EXHIBIT (A)(1)
OFFER TO PURCHASE
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHTS)
OF
SMT HEALTH SERVICES INC.
AT
$11.75 NET PER SHARE IN CASH
BY
THREE RIVERS ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
THREE RIVERS HOLDING CORP.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JULY 28, 1997, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF SMT HEALTH SERVICES INC. HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR
TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF SMT HEALTH SERVICES INC.
AND RECOMMENDS THAT ALL OF THE STOCKHOLDERS OF SMT HEALTH SERVICES INC. ACCEPT
THE OFFER, TENDER THEIR SHARES (INCLUDING THE ASSOCIATED RIGHTS) AND APPROVE
THE MERGER AGREEMENT AND THE MERGER, IF REQUIRED BY LAW.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN ON OR PRIOR TO THE EXPIRATION DATE (X) THAT NUMBER
OF OUTSTANDING SHARES WHICH, TOGETHER WITH THE OUTSTANDING SHARES SUBJECT TO
THE STOCKHOLDER AGREEMENT THAT SHALL NOT HAVE BEEN SO TENDERED, WOULD
REPRESENT AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES (FOR PURPOSES OF THIS
CLAUSE (X) ONLY, "SHARES" SHALL BE DEEMED TO REFER ONLY TO SHARES OUTSTANDING
AS OF THE DATE OF THE MERGER AGREEMENT) AND (Y) THAT NUMBER OF SHARES WHICH,
TOGETHER WITH THE SHARES SUBJECT TO THE STOCKHOLDER AGREEMENT THAT SHALL NOT
HAVE BEEN SO TENDERED, WOULD REPRESENT AT LEAST A MAJORITY OF THE FULLY
DILUTED SHARES (DETERMINED ON A FULLY DILUTED BASIS FOR ALL OUTSTANDING STOCK
OPTIONS, WARRANTS AND ANY OTHER RIGHTS TO ACQUIRE SHARES) AND (2) THE COMPANY
HAVING OBTAINED CERTAIN AMENDMENTS TO, AND CONSENTS WITH RESPECT TO, EXISTING
EQUIPMENT LEASE AND OTHER FINANCING ARRANGEMENTS. SEE SECTION 14. THE OFFER IS
NOT CONDITIONED ON OBTAINING FINANCING.
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, mail or deliver it and any other required documents to the
Depositary and either mail or deliver certificates evidencing or representing
such Shares to the Depositary (with the Letter of Transmittal and any other
required documents) or tender such Shares pursuant to the procedure for book-
entry transfer set forth in Section 2 or (2) request such stockholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such stockholder. A stockholder having Shares registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such stockholder's broker, dealer, commercial bank, trust company
or other nominee if such stockholder desires to tender such Shares.
Any stockholder who desires to tender such stockholder's Shares and whose
certificates evidencing or representing such Shares are not immediately
available or who cannot comply with the procedures for book-entry transfer on
a timely basis may tender such Shares by following the procedures for
guaranteed delivery set forth in Section 2.
Questions and requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or
other related materials may be directed to the Information Agent or the Dealer
Manager at their respective addresses and telephone numbers set forth on the
back cover of this Offer to Purchase.
-----------------
The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
June 30, 1997
TABLE OF CONTENTS
PAGE
Introduction.............................................................. 1
1. Terms of the Offer.................................................... 3
2. Procedures for Tendering Shares....................................... 5
3. Withdrawal Rights..................................................... 7
4. Acceptance for Payment and Payment of Purchase Price.................. 8
5. Certain Federal Income Tax Considerations............................. 9
6. Price Range of Shares; Dividends...................................... 9
7. Effect of the Offer on the Market for the Shares; Nasdaq Quotation;
Exchange Act Registration; Margin Regulations......................... 10
8. Certain Information Concerning the Company............................ 11
9. Certain Information Concerning Apollo, the Purchaser and Parent....... 13
10. Background of the Offer; Contacts with the Company.................... 14
11. Purpose of the Offer and the Merger; Plans for the Company; Appraisal
Rights; Exemption from Rights Agreement............................... 15
12. The Merger Agreement; Stockholder Agreement; Employment Agreements And
Other Agreements......................................................... 17
13. Source and Amount of Funds............................................ 26
14. Certain Conditions of the Offer....................................... 28
15. Certain Legal Matters................................................. 30
16. Fees and Expenses..................................................... 31
17. Miscellaneous......................................................... 31
Schedule I................................................................ S-1
TO ALL HOLDERS OF SHARES OF COMMON STOCK OF SMT HEALTH SERVICES INC.:
INTRODUCTION
Three Rivers Acquisition Corp., a Delaware corporation (the "Purchaser") and
a wholly owned subsidiary of Three Rivers Holding Corp., a Delaware
corporation ("Parent"), hereby offers to purchase all outstanding shares of
the Common Stock, $.01 par value (the "Shares"), of SMT Health Services Inc.,
a Delaware corporation (the "Company"), including the associated Rights (as
hereinafter defined), at a purchase price of $11.75 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in this
Offer to Purchase and the related Letter of Transmittal (which together
constitute the "Offer"). Unless the context otherwise requires, all references
herein to Shares shall include the associated Rights (as defined in the Rights
Agreement between the Company and American Stock Transfer & Trust Company, as
Rights Agent, dated as of November 8, 1995, as amended June 23, 1997 (the
"Rights Agreement")).
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer.
The Purchaser will pay all charges and expenses of Donaldson, Lufkin &
Jenrette Securities Corporation (the "Dealer Manager"), American Stock
Transfer & Trust Company (the "Depositary") and MacKenzie Partners, Inc. (the
"Information Agent").
Parent and the Purchaser are corporations formed by Apollo Investment Fund
III, L.P., a Delaware limited partnership ("AIF III"), Apollo Overseas
Partners III, L.P., a Delaware limited partnership ("Overseas Partners"), and
Apollo (U.K.) Partners III, L.P., a limited partnership organized under the
laws of England ("UK Partners" and, together with AIF III and Overseas
Partners, the "Apollo Entities"), in connection with the Offer and the
transactions contemplated hereby. For information concerning the Apollo
Entities, see Section 9.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR
TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY AND RECOMMENDS
THAT ALL OF THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER, TENDER THEIR
SHARES (INCLUDING THE ASSOCIATED RIGHTS) AND APPROVE THE MERGER AGREEMENT AND
THE MERGER, IF REQUIRED BY LAW. SMITH BARNEY INC. ("SMITH BARNEY"), THE
COMPANY'S FINANCIAL ADVISOR, HAS DELIVERED TO THE BOARD A WRITTEN OPINION
DATED JUNE 24, 1997, TO THE EFFECT THAT, AS OF SUCH DATE AND BASED UPON AND
SUBJECT TO CERTAIN MATTERS STATED IN SUCH OPINION, THE $11.75 PER SHARE CASH
CONSIDERATION TO BE RECEIVED BY HOLDERS OF SHARES (OTHER THAN PARENT AND ITS
AFFILIATES) PURSUANT TO THE OFFER AND THE MERGER WAS FAIR, FROM A FINANCIAL
POINT OF VIEW, TO SUCH HOLDERS. A COPY OF THE OPINION OF SMITH BARNEY IS
INCLUDED AS AN ANNEX TO THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON
SCHEDULE 14D-9, WHICH IS BEING MAILED TO STOCKHOLDERS HEREWITH, AND SHOULD BE
READ CAREFULLY IN ITS ENTIRETY.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION
1) (X) THAT NUMBER OF OUTSTANDING SHARES WHICH, TOGETHER WITH THE OUTSTANDING
SHARES SUBJECT TO THE STOCKHOLDER AGREEMENT (AS DEFINED BELOW) THAT SHALL NOT
HAVE BEEN SO TENDERED, WOULD REPRESENT AT LEAST A MAJORITY OF ALL OUTSTANDING
SHARES (FOR PURPOSES OF THIS CLAUSE (X) ONLY, "SHARES" SHALL BE DEEMED TO
REFER ONLY TO SHARES OUTSTANDING AS OF THE DATE OF THE MERGER AGREEMENT) AND
(Y) THAT NUMBER OF SHARES WHICH, TOGETHER WITH THE SHARES SUBJECT TO THE
STOCKHOLDER AGREEMENT THAT SHALL NOT HAVE BEEN SO TENDERED, WOULD REPRESENT AT
LEAST A MAJORITY OF THE FULLY DILUTED SHARES (DETERMINED ON A FULLY DILUTED
BASIS FOR ALL OUTSTANDING STOCK OPTIONS, WARRANTS AND ANY OTHER RIGHTS TO
ACQUIRE SHARES) (THE CONDITIONS IN (X) AND (Y) COLLECTIVELY, THE "MINIMUM
CONDITION") AND (2) THE COMPANY HAVING OBTAINED CERTAIN AMENDMENTS TO, AND
CONSENTS WITH RESPECT TO, EXISTING EQUIPMENT LEASE AND OTHER FINANCING
ARRANGEMENTS (THE "LEASE AMENDMENT CONDITION"). THE PURCHASER RESERVES THE
RIGHT (SUBJECT TO OBTAINING THE EXPRESS WRITTEN CONSENT OF THE COMPANY AND THE
APPLICABLE
1
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION")), WHICH IT PRESENTLY HAS NO INTENTION OF EXERCISING, TO WAIVE OR
REDUCE THE MINIMUM CONDITION. SEE SECTIONS 1 AND 14.
THE OFFER IS NOT CONDITIONED ON OBTAINING FINANCING.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of June 24, 1997 (the "Merger Agreement"), among Parent, the Purchaser and the
Company. The Merger Agreement provides that the Purchaser will be merged (the
"Merger") with and into the Company after the completion of the Offer and the
satisfaction of certain conditions. 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 direct or indirect
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 (the "DGCL") concerning the right, if applicable, of holders
of Shares to seek appraisal of their Shares) will be converted into the right
to receive the price paid in the Offer in cash, without interest (the "Merger
Consideration"). See Section 12 "--The Merger Agreement."
The consummation of the Merger is subject to the satisfaction or waiver of a
number of conditions, including, if required by law, the approval and adoption
of the Merger Agreement by the stockholders of the Company. If the Minimum
Condition is satisfied, the Purchaser will have sufficient voting power under
the DGCL to effect the Merger without the concurrence of any other stockholder
of the Company. If at least 90% of the outstanding Shares are purchased in the
Offer, the Purchaser will be able to effect a short-form merger under the DGCL
without a vote of stockholders.
