<PAGE>
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:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INNOSERV TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
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(2) Aggregate number of securities to which transaction applies:
3,009,395
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(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): $16,000,000 value X 1% X 1/50th
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(4) Proposed maximum aggregate value of transaction:
$16,000,000
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(5) Total fee paid:
$3,200
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/X/ 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:
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(4) Date Filed:
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<PAGE>
INNOSERV TECHNOLOGIES, INC.
320 WESTWAY, SUITE 520
ARLINGTON, TEXAS 76018
AUGUST 25, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of InnoServ Technologies, Inc., a California corporation
("InnoServ"), to be held on September 15, 1998 at 8:00 a.m., central daylight
time, at the Hilton Arlington Hotel located at 2401 East Lamar Boulevard,
Arlington, Texas 76006.
At the Special Meeting, you will be asked to approve and adopt the First
Amended and Restated Agreement and Plan of Merger dated as of May 19, 1998, as
amended (the "Merger Agreement"), by and among InnoServ and General Electric
Company, a New York corporation acting on behalf of its GE Medical Systems
division ("General Electric") and Diamond Merger Sub, Inc., a California
corporation and an indirect subsidiary of General Electric ("Sub"), and the
transactions contemplated thereby, pursuant to which Sub would be merged (the
"Merger") with and into InnoServ.
Upon completion of the Merger, InnoServ will be the surviving corporation
and will be an indirect subsidiary of General Electric, and each and every
outstanding share of InnoServ common stock (other than certain shares held by
General Electric and InnoServ, and Dissenting Shares (as defined in the Merger
Agreement) in respect of which appraisal rights are properly exercised and
perfected) will be converted into the right to receive a range of consideration
between approximately $3.97 and $4.25 in cash, without interest thereon. See
"DESCRIPTION OF THE PROPOSED MERGER--MERGER CONSIDERATION" in the accompanying
Proxy Statement.
A more detailed description of the Merger Agreement and the proposed Merger
is set forth in the enclosed Proxy Statement, which you should read carefully. A
Notice of Special Meeting of Shareholders is also enclosed herewith. Holders of
record of shares of InnoServ common stock at the close of business on August 27,
1998, the record date for the Special Meeting, are entitled to notice of, and to
vote at, the Special Meeting and at any adjournments and/or postponements
thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE MERGER
AGREEMENT AND THE MERGER.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME
BEFORE IT IS VOTED AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
I strongly support General Electric's acquisition of InnoServ and join with
the other members of the Board of Directors in enthusiastically recommending
this transaction to you. We urge you to vote to approve the Merger Agreement and
the Merger. If you should have any questions about the Merger or need assistance
in completing your proxy card, please contact Thomas Hoefert, Chief Financial
Officer of InnoServ, at (817) 468-3377 (ext. 4219).
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Very truly yours,
/s/ DUDLEY A. RAUCH
------------------------------------------
Name: Dudley A. Rauch
Title: Chairman of the Board
</TABLE>
<PAGE>
INNOSERV TECHNOLOGIES, INC.
320 WESTWAY, SUITE 520
ARLINGTON, TEXAS 76018
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 15, 1998
A Special Meeting of Shareholders (the "Special Meeting") of InnoServ
Technologies, Inc., a California corporation ("InnoServ"), will be held on
September 15, 1998 at 8:00 a.m., central daylight time, at the Hilton Arlington
Hotel located at 2401 East Lamar Boulevard, Arlington, Texas 76006, for the
following purposes:
1. Considering and voting upon a proposal (the "Proposal") to approve and
adopt the First Amended and Restated Agreement and Plan of Merger dated as of
May 19, 1998, as amended (the "Merger Agreement"), by and among InnoServ,
General Electric Company, a New York corporation acting on behalf of its GE
Medical Systems division ("General Electric"), and Diamond Merger Sub, Inc., a
California corporation and an indirect subsidiary of General Electric ("Sub"),
and the transactions contemplated thereby, pursuant to which Sub would be merged
(the "Merger") with and into InnoServ. The Merger Agreement contemplates, among
other things, that upon consummation InnoServ will be the surviving corporation
in the Merger and will be an indirect subsidiary of General Electric, and that
each and every outstanding share of InnoServ common stock (other than shares
held by General Electric and InnoServ, and Dissenting Shares (as defined in the
Merger Agreement) in respect of which appraisal rights are properly exercised
and perfected) will be converted into the right to receive a range of
consideration between approximately $3.97 and $4.25 in cash, without interest
thereon. See "DESCRIPTION OF THE PROPOSED MERGER--MERGER CONSIDERATION" in the
accompanying Proxy Statement. As a result of the Merger, the shareholders of
InnoServ will not own any stock of the Surviving Corporation. A copy of the
Merger Agreement is attached to the accompanying Proxy Statement as Appendix I.
2. To transact such other business as may properly come before the Special
Meeting and any adjournments and/or postponements thereof.
THE BOARD OF DIRECTORS, AFTER CAREFUL REVIEW OF THE MERGER AGREEMENT AND
OTHER FACTORS, BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, INNOSERV AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY RECOMMENDED THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL.
Holders of record of InnoServ common stock at the close of business on
August 27, 1998 (the "Record Date") are entitled to notice of, and to vote at,
the Special Meeting and at any adjournments and/or postponements thereof. The
affirmative vote of a majority of the votes represented by the outstanding
shares of InnoServ common stock is required to approve the Proposal. A list of
holders of record of shares of InnoServ common stock at the close of business on
the Record Date will be available for inspection at
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InnoServ's headquarters during ordinary business hours for the ten-day period
prior to the Special Meeting. InnoServ's transfer books will not be closed.
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By Order of the Board of Directors:
/s/ DUDLEY A. RAUCH
------------------------------------------
Name: Dudley A. Rauch
Title: Chairman of the Board
</TABLE>
Arlington, Texas
August 25, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE
IT IS VOTED AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY CARD.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION........................................................................................... 1
Record Date.......................................................................................... 2
Voting; Proxies...................................................................................... 2
Persons Making the Solicitation...................................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................................................... 2
SUMMARY................................................................................................ 3
The Company.......................................................................................... 3
General Electric..................................................................................... 3
Sub.................................................................................................. 3
The Special Meeting.................................................................................. 3
Record Date; Quorum.................................................................................. 3
Vote Required........................................................................................ 4
Reasons for the Merger............................................................................... 4
Fairness Opinion..................................................................................... 4
Recommendation....................................................................................... 5
Merger............................................................................................... 5
Merger Consideration................................................................................. 5
Per Share Merger Consideration..................................................................... 5
MEDIQ Payment...................................................................................... 5
Escrow Payment..................................................................................... 6
Stock Options........................................................................................ 7
Price Range of Common Stock.......................................................................... 7
Interests of Certain Persons in the Merger........................................................... 7
Dissenters' Rights................................................................................... 8
Manner of Converting Shares.......................................................................... 8
Conditions to the Merger............................................................................. 8
Regulatory Approval.................................................................................. 8
Amendment; Termination............................................................................... 9
No Solicitation...................................................................................... 9
Preferred Stock...................................................................................... 10
Effective Date....................................................................................... 10
Financing the Merger................................................................................. 10
Accounting Treatment................................................................................. 10
Certain Federal Income Tax Consequences.............................................................. 10
SELECTED FINANCIAL DATA................................................................................ 11
VOTING AND PROXIES..................................................................................... 12
DESCRIPTION OF THE PROPOSED MERGER..................................................................... 13
Background of and Reasons for the Merger............................................................. 13
History of Negotiations between the Company and General Electric................................... 13
Reasons for the Merger............................................................................. 18
Fairness Opinion..................................................................................... 19
Premium Analysis................................................................................... 20
Analysis of Selected Publicly-Traded Comparable Company............................................ 21
Analysis of Recent Acquisition Activity............................................................ 21
Recommendation....................................................................................... 22
Shareholders' Agreement.............................................................................. 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Merger........................................................................................... 23
Merger Consideration................................................................................. 23
Per Share Merger Consideration..................................................................... 23
MEDIQ Payment...................................................................................... 23
Escrow Payment..................................................................................... 24
Stock Options........................................................................................ 25
Interests of Certain Persons in the Merger........................................................... 25
Manner of Converting Shares.......................................................................... 27
Conditions to the Merger............................................................................. 28
Regulatory Approval.................................................................................. 28
Amendment; Termination............................................................................... 28
No Solicitation...................................................................................... 29
Preferred Stock...................................................................................... 30
Accounting Treatment................................................................................. 31
Merger Expenses...................................................................................... 31
Deregistration of Common Stock....................................................................... 31
Source and Amount of Funds........................................................................... 31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................................ 32
Purchase of Shares................................................................................... 32
Backup Withholding................................................................................... 32
General.............................................................................................. 33
COMPANY CAPITALIZATION................................................................................. 33
Common Stock Prices and Dividends.................................................................... 33
Description of Capital Stock......................................................................... 34
Common Stock......................................................................................... 34
Preferred Stock...................................................................................... 34
Transfer Agent and Registrar......................................................................... 34
Ownership of Common Stock............................................................................ 34
RIGHTS OF DISSENTING SHAREHOLDERS...................................................................... 36
INFORMATION CONCERNING THE COMPANY..................................................................... 38
Business............................................................................................. 38
Management........................................................................................... 38
Directors.......................................................................................... 38
Executive Officers................................................................................. 39
Summary Compensation Table........................................................................... 39
Stock Option Grants................................................................................ 40
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values.................. 40
Employment Agreements and Compensation Arrangements.................................................. 41
Compensation of Directors.......................................................................... 41
Employment Agreements.............................................................................. 41
CERTAIN INFORMATION CONCERNING GENERAL ELECTRIC AND SUB................................................ 42
INDEPENDENT AUDITORS................................................................................... 43
SHAREHOLDER PROPOSALS.................................................................................. 43
AVAILABLE INFORMATION.................................................................................. 43
OTHER MATTERS.......................................................................................... 44
APPENDIX I--MERGER AGREEMENT........................................................................... A-I-1
</TABLE>
ii
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APPENDIX II--FAIRNESS OPINION.......................................................................... A-II-1
APPENDIX III--STOCK PURCHASE AGREEMENT................................................................. A-III-1
APPENDIX IV--REGISTRATION RIGHTS AGREEMENT............................................................. A-IV-1
APPENDIX V--LETTER AGREEMENT........................................................................... A-V-1
APPENDIX VI--CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW...................................... A-VI-1
</TABLE>
iii
<PAGE>
INNOSERV TECHNOLOGIES, INC.
320 WESTWAY, SUITE 520
ARLINGTON, TEXAS 76018
------------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 15, 1998
INTRODUCTION
This Proxy Statement and the accompanying proxy are being sent to
shareholders of InnoServ Technologies, Inc., a California corporation
("InnoServ" or the "Company"), on or about August 31, 1998. The accompanying
proxy is solicited by and on behalf of the Board of Directors of the Company
(the "Board") for use at the Special Meeting of Shareholders of the Company to
be held at the Hilton Arlington Hotel located at 2401 East Lamar Boulevard,
Arlington, Texas 76006 on September 15, 1998, at 8:00 a.m., central daylight
time, and at any adjournments and/or postponements thereof (the "Special
Meeting"), for the purpose of considering and voting upon a proposal to approve
and adopt the First Amended and Restated Agreement and Plan of Merger dated as
of May 19, 1998, as amended (the "Merger Agreement"), by and among the Company,
General Electric Company, a New York corporation acting on behalf of its GE
Medical Systems division ("General Electric"), and Diamond Merger Sub, Inc., a
California corporation and an indirect subsidiary of General Electric ("Sub"), a
copy of which is attached to this Proxy Statement as Appendix I, including the
transactions contemplated thereby, providing for the merger of Sub with and into
the Company (the "Merger"). Holders of record of the Company's issued and
outstanding shares of common stock, $0.01 par value ("Common Stock"), at the
close of business on August 27, 1998 are entitled to one vote for each share
held by them.
The Board has unanimously approved the Merger Agreement and the Merger. The
Board unanimously recommends approval and adoption of the Merger Agreement and
the Merger by the shareholders of the Company. For a discussion of factors
considered by the Board in approving the Merger Agreement and the transactions
contemplated thereby, see "DESCRIPTION OF THE PROPOSED MERGER--BACKGROUND OF AND
REASONS FOR THE MERGER."
As a result of the Merger, Sub will cease to exist, the Company will
continue as the surviving corporation and will be an indirect subsidiary of
General Electric (the "Surviving Corporation"), and each and every outstanding
share of Common Stock on the Effective Date (as hereinafter defined) (other than
shares held by General Electric and InnoServ, and shares of Common Stock which
are issued and outstanding immediately prior to the Effective Date and which are
held by shareholders who have properly exercised and perfected appraisal rights
under Section 1301 of the California General Corporation Law (the "Dissenting
Shares")) will be converted into the right to receive a range of consideration
between approximately $3.97 and $4.25 in cash, without interest thereon. See
"DESCRIPTION OF THE PROPOSED MERGER-- MERGER CONSIDERATION."
The principal executive offices of the Company are located at 320 Westway,
Suite 530, Arlington, Texas 76018.
1
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RECORD DATE
Shareholders of Common Stock of record at the close of business on August
27, 1998 (the "Record Date") are entitled to notice of and to vote on all
matters presented at the Special Meeting. On the Record Date, there were
3,009,395 shares of Common Stock outstanding.
VOTING; PROXIES
The presence, either in person or by proxy, of persons entitled to vote a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum for the transaction of business at the Special Meeting. On each matter to
be considered at the Special Meeting, shareholders will be entitled to cast one
vote for each share of Common Stock held on the Record Date. In order for the
Merger Agreement to be approved and adopted, the votes cast in favor must
constitute at least a majority of the outstanding shares of Common Stock. Due to
this required majority vote, abstentions and failures to vote will have the same
effect as a vote against approval of the Merger Agreement and the Merger.
Pursuant to a shareholders agreement, dated May 19, 1998 (the "Shareholders'
Agreement"), by and among General Electric and certain shareholders of the
Company (the "Committed Shareholders") and subject to the terms and conditions
of such Shareholders' Agreement, the Committed Shareholders have agreed to vote
all of their shares of Common Stock in favor of approval and adoption of the
Merger Agreement and the Merger. As of the Record Date, the Committed
Shareholders held 1,589,279 shares of Common Stock, constituting nearly 53% of
the shares of Common Stock outstanding on such date, which is an amount
sufficient to approve the Merger Agreement at the Special Meeting. See "VOTING
AND PROXIES" AND "DESCRIPTION OF THE PROPOSED MERGER--SHAREHOLDERS' AGREEMENT."
Shareholders are urged, whether or not they expect to attend the Special
Meeting, to complete, sign and date the accompanying proxy card and return it
promptly in the enclosed envelope, which requires no postage if mailed in the
United States. If you return an executed proxy and then attend the Special
Meeting in person, you may allow your proxy to remain in effect, or you may
revoke your proxy and vote in person by giving written notice of such revocation
to the Company's Secretary, or by filing a duly executed proxy bearing a later
date, at any time prior to the time the vote is taken. Attendance at the Special
Meeting will not by itself revoke a proxy.
Unless otherwise directed in the accompanying proxy, the persons named
therein will vote each proxy FOR approval of the Merger Agreement and the
Merger. As to any other business that may properly come before the Special
Meeting, the proxy holders will vote in their discretion. The Company currently
does not know of any other such business.
PERSONS MAKING THE SOLICITATION
This solicitation of proxies is being made by the Board. All expenses
associated with soliciting proxies, including the preparation, assembly,
printing and mailing of this Proxy Statement, will be borne by the Company. It
is contemplated that proxies will be solicited principally through the use of
the mail, but officers, directors and employees of the Company may solicit
proxies personally or by telephone or facsimile, without receiving additional
compensation therefor. The Company will reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to their principals.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company has enclosed with this Proxy Statement its Annual Report on Form
10-K for the fiscal year ended April 30, 1998, which is incorporated herein by
reference.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is necessarily selective and is qualified
in its entirety by the more detailed information appearing elsewhere in this
Proxy Statement and the attached Appendices. Shareholders are urged to carefully
review this entire Proxy Statement, including the Appendices hereto.
THE COMPANY
The Company is a California corporation whose Common Stock is registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and traded in the Nasdaq National Market under the symbol
"ISER." The Company provides comprehensive asset management programs and
services, multi-vendor maintenance and repair services and other specialized
services to radiology, cardiology, biomedical and laboratory departments of
hospitals and other healthcare providers. The Company is headquartered at 320
Westway, Suite 530, Arlington, Texas 76018, and its telephone number is (817)
468-3377. As of the Record Date, 3,009,395 shares of Common Stock were issued
and outstanding. See "COMPANY CAPITALIZATION--OWNERSHIP OF COMMON STOCK" and
"INFORMATION CONCERNING THE COMPANY."
GENERAL ELECTRIC
General Electric is a New York corporation whose common stock is registered
under the Exchange Act and traded on the New York Stock Exchange under the
symbol "GE." General Electric and its consolidated affiliates comprise one of
the largest and most diversified industrial corporations in the world. From the
time of General Electric's incorporation in 1892, it has engaged in developing,
manufacturing and marketing a wide variety of products for the generation,
transmission, distribution, control and utilization of electricity. Over the
years, development and application of related and new technologies have
broadened considerably the scope of activities of General Electric and its
affiliates. General Electric's principal executive offices are located at 3135
Easton Turnpike, Fairfield, Connecticut 06431-0001, and its telephone number is
(203) 373-2211. See "CERTAIN INFORMATION CONCERNING GENERAL ELECTRIC AND SUB."
SUB
Sub is a newly-formed California corporation and wholly-owned subsidiary of
a wholly-owned subsidiary of General Electric, formed solely for the purpose of
consummating the Merger. As a consequence of the Merger, Sub will merge with and
into the Company which, as the Surviving Corporation in the Merger, will
continue as of the Effective Date to conduct its business and operations as an
indirect subsidiary of General Electric. See "CERTAIN INFORMATION CONCERNING
GENERAL ELECTRIC AND SUB."
THE SPECIAL MEETING
Proxies are being solicited by the Board for use at the Special Meeting to
be held at 8:00 a.m., central daylight time, at the Hilton Arlington Hotel
located at 2401 East Lamar Boulevard, Arlington, Texas 76006, on September 15,
1998, for the purpose of considering and voting upon approval and adoption of
the Merger Agreement and the Merger, as more particularly described herein and
in the Notice of Special Meeting accompanying this Proxy Statement.
RECORD DATE; QUORUM
Only holders of record of Common Stock at the close of business on the
Record Date, August 27, 1998, are entitled to notice of and to vote on all
matters presented at the Special Meeting and any adjournments and/or
postponements thereof. The presence, either in person or by proxy, of persons
entitled to vote a majority of the outstanding shares of Common Stock is
necessary to constitute a quorum for the transaction of business at the Special
Meeting. Record holders of Common Stock are entitled to
3
<PAGE>
one vote for each share held by them. On the Record Date, there were 3,009,395
shares of Common Stock outstanding. See "VOTING AND PROXIES."
VOTE REQUIRED
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock (more than 50%) is required to approve the Merger Agreement and the
Merger. Pursuant to the Shareholders' Agreement, and subject to the terms and
conditions therein, the Committed Shareholders have agreed to vote all of their
shares of Common Stock in favor of approval of the Merger Agreement and the
Merger. As of the Record Date, the Committed Shareholders held 1,589,279 shares
of Common Stock, constituting nearly 53% of the shares of Common Stock
outstanding on such date, which is an amount sufficient to approve the Merger
Agreement and the Merger at the Special Meeting. Ninety-three percent (93%) of
the near 53% of shares held by the Committed Shareholders are held individually
by directors of the Company, their direct family members, or in accounts,
companies and trusts under their voting discretion. Thus, certain directors of
the Company, their direct family members, or accounts, companies and trusts
under their discretion control 49% of the Common Stock outstanding on the Record
Date and they have committed to vote all of their combined Common Stock in favor
of the Merger Agreement and the Merger. See "VOTING AND PROXIES" and
"DESCRIPTION OF THE PROPOSED MERGER--SHAREHOLDERS' AGREEMENT."
REASONS FOR THE MERGER
During the past several years the medical equipment service industry has
been characterized by increasing consolidation, with participants in the market
seeking the capability of providing a full range of products and services to
their customers. In addition, consolidation in the medical care industry has
caused an increase in the capital required by companies to compete in the
industry, while enhancing the outlook for larger companies which provide greater
economies of scale. During this period, management of the Company reviewed the
Company's strategic alternatives and took various steps in an effort to maintain
its competitiveness. Despite these efforts, the Company continued to have
unprofitable operating results and liquidity concerns, and continued to lose
market share and its competitive advantages in the marketplace. As a result, in
late 1996, the Company's management and the Board determined that it was in the
best interests of the Company to explore the possibilities of seeking a buyer
for substantially all of the assets or stock of the Company.
At the time the Merger Agreement was negotiated and executed, General
Electric was the only party that had made a qualified offer to purchase either
all of the stock or all of the assets of the Company. The terms of the Merger
were determined through negotiations between the Company and General Electric
following extensive discussions, financial analysis and due diligence. In
reaching its determination on May 15, 1998 to approve and adopt the Merger
Agreement and recommend approval of the Merger Agreement and the Merger to the
Company's shareholders, the Board consulted with the Company's management, as
well as its legal counsel and financial advisors, and considered a number of
factors before unanimously concluding that the Merger represented the best
available alternative to enhance shareholder value. The Board did not find it
practicable to, and did not attempt to, assign relative weights to the specific
factors considered. See "DESCRIPTION OF THE PROPOSED MERGER--BACKGROUND OF AND
REASONS FOR THE MERGER."
FAIRNESS OPINION
Warburg Dillon Read LLC ("WDR"), a successor to SBC Warburg Dillon Read
Inc., has delivered to the Board a written opinion as of May 11, 1998 to the
effect that, as of such date, based upon and subject to various considerations
set forth in the opinion, the Per Share Merger Consideration (as hereinafter
defined) is fair, from a financial point of view, to the shareholders of the
Company. At a Board meeting on May 15, 1998, WDR verbally reaffirmed its written
opinion. A copy of the opinion of WDR, which sets forth the assumptions made,
matters considered and the scope of their review, is attached to this Proxy
4
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Statement as Appendix II and should be read in its entirety. See "DESCRIPTION OF
THE PROPOSED MERGER-- FAIRNESS OPINION."
RECOMMENDATION
Management of the Company and the Board believe that the Merger will benefit
the Company's shareholders and is in the best interests of the Company and its
shareholders. The Board has unanimously approved the Merger Agreement and the
Merger and has unanimously recommended that the Merger Agreement be adopted and
the Merger be approved by the shareholders of the Company. See "DESCRIPTION OF
THE PROPOSED MERGER--RECOMMENDATION."
MERGER
Pursuant to the Merger Agreement, the Company and General Electric have
agreed, subject to approval of the shareholders of the Company and the
satisfaction of certain other conditions, that Sub will merge with and into the
Company. At the Effective Date of the Merger, Sub will cease to exist and the
Company will continue as the Surviving Corporation and will be an indirect
subsidiary of General Electric. See "DESCRIPTION OF THE PROPOSED MERGER--THE
MERGER."
MERGER CONSIDERATION
PER SHARE MERGER CONSIDERATION
At the Effective Date, each and every outstanding share of Common Stock
(other than shares held by General Electric and InnoServ and their respective
subsidiaries, and Dissenting Shares which have been properly exercised and
perfected) will be converted into (i) the right to receive an amount equal to
(A) the sum of $16,000,000 (the "Merger Consideration") less the MEDIQ Payment
(as hereinafter defined) and less the Escrow Payment (as hereinafter defined),
divided by (B) the number of shares of Common Stock outstanding immediately
prior to the Effective Date (the "Per Share Merger Consideration"), and (ii) the
contingent right to receive additional consideration pursuant to the Escrow
Agreement described below under "ESCROW PAYMENT." As of the Record Date,
3,009,395 shares of Common Stock were outstanding. If the number of shares of
outstanding Common Stock remains the same on the Effective Date, the Per Share
Merger Consideration will be approximately $3.97. See "DESCRIPTION OF THE
PROPOSED MERGER--MERGER CONSIDERATION."
MEDIQ PAYMENT
Pursuant to a stock purchase agreement dated November 13, 1997 (the "MEDIQ
Agreement"), by and among the Company and MEDIQ Incorporated and MEDIQ
Investment Services, Inc. (collectively, "MEDIQ") (a copy of which is attached
hereto as Appendix III), the Company repurchased 2,026,438 shares of the
Company's Common Stock (the "MEDIQ Shares") from MEDIQ in exchange for an
agreement that the Company would not enter into or consummate a change of
control (as defined in the MEDIQ Agreement) unless the other party or parties
thereto agree, as a condition precedent to such transaction, to pay to MEDIQ the
amount that would have been received by MEDIQ in connection with the change of
control transaction if all of the MEDIQ Shares were outstanding and held by
MEDIQ at the effective time of such change of control transaction. The MEDIQ
Agreement further provides that, after April 1, 1998 and through September 30,
1998, the Company shall not enter into or consummate a change of control unless
the other party or parties thereto agree, as a condition precedent to such
transaction, to pay to MEDIQ 50% of the amount that would have been received by
MEDIQ in connection with the change of control transaction if all of the MEDIQ
Shares were outstanding and held by MEDIQ at the effective time of such change
of control transaction.
5
<PAGE>
MEDIQ and the Company are currently in dispute as to the amount that would
be owed to MEDIQ under the terms of the MEDIQ Agreement upon consummation of the
Merger. If the Company and General Electric had entered into or consummated a
change of control on or prior to April 1, 1998, based on the Merger
Consideration, upon consummation of the Merger MEDIQ would have been entitled to
$6,437,994. Pursuant to a letter agreement dated May 19, 1998, among the
Company, MEDIQ and General Electric (the "Letter Agreement"), a copy of which is
attached hereto as Appendix V, MEDIQ has acknowledged that it believes that,
based on the accuracy of the representations described below, it will be owed
$4,052,876 upon consummation of the Merger, while the Company has acknowledged
that it believes that MEDIQ will be owed $3,218,997. The Company's belief is
based on the fact that $3,218,997 is 50% of the amount that MEDIQ would have
been entitled to if the Company and General Electric had entered into or
consummated a change of control on or prior to April 1, 1998. The Merger
Agreement provides for the payment on the Effective Date of the Merger by
General Electric (i) to MEDIQ of an amount equal to $3,218,997 (the "MEDIQ
Payment") and (ii) to the Paying Agent (as hereinafter defined), as escrow
agent, of an amount equal to $833,879, to be held pursuant to an escrow
agreement by and between the Company and MEDIQ in the form attached to the
Merger Agreement.
Under the terms of the Letter Agreement, MEDIQ also released the Company
from any further obligations under the MEDIQ Agreement, contingent upon the
receipt of the MEDIQ Payment and subject to the representations of the Company
and General Electric that such parties did not affirmatively delay any such
change of control transaction and that a description (provided to MEDIQ) of the
parties' discussions with respect to the Merger was materially correct and not
misleading. In connection with the arbitration of the dispute over whether MEDIQ
is owed $4,052,876 or $3,218,997, MEDIQ has advised the Company that it has
concerns as to the accuracy of such representations and that MEDIQ will require
discovery with respect to that issue. MEDIQ has not specified the nature of its
concerns and, in depositions taken in connection with the arbitration
proceedings referenced herein, MEDIQ's Chief Executive Officer and its outside
counsel have testified that they knew of no facts to suggest that the
representations are untrue or that the description is inaccurate. While the
Company believes that the representations are accurate, MEDIQ may nevertheless
claim that they are not accurate and demand that the full amount of $6,437,994
be paid to MEDIQ upon consummation of the Merger. Although the Company believes
that any such claim would be without merit, there is no assurance, if such a
claim is asserted, that the Company will prevail on the issue, whether resolved
in the arbitration proceeding or otherwise; however, the ultimate resolution of
this issue will have no effect on the amount of the Per Share Merger
Consideration nor will it affect the Company's or General Electric's obligations
under the Merger Agreement. See "DESCRIPTION OF THE PROPOSED MERGER--MERGER
CONSIDERATION." It is unlikely that the amount MEDIQ is entitled to receive will
be finally resolved before the Merger is consummated. Should MEDIQ ultimately
obtain a final judgment against the Company that it is owed more than the sum of
the MEDIQ Payment and the Escrow Payment (as hereafter defined), the Company
would be responsible for payment of that excess amount.
ESCROW PAYMENT
As described above, immediately after the Effective Date, General Electric
will deposit $833,879 (the "Escrow Payment") into an account maintained by the
Bank of New York (the "Paying Agent"), and pursuant to the terms of an escrow
agreement by and between MEDIQ, the Committee (as hereinafter defined) and the
Company (the "Escrow Agreement"), the Paying Agent will be instructed to
distribute the Escrow Payment in full to either MEDIQ and/or the holders of
outstanding shares of Common Stock immediately prior to the Effective Date, (or
some combination thereof) in accordance with either an agreement between a
committee representing the former shareholders of the Company (the "Committee")
and MEDIQ regarding such funds, or in the absence of such an agreement, upon the
order of the arbitrator(s) upon completion of the arbitration proceedings
regarding such Escrow Payment.
6
<PAGE>
The Committee will initially consist of Michael Puls, President and Chief
Executive Officer of the Company, Dudley Rauch, Chairman of the Board, and Dr.
Samuel Salen, Vice Chairman and Secretary of the Board. The Committee will
represent the interests of the former shareholders of the Company and will speak
for and on behalf of such shareholders with respect to all matters involving the
Escrow Payment and Escrow Agreement. In the event that the Escrow Payment is
awarded or distributed to the Committee on behalf of the holders of Common Stock
as of the Effective Date, all amounts so distributed shall be payable to such
former holders as follows: each share of Common Stock representing a former
shareholder interest shall be entitled to receive an amount equal to (i) the
amount of Escrow Payment awarded or distributed by the Paying Agent to the
Committee on behalf of the holders of Common Stock as of the Effective Date,
divided by (ii) the number of shares of Common Stock outstanding as of the
Effective Date. As of the Record Date, 3,009,395 shares of Common Stock were
outstanding. If the number of shares of outstanding Common Stock remains the
same on the Effective Date, the holder of each share of Common Stock could
receive an additional $0.277 per share if all of the Escrow Payment is awarded
or distributed to the Committee on behalf of such holders. See "DESCRIPTION OF
THE PROPOSED MERGER--MERGER CONSIDERATION."
STOCK OPTIONS
At the Effective Date, all options to purchase shares of Common Stock
("Outstanding Options") shall vest and become effective and exercisable for the
Per Share Merger Consideration. Prior to the Effective Date, each of the holders
of Outstanding Options shall be offered the opportunity to enter into an
agreement with the Company (a "Cancellation Agreement") wherein, upon the
Effective Date, they will receive cash from the Surviving Corporation in an
amount equal to the difference between the Per Share Merger Consideration and
the exercise price of such holder's Outstanding Options in exchange for
cancellation of such holder's Outstanding Options. The holders of such
Outstanding Options will also be entitled to receive from the Surviving
Corporation a per share amount equal to the per share amount, if any, received
by each holder of Common Stock under the Escrow Agreement. See "DESCRIPTION OF
THE PROPOSED MERGER--MERGER CONSIDERATION."
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the Nasdaq National Market. On May 19, 1998,
the last full trading day prior to the public announcement by the Company and
General Electric of the execution of the Merger Agreement, the closing price for
a share of Common Stock in the Nasdaq National Market was $3.25. On May 19,
1998, the high price for a share of Common Stock was $3.25 and the low price for
a share of Common Stock was $3.125. The closing price for a share of Common
Stock on August 24, 1998 was $3.94. See "COMPANY CAPITALIZATION--COMMON STOCK
PRICES AND DIVIDENDS." Shareholders are urged to obtain current market
quotations for the Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors of the Company, their direct family members, or accounts,
companies and trusts under their discretion control 49% of the Common Stock
outstanding as of the Record Date and they have committed, pursuant to the
Shareholders' Agreement, to vote all of their combined Common Stock in favor of
the Merger Agreement. Mr. Puls, the President and Chief Executive Officer of the
Company, and the Company have entered into a bonus agreement, dated December 20,
1996, as amended by a letter agreement dated as of May 15, 1998, wherein Mr.
Puls will receive a bonus of $307,500 upon the consummation of the Merger.
Thomas Hoefert, the Vice President and Chief Financial Officer of the Company,
and the Company have entered into a bonus agreement, dated September 29, 1997,
wherein Mr. Hoefert will receive a bonus of $150,000 upon the consummation of
the Merger. See "DESCRIPTION OF THE PROPOSED MERGER--INTERESTS OF CERTAIN
PERSONS IN THE MERGER."
7
<PAGE>
DISSENTERS' RIGHTS
Record holders of Common Stock who object to the Merger may, under certain
circumstances, and by following the statutorily prescribed procedures set forth
in Chapter 13 of the California General Corporation Law (a copy of which chapter
is attached hereto as Appendix VI), receive cash for the "fair market value" of
their shares, which may be higher or lower than the value of the Per Share
Merger Consideration plus each holder's pro rata portion of the Escrow Payment,
if any. The failure of a dissenting shareholder to follow such procedures may
result in termination or waiver of rights as a dissenter. Since the Common Stock
is traded in the Nasdaq National Market, shareholders of the Company who object
to the Merger may vote against the Merger at the Special Meeting and will be
entitled to dissenters' rights if the Merger is consummated over their
objections, if the holders of five percent or more of the Common Stock make
appropriate demands under Chapter 13 of the California General Corporation Law.
A shareholder must vote against the Merger in order to obtain dissenters' rights
under California law. See "RIGHTS OF DISSENTING SHAREHOLDERS."
MANNER OF CONVERTING SHARES
On the Effective Date, each certificate formerly representing shares of
Common Stock (other than shares held by General Electric and InnoServ and their
respective subsidiaries, and Dissenting Shares which have been properly
exercised and perfected) will, automatically without any action on the part of
the holder thereof, be deemed to represent only a certificate (a "Certificate")
entitled to the right to receive the Per Share Merger Consideration and the pro
rata portion of the Escrow Payment. On or as soon as practicable after the
Effective Date, a letter of instructions (the "Letter of Transmittal") setting
forth the manner of exchanging Certificates for the Per Share Merger
Consideration will be delivered by the Paying Agent to each holder of Common
Stock as determined immediately prior to the Effective Date. Upon surrender to
the Paying Agent of the Certificate(s) representing the shares of Common Stock,
together with a properly completed Letter of Transmittal, the holder of such
Certificate(s) shall be entitled to immediately receive the Per Share Merger
Consideration with respect to each share represented by such Certificate(s) and
upon distribution of the Escrow Payment to the Committee, the pro rata portion
of the Escrow Payment, if any. See "DESCRIPTION OF THE PROPOSED MERGER--MANNER
OF CONVERTING SHARES."
CONDITIONS TO THE MERGER
The obligations of the Company and General Electric to consummate the Merger
are subject to fulfillment or waiver of the following conditions: (i) approval
of the Merger Agreement by the shareholders of the Company; (ii) the expiration
or termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") and the absence of any order by any
governmental entity restraining, enjoining or prohibiting the Merger; (iii) the
performance in all material aspects of the agreements of each party,
respectively, under the Merger Agreement and the receipt by each party of
certificates from an officer of the other party to such effect; (iv) the
representations and warranties contained in the Merger Agreement of each party,
respectively, being correct and true as of the Effective Date (except where the
failure to be so true, individually or in the aggregate with other such
failures, would not have a Parent Material Adverse Effect or a Company Material
Adverse Effect, respectively, as such terms are defined in the Merger
Agreement), and the receipt by each party of certificates from an officer of the
other party to such effect; and (v) the receipt by General Electric of an
opinion of counsel of the Company. See "DESCRIPTION OF THE PROPOSED
MERGER--CONDITIONS TO THE MERGER."
REGULATORY APPROVAL
General Electric and the Company filed notification and report forms with
the United States Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") seeking early termination of the waiting period under the
HSR Act on December 24, 1997 and December 30, 1997, respectively. On July 14,
1998, General Electric and the Company received written notice that the FTC has
8
<PAGE>
granted early termination of the waiting period under the HSR Act. Pursuant to
the terms of the Merger Agreement, General Electric and the Company entered into
a side agreement, dated May 19, 1998 (the "Side Agreement"), wherein General
Electric agreed to pay the Company $1,200,000 if the DOJ did not grant early
termination or expiration of the waiting period under the HSR Act prior to the
later of (i) June 22, 1998 or (ii) the date of the meeting of the shareholders
of the Company at which the Merger is approved. Since early termination has been
granted, no amount is payable by General Electric to the Company under the Side
Agreement. See "DESCRIPTION OF THE PROPOSED MERGER--REGULATORY APPROVALS" and
"--BACKGROUND OF AND REASONS FOR THE MERGER."
AMENDMENT; TERMINATION
The Merger Agreement may be amended by written agreement of each of the
parties before or after approval by the Company's shareholders by action of each
party's board of directors (in the case of the Company and Sub) and by any vice
president (in the case of General Electric), provided that, if after such
shareholder approval, if applicable law requires shareholder approval of an
amendment, the amendment will not be valid without such approval. The Merger
Agreement may be terminated and the Merger abandoned before the Effective Date
(i) by mutual written consent of the Company, duly authorized by its Board, and
General Electric by any vice president; (ii) by either party if the other fails
to comply in any material respect with any of its respective covenants or
agreements contained in the Merger Agreement, provided that the other party is
not in material breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement; (iii) by either party if there has
been a material breach at the time when made by the other party, provided that
the terminating party is not in material breach of any representation, warranty,
covenant or other agreement contained in the Merger Agreement; (iv) by either
party if the shareholders of the Company shall not approve the Merger at the
Special Meeting; (v) by either party if the Merger has not been effected on or
prior to the close of business on September 30, 1998, except that such right to
terminate shall not be available to a party whose willful and material failure
to fulfill any obligation of the Merger Agreement has been the cause of, or
resulted in, the failure of the Merger to be effected; (vi) by either party if
any court or other governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by the Merger Agreement; (vii) by
either party if any order or directive has a material adverse effect on the
business, operations or financial condition of the Company as the Surviving
Corporation; (viii) by the Company by written notice to General Electric if the
Board in good faith determines that a proposal by a third party to purchase 35%
or more of the assets of the Company, or which results in such third party
controlling 35% or more of the beneficial interests of shares of the Company's
Common Stock, will be more favorable to its shareholders than the Merger and
General Electric has not exercised its right to match such proposal; or (ix) by
General Electric if the Board shall have failed to recommend the Merger to the
Company's shareholders, or shall have modified in a manner adverse to General
Electric or withdrawn its recommendation of the Merger to the Company's
shareholders as being advisable and fair to and in the best interests of the
Company and its shareholders. If a termination is caused by (i) a breach of a
representation or warranty of the Company; (ii) a failure by the Company to
comply in any material respect with any of its covenants or agreements contained
in the Merger Agreement; (iii) a failure by the shareholders to vote in favor of
the Merger; (iv) notification to General Electric of the Board's determination
that a third party's proposal is more favorable than the Merger; or (v) failure
of the Board to recommend the Merger, the Company is required to pay General
Electric $550,000. See "DESCRIPTION OF THE PROPOSED MERGER--AMENDMENT;
TERMINATION."
NO SOLICITATION
Prior to the Effective Date or the termination of the Merger Agreement, the
Company has agreed not to take, nor to authorize any of its affiliates to take,
any action to (i) encourage, solicit or initiate the submission of any
transaction which contemplates a Business Combination Proposal (as hereinafter
defined); (ii) enter into any agreement with respect to any Business Combination
Proposal; or
9
<PAGE>
(iii) participate in any discussions with or take any other action to encourage
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Business Combination Proposal; provided that the Company may (A)
participate in negotiations with or furnish information to any persons or group
that makes an unsolicited Business Combination Proposal that the Board
determines may reasonably be expected to result in a Superior Proposal (as
hereinafter defined); (B) comply with Rule 14e-2 promulgated under the
Securities and Exchange Act of 1934 with regard to any Business Combination
Proposal; (C) fail to make or withdraw or modify its recommendation regarding
the Merger to its shareholders if there exists a Superior Proposal or if the
Board determines that such action is required to discharge properly its
fiduciary duties; or (D) after terminating the Merger Agreement, enter into an
agreement with respect to or recommend to its shareholders a Superior Proposal.
Notwithstanding the foregoing, the Company is obligated to provide certain
notice to General Electric in the event of an unsolicited Business Combination
Proposal or Superior Proposal. See "DESCRIPTION OF THE PROPOSED MERGER--NO
SOLICITATION."
PREFERRED STOCK
Pursuant to the Merger Agreement, on June 5, 1998, a subsidiary of General
Electric purchased 700,000 shares of Series B Preferred Stock of the Company
(the "Preferred Shares") from the Company for $2,800,000. Except as otherwise
expressly provided by law, the Preferred Shares do not have any right to vote
for the election of directors or for any other purpose (including the Merger).
The Preferred Shares accrue dividends of $0.32 per share per annum, beginning
six months from the issuance of such shares, whether or not earned or declared,
and are redeemable by the Company at any time at a price equal to $4.00 per
share plus any accrued but unpaid dividends. Each Preferred Share is also
convertible into Common Stock, at the option of the holders, at any time after
the earlier of (i) the consummation of a reorganization (which includes mergers,
consolidations and acquisitions of more than 35% of the Common Stock) of the
Company with a third party or (ii) the later of (A) September 30, 1998 or (B)
the termination of the Merger Agreement. See "DESCRIPTION OF THE PROPOSED
MERGER--PREFERRED STOCK."
EFFECTIVE DATE
The proposed Merger will be consummated if and on such date (the "Effective
Date") as the Agreement of Merger of Sub into the Company, attached as Exhibit
A.1 to the Merger Agreement, and appropriate officers' certificates are filed
with and accepted by the California Secretary of State. The Effective Date is
currently expected to occur on or shortly after September 15, 1998, the date of
the Special Meeting, subject to the satisfaction or waiver of the conditions to
the Merger. See "DESCRIPTION OF THE PROPOSED MERGER--THE MERGER" and
"--CONDITIONS TO THE MERGER."
FINANCING THE MERGER
It is expected that the Per Share Merger Consideration, the MEDIQ Payment
and the Escrow Payment will be financed by General Electric from internal funds
of General Electric. See "DESCRIPTION OF THE PROPOSED MERGER--SOURCE AND AMOUNT
OF FUNDS."
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting,
in accordance with generally accepted accounting principles. See "DESCRIPTION OF
THE PROPOSED MERGER--ACCOUNTING TREATMENT."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange by shareholders of their shares of Common Stock for cash and
the right to the Escrow Payment pursuant to the Merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction for state, local, foreign and other tax purposes. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES." Shareholders are urged to consult their own
tax advisors with respect to the federal, state, local and other tax
consequences of the Merger, including the effects of recent and potential
changes of law.
10
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended April 30,
1996, 1997, and 1998 has been derived from the audited financial statements of
the Company included herein by reference. The selected financial data set forth
below for the years ended April 29, 1994 and April 30, 1995 has been derived
from the audited financial statements of the Company that are not included
herein. See "AVAILABLE INFORMATION" regarding sources available to obtain copies
of such financial statements. This information should be read in conjunction
with those more detailed financial statements (including the notes thereto) and
with the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION" contained in the Company's Annual Report on Form 10-K
incorporated herein by reference. The results set forth below are not
necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 29,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues................................................. $ 36,889 $ 42,387 $ 45,727 $ 46,366 $ 40,464
Net income (loss)........................................ (2,664) (1,573) (7,189) (3,630) 1,507
Net income (loss) per share(a):
Basic.................................................. (0.65) (0.31) (1.43) (0.81) 0.51
Diluted................................................ (0.65) (0.31) (1.43) (0.81) 0.49
Cash Dividends Per Share................................... $ -- $ -- $ -- $ 0.23 $ 0.16
Weighted Average Shares Outstanding(a):
Basic.................................................... 4,098 5,036 5,036 4,511 2,944
Diluted.................................................. 4,098 5,036 5,036 4,511 3,049
Balance Sheet Data:
Total assets............................................. $ 18,713 $ 19,102 $ 23,840 $ 30,506 $ 21,430
Working capital.......................................... (594) 978 1,023 4,077 6,784
Total long-term debt..................................... -- 479 910 141 --
Total shareholders' equity............................... $ 5,729 $ 8,393 $ 9,966 $ 17,155 $ 15,400
</TABLE>
- ------------------------
(a) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods above have been presented
and, where necessary, restated to conform to the SFAS No. 128 requirements.
11
<PAGE>
VOTING AND PROXIES
As of August 27, 1998, the Record Date for the determination of the
shareholders of the Company entitled to notice of, and to vote at, the Special
Meeting, there were 3,009,395 shares of Common Stock outstanding, which were
held of record by a total of approximately 850 shareholders. Each share entitles
the holder to one vote on each matter to come before the Special Meeting.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum for
purposes of the transaction of business at the Special Meeting. The affirmative
vote of the holders of a majority of the outstanding shares of Common Stock is
required to approve and adopt the Merger Agreement and the Merger. Abstentions
and failures to vote will not be counted as votes either in favor of or against
approval of the Merger Agreement and the Merger. However, because approval of
the Merger Agreement requires the affirmative vote of a majority of the
outstanding shares of Common Stock, a shareholder who fails to return a proxy or
otherwise to vote or who abstains from voting on the Merger Agreement will have
effectively voted against the proposal for purposes of determining the number of
votes needed for approval.
Pursuant to the Shareholders' Agreement and subject to the terms and
conditions therein, the Committed Shareholders have agreed to vote all of their
shares of Common Stock in favor of approval and adoption of the Merger Agreement
and the Merger. As of the Record Date, the Committed Shareholders held 1,589,279
shares of Common Stock, constituting nearly 53% of the shares of Common Stock
outstanding on such date, which is an amount sufficient to approve the Merger
Agreement and the Merger at the Special Meeting. Pursuant to the terms of the
Shareholders' Agreement, the Committed Shareholders agreed, until the
termination of the Shareholders' Agreement, to (i) attend the Special Meeting
and vote their shares of Common Stock in favor of the Merger; (ii) vote against
any other third party proposal; (iii) not divest of any such shares of Common
Stock; and (iv) not take any action as a shareholder to solicit a third party
proposal with respect to the purchase or combination of the assets or stock of
the Company. The Shareholders' Agreement terminates upon a termination of the
Merger Agreement; however, if the Merger Agreement is terminated as a result of
the shareholders of the Company voting against the Merger, the provisions of the
Shareholders' Agreement listed above shall survive for six months after such
termination.
Ninety-three percent (93%) of the near 53% of shares held by the Committed
Shareholders are held individually by directors of the Company, their direct
family members, or in accounts, companies and trusts under their voting
discretion. Thus, certain directors of the Company, their direct family members,
or accounts, companies and trusts under their discretion control 49% of the
Common Stock outstanding as of the Record Date and they have committed to vote
all of their combined Common Stock in favor of the Merger Agreement. See
"DESCRIPTION OF PROPOSED MERGER--SHAREHOLDERS' AGREEMENT."
Proxies for use at the Special Meeting accompany this Proxy Statement.
Properly executed and returned proxies, unless revoked, will be voted as
directed by the shareholder, or, in the absence of such direction, by the
persons named therein FOR the approval and adoption of the Merger Agreement and
the Merger in accordance with the recommendation of the Board. As to any other
business which may properly come before the Special Meeting, the proxy holders
will vote in accordance with their best judgment. A proxy may be revoked at any
time before it is voted by delivery of written notice of revocation to the
Secretary of the Company, or by delivery of a subsequently dated proxy, or by
attendance at the Special Meeting and voting in person. Attendance at the
Special Meeting without also voting will not in and of itself constitute the
revocation of a proxy.
The Company will bear the costs of printing this Proxy Statement and
soliciting proxies from shareholders. It is expected that proxies will be
solicited by the Company principally through the use of the mail. In addition,
if it should appear desirable to do so, directors, officers and employees of the
Company may, without additional compensation, communicate with shareholders, and
with banks, brokerage houses, nominees and others by telephone, telegraph,
facsimile or in person, to request that proxies be furnished.
12
<PAGE>
SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON STOCK WITH
THE ENCLOSED PROXY CARD. A LETTER OF TRANSMITTAL WILL BE MAILED BY THE PAYING
AGENT FOLLOWING THE EFFECTIVE DATE TO EACH PERSON WHO WAS A HOLDER OF RECORD OF
COMMON STOCK ON THE EFFECTIVE DATE. SHAREHOLDERS SHOULD SEND CERTIFICATES
REPRESENTING COMMON STOCK TO THE PAYING AGENT ONLY AFTER THEY RECEIVE, AND ONLY
IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
DESCRIPTION OF THE PROPOSED MERGER
The following information with respect to the proposed Merger and the Merger
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement included herein as Appendix I.
BACKGROUND OF AND REASONS FOR THE MERGER
HISTORY OF NEGOTIATIONS BETWEEN THE COMPANY AND GENERAL ELECTRIC
During the past several years the medical equipment service industry has
been characterized by increasing consolidation, with participants seeking the
capability of providing a full range of products and services to their
customers. In addition, consolidation in the medical care industry has caused an
increase in the capital required by companies to compete in the industry, while
enhancing the outlook for larger companies which provide greater economies of
scale.
