<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box
/ / Preliminary Proxy Statement
/ / Confidential. For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PHARMACEUTICAL MARKETING SERVICES INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14(a-6)(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Source Informatics European Holdings Inc. Common Stock, $.01 par value
(2) Aggregate number of securities to which transaction applies:
100 shares
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
Pursuant to Rule 0-11(c)(i), computed based on the proposed cash
payment in the transactions
(4) Proposed maximum aggregate value of transaction:
$4 million
(5) Total fee paid: $800
/X/ Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO]
PHARMACEUTICAL MARKETING SERVICES INC.
SUITE 912
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10111
November 14, 1997
Dear Stockholder:
On behalf of our Board of Directors, I am pleased to invite you to attend a
Special Meeting of Stockholders of Pharmaceutical Marketing Services Inc. (the
"Company") which will be held at 11:00 a.m., local time, on Monday, December 15,
1997 at The Lotos Club, 5 East 66th Street, New York, New York.
At this meeting, Company stockholders will be asked to approve a series of
related transactions (the "Transactions") among the Company, Source Informatics
Inc. ("Source") and National Data Corporation ("NDC"), pursuant to which (a) the
Company would sell to NDC (i) the Company's minority interest in a United States
operating venture with Source ("Source US") and (ii) the Company's
Over-the-Counter Physician Database business (the "OTC Business"); and (b) the
Company would receive (collectively, the "Consideration") (w) an aggregate $15.5
million in cash, (x) 1,059,829 registered shares of Common Stock, $0.125 par
value ("NDC Common Stock"), including associated rights, of NDC, subject to
adjustment based on the average closing sales prices for NDC Common Stock over a
ten-day period preceding the closing of the transactions described herein, (y)
all the European operations of Source ("Source Europe"), partially in return for
cancellation of certain loans under a line of credit made by PMSI in favor of
Source, and (z) an aggregate 918,254 shares of Common Stock of the Company
currently owned by Source which the Company will hold as treasury shares.
Simultaneously with the Transactions, a subsidiary of NDC will be merged with
and into Source with Source surviving as a wholly-owned subsidiary of NDC (the
"Source Merger").
Based on the average closing sales prices of NDC Common Stock and the
closing price of the Company's Common Stock on November 13, 1997, the total
value of cash, NDC Common Stock and Company's Common Stock to be received by the
Company (not taking into account the value of Source Europe) if the Transactions
had been consummated on that date would have been $65.2 million, or
approximately $5.28 per share of common stock of the Company, before payment of
expenses.
The Company believes that the Transactions provide it with an opportunity to
capitalize on the value of its minority interest in Source US and its OTC
Business while simultaneously allowing it to acquire all of Source Europe to
strengthen and expand the Company's European operations. Although Source Europe
requires additional investment to achieve full commercialization of its
services, Source has already devoted a considerable amount of resources to its
development. The Company believes that its acquisition of Source Europe will
increase the Company's presence in the European market by combining the
Company's expertise and existing management infrastructure with the services and
products of Source Europe. It is the Company's aim to become a significant
healthcare information provider within the European market while retaining a
significant presence in the United States through its Scott-Levin subsidiary and
a growing information services business in Japan.
The Board of Directors of the Company believes that, if the Transactions are
not consummated, Source will continue to search for a purchaser of its majority
interest in Source US or its interest in Source Europe or both in a transaction
that would not necessarily include the Company, thus requiring the Company to
retain a minority position in an operating venture with an unfamiliar third
party that would have control over the venture. Moreover, any such transaction
would not necessarily provide the Company with the opportunity to acquire all of
Source Europe.
An aggregate $9 million of the cash to be received by the Company in the
Transactions will come from Source. The Company believes, and negotiated the
Transactions based on the belief, that this amount should contribute
significantly to the future funding requirements of Source Europe. It is the
Company's intention to utilize these cash proceeds from the Transactions towards
the completion of the development of Source Europe. Assuming consummation of the
Transactions, the Company's resources will include cash and marketable
securities aggregating in excess of $100 million.
The Transactions have been approved and recommended by an independent
committee (the "Committee") of the Company's Board comprised solely of directors
who are neither members of the Source board of directors nor stockholders of
Source. The Committee has received a written opinion from Cowen & Company,
financial advisor to the Committee, to the effect that the Consideration to be
paid to the Company in the Transactions is fair, from a financial point of view,
to the Company. THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL
CONSIDERATION, HAS DETERMINED THAT THE TRANSACTIONS ARE IN THE BEST INTERESTS OF
THE STOCKHOLDERS OF THE COMPANY AND HAS APPROVED THE TRANSACTIONS. ACCORDINGLY,
IT RECOMMENDS THAT YOU VOTE IN FAVOR OF THE TRANSACTIONS.
A Notice of Special Meeting and a Proxy Statement containing detailed
information concerning the Transactions and certain other related transactions
are attached. I urge you to read this material carefully. While neither Delaware
corporate nor federal securities law requires the consent of the stockholders of
the Company to the Transactions, the Board of Directors of the Company has
required stockholder consent as a condition to the closing of the Transactions.
YOUR PARTICIPATION IN THIS MEETING, IN PERSON OR BY PROXY, IS, THEREFORE, VERY
IMPORTANT TO THE FUTURE DIRECTION OF YOUR COMPANY. PLEASE MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING.
Sincerely,
/s/ Dennis M. J. Turner
Dennis M. J. Turner
Chief Executive Officer
<PAGE>
[LOGO]
PHARMACEUTICAL MARKETING SERVICES INC.
SUITE 912
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10111
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 15, 1997
A Special Meeting of Stockholders of Pharmaceutical Marketing Services Inc.
(the "Company") will be held at The Lotos Club, 5 East 66th Street, New York,
New York on the 15th day of December, 1997 at 11:00 a.m., for the following
purposes:
1. To consider and vote upon a proposal to approve a series of related
transactions (the "Transactions") whereby (a) the Company would sell to
National Data Corporation ("NDC") (i) the Company's minority interest in a
United States operating venture with Source Informatics Inc. ("Source") and
(ii) the Company's Over-the-Counter Physician Database business; and (b) the
Company would receive (w) an aggregate $15.5 million in cash (including an
aggregate $9 million from Source), (x) 1,059,829 registered shares of Common
Stock, $0.125 par value ("NDC Common Stock"), including associated rights,
of NDC, subject to adjustment based on the average closing sales prices for
NDC Common Stock over a ten-day period preceding the closing of the
Transactions, as more fully described in the accompanying Proxy Statement,
(y) the European operations of Source, still in the developmental stage,
partially in return for cancellation of certain loans under a line of credit
made by PMSI in favor of Source, and (z) an aggregate 918,254 shares of
Common Stock of the Company currently owned by Source which the Company will
hold as treasury shares.
2. To transact such other business as may properly come before the
Special Meeting or at any adjournments or postponements thereof.
The accompanying Proxy Statement and the Appendices thereto form a part of
this Notice.
The Board of Directors has fixed the close of business on November 3, 1997
as the record date for the determination of the stockholders of the Company
entitled to notice of and to vote at the Special Meeting of Stockholders. Each
share of the Company's Common Stock is entitled to one vote on all matters
presented at the Special Meeting.
ALL HOLDERS OF THE COMPANY'S COMMON STOCK (WHETHER THEY EXPECT TO ATTEND THE
SPECIAL MEETING OR NOT) ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN
PROMPTLY THE PROXY CARD ENCLOSED WITH THIS NOTICE.
By Order of the Board of Directors
/s/ Warren J. Hauser
--------------------------------------
Warren J. Hauser
Secretary
November 14, 1997
<PAGE>
[LOGO]
PHARMACEUTICAL MARKETING SERVICES INC.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 15, 1997
INTRODUCTION
This Proxy Statement is being furnished to holders of record as of November
3, 1997 of Common Stock, $.01 par value per share ("Company Common Stock"), of
Pharmaceutical Marketing Services Inc., a Delaware corporation ("PMSI" or the
"Company"), in connection with the solicitation by the Board of Directors of
PMSI of proxies for use at a Special Meeting of Stockholders, to be held at The
Lotos Club, 5 East 66th Street, New York, New York on December 15, 1997 and at
any adjournments or postponements thereof (the "Special Meeting").
The Special Meeting has been called to consider and vote on a proposal to
approve a series of related transactions (the "Transactions") that will be
accomplished pursuant to (1) the Stock Purchase Agreement, dated as of August
20, 1997 (the "Stock Purchase Agreement"), by and among National Data
Corporation, a Delaware corporation ("NDC"), PMSI Database Holdings, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("PMSI Sub"),
and the Company and (2) the Securities Transfer Agreement, dated as of August
20, 1997 (the "Transfer Agreement"), between the Company and Source Informatics
Inc., a Delaware corporation ("Source"). The Transactions contemplated by the
Stock Purchase Agreement and the Transfer Agreement are as follows: (a) NDC will
purchase from the Company all the outstanding capital stock of PMSI Sub to which
the Company has transferred (i) its minority interest in a United States
operating venture with Source ("Source US") and (ii) its Over-the-Counter
Physician Database business (the "OTC Business"); and (b) the Company will
receive (collectively, the "Consideration") (w) an aggregate $15.5 million in
cash (including an aggregate $9 million from Source), (x) 1,059,829 shares of
Common Stock, $0.125 par value ("NDC Common Stock"), including associated
rights, of NDC, registered under the Securities Act of 1933, as amended (the
"Securities Act"), subject to adjustment as described below, (y) all the
European operations of Source ("Source Europe"), partially in return for
cancellation of certain loans under a line of credit made by PMSI in favor of
Source, and (z) an aggregate 918,254 shares of Company Common Stock currently
owned by Source that, by the time of the closing of the Transactions (the
"Closing"), will have been transferred by Source to Source Europe and which the
Company will hold as treasury shares.
Simultaneously with the execution of the Stock Purchase Agreement and the
Transfer Agreement, Source and NDC entered into an Agreement and Plan of Merger,
dated as of August 20, 1997, as amended (the "Source Merger Agreement"),
pursuant to which a subsidiary of NDC will be merged with and into Source, with
Source surviving as a wholly-owned subsidiary of NDC (the "Source Merger"). It
is a condition to the Source Merger that NDC purchase the OTC Business and the
Company's interest in Source US and it is a condition to the Stock Purchase
Agreement that the Company acquire Source Europe. Additional conditions to the
Transactions and the Source Merger include approval by the stockholders of the
Company of the Transactions and approval by the stockholders of Source of the
Source Merger.
The number of shares of NDC Common Stock to be received by the Company in
the Transactions may be adjusted, based on the average closing sales prices for
NDC Common Stock on the New York Stock Exchange (the "NYSE") over the ten
trading days immediately preceding the tenth trading day preceding the Closing
(the "Average Sales Price"), as follows: if the Average Sales Price is greater
than $50.50 per share, the number of shares of NDC Common Stock to be received
by the Company will be reduced to a
1
<PAGE>
number of shares which, as of such date, would have an aggregate value of at
least $53.52 million, while if the Average Sales Price is less than $37.25 per
share (the "Minimum Share Price"), the Company may terminate the Stock Purchase
Agreement, which would have the effect of also terminating the Transfer
Agreement and the Source Merger Agreement, provided that if the Company does
elect to terminate, NDC has the option to increase the number of shares of NDC
Common Stock to be received by the Company to a number of shares which, as of
such date, would have an aggregate value of at least $39.48 million. Source,
pursuant to the Source Merger Agreement, has a similar right to terminate the
Source Merger, and thereby the Transactions, and in such event NDC has a similar
option to increase the number of shares of NDC Common Stock to be received by
Source (which would have the effect of increasing the number of shares of NDC
Common Stock to be received by the Company as described above). Had the
Transactions been consummated on the date of this Proxy Statement, the Average
Sales Price would have been $37.71.
STOCKHOLDERS ARE URGED TO READ THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGES 11 TO 12 OF THIS PROXY STATEMENT.
This Proxy Statement and the accompanying form of proxy are first being
mailed to the Company's stockholders on or about November 17, 1997.
The date of this Proxy Statement is November 14, 1997.
2
<PAGE>
AVAILABLE INFORMATION
Each of PMSI and NDC is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by PMSI and NDC with the
Commission can be inspected and copied at the public reference facilities
maintained by 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 Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. In addition, copies of the materials filed by NDC can be
obtained at the NYSE at its mailing and distribution department, 20 Broad
Street, 5th Floor, New York, New York 10005.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.................................................................................................... 6
The Company.............................................................................................. 6
NDC...................................................................................................... 6
Source................................................................................................... 6
The Special Meeting...................................................................................... 7
The Transactions......................................................................................... 7
RISK FACTORS............................................................................................... 11
Historical Financial Performance of Source Europe........................................................ 11
Disposition of Source US and the OTC Business; Developmental Stage of Source Europe; Effect on Earnings
Per Share.............................................................................................. 11
Data Privacy Regulations................................................................................. 12
Competition.............................................................................................. 12
Cautionary Statement Concerning Forward-Looking Statements............................................... 12
SELECTED FINANCIAL DATA OF THE COMPANY..................................................................... 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY....... 16
SELECTED FINANCIAL DATA OF SOURCE EUROPE................................................................... 17
SOURCE EUROPE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION........ 18
SELECTED FINANCIAL DATA OF NDC............................................................................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF NDC............... 22
UNAUDITED PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................. 23
PROFORMA FINANCIAL INFORMATION OF NDC, SOURCE US AND THE OTC BUSINESS...................................... 31
THE SPECIAL MEETING........................................................................................ 31
Purpose of the Special Meeting........................................................................... 31
Record Date; Stock Entitled to Vote; Quorum.............................................................. 31
Required Vote............................................................................................ 31
Proxies.................................................................................................. 32
Solicitation of Proxies.................................................................................. 32
THE TRANSACTIONS........................................................................................... 32
Background............................................................................................... 32
Recommendation of the Board of Directors; Reasons for the Transactions................................... 33
Opinion of Financial Advisor............................................................................. 35
Description of the Transactions.......................................................................... 40
Interests of Certain Persons in the Transactions......................................................... 44
Regulatory Approvals..................................................................................... 45
THE STOCK PURCHASE AGREEMENT AND THE TRANSFER AGREEMENT.................................................... 46
PRICE OF NDC COMMON STOCK.................................................................................. 51
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PRICE OF COMPANY COMMON STOCK.............................................................................. 51
DESCRIPTION OF NDC COMMON STOCK............................................................................ 51
THE COMPANY................................................................................................ 52
Overview................................................................................................. 52
Databases and Services................................................................................... 52
Marketing and Sales...................................................................................... 53
Acquisition Strategy and Divestment Program.............................................................. 54
Long-term Agreements..................................................................................... 54
Annual Agreements........................................................................................ 54
Backlog.................................................................................................. 55
Industry Regulation...................................................................................... 55
Employees................................................................................................ 56
NDC........................................................................................................ 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY.............................. 57
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 59
OTHER MATTERS.............................................................................................. 60
INDEX TO SOURCE EUROPE ANNUAL FINANCIAL STATEMENTS......................................................... F-1
INDEX TO SOURCE EUROPE INTERIM FINANCIAL STATEMENTS........................................................ F-13
</TABLE>
<TABLE>
<S> <C>
APPENDICES
Appendix A Stock Purchase Agreement
Appendix B Transfer Agreement
Appendix C Opinion of Financial Advisor
Appendix D Selected Portions of NDC S-4
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS INTENDED ONLY TO HIGHLIGHT CERTAIN INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, THE APPENDICES HERETO AND THE
DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE REFERRED TO HEREIN.
STOCKHOLDERS ARE URGED TO REVIEW THIS ENTIRE PROXY STATEMENT CAREFULLY,
INCLUDING THE APPENDICES HERETO AND SUCH OTHER DOCUMENTS.
THE COMPANY
The Company was formed in 1991 by carving out the pharmaceutical marketing
services business from Walsh International Inc. ("Walsh"), originally the parent
company of both PMSI and Source, and consummating an initial public offering of
Company Common Stock. After completion of the public offering, Walsh retained
approximately 58% of the outstanding Company Common Stock. Walsh's ownership,
which was transferred to Source in the spin-off of Source from Walsh (see
"SOURCE"), had decreased to approximately 9% by the time of the Source spin-off.
Certain directors and executive officers of the Company also serve as directors
and executive officers of Source. See "THE TRANSACTIONS-- Interests of Certain
Persons in the Transactions."
PMSI provides a range of information services to pharmaceutical and
healthcare companies in the United States, Europe and Japan to enable them to
optimize their sales and marketing performance in a value driven environment.
Most of the Company's information services are generated from its own
proprietary databases containing unique prescription, managed care, healthcare
market and medical prescriber data.
The Company's principal executive offices are located at 45 Rockefeller
Plaza, Suite 912, New York, New York 10111 and its telephone number is (212)
841-0610.
NDC
NDC, together with its subsidiaries, is a leading provider of high-volume
information services and applications systems to the healthcare and payment
systems markets. NDC markets its services directly to healthcare providers and
merchants and indirectly through business alliances with a wide range of banks,
insurance companies and distributors. It provides electronic claims processing
and adjudication services, practice management systems, electronic data
interchange 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 healthcare providers. In addition, NDC 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 and
electronic data interchange services, cash management systems and services and
electronic tax filing and payment services to government and corporate customers
and a broad range of payment acceptance services primarily in partnership with
banks.
NDC's principal executive offices are located at National Data Plaza,
Atlanta, Georgia 30329-2010, and its telephone number is (404) 728-2000.
SOURCE
Source was spun off from Walsh in 1996. At the time of the spin-off, Walsh
transferred to Source all the shares of Company Common Stock then held by Walsh.
Source develops and maintains a database of prescription data collected from
retail and mail order pharmacies in the United States (the "Alpha Database")
together with databases of pharmaceutical product shipment data. Through the
Source US venture, the Company and Source have been jointly offering a range of
services generated from the Alpha
6
<PAGE>
Database. Source Europe is currently engaged in the development of similar
prescription and pharmaceutical product shipment databases and information
services in the United Kingdom, France, Germany, Italy, Belgium, Spain and the
Netherlands.
Source's principal executive offices are located at 2394 East Camelback
Road, Phoenix, Arizona 85016, and its telephone number is (602) 381-9500.
THE SPECIAL MEETING
TIME AND PLACE OF MEETING; MATTERS TO BE CONSIDERED; REQUIRED VOTE
The Special Meeting will be held at The Lotos Club, 5 East 66th Street, New
York, New York on December 15, 1997, at 11:00 a.m., local time. At the Special
Meeting, holders of Company Common Stock will be asked to approve the
Transactions. While neither Delaware corporate nor federal securities law
requires the consent of the stockholders of PMSI to the Transactions, the Board
of Directors of the Company required stockholder consent as a condition to the
Closing. Thus, if stockholder approval is not obtained, the Transactions will
not be consummated.
Holders of record of Company Common Stock at the close of business on
November 3, 1997 (the "Record Date") have the right to receive notice of and to
vote at the Special Meeting. On the Record Date, there were 13,269,025 shares of
Company Common Stock outstanding and entitled to vote. Each share of Company
Common Stock is entitled to one vote on each matter that is properly presented
to stockholders for a vote at the Special Meeting. A majority of the outstanding
shares of Company Common Stock must be represented either in person or by proxy
at the Special Meeting to satisfy the quorum requirements. Assuming a quorum is
present, the affirmative vote of at least a majority of the shares of Company
Common Stock represented at the Special Meeting is required to approve and adopt
the Transactions. Each of Welsh, Carson, Anderson & Stowe V, L.P. ("WCAS"),
which currently owns approximately 5.6% of the outstanding Company Common Stock,
Source, which currently owns approximately 6.2% of the outstanding Company
Common Stock, and Messrs. Handel E. Evans and Dennis M.J. Turner, directors and
officers of each of the Company and Source, has indicated his or its intention
to vote their shares of Company Common Stock in the same proportion as all other
holders of Company Common Stock.
THE TRANSACTIONS
DESCRIPTION OF THE TRANSACTIONS
Pursuant to the Stock Purchase Agreement and the Transfer Agreement, copies
of which are attached hereto as Appendix A and Appendix B, respectively, (a) the
Company will sell to NDC all the outstanding capital stock of PMSI Sub to which
the Company has transferred (i) its minority interest in Source US and (ii) its
OTC Business; and (b) the Company will receive (w) an aggregate $15.5 million in
cash (including an aggregate $9 million from Source), (x) 1,059,829 shares of
NDC Common Stock, registered under the Securities Act, subject to adjustment as
described below, (y) the operations of Source Europe, partially in return for
cancellation of certain loans under a line of credit made by PMSI in favor of
Source, and (z) an aggregate 918,254 shares of Company Common Stock currently
owned by Source that, by the time of the Closing, will have been transferred by
Source to Source Europe and which the Company will hold as treasury shares.
Simultaneously with the execution of the Stock Purchase Agreement and the
Transfer Agreement, Source and NDC entered into the Source Merger Agreement,
pursuant to which a subsidiary of NDC will be merged with and into Source, with
Source surviving as a wholly-owned subsidiary of NDC. It is a condition to the
Source Merger that NDC purchase the OTC Business and the Company's interest in
Source US and it is a condition of the Stock Purchase Agreement that the Company
acquire Source Europe. Additional conditions to the Transactions and the Source
Merger include approval by the stockholders of the Company of the Transactions
and approval by the stockholders of Source of the Source Merger.
7
<PAGE>
The aggregate consideration offered by NDC in connection with the
Transactions and the Source Merger is 2,615,385 shares of NDC Common Stock and
$38.25 million in cash. In connection with the Source Merger, Source and its
stockholders will receive an aggregate 1,555,556 shares of NDC Common Stock
(subject to the same adjustments as the shares of NDC Common Stock to be
received by the Company described below) and $31.75 million, of which $9 million
will be paid to PMSI as part of the Transactions. The Company, represented by a
committee of the Board of Directors of the Company (the "Board") comprised
solely of directors who are neither directors nor stockholders of Source (the
"Committee"), and Cowen & Company, the Committee's financial advisor (the
"Financial Advisor"), on the one hand, and Source, represented by its board of
directors and independent financial advisor, on the other hand, negotiated the
allocation of the total consideration between the two entities.
The number of shares of NDC Common Stock to be received by the Company in
the Transactions may be adjusted, based on the Average Sales Price for NDC
Common Stock, as follows: if the Average Sales Price is greater than $50.50 per
share, the number of shares of NDC Common Stock to be received by the Company
will be reduced to a number of shares which, as of such date, would have an
aggregate value of at least $53.52 million, while if the Average Sales Price is
less than $37.25 per share, the Company may terminate the Merger Agreement,
which would have the effect of also terminating the Transfer Agreement and the
Source Merger Agreement, provided that if the Company does elect to terminate,
NDC has the option to increase the number of shares of NDC Common Stock to be
received by the Company to a number of shares which, as of such date, would have
an aggregate value of at least $39.48 million. Source, pursuant to the Source
Merger Agreement, has a similar right to terminate the Source Merger, and
thereby the Transactions, and in such event NDC has a similar option to increase
the number of shares of NDC Common Stock to be received by Source (which would
have the effect of increasing the number of shares of NDC Common Stock to be
received by the Company as described above). Had the Transactions been
consummated on the date of this Proxy Statement, the Average Sales Price would
have been $37.71. If the Average Sales Price is less than $37.25 per share, the
Board will take such action as is required by law and the Board's fiduciary
obligations, including, if appropriate, resoliciting proxies of the stockholders
of the Company in connection with the Transactions.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; THE COMPANY'S REASONS FOR
THE TRANSACTIONS
The Transactions have been approved and recommended to the Board by the
Committee. The Committee engaged the Financial Advisor and separate legal
counsel for advice on the Transactions. The Board believes that the Transactions
are in the best interests of the Company and its stockholders, has approved each
of the Stock Purchase Agreement, the Transfer Agreement and the Transactions,
and has recommended that stockholders vote in favor of approval of the
Transactions.
OPINION OF FINANCIAL ADVISOR
The Financial Advisor rendered its oral opinion on August 18, 1997, which
was subsequently confirmed by a written opinion dated August 18, 1997, to the
Committee to the effect that, based upon and subject to certain matters stated
therein, as of the date of such opinion, the Consideration to be received by the
Company in the Transactions is fair, from a financial point of view, to the
Company. A copy of the opinion dated August 18, 1997, which sets forth the
assumptions made, procedures followed, other matters considered and limits of
the review by the Financial Advisor, is attached hereto as Appendix C.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Stockholders should be aware that certain members of the Company's Board and
management have certain interests in the Transactions that are in addition to
the interests of stockholders of the Company generally. Handel E. Evans, a
director and the Chairman of the Board of the Company, is also a director and
the Chairman of the Board of Source. Dennis M.J. Turner, a director and the
Chief Executive Officer of the Company, is also a director and the Chief
Executive Officer of Source. In addition, Patrick J. Welsh,
8
<PAGE>
a director of the Company, is also a director of Source and is a general partner
of the general partner of WCAS, which is a significant stockholder of the
Company and, along with certain of its affiliated entities, is also the largest
stockholder of Source.
Messrs. Evans and Turner are each to receive aggregate annual bonuses from
the Company and Source of $570,000. In determining these bonuses, the
Organization and Compensation Committees of each of the Company and Source
conditioned part of this bonus on the successful completion of the Transactions.
At consummation of the Transactions, the employment by Source of Messrs. Evans
and Turner will be terminated and they will each receive termination payments
pursuant to their respective employment agreements with Source aggregating $1.17
million and $880,000, respectively, after which Mr. Evans will enter into an
employment agreement with the Company as its full-time Chairman of the Board and
Mr. Turner will enter into an employment agreement with the Company as its
full-time Chief Executive Officer. In the event that either Source or the
Company do not have sufficient cash available to consummate the Transactions and
the Source 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
three other executives of the Company, including Warren J. Hauser, Vice
President and Secretary of the Company, aggregating $490,000, will reflect the
successful completion of the Transactions.
Mr. Evans and trusts for the benefit of his family beneficially own an
aggregate 133,879 shares of Company Common Stock (representing approximately
1.0% of the shares of Company Common Stock outstanding and entitled to vote on
the Transactions as of the Record Date) and options to purchase an additional
300,000 shares of Company Common Stock, 250,000 of which are currently
exercisable. Mr. Turner and trusts for the benefit of his family beneficially
own an aggregate 134,384 shares of Company Common Stock (representing
approximately 1.0% of the shares of Company Common Stock outstanding and
entitled to vote on the Transactions as of the Record Date) and options to
purchase an additional 300,000 shares of Company Common Stock, 250,000 of which
are currently exercisable. Messrs. Evans and Turner and trusts for the benefit
of their respective families beneficially own 247,856 and 242,584 shares,
respectively, of Common Stock, $.01 par value ("Source Common Stock"), of Source
(representing approximately 3.6% and 3.5%, respectively, of the outstanding
capital stock of Source entitled to vote on the Source Merger). In addition,
Messrs. Evans and Turner own options to purchase 201,250 and 151,250 shares,
respectively, of Source Common Stock, all of which will become exercisable upon
consummation of the Transactions.
Mr. Welsh owns 15,733 shares of Company Common Stock and may be deemed to
beneficially own the aggregate 746,315 shares of Company Common Stock (or
approximately 5.7% of the shares of Company Common Stock outstanding and
entitled to vote on the Transactions as of the Record Date) and the aggregate
2,544,147 shares of Source Common Stock (or approximately 37.18% of the Source
capital stock outstanding and entitled to vote on the Source Merger) owned by
WCAS and related entities. In addition, Mr. Welsh owns options to purchase an
aggregate 24,000 shares of Company Common Stock, 16,000 of which are currently
exercisable, 26,550 shares of Source Common Stock and options to purchase 7,500
shares of Source Common Stock, all of which will become exercisable upon
consummation of the Transactions.
In addition to the individuals described above, one other person serves as
an officer of the Company and an employee of Source.
The directors and executive officers of the Company have indicated that they
intend to vote their shares of Company Common Stock in favor of approval of the
Transactions, except that each of WCAS, Source and Messrs. Evans and Turner has
indicated his or its intention to vote their shares of Company Common Stock in
the same proportion as all other holders of Company Common Stock.
After consummation of the Transactions and the Source Merger, Source will be
controlled and managed by NDC and thereafter Messrs. Evans and Turner, each of
whom will remain on the Board of
9
<PAGE>
Directors of the Company and will become full-time employees of the Company,
will no longer hold any positions at Source.
REGULATORY CONSIDERATIONS
Consummation of the Transactions is subject to the expiration or termination
of the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Each of NDC, PMSI and Source filed
notification and report forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") on October 7, 1997 with respect to the Transactions
and the Source Merger. The applicable waiting period under the HSR Act has
expired. At any time before or after consummation of the Transactions, 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 Transactions or seeking divestiture of
substantial assets of NDC or PMSI. At any time before or after the Closing Date,
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 of the Transactions or seeking divestiture of substantial
assets of NDC or PMSI. Private parties may also seek to take legal action under
the antitrust laws under certain circumstances. PMSI believes that the
Transactions 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 Transactions on antitrust grounds will not be made or that, if such a
challenge were made, PMSI would prevail or would not be required to accept
certain adverse conditions in order to consummate the Transactions.
10
<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN RISK FACTORS OR CONSIDERATIONS THAT SHOULD BE
CAREFULLY CONSIDERED IN EVALUATING THE TRANSACTIONS, IN ADDITION TO THE RISKS
AND OTHER INFORMATION DESCRIBED ELSEWHERE IN THIS PROXY STATEMENT. STOCKHOLDERS
ALSO ARE URGED TO CAREFULLY CONSIDER THE RISK FACTORS SET FORTH UNDER THE
CAPTION "RISK FACTORS" IN THE REGISTRATION STATEMENT ON FORM S-4 FILED BY NDC ON
SEPTEMBER 19, 1997, AS AMENDED, IN CONNECTION WITH THE SOURCE MERGER (THE
"S-4"). THE "RISK FACTORS" SECTION OF THE S-4, ALONG WITH OTHER PORTIONS OF THE
S-4, ARE INCORPORATED HEREIN BY REFERENCE AND ARE ATTACHED HERETO AS APPENDIX D.
STOCKHOLDERS ARE URGED TO READ ALL THE ATTACHED PORTIONS OF THE S-4 IN THEIR
ENTIRETY.
HISTORICAL FINANCIAL PERFORMANCE OF SOURCE EUROPE
Source Europe is a development stage business and has incurred operating
losses since inception. Its operating results have been significantly affected
by the expense of creating a management infrastructure to support an
international business and the cost of investment in technology and database
development, the addition of staff and the expansion of office facilities. The
future profitability of PMSI will depend upon management's ability to
successfully implement plans to integrate Source Europe with PMSI's European
operations and to increase the revenues of Source Europe. The Company's first
priority will be to invest in completing the development of Source Europe
although the Company may pursue acquisitions that would capitalize on its
proprietary databases resources and services. Depending on the amount of time
and effort still required to complete the development of Source Europe, the
Company may, however, need to direct the resources of management away from other
pursuits. This focus on Source Europe may prevent the Company from taking
advantage of other attractive business opportunities. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY" and "SOURCE EUROPE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
DISPOSITION OF SOURCE US AND THE OTC BUSINESS; DEVELOPMENTAL STAGE OF SOURCE
EUROPE; EFFECT ON EARNINGS PER SHARE
The Company's interest in Source US and its OTC Business accounted for
approximately 24% and 31% of the Company's revenue for fiscal 1997 and the
quarter ended September 30, 1997, respectively, while Source Europe recorded a
loss of approximately $21.0 million on operating revenue of only $407,000 for
fiscal 1997 and a loss of approximately $4.6 million on operating revenue of
$0.8 million for the quarter ended September 30, 1997. Therefore, as stated
above, the profitability of PMSI after completion of the Transactions will be
largely dependent upon the ability of the Company to establish and increase
Source Europe's service revenue and there can be no assurance that the Company
will succeed in doing so. The Company anticipates that the continued investment
in Source Europe will result in lower earnings per share at least for fiscal
1998 and possibly 1999. Source Europe is currently developing software and
databases designed to deliver sophisticated prescriber-linked prescription data
to clients in the pharmaceutical and healthcare industries in major European
markets and has delivered initial services to certain European clients. While
the Company believes that the products are close to completion and that the
costs of such completion have been accurately estimated, there can be no
assurance that the Company will not experience development problems with either
or both the software and the databases used to provide Source Europe's services.
Any such problems could result in delays in bringing the information products to
market, the need for increased investment to cover unforseen costs and/or the
need for modification to the information services delivered to clients. Source
Europe has entered into client agreements that provide for the achievement by
Source Europe of certain milestones, some of which have not been met to date.
Until the Company has met these milestones, the clients have the right under
certain terms of their agreements to demand reimbursement payments. Such delays,
increases or modifications could adversely affect the potential revenue
generation capability of Source Europe, the financial resources of the Company
and future earnings per share beyond fiscal 1998.
11
<PAGE>
DATA PRIVACY REGULATIONS
The Company and Source Europe are subject to certain restrictions on the
collection and use of data. There has been legislation enacted in many European
countries to regulate the collection, use and dissemination of certain
information that may be deemed to be personal. All countries of the European
Union are required to have data privacy legislation in effect no later than
1998. The legislation already in effect in certain countries requires
registration of such personal databases. Source Europe has complied with the
registration requirements for its databases in the countries in which it
operates and is in the process of complying with the registration requirements
in the other countries in which it plans to operate in the future. There can be
no assurance that Source Europe will be successful in completing these
registrations for the collection and dissemination of its prescriber-linked data
products or that future legislation or regulations will not directly or
indirectly restrict the dissemination of information regarding physicians or
prescriptions. Such legislation, if enacted, could have a material adverse
effect on the operations of the Company.
COMPETITION
The Company's existing information services in the United States, Japan and
most European countries are well established, although their market position may
be affected in the future by competitors' efforts to create or acquire enhanced
databases or to develop and market new products. The Company has competitors in
virtually all markets, primarily from IMS, which is a division of Cognizant and
which competes in service and price. Some of the Company's competitors,
including IMS, are divisions of larger companies with significantly more
resources than the Company. Because Source Europe is still in the development
stage, the market for its data products is not yet clearly established and it is
therefore difficult to define its competition; nevertheless, it is anticipated
that Source Europe will encounter competitive forces in each market similar to
those faced by the Company in general and, in fact, IMS has begun development in
Europe of its products and is aggressively pursuing the European market.
Moreover, IMS has filed a complaint against Source Europe in Germany alleging
violations of the data privacy regulations resulting in unfair competition.
While Source Europe's management believes that such claims are without merit and
will defend this action vigorously, there can be no assurance that Source Europe
will prevail in this action.
Upon the Closing, the Company will enter into a non-compete agreement with
NDC. Under the terms of such non-compete agreement, the Company and its
affiliates will agree that, for a five-year period following the Closing, they
will not, among other things, engage in the United States in the development,
use or exploitation of prescription databases for certain enumerated purposes,
except that Scott-Levin may continue to engage in the activities in which it is
engaged as of the Closing.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause the actual
results, performance or achievements of the Company (including Source Europe),
or industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These factors include, but are not limited to, the actual costs of
completing Source Europe's information services, changes in or failure to comply
with governmental regulations, the competitive environment in the industry in
which the Company and Source Europe operate, changes in operating strategy or
development plans and other factors referenced herein. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise and involve known and unknown risks,
uncertainties and other factors. Accordingly, any forward-looking statements
included herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements can be
identified by, among other things, the use of forward-looking terminology such
as "believes," "expects,"
12
<PAGE>
"may," "will," "should," "seeks," "proforma" or "anticipates," "intends" or the
negative of any thereof, or other variations thereon or comparable terminology
or by discussions of strategies or intentions. Given these uncertainties,
stockholders are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to announce publicly the results of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
13
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The following selected financial information as of and for the years ended
June 30, 1995, 1996 and 1997 is derived from the consolidated financial
statements of PMSI appearing in the Annual Report on Form 10-K of PMSI for the
fiscal year ended June 30, 1997 (the "97 PMSI 10-K"). The unaudited proforma
selected financial data gives effect to the sale of the OTC Business and the
Company's interest in Source US and the acquisition of Source Europe. The
unaudited selected financial information as of and for the three months ended
September 30, 1996 and 1997 is derived from the consolidated financial
statements of PMSI appearing in the Quarterly Report on Form 10-Q of PMSI for
the fiscal quarter ended September 30, 1997 (the "PMSI 10-Q" and, together with
the 97 PMSI 10-K, the "PMSI Reports"). More comprehensive financial information
is included in the PMSI Reports and the other documents filed by the Company
with the Commission which are incorporated herein by reference. The data should
be read in conjunction with the financial statements of PMSI, together with the
related notes thereto included in the PMSI Reports incorporated herein by
reference. The selected financial information for all other periods was derived
from the consolidated financial statements of PMSI appearing in Annual Reports
on Form 10-K of PMSI not incorporated by reference or included herein. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
14
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30, YEAR ENDED JUNE 30,
1992 1993 1994 1995 1996 1997
------------ -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenue...................................... $ 73,007 $ 34,654 $ 76,876 $ 89,893 $ 93,027 $ 98,485
Production costs............................. (40,074) (19,674) (43,168) (49,991) (51,605) (54,457)
Selling, general and administrative.......... (21,186) (10,790) (25,791) (29,773) (34,208) (34,847)
Amortization of intangible assets............ (2,430) (811) (1,541) (1,889) (2,012) (1,733)
Income (loss) from assets held for sale...... -- -- -- -- -- 76
Impairment of long-lived assets.............. -- -- -- -- (2,368) --
Restructuring costs.......................... -- -- (1,820) -- (2,314) --
------------ -------------- -------- -------- -------- --------
Operating income (loss)...................... 9,317 3,379 4,556 8,240 520 7,524
Gain on sale of operations................... -- -- -- -- -- --
Interest and other income.................... 910 1,683 2,805 2,940 2,503 3,299
Interest expense............................. (70) (1,818) (3,032) (2,915) (2,633) (3,490)
------------ -------------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes............. 10,157 3,244 4,329 8,265 390 7,333
Income tax (provision) benefit............... (3,859) (1,167) (1,662) (2,950) (1,156) (2,655)
Minority interest............................ -- -- -- (3) 57 (17)
------------ -------------- -------- -------- -------- --------
Income (loss) from
continuing operations...................... 6,298 2,077 2,667 5,312 (709) 4,661
Income (loss) from discontinued
operations, net............................ (170) 65 2,057 (131) (8,915) (9,914)
------------ -------------- -------- -------- -------- --------
Net income (loss)............................ $ 6,128 $ 2,142 $ 4,724 $ 5,181 $ (9,624) $ (5,253)
------------ -------------- -------- -------- -------- --------
------------ -------------- -------- -------- -------- --------
Net income (loss) per share:
Continuing operations...................... $ 0.49 $ 0.16 $ 0.21 $ 0.41 $ (0.05) $ 0.35
Discontinued operations, net............... (0.01) -- 0.15 (0.01) (0.68) (0.75)
------------ -------------- -------- -------- -------- --------
Net income (loss) per share.................. $ 0.48 $ 0.16 $ 0.36 $ 0.40 $ (0.73) $ (0.40)
------------ -------------- -------- -------- -------- --------
------------ -------------- -------- -------- -------- --------
Common stock and common stock equivalents,
where dilutive, used in computing per share
amounts.................................... 12,876 13,157 13,297 13,053 13,124 13,297
<CAPTION>
PROFORMA PROFORMA
THREE MONTHS ENDED YEAR THREE MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
---------- -------- -------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenue...................................... $ 21,922 $ 20,093 $73,758 $ 14,599
Production costs............................. (12,688) (10,839) (46,740 ) $ 12,466)
Selling, general and administrative.......... (8,306) (8,282) (44,299 ) (6,527)
Amortization of intangible assets............ (454) (342) (1,833 ) (373)
Income (loss) from assets held for sale...... -- (598) 76 (598)
Impairment of long-lived assets.............. -- -- -- --
Restructuring costs.......................... -- -- -- --
---------- -------- -------- -------------
Operating income (loss)...................... 474 32 (19,038 ) (5,365)
Gain on sale of operations................... -- 2,631 -- 2,631
Interest and other income.................... 672 871 3,267 868
Interest expense............................. (740) (1,166) (3,343 ) (1,122)
---------- -------- -------- -------------
Income (loss) from continuing
operations before income taxes............. 406 2,368 (19,114 ) (2,988)
Income tax (provision) benefit............... (158) 105 (322 ) 382
Minority interest............................ (21) -- (17 ) --
---------- -------- -------- -------------
Income (loss) from
continuing operations...................... 227 2,473 (19,453 ) (2,606)
Income (loss) from discontinued
operations, net............................ -- -- -- --
---------- -------- -------- -------------
Net income (loss)............................ $ 227 $ 2,473 $(19,453) $ (2,606)
---------- -------- -------- -------------
---------- -------- -------- -------------
Net income (loss) per share:
Continuing operations...................... $ 0.02 $ 0.18 $ (1.57 ) $ (0.21)
Discontinued operations, net............... -- -- -- --
---------- -------- -------- -------------
Net income (loss) per share.................. $ 0.02 $ 0.18 $ (1.57 ) $ (0.21)
---------- -------- -------- -------------
---------- -------- -------- -------------
Common stock and common stock equivalents,
where dilutive, used in computing per share
amounts.................................... 13,208 13,498 12,379 12,580
</TABLE>
<TABLE>
<CAPTION>
AT
DECEMBER 31, AT JUNE 30,
CONSOLIDATED BALANCE SHEET DATA 1992 1993 1994 1995 1996 1997
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Working capital(1)........................... $36,972 $ 74,428 $ 74,553 $ 72,901 $ 47,627 $ 64,210
Total assets(2).............................. 91,427 189,028 189,229 187,681 173,408 167,202
Long-term debt, excluding
current portion............................ -- 69,423 69,248 69,295 69,131 69,552
Stockholders' equity......................... 62,277 64,398 73,525 86,697 72,954 63,744
<CAPTION>
PROFORMA
SEPTEMBER
AT SEPTEMBER 30, 30,
CONSOLIDATED BALANCE SHEET DATA 1996 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Working capital(1)........................... $59,064 $ 66,248 $36,969
Total assets(2).............................. 171,525 161,723 210,689
Long-term debt, excluding
current portion............................ 69,092 70,081 69,070
Stockholders' equity......................... 73,570 65,153 79,326
</TABLE>
- - ------------------------
(1) As of June 30, 1995 and 1996, includes net current assets of discontinued
operations of $15,032 and $9,276, respectively. As of June 30, 1997,
includes net current assets held for sale of $4,236. As of September 30,
1996, includes net current assets of discontinued operations of $8,368. As
of September 30, 1997, includes net current assets held for sale of $989.
(2) As of June 30, 1995 and 1996, includes total assets of discontinued
operations of $50,032 and $42,871, respectively. As of June 30, 1997,
includes total assets held for sale of $23,033. As of September 30, 1996,
includes total assets of discontinued operations of $41,593. As of September
30, 1997, includes total assets held for sale of $19,710.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF THE COMPANY
For complete Management's Discussions and Analyses of Results of Operations
and Financial Condition of the Company (including the Company's interest in
Source US and the OTC Business), reference is hereby made to the PMSI Reports.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
MANAGEMENT'S DISCUSSION OF INTEREST IN SOURCE US AND THE OTC BUSINESS
The Management's Discussions and Analyses incorporated from the PMSI Reports
review the financial condition of the Company including the Company's interest
in Source US and the OTC Business. The following is a brief discussion solely of
the OTC Business and the Company's interest in Source US.
During the fiscal year ended June 30, 1997, the OTC Business and PMSI's
interest in Source US reported aggregate revenues of $25.0 million, and an
operating profit of $5.9 million before allocation of any corporate overheads.
Allocating corporate overhead would have substantially reduced the reported
operating profit from these businesses. Currently, PMSI has a fixed 26% interest
in Source US revenues and 23.3% interest (increasing over time to a fixed 26% in
2002) in Source US costs. If the businesses were to remain part of PMSI, then
PMSI's percentage of the operating profit from Source US going forward is
scheduled to decrease annually over the next four years to 26% and remain at
that level for the remaining ten years of the Alpha Database Agreement, which
governs PMSI's participation in Source US. There is no commitment from either
party to extend the joint venture beyond this initial term. Moreover, the
Company believes that there would be little or no economic value to Source to
extend the joint venture.
For the quarter ended September 30, 1997, the aggregate revenues and
operating profit, before allocation of any corporate overheads, of these
businesses were $6.2 million and $0.7 million, respectively.
16
<PAGE>
SELECTED FINANCIAL DATA OF SOURCE EUROPE
The following selected financial information as of and for the years ended
June 30, 1995, 1996 and 1997 and the three months ended September 30, 1996 and
1997 is derived from the consolidated financial statements of Source Informatics
European Holdings Inc., (a development stage enterprise) ("Source Europe"),
appearing elsewhere in this proxy statement. The data should be read in
conjunction with the consolidated financial statements of Source Europe,
together with the notes thereto.
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------------------------ --------------------
1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Revenue.............................. -- -- -- $ 407 -- $ 778
Production costs................... $ (487) $ (2,010) $ (5,060) (7,456) $ (1,712) (2,972)
Selling, general and administrative
expenses......................... (696) (2,903) (7,245) (10,148) (2,189) (2,203)
Research and development costs..... (78) (412) (2,110) (3,347) (543) (243)
Amortization of intangible
assets........................... -- -- (7) (34) (1) (14)
--------- --------- --------- --------- --------- ---------
Operating loss....................... (1,261) (5,325) (14,422) (20,578) (4,445) (4,654)
Interest income.................... -- -- 2 59 -- 9
Interest expense................... -- -- -- (477) (68) (1)
--------- --------- --------- --------- --------- ---------
Net loss............................. $ (1,261) $ (5,325) $ (14,420) $ (20,996) $ (4,513) $ (4,646)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
--------------------------------------------- ----------------------
1994 1995 1996 1997 1996 1997
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Working capital deficit.................... -- -- $ (7,603) $ (13,164) $ (6,764) $ (15,016)
Total assets............................... -- -- $ 2,807 $ 4,179 $ 1,863 $ 4,235
Stockholder deficit........................ -- -- $ (6,121) $ (18,532) $ (10,578) $ (24,517)
</TABLE>
17
<PAGE>
SOURCE EUROPE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
OVERVIEW
Source Europe develops, maintains, delivers and analyzes prescription and
pharmaceutical product shipment databases which are generally costly,
time-consuming and difficult for third parties to replicate. Its strategy is to
establish databases of physician linked prescription and product shipment data
in the major European markets. It markets data and analytical services derived
from the databases to the pharmaceutical and healthcare industries on a national
and multi-national basis. Source Europe began to deliver revenue generating
services in the third quarter of fiscal 1997. Management anticipates increasing
revenues in each of the quarters of fiscal 1998 without a corresponding increase
in the production and sales, general and administrative expenses. Source Europe
currently has service supply agreements with over 30 pharmaceutical companies,
which, subject to delivery of full data services, should aggregate to more than
$30 million in revenue over the next four years.
REVENUE
Revenue for the quarter ended September 30, 1997 was $778,000, representing
services delivered in all five major countries. There was no revenue in the
quarter ended September 30, 1996.
Revenue for the year ended June 30, 1997 was $407,000. The growth in revenue
reflected initial data services delivered in the UK, France, and Belgium.
No revenue was recorded in any prior period.
PRODUCTION COSTS
Source Europe's production costs include the cost of data purchase and
collection, data cleansing, creation of the database, internal computer costs,
outside suppliers and costs attributable to personnel involved in the production
of products and services.
Production costs for the quarter ended September 30, 1997 were $3.0 million,
compared to $1.7 million for the same quarter last year. The $1.3 million
increase was attributable to the increased costs of establishing production
personnel and facilities in the European markets and increased data purchase
costs, as Source Europe has been increasing its database size in order to
produce product.
Production costs for the year ended June 30, 1997 were $7.5 million,
compared to $5.1 million for the previous year. The $2.4 million increase was
attributable to the increased costs of establishing production personnel and
facilities in the European markets and increased data purchase costs, as Source
Europe increased its database size in anticipation of receiving approvals under
applicable data privacy laws.
Production costs for the year ended June 30, 1996 were $5.1 million,
compared to $2.0 million for the previous year. The $3.1 million increase was
attributable to the increased costs of establishing data collection operations
in five European markets, and starting the transition from test data collection
towards establishing initial production facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended September
30, 1997 were comparable with the same quarter of 1996 ($2.2 million), because a
significant portion of costs are fixed.
