Source
shall recommend to its stockholders the approval of the matters submitted for
approval, subject only to the Board of Directors' legal obligations (if any) as
directors of Source, and (iv) the Board of Directors and officers of Source
shall use their reasonable efforts to obtain such stockholders' approval. NDC
and Source shall make all necessary filings with respect to the Merger under the
Securities Laws.
8.2 EXCHANGE LISTING. NDC shall use its reasonable efforts to list,
----------------
prior to the Effective Time, on the NYSE, subject to official notice of
issuance, the shares of NDC Common Stock to be issued to the holders of Source
Common Stock pursuant to the Merger, and NDC shall give all notices and make all
filings with the NYSE required in connection with the transactions contemplated
herein.
8.3 APPLICATIONS; ANTITRUST NOTIFICATION. NDC shall promptly prepare and
------------------------------------
file, and Source shall cooperate in the preparation and, where appropriate,
filing of, applications with all Regulatory Authorities having jurisdiction over
the transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement. To the
extent required by the HSR Act, each of the Parties will promptly file with the
United States Federal Trade Commission and the United States Department of
Justice the notification and report form required for the transactions
contemplated hereby and
-32-
<PAGE>
any supplemental or additional information which may reasonably be requested in
connection therewith pursuant to the HSR Act and will comply in all material
respects with the requirements of the HSR Act. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
--------------------------
conditions of this Agreement, Source shall execute and file the Certificate of
Merger with the Secretary of State of the State of Delaware in connection with
the Closing.
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use,
and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.6 INVESTIGATION AND CONFIDENTIALITY.
---------------------------------
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other Party concerning its and its Subsidiaries' businesses, operations, and
financial positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Source shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Proposal with respect to Source to preserve the
confidentiality of the information relating to the Source Entities provided to
such Persons and their Affiliates and Representatives.
-33-
<PAGE>
(d) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Source Material Adverse
Effect or a NDC Material Adverse Effect, as applicable.
8.7 PRESS RELEASES. Prior to the Effective Time, Source and NDC shall
--------------
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 CERTAIN ACTIONS. Except with respect to this Agreement and the
---------------
transactions contemplated hereby, no Source Entity nor any Stockholder nor any
Affiliate thereof nor any Representatives thereof retained by any Source Entity
shall directly or indirectly solicit any Acquisition Proposal by any Person.
Except to the extent the Board of Directors of Source, after having consulted
with and considered the advice of outside counsel, reasonably determines in good
faith that the failure to take such actions would constitute a breach of
fiduciary duties of the members of such Board of Directors to Source's
stockholders under applicable law, no Source Entity, any Stockholder or any
Affiliate or Representative thereof shall furnish any non-public information
that it is not legally obligated to furnish, negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal, but Source may
communicate information about such an Acquisition Proposal to its stockholders
if and to the extent that it is required to do so in order to comply with its
legal obligations as advised by outside counsel. Each Stockholder and Source
shall promptly advise NDC following the receipt of any Acquisition Proposal and
the details thereof, and advise NDC of any developments with respect to such
Acquisition Proposal promptly upon the occurrence thereof. Each Stockholder and
Source shall (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and (ii) direct and use its reasonable
efforts to cause all of its Affiliates and Representatives not to engage in any
of the foregoing.
8.9 TAX TREATMENT. NDC undertakes and agrees to use its reasonable
-------------
efforts to cause the Merger, and to take no action which would cause the Merger
not, to qualify for or as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 STATE TAKEOVER LAWS. Each Source Entity shall take all necessary
-------------------
steps to exempt the transactions contemplated by this Agreement from, or if
necessary to challenge the validity or applicability of, any applicable Takeover
Law, including Section 203 of the DGCL.
8.11 CHARTER PROVISIONS. Each Source Entity shall take all necessary
------------------
action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any
-34-
<PAGE>
Person under the Certificate of Incorporation, Bylaws or other governing
instruments of any Source Entity or restrict or impair the ability of NDC or any
of its Subsidiaries to vote, or otherwise to exercise the rights of a
stockholder with respect to, shares of any Source Entity that may be directly or
indirectly acquired or controlled by them.
8.12 AGREEMENT OF AFFILIATES. Source has disclosed in Section 8.12 of
-----------------------
the Source Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of Source for purposes of Rule 145 under the 1933 Act. Source shall
use its reasonable efforts to cause each such Person to deliver to NDC not later
than 30 days after the date of this Agreement, a written agreement,
substantially in the form of Exhibit 3, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of Source Common
Stock or Source Preferred Stock held by such Person except as contemplated by
such agreement or by this Agreement and will not sell, pledge, transfer, or
otherwise dispose of the shares of NDC Common Stock to be received by such
Person upon consummation of the Merger except in compliance with applicable
provisions of the 1933 Act and the rules and regulations thereunder. NDC shall
be entitled to place restrictive legends upon certificates for shares of NDC
Common Stock issued to affiliates of Source pursuant to this Agreement to
enforce applicable provisions of Law. NDC shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of NDC Common Stock by such affiliates.
8.13 EMPLOYEE BENEFITS AND CONTRACTS. Following the Effective Time, NDC
-------------------------------
shall provide generally to officers and employees of the Source Entities
employee benefits under employee benefit and welfare plans on terms and
conditions which when taken as a whole are substantially similar to those
currently provided by the NDC Entities to their similarly situated officers and
employees. For purposes of participation, vesting and (except in the case of
NDC retirement plans) benefit accrual under NDC's employee benefit plans, the
service of the employees of the Source Entities prior to the Effective Time
shall be treated as service with a NDC Entity participating in such employee
benefit plans. NDC also shall cause the Surviving Corporation and its
Subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation Contracts disclosed in Section 8.13 of the
Source Disclosure Memorandum to NDC between any Source Entity and any current or
former director, officer, or employee thereof, and all provisions for vested
benefits or other vested amounts earned or accrued through the Effective Time
under the Source Benefit Plans. If so advised by NDC at least 30 days prior to
the Effective Time, Source, on behalf of itself and each Source Entity, shall
terminate its participation in the Source Informatics America, PMSI Scott-Levin,
and Walsh America Retirement Plan (the "401(k) Plan"), effective no later than
the day preceding the Effective Time. The amendment to the 401(k) Plan which
effects such termination shall be adopted no later than ten (10) days prior to
the Effective Time. Immediately following its adoption, Source shall provide
NDC with a copy of such amendment which (i) terminates Source's participation in
the plan, (ii) fully vests employees of each Source Entity in their account
balances under the 401(k) Plan as of the effective date of the termination; and
(iii) provides for lump sum distributions (which shall be "eligible rollover
distributions," within the meaning of Section 402(c)(4) of the Internal Revenue
Code) of the participants' accrued benefits as soon as practicable following
Source's or its successor's receipt of a letter from the Internal Revenue
Service to the effect that the Source Entities' termination of participation in
the 401(k) Plan and
-35-
<PAGE>
the subsequent distribution of the participants' accounts thereunder does not
adversely affect the 401(k) Plan's qualified status under Section 401(a) of the
Internal Revenue Code. The effectiveness of Source's termination of its
participation in the 401(k) Plan may be contingent upon the receipt of such a
letter from the IRS. Under no circumstances may an employee of any Source
Entity, prior to the receipt of such a determination letter, receive a
distribution from the 401(k) Plan on account of Source's termination of its
participation in the plan.
8.14 INDEMNIFICATION.
---------------
(a) Except as set forth in the Waivers, for a period of six years
after the Effective Time, NDC shall, and shall cause the Surviving Corporation
to, indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of the Source Entities (each, an "Indemnified
Party") against all Liabilities arising out of actions or omissions arising out
of the Indemnified Party's service or services as directors, officers, employees
or agents of Source or, at Source's request, of another corporation,
partnership, joint venture, trust or other enterprise occurring at or prior to
the Effective Time to the fullest extent permitted under Delaware Law and by
Source's Certificate of Incorporation and Bylaws as in effect on the date
hereof, including provisions relating to advances of expenses incurred in the
defense of any Litigation and whether or not any NDC Entity is insured against
any such matter. Without limiting the foregoing, in any case in which approval
by the Surviving Corporation is required to effectuate any indemnification, the
Surviving Corporation shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between NDC and the Indemnified Party.
