ASGR America Service Grp. Inc. (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A
(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant  þ

Filed by a Party other than the Registrant  o

Check the appropriate box:

 

AMERICA SERVICE GROUP 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):

 

 

Common Stock, par value $0.01 per share, of America Service Group Inc. (“Common Stock”)

 

 

9,297,566 shares (including restricted shares) of Common Stock and options to purchase 892,672 shares of Common Stock at an exercise price per share less than $26.00

 

 

Solely for purposes of calculating the filing fee, the underlying value of the transaction was calculated to be equal to the sum of (A) 9,297,566 outstanding shares (including restricted shares) of Common Stock multiplied by $26.00 per share and (B) outstanding “in-the-money” options to purchase 892,672 shares of Common Stock multiplied by $8.87 (which is equal to the difference between $26.00 and the weighted average exercise price of such options). In accordance with Exchange Act Rule 0-11(c)(1), the payment of the filing fee was calculated by multiplying the aggregate value of the transaction by 0.00011610.

 

 

$ 249,654,717

 

 

$28,985

 

 

 

 

 

 

 

 

 

 

 

AMERICA SERVICE GROUP INC.

105 Westpark Drive, Suite 200
Brentwood, Tennessee 37027
(615) 376-3100

 

          , 2011

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of America Service Group Inc., which we refer to as the Company, to be held on          ,          , 2011, at  :00 a.m. (Central Time), at our headquarters, located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027.

 

At the special meeting, you will be asked to consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of March 2, 2011 (as that agreement may be amended in accordance with its terms, the “Merger Agreement” ), by and among Valitás Health Services, Inc. which we refer to as Valitás, Whiskey Acquisition Corp., which we refer to as Merger Sub, and the Company. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Valitás (the “Merger” ). We are also asking that you grant the authority to vote your shares to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

Assuming the holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting (or any adjournment or postponement thereof) vote in favor of the adoption of the Merger Agreement and the Merger is completed, upon completion of the Merger you will be entitled to receive $26.00 in cash, without interest and less any applicable withholding taxes, for each share of Company common stock that you own, unless you have properly exercised and perfected your appraisal rights in accordance with Delaware law. The $26.00 per share to be paid pursuant to the Merger Agreement constitutes a premium of approximately 48.7% over the closing price of our common stock on the last day of trading prior to the announcement of the Merger. After the Merger, you will no longer have any interest in our future earnings or growth or bear any risk associated with our failure to achieve such future earnings or growth.

 

Our Board of Directors has unanimously approved the Merger Agreement and the Merger and determined that the Merger Agreement and the Merger are advisable, fair to and in the best interests of the Company and our stockholders. Accordingly, our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement . In arriving at its recommendation, our Board of Directors carefully considered a number of factors, including those factors described in the accompanying proxy statement. The Merger Agreement and the Merger are also described in the accompanying proxy statement, and a copy of the Merger Agreement is attached as Appendix A to the accompanying proxy statement. We urge you to read carefully and in its entirety the accompanying proxy statement, including the appendices.

 

Your vote is very important, regardless of the number of shares of our common stock you own. Under Delaware law, the Merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting (or any adjournment or postponement thereof) vote in favor of the adoption of the Merger Agreement. If you do not vote, it will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement .

 

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return promptly the enclosed proxy card or submit your proxy via the Internet or telephone in accordance with the instructions set forth on the enclosed proxy card. If you hold shares through a bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of common stock without instructions from you. You should follow the procedures provided by your bank, brokerage firm or other nominee in connection with instructing your bank, brokerage firm or other nominee how to vote. Submitting your proxy to have your shares voted at the special meeting will not limit your right to vote in person if you wish to attend the special meeting and vote in person. The accompanying proxy statement is dated          , 2011 and is first being mailed to our stockholders on or about          , 2011.

If you have any questions or need assistance voting your shares of common stock, please call Georgeson Inc., the Company’s proxy solicitor, toll-free at (866) 203-9401 (banks, brokerage firms or other nominees please call (212) 440-9800).

 

Sincerely,

 

Richard D. Wright

Chairman of the Board

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

AMERICA SERVICE GROUP INC.

 

105 Westpark Drive, Suite 200

Brentwood, Tennessee 37027

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD          , 2011

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of America Service Group Inc. (the “Company” ) will be held on          ,          , 2011, at  :00 a.m. (Central Time), at our headquarters, located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027, for the following purposes:

 

1.  Adoption of the Merger Agreement .  To consider and vote upon the adoption of the Agreement and Plan of Merger, dated as of March 2, 2011 (as that agreement may be amended in accordance with its terms, the “Merger Agreement” ), by and among Valitás Health Services, Inc. ( “Valitás” ), Whiskey Acquisition Corp. ( “Merger Sub” ) and the Company. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Valitás (the “Merger” ). As a result of the Merger, holders of Company common stock who do not properly exercise and perfect their appraisal rights in accordance with Delaware law will be entitled to receive $26.00 in cash, without interest and less any applicable withholding taxes, for each share of Company common stock held by them at the effective time of the Merger; and

 

2.  Adjournment of the Special Meeting, if Necessary .  To approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

Our Board of Directors has unanimously approved the Merger Agreement and the Merger and determined that the Merger Agreement and the Merger are advisable, fair to and in the best interests of the Company and our stockholders. Accordingly, our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

Your vote is very important, regardless of the number of shares of our common stock you own. Under Delaware law, the Merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting (or any adjournment or postponement thereof) vote in favor of the adoption of the Merger Agreement. Even if you plan to attend the meeting in person, we request that you complete, sign, date and return the enclosed proxy card in the envelope provided or submit your proxy via the Internet or telephone in accordance with the instructions set forth on the enclosed proxy card and thereby ensure that your shares will be represented at the special meeting if you are unable to attend. If you are a stockholder of record and wish to vote in person at the special meeting, you may withdraw your proxy and vote in person. If you sign, date and mail your proxy card or submit a proxy for your shares via the Internet or telephone without indicating how you wish to vote, your shares will be voted “FOR” the adoption of the Merger Agreement and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

If you fail to return your proxy, submit your proxy by phone or over the Internet or vote in person, or if you abstain from voting, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement.

 

Stockholders of the Company who do not vote in favor of the adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their shares of common stock if the Merger is completed, but only if they properly exercise and perfect their appraisal rights in accordance with Delaware law, the applicable provisions of which are summarized in the accompanying proxy statement in the section entitled “The Merger — Appraisal Rights” beginning on page 46.

 

The Merger Agreement and the Merger are described in the accompanying proxy statement and a copy of the Merger Agreement is included as Appendix A to the accompanying proxy statement.

 

By Order of the Board of Directors,

 

Secretary

 

          , 2011

TABLE OF CONTENTS

 

 

AMERICA SERVICE GROUP INC.

 

105 Westpark Drive, Suite 200

Brentwood, Tennessee 37027

 

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON          , 2011

 

We are providing these proxy materials to you in connection with the solicitation of proxies by the Board of Directors of America Service Group Inc. (the “Board” ) for a special meeting of stockholders to be held on          , 2011 and for any adjournment or postponement thereof. This proxy statement provides information that you should read before you submit a proxy with respect to, or vote on, the proposals that will be presented to you at the special meeting. The special meeting will be held on          ,          , 2011, at  :00 a.m. (Central Time), at our headquarters, located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027.

 

In this proxy statement, we sometimes refer to (i) America Service Group Inc. as the “Company ,” “we” or “us ,” (ii) Valitás Health Services, Inc. as “Valitás ,” (iii) Whiskey Acquisition Corp. as “Merger Sub ,” (iv) the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Valitás as the “Merger” and (v) the Agreement and Plan of Merger, dated as of March 2, 2011 and as it may be amended in accordance with its terms, by and among Valitás, Merger Sub and the Company as the “Merger Agreement .”

 

This proxy statement and the enclosed proxy card are first being mailed on or about          , 2011 to holders of Company common stock as of the close of business on          , 2011.

 

This summary term sheet highlights selected information in this proxy statement relating to the Merger and may not contain all of the information that is important to you. To understand fully the Merger and the transactions contemplated by the Merger Agreement, you should carefully read this entire document as well as the Merger Agreement, a copy of which is attached hereto as Appendix A. For instructions on obtaining more information, see the section entitled “Where You Can Find More Information” beginning on page 76. The page references in this summary are intended to direct you to the more complete descriptions of the topics presented in this summary that are set forth elsewhere in this proxy statement.

 

Date, Time and Place.   The special meeting of the Company’s stockholders will be held on          ,          , 2011, at          :00 a.m. (Central Time), at our headquarters, located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027.

 

Matters to be Considered.   At the special meeting, you will be asked to consider and vote upon the adoption of the Merger Agreement. You may also be asked to vote to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

Record Date and Quorum.   You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on          , 2011, which we have set as the record date for the special meeting. The presence, in person or represented by proxy, of holders of record of a majority of the outstanding shares of our common stock entitled to vote on the proposals to be presented at the special meeting will constitute a quorum.

 

Required Vote.   Adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting (or any adjournment or postponement thereof). Approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of the holders of a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote thereon, regardless of whether a quorum is present.

 

Voting.   Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card, or submit your proxy via the Internet or telephone in accordance with the instructions set forth on the enclosed proxy card , and thereby ensure that your shares will be represented at the special meeting if you are unable to attend. If your shares are held by a bank, brokerage firm or other nominee, you are considered the beneficial owner of shares held in “street name.” If your shares are held in street name, your bank, brokerage firm or other nominee forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares.

 

America Service Group Inc. is a Delaware corporation and is a nationwide provider of correctional healthcare services in the United States. The Company, through its subsidiaries, including PHS Correctional Healthcare, Inc., provides a wide range of healthcare programs to government agencies for the medical care of inmates. More information about the Company can be found at its website at www.asgr.com , which address is provided as an inactive textual reference only. The information contained on the Company’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the Securities and Exchange Commission (the “SEC” ). The Company’s principal executive offices are located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027, and its telephone number is (615) 376-3100.

 

Valitás Health Services, Inc. is a Delaware corporation that is the parent company of Correctional Medical Services, Inc. ( “CMS” ), a nationwide provider of comprehensive correctional healthcare services, offering a comprehensive suite of medical, dental, pharmacy and mental health services for the incarcerated population. More information about Valitás can be found at the CMS website at www.cmsstl.com , which address is provided as an inactive textual reference only. The information contained on the CMS website is not incorporated into, and does

not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. Valitás’ principal executive offices are located at 12647 Olive Boulevard, St. Louis, Missouri 63141, and its telephone number is (314) 919-8501.

 

Whiskey Acquisition Corp. was formed by Valitás solely for the purpose of acquiring the Company. Upon completion of the Merger, Merger Sub will be merged with and into the Company and Merger Sub will cease to exist. Merger Sub’s principal executive offices are located at 12647 Olive Boulevard, St. Louis, Missouri 63141, and its telephone number is (314) 919-8501.

 

If the Merger is completed, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Valitás.

 

If the Merger is completed, the following will also occur:

 

 

The Board has unanimously approved the Merger Agreement and the Merger and determined that the Merger Agreement and the Merger are advisable, fair to and in the best interests of the Company and our stockholders. In reaching this conclusion, the Board considered, among other factors, the following:

 

 

 

 

 

 

 

 

Accordingly, the Board unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

Oppenheimer was engaged by the Company to provide the Board with an opinion regarding the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the Company’s stockholders pursuant to the Merger Agreement. At the meeting of the Board on March 2, 2011, Oppenheimer rendered its oral opinion, subsequently confirmed in writing, that, as of that date, based upon and subject to the limitations, qualifications and assumptions set forth in the written opinion, the Per Share Merger Consideration to be received by the holders of shares of Company common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.

 

The full text of the written opinion of Oppenheimer, dated March 2, 2011, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Oppenheimer in rendering its opinion, is attached to this proxy statement as Appendix B. Stockholders are urged to, and should, read the opinion carefully and in its entirety. Oppenheimer’s opinion was directed to the Board (in its capacity as such) and addresses only the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of shares of the Company’s common stock pursuant to the Merger Agreement, as of the date of the opinion. Oppenheimer’s opinion does not address any other aspect of the Merger. Oppenheimer expressed no view as to, and its opinion does not address, the underlying business decision of the Company to proceed with or effect the Merger or the relative merits of the Merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage.

Oppenheimer’s opinion does not constitute a recommendation as to how any stockholder should vote at the special meeting or whether any stockholder should take any other action with respect to the Merger. The summary of Oppenheimer’s opinion described below in the section entitled “The Merger — Opinion of the Financial Advisor to the Company” is qualified in its entirety by reference to the full text of the opinion.

 

We encourage you to read the opinion of Oppenheimer described above carefully and in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken in connection with such opinion.

 

Our directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. These interests include the acceleration and “cash-out” of options and shares of restricted stock, the right to continued indemnification and insurance coverage by the surviving corporation after the Merger, the potential triggering of severance rights and a new employment agreement for Rich Hallworth, our director, President and Chief Executive Officer.

 

Valitás will finance the Merger and the transactions contemplated by the Merger Agreement using debt financing in the aggregate amount of up to $360.0 million in a senior secured credit facility, comprised of a term loan facility of $285.0 million and a revolving credit facility of $75.0 million (the latter of which Valitás will draw upon only in the event that the combined cash on hand of the Company and Valitás upon completion of the Merger is less than as estimated below), plus $100.0 million in gross proceeds from the issuance and sale by Valitás of unsecured senior subordinated notes, plus the combined cash on hand of the Company and Valitás upon completion of the Merger, which is estimated to be approximately $73.0 million. Barclays Bank PLC and Bank of America, N.A. (collectively, the “Senior Lenders” ) have committed, on the terms and subject to the conditions set forth in a debt commitment letter dated March 2, 2011, to provide Valitás with the senior secured credit facilities. In addition, GSO Capital Partners LP through one or more funds managed by GSO Capital Partners LP or its affiliates (the “Mezzanine Lender” and collectively with the Senior Lenders, the “Lenders” ) have committed, on the terms and subject to the conditions set forth in a debt commitment letter dated March 2, 2011, to provide Valitás with the gross proceeds from the issuance and sale by Valitás of unsecured senior subordinated notes pursuant to a private placement. The obligations of the Lenders to provide the debt financing under the respective debt commitment letters are subject to a number of conditions which we believe are customary for financings of this type or are otherwise similar to certain conditions in the Merger Agreement. The final termination date for the commitments under each debt commitment letter is August 31, 2011. Valitás’ obligation to complete the Merger is not subject to any financing condition.

 

Pursuant to Delaware law, if you do not vote in favor of the adoption of the Merger Agreement and you instead follow the appropriate procedures for properly exercising and perfecting appraisal rights as described on pages 46 through 50 and in Appendix C, you will receive a cash payment for the “fair value” of your shares of Company common stock, as determined by the Delaware Court of Chancery, instead of the Per Share Merger Consideration to be received by our stockholders pursuant to the Merger Agreement. The “fair value” of Company common stock may be more than, less than or equal to the Per Share Merger Consideration that you would have received pursuant to the Merger Agreement if you had not exercised your appraisal rights.

 

Generally, in order to exercise appraisal rights, among other things, you must:

 

 

Abstaining or voting “AGAINST” the adoption of the Merger Agreement will not perfect your appraisal rights under Delaware law. Appendix C to this proxy statement contains the full text of the Delaware statute relating to

your appraisal rights. If you want to exercise and perfect your appraisal rights, please read and carefully follow the procedures described on pages 46 through 50 and in Appendix C. The Delaware statute governing appraisal rights is very complex and we urge you to consult with your own legal counsel in the event you decide to exercise your appraisal rights. Failure to take all of the steps required under Delaware law will result in the loss of your appraisal rights.

 

The receipt of the Per Share Merger Consideration by our stockholders for each outstanding share of our common stock held by them as of immediately prior to the effective time of the Merger will generally be a taxable transaction for U.S. federal income tax purposes. Each of our stockholders that is subject to U.S. federal income tax laws generally will recognize taxable gain or loss, measured by the difference, if any, between the Per Share Merger Consideration and the tax basis of each share of our common stock held by such stockholder. Stockholders should consult their own tax advisors to determine the particular tax consequences to them (including application of any U.S. federal non-income, foreign, state, local or other tax laws) of the Merger.

 

Under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act” ) we cannot complete the Merger until we have submitted certain information to the Antitrust Division of the Department of Justice and the Federal Trade Commission and satisfied the statutory waiting period requirements. The initial waiting period is 30 days following the filing of the notification and report forms by the parties, but this period may be shortened if the reviewing agency grants “early termination” of the waiting period, or it may be lengthened by consent of the parties or if the reviewing agency determines that an in-depth investigation is required and issues a formal request for additional information and documentary material. On March 8, 2011, the Company and Valitás filed Notification and Report Forms for Certain Mergers and Acquisitions under the HSR Act in connection with the Merger with the Antitrust Division of the Department of Justice and the Federal Trade Commission.

 

At any time before or after the effective time of the Merger, either the Antitrust Division of the Department of Justice or the Federal Trade Commission could take action under applicable antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Merger or seeking the divestiture of assets of the Company or Valitás or their respective affiliates or imposing other requirements or conditions. In the Merger Agreement, the parties have agreed to use their reasonable best efforts to make all filings with governmental authorities and obtain all governmental approvals and consents necessary to consummate the Merger, subject to certain exceptions and limitations.

 

On March 4, 2011, a purported class action lawsuit was filed on behalf of the Company’s stockholders in the Chancery Court for Davidson County, Tennessee, docketed as Colleen Witmer, individually and on behalf of all others similarly situated, v. America Service Group Inc., Valitás Health Services, Inc., Whiskey Acquisition Corp., Burton C. Einspruch, William M. Fenimore, Jr., John W. Gildea, Richard Hallworth, John C. McCauley, Michael W. Taylor, and Richard D. Wright , Case No. 11-0300-IV. The lawsuit alleges, among other things, that the Board breached fiduciary duties owed to our stockholders by failing to take steps to maximize stockholder value or to engage in a fair sale process when approving the Merger. The complaint also alleges that the Company, Valitás and Merger Sub aided and abetted the members of the Board in the alleged breach of their fiduciary duties. The complaint seeks an order enjoining or rescinding the Merger, together with other relief.

 

Pursuant to the terms of the Merger Agreement, it is a condition to the completion of the Merger that there does not exist any law or governmental order prohibiting or making illegal the completion of the Merger. However, we believe the lawsuit is wholly without merit.

 

Common Stock.   At the effective time of the Merger, each share of our common stock outstanding as of immediately prior to the effective time of the Merger (other than shares held by the Company, Valitás or any of their

respective direct or indirect subsidiaries or shares held by stockholders who have properly exercised and perfected appraisal rights in accordance with Delaware law) will be automatically canceled and converted into the right to receive the Per Share Merger Consideration.

 

Stock Options.   Prior to the effective time of the Merger, each outstanding option to purchase shares of our common stock will vest and become exercisable in full. Each option to purchase shares of our common stock outstanding at the effective time of the Merger will be canceled and converted into the right to receive, as soon as reasonably practicable after the effective time of the Merger, an amount in cash equal to (i) the number of shares subject to such option multiplied by (ii) the excess (if any) of the Per Share Merger Consideration over the exercise price per share of such option. As of the date of this proxy statement, we have no outstanding stock options with an exercise price per share in excess of the Per Share Merger Consideration.

