EXHIBIT A
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
HBO & COMPANY,
MCKESSON MERGER SUB, INC.
AND
MCKESSON CORPORATION
DATED AS OF October 17, 1998
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TABLE OF CONTENTS
PAGE
ARTICLE I -- THE MERGER...........................................................................................2
SECTION 1.1 The Merger.......................................................................2
SECTION 1.2 Closing..........................................................................2
SECTION 1.3 Effective Time...................................................................2
SECTION 1.4 Effects of the Merger............................................................2
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation and McKesson...................................................2
SECTION 1.6 Directors and Officers...........................................................3
ARTICLE II -- EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES.......................................................................3
SECTION 2.1 Effect on Capital Stock..........................................................3
(a) Cancellation of Treasury Stock and McKesson-Owned
Stock.................................................................3
(b) Conversion of HBO Common Stock........................................3
(c) Merger Sub Common Stock...............................................4
(d) McKesson Common Stock.................................................4
(e) Options...............................................................4
SECTION 2.2 Exchange of Certificates.........................................................5
(a) Exchange Agent........................................................5
(b) Exchange Procedures...................................................5
(c) Distributions with Respect to Unexchanged Shares......................6
(d) No Further Ownership Rights in HBO Common Stock.......................6
(e) No Fractional Shares..................................................7
(f) Termination of Exchange Fund..........................................7
(g) No Liability..........................................................7
(h) Investment of Exchange Fund...........................................7
(i) Lost Certificates.....................................................7
SECTION 2.3 Certain Adjustments..............................................................7
ARTICLE III -- REPRESENTATIONS AND WARRANTIES.....................................................................8
SECTION 3.1 Representations and Warranties of McKesson and Merger Sub........................8
(a) Organization, Standing and Corporate Power............................8
(b) Subsidiaries..........................................................8
(c) Capital Structure.....................................................8
(d) Authority; Noncontravention..........................................10
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(e) SEC Documents; Undisclosed Liabilities...............................11
(f) Information Supplied.................................................12
(g) Absence of Certain Changes or Events.................................12
(h) Compliance with Applicable Laws; Litigation..........................13
(i) Absence of Changes in Benefit Plans..................................13
(j) Benefit Plans........................................................14
(k) Taxes................................................................16
(l) Voting Requirements..................................................17
(m) State Takeover Statutes; Certificate of Incorporation................17
(n) Accounting Matters...................................................17
(o) Brokers..............................................................17
(p) Opinion of Financial Advisors........................................17
(q) Ownership of HBO Common Stock........................................17
(r) Intellectual Property................................................18
(s) Certain Contracts....................................................20
(t) McKesson Rights Agreement............................................20
(u) Environmental Liability..............................................21
SECTION 3.2 Representations and Warranties of HBO...........................................21
(a) Organization, Standing and Corporate Power...........................21
(b) Subsidiaries.........................................................22
(c) Capital Structure. ..................................................22
(d) Authority; Noncontravention..........................................23
(e) SEC Documents; Undisclosed Liabilities...............................24
(f) Information Supplied.................................................25
(g) Absence of Certain Changes or Events.................................25
(i) Absence of Changes in Benefit Plans..................................26
(j) Benefit Plans........................................................27
(k) Taxes................................................................28
(l) Voting Requirements..................................................29
(m) State Takeover Statutes; Certificate of Incorporation................29
(n) Accounting Matters...................................................29
(o) Brokers..............................................................29
(p) Opinion of Financial Advisors........................................29
(q) Ownership of McKesson Common Stock...................................29
(s) Certain Contracts....................................................32
(t) HBO Rights Agreement.................................................32
(u) Environmental Liability..............................................32
(v) Insurance............................................................33
(w) Transactions with Affiliates.........................................33
(x) Full Disclosure......................................................33
ARTICLE IV -- COVENANTS RELATING TO CONDUCT OF BUSINESS..........................................................33
SECTION 4.1 Conduct of Business.............................................................33
(a) Conduct of Business by McKesson.....................................33
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(b) Conduct of Business by HBO...........................................36
(c) Other Actions........................................................38
(d) Advice of Changes....................................................38
SECTION 4.2 No Solicitation by McKesson......................................................38
SECTION 4.3 No Solicitation by HBO..........................................................40
ARTICLE V -- ADDITIONAL AGREEMENTS...............................................................................42
SECTION 5.1 Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders' Meetings....................................................42
SECTION 5.2 Letters of McKesson's Accountants...............................................43
SECTION 5.3 Letters of HBO's Accountants....................................................43
SECTION 5.4 Access to Information; Confidentiality..........................................44
SECTION 5.5 Commercially Reasonable Efforts.................................................44
SECTION 5.6 Indemnification, Exculpation and Insurance......................................45
SECTION 5.7 Fees and Expenses...............................................................45
SECTION 5.8 Public Announcements............................................................46
SECTION 5.9 Affiliates......................................................................46
SECTION 5.10 NYSE and PSE Listings...........................................................46
SECTION 5.11 Tax Treatment...................................................................46
SECTION 5.12 Pooling of Interests............................................................47
SECTION 5.13 Post-Merger Operations..........................................................47
SECTION 5.14 Conveyance Taxes................................................................47
SECTION 5.15 Employee Benefits...............................................................47
ARTICLE VI -- CONDITIONS PRECEDENT...............................................................................47
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger......................47
(a) Stockholder Approvals................................................47
(b) HSR Act..............................................................47
(c) Governmental, Regulatory and Other Approvals.........................47
(d) No Injunctions or Restraints.........................................48
(e) Form S-4.............................................................48
(f) NYSE and PSE Listings................................................48
(g) Tax Opinions.........................................................48
(h) Pooling Letters......................................................48
SECTION 6.2 Conditions to Obligations of HBO................................................48
(a) Representations and Warranties.......................................48
(b) Performance of Obligations of McKesson...............................49
(c) No Material Adverse Change...........................................49
(d) McKesson Rights Agreement............................................49
SECTION 6.3 Conditions to Obligations of McKesson...........................................49
(a) Representations and Warranties.......................................49
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(b) Performance of Obligations of HBO....................................49
(c) No Material Adverse Change...........................................49
(d) HBO Rights Agreement.................................................49
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER.................................................................49
SECTION 7.1 Termination.....................................................................49
SECTION 7.2 Effect of Termination...........................................................51
SECTION 7.3 Amendment.......................................................................52
SECTION 7.4 Extension; Waiver...............................................................52
ARTICLE VIII -- GENERAL PROVISIONS...............................................................................52
SECTION 8.1 Nonsurvival of Representations and Warranties...................................52
SECTION 8.2 Notices.........................................................................53
SECTION 8.3 Definitions.....................................................................53
SECTION 8.4 Interpretation..................................................................54
SECTION 8.5 Counterparts....................................................................54
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries..................................55
SECTION 8.7 Governing Law...................................................................55
SECTION 8.8 Assignment......................................................................55
SECTION 8.9 Consent to Jurisdiction.........................................................55
SECTION 8.10 Headings, Etc...................................................................55
SECTION 8.11 Severability....................................................................55
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EXHIBIT A Form of McKesson Stock Option Agreement
EXHIBIT B Form of HBO Stock Option Agreement
EXHIBIT C McKesson Bylaw Amendments
EXHIBIT D Directors and Officers
EXHIBIT E McKesson Stock Plans
EXHIBIT F HBO Stock Plans
EXHIBIT G Form of Rule 145 Letter to be signed by McKesson Affiliates
EXHIBIT H Form of Pooling Letter to be signed by McKesson and HBO Affiliates
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AGREEMENT AND PLAN OF MERGER dated as of October 17, 1998,
among MCKESSON CORPORATION, a Delaware corporation ("McKesson"), HBO & COMPANY,
a Delaware corporation ("HBO"), and MCKESSON MERGER SUB, INC. ("Merger Sub"), a
Delaware corporation and a wholly-owned subsidiary of McKesson.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of HBO, Merger Sub
and McKesson have each approved the merger of Merger Sub with and into HBO (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common stock, par value
$.05 per share, of HBO ("HBO Common Stock", which reference shall be deemed to
include the associated HBO Rights (as defined in Section 3.2(c)), other than
shares owned by HBO or McKesson, will be converted into the right to receive the
Merger Consideration (as defined in Section 2.1(b)); and
WHEREAS, the respective Boards of Directors of HBO and
McKesson, having carefully considered the long-term prospects and interests of
HBO and McKesson and their respective stockholders and having determined that
the Merger and the other transactions contemplated hereby are consistent with,
and in furtherance of, their respective business strategies and goals and are
advisable and in the best interests of their respective stockholders, have each
approved the transactions contemplated by this Agreement and the Option
Agreements (as hereinafter defined) and have each resolved to recommend to each
party's stockholders the approval and adoption of this Agreement and the Merger
and the consummation of the transactions contemplated hereby and thereby upon
the terms and subject to the conditions set forth herein; and
WHEREAS, as a condition to the execution of this Agreement,
contemporaneously herewith HBO and McKesson will enter into a stock option
agreement (the "McKesson Option Agreement") attached hereto as Exhibit A and a
stock option agreement (the "HBO Option Agreement" and, together with the
McKesson Option Agreement, the "Option Agreements") attached hereto as Exhibit
B; and
WHEREAS, for federal income tax purposes, it is intended that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"), and this Agreement is intended
to be and is adopted as a plan of reorganization within the meaning of Section
368 of the Code; and
WHEREAS, for financial accounting purposes, it is intended
that the Merger will be accounted for as a pooling of interests transaction
under United States generally accepted accounting principles ("GAAP"); and
WHEREAS, HBO and McKesson desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
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NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements set forth herein and in the Option
Agreements, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Merger Sub shall be merged with and into HBO at
the Effective Time (as defined in Section 1.3). Following the Effective Time,
the separate corporate existence of Merger Sub shall cease and HBO shall be the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Merger Sub in accordance with the DGCL.
SECTION 1.2 Closing. The closing of the Merger (the "Closing") will
take place on a date to be specified by the parties (the "Closing Date"), which
shall be no later than the second business day after satisfaction or waiver of
the conditions set forth in Article VI, unless another time or date is agreed to
by the parties hereto. The Closing will be held at the offices of Xxxxx, Day,
Xxxxxx & Xxxxx, 3500 SunTrust Plaza, 000 Xxxxxxxxx Xxxxxx, X.X., Xxxxxxx,
Xxxxxxx 00000-0000.
SECTION 1.3 Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, the parties shall cause
the Merger to be consummated by filing a certificate of merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
in accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Secretary of
State of Delaware, or at such subsequent date or time as HBO and McKesson shall
agree and specify in the Certificate of Merger (the time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving
Corporation and McKesson.
(a) At the Effective Time, the Certificate of Incorporation
and the by-laws of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation and by-laws of the Surviving
Corporation, in each case until thereafter amended in accordance with applicable
law; provided, however, that Article First of the Certificate of Incorporation
of the Surviving Corporation shall be amended to read as follows:
The name of the Corporation (which is hereinafter referred to
as the "Corporation") is HBO & Company.
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(b) At the Effective Time, Article 1 of the Certificate of
Incorporation of McKesson shall be amended to read as follows:
The name of the corporation is McKesson HBOC, Inc..
(c) At the Effective Time, the by-laws of McKesson shall be
amended as provided in Exhibit C.
SECTION 1.6 Directors and Officers.
(a) At the Effective Time, the Board of Directors, committees
of the Board of Directors, composition of such committees (including chairmen
thereof) and certain of the officers of McKesson shall be as set forth on
Exhibit D hereto until the earlier of the resignation or removal of any
individual listed on or designated in accordance with Exhibit D or until their
respective successors are duly elected and qualified, as the case may be. If any
officer listed on or appointed in accordance with Exhibit D ceases to be a
full-time employee of either HBO or McKesson as the case may be, the parties
will agree upon another person to serve in such person's stead.
(b) The directors set forth on Exhibit D shall be the initial
directors of the Surviving Corporation, and the officers of Merger Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, HBO or
the holder of any shares of the following securities:
(a) Cancellation of Treasury Stock and McKesson-Owned Stock.
Each share of HBO Common Stock that is owned by McKesson, Merger Sub or HBO
shall automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of HBO Common Stock. Subject to Section 2.2(e),
each issued and outstanding share of HBO Common Stock (other than shares to be
canceled in accordance with Section 2.1(a)) shall be converted into the right to
receive .37 (the "Exchange Ratio") validly issued, fully paid and nonassessable
shares of common stock, par value $.01 per share ("McKesson Common Stock"), of
McKesson (the "Merger Consideration"). As of the Effective Time, all such shares
of HBO Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of HBO Common Stock shall cease to have any rights
with respect
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thereto, except the right to receive the Merger Consideration and any cash in
lieu of fractional shares of McKesson Common Stock to be issued or paid in
consideration thereof upon surrender of such certificate in accordance with
Section 2.2(e).
(c) Merger Sub Common Stock. Each share of common stock, par
value $0.01 per share, of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) McKesson Common Stock. At and after the Effective Time,
each share of McKesson Common Stock issued and outstanding immediately prior to
the Closing Date shall remain an issued and outstanding share of common stock of
McKesson and shall not be affected by the Merger.
(e) Options.
(i) HBO and McKesson will take all action necessary
such that, at the Effective Time, each option granted by HBO to purchase shares
of HBO Common Stock which is outstanding immediately prior thereto shall cease
to represent a right to acquire shares of HBO Common Stock and shall be
converted into an option to purchase shares of McKesson Common Stock in an
amount and at an exercise price determined as provided below (and otherwise, in
the case of options, subject to the terms of the HBO Stock Plans (as defined in
Section 3.2(c)) and the agreements evidencing grants thereunder) (the "Assumed
Options"):
(1) The number of shares of McKesson Common Stock to
be subject to the new option shall be equal to the product of the
number of shares of HBO Common Stock subject to the original option and
the Exchange Ratio, provided that any fractional shares of McKesson
Common Stock resulting from such multiplication shall be rounded to the
nearest whole share; and
(2) The exercise price per share of McKesson Common
Stock under the new option shall be equal to the exercise price per
share of HBO Common Stock under the original option divided by the
Exchange Ratio, provided that such exercise price shall be rounded to
the nearest whole cent.
(ii) The adjustment provided herein with respect to
any options that are "incentive stock options" (as defined in Section 422 of the
Code) shall be and is intended to be effected in a manner that is consistent
with Section 424(a) of the Code. The duration and other terms of the new options
shall be the same as the original options except that all references to HBO
shall be deemed to be references to McKesson.
(iii) As soon as practicable following the Effective
Time, McKesson shall deliver, upon due surrender of the Assumed Options to
holders of Assumed Options appropriate option agreements representing the right
to acquire McKesson Common Stock on the same terms and conditions as contained
in the Assumed Options (except as otherwise set forth in this Section 2.1(e)).
Except as expressly contemplated herein, McKesson shall comply with the
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terms of the HBO Stock Plans as they apply to the Assumed Options. McKesson
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of McKesson Common Stock for delivery upon exercise of the
Assumed Options in accordance with this Section 2.1(e). McKesson shall file a
registration statement on Form S-8 (or any successor form) or on another
appropriate form, and use commercially reasonable efforts to have such
registration statement declared effective reasonably promptly following the
Effective Time, with respect to McKesson Common Stock subject to the Assumed
Options and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as the Assumed Options remain outstanding and exercisable.
(iv) McKesson acknowledges and agrees that the
consummation of the Merger will have certain effects in respect of the Assumed
Options as reflected in Section 2.1(e)(iv) of the HBO Disclosure Schedule, and
McKesson agrees to act in accordance therewith and give full effect to same.
