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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
SMT HEALTH SERVICES INC.
(Name of Subject Company)
SMT HEALTH SERVICES INC.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
784585 10 1
(CUSIP Number of Class of Securities)
JEFF D. BERGMAN
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
SMT HEALTH SERVICES INC.
10521 PERRY HIGHWAY
WEXFORD, PENNSYLVANIA 15090
(412) 933-3300
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person Filing this Statement)
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Copies To:
RONALD BASSO, ESQ.
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
ONE OXFORD CENTRE
301 GRANT STREET, 20TH FLOOR
PITTSBURGH, PA 15219-1410
412-562-3943
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is SMT Health Services Inc., a Delaware
corporation (the "Company"). The principal executive offices of the Company
are located at 10521 Perry Highway, Wexford, Pennsylvania 15090. The title of
the class of equity securities to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is the common
stock, par value $.01 per share (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1 dated June 30, 1997 (the "Schedule 14D-1") filed
by Three Rivers Holding Corp., a Delaware corporation ("Parent") and its
wholly-owned subsidiary Three Rivers Acquisition Corp., a Delaware corporation
("Purchaser"), to purchase all outstanding shares of Common Stock (the
"Shares") at $11.75 per share, net to the seller in cash, without interest,
upon the terms and subject to the conditions set forth in the Offer to
Purchase dated June 30, 1997 (the "Offer to Purchase") and the related letter
of transmittal (which, as amended and extended from time to time, together
constitute the "Offer"), copies of which are filed as exhibits hereto.
As set forth in the Offer to Purchase, the principal executive offices of
each of Parent and Purchaser are located at 1301 Avenue of the Americas, 38th
Floor, New York, New York 10019.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described under the headings "Board of Directors, Board
Compensation and Committees," "Executive Compensation and Other Information,"
"Certain Relationships and Related Transactions" and "Security Ownership of
Certain Beneficial Owners and Management" in the Information Statement of the
Company attached to this statement as Annex A (the "Information Statement").
The Information Statement is being furnished to the Company's stockholders
pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 issued under the Exchange Act in
connection with the Purchaser's right (after consummation of the Offer) to
designate persons to the Board of Directors of the Company other than at a
meeting of the stockholders of the Company. The Information Statement is
herein incorporated by reference.
INDEMNIFICATION AGREEMENTS
The Company has previously entered into indemnification agreements, or
employment agreements containing indemnification provisions (collectively, the
"Indemnification Provisions"), with each person who as of June 27, 1997 was
either a an executive officer or director of the Company. The Indemnification
Provisions generally provide (i) for indemnification against all costs and
expenses (including attorney's fees) actually and reasonably incurred in
connection with the investigation, defense or appeal of any threatened,
pending or completed action, suit or proceeding related to the fact that such
indemnitee is or was serving the Company as a director, agent or fiduciary, or
by reason of anything done or not done by such indemnitee in any such capacity
and any and all judgments, fines, penalties and amounts paid in settlement of
any claim, unless it is determined that such indemnification is not permitted
under applicable law or as a result of certain culpable action by such
indemnitee and (ii) for the prompt advancement of expenses to an indemnitee as
well as the reimbursement by such indemnitee of any such advances to the
Company if it is determined that the indemnitee is not entitled to such
indemnification. Indemnitees' rights under the indemnification agreements are
not exclusive of any other rights they may have under Delaware law, the
Company's bylaws or otherwise. The employment agreements containing the
indemnification provisions have been filed as Exhibits (c)(3)-(c)(6) hereto
and the form of indemnification agreement has been filed as Exhibit (c)(10) to
this Schedule 14D-9 and is incorporated by reference in its entirety.
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EMPLOYMENT AGREEMENTS
In connection with the execution of the Merger Agreement, the Company and
each of the executive officers entered into new employment agreements (the
"Employment Agreements"), which are substantially similar to their prior
agreements with the Company. See "Certain Relationships and Related
Transactions--Employment Agreements" in the Information Statement which is
incorporated herein by reference.
(b)(2) Merger Agreement. The Merger Agreement provides, among other things,
for the making of the Offer by Purchaser and further provides that, following
the Offer and subject to the satisfaction or waiver of certain conditions,
Purchaser will be merged with and into the Company (the "Merger"), with the
Company surviving the Merger as a wholly-owned subsidiary of Parent (the
"Surviving Corporation"). As a result of the Merger, each Share (including the
Associated Rights) issued and outstanding immediately prior to the Effective
Time (as defined in the Merger Agreement) (other than Shares then owned by the
Company, Parent, the Purchaser, any other subsidiary of Parent or by
stockholders of the Company, if any, who dissent from the Merger and comply
with all of the provisions of the Delaware General Corporation Law concerning
the right, if applicable, of holders of Shares to seek appraisal of their
Shares ("Dissenting Stockholders")) will be converted at the effective time of
the Merger (the "Effective Time") into the right to receive $11.75 in cash,
without interest (the "Merger Consideration").
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which
is incorporated herein by reference and a copy of which has been filed with
the Commission as an Exhibit to this Schedule 14D-9.
THE MERGER AGREEMENT
The Merger Agreement provides that following the satisfaction of the
conditions described below under "Conditions to the Merger," the Purchaser
will be merged with and into the Company, and each then outstanding Share
(other than Shares then owned by the Company, Parent, the Purchaser or any
other direct or indirect wholly owned subsidiary of Parent or by Dissenting
Stockholders) will be converted into the right to receive the price per Share
in the Offer.
The Offer. The Merger Agreement provides for the making of the Offer. The
obligation of the Purchaser to accept for payment or pay for Shares tendered
pursuant to the Offer is subject to the satisfaction of the Minimum Condition
and certain other conditions (the "Conditions to the Offer") that are
described in Section 14 of the Offer to Purchase which is incorporated herein
by reference. The Merger Agreement provides that the Purchaser may extend the
Offer, without the consent of the Company, only (1) if at the Expiration Date
any of the conditions to the Purchaser's obligations to accept Shares for
payment are not satisfied or waived, until such time as such conditions are
satisfied or waived, (2) for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable
to the Offer, (3) for a period of up to ten business days to permit the
Purchaser to decide whether to modify the Offer in the event of certain
competing proposals and (4) on one or more occasions, for any reason, for an
aggregate period of not more than ten business days beyond the latest
expiration date that would otherwise be permitted under the terms of the
Merger Agreement as described in this sentence. In addition, the Purchaser has
agreed in the Merger Agreement that it will not, without the express written
consent of the Company, (1) reduce the number of Shares subject to the Offer,
(2) reduce the Offer Price, (3) add to or modify the conditions set forth in
Section 14 of the Offer to Purchase, including the Minimum Condition, (4)
except as provided above, extend the Offer if all of the conditions set forth
in Section 14 of the Offer to Purchase are satisfied or waived, (5) change the
form of the consideration payable in the Offer or (6) amend or alter any term
of the Offer in any manner materially adverse to the Company's stockholders;
provided, however, that nothing contained in the Merger Agreement will
prohibit the Purchaser, in its sole discretion without the consent of the
Company, from waiving satisfaction of any condition of the Offer other than
the Minimum Condition.
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The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, the Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of the
Purchaser will cease and the Company will be the surviving corporation (the
"Surviving Corporation"). As a result of the Merger, each then outstanding
Share (other than Shares then owned by the Company, Parent, the Purchaser or
any other direct or indirect wholly owned subsidiary of Parent or by
Dissenting Stockholders) will be converted into the right to receive the
Merger Consideration.
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether before or after approval of
the terms of the Merger Agreement by the stockholders of the Company, (1) by
mutual written consent of the Company and Parent, (2) by either the Company or
Parent if (a)(i) as a result of any of the conditions to the Offer not being
satisfied, the Offer shall have been terminated or expired in accordance with
its terms without the Purchaser having accepted for payment any Shares
pursuant to the Offer (including the Minimum Condition) or (ii) the Purchaser
shall not have accepted for payment any Shares pursuant to and subject to the
conditions set forth in Section 14 of the Offer to Purchase by September 30,
1997; provided, however, that if as of such date any of the conditions set
forth in either paragraph (a) or paragraph (b) of Section 14 of the Offer to
Purchase are not satisfied, Parent and the Purchaser may in their sole
discretion extend such date until December 31, 1997; provided, further, that
the right to terminate the Merger Agreement pursuant to clause (2)(a) will not
be available to any party whose failure to perform any of its obligations
under the Merger Agreement results in the failure of any such condition or if
the failure of such condition results from facts or circumstances that
constitute a breach of any representation or warranty under the Merger
Agreement by such party or (b) if any Federal, state or local government or
any court, tribunal, administrative agency or commission or other regulatory
authority or agency, domestic, foreign or supranational (a "Governmental
Entity"), shall have issued any order, decree or ruling or taken any action
permanently enjoining, restraining or otherwise prohibiting the acceptance for
payment of, or payment for, Shares pursuant to the Offer or the Merger and
such order, decree or ruling or other action has become final and
nonappealable, (3) by Parent or the Purchaser prior to the Purchaser's
obligation to accept Shares for payment pursuant to the Offer, in the event of
a breach by the Company of any representation, warranty, covenant or other
agreement contained in the Merger Agreement which would or reasonably would be
expected to give rise to the failure of a condition set forth in Section 14 of
the Offer to Purchase, (4) by Parent or the Company if, prior to the
obligation of the Purchaser to accept Shares for payment pursuant to the
Offer, (a) the Board determines that a Third Party Proposal (as hereinafter
defined) for an Alternative Transaction (as hereinafter defined) constitutes a
Superior Proposal (as hereinafter defined), (b) the Company promptly notifies
Parent of its determination in writing (unless, following receipt of written
advice of outside counsel, the Board's fiduciary duties under applicable law
would be violated thereby), which writing shall set forth the terms and
conditions of the Third Party Proposal and the identity of the person making
the Third Party Proposal, (c) ten days have elapsed following receipt by
Parent of such written notice, (d) during such ten-day period, the Company
cooperates with Parent with the intent of enabling, but not obligating, Parent
to agree to a modification of the terms and conditions of the Merger Agreement
so that the transactions contemplated thereby may be effected, and (e) at the
end of the ten-day period, the Board continues to believe that the Third Party
Proposal constitutes a Superior Proposal and the Company pays to Parent the
Termination Fee (as hereinafter defined) and Expenses (as hereinafter
defined); provided, that in the event of the determination of the Board that
such Third Party Proposal constitutes a Superior Proposal is made less than
ten days prior to the scheduled expiration of the Offer, Parent and the
Purchaser will either (i) reduce the ten-day period or (ii) extend the Offer,
in either case, such that the ten-day period described above will end prior to
the expiration of the Offer, and (5) by the Company if Parent or the Purchaser
shall have (a) failed to commence the Offer within five business days of the
date of the Merger Agreement, (b) failed to pay for Shares pursuant to the
Offer in accordance with the terms of the Merger Agreement or (c) breached in
any material respect any of their respective representations, warranties,
covenants or other agreements contained in the Merger Agreement, which failure
to perform in respect of clause (c) is incapable of being cured or has not
been cured within 30 days after the giving of written notice to Parent or the
Purchaser, as applicable, except in any case under clause (c), such breaches
and failures which would not prevent the consummation of the Offer or the
Merger subject to the terms and conditions of the Merger Agreement.