During this period, management of the Company reviewed the Company's
strategic alternatives and took various steps in an effort to maintain its
competitiveness. In addition, the Company has strived to improve its
profitability by (i) streamlining its operations, including terminating
unprofitable or less profitable service contracts; (ii) installing new
information systems, which have reduced working capital requirements and
enhanced responsiveness to customers; and (iii) broadening its capabilities in
the medical equipment services industry through new alliances and marketing
initiatives.
Despite these efforts, the Company continued to have unprofitable operating
results and liquidity concerns, and continued to lose market share and its
competitive advantages in the consolidating marketplace. As a result, in late
1996, the Company's management and the Board determined that it was in the best
interests of the Company to explore the possibilities of seeking a buyer for
substantially all of the assets or stock of the Company. Pursuant to this
determination, the Company engaged Warburg Dillon Read LLC ("WDR") on October
21, 1996 to make inquiries on the Company's behalf to interested buyers in the
medical equipment services industry.
During the remainder of 1996 and the first half of 1997, the Company and WDR
took affirmative steps to locate such a buyer. In late 1996 and the first half
of 1997, the Company and WDR identified and entered into confidentiality
agreements with approximately 10 potential buyers, including General Electric,
and requested that each potential buyer provide a verbal indication of interest
in acquiring the Company. Upon the receipt of such verbal indications, the
Company provided each potential buyer with access to due diligence materials
regarding the Company.
As a result of this process, in early 1997, two of the parties conducting
due diligence submitted further indications of interest to the Company. One of
the indications involved the potential purchase of only a portion of the assets
of the Company for cash. The other involved the potential purchase of
substantially all of the assets of the Company. The Board met on February 3,
1997 and February 6, 1997 to discuss each of these indications of interest. The
Board determined that it was not in the best interests of the Company to
entertain negotiations regarding the sale of only a portion of the assets of the
Company. Therefore, the Board decided not to move forward with respect to the
first party. With respect to the second indication, the Board determined that
the amount of consideration being offered was too low, particularly in light of
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the specified conditions required to close the transaction. Therefore, the Board
also decided not to move forward with respect to the second party.
During March through July of 1997, two additional parties who had conducted
diligence with respect to the Company indicated an interest in acquiring the
Company. However, the terms, contingencies and valuations offered by these
parties were not within the range that the Board and the Company's management
thought appropriate to continue negotiations.
General Electric did not express any further interest until September 17,
1997 when a representative of General Electric spoke with Mr. Puls of the
Company expressing General Electric's interest in entertaining discussions about
a potential acquisition of the Company. As a result of this conversation, Mr.
Puls and Mr. Hoefert of the Company met with representatives of General Electric
on October 17, 1997 in Dallas, Texas to acquaint General Electric with a history
of the Company and to assess General Electric's interest in acquiring the
Company.
On October 31, 1997, a representative of General Electric verbally contacted
WDR to express General Electric's interest in pursuing an acquisition of all of
the equity interests of the Company for $16 to $20 million in cash. However, due
to the limited knowledge of General Electric in the operations of the Company,
General Electric requested that it be allowed to engage in preliminary due
diligence prior to the issuance of a letter of intent or other proposal.
Pursuant to the request, the Company provided certain due diligence materials to
General Electric and on November 27, 1997 General Electric submitted an
additional preliminary due diligence request list to WDR.
On December 1, 1997, Mr. Puls and Mr. Hoefert met with representatives of
General Electric in Chicago, Illinois to review the General Electric due
diligence request and oral indication of interest. Following this meeting, on
December 9 and 10, 1997, General Electric representatives conducted preliminary
due diligence and Mr. Puls and Mr. Hoefert met with representatives of General
Electric to discuss the General Electric due diligence and to provide additional
data to General Electric. On December 12, 1997, the Board met to discuss the
progress of the General Electric due diligence and General Electric's oral
indication of interest.
At an industry conference in early December, a representative from a party
("Party A") who had signed a confidentiality letter with the Company earlier,
met with Mr. Puls informally to discuss the possibility of acquiring all of the
equity or all, or substantially all, of the assets of the Company. Following
this conversation, Party A submitted a letter on December 9, 1997 (the "Party A
Letter") indicating an interest in purchasing all of the equity interests in the
Company. However, after informal discussions with the Board, WDR notified Party
A that the Company was not interested in pursuing negotiations with Party A
since the price range offered was not within a range deemed appropriate by the
Board. During the industry conference, Mr. Puls also met informally with a
representative of a party ("Party B") who had not previously signed a
confidentiality agreement with the Company regarding a potential acquisition of
all of the assets of the Company.
Following its preliminary due diligence, General Electric submitted two
non-binding letters to the Company on December 19, 1997 (the "General Electric
Letter") setting forth the terms of a possible merger of a subsidiary of General
Electric with and into the Company for a price of between $15 million and $16.48
million, based on certain assumptions and subject to various contingencies. The
General Electric Letter also referred to additional actions to be taken after
signing, including a provision for both companies to make filings under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR Act"), for which
General Electric agreed to pay all filing fees. As a part of the letter, General
Electric required a binding "exclusive dealing" agreement with the Company for a
period commencing on the date of the General Electric Letter and ending on the
earlier of (i) February 15, 1998 or (ii) thirty-one (31) days after the HSR Act
filing if the HSR Act waiting period had not already expired.
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The Board met on December 22, 1997 to review the General Electric Letter and
General Electric's requirement of an "exclusivity" agreement. In deciding
whether to agree to the terms of the General Electric Letter, the Board
determined that the consideration offered by General Electric was within an
acceptable range of the Board's own assessment of the value of the Company. The
Board also found it significant that General Electric had expressed a strong
commitment to proceeding with the Company (as shown by its willingness to
proceed with and pay for the HSR Act filing) and that it had the ability to
close a potential transaction without contingent financing. For these reasons,
the Board decided that it was in the best interests of the Company to pursue the
possible acquisition by General Electric, and therefore decided to grant General
Electric exclusivity in accordance with the General Electric Letter.
Based on the General Electric Letter, General Electric made filings under
the HSR Act on December 24, 1997 and the Company made filings under the HSR Act
on December 30, 1997. Shortly thereafter, General Electric continued its due
diligence investigation of the Company, and General Electric and the Company
began preliminary negotiations of a draft merger agreement and related
documents, including a shareholder voting agreement. On January 16, 1998, the
Company's Board met to discuss the status of the General Electric negotiations
and the draft merger agreement, and the Board's material negotiation points and
strategies, based on comments received from General Electric with respect to the
draft merger agreement.
On January 27, 1998, the DOJ notified the Company that the DOJ needed
additional information with respect to the proposed transaction, and on the
following day, General Electric notified the Company that the DOJ had requested
additional information from General Electric on the proposed transaction. The
Board met on January 28, 1998 to discuss the requests regarding the HSR Act
filings. On January 29, 1998, the DOJ made a formal "second request" of the
Company and General Electric regarding the HSR Act filings, seeking extensive
documents and information in connection with its analysis of a possible
transaction. As a result of the "second request," the preliminary negotiations
between General Electric and the Company of the draft merger agreement ceased at
that time; however, the parties did agree to continue to work with the DOJ with
respect to the HSR Filings, and shortly thereafter, General Electric and the
Company produced certain information requested by the DOJ and met with the DOJ.
On January 30, 1998, the "exclusive dealing" provisions of the General Electric
Letter expired.
On January 30, 1998, two additional parties ("Party C" and "Party D"),
neither of whom had signed confidentiality letters with the Company earlier nor
had been involved in discussions with WDR regarding the Company, jointly
submitted an unsolicited non-binding letter (the "Party C/D Letter") indicating
an interest in acquiring all of the equity interests of the Company for cash in
an amount equal to between $17.6 million and $20.1 million. The Party C/D Letter
required Party D to invest capital in Party C, allowing Party C to acquire the
equity of the Company. The Party C/D Letter was subject to due diligence and
automatically terminated unless accepted by February 2, 1998. On January 31,
1998, the Board met to discuss the progress in responding to the DOJ's request
for additional data and information regarding the proposed General Electric
transaction and reviewed the Party C/D Letter. In light of the DOJ request, the
Board decided to pursue discussions with Party C and Party D and instructed WDR
to notify Party C and Party D with respect to such decision.
On February 2, 1998, WDR contacted Party C and Party D and negotiated and
executed a confidentiality agreement on behalf of the Company. On February 3,
1998, representatives of Party C and Party D met with Mr. Puls and Mr. Hoefert
in Dallas, Texas to discuss Party D's strategy for making an investment in Party
C and the concurrent acquisition of the Company by Party C. At this meeting, Mr.
Puls and Mr. Hoefert reviewed certain of the Company's publicly available
information with Party C and Party D and discussed certain aspects of the
Company's operations. On February 4, 1998, representatives of Party C and D
continued their due diligence review of the Company.
Throughout early February 1998, General Electric and the Company continued
document production to and discussions with the DOJ. On February 11, 1998, after
a conversation with WDR one day earlier,
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Party B submitted an unsolicited non-binding letter (the "Party B Letter")
indicating an interest in acquiring all or substantially all of the assets of
the Company for cash in an amount equal to $20 million. The Party B Letter was
contingent on extensive due diligence. On February 13, 1998, WDR negotiated and
executed a confidentiality agreement on behalf of the Company with Party B.
Meanwhile, on February 13, 1998, the Company again met with the DOJ to discuss
the proposed transaction with General Electric. On February 16, 1998, the Board
met to discuss the progress of the DOJ discussions, the progress of discussions
with Party C and Party D and the Party B Letter.
On February 17, 1998, Party C and Party D submitted a revised non-binding
letter (the "Revised Party C/D Letter") indicating an interest in acquiring all
of the equity interests of the Company for cash in an amount equal to $20
million. The Revised Party C/D Letter was contingent upon extensive additional
due diligence of the Company and a binding four week "exclusive dealing" period.
On February 19, 1998, Mr. Puls and Mr. Hoefert met with Party B
representatives in Dallas, Texas to review certain of the Company's publicly
available information and to provide additional information with respect to the
Company's operations. Party B representatives continued Party B's due diligence
review of the Company on February 20, 1998.
On February 23, 1998, the Board met to discuss the Revised Party C/D Letter,
the progress of the Party B negotiations and the progress in responding to the
DOJ's request for additional data and information regarding the proposed General
Electric transaction. The Board expressed its desire to pursue discussions with
Party C and Party D, but was concerned about extending exclusivity to Party C
and Party D. Throughout the discussions with Party C and Party D, the management
of the Company and the Board had been concerned with the level of commitment
exhibited by Party D (the financing entity for Party C) to a possible
transaction, and its effect upon the ability of Party C to close a transaction
with the Company. In addition, the Company's management and the Board believed
that the extensive nature of the additional diligence requested in the Revised
Party C/D Letter placed such a contingency on the likelihood of a transaction as
to make exclusivity unwarranted in this case. Finally, based on these factors,
as well as continued discussions with the DOJ and General Electric, and the
preliminary interest of Party B, the Board decided that it was not in the best
interests of the Company to grant exclusivity to any party at that time. The
Board instructed WDR at the February 23, 1998 meeting to notify Party C and
Party D of its desire to pursue discussions with Party C and Party D, but only
if such parties agreed to waive the "exclusive dealing" provision. Party C and
Party D declined to waive the "exclusive dealing" provision of the Revised Party
C/D Letter and on February 25, 1998, Party C and Party D confirmed in writing
the termination of the Revised Party C/D Letter.
On or about March 3, 1998, the DOJ notified General Electric and the Company
of its intention to contact certain third parties (customers, competitors and
original equipment manufacturers) in connection with its review and analysis of
the proposed General Electric transaction.
On March 12, 1998, Party B informed WDR that it was not interested in
acquiring all of the equity or assets of the Company. Instead, Party B was
interested in pursuing discussions to purchase only certain assets and business
units of the Company for cash. Throughout its attempt to find a potential buyer,
the Company had determined and had been advised by WDR that it was not in the
best interests of the Company to divest only selected assets unless a purchaser
for the remaining assets could be found that would be willing to negotiate and
close concurrently with any divestiture of selected assets of the Company. Since
no such other purchaser was known to the Board or believed by the Board to be
likely to surface, WDR responded to Party B that the Company was not presently
interested in divesting such selected assets. Party B then indicated that it was
no longer interested in pursuing a transaction with the Company. Nevertheless,
Mr. Puls contacted a Party B representative about the possible divestiture of
one specific business unit. Party B notified the Company on April 21, 1998 that
it was not interested in acquiring the specific business unit.
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On March 20, 1998, Party C and Party D contacted WDR to express their desire
to resume discussions with the Company. The Board met on March 23, 1998 to
discuss the conditions necessary to continue discussions with Party C and Party
D. The Board again reviewed the "exclusive dealing" request of Party C and Party
D and again decided it was not in the best interests of the Company to grant
exclusivity to any party at that time. The Board also again discussed its
concerns regarding the contingent nature of the financing from Party D. WDR
notified Party C and Party D that these issues would need to be addressed by
Party C and Party D before negotiations could continue. Based on this
conversation, on March 25, 1998, Party C and Party D provided to the Company a
commitment for financing from Party D, Party D's Board of Directors approval of
the investment of Party D in Party C, and a waiver of the exclusivity clause in
the Revised Party C/D Letter. Based on this, discussions were resumed and on
March 26, 1998, Party C and Party D and their representatives met with Mr. Puls
and Mr. Hoefert in Dallas, Texas to continue their due diligence of the Company.
Party C and Party D continued such due diligence through April 7, 1998. On April
8, 1998, representatives of Party C and Party D contacted WDR to discuss the
decision by Party D to withdraw its financing commitment to Party C and to
withdraw from the acquisition discussions. During this meeting, Party C stated
its interest in continuing discussions once it had secured additional financing
sources; however, Party C indicated that the consideration offered in the
Revised Party C/D Letter would need to be revised due to the withdrawal of Party
D and to a perceived deterioration in the financial condition of the Company.
Meanwhile, on April 3, 1998, the DOJ informed General Electric and the Company
that it could take several more weeks to complete its contact with third parties
regarding the transaction.
After Party D withdrew its proposal from consideration, the Company became
concerned about its limited options. Party B had withdrawn its proposal, Party C
had no source of financing, and the Company had encountered operating losses
throughout the period that the Company was seeking an acquiror, thereby
increasing its liquidity concerns. Additionally, the Company had been seeking a
potential acquiror for more than 15 months and no additional potential buyers
had surfaced. Finally, because of the length of the proposed DOJ review, the
management of the Company was concerned that rumors concerning a possible
business combination would begin to disrupt the ongoing operations of the
Company. Therefore, in order to proceed toward entering into a definitive
agreement with General Electric, on April 10, 1998, Mr. Puls and Mr. Rauch,
Chairman of the Board, met in Milwaukee, Wisconsin with General Electric
representatives. During the meeting the parties proposed to eliminate any aspect
of the contingent consideration and proposed a price of $16,000,000 for the
Company plus payment of in-the-money Company stock options. After such meeting,
General Electric and the Company resumed the negotiations regarding the draft
merger agreement.
On or about April 15, 1998, the DOJ suggested the possibility of continuing
and expanding its investigation with respect to General Electric and the
Company. However, shortly thereafter General Electric met with the DOJ and
discussions regarding possible resolution of the HSR Act issues resumed. During
the following two weeks, General Electric and the Company continued discussions
with the DOJ regarding the possible resolution of the HSR Act issues.
Additionally, General Electric and the Company continued negotiating an
agreement and plan of merger and General Electric engaged in further due
diligence investigations. During the last week of April 1998 and the first week
of May 1998, General Electric and the Company began negotiations of possible
schedules, exhibits, opinions and other ancillary documents in connection with
the negotiations of the draft merger agreement. During this period, there were
no further meaningful conversations with Party A, Party B, Party C or Party D;
however, WDR received a draft of a merger agreement from Party C on April 22,
1998.
On May 5, 1998, the Board met with the Company's legal counsel and financial
advisors to review and discuss a written description of the terms of the draft
merger agreement being negotiated with General Electric, to review the status of
negotiations and to discuss various other matters related to the proposed
transaction. At this meeting, WDR expressed its oral opinion that the
consideration to be received in the proposed Merger is fair, from a financial
point of view, to the shareholders of the Company, and discussed
17
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the analyses, methodologies and conclusions underlying such determination. The
Board felt that the verbal presentation was complete and sufficient and,
therefore, that review of a written copy of the financial analysis was not
required.
Although the terms of the Merger were acceptable to the Board, because of
the disruption in operations which might be caused by announcing the Merger, the
Company informed General Electric that it was unwilling to execute and deliver a
definitive agreement unless General Electric would be willing to (i) compensate
the Company if the DOJ did not terminate the HSR waiting period and (ii) make a
substantial investment in the Company upon execution of such an agreement. On
May 7, 1998, the Board met to discuss the above-described options and to set
certain parameters for a possible resolution of these issues with General
Electric. After additional negotiations between the parties, General Electric
agreed to (i) a payment of $1,200,000 to the Company upon the occurrence of
certain events related to the DOJ and (ii) an equity investment of $2,800,000 by
General Electric in the Company by purchasing 700,000 shares of a new class of
the Company's preferred stock. See "REGULATORY APPROVAL" and "PREFERRED STOCK."
On May 11, 1998, the Board met again with the Company's legal counsel and
financial advisors to review and discuss a written description of the proposed
changes to the terms of the proposed merger agreement based on negotiations
since May 5, 1998, and a representative of WDR confirmed its May 5, 1998 oral
opinion that the consideration to be received in the proposed merger was fair,
from a financial point of view, to the shareholders of Company. After
discussion, the Board unanimously approved the form of the proposed merger
agreement and authorized the appropriate officers to enter into the definitive
agreement so long as General Electric agreed to the $1,200,000 payment and the
purchase of the preferred stock described above. On May 11, 1998, WDR issued its
written opinion that the consideration to be received in the proposed merger was
fair, from a financial point of view, to the shareholders of Company.
From May 11, 1998 through May 19, 1998, the parties continued to negotiate
and finalize the proposed merger agreement and the related ancillary documents.
On May 15, 1998, the Board again met with the Company's legal counsel and
financial advisors to review additional changes to the proposed merger agreement
and to discuss various details regarding the proposed preferred stock issuance.
The Board again unanimously approved the form of the proposed merger agreement
and authorized the appropriate officers to enter into the definitive agreement.
At this meeting, WDR orally affirmed its written opinion of May 11, 1998 that
the consideration to be received in the proposed merger was fair, from a
financial point of view, to the shareholders of Company. Over the weekend of May
16-17, 1998 and on May 18-19, 1998, the parties finalized the language of the
Merger Agreement and the ancillary documents related thereto. After the close of
business on May 19, 1998, the parties executed and delivered the Merger
Agreement and all ancillary documents thereto.
REASONS FOR THE MERGER
At the time the Merger Agreement was negotiated and executed, General
Electric was the only party that had made a qualified offer to purchase either
all of the stock or all of the assets of the Company. The terms of the Merger
were determined through negotiations between the Company and General Electric
following extensive discussions, financial analyses and due diligence. In
reaching its determination on May 15, 1998 to approve and adopt the Merger
Agreement and recommend approval of the Merger Agreement and the Merger to the
Company's shareholders, the Board consulted with the Company's management, as
well as its legal counsel and financial advisors, and considered a number of
factors before determining that the Merger represented the best available
alternative to enhance shareholder value. These factors included: (i) the
presentation by WDR with respect to WDR's determination as to the fairness, from
a financial point of view, of the Per Share Merger Consideration to the
shareholders of the Company, and the analyses, methodologies and conclusions
underlying such determination (see "FAIRNESS OPINION"); (ii) the premium in
existence at the time of approximately $0.97 to $1.25 per share (approximately
33% to approximately 42%), which represents the difference between the Per Share
Merger
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Consideration, as adjusted by the pro rata share of the Escrow Payment, if any,
and the trading price of the Common Stock at such time; (iii) the lack of any
available strategic alternatives, including the probability of obtaining a
superior offer and the timing thereof; (iv) the historical and recent sales and
earnings of the Company; (v) the Company's future prospects and potential
opportunities; (vi) the prices and premiums paid in recent acquisitions of
companies deemed to be similar in certain respects to the Company; (vii) the
advantages to the Company's shareholders of an all cash offer for their shares;
(viii) the likelihood that the Merger could be consummated, noting the timing of
and conditions to the Merger; and (ix) the terms and conditions of the Merger
Agreement, including, without limitation, the right of the Company to respond to
unsolicited third party superior proposals, subject to payment of $550,000 in
the event of entering into a transaction with such a third party; (x) the
payment by General Electric of $1,200,000 to the Company should early
termination or expiration of the waiting period under the HSR Act not be granted
prior to the later of (A) June 22, 1998 or (B) the date of the meeting of the
shareholders of the Company at which the Merger is approved; and (xi) infusion
of cash to the Company resulting from the $2,800,000 purchase of the Preferred
Shares (as hereinafter defined) by General Electric following execution of the
Merger Agreement.
The Board then unanimously concluded that the Merger with General Electric
represented the best available alternative to enhance shareholder value. The
Board did not find it practicable to, and did not attempt to, assign relative
weights to the specific factors considered.
FAIRNESS OPINION
The Company retained WDR to render a fairness opinion in connection with the
Merger. WDR has delivered its written opinion, dated May 11, 1998, confirming
its oral opinion of May 5, 1998 to the Board to the effect that, and based upon
and subject to the assumptions, limitations and qualifications set forth
therein, as of the date thereof, the consideration to be received in the Merger
is fair, from a financial point of view, to the shareholders of Common Stock.
The full text of WDR's fairness opinion, dated May 11, 1998, which sets
forth a description of the assumptions made, general procedures followed,
matters considered and limitations on the review undertaken, is attached as
Appendix II to this Proxy Statement. WDR's opinion does not address the
Company's underlying business decision to effect the Merger or constitute a
recommendation to any shareholder of the Company as to how such shareholder
should vote with respect to the Merger. The summary of WDR's opinion set forth
below is qualified in its entirety by reference to the full text of such opinion
attached as Appendix II. SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN
ITS ENTIRETY, ESPECIALLY WITH REGARD TO THE ASSUMPTIONS MADE AND MATTERS
CONSIDERED BY WDR.
In connection with rendering the fairness opinion, WDR reviewed, analyzed
and relied upon material relating to the financial and operating condition of
the Company, including, among other things, the following: (i) the draft Merger
Agreement; (ii) certain publicly available information concerning the Company,
including the Annual Reports on Form 10-K of the Company for each of the years
in the three year period ended April 30, 1997 and the Quarterly Reports on Form
10-Q of the Company for the quarters ended July 31, 1997, October 31, 1997 and
January 31, 1998; (iii) certain other internal information, primarily financial
in nature, concerning the business and operations of the Company furnished to
WDR by the Company for purposes of its analysis; (iv) certain publicly available
information concerning the trading of, and the trading market for, the Common
Stock; (v) certain publicly available information with respect to certain other
companies that WDR believed to be comparable to the Company and the trading
markets for certain of such other companies' securities; (vi) discussions
conducted with members of the senior management of the Company; (vii) certain
publicly available information concerning the nature and terms of certain other
transactions that WDR considered relevant to its inquiry; and (viii) such other
financial studies, analyses and investigations, and such other information as
WDR deemed necessary and appropriate, but none of which was individually
material. WDR's opinion was necessarily
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based on economic, monetary, market and other conditions as in effect on, and
the information made available to WDR as of, the date thereof.
In connection with its review, WDR did not, with the Company's consent,
assume any responsibility for independent verification of any of the information
reviewed by it for the purposes of its opinion, and with the Company's consent
relied upon its being complete and accurate in all material respects. In
addition, with the Company's consent WDR did not make any independent evaluation
or appraisal of any of the assets or liabilities (contingent or otherwise) of
the Company, nor was WDR furnished with any such evaluation or appraisal.
For the purposes of the opinion, with the consent of the Company, WDR
assumed that the representations and warranties of each party contained in the
Merger Agreement were true and accurate, that each party thereto would perform
all of the covenants and agreements required to be performed by it under the
Merger Agreement and that all conditions to the consummation of the Merger would
be satisfied without waiver thereof. The Company did not place any limitations
upon WDR regarding the procedures to be followed or the factors to be considered
in rendering its opinion.
In arriving at its opinion, WDR did not assign any particular weight to the
factors considered by it, but rather made qualitative judgments based upon its
expertise in providing such opinions and on then existing economic, monetary,
market and other conditions as to the significance and relevance of each
analysis and factor. Accordingly, WDR believes that its analyses must be
considered as a whole and that selecting portions of its analysis and the
factors considered, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying its opinion. In its
analyses, WDR made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of the Company or WDR. Any assumed estimates contained in
WDR's analyses are not necessarily indicative of actual values or predicative of
future results or values, which may be significantly more or less favorable than
as set forth therein. Such estimates relating to the value of a business or
securities do not purport to be appraisals or necessarily reflect the prices at
which companies or securities may actually be sold.
In connection with a presentation to the Board on May 5, 1998, as confirmed
in the written opinion of May 11, 1998, WDR advised the Board that, in
evaluating the consideration to be received in the Merger by the holders of the
Common Stock, WDR had performed a variety of financial analyses with respect to
the Company. In connection with rendering its opinion, WDR employed a variety of
valuation methods. The material methods used are summarized below.
PREMIUM ANALYSIS
WDR calculated the premium to holders of the Common Stock of the Per Share
Merger Consideration to the per share closing price of the Common Stock on May
1, 1998, and to the 52 week high and low closing stock price for the Common
Stock during the latest twelve months ("LTM"). In calculating such amounts, WDR
calculated the Per Share Merger Consideration to be received based upon the
total current number of shares outstanding as of May 5, 1998 and assumed that
the Escrow Payment was not disbursed to the shareholders of the Company. WDR
calculated premiums to holders of the Company Common Stock equal to
approximately 33% of the closing stock price for the Common Stock of $3.00 on
May 1, 1998; 165% of the 52 week low closing stock price of $1.50 for the Common
Stock; and 10% of the 52 week high closing price of $3.625 for the Common Stock.
WDR also calculated multiples of the Company's "Implied Firm Value" (defined
as the aggregate offer price for the Common Stock--$16,000,000 (the Merger
Consideration)--plus book values of total debt, less cash and cash equivalents)
to its LTM revenues and also calculated the Per Share Merger Consideration as a
multiple of its latest fiscal quarter tangible book value. The results of the
calculations were as follows: Implied Firm Value to LTM sales of 0.4x and Per
Share Merger Consideration to tangible book value of 2.6x.
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ANALYSIS OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANY
WDR reviewed certain publicly available financial, operating and stock
market information as of May 1, 1998 for the Company and Cohr, Inc., which in
WDR's judgment was generally comparable to the Company for purposes of this
analysis.
WDR calculated, among other things, multiples of market price to latest
fiscal quarter tangible book value per share, and multiples of Firm Value
(Implied Firm Value in the case of the Company) to LTM revenues. "Firm Value" is
defined as the value of the equity of the company plus book values of total
debt, less cash and cash equivalents. An analysis of the multiples of market
price to latest fiscal quarter tangible book value per share yielded 2.6x for
the Company and 0.9x for Cohr, Inc. An analysis of the multiples of Firm Value
to LTM revenues yielded 0.4x for the Company and 0.3x for Cohr, Inc.
ANALYSIS OF RECENT ACQUISITION ACTIVITY
WDR also reviewed three transactions involving the acquisition of all or
part of certain medical maintenance related companies, which in WDR's judgment
were generally comparable to the Merger for the purposes of this analysis. WDR
calculated the multiples of Firm Value to LTM revenues, as well as the multiple
of the offer price in each such transaction to the respective book value of such
companies.
The acquisitions reviewed by WDR, in reverse chronological order of
announcement date included: (i) the acquisition by Steris Corp. of Amsco
International, (ii) the acquisition by MMI Medical, Inc. (the Company) of MEDIQ
Equipment and Maintenance Services, Inc. and (iii) the acquisition by Elbit Ltd.
of Diasonics Ultrasound.
These calculations yielded a range of Firm Value to LTM revenues of 0.35x to
1.06x with a median of 0.65x, and a range of price to book value of 0.9x to 2.1x
with a median of 1.5x. WDR then compared the results of these calculations to
multiples calculated using the Implied Firm Value and the Merger Consideration:
0.4x Implied Firm Value to the Company's LTM revenues and 2.6x Merger
Consideration to book value of the Company.
No company, transaction or business used in the analysis described under
"ANALYSIS OF RECENT ACQUISITION ACTIVITY" and "ANALYSIS OF SELECTED
PUBLICLY-TRADED COMPANY" above is identical to the Company or the Merger.
Accordingly, an analysis of the results thereof necessarily involves complex
considerations and judgments concerning differences in financial operating
characteristics and other factors which could effect the transaction or the
public trading or other values of the company or companies to which they are
being compared. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable acquisition or
comparable company data.
WDR has advised the Board that, in connection with rendering its written
opinion dated May 11, 1998, WDR considered certain financial information and
market data in performing updates to the financial analyses described above. WDR
stated that the updated financial analyses confirmed its opinion as described
above.
WDR is an internationally recognized investment banking firm which, as part
of its investment banking business, regularly engages in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. The Board selected WDR on the basis of its experience and
independence.
In the ordinary course of business, WDR and its affiliates may actively
trade or hold the equity securities of the Company or the other merger
participants for their own account or the accounts of their customers and,
accordingly, may at any time hold a short or long position in such securities.
Pursuant to the engagement letter with WDR, the Company has agreed to pay
WDR a fee of $500,000 upon consummation of a disposition of all of the Company's
stock or substantially all of the assets of the
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Company whether by way of merger, transfer of assets or otherwise, for cash or
securities, in one or a series of transactions with any party. The Company has
also agreed to reimburse WDR for certain expenses incurred in connection with
its engagement and to indemnify WDR and certain related persons against certain
liabilities and expenses relating to or arising out of its engagement, including
certain liabilities under the federal securities laws.
RECOMMENDATION
The Board believes that the Merger is fair to, and in the best interests of,
the Company and its shareholders. Accordingly, the Board has unanimously
approved the Merger Agreement and the Merger and unanimously recommends that the
shareholders vote "FOR" approval and adoption of the Merger Agreement and the
Merger. Under California law, the Merger cannot be consummated without the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock in favor of the Merger Agreement and other transactions
contemplated thereby, including the Merger.
SHAREHOLDERS' AGREEMENT
Pursuant to the Shareholders' Agreement and subject to the terms and
conditions therein, the Committed Shareholders have agreed to vote all of their
shares of Common Stock in favor of approval of the Merger Agreement and the
Merger. As of the Record Date, the Committed Shareholders held 1,589,279 shares
of Common Stock, constituting nearly 53% of the shares of Common Stock
outstanding on such date, an amount sufficient to approve the Merger Agreement
and the Merger at the Special Meeting. Pursuant to the Shareholders' Agreement,
the Committed Shareholders agreed, until the termination of the Shareholders'
Agreement, to (i) attend the Special Meeting and vote their shares of Common
Stock in favor of the Merger; (ii) vote against any Business Combination
Proposal; (iii) not divest of any such shares of Common Stock; and (iv) not to
take any action as a shareholder to solicit a third party proposal with respect
to the purchase or combination of the assets or stock of the Company. The
Shareholders' Agreement terminates upon the earlier to occur of September 30,
1998 or the termination of the Merger Agreement, provided that, if the Merger
Agreement is terminated as a result of the shareholders of the Company voting
against the Merger, the provisions of the Shareholders' Agreement listed above
shall survive for 180 days after such termination.
Ninety-three percent (93%) of the approximately 53% of shares held by the
Committed Shareholders are held individually by directors of the Company, their
direct family members, or in accounts, companies and trusts under their voting
discretion. Thus, certain directors of the Company, their direct family members,
or accounts, companies and trusts under their discretion control 49% of the
outstanding Common Stock of the Company on the Record Date and they have
committed to vote all of their combined Common Stock in favor of the Merger
Agreement.
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THE MERGER
Subject to the conditions and the termination provisions contained in the
Merger Agreement, the proposed Merger will become effective on the Effective
Date, the date on which the Agreement of Merger of Sub into the Company attached
as Exhibit A.1 to the Merger Agreement, along with any other required documents,
is duly filed with and accepted by the Secretary of State of California. It is
currently anticipated that, if the Merger Agreement is approved and adopted by
the shareholders of the Company at the Special Meeting, and all other conditions
to the Merger have been fulfilled or waived, the Effective Date will occur on
the date that the Special Meeting has been scheduled, or a date as soon as
practicable thereafter. Upon consummation of the Merger, Sub will merge with and
into the Company, the separate existence of Sub as a corporation will cease, and
the Company will remain as the Surviving Corporation and will be an indirect
subsidiary of General Electric.
MERGER CONSIDERATION
PER SHARE MERGER CONSIDERATION
If the Merger is consummated, the Merger Agreement provides that each
outstanding share of Common Stock (other than (i) shares held by General
Electric or Sub, (ii) shares held by any corporation, partnership, joint
venture, or other entity in which the Company (A) owns directly or indirectly,
50% or more of the outstanding voting securities or equity interests (other than
the shares held by the InnoServ Technologies, Inc. Employee Stock Purchase Plan)
or (B) is a general partner (a "Company Subsidiary"), (iii) shares held by any
corporation, partnership, joint venture or other entity in which General
Electric (A) owns, directly or indirectly, 50% or more of the outstanding voting
securities or equity interests or (B) is a general partner (a "General Electric
Subsidiary"), and (iv) Dissenting Shares in respect of which appraisal rights
are properly exercised and perfected) will, on the Effective Date, be converted
into (i) the right to receive an amount equal to (A) the sum of $16,000,000 less
the MEDIQ Payment and less the Escrow Payment, divided by (B) the number of
shares of Common Stock outstanding as of the Effective Date, and (ii) the
contingent right to receive additional consideration pursuant to the Escrow
Agreement. As of the Record Date, 3,009,395 shares of Common Stock were
outstanding. If the number of shares of outstanding Common Stock remains the
same on the Effective Date, the Per Share Merger Consideration will be
approximately $3.97.
MEDIQ PAYMENT
Pursuant to the MEDIQ Agreement, by and among the Company and MEDIQ (a copy
of which is attached hereto as Appendix III), in 1997 the Company repurchased
2,026,438 shares of the Company's Common Stock ("the MEDIQ Shares") from MEDIQ
in exchange for an agreement that the Company would not enter into or consummate
a change of control (as defined in the MEDIQ Agreement) unless the other party
or parties thereto agree, as a condition precedent to such transaction, to pay
to MEDIQ the amount that would have been received by MEDIQ in connection with
the change of control transaction if all of the MEDIQ Shares were outstanding
and held by MEDIQ at the effective time of such change of control transaction.
The MEDIQ Agreement further provides that, after April 1, 1998 and through
September 30, 1998, the Company shall not enter into or consummate a change of
control unless the other party or parties thereto agree as a condition precedent
to such transaction, to pay to MEDIQ 50% of the amount that would have been
received by MEDIQ in connection with the change of control transaction if all of
the MEDIQ Shares were outstanding and held by MEDIQ at the effective time of
such change of control transaction. A change of control under the MEDIQ
Agreement includes a transaction whereby the holders of a majority of the
outstanding shares of Common Stock receive cash in exchange for such Common
Stock pursuant to a merger.
MEDIQ and the Company are currently in dispute as to the amount that would
be owed to MEDIQ under the terms of the MEDIQ Agreement upon consummation of the
Merger. If the Company and
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General Electric had entered into or consummated a change of control on or prior
to April 1, 1998, based on the Merger Consideration, upon consummation of the
Merger MEDIQ would have been entitled to $6,437,994. Pursuant to the Letter
Agreement, MEDIQ has acknowledged that it believes that, based on the accuracy
of the representations described below, it will be owed $4,052,876 upon
consummation of the Merger, while the Company has acknowledged that MEDIQ will
be owed $3,218,997. The Company's belief is based on the fact that $3,218,997 is
50% of the amount that MEDIQ would have been entitled to if the Company and
General Electric had entered into or consummated a change of control on or prior
to April 1, 1998. The Merger Agreement provides for the payment on the Effective
Date of the Merger by General Electric (i) to MEDIQ of an amount equal to
$3,218,997 and (ii) to the Escrow Agent of an amount equal to $833,879, to be
held pursuant to the Escrow Agreement. In a letter agreement among the Company
and MEDIQ, the parties agreed to submit such dispute to binding arbitration
pursuant to the terms of the MEDIQ Agreement to determine the amount MEDIQ
and/or the holders of outstanding shares of Common Stock on the Effective Date
will receive pursuant to the Escrow Agreement.
Under the terms of the Letter Agreement, MEDIQ also released the Company
from any further obligations under the MEDIQ Agreement, contingent upon the
receipt of the MEDIQ Payment and subject to the representations of the Company
and General Electric that such parties did not affirmatively delay any such
change of control transaction and that a description (provided to MEDIQ) of the
parties' discussions with respect to the Merger was materially correct and not
misleading. In connection with the arbitration of the dispute over whether MEDIQ
is owed $4,052,876 or $3,218,997, MEDIQ has advised the Company that it has
concerns as to the accuracy of such representations and that MEDIQ will require
discovery with respect to that issue. MEDIQ has not specified the nature of its
concerns and, in depositions taken in connection with the arbitration
proceedings referenced herein, MEDIQ's Chief Executive Officer and its outside
counsel have testified that they knew of no facts to suggest that the
representations are untrue or that the description is inaccurate. While the
Company believes that the representations are accurate, MEDIQ may nevertheless
claim that they are not accurate and demand that the full amount of $6,437,994
be paid to MEDIQ upon consummation of the Merger. Although the Company believes
that any such claim would be without merit, there is no assurance, if such a
claim is asserted, that the Company will prevail on the issue whether resolved
in the arbitration proceeding or otherwise; however, the ultimate resolution of
this issue will have no effect on the amount of the Per Share Merger
Consideration nor will it affect the Company's or General Electric's obligations
under the Merger Agreement. It is unlikely that the amount MEDIQ is entitled to
receive will be finally resolved before the Merger is consummated. Should MEDIQ
ultimately obtain a final judgment against the Company that it is owed more than
the sum of the MEDIQ Payment and the Escrow Payment, the Company would be
responsible for payment of that excess amount.
ESCROW PAYMENT
As described above, as additional consideration for the Merger, at the
Effective Date General Electric will deposit $833,879 (the "Escrow Payment")
into an account maintained by the Paying Agent, and pursuant to the terms of the
Escrow Agreement, the Paying Agent will be instructed to distribute the Escrow
Payment in full to either MEDIQ and/or the holders of outstanding shares of
Common Stock as determined immediately prior to the Effective Date (or some
combination thereof) in accordance with either an agreement between the
Committee and MEDIQ regarding such funds, or in the absence of such an
agreement, upon the order of the arbitrator(s) upon completion of the
arbitration proceedings regarding the Escrow Payment.
The Committee will initially consist of Mr. Puls, President and Chief
Executive Officer of the Company, Mr. Rauch, Chairman of the Board, and Dr.
Salen, Vice Chairman and Secretary of the Board. The Committee will represent
the interests of the former shareholders of the Company and will speak for and
on behalf of such shareholders with respect to all matters involving the Escrow
Payment and Escrow Agreement. All of the expenses (including legal fees and
costs) of the Committee occurring prior to the
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Effective Date with respect to the arbitration or the Escrow Agreement shall be
paid by the Company. All of the expenses (including legal fees and costs) of the
Committee occurring on or after the Effective Date with respect to the
arbitration or the Escrow Agreement shall be paid out of the Escrow Payment,
prior to any disbursement of such funds by the Paying Agent. Any fees and
expenses incurred by the Paying Agent in satisfying its duties and obligations
under the Escrow Agreement shall be paid out of the Escrow Payment, prior to any
disbursement of such funds by the Paying Agent.
The Escrow Agreement provides that the Escrow Payment may be invested by the
Escrow Agent with verbal instructions from time to time by the Committee in
investment instruments collateralized and/or a direct obligation of the U.S.
Government or its agencies. In the case of commercial paper, rating of the
commercial paper may not be less than A1/P1.
In the event that all or a portion of the Escrow Payment is awarded or
distributed to the Committee on behalf of the holders of Common Stock as of the
Effective Date, all amounts so distributed shall be payable to such holders as
follows: each share of Common Stock representing a former shareholder interest
shall be entitled to receive an amount equal to (i) the amount of Escrow Payment
awarded or distributed to the Committee on behalf of the holders of Common Stock
as of the Effective Date, divided by (ii) the number of shares of Common Stock
outstanding as of the Effective Date. Such contingent rights will not be
evidenced by any certificate and may not be assigned (except by operation of
law). As of the Record Date, 3,009,395 shares of Common Stock were outstanding.
If the number of shares of outstanding Common Stock remains the same on the
Effective Date, the holder of each share of Common Stock could receive up to an
additional $0.277 per share if all of the Escrow Payment is awarded or
distributed to the Committee on behalf of the former holders of Common Stock.
STOCK OPTIONS
As of the close of business on the Record Date, there were an aggregate of
380,200 Outstanding Options at a weighted average exercise price of $3.51 per
share. In connection with the Merger, each of the options to purchase Common
Stock granted under (i) the Company's 1992 Stock Incentive Plan that is
outstanding as of the Effective Date and (ii) the Stock Option Agreement dated
as of December 11, 1996 between the Company and Mr. Puls (the "Puls Agreement"),
whether or not then vested, exercisable or effective, shall, by action of the
Board or a duly authorized committee thereof, under the terms of the 1992 Stock
Incentive Plan and the agreements evidencing the options granted thereunder or
the Puls Agreement, as applicable, and without any action on the part of the
holder thereof, vest and become effective and exercisable solely for the Per
Share Merger Consideration and the contingent right to receive from the
Surviving Corporation a per share amount equal to the per share amount, if any,
received by each former holder of Common Stock under the Escrow Agreement. Prior
to the Effective Date, each of the holders of Outstanding Options shall be
offered the opportunity to enter into a Cancellation Agreement with the Company
wherein, upon the Effective Date, they will receive (i) cash from the Surviving
Corporation in an amount equal to the product of (A) the number of shares of the
Common Stock subject to such Outstanding Options and (B) the amount, if any, by
which the Per Share Merger Consideration exceeds the exercise or strike price
per share of Common Stock subject to such outstanding option immediately prior
to the Effective Date and (ii) the contingent right to receive from the
Surviving Corporation a per share amount equal to the per share amount, if any,
received by each former holder of Common Stock under the Escrow Agreement;
provided that if such amount is equal to or less than zero, such Outstanding
Option shall be deemed canceled and terminated.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board with respect to the Merger,
shareholders should be aware that certain members of the Board and the
management of the Company have certain interests in the Merger that are
different from, or in addition to, the interests of shareholders generally.
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For information with respect to beneficial ownership of Common Stock by
management and members of the Board, which Common Stock will be subject to
exchange for the Per Share Merger Consideration and a pro rata share of the
Escrow Payment, if any, upon consummation of the Merger, see "COMPANY
CAPITALIZATION--OWNERSHIP OF COMMON STOCK."
Certain directors of the Company, their direct family members, or accounts,
companies and trusts under their discretion control 49% of the Common Stock and
they have committed, pursuant to the Shareholders' Agreement, to vote all of
their combined Common Stock in favor of the Merger Agreement. See "SHAREHOLDERS'
AGREEMENT."
The Company and Mr. Puls, President and Chief Executive Officer of the
Company and a director of the Company, have entered into a bonus agreement,
dated December 20, 1996, and amended by letter agreement dated May 15, 1998,
wherein Mr. Puls will receive a bonus of $307,500 upon the consummation of the
Merger. The Company and Mr. Hoefert, the Vice President and Chief Financial
Officer of the Company, have entered into a bonus agreement, dated September 29,
1997, wherein Mr. Hoefert will receive a bonus of $150,000 upon the consummation
of the Merger.
In addition, Mr. Puls and Mr. Hoefert are parties to letter agreements with
the Company regarding their employment, wherein they are entitled to certain
severance payments upon termination of their employment with the Company. With
respect to Mr. Puls, upon consummation of the Merger, Mr. Puls' letter agreement
with the Company will be amended to provide that: (i) if the employment of Mr.
Puls is terminated by the Company for any reason other than cause (as defined in
the agreement), then the Company must pay, within five business days after the
date of such termination, a lump-sum severance payment to Mr. Puls equal to the
pro rata portion of Mr. Puls' base salary (A) for the period beginning on the
date of such termination and ending on the twenty-month anniversary of the
Effective Date if such termination occurs on or before the eight-month
anniversary of the Effective Date; or (B) for the period beginning on the date
of such termination and ending on the first-year anniversary of such termination
if such termination occurs after the eight-month anniversary of the Effective
Date. If at any time following the sixtieth day after the Effective Date, Mr.
Puls chooses voluntarily to terminate his employment, the Company will pay to
Mr. Puls, within five business days after the date of such termination, a lump
sum payment equal to the pro rata portion of Mr. Puls' base salary for the
period beginning on the date of such termination and ending on the first-year
anniversary of such termination.
In addition to the agreement discussed above, if (i) at any time after the
Effective Date and before the eight-month anniversary of the Effective Date, the
Company terminates Mr. Puls' employment other than for cause or (ii) if at any
time following the sixtieth day after the Effective Date and before the eight-
month anniversary of the Effective Date Mr. Puls chooses to voluntarily
terminate his employment, the Company will pay to Mr. Puls, within five business
days after the date of such termination, a lump sum payment equal to $56,000.
With respect to Mr. Hoefert, if his employment is terminated by the Company
within six months following a "change of control" of the Company (as defined in
such agreement), then InnoServ must pay Mr. Hoefert a severance payment by the
continuation of his then current monthly salary and continued participation in
the Company's medical and insurance plans for six months after such termination.
In connection with the Merger, each of the options to purchase Common Stock
granted under (i) the Company's 1992 Stock Incentive Plan that is outstanding as
of the Effective Date and (ii) the Puls Agreement, whether or not then vested,
exercisable or effective, shall, by action of the Board or a duly authorized
committee thereof, under the terms of the 1992 Stock Incentive Plan and the
agreements evidencing the options granted thereunder or the Puls Agreement, as
applicable, and without any action on the part of the holder thereof, vest and
become effective and exercisable solely for the Per Share Merger Consideration
and the contingent right to receive from the Surviving Corporation a per share
amount equal to the per share amount, if any, received by each former holder of
Common Stock under the Escrow Agreement. Prior to the Effective Date, each of
the holders of Outstanding Options shall be offered the
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opportunity to enter into a Cancellation Agreement with the Company wherein,
upon the Effective Date, they will receive cash from the Surviving Corporation
in an amount equal to the product of (i) the number of shares of Common Stock
subject to such Outstanding Options and (ii) the amount, if any, by which the
Per Share Merger Consideration exceeds the exercise or strike price per share of
Common Stock subject to such outstanding option immediately prior to the
Effective Date; provided that if such amount is equal to or less than zero, such
outstanding option shall be deemed canceled and terminated. Under the
Cancellation Agreements described herein, the holders of such Outstanding
Options will also be entitled to receive from the Surviving Corporation a per
share amount equal to the per share amount, if any, received by each former
holder of Common Stock under the Escrow Agreement. Of the 380,200 Outstanding
Options outstanding as of the Record Date, the directors and/or executive
officers of the Company hold Outstanding Options to purchase 257,200 shares of
Common Stock and upon the cancellation thereof in accordance with the terms of
the Merger Agreement will result in cash payments to such persons of at least
$126,028.
Pursuant to the Merger Agreement, General Electric also agreed to indemnify
each current and former officer, director or employee of the Company against all
investigations, actions, suits, proceedings, judgments, costs, fines, amounts
paid in settlement, losses, expenses (including, without limitation, reasonable
attorneys' fees and ancillary related costs), claims, damages or liabilities,
whether civil, criminal, administrative or investigative, arising in whole or in
part out of, or based in whole or in part on, any matter existing or occurring
at or prior to the Effective Date or out of the transactions contemplated by the
Merger Agreement.
MANNER OF CONVERTING SHARES
The conversion of shares of Common Stock into the Per Share Merger
Consideration will occur at the Effective Date automatically by operation of
law, without any action on the part of the holder thereof and without regard to
the date on which certificates formerly representing shares of Common Stock are
physically surrendered, or on which the Per Share Merger Consideration is
delivered to former shareholders of the Company. From and after the Effective
Date, each Certificate formerly representing shares of Common Stock (other than
(i) shares held by General Electric or Sub, (ii) shares held by any Company
Subsidiary, (iii) shares held by any General Electric Subsidiary, and (iv)
Dissenting Shares in respect of which appraisal rights are properly exercised
and perfected) shall be converted into the right to receive the Per Share Merger
Consideration and the contingent right to receive the pro rata portion of the
Escrow Payment, if any, in each case, without interest.
