SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JULY 19, 1996
HCIA INC.
(Exact name of registrant as specified in its charter)
Maryland 0-25378 52-1407998
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
300 East Lombard Street, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 895-7470
Not applicable
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
LBA Health Care Acquisition. On July 19, 1996, the Registrant and
HealthVISION, Inc. ("HealthVISION"), the parent company of LBA Health Care
Management, Inc. ("LBA"), entered into an Agreement and Plan of Reorganization
whereby the Registrant will acquire all of the capital stock of HealthVISION for
$100 million in cash and $30 million in the Registrant's Common Stock
(492,960 shares). Prior to the consummation of the acquisition, all of the
assets and liabilities of HealthVISION not associated with LBA will be
distributed to the current stockholders of HealthVISION. The closing of the
acquisition is subject to a number of conditions, including approval by the
stockholders of HealthVISION. Stockholders representing in excess of a majority
of HealthVISION's voting shares outstanding have agreed to vote in favor of the
transaction. It is currently anticipated that the acquisition will be
consummated in mid-August 1996. The Company has obtained a bank commitment to
fund a portion of the acquisition price. The Company intends to repay the bank
financing with a portion of the net proceeds of a public offering of its Common
Stock.
Second Quarter Results. On July 22, 1996 the Company announced results
for the second quarter of 1996. See the press release attached hereto as Exhibit
99.
Incorporation of Certain Information by Reference. Pursuant to Rule 411
of Regulation C under the Securities Act of 1933, as amended (the "Act"), the
Registrant intends to incorporate by reference the financial statements included
in Item 7 hereof in one or more registration statement(s) filed under Act.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements of Datis Corporation:
Independent Auditors' Report................................................................ F-1
Report of Independent Accountants........................................................... F-2
Balance Sheet (May 31, 1994, May 31, 1993 and March 31, 1993)............................... F-3
Statement of Operations (Year ended May 31, 1994, Two Months ended
May 31, 1993 and Year ended March 31, 1993)............................................ F-4
Statement of Cash Flows (Year ended May 31, 1994, Two Months ended
May 31, 1993 and Year ended March 31, 1993)............................................. F-5
Statement of Shareholders' Deficit (Year ended May 31, 1994, Two Months
ended May 31, 1993 and Year ended March 31, 1993)....................................... F-6
Notes to Financial Statements............................................................... F-7
Unaudited Financial Statements of Datis Corporation:
Balance Sheet (March 31, 1995).............................................................. F-17
Statement of Operations (Ten Months ended March 31, 1994 and
March 31, 1995)......................................................................... F-18
Statement of Shareholders' Deficit (Ten Months ended March 31, 1995)........................ F-19
Statement of Cash Flows (Ten Months ended March 31, 1994 and March 31, 1995)................ F-20
Notes to Unaudited Financial Statements..................................................... F-21
Financial Statements of William M. Mercer, Incorporated National Health Analysis
Unit (CHAMP):
Independent Auditors' Report................................................................ F-22
Balance Sheets (December 31, 1994 and September 30, 1995)................................... F-23
Statements of Operations (Years ended December 31, 1993 and 1994 and the
Nine Months ended September 30, 1995)................................................... F-24
Statements of Cash Flows (Years ended December 31, 1993 and 1994 and the
Nine Months ended September 30, 1995)................................................... F-25
Notes to Financial Statements (December 31, 1993 and 1994 and
September 30, 1995)..................................................................... F-26
Financial Statements of HealthVISION, Inc.:
Report of Independent Auditors.............................................................. F-30
Consolidated Balance Sheets (December 31, 1994 and 1995).................................... F-31
Consolidated Statements of Operations (Period from February 2, 1994 (Inception) through
December 31, 1994 and the year ended December 31, 1995)................................. F-32
Consolidated Statements of Changes in Stockholders' Equity
(Period from February 2, 1994 (Inception) through December 31, 1994
and the year ended December 31, 1995)................................................... F-33
Consolidated Statements of Cash Flows (Period from February 2, 1994 (Inception) through
December 31, 1994, and the year ended December 31, 1995)................................ F-34
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Notes to Consolidated Financial Statements.................................................. F-35
Unaudited Financial Statements of HealthVISION, Inc:
Consolidated Balance Sheets (December 31, 1995 and March 31, 1996).......................... F-50
Consolidated Statements of Operations (Three Months ended
March 31, 1995 and 1996).............................................................. F-51
Consolidated Statements of Changes in Stockholders' Equity
(Period from February 12, 1994 (Inception) through March 31, 1996).................... F-52
Consolidated Statements of Cash Flows (Three Months ended March 31, 1995
and 1996).............................................................................. F-53
Notes to Financial Statements............................................................... F-54
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Datis Corporation:
We have audited the accompanying balance sheet of Datis Corporation as
of March 31, 1993, and the related statements of operations, shareholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Datis Corporation as
of March 31, 1993, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Jose, California
June 17, 1993
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Datis Corporation
In our opinion, the accompanying balance sheet and the related
statements of operations, of cash flows and of shareholders' deficit present
fairly, in all material respects, the financial position of Datis Corporation at
May 31, 1994 and 1993, and the results of its operations and its cash flows for
the year ended May 31, 1994 and the two months ended May 31, 1993, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 11, in connection with the acquisition of the
Company by HCIA Inc. in April 1995, the Company has modified its financial
statement presentation to conform with the financial reporting requirements of
the Securities and Exchange Commission.
PRICE WATERHOUSE LLP
San Jose, California
July 22, 1994, except as to Note 11
which is as of July 24, 1995
F-2
<PAGE>
DATIS CORPORATION
BALANCE SHEET
</TABLE>
<TABLE>
<CAPTION>
May 31, May 31, March 31,
1994 1993 1993
----------- ----------- ----------
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents...................................... $ 123,000 $ 58,000 $ 53,000
Accounts receivable, net of allowance for doubtful
accounts of $231,000, $343,000 and $185,000.................. 2,172,000 1,951,000 3,407,000
Income taxes receivable........................................ 563,000 -- --
Prepaid expenses and other..................................... 55,000 39,000 39,000
------------ ------------ ----------
Total current assets......................................... 2,913,000 2,048,000 3,499,000
Property and equipment, net (Note 3).............................. 1,606,000 1,567,000 1,239,000
Other assets...................................................... 49,000 49,000 119,000
------------ ------------ ----------
$ 4,568,000 $ 3,664,000 $4,857,000
============ ============ ==========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations (Note 6).......... $ 320,000 $ 323,000 $ 205,000
Accounts payable............................................... 508,000 274,000 653,000
Bank borrowings (Note 4)....................................... 922,000 200,000 --
Accrued liabilities (Note 3)................................... 1,802,000 1,781,000 2,427,000
Current portion of long-term debt (Note 5)..................... 118,000 79,000 67,000
----------- ------------ ---------
Total current liabilities.................................... 3,670,000 2,657,000 3,352,000
Capital lease obligations, net of current portion (Note 6)........ 230,000 288,000 113,000
Long-term debt, net of current portion (Note 5)................... 279,000 197,000 213,000
Other liabilities................................................. 32,000 43,000 39,000
----------- ------------ ---------
Total liabilities............................................ 4,211,000 3,185,000 3,717,000
----------- ------------ ----------
Commitments (Note 6)
Redeemable convertible preferred stock (Note 8):
Series A, no par value, 1,500,000 shares authorized,
1,285,716, 1,285,716, and 1,285,716 shares issued and
outstanding.................................................. 872,000 872,000 872,000
Series B, no par value, 1,000,000 shares authorized,
425,000, 425,000 and 425,000 shares issued and
outstanding.................................................. 507,000 507,000 507,000
----------- ------------ ----------
Total redeemable convertible preferred stock................. 1,379,000 1,379,000 1,379,000
----------- ------------ ----------
Shareholders' deficit:
Common stock, no par value, 10,000,000 shares
authorized, 1,029,797, 1,003,097, and 1,003,097 shares
issued and outstanding (Note 9).............................. 241,000 224,000 224,000
Accumulated deficit............................................ (1,223,000) (1,084,000) (423,000)
Notes receivable from shareholders............................. (40,000) (40,000) (40,000)
----------- ------------ ----------
Total shareholders' deficit.................................. (1,022,000) (900,000) (239,000)
----------- ------------ ----------
$ 4,568,000 $ 3,664,000 $4,857,000
=========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DATIS CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Two Months Year ended
May 31, ended May 31, March 31,
1994 1993 1993
------------ ------------ -----------
<S> <C>
Net revenues:
Basic reports..................................................... $ 6,070,000 $ 247,000 $ 6,252,000
Special reports................................................... 2,920,000 182,000 2,570,000
----------- ---------- -----------
8,990,000 429,000 8,822,000
----------- ---------- -----------
Total net revenues..............................................
Operating expenses:
Cost of revenues.................................................. 3,639,000 513,000 2,708,000
Selling and marketing............................................. 3,435,000 353,000 3,047,000
General and administrative........................................ 1,383,000 451,000 1,071,000
Research and development.......................................... 576,000 95,000 562,000
----------- ---------- -----------
Total operating expenses........................................ 9,033,000 1,412,000 7,388,000
----------- ---------- -----------
Income (loss)from operations......................................... (43,000) (983,000) 1,434,000
Interest expense..................................................... 189,000 24,000 128,000
----------- ---------- -----------
Income (loss) before income taxes.................................... (232,000) (1,007,000) 1,306,000
Income tax provision (benefit) (Note 7).............................. (93,000) (320,000) 515,000
----------- ---------- -----------
Income (loss) before extraordinary credit and cumulative effect of
change in accounting principle.................................... (139,000) (687,000) 791,000
Extraordinary credit - utilization of net operating loss
carryforwards..................................................... -- -- 41,000
----------- ---------- -----------
Income (loss) before cumulative effect of change in method of
accounting for income taxes....................................... (139,000) (687,000) 832,000
Cumulative effect of change in method of accounting for income
taxes............................................................. -- (26,000) --
----------- ---------- -----------
--
Net income (loss).................................................... $ (139,000) $ (661,000) $ 832,000
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DATIS CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Two Months ended Year ended
May 31, May 31, March 31,
1994 1993 1993
------------ -------------- ------------
<S> <C>
Net income (loss).................................................... $ (139,000) $ (661,000) $ 832,000
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization..................................... 620,000 102,000 331,000
Loss on sale of property and equipment............................ 7,000 -- --
Change in assets and liabilities:
Accounts receivable............................................. (221,000) 1,456,000 (1,793,000)
Income taxes receivable......................................... (563,000) -- --
Prepaid expenses and other...................................... (16,000) -- (1,000)
Other assets.................................................... -- (17,000) (18,000)
Deferred income taxes........................................... -- 94,000 (51,000)
Accounts payable and accrued expenses........................... 222,000 (724,000) 579,000
Deferred revenue................................................ 104,000 139,000 441,000
Income taxes payable............................................ (71,000) (440,000) 322,000
Other liabilities............................................... (11,000) (3,000) (13,000)
----------- ----------- ------------
Net cash provided (used) by operating activities.............. (68,000) (54,000) 629,000
----------- ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment............................. (336,000) (70,000) (557,000)
Proceeds from the sale of property and equipment................ 4,000 -- --
----------- ------------ ------------
Net cash used by investing activities......................... (332,000) (70,000) (557,000)
----------- ----------- ------------
Cash flows from financing activities:
Borrowings under revolving line of credit....................... 722,000 200,000 --
Proceeds from issuance of long-term debt........................ 297,000 -- --
Principal payments on capital lease obligations................. (395,000) (67,000) (166,000)
Repayment of long-term debt..................................... (176,000) (4,000) (96,000)
Issuance of common stock, net................................... 17,000 -- 29,000
Payment of note receivable from shareholders.................... -- -- 6,000
----------- ----------- ------------
Net cash provided (used) by financing activities.............. 465,000 129,000 (227,000)
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents................. 65,000 5,000 (155,000)
Cash and cash equivalents at beginning of period..................... 58,000 53,000 208,000
----------- ----------- ------------
Cash and cash equivalents at end of period........................... $ 123,000 $ 58,000 $ 53,000
=========== =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................ $ 197,000 $ 20,000 $ 97,000
Income taxes.................................................... 116,000 -- 243,000
Noncash investing and financing activities:
Equipment acquired under capital leases......................... 334,000 360,000 132,000
Conversion of convertible subordinated debentures to
common stock.................................................. -- -- 20,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DATIS CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Notes Receivable Total
------------ Accumulated from Shareholders'
Shares Amount Deficit Shareholders Deficit
<S> <C> ------- -------- ------------ ---------------- -------------
Balance at March 31, 1992............... 954,097 $176,000 $(1,255,000) $(46,000) $(1,125,000)
Net income............................. -- -- 832,000 -- 832,000
Conversion of subordinated debentures
to common stock..................... 20,000 20,000 -- -- 20,000
Exercise of stock options.............. 29,000 28,000 -- -- 28,000
Payment of Note Receivable............. -- -- -- 6,000 6,000
--------- -------- ----------- -------- -----------
Balance at March 31, 1993.............. 1,003,097 224,000 (423,000) (40,000) (239,000)
Net loss............................... -- -- (661,000) -- (661,000)
--------- -------- ----------- -------- -----------
Balance at May 31, 1993................ 1,003,097 224,000 (1,084,000) (40,000) (900,000)
Net loss............................... -- -- (139,000) -- (139,000)
Issuance of common stock............... 27,300 21,000 -- -- 21,000
Repurchase of common stock............. (600) (4,000) -- -- (4,000)
--------- -------- ----------- -------- -----------
Balance at May 31, 1994................ 1,029,797 $241,000 $(1,223,000) $(40,000) $(1,022,000)
========= ======== =========== ======== ===========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DATIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company
Datis Corporation (the "Company") provides customized and syndicated
research in the form of reports and data bases for hospital associations and
business coalitions throughout the United States using patient case
abstracts provided by participating hospitals and other available information.
Such reports are used by hospital management to help make decisions involving
hospital operations, financial and strategic planning marketing, and
regulatory reporting. The Company changed its fiscal year end from March 31 to
May 31, effective April 1, 1993.
The Company enters into contracts with individual client hospitals
through state hospital associations. For the year ended May 31, 1994, four
state hospital associations and their affiliated hospitals accounted for
approximately 16%, 13%, 12% and 12% of the Company's total revenues. For
the year ended March 31, 1993, five associations accounted for approximately
17%, 14%, 13%, 13% and 11% of total revenues.
2. Significant Accounting Policies
Property and equipment
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Computer equipment under capital leases
is amortized over the shorter of the lease term or the estimated useful lives of
the equipment. Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives of the improvements.
Revenue recognition
Revenue is recognized at the culmination of the earnings process when
the data collection and editing process has been completed. Costs incurred
subsequent to the completion of the earnings process and prior to delivery of
the product to the customer are accrued at the time of revenue recognition. Such
costs relate primarily to printing and fulfillment and are not significant in
relation to the overall product costs. Cash collections made prior to the
completion of specific reports are presented as deferred revenue in the
accompanying balance sheet.
Income taxes
Effective April 1, 1993, income taxes are computed under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). Current income tax expense or benefit represents the amount
of income taxes expected to be payable or refundable for the current period. A
deferred income tax liability or asset, net of valuation allowance, is
established for the expected future consequences resulting from the difference
F-7
<PAGE>
between the financial reporting and income tax bases of assets and liabilities
and from net operating loss and tax credit carryforwards. Deferred income tax
expense or benefit represents the net change during the period in the deferred
income tax liability or asset. During fiscal 1993 deferred income taxes were
computed under the provisions of Accounting Principles Board Opinion No. 11.
Cash equivalents
The Company considers all highly liquid financial instruments purchased
with an original maturity of three months or less to be cash equivalents.
Concentration of credit risk
The majority of the Company's accounts receivable are from hospitals
throughout the United States with credit terms of generally 30 days and which
are not collateralized. The Company maintains adequate reserves for potential
credit losses and such losses, which have been minimal, have been within
management estimates.
Research and development
Research and development costs are experienced as incurred.
Reclassifications
The Company's previously issued fiscal 1993 financial statements
presented its operating expenses under the following captions: personnel,
office, travel and meeting, purchased services, data processing, and other
operating. Subsequent to the issuance of the fiscal 1993 financial statements,
the Company determined that the presentation of its operating expenses under the
following captions would be more meaningful and in accordance with industry
practice: cost of revenues, selling and marketing, general and administrative,
and research and development. Accordingly, the fiscal 1993 operating expenses
have been reclassified to conform to the current presentation. Such
reclassification had no effect on total revenues, total operating expenses,
operating income or net income.
F-8
<PAGE>
3. Balance Sheet Components
Property and equipment:
</TABLE>
<TABLE>
<CAPTION>
May 31, May 31, March 31,
1994 1993 1993
---------- ----------- ------------
<S> <C>
Computer and office equipment........................ $ 2,628,000 $ 2,069,000 $ 1,681,000
Furniture and fixtures............................... 464,000 385,000 358,000
Leasehold improvements............................... 211,000 206,000 191,000
----------- ----------- ---------
3,303,000 2,660,000 2,230,000
Less accumulated depreciation and amortization....... (1,697,000) (1,093,000) (991,000)
----------- ----------- ---------
$1,606,000 $1,567,000 $1,239,000
========== ========== ==========
</TABLE>
Included in the table above are property and equipment acquired under capital
leases as follows:
<TABLE>
<CAPTION>
May 31, May 31, March 31,
1994 1993 1993
---------- ---------- ----------
<S> <C>
Computer and office equipment........................ $1,320,000 $ 986,000 $ 626,000
Furniture and fixtures............................... 58,000 58,000 58,000
---------- ---------- ----------
1,378,000 1,044,000 684,000
Less accumulated amortization........................ (792,000) (461,000) (399,000)
---------- ---------- ----------
$ 586,000 $ 583,000 $ 285,000
========== ========== ==========
Accrued liabilities:
<CAPTION>
May 31, May 31, March 31,
1994 1993 1993
---------- ---------- ----------
Salaries and commissions............................. $ 631,000 $ 545,000 $ 891,000
Deferred revenue..................................... 1,016,000 912,000 773,000
Income taxes payable................................. -- 71,000 511,000
Other................................................ 155,000 253,000 252,000
---------- --------- ----------
$1,802,000 $1,781,000 $2,427,000
========== ========== ==========
</TABLE>
4. Bank Borrowings
The Company has a revolving line of credit arrangement with a bank. The
arrangement, which allows for up to $1,000,000 to be drawn (based on 75% of
eligible accounts receivable), is secured by certain assets of the Company, and
bears interest at prime plus 2.5% (9.75%, 9.0% and 9.0% at May 31, 1994, 1993
and March 31, 1993, respectively). This arrangement also allows for additional
sub-facility borrowings of up to $250,000 in excess of the qualifying accounts
receivable collateral base; however, total borrowings cannot exceed $1,000,000.
Upon receipt of the Company's 1994 income tax refund, this sub-facility will be
deleted in its entirety. Under the credit arrangement, the Company must maintain
specified financial ratios on a monthly basis. The line of credit is payable
upon demand and expires September 30, 1994. The credit arrangement also has a
sublimit of $150,000 for the issuance of letters of credit, of which $32,000 was
outstanding in connection with the guaranty of certain operating lease
commitments at May 31, 1994. The Company had total outstanding borrowings of
$922,000 under the credit arrangement at May 31,1994.
F-9
<PAGE>
5. Long-term Debt
The Company has outstanding a series of subordinated notes which
originated in 1990 and 1991 and mature in fiscal 1995 and 1996. The notes bear
interest at the rate of 10% per annum and provide holders the option to receive
the Company's services in lieu of principal and interest payments. For the years
ended May 31, 1994 and March 31, 1993, approximately $147,000 and $77,000,
respectively, in subordinated debt principal and related interest were exchanged
for services.
Revenues include billings to hospitals who are holders of subordinated
notes of the Company in the amounts of $243,000, $2,000 and $365,000 for the
periods ended May 31,1994, May 31, 1993 and March 31, 1993, respectively.
At May 31, 1994, the Company had three secured notes totaling $268,000.
These notes, which are secured by specific furniture and equipment, bear
interest at rates ranging from 9.99% to 11.25% and mature between 1996 and 1998.
Aggregate maturities of long-term debt at May 31, 1994 are as follows:
Year ending May 31,
1995................................................ $118,000
1996................................................ 164,000
1997................................................ 67,000
1998................................................ 28,000
1999 and thereafter................................. 20,000
--------
$397,000
========
6. Leases
The Company leases certain computer and office equipment, furniture and
office space under noncancelable capital and operating leases which expire in
various years through 1999.
F-10
<PAGE>
A schedule of future minimum noncancelable lease payments is as
follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending May 31, Leases Leases
-------- ---------
<S> <C>
1995......................................................... $358,000 $508,000
1996......................................................... 213,000 548,000
1997......................................................... 29,000 540,000
1998......................................................... -- 289,000
1999 and thereafter.......................................... -- 106,000
-------- -------
Total minimum lease payments................................. 600,000 $1,991,000
==========
Less amount representing interest............................ (50,000)
--------
Present value of future minimum lease payments............... 550,000
Less current portion......................................... (320,000)
----------
$ 230,000
==========
</TABLE>
Rent expenses on the office lease is recognized on the straight-line
basis over the lease term to properly reflect certain escalation clauses. Total
rent expense under operating leases was approximately $414,000, $57,000 and
$309,000 for the periods ended May 31, 1994 and 1993 and March 31, 1993,
respectively.
7. Income Taxes
The income tax provision (benefit) comprises the following:
<TABLE>
<CAPTION>
Year Two Months Year
ended ended ended
May 31, May 31, March 31,
1994 1993 1993
---------- ---------- ---------
<S> <C>
Current:
Federal..................................................... $(93,000) $(440,000) $455,000
State....................................................... -- -- 111,000
----------- --------- --------
(93,000) (440,000) 566,000
--
Deferred:
Federal..................................................... -- 120,000 (44,000)
State....................................................... -- -- (7,000)
----------- --------- --------
-- 120,000 (51,000)
----------- --------- --------
$(93,000) $(320,000) $515,000
=========== ========= ========
Utilization of net operating loss carryforwards............... $ -- $ -- $(41,000)
=========== ========= ========
</TABLE>
F-11
<PAGE>
The significant components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
May 31, May 31, April 1,
1994 1993 1993
---------- ---------- --------
<S> <C>
Deferred tax liabilities:
Depreciation.................................................... $ 42,000 $ 22,000 $ --
---------- ----------- ---------
42,000 22,000 --
---------- ----------- ---------
Deferred tax assets:
Depreciation.................................................... -- -- (10,000)
Accrued liabilities and reserves not
currently deductible.......................................... (139,000) (174,000) (110,000)
Net operating loss carryforwards................................ (210,000) (360,000) (360,000)
----------- ----------- ---------
(349,000) (534,000) (480,000)
----------- ----------- ---------
(307,000) (512,000) (480,000)
Less valuation allowance............................................. 307,000 512,000 360,000
---------- ----------- ---------
Net deferred tax assets.............................................. $ -- $ -- $ 120,000
========== =========== =========
</TABLE>
Upon adoption of FAS 109 at April 1, 1993, the Company had $480,000
of net deferred tax assets. At that time, management believed it was more
likely than not that approximately $120,000 of such assets were realizable
based on projected future operating results. Due to the Company's operating
results in the two months ended May 31, 1993 and fiscal 1994, management
concluded it was more likely than not that such assets were not realizable and,
therefore, a full valuation allowance was provided.
The components of the deferred income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
Year ended
March 31, 1993
--------------
<S> <C>
Leases.......................................................... $ 51,000
Accrued liabilities and reserves not currently deductible....... (60,000)
Depreciation.................................................... (39,000)
Other........................................................... (3,000)
------
$ (51,000)
</TABLE> ======
F-12
<PAGE>
The effective tax rates differ from the federal statutory rates by
applying the applicable federal statutory income tax rate to pretax income as
follows:
<TABLE>
<CAPTION>
May 31, May 31, March 31,
1994 1993 1993
---------- ---------- ----------
<S> <C>
Federal statutory rate.......................................... (34)% (34)% 34%
State taxes, net of federal benefit............................. -- -- 5
Change in valuation allowance................................... (6) 4 --
Alternative minimum tax effect and other........................ -- (2) --
(40)% (32)% 39%
===== ===== ===
</TABLE>
At May 31, 1994, the Company had federal net operating loss
carryforwards of approximately $600,000 which expire between 2001 and 2009.
As a result of an "ownership change," as defined under Internal Revenue
Code Section 382, which occurred in April 1988, the utilization of approximately
$400,000 of federal net operating loss carryforwards is subject to an annual
limitation of approximately $40,000. Due to a change in the Company's tax year
end, as defined under Revenue Procedure 84-34, which occurred at March 31, 1991,
the utilization of approximately $200,000 of federal net operating loss
carryforwards is subject to an annual limitation of approximately $70,000.
8. Redeemable Convertible Preferred Stock
Through May 31, 1994, the Company authorized 2,500,000 shares of
preferred stock of which 1,500,000 shares were designated Series A and 1,000,000
shares were designated Series B. At May 31, 1994 and May 31, 1993, and at March
31, 1993, 1,285,716 shares of Series A and 425,000 shares of Series B redeemable
convertible preferred stock were issued and outstanding.
The rights, preferences, privileges, and restrictions relating to the
Series A and B redeemable convertible preferred stocks are as follows:
(bullet) Commencing on March 31, 1994 and on each of the next three
anniversaries (the "Scheduled Redemption Dates"), upon receipt of
a written request received from holders of two-thirds of the Series A
and Series B redeemable convertible preferred stock, the Company
will redeem 25% per year of the outstanding shares, at a rate of $.70
per share for Series A and $1.20 per share for Series B (the
"Redemption Price").