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Alternative Transactions. The Merger Agreement provides that the Company and
its subsidiaries shall not, and shall not authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it to, directly or
indirectly, (1) solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Alternative Transaction or (2) participate in any discussions or
negotiations regarding any Alternative Transaction; provided, however, that
if, at any time prior to the acceptance for payment of Shares pursuant to and
subject to the conditions (including the Minimum Condition) of the Offer, the
Board determines in good faith, based on advice of outside counsel, that
action is required by reason of the Board's fiduciary duties to the Company's
stockholders under applicable law, the Company may (subject to compliance with
the notification provisions discussed below), in response to an unsolicited
Third Party Proposal, (a) furnish information with respect to the Company to
any person making such Third Party Proposal pursuant to a confidentiality
agreement that is at least as protective of the Company's interest as is the
Confidentiality Agreement and (b) participate in negotiations regarding such
Alternative Transaction.
The Merger Agreement defines "Third Party Proposal" as a bona fide proposal
from a third party, which proposal did not result from a breach of the
restrictions set forth above relating to a Third Party Proposal and which
third party the Board determines in good faith and upon the advice of a
financial advisor of nationally recognized reputation has the capacity and is
reasonably likely to consummate a Superior Proposal. The Merger Agreement
defines "Alternative Transaction" as any direct or indirect acquisition or
purchase of assets of the Company or any subsidiary outside the ordinary
course of business or any outstanding equity securities of the Company or any
subsidiary, any tender offer or exchange offer that if consummated would
result in any person beneficially owning equity securities of the Company or
any merger, consolidation, business combination, sale of substantially all the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any subsidiary, other than the transactions
contemplated by the Merger Agreement and other than the acquisition of Shares
pursuant to the exercise of Company Stock Options or Warrants which are issued
and outstanding as of the date of the Merger Agreement.
The Merger Agreement provides further that unless the Board shall have
terminated the Merger Agreement as described below, neither the Board nor any
committee thereof will (1) withdraw or modify, or propose to withdraw or
modify, the approval or recommendation by such Board or such committee of the
Offer, the Merger Agreement or the Merger, (2) approve or recommend, or
propose to approve or recommend, any Alternative Transaction or (3) cause the
Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other agreement (an "Acquisition Agreement") with
respect to any Alternative Transaction, unless the Board shall have previously
terminated the Merger Agreement in connection with a Superior Proposal (as set
forth above in clause (4) of the section entitled "--Termination of the Merger
Agreement").
The Merger Agreement defines a "Superior Proposal" to be any Third Party
Proposal to acquire, directly or indirectly, all of the Shares or all or
substantially all of the assets of the Company; provided that (a) the Board
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) that such Third Party Proposal is
on terms that are more favorable to the Company's stockholders than the Offer
and the Merger (taking into account all relevant factors, including the amount
and form of consideration to be received in respect of the Shares, the
relative value of any non-cash consideration and the timing and certainty of
closing), (b) the Board determines in its good faith judgment (based on the
written advice of outside counsel) that the failure to recommend or accept
such Third Party Proposal would violate the fiduciary duties of the Board
under applicable law and (c) if required, the financing necessary to
consummate a transaction pursuant to such Third Party Proposal is then
committed.
In addition to the obligations of the Company set forth in the preceding
paragraphs, the Merger Agreement provides that the Company shall immediately
advise Parent orally and in writing of any request for information or of any
proposal or any inquiry regarding any Alternative Transaction, the material
terms and conditions of such request, proposal or inquiry, and the identity of
the person making any such request, proposal or inquiry. The Company is
further required under the terms of the Merger Agreement, to the extent
reasonably practicable
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and not in violation of the Board's fiduciary duties under applicable law,
following receipt of written advice from outside counsel, to keep Parent fully
informed of the status and details (including amendments or proposed
amendments) of any such request, proposal or inquiry. The Merger Agreement
provides that nothing contained therein shall prohibit the Company from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders with respect to any Third Party Proposal if (1) in the
good faith judgment of the Board, following receipt of written advice from
outside counsel, such disclosure is required by reason of the Board's
fiduciary duties under applicable law and (2) the Company shall have provided
Parent and the Purchaser with as much advance notice of its position and
proposed disclosure as is possible under the circumstances; provided, however,
that neither the Company nor its Board nor any committee thereof is permitted,
except as permitted by the Merger Agreement, to withdraw or modify, or propose
to withdraw or modify, its position with respect to the Offer, the Merger or
the Merger Agreement or approve or recommend, or propose to approve or
recommend, an Alternative Transaction.
Fees and Expenses. The Merger Agreement provides that in the event that the
Merger Agreement is terminated (1) by Parent or Purchaser pursuant to clause
(3) under the section above entitled "--Termination of the Merger Agreement,"
(2) by Parent pursuant to and in accordance with clause (2)(a) under the
section above entitled "--Termination of the Merger Agreement" in connection
with any breach by the Company of any covenant or agreement or any
representation or warranty made by the Company in the Merger Agreement or (3)
pursuant to clause (4) under the section above entitled "--Termination of the
Merger Agreement," the Company shall promptly pay to Parent the Termination
Fee plus all Expenses. The Merger Agreement provides that notwithstanding the
above (but subject to the payment of the Termination Fee pursuant to the
consummation of an Alternative Transaction or the execution of an Acquisition
Agreement as set forth below), no Termination Fee shall be payable if any
termination by Parent or the Purchaser is solely (1) pursuant to clause 2(a)
under the section above entitled "--Termination of the Merger Agreement" that
is caused solely by a breach of one or more representations or warranties of
the Company that is or are true and correct as of the date of the Merger
Agreement but that becomes untrue thereafter other than any such breach after
the date of the Merger Agreement that results from or arises out of any act or
failure to act by the Company, its subsidiaries or any of their respective
officers, directors, employees or agents, (2) pursuant to clause (2)(b) under
the section above entitled "--Termination of the Merger Agreement" or (3)
pursuant to the failure of the conditions set forth in either paragraph (c) or
paragraph (h) of Section 14 of the Offer to Purchase which is incorporated
herein by reference to be satisfied other than any such failure which results
from or arises out of any act or failure to act by the Company, its
subsidiaries or any of their respective officers, directors, employees or
agents.
The Merger Agreement provides that if the Merger Agreement is terminated by
the Company other than in connection with (1) a failure by the Purchaser or
Parent to commence the Offer, (2) a failure by Parent or the Purchaser to pay
for Shares to the extent required by the Merger Agreement or (3) a breach by
the Purchaser or Parent in any material respect of its representations,
warranties, other covenants or agreements contained in the Merger Agreement
(subject to a 30-day cure period), which breach in the case of this clause (3)
would prevent the consummation of the Offer or the Merger subject to the terms
and conditions contained in the Merger Agreement, then the Company will pay
all Expenses to Parent on the date of such termination and, if, prior to the
one-year anniversary of such termination, an Alternative Transaction shall be
consummated or the Company shall enter into an Acquisition Agreement providing
for an Alternative Transaction, then the Company shall pay the Termination
Fee, such payment to be made on the earlier of the date of consummation of
such Alternative Transaction or the one-year anniversary of the date of
termination of the Merger Agreement.
The Merger Agreement defines "Termination Fee" as a fee equal to 4% of the
sum of (a) the outstanding consolidated indebtedness of the Company and its
subsidiaries at the time of termination, determined in accordance with
generally accepted accounting principles consistently applied, plus (b) the
product of (x) the total number of Shares outstanding at the time of such
termination on a fully diluted basis and (y) the Offer Price. The Merger
Agreement defines "Expenses" as all out of out-of-pocket expenses incurred by
the Purchaser
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and Parent in connection with the Merger Agreement, the Stockholder Agreement
and the transactions contemplated thereby, not to exceed $1,750,000.
Conduct of Business by the Company. The Merger Agreement provides that
during the term of the Merger Agreement, the Company shall, and shall cause
each of its subsidiaries to, carry on its business in the ordinary course and
use all reasonable efforts to preserve intact its current business
organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, licensors,
licensees and others having business dealings with it. The Merger Agreement
further provides that, except as otherwise expressly contemplated by the
Merger Agreement, the Company shall not and shall cause its subsidiaries not
to (1) (a) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (b) 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 or (c) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; (2) issue,
deliver, sell, pledge or otherwise encumber 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 Shares upon the exercise of
Company Stock Options or warrants to purchase Shares outstanding on the date
of the Merger Agreement in accordance with their present terms); (3) amend its
certificate of incorporation or by-laws; (4) acquire or agree to acquire (A)
by merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof or (B) except pursuant to certain planned equipment
purchases, any assets except for the purchase of assets for an amount which
does not exceed, individually or in the aggregate, $75,000; (5) except
pursuant to certain planned equipment purchases, sell, lease, license,
mortgage or otherwise encumber or subject to any lien or otherwise dispose of
any of its properties or assets, except sales of inventory or sales of
immaterial assets; (6) (A) except pursuant to certain planned equipment
purchases, and except for certain short-term indebtedness incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing or (B) make any loans,
advances or capital contributions to, or investments in, any other person; (7)
except pursuant to certain planned equipment purchases, make or agree to make
any capital expenditure or expenditures with respect to property, plant or
equipment which, individually, is in excess of $50,000 or, in the aggregate,
are in excess of $250,000; (8) make any tax election or settle or compromise
any income tax liability; (9) except pursuant to certain planned equipment
purchases, pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, the most recent
consolidated financial statements (or the notes thereto) of the Company
included in any report of the Company filed with the Commission and publicly
available prior to the date of the Merger Agreement or incurred thereafter in
the ordinary course of business consistent with past practice, or waive the
benefits of, or agree to modify in any material respect, any confidentiality,
standstill or similar agreement to which the Company or any subsidiary is a
party, (10) except in the ordinary course of business, modify, amend or
terminate any material contract, agreement, arrangement or other instrument
(including any amendments thereto) to which the Company or any of its
subsidiaries is a party or waive, release or assign any rights or claims; (11)
enter into any contracts, agreements, arrangements or instruments (including
any amendments thereto) relating to the distribution, sale or marketing by
third parties of the Company's or its subsidiaries' services; (12) except as
required to comply with applicable law and subject to exceptions for the
Employment Agreements and certain employment agreements to be continued, (A)
adopt, enter into, terminate or amend any benefit plan or other arrangement
for the benefit or welfare of any director, officer or current or former
employee, (B) increase in any manner the compensation or fringe benefits of,
or pay any bonus to, any director, officer or employee (except for normal
increases or bonuses, in the ordinary course of business consistent with past
practice), (C) pay any benefit not provided for under any benefit plan, (D)
except as
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permitted in clause (B), grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or benefit plan
(including the grant of stock options, stock appreciation rights, stock based
or stock related awards, performance units or restricted stock, or the removal
of existing restrictions in any benefit plans or agreement or awards made
thereunder) or (E) take any action other than in the ordinary course of
business to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or
benefit plan; or (13) authorize any of, or commit or agree to take any of, the
foregoing actions.
Pursuant to the Merger Agreement, the Company shall not take any action or
omit to take any action, the taking or omission of which could reasonably be
expected to result in (1) any of its representations and warranties set forth
in the Merger Agreement becoming untrue or (2) any of the conditions to the
Offer or to the Merger not being satisfied (subject to exceptions specifically
permitted by the Merger Agreement).