Selling, general and administrative expenses for the year ended June 30,
1997 were $10.1 million, compared with $7.2 million for the previous year. The
increase was attributable to increases in staff to market the services and to
support initial product deliveries.
18
<PAGE>
Selling, general and administrative expenses for the year ended June 30,
1996 were $7.2 million, compared with $2.9 million for the previous year. The
increase was primarily attributable to the cost of establishing general
management in the local operating companies in the five initial markets.
RESEARCH AND DEVELOPMENT
Research and development expenses for the quarter ended September 30, 1997
were $0.2 million, compared to $0.5 million for the same quarter last year. This
decrease represents the fact that as the Source Europe product is now being
delivered there is not the same level of expenditure needed.
Research and development expenses for the year ended June 30, 1997 were $3.3
million, compared with $2.1 million for the previous year. The increase reflects
the costs of developing software, databases and systems to meet the requirements
of the Company's operations across Europe.
Research and development expenses for the year ended June 30, 1996 were $2.1
million, compared with $0.4 million in the previous year. The increase reflects
the effect of initial investment in developing software, databases and systems
in Europe.
AMORTIZATION OF INTANGIBLES
Acquired software and other purchased intangibles are valued at fair market
value at the date of acquisition and are amortized over periods of up to five
years. The cost of establishing, updating and maintaining databases is expensed
as incurred.
In Source Europe's consolidated financial statements, amortization has been
recorded as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30
----------------------
1995 1996 1997 1996 1997
----- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C>
Intangible assets......................................... $ 0 $ 7 $ 34 $ 1 $ 14
</TABLE>
INTEREST INCOME AND INTEREST EXPENSES
Source Europe invests its excess cash with major banks.
In the quarter ended September 30, 1997 there was no significant income or
expense. In the same quarter last year the interest expense was all due on loans
from Source used for working capital.
For the year ended June 30, 1997, net interest expense was $0.4 million, as
compared to $0 for the previous year, due to interest incurred on loans from
Source used for working capital.
There was no material interest income or expense in the year ended June 30,
1996 since Source Europe was operating within Walsh at that time and all funds
were managed centrally.
NET OPERATING LOSSES
As of September 30, 1997, Source Europe had approximately $28.8 million of
foreign net operating loss carry-forwards.
As of June 30, 1997, Source Europe had approximately $24.2 million of
foreign net operating loss carry-forwards. These carry-forwards will increase
until Source Europe becomes profitable and then will substantially reduce the
Company's overall tax rate going forward until they are consumed.
19
<PAGE>
CURRENCY FLUCTUATIONS
As an international company, Source Europe is affected by fluctuations in
foreign currency exchange rates. Although most of the its services are priced in
the local currency of the business unit providing the service, the effects of
foreign currency fluctuations are mitigated by the fact that expenses of foreign
subsidiaries are incurred in the same currency as sales. The reported net income
of foreign subsidiaries will be affected by changes in the exchange rates of
foreign currencies against the US dollar. The foreign currency risk applicable
to Source Europe's operations has not been hedged.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, Source Europe had cash and cash equivalents totalling
$1.6 million.
During the quarter ended September, 1997, Source Europe utilized
approximately $3.8 million of cash for operating activities of which $1.5
million was funded by PMSI under a line of credit and the balance was funded by
Source.
At June 30, 1997, Source Europe had cash and cash equivalents totalling $2.2
million.
During the year ended June 30, 1997, Source Europe utilized approximately
$21 million of cash, which was funded by Source, partner client prepayments of
$5.1 million and $1.0 million of prebillings to other pharmaceutical companies.
Under an agreement signed on August 20, 1997, PMSI is providing a line of credit
to Source Europe which Source Europe anticipates will provide sufficient funding
until the Closing. See "THE TRANSACTIONS--Description of the Transactions;
Additional Agreements Among PMSI, Source and NDC." Subsequent to Closing, Source
Europe will be a wholly-owned subsidiary of PMSI and PMSI will take over the
funding responsibility for the final stage of development of Source Europe.
20
<PAGE>
SELECTED FINANCIAL DATA OF NDC
The following selected financial information as of and for the years ended
May 31, 1993, 1994, 1995, 1996 and 1997 is derived from the consolidated
financial statements of NDC appearing in the Annual Report on Form 10-K of NDC
for the fiscal year ended May 31, 1997 (the "NDC 10-K"). The following selected
financial information as of and for the three months ended August 31, 1996 and
1997 is derived from the consolidated financial statements of NDC appearing in
the Quarterly Report on Form 10-Q of NDC for the fiscal quarter ended August 31,
1997 (together with the NDC 10-K, the "NDC Reports"). In the opinion of NDC
management, interim unaudited historical data reflect and include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. Unaudited results of operations for the three
months ended August 31, 1997 are not necessarily indicative of results which may
be expected for any other interim period or for the fiscal year as a whole. More
comprehensive financial information is included in the NDC Reports and the other
documents filed by NDC with the Commission which are incorporated herein by
reference. The data should be read in conjunction with the financial statements
of NDC, together with the related notes thereto included in the NDC Reports
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31, ----------------------
---------------------------------------------------------- AUGUST 31, AUGUST 31,
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................... $ 239,810 $ 237,659 $ 278,083 $ 325,803 $ 433,860 $ 101,164 $ 120,102
Operating income (loss)..... $ 14,894 $ 18,423 $ 28,426 $ (11,834) $ 66,656 13,934 19,633
Income (loss) from
continuing operations..... $ 8,045 $ 12,226 $ 18,421 $ (8,458) $ 38,753 8,205 10,604
PER SHARE DATA:
Income (loss) from
continuing operations..... $ 0.37 $ 0.55 $ 0.79 $ (0.31) $ 1.38 $ 0.30 $ 0.38
Cash dividends.............. $ 0.29 $ 0.29 $ 0.30 $ 0.30 $ 0.30 0.075 0.075
Fully diluted weighted
average common shares
outstanding............... 18,803 22,351 23,481 27,189 28,039 27,800 28,201
BALANCE SHEET DATA (AT
PERIOD END):
Total assets................ $ 203,391 $ 214,864 $ 255,758 $ 368,039 $ 521,683 $ 369,417 $ 529,403
Long-term obligations....... $ 20,254 $ 21,664 $ 26,410 $ 13,324 $ 155,690 12,853 156,407
Total stockholders'
equity.................... $ 124,001 $ 134,723 $ 164,651 $ 233,299 $ 277,470 $ 242,134 $ 286,912
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION OF NDC
For a complete NDC management's discussion and analysis of results of
operations and financial condition of NDC, reference is hereby made to the NDC
Reports. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
22
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
UNAUDITED PROFORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited proforma condensed consolidated financial statements
give effect to the sale of the OTC Business and PMSI's interest in Source US
pursuant to the Stock Purchase Agreement and the acquisition of Source Europe
pursuant to the Transfer Agreement. The unaudited proforma condensed
consolidated balance sheet reflects the above transactions as if they occurred
on September 30, 1997. The unaudited proforma condensed consolidated statements
of operations combine the historical results of operations of PMSI and Source
Europe for the quarter ended September 30, 1997 and for the year ended June 30,
1997, as if the acquisition of Source Europe and the divestitures of the OTC
Business and the Company's interest in Source US had occurred on July 1, 1996.
The unaudited proforma condensed consolidated statements of operations do not
reflect the anticipated gain on the sale of the OTC Business and the Company's
interest in Source US.
The unaudited proforma condensed consolidated financial statements do not
reflect cost savings, synergies and tax benefits which might be achieved from
the acquisition of Source Europe; nor do they purport to be indicative of the
operating results or financial position that would have been achieved had the
transactions, referred to above, been affected for the periods indicated or the
results or financial position which may be obtained in the future.
The unaudited condensed consolidated financial statements are based on and
should be read in conjunction with the audited consolidated financial statements
of PMSI and Source Europe, including the notes thereto, which appear elsewhere
in or are included in documents incorporated by reference in this Proxy
Statement.
23
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SALE OF ACQUISITION
PMSI AS SOURCE US OF SOURCE CONSOLIDATED
REPORTED AND OTC EUROPE ADJUSTMENTS PROFORMA
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 28,910 $ (219) $ 1,648 $ 13,852 $ 44,191
Marketable securities....................... 33,146 -- -- -- 33,146
Accounts receivable......................... 19,577 (7,622) 802 -- 12,757
Work in process............................. 1,619 (242) -- -- 1,377
Prepaid expenses and other current assets... 7,999 -- 204 (1,898) 6,305
Net current assets held for sale............ 989 -- -- -- 989
---------- ----------- ----------- ----------- ------------
Total current assets........................ 92,240 (8,083) 2,654 11,954 98,765
Marketable securities......................... 9,493 -- -- 43,453 52,946
Property and equipment, net................... 12,116 (4,378) 545 -- 8,283
Goodwill, net................................. 22,931 -- -- 1,789 24,720
Other assets, net............................. 6,222 (4) 1,036 -- 7,254
Net assets held for sale...................... 18,721 -- -- -- 18,721
---------- ----------- ----------- ----------- ------------
Total assets................................ $ 161,723 $ (12,465) $ 4,235 $ 57,196 $ 210,689
---------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current maturities of long-term debt........ $ 633 $ (553) -- -- $ 80
Accounts payable............................ 3,156 (353) $ 1,706 -- 4,509
Accrued liabilities......................... 8,053 (861) 4,485 $ 8,333 20,010
Accrued income taxes on sale of Source US
and OTC................................... -- -- -- 16,488 16,488
Unearned income............................. 14,150 (4,920) 11,479 -- 20,709
---------- ----------- ----------- ----------- ------------
Total current liabilities................. 25,992 (6,687) 17,670 24,821 61,796
Long-term debt................................ 70,081 (1,046) 35 -- 69,070
Other liabilities............................. 497 -- -- -- 497
Amounts due to Source......................... -- -- 9,149 (9,149) --
Amounts due to PMSI........................... 1,898 (1,898)
---------- ----------- ----------- ----------- ------------
Total liabilities......................... 96,570 (7,733) 28,752 13,774 131,363
Total stockholders' equity (deficit)........ 65,153 (4,732) (24,517) 43,422 79,326
---------- ----------- ----------- ----------- ------------
Total liabilities and stockholders'
equity (deficit).......................... $ 161,723 $ (12,465) $ 4,235 $ 57,196 $ 210,689
---------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these
proforma condensed consolidated financial statements.
24
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ACQUISITION
SALE OF SOURCE US OF
PMSI AS OPERATING VENTURE SOURCE CONSOLIDATED
REPORTED AND OTC EUROPE ADJUSTMENTS PROFORMA
---------- ----------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................. $ 20,093 $ (6,235) $ 778 $ (37) $ 14,599
Operating expenses...................... (20,061) 5,509 (5,432) 20 (19,964)
---------- -------- ------------- ----- ------------
Operating income (loss)................. 32 (726) (4,654) (17) (5,365)
Gain on sale of operations.............. 2,631 -- -- -- 2,631
Interest and other income............... 871 (12) 9 -- 868
Interest expense........................ (1,166) 45 (1) -- (1,122)
---------- -------- ------------- ----- ------------
Income (loss) from continuing
operations before income taxes........ 2,368 (693) (4,646) (17) (2,988)
Income tax (provision) benefit.......... 105 277 -- -- 382
---------- -------- ------------- ----- ------------
Net income (loss) from continuing
operations............................ $ 2,473 $ (416) $ (4,646) (17) $ (2,606)
---------- -------- ------------- ----- ------------
---------- -------- ------------- ----- ------------
Net income (loss) per share:
Continuing operations................. $ 0.18 $ (0.21)
---------- ------------
---------- ------------
Common stock and common
stock equivalents..................... 13,498 (918) 12,580
---------- ----- ------------
---------- ----- ------------
</TABLE>
The accompanying notes are an integral part of these
proforma condensed consolidated financial statements.
25
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
ACQUISITION
SALE OF SOURCE US OF
PMSI AS OPERATING VENTURE SOURCE CONSOLIDATED
REPORTED AND OTC EUROPE ADJUSTMENTS PROFORMA
---------- ----------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................. $ 98,485 $ (25,009) $ 407 $ (125) $ 73,758
Operating expenses...................... (90,961) 19,091 (20,985) 59 (92,796)
---------- -------- ------------- ----- ------------
Operating income (loss)................. 7,524 (5,918) (20,578) (66) (19,038)
Interest and other income............... 3,299 (91) 59 -- 3,267
Interest expense........................ (3,490) 147 (477) 477 (3,343)
---------- -------- ------------- ----- ------------
Income (loss) from continuing operations
before income taxes................... 7,333 (5,862) (20,996) 411 (19,114)
Income tax provision.................... (2,655) 2,333 -- -- (322)
Minority interest....................... (17) -- -- -- (17)
---------- -------- ------------- ----- ------------
Net income (loss) from continuing
operations............................ $ 4,661 $ (3,529) $ (20,996) $ 411 $ (19,453)
---------- -------- ------------- ----- ------------
---------- -------- ------------- ----- ------------
Net income (loss) per share:
Continuing operations................. $ 0.35 $ (1.57)
---------- ------------
---------- ------------
Common stock and common
stock equivalents..................... 13,297 (918) 12,379
---------- ----- ------------
---------- ----- ------------
</TABLE>
The accompanying notes are an integral part of these
proforma condensed consolidated financial statements.
26
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
NOTES TO PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(Unaudited)
1. PROFORMA BASIS OF PRESENTATION AND ADJUSTMENTS
The unaudited proforma condensed consolidated financial statements present
the Company's sale to NDC of (i) the OTC Business and (ii) the Company's
interest in Source US, for aggregate proceeds of $6,500 in cash and 1,059,829
registered shares of NDC Common Stock, subject to adjustment based on the
average closing sales price for NDC Common Stock over a ten-day trading period
preceding the closing of the Transactions. In addition, the unaudited proforma
condensed consolidated financial statements present the acquisition of Source
Europe, where, in return for assuming the net liabilities of Source Europe and
canceling certain loans under a line of credit made by PMSI in favor of Source,
the Company will receive $9,000 of cash and an aggregate of 918,254 shares of
Company Common Stock currently owned by Source.
The unaudited proforma condensed consolidated balance sheet at September 30,
1997 reflects (i) the divestiture of the OTC Business and the Company's interest
in Source US and (ii) the acquisition of Source Europe, as if these transactions
had occurred on September 30, 1997.
The unaudited proforma condensed consolidated statement of operations for
the quarter ended September 30, 1997 and for the year ended June 30, 1997
reflect (i) the divestiture of the OTC Business and the Company's interest in
Source US and (ii) the acquisition of Source Europe, as if these transactions
had occurred on July 1, 1996.
The unaudited proforma condensed consolidated financial statements are
intended for information purposes and are not necessarily indicative of the
future consolidated financial position or future results of operations, nor do
they purport to be indicative of the operating results or financial position
that would have been achieved had the transactions referred to above been
effective from the periods indicated. These proforma condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the PMSI Reports,
incorporated herein by reference, and the consolidated financial statements and
notes thereto of Source Informatics European Holdings Inc. for the year ended
June 30, 1997 and the quarter ended September 30, 1997, included elsewhere in
this Proxy Statement.
2. UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
The adjustments reflect the proceeds and estimated transaction costs of the
divestiture of the OTC Business and the Company's interest in Source US, as well
as the estimated liabilities assumed, cash received and transaction costs
incurred related to the acquisition of Source Europe.
A) DIVESTITURE OF THE OTC BUSINESS AND THE COMPANY'S INTEREST IN SOURCE US
The adjustments related to the divestiture of the OTC Business and the
Company's interest in Source US include:
(i) $6,500 cash proceeds from NDC,
(ii) 1,059,829 shares of NDC Common Stock with a total value of $43,453,
based on a September 30, 1997 market value of $41.00 per share, and
(iii) approximately $4,000 related to estimated transaction costs,
including investment banking fees, legal fees, accountants' fees, bonuses
and related out-of-pocket expenses.
27
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
NOTES TO PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
2. UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET(CONTINUED)
The proforma condensed consolidated balance sheet includes an after-tax gain
of $24,733, on the divestiture, reflecting an effective tax rate of 40%. The
estimated gain is subject to adjustment based on changes in the market price of
NDC Common Stock. The Stock Purchase Agreement limits this adjustment such that
the minimum and maximum post-tax gains on the divestiture are approximately
$22,000 and $30,500, respectively.
B) ACQUISITION OF SOURCE EUROPE
The proforma condensed consolidated balance sheet reflects the acquisition
of Source Europe using the purchase method of accounting. The excess of the
purchase consideration over the fair value of the net assets of $1,789 is
presented as an adjustment to goodwill. The ultimate allocation of the purchase
price to net assets acquired, other intangible assets and goodwill is subject to
final determination of their respective fair values.
The adjustments related to the acquisition of Source Europe reflect (i) the
anticipated $9,000 of cash to be contributed by Source to Source Europe, (ii)
the 918,254 shares of Company Common Stock, held by Source, to be contributed to
Source Europe, (iii) the cancellation of certain loans under a line of credit
made by PMSI to Source, anticipated to total $5,233, of which $1,500 had been
advanced to Source at September 30, 1997, which will become part of the purchase
consideration, (iv) the cancellation of loans totalling $9,149 from Source to
Source Europe net of an adjustment of $1,648 to reflect cash and cash
equivalents on hand and (v) approximately $600 related to estimated transaction
costs, including legal fees, accountants' fees and related expenses.
The Company Common Stock to be contributed by Source to Source Europe has
been valued in the adjustments at $10,560, based on the September 30, 1997
closing price of $11.50. An additional adjustment has been recorded to
reclassify the fair value of the Company Common Stock from marketable securities
to treasury stock in the proforma condensed consolidated balance sheet.
The adjustments also reflect the elimination of a net receivable due to PMSI
from Source Europe totalling $1,898, including $1,500 advanced to Source under a
line of credit during the quarter ended September 30, 1997.
28
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
NOTES TO PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
2. UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET(CONTINUED)
The following table presents the adjustments described in Note 2 to the
proforma condensed consolidated balance sheet by respective balance sheet
accounts:
<TABLE>
<CAPTION>
ADJUSTMENT
ADJUSTMENTS ADJUSTMENTS PER PROFORMA
SALE OF ACQUISITION CONDENSED
SOURCE US OF SOURCE CONSOLIDATED
AND OTC EUROPE BALANCE
NOTE NOTE 2A NOTE 2B SHEET
----- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............................................... 2a(i) $ 6,500 -- $ 6,500
2b(i) -- $ 9,000 9,000
2b(iv) -- (1,648) (1,648)
----------- ----------- ------------
$ 6,500 $ 7,352 $ 13,852
----------- ----------- ------------
----------- ----------- ------------
Prepaid expenses and other current assets............................... 2b -- $(1,898) $ (1,898)
----------- ----------- ------------
----------- ----------- ------------
Marketable securities................................................... 2a(ii) $ 43,453 -- $ 43,453
2b -- $10,560 10,560
2b -- (10,560) (10,560)
----------- ----------- ------------
$ 43,453 -- $ 43,453
----------- ----------- ------------
----------- ----------- ------------
Goodwill, net........................................................... 2b -- $ 1,789 $ 1,789
----------- ----------- ------------
----------- ----------- ------------
Accrued liabilities..................................................... 2a(iii) $ 4,000 -- $ 4,000
2b(iii) -- $ 3,733 3,733
2b(v) -- 600 600
----------- ----------- ------------
$ 4,000 $ 4,333 $ 8,333
----------- ----------- ------------
----------- ----------- ------------
Accrued income taxes on sale of Source US and OTC....................... 2a $ 16,488 -- $ 16,488
----------- ----------- ------------
----------- ----------- ------------
Amounts due to Source Informatics....................................... 2b(iv) -- $(9,149) $ (9,149)
----------- ----------- ------------
----------- ----------- ------------
Amounts advanced under line of credit................................... 2b -- $(1,500) $ (1,500)
Amounts due to PMSI companies........................................... 2b -- (398) (398)
----------- ----------- ------------
Amounts due to PMSI..................................................... 2b -- $(1,898) $ (1,898)
----------- ----------- ------------
----------- ----------- ------------
Stockholders' equity.................................................... 2a $ 24,733 -- $ 24,733
----------- ----------- ------------
2b -- $(10,560) (10,560)
Stockholders' equity:
Source Europe................................................... -- 24,517 24,517
Source US and OTC............................................... 4,732 -- 4,732
----------- ----------- ------------
$ 29,465 $13,957 $ 43,422
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
29
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
NOTES TO PROFORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
3. UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997
The adjustments eliminate data purchases made by Source Europe from PMSI
during the three months ended September 30, 1997, totalling $37, and goodwill
amortization of $17 relating to the acquisition of Source Europe. An
amortization period of 20 years has been assumed in respect of the Source Europe
goodwill.
The reduction of 918,254 shares of Company Common Stock and common stock
equivalents reflects the reclassification to treasury stock of the shares of
Company Common Stock received in the acquisition of Source Europe.
The anticipated post-tax gain on the sale of the Company's interest in
Source US and the OTC Business of $24,733 is not reflected in the proforma
condensed consolidated statement of operations. Similarly, anticipated income
relating to the investment of the sale proceeds is also excluded.
There has been no apportionment of corporate overhead to the results of
PMSI's interest in Source US and the OTC Business. Such an allocation would have
reduced the reported operating profit of the businesses to be disposed.
4. UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 1997
The adjustments comprise the elimination of data purchases made by Source
Europe from PMSI during the twelve months ended June 30, 1997, totalling $125,
goodwill amortization of $66 relating to the acquisition of Source Europe, and
interest expense of $477 arising on loans from Source to Source Europe, to be
canceled on closing. The goodwill arising on the acquisition of Source Europe is
assumed to be amortized over a 20-year period.
The reduction of 918,254 shares of Company Common Stock and common stock
equivalents reflects the reclassification to treasury stock of the shares of
Company Common Stock received in the acquisition of Source Europe.
The anticipated post-tax gain on the sale of the Company's interest in
Source US and the OTC Business of $24,733 is not reflected in the proforma
condensed consolidated statement of operations. Similarly, anticipated income
relating to the investment of the sale proceeds is also excluded.
There has been no apportionment of corporate overhead to the results of
PMSI's interest in Source US and the OTC Business. Such an allocation would have
reduced the reported operating profit of the businesses to be disposed.
30
<PAGE>
PROFORMA FINANCIAL INFORMATION OF NDC,
SOURCE US AND THE OTC BUSINESS
For proforma financial information of NDC, Source US and the OTC Business,
see the section captioned "UNAUDITED PRO FORMA FINANCIAL INFORMATION" of the S-4
in Appendix D attached hereto and incorporated herein by reference.
THE SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is for holders of Company Common Stock
entitled to vote thereon to consider and vote on the Transactions and to
transact such other business as may properly come before the meeting or any
adjournments thereof.
THE COMMITTEE HAS UNANIMOUSLY APPROVED THE STOCK PURCHASE AGREEMENT, THE
TRANSFER AGREEMENT AND THE TRANSACTIONS. THE BOARD HAS UNANIMOUSLY APPROVED THE
STOCK PURCHASE AGREEMENT, THE TRANSFER AGREEMENT AND THE TRANSACTIONS AND
RECOMMENDS THAT HOLDERS OF COMPANY COMMON STOCK VOTE "FOR" APPROVAL OF THE
TRANSACTIONS.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only stockholders of record of Company Common Stock at the close of business
on the Record Date, November 3, 1997, will be entitled to receive notice of the
Special Meeting and to vote on the Transactions. As of the Record Date, there
were 13,269,025 shares of Company Common Stock outstanding and entitled to vote
at the Special Meeting. Each share of Company Common Stock is entitled to one
vote. A majority of the outstanding shares of Company Common Stock must be
represented in person or by proxy at the Special Meeting in order for a quorum
to be present. A stockholder who returns his or her proxy and abstains on the
vote on the proposals will be deemed present at the meeting for quorum purposes
but will not be deemed to have voted on the particular matter.
REQUIRED VOTE
Assuming a quorum is present at the Special Meeting, the affirmative vote by
the holders of a majority of the shares of Company Common Stock represented at
the Special Meeting is required to approve the Transactions. Abstentions on the
proposal to approve the Transactions will have the effect of a negative vote
because the proposal requires the affirmative vote of a majority of the shares
of Company Common Stock represented at the Special Meeting. The NYSE has advised
the Company that, with respect to the Transactions, under the rules of the NYSE,
its member brokers do not have discretion to vote shares held by them in street
name for which no voting instructions have been received. Thus, there will be no
broker non-votes at the Special Meeting. While neither Delaware corporate nor
federal securities law requires the consent of the stockholders of PMSI to the
Transactions, the Board has required stockholder consent as a condition to the
Closing. Thus, if stockholder approval is not obtained, the Transactions will
not be consummated.
As of the Record Date, WCAS beneficially owned an aggregate 746,315 shares,
or 5.6%, of the outstanding Company Common Stock entitled to vote on the
Transactions and Source beneficially owned 918,254 shares, or 6.9% of the
outstanding Company Common Stock entitled to vote on the Transactions. Each of
WCAS and Source has indicated that such shares of Company Common Stock will be
voted in the same proportion as the votes of all other holders of Company Common
Stock. In addition, Messrs. Evans and Turner have also indicated their intent to
vote the shares of Company Common Stock owned by them in the same proportion as
the votes of all other holders of Company Common Stock.
31
<PAGE>
PROXIES
Shares represented by properly executed proxies received in time for the
Special Meeting will be voted at such meeting in the manner specified by the
holder thereof. IF A PROPERLY EXECUTED PROXY IS SUBMITTED TO THE COMPANY BUT A
CHOICE IS NOT INDICATED THEREON, THE PROXY WILL BE VOTED "FOR" APPROVAL OF THE
TRANSACTIONS. It is not expected that any matters other than the matters
referred to herein will be brought before the Special Meeting. If, however,
other matters are properly presented, the persons named as proxies will vote in
accordance with their judgment with respect to such matters.
The grant of a proxy on the enclosed form does not preclude a stockholder
from voting in person. A stockholder may revoke a proxy at any time prior to its
exercise by submitting a new proxy at a later date, by filing with the Secretary
of PMSI a duly executed revocation of proxy bearing a later date or by voting in
person at the Special Meeting. Attendance at the Special Meeting will not of
itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies. In addition
to solicitation by mail, the directors, officers and employees of the Company
and its subsidiaries may solicit proxies from stockholders of the Company by
telephone, facsimile or telegram or in person. Arrangements may also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and the Company will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
W.F. Doring & Co. will assist in the solicitation of proxies by PMSI and the
tabulation of votes for a fee of $10,000, plus reimbursement of its reasonable
out-of-pocket expenses.
THE TRANSACTIONS
BACKGROUND
In April 1996 PMSI's Board decided, following the conclusion of a strategic
reassessment, to concentrate the Company's efforts on the development of its
core business as an information services provider to the pharmaceutical and
healthcare industries. As a consequence, PMSI announced that it would divest its
non-database segment. Since that date, PMSI has sold all businesses in this
segment, except its French point-of-sale business, which is presented in the
Company's financial statements as an "asset held for sale."
In May 1996, to further its efforts towards achieving its business goals
while building stockholder value and to avoid any appearance of a conflict of
interest with Source, which the Company perceived as having potentially
conflicting goals, the Company formed the Committee, comprised solely of
independent directors, none of whom are directors or stockholders of Source. The
Company also retained investment bankers to evaluate how the Company could best
achieve such goals, including, possibly, a sale or merger of the Company.
Subsequently, the Company and its investment bankers had preliminary discussions
regarding business combinations with several potentially interested parties.
In addition, during this period the Company also reviewed the feasibility
and financial implications of acquiring Source, since the Company had been
informally notified by the board of directors of Source that Source was looking
for a way of creating liquidity for its stockholders. From a business and
strategic perspective, the acquisition of Source by PMSI had certain attractive
features given the significant business relationships between the two parties.
In 1991, PMSI and Walsh, as the predecessor of Source, had entered into the
Alpha Database Agreement and in 1994 PMSI and Walsh had commenced the Source US
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 Europe's efforts to build and commercialize
similar databases in major European markets. However, after considering the
32
<PAGE>
matter, the Committee concluded that the acquisition of Source in a purchase
transaction at the value placed on the business by the Source board would be
significantly dilutive to future earnings per share. Furthermore, the Source
Board of Directors was seeking liquidity that would have been difficult for the
Company to achieve; the Committee, therefore, rejected the acquisition of Source
as a viable option.
During the first half of calendar 1996, Source US and NDC, which has been a
significant data supplier to Source US since inception of the US operating
venture between Source and PMSI, commenced discussions with regard to creating a
new information service. 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 US, the OTC Business and NDC's healthcare
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 and all of
Source US, subject to Source's divestiture of its interest in Source Europe. The
Committee considered that the proposal did present PMSI with the opportunity to
capitalize on the value of its minority participation in Source US and the value
of the OTC Business (which is the only PMSI operation located in the same
offices and utilizing significant common resources as Source) and to construct a
financially attractive transaction to acquire 100% of Source Europe to further
strengthen and expand PMSI's European businesses. Moreover, since no other
possible business combinations had progressed beyond the preliminary proposal
stage, the Committee determined that NDC's proposal was the transaction most
likely to increase stockholder value in PMSI.
In June 1997, NDC, PMSI and Source commenced negotiations and reached
preliminary agreement for PMSI to acquire 100% of Source Europe and for NDC to
acquire 100% of Source US (including PMSI's interest in Source US) together with
the OTC Business, for a total purchase price payable to PMSI and the
stockholders of Source consisting of $153 million, based on a value of NDC
Common Stock of $43.875 per share, payable 75% in registered shares of NDC
Common Stock and 25% in cash. The Financial Advisor was directed to negotiate
the allocation between the Company and Source of the total NDC consideration to
be received in the Transactions and the Source Merger and the terms of the
transfer from Source to the Company of Source Europe. Source was represented in
these negotiations by its own investment bankers.
Through July and August 1997, the Company, Source and NDC continued to
negotiate the final terms of the Transactions and the Source Merger. These
negotiations did not result in any material changes in the economic terms of the
Transactions or the Source Merger, however, the negotiations did cover certain
other terms of the Transactions and the Source Merger, including the scope of
representations and warranties, the scope and duration of indemnities and
related escrow arrangements and the principal terms of ancillary agreements
between the parties. On August 20, 1997, the Stock Purchase Agreement, the
Transfer Agreement and the Source Merger Agreement were executed.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE TRANSACTIONS
Over the last few years, Source US has been a major factor in the growth of
PMSI's information business. However, the Source US venture is governed by the
Amended and Restated Alpha Database License Agreement (the "Alpha Database
Agreement"), between Source and PMSI, which is cancelable by Source in its
complete discretion in 2011 at the end of the 20-year term. PMSI's minority
position in Source US allows it to recognize a fixed 26% of revenue and a
percentage of total costs that increases over time from 22.6% in 1995 to 26% in
2002. As a consequence, overall operating profits of Source US
33
<PAGE>
recognized by PMSI will decline over the next four years to 26% of Source US
total operating profits and stay at that level for the remainder of the current
term of the Alpha Database Agreement, including license renewals through 2011
pursuant to the Company's exclusive option. See "--Description of the
Transactions; Source US, Source Europe and the OTC Business."
In view of the desire of Source stockholders for liquidity, it became clear
to the Board of PMSI that there was a significant likelihood that, in order to
achieve such liquidity, Source would have to sell its majority ownership of
Source US, leaving PMSI, if it took no other action, as a minority partner in a
venture controlled by an unknown third party. The Board decided that increasing
long-term stockholder value was best served either by full ownership of such
databases or complete liquidation of its minority interest in the operating
venture. The Committee and the Board unanimously felt that maintaining access to
the Source US databases only through PMSI's minority ownership of finite
duration was not an effective way to increase PMSI stockholder value. Rather,
after investigating and rejecting on financial grounds the possibility of
purchasing Source, the Committee and the Board concluded that it would best
serve the interests of PMSI's stockholders to take the opportunity of selling
PMSI's interests in the venture at the same time as the sale by Source of its
majority interest and investing in wholly-owned healthcare database businesses.
The Committee and the Board approved including the OTC Business in the sale
to NDC because this business is physically located in Phoenix, Arizona with, and
supported by, Source US and would be difficult to manage and develop as a
stand-alone operation. Moreover, NDC included it in its formal offer. The
Committee and the Board also concluded that the sale of Source US and the OTC
Business would have no material adverse impact on Scott-Levin, the Company's
other business in the United States, since this research and consulting business
is located separately in Newtown, Pennsylvania. Scott-Levin has a substantially
broader client base than either Source US or the OTC Business. In addition, the
Committee and Board concluded that the sale of Source US and the OTC Business
would have no material adverse impact on the Company's growing information
services business in Japan.
Prior to approving the acquisition of this venture, PMSI's Board requested a
detailed review of this opportunity for PMSI by management and independent
advisers. The review concluded that, although the transaction is not without
risks, the acquisition and the completion of the development of Source Europe
are in the overall best interests of PMSI given the substantial investment
already made by Source in the venture over the past three fiscal years, the
projected future returns and required costs of completing the project and the
availability to the Company of some of the same experienced team that developed
Source US. To date the investments in Source Europe include researching the
market potential and entry strategies for Source Europe data services in Europe,
entering into contracts with prescription data vendors in five national markets,
developing the databases, gaining regulatory approval in certain markets and
initiating the procedure for regulatory approval in other markets for the
collection of prescriber level data and delivery of data products, building
infrastructure and entering into contracts with over 30 pharmaceutical companies
and obtaining sales commitments from others.
The pharmaceutical industry in the countries covered by Source Europe has a
market size in excess of the market in the United States and management of PMSI
believes that the European market for prescription data has the potential of
generating profits at least as high as those for the prescription information
services business in the United States. Moreover, the Board believes that this
European market is as yet essentially unrealized, offering Source Europe an
opportunity to participate in the development of the market and in its potential
gains. The Board believes that the Company's already existing European presence
and infrastructure, along with the overall experience, background and industry
knowledge of the Company's management and personnel place it and Source Europe
in position to exploit this opportunity. Source Europe is already delivering
initial data products to clients and beginning to recognize revenue. The
Committee and the Board concluded that Source Europe would be complementary to
PMSI's existing European businesses and would thereby enhance PMSI's market
position in the future.
34
<PAGE>
The Committee and the Board reviewed the effects on fiscal 1998 financial
results of the Transactions and the investment in Source Europe to complete its
development including a reduction in information services revenue and a dilution
in the Company's earnings per share. However, the Committee and the Board also
considered that the cash and Company Common Stock to be received from Source in
the Transactions should contribute significantly to the funding requirements of
Source Europe and that, over the longer term, the revenues from Source Europe
should at least replace the revenues that had been derived from the businesses
to be sold in the Transactions. Therefore, the Committee and the Board concluded
that the potential financial return from Source Europe outweighed the risks in
taking on a developmental stage business of this magnitude.
The Committee, comprised solely of independent directors of the Company who
are neither directors nor stockholders of Source, unanimously approved the Stock
Purchase Agreement, the Transfer Agreement and the Transactions and recommended
to the Board that the Stock Purchase Agreement, the Transfer Agreement and the
Transactions be approved. THE BOARD RECOMMENDS THAT HOLDERS OF COMPANY COMMON
STOCK VOTE "FOR" APPROVAL OF THE TRANSACTIONS.
OPINION OF FINANCIAL ADVISOR
Cowen & Company ("Cowen") has acted as financial advisor to the Committee in
connection with the Transactions. Pursuant to an engagement letter dated August
18, 1997 (the "Cowen Engagement Letter"), the Committee retained Cowen to serve
as its financial advisor with respect to the Transactions. As part of this
assignment, Cowen was asked to render an opinion to the Committee as to the
fairness, from a financial point of view, to the Company of the Consideration to
be paid to the Company, pursuant to the Stock Purchase Agreement and the
Transfer Agreement (the "Agreements").
On August 18, 1997, Cowen delivered certain of its written analyses and its
oral opinion, confirmed in writing as of the same date, to the Committee to the
effect that, as of August 18, 1997, the Consideration to be paid to the Company
in the Transactions is fair, from a financial point of view, to the Company. The
full text of the written opinion of Cowen, dated August 18, 1997, is attached
hereto as Appendix C and is incorporated herein by reference. Holders of Company
Common Stock are urged to read the opinion in its entirety for the assumptions
made, procedures followed, other matters considered and limits of the review by
Cowen. The summary of the written opinion of Cowen set forth herein is qualified
in its entirety by reference to the full text of such opinion. Cowen's analyses
and opinion were prepared for and addressed to the Committee and are directed
only to the fairness, from a financial point of view, of the Consideration to be
paid to the Company in the Transactions and do not constitute an opinion as to
the merits of the Transactions or a recommendation to any holders of the Company
Common Stock as to how to vote at the Special Meeting.
Cowen was selected by the Committee as its financial advisor, and to render
an opinion to the Committee, because Cowen is a nationally recognized investment
banking firm and because the principals of Cowen have substantial experience in
transactions similar to the Transactions and are familiar with the Company and
its businesses. As part of its investment banking business, Cowen is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and valuations for corporate and other purposes. In the
ordinary course of its business, Cowen and its affiliates trade the equity
securities of the Company and NDC for their own account and for the accounts of
their customers and, accordingly, may at any time hold a long or short position
in such securities.
In arriving at its opinion, Cowen (a) reviewed the Company's financial
statements for the fiscal years ended June 30, 1995, 1996 and draft 1997,
certain publicly available filings made with the Commission and certain other
relevant financial and operating data of the Company, Source US, the OTC
Business and Source Europe; (b) reviewed the financial statements of NDC for the
fiscal years ended May 31, 1995, 1996 and 1997, certain publicly available
filings made with the Commission and certain other relevant financial and
operating data of NDC; (c) held meetings and discussions with management and
senior personnel of each of the Company, Source, including Source Europe, and
NDC, to discuss the business,
35
<PAGE>
operations, historical financial results and future prospects of the Company,
Source US, the OTC Business, Source Europe and NDC, including an analysis of the
strategic and operating benefits anticipated from the Transactions; (d) reviewed
financial projections furnished to Cowen by management of each of the Company
and Source, including, among other things, the capital structure, sales, net
income, cash flow, capital requirements and other data of the Company and Source
as Cowen deemed relevant; (e) reviewed the publicly available financial
projections of NDC furnished to Cowen by the management of NDC for the fiscal
year ended May 31, 1998, as set forth in the published reports of recognized
securities industry analysts; (f) reviewed the results of its analyses of the
Company and NDC in comparison with other similar publicly traded companies; (g)
reviewed the respective historical prices and trading activity of the securities
of the Company and NDC from August 13, 1996 to August 12, 1997 and compared
those trading histories with those of other companies which Cowen deemed
relevant; and (h) analyzed the potential proforma financial effects of the
Transactions as they relate to the Company and NDC. In addition, Cowen reviewed
the August 15, 1997, draft of the Stock Purchase Agreement and the August 16,
1997 draft of the Transfer Agreement. Cowen noted in its opinion that it had not
been provided with detailed financial projections by NDC.
In arriving at its opinion, Cowen did not make, obtain or assume any
responsibility for any independent evaluation of any such properties and
facilities or of the assets and liabilities (contingent or otherwise) of the
Company, Source US, the OTC Business, Source Europe or NDC, nor did Cowen make
any independent evaluation of the prospects, ongoing viability or any solvency
analysis of Source Europe. Source Europe is still in the developmental stage and
has not yet achieved full commercialization of its data products and services.
Accordingly, any analysis of the value of Source Europe is subject to
significant uncertainties, including market acceptance of such products and
services and the availability of adequate capital resources, and is inherently
speculative. In rendering its opinion, Cowen relied upon the Company's
management with respect to the accuracy and completeness of the financial and
other information furnished to it as described above and Cowen did not assume
any responsibility for independent verification of such information. Cowen
assumed that the financial projections prepared and provided to it by the
respective managements of the Company and Source (including projections of
Source US and Source Europe) represented the best current judgment of these
managements as to the future financial condition and results of operations of
the Company and Source, and Cowen assumed that the projections were reasonably
prepared based upon such current judgment. Although management of NDC did not
make financial projections of NDC available to Cowen, Cowen reviewed the
financial forecasts of recognized securities industry analysts who publish
research reports on NDC and Cowen confirmed the reasonableness and achievability
of such forecasts with NDC management.
With respect to all legal matters relating to the Company, Source and NDC
and the Transactions, Cowen relied on the advice of legal counsel to the
Committee. With respect to tax treatment relating to the Transactions, Cowen
relied on the advice of tax experts to the Company, the Board and the Committee.
Cowen did not express any opinion as to what the value of the Company Common
Stock or NDC Common Stock actually will be when the Consideration is paid to the
Company pursuant to the Transactions, or the price at which the Company Common
Stock or NDC Common Stock will trade prior or subsequent to the Transactions.
Cowen's opinion was necessarily based on regulatory, economic, market, financial
and other conditions as they existed on, and the information made available to
it as of, August 18, 1997. It should be understood that, although developments
subsequent to August 18, 1997 may affect its opinion, Cowen does not have any
obligation to update, revise or reaffirm its opinion.
The following is a summary of certain financial analyses performed by Cowen
to arrive at its opinion. Cowen performed certain procedures, including each of
the financial analyses described below, and reviewed with the Committee and
management of the Company the assumptions on which such analyses were based and
other factors, including the historical and projected financial results of the
Company, Source US, the OTC Business, Source Europe and NDC. No limitations were
imposed by the Committee with respect to the investigations made or procedures
followed by Cowen in rendering its opinion.
36
<PAGE>
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. To provide contextual data
and comparative market information, Cowen compared selected historical operating
and financial ratios for the Company and NDC to the corresponding data and
ratios of certain other companies (the "Selected Companies") whose securities
are publicly traded and which Cowen believes have operating, market valuation
and trading valuations similar to what might be expected of the Company and NDC.
For the Company, Selected Companies included the following health care
information systems companies ("HCIS Companies"): Access Health, Inc., AMISYS
Managed Care Systems, Inc., APACHE Medical Systems, Inc., Cerner Corporation,
Cognizant Corporation, Enterprise Systems, Inc., HBO & Company, HCIA Inc.,
Health Management Systems, Inc., HPR Inc., IDX Systems Corporation, IMNET
Systems, Inc., Keane, Inc., MECON, Inc., Medaphis Corporation, Medic Computer
Systems, Inc., Medical Manager Corporation, Medicus Systems Corporation, Oacis
Healthcare Holdings Corporation, Ovid Technologies, Inc., PHAMIS Inc., Physician
Computer Network, Inc., Quality Systems, Inc., Shared Medical Systems
Corporation and Summit Medical Systems, Inc. In addition, for the Company,
Selected Companies also included the following marketing database companies
("Marketing Database Companies"): Abacus Direct Corporation, Acxiom Corporation,
American Business Information, Inc., American List Corporation, Cognizant
Corporation, LCS Industries, Inc., May & Speh, Inc. and Metromail Corporation.
For NDC, Selected Companies included the following transaction processing
companies ("Transaction Processing Companies"): BA Merchant Services, Inc.,
Concord EFS, Inc., Envoy Corp., First Data Corporation, First USA Paymentech,
Inc., National Processing, Inc., NOVA Corp., PMT Services, Inc., SPS Transaction
Services, Inc., and Total System Services, Inc. Such data and ratios include the
Enterprise Value of such Selected Companies as multiples of revenues, EBITDA and
EBIT for the LTM, estimated 1997 calendar year and estimated 1998 calendar year
periods. Cowen also examined the ratios of the current prices of the Selected
Companies to the LTM earnings per share ("EPS"), estimated 1997 calendar year
EPS and estimated 1998 calendar year EPS for these companies.
Such analysis indicated that, for the HCIS Companies, (i) the median values
of Enterprise Value as a multiple (a) of LTM revenue, EBITDA and EBIT were 3.12
times, 20.4 times and 26.4 times, respectively; (b) of estimated 1997 revenue,
EBITDA and EBIT were 2.83 times, 14.6 times and 18.2 times, respectively; (c) of
estimated 1998 revenue, EBITDA and EBIT were 2.34 times, 10.3 times and 13.2
times, respectively; and (ii) the median values of price per share as a multiple
of LTM EPS, estimated 1997 EPS and estimated 1998 EPS were 42.9 times, 32.1
times and 25.2 times, respectively.
Such analysis indicated that, for the Marketing Database Companies, (i) the
median values of Enterprise Value as a multiple (a) of LTM revenue, EBITDA and
EBIT were 3.58 times, 12.8 times and 18.0 times, respectively; (b) of estimated
1997 revenue, EBITDA and EBIT were 3.53 times, 10.8 times and 15.4 times,
respectively; (c) of estimated 1998 revenue, EBITDA and EBIT were 2.97 times,
10.2 times and 12.5 times, respectively; and (ii) the median values of price per
share as a multiple of LTM EPS, estimated 1997 EPS and estimated 1998 EPS were
30.2 times, 24.6 times and 20.7 times, respectively.
Such analysis indicated that, for the Transaction Processing Companies, (i)
the median values of Enterprise Value as a multiple (a) of LTM revenue, EBITDA
and EBIT were 4.48 times, 16.4 times and 21.9 times, respectively; (b) of
estimated 1997 revenue, EBITDA and EBIT were 3.00 times, 14.1 times and 19.0
times, respectively; (c) of estimated 1998 revenue, EBITDA and EBIT were 3.18
times, 10.4 times and 13.3 times, respectively; and (ii) the median values of
price per share as a multiple of LTM EPS, estimated 1997 EPS and estimated 1998
EPS were 34.5 times, 30.8 times and 22.0 times, respectively.
Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to the Company or NDC. Accordingly, an
analysis of the results of such a comparison is not purely mathematical but
instead involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the Selected
Companies and other factors that could affect the public trading value of the
Selected Companies or the company to which they are being compared.
37
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS. Cowen estimated the range of values for the
Company, Source US as a whole, the Company's minority interest in Source US, the
OTC Business and Source Europe based upon the discounted present value of the
projected after-tax free cash flows of the Company, Source US as a whole, the
Company's minority interest in Source US, the OTC Business and Source Europe,
respectively, for the fiscal years ending June 1998 through June 2002, and of
the terminal value of the Company, Source US as a whole, the Company's minority
interest in Source US, the OTC Business and Source Europe at June 30, 2002,
based upon estimated 1998 EBIT multiples of HCIS Companies and Marketing
Database Companies and 2002 EBIT. After-tax cash flow was calculated by taking
projected EBIT and subtracting from such amount projected taxes, capital
expenditures and changes in working capital and adding back projected
depreciation and amortization. This analysis was based upon certain assumptions
described by, projections supplied by and discussions held with the management
of each of the Company and Source. In performing this analysis, Cowen utilized
discount rates ranging from 15% to 25% for the Company, 20% to 30% for Source
US, 20% to 30% for the Company's minority interest in Source US, 20% to 30% for
the OTC Business and 30% to 40% for Source Europe. These discount rates were
selected based on a number of criteria, including the estimated industry
weighted average cost of capital for each respective business and as a way to
account for the risk inherent in each respective business. Cowen utilized
terminal multiples of EBIT ranging from 10 times to 14 times for the Company,
Source US as a whole, the Company's minority interest in Source US, the OTC
Business and Source Europe. These multiples represented the general range of
1998 EBIT multiples for the HCIS Companies and Marketing Database Companies.
Utilizing this methodology, the Company's mid-range value was $10.92 per share,
Source US' mid-range value was $147 million, the Company's minority interest in
Source US' mid-range value was $48.9 million, the OTC Business' mid-range value
was $8.2 million and Source Europe's mid-range value was $29.2 million.
Cowen estimated the range of values for NDC based upon the discounted
present value of the projected after-tax free cash flows of NDC for the fiscal
years ending May 31, 1998 through 2002, and of the terminal value of NDC at May
31, 2002, based upon estimated 1998 EBIT multiples of Transaction Processing
Companies and 2002 EBIT. After-tax cash flow was calculated by taking projected
EBIT and subtracting from such amount projected taxes, capital expenditures and
changes in working capital and adding back depreciation and amortization. This
analysis was based upon certain assumptions described by, research analyst
projections supplied by and discussions held with the management of NDC. In
performing this analysis, Cowen utilized discount rates ranging from 10% to 15%,
which were selected based on a number of criteria, including the estimated
industry weighted average cost of capital and as a way to account for the risk
inherent in the business. Cowen utilized terminal multiples of EBIT ranging from
12 times to 16 times. These multiples represented the general range of 1998 EBIT
multiples for the Transaction Processing Companies. Utilizing this methodology,
NDC's mid-range value was $45.95 per share.