(bullet) At the shareholders' option, each share of Series A and B redeemable
convertible preferred stock is convertible into one share of common
stock, subject to certain antidilution provisions, at any time after
issuance and on or prior to the fifth day prior to any redemption date.
Shares of common stock reserved for conversion of the Series A and B
stock total
F-13
<PAGE>
1,500,000 and 1,000,000, respectively. The preferred shares are
automatically converted in the event of an initial public offering
with minimum proceeds of $3,000,000 and an offering price of at least
$1.40 per share.
(bullet) Holders are entitled to a preferential cash dividend at the rate of
$.07 per share for Series A and $.12 per share for Series B per
year, as declared by the Board of Directors. Holders are also
entitled to proportional cash or stock dividends as, and if,
paid to common shareholders. The rights to cash dividends are
noncumulative until December 30, 1994.
(bullet) Each holder is entitled to the number of votes equal to the number of
shares of common stock into which shares of Series A and B
redeemable convertible preferred stock could be converted. Voting
rights and powers are equal to the voting rights and powers of common
stock.
(bullet) In the event of liquidation, the holders are entitled to receive
distributions, in the amount of $.70 per share for Series A and $1.20
per share for Series B, plus all declared and cumulative dividends.
(bullet) In the event of an acquisition of the Company or a sale of all or
substantially all the Company's assets, the holders shall be paid for
$.70 per share for Series A and $1.20 per share for Series B in
cash or in securities of the acquiring corporation.
9. Common Stock
During 1986, the Company adopted an employee stock purchase plan and
reserved 200,000 shares of common stock for sale and issuance to employees,
directors, officers, and consultants of the Company at prices not less than the
current estimated fair value of the shares, as determined by the Board of
Directors, at the date of grant.
During 1988, the Company adopted the 1988 Stock Option Plan (the
"Plan") and reserved 500,000 shares of common stock for sale and issuance to
employees, directors, officers, and consultants. On April 27, 1993, the number
of shares of common stock reserved for sale under the Plan was increased to
750,000. Under the Plan, the Company may grant either nonstatutory stock options
or incentive stock options. Incentive stock options are granted to employees,
directors, or officers at prices not less than the estimated fair value of the
Company's common stock, as determined by the Board of Directors, on the grant
date. Nonstatutory stock options are granted to employees, directors, officers,
or consultants at prices not less than 85% of the estimated fair value of the
Company's common stock. Options vest 20% each year over five years, provided
that such person is still employed by the Company.
F-14
<PAGE>
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares Outstanding Options
Available Number of Exercise
for Grant Shares Price
--------- ----------- ------------
<S> <C> <C> <C>
Balance at March 31, 1992.............................. 218,400 278,200 $ 0.40-$1.00
Granted................................................ (207,650) 207,650 $ 1.00-$4.00
Canceled............................................... 35,500 (35,500) $ 1.00-$2.00
Exercised.............................................. -- (29,000) $ 0.45-$1.00
-------- -------
Balance at March 31, 1993.............................. 46,250 421,350 $ 0.40-$4.00
Additional shares reserved............................. 250,000 -- --
Granted................................................ (5,700) 5,700 $ 4.00
2,700 (2,700) $ 0.45-$2.00
-------- -------
Balance at May 31, 1993................................ 293,250 424,350 $ 0.40-$4.00
Granted................................................ (112,600) 112,600 $ 2.00-$8.00
Canceled............................................... 48,120 (48,120) $ 0.45-$8.00
-- (27,300) $ 0.40-$8.00
-------- -------
Balance at May 31, 1994................................ 228,770 461,530 $ 0.40-$8.00
========= =======
Exercisable at May 31, 1994............................ 204,040 $ 0.40-$8.00
</TABLE>
10. Subsequent Events
On June 10, 1994, the Board authorized an offer to individuals who had
previously received options at exercise prices of $4.00 and $8.00 per share the
right to exchange those options for new options at an exercise price of $2.00
per share. Holders of options for approximately 138,550 shares are expected to
exchange existing options for the new grants at $2.00 per share.
In July 1994, the Company borrowed $55,000 from a shareholder under a
Promissory Note Agreement. The Note bears interest at 9.5% with principal and
interest due on September 15, 1994. In a separate transaction, the Company
received $200,000 from nine other shareholders under a $500,000 Loan and Warrant
Agreement. Effective July 28, 1994, the nine Convertible Promissory Notes bear
an interest rate of 9%. The principal and accrued interest is due and payable
upon demand at any time after January 27, 1995, unless otherwise earlier
converted into equity securities as set forth in the Loan and Warrant
Agreements.
In August 1994, the Texas Hospital Association and the Louisiana
Hospital Association advised the Company that they were terminating their
Association Agreements effective
F-15
<PAGE>
December 31, 1994. The Texas program will be open to bidding by prospective
vendors for the period beginning January 1, 1995 and the Company has been
invited to submit a bid. For the year ended May 31, 1994, approximately 19% of
the Company's revenues came from affiliated hospitals under these agreements.
11. Subsequent Event (Unaudited)
On April 11, 1994, the Company agreed to be acquired by HCIA Inc.
("HCIA") for approximately $14.25 million in cash. The acquisition was effected
through an Agreement and Plan of Reorganization (the "Agreement") whereby a
subsidiary of HCIA merged into Datis. Pursuant to the Agreement, each share of
Datis Capital Stock was converted to the right to receive cash equal to the
quotient obtained by dividing (a) the sum of cash purchase price and the
aggregate exercise price of all options to purchase Datis common stock which are
exercised between the date of the Agreement and the effective date of the merger
and (b) the total number of shares of Datis Capital Stock outstanding on the
effective date of the Merger. The acquisition was completed on April 28, 1995.
In connection with its acquisition by HCIA, the Company has modified
its financial statements to conform with the financial reporting requirements of
the Securities and Exchange Commission. In addition to including expanded
footnote disclosures, the Company has classified its redeemable preferred stock
in the accompanying balance sheet outside shareholders' deficit. In the
Company's previously-issued financial statements, the Company classified its
redeemable preferred stock as a component of shareholders' equity, which is an
acceptable presentation for a non-public entity. This reclassification has no
effect on the Company's previously-reported operations or net income.
F-16
<PAGE>
DATIS CORPORATION
BALANCE SHEET
March 31, 1995
(in thousands)
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents....................................................... $ 350
Accounts receivable, net........................................................ 1,036
Prepaid expenses and other...................................................... 65
--------
Total current assets......................................................... 1,451
Property and equipment, net.......................................................... 1,400
Other assets......................................................................... 36
--------
Total assets................................................................. $2,887
========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of capital lease obligations.................................... $ 282
Accounts payable and accrued expenses........................................... 944
Bank borrowings................................................................. 400
Deferred revenue................................................................ 1,066
Current portion of long-term debt............................................... 133
Notes payable to shareholders................................................... 500
--------
Total current liabilities....................................................... 3,325
Capital lease obligations, net of current portion.................................... 128
Long-term debt, net of current portion............................................... 162
Other liabilities.................................................................... 23
--------
Total liabilities............................................................. 3,638
--------
Redeemable convertible preferred stock:
Series A.......................................................................... 872
Series B.......................................................................... 507
--------
Total redeemable convertible preferred stock.................................. 1,379
--------
Shareholders' deficit:
Common Stock.................................................................... 241
Accumulated deficit............................................................. (2,371)
-------
Total shareholders' deficit................................................... (2,130)
Total liabilities, redeemable convertible preferred stock -------
and shareholders' deficit................................................... $ 2,887
=======
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
DATIS CORPORATION
STATEMENT OF OPERATIONS
Ten Months ended March 31, 1994 and 1995
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C>
Net revenues:
Basic reports...................................................... $4,898 $ 4,559
Special reports.................................................... 2,280 1,898
------ --------
Total net revenues............................................... 7,178 6,457
------ --------
Operating expenses:
Cost of revenues................................................... 3,007 3,292
Selling and marketing.............................................. 2,732 2,470
General and administrative......................................... 1,228 1,305
Research and development........................................... 491 404
------ --------
Total operating expenses......................................... 7,458 7,471
------ --------
Loss from operations.................................................... (280) (1,014)
Interest expense, net................................................... 129 134
------ --------
Loss before income taxes................................................ (409) (1,148)
Income tax benefit...................................................... (163) --
------ --------
Net loss $ (246) $ (1,148)
====== ========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
DATIS CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIT
Ten Months ended March 31, 1995
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Notes
Receivable Total
Common Stock Accumulated from Shareholder's
Shares Amount Deficit Shareholders Deficit
------ ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance June 1, 1994............... 1,030 $241 $(1,223) $(40) $(1,022)
Payment of Note Receivable......... -- -- -- 40 40
Net loss........................... -- -- (1,148) -- (1,148)
----- ---- ------- ---- -------
Balance March 31, 1995............. 1,030 $241 $(2,371) -- $(2,130)
===== ==== ======= ==== =======
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
DATIS CORPORATION
STATEMENTS OF CASH FLOWS
Ten months ended March 31, 1994 and 1995
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C>
Net loss................................................................................ $ (246) $(1,148)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization........................................................ 495 543
Change in operating assets and liabilities:
Accounts receivable.................................................................. 540 1,136
Income taxes receivable.............................................................. (621) 569
Prepaid expenses and other........................................................... (58) (9)
Other assets......................................................................... (86) 13
Accounts payable and accrued expenses................................................ (45) (351)
Deferred revenue..................................................................... 41 51
------ --------
Net cash provided by operating activities............................................... 20 804
------ --------
Cash flows from investing activities:
Purchases of property and equipment.................................................. (266) (179)
------ --------
Cash flows from financing activities:
Borrowings (repayments) under line of credit......................................... 550 (522)
Borrowings from shareholders......................................................... -- 500
Proceeds from issuance of long-term debt............................................. 212 --
Repayment of long-term debt.......................................................... (59) (112)
Principal payments on capital lease obligations...................................... (327) (298)
Issuance of common stock............................................................. 21 34
------ --------
Net cash provided (used) by financing activities........................................ 397 (398)
------ --------
Net increase in cash and cash equivalents............................................... 151 227
Cash and cash equivalents at beginning of period........................................ 58 123
------ --------
Cash and cash equivalents at end of period.............................................. $ 209 $ 350
====== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
DATIS CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited interim financial statements of Datis have
been prepared on the basis of generally accepted accounting principles. In the
opinion of management, these statements reflect all adjustments, consisting only
of normal, recurring adjustments, necessary for a fair presentation of Datis'
financial condition, results of operations and cash flows for the periods
presented. The results of operations for the ten months ended March 31, 1995 may
not be indicative of the results that may be expected for the full year ending
May 31, 1995. These financial statements and notes should be read in conjunction
with the financial statements and notes included elsewhere herein.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
William M. Mercer, Incorporated:
We have audited the accompanying balance sheet of William M. Mercer,
Incorporated National Health Analysis Unit (the Unit) as of December 31, 1994
and September 30, 1995, and the related statements of operations and cash flows
for the years ended December 31, 1993 and 1994 and the nine months ended
September 30, 1995. These financial statements are the responsibility of the
Unit's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of William M. Mercer,
Incorporated National Health Analysis Unit as of December 31, 1994 and September
30, 1995, and the results of its operations and its cash flows for the years
ended December 31, 1993 and 1994 and the nine months ended September 30, 1995 in
conformity with generally accepted accounting principles.
As described in note 5, the operations and certain assets of the Unit
were sold to HCIA Inc. pursuant to an asset purchase agreement dated November 8,
1995.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
January 30, 1996
F-22
<PAGE>
WILLIAM M. MERCER, INCORPORATED
NATIONAL HEALTH ANALYSIS UNIT
BALANCE SHEETS
December 31, 1994 and September 30, 1995
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
------------ -------------
ASSETS
<S> <C>
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $199,417 in 1994 and $295,663 in 1995............... $876,241 $778,940
Prepaid expenses and other assets, net............................... 106,818 96,766
-------- --------
Total current assets................................................... 983,059 875,706
Furniture and equipment, net........................................... 1,400 8,000
-------- --------
Total assets........................................................... $984,459 $883,706
======== ========
LIABILITIES
Current liabilities:
Accrued salaries and wages........................................... $144,500 $176,000
Accrued expenses..................................................... 120,600 122,000
Amount payable to other divisions.................................... 719,359 585,706
-------- --------
Total liabilities...................................................... $984,459 $883,706
======== ========
</TABLE>
F-23
<PAGE>
WILLIAM M. MERCER, INCORPORATED
NATIONAL HEALTH ANALYSIS UNIT
STATEMENTS OF OPERATIONS
Years ended December 31, 1993 and 1994
and nine months ended September 30, 1995
<TABLE>
<CAPTION>
Nine months
Year ended December 31, ended
----------------------- September 30,
1993 1994 1995
---- ---- ----------
<S> <C>
Revenue.............................................. $ 4,736,848 $7,287,936 $5,752,768
----------- ---------- ----------
Expenses
Salaries, wages and benefits.................... 4,049,247 4,976,713 3,918,852
Other operating expenses........................ 1,821,042 2,146,777 1,672,043
Provision for doubtful accounts................. 1,947 136,269 90,446
Depreciation and amortization................... 6,829 23,989 51,505
----------- ---------- ----------
Total operating expenses............................. 5,879,065 7,283,748 5,732,846
----------- ---------- ----------
Operating income (loss).............................. $(1,142,217) $ 4,188 $ 19,922
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
WILLIAM M. MERCER, INCORPORATED
NATIONAL HEALTH ANALYSIS UNIT
STATEMENTS OF CASH FLOWS
Years ended December 31, 1993 and 1994
and nine months ended September 30, 1995
<TABLE>
<CAPTION>
Nine months
Year ended December 31, ended
------------------------ September 30,
1993 1994 1995
---- ---- -------------
<S> <C>
Cash flows from operating activities:
Operating income (loss)................................... $(1,142,217) $4,188 $ 19,922
Adjustments to reconcile to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 6,829 23,989 51,505
(Increase) decrease in accounts receivable............. (240,179) (76,171) 97,301
Increase in prepaid expenses and other assets.......... (37,028) (58,611) (41,064)
Increase in accrued salaries and wages................. 32,400 40,500 31,500
Increase (decrease) in accrued expenses................ 45,700 (19,000) 1,400
Increase (decrease) in amount payable to other
divisions............................................ 192,278 89,293 (133,653)
----------- ------- ---------
Net cash provided by (used in) operating
activities............................... (1,142,217) 4,188 26,911
----------- ------- ---------
Cash flows from investing activities
-- acquisition of furniture and equipment -- -- (6,989)
----------- ------- ---------
Cash flows from financing activities --
funding (distribution) of net loss (income) by (to) parent 1,142,217 (4,188) (19,922)
----------- ------- ---------
Net increase in cash...................................... -- -- --
Cash at beginning of period............................... -- -- --
----------- ------- ---------
Cash at end of period..................................... $ -- $ -- $ --
=========== ======= =========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
WILLIAM M. MERCER, INCORPORATED
NATIONAL HEALTH ANALYSIS UNIT
NOTES TO FINANCIAL STATEMENTS
December 31, 1993 and 1994 and September 30, 1995
(1) Background
William M. Mercer, Incorporated ("Mercer"), a subsidiary of Mercer
Consulting Group, Inc., is a consulting firm providing advice and services
to the management of organizations throughout the world in the areas of
human resources, including retirement, health care and compensation
consulting. The National Health Analysis Unit of Mercer (the "Unit")
provides a database service to clients of other Mercer divisions for the
analysis of healthcare costs. The service, known as the Comprehensive
Health Analysis Management Program ("CHAMP") was begun in 1988.
The accompanying financial statements reflect the historical accounts
of the Unit as recorded by Mercer. Included in these accounts are
allocations of shared expenses and overhead costs associated with operating
the facility in which the Unit is located as well as all local level general and
administrative costs. These accounts do not include allocations of corporate
office general and administrative costs or income taxes that were incurred by
Mercer, as such costs are not allocated by Mercer to its operating division.
In management's opinion, the Mercer corporate office general and administrative
costs, if allocated, would not be material to the expenses of the Unit. Net
income or loss from operations of the Unit accrues to Mercer; therefore no
Unit equity accounts are maintained.
(2) Summary of Significant Accounting Policies
Furniture and Equipment
Furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight-line basis over their
estimated useful lives of three to ten years.
Computer Software Costs
Costs for internally developed software are accounted for in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed." At
December 31, 1994 and September 30, 1995, as technological feasibility related
to current software development had not yet been achieved, no such costs had
been capitalized.
F-26
<PAGE>
WILLIAM M. MERCER, INCORPORATED
NATIONAL HEALTH ANALYSIS UNIT
NOTES TO FINANCIAL STATEMENTS -- (Continued)
During 1993, 1994 and the nine months ended September 30, 1995, the Unit
incurred expenses for research and development of approximately $1,040,000,
$1,360,000 and $1,020,000, respectively.
Computer software that is purchased from outside vendors is capitalized
when purchased and amortized on a straight-line basis over an estimated life of
three years.
Revenue Recognition
Revenues are derived from contracts and agreements for standard
services, special projects and software licensing fees. Revenue for standard
services is recognized in the period that the service is provided to the
customer. Revenue for special projects is recognized on a percentage of
completion basis using the cost to cost method. Revenue from software license
agreements is recognized when delivery has occurred, collectibility is probable
and remaining obligations are no longer significant.
Allocations of Shared Expenses and Overheads
Certain expenses incurred by Mercer which benefit more than one of its
divisions, including the Unit, are allocated according to an estimate of each
division's proportionate share of the pooled expenses. Expenses allocated to the
Unit include those for compensation, employee benefits, facilities,
communications, shared administrative and accounting services and information
technology.
(3) Related Party Transactions
Services provided by the Unit are to clients of other Mercer divisions.
Revenues for such services are derived directly from such clients or via
pass-through billing from the other Mercer divisions. The sources of revenue
included in the accompanying statements of operation are as follows:
<TABLE>
<CAPTION>
Nine months
ended
Year ended December 31, September 30,
1993 1994 1995
---- ---- ------------
<S> <C>
Direct billing to Mercer clients..................... $ 127,002 $ 282,892 $ 401,345
Pass-through billing from other Mercer divisions..... 4,609,846 7,005,044 5,351,423
----------- ---------- -----------
Total.............................. $4,736,848 $7,287,936 $5,752,768
========== ========== ==========
</TABLE>
F-27
<PAGE>
WILLIAM M. MERCER, INCORPORATED
NATIONAL HEALTH ANALYSIS UNIT
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Operating expenses of the Unit include allocations from Mercer of
shared expenses as follows:
<TABLE>
<CAPTION>
Nine months
ended
Year ended December 31, September 30,
1993 1994 1995
---- ---- ------------
<S> <C> <C>
Compensation......................................... $ 72,679 $ 59,772 $ 47,015
Employee benefits.................................... 64,639 79,230 62,208
Facilities........................................... 596,426 563,247 401,959
Communications....................................... 91,441 106,578 71,196
Shared Administrative and Accounting Services........ 108,937 144,488 136,764
Information Technology............................... 200,000 200,000 150,000
---------- ---------- ----------
Total.............................. $1,134,122 $1,153,315 $ 869,142
========== ========== ==========
</TABLE>
Compensation, employee benefits, communications costs and shared
administrative and accounting expenses are allocated based upon the number of
employees within the division, with consideration of actual direct benefit
derived when applicable. Facility expenses are allocated on a square
footage basis. Information technology costs have been allocated based on
an estimate of the market value of services provided. In management's
opinion, the methods of allocation are reasonable.
(4) Contingent Liabilities
From time to time, the Unit is subject to claims and suits arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate resolution of pending legal
proceedings will not have a material effect on the Unit's financial statements.
F-28
<PAGE>
(5) Subsequent Event
On December 15, 1995, Mercer sold the Unit to HCIA Inc. ("HCIA") for
$17,500,000 in cash pursuant to an Asset Purchase Agreement ("Agreement")
dated November 8, 1995. HCIA is primarily engaged in providing clinical and
financial information on the health care industry. Included in the sale are
the CHAMP database service, the related software documentation, client
information and certain fixed assets. In addition, certain of the Unit's staff
will become employees of HCIA and Mercer has agreed not to compete with HCIA in
providing services similar to those previously provided by the Unit.
F-29
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
HealthVISION, Inc.
We have audited the accompanying consolidated balance sheets of HealthVISION,
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year ended December
31, 1995 and for the period February 2, 1994 (inception) through December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HealthVISION, Inc. as of December 31, 1995 and 1994 and the consolidated results
of its operations and its cash flows for the year ended December 31, 1995 and
for the period February 2, 1994 (inception) through December 31, 1994 in
conformity with generally accepted accounting principles.
Walnut Creek, California
January 26, 1996, except Note 12,
as to which the date is July 19, 1996
F-30
<PAGE>
HealthVISION, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1994 1995
--------------------- --------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,207,043 $ 1,589,457
Accounts receivable, less allowance for doubtful accounts of
$35,645 and $413,126, respectively 1,205,964 1,664,784
Intercompany receivable -- 129,009
Prepaid expenses 70,117 521,951
Investment in LBA Health Care Management Inc. -- 15,978,182
--------------------- --------------------
Total current assets 7,483,124 19,883,383
Equipment and furniture, net 640,196 1,946,000
Intangibles, net 4,486,093 3,208,781
--------------------- --------------------
Total assets $12,609,413 $25,038,164
===================== ====================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,729,517 $ 1,280,222
Accrued compensation and related liabilities 151,828 1,080,644
Deferred revenue 1,875,506 1,177,358
Other accrued liabilities 104,114 1,134,640
Current portion of long-term debt 314,702 557,979
--------------------- --------------------
Total current liabilities 4,175,667 5,230,843
Long-term debt, less current portion 309,178 703,129
Commitments and contingencies
Stockholders' equity:
7% preferred stock, $.01 par value; authorized - 1,000,000 shares; issued
and outstanding - 201,900 and 256,900 shares at December
31, 1994 and 1995, respectively (aggregate liquidation
preference $28,225,867) 2,020 2,570
Convertible preferred stock, Series A-1, $.01 par value; authorized -
5,500,000 shares; issued and outstanding 5,278,529 shares at December 31,
1995 (none at December 31, 1994) (aggregate liquidation preference
$10,978,182) -- 52,785
Convertible preferred stock, Series A-2, $.01 par value;
authorized - 3,000,000 shares; issued and outstanding - 2,883,756 shares
at December 31, 1995 (none at December 31, 1994) (aggregate liquidation
preference $10,000,000) -- 28,838
Common stock, $.01 par value; authorized - 40,000,000 shares;
issued and outstanding - 4,575,918 and 4,588,438 shares at
December 31, 1994 and December 31, 1995, respectively 45,759 45,884
Additional paid-in capital 22,145,443 48,546,696
Accumulated deficit (14,127,983) (29,252,891)
Cumulative translation adjustment 59,329 (319,690)
--------------------- --------------------
Total stockholders' equity 8,124,568 19,104,192
--------------------- --------------------
Total liabilities and stockholders' equity $ 12,609,413 $ 25,038,164
===================== ====================
</TABLE>
See accompanying notes.
F-31
<PAGE>
HealthVISION, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the period
February 2, 1994
(inception) through Year ended
December 31, December 31,
1994 1995
--------------------- -------------------
<S> <C>
Revenue:
Software licenses $ 1,371,285 $ 2,144,612
Maintenance and services 3,255,923 4,005,525
Hardware 3,001,538 999,197
--------------------- -------------------
Total revenue 7,628,746 7,149,334
Cost of revenue:
Software licenses, maintenance and services 3,832,351 4,537,400
Hardware 2,496,165 825,799
--------------------- -------------------
Total cost of revenue 6,328,516 5,363,199
--------------------- -------------------
Gross profit 1,300,230 1,786,135
Operating expenses:
Product development 3,386,533 6,761,448
Sales and marketing 2,150,206 5,593,380
General and administration 1,655,259 4,289,450
Write-off of in-process technology 8,400,000 700,000
--------------------- -------------------
Total operating expenses 15,591,998 17,344,278
--------------------- -------------------
Loss from operations (14,291,768) (15,558,143)
Other income (expense):
Foreign exchange gain - 362,711
Interest income 171,243 104,932
Interest expense (7,458) (34,408)
--------------------- -------------------
Total other income (expense), net 163,785 433,235
--------------------- -------------------
Net loss (14,127,983) (15,124,908)
Preferred stock dividend 1,052,951 1,482,916
--------------------- -------------------
Net loss available to common stockholders $(15,180,934) $(16,607,824)
===================== ===================
</TABLE>
See accompanying notes.
F-32
<PAGE>
HealthVISION, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Period February 2, 1994 (Inception) through December 31, 1995
<TABLE>
<CAPTION>
Series A-1 Series A-2
7% Convertible Convertible Additional
Preferred Preferred Preferred Common Paid-In
Stock Stock Stock Stock Capital
-----------------------------------------------------------------------------
<S> <C>
Balance at February 2, 1994 $ -- $ -- $ -- $ -- $ --
Issuance of 156,250 shares of 7% preferred
stock at $100 per share 1,563 -- -- -- 15,623,437
Issuance of 3,317,850 shares of common stock
at $.449 per share -- -- -- 33,179 1,455,548
Exchange of 288,604 shares of common stock at
$.449 per share in connection with the
acquisition of HVC Holdings Canada Ltd.