SECTION 2.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, McKesson shall
enter into an agreement with such bank or trust company as may be designated by
McKesson (the "Exchange Agent") which shall provide that McKesson shall provide
McKesson Common Stock (such shares of McKesson Common Stock, together with any
dividends or distributions with respect thereto with a record date after the
Effective Time, and any cash payable in lieu of any fractional shares of
McKesson Common Stock being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.1 in exchange for outstanding shares of HBO
Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of HBO Common Stock (the "Certificates") whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.1, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent, and shall
otherwise be in customary form) and (ii) instructions for use in surrendering
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of McKesson Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II, certain dividends or other
distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share of McKesson Common Stock in accordance with Section 2.2(e), and
the Certificate so surrendered shall forthwith be canceled. Notwithstanding
anything to the contrary contained herein, no certificate representing McKesson
Common Stock or cash in lieu of a fractional share interest shall be delivered
to a person who is an affiliate of HBO for purposes of qualifying the Merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable Securities and Exchange Commission ("SEC") rules
and regulations, unless such
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person has executed and delivered the agreement described in the second sentence
of Section 5.9(a) hereof. In the event of a surrender of a Certificate
representing shares of HBO Common Stock which are not registered in the transfer
records of HBO under the name of the person surrendering such Certificate, a
certificate representing the proper number of shares of McKesson Common Stock
may be issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such issuance
shall pay any transfer or other taxes required by reason of the issuance of
shares of McKesson Common Stock to a person other than the registered holder of
such Certificate or establish to the satisfaction of McKesson that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration which the holder thereof has the right to receive in respect of
such Certificate pursuant to the provisions of this Article II, certain
dividends or other distributions in accordance with Section 2.2(c) and cash in
lieu of any fractional share of McKesson Common Stock in accordance with Section
2.2(e). No interest shall be paid or will accrue on any cash payable to holders
of Certificates pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to McKesson Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of McKesson Common Stock
represented thereby, and, in the case of Certificates representing HBO Common
Stock, no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.2(e), and all such dividends, other distributions
and cash in lieu of fractional shares of McKesson Common Stock shall be paid by
McKesson to the Exchange Agent and shall be included in the Exchange Fund, in
each case until the surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable escheat or similar laws,
following surrender of any such Certificate there shall be paid to the holder of
the certificate representing whole shares of McKesson Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of McKesson
Common Stock and, in the case of Certificates representing HBO Common Stock, the
amount of any cash payable in lieu of a fractional share of McKesson Common
Stock to which such holder is entitled pursuant to Section 2.2(e) and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time and with a payment date subsequent
to such surrender payable with respect to such whole shares of McKesson Common
Stock.
(d) No Further Ownership Rights in HBO Common Stock. All
shares of McKesson Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article II (including any cash
paid pursuant to this Article II) shall be deemed to have been issued (and paid)
in full satisfaction of all rights pertaining to the shares of HBO Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by HBO on such shares of HBO Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the
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shares of HBO Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
McKesson, the Surviving Corporation or the Exchange Agent for any reason, they
shall be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(e) No Fractional Shares. Notwithstanding anything to the
contrary contained herein, no certificates or scrip representing fractional
shares of McKesson Common Stock shall be issued upon the surrender for exchange
of Certificates, no dividend or distribution of McKesson shall relate to such
fractional share interests and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of McKesson. In lieu
of the issuance of such fractional shares, McKesson shall pay each former holder
of HBO Common Stock an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such former holder would
otherwise be entitled by (B) the average closing price per share (or if there is
no sale on such date then the average between the closing bid and ask prices on
any such day) for shares of McKesson Common Stock as reported by the New York
Stock Exchange ("NYSE") (as reported in The Wall Street Journal, or, if not
reported therein, any other authoritative source) during the ten trading days
preceding the fifth trading day prior to the Closing Date (such average, the
"Average McKesson Price").
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to McKesson, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to McKesson for payment of their claim for
Merger Consideration, any dividends or distributions with respect to McKesson
Common Stock and any cash in lieu of fractional shares of McKesson Common Stock.
(g) No Liability. None of HBO, McKesson, Merger Sub, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any shares of McKesson Common Stock, any dividends or distributions
with respect thereto, any cash in lieu of fractional shares of McKesson Common
Stock or any cash from the Exchange Fund, in each case delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by McKesson, on a
daily basis. Any interest and other income resulting from such investments shall
be paid to McKesson.
(i) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and, if applicable, any unpaid dividends
and distributions on shares of McKesson Common Stock deliverable in respect
thereof and any cash in lieu of fractional shares, in each case pursuant to this
Agreement.
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SECTION 2.3 Certain Adjustments. If between the date hereof and the
Effective Time, the outstanding shares of McKesson Common Stock or of HBO Common
Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities shall be declared thereon
with a record date within such period, the Exchange Ratio shall be adjusted
accordingly to provide to the holders of HBO Common Stock the same economic
effect as contemplated by this Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of McKesson and Merger Sub.
Except as disclosed in the Disclosure Schedule delivered by McKesson and Merger
Sub to HBO prior to the execution of this Agreement (the "McKesson Disclosure
Schedule") and making reference to the particular subsection of this Agreement
to which exception is being taken, McKesson and Merger Sub jointly and severally
represent and warrant to HBO as follows:
(a) Organization, Standing and Corporate Power. Each of
McKesson and its subsidiaries (as defined in Section 8.3) is a corporation or
other legal entity duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or other
power, as the case may be, and authority to carry on its business as now being
conducted, except, as to subsidiaries, for those jurisdictions where the failure
to be so organized, existing or in good standing individually or in the
aggregate would not have a material adverse effect (as defined in Section 8.3)
on McKesson. Each of McKesson and its subsidiaries is duly qualified or licensed
to do business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its business
or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate would not have a material adverse effect on McKesson.
(i) McKesson has delivered to HBO prior to the
execution of this Agreement complete and correct copies of any amendments to its
certificate of incorporation (the "McKesson Certificate") and by-laws not filed
as of the date hereof with the McKesson Filed SEC Documents (as defined in
Section 3.1(e)).
(ii) In all material respects, the minute books of
McKesson and its subsidiaries contain accurate records of all meetings and
accurately reflect all other actions taken by the stockholders, the Board of
Directors and all committees of the Board of Directors of McKesson (or, as the
case may be, each of its subsidiaries) since December 31, 1996.
(b) Subsidiaries. Exhibit 21 to McKesson's Annual Report on
Form 10- K for the fiscal year ended March 31, 1998 includes all the
subsidiaries of McKesson which as of the date of this Agreement are Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X of
8
the SEC). All the outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been validly issued and are
fully paid and nonassessable and are owned directly or indirectly by McKesson,
free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens") and
free of any other restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership interests).
(c) Capital Structure. The authorized capital stock of
McKesson consists of 400,000,000 shares of McKesson Common Stock, par value $.01
per share and 100,000,000 shares of series preferred stock, par value $.01 per
share ("McKesson Preferred Stock"). At the close of business on October 15, 1998
(i) 99,295,063 shares of McKesson Common Stock were issued and outstanding; (ii)
242,095 shares of McKesson Common Stock were held by McKesson in its treasury;
(iii) no shares of McKesson Preferred Stock were issued and outstanding; (iv)
25,151,920 shares of McKesson Common Stock were reserved for issuance pursuant
to all stock option, restricted stock or other stock-based compensation,
benefits or savings plans, agreements or arrangements in which current or former
employees or directors of McKesson or its subsidiaries participate as of the
date hereof (including, without limitation, the plans set forth on Exhibit E
attached hereto), complete and correct copies of which, in each case as amended
as of the date hereof, have been filed as exhibits to the McKesson Filed SEC
Documents or delivered to HBO (such plans, collectively, the "McKesson Stock
Plans"); (v) 10,000,000 shares of McKesson Preferred Stock have been designated
as Series A Junior Participating Preferred Stock, of which 600,000 shares were
reserved for issuance upon exercise of preferred stock purchase rights (the
"McKesson Rights") issuable pursuant to the Rights Agreement, dated as of
October 21, 1994, by and between McKesson and First Chicago Trust Company, as
rights agent (the "McKesson Rights Agreement"); and (vi) 5,533,208 shares of
McKesson Common Stock were reserved for issuance upon conversion of the 5% Trust
Convertible Securities (the "Convertible Preferred Securities") of the McKesson
Financing Trust (the "Financing Trust"). Section 3.1(c) of the McKesson
Disclosure Schedule sets forth a complete and correct list, as of October 15,
1998, of the number of shares of McKesson Common Stock subject to employee
stock options or other rights to pur chase or receive McKesson Common Stock
granted under the McKesson Stock Plans (collectively, "McKesson Employee Stock
Options"). All outstanding shares of capital stock of McKesson are, and all
shares which may be issued pursuant to the Stock Plans or the Financing Trust
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as set forth in this
Section 3.1(c) and except for changes since October 15, 1998 resulting from the
issuance of shares of McKesson Common Stock pursuant to the McKesson Employee
Stock Options, the Convertible Preferred Securities or as expressly permitted by
this Agreement, (x) there are not issued, reserved for issuance or outstanding
(A) any shares of capital stock or other voting securities of McKesson, (B) any
securities of McKesson or any McKesson subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or voting securities of
McKesson, (C) any warrants, calls, options or other rights to acquire from
McKesson or any McKesson subsidiary (including any subsidiary trust), or
obligations of McKesson or any McKesson subsidiary to issue, any capital stock,
voting securities or securities convertible into or exchangeable or exercisable
for capital stock or voting securities of McKesson, and (y) there are no
outstanding obligations of McKesson or any McKesson subsidiary to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. There are no
9
outstanding (A) securities of McKesson or any McKesson subsidiary convertible
into or exchangeable or exercisable for shares of capital stock or other voting
securities or ownership interests in any McKesson subsidiary, (B) warrants,
calls, options or other rights to acquire from McKesson or any McKesson
subsidiary, and any obligation of McKesson or any McKesson subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for any capital
stock, voting securities or ownership interests in, any McKesson subsidiary or
(C) obligations of McKesson or any McKesson subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of McKesson subsidiaries or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities, except with respect to the Convertible Preferred Securities. Other
than with respect to the Convertible Preferred Securities, neither McKesson nor
any McKesson subsidiary is a party to any agreement restricting the purchase or
transfer of, relating to the voting of, requiring registration of, or granting
any preemptive or, except as provided by the terms of the McKesson Employee
Stock Options, antidilutive rights with respect to, any securities of the type
referred to in the two preceding sentences. Other than the McKesson
subsidiaries, McKesson does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in any other entity except
for non-controlling investments made in the ordinary course of business in
entities which are not individually or in the aggregate material to McKesson and
its subsidiaries as a whole.
(d) Authority; Noncontravention. Each of McKesson and Merger
Sub has all requisite corporate power and authority to enter into this
Agreement, and McKesson has all requisite corporate power and authority to enter
into the Option Agreements and, subject, to the McKesson Stockholder Approval
(as defined in Section 3.1(l)), to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement by each of
McKesson and Merger Sub, and the execution and delivery of the Option Agreements
by McKesson and the consummation by McKesson and Merger Sub of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of McKesson and Merger Sub, subject, in the case of
the Merger, and the issuance of McKesson Common Stock in connection with the
Merger and the conversion of the Assumed Options, to the McKesson Stockholder
Approval. This Agreement has been, and the Option Agreements will be, duly
executed and delivered by McKesson (and, in the case of this Agreement, by
Merger Sub) and, assuming the due authorization, execution and delivery thereof
by HBO, constitutes (or will constitute, as the case may be) the legal, valid
and binding obligation of McKesson (and, in the case of this Agreement, by
Merger Sub), enforceable against McKesson (and, in the case of this Agreement,
by Merger Sub) in accordance with their terms. The execution and delivery of
this Agreement does not, and the execution and delivery of the Option Agreements
and the consummation of the transactions contemplated hereby and thereby and
compliance with the provisions of this Agreement and the Option Agreements will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of
McKesson or any of its subsidiaries or in any restriction on the conduct of
McKesson's business or operations under, (i) the McKesson Certificate or the
by-laws of McKesson or the comparable organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, trust document, lease or other agreement, instrument, permit,
concession, franchise, license or
10
similar authorization applicable to McKesson or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to McKesson or
any of its subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses, restrictions or Liens that individually or in the aggregate
would not (x) have a material adverse effect on McKesson or HBO or (y)
reasonably be expected to impair the ability of McKesson or Merger Sub to
perform its obligations under this Agreement (and, in the case of McKesson
individually, under the Option Agreements). No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration or
filing with, any federal, state, local or foreign government, any court,
administrative, regulatory or other governmental agency, commission or authority
or any nongovernmental self-regulatory agency, commission or authority (a
"Governmental Entity") is required by or with respect to McKesson or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
McKesson, or the execution and delivery by McKesson of the Option Agreements or
the consummation by McKesson or Merger Sub of the transactions contemplated
hereby and thereby, except for (1) the filing of a pre-merger notification and
report form by McKesson under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended (the "HSR Act") or filings or notifications under the
antitrust, competition or similar laws of any foreign jurisdiction; (2) the
filing with the SEC of (A) a proxy statement relating to the McKesson
Stockholders' Meeting (as defined in Section 5.1(b)) (such proxy statement,
together with the proxy statement relating to the HBO Stockholders' Meeting (as
defined in Section 5.1(c)), in each case as amended or supplemented from time to
time, the "Joint Proxy Statement"), (B) the Form S-4 and (C) such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement, the Option Agreements and the transactions contemplated hereby and
thereby; (3) the filing of the Certificate of Merger with the Secretary of State
of Delaware and appropriate documents with the relevant authorities of other
states in which McKesson is qualified to do business and such filings with
Governmental Entities to satisfy the applicable requirements of state securities
or "blue sky" laws; (4) such filings and approvals of NYSE and the Pacific
Exchange, Inc. ("PSE") to permit the shares of McKesson Common Stock that are to
be issued in the Merger and under the HBO Stock Plans to be approved for
listing, subject to notice of issuance, by NYSE and the PSE; and (5) such
consents, approvals, orders or authorizations the failure of which to be made or
obtained individually or in the aggregate would not (x) have a material adverse
effect on McKesson or (y) reasonably be expected to impair the ability of
McKesson or Merger Sub to perform its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. McKesson has filed
all required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the SEC since December 31, 1996 (the "McKesson SEC
Documents"). As of their respective dates, the McKesson SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
McKesson SEC Documents, and none of the McKesson SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under
11
which they were made, not misleading. The financial statements of McKesson
included in the McKesson SEC Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of
McKesson and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments which are not material). Except (i) as reflected in such financial
statements or in the notes thereto or (ii) for liabilities incurred in
connection with this Agreement, the Option Agreements or the transactions
contemplated hereby or thereby, neither McKesson nor any of its subsidiaries has
any liabilities or obligations of any nature which, individually or in the
aggregate, would have a material adverse effect on McKesson.
(f) Information Supplied. None of the information supplied or
to be supplied by McKesson specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by McKesson in connection with the issuance of McKesson Common Stock in the
Merger (the "Form S-4") will, at the time the Form S-4 becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Joint Proxy Statement will, at the
date it is first mailed to McKesson's stockholders or at the time of the
McKesson Stockholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 and the Joint Proxy Statement will
comply as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations thereunder, except that no representation or
warranty is made by McKesson with respect to statements made or incorporated by
reference therein based on information supplied by HBO specifically for
inclusion or incorporation by reference in the Form S-4 or the Joint Proxy
Statement.
(g) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement, the Option Agreements or
the transactions contemplated hereby and thereby, and except as permitted by
Section 4.1(a), since March 31, 1998, McKesson and its subsidiaries have
conducted their business only in the ordinary course consistent with past
practice or as disclosed in any McKesson SEC Document filed since such date and
prior to the date hereof, and there has not been (i) any material adverse change
(as defined in Section 8.3) in McKesson, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of McKesson's capital stock, (iii) any split,
combination or reclassification of any of McKesson's capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of, or in substitution for shares of McKesson's capital stock,
except for issuances of McKesson Common Stock upon exercise or conversion of
McKesson Employee Stock Options, in each case awarded prior to the date hereof
in accordance with their present terms or issued pursuant to Section 4.1(a),
(iv)(A) any granting by McKesson or any of its subsidiaries to any current or
former director, officer or
12
other key employee of McKesson or its subsidiaries of any increase in
compensation, bonus or other benefits, except for normal increases as a result
of promotions, normal increases of base pay or target bonuses in the ordinary
course of business or as was required under any employment agreements in effect
as of Xxxxx 00, 0000, (X) any granting by McKesson or any of its subsidiaries
to any such current or former director, officer or key employee of any increase
in severance or termination pay, or (C) any entry by McKesson or any of its
subsidiaries into, or any amendment of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any such
current or former director or officer, or any material amendment of any of the
foregoing with any key employee, (v) except insofar as may have been disclosed
in McKesson SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date hereof, the "McKesson Filed SEC Documents") or
required by a change in GAAP, any change in accounting methods, principles or
practices by McKesson materially affecting its assets, liabilities or business,
(vi) except insofar as may have been disclosed in the McKesson Filed SEC
Documents, any tax election that individually or in the aggregate would have a
material adverse effect on McKesson or any of its tax attributes or any
settlement or compromise of any material income tax liability, or (vii) any
action taken by McKesson or any of the McKesson subsidiaries during the period
from April 1, 1998 through the date of this Agreement that, if taken during the
period from the date of this Agreement through the Effective Time, would
constitute a breach of Section 4.1(a).
(h) Compliance with Applicable Laws; Litigation.
