SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
INSIGHT HEALTH SERVICES CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common stock, $.001 par value per share, of InSight Health Services
Corp.
(2) Aggregate number of securities to which transaction applies:
11,532,183 shares of InSight common stock (the aggregate of the
number of shares of InSight common stock currently outstanding, the
shares of InSight common stock issuable upon exercise of outstanding
stock options or warrants and the shares of InSight common stock
which may by issued prior to the consummation of the merger)
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$18 per share in cash for all outstanding shares of InSight common
stock (on an as-converted basis). The filing fee was calculated by
multiplying 1/50th of 1% by the total cash payment received.
(4) Proposed maximum aggregate value of transaction: $207,579,294
(5) Total fee paid: $41,516
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[LOGO OF INSIGHT]
, 2001
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
InSight Health Services Corp. on , 2001, at a.m., local time,
at .
At the special meeting, we will ask you to vote on the acquisition of
InSight by InSight Health Services Holdings Corp. through a merger of JWCH
Merger Corp., its wholly-owned subsidiary, with and into InSight. InSight
Health Services Holdings Corp. and JWCH Merger Corp. are newly-formed entities
which were incorporated for the sole purpose of acquiring InSight. InSight
Health Services Holdings Corp. is jointly owned by J.W. Childs Equity Partners
II, L.P., Halifax Capital Partners, L.P., and certain of their affiliates.
Under the merger agreement, you will receive $18 in cash for each share of
InSight common stock that you own.
We cannot complete the merger unless it is approved by the InSight
stockholders. Only InSight stockholders who hold shares of our capital stock at
the close of business on , 2001 will be entitled to vote at the
special meeting.
The enclosed proxy statement gives you detailed information about the
proposed merger and includes the merger agreement as an Annex. We encourage you
to read carefully the proxy statement, including its Annexes. You should
consider the matters discussed under "Risk Factors Relating to the Merger" on
page 9 of the enclosed proxy statement before voting on the merger.
After careful consideration, the InSight board of directors has unanimously
approved the merger agreement and the merger, and has unanimously determined
that the merger is advisable and fair to, and in the best interests of, the
InSight stockholders. The InSight board of directors unanimously recommends
that you vote FOR the adoption of the merger agreement.
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us.
Sincerely,
Steven T. Plochocki
President and Chief Executive
Officer
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in the proxy
statement or determined if the proxy statement is accurate or adequate. Any
representation to the contrary is a criminal offense.
The proxy statement is dated , 2001 and is being first mailed
to InSight stockholders on or about , 2001.
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement incorporates important business and financial
information about InSight from documents that are not included in or delivered
with this proxy statement. This information is available to you without charge
upon your written or oral request. You can obtain documents incorporated by
reference in this proxy statement by requesting them in writing or by telephone
from InSight at the following address and telephone number:
InSight Health Services Corp.
4400 MacArthur Blvd, Suite 800
Newport Beach, California 92660
Attention: Secretary
Telephone: (949) 476-0733
If you would like to request documents, please do so by , 2001
in order to receive them before the special meeting.
See "Where You Can Find More Information" on page 50 of this proxy statement
to learn how to obtain more information regarding InSight.
LOGO OF INSIGHT
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
----------------
To the Stockholders of InSight:
We will hold a special meeting of stockholders of InSight Health Services
Corp. on , 2001, at a.m., local time, at
, for the following purposes:
1. To approve a proposal to adopt the Agreement and Plan of Merger, dated
as of June 29, 2001, by and among InSight, InSight Health Services
Holdings Corp. and JWCH Merger Corp., which provides that:
(a) JWCH Merger Corp. will be merged with and into InSight, with InSight
continuing as the surviving corporation; and
(b) each issued and outstanding share of InSight common stock will be
converted into and represent the right to receive $18 in cash.
2. To transact such other business as may properly come before the meeting
or any adjournments of the special meeting.
Only holders of record of shares of InSight capital stock at the close of
business on , 2001, the record date for the special meeting, are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements of the meeting.
We cannot complete the merger unless it is approved by the InSight
stockholders. The approval of the merger agreement will require the affirmative
vote of the holders of a majority of the outstanding shares of InSight common
stock and preferred stock, as of the record date, voting as a single class,
with the holders of InSight preferred stock voting on an as-if-converted basis.
The holders of our capital stock will have appraisal rights under Delaware law
in connection with the merger.
For more information about the merger, please review the accompanying proxy
statement, including the merger agreement attached as Annex I.
All InSight stockholders are cordially invited to attend the special meeting
in person. However, whether or not you plan to attend the special meeting,
please complete, sign and date the enclosed proxy and return it promptly in the
enclosed postage-paid envelope. You may vote in person at the special meeting
even if you have returned a proxy. If you do not vote by proxy or in person at
the special meeting, it will count as a vote against approval of the merger
agreement. You may revoke your proxy in the manner described in the
accompanying proxy statement at any time before it is voted at the special
meeting. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
counted as a vote in favor of the proposal to approve the merger agreement.
Please do not send any stock certificates at this time. If the merger is
completed, you will be sent instructions regarding the surrender of your
certificates.
By action of the board of directors
Marilyn U. MacNiven-Young
Executive Vice President, General
Counsel and Secretary
Newport Beach, California
, 2001
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TABLE OF CONTENTS
Page
----
SUMMARY TERM SHEET........................................................ 1
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 7
MARKET PRICE INFORMATION.................................................. 8
RISK FACTORS RELATING TO THE MERGER....................................... 9
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS.......................... 11
THE SPECIAL MEETING....................................................... 12
Date, Time and Place.................................................... 12
Purpose of the Special Meeting.......................................... 12
Record Date; Stockholders Entitled to Vote; Quorum...................... 12
The Board of Directors Recommendations.................................. 12
Vote Required........................................................... 12
Executive Officers and Directors Voting................................. 13
Voting Agreements....................................................... 13
Voting of Proxies....................................................... 13
Revocability of Proxies................................................. 14
Solicitation of Proxies................................................. 14
THE COMPANIES............................................................. 15
THE MERGER................................................................ 17
General................................................................. 17
Background to the Merger................................................ 17
Reasons for the Merger.................................................. 20
Opinion of InSight's Financial Advisor.................................. 21
Interests of InSight's Directors and Executive Officers in the Merger... 27
Accounting Treatment.................................................... 29
Determination of the Merger Consideration............................... 29
Financing............................................................... 29
Payment for Shares...................................................... 32
Effective Time of the Merger............................................ 32
Delisting and Deregistration of InSight Common Stock.................... 32
Certain Material United States Federal Income Tax Consequences of the
Merger................................................................. 32
Regulatory Matters...................................................... 34
Appraisal Rights........................................................ 34
THE MERGER AGREEMENT...................................................... 36
General................................................................. 36
Conversion of Shares.................................................... 36
Procedure for the Exchange of Stock Certificates........................ 36
Representations and Warranties.......................................... 37
Conditions to the Merger................................................ 38
Conduct of Business Pending the Merger.................................. 39
No Solicitation......................................................... 41
Termination of the Merger Agreement..................................... 43
Termination Fees; Expenses.............................................. 43
Amendment; Extension and Waiver......................................... 44
Expenses................................................................ 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 45
2001 ANNUAL MEETING....................................................... 50
WHERE YOU CAN FIND MORE INFORMATION....................................... 50
OTHER MATTERS............................................................. 51
Annex I -- Agreement and Plan of Merger; First Amendment to Agreement
and Plan of Merger
Annex II -- Opinion of UBS Warburg LLC
Annex III -- Voting Agreements
Annex IV -- Section 262 of the Delaware General Corporation Law
i
SUMMARY TERM SHEET
This summary may not contain all of the information that is important to
you. You should carefully read this entire proxy statement and the other
documents to which we refer you. In addition, we incorporate by reference
important business and financial information about InSight into this proxy
statement. You may obtain the information incorporated by reference without
charge by following the instructions in the section "Where You Can Find More
Information" on page 50. We have included page references parenthetically to
direct you to a more complete description of the topics presented in this
summary.
The Companies
InSight (Page 15)
InSight provides diagnostic imaging, treatment and related management
services in 28 states throughout the United States. InSight's services are
provided through a network of:
. 78 mobile magnetic resonance imaging, or MRI, facilities;
. 38 fixed-site MRI facilities;
. 27 multi-modality imaging centers;
. four mobile lithotripsy facilities;
. three mobile positron emission tomography facilities;
. one Leksell Stereotactic Gamma Knife treatment center;
. one positron emission tomography fixed-site facility; and
. one radiation oncology center.
An additional radiation oncology center is operated by InSight as part of one
of its multi-modality imaging centers. InSight's operations are located
throughout the United States, with a substantial presence in California, Texas,
New England, North Carolina, South Carolina and the Midwest (Illinois, Indiana
and Ohio).
At our multi-modality imaging centers, InSight offers other services in
addition to MRI, including computed tomography, diagnostic and fluoroscopic x-
ray, mammography, diagnostic ultrasound, nuclear medicine, bone densitometry,
nuclear cardiology and cardiovascular services. InSight offers additional
services through a variety of arrangements, including equipment rental,
technologist services, marketing, radiology management services, and billing
and collection services.
The mailing address of our principal executive offices is 4400 MacArthur
Blvd., Suite 800, Newport Beach, California 92660, and the telephone number is
(949) 476-0733.
InSight Health Services Holdings Corp. and JWCH Merger Corp. (Page 15)
InSight Health Services Holdings Corp. and JWCH Merger Corp. are newly-
formed entities which were incorporated under the laws of the State of Delaware
for the sole purpose of acquiring InSight. InSight Health Services Holdings
Corp. is jointly owned by J.W. Childs Equity Partners II, L.P., Halifax Capital
Partners, L.P. and certain of their affiliates. JWCH Merger Corp. is a wholly-
owned subsidiary of InSight Health Services Holdings Corp. InSight Health
Services Holdings Corp. is referred to in this proxy statement as InSight
Holdings.
Investor Group (Page 15)
J.W. Childs Associates, L.P., a Boston-based private investment firm,
manages $1.5 billion of institutional private equity through J.W. Childs Equity
Partners, L.P. and J.W. Childs Equity Partners II, L.P. J.W. Childs'
1
investment strategy is to leverage the operating and financial experience of
its partners and to invest, along with management, in middle-market growth
companies. J.W. Childs' principal executive offices are located at One Federal
Street, 21st floor, Boston, Massachusetts 02110.
The Halifax Group, L.L.C., a private equity limited liability company with
$200 million under management, operates from offices in Washington, D.C., Fort
Worth, Texas, Los Angeles, California and Raleigh, North Carolina. Halifax was
formed in January 1999 to capitalize on opportunities for equity investments in
small and mid-cap companies. Halifax leverages off of its investment team's
experience and resources, and those of its affiliate funds Texas Pacific Group
and Colony Capital. Halifax's principal executive offices are located at
1133 Connecticut Avenue, N.W., Suite 700, Washington, D.C. 20036, and 201 Main
Street, Suite 2420, Fort Worth, Texas 76102.
The Special Meeting (Page 12)
The InSight special meeting will be held on , 2001, at ,
starting at a.m., local time.
Purpose of the Special Meeting (Page 12)
At the special meeting, InSight stockholders will be asked to consider and
vote upon proposals to approve:
. the merger agreement; and
. any other matters that are properly brought before the special meeting
or any adjournment or postponement of the meeting.
We cannot complete the merger unless the merger agreement is approved by the
InSight stockholders.
Stockholders Entitled to Vote (Page 12)
Holders of record of shares of InSight common stock and InSight preferred
stock at the close of business on the record date are entitled to notice of,
and to vote at, the special meeting. On the record date, there were shares
of InSight common stock outstanding, which includes the preferred shares (on an
as-if-converted basis), each of which will be entitled to one vote on each
matter to be acted upon at the special meeting. On the record date, there were
shares of InSight Series D preferred stock outstanding, which may be
converted into shares of InSight common stock.
Vote Required (Page 12)
The approval of the merger agreement will require the affirmative vote of
the holders of a majority of the outstanding shares of InSight common stock and
preferred stock, as of the record date, with the holders of InSight preferred
stock voting on an as-if-converted basis.
Voting Agreements (Page 13)
On June 29, 2001, each of General Electric Company, GE Fund and various
entities affiliated with The Carlyle Group entered into a voting agreement with
InSight Holdings and JWCH Merger Corp. pursuant to which they have agreed,
subject to the terms and conditions of the voting agreement, to vote the shares
of InSight capital stock they beneficially own FOR adoption of the merger
agreement. These InSight stockholders collectively beneficially owned
approximately % of the outstanding shares of InSight common stock (on an as-
if-converted basis) as of the record date. The voting agreements are attached
hereto as Annex III. General Electric Company, GE Fund and the various entities
affiliated with The Carlyle Group have also granted
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irrevocable proxies, including a power of attorney, to InSight Holdings and
JWCH Merger Corp. to vote their shares FOR adoption of the merger agreement.
Pursuant to the voting agreements, each of General Electric Company, the GE
Fund and the various entities affiliated with The Carlyle Group agreed to
convert the InSight preferred stock they own into InSight Series D preferred
stock prior to the record date, which has been completed. Such stockholders
also agreed to further convert such Series D preferred stock into common stock
prior to the consummation of the merger. The effect of the voting agreements
described above is that the holders of a majority of the shares of InSight
common stock (including the InSight preferred stock voting on an as-if-
converted basis) have agreed to vote for adoption of the merger agreement.
Security Ownership of Certain Beneficial Owners and Management (Page 45)
Each of the directors and executive officers of InSight has advised InSight
that he or she intends to vote all shares of InSight common stock he or she
owns FOR adoption of the merger agreement. As of the record date, directors and
executive officers of InSight held and were entitled to vote approximately %
of the outstanding shares of InSight common stock (assuming the conversion of
InSight preferred stock into common stock).
The Merger (Page 17)
Upon completion of the merger, JWCH Merger Corp. will be merged with and
into InSight, and InSight will survive the merger and become a wholly-owned
subsidiary of InSight Holdings. Each issued and outstanding share of InSight
common stock will be converted into the right to receive $18 in cash. The
merger agreement provides that each share of InSight preferred stock will be
converted into a share of InSight common stock immediately prior to the
completion of the merger. Accordingly, assuming such conversion of your InSight
preferred stock, you will receive the same per share consideration as the
holders of InSight common stock on an as-if-converted basis.
The merger agreement provides that holders of InSight stock options and
warrants will receive a cash payment for each option or warrant, whether or not
then exercisable, in an amount equal to the difference between the exercise
price of the option or warrant and the per share consideration received by
holders of InSight common stock in connection with the merger.
The Board of Directors Recommendation (Page 12)
The InSight board of directors believes that the merger is fair to, and in
the best interests of, InSight and its stockholders, and unanimously recommends
that holders of InSight capital stock vote FOR approval of the merger
agreement. To review the background and reasons for the merger in greater
detail, see pages 17 and 20.
Risk Factors Relating to the Merger (Page 9)
In evaluating the merger and the proposal to adopt the merger agreement, you
should carefully consider the "Risk Factors Relating to the Merger."
Opinion of InSight's Financial Advisor (Page 21)
In connection with the merger, the InSight board of directors received a
written opinion from InSight's financial advisor, UBS Warburg LLC, as to the
fairness, from a financial point of view, of the merger consideration to be
received by the holders of InSight common stock. The full text of UBS Warburg's
written opinion dated June 29, 2001 is attached to this proxy statement as
Annex II. We encourage you to read this opinion carefully in its entirety for a
description of the assumptions made, procedures followed, matters considered
and limitations on the review undertaken. UBS Warburg's opinion is addressed to
the InSight board and does not constitute a recommendation to any stockholder
with respect to any matters relating to the proposed merger.
3
Interests of InSight's Directors and Executive Officers in the Merger (Page
27)
Directors and executive officers of InSight have interests in the merger as
directors or executive officers that are different from, or in addition to,
those of other InSight stockholders. These interests include the following:
. the continued indemnification of current directors and officers of
InSight pursuant to the merger agreement;
. the retention of certain executive officers of InSight as employees or
consultants after the merger is completed pursuant to new employment
agreements which, in some cases, provide for increased benefits,
including stock options in InSight Holdings;
. options and warrants held by InSight's directors, executive officers and
employees will become fully vested as a result of the merger;
. certain officers of InSight are parties to employment agreements that
provide for severance payments following a "change in control," such as
the merger, if such officers terminate his or her employment with
InSight; and
. the affiliation of certain of our directors with InSight's major
stockholders.
Financing (Page 29)
InSight Holdings' and JWCH Merger Corp.'s obligation to complete the merger
is contingent upon, among other things, obtaining the financing for the merger
contemplated by commitment letters obtained by it at the time of execution of
the merger agreement. InSight and InSight Holdings estimate that the total
amount of funds necessary to complete the merger and related transactions is
approximately $475 million. These funds are currently expected to come from the
following sources:
. an equity investment by J.W. Childs Equity Partners II, L.P. and Halifax
Capital Partners, L.P. of up to $81.5 million, net of the value of the
stock options rolled over by certain executive officers of InSight, and
$20 million, respectively;
. borrowings by InSight in an aggregate amount of up to $150 million under
a $275 million senior credit facility;
. the issuance of $200 million of unsecured senior subordinated notes to
be issued by JWCH Merger Corp. (which will become obligations of InSight
upon consummation of the merger of JWCH Merger Corp. with and into
InSight); and
. cash balances of InSight at the closing of the merger which will include
option and warrant proceeds.
InSight Holdings is not required to obtain alternative financing if the
financing arrangements listed above do not materialize. Accordingly, no
alternative financing arrangements or alternative financing plans have been
made by InSight Holdings.
Management Following the Merger (Page 27)
Upon the closing of the merger, Steven T. Plochocki, who is currently
President and Chief Executive Officer of InSight; Patricia R. Blank, who is
currently Executive Vice President and Chief Information Officer of InSight;
Michael A. Boylan, who is currently Executive Vice President, Operations,
Eastern Division of InSight; Thomas V. Croal, who is currently Executive Vice
President and Chief Financial Officer of InSight; Michael S. Madler, who is
currently Executive Vice President, Operations, Western Division of InSight;
Brian G. Drazba, who is currently Senior Vice President--Finance and Controller
of InSight; and Cecilia A. Guastaferro, who is currently Senior Vice
President--Human Resources of InSight, will each serve in their current
capacities with the surviving corporation.
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Conditions to the Merger (Page 38)
The obligations of InSight, InSight Holdings and JWCH Merger Corp. to
complete the merger are subject to the satisfaction or waiver of several
conditions, including:
. obtaining the approvals of InSight stockholders;
. obtaining the requisite regulatory approvals;
. performance of all agreements contained in the merger agreement;
. the continued accuracy at the time of the merger of the representations
and warranties made by InSight, InSight Holdings and JWCH Merger Corp.
in the merger agreement;
. conversion of the issued and outstanding InSight preferred stock into
common stock;
. the availability of funds to InSight Holdings and/or JWCH Merger Corp.
necessary to complete the merger;
. obtaining third-party consents, approvals and waivers required to be
obtained in connection with the transactions contemplated by the merger
agreement;
. there has not been a material adverse effect on InSight;
. there is not outstanding any litigation which seeks to enjoin the
completion of the merger and has a reasonable likelihood of success; and
. InSight shall not have indebtedness, net of cash and cash equivalents,
on a consolidated basis in excess of $222,500,000.
Termination of the Merger Agreement (Page 43)
The merger agreement may be terminated as follows:
. by mutual written consent of InSight, InSight Holdings and JWCH Merger
Corp.;
. at the option of InSight Holdings, JWCH Merger Corp. or InSight, if (a)
the merger is not consummated by the later of October 8, 2001 and 35
days after the completion of the audit of the consolidated financial
statements of InSight and its subsidiaries for the fiscal year ended
June 30, 2001 and delivery thereof to InSight Holdings or (b) any court
or governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the merger and such order, decree, ruling or other action shall have
become final and nonappealable;
. by InSight Holdings, JWCH Merger Corp. or InSight, if the merger is not
approved by InSight stockholders;
. by the InSight board of directors, upon its exercise of the fiduciary-
out provision contained in the merger agreement, pursuant to which
InSight may terminate the merger agreement and enter into an agreement
with a third-party which the InSight board of directors has deemed to be
superior to the transactions contemplated by the merger agreement;
. by InSight, if InSight Holdings or JWCH Merger Corp. materially breaches
its obligations set forth in the merger agreement, unless such breach is
cured within 30 days after written notice to InSight Holdings by
InSight; and
. by InSight Holdings or JWCH Merger Corp., if InSight materially breaches
its obligations set forth in the merger agreement, unless such breach is
cured within 30 days after written notice to InSight by InSight Holdings
or JWCH Merger Corp.
5
Under certain circumstances, InSight may be required to pay InSight Holdings
a termination fee of $7 million or reimburse up to $1 million of InSight
Holdings' and its affiliates' expenses.
Appraisal Rights (Page 34)
Any InSight stockholder who does not wish to accept the consideration
provided for in the merger agreement in exchange for his, her or its shares has
the right under the Delaware General Corporation Law to receive the "fair
value" of his, her or its shares of our capital stock as determined by a
Delaware court. This "appraisal right" is subject to a number of restrictions
and technical requirements. Generally, in order to perfect appraisal rights, a
dissenting stockholder must:
. not vote in favor of adopting and approving the merger agreement; and
. make a written demand for appraisal before the vote on the merger
agreement.
Merely voting against the merger agreement and the merger will not protect
the right of appraisal. Annex IV to this proxy statement contains the
applicable provisions of the Delaware General Corporation Law relating to
appraisal rights.
Certain Material United States Federal Income Tax Consequences of the Merger
(Page 32)
The receipt of cash in exchange for shares of InSight common stock pursuant
to the merger will be a taxable transaction for federal income tax purposes,
unless you are exempt from taxes. You are urged to consult your tax advisor to
determine the effect of the merger on you under federal, state, local and
foreign tax laws.
Regulatory Matters (Page 34)
United States antitrust laws prohibit InSight and InSight Holdings from
completing the merger until they have furnished certain information and
materials to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and a required waiting period has ended. InSight and
InSight Holdings filed the required notification and report forms with the
Antitrust Division of the Department of Justice and the Federal Trade
Commission on July 6, 2001 and , 2001, respectively. Under the antitrust
laws, the merger may not be completed until after the expiration or early
termination of the applicable waiting period. The applicable waiting period
expires on , 2001.
Procedure for the Exchange of Stock Certificates (Page 36)
If the merger is completed, a letter of transmittal will be sent to all
holders of record of InSight capital stock, which will contain instructions for
surrendering the holders' stock certificates. Please do not send your stock
certificates with the proxy. You should not surrender your stock until you
receive the letter of transmittal.
6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why is the InSight board of directors recommending that I vote in favor of
the proposal to adopt the merger agreement?
A: After careful consideration, the InSight board of directors has unanimously
approved the merger agreement and the merger, and has unanimously determined
that the merger is advisable and fair to, and in the best interests of, the
InSight stockholders. In reaching its decision to approve the merger
agreement and the merger and to recommend adoption of the merger agreement
by InSight stockholders, the InSight board of directors consulted with
InSight management, as well as InSight's legal and financial advisors, and
considered the terms of the proposed merger agreement and the transactions
contemplated by the merger agreement. The InSight board of directors also
considered each of the items set forth on pages 20 and 21.
Q: What will I receive in the merger if I own InSight common stock?
A: If the merger is completed, each share of your InSight common stock will be
converted into the right to receive $18 in cash.
Q: What will I receive in the merger if I own InSight preferred stock?
A: The merger agreement provides that each share of InSight preferred stock
will be converted into a share of InSight common stock immediately prior to
the completion of the merger. Accordingly, assuming such conversion of your
InSight preferred stock, you will receive the same per share consideration
as the holders of InSight common stock on an as-if-converted basis.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. We
expect to complete the merger by , 2001. However, it is possible
that InSight, InSight Holdings and JWCH Merger Corp. may agree to a later
date.
Q: What do I need to know?
A: We urge you to read this proxy statement carefully, including its Annexes,
and to consider how the merger would affect you as a stockholder. You also
may want to review the documents referenced under "Where You Can Find More
Information" on page 50.
Q: How do I vote?
A: Please indicate on your proxy card how you want to vote, and sign and mail
your proxy card in the enclosed postage-paid return envelope as soon as
possible so that your shares may be represented at the meeting. If you sign
and send in your proxy card and do not indicate how you want to vote, your
proxy will be counted as a vote in favor of the merger agreement. If you
abstain from voting or do not vote your shares by proxy or in person at the
special meeting, it will have the same effect as a vote against the approval
of the merger agreement.
Q: If my shares are held in a brokerage account or in "street name" by my
broker, how will my shares be voted?
A: Your broker will not vote your shares unless you provide your broker with
written instructions on how to vote. If you do not instruct your broker,
your shares will not be voted, which will have the same effect as a vote
against the adoption of the merger agreement. As a result, it is important
that you follow the directions provided by your broker regarding how to
instruct your broker to vote your shares.
Q: May I change my vote after I have mailed a signed proxy card?
A: Yes. You may change your vote in one of the following three ways at any time
before your proxy is voted at the special meeting. First, you may send a
written notice stating that you would like to revoke your proxy. Second, you
may complete a new, later-dated proxy card. Third, you can attend the
meeting and vote in person. If you choose either of the first two methods,
you must submit your notice of revocation or your new proxy to the Secretary
of InSight, at the address listed below. If you have instructed a broker to
vote your shares, you must follow the directions received from your broker
to change your vote or to vote in person at the special meeting.
Q: Should I send my certificates now?
A: No. After the merger is completed, we will send you written instructions for
surrendering your stock certificates.
Q: Whom do I call with questions?
A: InSight stockholders who have questions about the merger should contact:
InSight Health Services Corp.
4400 MacArthur Blvd, Suite 800
Newport Beach, California 92660
Attention: Chief Financial Officer
Telephone: (949) 476-0733
7
MARKET PRICE INFORMATION
InSight common stock is traded on the national over-the-counter market and
quoted on the Nasdaq Small Cap Market under the symbol "IHSC". The table below
sets forth, for the quarters indicated, the reported high and low sales prices
of our common stock.
Common Stock
-------------
High Low
------ ------
Fiscal Year Ended June 30, 2000:
First Quarter............................................. $ 6.94 $ 5.00
Second Quarter............................................ 6.50 4.63
Third Quarter............................................. 11.50 5.69
Fourth Quarter............................................ 8.38 5.75
Fiscal Year Ended June 30, 2001:
First Quarter............................................. 9.00 6.00
Second Quarter............................................ 10.73 6.25
Third Quarter............................................. 17.00 7.88
Fourth Quarter............................................ 19.80 11.00
Fiscal Year Ended June 30, 2002:
First Quarter (through , 2001).........................
On January 31, 2001, the last trading day prior to InSight's public
announcement that it had retained UBS Warburg as its financial advisor to
assist InSight in exploring strategic alternatives to enhance stockholder
value, the Nasdaq Small Cap Market reported that the last sale price of InSight
common stock was $10.50 per share.
On June 29, 2001, the last full trading day prior to the public announcement
of the signing of the merger agreement, the Nasdaq Small Cap Market reported
that the last sale price of our common stock was $17.70 per share.
On , 2001, the most recent practicable date prior to the printing
of this proxy statement, the Nasdaq Small Cap Market reported that the last
sale price of our common stock was $ per share.
We urge you to obtain current market quotations for our common stock.
8
RISK FACTORS RELATING TO THE MERGER
In addition to the other information included in this proxy statement,
InSight stockholders should consider carefully the matters described below in
determining whether to adopt the merger agreement.
The cash price per share will not be adjusted for changes in stock prices.
The cash price per share that InSight stockholders will receive for a share
of InSight capital stock is fixed. The market value of InSight common stock at
the effective time of the merger may vary significantly from the closing price
on the date the merger agreement was executed, the date of this proxy statement
or the date on which the InSight stockholders vote on the merger agreement.
These changes may result from a number of factors, including:
. market perception of the merger;
. changes in the business, operations or prospects of InSight;
. market assessments of the likelihood that the merger will be completed
and the timing of the merger; and
. general market and economic conditions.
Because the merger consideration will not be adjusted to reflect changes in
the market value of InSight common stock, the cash amount per share paid to
InSight stockholders under the merger agreement may be higher or lower than the
value of InSight common stock at the time the merger was approved by the
InSight board of directors. We are not permitted to terminate the merger
agreement or resolicit the vote of InSight stockholders because of changes in
the market price of the InSight common stock.
Our directors and executive officers have conflicts of interest that may
influence them to support and approve the merger.
Our directors and executive officers participate in arrangements that
provide them with interests in the merger that are different from, or are in
addition to, your interests as a stockholder.
Our directors and executive officers hold options and warrants to purchase
shares of InSight common stock that will become fully vested as a result of the
merger. The merger will also trigger certain rights (including monetary
compensation if the executive officer leaves InSight after the merger) under
employment agreements between InSight and some of its executive officers.
Effective as of the closing of the merger, certain of InSight's officers have
entered into new employment agreements which, in some cases, provide for
increased benefits, including stock options in InSight Holdings.
In addition, certain directors of InSight are designees of General Electric
Company and The Carlyle Group, the owners of the InSight preferred stock. GE
Capital Equity Holdings, Inc., an affiliate of General Electric Company, has
invested a total of $10 million in the $200 million private equity fund managed
by The Halifax Group, L.L.C.
As a result, our directors and executive officers could be more likely to
vote to approve the merger agreement than if they did not hold these interests.
You should consider whether these interests may have influenced our directors
and executive officers to support and recommend the merger.
If InSight fails to obtain all required consents and waivers, third parties may
terminate or alter existing contracts.
InSight is required to obtain the consent of, and certain waivers from, its
lenders under its primary bank credit facility in connection with the merger.
If the approvals and waivers are not obtained, the credit facility could be
declared in default and the borrowings under the credit facility would become
immediately due and
9
payable. J.W. Childs and Halifax have arranged financing which will provide
them with the necessary funds to refinance certain of InSight's existing
indebtedness. Please review the section "Financing" on page 29 of this proxy
statement for more information regarding the financing arrangements made by
J.W. Childs and Halifax. To the extent InSight's existing indebtedness is
refinanced, InSight will not be required to obtain consents or waivers from its
existing lenders that are paid in full in connection with the refinancing.
In addition, certain other agreements with suppliers, customers, licensors
or other business partners may require InSight to obtain the approval or waiver
of these other parties in connection with the merger. Moreover, holders of
certain of our outstanding senior subordinated notes may require InSight to
purchase the outstanding indebtedness under the notes upon the closing of the
merger.
InSight has agreed to use reasonable efforts to secure the necessary
approvals and waivers. However, we cannot assure you that we will be able to
obtain all of the necessary approvals and waivers.
Failure to complete the merger or delays in completing the merger could
negatively impact InSight's stock price and future business and operations.
If the merger is not completed for any reason, InSight may be subject to a
number of material risks, including the following:
. InSight may be required to pay to InSight Holdings a termination fee of
$7 million;
. InSight may be required to reimburse up to $1 million of the expenses
incurred by InSight Holdings and its affiliates in connection with the
merger;
. the price of InSight common stock may decline to the extent that the
current market price of InSight common stock reflects a market
assumption that the merger will be completed; and
. costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
In addition, current and prospective employees of InSight may experience
uncertainty about their future roles with the surviving corporation until after
the merger is completed or if the merger is not completed. This may adversely
affect the ability of InSight to attract and retain key management, marketing
and technical personnel.
Further, if the merger is terminated and the InSight board of directors
determines to seek another merger or business combination, we cannot assure you
that it will be able to find a transaction providing as much stockholder value
as this merger. While the merger agreement is in effect, subject to certain
limited exceptions, we are prohibited from soliciting, initiating or
encouraging or entering into any extraordinary transactions, such as a merger,
sale of assets or other business combination, with any third party.
The financing which is necessary to complete the merger is not assured.
InSight Holdings' obligation to complete the merger is contingent upon,
among other things, obtaining the financing contemplated in the commitment
letters obtained by it at the time of execution of the merger agreement.
InSight Holdings is not required to obtain alternative financing if these
financing arrangements do not materialize. Accordingly, no alternative
financing arrangements or alternative financing plans have been made by InSight
Holdings. Since the financing for the merger is not assured, we are unable to
assure you that InSight Holdings will be able to obtain the financing required
to complete the merger. If InSight Holdings is unable to obtain the necessary
financing, the merger will not be completed and, as a result, you will remain
an InSight stockholder.
The terms of this financing are discussed in greater detail on page 29 of
this proxy statement. You are encouraged to read this information carefully.
10
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements are subject to risks and uncertainties and are based on the
beliefs and assumptions of management of InSight, InSight Holdings and JWCH
Merger Corp., based on information currently available to each company's
management. When we use words such as "believes," "expects," "anticipates,"
"intends," "plans," "estimates," "should," "likely" or similar expressions, we
are making forward-looking statements. Forward-looking statements include
statements by InSight, InSight Holdings and JWCH Merger Corp. concerning the
expectations, beliefs, future plans and strategies, anticipated developments
and other matters that are not historical facts.
Our management cautions the reader that the actual results or experience
could differ materially from the forward-looking statements as a result of many
factors, including, but not limited to:
. the availability of financing;
. limitations and delays in reimbursement of third-party payors;
. contract renewals and financial stability of customers;
. conditions within the healthcare environment;
. adverse utilization trends for certain diagnostic imaging procedures;
. InSight's inability to successfully integrate acquisitions;
. failure by InSight, InSight Holdings and JWCH Merger Corp. to complete
the merger on a timely basis or at all;
. the inaccuracy of financial, regulatory and market trends considered by
InSight and our advisors in evaluating the merger;
. competition in our markets;
. the potential for rapid and significant changes in technology and their
effect on our operations;
. operating, legal, governmental and regulatory risks; and
. economic, political and competitive forces affecting our businesses and
our analysis of these forces.
In addition, these risks and uncertainties include those uncertainties and
risks set forth in the reports InSight files with the Securities and Exchange
Commission and those that are identified, among other places, under "Risk
Factors Relating to the Merger" and "The Merger--Reasons for the Merger."
You should consider the cautionary statements contained or referred to in
this section in connection with any subsequent written or oral forward-looking
statements that may be issued by InSight, InSight Holdings or JWCH Merger Corp.
or persons acting on their behalf. Neither InSight, InSight Holdings nor JWCH
Merger Corp. undertakes any obligation to release publicly any revisions to any
forward-looking statements contained in this proxy statement to reflect events
or circumstances after the date of this document or to reflect the occurrence
of unanticipated events.
11
THE SPECIAL MEETING
We are furnishing this proxy statement to InSight stockholders as part of
the solicitation of proxies by the InSight board of directors for use at the
special meeting.
Date, Time and Place
The special meeting will be held at , at a.m.,
local time, on , 2001.
Purpose of the Special Meeting
At the special meeting, the InSight stockholders will be asked to consider
and vote upon proposals to approve:
. the merger agreement, which provides that:
(a) JWCH Merger Corp will be merged with and into InSight, with InSight
surviving the merger; and
(b) each issued and outstanding share of InSight common stock will be
converted into and represent the right to receive $18 in cash; and
. any other matters that are properly brought before the InSight special
meeting or any adjournment or postponement of the meeting.
Record Date; Stockholders Entitled to Vote; Quorum
Only holders of record of InSight common stock and preferred stock at the
close of business on , 2001, the record date, are entitled to notice
of and to vote at the special meeting. On the record date, shares of
InSight common stock (including shares of InSight preferred stock on an as-if-
converted basis) and shares of InSight Series D preferred stock were
issued and outstanding and held by approximately and holders of
record, respectively. A quorum is present at the special meeting for purposes
of the vote of the holders of InSight common stock if a majority of the total
number of shares of outstanding InSight common stock and preferred stock (with
the preferred stock voting on an as-if-converted basis) which are issued and
outstanding and entitled to vote on the record date are represented in person
or by proxy. Shares of InSight common stock represented at the special meeting
but not voting, including abstentions and broker non-votes, will be treated as
present at the special meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business. If a quorum is not
present at the special meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies. Holders of record of
InSight common stock and preferred stock on the record date are entitled to
one vote per share of common stock (with the preferred stock voting on an as-
if-converted basis) at the special meeting.
The Board of Directors Recommendation
The InSight board of directors has determined that the merger is advisable
and fair to, and in the best interests of, InSight stockholders, has
unanimously approved the merger agreement and the merger, and unanimously
recommends that the InSight stockholders vote FOR adoption of the merger
agreement.
Vote Required
The approval of the merger agreement will require the affirmative vote of
the holders of a majority of the outstanding shares of InSight common stock
and preferred stock, as of the record date, voting as a single class, with the
holders of InSight preferred stock voting on an as-if-converted basis.
If you abstain from voting or do not vote, either in person or by proxy, it
will have the effect of a vote against adoption of the merger agreement.
12
Executive Officers and Directors Voting
On the record date, directors and executive officers of InSight beneficially
owned approximately % of the outstanding shares of InSight common stock
(assuming the conversion of InSight preferred stock into common stock). Each of
our directors and executive officers has advised us that he or she intends to
vote all shares of InSight capital stock over which he or she has or shares
voting control FOR adoption of the merger agreement.
Voting Agreements
On June 29, 2001, each of General Electric Company, GE Fund and various
entities affiliated with The Carlyle Group, which collectively beneficially
owned approximately % of the outstanding InSight common stock (on an as-if-
converted basis) as of the record date, entered into a voting agreement with
InSight Holdings and JWCH Merger Corp. pursuant to which they have agreed,
subject to the terms and conditions of the voting agreement, to vote the shares
of InSight capital stock they beneficially own FOR adoption of the merger
agreement. The voting agreements are attached hereto as Annex III. Each of
General Electric Company, GE Fund and the various entities affiliated with The
Carlyle Group have also granted irrevocable proxies, including a power of
attorney, to InSight Holdings to vote its shares FOR adoption of the merger
agreement. Pursuant to the voting agreements, each of General Electric Company,
GE Fund and the various entities affiliated with The Carlyle Group agreed to
convert the InSight preferred stock they own into InSight Series D preferred
stock prior to the record date, which has been completed. Such stockholders
also agreed to further convert such Series D preferred stock into common stock
prior to the consummation of the merger. The effect of the voting agreements
described above is that the holders of a majority of the shares of InSight
common stock (including the InSight preferred stock voting on an as-if-
converted basis) have agreed to vote for adoption of the merger agreement.