In connection with the execution of the Merger Agreement, the Purchaser and
Parent entered into a Stockholder Agreement, dated as of June 24, 1997 (the
"Stockholder Agreement"), with Jeff D. Bergman, the President, Chief Executive
Officer and Chairman of the Board, Daniel Dickman, the Executive Vice
President, Chief Operating Officer, Secretary and a Director of the Company,
David W. Spindler, the Senior Vice President of Clinical Operations and
Marketing of the Company, and David A. Zynn, the Chief Financial Officer,
Treasurer and Assistant Secretary of the Company (collectively, the "Selling
Stockholders"), pursuant to which such Selling Stockholders have agreed to
sell to the Purchaser, and the Purchaser has agreed to purchase, all Shares
beneficially owned by them, representing approximately 15.1% of the Shares on
a fully diluted basis, including Shares subsequently acquired by a Selling
Stockholder through the exercise of options or otherwise, at a price per Share
equal to the price paid in the Offer, provided that such obligation to sell
and such obligation to purchase are subject to certain conditions, including
the Minimum Condition having been satisfied and the Purchaser having accepted
Shares for payment under the Offer. Pursuant to the Stockholder Agreement, the
Purchaser has the right (which it intends to exercise) to require the Selling
Stockholders to tender the Shares subject to the Stockholder Agreement into
the Offer. Pursuant to the Stockholder Agreement, each Selling Stockholder has
also executed and delivered a proxy for the benefit of the Purchaser with
respect to the Shares subject to the Stockholder Agreement owned by such
Selling Stockholder to vote such Shares against certain competing
transactions, as more fully described below in Section 12 "--The Stockholder
Agreement." Pursuant to the Stockholder Agreement, each Selling Stockholder
has also agreed that upon the request of Purchaser, subject to certain
conditions, he will exercise options owned by him to acquire Shares if
necessary to cause the Minimum Condition to be satisfied or to cause the
Purchaser to own in excess of 90% of the outstanding Shares. The Purchaser has
agreed that if it requests the Selling Stockholders to exercise their options,
it will lend the Selling Stockholders the funds necessary to pay the exercise
price for such Shares. See Section 12 "--Stockholder Agreement."
The Company has represented to Parent and the Purchaser that, as of June 24,
1997, there were 5,746,324 Shares issued and outstanding, and 1,028,268 Shares
reserved for issuance upon the exercise of outstanding options and warrants.
Based on the foregoing, the Purchaser believes that 3,387,297 Shares
constitute a majority of the fully diluted Shares. Accordingly, the Minimum
Condition will be satisfied if at least 2,363,795 Shares, other than the
1,023,502 Shares (assuming exercise of all Company Stock Options and Warrants
(each as hereinafter defined) subject to the Stockholder Agreement) currently
subject to the Stockholder Agreement, or approximately 34.9% of the Shares on
a fully diluted basis, are validly tendered and not withdrawn prior to the
Expiration Date.
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STOCKHOLDERS ARE URGED TO READ THIS OFFER TO PURCHASE AND THE RELATED LETTER
OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR SHARES
PURSUANT TO THE OFFER.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth in the Offer
(including, if the Offer is extended or amended, the terms and conditions of
any extension or amendment), the Purchaser will accept for payment (and
thereby purchase) all Shares that are validly tendered on or prior to the
Expiration Date and not properly withdrawn as permitted by Section 3. The term
"Expiration Date" means 12:00 Midnight, New York City time, on Monday, July
28, 1997, unless and until the Purchaser, in its sole discretion, shall have
extended the period of time for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by the Purchaser, shall expire.
Subject to the terms of the Merger Agreement and the applicable rules and
regulations of the Commission, the Purchaser expressly reserves the right, in
its sole discretion, at any time and from time to time, and regardless of
whether or not any of the events set forth in Section 14 hereof shall have
occurred or shall have been determined by the Purchaser to have occurred, (a)
to extend the period of time for which the Offer is open, and thereby delay
acceptance for payment of and the payment for any Shares, by giving oral or
written notice of such extension to the Depositary and (b) to amend the Offer
in any other respect by giving oral or written notice of such amendment to the
Depositary. THE PURCHASER SHALL NOT HAVE ANY OBLIGATION TO PAY INTEREST ON THE
PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS
RIGHT TO EXTEND THE OFFER.
If the conditions of the Offer are not satisfied or waived prior to the
Expiration Date, the Purchaser reserves the right (but shall not be
obligated), subject to the terms and conditions contained in the Merger
Agreement and to the applicable rules and regulations of the Commission, (1)
to terminate the Offer and not accept for payment any Shares and return all
tendered Shares to tendering stockholders, (2) to waive all the unsatisfied
conditions (other than the Minimum Condition) and, subject to complying with
the terms of the Merger Agreement and the applicable rules and regulations of
the Commission, to waive the Minimum Condition, to accept for payment and pay
for all Shares validly tendered prior to the Expiration Date and not
theretofore withdrawn, (3) to extend the Offer and, subject to the right of
stockholders to withdraw Shares until the Expiration Date, to retain the
Shares that have been tendered for the period or periods for which the Offer
is extended or (4) to amend the Offer.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer (other than as required by the Merger Agreement or applicable
law). Any extension, amendment or termination of the Offer, or any waiver of
any condition of the Offer, will be followed as promptly as practicable by a
public announcement. In the case of an extension, Rule 14e-1(d) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires
that the announcement be issued no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date in
accordance with the public announcement requirements of Rule 14d-4(c) under
the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-
6(d) under the Exchange Act, which require that any material change in the
information published, sent or given to stockholders in connection with the
Offer be promptly disseminated to stockholders in a manner reasonably designed
to inform stockholders of such change), and without limiting the manner in
which the Purchaser may choose to make any public announcement, the Purchaser
will not have any obligation to publish, advertise or otherwise communicate
any such public announcement other than by making a release to the Dow Jones
News Service. During any such extension, all Shares previously tendered and
not withdrawn will remain subject to the Offer and the right of a tendering
stockholder to withdraw such stockholder's Shares in accordance with the
procedures set forth in Section 3.
In the Merger Agreement, the Purchaser has agreed that it will not, without
the prior consent of the Company, extend the Offer, except that, without the
consent of the Company, the Purchaser may extend the Offer
3
(1) if at the Expiration Date any of the conditions to the Purchaser's
obligation 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, (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. As used in this Offer to
Purchase, "business day" has the meaning set forth in Rule 14d-1 under the
Exchange Act.
In addition, the Purchaser has agreed in the Merger Agreement that it will
not, without the 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, including the Minimum Condition, (4)
except as provided above, extend the Offer, (5) change the form of the
consideration payable in the Offer or (6) amend or alter any term of the Offer
in a 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.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of or payment for Shares or it is unable to pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described in Section 3.
However, the ability of the Purchaser to delay the payment for Shares that the
Purchaser has accepted for payment is limited by Rule 14e-1 under the Exchange
Act, which requires that a bidder pay the consideration offered or return the
securities deposited by or on behalf of holders of securities promptly after
the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including, with the Company's consent, the Minimum Condition), the Purchaser
will disseminate additional tender offer materials and extend the Offer to the
extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act.
The minimum period during which an offer must remain open following material
changes in the terms of the Offer or information concerning the Offer, other
than a change in price or a change in the percentage of securities sought or
any dealer solicitation fee, will depend upon the facts and circumstances then
existing, including the relative materiality of the changed terms or
information. With respect to a change in price or a change in the percentage
of securities sought, a minimum period of ten business days is generally
required to allow for adequate dissemination to stockholders.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Condition, the Lease Amendment Condition, the expiration or termination of all
waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations thereunder (the "HSR Act") and the other
conditions set forth in Section 14. Subject to the terms and conditions
contained in the Merger Agreement, the Purchaser reserves the right (but shall
not be obligated) to waive any or all of such conditions.
The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of the Shares. This Offer to Purchase, the related Letter of
Transmittal and other relevant materials will be mailed by the Purchaser to
record holders of Shares and will be furnished by the Purchaser to brokers,
dealers, banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the stockholder lists or, if applicable, who are
listed as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares.