 

Shares of Restricted Stock.   As of the effective time of the Merger, the vesting restrictions on each outstanding share of restricted stock will be accelerated and will lapse and each such share of restricted stock will be automatically canceled and converted into the right to receive the Per Share Merger Consideration.

 

 

The Merger Agreement generally provides that until 11:59 p.m. (Eastern time) on April 16, 2011, which we refer to as the go-shop period, we are permitted to solicit, initiate and encourage other acquisition proposals and provide non-public information to third parties pursuant to confidentiality agreements not materially more favorable to such third parties than our confidentiality agreement with Valitás. After 12:00 a.m. (Eastern time) on April 17, 2011, which we refer to as the no-shop period start date, and until the earlier of the effective time of the Merger or the termination of the Merger Agreement, we are prohibited from soliciting, initiating or encouraging other acquisition proposals or providing non-public information to third parties that could reasonably be expected to lead to any acquisition proposal. Notwithstanding these restrictions, and subject to certain requirements set forth in the Merger Agreement, after the go-shop period, we may provide confidential information (i) until 12:00 a.m. (Eastern time) on May 1, 2011, to a party, which we refer to as an excluded party, (A) who has made a written acquisition proposal prior to the no-shop period start date (if such proposal has not yet been withdrawn, terminated or expired) that the Board or a properly constituted committee thereof determines in good faith, after consultation with its independent financial advisor, is or would reasonably be expected to result in a superior proposal, (B) whom we have identified to Valitás within 24 hours after the no-shop period start date to be an excluded party and (C) who continues to satisfy the criteria for remaining an excluded party as set forth in the Merger Agreement and (ii) to a third party in response to an unsolicited acquisition proposal, following which we are permitted to engage in discussions and negotiations with such third party if (X) the Board or a properly constituted committee thereof determines in good faith, after consultation with outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties, (Y) the Board or a properly constituted committee thereof determines in good faith, after consultation with its independent financial advisor, that the acquisition proposal is, or would reasonably be expected to result in, a superior proposal and (Z) prior to taking such action, we give Valitás four business days’ notice of our intent to do so, the identity of the third party and the terms of the acquisition proposal and we execute a confidentiality agreement with such third party with terms no less favorable than those contained in our confidentiality agreement with Valitás and containing customary “standstill” provisions.

 

We engaged Signal Hill Capital Group LLC ( “Signal Hill” ) pursuant to an engagement letter, dated September 28, 2010 and as thereafter amended, to provide us with certain investment banking services in connection with any potential transaction involving (i) the acquisition of all or a substantial portion of the business or assets of Valitás, Inc. or its affiliates or (ii) the sale of the Company to Valitás or any other third party. Pursuant to the engagement letter, we agreed to pay Signal Hill (i) $25,000 upon execution of the letter, (ii) in the event any transaction involving (x) the acquisition of all or a substantial portion of the business or assets of Valitás, Inc., a wholly owned subsidiary of Valitás Equity and the direct parent of Valitás, or its affiliates, a fee, payable at the time of closing of $3.5 million, or (y) the sale of the Company was completed, a fee, payable at the time of closing, equal to 1.2% of (a) total consideration payable to the Company’s stockholders (or the Company if payable to the Company) and (b) any funded debt assumed by an acquirer in such a transaction, plus (iii) if, in connection with such a transaction that was not completed, we received a break-up fee, lock-up option, topping fee or other termination fee, an amount equal to 20% of such fee upon receipt, plus expenses.

 

Completion of the Merger requires the fulfillment or waiver of a number of conditions, including:

 

 

Under certain circumstances, the Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the effective time of the Merger, whether before or after adoption of the Merger Agreement by our stockholders. If the Merger Agreement is terminated, there will be no further liability or obligation, other than for pre-termination breaches of the Merger Agreement, on the part of the Company, Valitás or Merger Sub, except for the payment of the termination fee and expenses as described below and in the section entitled “The Merger Agreement — Termination Fee and Expenses” beginning on page 70 and compliance with the separate confidentiality agreement between the Company and Valitás.

 

Upon termination of the Merger Agreement under certain circumstances described in the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 68, the Company will be required to pay to Valitás a specified fee and to reimburse Valitás for up to $2.0 million in documented transaction expenses. For instance, in the event that Valitás or the Company exercises its rights to terminate the Merger Agreement in certain circumstances, the Company will be required to pay to Valitás a fee in the amount of $8.0 million, plus documented transaction expenses. However, if certain terminations result from the Company’s acceptance of a superior proposal made by an excluded party, then the fee payable to Valitás will be reduced to $4.5 million, plus documented transaction expenses.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting, the Merger and other matters to be considered by the Company’s stockholders at the special meeting. These questions and answers may not address all questions that are important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions set forth in the section entitled “Where You Can Find More Information” beginning on page 76.

 

 

 

 

 

This proxy statement, and the documents to which we refer in this proxy statement, contain “forward-looking” statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements in this proxy statement, and the documents to which we refer in this proxy statement, that are not historical facts, including statements about the Company’s or management’s beliefs and expectations (including all financial projections) and statements regarding the expected benefits and completion of the proposed Merger constitute forward-looking statements and may be indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “expects,” “projects,” “should,” “will,” “believes,” “intends,” “predicts,” “potential,” “targets,” “goals,” “outlook,” “continue,” “preliminary,” “guidance,” or variations of such words, similar expressions, or the negative of these terms or other comparable terminology. Actual results may differ materially and adversely from those expressed in any forward-looking statements, and neither the Company nor any other person can or does assume responsibility for the accuracy and completeness of forward-looking statements. There are various important factors that could cause actual results to differ materially from those in any such forward-looking statements, many of which are beyond the Company’s control. These factors include, but are not limited to, the risks detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q, factors and matters contained or incorporated by reference in this proxy statement and the following factors:

 

 

We believe that the assumptions on which the forward-looking statements in this proxy statement are based are reasonable. However, we cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. In light of significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on such statements. We undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements in this proxy statement to reflect events or circumstances after the date of this proxy statement or to update reasons why actual results could differ from those anticipated in the forward-looking statements in this proxy statement. All subsequent written and oral forward-looking statements concerning the Merger or the other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference into this document.

 

This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by the Board for use at the special meeting of our stockholders to be held on          ,           , 2011, at  :00 a.m. (Central Time), at our headquarters, located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027, or at any adjournment or postponement thereof. The purpose of the special meeting is for our stockholders to consider and vote upon the adoption of the Merger Agreement and a proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement. Our stockholders must vote in favor of the adoption of the Merger Agreement for the Merger to occur. If our stockholders do not vote in favor of the adoption of the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Appendix A. This proxy statement and the enclosed proxy card are first being mailed to our stockholders on or about          , 2011.

 

The holders of record of our common stock as of the close of business on          , 2011, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were           shares of our common stock outstanding, each of which is entitled to one vote on each matter to be voted on at the special meeting.

 

A quorum is necessary to hold the special meeting. The presence, in person or by proxy, of holders of record of a majority of the outstanding shares of our common stock entitled to vote on the proposals to be presented at the special meeting will constitute a quorum. Once a share is represented at the special meeting, it will be counted for the purpose of determining whether a quorum is present at the special meeting and at any adjournment of the special meeting. However, if a new record date is set for the adjourned or postponed special meeting, then a new quorum must be established.

 

Under Delaware law, the Merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock entitled to vote thereon at the special meeting vote in favor of the adoption of the Merger Agreement.

 

Approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement requires the affirmative vote of the holders representing a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote thereon, regardless of whether a quorum is present.

 

If you are a stockholder of record and submit a proxy by returning a signed proxy card by mail or if you submit a proxy via the Internet or telephone in accordance with the instructions set forth on the enclosed proxy card, your shares will be voted at the special meeting as you indicate on your proxy card. If you sign, date and mail your proxy card or submit a proxy for your shares via the Internet or telephone but do not provide voting instructions, your shares of our common stock will be voted “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

If your shares are held in street name, you should instruct your bank, brokerage firm or other nominee how to vote your shares using the voting instructions provided by your bank, brokerage firm or other nominee. If you have not received such voting instructions or require further information regarding such voting instructions, you should contact your bank, brokerage firm or other nominee for directions on how to vote your shares. If your shares of the Company’s common stock are held in street name and you wish to vote in person at the special meeting, you must obtain a legal proxy from such bank, brokerage firm or other nominee.

Banks, brokerage firms or other nominees who hold shares in street name for customers may not exercise their voting discretion except with respect to the approval of certain “routine” matters. Neither the adoption of the Merger Agreement nor the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement is a “routine” matter. Therefore, absent specific instructions from the beneficial owner of the shares, banks, brokerage firms or other nominees are not empowered to vote shares of the Company’s common stock with respect to those matters, resulting in broker non-votes. Broker non-votes, if any, will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement, but will have no effect on the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

Shares of our common stock held by persons attending the special meeting but not voting, or shares for which we have received proxies with respect to which holders have abstained from voting, will be considered abstentions. Abstentions will be treated as shares that are present and entitled to vote on the proposals to be presented at the special meeting for purposes of determining whether a quorum exists but will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. Abstentions also will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

If you are a registered stockholder, you may change or revoke the vote represented by your proxy by (i) delivering a written revocation of the proxy or a later dated, signed proxy card to our Corporate Secretary at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027 prior to 11:59 p.m., Eastern Time, on           , 2011, the day before the date of the special meeting, (ii) delivering a new, later-dated proxy by telephone or via the Internet prior to 11:59 p.m., Eastern Time, on           , 2011, the day before the date of the special meeting, (iii) delivering a written revocation or a later dated, signed proxy card to the Company at the special meeting prior to the taking of the vote on the proposals presented at the special meeting or (iv) attending the special meeting and voting in person, provided that simply attending the special meeting without voting in person will not cause your proxy to be revoked.

 

Please note that if you hold your shares in street name and you have instructed your bank, brokerage firm or other nominee to vote your shares, the above-described options for changing or revoking your vote do not apply, and you must instead follow the directions received from your bank, brokerage firm or other nominee to change or revoke your vote.

 

We do not expect that any proposal other than the adoption of the Merger Agreement and the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement will be brought before the special meeting. Moreover, pursuant to the terms of the Merger Agreement, other than as required by law, we may not include any other proposals at the special meeting without the consent of Valitás. With respect to any other proposal that properly comes before the special meeting, however, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

 

Although it is not expected to occur, the special meeting may be adjourned or postponed, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement. Whether or not a quorum exists, the holders of a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote thereon may vote to adjourn the special meeting. In the event of such a vote, if no instructions are indicated on your proxy card, all of your shares of our common stock represented by such proxy card will be voted “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow our stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed. The time and place of the adjourned or postponed meeting will be announced at the time the adjournment is taken or the postponement is

effected, and no other notice will be given (provided that the adjournment is not for more than 30 days and a new record date has not been fixed).

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, our directors, officers and employees may solicit proxies personally and by telephone, facsimile or other electronic means of communication. These persons will not receive additional or special compensation for such solicitation services.

 

We have made arrangements with Georgeson to assist in our solicitation of proxies for the special meeting and in communicating with stockholders regarding the Merger Agreement and the Merger. We agreed to pay Georgeson a fee of $9,000 for proxy solicitation services and to reimburse Georgeson for its reasonable out-of-pocket expenses.

 

We will, upon request, reimburse banks, brokerage firms and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and in obtaining their voting instructions.

 

A list of stockholders entitled to vote on the proposals to be presented at the special meeting will be available for examination by any stockholder at the special meeting. In addition, for 10 days prior to the special meeting, this stockholder list will be available for inspection by any stockholder for any purpose germane to the special meeting between the hours of 9:00 a.m. and 4:30 p.m. (Central Time) at the Company’s principal place of business located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027.

 

If you have questions about the matters described in this proxy statement or how to submit your proxy, or if you need additional copies of the proxy statement or the enclosed proxy card or voting instructions, you may contact Georgeson toll-free at (866) 203-9401 (banks, brokerage firms or other nominees please call (212) 440-9800).

 

America Service Group Inc. is a Delaware corporation and is a nationwide provider of correctional healthcare services in the United States. The Company, through its subsidiaries, provides a wide range of healthcare programs to government agencies for the medical care of inmates. More information about the Company can be found at its website at www.asgr.com , which address is provided as an inactive textual reference only. The information contained on the Company’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. The Company’s principal executive offices are located at 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027, and its telephone number is (615) 376-3100.

 

Valitás Health Services, Inc. is a Delaware corporation that is the parent company of CMS, a nationwide provider of comprehensive correctional healthcare services, offering a comprehensive suite of medical, dental, pharmacy and mental health services for the incarcerated population. More information about Valitás can be found at the CMS website at www.cmsstl.com , which address is provided as an inactive textual reference only. The information contained on the CMS website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. Valitás’ principal executive offices are located at 12647 Olive Boulevard, St. Louis, Missouri 63141, and its telephone number is (314) 919-8501.

 

Whiskey Acquisition Corp. was formed by Valitás solely for the purpose of acquiring the Company. Upon completion of the Merger, Merger Sub will be merged with and into the Company and Merger Sub will cease to exist. Merger Sub’s principal executive offices are located at 12647 Olive Boulevard, St. Louis, Missouri 63141, and its telephone number is (314) 919-8501.

 

The following description of the Merger is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Appendix A. To understand fully the Merger and the transactions contemplated by the Merger Agreement, you should read the Merger Agreement carefully and in its entirety.

 

If the Merger is completed, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Valitás.

 

If the Merger is completed, the following will also occur:

 

 

The following summarizes the material events (but only those material events) that led to the signing of the Merger Agreement and does not purport to catalogue every conversation or meeting among representatives of the Company or between representatives of the Company and other parties.

 

Our Board and senior management have regularly engaged in a review of the Company’s business plans and other strategic opportunities, including the evaluation of the markets in which the Company competes, the possibility of pursuing strategic alternatives, such as acquisitions or the possible sale of the Company or segments of the Company’s operations, the payment of dividends to stockholders and the repurchase of outstanding shares of the Company’s common stock, each with the view toward enhancing stockholder value. In addition, the Company has held discussions from time to time with various companies and private equity firms that expressed preliminary interest in pursuing a potential acquisition of the Company.

 

On September 13, 2010, during a telephone call on an unrelated subject, Ken O’Keefe, a member of the Board of Directors of Valitás Equity LLC ( “Valitás Equity” ), the indirect parent of Valitás, suggested to a representative of Signal Hill, who had provided investment banking services to the Company in the past, that a meeting be arranged between Rich Hallworth, the President and Chief Executive Officer of the Company, and Dick Miles, the Chairman and President of Valitás Equity, to discuss possible business combinations.

 

On September 14 and 15, 2010, the representative from Signal Hill who had spoken with Mr. O’Keefe discussed his conversation with Mr. Hallworth and Michael W. Taylor, Executive Vice President and Chief Financial Officer of the Company. Messrs. Hallworth and Taylor expressed an interest in further discussions,

subject to the execution of a mutual confidentiality agreement. Mr. Hallworth telephoned Richard Wright, the Chairman of the Board, to inform him of Valitás Equity’s interest in further discussions. Mr. Wright concurred that such further discussions should be held. A confidentiality agreement was executed by each of the Company and Valitás Equity later that day.

 

The Company entered into an engagement letter, dated September 28, 2010 and as thereafter amended, with Signal Hill to provide the Company with certain investment banking services in connection with any potential transaction involving (i) the acquisition of all or a substantial portion of the business or assets of Valitás, Inc. or its affiliates or (ii) the sale of the Company to Valitás or any other third party.

 

On September 28, 2010, Mr. Hallworth, Mr. Taylor and John Gildea, a director of the Company, met with Mr. O’Keefe, Mr. Miles and Stuart Campbell, the President of Valitás Equity, in St. Louis, Missouri. A representative of Signal Hill was also present at the meeting. The parties discussed, among other matters, the state of the correctional healthcare industry, initial thoughts on relative valuations of their respective companies and certain social issues, including the composition and location of the senior management team for the combined company, that would need to be resolved in connection with a potential combination of the two companies. The parties agreed at that time that further discussions were warranted.

 

On October 4, 2010, a representative of Signal Hill had a further conversation with Mr. O’Keefe regarding the possible structure of a transaction involving the Company and Valitás, Inc., and the Company’s preliminary thoughts on the relative valuations of the two companies.

 

On October 5, 2010, the Board met for a regularly scheduled meeting. All members of the Board were present, along with J. Scott King, the Chief Legal Officer of the Company, a representative of Bradley Arant Boult Cummings LLP ( “Bradley Arant” ), outside counsel to the Company, and representatives of Signal Hill. At that meeting, Mr. Hallworth provided the Board with an update on certain acquisition opportunities the Company was evaluating, including opportunities involving Valitás, Inc. The representatives of Signal Hill also briefed the Board on the recent discussions with Valitás Equity and provided the Board with a presentation that included a general market and industry overview, an equity capital markets update, a debt capital markets update, an acquisition case study and a preliminary analysis of the potential acquisition of Valitás, Inc. The Board was informed that some high-level financial information had been exchanged with Valitás Equity and that Valitás Equity was receptive to discussing the Company’s potential acquisition of Valitás, Inc. for consideration consisting of a mix of Company common stock and cash. Mr. Hallworth informed the Board that he had been in regular contact with Mr. Wright and they had agreed that it was appropriate for Mr. Hallworth to have further discussions with Mr. Miles regarding certain social issues, including the composition and location of the senior management team for the combined company, that would need to be resolved in connection with a potential acquisition of Valitás, Inc. by the Company. The Board engaged in a lengthy discussion and asked the representatives of Signal Hill to convey to Valitás Equity that the Board felt that it would be reasonable to begin discussions regarding the Company’s potential acquisition of Valitás, Inc.

 

Later on October 5, 2010, a representative of Signal Hill had further discussions with Mr. O’Keefe regarding the potential valuation of Valitás, Inc. and the potential terms for an acquisition of Valitás, Inc. by the Company.

 

On October 8, 2010, Mr. Hallworth met with Mr. O’Keefe and Mr. Miles in Chicago, Illinois to further discuss certain fundamental social issues, including the composition and location of the senior management team for the combined company. At that meeting, Messrs. Hallworth, O’Keefe and Miles discussed that the appropriate senior management team for the combined company would be comprised of Mr. Miles as Non-Executive Chairman, Mr. Hallworth as Chief Executive Officer, Mr. Taylor as Chief Financial Officer and Mr. Campbell as President and Chief Operating Officer. It was further discussed that the combined company would maintain two primary corporate offices, with the Chief Executive Officer and the Chief Financial Officer remaining in Nashville, Tennessee and the President and Chief Operating Officer remaining in St. Louis, Missouri.

 

On October 12, 2010, the Company presented a draft letter of intent to Valitás Equity, which draft letter of intent was noted as being subject to the approval of the Board. The draft letter of intent provided for the Company to acquire Valitás, Inc. for consideration consisting of a mix of Company common stock and cash.

 

Over the next few days, the parties exchanged revisions of the draft letter of intent.

