<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MCKESSON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 5122 94-3207296
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
MCKESSON PLAZA
ONE POST STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 983-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
NANCY A. MILLER
VICE PRESIDENT AND CORPORATE SECRETARY
MCKESSON CORPORATION
MCKESSON PLAZA
ONE POST STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 983-8300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
IVAN D. MEYERSON, KENTON J. KING, CHARLES W. MCCALL LISA A. STATER,
ESQ. ESQ. PRESIDENT AND ESQ.
VICE PRESIDENT SKADDEN, ARPS, CHIEF EXECUTIVE JONES, DAY,
AND SLATE, OFFICER REAVIS & POGUE
GENERAL COUNSEL MEAGHER & FLOM HBO & COMPANY 3500 SUNTRUST
MCKESSON LLP 301 PERIMETER PLAZA
CORPORATION FOUR EMBARCADERO CENTER NORTH 303 PEACHTREE
ONE POST STREET CENTER, SUITE ATLANTA, GEORGIA STREET, N.E.
SAN FRANCISCO, 3800 30346 ATLANTA, GEORGIA
CALIFORNIA 94104 SAN FRANCISCO, (770) 393-6000 30308-3242
(415) 983-8300 CALIFORNIA 94111 (404) 521-3939
(415) 984-6400
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of a subsidiary of the Registrant with
and into HBO & Company ("HBOC") pursuant to the Agreement and Plan of Merger,
dated as of October 17, 1998, as amended as of November 9, 1998, described in
the enclosed Joint Proxy Statement/Prospectus, have been satisfied or waived.
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 of 1933, as amended (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>
=========================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE OFFERING PRICE(2) FEE(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share, of
McKesson............. 166,066,919 $24.6875 $11,080,478,578 $3,080,400
- -----------------------------------------------------------------------------------------
Rights to purchase
Preferred Stock of
McKesson(3).......... N/A N/A N/A
=========================================================================================
</TABLE>
(1) Represents 442,665,812 outstanding shares of common stock of HBOC on
October 31, 1998, plus an additional 6,163,700 shares of HBOC Common Stock
reserved for issuance, multiplied by the exchange ratio of 0.37.
(2) Reflects the market price of the common stock of HBOC to be converted into
common stock of the Registrant in connection with the Merger computed in
accordance with Rule 457(f) and Rule 457(c) under the Securities Act,
based upon the average of the high and low sale prices of the common stock
of HBOC as quoted on the Nasdaq National Market on November 11, 1998. The
proposed maximum aggregate offering price is estimated solely to determine
the registration fee.
(3) Associated with the common stock of the Registrant are Rights to purchase
Series A Junior Participating Preferred Stock of the Registrant that will
not be exercisable or evidenced separately from the common stock prior to
the occurrence of certain events.
---------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE>
[MCKESSON LETTERHEAD]
LOGO
, 1998
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders of
McKesson Corporation to be held on , 1999 at at 10:00
a.m., local time.
At this special meeting, you will be asked to consider and vote upon a
proposal to approve a merger agreement among McKesson, McKesson Merger Sub,
Inc. (a newly formed, wholly-owned subsidiary of McKesson) and HBO & Company,
and the transactions associated with it. Under the terms of the merger
agreement, McKesson Merger Sub, Inc. would merge into HBO & Company and HBO &
Company would become a wholly-owned subsidiary of McKesson. In the merger,
each share of common stock of HBO & Company outstanding immediately prior to
the effective time of the merger would be converted into 0.37 of a share of
McKesson common stock. The McKesson common stock would be issued together with
associated preferred stock purchase rights pursuant to the rights agreement
dated as of October 21, 1994, as amended, between McKesson and First Chicago
Trust Company of New York. In addition, outstanding HBO & Company employee and
director stock options would be assumed by McKesson. Following the merger
McKesson would change its name to "McKesson HBOC, Inc."
After careful consideration, your Board of Directors has determined that the
merger agreement and the transactions associated with it, including the stock
issuance and the corporate change of name, are fair to and in the best
interests of McKesson and its stockholders and has approved the merger
agreement. In connection with the proposed transactions, the Board retained as
financial advisor Bear, Stearns & Co. Inc., which has delivered to the Board
of Directors its written opinion to the effect that, as of the date of its
opinion, the exchange ratio of 0.37 is fair to McKesson's stockholders from a
financial point of view. A copy of the Bear, Stearns & Co. Inc. opinion which
sets forth the assumptions made, matters considered and the scope of review
undertaken, is set forth as Annex D to the accompanying joint proxy
statement/prospectus, and should be read carefully in its entirety.
Your Board of Directors recommends that you vote in favor of the merger
agreement and the transactions associated with it, including the stock
issuance and the corporate change of name.
The merger, the merger agreement and the stock issuance are described in the
accompanying joint proxy statement/prospectus which you should read carefully.
If you have any questions or require additional information about the special
meeting or the merger, please call Georgeson & Company, Inc., our proxy
solicitor/information agent, at (800) 223-2064.
Sincerely,
MARK A. PULIDO ALAN SEELENFREUND
President and Chairman of the Board
Chief Executive Officer
<PAGE>
, 1998
[HBO & COMPANY LETTERHEAD]
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of HBO
& Company to be held on:
at
at the corporate offices of HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
THIS IS A VERY IMPORTANT SPECIAL MEETING THAT AFFECTS YOUR INVESTMENT IN
HBOC.
At this special meeting you will be asked to vote on a merger agreement
pursuant to which a subsidiary of McKesson Corporation would merge with and
into HBOC and HBOC would become a wholly-owned subsidiary of McKesson. In the
merger, McKesson will issue to HBOC stockholders 0.37 of a share of McKesson
common stock for each share of HBOC common stock. The exchange of HBOC common
stock for McKesson common stock (other than cash paid for fractional shares)
will be tax-free to HBOC stockholders for federal income tax purposes. In
addition, outstanding HBOC employee and director stock options will be assumed
by McKesson.
Your Board of Directors has unanimously approved the merger and has
determined that the merger agreement and the merger are in your best interests
and recommends that you vote to approve the merger agreement and the
transactions contemplated by the merger agreement at the special meeting. The
merger agreement is attached to the accompanying joint proxy
statement/prospectus as Annex A.
In reaching this determination, your Board of Directors received the written
opinion of Morgan Stanley & Co. Incorporated to the effect that, as of the
date of such opinion, the exchange ratio is fair, from a financial point of
view, to HBOC stockholders. A copy of this opinion which sets forth the
assumptions made, matters considered, and the scope of review undertaken, is
attached to the accompanying joint proxy statement/prospectus as Annex E, and
should be read carefully in its entirety.
We have enclosed a notice of special meeting and a joint proxy
statement/prospectus discussing the proposed merger and the related merger
agreement. We encourage you to read these documents carefully. Also enclosed
is a proxy card so you can vote on the merger agreement without attending the
meeting. Please complete, sign and date the enclosed proxy card and return it
to us as soon as possible in the stamped envelope we have provided. If you
decide to come to the special meeting, you may vote your shares in person
whether or not you have mailed us a proxy.
Thank you for your cooperation.
Very truly yours,
CHARLES W. McCALL
Chairman, President and Chief
Executive Officer
<PAGE>
LOGO
MCKESSON CORPORATION
McKesson Plaza
One Post Street
San Francisco, California 94104
Telephone 415-983-8300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
A special meeting of our stockholders will be held at on ,
1999 at 10:00 a.m., local time, to vote on the following:
A merger agreement pursuant to which a subsidiary of McKesson Corporation
would be merged with and into HBO & Company, and the transactions
associated with the merger agreement. In the merger, McKesson would issue
0.37 of a share of McKesson common stock to HBO & Company stockholders for
each share of HBO & Company common stock that they own. In addition,
outstanding HBOC employee and director stock options would be assumed by
McKesson. Following the merger, McKesson would change its name to "McKesson
HBOC, Inc."
Your Board of Directors has determined that the merger agreement and the
transactions associated with it, including the stock issuance and the
corporate change of name, are in your best interests and recommends that you
vote to approve the merger agreement and the transactions associated with it
at the special meeting.
Only stockholders of record at the close of business on , 1998 will be
entitled to notice of, and to vote at, the special meeting and at any
adjournments or postponements of that meeting. You should refer to the
attached joint proxy statement/prospectus for a more complete description of
the merger agreement and the transactions associated with it. In addition, a
copy of the merger agreement is attached to the accompanying joint proxy
statement/prospectus as Annex A. A complete list of stockholders entitled to
vote at the special meeting will be open to examination, during ordinary
business hours, at McKesson's corporate headquarters, for the ten days prior
to the special meeting by any McKesson stockholder for any relevant purpose.
It is important that your shares of McKesson common stock be represented at
the special meeting, regardless of the number of shares you hold. We urge you
to mark, sign, date and return the enclosed proxy card in the enclosed
business reply envelope. No postage is required if mailed in the United
States. If you are a stockholder of record or a participant in the McKesson
Profit-Sharing Investment Plan you may use the toll-free telephone number
listed on the enclosed proxy card or Profit-Sharing Investment Plan voting
card to have your shares voted.
If your shares are not registered in your own name and you plan to attend
the special meeting and vote your shares in person, you will need to ask the
broker, trust company, bank or other nominee that holds your shares to provide
you with evidence of your share ownership on , 1998 and bring that
evidence to the special meeting.
Please vote as soon as possible by telephone or by completing your proxy
card and returning it in the enclosed envelope. If you decide to attend the
special meeting in person you can withdraw your proxy and vote at that time.
By order of the Board of Directors,
NANCY A. MILLER
Vice President and Corporate
Secretary
, 1998
<PAGE>
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER
AGREEMENT AND THE TRANSACTIONS ASSOCIATED WITH IT WHICH ARE DESCRIBED IN
DETAIL IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. YOUR VOTE IS
IMPORTANT. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF
McKESSON COMMON STOCK ISSUED AND OUTSTANDING AND ENTITLED TO VOTE AT THE
SPECIAL MEETING IS REQUIRED TO APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS ASSOCIATED WITH IT. WE URGE YOU TO MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR TO VOTE BY
TELEPHONE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
2
<PAGE>
TO THE STOCKHOLDERS OF
HBO & COMPANY
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
AT
AT THE CORPORATE OFFICES OF HBO & COMPANY,
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
----------------
The Board of Directors of HBO & Company asks you to attend this important
special meeting to vote on the following:
A merger agreement and the transactions contemplated thereby. Pursuant to
the merger agreement, a subsidiary of McKesson Corporation would be merged
with and into HBOC with HBOC becoming a wholly owned subsidiary of
McKesson. In the merger, McKesson will pay HBOC stockholders 0.37 of a
share of McKesson common stock for each share of HBOC common stock. In
addition, outstanding HBOC employee and director stock options will be
assumed by McKesson.
Your Board of Directors has determined that the merger agreement and the
merger are in your best interests and recommends that you vote to approve the
merger agreement at the special meeting.
Only stockholders who held their shares of HBOC common stock at the close of
business on , 1998 will be entitled to notice of, and to vote at, the
special meeting or any adjournments or postponements. The merger cannot be
completed unless holders of a majority of the outstanding shares of HBOC
common stock on the record date affirmatively vote to approve the merger
agreement.
Accompanying this notice is a joint proxy statement/prospectus discussing
the proposed merger and the related merger agreement. We encourage you to read
this document carefully. Also enclosed is a proxy card so you can vote on the
merger agreement without attending the meeting. Please complete, sign and date
the enclosed proxy card and return it to us as soon as possible in the stamped
envelope we have provided. If you decide to come to the special meeting, you
may vote your shares in person whether or not you have mailed us a proxy. You
may also revoke your proxy at any time before the meeting.
By Order of the Board of Directors,
CHARLES W. McCALL
Chairman, President and Chief
Executive Officer
Atlanta, Georgia
Date: , 1998
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 13, 1998
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND +
+MAY BE CHANGED. MCKESSON CORPORATION MAY NOT SELL THESE SECURITIES UNTIL THE +
+REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS +
+EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL +
+THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN +
+ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROXY STATEMENT/PROSPECTUS
MCKESSON CORPORATION
PROXY STATEMENT
HBO & COMPANY
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of McKesson Corporation ("McKesson") and HBO &
Company ("HBOC") have approved a merger agreement pursuant to which a
subsidiary of McKesson would be merged with and into HBOC and HBOC would become
a wholly-owned subsidiary of McKesson. If the merger is completed, McKesson
would change its name to McKesson HBOC, Inc., and will continue to be
headquartered in San Francisco, California.
Upon completion of the Merger, HBOC stockholders will receive 0.37 of a share
of McKesson common stock for each share of HBOC common stock that they own. The
exchange of HBOC common stock for McKesson common stock (other than cash paid
for fractional shares) will be tax-free to HBOC stockholders for federal income
tax purposes. In addition, holders of HBOC employee and director stock options
will have their options converted into options to purchase 0.37 of a share of
McKesson common stock for each share of HBOC common stock subject to an
existing option. The converted options will have an exercise price per share
equal to the exercise price per share of the existing options divided by 0.37.
McKesson stockholders will continue to own their existing shares after the
merger.
This joint proxy statement/prospectus is also the prospectus of McKesson
regarding the McKesson common stock to be issued to HBOC stockholders in
exchange for their shares of HBOC common stock in connection with the merger.
Based on the current number of shares of HBOC common stock outstanding,
McKesson will issue approximately shares of McKesson common stock to HBOC
stockholders in the merger. We estimate that the shares of McKesson common
stock to be issued to HBOC stockholders will represent approximately % of
the outstanding common stock of McKesson after the merger. As a result, the
shares of McKesson common stock held by McKesson stockholders prior to the
merger will represent approximately % of the outstanding stock of McKesson
after the merger. McKesson shares to be issued in connection with the merger or
upon the exercise of converted HBOC options will be listed, subject to official
notice of issuance, on the New York Stock Exchange, Inc. and the Pacific
Exchange, Inc. under the symbol "MCK." HBOC common stock is currently listed on
the Nasdaq Stock Market National Market under the symbol "HBOC."
The merger cannot be completed unless the stockholders of both companies
approve the merger agreement and the transactions associated with it. Each
company has scheduled a special meeting for its stockholders to vote on the
merger agreement and the transactions associated with it. Each of your Boards
of Directors has determined that the merger agreement and the transactions
associated with it are in your respective best interests and recommends that
you vote to approve the merger agreement and the transactions associated with
it. YOUR VOTE IS VERY IMPORTANT.
Only stockholders who held their shares of McKesson at the close of business
on , 1998 will be entitled to notice of, and to vote at, the special meeting
of McKesson and any adjournments or postponements, and only stockholders who
held their shares of HBOC at the close of business on , 1998 will be
entitled to notice of, and to vote at, the special meeting of HBOC and any
adjournments or postponements.
The dates, times and places of the special meetings are as follows:
FOR MCKESSON STOCKHOLDERS:
, 1999
10:00 a.m.
FOR HBOC STOCKHOLDERS:
, 1999
HBO & Company
301 Perimeter Center North
Atlanta, Georgia
This joint proxy statement/prospectus provides you with detailed information
about the proposed merger agreement and the transactions associated with it.
Please see "WHERE YOU CAN FIND MORE INFORMATION" on page 6 for additional
information about McKesson and HBOC filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
SEE "RISK FACTORS" ON PAGE 26 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU
SHOULD CONSIDER IN DETERMINING HOW TO VOTE ON THE MERGER AGREEMENT AND THE
TRANSACTIONS ASSOCIATED WITH IT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE MCKESSON COMMON STOCK TO BE
ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Joint proxy statement/prospectus dated , 199 , and first mailed to
stockholders on or about , 199 .
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT EACH OF MCKESSON AND HBOC THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. YOU MAY OBTAIN DOCUMENTS THAT ARE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND INCORPORATED BY REFERENCE IN THIS DOCUMENT WITHOUT
CHARGE BY REQUESTING THEM IN WRITING OR BY TELEPHONE FROM THE APPROPRIATE
PARTY AT THE FOLLOWING ADDRESS:
FOR MCKESSON DOCUMENTS: FOR HBOC DOCUMENTS:
MCKESSON CORPORATION HBO & COMPANY
MCKESSON PLAZA 301 PERIMETER CENTER NORTH
ONE POST STREET ATLANTA, GEORGIA 30346
SAN FRANCISCO, CALIFORNIA 94104 ATTENTION: MONIKA BROWN
ATTENTION: NANCY A. MILLER TELEPHONE: 800-426-2411
TELEPHONE: 415-983-8300
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM EITHER COMPANY, PLEASE DO SO BY
, 199 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETINGS. SEE "WHERE
YOU CAN FIND MORE INFORMATION" (PAGE 6).
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION....................................... 6
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE........................... 8
SUMMARY................................................................... 9
The Companies........................................................... 11
Our Reasons for the Merger.............................................. 11
Recommendations to Stockholders......................................... 11
Stockholder Vote Required to Approve the Merger......................... 12
The Merger.............................................................. 12
Stock Option Agreements................................................. 13
Officers and Directors Following the Merger............................. 13
Interests of Certain Persons in the Merger.............................. 13
Regulatory Approvals.................................................... 14
Anticipated Accounting Treatment........................................ 14
Important Federal Income Tax Consequences............................... 14
Dissenters' Rights...................................................... 14
Risks of the Merger..................................................... 14
Opinions of Financial Advisors.......................................... 14
Comparative Per Share Market Price Information.......................... 14
Listing of McKesson Common Stock........................................ 14
Forward-Looking Statements May Prove Inaccurate......................... 15
Comparative Rights of Stockholders...................................... 15
McKesson and HBOC Comparative Per Share Data............................ 16
Summary Financial Data of McKesson...................................... 17
Summary Financial Data of HBOC.......................................... 19
Unaudited Pro Forma Combined Condensed Consolidated Financial Data of
McKesson and HBOC...................................................... 20
RISK FACTORS.............................................................. 26
Fixed Exchange Ratio Despite Change in Relative Stock Prices............ 26
Uncertainties in Integrating Business Operations........................ 26
Risks Associated with Future Acquisitions............................... 26
Changing United States Healthcare Environment........................... 26
Computer Technologies................................................... 27
Interests of Certain Officers and Directors in the Merger Differ from
Other Stockholders..................................................... 27
THE SPECIAL MEETINGS...................................................... 28
General................................................................. 28
Voting Securities and Record Dates...................................... 28
Purpose of Special Meetings............................................. 29
Solicitation of Proxies; Expenses....................................... 29
THE COMPANIES............................................................. 31
McKesson................................................................ 31
HBOC.................................................................... 31
Merger Sub.............................................................. 32
THE MERGER................................................................ 33
General................................................................. 33
Background of the Merger................................................ 33
Reasons for McKesson Engaging in the Merger; Recommendation of the
McKesson Board......................................................... 38
Reasons for HBOC Engaging in the Merger; Recommendation of the HBOC
Board.................................................................. 39
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Opinion of McKesson's Financial Advisor................................. 40
Opinion of HBOC's Financial Advisor..................................... 45
Anticipated Accounting Treatment........................................ 49
Board and Management of the Surviving Corporation Following the Merger.. 49
Board and Management of McKesson HBOC Following the Merger.............. 49
Regulatory Approvals.................................................... 50
Interests of Certain Persons in the Merger.............................. 51
Dissenters' Rights...................................................... 53
Stock Exchange Listing.................................................. 53
Delisting and Deregistration of HBOC Common Stock....................... 53
Treatment of Stock Certificates......................................... 53
Tax Free Reorganization................................................. 53
THE MERGER AGREEMENT...................................................... 54
The Merger.............................................................. 54
Exchange Procedures..................................................... 54
Corporate Organization and Governance................................... 55
Stockholders' Meetings.................................................. 56
Representations and Warranties.......................................... 56
Certain Covenants....................................................... 57
No Solicitation of Transactions......................................... 58
Indemnification and Insurance........................................... 60
Conditions.............................................................. 60
Resale Restrictions..................................................... 61
Termination............................................................. 61
Termination Fee......................................................... 62
Expenses................................................................ 63
Amendment; Extension and Waiver......................................... 63
THE STOCK OPTION AGREEMENTS............................................... 65
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....... 66
COMPARATIVE RIGHTS OF STOCKHOLDERS........................................ 67
Classified Board of Directors........................................... 67
Stockholder Rights Plans................................................ 67
Number of Directors..................................................... 68
Removal of Directors; Filling Vacancies................................. 69
No Stockholder Action by Written Consent; Special Meetings.............. 69
Fair Price Provisions................................................... 70
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals.............................................................. 73
Authorized Capital Stock................................................ 74
Voting Rights........................................................... 74
Preferred Stock......................................................... 74
Amendment of the Certificate of Incorporation and By-laws............... 75
Business Combinations................................................... 76
Limitation of Liability of Directors.................................... 76
Indemnification of Directors and Officers............................... 76
Significant Stockholders................................................ 77
MARKET PRICE AND DIVIDEND INFORMATION..................................... 78
BENEFICIAL OWNERSHIP OF McKESSON COMMON STOCK............................. 79
BENEFICIAL OWNERSHIP OF HBOC COMMON STOCK................................. 81
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
DATA OF McKESSON AND HBOC............................................... 83
EXPERTS.................................................................. 89
LEGAL MATTERS............................................................ 89
STOCKHOLDER PROPOSALS.................................................... 89
ANNEXES:
A --Agreement and Plan of Merger, dated as of October 17, 1998, as
amended as of November 9, 1998
B --Stock Option Agreement (McKesson Corporation Shares), dated October
17, 1998
C --Stock Option Agreement (HBO & Company Shares), dated October 17,
1998
D --Fairness Opinion of Bear, Stearns & Co. Inc.
E --Fairness Opinion of Morgan Stanley & Co. Incorporated
</TABLE>
5
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
McKesson and HBOC file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information filed by
either company at the Securities and Exchange Commission's public reference
rooms at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the following regional offices of the Securities and Exchange Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, Suite 1300, New York, New York 10048. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The companies' filings are also
available to the public from commercial document retrieval services and at the
Internet web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
McKesson filed a Registration Statement on Form S-4 to register with the
Securities and Exchange Commission the McKesson common stock to be issued to
HBOC stockholders in the merger. This joint proxy statement/prospectus is a
part of that Registration Statement and constitutes a prospectus of McKesson
in addition to being a proxy statement for each of McKesson and HBOC for their
special meetings of stockholders. As allowed by the Securities and Exchange
Commission's rules, this joint proxy statement/prospectus does not contain all
of the information you can find in the Registration Statement or the exhibits
to the Registration Statement. This joint proxy statement/prospectus
summarizes some of the documents that are exhibits to the Registration
Statement, and you should refer to the exhibits for a more complete
description of the matters covered by those documents.
The Securities and Exchange Commission allows McKesson and HBOC to
"incorporate by reference" information into this joint proxy
statement/prospectus. This means that we may disclose important information to
you by referring you to another document filed separately with the Securities
and Exchange Commission. The information incorporated by reference is
considered to be part of this joint proxy statement/prospectus, except for any
information modified or superseded by information in (or incorporated by
reference in) this joint proxy statement/prospectus. This joint proxy
statement/prospectus incorporates by reference the documents set forth below
that have been previously filed with the Securities and Exchange Commission.
The documents contain important information about our companies and their
finances.
MCKESSON SECURITIES AND EXCHANGE COMMISSION FILINGS (FILE NO. 001-13252)
1. Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (as
amended by Amendment No. 1 on Form 10-K/A filed on July 29, 1998);
2. Definitive Proxy Statement on Schedule 14A dated June 17, 1998 with
regard to the description of Management, Executive Compensation and Certain
Relationships and Related Transactions;
3. Quarterly Reports on Form 10-Q for the quarters ended June 30, 1998 and
September 30, 1998;
4. Current Reports on Form 8-K dated November 22, 1996 (as amended by
Amendment No. 1 on Form 8-K/A filed on January 21, 1997, as further amended by
Amendment No. 2 on Form 8-K/A filed on April 28, 1997) and October 19, 1998
(as amended by Amendment No. 1 on Form 8-K/A filed on October 30, 1998 and as
further amended by Amendment No. 2 on Form 8-K/A filed on November 6, 1998);
and
5. The description of McKesson's capital stock contained in its Registration
Statement on Form 10 and the Rights Agreement dated as of October 21, 1994
between McKesson and First Chicago Trust Company of New York, as Rights Agent,
filed as Exhibit 4.1 to Amendment No. 3 to McKesson's Registration Statement
on Form 10, (as amended by Amendment No. 1, filed as Exhibit 99.1 to
McKesson's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998).
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HBOC SECURITIES AND EXCHANGE COMMISSION FILINGS (FILE NO. 0-9900)
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
3. Current Reports on Form 8-K filed February 10, 1998, February 12, 1998,
May 19, 1998, July 27, 1998, October 5, 1998, October 19, 1998 and November
13, 1998; and
4. Definitive Proxy Statement on Schedule 14A, with regard to the
description of Management, Executive Compensation and Certain Relationships
and Related Transactions with respect to directors and executive officers of
HBOC who will become directors and executive officers of McKesson, filed April
2, 1998.
McKesson and HBOC are also incorporating by reference additional documents
that either company may file with the Securities and Exchange Commission
between the date of this joint proxy statement/prospectus and the date of
their special meetings of stockholders to be held in connection with the
merger. Statements contained in documents incorporated by reference may be
modified or superseded by later statements in this joint proxy
statement/prospectus or by statements in subsequent documents incorporated by
reference, in which case you should refer to the later statement.
McKesson has supplied all information contained or incorporated by reference
in this joint proxy statement/prospectus relating to McKesson, and HBOC has
supplied all such information relating to HBOC.
McKesson or HBOC will provide, without charge, a copy of any or all of their
documents incorporated by reference in this joint proxy statement/prospectus
(other than exhibits to such documents, unless the exhibits are specifically
incorporated by reference in such documents). You may obtain documents
incorporated by reference in this joint proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate party at the
following address:
FOR MCKESSON DOCUMENTS: FOR HBOC DOCUMENTS:
McKesson Corporation HBO & Company
McKesson Plaza 301 Perimeter Center North
One Post Street Atlanta, Georgia 30346
San Francisco, California 94104 Attention: Monika Brown
Attention: Nancy A. Miller Telephone: 800-426-2411
Telephone: 415-983-8300
If you would like to request documents from either company, please do so by
, 199 to receive them before the special meetings of stockholders.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER
AGREEMENT AND THE TRANSACTIONS ASSOCIATED WITH IT. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DATED , 199 . YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY
STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF McKESSON COMMON STOCK
IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document, the documents of McKesson and HBOC incorporated by reference
herein and other communications to stockholders of McKesson and HBOC,
respectively, may contain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate
to expectations concerning matters that are not historical facts. Also, when
we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Although each of
McKesson and HBOC believes that the expectations reflected in such forward-
looking statements are reasonable, neither can give any assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations are disclosed
herein and therein, including, without limitation, in conjunction with the
forward-looking statements included under "RISK FACTORS." All forward-looking
statements attributable to McKesson are expressly qualified in their entirety
by the factors which may cause actual results to differ materially from
expectations described herein and in McKesson's reports filed with the
Securities and Exchange Commission, including the Annual Report on Form 10-K
for the year ended March 31, 1998, as amended, and its quarterly reports on
Form 10-Q for the quarters ended June 30, 1998 and September 30, 1998. All
forward-looking statements attributable to HBOC are expressly qualified in
their entirety by the factors which may cause actual results to differ
materially from expectations described herein and in HBOC's reports filed with
the Securities and Exchange Commission, including the Annual Report on Form
10-K for the year ended December 31, 1997 and the quarterly reports on Form
10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30,
1998.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL
TERMS OF THE PROPOSED MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AS
WELL AS THE ADDITIONAL DOCUMENTS WE REFER YOU TO. SEE "WHERE YOU CAN FIND MORE
INFORMATION" (PAGE 6).
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: The combined company's breadth of product offerings, management and
operational experience and financial resources should enable it to respond
more quickly and effectively to technological change, intensifying
competition, increasing consolidation and evolving market demands. Moreover,
management of McKesson and HBOC believe that the combined company could
achieve operating synergies through cross-marketing of each company's
products to the other company's customers, as well as possible cost savings
related to more efficient administrative and support functions. In addition,
the merger would provide the opportunity to improve patient care while
lowering or controlling costs resulting from the formation of a world leader
in the supply of healthcare products and services across a broad continuum
of the healthcare industry. To review the reasons for the merger in greater
detail, and related uncertainties, see pages 38 through 40.
Q: WHAT IS "MCKESSON HBOC, INC."?
A: McKesson HBOC, Inc. is the name under which McKesson will operate after the
merger.
Q: WHAT WILL HBOC STOCKHOLDERS RECEIVE IN THE MERGER?
A: HBOC stockholders will receive 0.37 of a share of McKesson common stock in
exchange for each share of HBOC common stock. McKesson will not issue frac-
tional shares. HBOC stockholders who would otherwise be entitled to receive
a fractional share instead will receive a cash payment based on the average
market value of the fractional share of McKesson stock during a specified
period prior to the merger.
For Example:
. If you currently own 150 shares of HBOC stock, then after the merger you
will be entitled to receive 55 shares of McKesson common stock and a check
for the market value of the .5 fractional share.
. If you currently own 150 shares of McKesson common stock, then you will
continue to own those 150 shares after the merger.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "RISK FACTORS" on pages 26 and 27.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. In ad-
dition to stockholder approvals, we must also obtain regulatory approvals
and satisfy other conditions described in the merger agreement. We hope to
complete the merger by early 1999.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS?
A: The exchange of shares by HBOC stockholders will be tax-free to HBOC stock-
holders for federal income tax purposes. However, HBOC stockholders may have
to pay taxes on cash received for fractional shares. The merger will be tax-
free to McKesson stockholders for federal income tax purposes. To review the
tax consequences to stockholders in greater detail, see page 66.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR OWN SITUATION.
YOU SHOULD CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THESE TAX
CONSEQUENCES.
Q: WHAT WILL MCKESSON HBOC'S
DIVIDEND POLICY BE?
A: Following the merger, McKesson HBOC's Board of Directors will use its dis-
cretion to decide whether to declare dividends and the amount of any divi-
dends. In making its decision, the Board will consider various factors, in-
cluding tax efficiency, continuing investment opportunities, and the earn-
ings and financial condition of McKesson HBOC, Inc. and its subsidiaries.
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Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: McKesson stockholders: You are being asked to approve the merger agreement
and the transactions associated with it, including the issuance of McKesson
common stock pursuant to the merger and the change of McKesson's name to
"McKesson HBOC, Inc." following the merger. In the merger, a subsidiary of
McKesson would be merged with and into HBOC, and HBOC would become a
wholly-owned subsidiary of McKesson.
MCKESSON'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT, AND RECOM-
MENDS VOTING FOR THE MERGER AGREEMENT AND THE TRANSACTIONS ASSOCIATED WITH
IT.
HBOC stockholders: You are being asked to approve the merger agreement and
the transactions associated with it. In the merger, HBOC would become a
wholly-owned subsidiary of McKesson.
HBOC'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS
VOTING FOR THE MERGER AGREEMENT AND THE TRANSACTIONS ASSOCIATED WITH IT.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares will be represented at your special
stockholders' meeting. If you are a McKesson stockholder you may, if you
prefer, vote by telephone by following the instructions on your proxy card.
The McKesson meeting will take place on , 1999. The HBOC meeting will
take place on , 1999.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, HBOC stockholders will receive written
instructions for exchanging their stock certificates. McKesson stockholders
will keep their certificates as the merger and McKesson's corporate change
of name will not require surrender of McKesson stock certificates.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your McKesson or HBOC shares only if you provide in-
structions on how to vote. Without instructions your shares will not be
voted. Shares that are not voted will be counted as votes against the
merger agreement and the transactions associated with it.
Q: WHO CAN HELP ANSWER FURTHER QUESTIONS?
A: If you would like additional copies of the joint proxy
statement/prospectus, or if you have more questions about the merger, you
should contact:
MCKESSON STOCKHOLDERS: HBOC STOCKHOLDERS:
Georgeson & Company Inc. D. F. King & Co., Inc.
Wall Street Plaza 77 Water Street, 20th floor
88 Pine Street New York, New York 10005
New York, New York 10005 Phone number: (212) 269-5550
Phone Number: 1-800-223-2064 Web site: http://www.dfking.com
Web site: http://www.georgeson.com
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THE COMPANIES (PAGE 31)
MCKESSON CORPORATION
One Post Street
San Francisco, California 94104
(415) 983-8300
McKesson is the leading healthcare supply management company in North Ameri-
ca. McKesson's domestic pharmaceutical and medical/surgical distribution oper-
ations supply pharmaceuticals, health and beauty care products, and medical
and surgical products to independent and chain pharmacies, hospitals, alter-
nate-site healthcare facilities, food stores and mass merchandisers nation-
wide. McKesson also develops and manages innovative marketing programs and
other support programs for pharmaceutical manufacturers. Through its subsidi-
aries, McKesson also specializes in the manufacture and sale of automated
pharmaceutical dispensing systems for hospitals and retail pharmacies and is a
distributor of first-aid and safety products and supplies to industrial and
commercial customers. In addition, the McKesson Water Products Company
processes and markets pure drinking water and is one of the leading providers
in the bottled water industry.
HBO & COMPANY
301 Perimeter Center North
Atlanta, Georgia 30346
(770) 393-6000
HBOC provides software solutions, technological innovation and comprehensive
services to the healthcare industry. HBOC's products and services address its
customers' need for integrated information, whether for patient care, finan-
cial, clinical, homecare, managed care or strategic management. HBOC's prod-
ucts use an open systems architecture. This allows HBOC's customers to add
products without making their existing systems obsolete. HBOC also provides
networking technologies and electronic commerce services, as well as
outsourcing services for managing business offices and information systems op-
erations. HBOC serves more than 9,000 customers worldwide, including inte-
grated health delivery networks, hospitals, physicians' offices, home health
providers, pharmacies, reference laboratories, managed care providers and
payors. HBOC has agreed to acquire Access Health, Inc., a leading provider of
care management products and services to the healthcare industry. This acqui-
sition is subject to stockholder approval of Access Health, Inc. and the sat-
isfaction of certain other customary conditions.
OUR REASONS FOR THE MERGER
The McKesson and HBOC Boards of Directors have determined that the merger
agreement and the transactions associated with it (including, in the case of
McKesson, the issuance of shares of McKesson common stock to HBOC stockholders
and the corporate change of name to "McKesson HBOC, Inc.") are in the best in-
terests of their respective stockholders. In reaching their respective deci-
sions, the Boards of Directors of the two companies considered the following
factors, among other things:
. The merger would create a world leader in the supply of healthcare
products and services across the continuum of the healthcare industry.
. Potential synergies could be achieved through cross-marketing each
company's products to the other company's customers.
. The two companies have compatible management philosophies and acquisition
strategies.
To review the reasons for the merger in greater detail, as well as related
uncertainties, see pages 38 through 40.
RECOMMENDATIONS TO STOCKHOLDERS
TO MCKESSON STOCKHOLDERS:
The McKesson Board believes that the merger is in your best interest and
recommends that you vote FOR the proposal to approve the merger agreement and
the transactions associated with it, including: the issuance of shares of
McKesson common stock to HBOC stockholders; the change of the company's name
after the merger to "McKesson HBOC, Inc."; and the conversion of HBOC employee
and director stock options into options to purchase McKesson common stock.
This recommendation was made by a unanimous vote of directors present at a
meeting of the Board of Directors of McKesson to approve the merger agreement.
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TO HBOC STOCKHOLDERS:
The HBOC Board believes that the merger is in your best interest and unani-
mously recommends that you vote FOR the proposal to approve the merger agree-
ment and the transactions associated with it.
STOCKHOLDER VOTE REQUIRED TO APPROVE
THE MERGER
The affirmative vote of the holders of a majority of the issued and outstand-
ing shares of each of McKesson common stock and HBOC common stock, respective-
ly, is required to approve the merger agreement and the transactions associated
with it. As of , 1998 directors and executive officers of McKesson
held approximately % of the outstanding shares entitled to vote at McKesson's
special meeting. As of , 1998, the directors and executive officers
of HBOC held approximately % of the outstanding shares of HBOC entitled to
vote at HBOC's special meeting. Your abstention or failure to vote (or your
failure to instruct your broker or nominee as to how to vote shares which you
own but which are not held in your name) will have the effect of a vote against
the merger agreement and the transactions associated with it.
To review information relating to stockholder votes in greater detail, see
"THE SPECIAL MEETINGS--Voting Securities and Record Dates" on pages 28 and 29.
THE MERGER (PAGE 33)
The merger agreement is attached as Annex A at the back of this joint proxy
statement/prospectus. We encourage you to read the merger agreement as it is
the legal document that governs the proposed merger.
WHAT HBOC STOCKHOLDERS WILL RECEIVE IN THE MERGER
As a result of the merger, HBOC stockholders will receive 0.37 of a share of
McKesson common stock for each share of HBOC common stock that they own. HBOC
stockholders will not receive fractional shares. Instead, they will receive a
check in payment for any fractional share based on the market value of McKesson
common stock during a specified period prior to the closing date.
In addition, at the time the merger is completed, holders of HBOC employee
and director stock options will have their options converted into options to
purchase 0.37 of a share of McKesson common stock for each outstanding share of
HBOC common stock subject to an existing option at that time. The exercise
price of such converted option will be adjusted to reflect the exchange ratio.
DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. WHEN THE MERGER IS COMPLETED YOU
WILL RECEIVE WRITTEN INSTRUCTIONS FOR EXCHANGING YOUR HBOC STOCK CERTIFICATES.
MCKESSON STOCKHOLDERS WILL CONTINUE TO HOLD THEIR MCKESSON STOCK CERTIFICATES.
STATUS OF HBOC FOLLOWING THE MERGER
If the merger is approved, a subsidiary of McKesson will merge with and into
HBOC and HBOC will become a wholly-owned subsidiary of McKesson. Stockholders
of HBOC before the merger will own stock in McKesson after the merger.
OWNERSHIP OF MCKESSON FOLLOWING THE MERGER
The shares of McKesson common stock issued to HBOC stockholders in the merger
will constitute approximately % of the outstanding common stock of McKesson
after the merger, and the current stockholders of McKesson will hold the re-
maining approximately % of the outstanding common stock of McKesson after the
merger.
CONDITIONS (PAGE 60)
The merger will not be completed unless certain conditions are met, including
the approval of the merger agreement and the transactions associated with it by
McKesson and HBOC stockholders. Certain of the conditions may be waived by the
company entitled to assert the condition.
NO SOLICITATION OF TRANSACTIONS (PAGE 58)
HBOC and McKesson have agreed, subject to certain exceptions, not to initiate
or engage in discussions with a third party regarding a business combination
with such third party while the merger is pending.
TERMINATION (PAGE 61)
McKesson and HBOC may together agree to terminate the merger agreement with-
out completing the merger, whether or not their respective stockholders have
approved the merger agreement.
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The merger agreement may also be terminated by the Board of Directors of ei-
ther company in certain other circumstances, including:
(1) if the merger is not completed on or before March 31, 1999, except
that neither McKesson nor HBOC may terminate the merger agreement if its
breach of the merger agreement is the reason the merger has not been com-
pleted by that date;
(2) if the approval of the stockholders of McKesson or HBOC is not ob-
tained;
(3) if necessary regulatory approvals are not obtained;
(4) if the other party's Board of Directors has failed to recommend the
merger to its stockholders or has withdrawn or adversely modified or quali-
fied its recommendation of the merger; or
(5) if the other party has failed to perform certain of its obligations
under the merger agreement.
TERMINATION FEE (PAGE 62)
The merger agreement generally requires McKesson or HBOC to pay to the other
a termination fee of $200 million if the agreement is terminated because:
(1) the other company's Board of Directors has failed to recommend the
merger to its stockholders or has withdrawn or adversely modified or quali-
fied its recommendation of the merger;
(2) the approval of the stockholders of the other company is not obtained
and that company has received an offer to enter into a significant transac-
tion with a third party; or
(3) the other party solicits an offer to enter into a significant trans-
action with a third party or materially breaches certain of its other obli-
gations under the agreement.
STOCK OPTION AGREEMENTS (PAGE 65)
In connection with the merger, each of McKesson and HBOC granted the other
an option to purchase 19.9% of the shares of common stock of their respective
companies if an event occurs which would entitle McKesson or HBOC to terminate
the merger agreement and which would entitle the holder of the option to re-
ceive a termination fee. Under these options, HBOC would have the right to ac-
quire 19,759,717 shares of McKesson common stock at $88.6875 per share, and
McKesson would have the right to acquire 85,865,517 shares of HBOC common
stock at $32.81 per share. These options generally terminate upon the comple-
tion of the merger or upon termination of the merger agreement in specified
circumstances. The option agreements are attached as Annexes B and C at the
back of this joint proxy statement/prospectus. We encourage you to read these
option agreements.
OFFICERS AND DIRECTORS FOLLOWING THE MERGER
If the merger is completed, HBOC stockholders will become stockholders of
McKesson, which will be renamed "McKesson HBOC, Inc." Following the merger,
Charles W. McCall, the President and Chief Executive Officer of HBOC, will
serve as Chairman of the Board of Directors of McKesson HBOC, Inc. and Mark A.
Pulido, the President and Chief Executive Officer of McKesson, will serve as
the President and Chief Executive Officer of McKesson HBOC, Inc. Upon comple-
tion of the merger, McKesson's by-laws will be amended to provide that, for a
one-year period, a vote of 75% of the members of the Board of Directors will
be necessary to terminate or replace, or fill a vacancy with respect to, ei-
ther of Messrs. McCall or Pulido. Following the merger, the Board of Directors
of McKesson HBOC, Inc. will consist of 10 directors, with an equal number of
directors designated by McKesson and HBOC from their current Boards.
INTERESTS OF
CERTAIN PERSONS IN THE MERGER (PAGE 50)
In considering the Boards' recommendations that you vote to approve the
merger, you should note that certain of the directors and officers of McKesson
and HBOC participate in certain arrangements and have continuing indemnifica-
tion against certain liabilities that provide them with interests in the
merger that are different from, or in addition to, yours. These arrangements
include the vesting of currently unexercisable stock options and restricted
stock and certain compensation and severance agreements. As a result, these
directors and officers could be more likely to vote to approve the merger
agreement than stockholders of McKesson and HBOC generally.
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REGULATORY APPROVALS (PAGE 50)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, pro-
hibits us from completing the merger until after we have furnished certain in-
formation and materials to the Antitrust Division of the Department of Justice
and the Federal Trade Commission and a required waiting period has ended. Both
McKesson and HBOC furnished the required information on October 27, 1998 and
requested early termination of the waiting period.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 49)
We intend that the merger will be accounted for as a pooling of interests.
This means that after the merger McKesson will treat the companies as if they
had always been combined for accounting and financial reporting purposes.
IMPORTANT FEDERAL INCOME TAX
CONSEQUENCES
The exchange of HBOC common stock for McKesson common stock (other than cash
paid for fractional shares) will be tax-free to HBOC stockholders for federal
income tax purposes. To review the tax consequences to stockholders in greater
detail, see page 65.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own circumstances. You should consult
your tax advisors for a full understanding of all of the tax consequences of
the merger to you.
DISSENTERS' RIGHTS (PAGE 52)
Under Delaware law, HBOC stockholders do not have any right to an appraisal
of the value of their HBOC common stock in connection with the merger.
RISKS OF THE MERGER
In considering whether to approve the merger agreement, you should consider
certain risks of the merger, including the risk of fluctuations in the market
price of McKesson common stock, risks associated with the merger and integrat-
ing the companies' businesses and the fact that certain directors and officers
of McKesson and HBOC may have interests in the merger that are different from
or in addition to yours. We urge you to read carefully the factors described
in "RISK FACTORS" on pages 26 and 27 in making your decision.
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the merger, the Boards of Directors of each of McKes-
son and HBOC considered opinions from their respective financial advisors as
to the fairness, as of the date of the opinions, of the exchange ratio from a
financial point of view to their respective stockholders.
The McKesson Board received an opinion from its financial advisor, Bear,
Stearns & Co. Inc., and the HBOC Board received an opinion from its financial
advisor, Morgan Stanley & Co. Incorporated. These opinions are attached as
Annexes D and E to this joint proxy statement/prospectus. We encourage you to
read these opinions. For more information about the Bear, Stearns & Co. Inc.
opinion, see pages 40 through 45, and for more information about the Morgan
Stanley & Co. Incorporated opinion, see pages 45 through 49.
COMPARATIVE PER SHARE MARKET
PRICE INFORMATION
Shares of McKesson common stock are listed on the New York Stock Exchange,
Inc. and the Pacific Exchange, Inc., and shares of HBOC are quoted on the
Nasdaq Stock Market National Market. On October 16, 1998, the last trading day
before the announcement of the proposed merger, the McKesson common stock
closed at $88.6875 per share and the HBOC common stock closed at $29.5625 per
share. On , 1998, McKesson common stock closed at $ per share and HBOC
common stock closed at $ per share. For more information about the compara-
tive market price information, see page 78.
LISTING OF MCKESSON COMMON STOCK
The shares of McKesson common stock issued in connection with the merger
will be listed on the New York Stock Exchange, Inc. and the Pacific
Exchange, Inc.
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FORWARD-LOOKING STATEMENTS MAY
PROVE INACCURATE (PAGE 8)
Each of McKesson and HBOC has made forward-looking statements in this docu-
ment (and in documents that are incorporated by reference) that are subject to
risks and uncertainties. Forward-looking statements include expectations con-
cerning matters that are not historical facts. Also, when we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making for-
ward-looking statements. For more information regarding factors that could
cause actual results to differ from these expectations, you should refer to the
documents we have filed with the Securities and Exchange Commission. See "WHERE
YOU CAN FIND MORE INFORMATION" on pages 6 and 7.
COMPARATIVE RIGHTS OF STOCKHOLDERS (PAGE 67)
The rights of stockholders of both McKesson and HBOC are currently governed
by Delaware law and the respective certificates of incorporation and by-laws of
the two companies. If the merger is completed, the rights of former HBOC stock-
holders who become McKesson stockholders will be determined by McKesson's re-
stated certificate of incorporation and restated by-laws, which differ in cer-
tain respects from HBOC's certificate of incorporation and by-laws.
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MCKESSON AND HBOC
COMPARATIVE PER SHARE DATA
The following tables set forth certain per share data for McKesson on a
historical basis, HBOC on a pro forma combined basis with Access Health, Inc.,
McKesson and HBOC (including Access Health, Inc.) on a pro forma combined basis
and on a per share equivalent pro forma combined basis for HBOC. The
information gives effect to the proposed merger between McKesson and HBOC on a
pooling of interests basis at the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock. The per share data and per
share equivalent pro forma combined data for HBOC is presented assuming the
proposed merger between HBOC and Access Health, Inc. is consummated. The
unaudited pro forma combined and equivalent financial data do not reflect any
cost savings or other synergies anticipated by McKesson or HBOC management as a
result of the merger. Also in connection with the merger, the companies expect
to incur charges for merger-related costs. Neither McKesson nor HBOC has
estimated the amount of such merger-related costs and the pro forma financial
data do not reflect any such costs. The companies may have performed
differently if they had always been combined. You should not rely on the pro
forma information as being indicative of the historical results the combined
companies would have had or the results that they will experience in the
future. We have adjusted all share and per share information for the two-for-
one stock split of HBOC effected in the form of a stock dividend that was paid
on June 9, 1998 to HBOC stockholders.
McKesson's fiscal year ends on March 31. HBOC's fiscal year ends on December
31. For purposes of combining HBOC's historical financial data with McKesson's
historical financial data in the unaudited pro forma combined consolidated
financial data in this joint proxy statement/prospectus, the financial
information of HBOC has been reported on a pro forma combined basis with Access
Health, Inc. using the twelve-month periods ended March 31, 1996, 1997 and
1998, and the six-month period ended September 30, 1998.
The information below should be read in conjunction with the unaudited pro
forma combined condensed consolidated financial data of McKesson and HBOC on
pages 83 to 88, and the historical financial statements (and related notes) of
each of the companies contained in their reports filed with the Securities and
Exchange Commission. See "WHERE YOU CAN FIND MORE INFORMATION" (page 6).
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------- SIX MONTHS ENDED
1996 1997 1998 SEPTEMBER 30, 1998
------ ----- ------ ------------------
<S> <C> <C> <C> <C>
MCKESSON--HISTORICAL
Earnings per common share
Continuing operations
Diluted............................... $ 1.29 $0.06 $ 1.59 $ 0.51
Basic................................. 1.36 0.06 1.69 0.54
Net income
Diluted............................... 1.45 1.51 1.59 0.51
Basic................................. 1.53 1.57 1.69 0.54
Cash dividends declared per common
share................................. 0.50 0.50 0.50 0.25
Book value per common share............ 15.09 16.43
HBOC--PRO FORMA COMBINED WITH ACCESS
HEALTH, INC.(1)(2)
Earnings (loss) per common share
Net income (loss)
Diluted............................... (0.01) 0.21 0.40 0.35
Basic................................. (0.01) 0.22 0.41 0.36
Book value per common share............ 2.41 2.76
PRO FORMA COMBINED(1)(3)
Earnings per common share
Continuing operations
Diluted............................... 0.48 0.40 1.27 0.78
Basic................................. 0.51 0.42 1.32 0.82
Net income
Diluted............................... 0.54 0.89 1.27 0.78
Basic................................. 0.57 0.94 1.32 0.82
Cash dividends declared per common
share................................. 0.50 0.50 0.50 0.25
Book value per common share............ 9.54 10.75
EQUIVALENT PRO FORMA COMBINED PER HBOC
SHARE(1)(3)
Earnings per common share
Continuing operations
Diluted............................... 0.18 0.15 0.47 0.29
Basic................................. 0.19 0.16 0.49 0.30
Net income
Diluted............................... 0.20 0.33 0.47 0.29
Basic................................. 0.21 0.35 0.49 0.30
Cash dividends declared per common
share................................. 0.18 0.18 0.18 0.09
Book value per common share............ 3.53 3.98
</TABLE>
- -------
(1) Assumes an exchange ratio of 1.45 HBOC shares for each share of Access
Health, Inc.
(2) Pro forma per share data at and for the six months ended September 30, 1998
have been completed using the Access Health, Inc. information at and for
the six months ended June 30, 1998. HBOC believes that the differences in
such periods have an immaterial impact on the pro forma data.
(3) Assumes an exchange ratio of 0.37 of a share of McKesson common stock for
each share of HBOC common stock.
16
<PAGE>
SUMMARY FINANCIAL DATA OF MCKESSON
The information below has been derived from the audited consolidated
financial statements of McKesson as of and for its fiscal years ended March 31,
1994 through 1998 and the unaudited consolidated financial statements for the
six months ended September 30, 1997 and 1998 and as of September 30, 1998. The
financial data for the six-month periods ended September 30, 1998 and 1997
reflect all adjustments necessary for a fair presentation of the results for
these periods. You should not expect the results for the six-month periods to
be an indication of the results to be expected for the full year or any other
interim period. This information is only a summary and should be read in
conjunction with McKesson's historical financial statements (and related notes)
contained in its reports filed with the Securities and Exchange Commission. See
"WHERE YOU CAN FIND MORE INFORMATION" (page 6).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................. $11,321.5 $12,324.1 $12,964.8 $15,710.8 $20,857.3 $10,122.6 $12,812.4
Costs and expenses
Cost of sales........... 10,537.9 11,515.9 (1) 12,049.3 14,673.5 19,336.0 9,390.1 11,981.4 (2)
Selling, distribution
and administration..... 630.0 (3) 817.2 (1) 674.2 944.5 (4) 1,159.1 (5) 554.9 684.1 (2)
Interest................ 39.3 44.5 44.4 55.7 102.5 48.1 57.4
--------- --------- --------- --------- --------- --------- ---------
Total................... 11,207.2 12,377.6 12,767.9 15,673.7 20,597.6 9,993.1 12,722.9
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes and
dividends on convertible
preferred securities of
subsidiary trust........ 114.3 (3) (53.5)(1) 196.9 37.1 (4) 259.7 (5) 129.5 89.5 (2)
Income taxes............. 45.0 96.6 (6) 76.2 31.3 98.6 (7) 49.2 34.9
Dividends on convertible
preferred securities of
subsidiary trust, net of
tax benefit............. -- -- -- (0.7) (6.2) (3.1) (3.1)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) after taxes
Continuing operations... 69.3 (3) (150.1)(1)(6) 120.7 5.1 (4) 154.9 (5)(7) 77.2 51.5 (2)
Discontinued
operations(8).......... 87.8 554.6 (9) 14.7 128.8 -- -- --
Extraordinary item...... (4.2) -- -- -- -- -- --
Cumulative effect of
accounting changes..... (16.7) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income............... $ 136.2 $ 404.5 $ 135.4 $ 133.9 $ 154.9 $ 77.2 $ 51.5
========= ========= ========= ========= ========= ========= =========
Diluted earnings (loss)
per common share
Continuing operations... $ 0.75 $ (1.83) $ 1.29 $ 0.06 $ 1.59 $ 0.80 $ 0.51
Discontinued
operations............. 1.00 6.61 0.16 1.45 -- -- --
Extraordinary item...... (0.05) -- -- -- -- -- --
Cumulative effect of
accounting changes..... (0.19) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total................... $ 1.51 $ 4.78 $ 1.45 $ 1.51 $ 1.59 $ 0.80 $ 0.51
========= ========= ========= ========= ========= ========= =========
Diluted shares........... 87.8 83.9 93.2 89.4 101.2 100.7 106.2
Basic earnings (loss) per
common share
Continuing operations... $ 0.77 $ (1.83) $ 1.36 $ 0.06 $ 1.69 $ 0.85 $ 0.54
Discontinued
operations............. 1.10 6.61 0.17 1.51 -- -- --
Extraordinary item...... (0.05) -- -- -- -- -- --
Cumulative effect of
accounting changes..... (0.21) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total................... $ 1.61 $ 4.78 $ 1.53 $ 1.57 $ 1.69 $ 0.85 $ 0.54
========= ========= ========= ========= ========= ========= =========
Basic shares............. 80.2 83.9 88.8 85.5 91.5 91.2 95.6
Cash dividends declared
per common share........ $ 0.83 $ 0.67 $ 0.50 $ 0.50 $ 0.50 $ 0.25 $ 0.25
Cash distribution from
the sale of the
Pharmaceutical Benefit
Management Business
division of McKesson per
common share............ -- $ 38.00 -- -- -- -- --
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents
and marketable
securities(10)......... $ 62.7 $ 670.4 $ 456.2 $ 229.8 $ 113.6 $ 131.6
Working capital......... 301.4 879.0 820.5 1,123.9 1,527.8 1,521.0
Total assets............ 2,676.6 3,260.2 3,360.2 5,172.8 5,607.5 7,016.9
Total debt(11).......... 499.0 425.1 398.3 985.2 1,204.2 1,626.4
Convertible preferred
securities of
subsidiary trust....... -- -- -- 194.8 195.4 195.5
Stockholders' equity.... 678.6 1,013.5 1,064.6 1,260.8 1,406.8 1,630.8
</TABLE>
- --------
(1) Includes $59.4 million in compensation costs (classified in administration
expense) related to the sale of the pharmaceutical benefits management
business of McKesson and $139.5 million in charges for asset impairment,
restructuring and other operating items ($35.9 million included in cost of
sales and $103.6 million included in administration expense), $130.6
million after-tax in the aggregate.
(2) Includes $80.1 million in charges ($0.7 million in cost of sales and $79.4
million in selling, distribution and administration) for transaction
costs, employee benefit change of control provisions and restructuring,
integration and system installation costs associated primarily with
acquisition-related activities, $52.3 million after-tax.
(3) Includes a $13.4 million loss ($8.2 million after-tax) on the termination
of interest rate swap arrangements.
(4) Includes $98.8 million in charges for restructuring, asset impairment and
other operating items and $48.2 million for the write-off of in-process
technology related to the acquisition of McKesson Automated Healthcare,
Inc., $109.5 million after-tax in the aggregate.
(5) Includes $16.7 million in charges associated with the terminated merger
with AmeriSource Health Corporation and $13.9 million in costs associated
primarily with the integration and rationalization of recent acquisitions,
$25.4 million after-tax in the aggregate.
(6) Includes $107.0 million of income tax expense related to the sale of the
pharmaceutical benefits management business of McKesson.
(7) Includes a nonrecurring $4.6 million favorable tax adjustment.
(8) Includes $0.4 million and $1.0 million of income after-tax from donations
of Armor All Products Corporation common stock to the McKesson Foundation
in fiscal 1994 and 1995, respectively, $32.3 million after-tax gain from
the sale of a portion of McKesson's equity interest in Armor All Products
Corporation common stock to the public in fiscal 1994 and $120.2 million
after-tax gain from the sale of the Company's remaining equity interest in
Armor All Products Corporation in fiscal 1997.
(9) Includes gain on sale of the pharmaceutical benefits management business
of McKesson of $576.7 million after-tax and write-down of the Company's
investment in Millbrook Distribution Services, Inc. of $72.8 million
after-tax.
(10) Includes $109.8 million at March 31, 1997, $76.7 million at March 31, 1998
and $25.0 million at September 30, 1998 of after-tax proceeds from the
sale of Armor All Products Corporation shares which were placed in a trust
as exchange property for McKesson's exchangeable debentures.
(11) Total debt includes all interest-bearing debt of McKesson and consolidated
subsidiaries, including the current portion and capital lease obligations.
18
<PAGE>
SUMMARY FINANCIAL DATA OF HBOC
The information below has been derived from the audited financial statements
of HBOC for its fiscal years 1993 through 1997 and the unaudited financial
statements as of and for the nine months ended September 30, 1997 and 1998. The
results for the nine-month periods are not necessarily indicative of the
results to be expected for the full year or for any other interim period. On
October 1, 1998, HBOC completed the acquisition of US Servis, Inc. and on
October 30, 1998, HBOC completed the acquisition of IMNET Systems, Inc. These
acquisitions were accounted for as poolings of interests. Also, HBOC has
entered into an agreement to acquire Access Health, Inc. in a pooling of
interests. The following financial statements have not been restated to give
effect to the US Servis, Inc. and IMNET Systems, Inc. acquisitions because
their impact is not material to HBOC. In addition, we have adjusted the share
and per share information below to reflect the two-for-one stock split effected
in the form of a stock dividend paid on June 9, 1998 to HBOC stockholders.
This information is only a summary and should be read in conjunction with
HBOC's historical consolidated financial statements included in this joint
proxy statement/prospectus, as well as HBOC's historical financial statements
(and related notes) contained in its reports filed with the Securities and
Exchange Commission. See "WHERE YOU CAN FIND MORE INFORMATION" (page 6).
HBO & COMPANY(1)
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ---------------------
1993 1994(2) 1995(3) 1996(4) 1997(5) 1997(5) 1998(6)
-------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $409,354 $525,490 $715,902 $ 950,911 $1,203,204 $ 861,962 $1,119,170
Net income (loss)...... $ 19,893 $ 34,500 $ (7,895) $ 82,333 $ 143,537 $ 117,696 $ 224,161
Diluted earnings (loss)
per share............. $ .06 $ .09 $ (.02) $ .20 $ .33 $ .28 $ .51
Weighted average shares
outstanding
(diluted)............. 349,371 364,547 370,060 421,768 428,925 427,405 439,379
Cash dividends per
share................. $ .02 $ .02 $ .02 $ .02 $ .03 $ .02 $ .05
BALANCE SHEET DATA:
Working capital........ $ 89,723 $ 53,330 $156,488 $ 295,240 $ 519,140 $ 489,792 $ 789,785
Total assets........... $296,781 $425,093 $771,550 $1,012,749 $1,312,586 $1,177,016 $1,534,730
Long-term debt......... $ 6,700 $ 15,067 $ 4,054 $ 769 $ 1,022 $ 368 $ 696
Stockholders' equity... $176,242 $215,848 $500,787 $ 650,646 $ 900,582 $ 857,039 $1,185,139
</TABLE>
- --------
(1) All share and per share amounts have been restated to reflect the 1998 two-
for-one stock split effected in the form of a stock dividend.
(2) 1994 Income Statement related items include a nonrecurring charge of
$6,927. Net income was $38,650 and diluted earnings per share was $.11
excluding the nonrecurring charge.
(3) 1995 Income Statement related items include a nonrecurring charge of
$130,270 and exclude the dilutive effect of stock options. Net income was
$70,321 and diluted earnings per share was $.18 excluding the nonrecurring
charge and including the dilutive effect of stock options.
(4) 1996 Income Statement related items include a nonrecurring charge of
$70,203. Net income was $124,456 and diluted earnings per share was $.30
excluding the nonrecurring charge.
(5) Year ended December 31, 1997 Income Statement related items include a
nonrecurring charge of $95,250. Net income was $200,664 and diluted
earnings per share was $.47 excluding the nonrecurring charge. Nine months
ended September 30, 1997 Income Statement related items include a
nonrecurring charge of $35,420. Net income was $139,017 and diluted
earnings per share was $.33 excluding the nonrecurring charge.
(6) Nine months ended September 30, 1998 Income Statement related items include
a nonrecurring credit of $3,000. Net income was $222,361 and diluted
earnings per share was $.51 excluding the nonrecurring credit.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL DATA OF MCKESSON AND HBOC
We intend that the merger will be accounted for as a pooling of interests,
which means that after the merger McKesson will treat the companies as if they
had always been combined for accounting and financial reporting purposes.
We are presenting below, on a combined pro forma basis, the condensed balance
sheet of McKesson and the pro forma combined condensed balance sheet of HBOC
and Access Health, Inc. We are also presenting below, on a combined pro forma
basis, the condensed statements of income of McKesson and the pro forma
combined condensed statements of income of HBOC and Access Health, Inc. This
information reflects the pooling of interests method of accounting to give you
a better picture of what our businesses might have looked like had they always
been combined. We prepared the pro forma income statements and balance sheet by
adding or combining the amounts of each company for the applicable periods. The
companies may have performed differently if they had always been combined. You
should not rely on the pro forma information as being indicative of the
historical results that the companies would have had or the results that they
will experience in the future. We have adjusted all share and per share
information in this joint proxy statement/prospectus for the two-for-one stock
split of HBOC effected in the form of a stock dividend that was paid on June 9,
1998 to HBOC stockholders.