(b) NDC shall, or shall cause the Surviving Corporation to, use its
reasonable efforts (and Source shall cooperate prior to the Effective Time in
these efforts) to maintain in effect for a period of three years after the
Effective Time Source's existing directors' and officers' liability insurance
policy (provided that NDC may substitute therefor (i) policies of at least the
same coverage and amounts containing terms and conditions which are
substantially no less advantageous or (ii) with the consent of Source given
prior to the Effective Time, any other policy) with respect to claims arising
from facts or events which occurred prior to the Effective Time and covering
persons who are currently covered by such insurance; provided, that neither NDC
nor the Surviving Corporation shall be obligated to make aggregate premium
payments for such three-year period in respect of such policy (or coverage
replacing such policy) which exceed, for the portion related to Source's
directors and officers, 150% of the annual premium payments on Source's current
policy in effect as of the date of this Agreement (the "Maximum Amount"). If
the amount of the premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, NDC shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount. Prior to the
Closing Date, NDC shall provide Source with an estimate of the costs associated
with maintaining a directors' and officers' liability insurance policy as
discussed above, which estimate shall have been prepared by an independent third
party and which amount shall be listed as a Transaction Expense on Schedule 1
----------
hereof.
-36-
<PAGE>
(c) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 8.14, upon learning of any such Liability or
Litigation, shall promptly notify NDC thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), (i) NDC or the
Surviving Corporation shall have the right to assume the defense thereof and
neither NDC nor the Surviving Corporation shall be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if NDC or the Surviving Corporation elects not to assume
such defense or counsel for the Indemnified Parties advises that there are
substantive issues which raise conflicts of interest between NDC or the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and NDC or the Surviving Corporation shall
pay all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, that NDC and the
Surviving Corporation shall be obligated pursuant to this paragraph (c) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction,
(ii) the Indemnified Parties will cooperate in the defense of any such
Litigation, and (iii) neither NDC nor the Surviving Corporation shall be liable
for any settlement effected without its prior written consent; and provided
further that neither NDC nor the Surviving Corporation shall have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable Law.
(d) If NDC or the Surviving Corporation or any successors or
assigns shall consolidate with or merge into any other Person and shall not be
the continuing or surviving Person of such consolidation or merger or shall
transfer all or substantially all of its assets to any Person, then and in each
case, proper provision shall be made so that the successors and assigns of NDC
or the Surviving Corporation shall assume the obligations set forth in this
Section 8.14.
(e) The provisions of this Section 8.14 are intended to be for the
benefit of and shall be enforceable by, each Indemnified Party and its
respective heirs and representatives.
8.15 TRANSACTION EXPENSES. NDC agrees that it will cause Source to pay
--------------------
the Transaction Expenses when due and payable.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
---------------------------------------
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 12.6:
(A) STOCKHOLDER APPROVAL. The stockholders of Source shall have
--------------------
adopted this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required by
Law or by the provisions of any governing
-37-
<PAGE>
instruments. The stockholders of Source shall have agreed to terminate, without
recourse, the Source Common Stockholders Agreement and the Source Preferred
Stockholders Agreement, as applicable, as of the Effective Time.
(B) REGULATORY APPROVALS. All Consents of, filings and registrations
--------------------
with, and notifications to, all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including requirements relating to the raising of additional capital or the
disposition of Assets) which in the reasonable judgment of the Board of
Directors of NDC would so materially adversely impact the economic or business
assumptions of the transactions contemplated by this Agreement that, had such
condition or requirement been known, such Party would not, in its reasonable
judgment, have entered into this Agreement.
(C) CONSENTS AND APPROVALS. Each Party shall have obtained any and
----------------------
all Consents required for consummation of the Merger (other than those referred
to in Section 9.1(b)) or for the preventing of any Default under any Contract or
Permit of such Party which, if not obtained or made, is reasonably likely to
have, individually or in the aggregate, a Source Material Adverse Effect or a
NDC Material Adverse Effect, as applicable. No Consent so obtained which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of NDC would so materially adversely impact the economic or
business assumptions of the transactions contemplated by this Agreement that,
had such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(D) LEGAL PROCEEDINGS. No court or governmental or regulatory
-----------------
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(E) REGISTRATION STATEMENT. The Registration Statement shall be
----------------------
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of NDC Common Stock issuable pursuant to the Merger shall have been
received.
(F) EXCHANGE LISTING. The shares of NDC Common Stock issuable pursuant
----------------
to the Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance.
-38-
<PAGE>
9.2 CONDITIONS TO OBLIGATIONS OF NDC. The obligations of NDC to perform
--------------------------------
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by NDC pursuant to Section 12.6(a):
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
------------------------------
9.2(a), the accuracy of the representations and warranties of Source set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties set forth in Section 5.3 shall be true and correct (except for
inaccuracies which are de minimus in amount). The representations and
warranties set forth in Sections 5.18, 5.19, and 5.20 shall be true and
correct in all material respects. There shall not exist inaccuracies in the
representations and warranties of Source set forth in this Agreement
(including the representations and warranties set forth in Sections 5.3,
5.18, 5.19, and 5.20) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a Source Material Adverse Effect;
provided that, for purposes of this sentence only, those representations
and warranties which are qualified by references to "material" or "Material
Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to
include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of Source to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(C) CERTIFICATES. Source shall have delivered to NDC (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions set forth in Section 9.1 as relates to Source and in Section 9.2(a)
and 9.2(b) have been satisfied, and (ii) certified copies of resolutions duly
adopted by Source's Board of Directors and stockholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as NDC and its counsel shall
request.
(D) OPINION OF COUNSEL. NDC shall have received an opinion of
------------------
Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel to Source, dated as of the
Closing, in form reasonably satisfactory to NDC, as to the matters set forth in
Exhibit 4.
(E) EMPLOYMENT AGREEMENTS. Each of the persons identified in
---------------------
Section 9.2(e) of the Source Disclosure Memorandum shall have executed and
delivered to NDC an employment agreement on terms substantially consistent with
those set forth on Exhibit 5 (collectively, the "Employment Agreements").
-39-
<PAGE>
(F) NONCOMPETITION AGREEMENTS. Each of the persons identified in
-------------------------
Section 9.2(f) of the Source Disclosure Memorandum shall have executed and
delivered to NDC a noncompetition agreement in substantially the form of
Exhibit 6 (collectively, the "Noncompetition Agreements").
(G) PMSI AGREEMENT. Each and all of the agreements and covenants of
--------------
the parties to the PMSI Agreement to be performed and complied with shall be
duly performed and complied with, or duly waived by the appropriate party
thereto, prior to or substantially simultaneously with the Effective Time. All
conditions to the closing of the transactions contemplated under the PMSI
Agreement shall have been satisfied or waived and the consummation of such
transactions shall have occurred concurrently with the Closing.
(H) ADDITIONAL AGREEMENTS. Each of the following agreements, in the
---------------------
form attached hereto as an Exhibit, with such additions and changes as may be
approved by NDC and all parties thereto, shall have been executed and
delivered to NDC:
<TABLE>
<S> <C> <C>
(i) Source Europe License Agreement - Exhibit 7.
(ii) East Asia License Agreement Exhibit 8
(ii) Source Europe Transition Services
Agreement - Exhibit 9.
(iii) Assignment of Lease for Source
property in Newtown, PA - Exhibit 10.
(iv) Sublease for use of
property in Newtown, PA - Exhibit 11.
(v) Sublease for use of
property in Phoenix, AZ - Exhibit 12.
(vi) SL Services Agreement - Exhibit 13.
</TABLE>
(I) STOCKHOLDER DISSENT. Less than 10% of the holders of Source
-------------------
Preferred Stock or Source Common Stock shall have perfected his dissenters'
rights pursuant to Section 3.6 hereof and Section 262 of the DGCL.
