UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

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EMAGEON INC.

 

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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1200 Corporate Drive
Suite 200
Birmingham, Alabama 35242

 

November 14, 2008

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Emageon Inc. to be held on December 17, 2008 at 9:00 a.m., local time, at 1200 Corporate Drive, Suite 200, Birmingham, Alabama. At the special meeting, you will be asked to consider and vote on, among other things, a proposal to adopt the Agreement and Plan of Merger, dated October 13, 2008, by and among Emageon, Health Systems Solutions, Inc. and HSS Acquisition Corp., as it may be amended from time to time.

 

Under the merger agreement, HSS Acquisition Corp. will merge with and into Emageon with Emageon continuing as the surviving corporation and as a wholly owned subsidiary of Health Systems Solutions. If the merger is completed, holders of Emageon common stock will be entitled to receive $2.85 in cash, without interest and less any applicable withholding tax, for each share of Emageon common stock that they own as of the effective time of the merger.

 

After careful consideration, our Board of Directors approved the merger agreement, the merger and the other transactions contemplated by the merger agreement, and determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of Emageon and its stockholders. Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement at the special meeting.

 

The enclosed proxy statement provides detailed information about the merger agreement and the merger. We encourage you to read the proxy statement carefully.

 

The merger agreement must be adopted by the affirmative vote of holders of a majority of the outstanding shares of our common stock, so your vote is very important, regardless of the number of shares that you own. On behalf of the Board of Directors, I urge you to vote your shares by completing, signing, dating and returning the enclosed proxy card as soon as possible, even if you currently plan to attend the special meeting.

 

Thank you for your support. We look forward to seeing you at the special meeting.

 

Sincerely,

 

 

Charles A. Jett, Jr.
Chief Executive Officer

 

This proxy statement is dated November 14, 2008, and is first being mailed to
Emageon stockholders on or about November 17, 2008.

 

1200 Corporate Drive
Suite 200
Birmingham, Alabama 35242

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD DECEMBER 17, 2008

 

 

To the Stockholders of Emageon Inc.:

 

Notice is hereby given that a special meeting of the stockholders of Emageon Inc., a Delaware corporation, will be held on December 17, 2008, at 9:00 a.m., local time, at 1200 Corporate Drive, Suite 200, Birmingham, Alabama, for the following purposes:

 

1. to consider and vote upon the adoption of the Agreement and Plan of Merger, dated October 13, 2008, by and among Emageon Inc., Health Systems Solutions, Inc. and HSS Acquisition Corp., as it may be amended from time to time, as more fully described in the enclosed proxy statement;

 

2. to consider and vote on any proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes in favor of the foregoing proposal; and

 

3. to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

 

The Board of Directors of Emageon has fixed the close of business on November 12, 2008 as the record date for the special meeting. Only holders of record of Emageon common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement thereof. At the close of business on the record date, 21,449,459 shares of Emageon common stock were outstanding and entitled to vote.

 

Holders of Emageon common stock are entitled to appraisal rights under the Delaware General Corporation Law in connection with the merger if they meet certain conditions. See “The Merger — Appraisal Rights” on page 49. A copy of Section 262 of the Delaware General Corporation Law is attached to the proxy statement as Annex E.

 

Your vote is important. The affirmative vote of the holders of a majority of the outstanding shares of Emageon’s common stock is required to adopt the merger agreement, and the affirmative vote of at least a majority of the votes cast by holders of Emageon’s common stock is required to approve any proposal to adjourn the special meeting.

 

All stockholders are invited to attend the special meeting in person. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy to ensure that your shares will be represented at the special meeting if you are unable to attend. If you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person. Holders of common stock may revoke their proxies in the manner described in the accompanying proxy statement at any time before they have been voted at the special meeting.

 

Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the merger agreement and “FOR” adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes in favor of adopting the merger agreement at the special meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Emageon Inc.

 

 

John W. Wilhoite
Corporate Secretary

 

Birmingham, Alabama

November 14, 2008

 

TABLE OF CONTENTS

 

 

Annexes

 

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this proxy statement. Any representation to the contrary is a criminal offense.

 

This summary, together with the section of this proxy statement entitled “Questions and Answers About the Special Meeting and the Merger,” highlights selected information from this proxy statement and may not contain all of the information that is important to you as an Emageon stockholder. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire proxy statement and the documents we refer to in this proxy statement. The merger agreement is attached as Annex A to this proxy statement. Before voting on the proposal to adopt the merger agreement, we encourage you to read the merger agreement as it is the legal document that governs the merger.

 

Except as otherwise specifically noted in this proxy statement, “we,” “our,” “us” and similar words in this proxy statement refer to Emageon Inc. In addition, we sometimes refer to Emageon Inc. as “Emageon” or the “company,” to Health Systems Solutions, Inc. as “HSS” or “Health Systems Solutions,” to HSS Acquisition Corp. as “Merger Sub,” and to the Agreement and Plan of Merger, dated as of October 13, 2008, among Emageon, HSS and Merger Sub, as it may be amended from time to time, as the “merger agreement.”

 

The Companies (page 21)

 

Emageon Inc.

1200 Corporate Drive, Suite 200

Birmingham, Alabama 35242

Phone: (205) 980-9222

 

We provide an enterprise-level information technology solution for the clinical analysis and management of digital medical images within multi-hospital networks, community hospitals and diagnostic imaging centers. Our solution consists of advanced visualization and image management software for multiple medical specialties, third-party components and comprehensive support services. Our web-enabled advanced visualization software, which is hosted by the customer, provides physicians across the enterprise, in multiple medical specialties and at any network access point, with dynamic tools to manipulate and analyze images in both a two dimensional and three dimensional perspective. With these tools, physicians have the ability to better understand internal anatomic structure and pathology, which can improve clinical diagnoses, disease screening and therapy planning. Our open standard solution is designed to help customers improve staff productivity, enhance revenue opportunities, automate complex medical imaging workflow, lower total cost of ownership and provide better service to physicians and patients. Emageon is publicly traded on The NASDAQ Global Market under the symbol “EMAG.”

 

Health Systems Solutions, Inc.

42 West 39th Street, 6th Floor

New York, NY 10018

Phone: (212) 798-9400

 

HSS is a technology and services company dedicated to bringing innovation to the health care industry. HSS’s objective is to leverage its understanding of current and next-generation technologies to offer value-added products and services which will generate improved clinical, operational and financial outcomes for its clients. HSS’s portfolio of products and services extends across many segments of health care including home health care, medical staffing, acute and post-acute facilities and telehealth/telemedicine. HSS’s business is grouped into three segments: technology solutions, software and consulting. HSS is publicly traded on the OTC Bulletin Board under the symbol “HSSO.”

 

HSS Acquisition Corp.

42 West 39th Street, 6th Floor

New York, NY 10018

Phone: (212) 798-9400

 

Merger Sub, a wholly owned subsidiary of HSS, was organized solely for the purpose of entering into the merger agreement with us and completing the merger and has not conducted any business operations.

 

The Merger (page 54)

 

The merger agreement provides that Merger Sub will merge with and into Emageon, with Emageon continuing as the surviving corporation and as a wholly owned subsidiary of HSS. At the effective time of the merger, each share of our common stock that is outstanding immediately prior to the effective time of the merger, other than shares owned by us, HSS, Merger Sub, any of our subsidiaries or by stockholders properly exercising appraisal rights under Delaware law, will be automatically converted into the right to receive $2.85 in cash, without interest and less any applicable withholding taxes.

 

Merger Consideration (page 54)

 

Common Stock

 

If the merger is completed, you will receive $2.85 in cash, without interest and less any applicable withholding taxes, in exchange for each share of Emageon common stock that you own.

 

After the merger is completed, you will have the right to receive the merger consideration, but you will no longer have any rights as an Emageon stockholder and will have no rights as an HSS stockholder. Emageon stockholders will receive the merger consideration after exchanging their Emageon stock certificates (or book-entry shares) in accordance with the instructions contained in a letter of transmittal to be mailed to our stockholders promptly (but in no event more than three business days) after the effective time of the merger.

 

Treatment of Stock Options and Stock-Based Awards

 

Stock Options

 

At the effective time of the merger, each outstanding option to acquire our common stock will become fully vested and will be cancelled, and the holder will be entitled to receive an amount in cash, without interest and less any applicable withholding tax, equal to the product of the maximum number of shares of common stock subject to such option with respect to which such option has not previously been exercised, multiplied by the excess of $2.85 over the exercise price per share of such option.

 

Restricted Stock

 

At the effective time of the merger, each outstanding share of common stock held subject to a restricted stock agreement will become fully vested and free of all restrictions and will be cancelled and converted into the right to receive an amount in cash, without interest and less any applicable withholding tax, equal to the per share merger consideration of $2.85.

 

Restricted Stock Units

 

At the effective time of the merger, each outstanding restricted stock unit award will be cancelled, and the holder will be entitled to receive an amount in cash, without interest and less any applicable withholding tax, equal to the maximum number of shares of common stock subject to such restricted stock unit award, multiplied by the per share merger consideration of $2.85, and will also receive any dividend equivalents accrued, but not yet distributed, with respect to such restricted stock unit award (other than any such dividend equivalents that are held in the form of restricted stock units as of the effective time of the merger).

 

Financing (page 61)

 

The total amount of funds necessary to complete the merger and the related transactions is expected to be obtained through the sale by HSS of convertible debentures and warrants to Stanford International Bank, Limited, which we refer to as SIBL, pursuant to the terms of a Convertible Secured Debenture Purchase Agreement, dated as of October 12, 2008, which we refer to as the debenture purchase agreement. HSS has advised us that SIBL beneficially owns approximately 86% of HSS’s outstanding common stock. SIBL’s purchase of the debenture pursuant to which the merger consideration will be financed is subject to satisfaction

of the closing conditions in the merger agreement and certain other customary closing conditions. HSS’s obligation to complete the merger is not contingent on its ability to obtain financing.

 

Market Price and Dividend Data (page 16)

 

Our common stock is listed on The NASDAQ Global Market under the symbol “EMAG.” On October 13, 2008, the last full trading day prior to the public announcement of the merger, the closing price for our common stock was $2.08 per share. On November 13, 2008, the last trading day prior to the date of this proxy statement, the closing price for our common stock was $2.36 per share.

 

Reasons for the Merger and Recommendation of Emageon’s Board of Directors (page 36)

 

In the course of reaching its decision to approve the merger agreement and to recommend that Emageon stockholders vote to adopt the merger agreement, our Strategic Alternatives Committee and Board of Directors consulted with our senior management and the independent financial advisors and legal counsel to the Strategic Alternatives Committee and Emageon, reviewed a significant amount of information and considered a number of factors, including, among others, the following:

 

 

 

 

 

Our Board of Directors put significant weight on the analysis and unanimous recommendation of the Strategic Alternatives Committee as well as the financial presentations of SunTrust Robinson Humphrey and Jefferies prepared for the Strategic Alternatives Committee and delivered to our Board of Directors at such committee’s request and the fact that such committee received an opinion delivered by SunTrust Robinson Humphrey as to the fairness, from a financial point of view, of the merger consideration to the holders of Emageon common stock.