The amounts presented do not reflect any cost savings or other synergies
anticipated by McKesson or HBOC management as a result of the merger. Also, in
connection with the merger, the companies expect to incur charges for merger-
related costs which will be expensed in the period in which the merger is
consummated. Management has not estimated the amount of such merger-related
costs and the pro forma financial data do not reflect any such costs.
McKesson's fiscal year ends on March 31. HBOC's fiscal year ends on December
31. For purposes of combining HBOC's financial data with McKesson's historical
financial data, the financial information of HBOC has been reported on a
combined pro forma basis with Access Health, Inc. using the twelve-month
periods ended March 31, 1998, 1997 and 1996 and the six-month period ended
September 30, 1998. In addition, the financial information of HBOC has been
reported assuming the merger between HBOC and Access Health, Inc. is
consummated. Pro forma data at and for the six months ended September 30, 1998
have been completed using the Access Health, Inc. information at and for the
six months ended June 30, 1998. HBOC believes that the differences in such
periods have an immaterial impact on the pro forma data.
On October 1, 1998, HBOC completed the acquisition of US Servis, Inc. and on
October 30, 1998 HBOC completed the acquisition of IMNET Systems, Inc. These
acquisitions were accounted for as poolings of interests. Historical amounts
for these companies are not included in the following pro forma combined
condensed consolidated financial statements as their impact is not material to
HBOC or to McKesson.
The unaudited pro forma combined condensed consolidated financial data should
be read in conjunction with each company's historical financial statements (and
related notes) contained in their annual reports on Form 10-K and their
quarterly reports on Form 10-Q and other information filed with the Securities
and Exchange Commission. See "WHERE YOU CAN FIND MORE INFORMATION" (page 6).
20
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
MCKESSON HBOC(1) COMBINED
---------- -------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 103.5 $ 602.6 $ 706.1
Marketable securities available for sale..... 28.1 36.3 64.4
Receivables.................................. 1,948.7 537.3 2,486.0
Inventories.................................. 3,207.2 5.7 3,212.9
Prepaid expenses............................. 42.2 70.3 112.5
-------- -------- --------
Total current assets....................... 5,329.7 1,252.2 6,581.9
Property, plant and equipment, net............. 479.8 138.8 618.6
Capitalized software, net (2).................. 4.7(3) 83.2 87.9
Goodwill and other intangibles................. 828.2 160.4 988.6
Other assets................................... 374.5(3) 47.7 422.2
-------- -------- --------
Total Assets............................. $7,016.9 $1,682.3 $8,699.2
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts and accounts payable.................. $2,848.4 $ 108.4 $2,956.8
Short-term loans and current portion of long-
term debt................................... 484.9 1.2 486.1
Other current liabilities.................... 475.4 277.0 752.4
-------- -------- --------
Total current liabilities.................. 3,808.7 386.6 4,195.3
Postretirement obligations and other noncurrent
liabilities................................... 240.4 7.7 248.1
Long-term debt................................. 1,141.5 0.9 1,142.4
McKesson-obligated mandatorily redeemable
convertible preferred securities of subsidiary
grantor trust whose sole assets are junior
subordinated debentures of McKesson........... 195.5 -- 195.5
Stockholders' equity........................... 1,630.8 1,287.1 2,917.9
-------- -------- --------
Total Liabilities and Stockholders' Equi-
ty...................................... $7,016.9 $1,682.3 $8,699.2
======== ======== ========
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access Health,
Inc., and have been reclassified from the historical HBOC presentation to
conform to the McKesson financial statement presentation. Pro forma balance
sheet data includes Access Health, Inc. information at June 30, 1998. HBOC
believes that the differences in such periods have an immaterial impact on
the pro forma data.
(2) Capitalized software represents costs to develop software for sale to
customers.
(3) McKesson amounts have been reclassified from the historical McKesson
presentation to conform to the HBOC financial statement presentation.
21
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $12,812.4 $ 863.6 $ $13,676.0
Cost and expenses:
Cost of sales and
operations................ 11,981.4 (2) 352.3 12,333.7
Selling, marketing,
distribution and
administration............ 684.1 (2) 172.7 856.8
Research and development... -- 55.4 55.4
Nonrecurring charge........ -- 6.0 (3) 6.0
Interest................... 57.4 -- 57.4
--------- ------- ------ ---------
Total cost and expenses.. 12,722.9 586.4 -- 13,309.3
--------- ------- ------ ---------
Income before income taxes
and dividends on convertible
preferred securities of
subsidiary trust............ 89.5 (2) 277.2 (3) 366.7
Income taxes................. (34.9) (110.6) (145.5)
Dividends on convertible
preferred securities of
subsidiary trust, net of tax
benefit..................... (3.1) -- (3.1)
--------- ------- ------ ---------
Net income............... $ 51.5 (2) $ 166.6 (3) $ -- $ 218.1
========= ======= ====== =========
Earnings per common share:
Diluted.................... $ 0.51 $ 0.35 $ 0.78
Basic...................... $ 0.54 $ 0.36 $ 0.82
Shares on which earnings per
common share were based:
Diluted.................... 106.2 477.7 (301.0)(4) 282.9
Basic...................... 95.6 463.4 (292.0)(4) 267.0
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access Health,
Inc., and have been reclassified from the historical HBOC presentation to
conform to the McKesson financial statement presentation. Pro forma data
for the six months ended September 30, 1998 have been completed using
Access Health, Inc. information for the six months ended June 30, 1998.
HBOC believes that the differences in such periods have an immaterial
impact on the pro forma data.
(2) Includes $80.1 million in charges ($0.7 million in cost of sales and
operations and $79.4 million in selling, marketing, distribution and
administration) for transaction costs, employee benefit change of control
provisions and restructuring, integration and system installation costs
associated primarily with acquisition-related activities, $52.3 million
after-tax.
(3) Includes acquisition charges related to HBOC's acquisition of HPR Inc. and
Access Health, Inc.'s acquisition of InterQual, Inc., $3.8 million after-
tax.
(4) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
22
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................. $20,857.3 $1,438.6 $ $22,295.9
Cost and expenses:
Cost of sales and oper-
ations................ 19,336.0 610.2 19,946.2
Selling, marketing,
distribution and
administration........ 1,159.1 (2) 314.9 1,474.0
Research and develop-
ment.................. -- 100.6 100.6
Nonrecurring charge.... -- 107.9 (3) 107.9
Interest............... 102.5 -- 102.5
--------- -------- ------ ---------
Total cost and ex-
penses.............. 20,597.6 1,133.6 -- 21,731.2
--------- -------- ------ ---------
Income before income
taxes and dividends on
convertible preferred
securities of subsidiary
trust................... 259.7 (2) 305.0 (3) 564.7
Income taxes............. (98.6)(4) (118.2) (216.8)
Dividends on convertible
preferred securities of
subsidiary trust, net of
tax benefit............. (6.2) -- (6.2)
--------- -------- ------ ---------
Net income........... $ 154.9 (2)(4) $ 186.8 (3) $ -- $ 341.7
========= ======== ====== =========
Earnings per common
share:
Diluted................ $ 1.59 $ 0.40 $ 1.27
Basic.................. $ 1.69 $ 0.41 $ 1.32
Shares on which earnings
per common share were
based:
Diluted................ 101.2 469.2 (295.6)(5) 274.8
Basic.................. 91.5 452.5 (285.1)(5) 258.9
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access Health,
Inc., and have been reclassified from the historical HBOC presentation to
conform to the McKesson financial statement presentation.
(2) Includes $16.7 million in charges for the terminated merger with
AmeriSource Health Corporation and $13.9 million in costs associated
primarily with the integration and rationalization of recent acquisitions,
$25.4 million after-tax in the aggregate.
(3) Includes acquisition charges related to HBOC's acquisitions of AMISYS
Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc. and National
Health Enhancement Systems, Inc. and the merger of Access Health, Inc. and
Informed Access Systems, Inc., $61.4 million after-tax.
(4) Includes a non-recurring $4.6 million favorable tax adjustment.
(5) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
23
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.................... $15,710.8 $1,123.9 $ $16,834.7
Cost and expenses:
Cost of sales and
operations............... 14,673.5 487.3 15,160.8
Selling, marketing,
distribution and
administration........... 944.5 (2) 290.9 1,235.4
Research and development.. -- 97.5 97.5
Nonrecurring charge....... -- 83.5 (3) 83.5
Interest.................. 55.7 -- 55.7
--------- -------- ------ ---------
Total cost and
expenses............... 15,673.7 959.2 -- 16,632.9
--------- -------- ------ ---------
Income before income taxes
and dividends on
convertible preferred
securities of subsidiary
trust...................... 37.1 (2) 164.7 (3) 201.8
Income taxes................ (31.3) (67.5) (98.8)
Dividends on convertible
preferred securities of
subsidiary trust, net of
tax benefit................ (0.7) -- (0.7)
--------- -------- ------ ---------
Income after taxes:
Continuing operations..... 5.1 (2) 97.2 (3) -- 102.3
Discontinued operations... 8.6 -- 8.6
Discontinued operations--
gain on sale of Armor All
stock.................... 120.2 -- 120.2
--------- -------- ------ ---------
Net income.............. $ 133.9 (2) $ 97.2 (3) $ -- $ 231.1
========= ======== ====== =========
Earnings per common share:
Diluted:
Continuing operations..... $ 0.06 $ 0.21 $ 0.40
Discontinued operations... 0.10 -- 0.03
Discontinued operations--
gain on sale of Armor All
stock.................... 1.35 -- 0.46
--------- -------- ---------
Total................... $ 1.51 $ 0.21 $ 0.89
========= ======== =========
Basic:
Continuing operations..... $ 0.06 $ 0.22 $ 0.42
Discontinued operations... 0.10 -- 0.03
Discontinued operations--
gain on sale of Armor All
stock.................... 1.41 -- 0.49
--------- -------- ---------
Total................... $ 1.57 $ 0.22 $ 0.94
========= ======== =========
Shares on which earnings per
common share were based:
Diluted................... 89.4 458.5 (288.9)(4) 259.0
Basic..................... 85.5 434.7 (273.8)(4) 246.4
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access Health,
Inc., and have been reclassified from the historical HBOC presentation to
conform to the McKesson financial statement presentation.
(2) Includes $98.8 million in charges for restructuring, asset impairment and
other operating items and $48.2 million for the write-off of in-process
technology related to the acquisition of McKesson Automated Healthcare
Inc., $109.5 million after-tax in the aggregate.
(3) Includes acquisition charges related to HBOC's acquisition of CyCare
Systems, Inc., Management Software, Inc. and GMIS Inc. and the merger of
Access Health, Inc. and Informed Access System Inc., $50.2 million after-
tax.
(4) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
24
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $12,964.8 $835.9 $ $13,800.7
Cost and expenses:
Cost of sales and
operations................ 12,049.3 384.5 12,433.8
Selling, marketing, distri-
bution and
administration............ 674.2 239.5 913.7
Research and development... -- 78.1 78.1
Nonrecurring charge........ -- 136.5 (2) 136.5
Interest................... 44.4 -- 44.4
--------- ------ ------ ---------
Total cost and expenses.. 12,767.9 838.6 -- 13,606.5
--------- ------ ------ ---------
Income (loss) before income
taxes....................... 196.9 (2.7)(2) 194.2
Income taxes................. (76.2) 0.6 (75.6)
--------- ------ ------ ---------
Income (loss) after taxes:
Continuing operations...... 120.7 (2.1)(2) 118.6
Discontinued operations.... 14.7 -- 14.7
--------- ------ ------ ---------
Net income (loss)........ $ 135.4 $ (2.1)(2) $ -- $ 133.3
========= ====== ====== =========
Earnings (loss) per common
share:
Diluted:
Continuing operations...... $ 1.29 $(0.01) $ 0.48
Discontinued operations.... 0.16 -- 0.06
--------- ------ ---------
Total.................... $ 1.45 $(0.01) $ 0.54
========= ====== =========
Basic:
Continuing operations...... $ 1.36 $(0.01) $ 0.51
Discontinued operations.... 0.17 -- 0.06
--------- ------ ---------
Total.................... $ 1.53 $(0.01) $ 0.57
========= ====== =========
Shares on which earnings
(loss) per common share were
based:
Diluted.................... 93.2 394.7 (238.7)(3) 249.2
Basic...................... 88.8 394.7 (248.7)(3) 234.8
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access Health,
Inc., and have been reclassified from the historical HBOC presentation to
conform to the McKesson financial statement presentation.
(2) Includes acquisition charges related to HBOC's acquisitions of First Data
Health Systems Corporation and CliniCom Incorporated, $81.9 million after-
tax.
(3) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
25
<PAGE>
RISK FACTORS
In considering whether to vote in favor of the merger agreement and the
transactions associated with it, you should consider carefully the following
matters:
FIXED EXCHANGE RATIO DESPITE CHANGE IN RELATIVE STOCK PRICES
Stockholders of HBOC will receive 0.37 of a share of McKesson common stock
for each share of HBOC common stock regardless of any increase or decrease in
the price of the common stock of either McKesson or HBOC. The price of
McKesson common stock at the time of the merger may be higher or lower than
its price as of today's date or at the date of the special meetings of
stockholders of McKesson and HBOC. The price of McKesson common stock could
change due to changes in the business, operations or prospects of McKesson or
HBOC, market assessments of the merger, regulatory considerations, general
market and economic conditions or other factors. As a result, there can be no
assurance to HBOC stockholders that the fractional share of McKesson common
stock issuable in respect of a share of HBOC common stock will equal or exceed
the market value of a share of HBOC common stock. Similarly, there can be no
assurance to McKesson stockholders that such fractional share of McKesson
common stock will equal or be less than the market value of a share of HBOC
common stock. Stockholders of McKesson and HBOC are urged to obtain current
market quotations for McKesson common stock and HBOC common stock. See "THE
MERGER AGREEMENT--Conditions."
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS
Although the McKesson and HBOC Boards of Directors have each determined that
the merger is in the best interests of the stockholders of McKesson and HBOC,
respectively, the integration of the two companies will involve special risks
because McKesson and HBOC currently operate in different sectors of the
healthcare industry. There may also be challenges in retaining the customers
of the combined businesses. Moreover, challenges will be presented in
assimilating and retaining personnel. In addition, the integration of the
operations and systems of the two companies and the realization of potential
operating synergies may prove difficult, and may cause management's attention
to be diverted from other business concerns. These and other difficulties
associated with the merger may lead to potential adverse short-term effects on
operating results.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
McKesson and HBOC have historically engaged in numerous acquisitions.
Integration of acquisitions involve a number of special risks, as discussed
above. In addition, McKesson may incur debt to finance future acquisitions.
Alternatively, McKesson may issue securities in connection with future
acquisitions which would dilute the ownership of then current stockholders. To
the extent McKesson or HBOC is unable to successfully complete and integrate
strategic acquisitions in a timely manner, their growth strategies could be
adversely affected. HBOC has agreed to acquire Access Health, Inc. subject to
approval by its stockholders and other conditions. There can be no assurance
that this transaction will be completed, or, if completed, that the operations
of Access Health, Inc. will be successfully integrated.
CHANGING UNITED STATES HEALTHCARE ENVIRONMENT
In recent years, the healthcare industry has changed significantly in an
effort to reduce costs. These changes include increased use of managed care,
cuts in Medicare, consolidation of pharmaceutical and medical/surgical supply
distributors and the development of large, sophisticated purchasing groups. We
expect the healthcare industry to continue to change significantly in the
future. Some of these changes may have a material adverse effect on McKesson's
and HBOC's results of operations, such as a reduction in governmental support
of healthcare services or adverse changes in legislation or regulations
governing the delivery or pricing of healthcare services or mandated benefits.
Changes in pharmaceutical manufacturers' pricing or distribution policies may
also have a material adverse effect on the results of operations of McKesson.
26
<PAGE>
COMPUTER TECHNOLOGIES
Software applications that use only two digits to identify a year in the
date field may fail or create errors in the year 2000. This potential problem
is known as the "Year 2000 Issue." McKesson relies heavily on computer
technologies to operate its business and, accordingly, in response to the Year
2000 Issue, McKesson has undertaken an enterprise wide Year 2000 project which
is expected to complete most of McKesson's mission critical projects by
December 31, 1998 and all phases of McKesson's identified Year 2000 projects
by June 30, 1999. As McKesson's business relies in part on the computer-based
systems of McKesson's customers, suppliers and other third parties and on
technology or data purchased from third parties, McKesson is reviewing the
Year 2000 readiness of all of these third parties and is developing
contingency plans for Year 2000 problems. McKesson also plans to conduct
systems testing with third parties during calendar year 1999. McKesson
believes that the most reasonably likely worst case Year 2000 scenario would
be a business disruption resulting from an extended and/or extensive
communications failure. McKesson believes that such a disruption is likely to
be localized and of short duration and would therefore not be likely to have a
material adverse effect on McKesson. However, given the range of possible
issues and large number of variables involved in Year 2000 preparations
(including any acquisitions which McKesson may make), McKesson cannot quantify
the potential cost of problems should McKesson's remediation efforts or the
efforts of those with whom McKesson does business not be successful. Such
costs and any failure of such remediation efforts could result in a loss of
business, damage to McKesson's reputation and legal liability. Consequently
such costs or failures could have a material adverse effect on McKesson.
Similarly, HBOC has established an internal task force to address the Year
2000 Issue. HBOC's internal assessment indicates that its products are, as of
September 30, 1998, without material deviation, Year 2000 compliant. However,
since there is no uniform definition of "Year 2000 compliant," HBOC may
experience an increase in warranty claims. Although such claims are not
expected to create a material impact on HBOC, there can be no assurances in
that regard. HBOC expects that its internal systems will be substantially Year
2000 compliant on or before February 28, 1999 and continues to make inquiries
regarding the Year 2000 readiness of its third party vendors. However, due to
uncertainties associated with the Year 2000 preparation efforts of third
parties, HBOC is unable to predict whether a material adverse effect on its
business, results of operations, or financial condition may occur as a result
of disruptions associated with the Year 2000 issue.
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE MERGER DIFFER FROM OTHER
STOCKHOLDERS
The directors and certain officers of McKesson and HBOC participate in
certain arrangements and have continuing indemnification against certain
liabilities that provide them with interests in the merger that are different
from, or in addition to, yours. These arrangements include the vesting of
currently unexercisable stock options and certain compensation and severance
agreements. As a result, these directors and officers could be more likely to
vote to approve the merger agreement and the transactions contemplated thereby
than McKesson and HBOC stockholders generally. See "THE MERGER--Interests of
Certain Persons in the Merger."
27
<PAGE>
THE SPECIAL MEETINGS
GENERAL
The special meeting of McKesson stockholders (the "McKesson Special
Meeting") will be held at 10:00 a.m., local time, on , , 1999, at
for the purpose set forth in the Notice of the McKesson Special
Meeting. The special meeting of HBOC stockholders (the "HBOC Special Meeting"
and, together with the McKesson Special Meeting, the "Special Meetings") will
be held at , local time, on , , 1999, at the corporate office of
HBOC, 301 Perimeter Center North, Atlanta, Georgia 30346 for the purpose set
forth in the Notice of the HBOC Special Meeting. This joint proxy
statement/prospectus (the "Joint Proxy Statement/Prospectus") is furnished in
connection with the solicitation by the Board of Directors of each of McKesson
and HBOC of proxies to be used at the Special Meetings and at any and all
adjournments or postponements of the Special Meetings. Any person executing a
proxy card may revoke it prior to its exercise by filing with the Secretary of
McKesson or HBOC, as the case may be, prior to or at the applicable Special
Meeting, at the address specified in "WHERE YOU CAN FIND MORE INFORMATION,"
either an instrument revoking the proxy or a duly executed proxy bearing a
later date.
VOTING SECURITIES AND RECORD DATES
McKesson. At the close of business on , 1998 (the "McKesson Record
Date") there were shares of common stock, par value $.01 per share, of
McKesson ("McKesson Common Stock") issued and outstanding and entitled to vote
at the McKesson Special Meeting, of which, or %, were beneficially owned
by directors and executive officers of McKesson and their affiliates
(excluding shares subject to options), and no shares of preferred stock
outstanding. Each share of McKesson Common Stock issued and outstanding on the
McKesson Record Date entitles the stockholder of record thereof to one vote on
each matter to be voted upon at the McKesson Special Meeting. The presence, in
person or by proxy, at the McKesson Special Meeting of the holders of a
majority of the shares of McKesson Common Stock issued and outstanding and
entitled to vote on the McKesson Record Date is necessary to constitute a
quorum for the transaction of business at the McKesson Special Meeting.
Abstentions and broker "non-votes" will be counted for the purpose of
determining the existence of a quorum. A broker "non-vote" occurs when a
broker holding shares for a beneficial owner votes on one proposal pursuant to
discretionary authority or instructions from the beneficial owner, but does
not vote on another proposal because the broker has not received instructions
from the beneficial owner and does not have discretionary power. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of McKesson Common Stock is required in order to approve the Agreement
and Plan of Merger, dated as of October 17, 1998, as amended as of November 9,
1998 (the "Merger Agreement"), by and among McKesson, McKesson Merger Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of McKesson
("Merger Sub") and HBOC, and the transactions contemplated thereby, including
the issuance of McKesson Common Stock to HBOC stockholders in exchange for
their shares (the "Stock Issuance"), the corporate change of name to "McKesson
HBOC, Inc." ("McKesson HBOC") and the conversion of employee and director
options to purchase shares of HBOC into options to purchase shares of McKesson
Common Stock in accordance with the provisions of the Merger Agreement.
Abstention from voting by a stockholder on a proposal has the same effect as a
vote "Against" such proposal and broker "non-votes" are not counted for
purposes of determining whether a proposal has been approved. See "--
Solicitation of Proxies; Expenses."
HBOC. Only holders of record of shares of common stock, par value $.05 per
share, of HBOC ("HBOC Common Stock") as of the close of business on ,
1998 (the "HBOC Record Date") will be entitled to vote at the HBOC Special
Meeting. At that date, there were shares of HBOC Common Stock issued and
outstanding and entitled to vote, of which, or %, were beneficially owned
by directors and executive officers of HBOC and their affiliates (excluding
shares subject to options). Stockholders of record on the HBOC Record Date are
entitled to one vote for each share of HBOC Common Stock held on all matters
to be voted upon at the HBOC Special Meeting. The presence at the HBOC Special
Meeting, in person or by proxy, of the holders of at least a majority of the
shares of HBOC Common Stock issued and outstanding and entitled to vote on the
HBOC Record Date is necessary to constitute a quorum at the HBOC Special
Meeting. The affirmative vote of the holders of a majority of the issued and
outstanding shares of HBOC Common Stock is required in
28
<PAGE>
order to approve the Merger Agreement and the transactions associated with it.
Abstentions and broker "non-votes" will be counted as present in determining
whether the quorum requirement is satisfied. Abstention from voting by a
stockholder on a proposal has the same effect as a vote "Against" such
proposal and broker "non-votes" are not counted for purposes of determining
whether a proposal has been approved.
PURPOSE OF SPECIAL MEETINGS
McKesson. The purpose of the McKesson Special Meeting is to consider and
vote upon the Merger Agreement and the transactions associated with it,
including the Stock Issuance, the corporate change of name to "McKesson HBOC,
Inc." and the conversion of options to purchase shares of HBOC into options to
purchase shares of McKesson Common Stock in accordance with the provisions of
the Merger Agreement (collectively, the "McKesson Proposal"). A copy of the
Merger Agreement is attached hereto as Annex A.
HBOC. The purpose of the HBOC Special Meeting is to consider and vote to
approve the Merger Agreement and the transactions associated with it,
including the merger of Merger Sub with and into HBOC with HBOC as the
surviving corporation (the "Merger"). A copy of the Merger Agreement is
attached hereto as Annex A.
SOLICITATION OF PROXIES; EXPENSES
All shares of McKesson Common Stock represented by properly executed proxies
received prior to or at the McKesson Special Meeting, and not duly and timely
revoked, and all shares of HBOC Common Stock represented by properly executed
proxies received prior to or at the HBOC Special Meeting, and not duly and
timely revoked, will be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated on a properly executed returned
proxy, such proxies will be voted FOR the approval of the Merger Agreement and
the transactions associated with it.
A properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote
at each of the Special Meetings, will not be voted. Accordingly, since the
affirmative vote of the holders of a majority of the shares of McKesson Common
Stock issued and outstanding and entitled to vote is required to approve the
McKesson Proposal at the McKesson Special Meeting, a proxy marked "ABSTAIN"
will have the effect of a vote against the McKesson Proposal. Similarly, since
the affirmative vote of a majority of the shares of HBOC Common Stock issued
and outstanding and entitled to vote is required for approval of the Merger
Agreement and the transactions associated with it at the HBOC Special Meeting,
a proxy marked "ABSTAIN" will have the effect of a vote against such proposal.
AT THE MCKESSON SPECIAL MEETING, IN ACCORDANCE WITH THE RULES OF THE NEW YORK
STOCK EXCHANGE, INC. (THE "NYSE"), BROKERS AND NOMINEES WHO HOLD SHARES OF
STOCK IN THEIR NAMES BUT ARE NOT THE BENEFICIAL OWNERS OF SUCH SHARES ARE
PRECLUDED FROM EXERCISING THEIR VOTING DISCRETION WITH RESPECT TO SUCH SHARES.
THUS, BROKERS AND NOMINEES ARE NOT EMPOWERED TO VOTE SHARES OF MCKESSON COMMON
STOCK HELD BY THEM WITH RESPECT TO THE APPROVAL OF THE MCKESSON PROPOSAL
ABSENT SPECIFIC INSTRUCTIONS FROM THE BENEFICIAL OWNERS OF SUCH SHARES. At the
Special Meetings, shares represented by broker non-votes will be counted for
purposes of determining the existence of a quorum but will not be included in
vote totals. Accordingly, a broker non-vote at the McKesson Special Meeting
will have the effect of a vote against the McKesson Proposal. A broker non-
vote at the HBOC Special Meeting will have the effect of a vote against the
Merger Agreement and the transactions associated with it.
Any proxy given pursuant to this solicitation may be revoked at any time
before the proxy is voted. Attendance at the McKesson Special Meeting or the
HBOC Special Meeting will not in and of itself constitute a revocation of a
proxy.
The Special Meetings may be adjourned for the purpose of soliciting
additional proxies. Shares represented by proxies voting against the approval
of the Merger Agreement and the transactions associated with it will be voted
against a proposal to adjourn the respective Special Meeting for the purpose
of soliciting additional proxies. Neither McKesson nor HBOC presently intends
to seek an adjournment of its Special Meeting.
29
<PAGE>
In addition to the use of the mail, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxy material
to the beneficial owners of stock held of record by such persons, and McKesson
and HBOC will, upon request, reimburse their respective stockholders for their
reasonable expenses in so doing. McKesson has retained Georgeson & Company,
Inc. and HBOC has retained D.F. King & Co., Inc. to aid in the solicitation of
proxies and to verify certain records related to the solicitation at a fee of
$7,000 and $10,000, respectively, plus out-of-pocket costs and expenses. Each
of McKesson and HBOC will bear their respective costs of soliciting proxies in
the form enclosed herewith, and the costs and expenses incurred in connection
with the filing, printing and mailing of this Joint Proxy Statement/Prospectus
will be borne equally by McKesson and HBOC. To the extent necessary in order
to ensure sufficient representation at its respective Special Meeting,
McKesson or HBOC may request, pursuant to interviews by telephone, facsimile
or otherwise, the return of proxy cards. The extent to which this will be
necessary depends entirely upon how promptly proxy cards are returned.
Stockholders are urged to send in their proxies without delay.
HBOC STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR HBOC COMMON STOCK WILL BE MAILED TO HBOC STOCKHOLDERS AS SOON
AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
MCKESSON STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES, AS THE
MERGER AND CORPORATE CHANGE OF NAME TO MCKESSON HBOC, INC. WILL NOT REQUIRE
SURRENDER OF MCKESSON STOCK CERTIFICATES.
30
<PAGE>
THE COMPANIES
MCKESSON
McKesson conducts its operations through two operating business segments:
the McKesson Healthcare Services segment and the McKesson Water Products
Company.
Through its Healthcare Services segment, McKesson is the leading healthcare
supply management company in North America. McKesson is the leading
distributor of ethical and proprietary drugs and health and beauty care
products in North America. McKesson General Medical Corp., a wholly-owned
subsidiary of McKesson, is the nation's third largest distributor of
medical/surgical supplies to hospitals and the leading supplier of
medical/surgical supplies to the full range of alternate-site healthcare
facilities, including physicians and clinics, long-term care and home-care
sites. In fiscal 1998, the McKesson Healthcare Services segment generated
approximately 99% of McKesson's annual sales and 88% of McKesson's operating
profits from continuing operations.
McKesson's objective is to become the world leader in healthcare supply and
comprehensive pharmaceutical management across the entire supply chain, from
manufacturers to patients. The U.S. operations of the McKesson Healthcare
Services segment include Healthcare Delivery Systems, Inc. and McKesson
BioServices Corporation, through which McKesson develops and manages
innovative marketing programs and other support services to pharmaceutical
manufacturers; McKesson Automated Healthcare, Inc., a business that
specializes in the manufacture and sale of automated pharmaceutical dispensing
systems for hospitals; McKesson Automated Prescription Systems, Inc., a
business that specializes in the manufacture and sale of automated
pharmaceutical dispensing systems for retail pharmacies; and Zee Medical,
Inc., a distributor of first-aid and safety products and supplies to
industrial and commercial customers. The international operations of the
McKesson Healthcare Services segment include Medis Health and Pharmaceutical
Services Inc., a wholly owned subsidiary and the largest pharmaceutical
distributor in Canada; and McKesson's approximately 23% equity interest in
Nadro, S.A. de C.V., the largest pharmaceutical distributor in Mexico.
Through McKesson Water Products Company, a wholly-owned subsidiary of
McKesson, McKesson processes and markets pure drinking water and is one of the
leading providers in the bottled water industry. The Water Products segment of
McKesson generated approximately 1% of McKesson's annual sales in fiscal 1998.
McKesson's principal executive offices are located at McKesson Plaza, One
Post Street, San Francisco, California 94104, and its telephone number at that
address is (415) 983-8300.
HBOC
HBOC provides integrated patient care, clinical, financial, managed care and
strategic management software solutions for the healthcare industry. These
open systems applications facilitate the integration of clinical, financial
and administrative data from a wide range of customer systems and software.
HBOC's broad product portfolio can be implemented in a variety of combinations
from stand-alone to enterprisewide, enabling healthcare organizations to add
incremental capabilities to their existing information systems without making
prior capital investments obsolete. HBOC also provides a full complement of
network communications technologies, including wireless capabilities, as well
as outsourcing services that are offered under contract management agreements
whereby its staff manages and operates data centers, information systems,
medical call centers, organizations and business offices of healthcare
institutions of various sizes and structures. In addition, HBOC offers a wide
range of electronic commerce services, including electronic medical claims and
remittance advice services as well as statement processing. HBOC has recently
completed its acquisition of IMNET Systems, Inc. ("IMNET"), a company which
provides electronic information and document management solutions for the
healthcare industry, and has agreed to acquire Access Health, Inc. ("Access
Health"), a leading provider of care management products and services to the
healthcare industry. The acquisition of Access Health is subject to approval
of its stockholders and the satisfaction of certain other conditions.
31
<PAGE>
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers, pharmacies,
reference laboratories, managed care providers and payors. HBOC also sells its
products and services internationally through subsidiaries and/or distribution
agreements in the United Kingdom, Canada, Ireland, Saudi Arabia, Kuwait,
Australia, Puerto Rico and New Zealand.
HBOC's principal executive offices are located at 301 Perimeter Center
North, Atlanta, Georgia 30346, and its telephone number is (770) 393-6000.
MERGER SUB
Merger Sub is a newly formed wholly-owned subsidiary of McKesson,
incorporated in Delaware on October 16, 1998 for the sole purpose of effecting
the transactions contemplated by the Merger Agreement. Prior to the
consummation of the Merger, Merger Sub will not engage in any activity other
than activities related to the transactions contemplated by the Merger
Agreement. Merger Sub's principal executive offices are located at McKesson
Plaza, One Post Street, San Francisco, California 94104, and its telephone
number is (415) 983-8300.
32
<PAGE>
THE MERGER
GENERAL
At the Effective Time (as defined herein) of the Merger, Merger Sub will be
merged with and into HBOC, with HBOC as the surviving corporation (the
"Surviving Corporation"). Thus, upon consummation of the Merger, HBOC will
become a wholly-owned subsidiary of McKesson. In the Merger, each share of
HBOC Common Stock issued and outstanding immediately prior to the Effective
Time (excluding those shares held in the treasury of HBOC and those shares
owned by McKesson or Merger Sub), without any action on the part of the holder
thereof, will be converted into the right to receive 0.37 of a share of
McKesson Common Stock (the "Exchange Ratio"). Each share of McKesson Common
Stock issued to holders of HBOC Common Stock in the Merger will be issued
together with one-half of an associated preferred stock purchase right (a
"McKesson Right") issued pursuant to the Rights Agreement, dated as of October
21, 1994, as amended as of October 19, 1998, by and between McKesson and First
Chicago Trust Company of New York, as Rights Agent (the "McKesson Rights
Agreement"). See "COMPARATIVE RIGHTS OF STOCKHOLDERS--Stockholder Rights Plan"
for a description of the McKesson Rights. Cash will be paid in lieu of
fractional shares of McKesson Common Stock. The Merger will become effective
at the Effective Time when the Certificate of Merger has been filed with the
Delaware Secretary of State or at such later time as may be agreed upon by
McKesson and HBOC and specified in the Certificate of Merger (the "Effective
Time").
The shares of McKesson Common Stock issued to HBOC stockholders in the
Merger will constitute approximately % of all of the issued and outstanding
shares of McKesson Common Stock after the Merger, and the current McKesson
stockholders will hold all of the remaining issued and outstanding shares of
McKesson Common Stock after the Merger, approximately %, based on the number
of shares issued and outstanding of each company as of , 1998.
At the Effective Time, each outstanding and unexercised employee and
director stock option to purchase shares of HBOC Common Stock (an "HBOC
Option") will be converted into an option to purchase 0.37 of a share of
McKesson Common Stock for each share of HBOC Common Stock subject to such HBOC
Option. Based on the number of shares of HBOC Common Stock subject to HBOC
Options outstanding on , 1998, upon consummation of the Merger,
approximately shares of McKesson Common Stock will be subject to such
converted options. The exercise price per share of McKesson Common Stock
issuable pursuant to each converted option will equal the exercise price per
share of HBOC Common Stock issuable pursuant to each HBOC Option divided by
0.37.
BACKGROUND OF THE MERGER
Since the early 1990s, McKesson has been transforming itself into a focused
healthcare company with a more recently articulated mission of becoming the
world leader in healthcare supply management by assisting its customers in
improving patient care while lowering or controlling costs. Over the last
several years, McKesson has sharpened this focus through a series of
acquisitions and dispositions (such as the acquisitions of General Medical
Inc., the pharmaceutical distribution business of FoxMeyer Corporation and
Automated Healthcare, Inc. and the dispositions of Armor All Products
Corporation and Millbrook Distribution Services Inc.) and through the
redeployment of internal resources to concentrate on investments within
healthcare supply management, in information technologies, automated
logistics, managed care, retail electronic connectivity and customer service
programs.
Consistent with this overall strategy and mission, two years ago, McKesson's
senior management ("McKesson Management") identified entry by acquisition into
healthcare information services as a critical strategic complement to its
business of providing healthcare supply management solutions. At that time,
McKesson Management undertook a review of the participants in the healthcare
information services sector and evaluated a number of companies. Although
McKesson Management at the time identified a number of potential partnering or
acquisition candidates that could provide McKesson an initial entry into
healthcare information services, McKesson Management recognized this sector of
the healthcare market as being fragmented. As a result, McKesson Management
believed that a number of partnering or acquisition transactions undertaken
over
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a significant period of time could be required to build up a meaningful market
presence in this area. Although McKesson Management had also identified HBOC
as the leading participant in the healthcare information services sector and
recognized that a transaction with HBOC could potentially provide McKesson
with an immediate and significant entry into the sector, McKesson Management
considered the disparity of price-to-earnings multiples of the two companies
as making it unlikely that a transaction with HBOC could be achieved on
mutually agreeable terms. Following this assessment, McKesson began to
initiate exploratory discussions with a number of other participants in the
sector, which ultimately did not advance beyond a preliminary stage, but took
no immediate action at that time to initiate contact with HBOC with respect to
a transaction.
Since 1994, HBOC has completed a number of acquisitions to expand its
healthcare information technology business by both product line and service
line to cover all sites of care. The Board of Directors of HBOC (the "HBOC
Board") and management had considered, from time to time, whether HBOC should
extend its acquisition strategy outside of healthcare, although within the
information technology field. HBOC concluded, however, to maintain healthcare
as the focus of its strategy and continued to make acquisitions that would
enhance its efficiency and growth as a healthcare information services
provider. Within this context, however, HBOC determined also to give
consideration to expanding its acquisition strategy within healthcare
services, although outside of software and technology-based companies. Such a
strategy would include combinations with companies in healthcare services
generally, like McKesson.
Each of McKesson and HBOC separately explored with a number of financial and
other advisors, on a periodic basis, potential acquisition and partnering
opportunities to advance their respective strategies in healthcare services.
In early June 1998, a representative of Salomon Smith Barney, Inc. ("SSB") met
with McKesson Management who expressed an interest in exploring a business
combination with HBOC. SSB then contacted Charles W. McCall, Chairman,
President and Chief Executive Officer of HBOC. Mr. McCall indicated an
interest in exploring such an opportunity on a preliminary basis. A meeting
was then held on June 18, 1998 between Mark A. Pulido, President and Chief
Executive Officer of McKesson, and Mr. McCall, along with a representative of
SSB.
Over the course of their meeting, Messrs. Pulido and McCall determined that
McKesson and HBOC held a shared vision of trends and opportunities in the
healthcare industry and of management and operating philosophies of their
respective companies. Messrs. Pulido and McCall discussed that a combination
of McKesson and HBOC would unite the leading healthcare supply management
company with the leading healthcare information services company, and could
form a compelling strategic combination focused on serving customer bases,
including integrated delivery networks, spanning the entire continuum of care.
The combined company could also use technology and data to reduce costs and
improve healthcare outcomes for both provider and payor markets. Messrs.
Pulido and McCall determined that in view of the shared vision for a strategic
combination, further exploratory discussions were warranted.
McKesson and HBOC jointly determined to engage SSB to advise both of them in
connection with the proposed discussions. On June 19, 1998, McKesson executed
an engagement letter with SSB retaining SSB as its financial advisor in
connection with a potential McKesson-HBOC business combination. On June 23,
1998, HBOC also executed an engagement letter with SSB, with an effective date
of June 19, 1998, retaining SSB as its financial advisor in connection with
the potential transaction.
On June 20, 1998, Messrs. Pulido and McCall discussed possible terms of a
potential business combination over the telephone and agreed upon a process
and timetable for moving forward with further discussions. Subject to further
discussions and input from both companies' Boards of Directors, the parties
agreed preliminarily on a number of structural elements of a potential
business combination contemplating a transaction structured as a "merger of
equals" with a fixed exchange ratio, which would provide no premium or
discount to stockholders of either party with reference to the trading price
of each company's stock.
On June 22, 1998, the HBOC Board met to review the discussions between
Messrs. Pulido and McCall, and, on a preliminary basis, the business rationale
for a potential transaction between HBOC and McKesson and to ascertain the
HBOC Board members' initial reaction and direction. At that meeting the HBOC
Board
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authorized Mr. McCall to proceed with the exploration of the potential
transaction and determined to hold another HBOC Board meeting in the near term
to receive a further briefing.
On June 26, 1998, a special meeting of the HBOC Board was held to continue
examination of the HBOC-McKesson potential combination. At the meeting, Mr.
Pulido was invited to address the HBOC Board. Mr. Pulido presented an overview
of McKesson's mission and strategy to the HBOC Board by telephone conference
and answered questions about such matters as McKesson's core business,
acquisitions and management philosophy. Mr. Pulido terminated his
participation by telephone conference and the HBOC Board then received a
presentation from SSB addressing such matters as structure, fundamentals,
valuations, business rationale and timetable. Finally, the HBOC Board held a
discussion of issues related to a potential combination and thereafter
authorized management to move forward with due diligence, including the
engagement of a separate independent financial advisor to render an opinion as
to fairness.
On June 29, 1998, McKesson held a meeting of its Board of Directors (the
"McKesson Board") to review a potential McKesson-HBOC transaction. At the
McKesson Board meeting, Mr. Pulido reviewed with the McKesson Board the
background of discussions to date with HBOC, a preliminary strategic and
financial assessment of a potential business combination as well as the
preliminary terms of the business combination that had been discussed.
Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps"), counsel to
McKesson, also reviewed with the McKesson Board its legal obligations and
other legal considerations relevant to evaluating a transaction structured as
a merger of equals. At the meeting, the McKesson Board authorized McKesson
Management to continue discussions with HBOC with respect to a potential
strategic combination, subject to further review of the financial and other
terms of the transaction and a due diligence investigation of HBOC. The
McKesson Board also authorized and directed McKesson Management to engage a
separate financial advisor, in addition to SSB, to assist the McKesson Board
in evaluating a transaction, as well as such other advisors or consultants as,
in McKesson Management's opinion, were appropriate to assist in evaluating the
overall impact of a possible McKesson-HBOC transaction on McKesson's
stockholders, customers and employees. Following that meeting, McKesson
engaged Bear, Stearns & Co. Inc. ("Bear Stearns") as a separate financial
advisor.
McKesson and HBOC executed a confidentiality agreement with an effective
date of June 30, 1998 to facilitate the sharing of certain confidential
information for the purpose of evaluating a potential strategic combination.
Between July 1, 1998 and July 14, 1998, the two companies and their respective
financial and legal advisors, as well as independent auditors, held a series
of due diligence meetings and reviewed each other's respective businesses,
strategies and documentation produced in response to each company's due
diligence request list and other inquiries.
Concurrently with these meetings and the due diligence investigation
process, McKesson and HBOC and their respective legal and financial advisors
began to negotiate the terms of the definitive agreements in connection with
the potential transaction. On July 5, 1998, Skadden Arps provided its
preliminary comments to an initial draft of the merger agreement that had
previously been distributed by Jones, Day, Reavis & Pogue ("Jones Day"),
counsel to HBOC. Over the next several days, the parties discussed various
issues raised by the draft definitive agreements.
On July 6, 1998 the McKesson Board met to review the potential transaction
with HBOC. Mr. McCall was invited to, and did, address the McKesson Board by
telephone conference to describe HBOC's mission and strategy, to present his
views on the potential synergies and vision for the combined company and to
answer questions. Following Mr. McCall's presentation and questions and
answers between Mr. McCall and McKesson Board members, Mr. McCall terminated
his participation by telephone conference. SSB then presented an overview of
its financial assessment of the potential combination, including its
perspective on the likely reaction of the financial markets to the
announcement of a transaction of the type under consideration. The McKesson
Board also reviewed presentations by McKesson Management and McKesson's
advisors concerning efforts underway with respect to developing a
communications strategy in connection with a potential transaction, the due
diligence that was currently being conducted by McKesson Management and
McKesson's legal, financial and other advisors and the legal obligations of
the McKesson Board in considering a potential transaction.
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On July 10, 1998, the McKesson Board met again to review the potential
transaction with HBOC. The McKesson Board reviewed presentations by Bear
Stearns, Skadden Arps, McKesson Management and other advisors concerning the
results of the due diligence investigations conducted by each of them. The
McKesson Board also reviewed the financial and other key terms of the proposed
transaction, synergies that could be achieved in the combination, possible
investor reaction to the proposed transaction (particularly in view of recent
adverse market reactions to large-scale merger-of-equals transactions), the
status of negotiations concerning a definitive agreement and an overview of
the timing and process of a possible announcement.
On July 10, 1998, the HBOC Board met to review the status of the potential
transaction. The review entailed (i) a management presentation on the
negotiations, (ii) a presentation by Jones Day covering the HBOC Board's
fiduciary duties and other legal considerations relevant to the proposed
transaction, (iii) a management review and comment on the recently conducted
due diligence, (iv) a review by management and Jones Day of the draft
definitive agreements and the various issues raised in the negotiation of same
with McKesson, (v) a structural and financial overview of the transaction by
SSB, and (vi) a report as to the fairness by HBOC's independent financial
advisor Morgan Stanley & Co. Incorporated ("Morgan Stanley").
During the following two days, the parties and their respective legal and
financial advisors continued to negotiate the terms of the transaction with a
view to reaching agreement upon definitive documentation that could be
approved by each party's Board of Directors at separate Board of Directors
meetings to be held on July 13, 1998.
On July 13, 1998, the McKesson Board met again to review the potential
transaction. The McKesson Board again reviewed presentations by Bear Stearns,
Skadden Arps, McKesson Management and other advisors concerning the due
diligence investigations that had been undertaken by McKesson, a financial
analysis of the transaction, a summary of the principal terms of the
transaction that had been negotiated and the issues that remained open, and
the McKesson Board's fiduciary duties in considering a business combination.
Following review and deliberation by the McKesson Board, including a review of
various strategic alternatives that might be available to McKesson, the
McKesson Board unanimously expressed support for the transaction, subject to
reaching a satisfactory resolution of the few remaining open issues, and
authorized and directed McKesson Management to continue to negotiate the final
terms of a definitive agreement. The McKesson Board agreed to meet again on
July 14, 1998 following the close of market at which time it was anticipated
that approval of the transaction would be recommended and sought by McKesson
Management.
On July 13, 1998, the HBOC Board met with representatives of management,
outside legal advisors Jones Day and Mazursky & Dunaway, and representatives
of Arthur Andersen and Morgan Stanley. Representatives from SSB also attended.
The HBOC Board received a further report concerning the due diligence
investigations undertaken by HBOC, reviewed the significant open issues,
received the fairness opinion of Morgan Stanley, discussed the transaction and
asked questions of management and HBOC's advisors and approved the transaction
and authorized Mr. McCall to conclude the transaction subject to the
satisfactory resolution of such open issues.
On the morning of July 14, 1998, Mr. Pulido received a telephone call from a
representative of SSB notifying him that SSB had prematurely included a
specific reference to the pending HBOC-McKesson merger as a written agenda
item for its daily morning conference call among its sales force. During the
day of July 14, 1998, McKesson and HBOC, together with their advisors,
continued discussions to resolve open contractual issues in the definitive
documentation for the transaction. In the meantime, towards the end of that
trading day, the trading price of the HBOC Common Stock, which was to have
been the stock that would be issued in the Merger, dropped sharply on rumors
of a pending HBOC-McKesson transaction and ended 11.2% below its closing price
of the previous day. Because the exchange ratio that was under discussion
between the parties had been calculated based on an average trading price for
McKesson and HBOC common stock over a several-day period that would provide
stockholders of neither party a premium or discount over such trading prices,
the sharp drop in the HBOC trading price resulted in an exchange ratio such
that McKesson stockholders would actually receive a number of shares of HBOC
equal to a value less than the then current trading price of McKesson common
stock as of that date. Accordingly, McKesson declined to proceed with the
transaction on that basis.
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During the early evening of July 14, 1998, McKesson, with the assistance of
its financial advisors, sought to revise the exchange ratio or restructure the
transaction to take into account the decline in the trading price of HBOC
common stock, but HBOC declined to entertain such proposals, and the parties
agreed to terminate discussions.
The McKesson Board met following the close of market on July 14, 1998. Mr.
Pulido informed the McKesson Board of the day's events surrounding the
premature disclosure of the pending HBOC-McKesson transaction by SSB and that
discussions between the parties had terminated.
Prior to the opening of the market on July 15, 1998, each of McKesson and
HBOC issued separate press releases to the effect that, while the companies
had been engaged in discussions regarding a potential business transaction,
such discussions had been terminated.
On October 13, 1998, Mr. Pulido contacted Mr. McCall to inquire whether HBOC
might have an interest in pursuing the strategic business combination that the
parties had contemplated and negotiated in July. After conferring with
individual members of the HBOC Board, Mr. McCall responded that HBOC would be
interested in pursuing a strategic business combination substantially in
accordance with the terms that had previously been negotiated, but desired
that the transaction be structured such that HBOC stockholders would receive a
premium over then-current trading values for HBOC Common Stock. Mr. Pulido
replied that he would discuss HBOC's proposal with members of the McKesson
Board and respond.
Over the next two days, McKesson and HBOC and their respective legal and
financial advisors negotiated certain revisions to the terms of the previously
negotiated definitive agreements, now restructured as an acquisition of HBOC
by McKesson with McKesson issuing its common stock to HBOC stockholders and
with HBOC becoming a wholly-owned subsidiary of McKesson. During this same
period, each of McKesson, HBOC and their respective advisors updated the due
diligence investigation that had been conducted in July. Also Mr. Pulido and
Mr. McCall conferred with individual members of their respective Boards.
On October 14, 1998, McKesson engaged Peter J. Solomon Company Limited to
assist it, together with Bear Stearns, in reviewing the potential transaction
with HBOC.
On October 15, 1998, HBOC engaged Gleacher NatWest Inc. to provide financial
advice in connection with the potential transaction with McKesson.
On October 16, 1998, the McKesson Board met to review the restructured
transaction with HBOC. At the McKesson Board meeting, the Directors reviewed
presentations by McKesson Management, Bear Stearns and Skadden Arps concerning
the revised terms of the transaction and governance issues, the impact of
changes in the financial condition, business and results of operations of HBOC
since July, a revised financial analysis of the transaction based on the
revised structure and exchange ratio and changed conditions, an analysis of
synergies that might be achieved in the combined company and potential
investor reaction to the transaction. Following discussion, the McKesson
Board, by unanimous vote of those present, determined to approve the proposed
transaction, subject to receipt of the formal, written opinion of Bear Stearns
to the effect that, as of the date of the definitive agreement, the exchange
ratio is fair to stockholders of McKesson from a financial point of view. The
opinion was received the following day. In approving the Merger, the McKesson
Board noted that the original strategic business rationale for the combination
between HBOC and McKesson discussed in July, 1998 continued to be compelling.
Specifically, the reasons for approval of the Merger by the McKesson Board
included those stated in "--Reasons for McKesson Engaging in the Merger;
Recommendation of the McKesson Board."
On October 17, 1998, the HBOC Board met with members of HBOC management and
representatives of Jones Day and Morgan Stanley. A review of the recent events
and background of the transaction was presented. Further, the Board was
advised of the revised structure for the transaction, the exchange ratio,
governance matters relating to the proposed combined companies, and the effect
of the transaction on HBOC customers and
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employees. Jones Day reviewed the terms of the definitive agreements with the
HBOC Board, and reviewed the HBOC Board's fiduciary duties in the context of
the revised proposed transaction. Finally, the HBOC Board received an opinion
of Morgan Stanley that the exchange ratio was fair to HBOC stockholders from a
financial point of view. Following discussion by the HBOC Board, including
questions of its advisors, the HBOC Board unanimously approved the Merger
Agreement for the reasons stated in "--Reasons for HBOC Engaging in the
Merger; Recommendations of the HBOC Board."
Following the HBOC Board meeting, McKesson and HBOC executed the Merger
Agreement and related definitive documents. On October 18, 1998, McKesson and
HBOC issued a joint press release announcing the transaction.
REASONS FOR MCKESSON ENGAGING IN THE MERGER; RECOMMENDATION OF THE MCKESSON
BOARD
The McKesson Board has approved the Merger Agreement and the Merger and has
determined that the terms of the Merger Agreement are fair to and in the best
interests of McKesson and its stockholders. During the course of its
deliberations, the McKesson Board considered, with the assistance of
management and its financial and other advisors, a number of factors which the
McKesson Board believes could contribute to the success of the combined
company and thus inure to the benefit of McKesson stockholders, including the
following:
1. The opportunity to create the world's leading healthcare services
company, with the broadest range of product offerings and deepest reach in
both the healthcare supply and healthcare information sectors. The combined
company would serve the entire healthcare customer base, including
providers, manufacturers, payors and retail customers. The combined
company's breadth of product offerings, management and operational
experience and financial resources should enable it to respond more quickly
and effectively to technological change, intensifying competition,
increasing consolidation and evolving market demands.
2. The potential to achieve operating synergies through cross-marketing
of each company's products to the other company's customers, including, for
example, marketing of HBOC physician information products to the McKesson
physician customer base and of the McKesson pharmacy automation products to
HBOC's hospital customers, as well as possible cost savings related to more
efficient administrative and support functions and the elimination of the
costs of the public reporting obligations of HBOC. Longer term, the
potential exists to provide innovative solutions to customers using the
joint capabilities of the combined company and comprehensive, integrated
solutions to customers using such capabilities.
3. The opportunity to improve patient care while lowering or controlling
costs resulting from the formation of a world leader in the supply of
healthcare products and services across a broad continuum of the healthcare
industry.
4. The compatibility of the combined company's strategic and operating
management philosophy and acquisition strategy combined with a similar
history of successful acquisition integration.
5. Receipt of a fairness opinion from Bear Stearns and the analysis
provided with its opinion.
6. The results of the financial analyses, which suggested that the
Merger would be accretive to earnings after synergies.
7. The Merger being effected on a tax-free reorganization basis.
8. The transaction being accounted for as a pooling of interests thereby
not incurring charges to earnings associated with the application of
purchase accounting.
9. Positive responses from customers of both companies, indicating an
interest in the broader array of product and service offerings that would
be available from the combined company.
10. The likelihood that the Merger would be consummated.
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The foregoing discussion of factors considered by the McKesson Board is not
intended to be exhaustive, but is intended to include the material factors
considered. In light of the wide variety of factors considered, the McKesson
Board did not find it practical to and did not quantify or otherwise assign
relative weight to the specific factors considered and individual directors
may have given different weight to different factors.
After due consideration, the McKesson Board approved the Merger by a
unanimous vote of those present and determined that the Merger is fair to and
in the best interests of McKesson and its stockholders. Accordingly, the
McKesson Board recommends that McKesson stockholders vote "FOR" approval of
the Merger Agreement and the transactions associated with it, including the
Stock Issuance and the corporate change of name.
In reaching its recommendation in favor of the Merger, the McKesson Board
also considered a number of uncertainties, including the challenges of
combining the businesses of two large corporations and the risk of diverting
management resources from other strategic opportunities and operational
matters for an extended period of time. See "RISK FACTORS."
REASONS FOR HBOC ENGAGING IN THE MERGER; RECOMMENDATION OF THE HBOC BOARD
The HBOC Board has approved the Merger Agreement and the Merger and has
determined that the terms of the Merger Agreement are fair to and in the best
interests of HBOC and its stockholders. During the course of its
deliberations, the HBOC Board considered, with the assistance of management
and its financial advisors, a number of factors which the HBOC Board believes
could contribute to the success of the combined company and thus inure to the
benefit of HBOC stockholders, including the following:
1. The combination of the two companies' breadth of product offerings,
management and operational experience and financial resources should enable
the combined company to respond more quickly and effectively to
technological change, intensifying competition, increasing consolidation
and evolving market demands.
2. Potential operating synergies through cross-marketing of each
company's products to the other company's customers, including marketing of
HBOC physician information products to the McKesson physician customer base
and of the McKesson pharmacy automation products to HBOC's hospital
customers, as well as possible cost savings related to more efficient
administrative and support functions and the elimination of the costs of
the public reporting obligations of HBOC.
3. The opportunity to improve patient care while lowering or controlling
costs resulting from the formation of a world leader in the supply of
healthcare products and services across a broad continuum of the healthcare
industry.
4. Compatibility of the two companies' strategic and operating
management philosophy and acquisition strategy combined with a similar
history of successful acquisition integration.
5. Receipt of a fairness opinion from Morgan Stanley as to the fairness
of the Exchange Ratio from a financial point of view to stockholders of
HBOC.
6. The exchange by HBOC stockholders of HBOC shares for shares of
McKesson being effected on a tax-free basis.
7. The transaction being accounted for as a pooling of interests thereby
not incurring charges to earnings associated with the application of
purchase accounting.
8. Positive feedback from customers of both companies, indicating an
interest in the broader array of product and service offerings that would
be available from the combined company.
9. The likelihood that the Merger would be consummated.
10. The Merger provides HBOC stockholders with a premium over the market
price of its shares prior to announcement of the Merger Agreement and
provides HBOC stockholders the opportunity to continue to participate in
HBOC's business through an ownership interest in McKesson HBOC.
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The foregoing discussion of factors considered by the HBOC Board is not
intended to be exhaustive, but is intended to include the material factors
considered. In light of the wide variety of factors considered, the HBOC Board
did not find it practical to and did not quantify or otherwise assign relative
weight to the specific factors considered and individual directors may have
given different weight to different factors.
After due consideration, the HBOC Board approved the Merger by a unanimous
vote and determined that the Merger is fair to and in the best interests of
HBOC and its stockholders. Accordingly, the HBOC Board unanimously recommends
that HBOC stockholders vote "FOR" approval of the Merger Agreement.
OPINION OF MCKESSON'S FINANCIAL ADVISOR
On October 17, 1998 Bear Stearns delivered its opinion (hereafter referred
to as the "Bear Stearns Opinion" or the "Opinion") to the effect that, as of
the date thereof, and subject to the assumptions, qualifications and
limitations set forth therein, the Exchange Ratio was fair, from a financial
point of view, to the stockholders of McKesson.
THE FULL TEXT OF THE BEAR STEARNS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY BEAR STEARNS, IS ATTACHED AS ANNEX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF
THE BEAR STEARNS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BEAR STEARNS
OPINION. MCKESSON STOCKHOLDERS ARE URGED TO READ CAREFULLY THE BEAR STEARNS
OPINION IN ITS ENTIRETY. THE BEAR STEARNS OPINION WAS PROVIDED TO THE MCKESSON
BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO THE STOCKHOLDERS OF MCKESSON
AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY MCKESSON TO
ENGAGE IN THE MERGER OR THE PRICE OR RANGE OF PRICES AT WHICH SHARES OF
MCKESSON COMMON STOCK MAY TRADE SUBSEQUENT TO THE ANNOUNCEMENT OR CONSUMMATION
OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
MCKESSON COMMON STOCK OR TO THE MCKESSON BOARD AS TO HOW TO VOTE ON THE
PROPOSED MERGER OR ANY MATTER RELATED THERETO.
Although Bear Stearns evaluated the fairness, from a financial point of
view, of the Exchange Ratio to the stockholders of McKesson, the Exchange
Ratio itself and the form of merger consideration were determined by McKesson
and HBOC through arm's-length negotiations and were not based on any
recommendation by Bear Stearns, although Bear Stearns provided advice to
McKesson from time to time during the course of such negotiations. McKesson
did not provide specific instructions to, or place any limitations upon, Bear
Stearns with respect to the procedures to be followed or factors to be
considered by Bear Stearns in performing its analyses or rendering the Bear
Stearns Opinion.
THE BEAR STEARNS OPINION
In arriving at its Opinion, Bear Stearns, among other things, (i) reviewed
the Merger Agreement; (ii) reviewed McKesson's Annual Reports to Stockholders
and Annual Reports on Form 10-K for the fiscal years ended March 31, 1996
through 1998 and its Quarterly Report on Form 10-Q for the period ended June
30, 1998; (iii) reviewed HBOC's Annual Reports to Stockholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1995 through 1997
and its Quarterly Reports on Form 10-Q for the periods ended March 31, 1998
and June 30, 1998; (iv) reviewed certain operating and financial information,
including Wall Street analyst estimates that were adjusted by the managements
of McKesson and HBOC (the "Adjusted Wall Street Estimates"), relating to
McKesson's and HBOC's respective businesses and prospects; (v) met with
certain members of the senior managements of McKesson and HBOC to discuss the
operations, historical financial statements and future prospects of McKesson
and HBOC; (vi) reviewed certain estimates of cost
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savings and other combination benefits expected to result from the Merger,
jointly prepared and provided to Bear Stearns by the senior managements of
McKesson and HBOC (the "Projected Synergies"); (vii) reviewed the historical
prices and trading volumes of the McKesson Common Stock and HBOC Common Stock;
(viii) reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which Bear Stearns deemed generally
comparable to McKesson and HBOC; (ix) reviewed the terms of recent merger and
acquisition transactions which Bear Stearns deemed generally comparable to the
Merger or otherwise relevant to its analysis; and (x) conducted such other
studies, analyses, inquiries and investigations, as Bear Stearns deemed
appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial
information, including the Adjusted Wall Street Estimates provided to it by
McKesson and HBOC, including with respect to HBOC's pending acquisitions of
Access Health and IMNET and the financial impact thereof. With respect to the
Adjusted Wall Street Estimates and potential synergies that McKesson and HBOC
believed could be achieved upon consummation of the Merger, Bear Stearns
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior managements of
McKesson and HBOC as to the expected future performance of McKesson and HBOC,
respectively. Bear Stearns has not assumed any responsibility for the
independent verification of any such information or of the Adjusted Wall
Street Estimates provided to it and Bear Stearns has further relied upon the
assurances of the senior managements of McKesson and HBOC that they are
unaware of any facts that would make the information or the Adjusted Wall
Street Estimates provided to it incomplete or misleading. In arriving at its
Opinion, Bear Stearns did not perform or obtain any independent appraisal of
the assets or liabilities of McKesson and HBOC, nor was it furnished with any
such appraisals. The Bear Stearns Opinion is necessarily based on economic,
market and other conditions, and the information made available to Bear
Stearns, as of the date thereof. Bear Stearns has assumed that the Merger (i)
will qualify as a tax-free "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code") and (ii)
will be accounted for as a pooling of interests under generally accepted
accounting principles ("GAAP").