At the Effective Date each share of Common Stock owned by any Company
Subsidiary, General Electric or any General Electric Subsidiary shall be
canceled without conversion or without payment of consideration and shall cease
to exist. On or as soon as practicable after the Effective Date, the Letter of
Transmittal setting forth the manner of exchanging Certificates for the Per
Share Merger Consideration will be delivered by the Paying Agent to each holder
of Common Stock as determined immediately prior to the Effective Date. Upon
surrender to the Paying Agent of the Certificate(s), together with a properly
completed Letter of Transmittal, the holder of such Certificate(s) shall be
entitled to immediately receive the Per Share Merger Consideration with respect
to each share formerly represented by such Certificate(s).
If a Certificate has been stolen or destroyed, the registered holder thereof
will be entitled to receive the Per Share Merger Consideration upon delivery to
the Paying Agent of an affidavit to such effect and posting of a bond in a
customary amount as indemnity against any third party claim with respect to such
shares. In the event that a transfer of shares of Common Stock prior to the
Effective Date was not reflected on the Company's stock transfer records, the
transferee may be required, as a condition to exchange, to present the
certificate representing such shares together with all documents required to
evidence and effect such transfer and payment of applicable transfer taxes or
evidence that any applicable stock transfer taxes have been paid. It is
anticipated that the Paying Agent will mail the Per Share Merger
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Consideration to each former shareholder of the Company who has complied with
the foregoing procedures as soon as practicable but in no event later than seven
business days after such compliance.
CONDITIONS TO THE MERGER
The obligations of the Company and General Electric to consummate the Merger
are subject to fulfillment or waiver of the following conditions: (i) approval
of the Merger Agreement by the shareholders of the Company; (ii) the expiration
or termination of the waiting period under the HSR Act and the absence of any
order by any governmental entity restraining, enjoining or prohibiting the
Merger; (iii) the performance in all material aspects of the agreements of each
party, respectively under the Merger Agreement and the receipt by each party of
certificates from an officer of the other party to such effect; (iv) the
representations and warranties contained in the Agreement of each party,
respectively, being correct and true as of the Effective Date (except where the
failure to be so true, individually or in the aggregate with other such
failures, would not have a Parent Material Adverse Effect or a Company Material
Adverse Effect, respectively, as such terms are defined in the Merger
Agreement), and the receipt by each party of certificates from an officer of the
other party to such effect; and (v) the receipt by General Electric of an
opinion of counsel to the Company.
REGULATORY APPROVAL
General Electric and the Company filed notification of the Merger and report
forms with the DOJ and the FTC on December 24, 1997 and December 30, 1997,
respectively. On January 29, 1998, the DOJ made a "second request" of the
Company and General Electric for additional documentation regarding the HSR Act
filing. As described in "DESCRIPTION OF THE PROPOSED MERGER--BACKGROUND OF AND
REASONS FOR THE MERGER," the parties had multiple meetings with the DOJ
regarding the HSR Act issues and the DOJ contacted certain third parties in
investigating the potential Merger. On July 14, 1998, General Electric and the
Company received notice that the FTC has granted early termination of the
waiting period under the HSR Act. Pursuant to the terms of the Merger Agreement,
General Electric and the Company entered into the Side Agreement wherein General
Electric agreed to pay the Company $1,200,000 if the DOJ did not grant
termination or expiration of the waiting period under the HSR Act prior to the
later of June 22, 1998 or the date of the meeting of the shareholders of the
Company approving the Merger. Since early termination has been granted, no
amount is payable by General Electric to the Company under the Side Agreement.
AMENDMENT; TERMINATION
The Merger Agreement may be amended by written agreement of each of the
parties before or after approval by the Company's shareholders by action of each
party's board of directors (in the case of the Company and Sub) and by any vice
president (in the case of General Electric), provided that, if after such
shareholder approval, applicable law requires shareholder approval of an
amendment, the amendment will not be valid without such approval. The Merger
Agreement may be terminated and the Merger abandoned before the Effective Date
(i) by mutual written consent of the Company, duly authorized by its Board and
General Electric by any vice president; (ii) by either party if the other fails
to comply in any material respect with any of its respective covenants or
agreements contained in the Merger Agreement, provided that the other party is
not in material breach of any representation, warranty, covenant or other
agreement contained in the Merger Agreement; (iii) by either party if there has
been a material breach at the time when made by the other party, provided that
the terminating party is not in material breach of any representation, warranty,
covenant or other agreement contained in the Merger Agreement; (iv) by either
party if the shareholders of the Company shall not approve the Merger at the
Special Meeting; (v) by either party if the Merger has not been effected on or
prior to the close of business on September 30, 1998, except that such right to
terminate shall not be available to a party whose willful and material failure
to fulfill any obligation of the Merger Agreement has been the cause of, or
resulted in, the failure of the
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Merger to be effected; (vi) by either party if any court or other governmental
entity shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated by the Merger Agreement; (vii) by either party if any order or
directive has a material adverse effect on the business, operations or financial
condition of the Surviving Corporation; (viii) by the Company by written notice
to General Electric if the Board in good faith determines that a proposal by a
third party to purchase 35% or more of the assets of the Company, or which
results in such third party controlling 35% or more of the beneficial interests
of shares of the Common Stock (a "Superior Proposal"), will be more favorable to
its shareholders than the Merger and General Electric has not exercised its
right to match such proposal; or (ix) by General Electric if the Board shall
have failed to recommend the Merger to the Company's shareholders, or shall have
modified, in a manner adverse to General Electric, or withdrawn its
recommendation of the Merger to the Company's shareholders as being advisable
and fair to and in the best interests of the Company and its shareholders. If a
termination is caused by (i) a breach of a representation or warranty of the
Company, (ii) a failure by the Company to comply in any material respect with
any of its covenants or agreements contained in the Merger Agreement, (iii) a
failure by the shareholders to vote in favor of the Merger, (iv) notification to
General Electric of the Board's determination that a third party's proposal is
more favorable than the Merger, or (v) failure of the Board to recommend the
Merger, the Company is required to pay General Electric $550,000.
NO SOLICITATION
Prior to the Effective Date or the earlier termination of the Merger
Agreement, the Company has agreed not to directly or indirectly, take, nor
authorize or permit any of its subsidiaries or its or their officers, directors,
employees, representatives, investment bankers, financial advisors, attorneys,
accountants or other agents or affiliates, to take any action to (i) encourage,
solicit or initiate the submission of any tender or exchange offer, any bona
fide written proposal for a merger, consolidation or other transaction which
contemplates (A) the acquisition of more than 35% of the assets of the Company
and the Company Subsidiaries taken as a whole or (B) any other agreement that
contemplates the acquisition of beneficial ownership of more than 35% of the
outstanding shares of the Common Stock or any public announcement of a proposal,
plan or intention to do any of the foregoing (a "Business Combination
Proposal"), (ii) enter into any agreement with respect to any Business
Combination Proposal or (iii) participate in any way in discussions or
negotiations with, or furnish any non-public written information to, any person
in connection with, or take any other action to encourage the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Business Combination Proposal; provided that the Company may (i) participate in
discussions or negotiations with or furnish information to any persons or group
(other than General Electric or an affiliate of General Electric) (a "Third
Party") that makes an unsolicited Business Combination Proposal that the Board
determines (after consultation with its financial advisors) may reasonably be
expected to result in a Superior Proposal, and enter into any confidentiality
agreement or standstill agreement with such Third Party in connection with such
a Business Combination Proposal (provided, that any such information so
furnished or any such confidentiality or standstill agreements so entered into
shall, at the time such information is furnished or such agreement is entered
into, be promptly delivered to General Electric), (ii) comply with Rule 14e-2
promulgated under the Exchange Act with regard to any Business Combination
Proposal (assuming that such Business Combination Proposal includes a tender
offer requiring the Company's response pursuant to such Rule), (iii) fail to
make or withdraw or modify its recommendation regarding the Merger to its
shareholders if there exists a Business Combination Proposal that is a Superior
Proposal or if the Board determines, in good faith and after consultation with
independent counsel, that such action is required to discharge properly its
fiduciary duties, or (iv) after terminating the Merger Agreement, enter into an
agreement with respect to or recommend to its shareholders a Business
Combination Proposal that is a Superior Proposal.
Notwithstanding the foregoing, the Company may not enter into an agreement
with respect to or recommend to its shareholders a Business Combination Proposal
that is a Superior Proposal or fail to
29
<PAGE>
make or withdraw or modify its recommendation to its shareholders if there
exists a Business Combination Proposal that is a Superior Proposal unless (i)
two business days shall have elapsed after delivery to General Electric of a
written notice informing General Electric of the terms and conditions of the
Business Combination Proposal, and (ii) General Electric does not, within such
two business day period, make an offer which the Board determines in good faith
(based on the advice of its financial adviser) to be as favorable to the
Company's shareholders as such Business Combination Proposal.
Additionally, the Company has agreed to promptly advise General Electric of
any request for non-public written information or of any Business Combination
Proposal, or any inquiry with respect to or which appears to be intended to or
could reasonably be expected to lead to any Business Combination Proposal, the
material terms and conditions of such request, Business Combination Proposal or
inquiry, and in the case of a Business Combination Proposal that involves
consideration other than all cash, the identity of the party making such
Business Combination Proposal. The Company also has agreed to keep General
Electric fully informed of the status and details of any such request, Business
Combination Proposal or inquiry.
PREFERRED STOCK
Pursuant to the Merger Agreement, on June 5, 1998, a subsidiary of General
Electric purchased 700,000 shares of Series B Preferred Stock of the Company
(the "Preferred Shares") from the Company for $2,800,000. The Company and a
subsidiary of General Electric entered into a registration rights agreement (the
"Registration Rights Agreement") which provides for the registration of the
Preferred Shares upon the fulfillment of certain conditions. A copy of the
Registration Rights Agreement is attached as Appendix IV.
Except as otherwise expressly provided by law, the Preferred Shares do not
have any right to vote for the election of directors or for any other purpose
(including the Merger). The Preferred Shares accrue dividends of $0.32 per share
per annum, beginning six months from the issuance of such shares, whether or not
earned or declared, and such dividends are due and payable semiannually on the
last day of June and December, beginning on the last day of December 1998. Any
dividends not paid when due shall become part of the Liquidation Value (as
hereinafter defined) of each Preferred Share. No dividends or distributions on
Common Stock (other than dividends of Common Stock) shall be issued until all
such Preferred Share dividends are paid and satisfied, and thereafter, the
Preferred Shares shall share in any such dividends or distributions on Common
Stock PARI PASSU to the shares of Common Stock then outstanding as if such
Preferred Shares had been converted immediately prior to the record date of such
dividend or distribution. Upon a liquidation, the Preferred Shares shall be
entitled to receive out of the assets of the Company, before payment on the
Common Stock, an amount equal to $4.00 per share plus any accrued but unpaid
dividends (the "Liquidation Value"). Upon payment of the Liquidation Value, the
Preferred Shares shall have no claim to the remaining assets of the Company.
The Preferred Shares are redeemable by the Company at its option at any time
after issuance at a price equal to the Liquidation Value. Each Preferred Share
is convertible at the option of the holder into one share of Common Stock at any
time, including prior to a redemption, after the earlier of (i) the consummation
of a transaction arising out of a Superior Proposal, or (ii) the later of (A)
September 30, 1998 or (B) the termination of the Merger Agreement. Upon a
conversion, the holder of such converted Preferred Share(s) shall be entitled to
the accrued dividends earned but not yet paid on such Preferred Share(s). The
Company is required to pay such accrued dividends on or before the first
anniversary of the conversion, provided that such dividends shall accrue
interest at a rate of 8.0% per annum from the date of such conversion to the
payment date.
30
<PAGE>
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting, in
accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price of the Company, including direct costs
of the Merger, will be allocated to the tangible assets acquired and liabilities
assumed based on their estimated relative fair market values, with the excess
purchase consideration allocated to intangible assets. The results of General
Electric's operations will include the results of operations of the Company only
from and after the Effective Date.
MERGER EXPENSES
The Company will incur the expenses of printing and filing this Proxy
Statement. Each party will pay all other expenses incurred by it incident to the
Merger and carrying out of the transactions contemplated by the Merger
Agreement, except for the filings under the HSR Act which was paid by General
Electric. The Company estimates that the expenses which it will incur in
connection with the Merger for legal, accounting, investment advisory, filing
fees, printing, mailing and other costs, fees and expenses will aggregate
approximately $1,125,000.
DEREGISTRATION OF COMMON STOCK
Following consummation of the Merger, the shares of Common Stock will cease
to be registered under the Exchange Act and will cease to be publicly traded.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds that will be required to pay shareholders, MEDIQ,
the Escrow Payment and any holders of options pursuant to the Merger Agreement
is approximately $16,300,000. General Electric intends to obtain the funds from
internal sources. In addition, General Electric's payment of $2,800,000 in
return for the Preferred Shares was also obtained from internal sources.
31
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences of the Merger is for general information only. It is based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury Regulations and judicial and administrative determinations, all of
which are subject to change at any time, possibly on a retroactive basis. It
does not discuss the state, local or foreign tax consequences of the Merger, nor
does it discuss tax consequences to categories of shareholders that are subject
to special rules, such as foreign persons, tax-exempt organizations, insurance
companies, banks, persons who received their shares of Common Stock as
compensation and dealers in stocks and securities. Tax consequences may vary
depending on the particular status of an investor. No rulings will be sought
from the Internal Revenue Service (the "Service") with respect to the federal
income tax consequences of the Merger.
PURCHASE OF SHARES
The receipt of the Per Share Merger Consideration pursuant to the Merger and
the receipt of the contingent right to the Escrow Payment, if any, pursuant to
the Escrow Agreement will be a taxable transaction for United States federal
income tax purposes (and may also be a taxable transaction under applicable
state, local and other income tax laws). In general, for federal income tax
purposes, a shareholder will recognize gain or loss equal to the difference
between his or her adjusted tax basis in his or her shares of Common Stock and
the amount of proceeds received by the shareholder in exchange therefor. The
proceeds include the Per Share Merger Consideration and the fair market value of
the contingent right to receive the Escrow Payment, if any, pursuant to the
Escrow Agreement. Any gain or loss recognized by a shareholder pursuant to the
Merger generally will be capital gain or loss if the shares of Common Stock were
held as capital assets and will be long-term capital gain or loss if, on the
Effective Date, the shares of Common Stock were held for more than one year.
Since the Common Stock is publicly traded, the contingent right to receive the
Escrow Payment does not permit a shareholder to use the installment method to
report any gain recognized in the Merger for purposes of federal income tax law.
Furthermore, since the Escrow Agreement may not expire within one year of its
effective date, the contingent right to receive the Escrow Payment could be
governed by the federal income tax laws applicable to contingent payment debt
instruments. As such, the contingent right to receive the Escrow Payment may
cause a shareholder to accrue interest income in the form of original issue
discount. SINCE TREATMENT FOR FEDERAL INCOME TAX PURPOSES OF A RIGHT TO RECEIVE
CONTINGENT PAYMENTS, SUCH AS THE ESCROW PAYMENT, IS UNCERTAIN, SHAREHOLDERS
SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TIMING AND AMOUNT OF ANY INCOME OR
GAIN ATTRIBUTABLE TO THE RECEIPT OF THE CONTINGENT RIGHT TO RECEIVE THE ESCROW
PAYMENT (AND TO THE RECEIPT OF THE ESCROW PAYMENT ITSELF, IF ANY) PURSUANT TO
THE ESCROW AGREEMENT.
BACKUP WITHHOLDING
Under the Code, the receipt of the Per Share Merger Consideration and Escrow
Payment, if any, may be subject, under certain circumstances, to "backup
withholding" at a 31% rate. This withholding generally applies only if the
shareholder (i) fails to furnish his or her social security or other taxpayer
identification number ("TIN") within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) is notified by the Service that
he or she has failed to report properly interest or dividends, or (iv) fails,
under certain circumstances, to provide a certified statement, signed under
penalty of perjury, that the TIN provided is the correct number and that he or
she is not subject to backup withholding. Any amount withheld from a payment to
a shareholder under the backup withholding rules is allowable as a credit
against such shareholder's federal income tax liability, provided that the
required information is furnished to the Service. Corporations and certain other
entities described in the Code and Treasury Regulations are exempt from such
withholding if their exempt status is properly established. Shareholders should
consult
32
<PAGE>
their tax advisors as to their qualification for exemption from withholding and
the procedure for obtaining such exemption.
GENERAL
The foregoing discussion may not be applicable to shareholders who are
subject to special treatment under United States federal income tax law or to
holders of shares of Common Stock acquired upon the exercise of employee stock
options or otherwise as compensation.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY. SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF
THE MERGER.
COMPANY CAPITALIZATION
COMMON STOCK PRICES AND DIVIDENDS
The Company's Common Stock is traded in the Nasdaq National Market under the
symbol "ISER." The following table sets forth ranges of the high and low prices
for a share of Common Stock for fiscal years 1997 and 1998. Quotations represent
prices between dealers, without retail markups, markdowns or commissions and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
QUARTER ENDED
- -------------------------------------------------------------------------
April 30, 1998....................................................... $ 3 5/8 $ 1 15/16
January 31, 1998..................................................... 3 1 11/16
October 31, 1997..................................................... 2 1/4 1 1/2
July 31, 1997........................................................ 2 1/4 1 11/16
QUARTER ENDED
- -------------------------------------------------------------------------
April 30, 1997....................................................... $ 3 1/8 $ 1 13/16
January 31, 1997..................................................... 3 1/8 2 1/8
October 31, 1996..................................................... 5 2 7/8
July 31, 1996........................................................ 5 5/8 3 5/8
</TABLE>
On May 19, 1998, the last full trading day prior to the public announcement
by General Electric and the Company of the execution of the Merger Agreement,
the closing price for a share of Common Stock of the Company was $3.25. On May
19, 1998, the high price for a share of Common Stock was $3.25 and the low price
for a share of Common Stock was $3.125. On August 24, 1998, the closing price
for a share of such Common Stock was $3.94.
There were approximately 250 shareholders of record as of August 27, 1998.
Based solely upon the number of sets of proxy materials requested by brokers,
dealers and other institutional "street name" holders for the last annual
meeting of shareholders, the Company estimates that there are greater than 850
beneficial holders of its Common Stock.
Since November 18, 1994, the Company has not paid any cash dividends, and
the Company currently does not intend to pay any cash dividends in the
foreseeable future.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, of which 3,009,395 shares were issued and outstanding as of the
Record Date, and 5,000,000 shares of preferred stock, $0.01 par value, of which
700,000 Preferred Shares were issued and outstanding as of the Record Date.
COMMON STOCK
Record holders of Common Stock are entitled to one vote per share on each
matter submitted to a vote of the shareholders of the Company, except that
cumulative voting for the election of directors is permitted. Subject to
preferences that may be applicable to the holders of the Preferred Shares, each
holder of Common Stock is entitled to receive ratably such dividends, if any, as
may be declared by the Board out of funds legally available therefor. See
"COMMON STOCK PRICES AND DIVIDENDS." Upon the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets of the Company which are legally available for
distribution, after payment of all debts and other liabilities and the
liquidation preference of the Preferred Shares. Record holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock were validly issued and are fully paid and
nonassessable under the laws of the State of California.
PREFERRED STOCK
The Board is authorized, subject to any limitations prescribed by the laws
of the State of California, but without further vote or action by the
shareholders, to provide for the issuance of preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The Board
may authorize and issue preferred stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of Common
Stock. Pursuant to the Merger Agreement, on May 15, 1998, the Board agreed to
authorize and issue 700,000 shares of the Preferred Shares. See "DESCRIPTION OF
THE PROPOSED MERGER-- PREFERRED STOCK."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, and its telephone number is: (800) 356-2017.
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Record Date by each shareholder known by the
Company to be the beneficial owner of more than 5% of its outstanding shares of
Common Stock, each director of the Company, and all executive officers and
directors of the Company as a group. Except as otherwise indicated in the
footnotes to the following table, each of the persons listed below has sole
voting and investment power with respect to the shares of Common Stock shown as
beneficially owned by such person, subject to applicable community
34
<PAGE>
property laws. Unless otherwise indicated, the address of each shareholder
listed is in care of InnoServ Technologies, Inc., 320 Westway, Suite 520,
Arlington, Texas, 76018.
<TABLE>
<CAPTION>
PERCENT
SHARES OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) OWNERSHIP(2)
- ------------------------------------------------------------------ ----------------------- -----------------
<S> <C> <C>
Dudley A. Rauch................................................... 1,067,632(3) 35%
Samuel Salen, M.D................................................. 301,357(4) 10%
Michael G. Puls................................................... 102,400(5) 3%
Michael F. Sandler................................................ 12,000(6) *
Bernard J. Korman................................................. 30,000(6) *
Michael M. Sachs.................................................. 134,712(7) 4%
David A. Wegmann.................................................. 14,361(8) *
Thomas E. Hoefert................................................. 16,667(9) *
Citicorp Venture Capital Ltd...................................... 247,500 8%
399 Park Avenue, 20th Floor
New York, New York 10043
All directors and executive officers as a group (8 persons)....... 1,679,129(10) 53%
</TABLE>
- ------------------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Commission, based upon information furnished by each
person listed. The percentages shown include shares which each named
shareholder has the right to acquire within 60 days of the Record Date. In
calculating percentage ownership, all shares which a named shareholder has
the right to so acquire are deemed outstanding for the purpose of computing
the percentage ownership of that shareholder, but are not deemed outstanding
for the purpose of computing the percentage ownership by any other
shareholder. Listed persons may disclaim beneficial ownership of certain
shares.
(2) Percent of shares of Common Stock outstanding at August 27, 1998. Shares
subject to purchase pursuant to stock options exercisable at such date or
within 60 days thereafter are deemed to be outstanding for purposes of
calculating the percentage, where applicable.
(3) Includes 52,868 shares held by Cecilia B. Rauch, Mr. Rauch's spouse; 13,743
shares held by the Rauch Family Foundation over which Mr. Rauch exercises
shared voting and investment powers; and 26,322 shares held by the Henry E.
Rauch Trust of 1994 over which Mr. Rauch exercises sole voting and
investment powers. Mr. Rauch disclaims beneficial ownership of all such
shares. Also includes 12,300 shares of Common Stock subject to outstanding
options issued pursuant to the 1992 Stock Incentive Plan which were, or
become, exercisable within 60 days of August 27, 1998.
(4) Of such shares (i) 121,962 shares of Common Stock are held by the Salen
Family 1995 Revocable Living Trust (ii) 89,095 shares are owned by MSB
Radiology Medical Group, Inc. Profit Sharing Trust, and (iii) 11,000 shares
are owned by MSB Radiology Medical Group, Inc. ("MSB"). Also includes 9,300
shares subject to outstanding options issues pursuant to the 1992 Stock
Incentive Plan which were, or become, exercisable within 60 days of August
27, 1998. Dr. Salen, as a trustee, exercises shared voting and investment
control over the shares held by the Salen Family 1995 Revocable Living Trust
and the MSB Radiology Medical Group, Inc. Profit Sharing Trust. Dr. Salen
exercises shared voting and investment control over the shares held by MSB.
(5) Includes 100,000 shares of Common Stock subject to outstanding options
issued pursuant to the Stock Option Agreement dated December 11, 1996 which
were, or become, exercisable within 60 days of August 27, 1998.
(6) Includes 9,000 shares of Common Stock subject to outstanding options issued
pursuant to the 1992 Stock Incentive Plan which were, or become, exercisable
within 60 days of August 27, 1998.
35
<PAGE>
(7) Includes 2,860 shares of Common Stock owned by Mr. Sachs' spouse and 1,210
shares held by Mr. Sachs as trustee of a trust, as to which shares Mr. Sachs
disclaims beneficial ownership. Also includes 12,300 shares of Common Stock
subject to outstanding options issued pursuant to the 1992 Stock Incentive
Plan which were, or become, exercisable within 60 days of August 27, 1998.
(8) Includes 12,300 shares of Common Stock subject to outstanding options issued
pursuant to the 1992 Stock Incentive Plan which were, or become, exercisable
within 60 days of August 27, 1998.
(9) Includes 16,667 shares of Common Stock subject to outstanding options issued
pursuant to the 1992 Stock Incentive Plan which were, or become, exercisable
within 60 days of August 27, 1998.
(10) Includes 180,867 shares of Common Stock subject to outstanding options
issued pursuant to stock options which were, or become, exercisable within
60 days of August 27, 1998. Directors and officers, as a group, disclaim
beneficial ownership of 97,003 shares.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, holders of Common Stock who object to the
Merger may be entitled to have the "fair market value" of their shares at the
Effective Date (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) judicially determined and paid to
them by complying with the provisions of Chapter 13 of the California General
Corporation Law ("Chapter 13"). However, because the Common Stock is traded in
the Nasdaq National Market, shareholders of the Company who object to the Merger
may vote against approval and adoption of the Merger Agreement at the Special
Meeting but will not be entitled to dissenters' rights if the Merger is
consummated over their objections unless the holders of five percent or more of
the outstanding shares of Common Stock make appropriate demands under Chapter
13.
The following is a brief summary of Chapter 13, which sets forth the
procedures for dissenting from the Merger and demanding statutory dissenters'
rights. This summary is qualified in its entirety by reference to Chapter 13,
the text of which is attached hereto as Appendix VI. Appendix VI should be
reviewed carefully by any holder who wishes to exercise statutory dissenters'
rights or who wishes to preserve the right to do so, because failure to comply
with the procedures set forth in Chapter 13 will result in the loss of
dissenters' rights.
Not later than the date of the Special Meeting, a shareholder of the Company
who desires to exercise his or her statutory dissenters' rights must make a
written demand upon the Company (addressed and delivered to the Secretary of the
Company at 320 Westway, Suite 520, Arlington, Texas 76018) to purchase and pay
to the shareholder in cash the "fair market value" of all or any portion of the
shares of Common Stock held of record by the shareholder. Such written demand
must contain a statement of what such shareholder claims to be the fair market
value of those shares as of the day before the first public announcement of the
proposed Merger. This statement of fair market value constitutes an offer by the
shareholder to sell such shares at such price. Such written demand must be in
addition to and separate from any proxy or vote against the proposal to approve
the Merger. Voting against the Merger will not constitute the written demand for
payment of the fair market value in cash of any shares that is required by
Chapter 13. The written demand must be executed by or for the shareholders of
record, fully and correctly, as such shareholder's name appears on the
certificate representing such shareholder's shares of Common Stock.
Pursuant to the provisions of Chapter 13, holders of Common Stock desiring
to exercise their statutory dissenters' rights must affirmatively vote against
approval of the Merger Agreement and the transactions contemplated thereby at
the Special Meeting. Abstaining from voting or failing to vote on the proposal
to approve the Merger Agreement will not constitute a vote against the Merger
Agreement and the Merger for the purpose of establishing dissenters' rights. Any
shareholder who desires to exercise dissenters' rights should (i) either (A)
execute and return a proxy card in the respective form accompanying this Proxy
Statement, specifying that his or her shares are to be voted against the
approval and
36
<PAGE>
adoption of the Merger Agreement, or (B) attend the Special Meeting in person
and vote against approval and adoption of the Merger Agreement and (ii) not
later than the date of the Special Meeting make written demand upon the Company
for the purchase of the shares and payment to the shareholder in cash of the
shares' fair market value. If a holder of Common Stock returns a signed proxy
but does not specify a vote against approval and adoption of the Merger
Agreement or a direction to abstain from voting on the approval of the Merger
Agreement, the proxy will be voted FOR approval and adoption of the Merger
Agreement and the Merger, which will waive such holder's dissenters' rights.
If the Merger Agreement is approved and the holders of five percent or more
of the outstanding shares of Common Stock have made appropriate demands under
Chapter 13, the Company will have 10 days after such approval to send to those
shareholders who have made a demand upon the Company for the fair market value
of their shares by the date of the Special Meeting and who have voted against
the Merger Agreement written notice of such approval, which must be accompanied
by a copy of Chapter 13, a statement of the price determined by the Company to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if a shareholder desires to exercise
dissenters' rights. In order to preserve his or her dissenters' rights, a
shareholder must, within 30 days after the date on which the notice of approval
of the Merger Agreement is mailed, make written demand upon the Company for the
purchase of dissenting shares, specifying their number, and for payment to such
shareholder in cash of the fair market value of such dissenting shares. Within
the same 30-day period, the dissenting shareholder must also surrender to the
Company at the office designated in the notice of approval of the Merger
Agreement, the certificates representing the dissenting shares to be stamped or
endorsed with a statement that they are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed. Any shares of
Common Stock that are transferred before their submission for endorsement will
lose their status as dissenting shares.
If the Company denies that shares surrendered are dissenting shares, or if a
shareholder fails to agree with the Company upon the fair market value of his or
her dissenting shares, then the dissenting shareholder must, within six months
after the notice of the approval of the Merger Agreement is mailed, either file
a complaint with the Superior Court of the County of Los Angeles requesting that
the Court make such determinations, or intervene in any pending action brought
by any other dissenting shareholder. If such a complaint is not filed or such
intervention in a pending action is not made within the specified six-month
period, the dissenting shareholder will lose his or her dissenters' rights. No
shareholder will be entitled to receive the fair market value of his or her
shares of Common Stock as a consequence of the exercise of dissenters' rights
unless the Merger is consummated.
37
<PAGE>
INFORMATION CONCERNING THE COMPANY
BUSINESS
The Company is a California corporation organized in 1981. The Company
provides comprehensive asset management programs and services, multi-vendor
maintenance and repair services and other specialized services to radiology,
cardiology, biomedical and laboratory departments of hospitals and other
healthcare providers. The foregoing business is reported as one segment. Except
where the context otherwise requires, the terms "InnoServ" and "the Company" as
used in this section refer to InnoServ Technologies, Inc. and its subsidiaries.
MANAGEMENT
DIRECTORS
The following table sets forth certain information concerning the Company's
Directors:
<TABLE>
<CAPTION>
DIRECTOR OF
NAME AGE POSITION INNOSERV SINCE
- ------------------------------ --- ----------------------------------------------------------- -----------------
<S> <C> <C> <C>
Dudley A. Rauch............... 57 Director, Chairman of the Board of the Directors 1981
Samuel Salen, M.D............. 57 Director, Vice Chairman of the Board of Directors and 1981
Secretary
Michael G. Puls............... 48 President and Chief Executive Officer; Director 1995
Bernard J. Korman............. 66 Director 1994
Michael M. Sachs.............. 57 Director 1981
Michael F. Sandler............ 52 Director 1994
David A. Wegmann.............. 51 Director 1983
</TABLE>
Mr. Rauch has been a private investor since 1992. Previously, Mr. Rauch
served as President and Chief Executive Officer of InnoServ from 1981 and was
elected Chairman and appointed Chief Executive Officer in 1986. He resigned as
Chief Executive Officer in 1992.
Dr. Salen is a radiologist and the President of MSB Radiology Medical Group,
Inc., a private physician's group practice. Dr. Salen served as interim
President and Chief Executive Officer of InnoServ from March 1995 to December
1995.
Mr. Puls became President and Chief Executive Officer of InnoServ in
December 1995. Before joining InnoServ, Mr. Puls was a Group Director of Venture
Projects for Senmed Medical Ventures, a manager of commercialization processes
for advanced medical technologies, from January 1995 to December 1995. Mr. Puls
was the President and Chief Executive Officer of EnviroSurgical, Inc., an
early-stage medical device company, from January 1993 to December 1994 and an
independent consultant to medical device and service companies from July 1991 to
December 1992. He also served as the Vice President of Business Development for
EZEM Corporation, a provider of radiology products, from January 1989 to June
1991.
Mr. Korman has been Chairman of the Board of Directors of Graduate Health
System, Inc., a not-for-profit healthcare system, since 1995 and of NutraMax
Products, Inc., a consumer healthcare products company since 1986. Mr. Korman
formerly was the President, Chief Executive Officer and Director of MEDIQ
Incorporated, a healthcare services company, from 1977 to 1995. He also serves
as director of The New America High Income Fund, a financial services company;
Pep Boys, Inc., an automotive supplies company; Today's Man, Inc., a retail
men's clothing sales company; Omega Healthcare Investors, Inc., a healthcare
REIT; Omega Worldwide, Inc.; and Kranzco Realty Trust, a shopping center REIT.
Mr. Sachs, since 1990, has been the Chairman of the Board and Chief
Executive Officer of Westrec Financial, Inc., which operates marinas and related
businesses. From 1982 to 1990, Mr. Sachs was Executive Vice President, Director
and General Counsel of Public Storage, Inc., a rental storage facilities
38
<PAGE>
company. He also serves on the Board of Directors of New Century Financial
Corporation, and Pinpoint Systems, Inc., a manufacturer of marine electronic
equipment.
Mr. Sandler has been President and Chief Executive Officer of Veritext LLC,
a court reporting services company, since October 1997. From November 1988 until
September 1997, Mr. Sandler was Vice President, Finance and Chief Financial
Officer of MEDIQ. Mr. Sandler served as Vice President and Chief Financial
Officer of InnoServ from May 1997 to September 1997 while employed by MEDIQ.
Mr. Wegmann has been a private investor since 1988. Mr. Wegmann serves on
the Board of Directors of Plantronics, Inc., a manufacturer of telephone headset
equipment.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of InnoServ.
<TABLE>
<CAPTION>
OFFICER OF
NAME AGE POSITION INNOSERV SINCE
- ------------------------------ --- ------------------------------------------------------- ------------------
<S> <C> <C> <C>
Michael G. Puls............... 48 President and Chief Executive Officer, Director December 1995
Thomas E. Hoefert............. 46 Vice President and Chief Financial Officer September 1997
</TABLE>
Each officer serves until a successor has been chosen or until the officer's
earlier resignation or removal. There is no family relationship among any of the
above executive officers or the directors of InnoServ. A summary of the
employment history of Mr. Puls appears under the heading of "DIRECTORS."
Mr. Hoefert first became Vice President and Chief Financial Officer of the
Company in January 1996. Mr. Hoefert resigned his position in April 1997 and was
subsequently rehired to his previous position in September 1997. Prior to
January 1996, Mr. Hoefert was employed by Recognition International Inc., a
manufacturer of document processing equipment and solutions, as Vice President
and Chief Financial Officer from 1994 to 1995 and as Vice President and
Controller from 1989 to 1994.
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid or
accrued by InnoServ for services in all capacities for each of the three years
in the period ended April 30, 1998 for InnoServ's Chief Executive Officer and
other executive officers ("Named Executive Officers") at the end of fiscal 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
<S> <C> <C> <C> <C>
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------------------------------------------- --------- ---------- --------- -------------
Michael G. Puls (1)................................................. 1998 $ 215,000 $ 56,000 *
President, Chief Executive Officer and Director 1997 $ 203,333 $ 42,000 *
1996 $ 68,974 $ 22,000 *
Thomas E. Hoefert (6)............................................... 1998 $ 96,183 $ 15,000 *
Vice President and Chief Financial Officer 1997 $ 152,500 $ 0 $ 23,247(7)
1996 $ 43,846 $ 15,000 *
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS/OUTSTANDING
NAME AND OPTIONS ALL OTHER
PRINCIPAL POSITION YEARS (SHARES) COMPENSATION
- ----------------------------------------------------------------- --------- ----------------------- -------------
<S> <C> <C> <C>
Michael G. Puls (1).............................................. 1998 0 $ 500(3)
President, Chief Executive Officer and Director 1997 0(2) $ 10,519(4)
1996 150,000(2) $ 90,481(5)
Thomas E. Hoefert (6)............................................ 1998 0(8) $ 500(3)
Vice President and Chief Financial Officer 1997 0 $ 1,000(3)
1996 25,000(8) $ 0
</TABLE>
- ------------------------
* Perquisites and other personal benefit amounts are not required to be
reported in Other Annual Compensation if not exceeding $50,000 or ten
percent of the executive's annual salary and bonus.
(1) Mr. Puls has served as President and Chief Executive Officer of InnoServ
since December 27, 1995.
(2) The options granted to Mr. Puls in fiscal 1996 were rescinded and
immediately reissued during fiscal 1997 pursuant to a free standing option
agreement, the terms of which are the same in all substantive respects as
the options granted in fiscal 1996, including exercise price, vesting and
term and are therefore not shown as granted during fiscal 1997.
(3) Represents employer-matched 401(k) contributions.
(4) Includes $9,519 for relocation assistance in conjunction with the
commencement of Mr. Puls' employment with InnoServ and $1,000 in
employer-matched 401(k) contributions.
(5) Represents payment for relocation assistance in conjunction with the
commencement of Mr. Puls' employment with InnoServ.
(6) Mr. Hoefert first became Vice President and Chief Financial Officer of
InnoServ on January 17, 1996. Mr. Hoefert resigned his position on April 30,
1997 and was subsequently rehired to his previous position on September 29,
1997.
(7) Represents payment for accrued vacation in conjunction with Mr. Hoefert's
separation from the employment of InnoServ.
(8) At the time Mr. Hoefert was rehired, the options granted to him in fiscal
1996 were reinstated.
STOCK OPTION GRANTS
No stock options, warrants or rights to purchase securities were granted to
the Named Executive Officers during fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the fiscal year-end
value of unexercised options held by each Named Executive Officer. No options
were exercised by the Named Executive Officers in fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OUTSTANDING OPTIONS AT OUTSTANDING OPTIONS AT
YEAR-END YEAR-END(1)
-------------------------- ----------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- --------------- -----------------
Michael G. Puls........................................... 100,000 50,000 $ 0 $ 0
Thomas E. Hoefert......................................... 16,667 8,333 $ 0 $ 0
</TABLE>
- ------------------------
(1) Calculated using the closing price of the Common Stock on April 30, 1998 of
$2.625 per share.
40
<PAGE>
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
COMPENSATION OF DIRECTORS
Directors who are not compensated directly as officers receive $3,500 per
quarter and $1,000 for each Board or Committee meeting attended in person. Also,
under the 1992 Stock Incentive Plan, on the first business day following
InnoServ's annual meeting of shareholders, each non-employee director is
automatically granted options to purchase shares of Common Stock equal to the
lesser of (a) 3,000 shares of Common Stock and (b) the number of shares of
Common Stock that have an aggregate fair market value of $20,000 on the date of
grant. Directors who are compensated directly as officers receive no additional
compensation.
Mr. Sandler served as Vice President and Chief Financial Officer of InnoServ
from May 1, 1997 to September 29, 1997. Mr. Sandler was not directly compensated
by InnoServ, instead, InnoServ reimbursed MEDIQ, Mr. Sandler's then current
employer and the beneficial owner of 44% of InnoServ's common stock, for time
Mr. Sandler spent at InnoServ at an hourly rate based on MEDIQ's cost plus
travel and other related expenses. For services provided by Mr. Sandler during
this period, InnoServ reimbursed MEDIQ $39,605.
EMPLOYMENT AGREEMENTS
InnoServ has letter agreements with Mr. Puls and Mr. Hoefert which provide
that if the employment of the executives is terminated by InnoServ for any
reason other than cause (as defined in the agreement), then InnoServ must pay a
severance payment by continuing the executive's then current monthly salary and
continued participation in InnoServ's medical and insurance plans for twelve
months in the case of Mr. Puls and six months in the case of Mr. Hoefert. The
agreements also contain a two year covenant not to compete following termination
of employment.
The agreements with Mr. Puls and Mr. Hoefert each also provide that, in the
event of termination of the executive's employment with InnoServ without cause
within six months following a "change of control" of InnoServ (as defined in
such agreement), the executive will receive a severance payment as provided for
above and, in the case of Mr. Puls, a one-time payment equivalent to his prior
year's bonus. The agreements also provide for immediate vesting of all the
executives' stock options upon such change of control.
Upon consummation of the Merger, Mr. Puls' letter agreement with the Company
will be amended to eliminate the termination and severance payments described
above and to provide that if the employment of Mr. Puls is terminated by the
Company for any reason other than cause (as defined in the agreement), then the
Company must pay, within five business days after the date of such termination,
a lump sum severance payment to Mr. Puls, equal to the pro rata portion of Mr.
Puls' base salary (i) for the period beginning on the date of such termination
and ending on the twenty-month anniversary of the Effective Date if such
termination occurs on or before the eight-month anniversary of the Effective
Date or (ii) for the period beginning on the date of such termination and ending
on the first-year anniversary of such termination if such termination occurs
after the eight-month anniversary of the Effective Date. If at any time
following the sixtieth day after the Effective Date, Mr. Puls chooses
voluntarily to terminate his employment, the Company will pay to Mr. Puls,
within five business days after the date of such termination, a lump sum payment
equal to the pro rata portion of Mr. Puls' base salary for the period beginning
on the date of such termination and ending on the first-year anniversary of such
termination.
In addition to the agreement discussed above, if (i) at any time after the
Effective Date and before the eight-month anniversary of the Effective Date, the
Company terminates Mr. Puls' employment other than for cause or (ii) if at any
time following the sixtieth day after the Effective Date and before the eight-
month anniversary of the Effective Date, Mr. Puls chooses to voluntarily
terminate his employment, the
41
<PAGE>
Company will pay to Mr. Puls, within five business days after the date of such
termination, a lump sum payment equal to $56,000.
Mr. Puls has an agreement with InnoServ that provides for a one-time bonus
ranging from $300,000 to $400,000, depending on the Sale Price (as defined in
such agreement), in the event of a Sale of the Company (as defined in such
agreement), provided that he is a full time employee (subject to requirements
defined in the agreement) in good standing on the closing of such a Sale of the
Company. Upon consummation of the Merger, Mr. Puls' agreement with the Company
will be amended to provide for a one-time bonus of $307,500.
Mr. Hoefert has an agreement with InnoServ providing for a one-time bonus
ranging from $150,000 to $250,000, depending on the Sale Price (as defined in
the agreement), in the event of a Sale of the Company (as defined in such
agreement), provided that he is a full time employee (subject to requirements
defined in the agreement) in good standing on the closing of such a Sale of the
Company. Under the terms of such agreement, upon consummation of the Merger, Mr.
Hoefert will receive a one-time bonus of $150,000.
CERTAIN INFORMATION CONCERNING
GENERAL ELECTRIC AND SUB
The principal executive offices of General Electric are located at 3135
Easton Turnpike, Fairfield, Connecticut 06431-00001 and its telephone number is
(203) 373-2211. Sub is a newly formed California corporation and wholly-owned
subsidiary of General Electric and has not conducted any business other than in
connection with the Merger. Its principal executive offices are located at 3000
N. Grandview Blvd., Waukesha, Wisconsin 53088.
General Electric is a publicly-owned New York corporation whose common stock
is registered under Section 12(b) of the Exchange Act, and traded on The New
York Stock Exchange under the symbol "GE." General Electric and its consolidated
affiliates comprise one of the largest and most diversified industrial
corporations in the world. From the time of General Electric's incorporation in
1892, it has engaged in developing, manufacturing and marketing a wide variety
of products for the generation, transmission, distribution, control and
utilization of electricity. Over the years, development and application of
related and new technologies have broadened considerably the scope of activities
of General Electric and its affiliates. General Electric's products include, but
are not limited to, lamps and other lighting products; major appliances for the
home; industrial automation products and components; motors; electrical
distribution and control equipment; locomotives; power generation and delivery
products; nuclear reactors, nuclear power support services and fuel assemblies;
commercial and military aircraft jet engines; materials, including plastics,
silicones and super abrasives; and a wide variety of high-technology products,
including products used in medical diagnostic applications. General Electric and
its subsidiaries also offer a wide variety of services including a wide range of
financial services; television and cable programming ownership and services;
product support and repair services; electrical product supply houses;
electrical apparatus installation, engineering, repair and rebuilding services;
and computer-related information services.
General Electric is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). The Commission file number for General Electric is 1-35. Such
reports and other information may be inspected and copied at the Commission's
Public Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, where copies can be obtained at prescribed rates, as well as at the
Commission's regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. The Commission also maintains a website that contains reports,
proxy and other information filed electronically with the Commission, the
address of which is http://www.sec.gov. In addition, this material may also be
42
<PAGE>
inspected at the offices of The New York Stock Exchange, 20 Broad Street, New
York, New York 10005, or obtained at prescribed rates.
INDEPENDENT AUDITORS
Ernst & Young LLP served as the independent auditors for InnoServ for the
fiscal year ended April 30, 1998. A representative of Ernst & Young LLP is
expected to be present at the Special Meeting and to be available to respond to
appropriate questions directed to Ernst & Young LLP by shareholders of the
Company. The representative will have an opportunity to make a statement if
Ernst & Young LLP so desires.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, the Company will hold its 1998 Annual
Meeting of Shareholders of the Company in accordance with the Company's Bylaws
and California law. Subject to the foregoing, if any shareholder intended to
present a proposal at the 1998 Annual Meeting of Shareholders and wished to have
such proposal considered for inclusion in the proxy materials for such meeting,
such holder must have submitted the proposal to the Secretary of the Company in
writing so that it was received at the executive offices of the Company not
later than April 1, 1998. If any Shareholder intends to present a proposal at
the 1999 Annual Meeting of Shareholders, should such meeting occur, and wishes
to have such proposal considered for inclusion in the proxy materials for such
meeting, such holder must submit the proposal to the Secretary of the Company in
writing so that it is received at the executive offices of the Company not later
than May 15, 1999. Such proposals must also meet the other requirements of the
rules of the Commission relating to shareholders' proposals.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Commission file number for the Company is
0-13608. Such reports and other information may be inspected and copied at the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, where copies can be obtained at prescribed rates, as
well as at the Commission's regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. The Commission also maintains a website
that contains reports, proxy and other information filed electronically with the
Commission, the address of which is http:// www.sec.gov. In addition, this
material may also be inspected at the offices of The Nasdaq Stock Market, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006, where copies may be obtained at
prescribed rates.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY INNOSERV. THIS PROXY STATEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
All reports and documents filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act are available, without
charge, upon written or oral request from any
43
<PAGE>
person, including any beneficial owner, to whom this Proxy Statement is
delivered, to InnoServ Technologies, Inc., 320 Westway, Suite 520, Arlington,
Texas 76018, Attention: Investor Relations; telephone: (817) 468-3377. In order
to ensure timely delivery of the documents, any request should be made by
September 8, 1998. All documents filed with the Commission pursuant to such
sections after the date of this Proxy Statement and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference herein and made
a part hereof from the date any such document is filed. The information
contained in this Proxy Statement does not purport to be complete and should be
read together with the information in the documents incorporated by reference
herein. Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for all purposes to the extent that a statement contained herein or
in any other subsequently filed document incorporated or deemed to be
incorporated by reference herein modified or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part hereof.
OTHER MATTERS
The Board is not aware of any other business to be presented for
consideration at the Special Meeting. If any other business should properly come
before such meeting and any adjournment and/or postponement thereof, it is
intended that the proxies will be voted in accordance with the best judgment of
the proxy holders.
<TABLE>
<S> <C>
By Order of the Board of Directors:
/s/ DUDLEY A. RAUCH
------------------------------------------
Name: Dudley A. Rauch
Title: Chairman of the Board
</TABLE>
Arlington, Texas
August 25, 1998
44
<PAGE>
APPENDIX I
FIRST AMENDED AND RESTATED
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
MAY 19, 1998
BY AND AMONG
GENERAL ELECTRIC COMPANY
DIAMOND MERGER SUB, INC.
AND
INNOSERV TECHNOLOGIES, INC.