 

Our Board of Directors unanimously approved and adopted the merger agreement, approved the merger and the other transactions contemplated by the merger agreement, determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of Emageon and its stockholders, and recommends that our stockholders vote “FOR” adoption of the merger agreement, and “FOR” the proposal to adjourn the special meeting if necessary or appropriate to solicit additional proxies.

 

Opinion of Emageon’s Financial Advisor (page 38)

 

SunTrust Robinson Humphrey, Inc., which is referred to as SunTrust Robinson Humphrey throughout this proxy statement, delivered its oral opinion to the Strategic Alternatives Committee of the Board of Directors of Emageon, subsequently confirmed in writing, to the effect that as of October 13, 2008, and based upon and subject to certain matters stated therein, the merger consideration to be received by the holders of Emageon common stock pursuant to the merger agreement is fair, from a financial point of view, to the holders of Emageon’s common stock.

 

The full text of SunTrust Robinson Humphrey’s written opinion, dated October 13, 2008, to the Strategic Alternatives Committee, which sets forth the assumptions made, matters considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated herein by reference. The description of the SunTrust Robinson Humphrey opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Holders of Emageon common stock are encouraged to read the opinion in its entirety.

 

SunTrust Robinson Humphrey’s opinion was rendered at the request and for the benefit of the Strategic Alternatives Committee in its evaluation of the transaction. The opinion does not address the merits of the transaction as compared to alternative transactions or strategies that may be available to Emageon nor does it address Emageon’s underlying decision to engage in the transaction or any other aspect or implication of the transaction or any other agreement, arrangement or understanding entered into by Emageon or any other person in connection with the transaction. The opinion also does not constitute a recommendation as to how any stockholder should vote or act with respect to any matter relating to the merger.

 

Interests of Emageon’s Executive Officers and Directors in the Merger (page 44)

 

When considering the recommendation of our Board of Directors, you should be aware that members of our Board of Directors and our executive officers have interests in the merger other than their interests as Emageon stockholders generally, including those interests described below. These interests may be different from, or in conflict with, your interests as an Emageon stockholder. The members of our Strategic Alternatives Committee and our Board of Directors were aware of these additional interests, and considered them, when they approved the merger agreement.

 

 

 

 

 

We have been informed that HSS and Mr. Jett anticipate that they will enter into an agreement for Mr. Jett to provide consulting services to the combined company following the merger, but the terms and conditions of any such engagement are subject to further negotiation and discussion and have not been finalized.

 

HSS has initiated discussions with certain members of our existing senior management team in addition to Mr. Stahlhut and Mr. Jett regarding employment or engagement with the surviving corporation in the merger. Prior to completion of the merger, certain of these members of our existing senior management team may enter into new agreements and/or amendments to existing employment or severance agreements with HSS or Merger Sub regarding employment or engagement with the surviving corporation in the merger.

 

The Special Meeting (page 17)

 

Date, Time, Place and Purpose

 

A special meeting of our stockholders will be held on December 17, 2008, at 1200 Corporate Drive, Suite 200, Birmingham, Alabama, at 9:00 a.m., local time, to:

 

 

Record Date and Voting Power

 

You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on November 12, 2008, which is the record date for the special meeting. You will have one vote at the special meeting for each share of our common stock that you owned at the close of business on the record date. There were 21,449,459 shares of our common stock entitled to be voted at the special meeting as of the record date.

 

Required Vote

 

The adoption of the merger agreement requires the affirmative vote of a majority of the shares of our common stock outstanding at the close of business on the record date. Approval of any proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of at least a majority of the votes cast by holders of our common stock that are present, in person or by proxy, at the special meeting provided a quorum is present in person or by proxy at the special meeting.

 

Voting Agreements (page 18)

 

In connection with the execution of the merger agreement, HSS and Merger Sub entered into voting agreements with our directors, certain of our officers and our largest stockholder pursuant to which they agreed to vote all of their shares of Emageon common stock in favor of adoption of the merger agreement and against any competing transaction or proposal. As of the record date for the special meeting, the officers, directors and stockholder who entered into the voting agreements collectively held and were entitled to vote 3,794,387 shares of Emageon common stock, which represents approximately 17.69% of the outstanding Emageon common stock entitled to vote at the special meeting.

 

Conditions to Closing (page 62)

 

The closing of the merger is subject to a number of mutual conditions, including the adoption by our stockholders of the merger agreement, the expiration or termination, if applicable, of the regulatory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, the approval or consent, if applicable, of governmental entities under applicable foreign merger control laws, and there being no law or order in effect that makes illegal or otherwise prevents or prohibits the consummation of the merger.

 

HSS’s and Merger Sub’s obligations to complete the merger are subject to the following additional conditions:

 

 

Our obligation to complete the merger is subject to the following additional conditions:

 

 

Consummation of the merger is not conditioned on HSS obtaining financing.

 

No Solicitation (page 59)

 

The merger agreement restricts our ability to initiate, solicit or knowingly encourage or knowingly facilitate the submission of, or to engage in negotiations with respect to, any takeover proposal involving Emageon. Notwithstanding these restrictions, before the adoption of the merger agreement by our stockholders and subject to the terms and conditions of the merger agreement, as long as we have not breached our non-solicitation obligations under the merger agreement, we may engage in discussions and negotiations with, and provide certain information to, any person who has made an unsolicited bona fide written takeover proposal that our Strategic Alternatives Committee or Board of Directors has determined in good faith, after consultation with its outside legal counsel and its financial advisors, constitutes, or would be reasonably expected to lead to, a superior proposal, and with respect to which our Strategic Alternatives Committee or Board of Directors has determined in good faith that failure to take such action could result in a violation of its fiduciary duties to our stockholders under applicable law.

 

In addition, under the terms of the merger agreement, our Board of Directors may not change its recommendation to our stockholders that they adopt the merger agreement or recommend or endorse any takeover proposal, and we may not terminate the merger agreement and enter into an agreement for a takeover proposal, unless:

 

 

We have agreed to promptly notify HSS of the receipt of any takeover proposal, request for non-public information concerning a takeover proposal or any bona fide inquiry or request for discussions or negotiations regarding any takeover proposal.

 

Termination of Merger Agreement (page 63)

 

Emageon and HSS may terminate the merger agreement at any time by mutual written consent. The merger agreement also may be terminated by either Emageon or HSS upon written notice to the other if:

 

 

HSS may terminate the merger agreement by written notice to Emageon if:

 

 

 

We may terminate the merger agreement by written notice to HSS if:

 

 

Termination Fee (page 65)

 

We have agreed to pay to HSS a one-time termination fee of $3.0 million if, before completion of the merger, we terminate the merger agreement in accordance with the terms thereof to enter into a definitive agreement with respect to a superior proposal, or HSS terminates the merger agreement because (i) our Board changes its recommendation that our stockholders adopt the merger agreement, (ii) our Board approves or recommends another takeover proposal, (iii) we enter into an agreement for another takeover proposal or (iv) we intentionally and knowingly materially breach our non-solicitation obligations under the merger agreement. We also will be required to pay the $3.0 million termination fee if the merger agreement is terminated under certain circumstances before the merger is completed and within 12 months after termination we enter into an agreement for, or consummate, a takeover proposal.

 

Deposit Escrow Agreement (page 68)

 

In connection with the merger agreement, we entered into a Deposit Escrow Agreement dated October 21, 2008, which we refer to as the deposit escrow agreement, with HSS and The Bank of New York Mellon, which we refer to as the escrow agent, under which HSS deposited $5.0 million with the escrow agent that we are entitled to receive, as a non-exclusive remedy, in the event that HSS’s financing is not available within two business days of the satisfaction of our obligations under the merger agreement or the merger agreement is terminated by us and HSS is determined by a final non-appealable court order to have intentionally breached the merger agreement.

 

Material U.S. Federal Income Tax Consequences of the Merger (page 52)

 

The receipt of cash in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income tax purposes, a stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder in the merger and the stockholder’s adjusted tax basis in the shares of Emageon common stock that are converted into cash in the merger. If the shares of Emageon common stock are held by a stockholder as capital assets, gain or loss recognized by such stockholder will be capital gain or loss, which will be long-term capital gain or loss if the stockholder’s holding period for the shares of Emageon common stock exceeds one year. Capital gains recognized by an individual upon a disposition of a share of Emageon common stock that has been held for more than one year generally will be subject to a maximum U.S. federal income tax rate of 15% or, in the case of a share that has been held for one year or less, will be subject to tax at ordinary income tax rates. In addition, there are limits on the

deductibility of capital losses. Because individual circumstances may differ, you should consult your own tax advisor to determine the particular tax effects of the merger to you.

 

Regulatory Matters Related to the Merger (page 52)

 

Under the merger agreement, we agreed with HSS to make, if applicable, all appropriate filings with the United States Federal Trade Commission, which we refer to as the FTC, and the Antitrust Division of the United States Department of Justice, which we refer to as the DOJ, under the HSR Act, and all appropriate filings under foreign competition or merger control laws. However, other than the filing of a certificate of merger with the Secretary of State of the State of Delaware in order to effect the merger, we do not believe that any regulatory filings or applications, including under the HSR Act, are required to be made in respect of the consummation of the merger.

 

If any lawsuit or legal proceeding is instituted that challenges the merger agreement or the consummation of the transactions contemplated by the merger agreement, each of the parties is required under the merger agreement to use its reasonable best efforts to defend or contest such lawsuit or proceeding.

 

Appraisal Rights (page 49)

 

Our stockholders have the right under Delaware law to exercise appraisal rights and to receive payment in cash for the fair value of their shares of our common stock as determined by the Delaware Court of Chancery in a judicial appraisal proceeding. The fair value of shares of our common stock, as so determined, may be more or less than the merger consideration to be paid to non-dissenting Emageon stockholders in the merger. To preserve their rights, stockholders who wish to exercise appraisal rights must not vote in favor of the adoption of the merger agreement and must follow specific procedures. Emageon stockholders must precisely follow these specific procedures to exercise appraisal rights, or their appraisal rights may be lost. These procedures are described in this proxy statement, and the provisions of Delaware law that grant appraisal rights and govern such procedures are attached as Annex E to this proxy statement. You are encouraged to read these provisions carefully and in their entirety.

 

ANY EMAGEON STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX E CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISOR, BECAUSE FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

 

The following questions and answers are intended to address some commonly asked questions regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as an Emageon stockholder. We encourage you to refer to and read carefully this entire proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement for a complete understanding of the special meeting and the merger.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Morrow and Co., LLC
Stockholders call: (800) 662-5200
Brokers or Banks call: (203) 658-9400

or

John W. Wilhoite
Corporate Secretary
Emageon Inc.
1200 Corporate Drive, Suite 200
Birmingham, Alabama 35242

 

Certain statements contained in this proxy statement regard matters that are not historical facts and are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended, including statements regarding expectations as to the completion of the merger and other transactions contemplated by the merger agreement. These statements are often identified by the use of forward-looking words such as “believe,” “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “estimate,” “anticipate” and comparable words or the negative version of these and other words. Because such forward-looking statements contain risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to:

 

 

 

 

 

The business of Emageon is also subject to a number of risks generally such as:

 

 

 

 

and other risks that are set forth in the “Risk Factors,” “Legal Proceedings” and “Management Discussion and Analysis of Results of Operations and Financial Condition” sections of, and elsewhere in, the filings that Emageon makes with the Securities and Exchange Commission, which we refer to as the SEC. Many of the factors that will determine the outcome of the subject matter of this proxy statement are beyond Emageon’s ability to control or predict. Emageon undertakes no obligation to release publicly the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

 

Market for Common Stock

 

Our common stock is listed on the NASDAQ Global Market under the symbol “EMAG.” As of November 13, 2008, the last trading day before the date of this proxy statement, there were 21,449,459 outstanding shares of our common stock, par value $0.001 per share, and approximately 67 holders of record of our common stock. The following table shows, for the periods indicated, the range of low and high per share sales prices for our common stock as reported on The NASDAQ Global Market.