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2. PROCEDURES FOR TENDERING SHARES
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (1) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees (or an
Agent's Message (as hereinafter defined) in connection with a book-entry
transfer of Shares) and any other documents required by the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover page of this Offer to Purchase and either certificates
for tendered Shares must be received by the Depositary at one of such
addresses or such Shares must be delivered pursuant to the procedure for book-
entry transfer set forth below (and a Book-Entry Confirmation (as hereinafter
defined) received by the Depositary), in each case, on or prior to the
Expiration Date, or (2) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company and the Philadelphia Depository Trust Company
(collectively, the "Book-Entry Transfer Facilities") for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a Book-
Entry Transfer Facility to transfer such Shares into the Depositary's account
in accordance with such Book-Entry Transfer Facility's procedures for such
transfer. However, although delivery of Shares may be effected through book-
entry transfer into the Depositary's account at a Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees (or an Agent's
Message in connection with a book-entry transfer) and any other required
documents, must, in any case, be transmitted to, and received by the
Depositary, at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date, or the tendering stockholder must
comply with the guaranteed delivery procedure described below. The
confirmation of a book-entry transfer of Shares into the Depositary's account
at a Book-Entry Transfer Facility as described above is referred to herein as
a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-
Entry Confirmation that such participant has received and agrees to be bound
by the terms of the Letter of Transmittal, and that the Purchaser may enforce
such agreement against such participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE
DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY. DELIVERY OF THE LETTER OF TRANSMITTAL AND ACCOMPANYING SHARES WILL
BE DEEMED EFFECTIVE, AND RISK OF LOSS WITH RESPECT TO SUCH LETTER OF
TRANSMITTAL AND ACCOMPANYING CERTIFICATE(S) WILL PASS, ONLY WHEN SUCH LETTER
OF TRANSMITTAL AND ACCOMPANYING CERTIFICATE(S) ARE OFFICIALLY RECEIVED BY THE
DEPOSITARY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (1) the Letter of Transmittal is signed by the registered
holder of Shares (which term, for purposes of this Section, includes any
participant in any of the Book-Entry Transfer Facilities' systems whose name
appears on a security position listing as the owner of the Shares) tendered
therewith and such registered holder has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter
5
of Transmittal or (2) such Shares are tendered for the account of a firm that
is a participant in the Securities Transfer Agents Medallion Program or the
New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program or by any other "eligible guarantor institution,"
as such term is defined in Rule 17Ad-15 under the Exchange Act (each, an
"Eligible Institution"). In all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution. See Instructions 1
and 5 to the Letter of Transmittal. If the certificates for Shares are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for Shares not
tendered or not accepted for payment are to be issued to a person other than
the registered holder of the certificates surrendered, the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter
of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser, is received by the
Depositary, as provided below, on or prior to the Expiration Date; and
(3) the certificates for all tendered Shares, in proper form for transfer
(or a Book-Entry Confirmation with respect to such Shares), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the Nasdaq
National Market is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by telegram, facsimile transmission or mail to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth
in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (1) certificates for Shares (or a Book-Entry
Confirmation with respect to such Shares), (2) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer of Shares, and (3) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different
times depending upon when certificates for Shares or Book-Entry Confirmations
are actually received by the Depositary. UNDER NO CIRCUMSTANCE WILL INTEREST
BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to any of the procedures described above
will constitute a binding agreement between the tendering stockholder and the
Purchaser upon the terms and subject to the conditions of the Offer.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, the tendering stockholder will irrevocably appoint designees of the
Purchaser as such stockholder's attorneys-in-fact and proxies in the manner
set forth in the Letter of Transmittal, each with full power of substitution,
to the full extent of such stockholder's rights with respect to the Shares
tendered by such stockholder and accepted for payment by the Purchaser and
with respect to any and all other Shares or other securities or rights issued
or issuable in respect of such Shares on or after June 24, 1997. All such
proxies shall be considered coupled with an interest in the
6
tendered Shares. Such appointment will be effective when, and only to the
extent that, the Purchaser accepts for payment Shares tendered by such
stockholder as provided herein. Upon such acceptance for payment, all prior
powers of attorney and proxies given by such stockholder with respect to such
Shares or other securities or rights will, without further action, be revoked
and no subsequent powers of attorney and proxies may be given (and, if given,
will not be deemed effective). The designees of the Purchaser will thereby be
empowered to exercise all voting and other rights with respect to such Shares
or other securities or rights in respect of any annual, special or adjourned
meeting of the Company's stockholders, or otherwise, as they in their sole
discretion deem proper. The Purchaser reserves the right to require that, in
order for Shares to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares, the Purchaser must be able
to exercise full voting and other rights with respect to such Shares and other
securities or rights, including voting at any meeting of stockholders then
scheduled. Such powers of attorney and proxies will be irrevocable and will be
granted in consideration of the acceptance for payment of such Shares in
accordance with the terms of the Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Purchaser in its sole discretion, which
determination will be final and binding. The Purchaser reserves the absolute
right to reject any or all tenders determined by it not to be in proper form
or the acceptance for payment of or payment for Shares which may, in the
opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any defect or irregularity in any tender with
respect to any particular Shares, whether or not similar defects or
irregularities are waived in the case of other Shares. No tender of Shares
will be deemed to have been validly made until all defects or irregularities
relating thereto have been cured or waived. None of the Purchaser, Parent, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. The
Purchaser's interpretation of the terms and conditions of the Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
Backup Withholding. In order to avoid "backup withholding" of Federal income
tax on payments of cash pursuant to the Offer, a stockholder surrendering
Shares in the Offer must (1) provide the Depositary with such stockholder's
correct taxpayer identification number ("TIN") on a Substitute Form W-9 and
(2) certify under penalty of perjury that such TIN is correct and that such
stockholder is not subject to backup withholding. Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. If a stockholder does not
provide its correct TIN or fails to provide the certifications described
above, the Internal Revenue Service ("IRS") may impose a penalty on such
stockholder and payment of cash to such stockholder pursuant to the Offer may
be subject to backup withholding of 31%. All stockholders surrendering Shares
pursuant to the Offer should complete and sign the Substitute Form W-9
included as part of the Letter or Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and
the Depositary). Noncorporate foreign stockholders should complete and sign a
Form W-8, Certificate of Foreign Status, a copy of which may be obtained from
the Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn on or at
any time prior to the Expiration Date and, unless theretofore accepted for
payment as provided herein, may also be withdrawn on or after August 28, 1997.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person who tendered the Shares to be withdrawn,
the number of Shares to be withdrawn and the name of the registered holder, if
different from that of the person who tendered such Shares. If certificates
for Shares have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such certificates, the serial numbers
shown on the particular certificates evidencing the Shares to be
7
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution, except in the case of Shares tendered by an Eligible
Institution, must also be furnished to the Depositary as aforesaid. If Shares
have been delivered pursuant to the procedure for book-entry transfer set
forth in Section 2, any notice of withdrawal must also specify the name and
number of the account at the appropriate Book-Entry Transfer Facility to be
credited with the withdrawn Shares and otherwise comply with such Book-Entry
Transfer Facility's procedures.
Any questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding on all parties.
None of the Purchaser, Parent, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification. Any Shares
withdrawn will be deemed to be not validly tendered for purposes of the Offer.
However, withdrawn Shares may be retendered by following one of the procedures
described in Section 2 at any time on or prior to the Expiration Date.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will purchase by accepting for payment, and will
pay for, all Shares validly tendered on or prior to the Expiration Date and
not properly withdrawn (in accordance with the procedures set forth in Section
3), promptly after the Expiration Date. The Purchaser expressly reserves the
right to delay acceptance for payment of, or, subject to Rule 14e-l(e)
promulgated under the Exchange Act, payment for, Shares in order to comply in
whole or in part with any applicable law. See Sections 14 and 15. In all
cases, payment for Shares purchased pursuant to the Offer will be made only
after timely receipt by the Depositary of (1) certificates for such Shares (or
a Book-Entry Confirmation) pursuant to the procedures set forth in Section 2,
(2) a Letter of Transmittal (or a facsimile copy thereof), properly completed
and duly executed, or an "Agent's Message," and (3) any other documents
required by the Letter of Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered to the Purchaser on or
prior to the Expiration Date and not properly withdrawn if, as and when the
Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance for payment of such Shares pursuant to the Offer. Upon the terms
and subject to the conditions of the Offer, payment for Shares purchased
pursuant to the Offer will be made by deposit of the purchase price with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payments from the Purchaser and transmitting payments to
tendering stockholders. Under no circumstances will interest on the purchase
price of the Shares be paid by the Purchaser by reason of any delay in making
such payment. If the Purchaser is delayed in its acceptance for payment or
payment for Shares or is unable to accept for payment or pay for Shares
tendered pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may, subject to Rule 14e-
1(e) promulgated under the Exchange Act, retain tendered Shares on behalf of
the Purchaser, and such Shares may not be withdrawn except to the extent
tendering stockholders are entitled to withdrawal rights as set forth in
Section 3. The Purchaser will pay any transfer taxes incident to the transfer
to it of validly tendered Shares, except as otherwise provided in Instruction
6 to the Letter of Transmittal, as well as charges and expenses of the Dealer
Manager, the Depositary and the Information Agent.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted which represent more Shares than are
tendered, certificates for such Shares not purchased or tendered will be
returned (or, in the case of Shares delivered by book-entry transfer within a
Book-Entry Transfer Facility pursuant to the procedures set forth in Section
2, such Shares will be credited to an account maintained within such Book-
Entry Transfer Facility) without expense to the tendering stockholder, as
promptly as practicable following the expiration, termination or withdrawal of
the Offer. Certificates representing Shares cancelled in the Merger will not
be returned.
8
If, prior to the Expiration Date, the Purchaser shall increase the
consideration offered to stockholders pursuant to the Offer, such increased
consideration shall be paid to all stockholders whose Shares are purchased
pursuant to the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, with the consent of the Company (which consent may not
be unreasonably withheld), its right to purchase Shares tendered pursuant to
the Offer, but any such transfer or assignment will not relieve the Purchaser
of its obligations under the Offer and will not prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
5. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences of the receipt of cash for Shares pursuant to the Offer or the
Merger. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), judicial and administrative decisions thereunder,
existing temporary and proposed regulations and Internal Revenue Service
rulings and other pronouncements.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS ALL
ASPECTS OF INCOME TAXATION THAT MAY BE RELEVANT TO STOCKHOLDERS. FOR EXAMPLE,
THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES UNDER ANY APPLICABLE
FOREIGN, STATE, LOCAL OR OTHER TAX LAWS. IN ADDITION, THIS DISCUSSION DOES NOT
ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE RECEIPT OF CASH FOR SHARES
PURSUANT TO THE OFFER OR THE MERGER TO PARTICULAR CATEGORIES OF TAXPAYERS
SUBJECT TO SPECIAL TREATMENT UNDER UNITED STATES FEDERAL INCOME TAX LAWS, SUCH
AS TRUSTS, FINANCIAL INSTITUTIONS, BROKER-DEALERS, PERSONS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES, TAX-EXEMPT ORGANIZATIONS, LIFE
INSURANCE COMPANIES, EMPLOYEES WHO ACQUIRED THEIR SHARES THROUGH THE EXERCISE
OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION AND PERSONS WHO
RECEIVED PAYMENTS IN RESPECT OF OPTIONS TO ACQUIRE SHARES. EACH STOCKHOLDER
SHOULD CONSULT WITH SUCH STOCKHOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE RECEIPT OF CASH FOR SHARES
PURSUANT TO THE OFFER OR THE MERGER, INCLUDING THE CONSEQUENCES UNDER FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger will be a
taxable transaction for Federal income tax purposes. Generally, a stockholder
will recognize gain or loss in an amount equal to the difference between the
cash received and the stockholder's adjusted tax basis in the Shares. For
Federal income tax purposes, such gain or loss will be capital gain or loss if
the Shares are held as a capital asset by the stockholder, and long-term
capital gain or loss if the stockholder has held such Shares for more than one
year, measured as of the date the Purchaser accepts such Shares for payment
pursuant to the Offer or the Effective Time of the Merger, as the case may be.
Under current law, capital gains realized by individuals on capital assets
held for more than one year ("long-term capital gains") will be taxable at a
maximum rate of 28%. However, there are currently proposals within the United
States Congress that, if codified into law, would have the effect, among other
effects, of lowering the maximum capital gains rate. There is currently no way
of knowing if and when these proposals would become law, or what their
effective dates would be.
Capital losses are generally deductible only to the extent of capital gains
plus, in the case of noncorporate taxpayers, up to $3,000 of ordinary income.
Capital losses that do not offset capital gains or ordinary income as
described above may be carried forward to offset capital gains or up to $3,000
of ordinary income per year in future years.
6. PRICE RANGE OF SHARES; DIVIDENDS
Since November 3, 1995, the Shares have been traded in the over-the-counter
market and quoted on the Nasdaq National Market under the symbol "SHED." Prior
to November 3, 1995, the Shares were traded on the Nasdaq SmallCap Market. For
the period from January 1, 1995 through October 31, 1995, the table below sets
forth, the high and low closing prices per Share, as reported on the Nasdaq
SmallCap Market. For the period from and after November 1, 1995, the table
below sets forth the high and low sales prices of the Shares, as
9
reported on the Nasdaq National Market. The prices set forth below are as
reported in published financial sources and do not include retail markups,
markdowns or commissions.