A-I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARTICLE I THE MERGER....................................................................................... 1
Section 1.1 THE MERGER.................................................................................. 1
Section 1.2 EFFECTIVE DATE OF THE MERGER................................................................ 1
ARTICLE II THE SURVIVING CORPORATION....................................................................... 1
Section 2.1 ARTICLES OF INCORPORATION................................................................... 1
Section 2.2 BY-LAWS..................................................................................... 1
Section 2.3 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION................................ 2
Section 2.4 EFFECTS OF MERGER........................................................................... 2
Section 2.5 FURTHER ASSURANCES.......................................................................... 2
ARTICLE III CONVERSION OF SECURITIES....................................................................... 2
Section 3.1 PER SHARE MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF COMPANY SHARES............... 2
Section 3.2 PAYING AGENT AND SURRENDER OF CERTIFICATES.................................................. 3
Section 3.3 DISSENTING SHARES........................................................................... 5
Section 3.4 CONVERSION OF SUB SECURITIES................................................................ 5
Section 3.5 SHAREHOLDERS TO HAVE NO FURTHER RIGHTS...................................................... 6
Section 3.6 STOCK OPTIONS............................................................................... 6
Section 3.7 MEDIQ PAYMENT............................................................................... 6
Section 3.8 ESCROW PAYMENT.............................................................................. 6
Section 3.9 CLOSING OF THE COMPANY'S TRANSFER BOOKS..................................................... 6
Section 3.10 CLOSING.................................................................................... 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT........................................................ 7
Section 4.1 ORGANIZATION AND QUALIFICATION.............................................................. 7
Section 4.2 AUTHORITY RELATIVE TO THIS AGREEMENT........................................................ 7
Section 4.3 INFORMATION IN PROXY STATEMENT.............................................................. 7
Section 4.4 FINANCIAL ADVISOR........................................................................... 8
Section 4.5 PARENT NOT AN INTERESTED SHAREHOLDER........................................................ 8
Section 4.6 FINANCING................................................................................... 8
Section 4.7 PARENT ADVERSE EFFECT....................................................................... 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................... 8
Section 5.1 ORGANIZATION AND QUALIFICATION.............................................................. 8
Section 5.2 CAPITALIZATION.............................................................................. 8
Section 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT........................................................ 9
Section 5.4 REPORTS AND FINANCIAL STATEMENTS............................................................ 9
Section 5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS; LITIGATION............................................ 10
Section 5.6 BENEFIT PLANS; EMPLOYEES AND EMPLOYMENT PRACTICES........................................... 11
Section 5.7 TAXES....................................................................................... 12
Section 5.8 ENVIRONMENTAL MATTERS....................................................................... 13
Section 5.9 INTELLECTUAL PROPERTY MATTERS............................................................... 14
Section 5.10 MATERIAL CONTRACTS......................................................................... 14
Section 5.11 COMPLIANCE WITH LAWS; PERMITS.............................................................. 14
Section 5.12 TAKEOVER STATUTES.......................................................................... 14
Section 5.13 FAIRNESS OPINION........................................................................... 15
Section 5.14 FINANCIAL ADVISOR.......................................................................... 15
Section 5.15 INDUSTRY CONDITIONS........................................................................ 15
Section 5.16 CUSTOMERS.................................................................................. 15
</TABLE>
i
A-I-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Section 5.17 COMPANY MATERIAL ADVERSE EFFECT............................................................ 15
Section 5.18 KNOWLEDGE.................................................................................. 15
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING SUB.................................................... 15
Section 6.1 ORGANIZATION................................................................................ 15
Section 6.2 CAPITALIZATION.............................................................................. 15
Section 6.3 AUTHORITY RELATIVE TO THIS AGREEMENT........................................................ 16
Section 6.4 SUB ACTION.................................................................................. 16
Section 6.5 INTERIM OPERATIONS OF SUB................................................................... 16
ARTICLE VII CONDUCT OF BUSINESS PENDING THE MERGER......................................................... 16
Section 7.1 CONDUCT OF BUSINESS BY THE COMPANY.......................................................... 16
Section 7.2 REPORTS..................................................................................... 18
Section 7.3 OBLIGATIONS OF PARENT AND SUB; CONDUCT OF BUSINESS OF SUB................................... 18
ARTICLE VIII ADDITIONAL AGREEMENTS......................................................................... 19
Section 8.1 ACCESS AND INFORMATION...................................................................... 19
Section 8.2 SHAREHOLDERS' MEETING....................................................................... 19
Section 8.3 PROXY STATEMENT............................................................................. 19
Section 8.4 EMPLOYEE MATTERS............................................................................ 20
Section 8.5 INDEMNIFICATION............................................................................. 21
Section 8.6 ANTITRUST MATTERS........................................................................... 22
Section 8.7 REASONABLE EFFORTS, NOTIFICATION............................................................ 22
Section 8.8 NO SOLICITATION............................................................................. 22
Section 8.9 BONUS PAYMENTS.............................................................................. 24
Section 8.10 SIDE AGREEMENT............................................................................. 24
Section 8.11 PREFERRED STOCK DESIGNATION................................................................ 24
ARTICLE IX CONDITIONS PRECEDENT............................................................................ 24
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.................................. 24
Section 9.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER................................ 25
Section 9.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE MERGER............................ 25
ARTICLE X TERMINATION, AMENDMENT AND WAIVER................................................................ 25
Section 10.1 TERMINATION................................................................................. 25
Section 10.2 EFFECT OF TERMINATION....................................................................... 27
Section 10.3 AMENDMENT................................................................................... 27
Section 10.4 WAIVER...................................................................................... 27
ARTICLE XI GENERAL PROVISIONS.............................................................................. 28
Section 11.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.................................. 28
Section 11.2 NOTICES..................................................................................... 28
Section 11.3 EXPENSES.................................................................................... 28
Section 11.4 PUBLICITY................................................................................... 29
Section 11.5 INTERPRETATION.............................................................................. 29
Section 11.6 OBLIGATIONS OF PARENT AND OF THE COMPANY.................................................... 29
Section 11.7 SEVERABILITY................................................................................ 29
Section 11.8 MISCELLANEOUS............................................................................... 29
</TABLE>
ii
A-I-3
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
1998 Company Balance Sheet................................................ 10
Affected Employees........................................................ 20
Agreement................................................................. 1
Agreement of Merger....................................................... 1
Business Combination...................................................... 23
Business Combination Proposal............................................. 23
Certificate............................................................... 2
CGCL...................................................................... 1
Closing................................................................... 6
Closing Date.............................................................. 7
Code...................................................................... 4
Commission................................................................ 9
Company................................................................... 1
Company Common Stock...................................................... 2
Company Disclosure Schedule............................................... 8
Company Financial Advisor................................................. 15
Company Licenses.......................................................... 14
Company Material Adverse Effect........................................... 15
Company Meeting........................................................... 19
Company Preferred Stock................................................... 8
Company SEC Reports....................................................... 10
Company Subsidiaries...................................................... 2
Company Subsidiary........................................................ 2
Company Voting Debt....................................................... 9
Compensation Commitments.................................................. 11
Confidentiality Agreement................................................. 19
Constituent Corporations.................................................. 1
Dissenting Shares......................................................... 5
Effective Date............................................................ 1
Environmental Laws........................................................ 14
ERISA..................................................................... 11
ERISA Affiliate........................................................... 11
Escrow Agreement.......................................................... 6
Escrow Payment............................................................ 6
Exchange Act.............................................................. 7
Executive Bonus Payments.................................................. 24
FIRPTA.................................................................... 13
Former Holders............................................................ 4
GAAP...................................................................... 10
Governmental Entity....................................................... 24
Hazardous Material........................................................ 14
Holder.................................................................... 3
HSR Act................................................................... 7
Indemnified Parties....................................................... 21
Laws...................................................................... 14
Material Contracts........................................................ 14
MEDIQ..................................................................... 4
MEDIQ Payment............................................................. 6
Merger.................................................................... 1
</TABLE>
iii
A-I-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Non-ERISA Plans........................................................... 11
Order..................................................................... 24
Outstanding Options....................................................... 6
Parent.................................................................... 1
Parent Benefit Plans...................................................... 20
Parent Material Adverse Effect............................................ 8
Parent Subsidiaries....................................................... 2
Parent Subsidiary......................................................... 2
Paying Agent.............................................................. 3
Pension Plans............................................................. 11
Per Share Merger Consideration............................................ 2
Plans..................................................................... 11
Principal Holders......................................................... 1
Proxy Statement........................................................... 7
Puls Agreement............................................................ 6
Refund Request............................................................ 3
Securities Act............................................................ 10
Share..................................................................... 2
Shareholders' Agreement................................................... 1
Shareholders' Committee................................................... 4
Stock Option Plan......................................................... 6
Stock Payment Fund........................................................ 3
Sub....................................................................... 1
Superior Proposal......................................................... 23
Surviving Corporation..................................................... 1
Takeover Statute.......................................................... 14
Tax....................................................................... 12
Tax Return................................................................ 13
Tax Sharing Arrangement................................................... 13
Taxes..................................................................... 12
Termination Date.......................................................... 26
Third Party............................................................... 23
Welfare Plans............................................................. 11
</TABLE>
iv
A-I-5
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Shareholders' Agreement
Exhibit A.1 Agreement of Merger
Exhibit B Outstanding Option Cancellation Agreement
Exhibit C Escrow Agreement
Exhibit D Certain Actions
Exhibit E Executive Bonus Agreements
Exhibit F Side Agreement
Exhibit G Preferred Stock Designation
Exhibit H Opinion of Company's Counsel
</TABLE>
v
A-I-6
<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 19,
1998, by and among General Electric Company, a New York corporation acting on
behalf of its GE Medical Systems business ("PARENT"), Diamond Merger Sub, Inc.,
a California corporation and a wholly owned subsidiary of a wholly owned
subsidiary of Parent ("SUB"), and InnoServ Technologies, Inc., a California
corporation (the "COMPANY"). Sub and the Company are sometimes referred to
herein as the "CONSTITUENT CORPORATIONS."
W I T N E S S E T H:
WHEREAS, Parent and the Company desire to effect a business combination by
means of the merger of Sub with and into the Company;
WHEREAS, the respective Boards of Directors of Sub and the Company have
approved, and have determined that it is advisable and in the best interests of
their respective shareholders to consummate, the merger of Sub with and into the
Company (the "MERGER"), upon the terms and subject to the conditions set forth
herein;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as an inducement to Parent to enter into this Agreement, certain shareholders of
the Company (the "PRINCIPAL HOLDERS") have entered into an agreement with
Parent, in the form attached hereto as EXHIBIT A (the "SHAREHOLDERS'
AGREEMENT"), pursuant to which the Principal Holders have agreed, among other
things, to vote their Shares (as defined in SECTION 3.1) in favor of the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the California General
Corporation Laws (the "CGCL"), on the Effective Date (as defined in SECTION
1.2), Sub shall be merged with and into the Company and the separate existence
of Sub shall thereupon cease, and the Company, as the surviving corporation in
the Merger (the "SURVIVING CORPORATION"), shall by virtue of the Merger continue
its corporate existence under the laws of the State of California.
Section 1.2 EFFECTIVE DATE OF THE MERGER. The Merger shall become
effective at the date and time (the "EFFECTIVE DATE") when a properly executed
copy of the Agreement of Merger of Sub into the Company (the "AGREEMENT OF
MERGER"), attached as Exhibit A.1, and appropriate officers' certificates, in
the form as is required by the CGCL, are duly filed with and accepted by the
Secretary of State of the State of California, which filing shall be made by the
Company and Sub as soon as practicable on the Closing Date (as defined in
SECTION 3.10), or at such time thereafter as is provided in such certificate.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of
the Company as in effect on the Effective Date shall be the Articles of
Incorporation of the Surviving Corporation until amended in accordance with the
CGCL.
Section 2.2 BY-LAWS. The By-Laws of Sub as in effect immediately prior to
the Effective Date shall be the By-Laws of the Surviving Corporation until
amended in accordance with the CGCL.
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Section 2.3 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION. The directors and officers of Sub immediately prior to the
Effective Date shall be the directors and officers of the Surviving Corporation
until their respective successors shall be duly elected or appointed and
qualified.
Section 2.4 EFFECTS OF MERGER. The Merger shall have the effects set forth
in Section 1107 of the CGCL.
Section 2.5 FURTHER ASSURANCES. If, at any time after the Effective Date,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sales, assignments or assurances or any other acts or things are necessary,
desirable or proper to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its rights, title and interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of either of the
Constituent Corporations, 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 Constituent Corporation, all such deeds, bills of
sale, assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation's
right, title and interest in, to and under any of the rights, privileges,
powers, franchises, properties or assets of such Constituent Corporation.
ARTICLE III
CONVERSION OF SECURITIES
Section 3.1 PER SHARE MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF
COMPANY SHARES. At the Effective Date, by virtue of the Merger and without any
action on the part of Parent, Sub, the Company or their respective shareholders
(other than the filing of the documents referred to in SECTION 1.2 hereof):
(a) each share (a "SHARE") of common stock, par value $0.01 per share,
of the Company ("COMPANY COMMON STOCK") issued and outstanding immediately
prior to the Effective Date (other than (i) Shares held by Parent or Sub,
(ii) Shares held by any corporation, partnership, joint venture, or other
entity in which the Company (A) owns directly or indirectly, 50% or more of
the outstanding voting securities or equity interests other than the Shares
held by the InnoServ Technologies, Inc. Employee Stock Purchase Plan or (B)
is a general partner (individually, a "COMPANY SUBSIDIARY," and
collectively, the "COMPANY SUBSIDIARIES"), (iii) Shares held by any
corporation, partnership, joint venture or other entity in which Parent (A)
owns, directly or indirectly, 50% or more of the outstanding voting
securities or equity interests or (B) is a general partner (individually, a
"PARENT SUBSIDIARY" and collectively, the "PARENT SUBSIDIARIES"), and (iv)
Dissenting Shares (as defined in SECTION 3.3) in respect of which appraisal
rights are properly exercised and perfected) shall be converted into (i) the
right to receive, in cash, an amount equal to (A) the remainder of (I)
$16,000,000 minus (II) (a) the MEDIQ Payment (as defined in SECTION 3.7),
and (b) the Escrow Payment (as defined in SECTION 3.8), DIVIDED by (B) the
number of shares outstanding as of the Effective Date, without interest
thereon (the "PER SHARE MERGER CONSIDERATION") and (ii) the contingent right
to receive additional consideration pursuant to the Escrow Agreement (as
defined in SECTION 3.8). The Per Share Merger Consideration shall be payable
upon surrender of the certificate previously representing such Share (a
"CERTIFICATE") in the manner provided in SECTION 3.2.
(b) each Share then owned by any Company Subsidiary shall be canceled
without conversion and without payment of consideration and shall cease to
exist; and
(c) each Share owned beneficially or of record by Parent, Sub or any
other Parent Subsidiary immediately prior to the Effective Date shall be
canceled without conversion and without payment of consideration and shall
cease to exist.
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Section 3.2 PAYING AGENT AND SURRENDER OF CERTIFICATES.
(a) Prior to the Effective Date, the Company and Parent shall appoint
The Bank of New York or such other bank or trust company selected by Parent
and reasonably acceptable to the Company, and having a place of business in
New York City, as paying agent (the "PAYING AGENT") for purposes of this
Agreement.
(b) Immediately after the Effective Date, Parent shall cause the
Surviving Corporation to deposit with the Paying Agent, for the benefit of
the persons entitled to payment hereunder, funds equal to the remainder of
(A) $16,000,000 MINUS (B) (I) the MEDIQ Payment, and (II) the Escrow Payment
(the "STOCK PAYMENT FUND"). The Paying Agent shall invest the Stock Payment
Fund as Parent directs, in direct obligations of the United States of
America, obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of all principal and
interest, commercial paper obligations receiving the highest rating from
either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or
certificates of deposit, bank repurchase agreements or banker's acceptances
of commercial banks with capital exceeding $25,000,000,000. The Stock
Payment Fund shall not be used for any other purpose except as provided in
this Agreement.
(c) On or as soon as practicable after the Effective Date, the Surviving
Corporation shall cause the Paying Agent to mail to each person who was a
record holder of Company Common Stock at the Effective Date (individually, a
"HOLDER" and collectively, the "HOLDERS") (other than Parent, Sub, the
Company, Parent Subsidiaries or Company Subsidiaries), a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Paying Agent and shall otherwise be in such form
and have such provisions as Parent and the Company may reasonably specify)
and instructions for use in effecting the surrender for payment of
Certificates that immediately prior to the Effective Date represented
Company Common Stock. Upon surrender of a Certificate to the Paying Agent,
together with a duly executed letter of transmittal, the holder of the
Certificate shall be entitled to receive immediately, in exchange therefor
cash in an amount equal to the product of the number of Shares previously
represented by such Certificate or Certificates surrendered and the Per
Share Merger Consideration.
No interest will be paid or accrued on the cash payable upon the surrender
of the Certificates. If a payment is to be made to a person other than the
person in whose name a surrendered Certificate is registered, it shall be a
condition of payment that (x) the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that (y) the
person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of
Parent or the Paying Agent that such tax has been paid or is not applicable.
After the Effective Date, until surrendered in accordance with the
provisions of this SECTION 3.2, a Certificate shall represent only the right
to receive the Per Share Merger Consideration in cash multiplied by the
number of Shares previously evidenced by such Certificate, without any
interest thereon and the contingent right to receive additional
consideration pursuant to the Escrow Agreement.
(d) On or after the one hundred eightieth day following the Effective
Date, the Surviving Corporation may by written request require the Paying
Agent to remit to the Surviving Corporation (on terms reasonably
satisfactory to the Paying Agent) (a "REFUND REQUEST") any funds held in the
Stock Payment Fund that (i) have not been applied prior to any such Refund
Request to make payments in respect of Certificates or (ii) are not required
at the time of such Refund Request to permit the Paying Agent to make
payment to the holders of any Certificates that have been surrendered by the
date of such Refund Request for which payment is pending, but with respect
to which no such payment has yet been made at the time of such Refund
Request. Any holders of Shares who have not theretofore complied with
SECTION 3.2(C) shall thereafter look only to the Surviving
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Corporation (subject to abandoned property, escheat or other similar laws)
for payment of their claim for the Per Share Merger Consideration, without
any interest thereon, but shall have no greater rights against the Surviving
Corporation than may be accorded to general creditors of the Surviving
Corporation under California law.
(e) The Surviving Corporation shall pay all charges and expenses,
including those of the Paying Agent, in connection with the exchange of cash
for the Shares.
(f) Neither Parent, Sub nor the Company shall be liable to any holder of
Shares for any Per Share Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) The Paying Agent and Surviving Corporation shall be entitled to
deduct and withhold from the Per Share Merger Consideration otherwise
payable pursuant to this Agreement to any holder of Shares such amounts as
the Paying Agent or Surviving Corporation is required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code
of 1986, as amended (the "CODE"), or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Paying
Agent or Surviving Corporation, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the
Shares in respect of which such deduction and withholding was made by the
Paying Agent or Surviving Corporation.
(h) In the event any Certificates shall have been lost, stolen or
destroyed, the Paying Agent shall deliver in exchange for such lost, stolen
or destroyed Certificates the Per Share Merger Consideration as may be
required pursuant to SECTION 3.2 upon (i) the making of an affidavit of that
fact by the holder thereof, and (ii) if required by Parent, the posting by
such person of a bond in customary amount as indemnity against any claim
that may be made against it with respect to such Certificate.
(i) Effective as of the date hereof, the Shareholders' Committee
(the "SHAREHOLDERS' COMMITTEE") will be constituted and will be composed
of Michael Puls, President and Chief Executive Officer of the Company,
Dudley Rauch, Chairman of the Board of the Company and a third Holder to
be appointed by Mr. Puls and Mr. Rauch, each of whom has agreed to serve
as a member of the Shareholders' Committee. The Shareholders' Committee
will continue in existence until all of its duties under this Agreement
and the Escrow Agreement are discharged.
(ii) The Shareholders' Committee will have full and irrevocable
power and authority to act for and in the name of, and as the agent for,
the Holders and the holders of Outstanding Options (as defined in SECTION
3.6) (collectively, the "FORMER HOLDERS") without giving notice to the
Former Holders or obtaining their consent, in connection with all matters
relating to the Escrow Payment and to enforce, pursue, compromise, settle
and waive the rights of the Former Holders relating to the Escrow
Payment, subject to the specific limitations set forth below, and to do
all such things and execute all such instruments as it deems necessary,
proper or desirable in order to promote the interests of the Former
Holders, including, without limitation, to settle any dispute with MEDIQ
Incorporated ("MEDIQ") relating to the Escrow Agreement; provided that in
no event will the Shareholders' Committee have the power or authority to
settle any dispute among the Holders with respect to their individual
proportion of the Escrow Payment as disbursed by the Escrow Agent (as
defined in the Escrow Agreement), if any, to be received by any Former
Holder. Any determination as to what is in the interests of the Former
Holders made by the Shareholders' Committee in good faith will be
conclusive and binding on all Former Holders and their successors and
assigns.
(iii) The Shareholders' Committee (A) may rely on any document
believed by it to be genuine and to have been signed or presented by the
proper person, (B) need not investigate any fact or matter stated in such
document, and (C) may act through its attorneys and agents and will not
be responsible for the misconduct or negligence of any agent appointed
with due care. The
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Shareholders' Committee may consult with counsel and the advice or
opinion of such counsel as to matters of law will be full and complete
authorization and protection in respect of any action taken, omitted, or
suffered by it under this Agreement in good faith and in accordance with
the advice or opinion of such counsel.
(iv) Any action to be taken by the Shareholders' Committee may be
taken by a majority of its members present at a meeting of the
Shareholders' Committee (a quorum being present), including any meeting
held by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other, or by written consent of all members of the Shareholders'
Committee. If a member of the Shareholders' Committee resigns, dies, or
becomes incapacitated, the remaining members of the Shareholders'
Committee will appoint a successor member, notwithstanding the absence of
a quorum. If all three positions on the Shareholders' Committee become
simultaneously vacant, successors may be appointed by the written action
of the Former Holders of a majority of the shares of Company Common Stock
and the Outstanding Options as of the Effective Date, except that if such
vacancy results from the simultaneous resignation of members of the
Shareholders' Committee, the resigning member(s) may appoint successors.
The number of members of the Shareholders' Committee will be three.
Unless he resigns, each member of the Shareholders' Committee will serve
until the duties of the Shareholders' Committee have been fully
discharged. At any meetings of the Shareholders' Committee, two members
will constitute a quorum.
(v) The Shareholders' Committee and its members will not be liable
for any action they take or omit to take in good faith that they believe
to be authorized or within their rights or powers. All out-of-pocket
expenses reasonably incurred on or after the Effective Date by the
Shareholders' Committee (including attorneys' and professionals' fees) in
discharging the duties of the Shareholders' Committee under this
Agreement will be paid out of the Escrow Payment pursuant to the terms of
the Escrow Agreement. The Surviving Corporation shall indemnify, defend
and hold harmless each member of the Shareholders' Committee (and their
respective successors, assigns, heirs, executors. administrators and
representatives) against any and all costs, expenses, claims, damages or
liabilities arising out of or based upon any action or inaction of the
Shareholders' Committee under or in connection with this Agreement or the
Escrow Agreement.
Section 3.3 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, Shares which are issued and outstanding immediately prior to
the Effective Date and which are held by shareholders who have properly
exercised appraisal rights with respect thereto under Section 1301 of the CGCL
(the "DISSENTING SHARES") shall not be converted into the right to receive the
Per Share Merger Consideration as provided in SECTION 3.1 but the holders of
Dissenting Shares shall be entitled to receive such payment as shall be
determined pursuant to Chapter 13 of the CGCL; provided, that if any such holder
shall have failed to perfect or shall withdraw or lose the right to appraisal
and payment under the CGCL, then such holder shall forfeit the right of dissent
and each such holder's Shares shall thereupon be deemed to have been converted
as of the Effective Date into the right to receive the Per Share Merger
Consideration, without any interest thereon, as provided in SECTION 3.1, and
such Shares shall no longer be Dissenting Shares. The Company shall give Parent
prompt notice of any demands for payment under Section 1301 of the CGCL received
by the Company. Except as required by applicable law, prior to the Effective
Date, the Company shall not, except with the prior written consent of Parent,
make any payment with respect to, or settle or offer to settle, any such
demands.
Section 3.4 CONVERSION OF SUB SECURITIES. At the Effective Date, each
share of common stock, par value $0.01 per share, of Sub issued and outstanding
immediately prior to the Effective Date shall be converted, by virtue of the
Merger and without any action on the part of the holder thereof, into one fully
paid and nonassessable share of the common stock, par value $0.01 per share, of
the Surviving Corporation.
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Section 3.5 SHAREHOLDERS TO HAVE NO FURTHER RIGHTS. At and after the
Effective Date, the holder of a Certificate shall cease to have any rights as a
shareholder of the Company, except for (i) the right to surrender such
Certificate in exchange for the amount of Per Share Merger Consideration and the
contingent right to receive additional consideration pursuant to the Escrow
Agreement to which such holder is entitled under this Agreement and (ii) the
rights available under the CGCL for Dissenting Shares. In no event shall the
holder of a Certificate have any rights as a shareholder of the Surviving
Corporation.
Section 3.6 STOCK OPTIONS. At the Effective Date, each of the options to
purchase Company Common Stock granted under (i) the Company's 1992 Stock
Incentive Plan, as amended (the "STOCK OPTION PLAN") that is outstanding as of
the Effective Date and (ii) the Stock Option Agreement dated as of December 11,
1996 between the Company and Michael G. Puls (the "PULS AGREEMENT" and
collectively with the options outstanding under the Stock Option Plan, the
"OUTSTANDING OPTIONS"), whether or not then vested, exercisable or effective,
shall, by action of the Board of Directors of the Company or a duly authorized
Committee thereof, under the terms of the Stock Option Plan and the agreements
evidencing the options granted thereunder or the Puls Agreement, as applicable,
and without any action on the part of the holder thereof, vest and become
effective and exercisable solely for the Per Share Merger Consideration (without
interest). Prior to the Effective Date, each holder of Outstanding Options shall
be offered the right to execute an agreement, substantially in the form attached
hereto as Exhibit B, to cancel such Outstanding Options. Immediately after the
Effective Date and in no event later than the first payment to a Holder pursuant
to SECTION 3.2, Parent shall cause the Surviving Corporation to pay to each
holder of an Outstanding Option who executes such an agreement, in consideration
for such cancellation, an amount in cash (less applicable withholding taxes, if
any) equal to the amount and in the manner set forth in the agreement attached
hereto as Exhibit B; provided that if such amount is equal to or less than zero,
such Outstanding Option shall be deemed canceled and terminated. For purposes of
this SECTION 3.6, each of the Company, Sub and Parent agree that each option
listed on SECTION 5.2 of the Company's Disclosure Schedule (as hereinafter
defined), unless such option is exercised or expires in accordance with the
provisions of Stock Option Plan or Puls Agreement prior to the Effective Date,
is an Outstanding Option.
Section 3.7 MEDIQ PAYMENT. Immediately after the Effective Date, and in no
event later than the first payment to a Holder pursuant to SECTION 3.2, the
Parent shall cause the Surviving Corporation to pay to MEDIQ in cash, without
interest thereon and less applicable withholding taxes, if any, by wire transfer
to an account designated by MEDIQ an amount equal to $3,218,997 (the "MEDIQ
PAYMENT.")
Section 3.8 ESCROW PAYMENT. Immediately after the Effective Date, Parent
shall cause the Surviving Corporation to deposit with the Paying Agent, an
amount, in cash, equal to $833,879 (the "ESCROW PAYMENT"), to be disbursed by
the Paying Agent pursuant to the terms and conditions of the escrow agreement
attached hereto as Exhibit C (the "ESCROW AGREEMENT"). In the event that the
parties to the Escrow Agreement shall provide written notice to the Parent, duly
executed by each such party prior to the Effective Date that such parties have
reached agreement with respect to the disbursement of the Escrow Payment, the
Company, Parent and Sub each hereby agrees to amend this Agreement to reflect
such agreement.
Section 3.9 CLOSING OF THE COMPANY'S TRANSFER BOOKS. After the close of
business on the Effective Date, the stock transfer books of the Company shall be
closed and no transfer of Shares shall be made thereafter. In the event that,
after the Effective Date, Certificates are presented to the Surviving
Corporation, they shall be forwarded to the Paying Agent and be subject to the
provisions of SECTION 3.2.
Section 3.10 CLOSING. Unless this Agreement is terminated and the
transactions contemplated herein abandoned pursuant to SECTION 10.1, and subject
to the satisfaction or, if permissible, waiver of the conditions set forth in
ARTICLE IX, the consummation of the Merger and the closing of the transactions
contemplated by this Agreement (the "CLOSING") shall take place (i) at the
offices of Gibson, Dunn & Crutcher, 1717 Main Street, Suite 5400, Dallas, Texas,
at 9:00 A.M. local time on a date to be specified by
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Parent and the Company, but as soon as practicable (and in any event within two
business days) after the day on which the last of the conditions set forth in
ARTICLE IX is fulfilled or, if permissible, waived or (ii) at such other time
and place as Parent and the Company shall agree in writing. The date on which
the Closing occurs is referred to herein as the "CLOSING DATE."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite corporate power and authority to own and operate
its properties and assets and to carry on its business as it is now being
conducted. Parent is duly qualified as a foreign corporation, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities make such qualification
necessary, except where the failure to be so qualified and in good standing will
not have a Parent Material Adverse Effect (as defined in SECTION 4.7).
Section 4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Parent has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Parent and the
consummation of the transactions contemplated hereby by Parent have been duly
authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly executed by Parent and constitutes a valid and binding
obligation of Parent enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights generally. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (a) conflict with or violate the charter or by-laws of Parent or (b) result
in any breach or constitute a default (with or without notice or lapse of time,
or both) or give rise in others to any rights of termination, cancellation or
acceleration under any agreement, indenture, contract, loan agreement, license,
franchise, permit, order, decree, concession, lease, instrument, judgment,
statute, law, ordinance, rule or regulation applicable to Parent or any Parent
Subsidiary or its or their respective assets, other than, in the case of clause
(b) only, breaches, defaults, violations and losses of rights that would not
have a Parent Material Adverse Effect and the laws and regulations referred to
in the next sentence. Except in connection, or in compliance, with the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (which filing has been made) (the "HSR ACT"), the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and the corporation, securities or
blue sky laws or regulations of the various states, no filing or registration
with, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the consummation by Parent of the Merger or
the other transactions contemplated by this Agreement, except where the failure
to make any such filing or registration or obtain any such authorization,
consent or approval would not have a Parent Material Adverse Effect or prevent
or materially delay consummation of the Merger.
Section 4.3 INFORMATION IN PROXY STATEMENT. None of the information
supplied by Parent or Sub to be included or incorporated by reference in the
proxy statement of the Company (the "PROXY STATEMENT") required to be mailed to
the shareholders of the Company in connection with the Merger will at the time
of the mailing of the Proxy Statement and any amendments or supplements thereto,
and at the time of the Company Meeting (as defined in SECTION 8.2) to be held in
connection with the Merger, 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.
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Section 4.4 FINANCIAL ADVISOR. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
Section 4.5 PARENT NOT AN INTERESTED SHAREHOLDER. Neither Parent nor any
of its affiliates is an "Interested Party" pursuant to Section 1203 of CGCL.
Section 4.6 FINANCING. Parent and Sub have available to them funds
necessary to satisfy their respective obligations hereunder.
Section 4.7. PARENT ADVERSE EFFECT. For purposes of this Agreement,
"PARENT MATERIAL ADVERSE EFFECT" means any change, effect, circumstance or event
that is materially adverse to the business, operations or financial condition of
Parent and the Parent Subsidiaries taken as a whole, other than changes,
effects, circumstances or events: (i) affecting Parent's industry generally,
(ii) resulting from general economic conditions, or (iii) resulting from the
transactions contemplated by this Agreement or the announcement thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub that, except as set
forth in the disclosure schedule delivered by the Company to Parent and Sub on
the date of this Agreement (the "COMPANY DISCLOSURE SCHEDULE") (it being
understood that disclosure of any items, facts, circumstances or the like as an
exception with respect to a representation, warranty or covenant of the Company
in the Company Disclosure Schedule with reference to a particular section of
this Agreement shall be deemed to be disclosed, and an exception with respect to
all representations, warranties and covenants of the Company, if a reasonable
person knowledgeable of the Company's industry would determine, in light of the
level and particularity of the disclosure, that such disclosure is relevant or
an exception would be applicable):
Section 5.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Each Company Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction set
forth opposite its name on SECTION 5.1 of the Company Disclosure Schedule. Each
of the Company and the Company Subsidiaries has all requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as it is now being conducted. Each of the Company and the Company
Subsidiaries is duly qualified as a foreign corporation, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or in good standing will
not have a Company Material Adverse Effect. Complete and correct copies as of
the date hereof of the charter and by-laws or comparable organizational
documents of the Company and each of the Company Subsidiaries have been
delivered to Parent, and such charters, by-laws or comparable organizational
documents are in full force and effect.
Section 5.2 CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 10,000,000 shares of Company Common Stock, par value $0.01 per
share, and (b) 5,000,000 shares of preferred stock, par value $0.01 per share
(the "COMPANY PREFERRED STOCK"). As of the date hereof, (i) 3,009,395 shares of
Company Common Stock were outstanding and no shares of Company Common Stock were
held by the Company or any Company Subsidiary, (ii) 405,200 shares of Company
Common Stock were reserved for issuance pursuant to Outstanding Options, and
(iii) no shares of Company Preferred Stock were outstanding. All of the shares
of outstanding Company Common Stock were validly issued, fully paid and non-
assessable. SECTION 5.2 of the Company Disclosure Schedule contains a correct
and complete list as of the date hereof of each outstanding option to purchase
Shares under the Stock Option Plan and Puls Agreement, including the holder,
date of grant, exercise price, expiration date and number of Shares subject
thereto. Each of the outstanding shares of capital stock or other securities of
each Company
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Subsidiary is duly authorized, validly issued, fully paid and nonassessable and
owned by the Company or another Company Subsidiary, free and clear of any lien,
pledge, security interest, right of first refusal, agreement limitation on
voting rights, claim or other encumbrance. As of the date hereof, there are no
bonds, debentures, notes or other evidences of indebtedness having the right to
vote on any matters on which the Company's shareholders may vote ("COMPANY
VOTING DEBT") issued or outstanding. Except as set forth in SECTION 5.2 of the
Company Disclosure Schedule, there are no options, warrants, calls or other
rights, agreements or commitments outstanding obligating the Company to issue,
reserve for issuance, deliver or sell shares of its capital stock or debt
securities, or obligating the Company to grant, extend or enter into any such
option, warrant, call or other such right, agreement or commitment.
Section 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The Board of Directors
of the Company has duly approved the Merger and this Agreement in accordance
with Section 1101 of the CGCL and has resolved to recommend the approval of this
Agreement by the Company's shareholders and directed that this Agreement be
submitted to the Company's shareholders for approval; provided such
recommendation may be modified or withdrawn as contemplated by SECTION 8.8 or if
the Board of Directors of the Company determines in good faith, and after
consultation with independent counsel, that such action is necessary to properly
discharge its fiduciary duties. The Company has the requisite corporate power
and authority to enter into this Agreement and, subject to approval of this
Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock, in accordance with the provisions of
the CGCL and the Company's Articles of Incorporation and By-Laws, as amended, to
carry out its obligations hereunder and consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated hereby by the Company have
been duly authorized by all necessary corporate action on the part of the
Company (except for the approval by affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock in accordance with
the provisions of the CGCL and the Company's Articles of Incorporation and
By-Laws). This Agreement has been duly executed by the Company and constitutes a
valid and binding obligation of the Company enforceable in accordance with its
terms except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally. Except as
set forth in SECTION 5.3 of the Company Disclosure Schedule, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (a) conflict with or violate the charter,
bylaws or the equivalent organizational documents of the Company or any of its
Subsidiaries, or (b) result in any breach or constitute a default (with or
without notice or lapse of time, or both) under, or give rise in others to any
rights of termination, cancellation or acceleration under, any agreement,
indenture, contract, loan agreement, license, franchise, permit, order, decree,
concession, lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to the Company or any Company Subsidiary or its or their
respective assets, other than, in the case of clause (b) only, such breaches,
defaults, violations and losses of rights that would not have a Company Material
Adverse Effect and the laws and regulations referred to in the next sentence.
Except as disclosed in SECTION 5.3 of the Company Disclosure Schedule or in
connection or in compliance with the provisions of the HSR Act (which filing has
been made), the Exchange Act, and the corporation, securities or blue sky laws
or regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the consummation by the Company of the Merger or the
other transactions contemplated hereby, except where the failure to make such
filing or registration or obtain such authorization, consent or approval would
not have a Company Material Adverse Effect or prevent or materially delay
consummation of the Merger.
Section 5.4 REPORTS AND FINANCIAL STATEMENTS.
(a) Since April 30, 1995, the Company has filed all reports and other
documents that it was required to file with the Securities and Exchange
Commission (the "COMMISSION"). The Company has furnished Parent with true
and complete copies of its (i) Annual Reports on Form 10-K for the fiscal
years ended April 30, 1996 and April 30, 1997, as filed with the Commission,
(ii) Quarterly Reports on
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Form 10-Q for the quarters ended July 31, 1997, October 31, 1997, and
January 31, 1998 as filed with the Commission, (iii) proxy statements
related to all meetings of its shareholders (whether annual or special) held
since April 30, 1996, and (iv) all reports on Forms 8-K filed with, and
registration statements declared effective by, the Commission since April
30, 1996, except registration statements on Form S-8 relating to employee
benefit plans, which are all the documents (other than preliminary material
and Reports on Form 10-Q not referred to in clause (ii) above) that the
Company was required to file with the Commission from April 30, 1996 to the
date hereof (clauses (i) through (iv) being referred to herein collectively
as the "COMPANY SEC REPORTS"). As of their respective dates, the Company SEC
Reports complied in all material respects with the applicable requirements
of the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates, the Company SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements included or incorporated by reference in
the Company SEC Reports (i) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP") during
the periods presented (except as may be indicated therein or in the notes
thereto or, in the case of the unaudited statements, to normal year-end
audit adjustments), (ii) present fairly, in all material respects, the
consolidated financial position of the Company and the Company Subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flow for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any
other adjustments described therein and the fact that certain information
and notes have been condensed or omitted in accordance with the Exchange Act
and the rules promulgated thereunder, and (iii) are in all material
respects, in accordance with the books of account and records of the
Company.
(c) Neither the Company nor any Company Subsidiary has any liability or
is subject to any loss contingency, other than (i) as reflected or disclosed
in the financial statements or notes thereto included in the Company SEC
Reports, (ii) in the aggregate adequately provided for in the Company's
unaudited balance sheet (including any related notes thereto) as of January
31, 1998 (the "1998 COMPANY BALANCE SHEET"), (iii) incurred in the ordinary
course of business and not required under GAAP to be reflected on the 1998
Company Balance Sheet, (iv) incurred since January 31, 1998 in the ordinary
course of business consistent with past practice, (v) incurred in connection
with this Agreement, (vi) as set forth in SECTIONS 5.4, 5.5, 5.6, 5.7, 5.8,
5.10 and 5.14 of the Company Disclosure Schedule, or (vii) which would not
have a Company Material Adverse Effect.
Section 5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS; LITIGATION. Except as
disclosed in the Company SEC Reports or as disclosed in SECTION 5.5 of the
Company Disclosure Schedule, since April 30, 1997:
(a) there has not been (i) any events which, individually or in the
aggregate, have had or are reasonably likely to have a Company Material
Adverse Effect; (ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of the
Company; or (iii) any material change by the Company in accounting
principles, practices or methods;
(b) there has not been any increase in the compensation payable or that
could become payable by the Company or any Company Subsidiary to executive
officers or any amendment of any of the plans described in SECTION 5.6
(other than increases or amendments in the ordinary course);
(c) there are no civil, criminal or administrative actions, suits,
claims, hearings, investigations or proceedings (i) pending or, to the
knowledge of the executive officers of the Company, threatened against the
Company or any Company Subsidiary or (ii) to the knowledge of the executive
officers of the Company, pending against any current or former director or
executive officer of the Company in
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their capacity as such, in the case of each of (i) and (ii) that,
individually or in the aggregate, would have a Company Material Adverse
Effect;
(d) there are no outstanding orders, judgments, injunctions, awards or
decrees of any Governmental Entity (as defined in SECTION 9.1) against the
Company or any Company Subsidiary, any of its or their properties, assets or
business, or, to the knowledge of the executive officers of the Company, any
of its or their current or former directors or executive officers in their
capacity as such, except as would not have, individually or in the
aggregate, a Company Material Adverse Effect; and
(e) the Company and the Company Subsidiaries have conducted their
business in the ordinary course in all material respects.
Section 5.6 BENEFIT PLANS: EMPLOYEES AND EMPLOYMENT PRACTICES.
(a) SECTION 5.6(A) of the Company Disclosure Schedule sets forth a true
and complete list of each of the following to which the Company or any
Company Subsidiary is a party or by which it is bound or pursuant to which
it may be required to make any payment:
(i) other than those described in SECTION 5.6(B) of the Company
Disclosure Schedule, each retirement, savings, thrift, deferred
compensation, severance, stock ownership, stock purchase, stock option,
performance, bonus, incentive, vacation or holiday pay, hospitalization
or other medical, disability, life or other insurance, or other welfare,
retiree welfare or benefit plan, policy, trust, understanding or
arrangement of any kind, whether written or oral (The "NON-ERISA PLANS");
and
(ii) other than the Non-ERISA Plans and other than those described
in SECTION 5.6(B) of the Company Disclosure Schedule, each employee
collective bargaining agreement and each agreement, commitment,
understanding, plan, policy or arrangement of any kind, whether written
or oral, with or for the benefit of any current or former officer,
director, employee or consultant (including, without limitation, each
employment, compensation, deferred compensation, severance, supplemental
pension, life insurance, termination or consulting agreement or
arrangement and any agreements or arrangements associated with a change
in control) (the "COMPENSATION COMMITMENTS").
True and complete copies of all written Non-ERISA Plans and Compensation
Commitments and of all related insurance and annuity policies and contracts
and other documents with respect to each Non-ERISA Plan and Compensation
Commitment have been delivered to Parent. SECTION 5.6(A) of the Company
Disclosure Schedule contains a true and complete description of all oral
Non-ERISA Plans and Compensation Commitments. Except as set forth in SECTION
5.6(A) of the Company Disclosure Schedule, no payments under any Non-ERISA
Plan or Compensation Commitment will be triggered as a result of the Merger.
(b) (i) SECTION 5.6(B) of the Company Disclosure Schedule sets forth a
true and complete list of each "employee pension benefit plan" (as such
term is defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) covering any employee or
former employee of the Company or any Company Subsidiary (the "PENSION
PLANS") and each "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA) covering any employee or former
employee of the Company or any Company Subsidiary (the "WELFARE PLANS")
(collectively the "PLANS"). Except as disclosed in SECTION 5.6(B) of the
Company Disclosure Schedule: (A) neither the Company nor any Company
Subsidiary has ever maintained any defined benefit Pension Plan, and (B)
none of the Company or any Company Subsidiary, or any other person or
entity that, together with the Company and the Company Subsidiaries. is
treated as a single employer under Section 414 of the Code (an "ERISA
AFFILIATE") has ever been required to contribute to any "multiemployer
plan" (as such term is defined in Section 3(37) of ERISA).
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(ii) The Company has delivered to Parent, with respect to each Plan,
correct and complete copies, where applicable, of (A) all Plan documents
and amendments, trust agreements and insurance and annuity contracts and
policies, (B) the most recent determination letter received from the
Internal Revenue Service, (C) the Annual Reports (Form 5500 Series) and
accompanying schedules, as filed, for the most recently completed three
Plan years, and (D) the current and most recent summary plan description.
(iii) Each Plan which is intended to qualify under Section 401(a) of
the Code has received a favorable determination letter from the Internal
Revenue Service that such Plan is so qualified under the Code or a
request for a determination letter has been submitted to the Internal
Revenue Service; and, to the knowledge of the executive officers of the
Company, no circumstance exists which would cause a Plan which is so
qualified to cease being so qualified.
(c) Except as disclosed in SECTION 5.6(C) of the Company Disclosure
Schedule: (i) each Plan complies, and has been administered to comply, with
all requirements of law and regulations applicable thereto, except as would
not result in a Company Material Adverse Effect, and the Company has
received no notice from any governmental authority questioning or
challenging such compliance and there are no actions, suits or claims (other
than routine claims for benefits) pending or, to the knowledge of the
executive officers of the Company, threatened involving such Plans or the
assets of such Plans, except as would not result in a Company Material
Adverse Effect; (ii) neither the Company nor any Company Subsidiary has any
obligations under any of the Welfare Plans or otherwise to provide health or
death benefits to or in respect of former employees, except as specifically
required by the continuation requirements of Part 6 of Title I of ERISA; and
(iii) neither the Company nor any Company Subsidiary has any liability of
any kind whatsoever, whether direct, indirect, contingent or otherwise, on
account of (A) any violation of the health care requirements of Part 6 of
Title I of ERISA or Section 4980B of the Code, (B) under Section 502(i) or
Section 502(l) of ERISA or Section 4975 of the Code, (C) under Section 302
of ERISA or Section 412 of the Code or (D) under Title IV of ERISA, except
as would not result in a Company Material Adverse Effect.
(d) As of the date of this Agreement, except as disclosed in SECTION
5.6(D) of the Company Disclosure Schedule, there are no controversies,
strikes, work stoppages or disputes pending between the Company or any
Company Subsidiary and any current or former employees except such as would
not result in a Company Material Adverse Effect. To the knowledge of the
executive officers of the Company, no organizational effort by any labor
union or other collective bargaining unit currently is under way with
respect to any employees of the Company and the Company Subsidiaries.
Neither the Company nor any Company Subsidiary is a party to any labor union
contract or collective bargaining agreements with respect to persons
employed by the Company and the Company Subsidiaries. Neither the Company
nor any Company Subsidiary has engaged in any unfair labor practice, and
there is no unfair labor practice complaint pending against the Company or
any Company Subsidiary, in either case that would result in a Company
Material Adverse Effect.
Section 5.7 TAXES.
(a) The following definitions apply to the terms set forth below when
used in this Agreement:
(i) "TAX" (and, with correlative meaning, "TAXES") shall mean: (i)
any federal, state, local or foreign net income, gross income, gross
receipts, windfall profit, severance, property, production, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value-added, transfer, stamp, or
environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority; and (ii) any liability of the Company or any
Company Subsidiary for the payment of amounts with respect to payments of
a type described in clause (i) as a result of being a member or an
affiliated, consolidated, combined or unitary group, or as a result of
any
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obligation of the Company or any Company Subsidiary under any Tax Sharing
Arrangement or Tax indemnity arrangement.
(ii) "TAX RETURN" shall mean any return, report or similar statement
required to be filed with any governmental agency or other governmental
authority with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund,
amended return or declaration of estimated Tax.
(iii) "TAX SHARING ARRANGEMENT" shall mean any written or unwritten
arrangement for the allocation or payment of Tax liabilities or payment
for Tax benefits with respect to a consolidated, combined or unitary Tax
Return which Tax Return includes or has included the Company or any
Company Subsidiary.
(b) Except as set forth in SECTION 5.7 of the Company Disclosure
Schedule, (i) the Company and each Company Subsidiary have filed all Tax
Returns required to be filed and have paid all Taxes shown to be due on such
Tax Returns, except those where the failure to file or pay would not,
individually or in the aggregate, result in a Company Material Adverse
Effect; (ii) all Tax Returns filed by the Company and each Company
Subsidiary are complete and accurate in all material respects; (iii) to the
knowledge of the executive officers of the Company, neither the Company nor
any Company Subsidiary has waived in writing any statute of limitations in
respect of Taxes that is currently in effect; (iv) to the knowledge of the
executive officers of the Company, there is no action, suit, investigation,
audit, claim or assessment pending or proposed or threatened in writing with
respect to Taxes of the Company or any Company Subsidiary; (v) all material
deficiencies successfully asserted or material assessments successfully made
as a result of any examination of the Tax Returns referred to in clause (i)
and that have become due and payable have been paid in full; (vi) there are
no material liens for Taxes upon the assets of the Company or any Company
Subsidiary; (vii) all Taxes which the Company or any Company Subsidiary are
required by law to withhold or to collect for payment have been duly
withheld and collected, and have been paid or accrued, reserved against and
entered on the books of the Company, except where the failure to withhold or
collect for payment would not result in a Company Material Adverse Effect;
and (viii) to the knowledge of the executive officers of the Company,
neither the Company nor any Company Subsidiary has been a member of any
group of corporations filing Tax Returns on a consolidated, combined,
unitary or similar basis other than each such group of which it is currently
a member.
(c) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code (relating to "FIRPTA") and no
stock transfer Taxes, sales Taxes, use Taxes, real estate transfer Taxes, or
other similar Taxes will be imposed on the transactions contemplated by this
Agreement, other than Taxes for which neither the Company, Parent or Sub are
liable.
(d) Since the 1998 Company Balance Sheet date, the Company has not
prepared or filed any Tax Return inconsistent with past practice or, on any
such Tax Return, taken any position, made any election, or adopted any
method that is inconsistent with positions taken, elections made or methods
used in preparing or filing similar Tax Returns in prior periods.
(e) As a result of the transactions contemplated by this Agreement
(including the termination of employment of any employee of the Company or
any Company Subsidiary after the Effective Date), neither the Company nor
any Company Subsidiary will be obligated to make a payment (i) that would be
a "parachute payment" to an individual that is currently a "disqualified
individual" with respect to the Company as those terms are defined in
Section 280G of the Code, without regard to whether such payment is
reasonable compensation for personal services performed or to be performed
in the future or (ii) of compensation that would not be deductible under
Section 162 of the Code.
Section 5.8 ENVIRONMENTAL MATTERS. Except as set forth in SECTION 5.8 of
the Company Disclosure Schedule, and to the knowledge of the executive officers
of the Company: (i) the operations of the
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Company comply and have complied with all Environmental Laws applicable to it
including, without limitation, with respect to the handling and disposal of
Hazardous Material, except as would not have a Company Material Adverse Effect;
(ii) the Company maintains all permits required pursuant to Environmental Laws
applicable to it, except as would not have a Company Material Adverse Effect and
is not party to any judicial or administrative proceeding alleging the violation
of any Environmental Law applicable to it; (iii) none of the Company's
operations or properties is the subject of an investigation by a governmental
authority evaluating whether any remedial action is needed to respond to a
release of Hazardous Material into the environment; (iv) the Company has not
filed any notice under any Environmental Law applicable to it reporting a spill
or release of a Hazardous Material into the environment; and (v) the Company (or
its predecessors in interest) has not arranged for, or transported, disposed,
released or spilled any Hazardous Material at the Company's facilities or at any
other location, except as would not result in a Company Material Adverse Effect.
