<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
QUINTILES TRANSNATIONAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 8731 56-1714315
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation Classification Identification Number)
or organization) Code Number)
</TABLE>
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 200
DURHAM, NORTH CAROLINA 27703-8411
(919) 998-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DENNIS B. GILLINGS, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 200
DURHAM, NORTH CAROLINA 27703-8411
(919) 998-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
GERALD F. ROACH, ESQ. BOB F. THOMPSON, ESQ.
BYRON B. KIRKLAND, ESQ. BASS, BERRY & SIMS PLC
SMITH, ANDERSON, BLOUNT, 2700 First American Center
DORSETT, MITCHELL & JERNIGAN, L.L.P. Nashville, Tennessee 37238-2700
2500 First Union Capitol Center (615) 742-6200
Raleigh, North Carolina 27601
(919) 821-1220
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share......... 30,717,729(2) N/A $1,224,412,934 $340,387
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) and (f)(1) and (2), based upon the sum of (i)
the product of (x) the average of the high and low sale prices of ENVOY
Corporation common stock on The Nasdaq Stock Market on February 16, 1999 and
(y) the number of shares of ENVOY common stock outstanding as of January 26,
1999 and the number of shares of ENVOY common stock that may be issued
pursuant to the exercise of outstanding options to purchase ENVOY common
stock between January 26, 1999 and the consummation of the merger and (ii)
the $41,300,000 book value of the 2,800,000 shares of ENVOY Series B
convertible preferred stock to be exchanged in the merger.
(2) Based upon the number of the registrant's securities that may be issued in
the merger, calculated as the product of (i) 26,344,536, the aggregate
number of shares of ENVOY common stock and Series B convertible preferred
stock outstanding on January 26, 1999 plus the number of shares of ENVOY
common stock that may be issued pursuant to the exercise of outstanding
options to purchase ENVOY common stock between January 26, 1999 and the
consummation of the merger, and (ii) the exchange ratio of 1.166 shares of
common stock of the registrant for each share of ENVOY common stock and
Series B convertible preferred stock.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
(LOGO QUINTILES TRANSNATIONAL)
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 200
DURHAM, NORTH CAROLINA 27703-8411
February [ ], 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Quintiles Transnational Corp. to be held at :00 .m., local time, on March
, 1999 at [ ].
At the Quintiles special meeting, you will be asked to vote on the
following two proposals:
First, a proposal to approve issuing shares of Quintiles common stock in
the acquisition of ENVOY Corporation by Quintiles. Under the terms of the
merger, we would issue 1.166 shares of Quintiles common stock for each
outstanding share of ENVOY common stock and Series B convertible preferred
stock, which would total approximately 28,437,411 shares of Quintiles common
stock. After the merger, ENVOY would be a wholly owned subsidiary of Quintiles.
Second, a proposal to amend Quintiles' Amended and Restated Articles of
Incorporation to increase the number of authorized shares of Quintiles common
stock from 200,000,000 to 500,000,000.
The enclosed Joint Proxy Statement/Prospectus includes a summary of the
basic terms and conditions of the merger, a fairness opinion of Goldman, Sachs &
Co. relating to the consideration Quintiles would pay in the merger, certain
financial and other information relating to Quintiles and ENVOY and copies of
the amended and restated merger agreement and related stock voting agreement. We
urge you to review and consider the enclosed materials carefully. Approval of
the proposal to issue shares of Quintiles common stock to the ENVOY shareholders
in connection with the merger requires the affirmative vote of a majority of the
shares of Quintiles common stock voted at the special meeting, either in person
or by proxy. Approval of the amendment to Quintiles' articles of incorporation
to increase the number of authorized shares of Quintiles common stock requires
the affirmative vote of a majority of the outstanding shares of Quintiles common
stock entitled to vote at the special meeting, either in person or by proxy.
THE BOARD OF DIRECTORS HAS APPROVED EACH OF THE PROPOSALS TO ISSUE SHARES
OF QUINTILES COMMON STOCK IN THE MERGER AND THE AMENDMENT TO QUINTILES' ARTICLES
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF QUINTILES COMMON
STOCK AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF EACH PROPOSAL.
<PAGE> 3
Whether or not you plan to attend the special meeting, it is important that
your shares be voted. Accordingly, we ask that you mark, date, sign and return
the enclosed proxy card in the envelope provided, which requires no postage if
mailed in the United States, so that we will receive it NO LATER THAN MARCH ,
1999.
Sincerely,
Dennis B. Gillings, Ph.D.
Chairman and Chief Executive
Officer
<PAGE> 4
ENVOY CORPORATION
TWO LAKEVIEW PLACE
15 CENTURY BOULEVARD, SUITE 600
NASHVILLE, TENNESSEE 37214
February , 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of ENVOY Corporation to be held on , March , 1999, at 10:00
a.m. local time (CST) at . Notice of this meeting, a Joint
Proxy Statement/Prospectus and proxy card are enclosed.
At the special meeting, you will be asked to vote on a proposal to approve
the Amended and Restated Agreement and Plan of Merger between ENVOY, Quintiles
Transnational Corp. and QELS Corp., a wholly owned subsidiary of Quintiles.
Under the terms of the merger agreement, holders of ENVOY common stock and
holders of ENVOY Series B convertible preferred stock will receive 1.166 shares
of Quintiles common stock in exchange for each share of ENVOY common stock
and/or ENVOY Series B convertible preferred stock that they own. After the
merger, ENVOY will be a wholly owned subsidiary of Quintiles.
The enclosed Joint Proxy Statement/Prospectus includes a summary of the
basic terms and conditions of the merger, a fairness opinion of Morgan Stanley &
Co. Incorporated relating to the consideration that holders of ENVOY common
stock would receive in the merger, certain financial and other information
relating to ENVOY and Quintiles and copies of the merger agreement and related
stock voting agreement. We encourage you to review and consider these materials
carefully. Approval of the proposal requires the affirmative vote, in person or
by proxy, of a majority of the shares of ENVOY common stock and Series B
convertible preferred stock (voting together as one class) and the affirmative
vote of a majority of the shares of ENVOY Series B convertible preferred stock
voting separately as a class.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
ENVOY AND ITS SHAREHOLDERS AND HAS THEREFORE UNANIMOUSLY APPROVED THE PROPOSED
MERGER AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER.
All shareholders are invited to attend the special meeting in person.
Whether or not you plan to attend, in order that your shares may be represented
at the special meeting, please complete, sign and date the enclosed proxy card
and return it as promptly as possible in the enclosed envelope so that we will
receive it no later than March , 1999. If you attend the special meeting in
person, you may, if you wish, vote personally on all matters brought before the
special meeting even if you have previously returned your proxy.
If the proposed merger is approved and consummated, a Letter of Transmittal
containing instructions regarding the exchange and issuance of new stock
certificates for Quintiles common stock will be sent to you. PLEASE DO NOT SEND
IN ANY STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED FURTHER INSTRUCTIONS REGARDING
THE EXCHANGE.
Your interest and participation are appreciated.
Sincerely,
Fred C. Goad, Jr.
Chairman and Co-Chief Executive
Officer
<PAGE> 5
(Logo Quintiles Transnational)
QUINTILES TRANSNATIONAL CORP.
4709 CREEKSTONE DRIVE
RIVERBIRCH BUILDING, SUITE 200
DURHAM, NORTH CAROLINA 27703-8411
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH , 1999
You are cordially invited to attend a special meeting of shareholders of
Quintiles Transnational Corp. ("Quintiles") to be held at :00 .m., local
time, on March , 1999 at [ ] for the following purposes:
1. To consider and vote on a proposal to issue shares of Quintiles
common stock to the shareholders of ENVOY Corporation ("ENVOY") in exchange
for their shares of ENVOY common stock and ENVOY Series B convertible
preferred stock pursuant to the Amended and Restated Agreement and Plan of
Merger, dated as of December 15, 1998, by and among Quintiles, QELS Corp.
and ENVOY. A copy of the merger agreement is attached as Appendix A to the
accompanying Joint Proxy Statement/Prospectus. In the merger, Quintiles
would issue 1.166 shares of Quintiles common stock for each outstanding
share of ENVOY common stock and ENVOY Series B convertible preferred stock,
which totals approximately 28,437,411 shares of Quintiles common stock.
After the merger, ENVOY would be wholly owned by Quintiles.
2. To approve an amendment to Quintiles' Amended and Restated Articles
of Incorporation to increase the number of authorized shares of Quintiles
common stock from 200,000,000 to 500,000,000.
3. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the special meeting.
Only shareholders at the close of business on January 21, 1999 are entitled
to receive this notice and to vote at the special meeting, or any adjournment or
postponement of the meeting. Approval of the proposal to issue shares of
Quintiles common stock to the ENVOY shareholders requires the affirmative vote
of a majority of the shares of Quintiles common stock voted at the special
meeting, either in person or by proxy. Approval of the amendment to the articles
of incorporation requires the affirmative vote of a majority of the outstanding
shares of Quintiles common stock entitled to be voted at the special meeting,
either in person or by proxy.
All shares represented by proxies will be voted as specified on the proxy
card. Proxy cards which are signed, but not marked, will be voted FOR approval
of Proposal 1 and Proposal 2.
The enclosed Joint Proxy Statement/Prospectus includes a summary of the
basic terms and conditions of the merger, a fairness opinion of Goldman, Sachs &
Co. relating to the consideration Quintiles would pay in the merger, certain
financial and other information relating to Quintiles and ENVOY and copies of
the merger agreement and related stock voting agreement. In addition, the Joint
Proxy Statement/Prospectus includes information
<PAGE> 6
relevant to consideration of Proposal 2. We urge you to review and consider the
enclosed materials carefully.
Whether or not you attend the special meeting, it is important that your
shares be voted. Accordingly, we ask that you mark, date, sign and return the
enclosed proxy card in the envelope provided, which requires no postage if
mailed in the United States, so that we will receive it NO LATER THAN MARCH ,
1999.
By order of the Board of
Directors,
Gregory D. Porter
Executive Vice President, Chief
Administrative and Legal Officer
and Corporate Secretary
Durham, North Carolina
February [ ], 1999
2
<PAGE> 7
ENVOY CORPORATION
TWO LAKEVIEW PLACE
15 CENTURY BOULEVARD, SUITE 600
NASHVILLE, TENNESSEE 37214
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH , 1999
TO THE SHAREHOLDERS OF ENVOY CORPORATION:
You are cordially invited to attend a special meeting of shareholders of
ENVOY Corporation ("ENVOY") to be held on March , 1999 at 10:00 a.m. local
time (CST), at
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger, dated as of December 15, 1998
(the "Merger Agreement"), by and among Quintiles Transnational Corp.
("Quintiles"), QELS Corp., a newly formed, wholly owned subsidiary of
Quintiles, and ENVOY. Pursuant to the Merger Agreement, QELS Corp. will
merge with and into ENVOY. ENVOY will continue to exist after the merger,
but it will be a wholly owned subsidiary of Quintiles. In addition, as an
ENVOY shareholder you would receive in the merger 1.166 shares of Quintiles
common stock for each share of ENVOY common stock and/or ENVOY Series B
convertible preferred stock you own immediately prior to the merger.
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
Approval of the Merger Agreement requires the approval of a majority of the
shares of ENVOY common stock and Series B convertible preferred stock
outstanding and entitled to be voted at the special meeting, voting together as
a single class. In addition, approval is required by a majority of the shares of
ENVOY Series B convertible preferred stock outstanding and entitled to be voted
at the special meeting, voting separately as a class. The board of directors of
ENVOY has fixed the close of business on February 15, 1999, as the record date
for the determination of shareholders entitled to receive notice of and to vote
at the special meeting, and only shareholders of record at such time will be
entitled to receive notice of and to vote at the special meeting and any
adjournments or postponements thereof.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by (a) filing with the Secretary
of ENVOY, at or before the special meeting, a written notice of revocation
bearing a date later than the date of the proxy; (b) duly executing a subsequent
proxy relating to the same shares and delivering it to the Secretary of ENVOY at
or before the special meeting; or (c) attending the special meeting and voting
in person (although attendance at the special meeting will not in and of itself
constitute a revocation of a proxy).
THE BOARD OF DIRECTORS OF ENVOY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT. WE ASK THAT YOU MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES, SO THAT IT WILL BE RECEIVED NO LATER
THAN MARCH , 1999.
<PAGE> 8
A Joint Proxy Statement/Prospectus containing more detailed information
with respect to the Merger Agreement and a proxy card accompany this notice. A
copy of the Merger Agreement is attached as Appendix A.
By order of the Board of Directors,
Gregory T. Stevens
Vice President, General Counsel and
Secretary
Nashville, Tennessee
February [ ], 1999
2
<PAGE> 9
<TABLE>
<S> <C>
ENVOY CORPORATION QUINTILES TRANSNATIONAL CORP.
PROXY STATEMENT PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON TO BE HELD ON
MARCH , 1999 MARCH , 1999
</TABLE>
PROSPECTUS
COMMON STOCK
The boards of directors of each of ENVOY Corporation and Quintiles
Transnational Corp. are sending you this Joint Proxy Statement/Prospectus in
connection with the solicitation of proxies for approval of a proposed
acquisition of ENVOY by Quintiles. ENVOY shareholders will be asked to approve
and adopt the proposed merger agreement and related transactions at a special
meeting of ENVOY shareholders to be held on March [ ], 1999 at
. Quintiles shareholders will be asked to approve (1)
a proposal to issue shares of Quintiles common stock in the merger and (2) a
proposal to amend Quintiles' Amended and Restated Articles of Incorporation to
increase the number of authorized shares of Quintiles common stock from
200,000,000 to 500,000,000 at a special meeting of Quintiles shareholders to be
held on March [ ], 1999 at [ ].
If the merger is completed, each outstanding share of ENVOY common stock
and ENVOY Series B convertible preferred stock will be exchanged for 1.166
shares of Quintiles common stock. Based on a total of 24,388,861 shares of ENVOY
common stock and Series B convertible preferred stock outstanding on January 26,
1999, Quintiles will issue approximately 28,437,411 shares of Quintiles common
stock in the merger. Quintiles will pay cash in lieu of fractional shares.
Quintiles also will convert any remaining unexercised ENVOY stock options into
Quintiles stock options at the exchange ratio. Prior to the special meetings,
the merger agreement may be terminated by Quintiles if the average closing price
of Quintiles common stock for a specified 10-day period immediately before the
merger rises above $71.50 per share or by ENVOY if the average closing price of
Quintiles common stock for that same 10-day period falls below $40.00 per share.
Quintiles common stock trades on The Nasdaq Stock Market under the symbol
"QTRN" and ENVOY common stock trades on The Nasdaq Stock Market under the symbol
"ENVY." On February 16, 1999, the closing sale price of Quintiles common stock
was $45.19 and the closing sale price of ENVOY common stock was $50.06.
This Joint Proxy Statement/Prospectus describes the terms and conditions of
the merger agreement and includes, as Appendix A, a complete copy of the merger
agreement.
------------------------
THE MERGER AND AN INVESTMENT IN QUINTILES COMMON STOCK AS A RESULT OF THE
MERGER INVOLVE CERTAIN RISKS. YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 26 BEFORE YOU VOTE ON THE MERGER OR THE PROPOSAL TO ISSUE
SHARES OF QUINTILES COMMON STOCK IN CONNECTION WITH THE MERGER.
------------------------
THE SHAREHOLDERS OF QUINTILES AND THE SHAREHOLDERS OF ENVOY ALSO WILL
CONSIDER AND VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE EACH OF
THE SPECIAL MEETINGS OR ANY ADJOURNMENTS THEREOF, IN THE EVENT EITHER OF THE
SPECIAL MEETINGS IS ADJOURNED OR POSTPONED FOR ANY REASON.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated February , [ ] and is first
being sent
to ENVOY and Quintiles shareholders on or about February , [ ].
<PAGE> 10
This Joint Proxy Statement/Prospectus incorporates important business and
financial information about Quintiles and ENVOY that is not included in or
delivered with this document. You should refer to "Where You Can Find More
Information," on page 96 for a description of the documents incorporated by
reference in this Joint Proxy Statement/ Prospectus.
You may obtain copies of Quintiles' and ENVOY's documents, other than
exhibits to those documents, unless exhibits are specifically incorporated by
reference into the information that this Joint Proxy Statement/Prospectus
incorporates, without charge upon written or oral request to Quintiles or ENVOY
directed to:
<TABLE>
<S> <C>
Investor Relations Investor Relations
Attention: Greg Connors Attention: Rhonda Holland
Quintiles Transnational Corp. ENVOY Corporation
4709 Creekstone Drive Two Lakeview Place
Riverbirch Building, Suite 200 15 Century Boulevard, Suite 600
Durham, North Carolina 27703-8411 Nashville, Tennessee 37214
(919) 998-2000 (615) 885-3700
</TABLE>
IN ORDER TO OBTAIN TIMELY DELIVERY PRIOR TO THE SPECIAL MEETINGS, PLEASE
MAKE YOUR REQUESTS FOR DOCUMENTS BY MARCH , 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE AT THE SPECIAL
MEETINGS. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU DIFFERENT INFORMATION. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS,
OR ANY SUPPLEMENT, IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT
OF SUCH DOCUMENTS, AND NEITHER THE MAILING OF THIS JOINT PROXY
STATEMENT/PROSPECTUS TO THE SHAREHOLDERS OF ENVOY OR QUINTILES NOR THE ISSUANCE
OF QUINTILES COMMON STOCK SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
2
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 5
SUMMARY..................................................... 7
FORWARD LOOKING STATEMENTS.................................. 25
RISK FACTORS YOU SHOULD CONSIDER............................ 26
About the Merger.......................................... 26
About Quintiles........................................... 27
About ENVOY............................................... 34
GENERAL INFORMATION ABOUT THE SPECIAL MEETINGS.............. 41
PROPOSAL ONE -- QUINTILES AND ENVOY SHAREHOLDERS -- THE
MERGER.................................................... 46
Background of the Merger.................................. 46
ENVOY Reasons for the Merger.............................. 47
Quintiles Reasons for the Merger.......................... 49
Opinion of ENVOY's Financial Advisors..................... 50
Opinion of Quintiles' Financial Advisors.................. 55
Interests of Persons in the Merger Other Than as
Shareholders........................................... 59
Form of the Merger........................................ 62
Consideration for the Merger.............................. 62
Effective Time of the Merger.............................. 62
Procedures for Exchange of ENVOY Stock Certificates....... 62
Anticipated Accounting Treatment.......................... 63
Material Federal Income Tax Considerations................ 64
Amendment of ENVOY Rights Agreement....................... 65
Regulatory Approvals Required............................. 65
Stock Exchange Listing; Delisting and Deregistration of
ENVOY Common Stock..................................... 65
No Dissenters' Rights..................................... 66
Resale of Quintiles Common Stock After the Merger......... 66
THE MERGER AGREEMENT........................................ 68
General................................................... 68
Exchange Ratios; Fractional Shares........................ 68
Certain Representations and Warranties.................... 68
Certain Covenants and Agreements.......................... 69
Conditions to the Merger.................................. 72
Termination............................................... 75
Termination Fee........................................... 76
Amendment................................................. 77
Waiver.................................................... 77
Expenses.................................................. 77
Effect on Employee Benefits, Stock Plans and Stock
Options................................................ 77
THE STOCK VOTING AGREEMENT.................................. 78
ABOUT QUINTILES............................................. 78
ABOUT ENVOY................................................. 80
</TABLE>
3
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF THE RIGHTS OF HOLDERS OF QUINTILES CAPITAL
STOCK AND ENVOY CAPITAL STOCK............................. 81
PROPOSAL TWO -- QUINTILES SHAREHOLDERS -- AMENDMENT TO
QUINTILES' AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON
STOCK..................................................... 94
FUTURE SHAREHOLDER PROPOSALS................................ 95
LEGAL MATTERS............................................... 95
EXPERTS..................................................... 95
WHERE YOU CAN FIND MORE INFORMATION......................... 96
LIST OF DEFINED TERMS....................................... 99
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA...................................................... F-1
APPENDIX A -- Amended and Restated Merger Agreement
APPENDIX B -- Stock Voting Agreement
APPENDIX C -- Opinion of Goldman, Sachs & Co.
APPENDIX D -- Opinion of Morgan Stanley & Co. Incorporated
</TABLE>
4
<PAGE> 13
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: AS AN ENVOY SHAREHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: ENVOY shareholders will receive 1.166 shares of Quintiles common stock in
exchange for each share of ENVOY common stock and/or each share of ENVOY
Series B convertible preferred stock they own. ENVOY shareholders who would
otherwise be entitled to receive a fractional share will receive cash based
on the value of the fractional share of Quintiles common stock.
Q: WHAT HAPPENS AS THE MARKET PRICE OF QUINTILES COMMON STOCK FLUCTUATES?
A: Since the market value of Quintiles common stock will fluctuate before and
after the closing of the merger, the value of the stock ENVOY shareholders
will receive in the merger will fluctuate as well and could decrease.
However, if the average closing price per share of Quintiles common stock
for a specified 10-day period immediately before the merger falls below
$40.00, ENVOY may decide not to go through with the merger and may
terminate the merger agreement. On the other hand, if the average closing
price per share of Quintiles common stock for the same 10-day period is
above $71.50, Quintiles may decide not to go through with the merger and
may terminate the merger agreement.
Q: AS A QUINTILES SHAREHOLDER, HOW WILL THE MERGER AFFECT ME?
A: The merger will not affect your shares of Quintiles common stock. Following
the merger, you and the other current Quintiles shareholders will own
approximately 73.3% of the common stock of Quintiles.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail
the proxy card in the enclosed return envelope as soon as possible so that
your shares may be represented at your shareholders' meeting. If you sign
and send in your proxy but do not indicate how you want to vote, your proxy
will be counted as a vote in favor of the merger if you are an ENVOY
shareholder, or in favor of the issuance of shares of Quintiles common
stock in the acquisition of ENVOY by Quintiles if you are a Quintiles
shareholder. If you do not vote on the merger or if you abstain, the effect
will be a vote against the merger if you are an ENVOY shareholder.
Abstentions and shares held in street name that are not voted on this
matter will not be included in determining the number of votes of Quintiles
common stock cast in favor of or against the proposal to issue shares in
connection with the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
shareholder meeting. You can do this in any of three ways. First, you can
send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to the Corporate Secretary of Quintiles at the address below if
you are a Quintiles shareholder or to the Secretary of ENVOY at the address
below if you are an ENVOY shareholder. Third, you can attend the
shareholder meeting and vote in person. Simply attending the meeting,
however, will not revoke your proxy. If you are a Quintiles shareholder,
you should send any written notice or new proxy card to the Corporate
Secretary of Quintiles at the following address: Quintiles
5
<PAGE> 14
Transnational Corp., Post Office Box 13979, Research Triangle Park, North
Carolina 27709, or, if you are an ENVOY shareholder, to the Secretary of
ENVOY, at the following address: ENVOY Corporation, Two Lakeview Place, 15
Century Boulevard, Suite 600, Nashville, Tennessee 37214.
Q: SHOULD I SEND MY ENVOY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Quintiles will send you written
instructions for exchanging your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We currently
expect to complete the merger by the end of March 1999.
Q: AS AN ENVOY SHAREHOLDER, WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER TO ME?
A: We expect the merger to be tax-free for federal income tax purposes, except
for taxes on cash received for any fractional shares.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Only if you provide instructions on how your broker should vote. You should
instruct your broker how to vote your shares, following the directions your
broker provides. Without instructions from you to your broker, your shares
will not be voted and this will effectively be a vote against the merger if
you are an ENVOY shareholder but not against the proposal to issue shares
of Quintiles common stock in the acquisition of ENVOY by Quintiles if you
are a Quintiles shareholder.
Q: IS THE SUCCESSFUL COMPLETION OF THE MERGER DEPENDENT UPON QUINTILES
SHAREHOLDERS APPROVING THE AMENDMENT TO THE QUINTILES ARTICLES OF
INCORPORATION?
A: No. Provided the ENVOY shareholders approve the merger and the Quintiles
shareholders approve the proposal to issue shares in connection with the
merger, the merger will be completed. The Quintiles shareholders will vote
separately on the proposed amendment and the result will have no effect on
the merger.
6
<PAGE> 15
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/ Prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a complete description
of the legal terms of the merger, you should read carefully the entire Joint
Proxy Statement/Prospectus and the documents to which we have referred you. The
merger agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus. For more information about the two companies, see "Where
You Can Find More Information" (page 96).
For the location of definitions of capitalized terms used in this document,
please see "List of Defined Terms" (page 99). For your reference, we have
included page references to direct you to more complete descriptions of the
topics presented in this summary.
THE COMPANIES
ENVOY CORPORATION (page 80)
Two Lakeview Place
15 Century Boulevard, Suite 600
Nashville, Tennessee 37214
(615) 885-3700
ENVOY is a leading provider of electronic data interchange, or EDI, and
transaction processing services to participants in the healthcare market,
including pharmacies, physicians, hospitals, dentists, billing services,
commercial insurance companies, managed care organizations, state and federal
governmental agencies and others. ENVOY provides healthcare EDI services on a
real-time and batch-processing basis by utilizing proprietary computer and
telecommunications software and microprocessor technology. ENVOY is one of the
largest processors of electronic real-time pharmacy and commercial third party
payor batch transactions in the United States based upon annual transaction
volume. In addition, ENVOY believes that it has one of the largest patient
statement processing and printing services business in the United States,
processing more than 160 million patient statements annually. ENVOY's
transaction network, which processed approximately 1.2 billion transactions in
1998, consisted of approximately 200,000 physicians, 36,000 pharmacies, 42,000
dentists, 4,600 hospitals and 865 payors, including approximately 47 Blue Cross
Blue Shield Plans, 59 Medicare Plans and 40 Medicaid Plans as of December 31,
1998.
QUINTILES TRANSNATIONAL CORP. (page 78)
4709 Creekstone Drive
Riverbirch Building, Suite 200
Durham, North Carolina 27703-8411
(919) 998-2000
Quintiles is a market leader in providing full-service contract research,
sales, marketing and healthcare policy consulting and health information
management services to the global pharmaceutical, biotechnology, medical device
and healthcare industries. Supported by its extensive information technology
capabilities, Quintiles provides a broad range of contract services to help its
clients reduce the length of time from the beginning of development to peak
sales of a new drug or medical device. Quintiles' contract research services
include a full range of development services focused on helping its clients
through the development and regulatory approval of a new drug or medical device.
Quintiles' contract sales services, including sales and specialized marketing
support services, focus on helping its clients achieve
7
<PAGE> 16
commercial success for a new product or medical device. Quintiles also offers
healthcare policy research and management consulting, which emphasize improving
the quality, availability and cost-effectiveness of healthcare.
On January 5, 1999, Quintiles announced the completion of its previously
announced acquisition of substantial assets of Hoechst Marion Roussel's Kansas
City-based Drug Innovation and Approval organization and the opening of a Kansas
City contract research facility.
On December 14, 1998, Quintiles agreed to acquire all of the outstanding
stock of Pharmaceutical Marketing Services Inc., or PMSI, in a merger that would
result in PMSI becoming a subsidiary of Quintiles. Through its Scott-Levin
subsidiary in the United States, PMSI provides a range of information and market
research services to pharmaceutical and healthcare companies to enable them to
optimize the performance of their sales and marketing activities. As a result of
the merger, the PMSI stockholders would exchange their PMSI common stock for
Quintiles common stock either by exchanging all their shares at closing, or
electing to exchange half of their shares at closing and deferring receipt of
the other half for 75 days. A PMSI stockholder who elects to defer may be
entitled to receive a contingent value payment for each share of Quintiles
common stock received on the 75th day after closing. Payment under the
contingent value payments, if any, will equal the difference between the
Quintiles common stock price used to determine the final exchange ratio of the
PMSI transaction and the average Quintiles common stock price over a defined
period ending on the 75th day after closing of the PMSI transaction. The final
exchange ratio for determining the number of Quintiles shares to be issued to
PMSI stockholders will be determined by dividing $15.40 by the average closing
price of Quintiles common stock for the 10 trading days ending on the day that
is two days immediately before the closing. PMSI stockholders must approve the
transaction. The PMSI stockholder meeting to consider approving the transaction
will be held on March , 1999. PMSI common stock is listed on The Nasdaq Stock
Market under the symbol "PMRX." As of February 5, 1999, 12,445,221 shares of
PMSI common stock were outstanding.
EXCHANGE RATIO TO BE 1.166 SHARES OF QUINTILES COMMON STOCK FOR EACH ENVOY SHARE
(page 62)
As an ENVOY shareholder, if the merger is completed, you will receive 1.166
shares of Quintiles common stock for each share of ENVOY common stock and/or
ENVOY Series B convertible preferred stock you own immediately prior to the
merger. You also will receive cash instead of fractional shares of Quintiles
common stock. On , 1999, the closing price of Quintiles common stock
was $ , making the value of 1.166 shares of Quintiles common stock
equal to $ as of that date.
SPECIAL MEETINGS TO BE HELD MARCH , 1999; RECORD DATES SET (page 41)
The Quintiles special meeting will be held at [ ] [ ].m. on March , 1999
at [ ]. At the Quintiles special meeting, Quintiles shareholders will be
asked to consider and vote on (1) a proposal to issue shares of Quintiles common
stock in the merger and (2) a proposal to amend Quintiles' articles of
incorporation to increase the number of authorized shares of Quintiles common
stock from 200,000,000 to 500,000,000. If you held shares of Quintiles common
stock at the close of business on January 21, 1999, you are entitled to vote on
the issuance of shares, both proposed amendments and any other matters
considered at the Quintiles special meeting.
8
<PAGE> 17
The ENVOY special meeting will be held at 10:00 a.m. on March , 1999
at . At the ENVOY special meeting, ENVOY
shareholders will be asked to consider approving the merger by approving and
adopting the merger agreement. If you held shares of ENVOY common stock and/or
ENVOY Series B convertible preferred stock at the close of business on February
15, 1999, you are entitled to vote on the merger and any other matters
considered at the ENVOY special meeting.
REQUIRED VOTE (page 42)
A majority of the shares of Quintiles common stock voted at the Quintiles
special meeting must vote in favor of the proposal to issue shares in the merger
in order for the proposal to be approved. In addition, a majority of the
outstanding shares of Quintiles common stock entitled to be voted at the
Quintiles special meeting must vote in favor of the proposal to amend Quintiles'
articles of incorporation in order for such proposal to be approved. Each share
is entitled to one vote on each matter to be voted on at the Quintiles special
meeting. As of January 21, 1999, directors and executive officers of Quintiles
and their affiliates owned 6,891,384 shares of Quintiles common stock, which
represented 8.8% of the 78,040,290 Quintiles shares outstanding on that date.
Approval of the merger requires the approval of a majority of the
outstanding shares of ENVOY common stock and Series B convertible preferred
stock entitled to be voted at the ENVOY special meeting, voting together as a
single class. In addition, approval is required by a majority of the outstanding
shares of ENVOY Series B convertible preferred stock entitled to be voted at the
ENVOY special meeting, voting separately as a class. As of January 26, 1999,
directors and executive officers of ENVOY and their affiliates beneficially
owned 1,173,966 shares of ENVOY common stock and 2,800,000 shares of ENVOY
Series B convertible preferred stock, which represented 16.3% of the outstanding
ENVOY common stock and Series B convertible preferred stock, voting together as
a single class, and 100% of the Series B convertible preferred stock outstanding
at that date.
STOCK VOTING AGREEMENT (page 78)
As a condition to Quintiles' willingness to enter into the merger
agreement, ENVOY's directors and the holders of ENVOY Series B convertible
preferred stock entered into a stock voting agreement with Quintiles on December
15, 1998. Those shareholders agreed to vote 15.8% of the outstanding shares of
ENVOY common stock and Series B convertible preferred stock, voting as one
class, as of January 26, 1999. Under the stock voting agreement, these
shareholders agreed, among other things, to vote their shares of ENVOY in favor
of the merger. A copy of the stock voting agreement is attached as Appendix B.
QUINTILES AND ENVOY BOARDS RECOMMEND SHAREHOLDER APPROVAL (page 50 and page 48)
The Quintiles board of directors is of the opinion that the merger is in
the best interests of the Quintiles shareholders. The Quintiles board of
directors unanimously approved issuing shares of Quintiles common stock in the
merger and recommends that Quintiles shareholders vote FOR the proposal to issue
such shares.
In unanimously approving the proposal to amend Quintiles' articles of
incorporation, the Quintiles board of directors has determined that such
amendment is in the best interests of
9
<PAGE> 18
the Quintiles shareholders and recommends that the Quintiles shareholders vote
FOR the proposal to amend Quintiles' articles of incorporation.
The ENVOY board of directors has determined that the merger is in the best
interests of ENVOY and its shareholders. The ENVOY board of directors
unanimously approved the merger agreement and the merger and recommends that
ENVOY shareholders vote FOR approval and adoption of the merger agreement.
CONSIDERATION TO BE PAID BY QUINTILES FAIR TO SHAREHOLDERS, ACCORDING TO
FINANCIAL ADVISORS (page 50 and page 55)
In deciding to approve the merger, the ENVOY board of directors received
and considered the opinion dated December 15, 1998 of Morgan Stanley & Co.
Incorporated, ENVOY's financial advisor, as to the fairness of the exchange
ratio from a financial point of view as of that date. A copy of Morgan Stanley's
opinion is attached to the Joint Proxy Statement/Prospectus as Appendix D. You
should read the opinion in its entirety to understand the assumptions made,
matters considered and limitations of the review undertaken by Morgan Stanley in
providing its opinion. In addition to reimbursement for expenses incurred in
connection with its services to ENVOY and indemnification against certain
liabilities, ENVOY has agreed to pay Morgan Stanley a transaction fee if the
merger is completed or an advisory fee if the merger is not completed.
In deciding to approve the merger, the Quintiles board of directors
received and considered the opinion dated December 15, 1998 of Goldman, Sachs &
Co., its financial advisor, as to the fairness to Quintiles of the exchange
ratio from a financial point of view as of that date. A copy of Goldman Sachs'
opinion is attached to the Joint Proxy Statement/ Prospectus as Appendix C. The
opinion of Goldman Sachs does not constitute a recommendation as to how any
Quintiles shareholder should vote with respect to the proposal to issue shares.
You should read the opinion in its entirety to understand the assumptions made,
matters considered and limitations of the review undertaken by Goldman Sachs in
providing its opinion. In addition to reimbursement for expenses incurred in
connection with its services to Quintiles and indemnification against certain
liabilities, Quintiles has agreed to pay Goldman Sachs a transaction fee if the
merger is completed.
REASONS FOR THE MERGER (page 47 and page 49)
Each of the boards of directors of Quintiles and ENVOY believes that the
merger is in the best interests of their respective companies and the
shareholders of their respective companies. The terms of the merger were the
result of arm's-length negotiations between representatives of ENVOY and
representatives of Quintiles. Each board of directors unanimously approved the
transactions contemplated by the merger agreement. In reaching these decisions,
the boards of directors separately considered several factors, including:
FOR ENVOY
- the financial and other terms and strategic merits of the merger;
- historical and prospective information regarding the independent
businesses of both ENVOY and Quintiles;
- the opinion presented by ENVOY's financial advisor, Morgan Stanley;
10
<PAGE> 19
- a belief that affiliation with Quintiles will allow ENVOY to realize
certain economies of scale, increase efficiencies and enhance the
development of new products and services;
- the recent high trading price of Quintiles common stock and the risk that
the public market price of Quintiles common stock may decline following
announcement of completion of the merger;
- the cost of the transaction and integration of ENVOY into Quintiles and
the possible adverse impact on results of operations of Quintiles; and
- other risks described under "Risk Factors You Should Consider."
FOR QUINTILES
- information pertaining to Quintiles' and ENVOY's respective businesses,
prospects, historical and projected financial performances, financial
conditions and operations;
- ENVOY's established infrastructure and network systems which support its
position as a market leader in the healthcare EDI and transaction
processing industry and an analysis of the business and capabilities of
the combined companies;
- the percentage of ownership reduction to Quintiles shareholders resulting
from the issuance of Quintiles common stock to the ENVOY shareholders;
- the risk that the public market price of Quintiles common stock might be
adversely affected by the announcement of completion of the merger;
- ENVOY's competitive position in the healthcare EDI and transaction
processing markets and its capabilities in developing new analytical
products from data;
- the opinion of Quintiles' financial advisor, Goldman Sachs;
- the risk that the combined company might not achieve revenue equal to the
sum of the separate companies' anticipated revenue;
- whether the merger would facilitate Quintiles' pursuit of its goals and
strategies; and
- other risks described under "Risk Factors You Should Consider."
BENEFITS TO CERTAIN ENVOY OFFICERS AND DIRECTORS IN THE MERGER (page 59)
In considering the recommendation of the ENVOY board of directors to
approve and adopt the merger agreement, as an ENVOY shareholder, you should be
aware of interests that ENVOY's directors and certain officers have in the
merger that are different from your and their interests as shareholders. These
interests include, among other things:
- the appointment of Fred C. Goad, Jr., Jim D. Kever and William E. Ford to
the Quintiles board of directors after the merger;
- the acceleration of vesting of options held by Messrs. Goad and Kever,
Kevin M. McNamara, Harlan F. Seymour and Gregory T. Stevens pursuant to
their respective employment agreements;
- possible amendments to employment agreements of Messrs. Goad, Kever,
McNamara and Seymour, as well as Dr. N. Stephen Ober; and
11
<PAGE> 20
- the continuation of indemnification rights and liability insurance of
directors and officers of ENVOY.
Mr. Kever and Dr. Ober are required to amend their employment agreements as
a condition to the merger. Such amendments include, without limitation, certain
provisions relating to: (1) the employee's term of employment, (2) the
employee's base salary, (3) certain benefits the employee is entitled to receive
and (4) the employee's non-competition agreement. If Messrs. Goad, McNamara and
Seymour cannot reach agreement with Quintiles on amended terms to their
employment agreements, they will be entitled to receive lump sum termination
payments under the existing terms of those agreements.
The ENVOY and Quintiles boards of directors were aware of these and other
interests and considered them before approving and adopting the merger
agreement.
TREATMENT OF STOCK OPTIONS IN THE MERGER (page 77)
At the time of completion of the merger, each ENVOY stock option will
become an option to acquire the number of shares of Quintiles common stock that
the option holder would have been entitled to receive in the merger if the
option was exercised immediately before the merger. The other terms and
conditions of the replacement option will be the same as the ENVOY option,
except that the exercise price will be adjusted to give effect to the 1.166
exchange ratio.
CONDITIONS TO THE MERGER (page 72)
The merger will not be completed unless customary conditions (relating, for
example, to shareholder approval, the delivery of tax opinions and the obtaining
of third party consents) are satisfied or waived by Quintiles and ENVOY.
Quintiles and ENVOY may not waive those conditions that are required by law to
consummate the merger, including (1) the requirements for shareholder approval
and (2) the requirement that the registration statement be effective on the
closing date of the merger.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT (page 75 and page 77)
Quintiles and ENVOY can mutually agree at any time to terminate the merger
agreement without completing the merger. Either company can also terminate the
merger agreement if, among other reasons:
- a court or other governmental entity permanently prohibits the merger;
- the other party commits an unremedied material breach of the
representations or warranties, covenants or agreements contained in the
merger agreement;
- the merger is not completed by June 30, 1999; or
- ENVOY's board of directors approves or recommends a business combination
or change of control transaction with a third party that the ENVOY board
of directors determines is more favorable to its shareholders than this
merger.
12
<PAGE> 21
Quintiles may terminate the merger agreement if, among other reasons:
- ENVOY's board of directors fails to reaffirm publicly at least 10 days
prior to the ENVOY special meeting its recommendation to approve the
merger after the public disclosure of a proposal for a business
combination other than with Quintiles;
- the board of directors of ENVOY fails to convene a meeting of its
shareholders within a certain time period or fails to recommend the
approval of the merger or the merger agreement to its shareholders; or
- the average closing price per share of Quintiles common stock for a
specified 10-day period immediately before the closing date of the merger
is greater than $71.50.
ENVOY may terminate the merger agreement if, among other reasons:
- the board of directors of Quintiles fails to convene a meeting of its
shareholders within a certain time period or fails to recommend the
approval of the issuance of the shares of Quintiles common stock in
connection with the merger; or
- the average closing price per share of Quintiles common stock for a
specified 10-day period immediately before the closing date of the merger
is less than $40.00.
At any time prior to the completion of the merger, we may amend the merger
agreement in any way. Once the merger agreement is approved by shareholders of
either company, any amendment must be approved by Quintiles shareholders if such
approval is required under North Carolina law and by ENVOY shareholders if such
approval is required under Tennessee law.
TERMINATION FEE (page 76)
The merger agreement requires ENVOY to pay Quintiles a termination fee of
$50 million upon termination of the merger agreement if the termination is
caused by:
- ENVOY's failure to convene a meeting of its shareholders to approve the
merger agreement and the merger within a stated time period following the
date of the merger agreement;
- the failure of ENVOY's board of directors to recommend the approval of
the merger agreement and the merger;
- the failure of ENVOY's board of directors to reaffirm publicly at least
10 days prior to the ENVOY special meeting its recommendation to approve
the merger agreement and the merger after the public disclosure of a
proposal for a business combination other than with Quintiles;
- the approval or recommendation by ENVOY's board of directors of a
business combination or change of control transaction with a third party
other than Quintiles, even if ENVOY's board of directors determines the
other transaction is more favorable to ENVOY shareholders than this
merger;
- the failure of the ENVOY shareholders to approve the merger agreement and
the merger after the public disclosure of a proposal for a business
combination or change of control transaction with a third party;
13
<PAGE> 22
- ENVOY's breach of its covenant not to solicit a business combination or
change of control transaction with a third party; or
- ENVOY's breach of its covenant to use its reasonable efforts to ensure,
and refrain from taking actions that would hinder, the merger's
accounting treatment as a pooling-of-interests.
Certain of the actions listed above would trigger the termination fee only
if either before such termination or within 12 months after the date of such
termination, ENVOY completes, or enters into an agreement to complete, a
business combination or change of control transaction with a third party. The
termination fee may discourage persons from making a competing offer for ENVOY.
REGULATORY APPROVALS (page 65)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, or HSR Act,
prohibits Quintiles and ENVOY from completing the merger until each company has
furnished certain information and materials to the Antitrust Division of the
Department of Justice and the Federal Trade Commission, or FTC, and the required
waiting period has expired or been terminated. The waiting period may be
extended by requests for additional information. On January 14, 1999, Quintiles,
ENVOY and certain affiliated parties filed the required notification and report
forms with the Antitrust Division and the FTC. Early termination of the waiting
period was granted on February 5, 1999.
QUINTILES TO USE POOLING-OF-INTERESTS ACCOUNTING TREATMENT (page 63)
We expect the merger to qualify as a pooling-of-interests, which means that
both companies will be treated as if they had always been combined for
accounting and financial reporting purposes. Generally, pooling-of-interests
accounting treatment enhances future earnings by avoiding the creation of
goodwill relating to the merger. Therefore, Quintiles should be able to avoid
charges against future earnings resulting from the amortization of goodwill. We
have conditioned the merger upon the receipt of letters from the independent
public accountants of both companies relating to the pooling-of-interests
accounting treatment.
NO DISSENTERS' RIGHTS (page 66)
Neither the holders of Quintiles common stock nor the holders of ENVOY
common stock are entitled to dissent and obtain payment of the fair value of
their shares in connection with the merger. Likewise, holders of Quintiles
common stock are not entitled to dissent and obtain payment of fair value for
their shares of Quintiles common stock in connection with the proposed amendment
to Quintiles articles of incorporation. In addition, pursuant to the stock
voting agreement, each holder of ENVOY Series B convertible preferred stock
irrevocably waived the right to dissent, notice of dissenters' rights and all
other such rights arising under Tennessee law.
LISTING OF QUINTILES COMMON STOCK (page 65)
Quintiles will list the shares of its common stock to be issued in the
merger on The Nasdaq Stock Market.
14
<PAGE> 23
NO FEDERAL INCOME TAX ON SHARES RECEIVED IN THE MERGER (page 64)
As a condition to the merger, each of ENVOY and Quintiles will receive an
opinion of its own tax counsel concluding, among other things, that no gain or
loss generally should be recognized by an ENVOY shareholder for federal income
tax purposes on the conversion of shares of ENVOY common stock and Series B
convertible preferred stock solely into shares of Quintiles common stock. ENVOY
shareholders, however, will recognize gain or loss on the receipt of cash
instead of a fractional share of Quintiles common stock.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER
TO YOU WILL DEPEND ON YOUR PERSONAL CIRCUMSTANCES. WE URGE YOU TO
CONSULT YOUR OWN TAX ADVISORS TO UNDERSTAND FULLY THE TAX CONSEQUENCES
TO YOU.
PROPOSAL TO AMEND QUINTILES' ARTICLES OF INCORPORATION(page 94)
Currently, Quintiles is authorized by its articles of incorporation to
issue up to 200,000,000 shares of Quintiles common stock. The Quintiles board of
directors has approved an amendment to Quintiles' articles of incorporation to
increase the number of authorized shares of Quintiles common stock to
500,000,000 shares, subject to approval by the Quintiles shareholders. The
purpose of the proposed amendment is to provide sufficient shares for corporate
purposes, including possible future acquisitions, benefit plans,
recapitalizations, stock splits and other corporate purposes, although no such
use currently is planned.
If the Quintiles shareholders do not approve the amendment, then the number
of authorized shares of Quintiles common stock will remain at 200,000,000, of
which approximately 74,005,501 Quintiles shares would be unissued and unreserved
after the closing of the merger.
A WARNING ABOUT FORWARD LOOKING STATEMENTS (page 25)
We make statements in this Joint Proxy Statement/Prospectus and in the
documents incorporated by reference that are forward looking. You can identify
these statements by our use of words like "may," "will," "expect," "anticipate,"
"estimate," or "continue," or similar expressions. Forward looking statements
represent our judgment about the future and are not guarantees of our future
performance. Certain risks and uncertainties could cause our actual operating
results and financial position to differ materially from our projections. We
caution you not to place undue reliance on forward looking statements. Such
forward looking statements represent our estimates and assumptions only as of
the date of this Joint Proxy Statement/Prospectus.
15
<PAGE> 24
COMPARISON OF MARKET PRICES AND DIVIDEND POLICIES
MARKET PRICES
Quintiles common stock is traded on The Nasdaq Stock Market under the
symbol "QTRN," and ENVOY common stock is traded on The Nasdaq Stock Market under
the symbol "ENVY." The following table shows, for the periods indicated, the
high and low sale prices per share on The Nasdaq Stock Market, based on
published financial sources. The Quintiles share prices below have been adjusted
to reflect a two-for-one stock split on December 1, 1997.
<TABLE>
<CAPTION>
QUINTILES ENVOY
COMMON STOCK COMMON STOCK
---------------- ----------------
CALENDAR PERIOD HIGH LOW HIGH LOW
--------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Quarter ended March 31, 1997............ $39.00 $26.63 $38.25 $21.88
Quarter ended June 30, 1997............. 35.00 21.50 35.75 20.38
Quarter ended September 30, 1997........ 43.99 35.03 37.25 25.50
Quarter ended December 31, 1997......... 43.50 31.00 32.75 22.38
Quarter ended March 31, 1998............ $52.43 $34.00 $46.63 $26.38
Quarter ended June 30, 1998............. 53.50 42.25 55.63 37.50
Quarter ended September 30, 1998........ 52.00 33.38 53.00 17.25
Quarter ended December 31, 1998......... 56.88 41.00 60.25 16.75
Quarter ended March 31, 1999
(through February [ ], 1999............ $ $ $ $
</TABLE>
Following the merger, Quintiles common stock will continue to be traded on
The Nasdaq Stock Market; ENVOY common stock will cease to be traded and there
will be no further market for such stock.
As of January 21, 1999, there were approximately 32,700 beneficial owners
of Quintiles common stock, including 692 holders of record. As of February 15,
1999, there were approximately 5,500 beneficial owners of ENVOY common stock,
including 193 holders of record.
16
<PAGE> 25
The following table presents trading information for Quintiles and ENVOY
common stock on The Nasdaq Stock Market on December 15, 1998 (the last full
trading day prior to announcement of the signing of the merger agreement) and
, 1999 (the last practicable trading day for which information was
available prior to the date of this Joint Proxy Statement/Prospectus). Also set
forth below for each of those dates is the equivalent pro forma price of ENVOY
common stock (determined by multiplying the applicable price of Quintiles common
stock by the 1.166 exchange ratio). Because the exchange ratio is fixed and
because the market price of Quintiles common stock is subject to fluctuation,
the market value of the Quintiles common stock that ENVOY shareholders will
receive in the merger may increase or decrease prior to and following the
completion of the merger. We urge you to obtain current market quotations.
<TABLE>
<CAPTION>
DECEMBER 15, 1998 FEBRUARY [ ], 1999
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
Quintiles................................. $56.88 $54.75
ENVOY..................................... $42.50 $40.75
ENVOY Equivalent Pro Forma................ $66.32 $63.84
</TABLE>
DIVIDEND POLICIES
Neither Quintiles nor ENVOY has ever declared or paid any cash dividends on
its common stock. The merger agreement prohibits ENVOY from declaring or paying
dividends before completion of the merger. Quintiles does not anticipate paying
any cash dividends following the consummation of the merger or in the
foreseeable future, and it intends to retain future earnings for the development
and expansion of its business.
17
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA
Quintiles and ENVOY are providing the following financial information to
help you in your analysis of the financial aspects of the merger. The annual
selected historical financial data presented below are derived from the audited
consolidated financial statements of each company. The interim selected
historical financial data presented below are derived from the unaudited
consolidated financial statements of Quintiles. In the opinion of Quintiles
management, the unaudited financial statements of Quintiles include all
adjustments that Quintiles considers necessary for a fair presentation of the
results of operations and financial position for each of the periods presented.
Operating results for Quintiles for the interim period ended September 30, 1998
are not necessarily indicative of the results that may be expected for the full
fiscal year.
Quintiles has restated its consolidated financial statements to reflect
acquisitions which in the aggregate were material and for which Quintiles used
the pooling-of-interests method of accounting. Quintiles did not restate its
consolidated financial statements to reflect other acquisitions accounted for as
pooling-of-interests where Quintiles determined that its consolidated financial
data would not be materially different if the pooled companies were included.
Quintiles has restated the financial statements for these poolings, which
include two transactions in 1997 and two transactions in 1996, for the year of
each transaction to include the pooled companies from January 1 of that year,
but Quintiles has not restated its financial statements for years prior to the
year of each transaction because the effect of such a restatement would be
immaterial.
As this information is only a summary, you should read it in conjunction
with the historical financial statements (and related notes) of Quintiles and
ENVOY contained in the annual and quarterly reports, as amended, and other
information that Quintiles and ENVOY have filed with the Securities and Exchange
Commission ("SEC"). See "Where You Can Find More Information" on page 96.
18
<PAGE> 27
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF QUINTILES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1993(1) 1994(1) 1995(1) 1996(1) 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue.............. $169,623 $230,583 $368,056 $600,100 $852,900 $608,436 $848,379
Income from operations... 12,545 17,456 25,900 43,851 88,812 63,387 88,654
Income before income
taxes.................. 9,785 16,567 24,655 24,241 86,535 61,387 86,737
Net income available for
common shareholders.... 5,230 10,598 14,626 7,648 55,683 38,862 58,914
Basic net income per
share.................. 0.11 0.18 0.23 0.11 0.76 0.53 0.77
Diluted net income per
share.................. $ 0.10 $ 0.18 $ 0.23 $ 0.11 $ 0.74 $ 0.52 $ 0.76
Weighted average shares
outstanding(2)
Basic.................. 49,681 58,128 63,171 69,148 73,739 73,283 76,476
Diluted................ 50,191 58,512 64,946 71,785 75,275 74,967 77,987
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1993(1) 1994(1) 1995(1) 1996(1) 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash
equivalents............. $ 18,188 $ 52,011 $ 84,569 $ 74,474 $ 80,247 $ 77,338 $ 88,499
Working capital........... 18,879 48,245 72,102 99,787 164,987 141,204 197,667
Total assets.............. 136,272 208,944 352,277 554,619 814,027 741,544 937,952
Long-term debt including
current portion......... 20,855 21,386 52,662 185,493 185,511 187,690 191,570
Shareholders' equity...... $ 89,015 $ 90,193 $165,943 $150,528 $388,639 $339,628 $464,947
</TABLE>
- -------------------------
(1) Prior to Quintiles' November 29, 1996 share exchange with Innovex Limited,
Innovex had a fiscal year end of March 31 and Quintiles had (and continues
to have) a fiscal year end of December 31. As a result, the data presented
above for 1993 through 1995 include Innovex's March 31 fiscal year data in
combination with Quintiles' December 31 fiscal year data. In connection with
the share exchange, Innovex changed its fiscal year end to December 31.
Accordingly, the data presented above for 1996 include both Innovex's and
Quintiles' data on a December 31 year end basis. Because of the difference
between Innovex's fiscal year end in 1995 compared with 1996, Innovex's
quarter ended March 31, 1996 data are included in Quintiles' pooled data for
both 1995 and 1996.
(2) Restated to reflect the two-for-one stock splits of Quintiles' common stock
in November 1995 and December 1997.
19
<PAGE> 28
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENVOY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994(1) 1995(1) 1996(2) 1997(3) 1998
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(4)
Revenues...................................... $26,114 $34,197 $ 90,572 $137,605 $184,773
Operating Income (Loss)....................... 491 (117) (18,739) (2,600) 23,246
Income (Loss) from Operations Before Income
Taxes and Loss in Investee.................. 520 (396) (20,579) (2,865) 22,725
Income Tax Benefit (Expense).................. 61 50 (1,717) (6,333) (18,481)
Loss in Investee.............................. 0 (1,776) 0 0 0
------- ------- -------- -------- --------
(Loss) Income from Continuing Operations...... $ 581 $(2,122) $(22,296) $ (9,198) $ 4,244
======= ======= ======== ======== ========
Net Income (Loss) per Common Share from
Continuing Operations(5)
Basic....................................... $ 0.04 $ (0.14) $ (2.25) $ (0.47) $ 0.20
======= ======= ======== ======== ========
Diluted..................................... $ 0.04 $ (0.14) $ (2.25) $ (0.47) $ 0.17
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):(4)
Working Capital of Continuing Operations...... $ 7,302 $10,671 $ 47,541 $ 18,027 $ 44,560
Assets of Continuing Operations............... 23,171 33,949 156,368 166,625 183,519
Total Assets.................................. 59,240 33,949 156,368 166,625 183,519
Long-Term Debt and Deferred Taxes............. 928 10,687 10,914 11,269 7,932
Preferred Stock............................... -- -- 55,021 55,021 41,300
Shareholders' Equity of Continuing
Operations.................................. $17,227 $15,300 $124,425 $125,082 $141,896
</TABLE>
- ---------------
(1) The above amounts reflect the impact of the merger of ENVOY's predecessor
with First Data Corporation in June 1995. (See Note 1 of Notes to ENVOY's
consolidated financial statements, which are incorporated by reference
herein, for more information.)
(2) The 1996 results include expenses of $8.7 million related to the write-off
of acquired in-process technology and $4.7 million relating to the
reorganization plan approved in conjunction with the National Electric
Information Corporation and Teleclaims, Inc. acquisitions. (See Notes 4 and
6 of Notes to ENVOY's consolidated financial statements, which are
incorporated by reference herein, for more information.)
(3) The 1997 results include expenses of $6.6 million for the write-off of
acquired in-process technology associated with the Diverse Software
Solutions, Inc. and Healthcare Data Interchange Corporation acquisitions.
(See Note 4 of Notes to ENVOY's consolidated financial statements, which are
incorporated by reference herein, for more information.)
(4) ENVOY has restated its financial statements to reflect the February 1998
business combinations with XpiData, Inc., Professional Office Services, Inc.
and Automated Revenue Management, Inc. (sometimes hereinafter referred to
collectively as the "ExpressBill Companies"). These combinations have been
accounted for as poolings of interests; therefore, the historical financial
statements of ENVOY for all periods have been restated to include the
accounts and results of operations of the ExpressBill Companies. (See Note 4
of Notes to ENVOY's consolidated financial statements, which are
incorporated by reference herein, for more information.)
(5) Net loss per common share for the year ended December 31, 1996 includes the
effect of the beneficial conversion feature of the ENVOY Series B
convertible preferred stock, which resulted in the recognition of a
preferred dividend of $14.9 million. (See Note 13 of Notes to ENVOY's
consolidated financial statements, which are incorporated by reference
herein, for more information.)
20
<PAGE> 29
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following tables set forth certain summary unaudited pro forma combined
condensed financial data for Quintiles and ENVOY combined, and for Quintiles,
ENVOY and PMSI combined. Quintiles and ENVOY prepare their financial statements
on the basis of a fiscal year beginning on January 1 and ending on December 31,
and PMSI does so on the basis of a fiscal year beginning on July 1 and ending on
June 30. Because the fiscal years of Quintiles, ENVOY and PMSI differ, PMSI's
December 31, 1997 historical operating results are based on PMSI's last two
fiscal quarters of its fiscal year ended June 30, 1997, combined with the
results for the six months ended December 31, 1997. PMSI's nine months ended
September 30, 1998 historical operating results are based on PMSI's last two
fiscal quarters of its fiscal year ended June 30, 1998, combined with the
results for the three months ended September 30, 1998. PMSI's historical
operating results have been adjusted to remove the results of operations of
PMSI's Other Dispositions in order to reflect the ongoing PMSI businesses being
acquired by Quintiles. The pro forma treatment of PMSI's Other Dispositions is
described in the notes to the unaudited pro forma combined condensed financial
data.
Since the number of shares of Quintiles common stock to be issued in the
PMSI transaction will not be known until the last business day prior to
completion of the PMSI transaction, the unaudited pro forma combined condensed
financial data below assumes a hypothetical exchange ratio of 0.308, which is
based on a hypothetical average trading price of Quintiles common stock of
$50.00.