PROFORMA DISCOUNTED CASH FLOW ANALYSIS. Cowen estimated the range of values
for the Company on a proforma basis based upon the discounted present value of
the projected after-tax free cash flows of the proforma Company for the fiscal
years ending June 1998 through June 2002, and of the terminal value of the
proforma Company at June 30, 2002, based upon estimated 1998 EBIT multiples of
HCIS Companies and Marketing Database Companies and 2002 EBIT. After-tax cash
flow was calculated by taking projected EBIT and subtracting from such amount
projected taxes, capital expenditures and changes in working capital and adding
back projected depreciation and amortization. This analysis was based upon
certain assumptions described by, projections supplied by and discussions held
with, the management of each of the Company and Source. In performing this
analysis, Cowen utilized discount rates ranging from 20% to 30% for the proforma
Company. These discount rates were selected based on a number of criteria,
including the estimated industry weighted average cost of capital for HCIS
Companies and Marketing Database Companies and as a way to account for the risk
inherent in the proforma Company. Cowen utilized terminal multiples of EBIT
ranging from 10 times to 14 times for the proforma Company. These multiples
represented the general range of 1998 EBIT multiples for the HCIS Companies and
Marketing
38
<PAGE>
Database Companies. Utilizing this methodology, the Company's proforma mid-range
value was $11.40 per share. Based on a worst case analysis (NDC's stock price at
$37.25), the Company's proforma mid-range value was $11.35 per share.
Cowen estimated the range of values for NDC on a proforma basis based upon
the discounted present value of the projected after-tax free cash flows of
proforma NDC for the fiscal years ending May 31, 1998 through 2002, and of the
terminal value of proforma NDC at May 31, 2002, based upon estimated 1998 EBIT
multiples of Transaction Processing Companies and 2002 EBIT. After-tax cash flow
was calculated by taking projected EBIT and subtracting from such amount
projected taxes, capital expenditures and changes in working capital and adding
back depreciation and amortization. This analysis was based upon certain
assumptions described by, research analyst projections supplied by and
discussions held with, the management of NDC. In performing this analysis, Cowen
utilized discount rates ranging from 10% to 15%, which were selected based on a
number of criteria, including the estimated industry weighted average cost of
capital and as a way to account for the risk inherent in the proforma business.
Cowen utilized terminal multiples of EBIT ranging from 12 times to 16 times.
These multiples represented the general range of 1998 EBIT multiples for the
Transaction Processing Companies. Utilizing this methodology, NDC's proforma
mid-range value was $56.63 per share. Cowen's proforma discounted cash flow
analyses excluded the possible effect of cost savings and synergies in the
Transactions.
PROFORMA EARNINGS ANALYSIS. Cowen analyzed the potential effect of the
Transactions on the projected proforma income statement of the Company for the
Company's fiscal years ending June 30, 1998-2002 and on the projected proforma
income statements of NDC for NDC's fiscal years ending May 31, 1998-2002. These
analyses were based on: (a) projections for the Company, the OTC Business and
Source Europe provided by the Company's management and projections for Source US
provided by Source's management; and (b) publicly available financial forecasts
for NDC from recognized securities industry analysts, furnished to Cowen by NDC
management. These analyses excluded all one-time events. On a stand-alone basis,
in fiscal 1998, the analyses excluded the effects of (i) the sale of the
Company's publishing business in the Netherlands and (ii) the operating income
associated with the Company's point-of-sale business in France, which business
is projected to be sold in fiscal 1998. As a result of excluding such events,
the Company's stand-alone EPS was calculated to be lower than it otherwise would
have been presented. In addition, on a proforma basis, in fiscal 1998, the
analyses excluded the effects of (i) the tax benefit associated with the loss on
the sale of the Company's point-of-sale business in France and (ii) the gain
associated with the $15.5 million in cash and 1,059,829 shares of NDC Common
Stock received by the Company in the Transactions. As a result of excluding such
events, the Company's proforma EPS was calculated to be lower than it otherwise
would have been presented. These analyses concluded that the Transactions would
(i) decrease the Company's projected EPS for fiscal year 1998 by approximately
$0.35, from $0.42 to $0.07, and would increase NDC's projected EPS for fiscal
year 1998 by approximately $0.02, from $1.70 to $1.72; (ii) decrease the
Company's projected EPS for fiscal year 1999 by approximately $0.12, from $0.63
to $0.51, and would increase NDC's projected EPS for fiscal year 1999 by
approximately $0.03, from $1.95 to $1.98; and (iii) increase the Company's
projected EPS for fiscal year 2000 by approximately $0.40, from $0.78 to $1.18,
and would increase NDC's projected EPS for fiscal year 2000 by approximately
$0.13, from $2.23 to $2.36. Based on a worst case analysis (NDC stock price at
$37.25), these proforma EPS for 1998, 1999 and 2000, respectively, remained the
same.
STOCK TRADING HISTORY. Cowen reviewed the historical market prices and
trading volumes of the Company Common Stock from August 13, 1996 to August 12,
1997 and NDC Common Stock from August 13, 1996 to August 12, 1997 and identified
certain events that had an effect on the trading prices of such stock. This
information was presented solely to provide the Committee with background
information regarding the stock prices of the Company and NDC over the period
indicated.
The summary set forth above does not purport to be a complete description of
the analyses performed by Cowen. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of these methods to the particular
39
<PAGE>
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Cowen did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, notwithstanding the separate factors summarized above, Cowen
believes, and has advised the Committee, that its analyses must be considered as
a whole and that selecting portions of its analyses and the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the process underlying its opinion. In performing its analyses, Cowen
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond the control of
the Company and NDC. These analyses performed by Cowen are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which businesses or securities may actually be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty and none of the Company, NDC, Cowen or any other person assumes
responsibility for their accuracy. As mentioned above, the analyses supplied by
Cowen and its opinion were among several factors taken into consideration by the
Committee and the Board in making their determination to approve the
Transactions. The analyses of Cowen and its opinion should not be considered as
determinative of the decision of the Committee and the Board to accept the offer
by NDC.
Pursuant to the Cowen Engagement Letter, the Company has agreed to pay
certain fees to Cowen for its financial advisory services provided in connection
with the Transactions. If the Transactions are consummated, Cowen will be
entitled to receive an aggregate transaction fee in an amount equal to 1.5% of
(i) an aggregate $15.5 million in cash, less balance sheet adjustments, if any;
(ii) 1,059,829 shares of NDC Common Stock, subject to adjustment based on the
Average Sales Price; and (iii) 918,254 shares of Company Common Stock currently
owned by Source which the Company will hold as treasury shares. In addition,
Cowen was paid $400,000 in connection with rendering its fairness opinion.
Additionally, the Company has agreed to reimburse Cowen for its out-of-pocket
expenses (including the fees and expenses of its counsel) incurred or accrued
during the period of, and in connection with, Cowen's engagement. The Company
has also agreed to indemnify Cowen against certain liabilities, including
liabilities under the federal securities laws, relating to or arising out of
services performed by Cowen as financial advisor to the Committee in connection
with the Transactions, unless it is finally judicially determined that such
liabilities arose out of Cowen's gross negligence or willful misconduct. The
terms of the fee arrangement with Cowen, which are customary in transactions of
this nature, were negotiated at arm's length between the Company and Cowen, and
the Committee and Board were aware of such arrangement, including the fact that
a significant portion of the aggregate fee payable to Cowen is contingent upon
consummation of the Transactions.
DESCRIPTION OF THE TRANSACTIONS
GENERAL. The Transactions will be accomplished pursuant to the Stock
Purchase Agreement and the Transfer Agreement as follows: (a) NDC will purchase
from the Company all the outstanding capital stock of PMSI Sub to which the
Company has transferred (i) its minority interest in Source US and (ii) its OTC
Business; and (b) the Company will receive (w) an aggregate $15.5 million in
cash (including an aggregate $9 million from Source), (x) 1,059,829 shares of
NDC Common Stock, registered under the Securities Act, subject to adjustment as
described below, (y) all of Source Europe, partially in return for cancellation
of certain loans under a line of credit made by PMSI to Source, and (z) an
aggregate 918,254 shares of Company Common Stock currently owned by Source that,
by the time of the Closing, will have been transferred by Source to Source
Europe and which the Company will hold as treasury shares. Based on the Average
Sales Price and the closing price of Company Common Stock on November 13, 1997,
the total value of cash, NDC Common Stock and Company Common Stock to be
received by the Company (not taking into account the value of Source Europe) if
the Transactions had been consummated on the date of this Proxy Statement would
have been $65.2 million, or approximately $5.28 per share of Company Common
Stock, before payment of expenses.
40
<PAGE>
Simultaneously with the execution of the Stock Purchase Agreement and the
Transfer Agreement, Source and NDC entered into the Source Merger Agreement,
pursuant to which a subsidiary of NDC will be merged with and into Source with
Source surviving as a wholly-owned subsidiary of NDC. It is a condition to the
Source Merger that NDC purchase the OTC Business and the Company's interest in
Source US and it is a condition of the Stock Purchase Agreement that the Company
acquire Source Europe. Additional conditions to the Source Merger and the
Transactions include approval by the stockholders of the Company of the
Transactions and approval by the stockholders of Source of the Source Merger.
The number of shares of NDC Common Stock to be received by the Company in
the Transactions may be adjusted, based on the Average Sales Price for NDC
Common Stock, as follows: if the Average Sales Price is greater than $50.50 per
share, the number of shares of NDC Common Stock to be received by the Company
will be reduced to a number of shares which, as of such date, would have an
aggregate value of at least $53.52 million, while if the Average Sales Price is
less than $37.25 per share, the Company may terminate the Stock Purchase
Agreement, which would have the effect of also terminating the Transfer
Agreement and the Source Merger Agreement, provided that if the Company does
elect to terminate, NDC has the option to increase the number of shares of NDC
Common Stock to be received by the Company to a number of shares which, as of
such date, would have an aggregate value of at least $39.48 million. Source,
pursuant to the Source Merger Agreement, has a similar right to terminate the
Source Merger, and thereby the Transactions, and in such event NDC has a similar
option to increase the number of shares of NDC Common Stock to be received by
Source (which would have the effect of increasing the number of shares of NDC
Common Stock to be received by the Company as described above). Had the
Transactions been consummated on the date of this Proxy Statement, the Average
Sales Price would have been $37.71. If the Average Sales Price is less than
$37.25 per share, the Board will take such action as is required by law and the
Board's fiduciary obligations, including, if appropriate, resoliciting proxies
of the stockholders of the Company in connection with the Transactions.
In connection with the Transfer Agreement, the Company has provided Source
with a line of credit of $10 million (subject to increase to $12 million under
certain circumstances). As partial consideration for the transfer of Source
Europe, the amount of all loans made by the Company to Source under the line of
credit will be canceled at the Closing so long as such loans are within the
budget previously delivered by Source to the Company. The amount of such
canceled loans is expected to be approximately $4 million (assuming the Closing
occurs on November 30, 1997). The amount of any excess over budget will be due
and payable at Closing. However, if the Transactions are not consummated by
January 31, 1998, the full amount of the loans then outstanding (less the
realizable value of certain collateral) will be converted into a two-year term
loan. See "--Additional Agreements among PMSI, Source and NDC; Line of Credit
and Pledge Agreement." In addition, no later than at the Closing, each of the
Company and Source are obligated to settle any intercompany accounts existing
between them and their respective affiliates. Source's obligations to repay any
amounts due under the line of credit and settle such accounts with the Company
are secured by Source's pledge to the Company of an aggregate 435,000 shares of
Company Common Stock and approximately 17% of the outstanding shares of Common
Stock of Source's US operating subsidiary.
Until 90 days following receipt of audited financial statements of Source
Europe for its fiscal year ending June 30, 1998, the Source stockholders will
indemnify the Company against any liabilities arising from breaches of
representations, warranties and agreements in connection with the sale to the
Company of Source Europe. This indemnity will be secured by and limited to
shares of NDC Common Stock having a value of $3.5 million at the Closing.
The Company has agreed to indemnify NDC and its affiliates from all
liabilities relating to Source Europe and its operations. In addition, the
Company has agreed to reimburse Source, under certain circumstances, for up to
26% of the amount of any indemnification payment that is made by Source to NDC
in respect of breaches of representations and warranties regarding Source US
contained in the Source Merger Agreement, up to a maximum of $3.9 million.
41
<PAGE>
NDC has agreed to register for resale the shares of NDC Common Stock
received by the Company in the Transactions and to keep such registration
effective and available for use by the Company for up to two years.
SOURCE US, SOURCE EUROPE AND THE OTC BUSINESS. Source develops and maintains
the Alpha Database, a national database of prescription data together with
sophisticated databases of pharmaceutical product shipment data. Through Source
US, PMSI and Source have been offering jointly in the United States a range of
services generated from the Alpha Database. The Company's right to access and
use this database is governed by the Alpha Database Agreement. This database
contains information relating to over 3 billion prescriptions dispensed by
retail and mail order pharmacies in the United States over the 24-month period
ended June 30, 1997. Over 90% of the prescriptions in the Alpha Database are
matched to the approximately 1.1 million physicians and other prescribers
writing them.
Services generated from the Alpha Database and currently offered by the
Source US joint venture include the SOURCE PRESCRIPTION DATABASE SERVICE, a
comprehensive data service providing the client with access to the database
itself; SOURCE PRESCRIBER, which is an enhanced targeting service providing
physician specific prescribing information; SOURCE PAYER PRESCRIBER, which
provides in-depth information on the links between physicians and their managed
care organization ("MCO") affiliations; and SOURCE LAUNCHTRAC, which is used by
a pharmaceutical company during and after a new product launch to identify those
physicians who have prescribed the product. The Company also provides a series
of technology services under the INTELLECT brand name, consisting of data
mining, warehousing and analysis services. The RESEARCH SOLUTIONS GROUP provides
statistical and research services primarily dependent upon the Alpha Database.
In 1991, Source granted the Company an exclusive license in the United
States to use the Alpha Database to provide targeting information with respect
to the prescribing behavior of individual prescribers. Due to the movement by
clients towards contracting for the entire Alpha Database in the United States
rather than to continue to purchase specific products derived from the database,
both parties agreed, as of July 1994, to accelerate the transition to a revenue
and cost allocation arrangement, as provided for in the Alpha Database
Agreement. As a consequence, costs were allocated based on costs for data
updating and maintenance of the Alpha Database according to the relative
historical revenues generated by Source and PMSI in using the database. Revenues
from the comprehensive database contracts are also allocated to both parties
based principally upon the historical percentages of revenue each party had
derived from the Alpha Database in the January 1991 through June 1994 period.
PMSI's participation in Source US allows it to recognize a fixed 26% of revenue
and a percentage of total costs that increases over time from 22.6% in 1995 to
26% in 2002. As a consequence, overall operating profits of Source US recognized
by PMSI will decline over the next four years to 26% of Source US' total
operating profits and stay at that level for the remainder of the current term
of the Alpha Database Agreement, including license renewals through 2011
pursuant to the Company's exclusive option. Thereafter, the agreement will be
renewed for successive five-year terms unless terminated by either party.
Accordingly, after 2011, the Company bears the risk that Source will elect not
to renew the contract, and the Company believes that there would be little or no
economic value to Source to extend. Source has agreed that, for so long as the
Alpha Database Agreement is in effect, it will not engage in the business of
providing physician targeting services.
Source Europe consists principally of similar prescription and
pharmaceutical product shipment databases and information services being
designed and developed by Source for use by and to accommodate the specific
technologies and markets in the United Kingdom, France, Germany, Italy and
Belgium. In addition, initial work has begun in the development of these
products for the Spanish and Dutch markets. Source Europe markets its products
and services on a national and multi-national basis. With data privacy approvals
granted in all markets where it currently operates, PMSI expects a rapid
increase in Source Europe's revenue during the fiscal year ending June 30, 1998,
which would replace a significant proportion of the revenue lost by PMSI in the
sale of Source US and the OTC Business in the United States.
42
<PAGE>
Through its OTC Business, the Company provides a targeting information
service to over-the-counter pharmaceutical companies which provides managers of
OTC products with the ability to target medical practitioners with a high
potential to influence OTC sales through product recommendation to patients.
ADDITIONAL AGREEMENTS AMONG PMSI, SOURCE AND NDC. As part of the
Transactions and the Source Merger, the Company and NDC will enter into certain
agreements and the Company and Source will enter into several agreements which,
after consummation of the Source Merger, will be assumed by NDC on behalf of
Source.
LINE OF CREDIT AND PLEDGE AGREEMENT. Pursuant to the Transfer Agreement,
the Company has made available to Source until the Closing (or termination of
the Transfer Agreement) a line of credit of up to $10 million (subject to
increase to $12 million) for use in funding Source Europe. For all periods after
August 31, 1997 the Company will be responsible for the funding of Source Europe
up to budgeted amounts and will not be reimbursed by Source for these amounts at
Closing. The line of credit has been secured by the pledge by Source to the
Company of approximately 17% of the outstanding shares of Common Stock of
Source's US operating subsidiary and an aggregate 435,000 of the shares of
Company Common Stock owned by Source (the "PMSI Share Collateral"). Amounts
outstanding under the line of credit will accrue interest at the rate of prime
plus 2%. As partial consideration for the transfer of Source Europe, the amount
of all loans made by the Company to Source under the line of credit will be
canceled at the Closing so long as such loans are within the budget previously
delivered by Source to the Company. The amount of such canceled loans is
expected to be $4.0 million (assuming the Closing occurs on November 30, 1997).
The amount of any excess over budget will be due and payable at Closing.
However, if the Closing does not occur by January 31, 1998, Source will be
obligated to repay any interest due under the line of credit and any outstanding
principal, less the amount of net realizable value of the PMSI Share Collateral
(calculated as set forth in the Transfer Agreement), will be converted into a
two-year term loan with an interest rate of prime plus 2%, and will be secured
by an adjusted number of shares of Common Stock of the Source subsidiary.
TRANSITION SERVICES AND INTERCOMPANY ARRANGEMENT AGREEMENT. Pursuant to
this agreement, Source will agree to continue to provide or make available, as
the case may be, to Source Europe, upon agreed conditions and generally at the
greater of actual cost or budgeted terms, certain technical development
services, facilities and personnel in the United States through June 30, 1998.
Until January 1998, Source Europe will make monthly payments of at least $37,500
to Source US for these services, personnel and the use of these facilities.
SOFTWARE LICENSE AGREEMENT AND NON COMPETE ARRANGEMENTS. Pursuant to a
license agreement, Source will transfer to Source Europe all right, title and
interest to work and materials related to the development of the Source Europe
software, database and intellectual property for use in continental Europe, the
UK and Ireland. This agreement also provides Source Europe with the right, at
Source Europe's election, to use the Source name for a five year period in
certain countries, subject to payment of a royalty fee. As part of this and
other ancillary agreements, Source will agree for a five-year term not to
compete with the Source Europe business in the countries of the European Union
and the Company will agree for the same five-year term not to compete with the
Source business in the United States. Source will no longer be subject to the
non-compete restrictions if at any time during such five year period, Source
Europe becomes bankrupt or there is a change of control transaction of Source
Europe involving a competitor of Source. In addition, Source will be free to
compete in any of the European Union countries prior to the termination of the
non-compete period if Source Europe announces it is terminating, or actually
terminates operations in such country.
SCOTT-LEVIN SERVICES AGREEMENT. An agreement will be entered into among
Source, the Company's Scott-Levin subsidiary and the Company as guarantor
establishing the terms under the which each of Source and Scott-Levin will
continue to sell certain of their data products and services to the other
through June 30, 2002. The Company will guarantee Scott-Levin's obligations
under this agreement and will indemnify Source against the failure of
Scott-Levin to perform under this agreement.
43
<PAGE>
NON-COMPETE AGREEMENTS. Each of the Company and NDC will enter into
non-compete agreements. Under the terms of such non-compete agreement, the
Company and its affiliates agree that they will not, for a five-year period
following the Closing, among other things, engage in the United States in the
development, use or exploitation of prescription databases for certain
enumerated purposes, except that Scott-Levin may continue to engage in the
activities in which it is engaged as of the Closing. Under the terms of NDC's
non-compete agreement, NDC agrees, among other things, that it and its
affiliates will be bound by the terms of the non-compete set forth in the
Software License Agreement for so long as Source is bound thereunder.
INDEMNIFICATION REIMBURSEMENT AGREEMENT. The Company and a representative
of the Source stockholders will enter into an indemnification reimbursement
agreement at Closing. Under the terms of such agreement, the Company will
reimburse Source, under certain circumstances, for up to 26% of the amount of
any indemnification payment that is made by Source to NDC in respect of breaches
of representations and warranties regarding Source US contained in the Source
Merger Agreement, up to a maximum of $3.9 million.
ESCROW AGREEMENT. The Company and the Source stockholders will enter into
an escrow agreement with respect to $3.5 million of NDC Common Stock to be
escrowed for the benefit of the Company. The Company will have recourse to such
escrow in respect of liabilities arising from breaches of representations,
warranties and agreements under the Transfer Agreement.
SUBLEASE OF NEWTOWN FACILITIES. The Newtown facilities, currently being
leased by the Company and used by Walsh, will be assigned to NDC.
OTHER AGREEMENTS. In connection with the Transactions and the Source
Merger, several other agreements will be entered into between Source and Walsh,
including a services and sublease agreement. For a description of these
agreements, see the section captioned "THE MERGER--Conditions to Consummation"
of the S-4 in Appendix D hereto.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Stockholders should be aware that certain members of the Company's Board and
management have certain interests in the Transactions that are in addition to
the interests of stockholders of the Company generally. Handel E. Evans, a
director and the Chairman of the Board of the Company, is also a director and
the Chairman of the Board of Source. Dennis M.J. Turner, a director and the
Chief Executive Officer of the Company, is a also a director and the Chief
Executive Officer of Source. In addition, Patrick J. Welsh, a director of both
the Company and Source, is a general partner of WCAS, a significant stockholder
of the Company and, along with certain of its affiliated entities, the largest
stockholder of Source. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF THE COMPANY."
Messrs. Evans and Turner are each to receive aggregate annual bonuses from
the Company and Source of $570,000. In determining these bonuses, the
Organization and Compensation Committee of each of the Company and Source
conditioned part of the bonus on the successful completion of the Transactions.
At consummation of the Transactions, the employment by Source of Messrs. Evans
and Turner will be terminated and they will each receive termination payments
pursuant to their respective employment agreements with Source aggregating $1.17
million and $880,000, respectively, after which Mr. Evans will enter into an
employment agreement with the Company as its full-time Chairman of the Board and
Mr. Turner will enter into an employment agreement with the Company as its
full-time Chief Executive Officer. In the event that either Source or the
Company do not have sufficient cash available to consummate the Transactions and
the Source 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
three other executives of the Company, including Warren J. Hauser, Vice
President and Secretary of the Company, aggregating $490,000, will reflect the
successful completion of the Transactions.
44
<PAGE>
In addition to the shares of Company Common Stock owned by Mr. Evans as set
forth under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
THE COMPANY," Mr. Evans and trusts for the benefit of his family beneficially
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 Source Merger) and options to purchase an additional 201,250 shares of
Source Common Stock, all of which become exercisable upon consummation of the
Transactions.
In addition to the shares of Company Common Stock owned by Mr. Turner as set
forth under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
THE COMPANY," Mr. Turner and trusts for the benefit of his family beneficially
own an aggregate 242,584 shares of Source Common Stock (representing
approximately 3.6% of the Source capital stock outstanding and entitled to vote
on the Source Merger) and options to purchase an additional 151,250 shares of
Source Common Stock, all of which become exercisable upon consummation of the
Transactions.
In addition to the shares of Company Common Stock owned by Mr. Welsh as set
forth under "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
THE COMPANY," 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 Source
Merger) and may be deemed to own the aggregate 2,544,147 shares of Source Common
Stock (or approximately 37.18% of the Source capital stock outstanding and
entitled to vote on the Source Merger) owned by WCAS and certain of its
affiliated entities. In addition, Mr. Welsh owns options to purchase an
aggregate 7,500 shares of Source Common Stock, all of which will become
exercisable upon consummation of the Transactions.
REGULATORY APPROVALS
The obligations of NDC, PMSI and PMSI Sub to consummate the Transactions are
subject to all necessary consents of, filings and registrations with, and
notifications of, all regulatory authorities, including the expiration of all
waiting periods required by law. Furthermore, no consent from any regulatory
authority which is necessary to consummate the Transactions 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 Transactions that, had such condition or requirement been known,
NDC would not, in its reasonable judgment, have entered into the Stock Purchase
Agreement.
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Transactions may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division and
the applicable waiting period has expired or been terminated. Each of NDC, PMSI
and Source filed notification and report forms under the HSR Act and the FTC and
the Antitrust Division on October 7, 1997 with respect to the Transactions and
the Source Merger. The applicable waiting period under the HSR Act has expired.
At any time before or after consummation of the Transactions, 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 Transactions or seeking divestiture of substantial assets of
NDC or PMSI. At any time before or after the Closing Date, 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 of the
Transactions or seeking divestiture of substantial assets of NDC or PMSI.
Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
45
<PAGE>
THE STOCK PURCHASE AGREEMENT AND THE TRANSFER AGREEMENT
The discussion in this Proxy Statement of the Stock Purchase Agreement and
the Transfer Agreement, and the description of their respective principal terms,
is subject to and qualified in its entirety by reference to the full texts of
these agreements, copies of which are attached to this Proxy Statement as
Appendix A and Appendix B, respectively, and are incorporated herein by
reference.
THE STOCK PURCHASE AGREEMENT
For purposes of this discussion, the OTC Business and the Company's interest
in Source US to be acquired by NDC are referred to collectively as the "PMSI Sub
Business."
CERTAIN REPRESENTATIONS AND WARRANTIES. The Stock Purchase Agreement
contains various representations and warranties of each of the Company, PMSI Sub
and NDC relating to, among other things: (i) the due organization, existence and
good standing of, and similar corporate matters with respect to each party; (ii)
each party's capital structure; (iii) the authorization, execution, delivery,
performance by each party and enforceability of the Stock Purchase Agreement and
the transactions contemplated thereby; (iv) the absence of any conflict with the
certificate of incorporation or by-laws of each party; (v) the consents
necessary under certain contracts and required governmental or regulatory
authorizations, consents or approvals, if any; (vi) compliance with applicable
law; (vii) the financial statements of each party and the absence of any
undisclosed liabilities; (viii) the absence of certain changes or events having
a material adverse effect; and (ix) the absence of certain litigation. In
addition, the Company and PMSI Sub have represented and warranted as to, among
other things, as they relate to the acquisition by NDC of PMSI Sub, (a) the
payment of taxes and the filing of returns; (b) the ownership and adequate
insurance of certain assets; (c) the ownership of intellectual property rights;
(d) labor issues and employee benefit plans; (e) the existence and status of
certain material contracts; and (f) the ownership or leasehold of personal
property.
COVENANTS. The Company has agreed, among other things, that prior to the
Closing, unless otherwise consented to in writing by NDC, it will or will cause
PMSI Sub to (i) conduct the PMSI Sub Business in the usual and ordinary course;
(ii) use its reasonable efforts to preserve intact the OTC Business and maintain
any related rights and franchises; (iii) maintain the assets of the OTC Business
in their present condition and order and maintain any insurance covering such
assets in amounts and on terms substantially equivalent to those in effect on
the date of the Stock Purchase Agreement; (iv) take all steps reasonably
necessary to maintain the intangible assets, including intellectual property, of
the PMSI Sub Business; (v) use its reasonable best efforts to preserve the
goodwill of those with which the PMSI Sub Business has business relationships;
and (vi) not take any action that would hinder the ability of any party to
perform under the Stock Purchase Agreement or to obtain any consent required
thereunder to the Transactions. PMSI will also use commercially reasonable
efforts to obtain any third party consents necessary for the transfer by the
Company to PMSI Sub of the PMSI Sub Business and the assignment to PMSI Sub of
contracts. All indebtedness and other obligations existing between the Company
or any of its subsidiaries, on the one hand, and Source or any of its
subsidiaries and PMSI Sub, on the other, shall have been discharged and paid in
full prior to the Closing.
PMSI and PMSI Sub have also agreed, prior to the Closing, without the prior
written consent of NDC, not to permit any of the following to occur with respect
to PMSI Sub: (i) the amendment of any of the governing instruments; (ii) the
incurrence of obligations not included in its budget in excess of an aggregate
$50,000 or the imposition of any liens not in effect on the date of the Stock
Purchase Agreement; (iii) the acquisition of any shares of, or any securities
convertible into shares of, the declaration or payment of any dividend or other
distribution on shares of, the issuance, pledge or authorization of any
additional shares of, or the adjustment, split, combination, reclassification of
or issuance of securities in respect of or in substitution for, its capital
stock; (iv) the acquisition or disposition of any asset, other than in the
ordinary course of business, that would be an Acquired Asset; (v) other than
foreclosures in the ordinary course of business or as contemplated or permitted
by the Stock Purchase
46
<PAGE>
Agreement, the acquisition of securities or a controlling interest in an entity;
(vi) the adoption of any new employee benefit plans, the increasing of
compensation or benefits other than in accordance with past practice, the
payment of severance or bonuses than pursuant to written policies or contracts,
the execution or amendment of severance agreements or, other than in accordance
with past practice, the increase of benefits payable to directors; (vii) the
execution of any employment agreement that cannot be terminated at the option of
the Company or PMSI Sub; (viii) except as allowed by the Stock Purchase
Agreement, the making of any significant changes to the tax or accounting
methods or controls; (ix) other than in accordance with past practice, the
commencement of any litigation or the settlement of any litigation for material
damages or restrictions on the operations of the OTC Business; or (xi) the
execution, modification or amendment of any contract or the waiver, release or
assignment of any material rights or claims. In addition, the Company has agreed
not to modify, amend or waive any terms of the Transfer Agreement without the
prior written consent of NDC.
NDC has agreed, until the Closing, unless the Company has consented in
writing, to (i) continue to conduct its business 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 and to preserve core business and goodwill with
its employees and the communities it serves or (ii) not take any action that
would hinder the ability of any party to perform under the Stock Purchase
Agreement or to obtain any consent required thereunder to the Transactions. NDC
has also agreed not to amend its certificate of incorporation, by-laws or,
except as permitted by the Stock Purchase Agreement, its Rights Agreement (as
defined in the Stock Purchase Agreement), in a manner adverse to the holders of
PMSI Sub common stock as compared to the holders of NDC Common Stock generally.
For at least one year after the Closing, NDC will maintain PMSI Sub and all its
assets and will treat the Company's interest in Source US that NDC will have
acquired as a partnership for federal income tax purposes.
The Stock Purchase Agreement contains additional covenants with respect to,
among other things, (i) the filing of the registration statement with respect to
the resale by the Company of the NDC Common Stock it receives; (ii) the listing
of the NDC Common Stock to be issued pursuant thereto on the NYSE; (iii) the
filing of all necessary applications with regulatory authorities; (iv) the
mutual permission for each party to investigate the business of the other and
the maintaining of confidentiality with respect to any confidential information
obtained during the course of such investigations; (iv) the mutual consultation
and cooperation with respect to public announcements; (v) the employment by NDC
of certain employees of the Company and PMSI Sub; (vi) certain tax matters; and
(vii) the negotiation of a joint international marketing arrangement with
respect to the parties' respective businesses.
NO SOLICITATION. The Stock Purchase Agreement provides that the Company and
PMSI Sub shall not, and shall use their best efforts to cause their affiliates
and representatives not to, directly or indirectly, solicit any Acquisition
Proposal (as defined in the Stock Purchase Agreement) that relates to the PMSI
Sub Business and its assets; nor shall they release any non-public information,
negotiate or enter into a contract with respect to an Acquisition Proposal
unless the Board reasonably determines in good faith that its fiduciary duties
require it to take any of these actions. The Company and PMSI Sub have an
obligation promptly to notify NDC of any Acquisition Proposals and any
developments with respect thereto.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS. The obligations of all
parties to consummate the Transactions are subject to the satisfaction or waiver
of, among other things, (i) the approval of the Transactions by the stockholders
of the Company; (ii) receipt of applicable regulatory approvals and third party
consents necessary for the consummation of the Transactions; (iii) the absence
of any court, governmental or regulatory action prohibiting the Transactions;
(iv) effectiveness of the registration statement with respect to the resale by
the Company of the NDC Common Stock it receives and listing on the NYSE of such
NDC Common Stock; (v) the aggregate effect of all inaccuracies in the
representations and warranties contained in the Stock Purchase Agreement of the
Company and PMSI Sub, on the one hand, or of NDC on the other hand, not having a
material adverse effect on PMSI Sub or NDC, as the case may be; (vi) the
performance in all material respects by the Company and PMSI Sub, on the one
hand, or
47
<PAGE>
of NDC, on the other hand, of their respective obligations under the Stock
Purchase Agreement; (vii) the receipt by NDC and the Company of certificates of
the other to the effect of (v) and (vi); and (viii) the receipt by NDC and the
Company of the opinion of counsel of the other party addressing certain matters
set forth in the Stock Purchase Agreement and reasonably acceptable to the
recipient.
The obligations of NDC to consummate the Transactions are also subject to
the satisfaction or waiver of the concurrent consummation of the Source Merger
and the execution and delivery of the related agreements and the receipt of
certain specified consents relating to the assignment of material contracts from
the Company to PMSI Sub and the release of Source from certain contracts related
to Source Europe. See "THE TRANSACTIONS--Additional Agreements Among PMSI,
Source and NDC." The obligations of the Company and PMSI Sub to consummate the
Transactions are also subject to the satisfaction or waiver of execution by NDC
of the registration rights agreement.
INDEMNIFICATION. All representations, warranties and covenants contained in
the Stock Purchase Agreement will survive the Closing and the parties will
indemnify each other for losses arising out of any inaccuracy, untruth,
incompleteness or breach of any representation or warranty (without giving
effect to any materiality thresholds contained in the Stock Purchase Agreement),
the failure to perform any covenant contained in the Stock Purchase Agreement or
liabilities for which the indemnifying party is obligated after the Closing
("Liabilities"). In addition, the Company will indemnify NDC (as the parent of
Source after the Source Merger) and its affiliates for losses arising out of
Source Europe. With the exception of the indemnity covering Liabilities and
Source Europe, any claim for indemnification must be asserted in writing prior
to August 31, 1999. An indemnified party is entitled to seek damages only when
the aggregate losses claimed exceed $30,000, provided that once such threshold
is exceeded, the damages sought may include such $30,000 (but in no event may
they include any individual claims for less than $10,000). Neither party will be
liable to pay indemnification claims aggregating more than $1 million for
breaches of representations, warranties or covenants. Any payments of
indemnification claims for losses in connection with Liabilities or Source
Europe will not be counted towards the maximum threshold. The liability of a
party with respect to indemnification will be reduced by the tax benefit
realized or detriment suffered and any insurance proceeds received as a result
of any losses upon which such indemnification is based.
In addition, the Company has agreed to contribute, under certain
circumstances, up to 26% of the amount of any indemnification payment that is
made by Source to NDC in respect of breaches of representations and warranties
regarding Source US contained in the Source Merger Agreement, up to a maximum of
$3.9 million.
TERMINATION. The Stock Purchase Agreement may be terminated by either party
in the event the stockholders of the Company or PMSI Sub do not approve the
Transactions. The Stock Purchase Agreement may also be terminated,
notwithstanding stockholder approval thereof, (i) by mutual consent of the
parties; (ii) by a party not then in material breach of the Agreement in the
event of the material breach by the other party of the (x) a representation or
warranty reasonably likely to have a material adverse effect on the PMSI
Business or NDC business, as the case may be, which breach has not been cured
within 30 days of receipt of notice of such breach from the nonbreaching party
or (y) a covenant, that has not been cured within 30 days of receipt of notice
of such breach from the nonbreaching party; (iii) by a party not then in
material breach of the Agreement if any regulatory approval or consent is denied
and is nonappealable; (iv) by either party if the Closing has not occurred by
January 31, 1998, provided that the party seeking to terminate the Agreement has
not caused such failure; (v) by a party not then in material breach of the
Agreement if any of the conditions to such party's performance cannot be
satisfied by January 31, 1998; (vi) by NDC if the Board fails to reaffirm the
Stock Purchase Agreement or affirms, recommends or authorizes an Acquisition
Proposal; or (vii) by the Company if the Minimum Share Price is not attained,
subject to NDC's option to adjust the number of shares of NDC Common Stock
issued to the Company.
48
<PAGE>
AMENDMENT. To the extent permitted by law, the Stock Purchase Agreement may
be amended in writing by the parties at any time without the approval of the
stockholders of the Company, provided, that after approval of the Transactions
by the stockholders of the Company, no such amendment may decrease the
consideration to be received by the Company without subsequent approval of the
stockholders of the Company.
EXPENSES. Each of the parties to the Stock Purchase Agreement will bear its
own expenses, provided, however, that, each party has paid one-half of the
filing fees payable on connection with filing under the HSR Act, and provided
further, that if NDC terminates the Agreement due to the failure of the
stockholders of the Company or PMSI Sub to approve the Transactions, then the
Company will be liable to pay the expenses of NDC in connection with the
Transactions and the Source Merger up to $750,000.
THE TRANSFER AGREEMENT
CERTAIN REPRESENTATIONS AND WARRANTIES. The Transfer Agreement contains
various representations and warranties of Source relating to, among other
things: (i) the due organization, existence and good standing of, and similar
corporate matters with respect to each of Source, Source Europe and the
subsidiaries of Source Europe; (ii) the authorization, execution, delivery,
performance by Source and enforceability of the Transfer Agreement and the
transactions contemplated thereby; (iii) the absence of any conflict with the
certificate of incorporation or by-laws of Source or its subsidiaries; (iv) the
capital structure of each of Source, Source Europe and the subsidiaries of
Source Europe and the ownership by Source of the shares of Company Common Stock;
(v) the financial statements of Source Europe; (vi) the absence of undisclosed
material liabilities of Source Europe; (vii) the absence of certain changes or
events having a material adverse effect on Source Europe; (viii) the absence of
certain litigation; (ix) the payment of taxes and the filing of returns on
behalf of the Source Europe entities; (x) the ownership and adequate insurance
by the Source Europe entities of certain assets; (xi) the ownership by the
Source Europe entities of intellectual property rights; (xii) the compliance by
the Source Europe entities with governmental regulations relating to the
business and environmental regulations; (xiii) labor issues and employee benefit
plans of the Source Europe entities; (xiv) the existence and status of certain
material contracts of the Source Europe entities; (xv) the identification of
transactions between Source Europe and Source and any of its affiliates; and
(xvi) Source's 1998 budget.
The Transfer Agreement contains representations and warranties of the
Company with respect to (i) its due organization, existence and good standing,
and similar corporate matters; (ii) the authorization, execution, delivery,
performance by the Company and enforceability of the Transfer Agreement and the
transactions contemplated thereby; (iii) the absence of any conflict with the
certificate of incorporation or by-laws of the Company; and (iv) the investment
intent of the Company with respect to the shares of Source Europe and of Company
Common Stock to be acquired in the Transactions.
COVENANTS. In addition to the agreements described elsewhere herein, the
Transfer Agreement contains covenants by Source to, from the date of the
Transfer Agreement until the Closing, (i) provide access to the Company to the
books, records and accounts of the Source Europe entities and to furnish the
Company with consolidated monthly financial statements of the Source Europe
entities; (ii) continue to conduct the Source Europe business in the usual and
ordinary course; (iii) use its reasonable best efforts to preserve the
relationships with the customers of the Source Europe entities; (iv) preserve
intact the business organization, assets and rights and franchises of the Source
Europe entities; and (v) make or cause to be made expenditures in accordance
with the 1998 budget of Source Europe. Source has also covenanted to, no later
than the Closing, (a) deliver to the Company all copies of databases relating to
the business of Source Europe; and (b) deliver to the Company all record books
of Source Europe and provide the Company with reasonable access to Source's
books insofar as they relate to the Source Europe business.
49
<PAGE>
In addition, the Transfer Agreement contains mutual covenants by each of
Source and the Company to (i) make all reasonable efforts to obtain any third
party consents necessary for the consummation of the transactions contemplated
by the Transfer Agreement; and (ii) make or cause to be made any necessary
filings with or submissions to any governmental authorities; (iii) the mutual
consultation and cooperation with respect to public announcements; and (iv) the
maintaining of confidentiality with respect to any confidential information
obtained about the other parties to the Transfer Agreement and their respective
businesses.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS UNDER THE TRANSFER
AGREEMENT. The obligations of the parties to consummate the transactions under
the Transfer Agreement are subject to the satisfaction or waiver of, among other
things, (i) satisfaction of conditions to and simultaneous consummation of the
Source Merger and the transactions contemplated under the Stock Purchase
Agreement; (ii) settlement of all accounts between the Company and its
subsidiaries, on the one hand, and Source and its subsidiaries (including Source
Europe), on the other; (iii) the absence of any governmental action prohibiting
the transactions contemplated by the Transfer Agreement; (iv) receipt of any
applicable European regulatory approvals and the expiration or early termination
of the waiting period under the HSR Act; and (v) the execution and delivery of
related agreements.
In addition, the Company's obligations to consummate the transactions
pursuant to the Transfer Agreement are subject to the satisfaction or waiver of
the following: (i) the approval by the stockholders of the Company of all the
Transactions; (ii) the aggregate effect of all inaccuracies in the
representations and warranties of Source contained in the Transfer Agreement not
having a material adverse effect on the Source Europe entities; (iii) the
performance by Source and/or Source Europe in all respects of certain of their
obligations under the Transfer Agreement and their performance in all material
respects of all other of their obligations under the Transfer Agreement; (iv)
the absence of (a) liabilities (other than in the ordinary course of business),
(b) casualty loss or damage or (c) adverse developments, in each case incurred
or suffered by the Source Europe entities having a material adverse effect; (v)
the repayment by Source of any amounts outstanding under the line of credit
(other than amounts canceled in consideration of the transfer of Source Europe);
(vi) the assignment by Source to Source Europe of specified assets, databases
and contracts; (vii) the receipt by NDC of a letter of indemnification from
Source with respect to Source Europe; (viii) the receipt by the Company of an
unqualified report of independent auditors with respect to the financial
statements of Source Europe; (ix) the receipt of third party consents specified
in the Transfer Agreement; (x) the simultaneous payment by Source to Source
Europe of $9 million; and (xi) the receipt of an opinion of counsel with respect
to certain matters.
TERMINATION. The Transfer Agreement may be terminated (i) by mutual consent
of the parties; (ii) by a party not then in material breach of the Agreement in
the event of the material breach by the other party of a representation,
warranty or agreement that, upon notice from the nonbreaching party, cannot
reasonably be expected to be cured on or prior to January 31, 1998; or (iii) by
a party not then in material breach of the Agreement if any of the conditions to
such party's performance cannot be satisfied or has not been waived by January
31, 1998. In addition the Company may terminate the Transfer Agreement in the
event the stockholders of the Company do not approve the Transactions.
EXPENSES. Each of the parties to the Transfer Agreement will bear its own
expenses, provided, however, that, if the closing of the transactions pursuant
thereto fails to occur as a result of a breach by a party to the Transfer
Agreement, then the breaching party shall pay the out-of-pocket expenses of the
nonbreaching party.
50
<PAGE>
PRICE OF NDC COMMON STOCK
NDC Common Stock is traded on the NYSE under the symbol "NDC." The high and
low sales prices and dividends paid per share of NDC Common Stock with respect
to each quarterly period since June 1, 1996 were as follows:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
--------- --------- -----------
<S> <C> <C> <C>
Fiscal Year Ended May 31, 1998
First Quarter.................................................................... $ 46.50 $ 36.31 $ .075
Second Quarter (through November 13, 1997)....................................... 43.875 34.50 --
Fiscal Year Ended May 31, 1997
First Quarter.................................................................... $ 44.50 $ 33.75 $ .075
Second Quarter................................................................... 46.63 37.88 .075
Third Quarter.................................................................... 47.50 35.00 .075
Fourth Quarter................................................................... 44.00 33.75 .075
Fiscal Year Ended May 31, 1996
First Quarter.................................................................... $ 26.63 $ 20.50 $ .075
Second Quarter................................................................... 28.00 22.00 .075
Third Quarter.................................................................... 35.00 20.00 .075
Fourth Quarter................................................................... 40.25 29.88 .075
</TABLE>
The high and low sales price per share of NDC Common Stock on August 19,
1997, the last full trading day immediately preceding the public announcement by
the Company and NDC of the Merger Agreement, the Transfer Agreement and the
Source Merger Agreement, were $37 3/4 and $36 5/16, respectively.
PRICE OF COMPANY COMMON STOCK
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol PMRX. The reported high and low sales prices for the Company's
Common Stock as reported by NASDAQ on August 19, 1997, the last full trading day
prior to announcement of the Merger Agreement, the Transfer Agreement and the
Transactions, were $12 3/4 and $11 3/4, respectively. Based on such price, the
PMSI shares to be acquired by PMSI from Source as part of the Transactions had a
value on such date of approximately $11.2 million.
DESCRIPTION OF NDC COMMON STOCK
For a description of the rights of holders of NDC Common Stock, reference is
hereby made to the Section captioned "CERTAIN DIFFERENCES IN THE RIGHTS OF NDC
AND SOURCE STOCKHOLDERS" of the S-4 which is attached hereto in Appendix D and
is incorporated herein by reference.
51
<PAGE>
THE COMPANY
OVERVIEW
The following description of the Company's business does not include the
Company's interest in Source US or the OTC Business, nor does it include Source
Europe. For a description of these businesses and products see "THE
TRANSACTIONS--Description of the Transactions; Source US, Source Europe and the
OTC Business."
PMSI provides a range of information services to pharmaceutical and
healthcare companies in the United States, Europe and Japan to enable them to
optimize their sales and marketing performance in a value driven environment.
Most of the Company's information services are generated from its own
proprietary databases containing unique prescription, managed care, healthcare
market and medical prescriber data.
In the third quarter of fiscal 1996, the Company decided that, following the
conclusion of a strategic assessment, it would develop its business as a focused
information services provider to the pharmaceutical and healthcare industries,
and that its communication businesses ("non-database segment"') would be
divested. The divestment of this segment was completed during fiscal 1997, with
the exception of the Company's point-of-sale marketing business in France, which
is shown in the 97 PMSI 10-K as "asset held for sale." The Company also disposed
of two database businesses that did not meet performance expectations during
fiscal 1997. In addition, the Company completed the sale of its international
medical publishing business in the Netherlands in July 1997.
DATABASES AND SERVICES
PMSI provides a range of services that are either database services or
enhanced by the Company's proprietary databases. The services are composed of
targeting information services and added value services, including marketing
research and consulting services, software and direct marketing services.
PROPRIETARY DATABASES. A variety of proprietary databases provide the
foundation of most of PMSI's business. The Company's prescriber profile
databases (the "Prescriber Profile Databases") contain extensive information on
individual prescribers, including attitudes and prescribing behavior, collected
from physicians through self-administered surveys in seven countries. The
Company also maintains various other comprehensive databases including:
healthcare legislation and key influencers in the United States and the United
Kingdom; a managed care database, which details cost containment measures
imposed by United States MCOs that influence or restrict physicians' prescribing
activities, and which also covers formularies, administrators and the physicians
affiliated with the MCOs; and databases of pharmaceutical product prices and
reimbursement in the United Kingdom.
The Company does not hold any identifiable individual patient data, except
with the patients' prior permission for follow-up research or disease management
purposes. See "--Industry Regulation."
TARGETING INFORMATION SERVICES. Through the use of PMSI's targeting
information services, a pharmaceutical company is able to target its promotional
programs to the optimal audience of prescribers and other healthcare
professionals who influence or, in some cases, control prescribing decisions.
The Company's targeting services include the SCRIPTRAC service, which is
generated from the Prescriber Profile Databases and often delivered in a
PC-software package. It enables pharmaceutical companies in seven countries to
identify prescribers who, because of therapeutic specialty, practice
demographics, or other factors, are the most likely to prescribe a
pharmaceutical company's product. The Company also licenses SCRIPTRAC to third
parties in countries where it does not intend to establish operations.
52
<PAGE>
Through its Scott-Levin subsidiary, PMSI provides a range of services
derived from its managed care database including the INTEGRATED MANAGED CARE
PROFILES service, which enables pharmaceutical companies to identify, target and
prioritize those MCOs that are most relevant to their own specific
pharmaceutical products. Additionally, the Company and Scott-Levin have
developed information services that identify the influences of federal and state
governments and national healthcare systems. Examples of these services include
STATELINE, a PC-based database product which provides pharmaceutical companies
with detailed information on the health policies of each of the 50 states and
the District of Columbia and on the government officials involved in shaping
those policies; and HIS, also a PC-based database product which identifies the
influencers, buyers, decision makers and administrators in the United Kingdom's
National Health Service.