For purposes of rendering its Opinion, Bear Stearns assumed, in all respects
material to its analysis, that the representations and warranties of each
party in the Merger Agreement and all related documents and instruments
(collectively, the "Documents") contained therein were true and correct; that
each party to the Documents would perform all of the covenants and agreements
required to be performed by such party under the Documents; and, that all
conditions to the consummation of the Merger would be satisfied without waiver
thereof. Bear Stearns assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Merger, no restrictions, including any divestiture requirements or amendments
or modifications, would be imposed that would have a material adverse effect
on either McKesson or HBOC.
In connection with preparing and rendering the Opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of such analyses, as set forth below, does not purport to be a
complete description of the analyses underlying the Bear Stearns Opinion, and
is qualified in its entirety by reference to the full text of the Bear Stearns
Opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to summary description. Bear Stearns believes that its
analyses must be considered as a whole, and that selecting portions of its
analyses and the factors considered by it, without considering all such
factors and analyses, could create an incomplete and misleading view of the
processes underlying Bear Stearns' opinions. Bear Stearns has not made any
attempt to assign specific weights to particular analyses in preparing its
Opinion. Moreover, the estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold. Accordingly, such
estimates are inherently subject to substantial uncertainties.
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At the October 16, 1998 meeting of the McKesson Board, Bear Stearns reviewed
the potential financial impact of the Merger and a variety of valuation,
financial and comparative analyses. The various financial analyses prepared by
Bear Stearns, reviewed with the McKesson Board and summarized below, were
based on the Adjusted Wall Street Estimates.
Pro Forma Merger Analysis. Bear Stearns reviewed and analyzed certain pro
forma financial impacts of the Merger on holders of McKesson Common Stock
based on: (i) the Exchange Ratio; (ii) the Adjusted Wall Street Estimates;
(iii) an assumption for analytical purposes that the Merger would be
consummated on March 31, 1999; and (iv) an assumption for analytical purposes
that HBOC's pending acquisitions of Access Health and IMNET will be
consummated on December 31, 1998. In addition, Bear Stearns performed analyses
that assumed four specific scenarios as to the level of projected synergies
realized as a result of the Merger. The scenarios developed and used by Bear
Stearns included: (a) a scenario assuming that no synergies were achieved; (b)
a scenario that reflected full realization of the Projected Synergies (the
"Base Case Synergies," specifically $75 million, $125 million and $175 million
of pre-tax benefits in the fiscal years ending March 31, 2000 ("Fiscal 2000"),
March 31, 2001 ("Fiscal 2001") and March 31, 2002 ("Fiscal 2002"),
respectively); (c) a "Low Synergies Case" reflecting $54 million, $89 million
and $125 million of pre-tax benefits in Fiscal 2000, Fiscal 2001 and Fiscal
2002, respectively; and (d) a "High Synergies Case" reflecting $96 million,
$161 million and $225 million of pre-tax benefits in Fiscal 2000, Fiscal 2001
and Fiscal 2002, respectively. In its analysis, Bear Stearns did not take into
account the financial statement impact of potential restructuring charges or
any other one-time items associated with the Merger.
The results of this analysis indicated that, after factoring in the Base
Case Synergies, the Merger would result in accretion of 0.5%, 3.1% and 5.3% to
the projected earnings per share ("EPS") of McKesson HBOC for Fiscal 2000,
Fiscal 2001 and Fiscal 2002, respectively, as compared to the projected EPS of
McKesson on a stand-alone basis for the same time periods. Assuming no
synergies, the analysis indicated the Merger would result in dilution of -
4.7%, -3.5% and -2.1% to the projected EPS of McKesson HBOC for Fiscal 2000,
Fiscal 2001 and Fiscal 2002, respectively, as compared to the projected EPS of
McKesson on a stand-alone basis for the same time periods. Assuming the Low
Synergies Case, the analysis suggested the Merger would result in dilution of
- -1.0% to the projected EPS of McKesson HBOC during Fiscal 2000, and accretion
of 1.2% and 3.2% to the projected EPS of McKesson HBOC during Fiscal 2001 and
Fiscal 2002, respectively, as compared to the projected EPS of McKesson on a
stand-alone basis for the same time periods. Assuming the High Synergies Case,
the analysis indicated the Merger would result in accretion of 1.9%, 5.1% and
7.3% to the projected EPS of McKesson HBOC for Fiscal 2000, Fiscal 2001 and
Fiscal 2002, respectively, as compared to the projected EPS of McKesson on a
stand-alone basis for the same time periods.
Bear Stearns also performed a sensitivity analysis on the projected EPS of
McKesson HBOC assuming: (i) the Adjusted Wall Street Estimates for McKesson;
(ii) three-year compounded annual growth rates of the stand-alone EPS of HBOC
ranging from 20% to 50% (for calendar years 1998 through 2001); and (iii)
either the Base Case Synergies or no synergies. Based on the above
assumptions, Bear Stearns' calculations indicated that (i) if the Base Case
Synergies were achieved, the potential impact of the Merger on McKesson's
projected EPS would range from accretion of 10.6% to dilution of -7.6% for
Fiscal 2000, accretion of 23.4% to dilution of -9.3% for Fiscal 2001 and
accretion of 38.1% to dilution of -11.4% for Fiscal 2002; and (ii) in the
event that no synergies were achieved, the potential impact of the Merger on
McKesson's projected EPS would range from accretion of 5.5% to dilution of -
12.7% for Fiscal 2000, accretion of 16.8% to dilution of -15.9% for Fiscal
2001 and accretion of 30.7% to dilution of -18.7% for Fiscal 2002. Bear
Stearns also noted that: (i) if the Base Case Synergies were achieved, HBOC's
stand-alone EPS would need to grow at a rate of approximately 28% per year for
three years in order for the Merger not to be dilutive to McKesson's stand-
alone projected EPS for Fiscal 2002 and (ii) if no synergies were achieved,
HBOC's stand-alone EPS would need to grow at a rate of approximately 33% per
year for three years in order for the Merger not to be dilutive to McKesson's
stand-alone projected EPS for Fiscal 2002. Bear Stearns further noted that
such required growth rates compared to a projected three-year EPS growth rate
of 31.9% based on the Adjusted Wall Street Estimates for HBOC.
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Pro Forma Compounded Annual Growth Rates. Bear Stearns calculated the pro
forma compounded annual growth rate of McKesson HBOC's EPS for the three year
period ending on March 31, 2002 based on: (i) the Exchange Ratio; (ii) the
Adjusted Wall Street Estimates; (iii) either the Base Case Synergies or no
synergies; (iv) an assumption for analytical purposes that the Merger was
consummated on March 31, 1998; and (v) an assumption for analytical purposes
that HBOC's pending acquisitions of Access Health and IMNET were consummated
on December 31, 1997. In addition, Bear Stearns did not take into account the
financial statement impact of potential restructuring charges or any other
one-time items associated with the Merger.
Bear Stearns' calculations indicated that, assuming the Base Case Synergies,
McKesson HBOC's EPS would grow at approximately a 33.7% compounded annual
growth rate during the period. Assuming no synergies, Bear Stearns'
calculations indicated McKesson HBOC's EPS would grow at approximately a 30.5%
compounded annual growth rate during the period. Bear Stearns noted that
McKesson's stand-alone EPS was projected to grow at approximately a 28.7%
compounded growth rate during the period based on the Adjusted Wall Street
Estimates for McKesson.
Relative Contribution Analysis. Bear Stearns calculated the relative
contribution by each of McKesson and HBOC to McKesson HBOC on a pro forma
combined basis with respect to, among other things, equity market
capitalization and net income. Bear Stearns performed this calculation based
on: (i) closing share prices for McKesson and HBOC as of October 16, 1998; and
(ii) the Adjusted Wall Street Estimates for each company. The results of this
analysis indicated that McKesson would contribute approximately 40.0% of
McKesson HBOC's equity market capitalization. This analysis also indicated
that McKesson would contribute approximately 38.5%, 38.7% and 38.1% of
combined projected net income for Fiscal 2000, Fiscal 2001 and Fiscal 2002,
respectively. Assuming that the Base Case Synergies are achieved, Bear
Stearns' analysis showed that McKesson would contribute approximately 36.5%,
36.2% and 35.5% of combined projected net income, while synergies would
contribute approximately 5.2%, 6.5% and 7.0% of combined projected net income
for Fiscal 2000, Fiscal 2001 and Fiscal 2002, respectively. By way of
comparison, Bear Stearns noted that, on a fully diluted basis and assuming
consummation on the part of both companies of pending acquisitions and related
share issuances, the Exchange Ratio would result in holders of McKesson Common
Stock receiving approximately a 37.5% collective ownership position in
McKesson HBOC following the merger.
Historical Stock Performance and Implied Market Exchange Ratios. Bear
Stearns reviewed the historical stock prices of McKesson Common Stock and HBOC
Common Stock and the implied market exchange ratios determined by dividing the
price per share of HBOC Common Stock by the price per share of McKesson Common
Stock (the "Market Exchange Ratio") over various periods of time including,
among others, the one year period ended October 16, 1998, the six month period
ended October 16, 1998, the three month period ended October 16, 1998 and the
one month period ended October 16, 1998. Bear Stearns calculated that the
Market Exchange Ratio ranged from: (i) a low of 0.2700 to a high of 0.5463,
with an average of 0.4166, during the one year period ended October 16, 1998;
(ii) a low of 0.2700 to a high of 0.5037, with an average of 0.3767, during
the six month period ended October 16, 1998; (iii) a low of 0.2700 to a high
of 0.4330, with an average of 0.3367, during the three month period ended
October 16, 1998; and (iv) from a low of 0.2700 to a high of 0.3333, with an
average of 0.3113, during the one month period ended October 16, 1998. Bear
Stearns noted that, with the exception of the periods observed during the one
month ended October 16, 1998, the Exchange Ratio of 0.3700 was within the
range of the high and low implied market exchange ratios for the observed
periods.
Illustrative Future Stockholder Value Analysis. As a sensitivity analysis
and for illustrative purposes only, Bear Stearns prepared imputed stock price
matrices in order to demonstrate the sensitivity of the pro forma impact of
the Merger on the value of shares of common stock of McKesson following the
Merger (the "McKesson HBOC Common Stock"). Bear Stearns used the blended price
to earnings ("P/E") multiples of McKesson and HBOC (calculated as the income-
weighted average of the respective stand-alone P/E multiples of McKesson and
HBOC based on the Adjusted Wall Street Estimates) for each of Fiscal 2000,
2001 and 2002 as midpoints of the ranges of the P/E multiples. Bear Stearns
noted that the market multiples of McKesson's projected stand-alone EPS were
not significantly different than the market multiples for HBOC's projected
stand-alone EPS. In order to illustrate the sensitivity to the change in the
combined multiples for each of Fiscal 2000,
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2001 and 2002, Bear Stearns added 2.0x to the blended multiple to arrive at
the upper end of the range and subtracted 2.0x from the blended multiple to
arrive at the lower end of the range. These computations resulted in P/E
multiples of: (i) 27.2x to 31.2x for Fiscal 2000; (ii) 20.5x to 24.5x for
Fiscal 2001; and (iii) 15.4x to 19.4x for Fiscal 2002. Bear Stearns then
calculated the implied value of a share of McKesson HBOC Common Stock using
the range of multiples described above for each of the fiscal years, the
projected EPS of McKesson HBOC, based on the Adjusted Wall Street Estimates,
and either the Base Case Synergies or no synergies. Assuming the Base Case
Synergies, Bear Stearns calculated that the implied pro forma value of a share
of McKesson HBOC Common Stock ranged from a low of approximately $79.11
(assuming a P/E ratio of 15.4x projected Fiscal 2002 net income), to a
midpoint of approximately $88.82 (assuming a P/E ratio of 22.5x projected
Fiscal 2001 net income), to a high of approximately $99.67 (assuming a P/E
ratio of 19.4x projected Fiscal 2002 net income), which imputed prices would
represent changes of -10.8%, 0.2% and 12.4%, respectively, from the closing
price of approximately $88.69 for McKesson Common Stock on October 16, 1998.
Assuming no synergies, Bear Stearns calculated that the implied pro forma
value of a share of McKesson HBOC Common Stock ranged from a low of
approximately $73.62 (assuming a P/E ratio of 15.4x projected Fiscal 2002 net
income), to a midpoint of approximately $83.18 (assuming a P/E ratio of 17.4x
Fiscal 2002 net income), to a high of approximately $92.74 (assuming a P/E
ratio of 19.4x projected Fiscal 2002 net income), which imputed prices would
represent changes of -17.0% -6.2% and 4.6%, respectively, from the closing
price of approximately $88.69 for McKesson Common Stock on October 16, 1998.
In performing its analyses, Bear Stearns was not expressing any opinion as
to the range of prices at which McKesson HBOC Common Stock may trade
subsequent to the consummation of the Merger. The prices at which McKesson
HBOC Common Stock ultimately trades in the stock market will be driven by a
variety of quantitative and qualitative factors (e.g., the P/E ratio at which
McKesson HBOC Common Stock is valued by potential investors, which may be
significantly more or less favorable than the illustrative range of P/E ratios
used by Bear Stearns for its analytical purposes; the level of synergies
ultimately embraced by the stock market; etc.).
Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial and
operating data for both McKesson and HBOC and pro forma combined balance sheet
data for McKesson HBOC, analyzing selected Wall Street equity research reports
on, and earnings and other estimates for, each of McKesson and HBOC, reviewing
the relative stock price performance of McKesson and HBOC versus various
indices, comparing the coverage universe of the research analysts who monitor
each of McKesson and HBOC, reviewing and comparing certain financial data and
valuation parameters for each of McKesson and HBOC and reviewing available
information regarding the institutional holdings of McKesson Common Stock and
HBOC Common Stock.
McKesson engaged Bear Stearns as its financial advisor based on Bear
Stearns' experience and expertise. Bear Stearns is an internationally
recognized investment banking firm that has substantial experience in the
healthcare industry and in transactions similar to the Merger. Bear Stearns,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Pursuant to the terms of its
engagement letter dated October 14, 1998, McKesson has: (i) agreed to pay Bear
Stearns a fee of $3.0 million in connection with the delivery of the Bear
Stearns Opinion; (ii) agreed to pay Bear Stearns a transaction fee, contingent
upon and payable at closing of the Merger, of $20.0 million (against which the
opinion fee is to be credited); (iii) agreed to pay Bear Stearns a fee of 15%
of any "break-up" fee or any other payment that results from the termination
or cancellation of McKesson's efforts to effect the Merger; provided, however,
that such fee shall be no greater than $20.0 million (against which the
opinion fee is to be credited); and (iv) agreed to reimburse Bear Stearns for
its out-of-pocket expenses, including the fees and expenses of its counsel and
other outside advisors and consultants retained with McKesson's approval.
McKesson has also agreed to indemnify Bear Stearns and certain related persons
against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws.
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Bear Stearns has previously rendered certain investment banking and
financial advisory services to both McKesson and HBOC. In the ordinary course
of its business, Bear Stearns may actively trade the securities of McKesson
and/or HBOC for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
OPINION OF HBOC'S FINANCIAL ADVISOR
HBOC retained Morgan Stanley to render a financial opinion letter (the
"Morgan Stanley Opinion") to the HBOC Board in connection with the Merger and
related matters based upon Morgan Stanley's qualifications, expertise and
reputation. On October 17, 1998, Morgan Stanley rendered an oral opinion,
which was confirmed in writing, to the HBOC Board 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 HBOC Common Stock.
THE FULL TEXT OF THE MORGAN STANLEY OPINION, DATED AS OF OCTOBER 17, 1998
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE MORGAN
STANLEY OPINION IS DIRECTED TO THE HBOC BOARD AND THE FAIRNESS OF THE EXCHANGE
RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO THE
HOLDERS OF HBOC 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 HBOC STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE HBOC SPECIAL MEETING TO BE 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 ANNEX E HERETO. STOCKHOLDERS OF
HBOC ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND
IN ITS ENTIRETY.
In arriving at the Morgan Stanley Opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of HBOC and McKesson respectively; (ii) reviewed and discussed the
past and current operations and financial condition and the prospects of HBOC
and McKesson with senior executives of HBOC and McKesson, respectively; (iii)
reviewed the pro forma impact of the Merger on the combined company's earnings
per share and financial ratios; (iv) reviewed the reported prices and trading
activity for the HBOC Common Stock and the McKesson Common Stock; (v) compared
the financial performance of HBOC and McKesson and the prices and trading
activity of the HBOC Common Stock and the McKesson Common Stock with that of
certain other comparable publicly-traded companies and their securities; (vi)
reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions; (vii) reviewed and discussed with the
senior managements of HBOC and McKesson the business strategy for the combined
company and their estimates of the synergies and cost savings anticipated from
the Merger; (viii) reviewed the Merger Agreement and certain related
documents; and (ix) performed such other analyses and considered such other
factors 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, including the business strategy for
the combined company and estimates of the synergies to be achieved, for the
purposes of its opinion. With respect to the financial information prepared by
HBOC and McKesson, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the future financial performance of HBOC and McKesson. 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 GAAP and that the Merger will be treated as a
tax-free reorganization and/or exchange pursuant
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to the Code. Morgan Stanley did not conduct any independent valuation or
appraisal of the assets or liabilities of HBOC or McKesson, nor was Morgan
Stanley furnished with any such appraisals. The Morgan Stanley Opinion is
necessarily based on 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 the Morgan Stanley Opinion, Morgan Stanley was not authorized
to solicit, and did not solicit, interest from any party with respect to the
acquisition of HBOC or any of its assets.
The following is a summary of certain of the financial analyses performed by
Morgan Stanley in connection with its rendering of the Morgan Stanley Opinion
to the HBOC Board on October 17, 1998.
Common Stock Performance. Morgan Stanley's analysis of HBOC Common Stock
performance consisted of a historical analysis of: closing prices and trading
volumes for the last twelve months ended October 15, 1998; HBOC's indexed
price performance for the last twelve months ended October 15, 1998 relative
to (i) the Healthcare Information Services Index which was comprised of Cerner
Corporation, IDX Systems Corporation, Shared Medical Systems Corporation,
Envoy Corporation, Medical Manager Corporation and Medquist Inc., (ii) the
Information Services Index which was comprised of Automatic Data Processing,
Inc., Computer Sciences Corporation, Electronic Data Systems Corporation,
Equifax Inc., and First Data Corporation, and (iii) the S&P 500; a historical
analysis of HBOC's next twelve months price to earnings ratio based on median
First Call Corporation ("First Call") estimates from December 30, 1994 through
October 9, 1998; and a historical analysis of HBOC's next twelve months price
to earnings to five-year projected growth rate ratio based on median First
Call estimates from December 30, 1994 through October 9, 1998. Morgan Stanley
also reviewed selected publicly available research analysts' reports regarding
HBOC. In addition, Morgan Stanley compared the actual quarterly earnings for
HBOC versus the First Call median analysts' expectations as of the day of the
earnings announcement and the First Call median analysts' expectations as of
the day six months prior to the earnings announcement. Morgan Stanley noted
that for the last twelve months ended October 15, 1998, HBOC outperformed the
Healthcare Information Services Index, Information Services Index and the S&P
500. Morgan Stanley also observed that over the period from third quarter 1996
to third quarter 1998, HBOC's actual earnings were higher than the First Call
median analysts' expectations as of the earnings announcement and the First
Call median analysts' expectations as of the day six months prior to the
earnings announcement. Morgan Stanley also observed that, in the twelve months
ended October 15, 1998, HBOC Common Stock closed at a high of $38.38 per share
and a low of $19.31 per share.
Morgan Stanley's analysis of McKesson Common Stock performance consisted of
a historical analysis of: closing prices and trading volumes for the last
twelve months ended October 15, 1998; McKesson's indexed price performance for
the last twelve months ended October 15, 1998 relative to (i) the Comparable
Company Index which was comprised of Henry Schein, Inc., Owens & Minor, Inc.,
Patterson Dental Company, PSS World Medical, Inc., AmeriSource Health
Corporation, Bergen Brunswig Corporation, Cardinal Health, Inc., and Bindley
Western Industries, Inc., and (ii) the S&P 500; a historical analysis of
McKesson's next twelve months price to earnings ratio based on median First
Call estimates from December 30, 1994 through October 9, 1998; and a
historical analysis of McKesson's next twelve months price to earnings to
five-year projected growth rate ratio based on median First Call estimates
from December 30, 1994 through October 9, 1998. Morgan Stanley also reviewed
selected publicly available research analysts' reports regarding McKesson. In
addition, Morgan Stanley compared the actual quarterly earnings for McKesson
verses the First Call median analysts' expectations as of the day of the
earnings announcement and the First Call median analysts' expectations as of
the day six months prior to the earnings announcement. Morgan Stanley noted
that for the last twelve months ended October 15, 1998, McKesson outperformed
the Comparable Company Index and the S&P 500. Morgan Stanley also observed
that over the period from fiscal second quarter 1997 to fiscal first quarter
1999, McKesson's actual earnings were higher than or equal to the First Call
median analysts' expectations as of the day of the earnings announcement on
seven out of eight occasions and higher than or equal to the First Call Median
analysts' expectations as of the day six months prior to the earnings
announcement on four out of eight occasions. In the twelve months ended
October 15, 1998, McKesson Common Stock closed at a high of $96.25 per share
and a low of $47.88 per share.
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Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of HBOC with the corresponding publicly
available information of twelve other information services companies similar
to HBOC (the "HBOC Comparable Companies"), including Automatic Data
Processing, Inc., Computer Sciences Corporation, Electronic Data Systems
Corporation, Equifax Inc., First Data Corporation, Cerner Corporation, IDX
Systems Corporation, Shared Medical Systems Corporation, Eclipsys Corporation,
Envoy Corporation, Medical Manager Corporation and Quadramed Corporation. For
each of the HBOC Comparable Companies, Morgan Stanley calculated (based on
market information as of October 15, 1998, the latest publicly available 10-Ks
and 10-Qs, and estimates of earnings per share and five-year projected growth
rates based on I/B/E/S International Inc. ("I/B/E/S") estimates as of October
15, 1998), among other things, the price to estimated calendar year 1999
earnings to five-year projected growth rate ratio to similar statistics for
the HBOC Comparable Companies. Applying these multiples to corresponding
financial data for HBOC, which were based on certain financial projections
prepared by Morgan Stanley with the assistance of Morgan Stanley research (the
"HBOC Financial Forecast"), resulted in per share equity values of $28.37 to
$34.68 for HBOC.
As part of its analysis, Morgan Stanley compared certain financial
information of McKesson with the corresponding publicly available financial
information of nine other drug distribution and medical/surgical distribution
companies similar to McKesson (the "McKesson Comparable Companies"), including
Allegiance Corporation, Henry Schein, Inc., Owens & Minor, Inc., Patterson
Dental Company, PSS World Medical, Inc., Sybron International Corporation,
AmeriSource Health Corporation, Bergen Brunswig Corporation, and Cardinal
Health, Inc. For each of the McKesson Comparable Companies, Morgan Stanley
calculated (based on market information as of October 15, 1998, the latest
publicly available 10-Ks and 10-Qs, and estimates of earnings per share and
five-year projected growth rates based on First Call estimates as of October
15, 1998), among other things, the price to estimated calendar year 1999
earnings to five-year growth rate ratio to similar statistics for the McKesson
Comparable Companies. Applying these multiples to corresponding financial data
for McKesson, which were based on certain financial projections prepared by
Morgan Stanley with the assistance of Morgan Stanley research (the "McKesson
Financial Forecast"), resulted in per share equity values of $82.50 to $97.50
for McKesson.
No company utilized in the comparable companies analysis is identical to
HBOC or McKesson. In evaluating comparable companies, 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 HBOC and McKesson, such as the impact of
competition on the business of HBOC and McKesson and the industry generally,
industry growth and the absence of any adverse material change in the
financial condition and prospects of HBOC and McKesson or the industry or in
the financial markets in general. Mathematical analysis (such as determining
the average or median) is not in itself a meaningful method of using
comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash flow
analyses of HBOC to determine a range of present values for HBOC based on (i)
the HBOC Financial Forecast and (ii) financial data for HBOC, which were based
on certain financial projections prepared by Morgan Stanley with the
assistance of Morgan Stanley research (the "HBOC Low Growth Case"). Unlevered
free cash flow was calculated as the after-tax operating earnings of HBOC
(excluding any interest income and interest expense) plus depreciation and
amortization, plus deferred taxes, plus (or minus) net changes in non-cash
working capital, minus capital expenditures, minus capitalized software costs.
Morgan Stanley calculated terminal values by applying a range of multiples to
earnings before interest and taxes ("EBIT") in fiscal 2003 from 12.0x to
14.0x. The unlevered free cash flows and terminal values were then discounted
to present values using a range of discount rates from 11.0% to 13.0%. Based
on this analysis and the assumptions set forth above, Morgan Stanley
calculated per share equity values ranging from $24.30 to $29.74 for the HBOC
Financial Forecast and per share equity values ranging from $21.18 to $25.81
for the HBOC Low Growth Case.
Morgan Stanley performed a discounted cash flow analysis of McKesson to
determine a range of present values for McKesson based on the McKesson
Financial Forecast. Unlevered free cash flow was calculated as the after-tax
operating earnings of McKesson (excluding any interest income and interest
expense) plus depreciation
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and amortization, plus provision for bad debt, plus deferred taxes, plus (or
minus) net changes in non-cash working capital, minus capital expenditures,
minus cash used for acquisitions, plus preferred dividends. Morgan Stanley
calculated terminal values by applying a range of multiples to EBIT in fiscal
2003 from 12.0x to 14.0x. The unlevered free cash flows and terminal values
were then discounted to present values using a range of discount rates from
9.5% to 10.5%. Based on this analysis and the assumptions set forth above,
Morgan Stanley calculated per share equity values ranging from $79.55 to
$98.55 for McKesson.
Exchange Ratio Analysis. Morgan Stanley analyzed the ratio of closing prices
per share of HBOC Common Stock and McKesson Common Stock during the two-year
period ended October 15, 1998. Morgan Stanley observed that the implied
exchange ratio had averaged 0.417 over the last twelve month period, 0.379
over the last six month period, 0.338 over the last ninety day period, 0.313
over the last thirty day period, 0.301 over the last ten day period, and 0.322
over the last five day period, in each case, prior to October 15, 1998. Morgan
Stanley also observed that the implied exchange ratio based on the closing
market prices of HBOC Common Stock and McKesson Common Stock on October 15,
1998 was 0.326.
Pro Forma Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of each of HBOC and McKesson to the combined company. Such
analysis included relative contributions of net revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), EBIT and net income
at various time periods. Such analysis showed that, based upon the HBOC
Financial Forecast and the McKesson Financial Forecast, HBOC's calendar 1998
and 1999 contribution would be approximately 7.0% and 8.3% of projected net
revenue, respectively, 48.3% and 53.3% of projected EBITDA, respectively,
49.2% and 54.2% of projected EBIT, respectively, and 58.4% and 62.4% of
projected net income, respectively. These contribution percentages did not
take into account any estimates by the managements of HBOC or McKesson of the
synergies or cost savings anticipated from the Merger, nor did they take into
account any accounting adjustments or potential changes in capital structure
as a result of the Merger. Morgan Stanley observed that the aforementioned
contribution percentages for HBOC would compare to HBOC's pro forma ownership
of approximately 61.6%.
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.
These analyses were based on the McKesson Financial Forecast, the HBOC
Financial Forecast and estimates of synergies and cost savings provided by the
managements of HBOC and McKesson. Morgan Stanley observed that, after taking
into account such estimates of earnings and without giving effect to any
estimates of synergies or cost savings, the Merger would be slightly dilutive
to McKesson's earnings per share estimate in fiscal 1999, 2000 and 2001.
Morgan Stanley also observed that, after taking into account such estimates of
earnings and synergies and cost savings, the Merger would be accretive to
McKesson's stand-alone earnings per share estimate in fiscal 1999, 2000 and
2001.
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, 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 HBOC or McKesson.
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 HBOC and McKesson. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness of the Exchange Ratio pursuant to the
Merger Agreement from a financial point of view to the holders of HBOC Common
Stock and were provided to the HBOC Board 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 HBOC or McKesson might actually be sold. In
addition, as
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described above, the Morgan Stanley Opinion was one of many factors taken into
consideration by the HBOC Board in making its determination to approve the
Merger. The Exchange Ratio pursuant to the Merger Agreement was determined
through arm's-length negotiations between HBOC and McKesson and was approved
by the HBOC Board. Morgan Stanley did not recommend any specific Exchange
Ratio to HBOC or that any Exchange Ratio constituted the only appropriate
Exchange Ratio for the Merger. Consequently the Morgan Stanley analysis
described above should not be viewed as determinative of whether the HBOC
Board would have agreed to a different Exchange Ratio.
HBOC retained Morgan Stanley based upon its experience and expertise. 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 course of its market-making and other trading activities,
Morgan Stanley may, from time to time, have a long or short position in, and
buy and sell the debt or equity securities and senior loans of HBOC or
McKesson. In addition, as of the date of the Morgan Stanley Opinion, Morgan
Stanley held for its principal account 5,177,492 shares of HBOC Common Stock.
Morgan Stanley and its affiliates have, in the past, provided financial
advisory services to McKesson and have received fees for the rendering of such
services.
Pursuant to a letter agreement dated October 16, 1998 between HBOC and
Morgan Stanley, HBOC has agreed to pay Morgan Stanley a fee for rendering the
Morgan Stanley Opinion to the HBOC Board in connection with the business
combination. In addition, HBOC has agreed to reimburse Morgan Stanley for its
expenses related to the engagement and 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 the federal
securities laws, and expenses, related to or arising out of Morgan Stanley's
engagement and the transactions in connection therewith.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests in
accordance with GAAP. Under this accounting method, the historical financial
information of McKesson and HBOC will be restated to reflect the combined
financial position and operations of both companies. The combined financial
position and operations will be adjusted to conform the accounting practices
of the companies. Pursuant to the Merger Agreement, each of McKesson and HBOC
will use commercially reasonable efforts to cause the Merger to qualify for
pooling of interests accounting treatment. The obligations of each of HBOC and
McKesson to consummate the Merger are conditioned upon the receipt by each of
McKesson and HBOC of a letter from their respective independent accountants,
in each case addressed to McKesson and HBOC, stating that they concur with the
conclusion of McKesson's and HBOC's management that the Merger will qualify
for pooling of interests accounting treatment.
BOARD AND MANAGEMENT OF THE SURVIVING CORPORATION FOLLOWING THE MERGER
If the Merger is consummated, holders of HBOC Common Stock will become
stockholders of McKesson HBOC, which will be under the direction of the Board
of Directors and management of McKesson HBOC. Charles W. McCall and Mark A.
Pulido will be the initial directors of the Surviving Corporation, and the
officers of Merger Sub immediately prior to the Effective Time will be the
initial officers of the Surviving Corporation until their respective
successors are duly appointed and qualified.
BOARD AND MANAGEMENT OF MCKESSON HBOC FOLLOWING THE MERGER
Pursuant to the Merger Agreement, Charles W. McCall, the President and Chief
Executive Officer of HBOC will serve as the Chairman of the Board of Directors
of McKesson HBOC following the Merger and Mark A. Pulido, the President and
Chief Executive Officer of McKesson will serve as the President and Chief
Executive
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Officer of McKesson HBOC. Upon consummation of the Merger, the by-laws of
McKesson (the "McKesson By-laws") will be amended to provide that for a one-
year period following the Merger, a vote of 75% of the Board of Directors will
be required in order to terminate or replace or fill a vacancy in respect of
Messrs. McCall or Pulido in such positions. In addition, in accordance with
the Merger Agreement, the following persons will serve as officers of McKesson
HBOC until their resignation or removal, in the capacities indicated: Richard
H. Hawkins, Chief Financial Officer; Albert J. Bergonzi, John H. Hammergren,
David L. Mahoney and Mark T. Majeske, Group Presidents (in their respective
current operating roles); Ivan D. Meyerson, General Counsel; Michael T. Dalby,
Vice President, Strategic Planning; and William J. Dawson, Vice President--
Business Development. The Merger Agreement also contemplated that Jay P.
Gilbertson would serve as a Group President of McKesson HBOC (in his then
current operating role) until his resignation or removal. On November 13,
1998, HBOC announced that Mr. Gilbertson would leave HBOC to pursue other
opportunities and that his responsibilities would be assumed by Mr. Bergonzi.
Accordingly, Mr. Gilbertson will not hold a position in McKesson HBOC upon
consummation of the Merger. The other executive officers of McKesson HBOC will
be appointed by the Board of Directors of McKesson HBOC in accordance with the
by-laws of McKesson HBOC. The initial Board of Directors of McKesson HBOC will
have an equal number of directors designated by each of McKesson and HBOC from
their respective current Boards of Directors, with the total number of
directors being equal to ten. Following the Merger, the chairman of the audit
committee of McKesson HBOC will be a present member of the McKesson Board, and
the chairman of the compensation committee will be a present member of the
HBOC Board.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and the rules promulgated thereunder by the Federal Trade
Commission, the Merger may not be consummated until Premerger Notification and
Report Forms (the "HSR Forms") have been submitted and certain information has
been furnished by McKesson and HBOC to the Federal Trade Commission and the
Antitrust Division of the Department of Justice (the "Antitrust Division"),
and required waiting periods have expired or been terminated. The initial
waiting period is 30 days from the date the HSR Forms are submitted, but is
extended if the Federal Trade Commission or the Antitrust Division issues a
"second request" for further information, until 20 days after the "second
request" is "substantially complied with" (as such term is defined in the HSR
Act).
McKesson and HBOC agreed in the Merger Agreement, generally, to use
commercially reasonable efforts to obtain all necessary governmental approvals
in the most expeditious manner practicable. McKesson and HBOC filed Premerger
Notification and Report Forms with the Federal Trade Commission and the
Antitrust Division on October 27, 1998 and have requested early termination of
the waiting period. The initial statutory waiting period will expire for both
McKesson and HBOC on November 26, 1998.
At any time before or after the consummation of the Merger and
notwithstanding the expiration or termination of the HSR Act waiting period,
any federal or state antitrust authorities could take action under the
antitrust laws as they deem necessary or desirable in the public interest.
Such action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of all or part of the assets of McKesson or HBOC. Private
parties may also seek to take legal action under the antitrust laws, if
circumstances permit. In the Merger Agreement McKesson and HBOC have each
agreed, generally, to use commercially reasonable efforts: (i) to take all
necessary, proper or advisable actions to obtain an approval or waiver from,
or to avoid an action or proceeding by, any governmental authority, and (ii)
to defend any lawsuits or other legal proceedings challenging the Merger
Agreement or the consummation of the Merger, including seeking to have any
stay or temporary restraining order entered by any court or governmental
authority vacated or reversed. Pursuant to the Merger Agreement, however,
neither McKesson nor HBOC will be required to hold separate or divest any of
their respective businesses or assets, or enter into any consent decree or
other agreement that would restrict either McKesson or HBOC in the conduct of
its business.
If the Federal Trade Commission, or any other federal or state antitrust
authority, were to challenge the Merger, the closing of the transactions under
the Merger Agreement could be postponed beyond March 31, 1999
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in which event either McKesson or HBOC may terminate the Merger Agreement,
pursuant to its terms, at any time after March 31, 1999. See "THE MERGER
AGREEMENT--Conditions" and "--Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the HBOC Board and the McKesson Board
with respect to the Merger Agreement and the transactions associated with it,
stockholders should be aware that certain members of the management of HBOC
and McKesson and the HBOC Board and McKesson Board have certain interests in
the Merger that are in addition to, or different from, the interests of
stockholders of HBOC and McKesson generally.
McKesson
The McKesson 1994 Stock Option and Restricted Stock Plan provides that the
vesting of stock options and the lapsing of restrictions on shares of
restricted stock will accelerate upon approval of the Merger by McKesson's
stockholders. Although there are no agreements, arrangements or understandings
between McKesson, on the one hand, and any of McKesson's executive officers,
on the other hand, to such effect, certain of McKesson's executive officers
may waive their rights to such acceleration for tax reasons. As of the date
hereof, McKesson's executive officers hold non-vested options to acquire an
aggregate of 3,900,257 shares of McKesson Common Stock with exercise prices
ranging from $16.31 to $136.74 per share. The number of non-vested options
held by McKesson's most senior executive officers as of October 31, 1998 is
set forth in the following table:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF
NAME AND TITLE NON-VESTED OPTIONS EXERCISE PRICES
- -------------- ------------------ ----------------
<S> <C> <C>
Mark A. Pulido, President and Chief
Executive Officer........................ 1,490,000 $22.75 - $136.74
John H. Hammergren, Vice President and
Group President, McKesson Health Systems
Group.................................... 433,666 25.00 - 136.74
Richard H. Hawkins, Vice President and
Chief Financial Officer.................. 319,000 17.50 - 136.74
David L. Mahoney, Vice President and Group
President, McKesson Pharmaceutical
Services and International Group......... 413,400 17.50 - 136.74
Mark T. Majeske, Vice President and Group
President, McKesson Customer Operations
Group.................................... 384,945 17.50 - 136.74
</TABLE>
As of the date hereof, McKesson's executive officers hold an aggregate of
140,000 shares of restricted stock. The number of shares of restricted stock
held by McKesson's most senior executive officers as of the date hereof is as
follows: Mr. Pulido, 40,000 shares; Mr. Hammergren, 40,000 shares; and
Mr. Majeske, 10,000 shares.
Under McKesson's Stock Purchase Plan, certain of McKesson's executive
officers have purchased shares of McKesson Common Stock through an interest-
bearing, full-recourse note. The purchased shares have been pledged to secure
the note and are subject to restrictions on transfer for a period of five
years. However, upon stockholder approval of the Merger, the shares will be
released from the transfer and pledge restrictions, and the remaining balance
under the note will become due. As of the date hereof, McKesson's most senior
executive officers own shares of McKesson Common Stock purchased under the
Stock Purchase Plan that are subject to the pledge and transfer restrictions
as follows: Mr. Pulido, 80,000 shares at $27.88 per share, and 80,000 shares
at $43.59 per share; Mr. Hammergren, 20,000 shares at $27.88 per share, and
20,000 shares at $43.59 per share; Mr. Hawkins, 20,000 shares at $27.88 per
share, and 20,000 shares at $43.59; Mr. Mahoney, 20,000 shares at $27.88 per
share, and 20,000 shares at $43.59 per share; and Mr. Majeske, 20,000 shares
at $27.88 per share, and 20,000 shares at $43.59 per share.
McKesson maintains termination agreements (the "Termination Agreements")
with 14 executive officers, including Messrs. Pulido, Hammergren, Hawkins,
Mahoney and Majeske. These agreements provide in general
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that if, within the two year period following stockholder approval of the
Merger, a covered executive's employment is terminated by McKesson without
"cause" or by the executive for "good reason," the executive will be entitled
to receive (i) a lump sum cash payment equal to the maximum amount the
executive could receive without being subject to the excise tax on "excess
parachute payments" imposed under Section 4999 of the Code, and (ii) continued
participation in McKesson's health and welfare plans and continued accrual of
certain retirement benefits for a period of 12 to 24 months following
termination of employment. The Termination Agreements also provide, however,
that such benefits will be limited, if necessary, so that no amount payable to
the executive will be treated as an "excess parachute payment" under Section
280G of the Code and the executive will not be subject to the excise tax
imposed under Section 4999 of the Code.
Upon stockholder approval of the Merger, participants in the McKesson Long-
Term Incentive Plan will be entitled to receive payment in cash of the maximum
amount payable with respect to all current performance periods. The aggregate
amount so payable to all of McKesson's executive officers would be
approximately $16,275,000, including approximately $6,000,000 to Mr. Pulido,
$1,500,000 to Mr. Hammergren, $1,500,000 to Mr. Hawkins, $1,500,000 to Mr.
Mahoney and $1,500,000 to Mr. Majeske. Certain executive officers may waive
their rights to such accelerated payments for tax reasons.
HBOC
The option agreements entered into by HBOC and its employees provide that
the vesting of stock options will accelerate if, following consummation of the
Merger, the employment of an optionee is terminated either by HBOC without
"cause" or by the optionee for "good reason." "Good reason" includes an
adverse change in positions, duties, responsibilities or status. For purposes
of the Merger, Messrs. McCall and Bergonzi will have good reason to terminate
their employment following consummation of the Merger, and any non-vested
options held by such individuals would accordingly accelerate if they do
terminate their employment. The number of non-vested options held by each of
such HBOC executive officers as of the date hereof is set forth in the
following table:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE WEIGHTED
NAME AND TITLE NON-VESTED OPTIONS EXERCISE PRICES
- -------------- ------------------ ----------------
<S> <C> <C>
Charles W. McCall, President and Chief
Executive Officer........................ 3,620,000 $21.2756
Albert J. Bergonzi, President and Co-Chief
Operating Officer........................ 1,852,800 $16.3247
</TABLE>
Upon consummation of the Merger, under HBOC's Management Incentive Plan,
shares of restricted stock issued thereunder will immediately vest, including
2,798, 2,210 and 1,092 shares held by Messrs. Bergonzi, Russell G. Overton,
Senior Vice-President--Business Development, and Jay M. Lapine, Senior Vice-
President, General Counsel and Assistant Secretary, respectively.
In addition, upon consummation of the Merger, Mr. McCall will be entitled to
receive a pro rata bonus under the HBOC Chief Executive Officer Incentive
Plan, which in general provides for payment of an annual bonus based on the
extent to which certain earnings per share targets are met. Mr. McCall's pro
rata bonus will be calculated based upon the maximum bonus amount payable
under the plan. Assuming that the Merger is consummated on , 199 , the
amount of the bonus payable to Mr. McCall would be approximately $ .
Indemnification Agreements
Pursuant to the Merger Agreement, McKesson will maintain in effect all
rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time existing as of the date
of the Merger Agreement in favor of the current or former directors or
officers of HBOC and its subsidiaries, as provided in their respective
organizational documents and any indemnification agreements of HBOC. In
addition, from and after the Effective Time, directors and officers of HBOC
who become directors or officers of McKesson HBOC will be entitled to the same
indemnification rights and directors' and officers' liability
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insurance as are provided to other directors and officers of McKesson HBOC.
The Merger Agreement also provides that for six years after the Effective
Time, McKesson will use commercially reasonable efforts to provide liability
insurance covering acts or omissions occurring prior to the Effective Time
with respect to those persons who were covered by HBOC's directors' and
officers' liability insurance policy on terms with respect to such coverage
and amounts no less favorable than those in effect on the date of the Merger
Agreement. McKesson, however, will not be required to pay more than 150% of
the current amount paid by HBOC to maintain such insurance. See "THE MERGER
AGREEMENT--Indemnification and Insurance."
DISSENTERS' RIGHTS
No holder of McKesson Common Stock or HBOC Common Stock will have any
dissenters' rights in connection with, or as a result of, the matters to be
acted upon at the Special Meetings.
STOCK EXCHANGE LISTING
It is a condition to the Merger that, upon consummation of the Merger, the
shares of McKesson Common Stock and the associated McKesson Rights to be
issued by McKesson in connection with the Merger be approved for listing on
the NYSE and the Pacific Exchange, Inc. (the "PE"), subject to official notice
of issuance.
DELISTING AND DEREGISTRATION OF HBOC COMMON STOCK
If the Merger is consummated, the HBOC Common Stock will no longer meet the
requirements for continued inclusion on Nasdaq and will be deregistered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Consequently, stockholders of HBOC will no longer be able to trade HBOC Common
Stock on Nasdaq.
TREATMENT OF STOCK CERTIFICATES
After the Effective Time, each stock certificate previously representing
shares of HBOC Common Stock will automatically, with no further action by the
holder thereof, represent the right to receive 0.37 of a share of McKesson
Common Stock, together with the associated McKesson Rights, for each share of
HBOC Common Stock represented by such stock certificate. Promptly after the
Effective Time, the Exchange Agent will mail a letter of transmittal with
instructions to each holder of record of HBOC Common Stock outstanding
immediately prior to the Effective Time for use in exchanging, by book-entry
transfer or otherwise, stock certificates formerly representing shares of HBOC
Common Stock for stock certificates representing shares of McKesson Common
Stock. No stock certificates should be surrendered by any holder of HBOC
Common Stock until he or she has received the letter of transmittal and
instructions from the Exchange Agent. McKesson stockholders will keep their
current certificates as the Merger and the corporate change of name to
"McKesson HBOC, Inc." does not require surrender of McKesson stock
certificates.
TAX FREE REORGANIZATION
It is a condition to the Merger that HBOC receive an opinion of Jones Day
and that McKesson receive an opinion of Skadden Arps that the Merger will
qualify as a "tax free reorganization" and that, accordingly, the holders of
HBOC Common Stock should recognize no gain or loss in connection with the
Merger for federal income tax purposes, except to the extent that cash is
received in lieu of a fractional share of McKesson Common Stock. See "CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger
Agreement. Capitalized terms that are used in this section and are not defined
have the respective meanings given to such terms in the Merger Agreement.
THE MERGER
Pursuant to the Merger Agreement, upon the satisfaction or (where
permissible) waiver of the conditions that are contained in the Merger
Agreement (see "--Conditions" below), Merger Sub will be merged with and into
HBOC with HBOC continuing as the Surviving Corporation. The parties will cause
the Merger to be accomplished by filing a Certificate of Merger with the
Delaware Secretary of State in accordance with the Delaware General
Corporation Law (the "DGCL"). The Merger will become effective at the time the
Certificate of Merger has been filed with the Delaware Secretary of State or
at such later time as may be agreed upon by McKesson and HBOC and specified in
the Certificate of Merger. That time is called the "Effective Time."
Except as described below, as a result of the Merger and without any action
on the part of the HBOC stockholders, at the Effective Time each share of HBOC
Common Stock issued and outstanding immediately prior to the Effective Time
(other than those shares held in the treasury of HBOC or those shares owned by
McKesson or Merger Sub) will be converted into and represent the right to
receive 0.37 of a share of McKesson Common Stock, together with the associated
McKesson Rights issued pursuant to the McKesson Rights Agreement. See
"COMPARATIVE RIGHTS OF STOCKHOLDERS--Stockholder Rights Plan." Each share of
HBOC Common Stock will, by virtue of the Merger, cease to be outstanding and
will be canceled and retired, and each holder of a stock certificate
representing shares of HBOC Common Stock will thereafter cease to have any
rights with respect to those shares of HBOC Common Stock except the right to
receive, without interest, upon surrender of his or her stock certificate,
shares of McKesson Common Stock, cash for fractional interests of McKesson
Common Stock and any dividends paid by McKesson on its shares of Common Stock
in the interval between the Effective Time and the date of surrender of the
stock certificate. See "--Exchange Procedures."
At the Effective Time, each HBOC employee and director stock option then
outstanding will be converted into an option (an "Assumed Option") to purchase
that number of shares of McKesson Common Stock equal to the number of shares
of HBOC Common Stock issuable immediately prior to the Effective Time upon
exercise of the HBOC option multiplied by 0.37, provided that any fractional
share of McKesson Common Stock resulting from such multiplication will be
rounded to the nearest whole share. The exercise price per share for any
shares subject to an Assumed Option will be equal to the exercise price per
share of the HBOC option immediately prior to the Effective Time divided by
0.37, rounded to the nearest whole cent, and such Assumed Option will have
such other terms and conditions that are the same as those of the HBOC option.
McKesson has agreed to register the shares of McKesson Common Stock issuable
upon exercise of the Assumed Options and to use its commercially reasonable
efforts to (i) cause such registration statement to be declared effective
reasonably promptly following the Effective Time and (ii) maintain the
effectiveness of such registration statement for so long as any Assumed Option
remains outstanding and exercisable.
EXCHANGE PROCEDURES
McKesson has retained First Chicago Trust Company of New York to act as the
exchange agent (the "Exchange Agent"). As soon as practicable after the
Effective Time, the Exchange Agent will mail to each person who was, at the
Effective Time, a holder of record of shares of HBOC Common Stock, a letter of
transmittal to be used by the holder in either forwarding his or her HBOC
Common Stock certificates or completing the procedure for delivery by book-
entry transfer of such shares, together with the instructions for effecting
the surrender of the stock certificates in exchange for shares of McKesson
Common Stock.
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HBOC STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE AGENT,
WHICH WILL NOT OCCUR UNLESS AND UNTIL THE MERGER HAS TAKEN PLACE.
Upon surrender to the Exchange Agent of his or her stock certificate for
cancellation, together with the letter of transmittal and any other required
documentation, the holder of the stock certificate for HBOC Common Stock will
be entitled to receive that number of whole shares of McKesson Common Stock
equal to the number of shares of HBOC Common Stock evidenced by the stock
certificate surrendered multiplied by the Exchange Ratio.
No fractional shares of McKesson Common Stock will be issued and any holder
of shares of HBOC Common Stock entitled under the Merger Agreement to receive
a fractional share will receive a cash payment in lieu of the fractional
share, in an amount equal to the value (determined with reference to the
average closing price per share for shares of McKesson Common Stock as
reported by the NYSE during the ten trading days preceding the fifth trading
day prior to the date of the closing (the "Closing Date") of the transactions
under the Merger Agreement) of such fractional interest.
Any dividends or other distributions declared after the Effective Time on
shares of McKesson Common Stock will be paid to holders of HBOC Common Stock
only after the stock certificates representing the HBOC shares have been
surrendered to the Exchange Agent for exchange. No interest will be paid or
accrued on cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any.
Stock certificates that are surrendered for exchange by any person
constituting an "affiliate" of HBOC for purposes of Rule 145(c) under the
Securities Act and for purposes of qualifying the Merger for pooling of
interests accounting treatment will not be exchanged until such person has
executed and delivered the written undertakings in the form attached to the
Merger Agreement. See "--Resale Restrictions."
Once the Effective Time has occurred, there will be no further registration
of transfers on the transfer books of HBOC of shares of HBOC Common Stock
which were outstanding immediately prior to the Effective Time.
Any portion of the exchange fund, including cash for payment of fractional
shares, which remains undistributed to holders of HBOC Common Stock for six
months after the Effective Time will be delivered to McKesson upon demand, and
any stockholder of HBOC who has not complied with the exchange procedures in
the Merger Agreement by that time will thereafter have to look only to
McKesson to receive his or her shares of McKesson Common Stock, cash in lieu
of fractional shares, and any unpaid dividends and distributions on shares of
McKesson Common Stock, if any. None of HBOC, McKesson, Merger Sub, the
Surviving Corporation or the Exchange Agent will be liable to any person in
respect of any shares of McKesson Common Stock or any cash from the exchange
fund delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
If any stock certificate has been lost, stolen or destroyed, then, upon the
making of an affidavit of that fact by the person claiming such stock
certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of an appropriate indemnity or surety
bond, the Exchange Agent will issue (by book-entry transfer or otherwise) in
exchange for the lost, stolen or destroyed stock certificate the shares of
McKesson Common Stock (including the associated McKesson Rights, and any
dividends and distributions with respect thereto) and any cash in lieu of
fractional shares, as described above.
CORPORATE ORGANIZATION AND GOVERNANCE
Certificate of Incorporation and By-laws of the Surviving Corporation
At the Effective Time, the Certificate of Incorporation and the By-laws of
Merger Sub, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation and the By-laws, respectively, of the Surviving
Corporation, except that the Certificate of Incorporation of the Surviving
Corporation will be amended to change the name of the Surviving Corporation to
"HBO & Company."
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Certificate of Incorporation and By-laws of McKesson
At the Effective Time, the Certificate of Incorporation and By-laws of
McKesson will remain in full force and effect, except that the Certificate of
Incorporation of McKesson will be amended to change the name of McKesson to
McKesson HBOC, Inc., and the McKesson By-laws will be amended to provide that,
for a one-year period following the Effective Time, a vote of 75% of the
members of the Board of Directors will be necessary to terminate or replace,
or fill a vacancy with respect to, either of Charles W. McCall or Mark A.
Pulido.
Board of Directors and Officers of the Surviving Corporation
From and after the Effective Time, Charles W. McCall and Mark A. Pulido will
be the initial directors of the Surviving Corporation until their respective
successors are duly elected and qualified. From and after the Effective Time,
the initial officers of the Surviving Corporation will be the officers of
Merger Sub immediately prior to the Effective Time, until their respective
successors are duly appointed and qualified.
Board of Directors and Officers of McKesson HBOC
Following the Merger, Charles W. McCall, the President and Chief Executive
Officer of HBOC, will serve as the Chairman of the Board of Directors of
McKesson HBOC and Mark A. Pulido, the President and Chief Executive Officer of
McKesson, will serve as the President and Chief Executive Officer of McKesson
HBOC. At the Effective Time, the McKesson By-laws will be amended to provide
that, for a one-year period, a vote of 75% of the members of the Board of
Directors will be necessary to terminate or replace, or fill a vacancy with
respect to, either of Messrs. McCall or Pulido. In addition, in accordance
with the Merger Agreement, the following persons will serve as officers of
McKesson HBOC until their resignation or removal, in the capacities indicated:
Richard H. Hawkins, Chief Financial Officer; Albert J. Bergonzi, John H.
Hammergren, David L. Mahoney and Mark T. Majeske, Group Presidents (in their
respective current operating roles); Ivan D. Meyerson, General Counsel;
Michael T. Dalby, Vice President, Strategic Planning; and William J. Dawson,
Vice President--Business Development. The Merger Agreement also contemplated
that Jay P. Gilbertson would serve as a Group President of McKesson HBOC (in
his then current operating role) until his resignation or removal. On November
13, 1998, HBOC announced that Mr. Gilbertson would leave HBOC to pursue other
opportunities and that his responsibilities would be assumed by Mr. Bergonzi.
Accordingly, Mr. Gilbertson will not hold a position in McKesson HBOC upon
consummation of the Merger. The other executive officers of McKesson HBOC will
be appointed by the Board of Directors of McKesson HBOC in accordance with the
McKesson HBOC By-laws. The initial Board of Directors of McKesson HBOC will
have an equal number of directors designated by each of McKesson and HBOC from
their respective current Boards of Directors, with the total number of
directors being equal to ten. Following the Merger, the chairman of the audit
committee of McKesson HBOC will be a present member of the McKesson Board, and
the chairman of the compensation committee will be a present member of the
HBOC Board.
STOCKHOLDERS' MEETINGS
McKesson and HBOC will each convene a meeting of their respective
stockholders in accordance with the DGCL, to consider and vote upon (i) in the
case of McKesson, the approval, by the vote of the holders of a majority of
the shares of McKesson Common Stock issued and outstanding and entitled to
vote, of the Merger Agreement and the transactions associated with it,
including the issuance of the shares of McKesson Common Stock and the
corporate change of name contemplated by the Merger Agreement, and (ii) in the
case of HBOC, the approval, by the vote of the holders of a majority of the
shares of HBOC Common Stock issued and outstanding and entitled to vote, of
the Merger Agreement and the transactions associated with it, including the
Merger. The stockholders' meetings of McKesson and HBOC are both currently
scheduled to be held on , 1999.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary mutual representations and
warranties by McKesson and Merger Sub to HBOC and by HBOC to McKesson and
Merger Sub relating to, among other things, (i) their due organization,
existence, good standing, corporate power and similar corporate matters; (ii)
their capital structure;
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(iii) their authorization, execution, delivery and performance and the
enforceability of the Merger Agreement and the Stock Option Agreements (as
defined below, under "THE STOCK OPTION AGREEMENTS") and certain related
matters; (iv) the absence of any conflicts, violations and defaults under
their respective Certificates of Incorporation and By-laws and certain other
agreements and documents or any need for consents, approvals or authorizations
of third parties by reason of the execution of the Merger Agreement, other
than those approvals contemplated by the Merger Agreement, such as HSR Act
approval, certain filings with the Commission and other governmental entities
and as may be required by the NYSE and the PE in connection with the Stock
Issuance; (v) the accuracy of reports and other documents filed with the
Commission (including the registration statement of which this Joint Proxy
Statement/Prospectus is a part (the "Registration Statement")) and the
accuracy and completeness of the financial and other information contained
therein; (vi) the absence of undisclosed liabilities or obligations of any
nature which would have a material adverse effect on either party, as
applicable; (vii) the absence of certain material changes or events and the
operation of the respective businesses of McKesson and HBOC in the ordinary
course since March 31, 1998; (viii) compliance with laws and permits
applicable to the respective businesses of McKesson and HBOC, and the absence
of material pending or threatened investigations or litigation; (ix) the
absence of certain changes or amendments in the benefit plans of McKesson and
HBOC and matters relating to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"); (x) tax matters; (xi) the required stockholder
votes in connection with the Merger Agreement and the transactions associated
with it; (xii) the satisfaction of the requirements of certain state takeover
statutes and charter requirements in respect of the Merger; (xiii) the receipt
of fairness opinions from financial advisors; (xiv) matters relating to
qualification of the Merger as a tax free "reorganization" within the meaning
of the Code and the availability of pooling of interests accounting treatment
for the Merger; (xv) ownership by McKesson and its affiliates of HBOC Common
Stock and ownership by HBOC and its affiliates of McKesson Common Stock; (xvi)
intellectual property matters, including efforts to resolve any "Year 2000"
computer problems; (xvii) the existence, validity and status of certain
material contracts; (xviii) the taking of all necessary action to prevent the
exercise, distribution or trigger of the McKesson Rights or the outstanding
preferred stock purchase rights of HBOC (the "HBOC Rights"), issued pursuant
to the Rights Agreement, dated as of February 12, 1991, by and between HBOC
and The Citizens and Southern Trust Company (Georgia), N.A., as Rights Agent
(the "HBOC Rights Agreement"); and (xix) environmental matters.
All representations and warranties of McKesson, HBOC and Merger Sub will
expire at the Effective Time.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, McKesson and HBOC have each agreed that,
except as otherwise expressly contemplated by the Merger Agreement or as
consented to by the other party (such consent not to be unreasonably withheld
or delayed), during the period from the date of the Merger Agreement to the
Effective Time, each party will, and will cause its subsidiaries to, carry on
their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with all applicable laws
and regulations and, to the extent consistent therewith, to use all reasonable
efforts to preserve intact their current business organizations, use
reasonable efforts to keep available the services of their current officers
and other key employees and preserve their relationships with those persons
having business dealings with them to the end that their goodwill and ongoing
businesses will be unimpaired at the Effective Time.
The Merger Agreement provides that neither McKesson and its subsidiaries nor
HBOC and its subsidiaries, respectively, will take certain actions such as,
among other things and with certain exceptions, amending its organizational
documents; issuing, selling or encumbering any shares of capital stock or
options to acquire any shares of such capital stock; selling, leasing or
encumbering property or assets outside of the ordinary course of business;
declaring or paying dividends or recapitalizing or redeeming its capital
stock; making certain acquisitions; or taking any action that would cause the
representations and warranties regarding absence of certain changes or events
in the Merger Agreement to no longer be true and correct in all material
respects.
McKesson and HBOC have each agreed that between the date of the Merger
Agreement and the Effective Time they will use their commercially reasonable
efforts to cause the Merger to be accounted for as a pooling of interests and
will not take any action that would cause such accounting treatment not to be
available.
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In addition, McKesson and HBOC have each agreed, among other things: (i) to
cooperate in the prompt preparation and filing with the Commission of this
Joint Proxy Statement/Prospectus and the Registration Statement; (ii) to use
commercially reasonable efforts to obtain and deliver to the other party
certain letters from persons who are "affiliates" under applicable accounting
releases relating to pooling of interests accounting treatment, and,
additionally, in the case of HBOC, from persons who are "affiliates" of HBOC
under Rule 145 under the Securities Act; and (iii) to use commercially
reasonable efforts to cause to be delivered to the other party two letters
from its independent accountants, one dated as of the date the Registration
Statement is declared effective and one dated as of the Closing Date,
customary in scope and substance for letters delivered by independent
accountants in connection with registration statements similar to the
Registration Statement.
McKesson and HBOC have also agreed to use commercially reasonable efforts to
cause to be delivered to the other party (and such other party's independent
accountants), a letter from its independent accountants, dated as of the date
the Registration Statement is declared effective and as of the Closing Date,
regarding the appropriateness of accounting for the Merger as a pooling of
interests pursuant to applicable rules and regulations.
McKesson has further agreed, among other things, that, prior to the
Effective Time, it will use commercially reasonable efforts to cause the
shares of McKesson Common Stock issuable pursuant to the Merger (including the
shares issuable upon any exercise of the Assumed Options) to be approved for
listing on the NYSE and the PE, subject to official notice of issuance.
McKesson has also agreed to use commercially reasonable efforts to publish, no
later than 45 days after the end of the first full month after the Effective
Time in which there are at least 30 days of post-Merger combined operations of
McKesson and HBOC, combined sales and net income figures in accordance with
applicable Commission accounting regulations.