On October 21, 2010, the Board held a special telephonic meeting. All members of the Board participated, along with Mr. King, a representative of Bradley Arant and a representative of Signal Hill. The purpose of the meeting was to discuss the terms of, and vote on whether to approve, the draft letter of intent, a copy of which had been provided to each member of the Board in advance of the meeting. Messrs. Hallworth, Taylor and King, along with the representative of Signal Hill and the representative of Bradley Arant, described the financial and legal terms of the draft letter of intent, noting those provisions that were binding and those that were nonbinding. The Board engaged in a full discussion of the significant aspects of the proposed acquisition of Valitás, Inc., including the proposed valuation of Valitás, Inc. and the previously discussed composition and location of the senior management team for the combined company. After extended deliberation, the Board unanimously approved the draft letter of intent. The Board also reviewed the steps that would be necessary to complete the proposed acquisition of Valitás, Inc., including among other matters, conducting financial, legal and other due diligence, engaging an investment banking firm to provide a fairness opinion, securing financing for the transaction, preparing and filing proxy materials and obtaining clearance under the HSR Act. A preliminary timeline was discussed with the Board.

 

Later on October 21, 2010, the Company and Valitás Equity executed the letter of intent.

 

On October 28, 2010, an organizational meeting was convened in Nashville, Tennessee. In attendance at the meeting were members of the senior management teams of the Company and Valitás Equity, representatives of Bradley Arant, representatives of Paul Hastings Janofsky & Walker, LLP ( “Paul Hastings” ), outside counsel for Valitás Equity, representatives of Signal Hill and representatives of an accounting firm engaged to conduct a portion of the due diligence. Following the meeting, Mr. Gildea, with assistance of Signal Hill and input from the Company’s senior management, developed a list of investment banking firms, including local, regional and national firms, for the Board to consider engaging for purposes of obtaining a fairness opinion with respect to the proposed acquisition of Valitás, Inc.

 

On October 29, 2010, the parties agreed that it would be financially neutral and otherwise mutually beneficial to structure the proposed transaction as an acquisition of Valitás Equity rather than Valitás, Inc.

 

On November 2, 2010, Mr. Wright and Mr. O’Keefe had a telephone conversation regarding various governance matters and the status of the due diligence process relating to the proposed acquisition of Valitás Equity by the Company.

 

On November 8, 2010, a special telephonic meeting of the Board was held to discuss the status of the proposed acquisition of Valitás Equity. All members of the Board participated, along with Mr. King, a representative of Bradley Arant and a representative of Signal Hill. Senior management reviewed with the Board the progress with respect to a possible organizational structure for the Company following the proposed acquisition of Valitás Equity. Senior management provided an update on the status of discussions with potential lenders to provide debt financing for the proposed acquisition of Valitás Equity and noted that presentations were scheduled with lenders on the following day. The Board discussed the preliminary results of the Company’s financial due diligence that had been conducted to date. A representative of Bradley Arant made a presentation to the Board regarding the Board’s fiduciary duties in connection with the proposed acquisition of Valitás Equity, reviewed related materials that had been circulated to the Board in advance of the meeting and answered questions posed by Board members. Mr. Gildea updated the Board on the search for potential investment banking firms to provide a fairness opinion to the Board and the Board approved contacting certain firms for proposals to be submitted to the Board for further consideration. The Board further agreed to meet on a weekly basis during the pendency of the proposed acquisition of Valitás Equity for further updates.

 

On November 9, 2010, members of the senior management teams of the Company and Valitás Equity, additional representatives of Valitás Equity and representatives of Signal Hill conducted meetings with three banking institutions that were selected, with the assistance of Signal Hill, to present proposals for providing debt financing for the cash portion of the consideration to be paid in connection with the proposed acquisition of Valitás Equity.

Counsel to the Company circulated an initial draft merger agreement relating to the proposed acquisition of Valitás Equity by the Company to Valitás Equity on November 12, 2010. Through their respective outside legal counsels, the parties negotiated various terms of the draft merger agreement over the next two weeks.

 

On November 12, 2010, Mr. Taylor and Mr. O’Keefe had a telephone conversation regarding various due diligence issues relating to the proposed acquisition of Valitás Equity.

 

On November 15, 2010, a special telephonic meeting of the Board was held to discuss the status of the proposed acquisition of Valitás Equity. All members of the Board participated, along with Mr. King, a representative of Bradley Arant and a representative of Signal Hill. During the meeting, the Board reviewed and discussed (i) a memorandum prepared by the Company’s senior management regarding financial due diligence, valuation issues and the previously discussed composition and location of the senior management team for the combined company, (ii) a memorandum from Bradley Arant regarding issues in the draft merger agreement that were still being negotiated, (iii) a financial spreadsheet prepared by Signal Hill detailing various transaction and merger agreement terms from a market sample of similar transactions, (iv) a draft due diligence report from Ernst & Young, dated November 12, 2010, (v) materials regarding potential debt financing for the proposed acquisition of Valitás Equity, (vi) a market analysis of third-party fairness opinion fees from a market sample of similar transactions prepared by Signal Hill and (vii) fairness opinion engagement proposals from investment banking firms approached by the Company prior to the meeting, all of which materials had been provided to the Board in advance of the meeting.

 

On November 16, 2010, the Board engaged Oppenheimer to provide advice to the Board with respect to the fairness of the proposed acquisition of Valitás Equity, from a financial point of view, to the Company’s stockholders.

 

On November 22, 2010, a special telephonic meeting of the Board was held to discuss the status of the proposed acquisition of Valitás Equity. All members of the Board participated, along with Mr. King, a representative of Bradley Arant and a representative of Signal Hill. The Board discussed, among other matters, concerns with the purchase price for the proposed acquisition of Valitás Equity, as well as concerns relating to the draft merger agreement.

 

Later on November 22, 2010, at the Board’s request, Mr. Hallworth telephoned Mr. O’Keefe and conveyed the Board’s concerns and its desire to postpone further work on the proposed acquisition of Valitás Equity pending the Board’s meeting with Oppenheimer in December.

 

On November 23, 2010, Mr. O’Keefe had a telephone conversation with a representative of Oppenheimer during which they discussed potential alternative transaction structures involving the Company and Valitás Equity.

 

During the week of November 29, 2010, representatives of Oppenheimer conducted a detailed due diligence review of Valitás Equity.

 

On December 7 and 8, 2010, the Board held a regularly scheduled meeting. All members of the Board were present at the meeting, along with Mr. King, a representative of Bradley Arant, representatives of Oppenheimer and representatives of Signal Hill. A representative of Oppenheimer addressed the Board regarding Oppenheimer’s preliminary evaluation of the merits of the proposed acquisition of Valitás Equity by the Company from a financial point of view. The Board discussed with Oppenheimer its concerns relating to the proposed purchase price for the proposed acquisition of Valitás Equity, as well as concerns relating to the draft merger agreement. After considerable debate, the Board determined that, based on those concerns, it was not in the best interests of the Company and its stockholders to move forward with the proposed acquisition of Valitás Equity on the terms proposed. The Board directed Mr. Hallworth to convey this message to Mr. O’Keefe.

 

On December 8, 2010, Mr. Hallworth had a telephone conversation with Mr. O’Keefe during which he conveyed the Board’s determination not to move forward with the proposed acquisition of Valitás Equity on the terms proposed. During that call, Mr. O’Keefe asked Mr. Hallworth whether the Board would be willing to consider an offer by Valitás to acquire the Company on terms and based on a valuation metric consistent with that which Valitás Equity was requesting as a seller. Mr. Hallworth responded that any such discussions should be directed to Mr. Wright, in his capacity as Chairman of the Board, rather than to management of the Company, and that he would ask Mr. Wright to contact Mr. O’Keefe.

On December 9, 2010, Mr. Wright spoke with Mr. O’Keefe by telephone. Mr. O’Keefe inquired whether the Board would be receptive to an offer by Valitás relating to an acquisition of the Company involving (i) a per share purchase price of between $20.00 to $22.00 in cash, based on a valuation metric consistent with that which Valitás Equity was requesting as a seller, (ii) Valitás’ agreement to maintain the basic business and legal terms set forth in the most recently proposed draft merger agreement for the proposed acquisition of Valitás Equity by the Company, subject to necessary structural changes, (iii) Valitás’ intention to maintain the previously discussed composition and location of the senior management team for the combined company, (iv) debt financing to support the funding of the aggregate purchase price and (v) a limited due diligence period to supplement the due diligence that had already been performed to date in connection with the proposed acquisition of Valitás Equity by the Company. Mr. Wright communicated the substance of his call with Mr. O’Keefe to the other Board members later that day.

 

On December 11, 2010, Mr. O’Keefe telephoned Mr. Wright and informed Mr. Wright that he had obtained approval from the Board of Directors of Valitás to move forward with an expression of interest on the terms discussed during the December 9, 2010 telephone call. Mr. Wright informed Mr. O’Keefe that the Board had not made a decision to sell the Company and that the Board would next meet on December 13, 2010 and could, in addition to the other business to be conducted at that meeting, evaluate any proposal made by Valitás at such time.

 

On December 13, 2010, the Board held a special meeting. All members of the Board were present, along with a representative of Bradley Arant, a representative of Signal Hill and representatives of Oppenheimer. Mr. Wright updated the Board on the substance of his conversations with Mr. O’Keefe on December 9 and 11, 2010. Representatives of Oppenheimer reviewed with the Board various materials describing the terms of a potential sale of the Company and various financial analyses, including various acquisition multiple matrices and a summary of various premiums paid in other recent transactions. A representative of Bradley Arant reviewed with the Board the fiduciary duties of Board members in connection with a potential sale of the Company and reviewed a memorandum on the subject that had been provided to the Board in advance of the meeting. A representative of Signal Hill informed the Board that, while the concept of the potential Valitás offer was worth pursuing, he believed that the valuation of the Company underlying the potential Valitás offer appeared inadequate. The management members of the Board were excused from the meeting and the non-management members of the Board discussed at length the Company’s alternatives, including pursuing a potential sale of the Company to Valitás, making a counteroffer to purchase Valitás Equity at a lower price than the price previously requested by Valitás Equity and remaining independent and continuing to pursue the Company’s long-term strategic plans. The Board also discussed various strategies to maximize stockholder value if the Board determined to pursue a potential sale of the Company, including the costs and benefits of soliciting higher bids both before and after a potential sale of the Company to Valitás was announced. In addition, with the input of the representative of Bradley Arant, the Board discussed certain non-financial terms of a potential sale of the Company to Valitás that would need to be addressed, including an appropriate go-shop period and appropriate provisions relating to the Board’s and the Company’s ability to terminate any such potential sale of the Company in situations where any such sale would be inconsistent with the Board’s fiduciary duties. After lengthy discussion, the Board determined that additional information was needed and directed Mr. Wright to inform Mr. O’Keefe that the Board had not made a decision to sell the Company but that the Board would give due consideration to any written offer made by Valitás.

 

Later in the day on December 13, 2010, Mr. Wright telephoned Mr. O’Keefe and informed him of the Board’s position. Mr. O’Keefe asked for clarification of certain due diligence items and responded that Valitás anticipated sending a written offer in line with Mr. O’Keefe’s prior conversation with Mr. Wright.

 

On December 16, 2010, Valitás delivered to Mr. Wright a letter containing an offer to acquire the Company for a per share purchase price of $20.50 in cash. The letter articulated that the offer price represented a substantial premium to historical closing prices for the Company’s common stock and that the offer had low execution risk due to Valitás’ familiarity with the industry and the Company. The letter also contained a summary of certain key terms of the proposed sale of the Company, including customary (i) go-shop provisions, (ii) restrictions on soliciting alternative acquisition proposals following the expiration of the go-shop period, subject to customary exceptions based on the fiduciary duties of the Board, (iii) matching rights in favor of Valitás in the event of superior proposals and (iv) termination fee and expense reimbursement provisions in favor of Valitás. The letter also confirmed Valitás’ intention to maintain the previously discussed composition and location of the senior management team for the combined company. Mr. Wright promptly circulated the letter to all members of the Board.

On December 22, 2010, the Board held a special meeting by teleconference. All members of the Board participated, along with a representative of Bradley Arant, a representative of Signal Hill and representatives of Oppenheimer. At the meeting, Mr. Wright summarized the letter containing the offer from Valitás with respect to the proposed sale of the Company. The representative of Signal Hill reviewed with the Board a purchase price analysis reflecting a range of purchase prices per share, depending on the Company’s estimated cash balances at a projected closing date. Representatives of Oppenheimer reviewed various discussion materials that had been provided to the Board in advance of the meeting, including a (i) summary of the terms of the Valitás offer, (ii) a summary of the Company’s common stock market price and trading volumes since December 2007, (iii) a summary of the Valitás offer price compared with various trading prices of the Company’s common stock, (iv) a purchase price matrix, (v) a comparable analysis of the Company with a selected peer group of healthcare services companies, (vi) a selected transactions analysis, (vii) a summary of healthcare services mergers and acquisitions trends, (viii) a discounted cash flow analysis, (ix) a leveraged buyout analysis and (x) a premiums paid analysis. The management members of the Board were excused from the meeting and the remaining non-management directors further discussed alternatives. The Board requested that Mr. Wright clarify with Mr. O’Keefe whether reaching definitive agreements with any members of the Company’s senior management regarding their continued employment with the combined company would be a condition to the completion of the proposed sale of the Company. The Board noted that the Company’s budget for 2011 had not yet been completed and was scheduled for consideration at the Board’s regularly scheduled meeting in January. The Board instructed the representative of Signal Hill to work with Mr. Wright to put together a request for further clarification of the terms of the Valitás offer and to communicate to Mr. O’Keefe that the Board had not made a decision to sell the Company and required further information in order to give due consideration to the Valitás offer. The representative of Signal Hill and the representatives of Oppenheimer were excused from the meeting and the Board, with the input of the representatives of Bradley Arant, discussed whether to create a special negotiating committee for the purpose of facilitating negotiations with Valitás relating to the Valitás offer. In determining whether to establish such a committee, the Board evaluated whether the interests of the management directors with respect to the proposed sale of the Company were materially different from the interests of other stockholders. The Board concluded that, due to the discussions between the management directors and Valitás regarding their potential roles with the combined company following the completion of the proposed sale of the Company, such management directors may have different or additional interests in such proposed sale of the Company that would not be shared by all of the Company’s other stockholders. While the Board did not believe that these different or additional interests, which were fully disclosed to and known by all other members of the Board, disqualified the management directors from participating in the Board’s deliberations and determinations relating to the proposed sale of the Company, the Board further concluded that the creation of a special negotiating committee consisting solely of non-management members of the Board would ensure that there was no appearance of a conflict of interest in negotiating the terms of the proposed sale of the Company. The non-management members of the Board then discussed each of their respective experiences in participating in sales of publicly traded companies. Following that discussion, and in order to maintain a wide range of experience and perspective in negotiating with Valitás, the Board ultimately resolved to appoint Mr. Wright, Mr. Gildea and Mr. Fenimore, all of whom are non-management directors, to serve as the members of the special negotiating committee, which would be responsible for negotiating and delivering its recommendation to the full Board regarding the terms of the proposed sale of the Company.

 

Later on December 22, 2010, Messrs. Wright and Fenimore telephoned Mr. O’Keefe to convey the results of the Board meeting on December 22, 2010. During that call, Mr. O’Keefe clarified Valitás’ position with respect to its intention to maintain the previously discussed composition and location of the senior management team for the combined company, indicating that any future discussions with members of the Company’s senior management relating to their potential roles with the combined company, if any, would be entirely separate from discussions relating to the proposed sale of the Company as a whole, which was in no way conditioned upon reaching definitive agreements with any members of the Company’s senior management regarding their continued employment with the combined company.

 

On December 30, 2010, the members of the special negotiating committee met with a representative of Bradley Arant and a representative of Signal Hill. Messrs. Hallworth and Taylor also attended a portion of the meeting for the sole purpose of updating the members of the committee regarding the status of finalizing the Company’s budget for 2011, which Messrs. Hallworth and Taylor indicated would be provided to the full Board prior to its regularly

scheduled January 2011 meeting. Messrs. Hallworth and Taylor were excused from the meeting, and the representative of Signal Hill reviewed with the members of the special negotiating committee the various materials that Signal Hill had distributed to the members of the committee on December 28, 2010, including (i) a summary of market trading multiples for selected comparable companies, (ii) historical stock performance data for the Company’s common stock over various time periods, (iii) a summary of healthcare services industry precedent transactions, (iv) analyses of the proposed Valitás offer price based on various ranges of the Company’s estimated adjusted earnings before interest, taxes, depreciation and amortization ( “EBITDA” ) for 2011, (v) an overview of premiums in recent healthcare services precedent transactions and (vi) a summary of recent research analysts’ commentary regarding the Company’s common stock, including published analyst target prices for the Company’s common stock. Based on the discussion at the meeting, the members of the special negotiating committee decided to have further discussions with Mr. O’Keefe to better understand certain aspects of the Valitás offer.

 

On January 5, 2011, the Board engaged Oppenheimer to provide advice to the Board with respect to the fairness of the proposed sale of the Company to Valitás, from a financial point of view, to the Company’s stockholders.

 

On January 6, 2011, the members of the special negotiating committee had a telephone conversation with Mr. O’Keefe to better understand certain aspects of the Valitás offer. During the course of the discussion, the members of the committee conveyed to Mr. O’Keefe that, before making a determination regarding the adequacy of the Valitás offer price, the Board would need to review the Company’s budget for 2011, but that the members of the committee believed that certain assumptions made by Valitás in evaluating the Company’s draft budget for 2011 had resulted in an offer price from Valitás that was inadequate. Later in the day on January 6, 2011, Mr. O’Keefe telephoned Mr. Wright and agreed to modify the terms of the Valitás offer to increase the offer price from $20.50 per share to $21.50 per share, based in part on information and assumptions relating to the Company’s current and anticipated cash balance. Mr. O’Keefe also indicated that he wanted to meet with the Company’s senior management to better understand certain items in the Company’s draft budget for 2011.

 

On January 7, 2011, Mr. Wright met with Messrs. Hallworth and Taylor to further discuss certain assumptions underlying the Company’s draft budget for 2011. On January 10, 2011, Mr. Wright informed the other Board members that he had met with Messrs. Hallworth and Taylor and communicated their expectations regarding the Company’s budget for 2011 that would be presented to the Board for approval. Mr. Wright also indicated that Messrs. Hallworth and Taylor believed that it would be necessary for the Board and Valitás to reach agreement with respect to the assumptions underlying the Company’s budget for 2011 in order to make progress in negotiations relating to the proposed sale of the Company.

 

On January 18 and 19, 2011, the Board held a regularly scheduled meeting. All members of the Board were present, along with a representative of Bradley Arant and representatives of Signal Hill. The Board engaged in a discussion with the representatives of Signal Hill regarding various elements of valuation, including the savings to be expected from no longer being a publicly reporting company, and reviewed how various enterprise values would translate into various offer prices. During the meeting the Board reviewed and approved the Company’s budget for 2011. Later during the meeting, the Company’s senior management was informed, and subsequently reported to the Board, that the Company had been selected to negotiate a contract for correctional healthcare services in Miami-Dade County, Florida. The Board discussed the potential impact of successfully negotiating a contract with Miami-Dade County and the implications thereof with respect to the overall valuation of the Company.