The unaudited pro forma combined condensed data set forth below is not
necessarily indicative of results that would actually have been achieved if the
merger and the merger transaction with PMSI had been consummated as of the dates
reflected, or that may be achieved in the future. This information should be
read in conjunction with the unaudited pro forma combined condensed financial
data, and related notes, and the historical financial statements, and related
notes, of Quintiles, ENVOY and PMSI, which are included or incorporated by
reference in this Joint Proxy Statement/Prospectus. See "Where You Can Find More
Information" on page 96 and the Index to Financial Statements on page F-1.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS DATA:
Net revenue
Quintiles and ENVOY pro
forma...................... $402,253 $690,672 $ 990,505 $706,061 $ 981,142
Quintiles, ENVOY and PMSI pro
forma...................... n.a. n.a. 1,013,996 n.a. 1,001,526
Income from operations
Quintiles and ENVOY pro
forma...................... 25,783 25,112 86,212 58,683 105,686
Quintiles, ENVOY and PMSI pro
forma...................... n.a. n.a. 81,984 n.a. 102,959
Income from continuing
operations before income taxes
and minority interest
Quintiles and ENVOY pro
forma...................... 24,259 3,662 83,670 56,826 101,349
</TABLE>
21
<PAGE> 30
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Quintiles, ENVOY and PMSI pro
forma...................... n.a. n.a. 79,703 n.a. 99,487
Net income (loss) from
continuing operations
available for common
shareholders
Quintiles and ENVOY pro
forma...................... 12,504 (29,569) 46,485 30,974 61,873
Quintiles, ENVOY and PMSI pro
forma...................... n.a. n.a. 42,349 n.a. 59,886
Net income (loss) per common
share from continuing
operations
Basic:
Quintiles and ENVOY pro
forma.................... $ 0.16 $ (0.33) $ 0.48 $ 0.32 $ 0.61
Quintiles, ENVOY and PMSI
pro forma................ n.a. n.a. 0.42 n.a. 0.57
Diluted:
Quintiles and ENVOY pro
forma.................... $ 0.15 $ (0.33) $ 0.45 $ 0.30 $ 0.58
Quintiles, ENVOY and PMSI
pro forma................ n.a. n.a. 0.39 n.a. 0.54
Weighted average common shares
outstanding
Basic:
Quintiles and ENVOY pro
forma.................... 80,357 88,409 96,693 96,085 101,018
Quintiles, ENVOY and PMSI
pro forma................ n.a. n.a. 100,753 n.a. 104,833
Diluted:
Quintiles and ENVOY pro
forma.................... 82,717 88,409 103,881 103,956 107,171
Quintiles, ENVOY and PMSI
pro forma................ n.a. n.a. 107,980 n.a. 111,048
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
------------------
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents
Quintiles and ENVOY pro forma............................. $ 110,594
Quintiles, ENVOY and PMSI pro forma....................... 176,474
Working capital
Quintiles and ENVOY pro forma............................. 210,888
Quintiles, ENVOY and PMSI pro forma....................... 271,667
Total assets
Quintiles and ENVOY pro forma............................. 1,117,002
Quintiles, ENVOY and PMSI pro forma....................... 1,427,665
</TABLE>
22
<PAGE> 31
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
------------------
<S> <C>
Long-term debt, including current portion
Quintiles and ENVOY pro forma............................. $ 192,215
Quintiles, ENVOY and PMSI pro forma....................... 192,250
Shareholders' equity
Quintiles and ENVOY pro forma............................. 574,780
Quintiles, ENVOY and PMSI pro forma....................... $ 773,130
</TABLE>
23
<PAGE> 32
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain unaudited historical and pro forma
per share data of Quintiles and ENVOY, as well as equivalent per share data with
respect to one share of ENVOY common stock on a pro forma basis for the merger.
This table also reflects certain unaudited per share data for Quintiles, ENVOY
and PMSI combined. You should read the data presented below in conjunction with
the unaudited pro forma combined condensed financial data, and related notes,
and historical financial statements, and related notes, of Quintiles, ENVOY and
PMSI which are incorporated by reference in this document or included elsewhere
in this document. See "Where You Can Find More Information" on page 96 and the
Index to Financial Statements on page F-1.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Basic net income (loss) per
common share:
Quintiles
historical.............. $ 0.23 $ 0.11 $ 0.76 $0.77
ENVOY historical from
continuing operations... (0.14) (2.25) (0.47) 0.14
Quintiles and ENVOY pro
forma from continuing
operations(2)........... 0.16 (0.33) 0.48 0.61
ENVOY equivalent pro
forma(3)................ 0.19 (0.38) 0.56 0.71
Quintiles, ENVOY and PMSI
pro forma from
continuing
operations(4)........... n.a. n.a. 0.42 0.57
ENVOY equivalent pro
forma(5)................ n.a. n.a. 0.49 0.66
Diluted net income (loss)
per common share:
Quintiles historical...... 0.23 0.11 0.74 0.76
ENVOY historical from
continuing operations... (0.14) (2.25) (0.47) 0.12
Quintiles and ENVOY pro
forma from continuing
operations(2)........... 0.15 (0.33) 0.45 0.58
ENVOY equivalent pro forma
(3)..................... $ 0.17 $(0.38) 0.52 0.68
Quintiles, ENVOY and PMSI
pro forma from
continuing
operations(4)........... n.a. n.a. 0.39 0.54
ENVOY equivalent pro forma
(5)..................... n.a. n.a. $ 0.45 $0.63
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Book value per share:
Quintiles historical...................................... $5.16 $6.06
ENVOY historical(1)....................................... 3.49(6) 4.11(6)
Quintiles and ENVOY pro forma(2).......................... 4.79 5.47
ENVOY equivalent pro forma(3)............................. 5.59 6.38
Quintiles, ENVOY and PMSI pro forma(4).................... 6.47 7.09
ENVOY equivalent pro forma(5)............................. $7.54 $8.27
</TABLE>
- -------------------------
(1) ENVOY historical book value per share excludes the effects of shares
issuable upon the conversion of preferred stock or the exercise of employee
stock options.
(2) Gives pro forma effect to the merger.
(3) ENVOY equivalent per share amounts are calculated by multiplying the
Quintiles and ENVOY pro forma per share amounts by the merger exchange ratio
of 1.166.
(4) Gives pro forma effect to the merger and the PMSI transaction.
(5) ENVOY equivalent per share amounts are calculated by multiplying the
Quintiles, ENVOY and PMSI pro forma per share amounts by the merger exchange
ratio of 1.166.
(6) Assuming the ENVOY outstanding Series B convertible preferred stock is
converted to common stock, the book value per share amounts would be:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
ENVOY historical................................... $5.25 $5.33
</TABLE>
24
<PAGE> 33
FORWARD LOOKING STATEMENTS
The following statements are or may constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:
- certain statements, including possible or assumed future results of
operations of ENVOY and/or Quintiles, contained in "Summary," "Risk
Factors You Should Consider," "The Merger," "Unaudited Pro Forma Combined
Condensed Financial Data," "About Quintiles," and "About ENVOY,"
including any statements contained herein regarding the prospects for the
services and products of Quintiles and/or ENVOY, the impact of
competition, the proposed integration of the business and management
structure for Quintiles and ENVOY;
- any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "may," "will,"
"estimate," "continue," or any similar expression; and
- other statements contained herein regarding matters that are not
historical facts.
Forward looking statements represent our judgment about the future and are
not guarantees of our future performance. Because such statements are subject to
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed under "Risk Factors You Should Consider." Quintiles and ENVOY
shareholders are cautioned not to place undue reliance on such statements, which
speak only as of the date hereof.
The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward looking
statements that may be issued by Quintiles or ENVOY or persons acting on its or
their behalf. Neither Quintiles nor ENVOY undertakes any obligation to release
any revisions to or to update publicly any forward looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
25
<PAGE> 34
RISK FACTORS YOU SHOULD CONSIDER
In addition to the other information provided or incorporated by reference
in this Joint Proxy Statement/Prospectus, you should consider the following
factors carefully in evaluating whether to vote in favor of the merger or the
issuance of Quintiles common stock in connection with the merger. You should
also refer to "Forward Looking Statements" on page 25.
ABOUT THE MERGER
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ENVOY INTO QUINTILES' BUSINESS
Quintiles and ENVOY may not achieve the intended benefits of the merger if
Quintiles is unable to integrate ENVOY's business successfully with its own.
Quintiles could encounter the following difficulties as a result of the merger:
- retaining ENVOY's customers;
- maintaining and increasing ENVOY's competitive presence in the healthcare
EDI and transaction processing industry;
- continuing to operate ENVOY's business efficiently; or
- retaining key ENVOY employees.
For example, if ENVOY's current customers are uncertain about Quintiles'
commitment to support ENVOY's existing products and services, they could cancel
or refuse to renew current contracts. In addition, the combined company may be
unsuccessful in expanding or retaining its competitive position in the
healthcare EDI and transaction processing industry as a result of factors such
as its inability to capture the expanding market for physician's claims or a
failure to properly market ENVOY's products and services. Furthermore, the
successful integration of ENVOY depends on the contribution of certain key ENVOY
employees, including Mr. Jim D. Kever, Mr. Fred C. Goad, Jr. and Dr. N. Stephen
Ober. While it is contemplated that these individuals will be subject to
employment agreements with Quintiles after the merger, there can be no assurance
that these agreements will result in the retention of Mr. Kever, Mr. Goad and
Dr. Ober for any significant period of time. The loss of these individuals or
any of ENVOY's key employees, systems engineers, programmers or customer support
personnel could result in less efficient business operations for the combined
company and could seriously harm its business.
EFFECT OF QUINTILES STOCK PRICE FLUCTUATIONS ON FIXED EXCHANGE RATIO
As a result of the merger, Quintiles will exchange 1.166 shares of
Quintiles common stock for each outstanding share of ENVOY common stock and
Series B convertible preferred stock. This exchange ratio is fixed and will not
change even if the market price of either Quintiles common stock or ENVOY common
stock changes. As a result, the value of the shares of Quintiles common stock
received by ENVOY shareholders in the merger will vary depending on fluctuations
in the value of Quintiles common stock. Such fluctuations may be the result of
changes in the business, operations, or prospects of Quintiles or ENVOY, market
assessments of the likelihood that the merger will be consummated, the timing
thereof, general market and economic conditions, and other factors. Accordingly,
there can be no assurance that the value of the consideration to be paid in the
merger on the date of
26
<PAGE> 35
this Joint Proxy Statement/Prospectus will be the same as on the date of the
ENVOY special meeting and the Quintiles special meeting or at the time of the
completion of the merger.
Under the terms of the merger agreement, Quintiles has the right to
terminate the merger agreement if the average closing price per share of
Quintiles common stock for a specified 10-day period immediately before the
merger exceeds $71.50. ENVOY has the right to terminate the merger agreement if
the average closing price per share of Quintiles common stock for the same
period drops below $40.00. Any fluctuations in the market price of Quintiles
common stock within the range of $71.50 and $40.00 per share will not affect the
exchange ratio. The historical market prices of Quintiles common stock and ENVOY
common stock are included under "Summary -- Comparison of Market Prices and
Dividend Policies."
THE MERGER MAY FAIL TO QUALIFY FOR TAX-FREE TREATMENT
We have structured the merger to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986 (the "Code"). Although the
Internal Revenue Service, or the IRS, has not provided a ruling on the matter,
each of Quintiles and ENVOY will obtain legal opinions that the merger qualifies
as a tax-free reorganization. These opinions neither bind the IRS nor prevent
the IRS from adopting a contrary position. If the merger fails to qualify as a
tax-free reorganization, as an ENVOY shareholder, you would recognize gain or
loss on each ENVOY share surrendered in the amount of the difference between
your basis in such share and the fair market value of the Quintiles shares and
other consideration you receive in exchange for it at the time of the merger.
See "The Merger -- Material Federal Income Tax Considerations."
ABOUT QUINTILES
CHANGES IN OUTSOURCING TRENDS IN THE PHARMACEUTICAL AND
BIOTECHNOLOGY INDUSTRIES COULD ADVERSELY AFFECT QUINTILES' OPERATING RESULTS
Economic factors and industry trends that affect Quintiles' primary
customers, pharmaceutical and biotechnology companies also affect Quintiles'
business. For example, the practice of many companies in these industries has
been to hire outside organizations such as Quintiles to conduct large clinical
research and sales and marketing projects. This practice has grown substantially
in the 1990s, and Quintiles has benefited from this trend. If this trend were to
change and companies in these industries reduced their tendency to outsource
those projects, Quintiles' operations and financial condition could be
materially and adversely affected. In addition, numerous governments have
undertaken efforts to control growing healthcare costs through legislation,
regulation and voluntary agreements with medical care providers and
pharmaceutical companies. If future regulatory cost containment efforts limit
the profits which can be derived on new drugs, Quintiles' customers may reduce
their research and development spending which could reduce the business they
outsource to Quintiles. Quintiles cannot predict the likelihood of any of these
events or the effects they would have on its business, results of operations or
financial condition.
IF COMPANIES QUINTILES ACQUIRES DO NOT PERFORM AS EXPECTED OR IF QUINTILES IS
UNABLE TO MAKE STRATEGIC ACQUISITIONS, QUINTILES' BUSINESS COULD BE
ADVERSELY AFFECTED
A key element of Quintiles' growth strategy depends on its ability to
complete acquisitions that complement or expand its business and successfully
integrate the acquired
27
<PAGE> 36
companies into its operations. If Quintiles is unable to successfully execute
its acquisition strategy, there could be a material adverse effect on its
business, results of operations and financial condition. In the past, some of
Quintiles' acquisitions performed below its expectations in the short term, but
Quintiles experienced no impact to its expectations for its overall results, due
in part to the size of such acquisitions and the performance of other areas of
Quintiles' business. In the future, if Quintiles is unable to operate the
business of an acquired company so that its results meet Quintiles'
expectations, those results could have a negative impact on Quintiles' results
as a whole. The risk that Quintiles' results may be affected if it is unable to
successfully operate the businesses it acquires may increase in proportion with
(1) the size of the businesses Quintiles acquires, (2) the lines of business
Quintiles acquires and (3) the number of acquisitions Quintiles completes in any
given time period.
In 1998, Quintiles completed 11 acquisitions and announced agreements to
acquire PMSI and ENVOY. The PMSI and ENVOY acquisitions would expand Quintiles'
lines of business and thus involve new risks. ENVOY is the largest acquisition
Quintiles has proposed to date, and PMSI is one of the largest Quintiles has
ever proposed. Quintiles anticipates issuing approximately 28.4 million shares
of its common stock to ENVOY shareholders and shares of its common stock valued
at approximately $200 million to stockholders of PMSI. The final number of
shares issued to PMSI stockholders will be determined by an exchange ratio based
on the average market price of Quintiles common stock prior to the closing of
the PMSI transaction. On January 21, 1999, Quintiles had approximately 78
million shares of common stock outstanding. If either of these acquisitions, if
completed, fail to meet Quintiles' performance expectations, its results of
operation and financial condition could be materially adversely effected. In
addition, Quintiles is currently reviewing many acquisition candidates and
continually evaluating and competing for new acquisition opportunities. Other
risk factors Quintiles faces as a result of its aggressive acquisition strategy
include the following:
- the ability to achieve anticipated synergies from combined operations;
- integrating the operations and personnel of acquired companies,
especially those in lines of business that differ from Quintiles' current
lines of business;
- the ability of acquired companies to meet anticipated revenue and net
income targets;
- potential loss of the acquired companies' key employees;
- the possibility that Quintiles may be adversely affected by risk factors
present at the acquired companies, including Year 2000 risks;
- potential losses resulting from undiscovered liabilities of acquired
companies that are not covered by the indemnification Quintiles may
obtain from the sellers;
- the ability to expand the data analyses portion of ENVOY's business, if
the ENVOY acquisition is completed;
- risks of assimilating differences in foreign business practices and
overcoming language barriers (for acquisitions of foreign companies);
- risks particular to the companies Quintiles acquires; and
- risks experienced by companies in general that are involved in
acquisitions.
Due to these risks, Quintiles may not be able to successfully execute its
acquisition strategy.
28
<PAGE> 37
IF QUINTILES IS UNABLE TO SUCCESSFULLY DEVELOP AND MARKET POTENTIAL
NEW SERVICES, ITS GROWTH COULD BE ADVERSELY AFFECTED
Another key element of Quintiles' growth strategy is the successful
development and marketing of new services which complement or expand its
existing business. If Quintiles is unable to succeed in (1) developing new
services and (2) attracting a customer base for those newly developed services,
it will not be able to implement this element of its growth strategy, and
Quintiles' future business, results of operations and financial condition could
be adversely affected.
For example, as a result of its proposed acquisition of ENVOY, Quintiles is
currently considering expanding its pharmaceutical and healthcare information
and market research services. Providers of these services manipulate healthcare
information to analyze aspects of current healthcare products and procedures for
use in producing new products and services or in analyzing sales and marketing
of existing products. These types of services are also known as data mining.
Quintiles believes that the healthcare information ENVOY processes in its
current business could be utilized to create new data mining services. In
addition to the other difficulties associated with the development of any new
service, Quintiles' ability to develop this line of service may be limited
further by contractual provisions limiting Quintiles' use of the healthcare
information or the legal rights of others that may prevent or impair Quintiles'
use of the healthcare information. Due to these and other limitations, Quintiles
cannot assure you that it will be able to develop this type of service
successfully. Quintiles' inability to develop new products or services or any
delay in the development of them may adversely affect its ability to realize
some of the synergies Quintiles anticipates from the proposed acquisition of
ENVOY.
QUINTILES' RESULTS COULD BE ADVERSELY AFFECTED BY THE POTENTIAL LOSS OR DELAY OF
ITS LARGE CONTRACTS
Most of Quintiles' customers can terminate its contracts upon 15-90 days'
notice. In the event of termination, Quintiles' contracts often provide for fees
for winding down the project. Still, the loss or delay of a large contract or
the loss or delay of multiple contracts could adversely affect Quintiles' future
net revenue and profitability.
QUINTILES' BACKLOG MAY NOT BE INDICATIVE OF FUTURE RESULTS
Quintiles reports backlog based on anticipated net revenue from uncompleted
projects that a customer has authorized. Quintiles cannot assure you that the
backlog it has reported will be indicative of its future results. A number of
factors may affect Quintiles' backlog, including:
- the variable size and duration of projects (some are performed over
several years);
- the loss or delay of projects; and
- a change in the scope of work during the course of a project.
QUINTILES FACES RISKS CONCERNING THE YEAR 2000 ISSUE
If Quintiles or Its Vendors Do Not Adequately Prepare for the Year 2000 Issue,
Quintiles' Operations Could be Disrupted
Quintiles has established a Year 2000 Program to address the Year 2000
issue, which results from computer processors and software failing to process
date values correctly, potentially causing system failures or data corruption.
The Year 2000 issue could cause
29
<PAGE> 38
disruptions of Quintiles' operations, including, among other things, a temporary
inability to process information; receive information, services or products from
third parties; interface with customers in the performance of contracts; or
operate or communicate in some or all of the regions in which Quintiles does
business. Quintiles' computing infrastructure is based on industry standard
systems. Quintiles does not depend on large legacy systems and does not use
mainframes. Rather, the scope of Quintiles' Year 2000 Program includes unique
software systems and tools in each of its service groups, especially its
contract research service group, embedded systems in its laboratory and
manufacturing operations, facilities such as elevators and fire alarms in over
70 offices (which also involve embedded technology) and numerous supplier and
other business relationships. Quintiles has identified critical systems within
each service group and is devoting its resources to address these items first.
Quintiles' Year 2000 Program is directed by the Year 2000 Executive
Steering Team, which is comprised of its Chief Information Officer and
representatives from regional business units, together with legal, quality
assurance and information technology personnel. Quintiles has established a Year
2000 Program Management Office, staffed by consultants, which develops
procedures and instructions at a centralized level and oversees performance of
the projects that make up the program. Project teams organized by service group
and geographic region are responsible for implementation of the individual
projects.
The framework for Quintiles' Year 2000 Program prescribes broad inventory,
assessment and planning phases which generally guide its projects. Each project
generally includes launch, analysis, remediation, testing and deployment phases.
Quintiles is in the process of assessing those systems, facilities and business
relationships which it believes may be vulnerable to the Year 2000 issue and
which it believes could impact its operations. Although Quintiles cannot control
whether and how third parties will address the Year 2000 issue, its assessment
also will include a limited evaluation of certain services on which Quintiles is
substantially dependent, and Quintiles plans to develop contingency plans for
possible deficiencies in those services. For example, Quintiles believes that
among its most significant third party service providers are physician
investigators who participate in clinical studies conducted through its contract
research services; consequently, Quintiles is developing a specialized process
to assess and address Year 2000 issues arising from these relationships.
Quintiles does not plan to assess how its customers, such as pharmaceutical and
large biotechnology companies, are dealing with the Year 2000 issue.
As Quintiles completes the assessment of its systems, Quintiles is
developing plans to renovate, replace or retire them, as appropriate, if they
are affected by the Year 2000 issue. Such plans generally include testing of new
or renovated systems upon completion of the remedial actions. Quintiles will
utilize both internal and external resources to implement these plans.
Quintiles' strategic healthcare communications services are less dependent on
information technology than its other services. With the exception of recent
acquisitions, Quintiles' Year 2000 Program with respect to those services is
substantially complete, with validation expected to be completed in the first
quarter of 1999. Quintiles addressed most systems relating to its healthcare
consulting services in 1998, with completion expected in the first half of 1999.
Quintiles also addressed most of its contract sales systems in 1998, and expects
to have completed this program during mid-1999. Quintiles' contract research
services utilize numerous systems, which it must address individually on
disparate schedules, depending on the magnitude and complexity of the particular
system. Quintiles anticipates that remediation or replacement of these systems
will be substantially complete by mid-1999, with migration occurring primarily
in the second half of the year. Quintiles expects to
30
<PAGE> 39
complete the core components of its Year 2000 Program before there is a
significant risk that internal Year 2000 problems will have a material impact on
its operations.
If Quintiles' Costs of Addressing the Year 2000 Issue Exceed its Estimates,
Quintiles' Net Income Could Be Adversely Affected
Quintiles estimates that the aggregate costs of its Year 2000 Program will
be approximately $14 million, including costs already incurred. A significant
portion of these costs, approximately $6 million, are not likely to be
incremental costs, but rather will represent the redeployment of existing
resources. This reallocation of resources is not expected to have a significant
impact on Quintiles' day-to-day operations. Quintiles incurred total Year 2000
Program costs of $3.5 million through December 31, 1998, of which approximately
$2.6 million represented incremental expense. Quintiles' estimates regarding the
cost, timing and impact of addressing the Year 2000 issue are based on numerous
assumptions of future events, including the continued availability of certain
resources, its ability to meet deadlines and the cooperation of third parties.
Quintiles cannot guarantee that its assumptions will be correct and that these
estimates will be achieved. Actual results could differ materially from
Quintiles' expectations as a result of numerous factors, including the
availability and cost of personnel trained in this area, unforeseen
circumstances that would cause Quintiles to allocate its resources elsewhere and
similar uncertainties.
Quintiles' Business Could Be Adversely Affected if Year 2000 Issues Are Not
Adequately Addressed in Other Parts of the World or by Companies With Which
Quintiles Does Business
Quintiles faces both internal and external risks from the Year 2000 issue.
If realized, these risks could have a material adverse effect on Quintiles'
business, results of operations or financial condition. Quintiles' primary
internal risk is that its systems will not be Year 2000 compliant on time. The
magnitude of this risk depends on Quintiles' ability to achieve compliance of
both internally and externally developed systems or to migrate to alternate
systems in a timely fashion. The decentralized nature of Quintiles' business may
compound this risk if Quintiles is unable to coordinate efforts across its
global operations on a timely basis. Quintiles believes that its Year 2000
Program will successfully address these risks, however, it cannot guarantee that
this program will be completed in a timely manner. Notwithstanding Quintiles'
Year 2000 Program, Quintiles also faces external risks that may be beyond its
control. Quintiles' international operations and its relationships with foreign
third parties create additional risks for Quintiles, as many countries outside
the United States have been less attuned to the Year 2000 issue. These risks
include the possibility that infrastructural systems, such as electricity,
water, natural gas or telephony, will fail in some or all of the regions in
which Quintiles operates, as well as the danger that the internal systems of
Quintiles' foreign suppliers, service providers and customers will fail.
Quintiles' business also requires considerable travel, and its ability to
perform services under its customer contracts could be negatively affected if
air travel is disrupted by the Year 2000 issue.
In addition, Quintiles' business depends heavily on the healthcare
industry, particularly on third party physician investigators. The healthcare
industry, and physicians' groups in particular, to date may not have focused on
the Year 2000 issue to the same degree as some other industries, especially
outside of major metropolitan centers. As a result, Quintiles faces increased
risk that its physician investigators will be unable to provide Quintiles with
the data that it needs to perform under its contracts on time, if at all. Thus,
the clinical study involved could be slowed or brought to a halt. Also, the
failure of Quintiles' customers to address the
31
<PAGE> 40
Year 2000 issue could negatively impact their ability to utilize Quintiles'
services. While Quintiles intends to develop contingency plans to address
certain of these risks, it cannot assure you that any developed plans will
sufficiently insulate Quintiles from the effects of these risks. Any disruptions
resulting from the realization of these risks would affect Quintiles' ability to
perform its services. If Quintiles is unable to receive or process information,
or if third parties are unable to provide information or services to Quintiles,
Quintiles may not be able to meet milestones or obligations under its customer
contracts, which could have a material adverse effect on its business, results
of operations and financial condition.
Until Quintiles has completed its remediation, testing and deployment
plans, Quintiles believes it is premature to develop contingency plans to
address what would happen if its execution of these plans were to fail to
address the Year 2000 issue.
IF QUINTILES LOSES THE SERVICES OF DENNIS GILLINGS
OR OTHER KEY PERSONNEL, ITS BUSINESS COULD BE ADVERSELY AFFECTED
Quintiles' success substantially depends on the performance, contributions
and expertise of its senior management team, led by Dennis B. Gillings, Ph.D.,
Quintiles' Chairman of the Board of Directors and Chief Executive Officer.
Quintiles maintains key man life insurance on Dr. Gillings in the amount of $3
million. Quintiles' performance also depends on its ability to attract and
retain qualified management and professional, scientific and technical operating
staff, as well as its ability to recruit qualified representatives for its
contract sales services. The departure of Dr. Gillings, or any key executive, or
Quintiles' inability to continue to attract and retain qualified personnel could
have a material adverse effect on its business, results of operations or
financial condition.
QUINTILES' CONTRACT RESEARCH SERVICES CREATE A RISK
OF LIABILITY FROM CLINICAL TRIAL PARTICIPANTS
Quintiles contracts with physicians to serve as investigators in conducting
clinical trials to test new drugs on human volunteers. Such testing creates risk
of liability for personal injury to or death of volunteers, particularly to
volunteers with life-threatening illnesses, resulting from adverse reactions to
the drugs administered during testing. It is possible third parties could claim
that Quintiles should be held liable for losses arising from any professional
malpractice of the investigators with whom it contracts or in the event of
personal injury to or death of persons participating in clinical trials.
Quintiles does not believe it is legally accountable for the medical care
rendered by third party investigators, and Quintiles would vigorously defend any
such claims. Nonetheless, it is possible Quintiles could be found liable for
those types of losses.
In addition to supervising such tests, Quintiles also owns a number of labs
where Phase I clinical trials are conducted. Phase I clinical trials involve
testing a new drug on a limited number of healthy individuals, typically 20 to
80 persons, to determine the drug's basic safety. Quintiles also could be liable
for the general risks associated with ownership of such a facility. These risks
include, but are not limited to, adverse events resulting from the
administration of drugs to clinical trial participants or the professional
malpractice of Phase I medical care providers.
32
<PAGE> 41
RELAXATION OF GOVERNMENT REGULATION COULD DECREASE THE NEED
FOR THE SERVICES QUINTILES PROVIDES
Governmental agencies throughout the world, but particularly in the United
States, highly regulate the drug development/approval process. A large part of
Quintiles' business involves helping pharmaceutical and biotechnology companies
through the regulatory drug approval process. Any relaxation in regulatory
approval standards could eliminate or substantially reduce the need for
Quintiles' services, and, as a result its business, results of operations and
financial condition could be materially adversely affected. Potential regulatory
changes under consideration in the United States and elsewhere include mandatory
substitution of generic drugs for patented drugs, relaxation in the scope of
regulatory requirements or the introduction of simplified drug approval
procedures. These and other changes in regulation could have an impact on the
business opportunities available to Quintiles.
FAILURE TO COMPLY WITH EXISTING REGULATIONS COULD RESULT IN A LOSS OF REVENUE
Any failure on Quintiles' part to comply with applicable regulations could
result in the termination of ongoing clinical research or sales and marketing
projects or the disqualification of data for submission to regulatory
authorities, either of which could have a material adverse effect on Quintiles.
For example, if Quintiles were to fail to verify that informed consent is
obtained from patient participants in connection with a particular clinical
trial, the data collected from that trial could be disqualified, and Quintiles
could be required to redo the trial under the terms of its contract at no
further cost to its customer, but at substantial cost to Quintiles.
PROPOSED REGULATIONS MAY INCREASE THE COST OF QUINTILES' BUSINESS
OR LIMIT ITS SERVICE OFFERINGS
Certain of Quintiles' current services relate to the diagnosis and
treatment of disease. The confidentiality of patient-specific information and
the circumstances under which such patient-specified records may be released for
inclusion in Quintiles' databases or used in other aspects of Quintiles'
business, are subject to substantial government regulation. Additional
legislation governing the possession, use and dissemination of medical record
information has been proposed at both the state and federal levels. This
legislation may (1) require Quintiles to implement security measures that may
require substantial expenditures or (2) limit Quintiles' ability to offer some
of its products and services. These and other changes in regulation could have
an impact on the business opportunities available to Quintiles.
33
<PAGE> 42
EXCHANGE RATE FLUCTUATIONS MAY AFFECT QUINTILES' RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Quintiles derives a large portion of its net revenue from international
operations; for example, Quintiles derived approximately 51.7% of its 1997 net
revenue from outside the United States. Quintiles' financial statements are
denominated in U.S. dollars; thus, factors associated with international
operations, including changes in foreign currency exchange rates could
significantly affect Quintiles' results of operations and financial condition.
Exchange rate fluctuations between local currencies and the U.S. dollar create
risk in several ways, including:
- Foreign Currency Translation Risk. The revenue and expenses of
Quintiles' foreign operations are generally denominated in local
currencies.
- Foreign Currency Transaction Risk. Quintiles' service contracts may be
denominated in a currency other than the currency in which it incurs
expenses related to such contracts.
Quintiles tries to limit these risks through exchange rate fluctuation
provisions stated in its service contracts, or Quintiles may hedge its
transaction risk with foreign currency exchange contracts or options. Despite
these efforts, Quintiles may still experience fluctuations in financial results
from its operations outside the United States, and Quintiles cannot assure you
that it will be able to favorably reduce its currency transaction risk
associated with its service contracts.
On January 1, 1999, a new currency, the euro, became the legal currency for
11 of the 15 member countries of the European Economic Community. Between
January 1, 1999 and January 1, 2002, governments, companies and individuals may
conduct business in these countries in both the euro and existing national
currencies. On January 1, 2002, the euro will become the sole currency in these
countries. Quintiles is evaluating the impact conversion to the euro will have
on its business. In particular Quintiles is reviewing (1) whether it may have to
change the prices of its services in the different countries because they will
now be denominated in the same currency in each country and (2) whether
Quintiles will have to change the terms of any financial instruments in
connection with its hedging activities described above. Based on current
information and its initial evaluation, Quintiles does not expect the cost of
any necessary corrective action to seriously harm its business. However,
Quintiles will continue to evaluate the impact of these and other possible
effects of the conversion to the euro on its business. Quintiles cannot assure
you that the costs associated with the conversion to the euro will not in the
future seriously harm its business, results of operations or financial
condition.
ABOUT ENVOY
ENVOY HAS A LIMITED OPERATING HISTORY AND RECENT LOSSES
The healthcare EDI and transaction processing industry is relatively new,
and ENVOY's operating history is limited. ENVOY was profitable during 1998;
however, it has experienced substantial losses in recent years, including a net
loss of $9.2 million for 1997 and $22.3 million for 1996. ENVOY had an
accumulated deficit of $49.1 million as of December 31, 1998. To be profitable,
ENVOY must have a successful business strategy, increase revenues, and control
expenses. ENVOY cannot assure that it will be profitable in the future.
34
<PAGE> 43
RECENT ACQUISITIONS HAVE AFFECTED ENVOY'S RESULTS OF OPERATIONS
ENVOY recently acquired several companies and these acquisitions
significantly expanded ENVOY's business. The accounting treatment of these
acquisitions negatively impacted ENVOY's reported results of operations,
particularly the National Electronic Information Corporation, or NEIC,
acquisition in March 1996 and the Healthcare Data Interchange Corporation, or
HDIC, acquisition in August 1997. The NEIC and HDIC acquisitions are briefly
described below:
NEIC. ENVOY's cost of acquiring NEIC was $94.3 million, which includes
fees, expenses and other costs. ENVOY wrote-off acquired in-process
technology of $8.0 million. Due to the NEIC acquisition, ENVOY is
amortizing $59.6 million of goodwill over three years. This amortization
will adversely affect ENVOY's reported results of operations through March
1999.
HDIC. ENVOY's cost of acquiring HDIC was $36.4 million, plus the
assumption of certain liabilities. Prior to the acquisition of HDIC by
ENVOY, HDIC was the healthcare EDI subsidiary of Aetna U.S. Healthcare
Inc., or AUSHC. In connection with the HDIC acquisition, ENVOY and AUSHC
entered into a ten-year services agreement, in which AUSHC agreed to use
ENVOY as its single source clearinghouse and EDI network for all AUSHC
electronic healthcare transactions. ENVOY recorded approximately $45.9
million of goodwill and identifiable intangible assets. ENVOY is amortizing
$38.8 million of related goodwill over 15 years. Further, ENVOY wrote-off
acquired in-process technology of $6.0 million.
Amortization expense associated with acquisitions was approximately $29.1
million in 1998 and is expected to be $12.3 million in 1999, including $6.0
million in the three months ended March 31, 1999. If ENVOY makes additional
acquisitions, its amortization costs and write-offs of acquired-in-process
technology could increase significantly. The amounts allocated to developed
technology and in-process technology in acquisitions that are accounted for as
purchases are determined based on certain valuations. Such valuations use
estimates of future revenues, expenses, operating profit and cash flows. The
actual revenues, expenses, operating profit and cash flows related to such
acquisitions may be materially different from the estimates.
SUCCESS OF ACQUISITIONS DEPENDS ON MANY FACTORS
ENVOY seeks to acquire companies in the healthcare information business.
The success of ENVOY's acquisition of a given company depends on many factors,
including, the purchase price for the company, whether financing is available
for the acquisition and, if so, the terms of the financing, and the ability of
ENVOY's management to integrate the company into ENVOY's operations. ENVOY's
success in acquiring companies is also dependent on its ability to identify
attractive companies. Many of ENVOY's competitors are also seeking to acquire
companies, which could result in fewer companies for ENVOY to acquire, and
higher prices that ENVOY must pay for any company that it does acquire.
ACQUISITIONS MAY ADVERSELY AFFECT OPERATIONS
If ENVOY acquires a company, it cannot assure that it will be able to
operate the acquired company profitably. The actual revenues, expenses,
operating results and cash flows related to acquisitions may be materially
different from the estimates developed prior to the acquisition. Certain past
acquisitions of companies by ENVOY have caused temporary
35
<PAGE> 44
declines in customer service. Such declines were caused by problems, such as
computer down time and inexperienced customer service representatives, that
occurred in integrating the acquired company into ENVOY. Although ENVOY believes
that these problems have been resolved and that it has not been materially
adversely affected, ENVOY may experience similar customer service problems in
the future, which could have a material adverse effect on ENVOY.
ENVOY MAY BE ADVERSELY AFFECTED BY CUSTOMER CONCENTRATION
Primarily as a result of ENVOY's acquisition of HDIC, ENVOY has one
customer, AUSHC, that accounted for 17% of its 1998 revenues and 12% of its 1997
revenues. Before 1997, none of ENVOY's customers accounted for more than 10% of
ENVOY's revenues. When ENVOY acquired HDIC, ENVOY and AUSHC entered into a
ten-year services agreement that requires AUSHC to use ENVOY as its single
source clearinghouse and EDI network for all of AUSHC's electronic healthcare
transactions. The fees under the AUSHC services agreement have been negotiated
for the first three years. The AUSHC services agreement also requires ENVOY to
maintain minimum transaction volumes and services levels and to perform
marketing services that are designed to encourage AUSHC providers to use ENVOY's
services. If either ENVOY or AUSHC fail to comply with a material term of the
services agreement, the other party can terminate the services agreement upon
180 days' notice. ENVOY believes that it is currently complying with all
material terms of the AUSHC services agreement.
ENVOY receives medical EDI transactions from practice management system
vendors and other claims clearinghouses. These vendors and claims clearinghouses
collect transactions from healthcare providers and send ENVOY these transactions
to complete the processing of the transactions with the payors. ENVOY receives
revenue from the payors for processing these transactions and, in turn, pays
rebates to exclusive and preferred vendors based on the volume of transactions
delivered to ENVOY. If consolidation in the healthcare industry results in fewer
vendors and clearinghouses that gather medical EDI transactions from healthcare
providers, then ENVOY's medical EDI business will be more dependent on a smaller
number of vendors and clearinghouses.
To illustrate the foregoing risk, ENVOY currently processes batch
transactions for Medic Computer Systems, a practice management system vendor.
ENVOY and Medic have an exclusive relationship for processing these transactions
through June 1999. ENVOY's revenues for such processing represented 3.5% of
ENVOY's revenues for the year ended December 31, 1998. Medic recently announced
that it has entered into a processing and development agreement with one of
ENVOY's competitors. Subsequently, both ENVOY and Medic have alleged that the
other party has breached the parties' current agreement, and a lawsuit is
pending to resolve the parties' allegations. If ENVOY is not able to resolve the
parties' allegations and maintain a relationship with Medic, or other companies
like Medic, its business may be adversely affected.
As another illustration, before NEIC was acquired by ENVOY, it generated
most of its revenues from five insurance companies who were shareholders of
NEIC. These insurance companies have continued to use NEIC's services following
ENVOY's acquisition of NEIC, but they are not required to continue to use NEIC's
services in the future. If one or more of the insurance companies decreases or
ceases its use of NEIC's services, then ENVOY's business could be adversely
affected.
36
<PAGE> 45
YEAR 2000 COMPLIANCE
The Year 2000 issue represents problems associated with the inability of a
computer to recognize dates beyond December 31, 1999. During 1997, ENVOY started
implementing a plan to ensure that its computer systems will not be affected by
the Year 2000 issue. In 1998, ENVOY established a Year 2000 Task Force,
primarily to develop, implement and monitor ENVOY's Year 2000 compliance efforts
and to review that of its customers. In addition, ENVOY engaged a consulting
firm to provide an independent review of ENVOY's Year 2000 compliance efforts
and to assist the Year 2000 Task Force. Some of ENVOY's computer systems are
already able to process dates beyond December 31, 1999, and ENVOY is replacing
or upgrading the remaining systems. ENVOY also has started testing customers,
vendors, suppliers and other third parties to determine whether their computers
will be affected by the Year 2000 issue, and currently expects to complete
testing in June 1999.
ENVOY's total cost for assessing and curing Year 2000 problems is estimated
at $3.0 to $4.0 million, but ENVOY cannot assure that such costs will not be
higher. For example, ENVOY has not yet estimated the Year 2000 costs for periods
after 1999, which may include costs of customer service efforts resulting from
the failure of third parties to be Year 2000 compliant or other problems.
Factors which could impact these estimates include: the availability of
appropriate technology personnel, the rate and magnitude of related labor costs,
the successful identification of all aspects of ENVOY's systems, software and
products that require remediation or replacement, the extent of testing
required, the costs of ENVOY's efforts to assist certain customers in the
remediation of their customized codes, the amount of cost recoveries from such
efforts and the success of third parties in their Year 2000 compliance efforts.
ENVOY is funding these costs with operating cash flows, and will expense costs
as they are incurred. If ENVOY, its customers or other third parties with whom
it does business fail to cure their Year 2000 problems, ENVOY could be adversely
affected.
ENVOY RELIES ON SPECIFIC DATA CENTERS
ENVOY relies on its host computer system to perform real-time EDI
transaction processing. This host computer system is contained in a single data
facility. The host computer system does not have a remote backup data center.
Although the host computer system is insured, if there is a fire or other
disaster at the data facility, ENVOY's business could be materially adversely
affected.
ENVOY also relies on a data center operated by a third party to perform
many of its other healthcare EDI transaction processing services. The facility
is located in Tampa, Florida and is operated by GTE Data Services Incorporated,
with whom ENVOY has contracted for such processing services. ENVOY relies
primarily on this facility to process its batch claims and other medical EDI
transaction sets. ENVOY's contract with GTE requires GTE to maintain continuous
processing capability and a "hot site" disaster recovery system. This contract
expires in December 2003. If the GTE facility's services are disrupted or
delayed, ENVOY's business could be materially adversely affected.
ENVOY CANNOT PREDICT THE NEED FOR INDEPENDENT HEALTHCARE EDI PROCESSING
ENVOY's business strategy anticipates that providers of healthcare services
and payors will increase their use of electronic processing of healthcare
transactions in the future. The development of the business of electronically
transmitting healthcare transactions is affected, and somewhat hindered, by the
complex nature and types of transactions that must be processed. Furthermore,
while the wide variety of processing forms used by different
37
<PAGE> 46
payors has fostered the need for healthcare EDI and transaction processing
clearinghouses such as ENVOY to date, if such forms become standardized, through
consolidation of payors or otherwise, then the need for independent third party
healthcare EDI processing could become less prevalent. ENVOY cannot assure that
the electronic processing of healthcare transactions will increase or that its
business will grow.
ENVOY FACES A VARIETY OF COMPETITORS
ENVOY faces different types of competition in the healthcare EDI and
transaction processing business. Some of its competitors are similarly
specialized, such as former regional partners of ENVOY that have direct provider
relationships, and others are involved in more highly developed areas of the
business. In addition, some vendors of provider information management systems
include or may include, in their offered products, their own electronic
transaction processing systems. If electronic transaction processing becomes the
standard method of processing healthcare claims and information, other companies
with stronger capital resources could enter the industry. Many of ENVOY's
current and potential competitors are larger than ENVOY and have greater
resources. Competition from any or all of these sources could force ENVOY to
reduce, or even eliminate, per transaction fees, which could adversely affect
its business.
DIRECT LINKS MAY BYPASS NEED FOR ENVOY'S SERVICES
Some third party payors provide electronic data transmission systems to
healthcare providers, thereby directly linking the payor to the provider. Such
direct links bypass third party processors such as ENVOY. An increase in the use
of direct links between payors and providers would materially adversely affect
ENVOY's business.
ENVOY FACES AN UNCERTAIN REGULATORY ENVIRONMENT
The operations of companies in the healthcare industry are affected by
changes in political, economic and regulatory influences. Federal and state
legislatures periodically consider legislation that would change the federal and
state healthcare programs. Such legislation may include increased government
involvement in healthcare, lower reimbursement rates, or other changes. The
uncertainty surrounding these proposed or actual changes could cause companies
in the healthcare industry to curtail or defer investments in ENVOY's services
and products.
CONSOLIDATION IN THE HEALTHCARE INDUSTRY MAY ADVERSELY AFFECT ENVOY'S BUSINESS
Many healthcare providers and payors are consolidating to create larger
healthcare organizations. This consolidation reduces the number of potential
customers for ENVOY's services, and the increased bargaining power of these
organizations could lead to reductions in the amounts paid for ENVOY's services.
Industry developments are increasing the amount of capitation-based care and
reducing the need for providers to make claims or reimbursements for products or
services. Payors and other healthcare information companies, such as billing
services and practice management vendors, which currently utilize ENVOY's
services, have developed or acquired transaction processing and networking
capabilities and may cease utilizing ENVOY's services in the future. The impact
of these developments in the healthcare EDI and transaction processing industry
is difficult to predict and could materially adversely affect ENVOY's business.
38
<PAGE> 47
NEW HEALTHCARE LEGISLATION COULD RESTRICT ENVOY'S BUSINESS
The Health Insurance Portability and Accountability Act of 1996 requires
the use of standard transactions, standard identifiers, security and other
provisions and instructs the Secretary of Health and Human Services to develop
recommendations regarding the privacy of individually identifiable health
information. On September 11, 1997, the Secretary presented her recommendations,
which, among other things, advise that patient information should not be
disclosed except when authorized by the patient. This Act further establishes an
August 1999 deadline for Congress to enact privacy legislation. If Congress does
not meet this deadline, the Secretary is directed to issue regulations setting
privacy standards to protect information that is transmitted electronically.
Such changes could occur as early as the year 2000 and their impact cannot be
predicted, but such legislation or regulations could materially affect ENVOY's
business. This Act also specifically names clearinghouses as the compliance
facilitators for providers and payors, and permits clearinghouses to convert
non-standard transactions to standard transactions on behalf of their clients.
ENVOY is preparing to comply with the mandated standards within three to six
months after they are published. Whether ENVOY is successful in complying with
these standards may depend on whether providers, payors and others are also
successful in complying with the standards.
In addition, broad-based legislation restricting third party processors
from using, transmitting or disclosing certain patient data without specific
patient consent has recently been introduced in the United States Congress. If
this legislation is adopted, it could prevent third party processors from using,
transmitting or disclosing certain treatment and clinical data. It is difficult
to predict the impact of the legislation described above, but such legislation
could materially adversely affect ENVOY's business.
ENVOY FACES EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES
The market for ENVOY's business is characterized by rapidly changing
technology, evolving industry standards and frequent introduction of new and
enhanced products and services. To succeed, ENVOY must continue to:
- enhance its existing products and services;
- introduce new products and services on a timely and cost-effective basis
to meet evolving customer requirements;
- achieve market acceptance for new products and services; and
- respond to emerging industry standards and other technological changes.
PROTECTING ENVOY'S TECHNOLOGY IS IMPORTANT TO ITS SUCCESS
ENVOY believes that its technology is important to its success and
competitive position. Accordingly, ENVOY devotes substantial resources to the
establishment and protection of the intellectual property rights associated with
its technology. These actions, however, may be inadequate to prevent a third
party from imitating or using ENVOY's technology or asserting certain rights in
ENVOY's technology and intellectual property rights. Additionally, ENVOY's
competitors may independently develop technologies that are substantially
equivalent or superior to ENVOY's technology. Although ENVOY is currently not
aware of any pending or threatened infringement claims, a third party also may
claim that ENVOY's products and services are infringing on its intellectual
property rights. Such claims could require ENVOY to enter into license
arrangements in order to use such products and services. ENVOY may not be able
to obtain such licenses.
39
<PAGE> 48
Furthermore, litigation may be necessary to enforce or defend ENVOY's
intellectual property rights or defend against any infringement claims. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on ENVOY's business and financial results.
ENVOY INCREASINGLY DEPENDS ON MEDICAL EDI AND PATIENT STATEMENT TRANSACTION
REVENUES
ENVOY's medical EDI and patient statement transaction revenues constituted
approximately 75% of ENVOY's total revenues in 1998. Although pharmacy EDI
transactions currently represent a majority of ENVOY's total transactions,
pharmacy EDI revenue constituted less than 15% of ENVOY's total revenues in 1998
as a result of lower per transaction prices on pharmacy transactions. In 1998,
the number of transactions processed in ENVOY's pharmacy EDI business grew at
approximately half the rate experienced in ENVOY's other businesses. Because of
the significant penetration and lower per transaction prices already existing in
the more mature pharmacy EDI sector, ENVOY believes that the percentage of total
revenue contributed by its pharmacy EDI business as presently conducted will
continue to decrease. Accordingly, ENVOY will have an increasing dependence on
medical EDI and patient statement transaction revenues. Any decline in growth
rates associated with these businesses could have a material adverse effect on
ENVOY's business and financial results.
ENVOY DEPENDS ON KEY EXECUTIVES
ENVOY's success depends upon the continued contributions of its senior
management and upon its ability to attract, motivate and retain highly skilled
technical, managerial and marketing personnel. The loss of the services of
certain of ENVOY's key executives or technical personnel, or the inability to
hire and retain qualified personnel could have a material adverse effect upon
ENVOY's business and financial results.
ENVOY FACES RISKS CONCERNING UNAUTHORIZED ACCESS TO DATA CENTERS
Unauthorized access to ENVOY's data centers and misappropriation of ENVOY's
proprietary information could have a material adverse effect on ENVOY's business
and financial results. While ENVOY believes its current security measures and
the security measures used by third parties for whom ENVOY processes or
transmits healthcare information are adequate, such unauthorized access or
misappropriation could occur.
40
<PAGE> 49
GENERAL INFORMATION ABOUT THE SPECIAL MEETINGS
DATE, TIME AND PLACE OF THE SPECIAL MEETINGS
The special meeting of the Quintiles shareholders will be held at [ ]
[ ].m., local time (EST), on March [ ], 1999, at [ ].
The special meeting of the ENVOY shareholders will be held on March [ ],
1999 at 10:00 a.m., local time (CST), at .
RECORD DATE AND OUTSTANDING SHARES
The Quintiles board of directors has fixed the close of business on January
21, 1999 as the record date for the Quintiles special meeting. Only shareholders
of record on the record date are entitled to notice of and to vote at the
Quintiles special meeting. As of the Quintiles record date, there were issued
and outstanding 78,040,290 shares of Quintiles common stock, held of record by
approximately 692 persons. Each holder of Quintiles common stock is entitled to
one vote per share held of record on the record date.
The ENVOY board of directors has fixed the close of business on February
15, 1999, as the record date for the determination of the holders of ENVOY
common stock and Series B convertible preferred stock entitled to receive notice
of and to vote at the ENVOY special meeting. Only holders of record of shares of
ENVOY common stock and/or Series B convertible preferred stock on the record
date will be entitled to receive notice of and to vote at the ENVOY special
meeting. On the record date 21,589,861 shares of ENVOY common stock were
outstanding and held by approximately 193 holders of record and 2,800,000 shares
of Series B convertible preferred stock were outstanding and held by two holders
of record. Each holder of ENVOY common stock and/or Series B convertible
preferred stock is entitled to one vote per share held on the record date. In
addition to being entitled to vote as a separate class, the holders of ENVOY
Series B convertible preferred stock are also entitled to vote with the holders
of ENVOY common stock together as a single voting class.
PURPOSES OF THE SPECIAL MEETINGS
QUINTILES
Quintiles is furnishing this Joint Proxy Statement/Prospectus to its
shareholders in connection with the solicitation of proxies by the Quintiles
board of directors for use at the Quintiles special meeting. At the Quintiles
special meeting, Quintiles shareholders will be asked to approve (1) the
proposal to issue shares of Quintiles common stock to the ENVOY shareholders in
the merger, (2) the proposal to amend Quintiles' articles of incorporation to
increase the number of authorized shares of Quintiles common stock from
200,000,000 to 500,000,000 (the "Common Stock Amendment") and (3) such other
matters as may properly come before the Quintiles special meeting.
IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED IN CONNECTION WITH THE MERGER, THE QUINTILES BOARD OF DIRECTORS HAS
DETERMINED THAT ISSUING APPROXIMATELY 28,437,411 SHARES OF QUINTILES COMMON
STOCK TO THE ENVOY SHAREHOLDERS IN THE MERGER IS IN THE BEST INTERESTS OF THE
QUINTILES SHAREHOLDERS AND RECOMMENDS THAT THE QUINTILES SHAREHOLDERS VOTE IN
FAVOR OF ISSUING SUCH SHARES.
IN UNANIMOUSLY APPROVING THE COMMON STOCK AMENDMENT, THE QUINTILES BOARD OF
DIRECTORS HAS DETERMINED THAT INCREASING THE NUMBER OF AUTHORIZED SHARES OF
QUINTILES
41
<PAGE> 50
COMMON STOCK FROM 200,000,000 TO 500,000,000 IS IN THE BEST INTERESTS OF THE
QUINTILES SHAREHOLDERS AND RECOMMENDS THAT THE QUINTILES SHAREHOLDERS VOTE IN
FAVOR OF THE COMMON STOCK AMENDMENT.
ENVOY
ENVOY is furnishing this Joint Proxy Statement/Prospectus to its
shareholders in connection with the solicitation of proxies by the ENVOY board
of directors for use at the ENVOY special meeting. The purpose of the special
meeting is to consider and vote upon the proposal to approve and adopt the
merger agreement and the merger transactions and to transact such other business
as may properly come before the special meeting or any adjournments or
postponements thereof. Pursuant to the merger agreement, at the effective time,
QELS will merge with and into ENVOY, with ENVOY continuing as the surviving
corporation and as a wholly owned subsidiary of Quintiles. In addition, at the
effective time of the merger, each share of ENVOY common stock and Series B
convertible preferred stock outstanding prior to the merger will be canceled and
converted into the right to receive 1.166 shares of Quintiles common stock.
IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED IN CONNECTION WITH THE MERGER, THE ENVOY BOARD OF DIRECTORS HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE ENVOY SHAREHOLDERS
AND RECOMMENDS THAT THE ENVOY SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
VOTE REQUIRED
QUINTILES
Assuming that a quorum is present at the Quintiles special meeting,
approval of the proposal to issue shares of Quintiles common stock in the merger
requires the affirmative vote, either in person or by proxy, of at least a
majority of all shares of Quintiles common stock voted at the Quintiles special
meeting. Approval of the Common Stock Amendment requires the affirmative vote,
either in person or by proxy, of at least a majority of all outstanding shares
of Quintiles common stock entitled to vote at the Quintiles special meeting.
Quintiles shareholders do not have dissenters' rights of appraisal with respect
to the issuance of Quintiles shares in the merger or the Common Stock Amendment.
Quintiles shareholders are entitled to one vote for each share of Quintiles
common stock on all matters submitted to a vote of Quintiles shareholders. The
presence at the Quintiles special meeting, either in person or by proxy, of the
holders of a majority of the votes entitled to be cast at the meeting
constitutes a quorum for the transaction of business. Under the rules of The
Nasdaq Stock Market, brokers who hold shares in street name for customers will
not have the authority to vote on the proposed issuance of shares in connection
with the merger or the Common Stock Amendment unless they receive specific
instructions from the beneficial owners. For purposes of determining whether
there is a quorum at the Quintiles special meeting, abstentions and broker
non-votes will be treated as shares that are present and entitled to vote.
Abstentions and broker non-votes will be counted as negative votes in
determining whether Quintiles shareholders have approved the Common Stock
Amendment however, abstentions and broker non-votes will not be counted in
determining whether Quintiles shareholders have approved the issuance of shares
in connection with the merger.
As of January 21, 1999, directors and executive officers of Quintiles and
their affiliates beneficially owned and were entitled to vote 6,891,384 shares
of Quintiles common stock,
42
<PAGE> 51
which represented 8.83% of the 78,040,290 shares of Quintiles common stock then
outstanding.
ENVOY
Each share of ENVOY common stock and Series B convertible preferred stock
is entitled to one vote per share with respect to the merger agreement and each
other matter properly submitted at the ENVOY special meeting. Approval and
adoption of the merger agreement by the shareholders of ENVOY requires the
affirmative vote of a majority of the outstanding shares of ENVOY common stock
and Series B convertible preferred stock, voting as a single class, entitled to
vote at the ENVOY special meeting, in person or by proxy. In addition, approval
and adoption of the merger agreement requires the affirmative vote of a majority
of the outstanding shares of ENVOY Series B convertible preferred stock entitled
to vote at the ENVOY special meeting, voting separately as a single class.
Shareholder approval of the merger agreement is being solicited in accordance
with the rules of the National Association of Securities Dealers, Inc.
applicable to certain transactions involving issuers whose shares are traded on
The Nasdaq Stock Market and their affiliates. Shareholder approval of the merger
agreement also is required under Tennessee law, and such approval is a condition
to the merger agreement.
Pursuant to ENVOY's bylaws, the presence, in person or by properly executed
proxy, of the holders of the majority of the shares of ENVOY common stock and
Series B convertible preferred stock outstanding and entitled to vote (together
as one class) is necessary to constitute a quorum of holders of common stock at
the ENVOY special meeting. In addition, the presence, in person or by properly
executed proxy, of the holders of a majority of the shares of ENVOY Series B
convertible preferred stock outstanding and entitled to vote (as a separate
class) is necessary to constitute a quorum of the holders of Series B
convertible preferred stock at the ENVOY special meeting. Under the rules of The
Nasdaq Stock Market, brokers who hold shares in street name for customers will
not have the authority to vote on the merger agreement unless they receive
specific instructions from the beneficial owners. Abstentions and broker
non-votes, therefore, will be included in determining whether a quorum is
present, but will have the same effect as a vote against the merger agreement.
Each of the directors of ENVOY holding shares of ENVOY common stock has
executed a stock voting agreement to vote his shares in favor of the merger
agreement. Additionally, each of the holders of shares of ENVOY Series B
convertible preferred stock has executed a stock voting agreement to vote such
shares in favor of the merger agreement. Collectively, the holders of ENVOY
Series B convertible preferred stock have granted proxies with respect to
2,800,000 shares of ENVOY Series B convertible preferred stock, representing
100% of the outstanding shares of ENVOY Series B convertible preferred stock.
Collectively, ENVOY's directors and the holders of ENVOY Series B convertible
preferred stock have agreed to vote 1,062,925 shares of ENVOY common stock and
2,800,000 shares of ENVOY Series B convertible preferred stock, representing, as
of January 26, 1999, 15.8% of the outstanding shares of ENVOY common stock and
Series B convertible preferred stock (voting together as a single class), and
100% of the outstanding shares of the ENVOY Series B convertible preferred
stock, for approval and adoption of the merger agreement.
43
<PAGE> 52
VOTING OF PROXIES
QUINTILES
If the accompanying proxy card is properly signed and returned to Quintiles
and not revoked before a vote is taken at the Quintiles special meeting, it will
be voted in accordance with the instructions contained therein. If the proxy
card is signed and returned, but voting directions are not marked, the proxy
will be voted FOR approval of issuing shares of Quintiles common stock in the
merger and the Common Stock Amendment.
At the Quintiles special meeting, shareholder votes will be tabulated by
persons appointed by the Quintiles board of directors to act as inspectors of
election.
Quintiles is aware of no matters, except as described in this Joint Proxy
Statement/ Prospectus, that may come before the Quintiles special meeting. If
any other matters are properly presented to the Quintiles special meeting for
action, the persons named in the applicable form of proxy will vote on such
matters in accordance with their best judgment, unless such authority is
withheld.
ENVOY
Shareholders of record on the ENVOY record date are entitled to cast their
votes, in person or by properly executed proxy, at the ENVOY special meeting.
All shares of ENVOY common stock and Series B convertible preferred stock
represented at the ENVOY special meeting by properly executed proxies received
at or prior to the ENVOY special meeting, unless properly revoked, will be voted
at the ENVOY special meeting in accordance with instructions indicated on such
proxies. If a proxy is signed and returned without indicating any voting
instructions, shares of ENVOY common stock and Series B convertible preferred
stock represented by the proxy will be voted FOR approval and adoption of the
merger agreement.