Voting of Proxies
All shares which are entitled to vote and are represented by properly
executed proxies received prior to or at the special meeting, and not revoked,
will be voted at the special meeting in the manner indicated on the proxies.
Properly executed proxies that do not contain voting instructions will be voted
FOR adoption of the merger agreement.
Only shares voted for adoption of the merger agreement, including properly
executed proxies that do not contain voting instructions, will be counted as
favorable votes for adoption of the merger agreement. If you abstain from
voting or do not vote, either in person or by proxy, it will count as a vote
against adoption of the merger agreement. Brokers who hold shares of common
stock in street name for customers who are the beneficial owners of such shares
may not give a proxy to vote those customers' shares in the absence of specific
instructions from those customers. Those non-voted shares are referred to as
broker non-votes and count as votes against adoption of the merger agreement.
Thus, if your shares are held in street name and you do not instruct your
broker how to vote your shares, your shares will count as votes against
adoption of the merger agreement.
We do not expect that any matter other than the proposal to adopt the merger
agreement will be brought before the special meeting. If, however, the InSight
board of directors properly presents other matters, the persons named as
proxies will vote on those other matters in accordance with their judgment. In
addition, the persons named as proxies may propose and vote for one or more
adjournments or postponements of the special meeting, including adjournments or
postponements to permit further solicitation of proxies. No proxy voted against
the proposal to adopt the merger agreement will be voted in favor of any
adjournment or postponement.
13
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude you
from voting in person at the special meeting. You may revoke a proxy at any
time by:
. filing with the Secretary of InSight, before the proxy is voted at the
special meeting, a duly executed written notice of revocation of proxy
which is dated later than the proxy;
. before the proxy is voted at the special meeting, submitting a duly
executed later-dated proxy to the Secretary of InSight; or
. voting in person at the special meeting, although attendance at the
special meeting will not itself constitute revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
InSight Health Services Corp., 4400 MacArthur Blvd, Suite 800, Newport Beach,
California 92660, Attention: Secretary, or hand delivered to the Secretary of
InSight at or before the taking of the vote at the special meeting.
Solicitation of Proxies
Proxies for use at the special meeting are being solicited by the InSight
board of directors. Proxies will be solicited principally by mail. The entire
cost of the solicitation of proxies will be borne by InSight, including
expenses in connection with preparing, assembling and mailing the proxy
solicitation materials and all papers accompanying them. InSight will reimburse
brokers or other persons holding our common stock in their name or in the names
of their nominees for the benefit of other beneficial owners for their expenses
in sending proxies and proxy materials to beneficial owners. In addition to
solicitation by mail, certain directors, officers and regular employees of
InSight, who will receive no special compensation for their services, may
solicit proxies personally or by telephone or facsimile.
Please do not send stock certificates with your proxy. A transmittal form
with instructions for tendering InSight capital stock certificates will be
mailed to you as soon as practicable after completion of the merger.
14
THE COMPANIES
InSight
InSight provides diagnostic imaging, treatment and related management
services in 28 states throughout the United States. InSight's services are
provided through a network of:
. 78 mobile magnetic resonance imaging, or MRI, facilities;
. 38 fixed-site MRI facilities;
. 27 multi-modality imaging centers;
. four mobile lithotripsy facilities;
. three mobile positron emission tomography facilities
. one Leksell Stereotactic Gamma Knife treatment center;
. one positron emission tomography fixed-site facility; and
. one radiation oncology center.
An additional radiation oncology center is operated by InSight as part of one
of its multi-modality imaging centers. InSight's operations are located
throughout the United States, with a substantial presence in California, Texas,
New England, North Carolina, South Carolina and the Midwest (Illinois, Indiana
and Ohio).
At our multi-modality imaging centers, InSight offers other services in
addition to MRI, including computed tomography, diagnostic and fluoroscopic x-
ray, mammography, diagnostic ultrasound, nuclear medicine, bone densitometry,
nuclear cardiology and cardiovascular services. InSight offers additional
services through a variety of arrangements, including equipment rental,
technologist services, marketing, radiology management services, and billing
and collection services.
The mailing address of our principal executive offices is 4400 MacArthur
Blvd., Suite 800, Newport Beach, California 92660, and the telephone number is
(949) 476-0733.
InSight Holdings and JWCH Merger Corp.
InSight Holdings and JWCH Merger Corp. were incorporated under the laws of
the State of Delaware solely for the purpose of acquiring InSight. J.W. Childs
Equity Partners II, L.P. and certain of its affiliates own approximately 80% of
the common stock of InSight Holdings and Halifax Capital Partners, L.P. and
certain of its affiliates own approximately 20% of the common stock of InSight
Holdings. JWCH Merger Corp., which is a wholly-owned subsidiary of InSight
Holdings, will be merged with and into InSight and InSight will be the
surviving corporation. As a result of the merger, InSight will become a wholly-
owned subsidiary of InSight Holdings.
Investor Group
J.W. Childs Associates, L.P., a Boston-based private investment firm,
manages $1.5 billion of institutional private equity through J.W. Childs Equity
Partners, L.P. and J.W. Childs Equity Partners II, L.P. J.W. Childs' investment
strategy is to leverage the operating and financial experience of its partners
and to invest, along with management, in middle-market growth companies. J.W.
Childs Associates' principal executive offices are located at One Federal
Street, 21st Floor, Boston, Massachusetts 02110. J.W. Childs Associates is a
Delaware limited partnership.
The Halifax Group, L.L.C., a private equity limited liability company with
$200 million under management, operates from offices in Washington, D.C., Fort
Worth, Texas, Los Angeles, California, and Raleigh, North Carolina. Halifax was
launched in January 1999 to capitalize on opportunities for equity
15
investments in small and mid cap companies. Halifax primarily focuses on
domestic investment opportunities, and has a national presence providing access
to companies with a strong regional or broader U.S. base. Halifax selects
investments with sustainable long-term growth opportunities and compelling
long-term value propositions. The partners of Halifax have numerous years of
experience as principal investors, having worked with some of the most
successful and reputable investment funds in the industry. Halifax leverages
off of its investment team's experience and resources, and those of its
affiliate funds Texas Pacific Group and Colony Capital. Halifax's principal
executive offices are located at 1133 Connecticut Avenue, N.W., Suite 700,
Washington, D.C. 20036, and 201 Main Street, Suite 2420, Fort Worth, Texas
76102. Halifax is a Delaware limited liability company.
16
THE MERGER
The following discussion summarizes the material terms of the merger. While
we believe that the description covers the material terms of the merger, this
summary may not contain all of the information that is important to you. We
urge stockholders to read this proxy statement, the merger agreement and the
other documents referred to herein carefully for a more complete understanding
of the merger.
General
The merger will be completed if the required approvals of the InSight
stockholders are obtained and all other conditions contained in the merger
agreement are satisfied or waived. Upon completion of the merger, JWCH Merger
Corp. will be merged with and into InSight. InSight will survive the merger,
becoming a wholly-owned subsidiary of InSight Holdings, and the separate
corporate existence of JWCH Merger Corp. will cease. In the merger, each issued
and outstanding share of InSight common stock will be converted into the right
to receive $18 in cash, without interest. Each outstanding warrant and option
to purchase InSight common stock will be canceled and thereafter represent the
right to receive the excess, if any, of the difference between $18 per share
and the warrant's or option's, as applicable, per share exercise price.
The merger agreement provides that each share of InSight preferred stock
will be converted into a share of InSight common stock immediately prior to the
completion of the merger. Accordingly, if you hold InSight preferred stock, you
will receive the same per share consideration as the holders of InSight common
stock.
Background to the Merger
At a meeting of the InSight board of directors on October 10, 2000, in
connection with its review of InSight's business plan, the board discussed
InSight's future prospects and the ongoing consolidation occurring in the
diagnostic imaging industry. The InSight board of directors also discussed
various strategic alternatives, including the public or private sale of equity
securities, obtaining additional debt financing, the sale of InSight and a
merger with a company seeking to expand its healthcare services. In reviewing
these strategic alternatives, the InSight board of directors also considered
the amount of capital necessary for InSight to expand its operations and the
lack of an active public market for InSight common stock.
On November 14, 2000, the InSight board of directors authorized three
members of the board and InSight's Chief Financial Officer to interview
potential financial advisors to assist InSight in identifying and evaluating
strategic alternatives.
On December 5, 2000, the InSight board of directors appointed a special
committee of directors, consisting of Frank E. Egger (chairman of the InSight
board of directors), Jerome C. Marcus (the board member designated by General
Electric Company) and W. Robert Dahl (a board member designated by The Carlyle
Group) (or Glenn A. Youngkin (a board member designated by The Carlyle Group),
in the absence of Mr. Dahl), to negotiate an engagement letter with a financial
advisor, evaluate and negotiate proposals or offers involving the purchase or
other acquisition of InSight capital stock or a business combination with
InSight and provide progress reports to the InSight board of directors.
On February 1, 2001, InSight publicly announced that it had retained UBS
Warburg LLC as its exclusive financial advisor to assist InSight in exploring
strategic alternatives to enhance stockholder value, including through a
merger, sale or recapitalization of InSight.
Beginning on February 3, 2001, 63 potential buyers, both strategic and
financial, were contacted, including J.W. Childs and Halifax. Forty-two of the
potential buyers (35 financial buyers, including J.W. Childs and Halifax, and
seven strategic buyers) executed confidentiality agreements with InSight.
InSight delivered a confidential information memorandum to each potential buyer
that had executed a confidentiality agreement.
During February 2001, InSight management held discussions with each of the
potential buyers that had executed a confidentiality agreement concerning
InSight's business, operations and financial condition.
17
In mid-March 2001, InSight received 13 preliminary indications of interest,
all of which were submitted by financial buyers. Each preliminary indication of
interest proposed a cash merger, with per share purchase prices ranging from
approximately $13 to $23 per share of InSight common stock.
After consultation with InSight management and UBS Warburg, the InSight
special committee authorized InSight management and UBS Warburg to pursue
discussions with seven of the potential buyers. In reaching its decision, the
InSight special committee considered various factors, including:
. the size of the investment funds managed by each of the potential
buyers;
. the reputation of each of the potential buyers;
. each potential buyer's ability to finance an acquisition; and
. the terms set forth in each preliminary indication of interest,
including the per share purchase price.
By March 16, 2001, each of the seven potential buyers were contacted and
informed of the process for conducting due diligence and submitting future
proposals.
On March 20, 2001, the seven potential buyers began attending management
presentations at InSight and, together with their financial and legal advisors,
commenced due diligence. An eighth potential buyer, a strategic buyer, began
due diligence on April 23, 2001. The preliminary due diligence process ended on
May 4, 2001.
On May 4, 2001, InSight received revised proposals from two potential
buyers, including a proposal from J.W. Childs and Halifax. The J.W. Childs and
Halifax proposal provided for a purchase price of not less than $17.00 per
share of InSight capital stock. With their proposal, J.W. Childs and Halifax
submitted preliminary financing commitment letters and written comments to the
draft merger agreement prepared by InSight's legal advisors. The J.W. Childs
and Halifax proposal also stated that each group would need to conduct further
due diligence.
The second proposal was submitted by another financial buyer, but did not
attach financing commitments or contain comments to the draft merger agreement.
The other potential buyers, including the strategic buyer, indicated that they
were no longer interested in pursuing an acquisition of InSight.
On May 7, 2001, the InSight board of directors met to discuss the terms and
conditions of each proposal. Following discussion, the InSight board of
directors authorized InSight management and UBS Warburg to further negotiate
the terms of the proposals submitted by J.W. Childs and Halifax and the other
potential buyer.
On May 10 and May 11, 2001, at a meeting of the InSight board of directors,
InSight management and UBS Warburg informed the board that J.W. Childs and
Halifax had revised their proposal to provide for a purchase price of not less
than $18.00 per share of InSight capital stock. UBS Warburg also informed the
InSight board of directors that J.W. Childs and Halifax had indicated that they
would not proceed with a transaction unless InSight agreed to negotiate a
transaction exclusively with J.W. Childs and Halifax for a certain period of
time. After discussion, the InSight board of directors authorized InSight
management and InSight's legal and financial advisors to negotiate the terms of
an exclusivity agreement with J.W. Childs and Halifax.
From May 10 through May 14, 2001, InSight management and InSight's legal and
financial advisors had numerous conversations with J.W. Childs and Halifax
concerning the exclusivity agreement.
On May 14, 2001, a meeting of the InSight board of directors was held to
consider the exclusivity agreement proposed by J.W. Childs and Halifax. After
discussion, the InSight board of directors authorized InSight management to
execute the exclusivity agreement, which was executed on May 14, 2001. The
exclusivity agreement provided for, among other things (including limited
expense reimbursement and breakup fee provisions), an obligation to exclusively
negotiate with J.W. Childs and Halifax through June 8, 2001 (with a one week
extension at the option of J.W. Childs and Halifax), except in limited
circumstances. This exclusivity period was subsequently extended through June
29, 2001, as discussed below.
18
From May 14 through June 29, 2001, J.W. Childs and Halifax and their legal,
accounting, financial and other advisors continued to conduct due diligence.
At two separate meetings held on May 21, 2001 and June 11, 2001, the InSight
board of directors further evaluated and discussed the J.W. Childs and Halifax
proposal. At these meetings, the InSight board of directors also considered
other strategic alternatives with InSight management and UBS Warburg, including
equity financing alternatives and a recapitalization.
On May 31, 2001, J.W. Childs and Halifax met with InSight senior management
to discuss their potential involvement in InSight following the closing of the
proposed merger.
On June 15, 2001, the InSight special committee held a meeting at which
InSight management discussed the progress of negotiations with J.W. Childs and
Halifax on the merger agreement and the status of J.W. Childs' and Halifax's
due diligence. The InSight special committee also discussed J.W. Childs' and
Halifax's request to extend the exclusivity period provided for in the
exclusivity agreement. After discussion, the InSight special committee
authorized the extension of the exclusivity period to June 20, 2001.
From June 12 through June 15, 2001, representatives of InSight, together
with its legal advisors, held numerous conference calls with J.W. Childs' and
Halifax's legal advisors to discuss and negotiate the terms and conditions of
the merger agreement.
From June 19 through June 21, 2001, representatives of InSight, J.W. Childs
and Halifax, together with their legal advisors, met in person to discuss and
negotiate the terms and conditions of the merger agreement.
On June 20, 2001, the InSight board of directors met to consider a second
request by J.W. Childs and Halifax to extend the exclusivity period provided
for in the exclusivity agreement. Following a discussion with management and
its legal advisors as to the status of the negotiations concerning the merger
agreement, the InSight board of directors agreed to extend the exclusivity
period through June 25, 2001.
On June 25, 2001, the InSight board of directors held a meeting at which
InSight management discussed the status of the negotiation of the merger
agreement and other merger related matters.
On June 27, 2001, following an update as to the status of the negotiations
concerning the merger agreement by InSight management and InSight's legal
advisors, the InSight special committee authorized InSight management to extend
the exclusivity period provided for in the exclusivity agreement until June 29,
2001.
From June 24 through June 28, 2001, representatives of InSight and its legal
advisors held numerous conference calls with the legal advisors of J.W. Childs
and Halifax to finalize the terms and conditions of the merger agreement.
On June 29, 2001, the InSight board of directors held a meeting to discuss
the final terms of the J.W. Childs and Halifax proposal to acquire InSight,
including the terms and conditions of the proposed merger agreement. Prior to
the meeting, each board member received a copy of the proposed merger agreement
and information about the proposed merger and InSight. At the meeting, InSight
management and InSight's legal and financial advisors reviewed various aspects
of the proposed transaction with the board, including:
. the reasons for, and financial overview of, the proposed transaction;
. the potential benefits and risks of approving the merger agreement and
consummating the proposed transaction;
. the principal terms of the merger agreement;
. the future prospects of InSight; and
. the principal terms of the voting agreements between the purchasing
group, General Electric Company, GE Fund and various entities affiliated
with The Carlyle Group.
19
In addition, at the meeting, UBS Warburg reviewed with the InSight board of
directors its financial analysis of the merger consideration and rendered to
the InSight board an oral opinion (which opinion was confirmed by delivery of a
written opinion dated the same date) to the effect that, as of that date and
based on and subject to the assumptions made, procedures followed, matters
considered and limitations on the review undertaken described in its written
opinion, the merger consideration was fair, from a financial point of view, to
the holders of InSight common stock.
Following the presentations, the members of the InSight board of directors
who were elected by the holders of InSight common stock deliberated separately
from the entire board. InSight management and InSight's legal and financial
advisors were available to answer any questions. Following their deliberation,
such members unanimously recommended to the entire InSight board of directors
that the board approve the merger and the merger agreement.
Following discussion, the entire InSight board of directors determined that
the proposed merger was advisable and unanimously approved the merger, the
merger agreement and the voting agreements, and unanimously resolved to
recommend that the InSight stockholders adopt the merger agreement.
The merger agreement and the voting agreements were signed by the parties
after the close of business on June 29, 2001 and, prior to the commencement of
trading on Monday, July 2, 2001, InSight issued a press release announcing the
execution of the merger agreement.
Reasons for the Merger
In reaching its decision to approve the merger agreement and the merger and
to recommend adoption of the merger agreement by the InSight stockholders, the
InSight board of directors consulted with its management, as well as its legal
and financial advisors, and independently considered the proposed merger
agreement and the transactions contemplated by the merger agreement. In
unanimously approving the merger agreement, the InSight board of directors
considered a number of factors, both positive and negative, including, without
limitation, the following:
. current industry, market and economic conditions;
. InSight's business, financial condition, results of operations, assets,
management, competitive position, operating performance and prospects;
. the fact that on February 1, 2001, InSight publicly announced that it
had retained UBS Warburg as its financial advisor to assist InSight in
exploring strategic alternatives to enhance stockholder value, which
increased InSight's visability to potential buyers or other strategic
partners;
. the fact that 63 potential buyers were contacted in a process designed
to elicit third-party proposals to enter into a strategic relationship
with InSight, and that such participants in this process were afforded
ample opportunity to submit proposals to InSight;
. the possibility of strategic alternatives to the merger for enhancing
long-term stockholder value, including investigating strategic
transactions with other companies;
. the merger consideration;
. the market price of InSight common stock over the last several years and
the potential for an increase or decrease in the market price of InSight
common stock in the future;
. the opinion dated June 29, 2001 of UBS Warburg, InSight's financial
advisor, as to the fairness, from a financial point of view and as of
that date, of the merger consideration to be received by the holders of
InSight common stock, as more fully described below under "Opinion of
InSight's Financial Advisor;"
. the terms and conditions of the merger agreement, including the
termination fees and the closing conditions;
. the impact of the merger on InSight's customers, suppliers and
employees;
20
. the likelihood of the merger being approved by the appropriate
regulatory authorities;
. the likelihood that the merger will be completed;
. the risk that, despite InSight's efforts after the merger, InSight may
lose key personnel; and
. the likelihood that InSight Holdings would be able to obtain the
financing necessary to complete the merger.
The above discussion of the factors considered by the InSight board of
directors is not intended to be exhaustive. Given the variety and number of
factors considered in connection with its evaluation of the merger, the InSight
board of directors did not assign specific weight to the factors reviewed in
reaching its determination, although certain factors were deemed to be more
important than others.
Opinion of InSight's Financial Advisor
On June 29, 2001, at a meeting of the InSight board of directors held to
evaluate the proposed merger, UBS Warburg delivered to the InSight board of
directors an oral opinion, which opinion was confirmed by delivery of a written
opinion dated the same date, to the effect that, as of that date and based on
and subject to various assumptions, matters considered and limitations
described in the opinion, the merger consideration was fair, from a financial
point of view, to the holders of InSight common stock.
The full text of UBS Warburg's opinion describes the assumptions made,
procedures followed, matters considered and limitations on the review
undertaken by UBS Warburg. This opinion is attached as Annex II and is
incorporated into this document by reference. UBS Warburg's opinion is directed
only to the fairness, from a financial point of view, of the merger
consideration and does not address any other aspect of the merger or any
related transaction. The opinion does not address InSight's underlying business
decision to effect the merger or constitute a recommendation to any stockholder
as to how to vote with respect to any matters relating to the proposed merger.
Holders of InSight common stock are encouraged to read this opinion carefully
in its entirety. The summary of UBS Warburg's opinion described below is
qualified in its entirety by reference to the full text of its opinion.
In arriving at its opinion, UBS Warburg:
. reviewed current and historical market prices and trading volumes of
InSight common stock;
. reviewed publicly available business and historical financial
information relating to InSight;
. reviewed internal financial information and other data relating to the
business and financial prospects of InSight, including estimates and
financial forecasts prepared by InSight's management, that were provided
to or discussed with UBS Warburg by InSight and were not publicly
available;
. conducted discussions with members of InSight's senior management;
. reviewed publicly available financial and stock market data with respect
to companies in lines of business UBS Warburg believed to be generally
comparable to those of InSight;
. compared the financial terms of the merger with the publicly available
financial terms of other transactions which UBS Warburg believed to be
generally relevant;
. reviewed the agreement; and
. conducted other financial studies, analyses and investigations, and
considered other information, as UBS Warburg deemed necessary or
appropriate.
In connection with its engagement, UBS Warburg was requested to contact, and
held discussions with, third parties to solicit indications of interest in the
possible acquisition of InSight. In connection with its review, with InSight's
consent, UBS Warburg did not assume any responsibility for independent
verification of any of the information that UBS Warburg was provided or
reviewed for the purpose of its opinion and, with InSight's
21
consent, UBS Warburg relied on that information being complete and accurate in
all material respects. In addition, at InSight's direction, UBS Warburg did not
make any independent evaluation or appraisal of any of the assets or
liabilities, contingent or otherwise, of InSight, and was not furnished with
any evaluation or appraisal. With respect to the financial forecasts and
estimates that it reviewed, UBS Warburg assumed, at InSight's direction, that
they were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of InSight's management as to the future
financial performance of InSight. UBS Warburg's opinion is necessarily based on
economic, monetary, market and other conditions existing, and information
available to UBS Warburg, on the date of its opinion.
At InSight's direction, UBS Warburg was not asked to, and did not, offer any
opinion as to the terms or obligations of the merger agreement or related
documents, or the form of the merger. In rendering its opinion, UBS Warburg
assumed, at InSight's direction, that each of InSight, InSight Holdings and
JWCH Merger Corp. would comply with all material covenants and agreements set
forth in, and other material terms of, the merger agreement and related
documents and that the merger would be consummated in accordance with its
terms, without waiver, modification or amendment of any material term,
condition or agreement. Except as described above, InSight imposed no other
instructions or limitations on UBS Warburg with respect to the investigations
made or the procedures followed by UBS Warburg in rendering its opinion.
In connection with rendering its opinion to the InSight board of directors,
UBS Warburg performed a variety of financial and comparative analyses that are
summarized below. The following summary is not a complete description of all of
the analyses performed and factors considered by UBS Warburg in connection with
its opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. With respect to the analysis of selected
publicly traded companies and the analysis of selected transactions summarized
below, no company or transaction used as a comparison is either identical or
directly comparable to InSight or the merger. These analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the public trading or acquisition values of
the companies concerned.
UBS Warburg believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors
or focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying UBS Warburg's
analyses and opinion. None of the analyses performed by UBS Warburg was
assigned greater significance by UBS Warburg than any other. UBS Warburg
arrived at its ultimate opinion based on the results of all analyses undertaken
by it and assessed as a whole. UBS Warburg did not draw, in isolation,
conclusions from or with regard to any one factor or method of analysis.
The estimates of InSight's future performance provided by InSight's
management in or underlying UBS Warburg's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than those estimates. In performing its analyses, UBS Warburg
considered industry performance, general business and economic conditions and
other matters, many of which are beyond InSight's control. Estimates of the
financial value of companies do not purport to be appraisals or reflect the
prices at which companies actually may be sold.
The merger consideration was determined through negotiation between InSight
and InSight Holdings and the decision to enter into the merger was solely that
of the InSight board of directors. UBS Warburg's opinion and financial analyses
were only one of many factors considered by the InSight board of directors in
its evaluation of the merger and should not be viewed as determinative of the
views of the InSight board of directors or management with respect to the
merger or the merger consideration.
The following is a brief summary of the material financial analyses
performed by UBS Warburg and reviewed with the InSight board of directors in
connection with its opinion dated June 29, 2001. The financial analyses
summarized below include information presented in tabular format. In order to
fully understand UBS Warburg's financial analyses, the tables must be read
together with the text of each
22
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data in the tables below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of UBS Warburg's financial analyses.
Selected Companies Analysis
UBS Warburg compared selected financial information and operating statistics
for InSight with corresponding financial information and operating statistics
of Radiologix, Inc. and HealthSouth Corporation, two selected publicly held
companies in the diagnostic imaging industry. Multiples for the selected
companies were based on closing stock prices on June 28, 2001. Estimated
financial data for the selected companies were based on publicly available
research analysts' estimates. Estimated financial data for InSight were based
on internal estimates of InSight's management.
UBS Warburg reviewed enterprise values, calculated as equity value, plus
debt, less cash, plus minority interests, as multiples of latest 12 months
revenues, earnings before interest, taxes, depreciation and amortization,
commonly known as EBITDA, earnings before interest, taxes and amortization,
commonly known as EBITA, and earnings before interest and taxes, commonly known
as EBIT. UBS Warburg also reviewed equity values as a multiple of latest 12
months and estimated calendar years 2001 and 2002 net income. In reviewing
InSight's estimated calendar years 2001 and 2002 net income, UBS Warburg
utilized internal estimates of InSight's management based on two scenarios, one
which takes into account potential start-up ventures and center acquisitions
that may be undertaken by InSight (referred to as the management plan with
acquisitions), and one which does not give effect to potential start-up
ventures and center acquisitions (referred to as the management plan without
acquisitions). UBS Warburg did not consider separately the results for each of
the two scenarios, but rather considered the results of this analysis taken as
a whole. UBS Warburg then compared the multiples derived from the selected
companies with corresponding multiples for InSight based on the merger
consideration. Financial statistics that were not meaningful due to operating
losses have been designated below as "nm." This analysis indicated the
following implied low and high enterprise and equity value multiples for the
selected companies, as compared to the multiples implied for InSight based on
the merger consideration:
Implied
Multiples Implied
of Selected Multiples for
Companies InSight Based
----------- on Merger
Enterprise Values as Multiples of: Low High Consideration
---------------------------------- ----- ----- -------------
Revenues
Latest 12 months................................. 0.97x 2.21x 1.92x
EBITDA
Latest 12 months................................. 4.0x 8.1x 5.2x
EBITA
Latest 12 months................................. 5.7x 10.2x 9.3x
EBIT
Latest 12 months................................. 6.3x 11.8x 10.9x
Equity Values as Multiple of:
-----------------------------
Net Income
Latest 12 months.................................. 3.8x 21.5x 15.7x
Estimated calendar year 2001...................... nm 19.3x
Management plan with acquisitions............... 13.5x
Management plan without acquisitions............ 13.6x
Estimated calendar year 2002...................... nm 16.7x
Management plan with acquisitions............... 8.2x
Management plan without acquisitions............ 10.3x
23
Precedent Transactions Analysis
UBS Warburg reviewed the implied enterprise and equity values in the
following eight selected transactions in the diagnostic imaging industry:
Acquiror Target
- -------- ------
Saunders Karp & Megrue, L.P. Radiologix, Inc.
Kohlberg Kravis Roberts & Co., Ltd. Alliance Imaging, Inc.
Radiologix, Inc. Questar Imaging, Inc.
Newport Investment LLC, Apollo
Management, L.P. Alliance Imaging, Inc.
Three Rivers Acquisition Corp.,
Apollo Management, L.P. SMT Health Services, Inc.
HealthSouth Corporation Health Images, Inc.
U.S. Diagnostic Labs Inc. Medical Imaging Centers of America, Inc.
Health Images, Inc. MedAlliance, Inc.
Except in the case of the transaction involving Kohlberg Kravis Roberts &
Co., Ltd. and Alliance Imaging, Inc., UBS Warburg reviewed enterprise values as
multiples of latest 12 months revenues, EBITDA, EBITA and EBIT, and equity
values as a multiple of latest 12 months net income. In the case of the
transaction involving Kohlberg Kravis Roberts & Co., Ltd. and Alliance Imaging,
Inc., UBS Warburg reviewed the enterprise value of Alliance Imaging, Inc. as
multiples of second quarter annualized revenues, EBITDA, EBITA and EBIT, and
its equity value as a multiple of second quarter annualized net income in order
to reflect the financial statistics of Alliance Imaging, Inc. after giving
effect to an acquisition which it consummated prior to the closing of its
transaction with Kohlberg Kravis Roberts & Co., Ltd. UBS Warburg then compared
the implied multiples derived from the selected transactions with InSight's
latest 12 months multiples based on the merger consideration. All multiples
were based on publicly available information at the time of announcement of the
relevant transaction. This analysis indicated the following implied low, mean,
median and high enterprise and equity value multiples for the selected
transactions, as compared to the multiples implied for InSight based on the
merger consideration:
Implied
Implied Multiples Multiples of
of Selected Transactions InSight Based
------------------------ on Merger
Enterprise Values as Multiples of: Low Mean Median High Consideration
- ---------------------------------- ----- ----- ------ ----- -------------
Latest 12 months
Revenues............................... 1.22x 2.49x 2.40x 4.60x 1.92x
EBITDA................................. 3.5x 6.1x 6.3x 9.3x 5.2x
EBITA.................................. 7.0x 10.1x 10.1x 13.2x 9.3x
EBIT................................... 7.7x 10.8x 10.6x 14.3x 10.9x
Equity Values as Multiple of:
- -----------------------------
Latest 12 months
Net income............................. 9.0x 18.1x 18.5x 28.5x 15.7x
Premiums Paid Analysis
UBS Warburg reviewed the premiums paid in six selected transactions in the
diagnostic imaging industry. UBS Warburg reviewed the purchase prices paid in
the selected transactions relative to the target company's closing stock prices
one day, one week, one month and three months prior to public announcement of
the transaction. UBS Warburg also reviewed the purchase prices paid in the
selected transactions relative to the target company's average closing stock
prices one week, one month and three months prior to public announcement of the
transaction. UBS Warburg then compared the premiums implied in the selected
transactions over these specified periods with the premiums implied in the
merger based on the merger consideration and the closing prices of InSight
common stock one week, one month and three months, and the
24
average closing prices of InSight common stock one month and three months,
prior to February 1, 2001 (the date on which InSight publicly announced that it
was evaluating strategic alternatives) and June 29, 2001 (the last trading day
prior to public announcement of the merger). This analysis indicated the
following implied low, mean, median and high premiums in the selected
transactions, as compared to the premiums implied in the merger:
Percentage Premium
Paid Premium Implied in Merger
------------------------ --------------------------
Specified Period Low Mean Median High Feb. 1, 2001 June 29, 2001
- ---------------- ---- ---- ------ ----- ------------ -------------
One day prior.............. 4.4% 23.4% 8.7% 83.3% 71.4% 6.3%
One week prior............. 2.2% 48.8% 23.0% 142.4% 105.7% 2.3%
One month prior............ 8.0% 48.5% 24.5% 140.4% 118.2% 6.5%
Three months prior......... 22.1% 62.8% 49.1% 129.2% 111.8% 50.0%
Percentage Premium
Paid Based on Average
Closing Share Price Premium Implied in Merger
------------------------ --------------------------
Specified Period Low Mean Median High Feb. 1, 2001 June 29, 2001
- ---------------- ---- ---- ------ ----- ------------ -------------
One week prior............. 3.6% 40.0% 21.5% 96.1% 93.7% 3.9%
One month prior............ 3.7% 44.1% 21.4% 130.5% 110.1% 6.0%
Three months prior......... 14.4% 50.6% 26.6% 129.8% 108.4% 16.5%
UBS Warburg also reviewed the premiums paid in 14 selected public to private
transactions and 38 public cash transactions announced between April 1, 2000
and June 28, 2001 with transaction values of greater than $250 million. UBS
Warburg reviewed the purchase prices paid in the selected transactions relative
to the target company's closing stock prices one day, one week and one month
prior to public announcement of the transaction. UBS Warburg also reviewed the
purchase prices paid in the selected transactions relative to the target
company's average closing stock prices one week and one month prior to public
announcement of the transaction. UBS Warburg then compared the premiums implied
in the selected transactions over these specified periods with the premiums
implied in the merger based on the merger consideration and the closing prices
of InSight common stock one day, one week and one month, and the average
closing prices of InSight common stock one week and one month, prior to
February 1, 2001 and June 29, 2001. This analysis indicated the following
implied mean premiums in the selected transactions, as compared to the premiums
implied in the merger:
Mean Percentage Premium Paid Premium Implied in Merger
------------------------------ --------------------------
Public to Private Public Cash
Specified Period Transactions Transactions Feb. 1, 2001 June 29, 2001
- ---------------- ----------------- ------------ ------------ -------------
One day prior........ 28.1% 39.9% 71.4% 6.3%
One week prior....... 33.4% 48.2% 105.7% 2.3%
One month prior...... 41.8% 51.5% 118.2% 6.5%
Mean Percentage Premium Paid
Based on Average Closing Share
Price Premium Implied in Merger
------------------------------ --------------------------
Public to Private Public Cash
Specified Period Transactions Transactions Feb. 1, 2001 June 29, 2001
- ---------------- ----------------- ------------ ------------ -------------
One week prior....... 26.6% 37.1% 93.7% 3.9%
One month prior...... 34.1% 46.6% 110.1% 6.0%
Discounted Cash Flow Analysis
UBS Warburg performed a discounted cash flow analysis to estimate the
present value of the unlevered, after-tax free cash flows that InSight could
generate over estimated calendar years 2002 through 2006 based both on the
management plan with acquisitions and the management plan without acquisitions.
UBS Warburg calculated a range of estimated terminal values for InSight by
applying terminal value multiples of 3.5x to 5.0x to InSight's estimated
calendar year 2006 EBITDA. The cash flows and terminal values were then
discounted
25
to present value using discount rates ranging from 16.0% to 20.0% in the case
of the management plan with acquisitions and 12.0% to 16.0% in the case of the
management plan without acquisitions. This analysis indicated an implied equity
reference range for InSight of approximately $12.07 to $37.92 per share in the
case of the management plan with acquisitions and approximately $11.62 to
$25.97 per share in the case of the management plan without acquisitions, as
compared to the merger consideration of $18.00 per share. UBS Warburg did not
consider separately the results for each of the two scenarios, but rather
considered the results of this analysis taken as a whole.
UBS Warburg also performed a sensitivity analysis with respect to its
discounted cash flow analysis utilizing adjustments to the management plan with
acquisitions and the management plan without acquisitions to reflect the
potential for reduced revenue growth, increased general and administrative
expense as a percentage of sales and, in the case of the management plan with
acquisitions, an increased EBITDA multiple relating to center acquisitions. For
purposes of this analysis, UBS Warburg applied to InSight's estimated 2006
EBITDA a terminal value multiple of 4.5x in the case of both the management
plan with acquisitions and the management plan without acquisitions, and
discount rates of 18.0% in the case of the management plan with acquisitions
and 14% in the case of the management plan without acquisitions. This analysis
indicated a potential decrease in the per share value implied in the discounted
cash flow analysis based on the management plan with acquisitions of
approximately $10.44 per share in the case of revenue, $1.33 per share in the
case of general and administrative expenses as a percentage of sales, $1.77 per
share in the case of center acquisitions and $13.31 per share in the case of
all three factors combined. This analysis also indicated a potential decrease
in the per share value implied in the discounted cash flow analysis based on
the management plan without acquisitions of approximately $4.44 per share in
the case of revenue, $0.61 per share in the case of general and administrative
expenses as a percentage of sales and $4.98 per share in the case of the two
factors combined.
Other Factors
In rendering its opinion, UBS Warburg also reviewed and considered other
factors, including:
. the historical price performance and trading volumes for InSight common
stock; and
. the relationship between movements in InSight common stock, movements in
the common stock of selected companies in the diagnostic imaging
industry and movements in both the NASDAQ and Standard and Poors 500
Index.
Miscellaneous
Under the terms of its engagement, InSight has agreed to pay UBS Warburg for
its financial advisory services upon completion of the merger an aggregate fee
based on a percentage of the total consideration, including liabilities
assumed, payable in the merger. The aggregate fee payable to UBS Warburg is
currently estimated to be approximately $2.8 million. InSight also has agreed
to reimburse UBS Warburg for expenses reasonably incurred by UBS Warburg in
performing its services, including fees and expenses of its legal counsel, and
to indemnify UBS Warburg and related persons against liabilities, including
liabilities under the federal securities laws, arising out of its engagement.
UBS Warburg and its affiliates in the past have provided, and currently are
providing, services to J.W. Childs Associates, L.P. unrelated to the proposed
merger, for which services UBS Warburg and its affiliates have received and
will receive customary compensation. UBS Warburg also may participate in the
financing of the merger and in that event would receive customary compensation
in connection with such financing.
InSight selected UBS Warburg as its exclusive financial advisor in
connection with the merger because UBS Warburg is an internationally recognized
investment banking firm with substantial experience in similar transactions.
UBS Warburg is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities and private placements.
26
In the ordinary course of business, UBS Warburg, its successors and
affiliates may actively trade the securities of InSight and affiliates of
InSight Holdings for their own accounts and the accounts of their customers
and, accordingly, may at any time hold a long or short position in these
securities.
Interests of InSight's Directors and Executive Officers in the Merger
In considering the recommendation of the InSight board of directors in favor
of the merger and the merger agreement, you should be aware that certain
directors and executive officers of InSight have interests in the merger that
are different from, or in addition to, the interests of InSight stockholders.
These interests relate to or arise from, among other things:
. the continued indemnification of current directors and officers of
InSight pursuant to the merger agreement;
. the retention of certain executive officers of InSight as employees or
consultants after the merger is completed pursuant to new employment
agreements which, in some cases, provide for increased benefits,
including stock options in InSight Holdings;
. options and warrants held by InSight's directors, executive officers and
employees will become fully vested as a result of the merger;
. certain officers of InSight are parties to employment agreements that
provide for severance payments following a "change in control," such as
the merger, if such officers terminate his or her employment with
InSight; and
. the affiliation of certain of our directors with InSight's major
stockholders.