Director Warrants. Pursuant to the Merger Agreement, the Company agreed that
immediately after consummation of the Offer, each outstanding Warrant (as
defined below) or other right to purchase Common Stock of the Company issued
under the Company's 1995 Director Warrant Plan held by a director of the
Company (a "Director Warrant") shall be purchased by the Purchaser in exchange
for an amount in cash, payable at the time of such purchase, equal to the
product of (1) the number of shares subject to such Director Warrant and (2)
the excess of the price paid in the Offer over the per share exercise price of
such Director Warrant.
Rollover. The Purchaser intends to give certain employees of the Company an
opportunity to invest in the equity of Parent either by rolling over currently
outstanding Company Common Stock held by such employees or by purchasing
equity securities of Parent for cash. Parent intends to make available loans
to such employees to finance, in part, such cash investments.
Stock Options. The Merger Agreement provides that as soon as practicable
following the date of the Merger Agreement but in no event later than the
consummation of the Offer, the Company (or, if appropriate, the Board or any
committee administering the Stock Option Plans) shall (including by adopting
resolutions or taking any other actions) take action so as to allow that each
outstanding option to purchase Shares (a "Company Stock Option") granted under
any stock option, stock appreciation rights or stock purchase plan, or other
right, program or arrangement of the Company (collectively, the "Stock Option
Plans") (other than those Company Stock Options that have been granted to
officers and employees of the Company who are parties to an agreement to
exchange or roll their Company Stock Options in the Company for or into equity
of Parent or the Surviving Corporation) and each outstanding warrant to
purchase Shares (a "Warrant") in each case outstanding immediately prior to
the consummation of the Offer (except the Director Warrants), whether or not
then exercisable, shall either (1) be cancelled immediately after consummation
of the Offer in exchange for an amount in cash, payable at the time of such
cancellation, equal to the product of (x) the number of Shares subject to such
Company Stock Option or Warrant immediately prior to the Effective Time and
(y) the excess of the price per Share to be paid in the Offer over the per
Share exercise price of such Company Stock Option or Warrant (the "Net
Amount") or (z) be converted immediately prior to the Effective Time into the
right solely to receive the Net Amount; provided, however, that no such cash
payment has been made. The Company shall not make, or agree to make, any
payment of any kind to any holder of a Company Stock Option or a Warrant
(except for the payment described above) without the consent of Parent (which
consent will not be unreasonably withheld).
The Merger Agreement provides further that subject to the provisions set
forth above, all Stock Option Plans shall terminate as of the Effective Time
and the provisions in any other benefit plan providing for the issuance,
transfer or grant of any capital stock of the Company or any interest in
respect of any capital stock of the Company shall be terminated as of the
Effective Time. The Merger Agreement provides that the Company shall ensure
that following the Effective Time, no holder of a Company Stock Option or
Warrant or any participant in any Stock Option Plan (other than pursuant to
the Parent Option Plan and those holders who are parties to an agreement to
exchange or roll their equity interests in the Company for or into equity of
Parent or the Surviving Corporation) shall have any right thereunder to
acquire any capital stock of the Company, Parent or the Surviving
7
Corporation, and that the Company shall use its reasonable best efforts to
ensure that following the Effective Time, no holder of any remaining Company
Stock Option or Warrant or any participant in any Stock Option Plan (other
than pursuant to the Parent Option Plan and those holders who are parties to
an agreement to exchange or roll their equity interests in the Company for or
into equity of Parent or the Surviving Corporation) shall have any right
thereunder to acquire any capital stock of the Company, Parent or the
Surviving Corporation. The Merger Agreement also provides that the Surviving
Corporation shall continue to be obligated to pay the Net Amount to holders of
any Company Stock Options or Warrants converted in accordance with clause (y)
of the immediately preceding paragraph.
Parent Option Plan. The Merger Agreement provides that as soon as
practicable, but in no event more than 15 days after the Effective Time,
Parent will adopt an employee option plan (the "Parent Option Plan"), pursuant
to which Parent will grant to certain officers and employees of the Company
options to purchase in the aggregate up to 10% of the outstanding common stock
of Parent (without giving effect to any options) at any time within ten years
of the Effective Time, at a per share price equal to the per share price paid
by the Apollo Entities for the common stock of Parent. Subject to certain
exceptions, the options will vest over four years, with one half of such
options vesting based solely on continued employment with the Company and the
other half of such options vesting based on continued employment with the
Company and the achievement by the Company of certain target equity values.
Pursuant to the Merger Agreement, Parent agreed that, pursuant to the Parent
Option Plan, options to purchase approximately 4.6% of the outstanding common
stock of Parent, in the aggregate, will be granted to Mr. Bergman and Mr.
Dickman. The terms and conditions of the Parent Option Plan are set forth in a
Schedule to the Merger Agreement, which is filed as an Exhibit to the
Purchaser's Schedule 14D-1 (as defined in Section 17 of the Offer to Purchase
which is incorporated herein by reference), and the foregoing summary is
qualified in its entirety by reference to such Exhibit.
Indemnification, Exculpation and Insurance. Parent has agreed in the Merger
Agreement that all rights to indemnification and exculpation (including the
advancement of expenses) from liabilities for acts or omissions occurring at
or prior to the Effective Time (including with respect to the transactions
contemplated by the Merger Agreement) existing now or at the Effective Time in
favor of the current or former directors or officers of the Company as
provided in its certificate of incorporation, its by-laws and certain
indemnification agreements shall be assumed by the Surviving Corporation in
the Merger, without further action, as of the Effective Time and shall survive
the Merger and shall continue in full force and effect without amendment,
modification or repeal in accordance with their terms for a period of not less
than six years after the Effective Time; provided however, that if any claims
are asserted or made within such six-year period, all rights to
indemnification (and to advancement of expenses) hereunder in respect of any
such claims shall continue, without diminution, until disposition of any and
all such claims.
The Merger Agreement provides that for a period of six years from the
Effective Time, Parent shall cause the Company to use commercially reasonable
efforts to maintain the Company's existing officers' and directors' liability
insurance covering persons who are currently covered by the Company's
officers' and directors' liability insurance on terms no less favorable than
those of such policy in effect on the date of the Merger Agreement; provided,
however, that in satisfying such obligation Parent may substitute therefor
policies providing at least comparable coverage containing terms and
conditions no less favorable than those in effect on the date of the Merger
Agreement.
Conditions to the Merger. The Merger Agreement provides that the Merger is
subject to the satisfaction or waiver of certain conditions, including the
following: (1) if required by applicable law, the Merger Agreement having been
approved and adopted by the affirmative vote of the Company's stockholders by
the requisite vote in accordance with applicable law and the Company's
certificate of incorporation and (2) no statute, rule, regulation, executive
order, decree, temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other governmental entity or other legal restraint or prohibition preventing
the consummation of the Merger being in effect; provided, however, that each
of the Company, the Purchaser and Parent has used reasonable efforts to
prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
8
Reasonable Efforts. The Merger Agreement provides that, on the terms and
subject to the conditions of the Merger Agreement, each of the parties will
use all 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 Offer and the
Merger and the other transactions contemplated by the Merger Agreement.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties.
STOCKHOLDER AGREEMENT
The Stockholder Agreement provides that each Selling Stockholder will sell,
and the Purchaser will purchase, all Shares beneficially owned by such Selling
Stockholder (the "Subject Shares"), at a price per Share equal to the Offer
Price. Such obligations to sell and to purchase the Subject Shares are subject
to the prior satisfaction or waiver of (1) the Purchaser having accepted
Shares for payment under the terms of the Offer, (2) the Minimum Condition
having been satisfied, (3) all waiting periods under the HSR Act applicable to
the exercise of the purchase shall have expired or terminated, (4) all
regulatory approvals required by any applicable law, rule or regulation shall
have been obtained and shall be final, and (5) there shall exist no
preliminary or permanent injunction, or any other order by any court of
competent jurisdiction, restricting, preventing or prohibiting either the
purchase or the delivery of Subject Shares. The Stockholder Agreement also
provides that each Selling Stockholder may, and at the request of the
Purchaser shall, tender its Subject Shares in the Offer. Any Subject Shares of
any Selling Stockholder not purchased in the Offer will be purchased
immediately after payment is made under the Offer.
Each of the Selling Stockholders has agreed, until the Merger Agreement has
terminated, among other things, not to: (1) sell, transfer, give, pledge,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement with respect to the sale, transfer, pledge, assignment or other
disposition of, the Subject Shares owned by such Selling Stockholder other
than pursuant to the terms of the Offer or the Merger or (2) enter into any
voting arrangement, whether by proxy, voting agreement or otherwise, in
connection with, directly or indirectly, any Takeover Proposal. Each of the
Selling Stockholders has further agreed that he will not, and will not permit
any investment banker, financial advisor, attorney, accountant or other
representative retained by him to (3) directly or indirectly solicit, initiate
or encourage any proposal that may lead to an Alternative Transaction or (4)
directly or indirectly participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Alternative
Transaction.
Each of the Selling Stockholders has also agreed until the Stockholder
Agreement has terminated (and the Stockholder Agreement includes an
irrevocable proxy provision for the benefit of the Purchaser with respect to
the Shares subject to the Stockholder Agreement owned by each Selling
Stockholder), (1) to vote the Subject Shares at any meeting of stockholders of
the Company called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote, consent
or other approval (including by written consent) with respect to the Merger
and the Merger Agreement is sought, in favor of the Merger, the adoption by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other transactions contemplated by the Merger Agreement; and (2)
to vote such Shares at any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which a Selling
Stockholder's vote, consent or other approval is sought, against (x) any
Alternative Transaction, (y) any amendment of the Company's certificate of
incorporation or by-laws or other proposal or transaction involving the
Company, which amendment or other proposal or transaction would be reasonably
likely to impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement or change in any manner the voting rights of each class of the
Company's common stock or (z) any action that would cause the Company to
breach any representation, warranty or covenant contained in the Merger
Agreement.
9
Pursuant to the Stockholder Agreement, if (i) immediately prior to the
expiration of the Offer, the Purchaser determines that the exercise of
options, warrants or other instruments held by the Stockholders and the sale
or tender into the Offer of the Subject Shares acquired thereby either would
cause the Minimum Condition to be satisfied or would cause the Purchaser to
own more than 90% of the outstanding Shares and (ii) the Purchaser exercises
its right to extend the Offer in accordance with the terms and conditions set
forth in the Merger Agreement, then upon the request of Parent or the
Purchaser and the Exercise Loan (as defined below), each Stockholder shall
promptly exercise all options, warrants and other instruments held by such
Stockholder and sell the Subject Shares acquired thereby to the Purchaser or
tender such Subject Shares into the Offer (at such Stockholder's discretion,
unless the Purchaser directs that such Stockholder tender such Subject
Shares). Upon delivery of such request, Parent shall lend to each Stockholder
the amount necessary for such Stockholder to pay the aggregate exercise price
in respect of all options, warrants and other instruments (each, an "Exercise
Loan"). Each Exercise Loan shall be evidenced by a promissory note, shall bear
interest at the applicable Federal rate (as defined in Section 7872 of the
Code) and shall be repaid together with accrued but unpaid interest upon the
earlier of (i) the payment of the purchase price for the Subject Shares
(whether pursuant to the Offer or otherwise) and (ii) the termination of the
Stockholder Agreement.