Each of McKesson and HBOC has also agreed to provide, immediately following
the Effective Time, employee benefits and compensation arrangements for all of
their respective employees at a level no less favorable in the aggregate than
those benefits provided to such employees immediately prior to the Effective
Time, subject to later amendment or other alteration as may be directed by the
McKesson Board following the Effective Time.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that McKesson and HBOC will not, nor will they
permit any of their respective subsidiaries to, nor will they authorize or
permit any of their officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by
them or any of their subsidiaries to, directly or indirectly through another
person, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, any inquiries
or the making of any proposal the consummation of which would constitute an
Alternative Transaction (as defined below) or (ii) participate in any
discussions or negotiations regarding any Alternative Transaction; provided,
however, that if, at any time prior to the adoption of the Merger by the
holders of McKesson Common Stock or the holders of HBOC Common Stock, either
the McKesson Board or the HBOC Board, as the case may be, determines in good
faith, after receipt of advice from outside counsel, that the failure to
provide such information or participate in such negotiations or discussions
would result in a reasonable possibility that such Board of Directors would
breach its fiduciary duties to its stockholders under applicable law, McKesson
or HBOC, as the case may be, may, in response to any such proposal that was
not solicited by it or that did not otherwise result from a breach of the "No
Solicitation" provisions of the Merger Agreement, and, subject to providing
notice of its decision to take such action to the other party and compliance
with its obligation under the Merger Agreement to advise the other party of
any request for information or of any proposal in connection with an
Alternative Transaction, (i) furnish information with respect to it and its
subsidiaries to any person making any such proposal pursuant to a customary
confidentiality agreement containing terms as to confidentiality no less
restrictive than the terms of the confidentiality agreement dated June 30,
1998 between McKesson and HBOC, as amended, and (ii) participate in
negotiations regarding such proposal. An "Alternative Transaction" means any
of (i) a transaction or series of transactions pursuant to which any person
(or group of persons) other than HBOC and its subsidiaries and other than
McKesson and its subsidiaries (a "Third Party") acquires or would acquire,
directly or indirectly, beneficial
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ownership of more than 20% of the outstanding shares of HBOC or McKesson, as
the case may be, whether from HBOC or McKesson or pursuant to a tender offer
or exchange offer or otherwise, (ii) any acquisition or proposed acquisition
of HBOC or any of its significant subsidiaries or McKesson or any of its
significant subsidiaries, as the case may be, by a merger or other business
combination (including any so-called "merger of equals" and whether or not
HBOC or any of its significant subsidiaries or McKesson or any of its
significant subsidiaries, as the case may be, is the entity surviving any such
merger or business combination) or (iii) any other transaction pursuant to
which any Third Party acquires or would acquire, directly or indirectly,
control of assets (including for this purpose the outstanding equity
securities of subsidiaries of HBOC or McKesson, as the case may be, and any
entity surviving any merger or combination including any of them) of HBOC or
any of its subsidiaries or McKesson or any of its subsidiaries, as the case
may be, for consideration equal to 20% or more of the fair market value of all
of the outstanding shares of HBOC Common Stock or all of the outstanding
shares of McKesson Common Stock, as the case may be, on the date prior to the
date of the Merger Agreement.
Neither the McKesson Board nor the HBOC Board, nor any committee of either
of such Boards, shall (i) except as expressly permitted by the Merger
Agreement, withdraw, qualify or modify, or propose publicly to withdraw,
qualify or modify, in a manner adverse to the other party, the approval or
recommendation by such Board or such committee of the Merger or the Merger
Agreement, or, in the case of the McKesson Board, the issuance of McKesson
Common Stock in connection with the Merger, (ii) approve or recommend, or
propose publicly to approve or recommend, any Alternative Transaction, or
(iii) cause either McKesson or HBOC to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
(each, an "Acquisition Agreement") related to any Alternative Transaction.
Notwithstanding the foregoing, in the event that prior to the adoption of the
Merger Agreement by the holders of McKesson Common Stock or the holders of
HBOC Common Stock, as the case may be, either of such Boards determines in
good faith, after it has received a Superior Proposal (as defined below) and
after receipt of advice from outside counsel, that the failure to do so would
result in a reasonable possibility that such Board of Directors would breach
its fiduciary duties to its stockholders under applicable law, either the
McKesson Board or the HBOC Board, as the case may be, may (subject to this and
the following sentences) inform its stockholders that it no longer believes
that the Merger or the Merger Agreement is advisable and no longer recommends
approval (a "Subsequent Determination"), but only at a time that is after the
fifth business day following the other party's receipt of written notice
advising it that such Board has received a Superior Proposal specifying the
material terms and conditions of such Superior Proposal, identifying the
person making such Superior Proposal and stating that it intends to make a
Subsequent Determination. After providing such notice, McKesson or HBOC, as
the case may be, will provide a reasonable opportunity to the other party to
make such adjustments in the terms and conditions of the Merger Agreement
and/or of the relevant Stock Option Agreement as would enable the McKesson
Board or HBOC Board, as the case may be, to proceed with its recommendation to
stockholders without making a Subsequent Determination; provided, however,
that any such adjustments shall be at the discretion of the parties at such
time. A "Superior Proposal" means any proposal (on its most recently amended
or modified terms, if amended or modified) made by a Third Party to enter into
an Alternative Transaction which either the McKesson Board or the HBOC Board,
as the case may be, determines in its good faith judgment (based on the advice
of a financial advisor of nationally recognized reputation) to be more
favorable to such company's stockholders than the Merger taking into account
all relevant factors (including whether, in the good faith judgment of such
Board, after obtaining advice from a financial advisor of nationally
recognized reputation, the Third Party is reasonably able to finance the
transaction, and any proposed changes to the Merger Agreement and/or the
relevant Stock Option Agreement that may be proposed by the other party in
response to such Alternative Transaction). Notwithstanding any other provision
of the Merger Agreement, both McKesson and HBOC will submit the Merger
Agreement and the transactions contemplated thereby to its stockholders
whether or not its Board makes a Subsequent Determination.
McKesson and HBOC have agreed to promptly advise the other of any request
for information or any proposal in connection with an Alternative Transaction
(including the material terms and conditions of any request or proposal and
the identity of the person making the request or proposal) and to keep the
other informed of the status of any such request or proposal.
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In any event, the Merger Agreement does not preclude either McKesson or HBOC
from, among other things, making any disclosure to its stockholders if, in the
good faith judgment of the McKesson Board or the HBOC Board, as the case may
be, after receipt of advice from outside counsel, failure so to disclose would
be inconsistent with such party's fiduciary duties to its stockholders under
applicable law.
INDEMNIFICATION AND INSURANCE
McKesson has agreed to maintain in effect all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to
the Effective Time existing as of the date of the Merger Agreement in favor of
the current or former directors or officers of HBOC and its subsidiaries, as
provided in their respective organizational documents and any indemnification
agreements of HBOC. In addition, from and after the Effective Time, directors
and officers of HBOC who become directors or officers of McKesson HBOC will be
entitled to the same indemnification rights and directors' and officers'
liability insurance as are provided to other directors and officers of
McKesson HBOC.
In the event that McKesson HBOC or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of McKesson HBOC assume the obligations described
under this section "--Indemnification and Insurance."
For six years after the Effective Time, McKesson has also agreed to use
commercially reasonable efforts to provide liability insurance covering acts
or omissions occurring prior to the Effective Time with respect to those
persons who were covered by HBOC's directors' and officers' liability
insurance policy on terms with respect to such coverage and amounts no less
favorable than those in effect on the date of the Merger Agreement. McKesson,
however, will not be required to pay more than 150% of the current amount paid
by HBOC to maintain such insurance.
CONDITIONS
The obligations of McKesson, HBOC and Merger Sub to effect the Merger are
subject, among other things, to the satisfaction, or, where permissible,
waiver, of certain conditions, including without limitation: (i) approval of
the Merger Agreement and the transactions associated with it, by the requisite
vote of each company's stockholders; (ii) the expiration or termination of any
waiting period applicable to the consummation of the Merger under the HSR Act;
(iii) the effectiveness of the Registration Statement and the absence of a
stop order suspending such effectiveness; (iv) subject to certain limited
exceptions set forth in the Merger Agreement, the receipt or completion, as
applicable, of all consents, approvals and actions of, filings with and
notices to any governmental entity required by either of McKesson or HBOC to
consummate the Merger and the other transactions associated with the Merger
Agreement; (v) the absence of any law, judgment, order or decree preventing
the consummation of the Merger or which is otherwise reasonably likely to have
a material adverse effect on McKesson or HBOC, as applicable; (vi) the
approval of listing on the NYSE and the PE, subject only to official notice of
issuance, of the shares of McKesson Common Stock to be issued in the Merger;
(vii) the receipt by McKesson from Skadden Arps and the receipt by HBOC from
Jones Day of opinions, dated as of the date that the Registration Statement is
declared effective, to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, which
opinions will not be withdrawn or materially modified as of the date of the
Closing Date; and (viii) the receipt by McKesson and HBOC of letters from each
of McKesson's independent accountants and HBOC's independent accountants,
stating that the Merger qualifies for pooling of interests accounting
treatment.
The obligations of McKesson and HBOC to effect the Merger are subject to the
satisfaction or waiver of certain additional conditions, including (i) the
continued accuracy of the other party's representations and warranties and
such other party's performance of its obligations under the Merger Agreement
in all material respects; (ii) the absence of any material adverse change
relating to the other party; and (iii) the McKesson Rights and the HBOC
Rights, respectively, will not have become nonredeemable, exercisable,
distributed or triggered pursuant to the terms of either the McKesson Rights
Agreement or the HBOC Rights Agreement.
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RESALE RESTRICTIONS
All shares of McKesson Common Stock received by HBOC stockholders in the
Merger will be freely transferable, except that shares of McKesson Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of HBOC prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 under the Securities Act in
the case of such persons who become affiliates of McKesson HBOC following the
Merger) or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of HBOC or McKesson generally include individuals or
entities that control, are controlled by, or are under common control with,
such party and generally include certain officers and directors of such party
as well as principal stockholders of such party.
The Merger Agreement requires HBOC to use commercially reasonable efforts to
cause each of its affiliates to execute and deliver to McKesson a written
agreement to the effect that such affiliate will not offer to sell, transfer
or otherwise dispose of any of the shares of McKesson Common Stock issued to
such person in or pursuant to the Merger unless (a) such sale, transfer or
other disposition has been registered under the Securities Act, (b) such sale,
transfer or other disposition is made in conformity with Rule 145 under the
Securities Act or (c) in the opinion of legal counsel reasonably satisfactory
to McKesson, such sale, transfer or other disposition is exempt from
registration under the Securities Act.
Similarly, the Merger Agreement requires McKesson and HBOC to use
commercially reasonable efforts to cause each of their respective affiliates
to execute and deliver to the other party a written agreement to the effect
that the affiliate will not, at any time after the 35th day prior to the
Special Meetings and until McKesson has notified such affiliate that there has
been a publication of appropriate combined results of McKesson and HBOC, sell,
transfer or otherwise dispose of or reduce the affiliate's risk with respect
to any securities of McKesson or HBOC that the affiliate may hold. See "THE
MERGER--Anticipated Accounting Treatment."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time (with certain limited exceptions, notwithstanding any approval of the
Merger Agreement by the stockholders of HBOC or the stockholders of McKesson):
(a) by mutual written consent of McKesson and HBOC if the Board of
Directors of each has determined to terminate the Merger Agreement by a
vote of a majority of its entire Board;
(b) by either the McKesson Board or the HBOC Board:
(i) if the Merger has not been consummated by March 31, 1999;
provided, however, that the right to terminate the Merger Agreement
will not be available to any party whose failure to perform any of its
obligations under the Merger Agreement results in the failure of the
Merger to be consummated by such time;
(ii) if the approval of McKesson stockholders has not been obtained
at a McKesson stockholders' meeting or any postponement or adjournment
thereof;
(iii) if the approval of HBOC stockholders has not been obtained at
an HBOC stockholders' meeting or any postponement or adjournment
thereof; or
(iv) if any judgment, order, decree, statute or rule enacted,
promulgated or issued by a court or other entity preventing the
consummation of the Merger or otherwise reasonably likely to have a
material adverse effect on either McKesson or HBOC is in effect and has
become final and nonappealable or if a governmental entity, the
approval of which is necessary for the consummation of the Merger, has
denied approval of the Merger and such denial has become final and
nonappealable; provided, that the party seeking to terminate the Merger
Agreement will have used commercially reasonable efforts to prevent or
remove such restraint or obtain such requisite regulatory approval;
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(c) by the HBOC Board, if McKesson breaches or fails to perform any of
its representations, warranties, covenants or other agreements contained in
the Merger Agreement, which breach or failure to perform (A) would give
rise to the failure of the condition to HBOC's consummation of the Merger
with respect to the accuracy of McKesson's representations and warranties
and McKesson's performance of its obligations under the Merger Agreement,
and (B) is incapable of being cured by McKesson or is not cured within 30
days of written notice of such breach or failure;
(d) by the McKesson Board, if HBOC breaches or fails to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure to
perform (A) would give rise to the failure of the condition to McKesson's
consummation of the Merger with respect to the accuracy of HBOC's
representations and warranties and HBOC's performance of its obligations
under the Merger Agreement, and (B) is incapable of being cured by HBOC or
is not cured within 30 days of written notice of such breach or failure;
(e) by the HBOC Board, at any time prior to the McKesson Special Meeting,
if the McKesson Board has (A) failed to include in this Joint Proxy
Statement/Prospectus to the McKesson stockholders, its recommendation
without modification or qualification that such stockholders approve the
Merger Agreement and the transactions associated with it, or (B)
subsequently withdrawn such recommendation or (C) modified or qualified
such recommendation in a manner adverse to the interests of HBOC;
(f) by the McKesson Board, at any time prior to the HBOC Special Meeting,
if the HBOC Board has (A) failed to include in this Joint Proxy
Statement/Prospectus to the HBOC stockholders, its recommendation without
modification or qualification that such stockholders approve the Merger
Agreement and the transactions associated with it, or (B) subsequently
withdrawn such recommendation or (C) modified or qualified such
recommendation in a manner adverse to the interests of McKesson;
(g) by HBOC if the McKesson Board has failed to take certain actions with
respect to the Registration Statement or its Special Meeting contemplated
by the Merger Agreement as a result of the exercise of its rights to make a
Subsequent Determination in accordance with the terms of the Merger
Agreement. See "--No Solicitation of Transactions"; or
(h) by McKesson if the HBOC Board has failed to take certain actions with
respect to the Registration Statement or its Special Meeting contemplated
by the Merger Agreement as a result of the exercise of its rights to make a
Subsequent Determination in accordance with the terms of the Merger
Agreement. See "--No Solicitation of Transactions."
TERMINATION FEE
HBOC is entitled to receive a termination fee of $200.0 million in the event
that the Merger Agreement is terminated under any of the following
circumstances: (i) HBOC terminates the Merger Agreement by reason of the
failure of the McKesson Board to include in this Joint Proxy
Statement/Prospectus its unmodified and unqualified recommendation that its
stockholders approve the Merger Agreement and the transactions associated with
it or if the McKesson Board has withdrawn its recommendation or modified or
qualified it in a manner adverse to HBOC; (ii) HBOC or McKesson terminates the
Merger Agreement because of the failure to obtain the required approval from
the McKesson stockholders and at the time of such termination or prior to the
McKesson Special Meeting there is an offer or proposal for, an announcement of
any intention with respect to, or any agreement with respect to, a transaction
that would constitute an Alternative Transaction involving the acquisition of
beneficial ownership of more than 50% of the outstanding shares of McKesson or
any of its significant subsidiaries (whether or not such offer, proposal,
announcement or agreement is rejected or withdrawn prior to the time of such
termination or of the McKesson Special Meeting); (iii) HBOC terminates the
Merger Agreement as a result of either McKesson's material breach of its
obligations regarding nonsolicitation of Alternative Transactions or
McKesson's uncured material breach of its obligations to solicit the approval
of its stockholders or with respect to the preparation and filing of this
Joint Proxy Statement/Prospectus; or (iv) HBOC terminates the Merger Agreement
by reason of McKesson's failure to cause the McKesson Special Meeting to be
held and to recommend the approval of the Merger Agreement to its stockholders
as a result of McKesson's exercise of its rights under the Merger Agreement to
make a Subsequent Determination.
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McKesson is entitled to receive a termination fee of $200.0 million in the
event that the Merger Agreement is terminated under any of the following
circumstances: (i) McKesson terminates the Merger Agreement by reason of the
failure of the HBOC Board to include in this Joint Proxy Statement/Prospectus
its unmodified and unqualified recommendation that its stockholders approve
the Merger Agreement and the transactions associated with it or if the HBOC
Board has withdrawn its recommendation or modified or qualified it in a manner
adverse to McKesson; (ii) HBOC or McKesson terminates the Merger Agreement
because of the failure to obtain the required approval from the HBOC
stockholders and at the time of such termination or prior to the HBOC Special
Meeting there is an offer or proposal for, an announcement of any intention
with respect to, or any agreement with respect to, a transaction that would
constitute an Alternative Transaction involving the acquisition of beneficial
ownership of more than 50% of the outstanding shares of HBOC or any of its
significant subsidiaries (whether or not such offer, proposal, announcement or
agreement is rejected or withdrawn prior to the time of such termination or of
the HBOC Special Meeting); (iii) McKesson terminates the Merger Agreement as a
result of either HBOC's material breach of its obligations regarding
nonsolicitation of Alternative Transactions or HBOC's uncured material breach
of its obligations to solicit the approval of its stockholders or with respect
to the preparation and filing of this Joint Proxy Statement/Prospectus; or
(iv) McKesson terminates the Merger Agreement by reason of HBOC's failure to
cause the HBOC Special Meeting to be held and to recommend the approval of the
Merger Agreement to its stockholders as a result of HBOC's exercise of its
rights under the Merger Agreement to make a Subsequent Determination.
McKesson and HBOC have each agreed in the Stock Option Agreements entered
into concurrently with the execution of the Merger Agreement that if either
party has paid the other a termination fee pursuant to the Merger Agreement,
then such party receiving a termination fee may realize an aggregate Total
Profit (as defined in the Stock Option Agreements) from any termination fee
under the Merger Agreement and any exercise of any option pursuant to a Stock
Option Agreement of no more than $220.0 million. See "THE STOCK OPTION
AGREEMENTS."
EXPENSES
Other than any termination fees which may become payable pursuant to the
Merger Agreement and the Stock Option Agreements, all fees and expenses
incurred in connection with the Merger, the Merger Agreement and the Stock
Option Agreements and the transactions associated with such agreements will be
paid by the party incurring such fees and expenses, whether or not the Merger
is consummated, except that the expenses incurred in connection with (i) the
filing, printing and mailing of the Registration Statement and this Joint
Proxy Statement/Prospectus (including Commission filing fees related thereto)
and (ii) the filings of the premerger notification and report forms under the
HSR Act (including filing fees) will be shared equally by McKesson and HBOC.
In the event that any state or local transfer taxes ("Transfer Taxes") are
imposed on the stockholders of HBOC, McKesson or their respective subsidiaries
in connection with the Merger at or after the Effective Time, HBOC, McKesson
or such subsidiary will pay such Transfer Taxes on behalf of their respective
stockholders. In addition, HBOC will cause any such Transfer Taxes imposed on
stockholders of Access Health who become stockholders of HBOC pursuant to the
merger between Access Health and a subsidiary of HBOC to be paid by Access
Health on behalf of such stockholders.
AMENDMENT; EXTENSION AND WAIVER
The Merger Agreement may be amended by HBOC, McKesson and Merger Sub, by
action taken by their respective Boards of Directors, at any time before or
after the approval of the stockholders of McKesson or the approval of the
stockholders of HBOC. However, after any such stockholder approval, no
amendment will be made that changes the amount or the form of the
consideration to be delivered to the holders of HBOC Common Stock pursuant to
the Merger Agreement, or which by law otherwise requires the further approval
of such stockholders without such further approval.
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At any time prior to the Effective Time, any party may: (i) extend the time
for the performance of any of the obligations or other acts of the other
party; (ii) waive any inaccuracies in the representations and warranties of
the other party contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement; or (iii) waive compliance by the other party
with any of the agreements or conditions contained in the Merger Agreement.
Any agreement on the part of McKesson or HBOC to any such extension or waiver
will be valid only if set forth in an instrument in writing signed on behalf
of such party. The failure of McKesson or HBOC to assert any of its rights
under the Merger Agreement or otherwise will not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
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THE STOCK OPTION AGREEMENTS
In connection with the Merger Agreement and in consideration thereof, on
October 17, 1998, McKesson and HBOC entered into (i) a Stock Option Agreement
pursuant to which HBOC granted to McKesson an option to purchase, under
certain circumstances described therein, 85,865,517 shares of HBOC Common
Stock, together with the associated HBOC Rights and subject to certain
adjustments, equal to 19.9% of the number of shares of HBOC Common Stock then
outstanding, at a purchase price per share equal to $32.81 and (ii) a Stock
Option Agreement, pursuant to which McKesson granted to HBOC an option to
purchase, under certain circumstances described therein, 19,759,717 shares of
McKesson Common Stock, together with the associated McKesson Rights and
subject to certain adjustments, equal to 19.9% of the number of shares of
McKesson Common Stock then outstanding, at a purchase price per share equal to
$88.6875 (individually, a "Stock Option Agreement," and together the "Stock
Option Agreements").
The summary set forth below includes the material terms of the Stock Option
Agreements. Such summary, however, is subject to, and qualified in its
entirety by reference to, the terms of the Stock Option Agreements which are
incorporated herein by reference. The Stock Option Agreements are attached
hereto as Annexes B and C.
Under the Stock Option Agreements, the options are exercisable by the
grantee, in whole or in part, at any time and from time to time, upon the
occurrence of certain specified events (each, a "Triggering Event") as
described therein, provided that the grantee provides written notice of such
exercise in accordance with the Stock Option Agreements. A Triggering Event is
defined in the Stock Option Agreements as any event that would entitle either
party to terminate the Merger Agreement and would permit the grantee to
receive a termination fee pursuant to the Merger Agreement. See "THE MERGER
AGREEMENT--Termination" and "--Termination Fee."
As more fully described in the Stock Option Agreements, the number of shares
of the issuer's common stock subject to the options will be adjusted in
accordance with customary anti-dilution provisions (for stock splits, stock
dividends and future issuances of common stock, among other things) so that
such number of shares will continue to represent 19.9% of the issuer's then
outstanding shares of common stock. Upon the occurrence of certain events set
forth in the Stock Option Agreements, the options and any shares issued
pursuant to the exercise of the options must be repurchased by the issuer. In
addition, the Stock Option Agreements grant certain registration rights to the
grantee with respect to the shares represented by the option. Also, under
certain circumstances, the issuer is entitled to a right of first refusal if
the grantee desires to sell all or any part of the option or shares acquired
pursuant thereto. Notwithstanding any other provisions of the Stock Option
Agreements, the total profit (which includes the amount of a termination fee,
if any, paid pursuant to the Merger Agreement) which the grantee may realize
from the option may not exceed $220.0 million.
The grantee under each Stock Option Agreement agrees that, for a period of
18 months from the date of exercise of the option, so long as the grantee owns
any shares issued upon exercise of the option ("Option Shares"), the grantee
will (i) be present, in person or represented by proxy, at all stockholder
meetings of the issuer, and (ii) vote or cause to be voted all Option Shares
beneficially owned by it, with respect to all matters submitted to
stockholders for a vote, in the same proportion as shares of the issuer's
common stock are voted by stockholders unaffiliated with the grantee.
The Stock Option Agreements will terminate either (i) at the Effective Time,
or (ii) upon termination of the Merger Agreement under specified
circumstances.
The Stock Option Agreements are intended to increase the likelihood that the
Merger will be consummated on the terms set forth in the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreements may have the
effect of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all or a significant interest in either McKesson or
HBOC from considering or proposing such an acquisition, even if such persons
were prepared to offer higher consideration per share for HBOC Common Stock
than that implicit in the Exchange Ratio or a higher price per share for
McKesson Common Stock than the market price.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of certain U.S. federal income tax
consequences of the Merger. The discussion which follows is based on the Code,
Treasury regulations promulgated thereunder, administrative rulings and
pronouncements and judicial decisions as of the date hereof, all of which are
subject to change, possibly with retroactive effect. The discussion below is
for general information only and does not address the effects of any state,
local or foreign tax laws on the Merger. The tax treatment of an HBOC
stockholder may vary depending upon his or her particular situation, and
certain stockholders (including insurance companies, tax-exempt organizations,
financial institutions and broker-dealers, persons who do not hold HBOC stock
as capital assets, individuals who received HBOC Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation, non-U.S.
persons, and persons who hold HBOC stock as part of a "straddle," "hedge," or
conversion transaction), may be subject to special rules not discussed below.
Consummation of the Merger is conditioned upon the receipt by McKesson of an
opinion from Skadden Arps, special counsel to McKesson, and by HBOC of an
opinion from Jones Day, counsel to HBOC, dated as of the date that the
Registration Statement is declared effective, to the effect that the Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Code for U.S. federal income tax purposes, which opinions shall not have been
withdrawn or materially modified as of the Closing Date. Such opinions of
counsel are based on certain representations as to factual matters made by
McKesson and HBOC. Such representations, if incorrect in certain material
respects, could jeopardize the conclusions reached in the opinions. Neither
McKesson nor HBOC is currently aware of any facts or circumstances which would
cause any such representations made to counsel to be untrue or incorrect in
any material respect. Any opinion of counsel is not binding on the Internal
Revenue Service (the "IRS") or the courts.
Based on the opinions discussed above, the material U.S. federal income tax
consequences that will result from the Merger are as follows:
(i) The Merger will qualify as a "reorganization" under Section 368(a) of
the Code;
(ii) McKesson and HBOC each will be a party to that reorganization within
the meaning of Section 368(b) of the Code;
(iii) no income, gain or loss will be recognized by McKesson, Merger Sub
or HBOC as a result of the Merger;
(iv) an HBOC stockholder will not recognize any income, gain or loss as a
result of the receipt of McKesson Common Stock pursuant to the Merger,
except to the extent of any cash received in lieu of fractional shares of
McKesson Common Stock and except as described below with respect to
Transfer Taxes;
(v) an HBOC stockholder's tax basis for the McKesson Common Stock
received pursuant to the Merger, including any fractional share interest in
McKesson Common Stock for which cash is received, will equal such HBOC
stockholder's tax basis in the HBOC Common Stock exchanged therefor;
(vi) an HBOC stockholder's holding period for the McKesson Common Stock
received pursuant to the Merger will include the holding period of the HBOC
Common Stock surrendered in exchange therefor; and
(vii) an HBOC stockholder that receives cash in lieu of a fractional
share interest in McKesson Common Stock pursuant to the Merger will be
treated as having received such cash in exchange for such fractional share
interest and generally will recognize capital gain or loss on such deemed
exchange in an amount equal to the difference between the amount of cash
received and the basis of the HBOC Common Stock allocable to such
fractional share.
In the event that any Transfer Taxes are imposed on the stockholders of
HBOC, McKesson or their respective subsidiaries in connection with the Merger
after the Effective Time, HBOC, McKesson or such subsidiary will pay such
Transfer Taxes on behalf of their respective stockholders. In addition, HBOC
will cause any such Transfer Taxes imposed on stockholders of Access Health
who become stockholders of HBOC pursuant to the merger between Access Health
and a subsidiary of HBOC to be paid by Access Health on behalf of such
stockholders. Any such payments may result in dividend income to the
stockholders of the company making the payment in an amount which is not
expected to be material.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
McKesson and HBOC are each incorporated under the laws of the State of
Delaware. As a result of the Merger, holders of HBOC Common Stock will become
stockholders of McKesson and the rights of all such former HBOC stockholders
will thereafter be governed by the Restated Certificate of Incorporation of
McKesson (the "McKesson Certificate"), the McKesson By-laws and the DGCL. The
rights of the holders of HBOC Common Stock are currently governed by the HBOC
Certificate of Incorporation, as amended (the "HBOC Certificate"), the Amended
and Restated By-laws of HBOC (the "HBOC By-laws") and the DGCL. The following
summary, which does not purport to be a complete statement of the general
differences between the rights of the stockholders of McKesson and HBOC, sets
forth certain differences between the McKesson Certificate and the HBOC
Certificate and between the McKesson By-laws and the HBOC By-laws. This
summary is qualified in its entirety by reference to the full text of each of
such documents and the DGCL. For information as to how such documents may be
obtained, see "WHERE YOU CAN FIND MORE INFORMATION."
CLASSIFIED BOARD OF DIRECTORS
The DGCL provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. The HBOC Certificate does
not provide for a classified board. The McKesson Certificate provides that the
McKesson Board is divided into three classes of directors, with each class
consisting of one-third of the total number of directors, with any remaining
directors included in such group or groups as the Board designates. One class
of directors is elected each year for a three-year term.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of the McKesson Board. At least two
annual meetings of stockholders, instead of one, would generally be required
to effect a change in the majority of the McKesson Board. Such a delay may
help ensure that McKesson's directors, if confronted by a third party
attempting to force a proxy contest, a tender or exchange offer or other
extraordinary corporate transaction, have sufficient time to review the
proposal, as well as any available alternatives to the proposal, and to act in
what they believe to be the best interests of the stockholders.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of McKesson, even though such a
transaction could be beneficial to McKesson and its stockholders. The
classification of the McKesson Board might also increase the likelihood that
incumbent directors will retain their positions.
STOCKHOLDER RIGHTS PLAN
McKesson entered into the McKesson Rights Agreement which was designed to
protect McKesson stockholders from coercive or unfair takeover tactics.
Pursuant to the McKesson Rights Agreement, the McKesson Board declared a
dividend distribution of one McKesson Right for each outstanding share of
McKesson Common Stock to stockholders of record at November 1, 1994 and
authorized the issuance of one McKesson Right for each share of McKesson
Common Stock issued after the date of the McKesson Rights Agreement, but prior
to the triggering of the McKesson Rights. As a result of the two-for-one stock
split effective January 2, 1998, each share of McKesson Common Stock has
attached to it one-half of a McKesson Right. One-half of a McKesson Right will
be issued with respect to each share of McKesson Common Stock issued pursuant
to the Merger. Each McKesson Right entitles a registered holder to purchase,
upon the occurrence of certain specified events, a unit consisting of one one-
hundredth of a share of McKesson Series A Junior Participating Preferred Stock
at a purchase price of $100 per unit. The description and terms of the
McKesson Rights are set forth in the McKesson Rights Agreement. In general,
pursuant to the McKesson Rights Agreement, upon the occurrence of specified
triggering events, such as the acquisition by any person (other than McKesson
or any of its subsidiaries) of the beneficial ownership of securities
representing 15% or more of the outstanding McKesson Common Stock without the
prior approval of the McKesson Board, each holder of a McKesson Right will
have
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the right to receive, upon exercise of the McKesson Right, that amount of
McKesson Common Stock having a value equal to two times the exercise price of
the McKesson Right. The McKesson Rights Agreement further provides that if
McKesson is acquired in a merger or other business combination or McKesson
sells more than 50% of its assets and such transaction is not approved by the
McKesson Board, McKesson's stockholders will have the right to receive, with
respect to each McKesson Right, common stock of the acquiring company having a
value equal to two times the exercise price of the McKesson Right. Under
certain circumstances, McKesson may redeem the McKesson Rights for a
redemption price of $.01 per McKesson Right, which will otherwise expire on
the tenth anniversary of the adoption of the McKesson Rights Agreement. The
effect of the McKesson Rights Agreement may be to render more difficult a
change in control of McKesson. The October 19, 1998 amendment to the McKesson
Rights Agreement provides that the entering into of the applicable Stock
Option Agreement and the consummation of the transactions contemplated by the
Merger Agreement will not trigger the McKesson Rights issuable thereunder.
HBOC entered into the HBOC Rights Agreement, in order to protect HBOC
shareholders from coercive or unfair takeover tactics. Pursuant to the HBOC
Rights Agreement, the HBOC Board declared a dividend distribution of one HBOC
Right for each then outstanding share of HBOC Common Stock and directed the
issuance of one HBOC Right with respect to each share of HBOC Common Stock
issued after the date of the HBOC Rights Agreement, but before the triggering
of the HBOC Rights. Each HBOC Right entitles a registered holder to purchase,
upon the occurrence of certain specified events, a unit consisting of one-one
thousandth of a share of HBOC Series A Junior Participating Preferred Stock at
a purchase price of $35 per unit. The description and terms of the HBOC Rights
are set forth in the HBOC Rights Agreement. In general, pursuant to the HBOC
Rights Agreement, upon the occurrence of specified triggering events, such as
the acquisition by any person (other than HBOC or any of its subsidiaries) of
the beneficial ownership of securities representing 20% or more of the
outstanding HBOC Common Stock, each holder of an HBOC Right will have the
right to receive, upon exercise of the HBOC Right, that amount of HBOC Common
Stock having a value equal to two times the exercise price of the HBOC Right.
The HBOC Rights Agreement further provides that if, following the first public
announcement that a person has beneficial ownership of securities representing
15% or more of the outstanding HBOC Common Stock, HBOC is acquired in a merger
or other business combination or HBOC sells more than 50% of its assets,
HBOC's stockholders will have the right to receive, with respect to each HBOC
Right, common stock of the acquiring company having a value equal to two times
the exercise price of the HBOC Right. Under certain circumstances, HBOC may
redeem the HBOC Rights for a redemption price of $.01 per HBOC Right, which
will otherwise expire on February 22, 2001 or as earlier redeemed of exchanged
by HBOC. The effect of the HBOC Rights Agreement may be to render more
difficult a change in control of HBOC. The October 17, 1998 amendment to the
HBOC Rights Agreement provides that the entering into of the applicable Stock
Option Agreement and the consummation of the transactions contemplated by the
Merger Agreement will not trigger the HBOC Rights issuable under such
agreement.
NUMBER OF DIRECTORS
Under the DGCL, unless a corporation's certificate of incorporation
specifies the number of directors, such number shall be fixed by, or in the
manner provided in, its by-laws. If a corporation's certificate of
incorporation expressly authorizes its board of directors to amend its by-
laws, its board of directors may change the authorized number of directors by
an amendment to the corporation's by-laws, if fixed therein, or in such manner
as is provided therein. If the certificate of incorporation specifies the
number of directors, the number of directors can only be changed by amending
the certificate of incorporation.
The McKesson Certificate provides that, subject to any rights of holders of
shares of series preferred stock, par value $0.01 per share of McKesson (the
"McKesson Series Preferred Stock"), to elect directors, the holders of
McKesson Common Stock shall have the exclusive right to elect directors. There
are no shares of McKesson Series Preferred Stock currently outstanding. The
McKesson By-laws provide that the number of directors shall be fixed from time
to time by such By-laws, but in no event shall be less than three. The
McKesson By-laws also provide that, until such By-laws are further amended,
the number of directors shall be nine. At the Effective Time, the McKesson By-
laws will be amended to increase the number of authorized directors by one to
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accommodate the composition of the Board of McKesson HBOC as provided in the
Merger Agreement. See "THE MERGER AGREEMENT--Corporate Organization and
Governance."
The HBOC By-laws provide that the number of members of the HBOC Board shall
be not less than three nor more than fifteen, such number to be established by
the HBOC Board or stockholders. The number of directors on the HBOC Board is
currently eight.
REMOVAL OF DIRECTORS; FILLING VACANCIES
Under the DGCL, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The McKesson By-laws provide that directors may be
removed only for cause. The McKesson By-laws further provide that any
amendment to the McKesson By-laws to permit a director to be removed without
cause must be approved by either the holders of all shares of stock entitled
to vote thereon or by a vote of a majority of the entire McKesson Board.
Directors elected by the McKesson Series Preferred Stock, should any such
stock be outstanding, are subject to removal as provided in the McKesson
Certificate or as provided by law.
The McKesson By-laws provide that any vacancy occurring in the McKesson
Board for any reason other than an increase in the number of directors may be
filled by a majority of the remaining members of the McKesson Board or by the
stockholders. Any vacancy occurring by reason of an increase in the number of
directors may be filled by action of a majority of the entire McKesson Board
or by the stockholders.
Under the HBOC By-laws, any director or the entire board of directors may be
removed, with or without cause, at any time by the holders of a majority of
the shares then entitled to vote at an election of directors. The vacancy in
the board of directors caused by such removal may be filled by HBOC
stockholders at the time of such removal. Vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, and each of the directors so chosen shall hold office
until the next annual election and until his successor is elected and
qualified or until his earlier resignation or removal.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Under the DGCL, unless otherwise provided for in a corporation's certificate
of incorporation, any action by a corporation's stockholders must be taken at
a meeting of such stockholders, unless a consent in writing setting forth the
action so taken is signed by stockholders of the corporation having not less
than the minimum number of votes necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were present and voted.
The McKesson Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders or by unanimous written
consent. The McKesson By-laws provide that special meetings of stockholders
can be called only by the Chairman of the Board, the President or the McKesson
Board. Stockholders are not permitted to call a special meeting or to require
that the McKesson Board call a special meeting of stockholders. As a result of
the foregoing provisions, a stockholder may not force stockholder
consideration of a proposal over the opposition of the Chairman of the Board,
the President and the McKesson Board by calling a special meeting of
stockholders prior to the time the Chairman of the Board, the President or the
McKesson Board believes such consideration to be appropriate.
The HBOC Certificate expressly prohibits written consents by stockholders.
Pursuant to the HBOC Certificate and HBOC By-laws, special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the Chairman of the Board or the President or by
holders of four-fifths of the outstanding shares of HBOC Common Stock and
shall be called by the Chairman of the Board or President at the request in
writing of three-fourths of the directors of HBOC. Such requests must state
the purpose or purposes of the proposed special meeting.
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FAIR PRICE PROVISIONS
McKesson
The McKesson Certificate contains a "fair price" provision, requiring that,
in addition to any other vote required by the McKesson Certificate or the
DGCL, certain "Business Combination" (as defined below) transactions be
recommended by the McKesson Board and approved by the affirmative vote of at
least: (a) 80 percent of the votes entitled to be cast by outstanding shares
of voting stock of McKesson, voting together as a single voting group; and (b)
two-thirds of the votes entitled to be cast by holders of voting stock other
than voting stock held by an "Interested Stockholder" (as defined below) who
is (or whose Affiliate is) a party to a Business Combination or an Affiliate
or Associate of the Interested Stockholder, voting together as a single voting
group.
For purposes of the "fair price" provision only, certain terms are defined
as follows (other capitalized terms used in this section having the respective
meanings ascribed to them in the McKesson Certificate):
"Business Combination" means:
(i) Unless the transaction does not alter the contract rights of the
stock or change or convert in whole or in part the outstanding shares of
McKesson Common Stock, any merger or consolidation of McKesson or any
Subsidiary with (A) any Interested Stockholder or (B) any other corporation
(whether or not itself an Interested Stockholder) which is, or after the
merger or consolidation, would be, an Affiliate of an Interested
Stockholder that was an Interested Stockholder prior to the transaction.
(ii) Any sale, lease, transfer or other disposition, other than in the
ordinary course of business, in one transaction or a series of transactions
in any 12-month period, to any Interested Stockholder or any Affiliate of
any Interested Stockholder (other than McKesson or any of its Subsidiaries)
of any assets of McKesson or any Subsidiary having, measured at the time
the transaction or transactions are approved by the McKesson Board, an
aggregate book value as of the end of McKesson's most recently ended fiscal
quarter of 10 percent or more of the total Market Value (as defined in the
McKesson Certificate) of the outstanding stock of McKesson or of its net
worth as of the end of its most recently ended fiscal quarter;
(iii) The issuance by McKesson, or any Subsidiary, in one transaction or
a series of transactions, of any Equity Securities of McKesson or any
Subsidiary which have an aggregate Market Value of 5 percent or more of the
total Market Value of the outstanding stock of McKesson to any Interested
Stockholder or any Affiliate of any Interested Stockholder (other than
McKesson or any of its Subsidiaries) except pursuant to the exercise of
warrants or rights to purchase securities offered pro rata to all holders
of McKesson voting stock or any other method affording substantially
proportionate treatment to the holders of Voting Stock;
(iv) The adoption of any plan or proposal for the liquidation or
dissolution of McKesson in which anything other than cash will be received
by an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(v) Any reclassification of securities (including any reverse stock
split), or recapitalization of McKesson, or any merger or consolidation, of
McKesson with any of its Subsidiaries which has the effect, directly or
indirectly, in one transaction or a series of transactions, of increasing
by 5 percent or more of the total number of outstanding shares, the
proportionate amount of the outstanding shares of any class of Equity
Securities of McKesson or any Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any Affiliate of any Interested
Stockholder.
"Interested Stockholder" means any person (other than McKesson or any
Subsidiary) that:
(i) Is the beneficial owner, directly or indirectly, of ten percent or
more of the voting power of the outstanding voting stock of McKesson; or
(ii) Is an Affiliate of McKesson and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of ten percent or more of the voting power of the
then outstanding voting stock of McKesson.
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The required vote referred to above does not apply to a Business Combination
if each of the following conditions, among others, is met:
(i) The aggregate amount of the cash and the Market Value as of the
Valuation Date of consideration other than cash to be received per share by
holders of McKesson Common Stock in the Business Combination are at least
equal to the highest of the following:
(A) The highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealer's fees) paid by the Interested
Stockholder for any shares of McKesson Common Stock acquired by it: (x)
within the two-year period immediately prior to the Announcement Date
of the proposal of the Business Combination; or (y) in the transaction
in which it became an Interested Stockholder, whichever is higher; or
(B) The Market Value per share of McKesson Common Stock on the
Announcement Date or on the Determination Date, whichever is higher; or
(C) The price per share equal to the Market Value per share of
McKesson Common Stock determined pursuant to the immediately preceding
subparagraph (B), multiplied by the fraction of: (x) the highest per
share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder for any
shares of McKesson Common Stock acquired by it within the two year
period immediately prior to the Announcement Date, over (y) the Market
Value per share of McKesson Common Stock on the first day in such two-
year period on which the Interested Stockholder acquired any shares of
McKesson Common Stock; and
(ii) After the Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(A) Each of the following is true: (x) there shall have been no
reduction in the annual rate of dividends paid on any class or series
of stock of McKesson that is not preferred stock (except as necessary
to reflect any subdivision of the Stock); (y) there shall have been an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of
reducing the number of outstanding shares of the Stock; and (z) the
Interested Stockholder shall not have become the beneficial owner of
any additional shares of stock of McKesson except as part of the
transaction which resulted in such Interested Stockholder becoming an
Interested Stockholder or by virtue of proportionate stock splits or
stock dividends.
(B) The provisions of clauses (x) and (y) of subparagraph (ii)(A) do
not apply if no Interested Stockholder or an Affiliate or Associate of
the Interested Stockholder voted as a director of McKesson in a manner
inconsistent with such clauses and the Interested Stockholder, within
ten days after any act or failure to act inconsistent with such
clauses, notifies the McKesson Board in writing that the Interested
Stockholder disapproves thereof and requests in good faith that the
McKesson Board rectify such act or failure to act.
The "fair price" provision is intended to ensure that all stockholders
receive equal treatment in the event of a tender or exchange offer and to
protect stockholders against coercive or two-tiered takeover bids. The
provision could also have the effect of discouraging a third party from making
a tender or exchange offer for McKesson, even though such an offer might be
beneficial to McKesson and its stockholders.
HBOC
Similarly, the HBOC Certificate contains a "fair price" provision, requiring
that, in addition to any other vote required by the HBOC Certificate or the
DGCL, certain "Business Combination" transactions be approved by the
affirmative vote of at least four-fifths of the outstanding shares of HBOC
Common Stock (whether or not the holders of such shares are present or
represented at any meeting) not Beneficially Owned by "Controlling Persons."
For purposes of this "fair price" provision only, certain terms are defined
as follows (other capitalized terms used in this section having the respective
meanings ascribed to them in the HBOC Certificate):
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"Business Combination" means: (i) Any merger or consolidation of HBOC with
or into the Controlling Person, Affiliate of a Controlling Person, Associate
of a Controlling Person or Affiliate; (ii) any sale, lease, exchange,
transfer, or other disposition, including without limitation a mortgage or any
other security device, of all or any Substantial Part of the assets of the
corporation or a Subsidiary, including without limitation any voting
securities of a Subsidiary, to or with a Controlling Person, Associate of a
Controlling Person or Affiliate; (iii) any merger into or consolidation with
HBOC or a Subsidiary, of a Controlling Person, an Affiliate of a Controlling
Person, an Associate of a Controlling Person or Affiliate; (iv) any sale,
lease, exchange, transfer or other disposition to HBOC of all or any part of
the assets of a Controlling Person, Affiliate or a Controlling Person,
Associate of a Controlling Person or Affiliate; (v) any reclassification of
HBOC Common Stock or any recapitalization involving HBOC Common Stock that
would have the effect of increasing the voting power of a Controlling Person,
Affiliate of a Controlling Person, Associate of a Controlling Person or
Affiliate; and (vi) any agreement, contract or other arrangement providing for
any of the transactions described in this definition of Business Combination.
"Controlling Persons" means any person who Beneficially Owns a number of
shares of HBOC Common Stock, whether or not such number includes shares not
then issued which exceeds a number equal to ten percent of the outstanding
shares of HBOC Common Stock.
The required vote referred to above does not apply if:
(1) All of the following conditions have been met:
(a) the Business Combination will result in an involuntary sale,
redemption, cancellation, or other termination of ownership of all
shares of HBOC Common Stock owned by stockholders who do not vote in
favor of the Business Combination;
(b) the consideration to be received by such stockholders for such
shares shall be in cash or in the same form as the Controlling Person,
Affiliate of a Controlling Person, Associate of a Controlling Person or
Affiliate has previously paid for such shares or if the Controlling
Person, Affiliate of a Controlling Person, Associate of a Controlling
Person or Affiliate has paid for such shares with varying forms of
consideration, the form of consideration for such shares shall be
either cash or the form used to acquire the largest number of such
shares previously acquired by it;
(c) the cash or Fair Market Value as of the date of consummation of
the Business Combination or consideration other than cash to be
received by such stockholders for such shares shall be at least equal
to the Minimum Price Per Share;
(d) a proxy or information statement responsive to the requirements
of the Exchange Act shall be mailed to all stockholders of HBOC at
least 30 days prior to the consummation of such Business Combination
for the purpose of soliciting stockholder approval of the Business
Combination; and
(e) after such Controlling Person has become a Controlling Person,
such Controlling Person shall not have received the benefit, directly
or indirectly (except proportionately as an HBOC stockholder) of any
loans, advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by HBOC or a
Subsidiary, whether in anticipation of or in connection with such
Business Combination or otherwise; or
(2) both of the following conditions shall have been met; (a) the
Continuing Directors of HBOC shall, by a majority vote at a meeting at
which a Continuing Director Quorum was present, have adopted a resolution
approving the Business Combination and have determined to recommend it for
approval by the holders of HBOC Common Stock; and (b) at the time of
adoption of such resolution, Continuing Directors shall have comprised at
least a majority of the HBOC Board.
Because the requirements of paragraph (2) have been satisfied, the Merger
Agreement must be approved by the affirmative vote of a majority of the
outstanding HBOC Common Stock rather than four-fifths of such stock.
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ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
The McKesson By-laws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors, or bring other
business before an annual meeting of stockholders of McKesson (the "McKesson
Stockholder Notice Procedure").
The McKesson Stockholder Notice Procedure provides that only persons who are
nominated at the direction of the McKesson Board, by any nominating committee
or person appointed by the McKesson Board, or by a stockholder who has given
timely written notice to the Secretary of McKesson prior to the meeting at
which directors are to be elected, will be eligible for election as a director
of McKesson. The McKesson Stockholder Notice Procedure provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by or at the direction of the McKesson Board or by a stockholder
who has given timely written notice to the Secretary of McKesson of such
stockholder's intention to bring such business before such meeting. Under the
McKesson Stockholder Notice Procedure, to be timely, notice of stockholder
nominations or proposals to be made at an annual meeting must be received by
McKesson no less than 60 days nor more than 90 days prior to the scheduled
date of the meeting (or, if less than 70 days' notice or prior public
disclosure of the date of the meeting is given, the tenth day following the
earlier of (i) the date such notice was mailed or (ii) the date such public
disclosure was made).
Under the McKesson Stockholder Notice Procedure, a stockholder's notice to
McKesson proposing to nominate a person for election as a director must
contain certain information, including, without limitation, the identity and
address of the proposed nominee, the class and number of shares of stock of
McKesson which are beneficially owned by the proposed nominee, the principal
occupation of the proposed nominee and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee. Under the McKesson
Stockholder Notice Procedure, a stockholder's notice relating to the conduct
of business other than the nomination of directors must contain certain
information about such business and about the proposing stockholder,
including, without limitation, a brief description of the business the
stockholder proposes to bring before the meeting, the reasons for conducting
such business at such meeting, the name and address of such stockholder, the
class and number of shares of stock of McKesson beneficially owned by such
stockholder, any material interest of such stockholder in the business so
proposed and a representation that the stockholder intends to appear at the
meeting in person or by proxy. If the nomination or business was not brought
before the meeting in accordance with the McKesson Stockholder Notice
Procedure, such person will not be eligible for election as a director or such
business will not be conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the McKesson
Stockholder Notice Procedure affords the McKesson Board an opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the McKesson Board, to inform stockholders about
such qualifications. By requiring advance notice of other proposed business,
the McKesson Stockholder Notice Procedure provides a more orderly procedure
for conducting annual meetings of stockholders and, to the extent deemed
necessary or desirable by the McKesson Board, provides the McKesson Board with
an opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations
as to the McKesson Board's position regarding action to be taken with respect
to such business, so that stockholders can better decide whether to attend the
meeting or to grant a proxy regarding the disposition of any such business.
The foregoing provisions may have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
McKesson and its stockholders.
The HBOC By-laws also establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors, or bring other
business before an annual meeting of stockholders of HBOC.
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Except for directors who are elected to complete unexpired terms pursuant to
the DGCL, only persons who are nominated in accordance with the procedures set
forth in the HBOC By-laws shall be eligible for election as directors.
Nominations, other than those made by or at the direction of the HBOC Board,
shall be made pursuant to timely notice in writing to the Secretary of HBOC.
To be timely, a stockholder's notice must be delivered to HBOC not less than
30 days nor more than 60 days prior to the meeting; provided, however, that in
the event that less than 40 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the 16th day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on HBOC's books, of such
stockholder and (ii) the class and number of shares of HBOC which are
beneficially owned by such stockholder.
Pursuant to the HBOC By-laws, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of HBOC. To be timely, a stockholder's
notice must be delivered to HBOC not less than 30 days nor more than 60 days
prior to the meeting; provided, however, that in the event that less than 40
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than the close of business on the 10th day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on HBOC's books, of the
stockholder proposing such business, (c) the class and number of shares of
HBOC which are beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business.
AUTHORIZED CAPITAL STOCK
The DGCL requires that a corporation's certificate of incorporation set
forth the total number of shares of all classes of stock which the corporation
has authority to issue and a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof. The authorized capital stock of McKesson consists of (i) 400,000,000
shares of McKesson Common Stock, par value $0.01 per share and (ii)
100,000,000 shares of McKesson Series Preferred Stock. The HBOC Certificate
provides that HBOC has authority to issue (i) 1,000,000,000 shares of HBOC
Common Stock, par value $0.05 per share and (ii) 1,000,000 shares of preferred
stock, no par value ("HBOC Preferred Stock").
VOTING RIGHTS
The holders of McKesson Common Stock are entitled to one vote for each share
held on all matters and, except as otherwise provided in McKesson's
Certificate with respect to the McKesson Series Preferred Stock, will have the
exclusive right to vote for the election of directors and for all other
purposes.
Similarly, the holders of HBOC Common Stock are entitled to one vote for
each share on all matters and, except as otherwise provided in HBOC's
Certificate with respect to the HBOC Preferred Stock, will have the exclusive
right to vote for the election of directors and for all other purposes.
PREFERRED STOCK
Pursuant to the McKesson Certificate, the McKesson Board is authorized to
provide for the issuance of shares of McKesson Series Preferred Stock, in one
or more classes or series (including the Series A Junior Participating
Preferred Stock), and to fix the designations, powers, preferences and rights
of the shares of each such series and any qualifications, limitations or
restrictions thereof. See "--Stockholder Rights Plans."
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McKesson believes that the ability of the McKesson Board to issue one or
more series of McKesson Series Preferred Stock provides McKesson with
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs that might arise.
Although the McKesson Board has no intention at the present time of doing
so, it could issue a series of McKesson Series Preferred Stock that could,
depending on the terms of such series, impede the completion of a merger,
tender offer or other takeover attempt. The McKesson Board will make any
determination to issue such shares based on its judgment as to the best
interests of McKesson and its stockholders. The McKesson Board, in so acting,
could issue McKesson Series Preferred Stock having terms that discourage an
acquisition attempt through which an acquiror may be able to change the
composition of the McKesson Board, including a tender offer or other
transaction that some of McKesson's stockholders might believe to be in their
best interests or in which stockholders might receive a premium for their
stock over the then current market price of such stock.
Under the HBOC Certificate, the HBOC Board is authorized to issue shares of
HBOC Preferred Stock, in one or more classes or series (including the Series A
Junior Participating Preferred Stock), and to fix the designations, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. See "--Stockholder Rights
Plans."
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The DGCL allows amendment of a corporation's certificate of incorporation if
its board of directors adopts a resolution setting forth the amendment
proposed and declaring its advisability and the stockholders thereafter
approve such proposed amendment, either at a special meeting called by the
board for the purpose of approval of such amendment by the stockholders or, if
so directed by the board, at the next annual stockholders' meeting. At any
such meeting, the proposed amendment generally must be approved by a majority
of the outstanding shares entitled to vote. The holders of the outstanding
shares of a class are entitled to vote as a separate class upon a proposed
amendment, whether or not entitled to vote thereon by the certificate of
incorporation, if the amendment would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value
of the shares of such class or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely. If
any proposed amendment would alter or change the powers, preferences or
special rights of one or more series of any class so as to affect them
adversely, but not affect the entire class, then only the shares of the series
so affected by the amendment will be considered a separate class for the
purposes of a vote on the amendment. Under the DGCL, a corporation's
certificate of incorporation also may require, for action by the board or by
the holders of any class or series of voting securities, the vote of a greater
number or proportion than is required by the DGCL and the provision of the
certificate of incorporation requiring such greater vote also provide that
such provision cannot be altered, amended or repealed except by such greater
vote.
Under the DGCL, the power to adopt, amend or repeal a corporation's by-laws
resides with the stockholder entitled to vote thereon, and with the directors
of such corporation if such power is conferred upon the board of directors by
the certificate of incorporation.
The McKesson Certificate contains no provisions requiring a vote greater
than that specified in the DGCL to amend the McKesson Certificate. The
McKesson Certificate provides that the McKesson Board is expressly authorized
to adopt, alter and repeal the McKesson By-laws. The McKesson By-laws may also
be adopted, altered and repealed by the affirmative vote of the holders of at
least 75% of the voting power of the outstanding McKesson Common Stock. An
amendment to the McKesson By-laws to shorten the term of any director holding
office, to permit any director to be removed without cause, or to increase the
number of directors in any class, requires the approval of the holders of all
shares entitled to vote thereon or a vote of the entire McKesson Board. These
provisions make it more difficult for stockholders to make changes to the
McKesson By-laws, including changes designed to facilitate the exercise of
control over McKesson.
The HBOC Certificate contains no provisions requiring a vote greater than
that specified in the DGCL to amend the HBOC Certificate, except for those
provisions relating to business combinations. The HBOC Certificate authorizes
the HBOC Board to make, alter or repeal the HBOC By-laws. The HBOC Board may,
by
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a majority vote of the entire HBOC Board, alter, amend, or repeal the HBOC By-
laws, including by-laws adopted by stockholders, or adopt new by-laws,
provided stockholders may specify particular provisions of the by-laws that
may not be amended by the HBOC Board.
BUSINESS COMBINATIONS
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "Interested Stockholder" for a three-year period following the date
that such stockholder becomes an Interested Stockholder unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an Interested Stockholder, the
Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers and employee stock purchase
plans in which employee participants do not have the right to determine
confidentially whether plan shares will be tendered in a tender or exchange
offer) or (iii) on or subsequent to such date, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote at an annual or special meeting, and not by written consent, of at least
66 2/3% of the outstanding voting stock which is not owned by the Interested
Stockholder. Except as specified in Section 203 of the DGCL, an Interested
Stockholder is defined to include (a) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and (b) the affiliates and associates
of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "Interested Stockholder" to effect
various business combinations with a corporation for a three-year period,
although the corporation's certificate of incorporation or stockholders may
elect to exclude a corporation from the restrictions imposed thereunder.
The McKesson Certificate does not exclude McKesson from the restrictions
imposed under Section 203 of the DGCL. It is anticipated that the provisions
of Section 203 of the DGCL may encourage companies interested in acquiring
McKesson to negotiate in advance with the McKesson Board, since the
stockholder approval requirement would be avoided if a majority of the
directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an Interested
Stockholder.
Pursuant to the HBOC By-laws, HBOC has elected not to be governed by the
restrictions imposed under Section 203 of the DGCL.
LIMITATION OF LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for a breach of the
director's fiduciary duty, subject to certain limitations. The McKesson
Certificate includes such a provision to the maximum extent permitted by law.
The HBOC Certificate contains an analogous provision.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance
expenses of defense (upon receipt of a written undertaking
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to reimburse the corporation if indemnification is not appropriate) and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that no indemnification may be made for any claim, issue or matter as to which
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless
and only to the extent a court determines that the person is entitled to
indemnity for such expenses as the court deems proper.
The McKesson By-laws provide that each person who is involved in any actual
or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or
was a director or officer of McKesson, or is or was serving at the request of
McKesson as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan, will be indemnified by McKesson to
the full extent permitted by the DGCL if he or she acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of McKesson. The indemnification rights conferred by the McKesson
By-laws are not exclusive of any other right to which persons seeking
indemnification may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. McKesson is authorized
to purchase and maintain (and McKesson maintains) insurance on behalf of its
directors and officers.
The HBOC By-laws provide that each person who was or is a party or is
threatened to be a party to or is involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he or a person of whom he is the legal representative is or was a
director or officer of HBOC or is or was serving at the request of HBOC or for
its benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise,
shall be indemnified to the full extent permitted by the DGCL. Like the
McKesson By-laws, the HBOC By-laws provide that the indemnification rights
conferred by the HBOC By-laws are not exclusive of any other right to which
persons seeking indemnification may be entitled under any law, by-law,
agreement, vote of stockholders or disinterested directors or otherwise. HBOC
is authorized to purchase and maintain (and HBOC maintains) insurance on
behalf of its directors and officers.
See "THE MERGER AGREEMENT--Indemnification and Insurance."
Additionally, the McKesson By-laws and the HBOC By-laws each provide that
expenses incurred by a person in defending a civil or criminal action, suit or
proceeding by reason of the fact that he or she is a director, officer
employee or agent may be paid in advance of the final disposition of such
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he or she is entitled to be indemnified by
McKesson or HBOC, as the case may be, as authorized by the DGCL.
SIGNIFICANT STOCKHOLDERS
As of October 31, 1998, other than the McKesson Profit-Sharing Investment
Plan (the "PSIP") (which had dispositive power over 19.97%) and FMR Corp., no
McKesson stockholder is known by McKesson to own in excess of 5% of the
outstanding McKesson Common Stock. In addition, HBOC had dispositive power
over 19.9% in connection with the Stock Option Agreement attached as Annex B
hereto. The directors and officers of McKesson as a group beneficially owned
as of , 1998, % of the outstanding McKesson Common Stock.
As of October 31, 1998, other than Putnam Investments, Inc. and FMR Corp.,
no HBOC stockholder is known by HBOC to own in excess of 5% of the outstanding
HBOC Common Stock. In addition, as of October 31, 1998, McKesson had
dispositive power over 19.9% in connection with the Stock Option Agreement
attached as Annex C hereto. The directors and officers of HBOC as a group
beneficially owned as of , 1998, % of the outstanding HBOC Common
Stock.
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MARKET PRICE AND DIVIDEND INFORMATION
The McKesson Common Stock is listed and traded on the NYSE and the PE and
the HBOC Common Stock is listed and quoted on Nasdaq. The following table sets
forth the high and low trading prices per share of each of the McKesson Common
Stock (with adjustment for the 1998 two-for-one McKesson stock split) and HBOC
Common Stock (with adjustment for the HBOC 1996 two-for-one stock split and
the HBOC 1998 two-for-one stock split) for the calendar quarters indicated as
reported on the NYSE Composite Tape and Nasdaq, based on published financial
sources, respectively, and the dividends paid per share for such periods by
McKesson and HBOC:
<TABLE>
<CAPTION>
MCKESSON MCKESSON HBOC HBOC
COMMON STOCK DIVIDENDS COMMON STOCK DIVIDENDS
PRICES PAID PER PRICES PAID PER
------------- COMMON ------------- COMMON
HIGH LOW SHARE HIGH LOW SHARE
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter................ 27.81 23.25 .125 12.75 8.19 .005
Second Quarter............... 25.63 22.06 .125 17.69 11.94 .005
Third Quarter................ 24.06 20.56 .125 17.50 12.63 .005
Fourth Quarter............... 28.38 22.88 .125 18.13 12.50 .005
1997
First Quarter................ 34.81 26.06 .125 18.07 11.88 .005
Second Quarter............... 40.06 31.50 .125 18.03 10.63 .005
Third Quarter................ 53.13 38.25 .125 21.13 17.13 .01
Fourth Quarter............... 56.88 48.69 .125 23.42 18.50 .01
1998
First Quarter................ 61.75 47.88 .125 30.47 21.69 .01
Second Quarter............... 85.81 57.63 .125 35.56 28.00 .02
Third Quarter................ 96.25 73.63 .125 38.38 20.94 .02
Fourth Quarter (through
November 11, 1998).......... 96.00 69.00 .125 30.00 22.38
</TABLE>
- --------
On October 16, 1998, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, the reported high and
low sale prices per share and closing price per share of McKesson Common Stock
and HBOC Common Stock on the NYSE and Nasdaq, respectively, were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------ -------- --------
<S> <C> <C> <C>
McKesson............................................ $89.75 $87.3125 $88.6875
HBOC................................................ 30.00 29.1875 29.5625
</TABLE>
On December , 1998, the last full trading day prior to the date of this Joint
Proxy Statement/Prospectus, the reported high and low sale prices per share
and closing price per share of McKesson Common Stock and HBOC Common Stock on
the NYSE and Nasdaq, respectively, were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- ---- -----
<S> <C> <C> <C>
McKesson..................................................... $ $ $
HBOC.........................................................
</TABLE>
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF
MCKESSON COMMON STOCK AND HBOC COMMON STOCK.