(J) INDEMNIFICATION WAIVERS. Each director and officer of Source
-----------------------
shall have executed and delivered to NDC Waivers in substantially the form of
Exhibit 14 which will provide that such director or officer release their
rights of indemnification under the bylaws of Source or Sub or the DGCL or
otherwise with respect to claims arising from their acting or failing to act
in connection with the Divestiture or with the allocation of consideration to
be paid by NDC pursuant to the transactions contemplated by this Agreement and
the PMSI Agreement, except and to the extent such is covered by directors' and
officers' insurance.
(K) EUROPEAN CONTRACT RELEASES. Source shall have been released from
--------------------------
any and all obligations under the European Contracts to the reasonable
satisfaction of NDC.
-40-
<PAGE>
(L) SOURCE DIVESTITURE AGREEMENT. Each and all of the agreements and
----------------------------
covenants of the parties to the Source Divestiture Agreement to be performed
and complied with shall be duly performed and complied with in all material
respects prior to or substantially simultaneous with the Closing. All
conditions to the closing of the transactions contemplated under the Source
Divestiture Agreement shall have been satisfied or waived and the consummation
of such transactions shall have occurred concurrently with the Closing.
(M) SOURCE OPTIONS AND WARRANTS. Source shall have secured the
---------------------------
cancellation of all outstanding options and warrants to purchase shares of
Source Common Stock and shall provide to NDC a schedule of the number of
Option Shares payable to the holders of such options and warrants in
consideration of such cancellation.
9.3 CONDITIONS TO OBLIGATIONS OF SOURCE. The obligations of Source to
-----------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Source pursuant to Section 12.6(b):
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
------------------------------
9.3(a), the accuracy of the representations and warranties of NDC set forth in
this Agreement shall be assessed as of the date of this Agreement and as of
the Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of NDC set
forth in Sections 6.3, 6.4 and 6.11 shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations and
warranties of NDC set forth in this Agreement (including the representations
and warranties set forth in Sections 6.3, 6.4 and 6.11) such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have, a
NDC Material Adverse Effect; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by references
to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person
shall be deemed not to include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of NDC to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
material respects.
(C) CERTIFICATES. NDC shall have delivered to Source (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to NDC and in Section
9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by NDC's Board of Directors and Sub's Board of
Directors and sole stockholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the
-41-
<PAGE>
transactions contemplated hereby, all in such reasonable detail as Source and
its counsel shall request.
(D) OPINION OF COUNSEL. Source shall have received an opinion of
------------------
either the General Counsel of NDC or Alston & Bird LLP, counsel to NDC, dated
as of the Effective Time, in form reasonably acceptable to Source, as to the
matters set forth in Exhibit 15.
ARTICLE 10
INDEMNIFICATION
---------------
10.1 AGREEMENT OF INDEMNITORS TO INDEMNIFY. Subject to the terms and
-------------------------------------
conditions of this Article 10, Indemnitors jointly and severally agree to
indemnify, defend, and hold harmless Indemnitees, and each of them, from,
against, for and in respect of any and all Losses asserted against, or paid,
suffered or incurred by, an Indemnitee and resulting from, based upon, or
arising out of:
(a) the inaccuracy, untruth, incompleteness or breach of any
representation or warranty of any Indemnitor or Source contained in or made
pursuant to this Agreement or in any certificate, Schedule, or Exhibit
furnished by Indemnitors or Source in connection herewith (except that Source
shall not be obligated to indemnify NDC for Losses arising out of the
termination or cancellation of a Source Contract by a third party prior to
Closing; provided that such termination or cancellation was not due to any
breach of such Contract by Source), and for purposes of this Section 10.1(a)
any qualification of such representations and warranties by reference to the
materiality of matters stated therein or as to matters having or not having a
"Material Adverse Effect,", and any limitation of such representations and
warranties as being "to the knowledge of," or "known to" or words of similar
effect, shall be disregarded, in determining any inaccuracy, untruth,
incompleteness or breach thereof;
(b) a breach of or failure to perform any covenant or agreement of
Indemnitors or Source made in this Agreement;
(c) any and all Taxes arising out of or associated with the
Divestiture, as provided in Section 7.1(b) and determined as provided in
Section 10.12;
(d) any and all Taxes arising out of or associated with the matters
set forth on Section 5.8(a)(ii) of the Source Disclosure Memorandum to the
extent that, after using commercially reasonable efforts, NDC has been unable
to collect such amounts from Walsh International Inc. or the customers
involved in the transactions resulting in such Taxes; provided that NDC shall
not pay such amounts to the applicable governmental authorities without direct
assessment, or similar notice, from such authority directing payment thereof;
or
-42-
<PAGE>
(e) any and all Losses relating to the matter set forth in Section
5.16(2) of the Source Disclosure Memorandum.
10.2 PROCEDURES FOR INDEMNIFICATION.
------------------------------
(a) An Indemnification Claim shall be made by an Indemnitee by
delivery of a written notice to the Stockholder Representative requesting
indemnification and specifying the basis on which indemnification is sought and
the amount of asserted Losses and, in the case of a Third Party Claim,
containing (by attachment or otherwise) such other information as such
Indemnitee shall have concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim the
procedures set forth in Section 10.3 shall be observed by the Indemnitee and the
Stockholder Representative.
(c) If the Indemnification Claim involves a matter other than a Third
Party Claim, the Stockholder Representative shall have 30 days to object to such
Indemnification Claim by delivery of a written notice of such objection to such
Indemnitee specifying in reasonable detail the basis for such objection.
Failure to timely so object shall constitute a final and binding acceptance of
the Indemnification Claim by the Stockholder Representative on behalf of all
Indemnitors, and the Indemnification Claim shall be paid in accordance with
subsection (d) hereof. If an objection is timely interposed by the Stockholder
Representative and the dispute is not resolved by such Indemnitee and the
Stockholder Representative within 15 days from the date the Indemnitee receives
such objection, such dispute shall be resolved by arbitration as provided in
Section 10.11.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between the Stockholder Representative and the Indemnitee
or by an arbitration award or by any other final adjudication, such
Indemnification Claim shall be paid out of the Stock Escrow pursuant to the
provisions of the Escrow Agreement.
10.3 THIRD PARTY CLAIMS. The obligations and liabilities of the parties
------------------
hereunder with respect to a Third Party Claim shall be subject to the following
terms and conditions:
(a) The Indemnitee shall give the Stockholder Representative written
notice of a Third Party Claim promptly after receipt by the Indemnitee of
notice thereof, and the Stockholder Representative, on behalf of the
Indemnitors, may undertake the defense, compromise and settlement thereof by
representatives of its own choosing reasonably acceptable to the Indemnitee.
The failure of the Indemnitee to notify the Stockholder Representative of such
claim shall not relieve the Indemnitors of any liability that they may have
with respect to such claim except to the extent the Stockholder Representative
demonstrates that the defense of such claim is prejudiced by such failure. The
assumption of the defense, compromise and settlement of any such Third Party
Claim by the Stockholder Representative shall be an acknowledgment of the
obligation of the Indemnitors to indemnify the Indemnitee with respect to such
claim hereunder. If the Indemnitee desires to participate in, but not control,
any such defense, compromise and settlement, it may do so at
-43-
<PAGE>
its sole cost and expense. If, however, the Stockholder Representative fails
or refuses to undertake the defense of such Third Party Claim within ten (10)
days after written notice of such claim has been given to the Stockholder
Representative by the Indemnitee, the Indemnitee shall have the right to
undertake the defense, compromise and settlement of such claim with counsel of
its own choosing. In the circumstances described in the preceding sentence,
the Indemnitee shall, promptly upon its assumption of the defense of such
claim, make an Indemnification Claim as specified in Section 10.2 which shall
be deemed an Indemnification Claim that is not a Third Party Claim for the
purposes of the procedures set forth herein. For purposes of this paragraph,
the Stockholder Representative shall be deemed to have received notice of the
claim specified in Section 5.16(2) of the Source Disclosure Memorandum and to
have agreed to assume the defense thereof following the Closing; provided,
however, that such claim is still subject to the provisions of Section 10.7
hereof.