 

On January 18, 2011, Mr. Wright telephoned Mr. O’Keefe to arrange a meeting in Nashville, Tennessee on January 20, 2011 with the members of the special negotiating committee to further discuss the terms of the Valitás offer.

 

On January 19, 2011, the members of the special negotiating committee called Mr. O’Keefe to provide a preview of the agenda for the January 20, 2011 meeting, including updating Mr. O’Keefe on the pending announcement of the Company’s being selected to negotiate a contract for correctional healthcare services in Miami-Dade County, the Company’s budget for 2011 and the expected financial results for the Company for 2010.

 

On January 20, 2011, the members of the special negotiating committee met with Mr. O’Keefe and Mr. Miles in Nashville, Tennessee and conveyed the special negotiating committee’s position with respect to the valuation and

resulting offer price for the Company in light of the committee’s view of an appropriate multiple of adjusted EBITDA, the impact of the Company’s being selected to negotiate a contract with Miami-Dade County, the Company’s budget for 2011 and the expected financial results for the Company for 2010. Mr. O’Keefe and Mr. Miles responded that, based in part on disagreements relating to certain assumptions made in the Company’s budget for 2011, they disagreed with the committee’s position regarding the valuation of the Company and resulting offer price, but needed to better understand the impact of the Company’s being selected to negotiate a contract with Miami-Dade County. The parties agreed to reconvene at a later date.

 

On January 28, 2011, Valitás delivered to the Company a letter containing a revised offer to acquire the Company for a per share purchase price of $25.50 in cash. The letter noted that the revised offer price represented an even higher premium to historical closing prices for the Company’s common stock than the initial offer price and that the revised offer continued to have low execution risk due to Valitás’ familiarity with the industry and the Company. The revised offer letter also contained a summary of certain key terms of the proposed sale of the Company consistent with the Valitás letter of December 16, 2010, except that the revised offer letter clarified that Valitás would discuss with Mr. Hallworth, Mr. Taylor and potentially other members of the Company’s senior management their potential roles with the combined company but that any such discussions would be entirely separate from discussions relating to the proposed sale of the Company as a whole, which was in no way conditioned upon reaching definitive agreements with any members of the Company’s senior management regarding their continued employment with the combined company. The letter was promptly circulated to all members of the Board.

 

On January 31, 2011, the Board convened by teleconference. All members of the Board participated, along with a representative of Bradley Arant and representatives of Signal Hill. The purpose of the meeting was to update the Board on the status of discussions with Valitás and to review the January 28, 2011 letter. Mr. Wright summarized the special negotiating committee’s conversation with Mr. O’Keefe and Mr. Miles on January 20, 2011 and the revised offer set forth in the January 28, 2011 letter. Signal Hill’s representatives noted that there were a number of non-financial terms in the revised Valitás offer that merited additional consideration and clarification, including (i) the key terms that would need to be incorporated into a proposed merger agreement (including go-shop provisions, non-solicitation provisions, termination fee and expense reimbursement provisions, etc.), (ii) the nature of Valitás’ proposed supplemental due diligence review, (iii) the terms of debt commitment letters for the debt financing used to support the funding of the aggregate purchase price, (iv) the need for a fairness opinion and (v) the expected timeline for the completion of the sale of the Company. As a result, the Board determined that the special negotiating committee should (a) discuss with Mr. O’Keefe the non-financial terms that required additional clarification before responding as to the adequacy or inadequacy of the $25.50 per share offer price and (b) remind Mr. O’Keefe that the Board had not made a decision to sell the Company.

 

On February 1, 2011, the members of the special negotiating committee had a telephone conversation with Mr. O’Keefe. Mr. Wright informed Mr. O’Keefe that the committee wanted to get additional clarification on a number of non-financial terms in the revised Valitás offer before responding as to the adequacy or inadequacy of the $25.50 per share offer price. Mr. Wright noted that these terms included (i) the key terms that would need to be incorporated into a proposed merger agreement (including go-shop provisions, non-solicitation provisions, termination fee and expense reimbursement provisions, etc.), (ii) the nature of Valitás’ proposed supplemental due diligence review, (iii) the terms of debt commitment letters for the debt financing used to support the funding of the aggregate purchase price, (iv) the need for a fairness opinion and (v) the expected timeline for the completion of the sale of the Company. Mr. O’Keefe expressed his strong desire to arrive at an agreed-upon offer price, subject to the receipt of appropriate respective fairness opinions, prior to undertaking substantial additional work with respect to the proposed sale of the Company. The parties also further discussed the continuing disagreements between the parties regarding certain assumptions made in the Company’s budget for 2011 and the potential impact on the Company’s valuation and resulting offer price. Ultimately, the special negotiating committee agreed to further discuss the revised Valitás offer internally and to contact Mr. O’Keefe at a later date.

 

Later on February 1, 2011, the members of the special negotiating committee reconvened by telephone and discussed the differences between the committee’s valuation of the Company and the resulting offer price and Valitás’ valuation of the Company and the resulting offer price. Following that discussion, Mr. Wright telephoned Mr. O’Keefe and again expressed the committee’s views regarding the valuation of the Company and the resulting

offer price. Mr. O’Keefe indicated that Valitás would be willing to further increase its offer price from $25.50 to $26.00, but indicated that the $26.00 offer price represented Valitás’ best and final offer. Mr. Wright responded that he believed that the revised offer price of $26.00 would be viewed favorably by the special negotiating committee.

 

On February 8, 2011, members of senior management of Valitás, Mr. O’Keefe, Mr. Hallworth conducted a meeting in St. Louis, Missouri with lenders that were selected by Valitás to present proposals for providing debt financing for the proposed sale of the Company. A representative of Signal Hill also attended the meeting.

 

On February 10, 2011, Paul Hastings provided to Bradley Arant a draft merger agreement relating to the proposed sale of the Company. Among other things, the draft merger agreement contained (i) a go-shop period of 45 days following the execution of the agreement, with no exceptions for excluded parties thereafter, (ii) a condition requiring the Company to have a specified minimum cash balance on hand upon the completion of the transaction, (iii) no ability for the Company to declare a cash dividend for the quarter ended March 31, 2011 or thereafter pending the completion of the Merger, (iv) a $9.5 million termination fee payable to Valitás in connection with the termination of the agreement in certain circumstances and a $4.75 million termination fee payable to Valitás in connection with the termination of the agreement in certain circumstances, (v) a maximum $2.5 million expense reimbursement payable to Valitás in connection with the termination of the agreement in certain circumstances and (vi) provisions relating to the Company’s non-solicitation covenants, the Board’s ability to effect a recommendation change and the standard for determining whether the Company has experienced a material adverse effect that were generally favorable to Valitás. At the direction of the special negotiating committee and Signal Hill, representatives of Bradley Arant and Bass Berry & Sims PLC ( “Bass Berry” ), outside counsel for Signal Hill, conducted multiple negotiations and exchanged multiple drafts of the draft merger agreement with representatives of Paul Hastings over the following two weeks, repeatedly insisting that those terms be revised and ultimately reaching the more Company-favorable understandings set forth in the Merger Agreement, including (a) a go-shop period of 45 days following the execution of the agreement, with specified exceptions for excluded parties thereafter, (b) the elimination in its entirety of any condition requiring the Company to have a specified minimum cash balance upon the completion of the transaction, (c) the express ability for the Company to declare a cash dividend for the quarter ended March 31, 2011, (d) an $8.0 million termination fee payable to Valitás in connection with the termination of the agreement in certain circumstances and a $4.5 million termination fee payable to Valitás in connection with the termination of the agreement in certain circumstances, (e) a maximum $2.0 million expense reimbursement payable to Valitás in connection with the termination of the agreement in more limited circumstances than originally proposed and (f) provisions relating to the Company’s non-solicitation covenants, the Board’s ability to effect a recommendation change and the standard for determining whether the Company has experienced a material adverse effect that are generally favorable to the Company.

 

On February 15, 2011, the Company received drafts of debt commitment letters from Valitás.

 

On February 22 and 23, 2011, a regularly scheduled Board meeting was held. All members of the Board were present, along with Mr. King, a representative of Bradley Arant, a representative of Signal Hill, a representative of Bass Berry and representatives of Oppenheimer. The Board was provided with an update on the status of due diligence and negotiations pertaining to the draft merger agreement, including the material open issues remaining in the draft merger agreement. In particular, the representative of Signal Hill reviewed with the Board the go-shop provisions in the merger agreement , and the representative of Bradley Arant discussed how these provisions were important in light of the Board’s fiduciary duties and the fact that the Company would not have conducted an extensive market check prior to entering into the definitive merger agreement. Representatives of Oppenheimer provided a review of their preliminary analysis of the fairness, from a financial point of view, of the proposed Valitás offer price to the Company’s stockholders but were thereafter excused from the meeting without being asked to deliver a final fairness opinion while the draft merger agreement was still being negotiated. The management members of the Board, including Mr. Hallworth, Mr. Taylor and John McCauley (who was by then engaged in discussions with the Company, which discussions did not involve Valitás or its affiliates, to become the Company’s Chief Risk Officer), were then excused from the meeting. A representative of Bradley Arant and a representative of Bass Berry then reminded the non-management directors of their fiduciary duties in connection with their review of the proposed sale of the Company. A representative of Bradley Arant circulated and reviewed with the non-management directors a summary of all material terms of the then-current draft merger agreement. The non-management directors were informed that the Company’s due diligence review was still being finalized and the final

terms of the draft merger agreement were still being negotiated but that the Board was currently scheduled to review and, if appropriate, vote on the proposed sale of the Company and the definitive merger agreement on February 28, 2011, subject to the recommendation of the special negotiating committee.

 

On February 23, 2011, a representative of Signal Hill met with the non-management directors to discuss the go-shop process, including a review of the proposed timeline, a list of potential bidders that Signal Hill was prepared to contact, a form of confidentiality agreement, a summary of data room access protocols and a sample marketing package to be used in the process of soliciting other potential bidders. The representative of Signal Hill reported that the extensive list of parties to be contacted included both strategic entities as well as private equity funds and other potential financial investors. The representative of Signal Hill indicated that Signal Hill would continue to solicit input from the Company’s senior management and the Board members as to any other potential interested bidders that they would recommend that Signal Hill contact during the go-shop period.

 

Between February 22 and 24, 2011, Mr. Wright had multiple telephone conversations with Mr. O’Keefe regarding certain terms being negotiated in the draft merger agreement, including the go-shop provisions, non-solicitation provisions, the condition requiring the Company to have a specified minimum cash balance on hand upon the completion of the transaction and provisions relating to the Company’s ability to declare a cash dividend for the quarter ending March 31, 2011.

 

On or about February 26, 2011, the parties finalized negotiation of substantially all of the provisions of the draft merger agreement and Valitás finalized the draft debt commitment letters with the Lenders. Copies of substantially final versions of the definitive Merger Agreement and debt commitment letters with the Lenders were promptly circulated to all members of the Board.

 

On February 28, 2011, a special telephonic meeting of the Board was held. All members of the Board participated, along with a representative of Bradley Arant, a representative of Signal Hill, a representative of Bass Berry and representatives of Oppenheimer. The Board was updated on certain due diligence issues that were still pending. Representatives of Oppenheimer updated the presentation they had made to the Board at its February 23, 2011 meeting. A representative of Bradley Arant summarized the material terms of the Merger Agreement, noting in each case any substantive differences from the summary of material terms previously circulated to and discussed with the Board at its February 23, 2011 meeting.

 

Effective March 1, 2011, Mr. McCauley, a member of the Board, was employed as the Chief Risk Officer of the Company and resigned from the Board. Following that date, Mr. McCauley did not attend or participate in any subsequent meetings of the Board or in any determinations or deliberations of the Board with respect to the Merger Agreement, the Merger or otherwise. Mr. McCauley’s transition to management resulted from discussions purely between the Company and Mr. McCauley.

 

On March 2, 2011, a special telephonic meeting of the Board was convened to consider the Merger Agreement and the Merger. All then current members of the Board (which no longer included Mr. McCauley) participated, along with a representative of Bradley Arant, representatives of Signal Hill, a representative of Bass Berry and representatives of Oppenheimer. At the meeting, the Board was informed that all due diligence items had been resolved. Representatives of Oppenheimer updated their previous discussion of the financial aspects of the Merger and the procedures that it had undertaken to evaluate the Per Share Merger Consideration from a financial point of view and responded to questions from the Board. At the conclusion of its presentation, Oppenheimer orally rendered its opinion to the Board, subsequently confirmed in writing, that as of March 2, 2011 and based upon and subject to the limitations, qualifications and assumptions set forth in the written opinion, the Per Share Merger Consideration to be received by holders of the shares of the Company’s common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders (see the section entitled “The Merger — Opinion of the Financial Advisor to the Company” beginning on page 33). Thereafter, the special negotiating committee unanimously recommended to the Board that it approve the Merger Agreement and the Merger, declare the Merger Agreement and the Merger advisable, fair to and in the best interests of the Company and its stockholders and recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement. Following a full discussion regarding the material terms of the Merger Agreement, a review of the debt financing on the terms of the debt commitment letters obtained by Valitás which had been provided to each member of the Board in advance of the meeting, the recommendation of the special negotiating committee, the process that

the Company, with the assistance of Signal Hill, would undertake during the go-shop period and the positive and negative factors bearing on whether the Merger Agreement and the Merger should be approved, the Board unanimously (i) approved the Merger Agreement and the Merger, (ii) determined that the Merger Agreement and the Merger are advisable, fair to and in the best interests of the Company and its stockholders, (iii) recommended that the Company’s stockholders vote in favor of the adoption of the Merger Agreement and (iv) authorized the Company’s senior management to execute and deliver the Merger Agreement and any related agreements or instruments contemplated by the Merger Agreement.

 

On the evening of March 2, 2011, the Company, Valitás and Merger Sub executed the Merger Agreement.

 

On the morning of March 3, 2011, the Company and Valitás publicly announced the execution of the Merger Agreement by issuing separate press releases.

 

During the period from March 3, 2011 through the date of this proxy statement, under the supervision of the special negotiating committee, representatives of Signal Hill have contacted a range of parties (including both strategic entities as well as private equity funds and other potential financial investors) that they believed, based on size and business interests and input from the Board and the Company’s senior management, would be capable of, and may be interested in, completing an acquisition of the Company. As of the date of this proxy statement, Signal Hill has contacted 84 potential bidders, and one party has executed a confidentiality agreement to commence its diligence review and further analysis of a potential superior proposal. Due to the fact that the 45-day go-shop period remains ongoing, the special negotiating committee does not currently intend to provide additional details regarding the go-shop process. The special negotiating committee will disclose the additional material details of the go-shop process, if any, prior to the special meeting of stockholders or at such earlier time as may be appropriate based on the results of such process.

 

 

At a meeting held on March 2, 2011, the Board unanimously approved the Merger Agreement and the Merger, declared the Merger Agreement and the Merger to be fair to, advisable and in the best interests of the Company and our stockholders and resolved to recommend to the Company’s stockholders that the stockholders vote in favor of the adoption of the Merger Agreement. Accordingly, the Board unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

In reaching its conclusion regarding the fairness of the Merger Agreement to our stockholders, the Board consulted with and considered the advice of the Company’s outside financial advisors and legal counsel. In addition, the Board considered various factors, including the following, each of which the Board believes supported its conclusion, but which are not listed in any relative order of importance:

 

 

 

 

 

 

 

 

 

 

The Board also considered various potentially negative factors concerning the Merger Agreement and the Merger, including the following, which are not listed in any relative order of importance:

 

 

 

 

 

The foregoing discussion addresses the material factors considered by the Board in its consideration of the Merger Agreement and the Merger, but is not exhaustive and does not present all of the factors considered by the Board. In light of the number and variety of factors and the amount of information considered, the Board did not find it practicable to quantify, rank or otherwise assign relative weights to the specific factors considered in reaching its determination. Individual members of the Board may have given different weights to different factors. The determination to unanimously approve the Merger Agreement and the Merger was made after consideration of all of the relevant factors as a whole, and the Board based its ultimate decision to unanimously approve the Merger Agreement and the Merger on its business judgment that the benefits of the Merger to our stockholders outweighed the potential risks and other potentially negative aspects of the Merger.

 

The Board engaged Oppenheimer to render an opinion to the Board in connection with the Merger. In connection with this engagement, Oppenheimer evaluated the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of our common stock pursuant to the Merger Agreement. On March 2, 2011, at a meeting of the Board held to evaluate the Merger, Oppenheimer rendered to the Board its oral opinion, which was confirmed by delivery of its written opinion dated March 2, 2011, to the effect that, as of that date and based on and subject to the limitations, qualifications and assumptions set forth in the written opinion, the Per Share Merger Consideration to be received by holders of the Company’s common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.

 

The full text of the written opinion of Oppenheimer, dated March 2, 2011, which sets forth among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Oppenheimer in rendering its opinion, is attached to this proxy statement as Appendix B. Stockholders are urged to, and should, read the opinion carefully and in its entirety. Oppenheimer’s opinion was directed to the Board (in its capacity as such) and addresses only the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by the holders of shares of Company common stock pursuant to the Merger Agreement, as of the date of the opinion. Oppenheimer’s opinion does not address any other aspect of the Merger. Oppenheimer expressed no view as to, and its opinion does not address, the underlying business decision of the Company to proceed with or effect the Merger or the relative merits of the Merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage. Oppenheimer’s opinion does not constitute a recommendation as to how any stockholder vote at the special meeting or whether any stockholder should take any other action with respect to the Merger. The summary of Oppenheimer’s opinion described below is qualified in its entirety by reference to the full text of the opinion.

We encourage you to read the opinion of Oppenheimer described above carefully and in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken in connection with such opinion.

 

In arriving at its opinion, Oppenheimer:

 

 

In rendering its opinion, Oppenheimer relied upon and assumed, without independent verification or investigation, the accuracy and completeness of the financial and other information provided to or discussed with Oppenheimer by the Company and its management, employees, representatives and affiliates or otherwise reviewed by Oppenheimer. With respect to the financial projections relating to the Company utilized in its analyses, Oppenheimer assumed, at the direction of the Company’s management and with the Company’s consent, without independent verification or investigation, that such projections were reasonably prepared on bases reflecting the best available information, estimates and judgments of the Company’s management as to the future financial condition and operating results of the Company. Representatives of the Company advised Oppenheimer, and Oppenheimer therefore assumed, that the final terms of the Merger Agreement would not vary materially from those set forth in the execution form of the Merger Agreement reviewed by Oppenheimer. Oppenheimer also assumed, with the Company’s consent, that the Merger would be completed in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws and other requirements and that, in the course of obtaining the necessary regulatory or third-party approvals, consents and releases with respect to the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the Merger. Oppenheimer neither made nor obtained any independent evaluations or appraisals of the assets or liabilities, contingent or otherwise, of the Company.