78
<PAGE>
BENEFICIAL OWNERSHIP OF MCKESSON COMMON STOCK
The following table sets forth information (as of October 31, 1998, unless
otherwise indicated) about the only known beneficial owners of more than 5% of
McKesson Common Stock. The following table does not reflect 19,759,700 shares
of McKesson Common Stock beneficially owned by HBOC pursuant to the grant of
the stock option under the Stock Option Agreement attached to this Joint Proxy
Statement/Prospectus as Annex B (which would constitute 16.6% of the McKesson
Common Stock upon issuance). Prior to the exercise of the option, HBOC is not
entitled to any rights as a stockholder of McKesson as to the shares covered
by the option. The option may only be exercised upon the occurrence of certain
events described in this Joint Proxy Statement/Prospectus, none of which has
occurred as of the date hereof.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS
- ------------------------------------ ---------- --------
<S> <C> <C>
The Chase Manhattan Bank, N.A., as Trustee for the
McKesson Corporation Profit-Sharing Investment Plan.... 19,563,154(1) 19.7%
1 Chase Manhattan Plaza
New York, NY 10081
FMR Corp................................................ 10,409,937(2) 10.5%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- --------
(1) These shares are held in trust for the benefit of participants in
McKesson's PSIP for which The Chase Manhattan Bank, N.A. is the Trustee.
Shares that have been allocated to the individual accounts of participants
in the PSIP are voted by the Trustee as instructed by PSIP participants.
Shares allocated to participants' PAYSOP accounts for which no voting
instructions are received will not be voted. The PSIP provides that all
other shares for which no voting instructions are received from
participants and unallocated shares of McKesson Common Stock held in the
leveraged employee stock ownership plan established as part of the PSIP,
will be voted by the Trustee in the same proportion as shares as to which
voting instructions are received.
(2) This information is based on an amended Schedule 13G filed with the
Commission reporting that as of February 28, 1998, FMR Corp., in its
capacity as a parent holding company, had sole voting power as to 665,625
shares and sole dispositive power as to all 10,409,937 shares. According
to such Schedule 13G, no one person has an interest in FMR Corp. that
would give such person more than a five percent interest in the
outstanding McKesson Common Stock.
79
<PAGE>
The following table sets forth the amount and percentage of McKesson Common
Stock beneficially owned as of October 31, 1998 by each director of McKesson,
by the Chief Executive Officer and each of the four other most highly
compensated executive officers of McKesson and by all directors and executive
officers of McKesson as a group. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Exchange Act, and does not necessarily
bear on the economic incidents of ownership or the right to transfer such
shares. The number of shares shown reflects the McKesson 1998 Stock Split.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT STOCK
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1) OF CLASS UNITS(2)(3)
- ------------------ ----------------------- -------- -----------
<S> <C> <C> <C>
Mary G.F. Bitterman......... 15,506(4)(5)(6) * 2,221
Tully M. Friedman........... 26,338(5)(7) * 6,911
John M. Pietruski........... 24,338(5) * 7,615
David S. Pottruck........... 13,457(5) * 2,816
Mark A. Pulido.............. 500,723(5)(8)(9) * --
Carl E. Reichardt........... 14,500(5)(6) * 2,370
Alan Seelenfreund........... 1,207,229(5)(9) 1.2 --
Jane E. Shaw................ 20,832(5)(6) * 10,590
Robert H. Waterman, Jr...... 20,351(5)(6) * 7,264
John H. Hammergren.......... 120,530(5)(8)(9) * --
Richard H. Hawkins.......... 249,706(5)(9) * --
David L. Mahoney............ 387,157(5)(9) * --
Mark T. Majeske............. 80,185(8)(9) --
All directors and executive
officers as a group (22
persons)................... 3,958,846(4)(5)(6)(7) 3.98% 39,787
(8)(9)(10)
</TABLE>
- --------
* Less than 1%
(1) Represents shares held as of October 31, 1998 directly and with sole
voting and investment power (or with voting and investment power shared
with a spouse) unless otherwise indicated. The number of shares of Common
Stock owned by each director or executive officer (other than Mr.
Seelenfreund) represents less than 1% of the outstanding shares of such
class. All directors and executive officers as a group own 3.98% of the
outstanding shares of Common Stock.
(2) Includes restricted stock units and share units accrued under McKesson's
1997 Non-Employee Directors' Equity Compensation and Deferral Plan and
its 1994 Stock Option and Restricted Stock Plan, as follows:
Dr. Bitterman, 2,221 units; Mr. Friedman, 6,286 units; Mr. Pietruski,
7,615 units; Mr. Pottruck, 2,816; Mr. Reichardt, 2,370 units; Dr. Shaw,
5,535 units and Mr. Waterman, 7,264 units; and all non-employee Directors
as a group, 34,107 units. Directors have neither voting nor investment
powers in respect of such units.
(3) Includes common stock units accrued under McKesson's Directors' Deferred
Compensation Plan as follows: Mr. Friedman, 625 units; Dr. Shaw, 5,055
units; and those directors as a group, 5,680 units. Participating
directors have neither voting nor investment power in respect of such
units.
(4) Includes 2,000 shares held by Dr. Bitterman's husband through an
Individual Retirement Account, for which beneficial ownership is
disclaimed.
(5) Includes shares that may be acquired by exercise of stock options within
60 days after October 31, 1998 as follows: Dr. Bitterman, 11,500; Mr.
Friedman, 10,500; Mr. Pietruski, 10,500; Mr. Pottruck, 9,500; Mr. Pulido,
200,000; Mr. Reichardt, 4,500; Mr. Seelenfreund, 1,064,558; Dr. Shaw,
10,500; Mr. Waterman, 10,500; Mr. Hammergren, 40,000; Mr. Hawkins,
180,072; Mr. Mahoney, 330,700; and all directors and executive officers
as a group, 2,887,118.
(6) Includes shares held by family trusts as to which each of the following
named directors and their respective spouses have shared voting and
investment power: Dr. Bitterman, 2,006 shares; Mr. Reichardt, 10,000; Dr.
Shaw, 10,332 shares; Mr. Waterman, 5,851 shares; and those directors as a
group, 28,189 shares.
(7) Includes 13,838 shares held in a revocable trust established by and for
the benefit of Mr. Friedman who is the sole Trustee of such trust.
(8) Includes shares subject to possible forfeiture under the terms of
McKesson's 1994 Stock Option and Restricted Stock Plan, as follows: Mr.
Pulido, 40,000 shares; Mr. Hammergren, 40,000 shares; Mr. Majeske, 10,000
shares; and all directors and executive officers as a group, 140,000
shares.
(9) Includes shares held under the PSIP as to which the participant has sole
voting but no investment power, as follows: Mr. Seelenfreund, 18,083; Mr.
Pulido, 723; Mr. Hammergren, 530; Mr. Hawkins, 6,604; Mr. Mahoney, 5,457;
Mr. Majeske, 1,007; and all directors and executive officers as a group,
83,407.
(10) Includes 4,400 shares held by members of the group as custodians for
their minor children.
80
<PAGE>
BENEFICIAL OWNERSHIP OF HBOC COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HBOC
The following table sets forth, as of October 31, 1998, unless otherwise
indicated, certain information with respect to all stockholders known to HBOC
to beneficially own more than five percent of the HBOC Common Stock and
information with respect to HBOC Common Stock beneficially owned by each
director of HBOC, the Chief Executive Officer of HBOC and HBOC's other
executive officers who were the most highly compensated for the year ended
December 31, 1997, and all directors and executive officers of HBOC as a
group. Except as otherwise indicated, the stockholders listed in the table
have sole voting and investment powers with respect to the HBOC Common Stock
owned by them and beneficial ownership is determined in accordance with the
rules of the Commission. The following table does not reflect 85,865,517
shares of HBOC Common Stock beneficially owned by McKesson pursuant to the
grant of the stock option under the Stock Option Agreement attached to this
Joint Proxy Statement/Prospectus as Annex C (which would constitute 16.6% of
the HBOC Common Stock upon issuance). Prior to the exercise of the option,
McKesson is not entitled to any rights as a stockholder of HBOC as to the
shares covered by the option. The option may only be exercised upon the
occurrence of certain events described in this Joint Proxy
Statement/Prospectus, none of which has occurred as of the date hereof.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------ ----------------------- ----------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109.......... 22,932,430(2) 5.2%
Putnam Investments, Inc.
One Post Office Square
Boston, Massachusetts 02109.......... 33,903,532(3) 7.7%
Alfred C. Eckert III.................. 42,000(4) *
Philip A. Incarnati................... 100,000(5) *
Alton F. Irby III..................... 192,000(6) *
M. Christine Jacobs................... 20,000(5) *
Gerald E. Mayo........................ 268,000(5) *
Charles W. McCall..................... 4,582,270(7) 1.0%
James V. Napier....................... 301,552(8) *
Donald C. Wegmiller................... 40,000(5) *
Jay P. Gilbertson..................... 453,440(9) *
Albert J. Bergonzi.................... 350,184(10) *
Russell G. Overton.................... 71,684 *
Jay M. Lapine......................... 103,876(11) *
All directors and executive officers
as a group........................... 6,525,006(12) 1.5%
</TABLE>
- --------
* Less than 1%.
(1) In accordance with the rules of the Commission, a person is deemed to be
the beneficial owner of any securities such person has the right to
acquire within 60 days of the date on which beneficial ownership is
determined. Accordingly, options exercisable within such period are
reported as presently exercisable.
(2) According to the Schedule 13G as of December 31, 1997, of FMR Corp.
("FMR"), FMR has sole dispositive power with respect to all of such
shares and sole voting power with respect to 1,311,902 shares.
(3) According to the joint Schedule 13G as of December 31, 1997, of Putnam
Investments, Inc. ("PI"), its parent, Marsh & McLennan Companies, Inc.
and PI's subsidiaries, Putnam Investment Management, Inc. ("PIM") and the
Putnam Advisory Company, Inc. ("PAC"), PAC has shared voting and shared
dispositive power with respect to 4,018,800 and 5,767,160 of such shares,
respectively, PIM has shared dispositive power with respect to 28,136,372
of such shares and PI has shared voting and shared dispositive power with
respect to 4,018,800 and 33,903,532 of such shares, respectively.
(4) Includes 20,000 shares that may be acquired through the exercise of
presently exercisable stock options and 2,000 shares that are held by Mr.
Eckert's wife's IRA.
81
<PAGE>
(5) Represents shares that may be acquired through the exercise of presently
exercisable stock options.
(6) Includes 180,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(7) Includes 420,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(8) Includes 220,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(9) Includes 384,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(10) Includes 344,000 shares that may be acquired through the exercise of
presently exercisable stock options.
(11) Includes 102,400 shares that may be acquired through the exercise of
presently exercisable stock options.
(12) Includes 2,098,400 shares that may be acquired through the exercise of
presently exercisable stock options.
82
<PAGE>
SELECTED UNAUDITED PRO FORMA
COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA OF MCKESSON AND HBOC
We intend that the Merger will be accounted for as a pooling of interests,
which means that after the Merger McKesson will treat the companies as if they
had always been combined for accounting and financial reporting purposes.
We are presenting below, on a combined pro forma basis, the condensed
balance sheet of McKesson and the pro forma combined condensed balance sheet
of HBOC and Access Health. We are also presenting below, on a combined pro
forma basis, the condensed statements of income of McKesson and the pro forma
combined condensed statements of income of HBOC and Access Health. This
information reflects the pooling of interests method of accounting to give you
a better picture of what our businesses might have looked like had they always
been combined. We prepared the pro forma income statements and balance sheet
by adding or combining the amounts of each company for the applicable periods.
The companies may have performed differently if they had always been combined.
You should not rely on the pro forma information as being indicative of the
historical results that the companies would have had or the results that they
will experience in the future. We have adjusted all share and per share
information in this Joint Proxy Statement/Prospectus for the two-for-one stock
split of HBOC effected in the form of a stock dividend that was paid on June
9, 1998 to HBOC stockholders.
The amounts presented do not reflect any cost savings or other synergies
anticipated by McKesson or HBOC management as a result of the Merger. Also, in
connection with the Merger, the companies expect to incur charges for Merger-
related costs which will be expensed in the period in which the Merger is
consummated. Management has not estimated the amount of such Merger-related
costs and the pro forma financial data do not reflect any such costs.
McKesson's fiscal year ends on March 31. HBOC's fiscal year ends on December
31. For purposes of combining HBOC's financial data with McKesson's historical
financial data, the financial information of HBOC has been reported on a
combined pro forma basis with Access Health using the twelve-month periods
ended March 31, 1998, 1997 and 1996 and the six-month period ended September
30, 1998. In addition, the financial information of HBOC has been reported
assuming the merger between HBOC and Access Health is consummated. Pro forma
data at and for the six months ended September 30, 1998 have been completed
using the Access Health information at and for the six months ended June 30,
1998. HBOC believes that the differences in such periods have an immaterial
impact on the pro forma data.
On October 1, 1998, HBOC completed the acquisition of US Servis, Inc. and on
October 30, 1998 HBOC completed its acquisition of IMNET. These acquisitions
were accounted for as poolings of interests. Historical amounts for these
companies are not included in the following pro forma combined condensed
consolidated financial statements as their impact is not material to HBOC or
to McKesson.
The unaudited pro forma combined condensed consolidated financial data
should be read in conjunction with each company's historical financial
statements (and related notes) contained in their annual reports on Form 10-K
and their quarterly reports on Form 10-Q and other information filed with the
Commission. See "WHERE YOU CAN FIND MORE INFORMATION."
83
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
MCKESSON HBOC(1) COMBINED
---------- -------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 103.5 $ 602.6 $ 706.1
Marketable securities available for sale..... 28.1 36.3 64.4
Receivables.................................. 1,948.7 537.3 2,486.0
Inventories.................................. 3,207.2 5.7 3,212.9
Prepaid expenses............................. 42.2 70.3 112.5
-------- -------- --------
Total current assets....................... 5,329.7 1,252.2 6,581.9
Property, plant and equipment, net............. 479.8 138.8 618.6
Capitalized software, net(2)................... 4.7(3) 83.2 87.9
Goodwill and other intangibles................. 828.2 160.4 988.6
Other assets................................... 374.5(3) 47.7 422.2
-------- -------- --------
Total Assets............................... $7,016.9 $1,682.3 $8,699.2
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts and accounts payable.................. $2,848.4 $ 108.4 $2,956.8
Short-term loans and current portion of long-
term debt................................... 484.9 1.2 486.1
Other current liabilities.................... 475.4 277.0 752.4
-------- -------- --------
Total current liabilities.................. 3,808.7 386.6 4,195.3
Postretirement obligations and other noncurrent
liabilities................................... 240.4 7.7 248.1
Long-term debt................................. 1,141.5 0.9 1,142.4
McKesson-obligated mandatorily redeemable
convertible preferred securities of subsidiary
grantor trust whose sole assets are junior
subordinated debentures of McKesson........... 195.5 -- 195.5
Stockholders' equity........................... 1,630.8 1,287.1 2,917.9
-------- -------- --------
Total Liabilities and Stockholders'
Equity.................................... $7,016.9 $1,682.3 $8,699.2
======== ======== ========
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access Health
and have been reclassified from the historical HBOC presentation to
conform to the McKesson financial statement presentation. Pro forma
balance sheet data includes Access Health information at June 30, 1998.
HBOC believes that the differences in such periods have an immaterial
impact on the pro forma data.
(2) Capitalized software represents costs to develop software for sale to
customers.
(3) McKesson amounts have been reclassified from the historical McKesson
presentation to conform to the HBOC financial statement presentation.
84
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $12,812.4 $ 863.6 $ $13,676.0
Cost and expenses:
Cost of sales and
operations................ 11,981.4 (2) 352.3 12,333.7
Selling, marketing,
distribution and
administration............ 684.1 (2) 172.7 856.8
Research and development... -- 55.4 55.4
Nonrecurring charge........ -- 6.0 (3) 6.0
Interest................... 57.4 -- 57.4
--------- ------- ------ ---------
Total cost and expenses.. 12,722.9 586.4 -- 13,309.3
--------- ------- ------ ---------
Income before income taxes
and dividends on convertible
preferred securities of
subsidiary trust............ 89.5 (2) 277.2 (3) 366.7
Income taxes................. (34.9) (110.6) (145.5)
Dividends on convertible
preferred securities of
subsidiary trust, net of tax
benefit..................... (3.1) -- (3.1)
--------- ------- ------ ---------
Net income............... $ 51.5 (2) $ 166.6 (3) $ -- $ 218.1
========= ======= ====== =========
Earnings per common share:
Diluted.................... $ 0.51 $ 0.35 $ 0.78
Basic...................... $ 0.54 $ 0.36 $ 0.82
Shares on which earnings per
common share were based:
Diluted.................... 106.2 477.7 (301.0)(4) 282.9
Basic...................... 95.6 463.4 (292.0)(4) 267.0
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access
Health, and have been reclassified from the historical HBOC presentation
to conform to the McKesson financial statement presentation. Pro forma
data for the six months ended September 30, 1998 have been completed using
Access Health information for the six months ended June 30, 1998. HBOC
believes that the differences in such periods have an immaterial impact on
the pro forma data.
(2) Includes $80.1 million in charges ($0.7 million in cost of sales and
operations and $79.4 million in selling, marketing, distribution and
administration) for transaction costs, employee benefit change of control
provisions and restructuring, integration and system installation costs
associated primarily with acquisition-related activities, $52.3 million
after-tax.
(3) Includes acquisition charges related to HBOC's acquisition of HPR Inc. and
Access Health's acquisition of InterQual, Inc., $3.8 million after-tax.
(4) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
85
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................. $20,857.3 $1,438.6 $ $22,295.9
Cost and expenses:
Cost of sales and
operations............ 19,336.0 610.2 19,946.2
Selling, marketing,
distribution and
administration........ 1,159.1(2) 314.9 1,474.0
Research and
development........... -- 100.6 100.6
Nonrecurring charge.... -- 107.9 (3) 107.9
Interest............... 102.5 -- 102.5
--------- -------- ------ ---------
Total cost and
expenses............ 20,597.6 1,133.6 -- 21,731.2
--------- -------- ------ ---------
Income before income
taxes and dividends on
convertible preferred
securities of subsidiary
trust................... 259.7 (2) 305.0 (3) 564.7
Income taxes............. (98.6)(4) (118.2) (216.8)
Dividends on convertible
preferred securities of
subsidiary trust, net of
tax benefit............. (6.2) -- (6.2)
--------- -------- ------ ---------
Net income........... $ 154.9 (2)(4) $ 186.8 (3) $ -- $ 341.7
========= ======== ====== =========
Earnings per common
share:
Diluted................ $ 1.59 $ 0.40 $ 1.27
Basic.................. $ 1.69 $ 0.41 $ 1.32
Shares on which earnings
per common share were
based:
Diluted................ 101.2 469.2 (295.6)(5) 274.8
Basic.................. 91.5 452.5 (285.1)(5) 258.9
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access
Health, and have been reclassified from the historical HBOC presentation
to conform to the McKesson financial statement presentation.
(2) Includes $16.7 million in charges for the terminated merger with
AmeriSource Health Corporation and $13.9 million in costs associated
primarily with the integration and rationalization of recent acquisitions,
$25.4 million after-tax in the aggregate.
(3) Includes acquisition charges related to HBOC's acquisitions of AMISYS
Managed Care Systems, Inc., Enterprise Systems, Inc., HPR Inc. and
National Health Enhancement Systems, Inc. and the merger of Access Health
and Informed Access Systems, Inc., $61.4 million after-tax.
(4) Includes a non-recurring $4.6 million favorable tax adjustment.
(5) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
86
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.................... $15,710.8 $1,123.9 $ $16,834.7
Cost and expenses:
Cost of sales and
operations............... 14,673.5 487.3 15,160.8
Selling, marketing,
distribution and
administration........... 944.5 (2) 290.9 1,235.4
Research and development.. -- 97.5 97.5
Nonrecurring charge....... -- 83.5 (3) 83.5
Interest.................. 55.7 -- 55.7
--------- -------- ------ ---------
Total cost and
expenses............... 15,673.7 959.2 -- 16,632.9
--------- -------- ------ ---------
Income before income taxes
and dividends on
convertible preferred
securities of subsidiary
trust...................... 37.1 (2) 164.7 (3) 201.8
Income taxes................ (31.3) (67.5) (98.8)
Dividends on convertible
preferred securities of
subsidiary trust, net of
tax benefit................ (0.7) -- (0.7)
--------- -------- ------ ---------
Income after taxes:
Continuing operations..... 5.1 (2) 97.2 (3) -- 102.3
Discontinued operations... 8.6 -- 8.6
Discontinued operations--
gain on sale of Armor All
stock.................... 120.2 -- 120.2
--------- -------- ------ ---------
Net income.............. $ 133.9 (2) $ 97.2 (3) $ -- $ 231.1
========= ======== ====== =========
Earnings per common share:
Diluted:
Continuing operations..... $ 0.06 $ 0.21 $ 0.40
Discontinued operations... 0.10 -- 0.03
Discontinued operations--
gain on sale of Armor All
stock.................... 1.35 -- 0.46
--------- -------- ---------
Total................... $ 1.51 $ 0.21 $ 0.89
========= ======== =========
Basic:
Continuing operations..... $ 0.06 $ 0.22 $ 0.42
Discontinued operations... 0.10 -- 0.03
Discontinued operations--
gain on sale of Armor All
stock.................... 1.41 -- 0.49
--------- -------- ---------
Total................... $ 1.57 $ 0.22 $ 0.94
========= ======== =========
Shares on which earnings per
common share were based:
Diluted................... 89.4 458.5 (288.9)(4) 259.0
Basic..................... 85.5 434.7 (273.8)(4) 246.4
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access
Health, and have been reclassified from the historical HBOC presentation
to conform to the McKesson financial statement presentation.
(2) Includes $98.8 million in charges for restructuring, asset impairment and
other operating items and $48.2 million for the write-off of in-process
technology related to the acquisition of McKesson Automated Healthcare
Inc., $109.5 million after-tax in the aggregate.
(3) Includes acquisition charges related to HBOC's acquisition of CyCare
Systems, Inc., Management Software, Inc. and GMIS Inc. and the merger of
Access Health and Informed Access System Inc., $50.2 million after-tax.
(4) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
87
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------
MCKESSON HBOC(1) ADJUSTMENTS COMBINED
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $12,964.8 $835.9 $ $13,800.7
Cost and expenses:
Cost of sales and
operations................ 12,049.3 384.5 12,433.8
Selling, marketing,
distribution and
administration............ 674.2 239.5 913.7
Research and development... -- 78.1 78.1
Nonrecurring charge........ -- 136.5 (2) 136.5
Interest................... 44.4 -- 44.4
--------- ------ ------ ---------
Total cost and expenses.. 12,767.9 838.6 -- 13,606.5
--------- ------ ------ ---------
Income (loss) before income
taxes....................... 196.9 (2.7)(2) 194.2
Income taxes................. (76.2) 0.6 (75.6)
--------- ------ ------ ---------
Income (loss) after taxes:
Continuing operations...... 120.7 (2.1)(2) 118.6
Discontinued operations.... 14.7 -- 14.7
--------- ------ ------ ---------
Net income (loss)........ $ 135.4 $ (2.1)(2) $ -- $ 133.3
========= ====== ====== =========
Earnings (loss) per common
share:
Diluted:
Continuing operations...... $ 1.29 $(0.01) $ 0.48
Discontinued operations.... 0.16 -- 0.06
--------- ------ ---------
Total.................... $ 1.45 $(0.01) $ 0.54
========= ====== =========
Basic:
Continuing operations...... $ 1.36 $(0.01) $ 0.51
Discontinued operations.... 0.17 -- 0.06
--------- ------ ---------
Total.................... $ 1.53 $(0.01) $ 0.57
========= ====== =========
Shares on which earnings
(loss) per common share were
based:
Diluted.................... 93.2 394.7 (238.7)(3) 249.2
Basic...................... 88.8 394.7 (248.7)(3) 234.8
</TABLE>
- --------
(1) HBOC amounts are reported on a pro forma combined basis with Access
Health, and have been reclassified from the historical HBOC presentation
to conform to the McKesson financial statement presentation.
(2) Includes acquisition charges related to HBOC's acquisitions of First Data
Health Systems Corporation and CliniCom Incorporated, $81.9 million after-
tax.
(3) Reflects the effect of the exchange ratio of 0.37 of a share of McKesson
common stock for each share of HBOC common stock.
88
<PAGE>
EXPERTS
The consolidated financial statements of McKesson and the related financial
statement schedule incorporated in this joint proxy statement/prospectus by
reference from McKesson's Annual Report on Form 10-K for the year ended March
31, 1998 and the consolidated financial statements of FoxMeyer Corporation
("FoxMeyer") for the year ended March 31, 1996 incorporated in this joint
proxy statement/prospectus by reference from McKesson's Current Report on Form
8-K/A filed with the Commission on April 28, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
incorporated herein by reference (which report dated May 18, 1998 on
McKesson's consolidated financial statements expresses an unqualified opinion
and which report on FoxMeyer's consolidated financial statements dated June
28, 1996 (March 18, 1997 as to paragraph seven of Note Q), expresses an
unqualified opinion and includes an explanatory paragraph relating to the sale
of the principal assets of FoxMeyer and its Chapter 7 bankruptcy filing). Such
consolidated financial statements and financial statement schedule have been
so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The audited financial statements and schedule of HBOC incorporated by
reference in this joint proxy statement/prospectus and elsewhere in the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part, to the extent and for the periods indicated in their reports, have been
audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
With respect to the unaudited interim financial information of HBOC included
in the quarterly reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998, Arthur Andersen LLP has applied limited
procedures in accordance with professional standards for a review of that
information. However, their separate report thereon states that they did not
audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on that
information should be restricted in light of the limited nature of the review
procedure applied. In addition, the accountants are not subject to the
liability provisions of Section 11 of the Securities Act, for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.
LEGAL MATTERS
Ivan D. Meyerson, Vice President and General Counsel of McKesson, will issue
an opinion about the validity of the shares of McKesson Common Stock to be
issued by McKesson pursuant to the Merger. Mr. Meyerson owns shares of, and
holds options to purchase, in the aggregate, less than 1% of the outstanding
shares of McKesson Common Stock. Certain tax matters will be passed upon by
Skadden Arps and Jones Day.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy statement of McKesson to be
issued in connection with the 1999 Annual Meeting of McKesson stockholders
must be mailed to Ms. Nancy A. Miller, Vice President and Corporate Secretary,
McKesson Corporation, McKesson Plaza, One Post Street, San Francisco,
California 94104, and must be received by the Corporate Secretary on or before
February 18, 1999. Stockholder proposals submitted to McKesson outside the
processes of Rule 14a-8 under the Exchange Act with respect to the 1999 Annual
Meeting of McKesson stockholders will be considered untimely if received by
McKesson before April 30, 1999 or after May 29, 1999. Accordingly, the proxy
with respect to McKesson's 1999 Annual Meeting of stockholders will confer
discretionary authority to vote on any stockholder proposals received by
McKesson after May 29, 1999.
89
<PAGE>
Stockholder proposals for inclusion in the proxy statement of HBOC to be
issued in connection with the 1999 Annual Meeting of HBOC stockholders must be
mailed to Attention: Secretary, HBO & Company, 301 Perimeter Center North,
Atlanta, Georgia 30346, and must be received by HBOC on or before December 4,
1998. All stockholder proposals that are not submitted for inclusion in such
proxy materials must be received by HBOC by February 17, 1999, to be
considered timely. In the event the Merger is consummated, there will not be a
1999 annual meeting of stockholders of HBOC.
90
<PAGE>
ANNEX A
MERGER AGREEMENT
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HBO & COMPANY,
MCKESSON MERGER SUB, INC.
AND
MCKESSON CORPORATION
DATED AS OF OCTOBER 17, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE MERGER.............................................. 2
SECTION 1.1 The Merger.............................................. 2
SECTION 1.2 Closing................................................. 2
SECTION 1.3 Effective Time.......................................... 2
SECTION 1.4 Effects of the Merger................................... 2
SECTION 1.5 Certificate of Incorporation and By-laws of the
Surviving Corporation and McKesson..................... 2
SECTION 1.6 Directors and Officers.................................. 3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...... 3
SECTION 2.1 Effect on Capital Stock................................. 3
Cancellation of Treasury Stock and McKesson-Owned
(a) Stock.................................................. 3
(b) Conversion of HBO Common Stock.......................... 3
(c) Merger Sub Common Stock................................. 3
(d) McKesson Common Stock................................... 4
(e) Options................................................. 4
SECTION 2.2 Exchange of Certificates................................ 5
(a) Exchange Agent.......................................... 5
(b) Exchange Procedures..................................... 5
(c) Distributions with Respect to Unexchanged Shares........ 6
(d) No Further Ownership Rights in HBO Common Stock......... 6
(e) No Fractional Shares.................................... 6
(f) Termination of Exchange Fund............................ 7
(g) No Liability............................................ 7
(h) Investment of Exchange Fund............................. 7
(i) Lost Certificates....................................... 7
SECTION 2.3 Certain Adjustments..................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................... 7
Representations and Warranties of McKesson and Merger
SECTION 3.1 Sub.................................................... 7
(a) Organization, Standing and Corporate Power.............. 8
(b) Subsidiaries............................................ 8
(c) Capital Structure....................................... 8
(d) Authority; Noncontravention............................. 10
(e) SEC Documents; Undisclosed Liabilities.................. 11
(f) Information Supplied.................................... 12
(g) Absence of Certain Changes or Events.................... 12
(h) Compliance with Applicable Laws; Litigation............. 13
(i) Absence of Changes in Benefit Plans..................... 13
(j) Benefit Plans........................................... 14
(k) Taxes................................................... 16
(l) Voting Requirements..................................... 17
(m) State Takeover Statutes; Certificate of Incorporation... 17
(n) Accounting Matters...................................... 17
(o) Brokers................................................. 17
(p) Opinion of Financial Advisors........................... 17
(q) Ownership of HBO Common Stock........................... 17
(r) Intellectual Property................................... 18
(s) Certain Contracts....................................... 20
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
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<C> <S> <C>
(t) McKesson Rights Agreement............................... 20
(u) Environmental Liability................................. 20
(v) Insurance............................................... 21
(w) Transactions with Affiliates............................ 21
(x) Full Disclosure......................................... 21
SECTION 3.2 Representations and Warranties of HBO................... 21
(a) Organization, Standing and Corporate Power.............. 21
(b) Subsidiaries............................................ 22
(c) Capital Structure....................................... 22
(d) Authority; Noncontravention............................. 23
(e) SEC Documents; Undisclosed Liabilities.................. 24
(f) Information Supplied.................................... 24
(g) Absence of Certain Changes or Events.................... 25
(h) Compliance with Applicable Laws; Litigation............. 25
(i) Absence of Changes in Benefit Plans..................... 26
(j) Benefit Plans........................................... 26
(k) Taxes................................................... 28
(l) Voting Requirements..................................... 28
(m) State Takeover Statutes; Certificate of Incorporation... 29
(n) Accounting Matters...................................... 29
(o) Brokers................................................. 29
(p) Opinion of Financial Advisors........................... 29
(q) Ownership of McKesson Common Stock...................... 29
(r) Intellectual Property................................... 29
(s) Certain Contracts....................................... 31
(t) HBO Rights Agreement.................................... 32
(u) Environmental Liability................................. 32
(v) Insurance............................................... 32
(w) Transactions with Affiliates............................ 33
(x) Full Disclosure......................................... 33
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS............... 33
SECTION 4.1 Conduct of Business..................................... 33
(a) Conduct of Business by McKesson......................... 33
(b) Conduct of Business by HBO.............................. 35
(c) Other Actions........................................... 37
(d) Advice of Changes....................................... 37
SECTION 4.2 No Solicitation by McKesson............................. 38
SECTION 4.3 No Solicitation by HBO.................................. 40
ARTICLE V ADDITIONAL AGREEMENTS................................... 41
SECTION 5.1 Preparation of the Form S-4 and the Joint Proxy
Statement; Stockholders' Meetings....................... 41
SECTION 5.2 Letters of McKesson's Accountants....................... 42
SECTION 5.3 Letters of HBO's Accountants............................ 43
SECTION 5.4 Access to Information; Confidentiality.................. 43
SECTION 5.5 Commercially Reasonable Efforts......................... 43
SECTION 5.6 Indemnification, Exculpation and Insurance.............. 44
SECTION 5.7 Fees and Expenses....................................... 45
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
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----
<C> <S> <C>
SECTION 5.8 Public Announcements..................................... 45
SECTION 5.9 Affiliates............................................... 45
SECTION 5.10 NYSE and PSE Listings.................................... 46
SECTION 5.11 Tax Treatment............................................ 46
SECTION 5.12 Pooling of Interests..................................... 46
SECTION 5.13 Post-Merger Operations................................... 46
SECTION 5.14 Conveyance Taxes......................................... 46
SECTION 5.15 Employee Benefits........................................ 46
ARTICLE VI CONDITIONS PRECEDENT..................................... 47
Conditions to Each Party's Obligation to Effect the
SECTION 6.1 Merger................................................... 47
(a) Stockholder Approvals.................................... 47
(b) HSR Act.................................................. 47
(c) Governmental, Regulatory and Other Approvals............. 47
(d) No Injunctions or Restraints............................. 47
(e) Form S-4................................................. 47
(f) NYSE and PSE Listings.................................... 47
(g) Tax Opinions............................................. 47
(h) Pooling Letters.......................................... 48
SECTION 6.2 Conditions to Obligations of HBO......................... 48
(a) Representations and Warranties........................... 48
(b) Performance of Obligations of McKesson................... 48
(c) No Material Adverse Change............................... 48
(d) McKesson Rights Agreement................................ 48
SECTION 6.3 Conditions to Obligations of McKesson.................... 48
(a) Representations and Warranties........................... 48
(b) Performance of Obligations of HBO........................ 48
(c) No Material Adverse Change............................... 49
(d) HBO Rights Agreement..................................... 49
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................ 49
SECTION 7.1 Termination.............................................. 49
SECTION 7.2 Effect of Termination.................................... 50
SECTION 7.3 Amendment................................................ 51
SECTION 7.4 Extension; Waiver........................................ 51
ARTICLE VIII GENERAL PROVISIONS....................................... 52
SECTION 8.1 Nonsurvival of Representations and Warranties............ 52
SECTION 8.2 Notices.................................................. 52
SECTION 8.3 Definitions.............................................. 53
SECTION 8.4 Interpretation........................................... 53
SECTION 8.5 Counterparts............................................. 53
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries........... 54
SECTION 8.7 Governing Law............................................ 54
SECTION 8.8 Assignment............................................... 54
SECTION 8.9 Consent to Jurisdiction.................................. 54
SECTION 8.10 Headings, Etc............................................ 54
SECTION 8.11 Severability............................................. 54
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBITS
EXHIBIT A--Form of McKesson Stock Option Agreement
EXHIBIT B--Form of HBO Stock Option Agreement
EXHIBIT C--McKesson By-law Amendments
EXHIBIT D--Directors and Officers
EXHIBIT E--McKesson Stock Plans
EXHIBIT F--HBO Stock Plans
EXHIBIT G--Form of Rule 145 Letter to be signed by McKesson
Affiliates
EXHIBIT H--Form of Pooling Letter to be signed by McKesson and HBO
Affiliates
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of October 17, 1998, among McKESSON
CORPORATION, a Delaware corporation ("McKesson"), HBO & COMPANY, a Delaware
corporation ("HBO"), and McKESSON MERGER SUB, INC. ("Merger Sub"), a Delaware
corporation and a wholly-owned subsidiary of McKesson.
WITNESSETH:
WHEREAS, the respective Boards of Directors of HBO, Merger Sub and McKesson
have each approved the merger of Merger Sub with and into HBO (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement,
whereby each issued and outstanding share of common stock, par value $.05 per
share, of HBO ("HBO Common Stock," which reference shall be deemed to include
the associated HBO Rights (as defined in Section 3.2(c)), other than shares
owned by HBO or McKesson, will be converted into the right to receive the
Merger Consideration (as defined in Section 2.1(b)); and
WHEREAS, the respective Boards of Directors of HBO and McKesson, having
carefully considered the long-term prospects and interests of HBO and McKesson
and their respective stockholders and having determined that the Merger and the
other transactions contemplated hereby are consistent with, and in furtherance
of, their respective business strategies and goals and are advisable and in the
best interests of their respective stockholders, have each approved the
transactions contemplated by this Agreement and the Option Agreements (as
hereinafter defined) and have each resolved to recommend to each party's
stockholders the approval and adoption of this Agreement and the Merger and the
consummation of the transactions contemplated hereby and thereby upon the terms
and subject to the conditions set forth herein; and
WHEREAS, as a condition to the execution of this Agreement, contemporaneously
herewith HBO and McKesson will enter into a stock option agreement (the
"McKesson Option Agreement") attached hereto as Exhibit A and a stock option
agreement (the "HBO Option Agreement" and, together with the McKesson Option
Agreement, the "Option Agreements") attached hereto as Exhibit B; and
WHEREAS, for federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"), and this Agreement is intended to be and
is adopted as a plan of reorganization within the meaning of Section 368 of the
Code; and
WHEREAS, for financial accounting purposes, it is intended that the Merger will
be accounted for as a pooling of interests transaction under United States
generally accepted accounting principles ("GAAP"); and
WHEREAS, HBO and McKesson desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
A-1
<PAGE>
NOW, THEREFORE, in consideration of the representations, warranties, covenants
and agreements set forth herein and in the Option Agreements, the parties agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Delaware General Corporation Law
(the "DGCL"), Merger Sub shall be merged with and into HBO at the Effective
Time (as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of Merger Sub shall cease and HBO shall be the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Merger Sub in accordance with the DGCL.
SECTION 1.2 CLOSING. The closing of the Merger (the "Closing") will take place
on a date to be specified by the parties (the "Closing Date"), which shall be
no later than the second business day after satisfaction or waiver of the
conditions set forth in Article VI, unless another time or date is agreed to by
the parties hereto. The Closing will be held at the offices of Jones, Day,
Reavis & Pogue, 3500 SunTrust Plaza, 303 Peachtree Street, N.E., Atlanta,
Georgia 30308-3242.
SECTION 1.3 EFFECTIVE TIME. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall cause the Merger to
be consummated by filing a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of Delaware, or
at such subsequent date or time as HBO and McKesson shall agree and specify in
the Certificate of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 259 of the DGCL.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION AND MCKESSON.
(a) At the Effective Time, the Certificate of Incorporation and the by-laws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation and by-laws of the Surviving Corporation, in each
case until thereafter amended in accordance with applicable law; provided,
however, that Article First of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows:
The name of the Corporation (which is hereinafter referred to as the
"Corporation") is HBO & Company.
(b) At the Effective Time, Article 1 of the Certificate of Incorporation of
McKesson shall be amended to read as follows:
The name of the corporation is McKesson HBOC, Inc.
A-2
<PAGE>
(c) At the Effective Time, the by-laws of McKesson shall be amended as provided
in Exhibit C.
SECTION 1.6 DIRECTORS AND OFFICERS.
(a) At the Effective Time, the Board of Directors, committees of the Board of
Directors, composition of such committees (including chairmen thereof) and
certain of the officers of McKesson shall be as set forth on Exhibit D hereto
until the earlier of the resignation or removal of any individual listed on or
designated in accordance with Exhibit D or until their respective successors
are duly elected and qualified, as the case may be. If any officer listed on or
appointed in accordance with Exhibit D ceases to be a full-time employee of
either HBO or McKesson as the case may be, the parties will agree upon another
person to serve in such person's stead.
(b) The directors set forth on Exhibit D shall be the initial directors of the
Surviving Corporation, and the officers of Merger Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and By-Laws
of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, HBO or the holder of
any shares of the following securities:
(a) CANCELLATION OF TREASURY STOCK AND MCKESSON-OWNED STOCK. Each share of HBO
Common Stock that is owned by McKesson, Merger Sub or HBO shall automatically
be canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(b) CONVERSION OF HBO COMMON STOCK. Subject to Section 2.2(e), each issued and
outstanding share of HBO Common Stock (other than shares to be canceled in
accordance with Section 2.1(a)) shall be converted into the right to receive
.37 (the "Exchange Ratio") validly issued, fully paid and nonassessable shares
of common stock, par value $.01 per share ("McKesson Common Stock"), of
McKesson (the "Merger Consideration"). As of the Effective Time, all such
shares of HBO Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of HBO Common Stock shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration and any cash in lieu of fractional shares of McKesson Common
Stock to be issued or paid in consideration thereof upon surrender of such
certificate in accordance with Section 2.2(e).
(c) MERGER SUB COMMON STOCK. Each share of common stock, par value $0.01 per
share, of Merger Sub ("Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation.
A-3
<PAGE>
(d) MCKESSON COMMON STOCK. At and after the Effective Time, each share of
McKesson Common Stock issued and outstanding immediately prior to the Closing
Date shall remain an issued and outstanding share of common stock of McKesson
and shall not be affected by the Merger.
(e) OPTIONS.
(i) HBO and McKesson will take all action necessary such that, at the Effective
Time, each option granted by HBO to purchase shares of HBO Common Stock which
is outstanding immediately prior thereto shall cease to represent a right to
acquire shares of HBO Common Stock and shall be converted into an option to
purchase shares of McKesson Common Stock in an amount and at an exercise price
determined as provided below (and otherwise, in the case of options, subject to
the terms of the HBO Stock Plans (as defined in Section 3.2(c)) and the
agreements evidencing grants thereunder) (the "Assumed Options"):
(1) The number of shares of McKesson Common Stock to be subject to the new
option shall be equal to the product of the number of shares of HBO Common
Stock subject to the original option and the Exchange Ratio, provided that
any fractional shares of McKesson Common Stock resulting from such
multiplication shall be rounded to the nearest whole share; and
(2) The exercise price per share of McKesson Common Stock under the new
option shall be equal to the exercise price per share of HBO Common Stock
under the original option divided by the Exchange Ratio, provided that such
exercise price shall be rounded to the nearest whole cent.
(ii) The adjustment provided herein with respect to any options that are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner that is consistent with Section 424(a)
of the Code. The duration and other terms of the new options shall be the same
as the original options except that all references to HBO shall be deemed to be
references to McKesson.
(iii) As soon as practicable following the Effective Time, McKesson shall
deliver, upon due surrender of the Assumed Options to holders of Assumed
Options, appropriate option agreements representing the right to acquire
McKesson Common Stock on the same terms and conditions as contained in the
Assumed Options (except as otherwise set forth in this Section 2.1(e)). Except
as expressly contemplated herein, McKesson shall comply with the terms of the
HBO Stock Plans as they apply to the Assumed Options. McKesson shall take all
corporate action necessary to reserve for issuance a sufficient number of
shares of McKesson Common Stock for delivery upon exercise of the Assumed
Options in accordance with this Section 2.1(e). McKesson shall file a
registration statement on Form S-8 (or any successor form) or on another
appropriate form, and use commercially reasonable efforts to have such
registration statement declared effective reasonably promptly following the
Effective Time, with respect to McKesson Common Stock subject to the Assumed
Options, and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as the Assumed Options remain outstanding and exercisable.
A-4
<PAGE>
(iv) McKesson acknowledges and agrees that the consummation of the Merger will
have certain effects in respect of the Assumed Options as reflected in Section
2.1(e)(iv) of the HBO Disclosure Schedule, and McKesson agrees to act in
accordance therewith and give full effect to same.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, McKesson shall enter into an
agreement with such bank or trust company as may be designated by McKesson (the
"Exchange Agent") which shall provide that McKesson shall provide McKesson
Common Stock (such shares of McKesson Common Stock, together with any dividends
or distributions with respect thereto with a record date after the Effective
Time, and any cash payable in lieu of any fractional shares of McKesson Common
Stock being hereinafter referred to as the "Exchange Fund") issuable pursuant
to Section 2.1 in exchange for outstanding shares of HBO Common Stock.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding shares of HBO Common Stock (the "Certificates") whose shares were
converted into the right to receive the Merger Consideration pursuant to
Section 2.1, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, and shall
otherwise be in customary form) and (ii) instructions for use in surrendering
the Certificates in exchange for the 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 reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of McKesson Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II, certain dividends or
other distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share of McKesson Common Stock in accordance with Section 2.2(e),
and the Certificate so surrendered shall forthwith be canceled. Notwithstanding
anything to the contrary contained herein, no certificate representing McKesson
Common Stock or cash in lieu of a fractional share interest shall be delivered
to a person who is an affiliate of HBO for purposes of qualifying the Merger
for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable Securities and Exchange Commission
("SEC") rules and regulations, unless such person has executed and delivered
the agreement described in the second sentence of Section 5.9(a) hereof. In the
event of a surrender of a Certificate representing shares of HBO Common Stock
which are not registered in the transfer records of HBO under the name of the
person surrendering such Certificate, a certificate representing the proper
number of shares of McKesson Common Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay any transfer or
other taxes required by reason of the issuance of shares of McKesson Common
Stock to a person other than the registered holder of such Certificate or
establish to the satisfaction of McKesson that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration which
the
A-5
<PAGE>
holder thereof has the right to receive in respect of such Certificate pursuant
to the provisions of this Article II, certain dividends or other distributions
in accordance with Section 2.2(c) and cash in lieu of any fractional share of
McKesson Common Stock in accordance with Section 2.2(e). No interest shall be
paid or will accrue on any cash payable to holders of Certificates pursuant to
the provisions of this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to McKesson Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of McKesson Common Stock represented thereby, and,
in the case of Certificates representing HBO Common Stock, no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
2.2(e), and all such dividends, other distributions and cash in lieu of
fractional shares of McKesson Common Stock shall be paid by McKesson to the
Exchange Agent and shall be included in the Exchange Fund, in each case until
the surrender of such Certificate in accordance with this Article II. Subject
to the effect of applicable escheat or similar laws, following surrender of any
such Certificate there shall be paid to the holder of the certificate
representing whole shares of McKesson Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of McKesson Common Stock and, in the
case of Certificates representing HBO Common Stock, the amount of any cash
payable in lieu of a fractional share of McKesson Common Stock to which such
holder is entitled pursuant to Section 2.2(e) and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time and with a payment date subsequent to such surrender
payable with respect to such whole shares of McKesson Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN HBO COMMON STOCK. All shares of McKesson
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of HBO Common Stock
theretofore represented by such Certificates, 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 HBO on such shares of HBO Common Stock which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of HBO Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
McKesson, the Surviving Corporation or the Exchange Agent for any reason, they
shall be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(e) NO FRACTIONAL SHARES. Notwithstanding anything to the contrary contained
herein, no certificates or scrip representing fractional shares of McKesson
Common Stock shall be issued upon the surrender for exchange of Certificates,
no dividend or distribution of McKesson shall relate to such fractional share
interests and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of McKesson. In lieu of the
issuance of such fractional shares, McKesson shall pay each former holder of
HBO Common Stock an amount in cash equal to the product obtained by multiplying
(A) the fractional share interest to which such former holder would
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otherwise be entitled by (B) the average closing price per share (or if there
is no sale on such date then the average between the closing bid and ask prices
on any such day) for shares of McKesson Common Stock as reported by the New
York Stock Exchange ("NYSE") (as reported in The Wall Street Journal, or, if
not reported therein, any other authoritative source) during the ten trading
days preceding the fifth trading day prior to the Closing Date (such average,
the "Average McKesson Price").
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to McKesson, upon demand, and any holders
of the Certificates who have not theretofore complied with this Article II
shall thereafter look only to McKesson for payment of their claim for Merger
Consideration, any dividends or distributions with respect to McKesson Common
Stock and any cash in lieu of fractional shares of McKesson Common Stock.
(g) NO LIABILITY. None of HBO, McKesson, Merger Sub, the Surviving Corporation
or the Exchange Agent shall be liable to any person in respect of any shares of
McKesson Common Stock, any dividends or distributions with respect thereto, any
cash in lieu of fractional shares of McKesson Common Stock or any cash from the
Exchange Fund, in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by McKesson, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
McKesson.
(i) LOST CERTIFICATES. 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 the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration and, if applicable, any unpaid dividends and
distributions on shares of McKesson Common Stock deliverable in respect thereof
and any cash in lieu of fractional shares, in each case pursuant to this
Agreement.
SECTION 2.3 CERTAIN ADJUSTMENTS. If between the date hereof and the Effective
Time, the outstanding shares of McKesson Common Stock or of HBO Common Stock
shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of
shares, or any dividend payable in stock or other securities shall be declared
thereon with a record date within such period, the Exchange Ratio shall be
adjusted accordingly to provide to the holders of HBO Common Stock the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF MCKESSON AND MERGER SUB. Except
as disclosed in the Disclosure Schedule delivered by McKesson and Merger Sub to
HBO prior to the
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execution of this Agreement (the "McKesson Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, McKesson and Merger Sub jointly and severally represent and
warrant to HBO as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of McKesson and its
subsidiaries (as defined in Section 8.3) is a corporation or other legal entity
duly organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the jurisdiction
in which it is organized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now being conducted,
except, as to subsidiaries, for those jurisdictions where the failure to be so
organized, existing or in good standing individually or in the aggregate would
not have a material adverse effect (as defined in Section 8.3) on McKesson.
Each of McKesson and its subsidiaries is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which recognize
such concept) in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the
aggregate would not have a material adverse effect on McKesson.
(i) McKesson has delivered to HBO prior to the execution of this Agreement
complete and correct copies of any amendments to its certificate of
incorporation (the "McKesson Certificate") and by-laws not filed as of the date
hereof with the McKesson Filed SEC Documents (as defined in Section 3.1(e)).
(ii) In all material respects, the minute books of McKesson and its
subsidiaries contain accurate records of all meetings and accurately reflect
all other actions taken by the stockholders, the Board of Directors and all
committees of the Board of Directors of McKesson (or, as the case may be, each
of its subsidiaries) since December 31, 1996.
(b) SUBSIDIARIES. Exhibit 21 to McKesson's Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 includes all the subsidiaries of McKesson
which as of the date of this Agreement are Significant Subsidiaries (as defined
in Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares of
capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable and
are owned directly or indirectly by McKesson, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests).
(c) CAPITAL STRUCTURE. The authorized capital stock of McKesson consists of
400,000,000 shares of McKesson Common Stock, par value $.01 per share, and
100,000,000 shares of series preferred stock, par value $.01 per share
("McKesson Preferred Stock"). At the close of business on October 15, 1998, (i)
99,295,063 shares of McKesson Common Stock were issued and outstanding; (ii)
242,095 shares of McKesson Common Stock were held by McKesson in its treasury;
(iii) no shares of McKesson Preferred Stock were issued and outstanding; (iv)
25,151,920 shares of McKesson Common Stock were reserved for issuance pursuant
to all stock option, restricted stock or other stock-based compensation,
benefits or savings plans, agreements or arrangements in which
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current or former employees or directors of McKesson or its subsidiaries
participate as of the date hereof (including, without limitation, the plans set
forth on Exhibit E attached hereto), complete and correct copies of which, in
each case as amended as of the date hereof, have been filed as exhibits to the
McKesson Filed SEC Documents or delivered to HBO (such plans, collectively, the
"McKesson Stock Plans"); (v) 10,000,000 shares of McKesson Preferred Stock have
been designated as Series A Junior Participating Preferred Stock, of which
600,000 shares were reserved for issuance upon exercise of preferred stock
purchase rights (the "McKesson Rights") issuable pursuant to the Rights
Agreement, dated as of October 21, 1994, by and between McKesson and First
Chicago Trust Company, as rights agent (the "McKesson Rights Agreement"); and
(vi) 5,533,208 shares of McKesson Common Stock were reserved for issuance upon
conversion of the 5% Trust Convertible Securities (the "Convertible Preferred
Securities") of the McKesson Financing Trust (the "Financing Trust"). Section
3.1(c) of the McKesson Disclosure Schedule sets forth a complete and correct
list, as of October 15, 1998, of the number of shares of McKesson Common Stock
subject to employee stock options or other rights to purchase or receive
McKesson Common Stock granted under the McKesson Stock Plans (collectively,
"McKesson Employee Stock Options"). All outstanding shares of capital stock of
McKesson are, and all shares which may be issued pursuant to the Stock Plans or
the Financing Trust will be, when issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights. Except as
set forth in this Section 3.1(c) and except for changes since October 15, 1998
resulting from the issuance of shares of McKesson Common Stock pursuant to the
McKesson Employee Stock Options, the Convertible Preferred Securities or as
expressly permitted by this Agreement, (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of McKesson, (B) any securities of McKesson or any McKesson
subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of McKesson, (C) any warrants, calls,
options or other rights to acquire from McKesson or any McKesson subsidiary
(including any subsidiary trust), or obligations of McKesson or any McKesson
subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of McKesson, and (y) there are no outstanding obligations of
McKesson or any McKesson subsidiary to repurchase, redeem or otherwise acquire
any such securities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. There are no outstanding (A) securities
of McKesson or any McKesson subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities or ownership
interests in any McKesson subsidiary, (B) warrants, calls, options or other
rights to acquire from McKesson or any McKesson subsidiary, and any obligation
of McKesson or any McKesson subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any McKesson subsidiary or (C) obligations of McKesson
or any McKesson subsidiary to repurchase, redeem or otherwise acquire any such
outstanding securities of McKesson subsidiaries or to issue, deliver or sell,
or cause to be issued, delivered or sold, any such securities, except with
respect to the Convertible Preferred Securities. Other than with respect to the
Convertible Preferred Securities, neither McKesson nor any McKesson subsidiary
is a party to any agreement restricting the purchase or transfer of, relating
to the voting of, requiring registration of, or granting any preemptive or,
except as provided by the terms of the McKesson Employee Stock Options,
antidilutive rights with respect to, any securities of the type referred to in
the two preceding sentences. Other than the McKesson subsidiaries, McKesson
does
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not directly or indirectly beneficially own any securities or other beneficial
ownership interests in any other entity except for non-controlling investments
made in the ordinary course of business in entities which are not individually
or in the aggregate material to McKesson and its subsidiaries as a whole.
(d) AUTHORITY; NONCONTRAVENTION. Each of McKesson and Merger Sub has all
requisite corporate power and authority to enter into this Agreement, and
McKesson has all requisite corporate power and authority to enter into the
Option Agreements and, subject to the McKesson Stockholder Approval (as defined
in Section 3.1(l)), to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement by each of McKesson and
Merger Sub, and the execution and delivery of the Option Agreements by McKesson
and the consummation by McKesson and Merger Sub of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of McKesson and Merger Sub, subject, in the case
of the Merger and the issuance of McKesson Common Stock in connection with the
Merger and the conversion of the Assumed Options, to the McKesson Stockholder
Approval. This Agreement has been, and the Option Agreements will be, duly
executed and delivered by McKesson (and, in the case of this Agreement, by
Merger Sub) and, assuming the due authorization, execution and delivery thereof
by HBO, constitutes (or will constitute, as the case may be) the legal, valid
and binding obligation of McKesson (and, in the case of this Agreement, by
Merger Sub), enforceable against McKesson (and, in the case of this Agreement,
by Merger Sub) in accordance with their terms. The execution and delivery of
this Agreement does not, and the execution and delivery of the Option
Agreements and the consummation of the transactions contemplated hereby and
thereby and compliance with the provisions of this Agreement and the Option
Agreements will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a benefit under, or result in the creation of any Lien upon any of the
properties or assets of McKesson or any of its subsidiaries or in any
restriction on the conduct of McKesson's business or operations under, (i) the
McKesson Certificate or the by-laws of McKesson or the comparable
organizational documents of any of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, trust document, lease or other
agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to McKesson or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to McKesson or
any of its subsidiaries or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, losses, restrictions or Liens that individually or in the
aggregate would not (x) have a material adverse effect on McKesson or HBO or
(y) reasonably be expected to impair the ability of McKesson or Merger Sub to
perform its obligations under this Agreement (and, in the case of McKesson
individually, under the Option Agreements). No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration or
filing with, any federal, state, local or foreign government, any court,
administrative, regulatory or other governmental agency, commission or
authority or any nongovernmental self-regulatory agency, commission or
authority (a "Governmental Entity") is required by or with respect to McKesson
or any of its subsidiaries in connection with the execution and delivery of
this Agreement by McKesson, or the execution and delivery by McKesson of the
Option Agreements or the consummation by McKesson or Merger Sub of the
transactions contemplated hereby and thereby, except for (1) the filing of a
pre-merger notification and report
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form by McKesson under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") or filings or notifications under the
antitrust, competition or similar laws of any foreign jurisdiction; (2) the
filing with the SEC of (A) a proxy statement relating to the McKesson
Stockholders' Meeting (as defined in Section 5.1(b)) (such proxy statement,
together with the proxy statement relating to the HBO Stockholders' Meeting (as
defined in Section 5.1(c)), in each case as amended or supplemented from time
to time, the "Joint Proxy Statement"), (B) the Form S-4 and (C) such reports
under Section 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement, the Option Agreements and the transactions contemplated hereby
and thereby; (3) the filing of the Certificate of Merger with the Secretary of
State of Delaware and appropriate documents with the relevant authorities of
other states in which McKesson is qualified to do business and such filings
with Governmental Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; (4) such filings and approvals of NYSE and the
Pacific Exchange, Inc. ("PSE") to permit the shares of McKesson Common Stock
that are to be issued in the Merger and under the HBO Stock Plans to be
approved for listing, subject to notice of issuance, by NYSE and the PSE; and
(5) such consents, approvals, orders or authorizations the failure of which to
be made or obtained individually or in the aggregate would not (x) have a
material adverse effect on McKesson or (y) reasonably be expected to impair the
ability of McKesson or Merger Sub to perform its obligations under this
Agreement.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. McKesson has filed all required
registration statements, prospectuses, reports, schedules, forms, statements
and other documents (including exhibits and all other information incorporated
therein) with the SEC since December 31, 1996 (the "McKesson SEC Documents").
As of their respective dates, the McKesson SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
McKesson SEC Documents, and none of the McKesson SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of McKesson included in the McKesson
SEC Documents comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance 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 in the notes thereto) and fairly
present the consolidated financial position of McKesson and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which are not
material). Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement, the
Option Agreements or the transactions contemplated hereby or thereby, neither
McKesson nor any of its subsidiaries has any liabilities or obligations of any
nature which, individually or in the aggregate, would have a material adverse
effect on McKesson.
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(f) INFORMATION SUPPLIED. None of the information supplied or to be supplied by
McKesson specifically for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by McKesson in
connection with the issuance of McKesson Common Stock in the Merger (the "Form
S-4") will, at the time the Form S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) the Joint Proxy Statement will, at the date it
is first mailed to McKesson's stockholders or at the time of the McKesson
Stockholders' 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 Form S-4 and the Joint Proxy Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by McKesson with respect to statements made
or incorporated by reference therein based on information supplied by HBO
specifically for inclusion or incorporation by reference in the Form S-4 or the
Joint Proxy Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities incurred in
connection with this Agreement, the Option Agreements or the transactions
contemplated hereby and thereby, and except as permitted by Section 4.1(a),
since March 31, 1998, McKesson and its subsidiaries have conducted their
business only in the ordinary course consistent with past practice or as
disclosed in any McKesson SEC Document filed since such date and prior to the
date hereof, and there has not been (i) any material adverse change (as defined
in Section 8.3) in McKesson, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to any of McKesson's capital stock, (iii) any split, combination or
reclassification of any of McKesson's 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 McKesson's capital stock, except for
issuances of McKesson Common Stock upon exercise or conversion of McKesson
Employee Stock Options, in each case awarded prior to the date hereof in
accordance with their present terms or issued pursuant to Section 4.1(a), (iv)
(A) any granting by McKesson or any of its subsidiaries to any current or
former director, officer or other key employee of McKesson or its subsidiaries
of any increase in compensation, bonus or other benefits, except for normal
increases as a result of promotions, normal increases of base pay or target
bonuses in the ordinary course of business or as was required under any
employment agreements in effect as of March 31, 1998, (B) any granting by
McKesson or any of its subsidiaries to any such current or former director,
officer or key employee of any increase in severance or termination pay, or (C)
any entry by McKesson or any of its subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director or officer,
or any material amendment of any of the foregoing with any key employee, (v)
except insofar as may have been disclosed in McKesson SEC Documents filed and
publicly available prior to the date of this Agreement (as amended to the date
hereof, the "McKesson Filed SEC Documents") or required by a change in GAAP,
any change in accounting methods, principles or practices by McKesson
materially affecting its assets, liabilities or business, (vi) except insofar
as may have been disclosed in the McKesson Filed SEC Documents, any tax
election that individually or in the aggregate would have a material adverse
effect on McKesson or any of its tax attributes or any settlement or compromise
of any material income tax liability, or (vii) any action taken by
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McKesson or any of the McKesson subsidiaries during the period from April 1,
1998 through the date of this Agreement that, if taken during the period from
the date of this Agreement through the Effective Time, would constitute a
breach of Section 4.1(a).
(h) COMPLIANCE WITH APPLICABLE LAWS; LITIGATION.