(b) If, in the reasonable opinion of the Indemnitee, any Third Party
Claim or the litigation or resolution thereof involves an issue or matter
which could have a material adverse effect on the business, operations,
assets, properties or prospects of the Indemnitee (including, without
limitation, the administration of the tax returns and responsibilities under
the tax laws of the Indemnitee), the Indemnitee shall have the right to
control the defense, compromise and settlement of such Third Party Claim
undertaken by the Stockholder Representative, and the costs and expenses of
the Indemnitee in connection therewith shall be included as part of the
indemnification obligations of the Indemnitors hereunder. If the Indemnitee
shall elect to exercise such right, the Stockholder Representative shall have
the right to participate in, but not control, the defense, compromise and
settlement of such Third Party Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of the Indemnitors under this Article shall be made without the
prior written consent by or on behalf of the Stockholder Representative, which
consent shall not be unreasonably withheld or delayed. Consent shall be
presumed in the case of settlements of $20,000 or less where the Stockholder
Representative has not responded within five business days of notice of a
proposed settlement. If the Stockholder Representative assumes the defense of
such a Third Party Claim, (a) no compromise or settlement thereof may be
effected by the Stockholder Representative without the Indemnitee's consent
unless (i) there is no finding or admission of any violation of law or any
violation of the rights of any person and no effect on any other claim that
may be made against the Indemnitee, (ii) the sole relief provided is monetary
damages that are paid in full by the Indemnitors, and (iii) the compromise or
settlement includes, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnitee of a release, in form and
substance satisfactory to the Indemnitee, from all liability in respect of
such Third Party Claim, and (b) the Indemnitee shall have no liability with
respect to any compromise or settlement thereof effected without its consent.
(d) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties to this Agreement shall execute such powers of
attorney as may reasonably be necessary or appropriate to permit participation
of counsel selected by any
-44-
<PAGE>
party hereto and, as may reasonably be related to any such claim or action,
shall provide access to the counsel, accountants and other representatives of
each party during normal business hours to all properties, personnel, books,
tax records, contracts, commitments and all other business records of such
other party and will furnish to such other party copies of all such documents
as may reasonably be requested (certified, if requested).
10.4 OTHER RIGHTS AND REMEDIES NOT AFFECTED. The rights of the Indemnitees
--------------------------------------
under this Article 10 are independent of and in addition to such rights and
remedies as the Indemnitees may have at law or in equity or otherwise based upon
any inaccuracy, untruth, incompleteness or breach of any representation or
warranty of any Indemnitor contained herein or in any certificate, schedule or
exhibit furnished by such party in connection herewith, or based upon the
failure of an Indemnitor to perform any covenant, agreement or undertaking
required by the terms hereof to be performed by such Indemnitor, including
without limitation the right to seek specific performance, recession or
restitution, none of which rights or remedies shall be affected or diminished
hereby.
10.5 SURVIVAL. Subject to the time limitations set forth in Section 10.6
--------
below, all representations, warranties and agreements contained in this
Agreement or in any certificate delivered pursuant to this Agreement shall
survive the Closing notwithstanding any investigation conducted with respect
thereto or any knowledge acquired as to the accuracy or inaccuracy of any such
representation or warranty.
10.6 TIME LIMITATIONS. The Indemnitors will have no liability to the
----------------
Indemnitees under or in connection with a breach of any of the representations,
warranties, covenants or agreements made or to be performed by the Indemnitors
or Source contained in this Agreement unless written notice asserting an
Indemnification Claim based thereon is given to the Stockholder Representative
prior to August 31, 1999.
10.7 LIMITATIONS AS TO AMOUNT.
------------------------
(a) Indemnitors shall have no liability with respect to the matters
described in Section 10.1 (other than the agreements in Sections 3.2 and 3.4)
until the total of all Losses with respect thereto exceeds $200,000 in which
event Indemnitors shall be obligated to indemnify the Indemnitees as provided in
this Article 10 for all such Losses; provided, however, that each individual
claim of $10,000 or less shall not be indemnifiable, and shall not be includable
in determining whether the $200,000 threshold has been reached.
(b) In no event shall the aggregate liability of the Indemnitors under
this Article 10 exceed the lesser of (i) the Aggregate Value (as defined in the
Escrow Agreement) of the Indemnification Escrow Amount (as defined in the Escrow
Agreement), and (ii) $20,000,000.
10.8 TAX EFFECT AND INSURANCE. The liability of the Indemnitors with
------------------------
respect to any Indemnification Claim shall be reduced by the tax benefit
actually realized and any insurance proceeds received by the Indemnitees as a
result of any Losses upon which such Indemnification Claim is based, and shall
include any tax detriment actually suffered by the Indemnitees as a result
-45-
<PAGE>
of such Losses or the claims hereunder. The amount of any such tax benefit or
detriment shall be determined by taking into account the effect, if any and to
the extent determinable, of timing differences resulting from the acceleration
or deferral of items of gain or loss resulting from such Losses and shall
otherwise be determined so that payment by the Indemnitors of the
Indemnification Claim, as adjusted to give effect to any such tax benefit or
detriment, will make the Indemnitee as economically whole as is reasonably
practical with respect to the Losses upon which the Indemnification Claim is
based. Any dispute as to the amount of such tax benefit or detriment shall be
resolved by arbitration as provided in Section 10.11 of this Agreement.
10.9 SUBROGATION. Upon payment in full of any Indemnification Claim,
-----------
whether such payment is effected by set-off or otherwise, or the payment of any
judgment or settlement with respect to a Third Party Claim, the Indemnitors
shall be subrogated to the extent of such payment to the rights of the
Indemnitee against any person or entity with respect to the subject matter of
such Indemnification Claim or Third Party Claim.
10.10 APPOINTMENT OF STOCKHOLDER REPRESENTATIVE. Each Indemnitor
-----------------------------------------
constitutes and appoints the Stockholder Representative as his or her true and
lawful attorney-in-fact to act for and on behalf of such Indemnitor in all
matters relating to or arising out of this Article 10 and the liability or
asserted liability of such Indemnitor hereunder, including specifically, but
without limitation, accepting and agreeing to the liability of such Indemnitor
with respect to any Indemnification Claim, objecting to any Indemnification
Claim, disputing the liability of such Indemnitor, or the amount of such
liability, with respect to any Indemnification Claim and prosecuting and
resolving such dispute as herein provided, accepting the defense, compromise and
settlement of any Third Party Claim on behalf of such Indemnitor or refusing to
accept the same, settling and compromising the liability of such Indemnitor
hereunder, instituting and prosecuting such actions (including arbitration
proceedings) as the Stockholder Representative shall deem appropriate in
connection with any of the foregoing, retaining counsel, accountants, appraisers
and other advisers in connection with any of the foregoing, all for the account
of the Indemnitor, such Indemnitor agreeing to be fully bound by the acts,
decisions and agreements of the Stockholder Representative taken and done
pursuant to the authority herein granted. Each Indemnitor hereby agrees to
indemnify and to save and hold harmless the Stockholder Representative from any
liability incurred by the Stockholder Representative based upon or arising out
of any act, whether of omission or commission, of the Stockholder Representative
pursuant to the authority herein granted, other than acts, whether of omission
or commission, of the Stockholder Representative that constitute gross
negligence or willful misconduct in the exercise by the Stockholder
Representative of the authority herein granted.
10.11 ARBITRATION. All disputes arising under this Article 10 (other than
-----------
claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Stockholder Representative and NDC in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be held in such place in Washington, D.C. as may be specified
by the arbitrator (or any place agreed to by the Stockholder Representative, NDC
and the arbitrator). The decision of the arbitrator shall be final and binding
as to any matters submitted under this Article 10; provided,
-46-
<PAGE>
however, if necessary, such decision and satisfaction procedure may be enforced
by either the Stockholder Representative or NDC in any court of record having
jurisdiction over the subject matter or over any of the parties to this
Agreement. All costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys fees) shall be borne by
the party against which the decision is rendered, or, if no decision is
rendered, such costs and expenses shall be borne equally by the Indemnitors as
one party and the Indemnitees as the other party. If the arbitrator's decision
is a compromise, the determination of which party or parties bears the costs and
expenses incurred in connection with any such arbitration proceeding shall be
made by the arbitrator on the basis of the arbitrator's assessment of the
relative merits of the parties' positions.