For the purposes of this SECTION 5.8 "ENVIRONMENTAL LAWS" shall mean any
federal, state, or local law, rule, regulation or other binding order or
determination of any governmental authority, including permits, relating to or
imposing liability or standards of care with respect to pollution, protection of
the environment or occupational safety and health; and "HAZARDOUS MATERIAL"
shall mean any pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste or any constituent of such substances or wastes regulated under
Environmental Laws including, without limitation, petroleum, including any
fraction thereof, radioactive material, asbestos and polychlorinated biphenyls.
Section 5.9 INTELLECTUAL PROPERTY MATTERS. SECTION 5.9 of the Company
Disclosure Schedule contains a list of all trademarks, copyrights, and patents
owned by the Company. Except as set forth in SECTION 5.9 of the Company
Disclosure Schedule, the Company or a Company Subsidiary owns, or is licensed or
otherwise possess legally enforceable rights to use, all trademarks, copyrights,
patents and other intellectual property that are used in the business of the
Company and the Company Subsidiaries as currently conducted, except as would
not, individually or in the aggregate, have a Company Material Adverse Effect.
Section 5.10 MATERIAL CONTRACTS. Except for such failures as set forth in
SECTION 5.10 of the Company Disclosure Schedule or as would not have a Company
Material Adverse Effect, the Company and the Company Subsidiaries have
substantially performed their respective obligations under each lease, contract
or other agreement to which it is a party and under which the consequences of a
default or termination would have a Company Material Adverse Effect (the
"MATERIAL CONTRACTS").
Section 5.11 COMPLIANCE WITH LAWS; PERMITS. Except as set forth in the
Company SEC Reports or SECTION 5.11 of the Company Disclosure Schedule, the
businesses of each of the Company and the Company Subsidiaries are being
conducted in compliance with applicable federal, state, local and foreign laws
(collectively, "LAWS"), except for such violations that, individually or in the
aggregate, would not have a Company Material Adverse Effect. Except as set forth
in SECTION 5.11 of the Company Disclosure Schedule, the Company and the Company
Subsidiaries each has all permits, license, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals (the
"COMPANY LICENSES") necessary to own or lease and operate their respective
properties and conduct its business as presently conducted except those the
absence of which, individually or in the aggregate, would not have a Company
Material Adverse Effect.
Section 5.12 TAKEOVER STATUTES. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation (each a
"TAKEOVER STATUTE") or any applicable anti-takeover provision in the Company's
Articles of Incorporation and By-Laws or any shareholder rights agreement is, or
at the Effective Date will be, applicable to the Company, the Shares, the Merger
or the other transactions contemplated by this Agreement or the Company Holder
Agreement. Assuming the accuracy of Parent's representations and warranties
contained in SECTION 4.5, the Board of Directors of the Company has taken all
action so that Parent will not become an "Interested Party" pursuant to Section
1203 of the CGCL.
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Section 5.13 FAIRNESS OPINION. The Company has received the written
opinion of SBC Warburg Dillon Read, Inc., financial advisors to the Company (the
"COMPANY FINANCIAL ADVISOR"), as of the date of delivery of such opinion, to the
effect that the Per Share Merger Consideration paid to the Holders pursuant to
SECTION 3.2 is fair to the shareholders of the Company from a financial point of
view.
Section 5.14 FINANCIAL ADVISOR. Except as set forth in SECTION 5.14 of the
Company Disclosure Schedule, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. A complete and correct copy of
all agreements referenced in SECTION 5.14 of the Company Disclosure Schedule
have been provided to Parent.
Section 5.15 INDUSTRY CONDITIONS. Except as set forth in SECTION 5.15 of
the Company Disclosure Schedule, as of the date of this Agreement, the executive
officers of the Company have no knowledge of any pending or proposed
consolidation effecting any current customer or supplier of the Company or the
non-availability of any parts or components required by the Company or the
Company Subsidiaries that would be materially adverse to the business,
operations or financial condition of the Company and the Company Subsidiaries
taken as a whole.
Section 5.16 CUSTOMERS. Except as set forth in SECTION 5.16 of the Company
Disclosure Schedule, as of the date of this Agreement no single customer or
group of related customers accounts for more than ten percent of the
consolidated revenues of the Company and the Company Subsidiaries for the most
recent 12 full calendar months.
Section 5.17 COMPANY MATERIAL ADVERSE EFFECT. For purposes of this
Agreement, "COMPANY MATERIAL ADVERSE EFFECT" means any change, effect,
circumstance or event that is materially adverse to the business, operations or
financial condition of the Company and the Company Subsidiaries taken as a
whole, other than changes, effects, circumstances or events: (i) set forth in
SECTION 5.5 of the Company Disclosure Schedule, (ii) affecting the Company's and
the Company Subsidiaries' industry generally or resulting from general industry
trends, including, without limitation, the consolidation of hospitals and other
healthcare providers or affecting the Company's customers, the consolidation of
suppliers of parts and components used in the business of the Company and the
Company's Subsidiaries, the non-availability of parts and components required by
the Company and the Company Subsidiaries, or actions by competitors of the
Company or the Company Subsidiaries, (iii) resulting from general economic
conditions or continuing trends with respect to Company operating losses or
liquidity concerns or (iv) resulting from the transactions contemplated by this
Agreement or the announcement thereof, it being agreed that any change, effect,
circumstance or event shall be presumed, unless there is clear evidence to the
contrary, to have resulted from the transactions contemplated by this Agreement
or the announcement thereof.
Section 5.18 KNOWLEDGE. Any reference herein to "the knowledge of the
executive officers of the Company" or words of similar importance shall mean to
the actual knowledge of the officers of the Company and the employees identified
in Section 5.18 of the Company Disclosure Schedule.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 6.1 ORGANIZATION. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
Complete and correct copies of the Articles of Incorporation and By-Laws of Sub
have been delivered to the Company.
Section 6.2 CAPITALIZATION. The authorized capital stock of Sub consists
of 1,000 shares of common stock, par value $0.01 per share, all of which shares
are validly issued and outstanding, fully paid and nonassessable and are owned
by a wholly owned subsidiary of Parent free and clear of all liens, claims and
encumbrances.
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Section 6.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Sub has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder and consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Sub and the
consummation of the transactions contemplated hereby by Sub have been duly
authorized by all necessary corporate action on the part of Sub, including any
necessary action of Sub's shareholder. This Agreement has been duly executed by
Sub and constitutes a valid and binding obligation of Sub enforceable in
accordance with its terms except as enforcement may be limited to bankruptcy,
insolvency or other laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought. Sub is not subject to or obligated under any
charter or by-law provision which would be breached or violated by its executing
and carrying out this Agreement. Except as referred to herein or in connection,
or in compliance, with the provisions of the HSR Act amended (which filing has
been made), the Exchange Act and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the consummation by Sub of the Merger or the
transactions contemplated by this Agreement, except where the failure to make
such filing or registration or obtain such authorization, consent or approval
would not prevent or materially delay consummation of the Merger or have a
Parent Material Adverse Effect.
Section 6.4 SUB ACTION. The Board of Directors of Sub (at a meeting duly
called and held or by unanimous written consent in lieu of meeting) has by the
requisite vote or consent of directors approved the Merger and Merger Agreement
in accordance with the applicable provisions of Section 1101 of the CGCL.
Section 6.5 INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby. Sub is not a party to any contract or agreement other than this
Agreement.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 CONDUCT OF BUSINESS BY THE COMPANY. Prior to the Effective
Date or earlier termination of this Agreement, except as expressly contemplated
by this Agreement or as set forth in SECTION 7.1 of the Company Disclosure
Schedule, unless Parent shall otherwise agree in writing, which agreement shall
not be unreasonably withheld or delayed (except in the case of SECTIONS 7.1(B),
7.1(C)(I), 7.1(C)(II), 7.1(C)(III), 7.1(C)(IV), 7.1(C)(V), 7.1(C)(VII), 7.1(D),
and 7.1(E), where such agreement is within the sole discretion of Parent):
(a) subject to the limitations expressly contemplated by this Agreement,
the Company shall, and shall cause the Company Subsidiaries to, carry on
their respective operations in the usual and ordinary course consistent with
past practice, and shall use its commercially reasonable efforts, and shall
cause each of the Company Subsidiaries to use its commercially reasonable
efforts, to preserve substantially intact its present business organization,
keep available the services of its present executive officers and key
employees and preserve its present relationships and goodwill with
customers, suppliers, creditors, lessors, employees and others having
business dealings with it to the end that its goodwill and on-going
businesses shall not be materially impaired at the Effective Date;
(b) the Company shall not, nor shall it propose to, except as required
or permitted by this Agreement, (i) sell or pledge or agree to sell or
pledge any capital stock owned by it in any of the Company Subsidiaries,
(ii) amend its Articles of Incorporation or By-Laws, (iii) split, combine or
reclassify its outstanding capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of the capital stock, or declare, set aside
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or pay any dividend or other distribution payable in cash, stock or
property, or (iv) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of its
capital stock (except in connection with any exercise of any existing stock
option pursuant to which the exercise price is paid in shares of the Company
Common Stock);
(c) the Company shall not, nor shall it permit any of the Company
Subsidiaries to, (i) except as required by this Agreement, issue, deliver or
sell or agree to issue, deliver or sell any additional shares of, or stock
appreciation rights or rights of any kind to acquire any shares of, its
capital stock of any class, any Company Voting Debt, or any option, rights
or warrants to acquire, or securities convertible into, shares of capital
stock (except in connection with the exercise of any existing stock option),
(ii) amend in any respect existing agreements evidencing any existing stock
option (including, without limitation, the exercise or strike prices
thereof) or the Stock Option Plan or the Puls Agreement pursuant to which
such options were granted, except as provided in SECTION 3.6 hereof, and
provided that the Company shall have the right to cancel any Outstanding
Options which will expire on their terms prior to July 30, 1998 in exchange
for payment to the holders of such Outstanding Options of an amount which
shall not exceed the amount that would be payable to such holder pursuant to
SECTION 3.6 hereof, (iii) acquire, lease or dispose or agree to acquire,
lease or dispose of any capital assets, or make any other capital
expenditures, with a value, in the aggregate for all such capital assets or
other capital expenditures, in excess of $50,000 (including in such
calculation the proceeds of any sale/leaseback transactions), (iv)(A)
create, incur, assume or permit additional indebtedness for borrowed money
(including obligations in respect of capital leases), other than loans and
advances to and from Company Subsidiaries and periodic drawdowns under the
Company's credit facilities existing as of the date hereof, provided that
the amount available under such facilities as of the date hereof is not
increased, (B) other than in the ordinary course of business consistent with
past practice, assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person, (C) other than in the
ordinary course of business consistent with past practice, encumber or grant
a security interest in any asset, or (D) other than in the ordinary course
of business consistent with past practice, make any loans or advances to any
other person, or enter into any agreement or instrument relating to the
borrowing of money or the extension of credit, (v) acquire or agree to
acquire by merging or consolidating with, or by purchasing an equity
interest in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
(vi) enter into any contracts, agreements or other arrangements with vendors
(A) pursuant to which the Company or any of the Company Subsidiaries would
be obligated to purchase products or services from such vendors having a
value in excess of $100,000 in any year or (B) which are not terminable
within six months without penalty (excluding contracts, agreements or other
arrangements entered into or assumed in the ordinary course of business to
satisfy customer requirements) or (vii) purchase, transfer, lease, sell,
mortgage, pledge, dispose of or encumber any real property, (viii) effect
any improvements or expansions thereof (excluding maintenance and repairs in
the ordinary course of business) or (ix) in each case subject to the
exclusions and exceptions set forth above, adopt, enter into, amend or
terminate any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(d) the Company shall not, nor shall it permit any of the Company
Subsidiaries to, except as required to comply with applicable law, (i)
adopt, enter into, terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any current
or former director, officer or employee (excluding arrangements not
involving capital stock of the Company with new employees in the ordinary
course of business and consistent with past practice), (ii) increase in any
manner the compensation or fringe benefits of any director, executive
officer or employee (provided, that the Company and the Company Subsidiaries
shall be permitted to award normal salary increases to employees (other than
executive officers) of the Company and the Company Subsidiaries in the
ordinary course of business that are consistent with
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past practice (including without limitation in connection with any promotion
of such employee) and that, in the aggregate, do not result in a material
increase in compensation expense to the Company and the Company Subsidiaries
relative to the level in effect prior to such increase), (iii) pay any
benefit not provided under any existing plan or arrangement (excluding
arrangements not involving capital stock of the Company with new employees
in the ordinary course of business and consistent with past practice), (iv)
grant any awards under the Stock Option Plan or, except in the ordinary
course of business consistent with past practice and not involving the
capital stock of the Company, any other bonus, incentive, performance or
other compensation plan or arrangement (including, without limitation, the
grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or the removal of
existing restrictions in any benefit plans or agreements or awards made
thereunder), (v) take any action to find or in any other way secure the
payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or employee benefit plan, other than in the ordinary
course of business consistent with past practice, or (vi) adopt, enter into,
amend or terminate any contract, agreement, commitment or arrangement to do
any of the foregoing; provided, that notwithstanding the provisions of this
clause (d), the Company and the Company Subsidiaries shall be permitted to
settle disputes with employees, hire new employees and to promote employees,
provided that such settlements, hirings and promotions are in the ordinary
course of business consistent with past practice;
(e) the Company shall not, nor shall it permit the Company Subsidiaries
to, make any change in its accounting policies or procedures, including
without limitation its accounting for inventory and its practices in
determining reserves, except as required under generally accepted accounting
principles;
(f) the Company shall not, nor shall it permit the Company Subsidiaries
to, modify, amend or terminate any Material Contract or waive, release or
assign any material rights or claims thereunder, except in the ordinary
course of business or as would not result in a Company Material Adverse
Effect;
(g) the Company shall not, nor shall it permit any Company Subsidiary
to, file any Tax Return or make any Tax election inconsistent with past
practice;
(h) the Company shall not, or shall it permit the Company Subsidiaries,
to settle or compromise any litigation, except for an amount less than the
amount set forth in SECTION 7.1(H) of the Company Disclosure Schedule
$50,000 in the aggregate; and
(i) the Company shall use reasonable efforts to refrain from taking, and
shall not permit any of the Company Subsidiaries to take, any action that
would, or reasonably might be expected to, result in any of the conditions
to the Merger set forth in ARTICLE IX not being satisfied, or (unless such
action is required by applicable law) that would adversely affect the
ability of the Company to obtain any of the regulatory approvals required to
consummate the Merger.
Section 7.2 REPORTS. All reports that the Company files with the
Commission after the date hereof and prior to the Effective Date or the earlier
termination of this Agreement shall, as of their respective dates, comply in all
material respects with the applicable requirements of the Exchange Act, and the
rules and regulations of the Commission thereunder applicable to such reports
and, as of their respective dates, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section 7.3 OBLIGATIONS OF PARENT AND SUB; CONDUCT OF BUSINESS OF
SUB. Each of Parent and Sub shall use reasonable efforts to refrain from taking
any action that would, or reasonably might be expected to, result in any of the
conditions to the Merger set forth in ARTICLE IX not being satisfied, or (unless
such action is required by applicable law) that would adversely affect the
ability of Parent or Sub to obtain any
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of the regulatory approvals required to consummate the Merger) and provided
further that notwithstanding anything to the contrary in this Agreement, neither
Parent nor Sub shall be in any way obligated to take any action in order to
obtain the termination or expiration of the waiting period under the HSR Act,
except as provided in EXHIBIT D. During the period from the date of this
Agreement to the Effective Date, Sub shall not engage in any activities of any
nature except as provided in or contemplated by this Agreement.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 ACCESS AND INFORMATION. Upon reasonable notice, the Company
and the Company Subsidiaries shall afford to Parent and to Parent's accountants,
counsel and other representatives full access during normal business hours (and
at such other times as the parties may mutually agree), and in a manner so as
not to interfere materially with the normal business operations of the Company
and the Company Subsidiaries, throughout the period prior to the Effective Date
to all of their properties, books, contracts, commitments, records and
personnel. During such period, the Company shall furnish promptly to Parent (i)
a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (ii) all
other information concerning the business, properties and personnel of the
Company and the Company Subsidiaries as Parent may reasonably request. Parent
and Sub shall hold, and shall cause its affiliates, employees and agents to
hold, in confidence all such information in accordance with the terms of the
Confidentiality Agreement, dated November 8, 1996, between Parent and Dillon,
Read & Co. (now known as SBC Warburg Dillon Read, Inc.) (on behalf of the
Company), as amended (the "CONFIDENTIALITY AGREEMENT"), and, in the event of
termination of this Agreement for any reason, will promptly comply with the
terms of the Confidentiality Agreement. During the period prior to the Effective
Date, upon Parent's reasonable request sufficiently in advance to allow the
Company to make arrangements therefore, the Company shall make its accountants,
counsel, lenders and other representatives available to Parent and to Parent's
accountants, counsel and other representatives at reasonable times.
Section 8.2 SHAREHOLDERS' MEETING. Subject to its fiduciary duties, as
determined by the Board of Directors of the Company after consultation with and
based upon the advice of independent legal counsel (who may be the Company's
regularly engaged independent legal counsel) or as contemplated by SECTION 8.8
in connection with the receipt by the Company of a Business Combination Proposal
(as defined in SECTION 8.8) that the Board of Directors of the Company
reasonably determines will result in a Superior Proposal (as defined in SECTION
8.8), as promptly as practicable:
(a) the Company shall take all action necessary, in accordance with
applicable law and its Articles of Incorporation, as amended, and By-Laws,
to call a special meeting of the holders of Company Common Stock (the
"COMPANY MEETING") for the purpose of considering and taking action to
authorize this Agreement and the Merger contemplated hereby pursuant to the
CGCL; and
(b) include in the Proxy Statement the recommendation of the Board of
Directors of the Company that holders of Company Common Stock vote in favor
of and approve the Merger and the adoption of this Agreement at the Company
Meeting.
At the Company Meeting, all of the shares of Company Common Stock then owned
by Parent, Sub or any other Parent Subsidiary, or with respect to which Parent,
Sub or any other Parent Subsidiary holds the power to direct the voting, will be
voted in favor of approval of the Merger and adoption of this Agreement.
Section 8.3 PROXY STATEMENT.
(a) As promptly as reasonably practicable after the execution of this
Agreement, the Company shall prepare and file with the Commission
preliminary proxy materials with respect to the actions to
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be taken at the Company Meeting, which, as to those matters relating to
Parent, shall be in form and substance reasonably satisfactory to Parent. As
promptly as reasonably practicable after comments are received from the
Commission with respect to such preliminary proxy materials, the Company
shall use reasonable efforts to respond to the comments of the Commission.
Parent shall provide the Company with such information as may be required to
be included in the proxy statement or as may be reasonably required to
respond to any comment of the Commission. After all the comments received
from the Commission have been cleared by the Commission staff and all
information required to be contained in the proxy statement has been
included therein by the Company, the Company shall file with the Commission
the Proxy Statement and the Company shall use reasonable efforts to have the
Proxy Statement cleared by the Commission as soon thereafter as practicable.
The Company shall cause the Proxy Statement to be mailed to its shareholders
of record as promptly as reasonably practicable after clearance by the
Commission.
(b) Parent and the Company shall make all necessary filings applicable
to it with respect to the Merger under the Exchange Act and the rules and
regulations thereunder and under applicable blue sky or similar securities
laws and shall use its best reasonable efforts to obtain required approvals
and clearances with respect thereto.
Section 8.4 EMPLOYEE MATTERS.
(a) As of and after the Effective Date, Parent shall cause the Surviving
Corporation and the Company Subsidiaries to provide or continue to provide
such plans, programs, agreements or arrangements on behalf of the employees
of the Company and the Company Subsidiaries immediately prior to the
Effective Date ("AFFECTED EMPLOYEES") so as to provide, in the aggregate,
employee benefits which are substantially equivalent or superior (including
cost to the employees) to the benefits provided to such Affected Employees
immediately prior to the Effective Date, and shall credit all past service
of such Affected Employees for all purposes under such plans, programs,
agreements and arrangements to the same extent such service was recognized
immediately prior to the Effective Date. To the extent that any Affected
Employee becomes eligible for participation in employee benefit plans and
programs maintained by Parent (the "PARENT BENEFIT PLANS"), such Affected
Employee's years of service with the Company and the Company Subsidiaries
prior to the Effective Date shall be recognized for purposes of eligibility
and vesting (including waiting periods and pre-existing conditions), and,
with respect to vacation and severance plans, for purposes of benefit
accrual and benefit determination.
(b) Without limiting the foregoing, Parent shall cause the Surviving
Corporation and its subsidiaries to provide or continue to provide severance
benefits equal or superior to the severance benefits described in SECTION
5.6(A) of the Company Disclosure Schedule, and shall cause the Surviving
Corporation and its subsidiaries to honor all severance obligations to the
Affected Employees in accordance with their terms.
(c) As soon as practicable after the date hereof, but in no event later
than 10 days from the date hereof, the Company (after consultation with and
approval by Parent) shall take action (i) to amend the Company's Employee
Stock Purchase Plan to provide that a participant in such plan may not
increase his or her compensation contribution percentages after the date of
such amendment and (ii) to provide that such Employee Stock Purchase Plan
shall be terminated as of the Effective Date.
(d) After the date of this Agreement and prior to the Effective Date,
the Company and the Company Subsidiaries, after consultation with, and upon
the consent of, Parent (which consent shall not be unreasonably withheld),
shall have the right to enter into agreements with certain of its employees
to pay retention bonuses after consultation with Parent, and upon such terms
and conditions as the Company may reasonably determine are necessary to
retain the services of such employees through, and in some cases, beyond,
the Effective Date, provided that the amount of such bonuses shall not
exceed $250,000 in the aggregate.
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(e) Prior to the Effective Date, (i) Parent shall contact employees of
the Company and the Company Subsidiaries respecting employment or
termination of employment after the Effective Date only with the prior
consent of the Company which consent shall not be unreasonably withheld, and
Parent shall consult with the Company as to the terms and conditions thereof
and (ii) Parent shall cooperate with, and shall take such actions as the
Company may reasonably request, with respect to the transition of the
employees of the Company and the Company Subsidiaries, with a view to
preserving the relationship and goodwill of the Company and the Company
Subsidiaries with their employees.
(f) No provision of this SECTION 8.4 shall create any third-party
beneficiary rights in any employee or former employee (including any
beneficiary or dependent thereof) of Parent, the Company, any Company
Subsidiary, or any of their affiliates in respect of continued employment
(or resumed employment) for any specified period of any nature or kind
whatsoever.
(g) In the event this Agreement is terminated prior to the Effective
Date, without the prior written consent of the Company, neither the Medical
Systems division of Parent nor Sub shall for a period of one year after the
date on which this Agreement is terminated, directly or indirectly solicit
for employment, any person or persons employed by the Company or any Company
Subsidiary at any time prior to the time this Agreement is terminated. The
foregoing restriction on solicitation of employment shall not be deemed to
apply to unsolicited inquiries concerning possible employment which are
received by Parent, Sub or any Parent Subsidiary from or on behalf of such
person, nor shall it apply to general solicitations of employment not
specifically directed toward any such employees of the Company or any
Company Subsidiary.
Section 8.5 INDEMNIFICATION.
(a) From and after the Effective Date, to the fullest extent permitted
under the CGCL, Parent shall indemnify, defend and hold harmless each
current and former officer, director or employee of the Company or any
Company Subsidiary (together with their respective successors, assigns,
heirs, executors, administrators and representatives, the "INDEMNIFIED
PARTIES") against all investigations, actions, suits, proceedings,
judgments, costs, fines, amounts paid in settlement, losses, expenses
(including, without limitation, reasonable attorneys' fees and ancillary
related costs), claims, damages or liabilities, whether civil, criminal,
administrative or investigative, arising in whole or in part out of, or
based in whole or in part on, any matter existing or occurring at or prior
to the Effective Date or out of the transactions contemplated by this
Agreement. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Date), (i) any
counsel retained by the Indemnified Parties for any period after the
Effective Date shall be reasonably satisfactory to Parent, (ii) after the
Effective Date, Parent shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received, and (iii) Parent
shall, and shall cause the Surviving Corporation to, cooperate in the
defense of any such matter; provided, however, that Parent shall not be
liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld or delayed). The Indemnified
Parties as a group may retain only one law firm to represent them with
respect to any single action unless there is, under applicable standards of
professional conduct, a conflict between the positions of any two or more
Indemnified Parties. The indemnity agreements of Parent in this SECTION
8.5(A) shall extend, on the same terms to, and shall inure to the benefit of
and shall be enforceable by, each person or entity who controls, or in the
past controlled, any present or former director, officer or employee of the
Company or any of the Company Subsidiaries.
(b) Parent agrees that all rights to indemnification existing in favor
of the current or former directors, officers or employees of the Company or
any Company Subsidiary under the Company's Articles of Incorporation, as
amended, and By-Laws as in existence on the date hereof arising in whole or
in part out of, or based in whole or in part on, any matter existing or
occurring at or prior to
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the Effective Date, shall survive the Merger and shall continue in full
force and effect in respect of claims made during a period of ten years from
the Effective Date, and Parent shall guaranty the obligations of the
Surviving Corporation in respect thereof.
(c) The Surviving Corporation shall honor and fulfill in all respects
the obligations of the Company pursuant to the indemnification agreements
with the Company's directors and executive officers existing at the date
hereof and Parent shall guaranty the obligations of the Surviving
Corporation in respect thereto. True and correct copies of such
indemnification agreements have been furnished to Parent.
(d) This SECTION 8.5 is intended for the benefit of, and shall be
enforceable by, the persons referenced herein and their respective heirs
and/or personal representatives, and shall be binding upon Parent and its
successors and assigns.
Section 8.6 ANTITRUST MATTERS. The Company and Parent have filed
notifications under the HSR Act in connection with the Merger and the
transactions contemplated hereby. The Company, Parent and Sub shall use their
reasonable efforts to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters relating to the transactions
contemplated by this Agreement.
Section 8.7 REASONABLE EFFORTS: NOTIFICATION.
(a) Subject to the terms and conditions of this Agreement, including
SECTION 8.8 each of the parties hereto agrees to cooperate with each other
and use reasonable efforts to take, or cause to be taken, all actions and to
do, or cause to be done, in each case consistent with the fiduciary duties
of their respective Boards of Directors, all things necessary, proper or
advisable (i) under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement as soon as
reasonably practicable, including to obtain all necessary waivers, consents
and approvals, to effect all necessary registrations and filings (including,
but not limited to, filings with all applicable Governmental Entities) and
(ii) to lift any injunction or other legal bar to the Merger as soon as
reasonably practicable (and, in such case, to proceed with the Merger as
expeditiously as possible); provided, however, that notwithstanding anything
to the contrary in this Agreement, neither Parent nor Sub shall be in any
way obligated to take any action in order to obtain the termination of the
waiting period under the HSR Act, except as provided in EXHIBIT D.
(b) Parent shall give prompt notice to the Company, and the Company
shall give prompt notice to Parent, of: (i) the occurrence or non-occurrence
of any event of which it has knowledge, the occurrence or non-occurrence of
which would cause (A) any representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect, (B) any of its
covenants, conditions or agreements contained in this Agreement not to be
complied with or satisfied or (C) a need to supplement the Proxy Statement;
and (ii) any failure of Parent or the Company, as the case may be, to comply
with or satisfy any of its covenants, conditions or agreements to be
complied with or satisfied by it hereunder; provided, that the delivery of
any notice pursuant to this SECTION 8.7 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 8.8 NO SOLICITATION.
(a) Prior to the Effective Date or the earlier termination of this
Agreement pursuant to SECTION 10.1 the Company shall not, directly or
indirectly, take (nor shall the Company authorize or permit any Company
Subsidiary or its or their officers, directors, employees, representatives,
investment bankers, financial advisors, attorneys, accountants or other
agents or affiliates, to take) any action to (i) encourage, solicit or
initiate the submission of any Business Combination Proposal (as defined
below), (ii) enter into any agreement with respect to any Business
Combination Proposal or (iii) participate in any way in discussions or
negotiations with, or furnish any non-public written information to, any
person in connection with, or take any other action to encourage the making
of
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any proposal that constitutes, or may reasonably be expected to lead to, any
Business Combination Proposal; provided, that the Company may (i)
participate in discussions or negotiations with or furnish information to
any persons or group (other than Parent or an affiliate of Parent) (a "THIRD
PARTY") that makes an unsolicited Business Combination Proposal that the
Board of Directors of the Company determines (after consultation with its
financial advisors) may reasonably be expected to result in a Superior
Proposal (as defined below), and enter into any confidentiality agreement or
standstill agreement with such Third Party in connection with such a
Business Combination Proposal (provided, that any such information so
furnished or any such confidentiality or standstill agreements so entered
into shall, at the time such information is furnished or such agreement is
entered into, be promptly delivered to Parent), (ii) comply with Rule 14e-2
promulgated under the Exchange Act with regard to any Business Combination
Proposal (assuming that such Business Combination Proposal includes a tender
offer requiring the Company's response pursuant to such Rule), (iii) fail to
make or withdraw or modify its recommendation referred to in SECTION 8.2 if
there exists a Business Combination Proposal that is a Superior Proposal or
if the Board of Directors of the Company determines, in good faith and after
consultation with independent counsel, that such action is required to
discharge properly its fiduciary duties, or (iv) after terminating this
Agreement in accordance with Section 10.1(e) enter into an agreement with
respect to or recommend to its shareholders a Business Combination Proposal
that is a Superior Proposal. Any actions permitted under, and taken in
compliance with this SECTION 8.8, shall not be deemed a breach of any other
covenant or agreement of the Company contained in this Agreement.
(b) Notwithstanding the foregoing, the Company may not enter into an
agreement with respect to or recommend to its shareholders a Business
Combination Proposal that is a Superior Proposal or fail to make or withdraw
or modify its recommendation referred to in SECTION 8.2 if there exists a
Business Combination Proposal that is a Superior Proposal unless (i) two
business days shall have elapsed after delivery to Parent of a written
notice informing Parent of the terms and conditions of the Business
Combination Proposal, and (ii) Parent does not, within such two business day
period, make an offer which the Board of Directors of the Company determines
in good faith (based on the advice of its financial adviser) to be as
favorable to the Company's shareholders as such Business Combination
Proposal.
(c) For purposes of this Agreement, "BUSINESS COMBINATION PROPOSAL"
shall mean, with respect to the Company, the commencement of any tender or
exchange offer, any bona fide, written proposal for a merger, consolidation
or other Business Combination involving the shareholders of the Company, the
Company or any Company Subsidiary or any public announcement of a proposal,
plan or intention to do any of the foregoing. "BUSINESS COMBINATION" means
any transaction which contemplates (i) the acquisition of more than 35% of
the assets of the Company and the Company Subsidiaries taken as a whole or
(ii) any other agreement that contemplates the acquisition of beneficial
ownership of more than 35% of the outstanding shares of the Company's Common
Stock. "SUPERIOR PROPOSAL" shall mean, with respect to the Company, any
Business Combination Proposal, for which any required financing is supported
by reasonable commitments, that the Board of Directors of the Company in
good faith determines (after consultation with its financial advisors) will
be more favorable to its shareholders than the Merger.
(d) In addition to the obligations of the Company set forth in SECTION
8.8(A) and SECTION 8.8(B), the Company shall promptly advise Parent of any
request for non-public written information or of any Business Combination
Proposal, or any inquiry with respect to or which appears to be intended to
or could reasonably be expected to lead to any Business Combination
Proposal, the material terms and conditions of such request, Business
Combination Proposal or inquiry, and in the case of a Business Combination
Proposal that involves consideration other than all cash, the identity of
the party making such Business Combination Proposal. The Company shall keep
Parent fully informed of the status and details of any such request,
Business Combination Proposal or inquiry.
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(e) During the period from the date of this Agreement through the
Effective Date, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement in connection with
a potential business combination to which it or any of its Subsidiaries is a
party. During such period, the Company shall use commercially reasonable
efforts to enforce, to the fullest extent permitted under applicable law,
the provisions of any such agreements if and to the extent the executive
officers of the Company have knowledge of a breach of the terms thereof,
including, but not limited to, by obtaining injunctions to prevent any
breaches of such agreements and to enforce specifically the terms and
provisions thereof in any court of the United States of America or of any
state having jurisdiction.
Section 8.9 BONUS PAYMENTS. Immediately after the Effective Date and in no
event later than the first payment to a Holder pursuant to SECTION 3.2 the
Parent shall cause the Surviving Corporation to pay, on behalf of the Company,
(i) to Michael Puls, an amount equal to the Bonus (as defined in Paragraph 1 of
the Bonus Agreement, dated December 20, 1996 by and between the Company and
Michael Puls and amended by Paragraph 2 of the Amendment to Bonus Agreement,
dated April 2, 1998, and as further amended by a letter agreement dated May 15,
1998, each attached hereto as EXHIBIT E) and (ii) to Thomas Hoefert, an amount
equal to the Bonus (as defined in Paragraph 4 of the Bonus Agreement, dated
September 29, 1997 by and between the Company and Thomas Hoefert, attached
hereto as EXHIBIT E). Together, the amounts paid to Michael Puls and Thomas
Hoefert pursuant to this SECTION 8.9 shall be referred to as the "EXECUTIVE
BONUS PAYMENTS."
Section 8.10 SIDE AGREEMENT. Simultaneously with the execution of this
Agreement, the parties hereto shall have executed and delivered to one another,
the Side Agreement, dated as of the date hereof, a copy of which is attached
hereto as EXHIBIT F.
Section 8.11 PREFERRED STOCK DESIGNATION. As soon as practicable after the
date hereof, but in no event later than five (5) business days after the date
the Preferred Stock Designation, attached hereto as EXHIBIT G, has been approved
by the California Secretary of State, the Company shall authorize and issue
preferred shares in form and substance substantially similar to the terms of the
Preferred Stock Designation, and the Parent or its designee shall purchase such
shares for $2,800,000. The Company shall grant customary demand registration
rights and "piggy back" rights to Parent or its designee upon the reasonable
request of Parent it being agreed that (i) fees and costs associated with
granting such rights shall be borne by Parent; and (ii) such rights will be set
forth in a registration rights agreement that the Company and Parent or its
designee will negotiate in good faith and enter into as soon as practicable
after the date hereof.
ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions, any one or more of which may be waived (as permitted by law) in a
writing executed by Parent and the Company subject to and in accordance with
SECTION 10.4 hereof:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote of the holders of the Company Common Stock.
(b) The waiting period under the HSR Act shall have expired or been
terminated; and no court or governmental authority or instrumentality,
domestic or foreign of competent jurisdiction (each a "GOVERNMENTAL ENTITY")
shall have enacted, issued, promulgated, enforced or entered any law,
statute, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the Merger
(collectively, an "ORDER").
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Section 9.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following additional
conditions, unless waived in writing by the Company in accordance with SECTION
10.4 hereof:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior
to the Effective Date; and the Company shall have received a certificate of
Parent and Sub executed by a Vice President of Parent and Sub, dated the
Closing Date, to that effect.
(b) Each of the representations and warranties of Parent and Sub
contained in this Agreement (i) that is qualified by materiality or Parent
Material Adverse Effect shall be true and correct when made and at and as of
the Effective Date and (ii) that is not so qualified shall be true and
correct when made and at and as of the Effective Date except where the
failure of any such representations or warranties to be so true and correct,
individually or in the aggregate with other such failures, would not have a
Parent Material Adverse Effect (except in the case of each of (i) and (ii)
to the extent they expressly relate to the date of this Agreement or any
other particular date, in which case, as of such date), and the Company
shall have received a certificate of Parent and Sub executed by a Vice
President of Parent and Sub, dated the Closing Date, to that effect.
Section 9.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the following additional
conditions, unless waived in writing by Parent in accordance with SECTION 10.4
hereof:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Effective Date; and Parent and Sub shall have received a certificate
of the Company executed by the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Closing Date, to that effect.
(b) Each of the representations and warranties of the Company contained
in this Agreement (i) that is qualified by materiality or Company Material
Adverse Effect shall be true and correct when made and at and as of the
Effective Date and (ii) that is not so qualified shall be true and correct
when made and at and as of the Effective Date except where the failure of
any such representations or warranties to be so true and correct,
individually or in the aggregate with other such failures, would not have a
Company Material Adverse Effect, (except in the case and each of (i) and
(ii) to the extent they expressly relate to the date of this Agreement or
any other particular date, in which case, as of such date), and Parent and
Sub shall have received a certificate of the Company executed by the Chief
Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date, to that effect.
(c) Parent shall have received opinions of counsel to the Company, dated
the Closing Date, substantially in form and substance set forth in EXHIBIT
H.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 TERMINATION. This Agreement may be terminated, and the Merger
abandoned, at any time prior to the Effective Date, whether before or after
approval of the matters presented in connection with the Merger by the
shareholders of the Company or the shareholder of Sub:
(a) by mutual written consent of the Company, duly authorized by its
Board of Directors and Parent, duly authorized by any Vice President;
(b) by Parent, by written notice to the Company, if (i) the Company
shall have failed to comply in any material respects with any of its
covenants or agreements contained in this Agreement required
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to be complied with prior to the date of such termination, provided that
Parent is not then in material breach of any representation, warranty,
covenant or other agreement contained in this Agreement; provided further
that if such failure is curable by the Company prior to the Termination Date
(as defined below) through the exercise of its reasonable efforts and for so
long as the Company continues to exercise such reasonable efforts, Parent
may not terminate this Agreement under this SECTION 10.1(B)(I), (ii) the
shareholders of the Company shall not approve the Merger at the Company
Meeting or any adjournment thereof or if a Company Meeting has not otherwise
been called prior to the Termination Date; or (iii) there has been (A) a
material breach at the time when made by the Company of any representation
or warranty that is not qualified as to materiality or (B) a breach at the
time when made by the Company of any representation or warranty that is
qualified as to materiality, provided that Parent is not then in material
breach of any representation, warranty, covenant or other agreement
contained in this Agreement; provided further that if such breach is curable
by the Company prior to the Termination Date through the exercise of its
reasonable efforts and for so long as the Company continues to exercise such
reasonable efforts, Parent may not terminate this Agreement under this
SECTION 10.1(B)(III);
(c) by the Company, by written notice to Parent, (i) if Parent or Sub
shall have failed to comply in any material respect with any of its
respective covenants or agreements contained in this Agreement required to
be complied with prior to the date of such termination, provided that the
Company is not then in material breach of any representation, warranty,
covenant or other agreement contained in this Agreement; provided further
that if such failure is curable by Parent prior to the Termination Date
through the exercise of its reasonable efforts and for so long as Parent
continues to exercise such reasonable efforts, the Company may not terminate
this Agreement under this SECTION 10.1(2)(I), (ii) the shareholders of the
Company shall not approve the Merger at the Company Meeting or any
adjournment thereof or if a Company Meeting has not otherwise been called
prior to the Termination Date or (iii) there has been (A) a material breach
at the time when made by Parent or Sub of any representation or warranty
that is not qualified as to materiality or (B) a breach at the time when
made by Parent or Sub of any representation or warranty that is qualified as
to materiality; provided that the Company is not then in material breach of
any representation, warranty, covenant or other agreement contained in this
Agreement: provided further that if such failure is curable by Parent prior
to the Termination Date through the exercise of its reasonable efforts and
for so long as Parent continues to exercise such reasonable efforts, the
Company may not terminate this Agreement under this SECTION 10.1(C)(III);
(d) by either Parent or the Company, by written notice from the
terminating party to the other parties, if (i) the Merger has not been
effected on or prior to the close of business on, September 30, 1998 (the
"TERMINATION DATE"); provided, that (A) the right to terminate this
Agreement pursuant to this clause (d) shall not be available to any party
whose willful and material failure to fulfill any obligation of this
Agreement has been the cause of; or resulted in, the failure of the Merger
to have occurred on or prior to such date and (B) if Parent has given notice
to the Company, or the Company has given notice to Parent, pursuant to
SECTIONS 8.7(B)(I)(A) or 8.7(B)(I)(B) with respect to any inaccuracy or
failure on the part of the other, after September 20, 1998, the Termination
Date shall automatically be extended by the number of days necessary to
provide the party so notified with 10 days in which to effect a cure as
permitted in SECTIONS 10.1(B)(I); 10.1(B)(III), SECTION 10.1(C)(I) and
10.1(C)(III) or (ii) any court or other Governmental Entity having
jurisdiction over a party hereto shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable, provided the terminating party shall have complied with its
obligations under SECTION 8.7; or (iii) any order or directive that does not
directly enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement, but that would, if Parent or the Company
were to comply with such order or directive as a condition to consummating
the transactions contemplated hereby, have a material adverse effect on the
business,
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operations or financial condition of the Surviving Corporation and such
order or directive has become final and nonappealable, provided the
terminating party shall have used all reasonable efforts to remove such
order or directive;
(e) by the Company by written notice to Parent if the Board of Directors
of the Company reasonably determines that a Business Combination Proposal is
a Superior Proposal (and the Company has complied with its obligations under
SECTION 8.8(B));
(f) by Parent, by written notice to the Company, if (i) the Board of
Directors of the Company shall have failed to recommend the Merger to
Company's shareholders, or shall have modified in a manner adverse to Parent
or withdrawn its recommendation of the Merger to the Company's shareholders
as being advisable and fair to and in the best interests of the Company and
its shareholders, or shall have modified in a manner adverse to Parent or
withdrawn its approval of this Agreement or (ii) the Board of Directors of
the Company shall have recommended to the shareholders of the Company any
Business Combination Proposal or shall have resolved to do so; provided that
any disclosure that the Board of Directors of the Company is compelled to
make of the receipt of Business Combination Proposal in order to comply with
its fiduciary duties or Rule 14d-9 or 14e-2 shall not in and of itself
constitute the modification or rescission of the Board's recommendation;
provided, further, that such disclosure states that no action will be taken
by the Board with respect to the withdrawal of its recommendation of the
transactions contemplated hereby or the approval or recommendation of any
Business Combination Proposal except in accordance with SECTION 8.8.
The right of Parent or the Company to terminate this Agreement pursuant to
this SECTION 10.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of such party, whether prior to or
after the execution of this Agreement.
Section 10.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement by either Parent or the Company as provided in SECTION 10.1, this
Agreement shall become void without any liability hereunder on the part of the
Company, Parent, Sub or their respective directors or officers, except for the
next to last sentence of SECTION 8.1, SECTION 8.4(H), this SECTION 10.2, SECTION
11.3 and 11.8, which shall survive any such termination, unless such termination
results from the willful and material breach by a party of any of its covenants
or other agreements set forth in this Agreement or the material breach with
fraudulent purpose at the time made by a party of any of its representations and
warranties, in which event the terminating party shall retain its rights and
remedies against such other party in respect of such other party's breach.
Section 10.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors
(or committee thereof) in the case of the Company and Sub and by any Vice
President in the case of Parent, at any time before or after approval hereof by
the shareholders of the Company, but, after such approval, no amendment shall be
made that under applicable law requires further approval of such shareholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 10.4 WAIVER. At any time prior to the Effective Date, the parties
hereto, by or pursuant to action authorized by their respective Boards of
Directors (or committee thereof) in the case of the Company and Sub and by any
Vice President in the case of Parent, may, as permitted by law, (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of any other party contained herein or in any documents delivered
pursuant hereto by any other party and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations and warranties set forth in this Agreement
shall terminate at the earlier of (x) the Effective Date and (y) except as
provided in SECTION 10.2 hereof, termination of this Agreement in accordance
with ARTICLE X hereof. All covenants and agreements set forth in this Agreement
shall survive in accordance with their terms.
Section 11.2 NOTICES. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by facsimile transmission
or by delivery service (with confirmation of receipt obtained), or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Company:
InnoServ Technologies, Inc.
320 Westway, Suite 520
Arlington, Texas 76018
Telecopy No.: 817-472-2926
Attn: Michael Puls
With a copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
Telecopy No.: 214-698-3400
Attn: Stephen C. Johnson
If to Parent or Sub:
General Electric Company
c/o GE Medical Systems
3000 North Grandview Boulevard
Waukesha, Wisconsin 53188
Telecopy No.: 414-544-3573
Attn: General Counsel
or to such other address as any party may have furnished to the other parties in
writing in accordance with this SECTION 11.2.
Section 11.3 EXPENSES.
(a) If the Merger shall not be consummated for any reason other than as
a result of this Agreement having been terminated pursuant to Sections
10.1(b), 10.1(c)(ii), 10.1(e) or 10.1(f), Parent hereby agrees to pay to the
Company the lesser of (A) the Company's legal fees and expenses associated
with (1) any such filings and compliance with the HSR Act, and (2) the
preparation and review of the letter of intent associated with this
Agreement, or (B) $75,000.
(b) Except as otherwise provided in this SECTION 11.3, whether or not
the Merger shall be consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, the fees and disbursements of counsel,
financial advisors, accountants, actuaries and consultants, shall be paid by
the party incurring such costs and expenses.
(c) Notwithstanding any provision in this Agreement to the contrary,
provided that Parent or Sub is not then in material breach of its
obligations under this Agreement, if this Agreement shall
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have been terminated pursuant to SECTIONS 10.1(B), 10.1(C)(II), 10.1(E) or
10.(F), the Company shall within 90 days of such termination pay to Parent
an amount in cash equal to $550,000.
Section 11.4 PUBLICITY. The initial press release concerning this
Agreement and the transactions contemplated hereby shall be a press release from
the Company (as agreed to by the Company and Parent) and thereafter, except as
may be required by law or by obligations pursuant to any listing agreement with
or rules of any national securities exchange or quotation service, so long as
this Agreement is in effect, Parent, Sub and the Company agree to consult with
each other in issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this Agreement, and none of
them shall issue any press release or make any public statement prior to such
consultation. The commencement of litigation relating to this Agreement or the
transactions contemplated hereby or any proceedings in connection therewith
shall not be deemed a violation of this SECTION 11.4.
Section 11.5 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.6. OBLIGATIONS OF PARENT AND OF THE COMPANY. Whenever this
Agreement requires Sub or a Parent Subsidiary to take any action, such
requirement shall be deemed to constitute an undertaking on the part of Parent
to cause Sub or such Parent Subsidiary to take such action. Whenever this
Agreement requires a Company Subsidiary to take any action, such requirement
shall be deemed to constitute an undertaking on the part of the Company to cause
such Company Subsidiary to take such action and, after the Effective Date, on
the part of the Surviving Corporation to cause such Company Subsidiary to take
such action.
Section 11.7. SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Person or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
Section 11.8 MISCELLANEOUS. This Agreement (together with the exhibits,
the Company Disclosure Schedule and the Parent Disclosure Schedule referred to
herein) and the Confidentiality Agreement (i) constitute the entire agreement
and supersede all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof, (ii) except as provided in SECTION 8.5. is not intended to confer upon
any other person any rights or remedies hereunder and shall be binding upon and
inure to the benefit solely of each party hereto, and their respective
successors and assigns, (iii) shall not be assigned by operation of law or
otherwise, except that Sub shall have the right to assign to any direct wholly
owned subsidiary of Parent incorporated under the laws of California any and all
rights and obligations of Sub under this Agreement and Parent guarantees the
full and punctual performance of all of the obligations hereunder of Sub and any
such assignees; (iv) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of New York (except to the
extent the laws of the State of California may mandatorily apply). The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of New
York and the Federal courts of the United States of America located in the
Southern District, State of New York, solely in respect of the interpretation
and enforcement of the provisions of this Agreement and of the documents
referred to in this Agreement, and in respect of the transactions contemplated
hereby, and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or any of such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this
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Agreement or any such document may not be enforced in or by such courts, and the
parties hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a New York State or Federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in SECTION 11.2 or in such other manner as may
be permitted by law shall be valid and sufficient service thereof. EACH PARTY
ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH PARTY UNDERSTANDS AND
HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (D) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
11.8. This Agreement may be executed in any number of counterparts which
together shall constitute a single agreement.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
<TABLE>
<S> <C>
GENERAL ELECTRIC COMPANY
ATTEST:
By: /s/Robert A. Klein, Jr. By: /s/J. Keith Morgan
Name: Robert A. Klein, Jr. Name: J. Keith Morgan
Title: Assistant Secretary Title: Vice President
DIAMOND MERGER SUB, INC.
ATTEST:
By: /s/Robert A. Klein, Jr. By: /s/J. Keith Morgan
Name: Robert A. Klein, Jr. Name: J. Keith Morgan
Title: Secretary Title: President
INNOSERV TECHNOLOGIES, INC.
ATTEST:
By: /s/Deborah Brock By: /s/Michael G. Puls
Name:Deborah Brock Name: Michael G. Puls
Title: Legal Assistant Title: President and Chief Executive Officer
</TABLE>
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EXHIBIT A
A-I-38
<PAGE>
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of May ___, 1998, by and among General
Electric Company, a New York corporation acting through its GE Medical
Systems division ("Parent"), on the one hand, and the persons set forth in
the signature page hereto in their capacities as shareholders of InnoServ
Technologies, Inc., a California corporation (the "Company") (collectively,
the "Shareholders" and individually, a "Shareholder"), on the other hand.