(i) McKesson, its subsidiaries and employees hold all permits, licenses,
variances, exemptions, orders, registrations and approvals of all Governmental
Entities which are required for the operation of the businesses of McKesson and
its subsidiaries (the "McKesson Permits"), except where the failure to have any
such McKesson Permits individually or in the aggregate would not have a
material adverse effect on McKesson. Except as specifically disclosed in the
McKesson SEC Documents filed with the Commission prior to the date hereof,
McKesson and its subsidiaries are in compliance with the terms of the McKesson
Permits and all applicable laws, statutes, orders, rules, regulations, policies
or guidelines promulgated, or judgments, decisions or orders entered by any
Governmental Entity, including, without limitation, the Federal Prescription
Drug Marketing Act and comparable or related state law provisions, the Federal
Controlled Substances Act of 1970, the rules and regulations promulgated
thereunder or otherwise by the Drug Enforcement Administration and comparable
or related state law provisions, the Food, Drug and Cosmetic Act, the Good
Manufacturing Practices and other standards of the Food and Drug
Administration, federal Medicare and Medicaid statutes, including, without
limitation, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn or related
state or local statutes or regulations, applicable state laws regulating
pharmacy or wholesaling practices, statutes and regulations relating to billing
or sale practices, the Foreign Corrupt Practices Act of 1977 and the
Occupational Safety and Health Act and the regulations promulgated thereunder
(all such laws, statutes, orders, rules, regulations, policies, guidelines,
judgments, decisions and orders, collectively, "Applicable Laws"), relating to
McKesson or its business or properties, except where the failure to be in
compliance with such Applicable Laws individually or in the aggregate would not
have a material adverse effect on McKesson. As of the date of this Agreement,
except as disclosed in the McKesson Filed SEC Documents, no action, demand,
requirement or investigation by any Governmental Entity and no suit, action or
proceeding by any person, in each case with respect to McKesson or any of its
subsidiaries or any of their respective properties, is pending or, to the
knowledge (as defined in Section 8.3) of McKesson, threatened, other than, in
each case, those the outcome of which individually or in the aggregate would
not (A) have a material adverse effect on McKesson or (B) reasonably be
expected to impair the ability of McKesson or Merger Sub to perform its
obligations under this Agreement or the Option Agreements or prevent or
materially delay the consummation of any of the transactions contemplated
hereby or thereby.
(ii) Neither McKesson nor any McKesson subsidiary is subject to any outstanding
order, injunction or decree which has had or, insofar as can be reasonably
foreseen, individually or in the aggregate will have, a material adverse effect
on McKesson.
(i) ABSENCE OF CHANGES IN BENEFIT PLANS. McKesson has delivered to HBO or
provided to HBO for review true and complete copies of (i) all severance and
employment agreements of McKesson with directors, executive officers or key
employees, (ii) all written and material unwritten severance programs and
policies of each of McKesson and each McKesson subsidiary, and (iii) all plans
or arrangements of McKesson and each McKesson subsidiary relating to its
employees which contain
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change in control provisions, in each case which has not been filed as an
exhibit to a McKesson Filed SEC Document. Since March 31, 1998, there has not
been any adoption or amendment in any material respect by McKesson or any of
its subsidiaries of any (A) collective bargaining agreement with respect to any
employees of, (B) any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former officers, directors or employees
of, (C) any employment agreement, consulting agreement or severance agreement
with, any current or former officer or director of, or (D) any material
employment agreement, consulting agreement or severance agreement with any
employee of McKesson or any of its wholly owned subsidiaries (collectively, the
"McKesson Benefit Plans"), or any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any McKesson
pension plans, or any material change in the manner in which contributions to
any McKesson pension plans are made or the basis on which such contributions
are determined. Since March 31, 1998, neither McKesson nor any McKesson
subsidiary has amended any McKesson Employee Stock Options or any McKesson
Stock Plans to accelerate the vesting of, or release restrictions on, awards
thereunder, or to provide for such acceleration in the event of a change in
control.
(j) BENEFIT PLANS.
(i) With respect to the McKesson Benefit Plans, to the knowledge of McKesson,
no event has occurred and there exists no condition or set of circumstances, in
connection with which McKesson or any of its subsidiaries would be subject to
any liability that individually or in the aggregate would have a material
adverse effect on McKesson under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Code or any other applicable law.
(ii) Each McKesson Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any McKesson Benefit Plan that
individually or in the aggregate would not have a material adverse effect on
McKesson. To the knowledge of McKesson, the McKesson Benefit Plans have been
operated, and are, in compliance with the applicable provisions of ERISA, the
Code and all other applicable laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in such compliance that
individually or in the aggregate would not have a material adverse effect on
McKesson. Each McKesson Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable determination
letter from the Internal Revenue Service ("IRS") that it is so qualified and
each trust established in connection with any McKesson Benefit Plan that is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that such trust is so
exempt. To the knowledge of McKesson, no fact or event has occurred since the
date of any determination letter from the IRS which is reasonably likely to
affect adversely the qualified status of any such McKesson Benefit Plan or the
exempt status of any such trust.
(iii) With respect to the McKesson Benefit Plans which are defined benefit
plans and subject to Title IV of ERISA (other than any "multi-employer plans"
as defined in Section 3(37) of ERISA), the aggregate fair market value of the
assets of such plans as of January 1, 1998 was approximately $294 million.
Since January 1, 1998, there has been no material adverse change in the funded
status of any such plans.
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(iv) Each McKesson Benefit Plan that is a "multi-employer plan" is set forth on
Section 3.1(j)(iii) of the McKesson Disclosure Schedule. With respect to any
McKesson Benefit Plan that is a multi-employer plan, (A) neither McKesson nor
any of its subsidiaries has any material contingent liability under Section
4204 of ERISA, and, to the knowledge of McKesson, no circumstances exist that
would result in any such plan entering into a reorganization, and (B) the
aggregate withdrawal liability of McKesson and its subsidiaries, computed as if
a complete withdrawal by McKesson and any of its subsidiaries had occurred
under each such McKesson Benefit Plan on the date hereof, would not exceed $15
million.
(v) No McKesson Benefit Plan provides medical benefits (whether or not
insured), with respect to current or former employees after retirement or other
termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former employee)
other than individual arrangements the amounts of which are not material.
(vi) McKesson has previously provided to HBO a copy of each collective
bargaining or other labor union contract applicable to persons employed by
McKesson or any of its subsidiaries to which McKesson or any of its
subsidiaries is a party. No collective bargaining agreement is being negotiated
or renegotiated by McKesson or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against McKesson
or any of its subsidiaries pending or, to the knowledge of McKesson, threatened
which may interfere with the respective business activities of McKesson or any
of its subsidiaries, except where such dispute, strike or work stoppage
individually or in the aggregate would not have a material adverse effect on
McKesson. As of the date of this Agreement, to the knowledge of McKesson, none
of McKesson, any of its subsidiaries or any of their respective representatives
or employees has committed any material unfair labor practice in connection
with the operation of the respective businesses of McKesson or any of its
subsidiaries, and there is no material charge or complaint against McKesson or
any of its subsidiaries by the National Labor Relations Board or any comparable
governmental agency pending or threatened in writing.
(vii) No employee of McKesson will be entitled to any material payment,
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any McKesson Benefit Plan as a result of the transactions
contemplated by this Agreement (either alone or in conjunction with any other
event such as a termination of employment), except that substantially all
McKesson Employee Stock Options will vest as of the date on which McKesson
Stockholder Approval is obtained.
(viii) No material oral or written representation or commitment with respect to
any aspect of any McKesson Benefit Plan has been or will be made to employees
of McKesson or any McKesson subsidiaries by an authorized McKesson employee
prior to the Closing Date that is not materially in accordance with the written
or otherwise preexisting terms and provisions of such McKesson Benefit Plans in
effect immediately prior to the Closing Date.
(ix) Except such as would not have a material adverse effect, there are no
material unresolved claims or disputes under the terms of, or in connection
with, any McKesson Benefit Plan (other than routine undisputed claims for
benefits), and no action, legal or otherwise, has been commenced with respect
to any material claim.
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(x) To the knowledge of McKesson, no non-exempt "prohibited transaction"
(within the meaning of Section 4975(c) of the Tax Code) involving any McKesson
Benefit Plan has occurred that could subject McKesson to any material tax
penalty or other cost or liability (by indemnification or otherwise).
(k) TAXES.
(i) Each of McKesson and its subsidiaries has filed all material tax returns
and reports required to be filed by it (taking into account all applicable
extensions) and all such returns and reports are complete and correct in all
material respects, or requests for extensions to file such returns or reports
have been timely filed, granted and have not expired, except to the extent that
such failures to file, to be complete or correct or to have extensions granted
that remain in effect individually or in the aggregate would not have a
material adverse effect on McKesson. McKesson and each of its subsidiaries has
paid (or McKesson has paid or caused to be paid on its behalf) all taxes (as
defined herein) shown as due on such returns, and the most recent financial
statements contained in the McKesson Filed SEC Documents reflect an adequate
reserve in accordance with GAAP for all taxes payable by McKesson and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
(ii) No deficiencies for any taxes have, to the knowledge of McKesson, been
proposed, asserted or assessed against McKesson or any of its subsidiaries that
are not adequately reserved for, except for deficiencies that individually or
in the aggregate would not have a material adverse effect on McKesson. Except
as provided in Section 3.1(k) of the Disclosure Schedule, all of the federal
income tax returns of the affiliated group of which McKesson is the common
parent have closed by virtue of the applicable statute of limitations.
(iii) Neither McKesson nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include all (x) federal, state,
local or foreign income, property, sales, excise and other taxes or similar
governmental charges, including any interest, penalties or additions with
respect thereto, (y) liability for the payment of any amounts of the type
described in (x) as a result of being a member of an affiliated, consolidated,
combined or unitary group, and (z) liability for the payment of any amounts
described in (x) or (y) as a result of being party to any tax sharing agreement
or as a result of any express or implied obligation to indemnify any other
person with respect to the payment of any amounts of the type described in
clause (x) or (y).
(v) Neither McKesson nor any McKesson subsidiary has made any parachute
payments as such term is defined in Section 280G of the Tax Code, neither is
obligated to make any parachute payments, and neither is a party to any
agreement that under certain circumstances could obligate it, or any successor
in interest, to make any parachute payments that will not be deductible under
Section 280G of the Tax Code. Neither McKesson nor any McKesson subsidiary is
obligated to make reimbursement or gross-up payments to any person in respect
to excess parachute payments.
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(l) VOTING REQUIREMENTS. The affirmative vote at the McKesson Stockholders'
Meeting (the "McKesson Stockholder Approval") of the holders of a majority of
all outstanding shares of McKesson Common Stock present in person or by proxy
and entitled to vote at a duly convened and held meeting of McKesson
Stockholders is the only vote of the holders of any class or series of
McKesson's capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby, including the Merger.
(m) STATE TAKEOVER STATUTES; CERTIFICATE OF INCORPORATION. The Board of
Directors of McKesson has adopted a resolution or resolutions approving this
Agreement and the Option Agreements and the transactions contemplated hereby
and thereby and, assuming the accuracy of HBO's representation and warranty
contained in Section 3.2(q), (a) such approval constitutes approval of the
Merger and the other transactions contemplated hereby and by the Option
Agreements by the McKesson Board of Directors under the provisions of Section
203 of the DGCL and Article VII of McKesson's Certificate of Incorporation such
that Section 203 of the DGCL and Article VII of McKesson's Certificate of
Incorporation do not apply to this Agreement, the Option Agreements and the
transactions contemplated hereby and thereby. To the knowledge of McKesson, no
state takeover statute other than Section 203 of the DGCL (which has been
rendered inapplicable) is applicable to the Merger or the other transactions
contemplated hereby.
(n) ACCOUNTING MATTERS. To its knowledge, neither McKesson nor any of its
affiliates (as such term is used in Section 5.9) has taken or agreed to take
any action (including, without limitation, in connection with any McKesson
Stock Plan or any agreement thereunder) that would prevent the business
combination to be effected by the Merger from being accounted for as a "pooling
of interests" and McKesson has no reason to believe that the Merger will not
qualify for "pooling of interests" accounting.
(o) BROKERS. No broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of McKesson.
(p) OPINION OF FINANCIAL ADVISORS. McKesson has received the opinion of Bear,
Stearns & Co., Inc., dated the date of this Agreement, to the effect that, as
of such date, the Exchange Ratio for the conversion of HBO Common Stock into
McKesson Common Stock is fair from a financial point of view to the
stockholders of McKesson, a signed copy of which opinion has been delivered to
HBO.
(q) OWNERSHIP OF HBO COMMON STOCK. To the knowledge of McKesson, as of the date
hereof or at any time within twelve months prior to the date of this Agreement
(and before giving effect to the HBO Option Agreement, which will be entered
into immediately after the execution of this Agreement), neither McKesson nor,
to its knowledge without independent investigation, any of its affiliates, (i)
beneficially owns (as defined in Rule 13d3 under the Exchange Act), directly or
indirectly, or (ii) is party to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of, in each case, shares
of capital stock of HBO.
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(r) INTELLECTUAL PROPERTY.
(i) McKesson or its subsidiaries own or have a valid right to use all
trademarks, service marks, trade names, Internet domain names, designs,
slogans, and general intangibles of like nature, together with all
applications, registrations and goodwill related to the foregoing
(collectively, "Trademarks"); patents (including any registration,
continuations, continuations-in-part, renewals and applications for any of the
foregoing); copyrights (including any registrations, renewals and applications
for any of the foregoing); Software (as defined below); technology, trade
secrets and other confidential information, know-how, proprietary processes,
formulae, algorithms, models, and methodologies (collectively, "Trade Secrets")
used in or necessary for the conduct of McKesson's and each of its subsidiary's
business as currently conducted, except where the failure to possess such right
would not have a material adverse effect (all such intellectual property being
referred to herein as the "Intellectual Property"). For purposes of this
Section 3.1(r), "Software" means any and all (a) computer programs, including
any and all software implementations of algorithms, models and methodologies,
whether in source code or object code, (b) databases and compilations,
including any and all data and collections of data, whether machine readable or
otherwise, (c) descriptions, flowcharts and other work product used to design,
plan, organize and develop any of the foregoing, (d) the technology supporting
any Internet site(s) operated by or on behalf of McKesson or any of its
subsidiaries and (e) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(ii) The Intellectual Property owned by McKesson or any of its subsidiaries is
free and clear of all Liens.
(iii) The Intellectual Property owned by McKesson or any of its subsidiaries
and, to McKesson's knowledge, any Intellectual Property used by McKesson, is
valid and subsisting, in full force and effect, and has not been canceled,
expired, or abandoned. There is no pending or, to McKesson's knowledge,
threatened opposition, interference or cancellation proceeding before any court
or registration authority in any jurisdiction against any registrations in
respect of the Intellectual Property owned by McKesson or any of its
subsidiaries, or, to McKesson's knowledge, against any Intellectual Property
licensed to McKesson or any of its subsidiaries.
(iv) To the actual knowledge of McKesson or any of its subsidiaries, the
conduct of the business of McKesson and its subsidiaries as currently conducted
does not infringe upon (either directly or indirectly such as through
contributory infringement or inducement to infringe) any intellectual property
rights owned or controlled by any third party. There are no claims or suits
pending or, to the knowledge of McKesson, threatened, and neither McKesson nor
any of its subsidiaries has received any notice of a third-party claim or suit,
(a) alleging that its activities or the conduct of its business infringes upon,
violates, or constitutes the unauthorized use of the intellectual property
rights of any third party or (b) challenging the ownership, use, validity or
enforceability of any Intellectual Property, which in any case would have a
material adverse effect.
(v) There are no settlements, forebearances to sue, consents, judgments, or
orders or similar obligations which in any material respect (a) restrict the
right of McKesson or its subsidiaries to use any Intellectual Property, or (b)
restrict the business of McKesson or its subsidiaries in order to accommodate a
third party's intellectual property rights or (c) except for licenses with
customers for McKesson's Software, there are no agreements that permit third
parties to use any Intellectual Property owned or controlled by McKesson or any
of its subsidiaries.
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(vi) McKesson and each of its subsidiaries take reasonable measures to protect
the confidentiality of Trade Secrets, including (i) requiring its employees and
independent contractors having access thereto to execute written nondisclosure
agreements and (ii) requiring all licensees to maintain the confidentiality of
its Trade Secrets. To the actual knowledge of McKesson or its subsidiaries, no
Trade Secret has been knowingly disclosed or authorized to be disclosed to any
third party other than pursuant to a nondisclosure agreement or other
appropriate instrument that adequately protects McKesson and the applicable
subsidiary's proprietary interests in and to such Trade Secrets. To the
knowledge of McKesson, no party to any nondisclosure agreement or nondisclosure
obligation relating to its Trade Secrets is in breach or default thereof.
(vii) To the knowledge of McKesson, no third party is misappropriating,
infringing, diluting, or violating any Intellectual Property owned by McKesson
or any of its subsidiaries other than immaterial disputes concerning use by a
third party of Trademarks of McKesson or a subsidiary.
(viii) The consummation of the transaction contemplated hereby shall not result
in the loss or impairment of McKesson's or of any subsidiary's right to own or
use any of the Intellectual Property, and will not require the consent of any
governmental authority, except where such loss or impairment or the failure to
obtain consent would not result in a material adverse effect.
(ix) Neither McKesson nor any of its subsidiaries has entered into any software
license agreement in which it (a) failed to limit its liability to the amount
of licensing fees paid pursuant to the agreement; or (b) warranted as to the
performance or functionality of the Software other than stating that the
Software would perform in accordance with its documentation and/or
specifications; except in any case in which the contrary would not have a
material adverse effect.
(x) McKesson has implemented and is currently implementing revisions and
related testing of its material Software that it licenses and maintains
pursuant to contracts with third parties ("Licensed Software") in order to
enable such Software to process accurately (including calculating, comparing
and sequencing) in all material respects date data from, into and between the
twentieth and twenty-first centuries, including leap year calculations
("Millennial Date Data"). By December 31, 1999, all such Licensed Software will
so process Millennial Date Data without material errors or omissions and
without materially affecting functionality when used in accordance with the
product documentation provided by McKesson therefor and provided that all other
software and all hardware and firmware used in combination with such Licensed
Software properly exchanges date data with it. Neither McKesson nor any of its
subsidiaries has made any representation or warranty to any third party that
varies in any material respect from the preceding warranty.
(xi) McKesson and its subsidiaries are in the process of, and have
substantially completed obtaining, written representations or assurances from
each third party that (A) provides Millennial Date Data to McKesson or its
subsidiaries, (B) processes Millennial Date Data for McKesson or its
subsidiaries or (C) otherwise provides any material product or service to
McKesson or its subsidiaries that is dependent upon any Software, microcode,
chip or hardware system or component, including any electronic or
electronically controlled system or component (a "System") that processes any
Millennial Date Data, stating that all of such Systems that are used for, or on
behalf of, McKesson or its subsidiaries will process Millennial Date Data
without materially affecting the supply of such product or service to McKesson
or its subsidiaries after December 31, 1999.
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(s) CERTAIN CONTRACTS. Except as set forth in the McKesson Filed SEC Documents,
neither McKesson nor any of its subsidiaries is a party to or bound by (i) any
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC), (ii) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in which,
or the localities in which, all or any material portion of the business of
McKesson and its subsidiaries (including, for purposes of this Section 3.1(s),
HBO and its subsidiaries, assuming the Merger has taken place), taken as a
whole, is or would be conducted, (iii) any exclusive supply or purchase
contracts or any exclusive requirements contracts or (iv) any contract or other
agreement which would prohibit or materially delay the consummation of the
Merger or any of the transactions contemplated by this Agreement (all contracts
of the type described in clauses (i) and (ii) being referred to herein as
"McKesson Material Contracts"). McKesson has delivered to HBO or provided to
HBO for review, prior to the execution of this Agreement, complete and correct
copies of all McKesson Material Contracts not filed as exhibits to the McKesson
Filed SEC Documents. Each McKesson Material Contract is valid and binding on
McKesson (or, to the extent a McKesson subsidiary is a party, such subsidiary)
and is in full force and effect, and McKesson and each McKesson subsidiary have
in all material respects performed all obligations required to be performed by
them to date under each McKesson Material Contract, except where such
noncompliance, individually or in the aggregate, would not have a material
adverse effect on McKesson. Neither McKesson nor any McKesson subsidiary knows
of, or has received notice of, any violation or default under (nor, to the
knowledge of McKesson, does there exist any condition which with the passage of
time or the giving of notice or both would result in such a violation or
default under) any McKesson Material Contract.
(t) MCKESSON RIGHTS AGREEMENT. McKesson has taken all action (including, if
required, redeeming all of the outstanding preferred stock purchase rights
issued pursuant to the McKesson Rights Agreement or amending the McKesson
Rights Agreement) so that the entering into of this Agreement, the McKesson
Option Agreement, the Merger, the acquisition of shares pursuant to the
McKesson Option Agreement and the other transactions contemplated hereby and
thereby do not and will not result in the grant of any rights to any person
under the McKesson Rights Agreement or enable or require the McKesson Rights to
be exercised, distributed or triggered.
(u) ENVIRONMENTAL LIABILITY. Except as set forth in the McKesson Filed SEC
Documents, there are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature pending or
threatened against McKesson or any of its subsidiaries seeking to impose, or
that could reasonably be expected to result in the imposition of, on McKesson
or any of its subsidiaries, any liability or obligation arising under common
law or under any local, state or federal environmental statute, regulation or
ordinance, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), which
liability or obligation could reasonably be expected to have a material adverse
effect on McKesson. To the knowledge of McKesson, there is no reasonable basis
for any such proceeding, claim, action or governmental investigation that would
impose any liability or obligation that could reasonably be expected to have a
material adverse effect on McKesson.
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(v) INSURANCE. McKesson and each of its subsidiaries have policies of insurance
and bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of McKesson and its subsidiaries.
There is no claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds, except questioned, denied or disputed claims the failure to
provide coverage for which would not, individually or in the aggregate, have a
material adverse effect on McKesson. All premiums due and payable under all
such policies and bonds have been paid and McKesson and its subsidiaries are
otherwise in compliance in all material respects with the terms of such
policies and bonds. McKesson has no knowledge of any threatened termination of,
or material premium increase with respect to, any of such policies.
(w) TRANSACTIONS WITH AFFILIATES. Except as disclosed in the McKesson SEC
Documents filed prior to the date of this Agreement or as disclosed in the
McKesson Disclosure Schedule, since March 31, 1998, there have been no
transactions, agreements, arrangements or understandings between McKesson and
its affiliates that would be required to be disclosed under the Item 404 of
Regulation S-K under the Securities Act.
(x) FULL DISCLOSURE. None of the representations or warranties made by McKesson
herein or in any schedule hereto, including the McKesson Disclosure Schedule,
or any certificate furnished by McKesson pursuant to this Agreement, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time, to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF HBO. Except as disclosed in the
Disclosure Schedule delivered by HBO to McKesson prior to the execution of this
Agreement (the "HBO Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken, HBO
represents and warrants to McKesson as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER.
(i) Each of HBO and its subsidiaries (as defined in Section 8.3) is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such concept) under the
laws of the jurisdiction in which it is organized and has the requisite
corporate or other power, as the case may be, and authority to carry on its
business as now being conducted, except, as to subsidiaries, for those
jurisdictions where the failure to be so organized, existing or in good
standing individually or in the aggregate would not have a material adverse
effect (as defined in Section 8.3) on HBO. Each of HBO and its subsidiaries is
duly qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or to be in good
standing individually or in the aggregate would not have a material adverse
effect on HBO.
(ii) HBO has delivered to McKesson prior to the execution of this Agreement
complete and correct copies of any amendments to its certificate of
incorporation (the "HBO Certificate") and by-laws not filed as of the date
hereof with the HBO SEC Documents (as defined in Section 3.2(e)).
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(iii) In all material respects, the minute books of HBO and its subsidiaries
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the Board of Directors and all committees of
the Board of Directors of HBO (or, as the case may be, each of its
subsidiaries) since December 31, 1996.
(b) SUBSIDIARIES. Exhibit 21 to HBO's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 includes all the subsidiaries of HBO which as of
the date of this Agreement are Significant Subsidiaries (as defined in Rule 102
of Regulation S-X of the SEC). All the outstanding shares of capital stock of,
or other equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned directly or
indirectly by HBO, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests).
(c) CAPITAL STRUCTURE. The authorized capital stock of HBO consists of
1,000,000,000 shares of HBO Common Stock, and 1,000,000 shares of preferred
stock, without par value ("HBO Preferred Stock"). At the close of business on
September 30, 1998: (i) 431,485,014 shares of HBO Common Stock were issued and
outstanding; (ii) no shares of HBO Common Stock were held by HBO in its
treasury; (iii) no shares of HBO Preferred Stock were issued and outstanding;
(iv) 3,303,188 shares of HBO Common Stock were reserved for issuance pursuant
to all stock option, restricted stock or other stock-based compensation,
benefits or savings plans, agreements or arrangements in which current or
former employees or directors of HBO or its subsidiaries participate as of the
date hereof (including, without limitation, the plans set forth on Exhibit F
attached hereto), complete and correct copies of which, in each case as amended
as of the date hereof, have been filed as exhibits to the HBO Filed SEC
Documents or delivered to McKesson (such plans, collectively, the "HBO Stock
Plans"); and (v) 20,000 shares of HBO Preferred Stock designated as Series A
Junior Participating Preferred Stock were reserved for issuance upon the
exercise of preferred stock purchase rights (the "HBO Rights") issued pursuant
to the HBO Rights Agreement. Section 3.2(c) of the HBO Disclosure Schedule sets
forth a complete and correct list, as of September 30, 1998, of the number of
shares of HBO Common Stock subject to employee stock options or other rights to
purchase or receive HBO Common Stock granted under the HBO Stock Plans
(collectively, "HBO Employee Stock Options"). All outstanding shares of capital
stock of HBO are, and all shares which may be issued pursuant to this Agreement
or otherwise will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. Except as set forth in
this Section 3.2(c), and except for changes since September 30, 1998 resulting
from the issuance of shares of HBO Common Stock pursuant to the HBO Employee
Stock Options or as expressly permitted by this Agreement, (x) there are not
issued, reserved for issuance or outstanding (A) any shares of capital stock or
other voting securities of HBO, (B) any securities of HBO or any HBO subsidiary
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of HBO, (C) any warrants, calls, options or other rights to
acquire from HBO or any HBO subsidiary, and any obligation of HBO or any HBO
subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of HBO, and (y) there are no outstanding obligations of HBO or any
HBO subsidiary to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. There are no outstanding (A) securities of HBO or any HBO
subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or other
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voting securities or ownership interests in any HBO subsidiary, (B) warrants,
calls, options or other rights to acquire from HBO or any HBO subsidiary, or
obligations of HBO or any HBO subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any HBO subsidiary or (C) obligations of HBO or any HBO
subsidiary to repurchase, redeem or otherwise acquire any such outstanding
securities of HBO subsidiaries or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities. Neither HBO nor any HBO
subsidiary is a party to any agreement restricting the purchase or transfer of,
relating to the voting of, requiring registration of, or granting any
preemptive or, except as provided by the terms of the HBO Employee Stock
Options, antidilutive rights with respect to, any securities of the type
referred to in the two preceding sentences. Other than the HBO subsidiaries,
HBO does not directly or indirectly beneficially own any securities or other
beneficial ownership interests in any other entity except for non-controlling
investments made in the ordinary course of business in entities which are not
individually or in the aggregate material to HBO and its subsidiaries as a
whole.
(d) AUTHORITY; NONCONTRAVENTION. HBO has all requisite corporate power and
authority to enter into this Agreement, and HBO has all requisite corporate
power and authority to enter into the Option Agreements and, subject to the HBO
Stockholder Approval (as defined in Section 3.2(l)), to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement by HBO and the execution and delivery of the Option Agreements
by HBO and the consummation by HBO of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of HBO, subject, in the case of the Merger, to the HBO Stockholder Approval.
This Agreement has been, and the Option Agreements will be, duly executed and
delivered by HBO and, assuming the due authorization, execution and delivery
thereof by McKesson, constitute (or will constitute, as the case may be) the
legal, valid and binding obligation of HBO, enforceable against HBO in
accordance with their terms. The execution and delivery of this Agreement does
not, and the execution and delivery of the Option Agreements and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions of this Agreement and the Option Agreements will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
benefit under, or result in the creation of any Lien upon any of the properties
or assets of HBO or any of its subsidiaries or any restriction on the conduct
of HBO's business or operations under, (i) the HBO Certificate or the by-laws
of HBO or the comparable organizational documents of any of its subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, trust
document, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to HBO or any of its subsidiaries
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to HBO or
any of its subsidiaries or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, losses, restrictions or Liens that individually or in the
aggregate would not (x) have a material adverse effect on HBO or (y) reasonably
be expected to impair the ability of HBO to perform its obligations under this
Agreement and the Option Agreements). No consent, approval, order or
authorization of, action by, or in respect of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to HBO or
any of its subsidiaries in connection
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with the execution and delivery of this Agreement or the Option Agreements by
HBO or the consummation by HBO of the transactions contemplated hereby or
thereby, except for (1) the filing of a pre-merger notification and report form
by HBO under the HSR Act or filings or notifications under the antitrust,
competition or similar laws of any foreign jurisdiction; (2) the filing with
the SEC of (A) the Joint Proxy Statement relating to the HBO Stockholders'
Meeting, and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the
Exchange Act as may be required in connection with this Agreement and the
Option Agreements and the transactions contemplated hereby and thereby; (3) the
filing of the Certificate of Merger with the Secretary of State of Delaware and
appropriate documents with the relevant authorities of other states in which
HBO is qualified to do business and such filings with Governmental Entities to
satisfy the applicable requirements of state securities or "blue sky" laws; and
(4) such consents, approvals, orders or authorizations the failure of which to
be made or obtained individually or in the aggregate would not (x) have a
material adverse effect on HBO or (y) reasonably be expected to impair the
ability of HBO to perform its obligations under this Agreement.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. HBO has filed all required
registration statements, prospectuses, reports, schedules, forms, statements
and other documents (including exhibits and all other information incorporated
therein) with the SEC since December 31, 1996 (the "HBO SEC Documents"). As of
their respective dates, the HBO SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such HBO SEC Documents, and none of the HBO SEC Documents when
filed contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of HBO included in the HBO SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance 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 in the notes thereto) and fairly
present the consolidated financial position of HBO and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which are not
material). Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement, the
Option Agreements or the transactions contemplated hereby or thereby, neither
HBO nor any of its subsidiaries has any liabilities or obligations of any
nature which, individually or in the aggregate, would have a material adverse
effect on HBO.
(f) INFORMATION SUPPLIED. None of the information supplied or to be supplied by
HBO specifically for inclusion or incorporation by reference in (i) the Form S-
4 will, at the time the Form S-4 becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) the Joint Proxy Statement will, at the date it is first
mailed to HBO's stockholders or at the time of the HBO Stockholders' 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
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statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement will comply as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations thereunder, except that no representation or
warranty is made by HBO with respect to statements made or incorporated by
reference therein based on information supplied by McKesson specifically for
inclusion or incorporation by reference in the Joint Proxy Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities incurred in
connection with this Agreement, the Option Agreements or the transactions
contemplated hereby or thereby, and except as permitted by Section 4.1(b),
since March 31, 1998, HBO and its subsidiaries have conducted their business
only in the ordinary course consistent with past practice or as disclosed in
any HBO SEC Document filed since such date and prior to the date hereof, and
there has not been (i) any material adverse change (as defined in Section 8.3)
in HBO, (ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of HBO's
capital stock, (iii) any split, combination or reclassification of any of HBO's
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 HBO's
capital stock, except for issuances of HBO Common Stock upon exercise or
conversion of HBO Employee Stock Options, in each case awarded prior to the
date hereof in accordance with their present terms or issued pursuant to
Section 4.1(b), (iv) (A) any granting by HBO or any of its subsidiaries to any
current or former director, officer or other key employee of HBO or its
subsidiaries of any increase in compensation, bonus or other benefits, except
for normal increases as a result of promotions, normal increases of base pay or
target bonuses in the ordinary course of business or as was required under any
employment agreements in effect as of March 31, 1998, (B) any granting by HBO
or any of its subsidiaries to any such current or former director, officer or
key employee of any increase in severance or termination pay, or (C) any entry
by HBO or any of its subsidiaries into, or any amendment of, any employment,
deferred compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, officer, or any material
amendment of any of the foregoing with any key employee, (v) except insofar as
may have been disclosed in HBO SEC Documents filed and publicly available prior
to the date of this Agreement (as amended to the date hereof, the "HBO Filed
SEC Documents") or required by a change in GAAP, any change in accounting
methods, principles or practices by HBO materially affecting its assets,
liabilities or business, (vi) except insofar as may have been disclosed in the
HBO Filed SEC Documents, any tax election that individually or in the aggregate
would have a material adverse effect on HBO or any of its tax attributes or any
settlement or compromise of any material income tax liability or (vii) any
action taken by HBO or any of the HBO subsidiaries during the period from April
1, 1998 through the date of this Agreement that, if taken during the period
from the date of this Agreement through the Effective Time, would constitute a
breach of Section 4.1(b) .
(h) COMPLIANCE WITH APPLICABLE LAWS; LITIGATION.
(i) HBO, its subsidiaries and employees hold all permits, licenses, variances,
exemptions, orders, registrations and approvals of all Governmental Entities
which are required for the operation of the businesses of HBO and its
subsidiaries (the "HBO Permits") except where the failure to have any such HBO
Permits individually or in the aggregate would not have a material adverse
effect on HBO.
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Except as specifically disclosed in the HBO SEC Documents filed with the
Commission prior to the date hereof, HBO and its subsidiaries are in compliance
with the terms of the HBO Permits and all Applicable Laws relating to HBO or
its business or properties, except where the failure to be in compliance with
such Applicable Laws individually or in the aggregate would not have a material
adverse effect on HBO. As of the date of this Agreement, except as disclosed in
the HBO Filed SEC Documents, no action, demand, requirement or investigation by
any Governmental Entity and no suit, action or proceeding by any person, in
each case with respect to HBO or any of its subsidiaries or any of their
respective properties, is pending or, to the knowledge of HBO, threatened,
other than, in each case, those the outcome of which individually or in the
aggregate would not (A) have a material adverse effect on HBO or (B) reasonably
be expected to impair the ability of HBO to perform its obligations under this
Agreement or the Option Agreements or prevent or materially delay the
consummation of any of the transactions contemplated hereby or thereby.
(ii) Neither HBO nor any HBO subsidiary is subject to any outstanding order,
injunction or decree which has had or, insofar as can be reasonably foreseen,
individually or in the aggregate will have, a material adverse effect on HBO.
(i) ABSENCE OF CHANGES IN BENEFIT PLANS. HBO has delivered to McKesson or
provided to McKesson for review true and complete copies of (i) all severance
and employment agreements of HBO with directors, executive officers or key
employees, (ii) all written and material unwritten severance programs and
policies of each of HBO and each HBO subsidiary, and (iii) all plans or
arrangements of HBO and each HBO subsidiary relating to its employees which
contain change in control provisions, in each case which has not been filed as
an exhibit to an HBO Filed SEC Document. Since March 31, 1998, there has not
been any adoption or amendment in any material respect by HBO or any of its
subsidiaries of any (A) collective bargaining agreement with respect to any
employees of, (B) any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to any current or former officers, directors or employees
of, (C) any employment agreement, consulting agreement or severance agreement
with any current or former officer or director of, or (D) any material
employment agreement, consulting agreement or severance agreement with any
employee of HBO or any of its wholly owned subsidiaries (collectively, the "HBO
Benefit Plans"), or any material change in any actuarial or other assumption
used to calculate funding obligations with respect to any HBO pension plans, or
any material change in the manner in which contributions to any HBO pension
plans are made or the basis on which such contributions are determined. Since
March 31, 1998, neither HBO nor any HBO subsidiary has amended any HBO Employee
Stock Options or any HBO Stock Plans to accelerate the vesting of, or release
restrictions on, awards thereunder, or to provide for such acceleration in the
event of a change in control.
(j) BENEFIT PLANS.
(i) With respect to the HBO Benefit Plans, to the knowledge of HBO, no event
has occurred and there exists no condition or set of circumstances, in
connection with which HBO or any of its subsidiaries would be subject to any
liability that individually or in the aggregate could have a material adverse
effect on HBO under ERISA, the Code or any other applicable law.
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(ii) Each HBO Benefit Plan has been administered in accordance with its terms,
except for any failures so to administer any HBO Benefit Plan that individually
or in the aggregate would not have a material adverse effect on HBO. To the
knowledge of HBO, the HBO Benefit Plans have been operated, and are, in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance that individually
or in the aggregate would not have a material adverse effect on HBO. Each HBO
Benefit Plan that is intended to be qualified under Section 401(a) or 401(k) of
the Code has received a favorable determination letter from the IRS that it is
so qualified and each trust established in connection with any HBO Benefit Plan
that is intended to be exempt from federal income taxation under Section 501(a)
of the Code has received a determination letter from the IRS that such trust is
so exempt. To the knowledge of HBO, no fact or event has occurred since the
date of any determination letter from the IRS which is reasonably likely to
affect adversely the qualified status of any such HBO Benefit Plan or the
exempt status of any such trust.
(iii) No HBO Benefit Plan is subject to Title IV of ERISA or is a "multi-
employer plan" within the meaning of Section 3(37) of ERISA.
(iv) No HBO Benefit Plan provides medical benefits (whether or not insured),
with respect to current or former employees after retirement or other
termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former employee)
other than individual arrangements the amounts of which are not material.
(v) HBO has previously provided to McKesson a copy of each collective
bargaining or other labor union contract applicable to persons employed by HBO
or any of its subsidiaries to which HBO or any of its subsidiaries is a party.
No collective bargaining agreement is being negotiated or renegotiated by HBO
or any of its subsidiaries. As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against HBO or any of its subsidiaries pending
or, to the knowledge of HBO, threatened which may interfere with the respective
business activities of HBO or any of its subsidiaries, except where such
dispute, strike or work stoppage individually or in the aggregate would not
have a material adverse effect on HBO. As of the date of this Agreement, to the
knowledge of HBO, none of HBO, any of its subsidiaries or any of their
respective representatives or employees has committed any material unfair labor
practice in connection with the operation of the respective businesses of HBO
or any of its subsidiaries, and there is no material charge or complaint
against HBO or any of its subsidiaries by the National Labor Relations Board or
any comparable governmental agency pending or threatened in writing.
(vi) No employee of HBO will be entitled to any material payment, additional
benefits or any acceleration of the time of payment or vesting of any benefits
under any HBO Benefit Plan as a result of the transactions contemplated by this
Agreement (either alone or in conjunction with any other event such as a
termination of employment).
(vii) No material oral or written representation or commitment with respect to
any aspect of any HBO Benefit Plan has been or will be made to employees of HBO
or any HBO subsidiaries by an authorized HBO employee prior to the Closing Date
that is not materially in accordance with the written or otherwise preexisting
terms and provisions of such HBO Benefit Plans in effect immediately prior to
the Closing Date.
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(viii) Except as would not have a material adverse effect, there are no
material unresolved claims or disputes under the terms of, or in connection
with, any HBO Benefit Plan (other than routine undisputed claims for benefits),
and no action, legal or otherwise, has been commenced with respect to any
material claim.
(ix) To the knowledge of HBO, no non-exempt "prohibited transaction" (within
the meaning of Section 4975(c) of the Tax Code) involving any HBO Benefit Plan
has occurred that could subject HBO to any material tax penalty or other cost
or liability (by indemnification or otherwise).
(k) TAXES.
(i) Each of HBO and its subsidiaries has filed all material tax returns and
reports required to be filed by it (taking into account applicable extensions)
and all such returns and reports are complete and correct in all material
respects, or requests for extensions to file such returns or reports have been
timely filed, granted and have not expired, except to the extent that such
failures to file, to be complete or correct or to have extensions granted that
remain in effect individually or in the aggregate would not have a material
adverse effect on HBO. HBO and each of its subsidiaries has paid (or HBO has
paid or caused to be paid on its behalf) all taxes shown as due on such
returns, and the most recent financial statements contained in the HBO Filed
SEC Documents reflect an adequate reserve in accordance with GAAP for all taxes
payable by HBO and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have, to the knowledge of HBO, been
proposed, asserted or assessed against HBO or any of its subsidiaries that are
not adequately reserved for, except for deficiencies that individually or in
the aggregate would not have a material adverse effect on HBO. Except as
provided in Section 3.1(k) of the Disclosure Schedule, all of the federal
income tax returns of the affiliated group of which HBO is the common parent
have closed by virtue of the applicable statute of limitations.
(iii) Neither HBO nor any of its subsidiaries has taken any action or knows of
any fact, agreement, plan or other circumstance that is reasonably likely to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(iv) Neither HBO nor any HBO subsidiary has made any parachute payments as such
term is defined in Section 280G of the Tax Code, neither is obligated to make
any parachute payments, and neither is a party to any agreement that under
certain circumstances could obligate it, or any successor in interest, to make
any parachute payments that will not be deductible under Section 280G of the
Tax Code. Neither HBO nor any HBO subsidiary is obligated to make reimbursement
or gross-up payments to any person in respect to excess parachute payments.
(l) VOTING REQUIREMENTS. The affirmative vote at the HBO Stockholders' Meeting
(the "HBO Stockholder Approval") of the holders of a majority of all
outstanding shares of HBO Common Stock entitled to vote at a duly convened and
held meeting of HBO stockholders is the only vote of the holders of any class
or series of HBO's capital stock necessary to approve and adopt this Agreement
and the transactions contemplated hereby, including the Merger.
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(m) STATE TAKEOVER STATUTES; CERTIFICATE OF INCORPORATION. The Board of
Directors of HBO has adopted a resolution or resolutions approving this
Agreement, the Option Agreements, and the transactions contemplated hereby and
thereby, and, assuming the accuracy of McKesson's representation and warranty
contained in Section 3.1(q), such approval constitutes approval of the Merger
and the other transactions contemplated hereby and thereby by the HBO Board of
Directors under the provisions of Section 203 of the DGCL and paragraphs 11 and
12 of HBO's Certificate of Incorporation such that Section 203 of the DGCL and
paragraphs 11 and 12 of HBO's Certificate of Incorporation do not apply to this
Agreement, the Option Agreements, or the transactions contemplated hereby and
thereby. To the knowledge of HBO, no state takeover statute other than Section
203 of the DGCL (which has been rendered inapplicable) is applicable to the
Merger or the other transactions contemplated hereby.
(n) ACCOUNTING MATTERS. To its knowledge, neither HBO nor any of its affiliates
(as such term is used in Section 5.9) has taken or agreed to take any action
(including, without limitation, in connection with any HBO Stock Plan or any
agreement thereunder) that would prevent the business combination to be
effected by the Merger from being accounted for as a "pooling of interests,"
and HBO has no reason to believe that the Merger will not qualify for "pooling
of interests" accounting.
(o) BROKERS. No broker, investment banker, financial advisor or other person,
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of HBO.
(p) OPINION OF FINANCIAL ADVISORS. HBO has received the opinion of Morgan
Stanley Dean Witter, dated the date of this Agreement, to the effect that, as
of such date, the Exchange Ratio for the conversion of HBO Common Stock into
McKesson Common Stock is fair from a financial point of view to holders of
shares of HBO Common Stock (other than McKesson and its affiliates), a signed
copy of which opinion has been delivered to McKesson.
(q) OWNERSHIP OF MCKESSON COMMON STOCK. To the knowledge of HBO, as of the date
hereof or at any time within twelve months prior to the date of this Agreement
(and before giving effect to the McKesson Option Agreement, which will be
entered into immediately after the execution of this Agreement) neither HBO
nor, to its knowledge without independent investigation, any of its affiliates,
(i) beneficially owns (as defined in either Rule 13d3 under the Exchange Act)
or owned, directly or indirectly, or (ii) is or was party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of McKesson.
(r) INTELLECTUAL PROPERTY.
(i) HBO or its subsidiaries own or have a valid right to use all trademarks,
service marks, trade names, Internet domain names, designs, slogans, and
general intangibles of like nature, together with all applications,
registrations and goodwill related to the foregoing (collectively,
"Trademarks"); patents (including any registration, continuations,
continuations-in-part, renewals and applications for any of the foregoing);
copyrights (including any registrations and applications for any of the
foregoing); Software (as defined below); technology, trade secrets and other
confidential
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information, know-how, proprietary processes, formulae, algorithms, models, and
methodologies (collectively, "Trade Secrets") used in or necessary for the
conduct of HBO's and each of its subsidiary's business as currently conducted,
except where the failure to possess such right would not have a material
adverse effect (all such intellectual property being referred to herein as the
"Intellectual Property"). For purposes of this Section 3.2(r), "Software" means
any and all (a) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, (b) databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, (c) descriptions,
flowcharts and other work product used to design, plan, organize and develop
any of the foregoing, (d) the technology supporting any Internet site(s)
operated by or on behalf of HBO or any of its subsidiaries and (e) all
documentation, including user manuals and training materials, relating to any
of the foregoing.
(ii) The Intellectual Property owned by HBO or any subsidiary is free and clear
of all Liens.
(iii) The Intellectual Property owned by HBO or any of its subsidiaries and, to
HBO's knowledge, any Intellectual Property used by HBO, is valid and
subsisting, in full force and effect, and has not been canceled, expired, or
abandoned.There is no pending or, to HBO's knowledge, threatened opposition,
interference or cancellation proceeding before any court or registration
authority in any jurisdiction against any registrations in respect of the
Intellectual Property owned by HBO or any of its subsidiaries, or, to HBO's
knowledge, against any Intellectual Property licensed to HBO or any of its
subsidiaries.
(iv) To the actual knowledge of HBO or any of its subsidiaries, the conduct of
the business of HBO and its subsidiaries as currently conducted does not
infringe upon (either directly or indirectly such as through contributory
infringement or inducement to infringe) any intellectual property rights owned
or controlled by any third party. There are no claims or suits pending or, to
the knowledge of HBO, threatened, and neither HBO nor any of its subsidiaries
has received any notice of a third-party claim or suit, (a) alleging that its
activities or the conduct of its business infringes upon, violates, or
constitutes the unauthorized use of the intellectual property rights of any
third party or (b) challenging the ownership, use, validity or enforceability
of any Intellectual Property, which in any case would have a material adverse
effect.
(v) There are no settlements, forebearances to sue, consents, judgments, or
orders or similar obligations which in any material respect (a) restrict the
right of HBO or its subsidiaries to use any Intellectual Property, or (b)
restrict the business of HBO or its subsidiaries in order to accommodate a
third party's intellectual property rights or (c) except for licenses with
customers for HBO's Software, there are no agreements that permit third parties
to use any Intellectual Property owned or controlled by HBO or any of its
subsidiaries.
(vi) HBO and each of its subsidiaries take reasonable measures to protect the
confidentiality of Trade Secrets, including (i) requiring its employees and
independent contractors having access thereto to execute written nondisclosure
agreements and (ii) requiring all licensees to maintain the confidentiality of
its Trade Secrets. To the actual knowledge of HBO or its subsidiaries, no Trade
Secret has been knowingly disclosed or authorized to be disclosed to any third
party other than pursuant to a nondisclosure agreement or other appropriate
instrument that adequately protects HBO
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and the applicable subsidiary's proprietary interests in and to such Trade
Secrets. To the knowledge of HBO, no party to any nondisclosure agreement or
nondisclosure obligation relating to its Trade Secrets is in breach or default
thereof.
(vii) To the knowledge of HBO, no third party is misappropriating, infringing,
diluting, or violating any Intellectual Property owned by HBO or any of its
subsidiaries other than immaterial disputes concerning use by a third party of
Trademarks of HBO or a subsidiary.
(viii) The consummation of the transaction contemplated hereby shall not result
in the loss or impairment of HBO's or of any subsidiary's right to own or use
any of the Intellectual Property, and will not require the consent of any
governmental authority, except where such loss or impairment or the failure to
obtain consent would not result in a material adverse effect.
(ix) Neither HBO nor any of its subsidiaries has entered into any software
license agreement in which it (a) failed to limit its liability to the amount
of licensing fees paid pursuant to the agreement; or (b) warranted as to the
performance or functionality of the Software other than stating that the
Software would perform in accordance with its documentation and/or
specifications; except in any case in which the contrary would not have a
material adverse effect.
(x) HBO has implemented and is currently implementing revisions and related
testing of its material Software that it licenses and maintains pursuant to
contracts with third parties ("Licensed Software") in order to enable such
Software to process accurately (including calculating, comparing and
sequencing) in all material respects date data from, into and between the
twentieth and twenty-first centuries, including leap year calculations
("Millennial Date Data"). By December 31, 1999, all such Licensed Software will
so process Millennial Date Data without material errors or omissions and
without materially affecting functionality when used in accordance with the
product documentation provided by HBO therefor and provided that all other
software and all hardware and firmware used in combination with such Licensed
Software properly exchanges date data with it. Neither HBO nor any of its
subsidiaries has made any representation or warranty to any third party that
varies in any material respect from the preceding warranty.
(xi) HBO and its subsidiaries are in the process of, and have substantially
completed obtaining, written representations or assurances from each third
party that (A) provides Millennial Date Data to HBO or its subsidiaries, (B)
processes Millennial Date Data for HBO or its subsidiaries or (C) otherwise
provides any material product or service to HBO or its subsidiaries that is
dependent upon any Software, microcode, chip or hardware system or component,
including any electronic or electronically controlled system or component (a
"System") that processes any Millennial Date Data, stating that all of such
Systems that are used for, or on behalf of, HBO or its subsidiaries will
process Millennial Date Data without materially affecting the supply of such
product or service to HBO and its subsidiaries after December 31, 1999.
(s) CERTAIN CONTRACTS. Except as set forth in the HBO Filed SEC Documents or
listed in Section 3.2(s) of the HBO Disclosure Schedule, neither HBO nor any of
its subsidiaries is a party to or bound by (i) any "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any non-
competition agreement or any other agreement or obligation which purports to
limit in any material respect the manner in which, or the localities in
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which, all or any material portion of the business of HBO and its subsidiaries
(including, for purposes of this Section 3.2(s), McKesson and its subsidiaries,
assuming the Merger has taken place), taken as a whole, is or would be
conducted, (iii) any exclusive supply or purchase contracts or any exclusive
requirements contracts or (iv) any contract or other agreement which would
prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (all contracts of the type
described in clauses (i) and (ii) being referred to herein as "HBO Material
Contracts"). HBO has delivered to McKesson or made available to McKesson for
review, prior to the execution of this Agreement, complete and correct copies
of all HBO Material Contracts not filed as exhibits to the HBO Filed SEC
Documents. Each HBO Material Contract is valid and binding on HBO (or, to the
extent a HBO subsidiary is a party, such subsidiary) and is in full force and
effect, and HBO and each HBO subsidiary have in all material respects performed
all obligations required to be performed by them to date under each HBO
Material Contract, except where such noncompliance, individually or in the
aggregate, would not have a material adverse effect on HBO. Neither HBO nor any
HBO subsidiary knows of, or has received notice of, any violation or default
under (nor, to the knowledge of HBO, does there exist any condition which with
the passage of time or the giving of notice or both would result in such a
violation or default under) any HBO Material Contract.
(t) HBO RIGHTS AGREEMENT. HBO has taken all action (including, if required,
redeeming all of the outstanding preferred stock purchase rights issued
pursuant to the HBO Rights Agreement or amending the HBO Rights Agreement) so
that the entering into of this Agreement, the HBO Option Agreement and the
Merger, the acquisition of shares pursuant to the HBO Option Agreement and the
other transactions contemplated hereby and thereby do not and will not result
in the grant of any rights to any person under the HBO Rights Agreement or
enable or require the HBO Rights to be exercised, distributed or triggered.
(u) ENVIRONMENTAL LIABILITY. Except as set forth in the HBO Filed SEC
Documents, there are no legal, administrative, arbitral or other proceedings,
claims, actions, causes of action, private environmental investigations or
remediation activities or governmental investigations of any nature pending or
threatened against HBO or any of its subsidiaries seeking to impose, or that
could reasonably be expected to result in the imposition, on HBO or any of its
subsidiaries, of any liability or obligation arising under common law or under
any local, state or federal environmental statute, regulation or ordinance,
including, without limitation, CERCLA, which liability or obligation could
reasonably be expected to have a material adverse effect on HBO. To the
knowledge of HBO, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any liability or
obligation that could reasonably be expected to have a material adverse effect
on HBO.
(v) INSURANCE. HBO and each of its subsidiaries have policies of insurance and
bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of HBO and its subsidiaries. There
is no material claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds, except questioned, denied or disputed claims the failure to
provide coverage for which would not, individually or in the aggregate, have a
material adverse effect on HBO. All premiums due and payable under all such
policies and bonds have been paid and HBO and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and
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bonds. HBO has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
(w) TRANSACTIONS WITH AFFILIATES. Except as disclosed in the HBO SEC Documents
filed prior to the date of this Agreement or as disclosed in the HBO Disclosure
Schedule, since December 31, 1997, there have been no transactions, agreements,
arrangements or understandings between HBO and its affiliates that would be
required to be disclosed under the Item 404 of Regulation S-K under the
Securities Act.
(x) FULL DISCLOSURE. None of the representations or warranties made by HBO
herein or in any schedule hereto, including the HBO Disclosure Schedule, or any
certificate furnished by HBO pursuant to this Agreement, contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit at the Effective Time, to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION
4.1 CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY MCKESSON. Except as set forth in Section 4.1(a) of
the McKesson Disclosure Schedule, as otherwise expressly contemplated by this
Agreement or as consented to by HBO in writing, such consent not to be
unreasonably withheld or delayed, during the period from the date of this
Agreement to the Effective Time, McKesson shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course
consistent with past practice and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith,
use all reasonable efforts to preserve intact their current business
organizations, use reasonable efforts to keep available the services of their
current officers and other key employees and preserve their relationships with
those persons having business dealings with them to the end that their goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing (but subject to the above exceptions),
during the period from the date of this Agreement to the Effective Time,
McKesson shall not, and shall not permit any of its subsidiaries to:
(i) other than regular quarterly dividends declared and paid by McKesson on a
basis consistent with past practice, dividends on the Convertible Preferred
Securities and other than dividends and distributions by a direct or indirect
wholly owned subsidiary of McKesson to its parent, or by a subsidiary that is
partially owned by McKesson or any of its subsidiaries, provided that McKesson
or any such subsidiary receives or is to receive its proportionate share
thereof, (x) declare, set aside or pay any dividends on, make any other
distributions in respect of, or enter into any agreement with respect to the
voting of, any of its capital stock, (y) split, combine or reclassify any of
its 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 capital stock,
except for issuances of McKesson Common Stock upon the exercise of McKesson
Employee Stock Options, in each case, outstanding as of the date hereof in
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accordance with their present terms (including cashless exercise) or issued
pursuant to Section 4.1(a)(ii) or issuances of McKesson Common Stock upon
conversion of the Convertible Preferred Securities or (z) purchase, redeem or
otherwise acquire any shares of capital stock of McKesson or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities (except, in the case of clause
(z), for the deemed acceptance of shares upon cashless exercise of McKesson
Employee Stock Options outstanding on the date hereof, or in connection with
withholding obligations relating thereto);
(ii) except in connection with acquisitions permitted or contemplated by
Section 4.1(a) of the McKesson Disclosure Schedule, issue, deliver, sell,
pledge or otherwise encumber or subject to any Lien any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities (other than the issuance of McKesson Common Stock upon
the exercise or conversion of McKesson Employee Stock Options outstanding as of
the date hereof in accordance with their present terms or the issuance of
McKesson Employee Stock Options (and shares of McKesson Common Stock upon the
exercise thereof) granted after the date hereof in the ordinary course of
business consistent with past practice for employees (so long as such
additional amount of McKesson Common Stock subject to McKesson Employee Stock
Options issued to such employees does not exceed 500,000 shares of McKesson
Common Stock in the aggregate);
(iii) except as contemplated hereby, amend its certificate of incorporation,
by-laws or other comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any person, or, except for transactions in the ordinary course of
business consistent with past practice pursuant to contracts or agreements in
force at the date of this Agreement or acquisitions or investments equal to or
less than 120% of McKesson's current capital and operating budgets (in each
case, as previously provided to HBO), make any material investment either by
purchase of stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual, corporation or
other entity other than a subsidiary of McKesson;
(v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien
or otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business consistent with
past practice, including, without limitation, in connection with consolidation
of acquired businesses or as would not have a material adverse effect on
McKesson;
(vi) take any action that would cause the representations and warranties set
forth in Section 3.1(g) and qualified as to materiality to be no longer true
and correct or, if not so qualified, to be no longer true and correct in all
material respects;
(vii) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for the obligations of any person for borrowed money, other than
pursuant to a revolving credit facility or receivables facility or commercial
paper facility in effect as of the date hereof (including any replacement
facilities), in the ordinary course of business consistent with past practice;
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(viii) settle any material claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(ix) other than in the ordinary course of business or in connection with
acquisitions permitted by Section 4.1(a) of the McKesson Disclosure Schedule,
enter into or terminate any material contract or agreement, or make any change
in any of its material leases or contracts, other than amendments or renewals
of contracts and leases without material adverse changes of terms;
(x) except for increases in accordance with normal past practice, increase in
any manner the compensation or fringe benefits of any of its officers or
directors, or materially increase the foregoing in respect of employees; enter
into any commitment to pay any pension, retirement or severance benefit to any
such officers or directors, or make any material commitment to pay the
foregoing to any employees; commit itself to, or enter into, any employment
agreement involving compensation of more than $300,000 per year or a term of
more than two (2) years; adopt or commit itself to any new benefit, base salary
or stock option plan or arrangement; or amend, supplement, or accelerate the
timing of payments or vesting under, or otherwise materially amend or
supplement any existing benefit, stock option or compensation plan or
arrangement (other than as may be required by applicable law);
(xi) change any of the accounting methods used by McKesson or any of its
subsidiaries unless required by generally accepted accounting principles; or
(xii) authorize, or commit or agree to take, any of the foregoing actions;
provided that the limitations set forth in this Section 4.1(a) (other than
clause (iii)) shall not apply to any transaction between McKesson and any
wholly owned subsidiary or between any wholly owned subsidiaries of McKesson.
(b) CONDUCT OF BUSINESS BY HBO. Except as set forth in Section 4.1(b) of the
HBO Disclosure Schedule, as otherwise expressly contemplated by this Agreement
or as consented to by McKesson in writing, such consent not to be unreasonably
withheld or delayed, during the period from the date of this Agreement to the
Effective Time, HBO shall, and shall cause its subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing (but
subject to the above exceptions), during the period from the date of this
Agreement to the Effective Time, HBO shall not, and shall not permit any of its
subsidiaries to:
(i) other than regular quarterly dividends declared and paid by HBO on a basis
consistent with past practice and dividends and distributions by a direct or
indirect wholly owned subsidiary of HBO to its parent, or by a subsidiary that
is partially owned by HBO or any of its subsidiaries, provided that HBO or any
such subsidiary receives or is to receive its proportionate share thereof, (x)
declare, set aside or pay any dividends on, make any other distributions in
respect of, or enter into any agreement with respect to the voting of, any of
its capital stock, (y) split, combine or reclassify any of its capital
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stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, except for
issuances of HBO Common Stock upon the exercise of HBO Employee Stock Options
outstanding as of the date hereof in accordance with their present terms
(including cashless exercise) or issued pursuant to Section 4.1(b)(ii) or (z)
purchase, redeem or otherwise acquire any shares of capital stock of HBO or any
of its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities (except, in the case of
clause (z), for the deemed acceptance of shares upon cashless exercise of HBO
Employee Stock Options, or in connection with withholding obligations relating
thereto);
(ii) except in connection with acquisitions permitted or contemplated by
Section 4.1(b) of the HBO Disclosure Schedule, issue, deliver, sell, pledge or
otherwise encumber or subject to any Lien any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities (other than the issuance of HBO Common Stock upon the
exercise of HBO Employee Stock Options outstanding as of the date hereof in
accordance with their present terms or the issuance of HBO Employee Stock
Options (and shares of HBO Common Stock upon the exercise thereof) granted
after the date hereof in the ordinary course of business consistent with past
practice for employees (so long as such additional amount of HBO Common Stock
subject to HBO Employee Stock Options issued to employees does not exceed
500,000 shares of HBO Common Stock in the aggregate);
(iii) except as contemplated hereby, amend its certificate of incorporation,
by-laws or other comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any person, or, except for transactions in the ordinary course of
business consistent with past practice pursuant to contracts or agreements in
force at the date of this Agreement or acquisitions or investments equal to or
less than 120% of HBO's current capital and operating budgets (in each case, as
previously provided to McKesson), make any material investment either by
purchase of stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual, corporation or
other entity other than a subsidiary of HBO;
(v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien
or otherwise dispose of any of its properties or assets (including
securitizations), other than in the ordinary course of business consistent with
past practice, including, without limitation, in connection with consolidation
of acquired businesses or as would not have a material adverse effect on HBO;
(vi) take any action that would cause the representations and warranties set
forth in Section 3.2(g) and qualified as to materiality to be no longer be true
and correct or, if not so qualified, to be no longer true and correct in all
material respects;
(vii) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for the obligations of any person for borrowed money, other than
pursuant to a revolving credit facility or receivables facility or commercial
paper facility in effect as of the date hereof (including any replacement
facilities), in the ordinary course of business consistent with past practice;
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(viii) settle any claim, action or proceeding involving money damages, except
in the ordinary course of business consistent with past practice;
(ix) other than in the ordinary course of business or in connection with
acquisitions permitted by Section 4.1(b) of the HBO Disclosure Schedule, enter
into or terminate any material contract or agreement, or make any change in any
of its material leases or contracts, other than amendments or renewals of
contracts and leases without material adverse changes of terms;
(x) except for increases in accordance with normal past practice, increase in
any manner the compensation or fringe benefits of any of its officers or
directors, or materially increase the foregoing in respect of employees; enter
into any commitment to pay any pension, retirement or severance benefit to any
such officers or directors, or make any material commitment to pay any of the
foregoing to any employees; commit itself to, or enter into, any employment
agreement involving base salary of more than $300,000 per year or a term of
more than two (2) years; adopt or commit itself to any new benefit,
compensation or stock option plan or arrangement; or amend, supplement, or
accelerate the timing of payments or vesting under, or otherwise materially
amend or supplement any existing benefit, stock option or compensation plan or
arrangement (other than as may be required by applicable law);
(xi) change any of the accounting methods used by HBO or any of its
subsidiaries unless required by generally accepted accounting principles; or
(xii) authorize, or commit or agree to take, any of the foregoing actions;
provided that the limitations set forth in this Section 4.1(b) (other than
clause (iii)) shall not apply to any transaction between HBO and any wholly
owned subsidiary or between any wholly owned subsidiaries of HBO.