And HealthVISION Corporation -- -- -- 2,886 126,609
Issuance of 45,650 share of 7% preferred
stock at $100 per share 457 -- -- -- 4,564,543
Issuance of 969,464 shares of common stock at
$.398 per share -- -- -- 9,694 375,306
Net loss -- -- -- -- --
Translation adjustment -- -- -- -- --
-----------------------------------------------------------------------------
Balance at December 31, 1994 2,020 -- -- 45,759 22,145,443
Issuance of 5,278,529 shares of convertible
preferred Series A-1 stock for $2.080 per
share in connection with the acquisition -- 52,785 -- -- 10,925,397
of LBA
Issuance of 1,441,878 shares of convertible
preferred Series A-2 stock for cash at
$3.468 per share -- -- 14,419 -- 4,985,581
Issuance of 1,441,878 shares of convertible
preferred Series A-2 stock for cash at $3.468 -- -- 14,419 -- 4,985,581
per share
Issuance of 12,520 shares of common stock at
$.429 per share upon exercise of options -- -- -- 125 5,244
Issuance of 55,000 shares of 7% preferred
stock for conversion of bridge financing
at $100 per share 550 -- -- -- 5,499,450
Net loss -- -- -- -- --
Translation adjustment -- -- -- -- --
=============================================================================
Balance at December 31, 1995 $ 2,570 $ 52,785 $ 28,838 $ 45,884 $48,546,696
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total
Accumulated Translation Stockholders'
Deficit Adjustment Equity
------------------------------------------------
<S> <C>
Balance at February 2, 1994 $ -- $ -- $ --
Issuance of 156,250 shares of 7% preferred
stock at $100 per share -- -- 15,625,000
Issuance of 3,317,850 shares of common stock
at $.449 per share -- -- 1,488,727
Exchange of 288,604 shares of common stock at
$.449 per share in connection with the
acquisition of HVC Holdings Canada Ltd.
And HealthVISION Corporation -- -- 129,495
Issuance of 45,650 share of 7% preferred
stock at $100 per share -- -- 4,565,000
Issuance of 969,464 shares of common stock at
$.398 per share -- -- 385,000
Net loss (14,127,983) -- (14,127,983)
Translation adjustment -- 59,329 59,329
------------------------------------------------
Balance at December 31, 1994 (14,127,983) 59,329 8,124,568
Issuance of 5,278,529 shares of convertible
preferred Series A-1 stock for $2.080 per
share in connection with the acquisition -- -- 10,978,182
of LBA
Issuance of 1,441,878 shares of convertible
preferred Series A-2 stock for cash at
$3.468 per share -- -- 5,000,000
Issuance of 1,441,878 shares of convertible
preferred Series A-2 stock for cash at $3.468 -- -- 5,000,000
per share
Issuance of 12,520 shares of common stock at
$.429 per share upon exercise of options -- -- 5,369
Issuance of 55,000 shares of 7% preferred
stock for conversion of bridge financing
at $100 per share -- -- 5,500,000
Net loss (15,124,908) -- (15,124,908)
Translation adjustment -- (379,019) (379,019)
================================================
Balance at December 31, 1995 $(29,252,891) $ (319,690) $ 19,104,192
================================================
</TABLE>
F-33
<PAGE>
HealthVISION, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
February 2, 1994
(Inception)
through Year Ended
December 31, December 31,
1994 1995
------------------- -------------------
<S> <C>
Operating activities
Net loss $(14,127,983) $(15,124,908)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization of equipment and furniture 256,145 608,076
Write-off of in-process technology 8,400,000 700,000
Amortization of intangibles 1,202,695 1,323,501
Changes in operating assets and liabilities:
Accounts receivable 3,055,790 (458,820)
Intercompany receivable -- (129,009)
Prepaid expenses 28,937 (451,834)
Accounts payable 348,657 (449,295)
Accrued compensation and related liabilities 151,828 928,816
Deferred revenue (2,064,323) (698,148)
Other accrued liabilities (988,819) 1,030,526
------------------- -------------------
Total adjustments 10,390,910 2,403,813
------------------- -------------------
Net cash used in operating activities (3,737,073) (12,721,095)
Investing activities
Purchase of equipment and furniture (471,801) (972,763)
Capitalized software development costs (81,502) (46,189)
Purchase of software license -- (700,000)
Acquisition of HVC Holdings Canada Ltd. and HealthVISION Corporation (12,416,927) --
Cash acquired from purchase of subsidiaries 851,192 --
Acquisition of LBA Health Care Management Inc. -- (5,000,000)
------------------- -------------------
Net cash used in investing activities (12,119,038) (6,718,952)
Financing activities
Proceeds from issuance of common stock 1,873,727 5,369
Proceeds from issuance of 7% redeemable preferred stock 20,190,000 --
Proceeds from issuance of convertible Series A-2 preferred stock -- 5,000,000
Proceeds from long-term debt and bridge financing -- 10,500,000
Principal payments made on long-term debt (38,220) (303,889)
------------------- -------------------
Net cash provided by financing activities 22,025,507 15,201,480
Effect of exchange rate changes on cash 37,647 (379,019)
------------------- -------------------
Net increase (decrease) in cash and equivalents 6,207,043 (4,617,586)
Cash and equivalents, beginning of period -- 6,207,043
------------------- -------------------
Cash and equivalents, end of period $ 6,207,043 $ 1,589,457
=================== ===================
Supplemental schedule of non-cash investing and financing activities:
Purchase of equipment under capital lease arrangements $ -- $ 941,117
=================== ===================
Issuance of common stock to acquire HVC Holdings Canada Ltd. and
HealthVISION Corporation $ 129,495 $ --
=================== ===================
Issuance of 7% preferred stock to convert bridge financing $ -- $ 5,500,000
=================== ===================
Issuance of Series A-1 convertible preferred stock to acquire LBA Health
Care Management, Inc. $ -- $10,978,182
=================== ===================
Issuance of A-2 convertible preferred stock to convert bridge financing $ -- $ 5,000,000
=================== ===================
</TABLE>
See accompanying notes.
F-34
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1995 and
for the period February 2, 1994 (inception) through December 31, 1994
1. The Company, Organization and Basis of Presentation
HealthVISION, Inc. (the "Company") was organized as a Delaware corporation on
February 2, 1994, began operations on February 15, 1994 and was incorporated to
acquire HVC Holdings Canada Ltd., HealthVISION Corporation and their
subsidiaries. The Company develops, markets and supports health care information
products focused on lowering costs of health care and improving clinical
processes for integrated delivery systems, hospitals and office-based
physicians.
On February 14, 1994, the Company acquired substantially all of the business,
assets, and liabilities of HVC Holdings Canada Ltd., HealthVISION Corporation
(the "Predecessor Company") and their subsidiaries for $13,994,016. The
transaction was recorded using the purchase method of accounting. Accordingly, a
basis of accounting of $13,994,016 was established based on the purchase price,
resulting in purchase price in excess of fair market value of net liabilities
assumed.
On September 27, 1995, LBA Health Care Management, Inc., a newly formed
subsidiary of the Company, acquired substantially all of the business, assets,
and liabilities of LBA Health Care Management, Inc. and Healthcare Data Source,
Inc. (collectively, "LBA") for approximately $51,178,000. The transaction was
recorded using the purchase method of accounting. Accordingly, a basis of
accounting of $49,850,853 was established based on the purchase price, resulting
in purchase price in excess of fair market value of net assets acquired.
The consolidated financial statements include the accounts of HealthVISION, Inc.
and its subsidiary companies, all of which are wholly owned, except for LBA,
which is being accounted for on the cost basis in accordance with FASB 94 as the
Company has committed to sell this subsidiary and therefore control is deemed
temporary (see Note 12). These statements reflect the activity of the Company
and its subsidiaries, except for LBA, and all related intercompany transactions
and balances have been eliminated in consolidation.
The Company's financial statements have been prepared on the basis that the
Company will continue as a going concern. The Company has incurred significant
losses of $15,124,908 for the year ended December 31, 1995, resulting in an
accumulated deficit of $29,252,891. The Company's future plans include
successful completion of additional financings, adjusting the level of its
operations to provide the cash necessary to continue operations through at least
January 1, 1997 and achieving future profitable operations.
F-35
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies
Revenue recognition
Software license - Revenue from license contracts is recognized on a
percentage-of-completion method with progress-to-completion measured based upon
labor costs incurred.
Maintenance and services - Maintenance and services include revenue derived from
maintenance, implementation and professional services related to project
management, training and hardware support. Revenue from maintenance is
recognized over the period the customer support services are provided. Service
revenues are recognized on a percentage-of-completion method with
progress-to-completion measured based upon labor costs incurred.
Hardware revenue - Hardware revenues represent revenue from sales of computers
and related network equipment. Revenue from hardware sales is recognized at the
later of shipment of the product or completion of significant obligations to the
customer.
Deferred revenue - Deferred revenues result from advance billings for which
revenues have not been recognized.
The Company's revenue recognition policy is in accordance with the provisions of
the American Institute of Certified Public Accountants' Statement of Position
91-1, "Software Revenue Recognition."
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits and commercial paper in
highly liquid short-term investments with original maturities of less than 90
days. Such investments are stated at cost, which approximates market value.
Accounts receivable
Accounts receivable are primarily from health care organizations in the United
States and Canada. The Company conducts ongoing credit evaluations of its
customers, maintains reserves for potential credit losses and does not require
collateral.
Intangibles
Intangibles reflect the allocation of the excess purchase price resulting from
the acquisition. Amortization is based upon the period of expected economic
benefit which are as follows: assembled workforce -- 3 years and software -- 4-5
years.
F-36
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Intangibles (continued)
Acquired technology which is in process, has not reached technological
feasibility, and has no alternative future use is written off in the period in
which it is acquired. The write-off of in-process technology was $8,400,000 and
$700,000 for the period February 2, 1994 (inception) through December 31, 1994
and the year ended December 31, 1995, respectively.
The Company performs evaluations as of each balance sheet date assessing the
recoverability and amortization of intangibles by determining whether the
intangibles can be recovered through the estimated undiscounted cash flows of
the businesses acquired over the remaining amortization period. The Company
considers external factors relating to each acquired business, including
technological advances, competition, regulatory developments and trends of the
businesses and other pertinent factors in making its assessment. The Company
does not believe there currently are any factors that would require an
adjustment to the carrying value of its intangibles or their remaining lives as
of December 31, 1995.
Equipment and furniture
Equipment and furniture are recorded at cost less accumulated depreciation.
Depreciation is computed using rates calculated to amortize the cost of the
assets less their residual values over their estimated useful lives of three to
five years. Leasehold improvements are amortized over the terms of the
respective leases, or useful lives of the assets, whichever is shorter.
Software development costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," costs to complete a software product once technological feasibility
has been established are capitalized and amortized over the estimated economic
life of the software product on the straight-line basis, generally over three to
five years. At each balance sheet date, the Company performs an evaluation
assessing the recoverability of the unamortized capitalized costs by comparing
such costs to the net realizable value of the related product. Costs related to
the development of new software products incurred prior to establishing
technological feasibility are expensed as incurred. Software development costs
capitalized in periods ending December 31, 1994 and December 31, 1995 amounted
to $81,502 and $46,189, respectively. Amortization charged to operations as an
element of cost of sales of purchased software and capitalized software
development costs amounted to $869,576 and $996,834 for the periods ended
December 31, 1994 and December 31, 1995, respectively.
F-37
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Research and development
Costs to develop the Company's products are expensed as incurred in accordance
with Statement of Financial Accounting Standards No. 2, "Accounting for Research
and Development Costs," which establishes accounting and reporting standards for
research and development.
Income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under Statement
109, the liability method is used to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Foreign currency translation
Assets and liabilities denominated in foreign currencies (primarily Canadian
dollars) are translated into U.S. dollars at the exchange rate on the balance
sheet date. Income and expense items are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated and
reported as a separate component of stockholders' equity. Transaction
adjustments are recorded in other income/expense in the period in which they
occur.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock-based compensation
In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued and is effective for the
Company's fiscal year 1996. The Company intends to continue to account for
employee stock options in accordance with APB Opinion No. 25 and will make the
necessary pro forma disclosures in fiscal year 1996.
F-38
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Business Acquisitions
On February 14, 1994, the Company acquired all of the outstanding common shares
of the Predecessor Company. The business acquisition was accounted for by the
purchase method and the results of operations of the Predecessor Company are
included in the Company's consolidated financial statements beginning February
15, 1994. The allocation of the purchase price of $13,994,016 was as follows:
Current assets $ 5,212,000
Equipment and furniture 416,128
----------
5,628,128
Liabilities 7,075,722
----------
Net liabilities assumed 1,447,594
Cash and stock consideration 12,546,422
----------
Total purchase price $13,994,016
==========
A summary of the purchase price allocation at February 14, 1994 is as follows:
Current and other assets $ 5,628,128
In-process technology 8,400,000
Software 4,580,000
Assembled workforce 1,014,016
Deferred tax asset 2,170,000
Deferred tax liability (2,170,000)
----------
Total purchase price 19,622,144
Liabilities assumed (7,075,722)
----------
Cash and stock consideration $12,546,422
==========
On September 27, 1995, the Company acquired substantially all of the assets
of LBA. The aggregate purchase price (including closing costs) of LBA was
$51,178,182. The acquisition was financed through the issuance of debt
financings aggregating $35,000,000, the issuance of $10,978,172 (5,278,529
shares) of Series A-1 convertible preferred stock and $5,000,000 of cash
proceeds from the issuance of 1,441,878 shares of Series A-2 convertible
preferred stock. As discussed in Note 1, LBA has not been consolidated due to
control being temporary. Therefore, the Company has only recorded its investment
of $15,978,172, which is recorded on a cost basis, and has pushed down all debt,
net assets and excess purchase price relating to the purchase to LBA. The
allocation of the purchase price was as follows:
Total purchase price $51,178,182
Fair market value of net assets acquired (1,327,329)
-----------
Excess purchase price over fair market value of net assets
acquired ("excess purchase price") $49,850,853
===========
F-39
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
4. Intangibles
December 31,
----------------------------
1994 1995
----------------------------
Assembled work force $1,014,016 $1,014,016
Software 4,661,502 4,707,691
--------- ---------
5,675,518 5,721,707
Less accumulated amortization (1,189,425) (2,512,926)
--------- ---------
Intangibles, net $4,486,093 $3,208,781
========= =========
5. Equipment and Furniture
December 31,
---------------------------
1994 1995
---------------------------
Furniture and fixtures $ 87,126 $ 512,741
Computer equipment 643,109 1,954,383
Office equipment 109,513 235,277
Leasehold improvements 48,181 99,408
-------- ---------
887,929 2,801,809
Less accumulated depreciation and amortization (247,733) (855,809)
-------- ---------
Equipment and furniture, net $640,196 $1,946,000
======== =========
F-40
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
6. Long-Term Debt
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1995
<S> <C> -----------------------------
Loan from Western Diversification Fund, noninterest bearing,
due in six semiannual installments beginning October 1, 1994 $ 615,842 $ 421,846
Other amounts, including capital lease obligations, bearing
interest at rates ranging from 8% to 15.5% per annum,
payable in varying monthly installments plus interest
through 1998 8,038 839,262
-------- ---------
623,880 1,261,108
Less current portion (314,702) (557,979)
-------- ---------
Long-term debt $ 309,178 $ 703,129
======== =========
Scheduled maturities of long-term debt for the periods ended December 31 are as
follows:
Notes Capital Lease
Payable Obligations
---------- ------------
1996 $ 316,385 $ 332,793
1997 105,461 363,046
1998 - 318,223
1999 - -
2000 - -
-------- ---------
Total minimum payments $ 421,846 1,014,062
========
Less amount representing interest (174,800)
---------
Present value of minimum payments $ 839,262
=========
Equipment and furniture and the related accumulated depreciation under capital
leases at December 31, 1994 and December 31, 1995 were $632,938 and $632,938 and
$941,117 and $156,853, respectively.
F-41
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
6. Long-Term Debt (continued)
Master Equipment Lease Agreement
Effective July 24, 1995, the Company entered into a Master Equipment Lease
Agreement which provides for a lease facility of up to $2,000,000. The lease
facility is available to be drawn until December 31, 1995. The initial term of
each lease schedule is 36 months, at the end of which the Company must renew the
lease or purchase the leased equipment. As of December 31, 1995, $941,117 was
outstanding under the lease facility.
7. Income Taxes
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities as of December 31, 1994 and 1995
are as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
------------------------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,200,000 $ 9,700,000
--------- ---------
Total deferred tax assets 4,200,000 9,700,000
Deferred tax liabilities:
Purchased intangibles from business acquisitions (1,700,000) (1,200,000)
--------- ---------
Total deferred tax liabilities (1,700,000) (1,200,000)
Valuation allowance for deferred tax assets (2,500,000) (8,500,000)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
</TABLE>
The change in the valuation allowance for the years ended December 31,
1994 and 1995 was $2,500,000 and $6,000,000, respectively.
F-42
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
7. Income Taxes (continued)
As of December 31, 1995, the Company has total U.S. and foreign (primarily
Canada) net operating and other loss carryforwards of approximately $25,000,000
for income tax purposes that expire in various years, depending upon the country
in which the loss was incurred. When realized, the tax benefit of the
utilization of acquired net operating loss carryforwards of HVC Holdings Canada,
Ltd., HealthVISION Corporation and their subsidiaries will first be utilized to
reduce noncurrent intangible assets related to the acquisition of these
companies and then income tax expense. Due to the "change in ownership"
provisions of the Tax Reform Act of 1986, utilization of the Company's net
operating carryforwards could be subject to an annual limitation if a more than
50% change in ownership of the value of the Company's stock has occurred over a
three-year period.
8. Stockholders' Equity
7% preferred stock
The Company's 7% preferred stock consists of 1,000,000 authorized shares of $.01
par preferred stock of which 201,900 and 55,000 shares had been issued in 1994
and 1995, respectively at $100 per share totaling $25,690,000. The 7% preferred
stock is non-voting, cumulative and is entitled to a dividend rate of 7% of the
amount contributed. Preferred stock shares are not convertible into common
stock. The Company may redeem any or all of the 7% preferred stock, at any time,
at a price equal to $100 per share plus an amount equal to any and all dividends
accrued and unpaid. In the event of any liquidation, dissolution or winding up
of the Company, before any distribution or payment is made to the holders of
Series A-1 and A-2 convertible preferred stock and common stock, the holders of
7% preferred stock shall be entitled to an amount equal to $100 per share plus
any and all dividends accrued and unpaid as of the date of such distribution or
payment. Cumulative dividends earned but undeclared were $1,052,951 and
$2,535,867 at December 31, 1994 and December 31, 1995, respectively.
Convertible preferred stock
In September 1995, the Board of Directors authorized the designation of
5,500,000 shares of Series A-1 convertible preferred stock and 3,000,000 shares
of Series A-2 convertible preferred stock with stated par value of $.01.
F-43
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Stockholders' Equity (continued)
Convertible preferred stock (continued)
The following table summarizes the convertible preferred stock as of December
31, 1995:
Total Per Share Proceeds
Authorized Outstanding Liquidation Liquidation Net of
Series Shares Shares Preferences Preference Issuance Costs
------ ----------- ----------- ----------- ----------- --------------
A-1 5,500,000 5,278,529 $10,978,182 $2.08 $10,978,182
A-2 3,000,000 2,883,756 10,000,000 $3.47 10,000,000
-------- -------- ---------- ----------
8,500,000 8,162,285 $20,978,182 $20,978,182
========= ========= ========== ==========
In addition to the liquidation preference, holders of Series A-1 and A-2
convertible preferred stock are entitled to receive any declared but unpaid
dividends with respect to such stock. No dividends have been declared as of
December 31, 1995. If liquidation occurs, redeemable preferred stockholders are
entitled to receive a distribution of their liquidation preference first,
followed by a pro-rata distribution to Series A-1 and A-2 convertible preferred
stockholders, and thereafter, any remaining assets will be distributed to common
stockholders.
The convertible preferred stock has voting rights equivalent to the number of
common shares into which it is convertible. Each share of convertible preferred
stock is convertible into one share of common stock at the option of the
stockholder, subject to certain antidilution adjustments. Additionally,
conversion is automatic upon the closing of an underwritten public offering of
common stock with aggregate proceeds to the Company of at least $15,000,000. The
Company, at the option of the Board of Directors, may on or after January 1,
2002 redeem at any time all, or from time to time any portion, of the Series A-1
or A-2 convertible preferred stock at the following cash redemption prices per
share if redeemed during the periods specified plus, in each case, an amount per
share equal to all dividends declared but unpaid:
Twelve Months Series A-1 Series A-2
Beginning January 1 Redemption Price Redemption Price
------------------ --------------- ----------------
2002 $3.18 $5.31
2003 $3.41 $5.68
2004 $3.64 $6.08
2005 $3.90 $6.50
2006 and thereafter $4.17 $6.96
F-44
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Stockholders' Equity (continued)
Convertible preferred stock (continued)
The Company may also, at its option, redeem all or any portion of the Series A-1
or A-2 convertible preferred stock concurrently with the closing of an
underwritten public offering of common shares at a cash redemption price of 100%
of the public offering price plus an amount per share in cash equal to all
dividends declared but unpaid.
Reverse stock split
On November 27, 1995, the Board of Directors approved a 1-for-2.5208 reverse
stock split of issued and outstanding common shares. All shares and per share
information in the accompanying consolidated financial statements have been
retroactively adjusted to reflect the reverse stock split.
Warrants
In connection with the acquisition of LBA in September 1995, the Company issued
warrants to purchase 555,380 shares of its common stock at a price of $.63 per
share. The warrants vest at a rate of 25% after each anniversary date. The
warrants expire at the earlier of ten years from the date of grant or any
unvested warrants are automatically terminated pursuant to a public offering of
at least $30,000,000.
In connection with its Master Equipment Lease Agreement, the Company issued to
the lessor a warrant to purchase 39,670 shares of its common stock at a price of
$5.04 per share (the "Warrant"). The Warrant expires at the earlier of ten years
after the date of grant (July 1995) or five years after the closing of an
initial public offering of the Company's common stock. The holder also has the
right to convert the Warrant into a number of shares of the Company's common
stock based on the value of the warrant given the then-current fair market value
of the Company's common stock.
F-45
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Stock Options
1994 Stock Option Plan
The Company's 1994 Stock Option Plan (the "Stock Option Plan") was adopted in
February 1994. The maximum number of shares authorized to be issued under the
Stock Option Plan, as amended, is 1,309,108 shares of common stock. The
Compensation Committee of the Company designated 362,583 of the shares
authorized to be issued under the Stock Option Plan as bonus options (the "Bonus
Options"). Outstanding options granted under the Plan generally vest and become
exercisable at a rate of 30% 18 months after the date of grant and an additional
10% every 6 months thereafter, subject to continued service as an employee;
however, outstanding Bonus Options vest and become exercisable 10 days prior to
the termination date of the Bonus Option, subject to continued service as an
employee.
Generally, the term of each outstanding option is ten years. The exercise price
for options granted under the Stock Option Plan is at least equal to 100% of the
fair market value of the common stock of the Company on the date of grant. The
Stock Option Plan permits the granting of stock options, including incentive
stock options ("ISOs") as defined under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified stock options ("NQSOs")
which do not qualify as ISOs.
In order to protect all of the rights of Bonus Option holders in the event of a
Liquidity Event (as defined below), Bonus Option agreements provide for the
acceleration of vesting of all or a portion of outstanding Bonus Options upon
the occurrence of a Liquidity Event. A Liquidity Event is defined as either (i)
the consummation of an underwritten initial public offering of the Company's
common stock, which has been registered under the Securities Act of 1933, as
amended, or successor provision, or (ii) a Change of Control, as defined.
F-46
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Stock Options (continued)
1994 Stock Option Plan (continued)
Stock option transactions are summarized as follows:
Exercise
Options Price
----------- --------------
Outstanding at February 2, 1994 -- $ --
Granted 138,250 .43
Exercised -- --
Canceled -- --
-------- ----------
Outstanding at December 31, 1994 138,250 .43
Granted 1,166,739 .43
Exercised (12,519) .43
Canceled (288,773) .43 - 1.05
-------- ----------
Outstanding at December 31, 1995 1,003,697 $.43 - 1.05
========= =============
Of the shares under options granted, 28,799 shares ranging in price from $.43 to
$1.05 are exercisable and 292,892 shares under options are available for future
grant as of December 31, 1995.
1995 Non-Employee Director Stock Option Plan
On November 27, 1995, the Company adopted the 1995 Non-Employee Director Stock
Option Plan (the "Director Stock Option Plan"). The Director Stock Option Plan
provides for an automatic grant of NQSOs to purchase 3,000 shares of common
stock to non-employee directors on the date such individuals are first appointed
directors of the Company, and an automatic grant of an option to purchase an
additional 1,000 shares of common stock on the day after each subsequent annual
meeting of the Company's stockholders. The option price is equal to the fair
market value of the common stock on the date of grant. Initial option grants
vest and become exercisable as to one-third of the shares covered by the option
on each annual anniversary of the date of grant if the holder remains a director
on such date, provided that such options may become fully exercisable upon a
director's resignation from the Board of Directors or death of the holder.
Annual option grants vest and become exercisable as to 100% of the shares
covered by the option on the six-month anniversary of the date of grant if the
holder remains a director on such date, provided that such options may become
fully exercisable upon a director's resignation from the Board of Directors or
death of the holder. The Company has reserved 50,000 shares of common stock for
issuance under the Director Stock Option Plan.