These interests are described below, and except as described below, those
persons have, to the knowledge of InSight, no material interest in the merger
apart from those of InSight stockholders generally. The InSight board of
directors was aware of, and considered the interests of its employees in
approving the merger agreement and the merger.
Indemnification and Insurance. The merger agreement provides that all rights
of indemnification from liabilities existing in favor of the current and former
directors or officers of InSight and its subsidiaries as provided in InSight's
certificate of incorporation and bylaws and certain indemnification agreements
of InSight will be assumed by the surviving corporation in the merger, and will
continue in full force and effect in accordance with their terms after the
merger. InSight Holdings has also agreed to cause the surviving corporation to
maintain, for six years after the merger, directors' and officers' liability
insurance for acts or omissions which occur prior to the merger for those
directors and officers who were, as of the date of the merger agreement,
covered by the InSight's directors' and officers' liability insurance policy,
on terms no less advantageous than those in effect on the date of the merger
agreement. InSight Holdings' obligation to provide this insurance coverage is
subject to a cap of 175% of the current annual premium paid by InSight for its
existing insurance coverage. If InSight Holdings cannot maintain the existing
or equivalent insurance coverage without exceeding the 175% cap, InSight
Holdings is required to obtain only that amount of insurance coverage which can
be obtained by paying an annual premium equal to the 175% cap.
Our Executive Officers. Most of InSight's current executive officers are
expected to be retained as employees of or consultants to the surviving
corporation after the merger. Upon the closing of the merger, it is expected
that Steven T. Plochocki, who is currently President and Chief Executive
Officer of InSight; Patricia R. Blank, who is currently Executive Vice
President and Chief Information Officer of InSight; Michael A. Boylan, who is
currently Executive Vice President, Operations, Eastern Division of InSight;
Thomas V. Croal, who is currently Executive Vice President and Chief Financial
Officer of InSight; Michael S. Madler, who is currently Executive Vice
President, Operations, Western Division of InSight; Brian G. Drazba, who is
currently Senior Vice President--Finance and Controller of InSight; and Cecilia
A. Guastaferro, who is currently Senior Vice President--Human Resources of
InSight, will each serve in their current capacities with the surviving
corporation.
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Each of the individuals listed above have entered into a new employment
agreement which will be effective upon the closing of the merger. Except for
Mr. Plochocki's agreement, which has a term of three years, each of the
employment agreements provides for rolling twelve month terms. The employment
agreements provide for substantial benefits, including the following:
. a determined annual salary which is subject to annual review by the
InSight board of directors;
. a discretionary bonus, the amount of which, depending upon the
executive, is (a) based upon the recommendation of InSight's President
and Chief Executive Officer, or (b) a percentage of the employee's base
salary and contingent upon InSight attaining certain performance goals;
. the maintenance of a life insurance policy in an amount equal to three
times the amount of the executive's base salary and other benefits
generally offered by InSight;
. in the case of Mr. Plochocki, twenty-four months or, in the case of all
other officers, twelve months of severance payments and the continued
participation in InSight's medical and other benefit plans upon the
termination of executive's employment by (a) InSight without cause or
(b) in some cases, the executive for good reason; and
. the grant of an option to purchase shares of common stock of InSight
Holdings.
In addition, each of InSight's executive officers and certain other officers
are parties to employment agreements that provide for severance payments to
such individuals if such individuals terminate their employment with the
surviving corporation following a change in control. The amount of severance
payment is one or two years base salary depending upon the employee. In
connection with executing the new employment agreements discussed in the
previous paragraph, thirteen of the 16 officers have agreed to forego the right
to receive any severance payment, including Messrs. Plochocki, Boylan, Croal,
Madler and Drazba and Ms. Blank and Ms. Guastaferro. In addition,
Messrs. Plochocki, Boylan, Croal and Madler have entered into stock option
agreements, which are effective upon the closing of the merger, pursuant to
which they have agreed to cancel certain of their options to purchase InSight
common stock in exchange for receiving fully vested options to purchase an
equivalent number of shares of common stock of InSight Holdings.
Employee Benefits. InSight Holdings has agreed to provide InSight employees
with substantially similar benefits currently available to them. With respect
to each benefit in which InSight employees subsequently participate, for
purposes of determining vesting and entitlement to benefits, including for
severance benefits and vacation entitlement, service with InSight will be
treated as service with the surviving corporation. This service will also apply
for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any pre-existing condition limitations.
Each benefit plan of the surviving corporation will waive pre-existing
condition limitations to the extent waived under the applicable InSight benefit
plan. InSight's employees will receive credit under each surviving corporation
benefit plan for amounts paid under a corresponding InSight benefit plan during
the same benefit period for purposes of applying deductibles, co-payments and
out-of-pocket maximums.
Stock Options and Warrants. The merger agreement provides that holders of
InSight stock options and warrants, whether or not then exercisable, will
receive a cash payment for each option or warrant in an amount equal to the
difference between the exercise price of the option or warrant and the per
share consideration received by InSight stockholders in connection with the
merger.
In addition, the executive officers of InSight will be granted options to
purchase the common stock of InSight Holdings. The number of options that will
be awarded to each individual will be determined at the effective time of the
merger and will depend, in part, on the capital structure of InSight Holdings.
The total number of options to be awarded to InSight management upon the
closing of the merger will equal approximately 10% of the issued and
outstanding shares of capital stock of InSight Holdings.
Director Affiliation. Certain members of the InSight board of directors
serve as the nominees of General Electric Company and The Carlyle Group, which
collectively beneficially own approximately % of the
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outstanding shares of InSight common stock as of the record date. In addition,
GE Capital Equity Holdings, Inc., an affiliate of General Electric Company, has
invested a total of $10 million in the $200 million private equity fund managed
by Halifax.
Accounting Treatment
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles.
Determination of the Merger Consideration
The merger consideration was determined through arm's-length negotiations
between InSight, J.W. Childs and Halifax.
Financing
InSight Holdings' and JWCH Merger Corp.'s obligation to complete the merger
is contingent upon, among other things, obtaining the financing for the merger
contemplated by commitment letters obtained by it at the time of execution of
the merger agreement. The consummation of the merger will require InSight
Holdings to make payments to:
. the holders of InSight common stock (including holders of InSight
preferred stock on an as-if-converted basis), in the amount of $18 per
share, in cash;
. the holders of InSight options, in an amount equal to the net value in
the options;
. the holders of InSight warrants, in an amount equal to the net value in
the warrants;
. the holders of certain of our existing indebtedness, which will be
refinanced or retired in connection with the merger; and
. those who are owed fees and expenses relating to the merger and the
financing.
InSight and InSight Holdings estimate that the total amount of funds
necessary to complete the merger and related transactions is approximately $475
million. These funds are currently expected to come from the following sources:
. an equity investment by J.W. Childs Equity Partners II, L.P. and Halifax
Capital Partners, L.P. of up to $81.5 million, net of the value of the
stock options rolled over by certain executive officers of InSight, and
$20 million, respectively, as more fully described below under "--Equity
Contribution;"
. borrowings by InSight in an aggregate amount of up to $150 million under
a $275 million senior credit facility, as more fully described below
under "--Senior Secured Credit Facility;"
. the issuance of $200 million of unsecured senior subordinated notes to
be issued by JWCH Merger Corp. (which will become obligations of InSight
upon consummation of the merger of JWCH Merger Corp. with and into
InSight), as more fully described below under "--Senior Subordinated
Notes;" and
. cash balances of InSight at the closing of the merger which will include
option and warrant proceeds.
InSight Holdings is not required to obtain alternative financing if the
financing arrangements listed above do not materialize. Accordingly, no
alternative financing arrangements or alternative financing plans have been
made by InSight Holdings. If the merger is completed, InSight and InSight
Holdings expect that these debt obligations will be repaid through cash flow
generated from operations in the ordinary course of business and/or through
refinancing.
The documentation governing the senior credit facility and the senior
subordinated notes has not yet been finalized and, accordingly, remains subject
to change.
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Equity Contribution. A portion of the funds required to close the merger
will be provided by a cash investment in InSight Holdings of up to
approximately $101.5 million by J.W. Childs and Halifax, of which J.W. Childs
shall be obligated to invest up to $81.5 million, net of the value of the stock
options rolled over by certain executive officers of InSight, and Halifax shall
be obligated to invest up to $20 million. J.W. Childs and Halifax are not
obligated to provide the equity financing unless all of the conditions to
closing under the merger agreement for the benefit of InSight Holdings are
satisfied. InSight is a third party beneficiary of the equity commitments of
J.W. Childs and Halifax.
Senior Secured Credit Facility. InSight will obtain a senior credit facility
from a syndicate of financial institutions arranged by Banc of America
Securities LLC (in consultation with J.W. Childs and Halifax) in an aggregate
amount of up to $275 million, of which up to $150 million will be available on
the closing date. The senior credit facility documentation will contain
customary representations and warranties by InSight. The commitment to provide
the senior credit facility is subject to the satisfaction of customary
conditions and covenants, including the accuracy in all material respects of
InSight's representations and warranties. The following is a summary of certain
of the material conditions to be satisfied in order for InSight to obtain
borrowings under the senior credit facility:
. all of the representations and warranties in the loan documentation
shall be materially correct;
. no defaults or events of default shall have occurred and be continuing;
. the absence of any material misstatements in, or omissions from, the
materials that have been or are being furnished to Bank of America for
its review in connection with the merger;
. the completion of the equity contributions described under "--Equity
Contribution" above in the amount of at least $100 million and the
completion of senior subordinated debt financing in the amount of $200
million;
. the receipt of certification of the financial condition and solvency of
InSight and InSight Holdings;
. the receipt of the documentation in connection with the merger and the
related transactions in form and substance satisfactory to Bank of
America and the receipt of evidence satisfactory to Bank of America that
the merger has been completed in accordance with the terms of the merger
agreement;
. the absence of any material adverse change in the assets, business or
financial condition of InSight since June 30, 2000;
. receipt by Bank of America of satisfactory opinions of counsel;
. receipt of all governmental, stockholder and third-party consents and
approvals related to the merger;
. the absence of any litigation that could reasonably be expected to have
a material adverse effect on InSight;
. InSight shall be in compliance with certain financial ratios;
. the absence of any material changes or disruptions in the syndication,
financial or capital markets that could materially impair the
syndication of the senior credit facility;
. Bank of America shall have received audited financial statements for
InSight for its fiscal year ended June 30, 2001;
. the satisfaction of Bank of America with the capitalization and
ownership structure of InSight and InSight Holdings;
. the negotiation, execution and delivery of definitive financing
agreements satisfactory to Bank of America; and
. all fees and expenses owed to Bank of America related to the senior
credit facility have been paid in full.
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Borrowings under the senior credit facility will be secured by a perfected
first priority security interest in all assets of InSight Holdings, InSight as
the surviving corporation, and InSight's subsidiaries, including accounts and
notes receivable, inventory, equipment, owned real property, licenses, stock of
subsidiaries and intangible assets, in each case subject to exceptions to be
agreed upon. InSight Holdings and InSight's subsidiaries will provide
guarantees of the borrowings under the senior credit facility, subject to
exceptions to be agreed upon.
Senior Subordinated Notes. JWCH Merger Corp. is expected to issue $200
million of senior subordinated notes. Upon consummation of the merger, the
senior subordinated notes will become obligations of InSight. It is anticipated
that the senior subordinated notes will have the following features:
. a maturity of 10 years from the issue date;
. be unsecured obligations and rank equally with all unsecured senior
subordinated indebtedness of JWCH Merger Corp. (and, following the
consummation of the merger, InSight);
. interest will be paid in cash, semi-annually;
. be subordinated to any senior indebtedness of JWCH Merger Corp. (and,
following the consummation of the merger, InSight), including the senior
secured credit facilities; and
. be guaranteed by InSight Holdings and the subsidiaries of InSight which
guarantee the senior secured credit facilities.
InSight expects that the senior subordinated notes also will contain
covenants that are customary for this type of financing, including, without
limitation, restrictions on payments and investments, liens, indebtedness,
affiliate transactions, asset sales and mergers. Banc of America Securities LLC
and Banc of America Bridge LLC have committed to arrange the sale of up to $200
million senior subordinated notes.
The closing of the senior subordinated debt financing will be subject to the
satisfaction of customary conditions precedent, including, among others, the
following:
. the execution, delivery and performance of the documentation relating to
the senior subordinated debt financing will not conflict with or
constitute a default under or violate (a) the certificate of
incorporation or bylaws of InSight or InSight Holdings, (b) any material
agreement of InSight or InSight Holdings, (c) any laws, or (d) any
decree or ruling of a governmental authority, where such conflict or
default has a material adverse effect on InSight or InSight Holdings;
. receipt of satisfactory opinions of counsel;
. preparation of an offering memorandum and assistance in the marketing of
the senior subordinated notes;
. satisfactory evidence that InSight and InSight Holdings shall have
sufficient cash on hand at the consummation of the senior subordinated
note offering to meet InSight's ongoing financial needs; and
. the aggregate amount of funded debt, excluding borrowings under the
senior secured credit facility and the senior subordinated notes, does
not exceed $12 million.
In addition to the above conditions, the closing of the senior subordinated
debt financing will be subject to the satisfaction of other customary
conditions precedent that are substantially the same as the conditions
precedent for the senior secured credit facilities, which are described above
under the heading "Senior Secured Credit Facility."
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Payment for Shares
A bank or trust company designated by InSight Holdings and reasonably
acceptable to InSight will act as the paying agent for the payment of the
merger consideration. At the consummation of the merger, InSight Holdings will
deposit, or cause to be deposited, sufficient cash with the paying agent in
order to permit the payment of the merger consideration.
Instructions with regard to the surrender of certificates formerly
representing shares of InSight capital stock, together with the letter of
transmittal to be used for that purpose, will be mailed to you as soon as
practicable after the effective time of the merger. You should not surrender
certificates until you receive the letter of transmittal. As soon as
practicable following the receipt by the paying agent of your certificate(s)
formerly representing InSight capital stock, a duly completed and validly
executed letter of transmittal and any other item specified by the letter of
transmittal, the paying agent will pay such amount equal to the product of the
merger consideration multiplied by the number of shares of capital stock
represented by such certificate(s) to such stockholder by check, wire transfer
or draft less any amount required to be withheld under applicable tax
regulations, if applicable. All certificates formerly representing InSight
capital stock will be canceled.
After the completion of the merger, holders of certificates formerly
representing InSight capital stock will cease to have any rights as
stockholders of InSight, except as provided in the merger agreement, and such
holders' sole right will be to receive the merger consideration with respect to
such shares. The surviving corporation shall pay all service charges, brokerage
commissions and transfer taxes in connection with the stockholders' surrender
of their shares of InSight capital stock in exchange for cash, except if
payment is to be made to a person other than the person in whose name the
surrendered certificate is registered. In such case, it will be a condition of
payment that the person requesting such payment pay any transfer and other
taxes required by reason of such payment or establish to the satisfaction of
the surviving corporation and the paying agent that such taxes have been paid
or are not applicable. At the effective time of the merger, InSight's stock
transfer books will be closed and there will not be any registration of
transfers of shares of InSight capital stock thereafter on the records of
InSight.
To the extent permitted by law, the appointment of the paying agent will be
terminated 180 days following the consummation of the merger. Any portion of
the merger consideration remaining undistributed upon termination of the paying
agent's appointment will be returned to InSight Holdings, and any holders of
certificates formerly representing shares of InSight capital stock may
thereafter surrender to InSight Holdings such certificates and (subject to
abandoned property, escheat or similar laws) receive in exchange therefor
the merger consideration to which they are entitled, but shall have no greater
rights against InSight Holdings than may be accorded to general creditors of
InSight Holdings under relevant law. In no event will former holders of shares
of InSight capital stock be entitled to receive payment of any interest on the
merger consideration.
Effective Time of the Merger
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware, or at such later time as
stated in the certificate of merger or agreed upon by InSight, InSight Holdings
and JWCH Merger Corp. The filing of the certificate of merger will occur at the
time of the closing of the merger.
Delisting and Deregistration of InSight Common Stock
If the merger is completed, InSight common stock will be delisted from the
Nasdaq Small Cap Market and will be deregistered under the Securities Exchange
Act of 1934.
Certain Material United States Federal Income Tax Consequences of the Merger
The following discussion is a summary of the material United States federal
income tax consequences of the merger to stockholders whose shares of InSight
common stock are surrendered pursuant to the merger,
32
including the federal income tax consequences of the receipt of any cash
amounts by dissenting stockholders pursuant to the exercise of appraisal
rights. It is based on and subject to the Internal Revenue Code of 1986, as
amended (the "Code"), the regulations promulgated under the Code, existing
administrative interpretations and court decisions as in effect on the date
hereof, all of which are subject to change, possibly with a retroactive effect.
The discussion does not address all aspects of United States federal income
taxation and may not apply to shares of InSight common stock received pursuant
to the exercise of employee stock options or otherwise as compensation or to
stockholders who have special treatment under the federal income tax laws,
including, without limitation, stockholders that are non-U.S. persons, life
insurance companies, tax-exempt organizations, financial institutions, dealers
in securities, persons who have a functional currency other than the United
States dollar, or stockholders holding shares as part of a straddle, a
conversion transaction, a hedging transaction or other similar transaction.
This discussion assumes you hold our shares of common stock as capital assets
within the meaning of section 1221 of the Code.
The receipt of cash payments pursuant to the merger, including any cash
amounts received by dissenting stockholders pursuant to the exercise of their
appraisal rights, will be a taxable transaction for federal income tax
purposes. In general, for federal income tax purposes, a stockholder will
recognize capital gain or loss equal to the difference between the cash
received by the stockholder pursuant to the merger agreement and the
stockholder's adjusted tax basis in the shares of InSight common stock
surrendered pursuant to the merger agreement. Gain or loss will be calculated
separately for each block of shares of InSight common stock surrendered in the
merger.
If a non-corporate stockholder's holding period for the shares of InSight
common stock exceeds one year at the time the merger is completed, either a 20%
or a 10% capital gains rate generally will apply to the gain, depending on the
amount of taxable income of the stockholder for such year. If the stockholder's
holding period for the shares of InSight common stock is one year or less, the
gain will be taxed at the same rates as ordinary income. Capital gains of
corporate stockholders are generally taxable at the regular tax rates
applicable to corporations. The deductibility of capital losses is subject to
certain limitations.
InSight Holdings or its payment agent will be required to withhold up to 31%
of the gross proceeds payable to a stockholder in the merger unless (i) an
exemption applies under applicable law and regulations, or (ii) the stockholder
provides, in a properly completed substitute Form W-9, the stockholder's
taxpayer identification number and certifies under penalties of perjury that
such number is correct and that the stockholder is not subject to backup
withholding. Therefore, unless such an exemption exists and is demonstrated in
a manner satisfactory to InSight Holdings or its payment agent in accordance
with the instructions that will accompany the substitute Form W-9, each
stockholder should complete and sign the substitute Form W-9 that will be made
available to the stockholder with the letter of transmittal, so as to provide
the information and certification necessary to avoid backup withholding.
Backup withholding is not an additional tax but, rather, is a method of tax
collection. Stockholders will be entitled to credit any amounts withheld under
the backup withholding rules against their actual tax liabilities provided the
required information is furnished to the Internal Revenue Service.
The foregoing is a general discussion of the material United States federal
income tax consequences of the merger and is included for general information
only. The foregoing discussion does not take into account the particular facts
and circumstances of your status and attributes. As a result, the United States
federal income tax consequences addressed in the foregoing discussion may not
apply to you. In view of the individual nature of income tax consequences, you
are urged to consult your tax advisor to determine the specific tax
consequences of the merger to you, including the application and effect of
United States federal, state, local and other tax laws and the possible effects
of changes in the United States federal and other tax laws.
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Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and related
rules, certain transactions, including the merger, may not be completed unless
certain waiting period requirements have been satisfied. InSight and InSight
Holdings filed a pre-merger notification and report form with the Antitrust
Division of the Department of Justice and the Federal Trade Commission on July
6, 2001 and , 2001, respectively. The applicable waiting period expires
on , 2001. At any time before or after the effective time of the merger,
the Antitrust Division of the Department of Justice, the Federal Trade
Commission or others could take action under the antitrust laws, including
seeking to prevent the merger, to rescind the merger or to conditionally
approve the merger upon the divestiture of substantial assets of InSight or
InSight Holdings. Although no challenge to the merger is anticipated, there can
be no assurance that a challenge to the merger on antitrust grounds will not be
made or, if made, that it would not be successful.
Appraisal Rights
If the merger is consummated, a holder of record of shares of our capital
stock who objects to the terms of the merger may seek an appraisal under
Section 262 of the Delaware General Corporation Law of the "fair value" of such
holder's shares. The following is a summary of the principal provisions of
Section 262 and does not purport to be a complete description. A copy of
Section 262 is attached to this proxy statement as Annex IV. Due to the
complexity of the procedures for exercising the right to seek appraisal of
InSight capital stock, InSight stockholders who are considering exercising such
appraisal rights should seek the advice of counsel, but InSight will not be
responsible for the cost of retaining such counsel. Failure to take any action
required by Section 262 will result in a termination or waiver of a
stockholder's rights under Section 262.
A stockholder electing to exercise appraisal rights must (a) deliver to us,
before our stockholders vote on the merger agreement, a written demand for
appraisal that is made by or on behalf of the person who is the holder of
record of our capital stock for which appraisal is demanded and (b) not vote in
favor of adopting the merger agreement. The demand must be delivered to us at
4400 MacArthur Blvd., Suite 800, Newport Beach, California 92660, Attn:
Secretary. A proxy or vote against adopting the merger agreement does not
constitute a demand. A stockholder electing to take this action must do so by a
separate written demand that reasonably informs us of the identity of the
holder of record and of the stockholder's intention to demand appraisal of the
holder's shares of our capital stock. Because a proxy left blank will, unless
revoked, be voted FOR adoption of the merger agreement, a stockholder electing
to exercise appraisal rights who votes by proxy must not leave the proxy blank
but must vote AGAINST adoption of the merger agreement or ABSTAIN from voting
for or against adoption of the merger agreement.
Only holders of record of our capital stock are entitled to demand appraisal
rights for their shares of our capital stock registered in their name. The
demand must be executed by or for the holder of record, fully and correctly, as
the holder's name appears on the holder's stock certificates. If our capital
stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the demand should be executed in that capacity. If our
capital stock is owned of record by more than one person, as in a joint tenancy
or tenancy in common, the demand should be executed by or for all owners. An
authorized agent, including one of two or more joint owners, may execute the
demand for appraisal for a holder of record; however, the agent must identify
the owner or owners of record and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for the owner or owners of
record.
A holder of record, such as a broker, who holds shares of our capital stock
as nominee for beneficial owners may exercise a holder's right of appraisal
with respect to shares of our capital stock held for all or less than all of
the beneficial owners. In that case, the written demand should set forth the
number of shares of our capital stock covered by the demand. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
of our capital stock standing in the name of the holder of record. Stockholders
who hold their shares in brokerage accounts or other nominee forms and who wish
to exercise appraisal rights are urged to consult with their brokers to
determine appropriate procedures for making a demand for appraisal rights by
the broker or the nominee.
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Within 10 days after the filing of the certificate of merger with the
Delaware Secretary of State, we will send notice of the effectiveness of the
merger to each person who prior to that time satisfied the foregoing
conditions.
Within 120 days after the filing of the certificate of merger with the
Delaware Secretary of State, we or any stockholder who has satisfied the
foregoing conditions may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of our capital stock. Stockholders
seeking to exercise appraisal rights should not assume that we will file a
petition to appraise the value of their shares of our capital stock or that we
will initiate any negotiations with respect to the "fair value" of such capital
stock. Accordingly, holders of our capital stock should initiate all necessary
action to perfect their appraisal rights within the time periods prescribed in
Section 262.
Within 120 days after the filing of the certificate of merger with the
Delaware Secretary of State, any stockholder who has complied with the
requirements for exercise of appraisal rights, as discussed above, is entitled,
upon written request, to receive from us a statement setting forth the
aggregate number of shares of our capital stock not voted in favor of the
merger and with respect to which demands for appraisal have been made and the
aggregate number of holders of that capital stock. We are required to mail such
statement within 10 days after we receive a written request to do so or within
10 days after expiration of the period for delivery of demands for appraisals
under Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise our capital stock owned by such
stockholders, determining its "fair value" exclusive of any element of value
arising from the accomplishment or expectation of the merger and will determine
the amount of interest, if any, to be paid upon the value of our capital stock
of the stockholders entitled to appraisal. Any such judicial determination of
the "fair value" of our capital stock could be based upon considerations other
than or in addition to the price paid in the merger and the market value of our
capital stock, including asset values, the investment value of InSight common
stock and any other valuation considerations generally accepted in the
investment community. The value so determined for our capital stock could be
more than, less than or the same as the consideration paid pursuant to the
merger agreement. Upon application of a stockholder, the court may also order
that all or a portion of any stockholder's expenses incurred in connection with
an appraisal proceeding, including, without limitation, reasonable attorneys'
fees and fees and expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all shares of our capital stock entitled
to appraisal.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the filing of the certificate of merger with the
Delaware Secretary of State, be entitled to vote the shares subject to such
demand for any purpose or be entitled to dividends or other distributions on
those shares of our capital stock, other than those payable or deemed to be
payable to stockholders of record as of a date prior to the filing of the
certificate of merger.
Holders of our capital stock lose the right to appraisal if no petition for
appraisal is filed within 120 days after the filing of the certificate of
merger with the Delaware Secretary of State, or if a stockholder delivers to us
a written withdrawal of that stockholder's demand for an appraisal and an
acceptance of the merger, except that any such attempt to withdraw made more
than 60 days after the filing of the certificate of merger requires our written
approval. If appraisal rights are not perfected or a demand for appraisal
rights is withdrawn, a stockholder will be entitled to receive the
consideration otherwise payable pursuant to the merger agreement.
If an appraisal proceeding is timely instituted, that proceeding may not be
dismissed as to any stockholder who has perfected a right of appraisal without
the approval of the Delaware Court of Chancery.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. We urge our stockholders to read carefully the merger agreement,
which is attached as Annex I to this proxy statement.
General
The merger agreement provides that JWCH Merger Corp. will be merged with and
into InSight at the effective time of the merger. InSight will continue as the
surviving corporation in accordance with the Delaware General Corporation Law.
At the effective time of the merger, all the property, rights, privileges,
immunities, powers and franchises of InSight and JWCH Merger Corp. before the
merger will vest in the surviving corporation, and all debts, liabilities and
duties of InSight and JWCH Merger Corp. before the merger will become the
debts, liabilities and duties of the surviving corporation.
The merger will be completed after all conditions in the merger agreement
are met or waived and InSight and JWCH Merger Corp. file a certificate of
merger with the Secretary of State of the State of Delaware. The merger
agreement provides that the closing of the merger will take place on the date
of the satisfaction or waiver of the conditions to the merger or such other
date mutually agreed upon by the parties.
Conversion of Shares
The merger agreement provides that each issued and outstanding share of
InSight common stock, other than dissenting shares and shares owned by InSight,
InSight Holdings and JWCH Merger Corp., will be converted into the right to
receive $18 in cash, without interest. However, if, prior to the merger, the
outstanding shares of InSight capital stock are altered by reason of a stock
split, combination, reclassification or stock dividend, the merger
consideration will be adjusted accordingly.
Procedure for the Exchange of Stock Certificates
Exchange of Stock Certificates. A bank or trust company designated by
InSight Holdings and reasonably acceptable to InSight will act as the paying
agent for the payment of the merger consideration. At the consummation of the
merger, InSight Holdings will deposit, or cause to be deposited, sufficient
cash with the paying agent in order to permit the payment of the merger
consideration. Promptly after the merger is completed, the paying agent will
mail transmittal forms and exchange instructions to each holder of record of
InSight capital stock. After receiving the transmittal form, each holder of
certificates formerly representing InSight capital stock will be able to
surrender the certificates to the paying agent and receive the merger
consideration. After the merger, each certificate formerly representing InSight
capital stock, until surrendered, will be deemed, for all purposes, to evidence
only the right to receive the merger consideration.
Lost Certificates. If a certificate representing shares of InSight capital
stock shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the holder claiming such certificate to be lost,
stolen or destroyed and subject to such other reasonable conditions as the
board of directors of the surviving corporation may impose, the paying agent
shall issue in exchange for such lost, stolen or destroyed certificate, the
merger consideration payable in respect thereof. Prior to making payment,
InSight Holdings may, in its reasonable discretion, require the owner of the
lost, stolen or destroyed certificate to deliver a bond in a sum as it may
reasonably require as indemnity against any claim that may be made against
InSight Holdings, the surviving corporation or the paying agent with respect to
the certificate alleged to have been lost, stolen or destroyed.
No Liability. None of InSight Holdings, JWCH Merger Corp., the paying agent
or InSight shall be liable to any former holder of InSight capital stock for
any such cash which is delivered to a public official pursuant to an official
request under any applicable abandoned property, escheat or similar law.
36
Withholding Right. Either the surviving corporation or the paying agent, on
behalf of the surviving corporation, is entitled to deduct and withhold from
the merger consideration payable to any former holder of shares of InSight
capital stock the amount it is required to deduct and withhold from the merger
consideration under the Internal Revenue Code or any provision of state, local
or foreign tax law. Any amounts withheld will be treated as having been paid
to the former holder of the InSight capital stock.
Please do not send in any stock certificates with your proxies. Please wait
for the letter of transmittal and instructions from the paying agent.
Representations and Warranties
The merger agreement contains customary representations and warranties
relating to, among other things:
. corporate organization and similar corporate matters of InSight
Holdings, JWCH Merger Corp. and InSight;
. subsidiaries of InSight;
. the capital structure of InSight;
. authorization, execution, delivery, performance and enforceability of
the merger agreement and related matters of InSight Holdings, JWCH
Merger Corp. and InSight;
. required consents, approvals, orders and authorizations;
. documents filed by InSight with the Securities and Exchange Commission,
including the accuracy of the information contained in those documents;
. the absence of undisclosed liabilities of InSight;
. the accuracy of information supplied by each of InSight Holdings and
InSight in connection with this proxy statement;
. the absence of material changes or events concerning InSight;
. compliance with applicable laws by InSight;
. matters relating to the employee benefit plans of InSight;
. InSight's compliance with the Employee Retirement Income Security Act;
. filing of tax returns and payment of taxes by InSight;
. required stockholder vote of InSight regarding the adoption of the
merger agreement;
. approval of the merger agreement and recommendation for the merger by
the InSight board of directors;
. satisfaction of certain state takeover statutes' requirements by
InSight;
. engagement and payment of fees of brokers, investment bankers and
financial advisors by InSight;
. insurance policies of InSight;
. the receipt of fairness opinion by InSight from UBS Warburg;
. intellectual property matters of InSight;
. property under certain capital leases;
. litigation matters of InSight;
. good and valid title to property of InSight;
37
. certain leases and contracts entered into by InSight and absence of
default by InSight under those leases and contracts;
. compliance with certain healthcare regulatory matters;
. certain employment matters regarding InSight;
. liability of InSight under certain environmental laws and compliance
with certain environmental laws;
. matters relating to InSight's accounts receivables; and
. matters relating to InSight Holdings' financing.
Conditions to the Merger
Each party's obligation to complete the merger is subject to the
satisfaction or waiver of various conditions which include, in addition to
other customary closing conditions, all of the following:
. the approval of the merger agreement by the InSight stockholders;
. the waiting period and any extension thereof applicable to the merger
under United States antitrust laws must expire or be terminated;
. no judgment, order, decree, statute, law, ordinance, rule or regulation
entered, enacted, enforced, promulgated or issued by any court or other
governmental entity of competent jurisdiction or other legal restraint
or prohibition being in effect, and no suit, action or proceeding by any
governmental entity being pending that would prevent the consummation of
the merger;
. all shares of InSight preferred stock have been converted into InSight
common stock and no shares of InSight preferred stock shall be
outstanding;
. each of JWCH Merger Corp., InSight Holdings and InSight must have, in
all material respects, performed the various obligations and complied
with the various conditions required by the merger agreement, except
that each party shall have performed and complied in all respects with
any such agreements or conditions which contain a materiality
qualification;
. the representations and warranties of each party set forth in the merger
agreement must be true and correct as of the date of the merger
agreement and as of the date on which the merger is to be completed, as
if made at and as of the date on which the merger is to be completed,
except to the extent expressly made as of an earlier date, in which case
as of such date, except where the failure of such representations and
warranties to be true and correct, without giving effect to any included
limitation as to "materially" or "material adverse effect," does not
have, and could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the party, except that (a)
InSight's representation and warranty related to accounts receivables
shall be true and correct in all respects as of the date of the merger
agreement and as of July 31, 2001 and (b) InSight's representation and
warranty related to healthcare regulatory matters and Medicare/Medicaid
participation shall be true and correct in all respects as of the date
of the merger agreement and as of the date on which the merger is to be
completed;
. InSight Holdings shall have entered into definitive agreements relating
to the financing commitments, each of the conditions precedent to the
financing commitments as set forth in the definitive agreements shall
have been satisfied and the funding sources shall be available to close
the financing commitments on the terms and conditions set forth in the
definitive agreements;
. all consents, approvals and waivers from any person or governmental
entity required to be obtained in connection with the merger shall have
been obtained and shall be in full force and effect (except if the
consents, approvals and waivers would not be reasonably expected to have
a material adverse effect on InSight);
38
. InSight Holdings shall have received a statement, in a form satisfactory
to InSight Holdings, issued by InSight pursuant to sections 1.1445-
2(c)(3) and 1.897(h) of the Treasury Regulations of the Code, certifying
that the capital stock of InSight acquired by InSight Holdings is not a
U.S. real property interest and InSight shall have sent a notice to the
Internal Revenue Service in accordance with section 1.897-2(h)(2) of the
Treasury Regulations of the Code;
. since June 30, 2000, there shall not have been any event or circumstance
which, individually or in the aggregate, has had or which would,
individually or in the aggregate, be reasonably expected to have a
material adverse effect on InSight and its subsidiaries, taken as a
whole;
. there shall be no pending legal proceeding seeking to enjoin the
consummation of the transactions contemplated by the merger agreement
which has a reasonable likelihood of success; and
. InSight shall not have incurred any indebtedness or issue any debt
securities, assume, guarantee or endorse or otherwise become responsible
for the obligations of any person or make any loans or advances, net of
cash and cash equivalents, on a consolidated basis in excess of
$222,500,000.
The merger agreement defines a "material adverse effect" when used in
connection with InSight Holdings or InSight as any condition or event that:
. has a material adverse effect on the assets, business, financial
condition or results of operations of InSight Holdings or InSight, as
applicable, in each case, taken as a whole with its subsidiaries, other
than any condition or event:
(1) relating to the economy in general; or
(2) arising out of or resulting from actions contemplated by the
parties in connection with, or attributable to, the announcement of
the merger agreement and the transactions contemplated by the
merger agreement;
. materially impairs the ability of InSight Holdings or InSight to perform
its obligations under the merger agreement; or
. prevents or materially delays the consummation of the transactions
contemplated by the merger agreement.
Conduct of Business Pending the Merger
Pursuant to the merger agreement, InSight has agreed that, until the closing
of the merger, it will, and cause its subsidiaries to:
. maintain its existence in good standing;
. conduct its business in the ordinary and usual manner consistent with
past practices, except as expressly permitted by the merger agreement
and in compliance with all laws and requirements of InSight's material
contracts;
. maintain business and accounting records consistent with past practices;
. use its reasonable best efforts to preserve its business intact, to keep
available to InSight the services of its present officers and employees
and to preserve its relations and the goodwill of its suppliers,
customers, landlords, creditors, licensors, licensees, employees and
others having business relations with InSight;
. maintain in full force and effect all insurance policies for fire and
casualty, general liability, business interruption, professional
liability and other insurance policies;
. operate, maintain, repair and otherwise preserve the real property and
personal property owned or leased by InSight and any of its subsidiaries
in accordance with past practice and with the capital expenditure budget
of InSight previously disclosed to InSight Holdings;
39
. comply with all applicable filing, payment and withholding obligations
with respect to taxes;
. report regularly to InSight Holdings concerning the status of InSight's
business, in such intervals agreed upon by InSight and InSight Holdings;
. promptly notify InSight Holdings in writing of any legal proceeding
commenced or, to the knowledge of InSight, threatened against InSight or
any of its subsidiaries; and
. calculate contractual allowances consistent with the methodology used by
InSight during the 12-month period preceding the date of the merger
agreement.