(c) OTHER ACTIONS. Except as required by law, McKesson and HBO shall not, and
shall not permit any of their respective subsidiaries to, voluntarily take any
action that would, or that could reasonably be expected to, result in (i) any
of the representations and warranties of such party set forth in this Agreement
that are qualified as to materiality becoming untrue at the Effective Time,
(ii) any of such representations and warranties that are not so qualified
becoming untrue in any material respect at the Effective Time, or (iii) any of
the conditions to the Merger set forth in Article VI not being satisfied.
(d) ADVICE OF CHANGES. McKesson and HBO shall promptly advise the other party
orally and in writing to the extent it has knowledge of (i) any representation
or warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement and (iii) any change or event having, or which, insofar as can
reasonably be foreseen, could reasonably be expected to have a material adverse
effect on such party or on the truth of such party's representations and
warranties or the ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or
remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
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SECTION 4.2 NO SOLICITATION BY MCKESSON.
(a) McKesson shall not, nor shall it permit any of its subsidiaries to, nor
shall it authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
to facilitate, any inquiries or the making of any proposal the consummation of
which would constitute an Alternative Transaction (as hereinafter defined) or
(ii) participate in any discussions or negotiations regarding any Alternative
Transaction; provided, however, that if, at any time prior to the adoption of
this Agreement by the holders of McKesson Common Stock, the Board of Directors
of McKesson determines in good faith, after receipt of advice from outside
counsel, that the failure to provide such information or participate in such
negotiations or discussions would result in a reasonable possibility that the
Board of Directors of McKesson breach its fiduciary duties to McKesson's
stockholders under applicable law, McKesson may, in response to any such
proposal that was not solicited by it or that did not otherwise result from a
breach of this Section 4.2(a), and subject to compliance with Section 4.2(c),
(x) furnish information with respect to McKesson and its subsidiaries to any
person pursuant to a customary confidentiality agreement containing terms as to
confidentiality no less restrictive than the terms of the Confidentiality
Agreement dated June 30, 1998 entered into between HBO and McKesson, as amended
pursuant to Section 8.6 hereof (the "Confidentiality Agreement") and (y)
participate in negotiations regarding such proposal. For purposes of this
Agreement "Alternative Transaction" means any of (i) a transaction or series of
transactions pursuant to which any person (or group of persons) other than HBO
and its subsidiaries and other than McKesson and its subsidiaries (a "Third
Party") acquires or would acquire, directly or indirectly, beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) of more than 20% of the
outstanding shares of HBO or McKesson, as the case may be, whether from HBO or
McKesson or pursuant to a tender offer or exchange offer or otherwise, (ii) any
acquisition or proposed acquisition of HBO or any of its significant
subsidiaries or McKesson or any of its significant subsidiaries, as the case
may be, by a merger or other business combination (including any socalled
"merger of equals" and whether or not HBO or any of its significant
subsidiaries or McKesson or any of its significant subsidiaries, as the case
may be, is the entity surviving any such merger or business combination) or
(iii) any other transaction pursuant to which any Third Party acquires or would
acquire, directly or indirectly, control of assets (including for this purpose
the outstanding equity securities of subsidiaries of HBO or McKesson, as the
case may be, and any entity surviving any merger or combination including any
of them) of HBO or any of its subsidiaries or McKesson or any of its
subsidiaries, as the case may be, for consideration equal to 20% or more of the
fair market value of all of the outstanding shares of HBO Common Stock or all
of the outstanding shares of McKesson Common Stock, as the case may be, on the
date prior to the date hereof.
(b) Neither the Board of Directors of McKesson nor any committee thereof shall
(i) except as expressly permitted by this Section 4.2, withdraw, qualify or
modify, or propose publicly to withdraw, qualify or modify, in a manner adverse
to HBO, the approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, or the issuance of McKesson Common
Stock in connection with the Merger, (ii) approve or recommend, or propose
publicly to approve or recommend, any Alternative Transaction, or (iii) cause
McKesson to enter into any letter
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of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "McKesson Acquisition Agreement") related to any Alternative
Transaction. Notwithstanding the foregoing, in the event that prior to the
adoption of this Agreement by the holders of McKesson Common Stock the Board of
Directors of McKesson determines in good faith, after it has received a
McKesson Superior Proposal (as defined below) and after receipt of advice from
outside counsel, that the failure to do so would result in a reasonable
possibility that the Board of Directors of McKesson would breach its fiduciary
duties to McKesson's stockholders under applicable law, the Board of Directors
of McKesson may (subject to this and the following sentences) inform McKesson
stockholders that it no longer believes that the Merger or this Agreement is
advisable and no longer recommends approval (a "McKesson Subsequent
Determination"), but only at a time that is after the fifth business day
following HBO's receipt of written notice advising HBO that the Board of
Directors of McKesson has received a McKesson Superior Proposal specifying the
material terms and conditions of such Superior Proposal, identifying the person
making such McKesson Superior Proposal and stating that it intends to make a
McKesson Subsequent Determination. After providing such notice, McKesson shall
provide a reasonable opportunity to HBO to make such adjustments in the terms
and conditions of this Agreement and/or of the McKesson Option Agreement as
would enable McKesson to proceed with its recommendation to stockholders
without making a McKesson Subsequent Determination; provided, however, that any
such adjustments shall be at the discretion of the parties at such time. For
purposes of this Agreement, a "McKesson Superior Proposal" means any proposal
(on its most recently amended or modified terms, if amended or modified) made
by a Third Party to enter into an Alternative Transaction which the Board of
Directors of McKesson determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to be more
favorable to McKesson's stockholders than the Merger taking into account all
relevant factors (including whether, in the good faith judgment of the Board of
Directors of McKesson, after obtaining advice from a financial advisor of
nationally recognized reputation, the third party is reasonably able to finance
the transaction, and any proposed changes to this Agreement and/or the McKesson
Option Agreement that may be proposed by HBO in response to such Alternative
Transaction). Notwithstanding any other provision of this Agreement, McKesson
shall submit this Agreement to its stockholders whether or not the Board of
Directors of McKesson makes a McKesson Subsequent Determination.
(c) In addition to the obligations of McKesson set forth in paragraphs (a) and
(b) of this Section 4.2, McKesson shall promptly advise HBO orally and in
writing of any request for information or of any proposal in connection with an
Alternative Transaction, the material terms and conditions of such request or
proposal and the identity of the person making such request or proposal.
McKesson will keep HBO reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or proposal on a current
basis.
(d) Nothing contained in this Section 4.2 shall prohibit McKesson (i) from
taking and disclosing to its stockholders a position contemplated by Rule 14d-9
or Rule 14e-2(a) promulgated under the Exchange Act or (ii) from making any
disclosure to its stockholders if, in the good faith judgment of the Board of
Directors of McKesson, after receipt of advice from outside counsel, failure so
to disclose would be inconsistent with its fiduciary duties to McKesson's
stockholders under applicable law.
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SECTION 4.3 NO SOLICITATION BY HBO.
(a) HBO shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
to facilitate, any inquiries or the making of any proposal the consummation of
which would constitute an Alternative Transaction or (ii) participate in any
discussions or negotiations regarding any Alternative Transaction; provided,
however, that if, at any time prior to the adoption of this Agreement by the
holders of HBO Common Stock, the Board of Directors of HBO determines in good
faith, after receipt of advice from outside counsel, that the failure to
provide such information or participate in such negotiations or discussions
would result in a reasonable possibility that the Board of Directors of HBO
breach its fiduciary duties to HBO's stockholders under applicable law, HBO
may, in response to any such proposal that was not solicited by it or which did
not otherwise result from a breach of this Section 4.3(a), and subject to
compliance with Section 4.3(c), (x) furnish information with respect to HBO and
its subsidiaries to any person pursuant to a customary confidentiality
agreement containing terms as to confidentiality no less restrictive than the
Confidentiality Agreement, as amended pursuant to Section 8.6 hereof, and (y)
participate in negotiations regarding such proposal.
(b) Neither the Board of Directors of HBO nor any committee thereof shall (i)
except as expressly permitted by this Section 4.3, withdraw, qualify or modify,
or propose publicly to withdraw, qualify or modify, in a manner adverse to
McKesson, the approval or recommendation by such Board of Directors or such
committee of the Merger, or this Agreement, (ii) approve or recommend, or
propose publicly to approve or recommend, any Alternative Transaction, or (iii)
cause HBO to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "HBO Acquisition
Agreement") related to any Alternative Transaction. Notwithstanding the
foregoing, in the event that prior to the adoption of this Agreement by the
holders of HBO Common Stock the Board of Directors of HBO determines in good
faith, after it has received an HBO Superior Proposal (as defined below) and
after receipt of advice from outside counsel, that the failure to do so would
result in a reasonable possibility that the Board of Directors of HBO would
breach its fiduciary duties to HBO's stockholders under applicable law, the
Board of Directors of HBO may (subject to this and the following sentences)
inform HBO stockholders that it no longer believes that the Merger or this
Agreement is advisable and no longer recommends approval (an "HBO Subsequent
Determination"), but only at a time that is after the fifth business day
following McKesson's receipt of written notice advising McKesson that the Board
of Directors of HBO has received an HBO Superior Proposal, specifying the
material terms and conditions of such HBO Superior Proposal, identifying the
person making such HBO Superior Proposal and stating that it intends to make an
HBO Subsequent Determination.After providing such notice, HBO shall provide a
reasonable opportunity to McKesson to make such adjustments in the terms and
conditions of this Agreement and/or of the HBO Option Agreement as would enable
HBO to proceed with its recommendation to stockholders without making an HBO
Subsequent Determination; provided, however, that any such adjustments shall be
at the discretion of the parties at such time. For purposes of this Agreement,
an "HBO Superior Proposal" means any proposal (on its most recently amended or
modified terms, if amended or modified) made by a Third Party enter into an
Alternative
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Transaction on terms which the Board of Directors of HBO determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to HBO's stockholders than the
Merger taking into account all relevant factors (including whether, in the good
faith judgment of the Board of Directors of HBO, after obtaining advice from a
financial advisor of nationally recognized reputation, the third party is
reasonably able to finance the transaction, and any proposed changes to this
Agreement and/or the HBO Option Agreement that may be proposed by McKesson in
response to such Alternative Transaction). Notwithstanding any other provision
of this Agreement, HBO shall submit this Agreement to its stockholders whether
or not the Board of Directors of HBO make an HBO Subsequent Determination.
(c) In addition to the obligations of HBO set forth in paragraphs (a) and (b)
of this Section 4.3, HBO shall promptly advise McKesson orally and in writing
of any request for information or of any proposal in connection with an
Alternative Transaction, the material terms and conditions of such request or
proposal and the identity of the person making such request or proposal. HBO
will keep McKesson reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or proposal on a current
basis.
(d) Nothing contained in this Section 4.3 shall prohibit HBO from (i) taking
and disclosing to its stockholders a position contemplated by Rule 14d-9 or
Rule 14e-2(a) promulgated under the Exchange Act or (ii) from making any
disclosure to its stockholders if, in the good faith judgment of the Board of
Directors of HBO, after receipt of advice from outside counsel, failure so to
disclose would be inconsistent with its fiduciary duties to HBO's stockholders
under applicable law.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 PREPARATION OF THE FORM S-4 AND THE JOINT PROXY STATEMENT;
STOCKHOLDERS' MEETINGS.
(a) As soon as practicable following the date of this Agreement, McKesson and
HBO shall prepare and file with the SEC the Joint Proxy Statement, and McKesson
shall prepare and file with the SEC the Form S-4, in which the Joint Proxy
Statement will be included as a prospectus. Each of McKesson and HBO shall use
commercially reasonable efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. McKesson will
use all commercially reasonable efforts to cause the Joint Proxy Statement to
be mailed to McKesson's stockholders, and HBO will use all commercially
reasonable efforts to cause the Joint Proxy Statement to be mailed to HBO's
stockholders, in each case as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. McKesson shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of McKesson Common Stock in the Merger and the conversion of
Assumed Options, and HBO shall furnish all information concerning HBO and the
holders of HBO Common Stock as may be reasonably requested in connection with
any such action.No filing of, or amendment or supplement to, the Form S-4 or
the Joint Proxy Statement will be made by McKesson
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without HBO's prior consent (which shall not be unreasonably withheld) and
without providing HBO the opportunity to review and comment thereon. McKesson
will advise HBO promptly after it receives notice thereof, of the time when the
Form S-4 has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the
McKesson Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or any request by the SEC for amendment of the Joint
Proxy Statement or the Form S-4 or comments thereon and responses thereto or
requests by the SEC for additional information. If at any time prior to the
Effective Time any information relating to McKesson or HBO, or any of their
respective affiliates, officers or directors, should be discovered by McKesson
or HBO which should be set forth in an amendment or supplement to any of the
Form S-4 or the Joint Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such
information shall promptly notify the other parties hereto and an appropriate
amendment or supplement describing such information shall be promptly filed
with the SEC and, to the extent required by law, disseminated to the
stockholders of McKesson and HBO.
(b) McKesson shall, as promptly as practicable after the Form S-4 is declared
effective under the Securities Act, duly give notice of, convene and hold a
meeting of its stockholders (the "McKesson Stockholders' Meeting") in
accordance with the DGCL for the purpose of obtaining the McKesson Stockholder
Approval and shall, subject to the provisions of Section 4.2(b) hereof, through
its Board of Directors, recommend to its stockholders the approval and adoption
of this Agreement, the Merger and the other transactions contemplated hereby.
(c) HBO shall, as promptly as practicable after the Form S-4 is declared
effective under the Securities Act, duly give notice of, convene and hold a
meeting of its stockholders (the "HBO Stockholders' Meeting") in accordance
with the DGCL for the purpose of obtaining the HBO Stockholder Approval and
shall, subject to the provisions of Section 4.3(b) hereof, through its Board of
Directors, recommend to its stockholders the approval and adoption of this
Agreement, the Merger and the other transactions contemplated hereby.
(d) HBO and McKesson will use commercially reasonable efforts to hold the
McKesson Stockholders' Meeting and the HBO Stockholders' Meeting on the same
date and as soon as reasonably practicable after the date hereof.
(e) Each of McKesson's and HBO's obligations under this Section 5.1 shall at
all times remain subject to the provisions of Sections 4.2(b) and 4.3(b),
respectively, in the event that under the circumstances described therein, the
Board of Directors of McKesson shall have made a McKesson Subsequent
Determination or the Board of Directors of HBO shall have made an HBO
Subsequent Determination, as the case may be.
SECTION 5.2 LETTERS OF MCKESSON'S ACCOUNTANTS.
(a) McKesson shall use commercially reasonable efforts to cause to be delivered
to HBO two letters from McKesson's independent accountants, one dated as of the
date the Form S-4 is declared effective and one dated as of the Closing Date,
each addressed to HBO, in form and substance
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reasonably satisfactory to HBO and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) McKesson shall use commercially reasonable efforts to cause to be delivered
to HBO and HBO's independent accountants a letter from McKesson's independent
accountants addressed to HBO and McKesson, dated as of the date the Form S-4 is
declared effective and as of the Closing Date, stating that accounting for the
Merger as a pooling of interests under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations is appropriate if the Merger is
closed and consummated as contemplated by this Agreement.
SECTION 5.3 LETTERS OF HBO'S ACCOUNTANTS.
(a) HBO shall use commercially reasonable efforts to cause to be delivered to
McKesson two letters from HBO's independent accountants, one dated as of the
date the Form S-4 is declared effective and one dated as of the Closing Date,
each addressed to McKesson, in form and substance reasonably satisfactory to
McKesson and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
(b) HBO shall use commercially reasonable efforts to cause to be delivered to
McKesson and McKesson's independent accountants a letter from HBO's independent
accountants, addressed to McKesson and HBO, dated as of the date the Form S-4
is declared effective and as of the Closing Date, stating that accounting for
the Merger as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations is appropriate if the
Merger is closed and consummated as contemplated by this Agreement.
SECTION 5.4 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the
Confidentiality Agreement and subject to applicable law, each of McKesson and
HBO shall, and shall cause each of its respective subsidiaries to, afford to
the other party and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access
during normal business hours during the period prior to the Effective Time to
all their respective properties, books, contracts, commitments, personnel and
records (provided that such access shall not interfere with the business or
operations of such party) and, during such period, each of McKesson and HBO
shall, and shall cause each of its respective subsidiaries to, furnish promptly
to the other party (a) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of federal or state securities laws and (b) all other information concerning
its business, properties and personnel as such other party may reasonably
request. No review pursuant to this Section 5.4 shall affect any representation
or warranty given by the other party hereto. Each of McKesson and HBO will
hold, and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreements. McKesson shall also cooperate with HBO and use its best efforts to
obtain an estimate of withdrawal liability from each multi-employer plan with
respect to which McKesson contributes as of the date hereof.
SECTION 5.5 COMMERCIALLY REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions set forth in this Agreement,
each of the parties agrees to use commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or
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cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings and the
taking of all steps as may be necessary to obtain an approval or waiver from,
or to avoid an action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers, and any necessary or
appropriate financing arrangements, from third parties, (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
by this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed,
and (iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. Notwithstanding anything to the contrary in this
Agreement, neither HBO nor McKesson shall be required to hold separate
(including by trust or otherwise) or divest any of their respective businesses
or assets, or enter into any consent decree or other agreement that would
restrict either HBO or McKesson in the conduct of its business as heretofore
conducted.
(b) In connection with and without limiting the foregoing, McKesson and HBO
shall (i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to this Agreement, the
Option Agreements, or any of the transactions contemplated hereby and thereby
and (ii) if any state takeover statute or similar statute or regulation becomes
applicable to such agreements or transactions, take all action necessary to
ensure that such transactions may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger and the other transactions
contemplated by this Agreement.
SECTION 5.6 INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) McKesson agrees to maintain in effect in accordance with their terms all
rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time existing as of the date
of this Agreement in favor of the current or former directors or officers of
HBO and its subsidiaries as provided in their respective certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of HBO. In addition, from and after the Effective
Time, directors and officers of HBO who become directors or officers of
McKesson will be entitled to the same indemnity rights and protections, and
directors' and officers' liability insurance, as are afforded from time to time
to other directors and officers of McKesson.
(b) In the event that McKesson or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of McKesson assume the obligations set forth in this
Section 5.6.
(c) McKesson shall use commercially reasonable efforts to provide to HBO's
current directors and officers, for six years after the Effective Time,
liability insurance covering acts or omissions
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occurring prior to the Effective Time with respect to those persons who are
currently covered by HBO's directors' and officers' liability insurance policy
on terms with respect to such coverage and amount no less favorable than those
of such policy in effect on the date hereof, provided that in no event shall
McKesson be required to expend more than 150% of the current amount expended by
HBO to maintain such coverage.
(d) The provisions of this Section 5.6 (i) are intended to be for the benefit
of, and will be enforceable by, each indemnified party, his or her heirs and
his or her representatives and (ii) are in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise.
SECTION 5.7 FEES AND EXPENSES.
(a) Except as set forth in this Section 5.7 and in Section 7.2, all fees and
expenses incurred in connection with the Merger, this Agreement, the Option
Agreements and the transactions contemplated by this Agreement and the Option
Agreements shall be paid by the party incurring such fees or expenses, whether
or not the Merger is consummated, except that each of HBO and McKesson shall
bear and pay one-half of the costs and expenses incurred in connection with (i)
the filing, printing and mailing of the Form S-4 and the Joint Proxy Statement
(including SEC filing fees) and (ii) the filings of the premerger notification
and report forms under the HSR Act (including filing fees). In addition, all
transfer taxes incurred in connection with the Merger arising on or after the
Effective Time shall be borne by McKesson.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. HBO and McKesson will consult with each other
before issuing, and provide each other the opportunity to review, comment upon
and concur with, and use reasonable efforts to agree on, any press release or
other public statements with respect to the transactions contemplated by this
Agreement, the Option Agreements, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as either party may determine is required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange or stock market. The parties agree that the
initial press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by the
parties.
SECTION 5.9 AFFILIATES.
(a) As soon as practicable after the date hereof, HBO shall deliver to McKesson
a letter identifying all persons who may be deemed to be, at the time this
Agreement is submitted for adoption by the stockholders of HBO, "affiliates" of
HBO for purposes of Rule 145 under the Securities Act or for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such list shall be updated as necessary to reflect changes
from the date hereof. HBO shall use commercially reasonable efforts to cause
each person identified on such list to deliver to McKesson on or before the
date immediately preceding the date of filing the Form S-4, written agreements
substantially in the forms attached as Exhibit G and Exhibit H hereto, and in
the event any other person becomes an affiliate of HBO thereafter to cause such
person to deliver such an agreement to McKesson as soon as practicable but in
any event at Closing. McKesson shall use commercially reasonable efforts to
cause
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all persons who are "affiliates" of McKesson for purposes of qualifying the
Merger for pooling of interests accounting treatment under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations to deliver
to HBO on or before the date immediately preceding the date of filing of the
Form S-4, a written agreement substantially in the form attached as Exhibit H
hereto, and in the event any other person becomes an affiliate of McKesson
thereafter to cause such person to deliver such an agreement to HBO as soon as
practicable but in any event at Closing.
(b) McKesson shall use commercially reasonable efforts to publish no later than
45 days after the end of the first full month after the Effective Time in which
there are at least 30 days of post Merger combined operations, combined sales
and net income figures as contemplated by and in accordance with the terms of
SEC Accounting Series Release No. 135.
SECTION 5.10 NYSE AND PSE LISTINGS. McKesson shall use commercially reasonable
efforts to cause the McKesson Common Stock issuable under Article II to be
approved for listing on NYSE and PSE, subject to official notice of issuance,
as promptly as practicable after the date hereof, and in any event prior to the
Closing Date.
SECTION 5.11 TAX TREATMENT. Each of HBO and McKesson shall use commercially
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code and to obtain the opinions of counsel
referred to in Section 6.1(g). The parties will characterize the Merger as such
a reorganization for purposes of all tax returns and other filings.
SECTION 5.12 POOLING OF INTERESTS. Each of McKesson and HBO shall use
commercially 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 the SEC, and
each of McKesson and HBO agrees that it shall take no action that would cause
such accounting treatment not to be obtained.
SECTION 5.13 POST-MERGER OPERATIONS. Following the Effective Time, the
principal corporate offices of McKesson HBOC, Inc. shall be San Francisco and
the headquarters for HBO and its subsidiaries shall be Atlanta, until such time
as the Board of Directors of McKesson otherwise determines.
SECTION 5.14 CONVEYANCE TAXES. HBO and McKesson shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
SECTION 5.15 EMPLOYEE BENEFITS. Each of HBO and McKesson agrees to provide
immediately following the Effective Time employee benefits and compensation
arrangements for all their respective employees, at a level no less favorable
in the aggregate than those provided for such employees immediately prior to
the Effective Time, subject to later amendment or other alteration as may be
directed by the Board of Directors of McKesson subsequent to the Effective
Time.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVALS. Each of the McKesson Stockholder Approval and the
HBO Stockholder Approval shall have been obtained.
(b) HSR ACT. The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired.
(c) GOVERNMENTAL, REGULATORY AND OTHER APPROVALS. (i) Other than the filing of
the Certificate of Merger provided for under Section 1.3 and filings pursuant
to the HSR Act (which are addressed in Section 6.1(b)), all consents, approvals
and actions of, filings with and notices to any Governmental Entity required of
McKesson, HBO or any of their subsidiaries to consummate the Merger and the
other transactions contemplated hereby (together with the matters contemplated
by Section 6.1(b), the "Requisite Regulatory Approvals") shall have been
obtained and (ii) except as would not have a material adverse effect on any of
McKesson, HBO or the Surviving Corporation, the consents and approvals set
forth on Section 3.1(d) of the McKesson Disclosure Schedule and Section 3.2(d)
of the HBO Disclosure Schedule shall have been obtained or shall no longer be
required.
(d) NO INJUNCTIONS OR RESTRAINTS. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively, "Restraints") shall be in
effect (i) preventing the consummation of the Merger, or (ii) which otherwise
is reasonably likely to have a material adverse effect on McKesson or HBO, as
applicable; provided, however, that each of the parties shall have used
commercially reasonable efforts to prevent the entry of any such Restraints and
to appeal as promptly as possible any such Restraints that may be entered.
(e) FORM S-4. The Form S-4 shall have become effective under the Securities Act
prior to the mailing of the Joint Proxy Statement by each of McKesson and HBO
to their respective stockholders and no stop order or proceedings seeking a
stop order shall be threatened by the SEC or shall have been initiated by the
SEC.
(f) NYSE AND PSE LISTINGS. The shares of McKesson Common Stock issuable to
HBO's stockholders as contemplated by Article II shall have been approved for
listing on NYSE and PSE, subject to official notice of issuance.
(g) TAX OPINIONS. HBO shall have received from Jones, Day, Reavis & Pogue,
counsel to HBO, and McKesson shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to McKesson, an opinion, dated as of the date that
the Registration Statement is declared effective, to the effect that the Merger
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code, and such opinions shall not have been withdrawn or materially modified as
of the Closing
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Date. In rendering such opinions, each of counsel for HBO and McKesson shall be
entitled to receive and rely upon representations of fact contained in
certificates of officers of HBO and McKesson, which representations shall be in
form and substance satisfactory to such counsel.
(h) POOLING LETTERS. HBO and McKesson shall have received letters from each of
McKesson's independent accountants and HBO's independent accountants, dated as
of the Closing Date, in each case addressed to HBO and McKesson, stating that
the Merger qualifies for accounting as a pooling of interests under Opinion 16
of the Accounting Principles Board and applicable SEC rules and regulations.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF HBO. The obligation of HBO to effect
the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
McKesson set forth herein shall be true and correct both when made and at and
as of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have, and is not likely
to have, individually or in the aggregate, a material adverse effect on
McKesson.
(b) PERFORMANCE OF OBLIGATIONS OF MCKESSON. McKesson shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) NO MATERIAL ADVERSE CHANGE. At any time after the date of this Agreement
there shall not have occurred any material adverse change relating to McKesson.
(d) MCKESSON RIGHTS AGREEMENT. The McKesson Rights issued pursuant to the
McKesson Rights Agreement shall not have become nonredeemable, exercisable,
distributed or triggered pursuant to the terms of such agreement.
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF MCKESSON. The obligation of McKesson
to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of HBO
set forth herein shall be true and correct both when made and at and as of the
Closing Date, as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date), except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality," or "material
adverse effect" set forth therein) does not have, and is not likely to have,
individually or in the aggregate, a material adverse effect on HBO.
(b) PERFORMANCE OF OBLIGATIONS OF HBO. HBO shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date.
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(c) NO MATERIAL ADVERSE CHANGE. At any time after the date of this Agreement
there shall not have occurred any material adverse change relating to HBO.
(d) HBO RIGHTS AGREEMENT. The HBO Rights issued pursuant to the HBO Rights
Agreement shall not have become nonredeemable, exercisable, distributed or
triggered pursuant to the terms of such agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, and (except in the case of 7.1(e) or 7.1(f)) whether before
or after the McKesson Stockholder Approval or the HBO Stockholder Approval:
(a) by mutual written consent of HBO and McKesson, if the Board of Directors of
each so determines by a vote of a majority of its entire Board;
(b) by either the Board of Directors of HBO or the Board of Directors of
McKesson:
(i) if the Merger shall not have been consummated by March 31, 1999, unless
such termination right has been expressly restricted in writing by the Board of
Directors of HBO or McKesson, as the case may be; provided, however, that the
right to terminate this Agreement pursuant to this Section 7.1(b)(i) shall not
be available to any party whose failure to perform any of its obligations under
this Agreement results in the failure of the Merger to be consummated by such
time;
(ii) if the McKesson Stockholder Approval shall not have been obtained at a
McKesson Stockholders' Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iii) if the HBO Stockholder Approval shall not have been obtained at an HBO
Stockholders' Meeting duly convened therefor or at any adjournment or
postponement thereof;
(iv) if any Restraint having any of the effects set forth in Section 6.1(d)
shall be in effect and shall have become final and nonappealable, or if any
Governmental Entity that must grant a Requisite Regulatory Approval has denied
approval of the Merger and such denial has become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to this
Section 7.1(b)(iv) shall have used commercially reasonable efforts to prevent
the entry of and to remove such Restraint or to obtain such Requisite
Regulatory Approval, as the case may be;
(c) by the Board of Directors of HBO (provided that HBO is not then in material
breach of any representation, warranty, covenant or other agreement contained
herein), if McKesson shall have breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (A) would give rise to the
failure of a condition set forth in Section 6.2(a) or (b), and (B) is incapable
of being cured by McKesson or is not cured within 30 days of written notice
thereof;
(d) by the Board of Directors of McKesson (provided that McKesson is not then
in material breach of any representation, warranty, covenant or other agreement
contained herein), if HBO shall have
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breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (A) would give rise to the
failure of a condition set forth in Section 6.3(a) or (b), and (B) is incapable
of being cured by HBO or is not cured within 30 days of written notice thereof;
(e) by the Board of Directors of HBO, at any time prior to the McKesson
Stockholders' Meeting, if the McKesson Board of Directors shall have (A) failed
to include in the Joint Proxy Statement to the McKesson Stockholders, its
recommendation without modification or qualification that such stockholders
approve this Agreement and the transactions contemplated hereby, or (B)
subsequently withdrawn such recommendation or (C) modified or qualified such
recommendation in a manner adverse to the interests of HBO;
(f) by the Board of Directors of McKesson, at any time prior to the HBO
Stockholders' Meeting, if the HBO Board of Directors shall have (A) failed to
include in the Joint Proxy Statement to the HBO Stockholders, its
recommendation without modification or qualification that such stockholders
approve this Agreement and the transaction contemplated hereby, or (B)
subsequently withdrawn such recommendation or (C) modified or qualified such
recommendation in a manner adverse to the interests of McKesson;
(g) by HBO if the Board of Directors of McKesson shall have failed to take any
of the actions contemplated by Section 5.1 as a result of the exercise of its
rights under Section 5.1(e); or
(h) by McKesson if the Board of Directors of HBO shall have failed to take any
of the actions contemplated by Section 5.1 as a result of the exercise of its
rights under Section 5.1(e).
SECTION 7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement as provided in Section 7.1
hereof, and subject to the provisions of Section 8.1 hereof, this Agreement
shall forthwith become void and there shall be no liability on the part of any
of the parties, except (i) as set forth in this Section 7.2 and in
Sections 5.4, 5.7, 3.1(o) and 3.2(o) hereof, and (ii) nothing herein shall
relieve any party from liability for any willful breach hereof.
(b) If this Agreement is terminated (i) by HBO pursuant to Section 7.1(e)
hereof, (ii) by HBO or McKesson pursuant to Section 7.1(b)(ii) hereof because
of the failure to obtain the required approval from the McKesson stockholders
and at the time of such termination or prior to the meeting of McKesson's
stockholders there shall have been an offer or proposal for, an announcement of
any intention with respect to (including, without limitation, the filing of a
statement of beneficial ownership on Schedule 13D discussing the possibility of
or reserving the right to engage in), or any agreement with respect to, a
transaction that would constitute an Alternative Transaction (as defined in
Section 4.2(a) hereof, except that for purposes of clause (i) of such
definition, the applicable percentage shall be fifty percent (50%)) involving
McKesson or any of the McKesson Subsidiaries (whether or not such offer,
proposal, announcement or agreement shall have been rejected or shall have been
withdrawn prior to the time of such termination or of the meeting), (iii) by
HBO as a result of McKesson's material breach of Section 4.2 or 5.1 hereof
which, in the case of Section 5.1 only, is not cured within 30 days after
notice thereof to McKesson, or (iv) by HBO pursuant to
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Section 7.1(g) hereof, McKesson shall pay to HBO a termination fee of Two
Hundred Million Dollars ($200,000,000.00) (the "McKesson Termination Fee").
(c) If this Agreement is terminated (i) by McKesson pursuant to Sections 7.1(f)
hereof, (ii) by HBO or McKesson pursuant to Section 7.1(b)(iii) hereof because
of the failure to obtain the required approval from the HBO stockholders and at
the time of such termination or prior to the meeting of HBO's stockholders
there shall have been an offer or proposal for, an announcement of any
intention with respect to (including, without limitation, the filing of a
statement of beneficial ownership on Schedule 13D discussing the possibility of
or reserving the right to engage in), any agreement with respect to, a
transaction that would constitute an Alternative Transaction (as defined in
Section 4.2(a) hereof, except that for purposes of clause (i) of such
definition, the applicable percentage shall be fifty percent (50%) involving
HBO or any of the HBO Subsidiaries (whether or not such offer, proposal,
announcement or agreement shall have been rejected or shall have been withdrawn
prior to the time of such termination or of the meeting), (iii) by McKesson as
a result of HBO's material breach of Section 4.3 or 5.1 hereof which, in the
case of Section 5.1 only, is not cured within 30 days after notice thereof to
HBO or (iv) by McKesson pursuant to Section 7.1(h) hereof, HBO shall pay to
McKesson a termination fee of Two Hundred Million Dollars ($200,000,000.00)
(the "HBO Termination Fee").
(d) Each Termination Fee payable under Sections 7.2(b) and (c) above shall be
payable in cash, payable no later than one business day following the delivery
of notice of termination to the other party.
(e) HBO and McKesson agree that the agreements contained in Sections 7.2(b) and
(c) above are an integral part of the transaction contemplated by this
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fee due under such Sections 7.2(b) and
(c), the defaulting party shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment.
SECTION 7.3 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties at any time before or after the
McKesson Stockholder Approval or the HBO Stockholder Approval; provided,
however, that after any such approval, there may not be, without further
approval of such the stockholders of McKesson (in the case of the McKesson
Stockholders Approval) and the stockholders of HBO (in the case of the HBO
Stockholders Approval), any amendment of this Agreement that changes the amount
or the form of the consideration to be delivered to the holders of McKesson
Common Stock hereunder, or which by law otherwise expressly requires the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto and
duly approved by the parties' respective Boards of Directors or a duly
designated committee thereof.
SECTION 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, a party
may, subject to the proviso of Section 7.3 (and for this purpose treating any
waiver referred to below as an amendment), (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties of the other
parties contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) waive
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compliance by the other party with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Any extension or waiver given in
compliance with this Section 7.4 or failure to insist on strict compliance with
an obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to HBO, to: HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Telecopy No.: 770/393-6020
Attention: Charles W. McCall
with a copy to: Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Telecopy No.: (404) 581-8330
Attention: John E. Zamer, Esq.
(b) if to McKesson, to: McKesson Corporation
One Post Street
San Francisco, California 94104
Telecopy No.: 415/983-8826
Attention: Mark A. Pulido
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: 212/735-3691
Attention: Peter A. Atkins, Esq.
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SECTION 8.3 DEFINITIONS. For purposes of this Agreement:
(a) except for purposes of Section 5.10, an "affiliate" of any person means
another person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such first person,
where "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract, as trustee or
executor, or otherwise;
(b) "material adverse change" or "material adverse effect" means, when used in
connection with McKesson or HBO, any change, effect, event, occurrence or state
of facts that is or could reasonably be expected to be materially adverse to
the business, financial condition or results of operations of such party and
its subsidiaries taken as a whole, it being understood that none of the
following shall be deemed by itself or by themselves, either alone or in
combination, to constitute a material adverse effect: (i) a change in the
market price or trading volume of HBO or McKesson Common Stock, as the case may
be or (ii) conditions affecting the U.S. economy as a whole;
(c) "person" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or
other entity;
(d) a "subsidiary" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of 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 the
equity interests of which) is owned directly or indirectly by such first
person; and
(e) "knowledge" of any person which is not an individual means the knowledge of
such person's executive officers or senior management of such person's
operating divisions and segments.
SECTION 8.4 INTERPRETATION. When a reference is made in this Agreement to an
Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." The words
"hereof," "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All terms defined in this Agreement
shall have the defined meanings when used in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is
referred to herein means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession
of comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
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SECTION 8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein), the Option
Agreements, the Support Agreement and the Confidentiality Agreement (as amended
below) (a) constitute the entire agreement, and supersede all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter of this Agreement and (b) except for the provisions of
Section 5.7, are not intended to confer upon any person other than the parties
any rights or remedies. The Confidentiality Agreement is hereby amended to
delete therefrom Section 11.
SECTION 8.7 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
SECTION 8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by either of the parties hereto without the prior
written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 CONSENT TO JURISDICTION. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
State of Delaware or any Delaware 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 court sitting in the State of Delaware or a Delaware state court.
SECTION 8.10 HEADINGS, ETC. The headings and table of contents contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 8.11 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect, insofar as the foregoing can be
accomplished without materially affecting the economic benefits anticipated by
the parties to this Agreement. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, HBO, McKesson and Merger Sub have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
HBO & COMPANY
/s/ Jay P. Gilbertson
By: _________________________________
Jay P. Gilbertson,
President, Co-Chief Operating
Officer andChief Financial
Officer
McKESSON CORPORATION
/s/ Mark A. Pulido
By: _________________________________
Mark A. Pulido,
President and Chief Executive
Officer
McKESSON MERGER SUB, INC.
/s/ Richard H. Hawkins
By: _________________________________
Richard H. Hawkins,
President
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<PAGE>
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT dated as of November 9, 1998, among MCKESSON
CORPORATION, a Delaware corporation ("McKesson"), HBO & COMPANY, a Delaware
corporation ("HBO"), and MCKESSON MERGER SUB, INC. ("Merger Sub"), a Delaware
corporation and a wholly-owned subsidiary of McKesson.
W I T N E S S E T H:
WHEREAS, McKesson, HBO and Merger Sub have entered into that certain Agreement
and Plan of Merger dated as of October 17, 1998 (the "Merger Agreement"); and
WHEREAS, the parties hereto desire to amend the Merger Agreement and provide
for certain other matters as set forth herein;
NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein, the parties agree as follows:
1. The last sentence of Section 5.7(a) of the Merger Agreement is hereby
deleted and replaced with a sentence to read as follows:
"In addition, in the event that any state or local transfer taxes
("Transfer Taxes") are imposed on the stockholders of HBO, McKesson or
any subsidiary thereof as a result of the Merger, HBO, McKesson or such
subsidiary will pay the Transfer Taxes on behalf of its stockholders
directly to the applicable state or local taxing authority; provided
further, that HBO shall cause any Transfer Taxes heretofore or
hereinafter imposed on the former stockholders of Access Health, Inc.
who become stockholders of HBO as a result of its merger with a
subsidiary of HBO to be paid by Access Health, Inc. on behalf of such
stockholders directly to the applicable state or local taxing
authority."
2. Except as expressly provided in this Amendment Agreement, all of the
terms and conditions of the Merger Agreement shall remain in full force and
effect and not be altered or amended hereby.
3. McKesson and Merger Sub hereby acknowledge and agree that HBO hereby
amends and replaces Section 3.2(o) of the HBO Disclosure Schedule (as such
term is defined in the Merger Agreement) as set forth in Exhibit A attached
---------
hereto.
4. This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
5. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflict of laws thereof.
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IN WITNESS WHEREOF, HBO, McKesson and Merger Sub have caused this Amendment
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
HBO & COMPANY
By: /s/ JAY P. GILBERTSON
---------------------------------
Jay P. Gilbertson
President, Co-Chief Operating
Officer and Chief Financial Officer
McKESSON CORPORATION
By: /s/ NANCY A. MILLER
---------------------------------
NANCY A. MILLER
Vice President and Secretary
McKESSON MERGER SUB, INC.
By: /s/ NANCY A. MILLER
---------------------------------
NANCY A. MILLER
Vice President and Secretary
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<PAGE>
EXHIBIT A
SECTION 3.2(O)
BROKERS
1. HBO has retained Morgan Stanley & Co. Incorporated to render a financial
opinion letter pursuant to which it will receive $5,000,000 in fees.
2. HBO entered into an engagement letter dated, June 19, 1998, with Salomon
Smith Barney. HBO disputes that any fees or commissions are payable
thereunder in connection with the transaction contemplated hereby.
3. HBO retained Gleacher NatWest, Inc. to act as its financial advisor pursuant
to an engagement letter dated October 19, 1998 for which Gleacher NatWest,
Inc. will receive $2,000,000 in fees.
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
(MCKESSON CORPORATION SHARES)
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
(MCKESSON CORPORATION SHARES)
THIS STOCK OPTION AGREEMENT (this "AGREEMENT"), dated October 17, 1998,
between McKesson Corporation, a Delaware corporation ("Issuer"), and HBO &
Company, a Delaware corporation ("Grantee"),
WITNESSETH:
WHEREAS, Grantee, Issuer, and McKesson Merger Sub, Inc., a wholly-owned
subsidiary of Issuer, have entered into an Agreement and Plan of Merger, dated
as of October 17, 1998 (the "Merger Agreement"), which provides, among other
things, for the merger of Merger Sub with and into Grantee, such that Grantee
will become a wholly-owned subsidiary of Issuer, and stockholders of Grantee
will become stockholders of Issuer (capitalized terms used herein without
definition shall have the respective meanings specified in the Merger
Agreement); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
Nineteen Million Seven Hundred Fifty Nine Thousand Seven Hundred Seventeen
(19,759,717) shares of fully paid and nonassessable common stock of the
Issuer, par value $.01 per share ("Common Stock"), equal to 19.9% of the
shares of Common Stock outstanding as of the date hereof, together with any
associated purchase rights (the "Rights") under the Rights Agreement, dated as
of October 21, 1994, as amended from time to time, between Issuer and First
Chicago Trust Company (references to shares purchasable upon exercise of the
Option shall be deemed to include the associated Rights), at a purchase price
of $88.6875 per share of Common Stock as adjusted in accordance with the
provisions of Section 5 of this Agreement (such price, as adjusted if
applicable, the "Option Price").
2.(a) EXERCISE OF OPTION. Grantee may exercise the Option, in whole or part,
and from time to time, if, but only if, a Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Option Termination
Event (as hereinafter defined), provided that Grantee shall have sent the
written notice of such exercise (as provided in subsection (e) of this Section
2) on or prior to the last date of the 12-month period following such
Triggering Event (the "Option Expiration Date").
(b) OPTION TERMINATION EVENT. The term "Option Termination Event" shall mean
any of the following events: (i) the Effective Time of the Merger; (ii)
termination of the Merger Agreement by either party pursuant to Section
7.1(b)(iv) of the Merger Agreement, whether or not such termination occurs
prior to the occurrence of a Triggering Event, provided that the matter giving
rise to the order, decree, ruling or other action providing the basis for
termination under Section 7.1(b)(iv) shall not have been initiated by Issuer;
or (iii) termination of the Merger Agreement by either party pursuant to any
other provision of the Merger Agreement if such termination occurs prior to
the occurrence of a Triggering Event; or (iv) 12 months after the first
occurrence of a Triggering Event.
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(c) TRIGGERING EVENT. The term "Triggering Event" shall mean any event that
would entitle either party to terminate the Merger Agreement and permit Grantee
to receive any fee from Issuer pursuant to Section 7.2 of the Merger Agreement.
(d) NOTICE OF TRIGGERING EVENT. Issuer shall notify Grantee promptly in writing
of the occurrence of any Triggering Event, it being understood that the giving
of such notice by Issuer shall not be a condition to the right of Grantee to
exercise the Option or for a Triggering Event to have occurred.
(e) NOTICE OF EXERCISE; CLOSING. In the event Grantee is entitled to and wishes
to exercise the Option, it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place
and date not earlier than three business days nor later than 60 business days
from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of the purchase and sale pursuant to the Option
(the "Closing") cannot be consummated, in the reasonable opinion of Grantee, by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which such restriction on consummation has expired or been
terminated; and provided further, without limiting the foregoing, that if, in
the reasonable opinion of Grantee, prior notification to or approval of any
regulatory agency is required in connection with such purchase, Grantee shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have
been obtained and any requisite waiting period or periods shall have passed.
Any exercise of the Option shall be deemed to occur on the Closing Date
relating thereto. Notwithstanding this subsection (e), in no event shall any
Closing Date be more than 12 months after the related Notice Date, and if the
Closing Date shall not have occurred within 12 months after the related Notice
Date due to the failure to obtain any such required approval, the exercise of
the Option effected on the Notice Date shall be deemed to have been rescinded.
In the event (x) Grantee receives official notice that an approval of any
regulatory authority required for the purchase of Option Shares (as hereinafter
defined) will not be issued or granted, (y) a Closing Date shall not have
occurred within 12 months after the related Notice Date due to the failure to
obtain any such required approval or (z) Grantee shall have the right pursuant
to the last sentence of subsection (d) of Section 7 or subsection (f) of
Section 7 to exercise the Option, Grantee shall nevertheless be entitled to
exercise its right as set forth in Section 7.
(f) PURCHASE PRICE. At the Closing referred to in subsection (e) of this
Section 2, Grantee shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude Grantee from exercising the Option.
(g) ISSUANCE OF COMMON STOCK. At such Closing, simultaneously with the delivery
of immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to Grantee a certificate or certificates representing the
number of shares of Common Stock purchased by the Grantee and, if the Option
should be exercised in part only, a new Option evidencing the rights of Grantee
thereof to purchase the balance of the shares purchasable hereunder, and the
Grantee shall
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<PAGE>
deliver to Issuer this Agreement and a letter agreeing that Grantee will not
offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Agreement.
(h) LEGEND. Certificates for Common Stock delivered at a Closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"THE TRANSFER AND VOTING OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN PROVISIONS OF AN AGREEMENT BETWEEN THE REGISTERED HOLDER
HEREOF AND ISSUER AND TO RESALE RESTRICTIONS ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF ISSUER AND WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY ISSUER OF A WRITTEN REQUEST THEREFOR."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if Grantee shall have delivered to Issuer a copy of a letter from the
staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii)
the legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) and both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) RECORD HOLDER; EXPENSES. Upon the Closing, Grantee shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to Grantee or the Issuer shall have failed or refused to
designate the bank account described in subsection (f) of this Section 2.
Issuer shall pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2
in the name of Grantee or its assignee, transferee or designee.
3. RESERVATION OF SHARES. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock (and other securities issuable pursuant to
Section 5) so that the Option may be exercised without additional authorization
of Common Stock (or such other securities) after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock (or such other securities); (ii) that it will not, by charter amendment
or through reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by Issuer; (iii) promptly to take all action as may from
time to time be required (including without limitation complying with all
premerger notification, reporting and waiting periods in 15 U.S.C. Section 18a
the rules and regulations thereunder) in order to permit Grantee to exercise
the Option and the Issuer duly and effectively to issue shares of Common Stock
pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of Grantee against dilution.
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4. LOST OPTIONS. Upon receipt by Issuer of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Agreement, if mutilated, Issuer
will execute and deliver a new Agreement of like tenor and date.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of shares of Common
Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date hereof (other than by reason of
subsection (b) of this Section 5), the number of shares of Common Stock subject
to the Option shall be increased so that, after such issuance of additional
shares, such number of shares then remaining subject to the Option, together
with shares theretofore issued pursuant to the Option, equals 19.9% of the
number of such shares of Common Stock then issued and outstanding.
(b) In the event of any change in Common Stock by reason of stock dividends,
other dividends on the Common Stock payable in securities or other property
(other than regular cash dividends), stock splits, merger, recapitalization,
combinations, subdivisions, conversions, exchanges of shares or other similar
transactions, then the type and number of shares of Common Stock purchasable
upon exercise hereof shall be appropriately adjusted so that Grantee shall
receive upon exercise of the Option and payment of the aggregate Option Price
hereunder the number and class of shares or other securities or property that
Grantee would have received in respect of Common Stock if the Option had been
exercised in full immediately prior to such event, or the record date therefor,
as applicable.
(c) Whenever the number of shares of outstanding Common Stock changes after the
date hereof, the Option Price shall be adjusted by multiplying the Option Price
by a fraction the numerator of which shall be equal to the aggregate number of
shares of Common Stock purchasable prior to the adjustment and the denominator
of which shall be equal to the aggregate number of shares of Common Stock
purchasable immediately after the adjustment.
6. REGISTRATION RIGHTS.
(a) In the event that the Grantee shall desire to sell any of the shares of
Common Stock issued upon total or partial exercise of this Option ("Option
Shares") within two years after the purchase of such Option Shares pursuant
hereto, and such sale requires, in the opinion of counsel to the Grantee, which
opinion shall be reasonably satisfactory to Issuer and its counsel,
registration of such Option Shares under the Securities Act, Issuer will
cooperate with the Grantee and any underwriters in registering such Option
Shares for resale, including, without limitation, promptly filing a
registration statement which complies with the requirements of applicable
federal and state securities laws and entering into an underwriting agreement
with such underwriters upon such terms and conditions as are customarily
contained in underwriting agreements with respect to secondary distributions;
provided that Issuer shall not be required to have declared effective more than
two registration statements hereunder and shall be entitled to delay the filing
or effectiveness of any registration statement for up to 180 days if the
offering would, in the judgment of the Board of Directors of Issuer, require
premature disclosure of any material corporate development or otherwise
interfere
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with or adversely affect any pending or proposed offering of securities of the
Issuer or any other material transaction involving the Issuer.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 6, the Issuer agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Option Shares covered thereby in
such numbers as the Grantee may from time to time reasonably request and (ii)
if any event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep effective for at least 90 days a prospectus covering the
Option Shares meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. Issuer shall bear
the cost of the registration, including, but not limited to, all registration
and filing fees, printing expenses, and fees and disbursements of counsel and
accountants for the Issuer, except that the Grantee shall pay the fees and
disbursements of its counsel, the underwriting fees and selling commissions
applicable to the Option Shares sold by the Grantee. Issuer shall indemnify and
hold harmless Grantee, its affiliates and its officers, directors and
controlling persons from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any alleged untrue
statement contained or incorporated by reference in, and alleged omission to
state a material fact required to be contained in, each registration statement
filed pursuant to this paragraph; provided, however, that this provision does
not apply to any loss, liability, claim, damage or expense to the extent it
arises out of any such untrue statement or omission made in reliance upon and
in conformity with written information furnished to Issuer by the Grantee, its
affiliates and its officers expressly for use in any registration statement (or
any amendment thereto) or any preliminary prospectus filed pursuant to this
paragraph. Issuer shall also indemnify and hold harmless each underwriter and
each person who controls any underwriter within the meaning of either the
Securities Act or the Securities Exchange Act of 1934, as amended, against any
and all losses, claims, damages, liabilities and expenses arising out of or
based upon any such statements contained or incorporated by reference in, and
alleged omissions from, each registration statement filed pursuant to this
paragraph; provided, however, that this provision does not apply to any loss,
liability, claim, damage or expense to the extent it arises out of any untrue
statement or omission made in reliance upon and in conformity with written
information furnished to Issuer by the underwriters expressly for use in any
registration statement (or any amendment thereto) or any preliminary prospectus
filed pursuant to this paragraph.
7. REPURCHASE OF OPTION AND OPTION SHARES. (a) Within ten business days
following the occurrence of a Repurchase Event (as defined below), Issuer shall
(i) deliver an offer (a "Repurchase Offer") to repurchase the Option from
Grantee at a price (the "Option Repurchase Price") equal to the amount by which
(A) the Alternative Transaction Price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which the Option may then be
exercised, and (ii) deliver an offer (also, a "Repurchase Offer") to repurchase
the Option Shares from Grantee at a price (the "Option Share Repurchase Price")
equal to the Alternative Transaction Price multiplied by the number of Option
Shares then held by Grantee. The term "Alternative Transaction Price" shall
mean, as of any date for the determination thereof, the price per share of
Common Stock paid pursuant to the Alternative Transaction or, in the event of
sale of assets of Issuer, the last per share sale price of Common Stock on the
fourth trading day following the announcement of such sale. If
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the consideration paid or received in the Alternative Transaction shall be
other than in cash, the value of such consideration shall be determined by a
nationally recognized investment banking firm selected by Grantee, which
determination shall be conclusive for all purposes of this Agreement.
(b) Upon the occurrence of a Repurchase Event and whether or not Issuer shall
have made a Repurchase Offer under Section 7(a) at the request (the date of
such request being the "Option Repurchase Request Date") of Grantee delivered
prior to the Option Expiration Date, Issuer shall repurchase the Option from
Grantee at the Option Repurchase Price and (ii) at the request (the date of
such request being the "Option Share Repurchase Request Date") of Grantee
delivered prior to the Option Expiration Date, Issuer shall repurchase such
number of the Option Shares from Grantee as Grantee shall designate at the
Option Share Repurchase Price.
(c) Grantee may accept Issuer's Repurchase Offer under Section 7(a) or may
exercise its right to require Issuer to repurchase the Option and/or any Option
Shares pursuant to Section 7(b) by a written notice or notices stating that
Grantee elects to accept such offer or to require Issuer to repurchase the
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days, after the last to occur of (i) the surrender to it of this Agreement
and/or Certificates for Option Shares, as applicable, (ii) receipt of a notice
of election under this Section 7(c) or (iii) the occurrence of a Repurchase
Event, Issuer shall deliver or cause to be delivered to Grantee the Option
Repurchase Price and/or the Option Share Repurchase Price and/or the portion
thereof that Issuer is not then prohibited from so delivering under applicable
Law.
(d) Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish any repurchase contemplated by this Section
7. Nonetheless, to the extent that Issuer is prohibited under applicable law,
from repurchasing the Option and/or any Option Shares in full, Issuer shall
immediately so notify Grantee and thereafter deliver or cause to be delivered,
from time to time, to Grantee, the portion of the Option Repurchase Price and
the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any
time after receipt of a notice of election to repurchase pursuant to Section
7(c) is prohibited under applicable Law, from delivering to Grantee, the Option
Repurchase Price or the Option Share Repurchase Price, respectively, in full,
Grantee, may revoke its notice of election for repurchase of the Option or the
Option Shares either in whole or in part whereupon, in the case of a revocation
in part, Issuer shall promptly (i) deliver to Grantee, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering after taking into account any such revocation and
(ii) deliver to Grantee, as appropriate, either (a) a new agreement evidencing
the right of Grantee to purchase that number of shares of Common Stock equal to
the number of shares of Common Stock purchasable immediately prior to the
delivery of the notice of repurchase less the number of shares of Common Stock
covered by the portion of the Option repurchased or (b) a certificate for the
number of Option Shares covered by the revocation. If an Option Termination
Event shall have occurred prior to the date a notice described in the first
sentence of this subsection (d) is filed by Issuer, or shall be scheduled to
occur at any time before the expiration of a period ending on the thirtieth day
after such date, Grantee shall nonetheless have the right to exercise the
Option until the expiration of such 30-day period.
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(e) The term "Repurchase Event" shall mean a Triggering Event followed by the
consummation of any transaction included in the definition of Alternative
Transaction (as so defined in Section 7.2(b) of the Merger Agreement).
(f) Notwithstanding anything to the contrary in Sections 2(a) and 2(e), if the
Grantee delivers a notice under Section 7(b) specifying that (i) such notice
relates to an anticipated Repurchase Event under Section 7(e), and is based on
the Issuer's public announcement of the execution of an agreement providing for
an Alternative Transaction, such notice shall be deemed to constitute an
election to exercise the Option, as to the number of Option Shares not
theretofore purchased pursuant to one or more prior exercises of the Option, on
the fifth business day following the public announcement of the consummation of
the transaction contemplated by such agreement, in which event a Closing shall
occur with respect to such unpurchased Option Shares in accordance with Section
2(e) on such fifth business day (or such later date as determined pursuant to
the proviso in the first sentence of Section 2(e)).
8. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Issuer. This Agreement is the valid and legally binding obligation of
Issuer, enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and
from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any violation pursuant to any provisions of the charter or by-laws of Issuer or
any Issuer subsidiary or subject to obtaining any approvals or consents
contemplated hereby, result in any violation of any loan or credit agreement,
note, mortgage, indenture, lease, plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Issuer or any Issuer
subsidiary or their respective properties or assets which violation would have,
individually or in the aggregate, a material adverse effect (as defined in the
Merger Agreement).
(d) The Issuer has taken, and will in the future take, all steps necessary to
irrevocably exempt the transactions contemplated by this Agreement from any
applicable state takeover law and from any applicable charter or contractual
provision containing change of control or anti-takeover provisions.
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9. ASSIGNMENT OF OPTION BY GRANTEE. Neither of the parties hereto may assign
any of its rights or obligations under this Option Agreement or the Option
created hereunder to any other person, without the express written consent of
the other party.
10. LIMITATION OF GRANTEE PROFIT. (a) Notwithstanding any other provision of
this Agreement, in no event shall the Grantee's Total Profit (as hereinafter
defined) exceed $220,000,000.00 and, if it otherwise would exceed such amount,
the Grantee, at its sole election, shall either (i) reduce the number of shares
of Common Stock subject to this Option, (ii) deliver to the Issuer for
cancellation Option Shares previously purchased by Grantee (valued, for the
purposes of this Section 10(a) at the average closing sales price per share of
Common Stock (or if there is no sale on such date then the average between the
closing bid and ask prices on any such day) as reported by The New York Stock
Exchange for the twenty consecutive trading days preceding the day on which the
Grantee's Total Profit exceeds $220,000,000.00), (iii) pay cash to the Issuer,
or (iv) any combination thereof, so that Grantee's actually realized Total
Profit shall not exceed $220,000,000.00 after taking into account the foregoing
actions.
(b) As used herein, the term "Total Profit" shall mean the amount (before
taxes) of the following: (a) the aggregate amount of (i) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party or to Issuer pursuant to this Agreement, less (y) the
Grantee's purchase price of such Option Shares, (ii) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, if permitted hereunder or to Issuer pursuant to this
Agreement, and (iii) the amount received by Grantee pursuant to Section 7.2 of
the Merger Agreement; minus (b) the amount of cash theretofore paid to the
Issuer pursuant to this Section 10 plus the value of the Option Shares
theretofore delivered to the Issuer for cancellation pursuant to this Section
10.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive nor relieve Issuer's
obligation to pay a fee pursuant to Section 7.2 of the Merger Agreement;
provided that if Total Profit received by Grantee would exceed $220,000,000.00
following the receipt of such fee, Grantee shall be obligated to comply with
the terms of Section 10(a) within 5 days of the later of (i) the date of
receipt of such fee and (ii) the date of receipt of the net cash by Grantee
pursuant to the sale of Option Shares (or, any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party or to
Issuer pursuant to this Agreement.
(d) Notwithstanding any other provision of this Agreement, the Option may not
be exercised for a number of Option Shares that would, as of the Notice Date,
result in a Notional Total Profit (as defined below) of more than
$220,000,000.00. "Notional Total Profit" shall mean, with respect to any number
of Option Shares as to which the Grantee may propose to exercise the Option,
the Total Profit determined as of the Notice Date assuming that the Option was
exercised on such date for such number of Option Shares and assuming such
Option Shares, together with all other Option Shares held by the Grantee and
its affiliates as of such date, were sold for cash at the closing sales price
for Common Stock as of the close of business on the preceding trading day.
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11. FIRST REFUSAL. At any time after the first occurrence of a Triggering Event
and prior to the later of (a) the expiration of 18 months immediately following
the first purchase of shares of Common Stock pursuant to the Option and (b) the
Option Termination Date, if Grantee shall desire to sell, assign, transfer or
otherwise dispose of all or any of the Option or the shares of Common Stock or
other securities acquired by it pursuant to the Option, it shall give Issuer
written notice of the proposed transaction (an "Offeror's Notice"), identifying
the proposed transferee, accompanied by a copy of a binding offer to purchase
the Option or such shares or other securities signed by such transferee and
setting forth the terms of the proposed transaction. An Offeror's Notice shall
be deemed an offer by Grantee to Issuer, which may be accepted within 20
business days of the receipt by Issuer of such Offeror's Notice, on the same
terms and conditions and at the same price at which Grantee is proposing to
transfer the Option or such shares or other securities to such transferee. The
purchase of the Option or any such shares or other securities by Issuer shall
be settled within 10 business days of the date of the acceptance of the offer
and the purchase price shall be paid to Grantee in immediately available funds;
provided that, if prior notification to or approval of any regulatory authority
is required in connection with such purchase, Issuer shall promptly file the
required notice or application for approval and shall expeditiously process the
same (and Grantee shall cooperate with Issuer in the filing of any such notice
or application and the obtaining of any such approval) and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which, as the case may be, (a) the required notification period has
expired or been terminated or (b) such approval has been obtained and, in
either event, any requisite waiting period shall have passed. In the event of
the failure or refusal of Issuer to purchase all of the Option or all of the
shares or other securities covered by an Offeror's Notice or if any regulatory
authority disapproves Issuer's proposed purchase of any portion of the Option
or such shares or other securities, Grantee may, within 60 days from the date
of the Offeror's Notice (subject to any necessary extension for regulatory
notification, approval or waiting periods), sell all, but not less than all, of
such portion of the Option or such shares or other securities to, the proposed
transferee at no less than the price specified and on terms no more favorable
than those set forth in the Offeror's Notice. The requirements of this Section
11 shall not apply to (w) any disposition as a result of which the proposed
transferee would own beneficially not more than 2% of the outstanding voting
power of Issuer, (x) any disposition of Common Stock or other securities by a
person to whom Grantee has assigned its rights under the Option with the
consent of Issuer, (y) any sale by means of a public offering registered under
the Securities Act in which steps are taken to reasonably assure that no
purchaser will acquire securities representing more than 2% of the outstanding
voting power of Issuer or (z) any transfer to a wholly owned subsidiary of
Grantee which agrees in writing to be bound by the terms hereof.
12. VOTING. For a period of 18 months from the date of exercise of the Option,
so long as Grantee beneficially owns any Option Shares, Grantee agrees to (a)
be present, in person or represented by proxy, at all stockholder meetings of
Issuer, so that all Option Shares beneficially owned by Grantee may be counted
for the purpose of determining the presence of a quorum at such meetings, and
(b) vote or cause to be voted all Option Shares beneficially owned by it, with
respect to all matters submitted to shareholders for a vote, in the same
proportion as shares of Common Stock are voted by shareholders unaffiliated
with Grantee.