The Stockholder Agreement provides that in the event that the Merger Agreement
shall have been terminated under circumstances where Parent is or may become
entitled to receive the Termination Fee, each Stockholder shall pay to Parent on
demand an amount equal to the difference between the consideration received by
such Stockholder from the consummation of any transaction which gives rise to
the Company's obligation to pay the Termination Fee pursuant to the Merger
Agreement and the consideration such Stockholder would have received had he or
it tendered his Shares pursuant to the Offer (without taking into account any
modifications to the Offer as in effect on the date hereof), as determined in
accordance with the Stockholder Agreement.
In addition, in the event that (1) prior to the Effective Time, an
Alternative Transaction shall have been proposed and (2) the Effective Time
shall have occurred and Parent for any reason shall have increased the amount
of Merger Consideration payable over that set forth in the Merger Agreement in
effect on the date thereof (the "Original Merger Consideration"), each Selling
Stockholder agrees in the Stockholder Agreement to pay to Parent on demand an
amount in cash equal to the product of (A) the number of Subject Shares and
(B) 100% of the excess, if any, of (i) the per Share cash consideration or the
per Share fair market value of any noncash consideration, as the case may be,
received by such Selling Stockholder as a result of the Merger, as amended,
determined as of the Effective Time, over (ii) the amount of the Original
Merger Consideration determined as of the time of the first increase in the
amount of the Original Merger Consideration.
CONFIDENTIALITY AGREEMENT
Pursuant to an agreement dated as of April 2, 1997 (the "Confidentiality
Agreement") between the Company and Apollo Management, L.P. ("Apollo") an
affiliate of Parent and Purchaser, the Company has supplied Apollo with
certain non-public, confidential and proprietary information about the
Company. Apollo has agreed in the Confidentiality Agreement that it, together
with its directors, officers, employees, agents and representatives, will keep
confidential all such information supplied by the Company and that it will
not, without the prior written consent of the Board of Directors of the
Company, until April 1, 1998, acquire or offer to acquire any securities or
assets of the Company or enter into or propose to enter into any business
combination involving the Company. In the Merger Agreement, the Company has
represented and warranted that the making of any offer and proposal and the
taking of any other action by Parent or Purchaser. in connection with the
Merger Agreement and the Stockholders Agreements and the transactions
contemplated thereby have been consented to by the Board of Directors of the
Company in accordance with the terms and provisions of the Confidentiality
Agreement.
RIGHTS AGREEMENT
The Company has amended the Rights Agreement so that neither Parent nor
Purchaser will become an "Acquiring Person," the execution, delivery and
performance of the Merger Agreement and the Stockholder
10
Agreement do not, and the commencement or consummation of the Offer, the
Merger and the other transactions contemplated under the Merger Agreement and
the Stockholder Agreement (including pursuant to any amendment thereto) will
not, result in the grant of any rights to any person under the Rights
Agreement or enable or require any outstanding rights to be exercised,
distributed or triggered, and the Rights will expire without any further force
or effect as of the Effective Time. The Company has not exempted (or taken any
other action tantamount to exempting) any person or entity from the potential
application of the Rights Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
At a meeting held on June 23, 1997, the Board of Directors of the Company,
by the unanimous vote of the independent directors as well as the unanimous
vote of the full board of directors, determined that the Offer and the Merger
are fair to, and in the best interests of, the Company and its stockholders.
The Board of Directors recommends that the stockholders of the Company accept
the Offer and tender their Shares and associated Rights pursuant to the Offer
and approve and adopt the Merger and the Merger Agreement (if required).
As set forth in the Offer to Purchase, the Merger Agreement and the Letter
of Transmittal (the "Offer Documents"), the Purchaser will purchase shares
tendered prior to the close of the Offer if the Conditions to the Offer have
been satisfied (or waived). Stockholders considering not tendering their
shares in order to wait for the Merger should note that if the Minimum
Condition is not satisfied or any of the other conditions to the Offer are not
satisfied, Purchaser is not obligated to purchase any Shares, and can
terminate the Offer and the Merger Agreement and not proceed with the Merger.
Under Delaware law, the approval of the Board and the affirmative vote of the
holders of a majority of the outstanding shares are required to approve the
Merger. Accordingly, if the Conditions to the Offer are satisfied, the
Purchaser will have sufficient voting power to cause the approval of the
Merger without the affirmative vote of any other stockholder.
(b) Background to the Offer; Reasons for Recommendation
BACKGROUND TO THE OFFER
The healthcare industry has been in a period of consolidation and, as a
result, during the past several years the Board of Directors of the Company
has reviewed and considered various strategic alternatives with a view toward
increasing stockholder value. During the period from May 1995 to February
1997, the Company received several unsolicited offers for the Company. In an
effort to appropriately evaluate such proposals in addition to other options
available to the Company, the Board decided that it should engage the services
of a financial advisor and met with several firms. In February 1997, the
Company retained Smith Barney Inc. ("Smith Barney") to provide the Company
with financial advice and assistance with respect to analyzing various
financial and strategic alternatives, identifying potential acquirors and
evaluating the financial terms and conditions of any proposals received. In
this regard, the Company directed Smith Barney, in consultation with Company
management, to identify companies in the healthcare industry as well as
financial companies that could be potential partners with or acquirors of the
Company and to contact a number of these candidates on a discrete basis to
determine their level of interest.
From late February 1997 through late March 1997, approximately 27
prospective buyers were contacted, which included public and private
diagnostic imaging companies, hospitals and financial buyers. Sixteen parties
expressed interest and were furnished with public information packages
regarding the Company. Twelve of those parties subsequently executed
confidentiality agreements and, as a result, received a confidential
information package. Substantially all of the confidentiality agreements
provided that for a period of one year neither the party nor any of its
affiliates would (1) acquire or agree to acquire, directly or indirectly, by
purchase or otherwise, any voting securities of the Company, (2) make, or in
any way participate in, directly or indirectly, any "solicitation" of
"proxies" (as such terms are used in the rules of the Commission) to vote, or
seek to advance or influence any person or entity with respect to the voting
of any voting securities of the Company, or
11
(3) make any public announcement with respect to, or submit a proposal for, or
offer of (with or without conditions) any extraordinary transaction involving
the Company or its securities or assets.
From early to mid-April 1997, five parties submitted preliminary indications
of interest at a range between $10.00 and $13.00 per Share, including a
written preliminary indication of interest to purchase the Company submitted
by Apollo on April 16, 1997 at a purchase price of between $11.00 and $13.00
per share. Such indication of interest indicated that affiliates of Apollo
were considering pursuing a recapitalization of the Company in which the
Company's stockholders would receive part of the consideration for their
Shares in cash and part in the form of equity. On April 18, 1997, executive
officers of the Company and representatives of Smith Barney met with Apollo
management to discuss Apollo's written preliminary indication of interest.
In late April and early May 1997, four of these five parties conducted due
diligence and met with management at the Company. This included a meeting, on
May 5, 1997, at which Apollo and its advisors met with representatives of the
Company and Smith Barney and conducted a preliminary review of certain non-
public information. The remaining party conducted telephonic due diligence but
did not visit the Company. On May 7-8, 1997, all five parties submitted formal
indications of interest, four of which were written and one of which was oral
at a range from $8.50 per Share to $11.50 per Share. This included a written
offer submitted by Apollo on May 8, 1997 to acquire the Company at a price of
$11.50 per Share, subject to certain conditions, but not subject to a
financing condition. Such offer expressed Apollo's desire to consider
providing $0.25 per Share consideration in the form of equity.
The Company evaluated the bids submitted and decided to continue to
negotiate with the two highest bids, one of which was a stock transaction
proposed by a strategic buyer, and the other of which was the cash bid from
Apollo. Through May 18, 1997, Apollo, Apollo's advisors, the Company's senior
management and the Company's advisors engaged in various telephonic
discussions regarding the business, strategies and prospects of the Company
and the possible terms of a potential transaction, the continued employment of
certain members of senior management, including cash compensation and equity
plans.
During this period, the Company and its advisors also held discussions with
the strategic buyer regarding a potential transaction, including visiting the
headquarters of such buyer.
During the course of negotiations with Apollo, it indicated its willingness
to negotiate the terms of a potential transaction (including the compensation
arrangements for senior management) and continue to devote substantial
resources to evaluating the Company, but indicated its desire that the Company
negotiate exclusively with Apollo in respect of a transaction. In order to
continue negotiations with Apollo, and since the stock bid of the strategic
buyer was at a lower valuation than Apollo's cash bid, the Company, on May 27,
1997, executed a letter agreement requested by Apollo (the "Exclusivity
Agreement") granting Apollo exclusive rights to negotiate a transaction
involving the Company and access to the Company's agents books and records and
advisors and agents for an exclusive period until June 30, 1997. On the same
day, Apollo verbally communicated to representatives of the Company a proposal
to acquire the Company for $11.75 per Share in cash.
Thereafter, Apollo and its representatives continued their review of and
discussions with the Company. On June 6, 1997, during the exclusivity period,
the Company received an unsolicited revised indication of interest from a
strategic buyer other than the strategic buyer considered at the time the
Exclusivity Agreement with Apollo was executed. After consultation with
members of the Company's Board and the Company's advisors, the Company
concluded that the pursuit of a possible transaction with such strategic
buyer, as set forth in its indication of interest, was not in the best
interests of the stockholders given, among other factors, the all cash offer
by Apollo and the fact that the pursuit of such unsolicited indication of
interest would have required the Company to breach the Exclusivity Agreement
with Apollo. On June 10, 1997, and in accordance with the Exclusivity
Agreement, the Company notified such bidder that it could not comment on its
offer at that time.
12
During the week of June 16, 1997, Apollo and its advisors and the Company
and its advisors commenced negotiations of a definitive merger agreement,
which provided for, among other things, the Offer at a price of $11.75 per
Share in cash to the Company's stockholders. The negotiations also included
the negotiation of the terms of the Stockholder Agreement and the terms for
continued employment of Messrs. Bergman, Dickman, Spindler and Zynn.
On Sunday, June 22, 1997, a special meeting at the Company of the Board was
held to consider the terms of the Apollo transaction. At this meeting,
Buchanan Ingersoll, special counsel to the Company, provided the legal
background and information regarding the proposed transaction, including a
review of the material terms and conditions of the transaction and the Board's
fiduciary duties in evaluating the transactions and Smith Barney reviewed with
the Board the financial analyses performed by Smith Barney in connection with
its evaluation of the Offer. After discussion, the Board directed management
to pursue the transaction subject to continued negotiation of the remaining
material terms. On June 23, 1997, various telephone calls were held among
representatives of the Company and Apollo and their respective advisors
regarding the resolution of the remaining terms of the proposed transaction.
In the evening of June 23, 1997, a telephonic meeting of the Board of the
Company was held at which the events of the day were discussed. The Board then
received the opinion of Smith Barney referred to in "Reason for Board's
Recommendation" below. A vote of the full Board unanimously approved the
Offer, the Merger Agreement and the transactions contemplated thereby. The
Merger Agreement and related documents were executed as of June 24, 1997.