F-47
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
10. Commitments and Contingencies
Guarantee of loan facilities of LBA
On September 27, 1995, LBA entered into a Senior Credit Agreement by and between
LBA and the senior bank. Subject to the terms and conditions of the Senior
Credit Agreement, LBA is entitled to borrow up to $25,750,000 from the senior
bank, on a revolving basis, through the maturity date of the credit facility,
which is September 1999. As of December 31, 1995, the entire balance of
$25,750,000 was outstanding. The LBA obligations under the Senior Credit
Agreement are secured by a security interest in favor of the senior bank in
substantially all of the assets of LBA. In addition, the Company provided a
security interest in substantially all of its assets, including its shares of
capital stock in subsidiary and affiliated corporations, to secure the
obligations of LBA to the senior bank under the Senior Credit Agreement, and the
Company provided an unlimited guaranty in favor of the senior bank with respect
to the obligations of LBA under the Senior Credit Agreement. Similarly, another
subsidiary of the Company granted a security interest in substantially all of
its assets, including its shares of capital stock of subsidiary and affiliated
corporations, to secure the obligations of LBA to the senior bank under the
Senior Credit Agreement, and an unlimited guaranty in favor of the senior bank
with respect to the obligations of LBA and the Senior Credit Agreement.
A second and subordinated credit facility in the amount of $10,150,000 was
entered into by and between LBA and a bank pursuant to a Credit Agreement by and
between LBA and a bank also dated September 27, 1995 (the "Subordinated Credit
Agreement"). Under the terms of the Subordinated Credit Agreement, LBA borrowed
$10,150,000 from the bank. As of December 31, 1995, the entire balance of
$10,150,000 was outstanding. To secure these obligations, LBA granted a security
interest in substantially all of its assets in favor of the bank. The Company
granted a security interest to the bank in its shares of capital stock in its
subsidiaries and affiliates to secure the obligations of LBA under the
Subordinated Credit Agreement. The Company also provided an unlimited guaranty
of LBA's obligations under the Subordinated Credit Agreement and major
stockholders of the Company provided limited guaranties in favor of the bank
with respect to LBA's obligations under the Subordinated Credit Agreement
similar to those provided for the senior bank. In addition, the bank received a
$9,239,000 letter of credit bearing an interest rate of 1.5%, due quarterly, if
the letter of credit is outstanding, naming the bank as beneficiary.
The above agreements contain certain restrictive covenants, including the
maintenance of certain financial ratios and limitations on additional
borrowings, mergers, acquisitions, dispositions and the payment of dividends.
The agreements also provide for additional payments of principal from excess
cash flow.
F-48
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
10. Commitments and Contingencies (continued)
Guarantee of loan facilities of LBA (continued)
In addition, the above borrowings under the Senior Credit and Credit Agreements
are not shown as outstanding on the Company's consolidated financial statements
since LBA is not consolidated (See Note 1).
Operating leases
Future minimum payments, under noncancellable office and equipment operating
leases with initial terms of one year or more, consist of the following for the
periods ended December 31:
1996 $ 860,918
1997 870,799
1998 867,016
1999 808,628
2000 152,436
Thereafter 31,950
---------
$3,591,747
=========
Total rent expense under all operating leases was approximately $488,000 and
$1,074,000 for the period ended December 31, 1994 and for the year ended
December 31, 1995, respectively.
Legal proceedings
A subsidiary of the Company is currently a defendant to a civil complaint filed
on July 6, 1995, in the Supreme Court of British Columbia, Canada, by Stratford
General Hospital. The complaint alleges that Stratford General Hospital entered
into a contract with the subsidiary for the maintenance and support of an
integrated hospital management information system and that the subsidiary has
refused to perform its obligations under such alleged contract. Stratford
General Hospital is seeking unspecified compensatory damages from the
subsidiary. The subsidiary has filed a defense denying that it entered into such
alleged contract with Stratford General Hospital. The Company believes that the
suit is totally without merit and intends to defend its position vigorously.
While the ultimate outcome of this lawsuit cannot at this time be predicted with
certainty, management does not presently expect that this matter will have a
material adverse effect on the consolidated financial position, cash flows or
results of operations of the Company.
F-49
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements (Continued)
11. Information by Geographic Area
Information regarding the Company's operations by geographic area for the
periods February 2, 1994 through December 31, 1994 and the year ended
December 31, 1995 and for the periods then ended is as follows:
1994 1995
-------- --------
Revenues:
Canada $ 5,704,972 $ 5,872,663
United States 329,244 309,297
Other 1,594,530 967,354
------------ ------------
Total $ 7,628,746 $ 7,149,334
------------ ------------
Operating losses:
Canada $ (4,581,920) $ (5,232,133)
United States (9,397,136) (10,351,197)
Other (312,712) 25,187
------------ ------------
Total $(14,291,768) $(15,558,143)
------------ ------------
Total assets:
Canada $ 1,586,726 $ 2,453,637
United States 10,559,703 22,169,386
Other 462,984 415,141
------------ ------------
Total $ 12,609,413 $ 25,038,164
------------ ------------
12. Subsequent Events
A current minority stockholder of HealthVISION has threatened suit in connection
with the purchase by HealthVISION in September 1995 of the assets of the
predecessor of LBA. The outcome of this matter cannot be predicted with
certainty at this time. In connection with the distribution by HealthVISION of
its assets and liabilities not associated with LBA, the assignee of such assets
and liabilities has agreed to indemnify and hold HealthVISION, LBA and HCIA
harmless from and against any liability associated with the potential claim.
Certain current stockholders of HealthVISION have guaranteed such indemnity.
Proposed sale of LBA
On July 19, 1996, the Company entered into a definitive agreement to
sell LBA.
7% Preferred Stock
Subsequent to December 31, 1995, the Company issued 80,000 shares of 7%
preferred at $100 per share for total cash proceeds of $8,000,000. The 7%
preferred stock has the same terms as previously issued 7% preferred (see
Note 8).
HealthVISION, Inc.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ ---------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,589,457 $ 317,947
Accounts receivable 1,664,784 1,814,030
Intercompany receivable 129,009 135,322
Prepaid expenses 521,951 709,644
Investment in LBA Health Care Management Inc. 15,978,182 15,978,182
----------- -----------
Total current assets 19,883,383 18,955,125
Equipment and furniture, net 1,946,000 1,985,710
Intangible, net 3,208,781 3,219,344
----------- -----------
Total assets $25,038,164 $24,160,179
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,280,222 1,014,611
Accrued compensation and related liabilities 1,080,644 1,184,553
Deferred revenue 1,177,358 1,498,564
Other accrued liabilities 1,134,640 1,223,527
Current portion of long-term debt 557,979 646,796
----------- -----------
Total current liabilities 5,230,843 5,568,051
Long-term debt, less current portion 703,129 796,246
Commitments and contingencies
Stockholders' equity:
7% preferred stock, $.01 par value, authorized
-1,000,000 shares; issued and outstanding
-256,900 shares at December 31, 1995 and 286,900
shares at March 31, 1996 (unaudited)
(aggregate liquidation preference $31,695,649 at
March 31, 1996--unaudited) 2,570 2,870
Convertible preferred stock, Series A-1, $.01 par value;
authorized -5,500,000 shares; issued and outstanding -
5,278,529 shares at December 31, 1995 (5,278,529 at
March 31, 1996 -unaudited) (aggregate liquidation
preference $10,978,182 at March 31, 1996--unaudited) 52,785 52,785
Convertible preferred stock, Series A-2, $.01 par value;
authorized 3,000,000 shares; issued and outstanding
-2,883,756 shares at December 31, 1995 (2,883,756 at
March 31, 1996 -unaudited) (aggregate liquidation
preference $10,000,000 at March 31, 1996--unaudited) 28,838 28,838
Common stock, $.01 par value; authorized 40,000,000
shares; issued and outstanding -4,588,438 shares at
December 31, 1995 (4,588,438 at March 31, 1996
-unaudited) 45,884 45,884
Additional paid-in capital 48,546,696 51,546,396
Accumulated deficit (29,252,891) (33,524,275)
Cumulative translation adjustment (319,690) (356,616)
----------- -----------
Total stockholders' equity 19,104,192 17,795,882
----------- -----------
Total liabilities and stockholders' equity $25,038,164 $24,160,179
=========== ===========
</TABLE>
See Independent Accountants' Review Report.
F-50
<PAGE>
HealthVISION Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Month Periods Ended March 31,
1995 1996
---------------------------
(unaudited)
<S> <C> <C>
Revenues:
Software licenses $ 491,628 $553,279
Maintenance and services 786,418 1,069,436
Hardware 208,686 206,338
------------ ------------
Total revenue 1,486,732 1,829,053
------------ ------------
Cost of revenues:
Software licenses, maintenance and services 1,131,797 1,443,229
Hardware 133,447 118,308
------------ ------------
Total cost of revenue 1,265,244 1,561,537
------------ ------------
Gross profit 221,488 267,516
Operating expenses:
Product development 1,038,918 1,386,464
Sales and marketing 948,848 1,340,530
General and administration 971,772 1,790,424
------------ ------------
Total operating expenses 2,959,538 4,517,418
------------ ------------
Loss from operations (2,738,050) (4,249,902)
------------ ------------
Other income (expense):
Foreign exchange gain -- 42
Interest income 63,114 3,559
Interest expense -- (25,083)
------------ ------------
Total other income (expense), net 63,114 (21,482)
------------ ------------
Net loss (2,674,936) (4,271,384)
Preferred stock dividend 348,485 469,782
------------ ------------
Net loss available to common stockholders $ (3,023,421) $ (4,741,166)
============ ============
</TABLE>
F-51
<PAGE>
HealthVISION Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Period February 2, 1994 (Inception) Through March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
SERIES A-1 SERIES A-2
7% CONVERTIBLE CONVERTIBLE ADDITIONAL CUMULATIVE
PREFERRED PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT
--------- ----------- ----------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 2, 1994........ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 156,250 shares of 7%
preferred stock at $100 per
share.......................... 1,563 -- -- -- 15,623,437 -- --
Issuance of 3,317,850 shares of
common stock at $.449 per
share.......................... -- -- -- 33,179 1,455,548 -- --
Exchange of 288,604 shares of
common stock at $.449 per share
in connection with the
acquisition of HVC Holdings
Canada Ltd. And HealthVISION
Corporation.................... -- -- -- 2,886 126,609 -- --
Issuance of 46,650 share of 7%
preferred stock at $100 per
share.......................... 457 -- -- -- 4,564,543 -- --
Issuance of 969,464 shares of
common stock at $.398 per
share.......................... -- -- -- 9,694 375,306 -- --
Net loss......................... -- -- -- -- -- (14,127,983) --
Translation adjustment........... -- -- -- -- -- -- 59,329
------- ------- -------- ------- ----------- ----------- ---------
Balance at December 31, 1994....... 2,020 -- -- 45,759 22,145,443 (14,127,983) 59,329
Issuance of 5,278,529 shares of
convertible preferred Series
A-1 stock for $2.080 per share
in connection with the
acquisition of LBA............. -- 52,785 -- -- 10,925,397 -- --
Issuance of 1,441,878 shares of
convertible preferred Series
A-2 stock for cash at $3.468
per share...................... -- -- 14,419 -- 4,985,581 -- --
Issuance of 1,441,878 shares of
convertible preferred Series
A-2 stock for cash at $3.468
per share...................... -- -- 14,419 -- 4,985,581 -- --
Issuance of 12,520 shares of
common stock at $.429 per share
upon exercise of options....... -- -- -- 125 5,244 -- --
Issuance of 55,000 shares of 7%
preferred stock for conversion
of bridge financing at $100 per
share.......................... 550 -- -- -- 5,499,450 -- --
Net loss......................... -- -- -- -- -- (15,124,908) --
Translation adjustment........... -- -- -- -- -- -- (379,019)
------- ------- -------- ------- ----------- ------------ ---------
Balance at December 31, 1995....... $ 2,570 $52,785 $28,838 $45,884 $48,546,696 $(29,252,891) $(319,690)
Issuance of 30,000 shares of 7%
preferred stock at $100 per
share.......................... 300 -- -- -- 2,999,700 -- --
Net loss......................... -- -- -- -- -- (4,271,384) --
Translation adjustment........... -- -- -- -- -- -- (36,926)
------- ------- -------- ------- ----------- ------------ ---------
Balance at March 31, 1996.......... $ 2,870 $52,785 $28,838 $45,884 $51,546,396 $(33,524,275) $(356,616)
======= ======= ======== ======= =========== ============ =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
--------------
<S> <C>
Balance at February 2, 1994........ $ --
Issuance of 156,250 shares of 7%
preferred stock at $100 per
share.......................... 15,625,000
Issuance of 3,317,850 shares of
common stock at $.449 per
share.......................... 1,488,727
Exchange of 288,604 shares of
common stock at $.449 per share
in connection with the
acquisition of HVC Holdings
Canada Ltd. And HealthVISION
Corporation.................... 129,495
Issuance of 46,650 share of 7%
preferred stock at $100 per
share.......................... 4,565,000
Issuance of 969,464 shares of
common stock at $.398 per
share.......................... 385,000
Net loss......................... (14,127,983)
Translation adjustment........... 59,329
------------
Balance at December 31, 1994....... 8,124,568
Issuance of 5,278,529 shares of
convertible preferred Series
A-1 stock for $2.080 per share
in connection with the
acquisition of LBA............. 10,978,182
Issuance of 1,441,878 shares of
convertible preferred Series
A-2 stock for cash at $3.468
per share...................... 5,000,000
Issuance of 1,441,878 shares of
convertible preferred Series
A-2 stock at $3.468
per share...................... 5,000,000
Issuance of 12,520 shares of
common stock at $.429 per share
upon exercise of options....... 5,369
Issuance of 55,000 shares of 7%
preferred stock for conversion
of bridge financing at $100 per
share.......................... 5,500,000
Net loss......................... (15,124,908)
Translation adjustment........... (379,019)
------------
Balance at December 31, 1995....... $ 19,104,192
Issuance of 30,000 shares of 7%
preferred stock at $100 per
share.......................... 3,000,000
Net loss......................... (4,271,384)
Translation adjustment........... (36,926)
------------
Balance at March 31, 1996.......... $ 17,795,882
============
</TABLE>
F-52
<PAGE>
HealthVISION, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1995 and 1996
(unaudited)
<TABLE>
<CAPTION>
For the Three
Month Periods Ended March 31,
-----------------------------------
1995 1996
---- ----
(unaudited)
<S> <C>
Cash flows from operating activities:
Net loss $(2,674,936) $(4,271,384)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 364,403 570,482
Capitalized software development costs -- (343,291)
Change in operating assets and liabilities:
Accounts receivable (397,371) (149,246)
Intercompany receivable -- (6,313)
Prepaid expenses (49,776) (187,693)
Accounts payable 319,387 (265,611)
Accrued compensation and related liabilities 223,624 103,909
Deferred revenue 26,408 321,206
Other accrued liabilities (17,982) 88,887
----------- -----------
Total adjustments 468,693 132,330
----------- -----------
Net cash used in operating activities (2,206,243) (4,139,054)
Cash flows used by investing activities:
Purchase of equipment and furniture (658,171) (34,964)
----------- -----------
Net cash used in investing activities (658,171) (34,964)
----------- -----------
Cash flows provided by financing activities:
Proceeds from issuance of 7% redeemable preferred stock -- 3,000,000
Principal payments made on long-term debt and capital leases (208,736) (60,566)
----------- -----------
Net cash provided by (used in) financing activities (208,736) 2,939,434
----------- -----------
Effect of exchange rate changes on cash 29,381 (36,926)
----------- -----------
Net decrease in cash and equivalents (3,043,769) (1,271,510)
Cash and equivalents, beginning of period 6,207,043 1,589,457
----------- -----------
Cash and equivalents, end of period $ 3,163,274 $ 317,947
=========== ===========
</TABLE>
F-53
<PAGE>
HealthVISION, Inc.
Notes to Consolidated Financial Statements
For the Three-Month Periods Ended March 31, 1996 and 1995
(unaudited)
1. THE COMPANY, ORGANIZATION AND BASIS OF PRESENTATION
HealthVISION, Inc. (the "Company") was organized as a Delaware corporation
on February 2, 1994, began operations on February 15, 1994 and was incorporated
to acquire HVC Holdings Canada Ltd., HealthVISION Corporation and their
subsidiaries. The Company develops, markets and supports healthcare information
products focused on lowering costs of health care and improving clinical
processes for integrated delivery systems, hospitals and office-based
physicians.
On February 14, 1994, the Company acquired substantially all of the
business, assets, and liabilities of HVC Holdings Canada Ltd., HealthVISION
Corporation (the "Predecessor Company") and their subsidiaries for $13,994,016.
The transaction was recorded using the purchase method of accounting.
Accordingly, a basis of accounting of $13,994,016 was established based on the
purchase price, resulting in purchase price in excess of fair market value of
net liabilities assumed.
On September 27, 1995, LBA Health Care Management, Inc., a newly formed
subsidiary of the Company, acquired substantially all of the business, assets,
and liabilities of LBA Health Care Management, Inc. and Healthcare Data Source,
Inc. (collectively, "LBA") for approximately $51,178,000. The transaction was
recorded using the purchase method of accounting. Accordingly, a basis of
accounting of $49,850,853 was established based on the purchase price, resulting
in purchase price in excess of fair market value of net assets acquired.
The consolidated financial statements include the accounts of HealthVISION,
Inc. and its subsidiary companies, all of which are wholly owned, except for
LBA, which is being accounted for on the cost basis in accordance with FASB 94
as the Company has committed to sell this subsidiary and therefore control is
deemed temporary (see Note 12). These statements reflect the activity of the
Company and its subsidiaries, except for LBA, and all related intercompany
transactions and balances have been eliminated in consolidation.
The Company's financial statements have been prepared on the basis that the
Company will continue as a going concern. The Company has incurred significant
losses of $15,124,908 for the year ended December 31, 1995 and $3,573,328 for
the three-month period ended March 31, 1996, resulting in an accumulated deficit
of $32,826,219 at March 31, 1996. The Company's future plans include successful
completion of additional financing, adjusting the level of its operations to
provide the cash necessary to continue operations through at least January 1,
1997 and achieving future profitable operations.
F-54
<PAGE>
INTERIM FINANCIAL INFORMATION
The financial information for the three-month periods ended March 31, 1995
and 1996 is unaudited but includes all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position at such date and of the operating results
and cash flows for such periods. The results for the interim periods are not
necessarily indicative of results expected for the entire year ended December
31, 1996.
These interim financial statements should be read in conjunction with the
summary of significant accounting policies and notes to the consolidated
financial statements included in the Company's December 31, 1995 consolidated
financial statements included elsewhere herein.
F-55
<PAGE>
(c) Exhibits.
Exhibit No.
2 Agreement and Plan of Reorganization by and among the Company
and HealthVISION, Inc. dated as July 19, 1996.
99 Press Releases.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HCIA Inc.
Date: July 22, 1996 By: /s/ Barry C. Offutt
Barry C. Offutt,
Senior Vice President and
Chief Financial Officer
6
<PAGE>
EXHIBIT INDEX
Exhibit No.
2 Agreement and Plan of Reorganization between
the Company and HealthVISION, Inc. dated as of
July 19, 1996
99 Press Releases
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
HCIA INC.,
HCIA SUB INC.
AND
HEALTHVISION, INC.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as
of July 19, 1996, is made and entered into by and between HCIA Inc., a Maryland
corporation ("HCIA"), HCIA Sub Inc., a Delaware corporation ("Sub"), and
HealthVISION, Inc., a Delaware corporation ("HVI").
RECITALS
WHEREAS, the Boards of Directors of HCIA and HVI have determined that
it is desirable and in the best interests of their respective companies and
stockholders that Sub, a wholly-owned subsidiary of HCIA, be merged into HVI on
the terms and subject to the conditions set forth in this Agreement and the
Certificate of Merger substantially in the form attached hereto as Exhibit A.
WHEREAS, as a condition to the Merger (as defined below), HCIA requires
that HVI distribute, and HVI is willing to distribute immediately prior to the
Effective Time of the Merger to HVI's stockholders of record prior to the
Merger, all of the capital stock of a newly incorporated wholly owned
subsidiary, to which, prior to the Merger, all of the assets of HVI will be
assigned, contributed or otherwise transferred other than (i) all of the shares
of LBA (as defined below) owned by HVI on the date hereof, and (ii) certain
other assets as the parties mutually agree, and that HVI be released from, or
mutually acceptable adequate provisions be made for, all liabilities and
obligations of HVI other than as mutually agreed by the parties, so that, after
giving effect to such distribution, the business and operations of HVI will
consist solely of the business and operations conducted by LBA immediately prior
to the Effective Time of the Merger.
WHEREAS, the distribution contemplated in the previous clause will be
made in accordance with the Distribution Agreement (as defined below).
WHEREAS, as a condition to the Merger, HVI requires that HCIA assume,
and HCIA will assume simultaneously with the consummation of the Merger, certain
liabilities and obligations of HVI and LBA as set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, HCIA, Sub and HVI agree as follows:
Section 1. Definitions. The following words shall have the following
meanings when used in this Agreement:
"Business Condition" shall mean the business, financial
condition, results of operations or assets of an entity.
"Cash Portion" shall mean the sum of $100,000,000, less (i)
all cash amounts to be paid pursuant to the LBA Bonus Payments, (ii) all amounts
represented by the LBA Indebtedness
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as of the Closing Date and (iii) all expenses incurred by HVI and LBA in
connection with the transactions contemplated by this Agreement, including, but
not limited to, legal and accounting fees and the fees of investment bankers for
HVI and LBA, as such fees are certified by Spinco on the Closing Date (the
"Third Party Fees").
"Certificate of Merger" shall mean the Certificate of Merger
to be entered into by and between HVI and Sub providing for the merger of Sub
with and into HVI, in the form of Exhibit A attached hereto and made a part
hereof.
"Closing" shall mean the acts and events which take place on
the Closing Date for the purpose of consummating the transactions contemplated
by this Agreement.
"Closing Date" shall mean 10:00 A.M., Eastern Standard Time,
on the third business day after the satisfaction or waiver (as provided herein)
of all conditions set forth in Section 8 (except for such conditions which can
only be performed at the Closing Date), or such other date and time as may be
mutually agreed upon by HCIA and HVI.
"Commission" shall mean the Securities and Exchange Commission
of the United States.
"Credit Agreements" shall mean the Credit Agreement by and
among HVI, The First National Bank of Boston, as Agent, and the other parties
thereto, dated September 27, 1995, the Credit Agreement by and between LBA and
Imperial Bank, dated September 27, 1995, as the same may have been amended from
time to time, and all guaranties, security agreements, stock pledge agreements,
instruments and documents related thereto.
"Delaware Code" shall mean the General Corporation Law of the
State of Delaware.
"Distribution" shall mean the distribution, on the
Distribution Date, of all of the outstanding shares of Spinco Common Stock held
by HVI to the holders of record of HVI Common Stock, HVI Series A-1 Stock and
HVI Series A-2 Stock on the Distribution Record Date, which distribution shall
be deemed to have been effected by HVI upon delivery by HVI to the distribution
agent referred to in the Distribution Agreement of an instruction directing the
distribution agent to effect the distribution of the Spinco Common Stock in
accordance with Section 3.4 of the Distribution Agreement.
"Distribution Agreement" shall mean the Distribution Agreement
between HVI and Spinco in substantially the form attached hereto as Exhibit B.
"Distribution Date" shall mean the Closing Date; provided,
however, that the Distribution shall occur immediately prior to the Effective
Time of the Merger.
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"Distribution Record Date" shall mean the close of business on
the date to be determined by HVI's Board of Directors as the record date for the
Distribution, which date shall be prior to the Closing Date.
"Effective Time of the Merger" shall be 5:00 p.m., Baltimore,
Maryland time, on the Closing Date.
"Escrow Agent" shall mean the escrow agent referred to in the
Escrow Agreement.
"Escrow Agreement" shall mean the Escrow Agreement
substantially in the form attached hereto as Exhibit C.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"HCIA Statements" shall mean (i) the consolidated balance
sheets of HCIA as of December 31, 1994 and 1995 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 1994 and 1995, in each case reported upon by independent
certified public accountants, (ii) the unaudited consolidated balance sheet of
HCIA as of March 31, 1996 and the related consolidated statements of operations
and cash flows for the three months ended March 31, 1996, and (iii) if issued
prior to the Closing Date, the unaudited consolidated balance sheet of HCIA as
of June 30, 1996 and the related consolidated statements of operations and cash
flows for the three months ended June 30, 1996 (the statements referred to in
clauses (ii) and (iii), "HCIA Interim Statements"). For purposes of this
Agreement, each of the financial statements hereinabove referred to shall be
deemed to include the notes and schedules with respect thereto.
"HCIA Stock" shall mean shares of the common stock of HCIA,
$.01 par value per share.
"HVI Capital Stock" shall mean shares of the capital stock of
HVI.
"HVI Common Stock" shall mean shares of the common stock of
HVI, $.01 par value per share.
"HVI Disclosure Schedule" shall mean the disclosure schedule
of HVI attached hereto as Exhibit F.
"HVI Retained Assets" shall have the same meaning as "HVI
Retained Assets" in Section 1.1 of the Distribution Agreement.
"HVI Retained Liabilities" shall have the same meaning as "HVI
Retained Liabilities" in Section 1.1 of the Distribution Agreement.
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"HVI Series A-1 Stock" shall mean shares of the Series A-1
Convertible Preferred Stock of HVI, $.01 par value per share.
"HVI Series A-2 Stock" shall mean shares of the Series A-2
Convertible Preferred Stock of HVI, $.01 par value per share.
"HVI 7% Stock" shall mean shares of the 7% Preferred Stock of
HVI, $.01 par value per share.