In addition, InSight has agreed that, subject to certain exceptions provided
in the merger agreement or approved by InSight Holdings in writing, it will
not, and will not permit any of its subsidiaries to:
. amend, modify or otherwise change or permit the adoption of any
amendment, modification or other change to the certificate of
incorporation, bylaws, certificate of formation, operating agreement or
other organization document of InSight or any of its subsidiaries,
except as contemplated by the merger agreement;
. sell, issue, grant or authorize the issuance or grant of any capital
stock or other securities of InSight or any subsidiary, any option,
call, warrant or right to acquire any capital stock or other securities
of InSight or any of its subsidiaries or any instrument convertible into
or exchangeable for any capital stock of InSight or any of its
subsidiaries (other than any issuance of (a) InSight common stock upon
the exercise of any outstanding option or warrant which was issued prior
to the date of the merger agreement in accordance with the terms of the
relevant stock option or warrant agreement; (b) InSight common stock
upon the conversion of InSight preferred stock; (c) InSight stock
options, not to exceed a total of 20,000 shares of InSight common stock,
to new employee hires consistent with past practice; (d) InSight stock
options, not to exceed a total of 5,000 shares of InSight common stock,
to existing directors under the InSight's 1996 Directors' Stock Option
Plan; or (e) InSight Series D preferred stock upon conversion of InSight
Series B preferred stock and/or InSight Series C preferred stock);
. declare, set aside, make or pay any dividend or other distribution
payable in cash, stock, property or otherwise with respect to any of its
capital stock;
. reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
. incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances, or amend any agreement for indebtedness, other than in the
ordinary course of business consistent with past practice;
. (a) form a subsidiary or acquire (including by merger, consolidation, or
acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof or any
assets in excess of $500,000, (b) enter into any contract or agreement
other than in the ordinary course of business consistent with past
practice, or (c) except for planned capital expenditures, authorize any
capital commitment in excess of $2,100,000 or capital expenditures which
are, in the aggregate, in excess of $2,100,000;
. sell, lease, license, mortgage or encumber or otherwise encumber or
subject to any lien any of its properties or assets, except for certain
permitted liens;
. take any action, other than in the ordinary course of business and
consistent with past practice, with respect to accounting policies or
procedures;
. hire any new employee at the level of regional vice president or above
or with an annual base salary in excess of $100,000, promote any
employee, except in order to fill a position vacated after the date of
the merger agreement, or engage any consultant or independent contractor
for a period exceeding 30 days;
40
. establish, adopt or amend any employee benefit plan, pay any bonus or
make any profit-sharing or similar payment to, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its officers, directors or employees or
pay any benefit not required by any InSight benefit plan or take any
action with respect to the grant of any severance or termination pay, or
stay bonus or other incentive arrangement (other than pursuant to
benefit plans and policies in effect on the date of the merger agreement
including the contribution by InSight to InSight's 401(k) Plan and
payment of fiscal 2001 year-end bonuses not to exceed $2,500,000, in the
aggregate), except (a) that InSight may make routine, reasonable salary
increases in connection with InSight's customary employee review process
and may pay customary bonuses consistent with past practices in
accordance with InSight's benefit plans or (b) as otherwise permitted by
the merger agreement;
. commence, settle or compromise any pending or threatened suit, action or
claim which is material or which relates to any of the transactions
contemplated by the merger agreement;
. pay, discharge or satisfy any claim, liability or obligation, other than
the payment, discharge or satisfaction, in the ordinary course of
business or in accordance with their terms, of liabilities reflected or
reserved against in the most recently audited balance sheet (and notes
thereto) filed by InSight with the Securities and Exchange Commission or
subsequently incurred in the ordinary course of business and consistent
with past practice;
. except in the ordinary course of business consistent with past practices
of InSight, modify, amend or terminate any material agreement or waive,
release or assign any material rights or claims thereunder;
. reserve any amount for, or make any payment of, taxes, except for such
taxes as are due or payable or have been properly estimated in
accordance with applicable law as applied in a manner consistent with
past practice of InSight;
. make or change any tax election, change any annual tax accounting
period, adopt or change any method of tax accounting, file any amended
tax return, enter into any closing agreement, settle any tax claim or
assessment, surrender any right to claim a tax refund, consent to the
extension and waiver of the limitations period applicable to any tax
claim or assessment, or take or omit to take any other action if such
action or omission would have the effect of materially increasing the
tax liability to InSight or any of its subsidiaries, except where the
action would reasonably be expected to not be material to InSight;
. other than contributions of working capital in the ordinary course of
business consistent with past practices of InSight, make any
contribution or loan to any entity which InSight or any of its
subsidiaries manage or provide billing services; or
. agree or commit to do any of the foregoing.
No Solicitation
The merger agreement provides that InSight shall not, and shall not permit
any of its directors, officers or employees, or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries to, directly or indirectly:
. 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 is or may reasonably be expected to lead to
a takeover proposal, as described below; or
. participate in any discussions or negotiations regarding any takeover
proposal;
provided that if, at any time prior to the date of the special meeting, the
InSight board of directors determines in good faith, after consultation with
outside counsel, that the failure to provide such information or participate in
such negotiations or discussions would result in the breach of its fiduciary
duties to InSight stockholders
41
under applicable law, InSight and its representatives, in response to a written
superior proposal or a takeover proposal, which the InSight board of directors
concludes in good faith that there is a reasonable likelihood that such
takeover proposal could constitute a superior proposal, which was not solicited
by InSight or which did not otherwise result from a breach of the merger
agreement (and subject to InSight (a) providing InSight Holdings with three
business days prior written notice of InSight's decision to enter into the
negotiations and (b) orally and in writing promptly advising InSight Holdings
of the material terms and conditions of the takeover proposal or superior
proposal and the identity of the person making the takeover proposal or
superior proposal), InSight may:
. furnish, under a customary confidentiality agreement on no less
favorable terms than the confidentiality agreements with the affiliates
of InSight Holdings, information about InSight and its subsidiaries to
any person making a superior proposal or takeover proposal; and
. participate in discussions or negotiations regarding that superior
proposal or takeover proposal.
The merger agreement provides that:
. the term "takeover proposal" means, whether in the form of a proposal or
intended proposal, a signed agreement or completed action, as the case
may be, any of the following: (a) a transaction or series of
transactions pursuant to which any person (or group of persons) other
than InSight Holdings and its affiliates acquires or would acquire,
directly or indirectly, beneficial ownership (as defined in Rule 13d-3
under the Securities Exchange Act of 1934) of more than 15% of the
outstanding capital stock of InSight, whether from InSight or pursuant
to a tender offer or exchange offer or otherwise; (b) any acquisition or
proposed acquisition of, or business combination with, InSight or any of
its subsidiaries, as the case may be, by a merger or other business
combination (including any so-called "merger-of-equals" and whether or
not InSight or any of its subsidiaries is the entity surviving any such
merger or business combination); or (c) any merger, reorganization,
consolidation, recapitalization, liquidation, extraordinary dividend,
sale of assets or other similar transaction by or involving any person
(or group of persons) other than InSight Holdings and its affiliates if,
after giving effect thereto, the stockholders of InSight prior thereto
beneficially own less than 85% of the outstanding voting stock or
participating stock of the combined or ongoing entity (other than a
transaction contemplated by the merger agreement); and
. the term "superior proposal" means any bona fide written proposal (on
its most recently amended or modified terms, if amended or modified) by
any person (or group of persons), other than InSight Holdings and its
affiliates to enter into a takeover proposal, the effect of which would
be that stockholders of InSight would beneficially own less than 40% of
the voting stock, common stock and participating stock of the combined
or ongoing entity, and which the InSight board of directors determines
in its good faith judgment (after consultation with a financial advisor
of nationally recognized reputation) to be more favorable to InSight's
stockholders than the merger agreement, taking into account all relevant
factors (including whether, in the good faith judgment of the InSight
board of directors, after consultation with a financial advisor of
nationally recognized reputation, the party making the proposal is
reasonably able to finance the transaction and after consideration of
any proposed adjustments to the merger agreement by InSight Holdings in
response to such takeover proposal.
Neither the InSight board of directors nor any committee of the board of
directors shall approve or recommend or execute or enter into any offer,
proposal, letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement related to
any takeover proposal, other than any such agreement entered into concurrently
with the termination of the merger agreement as described below.
Notwithstanding the foregoing, in response to a superior proposal received
prior to the date of the special meeting which was not solicited by InSight and
which did not otherwise result from a breach of the provisions
42
of the merger agreement, if the InSight board of directors determines in good
faith, after consultation with outside counsel, that it is necessary to do so
in order to comply with its fiduciary duties to the InSight stockholders under
applicable law, the InSight board of directors may terminate the merger
agreement and enter into a definitive agreement regarding the superior
proposal, but only at a time that is after the third business day following
InSight Holdings' receipt of written notice of the InSight board of directors'
intent to terminate the merger agreement. During this three business day
period, InSight shall provide an opportunity for InSight Holdings to make
adjustments in the terms and conditions of the merger agreement as would lead
InSight to proceed with the transactions contemplated by the merger agreement;
provided, that (a) any adjustments shall be at the discretion of the parties at
the time and (b) any decision of InSight to proceed with the superior proposal
or the transactions contemplated by the merger agreement (as amended by the
adjustments) is at the sole and absolute discretion of InSight. Prior to
terminating the merger agreement, InSight must pay a termination fee to InSight
Holdings. See "--Termination of the Merger Agreement" and "--Termination Fees;
Expenses."
Termination of the Merger Agreement
The merger agreement may be terminated at any time before the effective time
of the merger, whether before or after adoption of the merger agreement by the
InSight stockholders:
. by mutual agreement of InSight Holdings, JWCH Merger Corp. and InSight;
. by InSight Holdings, JWCH Merger Corp. or InSight, if the merger has not
been completed by the later of October 8, 2001 and 35 days after the
completion the audit of the consolidated financial statements of InSight
and its subsidiaries for the fiscal year ended June 30, 2001 and
delivery to InSight Holdings; provided, that the right to terminate the
merger agreement shall not be available to any party whose failure to
fulfill any obligation under the merger agreement has been the cause of,
or resulted in, the failure of completion of the merger agreement to
occur on or before such date;
. by InSight Holdings, JWCH Merger Corp. or InSight, if any court of
competent jurisdiction in the United States or other United States
governmental authority issues an order, decree, ruling or takes any
other action restraining, enjoining or otherwise prohibiting the merger
and that order, decree, ruling or other action has become final and
nonappealable;
. by InSight Holdings, JWCH Merger Corp. or InSight, if the InSight
stockholders do not adopt the merger agreement at the special meeting or
any adjournment or postponement of that meeting; provided that, before
InSight may terminate the merger agreement under this provision, InSight
must have reimbursed InSight Holdings for its expenses up to $1 million;
. by InSight, at any time prior to the date of the special meeting of
stockholders, in response to a superior proposal which was not solicited
by InSight and which did not otherwise result from a breach of the
provisions of the merger agreement, if InSight has complied with certain
notice requirements and paid the termination fee;
. by InSight, in the event InSight Holdings or JWCH Merger Corp.
materially breaches its obligations under the merger agreement, unless
such breach is cured within 30 days after written notice to InSight
Holdings by InSight; or
. by InSight Holdings or JWCH Merger Corp., in the event InSight
materially breaches its obligations under the merger agreement unless
such breach is cured within 30 days after written notice to InSight by
InSight Holdings or JWCH Merger Corp.
Termination Fees; Expenses
If InSight Holdings, JWCH Merger Corp. or InSight elect to terminate the
merger agreement due to the failure of the InSight stockholders to approve the
merger agreement at the special meeting or any adjournment or postponement of
that meeting, then InSight shall reimburse InSight Holdings for its fees and
expenses
43
incurred in connection with the transactions contemplated by the merger
agreement, up to a maximum of $1 million.
In addition, if InSight terminates the merger agreement and enters into a
superior proposal, InSight must pay InSight Holdings a termination fee of $7
million, of which $5 million shall be payable immediately prior to the
termination and $2 million shall be payable upon the earlier of (a) 6 months
from the date of termination and (b) consummation of a superior proposal or
other takeover proposal.
The merger agreement further provides that if InSight fails to pay the
termination fee when due and, in order to obtain payment of the fee, InSight
Holdings commences a suit which results in a judgment against InSight for the
fee, InSight must pay the costs and expenses of InSight Holdings, including
attorneys' fees and expenses, in connection with any action taken to collect
payment, together with interest on the amount of the fee.
Amendment; Extension and Waiver
Subject to applicable law:
. the merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been adopted by the
InSight stockholders, no amendment may be entered into which by law
requires further approval by the InSight stockholders unless that
further approval is obtained; and
. at any time before the completion of the merger, a party may, by written
instrument signed on behalf of that party, (a) extend the time for
performance of any of the obligations or other acts of any other party
to the merger agreement, (b) waive any inaccuracies in representations
and warranties of any other party contained in the merger agreement or
in any document delivered pursuant to the merger agreement, or (c)
except as provided in the merger agreement, waive compliance by any
other party with any agreements or conditions in the merger agreement.
Expenses
Except as set forth above, whether or not the merger is consummated, all
fees and expenses incurred in connection with the merger will be paid by the
party incurring those fees or expenses, except that InSight Holdings and
InSight will share equally (a) the Securities and Exchange Commission filing
fees in connection with this proxy statement and (b) the filing fees for the
pre-merger notification and report forms under the Hart-Scott-Rodino Antitrust
Improvements Act.
44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership, reported to InSight as
of June 28, 2001, of InSight common stock, including shares as to which a right
to acquire ownership exists (for example, through the exercise of stock options
and warrants and conversions of InSight preferred stock within the meaning of
Rule 13d-3(d)(1) under the Securities Exchange Act of 1934), of (a) each person
known to InSight to own beneficially 5% or more of the InSight common stock,
(b) each director of InSight, (c) each of InSight's named executive officers,
and (d) all directors and executive officers, as a group.
Amount and Nature Percent of
of Beneficial Common Stock
Ownership of Beneficially
Name and Addresses of Beneficial Owners Common Stock(1) Owned(1)
- --------------------------------------- ----------------- ------------
Stockholders affiliated with The Carlyle
Group(2)....................................... 3,273,408 52.1%
1001 Pennsylvania Avenue, N.W., Suite 220
South,
Washington, D.C. 20004
GE Fund(3)...................................... 1,307,224 30.3%
3135 Easton Turnpike, Fairfield, CT 06431
General Electric Company(4)..................... 2,300,448 43.3%
3135 Easton Turnpike, Fairfield, CT 06431
Grant R. Chamberlain(5)......................... 40,000 1.3%
200 East Randolph Drive, 74th Floor, Chicago,
IL 60601
W. Robert Dahl(6)............................... 8,500 *
520 Madison Ave., 41st Floor, New York, NY
10022
Frank E. Egger(7)............................... 122,319 3.9%
10301 S.W. 13th Street, Pembroke Pines, FL
33025
Leonard H. Habas(8)............................. 90,758 2.9%
2290 Lucien Way, Suite 280, Maitland, FL 32751
Jerome C. Marcus (9)............................ 0 0
120 Long Ridge Road, Stamford, CT 06927
Ronald G. Pantello(10).......................... 58,773 1.9%
200 Madison Avenue, 9th Floor, New York, NY
10016
Steven T. Plochocki(11)......................... 38,333 1.3%
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
Glenn A. Youngkin(12)........................... 4,400 *
57 Berkeley Square, London, England W1X5DH
E. Larry Atkins(13)............................. 192,100 6.0%
1845 Port Tiffin Place, Newport Beach, CA 92660
Patricia R. Blank(14)........................... 24,000 *
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
Michael A. Boylan(15)........................... 86,370 2.8%
110 Gibraltar Road, Horsham, PA 18901
Thomas V. Croal(16)............................. 126,250 4.0%
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
Brian G. Drazba(17)............................. 35,500 1.2%
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
45
Amount and Nature Percent of
of Beneficial Common Stock
Ownership of Beneficially
Name and Addresses of Beneficial Owners Common Stock(1) Owned(1)
- --------------------------------------- ----------------- ------------
Cecilia A. Guastaferro(18)...................... 11,250 *
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
Marilyn U. MacNiven-Young(19)................... 40,000 1.3%
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
Michael S. Madler(20)........................... 27,500 *
4400 MacArthur Blvd., Suite 800, Newport Beach,
CA 92660
All directors and executive officers, as a group
(15 persons)(21)............................... 713,953 19.2%
- --------
* Less than 1% of the outstanding InSight common stock.
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any security that such person has the right to acquire
within 60 days after June 28, 2001. For purposes of this table, the
percent of InSight common stock beneficially owned has been calculated
without giving effect to the conversion of InSight preferred stock or
warrants except that, in calculating the percent of InSight common stock
beneficially owned by any of our preferred stockholders, the InSight
preferred stock or warrants owned by such preferred stockholders has been
treated on an as-if-converted basis.
(2) The information in the table is based upon the Schedule 13D filed with the
Securities and Exchange Commission by stockholders affiliated with The
Carlyle Group on October 24, 1997, as amended on May 18, 1999, June 3,
1999 and July 10, 2001. Represents shares of InSight common stock issuable
upon conversion of all 25,000 shares of InSight Series B preferred stock
(convertible into 2,985,075 shares of InSight common stock) and exercise
of certain warrants ("Carlyle Warrants") (exercisable for 250,000 shares
of InSight common stock) held by The Carlyle Group and its affiliates,
which stockholders are comprised of the entities listed in the following
sentence. The cumulative Carlyle stockholders ownership figure represents
(i) 3,235,075 shares beneficially owned by Carlyle Partners II, L.P.,
including 8,208 shares of InSight Series B preferred stock (convertible
into 980,027 shares of InSight common stock) and Carlyle Warrants to
purchase 82,077 shares of InSight common stock with respect to which it
has disposal power, and 3,235,075 shares with respect to which it shares
voting power; (ii) 3,235,075 shares beneficially owned by Carlyle Partners
III, L.P., including 375 shares of InSight Series B preferred stock
(convertible into 44,732 shares of InSight common stock) and Carlyle
Warrants to purchase 3,746 shares of InSight common stock with respect to
which it has disposal power, and 3,235,075 shares with respect to which it
shares voting power; (iii) 896,526 shares beneficially owned by Carlyle
International Partners II, L.P., including 6,928 shares of InSight Series
B preferred stock (convertible into 827,244 shares of InSight common
stock) and Carlyle Warrants to purchase 69,282 shares of InSight common
stock with respect to which it has disposal power and shares voting power;
(iv) 48,305 shares beneficially owned by Carlyle International Partners
III, L.P., including 373 shares of InSight Series B preferred stock
(convertible into 44,572 shares of InSight common stock) and Carlyle
Warrants to purchase 3,733 shares of InSight common stock with respect to
which it has disposal power and shares voting power; (v) 201,858 shares
beneficially owned by C/S International Partners, including 1,560 shares
of InSight Series B preferred stock (convertible into 186,258 shares of
InSight common stock) and Carlyle Warrants to purchase 15,599 shares of
InSight common stock with respect to which it has disposal power and
shares voting power; (vi) 1,115 shares beneficially owned by Carlyle
Investment Group, L.P., including 9 shares of InSight Series B preferred
stock (convertible into 1,029 shares of InSight common stock) and Carlyle
Warrants to purchase 86 shares of InSight common stock with respect to
which it has disposal power and shares voting power; (vii) 118,878 shares
beneficially owned by Carlyle-InSight International Partners, L.P.,
including 919 shares of InSight Series B preferred stock (convertible into
109,691 shares of InSight common stock) and Carlyle Warrants to purchase
9,187 shares of InSight common stock with respect to which it has disposal
power and shares voting power; (viii) 3,235,075 shares beneficially owned
by Carlyle-InSight Partners, L.P. including 3,181 shares of InSight Series
B preferred stock (convertible into 379,863 shares of InSight common
stock) and Carlyle Warrants to purchase 31,813 shares of InSight common
stock with respect to which it has
46
disposal power and 3,235,075 shares with respect to which it shares voting
power; (ix) 446,135 shares beneficially owned by Carlyle Investment
Management, L.L.C. acting as investment advisor and manager with
responsibility to invest certain assets of the State Board of
Administration of the State of Florida ("State Board"), including 3,448
shares of InSight Series B preferred stock (convertible into 411,658
shares of InSight common stock) and Carlyle Warrants to purchase 34,476
shares of InSight common stock with respect to which it has disposal power
and shares voting power; (x) warrants to purchase 30,000 shares of InSight
common stock at an exercise price of $7.25 per share owned by TC Group
Management, LLC, which are not included in the 3,235,075 shares
beneficially owned and (xi) warrants to purchase 8,333 shares of InSight
common stock at an exercise price of $7.50 per share owned by TC Group
Management, L.L.C., which are not included in the 3,235,075 shares
beneficially owned. Does not include warrants to purchase 1,667 shares of
InSight common stock at an exercise price of $7.50 per share, which are
not currently exercisable. TC Group, L.L.C. may be deemed to share voting
and disposal power with respect to, and therefore be the beneficial owner
of 3,235,075 shares of InSight common stock as the general partner of
Carlyle Partners II, L.P., Carlyle Partners III, L.P., Carlyle Investment
Group, L.P., and Carlyle-InSight Partners, L.P., and as the managing
partner of Carlyle International Partners II, L.P., Carlyle International
Partners III, L.P., C/S International Partners, and Carlyle-InSight
Partners, L.P. TCG Holdings, L.L.C., as a member holding a controlling
interest in TC Group, L.L.C., may be deemed to share all rights herein
described belonging to TC Group, L.L.C. Furthermore, because certain
managing members of TCG Holdings, L.L.C, are also managing members of
Carlyle Investment Management, L.L.C., Carlyle Investment Management,
L.L.C. may be deemed to be part of the Carlyle stockholders and
consequently, TCG Holdings, L.L.C. may be deemed the beneficial owner of
the shares of InSight common stock controlled by Carlyle Investment
Management, L.L.C. The principal business address of TC Group, L.L.C. and
TCG Holdings, L.L.C. is c/o The Carlyle Group, 1001 Pennsylvania Avenue,
N.W., Suite 220 South, Washington, D.C. 20004. The principal business
address of Carlyle Partners II, L.P., Carlyle Partners III, L.P., Carlyle
Investment Group, L.P., Carlyle-InSight Partners, L.P., and Carlyle
Investment Management, L.L.C. is Delaware Trust Building, 900 Market
Street, Suite 200, Wilmington, Delaware 19801. The principal business
address of Carlyle International Partners II, L.P., Carlyle International
Partners III, L.P., C/S International Partners, and Carlyle-InSight
International Partners, L.P. is Coutts & Co., P.O. Box 707, Cayman
Islands, British West Indies. The Carlyle stockholders own all of the
outstanding shares of InSight Series B preferred stock.
(3) The information in the table is based upon Schedule 13D filed by GE Fund
with the Securities and Exchange Commission on July 5, 2001. Represents
shares of InSight common stock issuable upon conversion of all 10,948
shares of InSight Series C preferred stock (convertible into 1,307,224
shares of InSight common stock) held by GE Fund. GE Fund owns
approximately 39.2% of the outstanding shares of InSight Series C
preferred stock.
(4) The information in the table is based upon Amendment No. 2 to Schedule 13D
filed by General Electric Company with the Securities and Exchange
Commission on July 5, 2001. Represents shares of InSight common stock
issuable upon (i) conversion of all 17,005 shares of InSight Series C
preferred stock (convertible into 2,030,448 shares of InSight common
stock) held by General Electric Company, (ii) exercise of certain warrants
("GE Warrants") (exercisable for 250,000 shares of InSight common stock),
(iii) warrants to purchase 15,000 shares of InSight common stock at an
exercise price of $10.00 per share and (iv) warrants to purchase 5,000
shares of InSight common stock at an exercise price of $8.88 per share.
General Electric Company owns approximately 60.8% of the outstanding
shares of InSight Series C preferred stock.
(5) Includes (i) options to purchase 15,000 shares of InSight common stock at
an exercise price of $7.00 per share, (ii) options to purchase 5,000
shares of InSight common stock at an exercise price of $5.75 per share,
(iii) options to purchase 5,000 shares of InSight common stock at an
exercise price of $6.88 per share, and (iv) warrants to purchase 15,000
shares of InSight common stock at an exercise price of $4.56 per share.
(6) Mr. Dahl is a managing member of TCG Holdings, L.L.C. Mr. Dahl's interest
in TCG Holdings, L.L.C. is not controlling and thus Mr. Dahl expressly
disclaims any beneficial ownership in the InSight common stock
beneficially owned by TCG Holdings, L.L.C.
47
(7) Includes (i) options to purchase 15,000 shares of InSight common stock at
an exercise price of $5.37 per share, (ii) options to purchase 2,000
shares of InSight common stock at an exercise price of $16.20 per share,
(iii) options to purchase 10,000 shares of InSight common stock at an
exercise price of $6.50 per share, (iv) options to purchase 833 shares of
InSight common stock at an exercise price of $17.25 per share, (v)
warrants to purchase 2,268 shares of InSight common stock at an exercise
price of $5.64 per share, (vi) warrants to purchase 15,000 shares of
InSight common stock at an exercise price of $4.56 per share, and (vii)
warrants to purchase 15,000 shares of InSight common stock at an exercise
price of $6.00 per share. Does not include options to purchase 4,167
shares of InSight common stock at an exercise price of $17.25 per share,
which are not currently exercisable.
(8) Includes (i) options to purchase 15,000 shares of InSight common stock at
an exercise price of $5.37 per share, (ii) options to purchase 4,485
shares of InSight common stock at an exercise price of $15.64 per share,
(iii) options to purchase 8,970 shares of InSight common stock at an
exercise price of $1.25 per share, (iv) options to purchase 8,970 shares
of InSight common stock at an exercise price of $0.10 per share, (v)
options to purchase 833 shares of InSight common stock at an exercise
price of $17.25 per share, (vi) options to purchase 10,000 shares of
InSight common stock at an exercise price of $6.50 per share, and (vii)
warrants to purchase 15,000 shares of InSight common stock at an exercise
price of $4.56 per share. Does not include options to purchase 4,167
shares of InSight common stock at an exercise price of $17.25 per share,
which are not currently exercisable.
(9) Mr. Marcus is an employee of an affiliate of General Electric Company and
as such expressly disclaims any beneficial ownership in the InSight common
stock beneficially owned by General Electric Company or GE Fund.
(10) Includes (i) options to purchase 15,000 shares of InSight common stock at
an exercise price of $5.37 per share, (ii) options to purchase 8,970
shares of InSight common stock at an exercise price of $1.25 per share,
(iii) options to purchase 8,970 shares of InSight common stock at an
exercise price of $0.10 per share, (iv) options to purchase 10,000 shares
of InSight common stock at an exercise price of $6.50 per share, (v)
options to purchase 833 shares of InSight common stock at an exercise
price of $17.25 per share, and (vi) warrants to purchase 15,000 shares of
InSight common stock at an exercise price of $4.56 per share. Does not
include options to purchase 4,167 shares of InSight common stock at an
exercise price of $17.25 per share, which are not currently exercisable.
(11) Includes options to purchase 33,333 shares of InSight common stock at an
exercise price of $8.37 per share. Does not include options to purchase
141,667 shares of InSight common stock at an exercise price of $8.37 per
share, which are not currently exercisable.
(12) Mr. Youngkin is a managing member of TCG Holdings, L.L.C. Mr. Youngkin's
interest in TCG Holdings, L.L.C. is not controlling and thus Mr. Youngkin
expressly disclaims any beneficial ownership in the InSight common stock
beneficially owned by TCG Holdings, L.L.C.
(13) Includes (i) options to purchase 37,500 shares of InSight common stock at
an exercise price of $4.56 per share, (ii) options to purchase 75,000
shares of InSight common stock at an exercise price of $6.25 per share,
and (iii) options to purchase 50,000 shares of InSight common stock at an
exercise price of $8.37 per share.
(14) Includes options to purchase 22,500 shares of InSight common stock at an
exercise price of $8.37 per share. Does not include options to purchase
17,500 shares of InSight common stock at an exercise price of $8.37 per
share, which are not currently exercisable.
(15) Includes (i) options to purchase 11,960 shares of InSight common stock at
an exercise price of $0.42 per share, (ii) options to purchase 8,970
shares of InSight common stock at an exercise price of $0.10 per share,
(iii) options to purchase 17,940 shares of InSight common stock at an
exercise price of $0.84 per share, (iv) options to purchase 10,000 shares
of InSight common stock at an exercise price of $6.25 per share, (v)
options to purchase 10,000 shares of InSight common stock at an exercise
price of $4.56 per share, and (vi) options to purchase 27,500 shares of
InSight common stock at an exercise price of $8.37 per share. Does not
include options to purchase 32,500 shares of InSight common stock at an
exercise price of $8.37 per share, which are not currently exercisable.
48
(16) Includes (i) options to purchase 25,000 shares of InSight common stock at
an exercise price of $6.25 per share, (ii) options to purchase 25,000
shares of InSight common stock at an exercise price of $4.56 per share,
and (iii) options to purchase 71,250 shares of InSight common stock at an
exercise price of $8.37 per share. Does not include options to purchase
73,750 shares of InSight common stock at an exercise price of $8.37 per
share, which are not currently exercisable.
(17) Includes (i) options to purchase 8,000 shares of InSight common stock at
an exercise price of $6.25 per share, (ii) options to purchase 10,000
shares of InSight common stock at an exercise price of $4.56 per share,
and (iii) options to purchase 17,500 shares of InSight common stock at an
exercise price of $8.37 per share. Does not include options to purchase
22,500 shares of InSight common stock at an exercise price of $8.37 per
share, which are not currently exercisable.
(18) Includes (i) options to purchase 5,000 shares of InSight common stock at
an exercise price of $4.56 per share, and (ii) options to purchase 6,250
shares of InSight common stock at an exercise price of $8.37 per share.
Does not include to purchase 13,750 shares of InSight common stock at an
exercise price of $8.37 per share, which are not currently exercisable.
(19) Includes (i) options to purchase 37,500 shares of InSight common stock at
an exercise price of $9.38 per share and (ii) options to purchase 2,500
shares of InSight common stock at an exercise price of $8.37 per share.
Does not include (i) options to purchase 12,500 shares of InSight common
stock at an exercise price of $9.38 per share, and (ii) options to
purchase 7,500 shares of InSight common stock at an exercise price of
$8.37 per share, which are not currently exercisable.
(20) Includes options to purchase 27,500 shares of InSight common stock at an
exercise price of $8.37 per share. Does not include options to purchase
52,500 shares of InSight common stock at an exercise price of $8.37 per
share, which are not currently exercisable.
(21) Assumes the exercise in full of options or warrants described in footnotes
(5), (7), (8), (10), (11) and (14) through (20) that are currently
exercisable or that will become exercisable within 60 days of June 28,
2001.
Except as otherwise noted, InSight believes that each of the stockholders
listed in the table above has sole voting and dispositive power over all shares
owned.
49
2001 ANNUAL MEETING
Due to the contemplated merger, InSight does not currently anticipate
holding a 2001 annual meeting of stockholders.
WHERE YOU CAN FIND MORE INFORMATION
InSight files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information we file with the Securities
and Exchange Commission at its Public Reference Room, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549.
You may call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the web site maintained by the Securities and
Exchange Commission at "http://www.sec.gov."
You should rely only on the information contained in this proxy statement
(including the annexes). We have not authorized anyone to give any information
different from the information contained in this proxy statement. You should
not assume that the information contained in this proxy statement is accurate
as of any date later than , 2001, and the mailing of this proxy statement
to stockholders shall not create any implications to the contrary.
This proxy statement incorporates by reference the documents set forth below
that we have previously filed with the Securities and Exchange Commission.
These documents contain important information about InSight and our financial
condition:
1. Annual Report on Form 10-K for the fiscal year ended June 30, 2000;
2. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2000;
3. Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,
2000;
4. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2001;
5. Current Report on Form 8-K/A dated August 14, 2000; and
6. Current Report on Form 8-K dated July 2, 2001.
We are also incorporating by reference all additional documents that we may
file with the Securities and Exchange Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of
this proxy statement and the date of the InSight special meeting.
50
OTHER MATTERS
As of the date of this proxy statement, the InSight board of directors knows
of no matters which are to be considered at this special meeting other than as
described in this proxy statement. If any other business properly comes before
this special meeting, the persons named in the accompanying form of proxy will,
as to such items, vote or refrain from voting in accordance with his or her
best judgment.
By order of the board of directors
Marilyn U. MacNiven-Young
Executive Vice President, General
Counsel and Secretary
Newport Beach, California
, 2001
51
ANNEX I
AGREEMENT AND PLAN OF MERGER
By and Among
INSIGHT HEALTH SERVICES HOLDINGS CORP.,
JWCH MERGER CORP.,
and
INSIGHT HEALTH SERVICES CORP.
Dated as of June 29, 2001
TABLE OF CONTENTS
Section Page
------- ----
1. The Merger....................................................................... A-1
1.1 General..................................................................... A-1
1.2 Certificate of Incorporation................................................ A-2
1.3 Bylaws...................................................................... A-2
1.4 Directors and Officers...................................................... A-2
1.5 Effect on Company Common Stock; Conversion of Company Preferred Stock....... A-2
1.6 Company Stock Options; Warrants............................................. A-3
1.7 Adjustment of the Merger Consideration...................................... A-3
1.8 Exchange Procedures; Stock Transfer Books................................... A-4
1.9 Return of Exchange Fund..................................................... A-5
1.10 Further Assurances.......................................................... A-5
2. Representations and Warranties of the Company.................................... A-5
2.1 Organization................................................................ A-5
2.2 Subsidiaries................................................................ A-5
2.3 Capital Structure........................................................... A-6
2.4 Authority................................................................... A-7
2.5 No Conflict................................................................. A-7
2.6 Financial Information....................................................... A-8
2.7 Company Proxy Statement..................................................... A-8
2.8 Absence of Certain Changes.................................................. A-8
2.9 Properties.................................................................. A-10
2.10 Capital Leases.............................................................. A-10
2.11 Contracts................................................................... A-10
2.12 Absence of Default.......................................................... A-11
2.13 Litigation.................................................................. A-11
2.14 Compliance with Law......................................................... A-11
2.15 Intellectual Property....................................................... A-12
2.16 Taxes....................................................................... A-12
2.17 ERISA Compliance............................................................ A-13
2.18 Environmental Laws.......................................................... A-14
2.19 Voting Requirements; Board Approval and Recommendation...................... A-14
2.20 Labor Matters............................................................... A-15
2.21 Insurance................................................................... A-15
2.22 Regulatory Matters.......................................................... A-15
2.23 Medicare/Medicaid Participation............................................. A-16
2.24 State Takeover Statutes; Rights Plan........................................ A-17
2.25 Brokers..................................................................... A-17
2.26 Opinion of Financial Advisor................................................ A-17
2.27 Accounts Receivable......................................................... A-17
2.28 Full Disclosure............................................................. A-17
3. Representations and Warranties of Parent and Acquisition......................... A-17
3.1 Organization, Standing and Corporate Power.................................. A-17
3.2 Authority................................................................... A-18
3.3 No Conflict................................................................. A-18
3.4 Information Supplied........................................................ A-18
3.5 Financing................................................................... A-18
3.6 Parent Owned Shares of Company Common Stock................................. A-19
(i)
Section Page
------- ----
4. Conduct Pending Closing.......................................................... A-19
4.1 Conduct of Business Pending Closing......................................... A-19
4.2 Prohibited Actions Pending Closing.......................................... A-19
4.3 Control of Company Operations............................................... A-21
5. Additional Agreements............................................................ A-21
5.1 Access; Documents; Supplemental Information................................. A-21
5.2 No Solicitation by the Company.............................................. A-22
5.3 Preparation of the Company Proxy Statement; Company Stockholders Meeting.... A-24
5.4 Reasonable Best Efforts..................................................... A-24
5.5 Employee Benefit Plans; Existing Agreement.................................. A-25
5.6 Indemnification............................................................. A-25
5.7 Fees and Expenses........................................................... A-26
5.8 Public Announcements........................................................ A-27
5.9 Stockholder Litigation...................................................... A-27
5.10 Financing................................................................... A-27
5.11 HSR Filings................................................................. A-27
5.12 Cooperation Regarding The Financing Commitments............................. A-27
6. Conditions Precedent............................................................. A-28
6.1 Conditions Precedent to Each Party's Obligation to Effect the Merger........ A-28
6.2 Conditions Precedent to Obligations of Acquisition and Parent............... A-28
6.3 Conditions Precedent to the Company's Obligations........................... A-29
6.4 Frustration of Closing Conditions........................................... A-29
7. Termination...................................................................... A-29
8. Non-Survival of Representations and Warranties................................... A-30
9. Contents of Agreement; Parties in Interest; etc.................................. A-30
10. Assignment and Binding Effect................................................... A-30
11. Definitions..................................................................... A-31
12. Notices......................................................................... A-32
13. Amendment....................................................................... A-33
14. Extensions; Waiver.............................................................. A-33
15. Governing Law................................................................... A-33
16. No Benefit to Others............................................................ A-33
17. Effect of Termination........................................................... A-33
18. Severability.................................................................... A-34
19. Section Headings................................................................ A-34
20. Schedules and Exhibits.......................................................... A-34
21. Counterparts.................................................................... A-34
EXHIBITS
Exhibit "A" Certificate of Merger
Exhibit "B" Amended and Restated Certificate of Incorporation of the Company
(ii)
Glossary of Defined Terms
Location of
Defined Term Definition
- ------------ ---------------
Acquisition..................................................... Preamble
Acquisition Agreement........................................... Section 5.2(b)
Affiliate....................................................... Section 11
Agreement....................................................... Preamble
Authorizations.................................................. Section 2.14(b)
Cap............................................................. Section 5.6(b)
Carlyle......................................................... Recitals
Certificate..................................................... Section 1.5(c)
Certificate of Merger........................................... Section 1.1(b)
CHAMPUS......................................................... Section 11(g)
Closing......................................................... Section 1.1(b)
Closing Date.................................................... Section 1.1(b)
Code............................................................ Section 11
Company......................................................... Preamble
Company Benefit Plans........................................... Section 2.17(a)
Company Board Approval.......................................... Section 2.19(b)
Company Capital Stock........................................... Section 1.7
Company Common Stock............................................ Section 2.3(a)
Company Disclosure Schedule..................................... Section 2
Company Filed SEC Documents..................................... Section 2.8
Company Material Contracts...................................... Section 2.12
Company Preferred Stock......................................... Section 2.3(a)
Company Proxy Statement......................................... Section 2.7
Company SEC Documents........................................... Section 2.6
Company Series A Preferred Stock................................ Section 2.3(a)
Company Series B Preferred Stock................................ Section 2.3(a)
Company Series C Preferred Stock................................ Section 2.3(a)
Company Series D Preferred Stock................................ Section 2.3(a)
Company Stock Options........................................... Section 1.6(a)
Company Stock Plans............................................. Section 11
Company Stockholder Approval.................................... Section 2.19(a)
Company Stockholders Meeting.................................... Section 5.3(b)
Confidentiality Agreement....................................... Section 9
Consents........................................................ Section 2.5(b)
Definitive Financing Agreements................................. Section 5.10
DGCL............................................................ Recitals
Dissenting Shares............................................... Section 1.5(d)
Effective Time.................................................. Section 1.1(b)
Environmental Laws.............................................. Section 11
ERISA........................................................... Section 2.17(a)
ERISA Affiliate................................................. Section 2.17(a)
Exchange Act.................................................... Section 2.5(b)
Exchange Fund................................................... Section 1.8(a)
Financing Commitments........................................... Section 3.5
GAAP............................................................ Section 11
GE.............................................................. Recitals
Governmental Entity............................................. Section 2.5(b)
Hazardous Substances............................................ Section 11
(iii)
Location of
Defined Term Definition
- ------------ ---------------
Healthcare Law.................................................. Section 11
HSR Act......................................................... Section 2.5(b)
Indemnified Party............................................... Section 5.6(a)
Intellectual Property Rights.................................... Section 2.15(a)
IRS............................................................. Section 2.16(d)
knowledge....................................................... Section 11
Laws............................................................ Section 2.14(a)
Legal Proceedings............................................... Section 2.13
Liens........................................................... Section 11
Managed Entity.................................................. Section 2.22(a)
Material Adverse Effect......................................... Section 11
Merger.......................................................... Recitals
Merger Consideration............................................ Section 1.5(c)
Option Consideration............................................ Section 1.6(a)
Parent.......................................................... Preamble
Parent Disclosure Schedule...................................... Section 3
Parent Expenses................................................. Section 5.7(b)
Paying Agent.................................................... Section 1.8(a)
Permitted Liens................................................. Section 11
Person.......................................................... Section 11
reasonable best efforts......................................... Section 11
SEC............................................................. Section 2.6
Securities Act.................................................. Section 2.6
Subsidiary...................................................... Section 11
Superior Proposal............................................... Section 5.2(d)
Surviving Corporation........................................... Section 1.1(a)
Surviving Corporation Plans..................................... Section 5.5(b)
Takeover Proposal............................................... Section 5.2(d)
Tax............................................................. Section 2.16(a)
Tax Return...................................................... Section 2.16(a)
Tender Offer.................................................... Section 11
Termination Fee................................................. Section 5.7(b)
Third Party..................................................... Section 5.2(d)
Voting Agreements............................................... Section 11
Warrants........................................................ Section 2.3(a)
Warrant Consideration........................................... Section 1.6(b)
(iv)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 29, 2001 (this "Agreement"),
by and among INSIGHT HEALTH SERVICES HOLDINGS CORP., a Delaware corporation
("Parent"), JWCH MERGER CORP., a Delaware corporation ("Acquisition"), and
INSIGHT HEALTH SERVICES CORP., a Delaware corporation (the "Company").