REASONS FOR BOARD'S RECOMMENDATION
In arriving at its decision to approve the transactions contemplated by the
Merger Agreement and the Stockholder Agreements and to recommend acceptance of
the Offer, the Board of Directors considered, among other things, (i) the
terms and conditions of the Offer and the Merger Agreement, including the
amount and form of the consideration being offered to the Company's
stockholders; (ii) the recent and historical market prices and trading volume
of the Shares, and the Company's historical and projected earnings; (iii) the
Board of Directors' knowledge of the business, operations, prospects,
properties, assets and earnings of the Company; (iv) the absence of any
financing condition or any other term or condition which in the Board's view
was unduly onerous or could materially impair the consummation of the Offer or
the Merger; (v) the financial condition and business reputation of Apollo and
the ability of Apollo to complete the Offer and the Merger in a timely manner;
(vi) possible alternatives, which the Board concluded were not reasonably
likely to result in a more favorable combination of price, form of
consideration and likelihood of consummation than the Offer and the Merger;
(vii) the number of potential bidders contacted and the bidding process
undertaken on behalf of the Company to solicit third party indications of
interest in a transaction with the Company, (viii) management's view that,
without a strategic partner, the Company would have difficulty competing
effectively in an industry in which, through consolidation, the Company's
competitors were growing in size and in financial resources, (ix) the fact
that, under the terms of the Merger Agreement, the Board retained the right to
review (subject to certain restrictions), and if appropriate in the exercise
of its fiduciary duties to the stockholders of the Company accept, an
unsolicited proposal that the Board determines was financially superior to the
Offer and (x) the oral opinion of Smith Barney rendered to the Board of
Directors of the Company on June 23, 1997 at a meeting of the Board held to
evaluate the Offer and the transactions contemplated thereby (which opinion
was subsequently confirmed by delivery of an opinion dated June 24, 1997, the
date of execution of the Merger Agreement) to the effect that, as of the date
of such opinion and based upon and subject to certain matters stated therein,
the $11.75 per Share cash consideration to be received by holders of Shares
(other than Parent and its affiliates) in the Offer and the Merger was fair,
from a financial point of view, to such holders. The full text of Smith
Barney's written opinion dated June 24, 1997, which sets forth the assumptions
made, matters considered and limitations on the review undertaken by Smith
Barney, is attached hereto as Exhibit (a)(9) and is incorporated herein by
reference. Smith Barney's opinion is directed only to the fairness, from a
financial point of view, of the cash consideration to be received in the Offer
and the Merger by holders of Shares (other than Parent and its affiliates) and
is not intended to constitute, and does not constitute, a recommendation as to
whether any stockholder should tender Shares pursuant to the Offer. HOLDERS OF
SHARES ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY.
13
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Board
viewed its position and recommendation as being based on the totality of the
information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Smith Barney as its financial advisor in connection
with the Offer and the Merger. Pursuant to the terms of Smith Barney's
engagement, the Company has agreed to pay Smith Barney for its services an
aggregate financial advisory fee based on a percentage of the total
consideration (including liabilities assumed) payable in connection with the
Offer and the Merger. The fee payable to Smith Barney is currently estimated
to be approximately $1.2 million. The Company also has agreed to reimburse
Smith Barney for reasonable travel and other out-of-pocket expenses, including
reasonable legal fees and expenses, and to indemnify Smith Barney and certain
related parties against certain liabilities, including liabilities under the
federal securities laws, arising out of Smith Barney's engagement. Smith
Barney has in the past provided investment banking services to Apollo
unrelated to the Offer and the Merger, for which services Smith Barney has
received compensation. In the ordinary course of business, Smith Barney and
its affiliates may actively trade or hold the securities of SMT for their own
account or for the account of customers and, accordingly, may at any time hold
a long or short position in such securities.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except for the transactions contemplated by the Offer and the
Stockholder Agreement, and except with respect to the exercise by Mr. David W.
Spindler of stock options for 19,323 Shares and the sale of such Shares in an
open market transaction on May 5, 1997, no transactions in the Shares have
been effected during the past 60 days by the Company or, to the best knowledge
of the Company, by any executive officer, director or affiliate of the
Company.
(b) To the best of the Company's knowledge, all of the Company's executive
officers, directors and affiliates presently intend to tender all Shares which
are held of record or beneficially owned by such persons pursuant to the
Offer, other than Shares, if any, held by any such person which, if tendered,
could cause such person to incur liability therefore pursuant to the short-
swing profit recapture provisions of Section 16(b) of the Exchange Act of
1934. Each executive officer is subject to the terms and conditions of the
Stockholder Agreement to which it is a party, which Stockholder Agreement is
described above in Item 3(b)(2). See Item 3(b)(2) for a discussion of Director
Warrants and Stock Options.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Items 3(b) and 4(b) above and subject to
restrictions contained in the Merger Agreement, no negotiation is being
undertaken or is underway by the Company in response to the Offer that relates
to or would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any of its subsidiaries, (ii) a
purchase, sale or transfer of a material amount of assets by the Company or
its subsidiaries, (iii) a tender offer for or acquisition of securities by or
of the Company or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, Board resolution,
agreement in principle or signed contract in response to the Offer that relate
to or would result in one or more of the events referred to in Item 7(a)
above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's stockholders.
14
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT INDEX
EXHIBIT NAME
------- ----
(a)(1) Offer to Purchase*
(a)(2) Letter of Transmittal*
(a)(3) Notice of Guaranteed Delivery*
Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
(a)(4) Other Nominees*
Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies
(a)(5) and Other Nominees*
(a)(6) Guidelines of the Internal Revenue Service for Certification of Tax-
payer Identification Number on Substitute Form W-9*
(a)(7) Form of Summary Advertisement
Text of Press Release dated June 24, 1997, issued by the Company and
(a)(8) Parent
(a)(9) Opinion of Smith Barney Inc. dated June 24, 1997 (filed as Annex B)*
(a)(10) Letter to Stockholders dated June 30, 1997 from Jeff D. Bergman,
Chairman, Chief Executive Officer and President of the Company*
(c)(1) Agreement and Plan of Merger dated as of June 24, 1997, among the Pur-
chaser, Parent and the Company (including the Parent Option Plan
Terms Sheet)
(c)(2) Stockholder Agreement dated as of June 24, 1997, among Parent, the
Purchaser, Jeff D. Bergman, Daniel Dickman, David Spindler, and David
Zynn
(c)(3) Employment Agreement dated as of June 24, 1997, among the Purchaser,
Parent, the Company and Jeff D. Bergman
(c)(4) Employment Agreement dated as of June 24, 1997, among the Purchaser,
Parent, the Company and Daniel Dickman
(c)(5) Employment Agreement dated as of June 24, 1997, among the Purchaser,
Parent, the Company and David W. Spindler
(c)(6) Employment Agreement dated as of June 24, 1997, among the Purchaser,
Parent, the Company and David A. Zynn
(c)(7) Certificate of Incorporation, as amended, of the Company
(c)(8) By-Laws of the Company**
(c)(9) Information Statement Form 14f-1 (filed as Annex A)
(c)(10) Form of Company Director Indemnification Agreement
(c)(11) Amendment to Rights Agreement dated as of June 23, 1997
- --------
* Copies provided to stockholders.
** Incorporated herein by reference to Exhibit 3.2 to the Company's Form S-1
(SEC File No. 33-44329).
15
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
Dated: June 30, 1997
SMT Health Services Inc.
/s/ Jeff D. Bergman
By:_______________________________________
Name: Jeff D. Bergman
Title: Chairman, Chief Executive
Officer and President
16
ANNEX A
SMT HEALTH SERVICES INC.
10521 PERRY HIGHWAY
WEXFORD, PENNSYLVANIA 15090
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about June 30, 1997 as a
part of SMT Health Services Inc.'s (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
shares of Common Stock, par value $.01 per share, of the Company (the
"Shares") at the close of business on or about June 27, 1997. You are
receiving this Information Statement in connection with the possible election
of persons designated by the Purchaser (as defined below) to a majority of the
seats on the Board of Directors of the Company.
On June 24, 1997, the Company, Three Rivers Holdings Corp., a Delaware
corporation ("Parent") and Three Rivers Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent (the "Purchaser") entered
into an Agreement and Plan of Merger (the "Merger Agreement") in accordance
with the terms and subject to the conditions pursuant to which (i) Parent
agreed to cause the Purchaser to commence a tender offer (the "Offer") for all
outstanding Shares at a price of $11.75 net per Share to the seller in cash
and without interest thereon, and (ii) the Purchaser will be merged with and
into the Company (the "Merger"). As a result of the Offer and the Merger, the
Company will become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to use all reasonable efforts to
cause the directors designated by Parent to be elected to the Board of
Directors under the circumstances described therein. See "Board of Directors
and Executive Officers."
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You
are not, however, required to take any action. Capitalized terms used herein
and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on June
30, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on July 28, 1997, unless the Offer is extended.
The following information contained in this Information Statement concerning
the Purchaser has been furnished to the Company by the Purchaser, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of June 27, 1997, there were
5,746,324 Shares outstanding. The Board of Directors currently consists of one
class with five members. At each annual meeting of stockholders, all five
directors are elected for one-year terms. The officers serve at the discretion
of the Board.
A-1
Pursuant to the Merger Agreement, promptly upon the purchase by the
Purchaser of such number of Shares which satisfies the Minimum Condition (as
defined in the Merger Agreement) and from time to time thereafter, Parent
shall be entitled to designate a majority of the members of the Company's
Board of Directors (the "Parent Designees"). The Merger Agreement requires
that the Company will, upon request by and at the option of Parent, either
increase the size of the Board of Directors and/or secure the resignations of
current directors to enable the Parent Designees to be elected or appointed to
the Board of Directors and to constitute a majority of the Company's Board of
Directors.
Parent has informed the Company that it will choose five of the Parent
Designees from the Parent directors and executive officers listed on Schedule
I of the Offer to Purchase. Parent has informed the Company that each of the
Parent Designees has consented to act as a director, if so designated.
Biographical information concerning each of the Parent Designees is presented
on Schedule I to the Offer to Purchase. Jeff D. Bergman and Daniel Dickman
will remain Directors of the Company.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best of
Parent's knowledge, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by Parent that, to
the best of Parent's knowledge, none of the Parent Designees has been involved
in any transaction with the Company or any of its directors, executive
officers or affiliates which are required to be disclosed pursuant to the
rules and regulations of the Commission, except as may be disclosed herein or
in the Schedule 14D-9.
Biographical information concerning each of the Company's current directors
and executive officers as of June 29, 1997 is presented on the following
pages.
NAME DIRECTOR SINCE AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
- ---- -------------- --- -------------------------------------------
DIRECTORS
Jeff D. Bergman (1)..... 1992 42 Chairman of the Board, Chief Executive Officer
and President
Daniel Dickman (1)...... 1992 50 Chief Operating Officer, Executive Vice President,
Secretary and Director
Gerald L. Cohn.......... 1992 68 Director
Alan Novich (2)(3)...... 1992 51 Director
David J. Malone 1993 42 Director
(1)(2)(3)..............