WHEREAS, concurrently herewith, Parent, a subsidiary of a subsidiary of
Parent and the Company are entering into an Agreement and Plan of Merger (the
"Merger Agreement"; capitalized terms used without definition herein having
the meanings ascribed thereto in the Merger Agreement);
WHEREAS, each Shareholder has sole, or together with such Shareholder's
spouse as necessary, has complete voting and dispositive power and/or full
voting power as to the aggregate number of shares of Common Stock, par value
$.01 per share, of the Company (the "Company Common Stock") set opposite such
Shareholder's name on SCHEDULE I attached hereto, whether as certificated
shares in the name of such Shareholder or held in brokerage accounts in the
name of such Shareholder; such shares of Company Common Stock, as such shares
may be adjusted by any stock dividend, stock split, recapitalization,
combination or exchange of shares, merger, consolidation, reorganization or
other change or transaction of or by the Company, being referred to herein as
the "Shares";
WHEREAS, approval of the Merger Agreement by the Company's shareholders
is a condition to the consummation of the Merger;
WHEREAS, as a condition to its entering into the Merger Agreement,
Parent has required that the Shareholders agree, and the Shareholders have
agreed, to enter into this Agreement;
WHEREAS, the Shareholders have been informed that the Board of Directors
of the Company has approved the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
Section 1. AGREEMENT TO VOTE, RESTRICTIONS ON DISPOSITIONS, ETC.
During the term of the Agreement:
a. Each of the Shareholders hereby agrees to attend the Company
Meeting, in person or by proxy, and to vote (or cause to be voted) all
Shares, and any other voting securities of the Company, whether issued
heretofore or hereafter, that such person owns or has the right to vote,
for approval and adoption
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of the Merger Agreement and the Merger, such agreement to vote to apply
also to any adjournment or adjournments of the Company Meeting. Each
Shareholder agrees not to grant any proxies or enter into any voting
agreement or arrangement inconsistent with this Agreement.
b. Each of the Shareholders hereby agrees to vote (or cause to be
voted) all Shares, and any other voting securities of the Company,
whether issued heretofore or hereafter, that such person owns or has the
right to vote, against (i) any merger (other than the Merger),
consolidation, combination, sale of assets, reorganization,
recapitalization, dissolution, liquidation or other business combination
or similar transaction involving the Company or its Subsidiaries,
securities or assets (including any Business Combination Proposal) which
is not approved in writing by Parent or (ii) any amendment of the
Company's articles of incorporation or by-laws or other proposal
involving the Company or any Subsidiary, which amendment or proposal
would in any manner impede, frustrate, prevent or nullify the Merger,
the Merger Agreement or any of the transactions contemplated by the
Merger Agreement or which could result in any of the conditions to the
Company's obligations under the Merger Agreement not being fulfilled.
c. Each of the Shareholders hereby agrees that, without the prior
written consent of Parent, such Shareholder shall not, directly or
indirectly, sell, offer to sell, grant any option for the sale of or
otherwise, pledge, transfer, tender or dispose of, or enter into any
agreement to sell, pledge (other than existing margin call pledge
agreements with respect to Shares held in brokerage accounts in the name
of a Shareholder), transfer, tender or dispose of, any Shares and any
other voting securities of the Company, issued heretofore or hereinafter
that such person owns or has the right to vote; PROVIDED, HOWEVER, that
Parent shall consent to any such sale, pledge, transfer or disposition
of any such Shares or other voting securities by and between
Shareholders.
d. Each of the Shareholders, solely in his capacity as a
shareholder, hereby agrees not to directly or indirectly take (nor shall
such Shareholder authorize or permit any representative, investment
banker, financial advisor, attorney, accountant or other agent of such
Shareholder to take) any action to (i) encourage, solicit or initiate
the submission of any Business Combination Proposal or (ii) participate
in any way in discussions or negotiations with, or furnish any
non-public written information to, any person in connection with, or
take any other action to encourage the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Business
Combination Proposal; provided, that with respect to Shareholders who
serve as officers or directors of the Company, such Shareholders acting
solely in their capacity as officers or directors may (i) participate in
discussions or negotiations with or furnish information to any Third
Party that makes an unsolicited Business Combination Proposal that the
Board of Directors of the Company determines (after consultation with
its financial advisors) may reasonably be expected to result in a
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Superior Proposal, and permit the Company to enter into any
confidentiality agreement or standstill agreement with such Third Party
in connection with such a Business Combination Proposal, (ii) take all
steps necessary to cause the Company to comply with Rule 14e-2
promulgated under the Exchange Act with regard to any Business
Combination Proposal (assuming that such Business Combination Proposal
includes a tender offer requiring the Company's response pursuant to
such Rule), (iii) take the steps necessary as directors to fail to make
or withdraw or modify the Board of Directors' recommendation referred to
in SECTION 8.2 of the Merger Agreement if there exists a Business
Combination Proposal that is a Superior Proposal or if such director
determines, in good faith and after consultation with independent
counsel, that such action is required to discharge properly his
fiduciary duties, or (iv) if the Company terminates the Merger Agreement
in accordance with Section 10.1(e) thereof, cause the Company to enter
into an agreement with respect to or recommend to its shareholders a
Business Combination Proposal that is a Superior Proposal.
e. Each of the Shareholders agrees to promptly notify Parent in
writing of the nature and amount of any acquisition by such Shareholder
of any voting securities of the Company acquired by such Shareholder
hereinafter.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of
the Shareholders, as to himself, herself or itself, as an individual
shareholder, represents and warrants to Parent as follows: (a) this Agreement
has been duly executed and delivered by such Shareholder; (b) assuming the
due authorization, execution and delivery of this Agreement by Parent, this
Agreement constitutes the valid and binding agreement of such Shareholder
enforceable against such Shareholder in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable
principles; (c) the shares of Company Common Stock listed next to the name of
such Shareholder on SCHEDULE I hereto are the only voting securities of the
Company owned (beneficially or of record) by such Shareholder and are held by
such Shareholder either as certificated shares or in brokerage accounts in
the name of such Shareholder free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind; and (d) the execution
and delivery of this Agreement by such Shareholder does not conflict with any
agreement, order or other instrument binding upon such Shareholder, nor
requires any regulatory filing or approval.
Section 3. FURTHER ASSURANCES. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and
comply with all of their obligations under this Agreement. Without limiting
the generality of the foregoing, none of the parties hereto shall enter into
any agreement or arrangement (or alter, amend or terminate any existing
agreement or arrangement) if such action would materially impair the ability
of any party to effectuate, carry out or comply with all the terms of this
Agreement.
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Section 4. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents
and warrants to each Shareholder as follows: (a) each of this Agreement and
the Merger Agreement has been duly executed and delivered by a duly
authorized officer or employee of Parent; and (b) assuming the due
authorization, execution and delivery of this Agreement by the Company and
the Shareholders, each of this Agreement and the Merger Agreement constitutes
a valid and binding agreement of Parent, enforceable against Parent in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors' rights generally
and by general equitable principles.
Section 5. EFFECTIVENESS AND TERMINATION. It is a condition precedent to
the effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered and be in full force and effect. This Agreement shall
terminate upon the earliest of (i) the close of business on September 30,
1998, (ii) the Effective Date or (iii) the termination of the Merger
Agreement in accordance with its terms; PROVIDED, that if any Business
Combination Proposal shall have been made prior to the termination of the
Agreement and the Merger Agreement is terminated pursuant to Sections
10.1(b)(ii) or (c)(ii) of the Merger Agreement, Sections 1(b), (c) and (d)
hereof shall survive for 180 days after termination of this Agreement. Upon
any such termination of this Agreement, except for any rights any party may
have in respect of any breach by any other party of its or his obligations
hereunder, none of the parties hereto shall have any further obligation or
liability hereunder.
Section 6. MISCELLANEOUS.
a. NOTICES, ETC. All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement
shall be in writing and shall be deemed to have been duly given to any
party when delivered personally (by courier service or otherwise), or
seven days after being mailed by first-class mail, postage prepaid in
each case to the applicable addresses set forth below:
If to Parent:
GE Medical Systems
3000 North Grandview Boulevard
Waukesha, Wisconsin 53188
Attention: J. Keith Morgan
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Dennis V. Osimitz
If to any of the Shareholders:
to the addresses set forth on SCHEDULE I:
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with a copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street
Dallas, Texas 75201-7390
Attention: Stephen C. Johnson
and with an additional copy to:
InnoServ Technologies, Inc.
320 Westway, Suite 520
Arlington, TX 76018
Attn: Michael Puls
or to such other address as such party shall have designated by notice
so given to each other party.
b. AMENDMENTS. WAIVERS. ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except
by an instrument in writing signed by Parent, the Company and the
Shareholders affected thereby; PROVIDED that: without the consent of any
party no such amendment, change, supplement, waiver, modification or
termination shall in any way further restrict the transferability of any
Company Common Stock held by such party, impose any obligation on such
party, diminish the benefits of such party hereunder or restrict the rights
of such party as set forth herein), without the consent of such party.
c. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by the parties and
their respective successors and assigns, including without limitation
any trustee, executor, heir, legatee or personal representative
succeeding to the ownership or voting power of such Shareholder's shares
of Company Common Stock or other securities subject to this Agreement.
Notwithstanding any transfer of shares of Company Common Stock, the
transferor shall remain liable for the performance of all obligations
under this Agreement of such transferor.
d. ENTIRE AGREEMENT. This Agreement (together with the Merger
Agreement) embodies the entire agreement and understanding among the
parties relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter. There
are no representations, warranties or covenants by the parties hereto
relating to such subject matter other than those expressly set forth in
this Agreement and the Merger Agreement.
e. SEVERABILITY. If any term of this Agreement or the application
thereof to any party or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such term to the other parties or circumstances shall not
be affected thereby and shall be enforced
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to the greatest extent permitted by applicable law, PROVIDED that in
such event the parties shall negotiate in good faith in an attempt to
agree to another provision (in lieu of the term or application held to
be invalid or unenforceable) that will be valid and enforceable and will
carry out the parties' intentions hereunder.
f. SPECIFIC PERFORMANCE. The parties acknowledge that money
damages are not an Adequate remedy for violations of this Agreement and
that any party may, in its sole discretion, apply to a court of
competent jurisdiction for specific performance or injunction or such
other relief as such court may deem just and proper in order to enforce
this Agreement or prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection to the
imposition of such relief.
g. REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise or
beginning of the exercise of any thereof by any party shall not preclude
the simultaneous or later exercise of any other such rights, power or
remedy by such parry.
h. NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder, and
any custom or practice of the parties at variance with the terms hereof,
shall not constitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compliance.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
be for the benefit of and shall not be enforceable by any person or
entity who or which is not a party hereto.
j. JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Circuit Court in the State of New York or
the United States District Court for the Southern District of New York
or any court of the State of New York located in the City of New York in
any action, suit or proceeding arising in connection with this
Agreement, and agrees that any such action, suit or proceeding shall be
brought only in such court (and waives any objection based on FORUM NON
CONVENIENS or any other objection to venue therein). Each party hereto
waives any right to a trial by jury-in connection with any such action,
suit or proceeding.
k. GOVERNING LAW. This Agreement and all disputes hereunder shall
be governed by and construed and enforced in accordance with the
California General Corporation Law to the fullest extent possible and in
the absence of applicability of the aforementioned California General
Corporation law, by the
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internal laws of the State of New York without regard to principles of
conflicts of law.
l. NAME, CAPTIONS, GENDER. The name assigned this Agreement and
the section captions used herein are for convenience of reference only
and shall not affect the interpretation or construction hereof.
Whenever the context may require, any pronoun used herein shall include
the corresponding masculine, feminine or neuter forms.
m. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one instrument. Each counterpart may
consist of a number of copies each signed by less than all, but together
signed by all, the parties hereto.
n. LIMITATION ON LIABILITY. No Shareholder shall have any
liability hereunder for any actions or omissions of any other
Shareholder.
o. EXPENSES. Except as otherwise provided in the Merger Agreement,
each party shall bear its own expenses incurred in connection with this
Agreement and the transactions contemplated hereby, except that in the
event of a dispute concerning the terms or enforcement of this Agreement,
the prevailing party in any such dispute shall be entitled to reimbursement
of reasonable legal fees and disbursements from the other party or
parties to such dispute.
p. SHAREHOLDER CAPACITY. Each Shareholder signs this Agreement
solely in his capacity as the record holder and/or beneficial owner of
the Shares set opposite his name on SCHEDULE I and nothing herein shall
limit, impose any obligation on, or affect any actions taken by such
Shareholder, as applicable, serving in his capacity as an officer or
director of the Company, including without limitation, any actions taken
by such Shareholder in the fulfillment of his fiduciary duties in his
capacity as an officer or director of the Company. For the purposes of
this Agreement, all actions taken by a Shareholder acting in his
capacity as an officer or director of the Company shall be viewed as if
taken by a person separate and apart from such Shareholder, without
consideration to such person's ownership of equity interests in the
Company.
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EXHIBIT A.1
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AGREEMENT OF MERGER
OF
DIAMOND MERGER SUB, INC.
INTO
INNOSERV TECHNOLOGIES, INC.
THIS AGREEMENT OF MERGER (this "Agreement"), entered into to be
effective on the Effective Date set forth below by and between Diamond Merger
Sub, Inc., a California corporation ("Sub"), and InnoServ Technologies, Inc.,
a California corporation (the "Company").
WITNESSETH
WHEREAS, the parties to this Agreement have determined that it is in the
best interests of each of them to merge Sub into the Company pursuant to that
certain Agreement and Plan of Merger dated May 19, 1998 by an among General
Electric Company, a New York corporation acting on behalf of its GE Medical
Systems business ("Parent"), Sub, and the Company, as amended and modified
through the date hereof (the "Merger Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth below, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties to this
Agreement hereby agree as follows:
AGREEMENT
1. MERGER. Upon the Effective Date, as defined below, Sub shall be
merged into the Company in accordance with the provisions of the California
General Corporation Law (California Corporations Code section 100 ET SEQ.
(the "CGCL")). For purposes of the CGCL and this Agreement, the Company shall
be the surviving corporation (the "Surviving Corporation"), and Sub shall be
the disappearing corporation.
2. NAME. The name of the Surviving Corporation shall be "InnoServ
Technologies, Inc."
3. EFFECTIVE DATE. The merger shall become effective at the date and
time when a properly executed copy of this Agreement and appropriate
officers' certificates are duly filed with and accepted by the Secretary of
State of the State of California (the "Effective Date").
4. COMPLIANCE WITH CGCL. The parties shall take such steps as may be
necessary under the CGCL or otherwise to give effect to this Agreement,
including the filing of a copy of this Agreement in the offices of the
Secretary of State of the State of California, together with the certificates
required by section 1103 of the CGCL.
5. ARTICLES OF INCORPORATION. Upon the Effective Date, the Articles
of Incorporation of the Company as in effect on the Effective Date shall be
the Articles of Incorporation of the Surviving Corporation until amended in
accordance with the CGCL.
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6. BOARD OF DIRECTORS AND OFFICERS. The Board of Directors of Sub and
the officers of Sub in office immediately prior to the Effective Date shall
be the Board of Directors and officers of the Surviving Corporation, and
shall serve in accordance with the terms of their election to such Board and
their appointment to such offices, respectively.
7. PER SHARE MERGER CONSIDERATION: CONVERSION AND CANCELLATION OF
COMPANY SHARES. At the Effective Date, by virtue of the Merger and without
any action on the part of Parent, Sub, the Company or their respective
shareholders (other than the filing of the documents referred to in SECTION 1.2
hereof):
(a) each share (a "SHARE") of common stock, par value $0.01 per
share, of the Company ("COMPANY COMMON STOCK") issued and outstanding
immediately prior to the Effective Date (other than (i) Shares held by
Parent or Sub, (ii) Shares held by any corporation, partnership, joint
venture, or other entity in which the Company (A) owns directly or
indirectly, 50% or more of the outstanding voting securities or equity
interests other than the Shares held by the InnoServ Technologies, Inc.
Employee Stock Purchase Plan or (B) is a general partner (individually,
a "COMPANY SUBSIDIARY," and collectively, the "COMPANY SUBSIDIARIES"),
(iii) Shares held by any corporation, partnership, joint venture or
other entity in which Parent (A) owns, directly or indirectly, 50% or
more of the outstanding voting securities or equity interests or (B) is
a general partner (individually, a "PARENT SUBSIDIARY" and collectively,
the "PARENT SUBSIDIARIES"), and (iv) Dissenting Shares (as defined in
SECTION 7(d)) in respect of which appraisal rights are properly
exercised and perfected) shall be deemed canceled and converted into (i)
the right to receive, in cash, an amount equal to (A) the remainder of
(I) $16,000,000 minus (II)(a) the MEDIQ Payment (as defined in SECTION
7(e)), and (b) the Escrow Payment (as defined in SECTION 7(f)), divided
by (B) the number of shares outstanding as of the Effective Date,
without interest thereon (the "PER SHARE MERGER CONSIDERATION") and (ii)
the contingent right to receive additional consideration pursuant to the
Escrow Agreement (as defined in SECTION 7(f)). The certificates
representing such Shares shall be surrendered to the paying agent
appointed by the Company and Parent (the "PAYING AGENT") and so canceled.
(b) each Share then owned by any Company Subsidiary shall be
canceled without conversion and without payment of consideration and
shall cease to exist; and
(c) each Share owned beneficially or of record by Parent, Sub or
any other Parent Subsidiary immediately prior to the Effective Date
shall be canceled without conversion and without payment of
consideration and shall cease to exist.
(d) DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, Shares which are issued and outstanding immediately
prior to the Effective Date and which are held by shareholders who have
properly exercised appraisal rights with respect thereto under Section
1301 of the CGCL (the "DISSENTING SHARES") shall not be converted into
the right to receive the Per Share Merger Consideration as provided in
SECTION 7(a) but the holders of Dissenting Shares shall be entitled to
receive such payment as shall be determined pursuant to Chapter 13 of
the CGCL; provided, that if any
A-I-48
<PAGE>
such holder shall have failed to perfect or shall withdraw or lose the
right to appraisal and payment under the CGCL, then such holder shall
forfeit the right of dissent and each such holder's Shares shall
thereupon be deemed to have been convened as of the Effective Date into
the right to receive the Per Share Merger Consideration, without any
interest thereon, as provided in SECTION 7(a), and such Shares shall no
longer be Dissenting Shares.
(e) MEDIQ PAYMENT. Immediately after the Effective Date the
Parent shall cause the Surviving Corporation to pay to MEDIQ in cash,
without interest thereon and less applicable withholding taxes, if any,
by wire transfer to an account designated by MEDIQ an amount equal to
$3,218,997 (the "MEDIQ Payment").
(f) ESCROW PAYMENT. Immediately after the Effective Date, Parent
shall cause the Surviving Corporation to deposit with the Paying Agent,
an amount, in cash, equal to $833,879 (the "ESCROW PAYMENT") in an
interest bearing escrow account. The Escrow Payment, together with all
interest earned thereon, is herein referred to as the "ESCROW FUNDS."
The Escrow Funds are to be disbursed by the Paying Agent pursuant to the
following terms and conditions (the "ESCROW AGREEMENT"):
(i) Upon the receipt of a joint written instructions duly
executed by MEDIQ and each member of the shareholder's committee
formed by the Company (the "COMMITTEE"), the Paying Agent shall, as
soon as practicable after the receipt of such joint written
instructions, forward the Escrow Funds, less any fees and expenses
owed hereunder, to the persons and in the amounts specified in such
joint instruction.
(ii) Unless the Paying Agent has previously received a joint
written instruction as described in Section 7(f)(i), then upon the
receipt of written instruction duly executed by (i) the one
arbitrator in the case of an arbitration if the parties can agree
to an arbitration with one arbitrator, or (ii) a majority of the
arbitrators if the parties cannot agree on an arbitration with a
single arbitrator, the Paying Agent shall, 5 business days after
the receipt of such order, forward the Escrow Funds, less any fees
and expenses owed hereunder, to the persons specified and in the
amounts specified in such written instructions.
(iii) Any Escrow Funds herein awarded to or distributed to the
Committee by and on behalf of the former shareholders of the
Company shall be distributed among such shareholders in the
following manner: each person who was a record holder of Company
Common Stock at the Effective Date shall receive an amount equal to
(i) the amount of Escrow Funds forwarded or disbursed hereunder,
divided by (ii) the number of shares outstanding as of the
Effective Date, without interest thereon.
(iv) All costs and fees associated with the escrow shall be
paid out of the Escrow Account prior to the disbursement of any
Escrow Funds disbursed pursuant to sections (i) through (iii) of
this Section regardless of whether the
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<PAGE>
Escrow funds are required to be paid to the former shareholders of
the Company, MEDIQ or any combination thereof.
8. EFFECT OF MERGER. The effect of the merger shall be as set forth
in the CGCL. Pursuant to section 1107 of the CGCL, without any further act of
the parties:
(a) Upon the Effective Date, the separate existence of Sub shall
cease, and the Company shall succeed, without other transfer, to all the
rights and properties of Sub and shall be subject to all the debts and
liabilities of Sub in the same manner as if the Company had itself incurred
them.
(b) Following the merger, all rights of creditors and all liens
upon the property of Sub shall be preserved unimpaired, provided that such
liens of Sub shall be limited to the property affected thereby immediately
prior to the Effective Date.
(c) Following the merger, any action or proceeding pending by or
against Sub may be prosecuted to judgment, which shall bind the Company, or
the Company may be proceeded against or substituted in place of Sub.
9. FURTHER ASSURANCES. Sub shall, from time to time, take all such
actions, and execute and deliver, or cause to be executed and delivered, all
such instruments and document, as the Company may deem necessary or advisable
to carry out the intent and purpose of the merger.
10. MISCELLANEOUS.
10.1 GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement and the legal relations among the parties
hereto shall be governed by and construed in accordance with the internal
laws of the State of California applicable to contracts made and to be wholly
performed in such state.
10.2 HEADINGS. The headings and subheadings used in this Agreement
are for convenience of reference only and shall not be considered in
construing this Agreement.
10.3 COUNTERPART EXECUTION. This Agreement may be executed in
counterparts with the same effect as if all parties hereto had signed the
same document. All counterparts so executed shall be deemed to be an original,
shall be construed together and shall constitute one Agreement.
10.4 SEVERABILITY. In the event any provision, or portion
thereof, of this Agreement is held by a court having proper jurisdiction to
be unenforceable in any jurisdiction, then such portion or provision shall be
deemed to be severable as to such jurisdiction (but, to the extent permitted
by law, not elsewhere) and shall not affect the remainder of this Agreement,
which shall continue in full force and effect. If any provision of this
Agreement is held to be so broad as to be unenforceable, such provision shall
be interpreted to be only so broad as is necessary for it to be enforceable.
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EXHIBIT B
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<PAGE>
OUTSTANDING OPTION CANCELLATION AGREEMENT
This Outstanding Option Cancellation Agreement (the "Cancellation
Agreement"), which is made and effective this ____ day of May, 1998 (the
"Cancellation Date"), is by and between InnoServ Technologies, Inc. a
California corporation (the "Company") and _______________________ ("Option
Holder"). Any capitalized term used in this Cancellation Agreement and not
defined herein that is defined in the Merger Agreement shall have the meaning
specified in the Merger Agreement, unless the context shall otherwise require.
WHEREAS, the Company granted Option Holder _____________ options (the
"Outstanding Options") to purchase common stock of the Company (the "Common
Stock") under the [1992 Stock Incentive Plan] [Stock Option Agreement dated
as of December 11, 1996 between the Company and Option Holder (the "Puls
Agreement")];
WHEREAS, the Company has entered into an agreement (the "Merger
Agreement") with General Electric Company, a New York corporation ("General
Electric"), and Diamond Merger Sub, Inc., a California corporation and a
wholly-owned subsidiary of a wholly-owned subsidiary of General Electric
("Sub"), pursuant to which Sub will merge with and into the Company (the
"Merger");
WHEREAS, pursuant to the terms of the Merger Agreement, the Board of
Directors has agreed to take such actions as necessary to cause the
[1992 Stock Incentive Plan] [the Puls Agreement] to terminate on or prior to
the effective date of the Merger (the "Effective Date") and that the
Outstanding Options shall be vested and become exercisable solely in exchange
for the Per Share Merger Consideration;
WHEREAS, pursuant to Section 3.6 of the Merger Agreement, prior to the
Effective Date, the Option Holder shall be offered the right to cancel each
Outstanding Option in return for consideration set forth herein;
WHEREAS, the Option Holder desires to cancel the Outstanding Option
pursuant to the terms of this Cancellation Agreement.
NOW, ThEREFORE, for and in consideration of the mutual covenants
contained herein, the Company and Option Holder agree as follows:
1. CONSIDERATION. In consideration for the cancellation of the
Outstanding Option, the Company shall pay, immediately after the Effective
Date, an amount in cash (less applicable withholding taxes, if any) equal to
the product of (i) the number of shares of Common Stock subject to such
Outstanding Option (irrespective of whether such Outstanding Option is then
exercisable) and (ii) the amount, if any, by which $4.00 exceeds the exercise
price per share of Common Stock subject to the Outstanding Option immediately
prior to the Effective Date; provided that if such amount is equal to or less
than zero, such Outstanding Option shall be deemed canceled and terminated
without consideration.
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<PAGE>
2. CANCELLATION AND RELEASE. Upon consummation of the Merger and
payment, if any, of the consideration described in Section 2 hereof to such
Option Holder, the Outstanding Option shall be canceled and terminated and
the Option Holder shall, without any further action required, irrevocably
release the Company from and against, and irrevocably waive, any and all
claims, liabilities, obligations, covenants, agreements, damages and causes
of action which it may have against the Company arising out of or related to
the Outstanding Options, the [1992 Stock Incentive Plan] [Puls Agreement] or
this Cancellation Agreement.
3. BINDING AGREEMENT. All covenants and agreements in this
Cancellation Agreement by the Company and the Option Holder shall bind each
of their successors and assigns, whether so expressed or not.
4. COUNTERPARTS. This Cancellation Agreement may be executed in any
number of counterparts, each of which when so executed shall together
constitute but one and the same instrument.
5. HEADINGS. The section headings herein are for convenience only and
shall not affect the construction hereof.
6. GOVERNING LAW. This Cancellation Agreement shall be deemed to be a
contract under the internal laws of the State of California, and for all
purposes shall be construed in accordance with the laws of such State.
SIGNATURES INTENTIONALLY APPEAR ON THE FOLLOWING PAGE
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EXHIBIT C
A-I-54
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and entered into as of
May ____, 1998, by and among MEDIQ INCORPORATED, a Delaware corporation
("MEDIQ"), a SHAREHOLDER'S COMMITTEE formed pursuant to the Merger Agreement
(as defined below) (the "Committee") acting by and on behalf of the
shareholders of record as of the Effective Date (as defined in the Merger
Agreement) of INNOSERV TECHNOLOGIES, INC., a California corporation
("InnoServ"), and _________________________, a _________________________ with
a place of business in _________________, _______________ ("Escrow Agent").
RECITALS
MEDIQ and InnoServ are parties to that certain Stock Purchase Agreement,
dated November 13, 1997 (the "Stock Purchase Agreement").
Pursuant the Stock Purchase Agreement, InnoServ agreed not to enter into
change of control (as defined in the Stock Purchase Agreement) from and after
April 1, 1998 and through September 30, 1998 unless the other party or
parties to the change of control agreed, as a condition precedent to such
transaction, to pay MEDIQ an amount determined under the terms of the Stock
Purchase Agreement.
InnoServ entered into a Plan and Agreement of Merger, dated May ___,
1998 (the "Merger Agreement"), by and among General Electric Company, a New
York corporation ("General Electric"), Diamond Merger Sub, Inc., a California
corporation and an indirect wholly-owned subsidiary of General Electric, and
InnoServ.
InnoServ, General Electric and MEDIQ have each executed a letter
agreement, dated May ___, 1998 (the "Letter Agreement"), wherein MEDIQ
acknowledged that the maximum amount owed to it under the Stock Purchase
Agreement upon consummation of such Merger is $4,052,876. However, as
described in the Letter Agreement, InnoServ believes that MEDIQ is only
entitled to $3,218,997 and that InnoServ's shareholders are entitled to the
$833,879 difference.
The Merger Agreement provides for the payment on the Effective Date (as
defined in the Merger Agreement) to MEDIQ of $3,218,997 and for the deposit
in escrow of the remaining $833,879.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth below, and for their mutual reliance, MEDIQ, the
Committee and Escrow Agent agree as follows:
1. ESCROW DEPOSIT. On or before the Effective Date, General Electric
is required to cause the Surviving Corporation (as defined in the Merger
Agreement) to deposit the sum of Eight Hundred-Thirty-Three Thousand, Eight
Hundred & Seventy-Nine Dollars ($833,879) (the "Deposit") with Escrow Agent,
by wire transfer, in immediately available funds, to be invested
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promptly, as directed by the Committee, in an interest bearing escrow account
or in one or more investments of the type and quality described on SCHEDULE 1
(such interest bearing account and any other investments in which the Deposit
may be invested being herein collectively referred to as the "Escrow
Account"). The Deposit, together with all interest earned thereon, is herein
referred to as the "Escrow Funds".
2. DISBURSEMENT OF ESCROW FUNDS
(a) Upon the receipt of a joint written instructions duly executed
by MEDIQ and each member of the Committee, the Escrow Agent shall, as
soon as practicable after the receipt of such joint written instructions,
forward the Escrow Funds, less any fees and expenses owed hereunder, to
the persons and in the amounts specified in such joint instruction.
(b) Unless the Escrow Agent has previously received a joint
written instruction as described in Section 2(a), then upon the receipt
of written instruction duly executed by (i) the one arbitrator in the
case of an arbitration under Section 5.13 of the Stock Purchase
Agreement, if the parties can agree to an arbitration with one
arbitrator, or (ii) a majority of the arbitrators in the case of an
arbitration under Section 5.13 of the Stock Purchase Agreement, if the
parties cannot agree on an arbitration with a single arbitrator, the
Escrow Agent shall, 5 business days after the receipt of such order,
forward the Escrow Funds, less any fees and expenses owed hereunder, to
the persons specified and in the amounts specified in such written
instructions.
(c) Any Escrow Funds herein awarded to or distributed to the
Committee by and on behalf of the former shareholders of InnoServ shall
be distributed among such shareholders in the following manner: each
Holder (as defined in the Merger Agreement) shall receive an amount
equal to (i) the amount of Escrow Funds forwarded or disbursed
hereunder, divided by (ii) the number of shares outstanding as of the
Effective Date, without interest thereon, in the manner described in
Section 3.2(c) of the Merger Agreement.
3. CONDITIONS OF ESCROW.
(a) Escrow Agent, by reason of its consent to and execution of
this Agreement, for the fees herein specified, hereby agrees to accept
the foregoing agreement and instructions and to be bound by this
Agreement in the performance of its duties hereunder. Escrow Agent shall
not, however, assume any responsibility or liability for any transaction
between InnoServ and MEDIQ or the Committee and MEDIQ, other than for
the performance of its obligations with respect to the Escrow Funds held
by it in accordance with this Agreement. The duties and responsibilities
of Escrow Agent shall be limited to those expressly set forth herein.
Escrow Agent shall not be personally liable for any act taken or omitted
hereunder or taken by it in good faith and in the exercise of its own
best judgment.
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(b) Escrow Agent shall be under no responsibility in respect of
the Escrow Account other than faithfully to follow the instructions
contained herein. Escrow Agent may consult with counsel of its own
choosing and shall be fully protected in any action taken in good faith,
in accordance with such consultation. Escrow Agent shall not be required
to defend any legal proceedings that may be instituted unless requested
so to do by the Committee and MEDIQ, and shall be indemnified the
Committee and MEDIQ, jointly and severally, to its satisfaction against
the cost and expense of such defense. Escrow Agent shall have no
responsibility for the genuineness or validity of any document or other
item deposited with Escrow Agent and it shall be fully protected in
acting in accordance with written instructions to it hereunder and
believed by Escrow Agent to have been signed by the proper parties.
(c) Except for claims, liabilities, judgments, or expenses
incurred by the parties due to an intentional or negligent act, error or
omission of Escrow Agent in the performance of its obligations
hereunder, the Escrow Agent shall be entitled to be protected and held
harmless from any claims, liabilities, judgments, reasonable attorneys'
fees, and other expenses of any kind and nature that may be incurred by
Escrow Agent by reason of its acceptance of, and its good faith
performance under, this Agreement out of funds in the Escrow Account;
provided, however, that this indemnification shall not extend to any
intentional, negligent or reckless act, error or omission of Escrow
Agent. All of the terms and conditions in connection with Escrow Agent's
duties and responsibilities, and the rights of the parties or any third
party, are contained in this Agreement. Escrow Agent is not required to
be familiar with the provisions of any other instrument or agreement and
shall not be charged with any responsibility or liability in connection
with the observance or nonobservance by any person having duties or
obligations under any such instrument or agreement.
(d) The Escrow Agent may resign for any reason upon thirty (30)
days written notice to MEDIQ and the Committee. Upon the expiration of
such thirty (30) day notice period, Escrow Agent may deliver all
Escrowed Funds to any successor escrow agent appointed by MEDIQ and the
Committee, or if no successor escrow agent has been appointed, then to
any court of competent jurisdiction. Upon either such delivery, Escrow
Agent shall be released from any and all liability hereunder.
4. TERMINATION. Notwithstanding any other provision of this Agreement
to the contrary, this Agreement shall terminate, without any further action
on the part of MEDIQ, the Committee or Escrow Agent, upon disbursement in
full of the Escrow Funds in accordance with the terms of this Agreement.
5. FEES AND OTHER CHARGES. The fees and other charges for services
rendered by Escrow Agent for ordinary services as contemplated by this
Agreement are set forth on SCHEDULE 2 of this Agreement. All costs and fees
associated with the escrow shall be paid out of the Escrow Account prior to
the disbursement of any Escrow Funds pursuant to Section 2 of this Agreement.
All of the legal costs and fees of the Committee incurred on or after the
Effective Date with respect to the arbitration conducted by the Committee
pursuant to the Stock Purchase Agreement and with respect to the enforcement
of this Agreement shall be paid out of the
A-I-57
<PAGE>
If to MEDIQ:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
with a copy to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
If to the Committee:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
with a copy to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
If to Escrow Agent:
-------------------------------------
-------------------------------------
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-------------------------------------
-------------------------------------
11. GENERAL. The rights and obligations of this Agreement shall be
binding upon, and inure to the benefit of, the successors, assigns and legal
representatives of the parties hereto. This Agreement may not be modified
except by a writing signed by Escrow Agent, the Committee and MEDIQ. This
Agreement may be executed in one or more counterparts, each of which shall be
considered as the original. This Agreement shall be governed by the laws of
the State of Texas.
A-I-58
<PAGE>
SCHEDULE 1
PERMITTED INVESTMENTS
---------------------
For investment purposes of monies in escrow, funds may be invested by
Escrow Agent with verbal instructions from time to time by the Committee
investment instruments collateralized and/or a direct obligation of the U.S.
Government or its agencies. In the case of commercial paper, rating of the
commercial paper may not be less than A1/P1.
Should there be any further questions, please call __________________ at
(___) ___-____.
A-I-59
<PAGE>
SCHEDULE 2
FEES AND OTHER CHARGES
----------------------
A-I-60
<PAGE>
EXHIBIT D
CERTAIN ACTIONS
In order to obtain termination or expiration of the waiting period under
the HSR Act, Parent shall be willing to divest or license the Company's
"PREVU" software on terms and conditions reasonably satisfactory to Parent.
A-I-61
<PAGE>
EXHIBIT E
A-I-62
<PAGE>
INNOSERV TECHNOLOGIES, INC.
BONUS AGREEMENT
This Bonus Agreement (this "Agreement") is entered into between InnoServ
Technologies, Inc. (the "Company") and Thomas Hoefert, Vice President and
Chief Financial Officer of the Company (the "Executive").
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company in the
capacity of Vice President and Chief Financial Officer; and
WHEREAS, the board of directors of the Company (the "Board of
Directors") has determined that it is in the best interests of the Company
and the shareholders of the Company that the Company from time to time
investigate strategic alternatives in order to maximize shareholder value; and
WHEREAS, the Executive is a member of senior management of the Company
and has access to proprietary information pertaining to the business and
operations of the Company; and
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Company to provide an incentive to the Executive to remain
in the employ of the Company while the Company is investigating such
strategic alternatives;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and Executive agree as follows:
1. Subject to paragraph 2 below, if Executive is a full-time employee
of the Company in good standing on the closing of a Sale of the Company (as
defined in paragraph 3 below), then Executive will be entitled to a one-time
bonus determined according to paragraph 4 below (the "Bonus"). The Bonus will
be payable in full, in cash on the closing date of such Sale of the Company.
2. Executive will not be eligible for benefits hereunder if he
resigns, retires, becomes disabled, fails to return from a leave of absence,
dies, or is terminated for cause prior to the close of the Sale of the
Company.
3. For purposes of this Agreement, a Sale of the Company shall be
deemed to have occurred if the Company disposes of all of its stock or
substantially all of its assets to another party, whether by way of merger,
transfer of assets or otherwise, for cash or securities, in one or a series
of transactions.
A-I-63
<PAGE>
4. a. For purposes of this Agreement, Executive's Bonus shall be
based upon the Sale Price (as hereafter defined) of the Company. The Bonus
shall be a cash payment, less all applicable withholdings, computed as
follows:
<TABLE>
--------------------------------------------------------------------------
SALE PRICE AMOUNT OF BONUS
--------------------------------------------------------------------------
<S> <C>
up to $26,666,667 $150,000
--------------------------------------------------------------------------
$26,666,668 to $125,000 + ($75,000 x [(Sale Price -
$29,999,999 $25,000,000)/$5,000,000]
--------------------------------------------------------------------------
$30,000,000 to $200,000 + ($50,000 x [(Sale Price -
$34,999,999 $30,000,000)/$5,000,000]
--------------------------------------------------------------------------
$35,000,000 or more $250,000
--------------------------------------------------------------------------
</TABLE>
b. The Sale Price of the Company, if a stock sale, shall be the
product of (i) the average consideration paid for a share of common stock
of the Company and (ii) the sum of (A) the number of such shares
acquired by the other party to the transaction, plus (B) the number of
such shares issuable upon exercise of options, warrants or other rights
or conversion or exchange of securities all as outstanding on the date
of this Agreement and, without duplication, as thereafter issued or
granted. For the purpose of clause (i) of the foregoing sentence, all
shares shall be deemed to have been acquired if more than 50% of the
Company's outstanding common stock is acquired by a "group" as that term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934.
c. For the purposes of calculating the Sale Price of the Company,
equity securities constituting a part of the consideration referred to
in clause (i) of paragraph 4.b. above that are traded on a national
securities exchange or quoted on the National Association of Securities
Dealers National Market System shall be valued at the last closing price
thereof prior to the date of the consummation or closing of any such
Sale of the Company.
d. The Sale Price of the Company, if an asset sale, shall be the
sum of (i) the cash (or other consideration) paid by the purchaser for
such assets and (ii) any debt incurred by the purchaser of such assets.
5. This Agreement is not and shall not be deemed an employment
agreement, and shall not give the Executive the right to be retained in the
employment of the Company.
6. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representative,
and assigns.
A-I-64
<PAGE>
7. Neither this Agreement nor any right or interest hereunder shall be
assignable by the Executive, his beneficiaries or legal representatives.
8. If any provision of this Agreement shall be determined to be
invalid, illegal or unenforceable in whole or in part, neither the validity
of the remaining part of such provision nor the validity of any other
provision of this Agreement shall in any way be affected thereby. In lieu of
such invalid, illegal or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in terms to such
invalid, illegal or unenforceable provision as may be possible and be valid,
legal and enforceable.
9. This Agreement shall be governed by Texas law.
10. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may be modified or amended only by an instrument in
writing signed by both parties hereto.
11. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together constitute one
and the same instrument.
[SIGNATURES ON THE NEXT PAGE]
A-I-65
<PAGE>
IN WITNES WHEREOF, the Company and Executive have executed this
Agreement as of the day and year indicated below.
INNOSERV TECHNOLOGIES, INC.
Dated: 9/29/97 By: /s/ Michael G. Puls
------------------ ----------------------------------
Name: Michael G. Puls
----------------------------------
Its: President and CEO
----------------------------------
EXECUTIVE:
Dated: 9/29/97 /s/ Thomas Hoefert
------------------ ------------------------------------
Printed Name: Thomas Hoefert
------------------------------------
A-I-66
<PAGE>
May 14, 1998
[LOGO]
Mr. Michael G. Puls
President and CEO
3020 Arbor Oaks
Arlington, Texas 76006
Re: Amendment to Bonus Agreement between InnoServ Technologies, Inc. (the
"Company") and Michael G. Puls (the "Executive") dated December 20,
1996, as amended (the "Bonus Agreement") and to Employment Offer
Agreement between the Company and the Executive dated December 8,
1995 (the "Offer Agreement," and together with the Bonus Agreement,
the "Agreements")
Dear Mike:
The Company is currently engaged in discussions with General Electric Company
("GE") concerning a possible merger of the Company with an indirect,
wholly-owned subsidiary of GE. As part of such discussions, GE has requested
that certain provisions in the Agreements be amended. This Letter Agreement is
to confirm our understanding and agreement with respect to the following
amendments, which amendments shall be effective only upon occurrence of the
effective date (the "Effective Date") of the aforementioned merger:
AMENDMENT TO BONUS AGREEMENT:
1. The first sentence of Paragraph 1.a. is hereby deleted in its entirety
and the following inserted in place thereof:
"If Executive is a full-time employee of the Company in good
standing on the closing of a Sale of the Company (as defined in
paragraph 3 below), then Executive will be entitled to a one-time
bonus of $307,500, less all applicable withholdings (the "Bonus").
AMENDMENT TO OFFER AGREEMENT:
1. The first two sentences of the second paragraph on page 2 are hereby
deleted and the following inserted in place thereof:
"The Company may, at any time and for any reason, terminate
your employment without any liability to you whatsoever except as
expressly provided in this letter. If your employment is terminated
by the Company for any reason other than for cause (which shall
mean for all purposes herein
A-I-67
<PAGE>
fraud, dishonesty or willful misconduct), the Company will pay to
you, within 5 business days after the date of such termination, a
lump sum payment equal to the pro rata portion of your base salary
(as set forth in the first sentence of the second paragraph of
this letter) (a) for the period beginning on the date of such
termination and ending on the twenty month anniversary of the
Effective Date if such termination occurs on or before the eight
month anniversary of the Effective Date; or (b) for the period
beginning on the date of such termination and ending on the first
year anniversary of such termination if such termination occurs
after the eight month anniversary of the Effective Date. If at any
time following the 60th day after the Effective Date, you choose
voluntarily to terminate your employment, the Company will pay to
you, within 5 business days after the date of such termination, a
lump sum payment equal to the pro rata portion of your base salary
(as set forth in the first sentence of the second paragraph of this
letter) for the period beginning on the date of such termination
and ending on first year anniversary of such termination."
3. The first, second and third sentences of the third paragraph on page 2
are hereby deleted and the following inserted in place thereof:
"Furthermore, if (a) at any time after the Effective Dare and
before the eight month anniversary of the Effective Date, the
Company terminates your employment other than for cause or (b) if
at any time following the 60th day after the Effective Date and
before the eight month anniversary of the Effective Date you choose
to voluntarily terminate your employment, the Company will pay to
you, within 5 business days after the date of such termination, a
lump sum payment equal to $42,000."
AMENDMENT APPLICABLE TO BOTH AGREEMENTS:
4. Notwithstanding anything to the contrary in the Agreements (as amended
by this Letter Agreement), any and all payments to the Executive
under the Agreements (as modified by this Letter Agreement), shall
be reduced (but not below zero) so that the present value, as
determined in accordance with Section 280G(d)(4) of the Internal
Revenue Code of 1986, as amended (the "Code"), of such payments
plus any other payments that must be taken into account for
purposes of any computation relating to the Executive under Section
280G(b)(2)(A)(ii) of the Code, shall not in the aggregate, exceed
2.99 times the Executive's "base amount", as such term is defined
in Section 280G(b)(3) of the Code. The Company and the Executive
agree that the Executive's "base amount" for these purposes equals
$251,606. Notwithstanding any other provision hereof, no
reduction in payments under the limitation contained in the
immediately preceding sentence shall be applied to payments
hereunder which do not constitute "excess parachute payments"
within the meaning of the Code. Any payments in excess of the
A-I-68
<PAGE>
limitation of this Section 4 or otherwise determined to be "excess
parachute payments" made to the Executive hereunder shall
constitute a loan from the Company to the Executive, resulting in
an amount owing from the Executive to the Company with interest
from the date of receipt by the Executive to the date of repayment
(or offset) at the applicable federal rate under Section 1274(d) of
the Code, compounded semi-annually, which shall be payable to the
Company upon demand. It is the Company's intent not to make any
payments to the Executive that constitute "excess parachute
payments" under Section 280G of the Code, and this Section 4 shall
be construed strictly in favor of such intent.
If the foregoing accurately sets forth the principal terms of our mutual
intentions and understandings with respect to these amendments to the
Agreements, please execute and return an copy of this Letter Agreement.
Sincerely yours,
InnoServ Technologies, Inc.
By: /s/ Dudley A. Rauch
- ----------------------------------
Name: Dudley A. Rauch
- ----------------------------------
Title: Chairman of the Board
- ----------------------------------
Confirmed, acknowledged and agreed on this 15th day of May, 1998.
/s/ Michael G. Puls
- ----------------------------------
Michael G. Puls
A-I-69
<PAGE>
INNOSERV TECHNOLOGIES, INC.
AMENDMENT TO BONUS AGREEMENT
----------------------------
This Amendment to Bonus Agreement (this "Agreement") is entered
into between InnoServ Technologies, Inc. (the "Company") and Michael G. Puls,
President and Chief Executive Officer of the Company (the "Executive").
WHEREAS, the Executive and the Company have previously entered into
a Bonus Agreement, dated December 20, 1996, which was amended March 28, 1997
(as amended, the "Bonus Agreement"), in order to provide an incentive to the
Executive to remain in the employ of the Company while the Company is
investigating strategic alternatives in order to maximize shareholder value;
WHEREAS, the board of directors of the Company (the "Board of
Directors") has determined that it is in the best interests of the Company
and the shareholders of the Company to amend the Bonus Agreement as
hereinafter provided in order to better achieve the purposes of the Bonus
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and Executive agree as follows:
1. Unless otherwise defined herein, terms are used as defined in
the Bonus Agreement.
2. Paragraph 1 of the Bonus Agreement is hereby amended to read in
its entirety as follows:
"a. Subject to paragraph 2 below, if Executive is a full-time
employee of the Company in good standing on the closing of a Sale of the
Company (as defined in paragraph 3 below), then Executive will be
entitled to a one-time bonus of $300,000, PLUS an additional amount
equal to (A) $100,000, multiplied by (B) a fraction, the numerator of
which shall equal the amount by which the Sale Price of the Company
exceeds $16 million and the denominator of which shall equal $4 million,
less all applicable withholdings (the "Bonus"). The Bonus will be
payable in full, in cash on the closing date of such Sale of the Company.
b. The Sale Price of the Company, if a stock sale, shall be
the product of (i) the average consideration paid for a share of common
stock of the Company and (ii) the sum of (A) the number of such shares
acquired by the other party to the transaction (or considered
outstanding and for which payment is made by the acquiror), plus (B) the
number of such shares issuable upon exercise of options, warrants or
other rights or conversion or exchange of securities all as outstanding
on the date of this Agreement and, without duplication, as thereafter
issued or granted. For the purpose of clause (i) of the foregoing
sentence, all shares shall be deemed to have been acquired if more than
50% of
A-I-70
<PAGE>
the Company's outstanding common stock is acquired by a "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934.
c. For the purposes of calculating the Sale Price of the
Company, equity securities constituting a part of the consideration
referred to in clause (i) of paragraph 1.b. above that are traded on a
national securities exchange or quoted on the National Association of
Securities Dealers National Market System shall be valued at the last
closing price thereof prior to the date of the consummation or closing
of any such Sale of the Company.
d. The Sale Price of the Company, if an asset sale, shall be
the sum of (i) the cash (or other consideration) paid by the purchaser
for such assets and (ii) any debt assumed by the purchaser of such
assets."
3. This Agreement supersedes any prior agreements or
understandings with respect to the subject matter hereof. Except as amended
hereby, the Bonus Agreement shall continue in full force and effect. This
Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective heirs, successors, legal representatives and
assigns.
4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
5. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument.
6. References in the Bonus Agreement to the "Agreement" shall
mean the Bonus Agreement as amended hereby or previously amended.
IN WITNESS WHEREOF, the Company and Executive have executed this
Agreement as of the day and year indicated below.
INNOSERV TECHNOLOGIES, INC.
By: /s/ Michael Sandler
----------------------------------
Name: Michael Sandler
----------------------------------
Its: Member of Board of Directors
----------------------------------
EXECUTIVE:
By: /s/ Michael G. Puls
----------------------------------
Name: Michael G. PUls
----------------------------------
Date: 4/2/98
----------------------------------
A-I-71
<PAGE>
AMENDMENT TO BONUS AGREEMENT
MICHAEL G. PULS
Executive and Company agree to amend the Bonus Agreement dated
December 20, 1996, as follows:
1. Paragraph 1 - the amount of the one-time bonus is changed from
$150,000 to $200,000.