 

Oppenheimer did not express any opinion as to the underlying valuation, future performance or long-term viability of the Company or the price at which shares of the Company’s common stock would trade at any time. Oppenheimer also expressed no view as to, and its opinion did not address, the solvency of the Company under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. In addition, Oppenheimer expressed no view as to, and its opinion did not address, any terms or other aspects or implications of the Merger (other than the Per Share Merger Consideration to the extent expressly specified in its opinion) or any aspect or implication of any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise, including,

without limitation, the fairness of the amount or nature of, or any other aspect relating to, the compensation to be received by any individual officers, directors or employees of any parties to the Merger, or any class of such persons, relative to the Per Share Merger Consideration. In addition, Oppenheimer expressed no view as to, and its opinion did not address, the Company’s underlying business decision to proceed with or effect the Merger nor did its opinion address the relative merits of the Merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage. Oppenheimer’s opinion was necessarily based on the information available to it and general economic, financial and stock market conditions and circumstances as they existed and could be evaluated by Oppenheimer on the date of its opinion.

 

Except as described above, the Company imposed no other instructions or limitations on Oppenheimer with respect to the investigations made or the procedures followed by it in rendering its opinion. This summary is not a complete description of Oppenheimer’s opinion or the financial analyses performed and factors considered by Oppenheimer in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and is therefore not readily susceptible to summary description. Oppenheimer arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Oppenheimer believes that its analyses and this summary must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Oppenheimer’s analyses and opinion.

 

In performing its analyses, Oppenheimer considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, most of which are beyond the Company’s control. No company, business or transaction used in the analyses is identical to the Company or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.

 

The assumptions and estimates contained in Oppenheimer’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the assumptions and estimates used in, and the results derived from, Oppenheimer’s analyses are inherently subject to substantial uncertainty.

 

Oppenheimer was not requested to, and it did not, recommend the specific consideration payable in the Merger. The type and amount of consideration payable in the Merger was determined through negotiation between a special negotiating committee of the Board consisting solely of non-management members of the Board and its advisors, on the one hand, and Valitás and its advisors, on the other hand, and the decision to enter into the Merger Agreement was solely that of the Board and Valitás. Oppenheimer’s opinion and financial presentation were only one of many factors considered by the Board in its evaluation of the Merger and should not be viewed as determinative of the views of the Board with respect to the Merger or the Per Share Merger Consideration.

 

The following is a summary of the material financial analyses reviewed with the Board in connection with Oppenheimer’s opinion dated March 2, 2011. The financial analyses summarized below include information presented in tabular format. In order to fully understand Oppenheimer’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the corresponding financial analyses. Considering the data in the tables below without considering the full narrative description of the corresponding financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of Oppenheimer’s financial analyses.

 

Selected Companies Analysis

 

Oppenheimer reviewed the financial and stock market information of the Company and the following seven publicly held companies with operations in the outsourced physician services/alternative site industry and the

Medicaid managed care industry, which are sectors of healthcare that have a number of comparable characteristics to the industry in which the Company operates. The companies listed below are referred to as the “selected companies.”

 

 

Oppenheimer reviewed, among other things, the enterprise values of the selected companies, calculated as each selected company’s fully diluted market value based on closing stock prices on March 1, 2011, plus total debt and less cash and other adjustments as multiples of adjusted EBITDA, excluding certain non-recurring charges for calendar year 2010 and estimated calendar year 2011. For purposes of Oppenheimer’s analysis of historical EBITDA, adjustments were made to exclude corporate restructuring expenses and audit committee investigation expenses. In addition, for purposes of Oppenheimer’s analysis of projected EBITDA, further adjustments were made to reflect managements’ estimates of the potential incremental effect if the Company successfully negotiated a contract with Miami-Dade County. Oppenheimer also reviewed the closing stock prices of the selected companies on March 1, 2011, as multiples of net income measured over estimates for calendar years 2011 and 2012, per fully diluted share outstanding of the selected companies, referred to as EPS. Oppenheimer then applied (i) a range of selected multiples of 2010 EBITDA and estimated 2011 EBITDA of 6.9x to 9.4x and 6.9x to 9.3x, respectively and (ii) a range of selected multiples of estimated 2011 EPS and estimated 2012 EPS of 12.2x to 16.5x and 11.1x to 15.0x, respectively, derived from the selected companies to corresponding data of the Company. Financial data for the selected companies was based on certain publicly available research analysts’ estimates, public filings and other publicly available information. Financial data for the Company was based on publicly available information and the financial projections relating to the Company prepared by the Company’s senior management team. This analysis indicated the following implied per share equity value reference range for the Company, as compared to the Per Share Merger Consideration:

 

 

Selected Transaction Analysis

 

Oppenheimer reviewed the transaction values of the following nine transactions involving companies with operations in the physician services/alternative site industry and the Medicaid managed care industry, which are sectors of healthcare that have a number of comparable characteristics to the industry in which the Company operates:

 

Oppenheimer reviewed, among other things, transaction values, calculated as the purchase price paid for the target companies in the selected transactions, plus debt, less cash and other adjustments, as a multiple of such target companies’ latest 12 months EBITDA publicly available at the time of the announcement of the relevant transaction. Oppenheimer then applied a range of selected multiples of latest 12 months EBITDA of 7.7x to 10.4x derived from the selected transactions to the Company’s 2010 adjusted EBITDA to determine per share equity reference ranges. Financial data for the selected transactions were based on publicly available information at the time of the announcement of the relevant transaction. Financial data for the Company was based on publicly available information and financial data provided by the Company’s management team. This analysis indicated the following implied per share equity value reference range for the Company as compared to the Per Share Merger Consideration:

 

 

Discounted Cash Flow Analysis

 

Oppenheimer performed a discounted cash flow analysis on the Company calculating the estimated present value of the unlevered, after-tax free cash flow that the Company was forecasted to generate during fiscal year 2011 through fiscal year 2015 based on financial projections prepared by the Company’s senior management. Oppenheimer calculated terminal values for the Company by applying a range of terminal value EBITDA multiples of 6.0x to 8.0x to the Company’s fiscal year 2015 estimated adjusted EBITDA. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 12.5% to 14.5%, reflecting estimates of the Company’s weighted average cost of capital using the capital asset pricing model and assuming that the selected companies’ average capital structure represents the optimal capital structure. This analysis indicated the following implied per share equity reference ranges for the Company, as compared to the Per Share Merger Consideration:

 

 

Other Factors

 

Oppenheimer also reviewed, for informational purposes, certain other factors, including:

 

 

Miscellaneous

 

The Company agreed to pay Oppenheimer an aggregate fee of $575,000 in connection with the delivery of Oppenheimer’s opinion, a portion of which was payable upon Oppenheimer’s engagement and the remainder of which was payable upon delivery of the opinion. The Company also agreed to reimburse Oppenheimer for its reasonable expenses, including reasonable fees and expenses of its legal counsel, and to indemnify Oppenheimer and related parties against liabilities, including liabilities under U.S. federal securities laws, relating to, or arising out of, its engagement. In the ordinary course of business, Oppenheimer and its affiliates may actively trade the securities of the Company for Oppenheimer’s and its affiliates’ own accounts and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

The Company selected Oppenheimer to act as its financial advisor in connection with the Merger based on Oppenheimer’s reputation and experience and its familiarity with the Company and its business. Oppenheimer is an internationally recognized investment banking firm and, as part of its investment banking business, is regularly engaged in valuations of businesses and securities in connection with mergers and acquisitions, underwritings, secondary distributions of securities, private placements and valuations for other purposes. The issuance of Oppenheimer’s opinion was approved by an authorized committee of Oppenheimer.

 

Other than the annual guidance that we historically have made publicly available on a quarterly basis, we do not as a matter of course make public projections as to our anticipated future performance, earnings or other results due to the unpredictability of the underlying assumptions and estimates. However, we provided to Valitás and intend to provide to other interested parties during the go-shop period certain non-public financial projections in connection with its and their due diligence review of the Company. We also provided these internal financial projections to the Board and our financial and legal advisors. We have included below a summary of these projections to give our stockholders access to certain non-public information that was furnished to third parties and was considered by Oppenheimer and by the Board for purposes of evaluating the Merger.

 

 

 

 

For purposes of Oppenheimer’s analysis of projected adjusted EBITDA, Oppenheimer relied on the projections provided by the Company’s senior management as set forth above, in each case adjusted to include senior management’s estimates of (i) the effects of the Company’s potential contract with Miami-Dade County, including estimated annual revenue increases of $65.0 million for each of the years ending December 31, 2012, 2013, 2014 and 2015 and $32.5 million for the year ending December 31, 2011 (assuming a partial year of performance under such contract) and (ii) stock-based compensation expenses of $1.4 million for the years ending December 31, 2011, 2012 and 2013, $1.5 million for the year ending December 31, 2014 and $1.6 million for the year ending December 31, 2015. The aggregate effect of such inclusions for purposes of Oppenheimer’s analysis resulted in annual increases in adjusted EBITDA ranging from approximately $0.1 million to approximately $4.6 million throughout the period from the year ending December 31, 2011 through the year ending December 31, 2015.

 

The projections set forth above were prepared for internal use only and not with a view to public disclosure and are being included in this proxy statement only because the projections were used by Oppenheimer as a component of its financial analysis for the Board, and because the projections were provided to Valitás and will be provided to other interested parties during the go-shop period during the course of our discussions and negotiations regarding potential transactions, including the Merger. The revenue, gross profit and adjusted EBITDA figures in the table above do not include projections for stock-based compensation expenses. It is impracticable to project such metrics and we are not able to provide a quantitative reconciliation to the nearest equivalent financial metrics calculated in accordance with generally accepted accounting principles in the United States ( “GAAP” ) without unreasonable efforts. The projections were not prepared with a view to compliance with the rules and regulations of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Our registered public accounting firm has not examined, compiled or otherwise applied procedures to the projections and accordingly assumes no responsibility for them. The projections have been prepared by, and are solely the responsibility of, our senior management. The inclusion of the projections in this proxy statement should not be regarded as an indication that these projections will be predictive of actual future

results, and the projections should not be relied upon as such. Neither we nor any other person make or makes any representation to any of our stockholders regarding our ultimate performance compared to the information contained in the projections set forth above. Although presented with numerical specificity, the projections are not fact and reflect numerous assumptions and estimates as to future events made by our senior management that our senior management believed were reasonable at the time the projections were prepared. The projections also involve estimates and prediction of senior management relating to other factors such as industry performance and general business, economic, regulatory, market and financial conditions, as well as factors specific to our business, all of which are difficult to predict and most of which are beyond the control of our management. In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to the Merger or any changes to our operations or strategy that may be implemented after the completion of the Merger. Further, the projections do not take into account the effect of any failure of the Merger to occur and should not be viewed as accurate in that context. Accordingly, there can be no assurance that the projections will be realized, and actual results may be materially different from those reflected in the projections. We do not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even if any or all of the assumptions underlying the projections are shown to be in error. The projections are forward-looking statements, which as discussed earlier in this proxy statement involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

 

In considering the recommendations of the Board, you should be aware that certain of our directors and executive officers have interests in the transaction that are different from, or in addition to, the interests of our stockholders generally. These interests, which are described below, may present them with potential conflicts of interest. The Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the Merger and in recommending that our stockholders vote in favor of adoption of the Merger Agreement.

 

Employment Agreement between Rich Hallworth and Valitás

 

On March 2, 2011, Valitás entered into an employment agreement with Rich Hallworth, our President and Chief Executive Officer, which will become effective upon and is subject to the completion of the Merger. Mr. Hallworth’s employment agreement and the terms thereof were negotiated independently between Mr. Hallworth and his personal legal counsel, on the one hand, and Valitás and its outside legal counsel, on the other hand, and no member of the Board (other than Mr. Hallworth) was a party to such negotiations. In the event the Merger is completed, Mr. Hallworth’s new employment agreement will supersede and replace the employment agreement between the Company and Mr. Hallworth. The principal terms of the employment agreement between Mr. Hallworth and Valitás are set forth below:

 

Employment.   Mr. Hallworth will serve as the Chief Executive Officer of Valitás and will also be appointed to serve as a member of the Board of Directors of Valitás.

 

Base Salary.   Mr. Hallworth will be entitled to receive an annual base salary of $571,000, which is equal Mr. Hallworth’s current annual base salary. Mr. Hallworth’s annual base salary may be increased, but not decreased, in the discretion of the Board of Directors of Valitás.

 

Incentive Bonus.   Mr. Hallworth is eligible to participate in Valitás’ annual incentive bonus plan, with a target incentive bonus of 70% of his base salary, which is equal to Mr. Hallworth’s current target incentive bonus. Mr. Hallworth’s target incentive bonus is measured against predetermined goals or performance objectives as established by the Board of Directors of Valitás.

 

Without Cause or Good Reason Termination Benefits.   In the event that Mr. Hallworth’s employment is terminated by Valitás without cause or by Mr. Hallworth for good reason, Mr. Hallworth will be entitled to receive, among other things (i) a lump sum payment equal to two times his base salary at the time of termination, (ii) a payment equal to the pro-rated annual incentive bonus, if any, that Mr. Hallworth would have earned for the year in which his termination occurs, based on the number of days employed or such other basis

as is reasonably determined by Valitás and (iii) continued medical and life insurance coverage for two years after the date of termination, provided that Mr. Hallworth elects to continue and remains eligible for benefits under COBRA and does not become eligible to enroll in other group medical coverage during those two years.

 

Pre-March 10, 2012 or Change in Control Termination Benefits.   In the event that Mr. Hallworth’s employment is terminated without cause or if Mr. Hallworth resigns with or without good reason (i) prior to March 10, 2012 or (ii) if there is a change in control of Valitás prior to the third anniversary of the effective date of the Merger, during the period beginning on the date of such sale and ending on the earlier of the day before the first anniversary of such sale and the 70th calendar day following the calendar year in which the change in control occurred, then Mr. Hallworth will be entitled to receive, among other things, (x) continued medical and life insurance coverage for two years after the date of termination, provided that Mr. Hallworth elects to continue and remains eligible for benefits under COBRA and does not become eligible to enroll in other group medical coverage during those two years, (y) a lump sum payment equal to 200% of the greater of the incentive bonus that Mr. Hallworth would have earned for the current fiscal year or 50% of his base salary as of the termination date and (z) a lump sum severance payment equal to two times his base salary at the time of termination.

 

Put Option.   If, prior to March 10, 2012, Mr. Hallworth resigns with or without good reason or Valitás terminates Mr. Hallworth’s employment without cause, Mr. Hallworth will have the right to cause Valitas Equity to purchase, at fair market value, certain equity interests in Valitás Equity held by Mr. Hallworth. As of the date of this proxy statement, Mr. Hallworth does not hold any equity interest in Valitás or Valitás Equity. Likewise, while no written agreements have been reached with respect thereto, the Company understands that the only equity interests that Mr. Hallworth is anticipated to hold in Valitás or Valitás Equity following the completion of the Merger will collectively represent (assuming the vesting in full of all equity interests, which is in no way guaranteed) a fully diluted ownership percentage in Valitás Equity of approximately 2.77%.

 

Restrictive Covenants.   Mr. Hallworth will be subject to non-competition and non-solicitation covenants during his employment with Valitás and for two years thereafter. During such period, Mr. Hallworth may not, directly or indirectly (i) in any manner engage in any business in the United States or applicable foreign jurisdictions which competes with the business of Valitás or its subsidiaries, (ii) induce or attempt to induce any employee of Valitás or a subsidiary of Valitás to leave the employ of Valitás or such subsidiary, (iii) hire any person who was an employee of Valitás or a subsidiary of Valitás at any time during the 12-month period prior to Mr. Hallworth’s resignation or termination or (iv) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of Valitás or any subsidiary of Valitás to cease doing business with Valitás or such subsidiary, or otherwise intentionally interfere with the relationship between a customer, supplier, licensee or business relation and Valitás or any of its subsidiaries.

 

Termination of the Merger Agreement.   In the event that the Merger Agreement is terminated for any reason prior to the completion of the Merger, including in the event that we terminate the Merger Agreement in order to accept a superior proposal (see the section entitled “The Merger Agreement — Termination of the Merger Agreement” beginning on page 68), Mr. Hallworth’s employment agreement with Valitás will automatically terminate and be of no further force or effect. As a result, Mr. Hallworth would not be precluded by his employment agreement with Valitás, or otherwise, from accepting alternative employment with a third party in connection with a superior proposal, if any.

 

Severance Payments

 

Rich Hallworth.   Pursuant to the Company’s employment agreement with Mr. Hallworth, if Mr. Hallworth is terminated as a result of death or disability or without cause, or Mr. Hallworth resigns for good reason or, within one year following a change in control (which includes the Merger) but not later than the tenth day of the third month following the year in which the change in control occurs, resigns his employment for any reason or is terminated by the Company for any reason, then Mr. Hallworth is entitled to, among other things (i) a lump sum severance payment equal to 200% of the greater of (a) the incentive compensation that he could have earned under the Company’s annual incentive plan based on projections of the Company’s then current financial results throughout the remainder of the fiscal year or (b) 50% of his base salary as of the termination date, (ii) a lump sum payment

equal to two times his annual base salary as of the termination date which, based on Mr. Hallworth’s current base salary, is equal to $1,142,000 and (iii) COBRA reimbursement payments for 18 months or until Mr. Hallworth is eligible to receive coverage under another employer’s health plan. Assuming the Merger is completed, the terms of Mr. Hallworth’s new employment agreement with Valitás will supersede and replace the terms of the Company’s employment agreement with Mr. Hallworth, including the foregoing severance provisions.

 

Michael W. Taylor.   Pursuant to the Company’s employment agreement with Michael W. Taylor, the Company’s Executive Vice President and Chief Financial Officer, if Mr. Taylor is terminated as a result of death or disability or without cause, or Mr. Taylor resigns for good reason or, within one year following a change in control (which includes the Merger) but not later than the tenth day of the third month following the year in which the change in control occurs, resigns his employment for any reason or is terminated by the Company for any reason, then Mr. Taylor is entitled to, among other things (i) a lump sum severance payment equal to 200% of the greater of (a) the incentive compensation that he could have earned under the Company’s annual incentive plan based on projections of the Company’s then current financial results throughout the remainder of the fiscal year or (b) 50% of his base salary as of the termination date, (ii) a lump sum payment equal to two times his annual base salary as of the termination date which, based on Mr. Taylor’s current base salary, is equal to $840,000 and (iii) COBRA reimbursement payments for 18 months or until Mr. Taylor is eligible to receive coverage under another employer’s health plan.

 

Jonathan B. Walker.   Pursuant to the Company’s employment agreement with Jonathan Walker, the Company’s Senior Vice President and Chief Development Officer, if Mr. Walker is not offered continuation of his employment following a change in control (which includes the Merger) or is terminated without cause or as a result of death or disability, Mr. Walker will be entitled to, among other things, continuation of his monthly base salary for one year following the termination date which, based on Mr. Walker’s current base salary, is equal to $270,000.

 

Carl J. Keldie, M.D.   Pursuant to the Company’s employment agreement with Carl Keldie, the Company’s Chief Medical Officer, if Dr. Keldie is not offered continuation of his employment following a change in control (which includes the Merger) or is terminated without cause or as a result of death or disability, Dr. Keldie will be entitled to, among other things, continuation of his bi-weekly base salary for one year following the termination date which, based on Dr. Keldie’s current base salary, is equal to $361,000.