ADDED VALUE SERVICES. The Company provides pharmaceutical companies in the
United States and internationally in the United Kingdom, Belgium and the
Netherlands with a range of added value and research services that are used (i)
to study specific issues and trends in the marketplace and the broader
healthcare industry, (ii) to evaluate the effectiveness of marketing programs,
(iii) to analyze in depth particular components of a product marketing program
at any stage of its implementation and (iv) for consultancy on optimizing
company strategy, marketing programs and product commercialization through its
established support teams in the United States and Europe.
PMSI's Scott-Levin subsidiary's marketing research audits are generated from
databases containing information collected by questionnaire, diary or personal
interview, dispensed prescriptions and secondary research. The results of the
audits are delivered in hard copy or through PC-based data delivery systems.
Examples of the audits are the SOURCE PRESCRIPTION AUDIT, which analyzes
pharmaceutical product consumption; PHYSICIAN DRUG AND DIAGNOSIS AUDIT, which
analyzes the pharmaceuticals prescribed by physicians relative to the associated
diagnosis; the PERSONAL SELLING AUDIT ("PSA"), which analyzes the effectiveness
of the client company's sales activities compared with those of its competitors;
and the HOSPITAL PERSONAL SELLING AUDIT, which complements the PSA by monitoring
and analyzing sales activity in the hospital environment.
The Company's research services include the MEDICAL ADVERTISING RECALL
SERVICE, which assesses the effectiveness of advertisements in conveying a
specific marketing message; STRATEGIC STUDIES, which report on key
pharmaceutical industry topics, such as pharmaceutical company image and sales
force structure and strategies; and MEDICAL RESEARCH OMNIBUS, which is a monthly
omnibus survey of physicians based on personal interviews. In addition, PMSI has
a CONSUMER RESEARCH capability to respond to the growing importance of consumer
choice in the healthcare process to assist pharmaceutical companies in
determining appropriate marketing strategies.
PMSI also develops and supplies other innovative services to healthcare
suppliers and providers, including the MEDIPHASE pharmacy dispensary management
software and drug reimbursement database service. In addition, PMSI provides
HEALTHCARE DIRECTORIES of key administrators and managers within the U.K.
healthcare environment.
MARKETING AND SALES
PMSI employs marketing, sales and client service professionals in each
country in which it operates. Many members of the Company's sales and marketing
staff have substantial pharmaceutical industry experience.
Sales to the healthcare industry accounted for substantially all the
Company's revenue in fiscal 1997. Virtually every major pharmaceutical company
is a customer of the Company. For the year ended June 30, 1997, PMSI's ten
largest customers were responsible for approximately 20% of its revenue, with no
one customer accounting for more than 5%. Although the Company's business is
dependent upon its relationships within the healthcare and pharmaceutical
industries and the prospects of those industries, the Company's business would
not be materially adversely affected by the loss of any single customer.
53
<PAGE>
ACQUISITION STRATEGY AND DIVESTMENT PROGRAM
PMSI was built through a series of strategic acquisitions that have
positioned the Company to provide focused information services to the
pharmaceutical and healthcare industries in major world markets. Upon completion
of the Transactions, the Company's first priority will be to use the cash
proceeds from the Transactions and the remainder of the divestment program,
together with, as appropriate, its existing resources, to complete development
of the Source Europe databases, software and infrastructure, so that the range
of Source Europe services appropriate to each specific European nation in which
Source Europe does business can be effectively marketed. The Company believes
that it will also have sufficient financial resources when it has established
Source Europe as a profitable venture to acquire, or enter into joint ventures
with, businesses that complement the range of information services the Company
offers in each of its markets. Possible candidates include marketing research
companies, companies with pharmaceutical, medical, outcomes or healthcare
economic databases and businesses with demonstrated ability to develop PC-based
software that will add value to PMSI data.
The Company, from time to time, evaluates possible acquisitions and
frequently has discussions with acquisition prospects.
COMMITMENTS FROM ACQUISITIONS PRIOR TO FISCAL 1997. Effective July 1, 1994,
the Company acquired 80% of the common stock of Mediphase Limited ("Mediphase"),
a specialist software and information company in the United Kingdom that has
developed and markets retail pharmacy dispensary management software. The
Company had the right to acquire the remaining 20% of the common stock between
July 1997 and July 1999, based upon the number of Mediphase systems installed at
certain dates, and did acquire the minority interest in July 1997. The Company
also has commitments to contingent payments for CMA Medical Data Limited based
on operating profit.
DISPOSITION OF BUGAMOR. As part of its divestment program, in July 1997,
the Company completed the sale to Excerpta Medica Medical Communications BV of
the Company's Bugamor division, which contained one of the Company's publishing
and communications operations, for approximately $9 million in cash.
LONG-TERM AGREEMENTS
In 1991, in connection with its original formation, PMSI entered into two
long-term licensing agreements with Walsh, one of which, the Alpha Database
Agreement, was assigned in 1996 to Source. For a description of the Alpha
Database Agreement, see "THE TRANSACTIONS--Description of the Transactions;
Source US, Source Europe and the OTC Business." Pursuant to the other agreement,
Walsh has licensed to PMSI its Physician Database in the United Kingdom, France,
Germany, Spain, the Netherlands and Belgium. The Company may use these databases
only for internal purposes and in connection with the development and delivery
of its SCRIPTRAC database. The initial term of this license runs through 2001,
and is renewable for two further five-year periods, if not terminated by the
Company six months prior to the renewal date. Thereafter, the license is
renewable for five-year terms unless terminated by either party. The Company
pays Walsh an annual royalty fee for each physician supplied in the database.
The Company's rights under this agreement will be assigned to NDC in connection
with the transactions contemplated by the Stock Purchase Agreement.
ANNUAL AGREEMENTS
In 1991, the Company also entered into the following agreements with Walsh,
pursuant to which Walsh provided certain management, marketing and sales,
personnel benefits and data processing services, and subleases facilities, to
the Company. In April 1996, Walsh assigned its obligations under these
agreements to Source. The services provided in these agreements are primarily
provided in the United States and are related to Source US. Thus, if the
Transactions are approved and consummated, to the
54
<PAGE>
extent any of these agreements remain in effect after consummation of the
Transactions, they will not be material.
MANAGEMENT AND EXECUTIVE SERVICES AGREEMENT. Source provides certain
management services covering executive management, accounting, legal and other
services for and on behalf of the Company, principally in the United States,
where comprehensive database contracts have been negotiated, and in the United
Kingdom. Under the agreement, the services have been provided for various
periods ranging to the end of calendar 1996. The agreement was and continues to
be automatically renewable for one-year periods in the absence of notice of
termination by any party. Until the consummation of the Transactions, or, if not
consummated, for the foreseeable future, certain management functions in the
Company will continue to be performed by current members of the management of
Source, including Messrs. Evans and Turner, who continue to devote significant
time to the affairs of Source. Upon completion of the Transactions, the Company
will enter into employment agreement with each of Messrs. Evans and Turner
pursuant to which Mr. Evans will serve as the full-time Chairman of the Board of
the Company and Mr. Turner will serve as the full-time Chief Executive Officer
of the Company. See "THE TRANSACTIONS--Interests of Certain Persons in the
Transactions."
DATA PROCESSING AGREEMENT. The Company has contracted for Walsh to provide
specific data processing and software support services to PMSI and its customers
in certain European countries. The agreement is automatically renewed on an
annual basis if not terminated by either party. The fees payable by PMSI to
Walsh for such services are based either on allocated costs or on competitive
rates for comparable services from alternative suppliers. The Company has a
similar arrangement in the United States with Source for Source to provide the
Company with certain data processing and software support services in connection
with Source US and the OTC Business.
FACILITIES AGREEMENT. PMSI sublets from Walsh fully furnished office space
in Belgium and Walsh sublets similar facilities from the Company in the United
States, the Netherlands and Germany. The initial terms of the subleases each ran
through calendar 1996, unless an earlier expiration date is provided in the
relevant lease, and will be renewed automatically in the absence of termination
by either party. Each company pays its pro rata share of the respective rental
charges, based on space occupied. The Company currently subleases to Source
space in Newtown, Pennsylvania that is utilized by Source US. Assuming
consummation of the Transactions, this sublease will be assigned to NDC. See
"THE TRANSACTIONS-- Additional Agreements Among PMSI, Source and NDC."
HEALTH AND BENEFITS AGREEMENT. For certain operations in the United States,
Belgium and the United Kingdom, Walsh or Source provides the employees of the
Company with health insurance and other benefits comparable with those it offers
to its own employees. PMSI reimburses Walsh or Source for its share of the
actual costs of such benefits. This agreement will terminate upon consummation
of the Transactions.
BACKLOG
As of June 30, 1997, in its continuing operations, the Company had contracts
running through 2000 of $18.2 million of which $10.4 million are for contracts
to be completed by June 30, 1998. A significant portion of the Company's revenue
stream is derived from contracts that automatically renew from year to year.
INDUSTRY REGULATION
The pharmaceutical industry is subject to extensive regulations in the
countries in which the Company operates. A number of governments have enacted
regulations limiting the prices pharmaceutical companies may charge for drugs.
While the Company believes that cost containment measures that may be adopted by
government agencies will cause pharmaceutical companies to seek more effective
means of
55
<PAGE>
marketing their products (which will benefit the Company in the medium and long
term), such governmental regulation has caused pharmaceutical companies to
revise or reduce their marketing programs. These cost containment measures,
together with pharmaceutical companies' desire to increase marketshare or
improve their research pipelines, have caused both vertical and horizontal
integration and several significant mergers.
The Company (and, assuming consummation of the Transactions, Source Europe)
is subject to certain restrictions on the collection and use of data. There has
been legislation enacted in many European countries to regulate the collection,
use and dissemination of certain information that may be deemed to be personal.
All countries of the European Union are required to have data privacy
legislation in effect no later than 1998. The legislation already in effect in
certain countries requires registration of such personal databases. Source
Europe has successfully complied with the registration requirements for its
databases in the countries in which it operates and is in the process of
complying with the registration requirements in the other countries in which it
plans to operate in the future. There can be no assurance that Source Europe
will be successful in completing these registrations for the collection and
dissemination of its prescriber-linked data products or that future legislation
or regulations will not directly or indirectly restrict the dissemination of
information regarding physicians or prescriptions. Such legislation, if enacted,
could have a material adverse effect on the operations of the Company.
The Market Research Code of Conduct, a pharmaceutical industry-promulgated
code of conduct to which the Company adheres, provides that the identity of the
patient or the physician researched may never be disclosed to the company
sponsoring such research without such individual's consent. As recommended by
the board of directors of the Pharmaceutical Manufacturer's Association, the
PMSI databases do not contain patient names, thus preserving confidentiality;
rather, when information is generated from market research databases developed
from third party sources, PMSI supplies only aggregated statistics to the
sponsoring company. The Company does not hold any identifiable individual
patient data, except on a temporary basis with the patients' prior permission
for follow-up research and disease management purposes.
EMPLOYEES
As of June 30, 1997, the Company's continuing operations had approximately
500 full-time employees. Of these employees, 208 are located in the United
States, with the remainder located in Europe and Japan. In France, PMSI has a
Workers Committee, which is a legal requirement in that country. There are no
collective bargaining agreements in effect with employees of the Company. The
Company considers its relationships with its employees to be good.
NDC
NDC is a Delaware corporation that was incorporated in 1967. All references
to NDC in the following discussion include NDC and its subsidiaries. NDC is a
leading provider of high-volume information services and application systems to
the healthcare and payment systems markets. NDC serves a diverse customer base
comprised of almost 120,000 healthcare 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 healthcare 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 healthcare 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 NDC's fiscal 1997 (May 31, 1997).
NDC provides electronic claims processing and adjudication services,
practice management systems, electronic data interchange services, billing
services, business office management services and clinical data
56
<PAGE>
base information for pharmacies, dentists, physicians, hospitals, health
maintenance organizations, managed care companies, clinics and nursing homes, as
well as other healthcare providers. NDC's management believes that NDC is the
largest independent processor of real-time healthcare transactions in the US,
and that NDC is well positioned to capitalize on the growing demand for cost
containment and improved patient care in the healthcare industry. By the end of
NDC's fiscal 1997, approximately 41% of its total revenue was derived from NDC's
healthcare systems and services, which represent the fastest growing portion of
NDC's business.
FOR A MORE COMPLETE DESCRIPTION OF NDC'S BUSINESS, REFERENCE IS HEREBY MADE
TO THE SUMMARY SECTION OF THE S-4, WHICH IS ATTACHED HERETO IN APPENDIX D AND IS
INCORPORATED HEREIN BY REFERENCE, AND TO THE NDC REPORTS, WHICH ARE INCORPORATED
HEREIN BY REFERENCE.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF THE COMPANY
The following tables set forth certain information with respect to the
beneficial ownership of Company Common Stock as of November 3, 1997 by (i) each
person known to PMSI to be the beneficial owner of more than 5% of the
outstanding shares of Company Common Stock, (ii) each of PMSI's directors, (iii)
each executive officer of PMSI and (iv) all directors and executive officer of
PMSI as a group. See "THE TRANSACTIONS--Description of the Transactions;
Interests of Certain Persons in the Transactions."
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OWNED(1) OF CLASS
- - ------------------------------------------------------------------------------------------------ ------------ --------
<S> <C> <C>
Carolyne K. Davis............................................................................... 20,000(2) *
Handel E. Evans................................................................................. 383,879(3) 2.84
Robert J. Frattaroli............................................................................ 110,000(2) *
Stuart Gold..................................................................................... 20,000(2) *
Warren J. Hauser................................................................................ 21,500(2) *
Frederick W. Kyle............................................................................... 53,833(4) *
Dennis M.J. Turner.............................................................................. 384,384(3) 2.84
Patrick J. Welsh................................................................................ 1,696,302(5) 12.77
All executive officers and directors as a group (eight persons)................................. 2,689,898 19.20
</TABLE>
- - ------------------------
* Less than 1.0%
(1) Unless otherwise noted, each person has sole voting and investment power
with respect to the shares shown as beneficially owned by him or her.
(2) Issuable upon the exercise of stock options that are currently vested or
scheduled to vest within the next 60 days.
(3) Includes (i) 250,000 shares issuable upon the exercise of stock options that
are currently vested or scheduled to vest within the next 60 days and (ii)
96,293 shares beneficially owned by a trust administered for the benefit of
the members of the listed individual's family.
(4) Includes 53,333 shares issuable upon the exercise of stock options that are
currently vested or scheduled to vest within the next 60 days.
(5) Includes (i) 16,000 shares issuable upon the exercise of currently vested
stock options; (ii) 746,315 shares owned by WCAS; and (iv) 918,254 shares
owned by Source. WCAS owns shares of capital stock representing in the
aggregate approximately 37.18% of the outstanding capital of Source, on a
fully-diluted basis. Mr. Welsh is a general partner of the respective
general partners of the WCAS partnerships and may therefore be deemed to be
the beneficial holder of the shares that are owned or may be deemed to be
owned by WCAS.
57
<PAGE>
To the Company's knowledge, the only persons or groups that may be deemed to
own beneficially 5% or more of the Company's outstanding Common Stock are the
following:
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED CLASS
- - ------------------------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
Source Informatics Inc.................................................................... 918,254(1) 6.9%
2394 East Camelback Road
Phoenix, Arizona 85016
Welsh, Carson, Anderson & Stowe V, L.P.................................................... 746,315 5.6
WCA Management Corporation
320 Park Avenue
New York, New York 10022
</TABLE>
- - ------------------------
(1) The shares are beneficially owned indirectly by Source through several
wholly-owned subsidiaries.
58
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company or NDC, as the case
may be, with the Commission are incorporated in this Proxy Statement by
reference:
(a) the Annual Report on Form 10-K of PMSI for the fiscal year ended
June 30, 1997;
(b) the Current Report on Form 8-K of PMSI dated August 20, 1997;
(c) the Quarterly Report on Form 10-Q of PMSI for the fiscal quarter
ended September 30, 1997;
(d) portions, copies of which are attached hereto, of the Registration
Statement on Form S-4 filed by NDC with the Commission on September 19, 1997
(File 333-35995), as amended by Amendment No. 1 thereto filed with the
Commission on October 29, 1997, Amendment No. 2 thereto filed with the
Commission on November 13, 1997 and Post-Effective Amendment No. 1 thereto
filed with the Commission on November 14, 1997;
(e) the Annual Report on Form 10-K of NDC for the fiscal year ended May
31, 1997, as amended; and
(f) the Quarterly Report on Form 10-Q of NDC for the fiscal quarter
ended August 31, 1997, as amended.
All documents filed by PMSI with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference in their entirety in this Proxy Statement from the
dates of filing such documents. Any statement contained herein or in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated or
deemed to be incorporated herein modifies or superseded such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN CERTAIN
EXHIBITS TO DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM A COPY OF THIS
PROXY STATEMENT HAS BEEN DELIVERED UPON WRITTEN OR ORAL REQUEST, IN THE CASE OF
COMPANY DOCUMENTS, TO PHARMACEUTICAL MARKETING SERVICES INC., C/O THE ANNE
MCBRIDE COMPANY, 767 THIRD AVENUE, NEW YORK, NEW YORK 10017, TELEPHONE: (212)
752-0504, AND IN THE CASE OF NDC TO NATIONAL DATA CORPORATION, NATIONAL DATA
PLAZA, ATLANTA, GEORGIA 30329-2010, ATTN: CORPORATE SECRETARY, TELEPHONE (404)
728-2000.
59
<PAGE>
OTHER MATTERS
The Board is unaware of any other matters that may come before the Special
Meeting. However, if any other matters are properly presented to the Special
Meeting, they will be considered by the stockholders present at the meeting.
By order of the Board of Directors
Warren J. Hauser
Secretary
November 14, 1997
60
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and 1997....................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1995 (unaudited), 1996 (unaudited) and
1997 and for the period from inception (January 1, 1994) through June 30, 1997 (unaudited)............... F-4
Consolidated Statements of Stockholder Deficit for the years ended June 30, 1995 (unaudited), 1996
(unaudited) and 1997..................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995 (unaudited), 1996 (unaudited) and
1997 and for the period from inception (January 1, 1994) through June 30, 1997 (unaudited)............... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Source Informatics European
Holdings Inc.
We have audited the accompanying consolidated balance sheet of Source
Informatics European Holdings Inc. and Subsidiaries (a development stage
enterprise) as of June 30, 1997, and the related consolidated statements of
operations, stockholder's 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Source Informatics European Holdings Inc. and Subsidiaries as of June 30, 1997,
and the consolidated results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements for 1997 have been
prepared assuming the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company's recurring losses and net
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Management's actions in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
September 15, 1997
Stamford, Connecticut
F-2
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
----------------------
<S> <C> <C>
1996 1997
----------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 1,194 $ 2,222
Accounts receivable, principally trade.................................................. -- 234
Other receivables....................................................................... 91 538
Prepaid expenses........................................................................ 40 176
----------- ---------
Total current assets...................................................................... 1,325 3,170
Property and equipment, net............................................................... 180 546
Other assets.............................................................................. 31 463
Net amount due from Source Informatics Inc. and subsidiaries.............................. 1,271
----------- ---------
Total assets.............................................................................. $ 2,807 $ 4,179
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDER DEFICIT
Current liabilities:
Current portion of capital lease obligations............................................ $ -- $ 38
Accounts payable........................................................................ 3,209 2,700
Accrued liabilities..................................................................... 469 2,277
Unearned income......................................................................... 5,250 11,319
----------- ---------
Total current liabilities................................................................. 8,928 16,334
Capital lease obligations............................................................... -- 43
Net amount due to Source Informatics Inc. and subsidiaries.............................. -- 6,334
----------- ---------
Total liabilities......................................................................... 8,928 22,711
----------- ---------
Stockholder deficit:
Source Informatics equity investment and accumulated deficit during the development
stage................................................................................... (6,121) --
Common Stock--$0.01 par value, 100 shares authorized; 100 shares issued and outstanding... -- --
Paid-in capital......................................................................... -- 22,465
Deficit accumulated during the development stage........................................ -- (42,002)
Cumulative translation adjustment....................................................... -- 1,005
----------- ---------
Total stockholder deficit................................................................. (6,121) (18,532)
----------- ---------
Total liabilities and stockholder deficit................................................. $ 2,807 $ 4,179
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD OF
INCEPTION
YEARS ENDED JUNE 30, JANUARY 1, 1994
----------------------------------- THROUGH
1995 1996 1997 JUNE 30, 1997
----------- ----------- --------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue..................................... $ -- $ -- $ 407 $ 407
Costs and expenses:
Production costs.......................... (2,010) (5,060) (7,456) (15,013)
Selling, general and administrative
expenses................................ (2,903) (7,245) (10,148) (20,992)
Research and development costs............ (412) (2,110) (3,347) (5,947)
Amortization of intangible assets......... -- (7) (34) (41)
----------- ----------- --------- ---------------
Operating loss.............................. (5,325) (14,422) (20,578) (41,586)
Interest:
Interest income........................... -- 2 59 61
Interest expense.......................... -- -- (477) (477)
----------- ----------- --------- ---------------
Net loss.................................... $ (5,325) $ (14,420) $ (20,996) $ (42,002)
----------- ----------- --------- ---------------
----------- ----------- --------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDER DEFICIT
(DOLLARS IN THOUSANDS)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
DEFICIT WALSH/SOURCE
PAR ACCUMULATED CUMULATIVE EQUITY INVESTMENT
SHARE PAID-IN DURING THE TRANSLATION AND ACCUMULATED
SHARES VALUE CAPITAL DEVELOPMENT STAGE ADJUSTMENT DEFICIT
----------- ----------- --------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 (unaudited)....... -- -- -- -- -- --
Net loss 1995 (unaudited).................. -- -- -- -- -- $ (5,325)
Contribution from Walsh (unaudited)........ -- -- -- -- -- 5,325
--- --- --------- -------- ----------- -------
Balance June 30, 1995 (unaudited).......... -- -- -- -- -- --
Net loss 1996 (unaudited).................. -- -- -- -- -- (14,420)
Contribution from Walsh (unaudited)........ -- -- -- -- -- 8,299
--- --- --------- -------- ----------- -------
Balance June 30, 1996 (unaudited).......... -- -- -- -- -- (6,121)
Net loss 1997.............................. -- -- -- -- -- (20,996)
Contribution from Source................... -- -- -- -- -- 7,580
Elimination of Source Equity Investment and
issuance of Common Stock................. 100 -- $ 22,465 $ (42,002) -- 19,537
Cumulative translation adjustment.......... -- -- -- -- $ 1,005 --
--- --- --------- -------- ----------- -------
Balance June 30, 1997...................... 100 -- $ 22,465 $ (42,002) $ 1,005 --
--- --- --------- -------- ----------- -------
--- --- --------- -------- ----------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
(CONSOLIDATED STATEMENTS OF CASH FLOWS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD OF
INCEPTION
JANUARY 1, 1994
YEARS ENDED JUNE 30, THROUGH
-----------------------------------
1995 1996 1997 JUNE 30, 1997
----------- ----------- --------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (5,325) $ (14,420) $ (20,996) $ (42,002)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. -- 62 175 237
Change in assets and liabilities:
Increase in accounts receivable.............. -- -- (246) (246)
Increase in prepaid expenses and other
assets................................... -- (162) (972) (1,134)
Increase in accounts payable and accrued
liabilities.............................. -- 3,678 1,580 5,258
Increase in unearned income................ -- 5,250 6,095 11,345
----------- ----------- --------- --------
Net cash used in operating activities........ (5,325) (5,592) (14,364) (26,542)
----------- ----------- --------- --------
Cash flows used in investing activities:
Capital expenditures......................... -- (235) (610) (845)
----------- ----------- --------- --------
Net cash used in investing activities........ -- (235) (610) (845)
----------- ----------- --------- --------
Cash provided by (used in) financing
activities:
Cash contribution from Walsh............... 5,325 8,072 -- 14,658
Capital contribution by Source............. -- -- 7,580 7,580
Increase (decrease) in inter-company
indebtedness............................. -- (1,271) 7,968 6,697
Capital lease payments..................... -- -- (31) (31)
----------- ----------- --------- --------
Net cash provided by financing activities.... 5,325 6,801 15,517 28,904
----------- ----------- --------- --------
Effect of exchange rate movements............ -- 220 485 705
----------- ----------- --------- --------
Net increase in cash and cash equivalents.... -- 1,194 1,028 2,222
Cash and cash equivalents at beginning of
year....................................... -- -- 1,194 --
----------- ----------- --------- --------
Cash and cash equivalents at end of year..... $ -- $ 1,194 $ 2,222 $ 2,222
----------- ----------- --------- --------
----------- ----------- --------- --------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest..................................... $ -- $ -- $ 2 $ 2
----------- ----------- --------- --------
----------- ----------- --------- --------
Supplemental disclosures of non-cash
investing and financing activities:
Assets acquired under capital leases......... $ -- $ -- $ 110 $ 110
----------- ----------- --------- --------
----------- ----------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF THE COMPANY
On April 16, 1996, Walsh International Inc. ("Walsh") formed Source
Informatics Inc. ("Source"), a Delaware corporation, as the holding company for
the entities engaged in developing, maintaining, delivering and analyzing
prescription and product shipment databases to the pharmaceutical and healthcare
industries (the "Source Business"). Effective 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 into 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 "Spin-Off").
On June 27, 1997, Source formed Source Informatics European Holdings Inc.
("Source Europe" or the "Company"), a Delaware corporation, to act as a holding
company for the entities engaged in the Source Business in Europe subsequent to
a definitive agreement to sell the Source Business in Europe to Pharmaceutical
Marketing Services Inc. ("PMSI"). All assets and liabilities of the entities
engaged in the Source Business in Europe were transferred to Source Europe.
Source Europe remains a wholly-owned subsidiary of Source Informatics Inc.
THE BUSINESS
Since January 1, 1994, Source Europe has been a development stage enterprise
as defined by Statement of Financial Accounting Standards No. 7, building
databases of prescriptions dispensed in the UK, Germany, France, Italy and
Belgium and developing the software technology to support, provide access to,
and generate information from such databases. Source Europe sells such
information to pharmaceutical companies in each of the markets in which it
operates to enable such companies to measure, analyze and improve salesforce and
product performance at a detailed geographical level, namely small groups of
prescribing physicians or at the individual physician level.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements present the accounts of Source
Europe's operations as though they were combined from the commencement of their
operations using their historical accounting basis. All intercompany balances
and transactions within Source Europe have been eliminated. The financial
statements also include the allocation from Walsh and Source of direct and
indirect costs attributable to Source Europe. The method by which such amounts
are allocated are deemed reasonable by management and are described in the
accompanying notes.
FINANCIAL CONDITION OF SOURCE EUROPE
The Company's financial statements for the year ended June 30, 1997 have
been prepared on a going concern basis which contemplates the realization of
assets and settlement of liabilities and commitments in the normal course of
business. The Company incurred a net loss of $20,996,000 for the year ended June
30, 1997, and as at June 30, 1997 had a deficit accumulated during the
development stage of $42,002,000. The Company expects to incur substantial
expenditures to complete the development of the Source databases and services in
Europe. The Company's working capital at June 30, 1997, together with its
growing revenue from product sales from contracts for delivery of its services,
will not be sufficient to meet its development
F-7
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
objectives as presently structured. As part of a series of transactions for
which definitive agreements were signed on August 20, 1997, PMSI has committed
to purchase Source Europe, and is currently seeking stockholder approval. PMSI
is providing a line of credit to the Company which management anticipates will
provide sufficient funding until the transactions close. Subsequent to closing,
Source Europe will be a wholly-owned subsidiary of PMSI, which will take over
funding responsibility for the final stage of development of Source Europe.
Management believes that PMSI has sufficient funds to complete the development
of Source Europe, as well as its other business objectives.
DATABASES
All costs associated with the development, maintenance and updating of
databases are expensed as incurred.
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 and automobiles over four years. Leasehold improvements are amortized over
the estimated lives of the assets or the lease terms (maximum of 10 years),
whichever are shorter. Buildings are depreciated over their estimated useful
lives of 50 years.
On disposal, costs and accumulated depreciation are removed from the
accounts and gains (losses) are recognized in the statement of operations.
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 income until the earnings
process is complete.
Unearned income is also comprised of cash received in the form of
contributions from clients (a) for the purpose of funding the development of a
proprietary database to service the European markets and (b) to provide these
clients with future discounts on products generated from the database. Through
June 30, 1997, none of the contributions, which aggregated $11.3 million on that
date, have been recognized as revenue. These contributions will be recognized as
revenue to match the future discounts on products generated from the database.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash balances and trade
receivables. The Company invests its excess cash with major banks. The Company's
customer base principally comprises companies within the pharmaceutical industry
and the Company does not require collateral from its customers.
F-8
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY
The balance sheet and results of operations of the Company's foreign
subsidiaries that operate outside the United States are measured using local
currency as the functional currency.
Assets and liabilities have been translated into United States dollars at
the rates of exchange at the balance sheet date. Translation gains and losses
arising from the use of differing exchange rates from year to year are included
in the cumulative translation adjustment on the balance sheet. Revenues and
expenses are translated into United States dollars at the average rate during
the period.
Transaction gains and losses are recognized in the statement of operations
as incurred. For the years presented, these amounts were not material.
INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and
financial reporting amounts at each year-end.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity dates of
three months or less from the date of acquisition by the Company to be cash
equivalents.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
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.
2. TRANSACTIONS WITH WALSH AND SOURCE INFORMATICS INC.
PHARBASE LICENSE
In April 1996 Walsh granted to Source Europe a non-exclusive license to its
Pharbase medical professional databases in certain European countries. The
Company is allowed to use the Pharbase databases only for internal purposes and
in connection with the development, delivery and marketing of its
prescriber-linked prescription databases. The initial term of the license runs
for ten years and the license is renewable for two additional terms. Source
Europe has agreed to provide Walsh with all updated information which it
receives with regard to medical professionals, their specialties, affiliations
and locations generated as a result of the use of Pharbase by Source Europe. The
Company has agreed to pay $1.00 per prescriber in the database universe in the
first year of prescription data collection in a particular market. In
consideration of the Company's obligation to provide updated information to
Walsh, such fee will be reduced to $0.75 in the second year, $0.50 in the third
year and $0.25 per prescriber thereafter. In addition, Source Europe had agreed
to pay Walsh 75% of the list price of the Pharbase service for each
F-9
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. TRANSACTIONS WITH WALSH AND SOURCE INFORMATICS INC. (CONTINUED)
Source Europe's client to which it delivers prescriber-level data and which does
not have a current Pharbase license.
SERVICE AGREEMENTS
Source Europe is supplied by Source, and prior to the Spin-Off by Walsh,
with administrative support, including general management, financial, legal,
tax, audit, personnel and employee benefits. The Company has also been provided
by Source's US operation with software and database development services
specifically for the European market. Accruals for the services and benefits
have been measured and recorded based on usage or other methods that management
believes to be reasonable. Such allocations were as follows for fiscal years
ended June 30, 1995 (unaudited), 1996 (unaudited) and 1997, respectively:
administrative support services, $1,623,000, $2,295,000 and $1,741,000; and
software and database services, $412,000, $2,110,000 and $3,347,000. The
cumulative costs since inception (January 1, 1994) amount to $5,659,000 for
administrative support services and $5,947,000 for software and database
services.
3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 (unaudited) and 1997 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Property....................................................... $ 33 $ 48
Furniture and office equipment................................. 58 164
Computer equipment............................................. 144 505
Automobiles.................................................... -- --
235 717
Less accumulated depreciation and amortization................. (55) (171)
--------- ---------
$ 180 $ 546
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization charged to operations amounted to $0, $55,000
and $116,000 for the years ended June 30, 1995 (unaudited), 1996 (unaudited) and
1997, respectively. Cumulative depreciation and amortization since inception
(January 1, 1994) amounts to $171,000.
F-10
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OTHER ASSETS
Other assets at June 30, 1996 (unaudited) and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1997
----- ---------
<S> <C> <C>
Purchased software.............................................. $ 10 $ 167
Less: accumulated depreciation................................ (7) (41)
--- ---------
3 126
Sales tax recoverable........................................... -- 274
Deposits........................................................ 28 63
--- ---------
$ 31 $ 463
--- ---------
--- ---------
</TABLE>
Amortization charged to operations amounted to $0, $7,000 and $34,000 for
the years ended June 30, 1995 (unaudited), 1996 (unaudited), and 1997,
respectively. Cumulative amortization since inception (January 1, 1994) amounts
to $41,000.
5. ACCRUED LIABILITIES
Accrued liabilities at June 30, 1996 (unaudited) and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Employee compensation and benefits........................... $ 201 $ 1,026
Data purchase................................................ -- 778
Other liabilities............................................ 268 473
--------- ---------
$ 469 $ 2,277
--------- ---------
--------- ---------
</TABLE>
6. INCOME TAX
Deferred tax assets at June 30, 1996 (unaudited) and 1997 comprise the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets
Loss carry forwards....................................... $ 1,746 $ 8,215
--------- ---------
Gross deferred tax assets................................... 1,746 8,215
Valuation allowance......................................... (1,746) (8,215)
--------- ---------
Deferred taxes, net......................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
As at June 30, 1997, there were available for foreign income tax purposes
operating loss carryforwards of approximately $24,163,000 which may provide
future tax benefits totalling $8,215,000 expiring as follows: 2001: $271,000,
2002: $1,027,000 and thereafter $6,917,000.
F-11
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS
Subsidiaries of the Company in the United Kingdom and Belgium have pension
or profit sharing plans covering substantially all their employees.
In the United Kingdom a money purchase plan is operated with the employer
contributing an average of approximately 5% of salaries.
In Belgium a defined contribution pension plan is operated with the employer
contributing an average of approximately 5% of salaries.
The total costs associated with these plans were as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD OF
INCEPTION
JUNE 30, JANUARY 1, 1994
-------------------------- THROUGH
1996 1997 JUNE 30, 1997
------------- ----- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Belgium.................................... $ 17 $ 23 $ 40
United Kingdom............................. 46 73 119
--- --- -----
$ 63 $ 96 $ 159
--- --- -----
--- --- -----
</TABLE>
8. LEASING ARRANGEMENTS AND OTHER COMMITMENTS
Various subsidiaries of the Company lease certain property and equipment.
Obligations under long-term and noncancellable lease agreements expiring at
various dates have the following aggregate approximate annual minimum rentals
(in thousands):
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES LEASES
--------------- ---------------
<S> <C> <C>
To June 30, 1998................................ $ 43 $ 529
To June 30, 1999................................ 42 422
To June 30, 2000................................ 15 220
To June 30, 2001................................ -- 88
To June 30, 2002................................ -- 60
After June 30, 2002............................. -- 5
--- ------
Total minimum lease payments.................... 100 $ 1,324
--- ------
--- ------
Less amount representing interest............... 19
---
Present value of minimum lease payments......... 81
Less current portion............................ 38
---
$ 43
---
---
</TABLE>
Operating lease rentals for the years ended June 30, 1995 (unaudited), 1996
(unaudited) and 1997 were $0, $0 and $453,000, respectively. Cumulative
operating lease rentals since inception (January 1, 1994) amount to $453,000.
Included in property and equipment at June 30, 1996 (unaudited) and 1997 are
assets subject to capitalized leases with a cost of $0 and $113,000,
respectively, and accumulated amortization of $0 and $31,000 for the years ended
June 30, 1996 and June 30, 1997, respectively.
F-12
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Balance Sheets as of June 30, 1997 and September 30, 1997 (unaudited)......................... F-14
Consolidated Statements of Operations (unaudited) for the Three Months Ended September 30, 1996 and 1997... F-15
Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended September 30, 1996 and 1997... F-16
Notes to Consolidated Financial Statements................................................................. F-17
</TABLE>
F-13
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................. $ 2,222 $ 1,648
Accounts receivable................................................................... 234 802
Prepaid expenses and other current assets............................................. 714 204
--------- -------------
Total current assets................................................................ 3,170 2,654
Property and equipment, net............................................................. 546 545
Other assets, net....................................................................... 463 1,036
--------- -------------
Total assets........................................................................ $ 4,179 $ 4,235
--------- -------------
--------- -------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Current maturities of long-term debt.................................................. $ 38 --
Accounts payable...................................................................... 2,700 $ 1,706
Accrued liabilities................................................................... 2,277 4,485
Unearned income....................................................................... 11,319 11,479
--------- -------------
Total current liabilities........................................................... 16,334 17,670
Long-term debt.......................................................................... 43 35
Amounts due to Source................................................................... 6,334 9,149
Amounts due to PMSI..................................................................... -- 1,898
--------- -------------
Total liabilities................................................................... 22,711 28,752
--------- -------------
--------- -------------
Total stockholders' deficit......................................................... (18,532) (24,517)
--------- -------------
Total liabilities and stockholders' deficit......................................... $ 4,179 $ 4,235
--------- -------------
--------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Revenue...................................................................................... -- $ 778
Production costs............................................................................. $ (1,712) (2,972)
Selling, general and administrative expenses................................................. (2,189) (2,203)
Research and development costs............................................................... (543) (243)
Amortization of intangible assets............................................................ (1) (14)
--------- ---------
Operating loss............................................................................... (4,445) (4,654)
--------- ---------
Interest and other income.................................................................... -- 9
Interest expense............................................................................. (68) (1)
--------- ---------
Net loss..................................................................................... $ (4,513) $ (4,646)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Net cash used in operating activities........................................................ $ (3,817) $ (3,844)
Cash flows used in investing activities:
Capital expenditures....................................................................... (114) (7)
--------- ---------
Net cash used in investing activities........................................................ (114) (7)
Cash flows provided by (used in) financing activities:
Increase in inter-company indebtedness..................................................... 4,129 2,613
Loan from PMSI............................................................................. -- 1,500
Repayments of long-term debt and capital lease obligations................................. -- (10)
--------- ---------
Net cash provided by financing activities.................................................... 4,129 4,103
Effect of exchange rate movements............................................................ (343) (826)
--------- ---------
Net decrease in cash and cash equivalents.................................................... (145) (574)
Cash and cash equivalents at beginning of period............................................. 1,194 2,222
--------- ---------
Cash and cash equivalents at end of period................................................... $ 1,049 $ 1,648
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
SOURCE INFORMATICS EUROPEAN HOLDINGS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying statements of operations for the three months ended
September 30, 1996 and 1997, the statements of cash flows for the three months
ended September 30, 1996 and 1997, the balance sheet as of September 30, 1997
and the related information of Source Informatics European Holdings Inc.
("Source Europe") included in these notes to the financial statements are
unaudited. In the opinion of management, the interim financial information
reflects all adjustments (consisting only of items of a normal recurring nature)
necessary for the fair presentation of the financial position, results of
operations and cash flows for the periods presented. The results of operations
for the three months ended September 30, 1997 are not necessarily indicative of
the results to be expected for the entire fiscal year.
The June 30, 1997 balance sheet was derived from Source Europe's June 30,
1997 audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
These interim financial statements should be read in conjunction with the
audited consolidated financial statements and related notes thereto included
elsewhere in this Proxy Statement.
2. INCOME TAXES
As of September 30, 1997, Source Europe had approximately $28.8 million of
foreign net operating loss carry-forwards. These carry-forwards will increase
until Source Europe becomes profitable.
3. LINE OF CREDIT
In the three months ended September 30, 1997, $1.5 million was advanced to
Source Europe under a line of credit from PMSI. Outstanding amounts under the
line of credit accrue interest at the rate of prime plus 2%. The line of credit
is secured by the pledge of approximately 17% of the outstanding shares of
Common Stock of Sources' US operating subsidiary and an aggregate 435,000 of the
shares of PMSI Common Stock owned by Source.
F-17
<PAGE>
APPENDIX A
EXECUTION VERSION
STOCK PURCHASE AGREEMENT
BY AND AMONG
NATIONAL DATA CORPORATION,
PMSI DATABASE HOLDINGS, INC.
AND
PHARMACEUTICAL MARKETING SERVICES INC.,
THE SOLE STOCKHOLDER OF PMSI DATABASE HOLDINGS, INC.
DATED AS OF AUGUST 20, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C> <C> <C>
CONTENTS
PARTIES.................................................................................... A-1 s
PREAMBLE................................................................................... A-1
ARTICLE 1 -- PURCHASE AND SALE............................................................. A-1
1.1 Purchase and Sale............................................. A-1
1.2 Preliminary Balance Sheet..................................... A-2
1.3 Closing Balance Sheet......................................... A-2
1.4 Adjustment of Purchase Price.................................. A-3
1.5 Anti-Dilution Provisions...................................... A-4
1.6 Time and Place of Closing..................................... A-5
ARTICLE 2 -- REPRESENTATIONS AND WARRANTIES OF PMSI DATABASE AND PMSI......................
A-5
2.1 Organization, Standing, and Power............................. A-5
2.2 Authority of PMSI Database; No Breach By Agreement............ A-5
2.3 Authority of PMSI; No Breach By Agreement..................... A-6
2.4 Capital Stock................................................. A-6
2.5 PMSI Database Subsidiaries.................................... A-7
2.6 Financial Statements.......................................... A-7
2.7 Absence of Undisclosed Liabilities............................ A-7
2.8 Absence of Certain Changes or Events.......................... A-7
2.9 Tax Matters................................................... A-7
2.10 Assets........................................................ A-8
2.11 Intellectual Property......................................... A-9
2.12 Compliance with Laws.......................................... A-9
2.13 Labor Relations............................................... A-10
2.14 Employees and Employee Benefit Plans.......................... A-10
2.15 Material Contracts............................................ A-10
2.16 Real Property; Leased Real Property........................... A-11
2.17 Personal Property............................................. A-11
2.18 Legal Proceedings............................................. A-11
2.19 Statements True and Correct................................... A-12
2.20 Regulatory Matters............................................ A-12
2.22 Charter Provisions............................................ A-12
2.23 Opinion of Financial Advisor.................................. A-12
2.24 Board Recommendation.......................................... A-12
2.25 Joint Venture Interest........................................ A-12
ARTICLE 3 -- REPRESENTATIONS AND WARRANTIES OF NDC......................................... A-13
3.1 Organization, Standing, and Power............................. A-13
3.2 Authority; No Breach By Agreement............................. A-13
3.3 Capital Stock................................................. A-13
3.4 SEC Filings; Financial Statements............................. A-14
3.5 Absence of Undisclosed Liabilities............................ A-14
3.6 Absence of Certain Changes or Events.......................... A-14
3.7 Compliance with Laws.......................................... A-14
3.8 Legal Proceedings............................................. A-15
3.9 Statements True and Correct................................... A-15
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---
<S> <C> <C> <C>
3.10 Regulatory Matters............................................ A-15
3.11 Rights Agreement.............................................. A-15
ARTICLE 4 -- CONDUCT OF BUSINESS PENDING CONSUMMATION...................................... A-16
4.1 Affirmative Covenants of PMSI Database and PMSI............... A-16
4.2 Negative Covenants of PMSI Database and PMSI.................. A-17
4.3 Covenants of NDC.............................................. A-19
4.4 Adverse Changes in Condition.................................. A-19
4.5 Reports....................................................... A-19
ARTICLE 5 -- ADDITIONAL AGREEMENTS......................................................... A-20
5.1 Registration Statement; PMSI Approval......................... A-20
5.2 Exchange Listing.............................................. A-20
5.3 Applications; Antitrust Notification.......................... A-20
5.4 Agreement as to Efforts to Consummate......................... A-20
5.5 Investigation and Confidentiality............................. A-20
5.6 Press Releases................................................ A-21
5.7 Certain Actions............................................... A-21
5.9 Charter Provisions............................................ A-21
5.10 Agreement of Affiliates....................................... A-21
5.10 Employment of Employees....................................... A-22
5.11 Tax Matters................................................... A-22
ARTICLE 6 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE............................. A-23
6.1 Conditions to Obligations of Each Party....................... A-23
6.2 Conditions to Obligations of NDC.............................. A-23
6.3 Conditions to Obligations of PMSI Database and PMSI........... A-25
ARTICLE 7 -- INDEMNIFICATION............................................................... A-26
7.1 Agreement of Indemnitor to Indemnify.......................... A-27
7.2 Procedures for Indemnification................................ A-27
7.3 Third Party Claims............................................ A-27
7.4 Survival...................................................... A-28
7.5 Time Limitations.............................................. A-28
7.6 Limitations as to Amount...................................... A-29
7.7 Tax Effect and Insurance...................................... A-29
7.8 Subrogation................................................... A-29
7.9 Arbitration................................................... A-29
ARTICLE 8 -- TERMINATION................................................................... A-30
8.1 Termination................................................... A-30
8.2 Effect of Termination......................................... A-31
ARTICLE 9 -- MISCELLANEOUS................................................................. A-31
9.1 Definitions................................................... A-31
9.2 Expenses...................................................... A-30
9.3 Brokers and Finders........................................... A-30
9.4 Entire Agreement.............................................. A-30
9.5 Amendments.................................................... A-30
9.6 Waivers....................................................... A-30
9.7 Assignment.................................................... A-40
9.8 Notices....................................................... A-40
9.9 Governing Law................................................. A-41
9.10 Counterparts.................................................. A-41
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---
<S> <C> <C> <C>
9.11 Captions; Articles and Sections............................... A-41
9.12 Interpretations............................................... A-41
9.13 Enforcement of Agreement...................................... A-41
9.14 Severability.................................................. A-41
SIGNATURES .............................................................. A-42
</TABLE>
A-iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of August 20, 1997, by and among NATIONAL DATA CORPORATION ("NDC"), a Delaware
corporation; PMSI DATABASE HOLDINGS, INC. ("PMSI Database"), a Delaware
corporation; and PHARMACEUTICAL MARKETING SERVICES INC., a Delaware corporation
and the sole stockholder of PMSI Database ("PMSI").
PREAMBLE
The respective Boards of Directors of PMSI Database, PMSI 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. PMSI is the record
and beneficial owner of all of the issued and outstanding shares of PMSI
Database Common Stock (the "Shares"). PMSI desires to sell all of the Shares to
NDC, and NDC desires to purchase the Shares from PMSI, upon the terms and
subject to the conditions set forth in this Agreement. The transactions
described in this Agreement are subject to the approvals of the stockholders of
PMSI and PMSI Database, expiration of the required waiting period under the HSR
Act, the consummation of the Agreement and Plan of Merger dated as of even date
herewith by and among Source Informatics Inc. ("Source"), Dunkirk, Inc. and NDC
(the "Source Agreement"), the consummation of the Source Transfer Agreement and
the satisfaction of certain other conditions described in this Agreement.
Certain terms used in this Agreement are defined in Section 9.1 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
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement, PMSI shall sell to NDC, and NDC shall purchase from PMSI, the
Shares at the Closing (the "Stock Purchase"). The aggregate purchase price for
the Shares is equal to (i) the Cash Amount and (ii)1,059,829 shares of NDC
Common Stock (the "Base Amount");
(a) At the Closing Date, the "Cash Amount" shall be equal to $6,500,000 less
the adjustment, if any, made pursuant to Section 1.2(c) hereof.
(b) In the event that the Average Closing Price at the close of trading on
the tenth trading day immediately preceding the Closing Date (the "Determination
Date") shall be greater than $50.50 (the "Upper Threshold Price"), the Base
Amount shall be adjusted to equal that number of shares of NDC Common Stock
(rounded to the nearest whole share) obtained by dividing the product of the
Base Amount and the Upper Threshold Price by the Average Closing Price as of 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 Base Amount may, at the sole discretion of NDC, and in accordance
with the provisions of Section 8.1(h), be adjusted to equal that number of
shares of NDC Common Stock (rounded to the nearest whole share) obtained by
dividing the product of the Base Amount and the Lower Threshold Price by the
Average Closing Price as of the Determination Date.
(c) Pursuant to the NDC Rights Agreement, each share of NDC Common Stock
issued in connection with the Stock Purchase shall be accompanied by a NDC
Right.