"HVI Statements" shall mean (i) the consolidated balance
sheets of HVI and its consolidated subsidiaries as of December 31, 1994 and 1995
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended December 31, 1994 and 1995, in each
case reported upon by independent certified public accountants, and (ii) the
unaudited consolidated balance sheet of HVI and its consolidated subsidiaries as
of May 31, 1996 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the five months ended May 31, 1996
(the "HVI Interim Statements"). For purpose of this Agreement, each of the
financial statements hereinabove referred to shall be deemed to include the
notes and schedules with respect thereto.
"HVI Subsidiaries" shall mean all of the corporations set
forth on the Disclosure Schedule as subsidiaries of HVI.
"HVI Transferred Assets" shall have the same meaning as "HVI
Transferred Assets" in Section 1.1 of the Distribution Agreement.
"HVI Transferred Liabilities" shall have the same meaning as
"HVI Transferred Liabilities" in Section 1.1 of the Distribution Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended.
"LBA" shall mean LBA Health Care Management, Inc.
"LBA Bonus Payments" shall mean any and all obligations to pay
bonus compensation to Lawrence J. Byrne and Kevin J. Hicks as set forth in the
Executive Bonus Compensation Agreements, dated as of May 1, 1996, between LBA
and each of Lawrence J. Byrne and Kevin J. Hicks, and as set forth in paragraph
6 of the respective Executive Employment Agreements, dated as of May 1, 1996, as
amended, among HVI, LBA and each of Ray Padilla, Christopher McBride, Michelle
Mann and Timothy W. Dodge.
"LBA Indebtedness" shall mean all Liabilities and indebtedness
(including any accrued interest and pre-payment penalties payable) owing under
or represented by the Credit Agreements as of the Closing Date.
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"LBA Statements" shall mean (i) the balance sheet of LBA as of
December 31, 1995, and the related statements of operations, change in
stockholders' equity and cash flows for the year ended December 31, 1995, in
each case reported upon by independent certified public accountants, and (ii)
the unaudited balance sheet of LBA as of May 31, 1996 and the related statements
of operations, changes in stockholders' equity and cash flows for the five
months ended May 31, 1996 (the "LBA Interim Statements"). For purposes of this
Agreement, each of the financial statements hereinabove referred to shall be
deemed to include the notes with respect thereto.
"Liabilities" shall mean any and all debts, liabilities and
obligations, absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including those debts, liabilities and obligations arising under any law, rule,
regulation, action, threatened action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"Material Adverse Effect" shall mean, with respect to any
entity, any condition, event, change or occurrence that has had or may
reasonably be expected to have a material adverse effect on the Business
Condition of such entity.
"Merger" shall mean the merger of Sub with and into HVI
pursuant to the Certificate of Merger.
"Non-Competition Agreement(s)" shall mean the agreements
substantially in the form attached hereto as Exhibit D to be entered into
between HCIA and each of Lawrence J. Byrne and Kevin J. Hicks.
"Organizational Documents" shall mean the certificate or
articles of incorporation and bylaws of the referenced corporation.
"Registration Rights Agreement" shall mean the registration
rights agreement substantially in the form attached hereto as Exhibit E.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Spinco" shall mean the wholly owned subsidiary of HVI to
which HVI will transfer the HVI Transferred Assets and the HVI Transferred
Liabilities pursuant to the terms of the Distribution Agreement.
"Spinco Common Stock" shall mean Spinco's common stock, par
value $0.01 per share.
"Stockholders' Agent" shall mean Warburg, Pincus Investors,
L.P., or such other stockholder or stockholders chosen by the stockholders of
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HVI to act as the representative of HVI's stockholders in enforcing any rights
and undertaking any obligations on behalf of HVI's stockholders under this
Agreement and under the Escrow Agreement.
"Sub Stock" shall mean shares of the common stock of the Sub,
$.01 par value per share.
"Subsidiary" shall mean a corporation or other entity the
voting securities of which are sufficient to elect at least a majority of the
board of directors or other managers of such corporation or other entity and
which are owned or otherwise controlled directly or indirectly by such parent
corporation or other entity.
"Transfer Effective Date" shall mean the date, as determined
by the Board of Directors of HVI, on which the transactions contemplated by the
Distribution Agreement shall be effective, which in any case shall be prior to
the Effective Time of the Merger.
Section 1.A. Transactions Contemplated by the Distribution Agreement.
1.A.1 Distribution of Spinco Common Stock
(a) Provided that this Agreement shall not
have been terminated in accordance with Section 9 hereof:
(i) HVI shall, on the Transfer Effective
Date, contribute to Spinco all of the HVI Transferred Assets in accordance with
the Distribution Agreement;
(ii) HVI shall, on the Transfer Effective
Date, effect an amendment to its certificate of incorporation changing its name
from "HealthVISION, Inc.";
(iii) HVI shall use all reasonable efforts
to obtain releases from, cause Spinco to assume, indemnify HVI and Sub from or,
in accordance with the terms of the Distribution Agreement, otherwise provide
for the payment or recovery by HVI or Sub with respect to the HVI Transferred
Liabilities prior to the Closing Date; and
(iv) HVI shall declare the Distribution to
holders of HVI Common Stock, HVI Series A-1 Stock and HVI Series A-2 Stock on
the Distribution Record Date, which shall be conditioned only upon the Merger on
the Closing Date.
(b) The Distribution shall be effected in
accordance with the terms of the Distribution Agreement, which shall also govern
the relative rights and obligations of Spinco and HVI, as surviving corporation,
after the Merger, with respect to the Distribution.
1.A.2. HVI Stock Options and Warrants. On the
Transfer Effective Date, HVI shall cause (i) all options outstanding under the
HVI 1994 Stock Incentive Plan, (ii) all options outstanding under the HVI 1995
Non-Employee Director Stock Option Plan, and (iii) the
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Warrant, dated July 1995, granted to MMC/GATX Partnership No. I, to be assumed
by Spinco in accordance with the terms of the Distribution Agreement.
Section 2. The Merger.The Merger
2.1 Merger; Effective Time of the Merger. Subject to the terms
and conditions of this Agreement and of the Certificate of Merger, Sub will be
merged into HVI in accordance with Section 251 of the Delaware Code and the
terms and conditions set forth in this Agreement, including, without limitation,
the conditions set forth in Section 8 below. The Certificate of Merger shall be
executed by HVI prior to or upon the Closing. After execution of the Certificate
of Merger, it shall be filed in accordance with the Delaware Code on the Closing
Date.
2.2 Closing. The Closing will take place at the offices of
HCIA, 300 East Lombard Street, Baltimore, Maryland 21202, on the Closing Date.
2.3 Effects of the Merger. At the Effective Time of the
Merger, (i) the separate existence of Sub shall cease and Sub shall be merged
with and into HVI (Sub and HVI are sometimes referred to herein as the
"Constituent Corporations" and HVI after the Effective Time of the Merger is
sometimes referred to herein as the "Surviving Corporation"), (ii) the
Certificate of Incorporation of Sub shall be the Certificate of Incorporation of
the Surviving Corporation, (iii) the Bylaws of Sub shall be the Bylaws of the
Surviving Corporation, (iv) the directors of Sub shall be the directors of the
Surviving Corporation, (v) the officers of Sub shall be the officers of the
Surviving Corporation, and (vi) the Merger shall, from and after the Effective
Time of the Merger, have all the effects provided by applicable law.
Section 3. Effect of the Merger on the Capital Stock of the Constituent
Corporations; Exchange of Certificates.
3.1 Effect on Capital Stock. At the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any shares of HVI Capital Stock:
(a) Capital Stock of Sub. All issued and outstanding
shares of Sub Stock shall be converted into 1,000 shares of HVI Common Stock.
Each stock certificate of Sub evidencing ownership of shares of Sub Stock shall
evidence ownership of such shares of HVI Common Stock.
(b) Cancellation of HVI Capital Stock. After the
conversion of HVI Capital Stock contemplated by Section 3.1(c), all shares of
HVI Capital Stock that are not owned by Sub shall be canceled and no stock of
HCIA or other consideration shall be delivered in exchange therefor.
(c) Conversion of HVI Capital Stock. Each share of
HVI Capital Stock which is issued and outstanding immediately prior to the
Effective Time of the Merger (other than shares of HVI Capital Stock held by
persons who exercise dissenters' rights under Section 262 of the Delaware Code
("Dissenting Shares")), by virtue of the Merger and without
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any action on the part of the holders thereof, shall be converted into the right
to receive shares of HCIA Stock and cash as follows (the "Merger
Consideration"):
(i) each share of HVI 7% Stock shall be converted
into the right to receive (x) that number of shares of HCIA Stock equal to the
quotient obtained by dividing (1) 492,967, less (i) the number of shares of HCIA
Stock delivered pursuant to Sections 3.1(c)(ii) and (iii) hereinbelow and (ii)
the number of shares of HCIA Stock to be delivered pursuant to the LBA Bonus
Payments, by (2) the number of shares of HVI 7% Stock issued and outstanding at
the Effective Time of the Merger and (y) that amount of cash equal to the
quotient obtained by dividing (1) the Cash Portion of the Merger Consideration,
less the aggregate Cash Portion payable pursuant to Sections 3.1(c)(ii) and
(iii) hereinbelow by (2) the number of shares of HVI 7% Stock issued and
outstanding at the Effective Time of the Merger;
(ii) each share of HVI Series A-1 Stock shall be
converted into the right to receive, at the option of the holder thereof made
prior to August 8, 1996, either (i) that amount of cash equal to $2.0797 or (ii)
that number of shares of HCIA Stock equal to the quotient obtained by dividing
2.0797 by 60.856. In the event a holder fails to make an election by the close
of business on August 7, 1996, the holder shall be deemed to have elected to
receive cash in exchange for each share;
(iii) each share of HVI Series A-2 Stock shall be
converted into the right to receive, at the option of the holder thereof made
prior to August 8, 1996, either (i) that amount of cash equal to $3.4677 or (ii)
that number of shares of HCIA Stock equal to the quotient obtained by dividing
3.4677 by 60.856. In the event a holder fails to make an election by the close
of business on August 7, 1996, the holder shall be deemed to have elected to
receive cash in exchange for each share; and
(iv) each share of Common Stock shall be canceled and
shall not be entitled to any Merger Consideration.
Provided, however, that no rights to receive fractional shares
of HCIA Stock or any interest in fractional shares of HCIA Stock shall arise
under this Agreement, and no certificates or scrip representing fractional
shares of HCIA Stock shall be issued. Stockholders of HVI who would otherwise be
entitled to such fractional shares or interests therein shall receive cash in
lieu thereof upon surrender of their certificates for HVI Capital Stock in
exchange for certificates of HCIA Stock. The cash price payable with respect to
fractional shares shall be based upon $60.856 per share.
(d) Payment of Merger Consideration. From and after the
Effective Time of the Merger, each holder of a certificate theretofore
representing issued and outstanding shares of HVI Capital Stock, excluding
certificates representing shares of HVI Capital Stock held in HVI's treasury and
excluding certificates representing shares of HVI Capital Stock held by
Dissenting Stockholders (as defined hereinbelow) shall be entitled, upon the
surrender of such certificates to HCIA, accompanied by a properly completed and
executed letter of transmittal, (i) subject to (ii) hereinbelow, to receive in
exchange therefor a certificate or certificates representing
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that whole number of shares of HCIA Stock that is equal to the whole number of
shares of HCIA Stock into which the holder's shares of HVI Capital Stock have
been converted, (ii) in the case of each Indemnitee (as that term is defined in
the Escrow Agreement) to have a certificate representing that whole number of
shares of HCIA Stock as is set forth next to their name on Exhibit A to the
Escrow Agreement, delivered into escrow pursuant to Section 3(e) herein, and,
provided that the stockholder shall have surrendered its certificates
theretofore representing shares of HVI Capital Stock accompanied by a properly
completed and executed letter of transmittal, shall have the right to receive
such certificates representing HCIA Stock upon termination of the escrow to the
extent provided by the Escrow Agreement, (iii) to receive any payment due in
lieu of fractional shares, and (iv) to receive payment, if any, of the Cash
Portion of the Merger Consideration. If any certificate for shares of HCIA Stock
is to be issued in a name other than that in which a surrendered certificate for
shares of HVI Capital Stock is then registered, such surrender shall be
accompanied by payment of any applicable transfer taxes and documents required
for a valid transfer. If a holder of HVI Capital Stock claims that a certificate
has been lost, stolen or destroyed, HCIA shall deliver to such holder, and to
the Escrow Agent, respectively, the HCIA Stock and cash into which such HVI
Capital Stock has been converted pursuant to Section 3.1(c) herein upon receipt
of evidence of ownership of such HVI Capital Stock, and appropriate
indemnification, in each case reasonably satisfactory to HCIA.
From and after the Effective Time of the Merger and until
surrendered and exchanged as hereinabove provided, each certificate theretofore
representing issued and outstanding shares of HVI Capital Stock, excluding
certificates representing shares of HVI Capital Stock held in HVI's treasury and
excluding certificates representing shares of HVI Capital Stock held by
Dissenting Stockholders, shall be deemed for all corporate purposes, except as
hereinafter provided, to evidence the right to receive the Merger Consideration.
Unless and until any such certificate shall be so surrendered, the holder of
such certificate shall not have any right to receive any dividends paid or other
distributions made to the holders of record of HCIA Stock after the Effective
Time of the Merger. Upon surrender of any such outstanding certificate of HVI
Capital Stock, the surrendering holder of record thereof shall receive all
dividends and other distributions (other than dividends and other distributions
which are required to be delivered to the Escrow Agent pursuant to the Escrow
Agreement) with respect to the total number of shares of HCIA Stock into which
his HVI Capital Stock was converted, which shall have been paid or made with
respect to HCIA Stock which is outstanding as of a record date after the
Effective Time of the Merger, but without interest thereon.
All such dividends, distributions and stock certificates
unclaimed at the end of one year from the Effective Time of the Merger shall be
retained by HCIA, after which the holders of the shares not receiving payment of
such dividends and distributions shall look, subject to applicable escheat or
other laws, as general creditors only to HCIA for payment thereof.
(e) Delivery of HCIA Stock to Escrow Agent. At the Effective
Time of the Merger, the certificates of HCIA Stock which the holders of HVI
Capital Stock are entitled to have delivered pursuant to clause (ii) of Section
3.1(d), shall be delivered by HCIA to the Escrow Agent under the Escrow
Agreement and shall be received, held and disposed of by the Escrow Agent
pursuant and subject to the terms and conditions thereof. Until distribution of
the shares of
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HCIA Stock held in escrow pursuant to the terms of the Escrow Agreement, HCIA
shall have a security interest in such shares to secure the indemnification
obligation to HCIA pursuant to the Escrow Agreement. For purposes of perfection
of an enforceable security interest by HCIA in the Escrow Fund (as defined in
the Escrow Agreement) and for federal tax purposes, possession of the shares by
the Escrow Agent shall be considered to be possession by HCIA.
(f) Adjustments. In the event HCIA shall declare, pay, make or
effect between the date of this Agreement and the Effective Time of the Merger
(a) any stock dividend or other distribution in respect of the HCIA Stock
payable in shares of capital stock of HCIA, (b) any stock split or other
subdivision of outstanding shares of HCIA Stock into a larger number of shares,
(c) any combination of outstanding shares of HCIA Stock into a smaller number of
shares, (d) any reclassification of HCIA Stock into other shares of capital
stock or securities, or (e) any exchange of the outstanding shares of HCIA
Stock, in connection with a merger or consolidation of HCIA or sale by HCIA of
all or part of its assets, for a different number or class of shares of stock or
securities of HCIA or for the shares of the capital stock or other securities of
any other corporation, appropriate adjustment shall be made in the ratio for the
conversion of shares of HVI Capital Stock into shares of HCIA Stock as may be
required to put the holders of the HVI Capital Stock in the same position as if
the record date, with respect to any such transaction or transactions which
shall so occur, had been immediately after the Effective Time of the Merger, or
otherwise to carry out the intents and purposes of this Agreement; provided,
however, that HCIA shall have the right, without any adjustments under this
Section, to issue additional shares of HCIA Stock or additional amounts of debt
securities, whether convertible or not, in connection with a bona fide sale
thereof for fair market value, the exercise of stock options, or the acquisition
of the assets or stock of other corporations, partnerships or proprietorships
which HCIA may acquire for fair market value, and HCIA shall have the right to
grant stock options and stock appreciation rights to its employees under any
employee stock option plan or a plan providing for stock appreciation rights
heretofore or hereafter provided for by the stockholders of HCIA.
(g) Dissenters' Rights. To the extent holders of HVI Capital
Stock shall be entitled to dissenters' rights in connection with the Merger
under Section 262 of the Delaware Code, Dissenting Shares shall not be converted
into the Merger Consideration but shall be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the law of the State of Delaware. HVI shall give
HCIA prompt notice of any demand received by HVI for appraisal of HVI Capital
Stock, and HCIA shall have the right to participate in all negotiations and
proceedings with respect to such demand. HVI agrees that, except with the prior
written consent of HCIA, or as required under the Delaware Code, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. Each holder of Dissenting Shares ("Dissenting
Stockholder") who, pursuant to the provisions of the Delaware Code becomes
entitled to payment of the value of shares of HVI Capital Stock, shall receive
payment therefor after the Closing Date (but only after the value therefor shall
have been agreed upon or finally determined pursuant to such provisions), but
the payment thereof shall nevertheless be subject to the terms and conditions of
this Agreement. After the Effective Time of the Merger, in the event a
Dissenting Stockholder fails to make an effective demand for appraisal or loses
or withdraws his or her right to receive payment of the value of shares of HVI
Capital Stock under Section 262 of
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the Delaware Code, upon surrender by such Dissenting Stockholder of his or her
certificate(s) theretofore representing shares of HVI Capital Stock, HCIA shall
pay the Merger Consideration to which such Dissenting Stockholder is then
entitled under this Section 3.1.
(h) No Further Ownership Rights in HVI Capital Stock. The
Merger Consideration paid upon the surrender for exchange of shares of HVI
Capital Stock in accordance with the terms hereof shall be deemed to have been
paid in full satisfaction of all rights pertaining to such shares of HVI Capital
Stock (excluding any rights arising under this Agreement and any claims arising
under law relating to the Merger). From and after the Effective Time of the
Merger, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of HVI Capital Stock
which were outstanding immediately prior to the Effective Time of the Merger.
Section 4. Representations and Warranties.
4.1 Representations and Warranties of HVI. Except as set forth
on the HVI Disclosure Schedule, HVI hereby represents and warrants to HCIA and
Sub as follows:
(a) Organization, Standing and Power. HVI has only
those Subsidiaries set forth on the Disclosure Schedule and does not own any
equity interest, directly or indirectly, in any other corporation, partnership,
joint venture, firm or other entity. Each of HVI and LBA is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction where the nature of the properties owned, leased
or operated by it or the business transacted by it requires such qualification,
except where the failure to be so qualified would not have a Material Adverse
Effect on HVI or LBA. HVI has delivered (or will deliver, in the case of
resolutions not yet adopted) to HCIA true, correct and complete copies of the
minute books of each of HVI and LBA.
(b) Capital Structure.
(i) As of the date hereof, the authorized
capital stock of HVI consists of:
(x) Preferred Stock. 1,000,000 shares of
HVI 7% Stock, 336,900 shares of which are issued and outstanding; 5,500,000
shares of Series A-1 Stock, 5,278,529 shares of which are issued and
outstanding; and 3,000,000 shares of HVI Series A-2 Stock, 2,883,756 of which
shares are issued and outstanding.
(y) Common Stock. 40,000,000 shares of
HVI Common Stock, 4,588,438 shares of which are issued and outstanding.
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(ii) 1,309,108 shares of HVI Common Stock
are reserved for issuance under the HVI's 1994 Stock Option Plan, of which
1,105,525 shares are subject to outstanding options as of the date hereof.
(iii) 50,000 shares of HVI Common Stock are
reserved for issuance under the HVI's 1995 Non-Employee Director Stock Option
Plan, of which 6,000 shares are subject to outstanding options as of the date
hereof.
(iv) All outstanding shares of HVI Capital
Stock are, and any shares of HVI Capital Stock which are issued prior to the
Closing Date will be, validly issued, fully paid and nonassessable and not
subject to preemptive rights except as described in the HVI Disclosure Schedule.
Except as described in the HVI Disclosure Schedule, there are no options,
warrants, calls, conversion rights, commitments or agreements of any character
obligating HVI to issue, deliver or sell, or cause to be issued, delivered or
sold, any additional shares of HVI Capital Stock or obligating HVI to grant,
extend or enter into any such option, warrant, call, conversion right,
commitment or agreement.
(v) HVI is the record and beneficial owner
of all of the issued and outstanding shares of capital stock of LBA and no other
person has any interests, inchoate or otherwise, in such shares or in the
ownership of LBA. Each repurchase of capital stock by HVI or LBA has been
effected in compliance with applicable provisions of law and Organizational
Documents of HVI or LBA, as the case may be, and HVI or LBA, as the case may be,
has paid for such capital stock in full satisfaction of its obligations in
connection with such repurchase. Except as described in the HVI Disclosure
Schedule, neither HVI nor LBA has any outstanding stock or securities
convertible into or exchangeable for any shares of its capital stock, nor any
preemptive or similar rights to subscribe for or to purchase, or any other
rights to subscribe for or to purchase, or any options for the issuance
(contingent or otherwise) of, or any call, commitment or claim of any character
relating to, any capital stock or any stock or securities convertible into or
exchangeable for any capital stock of either HVI or LBA. Except as set forth in
the HVI Disclosure Schedule, neither HVI nor LBA is subject to any obligation
(contingent or otherwise) to purchase or otherwise retire any shares of its
capital stock. There is no agreement to which either HVI or LBA is a party
restricting the transfer of any shares of HVI's or LBA's capital stock. Except
as described in the HVI Disclosure Schedule, HVI is not required to file, nor
has it filed, pursuant to Section 12 of the Exchange Act, a registration
statement relating to any class of securities of HVI.
(c) Authority. HVI has all requisite power and
authority to enter into this Agreement and the Certificate of Merger and,
subject to approval of this Agreement and the Certificate of Merger by the
holders of HVI Capital Stock, to consummate the transactions contemplated hereby
and thereby. Subject to such approval by the holders of HVI Capital Stock, the
execution and delivery of this Agreement and the Certificate of Merger and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action by HVI. The Board of Directors of
HVI has resolved that this Agreement and the Merger are fair to holders of HVI
Capital Stock and that the Board will recommend the approval of this Agreement
and the Merger by holders of HVI Capital Stock. This Agreement
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has been duly executed and delivered by HVI. This Agreement constitutes and the
Certificate of Merger, when executed and delivered by HVI, will constitute,
valid and binding obligations of HVI enforceable in accordance with their
respective terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
fraudulent conveyance, insolvency or similar laws affecting creditors' rights
and remedies generally. The execution and delivery of this Agreement and the
Certificate of Merger do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with or result in any
violation of, require the consent of any third party under, or constitute a
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 to
loss of a material benefit under (i) any provision of the Organizational
Documents of either HVI or LBA or (ii) any loan or credit agreement, note,
mortgage, indenture, lease, or other contract, agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to HVI or LBA or their respective
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency,
commission or other governmental authority or instrumentality (a "Governmental
Entity"), is required by either HVI or LBA in connection with the execution and
delivery of this Agreement or the Certificate of Merger or the consummation by
HVI of the transactions contemplated hereby or thereby, except for the filing of
(i) the Certificate of Merger with the Secretary of State of the State of
Delaware, (ii) a Pre-Merger Notification pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, (the "H-S-R Act"), and (iii)
appropriate documents with the relevant authorities of other states in which the
HVI is qualified to do business.
(d) HVI and LBA Financial Statements. HVI has
furnished HCIA with true, correct and complete copies of the HVI Statements and
the LBA Statements. The HVI Statements and LBA Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods indicated and fairly present the financial position of
HVI and LBA as of the dates thereof, and the results of each of their operations
and cash flows for the periods then ended (except that the HVI Unaudited
Statements and LBA Unaudited Statements do not include footnotes as required by
generally accepted accounting principles). Since December 31, 1995, there has
been no change in HVI's or LBA's accounting policies, and since December 31,
1995, there has been no change in LBA's estimates of contingent liabilities.
(e) No Violations. The business of each of HVI and
LBA has been conducted and is being conducted in compliance in all material
respects with all applicable laws, rules, regulations, judgments, decrees and
orders of any Governmental Entity applicable to such business. There are no
judgments or outstanding orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
LBA or against any of its assets, businesses or properties.
(f) No Defaults. Neither HVI nor LBA is in default or
violation, and no event has occurred which would place either HVI or LBA in
default or violation with the passage of time, of any term, condition or
provision of (i) their Organizational Documents; (ii) any judgment, decree or
order applicable to HVI or LBA; or (iii) any mortgage, note,
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indenture, contract, agreement, lease or other instrument or commitment to which
HVI or LBA is now a party or by which HVI or LBA or any of its respective
properties or assets may be bound.
(g) Litigation. Except as set forth in the HVI
Disclosure Schedule, there is no action, suit or proceeding pending or, to HVI's
knowledge, threatened, against either HVI or LBA which in any manner challenges
or seeks to prevent, enjoin, alter or delay any of the transactions contemplated
hereby, and, to HVI's knowledge, there are no facts or circumstances which would
give rise to any of the foregoing. There is no investigation pending or, to
HVI's knowledge, threatened against either HVI or LBA or any of their respective
officers or directors, before any federal, state, municipal or other
governmental department, commission, board, bureau, agency, instrumentality or
other Governmental Entity. The HVI Disclosure Schedule sets forth, with respect
to any pending action, suit, proceeding or investigation to which either HVI or
LBA is a party, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested.