The ENVOY board of directors is not aware of any business to be acted upon
at the ENVOY special meeting other than as described in this Joint Proxy
Statement/Prospectus. If, however, other matters are properly brought before the
ENVOY special meeting, or any adjournments or postponements thereof, the persons
appointed as proxies or their substitutes will have discretion to vote or act
thereon according to their best judgment and applicable law unless the proxy
indicates otherwise.
AUTHORIZATION TO VOTE ON ADJOURNMENT AND OTHER MATTERS
QUINTILES
By signing the proxy, a Quintiles shareholder authorizes the proxy holder
to vote in his discretion regarding any procedural motions which may come before
the Quintiles special meeting. For example, this authority could be used to
adjourn the meeting if Quintiles believes it is desirable to do so. Adjournment
or other procedural matters could be used to obtain more time before a
shareholder vote in order to solicit additional proxies or to provide additional
information to Quintiles shareholders. Quintiles has no plans to adjourn the
meeting at this time, but it intends to attempt to do so if it believes that
doing so would promote shareholder interests.
44
<PAGE> 53
ENVOY
If a quorum is not present at the time the special meeting is convened, or
if for any other reason the ENVOY board of directors believes that additional
time should be allowed for the solicitation of proxies or for the satisfaction
of conditions to the merger agreement, ENVOY may adjourn the ENVOY special
meeting with a vote of the majority of its shareholders present or represented
at the meeting. To the extent an ENVOY shareholder intends to vote against the
merger agreement, such shareholder would have no incentive to vote in favor of
discretionary adjournment by the ENVOY board of directors, which would allow
ENVOY to adjourn the meeting in order to solicit additional votes in favor of
the merger agreement.
The failure to return a proxy or to vote in person will have no effect on
the vote on adjournment, except to reduce the total number of votes counted.
Brokers who hold shares in street name for customers will not have the authority
to vote unless they receive specific instructions from beneficial owners. Under
Tennessee law, an adjournment proposal requires the affirmative vote of a
majority of the votes cast by ENVOY shareholders. Therefore, broker non-votes
and abstentions will have no effect, provided a quorum is present.
REVOCATION OF PROXIES
A shareholder of Quintiles or of ENVOY may revoke a proxy at any time
before it is voted by (1) filing written notice of revocation with the corporate
secretary of Quintiles or ENVOY (as applicable) which is actually received prior
to the vote of shareholders, (2) filing with such corporate secretary before the
vote of shareholders a duly executed proxy bearing a later date or (3) attending
the Quintiles or ENVOY special meeting (as applicable) and voting in person.
Attendance at the special meeting will not by itself revoke the proxy.
Any such filing by a Quintiles shareholder should be sent to the Corporate
Secretary of Quintiles at Quintiles Transnational Corp., Post Office Box 13979,
Research Triangle Park, North Carolina 27709. Any such filing by an ENVOY
shareholder should be sent to the Secretary of ENVOY Corporation, Two Lakeview
Place, 15 Century Boulevard, Suite 600, Nashville, Tennessee 37214.
SOLICITATION OF PROXIES
Each company will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of each company may solicit proxies from shareholders of that company
by telephone or personal communication or by other means. These persons will not
receive additional compensation, but they may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation.
Quintiles and ENVOY will make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of Quintiles and ENVOY stock held of record by such persons,
and such party will reimburse custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection with this service.
Quintiles has retained Corporate Investor Communications, Inc. to assist in
the solicitation of proxies for the special meeting for shareholders and
delivery of proxy materials. The anticipated cost of this service is $6,700.
ENVOY has engaged Corporate Communications, Inc., ENVOY's regular investor
relations firm, to assist in the solicitation of proxies for its special
meeting. The anticipated cost of this service is approximately $4,000.
45
<PAGE> 54
PROPOSAL ONE
QUINTILES AND ENVOY SHAREHOLDERS
THE MERGER
BACKGROUND OF THE MERGER
The management of ENVOY has considered at various times the possibility of
strategic combinations with other companies and ENVOY's strategic fit with such
companies, their existing and future business prospects, management and employee
culture. Although informal discussions with senior managements of potential
acquirors have taken place from time to time, ENVOY's management and board of
directors previously have determined that growing ENVOY as an independent public
company would best maximize values for its shareholders in the long term.
Quintiles management considers acquisitions in the health information
industry as a method of strategically expanding its current products and
services. Quintiles management has at various times identified several companies
in the health information industry as possible acquisition candidates and
identified ENVOY as a significant opportunity to further its strategic goals in
this area. In pursuit of this strategy, in July a representative of Quintiles
contacted Morgan Stanley to inquire about the possibility of discussing business
related issues with ENVOY.
In July, 1998, a representative of Morgan Stanley advised Jim D. Kever,
President and Co-Chief Executive Officer of ENVOY, that Quintiles had expressed
an interest in exploring business related issues or a negotiated acquisition of
ENVOY. Mr. Kever indicated that ENVOY intended to maintain its long-term
strategic plan which contemplated that it would remain independent. In August,
Quintiles management attempted to arrange a meeting with ENVOY, but ENVOY
declined to meet in order to focus on pending business issues. In October,
Quintiles management called ENVOY again to arrange a meeting. On October 21,
1998, Mr. Kever and Fred C. Goad, Jr., Chairman and Co-Chief Executive Officer
of ENVOY, had a dinner meeting with Dennis B. Gillings, Chairman and Chief
Executive Officer of Quintiles, at which they discussed ENVOY's long-term
strategies and the potential for mutual cooperation. On November 2, 1998, Dr.
Gillings and James L. Bierman, Senior Vice President, Corporate Development of
Quintiles met with Messrs. Kever and Goad and continued those discussions. At a
second dinner meeting on November 23, 1998, Messrs. Kever and Goad met with
Messrs. Gillings, Bierman and Santo J. Costa, President and Chief Operating
Officer of Quintiles and discussed the opportunities for synergies between the
parties. The parties executed a confidentiality and standstill agreement on
December 4, 1998, and representatives of both companies held additional
discussions on December 4 and 5, 1998. Pursuant to the terms of the
confidentiality and standstill agreement, ENVOY agreed that it would not solicit
additional offers during the period ending December 12, 1998, and, thereafter,
orally agreed, if proposed economic and other transaction terms were
satisfactory, to continue through December 21, 1998 to negotiate an acquisition
transaction exclusively with Quintiles.
Representatives of Quintiles, Goldman Sachs, ENVOY and Morgan Stanley
conducted due diligence from December 6 through December 15, 1998. On December
12, 1998, Quintiles proposed financial terms which included the exchange ratio.
On December 13, the board of directors of ENVOY received a preliminary analysis
from Morgan Stanley and from counsel concerning the financial and other proposed
transaction terms. Representatives
46
<PAGE> 55
of Quintiles and ENVOY negotiated the terms of the merger agreement from
December 12 through December 15, 1998. On December 15, 1998, the respective
boards of directors of Quintiles and ENVOY, following presentations by financial
and legal advisors, unanimously approved the merger agreement. The merger
agreement was executed later in the evening on December 15, 1998 and a press
release announcing the transaction was released prior to the opening of the
market on December 16, 1998
ENVOY REASONS FOR THE MERGER
The ENVOY board of directors believes that the terms of the merger are fair
to, and in the best interests of, ENVOY and its shareholders. Accordingly, the
ENVOY board of directors has unanimously approved the merger agreement and
recommends approval and adoption by the shareholders of ENVOY.
In reaching the decision to approve the merger agreement and recommend
approval thereof to the shareholders, the ENVOY board of directors considered a
number of factors, including the information presented to it by ENVOY's
management, financial advisors and legal advisors, and weighed the factors
associated with the transaction. Without assigning any relative or specific
weights to the factors, the ENVOY board of directors considered the following
material factors:
- the financial terms of the merger, as the transaction is anticipated to
provide ENVOY shareholders with Quintiles common stock at a significant
premium over the market price for shares of ENVOY common stock prevailing
prior to the public announcement of the proposed transaction;
- the overall terms of the merger, including, among other things, (1) the
treatment of the merger as a tax-free exchange of ENVOY capital stock for
Quintiles common stock for federal income tax purposes; (2) the fixed
exchange ratio which will allow ENVOY shareholders to share in any
potential increases in the price of Quintiles common stock; (3) the right
of the ENVOY board of directors to terminate the merger agreement in the
event that the price of Quintiles common stock falls below a certain
level, thus ensuring that if the transaction goes forward, ENVOY
shareholders will receive a guaranteed minimum value for their shares of
ENVOY common stock; (4) the right of the ENVOY board of directors to
exercise its fiduciary duty and to engage in discussions with other
parties regarding alternative transactions; (5) the size of the
termination fee payable in certain circumstances; (6) the proposed
employment arrangements for certain ENVOY employees and the employee
benefits provisions set forth in the merger agreement; and (7) the
conditions of the parties to closing;
- historical and prospective information regarding the business of ENVOY,
its results of operations, financial condition and operating and
acquisition prospects as a stand-alone entity;
- historical and prospective information regarding the business of
Quintiles, its results of operations, financial condition, recent
acquisitions and prospects;
- strategic merits of the merger, including, but not limited to, (1) the
opportunity to enter new markets and develop new services and products,
(2) the ability to further or develop relationships with Quintiles'
existing customer base of healthcare providers, payers and pharmaceutical
companies, and (3) the belief that the merger will
47
<PAGE> 56
provide ENVOY with the opportunity to more fully achieve its goals in the
healthcare EDI and transaction processing industry;
- the presentation and opinion rendered by ENVOY's financial advisor,
Morgan Stanley, on December 15, 1998 to the effect that as of that date,
from a financial point of view, the exchange ratio set forth in the
merger agreement was fair to the holders of ENVOY common stock. A copy of
Morgan Stanley's written opinion, which sets forth the assumptions made,
matters considered and limitations on the review undertaken is attached
as Appendix D to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference (see "-- Opinion of ENVOY's Financial
Advisors");
- the likelihood of the merger being approved by applicable regulatory
authorities without undue conditions or delay; and
- the benefits of affiliation with a larger parent entity, including the
opportunity to realize certain economies of scale, increase efficiencies
of operation to the benefit of shareholders and customers and develop new
products and services.
The board of directors of ENVOY considered certain factors which may be
characterized as countervailing considerations and risks, including, but not
limited to:
- the recent high trading price of Quintiles common stock and the risk that
it may decline following announcement of the merger;
- the risks inherent in attempting to successfully integrate the management
of ENVOY with Quintiles and the general difficulties that may be
encountered in integrating the two companies;
- the cessation of operations as an independent company and retention of
the personnel necessary to continue to grow and develop ENVOY;
- the cost of the transaction and the integration of ENVOY into Quintiles
and the possible adverse impact on results of operations of Quintiles;
and
- other risks described under "Risk Factors You Should Consider."
The foregoing discussion of the information and factors considered and
given weight by ENVOY's board of directors is not intended to be exhaustive. In
reaching the determination to approve and recommend approval and adoption of the
merger agreement, in view of the wide variety of factors considered in
connection with its evaluation thereof, the board of directors of ENVOY did not
assign any relative or specific weights to the foregoing or other factors, and
individual directors may have given different weights to the various factors.
The terms of the merger were the result of arm's-length negotiations between
representatives of ENVOY and representatives of Quintiles. Based upon the
consideration of the foregoing factors, the ENVOY board of directors unanimously
approved the merger agreement and the transactions contemplated thereby as being
in the best interests of ENVOY and its shareholders. Each member of the ENVOY
board of directors has agreed to vote his shares of ENVOY common stock in favor
of the merger.
ENVOY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ENVOY SHAREHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
48
<PAGE> 57
QUINTILES REASONS FOR THE MERGER
The Quintiles board of directors believes that the merger is in the best
interests of Quintiles and its shareholders and unanimously approved the merger
agreement and the issuance of shares in connection with the merger. In reaching
this determination, the Quintiles board of directors considered a number of
factors, including, among others:
- information pertaining to Quintiles' and ENVOY's respective businesses,
prospects, historical and projected financial performances, financial
conditions and operations;
- analyses of the respective projected contributions to net revenue,
operating profit and net income of each company;
- ENVOY's established infrastructure and network systems which support its
position as a market leader in the healthcare EDI and transaction
processing industry;
- analysis of the business and capabilities of the combined companies;
- reports from management on Quintiles' due diligence investigation of
ENVOY;
- the business, reputation and capabilities of the management of ENVOY, as
well as the compatability of the management teams and corporate cultures
of Quintiles and ENVOY; and
- the opinion of Goldman Sachs described below.
In addition, the Quintiles board of directors considered that the merger
may facilitate Quintiles' pursuit of its goals and strategies, for the following
reasons, among others:
- ENVOY's access to healthcare information could form the basis for new
data mining products and services which could be provided to Quintiles'
existing customers and other companies in the broader healthcare
industry;
- ENVOY's expertise would enhance Quintiles' opportunity to create new
products and enter new markets to provide value-added analysis and market
research through the addition of ENVOY's near real-time production of raw
prescription data and other claims data;
- ENVOY's existing products and services and potential new products and
services would expand Quintiles' interface with a broader spectrum of
participants in the healthcare industry; and
- certain of ENVOY's products, services and operations would enhance the
ability of certain of Quintiles' operating divisions to meet the needs of
its existing customers.
In its deliberations concerning the merger, the Quintiles board of
directors also considered various additional risks and uncertainties, including:
- the historical and projected future financial performance of ENVOY;
- the percentage of ownership reduction to Quintiles shareholders resulting
from the issuance of Quintiles common stock to the ENVOY shareholders;
- the risk that the public market price of Quintiles common stock might be
adversely affected by the announcement of completion of the merger;
49
<PAGE> 58
- ENVOY's competitive position in the healthcare EDI and transaction
processing industry and the competitive nature of that business;
- the risk that the combined company might not achieve revenue equal to the
sum of the separate companies' anticipated revenues;
- the risk that Quintiles will not be able to obtain the other benefits
Quintiles seeks from the merger, including the ability to successfully
provide data mining and new products and services using data ENVOY
processes;
- the cost of the integration of ENVOY into Quintiles and its impact on the
results of the combined company after the merger; and
- other risks described under "Risk Factors You Should Consider" above.
The foregoing discussion of the information and factors considered and
given weight by Quintiles' board of directors is not intended to be exhaustive.
In reaching the determination to approve and recommend approval and adoption of
the merger agreement, in view of the wide variety of factors considered in
connection with its evaluation thereof, the board of directors of Quintiles did
not assign any relative or specific weights to the foregoing or other factors,
and individual directors may have given different weights to the various
factors. The terms of the merger were the result of arm's-length negotiations
between representatives of ENVOY and representatives of Quintiles. Based upon
the consideration of the foregoing factors, the Quintiles board of directors
unanimously approved the merger agreement and the transactions contemplated
thereby as being in the best interests of Quintiles and its shareholders.
QUINTILES' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT QUINTILES
SHAREHOLDERS VOTE IN FAVOR OF ISSUING SHARES IN CONNECTION WITH THE MERGER.
OPINION OF ENVOY'S FINANCIAL ADVISORS
Morgan Stanley was retained by ENVOY to act as financial advisor in
connection with the merger and related matters, based upon Morgan Stanley's
qualifications, expertise and reputation. On December 15, 1998, Morgan Stanley
rendered an oral opinion, (the "Morgan Stanley Opinion")which was confirmed in
writing, to the ENVOY board of directors that, as of such date, and based upon
and subject to the considerations set forth in the written opinion, the exchange
ratio pursuant to the merger agreement is fair from a financial point of view to
the holders of shares of ENVOY common stock.
THE FULL TEXT OF THE MORGAN STANLEY OPINION, DATED AS OF DECEMBER 15, 1998,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
APPENDIX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE MORGAN STANLEY OPINION
IS DIRECTED TO THE ENVOY BOARD OF DIRECTORS AND THE FAIRNESS OF THE EXCHANGE
RATIO SET FORTH IN THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO THE
HOLDERS OF SHARES OF ENVOY COMMON STOCK AS OF THE DATE OF SUCH OPINION AND DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER, NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY ENVOY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE
AT THE ENVOY SPECIAL MEETING HELD IN CONNECTION WITH THE MERGER. THE SUMMARY OF
THE MORGAN STANLEY OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MORGAN STANLEY
OPINION ATTACHED AS APPENDIX D HERETO. SHAREHOLDERS OF ENVOY ARE URGED TO, AND
SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY.
50
<PAGE> 59
In arriving at the Morgan Stanley Opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of ENVOY and Quintiles, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning ENVOY and
Quintiles prepared by the managements of ENVOY and Quintiles, respectively;
(iii) analyzed certain financial projections prepared by the managements of
ENVOY and Quintiles, respectively; (iv) discussed the past and current
operations and financial condition and the prospects of ENVOY, including
information relating to certain strategic, financial and operational benefits
anticipated from the merger, with senior executives of ENVOY; (v) discussed the
past and current operations and financial condition and the prospects of
Quintiles, including information relating to certain strategic, financial and
operational benefits anticipated from the merger, with senior executives of
Quintiles; (vi) reviewed the pro forma impact of the merger on Quintiles'
earnings per share and other financial ratios; (vii) reviewed the reported
prices and trading activity for the ENVOY common stock and the Quintiles common
stock; (viii) discussed with the senior managements of ENVOY and Quintiles
certain research analyst projections for ENVOY and Quintiles, respectively; (ix)
compared the financial performance of ENVOY and Quintiles and the prices and
trading activity of the ENVOY common stock and the Quintiles common stock with
that of certain other comparable publicly traded companies and their securities;
(x) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions; (xi) participated in discussions among
representatives of ENVOY and Quintiles and their financial and legal advisors;
(xii) reviewed the merger agreement and certain related documents; and (xiii)
performed such other analyses as Morgan Stanley deemed appropriate.
In arriving at the Morgan Stanley Opinion, Morgan Stanley assumed and
relied upon, without independent verification, the accuracy and completeness of
the information reviewed by Morgan Stanley for the purposes of its opinion. With
respect to the financial projections, including information relating to certain
strategic, financial and operational benefits anticipated from the merger,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the prospects of ENVOY
and Quintiles. In addition, Morgan Stanley assumed that the merger will be
consummated in accordance with the terms set forth in the merger agreement,
including, among other things, that the merger would be accounted for as a
pooling-of-interests business combination in accordance with generally accepted
accounting principles and the merger would be treated as a tax-free
reorganization and/or exchange pursuant to the Code. Morgan Stanley did not make
any independent valuation or appraisal of the assets or liabilities of ENVOY,
nor was Morgan Stanley furnished with any such appraisals. The Morgan Stanley
Opinion is necessarily based on financial, economic, market and other conditions
as in effect on, and the information made available to Morgan Stanley as of, the
date of the Morgan Stanley Opinion. In arriving at its opinion, Morgan Stanley
was not authorized to solicit, and did not solicit, interest from any third
party with respect to the acquisition of ENVOY.
The following is a summary of certain of the financial analyses performed
by Morgan Stanley in connection with its rendering the Morgan Stanley Opinion to
the ENVOY board of directors on December 15, 1998.
HISTORICAL COMMON STOCK PERFORMANCE. Morgan Stanley's analysis of ENVOY
common stock performance consisted of an historical analysis of closing prices
and trading volumes over the period from December 11, 1997 to December 15, 1998.
During that period, based on closing prices on The Nasdaq Stock Market, ENVOY
common stock achieved a high closing price of $55.00 on June 23, 1998 and a low
closing price of $17.19 on October 13,
51
<PAGE> 60
1998. Additionally, Morgan Stanley noted that ENVOY common stock closed at a
price of $42.25 on December 15, 1998, the last trading day before the
announcement of the transaction.
Morgan Stanley's analysis of Quintiles common stock performance consisted
of an historical analysis of closing prices and trading volumes over the period
from December 11, 1997 to December 15, 1998. During that period, based on
closing prices on The Nasdaq Stock Market, Quintiles common stock achieved a
high closing price of $56.19 on December 15, 1998 and a low closing price of
$33.38 on September 1, 1998. Morgan Stanley noted that Quintiles common stock
closed at a price of $56.19 on December 15, 1998, the last trading day before
the announcement of the transaction.
COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley performed an
historical analysis of closing prices from December 11, 1997 to December 11,
1998 of: ENVOY common stock; the S&P 400 Index; National Data Corporation; and
an index of comparable healthcare information companies ("ENVOY Comparable
Companies") consisting of Daou Systems, Inc., Healthcare Recoveries, Inc.,
MedQuist, Inc., Superior Consultant Holdings Corporation, Medical Manager
Corporation, IDX Systems Corporation, HBO & Company, Cerner Corporation, Shared
Medical Systems Corporation, and Quadramed Corporation. Morgan Stanley observed
that over this period, ENVOY common stock increased 44%, the S&P 400 Index
increased 27%, National Data Corporation increased 7%, and the index of the
ENVOY Comparable Companies increased 10%.
Morgan Stanley also performed an historical analysis of closing prices from
December 11, 1997 to December 11, 1998 of: Quintiles common stock; the S&P 400
Index; and an index of comparable contract research companies ("Quintiles
Comparable Companies") consisting of Applied Analytical Industries, Inc.,
BioReliance Corporation, ClinTrials Research Inc., Covance Inc., ICON plc,
Kendle International, Inc., Parexel International Corporation, and
Pharmaceutical Product Development, Inc. Morgan Stanley observed that over the
period from December 11, 1997 to December 11, 1998, Quintiles common stock
increased 59%, the S&P 400 Index increased 27% and the index of Quintiles
Comparable Companies increased 14%.
COMPARABLE PUBLIC COMPANY ANALYSIS. As part of its analysis, Morgan
Stanley compared certain publicly available financial information of certain
comparable publicly traded healthcare information companies, including National
Data Corporation and the ENVOY Comparable Companies (collectively "Healthcare
Information Companies") and applied these statistics to the financial
performance of ENVOY. Such financial information included the price to earnings
multiple, the ratio of the price to earnings multiple to the forecasted
long-term growth rate, and the aggregate value to earnings before interest, tax,
depreciation and amortization ("EBITDA") multiple based on I/B/E/S International
Inc. ("IBES") median earnings per share forecasts, research analysts' estimates
of forward operating performance, and the latest publicly available Forms 10-K
and 10-Q filed with the SEC.
Such analyses indicated that as of December 11, 1998 and based on a
compilation of IBES estimates, ENVOY traded at 28.0 times forecasted earnings
for the calendar year 1999 (representing a multiple of 0.9 times its forecasted,
long-term growth rate), and aggregate value represented 29.0 times EBITDA for
the twelve months ended September 30, 1998 ("LTM EBITDA"). These multiples
compared to a range of multiples based on 1999 forecasted earnings (13.0 to 43.8
times, 27.2 median), the ratio of the price to 1999 earnings multiple to the
forecasted long-term growth rate (0.3 to 1.5 times, 0.8 median), and multiple
52
<PAGE> 61
of aggregate value to LTM EBITDA (9.2 to 30.5 times, 19.6 median) for the
Healthcare Information Companies, respectively.
As part of its analysis, Morgan Stanley also compared certain publicly
available financial information of the Quintiles Comparable Companies and
applied these statistics to the financial performance of Quintiles. Such
financial information included the price to earnings multiple, the ratio of the
price to earnings multiple to the forecasted long-term growth rate, and the
aggregate value to EBITDA multiple based on IBES median earnings per share
forecasts, research analysts' estimates of forward operating performance, and
the latest publicly available Forms 10-K and 10-Q filed with the SEC. Such
analyses indicated that as of December 11, 1998 and based on a compilation of
IBES estimates, Quintiles traded at 40.4 times forecasted earnings for the
calendar year 1999 (representing a multiple of 1.1 times its forecasted,
long-term growth rate), and aggregate value represented 26.7 times LTM EBITDA.
These multiples compared to a range of multiples based on 1999 forecasted
earnings (12.1 to 35.6 times, 26.7 median), the ratio of the price to 1999
earnings multiple to the forecasted long-term growth rate (0.6 to 1.3 times, 0.9
median), and multiple of aggregate value to LTM EBITDA (4.5 to 38.6 times, 14.7
median) for the Quintiles Comparable Companies, respectively.
No company utilized in the comparable public company analysis or the
comparable stock price performance analysis is identical to ENVOY or Quintiles.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of ENVOY or Quintiles and other factors that could
affect the public trading value of the companies to which they are being
compared. In evaluating the comparable companies and the comparable stock price
performance, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of ENVOY or
Quintiles, such as the impact of competition on ENVOY or Quintiles and the
industry generally, industry growth and/or technological change and the absence
of any adverse material change in the financial conditions and prospects of
ENVOY or Quintiles or the industry or in the financial markets in general.
Mathematical analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using comparable company data.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis of ENVOY based on certain financial projections prepared by ENVOY
management for ENVOY as a stand-alone company for the years 1999 through 2003.
Morgan Stanley discounted the unlevered free cash flows of ENVOY over the
forecast period at a range of discount rates of 13.0% to 14.0%, representing an
estimated weighted average cost of capital for ENVOY, and terminal values based
on a range of net income multiples based on net income multiples representative
of comparable companies of 26.0 times to 30.0 times. Unlevered free cash flow
was calculated as net income available to stockholders plus the aggregate of
depreciation and amortization, deferred taxes, and other non-cash expenses and
after-tax net interest expense less the sum of capital expenditures and
investment in non-cash working capital. The present values determined from these
analyses were then adjusted for long-term liabilities, including debt net of
cash, to arrive at an equity value.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Using publicly available
information, Morgan Stanley reviewed the terms of certain announced, pending or
completed healthcare information services acquisition transactions
(collectively, the "Healthcare Information Services Transactions"). Based on the
overall range of Healthcare Information Services Transactions, Morgan Stanley
applied a range of multiples of aggregate value to trailing
53
<PAGE> 62
revenues of approximately 4.0 to 6.0 and the range of multiples of aggregate
value to EBITDA for the last twelve months of approximately 20.0 to 25.0.
No transaction utilized as a comparison in the analysis of selected
precedent transactions is identical to the merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that would affect the acquisition value of the companies to which
it is being compared. In evaluating the precedent transactions, Morgan Stanley
made judgments and assumptions with regard to industry performance, global
business, economic, market and financial conditions and other matters, many of
which are beyond the control of ENVOY, such as the impact of competition on
ENVOY and the industry generally, and the absence of any adverse material change
in the financial conditions and prospects of ENVOY or the industry or the
financial markets in general. Mathematical analysis (such as determining the
mean or median) is not, in itself, a meaningful method of using precedent
transactions data.
EXCHANGE RATIO ANALYSIS. Morgan Stanley analyzed the ratio of closing
prices per share of ENVOY common stock and Quintiles common stock from December
11, 1997 to December 11, 1998. Morgan Stanley observed that the implied exchange
ratio had averaged 0.786 since December 11, 1997, 0.755 over the last month
period ending December 11, 1998, and 0.749 over the last two weeks ending
December 11, 1998. Morgan Stanley also observed that the implied exchange ratio
based on the closing market prices of ENVOY common stock and Quintiles common
stock on December 11, 1998 was 0.734. Morgan Stanley noted that the exchange
ratio represented premiums of 48%, 54%, 56%, and 59% over the average exchange
ratios for the periods since December 11, 1997, the last month, the last two
weeks and for the implied exchange ratio based on the closing market prices on
December 11, 1998, respectively.
PRO FORMA ANALYSIS OF THE MERGER. Morgan Stanley performed certain pro
forma analyses of the merger on the earnings per share of the combined company
in 1999 and 2003. The pro forma results were based on projected earnings derived
from IBES estimates for Quintiles and management's estimates for ENVOY. The pro
forma analysis also took into account the synergies and cost savings expected to
be derived from the merger as estimated by the managements of ENVOY and
Quintiles. Morgan Stanley noted that, based upon the estimates of ENVOY's
management, the merger would be approximately breakeven to 1999 and accretive to
Quintiles' 2000 earnings per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, Morgan Stanley
believes that selecting any portion of Morgan Stanley's analyses, without
considering all analyses, would create an incomplete view of the process
underlying the Morgan Stanley Opinion. In addition, Morgan Stanley may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Morgan Stanley's view of the actual value of ENVOY or
Quintiles.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ENVOY or Quintiles. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less
54
<PAGE> 63
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of Morgan Stanley's analysis of the fairness from a financial point of
view of the exchange ratio pursuant to the merger agreement and were provided to
the ENVOY board of directors in connection with the delivery of the Morgan
Stanley Opinion. The analyses do not purport to be appraisals or to reflect the
prices at which ENVOY or Quintiles might actually be sold. In addition, as
described above, the Morgan Stanley Opinion was one of many factors taken into
consideration by the ENVOY board of directors in making its determination to
approve the merger. The exchange ratio pursuant to the merger agreement was
determined through arms'-length negotiations between ENVOY and Quintiles and was
approved by the ENVOY board of directors.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate, estate and other purposes. Morgan
Stanley may continue to provide investment banking services to the combined
entity in the future. In the ordinary course of its trading, brokerage and
financing activities, Morgan Stanley and its affiliates may, at any time, have a
long or short position in, and buy and sell the debt or equity securities and
senior loans of ENVOY or Quintiles for its account or the account of its
customers. Morgan Stanley and its affiliates have, in the past, provided
financial advisory services to ENVOY and Quintiles and have received fees for
the rendering of such services.
Pursuant to a letter agreement dated December 13, 1998, ENVOY has agreed to
pay Morgan Stanley (i) an advisory fee which is payable in the event that the
merger is not completed, and (ii) if the merger is completed, a transaction fee
including a customary incentive fee based upon the average closing price of
Quintiles common stock at the effective time of the merger. Based on the five
day average closing price for Quintiles common stock ending one day prior to the
date of this Joint Proxy Statement/Prospectus the fee would be approximately
$6,000,000. ENVOY has agreed, among other things, to reimburse Morgan Stanley
for all expenses incurred in connection with the services provided by Morgan
Stanley. In addition, ENVOY has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities, including liabilities under federal securities laws, and
expenses, related to or arising out of Morgan Stanley's engagement and the
transactions in connection therewith.
OPINION OF QUINTILES' FINANCIAL ADVISORS
On December 15, 1998, Goldman, Sachs & Co. delivered its written opinion to
the Quintiles board of directors that, as of the date of such opinion, the
exchange ratio pursuant to the merger agreement is fair from a financial point
of view to Quintiles.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED DECEMBER 15,
1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. QUINTILES SHAREHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the merger agreement; (ii) the Annual Reports to Shareholders and Annual
Reports on
55
<PAGE> 64
Forms 10-K and amendments thereto of ENVOY and Quintiles for the three years
ended December 31, 1997; (iii) certain interim reports to shareholders and
Quarterly Reports on Forms 10-Q and amendments thereto of ENVOY and Quintiles;
(iv) certain reports on Forms 8-K and amendments thereto of ENVOY and Quintiles;
(v) certain other communications from ENVOY and Quintiles to their respective
shareholders; (vi) certain internal financial analyses and forecasts for ENVOY
prepared by the management of ENVOY and approved for use in connection with its
opinion by the management of Quintiles (the "ENVOY Forecasts"); (vii) certain
internal financial analyses and summary forecasts for Quintiles prepared by its
management; and (viii) certain cost savings and operating synergies projected by
the managements of Quintiles and ENVOY to result from the transactions
contemplated by the merger agreement (the "Synergies"). Goldman Sachs also held
discussions with members of the senior management of Quintiles and ENVOY
regarding the strategic rationale for, and the potential benefits of, the
transactions contemplated by the merger agreement and the past and current
business operations, financial condition, and future prospects of their
respective companies. As part of such discussions, Goldman Sachs was advised by
management of Quintiles that the merger significantly advances Quintiles'
overall strategic goals in the healthcare information technology industry. In
addition, Goldman Sachs reviewed the reported price and trading activity for the
ENVOY common stock and the Quintiles common stock, compared certain financial
and stock market information for ENVOY and Quintiles with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
healthcare information technology industry specifically and in other industries
generally and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it and
has assumed such accuracy and completeness for purposes of rendering its
opinion. In that regard, Goldman Sachs assumed with Quintiles' consent that the
ENVOY Forecasts and the Synergies were reasonably prepared and reflect, in each
case, the best currently available estimates and judgments of ENVOY and
Quintiles, and that the ENVOY Forecasts and the Synergies will be realized in
the amounts and time periods contemplated thereby. In addition, Goldman Sachs
has not made an independent evaluation or appraisal of the assets and
liabilities of Quintiles or ENVOY or any of their respective subsidiaries and
Goldman Sachs has not been furnished with any such evaluation or appraisal.
Goldman Sachs has also assumed with the consent of Quintiles that the
transaction contemplated by the merger agreement will be accounted for as a
pooling-of-interests under generally accepted accounting principles. Goldman
Sachs' advisory services and the opinion referred to herein are provided for the
information and assistance of the board of directors of Quintiles in connection
with its consideration of the transactions contemplated by the merger agreement
and such opinion does not constitute a recommendation as to how any holder of
Quintiles common stock should vote with respect to such transaction.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its opinion to Quintiles' board of
directors on December 15, 1998.
HISTORICAL STOCK TRADING ANALYSIS. Goldman Sachs reviewed the historical
trading prices for the ENVOY common stock and Quintiles common stock. In
addition, Goldman Sachs analyzed the consideration to be received by holders of
ENVOY common stock pursuant to the merger agreement in relation to the December
11, 1998 prices, latest twelve
56
<PAGE> 65
months ("LTM") high and low prices and average market prices of the ENVOY common
stock and Quintiles common stock for one month, three month, six month, one year
and three year average periods. Such analysis indicated that the premium implied
by the price of the Quintiles common stock multiplied by the exchange ratio at
the various points or averages compared to the comparable point or average for
ENVOY common stock were 58.8% based upon the December 11, 1998 stock prices and
ranged from 115.8% based upon the two companies' respective LTM low stock prices
to 18.4% based upon the two companies' respective LTM high stock prices.
SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared certain
financial information relating to ENVOY to corresponding financial information,
ratios and public market multiples for 11 publicly traded corporations: National
Data Corporation, Proxymed, Inc., Synetic, Inc., Harbinger Corporation, Sterling
Commerce, Inc., Cerner Corporation, Computer Sciences Corporation, Eclipsys
Corporation, HBO & Company, IMS Health Incorporated and Shared Medical Systems
Corporation (the "Selected Companies"). The Selected Companies were chosen
because they are publicly traded companies with operations that for purposes of
analysis may be considered similar to that of ENVOY. Goldman Sachs calculated
and compared various financial multiples and ratios. The multiples of ENVOY and
the Selected Companies were calculated using the closing prices of the ENVOY
common stock and each of the respective Selected Companies on their respective
primary exchanges or markets on December 11, 1998. The multiples and ratios for
ENVOY and the Selected Companies were also based on the most recent publicly
available information. With respect to the Selected Companies, Goldman Sachs
considered levered market capitalization (i.e., market value of common equity
plus estimated amount of debt less cash) as a multiple of LTM sales, as a
multiple of LTM EBITDA and as a multiple of LTM earnings before interest and
taxes ("EBIT"). Goldman Sachs' analyses of the Selected Companies indicated
levered multiples of LTM sales, which ranged from 8.8x to 1.5x, LTM EBITDA,
which ranged from 25.7x to 8.7x, and LTM EBIT, which ranged from 35.4x to 12.6x
compared to levered multiples of 6.1x, 21.7x and 64.1x, respectively, for ENVOY.
Goldman Sachs also considered for the Selected Companies estimated calendar year
1998 and 1999 price/earnings ratios, which, excluding one company with no
earnings, ranged from 83.3x to 19.4x for estimated calendar year 1998 and 49.0x
to 16.0x for estimated calendar year 1999 compared to 36.6x and 28.0x,
respectively, for ENVOY; LTM margins as a percentage of EBITDA and of EBIT,
which ranged from 42.7% to 12.7% and 35.4% to 6.9%, respectively, compared to
28.0% and 9.5%, respectively, for ENVOY; price/earnings ratios as a multiple of
growth rate for the estimated calendar year 1998 and 1999, which, excluding one
company with no earnings, ranged from 2.2x to 0.8x for estimated calendar year
1998 and 1.7x to 0.6x for estimated calendar year 1999 compared to 1.2x and
0.9x, respectively for ENVOY; and a five-year projected earnings per share
("EPS") growth rate provided by Institutional Brokers Estimate System ("IBES")
ranging, excluding one company with no earnings, from 70.0% to 17.0% compared to
30.0% for ENVOY. The review also indicated that market capitalization as a
multiple of book value ranged from 14.5x to 2.7x for the Selected Companies,
compared to 6.8x for ENVOY.
SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs analyzed certain information
relating to ten selected transactions in the healthcare information technology
industry since 1997 (the "Selected Transactions"). The Selected Transactions
were chosen because they involved companies with operations that for the
purposes of analysis may be considered similar to that of ENVOY. Such analysis
indicated that for the Selected Transactions, in each case assuming a price for
Quintiles common stock of $55.75, (i) levered aggregate consideration as a
multiple of LTM revenues ranged from 9.5x to 2.3x, as compared to approximately
9.3x
57
<PAGE> 66
estimated calendar year 1998 revenues for the levered aggregate consideration to
be paid in the merger, (ii) levered aggregate consideration as a multiple of LTM
EBITDA ranged from 230.0x to 16.7x, as compared to approximately 28.9x estimated
calendar year 1998 EBITDA for the levered aggregate consideration to be paid in
the merger, (iii) levered aggregate consideration as a multiple of LTM EBIT
ranged from 41.5x to 19.8x, as compared to approximately 39.4x estimated
calendar year 1998 EBIT for the levered aggregate consideration to be paid in
the merger, and (iv) equity aggregate consideration as a multiple of LTM net
income ranged from 768.4x to 38.5x, as compared to approximately 67.6x estimated
calendar year 1998 net income for the equity consideration to be paid in the
merger.
PRO FORMA MERGER ANALYSIS. Goldman Sachs performed an analysis of the pro
forma impact of the merger on the Quintiles projected earnings per share, based
on IBES estimates and on estimates provided by the managements of Quintiles and
ENVOY. For purposes of this analysis, Goldman Sachs used estimates provided by
the managements of Quintiles and ENVOY that the merger would generate pre-tax
synergies of $7.01 million in 1999, $9.03 million in 2000 and $15.35 million in
2001. After giving effect to such synergies, this analysis showed an essentially
breakeven impact for Quintiles shareholders in 1999 and a slight accretion for
Quintiles shareholders in 2000 and 2001, based on a variety of scenarios that
incorporated both IBES estimates and management estimates. The analysis also
showed that earnings per share would be adversely affected as compared to the
estimates above if projected synergies were not realized.
CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, revenues, EBIT and net income) for Quintiles, ENVOY and the pro forma
combined entity resulting from the merger based on historical information from
company reports and management projections from Quintiles and ENVOY. This
analysis indicated that based upon expected revenues and EBIT in 1998 and 1999
and expected net income in 1998 through 2001, Quintiles would have contributed
between 73.9% and 87.7% of such amounts for the combined companies as compared
with an implied ownership by Quintiles shareholders of 73.2% of the Quintiles
common stock based on the exchange ratio.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Quintiles or ENVOY or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs providing its opinion to the Quintiles
board of directors as to the fairness from a financial point of view to
Quintiles of the exchange ratio and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Quintiles, ENVOY,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to the board of directors of Quintiles was one of many factors taken
into consideration by the Quintiles board of directors in making its
determination to approve the merger agreement. The foregoing summary does not
purport to be a complete description of the
58
<PAGE> 67
analysis performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Quintiles selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the merger and has provided certain investment banking services to Quintiles
from time to time.
Goldman Sachs provides a full range of financial, advisory and securities
services and in the course of its normal trading activities may, from time to
time, effect transactions and hold securities, including derivative securities,
of Quintiles and/or ENVOY for its own account and for the accounts of customers.
As of December 15, 1998, Goldman Sachs had accumulated a long position of
363,241 shares of Quintiles common stock, options to purchase 1,200 shares of
Quintiles common stock, options to sell 1,200 shares of Quintiles common stock,
and $621,100 in convertible debentures of Quintiles.
Pursuant to a letter agreement dated December 14, 1998 (the "Engagement
Letter"), Quintiles engaged Goldman Sachs to act as its financial advisor in
connection with the possible acquisition of all or a portion of the stock or
assets of ENVOY. Pursuant to the terms of the Engagement Letter, Quintiles has
agreed to pay Goldman Sachs, upon consummation of the merger, a transaction fee
of $8,500,000. Quintiles has agreed to reimburse Goldman Sachs for its
reasonable out-of-pocket expenses, including attorneys' fees, and to indemnify
Goldman Sachs against certain liabilities, including certain liabilities under
the federal securities laws.
INTERESTS OF PERSONS IN THE MERGER OTHER THAN AS SHAREHOLDERS
In considering the recommendations of the respective boards of directors
relating to the merger, shareholders should be aware that some officers and
directors of ENVOY have interests in the merger in addition to their interests
as shareholders. The board of directors of each of the companies was aware of
these interests and took these interests into account in approving the merger
agreement and the transactions contemplated thereby. These interests include,
among other things: (1) the appointment of Messrs. Goad, Kever and William E.
Ford (all of whom are currently serving as directors of ENVOY) to the Quintiles
board of directors after the merger; (2) the acceleration of the vesting of
options to purchase shares of ENVOY common stock held by certain executive
officers of ENVOY pursuant to the terms of their respective employment
agreements; (3) amendments to certain employment agreements of certain members
of ENVOY's management team, including without limitation, Messrs. Goad, Kever,
McNamara, and Seymour as well as Dr. Ober; and (4) the continuation of the
indemnification rights and liability insurance of directors and officers of
ENVOY.
Composition of Quintiles' Board Following the Merger
In connection with the merger and the transactions contemplated thereby,
Messrs. Goad, Kever and Ford, current members of ENVOY's board of directors,
will become members of Quintiles' board of directors as soon as practicable
after the effective time of the merger (as defined below in "-- Effective Time
of the Merger"). Quintiles also has agreed to nominate
59
<PAGE> 68
Messrs. Goad, Kever and Ford to stand for election as directors at the 1999
annual meeting of Quintiles shareholders.
Acceleration of Vesting of Stock Options
Pursuant to the terms of their respective employment agreements, all the
options to purchase ENVOY common stock held by Fred C. Goad, Jr., Jim D. Kever,
Kevin M. McNamara, Harlan F. Seymour and Gregory T. Stevens, which are not fully
vested as of the effective time of the merger, shall become fully vested and
exercisable in accordance with their respective terms. As of the date hereof,
nonvested options for the purchase of the number of shares set forth next to
such person's name shall accelerate upon the effective time of the merger: Fred
C. Goad, Jr. (285,000 shares), Jim D. Kever (295,000 shares), Kevin M. McNamara
(152,500 shares), Harlan F. Seymour (125,000 shares) and Gregory T. Stevens
(67,000 shares).
Employment and Non-Competition Agreements
ENVOY has existing employment agreements with certain executives, which
will remain in effect following the effective time of the merger. Pursuant to
the terms of the merger agreement, amendments are required to be made to the
existing employment agreements of Mr. Kever and Dr. Ober, as more particularly
described below. Messrs. Goad, McNamara and Seymour also are required to: (1)
agree to amend their existing employment agreements to cause the change of
control benefits contained therein to be terminated and eliminated as of the
effective time of the merger; or (2) elect to receive the existing change of
control benefits. If such person elects option (2), he must do so prior to the
effective time of the merger and terminate his existing employment agreement and
current employment with ENVOY as of the effective time of the merger.
Termination of employment as of the effective time of the merger by Messrs.
Goad, McNamara or Seymour will result in lump sum termination payments as
follows: (1) to Mr. Goad in an amount equal to 2.99 times the sum of his then
current annual base salary and the average of his annual bonus received during
the two preceding years (the "Average Bonus"); (2) to Mr. McNamara in an amount
equal to two times the sum of his then current annual base salary and Average
Bonus; and (3) to Mr. Seymour in an amount equal to the sum of his then current
annual base salary and Average Bonus.
Pursuant to the employment agreements of each of Messrs. Goad, Kever,
McNamara and Seymour, ENVOY will pay to any of such executives, where
applicable, an amount equal to the excise tax under Section 4999 of the Code, if
any, incurred or to be incurred by the executive by reason of the payments under
his employment agreement, acceleration of vesting of stock options, or payments
under any other plan, agreement or understanding between such executive and
ENVOY, constituting "Excess Parachute Payments" (as defined in the employment
agreements and Sections 280G(b) and 4999 of the Code), plus all excise taxes and
federal, state and local income taxes incurred or to be incurred by the
executive with respect to receipt of the payments thereunder. Indemnification by
ENVOY under such employment agreements is provided in the event an excise tax is
assessed against the executive and such additional payment was not previously
paid to the executive. In such event, ENVOY will indemnify the executive for the
amount of such tax, including interest and penalties incurred, reasonable fees
and expenses and the related federal, state and local income taxes incurred with
respect to payment of the excise tax.
60
<PAGE> 69
In addition, as of the effective time of the merger, ENVOY and Jim D. Kever
are required to amend the employment agreement between ENVOY and Mr. Kever dated
January 1, 1994, as amended. The amended agreement is to reflect, in mutually
satisfactory form, various provisions, including the following: (1) the term
shall be three years from the effective time of the merger; (2) Mr. Kever's
annual base salary shall be $262,000; (3) Mr. Kever shall be eligible to receive
performance and incentive awards at specified executive levels, in addition to
discretionary awards; (4) Mr. Kever shall receive such other perquisites and
benefits enjoyed by similarly situated senior executives of Quintiles; and (5)
in the event that Mr. Kever is terminated for any reason during the three year
term or resigns, he will be paid the balance due for the remainder of the
contract term at the same times as if employed. In addition, Mr. Kever shall be
subject to a non-competition covenant for his term of employment (three years),
but in no event for a period of less than eighteen (18) months.
ENVOY and Dr. N. Stephen Ober also are required to amend the existing
employment agreement between ENVOY and Dr. Ober. The amendments include, without
limitation, the following provisions: (1) the term shall be three years from the
effective time of the merger; (2) Dr. Ober's annual base salary shall be
$200,000; (3) Dr. Ober shall be eligible to receive performance and incentive
awards at specified executive levels; and (4) Dr. Ober shall receive such other
perquisites and benefits enjoyed by similarly situated senior executives of
Quintiles. In addition, Quintiles and Dr. Ober shall amend the existing
non-competition agreement between ENVOY and Dr. Ober as follows: (1) the
restrictive covenants will benefit ENVOY, as the surviving corporation and its
affiliates; (2) in the event that Dr. Ober terminates or is terminated prior to
the end of his three-year term, he will be paid $350,000 per annum for the
remaining term as long as he honors the non-competition agreement; (3) Dr. Ober
will be subject to injunction for one year from termination; and (4) Quintiles
will have the option to pay Dr. Ober $350,000 in exchange for his agreement to
honor the non-competition agreement for an additional year.
Indemnification and Insurance
All rights to indemnification and exculpation existing in favor of any
employee, agent, director or officer of ENVOY and its subsidiaries, as provided
in their respective charters, bylaws and applicable indemnification agreements
shall survive for four years after the effective time of the merger. If any
claim is asserted within the four-year period, all rights to indemnification
until final disposition of such claim shall continue until final disposition. In
addition, pursuant to the merger agreement, Quintiles shall guarantee all such
rights to indemnification and exculpation.
For four years after the effective time of the merger, ENVOY, as the
surviving corporation, shall maintain the policies of director and officer
liability insurance currently carried by ENVOY. The surviving corporation may
substitute policies of at least the same coverage, containing terms and
conditions which are no less advantageous to the indemnified parties, provided
that such substitution will not result in any gaps or lapses in coverage with
respect to matters occurring prior to the effective time of the merger. In
addition, the surviving corporation will not be required to pay an annual
premium in excess of 150% of the last annual premium (the "Maximum Amount") paid
by ENVOY prior to December 15, 1998. If the surviving corporation is unable to
obtain such coverage for the Maximum Amount, it will obtain as much comparable
insurance as possible for an annual premium equal to the Maximum Amount.
61
<PAGE> 70
In the event that Quintiles merges or is acquired in a transaction in which
it is not the surviving corporation, or if Quintiles sells substantially all of
its assets, Quintiles shall ensure that its successor or acquiror will assume
such indemnification and insurance obligations.
FORM OF THE MERGER
If (1) the holders of ENVOY common stock and Series B convertible preferred
stock approve the merger agreement, (2) the Quintiles shareholders approve the
proposal to issue shares of Quintiles common stock, and (3) all other conditions
to the merger are satisfied or waived, where permissible, QELS Corp. will be
merged with and into ENVOY, with ENVOY being the surviving corporation after the
merger. Each share of QELS common stock outstanding immediately prior to the
merger will be converted into one share of ENVOY common stock. ENVOY's current
bylaws and charter will become those of the surviving corporation; however,
ENVOY's charter will be amended to alter the capital structure of the surviving
corporation as a wholly owned subsidiary of Quintiles, resulting in authorized
capital of 1,000 shares of common stock, par value $0.01 per share. The
directors and officers of QELS will become those of the surviving corporation.
The date on which the closing of the merger will occur is referred to in this
Joint Proxy Statement/Prospectus as the "Closing Date." Quintiles and ENVOY
anticipate that the Closing Date will occur as promptly as practicable after the
special meetings.
CONSIDERATION FOR THE MERGER
The merger agreement provides that, at the effective time of the merger,
each share of ENVOY common stock and Series B convertible preferred stock issued
and outstanding immediately prior to the effective time of the merger (other
than any shares owned by ENVOY, Quintiles or QELS) will be converted into the
right to receive 1.166 shares of Quintiles common stock. Former ENVOY
shareholders will hold approximately 26.7% of the outstanding shares of
Quintiles common stock after the merger.
In lieu of fractional shares of Quintiles common stock, Quintiles will pay
an amount in cash (rounded to the nearest cent) equal to the product of (1) the
fractional share interest to which an ENVOY shareholder (after taking into
account all shares of ENVOY common stock held immediately prior to the effective
time of the merger by such shareholder) would otherwise be entitled and (2) the
average of the closing sale prices for Quintiles common stock on The Nasdaq
Stock Market for each of the 10 trading days ending on the fifth full trading
day before the Closing Date.
EFFECTIVE TIME OF THE MERGER
The "effective time of the merger" will be upon the filing of articles of
merger with the Secretary of State of Tennessee or at such other time as
specified in the articles of merger. This filing will be made at the same time
as the closing of the merger.
PROCEDURES FOR EXCHANGE OF ENVOY STOCK CERTIFICATES
The conversion of ENVOY common stock and Series B convertible preferred
stock (the "ENVOY capital stock") into the right to receive Quintiles common
stock will occur automatically at the effective time of the merger. Any shares
of ENVOY capital stock owned immediately prior to the effective time of the
merger by ENVOY, Quintiles or QELS will be canceled.
62
<PAGE> 71
After the effective time of the merger, Quintiles will designate a bank or
trust company to act as exchange agent (the "Exchange Agent"), and shall
deliver, for the benefit of holders of shares of ENVOY capital stock,
certificates representing the shares of Quintiles common stock issuable pursuant
to the merger, in accordance with the merger agreement. The Exchange Agent will
deliver the certificates representing shares of Quintiles common stock and cash
in lieu of fractional shares (in the form of a check) upon surrender for
exchange of certificates representing shares of ENVOY capital stock.
As soon as practicable after the effective time of the merger, Quintiles
shall cause the Exchange Agent to mail to each former ENVOY shareholder (1) a
letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to ENVOY capital stock shall pass, only upon proper delivery of
the certificates evidencing the ENVOY capital stock to the Exchange Agent and
(2) instructions for how to surrender such certificates.
YOU SHOULD NOT FORWARD ENVOY CAPITAL STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL YOU HAVE RECEIVED A LETTER OF TRANSMITTAL.
Upon surrender of a certificate for ENVOY capital stock to the Exchange
Agent, together with an executed letter of transmittal, an ENVOY shareholder
will be entitled to receive that number of shares of Quintiles common stock such
shareholder has the right to receive in respect of that certificate and cash in
lieu of any fractional shares. The surrendered certificates will be canceled.
Holders of certificates previously representing ENVOY capital stock will
not be paid dividends or distributions, if any, with a record date on or after
the effective time of the merger on the shares of Quintiles common stock into
which such shares have been converted until such certificates are surrendered to
the Exchange Agent for exchange. Subject to applicable law, when such
certificates are surrendered, any unpaid dividends payable as described above
will be paid without interest.
If an ENVOY shareholder requests that any cash or certificates representing
Quintiles common stock be paid to or issued in a different name, then the
certificate surrendered must be properly endorsed and the ENVOY shareholder must
show that any transfer taxes have been paid or pay the amount of such taxes to
the Exchange Agent. Quintiles and the Exchange Agent may withhold funds from
consideration to be paid to any certificate holder as required by any tax law;
however, the holder will be deemed to have received the full consideration for
purposes of the merger agreement.
ANTICIPATED ACCOUNTING TREATMENT
Quintiles and ENVOY intend for the merger to be accounted for as a
pooling-of-interests in accordance with generally accepted accounting
principles. Quintiles will restate, retroactively at the effective time of the
merger, its consolidated financial statements to include the assets,
liabilities, shareholders' equity and results of operation of ENVOY, subject to
any adjustments required to conform with the accounting policies and financial
statement classifications of the two companies, as if the companies had always
been combined. In future financial statements, the results of operations of the
combined entities will include the results of both Quintiles and ENVOY for the
entire fiscal year in which the merger occurs and all prior fiscal periods
presented therein.
The unaudited pro forma combined condensed financial data contained in this
Joint Proxy Statement/Prospectus with respect to Quintiles and ENVOY has been
prepared using
63
<PAGE> 72
the pooling-of-interests accounting method to account for the merger. See
"Unaudited Pro Forma Combined Condensed Financial Data" on pages F-1 through
F-21.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the merger to the ENVOY shareholders. The summary is based on
the Code, Treasury regulations promulgated thereunder, administrative rulings
and pronouncements and judicial decisions as of the date of this Joint Proxy
Statement/Prospectus, each of which is subject to change at any time. Any such
change, which may or may not be retroactive, could alter the tax considerations
discussed below. The discussion below is for general information only and does
not address all aspects of United States federal income taxation that may be
material to you in connection with the merger in light of your particular status
or circumstances, including, without limitation, ENVOY shareholders who are (1)
foreign persons, (2) insurance companies, (3) tax-exempt entities, (4)
retirement plans, (5) dealers in securities, (6) persons whose shares of ENVOY
capital stock were acquired pursuant to the exercise of employee stock options
or otherwise as compensation, (7) persons subject to the alternative minimum tax
and (8) persons in whose hands the ENVOY capital stock does not represent a
capital asset. The discussion below does not address the effect of any
applicable state, local or foreign tax laws, or the effect of any federal tax
laws other than federal income tax laws. The parties will not request a ruling
from the IRS in connection with any federal income tax consequences of the
merger.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR CONCERNING THE UNITED
STATES FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE MERGER
IN LIGHT OF YOUR PARTICULAR TAX CIRCUMSTANCES AND THE POSSIBLE EFFECTS
OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
ENVOY will receive an opinion from its tax counsel, Bass, Berry & Sims PLC,
and Quintiles will receive an opinion from its tax counsel, Smith, Anderson,
Blount, Dorsett, Mitchell & Jernigan, L.L.P., (collectively, the "Tax Opinions")
that the merger will qualify as a reorganization within the meaning of Section
368 of the Code. The Tax Opinions will be based on certain assumptions and upon
representations as to certain factual matters made by ENVOY, Quintiles and QELS.
Such representations, if incorrect, could jeopardize the conclusions reached in
the Tax Opinions. The Tax Opinions neither bind the IRS nor preclude the IRS
from adopting a contrary position. An opinion of counsel only represents such
counsel's best legal judgment and has no binding effect or official status of
any kind, and no assurance can be given that contrary positions will not be
taken by the IRS or a court considering the issues.
The material United States federal income tax consequences to the ENVOY
shareholders that will result from the merger qualifying as a reorganization are
as follows:
(1) an ENVOY shareholder will not recognize any gain or loss upon the
receipt of Quintiles common stock solely in exchange for his shares of
ENVOY capital stock pursuant to the merger;
(2) the aggregate tax basis of Quintiles common stock received by an
ENVOY shareholder in the merger (including fractional share interests for
which cash is received) will equal the aggregate tax basis of that
shareholder in the ENVOY capital
64
<PAGE> 73
stock surrendered by that shareholder in the merger (if a shareholder holds
both ENVOY common stock and Series B convertible preferred stock, the basis
of each such class shall be allocated separately to the Quintiles common
stock received with respect to each such class);
(3) the receipt by an ENVOY shareholder of cash in lieu of a fractional
share of Quintiles common stock will result in the recognition of gain or
loss equal to the difference between the amount of cash received in lieu of
the fractional share and the ENVOY shareholder's basis in the fractional
share interest. Such gain or loss will be treated as capital gain or loss,
provided the receipt of cash in lieu of the fractional share does not have
the effect of the distribution of a dividend to the ENVOY shareholder and
provided that the ENVOY shareholder held the ENVOY capital stock as a
capital asset; and
(4) the holding period of the Quintiles common stock received by an
ENVOY shareholder in the merger (including fractional share interests) will
include the period during which the shareholder held the ENVOY common stock
or Series B convertible preferred stock, as the case may be, surrendered in
the merger in exchange for such Quintiles common stock.
AMENDMENT OF ENVOY RIGHTS AGREEMENT
ENVOY has amended the ENVOY Rights Agreement (as defined and discussed
below in "Comparison of the Rights of Holders of Quintiles Capital Stock and
ENVOY Capital Stock") to provide that, so long as the merger agreement has not
been terminated, neither the approval, execution or delivery of the merger
agreement or the stock voting agreement, nor the consummation of the
transactions contemplated thereby, will cause the Rights (as defined below in
"Comparison of the Rights of Holders of Quintiles Capital Stock and ENVOY
Capital Stock") issued and outstanding to become exercisable pursuant to the
ENVOY Rights Agreement.