A-1
<PAGE>
1.2 PRELIMINARY BALANCE SHEET.
(a) PMSI will cause to be prepared and delivered to NDC a balance sheet for
PMSI Database 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 PMSI'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 (v) include only the assets,
liabilities and stockholders' equity of the Acquired Business and the Joint
Venture Interest, (x) fairly present the financial position of PMSI Database 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 of PMSI Database dated March 31, 1997 (the
"PMSI Database 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 PMSI Database Balance Sheet, and (z) subject to the
provisions of clause (x) above, be prepared in accordance with accounting
policies and practices consistent with those used in the preparation of the PMSI
Database Balance Sheet. As used herein, "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 and work-in-process and any other assets
classified as current assets under GAAP; and "Current Liabilities" shall mean
the amount equal to the sum of accounts payable, accrued current liabilities of
PMSI Database (other than the current portion of capitalized lease obligations),
accrued sales commissions (but only as to revenues realized and included in the
PMSI Database statements of income prior to such date), Accrued Bonuses, accrued
vacation pay, current portion of long-term indebtedness and pre-billed revenues
and any other liabilities classified as current liabilities under GAAP.
(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 1.2(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 1.1659 times
Estimated Current Liabilities (the amount of such difference referred to as, the
"Estimated Working Capital Adjustment") as of the date of the Preliminary
Balance Sheet, the Cash Amount payable by NDC pursuant to Section 1.1 shall be
decreased by the Estimated Working Capital Adjustment.
1.3 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 PMSI a balance sheet for
PMSI Database 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 (the "Closing Working Capital," "Closing Current Assets" and
"Closing Current Liabilities," respectively). The Closing Balance Sheet shall
(v) include only the assets, liabilities and stockholders' equity of the
Acquired Business and the Joint Venture Interest (x) fairly present the
financial position of PMSI Database 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 PMSI Database Balance
Sheet, (y) include no material increase in long-term indebtedness and include
line items substantially consistent with those in the PMSI Database Balance
Sheet, and (z) subject to the provisions of clause (x) above, be prepared in
accordance with accounting policies and practices consistent with those used in
the preparation of the PMSI Database 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 1.3(a) shall be deemed final upon the earliest of (i) the
date on which NDC and PMSI jointly agree that such documents are final, (ii) the
30th day after delivery of such documents pursuant to Section 1.3(a), if PMSI
has not delivered a notice to NDC
A-2
<PAGE>
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 1.3(c). If PMSI delivers a notice of disagreement pursuant to this
Section 1.3(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 1.3(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 PMSI shall deliver a notice of disagreement pursuant to Section
1.3(b), PMSI 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, PMSI and NDC are unable to
reach such agreement, they shall promptly thereafter cause Price Waterhouse LLP
(or if said firm shall have a conflict due to a relationship with NDC, PMSI, or
any of their respective Subsidiaries or shall be unwilling to act thereunder,
such other independent accountants of nationally recognized standing reasonably
satisfactory to NDC and PMSI who shall not have any material relationship with
NDC or PMSI), promptly to review this Agreement, the documents delivered
pursuant to Section 1.3(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 PMSI and NDC, as promptly as practicable, a report
setting forth such calculation. Such report shall be final and binding upon PMSI
and NDC. The cost of such review and report shall be borne (i) by PMSI if the
difference between Closing Working Capital shown in the independent accountant's
calculation and PMSI's calculation of Closing Working Capital delivered pursuant
to Section 1.3(b) is greater than the difference between Closing Working Capital
shown in the independent accountant's calculation and NDC's calculation of
Closing Working Capital delivered pursuant to Section 1.3(a), (ii) by NDC if the
difference between Closing Working Capital shown in the independent accountant's
calculation and PMSI's calculation of Closing Working Capital delivered pursuant
to Section 1.3(b) is less than the difference between Closing Working Capital
shown in the independent accountant's calculation and NDC's calculation of
Closing Working Capital delivered pursuant to Section 1.3(a), and (iii)
otherwise equally by PMSI and NDC.
(d) PMSI and NDC agree that they will, and will cause their respective
independent accountants and PMSI Database 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 1.3, 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 PMSI Database.
1.4 ADJUSTMENT OF PURCHASE PRICE.
(a) Subject to Section 1.4(c) below,
(i) If Final Current Assets are less than the product of 1.1659 times
Final Current Liabilities (the amount of such shortfall referred to as, the
"Final Working Capital Deficit"), then PMSI shall pay to NDC in cash, as an
adjustment to the Purchase Price, the Final Working Capital Deficit, plus
any amount owing to NDC pursuant to Section 1.4(b) below.
(ii) If Final Current Assets are greater than the product of 1.1659
times Final Current Liabilities (the amount of such surplus referred to as,
the "Final Working Capital Surplus"), then NDC shall pay to PMSI in cash, as
an adjustment to the Purchase Price, the Final Working Capital Surplus.
A-3
<PAGE>
(iii) "Final Working Capital," "Final Current Assets" and "Final Current
Liabilities" mean such amounts (A) as shown in NDC's calculation delivered
pursuant to Section 1.3(a), if no notice of disagreement with respect thereto is
duly delivered pursuant to Section 1.3(b); or (B) if such a notice of
disagreement is delivered, (1) as agreed by NDC and PMSI pursuant to Section
1.3(b) or (2) in the absence of such agreement, as shown in the independent
accountant's calculation delivered pursuant to Section 1.3(c); PROVIDED that, in
no event shall Final Working Capital be (A) more than PMSI's calculation of
Closing Working Capital delivered pursuant to Section 1.3(b), if any, or (B)
less than the lesser of NDC's calculation of Closing Working Capital delivered
pursuant to Section 1.3(a) or PMSI's calculation of Closing Working Capital
delivered pursuant to Section 1.3(b), if any.
(b) (i) If Total Current Assets are less than the product of 0.9975 times
Total Current Liabilities (the "Total Working Capital Deficit"), then PMSI shall
pay to NDC in cash, as a further adjustment to the Purchase Price, an amount
equal to the Current Asset Allocation Amount.
(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 PMSI in cash, as a further adjustment to the Purchase
Price, an amount equal to the Current Asset Allocation Amount.
(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 Source 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 Source 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 amount equal to the
sum of Final Current Assets in this Agreement and Final Current Assets
calculated pursuant to the Source 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 1.2(c) hereof.
(d) Any payment pursuant to Section 1.4(a) shall be made at a mutually
convenient time and place within ten days after Final Working Capital, Final
Current Assets and Final Current Liabilities have been determined by delivery by
NDC or PMSI, as the case may be, of one or more certified or official bank
checks payable in immediately available funds to the appropriate party or
parties or by causing such payments to be credited to such account of the
appropriate party or parties as may be designated by such other party or
parties.
(e) Any payment pursuant to Section 1.4(b) shall be made at a mutually
convenient time and place within ten days after Current Asset Allocation Amount
has been determined by delivery by NDC or PMSI, as the case may be, of one or
more certified or official bank checks payable in immediately available funds to
the appropriate party or parties or by causing such payments to be credited to
such account of the appropriate party or parties as may be designated by such
other party or parties.
(f) The amount of any payment to be made pursuant to Sections 1.4(a) and (b)
shall bear interest from and including the Closing Date to but excluding the
date of payment at a rate per annum equal to the Prime Rate determined as of the
Closing Date. Such interest shall be payable at the same time as the payment to
which it relates and shall be calculated daily on the basis of a year of 365
days and the actual number of days elapsed.
1.5 ANTI-DILUTION PROVISIONS. In the event NDC changes the number of
shares of NDC Common Stock issued and outstanding prior to the Closing Date 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
A-4
<PAGE>
record date is not established) shall be prior to the Closing Date, the Base
Amount shall be proportionately adjusted.
1.6 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 Closing Date occurs (or the immediately preceding day if the Closing
Date 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 shall be held
at such location as may be mutually agreed upon by the Parties.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PMSI DATABASE AND PMSI
PMSI and PMSI Database, jointly and severally, hereby represent and warrant
to NDC as follows:
2.1 ORGANIZATION, STANDING, AND POWER. PMSI Database 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 the Acquired
Business as now and previously conducted by PMSI and to own, lease and operate
the Acquired Assets. PMSI Database is, or will be prior to Closing, 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 the Acquired Assets or the nature or conduct of the Acquired
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 PMSI Database
Material Adverse Effect. The minute book and other organizational documents for
PMSI Database have been made available to NDC for its review and, except as
disclosed in Section 2.1 of the PMSI Database 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. The
minute books of PMSI as such relate to PMSI Database, the Acquired Business, the
Acquired Assets and the Joint Venture Interest have been made available to NDC
for its review.
2.2 AUTHORITY OF PMSI DATABASE; NO BREACH BY AGREEMENT.
(a) PMSI Database has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and, subject
to receipt of stockholder approval, to consummate the transactions contemplated
hereby. The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Stock
Purchase, have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of PMSI Database, subject to the adoption
of this Agreement by PMSI, as the sole stockholder of PMSI Database. Subject to
such requisite stockholder approval, this Agreement represents a legal, valid,
and binding obligation of PMSI Database, enforceable against PMSI Database 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 PMSI Database,
nor the consummation by PMSI Database of the transactions contemplated hereby,
nor compliance by PMSI Database with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of PMSI Database's
Certificate of Incorporation or Bylaws or any resolution adopted by the board of
directors or stockholder of PMSI Database, or (ii) except as disclosed in
Section 2.2 of the PMSI Database Disclosure Memorandum and, subject to receipt
of the requisite Consents referred to in Sections 6.1(b) and 6.1(c), constitute
or result in a Default under, or require any Consent pursuant to, or result in
the creation of any Lien on any Acquired Asset under, any Acquired Contract or
Acquired Permit.
A-5
<PAGE>
(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 Regulating Authority is necessary for the consummation by PMSI
Database of the Stock Purchase and the other transactions contemplated in this
Agreement, or necessary for the consummation by PMSI Database and PMSI of the
Contribution.
2.3 AUTHORITY OF PMSI; NO BREACH BY AGREEMENT.
(a) PMSI has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and, subject to
receipt of stockholder approval, to consummate the transactions contemplated
hereby. The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Stock
Purchase, have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of PMSI, subject to the adoption of this
Agreement by the stockholders of PMSI. Subject to such requisite stockholder
approval, this Agreement represents a legal, valid, and binding obligation of
PMSI, enforceable against PMSI 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 PMSI, nor the
consummation by PMSI of the transactions contemplated hereby, nor compliance by
PMSI with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of PMSI Database's Certificate of Incorporation or
Bylaws, or (ii) conflict with or result in a breach of any provision of PMSI's
Certificate of Incorporation or Bylaws or the certificate or articles of
incorporation or bylaws of any Subsidiary of PMSI, or (iii) except as disclosed
in Section 2.3 of the PMSI Database Disclosure Memorandum and, subject to
receipt of the requisite Consents referred to in Sections 6.1(b) and 6.1(c),
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Acquired Asset under, any Acquired
Contract or Acquired Permit.
(c) Other than in connection or compliance with the provisions of the
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 Regulatory Authority is necessary for the
consummation by PMSI of the transactions contemplated in this Agreement.
2.4 CAPITAL STOCK.
(a) The authorized capital stock of PMSI Database consists of 1,000 shares
of PMSI Database Common Stock, of which 100 shares are issued and outstanding as
of the date of this Agreement and at the Closing Date. All of the issued and
outstanding shares of capital stock of PMSI Database 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 PMSI Database has been issued in
violation of any preemptive rights of the current or past stockholders of PMSI
Database.
(b) Except as set forth in Section 2.4(a), there are no shares of capital
stock or other equity securities of PMSI Database outstanding and no outstanding
Equity Rights relating to the capital stock of PMSI Database. As of the date of
this Agreement, a Subsidiary of PMSI owns, and, as of the Closing Date, PMSI
will own, all right, title and interest (legal and beneficial) in and to all of
the issued and outstanding shares of PMSI Database's capital stock free and
clear of all Liens. Except as specifically contemplated by this Agreement, no
Person has any Contract or any right or privilege (whether pre-emptive or
contractual)
A-6
<PAGE>
capable of becoming a Contract for the purchase from PMSI of any of the shares
of PMSI Database's capital stock, or any Contract or Equity Right for the
purchase, subscription or issuance of any securities of PMSI Database.
2.5 PMSI DATABASE SUBSIDIARIES. PMSI Database has no Subsidiaries.
2.6 FINANCIAL STATEMENTS. Each of the OTC Financial Statements (including,
in each case, any related notes) was prepared in accordance with GAAP applied on
a consistent basis as of and for the periods involved (except as may be
indicated in the notes to such financial statements), and fairly presented in
all material respects the financial position of the Acquired Business as of
their respective dates and the 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. Except as set forth on
Section 2.6 of the PMSI Database Disclosure Memorandum, the Acquired Business
has no liabilities or obligations (secured or unsecured, whether accrued,
absolute, direct, indirect, contingent or otherwise, and whether due or to
become due) which are not fully and adequately accrued or reserved against in
the OTC Financial Statements, as of their respective dates, in accordance with
GAAP consistently applied. Further, the OTC Balance Sheet only includes the
Acquired Assets and the Assumed Liabilities relating to the Acquired Business
and does not include (i) Retained Liabilities, (ii) domestic income tax assets
or liabilities, (iii) recorded goodwill, and (iv) deferred gains on sale and
lease-back transactions. The Statements of Income are those of the Acquired
Business and the Acquired Assets and do not include revenue, expenses or income
tax of PMSI or any other Assets of PMSI or the Joint Venture Interest.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. At the Closing, PMSI Database will
have no Liabilities other than the Assumed Liabilities and the Liabilities set
forth in Section 2.7 of the PMSI Database Disclosure Memorandum. None of the
Assumed Liabilities or those Liabilities set forth in Section 2.7 of the PMSI
Database Disclosure Memorandum are reasonably likely to have, individually or in
the aggregate, a PMSI Database Material Adverse Effect.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1997, except as
disclosed in the OTC Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 2.8 of the PMSI Database 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 PMSI
Database Material Adverse Effect, (ii) neither PMSI Database nor PMSI has 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 PMSI Database and PMSI provided in Article 4.
2.9 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of PMSI Database or
PMSI on behalf of or including the Acquired Business have been timely filed or
requests for extensions have been timely filed, granted, and have not expired
for periods ended on or before June 30, 1996, and on or before the date of the
most recent fiscal year end immediately preceding the Closing Date, and all such
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 with respect to any Taxes, except as reserved
against in the PMSI Database Financial Statements or as disclosed in Section 2.9
of the PMSI Database Disclosure Memorandum for which PMSI Database could be
found responsible. 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 Acquired Assets, except for any such
Liens which are not reasonably likely to have a PMSI Database Material Adverse
Effect.
(b) PMSI has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any Tax due with respect to the
Acquired Business or the Acquired Assets (excluding such
A-7
<PAGE>
statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) or with respect to the
filing of any Tax Return including the Acquired Business that is currently in
effect.
(c) The provision for any Taxes due or to become due for the Acquired
Business and the Acquired Assets for the period or periods through and including
the date of the respective PMSI Database Financial Statements that has been made
and is reflected on such PMSI Database Financial Statements is sufficient to
cover all such Taxes.
(d) Deferred Taxes of PMSI Database reflected on the PMSI Database Financial
Statements have been provided for in accordance with GAAP.
(e) PMSI Database is not a party to any Tax allocation or sharing agreement
and PMSI Database has not been a member of an affiliated group filing a
consolidated federal income Tax Return (other than a group the common PMSI of
which was PMSI Database or PMSI) that has any Liability for Taxes of any Person
(other than PMSI Database) 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) PMSI Database and PMSI with respect to the Acquired Business and the
Acquired Assets are in compliance with, and its records contain all information
and documents (including properly completed IRS Forms W-9) necessary to comply
with in all material respects, 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 2.9 of the PMSI Database Disclosure
Memorandum, PMSI Database and PMSI with respect to the Acquired Business and the
Acquired Assets have not made any payments, are not obligated to make any
payments, and are not a party to any Contract that could obligate either of them
to make any payments that would be disallowed as a deduction under Section 280G
or 162(m) of the Internal Revenue Code.
2.10 ASSETS.
(a) Except as disclosed in Section 2.10 of the PMSI Database Disclosure
Memorandum or as disclosed or reserved against in the OTC Financial Statements
delivered prior to the date of this Agreement and except for the Contracts set
forth in Sections 2.2 and 2.3 of the PMSI Database Disclosure Memorandum, PMSI
Database currently has, good, valid and marketable title, free and clear of all
Liens, to all of the Acquired Assets. All tangible properties that are material
to the conduct of the Acquired Business are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business consistent
with PMSI's past practices with respect to the Acquired Business.
(b) The Acquired Assets and the Acquired Business are insured under various
policies of general liability and other forms of insurance, which policies are
in amounts adequate in the reasonable judgment of PMSI and PMSI Database.
Neither PMSI nor PMSI Database has been refused any insurance, with respect to
the Acquired Assets or the Acquired Business, by any insurance carrier to which
it has applied for insurance or with which it has carried insurance during the
past five (5) years. There are no outstanding requirements or recommendations by
any current insurer or underwriter with respect to the Acquired Business or the
Acquired Assets which require or recommend changes in the conduct of the
Acquired Business, or require any repairs or other work to be done with respect
to any of the Acquired Assets or operations of the Acquired Business.
(c) The Acquired Assets include all rights, properties, interests in
properties, and assets necessary to permit NDC to carry on the Acquired Business
as presently conducted by PMSI and PMSI Database.
A-8
<PAGE>
2.11 INTELLECTUAL PROPERTY. Section 2.11 of the PMSI Database Disclosure
Memorandum is a complete and accurate list of all Acquired Intellectual
Property, containing a brief description of all governmental registrations or
applications for governmental registrations of each such item and the nature of
PMSI Database's interest therein. PMSI Database owns or has a license to use all
of the Acquired Intellectual Property. PMSI Database is the owner of or has a
license to any Acquired Intellectual Property sold or licensed to a third party
by PMSI Database, and PMSI Database has the right to convey by sale or license
any Acquired Intellectual Property so conveyed. PMSI Database is not in Default
under any of its Acquired Intellectual Property licenses. No proceedings have
been instituted, or are pending or to the Knowledge of PMSI Database and PMSI
threatened, which challenge the rights of PMSI or PMSI Database with respect to
Acquired Intellectual Property used, sold or licensed by PMSI or PMSI Database
in the course of the Acquired Business, nor has any person claimed or alleged
any rights to such Acquired Intellectual Property. The conduct of the Acquired
Business does not infringe any Intellectual Property of any other person. Except
as disclosed in Section 2.11 of the PMSI Database Disclosure Memorandum, neither
PMSI nor PMSI Database is obligated to pay any recurring royalties to any Person
with respect to any Acquired Intellectual Property. Except as disclosed in
Section 2.11 of the PMSI Database Disclosure Memorandum, every Employee is a
party to a Contract which requires such Person to assign any interest in any
Intellectual Property to PMSI which rights have been assigned to PMSI Database
and to keep confidential any trade secrets, proprietary data, customer
information, or other business information of the Acquired Business, and no such
Employee is party to any Contract with any Person other than PMSI which requires
such Employee to assign any interest in any Intellectual Property developed
while in the employ of PMSI to any Person other than PMSI or to keep
confidential any trade secrets, proprietary data, customer information, or other
business information of any Person other than PMSI. Except as disclosed in
Section 2.11 of the PMSI Database Disclosure Memorandum, no Employee is party to
any Contract which restricts or prohibits such Employee from engaging in
activities competitive with any Person, including PMSI and PMSI Database, in
each case with respect to the Acquired Business. All material items of the
Acquired Intellectual Property and the material registrations, applications, and
agreements related thereto will be legally assigned to PMSI Database, subject to
the consent of any third party as set forth in Section 2.11 of the PMSI Database
Disclosure Memorandum.
2.12 COMPLIANCE WITH LAWS. PMSI or PMSI Database has in effect all
Acquired Permits. The Acquired Permits include all Permits necessary for PMSI
Database to own, lease, or operate the Acquired Assets and to carry on the
Acquired Business as now conducted, and there has occurred no Default under any
such Acquired Permit and, except as set forth in Section 2.12 of the PMSI
Database Disclosure Memorandum, all right in and to such Acquired Permits has
been legally transferred to PMSI Database and did not require the consent of any
third party. Except as disclosed in Section 2.12 of the PMSI Database Disclosure
Memorandum, neither PMSI nor PMSI Database:
(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 Acquired Permits applicable
to the Acquired Business or the Employees; 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 PMSI Database or PMSI with respect to the Acquired Business 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 Acquired Permits, or (iii) requiring PMSI with respect to the
Acquired Business or PMSI Database 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.
A-9
<PAGE>
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 relating to the Acquired Business
or the Acquired Assets have been made available to NDC.
2.13 LABOR RELATIONS. PMSI Database and PMSI have disclosed in Section
2.13 of the PMSI Database Disclosure Memorandum all employees of the Acquired
Business (the "Employees"). With respect to the Acquired Business, PMSI and PMSI
Database are not the subject of any Litigation asserting that they have
committed an unfair labor practice (within the meaning of the National Labor
Relations Act or comparable state law) or seeking to compel them to bargain with
any labor organization as to wages or conditions of employment, nor is PMSI
Database, or PMSI with respect to the Acquired Business, a party to any
collective bargaining agreement, nor is there any strike or other labor dispute
involving the Acquired Business, pending or threatened, or to the Knowledge of
PMSI and PMSI Database, is there any activity involving the Employees seeking to
certify a collective bargaining unit or engaging in any other organization
activity.
2.14 EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
(a) Neither PMSI Database nor any ERISA Affiliate of PMSI Database currently
or within the 6 years preceding the Closing Date, has maintained, sponsored in
whole or in part, or contributed to any plan or arrangement which is a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) or
which is a multiemployer plan within the meaning of Section 3(37) of ERISA. For
purposes of this Section 2.14, "ERISA Affiliate" shall mean any entity which is
considered one employer with PMSI Database under Section 4001 of ERISA or
Section 414 of the Internal Revenue Code.
(b) All PMSI 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 PMSI Database Material Adverse Effect.
(c) PMSI Database will not have had any employees prior to Closing.
2.15 MATERIAL CONTRACTS. Section 2.15 of the PMSI Database Disclosure
Memorandum contains a true and correct list, and (if oral) summary description,
of all PMSI Database Contracts (as defined below). Except as contemplated
hereunder and except as disclosed in Section 2.15 of the PMSI Database
Disclosure Memorandum or otherwise reflected in the OTC Financial Statements or
the PMSI Database Balance Sheet, neither PMSI Database, nor PMSI with respect to
the Acquired Business and the Joint Venture Interest, nor any of the Acquired
Assets, the Acquired Business, or the related operations, is a party to, or is
bound or affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement Contract, (ii) any Contract relating to
the borrowing of money by PMSI Database, or PMSI with respect to the Acquired
Business or the Joint Venture Interest, or the guarantee by PMSI Database, or
PMSI with respect to the Acquired Business or the Joint Venture Interest, 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 PMSI Database, or PMSI with
respect to the Acquired Business or the Joint Venture Interest, 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 PMSI
Database and PMSI or any Affiliate of PMSI Database or PMSI, (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 PMSI Database, or PMSI with respect to the
Acquired Business or the Joint Venture Interest, (vii) any Contract relating to
the purchase or sale of any goods or services including customer contracts
(other than Contracts entered into in the ordinary course of business and
involving payments under any individual Contract not in excess of $50,000),
(viii) real property leases and (ix) all Contracts referred to in Section
2.17(b) as of the date of this Agreement (together referred to as the "PMSI
Database Contracts"). Except as set forth in Sections 2.2 and 2.3 of the PMSI
Database Disclosure Memorandum, with respect to each PMSI Database
A-10
<PAGE>
Contract and except as disclosed in Section 2.15 of the PMSI Database Disclosure
Memorandum: (i) the Contract is in full force and effect; (ii) neither PMSI
Database nor PMSI is in Default thereunder; (iii) neither PMSI Database nor PMSI
has repudiated or waived any material provision of any such Contract; (iv) no
other party to any such Contract is, to the Knowledge of PMSI Database and PMSI,
in Default in any respect or has repudiated or waived any material provision
thereunder; (v) there exists no actual, or to the Knowledge of PMSI or PMSI
Database, threatened, cancellation, termination, or limitation of, or any
material amendment, modification, or change to any Contract; (vi) neither PMSI
Database nor PMSI has received formal notice that any party to a PMSI Database
Contract will not renew such Contract at the end of its existing term; and (vii)
no PMSI Database Contract requires consent for assignment in connection with the
transactions contemplated by this Agreement including the Contribution. All of
the indebtedness of PMSI Database for money borrowed is prepayable at any time
by PMSI Database without penalty or premium.
2.16 REAL PROPERTY; LEASED REAL PROPERTY. PMSI Database does not own or
lease any real property that is used or will be used in the Acquired Business.
2.17 PERSONAL PROPERTY.
(a) Section 2.17(a) of the PMSI Database Disclosure Memorandum contains a
substantially true and correct list of all equipment (excluding items of
equipment having a value of less than $50,000 individually) as of the date
hereof that will be included in the Acquired Assets.
(b) Section 2.17(b) of the PMSI Database Disclosure Memorandum contains a
substantially true and correct list of all Acquired Personal Property (except
miscellaneous leases of property having a value of less than $20,000
individually) leased by PMSI or PMSI Database. True and correct copies of the
lease for each item listed in Section 2.17(b) of the PMSI Database Disclosure
Memorandum and any amendments, extensions, and renewals thereof have heretofore
been furnished to NDC. Each of such leases is in effect, and PMSI and PMSI
Database have neither received nor sent written notice or other written
correspondence that indicates the existence of Material default under any such
lease, except for defaults subsequently cured or waived prior to the date of
this Agreement. No rights of PMSI or PMSI Database under any of such leases have
been assigned or otherwise transferred as security for any obligation of PMSI or
PMSI Database other than to the lessor under a lease to secure PMSI's or PMSI
Database's obligations under such lease. Except as described in Section 2.17(b)
of the PMSI Database Disclosure Memorandum, all such leases are fully assignable
without the consent of any third party.
(c) Section 2.17(c) of the PMSI Database Disclosure Memorandum contains a
substantially true and correct list of all Acquired Personal Property (except
personal property having a value of less than $20,000 individually) owned by
PMSI Database. All Acquired Personal Property that is material to the conduct of
the Acquired Business is in good condition, reasonable wear and use excepted,
and are usable in the ordinary course of business consistent with PMSI's past
practices.
2.18 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
to the Knowledge of PMSI and PMSI Database, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against PMSI Database or PMSI
with respect to the Acquired Business, or against any director, employee or
employee benefit plan of PMSI or PMSI Database, or against any Acquired Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a PMSI Database Material Adverse Effect, nor
are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against PMSI Database or PMSI with
respect to the Acquired Business and Acquired Assets that are reasonably likely
to have, individually or in the aggregate, a PMSI Database Material Adverse
Effect. Section 2.18 of the PMSI Database Disclosure Memorandum contains a
summary of all Litigation as of the date of this Agreement to which PMSI
Database is a party, or to which PMSI with respect to the Acquired Business is a
party and which names such as a defendant or cross-defendant or for which PMSI
Database, the Acquired Business or the Acquired Assets has any potential
Liability.
A-11
<PAGE>
2.19 STATEMENTS TRUE AND CORRECT. None of the information supplied or to
be supplied by PMSI or PMSI Database 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, include any untrue statement of a
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. None of the information supplied or to be supplied by PMSI or
PMSI Database or any Affiliate thereof for inclusion in any documents to be
filed by PMSI or PMSI Database or any Affiliate thereof with any Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, include any untrue statement of a
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 PMSI or PMSI Database 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.
2.20 REGULATORY MATTERS. Neither PMSI Database, PMSI nor 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 6.1(b) or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such Section.
2.21 CHARTER PROVISIONS. PMSI, as the sole stockholder of PMSI Database,
and PMSI Database have taken all reasonable action so that the entering into of
this Agreement and the consummation of the Stock Purchase and the other
transactions contemplated by this Agreement, except as set forth herein, 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 PMSI
Database 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 PMSI Database that may be directly or indirectly acquired or
controlled by them.
2.22 OPINION OF FINANCIAL ADVISOR. PMSI or PMSI Database has received the
opinion of Cowen & Company, dated the date of this Agreement, to the effect that
the consideration to be received in the Stock Purchase and pursuant to the
Source Transfer Agreement by PMSI is fair, from a financial point of view, to
PMSI.
2.23 BOARD RECOMMENDATION. The Board of Directors of PMSI Database and
PMSI, at meetings duly called and held, have by unanimous vote of the directors
present and voting (who constituted all of the directors then in office other
than those directors who abstained from voting because of a conflict of
interest) (i) determined that this Agreement and the transactions contemplated
hereby, including the Stock Purchase and the transactions contemplated thereby,
taken together, are fair to and in the best interests of the stockholders of
PMSI, and PMSI, as the sole stockholder of PMSI Database, and (ii) resolved to
recommend that the holders of the shares of PMSI and PMSI, as the sole
stockholder of PMSI Database, adopt this Agreement.
2.24 JOINT VENTURE INTEREST. The Amended and Restated Alphabase Data
License Agreement is in full force and effect and, subject to receipt by PMSI
Database of the Consents set forth in Sections 2.2 and 2.3 of the PMSI Database
Disclosure Memorandum, PMSI Database owns all right, title and interest in the
Joint Venture Interest free and clear of any Liens.
A-12
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NDC
NDC hereby represents and warrants to PMSI Database and PMSI as follows:
3.1 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.
3.2 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 Stock Purchase, 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 any
resolution adopted by the Board of Directors or stockholders of NDC, or (ii)
subject to receipt of the requisite Consents referred to in Section 6.1(b),
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.
(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 Stock Purchase and
the other transactions contemplated in this Agreement.
3.3 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 PMSI Database Common Stock upon consummation of the Stock
Purchase, 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 PMSI
Database Common Stock upon consummation of the Stock Purchase will be, issued in
violation of any preemptive rights of the current or past stockholders of NDC.
A-13
<PAGE>
(b) Except as set forth in Section 3.3(a), or as provided pursuant to the
NDC Rights Agreement, or as disclosed in Section 3.3(b) 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.
3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) NDC has timely filed and made available to PMSI Database 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 Closing Date, 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.
3.5 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.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 28, 1997, except
as disclosed in the NDC Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 3.6 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.
3.7 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 3.7 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
A-14
<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 NDC Entity is not in compliance in any material respect 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.
3.8 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.
3.9 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 or in the proxy statement to be filed
by PMSI with the SEC, will include an untrue statement of a 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, with
respect to the Registration Statement, on the date such Registration Statement
becomes effective, and with respect to the proxy statement as of its date. 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.
3.10 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 materially impede or delay receipt of any Consents
of Regulatory Authorities referred to in Section 6.1(b) or result in the
imposition of a condition or restriction of the type referred to in the last
sentence of such Section.
3.11 RIGHTS AGREEMENT. Execution of this Agreement and consummation of the
Stock Purchase 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 1.1) or enable or require the
NDC Rights to be exercised, distributed or triggered.
A-15
<PAGE>
ARTICLE 4
CONDUCT OF BUSINESS PENDING CONSUMMATION
4.1 AFFIRMATIVE COVENANTS OF PMSI DATABASE AND PMSI.
(a) Subject to the Consents set forth in Sections 2.3 and 2.4 of the PMSI
Database Disclosure Memorandum, PMSI has, or shall have prior to Closing,
assigned, transferred, conveyed, and delivered to PMSI Database, and PMSI
Database has, or shall have prior to Closing, acquired, and accepted from PMSI,
all of the right, title, and interest of PMSI in and to the Acquired Assets and
the Joint Venture Interest, free and clear of any and all Liens.
(b) The "Acquired Assets" shall consist of all of the right, title, and
interest of PMSI and PMSI Database in and to all of the following Assets, as the
same shall exist at the Closing Date, which shall be delivered free and clear of
any and all Liens:
(i) The Personal Property primarily utilized in the Acquired Business
(the "Acquired Personal Property");
(ii) The Intellectual Property primarily utilized in the Acquired
Business (the "Acquired Intellectual Property");
(iii) The Contracts primarily utilized in the Acquired Business (the
"Acquired Contracts");
(iv) The Accounts Receivable relating to the Acquired Business (the
"Acquired Accounts Receivable");
(v) The Permits primarily utilized in the Acquired Business (the
"Acquired Permits"); and
(vi) The Other Assets primarily utilized in the Acquired Business (the
"Acquired Other Assets").
(c) Prior to Closing, as partial consideration for the Contribution, PMSI
Database shall assume responsibility for the performance and satisfaction of the
Assumed Liabilities. PMSI Database shall not assume responsibility for, and PMSI
will remain obligated with respect to, the Retained Liabilities.
(d) From the date of this Agreement until the earlier of the Closing Date or
the termination of this Agreement, unless the prior written consent of NDC shall
have been obtained, and except as otherwise expressly contemplated herein,
either PMSI shall, or shall cause PMSI Database to, (i) operate the Acquired
Business and the Joint Venture Interest only in the usual, regular, and ordinary
course as previously operated by PMSI, (ii) use its reasonable efforts to
preserve intact the business organization of the Acquired Business and the
Acquired Assets and maintain its rights and franchises with respect to the
Acquired Business and the Joint Venture Interest; (iii) maintain the Acquired
Assets in their present order and condition, reasonable wear and use excepted,
and maintain all policies of insurance covering the Acquired Assets in amounts
and on terms substantially equivalent to those in effect on the date hereof;
(iv) take all steps reasonably necessary to maintain the Acquired Intellectual
Property and other intangible assets of the Acquired Business and the Joint
Venture Interest; (v) use reasonable best efforts to preserve the goodwill and
patronage of its customers, Employees, suppliers and others having a business
relationship with the Acquired Business and the Joint Venture Interest; and (vi)
take no action which would (A) 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 6.1(b) or 6.1(c), or (ii) materially adversely affect
the ability of any Party to perform its covenants and agreements under this
Agreement.
(e) Prior to or contemporaneous with the Closing, pursuant to the Source
Transfer Agreement, the terms and conditions of which will have been approved by
NDC, PMSI shall acquire (i) Source's business operated in Europe as of the
Closing Date (the "European Business"), (ii) all of the shares of PMSI held
A-16
<PAGE>
by Source or any Subsidiary of Source (the "Divestiture"), and (iii) all of the
stock of the Source Divestiture Subsidiaries. In connection with the
Divestiture, PMSI shall obtain a release of all obligations of Source under the
European Contracts.
(f) Prior to Closing, PMSI Database and PMSI shall use commercially
reasonable efforts to obtain Consents to the assignment of the PMSI Database
Contracts and any other Contracts to which PMSI, SLA or PMSI Database is a party
as required by the Contract in connection with the Contribution and the
transactions contemplated hereby. If, on the Closing Date, PMSI Database, SLA
and PMSI have not obtained any Consent discussed above after having used
commercially reasonable efforts to obtain such Consent or an attempted transfer
of any of the PMSI Database Contracts and any other Contracts to which PMSI or
SLA is a party would be ineffective or the failure to have such Consent would
adversely affect PMSI's or SLA's ability to convey any such Contract and the
failure to transfer such asset, either individually or in the aggregate, is not
reasonably likely to have a PMSI Database Material Adverse Effect, then such
Contracts shall constitute "Deferred Contracts" and shall not be transferred to
PMSI Database. After the Closing: (a) PMSI will (i) continue to use commercially
reasonable efforts to obtain the Consent and/or to remove any other impediments
to the assignment and transfer of each Deferred Contract and will assign and
transfer or cause SLA to assign and transfer each Deferred Contract to PMSI
Database within five (5) business days after the receipt of such Consent and/or
removal of such impediment; (ii) until the assignment and transfer with respect
to any Deferred Contract is accomplished, cooperate or cause SLA to cooperate
with PMSI Database in any lawful arrangement that is not unduly economically
burdensome (including performance by PMSI or SLA as agent) to provide that PMSI
Database shall receive the benefits of such Deferred Contract to the same extent
as if it were transferred to PMSI Database at Closing; and (iii) until the
assignment and transfer with respect to any Deferred Contract is accomplished,
enforce, at the request and for the account of PMSI Database, any of PMSI's or
SLA's rights thereto or interests therein against any other parties thereto
(including the right to terminate any such Deferred Contract in accordance with
its terms, provided that PMSI Database pays any cancellation or other fee due
upon such termination); and (b) if and only to the extent that PMSI Database
receives the benefits of a Deferred Contract, PMSI Database shall perform the
obligations of PMSI or SLA arising with respect to such Deferred Contract to the
extent that, by reason of consummation of the transactions contemplated by this
Agreement or the Source Agreement, PMSI Database has control over the resources
necessary to perform such obligations or, to the extent that PMSI Database does
not have such resources, to reimburse PMSI for the reasonable cost of such
performance. NDC shall notify PMSI on the Closing Date as to the PMSI Database
Contracts which will be performed by PMSI Database pursuant to this Section. To
the extent PMSI Database performs the obligations of PMSI with respect to any
Deferred Contract, any account receivable created on account of such performance
shall be deemed when created to be an Acquired Contract conveyed hereunder.
After the Closing, PMSI Database and NDC will act with reasonable diligence and
use commercially reasonable efforts to assist, and cooperate with, PMSI or SLA
in obtaining such Consents and removing any such impediments to the transfer of
the Deferred Contracts.
(g) Prior to Closing, all indebtedness or other obligations or accounts of
any kind between a PMSI Entity on the one hand and Source and its Subsidiaries
or PMSI Database on the other hand will have been paid in full and discharged.
4.2 NEGATIVE COVENANTS OF PMSI DATABASE AND PMSI. From the date of this
Agreement until the earlier of the Closing Date or the termination of this
Agreement, unless the prior written consent of NDC shall have been obtained, and
except as otherwise expressly contemplated herein, PMSI and PMSI Database
covenant and agree that they will not do or agree or commit to do any of the
following with respect to the Acquired Business and the Acquired Assets:
(a) amend the Certificate of Incorporation, Bylaws or other governing
instruments of PMSI Database, or
A-17
<PAGE>
(b) except as provided in the budget set forth in Section 4.2(b) of the
PMSI Database Disclosure Memorandum and only for the purposes set forth
therein, PMSI Database shall not incur any additional debt obligation,
capital lease obligation or other obligation for borrowed money or make any
capital expenditures in excess of an aggregate of $50,000 or impose, or
suffer the imposition, on any Acquired Asset 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 PMSI Database Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of PMSI Database, or declare or pay any dividend or make
any other distribution in respect of PMSI Database's capital stock; or
(d) except for this Agreement, 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 PMSI Database Common Stock, or any stock appreciation
rights, or any option, warrant, or other Equity Right of PMSI Database; or
(e) except for the Contribution, purchase or acquire any assets or
properties, whether real or personal, tangible or intangible, that if
acquired would be an Acquired Asset, and not sell, lease or otherwise
dispose of any real or personal property or asset (other than cash which may
be distributed or otherwise transferred out of PMSI Database to PMSI) that
would have been an Acquired Asset, in each case except in the ordinary
course of business and consistent with past practices; or
(f) adjust, split, combine or reclassify any capital stock of PMSI
Database or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of PMSI Database Common Stock; or
(g) 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, PMSI Database shall not 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, 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
(h) grant any increase in compensation or benefits to the Employees of
the Acquired Business, except in accordance with past practice disclosed in
Section 4.2(h) of the PMSI Database 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 4.2(h) of the PMSI Database Disclosure
Memorandum; and enter into or amend any severance agreements with Employees
of the Acquired Business; grant any material increase in fees or other
increases in compensation or other benefits to directors of PMSI Database
except in accordance with past practice disclosed in Section 4.2(h) of the
PMSI Database Disclosure Memorandum; or
(i) enter into or amend any employment Contract with any Employee of the
Acquired Business that PMSI does not and PMSI Database will not have the
unconditional right to terminate without Liability (other than Liability for
services already rendered), at any time on or after the Closing Date; or
(j) adopt any new employee benefit plan of PMSI Database; or
(k) make any significant change in any Tax or accounting methods or
systems of internal accounting controls with respect to PMSI Database or the
Acquired Business, except as may be appropriate to conform to changes in Tax
Laws or regulatory accounting requirements or GAAP; or
(l) commence any Litigation with respect to PMSI Database or the
Acquired Business other than in accordance with past practice, settle any
Litigation involving any Liability of the Acquired
A-18
<PAGE>
Business or the Acquired Assets for material money damages or restrictions
upon the operations of the Acquired Business or the Acquired Assets ; or
(m) enter into, materially modify or amend, or terminate any PMSI
Database Contract or other material Contract with respect to PMSI Database
or the Acquired Business (including any loan Contract with an unpaid balance
exceeding $50,000) or waive, release, compromise or assign any material
rights or claims; or
(n) modify or amend, or waive any provision of, the Source Transfer
Agreement, a fully executed copy of which which with all attachments,
exhibits and schedules thereto is attached hereto as Schedule 4.2(n).
4.3 COVENANTS OF NDC. From the date of this Agreement until the earlier of
the Closing Date or the termination of this Agreement, unless the prior written
consent of PMSI 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 6.1(b) or
6.1(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 Closing Date or materially hinder consummation of the Stock Purchase. NDC
further covenants and agrees that it will not, without the prior written consent
of PMSI, 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 PMSI Database Common Stock as compared to rights of holders of NDC
Common Stock generally as of the date of this Agreement. In addition, NDC
covenants and agrees that it shall maintain PMSI Database as its Subsidiary and
maintain substantially all of the Acquired Assets in PMSI Database for a period
of one year and will treat the Joint Venture Interest as a partnership for
federal income tax purposes during that one-year period.
4.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written notice
promptly to the other Parties 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 PMSI Database 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.
4.5 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 Closing Date 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 (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-19
<PAGE>
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT; PMSI 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 Stock Purchase. PMSI and PMSI Database shall
cooperate in the preparation and filing of the Registration Statement and shall
furnish all information concerning them and the holders of PMSI's capital stock
as NDC may reasonably request in connection with such action. PMSI shall call a
Stockholders' Meeting, 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, the Source Transfer Agreement and such
other related matters as it deems appropriate. In connection with the
Stockholders' Meeting, (i) PMSI shall prepare and file with the SEC a Proxy
Statement and mail such Proxy Statement to its stockholders, (ii) NDC shall
furnish to PMSI and PMSI Database all information that such may reasonably
request in preparation of such Proxy Statement and notice of meeting, (iii) the
Board of Directors of PMSI 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 PMSI, and (iv) the Board of Directors
and officers of PMSI shall use their reasonable efforts to obtain such
stockholders' approval. NDC and PMSI Database shall make all necessary filings
with respect to the Stock Purchase under the Securities Laws.
5.2 EXCHANGE LISTING. NDC shall use its reasonable efforts to list, prior
to the Closing Date, on the NYSE, subject to official notice of issuance, the
shares of NDC Common Stock to be issued to PMSI pursuant to the Stock Purchase,
and NDC shall give all notices and make all filings with the NYSE required in
connection with the transactions contemplated herein.
5.3 APPLICATIONS; ANTITRUST NOTIFICATION. NDC shall promptly prepare and
file, and PMSI Database and PMSI shall reasonably 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.
5.4 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 6; 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.
5.5 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Closing Date, NDC on the one hand and PMSI and PMSI
Database on the other hand shall keep each other advised of all material
developments relevant to their business and to
A-20
<PAGE>
consummation of the Stock Purchase and shall permit the other to make or cause
to be made such investigation of the business and properties of such and its
Subsidiaries and of their respective financial and legal conditions as the other
reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations.
(b) NDC on the one hand and PMSI and PMSI Database on the other hand shall,
and shall cause its advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other concerning its and its
Subsidiaries' businesses, operations, and financial positions except to the
extent such disclosure is required by law 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 Closing Date, 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.
(c) NDC on the one hand and PMSI and PMSI Database on the other hand agrees
to give the other notice as soon as practicable after any determination by it of
any fact or occurrence relating to the other 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
PMSI Database Material Adverse Effect or a NDC Material Adverse Effect, as
applicable.
5.6 PRESS RELEASES. Prior to the Closing Date, PMSI Database 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 5.6
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.
5.7 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, PMSI and PMSI Database shall not, and shall
use their best efforts to cause any Affiliate or any Representatives thereof
retained by PMSI or PMSI Database not to, directly or indirectly solicit any
Acquisition Proposal by any Person that relates specifically to the Acquired
Business or the Acquired Assets. Except to the extent the Board of Directors of
PMSI and PMSI Database, 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 the stockholders of PMSI under applicable law, PMSI,
PMSI Database, and any Affiliate or Representative thereof shall not 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 such
Acquisition Proposal. PMSI and PMSI Database shall promptly advise NDC following
the receipt of any such Acquisition Proposal and the details thereof, and advise
NDC of any developments with respect to such Acquisition Proposal promptly upon
the occurrence thereof. PMSI and PMSI Database 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.
5.8 CHARTER PROVISIONS. PMSI Database shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the
Stock Purchase and the other transactions contemplated hereby do not and will
not, except as set forth herein, result in the grant of any rights to any Person
under the Certificate of Incorporation, Bylaws or other governing instruments of
PMSI Database 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 PMSI Database that may be directly or indirectly acquired
or controlled by them.
5.9 AGREEMENT OF AFFILIATES. PMSI will not sell, pledge, transfer, or
otherwise dispose of the shares of PMSI Database Common Stock held by PMSI
except as contemplated by this Agreement and will not sell, pledge, transfer, or
otherwise dispose of the shares of NDC Common Stock to be received by
A-21
<PAGE>
PMSI upon consummation of the Stock Purchase 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 PMSI pursuant to this Agreement to enforce the
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 PMSI except as provided in the Registration
Rights Agreement. With respect to the NDC Common Stock to be received by PMSI
upon consummation of the Stock Purchase, NDC will provide PMSI with certain
registration rights pursuant to a registration rights agreement in substantially
the form of Exhibit 1 hereto (the "Registration Rights Agreement").
5.10 EMPLOYMENT OF EMPLOYEES. On the Closing Date, NDC shall offer
employment to those Employees of the Acquired Business listed on Schedule 2.13
of the PMSI Database Disclosure Memorandum. PMSI agrees to use its commercially
reasonable efforts to assist NDC in hiring such Employees and will use its
commercially reasonable efforts to make such Employees available to NDC. All
such Employees accepting NDC's offer of employment are hereinafter referred to
as the "Hired Employees." Except as otherwise provided herein, PMSI shall be
responsible for the payment of all earned but unpaid salaries, bonus, vacation
pay, sick pay, holiday pay, severance pay and other like obligations and
payments to the Employees for all periods ending on or prior to the Closing
Date. PMSI shall be responsible for the payment of any amounts due to its
Employees (including the Hired Employees) pursuant to the PMSI Benefit Plans as
a result of the employment of its Employees, and, in determining bonuses and
other similar payments due to Hired Employees for any period ended on or prior
to the Closing Date, PMSI shall, if payment thereof will occur after the Closing
Date and the applicable performance period has been completed prior to the
Closing Date, waive any requirement that such Employees be employees of PMSI on
the date such bonuses or other similar payments are paid. PMSI shall be
responsible for all incurred but unreported or unpaid medical claims occurring
prior to the Closing Date and for the cost associated with any hospital
confinement which commences prior to the Closing Date. NDC shall become
responsible for all costs and liabilities attributable to Hired Employees
accruing on and after the Closing Date; provided, however, that NDC shall not be
responsible for (a) liabilities arising under the PMSI Benefit Plans or (b)
liabilities associated with any leaves taken prior to the Closing Date in
connection with the Family and Medical Leave Act of 1993. Effective on the
Closing Date, PMSI shall, and hereby does, release all Hired Employees from any
employment and/or confidentiality agreement previously entered into between PMSI
and such Hired Employees relating to the Acquired Business to the extent (but
only to the extent) necessary for NDC to operate the Acquired Business in the
same manner as operated by PMSI prior to the Closing Date.
PMSI shall be responsible for complying with the requirements of Section
4980B of the Internal Revenue Code and Part VI of Title I of ERISA for the
Employees (including the Hired Employees, as defined in this Section 5.10) and
their "qualified beneficiaries" whose "qualifying event" (as such terms are
defined in Section 4980B of the Internal Revenue Code) occurs on or prior to the
Closing Date.