 

 

The following table shows the closing per share sales price of our common stock, as reported on The NASDAQ Global Market on October 13, 2008, the last full trading day before the public announcement of the merger, and on November 13, 2008, the last trading day before the date of this proxy statement:

 

 

Following the merger there will be no further market for our common stock and our stock will be de-listed from The NASDAQ Global Market and deregistered under the Exchange Act.

 

Dividends

 

We have not declared or paid any cash dividends on our common stock. Instead, we have retained earnings, if any, for use in the operation of our business and to fund future growth. We are prohibited under the merger agreement from declaring and paying dividends on our common stock. In addition, covenants in the loan and security agreement for our line of credit currently prohibit us from paying dividends or making other distributions.

 

Initial Public Offering

 

Our initial public offering of common stock was declared effective by the SEC on February 8, 2005. In the offering we sold 5,750,000 shares of our common stock at $13.00 per share, and received net proceeds of approximately $67.2 million.

 

This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by our Board of Directors to be used at the special meeting of stockholders or any adjournment or postponement thereof.

 

We will hold the special meeting at 1200 Corporate Drive, Suite 200, Birmingham, Alabama on December 17, 2008, beginning at 9:00 a.m., local time.

 

At the special meeting, we will ask you to adopt the merger agreement, a copy of which is attached to this proxy statement as Annex A, and, if necessary or appropriate, we may ask you to approve the adjournment or postponement of the special meeting in order to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger agreement. In addition, you may be asked to vote on other business that is properly brought before the special meeting. If any other matters properly come before the special meeting, the persons named in the enclosed proxy card will vote the shares represented by all properly executed proxies on such matters in accordance with their discretion. We are not currently aware of any additional business that may come before the special meeting.

 

Our Board of Directors has established the close of business on November 12, 2008 as the record date for the special meeting. Only holders of record of our common stock at the close of business on the record date are entitled to notice of and to vote at the special meeting. For each share of our common stock that you owned on the record date, you are entitled to cast one vote on each matter voted upon at the special meeting. As of the close of business on the record date, there were 21,449,459 shares of our common stock outstanding and entitled to vote, which were held by approximately 67 holders of record. These numbers do not reflect outstanding stock options or restricted stock units, which are not entitled to vote at the special meeting.

 

A quorum of stockholders is necessary to conduct business at the special meeting. The presence in person or representation by proxy at any meeting of our stockholders of a majority of the outstanding shares of our common stock entitled to vote at the meeting will constitute a quorum. You will be deemed to be present if you attend the meeting or if you submit a proxy by mail and it is received at or prior to the meeting and not timely revoked.

 

Abstentions and broker non-votes, which are discussed below, are counted for purposes of determining whether a quorum is present at a special meeting. Shares held by us in our treasury do not count toward a quorum.

 

If a quorum is not present, the holders of a majority of the common stock represented at the special meeting may adjourn the meeting in order to solicit additional proxies. If a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed in order to solicit additional proxies.

 

The adoption of the merger agreement requires the affirmative vote of the holders of at least a majority of the shares of our common stock outstanding at the close of business on the record date for the special meeting. Because the vote on the proposal to adopt the merger agreement is based on the total number of shares outstanding, rather than the number of actual votes cast, your failure to vote, or your decision to abstain from voting, on this proposal will have the same effect as a vote “AGAINST” the proposal. Similarly, a broker non-vote, which occurs when a broker does not have discretionary voting authority to vote on a proposal and

has not received instructions from the beneficial owner of the shares as to how to vote on the proposal, will also have the same effect as a vote “AGAINST” the proposal. Brokers, banks and other nominees will not have discretionary authority on the proposal to adopt the merger agreement.

 

Approval of the proposal to adjourn the special meeting for the purpose of soliciting proxies, if necessary or appropriate, requires the affirmative vote of the holders of a majority of the shares voted on such proposal. Abstentions and broker non-votes will have no effect on the proposal to adjourn the special meeting.

 

As of the close of business on the record date, our directors and executive officers beneficially owned 4,617,415 shares of our common stock, which represented approximately 20.73% of the shares of our common stock outstanding on that date. These figures include stock options that may be exercised within 60 days of the record date.

 

In connection with the execution of the merger agreement, HSS and Merger Sub entered into voting agreements with our directors, certain of our officers and our largest stockholder pursuant to which they agreed to vote all of their shares of Emageon common stock in favor of adoption of the merger agreement and against any competing transaction or proposal. As of the record date for the special meeting, the officers, directors and stockholder who entered into the voting agreements collectively held and were entitled to vote 3,794,387 shares of Emageon common stock, which represents approximately 17.69% of the outstanding Emageon common stock entitled to vote at the special meeting.

 

Shares Held of Record

 

If your shares of our common stock are registered in your name, you can vote those shares by completing and returning the enclosed proxy card or voting in person at the special meeting.

 

Voting by Proxy.  If you choose to vote by proxy, simply mark the enclosed proxy card, date and sign it, and return it in the postage-paid envelope provided.

 

All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the proposal to adopt the merger agreement and the proposal to adjourn the special meeting to solicit additional proxies, if necessary or appropriate. No proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted in favor of the adjournment proposal, unless it is specifically marked “FOR” the adjournment proposal.

 

Although it is not currently expected, if the proposal to adjourn the special meeting to solicit additional proxies is approved, the special meeting may be adjourned for the purpose of soliciting additional proxies to approve the proposal to adopt the merger agreement. Other than for the purposes of adjournment to solicit additional proxies, whether or not a quorum exists, holders of a majority of the outstanding common stock present in person or represented by proxy at the special meeting and entitled to vote thereat may adjourn the special meeting. Any signed proxies received by us in which no voting instructions are provided on such matter will be voted in favor of an adjournment in these circumstances. If any matters other than the matters discussed in this proxy statement are properly brought before the special meeting, the persons named as proxies will vote in accordance with their judgment as to matters that they believe to be in the best interest of our stockholders.

 

Any adjournment may be made without notice (if the adjournment is for not more than sixty days from the record date), other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Any adjournment 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.

 

Voting in Person.  If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting.

 

Shares Held in Street Name

 

If your shares are held in street name, which means that your shares are held of record by a broker, trustee or other nominee (such as a bank), then your broker or bank has enclosed a voting instruction card for you to use to indicate your voting preference. It may provide that you can deliver your instructions by telephone or via the Internet. While you are welcome to attend the meeting in person, you would not be permitted to vote unless you obtain a signed proxy from your broker or bank, who is the holder of record of your shares, authorizing you to vote at the special meeting.

 

Stockholders who have questions or requests for assistance in completing and submitting proxy cards should contact our proxy solicitor, Morrow, or our Corporate Secretary, as set forth below under “ — Assistance.”

 

Whether or not you expect to attend the meeting, please complete, date, sign and promptly return the accompanying proxy (or follow the instructions given to you by your broker or bank) so that your shares may be represented at the meeting.

 

DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. A letter of transmittal with instructions for the surrender of your stock certificates will be mailed to you as soon as practicable if and when the merger is completed.

 

 

If your shares of our common stock are registered in your name and have not delivered an irrevocable proxy, you have the unconditional right to revoke your proxy at any time prior to its exercise by employing any of the following methods:

 

 

Attendance at the special meeting alone will not constitute a revocation of a proxy absent compliance with one of the foregoing methods of revocation. If your shares are held in street name, you must follow the instructions given to you by the broker or bank to change your voting instructions.

 

 

For the reasons set forth in this proxy statement, our Board of Directors unanimously approved and adopted the merger agreement, the merger and the other transactions contemplated by the merger agreement, determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of Emageon and its stockholders, and recommends that our stockholders vote “FOR” adoption of the merger agreement, and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

We will bear the cost of this proxy solicitation. Certain of our directors, officers and other employees may, without compensation other than reimbursement for actual expenses, solicit proxies personally or by telephone, facsimile or other means of communication. We also will request that brokers, banks and other

custodians, nominees and fiduciaries representing beneficial owners of shares forward the proxy materials to such beneficial owners, and we will, upon request of such parties, reimburse reasonable forwarding charges and out-of-pocket expenses. We have retained Morrow to assist in distributing the proxy materials to brokerage houses and other nominees and fiduciaries, and to assist in solicitation of proxies by contacting record and beneficial owners of our common stock, for a fee of $5,500 plus expenses.

 

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement may have been sent to multiple stockholders in each household. We will promptly deliver a separate copy of either document to any stockholder upon written or oral request to our Corporate Secretary, who may be contacted as set forth below under “The Special Meeting — Assistance.”

 

A list of our stockholders entitled to vote at the special meeting will be available for examination by any Emageon stockholder at the special meeting. For ten days prior to the special meeting, this stockholder list will be available for inspection during ordinary business hours at our corporate offices located at 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242.

 

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact:

 

Morrow and Co., LLC
Stockholders call: (800) 662-5200
Brokers or Banks call: (203) 658-9400

or

 

John W. Wilhoite
Corporate Secretary
Emageon Inc.
1200 Corporate Drive, Suite 200
Birmingham, Alabama 35242

 

Emageon provides an enterprise-level information technology solution for the clinical analysis and management of digital medical images within multi-hospital networks, community hospitals and diagnostic imaging centers. Our solution consists of advanced visualization and image management software for multiple medical specialties, third-party components and comprehensive support services. Our web-enabled advanced visualization software, which is hosted by the customer, provides physicians across the enterprise, in multiple medical specialties and at any network access point, with dynamic tools to manipulate and analyze images in both a two dimensional and three dimensional perspective. With these tools, physicians have the ability to better understand internal anatomic structure and pathology, which can improve clinical diagnoses, disease screening and therapy planning. Our open standard solution is designed to help customers improve staff productivity, enhance revenue opportunities, automate complex medical imaging workflow, lower total cost of ownership and provide better service to physicians and patients. Emageon is publicly traded on The NASDAQ Global Market under the symbol “EMAG.”

 

Emageon’s principal executive offices are located at 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242, and its telephone number is (205) 980-9222. Additional information about Emageon is contained in Emageon’s filings with the SEC. See “Where You Can Find More Information.”

 

HSS is a technology and services company dedicated to bringing innovation to the health care industry. HSS’s objective is to leverage its understanding of current and next-generation technologies to offer value-added products and services which will generate improved clinical, operational and financial outcomes for its clients. HSS’s portfolio of products and services extends across many segments of health care including home health care, medical staffing, acute and post-acute facilities and telehealth/telemedicine. HSS’s business is grouped into three segments: technology solutions, software and consulting. HSS is publicly traded on the OTC Bulletin Board under the symbol “HSSO.”