NAME AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
- ---- --- -------------------------------------------
EXECUTIVE OFFICERS
David W. Spindler...................... 45 Senior Vice President, Operations/Marketing
David A. Zynn.......................... 33 Chief Financial Officer and Treasurer
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Executive Plan Committee
Jeff D. Bergman has been Chief Executive Officer, President, and a Director
of the Company since its formation in 1991 and held the same positions with
the Company's predecessors Shared Medical Technologies, Inc. since 1987 and
Shared MRI-4, Inc. since its inception in 1990. From 1979 to 1982, he was
employed by BOC-AIRCO as a Marketing Representative for the Corporate Steel
Division. In 1983, Mr. Bergman joined Mobile Diagnostech, Inc. ("MDI"), a
provider of mobile CAT scanners and MRI equipment, as a developer and manager
of fixed-site oncology centers. In 1987, Mr. Bergman left MDI and formed the
Company. Mr. Bergman is also an official in the National Football League.
A-2
Daniel Dickman has been Executive Vice President and Chief Operating Officer
of the Company since 1991 and held the same positions with the Company's
predecessors, Shared Medical Technologies, Inc. since 1987 and Shared MRI-4,
Inc. since its inception in 1990. From 1985 to 1987, Mr. Dickman was employed
by Mobile Diagnostech, Inc. ("MDI") and was responsible for its management and
day-to-day operations of its MRI equipment and CAT scanners. In 1987, Mr.
Dickman joined the Company to manage the Company's equipment routes and fixed-
site modalities. He has over 12 years of experience in healthcare management
consulting and systems design, and was formerly employed by Blue Cross of
Western Pennsylvania as Manager of Hospital Consulting.
Gerald L. Cohn is a private investor. Since 1986, Mr. Cohn has served as a
Director of and consultant to DVI, Inc., a publicly held medical equipment
leasing company, a subsidiary of which, DVI Financial Services Inc. ("DVI"),
was a principal stockholder of, and is a lessor of medical equipment to, the
Company. See "Certain Relationships and Related Transactions." Mr. Cohn is a
director of Diametrics Medical, Inc. and Niagara Steel Corp.
Alan Novich is a private attorney. From June 1992 to October 1993, Mr.
Novich had been a consultant to Stratton Oakmont Inc., the underwriter of the
Company's initial public offering. From January 1991 to May 1992, Mr. Novich
was a Vice President and the Counsel for Corporate Finance of Stratton Oakmont
Inc. From June 1988 through December 1990, Mr. Novich was engaged in the
private practice of law and dentistry. From 1985 to June 1988, Mr. Novich
attended law school and was engaged in the private practice of dentistry. Mr.
Novich is Chairman of the Board of Directors of Futurebiotics, Inc.
David J. Malone, CLU, ChFC, has served as President, CFO and Director of
Gateway Financial Group, a financial planning organization, since 1982. Mr.
Malone is a licensed broker-dealer who has served as President of DJM
Financial Advisory Services, Inc. since 1985. Mr. Malone has also served as
general partner of various real estate transactions, including hotel,
commercial office and retail properties.
David W. Spindler has been Vice President of Clinical Operations and
Marketing for the Company since 1991 and held the same positions with the
Company's predecessor since 1988. From 1979 to 1984, Mr. Spindler was a Sales
Representative with BOC-AIRCO (a major supplier of cryogens for MRI systems).
In 1984, he joined M.G. Industries where he was an Account Representative. In
1986, Mr. Spindler joined Helium Technologies where he was a Division Manager.
Mr. Spindler received his B.S.B.A. from Slippery Rock University and his
M.B.A. from Robert Morris College. Mr. Spindler is also a Captain in the
United States Army Reserves.
David A. Zynn has been Chief Financial Officer, Treasurer and Assistant
Secretary since September 1991. From January 1986 to December 1989 and August
1990 to August 1991, Mr. Zynn was employed by KPMG Peat Marwick LLP in several
capacities, first as a staff accountant and finally as an audit manager and a
national instructor of auditing and accounting. From January 1990 to August
1990, Mr. Zynn was employed by Black Box Incorporated as the Manager of
Financial Reporting. Mr. Zynn is a certified public accountant and a member of
the Healthcare Financial Management Association and American Management
Association. Mr. Zynn received his B.S.B.A. from Indiana University of
Pennsylvania.
There are no family relationships among executive officers or directors of
the Company.
BOARD OF DIRECTORS, BOARD COMPENSATION AND COMMITTEES
The Company's Board of Directors held three (3) meetings during the year
ended December 31, 1996 and five (5) meetings during 1997. Each director
attended at least 75% of the aggregate of the number of meetings of the Board
of Directors and any committee of which he is a member.
Directors who are not also employees of the Company receive $18,000
annually, $1,000 per meeting and reimbursement of expenses related to their
services as Directors of the Company. Also, each director receives options to
buy 2,100 shares (2,247 after adjustment to reflect the 7% Common Stock
dividend paid to shareholders on January 15, 1997) of Common Stock on December
31 of each year. See "Stock Option Plans."
A-3
Directors who also are employees of the Company receive no annual compensation
for service on the Board of Directors or any committee thereof.
On August 9, 1995, the Company adopted the 1995 Director Warrant Plan (the
"Warrant Plan") pursuant to which eligible directors automatically receive
unregistered warrants to purchase 100,000 shares of Common Stock. The Warrant
Plan allows for a total issuance of warrants to purchase up to 700,000 shares
of Common Stock.
On August 9, 1995, warrants to purchase up to 500,000 shares of Common Stock
at an initial exercise price of $3.875, the closing price of the Company's
stock on the date of issue, were issued to the five eligible directors.
Separately, unregistered warrants to purchase 114,500 shares of Common Stock
at an initial exercise price of $4.01 were also issued to an individual who
was an outside director and consultant to the Company, who was ineligible to
participate in the Warrant Plan.
During May 1996, the outside director who was also a consultant of the
Company exercised the 114,500 Warrants and sold 114,500 shares of Common
Stock. The Company received cash proceeds of approximately $459,000 related to
the exercise of such Warrants.
During January 1997, the Company's three outside directors each exercised
25,000 Director Warrants and sold 26,750 shares of Common Stock (after
adjustment for the January 1997 7% Common Stock dividend). The Company
received cash proceeds of approximately $291,000 as a result of the exercise
of the 75,000 Director Warrants.
Pursuant to the 1995 Director Warrant Plan, the Director Warrants have been
recapitalized to reflect the January 1997 7% Common Stock dividend.
Accordingly, the outstanding Director Warrants' exercise price of $3.875 now
entitles the holder to purchase 1.07 shares of Common Stock of the Company. As
of January 31, 1997, 425,000 Director Warrants to purchase 454,750 shares of
Common Stock of the Company were outstanding.
AUDIT COMMITTEE
The Board has an Audit Committee currently consisting of Messrs. Malone and
Novich. The Audit Committee's duties include monitoring performance of the
Company's business plan, reviewing the Company's internal accounting methods
and procedures and reviewing certain business strategies. The Audit Committee
met once in 1996.
COMPENSATION COMMITTEE
The Board has a Compensation Committee currently consisting of Messrs.
Bergman, Dickman and Malone. The Compensation Committee is responsible for
determining the compensation of the Company's employees, other than Messrs.
Bergman and Dickman. The Compensation Committee met twice in 1996.
EXECUTIVE PLAN COMMITTEE
The Board has an Executive Plan Committee, consisting of Messrs. Novich and
Malone, which administers the Company's 1991 Employee Stock Option Plan, as it
applies to persons who are subject to the reporting requirements of Section 16
("Reporting Persons") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Executive Plan Committee met twice in 1996.
PLAN COMMITTEE
The Board has a Plan Committee, consisting of Messrs. Novich, Malone and
Bergman, which administers the 1991 Employee Stock Option Plan as it applies
to persons who are not subject to the reporting requirements of Section 16 of
the Exchange Act. The Plan Committee met twice in 1996.
NOMINATING COMMITTEE; NOMINATION PROCEDURES
The Company does not have a standing nominating committee. The Board of
Directors, however, is responsible for the evaluation and recommendation of
qualified nominees, as well as other matters pertaining to
A-4
Board composition and size. The Board will give appropriate consideration to
qualified persons recommended by stockholders for nomination as director in
accordance with the Company's By-Laws as described below.
The Company's By-Laws describe in full the procedures to be followed by a
stockholder in recommending nominees for director. In general, such
recommendations can only be made by a stockholder entitled to notice of and to
vote at a meeting at which directors are to be elected, must be in writing and
must be received by the Chairman of the Board of the Company no later than (i)
with respect to the election of directors at an annual meeting, sixty (60)
days prior to the anniversary date of the prior year's annual meeting, or (ii)
with respect to the election of directors at a special meeting, the close of
business on the fifteenth (15th) day following the date on which notice of
such meeting is given to stockholders or publicly disseminated. Furthermore,
the recommendation must include the following information to the extent known
to the notifying stockholder: (a) the name and address of each proposed
nominee and of the notifying stockholder; (b) the principal occupation of each
proposed nominee; (c) a representation that the notifying stockholder intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (d) the total number of shares of the Company
that will be voted for each proposed nominee; (e) the total number of shares
of the Company owned by the notifying stockholder; (f) a description of all
arrangements or understandings between the notifying stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
notifying stockholder; (g) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed with the Securities and Exchange Commission; and (h) the
consent of each nominee to serve as a director of the Company if so elected.
A-5
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth all cash compensation paid by the Company and
its subsidiaries, as well as other compensation paid or accrued, to each of
its executive officers whose annual salary and bonus exceeded $100,000 (the
"Named Executive Officers"), for services rendered in all capacities during
the year ended December 31, 1996:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPEN-
ANNUAL COMPENSATION SATION
--------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(/1/) OPTIONS(/2/) SATION(/3/)
- --------------------------- ---- --------- ----------- ------------ -----------
($) ($) (#) ($)
Jeff D. Bergman--President,
Chief Executive
Officer and Chairman of
the Board................. 1996 209,000 134,000 14,500 9,534
1995 180,000 73,700 224,000 4,500
1994 161,000 19,000 50,000 4,500
Daniel Dickman--Executive
Vice President,
Chief Operating Officer
and Director.............. 1996 209,000 134,000 14,500 12,633
1995 180,000 73,700 224,000 6,500
1994 161,000 19,000 50,000 6,500
David W. Spindler--Senior
Vice
President--Operations and
Marketing................. 1996 110,000 41,000 5,000 1,000
1995 95,500 21,000 59,250 500
1994 86,000 6,000 25,000 500
David A. Zynn--Chief
Financial
Officer and Treasurer..... 1996 108,000 45,000 5,000 1,000
1995 83,200 27,400 49,000 500
1994 76,000 7,000 25,000 500
- --------
(1) Amounts shown are for payments made pursuant to the Company's Profit
Sharing Plan. Employment agreements with Messrs. Bergman, Dickman,
Spindler and Zynn require the Company to maintain a profit sharing plan.
See "Certain Relationships and Related Transactions--Employment
Arrangements."
(2) Not adjusted for the January 1997 7% stock dividend.
(3) Amounts shown for fiscal 1996 include disability insurance premiums
totaling $7,814 and $10,443 and split-dollar life insurance premiums
totaling $720 and $1,190 for Messrs. Bergman and Dickman, respectively.
Amounts shown for fiscal 1996 also include, for each of the Named
Executive Officers, the Company's 401(k) contribution of $1,000.