(i) McKesson, its subsidiaries and employees hold all
permits, licenses, variances, exemptions, orders, registrations and approvals of
all Governmental Entities which are required for the operation of the businesses
of McKesson and its subsidiaries (the "McKesson Permits"), except where the
failure to have any such McKesson Permits individually or in the aggregate would
not have a material adverse effect on McKesson. Except as specifically disclosed
in the McKesson SEC Documents filed with the Commission prior to the date
hereof, McKesson and its subsidiaries are in compliance with the terms of the
McKesson Permits and all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or orders entered by
any Governmental Entity, including, without limitation, the Federal Prescription
Drug Marketing Act and comparable or related state law provisions, the Federal
Controlled Substances Act of 1970, the rules and regulations promulgated
thereunder or otherwise by the Drug Enforcement Administration and comparable or
related state law provisions, the Food, Drug and Cosmetic Act, the Good
Manufacturing Practices and other standards of the Food and Drug Administration,
federal Medicare and Medicaid statutes, including, without limitation, 42 U.S.C.
Section 1320a-7b and 42 U.S.C. Section 1395nn or related state or local statutes
or regulations, applicable state laws regulating pharmacy or wholesaling
practices, statutes and regulations relating to billing or sale practices, the
Foreign Corrupt Practices Act of 1977 and the Occupational Safety and Health Act
and the regulations promulgated thereunder (all such laws, statutes, orders,
rules, regulations, policies, guidelines, judgments, decisions and orders,
collectively, "Applicable Laws"), relating to McKesson or its business or
properties, except where the failure to be in compliance with such Applicable
Laws individually or in the aggregate would not have a material adverse effect
on McKesson. As of the date of this Agreement, except as disclosed in the
McKesson Filed SEC Documents, no action, demand, requirement or investigation by
any Governmental Entity and no suit, action or
13
proceeding by any person, in each case with respect to McKesson or any of its
subsidiaries or any of their respective properties, is pending or, to the
knowledge (as defined in Section 8.3) of McKesson, threatened, other than, in
each case, those the outcome of which individually or in the aggregate would not
(A) have a material adverse effect on McKesson or (B) reasonably be expected to
impair the ability of McKesson or Merger Sub to perform its obligations under
this Agreement or the Option Agreements or prevent or materially delay the
consummation of any of the transactions contemplated hereby or thereby.
(ii) Neither McKesson nor any McKesson subsidiary is
subject to any outstanding order, injunction or decree which has had or, insofar
as can be reasonably foreseen, individually or in the aggregate will have, a
material adverse effect on McKesson.
(i) Absence of Changes in Benefit Plans. McKesson has
delivered to HBO or provided to HBO for review true and complete copies of (i)
all severance and employment agreements of McKesson with directors, executive
officers or key employees, (ii) all written and material unwritten severance
programs and policies of each of McKesson and each McKesson subsidiary, and
(iii) all plans or arrangements of McKesson and each McKesson subsidiary
relating to its employees which contain change in control provisions, in each
case which has not been filed as an exhibit to a McKesson Filed SEC Document.
Since March 31, 1998, there has not been any adoption or amendment in any
material respect by McKesson or any of its subsidiaries of any (A) collective
bargaining agreement with respect to any employees of, (B) any material bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding providing benefits to any current or former
officers, directors or employees of, (C) any employment agreement, consulting
agreement or severance agreement with, any current or former officer or director
of, or (D) any material employment agreement, consulting agreement or severance
agreement with any employee of, McKesson or any of its wholly owned subsidiaries
(collectively, the "McKesson Benefit Plans"), or any material change in any
actuarial or other assumption used to calculate funding obligations with respect
to any McKesson pension plans, or any material change in the manner in which
contributions to any McKesson pension plans are made or the basis on which such
contributions are determined. Since March 31, 1998, neither McKesson nor any
McKesson subsidiary has amended any McKesson Employee Stock Options or any
McKesson Stock Plans to accelerate the vesting of, or release restrictions on,
awards thereunder, or to provide for such acceleration in the event of a change
in control.
(j) Benefit Plans.
(i) With respect to the McKesson Benefit Plans, to
the knowledge of McKesson, no event has occurred and there exists no condition
or set of circumstances, in connection with which McKesson or any of its
subsidiaries would be subject to any liability that individually or in the
aggregate would have a material adverse effect on McKesson under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable law.
14
(ii) Each McKesson Benefit Plan has been administered
in accordance with its terms, except for any failures so to administer any
McKesson Benefit Plan that individually or in the aggregate would not have a
material adverse effect on McKesson. To the knowledge of McKesson, the McKesson
Benefit Plans have been operated, and are, in compliance with the applicable
provisions of ERISA, the Code and all other applicable laws and the terms of all
applicable collective bargaining agreements, except for any failures to be in
such compliance that individually or in the aggregate would not have a material
adverse effect on McKesson. Each McKesson Benefit Plan that is intended to be
qualified under Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the Internal Revenue Service ("IRS") that it is so
qualified and each trust established in connection with any McKesson Benefit
Plan that is intended to be exempt from federal income taxation under Section
501(a) of the Code has received a determination letter from the IRS that such
trust is so exempt. To the knowledge of McKesson, no fact or event has occurred
since the date of any determination letter from the IRS which is reasonably
likely to affect adversely the qualified status of any such McKesson Benefit
Plan or the exempt status of any such trust.
(iii) With respect to the McKesson Benefit Plans
which are defined benefit plans and subject to Title IV of ERISA (other than any
"multiemployer plans" as defined in Section 3(37) of ERISA), the aggregate fair
market value of the assets of such plans as of January 1, 1998 was approximately
$294 million. Since January 1, 1998, there has been no material adverse change
in the funded status of any such plans.
(iv) Each McKesson Benefit Plan that is a
"multiemployer plan" is set forth on Section 3.1(j)(iii) of the McKesson
Disclosure Schedule. With respect to any McKesson Benefit Plan that is a
multiemployer plan, (A) neither McKesson nor any of its subsidiaries has any
material contingent liability under Section 4204 of ERISA, and, to the knowledge
of McKesson, no circumstances exist that would result in any such plan entering
into a reorganization, and (B) the aggregate withdrawal liability of McKesson
and its subsidiaries, computed as if a complete withdrawal by McKesson and any
of its subsidiaries had occurred under each such McKesson Benefit Plan on the
date hereof, would not exceed $15 million.
(v) No McKesson Benefit Plan provides medical
benefits (whether or not insured), with respect to current or former employees
after retirement or other termination of service (other than coverage mandated
by applicable law or benefits, the full cost of which is borne by the current or
former employee) other than individual arrangements the amounts of which are not
material.
(vi) McKesson has previously provided to HBO a copy
of each collective bargaining or other labor union contract applicable to
persons employed by McKesson or any of its subsidiaries to which McKesson or any
of its subsidiaries is a party. No collective bargaining agreement is being
negotiated or renegotiated by McKesson or any of its subsidiaries. As of the
date of this Agreement, there is no labor dispute, strike or work stoppage
against McKesson or any of its subsidiaries pending or, to the knowledge of
McKesson, threatened which may interfere with the respective business activities
of McKesson or any of its subsidiaries, except where such dispute, strike or
work stoppage individually or in the aggregate would not have a material adverse
effect on McKesson. As of the date of this Agreement, to the knowledge of
15
McKesson, none of McKesson, any of its subsidiaries or any of their respective
representatives or employees has committed any material unfair labor practice in
connection with the operation of the respective businesses of McKesson or any of
its subsidiaries, and there is no material charge or complaint against McKesson
or any of its subsidiaries by the National Labor Relations Board or any
comparable governmental agency pending or threatened in writing.
(vii) No employee of McKesson will be entitled to any
material payment, additional benefits or any acceleration of the time of payment
or vesting of any benefits under any McKesson Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction with
any other event such as a termination of employment), except that substantially
all McKesson Employee Stock Options will vest as of the date on which McKesson
Stockholder Approval is obtained.
(viii) No material oral or written representation or
commitment with respect to any aspect of any McKesson Benefit Plan has been or
will be made to employees of McKesson or any McKesson subsidiaries by an
authorized McKesson employee prior to the Closing Date that is not materially in
accordance with the written or otherwise preexisting terms and provisions of
such McKesson Benefit Plans in effect immediately prior to the Closing Date.
(ix) Except such as would not have a material adverse
effect, there are no material unresolved claims or disputes under the terms of,
or in connection with, any McKesson Benefit Plan (other than routine undisputed
claims for benefits), and no action, legal or otherwise, has been commenced with
respect to any material claim.
(x) To the knowledge of McKesson, no non-exempt
"prohibited transaction" (within the meaning of Section 4975(c) of the Tax Code)
involving any McKesson Benefit Plan has occurred that could subject McKesson to
any material tax penalty or other cost or liability (by indemnification or
otherwise).
(k) Taxes.
(i) Each of McKesson and its subsidiaries has filed
all material tax returns and reports required to be filed by it (taking into
account all applicable extensions) and all such returns and reports are complete
and correct in all material respects, or requests for extensions to file such
returns or reports have been timely filed, granted and have not expired, except
to the extent that such failures to file, to be complete or correct or to have
extensions granted that remain in effect individually or in the aggregate would
not have a material adverse effect on McKesson. McKesson and each of its
subsidiaries has paid (or McKesson has paid or caused to be paid on its behalf)
all taxes (as defined herein) shown as due on such returns, and the most recent
financial statements contained in the McKesson Filed SEC Documents reflect an
adequate reserve in accordance with GAAP for all taxes payable by McKesson and
its subsidiaries for all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes have, to the
knowledge of McKesson, been proposed, asserted or assessed against McKesson or
any of its subsidiaries that are not adequately reserved for, except for
deficiencies that individually or in the aggregate would not have
16
a material adverse effect on McKesson. Except as provided in Section 3.1(k) of
the Disclosure Schedule, all of the federal income tax returns of the affiliated
group of which McKesson is the common parent have closed by virtue of the
applicable statute of limitations.
(iii) Neither McKesson nor any of its subsidiaries
has taken any action or knows of any fact, agreement, plan or other circumstance
that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(iv) As used in this Agreement, "taxes" shall include
all (x) federal, state, local or foreign income, property, sales, excise and
other taxes or similar governmental charges, including any interest, penalties
or additions with respect thereto, (y) liability for the payment of any amounts
of the type described in (x) as a result of being a member of an affiliated,
consolidated, combined or unitary group, and (z) liability for the payment of
any amounts described in (x) or (y) as a result of being party to any tax
sharing agreement or as a result of any express or implied obligation to
indemnify any other person with respect to the payment of any amounts of the
type described in clause (x) or (y).
(v) Neither McKesson nor any McKesson subsidiary has
made any parachute payments as such term is defined in Section 280G of the Tax
Code, neither is obligated to make any parachute payments, and neither is a
party to any agreement that under certain circumstances could obligate it, or
any successor in interest, to make any parachute payments that will not be
deductible under Section 280G of the Tax Code. Neither McKesson nor any McKesson
subsidiary is obligated to make reimbursement or gross-up payments to any person
in respect to excess parachute payments.
(l) Voting Requirements. The affirmative vote at the McKesson
Stockholders' Meeting (the "McKesson Stockholder Approval") of the holders of a
majority of all outstanding shares of McKesson Common Stock present in person or
by proxy and entitled to vote at a duly convened and held meeting of McKesson
Stockholders is the only vote of the holders of any class or series of
McKesson's capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby, including the Merger.
(m) State Takeover Statutes; Certificate of Incorporation. The
Board of Directors of McKesson has adopted a resolution or resolutions approving
this Agreement and the Option Agreements and the transactions contemplated
hereby and thereby and, assuming the accuracy of HBO's representation and
warranty contained in Section 3.2(q), (a) such approval constitutes approval of
the Merger and the other transactions contemplated hereby and by the Option
Agreements by the McKesson Board of Directors under the provisions of Section
203 of the DGCL and Article VII of McKesson's Certificate of Incorporation such
that Section 203 of the DGCL and Article VII of McKesson's Certificate of
Incorporation do not apply to this Agreement, the Option Agreements and the
transactions contemplated hereby and thereby. To the knowledge of McKesson, no
state takeover statute other than Section 203 of the DGCL (which has been
rendered inapplicable) is applicable to the Merger or the other transactions
contemplated hereby.
17
(n) Accounting Matters. To its knowledge, neither McKesson nor
any of its affiliates (as such term is used in Section 5.9) has taken or agreed
to take any action (including, without limitation, in connection with any
McKesson Stock Plan or any agreement thereunder) that would prevent the business
combination to be effected by the Merger from being accounted for as a "pooling
of interests" and McKesson has no reason to believe that the Merger will not
qualify for "pooling of interests" accounting.
(o) Brokers. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of McKesson.
(p) Opinion of Financial Advisors. McKesson has received the
opinion of Bear, Xxxxxxx & Co., Inc., dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio for the conversion of HBO
Common Stock into McKesson Common Stock is fair from a financial point of view
to the stockholders of McKesson, a signed copy of which opinion has been
delivered to HBO.
(q) Ownership of HBO Common Stock. To the knowledge of
McKesson, as of the date hereof or at any time within twelve months prior to the
date of this Agreement (and before giving effect to the HBO Option Agreement,
which will be entered into immediately after the execution of this Agreement),
neither McKesson nor, to its knowledge without independent investigation, any of
its affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the Ex
change Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of HBO.
(r) Intellectual Property.
(i) McKesson or its subsidiaries own or have a valid
right to use all trademarks, service marks, trade names, Internet domain names,
designs, slogans, and general intangibles of like nature, together with all
applications, registrations and goodwill related to the foregoing (collectively,
"Trademarks"); patents (including any registration, continuations,
continuations-in-part, renewals and applications for any of the foregoing);
copyrights (including any registrations, renewals and applications for any of
the foregoing); Software (as defined below); technology, trade secrets and other
confidential information, know-how, proprietary processes, formulae, algorithms,
models, and methodologies (collectively, "Trade Secrets") used in or necessary
for the conduct of McKesson's and each of its subsidiary's business as currently
conducted, except where the failure to possess such right would not have a
material adverse effect (all such intellectual property being referred to herein
as the "Intellectual Property"). For purposes of this Section 3.1(r), "Software"
means any and all (a) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, (b) databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, (c) descriptions,
flow-charts and other work product used to design, plan, organize and develop
any of the foregoing, (d) the technology supporting any Internet site(s)
operated by or on behalf of McKesson or any of its subsidiaries and
18
(e) all documentation, including user manuals and training materials, relating
to any of the foregoing.
(ii) The Intellectual Property owned by McKesson or
any of its subsidiaries is free and clear of all Liens.
(iii) The Intellectual Property owned by McKesson or
any of its subsidiaries and, to McKesson's knowledge, any Intellectual Property
used by McKesson, is valid and subsisting, in full force and effect, and has not
been canceled, expired, or abandoned. There is no pending or, to McKesson's
knowledge, threatened opposition, interference or cancellation proceeding before
any court or registration authority in any jurisdiction against any
registrations in respect of the Intellectual Property owned by McKesson or any
of its subsidiaries, or, to McKesson's knowledge, against any Intellectual
Property licensed to McKesson or any of its subsidiaries.
(iv) To the actual knowledge of McKesson or any of
its subsidiaries, the conduct of the business of McKesson and its subsidiaries
as currently conducted does not infringe upon (either directly or indirectly
such as through contributory infringement or inducement to infringe) any
intellectual property rights owned or controlled by any third party. There are
no claims or suits pending or, to the knowledge of McKesson, threatened, and
neither McKesson nor any of its subsidiaries has received any notice of a
third-party claim or suit, (a) alleging that its activities or the conduct of
its business infringes upon, violates, or constitutes the unauthorized use of
the intellectual property rights of any third party or (b) challenging the
ownership, use, validity or enforceability of any Intellectual Property, which
in any case would have a material adverse effect.
(v) There are no settlements, forebearances to xxx,
consents, judgments, or orders or similar obligations which in any material
respect (a) restrict the right of McKesson or its subsidiaries to use any
Intellectual Property, or (b) restrict the business of McKesson or its
subsidiaries in order to accommodate a third party's intellectual property
rights or (c) except for licenses with customers for McKesson's Software, there
are no agreements that permit third parties to use any Intellectual Property
owned or controlled by McKesson or any of its subsidiaries.