REGULATORY APPROVALS REQUIRED
The HSR Act requires both Quintiles and ENVOY to furnish certain
information and materials to the Antitrust Division of the Department of Justice
and the FTC and requires a 30-day waiting period to expire or be terminated
before the merger can be completed. This waiting period may be extended by
requests for additional information. On January 14, 1999, ENVOY, Quintiles and
certain affiliates of ENVOY filed the required notification and report forms
with the Antitrust Division and FTC. Early termination of the waiting period was
granted on February 5, 1999.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF ENVOY COMMON STOCK
It is a condition to the merger that any shares of Quintiles common stock
issuable in the merger be authorized for listing on The Nasdaq Stock Market,
subject to official notice of issuance. If the merger is consummated, the ENVOY
common stock will cease to be listed on The Nasdaq Stock Market. In addition,
ENVOY will deregister the ENVOY common stock under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, accordingly, will no longer be
required to file periodic reports pursuant to the Exchange Act.
65
<PAGE> 74
NO DISSENTERS' RIGHTS
Neither the holders of ENVOY common stock nor the holders of Quintiles
common stock are entitled to dissenters' or appraisal rights in connection with
the merger. The holders of ENVOY Series B convertible preferred stock have
contractually waived their right to dissent and have agreed to vote in favor of
the merger.
RESALE OF QUINTILES COMMON STOCK AFTER THE MERGER
Shares of Quintiles common stock issued pursuant to the merger will not be
subject to any restrictions on transfer arising under the Securities Act of
1933, as amended (the "Securities Act"), except for shares issued to any ENVOY
shareholder who may be deemed to be an "affiliate" of ENVOY for purposes of Rule
145 under the Securities Act. This Joint Proxy Statement/Prospectus does not
cover resales of Quintiles common stock received by any person who may be deemed
to be such an affiliate.
Persons who may be deemed to be affiliates of ENVOY generally include
individuals or entities that control, are controlled by, or are under common
control with ENVOY, and generally include the executive officers and directors
of ENVOY. Affiliates may not sell their shares of Quintiles common stock
acquired in connection with the merger, except pursuant to an effective
registration under the Securities Act covering such shares or in compliance with
Rule 145 under the Securities Act (or Rule 144 under the Securities Act in the
case of persons who become affiliates of Quintiles) or another applicable
exemption from the registration requirements of the Securities Act. In general,
Rule 145 under the Securities Act provides that, for one year following the
effective time of the merger, an affiliate (together with certain related
persons) would be entitled to sell shares of Quintiles common stock acquired in
connection with the merger only through unsolicited "broker transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144 under the Securities Act. Additionally, the number of shares to be sold by
an affiliate (together with certain related persons and certain persons acting
in concert) within any three-month period for purposes of Rule 145 under the
Securities Act may not exceed the greater of 1% of the outstanding shares of
Quintiles common stock or the average weekly trading volume of such shares
during the four calendar weeks preceding such sale. Rule 145 under the
Securities Act will remain available to affiliates if Quintiles timely files
reports under the Exchange Act with the SEC. One year after the effective time
of the merger, an affiliate will be able to sell such shares of Quintiles common
stock without being subject to such manner of sale or volume limitations,
provided that Quintiles is current with its Exchange Act informational filings
and such affiliate is not then an affiliate of Quintiles. Two years after the
effective time of the merger, an affiliate will be able to sell such shares of
Quintiles common stock without any restrictions so long as such affiliate had
not been an affiliate of Quintiles for at least three months prior to the date
of such sale.
ENVOY has obtained written undertakings ("Affiliate Letters") from its
directors and Quintiles has agreed to obtain Affiliate Letters from each such
person who may be deemed an affiliate to the effect that, among other things,
such person will not sell, transfer or otherwise dispose of, or direct or cause
the sale, transfer or other disposition of, any shares of ENVOY capital stock or
Quintiles common stock, as applicable, beneficially owned by such person prior
to the effective time of the merger and will not sell, transfer or otherwise
dispose of, or direct or cause the sale, transfer or other disposition of,
shares of Quintiles common stock beneficially owned by such person as a result
of the merger or otherwise until after such time as Quintiles shall have
publicly released a report in the form of a quarterly
66
<PAGE> 75
earnings report, registration statement, a report filed with the SEC or any
other public filing, statement or announcement which includes the combined
financial results of Quintiles and ENVOY for a period of at least 30 days of
combined operations of Quintiles and ENVOY following the effective time of the
merger.
67
<PAGE> 76
THE MERGER AGREEMENT
The following is a summary of certain provisions of the merger agreement.
This summary is qualified in its entirety by reference to the merger agreement,
which is incorporated by reference in its entirety and attached to this Joint
Proxy Statement/Prospectus as Appendix A. Quintiles and ENVOY shareholders are
urged to read the merger agreement in its entirety for a more complete
description of the merger.
GENERAL
Pursuant to the merger agreement, QELS will merge with and into ENVOY, with
ENVOY surviving the merger. As a result of the merger, ENVOY will be wholly
owned by Quintiles. The shareholders of ENVOY will receive the consideration
described below. The merger will become effective at the time of filing with the
Secretary of State of Tennessee of, or at such later time as is specified in,
the articles of merger. Such filing will be made contemporaneously with, or
immediately after, the closing of the merger, which shall occur as promptly as
practicable after all of the conditions to consummation of the merger set forth
in the merger agreement have been satisfied or waived, or on such other date as
Quintiles and ENVOY agree in writing.
EXCHANGE RATIOS; FRACTIONAL SHARES
Each share of ENVOY common stock and Series B convertible preferred stock
will be converted into the right to receive 1.166 shares of Quintiles common
stock. Each share of ENVOY capital stock will, by virtue of the merger, be
canceled and retired and shall cease to exist.
No fractional shares of Quintiles common stock will be issued in the
merger, but instead, each holder of shares of ENVOY capital stock otherwise
entitled to a fractional share of Quintiles common stock will, upon surrender of
his ENVOY certificates, be entitled to receive a cash amount, without interest,
rounded to the nearest cent, determined by multiplying the fractional share
interest to which such holder would otherwise be entitled by the average of the
closing prices of Quintiles common stock on The Nasdaq Stock Market for each of
the 10 consecutive trading days ending on the fifth complete trading day prior
to the Closing Date.
CERTAIN REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
ENVOY (which are subject, in certain cases, to specified exceptions) relating
to, among other things: (a) corporate organization, existence and good standing
and similar corporate matters; (b) capitalization; (c) subsidiaries; (d)
authorization, execution, delivery, consummation and enforceability of the
merger agreement and related matters; (e) compliance with applicable laws; (f)
non-contravention of certain contracts, organizational documents and laws; (g)
consents or approvals by governmental entities or other third parties; (h) the
filing of documents with the SEC; (i) the absence of certain changes or events
after December 31, 1997 constituting a material adverse effect on ENVOY; (j) the
absence of certain governmental actions or proceedings or material litigation;
(k) the absence of certain undisclosed liabilities; (l) certain contracts and
debt instruments; (m) filing of tax returns, payment of taxes and tax status of
certain assets; (n) ownership and validity of intellectual property rights and
Year 2000 compliance; (o) the accuracy of information supplied by
68
<PAGE> 77
ENVOY in connection with the Registration Statement and this Joint Proxy
Statement/Prospectus; (p) labor matters, benefit plans and other matters
relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); (q) environmental matters; (r) transactions with affiliates; (s) the
delivery of an opinion of a financial adviser; (t) accounting treatment of the
merger as a pooling of interests; (u) brokers; and (v) accounts receivable.
The merger agreement also contains customary representations and warranties
of Quintiles and QELS (which are subject, in certain cases, to specified
exceptions) relating to, among other things: (a) corporate organization,
existence and good standing and similar corporate matters; (b) capitalization;
(c) authorization, execution, delivery, and enforceability of the merger
agreement and related matters; (d) non-contravention of certain contracts,
organizational documents and laws; (e) consents by governmental entities or
other third parties; (f) the filing of documents with the SEC; (g) the absence
of certain changes or events after December 31, 1997 constituting a material
adverse effect on Quintiles; (h) the accuracy of information supplied by
Quintiles or QELS in connection with the Registration Statement and this Joint
Proxy Statement/Prospectus; (i) interim operations of QELS; (j) compliance with
applicable laws and the absence of material litigation; (k) the absence of
certain governmental actions or proceedings with respect to Quintiles or QELS;
(l) the absence of certain undisclosed liabilities; (m) brokers; and (n)
accounting treatment of the merger as a pooling of interests.
The representations and warranties of ENVOY, Quintiles and QELS shall not
be deemed waived or otherwise affected by any investigation made by any party
and do not survive beyond the effective time of the merger.
CERTAIN COVENANTS AND AGREEMENTS
Conduct of Business Pending Merger
Pursuant to the merger agreement, ENVOY has agreed (except as permitted by
Quintiles or as otherwise expressly contemplated by the merger agreement) to
conduct its business in the ordinary course consistent with past practice and to
use its and its subsidiaries' respective reasonable efforts to (1) preserve
intact its and their current business organizations, (2) keep available the
services of its and their current officers and key employees and (3) preserve
its and their existing relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with it and them.
ENVOY has also agreed (except as permitted by Quintiles or otherwise expressly
contemplated by the merger agreement) that, pending the merger, it will not, nor
will it permit any of its subsidiaries to:
- amend the ENVOY charter, the ENVOY bylaws or comparable documents of any
subsidiary or amend the ENVOY Rights Agreement;
- split, combine or reclassify any shares of its outstanding capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of, or in substitution for, shares of its outstanding capital
stock;
- declare, set aside or pay any dividend or other distribution payable in
cash, stock or property on any class of its capital stock;
- directly or indirectly redeem or otherwise acquire (except for deemed
acquisitions upon cashless exercises of options to purchase ENVOY common
stock) any shares of its capital stock, including without limitation, the
ENVOY Series B convertible
69
<PAGE> 78
preferred stock, or shares of capital stock of any of its subsidiaries or
any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
- subject to limited exceptions, authorize for issuance, issue, deliver,
grant or sell or agree to issue or sell any shares of, or rights to
acquire or convert into any shares of, its capital stock or shares of the
capital stock of any of its subsidiaries;
- merge, combine or consolidate with another entity;
- acquire or purchase an equity interest in, or a substantial portion of
the assets of, another entity or otherwise acquire any material assets
outside the ordinary course of business and consistent with past
practice;
- enter into any material contract, commitment or transaction outside the
ordinary course of business and consistent with past practice;
- sell, lease, license, waive, release, transfer, encumber or otherwise
dispose of any of its material assets outside the ordinary course of
business consistent with past practice;
- subject to limited exceptions, (1) incur, assume or prepay any
indebtedness, obligations or liabilities in excess of $500,000
(individually or in the aggregate), (2) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any entity
other than a subsidiary of ENVOY, (3) make any loans, advances or capital
contributions to, or investments in, any other entity, other than a
subsidiary of ENVOY or (4) issue or sell any debt securities or warrants
or other rights to acquire any debt securities of ENVOY or any of its
subsidiaries;
- subject to limited exceptions, pay, satisfy, discharge or settle any
material claim, liability or obligation, other than in the ordinary
course of business consistent with past practice or pursuant to mandatory
terms of any ENVOY contract in effect on the date of the merger
agreement;
- modify, amend or waive any benefit of any non-competition agreement to
which ENVOY or any of its subsidiaries is a party;
- subject to limited exceptions, authorize or make capital expenditures in
excess of $200,000 individually, or in excess of $1,000,000 in the
aggregate;
- permit any insurance policy naming ENVOY or any of its subsidiaries as a
beneficiary or a loss payee to be canceled (other than due to
circumstances beyond ENVOY's control) or terminated other than in the
ordinary course of business;
- subject to limited exceptions, (1) adopt, enter into, terminate or amend
(except as may be required by applicable law) any employee benefit plan,
contract or other ENVOY plan for the current or future benefit or welfare
of any director, officer or employee of ENVOY or any of its subsidiaries;
(2) except in the ordinary course of business consistent with past
practice, increase in any manner the compensation, fringe benefits,
severance or termination pay of, or pay any bonus to, any director,
officer or employee of ENVOY or any of its subsidiaries; or (3) take any
action to fund or in any other way secure, accelerate or otherwise remove
restrictions with respect to the payment of compensation or benefits
under any employee plan, agreement, contract, arrangement or other plan
for the current or future benefit or welfare of any director, officer or
employee of ENVOY or any of its subsidiaries;
70
<PAGE> 79
- make any material change in its accounting or tax policies or procedures,
except as required by applicable law or to comply with generally accepted
accounting principles;
- take any action that (without giving effect to any action taken or agreed
to be taken by Quintiles or any of its affiliates) would prevent
Quintiles from accounting for the merger as a pooling-of-interests;
- amend ENVOY's Rights Agreement (as defined below in "Comparison of the
Rights of Holders of Quintiles Capital Stock and ENVOY Capital Stock"),
redeem the Rights (as defined below in "Comparison of the Rights of
Holders of Quintiles Capital Stock and ENVOY Capital Stock") or take any
action with respect to, or make any determination under the Rights
Agreement; or
- enter into any contract with respect to the foregoing or authorize any
of, or commit or agree to take any of, the foregoing actions.
No Solicitation
The merger agreement provides that, prior to the effective time of the
merger, neither ENVOY nor any of its subsidiaries will, or will permit any of
its or their officers, directors, employees, agents, representatives or advisors
to:
(a) solicit, initiate or encourage (including by way of furnishing or
disclosing non-public information) any inquiries or the making of any
proposal with respect to any merger, consolidation or other business
combination involving ENVOY or any of its subsidiaries or the acquisition
of all or any significant part of the assets or capital stock of ENVOY or
any of its subsidiaries (an "Acquisition Transaction"); or
(b) negotiate, explore or otherwise engage in discussions with any
entity (other than Quintiles and its representatives) with respect to any
Acquisition Transaction, or which may reasonably be expected to lead to a
proposal for an Acquisition Transaction or enter into any contract or
understanding with respect to any such Acquisition Transaction or which
would require ENVOY to abandon, terminate or fail to consummate the merger
or any other transaction contemplated by the merger agreement;
provided, however, that, prior to approval of the merger by the ENVOY
shareholders, ENVOY may, to the extent required by the fiduciary obligations of
its board of directors, as determined in good faith by it based on the advice of
outside counsel:
(a) furnish information pursuant to an appropriate confidentiality
agreement (no less favorable to ENVOY in any material respect than the
confidentiality agreement between ENVOY and Quintiles) concerning ENVOY to
a third party who has made an unsolicited proposal for an Acquisition
Transaction; or
(b) participate in negotiations with such a third party who has made an
unsolicited proposal for an Acquisition Transaction.
Except as described below, the ENVOY board of directors may not:
(a) withdraw or modify, in a manner adverse to Quintiles or QELS, its
approval or recommendation of the merger agreement or the merger;
(b) approve any letter of intent, agreement in principle, acquisition
agreement or similar agreement relating to any Acquisition Transaction; or
71
<PAGE> 80
(c) approve or recommend any Acquisition Transaction.
If, prior to approval of the merger by the ENVOY shareholders, the ENVOY
board of directors determines in good faith, after it has received advice from
outside counsel, that the failure to take any of the actions described in (a),
(b) or (c) above would result in a reasonable possibility that the ENVOY board
of directors would breach its fiduciary duty to the ENVOY shareholders, the
ENVOY board of directors may take any of the actions described above with
respect to a Superior Proposal (as defined below), but in each case only after
(1) ENVOY notifies Quintiles in writing of the Superior Proposal; (2) at least 5
calendar days following Quintiles' receipt of such notice (x) the Superior
Proposal remains a Superior Proposal and (y) the ENVOY board of directors again
determines that failure to take any of such actions would result in a reasonable
possibility of a breach of its fiduciary duty; and (3) the merger agreement is
terminated and ENVOY pays to Quintiles a termination fee (see "-- Termination
Fee"). We refer to such action that may be undertaken by ENVOY's board of
directors as the "ENVOY Fiduciary Duty Termination" in this Joint Proxy
Statement/Prospectus. The term "Superior Proposal" means a bona fide, written
and unsolicited proposal or offer (including a new or unsolicited proposal
received by ENVOY from a person whose initial contact with ENVOY may have been
solicited by ENVOY or its representatives prior to signing the merger agreement)
made by any person or group (other than Quintiles or any of its subsidiaries)
with respect to an Acquisition Transaction on terms and conditions that the
ENVOY board of directors determines in good faith, in the exercise of reasonable
judgement (based on the advice of independent financial advisors and outside
legal counsel), to be reasonably capable of being consummated and to be superior
from a financial point of view to ENVOY's shareholders than the merger (based
upon the written opinion of ENVOY's financial advisor).
Composition of Quintiles' Board of Directors Following the Merger
As soon as practicable after the merger, Messrs. Goad, Kever and Ford,
current members of ENVOY's board of directors, will become members of Quintiles'
board of directors and will be nominated to stand for election as directors at
the 1999 annual meeting of Quintiles shareholders. See "The Merger -- Interests
of Persons in the Merger Other Than as Shareholders -- Composition of Quintiles'
Board Following the Merger."
Indemnification; Insurance
All rights to indemnification and exculpation existing in favor of any
employee, agent, director or officer of ENVOY and its subsidiaries, as provided
in their respective charters, bylaws and applicable indemnification agreements,
shall survive for four years after the merger. For four years after the merger,
ENVOY, as the surviving corporation, shall maintain the policies of director and
officer liability insurance currently carried by ENVOY. See "The
Merger -- Interests of Persons in the Merger Other Than as Shareholders --
Indemnification and Insurance."
CONDITIONS TO THE MERGER
Each party's obligation to effect the merger is subject to the satisfaction
or waiver (if permissible), at or prior to the merger, of the following
conditions, among others:
- SHAREHOLDER APPROVAL. The Quintiles shareholders shall have approved the
proposal to issue Quintiles common stock in the merger, and the ENVOY
shareholders shall have approved and adopted the merger agreement and
approved the merger.
72
<PAGE> 81
- HSR AND OTHER APPROVALS. Waiting periods (and any extensions thereof)
applicable to the merger under the HSR Act and other applicable laws
shall have been terminated or shall have expired.
- EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement on
Form S-4 (of which this Joint Proxy Statement/Prospectus is a part (the
"Registration Statement")) shall have become effective in accordance with
the provisions of the Securities Act. There must be no stop order
suspending the effectiveness of the Registration Statement issued by the
SEC, and no proceedings for that purpose shall have been initiated by the
SEC.
- POOLING LETTERS. Quintiles and ENVOY shall have received letters from
each of Arthur Andersen LLP and Ernst & Young LLP, respectively, each
dated the date of the closing date of the merger, stating that they
concur with the conclusions of the managements of Quintiles and ENVOY
that the criteria for pooling-of-interests accounting specified in
Accounting Principles Board Opinion No. 16 have been met.
- NO INJUNCTIONS. No order issued by any governmental entity having
jurisdiction over Quintiles, ENVOY, or any of their subsidiaries that
materially restricts, prevents or prohibits the consummation of the
merger shall be in effect. The parties must use their reasonable efforts
to prevent such orders and to appeal any that may be issued.
- NASDAQ LISTING. The shares of Quintiles common stock issued in
connection with the merger shall have been approved for listing on The
Nasdaq Stock Market, subject to official notice of issuance.
In addition, each party's obligation to complete the merger is subject to
the satisfaction by the other party of the following conditions:
- REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the other party contained in the merger agreement that is
qualified as to materiality shall be true and correct, and the
representations and warranties that are not so qualified shall be true
and correct in all material respects, in each case as of the date of the
merger agreement, and, except to the extent such representations and
warranties speak as of an earlier date, as of the effective time of the
merger as though made at such effective time of the merger. Quintiles
shall have received a certificate signed on ENVOY's behalf by ENVOY's
Chief Executive Officer or ENVOY's Chief Financial Officer to that
effect. ENVOY shall have received a similar certificate signed on
Quintiles' behalf by Quintiles' Chief Financial Officer.
- PERFORMANCE OF OBLIGATIONS. The other party shall have performed in all
material respects all obligations required to be performed by it under
the merger agreement prior to the effective time of the merger. Quintiles
shall have received a certificate signed on ENVOY's behalf by ENVOY's
Chief Executive Officer or ENVOY's Chief Financial Officer to that
effect. ENVOY shall have received a similar certificate signed on
Quintiles' behalf by Quintiles' Chief Financial Officer.
- MATERIAL ADVERSE CHANGE. Since the date of the merger agreement, there
shall have been no event or occurrence which has had or reasonably could
be expected to have a material adverse effect on the other party.
Quintiles shall have received a certificate signed on ENVOY's behalf by
ENVOY's Chief Executive Officer or ENVOY's Chief Financial Officer to
that effect. ENVOY shall have received a similar certificate signed on
Quintiles' behalf by Quintiles' Chief Financial Officer.
73
<PAGE> 82
- TAX OPINION. ENVOY and Quintiles each shall have received an opinion
from its own tax counsel that, among other things, the merger will
qualify for United States federal income tax purposes as a tax-free
reorganization.
- AFFILIATE LETTERS. Each party shall have received the undertakings
entered into by affiliates of the other company relating to restrictions
on the resale of Quintiles common stock. See "The Merger -- Resale of
Quintiles Common Stock After the Merger."
The obligation of Quintiles and QELS to effect the merger is subject to the
satisfaction of the following additional conditions:
- CONSENTS. ENVOY shall have obtained the consent or approval of each
entity whose consent or approval shall be required in connection with the
transactions contemplated by the merger agreement under any contract,
except where the failure to obtain such consent would not reasonably be
expected, individually or in the aggregate, to have a material adverse
effect on ENVOY or the combined company.
- EMPLOYMENT AGREEMENTS. Certain of ENVOY's employees shall have executed
and delivered to Quintiles an amendment to their employment agreements,
in a mutually satisfactory form. See "The Merger -- Interests of Persons
in the Merger Other Than as Shareholders -- Employment and
Non-Competition Agreements."
- RESIGNATIONS. Each officer and director of ENVOY or any of its
subsidiaries requested by Quintiles to do so shall have resigned from
each such position on or prior to, and effective not later than, the
effective time of the merger.
- 401(K) PLAN. If requested by Quintiles to do so, ENVOY shall have taken
all action necessary to cause the termination of ENVOY's 401(k) plan and
to direct (1) the distribution of such plan's assets in lump sum form to
the plan's participants or (2) the plan administrator to effect a direct
rollover of the plan's assets.
The obligation of ENVOY to effect the merger is subject to the satisfaction
of the following conditions:
- DISPOSITION OF SIGNIFICANT ASSETS. Quintiles shall not have disposed of
or entered into a contract to dispose of a significant amount of its
assets other than (1) in the ordinary course of business, or (2) with
ENVOY's prior written consent.
- ACTIONS OTHER THAN IN ORDINARY COURSE. Quintiles shall not have taken
without ENVOY's prior written consent any extraordinary action that (1)
is outside the ordinary course of Quintiles' business and (2) requires
ENVOY to postpone its shareholder meeting for more than 45 days.
At any time prior to the effective time of the merger, each of Quintiles
and ENVOY may waive in writing the compliance with any conditions that legally
may be waived. However, Quintiles and ENVOY may not waive conditions that are
required by law to consummate the merger, including (1) the requirement for
shareholder approval and (2) the requirement that the Registration Statement be
effective on the Closing Date. Furthermore, after approval of the merger
agreement by the shareholders of ENVOY and the approval of the issuance of
shares of Quintiles common stock in connection with the merger, the parties
cannot waive any conditions that under applicable law would require further
approval of such shareholders without obtaining such approval. See "-- Waiver."
74
<PAGE> 83
TERMINATION
The merger agreement may be terminated and the merger abandoned at any time
prior to the effective time of the merger, whether before or after approval by
the shareholders of each of Quintiles and ENVOY:
(1) by mutual written consent of Quintiles and ENVOY;
(2) by either Quintiles or ENVOY, if (a) the merger has not been
consummated on or before June 30, 1999, unless the failure to consummate
the merger is the result of a willful and material breach of the merger
agreement by the party seeking to terminate the merger agreement, (b)
subsequent to any public disclosure of a proposal for or interest in an
Acquisition Transaction, the shareholders of ENVOY do not approve the
merger agreement and the merger, or (c) the shareholders of Quintiles do
not approve the issuance of shares of Quintiles common stock in the merger;
(3) by either Quintiles or ENVOY, if any permanent injunction, order,
decree or ruling by any governmental entity of competent jurisdiction
preventing the consummation of the merger shall have become final and
non-appealable; provided that the party seeking to terminate the merger
agreement shall have used reasonable efforts to remove such injunction or
overturn such action;
(4) by Quintiles, if (a) there has been a material breach of any of the
representations or warranties, covenants or agreements of ENVOY set forth
in the merger agreement, which is not curable, or, if curable, is not cured
within 30 days after Quintiles gives written notice of such breach to
ENVOY, or (b) the ENVOY board of directors or any committee thereof (v)
fails to convene a meeting of ENVOY's shareholders to approve the merger on
or before 150 days following the date of the merger agreement (provided the
Registration Statement has been declared effective within 120 days after
the date of the merger agreement) (the "ENVOY Meeting Date"), or postpones
the date scheduled for the meeting of the shareholders of ENVOY to approve
the merger agreement beyond the ENVOY Meeting Date, except with the written
consent of Quintiles, (w) fails to recommend the approval of the merger
agreement and the merger to ENVOY's shareholders or withdraws, amends or
modifies in a manner adverse to Quintiles or QELS its recommendation or
approval in respect of the merger agreement or the merger or takes such
action that would constitute an ENVOY Fiduciary Duty Termination, (x)
approves any letter of intent, agreement in principle, acquisition
agreement or any similar agreement relating to any Acquisition Transaction
(y) approves or recommends any Acquisition Transaction or (z) fails, upon
the written request of Quintiles (which request may be made at any time
following public disclosure of a proposal for an Acquisition Transaction)
to reaffirm publicly and unconditionally its recommendation to ENVOY's
shareholders that they approve the merger agreement and the merger,
including the unconditional rejection of such proposal for an Acquisition
Transaction. Such public reaffirmation shall be made at least 10 trading
days prior to the ENVOY Meeting Date and ENVOY shall delay the ENVOY
special meeting to provide 10 trading days if Quintiles so requests in
writing;
(5) by ENVOY, if (a) the ENVOY board of directors decides to effect an
ENVOY Fiduciary Duty Termination and (b) ENVOY pays to Quintiles a
termination fee of $50 million;
(6) by ENVOY, if (a) there has been a breach of any of the
representations or warranties, covenants or agreements of Quintiles or QELS
set forth in the merger
75
<PAGE> 84
agreement, which is not curable, or, if curable, is not cured within 30
days after written notice of such breach is given by ENVOY to Quintiles, or
(b) the Quintiles board of directors (x) fails to convene a meeting of
Quintiles' shareholders to approve the issuance of shares of Quintiles
common stock in the merger (as required by the applicable rules of The
Nasdaq Stock Market) on or before 150 days following the date of the merger
agreement (provided the Registration Statement has been declared effective
within 120 days after the date of the merger agreement (the "Quintiles
Meeting Date")), or postpones the date scheduled for the meeting of the
shareholders of Quintiles to approve the merger agreement beyond the
Quintiles Meeting Date, except with the written consent of ENVOY, (y) fails
to recommend to Quintiles' shareholders the approval of issuing Quintiles
common stock in the merger or (z) withdraws, amends or modifies in a manner
adverse to ENVOY its recommendation or approval or fails to reconfirm such
recommendation within two business days of a written request for such
confirmation by ENVOY;
(7) by Quintiles, if ENVOY or any of its officers, directors, employees,
representatives or agents takes any actions that are proscribed by certain
sections of the merger agreement described above in "-- Certain Covenants
and Agreements -- No Solicitation"; or
(8) by ENVOY, if the average closing price per share of Quintiles common
stock on The Nasdaq Stock Market, for a specified 10 trading days
immediately before the merger, is less than $40.00; or by Quintiles if such
average closing price is greater than $71.50.
TERMINATION FEE
ENVOY has agreed to pay Quintiles a fee of $50 million by wire transfer of
immediately available funds upon the occurrence of any of the following events:
(1) Quintiles terminates the merger agreement pursuant to subclause
(2)(b) of the section entitled "Termination" above and either before such
termination or within 12 months after the date of such termination ENVOY
(a) consummates an Acquisition Transaction or (b) enters into a definitive
agreement to do so;
(2) Quintiles terminates the merger agreement pursuant to subclause
(4)(b) of the section entitled "Termination" above;
(3) ENVOY terminates the merger agreement pursuant to clause (5) of the
section entitled "Termination" above;
(4) Quintiles terminates the merger agreement pursuant to clause (7) of
the section entitled "Termination" above and either before such termination
or within 12 months after the date of such termination ENVOY (a)
consummates an Acquisition Transaction or (b) enters into a definitive
agreement to do so; or
(5) Quintiles terminates the merger agreement pursuant to ENVOY's
failure to use reasonable efforts to cause the merger to be accounted for
as a pooling-of-interests and either before such termination or within 12
months after the date of such termination ENVOY (a) consummates an
Acquisition Transaction or (b) enters into a definitive agreement to do so.
76
<PAGE> 85
AMENDMENT
At any time prior to the effective time of the merger, the parties may
amend, modify or supplement any of the terms contained in the merger agreement
only by written agreement (referring specifically to the merger agreement);
provided, however, that after any approval by the shareholders of Quintiles or
ENVOY in connection with the merger, no such amendment, modification or
supplementation shall be made which, under applicable law, requires the approval
of such shareholders, without the further approval of such shareholders.
WAIVER
At any time prior to the effective time of the merger, Quintiles or ENVOY
may, by a signed instrument in writing, (1) extend the time for the performance
of any of the obligations or other acts of the other party, (2) waive any
inaccuracies in the representations and warranties of the other party contained
in the merger agreement or any documents delivered in connection therewith and
(3) subject to limited exceptions and the following of certain procedures, waive
compliance by the other party with any of the agreements or conditions contained
in the merger agreement that may be legally waived.
EXPENSES
Except as described under "-- Termination Fee" above, the parties to the
merger agreement have agreed that all costs and expenses incurred in connection
with the merger agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses.
EFFECT ON EMPLOYEE BENEFITS, STOCK PLANS AND STOCK OPTIONS
Benefit Plans
For a period of one year following the effective time of the merger,
Quintiles shall, or shall cause ENVOY to, provide benefits to continuing
employees of ENVOY and its subsidiaries (the "Continuing Employees") that, in
the aggregate, are no less favorable than the benefits provided in the aggregate
to similarly situated employees of Quintiles. With respect to the benefits plans
of Quintiles or any of its subsidiaries in which the Continuing Employees
participate after the merger, Quintiles will use reasonable efforts to: (1)
waive certain limitations as to pre-existing conditions, exclusions and waiting
periods, (2) credit the Continuing Employees with certain co-payments or
deductibles paid prior to the merger and (3) recognize the service of the
Continuing Employees with ENVOY for all purposes (except to the extent such
treatment would result in duplicative accrual of benefits for the same period of
service).
Stock Options
As a result of the merger, all options to purchase shares of ENVOY common
stock granted under ENVOY's stock option plans that remain outstanding
immediately prior to the effective time of the merger shall be assumed
automatically by Quintiles and converted automatically to options entitling the
holder thereof to acquire the number of shares of Quintiles common stock equal
to the number of shares of ENVOY common stock subject to such option immediately
prior to the merger multiplied by 1.166, on the same terms and conditions as
applied under such option, except that the exercise price will be the exercise
price of the ENVOY option divided by 1.166.
77
<PAGE> 86
THE STOCK VOTING AGREEMENT
The following is a summary of certain provisions of the stock voting
agreement which is attached as Appendix B to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. The following summary
is qualified in its entirety by reference to the stock voting agreement. You are
encouraged to read the stock voting agreement in its entirety.
As a condition and inducement to Quintiles to enter into the merger
agreement, ENVOY's directors and the holders of ENVOY Series B convertible
preferred stock entered into a stock voting agreement with Quintiles on December
15, 1998. Pursuant to the stock voting agreement, ENVOY's directors and holders
of ENVOY Series B convertible preferred stock agreed to vote their shares,
including any shares subsequently acquired (including acquisitions which result
from the exercise of an outstanding option to purchase ENVOY common stock) in
favor of the merger and against any other proposal or transaction that could
prevent or delay any transactions contemplated by the stock voting agreement or
the merger agreement. In addition, each holder of ENVOY Series B convertible
preferred stock irrevocably waived its right to dissent, notice of dissenter's
rights and all other rights arising under Section 4-23-101 et seq. of the
Tennessee Business Corporation Act (the "TBCA"). Those shareholders agreed to
vote 15.8% of the outstanding shares of ENVOY common stock and Series B
convertible preferred stock, voting as one class, as of January 26, 1999. The
stock voting agreement will terminate on the earlier of the effective time of
the merger or immediately upon the termination of the merger agreement in
accordance with its terms.
ABOUT QUINTILES
GENERAL INFORMATION
Quintiles is a market leader in providing full-service contract research,
sales, marketing and healthcare policy consulting and health information
management services to the global pharmaceutical, biotechnology, medical device
and healthcare industries. Supported by its extensive information technology
capabilities, Quintiles provides a broad range of contract services to help its
clients reduce the length of time from the beginning of development to peak
sales of a new drug or medical device. Quintiles' contract research services
include a full range of development services focused on helping its clients
through the development and regulatory approval of a new drug or medical device.
Quintiles' contract sales services, including sales and specialized marketing
support services, focus on helping its clients achieve commercial success for a
new product or medical device. Quintiles also offers healthcare policy research
and management consulting which emphasize improving the quality, availability
and cost-effectiveness of healthcare.
Quintiles' principal offices are located at 4709 Creekstone Drive,
Riverbirch Building, Suite 200, Durham, North Carolina 27703-8411 and its
telephone number at that location is (919) 998-2000.
RECENT EVENTS
On January 5, 1999, Quintiles announced the completion of its previously
announced acquisition of substantial assets of Hoechst Marion Roussel's Kansas
City-based Drug Innovation and Approval facility and the opening of a Kansas
City contract research facility.
78
<PAGE> 87
On December 14, 1998, Quintiles entered into a merger agreement with QTRN
Acquisition Corp., a North Carolina corporation and a wholly owned subsidiary of
Quintiles, and PMSI, a Delaware corporation, which provides for PMSI to merge
with and into QTRN Acquisition Corp. After the PMSI transaction, PMSI would be a
wholly owned subsidiary of Quintiles. We refer to the merger transaction between
Quintiles and PMSI in this Joint Proxy Statement/Prospectus as the "PMSI
Transaction."
PMSI was formed in 1991 by carving out the pharmaceutical services business
from Walsh International Inc. and consummating a public offering of PMSI common
stock. Through its Scott-Levin subsidiary in the United States, PMSI provides a
range of information and market research services to pharmaceutical and
healthcare companies to enable them to optimize the performance of their sales
and marketing activities. Prior to August 5, 1998, PMSI also provided
information services for similar purposes in Europe and Japan. Most of PMSI's
services are generated from its own proprietary databases containing unique
managed care, healthcare market and medical prescriber data. PMSI's services are
comprised of proprietary database services, syndicated market research audits,
managed care and governmental information services and added value services,
including strategic studies and surveys, consulting services and software
solutions. Scott-Levin has implemented state-of-the-art data integration and
implementation technology and internet capabilities for virtually all its
services. PMSI common stock trades on The Nasdaq Stock Market under the symbol
"PMRX."
The PMSI merger agreement calls for the individual PMSI stockholders to
exchange their PMSI common stock for Quintiles common stock either by exchanging
all their shares at closing, or electing to exchange half of their shares at
closing and defer receipt of the other half for 75 days. If the stockholder
elects to defer, he or she will also receive a contingent value payment, a
"CVP," for each share of Quintiles common stock received on the 75th day after
closing. Payment under the CVPs, if any, will equal the amount by which the
average closing price of Quintiles common stock for the 10 trading days ending
on the day that is two days immediately preceding the closing, exceeds the
average closing price of Quintiles common stock for 10 trading days selected at
random out of the 20 trading days prior to the 75th day after closing. A PMSI
stockholder who elects to defer receipt of Quintiles shares may choose to
receive those shares at any time prior to the 75th day after closing of the PMSI
Transaction but will forfeit the right to receive CVPs with respect to such
shares. In addition, the right to receive a cash payment, if any, will terminate
if at any time during the 20 trading days preceding the 75th day following the
effective time of the PMSI Transaction either (1) a shareholder's "short
position" in Quintiles common stock (determined in accordance with Rule 14e-4(a)
of the Exchange Act, but without taking into account the right to receive a cash
payment) exceeds such shareholder's "long position" in Quintiles common stock
(determined in accordance with such rule) or (2) a shareholder takes any action
to manipulate the price of Quintiles common stock which would violate Section 9
of the Exchange Act. The final exchange ratio for determining the number of
Quintiles shares to be issued to PMSI stockholders will be determined by
dividing $15.40 by the average closing price per share of Quintiles common stock
over the 10 days ending on the day that is two days prior to closing.
Consummation of the PMSI Transaction is subject to certain conditions,
including the approval of the PMSI Transaction by the PMSI stockholders. The
PMSI stockholders meeting is scheduled to occur on March , 1999. The merger
will close as soon as practicable after the PMSI stockholders meeting, subject
to the satisfaction of the closing
79
<PAGE> 88
conditions. Under certain circumstances the PMSI agreement may be terminated if
Quintiles common stock is trading outside of the $41.55 to $62.32 range.
In connection with the PMSI Transaction, Quintiles and PMSI also entered
into a stock option agreement, whereby, under certain circumstances, Quintiles
may exercise an option to purchase up to 19.9% of PMSI's shares at approximately
$12 per share. See "Unaudited Pro Forma Combined Condensed Financial Data" at
pages F-1 through F-21.
CERTAIN INFORMATION INCORPORATED BY REFERENCE
Information relating to principal shareholders and security ownership of
management, executive compensation, various benefit plans, relationships and
related transactions and other related matters as to Quintiles is set forth in
Quintiles' 1998 Proxy Statement and Annual Report on Form 10-K for the year
ended December 31, 1997, incorporated herein by reference. Shareholders of ENVOY
and Quintiles desiring a copy of such document may contact Quintiles by mail at
4709 Creekstone Drive, Riverbirch Building, Suite 200, Durham, North Carolina
27703-8411 Attention: Investor Relations or by telephone at (919) 998-2000 as
indicated under "Where You Can Find More Information."
ABOUT ENVOY
GENERAL INFORMATION
ENVOY is a leading provider of EDI and transaction processing services to
participants in the healthcare market, including pharmacies, physicians,
hospitals, dentists, billing services, commercial insurance companies, managed
care organizations, state and federal governmental agencies and others. ENVOY
provides healthcare EDI services on a real-time and batch-processing basis by
utilizing proprietary computer and telecommunications software and
microprocessor technology. ENVOY is one of the largest processors of electronic
real-time pharmacy and commercial third party payor batch transactions in the
United States based upon annual transaction volume. In addition, ENVOY believes
that it has the largest patient statement processing and printing services
business in the United States, processing more than 160 million patient
statements annually. ENVOY's transaction network, which processed approximately
1.2 billion transactions in 1998, consisted of approximately 200,000 physicians,
36,000 pharmacies, 42,000 dentists, 4,600 hospitals and 865 payors, including
approximately 47 Blue Cross Blue Shield Plans, 59 Medicare Plans and 40 Medicaid
Plans as of December 31, 1998.
ENVOY's principal executive offices are located at Two Lakeview Place, 15
Century Boulevard, Suite 600, Nashville, Tennessee 37214, and its telephone
number at that location is (615) 885-3700.
CERTAIN INFORMATION INCORPORATED BY REFERENCE
Certain information relating to principal shareholders and security
ownership of management, executive compensation, various benefit plans
(including share option plans), certain relationships and related transactions
and other related matters as to ENVOY is set forth in ENVOY's 1998 Proxy
Statement for its annual meeting and Annual Report on Form 10-K/A for the year
ended December 31, 1997, incorporated herein by reference. Shareholders of ENVOY
and Quintiles desiring a copy of such document may contact ENVOY by mail at
80
<PAGE> 89
Two Lakeview Place, 15 Century Boulevard, Suite 600, Nashville, Tennessee 37214
Attention: Investor Relations or by telephone at (615) 885-3700 as indicated
under "Where You Can Find More Information."
COMPARISON OF THE RIGHTS OF HOLDERS OF
QUINTILES CAPITAL STOCK AND ENVOY CAPITAL STOCK
Upon consummation of the merger, the shareholders of ENVOY, a Tennessee
corporation, will become shareholders of Quintiles, a North Carolina
corporation. The rights of such shareholders will be governed by North Carolina
law, including the North Carolina Business Corporation Act (the "NCBCA"), and by
the articles of incorporation and bylaws of Quintiles. Tennessee law, including
the TBCA, and the charter and bylaws of ENVOY will no longer apply to the rights
of the holders of Quintiles common stock.
It is not practical to compare all of the differences between applicable
North Carolina and Tennessee laws and between the governing documents of
Quintiles and ENVOY. Nevertheless, the following provides a summary of certain
of those differences that may significantly affect the rights of ENVOY
shareholders. ENVOY shareholders should consult with their own legal counsel
with respect to specific differences and changes in their rights as shareholders
which will result from the proposed merger.
AUTHORIZED CAPITAL STOCK; BLANK CHECK STOCK PROVISIONS
Quintiles' articles of incorporation currently authorize 200,000,000 shares
of Quintiles common stock, all of the same class of which 78,040,290 shares were
outstanding as of January 21, 1999. If the Quintiles shareholders approve the
Common Stock Amendment, the number of authorized shares of Quintiles common
stock will be increased to 500,000,000. The articles of incorporation also
authorize 25,000,000 shares of preferred stock, $0.01 par value, and grant broad
authority to the Quintiles board of directors to determine the voting powers,
designations, preferences and rights of classes or series of such preferred
stock without shareholder approval. Quintiles has no preferred stock outstanding
as of the date of this Joint Proxy Statement/Prospectus. Subject to the rights
of any preferred stock issued in the future, as determined by the Quintiles
board of directors or otherwise provided under North Carolina law, each holder
of Quintiles common stock is entitled to such dividends, if any, as may be
declared by the Quintiles board of directors. Each holder of Quintiles common
stock has one vote per share on all matters on which holders of Quintiles common
stock are entitled to vote. In the event of the liquidation, dissolution or
winding up of Quintiles, holders of Quintiles common stock are entitled to
receive on a pro rata basis any assets remaining after provision for payment of
creditors and after payment of any liquidation preference to holders of
Quintiles preferred stock.
The authorized preferred stock of Quintiles is available for issuance from
time to time in one or more series at the discretion of the Quintiles board of
directors without shareholder approval. The Quintiles board of directors has the
authority to prescribe for each series of preferred stock (1) the number of
shares in that series, (2) the voting rights (if any) to which such shares in
that series are entitled, (3) the consideration for such shares in that series
and (4) the designations, powers, preferences and relative, participating,
optional or other special rights, and such qualifications, limitations or
restrictions of the shares in that series. Depending upon the rights of such
preferred stock, the issuance of preferred stock could have an adverse effect on
holders of common stock by delaying or preventing a change in
81
<PAGE> 90
control of the company, making removal of the present management of the company
more difficult or resulting in restrictions upon the payment of dividends and
other distributions to the holders of its common stock.
ENVOY's charter authorizes 48,000,000 shares of common stock, no par value,
all of the same class, of which 21,588,861 shares were outstanding on January
26, 1999. The charter also authorizes the board of directors to issue 12,000,000
shares of preferred stock, no par value, of which 4,800,000 shares are
designated as Series A preferred stock and 3,730,233 shares are designated as
ENVOY Series B convertible preferred stock. Currently 2,800,000 shares of Series
B convertible preferred stock are issued and outstanding. Moreover, the charter
grants broad authority to the ENVOY board of directors to determine the number
of shares, designations, powers, preferences, rights, qualifications,
limitations and restrictions of such undesignated preferred stock without vote
or action by the shareholders. Subject to the rights of the holders of the
preferred stock, each holder of ENVOY common stock is entitled to such
dividends, if any, as may be declared by ENVOY's board of directors. Each holder
of ENVOY common stock has one vote per share on all matters on which holders of
ENVOY common stock are entitled to vote. Each holder of ENVOY Series B
convertible preferred stock has one vote per share on all matters on which
holders of ENVOY Series B convertible preferred stock are entitled to vote. The
holders of ENVOY Series B convertible preferred stock are entitled to vote with
respect to the merger at the special meeting both as a separate voting class and
as a group with the holders of ENVOY common stock. Upon the liquidation or
dissolution of ENVOY, subject to preferences that may be applicable to any
series of preferred stock, the holders of ENVOY common stock are entitled to
share ratably in all assets available for distribution to shareholders. There
are no preemptive or other subscription rights, conversion rights, or redemption
or sinking fund provisions with respect to shares of ENVOY common stock. All of
the outstanding shares of ENVOY common stock are fully paid and nonassessable.
SIZE OF THE BOARD OF DIRECTORS
Under North Carolina law, although changes in the number of directors in
general must be approved by a majority of the outstanding shares, the board of
directors may (1) increase or decrease the number of directors by not more than
30% during any 12-month period or (2) fix the exact number of directors within a
stated range set forth in the articles of incorporation or bylaws. Quintiles'
articles of incorporation set a range for board size from nine to 15 members,
and the bylaws permit a majority of the directors to approve changes in board
size within that range. The Quintiles board of directors currently consists of
13 directors.
Pursuant to Tennessee law, a corporation's charter or bylaws may provide
that the board of directors has the power to fix or change the number of
directors, including increasing or decreasing the number of directors. Absent
such a provision, generally only the shareholders may fix or change the number
of directors. However, the charter or bylaws of a Tennessee corporation may
establish a variable range for the size of the board of directors by fixing a
minimum and a maximum number of directors. If a variable range is established,
the number of directors may be fixed or changed from time to time, within the
minimum and maximum, by the shareholders or the board of directors. ENVOY's
charter and bylaws provide that the aggregate number of directors of ENVOY must
be not less than five (5) nor more than fifteen (15), with the precise number of
directors determined from time to time by a majority of the ENVOY directors then
in office, provided that the number of directors will
82
<PAGE> 91
not be reduced so as to shorten the term of any director in office at the time.
The ENVOY board of directors currently consists of eight (8) directors.
CLASSIFIED BOARD OF DIRECTORS
A classified board of directors is one to which a certain number, but not
all, of the directors are elected on a rotating basis each year. A North
Carolina corporation may classify its board into two, three or four classes.
Changing the board of directors, and thus control of a corporation, is lengthier
and more difficult with a classified board. The Quintiles board of directors
currently is divided into three classes, each serving three year terms.
A Tennessee corporation may stagger the terms of directors by dividing the
total number of directors into two (2) or three (3) groups, with each group
containing one half (1/2) or one third (1/3) of the total, as near as may be.
ENVOY's board of directors is divided into three classes, and directors are
elected to serve staggered three-year terms. According to both the charter and
bylaws of ENVOY, the total number of directors is to be divided among the three
classes in as nearly equal numbers as is permitted by the then total number of
directors constituting the entire board of directors.
CUMULATIVE VOTING
Cumulative voting permits a shareholder to cumulate his total shareholder
votes for a single candidate in an election of directors. Cumulative voting
could increase the chances that a minority shareholder could designate a member
to the board of directors. Under North Carolina law, the right to cumulative
voting depends upon the date of incorporation and a corporation's status as a
public or private company. Quintiles shareholders are not entitled to cumulate
their votes. Under Tennessee law, shareholders do not have the right to cumulate
their votes for directors unless the charter so provides. ENVOY's charter does
not confer the right to cumulate votes upon its shareholders.
REMOVAL OF BOARD OF DIRECTORS; FILLING VACANCIES
Pursuant to the Quintiles articles of incorporation, the shareholders can
remove a director only with the approval of two-thirds of the voting power of
all shares entitled to vote in the election of directors, except that where a
director was elected by the holders of one class or series of stock, or a group
of such class or series, only the members of that voting group may vote to
remove him. Quintiles' articles of incorporation further specify that only the
board of directors may fill vacancies on the board of directors.
ENVOY's charter provides that ENVOY's directors may be removed at any time,
but only for cause and only by the affirmative vote of the holders of a majority
of the voting stock, considered for this purpose as one class, at a meeting of
the shareholders called for that purpose (except that, whenever the holders of
any one or more outstanding series of preferred stock have the right, voting
separately as a class, to elect one or more directors who may be removed without
cause, removal shall require the affirmative vote of the holders of a majority
of the outstanding stock of that series rather than a majority of the
outstanding voting stock of ENVOY as a whole). Any vacancies in the ENVOY board
of directors for any reason and any directorships resulting from any increase in
the number of directors may be filled by the ENVOY board of directors acting by
a majority of the directors then in office, although less than a quorum, and any
directors so chosen shall hold office until the next election of directors (at
which time such person may stand for election in a given class, if applicable)
and until
83
<PAGE> 92
their successors are elected and qualified (except that whenever the holders of
any one or more outstanding series of preferred stock have the right, voting as
a class, to elect one or more directors, the terms of such directors shall
expire at the next succeeding annual shareholder meeting). The term "cause" is
not defined either in ENVOY's charter or in the TBCA. Therefore, any question
concerning the legal standard for "cause" would have to be judicially
determined, and such a determination could be difficult, expensive and time
consuming.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Quintiles' articles of incorporation require the approval of at least
two-thirds of the shareholders entitled to vote on an amendment to the articles
of incorporation. If, however, the proposed amendment is approved by a majority
of the disinterested members of Quintiles' board of directors, then the
amendment will only require the majority approval of the shareholders, or such
greater percentage as required under North Carolina law. A disinterested
director is defined as a member of the Quintiles board of directors who (1) is
not affiliated with a control person, was not nominated by a control person and
was already on the Quintiles board of directors when a control person acquired
its controlling interest or (2) is a successor to a disinterested director who
is not affiliated with a control person, is not nominated by a control person
and who is recommended by a majority of disinterested directors on the Quintiles
board of directors.
Quintiles' bylaws may be amended or repealed by two-thirds of the shares
entitled to vote on an election of directors. The bylaws also permit the
Quintiles board of directors to amend or repeal the bylaws, except that (1) a
bylaw adopted, amended, or repealed by the shareholders may not be readopted,
amended or repealed by the Quintiles board of directors unless they are
authorized to do so by the articles of incorporation or a bylaw adopted by the
shareholders; (2) a bylaw that fixes higher quorum or voting requirements for
the Quintiles board of directors may not be adopted by less than the majority of
the directors in office and may not later be amended by a vote or quorum less
than that required by the applicable bylaw; and (3) if a bylaw fixing higher
voting or quorum requirements was originally adopted by the shareholders, only
the shareholders may amend it unless the bylaws otherwise permit its amendment
or repeal by the Quintiles board of directors.
Under the TBCA, amendments to a corporation's charter require the approval
of the board of directors and shareholders holding a majority of the outstanding
stock of such class entitled to vote on such amendment as a class, unless a
different proportion is specified in the charter or in other provisions of the
TBCA. ENVOY's charter provides that it cannot be amended, either directly or
indirectly, or through merger or share exchange with another corporation, in any
manner that would alter or change the powers, preferences or special rights of
the Series A preferred stock so as to affect the holders thereof adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A preferred stock, voting separately as a class. In
addition, ENVOY's charter provides that the affirmative vote of the holders of
at least two-thirds ( 2/3) of the voting power of the shares entitled to vote at
an election of directors shall be required to amend, alter, modify, or repeal
the provisions of ENVOY's charter regarding the number, class, election and
removal of ENVOY's directors.
ENVOY's bylaws may be altered, amended, repealed or restated, and new
bylaws may be adopted, at any meeting of the shareholders by the affirmative
vote of a majority of the
84
<PAGE> 93
shares represented at such meeting, or by the affirmative vote of a majority of
the members of the board of directors who are present at any regular or special
meeting.
POWER TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
Quintiles' bylaws provide that a special meeting of the shareholders may be
called solely by the board of directors, the Chairman of the Board, the
President or the holders of 25% or more of the voting power of the outstanding
shares of Quintiles stock.
ENVOY's bylaws allow a special meeting of shareholders to be called for any
purpose and at any time by the ENVOY board of directors (or by a duly designated
committee of the board expressly authorized to do so in a board resolution), or
by the holders of at least ten percent (10%) of all the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting
(pursuant to certain conditions set forth in ENVOY's bylaws).
ADVANCE NOTICE OF MAKING NOMINATIONS AT MEETINGS OR FOR RAISING BUSINESS
Quintiles' bylaws set forth a procedure for shareholder nominations of
directors. A Quintiles shareholder entitled to vote generally in elections of
directors may nominate a person for election as a director at a meeting of the
shareholders only pursuant to a written notice sent to the Secretary of
Quintiles (1) not less than 50 nor more than 90 days prior to any annual meeting
of Quintiles shareholders or (2) not later than the 10th business day following
the date the notice of a special meeting of shareholders called for the purpose
of the election of directors is first distributed. Quintiles' bylaws require
written notice of an annual or special meeting of shareholders to be given to
each shareholder of record entitled to vote at the meeting no more than 60 days
nor less than 10 days prior to the meeting. Only business within the stated
purpose(s) described in the meeting notice may be conducted at a special meeting
of Quintiles shareholders. The Quintiles bylaws require any shareholder who
wishes to bring business before a meeting of Quintiles shareholders to provide
written notice to Quintiles not more than 90 nor less than 50 days before the
meeting.
ENVOY's bylaws contain procedures that must be followed for a shareholder
to either nominate individuals for election to ENVOY's board of directors or
submit a proposal at ENVOY's annual meeting of shareholders. Nominations of
persons for election to ENVOY's board of directors must be made by delivering
written notice to the Secretary of ENVOY within a specified time period (one
hundred twenty (120) days in advance of such annual meeting and, with respect to
an election to be held at a special meeting, the close of business on the tenth
day following the date on which notice of such meeting is first given to
shareholders), which notice must set forth certain information about the
shareholder and certain background information about the persons to be
nominated. Similarly, no proposal for a shareholder vote may be submitted to the
shareholders unless the submitting shareholder files with the Secretary of ENVOY
within a specified time period (to be timely, a shareholder's notice must be
delivered to ENVOY within the time limits specified by Rule 14a-8 of the
Exchange Act) a written notice setting forth certain specified information,
including a brief description of the business desired to be brought before the
meeting, the reasons for conducting the business at the meeting, the name and
address of the shareholder making the proposal, the class and number of shares
of ENVOY capital stock beneficially owned by such shareholder, and any material
interest of the shareholder in the business to be conducted.
85
<PAGE> 94
SHAREHOLDER ACTION WITHOUT MEETING
Under the NCBCA, shareholders may act without a meeting if a consent in
writing to such action is signed by all shareholders entitled to vote. The TBCA
provides that any action that may be taken at a shareholders meeting may be
taken without a meeting only if a unanimous written consent setting forth the
matter is signed by each shareholder entitled to vote on the matter. A unanimous
written consent, however, is unattainable by a public company in most
circumstances.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
North Carolina has two primary anti-takeover statutes, the Shareholder
Protection Act and the Control Share Acquisition Act, which govern the
shareholder approval required for certain business combinations. As permitted by
North Carolina law, Quintiles has opted-out of both these provisions. Instead,
Quintiles' articles of incorporation provide that, in the absence of more
restrictive requirements under applicable law, any business combination must be
approved by either: (1) if at least two-thirds of the full Quintiles board of
directors has approved the business combination, the affirmative vote of the
shareholders holding at least a majority of the shares issued and outstanding
and entitled to vote thereon, or (2) a supermajority of the shares, consisting
of at least two-thirds of the shares entitled to vote thereon, and a majority of
a quorum of the board of directors (but less than two-thirds of the full board
of directors).
A "fair price" provision in Quintiles' articles of incorporation
complements this supermajority voting requirement. Under this provision, a
business combination is approved by a supermajority of the shares and a majority
of a quorum, but less than two-thirds, of the full Quintiles board of directors,
shareholders who do not vote to approve the transaction can elect to sell their
shares to the company for cash at a "fair price," as determined by a specified
formula.
Business combinations that trigger the supermajority voting requirements
generally include mergers, dispositions of all or substantially all of the
corporation's assets, and transactions involving control persons, including
combinations with control persons, other combination transactions entered into
at the behest of control persons or other transactions which would have the
result of increasing a person's control of the corporation. A control person
includes any person or entity which, together with its affiliates, owns or
controls at least 10% of any class of Quintiles equity (or securities
convertible into equity), excluding those persons who obtained that level of
control prior to January 1, 1994.
The TBCA provides that the approval of a corporation's board of directors
and of a majority of the outstanding shares of common stock (and other classes
or series, if applicable) entitled to vote thereon would generally be required
to approve a merger, share exchange, or to sell, lease, exchange or otherwise
dispose of substantially all of a corporation's assets. In accordance with the
TBCA, submission of a proposal for any such action by a corporation's board of
directors to its shareholders may be conditioned on any such basis, including,
without limitation, conditions regarding a supermajority voting requirement or
that no more than a certain number of shares indicate that they will seek
dissenters' rights, if such rights are otherwise available.
With respect to a merger or share exchange, the TBCA provides that no vote
of the shareholders of a corporation would be required if the corporation were
the surviving corporation and (i) the charter would remain unchanged after the
transaction, subject to
86
<PAGE> 95
certain exceptions; (ii) each shareholder of the corporation immediately before
the transaction would hold an identical number of shares, with identical rights
and preferences, after the transaction; (iii) the number of voting shares
outstanding immediately after the transaction plus the number of voting shares
issuable as a result of the transaction (either by conversion of securities
issued pursuant to the transaction or the exercise of rights and warrants issued
pursuant to the transaction), would not exceed by more than 20% the number of
voting shares of the surviving corporation outstanding immediately before the
transaction; and (iv) the number of participating shares outstanding immediately
after the transaction, plus the number of participating shares issuable as a
result of the transaction (either by conversion of securities issued pursuant to
the transaction or the exercise of rights and warrants issued pursuant to the
transaction), would not exceed by more than 20% the total number of
participating shares outstanding immediately before the transaction.
Approval of the merger requires the approval of a majority of the
outstanding shares of ENVOY common stock and Series B convertible preferred
stock (voting together as one class) entitled to vote at the ENVOY special
meeting. In addition, approval is required by a majority of the outstanding
shares of ENVOY Series B convertible preferred stock, voting as a separate
voting class.
The Tennessee Business Combination Act provides that a party owning ten
percent (10%) or more of stock in a "resident domestic corporation" is an
"interested shareholder" and cannot engage in a business combination with the
resident domestic corporation unless the combination (1) takes place at least
five years after the interested shareholder first acquired ten percent (10%) or
more of the resident domestic corporation, and (2) either (A) is approved by at
least two-thirds of the noninterested voting shares of the resident domestic
corporation or (B) satisfies certain fairness conditions specified in the
Tennessee Business Combination Act. These provisions apply unless (1) the
business combination is approved by the target corporations' board of directors
before that entity becomes an interested shareholder, or (2) the resident
corporation enacts a charter amendment or bylaw to remove itself entirely from
the Tennessee Business Combination Act. Such a charter amendment or bylaw must
be approved by a majority of the shareholders who have held shares for more than
one year prior to the vote and it may not take effect for at least two years
after the vote. ENVOY has not adopted a provision in its charter or bylaws
removing it from coverage under the Tennessee Business Combination Act.