STOCK OPTION PLANS
The Board of Directors and stockholders of the Company have adopted the
Company's 1991 Employee Stock Option Plan, as amended (the "1991 Employee
Plan"), and have authorized the issuance of options covering up to 842,625
shares of Common Stock under such plan (subject to appropriate adjustments in
the event of stock splits, stock dividends and similar dilutive events).
Options may be granted under the Employee Plan to officers and key employees
(including those who may also be directors) of, and consultants and advisors
to, the Company and its subsidiaries.
The Board of Directors of the Company in October 1996 adopted the Company's
1996 Employee Stock Option Plan ("1996 Employee Plan") and have authorized the
issuance of options covering 267,500 shares of Common Stock under such plan
(subject to appropriate adjustments in the event of stock splits, stock
dividends, or similar dilutive events). Options may be granted under the 1996
Employee Plan to officers and key employees (including those who may also be
directors) of, and consultants or advisors to, the Company and its
subsidiaries. Grants to the Named Executive Officers and directors are limited
to an aggregate of 26,750 shares of Common Stock.
A-6
The Board of Directors and stockholders have also adopted the Company's 1991
Directors Stock Option Plan for Nonemployee Directors (the "Directors Plan")
and have authorized the issuance of options covering up to 112,350 shares of
Common Stock under such plan (subject to appropriate adjustments in the event
of stock splits, stock dividends and similar dilutive events). Under the
Directors Plan, each eligible director automatically receives options to
purchase 2,247 shares of Common Stock (also subject to appropriate adjustments
in the event of stock splits, stock dividends and similar dilutive events) on
December 31st of each year at an exercise price equal to the fair market value
of the Common Stock on that date.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the stock options and
warrants granted to each of the Company's Named Executive Officers for
services rendered in 1996:
INDIVIDUAL GRANTS(/1/)
-------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SHARE) DATE
- ---- ----------- ---------- --------- ----------
Jeff D. Bergman..................... 7,000 18% $4.50 4/11/06
7,500 3% $6.875 10/1/06
Daniel Dickman...................... 7,000 18% $4.50 4/11/06
7,500 3% $6.875 10/1/06
David Spindler...................... 5,000 2% $6.875 10/1/06
David A. Zynn....................... 5,000 2% $6.875 10/1/06
- --------
(1) Not adjusted for the January 1997 7% stock dividend. All such options were
exercisable in full on the date of grant.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to each of the
Company's Named Executive Officers concerning the exercise of options during
1996 and unexercised options held as of December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS
ACQUIRED ON VALUE AT FISCAL AT FISCAL
EXERCISE(/1/) REALIZED YEAR END(/1/) YEAR END
------------- ---------- ---------------- ----------------
NAME (#) ($) (# EXERCISABLE/ ($ EXERCISABLE/
- ---- # UNEXERCISABLE) $ UNEXERCISABLE)
Jeff D. Bergman......... 136,500 $ 996,000 186,000/-- 391,000/--
Daniel Dickman.......... 136,500 $1,021,000 186,000/-- 391,000/--
David Spindler.......... 26,250 $ 154,000 80,000/-- 417,000/--
David A. Zynn........... 73,500 $ 480,000 22,500/-- 90,000/--
- --------
(1) Not adjusted for the January 1997 7% stock dividend.
A-7
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mark A. DeSimone, who was a director of the Company until March 27, 1996 and
who the Company believes beneficially owned in excess of five percent of the
outstanding Common Stock, was a consultant to the Company. In 1991, the
Company entered into a five-year consulting agreement with him pursuant to
which he received a consulting fee of $75,000 per annum. Mr. DeSimone provided
services relating to special projects and other business affairs of the
Company. The Company believes that the terms of this consulting agreement were
as favorable, in all material respects, as might have been obtained from an
unaffiliated third party. On March 27, 1996, the Company prepaid the remaining
$50,000 due under the agreement and terminated the consulting relationship.
Mr. DeSimone also was a partner in the law firm that provided services to the
Company in 1993. That law firm did not provide legal services to the Company
during 1994, 1995 or 1996 nor is it expected to perform legal services in the
future. The Company believes Mr. DeSimone no longer owns any outstanding
Common Stock, options or warrants.
Gerald L. Cohn, a director of the Company, is a director of, consultant to
and stockholder of DVI. The Company has entered into numerous leasing
transactions with DVI in the past, and DVI may serve as one of many financing
sources for the Company in the future.
During 1992 and 1993, the Company entered into numerous leasing transactions
with DVI pertaining to both continuing and discontinued operations involving
total financing of approximately $15.6 million. During 1994, the Company did
not enter into any new leases with DVI and refinanced with third parties $3.2
million of leases held by DVI. During the first quarter of 1995, the Company
refinanced its then-remaining leases with DVI, totaling approximately $6.5
million, with third-party lease companies. Interest rates under financing
agreements with DVI ranged from 11% to 14%. During 1996, the Company financed
the acquisition of a new MRI unit with DVI. In connection with such
transaction, the Company and DVI entered into a 60-month capital lease
financing approximately $1.5 million at an interest rate of 9.5%. Total
payments to DVI during 1994, 1995 and 1996 with respect to capital lease
obligations were approximately $3.9 million, $440,000 and $100,000,
respectively, including $1.4 million, $87,000 and $36,000, respectively, of
interest expense associated with such capital leases.
EMPLOYMENT ARRANGEMENTS
The Company entered into a three-year employment agreement commencing on
July 1, 1996 with each of Jeff D. Bergman and Daniel Dickman and a two-year
employment agreement commencing on October 1, 1996 with each of David W.
Spindler and David A. Zynn pursuant to which Mr. Bergman agreed to serve as
the Chairman of the Board, President and Chief Executive Officer of the
Company, Mr. Dickman as the Executive Vice President and Chief Operating
Officer, Mr. Spindler as Senior Vice President of Operations and Marketing and
Mr. Zynn as Treasurer, Assistant Secretary and Chief Financial Officer, at an
annual base salary of not less than $240,000, $240,000, $140,000 and $125,000
respectively.
Each of the employment agreements automatically extends for an additional
three months on each quarterly anniversary. The employment agreements provide
that if the employee is terminated other than for "cause" or if such employee
terminates for "good reason," the employee shall be entitled to a continuation
of full salary and bonus compensation for a period equal to the remainder of
the term. If the employee is terminated for "cause" or if the employee
terminates "without good reason," the employee shall only be entitled to
accrued salary and other accrued benefits prior to the date of termination.
Mr. Bergman's and Mr. Dickman's agreements each provide that if such
employee is terminated after a change in control of the Company, such employee
can elect to receive a lump sum payment of three times salary, bonus and
certain other amounts and continuation of certain benefits in lieu of
continued compensation for the remainder of the term. Mr. Spindler's and Mr.
Zynn's agreements each provide that if such employee is terminated after a
change in control of the Company, such employee shall receive a lump sum
payment of two times salary and continuation of certain benefits. Each of the
agreements contains a noncompete provision which
A-8
generally restricts the employee from competing with the Company in the same
geographic proximity for a two-year period.
Each of the agreements provide for annual profit sharing with other
executive level employees of a bonus pool consisting of 15% of the Company's
consolidated income before taxes, determined in accordance with generally
accepted accounting principles for financial reporting purposes. Mr. Bergman,
Mr. Dickman, Mr. Spindler and Mr. Zynn received approximately $134,000,
$134,000, $41,000 and $45,000, respectively, pursuant to the bonus pool for
services rendered in 1996.
In connection with the execution of the Merger Agreement, the Company and
each of the Named Executive Officers entered into new employment agreements,
dated as of June 24, 1997, which are substantially similar to the prior
agreements (the "Employment Agreements") and pursuant to which each person
will continue to serve in their current positions with the Company after
consummation of the Offer. The Employment Agreements supersede the prior
agreements unless the Offer is not consummated. Each of the Employment
Agreements provides for a three-year term, with an additional quarter to be
added at the end of the fifth quarter of the term and each quarter thereafter.
Under the Employment Agreements, Mr. Bergman and Mr. Dickman will each
receive a base salary of $240,000 per annum, Mr. Spindler will receive a base
salary of $140,000 per annum and Mr. Zynn will receive a base salary of
$125,000 per annum. These amounts equal the base salary provided for in the
prior agreements. Each of the Employment Agreements contains customary terms
(including confidentiality and non-competition arrangements) and other
benefits and provisions which are generally comparable to the benefits and
provisions provided to such persons in their prior employment agreements with
the Company.
In addition, pursuant to the Employment Agreements, the Company has agreed
to make available a fixed annual bonus pool equal to 15% of the Company's pre-
tax income (excluding the effect of such bonus pool and adjusted for any non-
recurring gains or losses) for the 12 months ended June 30, 1997, but in no
event greater than $1,240,000. Payments of such bonuses are conditioned on the
Company achieving reasonable performance objectives established by the
Company's compensation committee. Each of Mr. Bergman and Dickman will be
eligible to receive up to one quarter of the annual bonus pool. Such bonus
amounts are consistent with amounts provided under the prior employment
agreements.
The Employment Agreements provide that if the employee is terminated other
than for "cause" or if such employee terminates for "good reason," the
employee shall be entitled to a continuation of full salary and bonus
compensation and benefits for a period equal to the remainder of the term. If
the employee is terminated for "cause" or if the employee terminates "without
good reason," the employee shall only be entitled to accrued salary and other
accrued benefits prior to the date of termination. Each of the Employment
Agreements provide that the employee must refrain from competing with the
Company, interfering with its customer relationships or recruiting its
employees is extended until the second anniversary of the date when the
severance benefits end.
Under the Employment Agreements, each of Mr. Bergman and Mr. Dickman has the
right to terminate his employment, as does the Company, upon at least 90 days'
notice, on the first anniversary of the Effective Time with such person
agreeing to provide consulting services to the Surviving Corporation for a
period of two years following such termination and to continue to receive
payment of his base salary during such two-year period. The consulting
arrangement would require Mr. Bergman or Mr. Dickman, as the case may be, to
be available no more than one day per week, via telephone, at the request of
management while taking into account such person's prior commitments and
scheduling constraints.
STOCKHOLDER AGREEMENT
The Stockholder Agreement provides that each Selling Stockholder will sell,
and the Purchaser will purchase, all Shares beneficially owned by such Selling
Stockholder (the "Subject Shares"), at a price per Share equal to the Offer
Price. Such obligations to sell and to purchase the Subject Shares are subject
to the prior
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satisfaction or waiver of (1) the Purchaser having accepted Shares for payment
under the terms of the Offer, (2) the Minimum Condition having been satisfied,
(3) all waiting periods under the HSR Act applicable to the exercise of the
purchase shall have expired or terminated, (4) all regulatory approvals
required by any applicable law, rule or regulation shall have been obtained
and shall be final, and there (5) shall exist no preliminary or permanent
injunction, or any other order by any court of competent jurisdiction,
restricting, preventing or prohibiting either the purchase or the delivery of
Subject Shares. The Stockholder Agreement also provides that each Selling
Stockholder may, and at the request of the Purchaser shall, tender its Subject
Shares in the Offer. Any Subject Shares of any Selling Stockholder not
purchased in the Offer will be purchased immediately after payment is made
under the Offer.