BACKGROUND
A. Acquisition is a wholly-owned subsidiary of Parent and was formed to
merge with and into the Company so that, as a result of the merger, the Company
will survive and become a wholly-owned subsidiary of Parent.
B. The Board of Directors of each of Parent, Acquisition and the Company has
determined that this Agreement and the merger of Acquisition with and into the
Company (the "Merger") in accordance with the provisions of the Delaware
General Corporation Law (the "DGCL"), and, subject to the terms and conditions
of this Agreement, is advisable and in the best interests of Parent,
Acquisition and the Company and their respective stockholders.
C. The Board of Directors of each of Parent, Acquisition and the Company
have approved this Agreement, the Merger and the transactions contemplated
hereby.
D. General Electric Company and the GE Fund (together, "GE") and TC Group,
L.L.C. and its Affiliates (collectively, "Carlyle"), holders of approximately
67% of the voting stock of the Company on an as if converted basis, in the
aggregate, have each entered into a Voting Agreement, of even date herewith,
whereby such stockholders have agreed, subject to the terms and conditions
contained therein, to vote in favor of the Merger and the adoption of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto intending to be legally bound do hereby
agree as follows:
1. The Merger.
1.1 General.
(a) Upon the terms and subject to the conditions of this Agreement and
in accordance with the DGCL, at the Effective Time, (i) Acquisition shall
be merged with and into the Company, (ii) the separate corporate existence
of Acquisition shall cease, and (iii) the Company shall be the surviving
corporation (the "Surviving Corporation") and shall continue its corporate
existence under the laws of the State of Delaware.
(b) The Merger shall become effective at the time of filing of a
certificate of merger substantially in the form of Exhibit A attached
hereto, with the Secretary of State of the State of Delaware in accordance
with the provisions of Section 251 of the DGCL (the "Certificate of
Merger"), or at such later date as the parties may mutually agree (the
"Effective Time"). Subject to the terms and conditions of this Agreement,
the Company and Acquisition shall duly execute and file the Certificate of
Merger with the Secretary of State of the State of Delaware at the time of
the closing of the Merger (the "Closing"). The Closing shall take place at
the offices of Kaye Scholer LLP, 425 Park Avenue, New York, New York 10022,
on the date on which the last of the conditions set forth in Section 6 have
been satisfied or waived or such other date as the parties hereto may
mutually agree upon (the "Closing Date").
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(c) At the Effective Time, the effects of the Merger shall be as
provided in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time,
all the property, rights, privileges, powers and franchises of the Company
and Acquisition shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of the
Company and Acquisition shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
1.2 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be amended as set forth in Exhibit B and, as so
amended, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided therein or by applicable
law.
1.3 Bylaws. The Bylaws of Acquisition, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided therein or by applicable law.
1.4 Directors and Officers. From and after the Effective Time, (a) the
directors of Acquisition at the Effective Time shall be the directors of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation, and
(b) the officers of the Company at the Effective Time shall be the initial
officers of the Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualified.
1.5 Effect on Company Common Stock; Conversion of Company Preferred
Stock. Immediately prior to the Effective Time, the Company and the holders
of the Company Preferred Stock shall cause all outstanding shares of
Company Preferred Stock to be converted into shares of Company Common Stock
so that, immediately prior to the Effective Time, no shares of Company
Preferred Stock shall remain outstanding. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Acquisition,
the Company or the holders of any of the following securities:
(a) each issued and outstanding share of common stock of Acquisition
shall be converted into one validly issued, fully paid and nonassessable
share of common stock, no par value per share, of the Surviving
Corporation;
(b) each share of Company Common Stock owned or held in treasury by the
Company and each share of Company Common Stock owned by Acquisition or
Parent shall be canceled and retired without any conversion thereof and no
payment or distribution shall be made with respect thereto; and
(c) subject to the provisions of Section 1.8, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock canceled and retired in
accordance with Section 1.5(b) and any Dissenting Shares) shall be
converted into the right to receive $18.00 in cash per share, without
interest (the "Merger Consideration"). As of the Effective Time, each share
of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired, and each holder of record of a
certificate representing any such shares (a "Certificate") shall cease to
have any rights with respect thereto, other than the right to receive the
Merger Consideration, in accordance with Section 1.8.
(d) Notwithstanding any provision of this Agreement to the contrary, if
required by the DGCL but only to the extent required thereby, shares of
Company Capital Stock that are issued and outstanding immediately prior to
the Effective Time and that are held by holders of such shares of Company
Capital Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting
Shares") will not be converted into the right to receive the Merger
Consideration, and the holders of such Dissenting Shares will be entitled
to receive payment of the appraised value of such shares of Company Capital
Stock in accordance with the provisions of such Section 262 of the DGCL
unless and until such holders fail to perfect or effectively withdraw or
lose their rights to appraisal and payment under the DGCL. If, after the
Effective Time, any such holder fails to perfect or effectively withdraws
or loses such right, such shares of Company Capital Stock will thereupon
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be treated as if they had been converted into and become exchangeable for,
at the Effective Time, the right to receive the Merger Consideration,
without any interest thereon. The Company shall (i) give Parent prompt
notice of any demands received by the Company for appraisals of shares of
Company Capital Stock and (ii) consult with and keep Parent informed, on an
on-going basis, regarding the status and negotiation of such demands. The
Company shall not make any payment or settlement offer, or agree to or
effect any settlement, prior to the Effective Time with respect to any such
demand unless Parent shall have consented in writing to such payment or
settlement offer, which consent shall not be unreasonably withheld.
1.6 Company Stock Options; Warrants.
(a) As of the Effective Time, each outstanding option to purchase shares
of Company Common Stock under the Company Stock Plans (individually, a
"Company Stock Option" and collectively, the "Company Stock Options") shall
be canceled and retired by virtue of the Merger and each holder of a
Company Stock Option shall cease to have any rights with respect thereto,
other than the right to receive the Option Consideration, if any, in
accordance with this Section 1.6(a). Except as set forth on Schedule 1.6,
each holder of a Company Stock Option, whether or not then exercisable,
shall be entitled to receive in cash an amount determined by multiplying
(i) the excess, if any, of the Merger Consideration over the exercise price
per share provided in such Company Stock Option, by (ii) the number of
shares of Company Common Stock subject to such Company Stock Option (such
amount being hereinafter referred to as the "Option Consideration").
Payment of the Option Consideration shall be made by the Company, subject
to the terms and conditions of this Agreement, as soon as practicable after
consummation of the Merger and receipt by the Company of the surrendered
option agreement representing such Company Stock Option and a written
instrument, reasonably satisfactory to Parent, duly executed by the holder
of such Company Stock Option setting forth (x) a representation by such
holder that he or she is the owner of all options represented by such
Company Stock Option and (y) a confirmation of, and consent to, the
cancellation of all of the options represented by such Company Stock
Option. All amounts payable pursuant to this Section 1.6(a) shall be
subject to any required withholding of taxes and shall be paid without
interest. At the Effective Time, the Company Stock Plans shall terminate.
(b) As of the Effective Time, each outstanding Warrant shall be canceled
and retired by virtue of the Merger and each holder of a Warrant shall
cease to have any rights with respect thereto, other than the right to
receive the Warrant Consideration, if any, in accordance with this Section
1.6(b). Each holder of a Warrant, whether or not then exercisable, shall be
entitled to receive in cash an amount determined by multiplying (i) the
excess, if any, of the Merger Consideration over the exercise price per
share provided in such Warrant, by (ii) the number of shares of Company
Common Stock subject to such Warrant (such amount being hereinafter
referred to as the "Warrant Consideration"). Payment of the Warrant
Consideration shall be made by the Company, subject to the terms and
conditions of this Agreement, as soon as practicable after consummation of
the Merger and receipt by the Company of the surrendered Warrant and a
written instrument, reasonably satisfactory to Parent, duly executed by the
holder of such Warrant setting forth (x) a representation by such holder
that he or she is the owner of all rights represented by such Warrant and
(y) a confirmation of, and consent to, the cancellation of such Warrant.
All amounts payable pursuant to this Section 1.6(b) shall be subject to any
required withholding of taxes and shall be paid without interest.
1.7 Adjustment of the Merger Consideration. In the event that, prior to
the Effective Date, any stock split, combination, reclassification or stock
dividend with respect to the Company Common Stock or the Company Preferred
Stock (collectively, the "Company Capital Stock"), any change or conversion
of Company Capital Stock into other securities or any other dividend or
distribution with respect to the Company Capital Stock (other than regular
quarterly dividends) should occur or, if a record date with respect to any
of the foregoing should occur, appropriate and proportionate adjustments
shall be made to the Merger Consideration, and thereafter all references to
the Merger Consideration shall be deemed to be to the Merger Consideration
as so adjusted.
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1.8 Exchange Procedures; Stock Transfer Books.
(a) Prior to the Effective Time, Parent shall appoint a commercial bank
or trust company, which shall be reasonably satisfactory to the Company, to
act as paying agent hereunder (the "Paying Agent") for payment of the
Merger Consideration upon surrender of a Certificate. Prior to or
concurrently with the Effective Time, Parent shall cause Acquisition or the
Surviving Corporation, as the case may be, to provide the Paying Agent with
cash in an amount necessary to pay for all the shares of Company Common
Stock pursuant to Section 1.5(c). Such amounts shall hereinafter be
referred to as the "Exchange Fund."
(b) As soon as practicable after the Effective Time, Parent shall use
its reasonable efforts to cause the Paying Agent to send to each Person who
was, at the Effective Time, a holder of record of Certificates which shares
were converted into the right to receive the Merger Consideration pursuant
to Section 1.5(c), a letter of transmittal which (i) shall specify that
delivery shall be effected and risk of loss and title to such Certificates
shall pass, only upon actual delivery thereof to the Paying Agent, and (ii)
shall contain instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate to the Paying Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto,
and such other documents as may reasonably be required by the Paying Agent,
the holder of such Certificate shall promptly receive in exchange therefor
the Merger Consideration.
(c) If any Merger Consideration is to be paid to any Person other than
the registered holder of the Certificate surrendered in exchange therefor,
it shall be a condition to such exchange that such surrendered Certificate
shall be properly endorsed and otherwise in proper form for transfer and
such Person either (i) shall pay to the Paying Agent any transfer or other
taxes required as a result of the distribution of such cash payment to such
Person, or (ii) shall establish to the reasonable satisfaction of the
Paying Agent that such tax has been paid or is not applicable. Parent or
the Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent or the Paying Agent
is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Paying
Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by Parent
or the Paying Agent. All amounts in respect of taxes received or withheld
by Parent shall be disposed of by Parent in accordance with the Code or
such state, local or foreign tax law, as applicable.
(d) As of the Effective Time, all shares of Company Common Stock (other
than shares of Company Common Stock to be canceled and retired in
accordance with Section 1.5(b) and any Dissenting Shares) issued and
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of any such shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
upon surrender of the Certificate representing such shares in accordance
with this Section 1.8. The Merger Consideration paid upon the surrender of
Certificates in accordance with the terms of this Section 1.8 shall be
deemed to have been delivered (and paid) in full satisfaction of all rights
pertaining to the Company Common Stock previously represented by such
Certificates.
(e) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and subject to such other
reasonable conditions as the Board of Directors of the Surviving
Corporation may impose, the Paying Agent shall issue in exchange for such
lost, stolen or destroyed Certificate, the Merger Consideration payable in
respect thereof, pursuant to this Agreement; provided, that Parent may, in
its reasonable discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
deliver a bond in such sum as it may reasonably require as indemnity
against any claim that may be made against Parent, the Surviving
Corporation or the Paying Agent with respect to the Certificate alleged to
have been lost, stolen or destroyed.
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(f) At the Effective Time, the stock transfer books of the Company shall
be closed and thereafter there shall be no further registration oftransfers
of shares of Company's capital stock on the records of the Company.
(g) The Paying Agent shall invest any cash included in the Exchange Fund
as directed by Parent on a daily basis; provided, that no such investment
or loss thereon shall affect the amounts payable to the Company's
stockholders pursuant to Section 1. Any interest and other income resulting
from such investments shall promptly be paid to Parent.
1.9 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former holders of Company Common Stock for 180
days after the Effective Time shall be delivered to Parent, upon its
request, and any such former holders who have not theretofore surrendered
to the Paying Agent their Certificates in compliance herewith shall
thereafter look only to Parent for payment of their claim for the Merger
Consideration. None of Parent, Acquisition, the Paying Agent or the Company
shall be liable to any former holder of Company Common Stock for any such
cash held in the Exchange Fund which is delivered to a public official
pursuant to an official request under any applicable abandoned property,
escheat or similar law.
1.10 Further Assurances. If at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to
or under any of the rights, privileges, powers, franchises, properties or
assets of either the Company or Acquisition, or (b) otherwise to carry out
the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to execute
and deliver, in the name and on behalf of either the Company or
Acquisition, all such deeds, bills of sale, assignments and assurances and
do, in the name and on behalf of the Company or Acquisition, all such other
acts and things necessary, desirable or proper to vest, perfect or confirm
its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of the Company or Acquisition, as
applicable, and otherwise to carry out the purposes of this Agreement.
2. Representations and Warranties of the Company. Except as set forth on the
disclosure schedule delivered by the Company to Parent prior to the execution
of this Agreement (the "Company Disclosure Schedule") and making reference to
the particular subsection of this Agreement to which exception is being taken,
the Company represents and warrants to Parent and Acquisition as follows:
2.1 Organization. Each of the Company and its Subsidiaries is a
corporation or other legal entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority and all necessary
governmental approval to carry on its business as it has been and is now
being conducted, to use its properties in the manner in which its
properties have been and are currently being used, and to perform its
obligations under all Company Material Contracts, except for those
jurisdictions where the failure to be so organized, existing or in good
standing would, individually or in the aggregate, not reasonably be
expected to have a Material Adverse Effect on the Company. Each of the
Company and its Subsidiaries is duly qualified or licensed as a foreign
corporation to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction where the
nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed and in good standing would,
individually or in the aggregate, not have a Material Adverse Effect on the
Company. The Company has made available to Parent prior to the execution of
this Agreement complete and correct copies of its certificate of
incorporation and bylaws and the charter documents for each of its
Subsidiaries in each case, as amended to the date hereof.
2.2 Subsidiaries. Item 2.2 of the Company Disclosure Schedule sets forth
a true and complete list of each of the Company's Subsidiaries. All the
outstanding shares of capital stock of, or other equity interest in, each
Subsidiary of the Company have been validly issued, including in compliance
with all
I-5
applicable federal and state securities laws, are fully paid and
nonassessable and are owned by the Company, except as disclosed in Item 2.2
of the Company Disclosure Schedule.
2.3 Capital Structure.
(a) The authorized capital stock of the Company consists of 25,000,000
shares of common stock, par value $.001 per share (the "Company Common
Stock") and 3,500,000 shares of preferred stock, par value $.001 per share
(the "Company Preferred Stock"), of which (A) 2,501,760 shares have been
designated Series A Preferred Stock (the "Company Series A Preferred
Stock"), (B) 25,000 shares have been designated Series B Preferred Stock
(the "Company Series B Preferred Stock"), (C) 27,953 shares have been
designated Series C Preferred Stock (the "Company Series C Preferred
Stock") and (D) 632,366 shares shares have been designated Series D
Preferred Stock (the "Company Series D Preferred Stock"). As of the date
hereof, (i) 3,011,656 shares of Company Common Stock are issued and
outstanding; (ii) no shares of the Company Series A Preferred Stock or
Company Series D Preferred Stock are issued and outstanding; (iii) 25,000
shares of the Company Series B Preferred Stock are issued and outstanding;
(iv) 27,953 shares of the Company Series C Preferred Stock are issued and
outstanding; (v) no shares of Company Common Stock are held by the Company
in its treasury; (vi) 1,828,006 shares of Company Common Stock are reserved
for issuance pursuant to the Company Stock Plans, of which 1,555,698 shares
are subject to outstanding Company Stock Options; (vii) warrants to
purchase 642,183 shares of the Company Common Stock (the "Warrants") are
issued and outstanding; and (viii) 9 5/8% Senior Subordinated Notes due in
2008 with an aggregate principal amount of $100,000,000 are issued and
outstanding. All outstanding shares of capital stock of the Company are,
and all shares which may be issued will be, duly authorized, validly
issued, fully paid and nonassessable, not subject to preemptive rights and
were issued in compliance in all material respects with all applicable
federal and state securities laws.
(b) Except as set forth in Section 2.3(a), as of the date hereof, no
shares of capital stock or other equity or voting securities of the Company
were issued, reserved for issuance or outstanding. There are no outstanding
stock appreciation rights or rights (other than Company Stock Options) to
receive shares of Company Common Stock or other equity or voting securities
of the Company on a deferred basis granted under the Company Stock Plans or
otherwise and, except as set forth in Section 2.3(a), no warrants to
purchase shares of capital stock or other equity or voting securities of
the Company at any time or upon the occurrence of any stated event.
(c) Except as set forth in Section 2.3(a), no bonds, debentures, notes
or other indebtedness of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote are issued or
outstanding.
(d) As of the date hereof, except as set forth in this Section 2.3, (i)
there are not issued, reserved for issuance or outstanding (A) any shares
of capital stock or other voting securities of the Company, (B) any
securities of the Company convertible into or exchangeable or exercisable
for shares of capital stock or voting securities of the Company, (C) any
warrants, calls, options, phantom stock, shadow warrants or other rights to
acquire from the Company or any Subsidiary, and no obligation of the
Company or any Subsidiary to issue, any capital stock, voting securities,
derivative securities or other securities convertible into or exchangeable
or exercisable for capital stock or voting securities of the Company, and
(ii) there are not any outstanding obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. The Company is not a party to or aware of any voting
agreement with respect to the voting of any such securities.
(e) There are no outstanding (i) securities of the Company or any
Subsidiary convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary, (ii) warrants, calls, options, phantom stock, shadow warrants
or other rights to acquire from the Company or any Subsidiary, and no
obligation of the Company or any Subsidiary to issue, any
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capital stock, voting securities, derivative securities or other ownership
interests in, or any securities convertible into or exchangeable or
exercisable for any capital stock, voting securities, derivative securities
or ownership interests in, any such Subsidiary, or (iii) obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any
such outstanding securities of such Subsidiaries or to issue, deliver or
sell, or cause to be issued, delivered or sold, any such securities. Except
for the Company's ownership of the Subsidiaries, the Company does not,
directly or indirectly, have any ownership or other interest in, or control
of, any Person, nor is the Company or any Subsidiary controlled by or under
common control with any Person.
2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to Company Stockholder
Approval, to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on
the part of the Company, subject, in the case of the Merger, to Company
Stockholder Approval. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
2.5 No Conflict.
(a) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of a
benefit under or result in the creation of any encumbrance or lien upon any
of the properties or assets of the Company or any of its Subsidiaries
under, (i) the certificate of incorporation or bylaws of the Company or the
comparable organizational documents of any of its Subsidiaries, or (ii)
subject to the governmental filings and other matters referred to in
Section 2.5(b), any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clause (ii),
any such conflicts, violations, defaults, rights or losses that would not
reasonably be expected to have a Material Adverse Effect on the Company.
The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification
or acceleration of any obligation or loss of a benefit under or result in
the creation of any encumbrance or lien upon any of the properties or
assets of the Company or any of its Subsidiaries under, any material loan
or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, commitment, concession, franchise, license
or similar authorization applicable to the Company or any of its
Subsidiaries or their respective properties or assets, in each case, in any
material respect.
(b) No consent, approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with or exemption,
notice, application, or certificate by or to, (collectively, "Consents")
any federal, state, local or foreign government, any court, administrative,
regulatory or other governmental agency, commission, department or
authority or any non- governmental self-regulatory agency, department,
commission or authority, foreign or domestic (each, a "Governmental
Entity") is required by or with respect to the Company or any of its
Subsidiaries or, to the actual knowledge of the Company's executive
officers and any other officer having primary responsibility for such
matters, any Managed Entity in connection with the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by the Company under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
any applicable filings and approvals under similar foreign antitrust laws
and regulations; (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of other states in
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which the Company is qualified to do business; (iii) such filings as may be
required by The Nasdaq National Market, Inc.; (iv) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act"); and (v) such
consents, approvals, orders or authorizations which if not made or obtained
would not reasonably be expected to have a Material Adverse Effect on the
Company.
2.6 Financial Information. The Company has filed with the Securities and
Exchange Commission ("SEC") since June 30, 1999, all required registration
statements, reports, schedules, forms, statements, proxy or information
statements and other documents (including exhibits and all other
information incorporated therein) (the "Company SEC Documents"). As of
their respective dates, the Company SEC Documents complied or, with respect
to those not filed yet, will comply in all material respects with the
requirements of the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder (the "Securities Act"), or
the Exchange Act, as the case may be, and, except to the extent that
information contained in any Company SEC Document has been revised and
superseded by a later filed Company SEC Document, did not or, with respect
to those not yet filed, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents comply, as
of their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis and
consistent with past practices of the Company during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the date thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal recurring year-end
audit adjustments). Except as set forth in the financial statements and in
the notes thereto contained in the Company Filed SEC Documents and except
for liabilities (i) incurred in the ordinary course of business consistent
with past practice since the date of the most recent audited financial
statements included in the Company Filed SEC Documents, (ii) incurred in
connection with this Agreement or the transactions contemplated hereby or
thereby which are customary for the transactions contemplated by this
Agreement (including, without limitation, fees payable to attorneys,
accountants, financial advisors and other representatives), or (iii)
disclosed in Item 2.6 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any material liabilities or
obligations of any nature.
2.7 Company Proxy Statement. The definitive proxy statement of the
Company (the "Company Proxy Statement") to be filed with the SEC in
connection with the transactions contemplated hereby, including without
limitation, the Merger, and any amendments or supplements thereto will,
when filed, comply in all material respects with the applicable
requirements of the Exchange Act. At the time of the filing of the Company
Proxy Statement, at the time the Company Proxy Statement or any amendment
or supplement thereto is first mailed to stockholders of the Company, at
the time such stockholders vote on the adoption of this Agreement and
approval of the Merger, and at the Effective Time, the Company Proxy
Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section
2.7 will not apply to statements or omissions included in the Company Proxy
Statement based upon information furnished to the Company in writing by
Parent or Acquisition specifically for use therein.
2.8 Absence of Certain Changes. Except (i) for liabilities which are
customary for the transactions contemplated by this Agreement (including,
without limitation, fees payable to attorneys, accountants, financial
advisors and other representatives) incurred in connection with this
Agreement or the transactions contemplated hereby, (ii) as disclosed in the
Company SEC Documents filed and publicly available prior
I-8
to the date of this Agreement (as amended by documents filed and publicly
available prior to the date of this Agreement, the "Company Filed SEC
Documents"), and (iii) with respect to the matters set forth in subsection
(d) below that do not exceed $750,000, since June 30, 2000, the Company and
its Subsidiaries have conducted their business only in the ordinary course,
and there has not been:
(a) as of the date hereof, any event or circumstance which has had or
which would individually or in the aggregate be reasonably expected to have
a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
the Company's capital stock or any repurchase, redemption or other
acquisition by the Company or any of its Subsidiaries of any outstanding
shares of capital stock or other securities of the Company or any of its
Subsidiaries;
(c) any split, combination or reclassification of any of the Company's
Capital Stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for, shares
of the Company's capital stock, except for issuances of Company Common
Stock upon (i) the exercise of Company Stock Options under the Company
Stock Plans awarded prior to the date hereof in accordance with their
present terms, (ii) the exercise of the Warrants and (iii) the conversion
of the Company Preferred Stock;
(d) except insofar as may have been required by a change in GAAP, any
change in accounting methods, principles or practices by the Company;
(e) any issuance, delivery or agreement (conditionally or
unconditionally) to issue or deliver any bonds, notes or other debt
securities, other than in the ordinary course of business consistent with
past practice or the entry into any lease the obligations of which, in
accordance with GAAP, would be capitalized;
(f) (A) any granting by the Company or any of its Subsidiaries to any
current or former director, officer or employee of the Company or any of
its Subsidiaries of any material increase in compensation or benefits,
except for grants to employees who are not officers or directors in the
ordinary course of business consistent with past practice, (B) any granting
by the Company or any of its Subsidiaries to any such director, officer or
employee of any increase in severance or termination pay (including the
acceleration in the vesting of Company Stock Options (or other property) or
the provision of any tax gross-up), except for grants to employees who are
not officers or directors in the ordinary course of business consistent
with past practice or (C) any entry by the Company or any of its
Subsidiaries into any employment deferred compensation, severance or
termination agreement or arrangement with or for the benefit of any such
current or former director, officer or employee, except with employees who
are not officers or directors in the ordinary course of business consistent
with past practice;
(g) any amendment, waiver or modification of any material term of any
outstanding security of the Company or any of its Subsidiaries;
(h) any incurrence, assumption or guarantee by the Company or any of its
Subsidiaries of any material indebtedness for borrowed money, or any
creation or assumption by the Company or any of its Subsidiaries of any
encumbrance or lien on any asset other than in the ordinary course of
business consistent with past practice;
(i) any making of any loan, advance or capital contributions to or
investment in any Person other than in the ordinary course of business
consistent with past practice in excess of $100,000;
(j) except as disclosed in the Company's fiscal 2001 budget and fiscal
2002 business plan previously provided to Parent by letter dated June 27,
2001, any single or related series of transactions or commitments made, or
any single or related series of contracts or agreements entered into, by
the Company or any of its Subsidiaries involving aggregate obligations of
more than $2,000,000 for any transaction or series of transactions, or any
capital expenditures in excess of $2,000,000 in the aggregate;
I-9
(k) any acquisition or disposition of any assets or any merger or
consolidation with any Person on behalf of the Company or any of its
Subsidiaries (other than sales of inventory in the ordinary course of
business in accordance with past practice and other than dispositions of
used, obsolete or outmoded equipment or machinery in the ordinary course of
business in accordance with past practice);
(l) any relinquishment by the Company or any of its Subsidiaries of any
contract or other right, in either case, material to the Company and its
Subsidiaries taken as a whole, other than transactions and commitments in
the ordinary course of business consistent with past practice and those
contemplated by the Agreement; or
(m) any agreement, commitment, arrangement or undertaking by the Company
or any Subsidiary to perform any action described in clauses (a) through
(l).
2.9 Properties.
(a) Each of the Company and its Subsidiaries has good and valid title to
or a valid leasehold interest in all its properties and assets material to
the business of the Company or reflected on the most recent balance sheet
contained in the Company's quarterly report on Form 10-Q that is a part of
the Company Filed SEC Documents or acquired after the date thereof, except
for properties and assets sold or otherwise disposed of in the ordinary
course of business since the date of such balance sheet. Set forth on Item
2.9(a) of the Company Disclosure Schedule is a listing of all real property
owned or leased by the Company or its Subsidiaries that is material to the
conduct of the business of the Company as currently conducted and, except
as set forth on Item 2.9(a) of the Company Disclosure Schedule, such real
property owned or leased by the Company is free and clear of all liens,
security interests, claims and other charges and encumbrances, except for
Permitted Liens.
(b) As to the Company's and its Subsidiaries' owned real property, the
Company or a Subsidiary (i) has good and marketable and insurable title to,
such properties and (ii) has, and Parent immediately after the Closing will
have, access to public roads or valid easements over private streets or
private property for such ingress to and egress from such properties,
except for such items that do not materially interfere with the Company's
ability to conduct its business as currently conducted.
(c) As to the Company's and its Subsidiaries' leased real property, the
Company or one of its Subsidiaries is in peaceful and undisturbed
possession of the properties purported to be leased under such leases, and
each such lease is valid and in full force and effect without any material
default thereunder by the Company or one of its Subsidiaries.
(d) As to the Company's and its Subsidiaries' owned and leased property
that is tangible personal property, such property is in good operating
condition and in a state of good maintenance and repair, ordinary wear and
tear excepted, and is adequate and suitable for the use for which it is
intended and none of such property is in need of maintenance or repair,
except for ordinary, routine maintenance and repair that is not, in the
aggregate, material in nature or cost. Such property is sufficient for the
continued conduct by Company and its Subsidiaries of their respective
businesses after the Effective Time in substantially the same manner as
conducted prior to the Effective Time.
2.10 Capital Leases. Set forth on Item 2.10 of the Company Disclosure
Schedule is a true and complete list of all capital leases of the Company
or its Subsidiaries. The Company and/or its Subsidiaries is in peaceful and
undisturbed possession of the properties purported to be leased thereunder,
and each such lease is valid and in full force and effect without any
material default thereunder by the Company or any of its Subsidiaries.
2.11 Contracts. Neither the Company nor any of its Subsidiaries is a
party to or bound by any (a) non-competition agreement or any other similar
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, the business of the Company
and its Subsidiaries is conducted, (b) material agreement that contains a
change in control provision for which Parent would not receive the benefits
of such agreement or any benefits of any other party thereto will be
I-10
increased or the vesting of any such benefits accelerated upon the
consummation of the transactions contemplated hereby, (c) agreement that
would create rights to any Person against Parent or any of its Affiliates
(other than rights that would remain solely against the Company as in
effect on the Closing Date) or (d) agreement which provides for payments by
the Company and/or any Subsidiary after the date hereof of $2 million or
more.
2.12 Absence of Default. Each agreement listed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2000 under the rules and regulations of the SEC relating to the business of
the Company and its Subsidiaries and the material agreements listed on
Schedule 2.11 attached hereto (the "Company Material Contracts") is valid
and in full force and effect except to the extent it has previously expired
in accordance with its terms, and neither the Company nor its Subsidiaries
has violated any material provision of, or committed or failed to perform
any act which, with or without notice, lapse of time, or both, would
reasonably be expected to constitute a material default under the
provisions of, any such Company Material Contract. To the knowledge of the
Company, no other party to any such Company Material Contract has violated
any provision of, or committed or failed to perform any act which, with or
without notice, lapse of time, or both, would reasonably be expected to
constitute a material default or other material breach under the provisions
of, such Company Material Contract.
2.13 Litigation. Item 2.13 of the Company Disclosure Schedule sets forth
(i) any actions, suits, arbitrations, legal or administrative proceedings
or investigations ("Legal Proceedings") pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries or, to
the actual knowledge of the Company's executive officers and any other
officer having primary responsibility for such matters, pending or
threatened against any Managed Entity; (ii) any judgment, order, writ,
injunction or decree of any court, governmental agency or arbitration
tribunal as to which any of the assets, properties or business of the
Company or any of its Subsidiaries or, to the actual knowledge of the
Company's executive officers and any other officer having primary
responsibility for such matters, any Managed Entity is subject; and (iii)
any actions, suits, arbitrations or proceedings as to which the Company or
any such Subsidiary or, to the actual knowledge of the Company's executive
officers and any other officer having primary responsibility for such
matters, any Managed Entity is the plaintiff or the Company or any such
Subsidiary or, to the actual knowledge of the Company's executive officers
and any other officer having primary responsibility for such matters, any
Managed Entity is contemplating commencing legal action against any other
Person, in each such case of clauses (i), (ii) and (iii) which would
reasonably be expected to be material to the Company and its Subsidiaries
taken as a whole.
2.14 Compliance with Law.
(a) The conduct by the Company and its Subsidiaries and, to the actual
knowledge of the Company's executive officers and any other officer having
primary responsibility for such matters, the Managed Entities of their
respective businesses and affairs have been in compliance with all
statutes, laws, ordinances, rules, regulations, judgments, orders, writs,
injunctions or decrees applicable thereto (collectively, "Laws"), except
where the failure to comply with such Laws would, individually or in the
aggregate, not reasonably be expected to have a Material Adverse Effect on
the Company.
(b) Each of the Company and its Subsidiaries and, to the actual
knowledge of the Company's executive officers and any other officer having
primary responsibility for such matters, the Managed Entities has obtained
all licenses, permits, certificates or other governmental authorizations
(collectively, "Authorizations") necessary for the ownership or use of its
assets and properties or the conduct of its business other than
Authorizations (i) which are ministerial in nature and which the Company,
such Subsidiary or such Managed Entity has no reason to believe would not
be issued in due course and (ii) which, the failure of the Company, such
Subsidiary or such Managed Entity to possess, would, individually or in the
aggregate, not reasonably be expected to have a Material Adverse Effect on
the Company.
(c) None of the Company, any of its Subsidiaries or, to the actual
knowledge of the Company's executive officers and any other officer having
primary responsibility for such matters, the Managed
I-11
Entities has received notice of violation of, or knows of any violation of,
any Laws to which it or its business is subject or any Authorization
necessary for the ownership or use of its assets and properties or the
conduct of its business, except for any such violation which would,
individually or in the aggregate, not reasonably be expected to have a
Material Adverse Effect on the Company.
2.15 Intellectual Property.
(a) The Company and its Subsidiaries own, or are validly licensed or
otherwise have the right to use, all patents, patent rights, trademarks,
trade secrets, trade names, service marks, brand names, copyrights and
other proprietary intellectual property rights and computer programs (the
"Intellectual Property Rights"), in each case, which are material to the
conduct of the business of the Company and its Subsidiaries as currently
conducted. Item 2.15 of the Company Disclosure Schedule sets forth a
listing of each Intellectual Property Right held by the Company, in each
case, which is material to the conduct of the business of the Company and
its Subsidiaries as currently conducted.
(b) To the Company's knowledge, the conduct by the Company and its
Subsidiaries of their respective businesses has not and does not infringe
upon, misappropriate or conflict in any material respect any Intellectual
Property Right of any Person, and there are no pending or threatened claims
alleging that the Company or any of its Subsidiaries infringes,
misappropriates or conflicts in any material respect with the Intellectual
Property Rights of any Person.
2.16 Taxes.
(a) For purposes of this Agreement, (i) "Tax" or "Taxes" shall mean any
federal, foreign, state or local income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customs duties, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not; and (ii) "Tax Return" shall mean any return, declaration,
form, report, claim for refund, or information return or statement relating
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
(b) The Company and each of its Subsidiaries have timely filed or will
timely file all Tax Returns required to be filed by them prior to the
Closing Date (taking into account extensions), except for any such Tax
Returns which are not reasonably likely to have a Material Adverse Effect
on the Company. All such Tax Returns are complete and correct in all
respects, except for any such omissions or errors which are not reasonably
likely to have a Material Adverse Effect on the Company.
(c) The Company and each of its Subsidiaries have paid or provided for
(or the Company has, on its Subsidiaries' behalf, paid or provided for) all
Taxes that are due and payable, except to the extent that any such Taxes
are not reasonably likely to have a Material Adverse Effect on the Company.
The unpaid Taxes of each of the Company and its Subsidiaries (i) did not,
as of the date of the Company's most recent consolidated financial
statements contained in the Company Filed SEC Documents, exceed the reserve
for Tax liability (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the
face of the balance sheets (rather than in any notes thereto) contained in
such financial statements, and (ii) will not exceed that reserve as
adjusted for operations and transactions through the Closing Date in
accordance with the past custom and practice of the Company and its
Subsidiaries in filing its Tax Returns, except to the extent that any such
unpaid Taxes are not reasonably likely to have a Material Adverse Effect on
the Company.
(d) Neither the Internal Revenue Service (the "IRS") nor any other
taxing authority has asserted any claim for Taxes, or to the actual
knowledge of the executive officers of the Company, is threatening to
assert any claims for Taxes, which claims are reasonably likely to have a
Material Adverse Effect on the Company. No deficiencies for any Taxes have
been proposed, asserted or assessed against the Company or any of its
Subsidiaries that have not been fully paid or adequately provided for in
the appropriate financial statements of the Company and its Subsidiaries,
no requests for waivers of the time to assess any Taxes
I-12
are pending, and none of the Company or any of its Subsidiaries has waived
any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency, other than those
which are not reasonably likely to have a Material Adverse Effect on the
Company. The Company and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such payment) all Taxes required by law to be withheld
or collected. Neither the Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code.
(e) There are no liens for Taxes upon the assets of the Company or any
of its Subsidiaries, other than liens for Taxes (i) that are not yet due,
or (ii) that are being contested in good faith by appropriate proceedings,
except for liens which are not reasonably likely to have a Material Adverse
Effect on the Company.
(f) There is no existing tax sharing agreement or other agreement or
arrangement with respect to Taxes of a Person other than the Company and
its Subsidiaries that may or will require that any payment be made by the
Company or any of its Subsidiaries to any such other person after the
Closing Date.
(g) The Company is not a United States real property holding corporation
within the meaning of section 897(c)(2) of the Code.