 

J. Scott King.   Pursuant to the Company’s employment agreement with J. Scott King, the Company’s Chief Legal Officer, if Mr. King is not offered continuation of his employment following a change in control (which includes the Merger) or is terminated without cause or as a result of death or disability, Mr. King will be entitled to, among other things, continuation of his bi-weekly base salary for one year following the termination date which, based on Mr. King’s current base salary, is equal to $235,000.

 

John C. McCauley.   Pursuant to the Company’s employment agreement with John McCauley, the Company’s Chief Risk Officer, if Mr. McCauley is not offered continuation of his employment following a change in control (which includes the Merger) or is terminated without cause or as a result of death or disability, Mr. McCauley will be entitled to, among other things, continuation of his bi-weekly base salary for one year following the termination date which, based on Mr. McCauley’s current base salary, is equal to $250,000.

 

On March 4, 2011 a purported class action lawsuit was filed on behalf of the Company’s stockholders in the Chancery Court for Davidson County, Tennessee, docketed as Colleen Witmer, individually and on behalf of all others similarly situated, v. America Service Group Inc., Valitás Health Services, Inc., Whiskey Acquisition Corp., Burton C. Einspruch, William M. Fenimore, Jr., John W. Gildea, Richard Hallworth, John C. McCauley, Michael W. Taylor, and Richard D. Wright , Case No. 11-0300-IV. One of the allegations in the lawsuit is that Mr. McCauley, a former director of the Company, made the transition to become the Company’s Chief Risk Officer as a result of an arrangement or understanding with Valitás. Mr. McCauley’s transition to management resulted from discussions purely between the Company and Mr. McCauley.

Table of Severance Payments

 

The following tables set forth potential payments payable to our executive officers in the event of termination of such executive’s employment. Except where otherwise indicated, the amounts shown assume that such termination was effective as of March 31, 2011. The actual amounts that would be paid out to any given executive can only be determined at the time of the termination of such executive’s employment with the Company.

 

 

 

 

Ownership of the Company Stock, Stock Options and Other Equity Awards

 

Our directors and executive officers own shares of Company common stock and, like our other stockholders, will be entitled to receive the Per Share Merger Consideration for their shares (see the section entitled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 73).

 

In addition, our directors and executive officers hold options to purchase shares of Company common stock and shares of restricted stock. Like the other holders of Company stock options, our directors and executive officers will be entitled to receive cash in exchange for the cancellation of their vested and currently unvested stock options pursuant to the terms of the Merger Agreement. Like the shares of Company restricted stock held by other holders, all restrictions on shares of restricted stock held by our directors and officers will accelerate and lapse immediately prior to the effective time of the Merger and will entitle the holder to receive the applicable Per Share Merger Consideration.

 

Assuming the Merger had been completed as of the date of this proxy statement, our directors and executive officers would receive the following amounts, less any applicable withholding taxes, in connection with the shares

of common stock, vested and currently unvested stock options and shares of restricted stock they beneficially own as of the date of this proxy statement:

 

 

Indemnification

 

The Merger Agreement provides that all rights to indemnification and expense advancement existing in favor of our and our subsidiaries’ current and former directors and officers contained in our and our subsidiaries’ current charter or other organizational documents or certain indemnification agreements with respect to matters occurring at or before the effective time of the Merger will continue, subject to requirements relating to undertakings to repay advanced expenses in certain circumstances. In addition, pursuant to the Merger Agreement Valitás or the surviving corporation is required to purchase and maintain directors’ and officers’ “tail” insurance covering a period of six years following the effective time of the Merger and providing coverage that is no less favorable than the Company’s current directors’ and officers’ liability insurance, subject to certain exceptions (see the section entitled “The Merger Agreement — Indemnification of Directors and Officers; Insurance” beginning on page 64).

 

 

 

 

will be approximately $458.0 million. We expect this amount to be funded through a combination of:

 

 

In connection with the foregoing, Valitás has obtained the debt financing commitments described below. The funding under those commitments is subject to conditions, including conditions that do not relate directly to the Merger Agreement. We and Valitás believe the committed amounts will be sufficient to complete the Merger, but we cannot assure you of that fact. Those amounts might be insufficient if, among other things, we or Valitás have substantially less cash on hand and/or if Valitás realizes substantially less net proceeds from the debt financings than we and Valitás currently expect. Although obtaining the debt financing is not a condition to the completion of the Merger, the failure of Valitás to obtain sufficient financing may nevertheless result in the failure of the Merger to be completed.

 

The Senior Lenders have committed, on the terms and subject to the conditions set forth in a debt commitment letter dated March 2, 2011, to provide Valitás with $360.0 million in a senior secured credit facility comprised of a term loan facility of $285.0 million and a revolving credit facility of $75.0 million. In addition, the Mezzanine Lender has committed, on the terms and subject to the conditions set forth in a debt commitment letter dated March 2, 2011, to provide Valitás with the gross proceeds from the issuance and sale by Valitás of $100.0 million in principal amount of unsecured senior subordinated notes pursuant to a private placement.

 

The obligations of the Lenders to provide debt financing under the debt commitment letters are subject to a number of conditions, including, without limitation:

 

 

 

 

Each of the commitments of the Lenders will expire on the earliest of (i) August 31, 2011, (ii) the completion of the Merger without the use of the debt financing contemplated by the applicable debt commitment letter or (iii) the date upon which the Merger Agreement is terminated.

 

Subject to the terms and conditions of the Merger Agreement, Valitás has agreed to use its reasonable best efforts to obtain the debt financing contemplated by the debt commitment letters on the terms and conditions described in the debt commitment letters. Valitás may amend, modify or waive terms of the debt commitment letters without the written consent of the Company so long as such amendment, modification or waiver would not, and would not be reasonably expected to, (i) reduce the aggregate amount of the debt financing below the amount required for the completion of the Merger (taking into account other funds available to Valitás and the Company’s cash on hand), (ii) impose new or additional conditions to the receipt of the debt financing, (iii) prevent or materially delay the completion of the Merger or (iv) adversely impact the ability of Valitás to enforce its rights under the debt commitment letters. Likewise, Valitás is obligated to use its reasonable best efforts to promptly replace any portion of the debt financing contemplated by the debt commitment letters that becomes unavailable and may effect any such replacement so long as the terms thereof are not materially less favorable, in the aggregate, to Valitás.

 

Although the debt financing described in this proxy statement is not subject to due diligence or a typical “market out” provision, which allows lenders not to fund their commitments if certain conditions in the financial markets prevail (unless the Company, Valitás and their respective subsidiaries are collectively materially and disproportionately affected thereby), there is still a risk that such financing may not be funded when required. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available as anticipated.

 

Holders of record of our common stock who do not vote in favor of the adoption of the Merger Agreement, and who otherwise comply with the applicable provisions of Section 262 of the General Corporation Law of the State of Delaware, or the DGCL, will be entitled to exercise appraisal rights under Section 262 of the DGCL in connection with the Merger. A person having a beneficial interest in shares of our common stock held of record in the name of another person, such as a broker, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

 

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is reprinted in its entirety as Appendix C and incorporated into this proxy statement by reference. All references in Section 262 of the DGCL and in this summary to a “stockholder” or “holder” are to the record holder of the shares of our common stock as to which appraisal rights are asserted.

 

Holders of shares of our common stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares of our common stock appraised by the Delaware Court of Chancery and to receive, in lieu of the Per Share Merger Consideration, payment in cash of the “fair value” of the shares of our common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with

interest, if any, as determined by the Court. You should be aware that the fair value of your shares as determined under Section 262 of the DGCL could be less than, the same as, or more than the Per Share Merger Consideration that you are entitled to receive under the terms of the Merger Agreement. Stockholders who elect to exercise appraisal rights must not vote in favor of the proposal to adopt the Merger Agreement and must comply with the provisions of Section 262 of the DGCL, in order to perfect their appraisal rights. Strict compliance with the statutory procedures in Section 262 of the DGCL is required. Failure to follow precisely any of the statutory requirements will result in the loss of your appraisal rights.

 

Under Section 262 of the DGCL, when a proposed merger of a Delaware corporation is to be submitted for adoption at a meeting of its stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders who was a stockholder on the record date for this meeting with respect to shares for which appraisal rights are available, that appraisal rights are so available, and must include in that required notice a copy of Section 262 of the DGCL.

 

This proxy statement constitutes the required notice to the holders of the shares of our common stock in respect of the Merger, and Section 262 of the DGCL is attached to this proxy statement as Appendix C. Any stockholder who wishes to exercise appraisal rights in connection with the Merger or who wishes to preserve the right to do so should review the following discussion and Appendix C carefully, because failure to timely and properly comply with the procedures specified in Appendix C will result in the loss of appraisal rights under the DGCL.

 

A stockholder wishing to exercise appraisal rights must not vote in favor of the adoption of the Merger Agreement, and must deliver to us, before the taking of the vote on the adoption of the Merger Agreement at the special meeting, a written demand for appraisal of the stockholder’s shares of our common stock. This written demand for appraisal must be separate from any proxy or ballot abstaining from the vote on the adoption of the Merger Agreement or instructing or effecting a vote “AGAINST” the adoption of the Merger Agreement. This demand must reasonably inform us of the identity of the stockholder and of the stockholder’s intent thereby to demand appraisal of the stockholder’s shares of Company common stock in connection with the Merger. A holder of our common stock wishing to exercise appraisal rights must be the record holder of the shares of our common stock on the date the written demand for appraisal is made and must continue to hold the shares of our common stock through the effective time of the Merger. Accordingly, a holder of our common stock who is the record holder of our common stock on the date the written demand for appraisal is made, but who thereafter transfers the shares of our common stock prior to consummation of the Merger, will lose any right to appraisal in respect of the shares of our common stock. If a stockholder fails to comply with either of these conditions and the Merger is completed, such stockholder will be entitled to receive payment for his, her or its shares of our common stock as provided for in the Merger Agreement, but will have no appraisal rights with respect to his, her or its shares of our common stock. A stockholder wishing to exercise appraisal rights must hold of record the shares of our common stock on the date the written demand for appraisal is made and must continue to hold the shares of our common stock of record through the effective time of the Merger, because appraisal rights will be lost if the shares of our common stock are transferred prior to the effective time of the Merger. Voting against or failing to vote for the proposal to adopt the Merger Agreement by itself does not constitute a demand for appraisal within the meaning of Section 262 of the DGCL.

 

A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who votes by proxy and who wishes to exercise appraisal rights must either vote “AGAINST” the adoption of the Merger Agreement or abstain from voting on the adoption of the Merger Agreement. The written demand for appraisal must be in addition to and separate from any proxy or vote on the proposal to adopt the Merger Agreement.

 

Only a holder of record of our common stock on the date of the making of a demand for appraisal will be entitled to assert appraisal rights for the shares of our common stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, and must state that the holder intends to demand appraisal of the holder’s shares. The demand cannot be made by the beneficial owner if he or she does not also hold the shares of our common stock of record. The beneficial holder must, in such cases, have the registered owner, such as a bank, brokerage firm or other nominee, submit the required demand in respect of those shares of our common stock. If the

shares of our common stock are held of record by a person other than the beneficial owner, including a bank, brokerage firm or other nominee, execution of the demand should be made in that capacity, and if our common stock is held of record by more than one holder as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint holders. An authorized agent, including an agent for one or more joint holders, may execute a demand for appraisal on behalf of a holder of record. The agent, however, must identify the record holder or holders and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record holder or holders. A record holder such as a broker who holds our common stock as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of our common stock held for one or more beneficial owners while not exercising appraisal rights with respect to our common stock held for other beneficial owners. In this case, the written demand should set forth the number of shares of our common stock as to which appraisal is sought. When no number of shares of our common stock is expressly mentioned, the demand will be presumed to cover all of our common stock in brokerage accounts or other nominee forms held by such record holder. If you hold shares in brokerage accounts or other nominee form and wish to exercise appraisal rights under Section 262 of the DGCL, we urge you to consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

All written demands for appraisal should be sent or delivered to America Service Group Inc., 105 Westpark Drive, Suite 200, Brentwood, Tennessee 37027 Attention: Corporate Secretary. Failure of a stockholder to make the written demand for appraisal prior to the taking of the vote on the adoption of the Merger Agreement at the special meeting will constitute a waiver of his, her or its appraisal rights. The demand must reasonably inform the Company of the identity of the stockholder and the intent of the stockholder to demand appraisal of his, her or its shares of common stock.

 

Within 10 days after the effective time of the Merger, the Company, or its successor, which we refer to generally as the surviving corporation, will notify each former stockholder who has properly asserted appraisal rights under Section 262 of the DGCL, and has not voted in favor of the adoption of the Merger Agreement, of the date the Merger became effective. We also plan to issue a press release when the Merger has become effective. At any time within 60 days after the effective time of the Merger, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw the demand and accept the cash payment specified by the Merger Agreement for that stockholder’s shares of our common stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective time will require written approval of the surviving corporation. Unless the demand is properly withdrawn by the stockholder within 60 days after the effective time, no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, with such approval conditioned upon such terms as the Court deems just. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the consideration offered pursuant to the Merger Agreement.

 

Within 120 days after the effective time of the Merger, but not thereafter, the surviving corporation or any former stockholder who has complied with the statutory requirements summarized above may file a petition in the Delaware Court of Chancery, with a copy served on the surviving corporation in the case of a petition filed by the stockholder, demanding a determination of the fair value of the shares of our common stock that are entitled to appraisal rights. The Company, which will be the surviving corporation, is under no obligation, and does not have any present intention, to file a petition with respect to the appraisal of the fair value of the shares of our common stock, and stockholders seeking to exercise appraisal rights should not assume that the surviving corporation will initiate any negotiations with respect to the fair value of such shares. Accordingly, it is the obligation of the stockholders wishing to assert appraisal rights to take all necessary action to perfect and maintain their appraisal rights within the time period prescribed in Section 262 of the DGCL and the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previous written demand for appraisal. A person who is the beneficial owner of shares of our common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file the petition described in this paragraph.

Within 120 days after the effective time of the Merger, any former stockholder who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation a statement setting forth the aggregate number of shares of our common stock not voted in favor of adopting the Merger Agreement and with respect to which demands for appraisal have been received and the aggregate number of former holders of these shares of our common stock. These statements must be mailed to the stockholder within 10 days after a written request therefor has been received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal under Section 262 of the DGCL, whichever is later. A person who is the beneficial owner of shares of our common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from the surviving corporation the statement described in this paragraph.

 

If a petition for an appraisal is filed timely with the Delaware Court of Chancery and a copy thereof is served upon the surviving corporation, the surviving corporation will then be obligated within 20 days of service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all former stockholders who have demanded appraisal of their shares of our common stock and with whom agreements as to value have not been reached. After notice to such former stockholders as required by the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to conduct a hearing on such petition to determine those former stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the former stockholders who demanded appraisal of their shares of our common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding. If any former stockholder fails to comply with such direction, the Delaware Court of Chancery may dismiss the proceedings as to that former stockholder.

 

After determining which, if any, former stockholders are entitled to appraisal, the Delaware Court of Chancery will appraise their shares of our common stock, determining their “fair value,” exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. When the value is determined, the Delaware Court of Chancery will direct the payment of such value together with interest, if any, upon surrender by those stockholders of the certificates representing their shares of our common stock. Unless the Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective time of the Merger through the date of payment of the judgment will be compounded quarterly and will accrue at a rate of 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the Merger and the date of payment of the judgment.

 

Our stockholders considering seeking appraisal should be aware that the fair value of their shares of our common stock as determined under Section 262 of the DGCL could be less than, the same as, or more than the value of the Per Share Merger Consideration they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares of our common stock. Furthermore, Oppenheimer’s written opinion, which is attached to this proxy statement as Appendix B, addressed to the Board and dated March 2, 2011, to the effect that, as of that date and based upon and subject to the limitations, qualifications and assumptions set forth in the written opinion, the Per Share Merger Consideration to be received by holders of the shares of common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders, is not an opinion as to fair value under Section 262 of the DGCL. Although we believe that the Per Share Merger Consideration is fair, no representation is made as to the outcome of an appraisal of fair value by the Delaware Court of Chancery and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the Per Share Merger Consideration. In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc. , the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the Merger and that throw any light on future prospects of the surviving corporation. Section 262 of the DGCL provides that fair

value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc. , the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger , the Delaware Supreme Court construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 

In addition, Delaware courts have decided that a stockholder’s statutory appraisal remedy may or may not be a dissenter’s exclusive remedy, depending on the factual circumstances.

 

The costs of the appraisal action (which do not include attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding) may be determined by the Delaware Court of Chancery and levied upon the parties as the Delaware Court of Chancery deems equitable. Upon application of a former stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by any former stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all of the shares of our common stock entitled to appraisal.

 

Any stockholder who has duly demanded an appraisal in compliance with Section 262 of the DGCL will not, after the completion of the Merger, be entitled to vote the shares of our common stock subject to this demand for any purpose or be entitled to the payment of dividends or other distributions on those shares of our common stock (except dividends or other distributions payable to holders of record of our common stock as of a record date prior to the effective time of the Merger).

 

If any stockholder who properly demands appraisal of his, her or its common stock under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses, his, her or its right to appraisal, as provided in Section 262 of the DGCL, that stockholder’s shares of our common stock will be deemed to have been converted into the right to receive the Per Share Merger Consideration. A stockholder will fail to perfect, or effectively lose or withdraw, his, her or its right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective time of the Merger, or if the stockholder delivers to us or the surviving corporation, as the case may be, a written withdrawal of the stockholder’s demand for appraisal. Any attempt to withdraw an appraisal demand in this manner more than 60 days after the effective time of the Merger will require the written approval of the surviving corporation and, once a petition for appraisal is filed, the appraisal proceeding may not be dismissed as to any holder absent court approval.

 

Failure to follow the steps required by Section 262 of the DGCL for perfecting appraisal rights may result in the loss of these rights, in which event the shares held by such stockholder will be deemed to have been converted into the right to receive the Per Share Merger Consideration.

 

Any stockholder wishing to exercise appraisal rights is urged to consult with legal counsel prior to attempting to exercise such rights.

 

Except as set forth below, all fees and expenses incurred in connection with the completion of the Merger will be paid by the party incurring those fees and expenses. Notwithstanding the foregoing, however, the Company and Valitás have agreed to share equally all fees and expenses, including filing fees and legal and consulting costs, incurred after October 22, 2010 in relation to filings under the HSR Act with respect to the Merger.

 

In addition, if the Merger Agreement is terminated, we will, in specified circumstances, be required to reimburse Valitás for its documented transaction expenses incurred in connection with the transactions contemplated by the Merger Agreement, up to a maximum of $2.0 million, and may also be required under certain circumstances to pay Valitás a termination fee of either $4.5 or $8.0 million (see the section entitled “The Merger Agreement — Termination Fee and Expenses” beginning on page 70).