10.12 DIVESTITURE TAXES.
-----------------
(a) For purposes of 10.1(c) above, a "Tax" shall mean any federal,
state, local or foreign Tax and shall be determined by assuming (i) that the
only net operating loss available to offset income or gain related to the
Divestiture is equal to 30% of the combined net operating loss of the Source
Entities computed as of the Closing Date (determined by assuming that Tax
Returns would have been filed for a period ending on the Closing Date and
exclusive of any loss related to the Divestiture), and (ii) that such Tax
attributable to the Divestiture is represented by the difference between (x) the
Tax liability of Source for a hypothetical reporting period ending on the
Closing Date and including the Divestiture computed based on the assumption
contained in paragraph (i), and (y) the Tax liability of Source for such a
period computed assuming that no taxable income or gain had resulted from the
Divestiture.
(b) Tax Returns for any period including the Divestiture shall be
prepared by NDC and subject to review and approval of the Stockholder
Representative with respect to the treatment of the Divestiture in the Tax
Returns and the determination of the combined net operating loss of the Source
Entities.
(c) The Stockholder Representative and NDC agree to cooperate in a
commercially reasonable manner in the preparation and filing of the Tax Returns
for Source for any period including the Divestiture such that such Tax Returns
shall be filed within the applicable filing deadlines.
ARTICLE 11
TERMINATION
-----------
11.1 TERMINATION. Notwithstanding any other provision of this
-----------
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of Source, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) By mutual consent of NDC and Source; or
(b) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this
-47-
<PAGE>
Agreement) in the event of a material breach by the other Party of any
representation or warranty contained in this Agreement which cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching Party of such breach and which breach is reasonably likely, in the
opinion of the non-breaching Party, to have, individually or in the
aggregate, a Source Material Adverse Effect or a NDC Material Adverse Effect,
as applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
stockholders of Source fail to vote their approval of the matters relating to
this Agreement and the transactions contemplated hereby at the Stockholders'
Meeting where such matters were presented to such stockholders for approval
and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by January 31, 1998, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by any
breach of this Agreement by the Party electing to terminate pursuant to this
Section 11.1(e); or
(f) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Merger cannot be satisfied or fulfilled by the date specified in Section
11.1(e); or
(g) By NDC, in the event that the Board of Directors of Source shall
have failed to reaffirm its approval of the Merger and the transactions
contemplated by this Agreement (to the exclusion of any other Acquisition
Proposal), or shall have resolved not to reaffirm the Merger, or shall have
affirmed, recommended or authorized entering into any other Acquisition
Proposal or other transaction involving a merger, share exchange,
consolidation or transfer of substantially all of the Assets of Source; or
(h) By Source if the Average Closing Price on the Determination Date
of shares of NDC Common Stock shall be less than the Lower Threshold Amount;
subject, however, to the following three sentences. If Source elects to
refuse to consummate the Merger pursuant to this Section 11.1(h), it shall
give written notice thereof to NDC not later
-48-
<PAGE>
than two trading days following the Determination Date. During the five-day
period commencing with its receipt of such notice, NDC shall have the option,
in its sole discretion, to elect to revise the Common Exchange Ratios to
equal that fraction of a share of NDC Common Stock (rounded to the nearest
ten thousandth of a share) obtained by dividing the product of the Common
Base Exchange Ratio or the Common Escrow Exchange Ratio, as the case may be,
and the Lower Threshold Price by the Average Closing Price at the
Determination Date. If NDC makes an election contemplated by the preceding
sentence, within such five-day period, it shall give prompt written notice to
Source of such election and the revised Common Exchange Ratios, whereupon the
condition to consummation provided in this Section 11.1(h) shall be deemed to
be satisfied and this Agreement shall remain in effect in accordance with its
terms (except as the Common Exchange Ratios shall have been so modified), and
any references in this Agreement to "Common Exchange Ratios" shall thereafter
be deemed to refer to the Common Exchange Ratios as adjusted pursuant to this
Section 11.1(h); or
(i) By Source in the event that Source has entered into negotiations
with a third party in accordance with Sections 8.1 and 8.8 of this Agreement,
and pursuant to the continuing fiduciary duties of the Source's Board of
Directors as required by applicable Law, Source has entered into a binding
Acquisition Proposal with a third party.
11.2 EFFECT OF TERMINATION. In the event of the termination and abandonment
---------------------
of this Agreement pursuant to Section 11.1, this Agreement shall become void and
have no effect, except that (i) the provisions of this Section 11.2 and Article
12 and Section 8.6(b) shall survive any such termination and abandonment, and
(ii) a termination pursuant to Sections 11.1(b), 11.1(c) or 11.1(f) shall not
relieve the breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 DEFINITIONS.
-----------
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"ACCRUED BONUSES" shall mean the amount equal to that percentage of
budgeted annual bonuses for Source's fiscal year 1998 equal to the ratio of
the earnings of Source through the date of calculation to budgeted earnings
for the full fiscal year. All budgeted amounts used herein to be as set
forth in Schedule 5.5 of the Source Disclosure Memorandum.
-49-
<PAGE>
"ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of,
such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity
or voting interest of such Person; or (iii) any other Person for which a
Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including
the Exhibits delivered pursuant hereto and incorporated herein by reference.
"AMENDED AND RESTATED ALPHA DATABASE LICENSE AGREEMENT" shall mean
that certain Amended and Restated Alpha Database License Agreement dated July
1, 1994 by and among Walsh International Holdings Limited and Walsh America
Limited and PMSI and all customer, data provider and service contracts,
agreements or understandings relating thereto.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to or utilized in such Person's
business, directly or indirectly, in whole or in part, whether or not carried
on the books and records of such Person, and whether or not owned in the name
of such Person or any Affiliate of such Person and wherever located.
"AVERAGE CLOSING PRICE" shall mean the average of the daily closing
sales prices of NDC Common Stock as reported on the NYSE Composite
Transactions reporting system (as reported by The Wall Street Journal or, if
not reported thereby, another authoritative source as chosen by NDC) for the
ten consecutive full trading days in which such shares are traded on the NYSE
ending at the close of trading on the date specified.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be
executed by Source and filed with the Secretary of State of the State of
Delaware relating to the Merger as contemplated by Section 1.1.
"CLOSING BALANCE SHEET" shall mean the balance sheet which includes
the consolidated financial position of Source and the Source Subsidiaries as
of the Closing Date delivered to the Stockholder Representative.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CLOSING WORKING CAPITAL" shall mean the Working Capital determined
based on the Closing Balance Sheet.
-50-
<PAGE>
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of any
kind or character, or other document to which any Person is a party or that
is binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current terms of, or renegotiate, or to accelerate the
maturity or performance of, or to increase or impose any Liability under, any
Contract, Law, Order, or Permit, where, in any such event, such Default is
reasonably likely to have, individually or in the aggregate, a Source
Material Adverse Effect or a NDC Material Adverse Effect, as applicable.
"DETERMINATION DATE" shall mean the close of trading on the tenth
trading day immediately preceding the Closing Date.
"DGCL" shall mean the Delaware General Corporation Law.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata) and which are
administered, interpreted, or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response Compensation
and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.
("RCRA"), and other Laws relating to emissions, discharges, releases, or
threatened releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of any Hazardous Material.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants,
or other binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Equity Rights.
-51-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXHIBITS" 1 through 15, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred
to in this Agreement and any other related instrument or document without
being attached hereto.