INNOSERV TECHNOLOGIES, INC.
Dated: March 28, 1997 By: /s/ Dudley A. Rauch
---------------------- --------------------------------
Name: Dudley A. Rauch
--------------------------------
Its: Chairman
--------------------------------
EXECUTIVE
Dated: March 28, 1997 /s/ Michael G. Puls
---------------------- --------------------------------
Printed Name: Michael G. Puls
A-I-72
<PAGE>
INNOSERV TECHNOLOGIES, INC.
BONUS AGREEMENT
This Bonus Agreement (this "Agreement") is entered into between InnoServ
Technologies, Inc. (the "Company") and Michael G. Puls, President and Chief
Executive Officer of the Company (the "Executive").
WITNESSETH:
WHEREAS, the Executive is currently employed by the Company in the
capacity of President and Chief Executive Officer; and
WHEREAS, the board of directors of the Company (the "Board of
Directors") has determined that it is in the best interests of the Company
and the shareholders of the Company that the Company from time to time
investigate strategic alternatives in order to maximize shareholder value; and
WHEREAS, the Executive is a member of senior management of the Company
and has access to proprietary information pertaining to the business and
operations of the Company; and
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Company to provide an incentive to the Executive to remain
in the employ of the Company while the Company is investigating such
strategic alternatives;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and Executive agree as follows:
1. Subject to paragraph 2 below, if Executive is a full-time employee
of the Company in good standing on the closing of a Sale of the Company (as
defined in paragraph 3 below), then Executive will be entitled to a one-time
bonus of $150,000, less all applicable withholdings (the "Bonus"). The Bonus
will be payable in full, in cash on the closing date of such Sale of the
Company.
2. Executive will not be eligible for benefits hereunder if he resigns,
retires, becomes disabled, fails to return from a leave of absence, dies, or
is terminated for cause prior to the close of the Sale of the Company.
3. For purposes of this Agreement, a Sale of the Company shall be
deemed to have occurred if the Company disposes of all of its stock or
substantially all of its assets to another party, whether by way of merger,
transfer of assets or otherwise, for cash or securities, in one or a series
of transactions.
4. This Agreement is not and shall not be deemed an employment
agreement, and shall not give the Executive the right to be retained in the
employment of the Company.
A-I-73
<PAGE>
5. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives,
and assigns.
6. Neither this Agreement nor any right or interest hereunder shall be
assignable by the Executive, his beneficiaries or legal representatives.
7. If any provision of this Agreement shall be determined to be
invalid, illegal or unenforceable in whole or in part, neither the validity
of the remaining part of such provision nor the validity of any other
provision of this Agreement shall in any way be affected thereby. In lieu of
such invalid, illegal or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in terms to
such invalid, illegal or unenforceable provision as may be possible and be
valid, legal and enforceable.
8. This Agreement shall be governed by Texas law.
9. This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements,
oral and written, between the parties hereto with respect to the subject
matter hereof. This Agreement may be modified or amended only by an
instrument in writing signed by both parties hereto.
10. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together constitute one
and the same instrument.
[SIGNATURES ON THE NEXT PAGE]
A-I-74
<PAGE>
IN WITNES WHEREOF, the Company and Executive have executed this
Agreement as of the day and year indicated below.
INNOSERV TECHNOLOGIES, INC.
Dated: December 20, 1996 By: /s/ Dudley A. Rauch
------------------ ----------------------------------
Name: Dudley A. Rauch
----------------------------------
Its: Chairman
----------------------------------
EXECUTIVE:
Dated: December 20, 1996 /s/ Michael G. Puls
------------------ ----------------------------------------
Printed Name: Michael G. Puls
----------------------------------------
A-I-75
<PAGE>
EXHIBIT F
A-I-76
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of May ___,
1998, by and among GENERAL ELECTRIC COMPANY, a New York corporation
("Parent"), DIAMOND MERGER SUB, INC., a California corporation ("Sub") and a
wholly owned subsidiary of a wholly owned subsidiary of Parent, and INNOSERV
TECHNOLOGIES, INC., a California corporation ("Company").
RECITALS
Parent, Sub and Company are parties to that certain Agreement and Plan
of Merger, dated May ___, 1998 (the "Merger Agreement"). Unless otherwise
defined herein, capitalized terms in this Agreement shall have the meanings
ascribed to such terms in the Merger Agreement.
Pursuant the Merger Agreement, Sub will merge with and into Company and
all of the shares of Common Stock of Company shall convert into the right to
receive the Per Share Merger Consideration.
Pursuant to Section 9.1(b) of the Merger Agreement, a condition
precedent to the obligation of each party to the Merger Agreement to effect
the Merger is that the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") shall have expired or been
terminated.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth below, and for their mutual reliance, Parent, Sub and
Company agree as follows:
1. HSR Termination.
(a) If the Company has not been provided with a notice in writing
from the United States Department of Justice ("DOJ") to the effect that
the waiting period under the HSR Act with respect to the Merger has been
terminated or has expired (the "Termination Notice") on or prior to 5:00
p.m. central daylight time on the later of June 22, 1998 or the date of
the meeting of the Company's shareholders at which the shareholders vote
in favor of the Merger (the "Expiration Time"), Parent hereby agrees to
pay upon demand by Company, via a wire transfer of immediately available
funds, an amount equal to One Million Two Hundred Thousand Dollars
($1,200,000) (the "HSR Amount") to the Company, deposited in an account
to be designated by the Company to Parent in writing.
(b) If, at any time after the Termination Notice has been received
by the Company but prior the Effective Date, the DOJ initiates an action
in federal court seeking to challenge, block, or otherwise delay the
consummation of the Merger or notifies the Parent or Company of its
intent to challenge, block or otherwise delay the consummation of the
Merger, the Parent shall have a period of ten (10) days from (i) the
initiation of such action or (ii) the receipt by Parent or Company,
whichever is sooner, of notification of DOJ's intent to challenge, block
or otherwise delay the consummation of the Merger, to cause, induce or
otherwise persuade the DOJ to drop all actions against or adverse to the
consummation of the Merger. If on or prior to the close of business on
such 10th day,
A-I-77
<PAGE>
the Company has not been provided with written notice by the DOJ stating
its acquiescence to the Merger then unless the Company has already been
paid the HSR Amount pursuant to 1(a), Parent hereby agrees to pay upon
demand by Company, via a wire transfer of immediately available funds,
an amount equal to the HSR Amount to the Company, deposited in an
account to be designated by the Company to Parent in writing.
(c) The payments described under Section 1 of this Agreement shall
be made irrespective of whether or not the Merger Agreement has been
terminated for any reason.
2. TERMINATION. This Agreement shall terminate upon the earlier of
(i) the Effective Date, or (ii) disbursement in full of the HSR Amount in
accordance with the terms of this Agreement.
3. WAIVER OF OFFSET. In no event shall Parent or Sub have, and Parent
and Sub hereby specifically and irrevocably waive any and all rights Parent
or Sub, as the case may be, now has or may in the future have to offset any
amounts due to Parent or Sub against any amounts owed to Company as a result
of this Agreement.
4. REMEDIES NOT EXCLUSIVE. No remedy herein conferred upon or
reserved to Parent, Sub or Company is intended to be exclusive of any other
remedy or remedies provided to Parent or Company herein or in the Merger
Agreement and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or under the Merger Agreement
or now or hereafter existing at law or in equity. No delay or omission of
Company in exercising any right or power granted to it hereunder shall impair
any such right or power or shall be construed to be a waiver or an
acquiescence thereto.
5. ATTORNEY'S FEES. If Company is required to commence legal action
to enforce any provision of this Agreement and is successful in such action,
Company shall receive as part of any award, judgment, decision, or other
resolution of such legal action its costs and attorneys' fees as determined by
the person or body making such award, judgment, decision, or resolution.
Should any such legal action be settled before the commencement of a lawsuit,
Company shall be entitled to include as part of its alleged damages the
attorneys' fees incurred in connection with such legal action.
6. TIME OF ESSENCE. Time is of the essence with respect to each of
the provisions of this Agreement.
7. NOTICES. Notices required and authorized to be given hereunder
shall be in writing and shall be deemed effective upon personal delivery or
two (2) business days after deposit with a nationally recognized courier such
as Federal Express, or upon transmission by facsimile with prompt telephone
confirmation of receipt thereto to the address of the respective party
indicated below. Company, Sub and Parent may, by written notice given by each
to the other, designate any address or addresses to which notices,
certificates, or other communications shall be sent when required as
contemplated by this Agreement. Unless otherwise provided by the parties, all
notices, certificates and communications to each of them shall be addressed
as follows:
A-I-78
<PAGE>
If to Parent:
GE Medical Systems
3000 North Grandview Boulevard
Waukesha, Wisconsin 53188
Telecopy No.: (414) 544-3573
Attention: General Counsel
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Telecopy No: (312) 853-7036
Attention: Dennis V. Osimitz
If to Company:
InnoServ Technologies, Inc.
320 Westway, Suite 520
Arlington, Texas 76018
Telecopy No.: 817-472-2926
Attn: Michael Puls
with a copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
Telecopy No.: 214-698-3400
Attn: Stephen C. Johnson
8. GENERAL. The rights and obligations of this Agreement shall be
binding upon, and inure to the benefit of, the successors, assigns and legal
representatives of the parties hereto. This Agreement may not be modified
except by a writing signed by Escrow Agent, Company and Parent. This
Agreement may be executed in one or more counterparts, each of which shall be
considered as the original. This Agreement shall be governed by the laws of
the State of New York.
SIGNATURES INTENTIONALLY APPEAR ON FOLLOWING PAGE
A-I-79
<PAGE>
EXHIBIT G
A-I-80
<PAGE>
- -------------------------------------------------------------------------------
State of California
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California,
hereby certify:
That the attached transcript has been compared with the record on
file in this office, of which it purports to be a copy, and that it is
full, true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
------------------------------------
[SEAL]
/s/ BILL JONES
Secretary of State
- -------------------------------------------------------------------------------
A-I-81
<PAGE>
CERTIFICATE OF DETERMINATION OF SERIES B PREFERRED STOCK
OF
INNOSERV TECHNOLOGIES, INC.
---------------------
Pursuant to Sections 400 & 401 of the
General Corporation Law of the
State of California
---------------------
I, Michael Puls, President and Tom Hoefert, Assistant Secretary of
InnoServ Technologies, Inc., a corporation organized and existing under the
General Corporation Law of the State of California (the "Company"), in
accordance with the provisions of Section 401 thereof, HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Company (the "Board") by the Articles of Incorporation of the Company,
the Board duly adopted the following resolution designating a Series B of
Preferred Stock consisting of 700,000 shares, none of which has been issued
as of the date of this Certificate of Determination:
RESOLVED, that pursuant to the authority vested in the Board in
accordance with the provisions of the Articles of Incorporation of the
Company, a Series B of Preferred Stock of the Company be and hereby is
created, and that the designation and number of shares of such series and the
voting powers, preferences and relative, optional and other rights of the
shares thereof, and the qualifications, limitations and restrictions thereof,
are as follows:
SERIES B PREFERRED STOCK.
1. DESIGNATION, AMOUNT AND RANKING.
(a) DESIGNATION AND AMOUNT. The shares of the series created in this
resolution shall be designated as "Series B Preferred Stock" (the "Series B
Preferred Stock") and the number of shares constituting such series shall be
Seven Hundred Thousand (700,000).
(b) RANKING. With regard to rights to receive dividends, rights to
distributions of assets upon liquidation, dissolution or winding up of the
affairs of the Company, and rights to payment upon redemption, the Series B
Preferred Stock shall rank senior and prior in right to (i) the Common Stock,
par value $.01 per share, of the Company as constituted on the date of this
Certificate of Designation or as such stock may be reconstituted from time to
time after such date
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(the "Common Stock"), and (ii) as to any other series of Preferred Stock, as
established by the Board.
2. DIVIDENDS.
(a) ACCRUAL OF DIVIDENDS. The holders of the Series B Preferred Stock
shall have no right to receive dividends except as provided in this Section
2. Each holder of a share of Series B Preferred Stock shall be entitled to
receive, when declared by the Board, out of the funds of the Corporation
legally available therefor pursuant to the California General Corporation Law
("Legally Available Funds"), cumulative dividends in cash in the amount of
$0.32 per share per annum. Such dividends shall accrue from day to day,
beginning six (6) months from the date of issuance of such share, whether or
not earned or declared, and shall be due and payable semi-annually on the
last day of each June, and December, beginning the last day of December 1998;
provided that whenever any such payment date is a Saturday, Sunday or public
or bank holiday or the equivalent for banks generally under the laws of the
State of Texas (any other day being a "business day"), such dividends may be
paid on the next succeeding business day (the day on which such payment is to
be made a "Dividend Payment Date"). Any such dividends not paid when due
or otherwise not thereafter paid as set forth in Section 2(b) shall become
part of the Liquidation Value except with respect to such dividends with
respect to shares that are converted pursuant to Section 6, which dividends
shalt be payable pursuant to Section 6(b).
(b) OTHER DIVIDENDS. Other than dividends of Common Stock on the
Common Stock, no dividend or other distribution shall be paid, or declared
and set apart for payment, on the shares of any class or series of capital
stock of the Company, unless any accrued but unpaid dividends owed to holders
or former holders Series B Preferred Stock are first paid in full pursuant to
Sections 2(a) or 6(b) and the outstanding shares of Series B Preferred Stock
are included in such dividend or distribution PARI PASSU to the shares of
capital stock of the Company to which the dividend or distribution is being
paid or declared with respect to, by applying the Conversion Ratio (as
hereinafter defined in Section 6) to such shares of Series B Preferred Stock
as if such shares had been converted immediately prior to the record date of
such dividend or distribution.
3. LIQUIDATION.
(a) PREFERENCE. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, after
payment or provision for payment of the debts and other liabilities of the
Company and payment or provision for payment of any class or series of
capital stock of the Company ranking as to assets senior to the Series B
Preferred Stock then outstanding, the holder of each share of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital, surplus or earnings, an amount
equal to the Liquidation Value (as hereinafter defined) of such share before
any payment shall be made or assets distributed on the Common Stock or any
other class or series of capital stock of the Company ranking as to assets
junior to the Series B Preferred Stock. After payment to the holders of
Series B Preferred Stock of the amounts to which such holders are entitled as
set forth in this Section 3(a), the holders of the Series B Preferred Stock
shall have no claim, in their capacity as holders, to any of the remaining
assets of the Company.
A-I-83
<PAGE>
(b) PARTIAL PAYMENT. If upon any dissolution, liquidation or winding
up of the affairs of the Company, the assets of the Company distributable
among the holders of the Series B Preferred Stock shall be insufficient to
permit the payment to them of the full preferential amounts to which they are
entitled, then the entire assets of the Company so to be distributed shall be
distributed ratably among the holders of the Series B Preferred Stock.
(c) REMAINING ASSETS. After payment or distribution to the holders of
the Series B Preferred Stock of the full amounts set forth in Section 3(a),
the holders of the Common Stock and any other class or series of capital
stock of the Company ranking as to assets junior to the Series B Preferred
Stock then outstanding shall be entitled to receive in accordance with their
respective preferences and, in the absence thereof, ratably all remaining
assets of the Company to be distributed.
(d) REORGANIZATION. For the purposes of this Section 3, a liquidation,
dissolution or winding up of the affairs of the Company shall not be deemed
to be occasioned by or to include any Reorganization. For the purposes of
this Agreement, a "Reorganization" shall mean any of, or any combination of,
a capital reorganization, any reclassification of the Common Stock (other
than a change in par value or as a result of a stock dividend, subdivision,
split-up or combination of shares), the consolidation or merger of the
Company with or into another person, any agreement or arrangement (including
any tender offer) that contemplates the acquisition of beneficial ownership
of more than 35% of the outstanding shares of the Company's Common Stock, or
the sale or other disposition of all or substantially all of the property and
assets of the Company to another person.
(e) LIQUIDATION VALUE. The "Liquidation Value" per share of the Series
B Preferred Stock as of any particular date shall be the sum of (i) $4.00
plus (ii) all accrued but unpaid dividends as of such date.
4. REDEMPTION.
(a) OPTIONAL REDEMPTION. To the extent the Company shall have Legally
Available Funds therefor, the Company shall have the right, but not the
obligation, to redeem all, or any portion thereof, of the shares of Series B
Preferred Stock outstanding at any time after the date of the issuance
thereof at a redemption price per share equal to the Liquidation Value
thereof at such date; provided, that the holder of such shares shall have the
right, at such holder's option, to exercise such holder's conversion rights
granted under Section 6 hereof, if applicable, prior to the applicable
redemption date.
(b) REORGANIZATION REDEMPTION. The Company shall notify each of the
holders of Series B Preferred Stock as soon as practicable after, but in no
event later than ten (10) days after the consummation of a Reorganization.
Within twenty (20) days of such notice from the Company, each of the holders
of Series B Preferred Stock shall, at any such holder's option, have the
right to cause the Company to redeem all, and not less than all, of the
outstanding Series B Preferred Stock held by such holder at a price per share
equal to the Liquidation Value thereof.
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<PAGE>
(c) MANDATORY REDEMPTION. On May 19, 2008 (or if not a business day on
the next business day after May 19, 2008), the Company shall redeem, to the
extent the Company shall have Legally Available Funds therefor, all shares of
Series B Preferred Stock then outstanding at the close of business upon such
date at a redemption price per share equal to the Liquidation Value thereof
at such date.
(d) PAYMENT OF REDEMPTION PRICE. For each share of Series B Preferred
Stock which is to be redeemed, the Company shall be obligated, on the
applicable redemption date to pay to the holder thereof (upon surrender by
such holder at the Company's office of the certificate representing such
share) the applicable redemption price thereof. If the Company lacks Legally
Available Funds for redemption of shares of Series B Preferred Stock on any
such redemption date required to redeem the total number of shares to be
redeemed on such date, the maximum possible number of shares shall be
redeemed to the extent of Legally Available Funds ratably among the holders
of the shares to be redeemed based upon the aggregate applicable redemption
price of such shares held by each such holder. At any time thereafter if
Legally Available Funds become available for the redemption of shares of
Series B Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the Company has become obligated to redeem on any
such redemption date but which it has not redeemed.
(e) NOTICE OF REDEMPTION; REDEMPTION DATE.
(i) In the case of a redemption pursuant to Section 4(a), the
Company shall provide written notice of each redemption of Series B
Preferred Stock to each record holder thereof not less than five (5)
business days prior to the applicable redemption date, stating the date
and place of redemption, the applicable redemption price and the number of
shares held by such holder to be redeemed.
(ii) In the case of a redemption pursuant to Section 4(b), the
Company shall cause the redemption date to occur not more than five (5)
business days after notice of a demand for redemption is received by the
Company from the holder.
(iii) In the case of a redemption pursuant to Section 4(c), the
Company shall provide written notice of each redemption of Series B
Preferred Stock to each record holder thereof not more than sixty (60)
nor less than thirty (30) days prior to the applicable redemption date,
stating the date and place of redemption, the applicable redemption price
and the number of shares held by such holder to be redeemed.
(f) EFFECT OF REDEMPTION. If notice of redemption shall have been
given by the Company as provided in Section 4(d), and if on or before such
redemption date the aggregate redemption price of the shares to be redeemed
which shall not have theretofore been converted as provided in Section 6
shall have been set aside by the Company in a separate account so as to be
available for the redemption of such shares, then such shares, whether or not
the certificates therefor shall have been surrendered for redemption, shall
be deemed no longer outstanding for any purpose and all rights of the holders
with respect to such shares shall thereupon cease and terminate, except only
if not so converted, the right to receive out of the funds so set aside such
A-I-85
<PAGE>
redemption price, without interest, upon endorsement, if required, and
surrender by the holders of their certificates for such shares.
5. VOTING RIGHTS. Except as otherwise expressly provided by law, shares of
Series B Preferred Stock shall not have any right to vote for the election of
directors or for any other purpose, and said shares shall not be entitled to
any notice of any meeting of stockholders of the Company.
6. CONVERSION. The rights of the holders of shares of Series B Preferred
Stock to convert such shares into shares of Common Stock and the terms and
conditions of such conversion shall be as follows:
(a) RIGHT TO CONVERT. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
earlier of (i) payment of all amounts due to the Company pursuant to that
certain agreement referenced in Section 8.10 of the Agreement and Plan of
Merger, dated May 19, 1998, ("the Merger Agreement") by and among General
Electric Company, Diamond Merger Sub, Inc., and the Company, or (ii) the
later of (A) September 30, 1998 or (B) termination of the Merger Agreement,
and prior to the applicable redemption date therefor (unless the Company
shall fail to pay or provide for the payment of the applicable redemption
price in respect thereof), at the office of the Company or any transfer agent
for the Series B Preferred Stock or the Common StocK into the number of the
fully paid and nonassessable shares of Common Stock determined in accordance
with Section 6. In order to convert shares of the Series B Preferred Stock
into shares of Common Stock the holder thereof shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or to the transfer agent for the Series B Preferred Stock or the
Common Stock, together with written notice to the Company stating that such
holder elects to convert the same and setting forth the name or names in
which such holder wishes the certificate or certificates for Common Stock to
be issued, and the number of shares of Series B Preferred Stock being
converted.
(b) CONVERSION MECHANICS. The Company shall, as soon as
practicable after the surrender of the certificate or certificates
evidencing shares of Series B Preferred Stock for conversion at the
office of the Company or the transfer agent for the Series B Preferred
Stock or the Common Stock, issue to each holder of such shares, or such
holder's nominee or nominees, a certificate or certificates evidencing
the number of shares of Common Stock (and any other securities and
property) to which such holder shall be entitled and, in the event that
only a part of the shares evidenced by such certificate or certificates
is converted, a certificate evidencing the number of shares of Series B
Preferred Stock which are not converted. A conversion shall be deemed
to have been effective immediately prior to the close of business on the
date the holder surrenders its shares of Series B Preferred Stock to be
converted, so that, with respect to such conversion, except with respect
to the rights set forth in the last sentence of this Section 6(b), the
rights of the holder of such shares of Series B Preferred Stock as such
shall cease at the effective time of such conversion and the person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock at such time. If the last day
for the exercise of the right of conversion shall not be a business day
such conversion
A-I-86
<PAGE>
right may be exercised on the next succeeding business day. Upon any
conversion of Series B Preferred Stock, to the extent there are any
accrued but unpaid dividends due and owing the holders of such Series B
Preferred Stock so converting, the Company shall, within one (1) year
from the date of such conversion, pay to such converting holders the
full amount of such accrued but unpaid dividends, with interest
accumulating at the rate of eight percent (8%) per annum, from the date
of such conversion; and provided that the restrictions set forth in
Section 2(b) shall survive until such declaration and payment.
(c) CONVERSION RATIO. Subject to Sections 6(d) and 6(e), each share of
Series B Preferred Stock shall be convertible into one (1) share of Common Stock
(the "Conversion Ratio").
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If outstanding
shares of the Common Stock shall be subdivided into a greater number of
shares, or a dividend in Common Stock or other securities of the Company
convertible into or exchangeable for Common Stock (in which latter event the
number of shares of Common Stock issuable upon the conversion or exchange of
such securities shall be deemed to have been distributed), shall be paid in
respect to the Common Stock, the Conversion Ratio in effect immediately prior
to such subdivision or at the record date of such dividend shall,
simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend, be proportionately increased, and
conversely, if outstanding shares of the Common Stock shall be combined into
a smaller number of shares, the Conversion Price in effect immediately prior
to such combination shall simultaneously with the effectiveness of such
combination, be proportionately reduced.
(e) REORGANIZATION. In the event that the Company shall propose or be
subject to a Reorganization, the Company shall give five (5) business days
written notice to holders of Series B Preferred Stock prior to such
Reorganization. In the event of a Reorganization, the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of
the Series B Preferred Stock the kind and number of shares of Common Stock or
other securities or property including cash) of the Company, or other
corporation resulting from such consolidation or surviving such merger or to
which such property and assets shall have been sold or otherwise disposed of
to which a holder of the number of shares of the Common Stock into which the
Series B Preferred Stock was convertible immediately prior to such
Reorganization would have been entitled to receive (together with any accrued
but unpaid dividends owed to holders of Series B Preferred Stock pursuant to
Section 2(a), as payable pursuant to Section 6(b)); and in any such case
appropriate adjustment shall be made by the Board in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Series B Preferred Stock, to the end that
the provisions set forth herein (including the specified changes and other
adjustments to the Conversion Ratio) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares, other securities or
property thereafter receivable upon conversion of the Series B Preferred
Stock. The provisions of this Section 6(e) shall similarly apply to
successive Reorganizations.
(f) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Ratio or the number of shares of Common Stock
or other securities or property deliverable upon conversion of the Series B
Preferred Stock, the Company shall compute such
A-I-87
<PAGE>
adjustment or readjustment in accordance with this Section 6, prepare a
certificate showing such adjustment or readjustment and mail such certificate
to each registered holder of Series B Preferred Stock at the holder's address
as shown on the books of the Company. The certificate shall set forth such
adjustment or readjustment, showing the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Ratio at
the time in effect and (ii) the type and amount, if any, of other securities
or property which at the time would be received upon conversion of the Series B
Preferred Stock. Such notice may be given in advance of such adjustment or
readjustment and may be included as part of a notice required to be given
pursuant to Section 6(g).
(g) NOTICES OF RECORD DATE. In the event the Company shall propose to
take any action of the type or types requiring an adjustment to the
Conversion Ratio or the number, kind or class of shares or other securities
or property into which the Series B Preferred Stock shall be convertible
pursuant to this Section 6, the Company shall give five (5) business days
prior written notice to the holders of the Series B Preferred Stock in the
manner set forth in Section 6(f), which notice shall specify the record date,
if any, with respect to any such action and the date on which such action is
to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Conversion Ratio and the number, kind or class of shares or other
securities or property which shall be deliverable upon the occurrence of such
action or deliverable upon the conversion of the Series B Preferred Stock.
The omission or delay in giving such notice shall not affect the validity or
effectiveness of such action.
(h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect a conversion of all
outstanding shares of the Series B Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) PAYMENT OF TAXES. The Company shall pay all taxes and other
governmental charges (other than any income or other taxes imposed upon the
profits realized by the recipient) that may be imposed in respect of the
issue or delivery of shares of Common Stock or other securities or property
upon conversion of shares of Series B Preferred Stock; provided, however,
that the Company shall not be required to pay any tax or other governmental
charge which may be payable in respect of any transfer involved in the issue
or delivery of any certificate in a name other than that of the holder of the
Series B Preferred Stock converted, and the Company shall not be required to
issue or deliver such certificate unless and until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or other governmental charge or shall have established to the
satisfaction of the Company that such tax or other governmental charge has
been paid.
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<PAGE>
(j) SURRENDERED SHARES. All certificates representing Series B
Preferred Stock surrendered for conversion or redeemed shall be appropriately
canceled on the books of the Company, and the shares so converted represented
by such certificates shall be restored to the status of authorized but
unissued shares of Preferred Stock of the Company.
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<PAGE>
EXHIBIT H
A-I-90
<PAGE>
May ___, 1998
(214) 698-3179 62203-00032
VIA HAND DELIVERY
General Electric Company
Diamond Merger Sub, Inc.
c/o GE Medical Systems
3000 North Grandview Blvd.
Waukesha, WI 53188
Ladies and Gentlemen:
This firm has acted as counsel to InnoServ Technologies, Inc., a
California corporation (the "Acquired Company"), in connection with that
certain Agreement and Plan of Merger dated as of May ___, 1998 (the "Merger
Agreement") among General Electric Company, a New York corporation operating
through its GE Medical Systems division (the "Acquiring Company"), the
Acquired Company, and Diamond Merger Sub, Inc., a California corporation and
a wholly-owned subsidiary of a wholly-owned subsidiary of the Acquiring
Company (the "Merging Subsidiary"), providing for (i) the merger (the
"Merger") of the Merging Subsidiary into the Acquired Company, which will
thereupon become a wholly-owned subsidiary of a wholly-owned subsidiary of
the Acquiring Company, and (ii) the conversion of each outstanding share of
Common Stock, $.01 par value, of the Acquired Company ("Company Common
Stock") into the Per Share Merger Consideration. The Merger is more fully
described in the Proxy Statement dated May ___, 1998 (the "Proxy Statement")
filed by the Acquired Company with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
As required under the terms of the Merger Agreement, we are delivering this
opinion. Capitalized terms not defined herein shall have the respective
meanings set forth in the Merger Agreement.
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A. DOCUMENTS EXAMINED. In preparing this opinion, we examined:
1. The Merger Agreement.
2. The Proxy Statement.
3. The Officer's Certificate of the Acquired Company prepared
in accordance with Section 9.3(a) of the Merger Agreement.
4. The Officer's Certificate of the Acquired Company prepared
in accordance with Section 9.3(b) of the Merger Agreement.
5. A certificate executed by the President of the Acquired
Company, dated as of the date hereof, regarding certain
factual matters.
We also examined such agreements, certificates, and other documents
as we deemed appropriate to enable us to render the opinions expressed below.
B. COMMENTS, ASSUMPTIONS, LIMITATIONS, QUALIFICATIONS, AND
EXCEPTIONS. The opinions expressed in Section C below are based upon, and
subject to, the following comments, assumptions, limitations, qualifications,
and exceptions:
1. We have assumed (a) the genuineness of all signatures, other
than the signatures of the officers of the Acquired Company acting in
such capacity, (b) the authenticity of all documents submitted to us as
originals, (c) the conformity to original documents of all documents
submitted to us as conformed, certified, or photostatic copies thereof,
and (d) the authenticity and completeness of the originals of such
conformed, certified, or photostatic copies.
2. We have assumed that each party to the Merger Agreement other
than the Acquired Company has (a) adequate legal capacity, power, and
authority to execute, deliver, and perform the Merger Agreement and each
document ancillary thereto to which it is a party, and (b) taken all
corporate or other action necessary to duly execute and deliver, and has
duly executed and delivered, the Merger Agreement and each such other
document. We have also assumed that the Merger Agreement and each such
other document is a valid and binding obligation of such other party,
enforceable against such other party in accordance with the terms of the
Merger Agreement and each such other document, respectively.
A-I-92
<PAGE>
3. With respect to questions of fact, we have relied exclusively
upon (a) certificates and assurances of public officials, and (b)
certificates and assurances of officers of the Acquired Company, without
having independently verified the accuracy or completeness thereof.
4. We are unaware of any agreements or understandings among the
parties to the Merger Agreement that would modify the terms thereof or
the respective rights and obligations of the parties thereunder.
Accordingly, we have assumed that no such agreement or understanding
exists.
5. We express no opinion as to matters involving the laws of any
jurisdiction other than the States of Texas and California. This opinion
is limited to the effect of the present state of the laws of the States
of Texas and California.
C. OPINIONS. Based upon and subject to the foregoing, we are of the
opinion that:
1. The Acquired Company is validly existing and in good standing
under the laws of the State of California and has corporate power and
authority to own, lease and operate its properties and to conduct the
business in which it is engaged as described in the Proxy Statement, to
execute and deliver the Merger Agreement and the other agreements and
instruments contemplated thereby to be executed by the Acquired Company,
to consummate the transactions contemplated thereby and to perform its
obligations under the Merger Agreement and such other agreements and
instruments.
2. The authorized capital stock of the Acquired Company consists of
10,000,000 shares of Company Common Stock, $.01 par value and 5,000,000
shares of preferred stock, $.01 par value ("Company Preferred Stock").
All of the 3,009,395 shares of Company Common Stock and all __________
shares of Company Preferred Stock outstanding as of May ___,1998 are
duly and validly authorized and issued, fully paid and nonassessable and
have not been issued in violation of any preemptive right of
shareholders;
3. Each Company Subsidiary is a corporation validly existing and in
good standing under laws of the state of its incorporation. All of the
issued and outstanding shares of capital stock of each Company
Subsidiary is owned of record by the Acquired Company.
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<PAGE>
4. The Merger Agreement has been duly authorized, executed and
delivered by the Acquired Company constitutes the legal, valid and
binding obligation of the Acquired Company enforceable against the
Acquired Company in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general applicability relating to or
affecting the enforcement of creditors' rights and by the effect of
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
5. The execution, delivery and performance by the Acquired
Company of the Merger Agreement do not and will not result in any breach
of, constitute a default under or result in the creation of any lien or
encumbrance in respect of any property of the Acquired Company or any
Company Subsidiary pursuant to its Articles or Certificate of
Incorporation, as amended, or By-laws or any agreement, instrument,
judgment, decree, order, statute (including the California General
Corporation Law), rule or regulation known to us, after due inquiry,
which is applicable to the Acquired Company, any Company Subsidiary or
any of their respective properties.
This letter and the matters addressed herein are as of the date hereof,
and we undertake no, and hereby disclaim any, obligation to advise you of any
change in any matter set forth herein occurring after the date hereof. This
letter is solely for your benefit and no other persons may rely upon the
opinions expressed herein. This letter is limited to the matters stated
herein and no opinion is implied or may be inferred beyond the opinions
expressly stated. Without our prior written consent, this letter may not be
quoted in whole or in part or otherwise referred to in any document and may
not be furnished to any other person or entity.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
By
----------------------------------
Stephen C. Johnson
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<PAGE>
APPENDIX II
FAIRNESS OPINION
[LETTERHEAD]
May 11, 1998
The Board of Directors
Innoserv Technologies, Inc.
320 Westway, Suite 530
Arlington, TX 76018
Dear Sirs:
We understand that Innoserv Technologies, Inc. ("Innoserv" or the "Company") is
considering a transaction whereby General Electric Company, a New York
corporation acting on behalf of its GE Medical Systems business ("Parent"),
Diamond Merger Sub, Inc., a California corporation and a wholly owned subsidiary
of a wholly owned subsidiary of Parent ("SUB") will be merged with and into the
Company (the "Merger"). Pursuant to the terms of a draft Agreement and Plan of
Merger dated May 11, 1998 (the "Purchase Agreement") each issued and outstanding
share of capital stock of Innoserv, par value $0.01 per share, ("Innoserv
Shares"), including all issued and outstanding options, warrants or other stock
issuance agreements, shall be converted into the right to receive, in cash, an
amount equal to (A) the remainder of (I) $16,000,000 minus (II) (a) the MEDIQ
Payment and (b) the Escrow Payment (as defined in the draft Purchase Agreement),
divided by (B) the number of shares outstanding as of the Effective Date,
without interest thereon (the "Consideration"). The terms and conditions of the
Transaction are more fully set forth in the draft Purchase Agreement.
You have requested our opinion as to whether, as of the date hereof, the
Consideration to be received in the Merger is fair, from a financial point of
view, to the stockholders of Innoserv Shares.
SBC Warburg Dillon Read Inc. ("SBCWDR") and its predecessors have acted as
financial advisor to the Board of Directors of the Company in connection with
the Merger and will receive a fee upon the consummation thereof. In the past,
SBCWDR and its predecessors have provided investment banking services to the
Company and received reimbursement of expenses incurred in the rendering of such
services. In the ordinary course of business, SBCWDR, its successors and
affiliates may have traded securities of the Company and General Electric Inc.
for their own accounts and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion does not address the Company's underlying business decision to
affect the Merger or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Merger.
At your direction, we have not been asked to, nor do we, offer any opinion as to
the material terms of the Purchase Agreement or the form of the Merger. In
rendering this opinion, we have assumed, with your consent, that SUB and the
Company will comply with all the material terms of the Purchase Agreement.
In arriving at our opinion we have, among other things, (i) reviewed certain
publicly available business, stock market, historical budget data, and
historical financial information relating to the Company, (ii) reviewed certain
internal financial information, historical budget data, and other data relating
to the business prospects of the Company, that were provided to us by the
Company and not publicly available, (iii) conducted discussions with members of
the senior management of the Company, (iv) reviewed
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publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
the Company, (v) compared the financial terms of the Merger with the publicly
available financial terms of certain other transactions which we believe to be
generally relevant, (vi) reviewed drafts of the Purchase Agreement, and (vii)
conducted such other financial studies, analyses, and investigations, and
considered such other information as we deemed necessary or appropriate.
In connection with our review, at your direction, we have not independently
verified any of the foregoing information and have, at your direction, relied on
its being complete and accurate in all material respects. We have not made an
independent evaluation or appraisal of any assets or liabilities (contingent or
otherwise) of Innoserv or any of its respective subsidiaries, nor have we been
furnished with any such evaluation or appraisal. With respect to the certain
internal financial information, historical budget data, and other data relating
to the business prospects of the Company, that were provided to us by the
Company and not publicly available, we have assumed, with your permission, that
all such information was reasonably prepared on bases reflecting the best
currently available estimates and judgments of management of Innoserv and was
based upon the historical performance of Innoserv and certain estimates and
assumptions which were reasonable at the time made. Our opinion is based on
economic, monetary, market and other conditions existing on the date hereof.
In rendering this opinion, we are not making any recommendation regarding
whether or not it is advisable for Shareholders to vote in favor of the Merger.
Based upon and subject to the foregoing, we are of the opinion, as of the date
hereof, that the Consideration to be received in the merger is fair, from a
financial point of view, to the stockholders of Innoserv Shares.
Very truly yours,
/s/ SBC WARBURG DILLON READ INC.
SBC WARBURG DILLON READ INC.
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APPENDIX III
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of November 13, 1997 (the
"Agreement"), among MEDIQ Incorporated, a Delaware corporation ("MEDIQ"), MEDIQ
Investment Services, Inc., a Delaware corporation ("MIS" and together with
MEDIQ, collectively the "Seller"), and InnoServ Technologies, Inc., a California
corporation (the "Company").
WITNESSETH:
WHEREAS, Seller owns 2,026,438 shares (the "Issuer Shares") of the common
stock of the Company (the "Common Stock") and warrants to purchase 325,000
shares of Common Stock (the "Warrants"); and
WHEREAS, the Seller and the Company had previously entered into an agreement
pursuant to which Seller would be required to distribute the Issuer Shares to
its stockholders upon demand by the Company; and
WHEREAS, by letter dated September 26, 1997 (the "Distribution Request"),
the Company has requested that Seller distribute the Issuer Shares to its
stockholders, such distribution to be completed no later than 60 days from the
date of such letter; and
WHEREAS, the Seller requested that the Company consider alternative
arrangements with respect to the Issuer Shares, and the respective Boards of
Directors of the Company and the Seller have considered such alternative
arrangements; and
WHEREAS the Seller and the Company desire that in lieu of distribution that
Seller will sell and transfer such shares to Company in accordance with the
terms and conditions hereof; and
NOW, THEREFORE, in consideration of the mutual premises and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the parties hereto
agree as follows:
1. SALE OF THE SHARES
1.1 SALE. Simultaneously with the execution and delivery hereof, the
Seller shall transfer, assign, sell and deliver to the Company, and the Company
shall purchase from the Seller all of the Issuer Shares and Warrants in
consideration of the agreements and waivers of the parties contained herein (the
"Purchase Price"). The closing (the "Closing") of the sale and purchase and
delivery of all of the Issuer Shares and Warrants shall be held on the date
hereof. At the Closing Seller shall deliver the certificates for the Issuer
Shares and the Warrants duly endorsed or accompanied by stock powers or other
appropriate instruments of transfer duly executed in blank.
1.2 CHANGE IN CONTROL.
(a) Before April 1, 1998, the Company shall not enter into or consummate
a change in control (as defined below) unless the other party or parties
thereto agree, as a condition precedent to such transaction, to pay Seller
the amount (subject to the last sentence of this paragraph) that would have
been received by the Seller in connection with the change of control
transaction if all of the Issuer Shares were outstanding and held by the
Seller at the effective time of such change in control transaction. From and
after April 1, 1998 and through September 30, 1998, the Company shall not
enter into or consummate a change of control unless the other party or
parties thereto agree, as a condition precedent to such transaction, to pay
Seller 50% of the amount (subject to the last sentence of this paragraph)
that would have been received by the Seller in connection with the change of
control transaction if all of the Issuer Shares were outstanding and held by
the Seller at the effective time of such change in control transaction. Any
amounts owed to Seller pursuant to this Section 1.3
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shall be paid simultaneously with the payment to the Company's shareholders
in connection with the consummation of any transaction that constitutes a
change in control of the Company. The Company shall not enter into any
change in control transaction or cooperate with any third party with respect
to a possible change in control transaction unless the other party (or
parties) thereto agree to make adequate provision for the payment to Seller
of all amounts provided herein. If the Company's shareholders are entitled
to receive Marketable Consideration (as defined below) and other
consideration in respect of a share of Common Stock, the amount that is due
to Seller shall be determined only with respect to the portion that is
Marketable Consideration.
(b) For purposes of this Agreement, the parties intend that a "change in
control" means a transaction or series of transactions in which the holders
of a majority of the outstanding Common Stock receive (or have the right to
receive) Marketable Consideration, in respect of their shares of Common
Stock (whether by merger, sale, tender, dissolution or otherwise). For the
purposes of this Agreement, Marketable Consideration means cash, debt or
publicly traded equity securities of a company that had been a public
company before such transaction (including preferred stock or any right to
acquire such publicly traded equity security) ("Marketable Consideration").
By way of illustration, a change in control shall include: (i) the
consolidation or merger of the Company pursuant to which the outstanding
shares of Common Stock are converted into the right to receive Marketable
Consideration or (ii) the sale of all or substantially all of the assets of
the Company for Marketable Consideration or (iii) any other transaction
involving an exchange or sale of 50% or more of the outstanding Common
Stock, including a tender offer, for Marketable Consideration, but excluding
all other transactions, including where the holders of the outstanding
Common Stock receive only securities of the Company or of another entity of
which the Company's assets or business constitute a substantial portion, or
reincorporation of the Company in a jurisdiction other than California.
(c) For purposes of determining the amount which Seller would have
received with respect to the Issuer Shares following a change in control,
(1) in any transaction involving a sale or exchange of any shares of Common
Stock, it shall be presumed that all of the Issuer Shares were sold at the
highest average price paid to any affiliate of the Issuer for any shares in
such transaction, (2) in any transaction involving a merger or consolidation
of the Company, it shall be presumed that the Seller (as a shareholder)
voted in favor of such transaction, (3) in any transaction involving the
sale of all or substantially all of the assets of the Company, it shall be
presumed that the Company was dissolved and its net assets distributed to
its shareholders immediately after such transaction and (4) in any other
change in control transaction in which a majority of the Company's
shareholders which are not affiliates of the Company receive any
consideration in respect of their shares of Common Stock, the Seller shall
be presumed to have the right to receive an equivalent amount. Furthermore,
in the event of a tender or exchange offer for less than all of the
outstanding Common Stock, the Seller shall be treated as if it had tendered
(which tender had been accepted) a percentage of the Issuer Shares equal to
the highest percentage of shares of Common Stock owned by any shareholder of
the Company which are accepted by the party making such offer; and in
addition the Seller shall be entitled to receive an equivalent amount of any
securities of the Company retained by such shareholder.
(d) The Seller acknowledges that neither the Company nor any of its
affiliates (i) has any fiduciary duty to Seller, any of Seller's affiliates
or any of Seller's stockholders (the "Seller Group") by reason of this
Agreement, (ii) is under any duty or obligation to the Seller Group to
initiate, investigate, consider, respond or otherwise take any action with
respect to a proposal that may result in a change of control by reason of
this Agreement, any such potential transaction as with respect to the Seller
Group being within the sole discretion of the Company, and (iii) any such
potential transaction will be considered by the Company in light of the
duties owed to the holders of the Common Stock outstanding at such time.
Notwithstanding the above, if any third party approaches the Company or any
of its affiliates or representatives regarding a possible change in control,
the
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Company shall in good faith not delay or defer such consideration,
evaluation or negotiation with the intent to reduce any amounts payable to
Seller hereunder.
(e) Subject to the last sentence of Section 1.2(a), any payment due to
Seller under this Section 1.2 shall, unless Seller otherwise agrees, be paid
in cash or in property of the kind and in the same proportion received by
the shareholders of the Company in connection with the change in control
transaction.
2. CERTAIN REPRESENTATIONS AND WARRANTIES
2.1 CERTAIN REPRESENTATIONS AND WARRANTIES BY THE SELLER. The Seller
represents and warrants to the Company that:
(a) ORGANIZATION AND GOOD STANDING. Each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all necessary corporate power and authority to carry on
its business and to own and lease the assets which it owns and leases.
(b) POWER AND AUTHORIZATION. Each Seller has full legal right, power
and authority to enter into and perform its obligations under this Agreement
and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by each Seller of this
Agreement and such other agreements and documents have been duly authorized
by all necessary corporate action on the part of Seller. This Agreement has
been duly and validly executed and delivered by each Seller and constitutes
its legal, valid and binding obligation, enforceable against it in
accordance with its terms. When executed and delivered by such Seller as
contemplated herein, each of such other agreements and documents shall
constitute the legal, valid and binding obligation of each Seller,
enforceable against it in accordance with its terms.
(c) NO CONFLICTS. (i) Neither the execution of this Agreement nor the
consummation by each Seller of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any statute or
regulation, contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Seller is a party or by which it or
any of its properties are bound (which, in relation to a contract,
commitment, agreement, understanding, arrangement or restriction would have
a material adverse effect on the Seller or prohibit or delay the
transactions contemplated herein) and (ii) no consent, approval, order or
authorization of any court, administrative agency, other governmental entity
or any other person is required (as opposed to voluntary) by or with respect
to such Seller in connection with the execution and delivery of this
Agreement by such Seller.
(d) OWNERSHIP OF SHARES. (i) Upon transfer and delivery of the Issuer
Shares and Warrants by the Seller hereunder to the Company, as provided
herein, Company shall acquire good and marketable title to such shares and
Warrants, free and clear of all claims, liens, charges, proxies,
encumbrances and security interests (other than as are imposed by applicable
securities laws) and (ii) the Seller does not own beneficially (as
hereinafter defined) or of record any shares of Common Stock or any right to
acquire Common Stock of the Company other than the Issuer Shares and
Warrants.
(e) NO BROKER. Neither Seller nor any director, officer, employee of
Seller has incurred or will incur on behalf of the Company any brokerage,
finder's or similar fee in connection with the transactions contemplated by
this Agreement.
(f) BOARD MEMBERS. Thomas Carroll and Michael Sandler or other
designees of the Seller have served on the Board of Directors of the Company
by designation of the Seller at all times since the consummation of the
transactions contemplated by the Merger Agreement (as defined in Section
6.3). All documents, records, plans and books pertaining to the Company have
been made available to such designees. The Seller has made such examinations
relating to the terms, merits and risks of the transactions contemplated
hereby as it deems necessary, including the opportunity to ask questions of
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<PAGE>
and receive answers from the officers of the Company and the Company's
auditors and consultants and all such questions have been answered to the
full satisfaction of the Seller. In making the decision to enter into the
transactions contemplated hereby, the Seller is relying solely on the
investigations made by the Seller and the Company's representations and
warranties made herein.
2.2 CERTAIN REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to the Seller that:
(a) ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and has all necessary corporate power and authority to carry
on its business and to own and lease the assets which it owns and leases.
(b) POWER AND AUTHORIZATION. The Company has full legal right, power
and authority to enter into and perform its obligations under this Agreement
and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by the Company of this
Agreement and such other agreements and documents have been duly authorized
by all necessary corporate action on the part of the Company. The
transactions contemplated by this Agreement have been approved by a special
committee of the board of directors composed entirely of directors who are
not present or former directors, officers, employees, or consultants of
Seller. This Agreement has been duly and validly executed and delivered by
the Company and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms. When executed and
delivered as contemplated herein, each of such other agreements and
documents shall constitute the legal, valid and binding obligation of the
Company enforceable against it in accordance with its terms.
(c) NO CONFLICTS. (i) Neither the execution of this Agreement nor the
consummation by the Company of the transactions contemplated hereby will
constitute a violation of or default under, or conflict with, any statute or
regulation, contract, commitment, agreement, understanding, arrangement, or
restriction of any kind to which the Company is a party or by which it or
any of its properties is bound (which in relation to a contract, commitment,
agreement, understanding, arrangement or restriction would have a material
adverse effect on the Company or prohibit or delay the transactions
considered herein) and (ii) no consent, approval, order or authorization of
or by the stockholders of the Company or of any court, administrative
agency, other governmental entity or any other person (other than that which
has already been obtained) is required (as opposed to voluntary) by or with
respect to the Company in connection with the execution and delivery of this
Agreement by it.
(d) CHANGE IN CONTROL. Except as previously disclosed to Seller or its
designees serving as the Company's board of directors, there are no offers,
options, rights, agreements or commitments of any kind (contingent or
otherwise) relating to any possible change in control of the Company.
(e) NO BROKERS. Neither the Company nor any director, officer or
employee of the Company has incurred or will incur on behalf of the Company,
any brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
3. CLOSING DELIVERIES
3.1 SELLER'S DELIVERIES. At the Closing, Seller shall deliver, or shall
cause to be delivered to the Company the following:
(a) certificates for all of the Issuer Shares and Warrants, duly
endorsed or accompanied by stock powers and other appropriate instruments of
transfer duly executed in blank;
(b) copies of the resolutions of the Board of Directors of each Seller
authorizing the execution, delivery and performance of this Agreement and
the other agreements and instruments referred to herein, certified as of the
Closing by the Secretary or an Assistant Secretary of Seller; and
(c) The resignation of Thomas E. Carroll from the Company's Board of
Directors; and
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<PAGE>
(d) such other documents and instruments as the Company may reasonably
request to effectuate or evidence the transactions contemplated by this
Agreement.