(h) Absence of Certain Changes. Except as set forth
in the HVI Disclosure Schedule, since December 31, 1995, each of HVI and LBA, as
the case may be, has conducted its business in the ordinary course and there has
not occurred: (i) any adverse change in the Business Condition of LBA; (ii) any
amendments or changes in the Organizational Documents of LBA; (iii) any damage,
destruction or loss, whether covered by insurance or not, adversely affecting
the assets, businesses or properties of LBA; (iv) any redemption, repurchase or
other acquisition of shares of capital stock of HVI or LBA, or any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the capital stock of HVI or LBA; (v) any
increase or change in the compensation or benefits, including severance,
change-in-control or any similar benefits, payable or to become payable by LBA
to any of its employees; (vi) any acquisition or sale of property of LBA, except
sales of inventory in the ordinary course of business; (vii) any (A) incurrence,
assumption or guarantee by LBA of any debt for borrowed money or (B) other than
issuances reserved for and reflected as set forth in Section 4.1(b) hereinabove,
issuance by either HVI or LBA of, or any commitment by either HVI or LBA to
issue, any shares of capital stock or securities convertible into or
exchangeable or exercisable for any shares of capital stock, or any alteration
in any term of any outstanding security; (viii) any labor dispute, or any union
organizing campaign; (ix) any entry into any commitment or transaction
(including any capital expenditure) other than in the ordinary course of
business consistent with past practice; (x) any increase or modification in any
bonus, pension, insurance or other employee benefit plan, payment or arrangement
made to, for or with any of its employees; (xi) any transfer or grant of a right
under any Intellectual Property Rights (as defined in Section 4.l(p)
hereinbelow); (xii) any entry into any agreement granting an exclusive license
to any Intellectual Property Rights or providing for a new material business
relationship; or (xiii) any agreement by LBA to do any of the foregoing.
(i) Absence of Undisclosed Liabilities. LBA does not
have any liabilities or obligations (whether absolute, accrued or contingent),
whether or not required under generally accepted accounting principles to be
accrued, shown, disclosed or indicated in a consolidated balance sheet of LBA,
except (i) liabilities, obligations or contingencies that are accrued or
reserved against in the LBA Statements, or (ii) liabilities incurred or
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obligations or contingencies reserved against since May 31, 1996, in the
ordinary course of business in amounts usual and normal for LBA, or as required
in connection with the transactions contemplated hereby.
(j) Certain Agreements. Neither the execution and
delivery of this Agreement or the Certificate of Merger nor the consummation of
the transactions contemplated hereby or thereby will (i) result in any payment
(including, without limitation, severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director or employee of HVI
or LBA, under any Plan of HVI or LBA (as defined in Section 4.l(l)) or
otherwise, except for the LBA Bonus Payments, (ii) increase any benefits
otherwise payable under any Plan of HVI or LBA or otherwise, or (iii) result in
the acceleration of the time of payment or vesting of any such benefits.
(k) Taxes.
(i) For purposes of this Agreement, the
following definitions shall apply:
(A) The term "Taxes" shall mean all
taxes, however denominated, including any interest, penalties or other additions
to tax that may become payable in respect thereof, imposed by any federal,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes, payroll and employee withholding
taxes, social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes, real and
personal property taxes, stamp taxes, and other similar governmental charges.
(B) The term "Returns" shall mean all
reports, estimates, declarations of estimated tax, information statements and
returns relating to, or required to be filed in connection with, any Taxes.
(ii) All Returns required to be filed prior
to the date of this Agreement by HVI and LBA have been duly filed on a timely
basis and such Returns are true, complete and correct in all material respects,
except as set forth in the HVI Disclosure Schedule. All Taxes shown to be
payable on such Returns or otherwise due have been paid in full on a timely
basis or have been accrued on the HVI Statements or the LBA Statements, and no
other Taxes are payable by HVI or LBA with respect to items or periods covered
by such Returns. No claim has ever been made in any jurisdiction where HVI or
LBA does not file Returns that it is or may be subject to tax in that
jurisdiction. Each of HVI and LBA has withheld and paid over all Taxes required
to have been withheld and paid over in connection with amounts paid or owing to
any employee or other third party. There are no liens on any of the assets of
HVI or LBA with respect to Taxes, other than liens for Taxes not yet due and
payable. Neither HVI nor LBA has filed a Return containing a disclosure
statement under Section 6662 of the Internal Revenue Code or any similar
provision of state, local, foreign or other law.
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(iii) HVI has furnished or caused to be
furnished to HCIA true and complete copies of (A) relevant portions of income
tax audit reports, statements of deficiencies, closing or other agreements
received by or on behalf of any of HVI and LBA relating to Taxes, and (B) all
federal and state income or franchise tax returns for each of HVI and LBA, in
each case for all periods ending on and after February 14, 1994. Any tax
liabilities for years that have not been examined or have not closed by the
applicable statute of limitations will not have a Material Adverse Effect on HVI
or LBA. No deficiencies have been asserted with respect to Taxes of either HVI
or LBA. Neither HVI or LBA is a party to any action or proceeding for assessment
or collection of Taxes, nor has such event been asserted or proposed against HVI
or LBA. No waiver or extension of any statute of limitations is in effect with
respect to Taxes or Returns of HVI or LBA. Neither HVI nor LBA has requested any
extension of time to file any Return which has not since been filed. Neither HVI
nor LBA has ever been a party to any tax sharing agreement. Neither HVI nor LBA
is otherwise currently under the obligation to pay any Tax obligation of any
other person No power of attorney has been granted by HVI or LBA that is
currently in force with respect to any matter relating to Taxes. There are no
requests for rulings, subpoenas, or requests for information pending to any
taxing authority.
(iv) Neither HVI nor LBA is a party to any
safe harbor lease within the meaning of Section 168(f)(8) of the Internal
Revenue Code, as in effect prior to amendment by the Tax Equity and Fiscal
Responsibility Act of 1982. Neither HVI nor LBA is, nor has ever been, a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Internal Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. Neither HVI nor LBA is a "consenting corporation"
under Section 341(f) of the Internal Revenue Code. Neither HVI nor LBA has made
any payments, nor is either obligated to make any payments, nor is HVI or LBA a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G or 162(m) of
the Internal Revenue Code.
(v) Set forth on the HVI Disclosure Schedule
is a summary of the net operating loss carryforwards available to HVI, as of the
dates set forth therein, subject to applicable limitations contained in the
Internal Revenue Code. HVI shall provide at Closing the summary of net operating
loss carryforwards through July 31, 1996.
(l) Employee Benefit Plans.
(i) HVI has provided HCIA with a list of all
plans, whether oral or written, in which any active, former or retired employees
of LBA participate (individually a "Plan" and collectively the "Plans"). The
term Plans shall include (A) any "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (B) any profit sharing, pension, deferred compensation, bonus, stock
option, stock purchase, severance, retainer, consulting, health, welfare or
incentive plan or agreement whether legally binding or not, (C) any plan or
policy providing for "fringe benefits" to its employees, including but not
limited to vacation, paid holidays, personal leave, employee discount,
educational benefit or similar programs, and (D) any employment agreement, or
each oral or written contract, commitment and understanding with each current or
former director,
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officer, employee or stockholder or any associate or relative of any thereof,
which is not immediately terminable without cost or other liability to LBA.
(ii) Neither HVI nor any member of the HVI
controlled group or affiliated service group, as defined in Section 414 of the
Internal Revenue Code ("Members of the Group") is, or has at any time been, a
party to any multiemployer plan as defined under Section 3(37) of ERISA
("Multiemployer Plan"), or is required to contribute to any such Multiemployer
Plan.
(iii) Neither HVI nor any Members of the
Group has at any time sponsored or maintained, directly or indirectly, an
employee pension benefit plan that was subject to the minimum funding
requirements of ERISA or is subject to Title IV of ERISA.
(iv) Each Plan which is an "employee benefit
plan," as defined in Section 3(3) of ERISA, complies in all material respects by
its terms and in operation with the requirements provided by any and all
statutes, orders or governmental rules or regulations currently in effect and
applicable to the Plan, including but not limited to ERISA and the Internal
Revenue Code.
(v) LBA has filed or caused to be filed on a
timely basis and distributed to employees and/or participants in the Plans on a
timely basis, each and every return, report, statement, notice, declaration and
other documents required by any federal, state or local government agency
(including, without limitation, the Internal Revenue Service, the Department of
Labor, the Pension Benefit Guaranty Corporation and the Securities and Exchange
Commission), with respect to each Plan sponsored or maintained by LBA.
Furthermore, LBA has withheld and remitted to the proper depository all income
taxes and wage taxes on benefits derived under the Plans, to the extent such
withholding and remittance is required by law.
(vi) Each Plan intended to qualify under
Section 401(a) of the Internal Revenue Code is the subject of a favorable
unrevoked determination letter issued by the Internal Revenue Service as to its
qualified status, the Internal Revenue Service has not threatened to revoke any
favorable determination letter or opinion letter with respect to each Plan, and
nothing has occurred since the date of the most recent determination letter to
cause the loss of any Plan's qualification.
(vii) All contributions for all periods
ending prior to the Closing Date (including periods from the first day of the
current plan year to the Closing Date) have been made prior to the Closing Date
by LBA.
(viii) All insurance premiums have been paid
in full, subject only to normal retrospective adjustments in the ordinary
course, with regard to the Plans for plan years ending on or before the Closing
Date. With respect to periods from the close of the most recent plan year
through the Closing Date with respect to the Plans, all insurance premiums due
or payable through the Closing Date have been or will be paid in full, and no
such premium is overdue or in a grace period for late payment.
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(ix) With respect to each Plan:
(A) no prohibited transactions (as
defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code)
have occurred;
(B) no action or claim (other than
routine claims for benefits made in the ordinary course of Plan administration
for which Plan administrative review procedures have not been exhausted) is
pending, or to HVI's knowledge, threatened or imminent against or with respect
to the Plan, any employer who is participating (or who has participated) in any
Plan or any fiduciary (as defined in Section 21(A) of ERISA) of the Plan; and
(C) Neither HVI nor LBA, nor, to
HVI's knowledge, any fiduciary of any Plan has any knowledge of any facts which
could give rise to any action or claim against or with respect to any Plan, any
employer who is participating (or who has participated) in any Plan or any
fiduciary (as defined in Section 3(21)(A) of ERISA), of any Plan.
(x) Neither HVI nor LBA, nor, to HVI's
knowledge, any fiduciary with respect to any Plan has any liability or is
threatened with any liability (whether joint or several) (i) for the termination
of any single employer plan under Sections 4062 or 4064 of ERISA or any multiple
employer plan under Section 4063 of ERISA, (ii) for any interest payments
required under Section 302(e) of ERISA or Section 412(m) of the Internal Revenue
Code, (iii) for any excise tax imposed by Sections 4971, 4975, 4976, 4977, 4979,
or 4980 of the Internal Revenue Code, or (iv) to a fine under Section 502 of
ERISA.
(xi) Neither HVI nor any of the Members of
the Group have incurred any withdrawal liability with respect to any
Multiemployer Plan within the meaning of Sections 4201 and 4204 of ERISA, and no
liabilities exist with respect to withdrawals from any Multiemployer Plans which
could subject HVI or any Members of the Group to any controlled group liability
under ERISA.
(xii) None of the Plans that are welfare
benefit plans within the meaning of Section 3(1) of ERISA provide for benefits
or coverage for any former or retired employee or their beneficiaries, except to
the extent required by Section 4980B of the Internal Revenue Code or Sections
601 through 608, inclusive, of ERISA.
(xiii) All of the Plans of LBA and any
employer who is participating (or who has participated) in any Plan, to the
extent applicable, have complied with the continuation of group health coverage
provisions contained in Section 4980B of the Internal Revenue Code and Sections
601 through 608, inclusive, of ERISA.
(xiv) True, correct and complete copies of
all documents creating or evidencing any Plan have been made available to HCIA,
and true, correct and complete copies of all reports, forms and other documents
required to be filed with any governmental entity or distributed to Plan
participants or employees (including, without limitation, summary plan
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descriptions, Forms 5500 and summary annual reports for the past three (3) years
for all Plans subject to ERISA) have been made available to HCIA. A true,
correct and accurate summary of any oral agreement or unwritten Plan described
in subsection (l)(i) hereof has been made available to HCIA.
(xv) All expenses and liabilities relating
to all of the Plans have been, and will on the Closing Date be fully and
properly accrued on HVI's and LBA's books and records and disclosed in
accordance with generally accepted accounting principles and in Plan financial
statements.
(xvi) Any fidelity bond required to be
obtained by HVI or LBA under ERISA with respect to any Plan has been obtained
and is in full force and effect.
(xvii) HVI and LBA have each, to the extent
applicable with respect to each Plan, made available to HCIA copies of the three
most recent attorney's responses to an auditor's request for information.
(xviii) There are no pending investigations,
proceedings or other matters concerning any Plan before the Internal Revenue
Service, Department of Labor, Pension Benefit Guaranty Corporation, or any other
governmental agency, other than determination letter applications filed with the
Internal Revenue Service.
(xix) There are no leased employees employed
by LBA (as such term is defined in Section 414(n) of the Internal Revenue Code)
that must be taken into account with respect to the requirements of the Plan set
forth under Section 414(n)(3) of the Internal Revenue Code.
(m) Properties, Liens, Etc. Except as reflected in
the HVI Statements and LBA Statements, and except for liens for current taxes
not yet delinquent or being protested in good faith by appropriate proceedings
and set forth in the HVI Disclosure Schedule, LBA owns, free and clear of any
liens, claims, charges, options or other encumbrances, all of its tangible and
intangible property, real and personal, whether or not reflected in the LBA
Statements (except that sold or disposed of in the ordinary course of business
since the date of such Statements or property acquired pursuant to financing
leases as reflected in the LBA Statements). All plants, structures, machinery
and equipment owned or leased by LBA and used in the operation of its business
are in good and satisfactory operating condition for the requirements of its
business as presently conducted, except for ordinary wear and tear. Except for
property described as leased or licensed in the Disclosure Schedule, there are
no material assets of LBA which are owned by third parties and used by LBA in
the ordinary course of its business. Neither HVI nor LBA holds fee title to any
real property.
(n) Major Contracts. The Disclosure Schedule sets
forth a true and complete list of all written or oral contracts, agreements and
other instruments not made in the ordinary course of business that are material
to the Business Condition of LBA and to which LBA is a party, or made in the
ordinary course of business and referred to in clauses (i) through (xiv) of
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this Section 4.l(n). The Disclosure Schedule sets forth a true and complete list
of the all of the following contracts to which LBA is a party:
(i) union contract, employment contract or
arrangement providing for future compensation with any officer, consultant,
director or employee which is not terminable by it on 30 days' notice or less
without penalty or obligation to make payments related to such termination;
(ii) plan, contract or arrangement providing
for bonuses, pensions, severance benefits, deferred compensation, retirement
payments, profit-sharing or the like;
(iii) joint venture contract or arrangement
or other similar agreement which involves a sharing of profits with other
persons;
(iv) any individual agreement in which the
annual amount involved exceeds $75,000 in aggregate amount;
(v) lease for real or personal property;
(vi) any agreement, license, franchise,
permit, indenture or authorization which has not been terminated or performed in
its entirety which may be, by its terms, terminated, impaired or materially
adversely affected by reason of the execution of this Agreement, the Certificate
of Merger, the Closing, or the transactions contemplated hereby or thereby;
(vii) except with respect to trade
indebtedness incurred in the ordinary course of business, instruments evidencing
or related in any way to (a) indebtedness or the guarantee of any indebtedness
incurred in the acquisition of products, companies or other entities, or (b)
indebtedness or the guarantee of any indebtedness for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation, conditional
sale, guarantee or otherwise (including, but not limited to, any commitment or
arrangement to enter into such indebtedness or guarantee);
(viii) license agreement, either as licensor
or licensee;
(ix) agreement or arrangement for the sale
of any assets, properties or
rights;
(x) contract containing covenants purporting
to limit, or which would have the effect of limiting, the freedom of LBA to
compete in any line of business in any geographic area;
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(xi) contract, agreement or other instrument
or other understanding between LBA and any affiliated party, including, but not
limited to, any stockholder, director or officer of LBA;
(xii) all agreements with sales
representatives, distributors and dealers;
(xiii) any agreement or royalty arrangement
relating to the use by a third party of the Intellectual Property Rights used by
LBA or the use by LBA of any third party's intellectual property or other
assets; or
(xiv) any other agreement, contract or
arrangement which is material to the Business Condition of LBA.
HVI has supplied HCIA with true, correct and complete
copies of all contracts, agreements or other instruments set forth on the HVI
Disclosure Schedule. All agreements, contracts, leases and other instruments
listed on the HVI Disclosure Schedule (the "LBA Contracts") are valid and in
full force and effect, except as enforcement may be limited by bankruptcy,
insolvency, or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies is subject to
the discretion of the court before which any proceeding therefor may be brought.
LBA has not, nor has any other party thereto, breached any provision of, or
defaulted in any material respect under the terms of, any of the LBA Contracts
where such breach or default has not been cured. No party to any of the LBA
Contracts has canceled or threatened to cancel any such Contract.
(o) Interests of Certain Persons. None of the
officers, directors, employees, consultants or stockholders of HVI or LBA has
any direct or indirect interest in any property, real or personal, tangible or
intangible, including inventions, patents, copyrights, trademarks or trade
names, used in the business of LBA, including without limitation any interest in
any Intellectual Property Rights (as defined below) used by LBA. No officer of
HVI or LBA has any financial interest in any corporation, partnership, joint
venture or other entity that is engaged in a business which is competitive with
that conducted by LBA or otherwise does any business with LBA.
(p) Intellectual Property.
(i) LBA owns, and/or has the exclusive right
to use, sell, license, dispose of, and (subject to compliance with legal
formalities) bring actions for infringement of all Intellectual Property Rights
necessary or required for, or used in, the conduct of the business of LBA as
presently conducted.
(ii) LBA has the right to use, sell and
license all data necessary or required for, or used in, the conduct of the
business of LBA as presently conducted, and the use of such data by LBA does not
breach any agreement to which it is a party or by which the use of such data is
governed.
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(iii) The execution, delivery and
performance of this Agreement and the Certificate of Merger, the consummation of
the Merger and the consummation of the other transactions contemplated hereby
and thereby will not breach, violate or conflict with any instrument or
agreement governing any Intellectual Property Right necessary or required for,
or used in, the conduct of the business of LBA as presently conducted and will
not cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any such Intellectual Property Right or in any way impair the
right of LBA, HCIA or the Surviving Corporation to use, sell, license or dispose
of, either as part or all of a current product of LBA (determined as of the date
of this Agreement) or subsequent to the Closing as part or all of a product of
HCIA or a Subsidiary of HCIA, or to bring any action for the infringement of,
any such Intellectual Property Right or portion thereof.
(iv) Neither the development, manufacture,
marketing, license, sale or use of any product currently licensed or sold by LBA
or currently under development violates or will violate any license or agreement
to which LBA is a party or infringes or will infringe any Intellectual Property
Right of any other party; there is no pending or, to the knowledge of HVI,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Intellectual Property Right necessary or
required for, or used in, the conduct of the business of LBA as presently
conducted nor, to the knowledge of HVI, is there any basis for any such claim,
nor has LBA received any notice asserting that any such Intellectual Property
Right or the proposed use, sale, license or disposition thereof conflicts or
will conflict with the rights of any other party, nor is there any basis for any
such assertion; to the knowledge of HVI, there is no infringement on the part of
any third party of Intellectual Property Rights used by LBA.
(v) LBA has taken all commercially
reasonable steps necessary (including, without limitation, entering into
confidentiality and non-disclosure agreements with all officers, employees and
consultants to LBA with access to or knowledge of Intellectual Property Rights)
to maintain the secrecy and confidentiality of, and its proprietary rights in,
all Intellectual Property Rights necessary or required for, or used in, the
conduct of the business of LBA as presently conducted. HVI has provided HCIA
with a true, correct and complete list of all applications, filings and other
formal actions made or taken pursuant to federal, state, local and foreign laws
by LBA material to the Business Condition of LBA to perfect or protect the
interests of LBA in Intellectual Property Rights, including, without limitation,
all patents, patent applications, trademarks, trademark applications, service
marks and copyright or mask work registrations material to the Business
Condition of LBA. As used in this Agreement, the term "Intellectual Property
Rights" shall mean all industrial and intellectual property rights, including,
without limitation, patents, patent applications, patent rights, mask work
rights, trademarks, trademark applications, trade names, service marks, service
mark applications, copyrights, copyright applications, franchises, licenses,
know-how, trade secrets, proprietary processes and formulae, all source and
object code, compilations (whether or not subject to copyright protection),
algorithms, inventions, development tools and all documentation and media
relating to the above.
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(q) Personnel, Powers of Attorney and Bank Accounts.
HVI has provided HCIA with lists of (i) the names of all employees of LBA,
including their position, date of hire, accrued vacation, wage or salary and
bonus, (ii) the names of all persons, if any, holding a power of attorney on
behalf of HVI or LBA, and (iii) the names and addresses of all banks and other
institutions (including brokerage firms and mutual funds) at which LBA has
accounts, deposits, cash balances or safety deposit boxes, including account and
identification numbers, the names of all persons authorized to draw on or give
instructions with respect to such accounts or deposits or to have access
thereto. All cash in such accounts is held in demand deposits and is not subject
to any restriction or limitation as to withdrawal.
(r) Employees. Except as set forth in the Seller
Disclosure Schedule, no officer or key employee of LBA provided notice of
intention to terminate his or her employment with, or terminated his or her
employment with LBA since December 31, 1994. No current officer or key employee
of LBA has given notice to LBA of his or her intention to terminate his or her
employment with LBA. No employee of LBA is subject to any secrecy or
noncompetition agreement or any agreement or restriction of any kind that would
impede in any way the ability of such employee to carry out fully all activities
of such employee in furtherance of the business of LBA as currently operated
after the Effective Time of the Merger. No third party has claimed in writing
that any person employed by or affiliated with LBA has violated or may be
violating any of the terms or conditions of his past employment, non-competition
or non-disclosure agreement with such third party, or disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees.
(s) Insurance. HVI has provided HCIA with a true and
complete list and description of all policies of insurance maintained by LBA
since December 31, 1994. Such insurance or comparable insurance will be
maintained in full force and effect to and including the Effective Time of the
Merger. All premiums for such policies have been paid in full and no notice of
cancellation or termination has been received. The HVI Disclosure Schedule
contains a true, correct and complete list of any claims made against such
insurance policies since December 31, 1994. All of the insurable properties of
LBA are insured in amounts and coverages and against risks and losses which are
usually insured against by persons holding and operating similar assets,
businesses or properties. LBA has not been denied or refused any insurance since
December 31, 1994.
(t) Disclosure. No representation or warranty made by
HVI in this Agreement, nor any application, document, written information,
statement, financial statement, certificate, schedule or exhibit prepared and
furnished or to be prepared and furnished by HVI or its representatives pursuant
hereto or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading in light of the circumstances under which they were
furnished.
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(u) No Indemnification Liabilities. Seller has no
knowledge of any existing liabilities that require LBA to indemnify any officer,
director, employee or agent of LBA for acts or omissions by such persons acting
on behalf of LBA or existing agreements to provide indemnification for such
liabilities. There are no pending or, to the knowledge of HVI, threatened claims
against any director, officer, employee or agent of LBA or any other person
which could give rise to any claim for indemnification from or against LBA.
(v) Corporate Records. The minute books of HVI and
LBA, copies of which have been provided to HCIA, are accurate and complete in
all material respects and reflect (i) all material resolutions adopted and all
other actions authorized or ratified by the directors or stockholders of each of
HVI and LBA, and (ii) all actions by the directors, stockholders or employees of
HVI and LBA with respect to the capital stock of HVI and LBA and options,
warrants and other rights to purchase capital stock of HVI and LBA. HVI has
previously delivered to HCIA true and complete copies of the Organizational
Documents of each of HVI and LBA, all as currently in effect.
(w) Accounting Matters. Neither HVI nor LBA, nor, to
the knowledge of HVI, any director, officer, agent, employee, consultant or
other person associated with or acting on behalf of HVI or LBA, has on behalf of
HVI or LBA or in connection with the business of HVI or LBA (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity or (b) made any direct or
indirect unlawful payments to government officials or others from corporate
funds or established or maintained any unlawful or unrecorded funds.
(x) Environmental Laws. Neither the business nor
operation of HVI or LBA nor any of their respective assets are or have been
operated or currently used in a manner which violates or violated any applicable
law of any governmental authority regarding usage, storage or disposal of any
toxic or hazardous waste, chemical or other material (herein "Environmental
Laws") and no condition or event has occurred which, with notice or the passage
of time or both, would constitute a violation of any such Environmental Laws.
Neither HVI nor LBA nor any of their respective operations is the subject of any
litigation or proceeding before a governmental authority involving a demand for
damages or other potential liability with respect to violations of Environmental
Laws. Neither HVI nor LBA has buried, dumped, disposed, spilled or released any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
on, beneath or about the real property used by HVI or LBA or any property
adjacent thereto in violation of any Environmental Laws.
(y) Assets Sufficient for Conduct of Business. The
tangible assets of LBA described in the LBA Statements constitute all of the
assets and properties historically required for the operation of LBA's business.