(h) Except as listed in Item 2.16 of the Company Disclosure Schedule,
there is no contract, agreement, plan or arrangement covering any person
that, individually or collectively, as a consequence of this transaction,
could give rise to the payment of any amount that would not be deductible
by Parent, the Company or any of the Subsidiaries by reason of Section
162(m) or 280G of the Code.
2.17 ERISA Compliance.
(a) The Company has listed in Item 2.17 of the Company Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
all bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar employee benefit
plans, and all unexpired severance agreements, written or otherwise, for
the benefit of, or relating to, any current or former employee of the
Company or any trade or business (whether or not incorporated) which is a
member of a controlled group of corporations that includes the Company or
which is under common control with the Company (an "ERISA Affiliate")
within the meaning of Section 414 of the Code, or any Subsidiary of the
Company or, with respect to the Managed Entities, for which the Company or
any Subsidiary has any obligation or liability (together, the "Company
Benefit Plans").
(b) With respect to each Company Benefit Plan, the Company has made
available to Parent, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Company Benefit Plan,
(iii) each trust agreement and group annuity contract, if any, relating to
such Company Benefit Plan, and (iv) the most recent actuarial report or
valuation relating to a Company Benefit Plan subject to Title IV of ERISA.
(c) With respect to the Company Benefit Plans, no event has occurred,
and to the knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any of its
Subsidiaries or, to the actual knowledge of the Company's executive
officers and any other officer having primary responsibility for such
matters, any of the Managed Entities could be subject to any liability that
is reasonably likely to be material to the Company and its Subsidiaries
under ERISA, the Code or any other applicable law.
(d) With respect to the Company Benefit Plans, there are no material
funded benefit obligations for which material contributions have not been
made or properly accrued and there are no material unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with GAAP, on the financial statements of
the Company.
I-13
(e) Except as provided for in this Agreement, none of the Company, any
of its Subsidiaries or, to the actual knowledge of the Company's executive
officers and any other officer having primary responsibility for such
matters, any Managed Entity is a party to any oral or written (i) agreement
with any officer or other key employee of the Company, any of its
Subsidiaries or any Managed Entity, the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of any of
the transactions involving the Company contemplated by this Agreement, (ii)
agreement with any officer of the Company, any of its Subsidiaries or any
Managed Entity providing any term of employment or compensation guarantee
extending for a period longer than two years from the date hereof and for
the payment of compensation in excess of $500,000 per annum, or (iii)
agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement, except as set forth on Schedule 2.17(e) of the Company
Disclosure Schedule.
2.18 Environmental Laws. Except for matters that would not reasonably be
expected to have a Material Adverse Effect on the Company, (i) the Company
and its Subsidiaries and, to the actual knowledge of the Company's
executive officers and any other officer having primary responsibility for
such matters, the Managed Entities comply, and within all applicable
statutes of limitations periods have complied, with all applicable
Environmental Laws; (ii) none of the Company, its Subsidiaries or, to the
actual knowledge of the Company's executive officers and any other officer
having primary responsibility for such matters, the Managed Entities is
subject to liability for any Hazardous Substance disposal or contamination
on any third-party property; (iii) none of the Company, any of its
Subsidiaries, or, to the actual knowledge of the Company's executive
officers and any other officer having primary responsibility for such
matters, the Managed Entities is subject to liability for any release of,
or any exposure of any Person or property to, any Hazardous Substance; (iv)
none of the Company, any of its Subsidiaries or, to the actual knowledge of
the Company's executive officers and any other officer having primary
responsibility for such matters, the Managed Entities has received any
notice, demand, letter, claim or request for information alleging that the
Company or any of its Subsidiaries may be in violation of or liable under
any Environmental Law; (v) none of the Company, any of its Subsidiaries or,
to the actual knowledge of the Company's executive officers and any other
officer having primary responsibility for such matters, the Managed
Entities is subject to any orders, decrees or injunctions issued by, or
other arrangements with, any Governmental Entity or is subject to any
indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and
(vi) there are no circumstances or conditions involving the Company, any of
its Subsidiaries or, to the actual knowledge of the Company's executive
officers and any other officer having primary responsibility for such
matters, any of the Managed Entities that could reasonably be expected to
cause the Company, any of its Subsidiaries or any of the Managed Entities
to become subject to any claims, liability, investigations or costs, or to
restrictions on the ownership, use or transfer of any property of the
Company, any of its Subsidiaries or any of the Managed Entities, pursuant
to any Environmental Law.
2.19 Voting Requirements; Board Approval and Recommendation.
(a) Assuming that the holders of Company Series B Preferred Stock and
Company Series C Preferred Stock convert all of their Company Series B
Preferred Stock and Company Series C Preferred Stock into Company Series D
Preferred Stock and/or Company Common Stock, the affirmative vote or
consent, as of the applicable record date, of the holders of (i) a majority
of all outstanding shares of Company Common Stock and Company Preferred
Stock, voting as a single class on an as-converted basis and (ii) 67% of
the outstanding shares of the Company Series D Preferred Stock, voting as a
separate class (assuming further that the holders of the Company Series D
Preferred Stock do not convert all of their Company Series D Preferred
Stock into Company Common Stock) (collectively, the "Company Stockholder
Approval"), is the only vote of the holders of any class or series of the
Company's capital stock necessary to adopt this Agreement and approve the
Merger and the other the transactions contemplated hereby.
I-14
(b) The Board of Directors of the Company, by resolutions duly adopted
by unanimous vote of those voting at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "Company Board
Approval"), has duly (i) determined that this Agreement and the Merger are
fair to and in the best interests of the Company and its stockholders, and
has declared the Merger to be advisable, (ii) adopted this Agreement and
approved the Merger and the other transactions contemplated hereby,
(iii) resolved (subject to Section 5.2) to recommend this Agreement and the
Merger to such holders for approval and adoption, and (iv) directed
(subject to Section 5.2) that this Agreement be submitted to the Company's
stockholders for consideration, subject to Section 5.2. Subject only to the
Company's ability to terminate this Agreement pursuant to Sections 5.2 and
7(d) hereof, the Company hereby agrees to the inclusion in the Company
Proxy Statement of such recommendation of the Board of Directors.
2.20 Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor is any such contract or agreement presently being
negotiated, nor is there, nor has there been in the last three years, a
representation question respecting any of the employees of the Company or
any of its Subsidiaries, and, to the knowledge of the Company, there are no
campaigns being conducted to solicit cards from employees of the Company or
its Subsidiaries to authorize representation by any labor organization, nor
is the Company or its Subsidiaries a party to, or bound by, any consent
decree with, or citation by, any Governmental Entity relating to employees
or employment practices. Nor is the Company or any of its Subsidiaries the
subject of any proceeding asserting that the Company or any of its
Subsidiaries has committed an unfair labor practice or is seeking to compel
it to bargain with any labor union or labor organization nor is there
pending or, to the knowledge of the Company, threatened, labor strikes,
disputes, walkouts, work stoppages, slow-downs or lockouts involving the
Company or any of its Subsidiaries. No material action, suit, complaint,
charge, arbitration, inquiry, proceeding or investigation by or before any
Governmental Entity brought by or on behalf of any employee, prospective
employee, former employee, retiree, labor organization or other
representative of its employees is pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries.
2.21 Insurance. The Company and its Subsidiaries are covered by fire and
casualty, general liability, business interruption, professional liability
and other insurance policies issued in favor of the Company and/or its
Subsidiaries by reputable insurance carriers that are in character and
amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for
failures to maintain insurance policies that are not reasonably likely to
have a Material Adverse Effect on the Company. All such insurance policies
have been delivered to Parent and are in full force and effect. Since June
30, 2000, neither the Company or any of its Subsidiaries has received any
notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any material claim under any insurance policy, or
(c) material adjustment in the amount of the premiums payable with respect
to any insurance policy. Except as set forth on Item 2.21 of the Company
Disclosure Schedule, there is no pending claim under or based upon any
insurance policy of the Company or any of its Subsidiaries.
2.22 Regulatory Matters.
(a) To the Company's knowledge, none of (i) the Company, any Subsidiary
of the Company, or the officers, directors, employees, or agents (as
defined in 42 C.F.R. Part 420 Subpart C and 42 C.F.R.
Section 1001.1001(a)(2)) of the Company or any Subsidiary of the Company,
or (ii) any entity which the Company or any Subsidiary of the Company
manages or for which the Company or any Subsidiary of the Company provides
billing services ("Managed Entity") or the employees of any Managed Entity
who are leased from the Company or any Subsidiary of the Company, has been
charged with, or has been or is being investigated with respect to, any
activity (and with respect to the officers, directors, agents and employees
of the Company or any Subsidiary of the Company or any employee of any
Managed Entity as described above, only as to any activity during their
employment or association with the Company, any Subsidiary of the Company
or any Managed Entity) that materially contravenes or could materially
contravene or constitutes or could constitute a material violation of any
Healthcare Law. To the
I-15
Company's knowledge, no Person who (based on advice from Parent to the
Company regarding ownership of the Company after the Closing) immediately
after the Closing will have a direct or indirect ownership interest of 5%
or more (as those terms are defined in 42 C.F.R. Part 420 Subpart C and 42
C.F.R. Section 1001.1001(a)(2)) in the Company or any Subsidiary of the
Company, has been charged with, or has been or is being investigated with
respect to, any activity involving the Company or any Subsidiary of the
Company that materially contravenes or could materially contravene or
constitutes or could constitute a material violation of any Healthcare Law.
(b) To the actual knowledge of the officers of the Company, none of the
officers, directors and agents of any Managed Entity has been charged with,
or has been or is being investigated with respect to, any activity during
their employment or association with any Managed Entity that materially
contravenes or could materially contravene or constitutes or could
constitute a material violation of any Healthcare Law.
(c) To the actual knowledge of the officers of the Company, no Person
who immediately after the Closing will have a direct or indirect ownership
interest of 5% or more (as those terms are defined in 42 C.F.R. Part 420
Subpart C and 42 C.F.R. Section 1001.1001(a)(2)) in a Managed Entity has
been charged with, or has been or is being investigated with respect to,
any activity in connection with the Managed Entity that materially
contravenes or could materially contravene or constitutes or could
constitute a material violation of any Healthcare Law.
(d) To the Company's knowledge, none of the Company, any Subsidiary of
the Company, any Managed Entity or any of the officers, directors,
employees or agents (as described above) of the Company or any Subsidiary
of the Company or any employee of any Managed Entity who is leased from the
Company or any Subsidiary of the Company, has engaged in any activity (and
with respect to the officers, directors, agents and employees of the
Company or any Subsidiary of the Company or any employee of any Managed
Entity as described above, only as to any activity during their employment
or association with the Company, any Subsidiary of the Company or any
Managed Entity) that materially contravenes or constitutes a material
violation of any Healthcare Law during their employment or association with
the Company, any Subsidiary of the Company, or any Managed Entity. To the
actual knowledge of the officers of the Company, none of the officers,
directors or agents of any Managed Entity has engaged in any activity
during their employment or association with the Company, any Subsidiary of
the Company or any Managed Entity that materially contravenes or
constitutes a material violation of any Healthcare Law.
2.23 Medicare/Medicaid Participation.
(a) To the Company's knowledge, none of the Company, any Subsidiary of
the Company, or any existing officers or directors of the Company or the
respective Subsidiary who (based on advice by Parent to the Company) is
expected to be an officer, director, agent (as defined in 42 C.F.R. Section
1001.1001(a)(2)), or managing employee (as defined in SSA Section 1126(b)
or any regulations promulgated thereunder) of the Company or the respective
Subsidiary: (1) has had a material civil monetary penalty assessed against
it under Section 1128A of the SSA or any regulations promulgated
thereunder; (2) has been excluded from participation under the Medicare
program or a State Health Care Program or a Federal Health Care Program; or
(3) has been convicted (as that term is defined in 42 C.F.R. Section
1001.2) of any of the following categories of offenses as described in SSA
Section 1128(a) and (b)(1), (2), (3) or any regulations promulgated
thereunder: (i) criminal offenses relating to the delivery of an item or
service under Medicare or any State Health Care Program or any Federal
Health Care Program; (ii) criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a
healthcare item or service; criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility,
or other financial misconduct in connection with the delivery of a
healthcare item or service or with respect to any act or omission in a
program operated by or financed in whole or in part by any federal, state
or local governmental agency; (iii) federal or state laws relating to the
interference with or obstruction of any investigation into any criminal
offense described above in this clause (a); or (iv) criminal offenses under
federal or state law relating to the unlawful manufacture, distribution,
prescription or dispensing of a controlled substance.
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(b) The Company, a Subsidiary, or an entity owned in whole or in part by
the Company or a Subsidiary has a Medicare provider number, and a
participating provider agreement in force with a Medicare Part B carrier,
and materially meets all applicable Medicare conditions of coverage, in
each locale, as applicable, in which the Company, such Subsidiary or such
entity bills directly to Medicare for services furnished by the Company,
such Subsidiary or such entity.
(c) The Company, a Subsidiary, or an entity owned in whole or in part by
the Company or a Subsidiary has a Medicaid provider number and a
participating provider agreement, and materially satisfies all applicable
Medicaid conditions of coverage, in each state, as applicable, in which the
Company, such Subsidiary, or such other entity bills directly to such
state's Medicaid agency for services provided by the Company, such
Subsidiary, or such other entity for Medicaid patients.
2.24 State Takeover Statutes; Rights Plan. No state takeover statute is
applicable to the Merger or the other transactions contemplated hereby. The
Company has not entered into, and its Board of Directors has not adopted or
authorized the adoption of, a shareholder rights plan or similar agreement.
2.25 Brokers. No broker, investment banker, financial advisor or other
Person, other than UBS Warburg LLC, or its successor, the fees and expenses
of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or any of it Subsidiaries.
2.26 Opinion of Financial Advisor. The Board of Directors of the Company
has received the opinion of UBS Warburg LLC, dated the date of this
Agreement, to the effect that, as of such date, the Merger Consideration is
fair from a financial point of view to holders of the Company Common Stock.
The Company will furnish a copy of such written opinion to Parent for
informational purposes only after receipt thereof by the Company. The
Company has been authorized by UBS Warburg LLC to permit, subject to prior
review and consent by UBS Warburg LLC, the inclusion of such opinion in its
entirety (or a reference thereto) in the Company Proxy Statement.
2.27 Accounts Receivables. The Company's consolidated net retail
accounts receivables as a percentage of the trailing twelve (12) months net
patient services revenue does not exceed thirty-six percent (36.0%).
2.28 Full Disclosure. This Agreement (including the Company Disclosure
Schedule) does not (i) contain any representation, warranty or information
that is false or misleading with respect to any material fact, or (ii) omit
to state any material fact necessary in order to make the representations,
warranties and information contained herein and therein (in light of the
circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading in any material
respect.
3. Representations and Warranties of Parent and Acquisition. Except as set
forth on the disclosure schedule delivered by Parent to the Company prior to
the execution of this Agreement (the "Parent Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Parent and Acquisition represent and warrant to the Company as
follows:
3.1 Organization, Standing and Corporate Power. Each of Parent and
Acquisition is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in which
it is organized and has the requisite corporate or other power, as the case
may be, and authority to carry on its business as now being conducted,
except for those jurisdictions where the failure to be so organized,
existing or in good standing would not reasonably be expected to have a
Material Adverse Effect on Parent. Each of Parent and Acquisition is duly
qualified or licensed to do business and is in good standing (with respect
to jurisdictions which recognize such concept) in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of
its properties makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or to
be in good standing would not reasonably be expected to have a Material
Adverse Effect on Parent.
I-17
3.2 Authority. Each of Parent and Acquisition has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Acquisition and the
consummation by Parent and Acquisition of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action
on the part of Parent and Acquisition. This Agreement has been duly
executed and delivered by Parent and Acquisition and, constitutes the
legal, valid and binding obligation of Parent and Acquisition, enforceable
against each of them in accordance with its terms.
3.3 No Conflict.
(a) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under
(i) the certificate of incorporation or bylaws of Parent or Acquisition,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease
or other agreement, instrument, permit, concession, franchise, license or
similar authorization applicable to Parent or Acquisition or any of
Parent's other Subsidiaries or their respective properties or assets, or
(iii) subject to the governmental filings and other matters referred to in
Section 3.3(b), any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, violations, defaults, rights or losses that
would not reasonably be expected to have a Material Adverse Effect on
Parent.
(b) No consent, approval, order or authorization of, action by, or in
respect of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or Acquisition in
connection with the execution and delivery of this Agreement by Parent and
Acquisition or the consummation by Parent and Acquisition of the
transactions contemplated by this Agreement, except for (i) the filing of
premerger notification and report forms under the HSR Act and any
applicable filings and approvals under similar foreign antitrust laws and
regulations; (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of other states in which Parent is qualified to do
business; (iii) exemptive filings under federal and state securities laws
in connection with equity investments in Parent; (iv) the filing of a
Schedule 13D under the Exchange Act with respect to the Voting Agreements;
and (v) such consents, approvals, orders or authorizations the failure of
which to be made or obtained would not reasonably be expected to have a
Material Adverse Effect.
3.4 Information Supplied. None of the information supplied, or to be
supplied, by Parent, in writing, specifically for inclusion or
incorporation by reference in the Company Proxy Statement will, at the date
it is first mailed to the Company's stockholders or at the time of the
Company Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3.5 Financing. Parent has delivered to the Company complete and correct
copies of (i) a fully executed commitment letter from Bank of America, N.A.
and Banc of America Securities LLC whereby such financial institution has
committed, upon the terms and subject to the conditions set forth therein,
to provide senior debt financing in an amount of $275 million in connection
with the transactions contemplated by this Agreement; (ii) a fully executed
commitment letter from Bank of America Bridge LLC and Banc of America
Securities LLC whereby such financial institution has committed, upon the
terms and subject to the conditions set forth therein, to provide
subordinated debt financing in the amount of $200 million in connection
with the transactions contemplated by this Agreement; (iii) a fully
executed commitment letter from J.W. Childs Equity Partners II, L.P.
whereby J.W. Childs Equity Partners II, L.P. has committed, upon the terms
and subject to the conditions set forth therein, to provide equity
financing in the aggregate amount of up to $81.5 million in connection with
the transactions contemplated by this
I-18
Agreement; and (iv) a fully executed commitment letter from Halifax Capital
Partners, L.P. whereby Halifax Capital Partners, L.P. has committed, upon
the terms and subject to the conditions set forth therein, to provide
equity financing in the aggregate amount of up to $20 million in connection
with the transactions contemplated by this Agreement. The debt financing
referred to in clauses (i) and (ii) above shall hereinafter be referred to
as the "Financing Commitment". As of the date hereof, (i) the Financing
Commitments are in full force and effect and (ii) Parent and Acquisition
are not aware of any fact which would cause them to believe that the debt
financing contemplated by the Financing Commitments will not be consummated
as contemplated therein, subject to the conditions set forth in such
Financing Commitments.
3.6 Parent Owned Shares of Company Common Stock. As of the date of this
Agreement, Parent, Acquisition and their respective Subsidiaries own, in
the aggregate, no shares of Company Capital Stock.
4. Conduct Pending Closing.
4.1 Conduct of Business Pending Closing. From the date hereof until the
Closing, the Company shall, and shall cause each of its Subsidiaries to:
(a) maintain its existence in good standing;
(b) conduct its business in the ordinary and usual manner consistent
with past practices (except as expressly permitted by this Agreement) and
in compliance with all Laws and requirements of all of the Company Material
Contracts;
(c) maintain business and accounting records consistent with past
practices;
(d) use its reasonable best efforts to preserve its business intact and
preserve its relations and goodwill with all customers, suppliers,
landlords, creditors, licensors, licensees, employees and others having
business dealings with the Company;
(e) maintain in full force and effect all insurance policies referred to
in Section 2.21;
(f) operate, maintain, repair and otherwise preserve the real property
and personal property owned or leased by the Company and any of its
Subsidiaries in accordance with past practice and with the capital
expenditure budget of the Company previously disclosed to Parent;
(g) comply with all applicable filing, payment and withholding
obligations with respect to Taxes;
(h) report regularly to Parent concerning the status of the Company's
business, in such intervals agreed upon by the Company and Parent;
(i) promptly notify Parent in writing of any Legal Proceeding commenced
or, to the knowledge of the Company, threatened against the Company or any
of its Subsidiaries;
(j) hire any new employee at the level of regional vice president or
above or with an annual base salary in excess of $100,000, promote any
employee, except in order to fill a position vacated after the date of this
Agreement or engage any consultant or independent contractor for a period
exceeding 30 days; and
(k) calculate contractual allowances consistent with the methodology
used by the Company during the 12-month period preceding the date hereof.
4.2 Prohibited Actions Pending Closing. Unless otherwise provided for
herein or approved by Parent in writing (which Parent approval shall not be
unreasonably withheld or delayed), from the date hereof until the Closing,
the Company shall not, and shall not permit any of its Subsidiaries to:
(a) amend, modify or otherwise change or permit the adoption of any
amendment, modification or other change to the certificate of
incorporation, bylaws, certificate of formation, operating agreement or
other organization document of the Company or any of its Subsidiaries
except as contemplated by this Agreement;
I-19
(b) sell, issue, grant or authorize the issuance or grant of any capital
stock or other securities of the Company or any Subsidiary, any option,
call, warrant or right to acquire any capital stock or other securities of
the Company or any of its Subsidiaries or any instrument convertible into
or exchangeable for any capital stock of the Company or any of its
Subsidiaries (other than any issuance of (A) Company Common Stock upon the
exercise of any outstanding Company Stock Option or Warrant which was
issued prior to the date hereof in accordance with the terms of the
relevant stock option or warrant agreement; (B) Company Common Stock upon
the conversion of the Company Preferred Stock; (C) Company Stock Options,
not to exceed a total of 20,000 shares of Company Common Stock to new
employee hires consistent with past practice; (D) Company Stock Options,
not to exceed a total of 5,000 shares of Company Common Stock to existing
directors under the Company's 1996 Directors' Stock Option Plan; or (E)
Company Series D Preferred Stock upon conversion of the Company Series B
Preferred Stock and/or Company Series C Preferred Stock).
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise with respect to any capital
stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any capital stock;
(e) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances (collectively "Indebtedness") other than in the
ordinary course of business consistent with past practice;
(f) (i) form a Subsidiary or acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets) any interest in
any corporation, partnership, other business organization or any division
thereof or any assets in excess of $500,000, or (ii) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice, or (iii) except for planned capital
expenditures, substantially as set forth on Schedule 4.2(f), of no more
than $20,000,000 and positron emission tomography equipment operating
leases with commitments of no more than $16,000,000, authorize any capital
commitment which is in excess of $2,100,000 or capital expenditures which
are, in the aggregate, in excess of $2,100,000;
(g) sell, lease, license, mortgage, pledge or subject to Lien, any of
its assets or properties or agree to do so, except for Permitted Liens;
(h) take any action, other than in the ordinary course of business and
consistent with past practice, with respect to accounting policies or
procedures;
(i) establish, adopt or amend any employee benefit plan, pay any bonus
or make any profit-sharing or similar payment to, or increase the amount of
the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its officers, directors or employees or pay
any benefit not required by any Company Benefit Plan or take any action
with respect to the grant of any severance or termination pay, or stay
bonus or other incentive arrangement (other than pursuant to benefit plans
and policies in effect on the date of this Agreement including the
contribution by the Company to the Company's 401(k) Plan and payment of
fiscal 2001 year-end bonuses not to exceed $2,500,000, in the aggregate),
except (A) that the Company may make routine, reasonable salary increases
in connection with the Company's customary employee review process and may
pay customary bonuses consistent with past practices in accordance with the
Company's Benefit Plans or (B) as otherwise permitted by this Agreement.
(j) commence, settle or compromise any material Legal Proceeding;
I-20
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business or in accordance with their terms, of liabilities reflected or
reserved against in the most recently audited balance sheet (and the notes
thereto) or subsequently incurred in the ordinary course of business and
consistent with past practice;
(l) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any Company Material Contract or
waive, release or assign any material rights or claims thereunder;
(m) reserve any amount for, or make any payment of, Taxes, except for
such Taxes as are due or payable or have been properly estimated in
accordance with applicable Law as applied in a manner consistent with past
practice of the Company;
(n) make or change any Tax election, change any annual Tax accounting
period, adopt or change any method of Tax accounting, file any amended Tax
Return, enter into any closing agreement, settle any Tax claim or
assessment, surrender any right to claim a Tax refund, consent to the
extension and waiver of the limitations period applicable to any Tax claim
or assessment, or take or omit to take any other action if such action or
omission would have the effect of materially increasing the Tax liability
to the Company or any of its Subsidiaries, except where the action set
forth in this subparagraph would reasonably be expected to not be material
to the Company;
(o) other than contributions of working capital in the ordinary course
of business consistent with past practice, make any contribution or loan to
any Managed Entity; or
(p) agree or commit to take any of the actions described in clauses (a)
through (o) of this Section 4.2.
4.3 Control of Company Operations. Nothing contained in this Agreement
shall give Parent or Acquisition, directly or indirectly, the right to
control or direct the Company's operations prior to the Effective Time.
Prior to the Effective Time, the Company shall exercise, consistent with
the terms and conditions of this Agreement, complete control and
supervision over its operations.
5. Additional Agreements.
5.1 Access; Documents; Supplemental Information.
(a) Except as prohibited by applicable Laws, from and after the date
hereof until the Closing, the Company shall afford, shall cause its
Subsidiaries to afford and, with respect to clause (ii) below, shall use
its reasonable best efforts to cause its officers and advisors (including,
without limitation its independent certified public accountants, auditors,
counsel, financial advisors and other consultants or representatives) to
afford, (i) to the officers, independent certified public accountants,
counsel and other representatives of Acquisition and Parent, and Banc of
America Securities LLC, Bank of America, N.A. and Banc of America Bridge
LLC and their respective counsel and other representatives, upon reasonable
notice, reasonable access during normal business hours to the properties,
books and records including Tax Returns filed and those in the process of
being prepared by the Company or any of its Subsidiaries and the right to
consult with the officers, employees, accountants, counsel and other
representatives of the Company or any of its Subsidiaries in order that
Acquisition and Parent may have full opportunity to make such
investigations as they shall reasonably desire to make of the operations,
properties, business, financial condition and prospects of the Company and
its Subsidiaries, (ii) to the independent certified public accountants,
counsel or other representatives of Acquisition and Parent and Banc of
America Securities LLC, Bank of America, N.A. and Banc of America Bridge
LLC and their respective counsel and other representatives, reasonable
access during normal business hours to the work papers and other records of
the accountants relating to the Company and its Subsidiaries, and (iii) to
Acquisition and Parent and their representatives and Banc of America
Securities LLC, Bank of America, N.A. and Banc of America Bridge LLC and
their respective counsel and other representatives, such additional
financial and operating data
I-21
and other information as to the properties, operations, business, financial
condition and prospects of the Company and its Subsidiaries as Acquisition
and Parent shall from time to time reasonably request.
(b) From the date of this Agreement through and including the Closing,
Acquisition, Parent and the Company agree to furnish to each other copies
of any notices, documents, requests, court papers, or other materials
received from any Governmental Entity or any other third party with respect
to the transactions contemplated by this Agreement or material to the
business or operations of the Company or any Subsidiary, except where it is
obvious from such notice, document, request, court paper or other material
that the other party was already furnished with a copy thereof.
(c) Except as required by Law, the Company and Parent shall not, and
shall not permit any of their respective Subsidiaries to, take any action
that would, or that would reasonably be expected to, result in (i) any of
the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality or Material Adverse Effect
becoming untrue at the Effective Time, or (ii) any of such representations
and warranties that are not so qualified becoming untrue in any material
respect at the Effective Time.
(d) The Company shall give prompt notice to Parent, and Parent shall
give prompt notice to the Company, of (i) the discovery by such party of
any event, condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or constituted a
material inaccuracy in any representation or warranty made by such party in
this Agreement; (ii) any event, condition, fact or circumstance that
occurs, arises or exists after that date of this Agreement and that would
likely cause or constitute a material inaccuracy of any representation or
warranty made by such party in this Agreement; (iii) any breach by such
party of any covenant or obligation contained in this Agreement; and (iv)
any event, condition, fact or circumstance that would make the timely
satisfaction of any of the conditions to such party's obligations under
this Agreement, as set forth in Section 6, impossible or unlikely;
provided, that the delivery of any notice pursuant to this Section 5.1(d)
shall not limit or otherwise affect any of the representations, warranties,
covenants or obligations of the party giving such notice or the remedies
available to the party receiving such notice.
(e) Parent shall deliver to the Company, without charge, a copy of any
filing made by Parent with the SEC under the Exchange Act not later than
five business days after the date of such filing with the SEC.
(f) The Company shall deliver to Parent, without charge, a copy of any
filing made by the Company with the SEC under the Exchange Act, including,
without limitation, on Form 10-Q, 8-K or 10-K, not later than five business
days after the date of such filing with the SEC.
5.2 No Solicitation by the Company.
(a) The Company shall not, nor shall it permit any of its Subsidiaries,
directors, officers, employees, attorneys, accountants or financial
advisors or other representative retained by it or any of its Subsidiaries
to, directly or indirectly through another Person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal, or (ii) participate in any discussions or negotiations regarding
any Takeover Proposal; provided, however, that if at any time prior to
obtaining the Company Stockholder Approval at the Company Stockholders
Meeting, the Board of Directors of the Company determines in good faith,
after consultation with outside counsel, that the failure to provide such
information or participate in such negotiations or discussions would result
in the breach of the fiduciary duties of the Board of Directors of the
Company to the Company's stockholders under applicable Law, then the
Company and its representatives may, in response to any such written
proposal that has been determined by it to be a Superior Proposal or a
Takeover Proposal that the Board of Directors of the Company concludes in
good faith that there is a reasonable likelihood that such Takeover
Proposal could constitute a Superior Proposal, which was not solicited by
it or which did not otherwise result from a breach of this Section 5.2(a),
and subject to providing at least three business days prior written notice
of its decision to take such action to Parent and compliance with Section
5.2(c), (x) furnish
I-22
information with respect to the Company and its Subsidiaries to any Person
making such a Superior Proposal or Takeover Proposal pursuant to a
customary confidentiality agreement containing terms no less restrictive
than the terms of the confidentiality agreement entered into between the
Company and Parent or any Affiliate thereof provided that a copy of all
such information is delivered simultaneously to Parent, after consultation
with its outside counsel, and (y) participate in discussions or
negotiations regarding such Superior Proposal or Takeover Proposal.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall approve or recommend, or execute or enter into, any offer,
proposal, letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement (each,
an "Acquisition Agreement") related to any Takeover Proposal, other than
any such agreement entered into concurrently with a termination pursuant to
the next sentence in order to facilitate such action. Notwithstanding the
foregoing, in response to a Superior Proposal, if the Board of Directors of
the Company determines in good faith, after consultation with outside
counsel, that the failure to do so would result in a breach of its
fiduciary duties to the Company's stockholders under applicable Law, the
Board of Directors of the Company may (subject to this and the following
sentence) terminate this Agreement in accordance with Section 7(d) (and
concurrently with such termination, cause the Company to enter into an
Acquisition Agreement with respect to such Superior Proposal), but only at
a time that is after the third business day following Parent's receipt of
written notice advising Parent that the Board of Directors of the Company
is prepared to terminate this Agreement and accept a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the Person making such Superior Proposal. During the three
business day period set forth in the immediately preceding sentence, the
Company shall provide an opportunity for Parent to make adjustments in the
terms and conditions of this Agreement as would lead the Company to proceed
with the transactions contemplated by this Agreement (as amended by such
adjustments); provided, however, that (i) any such adjustments shall be at
the discretion of the parties at the time and (ii) any decision of the
Company to proceed with the Superior Proposal or the transactions
contemplated by this Agreement (as amended by such adjustments) is at the
sole and absolute discretion of the Company.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.2, the Company shall promptly
advise Parent orally and in writing of any request for information or of
any Takeover Proposal or Superior Proposal, the material terms and
conditions of such request, Takeover Proposal or Superior Proposal and the
identity of the Person making such request, Takeover Proposal or Superior
Proposal and keep Parent informed of the status (including amendments or
proposed amendments to) of such request for information, Takeover Proposal
or Superior Proposal on a continuing basis.
(d) For purposes of this Agreement, (i) "Takeover Proposal" means,
whether in the form of a proposal or intended proposal, a signed agreement
or completed action, as the case may be, any of the following: (A) a
transaction or series of transactions pursuant to which any Person (or
group of Persons) other than Parent and its Affiliates (a "Third Party")
acquires or would acquire, directly or indirectly, beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of more than 15% of the
outstanding capital stock of the Company, whether from the Company or
pursuant to a tender offer or exchange offer or otherwise; (B) any
acquisition or proposed acquisition of, or business combination with, the
Company or any of its Subsidiaries, as the case may be, by a merger or
other business combination (including any so-called "merger-of-equals" and
whether or not the Company or any of its Subsidiaries is the entity
surviving any such merger or business combination); or (C) any merger,
reorganization, consolidation, recapitalization, liquidation, extraordinary
dividend, sale of assets or other similar transaction by or involving a
Third Party if, after giving effect thereto, the stockholders of the
Company prior thereto beneficially own less than 85% of the outstanding
voting stock or participating stock of the combined or ongoing entity
(other than a transaction contemplated by this Agreement); and (ii) a
"Superior Proposal" means any bona fide written proposal (on its most
recently amended or modified terms, if amended or modified) made by a Third
Party to enter into a Takeover Proposal, the effect of which would be that
stockholders of the Company would beneficially own less than 40% of the
voting
I-23
stock, common stock and participating stock of the combined or ongoing
entity, and which the Board of Directors of the Company determines in its
good faith judgment (after consultation with a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Merger, taking into account all relevant factors
(including whether, in the good faith judgment of the Board of Directors of
the Company, after consultation with a financial advisor of nationally
recognized reputation, the Third Party is reasonably able to finance the
transaction and after consideration of any proposed adjustments to this
Agreement by Parent in response to such Takeover Proposal as contemplated
by Section 5.2(b)).
(e) Nothing contained in this Section 5.2 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act; provided, however, that
in no event shall the Company or its Board of Directors take or agree or
resolve to take any action or make any recommendation inconsistent with the
terms of this Agreement unless the Company (i) determines that the tender
offer to which its statement pursuant to Rule 14e-2(a) relates constitutes
a Superior Proposal, (ii) complies with the notice and waiting period
provisions under Sections 5.2(a) and (b), (iii) terminates this Agreement
pursuant to Section 7(d) and (iv) pays the Termination Fee to Parent as
required by Sections 5.7(b) and 7(d).
5.3 Preparation of the Company Proxy Statement; Company Stockholders
Meeting.
(a) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Company Proxy Statement
with respect to the Company Stockholders Meeting. The Company will use its
reasonable best efforts to cause the Company Proxy Statement to be mailed
to the Company's stockholders as promptly as practicable after the Company
Proxy Statement is cleared by the SEC. The Company shall provide Parent
with a copy of the preliminary Company Proxy Statement and all
modifications thereto prior to filing or delivery to the SEC and will
consult with Parent in connection therewith and consider in good faith
comments provided by Parent regarding the Company Proxy Statement. The
Company will inform Parent, promptly after it receives notice thereof, of
any request by the SEC for the amendment of the Company Proxy Statement or
comments thereon and responses thereto or requests by the SEC for
additional information, and will furnish to Parent copies of all
correspondence between the Company or any of its representatives, on the
one hand, and the SEC or its staff, on the other hand, with respect to the
Company Proxy Statement, the Merger or any other filings in connection
herewith or therewith and will consult with Parent in connection therewith.
If at any time prior to the Effective Time any information relating to the
Company or Parent, or any of their respective affiliates, officers or
directors, should be discovered by the Company or Parent which should be
set forth in an amendment or supplement to the Company Proxy Statement, so
that any of such document would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the party that discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to
the extent required by law, disseminated to the stockholders of the
Company.
(b) The Company shall establish a record date (which will be as soon as
practicable following the date of this Agreement) for and take all
necessary steps under all applicable Laws, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Company Stockholders
Meeting") solely for the purpose of obtaining the Company Stockholder
Approval.
(c) Subject only to the Company's ability to terminate this Agreement
pursuant to Sections 5.2 and 7(d) hereof, the Board of Directors of the
Company shall recommend to its stockholders the approval of this Agreement
and the transactions contemplated hereby and use its reasonable best
efforts to obtain Company Stockholder Approval.
5.4 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be
I-24
done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable under applicable Laws to consummate
and make effective, in the most expeditious manner practicable, the Merger
and the other transactions contemplated by this Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings and the taking of all steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding
by, any Governmental Entity, (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated by this Agreement, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Entity vacated or reversed, and (iv) the execution and delivery of any
additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
Nothing in this Section 5.4(a) shall be construed to require any party to
participate in any threatened or actual Legal Proceeding (other than Legal
Proceedings to which it is a party or subject or threatened to be made a
party or subject) in connection with the consummation of the transactions
contemplated by this Agreement unless such party shall consent in advance
in writing to such participation.
(b) In connection with and without limiting the foregoing, the Company
and Parent shall (i) take all action reasonably necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, this Agreement, or any of the other transactions
contemplated by this Agreement and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to the Merger, this
Agreement, or any other transaction contemplated by this Agreement, take
all action reasonably necessary to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly
as practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger and the
other transactions contemplated by this Agreement.
5.5 Employee Benefit Plans; Existing Agreement.
(a) After the Effective Time, Parent shall cause the Surviving
Corporation to provide to the employees of the Company substantially
similar benefit plans, programs and arrangements provided to employees of
the Company as of the date hereof.
(b) With respect to each benefit plan, program, practice, policy or
arrangement maintained by the Surviving Corporation (the "Surviving
Corporation Plans") in which employees of the Company subsequently
participate, for purposes of determining vesting, accrual and entitlement
to benefits, including for severance benefits, pension benefits and
vacation entitlement, service with the Company (or predecessor employers to
the extent the Company provides past service credit) shall be treated as
service with Surviving Corporation; provided, that such service shall not
be recognized to the extent that such recognition would result in a
duplication of benefits. Such service also shall apply for purposes of
satisfying any waiting periods, evidence of insurability requirements, or
the application of any pre-existing condition limitations. Each Surviving
Corporation Plan shall waive pre-existing condition limitations to the same
extent waived under the applicable Company Benefit Plan. Company employees
shall be given credit for amounts paid under a corresponding benefit plan
during the same period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in accordance
with the terms and conditions of the Surviving Corporation Plan for the
plan year in which the Effective Time occurs.