 

HSS’s principal executive offices are located at 42 West 39th Street, 6th Floor, New York, NY 10018, and its telephone number is (212) 798-9400. Additional information about HSS is contained in HSS’s filings with the SEC. See “Where You Can Find More Information.”

 

HSS Acquisition Corp. is a wholly owned subsidiary of HSS. HSS Acquisition Corp. was organized solely for the purpose of entering into the merger agreement with Emageon and completing the merger and has not conducted any business operations. HSS Acquisition Corp.’s principal executive offices are located at 42 West 39th Street, 6th Floor, New York, NY 10018, and its telephone number is (212) 798-9400.

 

Emageon regularly reviews and evaluates its business strategy and strategic alternatives with the goal of enhancing stockholder value. In this regard, in early 2007, the Board of Directors determined to consider what strategic alternatives might be available to Emageon.

 

During the first quarter of 2007, Charles A. Jett, Jr., in his capacity as Chief Executive Officer, reviewed with the directors current market trends and sales expectations for 2007 and initiated the consideration by the Board of Directors of various strategic alternatives. On April 24, 2007, at a regularly scheduled meeting of the Board of Directors, Emageon’s management reviewed a presentation with the Board regarding management’s

assessment of industry trends, Emageon’s business plan and future prospects and management’s preliminary analysis of a number of strategic alternatives Emageon might consider pursuing in order to enhance stockholder value. After extended discussions, the Board of Directors determined to commence a formal review of potential strategic alternatives for the benefit of Emageon’s stockholders. Representatives of Kilpatrick Stockton LLP, counsel for Emageon, which we refer to as Kilpatrick Stockton, advised the Board of Directors regarding its fiduciary duties in engaging in a strategic alternatives review process. The Board of Directors determined that because one of the possible alternatives, a sale of Emageon, could involve potential conflicts of interest with management and certain directors, it should establish a strategic alternatives committee comprised of independent, disinterested directors to review, evaluate and consider potential strategic alternatives, including, but not limited to, acquisitions of other businesses, a merger or combination with another company, the sale of part or all of Emageon to a financial or strategic purchaser and/or a refinancing or recapitalization of Emageon. Accordingly, the Board of Directors established a strategic alternatives committee, which we refer to as the Strategic Alternatives Committee, comprised entirely of independent members of the Board of Directors, being Hugh H. Williamson III (the chair), Fred C. Goad, Jr. and Roddy J. H. Clark, and granted it the authority to engage independent attorneys, investment advisors and other such advisors as it deemed appropriate.

 

Following this meeting, the Strategic Alternatives Committee members discussed the engagement of legal and financial advisors to assist the Strategic Alternatives Committee in its evaluation of strategic alternatives for the benefit of Emageon’s stockholders. Over the next several days following the Board of Directors meeting, members of the Strategic Alternatives Committee held conversations with potential legal counsel and various investment banks, including SunTrust Robinson Humphrey and Bass, Berry and Sims PLC, which we refer to as Bass, Berry & Sims.

 

On May 3, 2007, the Strategic Alternatives Committee met to discuss the purpose, duties and role of the Strategic Alternatives Committee and the process by which it would begin to examine potential strategic alternatives. The Strategic Alternatives Committee invited representatives of Bass, Berry & Sims and SunTrust Robinson Humphrey to participate in the meeting. Also participating at the Strategic Alternatives Committee’s request were Mr. Jett and W. Todd Carlisle, Emageon’s General Counsel. Mr. Jett reviewed with the Strategic Alternatives Committee management’s assessment of Emageon’s business plan and future prospects as discussed at the April 24, 2007 Board of Directors meeting. Mr. Jett expressed his desire to work with the Strategic Alternatives Committee in evaluating strategic alternatives and to act in the best interest of Emageon’s stockholders. Mr. Jett discussed with the Strategic Alternatives Committee conversations Emageon had held with various potential acquisition targets as well as inquiries by various parties interested in Emageon, its business operations and technology. The Strategic Alternatives Committee reviewed SunTrust Robinson Humphrey’s preliminary analysis regarding a process for evaluating organic growth opportunities and both “buy side” and “sell side” opportunities, including a potential timeline for completing the Strategic Alternatives Committee’s analysis and making a recommendation to the full Board of Directors. The Strategic Alternatives Committee excused the SunTrust Robinson Humphrey representatives from the meeting and met in executive session to review its discussions with various investment banks (to serve as financial advisor to the Strategic Alternatives Committee) and the engagement of a financial advisor and legal counsel. Following this discussion, the Strategic Alternatives Committee authorized and approved the engagement of Bass, Berry & Sims to serve as legal counsel to the Strategic Alternatives Committee and SunTrust Robinson Humphrey to serve as financial advisor to the Strategic Alternatives Committee, subject to negotiation and execution of appropriate engagement letters with each firm.

 

On May 21, 2007, the Strategic Alternatives Committee met and discussed with Mr. Jett various operational matters as well as his observations from Emageon’s first quarter earnings conference call held May 9, 2007 in which Emageon had announced a reduction in its financial guidance for 2007. The Strategic Alternatives Committee reviewed SunTrust Robinson Humphrey’s recommendation for evaluating, through a targeted, controlled process coordinated by SunTrust Robinson Humphrey, the potential market value of Emageon from the perspectives of strategic parties and financial sponsors, as well as analyzing potential organic growth opportunities for Emageon. The Strategic Alternatives Committee discussed and agreed upon a list of potential “Tier One” and “Tier Two” strategic parties and financial sponsors selected primarily on the

basis of their potential level of interest in and ability to act on a transaction with Emageon. The Strategic Alternatives Committee also considered the parties’ knowledge of Emageon’s industry in compiling these lists. The Strategic Alternatives Committee initially authorized SunTrust Robinson Humphrey to contact 15 potential Tier One strategic parties and five potential Tier One financial sponsors. The Strategic Alternatives Committee articulated to SunTrust Robinson Humphrey and Bass, Berry & Sims that discussions with these parties were to be undertaken in connection with the Strategic Alternatives Committee’s evaluation of a full continuum of alternatives including continuing as an independent public company with certain internal reorganization efforts and analysis of capital needs, evaluating various possible acquisition opportunities and analyzing the market’s valuation of Emageon to determine whether a potential sale of Emageon was in the best interest of Emageon’s stockholders. The Strategic Alternatives Committee engaged in an executive session during which the Strategic Alternatives Committee members discussed the proposed process and the Strategic Alternatives Committee’s actions going forward. Representatives of Bass, Berry & Sims advised the Strategic Alternatives Committee concerning its fiduciary duties, including the Strategic Alternatives Committee members’ duties of care and loyalty and the importance that they act independently on behalf of Emageon’s stockholders.

 

From May 21, 2007 through October 24, 2007, SunTrust Robinson Humphrey contacted 27 entities, including 19 strategic parties and eight financial sponsors, on behalf of the Strategic Alternatives Committee. During this time, Emageon executed confidentiality agreements with eight of these parties, including two strategic parties and six financial sponsors. Parties executing confidentiality agreements were provided preliminary financial information about Emageon, were granted access to an electronic data room and engaged in telephone calls and meetings with Emageon’s management. Most of the strategic parties contacted were not interested in pursing a transaction with Emageon for a variety of reasons. As a result of this process, Emageon’s management, with the assistance of SunTrust Robinson Humphrey, continued to revise its analysis of Emageon’s continuing viability as an independent, publicly traded company.

 

The Strategic Alternatives Committee held teleconference meetings on each of May 31, 2007, June 7, 2007 and June 15, 2007. During these calls, the Strategic Alternatives Committee members reviewed with SunTrust Robinson Humphrey the ongoing discussions with various strategic parties and financial sponsors as well as additional potential parties SunTrust Robinson Humphrey could contact in connection with the Strategic Alternatives Committee’s evaluation of strategic alternatives for the benefit of Emageon’s stockholders. The Strategic Alternatives Committee also reviewed updates from management regarding management’s assessment of various operational, financial and business development matters during these calls.

 

On June 26, 2007, the Strategic Alternatives Committee met and discussed with SunTrust Robinson Humphrey and management the status of discussions with various strategic parties and financial sponsors, including the lack of interest indicated by a number of the strategic parties contacted. The Strategic Alternatives Committee also discussed the proposed timeline for completing its evaluation of strategic alternatives on behalf of Emageon and its stockholders and making a recommendation to the full Board of Directors. The Strategic Alternatives Committee discussed with Mr. Jett Emageon’s financial outlook for 2007 and 2008 and Emageon’s ongoing conversations with various potential acquisition targets. The Strategic Alternatives Committee members further discussed with representatives of Bass, Berry & Sims their fiduciary duties, the Strategic Alternatives Committee’s role in the evaluation of strategic alternatives for the benefit of Emageon’s stockholders and the full continuum of alternatives being evaluated. The Strategic Alternatives Committee also met in executive session to discuss the evaluation process, market observations and management’s role in assisting the Strategic Alternatives Committee in its evaluation process.

 

During July 2007, the Strategic Alternatives Committee, with the assistance of SunTrust Robinson Humphrey, continued discussions with four financial sponsors and one strategic party regarding a possible transaction with Emageon. Each of these parties continued a due diligence investigation of Emageon with the assistance of Emageon’s management and representatives of SunTrust Robinson Humphrey. On July 20, 2007, the Strategic Alternatives Committee executed a confidentiality agreement with a second strategic party. In late July, one of the financial sponsors expressed to SunTrust Robinson Humphrey that it no longer wished to be involved in the process. In addition, a third strategic party, referred to herein as “Company A,” contacted Mr. Jett to express an interest in a strategic transaction with Emageon.

On July 30, 2007, Oliver Press Partners, LLC, which we refer to as Oliver Press, filed a Schedule 13D with the SEC indicating it had purchased a significant stake in Emageon. On August 2, 2007, the Strategic Alternatives Committee met to discuss the investment by Oliver Press in Emageon and the potential impact of Oliver Press’s investment and possible desire to influence Emageon’s activities on the ongoing strategic alternatives evaluation process. The Strategic Alternatives Committee discussed with Mr. Jett conversations he had held with representatives of Oliver Press as well as various business development and operational matters regarding Emageon. The Strategic Alternatives Committee discussed the status of discussions with the three strategic parties, including Company A, and the three financial sponsors that continued to express interest in Emageon.

 

On August 9, 2007, at a regularly scheduled meeting of the Board of Directors, the Strategic Alternatives Committee made a presentation to the Board regarding the status of the strategic alternatives evaluation process. The Board of Directors reviewed a presentation by SunTrust Robinson Humphrey regarding the three financial sponsors and three strategic parties (including Company A), the level of interest indicated by each and an evaluation of each party’s ability to complete a transaction.

 

During the week following the August 9, 2007 Board of Directors meeting, the two strategic parties other than Company A and one of the financial sponsors informed SunTrust Robinson Humphrey they were not interested in further discussions regarding a transaction with Emageon. The Strategic Alternatives Committee instructed SunTrust Robinson Humphrey to prepare a bid letter to the remaining two financial sponsors, one of which is referred to herein as “Company D,” requesting a formal offer and markup of a form of merger agreement. The Strategic Alternatives Committee worked with Emageon’s management, Bass, Berry & Sims and Kilpatrick Stockton to prepare a form of merger agreement to be delivered to the parties. On August 22, 2007, SunTrust Robinson Humphrey delivered the bid letter on behalf of the Strategic Alternatives Committee to the two remaining financial sponsors, including Company D. A form of merger agreement, which had been approved by the Strategic Alternatives Committee, was delivered to these parties on August 31, 2007. The Strategic Alternatives Committee, with SunTrust Robinson Humphrey’s assistance, continued to engage in discussions with Company A regarding a possible strategic transaction based on a number of scenarios, including a stock for stock combination of the two entities.