(vi) McKesson and each of its subsidiaries take
reasonable measures to protect the confidentiality of Trade Secrets, including
(i) requiring its employees and independent contractors having access thereto to
execute written nondisclosure agreements and (ii) requiring all licensees to
maintain the confidentiality of its Trade Secrets. To the actual knowledge of
McKesson or its subsidiaries, no Trade Secret has been knowingly disclosed or
authorized to be disclosed to any third party other than pursuant to a
nondisclosure agreement or other appropriate instrument that adequately protects
McKesson and the applicable subsidiary's proprietary interests in and to such
Trade Secrets. To the knowledge of McKesson, no party to any nondisclosure
agreement or nondisclosure obligation relating to its Trade Secrets is in breach
or default thereof.
(vii) To the knowledge of McKesson, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned by McKesson or any of its
19
subsidiaries other than immaterial disputes concerning use by a third party of
Trademarks of McKesson or a subsidiary.
(viii) The consummation of the transaction
contemplated hereby shall not result in the loss or impairment of McKesson's or
of any subsidiary's right to own or use any of the Intellectual Property, and
will not require the consent of any governmental authority, except where such
loss or impairment or the failure to obtain consent would not result in a
material adverse effect.
(ix) Neither McKesson nor any of its subsidiaries has
entered into any software license agreement in which it (a) failed to limit its
liability to the amount of licensing fees paid pursuant to the agreement; or (b)
warranted as to the performance or functionality of the Software other than
stating that the Software would perform in accordance with its documentation
and/or specifications; except in any case in which the contrary would not have a
material adverse effect.
(x) McKesson has implemented and is currently
implementing revisions and related testing of its material Software that it
licenses and maintains pursuant to contracts with third parties ("Licensed
Software") in order to enable such Software to process accurately (including
calculating, comparing and sequencing) in all material respects date data from,
into and between the twentieth and twenty-first centuries, including leap year
calculations ("Millennial Date Data"). By December 31, 1999, all such Licensed
Software will so process Millennial Date Data without material errors or
omissions and without materially affecting functionality when used in accordance
with the product documentation provided by McKesson therefor and provided that
all other software and all hardware and firmware used in combination with such
Licensed Software properly exchanges date data with it. Neither McKesson nor any
of its subsidiaries has made any representation or warranty to any third party
that varies in any material respect from the preceding warranty.
(xi) McKesson and its subsidiaries are in the process
of, and have substantially completed obtaining, written representations or
assurances from each third party that (A) provides Millennial Date Data to
McKesson or its subsidiaries, (B) processes Millennial Date Data for McKesson or
its subsidiaries or (C) otherwise provides any material product or service to
McKesson or its subsidiaries that is dependent upon any Software, microcode,
chip or hardware system or component, including any electronic or electronically
controlled system or component (a "System") that processes any Millennial Date
Data, stating that all of such Systems that are used for, or on behalf of,
McKesson or its subsidiaries will process Millennial Date Data without
materially affecting the supply of such product or service to McKesson or its
subsidiaries after December 31, 1999.
(s) Certain Contracts. Except as set forth in the McKesson
Filed SEC Documents, neither McKesson nor any of its subsidiaries is a party to
or bound by (i) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC), (ii) any non-competition agreement or
any other agreement or obligation which purports to limit in any material
respect the manner in which, or the localities in which, all or any material
portion of the business of McKesson and its subsidiaries (including, for
purposes of this Section 3.1(s), HBO
20
and its subsidiaries, assuming the Merger has taken place), taken as a whole, is
or would be conducted, (iii) any exclusive supply or purchase contracts or any
exclusive requirements contracts or (iv) any contract or other agreement which
would prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (all contracts of the type
described in clauses (i) and (ii) being referred to herein as "McKesson Material
Contracts"). McKesson has delivered to HBO or provided to HBO for review, prior
to the execution of this Agreement, complete and correct copies of all McKesson
Material Contracts not filed as exhibits to the McKesson Filed SEC Documents.
Each McKesson Material Contract is valid and binding on McKesson (or, to the
extent a McKesson subsidiary is a party, such subsidiary) and is in full force
and effect, and McKesson and each McKesson subsidiary have in all material
respects performed all obligations required to be performed by them to date
under each McKesson Material Contract, except where such noncompliance,
individually or in the aggregate, would not have a material adverse effect on
McKesson. Neither McKesson nor any McKesson subsidiary knows of, or has received
notice of, any violation or default under (nor, to the knowledge of McKesson,
does there exist any condition which with the passage of time or the giving of
notice or both would result in such a violation or default under) any McKesson
Material Contract.
(t) McKesson Rights Agreement. McKesson has taken all action
(including, if required, redeeming all of the outstanding preferred stock
purchase rights issued pursuant to the McKesson Rights Agreement or amending the
McKesson Rights Agreement) so that the entering into of this Agreement, the
McKesson Option Agreement, the Merger, the acquisition of shares pursuant to the
McKesson Option Agreement and the other transactions contemplated hereby and
thereby do not and will not result in the grant of any rights to any person
under the McKesson Rights Agreement or enable or require the McKesson Rights to
be exercised, distributed or triggered.
(u) Environmental Liability. Except as set forth in the
McKesson Filed SEC Documents, there are no legal, administrative, arbitral or
other proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature pending or threatened against McKesson or any of its subsidiaries seeking
to impose, or that could reasonably be expected to result in the imposition of,
on McKesson or any of its subsidiaries, any liability or obligation arising
under common law or under any local, state or federal environmental statute,
regulation or ordinance, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), which liability or obligation could reasonably be expected to have a
material adverse effect on McKesson. To the knowledge of McKesson, there is no
reasonable basis for any such proceeding, claim, action or governmental
investigation that would impose any liability or obligation that could
reasonably be expected to have a material adverse effect on McKesson.
(v) Insurance. McKesson and each of its subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of McKesson
and its subsidiaries. There is no claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds, except questioned, denied or disputed
21
claims the failure to provide coverage for which would not, individually or in
the aggregate, have a material adverse effect on McKesson. All premiums due and
payable under all such policies and bonds have been paid and McKesson and its
subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds. McKesson has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
(w) Transactions with Affiliates. Except as disclosed in the
McKesson SEC Documents filed prior to the date of this Agreement or as disclosed
in the McKesson Disclosure Schedule, since March 31, 1998, there have been no
transactions, agreements, arrangements or understandings between McKesson and
its affiliates that would be required to be disclosed under the Item 404 of
Regulation S-K under the Securities Act.
(x) Full Disclosure. None of the representations or warranties
made by McKesson herein or in any schedule hereto, including the McKesson
Disclosure Schedule, or any certificate furnished by McKesson pursuant to this
Agreement, contains or will contain at the Effective Time any untrue statement
of a material fact, or omits or will omit at the Effective Time, to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
SECTION 3.2 Representations and Warranties of HBO. Except as disclosed
in the Disclosure Schedule delivered by HBO to McKesson prior to the execution
of this Agreement (the "HBO Disclosure Schedule") and making reference to the
particular subsection of this Agreement to which exception is being taken, HBO
represents and warrants to McKesson as follows:
(a) Organization, Standing and Corporate Power.
(i) Each of HBO and its subsidiaries (as defined in
Section 8.3) is a corporation or other legal entity duly organized, validly
existing and in good standing (with respect to jurisdictions which recognize
such concept) under the laws of the jurisdiction in which it is organized and
has the requisite corporate or other power, as the case may be, and authority to
carry on its business as now being conducted, except, as to subsidiaries, for
those jurisdictions where the failure to be so organized, existing or in good
standing individually or in the aggregate would not have a material adverse
effect (as defined in Section 8.3) on HBO. Each of HBO and its subsidiaries is
duly qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material adverse effect on
HBO.
(ii) HBO has delivered to McKesson prior to the
execution of this Agreement complete and correct copies of any amendments to its
certificate of incorporation (the "HBO Certificate") and by-laws not filed as of
the date hereof with the HBO SEC Documents (as defined in Section 3.2(e)).
22
(iii) In all material respects, the minute books of
HBO and its subsidiaries contain accurate records of all meetings and accurately
reflect all other actions taken by the stockholders, the Board of Directors and
all committees of the Board of Directors of HBO (or, as the case may be, each of
its subsidiaries) since December 31, 1996.
(b) Subsidiaries. Exhibit 21 to HBO's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 includes all the subsidiaries
of HBO which as of the date of this Agreement are Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares
of capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned directly or indirectly by HBO, free and clear of all Liens and free of any
other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
(c) Capital Structure. The authorized capital stock of HBO
consists of 1,000,000,000 shares of HBO Common Stock, and 1,000,000 shares of
preferred stock, without par value ("HBO Preferred Stock"). At the close of
business on September 30, 1998: (i) 431,485,014 shares of HBO Common Stock were
issued and outstanding; (ii) no shares of HBO Common Stock were held by HBO in
its treasury; (iii) no shares of HBO Preferred Stock were issued and
outstanding; (iv) 3,303,188 shares of HBO Common Stock were reserved for
issuance pursuant to all stock option, restricted stock or other stock-based
compensation, benefits or savings plans, agreements or arrangements in which
current or former employees or directors of HBO or its subsidiaries participate
as of the date hereof (including, without limitation, the plans set forth on
Exhibit F attached hereto), complete and correct copies of which, in each case
as amended as of the date hereof, have been filed as exhibits to the HBO Filed
SEC Documents or delivered to McKesson (such plans, collectively, the "HBO Stock
Plans"); and (v) 20,000 shares of HBO Preferred Stock designated as Series A
Junior Participating Preferred Stock were reserved for issuance upon the
exercise of preferred stock purchase rights (the "HBO Rights") issued pursuant
to the HBO Rights Agreement. Section 3.2(c) of the HBO Disclosure Schedule sets
forth a complete and correct list, as of September 30, 1998, of the number of
shares of HBO Common Stock subject to employee stock options or other rights to
purchase or receive HBO Common Stock granted under the HBO Stock Plans
(collectively, "HBO Employee Stock Options"). All outstanding shares of capital
stock of HBO are, and all shares which may be issued pursuant to this Agreement
or otherwise will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. Except as set forth in
this Section 3.2(c), and except for changes since September 30, 1998 resulting
from the issuance of shares of HBO Common Stock pursuant to the HBO Employee
Stock Options or as expressly permitted by this Agreement, (x) there are not
issued, reserved for issuance or outstanding (A) any shares of capital stock or
other voting securities of HBO, (B) any securities of HBO or any HBO subsidiary
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of HBO, (C) any warrants, calls, options or other rights to
acquire from HBO or any HBO subsidiary, and any obligation of HBO or any HBO
subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of HBO, and (y) there are no outstanding obligations of HBO or any
HBO subsidiary to repurchase, redeem or otherwise acquire any such securities or
to issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities. There are no
23
outstanding (A) securities of HBO or any HBO subsidiary convertible into or
exchangeable or ex ercisable for shares of capital stock or other voting
securities or ownership interests in any HBO subsidiary, (B) warrants, calls,
options or other rights to acquire from HBO or any HBO subsidiary, or
obligations of HBO or any HBO subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests in, any HBO subsidiary or (C) obligations of HBO or any HBO
subsidiary to repurchase, redeem or otherwise acquire any such outstanding
securities of HBO subsidiaries or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities. Neither HBO nor any HBO
subsidiary is a party to any agreement restricting the purchase or transfer of,
relating to the voting of, requiring registration of, or granting any preemptive
or, except as provided by the terms of the HBO Employee Stock Options,
antidilutive rights with respect to, any securities of the type referred to in
the two preceding sentences. Other than the HBO subsidiaries, HBO does not
directly or indirectly beneficially own any securities or other beneficial
ownership interests in any other entity except for non-controlling investments
made in the ordinary course of business in entities which are not individually
or in the aggregate material to HBO and its subsidiaries as a whole.
(d) Authority; Noncontravention. HBO has all requisite
corporate power and authority to enter into this Agreement, and HBO has all
requisite corporate power and authority to enter into the Option Agreements and,
subject to the HBO Stockholder Approval (as defined in Section 3.2(l)), to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement by HBO and the execution and delivery of the Option
Agreements by HBO and the consummation by HBO of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of HBO, subject, in the case of the Merger, to the HBO Stockholder
Approval. This Agreement has been, and the Option Agreements will be, duly
executed and delivered by HBO and, assuming the due authorization, execution and
delivery thereof by McKesson, constitute (or will constitute, as the case may
be) the legal, valid and binding obligation of HBO, enforceable against HBO in
accordance with their terms. The execution and delivery of this Agreement does
not, and the execution and delivery of the Option Agreements and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions of this Agreement and the Option Agreements will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of HBO
or any of its subsidiaries or any restriction on the conduct of HBO's business
or operations under, (i) the HBO Certificate or the by-laws of HBO or the
comparable organizational documents of any of its subsidiaries, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, trust document, lease or
other agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to HBO or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to HBO or any of its
subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, violations, defaults, rights,
losses, restrictions or Liens that individually or in the aggregate would not
(x) have a material adverse effect on HBO or (y) reasonably be expected to
impair the ability of HBO to perform its obligations under this Agreement and
the Option Agreements). No consent, approval, order or authorization
24
of, action by, or in respect of, or registration, declaration or filing with,
any Governmental Entity is required by or with respect to HBO or any of its
subsidiaries in connection with the execution and delivery of this Agreement or
the Option Agreements by HBO or the consummation by HBO of the transactions
contemplated hereby or thereby, except for (1) the filing of a pre-merger noti
fication and report form by HBO under the HSR Act or filings or notifications
under the antitrust, competition or similar laws of any foreign jurisdiction;
(2) the filing with the SEC of (A) the Joint Proxy Statement relating to the HBO
Stockholders' Meeting, and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Exchange Act as may be required in connection with this Agreement
and the Option Agreements and the transactions contemplated hereby and thereby;
(3) the filing of the Certificate of Merger with the Secretary of State of
Delaware and appropriate documents with the relevant authorities of other states
in which HBO is qualified to do business and such filings with Governmental
Entities to satisfy the applicable requirements of state securities or "blue
sky" laws; and (4) such consents, approvals, orders or authorizations the
failure of which to be made or obtained individually or in the aggregate would
not (x) have a material adverse effect on HBO or (y) reasonably be expected to
impair the ability of HBO to perform its obligations under this Agreement.
(e) SEC Documents; Undisclosed Liabilities. HBO has filed all
required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the SEC since December 31, 1996 (the "HBO SEC
Documents"). As of their respective dates, the HBO SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such HBO SEC Documents, and none of the HBO SEC
Documents when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of HBO included in the
HBO SEC Documents comply as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of HBO and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which are not
material). Except (i) as reflected in such financial statements or in the notes
thereto or (ii) for liabilities incurred in connection with this Agreement, the
Option Agreements or the transactions contemplated hereby or thereby, neither
HBO nor any of its subsidiaries has any liabilities or obligations of any
nature which, individually or in the aggregate, would have a material adverse
effect on HBO.
(f) Information Supplied. None of the information supplied or
to be supplied by HBO specifically for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Joint Proxy Statement will, at the
date it is first
25
mailed to HBO's stockholders or at the time of the HBO Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations thereunder, except that no representation or warranty
is made by HBO with respect to statements made or incorporated by reference
therein based on information supplied by McKesson specifically for inclusion or
incorporation by reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement, the Option Agreements or
the transactions contemplated hereby or thereby, and except as permitted by
Section 4.1(b), since Xxxxx 00, 0000, XXX and its subsidiaries have conducted
their business only in the ordinary course consistent with past practice or as
disclosed in any HBO SEC Document filed since such date and prior to the date
hereof, and there has not been (i) any material adverse change (as defined in
Section 8.3) in HBO, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of HBO's capital stock, (iii) any split, combination or reclassification
of any of HBO's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of HBO's capital stock, except for issuances of HBO Common Stock upon
exercise or conversion of HBO Employee Stock Options, in each case awarded prior
to the date hereof in accordance with their present terms or issued pursuant to
Section 4.1(b), (iv)(A) any granting by HBO or any of its subsidiaries to any
current or former director, officer or other key employee of HBO or its
subsidiaries of any increase in compensation, bonus or other benefits, except
for normal increases as a result of promotions, normal increases of base pay or
target bonuses in the ordinary course of business or as was required under any
employment agreements in effect as of Xxxxx 00, 0000, (X) any granting by HBO or
any of its subsidiaries to any such current or former director, officer or key
employee of any increase in severance or termination pay, or (C) any entry by
HBO or any of its subsidiaries into, or any amendment of, any employment,
deferred compensation, consulting, severance, termination or indemnification
agreement with any such current or former director, officer, or any material
amendment of any of the foregoing with any key employee, (v) except insofar as
may have been disclosed in HBO SEC Documents filed and publicly available prior
to the date of this Agreement (as amended to the date hereof, the "HBO Filed SEC
Documents") or required by a change in GAAP, any change in accounting methods,
principles or practices by HBO materially affecting its assets, liabilities or
business, (vi) except insofar as may have been disclosed in the HBO Filed SEC
Documents, any tax election that individually or in the aggregate would have a
material adverse effect on HBO or any of its tax attributes or any settlement or
compromise of any material income tax liability or (vii) any action taken by HBO
or any of the HBO subsidiaries during the period from April 1, 1998 through the
date of this Agreement that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Section
4.1(b).