5.6 Indemnification.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to, fulfill and honor in all respects (i) the obligations of
the Company to indemnify each Person who is or was a director or officer
(an "Indemnified Party") of the Company or any of its Subsidiaries pursuant
to any indemnification provisions of the Company's Certificate of
Incorporation or Bylaws as each is in effect on the date hereof, and (ii)
any indemnification agreements of the Company, as each is in effect on the
date
I-25
hereof, 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 in accordance with their
terms, and Parent shall cause the Surviving Corporation to honor all such
rights. Without limitation to the foregoing, Parent shall cause the
Surviving Corporation to include and cause to be maintained in effect in
the Surviving Corporation's (or any successor's) certificate of
incorporation and bylaws after the Effective Time, provisions regarding the
elimination of liability of directors, indemnification of officers,
directors and employees and the advancement of expenses, which are, in the
aggregate, no less advantageous to the intended beneficiaries than the
corresponding provisions contained in the Company's Certificate of
Incorporation and Bylaws as in effect on the date hereof.
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current officers' and directors'
liability insurance maintained by the Company with respect to the
Indemnified Parties (provided, that Parent may substitute therefor policies
of at least the same coverage and amounts containing terms and conditions
which are no less advantageous to the Indemnified Parties than such
existing insurance) covering acts or omissions occurring prior to the
Effective Time; provided, that Parent shall not be required in order to
maintain or procure such coverage to pay an annual premium in excess of
175% of the current annual premium paid by the Company for its existing
coverage (the "Cap"); and provided, further, that if existing coverage
cannot be maintained or equivalent coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, Parent
shall only be required to obtain as much coverage as can be obtained by
paying an annual premium equal to the Cap.
(c) This Section 5.6 shall survive the closing of all the transactions
contemplated hereby, is intended to benefit the Indemnified Parties and
their respective heirs and personal representative (each of which shall be
entitled to enforce this Section 5.6 against Parent and the Surviving
Corporation, as the case may be, as a third-party beneficiary of this
Agreement), and shall not be terminated or modified in such a manner to
adversely affect any Indemnified Party without the consent of such
Indemnified Party.
5.7 Fees and Expenses.
(a) Except as provided in this Section 5.7, all fees and expenses
incurred in connection with the Merger, this Agreement, and the
transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that Parent and the Company shall each pay 50% of the filing fees
(i) for the pre-merger notification and report forms under the HSR Act and
(ii) associated with any filing made with the SEC.
(b) In the event that this Agreement is to be terminated by either
Parent or the Company pursuant to Section 7(c), then the Company shall pay
Parent by wire transfer of same day funds all fees and expenses (including,
but not limited to, fees of legal, accounting and other professionals and
consultants, investment banking and other advisory fees and expenses, fees
and expenses of banks and other financial institutions, print, travel and
fees paid to governmental and similar entities) incurred by Parent or any
Affiliate of Parent in connection with the transactions contemplated by
this Agreement (collectively, the "Parent Expenses") immediately prior to
such termination, not to exceed $1,000,000. In the event that this
Agreement is to be terminated by the Company pursuant to Section 7(d), then
the Company shall pay Parent a fee equal to $7,000,000 (the "Termination
Fee"), of which $5,000,000 shall be payable immediately prior to such
termination and $2,000,000 shall be payable by wire transfer of same day
funds upon the earlier to occur of (i) 6 months from the date of
termination of this Agreement and (ii) the consummation of any such
Superior Proposal or other Takeover Proposal. The Company acknowledges that
the agreements contained in this Section 5.7(b) are an integral part of the
transactions contemplated by this Agreement and that, without these
agreements, Parent would not enter into this Agreement. Accordingly, if the
Company fails promptly to pay the amount due pursuant to this Section
5.7(b), and, in order to obtain such payment, Parent commences a suit which
results in a judgment against the Company for the fee set forth in this
Section 5.7(b), the Company shall pay to Parent its costs and expenses
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on
I-26
the amount of the fee at the prime rate of Bank of America in effect on the
date such payment was required to be made.
5.8 Public Announcements. Parent and the Company will consult with each
other before issuing, and provide each other the opportunity to review,
comment upon and concur with, any press release or other public statements
with respect to the transactions contemplated by this Agreement, including
the Merger, and shall not issue any such press release or make any such
public statement prior to such consultation, except as either party may
determine is required by applicable Law (after consultation with its
outside counsel), court process or by obligations pursuant to any listing
agreement with any national securities exchange or national trading system.
The parties agree that the initial press release to be issued with respect
to the transactions contemplated by this Agreement shall be in the form
heretofore agreed to by the parties.
5.9 Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense of any stockholder litigation
against the Company and/or its directors relating to the transactions
contemplated by this Agreement. The Company shall not make any payment or
settlement offer prior to the Effective Time with respect to any such
litigation unless Parent shall have consented in writing to such payment or
settlement, which consent shall not be unreasonably withheld.
5.10 Financing. Prior to the Closing, Parent and Acquisition will use
their reasonable best efforts to enter into definitive agreements on terms
and conditions substantially in accordance with the Financing Commitments
(the "Definitive Financing Agreements"). Parent and Acquisition will use
their reasonable best efforts, and will cause their affiliates to use their
reasonable best efforts, to comply with the terms and satisfy the
conditions of the Financing Commitments and the Definitive Financing
Agreements. Parent will furnish correct and complete copies of the
Definitive Financing Agreements to Company promptly upon their execution.
Parent will consummate the equity financing contemplated by the equity
commitment letters referred to in Section 3.5(iii) and (iv) on the Closing
Date. For purposes of this Section 5.10, "reasonable best efforts" shall
not be deemed to require that Parent compromise any of the economic or
other material terms contained in the Financing Commitments.
5.11 HSR Filings. The Company and Parent will file, or cause to be
filed, as promptly as practicable after the date of this Agreement, with
the United States Federal Trade Commission and the Antitrust Division of
the United States Department of Justice pursuant to the HSR Act, including
all requisite documents, materials and information therefor, and request
early termination of the waiting period under the HSR Act. Each of the
Company and Parent shall furnish to the other such necessary information
and reasonable assistance as the other may request in connection with its
preparation of any filing or submission which is necessary under the HSR
Act. The Company and Parent shall each keep the other apprised of the
status of any inquiry or requests for additional information made by any
governmental authority and shall comply with any such inquiry or request.
5.12 Cooperation Regarding The Financing Commitments. From and after the
date of this Agreement, the Company shall use its reasonable best efforts
to cause its Subsidiaries, officers, employees and representatives to (a)
cooperate with Parent and Parent's Affiliates in connection with the
arrangement of the Financing Commitments and any other financing to be
consummated contemporaneously with the transactions contemplated by this
Agreement, including, without limitation, the execution and delivery, at
the Closing, of any pledge or security documents, underwriting or placement
arrangements, other definitive financing documents or other requested
certificates or financial information, including a certificate of the chief
financial officer of the Company with respect to solvency matters, comfort
letters of accountants and legal opinions, in each case, as may be
reasonably requested by Parent or Parent's Affiliates in connection with
such financing, (b) actively assist in marketing such financing, which
marketing assistance shall include, but not be limited to, (i) assisting in
the preparation of road show materials and supplementing and updating any
such materials, (ii) participating in road show presentations (including
one-on-one meetings) with proposed purchasers of such financing and (iii)
assisting in the preparation of the prospectus or offering memorandum, as
the case may be, relating to such financing and any amendments
I-27
or supplements thereto, and (c) cooperate with Parent and Parent's
Affiliates to commence and consummate the Tender Offer, including, but not
limited to the preparation and filing of tender offer documentation if
required by Parent or Parent's Affiliates. Parent shall keep the Company
reasonably informed as to the progress of such Financing Commitments and,
as consistent with Section 5.1(d), shall promptly inform the Company if
Parent has reason to believe that the financing required to consummate the
transactions contemplated by this Agreement will not be available to Parent
on the terms and conditions set forth in the Financing Commitments and the
Definitive Financing Agreements, as applicable, or at all.
6. Conditions Precedent.
6.1 Conditions Precedent to Each Party's Obligation to Effect the
Merger. The respective obligations of each party hereto to effect the
Merger shall be subject to the fulfillment or satisfaction, prior to or on
the Closing Date, of each of the following conditions precedent:
(a) Stockholder Approval. The Company Stockholder Approval shall have
been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) No Injunction. No judgment, order, decree, statute, law, ordinance,
rule or regulation, entered, enacted, promulgated, enforced or issued by
any court or other Governmental Entity of competent jurisdiction or other
legal restraint or prohibition shall be in effect preventing the
consummation of the Merger.
(d) Conversion of Company Preferred Stock. All Company Preferred Stock
shall have been converted to Company Common Stock and no such shares of
Company Preferred Stock shall be outstanding.
6.2 Conditions Precedent to Obligations of Acquisition and Parent. All
obligations of Acquisition and Parent under this Agreement are subject to
the fulfillment or satisfaction, prior to or on the Closing Date, of the
following additional conditions precedent:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed and complied in all material respects with all
agreements and conditions contained in this Agreement that are required to
be performed or complied with by it prior to or at the Closing, except that
the Company shall have performed and complied in all respects with any such
agreements or conditions which contain a materiality qualification
(including a numerical qualification or limitation, such as dollars). Each
of the Company's representations and warranties contained in Section 2 of
this Agreement shall be true and correct as of the date hereof and as of
the Closing with the same effect as if made at and as of such time (except
to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such representations and warranties
to be so true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) does not
have, and would not reasonably be expected to have a Material Adverse
Effect on the Company, individually or in the aggregate. Notwithstanding
the preceding sentence, the representations and warranties of the Company
contained in Sections 2.22 and 2.23 shall be true and correct in all
respects as of the date hereof and as of the Closing and the representation
and warranty of the Company contained in Section 2.27 shall be true and
correct in all respects as of the date hereof and as of July 31, 2001.
Parent and Acquisition shall have received a Certificate dated the Closing
Date and signed by the President or a Vice-President of the Company,
certifying that the conditions specified in this Section 6.2(a) have been
satisfied.
(b) Financing. Parent and/or Acquisition shall have entered into
definitive agreements relating to the financing contemplated by the
Financing Commitments, each of the conditions precedent to the Financing
Commitments as set forth in such definitive agreements shall have been
satisfied and such funding sources shall be available to close the
Financing Commitments on the terms and conditions set forth in such
definitive agreements.
I-28
(c) Consents. All consents, approvals and waivers from any Person or
Governmental Entity required to be obtained in connection with the Merger
and the other transactions contemplated by this Agreement (including the
consents, approvals and waivers identified in Section 2.5(b) of the Company
Disclosure Schedule) shall have been obtained and shall be in full force
and effect (except if such consents, approvals and waivers would not be
reasonably expected to have a Material Adverse Effect on the Company).
(d) FIRPTA Certificates. (i) Parent shall have received a statement, in
a form satisfactory to Parent, issued by the Company pursuant to sections
1.1445-2(c)(3) and 1.897(h) of the Treasury Regulations, certifying that
the stock of the Company acquired by Parent is not a U.S. real property
interest; and (ii) the Company shall send a notice to the Internal Revenue
Service in accordance with section 1.897-2(h)(2) of the Treasury
Regulations.
(e) No Material Adverse Effect. Since June 30, 2000, there shall not
have been any event or circumstance which, individually or in the
aggregate, has had or which would, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole.
(f) No Legal Proceedings. There shall be no pending Legal Proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement which has a reasonable likelihood of success.
(g) Net Indebtedness. The Company shall not have Indebtedness, net of
cash and cash equivalents, on a consolidated basis in excess of
$222,500,000.
6.3 Conditions Precedent to the Company's Obligations. All obligations
of the Company under this Agreement are subject to the fulfillment or
satisfaction, prior to or on the Closing Date, of the following additional
condition precedent: Acquisition and Parent shall have performed and
complied in all material respects with all agreements and conditions
contained in this Agreement that are required to be performed or complied
with by them prior to or at the Closing, except that Acquisition and Parent
shall have performed and complied in all respects with any such agreement
or condition which contains a materiality qualification. Each of the
representations and warranties of Acquisition and Parent contained in
Section 3 of this Agreement shall be true and correct as of the date hereof
and as of the Closing with the same effect as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth
therein) does not have, and would not reasonably be expected to have a
Material Adverse Effect on Parent, individually or in the aggregate. The
Company shall have received certificates dated the Closing Date and signed
by the President or a Vice-President of Acquisition and Parent, certifying
that the conditions specified in this Section 6.3(a) have been satisfied.
6.4 Frustration of Closing Conditions. None of the Company, Parent or
Acquisition may rely on the failure of any condition set forth in Sections
6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was
caused by such party's failure to use reasonable best efforts to consummate
the Merger and the other transactions contemplated by this Agreement, as
required by and subject to Section 5.4.
7. Termination. This Agreement may be terminated, and the Merger may be
abandoned at any time prior to the Effective Time whether before or after the
approval and adoption of this Agreement and the transactions contemplated
hereby by the stockholders of the Company or the stockholders of Acquisition:
(a) by the agreement of each of the Board of Directors of Parent,
Acquisition and the Company;
(b) by Parent, Acquisition or the Company, if either: (i) the Effective
Time shall not have occurred by the later of October 8, 2001 and 35 days
after the completion of the audit of the consolidated financial statements
of the Company and its Subsidiaries for the fiscal year ended June 30, 2001
(which shall
I-29
comply in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto and
otherwise satisfy the requirements set forth in the third sentence of
Section 2.6 hereof) and delivery thereof to Parent; provided, that the
right to terminate this Agreement under this Section 7(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; or (ii) any court of
competent jurisdiction in the United States or other United States
governmental authority shall have issued an order, decree, ruling or taken
any other action restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final and
nonappealable;
(c) by Parent, Acquisition or the Company, if the Company Stockholder
Approval shall not have been obtained at a Company Stockholders Meeting
duly convened therefor or at any adjournment or postponement thereof;
provided that the Company shall not be permitted to terminate this
Agreement pursuant to this Section 7(c) unless the Company shall have paid
the Parent Expenses as required by Section 5.7(b).
(d) by the Company in accordance with Sections 5.2(b) and 5.2(e);
provided, that, in order for the termination of this Agreement pursuant to
this Section 7(d) to be deemed effective, the Company shall have complied
with all provisions of Section 5.2, including the notice and waiting period
provisions therein, and other applicable requirements and shall have paid
the Termination Fee as required by Section 5.7(b);
(e) by the Company, in the event Parent or Acquisition materially
breaches its obligations under this Agreement, unless such breach is cured
within 30 days after written notice to Parent by the Company; or
(f) by Parent or Acquisition, in the event the Company materially
breaches its obligations under this Agreement unless such breach is cured
within 30 days after written notice to the Company by Parent or
Acquisition.
8. Non-Survival of Representations and Warranties. None of the
representations, warranties, covenants or other agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time. This Section shall not limit any covenant or agreement by the
parties which expressly requires performance after the Effective Time.
9. Contents of Agreement; Parties in Interest; etc. This Agreement and the
agreements referred to or contemplated herein and the letter agreements dated
February 5, 2001 and February 12, 2001 between the Company and certain
Affiliates of Parent concerning confidentiality (together, the "Confidentiality
Agreement") set forth the entire understanding of the parties hereto with
respect to the transactions contemplated hereby, and, except as set forth in
this Agreement, such other agreements and the Schedules and Exhibits hereto and
the Confidentiality Agreement, there are no representations or warranties,
express or implied, made by any party to this Agreement with respect to the
subject matter of this Agreement and the Confidentiality Agreement. Except for
the matters set forth in the Confidentiality Agreement, any and all previous
agreements and understandings between or among the parties regarding the
subject matter hereof, whether written or oral, are superseded by this
Agreement and the agreements referred to or contemplated herein.
10. Assignment and Binding Effect. Neither this Agreement nor the rights and
obligations hereunder may be assigned by any of the parties hereto without the
prior written consent of the other parties; provided, that Acquisition may
assign its rights and obligations under this Agreement to any directly or
indirectly wholly-owned Subsidiary of Parent, upon written notice to the
Company if the assignee shall assume the obligations of Acquisition hereunder
and Parent shall remain liable for its obligations hereunder. Subject to the
foregoing, all the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
I-30
11. Definitions. As used in this Agreement the terms set forth below shall
have the following meanings:
(a) "Affiliate" of a Person means any other Person who directly or
indirectly through one or more intermediaries controls, is controlled by or
is under common control with, such Person. As used in this definition,
"control" means the possession of the power, directly or indirectly, to
direct or cause the direction of the management and policies of a Person
whether through the ownership of voting securities, by contract or
otherwise.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Company Stock Plans" shall mean the Company's 1996 Directors' Stock
Option Plan, 1996 Employee Stock Option Plan, AHS 1987 Stock Option Plan,
MHC 1989 Stock Option Plan, 1998 Employee Stock Option Plan, 1997
Management Stock Option Plan and 1999 Stock Option Plan, collectively.
(d) "Environmental Laws" shall mean all applicable federal, state, local
or foreign laws, rules and regulations, orders, decrees, judgments,
permits, filings, notices and licenses relating (i) to protection and
clean-up of the environment and activities or conditions related thereto,
including those relating to the generation, handling, disposal,
transportation or release of Hazardous Substances, and (ii) the health or
safety of employees in the workplace environment, all as amended from time
to time, and shall also include any common law theory based on nuisance,
trespass, negligence or other tortious conduct.
(e) "GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis.
(f) "Hazardous Substances" shall mean any and all hazardous and toxic
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials (including, but not limited to, polychlorinated biphenyls, PCBs,
friable asbestos, volatile and semi-volatile organic compounds, oil,
petroleum products and fractions, and any materials which include hazardous
constituents or become hazardous, toxic, or dangerous when their
composition or state is changed), or any other similar substances or
materials which are included under or regulated by any Environmental Laws.
(g) "Healthcare Law" means the following laws or regulations relating to
the regulation of the health care industry or to payment for services
rendered by healthcare providers: (i) Sections 1877, 1128, 1128A or 1128B
of the Social Security Act; (ii) any prohibition on the making of any false
statement or misrepresentation of material facts to any governmental agency
that administers a Federal or State Health Care Program (including, but not
limited to Medicare, Medicaid, and the federal Civilian Health and Medical
Plan of the Uniformed Services ("CHAMPUS"); (iii) the licensure,
certification or registration requirements of health care facilities,
services or equipment, including, but not limited to, the Mammography
Quality Standards Act; (iv) any state certificate of need or similar law
governing the establishment of health care facilities or services or the
making of health care capital expenditures; (v) any state law relating to
fee-splitting or the corporate practice of medicine; (vi) any state
physician self-referral prohibition or state anti-kickback law; (vii) any
criminal offense relating to the delivery of, or claim for payment for, a
healthcare item or service under any Federal or State Health Care Program;
(viii) any federal or state law relating to the interference with or
obstruction of any investigation into any criminal offense; and (ix) any
criminal offense under federal or state law relating to the unlawful
manufacture, distribution, prescription or dispensing of a controlled
substance.
(h) "knowledge" of any Person which is not an individual means, with
respect to any specific matter, the knowledge, after due inquiry, of such
Person's executive officers and any other officer having primary
responsibility for such matter.
(i) "Liens" shall mean any mortgage, pledge, lien, security interest,
conditional or installment sale agreement, encumbrance, charge or other
claims of third parties of any kind.
(j) "Material Adverse Effect" on a Person shall mean, unless otherwise
specified, any condition or event that: (i) has a material adverse effect
on the assets, business, financial condition or results of
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operations of such party and its Subsidiaries, taken as a whole, other than
any condition or event (A) relating to the economy in general, or (B)
arising out of or resulting from actions contemplated by the parties in
connection with, or which is attributable to, the announcement of this
Agreement and the transactions contemplated hereby; (ii) materially impairs
the ability of such Person to perform its obligations under this Agreement;
or (iii) prevents or materially delays the consummation of transactions
contemplated under this Agreement.
(k) "Permitted Liens" shall mean (i) Liens for taxes, assessments, or
similar charges, incurred in the ordinary course of business that are not
yet due and payable or are being contested in good faith; (ii) pledges or
deposits made in the ordinary course of business; (iii) Liens of mechanics,
materialmen, warehousemen or other like Liens securing obligations incurred
in the ordinary course of business that are not yet due and payable or are
being contested in good faith; and (iv) similar Liens and encumbrances
which are incurred in the ordinary course of business and which do not in
the aggregate materially detract from the value of such assets or
properties or materially impair the use thereof in the operation of such
business.
(l) "Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, trust, association or
entity or government agency or authority.
(m) "reasonable best efforts" shall mean prompt, substantial and
persistent efforts as a prudent Person desirous of achieving a result would
use in similar circumstances; provided, that the Company, Parent or
Acquisition, as applicable, shall be required to expend only such resources
as are commercially reasonable in the applicable circumstances.
(n) "Subsidiary" of a Person shall mean any corporation, partnership,
joint venture or other entity in which such Person (i) owns, directly or
indirectly, 50% or more of the outstanding voting securities or equity
interests, (ii) is the sole general partner or (iii) is the sole managing
member.
(o) "Tender Offer" shall mean the tender offer by or on behalf of the
Company for all of the Company's outstanding 9 5/8% Senior Subordinated
Notes due 2008
(p) "Voting Agreements" means the Voting Agreements of even date
herewith by and among Parent, Acquisition and each of GE and Carlyle.
12. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to
the party personally or sent to the party by facsimile transmission (promptly
followed by a hard-copy delivered in accordance with this Section 12) or by
registered or certified mail (return receipt requested), with postage and
registration or certification fees thereon prepaid, addressed to the party at
its address set forth below:
If to Acquisition or Parent:
InSight Health Services Holdings Corp.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, Massachusetts 02110
Attention: Edward D. Yun
Facsimile No: separately supplied
with copies to:
The Halifax Group, L.L.C.
1133 Connecticut Avenue N.W.
Suite 700
Washington, D.C. 20036
Attention: David W. Dupree
Facsimile No: separately supplied
I-32
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Stephen C. Koval, Esq.
Facsimile No: separately supplied
If to the Company:
InSight Health Services Corp.
4400 Macarthur Blvd.
Suite 800
Newport Beach, CA 92660
Attention: General Counsel and President
Facsimile No: separately supplied
with a copy to:
Latham & Watkins
650 Town Center Drive, Suite 2000
Costa Mesa, California 92626
Attention: Alan W. Pettis, Esq.
Facsimile No: separately supplied
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telecopied or mailed.
13. Amendment. This Agreement may be amended, modified or supplemented at
any time before or after the Company Stockholder Approval; provided, that after
any such approval there shall not be made any amendment that by Law requires
further approval by the stockholders of the Company or the approval of the
stockholders of Parent without the further approval of such stockholders. Any
amendment, modification or revision of this Agreement and any waiver of
compliance or consent with respect hereto shall be effective only by a written
instrument executed by each of the parties hereto.
14. Extensions; Waiver. At any time prior to the Effective Time, a party may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement or in any document
delivered pursuant to this Agreement, or (c) subject to the proviso of Section
13, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute shall not constitute a waiver of such rights.
15. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Delaware, without regard
to the conflicts of law principles thereof.
16. No Benefit to Others. Except as expressly set forth in Section 5.6, the
representations, warranties, covenants and agreements contained in this
Agreement are for the sole benefit of the parties hereto, and their respective
successors and assigns, and they shall not be construed as conferring, and are
not intended to confer, any rights on any other Person.
17. Effect of Termination. In the event of termination of this Agreement by
either the Company, Acquisition or Parent as provided in Section 7, this
Agreement shall forthwith become void and have no effect,
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without any liability or obligation on the part of Parent, Acquisition or the
Company, other than the provisions of Section 5.6, Section 5.7 and Sections 8
through (and including) Section 21, which provisions survive such termination,
and except to the extent that such termination results from the willful and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement.
18. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by
applicable law.
19. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
20. Schedules and Exhibits. All Schedules and Exhibits referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
21. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and the Company, Acquisition and Parent may
become a party hereto by executing a counterpart hereof. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.
INSIGHT HEALTH SERVICES HOLDINGS
CORP.
By: /s/ Edward D. Yun
-------------------------------------
Name: Edward D. Yun
Title: President
JWCH MERGER CORP.
By: /s/ Edward D. Yun
-------------------------------------
Name: Edward D. Yun
Title: President
INSIGHT HEALTH SERVICES CORP.
By: /s/ Steven T. Plochocki
-------------------------------------
Name: Steven T. Plochocki
Title: President and Chief Executive
Officer
I-35
ANNEX II
[LETTERHEAD OF UBS WARBURG LLC]
June 29, 2001
The Board of Directors
InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, California 92660
Dear Members of the Board:
We understand that InSight Health Services Corp. ("InSight") proposes to
enter into an Agreement and Plan of Merger, dated as of June 29, 2001 (the
"Agreement"), by and among InSight Health Services Holdings Corp.
("Purchaser"), a joint venture formed by J.W. Childs Associates, L.P. ("JWC")
and The Halifax Group, L.L.C. ("Halifax"), JWCH Merger Corp., a wholly owned
subsidiary of Purchaser ("Merger Sub"), and InSight pursuant to which (i)
Merger Sub will merge with and into InSight (the "Merger") and (ii) each
outstanding share of the common stock, par value $0.001 per share, of InSight
("InSight Common Stock") will be converted into the right to receive $18.00 in
cash, without interest (the "Merger Consideration"). The terms and conditions
of the Merger are more fully set forth in the Agreement and related documents.
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration to be received by the holders of InSight
Common Stock.
UBS Warburg LLC ("UBS Warburg") has acted as financial advisor to InSight in
connection with the Merger and will receive a fee for its services, a
significant portion of which is contingent upon consummation of the Merger. UBS
Warburg also will receive a fee upon delivery of this opinion. UBS Warburg and
its affiliates in the past have provided, and currently are providing, services
to JWC unrelated to the proposed Merger, for which services UBS Warburg and its
affiliates have received and will receive customary compensation. As you are
aware, UBS Warburg may be participating in the financing of the Merger, and
would receive customary compensation for such services. In the ordinary course
of business, UBS Warburg, its successors and affiliates may trade securities of
InSight and affiliates of Purchaser for their own accounts and accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion does not address the underlying business decision of InSight to
effect the Merger and does not constitute a recommendation to any stockholder
of InSight as to how such stockholder should vote on the Merger or with respect
to any matters relating to the Merger. At your direction, we have not been
asked to, nor do we, offer any opinion as to the terms of the Agreement or
related documents or the obligations thereunder, or the form of the Merger. In
rendering this opinion, we have assumed, at your direction, that each of
InSight, Purchaser and Merger Sub will comply with all material covenants and
agreements set forth in, and other material terms of, the Agreement and related
documents and that the Merger will be consummated in accordance with its terms,
without waiver, modification or amendment of any material term, condition or
agreement.
In arriving at our opinion, we have, among other things: (i) reviewed
current and historical market prices and trading volumes of InSight Common
Stock; (ii) reviewed certain publicly available business and historical
financial information relating to InSight; (iii) reviewed certain internal
financial information and other data relating to the business and financial
prospects of InSight, including estimates and financial forecasts prepared by
the management of InSight, that were provided to or discussed with us by
InSight and not publicly available; (iv) conducted discussions with members of
the senior management of InSight; (v) reviewed publicly available financial and
stock market data with respect to certain companies in lines of business we
believe to be generally comparable to those of InSight; (vi) compared the
financial terms of the Merger with the publicly
II-1
The Board of Directors
InSight Health Services Corp.
June 29, 2001
Page 2
available financial terms of certain other transactions which we believe to be
generally relevant; (vii) reviewed the Agreement; and (viii) conducted such
other financial studies, analyses and investigations, and considered such other
information, as we deemed necessary or appropriate. In connection with our
engagement, we were requested to contact, and we held discussions with, certain
third parties to solicit indications of interest in the possible acquisition of
InSight.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the information provided
to or reviewed by us for the purpose of this opinion and have, with your
consent, relied on such information being complete and accurate in all material
respects. In addition, at your direction, we have not made any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of InSight, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts and estimates referred to
above, we have assumed, at your direction, that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of InSight as to the future financial performance
of InSight. Our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be received by the holders of InSight
Common Stock is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ UBS Warburg LLC
UBS WARBURG LLC
II-2
ANNEX III
EXECUTION COPY
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement") dated as of June 29, 2001, among INSIGHT
HEALTH SERVICES HOLDINGS CORP., a Delaware corporation ("Parent"), JWCH MERGER
CORP., a Delaware corporation and wholly-owned subsidiary of Parent
("Acquisition"), CARLYLE PARTNERS II, L.P., a Delaware limited partnership,
CARLYLE PARTNERS III, L.P., a Delaware limited partnership,
CARLYLE INTERNATIONAL PARTNERS II, L.P., a Cayman Islands exempted limited
partnership, CARLYLE INTERNATIONAL PARTNERS III, L.P., a Cayman Islands
exempted limited partnership, C/S INTERNATIONAL PARTNERS, a Cayman Islands
general partnership, STATE BOARD OF ADMINISTRATION OF FLORIDA, CARLYLE
INVESTMENT GROUP, L.P., a Delaware limited partnership, CARLYLE-INSIGHT
INTERNATIONAL PARTNERS, L.P., a Cayman Islands exempted limited partnership,
CARLYLE-INSIGHT PARTNERS, L.P., a Delaware limited partnership and TC GROUP,
L.L.C., a Delaware limited liability company (each a "Stockholder", and
collectively, the "Stockholders").
WHEREAS, Parent, Acquisition and InSight Health Services Corp., a Delaware
corporation (the "Company"), have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"; capitalized terms used but
not defined herein shall have the meanings set forth in the Merger Agreement),
whereby Acquisition will merge with and into the Company and the Company shall
become the wholly-owned subsidiary of Parent (the "Merger"), upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, the Stockholders beneficially own (i) 25,000 shares of convertible
preferred stock, Series B of the Company, par value $0.001 per share (the
"Series B Preferred Stock"), convertible in the aggregate into 298,507.46
shares of convertible preferred stock, Series D of the Company, par value
$0.001 per share (the "Series D Preferred Stock"), (ii) Warrants to purchase up
to 250,000 shares of Company Common Stock at an exercise price of $10.00 per
share, (iii) Warrants to purchase up to 30,000 shares of Company Common Stock
at an exercise price of $7.25 per share and (iv) Warrants to purchase up to
10,000 shares of Company Common Stock at an exercise price of $7.50 per share;
WHEREAS, pursuant to this Agreement the Stockholders agree to (i) elect to
convert all of the Series B Preferred Stock that they own into 298,507.46
shares of Series D Preferred Stock pursuant to the terms thereof prior to the
record date for the Approval Events (as defined below), (ii) consent to the
cancellation of the Warrants by virtue of the Merger in consideration of the
Warrant Consideration pursuant to the Merger Agreement, (iii) vote in favor of
the Merger and the adoption by the Company of the Merger Agreement, and (iv)
convert all of the aforementioned 298,507.46 shares of Series D Preferred Stock
into shares of Company Common Stock prior to the Closing; and
WHEREAS, as a condition to and in consideration of the willingness of Parent
and Acquisition to enter into the Merger Agreement, the Stockholders have
agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein and other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations and Warranties of the Stockholders. Each of the
Stockholders hereby represents and warrants to Parent and Acquisition as
follows:
(a) Authority: No Conflicts. Each of the Stockholders is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of organization and has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to
III-1
consummate the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by and on behalf of each of the
Stockholders and constitutes a legal, valid and binding obligation of each
of the Stockholders, enforceable in accordance with its terms (except to
the extent that enforcement may be affected by laws relating to bankruptcy,
reorganization, insolvency, and creditors' rights and by the availability
of injunctive relief, specific performance and other equitable remedies).
No filing with, and no permit, authorization, consent or approval of, any
Governmental Entity or any other person is necessary for the execution and
delivery of this Agreement by and on behalf of each of the Stockholders and
the consummation by each of the Stockholders of the transactions
contemplated hereby. None of the execution and delivery of this Agreement
by and on behalf of each of the Stockholders, the consummation of the
transactions contemplated hereby and compliance with the terms hereof by
each of the Stockholders will conflict with, or result in any violation of,
or default (with or without notice or lapse of time or both) under any
provision of, each of the Stockholders' certificate of incorporation or
bylaws or organizational documents, any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order,
notice, decree, statute, law, ordinance, rule or regulation applicable to
each of the Stockholders or to each of the Stockholders' property or
assets.
(b) The Subject Shares. The Stockholders are the beneficial owners of
the Series B Preferred Stock and the Warrants (collectively, the "Subject
Shares"; provided that the Subject Shares shall also include any and all
securities issuable in respect of the Series B Preferred Stock, the Series
D Preferred Stock or the Warrants upon conversion or exercise thereof, as
applicable) and have, and throughout the term of this Agreement will have,
good and marketable title to the Subject Shares free and clear of all
Liens. The Stockholders do not own, of record or beneficially, any shares
of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, other than the
Subject Shares. The Stockholders have the sole right and power to vote
(other than the Warrants) and dispose of the Subject Shares, and none of
the Subject Shares is subject to any irrevocable proxy, power of attorney,
voting trust or other agreement, arrangement or restriction with respect to
the voting or transfer (other than the provisions of the Securities Act or
state securities laws) of any of the Subject Shares, except as set forth in
the Securities Purchase Agreement dated October 14, 1997 between the
Company and the Stockholders, including, without limitation, the
restrictions set forth in Section 6.14 thereof, and as contemplated by this
Agreement.
2. Representations and Warranties of Parent and Acquisition. Parent and
Acquisition hereby represent and warrant to the Stockholders that each is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by and on behalf of
each of Parent and Acquisition and constitutes a legal, valid and binding
obligation of each of Parent and Acquisition enforceable in accordance with its
terms (except to the extent that enforcement may be affected by laws relating
to bankruptcy, reorganization, insolvency, and creditors' rights and by the
availability of injunctive relief, specific performance and other equitable
remedies). Except for the filings required under the HSR Act and the Exchange
Act, exemptive filings under federal and state securities laws in connection
with equity investments in Parent and the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (i) no filing with, and
no permit, authorization, consent or approval of, any Governmental Entity or
any other Person is necessary for the execution of this Agreement by and on
behalf of each of Parent and Acquisition and the consummation by Parent and
Acquisition of the transactions contemplated hereby, and (ii) none of the
execution and delivery of this Agreement by Parent and Acquisition, the
consummation of the transactions contemplated hereby nor the compliance with
the terms hereof by Parent and Acquisition will conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both)
under any provision of, their respective certificate of incorporation or
bylaws, any trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Acquisition, as the case may be, or to
Parent's or Acquisition's, property or assets, as the case may be.
III-2
3. Covenants of the Stockholders. Until the termination of this Agreement in
accordance with Section 8 hereof, the Stockholders agree as follows:
(a) Voting of Subject Shares. At any meeting of stockholders of the
Company called to vote upon the approval of the Merger, the Merger
Agreement and the transactions contemplated therein or at any adjournment
thereof or in any other circumstances upon which a vote or other approval
with respect to the Merger, the Merger Agreement and the transactions
contemplated therein is sought (the "Approval Events"), the Stockholders
shall vote all of the Subject (other than the Warrants) at the time of such
meeting or adjournment 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.
(b) Irrevocable Proxy. The Stockholders hereby grant to and appoint
Parent (and each officer of Parent designated by Parent) their proxy and
attorney-in-fact (with full power of substitution) to vote all of the
Subject Shares as indicated in Section 3(a) above. The Stockholders agree
that this proxy shall be irrevocable during the term of this Agreement and
is coupled with an interest sufficient at law to support an irrevocable
power and given to Parent as an inducement to enter into the Merger
Agreement; provided that Parent may at any time name any other Person as
its substituted Proxy to act pursuant hereto, either as to a specific
matter or as to all matters covered herein. Stockholders agree to take such
further action or execute such other instruments as may be reasonably
requested by Parent or Acquisition to effectuate the intent of this
paragraph (b). The Stockholders hereby revoke any proxy previously granted
by the Stockholders with respect to the Subject Shares.
(c) Transfer Restrictions. The Stockholders agree not to (i) sell,
transfer, pledge, encumber, assign or otherwise dispose of or hypothecate
(including by gift or by contribution or distribution to any trust or
similar instrument or to any beneficiaries of the Stockholders
(collectively, "Transfer")), or enter into any contract, option or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of, any of the Subject Shares other than
pursuant to the terms of this Agreement and the Merger Agreement, (ii)
enter into any voting arrangement or understanding other than this
Agreement with respect to the Subject Shares, whether by proxy, voting
agreement or otherwise, or (iii) take any action that could make any of
their representations or warranties contained herein untrue or incorrect or
could have the effect of preventing or disabling the Stockholders from
performing any of their obligations hereunder. The Stockholders further
agree to take in a timely manner any and all actions (including, without
limitation, delivering the certificates evidencing the Subject Shares to
the Company) reasonably necessary for the Company to affix a legend on the
certificates evidencing the Subject Shares stating that the Subject Shares
are subject to this Agreement.
(d) Appraisal Rights. The Stockholders hereby irrevocably waives any and
all rights which they may have as to appraisal, dissent or any similar or
related matter with respect to the Merger under Section 262 of the General
Corporation Law of the State of Delaware or otherwise.
(e) No Solicitation. The Stockholders shall not, and shall use their
reasonable best efforts to cause their directors, officers, employees,
attorneys, accountants or financial advisors or other representatives
("Representatives") retained by them not to, directly or indirectly through
another Person, (i) 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 Takeover Proposal, or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided that
the foregoing shall not limit or prohibit any Representative of the
Stockholders who is a director of the Company from exercising his or her
fiduciary duty solely as a director of the Company in a manner consistent
with the terms and conditions set forth in the Merger Agreement.