 

During the first part of September 2007, the two remaining financial sponsors, including Company D, informed SunTrust Robinson Humphrey they were no longer interested in a transaction with Emageon. The Strategic Alternatives Committee, with the assistance of SunTrust Robinson Humphrey, continued to engage in discussions with Company A regarding a number of possible scenarios under which the parties might structure a strategic transaction, including as a stock for stock business combination.

 

On September 17, 2007, the Strategic Alternatives Committee addressed the withdrawal of all parties other than Company A from discussions with Emageon. The Strategic Alternatives Committee discussed the feasibility of a possible transaction with Company A, including the potential timeline for negotiating a definitive transaction, the structure of such a transaction and the potential value of such a transaction to Emageon’s stockholders. The Strategic Alternatives Committee reviewed with representatives of Bass, Berry & Sims the Strategic Alternatives Committee’s fiduciary duties and its role in connection with its evaluation of strategic alternatives for the benefit of Emageon’s stockholders, including with respect to negotiations with Company A. The Strategic Alternatives Committee also reviewed current operations, Emageon’s financial condition and a wide range of additional alternatives it might consider that might enhance stockholder value. After this discussion, the Strategic Alternatives Committee excused Mr. Jett and Mr. Carlisle from the meeting and engaged in an extended discussion regarding the process, the timeline for reporting to the full Board of Directors and the feasibility and potential value to Emageon’s stockholders of a possible transaction with Company A. The representatives of SunTrust Robinson Humphrey were then excused from the meeting and the Strategic Alternatives Committee met in executive session to discuss the strategic alternatives available to Emageon. Following this executive session, the Strategic Alternatives Committee authorized members of Emageon’s management and Mr. Clark, as representative of the Strategic Alternatives Committee, to meet with representatives of Company A to further gauge Company A’s level of interest in pursuing a definitive transaction. The Strategic Alternatives Committee also requested SunTrust Robinson Humphrey to prepare and distribute to the Strategic Alternatives Committee members SunTrust Robinson Humphrey’s valuation analysis

of a transaction with Company A based on various scenarios as discussed at this meeting. On September 18, 2007, SunTrust Robinson Humphrey distributed to the Strategic Alternatives Committee members its analysis of a transaction between Emageon and Company A, including its analysis of an appropriate valuation of Emageon’s and Company A’s common stock.

 

During the following weeks, the Strategic Alternatives Committee continued to negotiate with Company A regarding a proposed transaction. On October 19, 2007, the Strategic Alternatives Committee delivered a form of merger agreement to Company A in furtherance of these negotiations. The parties continued to disagree as to the value attributable to Emageon’s stock in a stock for stock combination.

 

On October 22, 2007, the Strategic Alternatives Committee met to discuss the status of discussions with Company A, including a discussion of a number of open issues on which the parties differed, including among other things, Company A’s valuation of Emageon’s common stock. The Strategic Alternatives Committee also reviewed generally the results of its evaluation of strategic alternatives for the benefit of Emageon and its stockholders. The Strategic Alternatives Committee members discussed with Bass, Berry & Sims their fiduciary duties in connection with the Strategic Alternatives Committee’s evaluation of strategic alternatives on behalf of Emageon’s stockholders, noting that the feasible alternatives currently available to Emageon, which included primarily a strategic transaction with Company A or continuing as an independent public company with such internal restructuring and assessment of capital needs as determined by the full Board of Directors, would not involve a conflict of interest with members of management or any directors. After this discussion, the Strategic Alternatives Committee determined to recommend to the full Board of Directors that the review of strategic alternatives be returned to the full Board of Directors pending further developments, if any, that might require a committee of independent directors.

 

On October 24, 2007, at a regularly scheduled meeting of the Board of Directors, the Strategic Alternatives Committee delivered its report to the Board of Directors. The Strategic Alternatives Committee noted it had contacted an aggregate of 27 parties, including 19 strategic parties and eight financial sponsors as part of its strategic alternatives evaluation process and had entered into confidentiality agreements with eight of those parties, including two strategic parties and six financial sponsors. The Strategic Alternatives Committee discussed various other possible strategic alternatives, including continuing as an independent public company with a reorganization of Emageon’s management team, investment in product development initiatives and a continuing analysis of Emageon’s capital needs, as well as the evaluation of possible acquisitions of other businesses. The Strategic Alternatives Committee stated that, as of the date of the Board meeting, only Company A continued to indicate an interest in exploring strategic alternatives with Emageon. Accordingly, the Strategic Alternatives Committee recommended to the Board of Directors that Emageon continue negotiations with Company A regarding a definitive transaction and, if agreement could not be reached regarding a transaction that would be in the best interest of Emageon’s stockholders, Emageon should continue operating on a standalone basis with such restructuring and other steps as were determined by management and the full Board of Directors to be in the best interest of Emageon’s stockholders. After discussion, the Board of Directors approved the cessation of the Strategic Alternatives Committee’s activities. The Company continued to negotiate with Company A following the October 24, 2007 Board of Directors meeting but was unable to reach agreement regarding a definitive transaction.

 

On November 6, 2007, Emageon issued a press release reporting its financial results for the quarter ended September 30, 2007. The market value of Emageon’s common stock declined substantially following the release of Emageon’s financial results. At a special Board of Directors meeting on November 13, 2007, the Board of Directors, noting the decline in the market value of Emageon’s stock, closing at $4.58 per share (as reported on NASDAQ) on November 13, 2007, following the release of Emageon’s financial results for the third quarter of 2007 and the difficulties Emageon faced in the public market, determined further analysis of strategic alternatives would be required and requested that the Strategic Alternatives Committee reconvene. Following the Board of Directors meeting, Mr. Williamson, on behalf of the Strategic Alternatives Committee, requested Mr. Jett to contact representatives of “Company B,” a strategic party that the Strategic Alternatives Committee believed might have an interest in a potential acquisition of Emageon.

The Strategic Alternatives Committee met on November 16, 2007 and discussed with Mr. Jett his preliminary conversations with Company B, which indicated an interest in a possible acquisition of Emageon. The Strategic Alternatives Committee also authorized representatives of SunTrust Robinson Humphrey to contact parties previously contacted as part of the Strategic Alternatives Committee’s process, as well as certain additional strategic parties and financial sponsors with which the Strategic Alternatives Committee had not yet had discussions but who might be interested, particularly in light of Emageon’s reduced market valuation.

 

On December 4, 2007, the Strategic Alternatives Committee met to discuss the ongoing conversations with Company B and certain other strategic parties and financial sponsors contacted by SunTrust Robinson Humphrey. Mr. Jett and representatives of SunTrust Robinson Humphrey reported to the Strategic Alternatives Committee at this meeting that Company B continued to express an interest in Emageon as did one other strategic party, referred to herein as “Company C.” Additionally, Mr. Jett reported that one of Emageon’s current institutional investors had contacted him regarding a possible investment transaction that would include as a condition to such investment representation on Emageon’s Board of Directors. The Strategic Alternatives Committee instructed Mr. Jett to pursue further the interest expressed by this institutional investor in a potential investment transaction. The Strategic Alternatives Committee discussed with representatives of SunTrust Robinson Humphrey additional parties the Strategic Alternatives Committee might contact and instructed SunTrust Robinson Humphrey to contact those parties to determine their interest in a possible transaction with Emageon.

 

Throughout December 2007 and January 2008, the Strategic Alternatives Committee, with the assistance of SunTrust Robinson Humphrey, held ongoing discussions with six strategic parties, including Company B and Company C, regarding a possible transaction with Emageon. Company B and Company C continued to conduct due diligence on Emageon during this time. SunTrust Robinson Humphrey subsequently received a call from a financial sponsor that had previously expressed an interest in Emageon, Company D, in which representatives of Company D expressed a renewed interest in discussing an acquisition of Emageon. In early January, Company B informed the Strategic Alternatives Committee that it was no longer interested in pursuing an acquisition of Emageon. On January 22, 2008, Company C submitted an indication of interest in which it offered to purchase only Emageon’s cardiology line of business. After reviewing SunTrust Robinson Humphrey’s analysis of Company C’s proposal, the Strategic Alternatives Committee determined Company C’s proposal undervalued Emageon and that splitting Emageon into segments was not in the best interest of Emageon’s stockholders.

 

On January 28, 2008, the Strategic Alternatives Committee met and discussed the withdrawal of Company B from discussions with Emageon and the continued interest of Company D in a possible transaction. The Strategic Alternatives Committee discussed the costs and benefits of an investment in Emageon by one of its current institutional investors as well as the feasibility of a stock buyback as a way to generate value for Emageon’s stockholders. After extended discussion, the Strategic Alternatives Committee determined that a possible sale of Emageon represented the best way to enhance stockholder value at this time. Accordingly, the Strategic Alternatives Committee agreed to continue its current evaluation of strategic alternatives, including the potential transaction with Company D.

 

Subsequent to the meeting on January 28, 2008, the Strategic Alternatives Committee received an indication of interest from Company D. The Strategic Alternatives Committee reconvened on the morning of January 29, 2008 to discuss the indication of interest received from Company D, a financial sponsor. Mr. Jett and Mr. Carlisle were present at the meeting but Mr. Jett was excluded from the discussion of the indication of interest from Company D and was not provided a copy for his review. The Strategic Alternatives Committee instructed SunTrust Robinson Humphrey to obtain additional information from Company D and to inquire as to the possibility of including an equity component as part of the transaction so as to allow Emageon’s current stockholders to retain an interest in Emageon following an acquisition of Emageon by Company D.

 

On February 11, 2008, the Strategic Alternatives Committee met to discuss further Company D’s indication of interest. Mr. Williamson expressed to the Strategic Alternatives Committee that Company D was not willing to consider an equity component but remained interested in pursuing an acquisition of Emageon

for cash. The Strategic Alternatives Committee also noted that Company D had requested Emageon to enter into an exclusivity agreement before it continued its due diligence review. The Strategic Alternatives Committee requested SunTrust Robinson Humphrey to prepare an analysis of Company D’s offer and report back to the Strategic Alternatives Committee.

 

On February 19, 2008, the Strategic Alternatives Committee met and reviewed SunTrust Robinson Humphrey’s analysis of a transaction with Company D, including the feasibility of completing a transaction, the structure of the proposed transaction, the timeframe for negotiating the transaction and the potential value of the transaction to Emageon’s stockholders. Following this discussion, the Strategic Alternatives Committee instructed SunTrust Robinson Humphrey, with the assistance of Bass, Berry & Sims, to negotiate an exclusivity agreement on behalf of the Strategic Alternatives Committee with Company D. Subsequent to this meeting, on February 25, 2008, Emageon entered into a 45-day exclusivity agreement with Company D.