(h) Compliance with Applicable Laws; Litigation.
(i) HBO, its subsidiaries and employees hold all
permits, licenses, variances, exemptions, orders, registrations and approvals of
all Governmental Entities which are
26
required for the operation of the businesses of HBO and its subsidiaries (the
"HBO Permits") except where the failure to have any such HBO Permits
individually or in the aggregate would not have a material adverse effect on
HBO. Except as specifically disclosed in the HBO SEC Documents filed with the
Commission prior to the date hereof, HBO and its subsidiaries are in compliance
with the terms of the HBO Permits and all Applicable Laws relating to HBO or its
business or properties, except where the failure to be in compliance with such
Applicable Laws individually or in the aggregate would not have a material
adverse effect on HBO. As of the date of this Agreement, except as disclosed in
the HBO Filed SEC Documents, no action, demand, requirement or investigation by
any Governmental Entity and no suit, action or proceeding by any person, in each
case with respect to HBO or any of its subsidiaries or any of their respective
properties, is pending or, to the knowledge of HBO, threatened, other than, in
each case, those the outcome of which individually or in the aggregate would not
(A) have a material adverse effect on HBO or (B) reasonably be expected to
impair the ability of HBO to perform its obligations under this Agreement or
the Option Agreements or prevent or materially delay the consummation of any of
the transactions contemplated hereby or thereby.
(ii) Neither HBO nor any HBO subsidiary is subject to
any outstanding order, injunction or decree which has had or, insofar as can be
reasonably foreseen, individually or in the aggregate will have, a material
adverse effect on HBO.
(i) Absence of Changes in Benefit Plans. HBO has delivered to
McKesson or provided to McKesson for review true and complete copies of (i) all
severance and employment agreements of HBO with directors, executive officers or
key employees, (ii) all written and material unwritten severance programs and
policies of each of HBO and each HBO subsidiary, and (iii) all plans or
arrangements of HBO and each HBO subsidiary relating to its employees which
contain change in control provisions, in each case which has not been filed as
an exhibit to an HBO Filed SEC Document. Since March 31, 1998, there has not
been any adoption or amendment in any material respect by HBO or any of its
subsidiaries of any (A) collective bargaining agreement with respect to any
employees of, (B) any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
providing benefits to, any current or former officers, directors or employees
of, (C) any employment agreement, consulting agreement or severance agreement
with, any current or former officer or director of, or (D) any material
employment agreement, consulting agreement or severance agreement with any
employee of, HBO or any of its wholly owned subsidiaries (collectively, the
"HBO Benefit Plans"), or any material change in any actuarial or other
assumption used to calculate funding obligations with respect to any HBO pension
plans, or any material change in the manner in which contributions to any HBO
pension plans are made or the basis on which such contributions are determined.
Since March 31, 1998, neither HBO nor any HBO subsidiary has amended any HBO
Employee Stock Options or any HBO Stock Plans to accelerate the vesting of, or
release restrictions on, awards thereunder, or to provide for such acceleration
in the event of a change in control.
27
(j) Benefit Plans.
(i) With respect to the HBO Benefit Plans, to the
knowledge of HBO, no event has occurred and there exists no condition or set of
circumstances, in connection with which HBO or any of its subsidiaries would be
subject to any liability that individually or in the aggregate could have a
material adverse effect on HBO under ERISA, the Code or any other applicable
law.
(ii) Each HBO Benefit Plan has been administered in
accordance with its terms, except for any failures so to administer any HBO
Benefit Plan that individually or in the aggregate would not have a material
adverse effect on HBO. To the knowledge of HBO, the HBO Benefit Plans have been
operated, and are, in compliance with the applicable provisions of ERISA, the
Code and all other applicable laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in such compliance that
individually or in the aggregate would not have a material adverse effect on
HBO. Each HBO Benefit Plan that is intended to be qualified under Section 401(a)
or 401(k) of the Code has received a favorable determination letter from the IRS
that it is so qualified and each trust established in connection with any HBO
Benefit Plan that is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. To the knowledge of HBO, no fact or event has occurred
since the date of any determination letter from the IRS which is reasonably
likely to affect adversely the qualified status of any such HBO Benefit Plan or
the exempt status of any such trust.
(iii) No HBO Benefit Plan is subject to Title IV of
ERISA or is a "multiemployer plan" within the meaning of Section 3(37) of ERISA.
(iv) No HBO Benefit Plan provides medical benefits
(whether or not insured), with respect to current or former employees after
retirement or other termination of service (other than coverage mandated by
applicable law or benefits, the full cost of which is borne by the current or
former employee) other than individual arrangements the amounts of which are not
material.
(v) HBO has previously provided to McKesson a copy of
each collective bargaining or other labor union contract applicable to persons
employed by HBO or any of its subsidiaries to which HBO or any of its
subsidiaries is a party. No collective bargaining agreement is being negotiated
or renegotiated by HBO or any of its subsidiaries. As of the date of this
Agreement, there is no labor dispute, strike or work stoppage against HBO or any
of its subsidiaries pending or, to the knowledge of HBO, threatened which may
interfere with the respective business activities of HBO or any of its
subsidiaries, except where such dispute, strike or work stoppage individually or
in the aggregate would not have a material adverse effect on HBO. As of the date
of this Agreement, to the knowledge of HBO, none of HBO, any of its subsidiaries
or any of their respective representatives or employees has committed any
material unfair labor practice in connection with the operation of the
respective businesses of HBO or any of its subsidiaries, and there is no
material charge or complaint against HBO or any of its subsidiaries by the
National Labor Relations Board or any comparable governmental agency pending or
threatened in writing.
28
(vi) No employee of HBO will be entitled to any
material payment, additional benefits or any acceleration of the time of payment
or vesting of any benefits under any HBO Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction with
any other event such as a termination of employment).
(vii) No material oral or written representation or
commitment with respect to any aspect of any HBO Benefit Plan has been or will
be made to employees of HBO or any HBO subsidiaries by an authorized HBO
employee prior to the Closing Date that is not materially in accordance with the
written or otherwise preexisting terms and provisions of such HBO Benefit Plans
in effect immediately prior to the Closing Date.
(viii) Except as would not have a material adverse
effect, there are no material unresolved claims or disputes under the terms of,
or in connection with, any HBO Benefit Plan (other than routine undisputed
claims for benefits), and no action, legal or otherwise, has been commenced with
respect to any material claim.
(ix) To the knowledge of HBO, no non-exempt
"prohibited transaction" (within the meaning of Section 4975(c) of the Tax Code)
involving any HBO Benefit Plan has occurred that could subject HBO to any
material tax penalty or other cost or liability (by indemnification or
otherwise).
(k) Taxes.
(i) Each of HBO and its subsidiaries has filed all
material tax returns and reports required to be filed by it (taking into account
applicable extensions) and all such returns and reports are complete and correct
in all material respects, or requests for extensions to file such returns or
reports have been timely filed, granted and have not expired, except to the
extent that such failures to file, to be complete or correct or to have
extensions granted that remain in effect individually or in the aggregate would
not have a material adverse effect on HBO. HBO and each of its subsidiaries has
paid (or HBO has paid or caused to be paid on its behalf) all taxes shown as due
on such returns, and the most recent financial statements contained in the HBO
Filed SEC Documents reflect an adequate reserve in accordance with GAAP for all
taxes payable by HBO and its subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(ii) No deficiencies for any taxes have, to the
knowledge of HBO, been proposed, asserted or assessed against HBO or any of its
subsidiaries that are not adequately reserved for, except for deficiencies that
individually or in the aggregate would not have a material adverse effect on
HBO. Except as provided in Section 3.1(k) of the Disclosure Schedule, all of the
federal income tax returns of the affiliated group of which HBO is the common
parent have closed by virtue of the applicable statute of limitations.
(iii) Neither HBO nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan or other circumstance
that is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
29
(iv) Neither HBO nor any HBO subsidiary has made any
parachute payments as such term is defined in Section 280G of the Tax Code,
neither is obligated to make any parachute payments, and neither is a party to
any agreement that under certain circumstances could obligate it, or any
successor in interest, to make any parachute payments that will not be
deductible under Section 280G of the Tax Code. Neither HBO nor any HBO
subsidiary is obligated to make reimbursement or gross-up payments to any person
in respect to excess parachute payments.
(l) Voting Requirements. The affirmative vote at the HBO
Stockholders' Meeting (the "HBO Stockholder Approval") of the holders of a
majority of all outstanding shares of HBO Common Stock entitled to vote at a
duly convened and held meeting of HBO stockholders is the only vote of the
holders of any class or series of HBO's capital stock necessary to approve and
adopt this Agreement and the transactions contemplated hereby, including the
Merger.
(m) State Takeover Statutes; Certificate of Incorporation. The
Board of Directors of HBO has adopted a resolution or resolutions approving this
Agreement, the Option Agreements, and the transactions contemplated hereby and
thereby, and, assuming the accuracy of McKesson's representation and warranty
contained in Section 3.1(q), such approval constitutes approval of the Merger
and the other transactions contemplated hereby and thereby by the HBO Board of
Directors under the provisions of Section 203 of the DGCL and paragraphs 11 and
12 of HBO's Certificate of Incorporation such that Section 203 of the DGCL and
paragraphs 11 and 12 of HBO's Certificate of Incorporation do not apply to this
Agreement, the Option Agreements, or the transactions contemplated hereby and
thereby. To the knowledge of HBO, no state takeover statute other than Section
203 of the DGCL (which has been rendered inapplicable) is applicable to the
Merger or the other transactions contemplated hereby.
(n) Accounting Matters. To its knowledge, neither HBO nor any
of its affiliates (as such term is used in Section 5.9) has taken or agreed to
take any action (including, without limitation, in connection with any HBO Stock
Plan or any agreement thereunder) that would prevent the business combination to
be effected by the Merger from being accounted for as a "pooling of interests,"
and HBO has no reason to believe that the Merger will not qualify for "pooling
of interests" accounting.
(o) Brokers. No broker, investment banker, financial advisor
or other person, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of HBO.
(p) Opinion of Financial Advisors. HBO has received the
opinion of Xxxxxx Xxxxxxx Xxxx Xxxxxx, dated the date of this Agreement, to the
effect that, as of such date, the Exchange Ratio for the conversion of HBO
Common Stock into McKesson Common Stock is fair from a financial point of view
to holders of shares of HBO Common Stock (other than McKesson and its
affiliates), a signed copy of which opinion has been delivered to McKesson.
30
(q) Ownership of McKesson Common Stock. To the knowledge of
HBO, as of the date hereof or at any time within twelve months prior to the date
of this Agreement (and before giving effect to the McKesson Option Agreement,
which will be entered into immediately after the execution of this Agreement)
neither HBO nor, to its knowledge without independent investigation, any of its
affiliates, (i) beneficially owns (as defined in either Rule 13d-3 under the
Exchange Act) or owned, directly or indirectly, or (ii) is or was party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of McKesson.
(r) Intellectual Property.
(i) HBO or its subsidiaries own or have a valid right
to use all trademarks, service marks, trade names, Internet domain names,
designs, slogans, and general intangibles of like nature, together with all
applications, registrations and goodwill related to the foregoing (collectively,
"Trademarks"); patents (including any registration, continuations,
continuations-in-part, renewals and applications for any of the foregoing);
copyrights (including any registrations and applications for any of the
foregoing); Software (as defined below); technology, trade secrets and other
confidential information, know-how, proprietary processes, formulae, algorithms,
models, and methodologies (collectively, "Trade Secrets") used in or necessary
for the conduct of HBO's and each of its subsidiary's business as currently
conducted, except where the failure to possess such right would not have a
material adverse effect (all such intellectual property being referred to herein
as the "Intellectual Property"). For purposes of this Section 3.2(r), "Software"
means any and all (a) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, (b) databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, (c) descriptions,
flow-charts and other work product used to design, plan, organize and develop
any of the foregoing, (d) the technology supporting any Internet site(s)
operated by or on behalf of HBO or any of its subsidiaries and (e) all
documentation, including user manuals and training materials, relating to any of
the foregoing.
(ii) The Intellectual Property owned by HBO or any
subsidiary is free and clear of all Liens.
(iii) The Intellectual Property owned by HBO or any
of its subsidiaries and, to HBO's knowledge, any Intellectual Property used by
HBO, is valid and subsisting, in full force and effect, and has not been
canceled, expired, or abandoned. There is no pending or, to HBO's knowledge,
threatened opposition, interference or cancellation proceeding before any court
or registration authority in any jurisdiction against any registrations in
respect of the Intellectual Property owned by HBO or any of its subsidiaries,
or, to HBO's knowledge, against any Intellectual Property licensed to HBO or any
of its subsidiaries.
(iv) To the actual knowledge of HBO or any of its
subsidiaries, the conduct of the business of HBO and its subsidiaries as
currently conducted does not infringe upon (either directly or indirectly such
as through contributory infringement or inducement to infringe) any intellectual
property rights owned or controlled by any third party. There are no claims or
suits pending or, to the knowledge of HBO, threatened, and neither HBO nor any
of its
31
subsidiaries has received any notice of a third-party claim or suit, (a)
alleging that its activities or the conduct of its business infringes upon,
violates, or constitutes the unauthorized use of the intellectual property
rights of any third party or (b) challenging the ownership, use, validity or
enforceability of any Intellectual Property, which in any case would have a
material adverse effect.
(v) There are no settlements, forebearances to xxx,
consents, judgments, or orders or similar obligations which in any material
respect (a) restrict the right of HBO or its subsidiaries to use any
Intellectual Property, or (b) restrict the business of HBO or its subsidiaries
in order to accommodate a third party's intellectual property rights or (c)
except for licenses with customers for HBO's Software, there are no agreements
that permit third parties to use any Intellectual Property owned or controlled
by HBO or any of its subsidiaries.
(vi) HBO and each of its subsidiaries take reasonable
measures to protect the confidentiality of Trade Secrets, including (i)
requiring its employees and independent contractors having access thereto to
execute written nondisclosure agreements and (ii) requiring all licensees to
maintain the confidentiality of its Trade Secrets. To the actual knowledge of
HBO or its subsidiaries, no Trade Secret has been knowingly disclosed or
authorized to be disclosed to any third party other than pursuant to a
nondisclosure agreement or other appropriate instrument that adequately protects
HBO and the applicable subsidiary's proprietary interests in and to such Trade
Secrets. To the knowledge of HBO, no party to any nondisclosure agreement or
nondisclosure obligation relating to its Trade Secrets is in breach or default
thereof.
(vii) To the knowledge of HBO, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned by HBO or any of its subsidiaries other than immaterial disputes
concerning use by a third party of Trademarks of HBO or a subsidiary.
(viii) The consummation of the transaction
contemplated hereby shall not result in the loss or impairment of HBO's or of
any subsidiary's right to own or use any of the Intellectual Property, and will
not require the consent of any governmental authority, except where such loss or
impairment or the failure to obtain consent would not result in a material
adverse effect.
(ix) Neither HBO nor any of its subsidiaries has
entered into any software license agreement in which it (a) failed to limit its
liability to the amount of licensing fees paid pursuant to the agreement; or (b)
warranted as to the performance or functionality of the Software other than
stating that the Software would perform in accordance with its documentation
and/or specifications; except in any case in which the contrary would not have a
material adverse effect.
(x) HBO has implemented and is currently implementing
revisions and related testing of its material Software that it licenses and
maintains pursuant to contracts with third parties ("Licensed Software") in
order to enable such Software to process accurately (including calculating,
comparing and sequencing) in all material respects date data from, into and
between the twentieth and twenty-first centuries, including leap year
calculations ("Millennial Date Data"). By December 31, 1999, all such Licensed
Software will so process Millennial Date
32
Data without material errors or omissions and without materially affecting
functionality when used in accordance with the product documentation provided by
HBO therefor and provided that all other software and all hardware and firmware
used in combination with such Licensed Software properly exchanges date data
with it. Neither HBO nor any of its subsidiaries has made any representation or
warranty to any third party that varies in any material respect from the
preceding warranty.