3.2 THE COMPANY'S DELIVERIES. At the Closing, the Company shall deliver,
or shall cause to be delivered to Seller a copy of the resolutions of the Board
of Directors of the Company (and each committee thereof, if any) authorizing the
execution, delivery and performance by the Company of this Agreement and the
other agreements and instruments referred to herein, certified as of the Closing
by the Secretary or an Assistant Secretary of the Company.
4. INDEMNIFICATION
4.1 INDEMNIFICATION BY SELLER. Seller shall indemnify and hold the Company
and its officers, directors and shareholders harmless from and against and in
respect of any and all losses, costs, expenses, claims, damages, obligations and
liabilities, including interest, costs of investigation, penalties and
reasonable attorneys' fees and disbursements ("Damages") which the Company or
any such person may suffer, incur or become subject to arising out of, based
upon or otherwise in respect of any inaccuracy in or breach of (i) any
representation or warranty of Seller made in or pursuant to this Agreement or
any agreement or document required to be delivered pursuant to this Agreement,
(ii) or any breach or nonfulfillment of any covenant or obligation of Seller
contained in this Agreement or such other agreements and documents, or (iii) any
action, suit, proceeding or claim by a stockholder of the Seller (in such
capacity) challenging the transactions contemplated by this Agreement.
4.2 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold
Seller and its officers, directors and shareholders harmless from and against
and in respect of any and all Damages which Seller or any such person may
suffer, incur or become subject to arising out of, based upon or otherwise in
respect of (i) any inaccuracy in or breach of any representation or warranty of
the Company made in or pursuant to this Agreement or any agreement or document
required to be delivered pursuant to this Agreement, (ii) any breach or
nonfulfillment of any covenant or obligation of the Company contained in this
Agreement or such other agreements and documents or (iii) any action, suit,
proceeding or claim by a stockholder of the Company (in such capacity)
challenging the transactions contemplated by this Agreement.
4.3 THIRD PARTY CLAIMS.
(a) Each party shall promptly notify the other of the assertion by any
third party of any claim with respect to which the indemnification set forth
in this Section relates. The indemnifying party shall have the right, upon
notice to the indemnified party within ten (10) business days after the
receipt of any such notice, to undertake the defense of or, with the consent
of the indemnified party (which consent shall not unreasonably be withheld)
to settle or compromise such claim. The failure of the indemnifying party to
give such notice and to undertake the defense of or to settle or compromise
such a claim shall constitute a waiver of the indemnifying party's rights
under this Section 5.3(a) and in the absence of gross negligence or willful
misconduct on the part of the indemnified party shall preclude the
indemnifying party from disputing the manner in which the indemnified party
may conduct the defense of such claim or the reasonableness of any amount
paid by the indemnified party in satisfaction of such claim.
(b) The election by the indemnifying party, pursuant to Section 4.3(a),
to undertake the defense of a third party claim shall not preclude the party
against which such claim has been made also from participating or continuing
to participate in such defense, so long as such party bears its own legal
fees and expenses for so doing.
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5. MISCELLANEOUS
5.1 BEST EFFORTS. Each of the parties shall use its best reasonable
efforts to take all action and do all things necessary, proper or advisable to
consummate the transaction contemplated by this Agreement.
5.2 AMENDMENT; ASSIGNMENT. This Agreement may be amended only by written
instrument duly executed by the parties hereto. No party may waive any term,
provision, covenant or restriction of this Agreement except by duly signed
writing referring to the specific provision to be waived. Neither of the parties
to this Agreement may assign any of its rights or obligations under this
Agreement without the prior written consent of the other party hereto. Subject
to the foregoing, this Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns. The parties expressly intend and agree that no provision of
this Agreement shall create any third party beneficiary rights in any person.
5.3 TERMINATION OF PRIOR OBLIGATIONS. This Agreement sets forth the entire
understanding between the Seller and the Company and supersedes all prior
agreements, arrangements and understandings by and among the parties with
respect to the transactions contemplated hereby. All unperformed agreements,
arrangements and understandings under or entered into pursuant or relating to
the Agreement of Merger and Plan of Reorganization among MMI Medical, Inc. (now
the Company), MMI Acquisition Subsidiary, Inc., MEDIQ Incorporated and MEDIQ
Equipment and Maintenance Services, Inc. dated May 18, 1994, as amended (the
Merger Agreement), (including without limitation such Merger Agreement), except
as further provided herein, are hereby terminated without further liability or
obligation on the part of any party. Notwithstanding the foregoing, the
agreements set forth in Article X of the Merger Agreement shall continue in full
force and effect to the extent provided therein. Seller and the Company each
acknowledge that they have no claims against each other and hereby irrevocably
releases each other from and against, and irrevocably waives, any and all
claims, liabilities, obligations, covenants, agreements, damages and causes of
action, which each may have against the other arising out of events occurring
prior to the date hereof, provided that the foregoing shall not include (i)
Article X of the Merger Agreement, and (ii) shall not include, and the parties
shall use their best reasonable efforts to resolve within the next 180 days, all
issues relating to the receipt of receivables, which are estimated to be less
than $50,000.
5.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be delivered personally
or transmitted by telex, fax or telegram, to the respective parties as follows:
(a) If to the Seller, to it at:
MEDIQ Incorporated
One MEDIQ Plaza
Pennsauken, New Jersey 08110-1460
Attention: Thomas E. Carroll, President
Telecopier: (609) 661-0958
with a copy to:
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Attention: F. Douglas Raymond, Ill, Esquire
Telecopier: (215) 988-2757
(b) If to the Company, to it at:
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InnoServ Technologies, Inc.
320 Westway, Suite 520
Arlington, Texas 76018
Attention: Michael G. Puls
Telecopier: (817) 472-2926
with a copy to:
Gibson, Dunn & Crutcher LLP
1917 Main Street, Suite 5400
Dallas, Texas 75201
Attention: Ellen J. Curnes
Telecopier: (214) 698-3400
or to such other address as any party may have furnished to the others
in writing.
5.5 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the internal laws of the State of California.
5.6 SURVIVAL. All representations, warranties, covenants and agreements of
the parties hereto shall survive indefinitely the Closing.
5.7 COUNTERPARTS; HEADINGS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document. The article and section
headings contained herein are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
5.8 EXPENSES. Each of the parties hereto shall pay the fees and expenses
it incurs in connection with this Agreement, other than as a result of the
breach hereof by the other party hereto.
5.9 CERTAIN DEFINITIONS. For purposes of the Agreement:
(a) "beneficially owned" shall have the meaning set forth in Rule 13d-3
promulgated under the Exchange Act, as such Rule is in effect on the date
hereof.
(b) "business day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed
in New York, New York..
5.10 STOCK SPLITS, ETC. The amount of any payments under Section 1.2 shall
be appropriately adjusted for any stock split, reverse stock split, stock
dividend or any similar event occurring after the date hereof and prior to the
consummation of a change in control.
5.11 PUBLIC ANNOUNCEMENTS. Seller and the Company shall consult with each
other before issuing any press release or public statement with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement with respect to the transactions
contemplated by this Agreement without the prior consent of the other party,
which shall not be unreasonably withheld or delayed; provided, however, that a
party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the rules and regulations of the AMEX or NASD.
5.12 SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees
that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof (including without limitation the
Seller's rights under Section 1.2) in any action instituted in any court of the
United
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States or any state thereof having jurisdiction over the parties and the matter,
in addition to any other remedy to which they may be entitled, at law or in
equity, subject to Section 5.13.
5.13 ARBITRATION. Any controversy involving a claim as to the existence of
a "change in control" or the amount due in respect thereof shah be finally
settled by arbitration in Los Angeles, California, in accordance with the
then-current Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Such arbitration shall be
conducted by an arbitrator chosen by mutual agreement of Seller and Company.
Failing such agreement, the arbitration shall be conducted by three independent
arbitrators, none of whom shall have any competitive interest with Seller or
Company; Seller shall choose one such arbitrator, Company shall choose one such
arbitrator, and such two arbitrators shall mutually select a third arbitrator.
Any decision of two such arbitrators shall be binding on Seller and Company.
There shall be limited discovery prior to the arbitration hearing, subject to
the discretion of the arbitrators, as follows: (a) exchange of witness lists and
copies of documentary evidence and documents related to or arising out of the
issues to be arbitrated, (b) depositions of all party witnesses, and (c) such
other depositions as may be allowed by the arbitrator upon a showing of good
cause. Depositions shall be conducted in accordance with the California Code of
Civil Procedure. Each party shall pay its own costs and expenses (including
counsel fees) of any such arbitration except that the arbitrator can compel one
parry to pay all or a portion of the other party's costs and expenses. The
parties recognize that time is of the essence, and agree to submit to
arbitration any such claim within 20 business days of a controversy having
arisen.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written.
<TABLE>
<S> <C> <C>
MEDIQ INCORPORATED
By: /s/ Thomas E. Carroll
-----------------------------------------
MEDIQ INVESTMENT SERVICES, INC.
By: /s/ Thomas E. Carroll
-----------------------------------------
INNOSERV TECHNOLOGIES, INC.
By: /s/ Michael G. Puls
-----------------------------------------
</TABLE>
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APPENDIX IV
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
BETWEEN
INNOSERV TECHNOLOGIES, INC.
AND
NATIONAL MEDICAL DIAGNOSTICS, INC.
DATED AS OF
JUNE 4, 1998
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
the 4th day of June, 1998, between National Medical Diagnostics, Inc., a
Delaware corporation (the "Investor"), and InnoServ Technologies. Inc., a
California corporation (the "Company").
PRELIMINARY STATEMENTS:
WHEREAS, General Electric Company ("GE"), Diamond Merger Sub, Inc., and the
Company are parties to an agreement and plan of merger dated as of May 19, 1998
(the "Merger Agreement").
WHEREAS, the Merger Agreement provides that GE (or its designee) shall
purchase for $2,800,000, and the Company shall deliver to GE (or its designee),
700,000 shares of a newly created Series B Preferred Stock, par value $.01 per
share, of the Company ("Series B") within five business days after the
designation for such Series B has been approved by the Secretary of State of the
State of California.
WHEREAS, such designation has been so approved, GE has designated the
Investor as the person to purchase such Series B, the Investor has purchased
such Series B and the Company has delivered to the Investor such Series B.
WHEREAS, the Merger Agreement provides that the Company and GE (or its
designee) will enter into a registration rights agreement in which the Company
will grant certain registration rights to GE (or its designee).
TERMS AND CONDITIONS:
NOW THEREFORE, the Investor and the Company agree as follows:
ARTICLE I
REGISTRATION RIGHTS
1.1 PIGGYBACK REGISTRATION RIGHTS.
(a) RIGHT TO PIGGYBACK. Subject to the limitations set forth in Section
1.1(e) hereof, whenever the Company proposes to file a registration statement (a
"Proposed Registration") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to any equity security (as defined in the
Securities Act) (other than a registration statement on Form S-4, Form S-8 or
any successor form for the registration of securities to be offered in a
transaction subject to Rule 145 under the Securities Act or to employees of,
and/or consultants and advisors to, the Company and/or its subsidiaries pursuant
to any "employee benefit plan," as such term is defined in Rule 405 promulgated
under the Securities Act) and the registration form to be used may be used for
the registration (the "Piggyback Registration") of Piggyback Registrable
Securities, the Company will give written notice (the "Piggyback Notice") to the
Investor as soon as practicable (but in no event less than 45 days) before the
initial filing with the SEC of such registration statement, which notice shall
(i) specify the kind and number of securities proposed to be registered and the
proposed offering price or prices and distribution arrangements; (ii) include
such other information that at the time and under the circumstances would be
appropriate to include in such notice; and (iii) subject to the provisions of
Section 1.1(e), offer the Investor the opportunity to include in such filing all
Piggyback Registrable Securities which the Investor may request in accordance
with subsection 1.1(b) below. "Piggyback Registrable Securities" shall mean any
shares of common stock of the Company, par value $.01 (the "Common Stock"),
receivable by Investor as a result of the conversion and anti-dilution rights
pertaining to the Series B.
(b) REQUESTS TO PIGGYBACK. The Investor shall advise the Company in writing
(a "Piggyback Registration Request") within 15 days after the date of receipt of
the Piggyback Notice of the number or amount of each class or series of
Piggyback Registrable Securities which the investor desires to have registered.
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(c) SELECTION OF UNDERWRITERS. If the Piggyback Registration is an
underwritten offering, the Board of Directors of the Company will select a
managing underwriter or underwriters to administer the offering, who shall be
reasonably satisfactory to the Investor.
(d) PIGGYBACK EXPENSES. Subject to the limitations set forth in Section
1.3(d) hereof, all Registration Expenses (as defined in Section 1.3(d)) of the
Piggyback Registration will be paid by the Investor.
(e) LIMITATIONS ON PIGGYBACK RIGHTS. The Investor will be entitled to an
unlimited number of Piggyback Registrations. The exercise of a Piggyback
Registration shall not affect the Investor's Demand Registration rights under
Section 1.2 hereof. The Investor shall not be permitted to exercise its
Piggyback Registration rights with regard to any underwritten Piggyback
Registration where a first or second tier underwriter, or underwriters, provides
the Investor with an opinion that the amount or kind of the Investor's shares to
be included in such offering would adversely affect the success of the
securities proposed to be distributed for the account of the Company in such
offering. However, the Investor shall be entitled to include all of its
Piggyback Registrable Securities in any such Piggyback Registration before any
other securities which are entitled to be registered pursuant to the exercise of
contractual rights comparable to the rights granted in this Section 1.1.
1.2 DEMAND REGISTRATION RIGHTS.
(a) REQUESTS FOR REGISTRATION. Subject to the limitations set forth in
Section 1.2(d), at any time after the Investor has the right to convert the
Series B to Common Stock pursuant to the Series B designation, the Investor may
request the Company to register under the Securities Act all or part of its
Demand Registrable Securities on Form S-1, Form S-3 or any other registration
form available for use by the Company (a "Demand Registration"). The request for
a Demand Registration (the "Demand Notice") shall specify the number of Demand
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. However. the Company may postpone, for a
reasonable period of time not to exceed 90 days (but in any event not to extend
beyond the date of public disclosure of the information, or the date of
abandonment or termination of the transactions or negotiations, hereinafter
referred to), the filing of a registration statement otherwise required to be
prepared and filed by it pursuant to this subsection 1.2(a) if (i) at the time
the Company receives a Demand Notice, the Board of Directors of the Company
determines, in good faith and in its reasonable business judgment, that (A) such
Demand Registration would require the public disclosure of material non-public
information concerning any pending or ongoing material transaction or
negotiations involving the Company which, in the opinion of the Company's
outside legal counsel, is not yet required to be publicly disclosed, and (B)
such disclosure would materially interfere with such transaction or negotiations
or have a material adverse effect on the Company, and (ii) the Company
diligently and in good faith continues to pursue such transaction or
negotiations throughout the period of such postponement. The Company may not
postpone a Demand Registration pursuant to this Section 1.2(a) more than once in
any 12-month period.
"Demand Registrable Securities" means, the Series B and any other shares of
Common Stock received by the Investor as a result of the conversion and
anti-dilution rights pertaining to the Series B.
(b) SELECTION OF UNDERWRITERS. If the Demand Registration is for or
includes an underwritten offering, the Investor shall select the managing
underwriter or underwriters to administer such offering, who shall be reasonably
satisfactory to the Company.
(c) DEMAND EXPENSES. Subject to the limitations set forth in Section 1.3(d)
hereof, the Investor shall pay for all Registration Expenses relating to the
Demand Registration.
(d) LIMITATIONS ON DEMAND RIGHTS. The Investor may only request two Demand
Registrations. However, in addition to such two Demand Registrations, the
Investor may make four other Demand Registrations that involve the use of Form
S-3 or such other equivalent "short-form" registration form then in use. A
registration will not count as one of the permitted Demand Registrations until
the registration statement relating thereto has become effective.
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1.3 PROCEDURE. With respect to any Piggyback Registration or Demand
Registration, the Company shall use its best efforts to effect the registration
of all the Piggyback Registrable Securities or Demand Registrable Securities, as
the case may be (collectively, the "Request Securities"), which the Investor has
requested to be included therein, as quickly as practicable. In connection with
any such request, the Company shall do the following as expeditiously as
possible:
(i) prepare and file with the SEC a registration statement on any form for
which the Company then qualifies and which is available for the registration of
the Request Securities;
(ii) include in the registration on such form all the Request Securities and
use its reasonable efforts to cause such registration statement to become
effective; PROVIDED, HOWEVER, that at least two days before filing such
registration statement or any prospectus or any amendment or supplement thereto,
including documents to be incorporated be reference upon or after the initial
filing of such registration statement, the Company shall furnish to the Investor
copies of all such documents proposed to be filed (including documents to be
incorporated by reference therein), which documents will be subject to
reasonable review and comments of the Investor:
(iii) unless the Company qualifies to use a Form S-3 registration statement
or any similar form then in effect, prepare and file with the SEC such
amendments and post-effective amendments and supplements to the registration
statement or any prospectus as may be necessary to keep the registration
statement effective for a period of not more than 180 days and comply with the
provisions of the Securities Act applicable to the Company with respect to the
disposition of all the Request Securities, covered by such registration
statement or any supplement to any such prospectus;
(iv) if the Company qualifies to use a Form S-3 registration statement or
any similar form then in effect and if the Company receives a request for a
Demand Registration, prepare and file with the SEC such registration statement
to permit the offering of the Demand Registrable Securities to be made on a
continuous basis pursuant to Rule 415 (or any similar rule that may be adopted
by the SEC) under the Securities Act (a "Shelf Registration") and keep the Shelf
Registration current and continuously effective until 12 months from the
effective date of the Shelf Registration.
(v) furnish to the Investor, such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement and such other documents as the Investor may
reasonably request;
(vi) use its best efforts to register or qualify such Request Securities
under such other securities or blue sky laws of such jurisdiction as the
Investor reasonably requests and do any and all other acts and things which may
be reasonably necessary or advisable to enable the Investor to consummate the
disposition in such jurisdiction (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(vii) notify the Investor at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement
contains an untrue statement of material fact or omits any act necessary to make
the statements therein in light of the circumstances under which they were made,
not misleading, and, at the request of the Investor, the Company will, at the
Investor's own expense, prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to subsequent purchasers of such Request
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(viii) cause all such Request Securities, to be listed on each securities
exchange or system on which similar securities issued by the Company are then
listed;
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(ix) provide a transfer agent and registrar for all such Request Securities,
not later than the effective date of such registration statement:
(x) enter into such customary agreements (including underwriting agreements
in customary form for transactions of comparable size and terms) and take all
such other actions as the Investor or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Request
Securities, (including, without limitation, effecting a stock split or a
combination of shares);
(xi) make available for inspection by any underwriter participating in any
distribution pursuant to such registration statement and any attorney,
accountant or other agent retained by the underwriter (together the "Agents"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "Records") to the extent reasonably necessary to
enable such person to exercise their due diligence responsibilities and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(xii) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, use its reasonable efforts promptly to obtain the withdrawal of
such order;
(xiii) use its reasonable efforts to obtain a "cold comfort" letter from the
independent public accountants of the Company which is addressed to the Investor
and any underwriters and contains such matters of the type customarily covered
by "cold comfort" letters; and
(xiv) use its reasonable efforts to obtain an opinion from counsel for the
Company which is addressed to the Investor and underwriter and contains such
matters of the type customarily covered by counsel for the issuer of securities.
(a) AFFIDAVITS OF THE INVESTOR. With respect to any Piggyback Registration
or Demand Registration, the Investor shall furnish to the Company in writing
such information and affidavits as the Company reasonably requests for use in
connection with the registration of the Request Securities.
(b) PUBLIC SALE BY THE INVESTOR. The Investor shall not effect any public
sale or distribution of Request Securities, of any class or series being
registered in a Demand Registration or Piggyback Registration for offering to
the public, any security issued by the issuer of such class or series or any
security exchangeable or exercisable for or convertible into any such class or
series of any such Request Securities or any such similar security, including a
sale pursuant to Rule 144 (or any similar rule then in force) under the
Securities Act, during, in the case of a Piggyback Registration, the 14 days
prior to, and during the 180 day period beginning on, the effective date of the
Piggyback Registration (except as part of such registration or pursuant to
registrations on Form S-4 or S-8 or any successor form to either such form) and,
in the case of any Demand Registration, the period commencing on the date of
filing the Demand Registration and ending on the 180th day following the
effective date of the Demand Registration (except as part of such Demand
Registration).
(c) PUBLIC SALE BY THE COMPANY AND OTHERS. Neither the Company nor any of
its Affiliates (other than the Investor, if deemed to be an Affiliate) will
effect any public sale or distribution of any securities of any class or series
being registered in a Piggyback Registration or Demand Registration for offering
to the public, any similar security issued by the issuer of such class or series
or any security convertible into or exchangeable or exercisable for any such
security during, in the case of a Piggyback Registration, the 14 days prior to,
and during the 180 day period beginning on, the effective date of the Piggyback
Registration (except as part of such registration or pursuant to registrations
on Form S-4 or S-8 or any successor form to either such form) and, in the case
of any Demand Registration, the period commencing on the date of filing the
Demand Registration and ending on the 180th day following the effective date of
the Demand Registration. "Affiliate" shall mean, with respect to any specified
Person (as defined in Section 1.4), any
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other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with such specified
Person.
(d) REGISTRATION EXPENSES. The Investor shall pay for the Company's
out-of-pocket costs and out-of-pocket expenses ("Registration Expenses") of each
registration hereunder, including the following: (i) registration and filing
fees with respect to the Request Securities, (ii) reasonable fees and
disbursements of counsel in connection with blue sky qualifications with respect
to the Request Securities, (iii) expenses incident to the preparation, printing
and filing of the registration statement, each preliminary prospectus and
definitive prospectus and each amendment or supplement to any of the foregoing
and copies thereof with respect to the Request Securities, (iv) underwriting
fees, discounts or commissions attributable to the sale of Request Securities,
as the case may be, by the Investor, (v) fees and expenses incurred in
connection with the listing of the Request Securities, (vi) fees and
disbursements of counsel for the Company and fees and expenses of independent
certified public accountants retained by the Company with respect to the Request
Securities, and (vii) fees and expenses associated with any filings with or
submission to the NASD with respect to the Request Securities. Notwithstanding
the foregoing, the Investor shall not have any obligation to pay any internal
costs and expenses (including, without limitation all salaries and expenses of
officers and employees of the Company performing legal or accounting duties) or
any costs and expenses to the extent that (x) such costs and expenses would have
been incurred by the Company absent such registration hereunder or (y) another
party is contractually obligated to pay such costs and expenses.
1.4 INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify the
Investor and, if applicable, its officers and directors and each person or
entity (a "Person") who controls the Investor (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and expenses,
including reasonable attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may become subject under the Securities Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or other federal or state laws,
insofar as such losses, claims, damages, liabilities and expenses arise out of
or are caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, preliminary prospectus or definitive
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
the Investor specifically for use in the preparation thereof or by the
Investor's failure, if required, to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the Company has
furnished the Investor with copies of the same pursuant to Section 1.3(v).
(b) INDEMNIFICATION BY THE INVESTOR. In connection with any registration
statement in which the Investor is participating, the Investor shall indemnify
the Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses, including reasonable attorneys' fees and disbursements
and expenses of investigation, incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, or to which any of the
foregoing Persons may become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are caused by any untrue or alleged
untrue statement of material fact contained in the registration statement,
preliminary prospectus or definitive prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in information furnished, in writing, by the Investor to the Company
specifically for use in the preparation of such registration statement or
prospectus. The amount of any indemnity under this Section 1.4(b) shall not
exceed the gross proceeds received by the Investor from the applicable offering.
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(c) PROCEDURE. Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification, provided that the failure of any indemnified
party to give notice shall not relieve the indemnifying party of its obligations
hereunder except to the extent the indemnifying party is actually prejudiced by
such failure and (ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) SURVIVAL. The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities.
(e) CONTRIBUTION. If the indemnification provided for in this Section 1.4
from the indemnifying parry is unavailable to the indemnified party, then the
indemnifying party, instead of indemnifying the indemnified party, shall
contribute to and pay the amount paid or payable by such indemnified party as a
result of the loss, claim, damage, liability or expenses (collectively, the
"Claim") giving rise to indemnification hereunder in such proportion as is
appropriate to reflect the relative fault of the indemnifying and indemnified
party in connection with the actions which gave rise to the Claim. The relative
fault of the indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the action in question has been made
by, or relates to, information supplied by such indemnifying party or
indemnified party, and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such action. The Company and
the Investor agree that it would not be just and equitable if contribution and
payment pursuant to this Section 1.4 were determined by pro rata allocation or
by any other allocation method which does not take into account the equitable
considerations referred to in the preceding sentence. The amount paid or payable
as a result of a Claim shall include any legal or other fees and expenses
reasonably incurred by such party in connection with such Claim. However, no
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contributions and payment from
any Person who was not guilty of such fraudulent misrepresentation.
1.5 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate
in any underwritten registration hereunder unless such Person (a) agrees to sell
its securities on the basis provided in any underwriting arrangements reasonably
approved by the Persons entitled hereunder to approve such arrangements and (b)
accurately completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents customarily required
under the terms of such underwriting arrangements.
1.6 RULE 144. The Company shall file, on a timely basis, any reports
required to be filed by it under the Securities Act and the Exchange Act (and if
the Company is not required to file reports pursuant to the Exchange Act, the
Company shall, upon the request of the Investor, make publicly available the
information specified in subparagraph (c)(2) of Rule 144 of the Securities Act)
so as to enable the Investor to sell the Piggyback Registrable Securities and
Demand Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time or (b) any similar
rule adopted by the SEC.
1.7 TRANSFER OF REGISTRATION RIGHTS. Rights with respect to Piggyback
Registrable Securities and Demand Registrable Securities may be transferred by
the Investor (or any subsequent transferee pursuant
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to this Section 1.7) to any Person in connection with the transfer of Piggyback
Registrable Securities and Demand Registrable Securities to such Person, in all
cases, if (a) any such transferee shall have executed and delivered to the
Secretary of the Company a properly completed agreement substantially in the
form of EXHIBIT 1.7, (b) the transferor shall have delivered to the Secretary of
the Company, no later than 15 days following the date of the transfer, written
notification of such transfer setting forth the name of the transferor, name and
address of the transferee, and the number of Piggyback Registrable Securities
and Demand Registrable Securities which shall have been so transferred and (c)
the number of Piggyback Registrable Securities and Demand Registrable
Securities, as the case may be, which shall have been so transferred is equal to
or exceeds 50% of the total number of the Piggyback Registrable Securities and
Demand Registrable Securities, as the case may be.
1.8 MERGERS CONSOLIDATIONS, ETC. The Company shall not, directly or
indirectly enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation, unless prior to such merger,
consolidation or reorganization, the surviving corporation shall have agreed in
writing to assume the obligations of the Company under this Agreement, and for
that purpose references hereunder to "Piggyback Registrable Securities" and
"Demand Registrable Securities" shall be deemed to include the securities which
the holders of Piggyback Registrable Securities and Demand Registrable
Securities would be entitled to receive in exchange for such securities pursuant
to any such merger, consolidation or reorganization.
ARTICLE II
MISCELLANEOUS
2.1 AMENDMENT AND CERTAIN WAIVERS. This Agreement may be amended or
modified only by a written agreement executed by all parties to this Agreement.
2.2 BENEFIT OF PARTIES ASSIGNABILITY. All of the terms and conditions of
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. This Agreement may not be
assigned, in whole or in part, by either party without the prior written consent
of the other party, except (a) pursuant to Section 1.7 hereof and (b) that the
Investor may assign this Agreement in whole to an Affiliate of the Investor
without the necessity for securing prior written consent of the Company.
2.3 SEVERABILITY. If any court or any governmental authority or agency
declares all or any part of any Section of this Agreement to be unlawful or
invalid, such unlawfulness or invalidity shall not serve to invalidate any other
Section of this Agreement, and if only a portion of any Section is so declared
to be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate the balance of such Section.
2.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made) upon the earliest to occur of
(a) receipt, if made by personal service, (b) three business days after
dispatch, if made by reputable overnight courier service or (c) upon the
delivering party's receipt of a written confirmation of a transmission made by
telecopy to the respective parties at the following addresses (or at such other
address for a party as shall be specified in a notice given in accordance with
this Section 2.4):
If to the Company:
InnoServ Technologies, Inc.
320 Westway, Suite 520
Arlington, Texas 76018
Telecopy No.: 817-472-2926
Attn: Michael Puls
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With a copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
Telecopy No.: 214-698-3400
Attn: Stephen C. Johnson
If to Parent or Sub:
General Electric Company
c/o GE Medical Systems
3000 North Grandview Boulevard
Waukesha, Wisconsin 53188
Telecopy No.: 414-544-3573
Attn: General Counsel
2.5 GOVERNING LAW. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of the State of New York
applicable to contracts made and to be performed in that state.
2.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
2.7 HEADINGS. The headings used herein are solely for the convenience of
the parties and shall not constitute a part hereof or serve to modify or
interpret the text of this Agreement.
2.8 ENTIRE AGREEMENT. This Agreement, together with the Merger Agreement,
constitute and encompass the entire agreement and understanding of the parties
hereto with regard to the transactions contemplated or provided for herein or
therein.
2.9 EXPENSES. Each party shall bear and pay its own expenses incurred in
connection with negotiating and preparing this Agreement.
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement effective
as of the day first above written.
<TABLE>
<S> <C>
INNOSERV TECHNOLOGIES, INC. NATIONAL MEDICAL DIAGNOSTICS, INC.
By: /s/Michael G. Puls By: /s/J. Keith Morgan
Name: Michael G. Puls Name: J. Keith Morgan
Title: President & CEO Title: Authorized Person
</TABLE>
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EXHIBIT 1.7
AGREEMENT TO BE BOUND
BY THE REGISTRATION RIGHTS PROVISIONS
OF STOCK PURCHASE AGREEMENT
The undersigned, being the transferee of shares of the
stock, $ par value per share (the "Registrable Securities"), of INNOSERV
TECHNOLOGIES, INC., a California corporation (the "Company"), as a condition to
the receipt of such Registrable Securities, acknowledges that matters pertaining
to the registration of such Registrable Securities are governed by Article I of
the Registration Rights Agreement dated as of May , 1998 initially among the
Company and the Investor referred to therein (the "Agreement"), and the
undersigned hereby (1) acknowledges receipt of a copy of the Agreement, and (2)
agrees to be bound by the terms of the Agreement, as the same has been or may be
amended from time to time.
Agreed to this day of , .
[Name]
[Address]
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APPENDIX V
LETTER AGREEMENT
[LETTERHEAD]
May 19, 1998
VIA TELECOPY (609/661-0958)
AND FEDERAL EXPRESS DELIVERY
MEDIQ INCORPORATED
MEDIQ INVESTMENT SERVICES, INC.
One MEDIQ Plaza
Pennsauken, NJ 08110-1480
Attention: Mr. Thomas E. Carroll
Re: AGREEMENT AND PLAN OF MERGER (THE "MERGER AGREEMENT") AMONG INNOSERV
TECHNOLOGIES, INC. ("INNOSERV"), GENERAL ELECTRIC COMPANY ("GENERAL
ELECTRIC") AND DIAMOND MERGER SUB, INC., ("SUB") A WHOLLY-OWNED
SUBSIDIARY OF A WHOLLY-OWNED SUBSIDIARY OF GENERAL ELECTRIC.
Dear Mr. Carroll:
Enclosed for your information is a true, correct & complete copy of the form
of Merger Agreement, which among other things, provides for the merger of Sub
into InnoServ, with InnoServ being the surviving corporation and becoming a
wholly-owned subsidiary of a wholly-owned subsidiary of General Electric (the
"Merger"). Capitalized terms not defined herein shall have the meaning given to
each in the Merger Agreement.
Pursuant to Section 1.2(a) of the stock purchase agreement dated November
13, 1997 (the "Stock Purchase Agreement"), among InnoServ, MEDIQ Incorporated
("MEDIQ") and MEDIQ Investment Services, Inc. ("MIS" and together with MEDIQ,
the "Former Holder"), InnoServ agreed not to enter into or consummate a Change
of Control (as defined in the Stock Purchase Agreement") unless the other party
or parties thereto agree, as a condition precedent to such transaction, to pay
to Former Holder, certain consideration based on the date of entering into or
consummating a Change of Control. You have advised us that you believe that the
amount of such consideration, based on the warranties and representations
hereinafter set forth, should be $4,052,876.00. InnoServ believes that the
amount of such payment should be $3,218,997.00. Accordingly, by the execution
and delivery of this letter, InnoServ and MEDIQ agree to submit such dispute to
arbitration pursuant to Section 5.13 of the Stock Purchase Agreement no later
than 20 days after the date hereof and to direct the arbitrators to resolve such
dispute as soon as reasonably possible following such submission. The Merger
Agreement provides for the payment on the Effective Date by General Electric (i)
to the Former Holder of an amount equal to $3,218,997.00 and (ii) to an escrow
agent of an amount equal to $833,879.00 to be held in escrow pending the
resolution of, and thereupon be paid as provided by, such arbitration
(collectively, the "MEDIQ Obligation"), pursuant to an agreement substantially
in the form of Attachment B.
In order to induce the Former Holder to enter into this letter agreement,
InnoServ and General Electric each hereby represent and warrant that (i) it, in
good faith, did not delay or defer the consideration, evaluation or negotiation
of the Merger Agreement with the intent to reduce any amounts payable to Former
Holder pursuant to the Stock Purchase Agreement, and (ii) the chronology
enclosed with this letter agreement as Attachment A is a general description of
the activities which InnoServ and
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General Electric have undertaken from the Fall of 1997 through the date hereof
with respect to the possibility of entering into a possible business
combination, and such chronology is true and correct in all material respects
and does not omit to state any facts necessary to make the statements therein
not materially misleading. Notwithstanding the foregoing warranty and
representation with respect to the chronology, each of InnoServ and General
Electric warrant and represent only with respect to the matters undertaken
solely by such party.
Please acknowledge, by signing and returning a copy of this letter to me,
that: (i) upon execution and delivery of the Merger Agreement in substantially
the same form as the enclosed agreement and satisfaction on the Effective Date
of the MEDIQ Obligation, neither the Former Holder nor any of its subsidiaries
will have any claims against InnoServ or any of its subsidiaries, directors or
officers (collectively, the "InnoServ Group") or General Electric or any of its
subsidiaries, directors or officers (collectively, the "GE Group") with respect
to the Stock Purchase Agreement and the execution, delivery, performance or
consummation of the Merger Agreement, and subject to the satisfaction on the
Effective Date of the MEDIQ Obligation, hereby irrevocably releases the InnoServ
Group and the GE Group from and against, and irrevocably waives, any and all
claims, liabilities, obligations, covenants, agreements, damages and causes of
action (collectively, "Claims") which it may have against the InnoServ Group or
the GE Group arising out of any event or agreement occurring prior to the date
hereof with respect to the Stock Purchase Agreement and the execution, delivery,
performance or consummation of the Merger Agreement, and (ii) upon satisfaction
on the Effective Date of the MEDIQ Obligation all obligations of the InnoServ
Group under the Stock Purchase Agreement shall be satisfied in full and the
Former Holder will have no further Claims against the InnoServ Group or the GE
Group with respect to the Stock Purchase Agreement and the execution, delivery,
performance or consummation of the Merger Agreement.
Upon consummation of the Merger, neither the InnoServ Group nor the GE Group
will have any claims against the Former Holder or any of its subsidiaries,
directors or officers (collectively, the "MEDIQ Group") with respect to the
Stock Purchase Agreement and the execution, delivery, performance or
consummation of the Merger Agreement, and subject to the consummation of the
Merger, each hereby irrevocably releases the MEDIQ Group from and against, and
irrevocably waives, any and all Claims which it may have against the MEDIQ Group
arising out of the Stock Purchase Agreement and the execution, delivery,
performance, or consummation of the Merger Agreement.
The foregoing releases and acknowledgments are subject to the accuracy of
the representations and warranties of InnoServ and General Electric set forth in
this letter and do not affect the parties' rights to the amount held in escrow
pursuant to this letter, which rights shall be determined with arbitration.
Sincerely yours,
/s/ Michael G. Puls
Michael G. Puls
President and Chief Executive Officer
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ATTACHMENT A
CHRONOLOGY
MID-OCTOBER THROUGH END-DECEMBER, 1997
- After initial contact from General Electric Company ("General Electric"),
on October 17, 1997 Michael Puls and Thomas Hoefert of InnoServ
Technologies, Inc. (the "Company") met with representatives of General
Electric to acquaint the General Electric with a history of the Company
and to discuss any interest of General Electric in acquiring the Company.
- On October 31, 1997, Mr. Chan Galbato contacted the Company's financial
advisor, SBC Warburg Dillon Read ("Dillon Read") to express General
Electric's interest in pursuing an acquisition of all of the equity
interests of the Company for $16-$20 million in cash.
- In November, 1997, Mr. Galbato reiterated General Electric's interest
through phone conversations with Dillon Read and on November 26, 1997,
General Electric submitted a preliminary due
diligence request list to Dillon Read.
- On December 1, 1997, Mr. Puls and Mr. Hoefert met with representatives of
General Electric to review the General Electric diligence request and
verbal indication of interest and discussed the procedure for further
discussions.
- On December 5, 1997, Party F met with Mr. Puls to discuss possible
business combinations, and Mr. Puls indicated that Party F should contact
Dillon Read to discuss further interest.
- On December 8, 1997, Party C met with Mr. Puls and indicated a desire to
discuss business opportunities between the Company and Party C. The
Company and Party C executed a non-disclosure agreement.
- On December 9, 1997, Party F submitted to the Company a non-binding letter
(the "Party F Letter") indicating an interest in acquiring all of the
outstanding equity interests of the Company for cash.
- On December 9 and 10, 1997, several General Electric representatives
conducted preliminary due diligence with respect to the Company and on
December 12, 1997 additional data regarding the Company was sent to
General Electric for its review.
- On December 19, 1997, General Electric submitted a non-binding letter, a
copy of which together with a side letter of the same date, are attached
hereto (the "12/19/97 Letter"). On December 22, 1997, the Company's Board
reviewed the 12/19/97 Letter and agreed to its terms.
- On December 24, 1997, General Electric made and on December 30, 1997 the
Company made filings under the Hart-Scott-Rodino Antitrust Improvements
Act ("HSR").
MID-JANUARY THROUGH END-JANUARY, 1998
- General Electric commenced due diligence investigation of the Company, and
General Electric and the Company began preliminary negotiations of a draft
merger agreement and related documents, including shareholder voting
agreement and acknowledgment letter from MEDIQ.
- On January 16, 1998, the Company Board met to discuss the status of
General Electric negotiations and the draft merger agreement, and the
Board's material negotiation points and strategies.
- General Electric and the Company continue due diligence investigation and
negotiations of draft merger agreement.
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JANUARY 28-29, 1998
- General Electric notified the Company that the Department of Justice
("DOJ") had requested additional information on the proposed transaction.
- The DOJ made a "second request" of the Company and General Electric
regarding HSR filings, seeking extensive documents and information in
connection with its analysis of possible transaction.
- The preliminary negotiations between General Electric and the Company of
the draft merger agreement ceased.
JANUARY 30, 1998
The "No-shop" provision under the 12/19/97 Letter expired.
JANUARY 30-31, 1997
- Party A and Party B submitted a non-binding letter (the "Party A/Party B
Letter") indicating an interest in acquiring all of the equity interests
of the Company for cash. The Party A/Party B Letter was subject to due
diligence and indicated a termination date of February 2, 1998.
- The Company's Board discussed the progress of the DOJ's additional data
and information request for the proposed General Electric transaction and
reviewed the Party A/Party B Letter; in light of the DOJ request, the
Company's Board decided to pursue discussions with Party A and Party B and
instructed Dillon Read to notify Party A and Party B.
EARLY FEBRUARY, 1998
- General Electric and the Company produced certain information requested by
the DOJ and made a series of presentations to the DOJ.
- On February 2, 1998, Dillon Read contacted Party A and Party B and
negotiated and executed a confidentiality agreement on behalf of the
Company.
- On February 3, 1998, representatives of Party A and Party B met with Mr.
Puls and Mr. Hoefert to discuss Party A's strategy for making an
investment in Party B and the concurrent acquisition of the Company by
Party B. At this meeting Mr. Puls and Mr. Hoefert reviewed certain of the
Company's publicly available information and discussed certain aspects of
its operations.
- On February 4, 1998, Party B representatives continued its due diligence
review of the Company.
FEBRUARY THROUGH EARLY MARCH
- General Electric and the Company continued document production to and
discussions with the DOJ.
- On February 10, 1998, Party C contacted Dillon Read to inquire as to
whether the Company would have any interest in being acquired; Dillon Read
indicated the Company would give consideration to a meaningful proposal.
- On February 11, 1998, Party C submitted a non-binding letter (the "Party C
Letter") indicating an interest in acquiring all or substantially all of
the assets of the Company for cash.
- On February 13, 1998, Dillon Read negotiated and executed a
confidentiality agreement on behalf of the Company with Party C.
- On February 13, 1998, the Company met with the DOJ to discuss the proposed
transaction with General Electric.
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- On February 17, 1998, Party A and Party B submitted a revised non-binding
letter (the "Revised Party A/Party B Letter") indicating an interest in
acquiring all of the equity interests of the Company for cash.
- On February 19, 1998, Mr. Puls and Mr. Hoefert met with Party C
representatives to review certain of the Company's publicly available
information and provided additional information with respect to the
Company's operations. A Party C representative continued its due diligence
review of the Company on February 20, 1998.
- On February 23, 1998, the Company's Board discussed the Revised Party
A/Party B Letter and discussed the progress of the DOJ's additional data
and information request for the proposed General Electric transaction. The
Company's Board expressed the desire to pursue discussions with Party A
and Party B; however, Party A and Party B wanted exclusivity protection
and the Board decided that it was not in the best interests of the Company
to want exclusivity at that time. The Company's Board instructed Dillon
Read to notify Party A and Party B of their decision.
- Party A and Party B declined to waive the exclusivity provision of its
Revised Party A/Party B Letter and on February 25, 1998, Party A and Party
B confirmed in writing the termination of the Revised Party A/Party B
Letter.
ON OR ABOUT MARCH 3, 1998
- The DOJ notified General Electric and the Company of its intention to
contact certain third parties (customers, competitors and original
equipment manufacturers) in connection with its review and analysis of the
General Electric transaction.
ON OR ABOUT MARCH 12, 1998
- Party C contacted Dillon Read to indicate its desire to pursue discussions
to purchase only certain assets and business units of the Company for
cash. Although Dillon Read responded that the Company was not presently
interested in divesting such selected assets, Mr. Puls contacted the Party
C representative about the possible divestiture of one specific business
unit.
ON OR ABOUT MARCH 13, 1998 THROUGH ON OR ABOUT APRIL 15, 1998
- The DOJ commenced contact with third parties.
ON OR ABOUT MARCH 20, 1998
- Party A and Party B contacted Dillon Read to express their desire to
reinitiate discussions with the Company.
- Party A and Party B provided to the Company i) a commitment for financing
from Party A, ii) Party B's Board of Directors approval of the investment
of Party A in Party B, and iii) a waiver of the exclusivity clause in the
Revised Party A/Party B Letter.
- The conditions for the continuation of discussions with Party A and Party
B were reviewed by the Company's Board on February 23, 1998, the
discussions were reinitiated and on March 26, 1998, Party A and Party B
and their representatives met with Mr. Puls and Mr. Hoefert to continue
their diligence of the Company. Party A and Party B continued such due
diligence through April 7, 1998.
ON OR ABOUT APRIL 3, 1998
- The DOJ informed General Electric and the Company that it could take
several more weeks to complete its current round of interviews.
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ON OR ABOUT APRIL 10, 1998
- Because of the length of the proposed DOJ review, Mr. Puls became
concerned that rumors concerning a possible business combination would
begin to disrupt the ongoing operations of the Company. To enable the
Company to further discussions with General Electric, on April 10, 1998,
Mr. Puls and Mr. Dudley Rauch, chairman of the Company's Board met with
General Electric representatives. The Company proposed a sale of all of
the Company's equity interests for $16,000,000, less payment to MEDIQ and
plus payment of in-the-money options and confirmed that until the HSR
waiting period was terminated the Company was unwilling to enter into a
definitive agreement unless the Company was compensated if HSR waiting
period was not terminated.
ON OR ABOUT APRIL 15
- General Electric and the Company reinitiated the negotiations regarding
the draft merger agreement.
- The DOJ suggested the possibility of continuing and expanding its
investigation with respect to General Electric and the Company.
- As of April 15, 1998, Party B had not contacted the Company nor Dillon
Read.
ON OR ABOUT APRIL 22
- General Electric met with the DOJ; discussions regarding possible
resolution of the HSR issues resumed.
LATE APRIL THROUGH THE DATE HEREOF
- General Electric and the Company continued discussions with DOJ regarding
the possible resolution of the HSR issues.
- General Electric and the Company continued negotiations of an agreement
and plan of merger and General Electric engaged in further due diligence
investigation.
- General Electric and the Company began negotiations of possible schedules,
exhibits, opinions and other ancillary documents in connection with the
negotiations of the draft merger agreement.
- On May 4, 1998 the Company's legal counsel spoke with the Company's Board
to review and discuss a written description of the terms of the draft
merger agreement, to review the status of negotiations and to discuss
various other matters related to the proposed transaction. On May 4, 1998,
Dillon Read expressed its oral opinion that the consideration to be
received in the proposed merger is fair, from a financial point of view,
to the stockholders of the Company, and discussed the analyses,
methodologies and conclusions underlying such determination.
- Thereafter, the Company indicated to General Electric that because of the
DOJ review, it was unwilling to enter into or consummate a definitive
agreement unless General Electric would be willing to invest in or
compensate the Company if the DOJ did not approve the transaction. After
further negotiations, General Electric indicated that it would be willing
to consider (i) a payment of $1,200,000 to the Company upon the occurrence
of certain events related to the DOJ and (ii) the purchase of $2,800,000
for a new class of the Company's preferred stock.
- On May 7, 1998, the Company's board met to consider the proposal discussed
with General Electric at the April 10 (or about) meeting and items (i) and
(ii) directly above.
- On May 11, 1998 the Company's legal counsel spoke with the Company's Board
to review and discuss a written description of the proposed changes to the
terms of the proposed merger
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agreement based on negotiations since May 4, 1998, and a representative of
Dillon Read confirmed its May 4, 1998 oral opinion that the consideration
to be received in the proposed merger was fair, from a financial point of
view, to the stockholders of Company. After discussion, the Board
unanimously approved the form of the proposed merger agreement and
authorized the appropriate officers to enter into the definitive agreement
so long as General Electric agrees to the $1,200,000.00 payment and the
purchase of the preferred stock described above.
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APPENDIX VI
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
SECTION 1300. REORGANIZATION OR SHORT-TERM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the
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price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION
OF ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding
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purchase of such shares as dissenting shares or any interested corporation,
within six months after the date on which notice of the approval by the
outstanding shares (Section 152) or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder, but not thereafter, may file a
complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of
the dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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SECTION 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL
OF DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION;
CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the
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<PAGE>
reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount
to be paid in respect to them in the event of a reorganization or short-form
merger is entitled to payment in accordance with those terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
A-VI-5
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
INNOSERV TECHNOLOGIES, INC.
320 WESTWAY, SUITE 520, ARLINGTON, TX 76018
SPECIAL MEETING OF SHAREHOLDERS, SEPTEMBER 15, 1998
The undersigned hereby appoints Michael G. Puls and Dudley A. Rauch, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of InnoServ Technologies, Inc. ("InnoServ") held of
record by the undersigned on August 27, 1998 at the special meeting of
shareholders to be held on September 15, 1998, and at any adjournments and/or
postponements thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR the matters set forth in Item 1.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
(continued on the reverse side)
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(FRONT OF PROXY CARD)
1. APPROVAL OF FIRST AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
Approval and adoption of that certain First Amended and Restated
Agreement and Plan of Merger dated May 19, 1998, as amended (the "Merger
Agreement"), by and among InnoServ and General Electric Company acting on
behalf of its GE Medical Systems division ("General Electric") and
Diamond Merger Sub, Inc., an indirect wholly-owned subsidiary of General
Electric ("Sub"), and the transactions contemplated thereby, pursuant to
which Sub would be merged (the "Merger") with and into InnoServ.
/ / FOR
/ / AGAINST
/ / ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournments
and/or postponements thereof.
<PAGE>
<TABLE>
<S> <C>
DATED: , 1998
Signature
Signature if held jointly
Please sign exactly as name appears below. When
shares are held by joint tenants, both should
sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by the President or other
authorized officer. If a partnership, please sign
in partnership name by an authorized person.
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY BY USING THE ENCLOSED
ENVELOPE.
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