5.11 TAX MATTERS.
(a) PMSI and NDC shall make a timely election under Section338(h)(10) of the
Code and Section1.338(h)(10)-1 of the Treasury Regulations promulgated pursuant
to the Code, and any corresponding elections under state or local tax law. PMSI
and NDC shall (i) take, and cooperate with each other to take, all actions
necessary and appropriate (including, without limitation, the preparation,
completion and timely joint filing by PMSI and NDC of Form 8023-A, and the
preparation, completion and timely filing of such other forms, returns,
elections, schedules and other documents and instruments) to effect, perfect and
preserve a timely Section338(h)(10) election in accordance with
Section338(h)(10) of the Code and Section1.338(h)(10)-1 of the Treasury
Regulations promulgated pursuant to the Code, and (ii) report the purchase and
sale of the Shares consistent with the election pursuant to Section338(h)(10)
and shall take no position contrary thereto or inconsistent therewith in any Tax
Return, or in any discussion with or any proceeding before any taxing authority
or other governmental body or otherwise. In the event an election under
Section338(h)(10) is not available under the law of any state or locality but an
election can be made under Section 338(g) of the
A-22
<PAGE>
Code, such election shall be made in such state or locality and PMSI shall bear
the cost of any tax on PMSI Database related thereto (other than the cost of any
state tax for such election in the following states: Arizona, California,
Connecticut, Delaware, Illinois, New Jersey, New York and Pennsylvania).
(b) The Purchase Price and all other items that comprise the "modified
aggregate deemed sale price" (as defined in, and required to be allocated
pursuant to, Section 338(h)(10) of the Code) shall be allocated in accordance
with a schedule prepared by NDC and consented to by PMSI, which consent will not
be withheld or delayed unreasonably. Such allocation shall, for tax purposes, be
binding on PMSI Database, PMSI and NDC. PMSI Database, PMSI and NDC shall file
their respective Tax Returns in accordance with such allocation and shall not
take any position inconsistent with such allocation. In the event that such
allocation is disputed by any Tax authority, the party receiving notice of such
dispute shall promptly notify and consult with the other parties hereto
concerning resolution of such dispute and no such dispute shall be finally
settled or compromised without the mutual consent of the parties, which consent
will not be unreasonably withheld.
(c) NDC shall have the sole and exclusive authority to prepare, execute and
file on behalf of PMSI Database (A) the federal income tax returns to be filed
on behalf of PMSI Database for the period ending as of the close of business on
the Closing Date that will include the gain or loss resulting from the "deemed
sale" and "deemed liquidation" that will occur (pursuant to Treasury Regulation
Section1.338(h)(10)-1(e)(1) and (2) promulgated under the Code) by reason of
PMSI's and NDC's election pursuant to Section338(h)(10) of the Code and (B) the
corresponding state and local income tax returns to be filed on behalf of PMSI
Database for the period ending as of the close of business on the Closing Date.
PMSI, upon written notice of request to NDC, shall have the right to review and
consent to such returns prior to filing, which consent shall not be unreasonably
withheld or delayed.
5.12 JOINT MARKETING. The parties hereto agree that from the date of this
Agreement each will use its reasonable efforts to negotiate and enter into a
joint marketing arrangement for the purpose of jointly promoting their
respective businesses throughout the world.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of
each Party to perform this Agreement and consummate the Stock Purchase and the
other transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 9.6:
(a) STOCKHOLDER APPROVAL. The stockholders of PMSI shall have adopted
this Agreement and the Source Transfer Agreement, and the consummation of
the transactions contemplated hereby and thereby, including the Stock
Purchase in the manner described in the Proxy Statement. PMSI, as the sole
stockholder of PMSI Database shall have adopted this Agreement and the
consummation of the transactions contemplated hereby.
(b) REGULATORY APPROVALS. All Consents of, filings and registrations
with, and notifications to, all Regulatory Authorities required for
consummation of the transactions contemplated under this Agreement 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.
A-23
<PAGE>
(c) CONSENTS AND APPROVALS. Each Party shall have obtained any and all
Consents required for consummation of the transactions contemplated under
this Agreement (other than those referred to in Section 6.1(b)), including
those Consents listed in Sections 2.2 and 2.3 of the PMSI Database
Disclosure Memorandum and Section 3.2 of the NDC Disclosure Memorandum 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 PMSI Database 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, trading or resale of the shares of NDC Common Stock issuable
pursuant to the Stock Purchase shall have been received.
(f) EXCHANGE LISTING. The shares of NDC Common Stock issuable pursuant
to the Stock Purchase shall have been approved for listing on the NYSE,
subject to official notice of issuance.
6.2 CONDITIONS TO OBLIGATIONS OF NDC. The obligations of NDC to perform
this Agreement and consummate the Stock Purchase and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by NDC pursuant to Section 9.6(a):
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section 6.2(a),
the accuracy of the representations and warranties of PMSI Database and PMSI
set forth in this Agreement shall be assessed as of the date of this
Agreement and as of the Closing Date with the same effect as though all such
representations and warranties had been made on and as of the Closing Date
(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 2.4 shall be true and correct (except for
inaccuracies which are de minimis in amount). The representations and
warranties set forth in Sections 2.20 and 2.21 shall be true and correct in
all material respects. There shall not exist inaccuracies in the
representations and warranties of PMSI Database and PMSI set forth in this
Agreement (including the representations and warranties set forth in
Sections 2.4, 2.20 and 2.21) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a PMSI Database 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 PMSI Database and PMSI to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Closing Date shall have been duly performed
and complied with in all material respects.
(c) CERTIFICATES. Each of PMSI and PMSI Database shall have delivered to
NDC (i) a certificate, dated as of the Closing Date 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 6.1 as relates to PMSI or
PMSI Database, respectively, and in Section 6.2(a) and 6.2(b) have been
satisfied, and (ii) certified
A-24
<PAGE>
copies of resolutions duly adopted by each of PMSI's and PMSI Database's
Board of Directors and stockholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of
this Agreement by such Party, 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 Willkie
Farr & Gallagher, counsel to PMSI, or the General Counsel of PMSI dated as
of the Closing, in form reasonably satisfactory to NDC, as to the matters
set forth in Exhibit 2.
(e) NONCOMPETITION AGREEMENT. PMSI shall have executed and delivered to
NDC a noncompetition agreement in substantially the form of Exhibit 3 (the
"Noncompetition Agreement").
(f) SOURCE AGREEMENT. All conditions to the closing of the transactions
contemplated under the Source Agreement shall have been satisfied or waived
and the consummation of such transaction shall have occurred concurrently
with the Closing.
(g) SOURCE TRANSFER AGREEMENT. All conditions to the closing of the
transactions contemplated under the Source Agreement shall have been
satisfied in all material respects and the consummation of such transaction
shall have occurred concurrently with the Closing.
(h) EUROPEAN CONTRACT RELEASES. Source shall have been released from any
and all obligations under the European Contracts to the reasonable
satisfaction of NDC.
(i) CONSENTS. PMSI and any of its Subsidiaries which is a party thereto
shall have received the Consent of all third parties to the assignment of,
or the release of PMSI or under, those Contracts listed in Section 6.2(i) of
the NDC Disclosure Memorandum for the transactions contemplated herein.
(j) SLA LETTER AGREEMENT. SLA shall have executed and delivered to NDC a
letter agreement substantially in the form of Exhibit 4 hereto.
6.3 CONDITIONS TO OBLIGATIONS OF PMSI DATABASE AND PMSI. The obligations
of PMSI Database and PMSI to perform this Agreement and consummate the Stock
Purchase and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by PMSI pursuant to
Section 9.6(b):
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section 6.3(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
Closing Date with the same effect as though all such representations and
warranties had been made on and as of the Closing Date (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 3.3, 3.4 and 3.10 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 discussed above and set forth in Sections
3.3, 3.4 and 3.10) 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.
A-25
<PAGE>
(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
Closing Date shall have been duly performed and complied with in all
material respects.
(c) CERTIFICATES. NDC shall have delivered to PMSI (i) a certificate,
dated as of the Closing Date 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 6.1 as relates to NDC and in Section 6.3(a) and 6.3(b)
have been satisfied, and (ii) certified copies of resolutions duly adopted
by NDC's Board of Directors 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 PMSI and its counsel shall request.
(d) OPINION OF COUNSEL. PMSI shall have received an opinion of the
General Counsel of NDC or Alston & Bird LLP, counsel to NDC, dated as of the
Closing Date, in form reasonably acceptable to PMSI Database, as to the
matters set forth in Exhibit 5.
(e) REGISTRATION RIGHTS AGREEMENT. NDC shall have executed and delivered
to PMSI the Registration Rights Agreement.
(f) NDC NONCOMPETITION AGREEMENT. NDC shall have executed and delivered
to PMSI a noncompetition agreement substantially in the form of Exhibit 6
hereto.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION.
(a) AGREEMENT OF PMSI TO INDEMNIFY. Subject to the terms and conditions of
this Article 7, PMSI agrees to indemnify, defend, and hold harmless NDC and its
officers, directors, stockholders, controlling persons, Affiliates and
Representatives, 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:
(i) the inaccuracy, untruth, incompleteness or breach of any
representation or warranty of PMSI or PMSI Database contained in or made
pursuant to this Agreement or in any certificate, Schedule, or Exhibit
furnished by PMSI or PMSI Database in connection herewith (except that PMSI
shall not be obligated to indemnify NDC for Losses arising out of the
termination or cancellation of a PMSI Database Contract by a third party
prior to Closing; provided that such termination or cancellation was not due
to any breach of such Contract by PMSI Database or PMSI), and for purposes
of this Section 7.1(a)(i) 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;
(ii) a breach of or failure to perform any covenant or agreement of PMSI
or PMSI Database made in this Agreement;
(iii) any Retained Liability; and
(iv) the European business of Source, to be acquired by PMSI pursuant to
the Source Transfer Agreement.
A-26
<PAGE>
(b) AGREEMENT OF NDC TO INDEMNIFY. Subject to the terms and conditions of
this Article 7, NDC agrees to indemnify, defend, and hold harmless PMSI and its
officers, directors, stockholders, controlling persons, Affiliates and
Representatives, 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:
(i) the inaccuracy, untruth, incompleteness or breach of any
representation or warranty of NDC contained in or made pursuant to this
Agreement or in any certificate, Schedule, or Exhibit furnished by NDC in
connection herewith and for purposes of this Section 7.1(b)(i) 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;
(ii) a breach of or failure to perform any covenant or agreement of NDC
made in this Agreement;
(iii) any Assumed Liability.
7.2 PROCEDURES FOR INDEMNIFICATION. As used herein, the term "Indemnitor"
means the party against whom indemnification hereunder is entitled to be sought,
and the term "Indemnitee" means the party entitled to seek indemnification
hereunder.
(a) An Indemnification Claim shall be made by an Indemnitee by delivery of a
written notice to the Indemnitor 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 7.3 shall be observed by the Indemnitee and the Indemnitor.
(c) If the Indemnification Claim involves a matter other than a Third Party
Claim, the Indemnitor 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 Indemnitor, and the Indemnification Claim shall be paid in accordance with
subsection (d) hereof. If an objection is timely interposed by the Indemnitor
and the dispute is not resolved by such Indemnitee and the Indemnitor within 15
days from the date the Indemnitee receives such objection, such dispute shall be
resolved by arbitration as provided in Section 7.9.
(d) Upon determination of the amount of an Indemnification Claim, whether by
agreement between the Indemnitor and the Indemnitee or by an arbitration award
or by any other final adjudication, shall be paid by the Indemnitor within ten
days of the date such amount is determined.
7.3 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 Indemnitor written notice of a Third
Party Claim promptly after receipt by the Indemnitee of notice thereof, and
the Indemnitor 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 Indemnitor of such
claim shall not relieve the Indemnitor of any liability that it may have
with respect to such claim except to the extent the Indemnitor 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 Indemnitor shall be an acknowledgment of the obligation of the
Indemnitor to indemnify the Indemnitee with respect to such claim hereunder.
If the Indemnitee desires to participate in, but not control, any such
defense,
A-27
<PAGE>
compromise and settlement, it may do so at its sole cost and expense. If,
however, the Indemnitor 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 Indemnitor 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 7.2 which shall be deemed an Indemnification Claim that is not a
Third Party Claim for the purposes of the procedures set forth herein.
(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 Indemnitor, and the costs and expenses of the Indemnitee
in connection therewith shall be included as part of the indemnification
obligations of the Indemnitor hereunder. If the Indemnitee shall elect to
exercise such right, the Indemnitor 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 an Indemnitor under this Article shall be made without the
prior written consent by or on behalf of the Indemnitor, 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 Indemnitor has not
responded within five business days of notice of a proposed settlement. If
the Indemnitor assumes the defense of such a Third Party Claim, (a) no
compromise or settlement thereof may be effected by the Indemnitor 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 Indemnitor,
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).
7.4 SURVIVAL. Subject to Section 7.5, 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.
7.5 TIME LIMITATIONS. PMSI and PMSI Database, on the one hand, and NDC, on
the other hand, will have no liability to the other party under or in connection
with: (a) a breach of any of the representations, warranties, covenants or
agreements made or to be performed by such party contained in this Agreement
unless written notice asserting an Indemnification Claim based thereon is given
to the other party prior to August 31, 1999; provided, however, the liability of
PMSI relating to, arising out of or
A-28
<PAGE>
based upon Section 7.1(a)(iii), 7.1(a)(iv) hereof, and the liability of NDC
relating to, arising out of or based upon Section 7.1(b)(iii), may be asserted
at any time.
7.6 LIMITATIONS AS TO AMOUNT.
(a) Except as provided in Sections 1.2 and 1.4 herein, neither PMSI nor NDC
shall have any liability with respect to the matters described in clauses (a)(i)
or (a)(ii) with respect to PMSI and (b)(i) and (b)(ii) with respect to NDC of
Section 7.1 until the total of all Losses with respect thereto exceeds $30,000
(the "Threshold Amount") in which event PMSI or NDC, as the case may be, shall
be obligated to indemnify as provided in this Article 7 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 $30,000
threshold has been reached.
(b) The aggregate liability of PMSI under Sections 7.1(a)(i) and 7.1(a)(ii)
(other than Sections 1.2 and 1.4) and NDC under Sections 7.1(b)(i) and
7.1(b)(ii) (other than Sections 1.2 and 1.4) hereof shall not exceed $1,000,000
(the "Maximum Amount").
(c) The Threshold Amount and Maximum Amount limitations shall not apply to
the indemnification rights of the parties hereto for any liability under
Sections 1.2, 1.4, 7.1(a)(iii), 7.1(a)(iv) and 7.1(b)(iii) hereof and the
payment of such amounts by PMSI or NDC shall not count toward the calculation of
the Maximum Amount.
7.7 TAX EFFECT AND INSURANCE. The liability of an Indemnitor with respect
to any Indemnification Claim shall be reduced by the tax benefit actually
realized and any insurance proceeds received by the Indemnitee as a result of
any Losses upon which such Indemnification Claim is based, and shall include any
tax detriment actually suffered by the Indemnitee 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 Indemnitor 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 this Section 7.9 of this Agreement.
7.8 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 Indemnitor 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.
7.9 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 PMSI 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 PMSI, NDC and the arbitrator). The decision of the arbitrator shall
be final and binding as to any matters submitted under this Article 7; provided,
however, if necessary, such decision and satisfaction procedure may be enforced
by either PMSI 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 Indemnitor and the Indemnitee. If the arbitrator's
decision is a compromise, the determination of which party or parties bears the
costs and expenses
A-29
<PAGE>
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.
ARTICLE 8
TERMINATION
8.1 TERMINATION. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the stockholders of PMSI
and PMSI Database, this Agreement may be terminated and the Stock Purchase
abandoned at any time prior to the Closing Date:
(a) By mutual consent of NDC and PMSI; 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, individually or in the aggregate, a PMSI Database 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 Stock Purchase 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 PMSI or PMSI Database fail to vote their approval of the
matters relating to this Agreement and the Source Transfer Agreement and the
transactions contemplated hereby and thereby at the Stockholders' Meeting
where such matters were presented to such stockholders for approval and
voted upon in accordance with the procedure set forth in the Proxy
Statement; or
(e) By either Party in the event that the Stock Purchase 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 8.1(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
Stock Purchase cannot be satisfied or fulfilled by the date specified in
Section 8.1(e); or
(g) By NDC, in the event that the Board of Directors of PMSI or PMSI
Database shall have failed to reaffirm their approval of the Stock Purchase
and the transactions contemplated by this Agreement (to the exclusion of any
other Acquisition Proposal), or shall have resolved not to reaffirm the
Stock Purchase, or shall have affirmed, recommended or authorized entering
into any other Acquisition Proposal or other transaction involving a Stock
Purchase, share exchange, consolidation or transfer of substantially all of
the Acquired Assets; or
A-30
<PAGE>
(h) By PMSI if the Average Closing Price on the Determination Date of
shares of NDC Common Stock shall be less than the Lower Threshold Price;
SUBJECT, HOWEVER, to the following three sentences. If PMSI elects to refuse
to consummate the Stock Purchase pursuant to this Section 8.1(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 Base Amount to equal that number of shares of NDC
Common Stock (rounded to the nearest whole share) obtained by dividing the
product of the Base Amount and the Lower Threshold Price by the Average
Closing Price. If NDC makes an election contemplated by the preceding
sentence, within such five-day period, it shall give prompt written notice
to PMSI of such election and the revised Base Amount, whereupon the
condition to consummation provided in this Section 8.1(h) shall be deemed to
be satisfied and this Agreement shall remain in effect in accordance with
its terms (except as the Base Amount shall have been so modified), and any
references in this Agreement to "Base Amount" shall thereafter be deemed to
refer to the Base Amount as adjusted pursuant to this Section 8.1(h).
8.2 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement pursuant to Section 8.1, this Agreement shall become void and
have no effect, except that (i) the provisions of this Section 8.2 and Article 9
and Section 5.5(b) shall survive any such termination and abandonment, and (ii)
a termination pursuant to Sections 8.1(b), 8.1(c) or 8.1(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 9
MISCELLANEOUS
9.1 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.
"ACCOUNTS RECEIVABLE" shall mean all accounts, notes and other receivables.
"ACCRUED BONUSES" shall mean the amount equal to that percentage of budgeted
annual bonuses which shall equal the ratio of the earnings of the Joint Venture
Interest through the Closing Date to budgeted earnings for the full fiscal year.
All budgeted amounts used herein to be as set forth in Schedule 4.2(b) of the
Source Disclosure Memorandum.
"ACQUIRED BUSINESS" shall mean the business and assets related to the
Over-the-Counter Business and the Research Solutions Group.
"ACQUISITION PROPOSAL" with respect to (X) PMSI Database, 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 PMSI Database or the acquisition of a substantial equity interest
in, or a substantial portion of the assets of, PMSI Database and (y) PMSI, shall
mean any proposal for an acquisition of the Acquired Assets or the Joint Venture
Interest.
"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 or; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person.
A-31
<PAGE>
"AGREEMENT" shall mean this Stock Purchase Agreement, 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 as of 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.
"ASSUMED LIABILITIES" means (a) the liabilities of PMSI Database of the type
and in the amounts included in the Closing Balance Sheet and set forth in
Section 2.6 and 2.7 of the PMSI Database Disclosure Memorandum, (b) the
obligations arising after the Closing Date under the Acquired Contracts and (c)
the liabilities arising after and resulting from events following the Closing
Date with respect to the Acquired Business, the Acquired Assets and the Joint
Venture Interests.
"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 Determination Date.
"CLOSING BALANCE SHEET" shall mean the balance sheet for PMSI Database as of
the Closing Date delivered by NDC to PMSI.
"CLOSING DATE" shall mean a date on which the parties mutually agree.
"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.
"CONTRIBUTION" shall mean the contribution of the Acquired Assets and the
Joint Venture Interest by PMSI and its Subsidiaries to PMSI Database as
contemplated herein.
"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 PMSI Database
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.
A-32
<PAGE>
"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.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EUROPEAN CONTRACTS" shall mean all material Contracts relating to the
European Business of Source to which a Source Entity is a party, or under which
a Source Entity has obligations contingent or otherwise.
"EXHIBITS" 1 through 6, 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.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"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
7.
"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 INTEREST" means all right, title and interest of PMSI in the
Amended and Restated Alphabase Data License Agreement.
"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
A-33
<PAGE>
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 "NDC
Corporation Disclosure Memorandum" delivered prior to the date of this Agreement
to PMSI Database 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 its 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 the 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 Stock
Purchase 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 PMSI 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.
A-34
<PAGE>
"NDC PREFERRED STOCK" shall mean the $1.00 par value preferred stock of NDC.
"NDC RIGHTS" shall mean the preferred stock purchase rights issued pursuant
to the NDC Rights Agreement.
"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 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 Closing Date.
"NYSE" shall mean the New York Stock Exchange, Inc.
"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.
"OTC BALANCE SHEET" shall mean the balance sheet of the Acquired Business as
of March 31, 1997.
"OTC FINANCIAL STATEMENTS" shall mean the OTC Balance Sheet (including
related notes and schedules, if any), and the related statement of income
(including related notes and schedules, if any) with respect to period ended
March 31, 1997.
"OTHER ASSETS" shall mean all goods or assets of any kind or nature,
tangible or intangible, other than Personal Property, Contracts, Accounts
Receivable, Intellectual Property and Permits.
"OVER-THE-COUNTER BUSINESS" shall mean the business currently operated by
PMSI or any of its Subsidiaries relating to the development, use or exploitation
of over-the-counter medicine databases.
"PARTY" shall mean either PMSI, PMSI Database or NDC, and "PARTIES" shall
mean all of PMSI, PMSI Database 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.
"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.
"PERSONAL PROPERTY" shall mean equipment, tools, computers, terminals, point
of sale terminals, computer equipment, office equipment, furniture, business
machines, telephones and telephone systems, parts, accessories and other items
of personal property.
"PMSI" shall mean PMSI, Inc., a Delaware corporation.
"PMSI BENEFIT PLAN" shall include any pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plan, any other written employee program,
arrangement or agreement, any medical, vision, dental or other health plan, any
life insurance plan, and any other employee benefit plan or fringe benefit plan,
including any "employee benefit plan" as that term is defined in Section 3(3) of
ERISA, which is or, within the 6 years preceding the Closing Date, has been
adopted, maintained, sponsored in whole or in part by or contributed to by PMSI
Database or PMSI for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries.
"PMSI DATABASE BALANCE SHEET" shall mean the balance sheet of the Acquired
Business and the Joint Venture Interest dated March 31, 1997.
A-35
<PAGE>
"PMSI DATABASE COMMON STOCK" shall mean the $0.01 par value common stock of
PMSI Database.
"PMSI DATABASE DISCLOSURE MEMORANDUM" shall mean the written information
entitled "PMSI Database 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.
"PMSI DATABASE FINANCIAL STATEMENTS" shall mean the PMSI Database Balance
Sheet (including related notes and schedules, if any) and the related statements
of income, changes in stockholders' equity, and cash flows (including related
notes and schedules, if any) with respect to period ended March 31, 1997.
"PMSI DATABASE 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 PMSI Database and its Subsidiaries, taken
as a whole, or (ii) the ability of PMSI Database to perform its obligations
under this Agreement or to consummate the Stock Purchase 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 PMSI Database (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 PMSI Database, including expenses incurred by PMSI Database in
consummating the transactions contemplated by this Agreement.
"PMSI ENTITY" shall mean PMSI and its Subsidiaries.
"PRIME RATE" shall mean the rate of interest per annum publicly announced
from time to time in the WALL STREET JOURNAL.
"PROXY STATEMENT" shall mean the proxy statement used by PMSI to solicit the
approval of its stockholders of the transactions contemplated by this Agreement
and the Source Transfer Agreement.
"PURCHASE PRICE" shall mean the total consideration to be paid to PMSI by
NDC for the purchase of the PMSI Database Common Stock pursuant to Section 1.1
of this Agreement as adjusted pursuant to Sections 1.2 and 1.4 hereof.
"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 PMSI Database 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.
"RETAINED LIABILITY" shall mean all Liabilities and obligations of PMSI or
its Affiliates whether known or unknown, absolute, contingent, or otherwise, and
whether or not related to the Acquired Business, the Acquired Assets, and the
Joint Venture Interest other than Assumed Liabilities, including
A-36
<PAGE>
but not limited to (i) any Liability or obligation arising or accruing under any
Contract, including the Amended and Restated Alpha Database License Agreement,
prior to the Closing Date and any Liability or obligation arising from or
related to any breach or violation by PMSI or its Affiliates under any provision
of any Contract prior to the Closing Date; (ii) any Liability of PMSI with
respect to any claim or cause of action, regardless of when made or asserted,
which arises out of or in connection with the operation of the Acquired Business
by PMSI or PMSI Database prior to the Closing Date; and (iii) any Liability of
PMSI for the payment of Taxes relating to the Acquired Business, the Joint
Venture Interest or the Acquired Assets relating to periods prior to the Closing
Date except to the extent reflected in the Closing Balance Sheet and Schedules.
"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.
"SLA" shall mean PMSI Scott-Levin, Inc., a New Jersey corporation.
"SOURCE ENTITY" shall mean Source and its Subsidiaries other than the Source
Divestiture Subsidiaries.
"SOURCE DIVESTITURE SUBSIDIARIES" shall mean the European Subsidiaries of
Source which are to be sold to PMSI under the Source Transfer Agreement.
"SOURCE TRANSFER AGREEMENT" means that certain Securities Transfer
Agreement, dated as of the date hereof, between Source and PMSI.
"STOCKHOLDERS' MEETING" shall mean the meeting of the stockholders of PMSI
to be held pursuant to Section 5.1, including any adjournment or adjournments
thereof.
"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 PMSI (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 the sole general partner or the managing general partner, (iii) in the case
of a limited liability company, serves as the sole managing member, or (iv)
otherwise has the ability to elect a majority of the directors, trustees or
managing members (or Persons performing similar functions) thereof.
"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.
A-37
<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:
<TABLE>
<S> <C>
Base Amount Section 1.1
Cash Amount Section 1.1(a)
Closing Section 1.6
Closing Balance Sheet Section 1.3(a)
Closing Current Assets Section 1.3(a)
Closing Current Liabilities Section 1.3(a)
Closing Working Capital Section 1.3(a)
Current Asset Allocation Amount Section 1.4(c)
Current Assets Section 1.2(a)
Current Liabilities Section 1.2(a)
Disputed Amounts Section 1.3(c)
Divestiture Section 4.1(e)
Employees Section 2.13
Estimated Current Assets Section 1.2(a)
Estimated Current Liabilities Section 1.2(a)
Estimated Working Capital Section 1.2(a)
Estimated Working Capital Adjustment Section 1.2(c)
ERISA Affiliate Section 2.14
European Business Section 4.1(e)
European Contracts Section 2.15
Exchange Agent Section 4.1
Final Current Assets Section 1.4(a)
Final Current Liabilities Section 1.4(a)
Final Working Capital Section 1.4(a)
Final Working Capital Deficit Section 1.4(a)
Final Working Capital Surplus Section 1.4(a)
Hired Employees Section 5.11
Indemnitee Section 7.2
Indemnitor Section 7.2
Lower Threshold Price Section 1.1(b)
Maximum Amount Section 7.6
NDC SEC Reports Section 3.4(a)
Noncompetition Agreement Section 6.2(g)
PMSI Database Contracts Section 2.15
Preliminary Balance Sheet Section 1.2(a)
Registration Rights Agreement Section 5.10
Shares Preamble
Stock Purchase Section 1.1
Source Preamble
Source Agreement Preamble
Threshold Amount Section 7.6
Threshold Prices Section 1.1(b)
Total Combined Assets Section 1.4(b)
Total Current Assets Section 1.4(b)
Total Current Liabilities Section 1.4(b)
Total Working Capital Deficit Section 1.4(b)
Total Working Capital Surplus Section 1.4(b)
Upper Threshold Price Section 1.1(b)
Working Capital Section 1.2
</TABLE>
A-38
<PAGE>
(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."
9.2 EXPENSES.
(a) Except as otherwise provided in this Section 9.2, 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 NDC and PMSI shall bear and pay one-half of the
filing fees payable in connection with the HSR Act.
(b) Notwithstanding the foregoing, if this Agreement is terminated by NDC
pursuant to Section 8.1(d)(ii) (as relates to approval of PMSI or PMSI's
stockholders),
then PMSI Database shall promptly pay NDC all the out-of-pocket costs and
expenses of NDC relating to this Agreement and the Source Agreement not to
exceed $750,000, including costs of counsel, investment bankers, actuaries and
accountants.
(c) Nothing contained in this Section 9.2 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.
9.3 BROKERS AND FINDERS. Except for Cowen & Company as to PMSI Database and
PMSI 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 PMSI Database or PMSI or by NDC, each of PMSI
Database and PMSI 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.
9.4 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
Article 7 with respect to Indemnitees. THIS AGREEMENT DOES NOT CONSTITUTE AN
AGREEMENT BETWEEN THE PARTIES NOR SHALL IT BE USED AS EVIDENCE OF SUCH AGREEMENT
UNTIL THIS AGREEMENT HAS BEEN EXECUTED BY THE PARTIES.
9.5 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 there shall
be made no amendment that pursuant to Section 251 of the DGCL requires further
approval by such stockholders without the further approval of such stockholders.
9.6 WAIVERS.
(a) Prior to or at the Closing Date, 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
PMSI Database or PMSI, to waive or extend the time for the compliance or
fulfillment by PMSI Database or PMSI 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
A-39
<PAGE>
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 Closing Date, PMSI, 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 PMSI Database and the PMSI 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 PMSI.
(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.
9.7 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.
9.8 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:
<TABLE>
<S> <C>
PMSI Database or PMSI: Pharmaceutical Marketing Services Inc.
45 Rockefeller Plaza
9th Floor
New York, New York 10111
Telecopy Number: (212) 841-5760
Attention: Warren Hauser, Esq.
Copy to Counsel: Willkie Farr & Gallagher
45th Floor, Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopy Number: (212) 821-8111
Attention: William Grant, Esq.
NDC: National Data Corporation
One National Data Plaza
Atlanta, Georgia 30329
Telecopy Number: (404) 728-2990
Attention: E. Michael Ingram, Esq.
</TABLE>
A-40
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
9.9 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.
9.10 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.
9.11 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.
9.12 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.
9.13 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.
9.14 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-41
<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:
----------------------------------------
Name:
Title:
PMSI DATABASE HOLDINGS, INC.
By:
----------------------------------------
Name:
Title:
PHARMACEUTICAL MARKETING
SERVICES INC.
By:
----------------------------------------
Name:
Title:
A-42
<PAGE>
APPENDIX B
SECURITIES TRANSFER AGREEMENT
AND
PHARMACEUTICAL MARKETING SERVICES INC.
AND
SOURCE INFORMATICS INC.
------------------------
DATED AS OF AUGUST 20, 1997
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I................................................................................ 1
Section 1.1. General................................................................. 1
ARTICLE II............................................................................... 10
Section 2.1. Transfer of Membership Interests........................................ 10
Section 2.2. Escrow.................................................................. 10
Section 2.3. Closing................................................................. 11
Section 2.4. Cash Amount............................................................. 11
Section 2.5. PMSI Shares............................................................. 11
ARTICLE III.............................................................................. 11
Section 3.1. Organization, Standing, and Power....................................... 11
Section 3.2. Authority of Source; No Breach By Agreement............................. 12
Section 3.3. Capital Stock; Stock Ownership.......................................... 12
Section 3.4 SE Subsidiaries......................................................... 13
Section 3.5. Financial Statements and Budget......................................... 14
Section 3.6. Absence of Undisclosed Liabilities...................................... 14
Section 3.7. Absence of Certain Changes or Events.................................... 15
Section 3.8. Tax Matters............................................................. 16
Section 3.9. Assets.................................................................. 17
Section 3.10. Intellectual Property................................................... 18
Section 3.11. Environmental Matters................................................... 19
Section 3.12. Compliance with Laws.................................................... 20
Section 3.13. Labor Relations......................................................... 21
Section 3.14. Employee Benefit Plans.................................................. 21
Section 3.15. Material Contracts...................................................... 22
Section 3.16. Legal Proceedings....................................................... 23
Section 3.17. Statements True and Correct............................................. 23
Section 3.18. Tax and Regulatory Matters.............................................. 24
Section 3.19. Licenses, Permits and Governmental Approvals............................ 24
Section 3.20. Transactions with Directors, Officers and Affiliates.................... 24
Section 3.21. Brokers and Finders..................................................... 25
Section 3.22. Stock Collateral........................................................ 25
Section 3.23. 1988 Budget............................................................. 25
ARTICLE IV............................................................................... 25
Section 4.1. Authority of PMSI; No Breach By Agreement............................... 25
Section 4.2. Investment Intent....................................................... 26
Section 4.3. Brokers and Finders..................................................... 26
ARTICLE V................................................................................ 27
Section 5.1. Access and Information.................................................. 27
Section 5.2. Conduct of Business..................................................... 27
Section 5.3. Reasonable Efforts...................................................... 27
Section 5.4. Governmental Filings.................................................... 28
Section 5.5. Proxy Statement......................................................... 28
Section 5.6. Notification of Certain Matters......................................... 28
Section 5.7. Transaction Documents................................................... 28
Section 5.8. Settlement of Intercompany Accounts at Closing.......................... 29
Section 5.9. Amendments to Transaction Documents..................................... 29
Section 5.10. Additional Shares....................................................... 29
Section 5.11. Database................................................................ 29
</TABLE>
B-i
<PAGE>
<TABLE>
<S> <C> <C>
Section 5.12. Line of Credit.......................................................... 29
Section 5.13. Provision of Corporate Records; Access to Information................... 31
Section 5.14 Production of Witnesses................................................. 32
Section 5.15 Press Releases.......................................................... 32
Section 5.16 Confidentiality......................................................... 32
ARTICLE VI............................................................................... 32
Section 6.1. Conditions to Obligations of PMSI....................................... 32
Section 6.2. Conditions to Obligations of Source US.................................. 35
ARTICLE VII.............................................................................. 36
Section 7.1. Termination............................................................. 36
Section 7.2. Procedure Upon Termination.............................................. 37
ARTICLE VIII............................................................................. 37
Section 8.1. Survival................................................................ 37
Section 8.2. Expenses................................................................ 37
Section 8.3. Consent to Amendments................................................... 37
Section 8.4. Successors and Assigns.................................................. 38
Section 8.5. Notices................................................................. 38
Section 8.6. Descriptive Headings.................................................... 38
Section 8.7. Governing Law........................................................... 39
Section 8.8. Counterparts............................................................ 39
Section 8.9. Third Party Beneficiaries............................................... 39
Section 8.10. Severability............................................................ 39
Section 8.11. Entire Agreement........................................................ 39
EXHIBITS
Exhibit A Software License Agreement
Exhibit B Transition Services Agreement
Exhibit C PMSI Scott Levin Agreement
Exhibit D Escrow Agreement
Exhibit E Pledge Agreement
Exhibit F Form of Note
SCHEDULES
Schedule 1.1 1998 Budget
Schedule 3.2 Source US--Required Consents
Schedule 3.4 SE Subsidiaries; Investments in Other Persons
Schedule 3.5(b) Amendments to 1997 Budget
Schedule 3.6(b) Liabilities Paid or Incurred Since March 31, 1997
Schedule 3.7 Certain Changes or Events
Schedule 3.8(a) Tax Audit, Examination, Deficiency or Refund Litigation
Schedule 3.8(e) Tax Allocation or Sharing Agreement
Schedule 3.8(g) Certain Tax Payments
Schedule 3.9(a) Assets--Liens and Title
Schedule 3.9(b) Contracts Relating to Assets to be Transferred by Source US
Schedule 3.9(d) Insufficiency of Assets
Schedule 3.10 Intellectual Property
Schedule 3.12 Permits
Schedule 3.14 Employee Benefit Matters
Schedule
3.15(b) Material Contracts to be Assigned by Source US
</TABLE>
B-ii
<PAGE>
SECURITIES TRANSFER AGREEMENT ("Agreement"), dated as of August 20, 1997, by
and between Pharmaceutical Marketing Services Inc., a Delaware corporation
("PMSI"), and Source Informatics Inc., a Delaware corporation ("Source US").
WHEREAS, Source US will be the sole member of Source Informatics European
Holdings L.L.C., a limited liability company to be organized in the State of
Delaware ("Source Europe");
WHEREAS, Source US has entered into that certain Agreement and Plan of
Merger, dated as of even date hereof, with National Data Corporation, a Delaware
corporation ("NDC"), pursuant to which a wholly-owned subsidiary of NDC will be
merged (the "Merger") with and into Source US (the "NDC-Source Transaction");
WHEREAS, PMSI has entered into that certain Stock Purchase Agreement, dated
as of even date hereof, with NDC, pursuant to which PMSI will sell to NDC all
outstanding shares of capital stock of PMSI Database Holdings, Inc. (the
"NDC-PMSI Transaction" and together with the NDC-Source Transaction, the "NDC
Transactions");
WHEREAS, Source US desires to transfer to PMSI on the Closing Date all of
the issued and outstanding membership interests of Source Europe (the
"Membership Interests"), such transfer to take place simultaneously with the
closings of the NDC Transactions, in consideration of the payment of the
Budgeted Post August Loans.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. GENERAL. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be applicable equally to both
singular and plural forms of the terms defined):
"Additional Source Stock Collateral" shall mean such number of shares of
common stock of Source Informatics America Inc. having an aggregate value equal
to the product of 133% and the Incremental Amount approved by PMSI and available
to Source under the Line of Credit. For purposes of the foregoing determination,
Source Informatics America Inc. shall be deemed to have an equity value of $80
million.
"Adjusted Source Stock Collateral" shall mean such number of shares of
common stock of Source Informatics America Inc. having an aggregate value equal
to the product of 133% and the amount of the Term Loan. For purposes of the
foregoing determination, Source Informatics America Inc. shall be deemed to have
an equity value of $80 million.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) of such
Person.
"Agreement" means this Securities Transfer Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with its
terms.
"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,
B-1
<PAGE>
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.
"Associate", in respect of any Person, means (a) any issue, spouse, sibling,
spouse of a sibling, parent, grandparent, a parent or grandparent of any spouse
of such Person, or spouse of a sibling of such Person, (b) any corporation,
partnership, joint venture or other entity of which such Person, any Person
described in clause (a) above or any combination of the foregoing is a general
partner or is, directly or indirectly, through one or more intermediaries, the
beneficial owner of 10% or more of (i) any class or type of equity securities or
other profits interest or (ii) the combined voting power of interests ordinarily
entitled to vote for the election of directors to the board of directors of such
Person or similar governing body, and (c) any trust or other estate in which
such Person, any Person described in clause (a) above or any combination of the
foregoing has a substantial beneficial interest or as to which such Person, any
Person described in clause (a) above or any combination of the foregoing serves
as trustee or in a similar fiduciary capacity.
"1998 Budget" means (x) the consolidated budget of the SE Entities (by
country and month) for the 1998 fiscal year (the "Budget"), (y) the cash flow
forecast for the SE Entities for the period from July 1997 to June 1998, and (z)
the aggregate use of funds of the SE Entities for the period from September 1,
1997 to the Closing Date as set forth on Schedule 1.1 hereto, as amended from
time to time with the prior written consent of PMSI.
"Budgeted Post August Loans" shall mean the Post August Loans less the
Excess Amount, if any.
"Business Day" means any day that is not a Saturday, Sunday, or any other
day on which banks in the State of New York are authorized or required by law to
close.
"Closing" shall have the meaning assigned to such term in Section 2.3
hereof.
"Closing Date" means the date on which the Closing occurs as determined by
Section 2.3 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means the PMSI Stock Collateral and the Source Stock
Collateral.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by, or any registration, declaration
or filing with, 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.
"DGCL" shall mean the Delaware General Corporation Law.
"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.
"Environmental Laws" shall mean all Laws relating to pollution or protection
of human health and safety, natural resources, conservation, wildlife or the
environment (including ambient air, surface water, ground water, land surface,
or subsurface strata), and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and
B-2
<PAGE>
Liability Act, as amended, 42 U.S.C. 6901 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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which is or has been, within the last five years, treated as a single employer
with Source Europe or any of its Subsidiaries under Section 414(b), (c), (m) or
(o) of the Code.
"Escrow Agent" means the escrow agent identified as such in the Escrow
Agreement, or any successor thereto.
"Escrow Agreement" has the meaning set forth in Section 2.2.
"Escrow Amount" has the meaning assigned to such term in Section 2.2.
"European Business" has the meaning set forth in Section 3.9(e).
"European Databases" has the meaning assigned to such term in Section 5.11.
"European Merger Rules" shall mean the antitrust laws and merger control
regulations then in effect in the countries of the European Union, including
merger control rules enacted by the European Commission.
"Excess Amount" shall mean the amount by which the Post August Loans exceeds
the aggregate use of funds set forth in the 1998 Budget for the period from
September 1, 1997 through the Closing Date.
"GAAP" means United States generally accepted accounting principles as in
effect on the date on which the document to which it refers relates.
"Governmental Authority" means any nation or government, and any state or
political subdivision thereof; any self-regulatory organization acting under
color of authority granted under any Law; and any court, tribunal, arbitrator,
authority, agency, commission, official or other instrumentality, whether
foreign or domestic, including any federal, state, county, city or other
political subdivision thereof.
"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, asbestos, radon,
radioactive materials or biphenyls.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Initial Source Stock Collateral" shall mean such number of shares of common
stock of Source Informatics America Inc. having an aggregate value equal to the
product of 133% and $10 million. For purposes of the foregoing determination,
Source Informatics America Inc. shall be deemed to have an equity value of $80
million.
"Intellectual Property" shall mean copyrights, patents, trademarks, service
marks, service names, trade names, applications and registrations therefor,
technology rights and licenses, computer software
B-3
<PAGE>
(including any source or object codes therefor or documentation relating
thereto), domain names, trade secrets, franchises, know-how, inventions, and
other intellectual property rights.
"Interested Party" shall have the meaning assigned to such term in Section
3.20 hereof.
"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 constitution, treaty, code, law (including common law),
ordinance, regulation, injunction, covenant, deed restriction, reporting or
licensing requirement, rule, statute, or Order, applicable to a Person or its
Assets, Liabilities, or business, whether U.S., foreign, international, federal,
state or local.
"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.
"Licensed Territory" has the meaning set forth in the Software License
Agreements.
"Lien" means any encumbrance, charge, security interest, mortgage, pledge,
hypothecation, title defect, title retention agreement, lease, sublease,
license, occupancy agreement, easement, covenant running with the land,
encroachment, voting trust agreement, restriction, option, right of first offer
or refusal, proxy or lien, including but not limited to liens for Taxes.
"Line of Credit" has the meaning assigned to such term in Section 5.12.
"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 Person, its business, its Assets (including Contracts related to
it), or the transactions contemplated by the Transaction Documents.
"Loans" has the meaning set forth in Section 5.12.
"Material Adverse Effect" means with respect to Source US (a) a material
adverse effect on the business, operations, prospects or financial condition of
the SE Entities taken as a whole or (b) a material adverse effect on the ability
of Source US to execute and deliver this Agreement, perform its obligations
hereunder or on the ability of Source US or Source Europe to consummate the
transactions contemplated by the Transaction Documents. With respect to PMSI,
"Material Adverse Effect" means a material adverse effect on the ability of PMSI
to execute and deliver this Agreement, perform its obligations hereunder or on
the ability of PMSI to consummate the transactions contemplated hereby.
"Monthly Statements" shall have the meaning assigned to such term in Section
5.1 hereof.
"NDC Transactions" has the meaning set forth in the recitals hereto.
"NDC-PMSI Transaction" has the meaning set forth in the recitals hereto.
"NDC-Source Transaction" has the meaning set forth in the recitals hereto.
"Note" means the Note delivered by Source US to PMSI as of the date hereof
in the form attached as Exhibit F hereto.
B-4
<PAGE>
"Operating Property" shall mean any property owned, leased, or operated by
the Person in question or by any of its Subsidiaries or in which such Person 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 Governmental Authority.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice in the business of the SE Entities and
with respect to expenditures or incurrence of Liabilities, consistent with the
amounts budgeted therefor in the Budget. "PMSI" has the meaning assigned to such
term in the recitals hereto.
"PMSI Scott Levin Agreement" means the PMSI Scott Levin Agreement
substantially in the form attached hereto as Exhibit C.
"PMSI Shares" means the 918,254 shares of common stock, par value $.01 per
share, of PMSI, owned beneficially by Source US.
"PMSI Stock Collateral" means 435,000 shares of common stock, par value $.01
per share of PMSI, owned beneficially by Source US.
"Participating Facility" shall mean any facility or property in which the
Person 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.
"Permit" shall mean any federal, state, local, or 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" means and includes any individual, corporation, partnership
(limited or general), joint venture, association, trust, limited liability
company, any other unincorporated organization or entity, or any governmental
entity or any department, political subdivision or agency thereto.
"Pledge Agreement" means the Pledge Agreement in the form attached hereto as
Exhibit E.
"Post August Loans" shall mean all Loans made by PMSI under the Line of
Credit after August 31, 1997.
"Prime Rate" means the prime rate publicly announced by Citibank, N.A. from
time to time.
"Proxy Statement" shall have the meaning set forth in Section 5.5.
"Representative" means any investment banker, financial advisor, attorney,
accountant, consultant or other representative engaged by a Person.
"SE Entities" means any of Source US but only with respect to its European
Business, Source Europe and each SE Subsidiary and "SE Entities" shall mean
collectively, all such Persons.
"SE Financial Statements" shall have the meaning assigned to such term in
Section 3.5 hereof.
"SE Subsidiary" means any of the Subsidiaries set forth on SCHEDULE 3.4
hereto and "SE Subsidiaries" shall mean collectively all such Persons.
"SE Operating Subsidiary" means any of Source Informatics European Holdings,
B.V., Source Informatics Ltd., Source Informatics Deutchland GmbH, Source
Informatics France S.A., Source Informatics Belgium N.V., Source Informatics
Italia S.r.1. and Source Informatics Nederland B.V. and "SE Operating
Subsidiaries" shall mean collectively all such Persons.
B-5
<PAGE>
"SEC" shall mean the Securities and Exchange Commission.
"Software License Agreements" means the Software License Agreements to be
entered into between Source U.S. and each SE Operating Subsidiary on the Closing
Date substantially in the form attached hereto as Exhibit A.
"Source Europe" shall have the meaning assigned to such term in the recitals
hereto.
"Source Stock Collateral" shall mean the Initial Source Stock Collateral and
the Additional Source Stock Collateral, if any.
"Source US" shall have the meaning assigned to such term in the recitals
hereto.
"Stockholders Representative" has the meaning set forth in the Escrow
Agreement.
"Subsidiary" in respect of any Person means any other Person which, at the
time as of which any determination is being made, such Person or one or more of
its Subsidiaries has, directly or indirectly, Voting Control.
"Tax Return" shall mean any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes.
"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, imposed 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.
"Transaction Document" means any of this Agreement, the Transition Services
Agreement, the Software License Agreements, the PMSI Scott Levin Agreement, the
Escrow Agreement, the Pledge Agreement and the Note and the "Transaction
Documents" means collectively all such agreements, instruments and documents.
"Transition Services" has the meaning set forth in the Transition Services
Agreement.
"Transition Services Period" has the meaning set forth in the Transition
Services Agreement.
"Transition Services Agreement" means the Transition Services and
Intercompany Arrangement Agreement substantially in the form attached hereto as
Exhibit B.
"Voting Control" means, at any time, (A) the ownership or control, whether
direct or indirect, of outstanding shares of capital stock of (or equity
interests in) a Person, which shares or interest at such time have by the terms
thereof ordinary voting power to elect a majority of the members of the board of
directors (or Persons performing similar functions) of such Person (excluding
voting power of the holders of preferred stock arising upon the occurrence of a
contingency) or (B) with respect to any partnership or limited liability company
when (i) the sole general partner (or member) or the managing general partner
(or member) of which is such Person or a Subsidiary of such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
B-6
<PAGE>
ARTICLE II.
TRANSFER OF SECURITIES; ESTABLISHMENT OF ESCROW
SECTION 2.1. TRANSFER OF MEMBERSHIP INTERESTS. On the Closing Date and
subject to the terms and conditions set forth in this Agreement, Source US will
assign, transfer and deliver to PMSI the Membership Interests, free and clear of
all Liens, as payment to PMSI of the Budgeted Post August Loans.
SECTION 2.2. ESCROW. On the Closing Date and subject to the terms and
conditions set forth in this Agreement, (i) PMSI and the Stockholders
Representative will execute and deliver an Escrow Agreement in the form of
Exhibit C attached hereto (the "Escrow Agreement") and (ii) NDC on behalf of the
Source US stockholders shall deposit with the Escrow Agent shares of common
stock, par value $0.125 per share, of NDC (the "NDC Common Stock") having a fair
market value as of the Closing Date equal to $3,500,000 (the "Escrow Amount").