(xi) HBO and its subsidiaries are in the process of,
and have substantially completed obtaining, written representations or
assurances from each third party that (A) provides Millennial Date Data to HBO
or its subsidiaries, (B) processes Millennial Date Data for HBO or its
subsidiaries or (C) otherwise provides any material product or service to HBO or
its subsidiaries that is dependent upon any Software, microcode, chip or
hardware system or component, including any electronic or electronically
controlled system or component (a "System") that processes any Millennial Date
Data, stating that all of such Systems that are used for, or on behalf of, HBO
or its subsidiaries will process Millennial Date Data without materially
affecting the supply of such product or service to HBO and its subsidiaries
after December 31, 1999.
(s) Certain Contracts. Except as set forth in the HBO Filed
SEC Documents or listed in Section 3.2(s) of the HBO Disclosure Schedule,
neither HBO nor any of its subsidiar ies is a party to or bound by (i) any
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC), (ii) any non-competition agreement or any other agreement or
obligation which purports to limit in any material respect the manner in which,
or the localities in which, all or any material portion of the business of HBO
and its subsidiaries (including, for purposes of this Section 3.2(s), McKesson
and its subsidiaries, assuming the Merger has taken place), taken as a whole, is
or would be conducted, (iii) any exclusive supply or purchase con tracts or any
exclusive requirements contracts or (iv) any contract or other agreement which
would prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement (all contracts of the type described
in clauses (i) and (ii) being referred to herein as "HBO Material Contracts").
HBO has delivered to McKesson or made available to McKesson for review, prior to
the execution of this Agreement, complete and correct copies of all HBO Material
Contracts not filed as exhibits to the HBO Filed SEC Documents. Each HBO
Material Contract is valid and binding on HBO (or, to the extent a HBO
subsidiary is a party, such subsidiary) and is in full force and effect, and HBO
and each HBO subsidiary have in all material respects performed all obligations
required to be performed by them to date under each HBO Material Contract,
except where such noncompliance, individually or in the aggregate, would not
have a material adverse effect on HBO. Neither HBO nor any HBO subsidiary knows
of, or has received notice of, any violation or default under (nor, to the
knowledge of HBO, does there exist any condition which with the passage of time
or the giving of notice or both would result in such a violation or default
under) any HBO Material Contract.
(t) HBO Rights Agreement. HBO has taken all action (including,
if required, redeeming all of the outstanding preferred stock purchase rights
issued pursuant to the HBO Rights Agreement or amending the HBO Rights
Agreement) so that the entering into of this Agreement, the HBO Option Agreement
and the Merger, the acquisition of shares pursuant to the HBO Option Agreement
and the other transactions contemplated hereby and thereby do not and
33
will not result in the grant of any rights to any person under the HBO Rights
Agreement or enable or require the HBO Rights to be exercised, distributed or
triggered.
(u) Environmental Liability. Except as set forth in the HBO
Filed SEC Documents, there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature pending or threatened against HBO or any of its subsidiaries seeking to
impose, or that could reasonably be expected to result in the imposition, on HBO
or any of its subsidiaries, of any liability or obligation arising under common
law or under any local, state or federal environmental statute, regulation or
ordinance, including, without limitation, CERCLA, which liability or obligation
could reasonably be expected to have a material adverse effect on HBO. To the
knowledge of HBO, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any liability or
obligation that could reasonably be expected to have a material adverse effect
on HBO.
(v) Insurance. HBO and each of its subsidiaries have policies
of insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of HBO and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds, except questioned, denied or disputed
claims the failure to provide coverage for which would not, individually or in
the aggregate, have a material adverse effect on HBO. All premiums due and
payable under all such policies and bonds have been paid and HBO and its
subsidiaries are otherwise in compliance in all material respects with the terms
of such policies and bonds. HBO has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
(w) Transactions with Affiliates. Except as disclosed in the
HBO SEC Documents filed prior to the date of this Agreement or as disclosed in
the HBO Disclosure Schedule, since December 31, 1997, there have been no
transactions, agreements, arrangements or understandings between HBO and its
affiliates that would be required to be disclosed under the Item 404 of
Regulation S-K under the Securities Act.
(x) Full Disclosure. None of the representations or warranties
made by HBO herein or in any schedule hereto, including the HBO Disclosure
Schedule, or any certificate furnished by HBO pursuant to this Agreement,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time, to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business.
(a) Conduct of Business by McKesson. Except as set forth in
Section 4.1(a) of the McKesson Disclosure Schedule, as otherwise expressly
contemplated by this Agreement or
34
as consented to by HBO in writing, such consent not to be unreasonably withheld
or delayed, during the period from the date of this Agreement to the Effective
Time, McKesson shall, and shall cause its subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing (but
subject to the above exceptions), during the period from the date of this
Agreement to the Effective Time, McKesson shall not, and shall not permit any of
its subsidiaries to:
(i) other than regular quarterly dividends declared
and paid by McKesson on a basis consistent with past practice, dividends on the
Convertible Preferred Securities and other than dividends and distributions by a
direct or indirect wholly owned subsidiary of McKesson to its parent, or by a
subsidiary that is partially owned by McKesson or any of its subsidiaries,
provided that McKesson or any such subsidiary receives or is to receive its
proportionate share thereof, (x) declare, set aside or pay any dividends on,
make any other distributions in respect of, or enter into any agreement with
respect to the voting of, any of its capital stock, (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, except for issuances of McKesson Common Stock upon the exercise
of McKesson Employee Stock Options, in each case, outstanding as of the date
hereof in accordance with their present terms (including cashless exercise) or
issued pursuant to Section 4.1(a)(ii) or issuances of McKesson Common Stock upon
conversion of the Convertible Preferred Securities or (z) purchase, redeem or
otherwise acquire any shares of capital stock of McKesson or any of its subsid
iaries or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities (except, in the case of clause (z),
for the deemed acceptance of shares upon cashless exercise of McKesson Employee
Stock Options outstanding on the date hereof, or in connection with withholding
obligations relating thereto);
(ii) except in connection with acquisitions permitted
or contemplated by Section 4.1(a) of the McKesson Disclosure Schedule, issue,
deliver, sell, pledge or otherwise encumber or subject to any Lien any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities (other than the issuance of McKesson Common
Stock upon the exercise or conversion of McKesson Employee Stock Options
outstanding as of the date hereof in accordance with their present terms or the
issuance of McKesson Employee Stock Options (and shares of McKesson Common Stock
upon the exercise thereof) granted after the date hereof in the ordinary course
of business consistent with past practice for employees (so long as such ad
ditional amount of McKesson Common Stock subject to McKesson Employee Stock
Options issued to such employees does not exceed 500,000 shares of McKesson
Common Stock in the aggregate);
(iii) except as contemplated hereby, amend its
certificate of incorporation, by-laws or other comparable organizational
documents;
35
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any person, or, except for transactions in
the ordinary course of business consistent with past practice pursuant to
contracts or agreements in force at the date of this Agreement or acquisitions
or investments equal to or less than 120% of McKesson's current capital and
operating budgets (in each case, as previously provided to HBO), make any
material investment either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets of any other
individual, corporation or other entity other than a subsidiary of McKesson;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its properties or
assets (including securitizations), other than in the ordinary course of
business consistent with past practice, including, without limitation, in
connection with consolidation of acquired businesses or as would not have a
material adverse effect on McKesson;
(vi) take any action that would cause the
representations and warranties set forth in Section 3.1(g) and qualified as to
materiality to be no longer true and correct or, if not so qualified, to be no
longer true and correct in all material respects;
(vii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for borrowed
money, other than pursuant to a revolving credit facility or receivables
facility or commercial paper facility in effect as of the date hereof (including
any replacement facilities), in the ordinary course of business consistent with
past practice;
(viii) settle any material claim, action or
proceeding involving money damages, except in the ordinary course of business
consistent with past practice;
(ix) other than in the ordinary course of business or
in connection with acquisitions permitted by Section 4.1(a) of the McKesson
Disclosure Schedule, enter into or terminate any material contract or agreement,
or make any change in any of its material leases or contracts, other than
amendments or renewals of contracts and leases without material adverse changes
of terms;
(x) except for increases in accordance with normal
past practice, increase in any manner the compensation or fringe benefits of any
of its officers or directors, or materially increase the foregoing in respect of
employees; enter into any commitment to pay any pension, retirement or severance
benefit to any such officers or directors, or make any material commitment to
pay the foregoing to any employees; commit itself to, or enter into, any
employment agreement involving compensation of more than $300,000 per year or a
term of more than two (2) years; adopt or commit itself to any new benefit, base
salary or stock option plan or arrangement; or amend, supplement, or accelerate
the timing of payments or vesting under, or otherwise materially amend or
supplement any existing benefit, stock option or compensation plan or
arrangement (other than as may be required by applicable law);
36
(xi) change any of the accounting methods used by
McKesson or any of its subsidiaries unless required by generally accepted
accounting principles; or
(xii) authorize, or commit or agree to take, any of
the foregoing actions; provided that the limitations set forth in this Section
4.1(a) (other than clause (iii)) shall not apply to any transaction between
McKesson and any wholly owned subsidiary or between any wholly owned
subsidiaries of McKesson.
(b) Conduct of Business by HBO. Except as set forth in Section
4.1(b) of the HBO Disclosure Schedule, as otherwise expressly contemplated by
this Agreement or as consented to by McKesson in writing, such consent not to
be unreasonably withheld or delayed, during the period from the date of this
Agreement to the Effective Time, HBO shall, and shall cause its subsidiaries to,
carry on their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, use all reasonable efforts
to preserve intact their current business organizations, use reasonable efforts
to keep available the services of their current officers and other key employees
and preserve their relationships with those persons having business dealings
with them to the end that their goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Without limiting the generality of the
foregoing (but subject to the above exceptions), during the period from the date
of this Agreement to the Effective Time, HBO shall not, and shall not permit any
of its subsidiaries to:
(i) other than regular quarterly dividends declared
and paid by HBO on a basis consistent with past practice and dividends and
distributions by a direct or indirect wholly owned subsidiary of HBO to its
parent, or by a subsidiary that is partially owned by HBO or any of its
subsidiaries, provided that HBO or any such subsidiary receives or is to receive
its proportionate share thereof, (x) declare, set aside or pay any dividends
on, make any other distributions in respect of, or enter into any agreement with
respect to the voting of, any of its capital stock, (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, except for issuances of HBO Common Stock upon the exercise of HBO
Employee Stock Options outstanding as of the date hereof in accordance with
their present terms (including cashless exercise) or issued pursuant to Section
4.1(b)(ii) or (z) purchase, redeem or otherwise acquire any shares of capital
stock of HBO or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities
(except, in the case of clause (z), for the deemed acceptance of shares upon
cashless exercise of HBO Employee Stock Options, or in connection with
withholding obligations relating thereto);
(ii) except in connection with acquisitions permitted
or contemplated by Section 4.1(b) of the HBO Disclosure Schedule, issue,
deliver, sell, pledge or otherwise encumber or subject to any Lien any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities (other than the issuance of HBO Common
Stock upon the exercise of HBO Employee Stock Options outstanding as of the date
hereof in accordance with
37
their present terms or the issuance of HBO Employee Stock Options (and shares of
HBO Common Stock upon the exercise thereof) granted after the date hereof in
the ordinary course of business consistent with past practice for employees (so
long as such additional amount of HBO Common Stock subject to HBO Employee Stock
Options issued to employees does not exceed 500,000 shares of HBO Common Stock
in the aggregate);
(iii) except as contemplated hereby, amend its
certificate of incorporation, by-laws or other comparable organizational
documents;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any person, or, except for transactions in
the ordinary course of business consistent with past practice pursuant to
contracts or agreements in force at the date of this Agreement or acquisitions
or investments equal to or less than 120% of HBO's current capital and operating
budgets (in each case, as previously provided to McKesson), make any material
investment either by purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any other
individual, corporation or other entity other than a subsidiary of HBO;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its properties or
assets (including securitizations), other than in the ordinary course of
business consistent with past practice, including, without limitation, in
connection with consolidation of acquired businesses or as would not have a
material adverse effect on HBO;
(vi) take any action that would cause the
representations and warranties set forth in Section 3.2(g) and qualified as to
materiality to be no longer be true and correct or, if not so qualified, to be
no longer true and correct in all material respects;
(vii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for borrowed
money, other than pursuant to a revolving credit facility or receivables
facility or commercial paper facility in effect as of the date hereof (including
any replacement facilities), in the ordinary course of business consistent with
past practice;
(viii) settle any claim, action or proceeding
involving money damages, except in the ordinary course of business consistent
with past practice;
(ix) other than in the ordinary course of business or
in connection with acquisitions permitted by Section 4.1(b) of the HBO
Disclosure Schedule, enter into or terminate any material contract or agreement,
or make any change in any of its material leases or contracts, other than
amendments or renewals of contracts and leases without material adverse changes
of terms;
(x) except for increases in accordance with normal
past practice, increase in any manner the compensation or fringe benefits of any
of its officers or directors, or
38
materially increase the foregoing in respect of employees; enter into any
commitment to pay any pension, retirement or severance benefit to any such
officers or directors, or make any material commitment to pay any of the
foregoing to any employees; commit itself to, or enter into, any employment
agreement involving base salary of more than $300,000 per year or a term of more
than two (2) years; adopt or commit itself to any new benefit, compensation or
stock option plan or arrangement; or amend, supplement, or accelerate the timing
of payments or vesting under, or otherwise materially amend or supplement any
existing benefit, stock option or compensation plan or arrangement (other than
as may be required by applicable law);
(xi) change any of the accounting methods used by HBO
or any of its subsidiaries unless required by generally accepted accounting
principles; or
(xii) authorize, or commit or agree to take, any of
the foregoing actions; provided that the limitations set forth in this
Section 4.1(b) (other than clause (iii)) shall not apply to any
transaction between HBO and any wholly owned subsidiary or between any
wholly owned subsidiaries of HBO.
(c) Other Actions. Except as required by law, McKesson and HBO
shall not, and shall not permit any of their respective subsidiaries to,
voluntarily take any action that would, or that could reasonably be expected to,
result in (i) any of the representations and warranties of such party set forth
in this Agreement that are qualified as to materiality becoming untrue at the
Effective Time, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect at the Effective Time, or
(iii) any of the conditions to the Merger set forth in Article VI not being
satisfied.
(d) Advice of Changes. McKesson and HBO shall promptly advise
the other party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply in any
material respect with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement and
(iii) any change or event having, or which, insofar as can reasonably be
foreseen, could reasonably be expected to have a material adverse effect on such
party or on the truth of such party's representations and warranties or the
ability of the conditions set forth in Article VI to be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto) or the
conditions to the obligations of the parties under this Agreement.
SECTION 4.2 No Solicitation by McKesson.
(a) McKesson shall not, nor shall it permit any of its
subsidiaries to, nor shall it authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its subsidiaries to, directly
or indirectly through another person, (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
to facilitate, any inquiries or the making
39
of any proposal the consummation of which would constitute an Alternative
Transaction (as hereinafter defined) or (ii) participate in any discussions or
negotiations regarding any Alternative Transaction; provided, however, that if,
at any time prior to the adoption of this Agreement by the holders of McKesson
Common Stock, the Board of Directors of McKesson determines in good faith, after
receipt of advice from outside counsel, that the failure to provide such
information or participate in such negotiations or discussions would result in a
reasonable possibility that the Board of Directors of McKesson breach its
fiduciary duties to McKesson's stockholders under applicable law, McKesson may,
in response to any such proposal that was not solicited by it or that did not
otherwise result from a breach of this Section 4.2(a), and subject to compliance
with Section 4.2(c), (x) furnish information with respect to McKesson and its
subsidiaries to any person pursuant to a customary confidentiality agreement
containing terms as to confidentiality no less restrictive than the terms of the
Confidentiality Agreement dated June 30, 1998 entered into between HBO and
McKesson, as amended pursuant to Section 8.6 hereof (the "Confidentiality
Agreement") and (y) participate in negotiations regarding such proposal. For
purposes of this Agreement "Alternative Transaction" means any of (i) a
transaction or series of transactions pursuant to which any person (or group of
persons) other than HBO and its subsidiaries and other than McKesson and its
subsidiaries (a "Third Party") acquires or would acquire, directly or
indirectly, beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act) of more than 20% of the outstanding shares of HBO or McKesson, as the case
may be, whether from HBO or McKesson or pursuant to a tender offer or exchange
offer or otherwise, (ii) any acquisition or proposed acquisition of HBO or any
of its significant subsidiaries or McKesson or any of its significant
subsidiaries, as the case may be, by a merger or other business combination
(including any so-called "merger of equals" and whether or not HBO or any of its
significant subsidiaries or McKesson or any of its significant subsidiaries, as
the case may be, is the entity surviving any such merger or business
combination) or (iii) any other transaction pursuant to which any Third Party
acquires or would acquire, directly or indirectly, control of assets (including
for this purpose the outstanding equity securities of subsidiaries of HBO or
McKesson, as the case may be, and any entity surviving any merger or combination
including any of them) of HBO or any of its subsidiaries or McKesson or any of
its subsidiaries, as the case may be, for consideration equal to 20% or more of
the fair market value of all of the outstanding shares of HBO Common Stock or
all of the outstanding shares of McKesson Common Stock, as the case may be, on
the date prior to the date hereof.