HIGH LOW
YEAR ENDED DECEMBER 31, 1995
First Quarter........................................ $ 3 1/16 $2
Second Quarter....................................... 3 7/8 2 5/8
Third Quarter........................................ 4 5/8 3 5/8
Fourth Quarter....................................... 4 7/8 3 7/8
YEAR ENDED DECEMBER 31, 1996
First Quarter........................................ 4 9/16 3 3/4
Second Quarter....................................... 10 3/4 4 1/16
Third Quarter........................................ 8 5/8 5 3/8
Fourth Quarter....................................... 8 5/8 6 5/8
YEAR ENDED DECEMBER 31, 1997
First Quarter........................................ 9 1/2 7 3/4
Second Quarter (through June 27, 1997)............... 11 3/4 7 7/8
On June 23, 1997, the last full trading day prior to the date of the
announcement of the Offer, the closing sales price per Share as reported on
the Nasdaq National Market was $11 1/4. On June 27, 1997, the last trading day
prior to the date of this Offer to Purchase, the closing sales price per Share
as reported on the Nasdaq National Market was $11 1/2. Stockholders are urged
to obtain current market quotations for the Shares.
The Company has never paid any cash dividends on the Shares. The Merger
Agreement provides that, without the prior written consent of Parent, the
Company will not declare, set aside or pay any dividend on or make any other
distribution in respect of any of its capital stock. See Section 12.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ QUOTATION;
EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS
The purchase of Shares pursuant to the Offer will reduce the number of
holders of Shares and the number of Shares that might otherwise trade publicly
and could adversely affect the liquidity and market value of the remaining
Shares held by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the National Association of
Securities Dealers, Inc. (the "NASD") for continued inclusion in the Nasdaq
National Market (the top tier market of The Nasdaq Stock Market), which
requires that an issuer have at least 200,000 publicly held shares, held by at
least 400 shareholders or 300 shareholders of round lots, with a market value
of $1,000,000, and have net tangible assets of at least either $1,000,000,
$2,000,000 (depending on profitability levels in two of the issuer's three
most recent fiscal years) or $4,000,000 (depending on profitability levels
during three of the issuer's four most recent fiscal years). If these
standards are not met, the Shares might nevertheless continue to be included
in The Nasdaq Stock Market with quotations published in the Nasdaq "additional
list" or in one of the "local lists," but if the number of holders of the
Shares were to fall below 300, or if the number of publicly held Shares were
to fall below 100,000 or there were not at least two registered and active
market makers for the Shares, the NASD's rules provide that the Shares would
no longer be "qualified" for Nasdaq reporting and Nasdaq would cease to
provide any quotations. Shares held directly or indirectly by directors,
officers or beneficial owners of more than 10% of the Shares are not
considered as being publicly held for this purpose. According to the Company,
as of June 27, 1997, there were approximately sixty holders of record of
Shares and 5,746,324 Shares were outstanding. If, as a result of the purchase
of Shares pursuant to the Offer, the Shares no longer meet the requirements of
the NASD for continued inclusion in the Nasdaq National Market or The Nasdaq
Stock Market, as the case may be, the market for Shares could be adversely
affected.
10
In the event that the Shares no longer meet the requirements of the NASD for
quotation through Nasdaq and the Shares are no longer included in The Nasdaq
Stock Market, it is possible that, prior to the Effective Time, the Shares
would continue to trade in the over-the-counter market and that price
quotations would be reported by other sources. The extent of the public market
for the Shares and the availability of such quotations would, however, depend
upon the number of holders of Shares remaining at such time, the interests in
maintaining a market in Shares on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act, as described
below, and other factors.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are neither listed on a national
securities exchange nor held by 300 or more holders of record. Termination of
registration of the Shares under the Exchange Act would, subject to Section
15(d) of the Exchange Act, substantially reduce the information required to be
furnished by the Company to its stockholders and to the Commission and would
make certain provisions of the Exchange Act no longer applicable to the
Company, such as the short-swing profit recovery provisions of Section 16(b)
of the Exchange Act, the requirement of furnishing a proxy or information
statement pursuant to Section 14(a) or (c) of the Exchange Act in connection
with stockholders' meetings and the related requirement of furnishing an
annual report to stockholders and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
or 144A promulgated under the Securities Act of 1933, as amended, may be
impaired or eliminated.
THE PURCHASER INTENDS TO SEEK TO CAUSE THE COMPANY TO APPLY FOR DELISTING OF
THE SHARES FROM THE NASDAQ NATIONAL MARKET AND TERMINATION OF REGISTRATION OF
THE SHARES UNDER THE EXCHANGE ACT AS SOON AFTER THE COMPLETION OF THE OFFER AS
THE REQUIREMENTS FOR SUCH DELISTING AND/OR TERMINATION ARE MET. IF
REGISTRATION OF THE SHARES IS NOT TERMINATED PRIOR TO THE MERGER, THEN THE
REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT WILL BE TERMINATED FOLLOWING
THE CONSUMMATION OF THE MERGER.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. Depending upon factors similar
to those described above regarding listing and market quotations, it is
possible that, following the Offer, the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans
made by brokers. If registration of Shares under the Exchange Act were
terminated, the Shares would no longer be "margin securities."
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal executive offices
located at 10521 Perry Highway, Wexford, Pennsylvania 15090. Except as
otherwise set forth herein, the information concerning the Company contained
in this Offer to Purchase, including financial information, has been furnished
by the Company or has been taken from or based upon publicly available
documents and records on file with the Commission and other public sources.
Although neither Parent nor the Purchaser has any knowledge that would
indicate that statements contained herein based upon such documents are
untrue, none of the Purchaser, Parent, the Dealer Manager, the Depositary or
the Information Agent assumes any responsibility for the accuracy or
completeness of the information concerning the Company furnished by the
Company or contained in such documents and records or for the failure to
disclose events which may have occurred or may affect the significance or
accuracy of any such information but which are unknown to the Purchaser and
Parent.
The Company and its subsidiaries are primarily engaged in the business of
operating mobile Magnetic Resonance Imaging units ("MRI Units"), which service
healthcare providers in the states of Pennsylvania, North Carolina, West
Virginia, Kentucky, Virginia, South Carolina and Ohio.
11
Set forth below is certain selected consolidated financial information
excerpted from the information contained or incorporated by reference in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "Company 10-K") and the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 (the "Company 10-Q"). More comprehensive
financial information is included or incorporated by reference in the Company
10-K and the Company 10-Q, and the reports and other documents filed by the
Company with the Commission. The following summary is qualified in its
entirety by reference to such reports and other documents and all of the
financial information and notes contained therein. Such reports and other
documents may be examined at, and copies obtained from, the offices of the
Commission in the manner set forth below.
SMT HEALTH SERVICES INC.
SELECTED CONSOLIDATED FINANCIAL DATA
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED
----------------------------- ---------------------------
MARCH 31, 1997 MARCH 31, 1996 DEC. 31, 1996 DEC. 31, 1995
(UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA
Revenues................ $6,239,307 $ 4,128,035 $19,021,954 $15,020,428
Interest income......... 102,068 53,166 190,399 137,417
Income before
extraordinary items(1). 761,768 457,481 2,410,861 1,373,217
Income per share before
extraordinary items.... 0.16 0.13 0.61 0.46
Extraordinary loss on
early extinguishment of
debt(2)................ 181,000 -- -- --
Net income.............. 580,768 457,481 2,410,816 1,373,217
Net income per share(1). $ 0.12 $ 0.13 $ 0.61 $ 0.46
Weighted average shares
outstanding(1)......... 4,442,714 2,840,208 3,232,505 2,770,230
MARCH 31, 1997 DEC. 31, 1996 DEC. 31, 1995
(UNAUDITED)
BALANCE SHEET DATA
Total current assets................... $16,801,095 $ 7,825,096 $ 5,641,596
Total assets........................... 46,857,163 39,497,563 23,347,805
Total long term debt and capital lease
obligations........................... 16,060,557 20,859,964 12,709,905
Stockholders' equity(3)................ 24,129,628 11,399,543 5,401,653
- ---------------------
(1) Weighted average Shares outstanding for all periods presented have been
calculated using the Modified Treasury Stock Method. Weighted average Shares
outstanding for all periods presented have been adjusted to reflect a 5%
Common Stock dividend paid in 1995 and a 7% Common Stock dividend paid in
January 1997.
(2) During March 1997 the Company paid off the remaining principal balance of
capital lease obligations totaling approximately $4.2 million. The total
amount paid to extinguish the capital leases approximated $4.5 million. The
difference between the amount paid to extinguish the capital leases and the
net carrying amount of the debt totaled $296,000, relating primarily to
prepayment penalties, and has been recorded as an extraordinary loss, net of
income taxes in accordance with Accounting Principles Board Opinion No. 26
Early Extinguishment of Debt (APB 26).
(3) During January through March 4, 1997 (the Company's publicly traded
warrants expired March 4, 1997), 1,677,000 warrants were exercised and the
Company issued 1,882,000 shares. The Company received net cash proceeds of
approximately $11.7 million as a result of the warrant exercises.
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information relating to its business, financial condition and other matters
with the Commission. Certain information as of particular dates concerning the
Company's directors and officers, their compensation, Company Stock Options
(as defined below) granted to them, the principal holders of the Company's
securities and any material interest of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection by anyone
without charge at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission upon payment of prescribed
fees. The Commission also maintains a World Wide Web site on the internet at
http://www.sec.gov that contains reports and certain other information
regarding registrants that file electronically with the Commission, including
the Company. Such information should also be on file at The Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006.
12
9. CERTAIN INFORMATION CONCERNING APOLLO, THE PURCHASER AND PARENT
Each of the Apollo Entities is principally engaged in the business of
investment in securities. The principal office of each of the Apollo Entities
is c/o Apollo Advisors II, L.P., Two Manhattanville Road, Purchase, New York
10577.
Apollo Advisors II, L.P., a Delaware limited partnership ("Advisors"), is
the general partner of AIF III and the managing general partner of Overseas
Partners and UK Partners. Advisors is principally engaged in the business of
providing advice regarding investments by, and serving as the general partner
of the Apollo Entities.
Apollo Capital Management II, Inc., a Delaware corporation ("Apollo
Capital"), is the general partner of Advisors. Apollo Capital is principally
engaged in the business of serving as the general partner of Advisors.
Apollo Management, L.P., a Delaware limited partnership ("Apollo
Management"), serves as manager of the Apollo Entities and manages their day-
to-day operations.