For purposes of this Section 2.2, the fair market value per share of the NDC
Common Stock shall equal the average of the daily closing sales price of NDC
Common Stock as reported in NYSE Composite Transactions reporting system (as
reported by THE WALL STREET JOURNAL or, if not reported thereby, another
authoritative source as chosen by PMSI) for the ten consecutive full trading
days on which such shares are traded on The New York Stock Exchange ending at
the close of trading on the day before the Closing Date.
SECTION 2.3. CLOSING. The closing (the "Closing") shall take place at the
offices of Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street,
Atlanta, Georgia 30309 or at 9:00 A.M. Eastern Standard time on the Business Day
which is one Business Day after all the conditions set forth in Article VI
hereof (other than delivery of closing officer's certificates, opinions or
accountant reports referenced in Article VI), shall have been fulfilled or
waived or such other date as may be mutually agreed by the parties (the "Closing
Date"). At the Closing, Source US will deliver or cause to be delivered (x) to
PMSI certificates in definitive form representing the Membership Interests,
registered in PMSI's name (or in the name of its nominee) and (y) to the Escrow
Agent the Escrow Amount.
SECTION 2.4. CASH AMOUNT. On the Closing Date, Source US shall pay to Source
Europe $9 million in cash.
SECTION 2.5. PMSI SHARES. Immediately prior to the Closing, Source US shall
assign, transfer and deliver to Source Europe the PMSI Shares, free and clear of
all Liens.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SOURCE US
Source US hereby represents and warrants to PMSI as follows:
SECTION 3.1. ORGANIZATION, STANDING, AND POWER. On the Closing Date, Source
Europe will be a limited liability company duly organized, validly existing, and
in good standing under the Laws of the State of Delaware, and has the power and
authority to carry on its business as proposed to be conducted and to own, lease
and operate its Assets. On the Closing Date, Source Europe will be duly
qualified or licensed to transact business as a foreign Person in good standing
in all jurisdictions where the character of its Assets or the nature or conduct
of its business will require it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed will not
reasonably likely have, individually or in the aggregate, a Material Adverse
Effect. The minute book and other organizational documents relating to Source
Europe will be made available to PMSI for its review and will be true and
complete in all material respects on the Closing Date and will accurately
reflect in all material respects all proceedings of the member and managers
thereof.
B-7
<PAGE>
SECTION 3.2. AUTHORITY OF SOURCE US; NO BREACH BY AGREEMENT.
(a) Source US is a corporation duly organized and existing in good standing
under the Laws of the State of Delaware. Source US has the corporate power and
authority necessary to execute, deliver, and perform its obligations under the
Transaction Documents and to consummate the transactions contemplated
thereunder. The execution, delivery, and performance of the Transaction
Documents and the consummation of the transactions contemplated therein have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Source US. This Agreement, the Pledge Agreement and the
Note represent and the other Transaction Documents will, as of the Closing Date,
represent, legal, valid, and binding obligations of Source US, enforceable
against Source US in accordance with their respective 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 the Transaction Documents by
Source US, nor the consummation by Source US of the transactions contemplated
thereby, nor compliance by Source US with any of the provisions thereof, will
(i) conflict with or result in a breach of any provision of the certificate of
incorporation or bylaws of Source US or the certificate or articles of
incorporation or bylaws or other organizational documents of any Subsidiary of
Source US or any resolution adopted by the board of directors or the
stockholders of Source US or any Subsidiary thereof, or (ii) except as disclosed
in SCHEDULE 3.2, constitute or result in a Default, or require any Consent, or
result in the creation of any Lien on any Asset of Source US or any of its
Subsidiaries or (iii) violate or conflict with any Law.
(c) Other than any filings under the HSR Act and any other similar
notifications, reports or filings with applicable European Governmental
Authorities, no notice to, filing with, or Consent of, any Governmental
Authority is necessary for the consummation by Source US of the transactions
contemplated in the Transaction Documents.
SECTION 3.3. CAPITAL STOCK; STOCK OWNERSHIP.
(a) On the Closing Date, all of the issued and outstanding membership
interests of Source Europe will be duly and validly issued and outstanding and
will be fully paid and non-assessable and will be owned beneficially and of
record by Source US, which will have good title thereto, free and clear of all
Liens. On the Closing Date, none of the outstanding membership interests of
Source Europe will have been issued in violation of any preemptive rights of any
Person.
(b) On the Closing Date, except for the Membership Interests, there will be
no other membership interests or other equity securities of Source Europe
outstanding and no outstanding Equity Rights relating to the membership
interests of Source Europe. 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 for the issue, sale,
purchase or redemption from Source Europe of any of its equity interests, or any
Contract or Equity Right for the purchase, subscription or issuance of any
securities of Source Europe.
(c) Except for Liens with respect to 480,000 PMSI Shares granted in favor of
the preferred stockholders of Source, which Liens will be terminated on the
Closing Date, Source US is the beneficial owner of the PMSI Shares with good
title thereto, free and clear of all Liens.
(d) Except for the PMSI Shares and 100 shares of common stock, par value
$.01 per share, of PMSI (the "Additional Shares") neither Source US nor its
Subsidiaries or Affiliates beneficially own any shares of capital stock of PMSI.
B-8
<PAGE>
SECTION 3.4. SE SUBSIDIARIES. On the Closing Date, Source Europe will not
have any Subsidiaries other than the SE Subsidiaries. SCHEDULE 3.4 sets forth
for each SE Subsidiary its jurisdiction of incorporation and each jurisdiction
in which it is qualified and/or licensed to transact business. On the Closing
Date, Source Europe will own all of the issued and outstanding shares of capital
stock (or other equity interests) of each SE Subsidiary (other than directors'
qualifying shares as set forth on SCHEDULE 3.4). No capital stock (or other
equity interest) of any SE Subsidiary is or may become required to be issued by
reason of any Equity Rights, and there are no Contracts by which any SE
Subsidiary is bound to issue, sell, purchase or redeem shares of its capital
stock (or other equity interests) or Equity Rights or by which any SE Subsidiary
is or may be bound to transfer any shares of the capital stock (or other equity
interests) of any SE Subsidiary. There are no Contracts relating to the rights
of any Person to vote or to dispose of any shares of the capital stock (or other
equity interests) of any SE Subsidiary. On the Closing Date, all of the shares
of capital stock (or other equity interests) of each SE Subsidiary held by
Source Europe will be fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such SE Subsidiary is incorporated
or organized and will be owned by Source Europe free and clear of any Lien.
Except as set forth in SCHEDULE 3.4, none of the SE Subsidiaries, and Source
Europe will not as of the Closing Date, own directly or indirectly any capital
stock of, or other equity interest in, any Person. Each SE Subsidiary is duly
organized, validly existing, and 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 or proposed to be conducted. Each
SE Subsidiary is duly qualified or licensed to transact business, and is in good
standing in such 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 Material
Adverse Effect. The minute book and other organizational documents relating to
each SE Subsidiary have been made available to PMSI for its review, and 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.
SECTION 3.5. FINANCIAL STATEMENTS AND BUDGET.
(a) Source US has previously delivered to PMSI: the consolidated unaudited
balance sheet (the "June Balance Sheet") of the SE entities (a unit of Source
US) as of June 30, 1997 (collectively, the "SE Financial Statements"). The SE
Financial Statements (x) have been prepared based on the books and records of
the SE Entities and have been prepared in accordance with the normal accounting
practices of the SE Entities and with GAAP (except with respect to the absence
of certain footnote disclosures and the presentation of certain line items), (y)
fairly present the financial position of the SE Entities and the results of
their operations and cash flows for such period on the foregoing basis and (z)
reflect the Assets and Liabilities of the SE Entities and do not reflect any
Assets to be acquired by NDC, or any Liabilities to be assumed by NDC or its
Subsidiaries, in connection with the NDC-Source Transaction.
(b) Except as set forth on SCHEDULE 3.5(b), the 1998 Budget remains in full
force and effect and has not been amended, supplemented or modified or
superseded in any material respect.
SECTION 3.6. ABSENCE OF UNDISCLOSED LIABILITIES. (a) No SE Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect, except Liabilities which are accrued or
reserved against in the SE Financial Statements or reflected in the notes
thereto.
(b) Except as set forth on SCHEDULE 3.6(b), no SE Entity has incurred or
paid any Liability since June 30, 1997 (including without limitation the payment
of any Liabilities (whether with respect to the settlement of intercompany
accounts or otherwise) to Source US), except for such Liabilities incurred or
paid (i) in the Ordinary Course of Business and which are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect or (ii) in
connection with the transactions contemplated by this
B-9
<PAGE>
Agreement. Except as disclosed in SCHEDULE 3.6(b), no SE 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 another SE Subsidiary) for any amount in excess of
$100,000.
SECTION 3.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since June 30, 1997,
except as disclosed in the SE Financial Statements, as disclosed in SCHEDULE 3.7
or as provided in the Transaction Documents, (i) there have been no events,
changes, or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect, including: (l) any
discharge or satisfaction of any Lien or payment of any obligation or Liability
other than in the Ordinary Course of Business; (m) other than in the Ordinary
Course of Business, the creation of any Lien on any of its Assets; (n) any
transfer, lease or other disposal of any of its Assets except for a fair
consideration in the Ordinary Course of Business, any investment in any Person
or, except in the Ordinary Course of Business, any acquisition of Assets; (o)
any cancellation or compromise of any debt of, or claim against any SE Entity;
(p) any waiver or release by any SE entity of any material rights; (q) any
transfer or grant of any rights under any lease, license or agreement other than
in the Ordinary Course of Business; (r) the extension of any loan; (s) any
repurchase, redemption, or other acquisition or exchange (other than
acquisitions or exchanges in the Ordinary Course of Business under employee
benefit plans), directly or indirectly, of any shares, or any securities
convertible into any shares, of the capital stock of any SE Entity; (t) any
declaration or payment of any dividend or any other distribution in respect of
capital stock of any SE Entity; (u) any increase in compensation or benefits
payable to the employees, officers or directors of any SE Entity, any severance
or termination payment or bonus other than pursuant to written policies or
written Contracts in effect on the date of this Agreement and disclosed in
SCHEDULE 3.15 or any amendment of any severance agreements with officers of any
SE Entity; (v) any adoption or amendment of any employment Contract between any
SE Entity and any Person that the SE Entity does not have the unconditional
right to terminate without Liability (other than Liability for services already
rendered), at any time on and after the Closing Date; (w) any adoption of any
new employee benefit plan of any SE Entity or any termination or withdrawal
from, or any material change in or to, any existing employee benefit plans of
any SE Entity other than any such change that is required by Law or make any
distributions from such employee benefit plans, except as required by Law, the
terms of such plans or consistent with past practice; (x) 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; (y) any commencement of any Litigation other
than in accordance with past practice, any settlement of any Litigation
involving any Liability of any SE Entity for material money damages or
restrictions upon the operations of any SE Entity; and (z) except in the
Ordinary Course of Business, any modification, amendment or termination of any
SE Contract; and (ii) Source US has not taken any action or caused the SE
Subsidiaries to take any action, or failed to take any action or caused the SE
Subsidiaries to fail 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 provided in Article V.
(b) Source US does not have any Knowledge of any event, condition,
circumstance or prospective development which threatens, or may reasonably be
expected to threaten, to have a Material Adverse Effect.
SECTION 3.8. TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any of the SE
Entities 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 for the periods covered by such
filed Tax Returns have been paid. There is no audit examination or deficiency or
refund Litigation with respect to any Taxes, except as reserved against in the
SE Financial Statements or as disclosed in SCHEDULE 3.8(a). All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
B-10
<PAGE>
Litigation have been paid. There are no Liens with respect to Taxes upon any of
the Assets of the SE Entities, except for any such Liens which are not
reasonably likely to have a Material Adverse Effect.
(b) None of the SE 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 SE
Entities for the period or periods through and including the date of the SE
Financial Statements that has been made and is reflected on such SE Financial
Statements is sufficient to cover all such Taxes.
(d) Deferred Taxes of the SE Entities have been provided for in accordance
with GAAP.
(e) Except as disclosed in SCHEDULE 3.8(e), none of the SE Entities is a
party to any Tax allocation or sharing agreement and none of the SE 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 US) or has any
Liability for Taxes of any Person (other than Source Europe 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 SE Entities is in compliance with, and its records contain
all information and documents (including properly completed IRS Forms W-9)
necessary to comply with, in all material respects, all applicable information
reporting and Tax withholding requirements under federal, foreign, state, and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Code.
(g) Except as disclosed in SCHEDULE 3.8(g), none of the SE 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 Code.
SECTION 3.9. ASSETS.
(a) Except as disclosed in SCHEDULE 3.9 or as disclosed or reserved against
in the SE Financial Statements, the SE 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 conduct of the businesses of the SE Entities
are in good condition, reasonable wear and tear excepted, and are usable in the
Ordinary Course of Business.
(b) All Assets material to the conduct of the businesses of the SE Entities
that are held under leases or subleases by any of the SE 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. SCHEDULE 3.9(b) sets forth all such
Contracts to which Source US is a party that relate to the European Business. On
the Closing Date, each such Contract (unless an SE Entity is already a party
thereto and Source US receives no benefits or has no rights thereunder) will
have been duly assigned to Source Europe or one of its Subsidiaries.
(c) Source US does not maintain any insurance policies with respect to the
European Business or any SE Entity. The insurance policies maintained by the SE
Entities have been furnished or made available to PMSI for its review. Such
insurance policies are in full force and effect and are in such amounts and
insure against such losses and risks as, in the judgment of the senior
management of Source US, are adequate to protect the Assets and business of the
SE Entities. Source US shall use all reasonable efforts to keep such policies
and binders, or replacement policies and binders, in full force and effect up to
the Closing Date.
B-11
<PAGE>
None of the SE 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 SE Entity under such policies.
(d) Except as set forth on SCHEDULE 3.9(d) or in the Budget, the Assets of
Source Europe and its Subsidiaries include or will include all Assets required
to operate the business of the SE Entities as presently conducted or proposed to
be conducted in the Budget.
(e) On the Closing Date, all Assets held or employed by Source US that are
attributable to its business or operations in Europe (the "European Business")
shall have been assigned, transferred and delivered to Source Europe, free and
clear of any Liens.
SECTION 3.10. INTELLECTUAL PROPERTY. Except as set forth in SCHEDULE 3.10,
the SE Entities have valid and effective governmental registrations for all
Intellectual Property owned, used or licensed by or to any SE Entity (other than
with respect to off-the-shelf software), that are used in or necessary for the
conduct of the businesses of the SE Entities, except as to which the absence
thereof would not have a Material Adverse Effect. No SE Entity is in Default in
any material respect under any of its Intellectual Property licenses. No
proceedings have been instituted, or are pending or to the Knowledge of Source
US threatened, which challenge the rights of any SE Entity with respect to
Intellectual Property used, sold or licensed by such SE Entity in the course of
its business, nor has any Person claimed or alleged any rights to such
Intellectual Property. The conduct of the business of the SE Entities does not
infringe any Intellectual Property of any other Person. Except as contemplated
in the Transaction Documents or for generally applicable obligations with
respect to "off the shelf" software, no SE Entity is obligated to pay any
recurring royalties to any Person with respect to any such Intellectual
Property. On the Closing Date, after giving effect to the transactions
contemplated hereunder, including the execution of the Transition Services
Agreement and the Software License Agreements, Source Europe and its
Subsidiaries shall have all the Intellectual Property necessary to permit the
continued lawful operation of the European Business in substantially the same
manner as such operations have heretofore been conducted or are contemplated to
be conducted in the Licensed Territory. Every executive officer of any SE Entity
is a party to a Contract which requires such officer to assign any interest in
any Intellectual Property developed while in the employ of such SE Entity to an
SE Entity and to keep confidential any trade secrets, proprietary data, customer
information, or other business information of an SE Entity, and to the Knowledge
of Source US, no officer, director or employee of an SE Entity is party to any
Contract with any Person other than an SE Entity which requires such officer,
director or employee to assign any interest in any Intellectual Property to any
Person other than an SE Entity or to keep confidential any trade secrets,
proprietary data, customer information, or other business information of any
Person other than an SE Entity. To the Knowledge of Source US, no officer,
director or employee of any SE 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 SE Entity. All references to
Intellectual Property in this Section 3.10 shall include the Intellectual
Property to be licensed by Source US to the SE Operating Subsidiaries under the
Software License Agreements.
SECTION 3.11. ENVIRONMENTAL MATTERS.
(a) Each SE Entity, its Participation Facilities, and its Operating
Properties are, and have been, in compliance with all Environmental Laws.
(b) There is no Litigation pending or, to the Knowledge of Source US,
threatened before or by any Governmental Authority or other forum in which any
SE Entity or any of its Operating Properties or Participation Facilities has
been or, with respect to threatened Litigation, maybe named as a defendant (i)
for alleged noncompliance (including by any predecessor) with any Environmental
Law or (ii) relating to the release, emission, discharge, spillage, or disposal
into the environment of any Hazardous Material,
B-12
<PAGE>
whether or not occurring at, on, under, adjacent to, or affecting (or
potentially affecting) a site owned, leased, or operated by any SE 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 SE Entity's ownership or operation of any
of their respective current properties, (ii) any SE Entity's participation in
the management of any Participation Facility, or (iii) any SE Entity's holding
of a security interest in a Operating Property, there have been no releases,
distress, spillages, or disposals of Hazardous Material in, on, under, adjacent
to, or affecting (or potentially affecting) such properties, which releases,
distress, spillages or disposals are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect. Prior to the period of (i) any SE
Entity's ownership or operation of any of their respective current properties,
(ii) any SE Entity's participation in the management of any Participation
Facility, or (iii) any SE Entity's holding of a security interest in a Operating
Property, to the Knowledge of Source US, there were no releases, discharges,
spillages, or disposals of Hazardous Material in, on, under, or affecting any
such property, Participation Facility or Operating Property, which releases,
distress, spillages or disposals are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect.
(d) None of the SE Entities has reported any violation of any Environmental
Law to any Governmental Authority.
(e) None of the SE Entities has sent, transported, or directly arranged for
the transport of any Hazardous Substance to any site or location which has been
designated by any Governmental Authority as a site requiring investigation or
remedial action, as a result of the disposal of Hazardous Substances at such
Site.
(f) There is not now, nor has there ever been on any of the SE Entity's
current or former Properties, the Operating Properties or Participation
Facilities (i) any generation, treatment, recycling, storage or disposal of any
Hazardous Substance except for DE MINIMIS quantities of Hazardous Substances
used in the Ordinary Course of Business, (ii) any friable asbestos or (iii)
underground tanks.
SECTION 3.12. COMPLIANCE WITH LAWS. Each SE 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 or proposed to be conducted, and there has
occurred no Default under any such Permit. Except as disclosed in SCHEDULE 3.12,
none of the SE Entities:
(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 Governmental Authority or the staff thereof (i) asserting that any SE
Entity is not in compliance in any material respect with any of the Laws or
Orders which such Governmental Authority enforces, (ii) threatening to revoke
any Permits, or (iii) requiring any SE 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. 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 Governmental Authority have been made available to
PMSI.
SECTION 3.13. LABOR RELATIONS. No SE Entity is the subject of any Litigation
asserting that it or any other SE Entity has committed an unfair labor practice
or other violation of the National Labor Relations Act or of the applicable
state or foreign labor and employment laws or seeking to compel it or any other
SE Entity to bargain with any labor organization as to wages or conditions of
employment, nor is any SE Entity party to any collective bargaining agreement,
nor is there any strike or other labor dispute involving any SE Entity, pending
or threatened; or to the Knowledge of Source US, is there any activity involving
any SE Entity's employees seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
B-13
<PAGE>
SECTION 3.14. EMPLOYEE BENEFIT PLANS.
(a) Source US has delivered or made available to PMSI prior to the execution
of this Agreement copies of, all employee benefit plans, severance plans,
employment agreements, executive compensation arrangements, and deferred
compensation and all other employee benefit arrangements of any type under which
any SE Entity has or in the future could have any Liability with respect to any
current or former employee or director of, or any independent contractor
providing services to, any SE Entity, or any spouse or beneficiary thereof (the
"SE Benefit Plans").
(b) All SE Benefit Plans are in compliance with all applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect.
(c) All contributions due to any (i) SE Benefit Plan or (ii) governmental
plan or government-mandated plan or arrangement providing for retirement, health
or other employee benefit the contributions to which are required under any
applicable Laws (the "Governmental Plans"), have been timely made, and all
contributions to such plans required to be made prior to the Closing Date shall
be made prior to the Closing Date. With respect to any SE Benefit Plan and
Governmental Plan to which any SE Entity is not required to make contributions,
all Liabilities of any SE Entity under such SE Benefit Plan or Governmental Plan
for all periods through June 30, 1996 is reflected on the SE Financial
Statements.
(d) Except as disclosed in SCHEDULE 3.14, 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, independent
contractor providing services to, or employee of, any SE Entity from any SE
Entity under any SE Benefit Plan, Governmental Plan or otherwise, (ii) result in
any increase in any benefits otherwise payable under any SE Benefit Plan or
Governmental Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
SECTION 3.15. MATERIAL CONTRACTS. (a) Except as provided in the Transaction
Documents or as disclosed to PMSI or otherwise reflected in the SE Financial
Statements, none of the SE Entities, 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 Contract relating to the borrowing of money by
any SE Entity or the guarantee by any SE Entity of any such obligation (other
than Contracts evidencing trade payables and Contracts relating to borrowings or
guarantees made in the Ordinary Course of Business), (ii) any Contract which
prohibits or restricts any SE Entity from engaging in any business activities in
any geographic area, line of business or otherwise in competition with any other
Person, (iii) any Contract between or among SE Entities or between an SE Entity
and any Affiliate thereof (other than any Contract having terms which could have
been obtained from a third party on an arms' length basis and the aggregate
value of which do not exceed $100,000), (iv) any Contract involving Intellectual
Property (other than Contracts entered into in the Ordinary Course of Business
with customers), (v) any Contract not entered into in the Ordinary Course of
Business and which requires the payment by an SE Entity or Entities, or the
receipt by an SE Entity or Entities, of consideration exceeding $100,000 in any
fiscal year or exceeding $250,000 over the remaining terms of such agreement,
(vi) any Contract regarding the acquisition, sale or disposition of Assets
(other than in the Ordinary Course of Business), (vii) any Contract constituting
joint venture agreements, (viii) any Contract in excess of $100,000 relating to
the provision of data processing, network communication or other technical
services to or by any SE Entity, (ix) any Contract relating to the purchase or
sale of any goods or services, including customer contracts (other than
Contracts entered into in the Ordinary Course of Business and involving payments
under any individual Contract not in excess of $100,000) and (x) any other
material Contract not made in the Ordinary Course of Business (the foregoing
Contracts, together with all Contracts referred to in Sections 3.10 and 3.14(a),
the "SE Contracts"). With respect to each SE Contract: (i) the Contract is in
full force and effect; (ii) no SE Entity is in Default thereunder in any
material respect; (iii) no SE 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 US, in Default
B-14
<PAGE>
in any material respect or has repudiated or waived any material provisions
thereunder; (v) there exists no actual, or to the Knowledge of Source US,
threatened, cancellation, termination, or limitation of, or any material
amendment, modification, or change to any such Contract; (vi) no SE Entity has
received formal notice that any party to a SE Contract will not renew such
Contract at the end of its existing term; and (vii) no SE Contract requires
consent for assignment in connection with the transactions contemplated by this
Agreement, except in each case for such Defaults or cancellations which
individually or in the aggregate, would not have a Material Adverse Effect. True
and complete copies of the SE Contracts have been made available to PMSI. All of
the indebtedness of any SE Entity for money borrowed is prepayable at any time
by such SE Entity without penalty or premium.
(b) SCHEDULE 3.15(b) sets forth all Contracts identified in Section 3.15(a)
to which Source US is a party that relate to the conduct of the European
Business. On the Closing Date, each such Contract will have been duly assigned
to Source Europe or one of its Subsidiaries.
SECTION 3.16. LEGAL PROCEEDINGS. There is no Litigation instituted or
pending, or, to the Knowledge of Source US, 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 SE Entity, or
against any director, employee or employee benefit plan of any SE Entity, or
against any Asset, interest, or right of any of them, that is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect, nor are
there any Orders of any Governmental Authorities, or arbitrators outstanding
against any SE Entity, that are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect.
SECTION 3.17. STATEMENTS TRUE AND CORRECT. None of the information supplied
or to be supplied by Source US, any SE Entity or any of their respective
Affiliates for inclusion in the proxy materials to be filed by PMSI with the SEC
will 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 Source US, any SE Entity or any
of their respective Affiliates for inclusion in any documents to be filed by
PMSI, an SE Entity or any of their respective Affiliates with any Governmental
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 Source US, any SE Entity or any of their
respective Affiliates is responsible for filing with any Governmental Authority
in connection with the transactions contemplated hereby will comply as to form
in all material respects with the provisions of applicable Law.
SECTION 3.18. CONSENTS. Neither Source US nor any SE Entity or any of their
respective Affiliates 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 referred to in Section 6.1(p) and (r) or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such Section 6.1(r).
SECTION 3.19. LICENSES, PERMITS AND GOVERNMENTAL APPROVALS. All Permits
issued or granted to an SE Entity by any Governmental Authority have been duly
obtained, are valid and in full force and effect, and are not subject to any
pending or, to Source US's Knowledge, threatened (in writing) administrative or
judicial proceeding to revoke or cancel such Permits or declare such Permits
invalid in any respect, except for such Permits the absence of which, or the
invalidity, revocation, cancellation, or the declaration of invalidity in
respect of which, has not had and is not likely to have, in the aggregate, a
Material Adverse Effect. None of the operations of the SE Entities is being
conducted in a manner which violates any of the terms or conditions under which
any Permit was granted except for such violations which singly, or in the
aggregate, have not had, and are not likely to have, a Material Adverse Effect.
The SE Entities have performed all obligations required to be performed by them
to date under, and are not in default in respect of, any Permit, and no failure
to perform any obligation required to be performed and no event has occurred
which, with due notice or lapse of time or both, would constitute such a
default, except
B-15
<PAGE>
for such failures to perform, defaults or events which, singly or in the
aggregate, have not had, and are not likely to have, a Material Adverse Effect.
On the Closing Date, after giving effect to the transactions contemplated
hereunder, Source Europe and its Subsidiaries shall have all Permits necessary
to permit the continued lawful operation of the European Business in
substantially the same manner as such operations have heretofore been conducted.
SECTION 3.20. TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except
as set forth in the Transaction Documents, and except for transactions,
agreements or arrangements (i) between Source Europe and any of its Subsidiaries
or between such Subsidiaries or (ii) having terms substantially identical to
those which could have been obtained from a third party on an arms length basis
and in which the aggregate value of each such transaction, agreement or
arrangement does not exceed $100,000, since June 30, 1997, there has been no
transaction, agreement or arrangement between Source Europe or any of its
Subsidiaries and (a) Source US, (b) any Affiliate of Source US, (c) any director
or officer of Source US, or of any Affiliate of Source US (other than Source
Europe or any Subsidiary thereof) or (d) any Associate of any individual
described in clause (b) or (c) above (each Person described in clause (a), (b),
(c) or (d) being herein referred to as an "Interested Party" and collectively as
the "Interested Parties"). None of the material Assets of Source Europe or of
any of its Subsidiaries is in the possession of any Interested Party, and none
of Source Europe or any of its Subsidiaries uses any property or Assets owned by
any Interested Party.
SECTION 3.21. BROKERS AND FINDERS. With the exception of Montgomery
Securities, Source US has not employed any broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
that would be entitled to a broker's, finder's or similar fee or commission in
connection therewith. Source US shall make all payments to which Montgomery
Securities shall be entitled.
SECTION 3.22. STOCK COLLATERAL. On the date hereof, Source US shall have
delivered to PMSI the Pledge Agreement, the Note and the PMSI Stock Collateral
and the Initial Source Stock Collateral, accompanied in each case by appropriate
stock transfer powers duly endorsed for transfer to PMSI, pursuant to the terms
of the Pledge Agreement. Source Informatics America Inc. is party to that
certain Amended and Restated Alpha Database License Agreement dated as of July
1, 1994 with Walsh International Holdings Limited and PMSI.
SECTION 3.23. 1998 BUDGET. On the date hereof, Source US shall have
delivered to PMSI a copy of the 1998 Budget, certified by the Chief Financial
Officer of Source US as the 1998 Budget to which this Agreement relates.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PMSI
PMSI hereby represents and warrants to Source US as follows:
SECTION 4.1. AUTHORITY OF PMSI; NO BREACH BY AGREEMENT.
(a) PMSI is a corporation duly organized and existing in good standing under
the Laws of the State of Delaware. PMSI has the corporate power and authority
necessary to execute, deliver, and perform its obligations under the Transaction
Documents to which it is a party and to consummate the transactions contemplated
thereunder. The execution, delivery, and performance of the Transaction
Documents to which it is a party and the consummation of the transactions
contemplated therein have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of PMSI. This Agreement and the
Pledge Agreement represent and the other Transaction Documents to which it is a
party will, as of the Closing Date, represent, legal, valid, and binding
obligations of PMSI, enforceable against PMSI in accordance with their
respective terms (except in all cases as such enforceability may be
B-16
<PAGE>
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 by PMSI of the Transaction Documents
to which it is a party, nor the consummation by PMSI of the transactions
contemplated thereby, nor compliance by PMSI with any of the provisions thereof,
will (i) conflict with or result in a breach of any provision of PMSI's
certificate of incorporation or bylaws or any resolu-tion adopted by the board
of directors or the stockholders of PMSI or anySubsidiary of PMSI, or (ii)
constitute or result in a Default, or require any Consent, or result in the
creation of any Lien on any Asset of PMSI orany of its Subsidiaries or (iii)
violate or conflict with any Law, in each case other than such Defaults,
Consents, Liens or violations that could not lead or have not led, and could not
or are not likely to have, a Material Adverse Effect.
(c) Other than any filings under the HSR Act or any similar notifications,
reports or filings with applicable European Governmental Authorities, no notice
to, filing with, or Consent of, any Governmental Authority is necessary for the
consummation by PMSI of the transactions contemplated in the Agreement and the
other Transaction Documents to which it is a party.
SECTION 4.2. INVESTMENT INTENT. PMSI is acquiring the PMSI Shares and the
Membership Interests (collectively, the "Securities") for its own account and
not with a view towards the resale, transfer or distribution thereof, nor with
any present intent of distributing the Securities, but subject, nevertheless, to
any requirement of Law that the disposition of the Securities shall at all times
be within PMSI's control, and without prejudice to PMSI's right at all times to
sell or otherwise dispose of all or any part of such Securities in accordance
with applicable Laws.
SECTION 4.3. BROKERS AND FINDERS. With the exception of Cowen & Company,
PMSI has not employed any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement that would be
entitled to a broker's, finder's or similar fee or commission in connection
therewith. PMSI shall make all payments to which Cowen & Company shall be
entitled.
ARTICLE V.
CERTAIN COVENANTS AND AGREEMENTS OF SOURCE US AND PMSI
SECTION 5.1. ACCESS AND INFORMATION. After the date hereof to the Closing
Date, Source US shall (a) permit PMSI and its Representatives to have such
access, during regular business hours and upon reasonable advance notice, to the
properties, accountants, personnel and books and records (including without
limitation all records, permits, reports and data) of the SE Entities as PMSI
shall from time to time reasonably request and (b) cause its officers and the
officers of the SE Entities to furnish PMSI and its Representatives with such
financial and operating data and other information with respect to the business,
properties and obligations of the SE Entities as they may from time to time
reasonably request. As soon as reasonably practicable after they become
available, PMSI shall furnish to PMSI consolidated financial statements for the
SE Entities for each monthly period after June 30, 1997 and prior to the Closing
Date in each case as prepared by Source US consistent with its preparation of
the SE Financial Statements (the "Monthly Statements").
SECTION 5.2. CONDUCT OF BUSINESS. From the date hereof to the Closing,
Source US (i) shall conduct the European Business in the OrdinaryCourse of
Business and shall cause Source Europe to conduct its business, and each of the
SE Subsidiaries to conduct its business, in the Ordinary Course of Business,
(ii) will use all reasonable best efforts to preserve the SE Entities'
relationships with their customers, suppliers and others doing business with the
SE Entities, (iii) preserve intact the business organization and Assets and
maintain the rights and franchises of the SE Entities, (iv) make such
expenditures with respect to the European Business, and cause Source Europe and
its Subsidiaries to make
B-17
<PAGE>
such expenditures, in accordance with the amounts and the timing set forth in
the 1998 Budget and (v) shall not take any action of the type described in
Section 3.7(l) through (z) without the prior written consent of PMSI. In
addition, Source US will take, and will cause Source Europe and its Subsidiaries
to take, any reasonable action to insure that none of the representations and
warranties of Source US contained in this Agreement is untrue or incorrect as of
the Closing Date.
SECTION 5.3. REASONABLE EFFORTS. Source US shall make (and shall cause its
Affiliates to make) all reasonable efforts to take all actions and to do all
things necessary, proper or advisable to obtain all of the Consents set forth in
SCHEDULE 3.2 and to consummate the transactions contemplated by the Transaction
Documents. PMSI shall make all reasonable efforts to take all actions and to do
all things necessary, proper or advisable to obtain all of the Consents set
forth in SCHEDULE 4.1 and to consummate the transactions contemplated by the
Transactions Documents.
SECTION 5.4. GOVERNMENTAL FILINGS. As soon as practicable after the date
hereof, Source US shall cause Source Europe to make, and PMSI shall make, or
cause to be made, any and all filings and submissions to any Governmental
Authority which are required to be made in connection with the transactions
contemplated by the Transaction Documents, including, without limitation, any
and all filings and submissions required under the HSR Act or similar
notifications, reports or filings with applicable European Governmental
Authorities. Each of the parties hereto agrees to give each of the other parties
hereto written notice of any notification that it receives from the Department
of Justice, the Federal Trade Commission or any other applicable Governmental
Authority with respect to the filings described above.
SECTION 5.5. PROXY STATEMENT. PMSI shall call a stockholders' meeting for
the purpose of voting upon adoption of this Agreement and the NDC-PMSI
Transaction and such other related matters as it deems appropriate, and in
connection, will prepare, and file with the SEC, a proxy statement (the "Proxy
Statement"). Source US shall cooperate in the preparation and filing of the
proxy statement and shall furnish all information concerning it and the SE
Entities as PMSI may reasonably request in connection with such action.
SECTION 5.6. NOTIFICATION OF CERTAIN MATTERS. Source US shall have the
obligation prior to the Closing to give prompt notice to PMSI of(i) the
occurrence, or non-occurrence, of any event whose occurrence, or non-occurrence,
would be likely to cause any representation or warranty ofSource US contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Closing Date and (ii) any failure by Source US to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder in any material respect; PROVIDED, HOWEVER, that
the delivery of (or failure to deliver) any notice pursuant to this Section 5.6
shall not limit or otherwise affect the remedies available hereunder to PMSI.
SECTION 5.7. TRANSACTION DOCUMENTS. (a) Subject to satisfaction or waiver of
the conditions contained in Section 6.2, Source US shall, and shall cause each
of its respective Affiliates which is intended to be a party to any Transaction
Document to, execute each such Transaction Document and deliver the same to
PMSI.
(a) Subject to satisfaction or waiver of the conditions contained in Section
6.1, PMSI shall execute, and shall cause PMSI Scott-Levin, Inc. ("SLA"), with
respect to the PMSI Scott-Levin Agreement, to execute, and deliver to Source US
such Transaction Documents to which it is intended that PMSI or SLA be a party
thereto.
SECTION 5.8. SETTLEMENT OF INTERCOMPANY ACCOUNTS AT CLOSING. On the Closing
Date, all receivables, payables, loans, cash overdrafts and other accounts as of
the Closing Date between PMSI and its Subsidiaries, on the one hand, and Source
US and its Subsidiaries (including Source Europe and its Subsidiaries), on the
other hand, shall be settled by payment in full in cash of such amounts
effective as of the Closing Date. The obligations of Source US and its
Subsidiaries to PMSI and its Subsidiaries hereunder shall be secured by the
Collateral pursuant to the terms of the Pledge Agreement.
B-18
<PAGE>
SECTION 5.9. AMENDMENTS TO TRANSACTION DOCUMENTS. None of Source US or any
of its Affiliates shall amend or modify any Transaction Document prior to the
Closing Date without the consent of PMSI.
SECTION 5.10. ADDITIONAL SHARES. Source US hereby agrees to use its best
efforts to deliver the Additional Shares to Source Europe as promptly as
practicable following the Closing Date.
SECTION 5.11. DATABASE. Source US shall deliver to PMSI for the benefit of
the SE Operating Subsidiaries on the Closing Date all copies of the databases
related to the European Business held or maintained by Source US or any of its
Subsidiaries or Affiliates, together with any data or database derived from such
databases (collectively, the "European Databases"), whether stored on paper,
disk, tape or other format. Source US agrees and acknowledges that the European
Databases constitute the sole and exclusive property of the SE Operating
Subsidiaries and that Source US has no rights or interests therein except that
Source US may use the European Databases to provide Transition Services to
Source Europe and its Subsidiaries during the Transition Services Period. Source
US hereby covenants and agrees that upon the earlier of (i) the expiration of
the TransitionServices Period and (ii) the date on which Source Europe shall
have informed Source US in writing that it no longer required TransitionServices
under the Transition Services Agreement, then Source US shall within five
Business Days thereafter deliver to the SE Operating Subsidiaries the European
Databases used during the Transition Services Period, together with all updates
thereto or improvements thereon.
SECTION 5.12. LINE OF CREDIT. (a) PMSI hereby agrees that it shall make
loans (the "Loans") to Source US under the line of credit established pursuant
to this Section 5.12 (the "Line of Credit") from time to time during the period
(the "Commitment Period") commencing from the date hereof to the earlier of (i)
the Closing Date and (ii) the Termination Date in an aggregate amount at any one
time outstanding not to exceed $10,000,000 (subject to increase by up to an
additional $2 million (the "Incremental Amount") to $12,000,000 at the request
of Source US and the approval thereof by PMSI in its sole discretion). During
the Commitment Period, Source US may borrow, prepay and re-borrow the Loans, all
in accordance with this Section 5.12; PROVIDED that Source US shall give PMSI at
least ten Business Days written notice prior to the making of any Loan
hereunder. The Loans shall be evidenced by a Note, in substantially the form set
forth on Exhibit F hereto (the "Note"). The Note shall bear interest until its
due date on the principal amount thereof from time to time outstanding at an
annual rate equal to 2% per annum plus the Prime Rate. Such rate of interest
shall be computed on the basis of a year of 365 days and the actual number of
days elapsed, and shall change when and as the Prime Rate is changed, and any
such change in the Prime Rate shall become effective at the opening of business
on the day on which such change is adopted. Interest on the Note shall be
payable upon any payment of the Note, whether at maturity, by prepayment, upon
termination or otherwise.
(b) Source US hereby agrees that the proceeds from any Loan made to Source
US under the Line of Credit after August 31, 1997 shall be previously approved
in writing by PMSI; PROVIDED HOWEVER that in no event shall any such Loan be
used to acquire or carry "Margin Stock" or for any other purpose that might
constitute any of the Loans a "purpose credit" within the meaning of the margin
regulations.
(c) The Line of Credit shall terminate and the amounts of all Loans
outstanding, together with all accrued and unpaid interest thereon, shall become
immediately due and payable without any notice, presentation, demand or
otherwise, upon the breach by Source US of any provision of this Section 5.12,
including without limitation, the application of the proceeds from any Loan
other than in accordance with Section 5.12(b). Otherwise, all Loans outstanding,
together with all accrued and unpaid interest thereon, shall be due and payable
in cash at Closing; PROVIDED HOWEVER that the Budgeted Post August Loans shall
be repaid in accordance with Section 2.1.
(d) Source US hereby pledges to PMSI, and grants to PMSI a first priority
perfected security interest in the Collateral in respect of its obligations set
forth in this Section 5.12, and in connection therewith,has entered into on the
date hereof, that certain Pledge Agreement, in the form attached hereto as
Exhibit E.
B-19
<PAGE>
(e) Each of PMSI and Source hereby agrees that if the Closing shall not have
occurred by January 31, 1998 or if the Agreement shall have been terminated
prior thereto, then on the earlier of such dates (the "Termination Date") (i)
Source US shall pay to PMSI in cash on the Termination Date all interest accrued
and unpaid on the Loans as of that date and (ii) the amount of Loans then
outstanding under the Line of Credit less the net realizable value of the PMSI
Stock Collateral shall be converted into a two-year term loan (the "Term Loan").
The Term Loan shall be secured by the Adjusted Source Stock Collateral, shall
bear interest at an annual rate equal to 2% per annum plus the Prime Rate
(calculated in accordance with Section 5.12(a)) and interest thereon shall be
payable quarterly in arrears. Source US shall take all other actions and do all
things necessary, proper or advisable to evidence the Term Loan and to maintain
PMSI's first priority perfected security interest in the Source Stock
Collateral, including without limitation, the execution and delivery of a loan
agreement, note, pledge agreement and all other documents or instruments related
thereto. On the Termination Date, PMSI shall have the right, without the payment
of any additional consideration, to cancel the PMSI Stock Collateral or to
dispose of or transfer the PMSI Stock Collateral to another Person or to take
any other action with respect to the PMSI Stock Collateral as PMSI may elect,
and Source US shall have no further rights or interests with respect to the PMSI
Stock Collateral. For purposes of this Section 5.12(e), the net realizable value
per share of the PMSI Stock Collateral shall equal 92% of the average closing
price of the shares of common stock, par value $.01 per share, of PMSI on the
Nasdaq Stock Market over the twenty trading day period immediately following the
date that is ten days following the Termination Date. Notwithstanding the
foregoing, if prior to the determination of such average closing price, PMSI
shall have determined to dispose of the PMSI Stock Collateral in a commercially
reasonable manner, then the net realizable value of the PMSI Stock Collateral
shall equal the net cash proceeds from such sale.
(f) Source US hereby agrees that at the time on which PMSI shall have
approved an increase in the line of credit by any portion of the Incremental
Amount, Source US shall promptly deliver to PMSI the Additional Source Stock
Collateral, accompanied by appropriate stock transfer powers duly endorsed for
transfer to PMSI. Each of Source US and PMSI hereby agrees that no Loans shall
be made with respect to such Incremental Amount until the Additional Source
Stock Collateral shall have been delivered to PMSI in accordance with this
Section 5.12(f).
SECTION 5.12. PROVISION OF CORPORATE RECORDS; ACCESS TO INFORMATION. On the
Closing Date, Source US shall deliver to PMSI for the benefit of Source Europe
all corporate books and records (including all active agreements, litigation
files and governmental filings) of Source US and its Subsidiaries which relate
primarily to the European Business (other than such books and records which are
already in the possession of Source Europe and its Subsidiaries). From and after
the Closing Date, Source US shall afford to PMSI and its authorized
Representatives (including, without limitation, using reasonable efforts to give
access to Persons or firms possessing Information (as defined below)) access and
duplicating rights during normal business hours to all records, books,
contracts, instruments,computer data and other data and information
(collectively, "Information") relating to the European Business, insofar as such
access is reasonably required by PMSI. Information may be requested under this
Section 5.13 for, without limitation, audit, accounting, claims, litigation and
tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations.
SECTION 5.14. PRODUCTION OF WITNESSES. From and after the Closing Date, each
party shall use reasonable efforts to make available to the other party, upon
written request, its officers, directors, employees and agents as witnesses to
the extent that any such person may reasonably be required in connection with
any legal, administrative or other proceedings in which the requesting party may
from time to time be involved.
SECTION 5.15 PRESS RELEASES. Prior to the Closing Date, PMSI and Source US
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 5.15
shall be deemed to prohibit any party hereto from making any disclosure which
its counsel deems necessary or advisable in order to satisfy such party's
disclosure obligations imposed by Law.
B-20
<PAGE>
SECTION 5.16 CONFIDENTIALITY. 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. Source US agrees that it will treat all
confidential information with respect to Source Europe and its Subsidiaries in
the same manner it would accord confidential information furnished to it by PMSI
under this Agreement. If this Agreement is terminated prior to the Closing Date,
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.
ARTICLE VI.
CONDITIONS TO CLOSING
SECTION 6.1. CONDITIONS TO OBLIGATIONS OF PMSI. The obligation of PMSI to
perform its obligations hereunder is subject to the satisfaction (or waiver by
PMSI) as of the Closing of the following conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. For purposes of this Section
6.1(a), the accuracy of the representations of Source US set forth in this
Agreement shall be assessed on and as of the date hereof and on and as of the
Closing Date, as though made on and as of the Closing Date(provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of Source US
made in Section 3.3 shall be true and correct (except for inaccuracies which are
de minimus in amount). The representations and warranties of Source US made in
Sections 3.18 and 3.22 shall be true and correct in all material respects. There
shall not exist inaccuracies in the representations and warranties of Source US
set forth in this Agreement such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a 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.
Source US shall have performed, or shall have caused Source Europe to have
performed, in all respects the covenants of Source US and/or Source Europe in
Article II and Sections 5.7, 5.8, 5.11 and 5.12 hereof, and in all material
respects their other covenants contained in this Agreement, in each case
required to be performed on or before the Closing Date; and Source US shall have
delivered to PMSI a certificate dated the Closing Date and signed by authorized
officers of Source US and Source Europe confirming the foregoing.
(b) CLOSING CONDITIONS TO NDC-PMSI TRANSACTION. All conditions to the
closing of the NDC-PMSI Transaction shall have been satisfied or waived and the
consummation of the NDC-PMSI Transaction shall have occurred concurrently with
the Closing.
(c) CLOSING CONDITIONS TO NDC-SOURCE TRANSACTION. All conditions to the
closing of the NDC-Source Transaction shall have been satisfied or waived and
the consummation of the NDC-Source Transaction shall have occurred concurrently
with the Closing.
(d) MATERIAL CHANGE IN LIABILITIES. None of the SE Entities shall have
incurred any Liability (except normal trade or business obligations incurred in
the Ordinary Course of Business) which, individually or in the aggregate, have
had, or are likely to have, a Material Adverse Effect.
(e) CASUALTY LOSS OR DAMAGE. Since June 30, 1997, none of the SE Entities
shall have incurred any casualty loss or damage to its Assets which loss or
damage has had, or is likely to have, a Material Adverse Effect.
(f) ADVERSE DEVELOPMENT. Since June 30, 1997, there has been no development
in the business of the SE Entities which development has had, or is likely to
have, a Material Adverse Effect.
B-21
<PAGE>
(g) REPAYMENT OF LINE OF CREDIT. The principal amount, together with all
accrued interest thereon, of all outstanding Loans shall have been paid in full
in cash to PMSI by Source US; PROVIDED, HOWEVER, that the Budgeted Post August
Loans shall be repaid in accordance with Section 2.1.
(h) TRANSACTION DOCUMENTS. The Transaction Documents shall have been
executed and delivered by Source US and its Affiliates and with respect to the
Escrow Agreement, by the Escrow Agent and the Stockholders Representative.
(i) ASSIGNMENT OF CONTRACTS. All Contracts set forth in SCHEDULE 3.9(b) and
SCHEDULE 3.15 shall have been duly assigned to Source Europe or one of its
Subsidiaries.
(j) INDEMNIFICATION LETTER. Source Europe shall have delivered to NDC a
letter pursuant to which Source Europe agrees to indemnify NDC for liabilities
arising out of the European Business.
(k) TRANSFER OF ASSETS. All Assets described in SECTION 3.9(e) shall have
been duly assigned, transferred and delivered to Source Europe or one of its
Subsidiaries, free and clear of any Liens.
(l) SETTLEMENT OF INTERCOMPANY ACCOUNTS. Source US shall have settled in
full in cash all amounts, if any, payable under Section 5.8 of this Agreement.
(m) TRANSFER OF DATABASE. Source US shall have delivered the European
Databases pursuant to Section 5.11 of this Agreement.
(n) OPINION. PMSI shall have received an opinion dated the Closing Date of
Reboul MacMurray Hewitt Maynard & Kristol, counsel to Source US, in form
reasonably satisfactory to PMSI.
(o) NO PROCEEDINGS. No Law shall have been enacted, entered, promulgated or
enforced by any Governmental Authority that prohibits the consummation of the
transactions contemplated by the Transaction Documents.
(p) HSR ACT; EUROPEAN FILINGS. Any applicable waiting period under the HSR
Act shall have expired or been terminated and any Consents required under the
European Merger Rules shall have been obtained and such termination or Consents
shall not 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 PMSI 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.