"FINAL WORKING CAPITAL" shall mean Closing Working Capital (i) as
shown in NDC's calculation delivered pursuant to Section 3.3(a), if no notice
of disagreement with respect thereto is duly delivered pursuant to Section
3.3(b); or (ii) if such a notice of disagreement is delivered, (A) as agreed
by NDC and the Stockholder Representative pursuant to Section 3.3(b) or (B)
in the absence of such agreement, as shown in the independent accountant's
calculation delivered pursuant to Section 3.3(c); provided that, in no event
shall Final Working Capital be (i) more than the Stockholder Representative's
calculation of Closing Working Capital delivered pursuant to Section 3.3(b),
if any, or (ii) less than the lesser of NDC's calculation of Closing Working
Capital delivered pursuant to Section 3.3(a) or the Stockholder
Representatives calculation of Closing Working Capital delivered pursuant to
Section 3.3(b), if any.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance, or toxic substance (as those
terms are defined by any applicable Environmental Laws) and (ii) any
chemicals, pollutants, contaminants, petroleum, petroleum products, or oil
(and specifically shall include asbestos requiring abatement, removal, or
encapsulation pursuant to the requirements of governmental authorities and
any polychlorinated biphenyls).
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"INDEMNIFICATION CLAIM" shall mean a claim for indemnification under
Article 10.
"INDEMNITEES" shall mean NDC, Source and their respective officers,
directors, controlling persons, Affiliates and Representatives.
"INDEMNITORS" shall mean the Stockholders.
"INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor, technology
rights and licenses, computer software (including any source or object codes
therefor or documentation relating
-52-
<PAGE>
thereto), trade secrets, franchises, know-how, inventions, and other
intellectual property rights.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"JOINT VENTURE FINANCIAL STATEMENTS" shall mean a balance sheet of the
Joint Venture (including related notes and schedules, if any), and the
related statements of income and cash flows for the Joint Venture
(including related notes and schedules, if any) for the period ended March
31,1997.
"JOINT VENTURE" shall mean the combination of the business conducted
in the United States by Source and its subsidiaries as of the date of this
Agreement and the PMSI Joint Venture Interest.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that
are known or should reasonably have been known after due inquiry by the
chairman, president, chief financial officer, chief accounting officer,
chief operating officer, general counsel, any assistant or deputy general
counsel, or any senior, executive or other vice president or general
manager of such Person and the knowledge of any such persons obtained or
which would have been obtained from a reasonable investigation.
"LAW" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted or enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, and (iii) Liens which do not materially
impair the use of or title to the Assets subject to such Lien.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, governmental or other examination
or investigation, hearing,
-53-
<PAGE>
administrative or other proceeding relating to or affecting a Party, its
business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement.
"LOSSES" shall mean any and all demands, claims, actions or causes of
action, assessments, losses, diminution in value, damages (including
special and consequential damages), liabilities, costs, and expenses,
including interest, penalties, cost of investigation and defense, and
reasonable attorneys' and other professional fees and expenses.
"MATERIAL" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ NATIONAL MARKET" shall mean the Nasdaq National Market, a
district tier of The Nasdaq Stock Market operated by The Nasdaq Stock
Market, Inc., a wholly-owned subsidiary of the National Association of
Securities Dealers Automated Quotations System.
"NDC CAPITAL STOCK" shall mean, collectively, the NDC Common Stock,
the NDC Preferred Stock and any other class or series of capital stock of
NDC.
"NDC COMMON STOCK" shall mean the $0.125 par value common stock of
NDC.
"NDC DISCLOSURE MEMORANDUM" shall mean the written information
entitled "National Data Corporation Disclosure Memorandum" delivered prior
to the date of this Agreement to Source describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made unless such disclosure is reasonably
adequate to inform the other party that each matter disclosed would be
responsive to another section of disclosure in the Disclosure Memorandum.
"NDC ENTITIES" shall mean, collectively, NDC and all NDC Subsidiaries.
"NDC FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of NDC as of
February 28, 1997, and as of May 31, 1996 and 1995, and the related
statements of income, changes in stockholders' equity, and cash flows
(including related notes and schedules, if any) for the nine months ended
February 28, 1997, and for each of the three fiscal years ended May 31,
1996, 1995 and 1994, as filed by NDC in SEC Documents, and (ii) the
consolidated balance sheets of NDC (including related notes and schedules,
if any) and related statements of income, changes in stockholders' equity,
and cash flows (including related notes and schedules, if any) included in
SEC Documents filed with respect to periods ended subsequent to February
28, 1997.
-54-
<PAGE>
"NDC MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of NDC and its Subsidiaries, taken as a
whole, or (ii) the ability of NDC to perform its obligations under this
Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Material Adverse Effect"
shall not be deemed to include the impact of (a) actions and omissions of
NDC (or any of its Subsidiaries) taken with the prior informed written
Consent of Source in contemplation of the transactions contemplated hereby,
and (b) the direct effects of compliance with this Agreement on the
operating performance of NDC, including expenses incurred by NDC in
consummating the transactions contemplated by this Agreement.
"NDC PREFERRED STOCK" shall mean the $1.00 par value preferred stock
of NDC.
"NDC RIGHTS AGREEMENT" shall mean that certain Rights Agreement, dated
January 18, 1991, between NDC and Wachovia Bank of North Carolina, N.A., as
Rights Agent.
"NDC RIGHTS" shall mean the preferred stock purchase rights issued
pursuant to the NDC Rights Agreement.
"NDC SUBSIDIARIES" shall mean the Subsidiaries of NDC and any
corporation or other organization acquired as a Subsidiary of NDC in the
future and held as a Subsidiary by NDC at the Effective Time.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OPERATING PROPERTY" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries or in which
such Party or Subsidiary holds a security interest or other interest
(including an interest in a fiduciary capacity), and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility or property in which
the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"PARTY" shall mean either Source or NDC, and "PARTIES" shall mean both
Source and NDC.
-55-
<PAGE>
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets, or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"PMSI JOINT VENTURE INTEREST" shall mean all of the rights, benefits,
obligations and interests of PMSI under the Amended and Restated Alpha
Database License Agreement.
"PRELIMINARY BALANCE SHEET" shall mean the balance sheet which
includes the consolidated financial position of Source and the Source
Subsidiaries as of the most recent month ending more than ten days prior to
the Closing Date delivered to NDC.
"PURCHASE PRICE" shall mean the total consideration to be paid to the
Stockholders by NDC for the purchase of the Source Common Stock and the
Source Preferred Stock, pursuant to Section 3.1 of this Agreement.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-4, or other appropriate form, including any pre-effective or post-
effective amendments or supplements thereto, filed with the SEC by NDC
under the 1933 Act with respect to the shares of NDC Common Stock to be
issued to the stockholders of Source in connection with the transactions
contemplated by this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NYSE,
the NASD, the Federal Trade Commission, the United States Department of
Justice, and all other federal, state, county, local or other governmental
or regulatory agencies, authorities (including self-regulatory
authorities), instrumentalities, commissions, boards or bodies having
jurisdiction over the Parties and their respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC DOCUMENTS" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to
be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
-56-
<PAGE>
"SIGNIFICANT SUBSIDIARY" shall mean any present or future consolidated
Subsidiary of the Party in question, the assets of which constitute ten
percent (10%) or more of the consolidated assets of such Party as reflected
on such Party's consolidated statement of condition prepared in accordance
with GAAP.
"SOURCE BALANCE SHEET" shall mean the balance sheet which includes the
consolidated financial position of Source and the Source Subsidiaries at
March 31, 1997.
"SOURCE COMMON STOCK" shall mean the $0.01 par value common stock of
Source.
"SOURCE DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Source Informatics Inc. Disclosure Memorandum" delivered prior to
the date of this Agreement to NDC describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made unless such disclosure is reasonably
adequate to inform the other party that each matter disclosed would be
responsive to another section of disclosure in the Disclosure Memorandum.
"SOURCE ENTITIES" shall mean, collectively, Source and all Source
Subsidiaries.
"SOURCE FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheet (including related notes and schedules, if any) of Source and its
Subsidiaries as of June 30, 1996, and the related statement of income,
changes in stockholders' equity, and cash flows (including related notes
and schedules, if any) for the fiscal year ended June 30, 1996, and (ii)
the consolidated balance sheet of Source and the Source Subsidiaries
(including related notes and schedules, if any) as of March 31, 1997, and
related statement of income and cash flows (including related notes and
schedules, if any) with respect to the nine month period ended March 31,
1997.