 

The following discussion is a summary of certain material U.S. federal income tax consequences of the Merger to U.S. holders (as defined below) whose shares of our common stock are converted into the right to receive cash in the Merger. This discussion is for general information only and is not tax advice. The discussion is based upon the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, Treasury Regulations, Internal Revenue Service published rulings and judicial and administrative decisions in effect as of the date of this proxy statement, all of which are subject to change (possibly with retroactive effect) and to differing interpretations. Any such change could affect the accuracy of the statements and conclusions set forth in this proxy statement. The following discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. This discussion applies only to stockholders who, on the date on which the Merger is completed, hold shares of our common stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code. The following discussion does not address taxpayers subject to special treatment under U.S. federal income tax laws, such as insurance companies, financial institutions, dealers in securities or currencies, traders of securities that elect or are required to use the mark-to-market method of accounting for their securities, persons that have a functional currency other than the U.S. dollar, tax-exempt organizations, mutual funds, real estate investment trusts, S corporations or other pass-through entities (or investors in an S corporation or other pass-through entity), taxpayers subject to the alternative minimum tax and taxpayers who will have a direct or indirect interest in Valitás after the Merger. In addition, the following discussion may not apply to stockholders who acquired their shares of our common stock upon the exercise of employee stock options or otherwise as compensation for services or through a tax-qualified retirement plan or who hold their shares as part of a hedge, straddle, conversion transaction or other integrated transaction. If our common stock is held through a partnership (or other entity treated as a partnership for U.S. federal income tax purposes), the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. It is recommended that partnerships that are holders of our common stock and partners in those partnerships consult their own tax advisors regarding the tax consequences to them of the Merger.

 

The following discussion also does not address tax consequences to holders of the Company stock options or potential U.S. federal estate or alternative minimum tax, or foreign, state, local or other tax consequences of the Merger. All stockholders should consult their own tax advisors regarding the U.S. federal income tax consequences, as well as the U.S. federal non-income, foreign, state, local and other tax consequences of the disposition of their shares in the Merger.

 

For purposes of this summary, a “U.S. holder” is a beneficial owner of shares of our common stock, who or that is, for U.S. federal income tax purposes:

 

 

This discussion is confined to the tax consequences to a stockholder who or that, for U.S. federal income tax purposes, is a U.S. holder.

 

For U.S. federal income tax purposes, the disposition of our common stock pursuant to the Merger generally will be treated as a sale of our common stock for cash by each of our stockholders. Accordingly, in general, the U.S. federal income tax consequences to a U.S. holder receiving cash in the Merger will be as follows:

 

 

 

Cash payments made pursuant to the Merger will be reported to our stockholders and the Internal Revenue Service to the extent required by the Internal Revenue Code and applicable Treasury Regulations. Non-corporate stockholders may be subject to back-up withholding at a rate of 28% on any cash payments they receive. Stockholders who are U.S. holders generally will not be subject to backup withholding if they: (1) furnish a correct taxpayer identification number and certify that they are not subject to backup withholding on the substitute Form W-9 included in the election form/letter of transmittal they are to receive or (2) are otherwise exempt from backup withholding and comply with other applicable rules and certification requirements. Certain of our stockholders will be asked to provide additional tax information in the letter of transmittal for the shares of our common stock.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

The foregoing is a general discussion of certain material U.S. federal income tax consequences of the Merger. We recommend that you consult your own tax advisor to determine the particular tax consequences to you (including the application and effect of any U.S. federal non-income, foreign, state, local or other tax laws) of the receipt of cash in exchange for shares of our common stock pursuant to the Merger.

 

The following discussion summarizes the material regulatory requirements that we believe relate to the Merger, although we may determine that additional consents from, or notifications to, governmental agencies are necessary or appropriate.

 

Under the HSR Act, we cannot complete the Merger until we have submitted certain information to the Antitrust Division of the Department of Justice and the Federal Trade Commission and satisfied the statutory waiting period requirements. The initial waiting period is 30 days following the filing of the notification and report forms by the parties, but this period may be shortened if the reviewing agency grants “early termination” of the waiting period, or it may be lengthened by consent of the parties or if the reviewing agency determines that an in-depth investigation is required and issues a formal request for additional information and documentary material. On March 8, 2011, the Company and Valitás filed Notification and Report Forms for Certain Mergers and Acquisitions under the HSR Act in connection with the Merger with the Antitrust Division of the Department of Justice and the Federal Trade Commission.

 

At any time before or after the effective time of the Merger, either the Antitrust Division of the Department of Justice or the Federal Trade Commission could take action under applicable antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Merger or seeking the divestiture of assets of the Company or Valitás or their respective affiliates or imposing other requirements or conditions. In the Merger Agreement, the parties have agreed to use their reasonable best efforts to make all filings with governmental authorities and obtain all governmental approvals and consents necessary to complete the Merger, subject to certain exceptions and limitations.

Except as noted above with respect to the required filings under the HSR Act and the filing of a certificate of merger in Delaware at or before the effective date of the Merger, we are not aware of any material federal, state or foreign regulatory requirements or approvals required for the completion of the Merger.

 

We cannot assure you that the regulatory approvals described above will be obtained and, if obtained, we cannot assure you as to the timing of any approvals, ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. We cannot assure you that the Antitrust Division of the Department of Justice, the Federal Trade Commission or any other governmental entity or any private entity will not attempt to challenge the Merger on antitrust grounds and, if such a challenge is made, we cannot provide you with any assurances as to its result.

 

The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.

 

On March 4, 2011, a purported class action lawsuit was filed on behalf of the Company’s stockholders in the Chancery Court for Davidson County, Tennessee, docketed as Colleen Witmer, individually and on behalf of all others similarly situated, v. America Service Group Inc., Valitás Health Services, Inc., Whiskey Acquisition Corp., Burton C. Einspruch, William M. Fenimore, Jr., John W. Gildea, Richard Hallworth, John C. McCauley, Michael W. Taylor, and Richard D. Wright , Case No. 11-0300-IV. The lawsuit alleges, among other things, that the Board breached fiduciary duties owed to our stockholders by failing to take steps to maximize stockholder value or to engage in a fair sale process when approving the Merger. The complaint also alleges that the Company, Valitás and Merger Sub aided and abetted the members of the Board in the alleged breach of their fiduciary duties. The complaint seeks an order enjoining or rescinding the Merger, together with other relief.

 

Pursuant to the terms of the Merger Agreement, it is a condition to the completion of the Merger that there does not exist any law or governmental order prohibiting or making illegal the completion of the Merger (see the section entitled “The Merger Agreement — Conditions to the Merger” beginning on page 67). However, we believe the lawsuit is wholly without merit.

 

The following section describes the material provisions of the Merger Agreement. However, this section does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. In addition, this section is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached as Appendix A to this proxy statement and is incorporated into this proxy statement by reference. We encourage you to read the Merger Agreement carefully and in its entirety as it establishes and governs the legal relations among us, Valitás and Merger Sub with respect to the Merger. This section is not intended to provide you with any factual information about the Company. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC (see the section entitled “Where You Can Find More Information” beginning on page 76).

 

The Merger Agreement is included with this proxy statement solely to provide you with information regarding its terms. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the Merger Agreement. Moreover, the representations, warranties and covenants made in the Merger Agreement by the Company, Valitás and Merger Sub were qualified by and subject to important limitations agreed to by the Company, Valitás and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated for the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to

complete the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise and of allocating risk between the parties to the Merger Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders or to reports and documents filed with the SEC and in some cases were qualified by supplemental disclosures that were made by the Company to Valitás, which disclosures are not reflected in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement. AS A RESULT OF THE FOREGOING, YOU ARE STRONGLY ENCOURAGED NOT TO RELY ON THE REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN THE MERGER AGREEMENT, OR ON ANY DESCRIPTIONS THEREOF, AS ACCURATE CHARACTERIZATIONS OF THE STATE OF FACTS OR CONDITION OF THE COMPANY OR ANY OTHER PARTY. YOU ARE LIKEWISE CAUTIONED THAT YOU ARE NOT A THIRD-PARTY BENEFICIARY UNDER THE MERGER AGREEMENT AND DO NOT HAVE ANY DIRECT RIGHTS OR REMEDIES PURSUANT TO THE MERGER AGREEMENT.

 

The effective time of the Merger will occur at the time that we file the certificate of merger with the Secretary of State of the State of Delaware on the closing date of the Merger or on such later date as we, Valitás and Merger Sub may mutually agree (and set forth in the certificate of merger). The closing date will be no later than the second business day after all of the conditions to the completion of the Merger set forth in the Merger Agreement have been fulfilled or waived (other than those conditions that by their nature are to be fulfilled on the closing date), or on such later date as we, Valitás and Merger Sub may mutually agree. Notwithstanding the foregoing, Valitás may postpone the closing date up to two times, in each case for not more than five calendar days (or if the fifth calendar day is not a business day, the next business day), provided that Valitás may not postpone the closing date to a date later than August 31, 2011.

 

Subject to the terms and conditions of the Merger Agreement and in accordance with Delaware law, at the effective time of the Merger, Merger Sub, a wholly-owned subsidiary of Valitás, will merge with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation and a wholly-owned subsidiary of Valitás. The surviving corporation will be a privately held corporation and our current stockholders will cease to have any ownership interest in the surviving corporation or rights as our stockholders. As a result of the Merger, our current stockholders will no longer have any interest in our future earnings or growth or bear any risk associated with our failure to achieve such future earnings or growth.

 

The Board of Directors of the surviving corporation will, from and after the effective time of the Merger, consist of the directors of Merger Sub as of immediately prior to the effective time of the Merger until their successors have been duly elected or appointed and qualified. The officers of the Company as of immediately prior to the effective time of the Merger will, from and after the effective time of the Merger, be the officers of the surviving corporation until their successors have been duly elected or appointed and qualified.

 

At the effective time of the Merger, the certificate of incorporation of the Company will be amended in its entirety to read as set forth in Exhibit C to the Merger Agreement, and as so amended will be the certificate of incorporation of the surviving corporation until thereafter amended in accordance with the terms thereof and applicable law. At the effective time of the Merger, the bylaws of the Company will be amended in their entirety as set forth in Exhibit D to the Merger Agreement, and as so amended will be the bylaws of the surviving corporation until thereafter amended in accordance with the terms thereof and applicable law.

 

Common Stock

 

At the effective time of the Merger, each share of our common stock outstanding as of immediately prior to the effective time of the Merger will automatically be canceled and will cease to exist and will be converted into the right to receive the Per Share Merger Consideration, other than:

 

 

Stock Options

 

Prior to the effective time of the Merger, each outstanding option to purchase shares of our common stock will vest and become exercisable in full. Each option to purchase shares of our common stock outstanding at the effective time of the Merger will be canceled and converted into the right to receive, as soon as reasonably practicable following the effective time of the Merger, an amount in cash equal to (i) the number of shares subject to such option multiplied by (ii) the excess (if any) of the Per Share Merger Consideration over the exercise price per share of such option. As of the date of this proxy statement, we have no outstanding stock options with an exercise price per share in excess of the Per Share Merger Consideration.

 

Restricted Stock

 

As of the effective time of the Merger, the vesting restrictions on each outstanding share of restricted stock will be accelerated and will lapse and each such share of restricted stock will be automatically canceled and converted into the right to receive the Per Share Merger Consideration.

 

Company Employee Stock Purchase Plan

 

The Merger Agreement provides that we must take all actions reasonably requested by Valitás to ensure that (i) participants in our employee stock purchase plan may not alter their payroll deductions from those in effect as of the date of the Merger Agreement (other than to discontinue their participation in the employee stock purchase plan), (ii) no offering period is commenced under the employee stock purchase plan after the date of the Merger Agreement, (iii) the employee stock purchase plan and all offering periods then in effect will be terminated as of immediately prior to the effective time of the Merger and (iv) all contributions of each participant in the employee stock purchase plan, to the extent not used to purchase shares of Company common stock prior to the effective time of the Merger, will be refunded (without interest) to each such participant as promptly as practicable following the effective time of the Merger.

 

At or prior to the effective time of the Merger, Valitás will enter into an agreement with a bank or trust company reasonably acceptable to us who will act as the paying agent for payment of the Per Share Merger Consideration to the holders of our common stock. At or before the effective time of the Merger, Valitás will deposit or cause to be deposited with the paying agent, for the benefit of our stockholders, cash in an amount equal to the aggregate Per Share Merger Consideration.

 

Instructions with regard to the surrender of certificates formerly representing shares of our common stock or uncertificated shares of our common stock, together with the letter of transmittal to be used for that purpose, will be mailed to our stockholders by the paying agent promptly after the effective time of the Merger. Promptly following

receipt by the paying agent of (i) in the case of shares of our common stock represented by a certificate, such certificate and a properly completed letter of transmittal or (ii) in the case of uncertificated shares of our common stock held in book-entry form, an agent’s message and any other evidence of transfer reasonably requested by the paying agent (together, in each case, with any other information as is required pursuant to the letter of transmittal), the paying agent will pay in cash to the applicable stockholder an amount equal to the product of the number of shares of our common stock represented by such certificate or agent’s message multiplied by the Per Share Merger Consideration. You will not be entitled to receive the Per Share Merger Consideration for your shares of Company common stock until you deliver the applicable documents and evidence described above to the paying agent. YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD, AND YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL.

 

No transfer of shares of our common stock will be made on the stock transfer books of the surviving corporation after the effective time of the Merger. After the effective time of the Merger, former stockholders of the Company will have no rights with respect to shares of our common stock, other than (i) the right to receive the Per Share Merger Consideration in accordance with the terms of the Merger Agreement or (ii) appraisal rights in accordance with Delaware law if properly exercised and perfected.

 

After the first anniversary of the date upon which the Merger is completed, any amount remaining in the payment fund established by Valitás with the paying agent may be refunded to Valitás or Valitás’ designee, and any former stockholders of the Company who have not complied with the applicable provisions for payment summarized above will be entitled to receive payment of the Per Share Merger Consideration only from Valitás. None of the surviving corporation, Valitás, the paying agent or any other party to the Merger Agreement will be liable to any former stockholders of the Company for any amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws.

 

If any stockholder has lost a certificate representing shares of our common stock, or if any such certificate has been stolen or destroyed, such stockholder will, as a condition to receiving the Per Share Merger Consideration for the shares represented by such certificate, be required to make an affidavit of the loss, theft or destruction and, if reasonably required by Valitás, post a bond in a reasonable amount as indemnity against any claim that may be made against Valitás with respect to such certificate.

 

 

We make various representations and warranties in the Merger Agreement with respect to the Company and our subsidiaries that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement or in the disclosure schedules the Company delivered to Valitás on a supplemental basis in connection therewith (in the case of the latter, as may or may not be specifically indicated in the text of the Merger Agreement). These include representations and warranties regarding:

 

 

 

Many of our representations and warranties are qualified by the absence of a “Company Material Adverse Effect,” which is defined in the Merger Agreement to mean any change, effect, event, circumstance or development that, individually or when taken together with all other such similar or related changes, effects, events, circumstances or developments, has had or would reasonably be expected to have a material adverse effect on the business, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and our subsidiaries taken as a whole, excluding in each case the impact of any changes, effects, events, circumstances or developments arising from:

 

 

 

 

Valitás and Merger Sub also make various representations and warranties in the Merger Agreement with respect to Valitás and Merger Sub subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These include representations and warranties regarding:

 

 

From the date of the Merger Agreement until the earlier of the termination of the Merger Agreement or the effective time of the Merger, except as otherwise contemplated or required by the Merger Agreement or with Valitás’ express written consent, we have agreed to (and to cause our subsidiaries to) conduct our business in the ordinary course of business consistent with past practices and to use our reasonable best efforts to preserve intact our business, keep available the services of our officers and employees and maintain our existing business relations with suppliers, distributors, customers and other parties and not to take any action which would reasonably be expected to adversely affect our ability to consummate the Merger.

 

In addition, we have agreed, with certain limited exceptions, not to do (and not to permit our subsidiaries to do) any of the following, except as expressly contemplated by the Merger Agreement or agreed to in writing by Valitás, which consent in certain instances specified in the Merger Agreement may not be unreasonably withheld, delayed or conditioned:

 

 

 

Go-Shop Period

 

During the go-shop period starting on March 2, 2011 and ending at 11:59 p.m. (Eastern time) on April 16, 2011, we (including our subsidiaries, affiliates, officers, directors, advisors and representatives) may:

 

 

The Merger Agreement defines an “acquisition proposal” as any bona fide inquiry, proposal or offer for (i) a merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving an acquisition of the Company (or any of our subsidiaries whose business constitutes 15% or more of the Company and our subsidiaries’ net revenues, net income or assets, taken as a whole) or (ii) the acquisition in any manner of over 15% of the equity securities of the Company or any of our subsidiaries or over 15% of the consolidated total assets of the Company and our subsidiaries.

 

No Solicitation

 

At 12:00 a.m. (Eastern time) on April 17, 2011, which we refer to as the no-shop period start date, we and our subsidiaries are required to immediately cease, and to instruct and cause our affiliates, directors, advisors and

representatives to cease, any discussions, negotiations or actions with any persons (other than excluded parties, as described below) that may be ongoing with respect to any acquisition proposals other than the Merger. Thereafter and until the earlier of the effective time of the Merger or the termination of the Merger Agreement, we have agreed that neither we nor any of our subsidiaries will, nor will we permit our affiliates, officers, directors, advisors and representatives to, directly or indirectly:

 

 

Superior Proposals

 

Notwithstanding the foregoing, following the no-shop period start date and until the adoption of the Merger Agreement by our stockholders, the restrictions set forth above will not apply to any party who is and remains an excluded party. Within 24 hours following the no-shop period start date, we are required to notify Valitás of the number of excluded parties and their identities and to provide Valitás with a summary of the material terms of any acquisition proposal made by an excluded party and, if applicable, copies of all documents relating thereto.

 

The Merger Agreement defines an “excluded party” as any person or group of persons (subject to certain restrictions) from whom we have received, prior to the no-shop period start date, a written acquisition proposal (if such proposal has not yet been withdrawn, terminated or expired) that the Board or a properly constituted committee thereof determines in good faith, after consultation with its independent financial advisor, is or would reasonably be expected to result in, a superior proposal. A person or group will cease to be an excluded party upon the earlier of (i) 12:00 a.m. (Eastern time) on May 1, 2011 and (ii) immediately at such time as the acquisition proposal from such person or group no longer constitutes or would no longer reasonably be expected to result in a superior proposal, in each case as determined in good faith by the Board or a properly constituted committee thereof, after consultation with its independent financial advisor, and provided that such acquisition proposal may temporarily cease to be a superior proposal or an acquisition proposal that would reasonably be expected to result in a superior proposal, so long as negotiations with respect thereto are ongoing and there is not a continuous period of five business days following the no-shop period start date during which such acquisition proposal fails to be a superior proposal or an acquisition proposal that would reasonably be expected to result in a superior proposal.

 

The Merger Agreement defines a “superior proposal” as a written bona fide acquisition proposal (with the 15% figure in the definition of acquisition proposal changed to 50%) that is not solicited in violation of the Merger Agreement and that the Board or a properly constituted committee thereof determines in good faith, after consultation with its independent financial advisor and outside counsel, (i) is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial, regulatory and other aspects of the proposal, the expected timing and likelihood of consummation and the identity of the person making the proposal and (ii) would result in a transaction more favorable to our stockholders from a financial point of view than the Merger Agreement or the terms of any other proposal or revised proposal made by Valitás in response to such acquisition proposal.