4. Conversion or Exercise of Subject Shares. In connection with the Merger
and the Merger Agreement, the Stockholders hereby (i) agree to deliver a Type B
Conversion Notice (as defined in the Certificate of Designation with respect to
the Series B Preferred Stock) electing to (subject to the delivery of a
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Type B Conversion Notice with respect to the Series B Preferred Stock) convert
all of the Series B Preferred Stock that they own into 298,507.46 shares of the
Series D Preferred Stock pursuant to the terms thereof prior to the record date
established by the Company in connection with the Approval Event which would
permit such Stockholders to vote all of such shares held by such Stockholders
after such conversion, irrespective of any voting limitations, in favor of the
Merger, the Merger Agreement and the transactions contemplated therein and (ii)
subject to the consummation of the Merger, consents to the cancellation of the
Warrants in exchange for the Warrant Consideration.
5. Conversion of Series D Preferred Stock. Immediately prior to the
Effective Time, the Stockholders hereby agree to convert all of the shares of
Series D Preferred Stock then owned by them into shares of Company Common
Stock.
6. Additional Shares. Without limiting the provisions of the Merger
Agreement, in the event (i) of any stock dividend, stock split,
recapitalization, reclassification, combination or exchange of shares of
capital stock of the Company on, of or affecting the Subject Shares or (ii) the
Stockholders become the record or beneficial owners of any additional shares of
the capital stock of the Company or other securities entitling the holder
thereof to vote or give consent with respect to the matters set forth in
Section 3(a), then the terms of this Agreement shall apply to the shares of
capital stock or other securities of the Company held by the Stockholders
immediately following the effectiveness of the events described in clause (i)
or the Stockholders becoming the record or beneficial owners thereof, as
described in clause (ii), as though they were Subject Shares hereunder. The
Stockholders hereby agree to promptly notify Parent of the number of any
additional shares of capital stock or other voting securities of the Company
acquired, of record or beneficially, by the Stockholders, if any, after the
date hereof and prior to the termination of this Agreement pursuant to Section
8 hereof.
7. Officers and Directors. Notwithstanding anything contained to the
contrary in this Agreement, in the event a Representative is a director or
officer of the Company, nothing in this Agreement is intended or shall be
construed to require such Representative, solely in his or her capacity as a
director or officer of the Company, to act or fail to act in any manner
inconsistent with (i) his or her fiduciary duties in such capacity and (ii) the
Merger Agreement. Furthermore, no Representative who is or becomes (during the
term hereof) a director or officer of the Company makes any agreement or
understanding herein solely in his or her capacity as a director or officer,
and nothing herein will limit or affect, or give rise to any liability of any
Representative solely in such Person's capacity as a director or officer of the
Company.
8. Termination. Except as set forth in the next sentence, this Agreement
shall terminate, and no party shall have any rights or obligations hereunder
and this Agreement shall become null and void and have no further effect
immediately following the earliest to occur of (x) the Effective Time or (y)
the termination of the Merger Agreement. Nothing in this Section 8 shall
relieve any party of liability for breach of this Agreement.
9. Contents of Agreement; Parties in Interest, etc. This Agreement and the
agreements referred to or contemplated herein set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and thereby, and, except as set forth in this Agreement and
such other agreements, there are no representations or warranties, express or
implied, made by any party to this Agreement with respect to the subject matter
of this Agreement. Any and all previous agreements and understandings between
or among the parties regarding the subject matter hereof, whether written or
oral, are superseded by this Agreement and the agreements referred to or
contemplated herein.
10. Assignment and Binding Effect. Neither this Agreement nor the rights and
obligations hereunder may be assigned by any of the parties hereto without the
prior written consent of the other parties hereto; provided, that Parent and/or
Acquisition may assign its rights and obligations under this Agreement to any
directly or indirectly wholly-owned Subsidiary of Parent, upon written notice
to the Stockholders if the assignee shall assume the obligations of Parent
and/or Acquisition hereunder. Subject to the foregoing, all the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto.
III-4
11. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to
the party personally or sent to the party by facsimile transmission (promptly
followed by a hard copy delivered in accordance with this Section 11 or by
registered or certified mail (return receipt requested), with postage and
registration or certification fees thereon prepaid, addressed to the party at
its address set forth below:
If to Parent or Acquisition:
c/o J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Attention: Edward D. Yun
Facsimile No.: (617) 753-1101
and
c/o The Halifax Group, L.L.C.
1133 Connecticut Avenue, N.W.
Suite 700
Washington, D.C. 20036
Attention: David W. Dupree
Facsimile No.: (202) 296-7133
with a copy to:
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Stephen C. Koval, Esq.
Facsimile No.: (212) 836-8689
If to the Stockholders:
c/o The Carlyle Group
520 Madison Avenue, 41st Floor
New York, New York 10022
Attention: W. Robert Dahl
Facsimile No.: (212) 381-4900
with a copy to:
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
Attention: Mark S. Wojciechowski
Facsimile No.: (212) 262-1910
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
12. Amendment. This Agreement may not be amended except by an instrument in
writing signed by all of the parties hereto.
III-5
13. Extensions; Waiver. Any party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of
the other parties contained in this Agreement or in any document delivered
pursuant to this Agreement, or (c) waive compliance by the other party with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
14. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Delaware, without regard
to the conflicts of law principles thereof.
15. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, and their respective successors and assigns, and they shall not be
construed as conferring, and are not intended to confer, any rights on any
other Person.
16. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by
applicable law.
17. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Stockholders,
Acquisition and Parent may become a party hereto by executing a counterpart
hereof. This Agreement and any counterpart so executed shall be deemed to be
one and the same instrument.
[Signature Page Follows]
III-6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
INSIGHT HEALTH SERVICES HOLDINGS CORP.
By: /s/ Edward D. Yun
-------------------------------------
Name: Edward D. Yun
Title: President
JWCH MERGER CORP.
By: /s/ Edward D. Yun
-------------------------------------
Name: Edward D. Yun
Title: President
III-7
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III,
L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
III-8
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF
FLORIDA separate account maintained
pursuant to an Investment Management
Agreement dated as of September 6, 1996
between the State Board of
Administration of Florida, Carlyle
Investment Group, L.P. and Carlyle
Investment Management, L.L.C.
By: Carlyle Investment Management,
L.L.C., as Investment Manager
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
CARLYLE-INSIGHT INTERNATIONAL
PARTNERS, L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
III-9
CARLYLE-INSIGHT PARTNERS, L.P.
By: TC Group, L.L.C., as the General
Partner
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
TC GROUP, L.L.C.
By: TCG Holdings, L.L.C., as the
Managing Member
By: /s/ W. Robert Dahl
-------------------------------------
Name: W. Robert Dahl
Title: Managing Director
III-10
EXECUTION COPY
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement") dated as of June 29, 2001, among INSIGHT
HEALTH SERVICES HOLDINGS CORP., a Delaware corporation ("Parent"), JWCH MERGER
CORP., a Delaware corporation and wholly-owned subsidiary of Parent
("Acquisition") and GENERAL ELECTRIC COMPANY, a New York corporation (the
"Stockholder")
WHEREAS, Parent, Acquisition and InSight Health Services Corp., a Delaware
corporation (the "Company"), have entered into an Agreement and Plan of Merger
dated as of the date hereof (the "Merger Agreement"; capitalized terms used but
not defined herein shall have the meanings set forth in the Merger Agreement),
whereby Acquisition will merge with and into the Company and the Company shall
become the wholly-owned subsidiary of Parent (the "Merger"), upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, the Stockholder beneficially owns (i) 17,005 shares of convertible
preferred stock, Series C of the Company, par value $0.001 per share (the
"Series C Preferred Stock"), convertible in the aggregate into 203,044.8 shares
of convertible preferred stock, Series D of the Company, par value $0.001 per
share (the "Series D Preferred Stock"), (ii) Warrants to purchase up to 265,000
shares of Company Common Stock at an exercise price of $10.00 per share and
(iii) Warrants to purchase up to 5,000 shares of Company Common Stock at an
exercise price of $8.875 per share;
WHEREAS, pursuant to this Agreement the Stockholder agrees to (i) elect to
convert all of the Series C Preferred Stock that it owns into 203,044.8 shares
of Series D Preferred Stock pursuant to the terms thereof prior to the record
date for the Approval Events (as defined below), (ii) consent to the
cancellation of the Warrants by virtue of the Merger in consideration of the
Warrant Consideration pursuant to the Merger Agreement, (iii) vote in favor of
the Merger and the adoption by the Company of the Merger Agreement, and (iv)
convert all of the aforementioned 203,044.8 shares of Series D Preferred Stock
into shares of Company Common Stock prior to the Closing; and
WHEREAS, as a condition to and in consideration of the willingness of Parent
and Acquisition to enter into the Merger Agreement, the Stockholder has agreed
to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein and other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations and Warranties of the Stockholder. The Stockholder hereby
represents and warrants to Parent and Acquisition as follows:
(a) Authority: No Conflicts. The Stockholder is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has
been duly authorized, executed and delivered by and on behalf of the
Stockholder and constitutes a legal, valid and binding obligation of the
Stockholder, enforceable in accordance with its terms (except to the extent
that enforcement may be affected by laws relating to bankruptcy,
reorganization, insolvency, and creditors' rights and by the availability
of injunctive relief, specific performance and other equitable remedies).
No filing with, and no permit, authorization, consent or approval of, any
Governmental Entity or any other person is necessary for the execution and
delivery of this Agreement by and on behalf of the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby.
None of the execution and
III-11
delivery of this Agreement by and on behalf of the Stockholder, the
consummation of the transactions contemplated hereby and compliance with
the terms hereof by the Stockholder will conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both)
under any provision of, the Stockholder's certificate of incorporation or
bylaws or organizational documents, any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order,
notice, decree, statute, law, ordinance, rule or regulation applicable to
the Stockholder or to the Stockholder's property or assets.
(b) The Subject Shares. The Stockholder is the beneficial owner of the
Series C Preferred Stock and the Warrants (collectively, the "Subject
Shares"; provided that the Subject Shares shall also include any and all
securities issuable in respect of the Series C Preferred Stock, the Series
D Preferred Stock or the Warrants upon conversion or exercise thereof, as
applicable) and has, and throughout the term of this Agreement will have,
good and marketable title to the Subject Shares free and clear of all
Liens. The Stockholder does not own, of record or beneficially, any shares
of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, other than the
Subject Shares. The Stockholder has the sole right and power to vote (other
than the Warrants) and dispose of the Subject Shares, and none of the
Subject Shares is subject to any irrevocable proxy, power of attorney,
voting trust or other agreement, arrangement or restriction with respect to
the voting or transfer (other than the provisions of the Securities Act or
state securities laws) of any of the Subject Shares, except as set forth in
the Securities Purchase Agreement, dated as of October 14, 1997, by and
between the Company and the Stockholder, including, with limitation, the
restrictions set forth in Section 6.14 thereof, and as contemplated by this
Agreement.
2. Representations and Warranties of Parent and Acquisition. Parent and
Acquisition hereby represent and warrant to the Stockholder that each is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by and on behalf of
each of Parent and Acquisition and constitutes a legal, valid and binding
obligation of each of Parent and Acquisition enforceable in accordance with its
terms (except to the extent that enforcement may be affected by laws relating
to bankruptcy, reorganization, insolvency, and creditors' rights and by the
availability of injunctive relief, specific performance and other equitable
remedies). Except for the filings required under the HSR Act and the Exchange
Act, exemptive filings under federal and state securities laws in connection
with equity investments in Parent and the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (i) no filing with, and
no permit, authorization, consent or approval of, any Governmental Entity or
any other Person is necessary for the execution of this Agreement by and on
behalf of each of Parent and Acquisition and the consummation by Parent and
Acquisition of the transactions contemplated hereby, and (ii) none of the
execution and delivery of this Agreement by Parent and Acquisition, the
consummation of the transactions contemplated hereby nor the compliance with
the terms hereof by Parent and Acquisition will conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both)
under any provision of, their respective certificate of incorporation or
bylaws, any trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Acquisition, as the case may be, or to
Parent's or Acquisition's, property or assets, as the case may be.
3. Covenants of the Stockholder. Until the termination of this Agreement in
accordance with Section 8 hereof, the Stockholder agrees as follows:
(a) Voting of Subject Shares. At any meeting of stockholders of the
Company called to vote upon the approval of the Merger, the Merger
Agreement and the transactions contemplated therein or at any adjournment
thereof or in any other circumstances upon which a vote or other approval
with respect to the Merger, the Merger Agreement and the transactions
contemplated therein is sought (the "Approval Events"), the Stockholder
shall vote all of the Subject Shares (other than the Warrants) at the time
of such
III-12
meeting or adjournment 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.
(b) Irrevocable Proxy. The Stockholder hereby grants to and appoints
Parent (and each officer of Parent designated by Parent) its proxy and
attorney-in-fact (with full power of substitution) to vote all of the
Subject Shares as indicated in Section 3(a) above. The Stockholder agrees
that this proxy shall be irrevocable during the term of this Agreement and
is coupled with an interest sufficient at law to support an irrevocable
power and given to Parent as an inducement to enter into the Merger
Agreement; provided that Parent may at any time name any other Person as
its substituted Proxy to act pursuant hereto, either as to a specific
matter or as to all matters covered herein. Stockholder agrees to take such
further action or execute such other instruments as may be reasonably
requested by Parent or Acquisition to effectuate the intent of this
paragraph (b). The Stockholder hereby revokes any proxy previously granted
by the Stockholder with respect to the Subject Shares.
(c) Transfer Restrictions. The Stockholder agrees not to (i) sell,
transfer, pledge, encumber, assign or otherwise dispose of or hypothecate
(including by gift or by contribution or distribution to any trust or
similar instrument or to any beneficiaries of the Stockholder
(collectively, "Transfer")), or enter into any contract, option or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of, any of the Subject Shares other than
pursuant to the terms of this Agreement and the Merger Agreement, (ii)
enter into any voting arrangement or understanding other than this
Agreement with respect to the Subject Shares, whether by proxy, voting
agreement or otherwise, or (iii) take any action that could make any of its
representations or warranties contained herein untrue or incorrect or could
have the effect of preventing or disabling the Stockholder from performing
any of its obligations hereunder. The Stockholder further agrees to take in
a timely manner any and all actions (including, without limitation,
delivering the certificates evidencing the Subject Shares to the Company)
reasonably necessary for the Company to affix a legend on the certificates
evidencing the Subject Shares stating that the Subject Shares are subject
to this Agreement.
(d) Appraisal Rights. The Stockholder hereby irrevocably waives any and
all rights which it may have as to appraisal, dissent or any similar or
related matter with respect to the Merger under Section 262 of the General
Corporation Law of the State of Delaware or otherwise.
(e) No Solicitation. The Stockholder shall not, and shall use its
reasonable best efforts to cause its directors, officers, employees,
attorneys, accountants or financial advisors or other representatives
("Representatives") retained by it not to, directly or indirectly through
another Person, (i) 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 Takeover Proposal, or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided that
the foregoing shall not limit or prohibit any Representative of the
Stockholder who is a director of the Company from exercising his or her
fiduciary duty solely as a director of the Company in a manner consistent
with the terms and conditions set forth in the Merger Agreement.
4. Conversion or Exercise of Subject Shares. In connection with the Merger
and the Merger Agreement, the Stockholder hereby (i) agrees to deliver a Type B
Conversion Notice (as defined in the Certificate of Designation with respect to
the Series C Preferred Stock) electing to (subject to the delivery of a Type B
Conversion Notice with respect to the Series B Preferred Stock) convert all of
the Series C Preferred Stock that it owns into 203,044.8 shares of the Series D
Preferred Stock pursuant to the terms thereof prior to the record date
established by the Company in connection with the Approval Event which would
permit such Stockholder to vote all of such shares held by such Stockholder
after such conversion, irrespective of any voting limitations, in favor of the
Merger, the Merger Agreement and the transactions contemplated therein, and
(ii) subject to the consummation of the Merger, consents to the cancellation of
the Warrants in exchange for the Warrant Consideration.
III-13
5. Conversion of Series D Preferred Stock. Immediately prior to the
Effective Time, the Stockholder hereby agrees to convert all of the shares of
Series D Preferred Stock then owned by it into shares of Company Common Stock.
6. Additional Shares. Without limiting the provisions of the Merger
Agreement, in the event (i) of any stock dividend, stock split,
recapitalization, reclassification, combination or exchange of shares of
capital stock of the Company on, of or affecting the Subject Shares or (ii) the
Stockholder becomes the record or beneficial owner of any additional shares of
the capital stock of the Company or other securities entitling the holder
thereof to vote or give consent with respect to the matters set forth in
Section 3(a), then the terms of this Agreement shall apply to the shares of
capital stock or other securities of the Company held by the Stockholder
immediately following the effectiveness of the events described in clause (i)
or the Stockholder becoming the record or beneficial owner thereof, as
described in clause (ii), as though they were Subject Shares hereunder. The
Stockholder hereby agrees to promptly notify Parent of the number of any
additional shares of capital stock or other voting securities of the Company
acquired, of record or beneficially, by the Stockholder, if any, after the date
hereof and prior to the termination of this Agreement pursuant to Section 8
hereof.
7. Officers and Directors. Notwithstanding anything contained to the
contrary in this Agreement, in the event a Representative is a director or
officer of the Company, nothing in this Agreement is intended or shall be
construed to require such Representative, solely in his or her capacity as a
director or officer of the Company, to act or fail to act in any manner
inconsistent with (i) his or her fiduciary duties in such capacity and (ii) the
Merger Agreement. Furthermore, no Representative who is or becomes (during the
term hereof) a director or officer of the Company makes any agreement or
understanding herein solely in his or her capacity as a director or officer,
and nothing herein will limit or affect, or give rise to any liability of any
Representative solely in such Person's capacity as a director or officer of the
Company.
8. Termination. Except as set forth in the next sentence, this Agreement
shall terminate, and no party shall have any rights or obligations hereunder
and this Agreement shall become null and void and have no further effect
immediately following the earliest to occur of (x) the Effective Time or (y)
the termination of the Merger Agreement. Nothing in this Section 8 shall
relieve any party of liability for breach of this Agreement.
9. Contents of Agreement; Parties in Interest, etc. This Agreement and the
agreements referred to or contemplated herein set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and thereby, and, except as set forth in this Agreement and
such other agreements, there are no representations or warranties, express or
implied, made by any party to this Agreement with respect to the subject matter
of this Agreement. Any and all previous agreements and understandings between
or among the parties regarding the subject matter hereof, whether written or
oral, are superseded by this Agreement and the agreements referred to or
contemplated herein.
10. Assignment and Binding Effect. Neither this Agreement nor the rights and
obligations hereunder may be assigned by any of the parties hereto without the
prior written consent of the other parties hereto; provided, that Parent and/or
Acquisition may assign its rights and obligations under this Agreement to any
directly or indirectly wholly-owned Subsidiary of Parent, upon written notice
to the Stockholder if the assignee shall assume the obligations of Parent
and/or Acquisition hereunder. Subject to the foregoing, all the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto.
III-14
11. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to
the party personally or sent to the party by facsimile transmission (promptly
followed by a hard copy delivered in accordance with this Section 11 or by
registered or certified mail (return receipt requested), with postage and
registration or certification fees thereon prepaid, addressed to the party at
its address set forth below:
If to Parent or Acquisition:
c/o J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Attention: Edward D. Yun
Facsimile No.: (617) 753-1101
and
c/o The Halifax Group, L.L.C.
1133 Connecticut Avenue, N.W.
Suite 700
Washington, D.C. 20036
Attention: David W. Dupree
Facsimile No.: (202) 296-7133
with a copy to:
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Stephen C. Koval, Esq.
Facsimile No.: (212) 836-8689
If to the Stockholder:
General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431
Attn: Jerome C. Marcus
Facsimile: 203-357-6527
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Linda Curtis, Esq.
Facsimile: 213-229-6582
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
12. Amendment. This Agreement may not be amended except by an instrument in
writing signed by all of the parties hereto.
III-15
13. Extensions; Waiver. Any party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of
the other parties contained in this Agreement or in any document delivered
pursuant to this Agreement, or (c) waive compliance by the other party with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
14. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Delaware, without regard
to the conflicts of law principles thereof.
15. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, and their respective successors and assigns, and they shall not be
construed as conferring, and are not intended to confer, any rights on any
other Person.
16. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by
applicable law.
17. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Stockholder,
Acquisition and Parent may become a party hereto by executing a counterpart
hereof. This Agreement and any counterpart so executed shall be deemed to be
one and the same instrument.
[Signature Page Follows]
III-16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
INSIGHT HEALTH SERVICES
HOLDINGS CORP.
By: /s/ Edward D. Yun
-----------------------------------
Name: Edward D. Yun
Title:President
JWCH MERGER CORP.
By: /s/ Edward D. Yun
-----------------------------------
Name: Edward D. Yun
Title:President
GENERAL ELECTRIC COMPANY
By: /s/ Jerome C. Marcus
-----------------------------------
Name: Jerome C. Marcus
Title:Attorney-In-Fact
III-17
EXECUTION COPY
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement") dated as of June 29, 2001, among INSIGHT
HEALTH SERVICES HOLDINGS CORP., a Delaware corporation ("Parent"), JWCH MERGER
CORP., a Delaware corporation and wholly-owned subsidiary of Parent
("Acquisition") and GE FUND, a New York corporation (the "Stockholder").
WHEREAS, Parent, Acquisition and InSight Health Services Corp., a Delaware
corporation (the "Company"), have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"; capitalized terms used but
not defined herein shall have the meanings set forth in the Merger Agreement),
whereby Acquisition will merge with and into the Company and the Company shall
become the wholly-owned subsidiary of Parent (the "Merger"), upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, the Stockholder beneficially owns 10,948 shares of convertible
preferred stock, Series C of the Company, par value $0.001 per share (the
"Series C Preferred Stock"), convertible in the aggregate into 130,722.4 shares
of convertible preferred stock, Series D of the Company, par value $0.001 per
share (the "Series D Preferred Stock");
WHEREAS, pursuant to this Agreement the Stockholder agrees to (i) elect to
convert all of the Series C Preferred Stock that it owns into 130,722.4 shares
of Series D Preferred Stock pursuant to the terms thereof prior to the record
date for the Approval Events (as defined below), (ii) vote in favor of the
Merger and the adoption by the Company of the Merger Agreement, and (iii)
convert all of the aforementioned 130,722.4 shares of Series D Preferred Stock
into shares of Company Common Stock prior to the Closing; and
WHEREAS, as a condition to and in consideration of the willingness of Parent
and Acquisition to enter into the Merger Agreement, the Stockholder has agreed
to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein and other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to Parent and Acquisition as follows:
(a) Authority: No Conflicts. The Stockholder is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has
been duly authorized, executed and delivered by and on behalf of the
Stockholder and constitutes a legal, valid and binding obligation of the
Stockholder, enforceable in accordance with its terms (except to the extent
that enforcement may be affected by laws relating to bankruptcy,
reorganization, insolvency, and creditors' rights and by the availability
of injunctive relief, specific performance and other equitable remedies).
No filing with, and no permit, authorization, consent or approval of, any
Governmental Entity or any other person is necessary for the execution and
delivery of this Agreement by and on behalf of the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby.
None of the execution and delivery of this Agreement by and on behalf of
the Stockholder, the consummation of the transactions contemplated hereby
and compliance with the terms hereof by the Stockholder will conflict with,
or result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of, the Stockholder's certificate of
incorporation or bylaws or organizational documents, any trust agreement,
loan
III-18
or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license, judgment,
order, notice, decree, statute, law, ordinance, rule or regulation
applicable to the Stockholder or to the Stockholder's property or assets.
(b) The Subject Shares. The Stockholder is the beneficial owner of the
Series C Preferred Stock (the "Subject Shares"; provided that the Subject
Shares shall also include any and all securities issuable in respect of the
Series C Preferred Stock or Series D Preferred Stock upon conversion
thereof, as applicable) and has, and throughout the term of this Agreement
will have, good and marketable title to the Subject Shares free and clear
of all Liens. The Stockholder does not own, of record or beneficially, any
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, other than the
Subject Shares. The Stockholder has the sole right and power to vote and
dispose of the Subject Shares, and none of the Subject Shares is subject to
any irrevocable proxy, power of attorney, voting trust or other agreement,
arrangement or restriction with respect to the voting or transfer (other
than the provisions of the Securities Act or state securities laws) of any
of the Subject Shares, except as contemplated by this Agreement.
2. Representations and Warranties of Parent and Acquisition. Parent and
Acquisition hereby represent and warrant to the Stockholder that each is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by and on behalf of
each of Parent and Acquisition and constitutes a legal, valid and binding
obligation of each of Parent and Acquisition enforceable in accordance with its
terms (except to the extent that enforcement may be affected by laws relating
to bankruptcy, reorganization, insolvency, and creditors' rights and by the
availability of injunctive relief, specific performance and other equitable
remedies). Except for the filings required under the HSR Act and the Exchange
Act, exemptive filings under federal and state securities laws in connection
with equity investments in Parent and the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (i) no filing with, and
no permit, authorization, consent or approval of, any Governmental Entity or
any other Person is necessary for the execution of this Agreement by and on
behalf of each of Parent and Acquisition and the consummation by Parent and
Acquisition of the transactions contemplated hereby, and (ii) none of the
execution and delivery of this Agreement by Parent and Acquisition, the
consummation of the transactions contemplated hereby nor the compliance with
the terms hereof by Parent and Acquisition will conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both)
under any provision of, their respective certificate of incorporation or
bylaws, any trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Acquisition, as the case may be, or to
Parent's or Acquisition's, property or assets, as the case may be.
3. Covenants of the Stockholder. Until the termination of this Agreement in
accordance with Section 8 hereof, the Stockholder agrees as follows:
(a) Voting of Subject Shares. At any meeting of stockholders of the
Company called to vote upon the approval of the Merger, the Merger
Agreement and the transactions contemplated therein or at any adjournment
thereof or in any other circumstances upon which a vote or other approval
with respect to the Merger, the Merger Agreement and the transactions
contemplated therein is sought (the "Approval Events"), the Stockholder
shall vote all of the Subject Shares at the time of such meeting or
adjournment 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.
(b) Irrevocable Proxy. The Stockholder hereby grants to and appoints
Parent (and each officer of Parent designated by Parent) its proxy and
attorney-in-fact (with full power of substitution) to vote all of the
Subject Shares as indicated in Section 3(a) above. The Stockholder agrees
that this proxy shall be irrevocable during the term of this Agreement and
is coupled with an interest sufficient at law to support an irrevocable
power and given to Parent as an inducement to enter into the Merger
Agreement; provided
III-19
that Parent may at any time name any other Person as its substituted Proxy
to act pursuant hereto, either as to a specific matter or as to all matters
covered herein. Stockholder agrees to take such further action or execute
such other instruments as may be reasonably requested by Parent or
Acquisition to effectuate the intent of this paragraph (b). The Stockholder
hereby revokes any proxy previously granted by the Stockholder with respect
to the Subject Shares.
(c) Transfer Restrictions. The Stockholder agrees not to (i) sell,
transfer, pledge, encumber, assign or otherwise dispose of or hypothecate
(including by gift or by contribution or distribution to any trust or
similar instrument or to any beneficiaries of the Stockholder
(collectively, "Transfer")), or enter into any contract, option or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of, any of the Subject Shares other than
pursuant to the terms of this Agreement and the Merger Agreement, (ii)
enter into any voting arrangement or understanding other than this
Agreement with respect to the Subject Shares, whether by proxy, voting
agreement or otherwise, or (iii) take any action that could make any of its
representations or warranties contained herein untrue or incorrect or could
have the effect of preventing or disabling the Stockholder from performing
any of its obligations hereunder. The Stockholder further agrees to take in
a timely manner any and all actions (including, without limitation,
delivering the certificates evidencing the Subject Shares to the Company)
reasonably necessary for the Company to affix a legend on the certificates
evidencing the Subject Shares stating that the Subject Shares are subject
to this Agreement.
(d) Appraisal Rights. The Stockholder hereby irrevocably waives any and
all rights which it may have as to appraisal, dissent or any similar or
related matter with respect to the Merger under Section 262 of the General
Corporation Law of the State of Delaware or otherwise.
(e) No Solicitation. The Stockholder shall not, and shall use its
reasonable best efforts to cause its directors, officers, employees,
attorneys, accountants or financial advisors or other representatives
("Representatives") retained by it not to, directly or indirectly through
another Person, (i) 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 Takeover Proposal, or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided that
the foregoing shall not limit or prohibit any Representative of the
Stockholder who is a director of the Company from exercising his or her
fiduciary duty solely as a director of the Company in a manner consistent
with the terms and conditions set forth in the Merger Agreement.
4. Conversion of Subject Shares. In connection with the Merger and the
Merger Agreement, the Stockholder hereby agrees to deliver a Type B Conversion
Notice (as defined in the Certificate of Designation with respect to the Series
C Preferred Stock) electing to (subject to the delivery of a Type B Conversion
Notice with respect to the Series B Preferred Stock) convert all of the Series
C Preferred Stock that it owns into 130,722.4 shares of the Series D Preferred
Stock pursuant to the terms thereof prior to the record date established by the
Company in connection with the Approval Event which would permit such
Stockholder to vote all of such shares held by such Stockholder after such
conversion, irrespective of any voting limitations, in favor of the Merger, the
Merger Agreement and the transactions contemplated therein.
5. Conversion of Series D Preferred Stock. Immediately prior to the
Effective Time, the Stockholder hereby agrees to convert all of the shares of
Series D Preferred Stock then owned by it into shares of Company Common Stock.
6. Additional Shares. Without limiting the provisions of the Merger
Agreement, in the event (i) of any stock dividend, stock split,
recapitalization, reclassification, combination or exchange of shares of
capital stock of the Company on, of or affecting the Subject Shares or (ii) the
Stockholder becomes the record or beneficial owner of any additional shares of
the capital stock of the Company or other securities entitling the holder
thereof to vote or give consent with respect to the matters set forth in
Section 3(a), then the terms of this Agreement shall apply to the shares of
capital stock or other securities of the Company held by the Stockholder
immediately following the effectiveness of the events described in clause (i)
or the Stockholder becoming the
III-20
record or beneficial owner thereof, as described in clause (ii), as though they
were Subject Shares hereunder. The Stockholder hereby agrees to promptly notify
Parent of the number of any additional shares of capital stock or other voting
securities of the Company acquired, of record or beneficially, by the
Stockholder, if any, after the date hereof and prior to the termination of this
Agreement pursuant to Section 8 hereof.
7. Officers and Directors. Notwithstanding anything contained to the
contrary in this Agreement, in the event a Representative is a director or
officer of the Company, nothing in this Agreement is intended or shall be
construed to, require such Representative, solely in his or her capacity as a
director or officer of the Company, to act or fail to act in any manner
inconsistent with (i) his or her fiduciary duties in such capacity and (ii) the
Merger Agreement. Furthermore, no Representative who is or becomes (during the
term hereof) a director or officer of the Company makes any agreement or
understanding herein solely in his or her capacity as a director or officer,
and nothing herein will limit or affect, or give rise to any liability of any
Representative solely in such Person's capacity as a director or officer of the
Company.
8. Termination. Except as set forth in the next sentence, this Agreement
shall terminate, and no party shall have any rights or obligations hereunder
and this Agreement shall become null and void and have no further effect
immediately following the earliest to occur of (x) the Effective Time or (y)
the termination of the Merger Agreement. Nothing in this Section 8 shall
relieve any party of liability for breach of this Agreement.
9. Contents of Agreement; Parties in Interest, etc. This Agreement and the
agreements referred to or contemplated herein set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and thereby, and, except as set forth in this Agreement and
such other agreements, there are no representations or warranties, express or
implied, made by any party to this Agreement with respect to the subject matter
of this Agreement. Any and all previous agreements and understandings between
or among the parties regarding the subject matter hereof, whether written or
oral, are superseded by this Agreement and the agreements referred to or
contemplated herein.
10. Assignment and Binding Effect. Neither this Agreement nor the rights and
obligations hereunder may be assigned by any of the parties hereto without the
prior written consent of the other parties hereto; provided, that Parent and/or
Acquisition may assign its rights and obligations under this Agreement to any
directly or indirectly wholly-owned Subsidiary of Parent, upon written notice
to the Stockholder if the assignee shall assume the obligations of Parent
and/or Acquisition hereunder. Subject to the foregoing, all the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto.
III-21
11. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to
the party personally or sent to the party by facsimile transmission (promptly
followed by a hard copy delivered in accordance with this Section 11 or by
registered or certified mail (return receipt requested), with postage and
registration or certification fees thereon prepaid, addressed to the party at
its address set forth below:
If to Parent or Acquisition:
c/o J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Attention: Edward D. Yun
Facsimile No.: (617) 753-1101
and
c/o The Halifax Group, L.L.C.
1133 Connecticut Avenue, N.W.
Suite 700
Washington, D.C. 20036
Attention: David W. Dupree
Facsimile No.: (202) 296-7133
with a copy to:
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Stephen C. Koval, Esq.
Facsimile No.: (212) 836-8689
If to the Stockholder:
GE Fund
c/o General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431
Attn: Jerome C. Marcus
Facsimile: 203-357-6527
with a copy to:
GE Fund
c/o General Electric Company
3135 Easton Turnpike
Fairfield, CT 06431
Attn: Eliza W. Fraser
Facsimile: 203-373-3079
and
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Linda Curtis, Esq.
Facsimile: 213-229-6582
III-22
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
12. Amendment. This Agreement may not be amended except by an instrument in
writing signed by all of the parties hereto.
13. Extensions; Waiver. Any party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of
the other parties contained in this Agreement or in any document delivered
pursuant to this Agreement, or (c) waive compliance by the other party with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
14. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of Delaware, without regard
to the conflicts of law principles thereof.
15. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, and their respective successors and assigns, and they shall not be
construed as conferring, and are not intended to confer, any rights on any
other Person.
16. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by
applicable law.
17. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Stockholder,
Acquisition and Parent may become a party hereto by executing a counterpart
hereof. This Agreement and any counterpart so executed shall be deemed to be
one and the same instrument.
[Signature Page Follows]
III-23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
INSIGHT HEALTH SERVICES
HOLDINGS CORP.
By: /s/ Edward D. Yun
-----------------------------------
Name: Edward D. Yun
Title:President
JWCH MERGER CORP.
By: /s/ Edward D. Yun
-----------------------------------
Name: Edward D. Yun
Title:President
GE FUND
By: /s/ Jerome C. Marcus
-----------------------------------
Name: Jerome C. Marcus
Title:Attorney-In-Fact
III-24
ANNEX IV
DELAWARE CODE ANNOTATED
SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to (S) 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to (S)(S) 251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the merger
or consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
IV-1
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under (S) 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and
IV-2
who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to
IV-3
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon
the appraisal prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted such stockholder's certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
IV-4
INSIGHT HEALTH SERVICES CORP.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
_________ __, 2001
This Proxy Is Solicited on Behalf of the Board Of Directors of
InSight Health Services Corp.
The undersigned hereby acknowledges receipt of the notice of special
meeting of stockholders and the accompanying proxy statement for the special
meeting to be held on _______, 2001 and, revoking all prior proxies, hereby
appoints Steven T. Plochocki and/or Marilyn U. MacNiven-Young, with full power
of substitution, as proxy of the undersigned to attend and vote all shares of
common stock of InSight Health Services Corp. which the undersigned may be
entitled to vote at the special meeting of stockholders to be held on ______,
2001, and any and all postponements or adjournments thereof, upon the matter
specified below and such other business as may properly come before the special
meeting.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.
1. To approve the proposal to adopt the Agreement and Plan of Merger, dated as
of June 29, 2001, by and among InSight Health Services Holdings Corp., JWCH
Merger Corp. and InSight Health Services Corp. and to approve the
transactions contemplated therein, including the merger, as described in
the proxy statement for the special meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To transact such other business as may properly come before the special
meeting and any and all postponements or adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS INDICATED; HOWEVER, IF NO INSTRUCTIONS ARE GIVEN, THE PROXY HOLDER
WILL VOTE FOR THE MERGER AND THE AGREEMENT AND PLAN OF MERGER AND IN HIS/HER
DISCRETION ON ANY OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING.
NOTE: Please sign exactly as your name appears on your stock certificate(s).
If the stock is jointly held, each owner should sign. Executors, administrators,
trustees, guardians and attorneys should so indicate when signing. Attorneys
should submit powers of attorney.
- ------------------------------------- -------------------------------
Signature(s) of stockholder(s)
Dated: _______________, 2001
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE SO
THAT IT CAN BE COUNTED AT THE SPECIAL MEETING ON ____________, 2001.
INSIGHT HEALTH SERVICES CORP.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
_________ __, 2001
This Proxy Is Solicited on Behalf of the Board Of Directors of
InSight Health Services Corp.
The undersigned hereby acknowledges receipt of the notice of special
meeting of stockholders and the accompanying proxy statement for the special
meeting to be held on _______, 2001 and, revoking all prior proxies, hereby
appoints Steven T. Plochocki and/or Marilyn U. MacNiven-Young, with full power
of substitution, as proxy of the undersigned to attend and vote all shares of
preferred stock of InSight Health Services Corp. which the undersigned may be
entitled to vote at the special meeting of stockholders to be held on ______,
2001, and any and all postponements or adjournments thereof, upon the matter
specified below and such other business as may properly come before the special
meeting.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.
1. To approve the proposal to adopt the Agreement and Plan of Merger, dated as
of June 29, 2001, by and among InSight Health Services Holdings Corp., JWCH
Merger Corp. and InSight Health Services Corp. and to approve the
transactions contemplated therein, including the merger, as described in
the proxy statement for the special meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To transact such other business as may properly come before the special
meeting and any and all postponements or adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS INDICATED; HOWEVER, IF NO INSTRUCTIONS ARE GIVEN, THE PROXY HOLDER
WILL VOTE FOR THE MERGER AND THE AGREEMENT AND PLAN OF MERGER AND IN HIS/HER
DISCRETION ON ANY OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING.
NOTE: Please sign exactly as your name appears on your stock certificate(s).
If the stock is jointly held, each owner should sign. Executors, administrators,
trustees, guardians and attorneys should so indicate when signing. Attorneys
should submit powers of attorney.
- ------------------------------------- -------------------------------
Signature(s) of stockholder(s)
Dated: _______________, 2001
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE SO
THAT IT CAN BE COUNTED AT THE SPECIAL MEETING ON ____________, 2001.