"SOURCE MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of the Joint Venture, or (ii) the
ability of Source to perform its obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this
Agreement, provided that "Material Adverse Effect" shall not be deemed to
include the impact of (a) actions and omissions of Source (or any of its
Subsidiaries) taken with the prior informed written Consent of NDC in
contemplation of the transactions contemplated hereby, and (b) the direct
effects of compliance with this Agreement on the operating performance of
Source, including expenses incurred by Source in consummating the
transactions contemplated by this Agreement.
"SOURCE PREFERRED STOCK" shall mean the $1.00 par value preferred
stock of Source.
-57-
<PAGE>
"SOURCE SUBSIDIARIES" shall mean the Subsidiaries of Source, which
shall include the Source Subsidiaries described in Section 5.4 and any
corporation or other organization acquired as a Subsidiary of Source in the
future and held as a Subsidiary by Source at the Effective Time but which
exclude the Source Divestiture Subsidiaries.
"STOCKHOLDER REPRESENTATIVE" shall mean a committee comprised of
Messrs. Dennis Turner, Handel Evans and Patrick Welsh.
"STOCKHOLDERS" shall mean the holders of Source Common Stock.
"STOCKHOLDERS' MEETINGS" shall mean either or both, as indicated, of
the meeting of the holders of Source Common Stock and Source Preferred
Stock to be held pursuant to Section 8.1, including any adjournment or
adjournments thereof.
"SUB COMMON STOCK" shall mean the $0.01 par value common stock of Sub.
"SUBSIDIARIES" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more of
the outstanding equity securities is owned directly or indirectly by its
parent (provided, there shall not be included any such entity the equity
securities of which are owned or controlled in a fiduciary capacity), (ii)
in the case of partnerships, serves as a general partner, (iii) in the case
of a limited liability company, serves as a managing member, or (iv)
otherwise has the ability to elect a majority of the directors, trustees or
managing members thereof.
"SURVIVING CORPORATION" shall mean Source as the surviving corporation
resulting from the Merger.
"TAX RETURN" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"TAX" or "TAXES" shall mean any federal, state, county, local, or
foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, environmental, federal highway use, commercial rent,
customs duties, capital stock, paid-up capital, profits, withholding,
Social Security, single business and unemployment, disability, real
property, personal property, registration, ad valorem, value added,
alternative or add-on minimum, estimated, or other tax or governmental fee
of any kind whatsoever, imposes or required to be withheld by the United
States or any state, county, local or foreign government or subdivision or
agency thereof, including any interest, penalties, and additions imposed
thereon or with respect thereto.
-58-
<PAGE>
"THIRD PARTY CLAIM" shall mean any Litigation (including, without
limitation, a binding arbitration or an audit by any taxing authority) that
is instituted against an Indemnitee by a Person other than an Indemnitor
and which, if prosecuted successfully, would result in a Loss for which
such Indemnitee is entitled to indemnification hereunder.
(b) The terms set forth below shall have the meanings ascribed thereto
in the referenced sections:
Aggregate Cash Amount Section 3.1(c)
Certificates Section 4.1
Closing Section 1.2
Closing Current Assets Section 3.3(a)
Closing Current Liabilities Section 3.3(a)
Closing Date Section 1.2
Common Base Exchange Ratio Section 3.1(c)
Common Cash Amount Section 3.1(c)
Common Escrow Exchange Ratio Section 3.1(c)
Common Exchange Ratio Section 3.1(c)
Current Asset Allocation Section 3.4(b)
Current Assets Section 3.2(a)
Current Liabilities Section 3.2(a)
Disputed Amounts Section 3.3(c)
Divestiture Section 7.1(b)
Effective Time Section 1.3
Employment Agreements Section 9.1(k)
ERISA Affiliate Section 5.14(b)
Escrow Agreement Section 4.3
Estimated Current Assets Section 3.2(a)
Estimated Current Liabilities Section 3.2(a)
Estimated Working Capital Section 3.2(a)
Estimated Working Capital Adjustment Section 3.2(c)
European Business Section 7.1(b)
European Contracts Section 7.1(b)
Excess Expense Section 3.1(c)
Exchange Agent Section 4.1
Expense Schedule Section 3.1(c)
Final Working Capital Deficit Section 3.4(a)
Final Working Capital Surplus Section 3.4(a)
Indemnified Party Section 8.14(a)
Lower Threshold Amount Section 3.1(c)
Maximum Amount Section 8.14
Merger Section 1.1
NDC SEC Reports Section 6.4(a)
Noncompetition Agreements Section 9.2(k)
Option Shares Section 3.1(c)
-59-
<PAGE>
Payment Shares Section 3.1(c)
Preferred Stock Merger Consideration Section 3.1(d)
PMSI Agreement Section 3.1(c)
Scheduled Stockholders Section 5.3
Source Benefit Plans Section 5.14
Source Contracts Section 5.15
Source Divestiture Agreement Section 5.4
Source Divestiture Subsidiaries Section 7.1(b)
Source ERISA Plan Section 5.14
Source Intellectual Property Section 5.10
Source Pension Plan Section 5.14
Stock Escrow Section 3.1(c)
Takeover Laws Section 5.19
Threshold Prices Section 3.1(c)
Total Combined Assets Section 3.4(b)
Total Current Assets Section 3.4(b)
Total Current Liabilities Section 3.4(b)
Total Working Capital Deficit Section 3.4(b)
Total Working Capital Surplus Section 3.4(b)
Transaction Expenses Section 3.1(c)
Upper Threshold Amount Section 3.1(c)
Voting Agreements Section 5.21
Working Capital Section 3.2(a)
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
12.2 EXPENSES.
--------
(a) Excluding the Transaction Expenses and except as otherwise
provided in this Section 12.2, each of the Parties shall bear and pay all direct
costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing, registration and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel, except that
each of the Parties shall bear and pay one-half of the filing fees payable in
connection with the HSR Act.
(b) Notwithstanding the foregoing,
(i) if this Agreement is terminated pursuant to any of Sections
11.1(c) (but only on the basis of failure of the agreement provided in
Section 8.1 that Source shall call meetings of the Stockholders of Source for
the purpose of voting on the adoption of this Agreement), 11.1(d)(ii) (but
only as it relates to approval of Source's stockholders), or
-60-
<PAGE>
(ii) if this Agreement is terminated by NDC pursuant to Section
11.1(g), or
(iii) if this Agreement is terminated by Source pursuant to
Section 11.1(i),
and the conditions to the obligations of Source hereunder pursuant to Section
9.1, except for the provisions of Section 9.1(a), and Section 9.3(a) and 9.3(b),
have been satisfied, then Source shall promptly pay NDC all documented out-of-
pocket costs and expenses of NDC, including costs of counsel, investment
bankers, actuaries and accountants up to a maximum amount of $750,000.
(c) In addition to the foregoing, if, this Agreement is terminated
pursuant to Section 11.1 (c) (but only on the basis of failure of the agreement
provided in Section 8.1 that Source shall call meetings of the Stockholders of
Source for the purpose of voting on the adoption of this Agreement) or Section
11.1(d)(ii) (but only with respect to approval of the stockholders of Source),
Source shall pay to NDC an amount in cash equal to the sum of $3,000,000, which
sum represents compensation for NDC's loss as the result of the transactions
contemplated by this Agreement not being consummated.
(d) In addition to the foregoing, if, after the date of this Agreement
and within twelve (12) months following any termination of this Agreement by NDC
pursuant to Section 10.1(g) or any termination of this Agreement by Source
pursuant to Section 10.1(i) of this Agreement, any third-party shall acquire,
merge with, combine with, purchase substantially all of the Assets of, or engage
in any other business combination with, or purchase any equity securities
involving an acquisition of 50% or more of the voting stock of Source, or enter
into any binding agreement to do any of the foregoing (collectively, a "Business
Combination"), such third-party that is a party to the business combination
shall pay to NDC, as a condition consummation of the Business Combination, an
amount in cash equal to $3,000,000, which sum represents additional combination
for NDC's loss as a result of the transactions contemplated by this Agreement
not being consummated. In the event such third-party shall refuse to pay such
amounts within ten days of demand therefore by NDC, the amount shall be an
obligation of Source and shall be paid by Source promptly upon notice to Source
by NDC. Notwithstanding the foregoing, the payment required by this Section
12.2(d) will only come due if a third party that was involved in discussions or
negotiations with Source on or before the termination of this agreement
consummates the Business Combination.