The Tennessee Business Combination Act further provides an exemption from
liability for officers and directors of resident domestic corporations who do
not approve proposed business combinations or charter amendments and bylaws
removing their corporations from the Tennessee Business Combination Acts
coverage. As long as the officers and directors act in the "good faith belief"
that the proposed business combination would adversely affect their
corporation's employees, customers, suppliers, or the communities in which their
corporation operates, and such factors are permitted to be considered by the
board of directors under the charter, the officers and directors will be exempt
from liability.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Business Combination Act is unconstitutional to the extent that it
applies to target corporations organized under the laws of states other than
Tennessee.
The Tennessee Control Share Acquisition Act ("TCSAA") strips a purchaser's
shares of voting rights any time an acquisition of shares in a covered Tennessee
corporation brings the purchaser's voting power to one-fifth, one-third or a
majority of all voting power. The purchaser's voting rights can be established
only by a majority vote of the other shareholders.
87
<PAGE> 96
The purchaser may demand a special meeting of shareholders to conduct such a
vote. The purchaser can demand such a meeting before making a control share
acquisition only if it holds at least 10% of outstanding shares and announces a
good faith intention to make the control share acquisition. A target corporation
may or may not redeem the purchaser's shares if the shares are not granted
voting rights. The TCSAA applies only to a corporation that has adopted a
provision in its charter or bylaws expressly declaring that the TCSAA will
apply. ENVOY has not adopted any provision in its charter or bylaws electing
protection under the TCSAA.
The United States Court of Appeals for the Sixth Circuit has held the TCSAA
unconstitutional as it applies to target corporations organized under the laws
of states other than Tennessee.
Tennessee's Investor Protection Act ("TIPA") applies to tender offers
directed at corporations (called "offeree companies") that have "substantial
assets" in Tennessee and that are either incorporated in or have a principal
office in Tennessee. The TIPA requires an offeror making a tender offer for an
offeree company to file with the Commissioner of Commerce and Insurance (the
"Commissioner") a registration statement. When the offeror intends to gain
control of the offeree company, the registration statement must indicate any
plans the offeror has for the offeree. The Commissioner may require additional
information material to the takeover offer and may call for hearings. The TIPA
does not apply to an offer that the board of directors of the offeree company
recommends to shareholders.
In addition to requiring the offeror to file a registration statement with
the Commissioner, the TIPA requires the offeror and the offeree company to
deliver to the Commissioner all solicitation materials used in connection with
the tender offer. The TIPA prohibits "fraudulent, deceptive, or manipulative
acts or practices" by either side, and gives the Commissioner standing to apply
for equitable relief to the Chancery Court of Davidson County, Tennessee, or to
any other chancery court having jurisdiction whenever it appears to the
Commissioner that the offeror, the offeree company, or any of its respective
affiliates has engaged in or is about to engage in a violation of the TIPA. Upon
proper showing, the Chancery Court may grant injunctive relief. The TIPA further
provides civil and criminal penalties for violations.
The United States Court of Appeals for the Sixth Circuit has held that the
TIPA is unconstitutional to the extent that it applies to target corporations
organized under the laws of states other than Tennessee.
INDEMNIFICATION AND LIMITATION OF LIABILITY
North Carolina law permits a corporation to indemnify its directors,
officer, employees or agents under either or both a statutory or non-statutory
scheme of indemnification. Under the statutory scheme, a corporation may, with
certain exceptions, indemnify a director, officer, employee or agent of the
corporation who was, is, or is threatened to be made, a party to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative, because of the fact that such person was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. This indemnity may include the obligation to
pay any judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan) and reasonable expenses incurred in
connection with the proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(1) conducted himself in good faith,
88
<PAGE> 97
(2) reasonably believed (a) that any action taken in his official capacity with
the corporation was in the best interest of the corporation or (b) that in all
other cases his conduct at least was not opposed to the corporation's best
interest, and (3) in the case or any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. Whether a director has met the
requisite standard of conduct for the type of indemnification set forth above is
determined by the corporation's board of directors, a committee of directors,
special legal counsel or the shareholders in accordance with the statute. A
corporation may not indemnify a director under the statutory scheme in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in connection with a
proceeding in which a director was adjudged liable on the basis of having
received an improper personal benefit.
In addition to, and separate and apart from the indemnification described
above under the statutory scheme, North Carolina law permits a corporation to
indemnify or agree to indemnify any of its directors, officers, employees or
agents against liability and expenses (including attorneys' fees) in any
proceeding (including proceedings brought by or on behalf of the corporation)
arising out of their status as such or their activities in such capacities,
except for any liabilities or expenses incurred on account of activities that
were, at the time taken, known or believed by the person to be clearly in
conflict with the best interests of the corporation. Quintiles' bylaws provide
for indemnification to the fullest extent permitted under North Carolina law,
provided, however, that Quintiles will indemnify any person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the board of directors. Accordingly, Quintiles
may indemnify its directors, officers, and employees in accordance with either
the statutory or non-statutory standard.
In addition, North Carolina law requires a corporation, unless its articles
of incorporation provide otherwise, to indemnify a director or officer who has
been wholly successful, on the merits or otherwise, in the defense of any
proceeding to which such director or officer was a party. Unless prohibited by
the articles of incorporation, a director or officer also may make application
and obtain court-ordered indemnification if the court determines that such
director or officer is fairly and reasonably entitled to such indemnification.
Finally, North Carolina law provides that a corporation may purchase and
maintain insurance on behalf of an individual who is or was a director, officer,
employee or agent of the corporation against certain liabilities incurred by
such persons, whether or not the corporation is otherwise authorized under North
Carolina law to indemnify such party. Quintiles currently maintains directors'
and officers' insurance policies covering its directors and officers.
As permitted by North Carolina law, Quintiles' articles of incorporation
limits the personal liability of directors for monetary damages for breaches of
duty as a director, provided that, under North Carolina law, such limitation
will not apply to (1) acts or omissions that the director at the time of the
breach knew or believed were clearly in conflict with Quintiles' best interests,
(2) any liability for unlawful distributions under North Carolina law, (3) any
transaction from which the director derived an improper personal benefit or (4)
acts or omissions occurring prior to the date the provision became effective.
The TBCA provides, in certain situations, for mandatory and permissive
indemnification of directors and officers. The TBCA provides that statutory
indemnification is not to be deemed exclusive of any other rights to which a
director or officer seeking indemnification may be entitled; provided, however
that the TBCA states that no indemnification may be
89
<PAGE> 98
made if a final adjudication adverse to the director or officer establishes his
or her liability (1) for any breach of loyalty to the corporation or its
shareholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or (3) for unlawful
distributions. ENVOY's charter and bylaws contain provisions obligating ENVOY to
indemnify its directors to the fullest extent permitted by the TBCA.
In addition, the TBCA provides that a corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer, employee
or agent of the corporation, or who, while a director, officer, employee or
agent of the corporation, is or was serving at the request of the corporation as
a director, officer, employee or agent of the corporation against liability
asserted against or incurred by the individual in that capacity or arising from
the individual's status as a director, officer, employee or agent, whether or
not the corporation would have the power to indemnify, the individual against
the same liability under the TBCA. ENVOY currently maintains directors' and
officers' insurance polices covering its directors and officers.
ENVOY'S charter and its bylaws provide that ENVOY shall indemnify against
liability, and advance expenses to, any present or former director or officer of
ENVOY to the fullest extent allowed by the TBCA, as amended from time to time,
or any subsequent law, rule or regulation adopted in lieu thereof. Additionally,
the charter provides that no director shall be personally liable to ENVOY or any
of its shareholders for monetary damages for breach of any fiduciary duty except
for liability arising from (1) any breach of a director's duty of loyalty to
ENVOY or its shareholders, (2) acts or omissions not in good faith or which
involved intentional misconduct or a knowing violation of law, (3) any unlawful
distributions, or (4) receiving any improper personal benefit. ENVOY has entered
into indemnification agreements with each of its directors and executive
officers.
DIVIDENDS AND REPURCHASE OF SHARES
North Carolina law dispenses with the concepts of par value of shares as
well as statutory definitions of capital, surplus and similar terms.
Under North Carolina law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and redemptions or
repurchases of its shares) if it would result in either: (1) the corporation
being unable to pay its debts when they become due or (2) the corporation's
assets being less that the sum of its liabilities plus any preferential
liquidation rights of shareholders. A director of a North Carolina corporation
may be personally liable to the corporation to the extent that the amount of the
distribution exceeds such permissible amounts if it is established that he did
not perform his duties as a director in good faith with reasonable care in a
manner which he believes to be in the best interests of the corporation. A
director held liable for unlawful distributions is entitled to contribution from
other directors voting in favor of the distribution and reimbursement from each
shareholder of the amount which the shareholder accepted with knowledge the
distribution was unlawful.
The TBCA provides that a corporation generally may make dividends or other
distributions to its shareholders unless after the distribution either (1) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (2) the corporation's assets would be less than the sum of
its liabilities plus the amount that would be needed to satisfy the preferential
dissolution rights of its preferred stock. A director of a Tennessee corporation
may be personally liable to the corporation to the extent that the amount of the
distribution exceeds such permissible amounts if it is established that he did
90
<PAGE> 99
not perform his duties as a director in good faith with reasonable care in a
manner which he believes to be in the best interests of the corporation. A
director held liable for unlawful distributions is entitled to contribution from
other directors voting in favor of the distribution and reimbursement from each
shareholder of the amount which the shareholder accepted with knowledge the
distribution was unlawful. ENVOY has never declared or paid any cash dividends
on the ENVOY common stock, and the merger agreement prohibits ENVOY from
declaring or paying dividends before completion of the merger.
DISSENTERS' APPRAISAL RIGHTS
Under North Carolina law, a shareholder of a corporation participating in
certain major corporate transactions may, under varying circumstances be
entitled to appraisal rights, pursuant to which such shareholder may receive
cash in the amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. In North
Carolina, appraisal rights are also available for certain amendments to a
corporation's articles of incorporation.
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales) and certain
amendments to the charter that materially and adversely affect rights in respect
of a dissenter's shares. Dissenters' rights are not available as to any shares
which are listed on an exchange registered under Section 6 of the Exchange Act
or are "national market system" securities as defined in rules promulgated
pursuant to the Exchange Act. The ENVOY common stock is listed on The Nasdaq
Stock Market; consequently, dissenters' rights are not currently available to
the holders of ENVOY common stock. In addition, pursuant to the stock voting
agreement, each holder of ENVOY Series B convertible preferred stock irrevocably
waived the right to dissent, notice of dissenters' rights and all other such
rights arising under Tennessee law.
RIGHTS PLAN
Quintiles does not have a shareholder rights plan. By contrast, ENVOY has a
shareholder rights plan. In accordance with and pursuant to the ENVOY Rights
Agreement, dated June 1, 1995, as amended (the "ENVOY Rights Agreement"), one
stock purchase right (a "Right") is issued with each share of ENVOY common stock
issued. Each Right, when it first becomes exercisable, entitles the holder to
purchase from ENVOY one-tenth of one share of Series A preferred stock at an
initial exercise price of $60.00 per tenth of a share (the "Exercise Price"),
subject to adjustment.
Initially, the Rights will not be exercisable or transferable apart from
the shares of ENVOY common stock with respect to which they are or have been
distributed, and will be evidenced only by the certificates representing such
shares. The Rights will become exercisable and transferable apart from ENVOY
common stock on a date (the "Exercisability Date") that is the earlier of (1)
the tenth day following the Stock Acquisition Date, defined as the close of
business on the day a public announcement has been made that a person or group
of affiliated or associated persons has become an Acquiring Person (as defined
below), or (2) the close of business on such date as a majority of the ENVOY
board of directors shall determine, which date shall be any date following the
commencement of a tender or exchange offer that, if consummated, would result in
a person or group becoming an Acquiring Person. The Rights will be exercisable
from the Exercisability Date until the
91
<PAGE> 100
Expiration Date (which is the earliest of the consummation of the merger, the
close of business on February 2, 2005 or the date on which the Rights are
redeemed by ENVOY), at which time they will expire. With certain exceptions
described in the ENVOY Rights Agreement, a person or group becomes an "Acquiring
Person" when such person or group acquires or obtains the rights to acquire
beneficial ownership of 20% or more of the then outstanding shares of ENVOY
common stock (other than as a result of a Permitted Offer, as defined below), or
10% or more of such shares if (1) the ENVOY board of directors, after reasonable
inquiry and investigation, determines to declare the acquiring person an
"Adverse Person" under guidelines set forth in the ENVOY Rights Agreement or (2)
such 10% ownership is acquired by a person or group during the pendency of, or
prior to the expiration of 20 business days after the termination or expiration
of, a tender or exchange offer for ENVOY common stock. A "Permitted Offer" is a
tender or exchange offer for all outstanding shares of ENVOY common stock upon
terms that a majority of the members of the ENVOY board of directors (who are
not officers of ENVOY and who qualify as "Continuing Directors" under the ENVOY
Rights Agreement) determine to be adequate and in the best interests of ENVOY
and its shareholders. Prior to the Exercisability Date, the Rights will not be
transferable apart from the shares of ENVOY common stock to which they are
attached; hence, the surrender or transfer of any ENVOY common stock certificate
prior to that date will also constitute the transfer of the Rights associated
with the shares represented by such certificate. As soon as practicable after
the Exercisability Date, separate certificates evidencing the Rights will be
mailed to each record holder of shares of ENVOY common stock.
Upon the occurrence of an Exercisability Date, each holder of a Right will
thereafter have the right (the "Flip-In Right") to receive, upon exercise, the
number of shares of Series A preferred stock (or in the discretion of the ENVOY
board of directors, ENVOY common stock) having a market value immediately prior
to the Exercisability Date equal to two times the then current Exercise Price of
the Right; provided, however, that any Right that is (or, in certain
circumstances specified in the ENVOY Rights Agreement, was) beneficially owned
by an Acquiring Person (or any of its affiliates or associates) will become null
and void upon the occurrence of an Exercisability Date. Cash will be paid in
lieu of issuing fractional shares.
If, at any time following a Stock Acquisition Date, either (1) ENVOY is
acquired in a merger or other business combination transaction or (2) ENVOY
sells or otherwise transfers more than 50% of its aggregate assets or earning
power, each holder of a Right (except Rights previously voided as described
above) will thereafter have the right (the "Flip-Over Right") to receive, upon
exercise, shares of common stock of the acquiring person having a value equal to
two times the then current Exercise Price of the Right. The Flip-Over Right
shall be exercisable apart from, and regardless of the exercise or surrender of,
the Flip-In Right.
At any time prior to the earlier to occur of (1) the close of business on
the tenth day (subject to extension by ENVOY's board of directors) following the
Stock Acquisition Date, or (2) the Final Expiration Date, and in certain other
circumstances, the ENVOY board of directors may redeem the Rights in whole but
not in part at a redemption price of $.01 per Right.
At any time prior to the Exercisability Date, the ENVOY board of directors
may amend any provision of the ENVOY Rights Agreement in any manner. Thereafter,
the ENVOY board of directors may amend the ENVOY Rights Agreement in certain
respects, including generally (1) to shorten or lengthen any time period under
the ENVOY Rights Agreement
92
<PAGE> 101
or (2) in any manner that the ENVOY board of directors deems necessary or
desirable, so long as such amendment is consistent with and for the purpose of
fulfilling the objectives of the ENVOY board of directors in originally adopting
the ENVOY Rights Agreement. Certain amendments (including changes to the
redemption price, Exercise Price, Expiration Date, or number of shares for which
a Right is exercisable), whether prior to the Exercisability Date or thereafter,
are permitted only upon approval by a majority of the members of the ENVOY board
of directors.
In connection with the proposed merger and pursuant to the ENVOY Rights
Agreement, ENVOY and First Union National Bank executed Amendment No. 1 (the
"Rights Amendment") to the ENVOY Rights Agreement, effective as of December 15,
1998. The Rights Amendment excludes the following actions or occurrences from
triggering an Exercisability Date, a Stock Acquisition Date or the qualification
of a Person as an Acquiring Person: (1) the public announcement, public
disclosure, execution and delivery or amendment of the merger agreement or the
stock voting agreement, (2) the performance by any party of its obligations
under the merger agreement or the stock voting agreement, (3) the acquisition of
beneficial ownership of ENVOY common stock by Quintiles or QELS pursuant to or
in connection with the merger or the stock voting agreement or (4) the
consummation of the other transactions contemplated by the merger agreement or
the stock voting agreement. In addition, the Rights Amendment narrows the time
frame during which the Rights will be exercisable and excludes transactions
contemplated by the merger agreement or the stock voting agreement from the
restrictions on consummating any share exchange, merger, sale or transfer with a
party that does not have a sufficient number of authorized shares of common
stock issued or reserved to permit the exercise in full of the Rights.
93
<PAGE> 102
PROPOSAL TWO
QUINTILES SHAREHOLDERS
AMENDMENT TO QUINTILES' AMENDED AND RESTATED
ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF SHARES OF
AUTHORIZED COMMON STOCK
Under Quintiles' Amended and Restated Articles of Incorporation, Quintiles
is authorized to issue up to 200,000,000 shares of Quintiles common stock. The
Quintiles board of directors has approved an amendment to Quintiles' articles of
incorporation that increases this maximum number of authorized shares of
Quintiles common stock by 300,000,000 shares to a total of 500,000,000 shares
and recommended approval by the Quintiles shareholders. If the Quintiles
shareholders do not approve the Common Stock Amendment, then the number of
authorized shares of Quintiles common stock will remain at 200,000,000.
The purpose of the proposed Common Stock Amendment is to provide sufficient
shares for corporate purposes, including possible future acquisitions, benefit
plans, recapitalizations, stock splits and other corporate purposes, although no
such use currently is planned. Once authorized, the additional shares of
Quintiles common stock may be issued by the Quintiles board of directors without
further action by the Quintiles shareholders, unless such action is required by
law or applicable stock exchange requirements. Accordingly, this solicitation
may be the only opportunity for the Quintiles shareholders to take action in
connection with such acquisitions, benefit plans, recapitalizations and other
corporate actions. As of January 21, 1999, 78,040,290 shares of Quintiles common
stock were issued and outstanding, 3,474,250 shares were reserved for issuance
upon conversion of Quintiles' 4.25% Convertible Subordinated Notes due 2000,
approximately 10,634,763 shares were reserved for issuance under Quintiles'
stock option plans, approximately 285,162 shares were reserved for issuance
under Quintiles Employee Stock Purchase Plan, 5,122,623 shares are to be
exchanged in the PMSI Transaction and 28,437,411 shares are to be exchanged in
the merger for shares of ENVOY capital stock. Thus, of the 200,000,000 shares of
Quintiles common stock currently authorized, approximately 74,005,501 shares
would be unissued and unreserved if the Common Stock Amendment is not approved
and the merger is completed.
The resolution to be considered by the Quintiles shareholders at the
special meeting reads as follows:
"RESOLVED, that Article IV, Section 4.1, of the Amended and Restated
Articles of Incorporation of Quintiles Transnational Corp. should be amended to
read in full as follows:
Section 4.1. Total Number of Shares of Stock. The total number of
shares of capital stock of all classes that the Corporation shall have the
authority to issue is 525,000,000 shares. The authorized capital stock is
divided into 25,000,000 shares of preferred stock, having $.01 par value
(the "Preferred Stock"), and 500,000,000 shares of common stock, having
$.01 par value (the "Common Stock").
FURTHER RESOLVED, that the proper officers of the Corporation are hereby
authorized and directed, after shareholder approval of the proposed amendment,
to prepare (or have prepared) and to execute Articles of Amendment to the
Amended and Restated Articles of Incorporation, and deliver and to file such
Articles of Amendment with the North Carolina Secretary of State and to take
such additional actions as they or any of them may
94
<PAGE> 103
consider necessary or appropriate to enable the Corporation to carry out the
intent and purposes of the foregoing resolutions."
North Carolina law requires the Quintiles shareholders to approve this
proposal. Unless authority has been withheld, the proxy agents intend to vote
FOR approval of the Common Stock Amendment. Approval of the Common Stock
Amendment requires the affirmative vote, either in person or by proxy, of at
least a majority of all outstanding shares of Quintiles common stock entitled to
vote at the special meeting. An abstention, withholding of authority to vote or
broker non-vote will count for purposes of establishing a quorum with respect to
this matter at the special meeting, will have the same legal effect as an
"against" vote and will be counted in determining whether the proposal has
received the required shareholder vote.
THE QUINTILES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE COMMON STOCK AMENDMENT.
FUTURE SHAREHOLDER PROPOSALS
If the merger is consummated, the ENVOY shareholders will become
shareholders of Quintiles. Pursuant to Rule 14a-8 promulgated under the Exchange
Act, Quintiles shareholders may present proposals for inclusion in the Quintiles
proxy statement for consideration at the next annual meeting of its shareholders
by submitting their proposals to Quintiles in a timely manner. ENVOY
shareholders who become shareholders of Quintiles may present proposals for
inclusion in the Quintiles proxy statement for its 2000 annual meeting, as the
date for inclusion in the proxy statement for the 1999 annual meeting has
already passed. Any such proposal must comply with Rule 14a-8.
LEGAL MATTERS
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., will issue a
legal opinion concerning the legality of the shares of Quintiles to be issued to
ENVOY shareholders. Smith Anderson lawyers own in the aggregate approximately
4,200 shares of Quintiles common stock. Certain of the tax consequences of the
merger will be passed upon as of the effective time of the merger by Bass, Berry
& Sims PLC, as counsel to ENVOY, and Smith, Anderson, Blount, Dorsett, Mitchell
& Jernigan, L.L.P., as counsel to Quintiles.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Quintiles'
consolidated financial statements included in its Current Report on Form 8-K
dated January 27, 1999, as set forth in their report, which is incorporated by
reference in this Joint Proxy Statement/ Prospectus. Quintiles' consolidated
financial statements are incorporated by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
Representatives of Arthur Andersen LLP, Quintiles' current independent
public accountants, are expected to be present at the Quintiles special meeting,
will have the opportunity to make a statement at such meeting if they desire to
do so and are expected to be available to respond to appropriate questions.
95
<PAGE> 104
Ernst & Young LLP, independent auditors, have audited ENVOY's consolidated
financial statements included in Quintiles' Current Report on Form 8-K dated
February 17, 1999, as set forth in their report, which is incorporated by
reference in this Joint Proxy Statement/Prospectus. The financial statements of
Professional Office Services, Inc. and XpiData, Inc. (both of which were
acquired by ENVOY in February 1998 in business combinations accounted for as
poolings-of-interests), incorporated by reference in this Joint Proxy
Statement/Prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto. ENVOY's
consolidated financial statements are incorporated by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting and
auditing.
Representatives of Ernst & Young LLP, ENVOY's current independent auditors,
are expected to be present at the ENVOY special meeting, will have the
opportunity to make a statement at the special meeting if they desire to do so
and are expected to be available to respond to appropriate questions.
WHERE YOU CAN FIND MORE INFORMATION
Quintiles and ENVOY file annual, quarterly and other periodic reports,
proxy statements and other information with the SEC. You may read and copy any
of these materials at the SEC's public reference room in Washington, D.C., New
York, New York and Chicago, Illinois. You may obtain information on the
operation of the public reference room by calling the SEC at 1-800-SEC-0330. You
also can find Quintiles' and ENVOY's SEC filings on the SEC's web site at
http://www.sec.gov or from commercial document retrieval services. Reports,
proxy statements and other information with respect to Quintiles and ENVOY are
also available for inspection at the office of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
The SEC allows Quintiles and ENVOY to incorporate by reference into this
Joint Proxy Statement/Prospectus the information each company files with the
SEC. This means that we can disclose important information to you by referring
you to those documents. Any information we incorporate by reference is
considered part of this Joint Proxy Statement/Prospectus, and any information we
later file with the SEC will automatically update and supersede the information
in this Joint Proxy Statement/Prospectus.
We incorporate by reference in this Joint Proxy Statement/Prospectus and
refer you to the documents listed below:
FOR QUINTILES (FILE NO. 000-23520):
1. Quintiles' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. Quintiles' Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998;
3. Quintiles' Current Reports on Form 8-K dated February 2, 1998,
February 4, 1998, February 26, 1998, February 26, 1998 (as amended March
20, 1998 on Form 8-K/A), March 20, 1998, April 22, 1998, July 22, 1998,
October 21, 1998, December 16, 1998, December 17, 1998, January 27, 1999
(as amended on February 17 on Form 8-K/A), January 27, 1999 and February
17, 1999;
96
<PAGE> 105
4. The description of Quintiles common stock contained in its
Registration Statement on Form 8-A, filed with the SEC on February 28, 1994
and amended on April 11, 1994; and
5. All other documents Quintiles files with the SEC pursuant to Section
13(a), 13(c) or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and before the end of the Quintiles special
meeting.
You may request a copy of these filings, at no cost, by writing or
telephoning Quintiles at the following:
Investor Relations
Attention: Greg Connors
Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 200
Durham, North Carolina 27703-8411
(919) 998-2000
If you request any incorporated documents from Quintiles, they will be
mailed to you by first class mail, or another equally prompt means, within one
business day after your request is received.
FOR ENVOY (FILE NO. 000-25062):
1. ENVOY's Annual Report on Form 10-K (as amended on November 20, 1998
on Form 10-K/A thereto) for the fiscal year ended December 31, 1997;
2. ENVOY's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1998 (as amended November 20, 1998 on Form 10-Q/A thereto), June
30, 1998 (as amended November 20, 1998 on Form 10-Q/A thereto) and
September 30, 1998;
3. ENVOY's Current Reports on Form 8-K dated February 23, 1998, February
27, 1998 (as amended May 5, 1998 and November 16, 1998 on Forms 8-K/A
thereto), July 2, 1998, December 17, 1998, December 22, 1998, February 9,
1999 and February 17, 1999;
4. The description of ENVOY common stock contained in its registration
statement on Form 10 filed on November 1, 1994, as amended through
Post-Effective Amendment No. 4, filed on May 4, 1995; and
5. All other documents ENVOY files with the SEC pursuant to Section
13(a), 13(c) or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/ Prospectus and before the end of the ENVOY special
meeting.
You may request a copy of these filings, at no cost, by writing or
telephoning ENVOY at the following:
Investor Relations
Attention: Rhonda Holland
ENVOY Corporation
Two Lakeview Place
15 Century Boulevard, Suite 600
Nashville, Tennessee 37214
(615) 885-3700
97
<PAGE> 106
If you request any incorporated documents from ENVOY, they will be mailed
to you by first class mail or another equally prompt means, within one business
day after your request is received.
You should also note that the SEC considers this Joint Proxy
Statement/Prospectus to be part of a Registration Statement filed with the SEC
(Registration No. 333- ). Since this Joint Proxy Statement/Prospectus
omits certain portions of the information provided in the Registration
Statement, we also refer you to that document.
Quintiles has supplied the information contained in this Joint Proxy
Statement/ Prospectus relating to Quintiles, and ENVOY has supplied the
information relating to ENVOY.
Any statement contained in a document incorporated, or deemed to be
incorporated, by reference herein or contained in this Joint Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is, or
is deemed to be, incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
98
<PAGE> 107
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acquiring Person.................... 92
Acquisition Transaction............. 71
Affiliate Letters................... 66
Average Bonus....................... 60
Closing Date........................ 62
Code................................ 27
Commissioner........................ 88
Common Stock Amendment.............. 41
Continuing Directors................ 92
Continuing Employees................ 77
CVP................................. 79
EBIT................................ 57
EBITDA.............................. 52
EDI................................. 7
effective time of the merger........ 62
Engagement Letter................... 59
ENVOY capital stock................. 62
ENVOY Comparable Companies.......... 52
ENVOY Forecasts..................... 56
ENVOY Meeting Date.................. 75
ENVOY Rights Agreement.............. 91
ERISA............................... 69
Excess Parachute Payments........... 60
Exchange Act........................ 65
Exchange Agent...................... 63
Exercisability Date................. 91
Exercise Price...................... 91
Flip-In Right....................... 92
Flip-Over Right..................... 92
FTC................................. 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Goldman Sachs....................... 10
Healthcare Information Companies.... 52
Healthcare Information Services
Transactions...................... 53
HSR Act............................. 14
IBES................................ 52
IRS................................. 27
LTM EBITDA.......................... 52
Maximum Amount...................... 61
Morgan Stanley Opinion.............. 50
NCBCA............................... 81
PMSI................................ 8
PMSI Transaction.................... 79
Permitted Offer..................... 92
QELS Corp........................... 62
Quintiles Meeting Date.............. 76
Quintiles Comparable Companies...... 52
Registration Statement.............. 73
Right............................... 91
Securities Act...................... 66
Selected Companies.................. 57
Selected Transactions............... 57
Stock Acquisition Date.............. 91
Superior Proposal................... 72
Synergies........................... 56
Tax Opinions........................ 64
TBCA................................ 78
TCSAA............................... 87
TIPA................................ 88
</TABLE>
99
<PAGE> 108
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF
QUINTILES, PMSI AND ENVOY
Introduction to Unaudited Pro Forma Combined Condensed
Financial Data......................................... F-2
Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 1998..................................... F-4
Notes to Unaudited Pro Forma Combined Condensed Balance
Sheet as of September 30, 1998......................... F-5
Unaudited Pro Forma Combined Condensed Statement of
Operations for the nine months ended September 30,
1998................................................... F-9
Notes to Unaudited Pro Forma Combined Condensed Statement
of Operations for the nine months ended September 30,
1998................................................... F-10
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1997........ F-12
Notes to Unaudited Pro Forma Combined Condensed Statement
of Operations for the year ended December 31, 1997..... F-13
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF
QUINTILES AND ENVOY
Introduction to Unaudited Pro Forma Combined Condensed
Financial Data......................................... F-15
Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 1998..................................... F-16
Unaudited Pro Forma Combined Condensed Statement of
Operations for the nine months ended September 30,
1998................................................... F-17
Unaudited Pro Forma Combined Condensed Statement of
Operations for the nine months ended September 30,
1997................................................... F-18
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1997........ F-19
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1996........ F-20
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1995........ F-21
</TABLE>
F-1
<PAGE> 109
QUINTILES, PMSI AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data and
explanatory notes are presented to show the impact on the historical financial
position and results of operations of Quintiles assuming the proposed business
combinations of Quintiles and PMSI, which is to be accounted for using the
purchase method of accounting, and Quintiles and ENVOY, which is to be accounted
for using the pooling of interests method of accounting, had occurred as
discussed below. PMSI prepares its financial statements on the basis of a fiscal
year ending on June 30. ENVOY's year end is December 31. Quintiles' year end is
December 31. To reflect PMSI results on a calendar year basis consistent with
Quintiles, PMSI's historical operating results for the year ended December 31,
1997 are based on PMSI's last two fiscal quarters of its fiscal year ended June
30, 1997, combined with the results of the six months ended December 31, 1997.
PMSI's operating results for the nine months ended September 30, 1998 are based
on PMSI's last two fiscal quarters of its fiscal year ended June 30, 1998 and
the three-month period ended September 30, 1998.
In the PMSI business combination, each share and share option of PMSI
common stock outstanding at the consummation of the purchase will be converted
into the right to receive a fraction of a share of Quintiles common stock that
is equal to $15.40 divided by the average closing price of the Quintiles common
stock during the 10 trading days ending on the day that is two days prior to the
consummation of the PMSI purchase (the "Average Trading Price"). Quintiles will
pay cash in lieu of fractional shares. Since the number of shares to be issued
in the PMSI business combination will not be known until the last business day
prior to its completion, the unaudited pro forma combined condensed financial
data assumes a hypothetical PMSI exchange ratio of 0.308, which is based on a
hypothetical Quintiles common stock Average Trading Price of $50.00.
In the ENVOY business combination, each outstanding share of ENVOY common
stock and ENVOY Series B convertible preferred stock will be exchanged for 1.166
shares of Quintiles common stock. Based on a total of approximately 24,374,000
shares of ENVOY common stock and preferred stock outstanding on December 14,
1998, Quintiles would issue approximately 28,421,000 shares of Quintiles common
stock in the merger. Quintiles will pay cash in lieu of fractional shares.
Quintiles will also convert any remaining unexercised ENVOY stock options into
Quintiles stock options at the ENVOY exchange ratio.
The unaudited pro forma combined condensed balance sheet reflects the
combined historical balance sheets of Quintiles, PMSI and ENVOY at September 30,
1998. The unaudited pro forma combined condensed statements of operations for
the year ended December 31, 1997 and for the nine months ended September 30,
1998 reflect the combined historical operating results of Quintiles, PMSI
(prepared as discussed in paragraph one above) and ENVOY for such periods.
The pro forma adjustments related to the unaudited pro forma combined
condensed balance sheet have been computed assuming the transactions were
consummated at the end of the most recent period for which a balance sheet is
presented. The pro forma adjustments related to the unaudited pro forma combined
condensed statements of operations have been computed assuming the transactions
were consummated at the beginning of the most recent fiscal period presented.
As applicable, the unaudited pro forma combined condensed financial data
reflect preliminary purchase price allocations related to the PMSI business
combination. Estimates
F-2
<PAGE> 110
relating to the fair value of certain assets and liabilities have been made as
more fully described in the notes to the unaudited pro forma combined condensed
financial data. The final purchase price allocation will be made on the basis of
appraisals and evaluations once the purchase is consummated and, therefore, the
actual purchase price allocation is likely to differ from that reflected in the
unaudited pro forma combined condensed financial data.
The unaudited pro forma combined condensed operating results presented do
not reflect any incremental direct costs, potential cost savings or revenue
enhancements which may result from the consolidation of certain operations of
Quintiles and PMSI, Quintiles and ENVOY, or Quintiles, PMSI and ENVOY.
Therefore, the unaudited pro forma combined condensed statements of operations
may not be indicative of the results of past or future operations. No assurances
can be given with respect to the ultimate level of cost savings and/or revenue
enhancements which may be realized following consummation of the proposed
transactions.
The historical financial data of PMSI shown in the unaudited pro forma
combined condensed financial data and explanatory notes reflect the impact on
the historical results of operations of certain operations sold by PMSI prior to
the consummation of the purchase. The pro forma portfolio changes reflect the
elimination of the results of operations of these disposed businesses. PMSI's
disposals of (i) its non-US operating assets, sold on December 3, 1998 and
August 5, 1998; (ii) IMR S.A. ("IMR"), its French point of sale marketing
business sold on March 31, 1998; (iii) its interest in a joint venture in the
U.S. with Source Informatics Inc. ("Source," and the joint venture "Source US")
and its over-the-counter businesses (the "OTC Business"), sold on December 15,
1997; (iv) and Bugamor Publishing, sold on July 30, 1997, are collectively
referred to as "Other Dispositions."
The Other Dispositions are reflected in the September 30, 1998 unaudited
PMSI historical balance sheet, except for the December 3, 1998 disposal, which
disposal is not material to the September 30, 1998 unaudited PMSI historical
balance sheet. The unaudited pro forma combined condensed statements of
operations exclude the results of operations of the Other Dispositions for the
year ended December 31, 1997 and the nine months ended September 30, 1998 as if
the Other Dispositions had occurred at the beginning of the period presented.
The unaudited pro forma combined condensed financial data are not
necessarily indicative of the results that would have been obtained had the
business combinations occurred on the date indicated. The unaudited pro forma
combined condensed financial data should be read in conjunction with the related
historical financial statements and notes thereto of Quintiles, PMSI and ENVOY
incorporated by reference or included in this Joint Proxy Statement/Prospectus.
F-3
<PAGE> 111
QUINTILES, PMSI AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUINTILES,
QUINTILES PMSI AND
AND PMSI ENVOY
HISTORICAL PRO FORMA PRO HISTORICAL PRO FORMA PRO
QUINTILES PMSI ADJUSTMENTS FORMA ENVOY ADJUSTMENTS FORMA
--------- -------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 88,499 $ 42,330 $ 23,550(2),(4) $ 154,379 $ 22,095 $ -- $ 176,474
Accounts receivable and
unbilled services.......... 295,425 5,388 -- 300,813 44,429 -- 345,242
Investments.................. 44,448 97,306 -- 141,754 -- -- 141,754
Prepaid expenses............. 26,931 -- -- 26,931 1,471 -- 28,402
Other current assets......... 10,738 1,806 -- 12,544 4,751 -- 17,295
-------- -------- -------- ---------- -------- -------- ----------
Total current assets....... 466,041 146,830 23,550 636,421 72,746 -- 709,167
Property and equipment........ 353,095 3,992 -- 357,087 45,785 -- 402,872
Less accumulated
depreciation................. 113,939 2,290 -- 116,229 26,887 -- 143,116
-------- -------- -------- ---------- -------- -------- ----------
239,156 1,702 -- 240,858 18,898 -- 259,756
Intangibles and other assets:
Intangibles.................. 71,369 9,214 103,880(1) 184,463 82,416 -- 266,879
Investments.................. 59,514 20,435 -- 79,949 268 -- 80,217
Deferred income taxes........ 68,683 162 -- 68,845 -- -- 68,845
Deposits and other assets.... 33,189 5,590 (700)(2) 38,079 4,722 -- 42,801
-------- -------- -------- ---------- -------- -------- ----------
232,755 35,401 103,180 371,336 87,406 -- 458,742
-------- -------- -------- ---------- -------- -------- ----------
Total assets............... $937,952 $183,933 $126,730 $1,248,615 $179,050 $ -- $1,427,665
======== ======== ======== ========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Lines of credit.............. $ 366 $ -- $ -- $ 366 $ -- $ -- $ 366
Accounts payable and accrued
expenses................... 118,819 16,290 12,510(1) 147,619 26,702 20,000(6) 194,321
Credit arrangements,
current.................... 13,519 20 -- 13,539 84 -- 13,623
Unearned income.............. 120,827 7,781 -- 128,608 1,596 -- 130,204
Income taxes and other
current liabilities........ 14,843 -- 73,000(4) 87,843 11,143 -- 98,986
-------- -------- -------- ---------- -------- -------- ----------
Total current
liabilities.............. 268,374 24,091 85,510 377,975 39,525 20,000 437,500
Long-term liabilities:
Credit arrangements, less
current portion............ 153,879 15 -- 153,894 561 -- 154,455
Long-term obligations........ 24,172 49,325 (49,325)(2) 24,172 -- -- 24,172
Deferred income taxes and
other liabilities.......... 26,580 40 2,657(1) 29,277 9,131 -- 38,408
-------- -------- -------- ---------- -------- -------- ----------
204,631 49,380 (46,668) 207,343 9,692 -- 217,035
-------- -------- -------- ---------- -------- -------- ----------
Total liabilities.......... 473,005 73,471 38,842 585,318 49,217 20,000 654,535
Shareholders' equity:
Preferred stock.............. -- -- -- -- 41,300 (41,300)(5) --
Common stock and additional
paid-in-capital............ 356,059 79,997 118,353(1) 554,409 135,258 41,300(5) 730,967
Retained earnings
(deficit).................. 112,379 29,398 (29,398)(1) 112,379 (46,725) (20,000)(6) 45,654
Other equity................. (3,491) 1,067 (1,067)(1) (3,491) -- -- (3,491)
-------- -------- -------- ---------- -------- -------- ----------
Total shareholders'
equity................... 464,947 110,462 87,888 663,297(3) 129,833 (20,000) 773,130
-------- -------- -------- ---------- -------- -------- ----------
Total liabilities and
shareholders' equity..... $937,952 $183,933 $126,730 $1,248,615 $179,050 $ -- $1,427,665
======== ======== ======== ========== ======== ======== ==========
</TABLE>
F-4
<PAGE> 112
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
The unaudited pro forma combined condensed balance sheet is based on the
following adjustments and related assumptions.
The PMSI business combination will be accounted for as a purchase, and as
such, the final purchase price allocations will be made on the basis of
appraisals and evaluations once the purchase is consummated and, therefore, the
actual purchase price allocation is likely to differ from that reflected in the
unaudited pro forma combined condensed balance sheet.
The ENVOY business combination will be accounted for as a pooling of
interests.
NOTE 1
The pro forma preliminary purchase allocation to record the PMSI business
combination is summarized below:
<TABLE>
<S> <C>
Shares of PMSI common stock outstanding.................... 12,407,121(a)
Exchange ratio............................................. 0.308(b)
-----------
Shares of Quintiles common stock assumed issued............ 3,821,393
===========
Share options of PMSI common stock outstanding............. 1,439,700(a)
Exchange Ratio............................................. 0.308(b)
-----------
Share options of Quintiles common stock assumed issued..... 443,428
===========
Consideration paid to PMSI shareholders for:
Quintiles common stock................................... $ 191,070(c)
Quintiles common stock options........................... 7,280(d)
-----------
Subtotal.............................................. 198,350
Non-recurring transaction costs............................ 12,510(e)
-----------
Aggregate purchase price................................... 210,860
Less: historical net assets acquired....................... (110,462)
-----------
Premium to allocate........................................ $ 100,398
===========
Adjustments to fair value of net assets acquired:
Elimination of PMSI historical goodwill.................. $ (9,214)(f)
Intangible asset acquired -- software.................... 6,900(g)
Goodwill................................................. 106,194(g)
-----------
Total Intangibles..................................... 103,880
Elimination of PMSI original debt issuance costs......... (700)Note 2
Non-recurring costs incurred............................. (125)Note 2
Deferred tax liability................................... (2,657)(h)
-----------
$ 100,398
===========
</TABLE>
- -------------------------
(a) Outstanding on September 30, 1998.
(b) Using a hypothetical exchange ratio, based on an assumed Quintiles common
stock Average Trading Price of $50.00, each share and share option of PMSI
common stock outstanding at the consummation of the purchase will be
converted into the right to
F-5
<PAGE> 113
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET -- (CONTINUED)
receive 0.308 of a share of Quintiles common stock. In addition, all vested
and unvested options to purchase PMSI common stock will become options to
acquire Quintiles common stock based on the same exchange ratio. Under the
terms of the PMSI business combination, PMSI shareholders (and option
holders if options are exercised) may elect to defer receipt of half of the
Quintiles common stock to which they are entitled. If this election is
made, as more fully disclosed in the Proxy Statement/Prospectus, the
shareholder will also be entitled to receive a contingent value payment
related to the deferred shares under specified conditions. Such payment
would relate to a decline in price of Quintiles common stock for 75 days
subsequent to closing of the combination, as defined. Any payments made
would be charged to shareholders' equity.
(c) Based upon assumed Quintiles common stock Average Trading Price of $50.00.
(d) The estimated fair value using a Black-Scholes option pricing model based
on the following assumptions:
Expected dividend yield 0%
Risk-free interest rate 4.53%
Expected volatility 40%
Expected life (in years from vest) 1
(e) Non-recurring transaction costs (as currently estimated by management)
consisting of severance (approximately $2.9 million), direct transactions
costs (approximately $4.8 million), consideration for the affirmation and
revision of a preacquisition contingency of PMSI (approximately $4.5
million) and other costs related to the integration of the PMSI business
(approximately $.3 million).
(f) Elimination of the unamortized goodwill of $9,214 recorded by PMSI in
conjunction with its acquisition of Scott-Levin.
(g) The final determination of adjustments to assets and liabilities will be
made based upon the fair values as of the consummation of the purchase and
after appraisals and evaluations are complete. The final amounts are likely
to differ from the estimates provided herein.
(h) Deferred income taxes are based on the intangible software asset
acquired($6,900) using a 38.5% tax rate.
The excess of the purchase price over the historical value of the net
assets acquired was allocated first to identifiable intangible assets with the
remainder recorded as goodwill. Quintiles' Executive Management along with its
outside advisors and the management of PMSI and Scott-Levin performed a review
to identify intangible assets and determine the value, if any, of such assets.
This review resulted in the identification of proprietary software and
proprietary databases (collectively, "software") as intangible assets that would
provide future benefit to the combined companies. The value of the proprietary
software was determined to be incidental and related totally to the proprietary
software's purpose, which was to facilitate the utilization of the proprietary
databases. Based upon the estimated replacement cost, the value of the
proprietary software was estimated to be $6.9 million of the excess of the
purchase price. The value of the proprietary databases was determined to be
dependent on the data with which they are populated. The value of the data is
limited to the period in which it relates. Once more recent data are available,
the value of the prior data is minimal. Based on the age of the data contained
in the proprietary databases, no additional value was ascribed to the identified
intangible asset, software. With software as the only
F-6
<PAGE> 114
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET -- (CONTINUED)
identified intangible asset, the remainder of the excess of the purchase price
was allocated to goodwill.
Quintiles' Executive Management and Board of Directors view this
acquisition as highly strategic, acknowledge the strong value of goodwill and
believe 30 years is an appropriate life for the goodwill. In reaching this
conclusion regarding the goodwill life, Executive Management and the Board of
Directors considered a number of factors. First, Scott-Levin provides
healthcare-related market research services, an industry that has evolved over
the past 35 years and which serves a stable client base, pharmaceutical
companies. Second, Scott-Levin bears a highly respected brand name and operates
in a specialized market with few competitors and significant barriers to entry.
Third, Scott-Levin will form the foundation for Quintiles to expand into the
healthcare informatics industry, an area that management believes will add value
to the Company's existing services and provide opportunities for future growth.
NOTE 2
As a condition to closing of the PMSI purchase, on February 1, 1999 PMSI
completed the redemption of all its outstanding 6.25% Convertible Subordinated
Debentures ($49,325 at September 30, 1998). Management estimates $125 in
non-recurring costs will be incurred in connection with the redemption. In
addition, original debt issuance costs of approximately $700 will be
written-off.
NOTE 3
Reconciliation of change in Shareholders' equity:
<TABLE>
<S> <C>
Beginning balance -- Quintiles.............................. $464,947
Add: Common stock and additional paid-in-capital.......... 198,350
--------
Ending Balance -- Pro Forma Quintiles and PMSI.............. $663,297
========
</TABLE>
NOTE 4
On October 14, 1998, PMSI entered into a forward sale arrangement with CIBC
Oppenheimer ("CIBC") pursuant to which PMSI transfers all of the IMS Health
Incorporated ("IMS") common stock received in its transaction with IMS Health,
receives aggregate proceeds of $73.0 million and places the 1,197,963 shares of
IMS Health common stock with CIBC as collateral against PMSI's delivery
obligation on August 12, 1999. Accordingly, cash and other current liabilities
have been increased $73.0 million on a pro forma basis.
NOTE 5
To reflect that each outstanding share of ENVOY common stock and ENVOY
Series B convertible preferred stock will be exchanged for 1.166 shares of
Quintiles common stock. Based on a total of approximately 24,374,000 shares of
ENVOY common stock and Series B
F-7
<PAGE> 115
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET -- (CONTINUED)
convertible preferred stock outstanding on December 14, 1998, Quintiles would
issue approximately 28,421,000 shares of Quintiles common stock in the merger.
Quintiles will pay cash in lieu of fractional shares.
NOTE 6
To accrue non-recurring transaction costs (as currently estimated by
management), consisting of financial advisor fees (approximately $17.0 million),
accounting and legal fees (approximately $1.5 million) and other direct
transaction costs, such as filing fees, proxy solicitation and proxy printing
and distribution (approximately $1.5 million) which are anticipated to be
incurred in connection with the ENVOY transaction.
F-8
<PAGE> 116
QUINTILES, PMSI AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUINTILES
AND
PRO FORMA PMSI
HISTORICAL PORTFOLIO PMSI HISTORICAL PRO FORMA PRO HISTORICAL
PMSI CHANGES(1) PRO FORMA QUINTILES ADJUSTMENTS FORMA ENVOY
---------- ---------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue........................ $47,170 $(26,786) $20,384 $848,379 $ -- $868,763 $132,763
Costs and expenses:
Direct........................... 25,373 (17,549) 7,824 444,369 -- 452,193 58,875
General and administrative....... 29,065 (17,468) 11,597 274,925 (386)(2) 286,136 29,728
Depreciation and amortization.... 1,182 (651) 531 40,431 3,545(2) 44,507 26,948
Transaction costs................ 1,151 (1,151) -- -- -- --
Research and development......... -- -- -- -- -- -- 1,963
Other............................ 93 (93) -- -- -- -- --
------- -------- ------- -------- ------- -------- --------
56,864 (36,912) 19,952 759,725 3,159 782,836 117,514
------- -------- ------- -------- ------- -------- --------
Income (loss) from operations...... (9,694) 10,126 432 88,654 (3,159) 85,927 15,249
Other income (expense), net........ 8,165 (48) 8,117 (1,917) (7,252)(3)(4) (1,052) (637)
Gain on sale of operations, net.... 50,711 (50,711) -- -- -- -- --
------- -------- ------- -------- ------- -------- --------
58,876 (50,759) 8,117 (1,917) (7,252) (1,052) (637)
------- -------- ------- -------- ------- -------- --------
Income (loss) before income
taxes............................ 49,182 (40,633) 8,549 86,737 (10,411) 84,875 14,612
Income taxes....................... 3,573 (67) 3,506 27,823 (3,381)(4)(5) 27,948 11,653
------- -------- ------- -------- ------- -------- --------
Income before extraordinary
gain(3).......................... $45,609 $(40,566) $ 5,043 $ 58,914 $(7,030) $ 56,927 $ 2,959
======= ======== ======= ======== ======= ======== ========
Basic income before extraordinary
gain per share................... $ 0.77 $ 0.71
======== ========
Diluted income before extraordinary
gain per share................... $ 0.76 $ 0.70
======== ========
Shares used in computing income
before extraordinary gain per
share:
Basic............................ 76,476 80,291
Diluted.......................... 77,987 81,864
<CAPTION>
QUINTILES
PMSI AND
PRO FORMA ENVOY
ADJUSTMENTS(6) PRO FORMA
-------------- ----------
<S> <C> <C>
Net revenue........................ $ -- $1,001,526
Costs and expenses:
Direct........................... -- 511,068
General and administrative....... (1,783)(7) 314,081
Depreciation and amortization.... -- 71,455
Transaction costs................ -- --
Research and development......... -- 1,963
Other............................ -- --
------- ----------
(1,783) 898,567
------- ----------
Income (loss) from operations...... 1,783 102,959
Other income (expense), net........ (1,783)(7) (3,472)
Gain on sale of operations, net.... -- --
------- ----------
(1,783) (3,472)
------- ----------
Income (loss) before income
taxes............................ -- 99,487
Income taxes....................... -- 39,601
------- ----------
Income before extraordinary
gain(3).......................... $ -- $ 59,886
======= ==========
Basic income before extraordinary
gain per share................... $ 0.57
==========
Diluted income before extraordinary
gain per share................... $ 0.54
==========
Shares used in computing income
before extraordinary gain per
share:
Basic............................ 104,833
Diluted.......................... 111,048
</TABLE>
F-9
<PAGE> 117
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS ACTUAL)
NOTE 1
Pro forma portfolio changes are intended to adjust the PMSI portfolio of
businesses, removing results of operations of Other Dispositions to reflect the
ongoing businesses being acquired by Quintiles. Accordingly, these adjustments
to the results of operations for the nine months ended September 30, 1998,
principally affect:
a. the elimination of the operating results of PMSI's non-US operating
assets, which were sold on December 3, 1998 and August 5, 1998;
b. the elimination of the loss from assets held for sale of IMR, which
was sold on March 31, 1998;
c. the elimination of the net gain on the sale of IMR and PMSI's
remaining non-US operating assets;
d. the elimination of non-recurring transaction costs associated with
the sale of IMR and PMSI's remaining non-US operating assets.
NOTE 2
The pro forma purchase accounting adjustments related to the PMSI business
combination are summarized as follows:
<TABLE>
<S> <C>
Depreciation and amortization expense:
To eliminate PMSI historical goodwill amortization........ $ (531)
Amortization of incremental intangible assets............. 3,690
------
$3,159
======
</TABLE>
The identifiable intangible asset (software) is being amortized on a
straight-line basis over five years and goodwill is being amortized on a
straight-line basis over 30 years.
PMSI historical depreciation expense ($386) has been reclassified to be
consistent with the classification used by Quintiles.
F-10
<PAGE> 118
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 -- (CONTINUED)
NOTE 3
The pro forma presentation assumes PMSI's $69.0 million 6.25% Convertible
Subordinated Debentures due 2003, 100% outstanding at January 1, 1998, would
have been redeemed for cash at January 1, 1998. The pro forma interest income is
calculated assuming $69.0 million invested at the average interest rate earned
by Quintiles during the period (approximately 5.3%). The pro forma impact is as
follows:
<TABLE>
<S> <C>
Eliminate interest income on cash used for redemption....... $(2,760)
Eliminate interest expense.................................. 3,132
-------
$ 372
=======
</TABLE>
In its historical statements of operations, PMSI reported an extraordinary
gain of $1,154 from the repurchase of the Subordinated Debentures which is not
reflected in the pro forma combined condensed statement of operations.
NOTE 4
To eliminate the gain of $7,624 (and resulting income tax expense of
$3,126) recorded related to the sale of shares of National Data Corporation.
NOTE 5
Unless otherwise disclosed, income tax expense on pro forma adjustments
(excluding goodwill amortization expense) is reflected using a 38.5% tax rate.
NOTE 6
Non-recurring transaction costs of approximately $20 million (as currently
estimated by management), consisting of financial advisor fees (approximately
$17.0 million), accounting and legal fees (approximately $1.5 million) and other
direct transaction costs such as filing fees, proxy solicitation, and proxy
printing and distribution (approximately $1.5 million), are anticipated to be
incurred in connection with the ENVOY transaction. Such costs will be expensed
by Quintiles upon closing of the combination. Such costs have not been reflected
in the unaudited pro forma combined condensed statement of operations.
NOTE 7
For the nine months ended September 30, 1998, ENVOY historical transaction
related costs ($1,783) have been reclassified as other income (expense) to be
consistent with the classification used by Quintiles.
F-11
<PAGE> 119
QUINTILES, PMSI AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA QUINTILES
HISTORICAL PORTFOLIO PMSI HISTORICAL PRO FORMA AND PMSI HISTORICAL
PMSI CHANGES(1) PRO FORMA QUINTILES ADJUSTMENTS PRO FORMA ENVOY
---------- ---------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue........................ $ 91,677 $(68,186) $23,491 $852,900 $ -- $876,391 $137,605
Costs and expenses:
Direct........................... 49,640 (38,768) 10,872 448,920 -- 459,792 64,247
General and administrative....... 32,923 (20,996) 11,927 277,238 (362)(2) 288,803 32,734
Depreciation and amortization.... 1,566 (858) 708 37,930 4,574(2) 43,212 34,432
In-process R&D writeoff.......... 12,046 (12,046) -- -- -- -- 6,600
Impairment of assets held for
sale........................... 15,333 (15,333) -- -- -- -- --
Income from assets held for
sale........................... (486) 486 -- -- -- -- --
Research and development......... -- -- -- -- -- -- 2,192
-------- -------- ------- -------- ------- -------- --------
111,022 (87,515) 23,507 764,088 4,212 791,807 140,205
-------- -------- ------- -------- ------- -------- --------
Income (loss) from operations...... (19,345) 19,329 (16) 88,812 (4,212) 84,584 (2,600)
Other income (expense):
Interest income.................. 3,849 -- 3,849 8,472 (3,588)(3) 8,733 1,312
Interest expense................. (4,283) 129 (4,154) (8,764) 4,154(3) (8,764) (1,577)
Other............................ -- -- -- (1,985) -- (1,985) --
Gain on sale of operations, net
of loss........................ 36,239 (36,239) -- -- -- -- --
-------- -------- ------- -------- ------- -------- --------
35,805 (36,110) (305) (2,277) 566 (2,016) (265)
-------- -------- ------- -------- ------- -------- --------
Income (loss) before income taxes
and minority interest............ 16,460 (16,781) (321) 86,535 (3,646) 82,568 (2,865)
Minority interest.................. (29) 29 -- -- -- -- --
Income taxes....................... 10,848 (10,366) 482 30,852 (313)(4) 31,021 6,333
-------- -------- ------- -------- ------- -------- --------
Income (loss) from continuing
operations(1).................... $ 5,641 $ (6,444) $ (803) $ 55,683 $(3,333) $ 51,547 $ (9,198)
======== ======== ======= ======== ======= ======== ========
Basic income from continuing
operations per share............. $ 0.76 $ 0.66
Diluted income from continuing
operations per share............. $ 0.74 $ 0.65
Shares used in computing income
from continuing operations per
share:
Basic............................ 73,739 77,799
Diluted.......................... 75,275 79,375
<CAPTION>
QUINTILES
PMSI AND
PRO FORMA ENVOY
ADJUSTMENTS(5) PRO FORMA
-------------- ----------
<S> <C> <C>
Net revenue........................ $ -- $1,013,996
Costs and expenses:
Direct........................... -- 524,039
General and administrative....... -- 321,537
Depreciation and amortization.... -- 77,644
In-process R&D writeoff.......... -- 6,600
Impairment of assets held for
sale........................... -- --
Income from assets held for
sale........................... -- --
Research and development......... -- 2,192
-------- ----------
-- 932,012
-------- ----------
Income (loss) from operations...... -- 81,984
Other income (expense):
Interest income.................. -- 10,045
Interest expense................. -- (10,341)
Other............................ -- (1,985)
Gain on sale of operations, net
of loss........................ -- --
-------- ----------
-- (2,281)
-------- ----------
Income (loss) before income taxes
and minority interest............ -- 79,703
Minority interest.................. -- --
Income taxes....................... -- 37,354
-------- ----------
Income (loss) from continuing
operations(1).................... $ -- $ 42,349
======== ==========
Basic income from continuing
operations per share............. $ 0.42
Diluted income from continuing
operations per share............. $ 0.39
Shares used in computing income
from continuing operations per
share:
Basic............................ 100,753
Diluted.......................... 107,980
</TABLE>
F-12
<PAGE> 120
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS ACTUAL)
NOTE 1
Pro forma portfolio changes are intended to adjust the PMSI portfolio of
businesses, removing results of operations of Other Dispositions to reflect the
ongoing businesses being acquired by Quintiles. Accordingly, these adjustments
to the results of operations for the year ended December 31, 1997, principally
affect:
a. the elimination of non-recurring charges associated with the
write-off of in-process research and development related to the acquisition
of Source's interest in a joint venture in Europe ("Source Europe"), which
was acquired on December 15, 1997, and subsequently sold on December 3,
1998.
b. the elimination of the operating results of PMSI's non-US operating
assets, which were sold on December 3, 1998 and August 5, 1998;
c. the elimination of the impairment of assets held for sale associated
with PMSI's decision to dispose of IMR, which was sold on March 31, 1998;
d. the elimination of operating results of Source US and the OTC
Business, which were sold on December 15, 1997;
e. the elimination of the operating results of Bugamor Publishing, which
was sold on July 30, 1997;
f. the elimination of the gain on the sale of Source US, the OTC
Business and Bugamor Publishing.