(b) Neither the Board of Directors of McKesson nor any
committee thereof shall (i) except as expressly permitted by this Section 4.2,
withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify,
in a manner adverse to HBO, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, or the issuance of
McKesson Common Stock in connection with the Merger, (ii) approve or recommend,
or propose publicly to approve or recommend, any Alternative Transaction, or
(iii) cause McKesson to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, a "McKesson Acquisition
Agreement") related to any Alternative Transaction. Notwithstanding the
foregoing, in the event that prior to the adoption of this Agreement by the
holders of McKesson Common Stock the Board of Directors of McKesson determines
in good faith, after it has received a McKesson Superior Proposal (as defined
below) and after receipt of advice from outside counsel, that the failure to do
so would result in a reasonable possibility that the Board of Directors of
McKesson would breach its fiduciary duties
40
to McKesson's stockholders under applicable law, the Board of Directors of
McKesson may (subject to this and the following sentences) inform McKesson
stockholders that it no longer believes that the Merger or this Agreement is
advisable and no longer recommends approval (a "McKesson Subsequent
Determination"), but only at a time that is after the fifth business day
following HBO's receipt of written notice advising HBO that the Board of
Directors of McKesson has received a McKesson Superior Proposal specifying the
material terms and conditions of such Superior Proposal, identifying the person
making such McKesson Superior Proposal and stating that it intends to make a
McKesson Subsequent Determination. After providing such notice, McKesson shall
provide a reasonable opportunity to HBO to make such adjustments in the terms
and conditions of this Agreement and/or of the McKesson Option Agreement as
would enable McKesson to proceed with its recommendation to stockholders without
making a McKesson Subsequent Determination; provided, however, that any such
adjustments shall be at the discretion of the parties at such time. For purposes
of this Agreement, a "McKesson Superior Proposal" means any proposal (on its
most recently amended or modified terms, if amended or modified) made by a Third
Party to enter into an Alternative Transaction which the Board of Directors of
McKesson determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
McKesson's stockholders than the Merger taking into account all relevant factors
(including whether, in the good faith judgment of the Board of Directors of
McKesson, after obtaining advice from a financial advisor of nationally
recognized reputation, the third party is reasonably able to finance the
transaction, and any proposed changes to this Agreement and/or the McKesson
Option Agreement that may be proposed by HBO in response to such Alternative
Transaction). Notwithstanding any other provision of this Agreement, McKesson
shall submit this Agreement to its stockholders whether or not the Board of
Directors of McKesson makes a McKesson Subsequent Determination.
(c) In addition to the obligations of McKesson set forth in
paragraphs (a) and (b) of this Section 4.2, McKesson shall promptly advise HBO
orally and in writing of any request for information or of any proposal in
connection with an Alternative Transaction, the material terms and conditions of
such request or proposal and the identity of the person making such request or
proposal. McKesson will keep HBO reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or proposal on
a current basis.
(d) Nothing contained in this Section 4.2 shall prohibit
McKesson (i) from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act
or (ii) from making any disclosure to its stockholders if, in the good faith
judgment of the Board of Directors of McKesson, after receipt of advice from
outside counsel, failure so to disclose would be inconsistent with its fiduciary
duties to McKesson's stockholders under applicable law.
SECTION 4.3 No Solicitation by HBO.
(a) HBO shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of
41
furnishing information), or take any other action designed to facilitate, any
inquiries or the making of any proposal the consummation of which would
constitute an Alternative Transaction or (ii) participate in any discussions or
negotiations regarding any Alternative Transaction; provided, however, that if,
at any time prior to the adoption of this Agreement by the holders of HBO Common
Stock, the Board of Directors of HBO determines in good faith, after receipt of
advice from outside counsel, that the failure to provide such information or
participate in such negotiations or discussions would result in a reasonable
possibility that the Board of Directors of HBO breach its fiduciary duties to
HBO's stockholders under applicable law, HBO may, in response to any such
proposal that was not solicited by it or which did not otherwise result from a
breach of this Section 4.3(a), and subject to compliance with Section 4.3(c),
(x) furnish information with respect to HBO and its subsidiaries to any person
pursuant to a customary confidentiality agreement containing terms as to
confidentiality no less restrictive than the Confidentiality Agreement, as
amended pursuant to Section 8.6 hereof, and (y) participate in negotiations
regarding such proposal.
(b) Neither the Board of Directors of HBO nor any committee
thereof shall (i) except as expressly permitted by this Section 4.3, withdraw,
qualify or modify, or propose publicly to withdraw, qualify or modify, in a
manner adverse to McKesson, the approval or recommendation by such Board of
Directors or such committee of the Merger, or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Alternative
Transaction, or (iii) cause HBO to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, an "HBO
Acquisition Agreement") related to any Alternative Transaction. Notwithstanding
the foregoing, in the event that prior to the adoption of this Agreement by the
holders of HBO Common Stock the Board of Directors of HBO determines in good
faith, after it has received an HBO Superior Proposal (as defined below) and
after receipt of advice from outside counsel, that the failure to do so would
result in a reasonable possibility that the Board of Directors of HBO would
breach its fiduciary duties to HBO's stockholders under applicable law, the
Board of Directors of HBO may (subject to this and the following sentences)
inform HBO stockholders that it no longer believes that the Merger or this
Agreement is advisable and no longer recommends approval (an "HBO Subsequent
Determination"), but only at a time that is after the fifth business day
following McKesson's receipt of written notice advising McKesson that the Board
of Directors of HBO has received an HBO Superior Proposal, specifying the
material terms and conditions of such HBO Superior Proposal, identifying the
person making such HBO Superior Proposal and stating that it intends to make an
HBO Subsequent Determination. After providing such notice, HBO shall provide a
reasonable opportunity to McKesson to make such adjustments in the terms and
conditions of this Agreement and/or of the HBO Option Agreement as would enable
HBO to proceed with its recommendation to stockholders without making an HBO
Subsequent Determination; provided, however, that any such adjustments shall be
at the discretion of the parties at such time. For purposes of this Agreement,
an "HBO Superior Proposal" means any proposal (on its most recently amended or
modified terms, if amended or modified) made by a Third Party enter into an
Alternative Transaction on terms which the Board of Directors of HBO determines
in its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to HBO's stockholders
than the Merger taking into account all relevant factors (including whether, in
the good faith judgment of the Board of Directors of HBO, after obtaining advice
from a financial advisor of nationally recognized reputation, the third party is
reasonably
42
able to finance the transaction, and any proposed changes to this Agreement
and/or the HBO Option Agreement that may be proposed by McKesson in response to
such Alternative Transaction). Notwithstanding any other provision of this
Agreement, HBO shall submit this Agreement to its stockholders whether or not
the Board of Directors of HBO make an HBO Subsequent Determination.
(c) In addition to the obligations of HBO set forth in
paragraphs (a) and (b) of this Section 4.3, HBO shall promptly advise McKesson
orally and in writing of any request for information or of any proposal in
connection with an Alternative Transaction, the material terms and conditions of
such request or proposal and the identity of the person making such request or
proposal. HBO will keep McKesson reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or proposal on
a current basis.
(d) Nothing contained in this Section 4.3 shall prohibit HBO
from (i) taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or (ii) from
making any disclosure to its stockholders if, in the good faith judgment of the
Board of Directors of HBO, after receipt of advice from outside counsel, failure
so to disclose would be inconsistent with its fiduciary duties to HBO's
stockholders under applicable law.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders' Meetings.
(a) As soon as practicable following the date of this
Agreement, McKesson and HBO shall prepare and file with the SEC the Joint Proxy
Statement, and McKesson shall prepare and file with the SEC the Form S-4, in
which the Joint Proxy Statement will be included as a prospectus. Each of
McKesson and HBO shall use commercially reasonable efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. McKesson will use all commercially reasonable efforts to cause the
Joint Proxy Statement to be mailed to McKesson's stockholders, and HBO will use
all commercially reasonable efforts to cause the Joint Proxy Statement to be
mailed to HBO's stockholders, in each case as promptly as practicable after the
Form S-4 is declared effective under the Securities Act. McKesson shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of McKesson Common Stock in the Merger and the
conversion of Assumed Options, and HBO shall furnish all information concerning
HBO and the holders of HBO Common Stock as may be reasonably requested in
connection with any such action. No filing of, or amendment or supplement to,
the Form S-4 or the Joint Proxy Statement will be made by McKesson without HBO's
prior consent (which shall not be unreasonably withheld) and without providing
HBO the opportunity to review and comment thereon. McKesson will advise HBO.
promptly after it receives notice thereof, of the time when the Form S-4 has
become effective or any supplement or amendment has been filed, the issuance of
any stop order, the suspension of the qualification of the McKesson Common
43
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Joint Proxy
Statement or the Form S-4 or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to the Effective
Time any information relating to McKesson or HBO, or any of their respective
affiliates, officers or directors, should be discovered by McKesson or HBO which
should be set forth in an amendment or supplement to any of the Form S-4 or the
Joint Proxy Statement, so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of McKesson and HBO.
(b) McKesson shall, as promptly as practicable after the Form
S-4 is declared effective under the Securities Act, duly give notice of, convene
and hold a meeting of its stockholders (the "McKesson Stockholders' Meeting")
in accordance with the DGCL for the purpose of obtaining the McKesson
Stockholder Approval and shall, subject to the provisions of Section 4.2(b)
hereof, through its Board of Directors, recommend to its stockholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby.
(c) HBO shall, as promptly as practicable after the Form S-4
is declared effective under the Securities Act, duly give notice of, convene and
hold a meeting of its stockholders (the "HBO Stockholders' Meeting") in
accordance with the DGCL for the purpose of obtaining the HBO Stockholder
Approval and shall, subject to the provisions of Section 4.3(b) hereof, through
its Board of Directors, recommend to its stockholders the approval and adoption
of this Agreement, the Merger and the other transactions contemplated hereby.
(d) HBO and McKesson will use commercially reasonable efforts
to hold the McKesson Stockholders' Meeting and the HBO Stockholders' Meeting on
the same date and as soon as reasonably practicable after the date hereof.
(e) Each of McKesson's and HBO's obligations under this
Section 5.1 shall at all times remain subject to the provisions of Sections
4.2(b) and 4.3(b), respectively, in the event that under the circumstances
described therein, the Board of Directors of McKesson shall have made a McKesson
Subsequent Determination or the Board of Directors of HBO shall have made an HBO
Subsequent Determination, as the case may be.
SECTION 5.2 Letters of McKesson's Accountants.
(a) McKesson shall use commercially reasonable efforts to
cause to be delivered to HBO two letters from McKesson's independent
accountants, one dated as of the date the Form S-4 is declared effective and one
dated as of the Closing Date, each addressed to HBO, in form and substance
reasonably satisfactory to HBO and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
44
(b) McKesson shall use commercially reasonable efforts to
cause to be delivered to HBO and HBO's independent accountants a letter from
McKesson's independent accountants addressed to HBO and McKesson, dated as of
the date the Form S-4 is declared effective and as of the Closing Date, stating
that accounting for the Merger as a pooling of interests under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is closed and consummated as contemplated by this
Agreement.
SECTION 5.3 Letters of HBO's Accountants.
(a) HBO shall use commercially reasonable efforts to cause to
be delivered to McKesson two letters from HBO's independent accountants, one
dated as of the date the Form S-4 is declared effective and one dated as of the
Closing Date, each addressed to McKesson, in form and substance reasonably
satisfactory to McKesson and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) HBO shall use commercially reasonable efforts to cause to
be delivered to McKesson and McKesson's independent accountants a letter from
HBO's independent accountants, addressed to McKesson and HBO, dated as of the
date the Form S-4 is declared effective and as of the Closing Date, stating
that accounting for the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is closed and consummated as contemplated by this
Agreement.
SECTION 5.4 Access to Information; Confidentiality. Subject to the
Confidentiality Agreement and subject to applicable law, each of McKesson and
HBO shall, and shall cause each of its respective subsidiaries to, afford to the
other party and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access during
normal business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records
(provided that such access shall not interfere with the business or operations
of such party) and, during such period, each of McKesson and HBO shall, and
shall cause each of its respective subsidiaries to, furnish promptly to the
other party (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
No review pursuant to this Section 5.4 shall affect any representation or
warranty given by the other party hereto. Each of McKesson and HBO will hold,
and will cause its respective officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreements. McKesson shall also cooperate with HBO and use its best efforts to
obtain an estimate of withdrawal liability from each multiemployer plan with
respect to which McKesson contributes as of the date hereof.
45
SECTION 5.5 Commercially Reasonable Efforts.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings and the
taking of all steps as may be necessary to obtain an approval or waiver from, or
to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining
of all necessary consents, approvals or waivers, and any necessary or
appropriate financing arrangements, from third parties, (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
by this Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement. Notwithstanding anything to the contrary in this Agreement,
neither HBO nor McKesson shall be required to hold separate (including by trust
or otherwise) or divest any of their respective businesses or assets, or enter
into any consent decree or other agreement that would restrict either HBO or
McKesson in the conduct of its business as heretofore conducted.
(b) In connection with and without limiting the foregoing,
McKesson and HBO shall (i) take all action necessary to ensure that no state
takeover statute or similar statute or regulation is or becomes applicable to
this Agreement, the Option Agreements, or any of the transactions contemplated
hereby and thereby and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to such agreements or transactions, take all
action necessary to ensure that such transactions may be consummated as promptly
as practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and the other
transactions contemplated by this Agreement.
SECTION 5.6 Indemnification, Exculpation and Insurance.
(a) McKesson agrees to maintain in effect in accordance with
their terms all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time existing as of the
date of this Agreement in favor of the current or former directors or officers
of HBO and its subsidiaries as provided in their respective certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of HBO. In addition, from and after the Effective
Time, directors and officers of HBO who become directors or officers of McKesson
will be entitled to the same indemnity rights and protections, and directors'
and officers' liability insurance, as are afforded from time to time to other
directors and officers of McKesson.
(b) In the event that McKesson or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving
46
corporation or entity of such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision will be made so that the
successors and assigns of McKesson assume the obligations set forth in this
Section 5.6.
(c) McKesson shall use commercially reasonable efforts to
provide to HBO's current directors and officers, for six years after the
Effective Time, liability insurance covering acts or omissions occurring prior
to the Effective Time with respect to those persons who are currently covered by
HBO's directors' and officers' liability insurance policy on terms with respect
to such coverage and amount no less favorable than those of such policy in
effect on the date hereof, provided that in no event shall McKesson be required
to expend more than 150% of the current amount expended by HBO to maintain such
coverage.
(d) The provisions of this Section 5.6 (i) are intended to be
for the benefit of, and will be enforceable by, each indemnified party, his or
her heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.7 Fees and Expenses.
(a) Except as set forth in this Section 5.7 and in Section
7.2, all fees and expenses incurred in connection with the Merger, this
Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that each of
HBO and McKesson shall bear and pay one-half of the costs and expenses incurred
in connection with (i) the filing, printing and mailing of the Form S-4 and the
Joint Proxy Statement (including SEC filing fees) and (ii) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees). In addition, all transfer taxes incurred in connection with the Merger
arising on or after the Effective Time shall be borne by McKesson.
SECTION 5.8 Public Announcements. HBO and McKesson will consult with
each other before issuing, and provide each other the opportunity to review,
comment upon and concur with, and use reasonable efforts to agree on, any press
release or other public statements with respect to the transactions contemplated
by this Agreement, the Option Agreements, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as either party may determine is required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange or stock market. The parties agree that the initial
press release to be issued with respect to the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
SECTION 5.9 Affiliates.