AIF III Management, Inc., a Delaware corporation ("AIM"), is the general
partner of Apollo Management. AIM is principally engaged in the business of
serving as general partner of Apollo Management.
The respective addresses of the principal office of Advisors, Apollo
Capital, Apollo Management and AIM are c/o Apollo Advisors II, L.P., 2
Manhattanville Road, Purchase, New York 10577.
Apollo Fund Administration II LDC, a Cayman Islands LDS ("Administration"),
is the administrative general partner of Overseas Partners and UK Partners.
Administration is principally engaged in the business of serving as
administrative general partner of Overseas Partners and UK Partners. The
principal place of business of Administration is Apollo Fund Administration II
LDC, c/o CIBC Bank and Trust Company (Cayman) Limited, Edward Street,
Georgetown, Grand Cayman, Cayman Islands, British West Indies.
Apollo Management (UK) Ltd., an English corporation ("Management UK"), is
the resident general partner of UK Partners. Management UK is principally
engaged in the business of serving as resident general partner of UK Partners.
The address of the principal place of business of Management UK is Hill House,
1 Little New Street, London EC4A 3TR, England.
Each of Parent and the Purchaser is a Delaware corporation formed solely for
the purpose of consummating the Offer and the Merger and carrying out related
transactions. Parent owns all of the outstanding capital stock of the
Purchaser, and all of the outstanding capital stock of Parent is owned by Fund
III, Overseas Partners and UK Partners. It is not anticipated that the
Purchaser will have any significant assets or liabilities other than those
arising under the Merger Agreement or in connection with the Offer and the
Merger, or engage in any activities other than those incident to its formation
and capitalization, the Offer and the Merger and accordingly, no meaningful
financial information regarding the Purchaser is available. The address of the
principal place of business of the Purchaser and Parent is at c/o Apollo
Advisors II, L.P., 2 Manhattanville Road, Purchase, New York 10577.
Except as described in the discussion of the Merger Agreement and the
Stockholder Agreement in Section 12, none of the entities referred to above in
this Section 9 or any of their respective subsidiaries or, to the best of
their knowledge, any of the persons listed on Schedule I beneficially owns or
has the right to acquire any Shares, and none of such persons or entities has
effected any transactions in the Shares during the past 60 days. For certain
information concerning the Apollo Entities, Advisors, the Purchaser and
Parent, see Schedule I hereto.
Except as described in this Offer to Purchase, none of the entities referred
to above in this Section 9 or, to the best of their knowledge, any of the
persons listed on Schedule I, has any contract, arrangement, understanding or
relationship with any other person with respect to the securities of the
Company, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option agreements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies. Except as described in this Offer to Purchase, none of the entities
referred
13
to above in this Section 9 or, to the best of their knowledge, any of the
persons listed on Schedule I, has had, since January 1, 1993, any transactions
with the Company or any of its executive officers, directors or affiliates
that would require disclosure under the rules of the Commission. Except as
described in this Offer to Purchase, since such date, there have been no
contacts, negotiations or transactions between any of the entities referred to
in this Section 9 or, to the best of their knowledge, any of the persons
listed on Schedule I, and the Company or its affiliates concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets. None of the entities or persons referred to above in this
Section 9 or, to the best of their knowledge, any of the persons listed on
Schedule I, has had any relationship with the Company prior to the
commencement of discussions that led to the execution of the Merger Agreement.
Each of the entities referred to in this Section disclaims that it is an
"affiliate" of the Company within the meaning of Rule 13e-3 under the Exchange
Act.
For certain information concerning the directors and executive officers of
the Purchaser, Parent, Advisors and AIM, see Schedule I to this Offer to
Purchase.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
In March 1997, representatives of Smith Barney, the Company's financial
advisor, contacted Apollo Management to inquire as to the Apollo Entities'
interest in pursuing a transaction with the Company. Following this contact,
Apollo Management initiated a review of certain publicly available information
concerning the Company and contacted representatives of Smith Barney to advise
them that Apollo Management would be interested in reviewing non-public
information about the Company and meeting with members of the Company's senior
management.
On April 2, 1997, Apollo Management entered into a confidentiality and
standstill agreement with the Company (the "Confidentiality Agreement"),
pursuant to which Apollo Management agreed to treat confidentially information
provided by or on behalf of the Company and not to take certain actions as
described below in Section 12 "--Confidentiality Agreement."
On April 16, 1997, Apollo Management submitted a written preliminary
indication of interest to purchase the Company for a purchase price of between
$11.00 and $13.00 per Share. Such indication of interest indicated that
affiliates of Apollo Management 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, representatives of Apollo Management met with certain
members of the Company's senior management regarding the business, strategies
and prospects of the Company.
On May 5, 1997, Apollo Management and its advisors met with representatives
of the Company and Smith Barney and conducted a preliminary review of certain
non-public information. From May 5, 1997 through May 18, 1997, Apollo
Management, Apollo Management's advisors, the Company's senior management and
the Company's advisors engaged in various discussions regarding the business,
strategies and prospects of the Company, the possible terms of a potential
transaction and the continued employment of certain members of senior
management, including cash compensation and equity plans.
On May 8, 1997, Apollo Management submitted a written offer 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 Management's
desire to consider providing $0.25 of the per Share consideration in the form
of equity. Apollo Management indicated its willingness to negotiate the terms
of a potential transaction (including the compensation arrangements for senior
management) and to continue to devote substantial resources to evaluating the
Company, but indicated its desire that the Company negotiate exclusively with
Apollo Management in respect of a transaction. On May 27, 1997, the Company
executed a letter agreement granting Apollo Management exclusive rights to
negotiate a transaction involving the Company and access to the Company's
books and records and advisors and agents. On the same day, Apollo Management
verbally communicated to representatives of the Company a proposal to acquire
the Company for $11.75 per Share in cash.
14
On June 3 and June 4, Apollo Management and its representatives continued
their review of the Company. During the week of June 16, Apollo Management 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 of the continued employment of Mr. Jeff D. Bergman,
Mr. Daniel Dickman, Mr. David W. Spindler and Mr. David A. Zynn, the salary,
bonus and other benefits to be received by each of such persons, and the terms
of an option plan pursuant to which employees of the surviving corporation
would receive options to purchase shares of Parent following the effectiveness
of the Merger. See Section 12. As a result of the foregoing negotiations, the
Merger Agreement, the Stockholder Agreement and the Employment Agreements (as
defined below) were executed on Tuesday, June 24, 1997.
11. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR THE COMPANY; APPRAISAL
RIGHTS; EXEMPTION FROM RIGHTS AGREEMENT
The purpose of the Offer is to acquire control of, and the entire equity
interest in, the Company. Following the Offer, the Purchaser and Parent intend
to acquire any remaining equity interest in the Company not acquired in the
Offer by consummating the Merger.
The DGCL requires, among other things, that the adoption of any plan of
merger or consolidation of the Company must be approved by the Board and
generally by the holders of the Company's outstanding voting securities. The
Board has approved the Offer and the Merger; consequently, the only additional
action of the Company that may be necessary to effect the Merger is approval
by such stockholders if the "short-form" merger procedure described below is
not available. Under the DGCL, the affirmative vote of holders of a majority
of the outstanding Shares (including any Shares owned by the Purchaser) is
generally required to approve the Merger. If the Purchaser acquires, through
the Offer or otherwise, voting power with respect to at least a majority of
the outstanding Shares (which would be the case if the Minimum Condition were
satisfied and the Purchaser were to accept for payment Shares tendered
pursuant to the Offer, including the Shares subject to the Stockholder
Agreement sold pursuant to the Stockholder Agreement or tendered by the
Selling Stockholders pursuant to the Offer), it would have sufficient voting
power to effect the Merger without the vote of any other stockholder of the
Company. However, the DGCL also provides that if a parent company owns at
least 90% of each class of stock of a subsidiary, the parent company can
effect a short-form merger with that subsidiary without the action of the
other stockholders of the subsidiary. Accordingly, if, as a result of the
Offer or otherwise, the Purchaser acquires or controls the voting power of at
least 90% of the outstanding Shares, the Purchaser could, and intends to,
effect the Merger without prior notice to, or any action by, any other
stockholder of the Company.
Plans for the Company. Except as otherwise set forth in this Offer to
Purchase, it is expected that, initially following the Merger, the business
and operations of the Company will be continued by the Surviving Corporation
(as defined below) substantially as they are currently being conducted. Parent
intends to operate the Company as a wholly owned subsidiary. Except as
indicated in this Offer to Purchase, the Parent does not have any present
plans or proposals which relate to or would result in any material change in
the Company's capitalization or dividend policy or the composition of the
Company's Board or management. The Apollo Entities and their affiliates
regularly consider, and engage in discussions concerning, potential
investments in businesses, including businesses that may be competitive with
or complementary to the business of the Company. There are currently no
agreements with respect to an investment in any such business. However, the
Apollo Entities may consider a merger, consolidation or other extraordinary
transaction involving the Company in connection with any such investment.
Parent will evaluate the business, operations, capitalization and management
of the Company during the pendency of the Offer and after consummation of the
Offer, and will take such actions as it deems appropriate under the
circumstances then existing with a view to optimizing the Company's financial
performance.
At or promptly after the Effective Time, the Surviving Corporation will pay
a transaction fee of $1,000,000 to Apollo Management as consideration for
structuring the transaction, arranging the financing for the Offer and
15
the Merger and providing other services in connection with the Offer and the
Merger. In addition, Apollo Management currently intends to charge a
management fee of $250,000 per annum to the Company for management services
that Apollo Management will provide to the Company and its subsidiaries after
the Effective Time.
The Merger Agreement provides that promptly upon the acceptance for payment
of, and payment for, any Shares by the Purchaser pursuant to the Offer, the
Purchaser shall be entitled to designate such number of the directors on the
Board such that the Purchaser, subject to compliance with Section 14(f) of the
Exchange Act, will control a majority of such directors, and the Company and
its Board shall, at such time, take all such action needed to cause the
Purchaser's designees to be appointed to the Company's Board. Subject to
applicable law, the Company has agreed to take all action requested by Parent
necessary to effect any such election, including mailing to its stockholders
the Information Statement containing the information required by Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder, which Information
Statement is attached as Annex A to the Schedule 14D-9. Parent's current
intentions are to designate five of the persons set forth in Schedule I to
serve on the Company's Board following consummation of the Offer. In addition,
following consummation of the Offer, one of the members of the Board (other
than Mr. Bergman or Mr. Dickman) will resign. Parent's current intentions are
that, immediately after the Effective Time, the members of the Board
immediately prior to the Effective Time will serve as directors of the
Surviving Corporation, and the initial officers of the Company will be the
current officers of the Company and such other persons as are designated by
Parent.