Each of the Selling Stockholders has agreed, until the Merger Agreement has
terminated, among other things, not to: (1) sell, transfer, give, pledge,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement with respect to the sale, transfer, pledge, assignment or other
disposition of, the Subject Shares owned by such Selling Stockholder other
than pursuant to the terms of the Offer or the Merger or (2) enter into any
voting arrangement, whether by proxy, voting agreement or otherwise, in
connection with, directly or indirectly, any Takeover Proposal. Each of the
Selling Stockholders has further agreed that he will not, and will not permit
any investment banker, financial advisor, attorney, accountant or other
representative retained by him to directly or indirectly solicit, initiate or
encourage any proposal that may lead to an Alternative Transaction or directly
or indirectly participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Alternative
Transaction.
Each of the Selling Stockholders has also agreed until the Stockholder
Agreement has terminated (and the Stockholder Agreement includes an
irrevocable proxy provision for the benefit of the Purchaser with respect to
the Shares subject to the Stockholder Agreement owned by each Selling
Stockholder), (1) to vote the Subject Shares at any meeting of stockholders of
the Company called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote, consent
or other approval (including by written consent) with respect to the Merger
and the Merger Agreement is sought, in favor of the Merger, the adoption by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other transactions contemplated by the Merger Agreement; and (2)
to vote such Shares at any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which a Selling
Stockholder's vote, consent or other approval is sought, against (x) any
Alternative Transaction, (y) any amendment of the Company's certificate of
incorporation or by-laws or other proposal or transaction involving the
Company, which amendment or other proposal or transaction would be reasonably
likely to impede, frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement or change in any manner the voting rights of each class of the
Company's common stock or (z) any action that would cause the Company to
breach any representation, warranty or covenant contained in the Merger
Agreement.
Pursuant to the Stockholder Agreement, if (i) immediately prior to the
expiration of the Offer, the Purchaser determines that the exercise of
options, warrants or other instruments held by the Stockholders and the sale
or tender into the Offer of the Subject Shares acquired thereby either would
cause the Minimum Condition to be satisfied or would cause the Purchaser to
own more than 90% of the outstanding Shares and (ii) the Purchaser exercises
its right to extend the Offer in accordance with the terms and conditions set
forth in the Merger Agreement, then upon the request of Parent or the
Purchaser and the Exercise Loan (as defined below), each Stockholder shall
promptly exercise all options, warrants and other instruments held by such
Stockholder and sell the Subject Shares acquired thereby to the Purchaser or
tender such Subject Shares into the Offer (at such Stockholder's discretion,
unless the Purchaser directs that such Stockholder tender such Subject
Shares). Upon delivery of such request, Parent shall lend to each Stockholder
the amount necessary for such Stockholder to pay the aggregate exercise price
in respect of all options, warrants and other instruments (each, an "Exercise
Loan"). Each Exercise Loan shall be evidenced by a promissory note, shall bear
interest at the applicable Federal rate (as defined in Section 7872 of the
Code) and shall be repaid together with accrued but unpaid interest upon the
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earlier of (i) the payment of the purchase price for the Subject Shares
(whether pursuant to the Offer or otherwise) and (ii) the termination of the
Stockholder Agreement.
The Stockholder Agreement provides that in the event that the Merger
Agreement shall have been terminated under circumstances where Parent is or
may become entitled to receive the Termination Fee, each Stockholder shall pay
to Parent on demand an amount equal to the difference between the
consideration received by such Stockholder from the consummation of any
transaction which gives rise to the Company's obligation to pay the
Termination Fee pursuant to the Merger Agreement and the consideration such
Stockholder would have received had he or it tendered his Shares pursuant to
the Offer (without taking into account any modifications to the Offer as in
effect on the date hereof), as determined in accordance with the Stockholder
Agreement.
In addition, in the event that (1) prior to the Effective Time, an
Alternative Transaction shall have been proposed and (2) the Effective Time
shall have occurred and Parent for any reason shall have increased the amount
of Merger Consideration payable over that set forth in the Merger Agreement in
effect on the date thereof (the "Original Merger Consideration"), each Selling
Stockholder agrees in the Stockholder Agreement to pay to Parent on demand an
amount in cash equal to the product of (A) the number of Subject Shares and
(B) 100% of the excess, if any, of (i) the per Share cash consideration or the
per Share fair market value of any noncash consideration, as the case may be,
received by such Selling Stockholder as a result of the Merger, as amended,
determined as of the Effective Time, over (ii) the amount of the Original
Merger Consideration determined as of the time of the first increase in the
amount of the Original Merger Consideration.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Unless otherwise indicated, the following table sets forth certain
information available to the Company as of March 21, 1997 regarding (a) the
ownership of the Company's Common Stock by (i) each of the Company's directors
and nominees; (ii) each of the Company's Named Executive Officers; and (iii)
all directors and executive officers of the Company as a group; and (b) the
ownership of the Company's Common Stock by all those known by the Company to
be beneficial owners of more than five percent of its outstanding Common
Stock. Unless otherwise indicated, the business address of each person named
below who beneficially owns in excess of five percent of the Common Stock is
10521 Perry Highway, Wexford, Pennsylvania 15090.
PERCENT
AMOUNT(/1/) OF CLASS
----------- --------
Jeff D. Bergman....................................... 450,791(/2/) 7.7%
Daniel Dickman........................................ 501,689(/2/) 8.6%
Gerald L. Cohn........................................ 91,485(/3/) 1.6%
Alan Novich........................................... 82,497(/3/) 1.4%
David J. Malone....................................... 82,497(/3/) 1.4%
David W. Spindler..................................... 65,600(/4/) 1.1%
David A. Zynn......................................... 24,075(/4/) .4%
All directors and executive officers as a group (seven
persons)............................................. 1,268,445(/5/) 19.7%
Dorchester Partners, L.P.............................. 527,095 9.3%
Dorchester Advisors, Inc.
Michael J. Halpern
1999 Avenue of the Stars
Suite 1950
Los Angeles, CA 90067
Emerald Advisors, Inc................................. 321,281 5.7%
1857 William Penn Way
Lancaster, PA 17601
- --------
(1) Unless otherwise indicated, each of the stockholders named in the table
has sole voting and investment power with respect to the shares
beneficially owned, subject to the information contained in the footnotes
to the table.
(2) Includes 199,020 shares and 199,020 shares of Common Stock which Jeff D.
Bergman and Daniel Dickman, respectively, are deemed to beneficially own
as a result of their ownership of warrants and Company stock options to
acquire such shares.
(3) Includes for Mr. Cohn 91,485 shares, and for each of Messrs. Malone and
Novich 82,497 shares, pursuant to warrants and Company stock options to
purchase such shares.
(4) Includes for Messrs. Spindler and Zynn 65,600 and 24,075 shares,
respectively, pursuant to Company stock options to acquire such shares.
(5) Includes 744,194 shares of Common Stock which the members of the group
have the right to acquire pursuant to warrants and Company stock options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who beneficially own
more than ten percent of a class of the Company's registered equity securities
to file with the Securities and Exchange Commission and deliver to the Company
initial reports of ownership and reports of changes in ownership of such
registered equity securities.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company's directors, executive officers and more
than ten percent stockholders filed all reports due under Section 16(a) for
the period from January 1, 1996, through December 31, 1996, except that Jeff
D. Bergman, Daniel Dickman, David W. Spindler and David A. Zynn each filed one
late report on Form 5 reporting two, two, one and one transactions,
respectively, regarding grant of stock options pursuant to the 1991 and 1996
employee stock plans that was not reported on a timely basis.
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
Exhibit 1 Agreement and Plan of Merger, dated as of June 24, 1997, by and
among Three Rivers Holding Corp., Three Rivers Acquisition Corp.
and SMT Health Services Inc. (incorporated by reference to Exhibit
(c)(1) of the Schedule 14D-9)
Exhibit 2 Text of Press Release dated June 24, 1997 (incorporated by
reference to Exhibit (a)(8) of the Schedule
14D-9)
Exhibit 3 Letter to Stockholders of SMT Health Services Inc. dated June 30,
1997 (incorporated by reference to Exhibit (a)(10) of the Schedule
14D-9)
Exhibit 4 Opinion of Smith Barney Inc. dated June 24, 1997 (incorporated by
reference to Exhibit (a)(9) of the Schedule 14D-9)
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ANNEX B
[SMITH BARNEY LETTERHEAD]
June 24, 1997
The Board of Directors
SMT Health Services Inc.
10521 Perry Highway
Wexford, Pennsylvania 15090
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of SMT Health Services Inc. ("SMT")
of the consideration to be received by such holders pursuant to the terms and
subject to the conditions set forth in the Agreement and Plan of Merger, dated
as of June 24, 1997 (the "Merger Agreement"), among Three Rivers Holding Corp.
("Three Rivers"), Three Rivers Acquisition Corp., a wholly owned subsidiary of
Three Rivers ("Sub"), and SMT. As more fully described in the Merger
Agreement, (i) Three Rivers will cause Sub to commence a tender offer to
purchase all outstanding shares of the common stock, par value $0.01 per
share, of SMT (the "SMT Common Stock") at a purchase price of $11.75 per
share, net to the seller in cash (the "Tender Offer") and (ii) subsequent to
the Tender Offer, Sub will be merged with and into SMT (the "Merger" and,
together with the Tender Offer, the "Transaction") and each outstanding share
of SMT Common Stock not previously tendered will be converted into the right
to receive $11.75 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of SMT and certain senior officers and other representatives of
Three Rivers concerning the business, operations and prospects of SMT. We
examined certain publicly available business and financial information
relating to SMT as well as certain financial forecasts and other information
and data for SMT which were provided to or otherwise discussed with us by the
management of SMT. We reviewed the financial terms of the Merger as set forth
in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of SMT Common Stock; the
historical and projected earnings and other operating data of SMT; and the
capitalization and financial condition of SMT. We considered, to the extent
publicly available, the financial terms of a similar transaction recently
effected which we considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
relevant in evaluating those of SMT. In connection with our engagement, we
were requested to approach, and held discussions with, third parties to
solicit indications of interest in a possible acquisition of SMT. In addition
to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with
us, we have been advised by the management of SMT that such forecasts and
other information and data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of SMT as
to the future financial performance of SMT. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of SMT nor have we made any physical inspection of
the properties or assets of SMT. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
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Smith Barney has been engaged to render financial advisory services to SMT
in connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation
of the Transaction. We also will receive a fee upon the delivery of this
opinion. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of SMT for our own account or for the
account of our customers and, accordingly, may at any time hold a long or
short position in such securities. We from time to time provide investment
banking services to affiliates of Three Rivers (including Apollo Management,
L.P.) unrelated to the proposed Transaction, for which services we have
received and will receive compensation. In addition, we and our affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with SMT and affiliates of Three Rivers.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of SMT in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether or not such stockholder should
tender shares of SMT Common Stock in the Tender Offer or how such stockholder
should vote on the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney
be made, without our prior written consent; provided that this opinion letter
may be included in its entirety in the Solicitation/Recommendation Statement
of SMT relating to the proposed Transaction.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the cash consideration to be
received by the holders of SMT Common Stock (other than Three Rivers and its
affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/Smith Barney Inc.
SMITH BARNEY INC.
B-2