 

Mr. Williamson, on behalf of the Strategic Alternatives Committee, requested Bass, Berry & Sims to draft a form of merger agreement for the Strategic Alternatives Committee’s review. From February 25, 2008 through March 20, 2008, Company D conducted an extensive due diligence review of Emageon. On March 14, 2008, the Strategic Alternatives Committee met and discussed the form of merger agreement to be delivered to Company D. Following this discussion, the Strategic Alternatives Committee instructed Bass, Berry & Sims to deliver the agreement to SunTrust Robinson Humphrey and convey the Strategic Alternatives Committee’s authorization for its distribution to Company D. The form of merger agreement was immediately delivered to Company D.

 

On March 20, 2008, Company D communicated to SunTrust Robinson Humphrey that based on its analysis of its due diligence review and market conditions, it was no longer willing to pursue a transaction within the range communicated in its indication of interest and that it was significantly reducing its offer price. The Strategic Alternatives Committee met on March 24, 2008 and discussed Company D’s reduced offer with representatives of SunTrust Robinson Humphrey. The Strategic Alternatives Committee reviewed SunTrust Robinson Humphrey’s analysis of the reduced offer and after extended discussions determined that a sale of Emageon at the reduced offer price would undervalue Emageon and would not provide adequate value to Emageon’s stockholders. The Strategic Alternatives Committee instructed representatives of SunTrust Robinson Humphrey to contact Company D to confirm that the Strategic Alternatives Committee would no longer consider such a reduced offer and requested the termination of the exclusivity arrangement between Emageon and Company D, which exclusivity agreement was subsequently terminated. The Strategic Alternatives Committee authorized SunTrust Robinson Humphrey to contact Company C to determine whether it had any interest in discussing an acquisition of Emageon as a whole as opposed to only the cardiology segment of Emageon’s business. Company C did not express an interest in an acquisition of Emageon as a whole.

 

On April 18, 2008, the Strategic Alternatives Committee met and discussed the strategic alternatives evaluation process with SunTrust Robinson Humphrey and reviewed management’s observations regarding the impact of the process on Emageon’s ongoing business operations. Noting the lack of executable offers received as a result of the strategic alternatives process despite the substantial number of parties contacted and the disruption of Emageon’s operations that would result from continuing the process, the Strategic Alternatives Committee determined it was in the best interest of Emageon and its stockholders to conclude the evaluation of strategic alternatives and to take such steps as the full board determined were necessary for Emageon to continue operating on an independent basis. The Board of Directors received, discussed and accepted this recommendation at its regularly scheduled meeting on April 29, 2008.

 

On May 9, 2008, in connection with Emageon’s annual stockholders meeting, Oliver Press filed with the SEC a preliminary proxy statement seeking stockholder support for three directors nominated by Oliver Press to Emageon’s Board of Directors at Emageon’s annual stockholder meeting scheduled for June 23, 2008. Over the ensuing weeks, Emageon engaged in a proxy contest with Oliver Press. On June 22, 2008, Emageon entered into an agreement with Mr. Jett and representatives of Oliver Press terminating the proxy contest with respect to the election of directors at Emageon’s annual meeting. Under the terms of the agreement, the size of Emageon’s Board of Directors was ultimately expanded to nine members, Mr. Jett and Douglas D. French tendered their resignations from the Board of Directors and Augustus K. Oliver and Benner Ulrich, principals

of Oliver Press, were appointed to the Board of Directors. In addition, the Board of Directors agreed to appoint Bradley S. Karro to the Board of Directors, subject to the Board’s review of Mr. Karro’s qualifications and a background check of Mr. Karro. Mr. Karro was appointed to the Board of Directors on July 29, 2008. Further, Mr. Ulrich and, upon his subsequent appointment to the Board of Directors, Mr. Karro were added to the Strategic Alternatives Committee by the Board of Directors. The settlement agreement also contemplated that the Strategic Alternatives Committee would be reconstituted and would recommence its evaluation of strategic alternatives and that it would meet on June 23, 2008 to contemplate the engagement of an additional (or alternative) financial advisor and develop a schedule of activities in connection with its evaluation of strategic alternatives.

 

On June 23, 2008, the reconstituted Committee (consisting of four directors — Mr. Ulrich, Mr. Clark, Mr. Goad and Mr. Williamson) met by telephone. Mr. Oliver and Mr. Jett participated in the meeting at the Strategic Alternatives Committee’s request. At this meeting, the Strategic Alternatives Committee discussed the activities of the Strategic Alternatives Committee since its inception in April 2007, the viability of recommencing the investigation of strategic alternatives and the proposed timeline for a potential process. The Strategic Alternatives Committee also discussed with Mr. Jett management’s views of the potential impact of such a process on Emageon and its relationships with its employees and customers. Mr. Ulrich inquired about the possibility of separating the cardiology and imaging businesses of Emageon both for purposes of evaluating strategic alternatives and operationally, and Mr. Jett agreed to provide financial and other information to the Strategic Alternatives Committee to assist in analyzing this possibility. In addition, the Strategic Alternatives Committee discussed its engagement of SunTrust Robinson Humphrey and the possible benefits and risks of engaging a new financial advisor. In this regard, Mr. Ulrich and Mr. Oliver agreed to contact certain firms the Strategic Alternatives Committee might consider and report to the Strategic Alternatives Committee the following day regarding these preliminary conversations.

 

The Strategic Alternatives Committee met again on June 24, 2008. Mr. Ulrich stated that he and Mr. Oliver had engaged in conversations with SunTrust Robinson Humphrey as well as three other investment banks, including Jefferies & Company, Inc., which we refer to as Jefferies, regarding their interest in working with the Strategic Alternatives Committee. Mr. Ulrich stated that Jefferies had expressed a desire to work with the Strategic Alternatives Committee. The Strategic Alternatives Committee discussed further the process for evaluating strategic alternatives, including conducting a controlled process as had been done previously or conducting a broader public auction within a timeframe that would limit the potential risk to Emageon’s ability to operate but that would allow Emageon to analyze whether a buyer might be found for Emageon at a valuation beneficial to Emageon’s stockholders. The Strategic Alternatives Committee agreed to continue discussions with Jefferies regarding a possible engagement and instructed Mr. Jett to coordinate with Jefferies regarding a visit to Emageon’s headquarters in Birmingham, Alabama to conduct due diligence. The Strategic Alternatives Committee also instructed Mr. Jett to prepare an analysis regarding management’s views of Emageon’s continuing viability as an independent public company. Also at this meeting, the Strategic Alternatives Committee agreed to appoint Mr. Ulrich as Chair of the Strategic Alternatives Committee.

 

On June 30, 2008, the Strategic Alternatives Committee met to discuss the possible engagement of a financial advisor as well as certain inquiries Mr. Jett had received regarding Emageon’s interest in a possible transaction. The Strategic Alternatives Committee discussed with Mr. Jett conversations he had had with one financial sponsor, referred to herein as “Company E,” and two strategic parties, “Company F” and Health Systems Solutions. Mr. Jett stated that each of these parties had contacted him to express an interest in discussing a possible acquisition of Emageon. Mr. Oliver stated that another financial sponsor, referred to herein as “Company G,” had contacted him to express an interest in acquiring Emageon. The Strategic Alternatives Committee determined to obtain a final proposal from Jefferies and to meet again on July 2, 2008.

 

On July 2, 2008, the Strategic Alternatives Committee met by telephone with representatives of Jefferies who made a presentation to the Strategic Alternatives Committee regarding, among other matters, the Strategic Alternatives Committee’s strategic alternatives process, including parties Jefferies thought the Strategic Alternatives Committee should approach, the proposed timeline for completing a possible transaction and Jefferies’ proposed fee structure for serving as financial advisor to the Strategic Alternatives Committee.

The Strategic Alternatives Committee met again on July 3, 2008 to discuss the engagement of a financial advisor, including the possible engagement of Jefferies and the role of SunTrust Robinson Humphrey going forward. After discussion, the Strategic Alternatives Committee determined it was in the best interest of Emageon and its stockholders to engage Jefferies as its lead financial advisor and authorized Mr. Ulrich, working with Bass, Berry & Sims, to negotiate and enter into an engagement letter with Jefferies and an amendment to the engagement letter with SunTrust Robinson Humphrey reflecting SunTrust Robinson Humphrey’s revised role and including SunTrust Robinson Humphrey’s willingness to, if appropriate, evaluate and render an opinion as to the fairness, from a financial point of view, of a selected transaction.

 

On July 11, 2008, the Strategic Alternatives Committee entered into an engagement letter with Jefferies pursuant to which Jefferies agreed to serve as the Strategic Alternatives Committee’s lead financial advisor, and Emageon issued a press release announcing that the Strategic Alternatives Committee had retained Jefferies to assist it in its evaluation of strategic alternatives available to Emageon. Also on July 11, 2008, the Strategic Alternatives Committee entered into an amendment to its engagement letter with SunTrust Robinson Humphrey whereby SunTrust Robinson Humphrey agreed to a reduction in its fee and agreed to, if appropriate, evaluate and provide its opinion as to the fairness, from a financial point of view, of a selected transaction. Mr. Ulrich, on behalf of the Strategic Alternatives Committee, requested that Jefferies begin contacting the parties discussed at the July 2, 2008 meeting, including, among others, Company E, Company F, Company G and HSS, and report to the Strategic Alternatives Committee regarding its preliminary conversations and the status of its due diligence investigation of Emageon.

 

From July 11, 2008 to September 12, 2008, the Strategic Alternatives Committee, with Jefferies’ assistance, contacted 47 parties, including 17 strategic parties and 30 financial sponsors, most of which had not previously been contacted by the Strategic Alternatives Committee. An extensive financial information package was delivered to 27 parties with which Emageon had executed confidentiality agreements. The process was structured to solicit interest, provide diligence materials and receive indications of interest on or about September 8, 2008.

 

The Strategic Alternatives Committee met on July 22, 2008 and discussed with representatives of Jefferies its preliminary conversations with various parties. The Strategic Alternatives Committee also discussed with Mr. Jett his recent conversations with representatives of Company F who had discussed a possible valuation, which represented a discount to Emageon’s then current market price. Mr. Jett stated that Company F requested to negotiate on an exclusive basis with Emageon. After discussion, the Strategic Alternatives Committee determined that the valuation proposed by Company F was inadequate and that the Strategic Alternatives Committee should continue with its evaluation of other strategic alternatives.

 

On July 28, 2008, Company E submitted a preliminary indication of interest to the Strategic Alternatives Committee proposing to purchase all of the outstanding shares of common stock of Emageon. The proposal indicated that Company E was unwilling to move forward in discussions with Emageon without Emageon agreeing to either negotiate exclusively with Company E through September 8, 2008 or reimburse Company E’s expenses through September 8, 2008, if Emageon was unwilling to enter into an exclusive negotiating arrangement.

 

The Strategic Alternatives Committee met on July 29, 2008 and discussed the proposal made by Company E as well as the status of discussions with various strategic parties and financial sponsors. Representatives of Jefferies reported to the Strategic Alternatives Committee that in addition to Company E, Company F continued to indicate an interest in a transaction with Emageon. The Strategic Alternatives Committee also discussed several parties with which Jefferies had discussed a potential transaction but which had subsequently indicated they were not interested. The Strategic Alternatives Committee noted that Company E had done a substantial amount of due diligence regarding Emageon and had expressed the most interest of any of the parties with which the Strategic Alternatives Committee was currently engaged in discussions. Following discussion regarding Company E and the ongoing diligence being conducted by several other parties who had indicated an interest in Emageon, the Strategic Alternatives Committee determined it was not prudent to negotiate exclusively with Company E but that Company E’s continued participation in the process was important. Accordingly, the Strategic Alternatives Committee instructed Mr. Jett, along with Mr. Ulrich and

representatives of Jefferies and Bass, Berry & Sims to engage in discussions with representatives of Company E regarding an appropriate expense reimbursement arrangement.