(z) Brokers. Except as set forth on the HVI
Disclosure Schedule, neither HVI nor LBA has used or consulted with any broker,
investment banker or finder in connection with this Agreement and neither LBA
nor HCIA has or shall have any liability or otherwise suffer or incur any loss
as a result of or in connection with any brokerage, investment
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banker's or finder's fee or other commission of any person retained, or
purported to be retained, by or on behalf of HVI or LBA, or any of HVI's
stockholders, in connection with any of the transactions contemplated by this
Agreement.
4.2 Representations and Warranties of HCIA. HCIA hereby
represents and warrants to HVI as follows:
(a) Organization, Standing and Power. The
Subsidiaries of HCIA are Sub and those companies listed as subsidiaries in the
HCIA Commission Reports (as that term is defined hereinbelow) (the "HCIA
Companies"). Each of the HCIA Companies is a corporation validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
requisite corporate power and corporate authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction where the
nature of the properties owned, leased or operated by it or the business
transacted by it requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect on the HCIA Companies, taken
as a whole. HCIA has delivered (or will deliver, in the case of resolutions not
yet adopted) to HVI complete and correct copies of resolutions of the Boards of
Directors and stockholders of HCIA, if any, and Sub adopted in connection with
the transactions contemplated by this Agreement, all of which remain in full
force and effect, except to the extent modified by subsequently delivered
resolutions.
(b) Authority. HCIA and Sub each have all requisite
power and authority to enter into this Agreement. HCIA and Sub have all
requisite power and authority to consummate the transactions contemplated
hereby and thereby. The execution and delivery by HCIA and Sub of this
Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of
HCIA and Sub. This Agreement has been duly executed and delivered by HCIA
and Sub and constitutes a valid and binding obligation of HCIA and Sub
enforceable in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability
of equitable remedies is subject to the discretion of the court before
which any proceeding therefor may be brought. 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 of, or
constitute a 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 to loss of a material benefit under (i) any provision of the
Organizational Documents of the HCIA Companies or (ii) any loan or credit
agreement, note, mortgage, indenture, lease, or other contract, agreement,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the HCIA Companies or
their respective properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to HCIA or Sub in connection with the
execution and delivery of this Agreement or the consummation by HCIA and Sub of
the transactions contemplated hereby, except for the (i) filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
(ii) a Pre-Merger Notification pursuant to the H-S-R Act.
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(c) Capital Structure.
(i) As of the date hereof, the authorized
capital stock of HCIA consists of 15,500,000 shares of capital stock, consisting
of 15,000,000 shares of HCIA Stock, and 500,000 shares of preferred stock, $.01
par value. As of the date hereof, there were (x) 9,274,387 shares of HCIA Common
Stock issued and outstanding and no shares of preferred stock issued and
outstanding and (y) 1,002,873 shares of HCIA Stock reserved for issuance under
HCIA's 1994 Stock and Incentive Plan, 1995 Non-Employee Directors Stock Option
Plan and outstanding non-plan stock options. All shares of HCIA Stock
outstanding as of the date hereof are duly authorized, validly issued, fully
paid, nonassessable and free of pre-emptive rights. The shares of HCIA Stock to
be issued in the Merger will be validly issued, fully paid, nonassessable, free
of pre-emptive rights, and free and clear of any security interests, claims,
liens, pledges, options, encumbrances, charges, agreements, voting trusts,
proxies or other arrangements, restrictions or other legal or equitable
limitations of any kind, except as may otherwise be set forth in the
Registration Rights Agreement.
(ii) The authorized capital stock of Sub
consists of 100,000 shares of common stock, $.01 par value per share, of which
1,000 shares are issued and outstanding.
(iii) HCIA is the record and/or beneficial
owner of all of the issued and outstanding shares of capital stock of each of
its Subsidiaries and no other person has any interests, inchoate, or otherwise,
in such shares or in the ownership of any of HCIA's Subsidiaries. Each
repurchase of capital stock by any of the HCIA Companies has been effected in
compliance with applicable provisions of law and such Company's Organizational
Documents and such Company has paid for such capital stock in full satisfaction
of any obligations in connection with such repurchase.
(d) HCIA Commission Reports. HCIA has made, or will
make, available to HVI (i) HCIA's Annual Report on Form 10-K for the year ended
December 31, 1995, including all exhibits thereto and items incorporated therein
by reference, (ii) HCIA's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996, including all exhibits thereto and items
incorporated therein by reference, (iii) the proxy statement relating to HCIA's
Annual Meeting of Stockholders to be held on August 7, 1996 and (iv) HCIA's
Prospectus dated as of April 30, 1996 (items (i) through (iv) in this sentence
being referred to collectively as the "HCIA Commission Reports"). As of their
respective dates, the HCIA Commission Reports did not or will not 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, in light of
the circumstances under which they were made, not misleading. Since December 31,
1995, HCIA has filed all forms, reports and documents with the Commission
required to be filed by it pursuant to the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder, each of which complied as
to form, at the time such form, document or report was filed, in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act and the applicable rules and regulations promulgated thereunder.
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(e) Financial Statements. HCIA has delivered HVI with
true, correct and complete copies of the HCIA Statements. The HCIA Statements
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods presented, and fairly present the
consolidated results of operations of HCIA and its Subsidiaries as of the dates
thereof and the consolidated cash flows for the periods then ended (except that
the HCIA Unaudited Statements do not include footnotes as required by generally
accepted accounting principles).
(f) No Violations. The business of each of the HCIA
Companies has been conducted and is being conducted in compliance in all
material respects with all applicable laws, rules, regulations, judgments,
decrees and orders of any Governmental Entity applicable to such business. There
are no judgments or outstanding orders, injunctions, decrees, stipulations or
awards (whether rendered by a court or administrative agency or by arbitration)
against any of the HCIA Companies or against any of their respective assets,
businesses or properties.
(g) No Defaults. None of the HCIA Companies is in
default or violation, and no event has occurred which would place any of the
HCIA Companies in default or violation with the passage of time, of any term,
condition or provision of (i) their Organizational Documents; (ii) any judgment,
decree or order applicable to any HCIA Company; or (iii) any mortgage, note,
indenture, contract, agreement, lease or other instrument or commitment to which
any HCIA Company is now a party or by which any HCIA Company or any of its
respective properties may be bound.
(h) Litigation. Except as set forth in the HVI
Disclosure Schedule, there is no action, suit or proceeding pending or
threatened, against any HCIA Company, or involving any of their respective
assets, businesses or properties, or which in any manner challenges or seeks to
prevent, enjoin, alter or delay any of the transactions contemplated hereby, and
there are no facts or circumstances which would give rise to any of the
foregoing. There is no investigation pending or threatened against any of the
HCIA Companies or any of their respective officers or directors, before any
federal, state, municipal or other governmental department, commission, board,
bureau, agency, instrumentality or other Governmental Entity.
(i) Absence of Certain Changes. Since December 31,
1995 and except as disclosed in its Commission Reports, there has not occurred:
(i) any material adverse change in the Business Condition of HCIA and its
Subsidiaries, taken as a whole; (ii) any amendments or changes to the Articles
of Incorporation of HCIA (except for the proposed increase to the number of
authorized shares of HCIA Stock from 15,000,000 shares to 50,000,000 shares); or
(iii) any redemption, repurchase, or other acquisition of shares of capital
stock of HCIA by HCIA.
(j) Disclosure. No representation or warranty made by
HCIA in this Agreement, nor any application, document, written information,
statement, financial statement, certificate, schedule or exhibit prepared and
furnished or to be prepared and furnished by HCIA or its representatives
pursuant hereto or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a
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material fact necessary to make the statements or facts contained herein or
therein not misleading in light of the circumstances under which they were
furnished.
(k) Brokers. Neither HVI nor LBA nor any officer,
director, employee or stockholder of HVI or LBA has or shall have any liability
or otherwise suffer or incur any loss as a result of or in connection with any
brokerage, investment banker's or finder's fee or other commission of any person
retained, or purported to be retained, by or on behalf of any of the HCIA
Companies in connection with any of the transactions contemplated by this
Agreement.
Section 5. Covenants of HVI.
During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time of the Merger, HVI agrees (except as expressly contemplated by
this Agreement or to the extent that HCIA shall otherwise consent in writing,
which consent shall not be unreasonably withheld) that, except as contemplated
by the Distribution Agreement:
5.1 Conduct of Business. HVI and LBA shall each carry on its
business only in the normal and ordinary course in substantially the same manner
as heretofore conducted and use its best efforts consistent with past practice
and policies to preserve intact its present business organizations, retain the
services of its present officers and key employees and preserve the goodwill of
its customers, suppliers, dealers, distributors and others having business
dealings with them, with a view to preserving their goodwill and ongoing
businesses without material impairment at the Effective Time of the Merger. HVI
shall promptly notify HCIA of any event or occurrence or emergency not in the
ordinary course of business of HVI or LBA that is material or adverse to the
Business Condition of LBA. HVI shall not permit LBA to, without the prior
written consent of HCIA:
(i) hire any management personnel or terminate any
employee;
(ii) change the salary, compensation or benefit
amounts of any officer, or, except in accordance with past practices, change the
salary, compensation or benefit of any other employee or agent;
(iii) grant any severance or termination pay to any
officer or director or employee;
(iv) transfer to any person or entity any rights to
Intellectual Property Rights, or enter into any agreement providing for either a
license of Intellectual Property Rights or a new material business relationship;
(v) enter into any commitment or transaction (A)
involving an amount in excess of $75,000, or (B) not in the ordinary course of
business;
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(vi) violate, amend or otherwise change in any
material way the terms of any of the LBA Contracts;
(vii) enter into or amend any agreements pursuant to
which any other party is granted marketing, distribution or manufacturing rights
of any type or scope with respect to any of LBA's products; or
(viii) commence a lawsuit other than: (a) for the
routine collection of bills; (b) for injunctive relief on the grounds that LBA
has suffered immediate and irreparable harm not compensable in money damages,
provided that HVI has obtained the prior written consent of HCIA, which consent
shall not be unreasonably withheld; or (c) for a breach of this Agreement.
5.2 Dividends; Changes in Stock. Except as expressly
contemplated by this Agreement or the Distribution Agreement, or to the extent
HCIA shall otherwise consent in writing, neither HVI nor LBA shall (i) declare
or pay any dividends on or make other distributions (whether in cash, stock or
property) in respect to any of its capital stock, (ii) 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
capital stock or (iii) repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock.
5.3 Issuance of Securities. Except for the issuance of
additional shares of HVI 7% Stock or as expressly contemplated by this Agreement
or the Distribution Agreement, neither HVI nor LBA shall issue, deliver or sell,
or authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities.
5.4 Organizational Documents. Except as expressly contemplated
by this Agreement or the Distribution Agreement, neither HVI nor LBA shall amend
its Organizational Documents without the prior consent of HCIA, which consent
shall not unreasonably be withheld.
5.5 Exclusivity; Acquisition Proposals. Unless and until this
Agreement shall have been terminated by either party pursuant to Section 9.1
hereof, neither HVI nor LBA shall (nor will HVI or LBA permit any of its
officers, directors, agents, representatives or affiliates to) directly or
indirectly take any of the following actions with any party other than HCIA, Sub
and their respective designees: (i) solicit, encourage, initiate or participate
in any negotiations, inquiries or discussions with respect to any offer or
proposal to acquire, either directly or by acquiring the capital stock of HVI,
all or substantially all of LBA's business and properties or capital stock,
whether by merger, purchase of assets, tender offer or otherwise; (ii) enter
into or execute any agreement or plan of reorganization, merger agreement or
other agreement calling for the sale, either directly or by acquiring the
capital stock of HVI, of all or substantially all of LBA's business and
properties; (iii) make or authorize any public statement, recommendation or
solicitation with respect to any merger, purchase of assets or any offer or
proposal relating to the foregoing other than with respect to the Merger; or
(iv) assist or cooperate with any person to
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make any proposal to purchase, either directly or by acquiring the capital stock
of HVI, all or any part of the capital stock or assets of LBA, other than
inventory or other assets in the ordinary course of business.
5.6 No Acquisitions. Neither HVI nor LBA shall 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 corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets, except for
acquisitions of inventory and other supplies in the ordinary course of business
consistent with past practices; provided, however, that this provision shall not
be deemed to prohibit any act if, after the Closing, the liability for such act
shall be assigned to Spinco as part of the Distribution Agreement and neither
HVI, LBA nor HCIA shall have any liability or responsibility therefor.
5.7 No Dispositions. Neither HVI nor LBA shall sell, lease,
license or otherwise dispose of any of its assets, except the sale of inventory
in the ordinary course of business consistent with prior practice; provided,
however, that this provision shall not be deemed to prohibit any act if, after
the Closing, the liability for such act shall be assigned to Spinco as part of
the Distribution Agreement and neither HVI, LBA nor HCIA shall have any
liability or responsibility therefor.
5.8 Indebtedness; Other Liabilities. Neither HVI nor LBA shall
incur any indebtedness for borrowed money, or guarantee any such indebtedness or
issue or sell any debt securities or guarantee any debt securities of others or
pay, discharge or satisfy any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business, and consistent
with past practices, of liabilities reflected or reserved against in the HVI
Unaudited Statements and LBA Unaudited Statements, or except as contemplated by
this Agreement; provided, however, that (i) this provision shall not be deemed
to prohibit any act if, after the Closing, the liability for such act shall be
assigned to Spinco as part of the Distribution Agreement and neither HVI, LBA
nor HCIA shall have any liability or responsibility therefor and (ii) LBA shall
be entitled to repay LBA Indebtedness provided that on the Closing Date LBA
shall have cash on hand of not less than $700,000.
5.9 No Revaluation. LBA shall not revalue any of its assets as
recorded on the LBA Unaudited Statements, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business.
5.10 Plans. LBA shall not adopt or amend any of its Plans. LBA
shall not enter into any employment contracts or pay any special bonuses or
special remuneration to any officers, directors or employees or increase the
salaries or wage rates of its employees.
5.11 Breach of Representations and Warranties. Neither HVI nor
LBA will take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Section 4.1 or which would cause any
of such representations and warranties to be inaccurate, it being understood
that HVI and LBA may continue to operate their respective
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business in the ordinary course consistent with the other covenants contained in
this Section 5. In the event of, and promptly after becoming aware of, the
occurrence of or the pending or threatened occurrence of any event which would
cause or constitute such a breach or inaccuracy, HVI will give reasonably
detailed notice thereof to HCIA.
5.12 Consents. After execution of this Agreement, each of HVI
and LBA will promptly apply for or otherwise seek, and use commercially
reasonable efforts to obtain, all consents and approvals required with respect
to the HVI Companies for the consummation of the Merger, except such consents
and approvals as HCIA and HVI agree in writing that HVI and LBA shall not seek
to obtain.
5.13 Commercially Reasonable Efforts. HVI and LBA will use
their commercially reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
Closing under this Agreement.
5.14 Taxes. Without the prior written consent of HCIA, neither
HVI nor LBA shall make or change any election, change any annual accounting
period, adopt or change any accounting method, file any amended Return, enter
into any closing agreement, settle any Tax claim or assessment relating to HVI
or LBA, surrender any right to claim refund of Taxes, or consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to HVI or LBA, if any such election, adoption, change,
amendment, agreement, settlement, surrender, or consent would have the effect of
causing or increasing a Tax liability of HVI or LBA that would have an adverse
effect on HVI or LBA. HVI and LBA shall prepare and timely file any Returns and
amendments thereto required to be filed by HVI and LBA and shall pay all taxes
when due on or before the Closing Date. HCIA shall have a reasonable opportunity
to review such Returns and amendments thereto. Each of HVI and LBA shall pay or
discharge or cause to be paid and discharged all Taxes upon or against it or any
of its properties or assets before the same shall become delinquent and before
penalties accrue thereon. Between the date of this Agreement and the Closing
Date, HVI shall give HCIA and its authorized representatives full access to all
properties, books, records and Returns of or relating to HVI and LBA in order
that HCIA may have full opportunity to make such investigations as it shall
desire to make of the affairs and Tax situation of HVI and LBA, provided that
such access and investigations shall occur during normal business hours and
shall not unreasonably interfere with the normal business operations of HVI and
LBA.
5.15 Access to Information. HVI and LBA will cooperate fully
with HCIA in its investigation of HVI and LBA and will disclose in good faith to
HCIA all material facts regarding the business and affairs of HVI and LBA
requested by HCIA. HVI and LBA will afford to the officers, independent
accountants, counsel and other representatives of HCIA reasonable access to the
properties, books, records and personnel of HVI and LBA in order that HCIA may
have a full opportunity to make such investigation as it needs to make of HVI
and LBA solely for purposes of this transaction.
5.16 Stockholder Approval. HVI shall submit the following for
the approval of the holders of HVI Capital Stock on or prior to August 9, 1996:
(i) approval of the Merger; (ii)
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appointment of the Stockholders' Agent; and (iii) approval of the payments of
the LBA Bonus Payments, such approval to be obtained in accordance with the
requirements of Section 280G of the Internal Revenue Code and the rules and
regulations promulgated thereunder.
5.17 Distribution Agreement. Prior to the Closing Date, HVI
shall, and shall cause Spinco to, duly execute and deliver the Distribution
Agreement. HVI shall perform all of its obligations under the Distribution
Agreement which are to be performed by it prior to the Effective Time of the
Merger and HVI shall cause Spinco to perform all of its obligations under the
Distribution Agreement which are to be performed prior to the Effective Time of
the Merger. HVI covenants that the Distribution Agreement will not be amended,
waived, terminated or otherwise modified prior to the Effective Time of the
Merger without the prior written consent of HCIA.
Section 6. Covenants of HCIA.
During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time of the Merger, HCIA agrees (except as expressly contemplated by
this Agreement or to the extent that HVI shall otherwise consent in writing,
which consent shall not be unreasonably withheld) that:
6.1 Breach of Representations and Warranties. HCIA will not
take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Section 4.2 or which would cause any
of such representations and warranties to be inaccurate. In the event of, and
promptly after becoming aware of, the occurrence of or the pending or threatened
occurrence of any event which would cause or constitute such a breach or
inaccuracy, HCIA will give reasonably detailed notice thereof to HVI.
6.2 Consents. After execution of this Agreement, HCIA will
promptly apply for or otherwise seek, and use all commercially reasonable best
efforts to obtain, all material consents and approvals required with respect to
HCIA for the consummation of the Merger, except such consents and approvals as
HCIA and HVI agree HCIA will not seek to obtain.
6.3 Commercially Reasonable Efforts. HCIA will use
commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement.
Section 7. Additional Agreements.
In addition to the foregoing, HCIA and HVI each agree to take
the following actions after the execution of this Agreement:
7.1 Legal Conditions to the Merger. Each of HVI and LBA will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on HVI or LBA with respect to the Merger and
will promptly cooperate with and furnish information to HCIA in connection with
any such requirements imposed upon HCIA, Sub
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or any other Subsidiary of HCIA in connection with the Merger. HVI and LBA will
take all reasonable actions to obtain (and to cooperate with HCIA and its
Subsidiaries in obtaining) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity or other third party (except any
consent, authorization or approval which HCIA and HVI agree HVI shall not seek
to obtain) required to be obtained or made by HVI or LBA (or by HCIA or any of
its Subsidiaries) in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement or the Certificate of Merger.
Each of HCIA and Sub will take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the Merger and will promptly cooperate with and furnish
information to HVI in connection with any such requirements imposed upon HVI and
its Subsidiaries in connection with the Merger. HCIA and Sub will take all
reasonable actions to obtain (and to cooperate with HVI and LBA in obtaining)
any consent, authorization, order or approval of, or exemption by, any
Governmental Entity or other third party (except any consent, authorization or
approval which HCIA and HVI agree HCIA shall not seek to obtain) required to be
obtained or made by HCIA or any of its Subsidiaries (or by HVI or LBA) in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement or the Certificate of Merger.
7.2 Expenses. All costs and expenses incurred in connection
with this Agreement, the Certificate of Merger and the transactions contemplated
hereby and thereby, whether or not the Merger is effective, shall be paid by the
party incurring such expense. Pursuant to the Distribution Agreement, HVI shall
assign the liability for such costs and expenses to Spinco.
7.3 Additional Agreements. In case at any time after the
Effective Time of the Merger any further action is reasonably necessary to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each constituent corporation to this Agreement shall take all such
necessary action.
7.4 Assumption of Certain Liabilities by HCIA. Concurrently
with the Effective Time of the Merger, HCIA shall assume all Liabilities
represented by the LBA Bonus Payments (including the obligations to deliver
shares of HCIA Stock), and the LBA Indebtedness. Concurrently with the Effective
Time of the Merger, HCIA shall satisfy all Liabilities represented by the LBA
Indebtedness.
7.5 Payment of Third Party Expenses. On the Closing Date, HCIA
shall pay to Spinco, in cash, an amount equal to the Third Party Expenses, upon
receipt of a certification by Spinco of the amount thereof.
Section 8. Conditions Precedent.
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8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions unless waived in writing by both HVI and HCIA:
(a) No Injunction. No injunction or other order
entered by a state or federal court of competent jurisdiction shall have been
issued and remain in effect which would prohibit or make illegal the
consummation of the transactions contemplated hereby.
(b) No Prohibitive Change in Law. There shall have
been no law, statute, rule or regulation, domestic or foreign, enacted or
promulgated which would prohibit or make illegal the consummation of the
transactions contemplated hereby.
(c) Distribution Agreement Conditions. The conditions
precedent to the Distribution set forth in Section 3.3 of the Distribution
Agreement shall have been satisfied or waived.
(d) Stockholder and Board of Director Approval. This
Agreement and the Certificate of Merger shall have been approved and adopted by
the Board of Directors of HVI and holders of the HVI Capital Stock as required
by law and the Organizational Documents of HVI.
(e) Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation of
the transactions contemplated by this Agreement shall have been filed, occurred
or been obtained other than any such authorizations, consents, orders,
approvals, filings or waiting period expirations which, if not obtained or made,
would not have a Material Adverse Effect on the Business Conditions of the HCIA
Companies, taken as a whole, or of HVI or LBA.
(f) Pre-Merger Notification. The termination or
expiration of all waiting periods in connection with the filings made by or on
behalf of HCIA and HVI (and by any other person in connection with this
Agreement) with the Federal Trade Commission (the "FTC") and the United States
Department of Justice ("Justice") pursuant to the H-S-R Act and the regulations
promulgated thereunder, with no outstanding requests for additional information
or clarification to be supplied by either HCIA or HVI (or any other person
filing in connection with this Agreement) (provided that the parties agree to
use their best efforts to respond timely to all such requests) and no
outstanding notice of either the FTC or Justice indicating that further action
will be taken by either of them with respect to the transactions contemplated by
this Agreement.
8.2 Further Conditions to Obligations of HCIA. The obligations
of HCIA to effect the Merger are subject to the satisfaction of the following
conditions, unless waived by HCIA:
(a) Representations and Warranties. The
representations and warranties of HVI set forth in this Agreement shall be true
and correct in all material respects (other than
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such representations and warranties which are qualified by their terms by a
reference to materiality, which representations and warranties as so qualified
shall be true in all respects, and except to the extent such representations
refer to a specified date) as of the date of this Agreement and as of the
Closing Date as though made on and as of such dates except as set forth in the
HVI Disclosure Schedule, and HCIA shall have received a certificate signed on
behalf of HVI by an officer of HVI to such effect.
(b) Performance by HVI of Obligations. HVI shall have
performed in all material respects all obligations and covenants required to be
performed by it under this Agreement and the Certificate of Merger prior to the
Closing Date, and HCIA shall have received a certificate signed on behalf of HVI
by an officer of HVI to such effect.
(c) Opinion of HVI's Counsel. HCIA shall have
received an opinion dated as of the Closing Date of Dorsey & Whitney LLP,
counsel to HVI, substantially in the form attached hereto as Exhibit G.
(d) Certified Resolutions. HCIA shall have received a
certificate of the corporate secretary of HVI attesting to the adoption of
resolutions by the Board of Directors and holders of HVI Capital Stock approving
this Agreement, the Certificate of Merger and the transactions contemplated
hereby.
(e) Dissenting Stockholders. As of the Closing Date,
the number of Dissenting Shares shall not, taken together, exceed 10% of the
total number of issued and outstanding shares of HVI Capital Stock as of the
Closing Date.
(f) No Outstanding Options. There shall be no
outstanding options or other rights to purchase HVI Capital Stock and there
shall be no outstanding rights of any person to purchase or otherwise require
the issuance of any HVI Capital Stock.
(g) Non-Competition Agreements. The Non-Competition
Agreements shall have been duly executed and delivered by the parties thereto
other than HCIA.
(h) Escrow Agreement. The Escrow Agreement shall have
been duly executed and delivered by the parties thereto other than HCIA.
(i) Resignations. Each of the officers and directors
of HVI and LBA shall have duly executed and delivered to HCIA a resignation
letter, in a form satisfactory to HCIA, resigning from each of his positions as
an officer or director of HVI and LBA immediately after the Effective Time of
the Merger.
(j) Registration Rights Agreement. Each of the
parties to the Registration Rights Agreement other than HCIA shall have duly
executed and delivered a counterpart of the Registration Rights Agreement.
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(k) Distribution Agreement. The Distribution shall
have been consummated.
8.3 Further Conditions of Obligation of HVI. The obligation of
HVI to effect the Merger is subject to the satisfaction of the following
conditions, unless waived by HVI:
(a) Representations and Warranties. The
representations and warranties of HCIA set forth in this Agreement shall be true
and correct in all material respects (other than such representations and
warranties which are qualified by their terms by a reference to materiality,
which representations and warranties as so qualified shall be true in all
respects, and except to the extent such representations refer to a specified
date) as of the date of this Agreement and as of the Closing Date as though made
on and as of such dates, prior to the Closing Date, and HVI shall have received
a certificate signed on behalf of HCIA by an officer of HCIA to such effect.