 

In addition, following the no-shop period start date and until the adoption of the Merger Agreement by our stockholders if the Company receives an unsolicited written acquisition proposal from a party who is not an excluded party other than as a result of any breach by the Company or any of our subsidiaries, or our respective

affiliates, officers, directors, advisors and representatives, of the non-solicitation covenants set forth in the Merger Agreement, the Company and its affiliates, officers, directors, advisors and representatives may provide non-public information and data to such person and may engage or participate in negotiations with such person regarding an acquisition proposal, if:

 

 

We must notify Valitás within 24 hours after any determination by the Board that an acquisition proposal is or would reasonably be expected to result in a superior proposal. In addition, following the no-shop period start date, we are required to notify Valitás within 24 hours of any inquiries, proposals, offers or requests with respect to or that could reasonably be expected to lead to an acquisition proposal or any discussions or negotiations occurring with respect thereto and to provide Valitás with a summary of the material terms of such proposal and, if applicable, copies of all documents relating thereto. We are also required to keep Valitás reasonably informed as to the status of any such proposals and of any related discussions or negotiations.

 

If we terminate the Merger Agreement to enter into an agreement with respect to a superior proposal, we must pay to Valitás the applicable termination fee and expense reimbursement described below in the section entitled “The Merger Agreement — Termination Fee and Expenses” beginning on page 70.

 

 

The Merger Agreement requires us to duly call, give notice of, conduct and hold a special meeting of our stockholders for the purpose of considering and voting upon the adoption of the Merger Agreement promptly (and in no event later than 30 days) following the first mailing of this proxy statement. Once called, we may adjourn and/or postpone the special meeting with the consent of Valitás, and must adjourn or postpone the special meeting for one period not to exceed 10 business days if requested by Valitás, in each case (i) to the extent necessary to ensure that any necessary supplement or amendment to this proxy statement is provided to our stockholders reasonably in advance of the special meeting or (ii) if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement. In the event of any such adjournment and/or postponement, we are required to implement such adjournment and/or postponement in a way that does not cause us to change the record date for the special time, unless required by our bylaws or applicable law. We are also required to, among other things, keep Valitás reasonably informed prior to the date of the special meeting with respect to the aggregate tallies of proxies received by us with respect to the adoption of the Merger Agreement.

 

Subject to the provisions of the Merger Agreement discussed below in the sections entitled “The Merger Agreement — Recommendation Change for Superior Proposal” beginning on page 63 and “The Merger Agreement — Recommendation Change for Intervening Event” beginning on page 63, the Board is required to unanimously recommend that our stockholders vote in favor of the adoption of the Merger Agreement at the special meeting.

 

Prior to the adoption of the Merger Agreement by our stockholders, the Board or any properly constituted committee thereof may make a recommendation change if:

 

 

Any material modification or amendment to a superior proposal requires us to provide a new notice to Valitás as well as compliance with the above terms (provided that the reference to four business days is replaced with two business days). In addition, we must provide Valitás with at least two business days’ prior notice of any meeting of the Board or any committee thereof at which it is reasonably expected that any acquisition proposal will be considered.

 

The Merger Agreement defines a “recommendation change” as any action or omission, as applicable, of the Board that involves (i) withholding, withdrawing, qualifying or modifying, in a manner adverse to Valitás, its recommendation that our stockholders vote in favor of the adoption of the Merger Agreement, (ii) authorizing, adopting, approving, recommending or otherwise declaring advisable any acquisition proposal (other than the Merger), (iii) after the public announcement of an acquisition proposal, failing to publicly reaffirm its recommendation that our stockholders vote in favor of the adoption of the Merger Agreement, (iv) failing to recommend against any acquisition proposal subject to Regulation 14D under the Exchange Act in a Solicitation/Recommendation Statement on Schedule 14D-9 within 10 business days after the commencement of such acquisition proposal on Schedule TO or (v) failing to include its recommendation that our stockholders vote in favor of the adoption of the Merger Agreement in this proxy statement.

 

Notwithstanding the foregoing, nothing set forth in the Merger Agreement described above prevents us from complying with our disclosure obligations under U.S. federal or state law with regard to an acquisition proposal, including taking and disclosing to our stockholders a position contemplated by Rule 14d-9 or 14e-2(a) under the Exchange Act, making any similar communication to our stockholders or making any “stop-look-and-listen” or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act, provided that in doing so the Board reaffirms in such disclosure its recommendation that our stockholders vote in favor of the adoption of the Merger Agreement.

 

Prior to the adoption of the Merger Agreement by our stockholders, the Board or any properly constituted committee thereof may also make a recommendation change if (i) what we refer to as an intervening event has

occurred following the date of the Merger Agreement and (ii) in light of such intervening event, the Board or any properly constituted committee thereof determines in good faith, after consultation with outside legal counsel and after giving effect to any modifications to the terms and conditions of the Merger Agreement proposed by Valitás, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law.

 

The Merger Agreement defines an “intervening event” as a material event, development or change in circumstances (other than an acquisition proposal or any events, developments or changes relating to Valitás or any of its subsidiaries) relating to the Company or any of our subsidiaries which (i) is materially favorable to the long-term financial condition or results of operations of the Company and our subsidiaries taken as a whole, (ii) did not result from changes in the economy or capital markets in general (including changes in interest rates), the pendency of the Merger or any changes in applicable laws, regulatory, political, economic business conditions or GAAP, (iii) was neither known to the Board nor reasonably foreseeable prior to the date of the Merger Agreement and (iv) became known to the Board prior to the adoption of the Merger Agreement by our stockholders at the special meeting.

 

Notwithstanding the foregoing, the Company is not permitted to effect a recommendation change with respect to an intervening event unless:

 

 

We must provide Valitás with at least two business days’ prior notice of any meeting of the Board or any committee thereof at which it is reasonably expected that any intervening event will be considered.

 

 

The Merger Agreement provides that from and after the effective time of the Merger, Valitás and the surviving corporation will, subject to requirements relating to undertakings to repay advanced expenses in certain circumstances, indemnify and hold harmless each present and former director or officer of the Company and our subsidiaries against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, penalties or similar damages incurred in connection with any action arising out of, or pertaining to, matters existing or occurring at or prior to the effective time of the Merger, in each case to the fullest extent that we and our subsidiaries would have been permitted to provide such indemnification under applicable law, our and our subsidiaries’ corporate governing documents in effect on the date of the Merger Agreement and certain indemnification agreements.

 

The Merger Agreement also requires Valitás or the surviving corporation to purchase and maintain in full force and effect directors’ and officers’ “tail” insurance coverage that provides coverage for a period of six years after the completion of the Merger and that is no less favorable in amount and terms and conditions of coverage than the directors’ and officers’ liability insurance policy maintained by us on the date of the Merger Agreement, provided that neither Valitás nor the surviving corporation will be required to pay annual premiums for such “tail” insurance coverage in excess of 300% of the current annual premiums for the directors’ and officers’ liability insurance policy maintained by us on the date of the Merger Agreement.

 

We have agreed to cooperate as reasonably requested by Valitás in connection with the satisfaction of the conditions set forth in the debt commitment letters obtained by Valitás and the arrangement and syndication of the debt financing contemplated thereby. This cooperation may include:

 

 

Notwithstanding the foregoing, we and our subsidiaries are not required to cooperate with the financing activities of Valitás in the event that such cooperation would unreasonably interfere with our or our subsidiaries’ business or operations.

 

Valitás’ obligation to complete the Merger is not conditioned on the receipt of any financing, including the debt financing contemplated by the debt commitment letters. Furthermore, Valitás has agreed to use its reasonable best efforts to obtain the debt financing contemplated by the debt commitment letter on the terms and conditions described in the debt commitment letters and not to amend, modify or waive any term of the debt commitment letters. However, Valitás may amend, modify or waive terms of the debt commitment letters so long as such amendment, modification or waiver would not, and would not be reasonably expected to, (i) reduce the aggregate amount of the debt financing below the amount required for the completion of the Merger (taking into account other

funds available to Valitás and the Company’s cash on hand), (ii) impose new or additional conditions to the receipt of the debt financing, (iii) prevent or materially delay the completion of the Merger or (iv) adversely impact the ability of Valitás to enforce its rights under the debt commitment letters. Likewise, Valitás is obligated to use its reasonable best efforts to replace any portion of the debt financing contemplated by the debt commitment letters that becomes unavailable and may effect any such replacement so long as the terms thereof are not materially less favorable, in the aggregate, to Valitás. Valitás has agreed to keep us reasonably apprised of material developments relating to the debt financing.

 

Mutual Covenants

 

In addition to the other covenants in the Merger Agreement described elsewhere in this section of the proxy statement, we, Valitás and Merger Sub have agreed pursuant to the Merger Agreement to:

 

 

Covenants Regarding HSR Regulatory Compliance

 

In addition to the other mutual covenants set forth above, the Company, Valitás and Merger Sub have agreed pursuant to the Merger Agreement to file with the Federal Trade Commission and the Antitrust Division of the Department of Justice all requisite documents and notifications relating to the Merger Agreement and to use their reasonable best efforts to obtain and maintain all approvals, consents and permits necessary, proper or advisable to complete the Merger. Each party to the Merger Agreement has agreed to cooperate and coordinate with the other parties in making any filings or submissions required under applicable law and to use their reasonable best efforts to cause the expiration or termination of the applicable waiting periods under applicable law to occur as soon as reasonably practicable. Notwithstanding the foregoing, no party is required to, and we may not, without the prior consent of Valitás, consent or agree to sell or dispose of or otherwise restrict operations in any manner which could reasonably be expected to have a material adverse effect (including a reputational effect) on the business, assets, liabilities, condition (financial or otherwise) or results of operations of Valitás, any subsidiary of Valitás, us or any of our subsidiaries, in any material jurisdiction. We, Valitás and Merger Sub have also agreed to keep each other promptly informed of any material communication regarding the Merger in connection with any filings or investigations by or before a governmental authority.

 

The Company Covenants

 

In addition to the other covenants in the Merger Agreement described elsewhere in this section of the proxy statement, we have agreed pursuant to the Merger Agreement to:

 

 

 

Valitás and Merger Sub Covenants

 

In addition to the other covenants in the Merger Agreement described elsewhere in this section of the proxy statement, Valitás has agreed pursuant to the Merger Agreement to:

 

 

Nothing contained in the Merger Agreement creates or shall be construed to create a right in any current or former employee of the Company or our subsidiaries to employment with Valitás, the surviving corporation or any other subsidiary of Valitás. In addition, no current employee or former employee of the Company, the surviving corporation or any of their respective subsidiaries (including, in each case, any beneficiary or dependent thereof) will be deemed to be a third-party beneficiary of the Merger Agreement, except for officers and directors of the Company and our subsidiaries to the extent of their respective rights with respect to the maintenance of indemnification rights and directors’ and officers’ “tail” insurance coverage as described under the section entitled “The Merger Agreement — Indemnification of Directors and Officers; Insurance” beginning on page 64. No provision of the Merger Agreement modifies or amends any agreement, plan, program or document unless the Merger Agreement explicitly states that such agreement, plan, program or document will be so modified or amended.

 

Conditions of the Company, Valitás and Merger Sub

 

The obligations of each party to effect the Merger are subject to the fulfillment or waiver at or before the effective time of the Merger of the following conditions:

 

 

Conditions of the Company

 

The obligations of the Company to effect the Merger are subject to the fulfillment or waiver of the following conditions:

 

 

Conditions of Valitás and Merger Sub

 

The obligations of Valitás and Merger Sub to effect the Merger are subject to the fulfillment or waiver of the following conditions:

 

 

Termination by Mutual Consent

 

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after adoption of the Merger Agreement by our stockholders, by mutual written consent authorized by the Board and the Board of Directors of Valitás.

Termination by the Company or Valitás

 

The Company or Valitás may terminate the Merger Agreement at any time prior to the effective time of the Merger, whether before or after the adoption of the Merger Agreement by our stockholders, without the consent of the other, in the event of any of the following:

 

 

Termination by Valitás

 

Valitás may terminate the Merger Agreement, at any time prior to the effective time of the Merger, whether before or after the adoption of the Merger Agreement by our stockholders, without our consent, in the event of any of the following:

 

 

Termination by the Company

 

We may terminate the Merger Agreement, at any time prior to the effective time of the Merger, without the consent of Valitás, in the event of any of the following:

 

 

 

Effect of Termination

 

If the Merger Agreement is properly terminated as described above, no party to the Merger Agreement will have any further liability or obligation under the Merger Agreement except with respect to:

 

 

Termination Fee Payable by the Company

 

We are obligated to pay Valitás a termination fee of $8.0 million plus up to $2.0 million of Valitás’ documented transaction expenses if:

 

 

 

Conversely, we are obligated to pay Valitás a reduced termination fee of $4.5 million plus up to $2.0 million of Valitás’ documented transaction expenses if:

 

 

Expense Reimbursement

 

We are obligated to reimburse Valitás for up to $2.0 million of its documented transaction expenses in the event that the Merger Agreement is terminated by Valitás because there has been any breach by us of any representation, warranty or covenant made by us in the Merger Agreement, or any such representation or warranty shall have become inaccurate, in each case such that the associated condition to Valitás obligation to complete the Merger would not be satisfied, and such breach or inaccuracy is either not curable prior to August 31, 2011 or, if curable, shall not have been cured prior to August 31, 2011.

 

The Company, Valitás and Merger Sub are each entitled to obtain an injunction to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement, in addition to any other legal or equitable remedy to which they are entitled. Each party has agreed not to oppose any such injunction, specific performance or other equitable relief on that basis that the party seeking such relief has an adequate remedy at law or that an award of specific performance is not an appropriate remedy for any reason at law or equity.

 

The Merger Agreement may be amended by mutual written agreement of the parties at any time before or after the adoption of the Merger Agreement by our stockholders. However, after the adoption of the Merger Agreement by our stockholders, no amendment to the Merger Agreement may be made to the extent such amendment would require the further approval of our stockholders unless such further approval is obtained.

 

Our common stock is traded on The Nasdaq Global Select Market’s National Market System under the symbol “ASGR.” As of March 31, 2011, there were approximately 71 registered holders of record of our common stock. The high and low sales prices of our common stock as reported on The Nasdaq Global Select Market during each quarter from January 1, 2009 through December 31, 2010 are shown below as well as the dividends per share declared on shares of our common stock by the Board for each quarter:

 

 

We did not pay cash dividends on our common stock during the quarter ended March 31, 2009 or the quarter ended June 30, 2009. We paid a $0.05 per share dividend on our common stock for each of the quarters ended September 30, 2009 and December 31, 2009 and a $0.06 per share dividend on our common stock for each of the quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010. On March 2, 2011, the Board declared a quarterly cash dividend of $0.06 per share on our common stock for the quarter ended March 31, 2011. The dividend will be paid on April 12, 2011 to stockholders of record on March 22, 2011.

 

The Board’s adoption of a dividend program reflects our intent to return capital to stockholders. We expect that any future quarterly cash dividends will be paid from cash generated by our business in excess of our operating needs, interest and principal payments on indebtedness, dividends on any future senior classes of our capital stock, if any, capital expenditures, taxes and future reserves, if any. Any future dividends will be authorized by the Board and declared based upon a variety of factors deemed relevant by our directors. In addition, financial covenants in our credit agreements may restrict our ability to pay future quarterly dividends. The Board will continue to evaluate our dividend program each quarter and will make adjustments as necessary, based on a variety of factors, including, among other things, our financial condition, liquidity, earnings projections and business prospects, and no assurance can be given that this dividend program will not change in the future.

 

Notwithstanding the foregoing, we are prohibited under the terms of the Merger Agreement from paying any additional dividends until the Merger is completed, the Merger Agreement is terminated or we obtain the prior written consent of Valitás. In addition, in the event that the Merger is completed, you will no longer be a stockholder of the Company and will have no interest in our future earnings or growth and no rights to receive any dividends we pay.

 

On February 27, 2008, the Board approved a stock repurchase program to repurchase up to $15 million of our common stock through the end of 2009. On July 28, 2009, the Board authorized the extension of this program by two years through the end of 2011, while maintaining the total $15 million limit. As of December 31, 2010, we had repurchased and retired a total of 891,850 shares of common stock under the stock repurchase program at an aggregate cost of approximately $11.2 million. There was no repurchase activity during the fourth quarter of 2010. Notwithstanding the foregoing, we are prohibited under the terms of the Merger Agreement from making any additional repurchases of our common stock until the Merger is completed, the Merger Agreement is terminated or we obtain the prior written consent of Valitás.

Persons Who Beneficially Own More Than Five Percent of Our Common Stock

 

Set forth below is information with respect to the beneficial ownership of our common stock as of March 31, 2011, by each person who beneficially owned more than 5% of our common stock as of such date, in each case based on information known to us and filed with the SEC by such person. Except as otherwise indicated, each person has sole voting and dispositive power with respect to the shares indicated as beneficially owned by such person.

 

 

 

Ownership of Our Common Stock by Our Directors and Executive Officers

 

Set forth below is information with respect to the beneficial ownership of our common stock as of March 31, 2011 by each of our directors, named executive officers and executive officers and all directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and dispositive power with respect to the shares indicated as beneficially owned by such person.

 

 

 

 

 

We may ask our stockholders to vote on a proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement. We currently do not intend to propose adjournment of the special meeting if there are sufficient votes to adopt the Merger Agreement, and our rights to do so are limited by the terms of the Merger Agreement. If the proposal to adjourn the special meeting is made, and if our stockholders approve this proposal, we may adjourn the special meeting and use the additional time to solicit additional proxies, including proxies from our stockholders who have previously voted “AGAINST” adoption of the Merger Agreement. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given (provided that the adjournment is not for more than 30 days and a new record date has not been fixed).

 

Approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement requires the affirmative vote of the holders representing a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote thereon, regardless of whether a quorum is present. Accordingly, abstentions will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement, but broker non-votes, if any, will have no effect. Proxies submitted by registered stockholders without voting instructions will be voted “FOR” approval of adjournment of the special meeting to solicit additional proxies.

 

The Board unanimously recommends that our stockholders vote “FOR” the approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement.

 

We do not expect that any proposal other than the adoption of the Merger Agreement and the proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to constitute a quorum or to adopt the Merger Agreement will be brought before the special meeting. Moreover, pursuant to the terms of the Merger Agreement, other than as required by law, we may not include any other proposals at the special meeting without the consent of Valitás. With respect to any other proposal that properly comes before the special meeting, however, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion.

STOCKHOLDER PROPOSALS

 

If the Merger is completed, there will be no public participation in any future meetings of our stockholders. If the Merger is not completed, our stockholders will continue to be entitled to attend and participate in our stockholder meetings, and any stockholder nominations or proposals for other business intended to be presented at our next annual meeting must be submitted to us as set forth below. Subject to completion of the Merger, we do not intend to conduct any further annual meetings of stockholders.

 

If the Merger is not completed, in order for a stockholder proposal to be considered for inclusion in the proxy materials for the 2011 Annual Meeting of Stockholders, the written proposal must have been received at our principal executive offices no later than the close of business on January 7, 2011. Any stockholder proposals intended to be presented in our proxy materials must satisfy the requirements of Rule 14a-8 of the Exchange Act.