In its historical statement of operations, PMSI reported a loss from
discontinued operations of $9.9 million which is not reflected in the pro forma
combined condensed statement of operations.
NOTE 2
The pro forma purchase accounting adjustments related to the PMSI business
combination are summarized as follows:
<TABLE>
<S> <C>
Depreciation and amortization expense:
To eliminate PMSI historical goodwill amortization........ $ (708)
Amortization of incremental intangible asset.............. 4,920
------
$4,212
======
</TABLE>
The identifiable intangible asset (software) is being amortized on a
straight-line basis over five years and goodwill is being amortized on a
straight-line basis over 30 years.
PMSI historical depreciation expense ($362) has been reclassified to be
consistent with the classification used by Quintiles.
F-13
<PAGE> 121
QUINTILES, PMSI AND ENVOY
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 -- (CONTINUED)
NOTE 3
The pro forma presentation assumes PMSI's $69.0 million 6.25% Convertible
Subordinated Debentures due 2003, 100% outstanding at January 1, 1997, would
have been redeemed for cash at January 1, 1997. The pro forma interest income is
calculated assuming $69.0 million invested at the average interest rate earned
by Quintiles during this period (approximately 5.2%). The pro forma impact is as
follows:
<TABLE>
<S> <C>
Eliminate interest income on cash used for redemption....... $(3,588)
Eliminate interest expense incurred by continuing
operations................................................ 4,154
-------
$ 566
=======
</TABLE>
NOTE 4
Income tax expense on pro forma adjustments (excluding goodwill
amortization expense) is reflected using a 38.5% tax rate.
NOTE 5
Non-recurring transaction costs of approximately $20 million (as currently
estimated by management), consisting of financial advisor fees (approximately
$17.0 million), accounting and legal fees (approximately $1.5 million) and other
direct transaction costs such as filing fees, proxy solicitation and proxy
printing and distribution (approximately $1.5 million), are anticipated to be
incurred in connection with the ENVOY transaction. Such costs will be expensed
by Quintiles upon closing of the combination. Such costs have not been reflected
in the unaudited pro forma combined condensed statement of operations.
F-14
<PAGE> 122
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data and
explanatory notes are presented to show the impact on the historical financial
position and results of operations of Quintiles assuming the proposed business
combination of Quintiles and ENVOY, which is to be accounted for using the
pooling of interests method of accounting, had occurred. ENVOY's year end is
December 31. Quintiles' year end is December 31.
In the ENVOY business combination, each outstanding share of ENVOY common
stock and ENVOY Series B convertible preferred stock will be exchanged for 1.166
shares of Quintiles common stock. Based on a total of approximately 24,374,000
shares of ENVOY common stock and preferred stock outstanding on December 14,
1998, Quintiles would issue approximately 28,421,000 shares of Quintiles common
stock. Quintiles will pay cash in lieu of fractional shares. Quintiles also will
convert any remaining unexercised ENVOY stock options into Quintiles stock
options at the exchange ratio.
The unaudited pro forma combined condensed balance sheet reflects the
combined historical balance sheets of Quintiles and ENVOY at September 30, 1998.
The unaudited pro forma combined condensed statements of operations for the
years ended December 31, 1997, 1996 and 1995 and for the nine months ended
September 30, 1998 and 1997 reflect the combined historical operating results of
Quintiles and ENVOY for such periods.
The unaudited pro forma combined condensed results presented do not reflect
any incremental direct costs, potential cost savings or revenue enhancements
which may result from the consolidation of certain operations of Quintiles and
ENVOY. Therefore, the unaudited pro forma combined condensed statements of
operations may not be indicative of the results of past or future operations. No
assurances can be given with respect to the ultimate level of cost savings
and/or revenue enhancements which may be realized following consummation of the
proposed transaction.
The unaudited pro forma combined condensed financial data are not
necessarily indicative of the results that would have been obtained had the
business combination occurred on the dates indicated. The unaudited pro forma
combined condensed financial data should be read in conjunction with the related
historical financial statements and notes thereto of Quintiles and ENVOY
incorporated by reference in this Joint Proxy Statement/Prospectus.
F-15
<PAGE> 123
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL QUINTILES
-------------------- PRO FORMA AND ENVOY
QUINTILES ENVOY ADJUSTMENTS PRO FORMA
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 88,499 $ 22,095 $ -- $ 110,594
Accounts receivable and unbilled
services.............................. 295,425 44,429 -- 339,854
Investments............................. 44,448 -- -- 44,448
Prepaid expenses........................ 26,931 1,471 -- 28,402
Other current assets.................... 10,738 4,751 -- 15,489
-------- -------- ----------- ----------
Total current assets.................. 466,041 72,746 -- 538,787
Property and equipment.................... 353,095 45,785 -- 398,880
Less accumulated depreciation............. 113,939 26,887 -- 140,826
-------- -------- ----------- ----------
239,156 18,898 -- 258,054
Intangibles and other assets
Intangibles............................. 71,369 82,416 -- 153,785
Investments............................. 59,514 268 -- 59,782
Deferred income taxes................... 68,683 -- -- 68,683
Deposits and other assets............... 33,189 4,722 -- 37,911
-------- -------- ----------- ----------
232,755 87,406 -- 320,161
-------- -------- ----------- ----------
Total assets.......................... $937,952 $179,050 $ -- $1,117,002
======== ======== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit......................... $ 366 $ -- $ -- $ 366
Accounts payable and accrued expenses... 118,819 26,702 20,000(1) 165,521
Credit arrangements, current............ 13,519 84 -- 13,603
Unearned income......................... 120,827 1,596 -- 122,423
Income taxes and other current
liabilities........................... 14,843 11,143 -- 25,986
-------- -------- ----------- ----------
Total current liabilities............. 268,374 39,525 20,000 327,899
Long-term liabilities:
Credit arrangements, less current
portion............................... 153,879 561 -- 154,440
Long-term obligations................... 24,172 -- -- 24,172
Deferred income taxes and other
liabilities........................... 26,580 9,131 -- 35,711
-------- -------- ----------- ----------
204,631 9,692 -- 214,323
-------- -------- ----------- ----------
Total liabilities..................... 473,005 49,217 20,000 542,222
Shareholders' equity:
Preferred stock......................... -- 41,300 (41,300)(2) --
Common stock and additional
paid-in-capital....................... 356,059 135,258 41,300(2) 532,617
Retained earnings (deficit)............. 112,379 (46,725) (20,000)(1) 45,654
Other equity............................ (3,491) -- -- (3,491)
-------- -------- ----------- ----------
Total shareholders' equity............ 464,947 129,833 (20,000) 574,780
-------- -------- ----------- ----------
Total liabilities and shareholders'
equity.............................. $937,952 $179,050 $ -- $1,117,002
======== ======== =========== ==========
</TABLE>
- -------------------------
(1) To accrue non-recurring transaction costs (as currently estimated by
management), consisting of financial advisor fees (approximately $17.0
million), accounting and legal fees (approximately $1.5 million) and other
direct transaction costs such as filing fees, proxy solicitation and proxy
printing and distribution (approximately $1.5 million), which are
anticipated to be incurred in connection with the ENVOY transaction.
(2) To reflect that each outstanding share of ENVOY common stock and ENVOY
Series B convertible preferred stock will be exchanged for 1.166 shares of
Quintiles common stock. Based on a total of approximately 24,375,000 shares
of the ENVOY common stock and preferred stock outstanding on December 14,
1998, Quintiles would issue approximately 28,421,000 shares of Quintiles
common stock in the merger. Quintiles will pay cash in lieu of fractional
shares.
F-16
<PAGE> 124
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL QUINTILES
-------------------- PRO FORMA AND ENVOY
QUINTILES ENVOY ADJUSTMENTS(1) PRO FORMA
--------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Net revenue.................... $848,379 $132,763 $ -- $981,142
Costs and expenses:
Direct....................... 444,369 58,875 -- 503,244
General and administrative... 274,925 29,728 (1,783)(2) 302,870
Depreciation and
amortization.............. 40,431 26,948 -- 67,379
Research and development..... -- 1,963 -- 1,963
-------- -------- -------- --------
759,725 117,514 (1,783) 875,456
-------- -------- -------- --------
Income from operations......... 88,654 15,249 1,783 105,686
Other expense, net............. (1,917) (637) (1,783)(2) (4,337)
-------- -------- -------- --------
Income before income taxes..... 86,737 14,612 -- 101,349
Income taxes................... 27,823 11,653 -- 39,476
-------- -------- -------- --------
Net income..................... $ 58,914 $ 2,959 $ -- $ 61,873
======== ======== ======== ========
Basic net income per share..... $ 0.77 $ 0.61
======== ========
Diluted net income per share... $ 0.76 $ 0.58
======== ========
Shares used in computing net
income per share:
Basic........................ 76,476 101,018
Diluted...................... 77,987 107,171
</TABLE>
- -------------------------
(1) Non-recurring transaction costs of approximately $20 million (as currently
estimated by management), consisting of financial advisor fees
(approximately $17.0 million), accounting and legal fees (approximately $1.5
million) and other direct transaction costs such as filing fees, proxy
solicitation and proxy printing and distribution (approximately $1.5
million), are anticipated to be incurred in connection with the ENVOY
transaction. Such costs will be expensed by Quintiles upon closing of the
business combination with ENVOY. Such costs have not been reflected in the
unaudited pro forma combined condensed statement of operations.
(2) For the nine months ended September 30, 1998, ENVOY historical transaction
related costs have been reclassified as other income (expense) to be
consistent with the classification used by Quintiles.
F-17
<PAGE> 125
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL QUINTILES
-------------------- PRO FORMA AND ENVOY
QUINTILES ENVOY ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue.......................... $608,436 $ 97,625 $-- $706,061
Costs and expenses:
Direct............................. 321,376 45,852 -- 367,228
General and administrative......... 196,922 23,175 -- 220,097
In-process R&D writeoff............ -- 6,600 -- 6,600
Depreciation and amortization...... 26,751 25,013 -- 51,764
Research and development........... -- 1,689 -- 1,689
-------- -------- --- --------
545,049 102,329 -- 647,378
-------- -------- --- --------
Income (loss) from operations........ 63,387 (4,704) -- 58,683
Other (expense) income, net.......... (2,000) 143 -- (1,857)
-------- -------- --- --------
Income (loss) before income taxes.... 61,387 (4,561) -- 56,826
Income taxes......................... 22,525 3,327 -- 25,852
-------- -------- --- --------
Net income (loss).................... $ 38,862 $ (7,888) $-- $ 30,974
======== ======== === ========
Basic net income per share........... $ 0.53 $ 0.32
======== ========
Diluted net income per share......... $ 0.52 $ 0.30
======== ========
Shares used in computing net income
per share:
Basic.............................. 73,283 96,085
Diluted............................ 74,967 103,956
</TABLE>
F-18
<PAGE> 126
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL QUINTILES
-------------------- PRO FORMA AND ENVOY
QUINTILES ENVOY ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue.......................... $852,900 $137,605 $-- $990,505
Costs and expenses:
Direct............................. 448,920 64,247 -- 513,167
General and administrative......... 277,238 32,734 -- 309,972
Depreciation and amortization...... 37,930 34,432 -- 72,362
In-process R&D writeoff............ -- 6,600 -- 6,600
Research and development........... -- 2,192 -- 2,192
-------- -------- --- --------
764,088 140,205 -- 904,293
-------- -------- --- --------
Income (loss) from operations........ 88,812 (2,600) -- 86,212
Other income (expense):
Interest income.................... 8,472 1,312 -- 9,784
Interest expense................... (8,764) (1,577) -- (10,341)
Other.............................. (1,985) -- -- (1,985)
-------- -------- --- --------
(2,277) (265) -- (2,542)
-------- -------- --- --------
Income (loss) before income taxes.... 86,535 (2,865) -- 83,670
Income taxes......................... 30,852 6,333 -- 37,185
-------- -------- --- --------
Net income (loss) available for
common shareholders................ $ 55,683 $ (9,198) $-- $ 46,485
======== ======== === ========
Basic net income per share........... $ 0.76 $ 0.48
Diluted net income per share......... $ 0.74 $ 0.45
Shares used in computing net income
per share:
Basic.............................. 73,739 96,693
Diluted............................ 75,275 103,881
</TABLE>
F-19
<PAGE> 127
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL QUINTILES
-------------------- PRO FORMA AND ENVOY
QUINTILES ENVOY ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue....................... $600,100 $ 90,572 $ -- $690,672
Costs and expenses:
Direct.......................... 308,886 43,500 -- 352,386
General and administrative...... 206,251 24,631 -- 230,882
Depreciation and amortization... 25,681 25,497 -- 51,178
Non-recurring costs............. 15,431 -- 4,664(1) 20,095
In-process R&D writeoff......... -- 8,700 -- 8,700
Merger and facility integration
costs........................ -- 4,664 (4,664)(1) --
EMC losses...................... -- 540 -- 540
Research and development........ -- 1,779 -- 1,779
-------- -------- ------- --------
556,249 109,311 -- 665,560
-------- -------- ------- --------
Income (loss) from operations..... 43,851 (18,739) -- 25,112
Other income (expense):
Interest income................. 7,206 1,032 -- 8,238
Interest expense................ (9,716) (2,872) -- (12,588)
Non-recurring transaction
costs........................ (17,118) -- -- (17,118)
Other........................... 18 -- -- 18
-------- -------- ------- --------
(19,610) (1,840) -- (21,450)
-------- -------- ------- --------
Income (loss) before income
taxes........................... 24,241 (20,579) -- 3,662
Income taxes...................... 14,808 1,717 -- 16,525
-------- -------- ------- --------
Net income (loss)................. 9,433 (22,296) -- (12,863)
Non-equity dividend............... (1,785) (14,921) -- (16,706)
-------- -------- ------- --------
Net income (loss) available for
common shareholders............. $ 7,648 $(37,217) $ -- $(29,569)
======== ======== ======= ========
Basic net income (loss) per
share........................... $ 0.11 $ (0.33)
Diluted net income (loss) per
share........................... $ 0.11 $ (0.33)
Shares used in computing net
income (loss) per share:
Basic........................... 69,148 88,409
Diluted......................... 71,785 88,409
</TABLE>
- -------------------------
(1) For the twelve months ended December 31, 1996, ENVOY historical merger and
facility integration costs represent one-time acquisition costs, and as
such, have been reclassified as non-recurring costs to be consistent with
the classification used by Quintiles.
F-20
<PAGE> 128
QUINTILES AND ENVOY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL QUINTILES
------------------- PRO FORMA AND ENVOY
QUINTILES ENVOY ADJUSTMENTS PRO FORMA
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue........................... $368,056 $34,197 $ -- $402,253
Costs and expenses:
Direct.............................. 192,899 18,967 -- 211,866
General and administrative.......... 126,969 11,156 -- 138,125
Depreciation and amortization....... 17,586 2,725 -- 20,311
Non-recurring costs................. 4,702 -- -- 4,702
Research and development............ -- 1,466 -- 1,466
-------- ------- -------- --------
342,156 34,314 -- 376,470
-------- ------- -------- --------
Income (loss) from operations......... 25,900 (117) -- 25,783
Other income (expense):
Interest income..................... 2,562 380 -- 2,942
Interest expense.................... (3,846) (659) -- (4,505)
Other............................... 39 -- -- 39
-------- ------- -------- --------
(1,245) (279) -- (1,524)
-------- ------- -------- --------
Income (loss) before income taxes..... 24,655 (396) -- 24,259
Loss in investee...................... -- 1,776 -- 1,776
Income taxes.......................... 9,310 (50) -- 9,260
-------- ------- -------- --------
Income (loss) from continuing
operations.......................... 15,345 (2,122) -- 13,223
Non-equity dividend................... (719) -- -- (719)
-------- ------- -------- --------
Income (loss) from continuing
operations available for common
shareholders(1)..................... $ 14,626 $(2,122) $ -- $ 12,504
======== ======= ======== ========
Basic income from continuing
operations per share................ $ 0.23 $ 0.16
======== ========
Diluted income from continuing
operations per share................ $ 0.23 $ 0.15
======== ========
Shares used in computing income from
continuing operations per share:
Basic............................... 63,171 80,357
Diluted............................. 64,946 82,717
</TABLE>
- -------------------------
(1) In its historical statement of operations, ENVOY reported a loss from
discontinued operations of $2.4 million which is not reflected in the pro
forma combined condensed statement of operations.
F-21
<PAGE> 129
APPENDIX A
AMENDED AND RESTATED MERGER AGREEMENT
<PAGE> 130
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
QUINTILES TRANSNATIONAL CORP.,
QELS CORP.
AND
ENVOY CORPORATION
DATED AS OF DECEMBER 15, 1998
A-1
<PAGE> 131
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT")
is made and dated as of December 15, 1998 by and among Quintiles Transnational
Corp., a North Carolina corporation ("PARENT"), QELS Corp., a Tennessee
corporation and newly formed, wholly owned subsidiary of Parent ("MERGER SUB"),
and Envoy Corporation, a Tennessee corporation (the "COMPANY"), and replaces and
supersedes the Merger Agreement dated as of December 15, 1998 by and among
Parent, Merger Sub and the Company. Capitalized terms used in this Agreement and
not otherwise defined are defined in Section 9.1 below. Except as otherwise
specifically stated, references in this Agreement to exhibits are references to
the documents attached as exhibits to this Agreement, all of which form a part
hereof.
BACKGROUND
(a) The respective Boards of Directors of Parent, Merger Sub and the
Company have approved and deem it advisable and in the best interests of their
respective shareholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth in this Agreement;
(b) The parties intend that the acquisition be accomplished by a merger of
the Merger Sub with and into the Company, with the Company continuing as the
surviving corporation (the "MERGER");
(c) The respective Boards of Directors of Parent and the Company have
determined that the Merger and the other transactions contemplated by this
Agreement are consistent with, and in furtherance of, their respective business
strategies and goals;
(d) The parties intend that the Merger will qualify as a nontaxable
reorganization under Section 368(a) of the Code, and that this Agreement shall
be, and is hereby, adopted as a plan of reorganization for purposes of Section
368 of the Code;
(e) The parties intend that the transactions contemplated herein qualify
for treatment as a pooling of interests pursuant to APB Opinion No. 16; and
(f) As a condition and an inducement to Parent and Merger Sub entering into
this Agreement and incurring the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Parent is entering into a Stock
Voting Agreement with certain shareholders of the Company in the form of Exhibit
A hereto (the "STOCK VOTING AGREEMENT" and, together with this Agreement, the
"TRANSACTION AGREEMENTS").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with the TBCA, at the Effective
Time (as defined in
A-2
<PAGE> 132
Section 1.3 below), Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall thereupon cease, and the
Company shall continue as the surviving corporation (sometimes referred to in
this Agreement as the "SURVIVING CORPORATION") and shall continue its corporate
existence under the laws of the State of Tennessee; and in accordance with
Section 48-21-108 of the TBCA, all of the rights, privileges, powers,
immunities, purposes and franchises of Merger Sub and the Company shall vest in
the Surviving Corporation, and all of the debts, liabilities, obligations and
duties of Merger Sub and the Company shall become the debts, liabilities,
obligations and duties of the Surviving Corporation.
SECTION 1.2 CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated by this Agreement (the
"CLOSING") shall take place at the offices of Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P., Raleigh, North Carolina 27602, at 10:00 a.m., local
time, as promptly as practicable (but not later than the second business day)
after all of the conditions set forth in Article VII are satisfied or waived, or
on such other date and at such other time and place as Parent and the Company
shall agree in writing (the date on which the Closing actually occurs being
referred to in this Agreement as the "CLOSING DATE").
SECTION 1.3 EFFECTIVE TIME. The Merger shall become effective at the time
of filing of, or at such later time as is specified in, properly executed
articles of merger (the "ARTICLES OF MERGER"), in the form required by and
executed in accordance with the TBCA, filed with the Secretary of State of the
State of Tennessee in accordance with the TBCA. Such filing shall be made
contemporaneously with, or immediately after, the Closing. When used in this
Agreement, the term "EFFECTIVE TIME" shall mean the date and time at which the
Merger shall become effective.
SECTION 1.4 CHARTER AND BYLAWS. The Charter of the Company as in effect
immediately prior to the Effective Time shall be amended at the Effective Time
so that Article 5 of such Charter reads in its entirety as follows: "The total
number of all classes of stock which the corporation shall have the authority to
issue is 1,000 shares of Common Stock, par value $0.01 per share.", and so that
Article 7 of such Charter shall be deleted in its entirety; and as so amended,
such Charter shall be the Charter of the Surviving Corporation until thereafter
amended in accordance with applicable Law. From and after the Effective Time,
the Bylaws of the Company in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable Law.
SECTION 1.5 DIRECTORS AND OFFICERS. From and after the Effective Time,
the directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the Charter or Bylaws of the Surviving
Corporation or as otherwise provided by applicable Law. From and after the
Effective Time, the officers of Merger Sub immediately prior to the Effective
Time shall be the officers of the Surviving Corporation and shall hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Charter or Bylaws of the
Surviving Corporation or as otherwise provided by applicable Law.
A-3
<PAGE> 133
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any shares of Company
Common Stock (as defined below) or any shares of capital stock of Merger Sub:
(a) Each share of Common Stock of the Company, no par value per share
("COMPANY COMMON STOCK"), issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock to be canceled
pursuant to Section 2.1(d) hereof) shall be converted into the right to
receive 1.166 validly issued, fully paid and nonassessable shares of Common
Stock of Parent, par value $0.01 per share ("PARENT COMMON STOCK").
(b) Each share of Series B Convertible Preferred Stock, liquidation
preference $10.75 per share ("COMPANY SERIES B PREFERRED STOCK," and
together with the Company Common Stock and the Company's Series A
Convertible Preferred Stock, no par value per share, the "COMPANY CAPITAL
STOCK"), issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Series B Preferred Stock to be canceled
pursuant to Section 2.1(d) hereof) shall be converted into the right to
receive 1.166 validly issued, fully paid and nonassessable shares of Parent
Common Stock (together with the consideration per share of Company Common
Stock specified in Section 2.1(a) above, the "MERGER CONSIDERATION," and as
applied to any single share of Company Capital Stock on the basis and in
the amount specified in Section 2.1(a) above and this Section 2.1(b), as
the case requires, the "PER SHARE MERGER CONSIDERATION").
(c) Each share of Common Stock of Merger Sub, no par value per share
("MERGER SUB COMMON STOCK"), issued and outstanding immediately prior to
the Effective Time shall be converted into one duly issued, validly
authorized, fully paid and nonassessable share of Common Stock, no par
value per share, of the Surviving Corporation.
(d) All shares of Company Capital Stock that are owned by the Company as
treasury stock and any shares of Company Capital Stock that are owned by
Parent or Merger Sub shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered or deliverable in
exchange therefor.
(e) Shares of Company Capital Stock converted pursuant to Section 2.1(a)
or Section 2.1(b) shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate which immediately prior to the Effective Time represented such
outstanding shares (the "CERTIFICATES") shall cease to have any rights as
shareholders of the Company, except the right to receive the corresponding
Per Share Merger Consideration specified therein for each such share.
(f) If between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or similar transaction, or if Parent pays an extraordinary
dividend or distribution, the number of shares of Parent Common Stock to be
issued in the Merger shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination, or similar transaction or extraordinary dividend or
distribution.
A-4
<PAGE> 134
SECTION 2.2 EXCHANGE PROCEDURES.
(a) Parent shall designate a bank or trust company to act as exchange agent
hereunder (the "EXCHANGE AGENT"). From time to time as necessary after the
Effective Time, Parent shall deliver, in trust, to the Exchange Agent, for the
benefit of the holders of Certificates, for exchange in accordance with this
Article II through the Exchange Agent, certificates evidencing the shares of
Parent Common Stock issuable pursuant to Sections 2.1(a) and 2.1(b) above in
exchange for outstanding Certificates.
(b) As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of Certificates (i) a form of
letter of transmittal (in customary form) specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and (ii) instructions
for use in surrendering such Certificates in exchange for the corresponding Per
Share Merger Consideration. Upon surrender of a Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may be reasonably required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
that number of shares of Parent Common Stock equal to the product of the
corresponding Per Share Merger Consideration multiplied by the number of shares
of Company Common Stock or Company Series B Preferred Stock (as the case
requires) represented by the surrendered Certificate, and (B) any amounts to
which the holder is entitled pursuant to Section 2.3 hereof after giving effect
to any required tax withholdings, and the Certificate so surrendered shall
forthwith be canceled. Until surrendered as contemplated by this Section 2.2(b),
each Certificate (other than certificates representing shares to be canceled
pursuant to Section 2.1(d) above) shall be deemed from and after the Effective
Time to represent only the right to receive the corresponding Per Share Merger
Consideration upon such surrender. In no event will the holder of any such
surrendered Certificate be entitled to receive interest on any cash to be
received in the Merger. Neither the Exchange Agent nor any party hereto shall be
liable to a holder of shares of Company Capital Stock for any amount paid to a
public official pursuant to any applicable abandoned property, escheat or
similar Law.
(c) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by Parent, the posting by such
Person of a bond, in such reasonable and customary amount as Parent may direct,
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue the corresponding Per Share Merger
Consideration in exchange for such lost, stolen or destroyed Certificate.
SECTION 2.3 DIVIDENDS; TRANSFER TAXES; WITHHOLDING. No dividends or other
distributions that are declared on or after the Effective Time on Parent Common
Stock, or are payable to the holders of record thereof who became such on or
after the Effective Time, shall be paid to any Person entitled by reason of the
Merger to receive certificates representing shares of Parent Common Stock, until
such Person shall have surrendered its Certificate(s) as provided in Section 2.2
above. Subject to applicable Law, there shall be paid to each Person receiving a
certificate representing such shares of Parent Common Stock, at the time of such
surrender or as promptly as practicable thereafter, the amount of any dividends
or other distributions theretofore paid with respect to the shares of Parent
Common Stock represented by such Certificate and having a record date on or
after the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender. In no event shall the Person entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or certificate representing
A-5
<PAGE> 135
shares of Parent Common Stock is to be paid to or issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such exchange that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
Person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of such certificate representing
shares of Parent Common Stock and the distribution of such cash payment in a
name other than that of the registered holder of the Certificate so surrendered,
or shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Parent or the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of a Certificate such amounts as Parent or the Exchange
Agent are required to deduct and withhold under the Code or any provision of
state, local or foreign tax law with respect to the making of such payment. To
the extent that amounts are so withheld by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the Certificate in respect of whom such deduction and
withholding were made by Parent or the Exchange Agent.
SECTION 2.4 FRACTIONAL SHARES.
(a) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates; no
dividend or distribution with respect to shares shall be payable on or with
respect to any fractional share; and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of
Parent.
(b) In lieu of any such fractional shares, each holder of record of Company
Capital Stock who would otherwise be entitled to such fractional shares shall be
entitled to an amount in cash, without interest, rounded to the nearest cent,
equal to the product of (i) the amount of the fractional share interest in a
share of Parent Common Stock to which such holder is entitled under Sections
2.1(a) or 2.1(b) (or would be entitled but for this Section 2.4) and (ii) the
average of the closing sale prices for the Parent Common Stock on the Nasdaq
National Market, as reported in The Wall Street Journal, Northeast edition, for
each of the ten consecutive trading days ending on the fifth complete trading
day prior to the Closing Date (not counting the Closing Date).
(c) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Capital Stock in lieu of any fractional
share interests in Parent Common Stock, the Exchange Agent shall make available
such amounts, without interest, to the holders of Company Capital Stock entitled
to receive such cash.
SECTION 2.5 UNDISTRIBUTED PARENT COMMON STOCK. Any portion of the
certificates representing shares of Parent Common Stock issuable upon conversion
of Company Capital Stock pursuant to Section 2.1(a) or 2.1(b) hereof, together
with any dividends or distributions payable in respect thereof pursuant to
Section 2.3 hereof, which remains undistributed to the former holders of Company
Capital Stock for six months after the Effective Time shall be delivered to
Parent, upon its request, and any such former holders who have not theretofore
surrendered their Certificates to the Exchange Agent in compliance with this
Article II shall thereafter look only to Parent for payment of their claims for
such shares of Parent Common Stock and any dividends or distributions with
respect to such shares of Parent Common Stock (in each case, without interest
thereon).
A-6
<PAGE> 136
SECTION 2.6 OPTIONS.
(a) As soon as practicable following the date of this Agreement, the
Company's Board of Directors (or, if appropriate, any committee administering
the Option Plans (as defined below)) shall adopt such resolutions or take such
other actions as may be required to effect the following: (i) cause all options
to purchase shares of Company Common Stock (collectively "OPTIONS") granted by
the Company under the Company's stock option plans listed in Section 2.6 of the
Company Disclosure Schedule (collectively, the "OPTION PLANS") that remain
outstanding immediately prior to the Effective Time to be assumed automatically
by Parent and converted automatically to entitle the holder thereof to subscribe
to, purchase or acquire from Parent, on the same terms and conditions as applied
under such Option immediately prior to the Effective Time (subject to the
acceleration of vesting to the extent provided under the corresponding Option
Agreements and/or employment agreements), the number of shares of Parent Common
Stock which equals the product of the corresponding Per Share Merger
Consideration times the number of shares of Company Common Stock subject to such
Option immediately prior to the Effective Time (rounded to the nearest whole
share), at an exercise price per share of Parent Common Stock equal to the
exercise price per share of Company Common Stock then specified with respect to
such Option divided by the corresponding Per Share Merger Consideration (rounded
to the nearest whole cent); provided, however, in the event of any Option which
is an incentive stock option as defined in Section 422 of the Code, the
aggregate adjusted exercise price of such Option and the number of shares to
which such Option is exercisable shall be computed in compliance in all respects
with the requirements of Section 424(a) of the Code, including the requirements
that such adjustments not confer on the holder of any Option any additional
benefits not currently provided under the corresponding Option Plan; (ii) make
such other changes to the Option Plans as it deems appropriate to give effect to
the Merger (subject to the approval of Parent, which shall not be unreasonably
withheld); (iii) ensure that no action is taken to cash out or redeem Options
prior to the Effective Time; and (iv) ensure that, after the Effective Time, no
Options may be granted under any Option Plan. As promptly as practicable after
the Effective Time, Parent shall issue to each holder of an Option a written
instrument evidencing its assumption by Parent.
(b) Parent and the Company shall take all corporate action necessary to
effectuate the assumption of the Options as set forth in Section 2.6(a) above,
and Parent shall take all corporate actions necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery thereunder.
Promptly (and in no event later than 20 calendar days) after the Effective Time,
Parent shall file a Registration Statement on Form S-8 (or any successor form)
under the Securities Act with respect to all shares of Parent Common Stock
subject to Options that may be registered on a Form S-8.
SECTION 2.7 NO FURTHER RIGHTS; CLOSING OF TRANSFER BOOKS. All shares of
Parent Common Stock issued pursuant to this Article II shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to the
corresponding shares of Company Capital Stock, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared or made by the Company on such shares of Company Capital Stock in
accordance with the terms of this Agreement or prior to the date of this
Agreement and which remain unpaid at the Effective Time. At the Effective Time,
the stock transfer books of the Company shall be closed, and no transfer of
shares of Company Capital Stock shall thereafter be made. None of Parent, Merger
Sub, the Company or the Exchange Agent shall be liable to any Person in respect
of any Merger Consideration (or dividends or distributions
A-7
<PAGE> 137
in respect thereof pursuant to Section 2.3 hereof) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar Law.
If any Certificate has not been surrendered prior to five years after the
Effective Time (or immediately prior to such earlier date on which Merger
Consideration or any dividends or distributions with respect to Parent Common
Stock as contemplated by Section 2.3 in respect of such Certificate would
otherwise escheat to or become the property of any Government Entity), any such
shares, cash, dividends or distributions in respect of such Certificate shall,
to the extent permitted by applicable Law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
SECTION 2.8 FURTHER ASSURANCES. If, at any time after the Effective Time,
Parent shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets
of the Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to or under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out the
purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as follows,
subject to the exceptions and qualifications set forth in the Company Disclosure
Schedule dated as of the date of this Agreement and delivered as a separate
document (the "COMPANY DISCLOSURE SCHEDULE"), each section of which qualifies
only the corresponding numbered representation(s) and warranty(ies) and no
others:
SECTION 3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Tennessee and has the corporate power and authority to carry on its
business as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have, individually
or in the aggregate, a Company Material Adverse Effect.
SECTION 3.2 CHARTER AND BYLAWS. True, correct and complete copies of the
Charter, Bylaws and equivalent Organizational Documents, all as amended to date,
of the Company and each of its Subsidiaries have been made available to Parent.
The Charter, Bylaws and equivalent Organizational Documents of the Company and
each of its Subsidiaries are in full force and effect. Neither the Company nor
any of its Subsidiaries is in violation of any provision of its Organizational
Documents.
SECTION 3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 48,000,000
shares of Company Common Stock and 12,000,000 shares of Preferred Stock, no par
value (the
A-8
<PAGE> 138
"COMPANY PREFERRED STOCK"). As of December 14, 1998, (i) 21,574,795 shares of
Company Common Stock were issued and outstanding and no shares were held in the
treasury of the Company, (ii) 2,800,000 shares of Company Series B Preferred
Stock were issued and outstanding, (iii) 4,800,000 shares of Series A Preferred
Stock were reserved for issuance in connection with the rights (the "COMPANY
RIGHTS") issued pursuant to the Rights Agreement dated as of June 1, 1995 (as
amended from time to time, the "COMPANY RIGHTS AGREEMENT"), and (iv) 3,524,776
shares of Company Common Stock were reserved for issuance upon the exercise of
outstanding Options. All of the issued and outstanding shares of Company Capital
Stock have been validly issued and are fully paid and nonassessable, and none
are subject to preemptive rights.
(b) Except as described in Section 3.3(a): (i) no shares of capital stock
or other equity securities of the Company are authorized, issued or outstanding,
or reserved for issuance, and there are no options, warrants or other rights
(including registration rights) or Contracts to which the Company or any of its
Subsidiaries is a party relating to the issued or unissued capital stock or
other equity interests of the Company or any of its Subsidiaries, requiring the
Company or any of its Subsidiaries to grant, issue or sell any shares of the
capital stock or other equity interests of the Company or any of its
Subsidiaries by sale, lease, license or otherwise; (ii) neither the Company nor
any of its Subsidiaries has any obligation, contingent or otherwise, to
repurchase, redeem or otherwise acquire any shares of the capital stock or other
equity interests of the Company or its Subsidiaries; (iii) neither the Company
nor any of its Subsidiaries, directly or indirectly, owns, or has agreed to
purchase or otherwise acquire, the capital stock or other equity interests of,
or any interest convertible into or exchangeable or exercisable for such capital
stock or such equity interests, of any Person which would be material in value
to the Company; and (iv) there are no voting trusts, proxies or other agreements
or understandings to or by which the Company or any of its Subsidiaries is a
party or is bound with respect to the voting of any shares of capital stock or
other equity interests of the Company or any of its Subsidiaries.
SECTION 3.4 COMPANY SUBSIDIARIES. Section 3.4 of the Company Disclosure
Schedule sets forth a list of each Subsidiary of the Company. Each Subsidiary of
the Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each Subsidiary of the Company has the corporate power and authority to carry on
its business as it is now being conducted. Each Subsidiary of the Company is
duly qualified as a foreign corporation authorized to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not, individually or in the aggregate, have a Company Material Adverse Effect.
All of the outstanding shares of capital stock or other equity interests in each
of the Company's Subsidiaries have been validly issued, are fully paid and
nonassessable, and are owned by the Company or another Subsidiary of the Company
free and clear of all Encumbrances, and none are subject to preemptive rights.
Neither the Company nor any of its Subsidiaries has any equity or similar
interest in any other Person (other than the Company's investments in its
Subsidiaries).
SECTION 3.5 CORPORATE AUTHORITY.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to the approval of the Merger by the
Company's shareholders, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
its Board of Directors and, subject to the
A-9
<PAGE> 139
approval of the Merger by the Company's shareholders, no other corporate action
on the part of the Company is necessary to authorize the execution and delivery
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, constitutes a valid and binding agreement of the
Company and is enforceable against the Company in accordance with its terms. The
preparation and filing of the Proxy Statement (as defined in Section 3.16 below)
to be filed with the SEC has been duly authorized by the Board of Directors of
the Company. The Board of Directors of the Company has approved and adopted this
Agreement and the Stock Voting Agreement and the transactions contemplated
hereby and thereby pursuant to the TBCA, and recommended approval thereof by the
Company's shareholders.
(b) The affirmative vote of the holders of a majority of the shares of
Company Common Stock and Company Series B Preferred Stock outstanding on the
record date for the Company Shareholder Meeting, voting together as a class, and
the affirmative vote of a majority of the shares of Company Series B Preferred
Stock outstanding on the record date for the Company Shareholder Meeting, voting
separately as a class, are the only votes of the holders of any class or series
of the Company's Capital Stock necessary to approve the Merger. No vote of the
holders of any class or series of the Company's Capital Stock is necessary to
approve this Agreement or consummate any transaction contemplated hereby other
than the Merger. The Company has taken all steps necessary to exempt the
transactions contemplated by the Transaction Agreements irrevocably from any
applicable "fair price," "moratorium," "control share acquisition," "interested
shareholder" or other anti-takeover Law (however styled), including without
limitation the Tennessee Investor Protection Act, the Tennessee Business
Combination Act, the Tennessee Control Share Acquisition Act and the Tennessee
Authorized Corporate Protection Act, and from any applicable Organizational
Document or Contract to which the Company is a party containing any change of
control, "anti-takeover" or similar provision.
(c) The Company and the Board of Directors of the Company have taken all
action necessary to amend, and have amended, the Rights Plan in the form
attached as Exhibit B.
SECTION 3.6 COMPLIANCE WITH APPLICABLE LAW. (i) Each of the Company and
its Subsidiaries holds, and is in compliance with the terms of, all permits,
licenses, exemptions, orders and approvals of all Governmental Entities
necessary for the conduct of their respective businesses as currently conducted
("COMPANY PERMITS"), except for failures to hold or to comply with such Company
Permits which could not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect; (ii) with respect to the
Company Permits, no action or proceeding is pending or, to the knowledge of the
Company, threatened in writing, and no fact exists or event has occurred that is
expected, individually or in the aggregate, to have a Company Material Adverse
Effect; (iii) the business of the Company and its Subsidiaries has been and is
being conducted in compliance with all applicable Laws, including without
limitation all Laws concerning privacy and/or data protection, except for
violations or failures to so comply that could not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect;
(iv) no investigation or review by any Governmental Entity with respect to the
Company or its Subsidiaries is pending or, to the knowledge of the Company,
threatened in writing, other than, in each case, those which could not
reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse Effect; and (v) neither the Company nor any of its Subsidiaries
have received any written communication in the past two years from a
A-10
<PAGE> 140
Governmental Entity that alleges that the Company or any of its Subsidiaries is
not in compliance in any material respect with any applicable Law.
SECTION 3.7 NON-CONTRAVENTION. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not, (i) result in
any violation of, or default (with or without notice or lapse of time, or both)
under, require any notice or consent under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under any Contract binding upon the Company or any of its
Subsidiaries, or result in the creation of any Encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries, (ii) conflict
with or result in any violation of any provision of the Organizational Documents
of the Company or any of its Subsidiaries, or (iii) conflict with or violate any
Law applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (i) and
(iii), any such violation, conflict, default, right, loss or Encumbrance that if
occurring, or any such notice or consent if not given or obtained, could not
reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
SECTION 3.8 GOVERNMENT APPROVALS; REQUIRED CONSENTS. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity or any other third party is required by or with respect to the Company or
any of its Subsidiaries in connection with the execution and delivery of this
Agreement or is necessary for the consummation of the transactions contemplated
hereby (including, without limitation, the Merger) except: (i) approval of this
Agreement by the Company's shareholders pursuant to the TBCA, (ii) the filing
with the SEC of the Proxy Statement (as defined in Section 3.16 below) and such
reports under the Exchange Act and any applicable state securities or "blue sky"
Laws as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of a notification under the HSR
Act, (iv) the filing of Articles of Merger with the Secretary of State of the
State of Tennessee, (v) the consents, approvals, authorizations, permits,
filings and notifications listed in Section 3.8 of the Company Disclosure
Schedule and (vi) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to obtain or make could not
reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
SECTION 3.9 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed
various reports, schedules, forms, statements and other documents (which are
publicly available) with the SEC pursuant to applicable federal securities Laws
from January 1, 1997 to the date of this Agreement (the "COMPANY SEC
DOCUMENTS"), and the Company SEC Documents constitute all of the documents
required to have been filed by the Company pursuant to such Laws for such
period. As of their respective dates, or if amended, as of the date of the last
such amendment, the Company SEC Documents complied, and all documents required
to be filed by the Company with the SEC after the date hereof and prior to the
Effective Time (the "SUBSEQUENT COMPANY SEC DOCUMENTS") will comply, in all
material respects, with the requirements of the Securities Act or the Exchange
Act, as the case may be, and none of the Company SEC Documents contained when
filed, and the Subsequent Company SEC Documents will not contain, any untrue
statement of a material fact or omitted, or will omit, to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, or are to be made, not
misleading. Except to the extent information contained in any Company SEC
Document has been revised or superseded by a later filed Company SEC Document,
none of the Company SEC Documents (including any and all financial statements
included therein) contains any
A-11
<PAGE> 141
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included in the Company SEC
Documents when filed fairly presented, and those included in the Subsequent
Company SEC Documents when filed will fairly present, and the Company's
unaudited consolidated financial statements for the eleven (11) month period
ended November 30, 1998 (the "COMPANY INTERIM BALANCE SHEET DATE") which are
included in the Company Disclosure Schedule (the "COMPANY INTERIM FINANCIAL
STATEMENTS") fairly present, the consolidated financial position of the Company
and its consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments and to any other adjustments described
therein) and have been prepared in conformity with GAAP (except, in the case of
unaudited statements, (i) as permitted by Form 10-Q of the SEC, and (ii) with
respect to those for October and November 1998, as specified in Section 3.9 of
the Company Disclosure Schedule) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto).
Since December 31, 1997, the Company has not made any change in the accounting
practices or policies applied in the preparation of its financial statements,
except as have been required by GAAP.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Company SEC Documents, from December 31, 1997 (the "COMPANY BALANCE SHEET
DATE") to the date of this Agreement, the Company and its Subsidiaries have
conducted their respective businesses and operations in the ordinary and usual
course consistent with past practice, except for such business and operations as
have not resulted and could not reasonably be expected to result in a Company
Material Adverse Effect, and there has not occurred (i) any event, condition or
occurrence having or that could reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) having or which
reasonably could be expected to have, individually or in the aggregate, a
Company Material Adverse Effect; (iii) any declaration, setting aside or payment
of any dividend or distribution of any kind by the Company on any class of its
capital stock or any repurchase for value by the Company of any of its capital
stock (except upon the cashless exercise of Options); (iv) any split,
combination or reclassification of any Company Capital Stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of Company Capital Stock; (v) any material
increase in the compensation payable or to become payable by the Company or any
Subsidiary to any of its directors, officers or key employees or the creation of
or any material increase in any bonus, insurance, pension, severance or other
employee benefit plan, payment or arrangement made to, for or with any such
director, officer or key employee, other than in the ordinary course of business
consistent with past practice; (vi) any labor dispute, other than routine
matters none of which has had, or reasonably could be expected to have, a
Company Material Adverse Effect; (vii) any entry by the Company or any of its
Subsidiaries into any commitment or transaction (including, without limitation,
any borrowing or capital expenditure) material (individually or in the
aggregate) to the Company or its Subsidiaries other than in the ordinary course
of business; (viii) any material elections with respect to Taxes by the Company
or any of its Subsidiaries or settlement or compromise by the Company or any of
its Subsidiaries of any material Tax liability or refund; (ix) any change by the
Company or its Subsidiaries in accounting methods, principles or practices
except as required by concurrent changes in GAAP; (x) any Contract to take any
action described in this Section 3.10; or (xi) any event during the period from
the Company Balance Sheet Date through the date of
A-12
<PAGE> 142
this Agreement that, if taken during the period from the date of this Agreement
through the Effective Time, would constitute a breach of Section 5.1 hereof.
SECTION 3.11 ACTIONS AND PROCEEDINGS. Except as set forth in the Company
SEC Documents, there are no outstanding orders, judgments, injunctions, awards
or decrees of any Governmental Entity against the Company or any of its
Subsidiaries, any of their properties, assets or business, or, to the knowledge
of the Company, any of the Company's or its Subsidiaries' current or former
directors or officers (during the period served as such) or any other person
whom the Company or any of its Subsidiaries has agreed to indemnify, as such.
Except as set forth in the Company SEC Documents, there are no material
(individually or in the aggregate) actions, suits or legal, administrative,
regulatory or arbitration proceedings pending or, to the knowledge of the
Company, threatened in writing against the Company or any of its Subsidiaries,
any of their properties, assets or business, or, to the knowledge of the
Company, any of the Company's or its Subsidiaries' current or former directors
or officers or any other person whom the Company or any of its Subsidiaries has
agreed to indemnify, as such; nor is there any reasonable basis for any such
action, suit or proceeding that, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.12 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities
or obligations which are accrued or reserved against on the balance sheet (or
reflected in the notes thereto) included in the Company Interim Financial
Statements, neither the Company nor any of its Subsidiaries has any material
(individually or in the aggregate) liabilities or obligations (whether absolute,
accrued, contingent or otherwise), other than liabilities or obligations
incurred in the ordinary course of business since the Company Interim Balance
Sheet Date or liabilities under this Agreement.
SECTION 3.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except for agreements
listed as exhibits to any Company SEC Document deposited for filing and filed
with the SEC in 1998, none of the Company or any of its Subsidiaries is a party
to any: (a) employment agreement; (b) collective bargaining agreement; (c)
Contract relating to the borrowing of money in excess of $5,000,000 by the
Company or any Subsidiary or the guaranty of any obligation for the borrowing of
money by the Company or any Subsidiary; (d) Contract which purports to limit in
any material respect the manner in which, or the localities in which, the
Company or any of its Subsidiaries is entitled to conduct all or any material
portion of the business of the Company or any of its Subsidiaries; or (e)
Contract of any sort, other than in the ordinary course of business, which (i)
is not terminable by the Company or a Subsidiary, as applicable, on ninety (90)
or fewer days' notice at any time without penalty and contemplates the receipt
or payment by the Company or a subsidiary of more than $1,000,000, (ii)
contemplates any joint venture, partnership or similar arrangement extending
beyond six (6) months or involving equity or investments of more than $500,000,
or (iii) is otherwise material to the Company and its Subsidiaries taken as a
whole. There is not, under any of the aforesaid obligations, any default or
event of default by the Company or other event which (with or without notice,
lapse of time or both) would constitute a default or event of default by the
Company or any of its Subsidiaries except for defaults or other events which,
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect.
SECTION 3.14 TAXES. (i) The Company and each of its Subsidiaries has filed
all federal, and all material state, local, foreign and provincial tax returns,
declarations, statements, reports, schedules, bonus and information returns and
any amendments to any of the preceding ("TAX RETURNS") required to have been
filed on or prior to the date hereof, or
A-13
<PAGE> 143
appropriate extensions therefor have been properly obtained, and such Tax
Returns are in all material respects true, correct and complete; (ii) all
federal, state, local, foreign and provincial taxes of any kind and other
assessments of a similar nature (whether imposed directly or through
withholding) including any interest, additions to tax or penalties applicable
thereto ("TAXES") shown to be due on such Tax Returns either (x) have been
timely paid or (y) extensions for payment have been properly obtained or such
Taxes are being timely and properly contested and, in either case, adequate
reserves pursuant to GAAP have been established on the Company's consolidated
financial statements with respect thereto; (iii) the Company and each of its
Subsidiaries have complied in all material respects with all rules and
regulations relating to the withholding of Taxes; (iv) neither the Company nor
any of its Subsidiaries has waived any statute of limitations in respect of its
Taxes or Tax Returns; (v) any Tax Returns of the Company and its Subsidiaries
covering periods through the Company's fiscal year ended December 31, 1994
relating to federal income Taxes have been examined by the Internal Revenue
Service ("IRS"), and Section 3.14 of the Company Disclosure Schedule sets forth
all pending audits, examinations or claims by any taxing authority of any Tax
Returns; (vi) except as have been advanced in pending audits or examinations
listed in Section 3.14 of the Company Disclosure Schedule, no claims that have
been communicated in writing to the Company by a taxing authority in connection
with the examination of any federal or material state Tax Returns of the Company
and its Subsidiaries are currently pending; (vii) all deficiencies asserted or
assessments made as a result of any examination of such Tax Returns by any
taxing authority have been paid in full or are being timely and properly
contested and proper accruals pursuant to GAAP have been established on the
Company's consolidated financial statements with respect thereto; (viii) except
for the potential liability for Taxes of the affiliated groups listed in Section
3.14 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any liability for Taxes of any Person other than the Company
and its Subsidiaries (a) under Treasury Regulations Section 1.1502-6 (or any
similar provision of applicable Law), (b) as a transferee or successor, or (c)
by virtue of any express or implied agreement or otherwise; (ix) neither the
Company nor any of its Subsidiaries has been a member of any affiliated group
within the meaning of Section 1504(a) of the Code other than the affiliated
group of which the Company is the common parent corporation; (x) none of the
property owned or used by the Company or its Subsidiaries is subject to a tax
benefit transfer lease executed in accordance with Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended by the Economic Recovery Act of 1981;
(xi) none of the property owned by the Company or its Subsidiaries is "tax
exempt use property" within the meaning of Section 168(h) of the Code; (xii)
none of the Company or its Subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under any circumstances
could obligate any of the Company or its Subsidiaries to make any payments that
will not be deductible under either Section 162(m) or Section 280G of the Code
(or cause the Company or any of its Subsidiaries to incur a payment to reimburse
a person for a tax imposed under Code Section 4999); (xiii) none of the Company
or its Subsidiaries is a party to any Tax allocation agreement, any Tax sharing
agreement, or any Tax indemnity agreement; and (xiv) the Company has no reason
to believe that any conditions exist that could reasonably be expected to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) The Company or one of its Subsidiaries owns or has the right to use all
Intellectual Property (as defined in Section 3.15(f) below) material to the
operation of the business of the Company and its Subsidiaries as currently
conducted or to products or services currently
A-14
<PAGE> 144
under development by the Company or any of its Subsidiaries (collectively,
"MATERIAL INTELLECTUAL PROPERTY"), and has the right to use, license, sublicense
or assign the same without material liability to, or any requirement of consent
from, any other person or party. All Material Intellectual Property is either
owned by the Company or its Subsidiaries free and clear of all Encumbrances or
is used pursuant to a license agreement; each such license agreement is valid
and enforceable and in full force and effect; neither the Company nor any of its
Subsidiaries is in material default thereunder; and to the knowledge of the
Company, no corresponding licensor is in material default thereunder. None of
the Material Intellectual Property infringes or otherwise conflicts with any
Intellectual Property or other right of any Person; there is no pending or, to
the knowledge of the Company, threatened (in writing) litigation, adversarial
proceeding, administrative action or other challenge or claim relating to any
Material Intellectual Property; there is no outstanding judgment, order, writ,
injunction or decree relating to any Material Intellectual Property; to the
knowledge of the Company, there is currently no infringement by any Person of
any Material Intellectual Property; and the Material Intellectual Property
owned, used or possessed by the Company or its Subsidiaries is sufficient and
adequate to conduct the business of the Company and its Subsidiaries to the full
extent as such business is currently conducted.
(b) The Company and each of its Subsidiaries has taken reasonable steps to
protect, maintain and safeguard its respective Material Intellectual Property,
including any Material Intellectual Property for which improper or unauthorized
disclosure would impair its value or validity materially, and has executed and
required appropriate nondisclosure agreements and made appropriate filings and
registrations in connection with the foregoing.
(c) The Company or one of its Subsidiaries is the sole and exclusive owner
of all Owned Software (as defined in Section 3.15(f) below) that is required to
conduct the businesses of the Company and its Subsidiaries to the extent such
businesses are currently conducted, including, without limitation, the products
and services currently under development by the Company or any of it
Subsidiaries. Set forth in Section 3.15(c) of the Company Disclosure Schedule is
a true and complete list of all material Owned Software of the Company or any of
its Subsidiaries. All of the Owned Software of the Company and any of its
Subsidiaries is Year 2000 Compliant (as defined in Section 3.15(f) below). Set
forth in Section 3.15(c) of the Company Disclosure Schedule is a true and
complete list of all material Third Party Software (as defined in Section
3.15(f) below) used by the Company or any of its Subsidiaries. To the Company's
knowledge, all material Third Party Software currently used by the Company or
any of its Subsidiaries is Year 2000 Compliant.
(d) The Company or one of its Subsidiaries is the sole and exclusive owner
of all Owned Databases (as defined in Section 3.15(f) below) that are required
to conduct the businesses of the Company and its Subsidiaries to the extent such
businesses are currently conducted, including, without limitation, the products
and services currently under development by the Company or any of its
Subsidiaries. Set forth in Section 3.15(d) of the Company Disclosure Schedule is
a true and complete list of all material Owned Databases of the Company or any
of its Subsidiaries. All of the Owned Databases of the Company or any of its
Subsidiaries are Year 2000 Compliant. Set forth in Section 3.15(d) of the
Company Disclosure Schedule is a true and complete list of all material Third
Party Databases (as defined in Section 3.15(f) below) used by the Company or any
of its Subsidiaries. To the Company's knowledge, all material Third Party
Databases currently used by the Company or any of its Subsidiaries are Year 2000
Compliant.
(e) No material confidential or trade secret information of the Company or
any of its Subsidiaries has been provided to any Person except subject to
written confidentiality
A-15
<PAGE> 145
agreements, except for any such disclosure which has not resulted and could not
reasonably be expected to result in a Company Material Adverse Effect.
(f) As used in this Section 3.15:
(i) "Databases" means and includes all compilations of data and all
related documentation and written narratives of all procedures used in
connection with the collection, processing and distribution of data
contained therein, together with information that describes the attributes
of certain data and such data's relationship to other data, including,
without limitation, (A) whether the data must be numerical, alphabetic, or
alphanumeric, (B) range or type limitations of the data, (C) one-to-one,
one-to-many, or many-to-many relationships with other data, (D) file
layouts, and (E) data formats.
(ii) "Intellectual Property" means all rights, privileges and priorities
provided under applicable Law relating to intellectual property, whether
registered or unregistered, including without limitation all (i) (a)
inventions, discoveries, processes, formulae, designs, methods, techniques,
procedures, concepts, developments, technology, mask works, and
confidential information, new and useful improvements thereof and know-how
relating thereto, whether or not patented or eligible for patent
protection; (b) copyrights and copyrightable works, including computer
applications, programs, Software, Databases and related items; (c)
trademarks, service marks, trade names, brand names, product names,
corporate names, logos and trade dress, the goodwill of any business
symbolized thereby, and all common-law rights relating thereto; and (d)
trade secrets, data and other confidential information; and (ii) all
registrations, applications, recordings, and licenses or other similar
agreements related to the foregoing;
(iii) "Owned Databases" means all Databases other than Third Party
Databases.
(iv) "Owned Software" means all Software other than Third Party
Software.
(v) "Software" means and includes all computer programs, whether in
source code, object code or other form (including without limitation any
embedded in or otherwise constituting part of a computer hardware device),
algorithms, edit controls, methodologies, applications, flow charts and any
and all systems documentation (including, but not limited to, data entry
and data processing procedures, report generation and quality control
procedures), logic and designs for all programs, and file layouts and
written narratives of all procedures used in the coding or maintenance of
the foregoing.
(vi) "Third Party Databases" means Databases licensed or leased to the
Company or any of its Subsidiaries by third parties.
(vii) "Third Party Software" means Software licensed or leased to the
Company or its Subsidiaries by third parties, including commonly available
"shrink wrap" software copyrighted by third parties.
(viii) "Year 2000 Compliant" means, when used with respect to any
Software or Database, that such Software or Database will accept, receive,
input, calculate, compare, sort, store, extract, sequence, and otherwise
process data inputs and date values, and return and display date values, in
a correct and accurate manner, without interruption or abnormal end of
process, regardless of the dates used, whether before, on, or after January
1, 2000, for any date value or values in the twentieth or twenty-first
centuries.
A-16
<PAGE> 146
SECTION 3.16 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information supplied or to be supplied by the Company for
inclusion in (i) the Registration Statement on Form S-4 to be filed with the SEC
under the Securities Act for the purpose of registering the shares of Parent
Common Stock to be issued in connection with the Merger (the "REGISTRATION
STATEMENT") or (ii) the joint proxy statement/prospectus to be distributed in
connection with the Company's meeting of shareholders to vote upon this
Agreement and the Parent's meeting of shareholders to vote upon the issuance of
shares of Parent Common Stock in the Merger (pursuant to the applicable rules of
the Nasdaq Stock Market) (the "PROXY STATEMENT") will, in the case of the
Registration Statement, at the time it is filed with the SEC, at any time it is
amended or supplemented and at the time it becomes effective under the
Securities Act or, in the case of the Proxy Statement or any amendments thereof
or supplements thereto, at the time of the initial mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of each of
the Company Shareholder Meeting and the Parent Shareholder Meeting (as defined
in Section 6.5 below), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. As of the date of its initial mailing and as of the
date of each of the Company Shareholder Meeting and the Parent Shareholder
Meeting, the Proxy Statement will comply as to form in all material respects
with the applicable requirements of the Exchange Act. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
statement made or incorporated by reference in the Proxy Statement based upon
information supplied by or on behalf of Parent or Merger Sub for inclusion or
incorporation by reference therein.