(q) ACCOUNTANTS' REPORTS. Independent public accountants of recognized
national standing shall have delivered unqualified reports (other than any
qualification resulting from the failure to close the transactions contemplated
hereunder) containing no material uncertainty, to the effect that the
accountants have audited the financial statements of the SE Entities as of, and
for the period ended, June 30, 1997, in accordance with GAAP and that such
financial statements present fairly, in all material respects, the financial
position of SE Entities at the dates thereof and the results of operations for
the periods covered thereby in accordance with GAAP.
(r) CONSENTS. All Consents set forth on SCHEDULE 3.2 shall have been
obtained and in full force and effect and such Consents shall not be conditioned
upon the compliance by Source Europe and its Subsidiaries withany provision
restricting their ability to conduct their respective businesses or requiring
compliance with standards, procedures or requirements which are higher or more
burdensome than those to which Source Europe or its Subsidiaries are currently
subject.
(s) STOCKHOLDER APPROVAL. The stockholders of PMSI shall have the approved
the transactions contemplated under this Agreement and the NDC-PMSI Transaction
in accordance with the vote set forth in the Proxy Statement.
B-22
<PAGE>
(t) CASH AMOUNT. Source US shall have paid to Source Europe $9 million in
cash concurrently with the Closing.
SECTION 6.2. CONDITIONS TO OBLIGATIONS OF SOURCE US. The obligation of
Source US to perform its obligations hereunder is subject to the satisfaction
(or waiver by Source US) as of the Closing of the following conditions:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of PMSI made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date, as though made on and as of the
Closing Date, and PMSI shall have performed in all material respects its
covenants contained in this Agreement required to be performed by the time of
the Closing.
(b) NO PROCEEDINGS. No Law shall have been enacted, entered, promulgated or
enforced by any Governmental Authority that prohibits the consummation of the
transactions contemplated by this Agreement.
(c) HSR ACT; EUROPEAN FILINGS. Any applicable waiting period under the HSR
Act shall have expired or terminated and any Consents required under the
European Merger Rules shall have been obtained.
(d) TRANSACTION DOCUMENTS. The Transaction Documents to which PMSI is a
party shall have been executed and delivered by PMSI.
(e) SETTLEMENT OF INTERCOMPANY ACCOUNT. PMSI shall have settled in full in
cash all amounts, if any, payable under Section 5.8 of this Agreement.
(f) CLOSING CONDITIONS TO NDC-SOURCE TRANSACTION. All conditions to the
closing of the NDC-Source Transaction shall have been satisfied or waived and
the consummation of the NDC-Source Transaction shall have occurred concurrently
with the Closing.
ARTICLE VII.
TERMINATION
SECTION 7.1. TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time on or prior to the
Closing Date:
(a) by mutual agreement in writing of PMSI and Source US;
(b) by PMSI (provided that it is not in material breach of any
representation, warranty, covenant or agreement under this Agreement) (i) on or
after January 31, 1998, by notice to Source US if any of the conditions to the
obligations of PMSI contained herein shall not have been satisfied or, if
unsatisfied, shall not have been waived in writing on or prior to such date and
(ii) at any time, if Source US has materially breached any representation,
warranty, covenant or agreement in this Agreement and Source US, after receipt
of written notice thereof from PMSI, cannot reasonably be expected to cure such
breach on or prior to January 31, 1998;
(c) by Source US (provided that it is not in material breach of any
representation, warranty, covenant or agreement under this Agreement) (i) on or
after January 31, 1998, by notice to PMSI if any of the conditions to the
obligations of Source US contained herein shall not have been satisfied or, if
unsatisfied, shall not have been waived in writing on or prior to such date and
(ii) at any time, if PMSI has materially breached any representation, warranty,
covenant or agreement in this Agreement, and PMSI, after receipt of written
notice thereof from Source US, cannot reasonably be expected to cure such breach
on or prior to January 31, 1998; or
B-23
<PAGE>
(d) by PMSI if the stockholders of PMSI shall have failed at the meeting of
stockholders called pursuant to Section 5.5 to approve the transactions
contemplated under this Agreement and the NDC-PMSI Transaction in accordance
with the vote set forth in the Proxy Statement.
SECTION 7.2. PROCEDURE UPON TERMINATION. If the transactions contemplated by
this Agreement are terminated pursuant to Section 7.1 hereof:
(a) PMSI shall return all documents, work papers and other material of
Source US relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof, to Source US;
(b) such termination shall not in any way limit or restrict the rights and
remedies of any party hereto against any other party which has breached any of
the agreements or other provisions of this Agreement prior to termination
hereof; and
(c) the provisions of Section 5.16 shall remain in full force and affect.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1. SURVIVAL. None of the representations and warranties contained
in this Agreement or in any instrument delivered pursuant hereto shall survive
the Closing, PROVIDED, that this Section 8.1 (i) shall not limit any covenant or
agreement of the parties contained herein that by its terms contemplates
performance after the Closing, (ii) shall not apply to the Transaction Documents
(other than this Agreement) and (iii) shall not affect or limit in any manner
the right of PMSI and its Subsidiaries and their respective officers, directors,
controlling persons, Affiliates and Representatives to be indemnified from the
proceeds of the Escrow Account in accordance with the terms of the Escrow
Agreement.
SECTION 8.2. EXPENSES. Each party shall pay its own expenses in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the other Transaction Documents and the consummation of the transactions
contemplated hereby unless the Closing shall fail to occur as a result of a
breach by a party hereto, in which case the breaching party shall pay the
out-of-pocket expenses of the non-breaching party.
SECTION 8.3. CONSENT TO AMENDMENTS. This Agreement and the other Transaction
Documents may be amended with the consent of Source US, PMSI and NDC, and in the
case of the Escrow Agreement, shall also require the consent of the Escrow Agent
and the Stockholders Representative.
SECTION 8.4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
Source US and its successors and assigns and shall inure to PMSI's benefit and
to the benefit of its successors and assigns.
B-24
<PAGE>
SECTION 8.5. NOTICES. All communications to any party hereunder or under the
other Transaction Documents shall be in writing and shall be delivered in person
or sent by facsimile, telegram, telex, by registered or certified mail (postage
prepaid, return receipt requested) or by reputable overnight courier to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
8.5) and shall be deemed to have been given as of the date so delivered or sent:
IF TO SOURCE US, TO:
Craven House
Hampton Court Road
Hampton Court
Surrey KT8 9BX
England
Attention: Dennis Turner
Fax: 44-181-977-9977
WITH A COPY TO:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: Robert Schwed, Esq.
Fax: (212) 841-5725
IF TO PMSI, TO:
45 Rockefeller Plaza
New York, NY 10111
Attention: Fred Kyle
Fax: (212) 841-5760
Willkie Farr & Gallagher
One Citicorp Center
153 E. 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr., Esq.
Fax: (212) 821-8111
SECTION 8.6. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
SECTION 8.7. GOVERNING LAW. This Agreement is being delivered and is
intended to be performed in the State of New York, and shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of such state without regard to principles of conflicts of law.
SECTION 8.8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
SECTION 8.9. THIRD PARTY BENEFICIARIES. Except as set forth in the Escrow
Agreement, in Section 8.3 with respect to NDC, the Escrow Agent and the
Stockholders Representative and in Sections 5.10 and 5.11, with respect to
Source Europe and its Subsidiaries following the Closing Date, this Agreement is
not intended to confer upon any other Person any rights or remedies hereunder.
B-25
<PAGE>
SECTION 8.10. SEVERABILITY. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable, the validity,
legality or unenforceability of the remaining provisions of this Agreement will
not be affected thereby, and Source US and PMSI will use their reasonable
efforts to substitute one or more valid, legal and enforceable provisions which,
insofar as practicable, implement the purposes and intent hereof. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
SECTION 8.11. ENTIRE AGREEMENT. This Agreement (including the schedules and
exhibits hereto and the agreements, instruments and other documents referred to
herein and therein, including, without limitation, the Transaction Documents)
constitutes the entire agreement between the parties with respect to the subject
matter hereof, and supersedes any prior negotiations, commitments,
understandings or agreements, both written and oral, between the parties and any
of them with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
SOURCE INFORMATICS INC.
By:___________________________________
Name:_________________________________
Title:________________________________
PHARMACEUTICAL MARKETING SERVICES INC.
By:___________________________________
Name:_________________________________
Title:________________________________
B-26
<PAGE>
APPENDIX C
August 18, 1997
Independent Committee of the Board of Directors
Pharmaceutical Marketing Services Inc.
45 Rockefeller Plaza, Suite 912
New York, New York 10111
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to Pharmaceutical Marketing Services Inc. (the
"Company"), of the Consideration (as hereinafter defined) to be paid in the
Transaction (as hereinafter defined) with Source Informatics Inc. ("Source") and
National Data Corporation ("NDC"). For the purpose of this opinion, the
"Transaction" means the transactions described below pursuant to that certain
draft Stock Purchase Agreement between the Company and NDC dated August 15, 1997
and that certain draft Securities Transfer Agreement dated August 16, 1997
between the Company and Source (the "Agreements").
As more specifically set forth in the Agreements, and subject to certain
terms and conditions thereof and pursuant thereto, the Company will sell its
equity interest in the Source Joint Venture (the "JV") and the Company's
Over-the-Counter Business ("OTC Business") in exchange for an aggregate
consideration (the "Consideration") consisting of (i) a cash amount equal to
$15,500,000, less balance sheet adjustments, if any; (ii) 1,059,829 shares of
NDC common stock (the "Base Amount"), subject to a collar set forth in the
Agreements, such that (a) in the event the average closing price of NDC
determined by the ten consecutive full trading days ending at the tenth trading
day immediately proceeding the closing of the Transaction (the "Average Closing
Price") is greater than $50.50, the Base Amount shall be adjusted to equal the
number of NDC common shares, rounded to the nearest whole share, obtained by
dividing the product of the Base Amount and $50.50 by the Average Closing Price,
and; (b) in the event the Average Closing Price is less than $37.25, the Base
Amount shall be adjusted to equal the number of NDC common shares, rounded to
the nearest whole share, obtained by dividing the product of the Base Amount and
$37.25 by the Average Closing Price; (iii) Source's European operations ("Source
Europe"); and (iv) 918,254 shares of common stock of the Company transferred by
Source pursuant to that certain draft Securities Transfer Agreement dated August
16, 1997.
In the ordinary course of its services, Cowen & Company ("Cowen") is
regularly engaged in the valuation and pricing of businesses and their
securities and in advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Company's financial statements for the fiscal years ended
June 30, 1995, 1996 and draft 1997, certain publicly available filings
with the Securities and Exchange Commission and certain other relevant
financial and operating data of the Company, the JV, the OTC Business and
Source Europe;
(2) reviewed the financial statements of NDC for the fiscal years ended May
31, 1995, 1996 and 1997, certain publicly available filings with the
Securities and Exchange Commission and certain other relevant financial
and operating data of NDC;
(3) held meetings and discussions with management and senior personnel of
the Company, Source, including Source Europe, and NDC to discuss the
business, operations, historical financial results and future prospects
of the Company, the JV, the OTC Business, Source Europe and NDC,
including an analysis of the strategic and operating benefits anticipated
from the Transaction;
C-1
<PAGE>
(4) reviewed financial projections furnished to us by the management of the
Company and Source, including, among other things, the capital structure,
sales, net income, cash flow, capital requirements and other data of the
Company and Source as we deemed relevant;
(5) reviewed the publicly available financial projections of NDC furnished
to us by the management of NDC for the fiscal year ended May 31, 1998 as
set forth in the published reports of recognized securities industry
analysts;
(6) reviewed the results of our analyses of the Company and NDC in
comparison with other similar publicly traded companies;
(7) reviewed the respective historical prices and trading activity of the
securities of the Company and NDC from August 13, 1996 to August 12, 1997
and compared those trading histories with those of other companies which
we deemed relevant; and,
(8) analyzed the potential proforma financial effects of the Transaction as
it relates to the Company and NDC.
On August 15, 1997, the closing price of the common stock of the Company in
the last transaction reported by the Nasdaq National Market was $12.375 per
share and the closing price of the common stock of NDC in the last transaction
reported by the New York Stock Exchange was $37.563 per share.
In arriving at our opinion, we have not made, obtained or assumed any
responsibility for any independent evaluation of any such properties and
facilities or of the assets and liabilities (contingent or otherwise) of the
Company, the JV, the OTC Business, Source Europe or NDC, nor have we made any
independent evaluation of the prospects, ongoing viability or any solvency
analysis of Source Europe. In rendering our opinion, we relied upon the
Company's management with respect to the accuracy and completeness of the
financial and other information furnished to us as described above and have not
assumed any responsibility for independent verification of such information. We
have assumed that the financial projections prepared and provided to us by the
respective managements of the Company and Source (including projections of the
JV and Source Europe) represent the best current judgment of these managements
as to the future financial condition and results of operations of the Company
and Source, and have assumed that the projections have been reasonably prepared
based upon such current judgment. Although management of NDC did not make
financial projections of NDC available to us, we have reviewed the financial
forecasts of recognized securities industry analysts who publish research
reports on NDC, and we have confirmed the reasonableness and achievability of
such forecasts with NDC management.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon regulatory, economic, market and other conditions as they exist on,
and the information made available to us as of, the date hereof. Subsequent
developments may affect this opinion, and we do not have any obligation to
update, revise or reaffirm this opinion. With respect to all legal matters
relating to the Company, Source and NDC and the Transaction, we have relied on
the advice of legal counsel to the Independent Committee of the Board of
Directors of the Company. With respect to tax treatment relating to the
Transaction, we have relied, with your permission, on the advice of tax experts
to the Company, the Board of Directors and the Independent Committee of the
Board of Directors.
This opinion does not constitute a recommendation of the Transaction over
any other alternative transactions which may be available to the Company and
does not address the underlying business decision of the Independent Committee
of the Board of Directors of the Company to proceed with or effect the
Transaction. This opinion shall not constitute a recommendation to any security
holder to vote in favor of the Transaction. We are not expressing any opinion as
to what the value of the Company's or NDC's common stock actually will be when
the Consideration is paid to the Company pursuant to the Transaction, or the
price at which the Company's or NDC's common stock will trade prior or
subsequent to the
C-2
<PAGE>
Transaction. This opinion and the contents hereof may not be published,
disseminated, referred to, summarized, described or otherwise used, nor shall
any public reference to Cowen be made, without our prior written consent,
provided that this opinion and the contents hereof may be included in its
entirety in any registration statement or proxy statement with respect to the
Transaction, provided further that any description of or reference to Cowen or
summary of this opinion and the contents hereof will be in a form reasonably
acceptable to Cowen and its counsel. Furthermore, our consent to such inclusion
of our opinion shall in no way be deemed an admission or acknowledgment by Cowen
that we are within the class of persons whose consent is required by Section 7
of the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder.
We have acted as financial advisor to the Independent Committee of the Board
of Directors of the Company in connection with the Transaction and will receive
a fee for our services. We will also receive a fee for rendering this opinion,
and an additional fee is payable upon the consummation of the Transaction. In
addition, in the ordinary course of its business, Cowen trades securities of the
Company and NDC for its own account and for the accounts of its customers, and,
accordingly, it may at any time hold a long or short position in such
securities.
On the basis of our review and analysis, as described above, it is our
opinion as investment bankers that, as of the date hereof, the Consideration to
be paid to the Company in the Transaction is fair, from a financial point of
view, to the Company.
Very truly yours,
COWEN & COMPANY
C-3
<PAGE>
APPENDIX D
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.
D-1
<PAGE>
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.
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 ("Source US") through the
acquisition of PMSI Database to which PMSI contributed all of its interest in
Source US. 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."
D-2
<PAGE>
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held at 9:30 a.m., local time on December 15,
1997, at The Lotos Club, 5 East 66th Street, New York, New York. 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 November
3, 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."
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;
D-3
<PAGE>
(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
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. 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.
Based on a market price of NDC Common Stock of $43.875 and an estimate of
the Transactions expenses as of the date hereof, each outstanding share of
Source Common Stock would receive .25 of a share of NDC Common Stock. These
amounts may change, however, at the Closing Date since the Transaction Expenses
and the Option Shares will be determined on or immediately prior to the Closing
Date. In addition, the Preferred Stock Merger Consideration is subject to
adjustment in certain circumstances, on or prior to the Closing Date. See
"Certain Differences in the Rights of NDC and Source Stockholders."
(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").
The amount of cash and shares of NDC Common Stock to be paid to the holders
of Source Common Stock was determined based on a per share value for the NDC
Common Stock of $43.875, the market price for the NDC Common Stock at the time
NDC, Source and PMSI commenced negotiations. See "The Merger--Background of the
Merger."
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
D-4
<PAGE>
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). If the Lower
Threshold Price is not reached, the Board of Directors of Source will take such
action as is required by law and its fiduciary obligations, including, if
appropriate, obtaining the consent of the Source stockholders to proceed with
the Merger.
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" 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 (i) 0.9416
times(ii) 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.
D-5
<PAGE>
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
(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 (i) 0.9975 times (ii)
Total Current Liabilities (the "Total Working Capital Deficit"), then the
Stockholders shall pay to NDC the Current Asset Allocation
D-6
<PAGE>
Amount out of the Stock Escrow in the manner provided in the Escrow Agreement.
If Total Current Assets are greater than the product of (i) 0.9975 times (ii)
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 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
D-7
<PAGE>
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,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
D-8
<PAGE>
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.
Mr. Turner is the Chief Executive Officer and a director of Source. Mr. Evans is
the Chairman of the Board of Directors of Source. Mr. Welsh is a director of
Source and a general partner of the respective sole general partners of several
affiliated private investment funds, including Welsh, Carson, Anderson & Stowe
V, L.P. and Welsh, Carson, Anderson & Stowe IV, L.P., that are stockholders of
Source. 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 and Source
Preferred Stock entitled to vote at the Special Meeting, voting as a single
class, 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 74.9% of the outstanding shares of Source Common Stock entitled to
vote at the Special Meeting and 50% of the outstanding shares of Source
Preferred Stock entitled to vote at the Special Meeting. Pursuant to the Voting
Agreement (hereinafter defined), the holders of approximately 98% 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.
D-9
<PAGE>
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 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") which NDC and Source anticipate will be
not more than five business days following the Special Meeting. 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. Upon the sale or exchange
of NDC Common Stock, a holder of such stock generally will recognize capital
gain or loss equal to the difference between the amount of cash and the fair
market value of any property received upon the sale or exchange and such
holder's adjusted tax basis in the NDC Common Stock. Under recently enacted
legislation, long-term capital gains recognized by certain non-corporate holders
of NDC Common Stock generally will be subject to a maximum federal income tax
rate of 20% if the shares sold or exchanged are held for more than 18 months,
and to a maximum federal income tax rate of 28% if such shares are held for more
than one year but are not held for more than 18 months. Tax consequences to
dealers in NDC Common Stock, non-United States holders of NDC Common Stock or
others who have a special tax status or to persons who received their shares
through the exercise of employee stock options or otherwise as compensation may
be different and such persons should consult their tax advisors as to the tax
consequences of a sale or exchange of NDC Common Stock." See "The
Merger--Certain Federal Income Tax Consequences."
D-10
<PAGE>
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 of 1976 ("HSR
Act") (which expiration occurred on November 7, 1997)); (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 statutory waiting period under the HSR Act
expired on November 7, 1997. 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
D-11
<PAGE>
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 filings, 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 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."
D-12
<PAGE>
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.
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
D-13
<PAGE>
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."
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 .075
Quarter ending November 30, 1997 (through November 10, 1997)...... 43.875 34.50 --
</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 November 10, 1997, the
last reported sale prices per share of NDC Common Stock on the NYSE was $36.625.
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
D-14
<PAGE>
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."
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 THREE MONTHS ENDED
MAY 31, 1997 AUGUST 31, 1997
------------- -------------------
<S> <C> <C>
NET INCOME PER SHARE:
NDC Historical............................................................. $ 1.38 $ 0.38
Pro Forma Combined......................................................... 1.37 0.31
Equivalent Pro Forma(a).................................................... .99 0.22
DIVIDENDS PER COMMON SHARE:
NDC Historical............................................................. 0.30 0.08
Pro Forma Combined......................................................... 0.30 0.08
Equivalent Pro Forma(a).................................................... 0.22 0.06
STOCKHOLDER'S EQUITY (BOOK VALUE) PER COMMON SHARE:
(AT PERIOD END)
NDC Historical............................................................. 10.45 10.77
Pro Forma Combined......................................................... 11.02 10.86
Equivalent Pro Forma(a).................................................... 7.93 7.82
</TABLE>
- - ------------------------
(a) Excludes the effect of the cash to be issued in conjunction with the Merger
and the Stock Purchase.
RECENT DEVELOPMENTS
On October 14, 1997, NDC signed a definitive agreement to acquire Physician
Support Systems, Inc., a publicly-held Delaware corporation ("PSS"), in exchange
for approximately 4,730,000 shares of NDC Common Stock. PSS provides business
management services to physicians and hospitals in 29 states. For the year ended
December 31, 1996 and the nine months ended September 30, 1997, PSS reported
total revenues of $75.2 million and $81.7 million, respectively, and net loss of
$9.7 million and pro forma net income of $2.7 million, respectively. As of
September 30, 1997, PSS had total consolidated assets of $117.4 million and
consolidated stockholders' equity of $52.0 million. The PSS transaction is
subject to the approval of the PSS stockholders as well as other standard
closing conditions and is expected to close by January 31, 1998.
On November 6, 1997, NDC announced that Robert L. Walker will become chief
financial officer of NDC effective December 1, 1997. Mr. Walker previously
served as chief financial officer of Providian Corporation, a Louisville,
Kentucky based insurance and financial services company whose business includes
credit card and other consumer lending offerings.
D-15
<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 Financial Data." In the opinion of management of NDC, interim
unaudited historical data reflect and include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of such data.
Unaudited results of operations for the three months ended August 31, 1997, are
not necessarily indicative of results which may be expected for any other
interim period or for the fiscal year as a whole.
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 and Quarterly Report on Form 10-Q, which are incorporated by
reference herein. See "Available Information" and "Incorporation of Certain
Information by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEARS ENDED MAY 31
------------------------ -----------------------------------------------------
AUGUST 31, AUGUST 31,
1997 1996 1997 1996 1995 1994 1993
----------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................... $ 120,102 $ 101,164 $ 433,860 $ 325,803 $ 278,083 $ 237,659 $ 239,810
Operating income (loss).... 19,633 13,934 66,656 (11,834) 28,426 18,423 14,894
Income (loss) from
continuing operations.... 10,604 8,205 38,753 (8,458) 18,421 12,226 8,045
PER SHARE DATA:
Income (loss) from
continuing operations.... $ 0.38 $ 0.30 $ 1.38 $ (0.31) $ 0.79 $ 0.55 $ 0.37
Cash dividends............. 0.075 0.075 0.30 0.30 0.30 0.29 0.29
Fully diluted weighted
average number of common
and common equivalent
shares outstanding....... 28,201 27,800 28,039 27,189 23,481 22,351 18,803
BALANCE SHEET DATA
(AT PERIOD END):
Total assets............... $ 529,403 $ 369,417 $ 521,683 $ 368,039 $ 255,758 $ 214,864 $ 203,391
Long-term obligations...... 156,407 12,853 155,690 13,324 26,410 21,664 20,254
Total stockholders'
equity................... 286,912 242,134 277,470 233,299 164,651 134,723 124,001
</TABLE>
D-16
<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>
THREE MONTHS ENDED FISCAL YEARS ENDED JUNE 30
-------------------------- -----------------------------------------------------
SEPTEMBER SEPTEMBER
30, 30,
1997 1996 1997 1996 1995 1994 1993
------------ ------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................... $ 15,300 $ 13,484 $ 59,885 $ 51,812 $ 48,710 $ 45,757 $ 28,831
Operating income (loss).......... 338 1,041 6,680 4,315 3,610 (1,797) (16,217)
Income (loss) from continuing
operations..................... 203 979 6,479 3,766 2,610 (4,946) (17,680)
BALANCE SHEET DATA
(AT PERIOD END):
Total assets..................... 24,262 24,885 27,641 27,566 26,420 23,874 15,544
Long-term obligations............ 8,179 5,909 7,490 6,525 5,822 4,797 6,574
Total stockholders' equity....... (45,298) (50,551) (45,051) (51,530) (55,296) (57,906) (52,960)
</TABLE>
D-17
<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, and the three months
ended August 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 three months ended September 30, 1997 and
twelve months ended June 30, 1997, respectively, are used in conjunction with
the NDC three and twelve months ended August 31, 1997 and 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.
Historically, the financial results of Source US (the principal business of
Source and PMSI Database, operated as a joint venture) have varied from quarter
to quarter. These fluctuations are principally due to the timing of customer
commitments to new products and services and the timing of delivery of Source US
services. For example, many of the pharmaceutical manufacturing customers of
Source US report results on a calendar year basis. In general, commitments are
made by Source US's customers in the summer and fall for delivery in the first
part of the next calendar year. Source US's fiscal year begins July 1. Source
typically incurs expenses during the first half of its fiscal year (the last
half of the calendar year), in preparation for full roll-out of new products and
services to meet customer requirements. Consequently, during Source US's first
quarter, significant expense with respect to new products is incurred to
generate revenues which should be recognized in future quarters. See "Source
Informatics Inc.--Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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>
PRO FORMA COMBINED
-------------------------
THREE
YEAR ENDED MONTHS ENDED
MAY 31, AUGUST 31,
1997 1997
----------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................................ $ 523,605 $ 141,637
Operating income................................................ 73,061 19,056
Income from continuing operations............................... 42,110 9,506
PER SHARE DATA:
Income from continuing operations............................... 1.37 0.31
Cash dividends.................................................. 0.30 0.08
Weighted average common shares outstanding...................... 30,654 30,816
BALANCE SHEET DATA
(AT AUGUST 31, 1997):
Total assets.................................................... 627,089
Long-term obligations........................................... 164,359
Total stockholders' equity...................................... 317,727
</TABLE>
D-18
<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 ACQUISITIONS
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.
HEALTH CARE INFORMATION SERVICES
Federal and state governments have recently focused significant attention on
health care reform. It is not possible to predict which, if any, proposal that
has been or will be considered will be adopted. There can be no assurance that
the health care regulatory environment will not change so as to restrict the
existing operations of, impose additional requirements on or limit the expansion
of NDC. Costs of compliance with changes in government regulations may not be
subject to recovery by NDC through price increases.
Significant media and public attention has recently been focused on the
health care industry due to ongoing federal and state investigations purportedly
related to certain referral and billing practices. The Office of the Inspector
General and the Department of Justice have initiated hospital and laboratory
billing review projects in certain states and are expected to extend such
projects to additional states, including states in which NDC, upon the
consummation of its acquisition of PSS, will operate. These projects increase
the likelihood of governmental investigations of hospitals, laboratories and
other institutions for which NDC and PSS perform services. Although PSS
currently monitors, and, upon the
D-19
<PAGE>
consummation of its acquisition of PSS, NDC intends to continue to monitor,
billing practices and arrangements to ensure compliance with prevailing industry
practices under applicable laws, such laws are complex and constantly evolving
and there can be no assurance that governmental investigators will not take
positions that are inconsistent with industry practices.
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. Specifically, with regard to the acquisition of Source, certain
products currently under development may never reach technological feasibility
which could have a material adverse effect upon NDC's operating results. See
"Annex E--Pro Forma Financial Information." NDC may incur indebtedness in the
future, including through borrowings under a credit facility, if a credit
facility is available, to finance acquisitions. As a result, NDC expects to be
subject to risks associated with debt financing, including the risk that
interest rates may increase, the risk that NDC's cash flow will be insufficient
to meet required payments on its debt and the risk that NDC may be unable to
refinance or repay the debt as it comes due. In addition, NDC competes for
acquisition and expansion opportunities with companies that have substantially
greater resources.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW, CERTAIN CHARTER AND BY-LAW PROVISIONS
AND STOCKHOLDER RIGHTS PLAN
Certain provisions of NDC's Certificate of Incorporation and By-laws could
delay, defer or prevent a takeover attempt that a stockholder might consider in
its best interest. These provisions may adversely affect prevailing market
prices for NDC Common Stock. These provisions, among other things, classify
NDC's Board of Directors into three classes as nearly equal in number as the
total number of directors permits, each of which serves for different three-year
terms, and authorize the Board of Directors to issue preferred stock in one or
more classes or series and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any action on the part of the stockholders. The rights of the holders of NDC
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of NDC. NDC has no current plans to issue shares of
preferred stock. NDC also maintains a stockholder rights plan which entitles its
stockholders, upon the happening of certain events, to purchase preferred stock
of NDC. These NDC Rights (hereinafter defined) 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. In addition, Section 203 of the Delaware General Corporation Law
("DGCL") prohibits certain persons from engaging in business combinations with
NDC, which may also have the effect of delaying, deterring or preventing a
change of control of NDC.
D-20
<PAGE>
NEW PRODUCT INTRODUCTIONS
With NDC's acquisition of Source and PMSI Database, NDC plans to introduce
products and services different from those NDC has traditionally provided. The
market for these products and services is characterized by rapid technological
change, frequent new product introductions, evolving industry standards and
changing customer needs. There can be no assurance that NDC will be successful
in developing and marketing these new products and services or that Source's
current or new products and services will adequately meet the quickly changing
demands of Source's pharmaceutical company customers. In addition, in order to
meet its customers' demands, Source has undertaken a number of development
projects, including efforts to update its core mainframe-based products. Because
it is generally not possible to predict the time required and costs involved in
reaching certain research, development and engineering objectives, estimated
product development schedules could require extensions. NDC believes that the
future sucess of the Source business will depend in large part on its ability to
maintain and enhance its current product and service offerings and to
continually develop and introduce new products and services that will keep pace
with technological advances and satisfy evolving customer requirements. Further,
there can be no assurance that NDC will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of these
products and services. If NDC is unable to develop and introduce new products
and services in a timely manner, or if a new or updated product does not achieve
market acceptance, NDC's financial condition and results of operations could be
materially adversely affected.
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 herein and from time to
time in other NDC reports and other filings with the Commission. 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.
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,
D-21
<PAGE>
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 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) 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;
(c) 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
(d) 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."
D-22
<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.
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
D-23
<PAGE>
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 Source Preferred Stock was issued in connection with the spin-off of
Source from Walsh International Inc. ("Walsh") immediately prior to Walsh's
initial public offering of securities in April 1996. The terms of the Source
Preferred Stock are based upon and substantially reflect the terms of a series
of preferred stock of Walsh that was issued to private investors in 1993. The
terms of the Source Preferred Stock were negotiated with such investors in order
to induce them to convert their Walsh preferred shares into common stock at the
time of the public offering, and are intended to substantially preserve the
originally negotiated rights of the Walsh preferred stock, including redemption
rights and liquidation preference. Because several of such investors were
subject to underwriters' "lock-up" agreements and could not liquidate their
Walsh common stock immediately following the public offering, the Source
Preferred Stock also includes provisions that, in effect, give limited price
protection with respect to the Walsh common stock. See "--Redemption." 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.
Redemption. The Source Preferred Stock is subject to mandatory redemption
and, in certain circumstances, optional redemption at the election of the
holder. In general, the redemption price of the Source Preferred Stock per share
is the sum of (i) $11.33, plus (ii) any declared and undistributed dividends in
respect of the Source Preferred Stock, plus (iii) on the date on which all
outstanding shares of Source Preferred Stock are redeemed, the "Additional
Redemption Amount." The Additional Redemption Amount is calculated, in the case
of each holder of Source Preferred Stock, as (a) 74% of the initial public
offering price of the Walsh common stock (i.e., $8.88) multiplied by the number
of shares of Walsh common stock held by such holder on the date of consummation
of the Walsh initial public offering, less (b) the net proceeds received by such
holder from any sales of its shares of Walsh common stock, less (c) the
aggregate value of any securities received by it in respect of its shares of
Walsh common stock
D-24
<PAGE>
pursuant to a merger or other business combination involving Walsh, less (d) the
aggregate value of Walsh common stock otherwise transferred by it to
unaffiliated third parties, less (e) 50% of the aggregate value of the shares of
Walsh common stock held by it on September 30, 1997, less (f) any excess of the
value of the shares of Walsh common stock held by it on the date of final
redemption over the amount provided in clause (e). In effect, the Additional
Redemption Amount is designed to compensate the holders of Source Preferred
Stock to the extent that the value of (or proceeds received from disposition of)
their Walsh common stock is less than $8.88 per share (74% of the initial public
offering price of $12 per share). This level of price protection with respect to
the Walsh common stock was a negotiated compromise between Source and Walsh, on
the one hand, and the holders of the Walsh preferred stock, on the the other
hand.
The market value of the Walsh common stock (calculated in accordance with
the Source Certificate of Incorporation as the average closing price of the
Walsh common stock for the ten trading days commencing twelve trading days
before September 30) was $11.18. Pursuant to the formula determining the
Additional Redemption Amount, 50% of this value ($5.59) would be deducted from
the maximum $8.88 Additional Redemption Amount. As a result, in general, the
Additional Redemption Amount will be zero unless, as of the date of
determination, the market value of the Walsh common stock is less than $3.29.
The closing price of the Walsh common stock on the Nasdaq National Market was
$10.25 on November 6, 1997. 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. In August 1997, the holders of
the Source Preferred Stock consented to the deferral of the September 30, 1997
redemption until December 15, 1997. If the Merger is not consummated on or
before such date, then the 520,834 shares of Source Preferred Stock originally
scheduled for redemption on September 30, 1997 will be manditorally redeemable.
Upon the occurrence of a change of control event, each holder of Source
Preferred Stock has the right to require Source to redeem such holder's Shares.
The Merger constitutes such a change of control event. The merger consideration
payable to the holders of the Source Preferred Stock equals the amount that such
holders would be entitled to receive upon redemption as of the date of
consummation of the Merger. See "Merger."
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.
MERGER. In general, 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. However, in the event of a merger (such as the Merger) that
constitutes a "Change of Control Event" under the Designation, holders of the
Source Preferred Stock have the right to elect to have their shares redeemed at
a redemption price equal to the greater of (a) $11.33 and (b) the greater of the
market price of the Source Common Stock and the price per share of Source Common
Stock in the Change of Control transaction, plus, in the case of both (a) and
(b), the Additional Redemption Amount and any declared but unpaid dividends or
other distributions with respect to the Source Preferred Stock. The Merger
Agreement
D-25
<PAGE>
accordingly provides that the holders of the Source Preferred Stock are entitled
to receive merger consideration of $11.33 per share, subject to adjustment to
equal the amount that the holders would receive if their shares had been
redeemed (i.e., an increase to the extent of any applicable Additional
Redemption Amount and any declared but unpaid distributions).
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. In
addition, pursuant to the Stockholders Agreement, the consent of the holders of
at least a majority of the outstanding Preferred Stock is required to approve
the Merger.
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
fourth Thursday of October and for special meetings to be held on call of the
Chairman or President or at the request of a majority of the members of the
Board of Directors. The NDC Bylaws do not permit stockholders to call a special
meeting of stockholders. 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
D-26
<PAGE>
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 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."
D-27
<PAGE>
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").
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.
D-28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected pro forma condensed consolidated
financial information as of August 31, 1997 and for the year ended May 31, 1997
and the three months ended August 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 and accounting policies of NDC. For
comparability purposes, Source and PMSI Database's twelve months ended June 30,
1997 and three months ended September 30, 1997 are used in conjunction with the
NDC twelve months ended May 31, 1997 and three months ended August 31, 1997.
The pro forma 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.
Historically, the financial results of Source US (the principal business of
Source and PMSI Database, operated as a joint venture) have varied from quarter
to quarter. These fluctuations are principally due to the timing of customer
commitments to new products and services and the timing of delivery of Source US
services. For example, many of the pharmaceutical manufacturing customers of
Source US report results on a calendar year basis. Commitments are made by
Source US's customers in the summer and fall for delivery in the first part of
the next calendar year. Source US's fiscal year begins July 1. Source typically
incurs expenses during the first half of its fiscal year (the last half of the
calendar year) in preparation for roll-out of the products and services to meet
customer requirements. Consequently, during Source US's first quarter,
significant expense is incurred to generate revenues which should be recognized
in future quarters.
Unaudited pro forma financial information should be reviewed in conjunction
with "Source Informatics Inc.--Management's Discussion and Analysis of Financial
Condition and Results of Operations" located on pages 48-51 of this document.
D-29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PMSI
-----------------------
NDC SOURCE DATABASE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents............... $ 18,224 $ 4,322 $ 219 $ (219)(a) $ 9,321
(13,225)(b)
Accounts receivable, net of allowance... 81,484 7,692 7,622 0 96,798
Other current assets.................... 12,367 2,023 242 0 14,632
---------- ---------- ---------- ------------- ------------
Total current assets.............. 112,075 14,037 8,083 (13,444) 120,751
PROPERTY, PLANT, AND EQUIPMENT, NET..... 50,829 10,483 4,378 0 65,690
INTANGIBLE ASSETS, NET.................. 352,102 0 0 73,816(d) 425,918
OTHER................................... 14,397 329 4 0 14,730
---------- ---------- ---------- ------------- ------------
Total assets...................... 529,403 24,849 12,465 60,372 627,089
---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued
liabilities........................... $ 49,768 $ 9,771 $ 1,214 $ (3,479)(c) $ 57,274
Due to Parent........................... 0 36,556 0 (36,556)(c) 0
Line of credit payable.................. 0 0 0 29,026(b) 29,026
Notes and earn-out payable.............. 298 61 0 0 359
Income taxes payable.................... 6,904 0 0 0 6,904
Obligations under capital leases........ 2,484 4,947 553 0 7,984
Deferred income......................... 6,090 11,906 4,920 0 22,916
---------- ---------- ---------- ------------- ------------
Total current liabilities......... 65,544 63,241 6,687 (11,009) 124,463
Long-Term Debt.......................... 150,048 0 0 0 150,048
Obligations under capital leases........ 2,890 4,929 1,046 0 8,865
Other long-term liabilities............. 3,469 1,977 0 0 5,446
---------- ---------- ---------- ------------- ------------
Total liabilities................. 221,951 70,147 7,733 (11,009) 288,822
---------- ---------- ---------- ------------- ------------
MINORITY INTEREST....................... 20,540 0 0 0 20,540
STOCKHOLDERS' EQUITY:
Common and preferred stock.............. $ 3,329 $ 0 $ 0 $ 327(e) $ 3,656
Additional paid-in capital.............. 183,813 0 0 97,488(e) 281,301
Retained earnings (accumulated
deficit).............................. 101,759 (45,298) 4,732 (67,000)(d) 34,759
40,566(f)
Equity adjustments...................... (1,989) 0 0 0 (1,989)
---------- ---------- ---------- ------------- ------------
Total stockholders' equity........ 286,912 (45,298) 4,732 71,381 317,727
---------- ---------- ---------- ------------- ------------
Total liabilities and
stockholders' equity............ $ 529,403 $ 24,849 $12,465 $ 60,372 $627,089
---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ------------- ------------
</TABLE>
D-30
<PAGE>
- - ------------------------
Adjustments:
(a) Reflects the PMSI Database cash, after the effects of settling all
intercompany and affiliate accounts in (c), that is not being acquired by
NDC under the terms of the Merger and Stock Purchase Agreements.
(b) 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 less the portion paid out of operating cash of $13.2
million.
(c) Reflects the repayment and/or forgiveness of all intercompany and affiliate
accounts.
(d) Reflects the excess of the purchase price over the net assets (liabilities)
acquired in the acquisitions, net of a projected non-recurring charge of
approximately $67 million ($60.6 million after-tax) related to purchased
in-process research and development. This charge relates entirely to the
operations of Source U.S. Based on the allocation model of Source U.S.
operations (76% to Source and 24% to PMSI), approximately $51 million of the
charge can be attributable to Source and $16 million to PMSI. The purchase
price equals $92 million and $48 million for Source and PMSI Database,
respectively, based on 1,555,556 shares for Source and 1,059,829 shares for
PMSI Database at $37.40 per share stock price plus $31.8 million and $6.5
million of cash for Source and PMSI Database, respectively, and $4 million
in acquisition related expenses. Approximately $5.5 million in net
liabilities are assumed to be acquired in the purchase of Source.
Approximately $4.7 million of assets are assumed to be acquired in the
purchase of PMSI Database. The intangibles and the related lives are as
follows:
<TABLE>
<S> <C> <C>
Product technology........................... $17.3 million 5 years
Assembled work force......................... 3.0 7
Customer relations/Goodwill.................. 53.5 20
</TABLE>
The respective breakdown of the above identified components of the intangible
asset can be attributed 76% to Source and 24% to PMSI based upon the
aforementioned allocation model.
(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 Merger Agreement and the Stock Purchase Agreement.
(f) Reflects the elimination of Source and PMSI Database's historical equity
balances.
D-31
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MAY 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
EQUIFAX
HEALTH EDI
PMSI FOUR MONTHS ENDED PRO FORMA
NDC SOURCE DATABASE SEPTEMBER 30, PRO FORMA CONSOLIDATED
HISTORICAL HISTORICAL HISTORICAL 1996 ADJUSTMENTS (A) (A)
----------- ----------- ----------- ------------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $ 433,860 $ 59,885 $ 25,009 $ 4,851 $ 0 $ 523,605
COST OF SERVICE......... 207,754 20,005 7,029 2,218 6,564(b) 243,570
SALES, GENERAL AND
ADMINISTRATIVE........ 159,450 33,200 12,062 2,262 0 206,974
----------- ----------- ----------- ------ ------- -------------
367,204 53,205 19,091 4,480 6,564 450,544
----------- ----------- ----------- ------ ------- -------------
OPERATING INCOME........ 66,656 6,680 5,918 371 (6,564) 73,061
OTHER INCOME (EXPENSE):
Interest and other
income................ 2,403 780 91 0 (688)(c) 2,586
Interest and other
expense............... (6,814) (981) (147) 0 (1,191)(d) (9,133)
Minority interest....... (1,694) 0 0 0 0 (1,694)
----------- ----------- ----------- ------ ------- -------------
Total other income
(expense)............. (6,105) (201) (56) 0 (1,879) (8,241)
----------- ----------- ----------- ------ ------- -------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES.......... 60,551 6,479 5,862 371 (8,443) 64,820
PROVISION FOR INCOME
TAXES................. (21,798) -- (2,333) (141) 1,562(e) (22,710)
----------- ----------- ----------- ------ ------- -------------
INCOME FROM CONTINUING
OPERATIONS............ $ 38,753 $ 6,479 $ 3,529 $ 230 $ (6,881) $ 42,110
----------- ----------- ----------- ------ ------- -------------
----------- ----------- ----------- ------ ------- -------------
FULLY DILUTED WEIGHTED
AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING........... 28,039 0 0 0 2,615(f) 30,654
INCOME FROM CONTINUING
OPERATIONS PER SHARE.. $ 1.38 $ 1.37
</TABLE>
- - ------------------------------
Adjustments:
(a) Excludes the impact of the non-recurring charge related to purchased
in-process research and development costs of $67.0 million, or $(2.19) per
share. This charge relates entirely to the operations of Source U.S. Based
on the allocation model of Source U.S. operations (76% to Source and 24% to
PMSI), approximately $51 million of the charge can be attributable to Source
and $16 million to PMSI.
(b) Reflects the amortization of intangibles resulting from the Stock Purchase
and Merger. See note (d) to the pro forma balance sheet for further
discussion.
(c) Represents reduction in interest income using NDC's weighted average rate
(5.2%) from reduced funds available for investment as a result of cash used
in association with the acquisition. See Note (b) to the pro forma balance
sheet for further discussion.
(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,
offset by the elimination of interest on Source and PMSI intercompany
borrowing of approximately $.5 million.
(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 Merger Agreement and Stock Purchase Agreement.
D-32
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED AUGUST 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PMSI
NDC SOURCE DATABASE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS(A) CONSOLIDATED(A)
--------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES................................... $ 120,102 $ 15,300 $ 6,235 $ 0 $ 141,637
COST OF SERVICE............................ 58,970 3,747 1,551 1,641(b) 65,909
SALES, GENERAL AND ADMINISTRATIVE.......... 41,499 11,215 3,958 0 56,672
--------- ----------- ----------- ------------- ------------
100,469 14,962 5,509 1,641 122,581
--------- ----------- ----------- ------------- ------------
OPERATING INCOME........................... 19,633 338 726 (1,641) 19,056
OTHER INCOME (EXPENSE):
Interest and other income.................. 485 86 12 (172)(c) 411
Interest and other expense................. (2,314) (221) (45) (292)(d) (2,872)
Minority interest.......................... (701) 0 0 0 (701)
--------- ----------- ----------- ------------- ------------
Total other income (expense)............... (2,530) (135) (33) (464) (3,162)
--------- ----------- ----------- ------------- ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................. 17,103 203 693 (2,105) 15,894
PROVISION FOR INCOME TAXES................. (6,499) 0 (277) 388(e) (6,388)
--------- ----------- ----------- ------------- ------------
INCOME FROM CONTINUING OPERATIONS.......... $ 10,604 $ 203 $ 416 $ (1,717) $ 9,506
--------- ----------- ----------- ------------- ------------
--------- ----------- ----------- ------------- ------------
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.............................. 28,201 0 0 2,615(f) 30,816
INCOME FROM CONTINUING OPERATIONS PER
SHARE(g)................................. $ 0.38 $ 0.31
--------- ----------- ----------- ------------- ------------
</TABLE>
- - ------------------------
Adjustments:
(a) Excludes the impact of the non-recurring charge related to purchased
in-process research and development costs of $67.0 million or $(2.17) per
share. This charge relates entirely to the operations of Source U.S. Based
on the allocation model of Source U.S. operations (76% to Source and 24% to
PMSI), approximately $51 million of the charge can be attributable to Source
and $16 million to PMSI.
(b) Reflects the additional amortization of intangibles resulting from the Stock
Purchase and Merger. See note (d) to the pro forma balance sheet for further
discussion.
(c) Represents reduction in interest income using NDC's weighted average rate
(5.2%) from reduced funds available for investment as a result of cash used
in association with the acquisition. See Note (b) to the pro forma balance
sheet for further discussion.
(d) Represents additional interest expense on the borrowings on NDC's line of
credit using an estimated interest rate of 5.75% for the quarter ended
August 31, 1997, offset by the elimination of interest on Source and PMSI
intercompany borrowing of approximately $.1 million.
(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 Merger Agreement and Stock Purchase Agreement.
(g) The dilution in earnings per share reflects the seasonality of the Source US
business. See "Source Informatics Inc.--Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 48-51 of this
Proxy Statement/Prospectus.
D-33
<PAGE>
PHARMACEUTICAL MARKETING SERVICES INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting of Stockholders, , 1997
The undersigned stockholder of PHARMACEUTICAL MARKETING SERVICES INC., a
Delaware corporation, hereby appoints Frederick W. Kyle and Warren J. Hauser or
either of them, voting singly in the absence of the others, attorneys and
proxies, with full power of substitution and revocation, to vote, as designated
below, all shares of Common Stock of Pharmaceutical Marketing Services Inc. that
the undersigned is entitled to vote at the Special Meeting of Stockholders of
said corporation to be held at on
1997, at .m. (local time) or any adjournment thereof, in accordance
with the instructions on the reverse side.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED "FOR" THE PROPOSAL. The proxies are authorized to vote as they may
determine in their discretion upon such other business as may properly come
before the meeting.
PLEASE MARK, DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY USING THE
ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
TO APPROVE AND ADOPT THE STOCK PURCHASE AGREEMENT WITH NATIONAL DATA
CORPORATION AND THE SECURITIES TRANSFER AGREEMENT WITH SOURCE INFORMATICS INC.,
AND THE RELATED TRANSACTIONS PURSUANT THERETO.
<TABLE>
<CAPTION>
ABSTAIN FOR AGAINST
<S> <C> <C>
/ / / / / /
</TABLE>
The proxies are authorized to vote as they may determine in their discretion
upon such other business as may properly come before the meeting.
Date: _______________________________,
1997
---------------------------------------
Signature
---------------------------------------
Signature (if held jointly)
PLEASE SIGN EXACTLY AS NAME APPEARS
ABOVE.
WHEN SHARES ARE HELD IN NAME OF JOINT
HOLDERS, EACH SHOULD SIGN. WHEN SIGNING
AS ATTORNEY, EXECUTOR, TRUSTEE,
GUARDIAN, ETC., PLEASE SO INDICATE. IF
A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY AN AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN
IN PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