The Company has entered into the Employment Agreements, pursuant to which
Mr. Jeff D. Bergman, Mr. Daniel Dickman, Mr. David W. Spindler and Mr. David
A. Zynn will continue to serve in their current positions with the Company
after consummation of the Merger. See Section 12 "--Employment Agreements." In
addition, the Merger Agreement provides that as of the Effective Time, the
Company will adopt the Parent Option Plan (as defined below), pursuant to
which Parent will grant to certain officers of the Company options to purchase
up to 10% of the outstanding common stock of Parent at a per share price equal
to the per share price paid by the Apollo Entities for shares of Parent. See
Section 12 "--Parent Option Plan."
Appraisal Rights. Holders of Shares do not have dissenters' rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
will have certain rights pursuant to the provisions of Section 262 of the DGCL
to dissent and demand appraisal of, and to receive payment in cash of the fair
value of, their Shares. If the statutory procedures were complied with, such
rights could lead to a judicial determination of the fair value required to be
paid in cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the Offer Price, the Merger Consideration or the
market value of the Shares, including asset values and the investment value of
the Shares. The value so determined could be more or less than the Offer Price
or the Merger Consideration.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his right to appraisal, as
provided in the DGCL, the Shares of such stockholder will be converted into
the Merger Consideration in accordance with the Merger Agreement. A
stockholder may withdraw his demand for appraisal by delivery to Parent of a
written withdrawal of his demand for appraisal and acceptance of the Merger.
The foregoing discussion is not a complete statement of law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 of the DGCL.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
Exemption of Offer and Merger from Effect of Rights Agreement. The Company
has represented in the Merger Agreement that it has taken all necessary
actions to ensure that, for the purposes of the Rights Agreement, neither
Parent nor the Purchaser will become an "Acquiring Person," the execution,
delivery and
16
performance of the Merger Agreement and the Stockholder 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
that the Rights will expire without any further force or effect as of the
Effective Time. The Company has also represented in the Merger Agreement that
other than Parent and the Purchaser (and their affiliates), the Company (or
its Board) has not exempted (or taken any other action tantamount to
exempting) any person or entity from the potential application of the Rights
Agreement.
12. THE MERGER AGREEMENT; STOCKHOLDER AGREEMENT; EMPLOYMENT AGREEMENTS AND
OTHER AGREEMENTS
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 stockholders,
if any, who dissent from the Merger and comply with all of the provisions of
the DGCL concerning the right, if applicable, of holders of Shares to seek
appraisal of their Shares) will be converted into the right to receive the
price per Share paid 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 that are described in Section 14. 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, including the
Minimum Condition, (4) except as provided above, extend the Offer if all of
the conditions set forth in Section 14 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.
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 Share (including the
associated Rights) issued and outstanding immediately prior to the Effective
Time (other than Shares then owned by the Company, Parent, the Purchaser or
any other direct or indirect wholly owned subsidiary of Parent, or by
stockholders of the Company, if any, who dissent from the Merger and comply
with all the provisions of the DGCL concerning the right, if applicable, of
holders of Shares to seek appraisal of their Shares) 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
17
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 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 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,
(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.
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.
18
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 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.
19
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 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-pocket expenses incurred by the
Purchaser 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,
20
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 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
21
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 Stock Options 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 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
22
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), 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.
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 having expired or terminated, (4) all regulatory
approvals required by any applicable law, rule or regulation having been
obtained and being final, and (5) there shall exist no preliminary or
permanent
23
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 receipt of 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
24
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.
EMPLOYMENT AGREEMENTS
Parent, the Purchaser and the Company have entered into employment
agreements (the "Employment Agreements") dated as of June 24, 1997, with Jeff
D. Bergman, the President, Chief Executive Officer and Chairman of the Board,
Daniel Dickman, the Executive Vice President, Chief Operating Officer,
Secretary and a Director of the Company, David W. Spindler, the Senior Vice
President of Clinical Operations and Marketing of the Company, and David A.
Zynn, the Chief Financial Officer, Treasurer and Assistant Secretary of the
Company, which are substantially similar to employment agreements currently in
effect between the Company and such persons, pursuant to which such persons
will continue to serve in their current positions with the Company after
consummation of the Offer. Each of the Employment Agreements provides for a
three-year term, with an additional quarter of a year to be added to the term
at the end of the fifth quarter 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. 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 for in such persons' existing employment agreements with
the Company.
In addition, pursuant to the Employment Agreements, the Company has agreed
to make available an 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 Mr. Dickman will be
eligible to receive up to one quarter of the annual bonus pool.
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.
CONFIDENTIALITY AGREEMENT
Apollo Management and the Company have executed the Confidentiality
Agreement, pursuant to which Apollo Management agreed to treat as confidential
certain information provided to it by or on behalf of the Company and agreed
that for a period of one year neither it nor any of its affiliates would (1)
acquire or agree to
25
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,
(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.
Each of the Merger Agreement, the Stockholder Agreement, the Parent Option
Plan and the Employment Agreements contains other terms and conditions. The
foregoing description of certain terms and provisions of such agreements and
documents is qualified in its entirety by reference to the text of such
agreements, which are filed as exhibits to the Purchaser's Schedule 14D-1 and
are incorporated herein by reference.
13. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required to purchase all of the outstanding Shares
and to purchase and cancel all of the Company Stock Options and Warrants
pursuant to the Offer and the Merger and to pay related fees and expenses,
including the total amount of funds required by the Company to repurchase or
refinance certain of the Surviving Corporation's outstanding indebtedness, is
expected to be approximately $105 million. Consummation of the Offer is not
conditioned on the obtaining of financing.
The Purchaser expects to obtain debt and equity financing in an aggregate
amount of approximately $135 million to fund the Offer, the Merger and the
related fees and expenses, to refinance certain indebtedness and capitalized
leases of the Surviving Corporation and to provide for the working capital
requirements of the Surviving Corporation. The Purchaser will obtain
approximately $35 million of equity financing from Parent, which will obtain
such funds pursuant to equity financing from the Apollo Entities. In addition,
the Apollo Entities or their affiliates may provide an unsecured bridge loan
(the "Bridge Loan") to the Purchaser if the proceeds of the equity financing
and the Tender Loan (as defined below) are insufficient to fund the Offer and
pay fees and expenses in connection therewith, which loans will be required to
be repaid at the Effective Time and will bear interest at the same rate as is
applicable to loans made under the Term Loan Facility (as defined below).
Pursuant to a commitment letter dated June 24, 1997 (the "Commitment
Letter"), Bankers Trust Company has committed to lend up to $100 million
aggregate principal amount to the Purchaser and the Surviving Corporation,
consisting of a $50 million term loan facility (the "Term Loan Facility") and
a $50 million revolving credit facility (the "Revolving Credit Facility," and
together with the Term Loan Facility, the "Senior Bank Financing"). Bankers
Trust Company informed Parent that it intends to syndicate the Senior Bank
Financing to various lenders, but has committed, subject to the terms and
conditions set forth herein and in the Commitment Letter, to finance the
entire $100 million commitment amount.
Use of Proceeds. Borrowings under the Term Loan Facility may be used by the
Purchaser to finance the purchase of Shares pursuant to the Offer, to pay the
fees and expenses incurred in connection with the Offer and to establish an
interest escrow account if less than 90% of the Shares are validly tendered in
the Offer (loans used for the foregoing purposes, collectively, the "Tender
Loan"); provided that the amount of the Tender Loan will not exceed an amount
equal to 50% of the value of the Shares tendered, less an amount equal to the
amount in the interest escrow account. Borrowings under the Term Loan Facility
also may be used to finance the purchase of Shares pursuant to the Merger, to
the pay fees and expenses incurred in connection with the Merger, to refinance
the Bridge Loans, refinance outstanding equipment leases and loans and to pay
interest on the outstanding Tender Loan.
The Revolving Credit Facility may be used by the Company and the Surviving
Corporation for working capital requirements, to finance certain acquisitions
and for other general corporate purposes (including refinancing certain
existing indebtedness); provided, that no more than $25 million of the
Revolving Credit Facility will be available to finance certain future
permitted acquisitions by the Surviving Corporation. The amount available for
borrowings under the Revolving Credit Facility will be reduced by the amount
of the Company's outstanding indebtedness and equipment leases which are not
refinanced. Loans under the Term Loan Facility may not be reborrowed once
repaid. Loans under the Revolving Credit Facility may be borrowed, repaid
26
and reborrowed after the Effective Time and, as equipment leases and loans are
refinanced, availability under the Revolving Credit Facility will increase.
Maturity; Commitment Reduction; Amortization. The Term Loan Facility will
mature as follows: (1) if at least 90% of the Shares are accepted for payment
pursuant to the Offer and the Merger has not occurred, on the twentieth day
after such acceptance, (2) if less than 90% of the Shares are accepted for
payment pursuant to the Offer and the Merger has not occurred, on the 120th
day after such acceptance, or (3) if at least 90% of the Shares are accepted
for payment pursuant to the Offer and the Merger has occurred within 20 days
following such acceptance or if less than 90% of the Shares are accepted for
payment pursuant to the Offer and the Merger has occurred within 120 days
following such acceptance, on the six year anniversary of the date of such
acceptance. The Revolving Credit Facility will mature on the fifth anniversary
of the date of acceptance of Shares pursuant to the Offer. The amount
available under the Revolving Credit Facility will be reduced by 50% on each
of the four and five year anniversaries of the date of acceptance of Shares
pursuant to the Offer. The Term Loan Facility will be repaid each year in an
amount equal to 1% of the initial aggregate principal amount borrowed
thereunder.
Interest. Prior to the Effective Time, the Purchaser or the Company or,
after the Effective Time, the Surviving Corporation, may elect that all or a
portion of the loans under the Senior Bank Financing bear interest at a rate
per annum equal to (1) the higher of (A) 1/2 of 1% in excess of the Federal
Reserve Board reported certificate of deposit rate and (B) the rate that
Bankers Trust Company announces from time to time as its prime lending rate,
as in effect from time to time and (2) the rate (grossed-up for reserve
requirements as described in the Commitment Letter) at which eurodollar
deposits for one, two, three or six months (as selected by the Purchaser, the
Company or the Surviving Corporation) are offered in the interbank eurodollar
market in the approximate amount of the relevant loan, in each case, plus a
margin which will vary between 1.75% and 3.25% per annum, which margin will be
subject to step-downs based on a ratio of debt to consolidated earnings before
interest, taxes, depreciation and amortization; provided that until the
earlier of (x) the 90th day following the date of acceptance of the Shares
pursuant to the Offer and (y) the date that Bankers Trust Company has
determined and notified the Purchaser or the Surviving Corporation (as
applicable) that the primary syndication of the Senior Bank Financing (and the
resultant addition of institutions as lenders) has been completed, reserve
adjusted eurodollar loans may only be incurred with three successive one-month
interest periods (with all such loans having the same interest period). If 90%
of the Shares are not validly tendered in the Offer, interest payable on the
loans made under the Term Loan Facility will be subject to a holdback at a
rate per annum which is 1% in excess of the rate per annum which would apply
to such loans on the date of consummation of the Offer.