SECTION 3.17 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 3.17 of the Company Disclosure Schedule sets forth the name of
each Company Plan (as defined below) and of each bonus, deferred compensation
(together with a list of participants therein), incentive compensation, profit
sharing, salary continuation (together with a list of participants therein),
employee benefit, fringe benefit, stock purchase, stock option, employment,
severance, termination, golden parachute, consulting or supplemental retirement
plan or agreement (collectively, the "BENEFIT PLANS"), true copies of which have
heretofore been made available to Parent. The Company has also delivered to
Parent true, complete and correct copies of (1) each Benefit Plan (or, in the
case of any unwritten Benefit Plans, descriptions thereof), (2) the two most
recent annual reports on Form 5500 (including all schedules and attachments
thereto) filed with the IRS with respect to each Benefit Plan (if any such
report was required by applicable Law), (3) the most recent summary plan
description (or similar document) for each Benefit Plan for which such a summary
plan description is required by applicable Law or was otherwise provided to plan
participants or beneficiaries and (4) each trust agreement and insurance or
annuity contract or other funding or financing arrangement relating to any
Benefit Plan. Each Company Plan and Benefit Plan has been administered in all
material respects in accordance with its terms and complies in all material
respects with ERISA, the Code and all other applicable Laws. All contributions
to, and payments from, the Benefit Plans that may have been required to be made
in accordance with the terms of the Benefit Plans, any applicable collective
bargaining agreement and, when applicable, Section 302 of ERISA or Section 412
of the Code, have been timely made. All such contributions to, and payments
from, the Benefit Plans, except those payments to be made from a trust qualified
under Section 401(a) of the Code, for any period ending before the Effective
Time that are not yet, but will be, required to be made, will be properly
accrued and reflected in the balance sheet included in the Company Interim
Financial Statements. No "reportable event" (within the meaning of Section 4043
of
A-17
<PAGE> 147
ERISA) has occurred with respect to any Company Plan for which the 30-day notice
requirement has not been waived (other than with respect to the transactions
contemplated by this Agreement); neither the Company nor any of its ERISA
Affiliates has withdrawn from any Company Plan under Section 4063 of ERISA or
Company Multiemployer Plan (as defined below) under Section 4203 or 4205 of
ERISA or has taken, or is currently considering taking, any action to do so; and
no action has been taken, or is currently being considered, to terminate any
Company Plan subject to Title IV of ERISA. No Company Plan, nor any trust
created thereunder, has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived. As of the most recent
valuation date for each Company Plan that is a "defined benefit plan" (as
defined in Section 3(35) of ERISA (hereinafter a "DEFINED BENEFIT PLAN")), there
was not any amount of "unfunded benefit liabilities" (as defined in Section
4001(a)(18) of ERISA) under such Defined Benefit Plan, and the Company is not
aware of any facts or circumstances that would materially change the funded
status of any such Defined Benefit Plan. The Company has furnished to Parent the
most recent actuarial report or valuation with respect to each Defined Benefit
Plan. The information supplied to the plan actuary by the Company and any ERISA
Affiliate (as defined below) for use in preparing those reports or valuations
was complete and accurate in all material respects and the Company has no reason
to believe that the conclusions expressed in those reports or valuations are
incorrect. Neither the Company nor any ERISA Affiliate has (a) engaged in a
transaction described in Section 4069 of ERISA that could subject the Company to
liability at any time after the date hereof or (b) acted in a manner that could,
or failed to act so as to, result in material fines, penalties, taxes or related
charges under (x) Section 502(c)(i)(1) of ERISA, (y) Section 4071 of ERISA or
(z) Chapter 43 of the Code. There are no material (individually or in the
aggregate) actions, suits or claims pending or, to the knowledge of the Company,
threatened in writing (other than routine claims for benefits) with respect to
any Company Plan or Benefit Plan. Neither the Company nor any of its ERISA
Affiliates has incurred or could reasonably be expected to incur any material
liability under or pursuant to Title IV of ERISA that has not been satisfied in
full. To the knowledge of the Company, no material non-exempt prohibited
transactions described in Section 406 of ERISA or Section 4975 of the Code have
occurred. All Company Plans that are intended to be qualified under Section
401(a) of the Code have received a favorable determination letter as to such
qualification from the IRS, and no event has occurred, either by reason of any
action or failure to act, which could be expected to cause the loss of any such
qualification, and the Company is not aware of any reason why any Company Plan
and Benefit Plan is not so qualified in operation. The Company has delivered to
Parent (i) a copy of the most recent determination letter received with respect
to each Company Plan for which such a letter has been issued, as well as a copy
of any pending application for a determination letter and (ii) a list of all
Company Plan amendments as to which a favorable determination letter has not yet
been received. None of the Company, any of its ERISA Affiliates or, to the
knowledge of the Company, any trustee, administrator or other fiduciary of any
Benefit Plan or any agent of any of the foregoing has engaged in any transaction
or acted in a manner that could, or has failed to act so as to, subject the
Company, any such ERISA Affiliate or any trustee, administrator or other
fiduciary to any material liability for breach of fiduciary duty under ERISA or
any other applicable law. Neither the Company nor any of its ERISA Affiliates
knows or has been notified by any Company Multiemployer Plan that such Company
Multiemployer Plan is currently in reorganization or insolvency under and within
the meaning of Section 4241 or 4245 of ERISA or that such Company Multiemployer
Plan intends to terminate or has been terminated under Section 4041A of ERISA.
As used herein: (i) "COMPANY PLAN" means (x) a "pension plan" (as defined in
Section 3(2) of ERISA, other than a Company Multiemployer Plan) or a "welfare
plan" (as defined in
A-18
<PAGE> 148
Section 3(l) of ERISA) established or maintained by the Company or any Person
that, together with the Company, is treated as a single employer under Section
414(b), (c), (m) or (o) of the Code (each, an "ERISA AFFILIATE") or to which the
Company or any of its ERISA Affiliates has contributed in the last six years or
otherwise may have any liability; and (ii) "COMPANY MULTIEMPLOYER PLAN" means a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which the
Company or any of its ERISA Affiliates is or has been obligated to contribute or
otherwise may have any liability.
(b) The consummation of the transactions contemplated by the Transaction
Agreements will not, either alone or in combination with any other event that is
reasonably likely to occur, (A) entitle any current or former director, officer
or employee of the Company or any of its ERISA Affiliates to severance pay,
golden parachute payments, unemployment compensation or any other payment,
except as expressly provided in this Agreement, or (B) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
director, officer or employee.
(c) The list of welfare plans in Section 3.17 of the Company Disclosure
Schedule discloses whether each welfare plan is (i) unfunded, (ii) funded
through a "welfare benefit fund", as such term is defined in Section 419(e) of
the Code, or other funding mechanism or (iii) insured. Each such welfare plan
may be amended or terminated without material liability to the Company at any
time after the Effective Time. The Company and its ERISA Affiliates comply in
all material respects with the applicable requirements of Section 4980B(f) of
the Code with respect to each Benefit Plan that is a group health plan, as such
term is defined in Section 5000(b)(1) of the Code.
SECTION 3.18 ENVIRONMENTAL MATTERS.
(a) No Person (including any Governmental Entity) has asserted against the
Company or any of its Subsidiaries any written requests, claims or demands for
damages, costs, expenses or causes of action arising out of (i) the emission,
disposal, discharge or other release or threatened release of any hazardous
substance, pollutant or contaminant (in each case, as defined in or governed by
any applicable Law) or any other substance the release, disposal, treatment or
storage of which is regulated under applicable Law (all of the foregoing,
collectively, "HAZARDOUS SUBSTANCES") in connection with or related to any past
or present facilities, properties or assets owned, leased or operated by the
Company or any of its Subsidiaries currently or in the past (collectively, the
"COMPANY FACILITIES"), or (ii) any actual or alleged injury to human health or
the environment by reason of the current condition or operation of the Company
Facilities, or past conditions and operations or activities on the Company
Facilities.
(b) Neither the Company nor any Subsidiary is subject to any pending, or to
the knowledge of the Company, threatened (in writing) actions for damages, costs
or expenses or to any demands, claims, losses, administrative proceedings,
enforcement actions, or investigations in any case relating to or arising from
the generation, emission, disposal, discharge, release or threatened release,
treatment, or storage of any Hazardous Substance associated with the Company
Facilities or the Company's or any of its Subsidiaries' operations.
(c) The Company and its Subsidiaries hold, and are in material compliance
with, all permits and approvals of Government Entities required under applicable
Law to operate all Company Facilities, except when the failure to hold such
permits and approvals would not result in a Company Material Adverse Effect.
A-19
<PAGE> 149
(d) There is no environmental condition, situation or incident on, at or
concerning any Company Facility or the Company's or any of its Subsidiaries'
operations that has resulted in or could reasonably be expected to result in a
Material Adverse Effect on the Company.
SECTION 3.19 AFFILIATE TRANSACTIONS. Except as set forth in the Company
SEC Documents, there are no material Contracts or other material transactions
between the Company or any of its Subsidiaries, on the one hand, and any (i)
officer or director of the Company or of any of its Subsidiaries, (ii) record or
beneficial owner of five percent or more of any class of the voting securities
of the Company or (iii) affiliate (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) of any such officer, director or beneficial
owner, on the other hand.
SECTION 3.20 OPINION OF FINANCIAL ADVISOR. The Company has received the
written opinion of Morgan Stanley & Co. Incorporated ("MORGAN STANLEY") to the
effect that the consideration to be received in the Merger by the holders of
Company Capital Stock is fair to such holders from a financial point of view. A
true, correct and complete copy of the written opinion delivered by Morgan
Stanley, which opinion shall be included in the Proxy Statement, as well as a
true and correct copy of the Company's engagement of Morgan Stanley, have been
delivered to Parent by the Company.
SECTION 3.21 BROKERS. Other than Morgan Stanley, no broker, finder or
financial advisor retained by the Company is entitled to any brokerage, finder's
or other fee or commission from the Company in connection with the transactions
contemplated by this Agreement.
SECTION 3.22 POOLING. The Company does not know of any reason why the
Merger will not qualify as a pooling of interests transaction under APB Opinion
No. 16. Neither the Company nor any of its Subsidiaries nor, to its knowledge,
any of its affiliates has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by Parent or any of its
affiliates) would prevent Parent from accounting for the business combination to
be effected by the Merger as a pooling of interests transaction under APB 16.
SECTION 3.23 ACCOUNTS RECEIVABLE. All accounts receivable of the Company
and its Subsidiaries, whether or not reflected in the Company's consolidated
financial statements, represent in all material respects sales made in the
ordinary course of business, and the reserves shown on the Company's
consolidated financial statements have been established in accordance with GAAP,
consistently applied, and are considered by management of the Company to be
adequate.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company as follows, subject to the exceptions and qualifications set forth in
the Parent Disclosure Schedule dated as of the date of this Agreement and
delivered as a separate document (the "PARENT DISCLOSURE SCHEDULE"), each
section of which qualifies only the corresponding numbered representation(s) and
warranty(ies) and no others:
SECTION 4.1 ORGANIZATION AND GOOD STANDING. (i) Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina, (ii) Merger Sub is a corporation duly organized,
validly existing and in good standing under
A-20
<PAGE> 150
the laws of the State of Tennessee, and (iii) each of Parent and Merger Sub has
the corporate power and authority to carry on its business as it is now being
conducted. Parent is duly qualified as a foreign corporation to do business, and
is in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have, individually or in the aggregate a Parent Material
Adverse Effect.
SECTION 4.2 ARTICLES OF INCORPORATION AND BYLAWS. True, correct and
complete copies of the Articles of Incorporation and Charter, respectively, and
Bylaws, each as amended to date, of Parent and Merger Sub have been made
available to the Company. The Articles of Incorporation and Charter,
respectively, and Bylaws of Parent and Merger Sub are in full force and effect.
Neither Parent nor Merger Sub is in violation of any provision of its
Organizational Documents.
SECTION 4.3 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of (i) 200,000,000
shares of Common Stock, par value $0.01 per share, and (ii) 25,000,000 shares of
Preferred Stock, $0.01 par value per share ("PARENT PREFERRED STOCK"). As of the
date of this Agreement, (w) 77,952,919 shares of Parent Common Stock were issued
and outstanding, (x) no shares of Parent Preferred Stock were issued or
outstanding, (y) 5,006,106 shares of Parent Common Stock were reserved for
issuance upon the exercise of outstanding stock options, and (z) 3,474,250
shares of Parent Common Stock issuable upon conversion of Parent's outstanding
4 1/4% Convertible Subordinated Notes due May 31, 2000. The authorized capital
stock of Merger Sub consists of 1,000 shares of Common Stock, no par value per
share. As of the date of this Agreement, 100 shares of Merger Sub Common Stock
were issued and outstanding, all of which are owned by Parent. All of the issued
and outstanding shares of Parent Common Stock and Merger Sub Common Stock have
been validly issued and are fully paid and nonassessable, and none are subject
to preemptive rights. The shares of Parent Common Stock to be issued in
connection with the Merger have been duly authorized and, when so issued, will
be fully paid and nonassessable, and will not be subject to preemptive rights.
(b) Except as described in subsection (a) above, as of the date of this
Agreement: (i) no shares of capital stock or other equity securities of Parent
or Merger Sub are authorized, issued or outstanding, or reserved for issuance,
and there are no options, warrants or other Contracts to which Parent is a party
requiring Parent to grant, issue or sell any shares of the capital stock or
other equity interests of Parent by sale, lease, license or otherwise; and (ii)
Parent has no obligation, contingent or otherwise, to repurchase, redeem or
otherwise acquire any shares of the capital stock or other equity interests of
Parent.
SECTION 4.4 CORPORATE AUTHORITY.
(a) Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby have been duly authorized by their respective
Boards of Directors, and no other corporate action on the part of Parent or
Merger Sub (other than the approval of the issuance of shares of Parent Common
Stock in the Merger by the holders of not less than a majority of Parent's
Common Stock voted in accordance with the Nasdaq Stock Market rules) is
necessary to authorize the
A-21
<PAGE> 151
execution and delivery by Parent and Merger Sub of this Agreement and the
consummation by them of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and Merger Sub, constitutes a valid
and binding agreement of Parent and Merger Sub and is enforceable against Parent
and Merger Sub in accordance with its terms. The preparation and filing of the
Registration Statement to be filed with the SEC has been duly authorized by the
Board of Directors of Parent. The respective Boards of Directors of Parent and
Merger Sub have approved and adopted this Agreement and the transactions
contemplated hereby pursuant to the North Carolina Business Corporations Act and
the TBCA, respectively, and the Board of Directors of Merger Sub recommended
approval thereof by its sole shareholder.
(b) Prior to execution and delivery of this Agreement, the Board of
Directors of Parent (at a meeting duly called and held) determined to recommend
to the Company's shareholders that they approve the issuance of shares of Parent
Common Stock in the Merger, as required by the applicable rules of the Nasdaq
Stock Market. Such approval is the only vote of the holders of any class or
series of Parent's capital stock necessary to approve the Merger or the
transactions contemplated by this Agreement.
SECTION 4.5 NON-CONTRAVENTION. The execution and delivery by Parent and
Merger Sub of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, (i)
result in any violation of, or default (with or without notice or lapse of time,
or both) under, require any notice or consent under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under any Contract binding upon Parent or Merger Sub, or result
in the creation of any Encumbrance upon any of the properties or assets of
Parent or Merger Sub, (ii) conflict with or result in any violation of any
provision of the Organizational Documents of Parent or Merger Sub, or (iii)
conflict with or violate any Law applicable to Parent or Merger Sub or any of
their respective properties or assets, other than, in the case of clauses (i)
and (iii), any such violation, conflict, default, right, loss or Encumbrance
that if occurring, or any such notice or consent that if not given or obtained,
could not reasonably be expected, individually or in the aggregate, to have a
Parent Material Adverse Effect.
SECTION 4.6 GOVERNMENT APPROVALS; REQUIRED CONSENTS. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity or any other third party is required by or with respect to Parent or
Merger Sub in connection with the execution and delivery of this Agreement by
Parent or Merger Sub or is necessary for the consummation of the transactions
contemplated hereby (including, without limitation, the Merger) except: (i)
approval by Parent's shareholders pursuant to the applicable rules of the Nasdaq
Stock Market, (ii) the filing with the SEC of the Registration Statement and
such reports under the Exchange Act, and any applicable state securities or
"blue sky" Laws as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iii) the filing of a notification
under the HSR Act, (iv) the filing of Articles of Merger with the Secretary of
State of the State of Tennessee, (v) the consents, approvals, authorizations,
permits, filings and notifications listed in Section 4.6 of the Parent
Disclosure Schedule and (vi) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to obtain or make
could not reasonably be expected, individually or in the aggregate, to have a
Parent Material Adverse Effect.
SECTION 4.7 SEC DOCUMENTS AND OTHER REPORTS. Parent has filed various
reports, schedules, forms, statements and other documents (which are publicly
available) with the SEC pursuant to applicable federal securities Laws from
January 1, 1997 to the date of this Agreement (the "PARENT SEC DOCUMENTS"), and
the Parent SEC Documents constitute all
A-22
<PAGE> 152
of the documents required to have been filed by Parent pursuant to such Laws for
such period. As of their respective dates, or if amended, as of the date of the
last such amendment, the Parent SEC Documents complied, and all documents
required to be filed by Parent with the SEC after the date hereof and prior to
the Effective Time ("SUBSEQUENT PARENT SEC DOCUMENTS") will comply, in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and none of the Parent SEC Documents contained when
filed, and the Subsequent Parent SEC Documents will not contain when filed, any
untrue statement of a material fact or omitted, or will omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, or are to be
made, not misleading. Except to the extent information contained in any Parent
SEC Document has been revised or superseded by a later filed Parent SEC
Document, none of the Parent SEC Documents (including any and all financial
statements included therein) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Parent included in the Parent SEC Documents when filed fairly presented, and
those included in the Subsequent Parent SEC Documents when filed will fairly
present, the consolidated financial position of Parent and its consolidated
Subsidiaries, as at the respective dates thereof and the consolidated results of
their operations and their consolidated cash flows for the respective periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments and to any other adjustments described therein) and have been
prepared in conformity with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto).
Since December 31, 1997, Parent has not made any change in the accounting
practices or policies applied in the preparation of its financial statements,
except as have been required by GAAP.
SECTION 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Parent SEC Documents, since December 31, 1997, Parent has conducted its
business and operations in the ordinary and usual course consistent with past
practice, and there has not occurred (i) any event, condition or occurrence
having or that could reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect; or (ii) any declaration, setting
aside or payment of any dividend or distribution of any kind by Parent or Merger
Sub on any class of its capital stock.
SECTION 4.9 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION
STATEMENT. None of the information supplied or to be supplied by Parent or
Merger Sub for inclusion in (i) the Registration Statement or (ii) the Proxy
Statement will, in the case of the Registration Statement, at the time it is
filed with the SEC, at any time it is amended or supplemented and at the time it
becomes effective under the Securities Act or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
initial mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of each of the Company Shareholder Meeting and the
Parent Shareholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Registration Statement, as of its effective
date, will comply as to form in all material respects with the requirements of
the Securities Act. Notwithstanding the foregoing, neither Parent nor Merger Sub
makes any representation or warranty with respect to any statement made or
incorporated by reference in
A-23
<PAGE> 153
the Registration Statement based upon information supplied by or in behalf of
the Company for inclusion or incorporation by reference therein.
SECTION 4.10 INTERIM OPERATIONS OF THE MERGER SUBSIDIARY. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated hereby.
SECTION 4.11 COMPLIANCE WITH LAWS. The business of Parent and Merger Sub
has been and is being conducted in compliance with all applicable Laws, except
for violations or failures to so comply that could not reasonably be expected,
individually or in the aggregate, to have a Parent Material Adverse Effect; and
no investigation or review by any Governmental Entity with respect to Parent or
Merger Sub is pending or, to the knowledge of Parent, threatened in writing,
other than, in each case, those which could not reasonably be expected,
individually or in the aggregate, to have a Parent Material Adverse Effect.
SECTION 4.12 ACTIONS AND PROCEEDINGS. Except as set forth in the Parent
SEC Documents, there are no outstanding orders, judgments, injunctions, awards
or decrees of any Government Entity against Parent or any of its Subsidiaries,
any of their properties, assets or business, or, to the knowledge of Parent, any
of Parent's or its Subsidiaries' current or former directors or officers (during
the period served as such) or any other person whom the Company or any of its
Subsidiaries has agreed to indemnify, as such. Except as set forth in the Parent
SEC Documents, there are no material (individually or in the aggregate) actions,
suits or legal, administrative, regulatory or arbitration proceedings pending
or, to the knowledge of Parent, threatened in writing against Parent or any of
its Subsidiaries, any of their properties, assets or business, or, to the
knowledge of Parent, any of Parent's or its Subsidiaries' current or former
directors or officers or any other person whom Parent or any of its Subsidiaries
has agreed to indemnify, as such; nor is there any reasonable basis for any such
action, suit or proceeding that, individually or in the aggregate, could
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities
or obligations which are accrued or reserved against on the most recent balance
sheet (or reflected in the notes thereto) included in the Parent SEC Documents,
neither Parent nor any of its Subsidiaries has any material (individually or in
the aggregate) liabilities or obligations (whether absolute, accrued, contingent
or otherwise), other than liabilities or obligations incurred in the ordinary
course of business since the date of such balance sheet or liabilities under
this Agreement.
SECTION 4.14 BROKERS. Other than Goldman, Sachs & Co. ("GOLDMAN"), the
fees and expenses of which will be paid by Parent, no broker, finder or
financial advisor retained by the Parent is entitled to any brokerage, finder's
or other fee or commission from Parent in connection with the transactions
contemplated by this Agreement. A true and correct copy of Parent's engagement
letter with Goldman has been delivered to the Company by Parent.
SECTION 4.15 POOLING. Parent does not know of any reason why the Merger
will not qualify as a pooling of interests transaction under APB Opinion No. 16.
Neither Parent nor any of its Subsidiaries nor, to its knowledge, any of its
affiliates has taken or agreed to take any action that (without giving effect to
any action taken or agreed to be taken by the Company or any of its affiliates)
would prevent Parent from accounting for the business combination to be effected
by the Merger as a pooling of interests transaction under APB 16.
A-24
<PAGE> 154
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. From
the date of this Agreement to the Effective Time, unless Parent shall otherwise
agree in writing (which agreement shall not be unreasonably withheld or
delayed), or as set forth in Section 5.1 of the Company Disclosure Schedule or
as expressly contemplated by this Agreement, the Company shall conduct, and
shall cause each of its Subsidiaries to conduct, its business only in the
ordinary and usual course consistent with past practice, and the Company shall
use, and shall cause each of its Subsidiaries to use, reasonable efforts to
preserve intact the present business organization, keep available the services
of its present officers and key employees, and preserve its existing
relationships with customers, suppliers, licensors, licensees, distributors and
other having business dealings with them. In addition, without limiting the
generality of the foregoing, unless Parent shall otherwise agree in writing
(which agreement shall not be unreasonably withheld or delayed), as set forth in
Section 5.1 of the Company Disclosure Schedule or as otherwise contemplated by
this Agreement, from the date of this Agreement to the Effective Time the
Company shall not, nor shall it permit any of its Subsidiaries to:
(a) (i) amend its Organizational Documents, (ii) split, combine or
reclassify any shares of its outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its outstanding capital stock, (iii) declare,
set aside or pay any dividend or other distribution payable in cash, stock
or property on any class of its capital stock, or (iv) directly or
indirectly redeem or otherwise acquire (except for deemed acquisitions upon
cashless exercises of Options) any shares of its capital stock, including
without limitation the Series B Preferred Stock, or shares of the capital
stock of any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(b) authorize for issuance, issue (except upon (i) the exercise of stock
options or warrants outstanding on the date of this Agreement and in
accordance with their present terms, or (ii) conversion of shares of
Company Series B Preferred Stock outstanding on the date of this Agreement
and in accordance with the Company's Charter, as amended), deliver, grant
or sell or agree to issue or sell any shares of, or rights to acquire or
convertible into any shares of, its capital stock or shares of the capital
stock of any of its Subsidiaries (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise);
(c) (i) merge, combine or consolidate with another Person, (ii) acquire
or purchase an equity interest in or a substantial portion of the assets of
another Person or otherwise acquire any material assets outside the
ordinary course of business and consistent with past practice or otherwise
enter into any material Contract, commitment or transaction outside the
ordinary course of business and consistent with past practice or (iii)
sell, lease, license, waive, release, transfer, encumber or otherwise
dispose of any of its material assets outside the ordinary course of
business consistent with past practice;
(d) (i) other than in connection with existing credit facilities or
replacements thereof, incur, assume or prepay any indebtedness, obligations
or liabilities in excess of $500,000 (individually or in the aggregate)
other than in each case in the ordinary course of business consistent with
past practice, (ii) assume, guarantee, endorse or
A-25
<PAGE> 155
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any person other than a Subsidiary of the
Company, in each case other than in the ordinary course of business
consistent with past practice, (iii) make any loans, advances or capital
contributions to, or investments in, any other Person, other than to any
Subsidiary of the Company, or (iv) issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries;
(e) except as set forth in Section 5.1(e) of the Company Disclosure
Schedule, pay, satisfy, discharge or settle any material claim, liability
or obligation (absolute, accrued, contingent or otherwise), other than in
the ordinary course of business consistent with past practice or pursuant
to mandatory terms of any Company Contract in effect on the date hereof;
(f) modify or amend, or waive any benefit of, any non-competition
agreement to which the Company or any of its Subsidiaries is a party;
(g) authorize or make capital expenditures in excess of $200,000
individually, or in excess of $1,000,000 in the aggregate except for those
projects set forth in Section 5.1 of the Company Disclosure Schedule;
(h) permit any insurance policy naming the Company or any Subsidiary of
the Company as a beneficiary or a loss payee to be cancelled (other than
due to circumstances beyond the Company's control) or terminated other than
in the ordinary course of business;
(i) (i) adopt, enter into, terminate or amend (except as may be required
by applicable Law) any employee plan, Contract or other Company Plan for
the current or future benefit or welfare of any director, officer or
employee of the Company or any of its Subsidiaries, (ii) except in the
ordinary course of business consistent with past practice, increase in any
manner the compensation, fringe benefits, severance or termination pay of,
or pay any bonus to, any director, officer or employee of the Company or
any of its Subsidiaries; or (iii) other than pursuant to Section 2.6
hereof, take any action to fund or in any other way secure, or to
accelerate or otherwise remove restrictions with respect to, the payment of
compensation or benefits under any employee plan, agreement, contract,
arrangement or other Company Plan;
(j) make any material change in its accounting or tax policies or
procedures, except as required by applicable Law or to comply with GAAP;
(k) take any action that (without giving effect to any action taken or
agreed to be taken by Parent or any of its affiliates) would prevent Parent
from accounting for the business combination to be effected by the Merger
as a pooling of interests;
(l) amend the Company Rights Agreement, redeem the Company Rights or
take any action with respect to, or make any determination under, the
Company Rights Agreement; or
(m) enter into any Contract with respect to any of the foregoing or
authorize any of, or commit or agree to take any of, the foregoing actions.
A-26
<PAGE> 156
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 ACCESS AND INFORMATION. Each party hereto shall (and shall
cause its Subsidiaries and its and their respective officers, directors,
employees, auditors and agents to) afford to the other party and to such other
party's officers, employees, financial advisors, legal counsel, accountants,
consultants and other representatives (except to the extent not permitted under
applicable Law as advised by counsel) reasonable access during normal business
hours throughout the period prior to the Effective Time to all of its books and
records and its properties, plants and personnel and, during such period, shall
furnish promptly to the other party a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal or
state securities Laws and all other information concerning its business,
properties and personnel as such other party may reasonably request. Unless
otherwise required by applicable Law, each party hereto agrees that it shall,
and it shall cause its Subsidiaries and its and their respective officers,
directors, employees, auditors and agents to, hold in confidence all non-public
information so acquired and to use such information solely for purposes of
effecting the transactions contemplated by this Agreement as set forth in the
Confidentiality Agreement executed by Parent and Company dated December 1998
(the "CONFIDENTIALITY AGREEMENT"). Without limiting the generality of the
foregoing, the Company shall, within two business days of request therefor,
provide to Parent the information described in Rule 14a-7(a)(2)(ii) under the
Exchange Act and any information to which a holder of Company Common Stock would
be entitled under Section 48-26-102 of the TBCA (assuming such holder met the
requirements of such section).
SECTION 6.2 NO SOLICITATION.
(a) Prior to the Effective Time, the Company agrees that it shall not, nor
shall it authorize and permit its Subsidiaries or affiliates to, nor shall it
authorize or permit any director, officer, employee or agent of, or any
investment banker, attorney or other advisor or, representative of, the Company
or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate or
encourage (including by way of furnishing or disclosing non-public information)
any inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving the Company or any
Subsidiary of the Company or the acquisition of all or any significant part of
the assets or capital stock of the Company or any Subsidiary of the Company (an
"ACQUISITION TRANSACTION") or (ii) negotiate, explore or otherwise engage in
discussions with any Person (other than Parent and its representatives) with
respect to any Acquisition Transaction, or which may reasonably be expected to
lead to a proposal for an Acquisition Transaction or enter into any Contract or
understanding with respect to any such Acquisition Transaction or which would
require it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement; provided, however, that prior to
receipt of the approval of this Agreement and the transactions contemplated
hereby by the shareholders of the Company, the Company may, to the extent
required by the fiduciary obligations of the Company's Board of Directors, as
determined in good faith by it based on the advice of outside counsel, in
response to any such proposal for an Acquisition Transaction that was not
solicited by the Company and that did not otherwise result from a breach or a
deemed breach of this Section 6.2(a), and subject to compliance with Section
6.2(c), (x) furnish information with respect to the Company to the Person making
such proposal pursuant to a confidentiality agreement not less restrictive of
the other party than the Confidentiality Agreement and (y) participate in
negotiations regarding such proposal. Without limiting the foregoing, it is
agreed that any violation of the
A-27
<PAGE> 157
restrictions set forth in the preceding sentence by any executive officer of the
Company or any of its Subsidiaries or any affiliate, director or investment
banker, attorney or other advisor or representative of the Company or any of its
Subsidiaries, whether or not such person is purporting to act on behalf of the
Company or any of its Subsidiaries or otherwise, shall be deemed to be a breach
of this Section 6.2(a) by the Company.
(b) Neither the Company's Board of Directors nor any committee thereof
shall (i) withdraw or modify, in a manner adverse to Parent or Merger Sub, the
approval or recommendation by the Company's Board of Directors or any such
committee of this Agreement or the Merger, (ii) approve any letter of intent,
agreement in principle, acquisition agreement or similar agreement relating to
any Acquisition Transaction or (iii) approve or recommend any Acquisition
Transaction; provided, however, that the Company's Board of Directors may take
any action specified in (i), (ii) or (iii) in the event that prior to the
approval of this Agreement and the transactions contemplated hereby by the
shareholders of the Company, (x) the Company's Board of Directors determines in
good faith, after it has received a Superior Proposal as defined below and after
it has received advice from outside counsel that the failure to do so would
result in a reasonable possibility that the Company's Board of Directors would
breach its fiduciary duty under applicable law, (y) the Company has notified the
Parent in writing of the determination set forth in clause (x) above, and (z) at
least five calendar days following receipt by Parent of any notice referred to
in clause (y) such Superior Proposal remains a Superior Proposal and the
Company's Board of Directors has again made the determination in clause (x)
above; and further provided that neither the Company, its Board of Directors,
nor any committee thereof shall take any action specified in clause (i), (ii) or
(iii) above without first terminating this Agreement pursuant to Section 8.1(e).
As used herein, "SUPERIOR PROPOSAL" means a bona fide, written and unsolicited
proposal or offer (including a new or unsolicited proposal received by the
Company after the execution of this Agreement from a Person whose initial
contact with the Company may have been solicited by the Company or its
representatives prior to the execution of this Agreement) made by any Person or
group (other than Parent or any of its Subsidiaries) with respect to an
Acquisition Transaction on terms which the Board of Directors of the Company
determines in good faith, and in the exercise of reasonable judgement (based on
the advice of independent financial advisors and outside legal counsel), to be
reasonably capable of being consummated and to be superior from a financial
point of view to the holders of Company Common Stock than the transactions
contemplated hereby, taking into consideration all elements of the transactions
contemplated hereby including, without limitation, the non-taxable element of
said transactions (based on the written opinion, with only customary
qualifications, of the Company's financial advisor).
(c) The Company agrees that, as of the date hereof, it, its Subsidiaries
and affiliates, and the respective directors, officers, employees, agents and
representatives of the foregoing, shall immediately cease and cause to be
terminated any existing activities, discussions and negotiations with any Person
(other than Parent and its representatives) conducted heretofore with respect to
any Acquisition Transaction. The Company agrees to advise Parent promptly orally
and in writing of any inquiries or proposals received by, any such information
requested from, and any requests for negotiations or discussions sought to be
initiated or continued with, the Company, its Subsidiaries or affiliates, or any
of the respective directors, officers, employees, agents or representatives of
the foregoing, in each case from a Person (other than Parent and its
representatives) with respect to an Acquisition Transaction or that reasonably
could be expected to lead to any Acquisition Transaction, and the identity of
the Person making such proposal for an Acquisition Transaction or inquiry. The
Company shall
A-28
<PAGE> 158
keep Parent reasonably informed of the status including any change to the
material terms of any such proposal for an Acquisition Transaction or inquiry.
SECTION 6.3 THIRD-PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it or any of its Subsidiaries is a party.
SECTION 6.4 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) As promptly as practicable, Parent and the Company shall in
consultation with each other prepare and file with the SEC the joint Proxy
Statement and Registration Statement in preliminary form. Each of the Company
and Parent shall use reasonable efforts to have the Proxy Statement cleared by
the SEC and the Registration Statement declared effective as soon as
practicable. The Company shall furnish Parent with all information concerning
the Company and the holders of its capital stock and shall take such other
action Parent may reasonably request in connection with the Registration
Statement and the issuance of shares of Parent Common Stock in connection with
the Merger. If, at any time prior to the Effective Time, any event or
circumstance relating to the Company, any Subsidiary of the Company, Parent or
any Subsidiary of Parent, or their respective officers or directors, should be
discovered by such party which should be set forth in an amendment or a
supplement to the Registration Statement or Proxy Statement, such party promptly
shall inform the other thereof and take appropriate action in respect thereof.
(b) The Company shall use reasonable efforts to cause to be delivered to
Parent a letter from Ernst & Young LLP, the Company's independent public
accountants, dated a date within two business days before the date on which the
Registration Statement shall become effective (and thereafter brought down to a
date within two business days of the Closing Date) and addressed to Parent, in
form and substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(c) Parent shall use reasonable efforts to cause to be delivered to the
Company a letter from Arthur Andersen LLP, Parent's independent public
accountants, dated a date within two business days before the date on which the
Registration Statement shall become effective (and thereafter brought down to a
date within two business days of the Closing Date) and addressed to the Company,
in form and substance reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
SECTION 6.5 SHAREHOLDER APPROVAL.
(a) Subject to Section 6.2, the Company, acting through its Board of
Directors, shall (i) promptly and duly call, give notice of, convene and hold as
soon as practicable following the date upon which the Registration Statement
becomes effective a meeting of the holders of Company Common Stock for the
purpose of voting to approve this Agreement and the transactions contemplated
hereby (the "COMPANY SHAREHOLDER MEETING"), and, (ii) recommend approval and
adoption of this Agreement and the transactions contemplated hereby to the
shareholders of the Company and include in the Proxy Statement such
recommendation and (iii) take all reasonable action to solicit and obtain such
approval.
(b) Parent, acting through its Board of Directors, shall promptly and duly
call, give notice of, convene and hold as soon as practicable following the date
upon which the
A-29
<PAGE> 159
Registration Statement becomes effective a meeting of the holders of Parent
Common Stock for the purpose of voting to approve the issuance of shares of
Parent Common Stock in the Merger, as required by the applicable rules of the
Nasdaq Stock Market (the "PARENT SHAREHOLDER MEETING"), and recommend approval
for that purpose, include such recommendation in the Proxy Statement, and take
all reasonable action to solicit and obtain such approval.
(c) Each of Parent and the Company shall cause the definitive Proxy
Statement to be mailed to its respective shareholders as soon as practicable
following the date on which the Proxy Statement is cleared by the SEC and the
Registration Statement is declared effective; provided, however, that all
mailings to either party's shareholders in connection with the Merger, including
without limitation the Proxy Statement, shall be subject to the prior review,
comment and written approval of the other party, which such other party shall
not withheld or delay unreasonably.
SECTION 6.6 AFFILIATES. Prior to the mailing date of the Proxy Statement,
the Company shall cause to be prepared and delivered to Parent a list
(reasonably satisfactory to counsel for Parent) identifying each Person who, at
the time of the Company Shareholder Meeting, may be deemed to be an "affiliate"
of the Company, as such term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act (the "COMPANY RULE 145 AFFILIATES"). The Company shall use
reasonable efforts to cause each Person who is identified as a Company Rule 145
Affiliate in such list to deliver to Parent as soon as possible, and not later
than the mailing date for the Proxy Statement, a written agreement,
substantially in the form of Exhibit C hereto.
SECTION 6.7 COMBINED COMPANY FINANCIAL STATEMENTS. Parent shall use
reasonable efforts to file a Form 8-K with the SEC within thirty (30) days after
the end of the first full calendar month after the Effective Time to publish
financial results covering at least thirty (30) days of combined operations of
Parent and the Surviving Corporation.
SECTION 6.8 REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions herein provided and
applicable legal requirements, each of the parties hereto agrees to use
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, and to assist and cooperate with the other parties hereto in
doing, as promptly as practicable, all things necessary, proper or advisable
under applicable Laws to ensure that the conditions set forth in Article VII are
satisfied and to consummate and make effective the transactions contemplated by
this Agreement; provided, however, that the Company shall not, without Parent's
prior written consent, and Parent shall not be required to, divest or hold
separate or otherwise take or commit to take any other similar action with
respect to any assets, businesses or product lines of Parent, the Company or any
of their respective Subsidiaries.
(b) Subject to the proviso to Section 6.8(a) hereof, each of the parties
shall use reasonable efforts to obtain as promptly as practicable all consents,
waivers, approvals, authorizations or permits of, or registration or filing with
or notification to (any of the foregoing being a "CONSENT"), of any Governmental
Entity or any other Person required in connection with, and waivers of any
violations, defaults or breaches that may be caused by, the consummation of the
transactions contemplated by the Transaction Agreements. In connection with and
without limiting the foregoing, the Company and the Company's Board of Directors
shall (i) take all action necessary to ensure that no state takeover statute or
similar Law is or becomes applicable to any Transaction Agreement or any
transaction
A-30
<PAGE> 160
contemplated thereby and (ii) if state takeover statute or similar Law becomes
applicable to any Transaction Agreement or any transaction contemplated thereby,
take all action necessary to ensure that the Merger and such other transaction
may be consummated as promptly as practicable on the terms contemplated by the
Transaction Agreements.
(c) Each party hereto shall inform the other promptly of any material
communication from the SEC, the United States Federal Trade Commission, the
United States Department of Justice or any other Governmental Entity regarding
any of the transactions contemplated by the Transaction Agreements. If any party
hereto or any affiliate thereof receives a request for additional information or
documentary material from any such Governmental Entity with respect to the
transactions contemplated by the Transaction Agreements, then such party shall
use reasonable efforts to cause to be made, as soon as reasonably practicable
and after consultation with the other party, an appropriate response in
compliance with such request.
(d) Without limiting the generality of the foregoing and subject to the
proviso to Section 6.8(a) hereof, Parent and the Company will use their
respective reasonable efforts to obtain all authorizations or waivers required
under the HSR Act to consummate the transactions contemplated by the Transaction
Agreements, including, without limitation, making all filings with the Antitrust
Division of the Department of Justice ("DOJ") and the Federal Trade Commission
("FTC") required in connection therewith (the initial filing to occur no later
than ten business days following the execution and delivery of this Agreement)
and responding as promptly as practicable to all inquiries received from the DOJ
or FTC for additional information or documentation. Each of Parent and the
Company shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission which is necessary under the HSR Act. Parent and the
Company shall keep each other apprised of the status of any communications with,
and any inquiries or requests for additional information from, the FTC and the
DOJ.
(e) The parties hereto intend the Merger to qualify as a reorganization
under Section 368(a) of the Code. Each of the parties hereto shall, and shall
cause its respective Subsidiaries to, and shall use reasonable efforts to cause
its respective affiliates to, use its and their respective reasonable efforts to
cause the Merger to so qualify. No party hereto nor any affiliate thereof shall
take any action prior to or after the Effective Time that would cause the Merger
not to qualify under these Sections of the Code, and the parties hereto shall
take the position for all purposes that the Merger qualifies as a reorganization
under such Sections of the Code.
SECTION 6.9 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press releases or making any public statement
with respect to the transactions contemplated by the Transaction Agreements and
shall not issue any such press release or such public statement prior to such
consultation and without the approval of the other (which approval shall not
unreasonably be withheld), except as may be required by applicable law or
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 6.10 DIRECTORS' AND OFFICERS' INDEMNIFICATION; INSURANCE.
(a) Parent and the Company agree that all rights to indemnification and
exculpation now existing in favor of any employee, agent, director or officer of
the Company and its Subsidiaries (the "INDEMNIFIED PARTIES"), as provided in
their respective Charters or Bylaws and their respective Indemnification
Agreements, shall survive the Merger and shall
A-31
<PAGE> 161
continue in full force and effect for a period of four (4) years after the
Effective Time; provided that in the event any claim or claims are asserted or
made within such four (4) year period, all rights to indemnification in respect
of any such claim shall continue until final disposition of such claim. Parent
hereby agrees, effective as of the Effective Time, to guarantee the Company's
indemnification and exculpation obligations existing in favor of the Indemnified
Parties, as provided in the Company's and its Subsidiaries' respective
applicable Charters or Bylaws and their respective Indemnification Agreements,
for the period of time set forth under this Section 6.10(a).
(b) Parent agrees that from and after the Effective Time, the Surviving
Corporation shall cause the policies of director and officer liability insurance
maintained by the Company on the date hereof and listed in Section 6.10 of the
Company Disclosure Schedule to be maintained in effect for the period of time
directors and officers are entitled to indemnification under Section 6.10(a)
above; provided that the Surviving Corporation may substitute therefor policies
of at least the same coverage containing terms and conditions which are no less
advantageous to the Indemnified Parties, provided that such substitution shall
not result in any gaps or lapses in coverage with respect to matters occurring
prior to the Effective Time; and provided, further, that the Surviving
Corporation shall not be required to pay an annual premium in excess of 150% of
the last annual premium paid by the Company prior to the date hereof (the
"MAXIMUM AMOUNT") (which premium is set forth in Section 6.10 of the Company
Disclosure Schedule), and if the Surviving Corporation is unable to obtain the
insurance required by this Section 6.10 for the Maximum Amount, it shall obtain
as much comparable insurance as possible for an annual premium equal to the
Maximum Amount.
(c) In the event Parent merges or is acquired in a transaction in which it
is not the surviving corporation, or if Parent sells substantially all of its
assets, Parent will cause proper provision to be made in such transaction so
that Parent's successor or acquiror will assume the obligations set forth in
Sections 6.10(a) and (b) above. The parties agree that the Company's directors
and officers are the third party beneficiaries of, and entitled to enforce, the
provisions of this Section 6.10.
SECTION 6.11 EXPENSES. Except as otherwise set forth in Sections 8.2(b)
and 8.2(c), each party hereto shall bear its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby.
SECTION 6.12 LISTING APPLICATION. Parent shall use reasonable efforts to
cause the shares of Parent Common Stock to be issued pursuant to this Agreement
in the Merger to be listed for trading on the Nasdaq National Market.
SECTION 6.13 SUPPLEMENTAL DISCLOSURE. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (x) any representation or warranty contained
in this Agreement to be untrue or inaccurate or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied and
(ii) any failure of the Company or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.13 shall not have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article VII of this Agreement or
otherwise limit or affect the remedies available hereunder to any party.
A-32
<PAGE> 162
SECTION 6.14 POOLING OF INTERESTS. Each of the Company and Parent will
use reasonable efforts to cause the transactions contemplated by this Agreement,
including the Merger, to be accounted for as a pooling of interests under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by each of the
Company's and Parent's independent public accountants, and by the SEC,
respectively, and each of the Company and Parent agrees that it will not
voluntarily take any action that would cause such accounting treatment not to be
obtained.
SECTION 6.15 TRANSFER TAXES. All stock transfer, real estate transfer,
documentary, stamp, recording and other similar taxes (including interest,
penalties and additions to any such Taxes) ("TRANSFER TAXES") incurred in
connection with the transactions contemplated by this Agreement shall be paid by
the Surviving Corporation, and the Company shall cooperate with Merger Sub and
Parent in preparing, executing and filing any returns with respect to such
Transfer Taxes.
SECTION 6.16 BOARD OF DIRECTORS. As soon as practicable after the
Effective Time, Parent shall cause Fred C. Goad, Jim D. Kever and William F.
Ford to be designated as members of Parent's Board of Directors, such
designations to be effective as of the first meeting of Parent's Board of
Directors subsequent to the Effective Time. Parent also shall cause Fred C.
Goad, Jim D. Kever and William F. Ford to be nominated for positions on Parent's
Board of Directors at the first meeting of Parent's shareholders subsequent to
the Effective Time, with at least one such nomination to be for a three-year
term and at least one for a two-year term. Parent shall take any and all action
necessary to cause seats to be available on its Board of Directors to enable
Parent to satisfy its commitments under this Section 6.16.
SECTION 6.17 CONTINUING EMPLOYEES.
(a) For a period of one (1) year following the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, provide benefits to
continuing employees of the Company and its Subsidiaries ("CONTINUING
EMPLOYEES") that, in the aggregate, are no less favorable than the benefits
provided, in the aggregate, to similarly situated employees of Parent.
Notwithstanding the foregoing, nothing in this Section 6.17 shall require (i)
the continuation of any benefit plan of any variety or prevent the amendment or
termination thereof (subject to the provision, in the aggregate, of the benefits
as provided in the preceding sentence) or (ii) Parent or the Surviving
Corporation to continue or maintain the employment of any Continuing Employee.
(b) With respect to any benefits plans of Parent or its Subsidiaries in
which the Continuing Employees participate after the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, use reasonable efforts to:
(i) waive any limitations as to pre-existing conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Continuing Employees under any welfare benefit plan in which such employees
may be eligible to participate after the Effective Time (provided, however, that
no such waiver shall apply to a pre-existing condition of any Continuing
Employee who was, as of the Effective Time, excluded from participation in a
Company benefit plan by nature of such pre-existing condition), (ii) provide
each Continuing Employee with credit for any co-payments and deductibles paid
prior to the Effective Time during the year in which the Effective Time occurs
in satisfying any applicable deductible or out-of-pocket requirements under any
welfare benefit plan in which such employees may be eligible to participate
after the Effective Time, and (iii) recognize all service of the Continuing
Employees with the Company for all purposes (including without limitation
purposes of
A-33
<PAGE> 163
eligibility to participate, vesting credit, entitlement for benefits, and
benefit accrual) in any benefit plan in which such employees may be eligible to
participate after the Effective Time, except to the extent such treatment would
result in duplicative accrual of benefits for the same period of service. For
one (1) year from the Effective Time, Parent either shall (i) cause the
Company's health and dental insurance plan to remain in effect in substantially
its form as of the Effective Time (which maintenance shall be deemed to satisfy
Parent's obligation pursuant to the preceding sentence with respect to benefits
of the character covered by such plan) or (ii) hold each Continuing Employee
covered by such plan as of the Effective Time harmless against any increase in
standard monthly premium expenses for family, dependent or employee coverage (as
applicable immediately prior to the Effective Time) incurred by such Continuing
Employee on account of Parent's substitution of a different plan providing
benefits of substantially the same character.
SECTION 6.18 RESIGNATIONS. The Company has caused each officer and
director of the Company or any of its Subsidiaries requested by Parent to do so
to resign from each such position on or prior, and effective not later than, the
Effective Time.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by (i) the
requisite vote (as described in Section 3.5(b)) of the shareholders of the
Company in accordance with applicable Law, and (ii) the requisite vote of
the shareholders of Parent in accordance with the applicable rules of the
Nasdaq Stock Market.
(b) Government Approvals. All authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by, any Government Entity, which the
failure to obtain, make or occur would have the effect of making the Merger
or any of the transactions contemplated hereby illegal or would have a
Material Adverse Effect on Parent or the Surviving Corporation or would
materially impair the operations of the Surviving Corporation, assuming the
Merger had taken place, shall have been obtained, shall have been made or
shall have occurred.
(c) HSR Act. The waiting period under the HSR Act shall have expired or
been terminated.
(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC, and no proceedings for that purpose
shall have been initiated by the SEC.
(e) Pooling of Interests. Parent and the Company shall have received
letters from each of Arthur Andersen LLP and Ernst & Young LLP, each dated
the date of the Closing Date and addressed to Parent and the Company,
stating that the Merger should be treated as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board.
A-34
<PAGE> 164
(f) No Injunction. No Governmental Entity having jurisdiction over the
Company or Parent, or any of their respective Subsidiaries, shall have
enacted, issued, promulgated, enforced, entered, or initiated proceedings
to secure any Law (whether temporary, preliminary or permanent,
(collectively, "RESTRAINTS")) which has or reasonably could be expected to
have the effect of making any of the Transaction Agreements illegal or
otherwise prohibiting or impairing consummation of the Merger materially;
provided, however, that each of the parties hereto shall have used its
respective reasonable efforts to prevent the entry of any such Restraints
and to appeal as promptly as possible any such Restraints that may be
entered.
(g) NASDAQ. The Parent Company Stock to be issued in connection with
the Merger shall have been approved for listing on the Nasdaq National
Market, subject to official notice of issuance.
SECTION 7.2 CONDITIONS TO OBLIGATION OF PARENT AND MERGER SUB TO EFFECT
THE MERGER. The obligation of Parent and Merger Sub to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following additional conditions, unless waived in writing by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company that are qualified with reference to materiality shall be
true and correct, and the representations and warranties that are not so
qualified shall be true and correct in all material respects, in each case
as of the date hereof, and, except to the extent such representations and
warranties speak as of an earlier date, as of the Effective Time as though
made at and as of the Effective Time, and Parent shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer
or the Chief Financial Officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Parent
shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer or the Chief Financial Officer of the Company to
such effect.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no event or occurrence which has had or reasonably could be
expected to have a Company Material Adverse Effect, and Parent shall have
received a certificate signed on behalf of the Company by the Chief
Executive Officer or the Chief Financial Officer of the Company to such
effect.
(d) Company Affiliate Agreements. Parent shall have received the
written agreements, substantially in the form of Exhibit C hereto, from the
Company Rule 145 Affiliates described in Section 6.6 above.
(e) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person (other than the Governmental Entities
referred to in Section 7.1(b)) whose consent or approval shall be required
in connection with the transactions contemplated hereby under any Contract,
as reflected (or required to be reflected) in Section 3.7 of the Company
Disclosure Schedule, except where the failure to obtain the same would not
reasonably be expected, individually or in the aggregate, to have a Parent
Material Adverse Effect or Company Material Adverse Effect (as the
Surviving Corporation).
A-35
<PAGE> 165
(f) Tax Opinion. Parent shall have received an opinion of Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. ("SMITH ANDERSON"),
counsel to Parent, to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368 of the Code. The issuance
of such opinion shall be conditioned on the receipt by such tax counsel of
representation letters from each of Parent and Merger Sub, the Company and
certain shareholders of the Company, in each case, in form and substance
reasonably satisfactory to Smith Anderson. The specific provisions of each
such representation letter shall be in form and substance reasonably
satisfactory to such tax counsel, and each such representation letter shall
be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
(g) Employment Agreements. Each of Jim D. Kever and N. Stephen Ober
shall have executed and delivered to Parent an amendment to his respective
employment agreement with the Company as in effect on the date of this
Agreement to reflect and embody the changes described on Exhibits D-1 and
D-2, respectively, in a mutually satisfactory form.
(h) Resignations. Each officer and director of the Company or any of
its Subsidiaries requested by Parent to do so shall have resigned from each
such position on or prior to, and effective not later than, the Effective
Time.
(i) Amendment to Employment Agreements. Each employee of the Company
listed in Section 7.2(i) of the Parent Disclosure Schedule shall have
executed and delivered to Parent an amendment to his or her respective
employment agreement with the Company as in effect on the date of this
Agreement such that (i) such employee shall be entitled from the date of
such amendment until the Effective Time, at his election, to terminate such
employment agreement and his employment thereunder by written notice to the
Company, and thereupon to receive all benefits to which he would have been
entitled had he been terminated by the Company without cause immediately
following a "Change of Control" (as defined therein), and (ii) his entire
right to receive compensation, benefits or other value in connection with a
Change of Control (as so defined) shall be terminated and eliminated as of
the Effective Time, unless exercised before the Effective Time pursuant to
clause (i) above. Notwithstanding the above, in no event is this paragraph
(i) intended in any manner to adversely impact the employee's right, title
and interest in the accelerated vesting of such Employee's stock options.
(j) 401(K) Plan. If requested by Parent to do so, the Company shall
have taken all action necessary to cause the termination of the Company's
401(k) plan and to direct (i) the distribution of such plan's assets in
lump sum form to the plan's participants, or (ii) the plan administrator to
effect a direct roll over of the plan's assets.
SECTION 7.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub that are qualified with reference to materiality
shall be true and correct, and the representations and warranties that are
not so qualified shall be true and correct in all material respects, in
each case as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the
Effective Time as though made on and as of the Effective Time, and the
Company shall have
A-36
<PAGE> 166
received a certificate signed on behalf of Parent by the Chief Financial
Officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of Parent
and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Effective Time, and the Company shall have received a certificate
signed on behalf of Parent by the Chief Financial Officer of Parent to such
effect.
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no event or occurrence which has had or reasonably could be
expected to have a Parent Material Adverse Effect, and the Company shall
have received a certificate signed on behalf of Parent by the Chief
Financial Officer of Parent to such effect.
(d) Tax Opinion. The Company shall have received an opinion of Bass,
Berry & Sims PLC ("BB&S"), counsel to the Company, to the effect that the
Merger will qualify as a reorganization within the meaning of Section 368
of the Code. The issuance of such opinion shall be conditioned on the
receipt by such tax counsel of representation letters from each of Parent
and Merger Sub, the Company and certain shareholders of the Company, in
each case, in form and substance reasonably satisfactory to BB&S. The
specific provisions of each such representation letter shall be in form and
substance reasonably satisfactory to such tax counsel, and each such
representation letter shall be dated on or before the date of such opinion
and shall not have been withdrawn or modified in any material respect.
(e) Parent Affiliate Agreements. The Company shall have received the
written agreement, in advance of the date as of which the risk sharing
provisions pursuant to pooling of interests accounting shall apply,
substantially in the form of the third paragraph of the letter attached as
Exhibit C hereto (as applied to shares of Parent Common Stock owned
thereby), from Parent's Rule 145 Affiliates (as defined in Section 6.6
above as to the Company).
(f) Disposition of Significant Assets. Parent shall not have disposed
of or entered into a Contract to dispose of a significant amount of its
assets (within the meaning of Instruction 4 to Item 2 of SEC Form 8-K)
other than (i) in the ordinary course of business or (ii) with the
Company's prior written consent (which shall not be unreasonably withheld
or delayed).
(g) Actions Other Than in Ordinary Course. Parent shall not have taken
without the Company's prior written consent (which shall not be
unreasonably withheld or delayed) any extraordinary action which (i) is
outside the ordinary course of Parent's business and (ii) requires the
Company to postpone the Company Shareholder Meeting for more than
forty-five (45) days.
A-37
<PAGE> 167
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated, and the Merger
and the other transactions contemplated hereby may be abandoned, at any time
prior to the Effective Time, whether before or after approval by the
shareholders of Parent or the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company, if (i) the Merger shall not have
been consummated on or before June 30, 1999, unless the failure to
consummate the Merger is the result of a willful and material breach of
this Agreement by the party seeking to terminate this Agreement; (ii)
subsequent to any public disclosure of a proposal for or interest in an
Acquisition Transaction, the shareholders of the Company do not approve
this Agreement and the Merger by the requisite vote at a meeting duly
convened therefor or any adjournment thereof, or (iii) the shareholders of
the Parent do not approve the issuance of shares of Parent Common Stock in
the Merger by the requisite vote at a meeting duly convened therefor or any
adjournment thereof;
(c) by either Parent or the Company, if any permanent injunction, order,
decree or ruling by any Governmental Entity of competent jurisdiction
preventing the consummation of the Merger shall have become final and
nonappealable; provided, however, subject to the proviso to Section 6.8(a)
hereof, that the party seeking to terminate this Agreement pursuant to this
Section 8.1(c) shall have used reasonable efforts to remove such injunction
or overturn such action;
(d) by Parent, if (i) there has been a material breach of any of the
representations or warranties, covenants or agreements of the Company set
forth in this Agreement, which breach is not curable or, if curable, is not
cured within thirty (30) days after written notice of such breach is given
by Parent to the Company, or (ii) the Board of Directors of the Company or
any committee thereof (x) fails to convene a meeting of the Company's
shareholders to approve the Merger on or before 150 days following the date
hereof (provided the Registration Statement has been declared effective
within 120 days after the date hereof) (the "MEETING DATE"), or postpones
the date scheduled for the meeting of the shareholders of the Company to
approve this Agreement beyond the Meeting Date, except with the written
consent of Parent, (y) fails to recommend the approval of this Agreement
and the Merger to the Company's shareholders in accordance with Section
6.5(a) hereof or withdraws or amends or modifies in a manner adverse to
Parent its recommendation or approval in respect of this Agreement or the
Merger or takes any other action specified in clause (i), (ii) or (iii) of
Section 6.2(b) hereof or (z) fails, upon the written request of Parent
(which request may be made at any time following public disclosure of a
proposal for an Acquisition Transaction) to reaffirm publicly and
unconditionally its recommendation to the Company's shareholders that they
give the approval of this Agreement and the Merger, which public
reaffirmation must also include the unconditional rejection of such
proposal for an Acquisition Transaction. Such reaffirmation shall be made
at least ten (10) trading days prior to the Company Shareholder Meeting,
and Company shall delay the Company Shareholder Meeting to provide ten (10)
trading days if the Parent so requests in writing (in which case Parent
shall be deemed to have consented for purposes of clause (x) above if such
delay extends the Meeting Date beyond the period specified therein);
A-38
<PAGE> 168
(e) by the Company, if (1) the Board of Directors of the Company shall,
after the compliance with the provisions of Section 6.2(b), take one of the
actions specified in subsections (b)(i), (ii) or (iii) thereof and (2) the
Company pays the fee due under Section 8.2(b) as a condition precedent to
such termination;
(f) by the Company, if (i) there has been a breach of any of the
representations or warranties, covenants or agreements of Parent or Merger
Sub set forth in this Agreement, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to Parent, or (ii) the Board of Directors of Parent
(x) fails to convene a meeting of Parent's shareholders to approve the
issuance of shares of Parent Common Stock in the Merger (as required by the
applicable rules of the Nasdaq Stock Market) on or before 150 days
following the date hereof (provided the Registration Statement has been
declared effective within 120 days after the date hereof) (the "PARENT
MEETING DATE"), or postpones the date scheduled for the meeting of the
shareholders of Parent for such purpose beyond the Parent Meeting Date,
except with the written consent of the Company, (y) fails to recommend
approval to Parent's shareholders in accordance with Section 6.5(b) hereof,
or (z) withdraws or amends or modifies in a manner adverse to Company its
recommendation or approval or fails to reconfirm such recommendation within
two business days of a written request for such confirmation by Parent;
(g) by Parent, if the Company or any of its officers, directors,
employees, representatives or agents takes any of the actions that would be
proscribed by Section 6.2(a); and
(h) by the Company, if the average closing price per share of Parent
Common Stock on the Nasdaq National Market, as reported by the Wall Street
Journal, Northeast edition, for the ten (10) trading days immediately
preceding the day one full trading day before the Closing Date (the "PARENT
AVERAGE TRADING PRICE") is less than Forty Dollars ($40.00); or by Parent
if the Parent Average Trading Price is greater than Seventy-One Dollars and
Fifty Cents ($71.50).