(a) As soon as practicable after the date hereof, HBO shall
deliver to McKesson a letter identifying all persons who may be deemed to be, at
the time this Agreement is submitted for adoption by the stockholders of HBO,
"affiliates" of HBO for purposes of Rule 145 under the Securities Act or for
purposes of qualifying the Merger for pooling of interests
47
accounting treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations, and such list shall be updated as
necessary to reflect changes from the date hereof. HBO shall use commercially
reasonable efforts to cause each person identified on such list to deliver to
McKesson on or before the date immediately preceding the date of filing the Form
S-4, written agreements substantially in the forms attached as Exhibit G and
Exhibit H hereto, and in the event any other person becomes an affiliate of HBO
thereafter to cause such person to deliver such an agreement to McKesson as soon
as practicable but in any event at Closing. McKesson shall use commercially
reasonable efforts to cause all persons who are "affiliates" of McKesson for
purposes of qualifying the Merger for pooling of interests accounting treatment
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations to deliver to HBO on or before the date immediately preceding the
date of filing of the Form S-4, a written agreement substantially in the form
attached as Exhibit H hereto, and in the event any other person becomes an
affiliate of McKesson thereafter to cause such person to deliver such an
agreement to HBO as soon as practicable but in any event at Closing.
(b) McKesson shall use commercially reasonable efforts to
publish no later than 45 days after the end of the first full month after the
Effective Time in which there are at least 30 days of post Merger combined
operations, combined sales and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release No. 135.
SECTION 5.10 NYSE and PSE Listings. McKesson shall use commercially
reasonable efforts to cause the McKesson Common Stock issuable under Article II
to be approved for listing on NYSE and PSE, subject to official notice of
issuance, as promptly as practicable after the date hereof, and in any event
prior to the Closing Date.
SECTION 5.11 Tax Treatment. Each of HBO and McKesson shall use
commercially reasonable efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368 of the Code and to obtain the
opinions of counsel referred to in Section 6.1(g). The parties will characterize
the Merger as such a reorganization for purposes of all tax returns and other
filings.
SECTION 5.12 Pooling of Interests. Each of McKesson and HBO shall use
commercially reasonable efforts to cause the transactions contemplated by this
Agreement, including the Merger, to be accounted for as a pooling of interests
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by the SEC, and each
of McKesson and HBO agrees that it shall take no action that would cause such
accounting treatment not to be obtained.
SECTION 5.13 Post-Merger Operations. Following the Effective Time, the
principal corporate offices of McKesson HBOC, Inc. shall be San Francisco and
the headquarters for HBO and its subsidiaries shall be Atlanta, until such time
as the Board of Directors of McKesson otherwise determines.
SECTION 5.14 Conveyance Taxes. HBO and McKesson shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and
48
stamp taxes, any transfer, recording, registration and other fees or any similar
taxes which become payable in connection with the transactions contemplated by
this Agreement that are required or permitted to be filed on or before the
Effective Time.
SECTION 5.15 Employee Benefits. Each of HBO and McKesson agrees to
provide immediately following the Effective Time employee benefits and
compensation arrangements for all their respective employees, at a level no less
favorable in the aggregate than those provided for such employees immediately
prior to the Effective Time, subject to later amendment or other alteration as
may be directed by the Board of Directors of McKesson subsequent to the
Effective Time.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. Each of the McKesson Stockholder
Approval and the HBO Stockholder Approval shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
(c) Governmental, Regulatory and Other Approvals. (i) Other
than the filing of the Certificate of Merger provided for under Section 1.3 and
filings pursuant to the HSR Act (which are addressed in Section 6.1(b)), all
consents, approvals and actions of, filings with and notices to any Governmental
Entity required of McKesson, HBO or any of their subsidiaries to consummate the
Merger and the other transactions contemplated hereby (together with the matters
contemplated by Section 6.1(b), the "Requisite Regulatory Approvals") shall
have been obtained and (ii) except as would not have a material adverse effect
on any of McKesson, HBO or the Surviving Corporation, the consents and approvals
set forth on Section 3.1(d) of the McKesson Disclosure Schedule and Section
3.2(d) of the HBO Disclosure Schedule shall have been obtained or shall no
longer be required.
(d) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the Merger,
or (ii) which otherwise is reasonably likely to have a material adverse effect
on McKesson or HBO, as applicable; provided, however, that each of the parties
shall have used commercially reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that may be
entered.
(e) Form S-4. The Form S-4 shall have become effective under
the Securities Act prior to the mailing of the Joint Proxy Statement by each of
McKesson and HBO to their
49
respective stockholders and no stop order or proceedings seeking a stop order
shall be threatened by the SEC or shall have been initiated by the SEC.
(f) NYSE and PSE Listings. The shares of McKesson Common Stock
issuable to HBO's stockholders as contemplated by Article II shall have been
approved for listing on NYSE and PSE, subject to official notice of issuance.
(g) Tax Opinions. HBO shall have received from Xxxxx, Day,
Xxxxxx & Xxxxx, counsel to HBO, and McKesson shall have received from Skadden,
Arps, Slate, Xxxxxxx & Xxxx LLP, counsel to McKesson, an opinion, dated as of
the date that the Registration Statement is declared effective, to the effect
that the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and such opinions shall not have been withdrawn or
materially modified as of the Closing Date.
In rendering such opinions, each of counsel for HBO and
McKesson shall be entitled to receive and rely upon representations of fact
contained in certificates of officers of HBO and McKesson, which representations
shall be in form and substance satisfactory to such counsel.
(h) Pooling Letters. HBO and McKesson shall have received
letters from each of McKesson's independent accountants and HBO's independent
accountants, dated as of the Closing Date, in each case addressed to HBO and
McKesson, stating that the Merger qualifies for accounting as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations.
SECTION 6.2 Conditions to Obligations of HBO. The obligation of HBO to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of McKesson set forth herein shall be true and correct both when made
and at and as of the Closing Date, as if made at and as of such time (except to
the extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on McKesson.
(b) Performance of Obligations of McKesson. McKesson shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. At any time after the date of
this Agreement there shall not have occurred any material adverse change
relating to McKesson.
(d) McKesson Rights Agreement. The McKesson Rights issued
pursuant to the McKesson Rights Agreement shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of such agreement.
50
SECTION 6.3 Conditions to Obligations of McKesson. The obligation of
McKesson to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of HBO set forth herein shall be true and correct both when made and
at and as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality," or
"material adverse effect" set forth therein) does not have, and is not likely to
have, individually or in the aggregate, a material adverse effect on HBO.
(b) Performance of Obligations of HBO. HBO shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. At any time after the date of
this Agreement there shall not have occurred any material adverse change
relating to HBO.
(d) HBO Rights Agreement. The HBO Rights issued pursuant to
the HBO Rights Agreement shall not have become nonredeemable, exercisable,
distributed or triggered pursuant to the terms of such agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, and (except in the case of 7.1(e) or 7.1(f))
whether before or after the McKesson Stockholder Approval or the HBO Stockholder
Approval:
(a) by mutual written consent of HBO and McKesson, if the
Board of Directors of each so determines by a vote of a majority of its entire
Board;
(b) by either the Board of Directors of HBO or the Board of
Directors of McKesson:
(i) if the Merger shall not have been consummated by
March 31, 1999, unless such termination right has been expressly restricted in
writing by the Board of Directors of HBO or McKesson, as the case may be;
provided, however, that the right to terminate this Agreement pursuant to this
Section 7.1(b)(i) shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of the Merger
to be consummated by such time;
(ii) if the McKesson Stockholder Approval shall not
have been obtained at a McKesson Stockholders' Meeting duly convened therefor or
at any adjournment or postponement thereof;
51
(iii) if the HBO Stockholder Approval shall not have
been obtained at an HBO Stockholders' Meeting duly convened therefor or at any
adjournment or postponement thereof;
(iv) if any Restraint having any of the effects set
forth in Section 6.1(d) shall be in effect and shall have become final and
nonappealable, or if any Governmental Entity that must grant a Requisite
Regulatory Approval has denied approval of the Merger and such denial has become
final and nonappealable; provided, that the party seeking to terminate this
Agreement pursuant to this Section 7.1(b)(iv) shall have used commercially
reasonable efforts to prevent the entry of and to remove such Restraint or to
obtain such Requisite Regulatory Approval, as the case may be;
(c) by the Board of Directors of HBO (provided that HBO is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein), if McKesson shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 6.2(a) or (b), and (B)
is incapable of being cured by McKesson or is not cured within 30 days of
written notice thereof;
(d) by the Board of Directors of McKesson (provided that
McKesson is not then in material breach of any representation, warranty,
covenant or other agreement contained herein), if HBO shall have breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform (A) would give rise to the failure of a condition
set forth in Section 6.3(a) or (b), and (B) is incapable of being cured by HBO
or is not cured within 30 days of written notice thereof;
(e) by the Board of Directors of HBO, at any time prior to the
McKesson Stockholders' Meeting, if the McKesson Board of Directors shall have
(A) failed to include in the Joint Proxy Statement to the McKesson Stockholders,
its recommendation without modification or qualification that such stockholders
approve this Agreement and the transactions contemplated hereby, or (B)
subsequently withdrawn such recommendation or (C) modified or qualified such
recommendation in a manner adverse to the interests of HBO;
(f) by the Board of Directors of McKesson, at any time prior
to the HBO Stockholders' Meeting, if the HBO Board of Directors shall have (A)
failed to include in the Joint Proxy Statement to the HBO Stockholders, its
recommendation without modification or qualification that such stockholders
approve this Agreement and the transaction contemplated hereby, or (B)
subsequently withdrawn such recommendation or (C) modified or qualified such
recommendation in a manner adverse to the interests of McKesson;
(g) by HBO if the Board of Directors of McKesson shall have
failed to take any of the actions contemplated by Section 5.1 as a result of the
exercise of its rights under Section 5.1(e); or
52
(h) by McKesson if the Board of Directors of HBO shall have
failed to take any of the actions contemplated by Section 5.1 as a result of the
exercise of its rights under Section 5.1(e).
SECTION 7.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided
in Section 7.1 hereof, and subject to the provisions of Section 8.1 hereof, this
Agreement shall forthwith become void and there shall be no liability on the
part of any of the parties, except (i) as set forth in this Section 7.2 and in
Sections 5.4, 5.7, 3.1(o) and 3.2(o) hereof, and (ii) nothing herein shall
relieve any party from liability for any willful breach hereof.
(b) If this Agreement is terminated (i) by HBO pursuant to
Section 7.1(e) hereof, (ii) by HBO or McKesson pursuant to Section 7.1(b)(ii)
hereof because of the failure to obtain the required approval from the McKesson
stockholders and at the time of such termination or prior to the meeting of
McKesson's stockholders there shall have been an offer or proposal for, an
announcement of any intention with respect to (including, without limitation,
the filing of a statement of beneficial ownership on Schedule 13D discussing the
possibility of or reserving the right to engage in), or any agreement with
respect to, a transaction that would constitute an Alternative Transaction (as
defined in Section 4.2(a) hereof, except that for purposes of clause (i) of such
definition, the applicable percentage shall be fifty percent (50%)) involving
McKesson or any of the McKesson Subsidiaries (whether or not such offer,
proposal, announcement or agreement shall have been rejected or shall have been
withdrawn prior to the time of such termination or of the meeting), (iii) by HBO
as a result of McKesson's material breach of Section 4.2 or 5.1 hereof which, in
the case of Section 5.1 only, is not cured within 30 days after notice thereof
to McKesson, or (iv) by HBO pursuant to Section 7.1(g) hereof, McKesson shall
pay to HBO a termination fee of Two Hundred Million Dollars ($200,000,000.00)
(the "McKesson Termination Fee").
(c) If this Agreement is terminated (i) by McKesson pursuant
to Sections 7.1 (f) hereof, (ii) by HBO or McKesson pursuant to Section
7.1(b)(iii) hereof because of the failure to obtain the required approval from
the HBO stockholders and at the time of such termination or prior to the meeting
of HBO's stockholders there shall have been an offer or proposal for, an
announcement of any intention with respect to (including, without limitation,
the filing of a statement of beneficial ownership on Schedule 13D discussing the
possibility of or reserving the right to engage in), any agreement with respect
to, a transaction that would constitute an Alternative Transaction (as defined
in Section 4.2(a) hereof, except that for purposes of clause (i) of such
definition, the applicable percentage shall be fifty percent (50%) involving HBO
or any of the HBO Subsidiaries (whether or not such offer, proposal,
announcement or agreement shall have been rejected or shall have been withdrawn
prior to the time of such termination or of the meeting), (iii) by McKesson as a
result of HBO's material breach of Section 4.3 or 5.1 hereof which, in the case
of Section 5.1 only, is not cured within 30 days after notice thereof to HBO or
(iv) by McKesson pursuant to Section 7.1(h) hereof, HBO shall pay to McKesson a
termination fee of Two Hundred Million Dollars ($200,000,000.00) (the "HBO
Termination Fee").
53
(d) Each Termination Fee payable under Sections 7.2(b) and (c)
above shall be payable in cash, payable no later than one business day following
the delivery of notice of termination to the other party.
(e) HBO and McKesson agree that the agreements contained in
Sections 7.2(b) and (c) above are an integral part of the transaction
contemplated by this Agreement and constitute liquidated damages and not a
penalty. If one party fails to promptly pay to the other any fee due under such
Sections 7.2(b) and (c), the defaulting party shall pay the costs and expenses
(including legal fees and expenses) in connection with any action, including the
filing of any lawsuit or other legal action, taken to collect payment.
SECTION 7.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties at any time before or after the McKesson
Stockholder Approval or the HBO Stockholder Approval; provided, however, that
after any such approval, there may not be, without further approval of such the
stockholders of McKesson (in the case of the McKesson Stockholders Approval) and
the stockholders of HBO (in the case of the HBO Stockholders Approval), any
amendment of this Agreement that changes the amount or the form of the
consideration to be delivered to the holders of McKesson Common Stock hereunder,
or which by law otherwise expressly requires the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto and duly approved by the
parties' respective Boards of Directors or a duly designated committee thereof.
SECTION 7.4 Extension; Waiver. At any time prior to the Effective Time,
a party may, subject to the proviso of Section 7.3 (and for this purpose
treating any waiver referred to below as an amendment), (a) extend the time for
the performance of any of the obligations or other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties of the other
parties contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. Any extension or waiver
given in compliance with this Section 7.4 or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery)
54
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to HBO, to
HBO &Company
000 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Telecopy No.: 770/393-6020
Attention: Xxxxxxx X. XxXxxx
with a copy to:
Xxxxx, Day, Xxxxxx & Xxxxx
0000 XxxXxxxx Xxxxx
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
Telecopy No.: (000) 000-0000
Attention: Xxxx X. Xxxxx, Esq.
(b) if to McKesson, to
McKesson Corporation
Xxx Xxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telecopy No. 415/983-8826
Attention: Xxxx X. Xxxxxx
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy No.: 212/735-3691
Attention: Xxxxx X. Xxxxxx, Esq.
SECTION 8.3 Definitions. For purposes of this Agreement:
(a) except for purposes of Section 5.10, an "affiliate" of any
person means another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person, where "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management policies of a
person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise;
55
(b) "material adverse change" or "material adverse effect"
means, when used in connection with McKesson or HBO, any change, effect, event,
occurrence or state of facts that is or could reasonably be expected to be
materially adverse to the business, financial condition or results of
operations of such party and its subsidiaries taken as a whole, it being
understood that none of the following shall be deemed by itself or by
themselves, either alone or in combination, to constitute a material adverse
effect: (i) a change in the market price or trading volume of HBO or McKesson
Common Stock, as the case may be or (ii) conditions affecting the U.S. economy
as a whole;
(c) "person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person; and
(e) "knowledge" of any person which is not an individual means
the knowledge of such person's executive officers or senior management of such
person's operating divisions and segments.
SECTION 8.4 Interpretation. When a reference is made in this Agreement
to an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein), the
Option Agreements, the Support
56
Agreement and the Confidentiality Agreement (as amended below) (a) constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter of
this Agreement and (b) except for the provisions of Section 5.7, are not
intended to confer upon any person other than the parties any rights or
remedies. The Confidentiality Agreement is hereby amended to delete therefrom
Section 11.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of Delaware or a Delaware state court.
SECTION 8.10 Headings, Etc. The headings and table of contents
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 8.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect, insofar as the foregoing can be
accomplished without materially affecting the economic benefits anticipated by
the parties to this Agreement. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
57
IN WITNESS WHEREOF, HBO, McKesson and Merger Sub have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
HBO & COMPANY
By: /s/ Xxx X. Xxxxxxxxxx
-----------------------------------------------
Xxx X. Xxxxxxxxxx,
President, Co-Chief Operating Officer
and Chief Financial Officer
MCKESSON CORPORATION
By: /s/ Xxxx X. Xxxxxx
-----------------------------------------------
Xxxx X. Xxxxxx,
President and Chief Executive Officer
MCKESSON MERGER SUB, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------------------------------
Xxxxxxx X. Xxxxxxx,
President