 

During the following week, Mr. Jett, Mr. Ulrich and representatives of Jefferies and Bass, Berry & Sims had several phone conversations with representatives of Company E and Company E’s outside legal counsel in which Company E reiterated its interest in acquiring Emageon at the price range indicated in its indication of interest, but expressed that it would not move forward in discussions with Emageon without either entering into an exclusivity agreement or an expense reimbursement arrangement. The Strategic Alternatives Committee, with the assistance of Bass, Berry & Sims, began negotiating an expense reimbursement agreement with Company E under which Emageon would agree to reimburse Company E for certain third party expenses incurred in connection with its investigation of Emageon and negotiation of a transaction with Emageon through September 8, 2008, subject to an agreed upon maximum amount. Additionally, the expense reimbursement was only payable if Emageon discontinued discussions with Company E prior to September 8, 2008, or entered into a separate transaction not involving Company E within one year.

 

On August 5, 2008, the Strategic Alternatives Committee met and discussed with representatives of Jefferies the status of its discussions with various parties and considered further the proposed expense reimbursement agreement with Company E. The Strategic Alternatives Committee discussed management’s views regarding certain financial and operational circumstances surrounding Emageon, including Emageon’s declining revenue growth and employee attrition as well as the impact of declining conditions in the credit market on Emageon and its customers. After discussing the interest in Emageon indicated by Company E and their offer range representing a premium to the then current market price of Emageon’s common stock, as well as the uncertainty of the level of interest of other parties contacted, the Strategic Alternatives Committee determined it was in the best interest of Emageon and its stockholders to enter into the expense reimbursement agreement with Company E in order to ensure Company E’s continued participation in the process. Accordingly, the Strategic Alternatives Committee authorized entering into the expense reimbursement agreement with Company E.

 

During the week following the Strategic Alternatives Committee’s August 5, 2008 meeting, representatives of Jefferies discussed regularly with representatives of Company E the status of Company E’s diligence review of Emageon. Mr. Jett also had various conversations with representatives of Company E regarding Emageon’s business operations. Jefferies continued to discuss with a number of other parties their possible interest in a transaction with Emageon and worked with Emageon’s management to prepare an extensive financial information package for distribution to parties participating in the process.

 

The Strategic Alternatives Committee met on August 12, 2008 and discussed with representatives of Jefferies and Mr. Jett the status of Company E’s due diligence review of Emageon as well as the status of the financial information package to be delivered to various other parties that had expressed interest in a transaction. The Strategic Alternatives Committee discussed the timing of the distribution of a proposed merger agreement to Company E and the proposed timing for requiring other parties to submit indications of interest. The Strategic Alternatives Committee discussed with representatives of Bass, Berry & Sims the Strategic Alternatives Committee’s fiduciary duties, including the Strategic Alternatives Committee members’ duties of care and loyalty and the importance of their independence on behalf of Emageon’s stockholders. The Strategic Alternatives Committee and representatives of Bass, Berry & Sims also discussed the continued involvement of Mr. Jett in the Strategic Alternatives Committee’s discussions with various parties, including Company E. The Strategic Alternatives Committee discussed Mr. Jett’s knowledge of Emageon and its industry and the various parties involved in discussions with the Strategic Alternatives Committee, which was helpful to the Strategic Alternatives Committee in its analysis of strategic alternatives. The Strategic Alternatives Committee noted Mr. Jett’s desire to act in the best interest of Emageon’s stockholders and that his actions throughout the strategic alternatives evaluation process had been consistent with this goal. The Strategic Alternatives Committee specifically instructed Mr. Jett that no discussions were to take place regarding any arrangements for members of the management team in connection with a potential transaction. Mr. Jett confirmed such understanding and stated that no such conversations had taken place. Finally, the Strategic Alternatives Committee instructed representatives of Bass, Berry & Sims to prepare a form of merger

agreement for the Strategic Alternatives Committee’s review to be distributed with a bid package to be delivered to potential buyers.

 

From August 5, 2008 to August 21, 2008, representatives of Company E and Company E’s lenders continued to conduct a due diligence review of Emageon and held several meetings with members of Emageon’s management. Jefferies engaged in several discussions with representatives of Company E regarding the status of Company E’s due diligence investigation of Emageon. During these discussions, Company E indicated that it had concerns its lenders might not be willing to provide adequate financing to support a price in the range proposed by Company E in its initial indication of interest.

 

On August 19, 2008, the Strategic Alternatives Committee met to discuss the status of its discussions with various parties, including Company E. Representatives of Bass, Berry & Sims advised the Strategic Alternatives Committee concerning its fiduciary duties, including the Strategic Alternatives Committee members’ duties of care and loyalty and the importance that they act independently on behalf of Emageon’s stockholders. Representatives of Jefferies stated that a financial information package regarding Emageon had been delivered to 27 parties currently engaged in the process. The Strategic Alternatives Committee discussed with representatives of Jefferies Company E’s diligence process and Company E’s desire to preempt the bid process by seeking to negotiate a definitive transaction by September 8, 2008. The Strategic Alternatives Committee reviewed the proposed bid letter to be distributed to parties interested in submitting a bid for Emageon and instructed Jefferies to deliver the bid letter to such parties requesting indications of interest by no later than September 8, 2008. The Strategic Alternatives Committee also reviewed with representatives of Bass, Barry & Sims the form of merger agreement to be sent to Company E and, at the appropriate time, to other potential bidders in the process. The Strategic Alternatives Committee agreed to wait to distribute the merger agreement to Company E until it confirmed it would be able to obtain financing.

 

On August 21, 2008, representatives of Jefferies spoke with representatives of Company E who stated they were unable to provide guidance regarding Company E’s ability to obtain adequate financing in connection with its offer to acquire Emageon at the price range indicated in its indication of interest. Company E agreed to cease incurring reimbursable expenses under the expense reimbursement agreement until it had confirmation from its lenders regarding financing.

 

The Strategic Alternatives Committee met on August 26, 2008 and discussed the status of discussions with various parties in the process. The Strategic Alternatives Committee also discussed with representatives of Jefferies Company E’s concerns about its financing. Representatives of Jefferies informed the Strategic Alternatives Committee that one strategic party had expressed interest in discussing the Strategic Alternatives Committee’s thoughts on an offer that included the potential buyer’s stock as part of the consideration and had requested an opportunity to meet with the Strategic Alternatives Committee. After further discussion, the Strategic Alternatives Committee agreed to meet by teleconference with representatives of this strategic party and asked representatives of Jefferies to coordinate a time for a meeting, which meeting was held on September 9, 2008. The Strategic Alternatives Committee also discussed with Mr. Jett various operational matters of Emageon and considered management’s views regarding the impact of the ongoing process on Emageon.

 

From August 26, 2008 to September 8, 2008, representatives of Jefferies held a number of conversations with various parties to which it had delivered the bid letter and a number of parties continued to conduct due diligence on Emageon. In addition, Mr. Jett and other members of management addressed various questions regarding the business operations of Emageon and met either in person or by phone with various parties in the process.

 

On September 8, 2008, the Strategic Alternatives Committee received indications of interest from six parties, one of which was HSS.

 

On September 9, 2008, the Strategic Alternatives Committee held a meeting to discuss the indications of interest with representatives of Jefferies, including price ranges and the qualifications of each party submitting a bid. The Strategic Alternatives Committee also discussed with Jefferies other parties expected to submit an indication of interest, including, among others, Company E and Company G, based on discussions Jefferies

had held with such parties. Representatives of Bass, Berry & Sims reviewed with the Strategic Alternatives Committee members their fiduciary duties in evaluating the proposals, negotiating a transaction for the benefit of Emageon’s stockholders and making a recommendation to the full Board of Directors. The Strategic Alternatives Committee instructed Jefferies to prepare an analysis of each of the indications received and to deliver the analysis to the Strategic Alternatives Committee as soon as possible.

 

Over the next two days, the Strategic Alternatives Committee received six additional indications of interest, including from, among others, Company E, which confirmed that it expected to be able to obtain financing for the transaction, Company F and Company G. Jefferies prepared an analysis of each of the indications of interest received and distributed the analysis to the Strategic Alternatives Committee for its review. In total, the Strategic Alternatives Committee received indications of interest from 12 parties, including five strategic parties and seven financial sponsors. The preliminary non-binding indications of interest proposed valuations for Emageon’s common stock ranging from $2.00 per share to $3.75 per share, subject to various qualifications.

 

On September 12, 2008, the Strategic Alternatives Committee met and reviewed Jefferies’ analysis of the 12 indications of interest received, including the price ranges indicated, the form of consideration and the qualifications of each party submitting a bid. At the Strategic Alternatives Committee’s request, Mr. Jett and Mr. Carlisle participated in the meeting and provided the Strategic Alternatives Committee with management’s views on each party, including the amount of diligence each had undertaken and their views as to the feasibility of completing a definitive transaction with each party. The Strategic Alternatives Committee reviewed Mr. Jett’s analysis of Emageon’s operational and financial condition and noted that a sale of Emageon continued to be in the best interest of Emageon’s stockholders. Mr. Jett and Mr. Carlisle were then excused from the meeting, and the Strategic Alternatives Committee met in executive session with representatives of Bass, Berry & Sims and Jefferies. The Strategic Alternatives Committee members discussed with representatives of Bass, Berry & Sims their fiduciary duties in connection with the evaluation of the indications of interest received and the possible negotiation of a definitive agreement with such parties. The Strategic Alternatives Committee discussed the number of parties with which it should continue discussions based on the valuations indicated by the parties and the ability of each to complete a transaction within the next three to four weeks, which was considered advisable in order to limit the distraction caused by the process for management and employees of Emageon. Based on this discussion, the Strategic Alternatives Committee agreed that Company E and HSS should remain in the process based on their respective valuations of Emageon, their knowledge of Emageon’s industry and the substantial amount of diligence conducted by each. The Strategic Alternatives Committee then discussed in detail four other parties, all financial sponsors, which had submitted bids ranging from $2.40 to $3.75 per share in cash, including each party’s ability to complete a transaction within the timeframe contemplated by the Strategic Alternatives Committee. After this discussion, the Strategic Alternatives Committee instructed Jefferies to contact each of these parties to determine their willingness to continue in the process without an exclusivity agreement and whether the parties would be able to submit a formal bid, that would include comments to the form of merger agreement, to the Strategic Alternatives Committee on or before October 3, 2008. The parties were contacted in an order based primarily on the valuation range submitted, with the parties indicating a higher valuation being given the first opportunity to continue in the process.