Guaranties; Security. The obligations of the Purchaser will be secured by a
pledge of the Shares purchased pursuant to the Offer; provided that, prior to
the Effective Time, the Purchaser will not be obligated to pledge any such
Shares if it acquires more than 90% of the Shares pursuant to the Offer. Prior
to the Effective Time, Parent will unconditionally guarantee all amounts owing
in respect of the Senior Bank Financing, and the lenders will be entitled to a
first priority perfected security interest in all tangible and intangible
assets of Parent. After the Effective Time, Parent and each of Parent's direct
and indirect subsidiaries (other than the Surviving Corporation) will
unconditionally guarantee all amounts owing in respect of the Senior Bank
Financing, and the lenders will be entitled to a first priority perfected
security interest in all tangible and intangible assets of the Surviving
Corporation and each guarantor.
Repayments. Voluntary prepayment and commitment reductions may be made at
any time without premium or penalty, subject to minimum notice and minimum
prepayment or reduction requirements, as the case may be (subject to certain
exceptions in respect of reserve adjusted eurodollar loans). Mandatory
repayments of loans under the Term Loan Facility (and after repaid in full,
permanent reductions to the Revolving Credit Facility) will be required from
(1) 100% of the net cash proceeds from asset sales by Parent and its
subsidiaries (other than certain ordinary course of business sales and
dispositions), provided that, after the Effective Time, the Purchaser or the
Surviving Corporation (as the case may be) may, in the absence of a default or
event of default under the Senior Bank Financing, reinvest proceeds of certain
asset sales (including sales of equipment that is being upgraded or replaced)
during the 180-day period following the date of the respective asset sale, (2)
100% of the net cash proceeds from issuances of debt (other than permitted
debt) and preferred stock (other than
27
qualified preferred stock (as defined below)) by Parent and its subsidiaries,
(3) 50% of the net proceeds from issuances of qualified preferred stock or
common equity or capital contributions to Parent and its subsidiaries (other
than the initial equity contributions relating to the Offer and the Merger),
with customary exceptions, including equity issued or equity used to finance
certain permitted acquisitions, (4) 75% (reduced to 50% if the ratio of
consolidated earnings before interest, taxes, depreciation and amortization is
less than 2.75 to 1) of annual excess cash flow to be applied on the earlier
90 days after the end of each fiscal year and the date of delivery of Parent's
audited financial statements for such year and (5) 100% of certain insurance
proceeds, provided that after the Effective Time, the Surviving Corporation
may, in the absence of a default or an event of default under the Senior Bank
Financing, reinvest certain proceeds during the 180-day period following the
date of receipt of such proceeds. Mandatory repayments will be applied pro
rata to reduce the then remaining scheduled installments of the Term Loan
Facility. Voluntary repayments under the Term Loan Facility will reduce the
then remaining scheduled installments of the Term Loan Facility in direct
order of maturity. Voluntary commitment reductions under the Revolving Credit
Facility will be applied in direct order of maturity to reduce the then
remaining scheduled commitment reductions under the Revolving Credit Facility.
Conditions; Representations and Warranties; Covenants; Events of
Default. The Commitment Letter contains certain customary conditions to the
Bankers Trust Company's obligation to provide the Tender Loan, including
conditions substantially similar to the conditions to the Offer and the Merger
set forth in the Merger Agreement. Conditions to borrowings under the Term
Loan Facility at the Effective Time will be limited to (1) the absence of an
event of default under the Senior Bank Financing, (2) the consummation of the
Merger in accordance with applicable law and the Merger Agreement and (3)
continued accuracy in all material respect of the representations and
warranties contained in the credit documentation; provided that
representations as to any material adverse change to the Company and its
subsidiaries from a specified date, the absence of material litigation and any
substantially similar representation shall not be required to be made in
connection with such borrowing. Borrowing under the Revolving Credit Facility
after the Effective Time will contain standard and customary conditions. The
Senior Bank Financing is also expected to contain customary representations,
warranties, covenants and events of default.
Indemnification; Expenses; Fees. In connection with the Commitment Letter,
the Purchaser and Parent have agreed to indemnify Bankers Trust Company, the
lenders and certain of their related persons against certain liabilities, and
to reimburse Bankers Trust Company and its affiliates for all of Bankers Trust
Company's reasonable fees and expenses arising in connection with the
financing documentation and due diligence. The Purchaser and Parent agreed to
pay to Bankers Trust Company financing, commitment and other fees customary
for commitments of the types described herein. The Purchaser and Parent have
also agreed to pay to Bankers Trust Company a termination fee payable under
certain circumstances if the Merger Agreement is terminated. All such fees are
non-refundable. Apollo Investment Fund III, L.P. has unconditionally
guaranteed the payment in full of all amounts due to Bankers Trust Company
under the Commitment Letter and the Fee Letter until the consummation of the
Offer.
The foregoing summary of the Commitment Letter is qualified in its entirety
by reference to the text of the Commitment Letter and Fee Letter, which have
been filed as an Exhibit to the Purchaser's Schedule 14D-1 and are
incorporated herein by reference.
14. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer, the Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares
after the termination or withdrawal of the Offer), to pay for any Shares
tendered pursuant to the Offer unless (1) the Minimum Condition shall have
been satisfied and (2) any waiting period under the HSR Act applicable to the
purchase of Shares pursuant to the Offer shall have expired or been
terminated. Furthermore, notwithstanding any other term of the Offer, the
Purchaser shall not be required to accept for payment or, subject as
aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate the Offer if, at any time on or after the date
28
hereof and before the acceptance of such Shares for payment or the payment
therefor, any of the following conditions exists (other than as a result of
any action or inaction of Parent or any of its subsidiaries that constitutes a
breach of the Merger Agreement):
(a) there shall be instituted or pending by any person or Governmental
Entity any suit, action or proceeding (i) challenging the acquisition by
Parent or the Purchaser of any Shares under the Offer or pursuant to the
Stockholder Agreement, seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the performance of any of the
other transactions contemplated by the Merger Agreement or the Stockholder
Agreement (including the voting provision thereunder), or seeking to obtain
from the Company, Parent or the Purchaser any damages in connection with
the aforesaid transactions that are material in relation to the Company,
(ii) seeking to prohibit or materially limit the ownership or operation by
the Company, Parent or any of their respective subsidiaries of a material
portion of the business or assets of the Company or its subsidiaries, or
Parent and its subsidiaries, taken as a whole, or to compel the Company or
Parent to dispose of or hold separate any material portion of the business
or assets of the Company or Parent and its subsidiaries, taken as a whole,
as a result of the Offer or any of the other transactions contemplated by
the Merger Agreement or the Stockholder Agreement, (iii) seeking to impose
material limitations on the ability of Parent or the Purchaser to acquire
or hold, or exercise full rights of ownership of, any Shares to be accepted
for payment pursuant to the Offer or purchased under the Stockholder
Agreement, including, without limitation, the right to vote such Shares on
all matters properly presented to the stockholders of the Company, (iv)
seeking to prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect any material portion of the assets,
properties, business or operations of the Company or its subsidiaries or
(v) which otherwise is reasonably likely to have an effect or condition
that, individually or in the aggregate with any other effect or condition,
is materially adverse to the assets, properties, business, financial
condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole;
(b) there shall be any statute, rule, regulation, judgment, order,
injunction or other restraint enacted, entered, enforced, promulgated or
deemed applicable to the Offer or the Merger, or any other action shall be
taken by any Governmental Entity or court, other than the application to
the Offer or the Merger of applicable waiting periods under the HSR Act,
that is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
provided, however, that each of Parent and the Purchaser shall have used
reasonable efforts to prevent the entry of any such injunction or other
court order and to appeal as promptly as possible any injunction or other
court order that may be entered;
(c) there shall have occurred any change or event that, individually or
in the aggregate with any other change or event, is materially adverse to
the assets, properties, business, financial condition, results of
operations or prospects of the Company and its subsidiaries, taken as a
whole;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on the New York Stock Exchange or
the Nasdaq, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by
federal or state authorities on the extension of credit by lending
institutions, or a disruption of or material adverse change in either the
syndication market for credit facilities or the financial, banking or
capital markets, (iii) a commencement of a war or armed hostilities or
other national or international calamity directly or indirectly involving
the United States or (iv) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or
worsening thereof;
(e) any of the representations and warranties of the Company set forth in
the Merger Agreement (without giving effect to any materiality or similar
qualifications contained therein) shall not be true and correct in all
material respects at the date thereof and at the scheduled or extended
expiration of the Offer, except for changes specifically permitted by the
Merger Agreement;
29
(f) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
(g) the Merger Agreement shall have been terminated in accordance with
its terms;
(h) all leases, promissory notes and other loan or financing
documentation to which the Company or any subsidiary is a party or by which
the assets or properties of either the Company or any subsidiary are bound
(including those in respect of the MRI Units owned, leased or on order by
the Company or any subsidiary) shall have been amended or restated, as
necessary, so that (i) all MRI Units leased by the Company and/or any
subsidiary may be purchased by the applicable lessee at any time, and the
leases thereunder and all lending or other financing arrangements to which
the Company or any subsidiary is a party pertaining to the MRI Units owned,
leased or on order by the Company or any subsidiary may be terminated at
any time (other than leases or lending or other financing arrangements with
respect to such MRI Units that have an aggregate principal amount
outstanding of less than $6 million), in each case, without any payment
made or liability or obligation incurred by or on behalf of the Company or
any subsidiary, other than payments made or liabilities or obligations
incurred prior to the Effective Time which, in the aggregate, do not exceed
an amount reasonably acceptable to Parent and the Company and (ii) none of
the Merger, the Offer or any of the transactions contemplated by the Merger
Agreement shall constitute a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, acceleration or cancellation or right of
non-renewal or give rise to the loss of a material benefit) thereunder;
which, in the judgment of the Purchaser in any such case, and regardless of
the circumstances (including any action or omission by the Purchaser not
inconsistent with the terms of the Merger Agreement) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for payment.