(e) Nothing contained in this Section 12.2 shall constitute or shall
be deemed to constitute liquidated damages for the willful breach by a Party of
the terms of this Agreement or otherwise limit the rights of the nonbreaching
Party.
12.3 BROKERS AND FINDERS. Except for Montgomery Securities Corporation
-------------------
as to Source and except for Lazard Freres & Co. LLC as to NDC, each of the
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the
-61-
<PAGE>
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by Source or any Stockholder or by NDC, each of
Source and the Stockholders and NDC, as the case may be, agrees to indemnify and
hold the other Party harmless of and from any Liability in respect of any such
claim.
12.4 ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, other than as provided in
Sections 8.13 and 8.14.
12.5 AMENDMENTS. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after stockholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of Source Common Stock, there shall be made no amendment that pursuant
to Section 251 of the DGCL requires further approval by such stockholders.
12.6 WAIVERS.
-------
(a) Prior to or at the Effective Time, NDC, acting through its Board
of Directors, chief executive officer or other authorized officer, shall have
the right to waive any Default in the performance of any term of this Agreement
by Source or the Stockholders, to waive or extend the time for the compliance or
fulfillment by Source or the Stockholders of any and all of its obligations
under this Agreement, and to waive any or all of the conditions precedent to the
obligations of NDC under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of NDC.
(b) Prior to or at the Effective Time, Source, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by NDC, to waive or extend the time for the compliance or fulfillment
by NDC of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of Source and the
Stockholders under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of Source.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed
-62-
<PAGE>
as a further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
12.7 ASSIGNMENT. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
12.8 NOTICES. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
Source or
any Stockholder: Source Informatics Inc.
Suite 912
45 Rockefeller Plaza
New York, New York 10111
Telecopy Number: (212) 841-5760
Attention: Mr. Warren Hauser, Esq.
Copy to Counsel: Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telecopy Number: (212) 841-5725
Attention: Mr. Robert A. Schwed, Esq.
NDC: National Data Corporation
National Data Plaza
Atlanta, Georgia 30329
Telecopy Number: (404) 728-2990
Attention: E. Michael Ingram, Esq.
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-7777
Attention: B. Harvey Hill, Jr., Esq.
-63-
<PAGE>
12.9 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the Laws of the State of Delaware, without regard to any
applicable conflicts of Laws.
12.10 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12.11 CAPTIONS; ARTICLES AND SECTIONS. The captions contained in this
-------------------------------
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
12.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
12.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
12.14 SEVERABILITY. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
-64-
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
NATIONAL DATA CORPORATION
By: /s/ E. Michael Ingram
Name: E. Michael Ingram
Title: Senior Vice President
DUNKIRK, INC.
By: /s/ E. Michael Ingram
Name: E. Michael Ingram
Title: Senior Vice President
SOURCE INFORMATICS INC.
By: /s/ Warren Hauser
Name: Warren Hauser
Title: Vice President
-65-
<PAGE>
LIST OF EXHIBITS*
----------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1. Form of Escrow Agreement. ((S) 4.3).
2. Form of Stockholders' Voting Agreement. ((S) 5.21).
3. Form of agreement of affiliates of Source. ((S) 8.12).
4. Matters as to which Reboul, MacMurray, Hewitt, Maynard & Kristol
will opine. ((S) 9.2(d)).
5. Terms of Employment Agreements. ((S) 9.2(f)).
6. Form of Noncompetition Agreement. ((S) 9.2(g)).
7. Form of Source Europe License Agreement.
8. Form of East Asia License Agreement.
9. Form of Source Europe Transition Services Agreement.
10. Form of Assignment of Lease for Source property in Newtown, PA.
11. Form of Sublease for use of property in Newtown, PA.
12. Form of Sublease for use of property in Phoenix, AZ.
13. Form of SL Services Agreement.
14. Form of Waiver. ((S) 9.2(k)).
15. Matters as to which Alston & Bird LLP will opine. ((S) 9.3(d)).
- ------------
* Exhibits to be filed by amendment
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our report
included herein and to the incorporation by reference of our reports dated July
16, 1997 (except with respect to Note 18, for which the date is August 20, 1997)
included in National Data Corporation's Annual Report on Form 10-K for the year
ending May 31, 1997 (and to all references to our Firm) included in or made a
part of this registration statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 18, 1997
<PAGE>
EXHIBIT 99.1
SOURCE INFORMATICS INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints _________________ and _________________, or
either of them, each with full power of substitution, acting jointly or by any
of them if only one be present and acting, attorneys and proxies to vote in the
manner specified below (according to the number of shares which the undersigned
would be entitled to cast if then personally present), all the shares of Common
Stock of Source Informatics Inc. ("Source") held of record by the undersigned on
____________, 1997, at the Special Meeting of Stockholders to be held at ____
__.m., New York time, on ____________, 1997, at including any adjournments
thereof.
1. To adopt the Merger Agreement and Plan of Merger, dated as of August 20, 1997
(the "Merger Agreement"), by and among Source, National Data Corporation
("NDC") and Dunkirk, Inc., pursuant to which, among other matters, (a)
Dunkirk, Inc. will merge with and into Source (the "Merger") and (b) the
shares of Source Common Stock will be converted into the right to receive
shares of NDC Common Stock, as described in the Proxy Statement/Prospectus
dated _______________ 1997.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In their discretion, to vote upon such other business as may properly come
before the meeting.
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 PROPOSAL 1 ABOVE.
WITNESS my hand and seal this ___ day of ____________, 1997.
_______________________________________________
_______________________________________________
Signature of Stockholder
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES
APPEARS HEREON. IF STOCK IS HELD JOINTLY, SIGNATURES
SHOULD APPEAR FOR BOTH NAMES. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN OR
CUSTODIAN, PLEASE INDICATE THE CAPACITY IN WHICH YOU
ARE ACTING.
Please fill in, date and sign the proxy and return it in the enclosed postpaid
envelope.
<PAGE>
EXHIBIT 99.2
SOURCE INFORMATICS INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints _________________ and _________________, or
either of them, each with full power of substitution, acting jointly or by any
of them if only one be present and acting, attorneys and proxies to vote in the
manner specified below (according to the number of shares which the undersigned
would be entitled to cast if then personally present), all the shares of
Preferred Stock of Source Informatics Inc. ("Source") held of record by the
undersigned on ______, 1997, at the Special Meeting of Stockholders to be held
at ____ __.m., New York time, on ___________, 1997, at including any
adjournments thereof.
1. To adopt the Merger Agreement and Plan of Merger, dated as of August 20, 1997
(the "Merger Agreement"), by and among Source, National Data Corporation
("NDC") and Dunkirk, pursuant to which, among other matters, (a) Dunkirk,
Inc. will merge with and into Source (the "Merger") and (b) the shares of
Source Preferred Stock will be converted into the right to receive cash, as
described in the Proxy Statement/Prospectus dated _________________, 1997.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In their discretion, to vote upon such other business as may properly come
before the meeting.
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 PROPOSAL 1 ABOVE.
WITNESS my hand and seal this ___ day of ____________, 1997.
_______________________________________________
_______________________________________________
Signature of Stockholder
PLEASE SIGN THIS PROXY EXACTLY AS YOUR NAME OR NAMES
APPEARS HEREON. IF STOCK IS HELD JOINTLY, SIGNATURES
SHOULD APPEAR FOR BOTH NAMES. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN OR
CUSTODIAN, PLEASE INDICATE THE CAPACITY IN WHICH YOU
ARE ACTING.
Please fill in, date and sign the proxy and return it in the enclosed postpaid
envelope.