(b) Performance by HCIA and Sub of Obligations. HCIA
and Sub shall have performed in all material respects all obligations and
covenants required to be performed by them under this Agreement and the
Certificate of Merger prior to the Closing Date, and HVI shall have received a
certificate signed on behalf of HCIA by an officer of HCIA to such effect.
(c) Certified Resolutions. HVI shall have received a
certificate of the corporate secretary of HCIA and Sub attesting to the adoption
of resolutions by the Boards of Directors of HCIA and Sub, and of HCIA as sole
stockholder of Sub, approving this Agreement, the Certificate of Merger and the
transactions contemplated hereby.
(d) Opinion of HCIA's Counsel. HVI shall have
received an opinion dated the Closing Date of the Vice President and General
Counsel to HCIA, substantially in the form attached hereto as Exhibit H.
(e) Registration Rights Agreement. HCIA shall have
duly executed and delivered the Registration Rights Agreement.
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Section 9. Termination, Amendment and Waiver.
9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger to the holders of Seller Capital
Stock:
(a) by mutual consent of the Board of Directors of
HCIA and HVI;
(b) by either HCIA or HVI if there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of the other party set forth in this Agreement and
such breach has not been cured within thirty (30) days of written notice of such
material breach from the non-breaching party; or
(c) by HVI or HCIA if the Merger shall not have been
consummated before September 1, 1996, or such later date as the Board of
Directors of HVI and HCIA may mutually agree, for any reason other than matters
within the direct control of
such party.
Where action is taken to terminate this Agreement
pursuant to this Section 9.1, it shall be sufficient for such action to be
authorized by the Board of Directors of the party taking such action.
9.2 Effect of Termination. In the event of termination of this
Agreement by either the HVI or HCIA as provided in Section 9.1, this Agreement
and the Certificate of Merger shall forthwith become void and there shall be no
liability or obligation on the part of HCIA, Sub or HVI or their respective
officers or directors, except for liabilities arising out of any breach of any
representation, warranty, covenant or agreement contained in this Agreement.
9.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors and at any time
before or after approval of matters presented in connection with the Merger by
the holders of HVI Capital Stock, but after any such stockholder approval no
amendment shall be made which by law requires the further approval of holders of
HVI Capital Stock without obtaining such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time
of the Merger, any party hereto, by action taken by its Board of Directors, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing on behalf of
such party.
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Section 10. Survival of Representations; Indemnification.
10.1 Survival of Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements in this
Agreement shall survive the Merger for a period of one (1) year following the
Closing Date; provided, however, that the representation of HCIA in Section
4.2(c) shall survive indefinitely. No claim or action for breach of any
representation, warranty, covenant or agreement shall be asserted or maintained
by any party hereto after the expiration thereof pursuant to the preceding
sentence except for claims made in writing prior to such expiration or actions
(whether instituted before or after such expiration) based on any claim made in
writing prior to such expiration. In the event of a breach of any of such
representations, warranties, covenants or agreements, the party to whom such
representations, warranties, covenants or agreements have been made shall have
all rights and remedies for such breach available to it under the provisions of
this Agreement, the Distribution Agreement and the Escrow Agreement.
10.2 Indemnification of HCIA.
(a) Pursuant to the Escrow Agreement and subject to
the various requirements, provisions and limitations set forth in the Escrow
Agreement and this Agreement (including but not limited to Sections 10.2(b) and
10.2(c)), each of HVI and HCIA, and their respective directors, officers,
employees, affiliates, agents and stockholders (collectively, the "HCIA
Indemnitees") shall be indemnified and held harmless from and against any and
all losses, liabilities, costs and claims arising out of, based upon or
resulting from (x) any inaccuracy of any representation or warranty of HVI which
is contained in or made pursuant to this Agreement or (y) any breach by HVI or
LBA of any of their agreements, covenants or obligations contained in or made
pursuant to this Agreement.
(b) The HCIA Indemnitees shall not assert any claims
or bring any action under Section 10 of this Agreement or under the Escrow
Agreement until such time as the cumulative aggregate losses, liabilities, costs
and claims of the HCIA Indemnitees (including any and all fees and expenses of
any kind related thereto) exceed $500,000. If the aggregate amounts due to the
HCIA Indemnitees under this Section 10 exceed such threshold, then the HCIA
Indemnitees shall have the right to recover all amounts in excess of such
threshold. Notwithstanding anything contained in this Agreement to the contrary,
for purposes of computing the amount of cumulative aggregate claims for HCIA
Indemnitees subject to the threshold provided above, the amount of such claims
shall be reduced by an amount equal to the net reduction, if any, in the
liability for federal, state or local taxes, which reduction would not have been
realized but for the payment made by the Indemnitee for which indemnification is
sought hereunder.
(c) The parties agree, except as set forth in Section
10.2(d) hereinbelow, (i) that the remedies provided in Section 10.2 shall be the
sole and exclusive remedies which any HCIA Indemnitee shall have from and after
the Closing Date against HVI or any of HVI's directors, officers, employees,
affiliates, agents or stockholders for any breach of the representations,
warranties and covenants contained in this Agreement, and (ii) that the HCIA
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Stock placed into escrow under the Escrow Agreement shall be the sole and
exclusive source of funds from which claims by the HCIA Indemnitees may be
satisfied.
(d) Notwithstanding any other provision to the
contrary contained herein, the parties agree that nothing contained in this
Agreement, including the provisions of this Section 10, shall (i) limit the
potential remedies of the HCIA Indemnitees with respect to any intentional or
willful fraud, intentional or willful misrepresentation or intentional or
willful deceit committed by HVI, or any stockholder, director, officer, employee
or agent of HVI or (ii) limit the potential remedies of HVI arising from a
breach by Spinco of its agreements, covenants or obligations contained in or
made pursuant to the Distribution Agreement, except to the extent that any
claim, loss, liability or cost of HVI for which HVI is entitled to be
indemnified under the Distribution Agreement has been claimed as a loss,
liability or cost for indemnity by an HCIA Indemnitee under this Section 10.2.
10.3 Indemnification by HCIA. HCIA shall (i) indemnify and
hold harmless HVI and each of its directors, officers, employees, affiliates,
agents and stockholders as of the Closing Date (collectively, the "HVI
Indemnitees") from and against any and all losses, damages, liabilities, costs
and claims arising out of, based upon or resulting from (x) any inaccuracy of
any representation or warranty of HCIA or Sub which is contained in or made
pursuant to this Agreement or (y) any breach by HCIA or Sub of any of their
agreements, covenants or obligations contained in or made pursuant to this
Agreement and (ii) reimburse the HVI Indemnities for any and all fees and
expenses of any kind related thereto.
10.4 Procedure for Indemnification.
(a) If an HCIA Indemnitee or an HVI Indemnitee (an
"Indemnitee") shall receive notice or otherwise learn of the assertion by a
person (including any governmental entity) who is not party to this Agreement of
any claim or of the commencement by any such person of any action (a
"Third-Party Claim") with respect to which a person (an "Indemnifying Party") is
or may be obligated to provide indemnification pursuant to this Agreement, such
Indemnitee shall give such Indemnifying Party written notice thereof promptly
after becoming aware of such Third-Party Claim; provided, that the failure of
any Indemnitee to give notice as required by this Section 10.4 shall not relieve
the Indemnifying Party of its obligations under this Section 10, except to the
extent that such Indemnifying Party is prejudiced by such failure to give
notice. Such notice shall describe the Third-Party Claim in reasonable detail,
and shall indicate the amount (estimated if necessary) of the indemnifiable loss
that has been or may be sustained by such indemnitee.
(b) An Indemnifying Party may elect to defend or to seek
to settle or compromise, at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third-Party Claim, provided that the
Indemnifying Party must confirm in writing that it agrees that the
Indemnitee is entitled to indemnification hereunder in respect of such
Third-Party Claim. Within 30 days of the receipt of notice from an Indemnitee in
accordance with Section 10.4(a) (or sooner, if the nature of such Third-
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Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of
its election whether to assume responsibility for such Third-Party Claim
(provided that if the Indemnifying Party does not so notify the Indemnitee of
its election within 30 days after receipt of such notice from the Indemnitee,
the Indemnifying Party shall be deemed to have elected not to assume
responsibility for such Third-Party Claim). After notice from an Indemnifying
Party to an Indemnitee of its election to assume responsibility for a Third
Party Claim, such Indemnifying Party shall not be liable to such Indemnitee
under this Section 10 for any legal or other expenses (except expenses approved
in advance by the Indemnifying Party) subsequently incurred by such Indemnitee
in connection with the defense thereof; provided, that if the defendants in any
such claim include both the Indemnifying Party and one or more Indemnitees and
in such Indemnitees' reasonable judgment a conflict of interest between such
Indemnitees and such Indemnifying Party exists in respect of such claim, such
Indemnitees shall have the right to employ separate counsel and in that event
the reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 10.2 or Section 10.3, as the case may be) such Indemnitee may defend or
(subject to the following sentence) seek to compromise or settle such
Third-Party Claim. Notwithstanding the foregoing, an Indemnitee may not settle
or compromise any claim without prior written notice to the Indemnifying Party,
which shall have the option within ten days following the receipt of such notice
(i) to disapprove the settlement and assume all past and future responsibility
for the claim, including reimbursing the Indemnitee for prior expenditures in
connection with the claim, (ii) to disapprove the settlement and continue to
refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnitee elects to proceed therewith,
(iii) to approve the amount of the settlement, reserving the Indemnifying
Party's right to contest the Indemnitee's right to indemnity, or (iv) to approve
and agree to pay the settlement. In the event the Indemnifying Party makes no
response to such written notice from the Indemnitee, the Indemnifying Party
shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to
seek to compromise any Third-Party Claim, the Indemnitee shall cooperate in the
defense or settlement or compromise of such Third-Party Claim and the Indemnitee
shall make available to such Indemnifying Party any personnel and any books,
records or other documents within its control or which it otherwise has the
ability to make available that are necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section
10.4 to the contrary, an Indemnifying Party shall not settle or compromise any
Third-Party Claim without the prior written consent of the Indemnitee who is
subject to such Third-Party Claim unless such settlement or compromise
contemplates as an unconditional term thereof the giving by such claimant or
plaintiff to the Indemnitee of a written release from all liability in respect
of such Third-Party Claim (and provided further that such settlement may not
provide for any non-monetary relief by Indemnitee without the written consent of
the Indemnitee). In the event the Indemnitee shall notify the Indemnifying Party
in writing that such Indemnitee declines to accept any such settlement or
compromise that contains an unconditional release of the Indemnitee, such
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Indemnitee may continue to contest such Third-Party Claim, free of any
participation by such Indemnifying Party, at such Indemnitee's sole expense. In
such event, the obligation of such Indemnifying Party to such Indemnitee with
respect to such Third-Party claim shall be equal to (i) the costs and expenses
of such Indemnitee prior to the date such Indemnifying Party notifies such
Indemnitee of the offer to settle or compromise (to the extent such costs and
expenses are otherwise indemnifiable hereunder) plus (ii) the lesser of (A) the
amount of any offer of settlement or compromise which such Indemnitee declined
to accept and (B) the actual out-of-pocket amount such Indemnitee is obligated
to pay subsequent to such date as a result of such Indemnitee's continuing to
pursue such Third-Party Claim.
(e) Any claim on account of an indemnifiable loss
which does not result from a Third-Party Claim shall be asserted by written
notice given by the Indemnitee to the applicable Indemnifying Party. Such
Indemnifying Party shall have a period of 15 days after the receipt of such
notice within which to respond thereto. If such Indemnifying Party does not
respond within such 15-day period, such Indemnifying Party shall be deemed to
have refused to accept responsibility to make payment. If such Indemnifying
Party does not respond within such 15-day period or rejects such claim in whole
or in part, such Indemnitee shall be free to pursue such remedies as may be
available to such party under applicable law or under this Agreement.
(f) If the amount of any indemnifiable loss shall, at
any time subsequent to the payment required by this Agreement, be reduced by
recovery, settlement or otherwise, the amount of such reduction, less any
expenses incurred in connection therewith, shall promptly be repaid by the
Indemnitee to the Indemnifying Party.
(g) In the event of payment by an Indemnifying Party
to any Indemnitee in connection with any Third-Party Claim, such Indemnifying
Party shall be subrogated to and shall stand in the place of such Indemnitee as
to any events or circumstances in respect of which such Indemnitee may have any
right or claim relating to such Third-Party Claim against any claimant or
plaintiff asserting such Third-Party Claim. Such Indemnitee shall cooperate with
such Indemnifying Party in a reasonable manner, and at the cost and expense of
such Indemnifying Party, in prosecuting any subrogated right or claim.
Section 11. General Provisions.
11.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of receipt or, if
mailed by registered or certified mail (return receipt requested), three days
after such mailing to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
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(a) if to HCIA or Sub, to:
HCIA Inc.
300 East Lombard Street
Baltimore, Maryland 21202
Attention: Vice President and General Counsel
Facsimile No.: (410) 752-4159
with a copy to:
Whiteford, Taylor & Preston L.L.P.
Seven Saint Paul Street
Baltimore, Maryland 21202
Attention: D. Scott Freed, Esquire
Facsimile No.: (410) 347-9414
(b) if to the HVI, to:
HealthVISION, Inc.
141 Stony Circle, Suite 150
Santa Rosa, California 95401
Attention: President
Facsimile No.: (707) 528-4500
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Attention: David J. Lubben, Esquire
Facsimile No.: (612) 340-8738
11.2 Interpretation. When a reference is made in this
Agreement to Sections or Exhibits, such reference shall be to a Section of or
Exhibit to this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.3 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 party, it being understood that
all parties need not sign the same counterpart.
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11.4 Integration. This Agreement and the Exhibits and
Schedules hereto, and the Confidentiality Agreement previously executed between
HVI and HCIA, (a) constitute the entire agreement among the parties with respect
to the subject matter hereof and the agreements contemplated hereby, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) except for
indemnities provided in Section 10 hereinabove, are not intended to confer upon
any other person any rights or remedies hereunder; and (c) shall be binding upon
and inure to the benefit of the parties hereto and shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
11.5 Governing Law. Except as otherwise specifically provided
in this Agreement, this Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of New York,
without regard to conflict of law principles, as such laws are applied to
contracts entered into and to be performed entirely in New York by New York
residents.
11.6 No Third-Party Beneficiaries.No Third-Party Beneficiaries
Except for the indemnities provided in Section 10 hereinabove, nothing contained
in this Agreement shall be construed to give any person other than HCIA, HVI and
Sub any legal or equitable right, remedy or claim under or with respect to this
Agreement.
11.7 SUBMISSION TO JURISDICTION. THE PARTIES HERETO HEREBY
AGREE THAT ANY ACTION TO ENFORCE ANY CLAIM ARISING OUT OF THIS AGREEMENT SHALL
BE BROUGHT IN A FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND LOCATED IN
THE STATE OF MARYLAND. HVI AND THE STOCKHOLDERS OF HVI FURTHER IRREVOCABLY
CONSENT TO THE SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF,
BY REGISTERED MAIL, POSTAGE PREPAID TO IT AT THE APPROPRIATE ADDRESS SET FORTH
IN SECTION 10.2 AND AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY
LAW, (A) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT
IN ANY SUCH SUIT, ACTION OR PROCEEDING AND (B) SHALL BE TAKEN AND HELD TO BE
VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO IT. NOTHING HEREIN
CONTAINED SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVICE OF PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. HVI AND THE STOCKHOLDERS OF HVI HEREBY WAIVE,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR
HEREAFTER MAY HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY FEDERAL COURT LOCATED IN THE STATE OF MARYLAND AND ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
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11.8 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. No party hereto may assign its rights
hereunder to another person without the consent of the other party.
11.9 Severability. Any provision of this Agreement which is
determined to be invalid or unenforceable will be ineffective to the extent of
such determination without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such remaining
provisions.
11.10 Cumulative Rights. Except as expressly limited
hereunder, the rights, powers and remedies of each party hereunder shall be in
addition to, and not in limitation of, all rights, powers and remedies provided
by law or in equity, or under any other agreement between the parties. All of
such rights, powers and remedies shall be cumulative, and may be exercised
successively or concurrently.
11.11 Publicity and Notice. No press release or announcement
concerning the transactions contemplated by this Agreement shall be issued by
any party hereto without the prior consent of the other party, such consent not
to be unreasonably withheld or delayed; except for such release or announcement
as the party issuing the release or announcement may, in the exercise of its
reasonable judgment, determine to be required by law, rule or regulation. It is
acknowledged by the parties hereto that HCIA intends to announce the execution
of this Agreement as of the date hereof or shortly thereafter, and shall also
announce the Closing on the date thereof or shortly thereafter.
[Signatures on next page]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement and
Plan of Reorganization under seal as of the date first above written.
WITNESS: HCIA INC.
By:/s/ George D. Pillari (SEAL)
George D. Pillari
Chairman & CEO
HCIA SUB INC.
By: /s/ George D. Pillari (SEAL)
George D. Pillari
President
HEALTHVISION, INC.
By: /s/ Robert Hawkins (SEAL)
Robert Hawkins
Chairman
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EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Form of Distribution Agreement
Exhibit C Form of Escrow Agreement
Exhibit D Form of Non-Competition Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F HVI Disclosure Schedule
Exhibit G Form of Legal Opinion of Dorsey & Whitney, LLP
Exhibit H Form of Legal Opinion of HCIA Vice President and General Counsel
EXHIBIT 99
Contact: HCIA Inc.
Ms. Jean Chenoweth
(410) 895-7515
PRESS RELEASE
HCIA SIGNS DEFINITIVE AGREEMENT TO ACQUIRE
LBA HEALTH CARE MANAGEMENT FOR $130 MILLION
Baltimore, July 22, 1996 -- HCIA Inc. (NASDAQ:HCIA) today announced that is has
executed a definitive agreement to acquire LBA Health Care Management, Inc., a
subsidiary of HealthVISION, INC., for $130 million. LBA is a health care
information company that develops and markets information products that analyze
and benchmark detailed clinical outcomes and labor productivity. Based in
Denver, LBA's primary customers include hospitals and integrated delivery
systems. LBA employs 162 staff and had revenues of approximately $7.4 million
for the three months ended March 31, 1996.
HCIA plans to use its ICCS (trademark symbol) system to integrate the detailed
clinical data collected by LBA from approximately 250 hospital-customers,
resulting in a significant expansion of HCIA's ICCS-level data bases.
Additionally, LBA, through its well-regarded clinical implementation staff,
has developed methodologies for modifying clinical practice behavior and
quantifying the resultant cost savings and quality-of-care improvements.
In order to acquire LBA, HCIA will acquire all of the capital stock of
HealthVISION. Prior to the closing of the acquisition the business of
HealthVISION not associated with LBA will be transfered to a newly
formed corporation whose shares will be held by certain current stockholders
of HealthVISION. The purchase price for the acquisition is approximately
$130 million (which includes the payment of certain liabilities), of
which $100 million is payable in cash and $30 million is payable through
the delivery of 492,960 shares of common stock of HCIA. The transaction has
received federal regulatory clearance and is expected to be completed by
mid-August, subject to the approval of HealthVISION's stockholders.
Stockholders representing in excess of a majority of HealthVISION's voting
shares outstanding have agreed to vote in favor of the transaction.
The acquisition will be accounted for as a purchase transaction. HCIA expects to
record a non-recurring charge of approximately $41.2 million in the quarter
ending September 30, 1996 relating to the acquisition of in-process research and
development. HCIA has obtained a bank commitment to fund the cash portion of
the acquisition and plans to file a registration statement with the Securities
and Exchange Commission to register the sale of approximately 2,000,000 shares
of HCIA common stock by HCIA and approximately 217,000 shares of HCIA common
stock by certain stockholders of HealthVISION. HCIA intends to utilize the
proceeds of the planned offering to repay the bank financing incurred in
connection with the acquisition.
"We are excited about the prospect of integrating LBA's specialized data bases,
as well as our clinical methodologies and expertise with HCIA's industry-leading
databases and software platforms," said Larry Byrne, Founder of LBA. "A
combined HCIA-LBA product line should allow us to offer more comprehensive and
sophisticated solutions that improve quality and efficiency by modifying
clinical practice patterns," he added.
"The acquisition of LBA should strengthen HCIA's long-term position as a health
care information content provider," said George D. Pillari, Chairman and CEO of
HCIA. "The business combination should allow HCIA to continue to promote ICCS
(trademark symbol)-based data standards and to fortify the Company's clinical
implementation methodologies and staff," he added.
An investor's conference call is scheduled for 11:30 a.m. EDT Monday, July 22,
1996. Please contact Ms. Jean Chenoweth, Senior Vice President, Industry
Relations at (410) 895-7515 for further information.
HCIA Inc. is a leading health care information content company that develops and
markets clinical and financial decision support systems to hospitals, integrated
delivery systems, managed care organizations, and pharmaceutical manufacturers.
The Company's databases and products are used to benchmark clinical performance
and outcomes, and to manage the cost and delivery of health care.
This press release, other than the historical financial information, consists of
forward-look statements that involve a number of risks and uncertainties. Among
the important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are (i) variations in
quarterly results, (ii) development by competitors of new or superior products
or entry into the market of new competitors, (iii) the Company's dependence on
key personnel, (iv) management of the Company's growth and expansion, including
assimilation of any potential acquisitions, (v) dependence on intellectual
property rights, (vi) dependence on major customers, (vii) changes in the health
care industry from both a regulatory and financial perspective, (viii)
volatility of the Company's stock price and (ix) other risks detailed from time
to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission.
###
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Contact: HCIA Inc.
Ms. Jean Chenoweth
(410) 895-7515
HCIA ANNOUNCES SECOND QUARTER RESULTS
BALTIMORE, MD, JULY 22, 1996--HCIA Inc. (NASDAQ: HCIA) today announced results
for the second quarter and six months ended June 30, 1996. For the quarter,
revenues increased 35 percent to $16.5 million and net income per share, before
a one-time charge, increased 60 percent to $0.24, compared with the second
quarter of 1995. For the six months ended June 30, 1996, revenues increased 46
percent to $30.7 million and net income per share, before the charge, increased
81 percent to $0.38. Including the charge, the Company had a net loss per share
of $0.04 for the quarter and net income per share of $0.10 for the six months
ending June 30, 1996.
HCIA recorded a one-time charge of $4.4 million in the second quarter related to
the acquisition of in-process research and development associated with the
previously announced acquisition of Response Healthcare Information Management,
Inc.
Columbia/HCA Healthcare Corporation executed a three-year contract extension
with HCIA. The new agreement provides Columbia/HCA with corporate licenses to
portions of HCIA's DataBridge (trademark symbol) family of data-handling
technologies, as well as licenses to several of HCIA's comparative databases.
The Company also announced that it extended its contract with Amgen, Inc.
through the end of 1997.
An investor's conference call is scheduled for 11:30 a.m. EDT Monday, July 22,
1996. Please contact Ms. Jean Chenoweth, Senior Vice President, Industry
Relations at (410) 895-7515 for further information.
HCIA Inc. is a leading health care information content company that develops and
markets clinical and financial decision support systems to hospitals, integrated
delivery systems, managed care organizations, and pharmaceutical manufacturers.
The Company's databases and products are used to benchmark clinical performance
and outcomes, and to manage the cost and delivery of health care.
This press release, other than the historical financial information, consists of
forward-look statements that involve a number of risks and uncertainties. Among
the important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are (i) variations in
quarterly results, (ii) development by competitors of new or superior products
or entry into the market of new competitors, (iii) the Company's dependence on
key personnel, (iv) management of the Company's
<PAGE>
growth and expansion, including assimilation of any potential acquisitions, (v)
dependence on intellectual property rights, (vi) dependence on major customers,
(vii) changes in the health care industry from both a regulatory and financial
perspective, (viii) volatility of the Company's stock price and (ix) other risks
detailed from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission.
#####
Selected financial information follows.
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(HCIA Logo)
HCIA Inc. and Subsidiaries
Condensed Summary Balance Sheet
(in thousands)
June 30, 1996 December 31, 1995
(Unaudited)
Cash and short-term investments $ 26,139 $ 26,470
Trade accounts receivable 24,531 16,623
Total current assets 53,837 45,329
Total assets $ 124,054 $ 108,401
Total current liabilities $ 11,866 $ 9,658
Total long-term liabilities -- 699
Stockholders' equity $ 112,188 $ 98,044
<PAGE>
(HCIA Logo)
HCIA Inc. and Subsidiaries
Condensed Summary of Operations
(Unaudited)
3 Months Ended 6 Months Ended
June 30 June 30
1996 1995 1996 1995
(in thousands except per share amount)
Revenue $16,489 $12,256 $30,718 $21,005
Write-off of acquired in-process
research and development costs 4,372 -- 4,372 --
Operating income (loss) (763) 1,909 1,166 2,346
Income (Loss) Before Income Taxes
and Minority Interest (539) 2,136 1,590 2,724
Benefit (Provision) for Income Taxes 212 (951) (626) (1,189)
Net Income (loss) $ (327) $ 1,164 $ 964 $ 1,507
Net Income (loss) per share $ (0.04) $ 0.15 $ 0.10 $ 0.21
Weighted Average Shares Outstanding 9,153 7,804 9,549 7,173
In connection with the Response acquisition, the Company recorded a one-time
charge related to acquired in-process research and development costs. Exclusive
of this charge, operating income, net income and net income per share would
have been $3,608,000, $2,339,000 and $0.24 for the three months ended June 30,
1996 and $5,538,000, $3,631,000 and $0.38 for the six months ended June 30,
1996.