The foregoing conditions in paragraphs (a) through (h) are for the sole
benefit of the Purchaser and Parent and, subject to the terms of the Merger
Agreement, may be waived by the Purchaser and Parent in whole or in part at
any time and from time to time in their sole discretion. The failure by Parent
or the Purchaser at any time to exercise any of the foregoing rights shall not
be deemed a waiver of any such right, the waiver of any such right with
respect to particular facts and circumstances shall not be deemed a waiver
with respect to any other facts and circumstances and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to
time.
15. CERTAIN LEGAL MATTERS
State Takeover Laws. The Company conducts business in a number of states
throughout the United States, several of which have adopted laws and
regulations purporting, to various degrees, to apply to offers to acquire
securities of entities which are organized or have substantial assets,
securityholders, employees, a principal executive office and/or a principal
place of business therein. In Edgar v. MITE Corporation, the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Act, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. In CTS Corp. v.
Dynamics Corp. of America, however, the Supreme Court held that a state may,
as a matter of corporate law and, in particular, those laws concerning
corporate governance, constitutionally disqualify a potential acquiror from
voting on the affairs of a target corporation without prior approval of the
remaining stockholders, provided that such laws were applicable only under
certain conditions, in particular, that the corporation has a substantial
number of stockholders in the state and is incorporated there.
Section 203 of the DGCL prohibits business combination transactions
involving a Delaware corporation and an "interested stockholder" (defined
generally as any person that directly or indirectly beneficially owns 15% or
more of the outstanding voting stock of the subject corporation) for three
years following the date such person became an "interested stockholder,"
unless certain exceptions apply, including that before such person became an
interested stockholder the board of directors of the subject corporation
approved the transaction in which such
30
person became an interested stockholder or approved the business combination.
Since the Board, at the special meeting held on June 23, 1997, approved the
Merger Agreement and the transactions contemplated thereby, Section 203 is
inapplicable to Parent and the Purchaser in connection with the Offer and the
Merger.
It is a condition of the Offer that no statute, rule, regulation or order
impose any material limitation on the ability of Parent, the Purchaser or any
of their subsidiaries effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares. In the
event of the failure of such condition of the Offer, the Purchaser may
terminate or amend the Offer. See Section 14.
Antitrust. The Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
frequently scrutinize the legality under the antitrust laws of transactions
such as the Purchaser's proposed acquisition of the Company. At any time
before or after the Purchaser's purchase of Shares pursuant to the Offer, the
Antitrust Division or the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking
to enjoin the purchase of Shares pursuant to the Offer or the consummation of
the Merger or seeking the divestiture of Shares acquired by the Purchaser or
the divestiture of substantial assets of Parent or its subsidiaries, or the
Company or its subsidiaries. Private parties may also bring legal action under
the antitrust laws under certain circumstances. There can be no assurance that
a challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, of the results thereof.
Going-Private Rules. The Merger will have to comply with any applicable
Federal law operative at the time. Rule 13e-3 promulgated under the Exchange
Act is applicable to certain "going private" transactions. The Purchaser does
not believe that Rule 13e-3 will be applicable to the Merger if the Merger is
consummated within one year after the Expiration Date at the same per Share
price as paid in the Offer. Rule 13e-3 would require, if applicable, among
other things, that certain financial information concerning the Company, and
certain information relating to the fairness of the proposed transaction and
the consideration offered to minority stockholders in such transaction, be
filed with the Commission and disclosed to minority stockholders prior to the
consummation of the transaction.
Other Regulatory Approvals and Notices. The Purchaser is required to furnish
advance written notice of its purchase of the Shares to state health
regulatory agencies in certain of the states in which the Company does
business.
16. FEES AND EXPENSES
The Dealer Manager, the Information Agent and the Depositary have been
retained by the Purchaser in connection with the Offer. The Information Agent
may contact holders of Shares by mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers, banks, trust companies
and other nominees to forward the Offer material to beneficial owners. The
Dealer Manager, the Information Agent and the Depositary each will receive
reasonable and customary compensation for their services, will be reimbursed
for certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith, including certain
liabilities under the Federal securities laws. Neither the Information Agent
nor the Depositary has been retained to make solicitations or recommendations
in connection with the Offer.
No fees or commissions will be paid by or on behalf of the Purchaser to any
broker or dealer or other person (other than the Dealer Manager) for
soliciting tenders of Shares pursuant to the Offer. Brokers, dealers,
commercial banks, trust companies and other nominees will be reimbursed by the
Purchaser for reasonable expenses incurred by them in forwarding material to
their customers.
17. MISCELLANEOUS
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the
31
laws of such jurisdiction. Neither the Purchaser nor Parent is aware of any
jurisdiction in which the making of the Offer or the tender of the Shares in
connection therewith would not be in compliance with the laws of such
jurisdiction. If the Purchaser or Parent becomes aware of any valid state law
prohibiting the making of the Offer or the acceptance of the Shares pursuant
thereto in such state, the Purchaser will make a good faith effort to comply
with any such state statute or seek to have such statute declared inapplicable
to the Offer. If after such good faith effort, the Purchaser cannot comply
with any state statute, the Offer will not be made to, nor will tenders be
accepted from or on behalf of, the holders of Shares in such state. If the
securities laws of any jurisdiction require that the Offer be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
the Purchaser by the Dealer Manager or one or more registered brokers or
dealers that are licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR PARENT NOT CONTAINED IN THIS
OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE DELIVERY OF THIS OFFER TO PURCHASE NOR ANY PURCHASE
PURSUANT TO THE OFFER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PARENT, THE PURCHASER OR THE
COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE OF
THIS OFFER TO PURCHASE.
The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1 ("Purchaser's Schedule 14D-1") and exhibits thereto pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer. In addition, the Company has filed with the
Commission a Solicitation/Recommendation Statement on Schedule 14D-9
(including exhibits) pursuant to Rule 14d-9 under the Exchange Act. Such
statements and any amendments thereto, including exhibits, may be examined at,
and copies may be obtained from, the offices of the Commission in the manner
set forth in Section 9 of this Offer to Purchase (except that copies are not
available at the regional offices of the Commission).
THREE RIVERS ACQUISITION CORP.
June 30, 1997
32
SCHEDULE I
The Purchaser, Parent and Affiliates of the Apollo Entities. The following
sets forth the name, business address, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years and citizenship of each of the directors and executive
officers of the Purchaser and Parent. Directors of the Purchaser are indicated
by an asterisk. Unless otherwise specified herein, the business address of the
following persons is c/o Apollo Management, L.P., 1301 Avenue of the Americas,
38th Floor, New York, New York 10019. Each person referred to herein is a
citizen of the United States.
*MICHAEL GROSS is the Chairman of the Board and President of the Purchaser
and Parent. Mr. Gross has served as an officer of certain affiliates of the
Apollo Entities since 1990. Mr. Gross is a director of Converse Inc.,
Florsheim Group Inc., Proffitt's Inc. and Urohealth, Inc.
*JOSHUA J. HARRIS is the Vice President, Treasurer and Assistant Secretary
of the Purchaser and Parent. Mr. Harris has served as an officer of certain
affiliates of the Apollo Entities, having been associated with them since
1990. Mr Harris is a director of Florsheim Group Inc.
MICHAEL D. WEINER is the Vice President of the Purchaser and Parent. Mr.
Weiner has been an officer of certain affiliates of the Apollo Entities since
1992. Prior to 1992, Mr. Weiner was a partner in the law firm of Morgan, Lewis
& Bockius LLP. Mr. Weiner is a director of Applause, Inc., Converse Inc.,
Capital Apartment Properties, Inc., Continental Graphics Holdings, Inc. and
Florsheim Group Inc.
SCOTT KLEINMAN is the Secretary of the Purchaser and Parent. Mr. Kleinman
has served as an Associate of certain affiliates of the Apollo Entities since
January 1996. Prior to January 1996, Mr. Kleinman was employed by Smith Barney
Inc.
Affiliates of the Apollo Entities.
The following sets forth information with respect to the general partners,
executive officers, directors and principal shareholders of the Apollo
Entities and certain related persons. Capitalized terms used herein without
definition have the meanings assigned thereto in the Offer to Purchase to
which this Schedule I relates. Except as otherwise indicated in this Schedule
I or in the Offer to Purchase to which this Schedule I relates, the principal
business address of each person or entity set forth below is c/o Apollo
Advisors II, L.P., Two Manhattanville Road, Purchase, New York 10577, and each
such person or entity is a citizen of the United States of America.
The principal occupation of each of Messrs. Leon D. Black and John J. Hannan
is to act as an executive officer and director of Apollo Capital and AIM.
Messrs. Black and Hannan are also limited partners of Advisors and Apollo
Management.
Messrs. Black and Hannan are also founding principals of Apollo Advisors,
L.P. ("Apollo Advisors"), Lion Advisors, L.P. ("Lion") and Apollo Real Estate
Advisors, L.P. ("AREA"). The principal business of Apollo Advisors and Lion is
to provide advice regarding investments in securities and the principal
business of AREA is to provide advice regarding investments in real estate and
real estate-related investments. The business address of each of Messrs. Black
and Hannan is c/o Apollo Management, L.P., 1301 Avenue of the Americas, New
York, New York 10019.
Peter Henry Larder, Michael Francis Benedict Gillooly, Ian Thomas Patrick
and Martin William Laidlaw, each of whom is a British citizen, serve as
directors of Administration. Each of the above four individuals is principally
employed by CIBC Bank and Trust Company (Cayman) Limited ("CIBC") in the
following positions: Mr. Larder, Managing Director; Mr. Gillooly, Deputy
Managing Director; Mr. Patrick, Manager-Accounting Services; and Mr. Laidlaw,
Senior Fund Accountant. CIBC is a Cayman Islands corporation which is
principally engaged in the provision of trust, banking and corporate
administration services, the principal
S-1
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or his or her broker, dealer, commercial bank, trust company or other
nominee to the depositary at one of its addresses set forth below.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Hand: Overnight Courier: By Mail:
Reorganization Department Reorganization Department Reorganization Department
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, N.Y. 10005 New York, N.Y. 10005 New York, N.Y. 10005
Facsimile Transmission (for Eligible Institutions only):
(718) 234-5001
Confirm Receipt of Guaranteed Delivery by Telephone:
(718) 921-8200
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent or the Dealer Manager at their
respective addresses and telephone numbers set forth below. You may also
contact your local broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (Collect)
or
CALL TOLL FREE (800) 322-2885
The Dealer Manager for the Offer is:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
2121 Avenue of the Stars, Suite 3000
Los Angeles, CA 90067
(310) 282-5597 (Collect)