SECTION 8.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement as provided in Section
8.1, the Merger shall be deemed abandoned and this Agreement shall forthwith
become void, except that the penultimate sentence of Section 6.1, Section 6.9,
Section 6.11, this Section 8.2 and Article IX shall survive any termination of
this Agreement; provided, however, that, except as otherwise provided in this
Section 8.2, nothing in this Agreement shall relieve any party from liability
for any breach of this Agreement.
(b) If (A) Parent shall have terminated this Agreement pursuant to Section
8.1(d)(ii), or (B) the Company shall have terminated this Agreement pursuant to
Section 8.1(e), then, in any such case, the Company shall pay Parent on or
before such termination (or as otherwise provided in Section 8.1(e)), a
termination fee of $50,000,000, payable by wire transfer of immediately
available funds to an account designated by Parent.
(c) If Parent shall have terminated this Agreement pursuant to Section
8.1(b)(ii) or if Parent shall have terminated this Agreement pursuant to Section
8.1(g), or as a result of the Company's breach of Section 6.14 and either before
such termination or within twelve (12) months after the date of such termination
the Company (i) consummates an Acquisition Transaction, or (ii) enters into a
definitive agreement to do so, then, in any such case, the Company shall pay
Parent, within one (1) business day following consummation of such
A-39
<PAGE> 169
Acquisition Transaction or entry into such definitive agreement, a termination
fee of $50,000,000 payable by wire transfer of immediately available funds to an
account designated by Parent.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 DEFINITIONS OF CERTAIN TERMS.
(a) As used in this Agreement, the following capitalized terms shall have
the respective meanings set forth below:
(1) "Code" means the United States Internal Revenue Code of 1986 and all
rules and regulations promulgated thereunder from time to time, in each
case as amended.
(2) "Contract" means any contract, agreement, indenture, instrument or
other binding commitment or arrangement of any kind.
(3) "Encumbrance" means any pledge, claim, option, lease, lien, security
interest, mortgage, restriction under any Contract, encumbrance or other
charge or restriction of any kind or nature whatsoever.
(4) "ERISA" means the United States Employee Retirement Income Security
Act of 1974 and all rules and regulations promulgated thereunder from time
to time, in each case as amended.
(5) "Exchange Act" means the United States Securities Exchange Act of
1934 and all rules and regulations promulgated thereunder from time to
time, in each case as amended.
(6) "GAAP" means United States generally accepted accounting principles,
consistently applied throughout the period(s) indicated.
(7) "Government Entity" means any federal, state, local, foreign or
multinational court, arbitral tribunal, administrative agency or commission
or other governmental or regulatory authority or administrative agency or
commission.
(8) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and all rules and regulations promulgated thereunder from time to
time, in each case as amended.
(9) "Knowledge" (whether or not capitalized) means, with respect to the
Company or Parent, the knowledge of the directors, executive officers and
senior management of the Company or Parent, respectively, and of their
respective material Subsidiaries and material divisions.
(10) "Law" means any national, federal, state, local, foreign or
multinational law, rule, regulation, statute, ordinance, order, judgment,
decree, permit, franchise, license or other governmental restriction or
requirement of any kind.
(11) "Material Adverse Effect" means, with respect to the Company or
Parent, any material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), or results of operations of the Company
or Parent, respectively, and its
A-40
<PAGE> 170
respective Subsidiaries, taken as a whole, including without limitation any
effect which prevents or impairs materially such party's performance of its
obligations under, this Agreement or the consummation of the transactions
contemplated hereby.
(12) "Organizational Document" means any charter, certificate or
articles of incorporation, bylaw, board of directors' or shareholders'
resolution, or other corporate document or action comparable to any of the
foregoing currently in effect.
(13) "Person" means any individual, partnership, joint venture,
corporation, trust, limited liability company, unincorporated organization,
government (or subdivision thereof) or other entity.
(14) "SEC" means the United States Securities and Exchange Commission.
(15) "Securities Act" means the United States Securities Act of 1933 and
all rules and regulations promulgated thereunder from time to time, in each
case as amended.
(16) "Subsidiary" means, as to any Person, another Person owned directly
or indirectly by such Person by reason of such Person owning or controlling
an amount of its voting securities, other voting ownership or voting
partnership interests which is sufficient to elect at least a majority of
its board of directors or other governing body or, if there are no such
voting interests, 50% or more of its equity interests.
(17) "TBCA" means the Tennessee Business Corporation Act, as amended.
(b) For purposes of this Agreement, the following additional capitalized
terms shall have the respective meanings set forth in the corresponding sections
of this Agreement indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Acquisition Transaction.................................. 6.2(a)
Agreement................................................ Introductory Paragraph
Articles of Merger....................................... 1.3
BB&S..................................................... 7.3(d)
Benefit Plans............................................ 3.17(a)
Certificates............................................. 2.1(e)
Closing.................................................. 1.2
Closing Date............................................. 1.2
Company.................................................. Introductory Paragraph
Company Balance Sheet Date............................... 3.10
Company Capital Stock.................................... 2.1(b)
Company Common Stock..................................... 2.1(a)
Company Disclosure Schedule.............................. Article III
Company Facilities....................................... 3.18(a)
Company Interim Balance Sheet Date....................... 3.9
Company Interim Financial Statements..................... 3.9
Company Multiemployer Plan............................... 3.17(a)
Company Permits.......................................... 3.6
Company Plan............................................. 3.17(a)
Company Preferred Stock.................................. 3.3(a)
Company Rights........................................... 3.3(a)
Company Rights Agreement................................. 3.3(a)
</TABLE>
A-41
<PAGE> 171
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Company Rule 145 Affiliates.............................. 6.6
Company SEC Documents.................................... 3.9
Company Series B Preferred Stock......................... 2.1(b)
Company Shareholder Meeting.............................. 6.5(a)
Confidentiality Agreement................................ 6.1
Continuing Employees..................................... 6.17(a)
Consent.................................................. 6.8(b)
DOJ...................................................... 6.8(d)
Databases................................................ 3.15(f)(i)
Defined Benefit Plan..................................... 3.17(a)
Effective Time........................................... 1.3
ERISA Affiliate.......................................... 3.17(a)
Exchange Agent........................................... 2.2(a)
FTC...................................................... 6.8(d)
Goldman.................................................. 4.14
Hazardous Substances..................................... 3.18(a)
IRS...................................................... 3.14
Indemnified Parties...................................... 6.10(a)
Intellectual Property.................................... 3.15(f)(ii)
Material Intellectual Property........................... 3.15(a)
Maximum Amount........................................... 6.10(b)
Meeting Date............................................. 8.1(d)
Merger................................................... Background (b)
Merger Consideration..................................... 2.1(b)
Merger Sub............................................... Introductory Paragraph
Merger Sub Common Stock.................................. 2.1(c)
Morgan Stanley........................................... 3.20
Options.................................................. 2.6(a)
Option Plans............................................. 2.6(a)
Owned Databases.......................................... 3.15(f)(iii)
Owned Software........................................... 3.15(f)(iv)
Parent................................................... Introductory Paragraph
Parent Average Trading Price............................. 8.1(h)
Parent Common Stock...................................... 2.1(a)
Parent Disclosure Schedule............................... Article IV
Parent Meeting Date...................................... 8.1(f)
Parent Preferred Stock................................... 4.3(a)
Parent Shareholder Meeting............................... 6.5(b)
Parent SEC Documents..................................... 4.7
Per Share Merger Consideration........................... 2.1(b)
Proxy Statement.......................................... 3.16
Registration Statement................................... 3.16
Restraints............................................... 7.1(f)
Smith Anderson........................................... 7.2(f)
Software................................................. 3.15(f)(v)
Stock Voting Agreement................................... Background (f)
Subsequent Company SEC Documents......................... 3.9
Subsequent Parent SEC Documents.......................... 4.7
Superior Proposal........................................ 6.2(b)
</TABLE>
A-42
<PAGE> 172
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Surviving Corporation.................................... 1.1
Tax Returns.............................................. 3.14
Taxes.................................................... 3.14
Third Party Databases.................................... 3.15(f)(vi)
Third Party Software..................................... 3.15(f)(vii)
Transaction Agreements................................... Background (f)
Transfer Taxes........................................... 6.15
Year 2000 Compliant...................................... 3.15(f)(viii)
</TABLE>
SECTION 9.2 AMENDMENT AND MODIFICATION. At any time prior to the
Effective Time, this Agreement may be amended, modified or supplemented only by
written agreement (referring specifically to this Agreement) of Parent and the
Company with respect to any of the terms contained herein; provided, however,
that after any approval and adoption of this Agreement by the shareholders of
Parent or the Company, no such amendment, modification or supplementation shall
be made which under applicable Law requires the approval of such shareholders,
without the further approval of such shareholders.
SECTION 9.3 WAIVER. At any time prior to the Effective Time, Parent, on
the one hand, and the Company, on the other hand, may (i) extend the time for
the performance of any of the obligations or other acts of the other, (ii) waive
any inaccuracies in the representations and warranties of the other contained
herein or in any documents delivered pursuant hereto and (iii) subject to the
provisions of Section 9.2, waive compliance by the other with any of the
agreements or conditions contained herein which may legally be waived. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
specifically referring to this Agreement and signed on behalf of such party. The
failure of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.
SECTION 9.4 SURVIVABILITY; INVESTIGATIONS. The respective representations
and warranties of Parent and Merger Sub, on the one hand, and the Company, on
the other hand, contained herein or in any certificates or other documents
delivered prior to or as of the Effective Time (i) shall not be deemed waived or
otherwise affected by any investigation made by any party hereto and (ii) shall
not survive beyond the Effective Time. The covenants and agreements of the
parties hereto (including the Surviving Corporation after the Merger) shall
survive the Effective Time, without limitation (except for those which, by their
terms, contemplate a shorter survival period).
SECTION 9.5 NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
A-43
<PAGE> 173
If to Parent or Merger Sub, to:
Quintiles Transnational Corp.
4709 Creekstone Drive, Suite 200
Durham, North Carolina 27703-8411
Attention: John S. Russell, Esq.
Telephone: 919-998-2418
Facsimile: 919-998-2759
with copies to:
Smith, Anderson, Blount,
Dorsett, Mitchell & Jernigan, L.L.P.
Post Office Box 2611
Raleigh, North Carolina 27602-2611
Attention: Gerald F. Roach, Esq.
Telephone: (919) 821-6668
Facsimile: (919) 821-6800
If to the Company, to:
Envoy Corporation
15 Century Boulevard, Suite 600
Nashville, Tennessee 37214
Attention: Jim D. Kever
Gregory T. Stevens, Esq.
Telephone: (615) 885-3700
Facsimile: (615) 231-4965
with a copy to:
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Attention: Bob F. Thompson
Telephone: (615) 742-6262
Facsimile: (615) 742-6293
SECTION 9.6 DESCRIPTIVE HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.7 ENTIRE AGREEMENT. This Agreement (including the Exhibits, the
Company Disclosure Schedule, the Parent Disclosure Schedule, and the Stock
Voting Agreement) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among the parties or
any of them, with respect to the subject matter hereof.
SECTION 9.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, without
giving effect to the provisions thereof relating to conflicts of law.
SECTION 9.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with
A-44
<PAGE> 174
their specific terms or were 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
of this Agreement in any court of the United States located in the State of
North Carolina or in North Carolina state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of North Carolina or any North
Carolina state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement, (b) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of North Carolina.
SECTION 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 agreement.
SECTION 9.11 ASSIGNMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement and
the rights, interests and obligations hereunder shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns; provided, however, that no party hereto may
assign or otherwise transfer its rights, interests or obligations hereunder
without the prior written consent of the other parties hereto. Except as
provided in Section 6.10 and Section 6.17 above, nothing in this Agreement is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
* * * * * * * * * * * *
A-45
<PAGE> 175
[signature page to Amended and Restated Agreement and Plan of Merger]
IN WITNESS WHEREFORE, each of Parent, Merger Sub and the Company has caused
this Amended and Restated Agreement and Plan of Merger to be executed on its
behalf by its respective officers thereunto duly authorized, all as of the date
first above written.
Quintiles Transnational Corp.
By: /s/ DENNIS GILLINGS
--------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------
QELS Corp.
By: /s/ JOHN S. RUSSELL
--------------------------------------
Its: Vice President and Secretary
--------------------------------------
Envoy Corporation
By: /s/ JIM D. KEVER
--------------------------------------
Its: President and Co-Chief Executive
Officer
--------------------------------------
A-46
<PAGE> 176
APPENDIX B
STOCK VOTING AGREEMENT
B-1
<PAGE> 177
STOCK VOTING AGREEMENT
STOCK VOTING AGREEMENT, dated as of December 15, 1998 (the "AGREEMENT"), by
and between certain shareholders of Envoy Corporation, a Tennessee corporation
(the "COMPANY"), listed on Schedule A attached hereto, (each, a "SHAREHOLDER,"
and collectively, the "SHAREHOLDERS") and Quintiles Transnational Corp., a North
Carolina corporation ("PARENT").
WHEREAS, concurrently herewith, Parent, QELS Corp., a Tennessee corporation
and wholly owned subsidiary of Parent ("MERGER SUB"), and the Company are
entering into an Agreement and Plan of Merger of even date herewith (as amended
from time to time, the "MERGER AGREEMENT"), pursuant to which Merger Sub will
merge with and into the Company with the Company as the surviving corporation
(the "MERGER"); and
WHEREAS, each Shareholder owns as of the date hereof the number of shares
of Common Stock of the Company, no par value per share (the "COMMON STOCK"),
and/or shares of Series B Convertible Preferred Stock of the Company, no par
value per share (the "PREFERRED STOCK"), listed next to such Shareholder's name
on Schedule A attached hereto (all such shares of Common Stock and Preferred
Stock, together with any shares of Common Stock or Preferred Stock acquired
after the date hereof and prior to the termination hereof, constituting such
Shareholder's "SHARES"); and
WHEREAS, Parent and Merger Sub have entered into the Merger Agreement in
reliance on and in consideration of, among other things, each Shareholder's
representations, warranties, covenants and agreements hereunder.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, and intending to be
legally bound hereby, the parties agree as follows:
1. VOTING.
1.1 AGREEMENT TO VOTE. Each Shareholder hereby revokes any and all
previous proxies with respect to such Shareholder's Shares and irrevocably
agrees to vote and otherwise act (including pursuant to written consent), with
respect to all of such Shareholder's Shares, for the approval and the adoption
of the Merger Agreement and all agreements related to the Merger and any actions
related thereto, and against any proposal or transaction which could prevent or
delay the consummation of the transactions contemplated by this Agreement or the
Merger Agreement, at any meeting or meetings of the shareholders of the Company,
and any adjournment, postponement or continuation thereof, at which the Merger
Agreement and other related agreements (or any amended version or versions
thereof) or such other actions are submitted for the consideration and vote of
the shareholders of the Company. The foregoing shall remain in effect with
respect to such Shareholder's Shares until the termination of this Agreement.
Each Shareholder shall execute such additional documents as Parent may
reasonably request to effectuate the foregoing.
1.2 WAIVER OF RIGHT TO DISSENT. Each of General Atlantic Partners 25, L.P.
and GAP Coinvestment Partners, L.P., each of which is a Shareholder (each a
"SERIES B SHAREHOLDER"), hereby acknowledges that it is entitled to exercise
dissenter's rights as provided in Section 4-23-101 et seq. of the Tennessee
Business Corporation Act (the "TBCA") in connection with the consideration of,
voting for and approval of the Merger by the shareholders of the Company. Each
Series B Shareholder, as a record and beneficial holder of Shares, hereby waives
irrevocably, as to all of its Shares, its right to dissent, notice of
B-2
<PAGE> 178
dissenter's rights and all other rights arising under the provisions of the TBCA
with regard to dissenter's rights in connection with the Merger. Each Series B
Shareholder acknowledges that the Company and Parent will rely on such
Shareholder's waiver of these rights arising under the TBCA, and agrees that the
Company will have no obligation to provide notice of dissenter's rights to such
Series B Shareholder or to take any other or further action concerning such
Series B Shareholder's dissenter's rights otherwise available under the TBCA in
connection with the Merger.
2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder
severally represents and warrants to Parent as follows:
2.1 OWNERSHIP OF SHARES. On the date hereof and as of the Effective Time
(as defined in the Merger Agreement), such Shareholder's Shares specified on
Schedule A are the only shares of Common Stock or Preferred Stock owned by such
Shareholder. Except as set forth on Schedule A, such Shareholder does not have
any rights to acquire any additional shares of Common Stock or Preferred Stock.
Such Shareholder currently has, and as of the Effective Time will have (except
with respect to Shares transferred in accordance with Section 3.2), good, valid
and marketable title to such Shareholder's Shares, free and clear of all liens,
encumbrances, restrictions, options, warrants, rights to purchase and claims of
every kind (other than the encumbrances created by this Agreement and other than
restrictions on transfer under applicable federal and state securities laws).
2.2 AUTHORITY; BINDING AGREEMENT. Such Shareholder has the full legal
right, power and authority to enter into and perform all of such Shareholder's
obligations under this Agreement. The execution and delivery of this Agreement
by such Shareholder will not violate any other agreement to which such
Shareholder is a party, including, without limitation, any voting agreement,
shareholders' agreement or voting trust. This Agreement has been duly executed
and delivered by such Shareholder and constitutes a legal, valid and binding
agreement of such Shareholder, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws now or hereafter in effect affecting
creditors' rights and remedies generally or general principles of equity.
Neither the execution and delivery of this Agreement nor the consummation by
such Shareholder of the transactions contemplated hereby will (i) violate, or
require any consent, approval or notice under any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to such Shareholder
or such Shareholder's Shares or (ii) constitute a violation of, conflict with or
constitute a default under, any contract, commitment, agreement, understanding,
arrangement or other restriction of any kind to which such Shareholder is a
party or by which such Shareholder is bound.
2.3 RELIANCE ON AGREEMENT. Such Shareholder understands and acknowledges
that Parent and Merger Sub each are entering into the Merger Agreement in
reliance upon such Shareholder's execution, delivery and performance of this
Agreement. Such Shareholder acknowledges that the agreement set forth in Section
1 is granted in consideration for the execution and delivery of the Merger
Agreement by Parent and Merger Sub.
3. NOTIFICATIONS. Each Shareholder shall, while this Agreement is in
effect, notify Parent promptly, but in no event later than two days, of any
shares of Common Stock or Preferred Stock acquired by such Shareholder after the
date hereof.
4. DELIVERY OF AFFILIATE LETTER. Contemporaneously with the execution of
this Agreement, each Shareholder shall execute and deliver to Parent on the date
hereof an Affiliate Letter substantially in the form attached hereto as Exhibit
A.
B-3
<PAGE> 179
5. TERMINATION. This Agreement shall terminate on the earlier of (i) the
Effective Time or (ii) immediately upon the termination of the Merger Agreement
in accordance with its terms.
6. ACTION IN SHAREHOLDER CAPACITY ONLY. No Shareholder makes any agreement
or understanding herein as a director or officer of the Company; rather, each
Shareholder signs solely in such Shareholder's capacity as a record holder and
beneficial owner of such Shareholder's Shares, and nothing herein shall limit or
affect any actions taken in such Shareholder's capacity as an officer or
director of the Company, including without limitation any action taken in such
Shareholder's capacity as a director or executive officer of the Company
consistent with the provisions in Section 6.2 of the Merger Agreement.
7. MISCELLANEOUS.
7.1 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally or by next-day courier or telecopied (with confirmation of receipt)
to the parties at the addresses specified below (or at such other address for a
party as shall be specified by like notice; provided that notices of a change of
address shall be effective only upon receipt thereof). Any such notice shall be
effective upon receipt, if personally delivered or telecopied or one day after
delivery to a courier for next-day delivery.
IF TO PARENT:
Quintiles Transnational Corp.
4709 Creekstone Drive, Suite 200
Durham, North Carolina 27703-8411
Attn: John S. Russell, Esq.
Fax Number: 919-998-2759
WITH A COPY TO:
Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P.
2500 First Union Capitol Center
Raleigh, North Carolina 27601
Attention: Gerald F. Roach, Esq.
Fax Number: 919-821-6800
IF TO A SHAREHOLDER:
to the address provided for such Shareholder on Schedule A.
7.2 ENTIRE AGREEMENT. This Agreement, together with the documents
expressly referred to herein, constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties or any of them, with respect to the subject matter contained herein.
7.3 AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
7.4 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but
B-4
<PAGE> 180
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties.
7.5 GOVERNING LAW. This Agreement, and all matters relating hereto, shall
be governed by, and construed in accordance with the laws of the State of
Tennessee, without giving effect to the principles of conflicts of laws thereof.
7.6 INJUNCTIVE RELIEF; JURISDICTION. Each Shareholder agrees that
irreparable damage would occur and that Parent would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that Parent shall be entitled to an injunction or
injunctions to prevent breaches by any Shareholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of North Carolina or in any North
Carolina state court (collectively, the "COURTS"), this being in addition to any
other remedy to which Parent may be entitled at law or in equity. In addition,
each of the parties hereto (i) irrevocably consents to the submission of such
party to the personal jurisdiction of the Courts in the event that any dispute
arises out of this Agreement or any of the transactions contemplated hereby,
(ii) agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any of the Courts and
(iii) agrees that such party will not bring any action relating to this
Agreement or any of the transactions contemplated hereby in any court other the
Courts.
7.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same document.
7.8 SEVERABILITY. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such 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, such provision shall be
interpreted to be only so broad as is enforceable.
* * * * * *
B-5
<PAGE> 181
[signature page to Stock Voting Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
Quintiles Transnational Corp.
By: /s/ DENNIS GILLINGS
---------------------------------
Name: Dennis Gillings
Title: Chairman and Chief Executive
Officer
SHAREHOLDERS
<TABLE>
<S> <C>
General Atlantic GAP Coinvestment
Partners 25, L.P. Partners, L.P.
By: /s/ WILLIAM E. FORD By: /s/ WILLIAM E. FORD
- ------------------------------------- -------------------------------------
Name: William E. Ford Name: William E. Ford
Title: General Partner Title: General Partner
/s/ FRED C. GOAD, JR. /s/ WILLIAM E. FORD
- ------------------------------------- -------------------------------------
Fred C. Goad, Jr. William E. Ford
/s/ JIM D. KEVER /s/ W. MARVIN GRESHAM
- ------------------------------------- -------------------------------------
Jim D. Kever W. Marvin Gresham
/s/ KEVIN M. MCNAMARA /s/ LAURENCE E. HIRSCH
- ------------------------------------- -------------------------------------
Kevin M. McNamara Laurence E. Hirsch
/s/ HARLAN F. SEYMOUR /s/ RICHARD A. MCSTAY
- ------------------------------------- -------------------------------------
Harlan F. Seymour Richard A. McStay
</TABLE>
B-6
<PAGE> 182
APPENDIX C
OPINION OF GOLDMAN, SACHS & CO.
C-1
<PAGE> 183
Goldman, Sachs & Co. / 85 Broad Street / New York, New York 10004
Tel: 212-902-1000
PERSONAL AND CONFIDENTIAL
December 15, 1998
Board of Directors
Quintiles Transnational Corp.
4709 Creekstone Drive, Suite 200
Durham, NC 27703
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Quintiles Transnational Corp. (the "Company") of the exchange ratio of
1.166 shares (the "Exchange Ratio") of Common Stock, par value $0.01 per share
("Company Common Stock"), of the Company, to be exchanged for each share of
Common Stock, no par value per share (the "Shares"), of Envoy Corporation
("Envoy") in the merger (the "Merger") pursuant to the Agreement and Plan of
Merger (the "Agreement"), dated as of December 15, 1998, among the Company, QELS
Corp., a wholly-owned subsidiary of the Company, and Envoy.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as co-manager of a public
offering of 1,750,000 shares of Company Common Stock in September 1995; having
acted as lead manager of a Rule 144A private placement of the Company's
$143,750,000 4 1/4% Convertible Subordinated Notes due May 31, 2000 in May 1996;
having acted as its financial advisor in connection with the Company's
acquisition of Innovex Limited in November 1996; having acted as lead manager of
a public offering of 5,520,000 shares of Company Common Stock in March 1997; and
having acted as the Company's financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. Goldman,
Sachs & Co. provides a full range of financial advisory and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities, of the
Company or Envoy for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K and
amendments thereto of Envoy and the Company for the three years ended December
31, 1997; certain interim reports to stockholders and Quarterly Reports on Form
10-Q and amendments thereto of Envoy and the Company; certain reports on Form
8-K and amendments thereto of ENVOY and the Company; certain other
communications from Envoy and the Company to their respective stockholders;
certain internal financial analyses and forecasts for Envoy prepared by the
management of Envoy and approved for use in connection with this opinion by the
management of the Company (the "Envoy Forecasts"); certain internal financial
analyses and summary forecasts for the Company prepared by its management; and
certain cost savings and operating synergies projected by the managements of the
Company and Envoy to result
C-2
<PAGE> 184
from the transaction contemplated by the Agreement (the "Synergies"). We also
have held discussions with members of the senior management of the Company and
Envoy regarding the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. As part of such discussions, we have been advised by management of
the Company that the Merger significantly advances the Company's overall
strategic goals in the healthcare information technology industry. In addition,
we have reviewed the reported price and trading activity for the Shares and the
Company Common Stock, compared certain financial and stock market information
for Envoy and the Company with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the healthcare information technology
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us and
have assumed such accuracy and completeness for purposes of rendering this
opinion. In that regard, we have assumed with your consent that the Envoy
Forecasts and the Synergies have been reasonably prepared and reflect, in each
case, the best currently available estimates and judgments of Envoy and the
Company, and that the Envoy Forecasts and the Synergies will be realized in the
amounts and time periods contemplated thereby. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or Envoy or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal. We have also assumed with your consent that the
transaction contemplated by the Agreement will be accounted for as a pooling of
interests under generally accepted accounting principles. Our advisory services
and the opinion expressed herein are provided for the information and assistance
of the Board of Directors of the Company in connection with its consideration of
the transaction contemplated by the Agreement and such opinion does not
constitute a recommendation as to how any holder of Company Common Stock should
vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the Company.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
---------------------------------
(Goldman, Sachs & Co.)
C-3
<PAGE> 185
APPENDIX D
OPINION OF MORGAN STANLEY & CO. INCORPORATED
December 15, 1998
Board of Directors
ENVOY Corporation
Two Lakeview Place, 15 Century Boulevard
Suite 600
Nashville, TN 37214
Members of the Board:
We understand that ENVOY Corporation ("ENVOY" or the "Company"), Quintiles
Transnational Corp. ("Quintiles") and QELS Corp., a wholly owned subsidiary of
Quintiles ("Acquisition Sub"), propose to enter into an Agreement and Plan of
Merger, as of December 15, 1998 (the "Merger Agreement"), which provides, among
other things, for the merger (the "Merger") of Acquisition Sub with and into
ENVOY. Pursuant to the Merger, the Company will become a wholly owned subsidiary
of Quintiles and each outstanding share of common stock, no par value, of ENVOY
(the "ENVOY Common Stock"), other than shares held in treasury or by the Buyer
or Merger Sub, will be converted into the right to receive 1.166 shares (the
"Exchange Ratio") of common stock, par value $0.01 per share, of Quintiles (the
"Quintiles Common Stock"). The terms and conditions of the Merger are more fully
set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of ENVOY Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of ENVOY and Quintiles, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning ENVOY and Quintiles prepared by the
managements of ENVOY and Quintiles, respectively;
(iii) analyzed certain financial projections prepared by the managements
of ENVOY and Quintiles, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of ENVOY, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of ENVOY;
(v) discussed the past and current operations and financial condition
and the prospects of Quintiles, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Quintiles;
(vi) reviewed the pro forma impact of the Merger on Quintiles' earnings
per share and other financial ratios;
(vii) reviewed the reported prices and trading activity for the ENVOY
Common Stock and the Quintiles Common Stock;
D-1
<PAGE> 186
(viii) discussed with the senior managements of ENVOY and Quintiles
certain research analyst projections for ENVOY and Quintiles, respectively;
(ix) compared the financial performance of ENVOY and Quintiles and the
prices and trading activity of the ENVOY Common Stock and the Quintiles
Common Stock with that of certain other publicly traded companies and their
securities;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xi) participated in discussions and negotiations among representatives
of ENVOY and Quintiles and their financial and legal advisors;
(xii) reviewed the Merger Agreement and certain related documents; and
(xiii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including the
information relating to certain strategic, financial and operational benefits
anticipated from the Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the prospects of ENVOY and Quintiles. In addition, we have assumed
that the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement, including, among other things, that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. Generally Accepted Accounting Principles and the Merger will be
treated as a tax-free reorganization and/or exchange, each pursuant to the
Internal Revenue Code of 1986. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of ENVOY.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Quintiles and
their affiliates, and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of ENVOY and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by ENVOY in respect of the transaction with the Securities and
Exchange Commission. In addition, this opinion does not in any manner address
the prices at which the Quintiles Common Stock will trade following the
consummation of the Merger and Morgan Stanley expresses no opinion or
recommendation as to how the stockholders of ENVOY or Quintiles should vote at
the stockholders' meeting held in connection with the Merger.
D-2
<PAGE> 187
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of ENVOY Common Stock.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ SCOTT R. BRAKEBILL
-----------------------------------
Scott R. Brakebill
Managing Director
D-3
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina Business Corporation
Act permit a corporation to indemnify its directors, officers, employees or
agents under either or both a statutory or nonstatutory scheme of
indemnification. Under the statutory scheme, a corporation may, with certain
exceptions, indemnify a director, officer, employee or agent of the corporation
who was, is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative, because of the fact that such person was a
director, officer, agent or employee of the corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. This indemnity may include the obligation to
pay any judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (1) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (2) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
in connection with a proceeding in which a director was adjudged liable on the
basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification described
above under the statutory scheme, Section 55-8-57 of the North Carolina Business
Corporation Act permits a corporation to indemnify or agree to indemnify any of
its directors, officers, employees or agents against liability and expenses
(including attorney's fees) in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in any of the foregoing capacities; provided, however, that a
corporation may not indemnify or agree to indemnify a person against liability
or expenses such person may incur on account of activities that were, at the
time taken, known or believed by the person to be clearly in conflict with the
best interests of the corporation. Quintiles' bylaws provide for indemnification
to the fullest extent permitted under the North Carolina Business Corporation
Act, provided, however, that Quintiles will indemnify any person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the board of directors of Quintiles.
Accordingly, Quintiles may indemnify its directors, officers and employees in
accordance with either the statutory or the non-statutory standard.
Sections 55-8-52 and 55-8-56 of the North Carolina Business Corporation Act
require a corporation, unless its articles of incorporation provide otherwise,
to indemnify a director or officer who has been wholly successful, on the merits
or otherwise, in the defense of any proceeding to which such director or officer
was a party. Unless prohibited by the articles of
II-1
<PAGE> 189
incorporation, a director or officer also may make application and obtain
court-ordered indemnification if the court determines that such director or
officer is fairly and reasonably entitled to such indemnification as provided in
Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the North Carolina Business Corporation Act
provides that a corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation against certain liabilities incurred by such persons, whether or not
the corporation is otherwise authorized by the North Carolina Business
Corporation Act to indemnify such party. Quintiles' directors and officers are
currently covered under directors' and officers' insurance policies maintained
by Quintiles.
As permitted by North Carolina law, Article XI of Quintiles' articles of
incorporation limits the personal liability of directors for monetary damages
for breaches of duty as a director provided that, under North Carolina law, such
limitation will not apply to (i) acts or omissions that the director at the time
of the breach knew or believed were clearly in conflict with the best interests
of Quintiles, (ii) any liability for unlawful distributions under N.C. Gen.
Stat. Section 55-8-33 of the North Carolina Business Corporation Act, (iii) any
transaction from which the director derived an improper personal benefit, or
(iv) acts or omissions occurring prior to the date the provision became
effective.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents (unless indicated) are filed herewith and made a
part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <C> <S>
2.01 -- Amended and Restated Agreement and Plan of Merger dated as
of December 15, 1998 by and among Quintiles Transnational
Corp., QELS Corp. and ENVOY Corporation (included as
Appendix A of the Joint Proxy Statement/Prospectus)
2.02 -- List of Omitted Schedules and Exhibits to Amended and
Restated Agreement and Plan of Merger and Agreement to
Furnish
4.01(1) -- Specimen Common Stock Certificate
4.02(2) -- Amended and Restated Articles of Incorporation
4.03(3) -- Amended and Restated Bylaws
5.01 -- Opinion of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. as to the legality of the securities being
registered
8.01 -- Form of Opinion of Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P. as to the United States federal
income tax consequences of the merger
8.02 -- Form of Opinion of Bass, Berry & Sims PLC as to the United
States federal income tax consequences of the merger
23.01 -- Consent of Ernst & Young LLP
23.02 -- Consent of PricewaterhouseCoopers LLP
23.03 -- Consent of KPMG
23.04 -- Consent of PricewaterhouseCoopers LLP
23.05 -- Consent of Ernst & Young LLP
</TABLE>
II-2
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <C> <S>
23.06 -- Consent of Arthur Andersen LLP
23.07 -- Consent of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. (included in Exhibit 5.01 hereto)
23.08 -- Consent of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. (included in Exhibit 8.01 hereto)
23.09 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 8.02
hereto)
24.01 -- Powers of Attorney (see Page II-6 and II-7)
99.01 -- Stock Voting Agreement dated as of December 15, 1998 between
certain shareholders of ENVOY and Quintiles (included as
Appendix B of the Joint Proxy Statement/Prospectus)
99.02 -- Form of proxy card to be sent to ENVOY shareholders
99.03 -- Form of proxy card to be sent to Quintiles shareholders
</TABLE>
- -------------------------
(1) Incorporated herein by reference to the identically numbered exhibit to the
registrant's Registration Statement on Form S-1 (Registration No. 33-75766)
initially filed February 28, 1994, as amended.
(2) Incorporated herein by reference to the identically numbered exhibit to the
registrant's Registration Statement on Form S-3 (Registration No. 333-19009)
initially filed December 30, 1996, as amended.
(3) Incorporated herein by reference to the identically numbered exhibit to the
registrant's Annual Report on Form 10-K as filed with the Commission on
March 25, 1996 and amended May 16, 1996.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers and sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-3
<PAGE> 191
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3 and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (1) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the
II-4
<PAGE> 192
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Durham, State of North
Carolina, on February 17, 1999.
QUINTILES TRANSNATIONAL CORP.
By: /s/ DENNIS B. GILLINGS
--------------------------------------
Dennis B. Gillings, Ph.D.
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dennis B. Gillings and Rachel R. Selisker and
each of them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement on Form
S-4 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of February 17, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DENNIS B. GILLINGS Chairman of the Board of
- ----------------------------------------------------- Directors and Chief
Dennis B. Gillings, Ph.D. Executive Officer
/s/ SANTO J. COSTA President, Chief Operating
- ----------------------------------------------------- Officer and Director
Santo J. Costa
/s/ RACHEL R. SELISKER Chief Financial Officer,
- ----------------------------------------------------- Executive Vice President
Rachel R. Selisker Finance, and Director
(Principal accounting and
financial officer)
/s/ ROBERT C. BISHOP Director
- -----------------------------------------------------
Robert C. Bishop, Ph.D.
/s/ E.G. F. BROWN Director
- -----------------------------------------------------
E.G. F. Brown
Director
- -----------------------------------------------------
Vaughn D. Bryson
</TABLE>
II-6
<PAGE> 194
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ CHESTER W. DOUGLASS Director
- -----------------------------------------------------
Chester W. Douglass, Ph.D.
/s/ LAWRENCE S. LEWIN Director
- -----------------------------------------------------
Lawrence S. Lewin
/s/ ARTHUR M. PAPPAS Director
- -----------------------------------------------------
Arthur M. Pappas
/s/ LUDO J. REYNDERS Director
- -----------------------------------------------------
Ludo J. Reynders, Ph.D.
Director
- -----------------------------------------------------
Eric J. Topol, M.D.
/s/ VIRGINIA V. WELDON Director
- -----------------------------------------------------
Virginia V. Weldon, M.D.
/s/ DAVID F. WHITE Director
- -----------------------------------------------------
David F. White
</TABLE>
II-7
<PAGE> 195
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <C> <S>
2.01 -- Amended and Restated Agreement and Plan of Merger dated as
of December 15, 1998 by and among Quintiles Transnational
Corp., QELS Corp. and ENVOY Corporation (included as
Appendix A of the Joint Proxy Statement/Prospectus)
2.02 -- List of Omitted Schedules and Exhibits to Amended and
Restated Agreement and Plan of Merger and Agreement to
Furnish
4.01(1) -- Specimen Common Stock Certificate
4.02(2) -- Amended and Restated Articles of Incorporation
4.03(3) -- Amended and Restated Bylaws
5.01 -- Opinion of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. as to the legality of the securities being
registered
8.01 -- Form of Opinion of Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P. as to the United States federal
income tax consequences of the merger
8.02 -- Form of Opinion of Bass, Berry & Sims PLC as to the United
States federal income tax consequences of the merger
23.01 -- Consent of Ernst & Young LLP
23.02 -- Consent of PricewaterhouseCoopers LLP
23.03 -- Consent of KPMG
23.04 -- Consent of PricewaterhouseCoopers LLP
23.05 -- Consent of Ernst & Young LLP
23.06 -- Consent of Arthur Andersen LLP
23.07 -- Consent of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. (included in Exhibit 5.01 hereto)
23.08 -- Consent of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. (included in Exhibit 8.01 hereto)
23.09 -- Consent of Bass, Berry & Sims PLC (included in Exhibit 8.02
hereto)
24.01 -- Powers of Attorney (see Page II-6 and II-7)
99.01 -- Stock Voting Agreement dated as of December 15, 1998 between
certain shareholders of ENVOY and Quintiles (included as
Appendix B of the Joint Proxy Statement/Prospectus)
99.02 -- Form of proxy card to be sent to ENVOY shareholders
99.03 -- Form of proxy card to be sent to Quintiles shareholders
</TABLE>
- -------------------------
(1) Incorporated herein by reference to the identically numbered exhibit to the
registrant's Registration Statement on Form S-1 (Registration No. 33-75766)
initially filed February 28, 1994, as amended.
(2) Incorporated herein by reference to the identically numbered exhibit to the
registrant's Registration Statement on Form S-3 (Registration No. 333-19009)
initially filed December 30, 1996, as amended.
(3) Incorporated herein by reference to the identically numbered exhibit to the
registrant's Annual Report on Form 10-K as filed with the Commission on
March 25, 1996 and amended May 16, 1996.
<PAGE> 1
EXHIBIT 2.02
LIST OF OMITTED SCHEDULES AND EXHIBITS TO AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER AND AGREEMENT TO FURNISH
<TABLE>
<S> <C>
COMPANY DISCLOSURE SCHEDULE
Section 2.6 Options
Section 3.4 Company Subsidiaries
Section 3.7 Non-Contravention
Section 3.9 SEC Documents and Other Reports
Section 3.10 Absence of Certain Changes or Events
Section 3.11 Actions and Proceedings
Section 3.12 Absence of Undisclosed Liabilities
Section 3.13 Certain Contracts and Arrangements
Section 3.14 Taxes
Section 3.15 Intellectual Property
Section 3.17 Employee Benefit Plans, ERISA
PARENT DISCLOSURE SCHEDULE
Section 4.3 Capitalization
Section 4.5 Non-Contravention
Section 4.6 Government Approvals; Required Consents
Section 4.7 SEC Documents and Other Reports
Section 4.11 Compliance with Laws
Section 4.12 Actions and Proceedings
Section 7.2 Amendment to Employment Agreements
EXHIBIT B Amendment No. 1 to Rights Plan
EXHIBIT C Form of Rule 145 Affiliate's Agreement
EXHIBIT D-1 Changes to Jim D. Kever's Employment Agreement
EXHIBIT D-2 Changes to N. Stephen Ober's Employment
Agreement
</TABLE>
The Company hereby agrees to furnish supplementally a copy of any Omitted
Schedules and Exhibits to the Commission upon request.
<PAGE> 1
EXHIBIT 5.01
SMITH, ANDERSON, BLOUNT,
DORSETT, MITCHELL & JERNIGAN, L.L.P.
OFFICES MAILING ADDRESS
2500 FIRST UNION CAPITOL CENTER P.O. BOX 2611
RALEIGH, NORTH CAROLINA 27601 RALEIGH, NORTH CAROLINA
27602-2611
February 17, 1999
TELEPHONE: (919) 821-1220
FACSIMILE: (919) 821-6800
Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 200
Durham, North Carolina 27703-8411
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We are counsel for Quintiles Transnational Corp. (the "Company") in
connection with the issuance by the Company of up to 30,717,729 shares of the
Company's Common Stock, $0.01 par value per share to be issued in exchange for
the shares of Common Stock and Series B Convertible Preferred Stock of ENVOY
Corporation ("ENVOY") outstanding as of the effective date of the merger of QELS
Corp., a Tennessee corporation which has not engaged in any material operations
since its incorporation and is a wholly owned subsidiary of the Company, with
and into ENVOY (the "Merger"). These shares are described in the Company's
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), on February 17, 1999, with which this opinion will be filed as an
exhibit (the "Registration Statement"). This opinion is furnished pursuant to
the requirement of Item 601(b)(5) of Regulation S-K under the Act.
We have examined the Amended and Restated Articles of Incorporation, as
amended, and the Amended and Restated Bylaws of the Company, the minutes of the
meetings of the Board of Directors of the Company relating to the authorization
and the issuance of securities and such other documents, records, and matters of
law as we have deemed necessary for purposes of this opinion. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents as originals, the conformity to originals of all documents
submitted to us as certified copies or photocopies, and the authenticity of the
originals of such latter documents. In rendering the opinion set forth below, we
have relied on a certificate of a Company officer, whom we believe is
responsible.
Based upon the foregoing and the additional qualifications set forth
below, it is our opinion, as of the date hereof, that the 30,717,729 shares of
Common Stock of the Company which are being registered pursuant to the
Registration Statement are duly authorized and, when
<PAGE> 2
February 17, 1999
Page 2
issued and delivered in exchange for the shares of ENVOY Common Stock and Series
B Convertible Preferred Stock surrendered in the Merger, as contemplated by the
Registration Statement, such shares will be validly issued, fully paid and
nonassessable.
The opinion expressed herein does not extend to compliance with state
and federal securities laws relating to the sale of these securities.
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Registration Statement and to the filing of this opinion as an
exhibit to the Registration Statement. Such consent shall not be deemed to be an
admission that this firm is within the category of persons whose consent is
required under Section 7 of the Act, or the regulations promulgated by the
Commission pursuant to such Act.
This opinion is limited to the laws of the State of North Carolina, and
no opinion is expressed as to the laws of any other jurisdiction.
Our opinion is as of the date hereof, and we do not undertake to advise
you of matters that might come to our attention subsequent to the date hereof
which may affect our legal opinion expressed herein.
Sincerely yours,
/s/ SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P.
<PAGE> 1
EXHIBIT 8.01
SMITH, ANDERSON, BLOUNT,
DORSETT, MITCHELL & JERNIGAN, L.L.P.
OFFICES MAILING ADDRESS
2500 FIRST UNION CAPITOL CENTER P.O. BOX 2611
RALEIGH, NORTH CAROLINA 27601 RALEIGH, NORTH CAROLINA
27602-2611
TELEPHONE: (919) 821-1220
FACSIMILE: (919) 821-6800
______________, 1999
Quintiles Transnational Corp.
4709 Creekstone Drive
Riverbirch Building, Suite 200
Durham, North Carolina 27703
Amended and Restated Agreement and Plan of Merger Dated as of December
15, 1998 By and Among Quintiles Transnational Corp., QELS Corp. and
Envoy Corporation
Gentlemen:
We have acted as counsel to Quintiles Transnational Corp.
("Quintiles"), a North Carolina corporation, in connection with the proposed
merger (the "Merger") of QELS Corp. ("Sub"), a North Carolina corporation wholly
owned by Quintiles, with and into Envoy Corporation, a Tennessee corporation
("Envoy") pursuant to the terms of the Amended and Restated Agreement and Plan
of Merger dated as of December 15, 1998 (the "Merger Agreement") by and among
Quintiles, Envoy and Sub. This opinion is being rendered pursuant to Section
7.02(f) of the Merger Agreement. All capitalized terms, unless otherwise
specified, have the meaning assigned to them in the Merger Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Merger Agreement,
the Registration Statement and such other documents as we have deemed necessary
or appropriate in order to enable us to render the opinion expressed below. In
our examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies.
In rendering the opinion set forth below, we have relied, with your
permission, upon certain written factual representations of Quintiles, Sub and
Envoy dated as of the date of this letter. We have assumed that any
representation or statement made in connection with such representations that is
made "to the best of knowledge" or similarly qualified is correct without such
qualification. We have also assumed that when a person or entity making a
representation has represented that such person or entity either is not a party
to or does not have, or is not aware of, any plan or intention, understanding or
agreement as to a particular matter, there is in fact no such plan, intention,
understanding or agreement. We also have assumed that all such written
representations will be true as of the Effective Time.
<PAGE> 2
Quintiles Transnational Corp.
______________, 1999
Page 2
In rendering our opinion, we have considered the applicable provisions
of the Code, the Treasury Regulations, pertinent judicial authorities,
interpretive rulings of the Internal Revenue Service and such other authorities
as we have considered relevant.
Based upon and subject to the foregoing, we are of the opinion that (i)
the Merger will constitute a tax-free reorganization under Section 368(a) of the
Code; (ii) Quintiles, Sub and PMSI will each be a party to the reorganization
within the meaning of Section 368(b) of the Code; and (iii) the summary of
"Material Federal Income Tax Considerations" set forth in the Registration
Statement filed by Quintiles with the Securities and Exchange Commission is
accurate, subject to the assumptions, conditions and limitations set forth
therein.
Our opinion expressed in this letter is based on current law and upon
facts and assumptions as of the date of this letter. Our opinion is subject to
change in the event of a change in the applicable law, a change in the
interpretation of the applicable law by the courts or by the Internal Revenue
Service or a change in any of the facts or assumptions upon which the opinion is
based. There is no assurance that legislative, regulatory, administrative or
judicial developments may not be forthcoming which would significantly modify
the statements or opinion expressed in this letter. Any such developments may or
may not be retroactive. This opinion represents our best legal judgment but has
no binding effect or official status of any kind. As a result, no assurance can
be given that the opinion expressed in this letter will be sustained by a court
if contested. No ruling will be obtained from the Internal Revenue Service with
respect to the Merger.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether Federal, state, local or foreign, of the
Merger or of any transactions related to the Merger or contemplated by the
Merger Agreement. This opinion is being furnished only to you in connection with
the Merger and solely for your benefit in connection therewith and may not be
used or relied upon for any other purpose and may not be circulated, quoted or
otherwise referred to for any other purpose without our express written consent.
We hereby acknowledge and consent to Quintiles's filing of this opinion as an
exhibit to the Registration Statement with the Securities and Exchange
Commission. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
Very truly yours,
SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P.
<PAGE> 1
EXHIBIT 8.02
BASS, BERRY & SIMS PLC
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
_________________, 1999
Board of Directors
Envoy Corporation
15 Century Boulevard
Two Lakeview Place
Nashville, Tennessee 37214
Re: Envoy Corporation and Quintiles Transnational Corp.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to ENVOY Corporation, a Tennessee corporation
("ENVOY"), in connection with a proposed reorganization (the "Merger") to be
effected through a merger of QELS Corp., a Tennessee corporation ("Merger Sub")
and newly formed, wholly owned subsidiary of Quintiles Transnational Corp., a
North Carolina corporation ("Quintiles"), with ENVOY being the surviving
corporation, pursuant to the terms of the Amended and Restated Agreement and
Plan of Merger among Quintiles, Merger Sub and ENVOY dated as of December 15,
1998 (the "Merger Agreement"), and as described in the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission (the "Commission") on
February 17, 1999 (the "Registration Statement"). This opinion is being rendered
pursuant to the requirements of Item 21(a) of Form S-4 under the Securities Act
of 1933, as amended (the "Securities Act"). In connection with this opinion, we
have examined and are familiar with originals or copies of (i) the Merger
Agreement, (ii) the facts set forth in the Registration Statement, and (iii)
such other documents as we have deemed necessary or appropriate in order to
enable us to render the opinions below. This opinion is subject to certain
factual assumptions and representations certified by authorized representatives
of ENVOY, Quintiles, and Merger Sub.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the prospectus included as part of the Registration Statement (the
"Prospectus") under the caption "Material Federal Income Tax Considerations,"
subject to the conditions and limitations set forth therein, sets forth the
material federal income tax consequences of the Merger generally applicable to
ENVOY and its shareholders. The opinions expressed herein are expressly premised
and conditioned upon the consummation of the Merger pursuant to the terms and
conditions of the Merger Agreement. Our opinions are also based upon the
application of existing law for the instant transaction. You should note that
future legislative changes, administrative pronouncements and judicial decisions
could materially alter the conclusions reached herein. There can be no assurance
that contrary positions may not be taken by the Internal Revenue Service or by
the courts. Furthermore, this opinion does not apply to particular
<PAGE> 2
Board of Directors
Envoy Corporation
___________, 1999
Page 2
types of shareholders subject to special tax treatment under federal income tax
laws (including, without limitation, foreign persons, insurance companies,
tax-exempt entities, retirement plans, dealers in securities, persons whose
shares of ENVOY capital stock were acquired pursuant to the exercise of employee
stock options or otherwise as compensation, persons subject to the alternative
minimum tax and persons in whose hands the ENVOY capital stock does not
represent a capital asset). This opinion does not address any foreign, state or
local tax consequences of the Merger that may be applicable or the effect of any
federal tax laws other than the federal income tax laws.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the use of our name in the
Registration Statement and to the filing of this letter as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations of the Commission promulgated
thereunder.
We have rendered the foregoing opinion for the sole benefit and use of
ENVOY, its board of directors and the shareholders of ENVOY; the views herein
may not be relied upon or furnished to any other person without our prior
written consent.
Sincerely,
Bass, Berry & Sims PLC
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Quintiles
Transnational Corp. for the registration of 30,717,729 shares of its common
stock and to the incorporation by reference therein of our report dated January
26, 1998, except for Note 3, as to which the date is September 9, 1998, with
respect to the consolidated financial statements of Quintiles Transnational
Corp., included in its Current Report on Form 8-K dated January 27, 1999 filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Raleigh, North Carolina
February 16, 1999
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Quintiles Transnational Corp. ("Quintiles") on Form S-4, with respect to the
proposed Quintiles and ENVOY merger, of our report dated May 15, 1996, on our
audits of the consolidated financial statements of BRI International, Inc. as of
November 30, 1995 and 1994, and for the years then ended, which report is
included as an exhibit to Quintiles' Current Report on Form 8-K dated January
27, 1999.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
February 16, 1999
<PAGE> 1
Exhibit 23.03
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of Quintiles Transnational Corp., with respect to the proposed
combination of Quintiles Transnational Corp. and Envoy Corporation, of our
report dated July 24, 1996, with respect to the audited combined financial
statements of the Innovex Companies for the year ended March 31, 1996, which
report appears in the Form 8-K of Quintiles Transnational Corp. dated January
27, 1999.
Reading, England
17 February 1999
/s/ KPMG
<PAGE> 1
EXHIBIT 23.04
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Quintiles Transnational Corp. ("Quintiles") on Form S-4 of our
report dated August 14, 1998, except for Note 21, as to which the date is
September 2, 1998, on our audits of the consolidated financial statements of
Pharmaceutical Marketing Services Inc. and Subsidiaries as of June 30, 1998 and
1997 and for the years ended June 30, 1998, 1997 and 1996, which report is
included in Quintiles Current Report on Form 8-K/A, as filed February 17, 1999.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
February 17, 1999
<PAGE> 1
EXHIBIT 23.05
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Quintiles
Transnational Corp. for the registration of 30,717,729 shares of its common
stock and to the incorporation by reference therein of our report dated January
29, 1999, with respect to the financial statements of ENVOY Corporation included
in Quintiles Transnational Corp.'s Current Report on Form 8-K to be filed with
the Securities and Exchange Commission on or about February 16, 1999.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 16, 1999
<PAGE> 1
EXHIBIT 23.06
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 by Quintiles Transnational
Corp., of our report dated February 11, 1998 relating to the financial
statements of Professional Office Services, Inc. as of December 31, 1997 and for
each of the two years in the period ended December 31, 1997 and our report dated
January 30, 1998 relating to the financial statements of XpiData, Inc. as of
December 31, 1997 and for each of the two years in the period ended December 31,
1997 included in Quintiles Transnational Corp.'s Current Report on Form 8-K and
to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 16, 1999
<PAGE> 1
EXHIBIT 99.02
ENVOY CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned, revoking all prior proxies, hereby appoints Fred C. Goad,
Jr. and Jim D. Kever, or each or either of them, proxies for the undersigned,
with full power of substitution, to vote all shares of ENVOY common stock or
Series B convertible preferred stock which the undersigned is entitled to vote
at the Special Meeting of Shareholders of ENVOY Corporation to be held at
on March , 1999, at 10:00 a.m. (C.S.T.) or at any adjournment or postponement
thereof, upon such business as may properly come before the meeting or any
adjournment or postponement thereof including, without limiting such general
authorization, the following proposal described in the accompanying Joint Proxy
Statement:
1. [ ] FOR [ ] AGAINST [ ] ABSTAIN
Approval of the Agreement and Plan of Merger pursuant to which QELS, a
wholly-owned subsidiary of Quintiles Transnational Corp., will be merged
into ENVOY, with ENVOY continuing as the surviving corporation and as a
wholly-owned subsidiary of Quintiles, and each share of ENVOY common stock
and each share of ENVOY Series B convertible preferred stock outstanding
prior to the merger will be canceled and converted into the right to receive
1.166 shares of Quintiles common stock.
2. To transact such other business as may properly come before the Special
Meeting.
Abstentions will be counted for purposes of determining whether a quorum is
present. With respect to the votes represented in No. 1 above, abstentions will
have the effect of a vote against the matter.
(Continued and to be signed on reverse side)
(Continued from other side)
UNLESS OTHERWISE SPECIFIED ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR
PROPOSAL NUMBER 1. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned agreed that said
proxies may vote in accordance
with their discretion with
respect to any other matters
which may properly come before
the meeting. The undersigned
instructs such proxies to vote
as directed on the reverse side.
This Proxy should be dated,
signed by the shareholder
exactly as printed at the left,
and returned promptly in the
enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate.
Dated
--------------------------------
--------------------------------
(Signature)
--------------------------------
(Signature)
<PAGE> 1
EXHIBIT 99.03
QUINTILES TRANSNATIONAL CORP.
Proxy for Special Meeting of Shareholders
Solicited by the Board of Directors
The undersigned hereby appoints Dennis B. Gillings, Ph.D. and Santo J.
Costa and each of them as attorney and proxy of the undersigned, each with the
full power of substitution and with authority in each of them to act in the
absence of the other, to vote all of the shares of stock in Quintiles
Transnational Corp., which the undersigned is entitled to vote at the Special
Meeting of Shareholders to be held at ____________on ___________, ______, 1999
at ____ p.m., Eastern Standard Time, and any adjournments thereof (1) as
hereinafter specified upon the proposals listed below and as more particularly
described in Quintiles' Joint Proxy Statement/Prospectus dated February __,
1999; and (2) in their discretion upon such other matters as may properly come
before the meeting and any adjournment thereof.
The Board of Directors Recommends a Vote FOR the Proposals Listed
Below.
Proposal One Approval of the issuance of approximately
28,421,000 shares of Quintiles common stock to the
shareholders of ENVOY Corporation, a Tennessee
corporation, in exchange for their shares of ENVOY
common stock and ENVOY Series B convertible preferred
stock pursuant the Merger Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal Two Approval of an amendment to Quintiles' Amended and
Restated Articles of Incorporation to increase the
number of authorized shares of Quintiles common stock
from 200,000,000 to 500,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted as directed by the undersigned shareholder.
Unless contrary direction is given, this proxy will be voted FOR each proposal.
The undersigned shareholder may revoke this proxy at any time before it is voted
by delivering to the Secretary of Quintiles either a written revocation of the
proxy or a duly executed proxy bearing a later date, or by appearing at the
Special Meeting and voting in person. The undersigned shareholder hereby
acknowledges receipt of notice of the Special Meeting and Joint Proxy
Statement/Prospectus dated February __, 1999 and hereby revokes any proxy or
proxies heretofore given.
By signing a proxy, the undersigned shareholder authorizes the proxy
holder to vote in his discretion regarding any procedural motions which may
come before the Special Meeting. For example, this authority could be used to
adjourn the Special Meeting if Quintiles believes it is desirable to do so.
Adjournment or other procedural matters could be used to obtain more time
before a shareholder vote in order to solicit additional proxies or to provide
additional information to shareholders. Quintiles has no plans to adjourn the
meeting at this time, but intends to do so if it believes that doing so would
promote shareholder interests.
(Continued and to be signed on the reverse)
<PAGE> 2
(Continued from other side)
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign.
Date , 1999
--------------------------
(Be sure to date Proxy)
------------------------------------
Signature and title, if applicable
------------------------------------
Signature if held jointly
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign the full
corporate name by the President or
other authorized officer. If a
partnership, please sign in the
partnership name by an authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