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13. APPLICATION FOR REGULATORY APPROVAL. Each of Grantee and Issuer will use
its best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without limitation
making application to list the shares of Common Stock issuable hereunder on The
New York Stock Exchange upon official notice of issuance.
14. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
15. SEPARABILITY OF PROVISIONS. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
16. NOTICES. All notices, claims, demands and other communications hereunder
shall be deemed to have been duly given or made when delivered in person, by
overnight courier or by facsimile at the respective addresses of the parties
set forth in the Merger Agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
18. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which will be deemed to be an original, but all of which shall
constitute one and the same agreement.
19. EXPENSES. Except as otherwise expressly provided herein or in the Merger
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
20. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. Any provision of
this Agreement may be waived only in writing at any time by the party that is
entitled to the benefits of such provision. 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.
21. FURTHER ASSURANCES. In the event of any exercise of the Option by Grantee,
Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that
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may be reasonably necessary in order to consummate the transactions provided
for by such exercise. Nothing contained in this Agreement shall be deemed to
authorize Issuer or Grantee to breach any provision of the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date
first written above.
McKESSON CORPORATION
/s/ Mark A. Pulido
By: _________________________________
Mark A. Pulido,
President and Chief Executive
Officer
HBO & COMPANY
/s/ Jay P. Gilbertson
By: _________________________________
Jay P. Gilbertson,
President, Co-Chief Operating
Officer andChief Financial
Officer
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<PAGE>
ANNEX C
STOCK OPTION AGREEMENT
(HBO & COMPANY SHARES)
<PAGE>
ANNEX C
STOCK OPTION AGREEMENT
(HBO & COMPANY SHARES)
THIS STOCK OPTION AGREEMENT (this "AGREEMENT"), dated October 17, 1998,
between McKESSON CORPORATION, a Delaware corporation ("Grantee"), and HBO &
COMPANY, a Delaware corporation ("Issuer"),
WITNESSETH:
WHEREAS, Grantee, Issuer, and McKesson Merger Sub, Inc., a wholly-owned
subsidiary of Grantee, have entered into an Agreement and Plan of Merger,
dated as of October 17, 1998 (the "Merger Agreement"), which provides, among
other things, for the merger of Merger Sub with and into Issuer, such that
Issuer will become a wholly-owned subsidiary of Grantee, and stockholders of
Issuer will become stockholders of Grantee (capitalized terms used herein
without definition shall have the respective meanings specified in the Merger
Agreement); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
Eighty-Five Million Eight Hundred Sixty-Five Thousand Five Hundred Seventeen
(85,865,517) shares of fully paid and nonassessable common stock of the
Issuer, par value $.05 per share ("Common Stock"), equal to 19.9% of the
shares of Common Stock outstanding as of the date hereof, together with any
associated purchase rights (the "Rights") under the Rights Agreement, dated as
of February 12, 1991, as amended from time to time, between Issuer and The
Citizens and Southern Trust Company (Georgia), N.A. (references to shares
purchasable upon exercise of the Option shall be deemed to include the
associated Rights), at a purchase price of $32.81 per share of Common Stock as
adjusted in accordance with the provisions of Section 5 of this Agreement
(such price, as adjusted if applicable, the "Option Price").
2.(a) EXERCISE OF OPTION. Grantee may exercise the Option, in whole or part,
and from time to time, if, but only if, a Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Option Termination
Event (as hereinafter defined), provided that Grantee shall have sent the
written notice of such exercise (as provided in subsection (e) of this Section
2) on or prior to the last date of the 12-month period following such
Triggering Event (the "Option Expiration Date").
(b) OPTION TERMINATION EVENT. The term "Option Termination Event" shall mean
any of the following events: (i) the Effective Time of the Merger; (ii)
termination of the Merger Agreement by either party pursuant to Section
7.1(b)(iv) of the Merger Agreement, whether or not such termination occurs
prior to the occurrence of a Triggering Event, provided that the matter giving
rise to the order, decree, ruling or other action providing the basis for
termination under Section 7.1(b)(iv) shall not have been initiated by Issuer;
or (iii) termination of the Merger Agreement by either party pursuant
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to any other provision of the Merger Agreement if such termination occurs prior
to the occurrence of a Triggering Event; or (iv) 12 months after the first
occurrence of a Triggering Event.
(c) TRIGGERING EVENT. The term "Triggering Event" shall mean any event that
would entitle either party to terminate the Merger Agreement and permit Grantee
to receive any fee from Issuer pursuant to Section 7.2 of the Merger Agreement.
(d) NOTICE OF TRIGGERING EVENT. Issuer shall notify Grantee promptly in writing
of the occurrence of any Triggering Event, it being understood that the giving
of such notice by Issuer shall not be a condition to the right of Grantee to
exercise the Option or for a Triggering Event to have occurred.
(e) NOTICE OF EXERCISE; CLOSING. In the event Grantee is entitled to and wishes
to exercise the Option, it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place
and date not earlier than three business days nor later than 60 business days
from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of the purchase and sale pursuant to the Option
(the "Closing") cannot be consummated, in the reasonable opinion of Grantee, by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which such restriction on consummation has expired or been
terminated; and provided further, without limiting the foregoing, that if, in
the reasonable opinion of Grantee, prior notification to or approval of any
regulatory agency is required in connection with such purchase, Grantee shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have
been obtained and any requisite waiting period or periods shall have passed.
Any exercise of the Option shall be deemed to occur on the Closing Date
relating thereto. Notwithstanding this subsection (e), in no event shall any
Closing Date be more than 12 months after the related Notice Date, and if the
Closing Date shall not have occurred within 12 months after the related Notice
Date due to the failure to obtain any such required approval, the exercise of
the Option effected on the Notice Date shall be deemed to have been rescinded.
In the event (x) Grantee receives official notice that an approval of any
regulatory authority required for the purchase of Option Shares (as hereinafter
defined) will not be issued or granted, (y) a Closing Date shall not have
occurred within 12 months after the related Notice Date due to the failure to
obtain any such required approval or (z) Grantee shall have the right pursuant
to the last sentence of subsection (d) of Section 7 or subsection (f) of
Section 7 to exercise the Option, Grantee shall nevertheless be entitled to
exercise its right as set forth in Section 7.
(f) PURCHASE PRICE. At the Closing referred to in subsection (e) of this
Section 2, Grantee shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude Grantee from exercising the Option.
(g) ISSUANCE OF COMMON STOCK. At such Closing, simultaneously with the delivery
of immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to
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Grantee a certificate or certificates representing the number of shares of
Common Stock purchased by the Grantee and, if the Option should be exercised in
part only, a new Option evidencing the rights of Grantee thereof to purchase
the balance of the shares purchasable hereunder, and the Grantee shall deliver
to Issuer this Agreement and a letter agreeing that Grantee will not offer to
sell or otherwise dispose of such shares in violation of applicable law or the
provisions of this Agreement.
(h) LEGEND. Certificates for Common Stock delivered at a Closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"THE TRANSFER AND VOTING OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN PROVISIONS OF AN AGREEMENT BETWEEN THE REGISTERED HOLDER
HEREOF AND ISSUER AND TO RESALE RESTRICTIONS ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF ISSUER AND WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY ISSUER OF A WRITTEN REQUEST THEREFOR."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if Grantee shall have delivered to Issuer a copy of a letter from the
staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii)
the legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) and both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) RECORD HOLDER; EXPENSES. Upon the Closing, Grantee shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to Grantee or the Issuer shall have failed or refused to
designate the bank account described in subsection (f) of this Section 2.
Issuer shall pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2
in the name of Grantee or its assignee, transferee or designee.
3. RESERVATION OF SHARES. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock (and other securities issuable pursuant to
Section 5) so that the Option may be exercised without additional authorization
of Common Stock (or such other securities) after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock (or such other securities); (ii) that it will not, by charter amendment
or through reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by Issuer; (iii) promptly to take all action as may from
time to time be required (including
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without limitation complying with all pre-merger notification, reporting and
waiting periods in 15 U.S.C. Section 18a the rules and regulations thereunder)
in order to permit Grantee to exercise the Option and the Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) promptly
to take all action provided herein to protect the rights of Grantee against
dilution.
4. LOST OPTIONS. Upon receipt by Issuer of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Agreement, if mutilated, Issuer
will execute and deliver a new Agreement of like tenor and date.
5. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of shares of Common
Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date hereof (other than by reason of
subsection (b) of this Section 5), the number of shares of Common Stock subject
to the Option shall be increased so that, after such issuance of additional
shares, such number of shares then remaining subject to the Option, together
with shares theretofore issued pursuant to the Option, equals 19.9% of the
number of such shares of Common Stock then issued and outstanding.
(b) In the event of any change in Common Stock by reason of stock dividends,
other dividends on the Common Stock payable in securities or other property
(other than regular cash dividends), stock splits, merger, recapitalization,
combinations, subdivisions, conversions, exchanges of shares or other similar
transactions, then the type and number of shares of Common Stock purchasable
upon exercise hereof shall be appropriately adjusted so that Grantee shall
receive upon exercise of the Option and payment of the aggregate Option Price
hereunder the number and class of shares or other securities or property that
Grantee would have received in respect of Common Stock if the Option had been
exercised in full immediately prior to such event, or the record date therefor,
as applicable.
(c) Whenever the number of shares of outstanding Common Stock changes after the
date hereof, the Option Price shall be adjusted by multiplying the Option Price
by a fraction the numerator of which shall be equal to the aggregate number of
shares of Common Stock purchasable prior to the adjustment and the denominator
of which shall be equal to the aggregate number of shares of Common Stock
purchasable immediately after the adjustment.
6. REGISTRATION RIGHTS.
(a) In the event that the Grantee shall desire to sell any of the shares of
Common Stock issued upon total or partial exercise of this Option ("Option
Shares") within two years after the purchase of such Option Shares pursuant
hereto, and such sale requires, in the opinion of counsel to the Grantee, which
opinion shall be reasonably satisfactory to Issuer and its counsel,
registration of such Option Shares under the Securities Act, Issuer will
cooperate with the Grantee and any underwriters in registering such Option
Shares for resale, including, without limitation, promptly filing a
registration statement which complies with the requirements of applicable
federal and state securities laws and entering into an underwriting agreement
with such underwriters upon such terms and conditions as
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are customarily contained in underwriting agreements with respect to secondary
distributions; provided that Issuer shall not be required to have declared
effective more than two registration statements hereunder and shall be entitled
to delay the filing or effectiveness of any registration statement for up to
180 days if the offering would, in the judgment of the Board of Directors of
Issuer, require premature disclosure of any material corporate development or
otherwise interfere with or adversely affect any pending or proposed offering
of securities of the Issuer or any other material transaction involving the
Issuer.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 6, the Issuer agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Option Shares covered thereby in
such numbers as the Grantee may from time to time reasonably request and (ii)
if any event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep effective for at least 90 days a prospectus covering the
Option Shares meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. Issuer shall bear
the cost of the registration, including, but not limited to, all registration
and filing fees, printing expenses, and fees and disbursements of counsel and
accountants for the Issuer, except that the Grantee shall pay the fees and
disbursements of its counsel, the underwriting fees and selling commissions
applicable to the Option Shares sold by the Grantee. Issuer shall indemnify and
hold harmless Grantee, its affiliates and its officers, directors and
controlling persons from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any alleged untrue
statement contained or incorporated by reference in, and alleged omission to
state a material fact required to be contained in, each registration statement
filed pursuant to this paragraph; provided, however, that this provision does
not apply to any loss, liability, claim, damage or expense to the extent it
arises out of any such untrue statement or omission made in reliance upon and
in conformity with written information furnished to Issuer by the Grantee, its
affiliates and its officers expressly for use in any registration statement (or
any amendment thereto) or any preliminary prospectus filed pursuant to this
paragraph. Issuer shall also indemnify and hold harmless each underwriter and
each person who controls any underwriter within the meaning of either the
Securities Act or the Securities Exchange Act of 1934, as amended, against any
and all losses, claims, damages, liabilities and expenses arising out of or
based upon any such statements contained or incorporated by reference in, and
alleged omissions from, each registration statement filed pursuant to this
paragraph; provided, however, that this provision does not apply to any loss,
liability, claim, damage or expense to the extent it arises out of any untrue
statement or omission made in reliance upon and in conformity with written
information furnished to Issuer by the underwriters expressly for use in any
registration statement (or any amendment thereto) or any preliminary prospectus
filed pursuant to this paragraph.
7. REPURCHASE OF OPTION AND OPTION SHARES. (a) Within ten business days
following the occurrence of a Repurchase Event (as defined below), Issuer shall
(I) deliver an offer (a "Repurchase Offer") to repurchase the Option from
Grantee at a price (the "Option Repurchase Price") equal to the amount by which
(A) the Alternative Transaction Price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which the Option may then be
exercised, and (ii) deliver an offer (also, a "Repurchase Offer") to repurchase
the Option Shares from Grantee at a
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price (the "Option Share Repurchase Price") equal to the Alternative
Transaction Price multiplied by the number of Option Shares then held by
Grantee. The term "Alternative Transaction Price" shall mean, as of any date
for the determination thereof, the price per share of Common Stock paid
pursuant to the Alternative Transaction or, in the event of sale of assets of
Issuer, the last per share sale price of Common Stock on the fourth trading day
following the announcement of such sale. If the consideration paid or received
in the Alternative Transaction shall be other than in cash, the value of such
consideration shall be determined by a nationally recognized investment banking
firm selected by Grantee, which determination shall be conclusive for all
purposes of this Agreement.
(b) Upon the occurrence of a Repurchase Event and whether or not Issuer shall
have made a Repurchase Offer under Section 7(a) at the request (the date of
such request being the "Option Repurchase Request Date") of Grantee delivered
prior to the Option Expiration Date, Issuer shall repurchase the Option from
Grantee at the Option Repurchase Price and (ii) at the request (the date of
such request being the "Option Share Repurchase Request Date") of Grantee
delivered prior to the Option Expiration Date, Issuer shall repurchase such
number of the Option Shares from Grantee as Grantee shall designate at the
Option Share Repurchase Price.
(c) Grantee may accept Issuer's Repurchase Offer under Section 7(a) or may
exercise its right to require Issuer to repurchase the Option and/or any Option
Shares pursuant to Section 7(b) by a written notice or notices stating that
Grantee elects to accept such offer or to require Issuer to repurchase the
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days, after the last to occur of (i) the surrender to it of this Agreement
and/or Certificates for Option Shares, as applicable, (ii) receipt of a notice
of election under this Section 7(c) or (iii) the occurrence of a Repurchase
Event, Issuer shall deliver or cause to be delivered to Grantee the Option
Repurchase Price and/or the Option Share Repurchase Price and/or the portion
thereof that Issuer is not then prohibited from so delivering under applicable
Law.
(d) Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish any repurchase contemplated by this Section
7. Nonetheless, to the extent that Issuer is prohibited under applicable law,
from repurchasing the Option and/or any Option Shares in full, Issuer shall
immediately so notify Grantee and thereafter deliver or cause to be delivered,
from time to time, to Grantee, the portion of the Option Repurchase Price and
the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any
time after receipt of a notice of election to repurchase pursuant to Section
7(c) is prohibited under applicable Law, from delivering to Grantee, the Option
Repurchase Price or the Option Share Repurchase Price, respectively, in full,
Grantee, may revoke its notice of election for repurchase of the Option or the
Option Shares either in whole or in part whereupon, in the case of a revocation
in part, Issuer shall promptly (i) deliver to Grantee, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering after taking into account any such revocation and
(ii) deliver to Grantee, as appropriate, either (a) a new agreement evidencing
the right of Grantee to purchase that number of shares of Common Stock equal to
the number of shares of Common Stock purchasable immediately prior to the
delivery of the notice of repurchase less the
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number of shares of Common Stock covered by the portion of the Option
repurchased or (b) a certificate for the number of Option Shares covered by the
revocation. If an Option Termination Event shall have occurred prior to the
date a notice described in the first sentence of this subsection (d) is filed
by Issuer, or shall be scheduled to occur at any time before the expiration of
a period ending on the thirtieth day after such date, Grantee shall nonetheless
have the right to exercise the Option until the expiration of such 30-day
period.
(e) The term "Repurchase Event" shall mean a Triggering Event followed by the
consummation of any transaction included in the definition of Alternative
Transaction (as so defined in Section 7.2(b) of the Merger Agreement).
(f) Notwithstanding anything to the contrary in Sections 2(a) and 2(e), if the
Grantee delivers a notice under Section 7(b) specifying that (i) such notice
relates to an anticipated Repurchase Event under Section 7(e), and is based on
the Issuer's public announcement of the execution of an agreement providing for
an Alternative Transaction, such notice shall be deemed to constitute an
election to exercise the Option, as to the number of Option Shares not
theretofore purchased pursuant to one or more prior exercises of the Option, on
the fifth business day following the public announcement of the consummation of
the transaction contemplated by such agreement, in which event a Closing shall
occur with respect to such unpurchased Option Shares in accordance with Section
2(e) on such fifth business day (or such later date as determined pursuant to
the proviso in the first sentence of Section 2(e)).
8. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Issuer. This Agreement is the valid and legally binding obligation of
Issuer, enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and
from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any violation pursuant to any provisions of the charter or by-laws of Issuer or
any Issuer subsidiary or subject to obtaining any approvals or consents
contemplated hereby, result in any violation of any loan or credit agreement,
note, mortgage, indenture, lease, plan or other agreement, obligation,
instrument, permit, concession,
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franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Issuer or any Issuer subsidiary or their respective
properties or assets which violation would have, individually or in the
aggregate, a material adverse effect (as defined in the Merger Agreement).
(d) The Issuer has taken, and will in the future take, all steps necessary to
irrevocably exempt the transactions contemplated by this Agreement from any
applicable state takeover law and from any applicable charter or contractual
provision containing change of control or anti-takeover provisions.
9. ASSIGNMENT OF OPTION BY GRANTEE. Neither of the parties hereto may assign
any of its rights or obligations under this Option Agreement or the Option
created hereunder to any other person, without the express written consent of
the other party.
10. LIMITATION OF GRANTEE PROFIT.
(a) Notwithstanding any other provision of this Agreement, in no event shall
the Grantee's Total Profit (as hereinafter defined) exceed $220,000,000.00 and,
if it otherwise would exceed such amount, the Grantee, at its sole election,
shall either (i) reduce the number of shares of Common Stock subject to this
Option, (ii) deliver to the Issuer for cancellation Option Shares previously
purchased by Grantee (valued, for the purposes of this Section 10(a) at the
average closing sales price per share of Common Stock (or if there is no sale
on such date then the average between the closing bid and ask prices on any
such day) as reported by The Nasdaq National Market for the twenty consecutive
trading days preceding the day on which the Grantee's Total Profit exceeds
$220,000,000.00), (iii) pay cash to the Issuer, or (iv) any combination
thereof, so that Grantee's actually realized Total Profit shall not exceed
$220,000,000.00 after taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the amount (before
taxes) of the following: (a) the aggregate amount of (i) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party or to Issuer pursuant to this Agreement, less (y) the
Grantee's purchase price of such Option Shares, (ii) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, if permitted hereunder or to Issuer pursuant to this
Agreement, and (iii) the amount received by Grantee pursuant to Section 7.2 of
the Merger Agreement; minus (b) the amount of cash theretofore paid to the
Issuer pursuant to this Section 10 plus the value of the Option Shares
theretofore delivered to the Issuer for cancellation pursuant to this Section
10.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive nor relieve Issuer's
obligation to pay a fee pursuant to Section 7.2 of the Merger Agreement;
provided that if Total Profit received by Grantee would exceed $220,000,000.00
following the receipt of such fee, Grantee shall be obligated to comply with
the terms of Section 10(a) within 5 days of the later of (i) the date of
receipt of such fee and (ii) the date of receipt of the net cash by Grantee
pursuant to the sale of Option Shares (or, any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party or to
Issuer pursuant to this Agreement.
(d) Notwithstanding any other provision of this Agreement, the Option may not
be exercised for a number of Option Shares that would, as of the Notice Date,
result in a Notional Total Profit (as
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defined below) of more than $220,000,000.00. "Notional Total Profit" shall
mean, with respect to any number of Option Shares as to which the Grantee may
propose to exercise the Option, the Total Profit determined as of the Notice
Date assuming that the Option was exercised on such date for such number of
Option Shares and assuming such Option Shares, together with all other Option
Shares held by the Grantee and its affiliates as of such date, were sold for
cash at the closing sales price for Common Stock as of the close of business on
the preceding trading day.
11. FIRST REFUSAL. At any time after the first occurrence of a Triggering Event
and prior to the later of (a) the expiration of 18 months immediately following
the first purchase of shares of Common Stock pursuant to the Option and (b) the
Option Termination Date, if Grantee shall desire to sell, assign, transfer or
otherwise dispose of all or any of the Option or the shares of Common Stock or
other securities acquired by it pursuant to the Option, it shall give Issuer
written notice of the proposed transaction (an "Offeror's Notice"), identifying
the proposed transferee, accompanied by a copy of a binding offer to purchase
the Option or such shares or other securities signed by such transferee and
setting forth the terms of the proposed transaction. An Offeror's Notice shall
be deemed an offer by Grantee to Issuer, which may be accepted within 20
business days of the receipt by Issuer of such Offeror's Notice, on the same
terms and conditions and at the same price at which Grantee is proposing to
transfer the Option or such shares or other securities to such transferee. The
purchase of the Option or any such shares or other securities by Issuer shall
be settled within 10 business days of the date of the acceptance of the offer
and the purchase price shall be paid to Grantee in immediately available funds;
provided that, if prior notification to or approval of any regulatory authority
is required in connection with such purchase, Issuer shall promptly file the
required notice or application for approval and shall expeditiously process the
same (and Grantee shall cooperate with Issuer in the filing of any such notice
or application and the obtaining of any such approval) and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which, as the case may be, (a) the required notification period has
expired or been terminated or (b) such approval has been obtained and, in
either event, any requisite waiting period shall have passed. In the event of
the failure or refusal of Issuer to purchase all of the Option or all of the
shares or other securities covered by an Offeror's Notice or if any regulatory
authority disapproves Issuer's proposed purchase of any portion of the Option
or such shares or other securities, Grantee may, within 60 days from the date
of the Offeror's Notice (subject to any necessary extension for regulatory
notification, approval or waiting periods), sell all, but not less than all, of
such portion of the Option or such shares or other securities to, the proposed
transferee at no less than the price specified and on terms no more favorable
than those set forth in the Offeror's Notice. The requirements of this Section
11 shall not apply to (w) any disposition as a result of which the proposed
transferee would own beneficially not more than 2% of the outstanding voting
power of Issuer, (x) any disposition of Common Stock or other securities by a
person to whom Grantee has assigned its rights under the Option with the
consent of Issuer, (y) any sale by means of a public offering registered under
the Securities Act in which steps are taken to reasonably assure that no
purchaser will acquire securities representing more than 2% of the outstanding
voting power of Issuer or (z) any transfer to a wholly owned subsidiary of
Grantee which agrees in writing to be bound by the terms hereof.
12. VOTING. For a period of 18 months from the date of exercise of the Option,
so long as Grantee beneficially owns any Option Shares, Grantee agrees to (a)
be present, in person or represented by
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proxy, at all stockholder meetings of Issuer, so that all Option Shares
beneficially owned by Grantee may be counted for the purpose of determining the
presence of a quorum at such meetings, and (b) vote or cause to be voted all
Option Shares beneficially owned by it, with respect to all matters submitted
to shareholders for a vote, in the same proportion as shares of Common Stock
are voted by shareholders unaffiliated with Grantee.
13. APPLICATION FOR REGULATORY APPROVAL. Each of Grantee and Issuer will use
its best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without limitation
making application to list the shares of Common Stock issuable hereunder on The
Nasdaq National Market upon official notice of issuance.
14. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
15. SEPARABILITY OF PROVISIONS. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
16. NOTICES. All notices, claims, demands and other communications hereunder
shall be deemed to have been duly given or made when delivered in person, by
overnight courier or by facsimile at the respective addresses of the parties
set forth in the Merger Agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
18. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which will be deemed to be an original, but all of which shall
constitute one and the same agreement.
19. EXPENSES. Except as otherwise expressly provided herein or in the Merger
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
20. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. Any provision of
this Agreement may be waived only in writing at any time by the party that is
entitled to the
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benefits of such provision. 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.
21. FURTHER ASSURANCES. In the event of any exercise of the Option by Grantee,
Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise. Nothing contained
in this Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date
first written above.
McKESSON CORPORATION
/s/ Mark A. Pulido
By: _________________________________
Mark A. Pulido,
President and Chief Executive
Officer
HBO & COMPANY
/s/ Jay P. Gilbertson
By: _________________________________
Jay P. Gilbertson,
President, Co-Chief Operating
Officer andChief Financial
Officer
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ANNEX D
FAIRNESS OPINION OF BEAR, STEARNS & CO. INC.
<PAGE>
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
ATLANTA--BOSTON
CHICAGO--DALLAS--LOS ANGELES
NEW YORK--SAN FRANCISCO
GENEVA--HONG KONG
LONDON--PARIS--TOKYO
As of October 17, 1998
McKesson Corporation
One Post Street
37th Floor
San Francisco, CA 94104
Attention: Mark A. Pulido
President and Chief Executive Officer
Members of the Board:
We understand that McKesson Corporation ("McKesson") and HBO & Company
("HBOC") are contemplating entering into an Agreement and Plan of Merger (the
"Agreement") pursuant to which a newly formed wholly-owned subsidiary of
McKesson will be merged with and into HBOC (the "Merger"). We further
understand that at the effective time of the Merger, (i) each issued and
outstanding share of common stock, par value of $0.05 per share, of HBOC
("HBOC Common Stock") will be converted into the right to receive 0.37 shares
(the "Exchange Ratio") of common stock, par value of $0.01 per share, of
McKesson ("McKesson Common Stock") and (ii) each outstanding option to
purchase shares of HBOC Common Stock will be converted into a similar option
to purchase shares of McKesson Common Stock, adjusted to reflect the Exchange
Ratio. You have provided us with a copy of the Agreement in substantially
final form.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the shareholders of McKesson.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Agreement;
2. reviewed McKesson's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal years ended March 31, 1996 through 1998 and its
Quarterly Report on Form 10-Q for the period ended June 30, 1998;
3. reviewed HBOC's Annual Reports to Stockholders and Annual Reports on Form
10-K for the fiscal years ended December 31, 1995 through 1997 and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1998 and
June 30, 1998;
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4. reviewed certain operating and financial information, including Wall Street
analyst estimates that were adjusted by the managements of McKesson and HBOC
(the "Adjusted Wall Street Estimates"), relating to McKesson's and HBOC's
respective businesses and prospects;
5. met with certain members of the senior management of McKesson and HBOC to
discuss the operations, historical financial statements and future prospects
of McKesson and HBOC;
6. reviewed certain estimates of cost savings and other combination benefits
expected to result from the Merger, jointly prepared and provided to us by
the senior management of McKesson and HBOC;
7. reviewed the historical prices and trading volumes of the common shares of
McKesson and HBOC;
8. reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally comparable
to McKesson and HBOC;
9. reviewed the terms of recent merger and acquisition transactions which we
deemed generally comparable to the Merger or otherwise relevant to our
analysis; and
10. conducted such other studies, analyses, inquiries and investigations, as we
deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial
information, including the Adjusted Wall Street Estimates provided to us by
McKesson and HBOC, including with respect to HBOC's pending acquisitions of
Access Health, Inc. and Imnet Systems, Inc. and the financial impact thereof.
With respect to the Adjusted Wall Street Estimates and potential synergies that
McKesson and HBOC believed could be achieved upon consummation of the Merger,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior management of
McKesson and HBOC as to the expected future performance of McKesson and HBOC,
respectively. We have not assumed any responsibility for the independent
verification of any such information or of the Adjusted Wall Street Estimates
provided to us and we have further relied upon the assurances of the senior
management of McKesson and HBOC that they are unaware of any facts that would
make the information or the Adjusted Wall Street Estimates provided to us
incomplete or misleading. In arriving at our opinion, we have not performed or
obtained any independent appraisal of the assets or liabilities of McKesson and
HBOC, nor have we been furnished with any such appraisals. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof. We have assumed that the Merger
(i) will qualify as a tax-free "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended and (ii) will be
accounted for as a pooling of interests under generally accepted accounting
principles.
We have acted as a financial advisor to McKesson in connection with the Merger
and will receive a fee for such services. In the ordinary course of business,
Bear Stearns may actively trade the equity securities of McKesson and HBOC for
its own account and for the account of its customers and, accordingly, may at
any time hold a long or short position in such securities.
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It is understood that this letter is intended for the benefit and use of the
Board of Directors of McKesson and does not constitute a recommendation to the
Board of Directors of McKesson or any holders of McKesson Common Stock as to
how to vote in connection with the Merger. This opinion does not address
McKesson's underlying business decision to pursue the Merger or the price or
range of prices at which shares of common stock of McKesson may trade
subsequent to the consummation of the Merger. This letter is not to be used for
any other purpose, or reproduced, disseminated, quoted or referred to at any
time, in whole or in part, without our prior written consent; provided,
however, that this letter may be included in its entirety in any joint proxy
statement/prospectus to be distributed to the holders of McKesson Common Stock
in connection with the Merger.
Based on and subject to the foregoing, it is our opinion that the Exchange
Ratio is fair, from a financial point of view, to the shareholders of McKesson.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Michael Offen
-----------------------------
MICHAEL OFFEN
Senior Managing Director
D-3
<PAGE>
ANNEX E
FAIRNESS OPINION OF MORGAN STANLEY & CO. INCORPORATED
<PAGE>
MORGAN STANLEY DEAN WITTER
1585 Broadway
New York, New York 10036
(212) 761-4660
October 17, 1998
Board of Directors
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Members of the Board:
We understand that HBO & Company ("HBO" or the "Company"), McKesson Corporation
("McKesson") and McKesson Merger Sub, Inc., a wholly owned subsidiary of
McKesson ("Merger Sub") propose to enter into an Agreement and Plan of Merger,
substantially in the form of the draft dated as of October 15, 1998 (the
"Merger Agreement"), which provides among other things, for the merger (the
"Merger") of Merger Sub with and into HBO. Pursuant to the Merger, HBO will
become a wholly owned subsidiary of McKesson, and each issued and outstanding
share of common stock, par value $.01 per share (the "HBO Common Stock"), of
HBO, other than shares held in treasury or held by McKesson or any subsidiary
of McKesson, shall be converted into the right to receive 0.370 (the "Exchange
Ratio") shares of common stock, par value $.01 share of McKesson (the "McKesson
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 HBO
Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of HBO and McKesson, respectively;
(ii) reviewed and discussed the past and current operations and financial
condition and the prospects of HBO and McKesson with senior executives
of HBO and McKesson, respectively;
(iii) reviewed the pro forma impact of the Merge on the combined company's
earnings per share and financial ratios;
(iv) reviewed the reported prices and trading activity for the HBO Common
Stock and the McKesson Common Stock;
E-1
<PAGE>
MORGAN STANLEY DEAN WITTER
(v) compared the financial performance of HBO and McKesson and the prices
and trading activity of the HBO Common Stock and the McKesson Common
Stock with that of certain other comparable publicly-traded companies
and their securities;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(vii) reviewed and discussed with the senior managements of HBO and
McKesson the business strategy for the combined company and their
estimates of the synergies and cost savings anticipated from the
Merger;
(viii) reviewed the Merger Agreement and certain related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us, including the business
strategy for the combined company and estimates of the synergies to be
achieved, for the purposes of this opinion. With respect to the financial
information prepared by HBO and McKesson, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the financial performance of HBO and McKesson. 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 pursuant to the
Internal Revenue Code of 1986. We have not conducted any independent valuation
or appraisal of the assets or liabilities of HBO or McKesson, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
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 the Company
or any of its assets.
We have provided a fairness opinion to the Board of Directors of HBO 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 McKesson and have received fees
for the rendering of these services. In addition, as of the date of this
opinion, Morgan Stanley holds for its principal account 5,177,492 shares of the
Common Stock of HBO.
It is understood that this letter is for the information of the Board of
Directors of the Company 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 the Company with the Securities and Exchange Commission
in connection with this transaction. In addition, this opinion does not in any
manner
E-2
<PAGE>
MORGAN STANLEY DEAN WITTER
address the prices at which the McKesson Common Stock may trade following the
consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the stockholders of HBO should vote at the
stockholders' meeting held in connection with the Merger.
Based on 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 HBO Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Scott R. Brakebill
-------------------------------------
Scott R. Brakebill
Managing Director
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and agents against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement in
connection with specified actions, suits, proceedings whether civil, criminal,
administrative, or investigative (other than action by or in the right of the
corporation--a "derivative action"), if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. A similar standard
is applicable in the case of derivative actions, except that indemnification
only extends to expenses (including attorneys' fees) incurred in connection
with the defense or settlement of such action, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, by-laws, disinterested director vote, stockholder vote,
agreement, or otherwise.
The McKesson By-laws provide that each person who is involved in any actual
or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or
was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, will
be indemnified by the corporation to the full extent permitted by the DGCL if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of McKesson. The indemnification rights
conferred by the McKesson By-laws are not exclusive of any other right to
which persons seeking indemnification may be entitled under any law, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit.
Article VI of McKesson's Certificate provides that to the full extent of the
DGCL, as it now exists or may hereafter be amended, no director of McKesson
shall be liable to McKesson or its stockholders for monetary damages for
breach of fiduciary duty as a director.
McKesson maintains directors' and officers' liability insurance which
provides for payment, on behalf of the directors and officers of McKesson and
its subsidiaries, of certain losses of such persons (other than matters
uninsurable under law) arising from claims, including claims arising under the
Act, for acts or omissions by such persons while acting as directors or
officers of McKesson and/or its subsidiaries, as the case may be.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Set forth below is a list of the exhibits included as part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1* Agreement and Plan of Merger, dated as of October 17, 1998, by and
among McKesson, Merger Sub and HBOC (included as Annex A to the Joint
Proxy Statement/Prospectus).
2.2* Amendment Agreement to Agreement and Plan of Merger, dated as of
November 9, 1998, by and among McKesson, Merger Sub and HBOC (included
as Annex A to the Joint Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of McKesson, as filed with the
office of the Delaware Secretary of State on July 30, 1998(1).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.2 Restated By-laws of McKesson, as amended through May 30, 1997 (2).
4.1 Rights Agreement, dated as of October 21, 1994, by and between
McKesson and First Chicago Trust Company of New York, as Rights Agent
(3).
4.2 Amendment No. 1 to Rights Agreement, dated as of October 19, 1998, by
and between McKesson and First Chicago Trust Company of New York, as
Rights Agent (4).
4.3 Indenture, dated as of March 11, 1997, by and between McKesson, as
Issuer, and The First National Bank of Chicago, as Trustee (5).
4.4 Amended and Restated Declaration of Trust of McKesson Financing Trust,
dated as of February 20, 1997, among McKesson, as Sponsor, The First
National Bank of Chicago, as Institutional Trustee, First Chicago
Delaware, Inc., as Delaware Trustee and William A. Armstrong, Ivan D.
Meyerson and Nancy A. Miller, as Regular Trustees (6).
4.5 McKesson Corporation Preferred Securities Guarantee Agreement, dated
as of February 20, 1997, between McKesson, as Guarantor, and The First
National Bank of Chicago, as Preferred Guarantor Trustee (7).
4.6 Registrant agrees to furnish to the Commission upon request a copy of
each instrument defining the rights of security holders with respect
to issues of long-term debt of the Registrant, the authorized
principal amount of which does not exceed 10% of the total assets of
the Registrant.
5.1* Form of Opinion of Ivan D. Meyerson, Vice President and General
Counsel of McKesson.
8.1* Form of Opinion of Jones, Day, Reavis, & Pogue.
8.2* Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
23.1* Consent of Arthur Andersen LLP, independent auditors for HBOC.
23.2* Independent Auditors' Consent--Deloitte & Touche LLP.
23.3* Consent of Bear, Stearns & Co. Inc.
23.4* Consent of Morgan Stanley & Co. Incorporated.
23.5* Consent of Jones, Day, Reavis & Pogue (included in Exhibit 8.1).
23.6* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8.2).
23.7* Consent of Ivan D. Meyerson (included in Exhibit 5.1).
24.1* Power of Attorney.
99.1* Stock Option Agreement, dated October 17, 1998, between McKesson and
HBOC (included as Annex B to the Joint Proxy Statement/Prospectus).
99.2* Stock Option Agreement, dated October 17, 1998, between HBOC and
McKesson (included as Annex C to the Joint Proxy
Statement/Prospectus).
99.3* Opinion of Bear, Stearns & Co. Inc., financial advisor of McKesson
(included as Annex D to the Joint Proxy Statement/Prospectus).
99.4* Opinion of Morgan Stanley & Co. Incorporated, financial advisor of
HBOC (included as Annex E to the Joint Proxy Statement/Prospectus).
99.5* Form of McKesson Proxy Card.
99.6* Form of McKesson PSIP Voting Card.
99.7* Form of HBOC Proxy Card.
</TABLE>
- --------
* Filed herewith.
(1) Incorporated by reference to Exhibit 3.2 to McKesson's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998.
II-2
<PAGE>
(2) Incorporated by reference to Exhibit 3.1 to McKesson's Current Report on
Form 8-K as filed with the Commission on June 24, 1997.
(3) Incorporated by reference to Exhibit 4.1 to Amendment No. 3 to McKesson's
Registration Statement on Form 10 filed with the Commission on October
27, 1994.
(4) Incorporated by reference to Exhibit 99.1 to McKesson's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
(5) Incorporated by reference to Exhibit 4.4 to McKesson's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997, File No. 1-13252.
(6) Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to McKesson's
Registration Statement on Form S-3 filed with the Commission on June 18,
1997, Registration No. 333-26443.
(7) Incorporated by reference to Exhibit 4.7 to McKesson's Registration
Statement on Form S-3 filed with the Commission on May 2, 1997,
Registration No. 333-26443.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or 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 this 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 this
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 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement; and
(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 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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: (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN FRANCISCO, STATE OF
CALIFORNIA, ON NOVEMBER 13, 1998.
McKesson Corporation
By: /s/ Nancy A. Miller
-----------------------------------
NANCY A. MILLER
VICE PRESIDENT AND CORPORATE
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON NOVEMBER 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* PRESIDENT AND CHIEF EXECUTIVE OFFICER AND
____________________________________ DIRECTOR
MARK A. PULIDO (PRINCIPAL EXECUTIVE OFFICER)
* VICE PRESIDENT AND CHIEF FINANCIAL
____________________________________ OFFICER
RICHARD H. HAWKINS (PRINCIPAL FINANCIAL OFFICER)
*
____________________________________ CONTROLLER
HEIDI E. YODOWITZ (PRINCIPAL ACCOUNTING OFFICER)
*
____________________________________
ALAN SEELENFREUND DIRECTOR, CHAIRMAN OF THE BOARD
*
____________________________________
MARY G.F. BITTERMAN DIRECTOR
*
____________________________________
TULLY M. FRIEDMAN DIRECTOR
*
____________________________________
JOHN M. PIETRUSKI DIRECTOR
*
____________________________________
DAVID S. POTTRUCK DIRECTOR
*
____________________________________
CARL E. REICHARDT DIRECTOR
*
____________________________________
JANE E. SHAW DIRECTOR
*
____________________________________
ROBERT H. WATERMAN, JR. DIRECTOR
</TABLE>
*By: /s/ Nancy A. Miller
- -------------------------------
NANCY A. MILLER
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MCKESSON]
November , 1998
McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, California 94104
Re:McKesson Corporation --
Registration Statement on Form S-4
Ladies and Gentlemen:
I am Vice President and General Counsel of McKesson Corporation, a Delaware
corporation (the "Company"), and am issuing this opinion in connection with the
Registration Statement on Form S-4 being filed by the Company with the
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Registration Statement") for the purpose of registering with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), up to
shares (the "Shares") of common stock of the Company, par value $.01 per
share, issuable pursuant to the Agreement and Plan of Merger, dated as of
October 17, 1998, as amended as of November 9, 1998 (the "Merger Agreement"),
by and among the Company, McKesson Merger Sub, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company ("Merger Sub"), and HBO & Company, a
Delaware corporation ("HBOC").
In this connection, I have examined and am familiar with originals or copies,
certified or otherwise identified to my satisfaction, of (i) the Registration
Statement; (ii) the Merger Agreement; (iii) the Restated Certificate of
Incorporation of the Company, as amended and the Restated Bylaws of the
Company, as amended, each as currently in effect; and (iv) certain resolutions
adopted by the Board of Directors of the Company relating to the issuance of
the Shares and certain related matters. I have also examined originals or
copies, certified or otherwise identified to my satisfaction of such records of
the Company and such instruments, certificates of public officials, and such
other documents, certificates and records as I have deemed necessary or
appropriate as a basis for the opinion set forth herein.
In my examination, I have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to me
as originals, the conformity to original documents of all documents submitted
to me as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. In making my examination of documents executed or to
be executed by parties other than the Company, I have assumed that such parties
had or will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
<PAGE>
parties and the validity and binding effect thereof. As to any facts material
to the opinion expressed herein which I have not independently established or
verified, I have relied upon statements and representations of other officers
and representatives of the Company and others.
I am admitted to the Bar of the State of California and do not purport to be an
expert on, or express any opinion concerning, any law other than the
substantive law of the State of California.
Based upon and subject to the foregoing, I am of the opinion that the Shares
have been duly authorized for issuance and, upon consummation of the merger of
Merger Sub with and into HBOC pursuant to the Merger Agreement, and the
issuance of the Shares and delivery of proper stock certificates therefor in
the manner contemplated by the Merger Agreement, the Shares will be validly
issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this opinion in the Joint Proxy
Statement/Prospectus included therein. In giving such consent, I do not thereby
admit that I am 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.
This opinion is furnished by me, as counsel to the Company, in accordance with
the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act
and, except as provided in the immediately preceding paragraph, is not to be
used, circulated or quoted for any other purpose or otherwise referred to or
relied upon by any other person without the express written permission of the
Company.
Very truly yours,
Ivan D. Meyerson
<PAGE>
EXHIBIT 8.1
[JONES DAY LETTERHEAD]
, 1998
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
RE: MERGER OF MCKESSON MERGER SUB, INC. ("MERGER SUB"), A NEW DIRECT
WHOLLY-OWNED SUBSIDIARY OF MCKESSON CORPORATION ("MCKESSON"), INTO HBO
& COMPANY ("HBOC")
------------------------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered in connection with the Agreement and Plan of
Merger, dated as of October 17, 1998, as amended November 9, 1998 ("Merger
Agreement"), by and among HBOC, McKesson and Merger Sub. Pursuant to the Merger
Agreement, Merger Sub will merge with and into HBOC (the "Merger"), and HBOC
will be the survivor. Except with respect to payments of cash to HBOC
stockholders in lieu of fractional shares of McKesson stock, one hundred
percent (100%) of HBOC stock outstanding immediately prior to the Merger will
be exchanged solely for McKesson voting stock.
This opinion is issued with respect to certain Federal income tax
consequences of the Merger. Reference to such opinion is made in the Joint
Proxy Statement/Prospectus of McKesson and HBOC, dated , 1998. All
capitalized terms not otherwise defined herein have the meaning assigned to
them in the Merger Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to HBOC in connection with the transaction
described above. As such, and for the purpose of rendering this opinion, we
have examined (or will examine) and are relying (or will rely) upon (without
any independent investigation or review thereof) the truth and accuracy, at all
relevant times, of the statements, covenants, representations and warranties
contained in the following documents (including all exhibits and schedules
attached thereto):
1. The Merger Agreement;
2. The Joint Proxy Statement/Prospectus of McKesson and HBOC, dated
, 1998;
3. The representation letter from McKesson and Merger Sub to us;
4. The representation letter from HBOC to us; and
5. Such other documents, records and matters of law as in our judgement
were necessary or appropriate.
<PAGE>
HBO & Company
November , 1998
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that original documents (including
signatures) are authentic, that documents submitted to us as copies conform to
the original documents, and that there has been (or will be) due execution and
delivery of all documents where due execution and delivery are prerequisites to
the effectiveness thereof. We have assumed that all the transactions will be
consummated pursuant to applicable state law in accordance with the Merger
Agreement and as described in the Joint Proxy Statement/Prospectus.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that, for Federal income tax purposes, the Merger will
qualify as a reorganization pursuant to Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgement regarding
the application of Federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and we cannot provide assurance that the Internal Revenue
Service will not assert a contrary position. Furthermore, we cannot provide
assurance that future legislative, judicial or administrative changes would
not, on either a prospective or retroactive basis, adversely affect the
accuracy of the conclusions stated herein. Moreover, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the Federal income tax laws as they might relate to this
opinion.
2. This opinion addresses only whether the Merger will qualify as a
reorganization under Section 368(a) of the Code above. The opinion does not
address any other Federal, state, local or foreign tax consequences that
may result from any other transaction.
3. No opinion is expressed as to any transaction other than the Merger as
described in the Joint Proxy Statement/Prospectus. We have assumed that all
the transactions described in the Merger Agreement have been or will be
consummated in accordance with the terms of the Merger Agreement and
without waiver or breach of any material provision thereof and that all of
the representations, warranties, statements and assumptions upon which we
have relied remain true and accurate at all relevant times. In the event
that any of the representations, warranties, statements or assumptions upon
which we have relied is not correct and complete in all material respects,
this opinion would be adversely affected and should not be relied upon.
4. This opinion has been delivered to you for the purpose of satisfying
the conditions set forth in Section 6.1(g) of the Merger Agreement and is
intended solely for the benefit of HBOC and its stockholders. It may not be
relied upon for any other purpose or by any other person or
<PAGE>
HBO & Company
November , 1998
Page 3
entity, and may not be made available to any other person or entity,
without our prior written consent.
5. We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement on Form S-4 (File No. 333- ) filed with the
Securities and Exchange Commission by McKesson and the references to this
firm under the headings "Certain United States Federal Income Tax
Consequences Of The Merger" and "Legal Matters" in such Registration
Statement.
Very truly yours,
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP]
November , 1998
McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, California 94104
Dear Sir or Madam:
You have requested our opinion, as counsel to McKesson Corporation, a
Delaware corporation ("McKesson"), as to certain United States federal income
tax consequences of the proposed merger of McKesson Merger Sub, Inc., a
Delaware corporation ("Merger Sub"), and a wholly owned subsidiary of McKesson,
with and into HBO & Company ("HBOC"), with HBOC continuing as the surviving
corporation.
In rendering our opinion, we have reviewed the Agreement and Plan of Merger,
dated as of October 17, 1998, as amended as of November 9, 1998, among
McKesson, Merger Sub and HBOC (the "Merger Agreement") and such other materials
as we have deemed necessary or appropriate as a basis for our opinion.
Capitalized terms not otherwise defined herein have the meaning specified in
the Merger Agreement. All section references, unless otherwise indicated, are
to the Internal Revenue Code of 1986, as amended (the "Code").
In rendering this opinion, we have assumed that the Merger will be
consummated in accordance with the Merger Agreement. In addition, as to certain
facts material to our opinion, we have relied upon the accuracy of written
representations made by an authorized officer of each of McKesson, Merger Sub,
and HBOC in letters addressed to us and Jones, Day, Reavis & Pogue (the "Tax
Representation Letters"), copies of which are attached hereto. Our opinion is
conditioned on, among other things, the accuracy and completeness as of the
date hereof, of such facts, information, covenants and representations referred
to above. We note that while we have not undertaken any independent
investigation, nothing has come to our attention during the course of our
representation of McKesson that is inconsistent with these facts, information,
covenants and representations.
In our examination of documents in connection with this opinion, we have
assumed the genuineness of all signatures, the legal capacity of 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
or photostatic copies and the authenticity of the originals of such documents.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are
of the opinion that, assuming that the Merger is consummated in accordance with
the Merger Agreement (and without any waiver, breach or
<PAGE>
November , 1998
Page 2
amendment of any of the provisions thereof) and the statements set forth in the
Tax Representation Letters are true and correct as of the Effective Time, then
for federal income tax purposes, the Merger will constitute a reorganization
within the meaning of Section 368 of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Merger Agreement. In addition, no opinion is expressed as
to any federal income tax consequence of the Merger or the other transactions
contemplated by the Merger Agreement except as specifically set forth herein,
and this opinion may not be relied upon except with respect to the consequences
specifically discussed herein. To the extent that any of the representations,
warranties, statements and assumptions material to our opinion and upon which
we have relied are not accurate and complete in all material respects at all
relevant times, our opinion would be adversely affected and should not be
relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service
or any court of law, tribunal, administrative agency or other governmental
body. The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered to you for the purpose of being included as
an exhibit to the Registration Statement, and is intended for the benefit of
McKesson and its shareholders and may not be relied upon or utilized for any
other purpose or by any other person and may not be made available to any other
person without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
aforementioned Registration Statement and to references to Skadden, Arps,
Slate, Meagher & Flom LLP and its opinion in the sections captioned "Certain
United States Federal Income Tax Consequences of the Merger" and "Legal
Matters" in the Registration Statement and Joint Proxy Statement/Prospectus. In
giving this consent, we do not admit that we come within 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 thereunder.
Very truly yours,
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of McKesson Corporation of
our reports dated February 6, 1998 included or incorporated by reference in HBO
& Company's Form 10-K for the year ended December 31, 1997 and to all
references to our firm included in this registration statement.
/s/ Arthur Andersen LLP
------------------------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 10, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus of McKesson Corporation ("McKesson") included in the
Registration Statement on Form S-4 of our reports dated May 18, 1998 on
McKesson's consolidated financial statements and financial statement schedule,
appearing in and incorporated by reference in the Annual Report on Form 10-K
of McKesson for the year ended March 31, 1998, and our report on FoxMeyer
Corporation's consolidated financial statements dated June 28, 1996 (March 18,
1997 as to paragraph seven of Note Q), which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the sale of the
principal assets of FoxMeyer Corporation and its Chapter 7 bankruptcy filing,
appearing in the Current Report on Form 8K/A of McKesson filed with the
Securities and Exchange Commission on April 28, 1997.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ Deloitte & Touche LLP
- ----------------------------------
San Francisco, California
Dallas, Texas
November 13, 1998
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF BEAR, STEARNS & CO. INC.]
November 9, 1998
Board of Directors
McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, California 94104
Ladies and Gentlemen:
We hereby consent to the inclusion in the Registration Statement on Form S-4
(the "Registration Statement") of McKesson Corporation, a Delaware corporation
("McKesson"), of our opinion letter appearing as Annex D to the Joint Proxy
Statement/Prospectus which is a part of the Registration Statement and to the
references to our firm name in the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended (the "Securities Act"), or the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder, nor do we admit
that we are experts with respect to any part of the Registration Statement
within the meaning of the term "experts" as used in the Securities Act, or the
rules and regulations of the SEC promulgated thereunder.
Very truly yours,
Bear, Stearns & Co. Inc.
By: /s/ Kevin P. Clarke
-------------------------
Name: Kevin P. Clarke
Title: Senior Managing Director
<PAGE>
EXHIBIT 23.4
MORGAN STANLEY DEAN WITTER
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
November 13, 1998
Board of Directors
HBO & Company
301 Perimeter Center North
Atlanta, GA 30346
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of McKesson
Corporation ("McKesson") on Form S-4, with respect to the shares of common
stock, par value $0.01 per share of McKesson, of our opinion letter appearing
as Annex E to the Joint Proxy Statement/Prospectus which is part of the
Registration Statement and to the references of our firm name therein. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations adopted by the Securities and
Exchange Commission thereunder, nor do we admit that we are experts with
respect to any part of the Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Mary Anne Citrino
---------------------------------------
Mary Anne Citrino
Managing Director
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT the undersigned directors and officers of
McKesson Corporation, a Delaware corporation (the "Company"), do hereby
constitute and appoint Ivan D. Meyerson and Nancy A. Miller his or her true and
lawful attorney and agent, each with full power and authority (acting alone and
without the other) to execute in the name and on behalf of the undersigned as
such Director and/or Officer, a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended, with respect to the registration of shares
of the Company's Common Stock, that may be issued in connection with the
proposed merger of McKesson Merger Sub, Inc., a wholly-owned subsidiary of the
Company, with and into HBO & Company and to execute any and all amendments to
such Registration Statement, whether filed prior or subsequent to the time such
Registration Statement becomes effective. The undersigned hereby grants unto
such attorneys and agents, and each of them, full power of substitution and
revocation in the premises and hereby ratifies and confirms all that such
attorneys and agents may do or cause to be done by virtue of these presents.
SIGNATURE CAPACITY
/s/ Mark A. Pulido President, Chief Executive Officer
- ---------------------------------------- and Director
Mark A. Pulido
/s/ Richard H. Hawkins Vice President and Chief Financial
- ---------------------------------------- Officer
Richard H. Hawkins
/s/ Heidi E. Yodowitz Controller
- ----------------------------------------
Heidi E. Yodowitz
/s/ Alan Seelenfreund Director, Chairman of the Board
- ----------------------------------------
Alan Seelenfreund
/s/ Mary G.F. Bitterman Director
- ----------------------------------------
Mary G.F. Bitterman
/s/ Tully M. Friedman Director
- ----------------------------------------
Tully M. Friedman
/s/ John M. Pietruski Director
- ----------------------------------------
John M. Pietruski
/s/ David S. Pottruck Director
- ----------------------------------------
David S. Pottruck
/s/ Carl E. Reichardt Director
- ----------------------------------------
Carl E. Reichardt
/s/ Jane E. Shaw Director
- ----------------------------------------
Jane E. Shaw
/s/ Robert H. Waterman, Jr. Director
- ----------------------------------------
Robert H. Waterman, Jr.
Dated: November 13, 1998
<PAGE>
EXHIBIT 99.5
PROXY
McKESSON CORPORATION
PROXY FOR SPECIAL MEETING
____ P.M., ________ _, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
The undersigned, whose signature appears on the reverse side, hereby constitutes
and appoints Mark A. Pulido, Ivan D. Meyerson and Nancy A. Miller, and each of
them, with full power of substitution, proxies to vote all of the shares of
common stock of McKesson Corporation which the undersigned is entitled to vote
at the Special Meeting of Stockholders to be held in the at the
San Francisco, California, on _________ _, 1999, and any
adjournments thereof, as specified upon the matter indicated on the reverse
side.
You are urged to specify your voting preference by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendation. The above named
proxies cannot vote your shares unless you (1) vote by telephone as described
on the reverse side, or (2) sign and return this card.
-----------
SEE REVERSE
SIDE
-----------
YOUR VOTE IS IMPORTANT
YOU CAN VOTE IN ONE OF TWO WAYS:
1. Call toll free as described in the instructions on the reverse side. There
is NO CHARGE to you for this call, if calling from the United States, Canada,
Puerto Rico and the U.S. Virgin Islands.
or
--
2. Mark, sign and date your proxy card and return it promptly in the enclosed
business reply envelope.
PLEASE VOTE
<PAGE>
PLEASE MARK YOUR
[X] VOTE AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
BELOW. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE FOLLOWING
PROPOSAL.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
[_] [_] [_]
1. Approval of the Agreement and Plan of PLEASE CAST YOUR VOTE BY
Merger, dated as of October 17, 1998, TELEPHONE AS INSTRUCTED
as amended by Amendment No. 1 thereto BELOW OR COMPLETE, DATE,
(the "Merger Agreement"), by and SIGN AND MAIL THIS PROXY
among McKesson Corporation ("McKesson"), PROMPTLY IN THE ENCLOSED
McKesson Merger Sub, Inc., a newly BUSINESS REPLY ENVELOPE.
formed, wholly owned subsidiary of
McKesson ("Merger Sub") and HBO & Company
("HBOC"), the issuance of shares of commmon
stock, par value $0.01 per share, of
McKesson in the merger of Merger Sub with
and into HBOC and the change of McKesson's
corporate name to "McKesson HBOC, Inc.",
all in accordance with the Merger
Agreement.
<TABLE>
<S> <C>
Signature_____________________(Signature, if held jointly)_____________________Date:_____, 1998
</TABLE>
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE - IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
VOTE BY TELEPHONE
QUICK & EASY
McKESSON encourages stockholders to take advantage of a new cost-effective and
convenient way to vote their shares - by telephone. You may vote by telephone 24
hours a day, 7 days a week. To access the telephone voting system, you must use
a touch-tone telephone and follow the instructions below:
. Stockholders calling from the United States, Canada, Puerto Rico and the
U.S. Virgin Islands may dial toll-free 1-800-652-8683 (1-800-OK2-VOTE). If
you call from other locations, you may dial 201-324-0377, and you will bear
the normal cost of international telephone access charges to use the
telephone voting service.
. When requested, enter the last 4 digits of your U.S. Social Security Number
(if you have one) and your Voter Control Number printed in the box above,
just below the perforation.
. The instructions will lead you through the simple voting process.
TELEPHONE VOTING PROVIDES THE SAME AUTHORIZATION TO VOTE YOUR SHARES AS IF YOU
MARKED, SIGNED, DATED AND RETURNED THE PROXY CARD. IF YOU VOTE BY TELEPHONE,
PLEASE DO NOT MAIL YOUR PROXY CARD.
THANK YOU FOR VOTING.
<PAGE>
EXHIBIT 99.6
PSIP VOTING CARD
DIRECTIONS TO TRUSTEE, McKESSON CORPORATION PROFIT-SHARING INVESTMENT PLAN
To: The Chase Manhattan Bank, N.A.
I direct you as Trustee of the McKesson Corporation Profit-Sharing Investment
Plan to vote (in person or by proxy) as I have specified on the reverse side
hereof all shares of McKesson Corporation Common Stock allocated to my accounts
under the plan at the Special Meeting of Stockholders of McKesson Corporation to
be held on , 1999.
YOU ARE ENCOURAGED TO SPECIFY YOUR VOTING PREFERENCE BY MARKING THE APPROPRIATE
BOX, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTOR'S RECOMMENDATION. YOUR SHARES WILL NOT BE
VOTED UNLESS YOU (1) VOTE BY TELEPHONE AS DESCRIBED ON THE REVERSE SIDE, OR (2)
SIGN AND RETURN THIS CARD.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT
PSIP PARTICIPANTS CAN VOTE IN ONE OF TWO WAYS:
1. Call toll free 1-800-840-1208 from a Touch Tone Telephone and follow the
instructions on the reverse side of this form. There is NO CHARGE to you
for this call.
OR
--
2. Mark, sign and date your voting instruction card and return it promptly in
the enclosed business reply envelope.
PLEASE VOTE
<PAGE>
PLEASE MARK
YOUR VOTE [X]
AS INDICATED
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. Approval of the Agreement and Plan of Merger, FOR AGAINST ABSTAIN
dated as of October 17, 1998, as amended by [_] [_] [_]
Amendment No. 1 thereto (the "Merger Agreement"),
by and among McKesson Corporation ("McKesson"), Please cast your vote
McKesson Merger Sub, Inc., a newly formed, wholly by telephone as
owned subsidiary of McKesson ("Merger Sub") and instructed below or
HBO & Company ("HBOC"), the issuance of shares of complete, date, sign
common stock, par value $0.01 per share, of and mail this voting
McKesson in the merger of Merger Sub with and into instruction card
HBOC and the change of McKesson's corporate name promptly in the
to "McKesson HBOC, Inc.", all in accordance with enclosed business
the Merger Agreement. reply envelope.
THIS VOTING CARD WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER DIRECTED
ABOVE. IF NO DIRECTION IS GIVEN, IT WILL
BE VOTED FOR THE PROPOSAL
Signature(s)_________________________________________________ Dated:______, 1998
PLEASE SIGN THIS PROXY PROMPTLY AND RETURN IT IN THE ENCLOSED ENVELOPE
. FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTING CARD BY MAIL .
- --------------------------------------------------------------------------------
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW
- --------------------------------------------------------------------------------
VOTE BY TELEPHONE
QUICK - EASY
PSIP participants may instruct the Plan Trustee how to vote the shares allocated
to their account by telephone 24 hours a day, 7 days a week. If you wish to do
so, dial 1-800-840-1208 on a touch-tone telephone.
You will be asked to enter a Control Number which is located in the box in the
lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on the proposal: press
1.
- --------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
OPTION #2: To vote on the proposal, press 0. You will hear these instructions:
- --------------------------------------------------------------------------------
PROPOSAL 1: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
PLEASE DO NOT RETURN YOUR VOTING INSTRUCTION CARD IF YOU HAVE VOTED BY PHONE.
- --------------------------------------------------------------------------------
========================
Call TOLL FREE ANYTIME From a Touch Tone Telephone (PIN # to appear here)
1-800-840-1208
There is NO CHARGE to you for this call.
========================
<PAGE>
EXHIBIT 99.7
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF HBO & COMPANY FOR THE SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD ___________, 199_
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
1. To approve the Agreement and Plan of Merger dated October 17, 1998, as
amended as of November 9, 1998, by and among HBO & Company, McKesson Corporation
and McKesson Merger Sub, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The shares represented by this proxy card will be voted as directed above. If no
direction is given and the proxy card is validly executed, the shares will be
voted for all listed proposals. In their discretion, the proxy holders are
authorized to vote upon such other business as may properly come before the
meeting.
<PAGE>
The undersigned hereby appoints Charles W. McCall and , or
either one of them, with full power of substitution as proxy holders to
represent and to vote as designated hereon, the Common Stock of the undersigned
at the Special Meeting of Stockholders of the Company to be held on __________,
199_, or any postponement or adjournment thereof.
----------------------------------------
Signature of Stockholder
----------------------------------------
Signature of Stockholder
Dated ______________________________199_
IMPORTANT: Sign exactly as your name
appears at left. Give full title of
executor, administrator, trustee,
guardian, etc. Joint owners should each
sign personally.