 

On September 15, 2008, the Strategic Alternatives Committee met and discussed the status of conversations with the four financial sponsors discussed at the Strategic Alternatives Committee’s meeting on September 12, 2008. Representatives of Jefferies indicated they had contacted the two parties submitting the highest valuation range and were confirming whether these parties were willing to continue in the process. The Strategic Alternatives Committee noted that, given the valuation ranges proposed by these two parties, Jefferies should determine these parties’ willingness to continue in the process before approaching the other two financial sponsors, one of which was Company G. However, if neither of the parties were willing to continue in the process, Jefferies should contact Company G and the other party discussed at the September 12, 2008 Committee meeting in an effort to have at least three parties in total (including Company E and HSS) continue in the process. The Strategic Alternatives Committee then instructed Jefferies to send the bid package

to HSS and Company E with instructions that formal bids were due to the Strategic Alternatives Committee on or before October 3, 2008.

 

Over the next two days the first three of the four parties Jefferies contacted subsequent to the September 12, 2008 Committee meeting informed Jefferies they would not continue to participate in the process. Representatives of Jefferies discussed these conversations with Mr. Ulrich, who, on behalf of the Strategic Alternatives Committee, instructed Jefferies to contact Company G. On September 17, 2008, representatives of Company G indicated to Jefferies they would be willing to continue in the process without exclusivity and that they could deliver a formal bid to the Strategic Alternatives Committee on or before October 3, 2008. Accordingly, at the instruction of Mr. Ulrich, on behalf of the Strategic Alternatives Committee, a bid package was delivered to Company G.

 

Between September 17, 2008 and September 29, 2008, representatives of Jefferies and Emageon’s management responded to a number of requests from and held informational meetings with representatives of each of Company E, Company G and HSS. In addition, Company F contacted the Strategic Alternatives Committee and requested the opportunity to enter a formal bid. Company F was told that the valuation submitted in its indication of interest was substantially below the valuation ranges received from other parties. Company F stated that it believed it would be able to increase its offer price. Given the substantial due diligence done by Company F and Company F’s knowledge of Emageon’s industry, the Strategic Alternatives Committee agreed to send Company F a bid package.

 

On September 29, 2008, the full Board of Directors met to discuss the strategic alternatives process with the Strategic Alternatives Committee. Representatives of Jefferies and Bass, Berry & Sims as well as Mr. Jett and Mr. Carlisle also participated in the meeting. At this meeting, members of the Strategic Alternatives Committee reviewed with the full Board of Directors the process conducted by the Strategic Alternatives Committee, the indication of interests received, the four parties from whom formal bids were expected, the process for selecting these four parties and the October 3, 2008 deadline. The Board of Directors discussed with the Strategic Alternatives Committee and representatives of Jefferies the qualifications of each of the four parties and the background of each. The Board of Directors discussed with Mr. Jett management’s perspective on the parties and reviewed Mr. Jett’s analysis of Emageon’s financial and operational condition as well as management’s support of pursuing a transaction in the time frame recommended by the Strategic Alternatives Committee. Following the Board meeting, the Strategic Alternatives Committee met with representatives of Jefferies and Bass, Berry & Sims to discuss further the process and conversations Jefferies and management continued to have with the potential bidders regarding the process and Emageon’s operations.

 

During the week of September 29, 2008, the Strategic Alternatives Committee received preliminary markups of the form of merger agreement from each of Company E, Company G and HSS. The Strategic Alternatives Committee, with the assistance of Bass, Berry & Sims, reviewed and held discussions with legal counsel for each of these parties regarding the changes to the merger agreement proposed by each party and delivered revised drafts of the merger agreement to each party.

 

On October 3, 2008, Emageon received final bids, including markups of the form of merger agreement, from Company F, Company G and HSS. Company F proposed to purchase Emageon for $2.20 per share, Company G proposed $2.45 per share, and HSS proposed $3.00 per share, each in all cash transactions. Company E informed Jefferies that it would not be submitting a bid.

 

On October 4, 2008, the Strategic Alternatives Committee met for the primary purpose of discussing the bids received. Representatives of Jefferies, Bass, Berry & Sims and SunTrust Robinson Humphrey participated in the meeting. The Strategic Alternatives Committee members discussed with representatives of Bass, Berry & Sims their fiduciary duties in connection with the Strategic Alternatives Committee’s role in considering whether to proceed with a possible sale of Emageon and the Strategic Alternatives Committee’s choice and recommendation of a buyer to the full Board of Directors of Emageon. The Strategic Alternatives Committee reviewed Jefferies’ presentation regarding the bids received and discussed with representatives of Bass, Berry & Sims the key terms, including terms relating to the conditionality of the potential acquiror’s obligation to consummate the merger, Emageon’s fiduciary out and the deal protection terms, the expected timing of their closing and the remedies available to each party for a breach of the merger agreement, as well as issues to be

negotiated in the merger agreement markups submitted by each party. The Strategic Alternatives Committee discussed with representatives of SunTrust Robinson Humphrey its preliminary analysis of the bids received. After extended discussion, the Strategic Alternatives Committee determined to focus its attention on reaching a definitive agreement with HSS, primarily due to the superior value proposed and representations regarding the availability of its financing, while maintaining dialogue with Company F and Company G to ensure an alternative transaction in the event HSS did not execute a definitive agreement.

 

From October 4, 2008 through October 9, 2008, the Strategic Alternatives Committee and HSS and their respective legal and financial advisors engaged in extensive negotiations regarding open issues in the merger agreement. At the Strategic Alternatives Committee’s request, in light of financing risks in the current environment, HSS was requested to make a $5.0 million deposit at signing to be held in escrow as unliquidated damages in the event its financing was not available at closing or HSS otherwise intentionally breached the merger agreement. At this point, however, HSS was not willing to make the deposit a non-exclusive remedy or have the deposit payable upon its intentional breach of the merger agreement. The parties also negotiated the terms of a voting agreement to be executed by Oliver Press and Emageon’s directors and executive officers. HSS also continued to negotiate a purchase agreement with an affiliate of its majority stockholder regarding the purchase of additional convertible debentures in HSS for purposes of funding HSS’s acquisition of Emageon and additional working capital following the transaction. Separately, HSS negotiated the principal terms of an agreement with Keith Stahlhut, Emageon’s acting Principal Operating Officer, pursuant to which Mr. Stahlhut would be employed by HSS following the merger.

 

The Strategic Alternatives Committee met on October 9, 2008 primarily to consider its recommendation to the Board of Directors regarding the sale of Emageon to HSS. Representatives of Bass, Berry & Sims, Jefferies, SunTrust Robinson Humphrey and Emageon’s management, including Mr. Jett, participated in the meeting at the Strategic Alternatives Committee’s request. Representatives of Bass, Berry & Sims reviewed with the Strategic Alternatives Committee members their fiduciary duties in connection with their consideration of whether to recommend a possible sale of Emageon to the Board of Directors. The Strategic Alternatives Committee reviewed a presentation by management regarding Emageon’s operations and financial results for the third quarter of 2008 and Emageon’s projected financial results for the year ending December 31, 2008. Mr. Jett discussed with the Strategic Alternatives Committee management’s continued belief that the sale of Emageon in the near term was in the best interest of Emageon and its stockholders. The Strategic Alternatives Committee discussed with representatives of Jefferies the Strategic Alternatives Committee’s evaluation of strategic alternatives, including the parties contacted since July 2008 and the process for qualifying these parties to become potential buyers of Emageon, as well as the valuation of the bid proposals received from HSS, Company F and Company G. The Strategic Alternatives Committee reviewed a detailed presentation from SunTrust Robinson Humphrey, including all of the analyses that would ultimately form the basis for its fairness opinion. SunTrust Robinson Humphrey’s report was extensive and provided an evaluation of Emageon from a number of perspectives, including a reference companies analysis, a reference transactions analysis, a discounted cash flows analysis and a premiums paid analysis. The Strategic Alternatives Committee reviewed the assumptions utilized by SunTrust Robinson Humphrey in connection with each analysis. Representatives of SunTrust Robinson Humphrey articulated to the Strategic Alternatives Committee that SunTrust Robinson Humphrey was prepared to render its opinion to the Strategic Alternatives Committee that the consideration to be received by Emageon’s stockholders in the proposed transaction with HSS was fair, from a financial point of view, to such holders. The Strategic Alternatives Committee reviewed with representatives of Bass, Berry & Sims the terms of the proposed merger agreement with HSS, including the material open items and the timeline for finalizing the merger agreement. Mr. Jett then left the meeting and after extended discussion, the Strategic Alternatives Committee agreed that the sale of Emageon to HSS was the best strategic alternative reasonably available to Emageon and unanimously determined to recommend to the Board of Directors a sale of Emageon to HSS, pursuant to the transaction terms discussed at the meeting.

 

Following the Strategic Alternatives Committee meeting on October 9, 2008, the full Board of Directors held a special meeting to consider the recommendation of the Strategic Alternatives Committee regarding the sale of Emageon to HSS. Representatives of Bass, Berry & Sims, Jefferies, SunTrust Robinson Humphrey and Emageon’s management, including Mr. Jett and Mr. Carlisle, participated in the meeting at the request of the

Board of Directors. Representatives of Bass, Berry & Sims reviewed with the directors their fiduciary duties in connection with their consideration of whether to proceed with a possible sale of Emageon. The Board of Directors reviewed a presentation by management regarding Emageon’s operations and financial results for the third quarter of 2008 and Emageon’s projected financial results for the year ending December 31, 2008. Mr. Jett reiterated management’s continued belief that the sale of Emageon in the near term was in the best interest of Emageon and its stockholders. Next, at the request of Mr. Williamson, Mr. Ulrich and representatives of Jefferies led a discussion regarding the Strategic Alternatives Committee’s evaluation of strategic alternatives, including the parties contacted since July 2008, the process for qualifying these parties to become potential buyers of Emageon, the role of the Strategic Alternatives Committee’s financial and legal advisors in the process and the potential transaction with HSS recommended by the Strategic Alternatives Committee and being considered by the Board of Directors. The Board of Directors reviewed a detailed presentation from SunTrust Robinson Humphrey, including all of the analyses that would ultimately form the basis for its fairness opinion. The Board of Directors reviewed the assumptions utilized by SunTrust Robinson Humphrey in connection with its analysis. Representatives of SunTrust Robinson Humphrey articulated to the Board of Directors that the transaction with HSS offered the highest value reasonably available and that SunTrust Robinson Humphrey was prepared to render its opinion to the Strategic Alternatives Committee that the consideration to be received by Emageon’s stockholders in the proposed transaction with HSS was fair, from a financial point of view, to such holders. The Board of Directors reviewed with representatives of Bass, Berry & Sims the terms of the proposed merger agreement with HSS, including the material open items (including whether HSS would be willing to fund a $5 million escrow fund as unliquidated damages in case it failed to secure financing for the transaction or HSS otherwise intentionally breached the merger agreement) and the timeline for finalizing the merger agreement. Each member of the Board of Directors indicated his or her willingness to sign the form of voting agreement in support of the proposed transaction with HSS, as did Mr. Ulrich and Mr. Oliver on behalf of Oliver Press. The Strategic Alternatives Committee confirmed its recommendation and belief that the sale to HSS was the best strategic alternative reasonably available to Emageon. At this time, the Strategic Alternatives Committee members excused themselves from the meeting to allow the remaining directors to address any concerns and questions to the financial and legal advisors and Mr. Jett and Mr. Carlisle. Thereafter, upon the Strategic Alternatives Committee members rejoining the meeting, Bass, Berry & Sims reviewed the terms of the proposed resolutions relating to the proposed merger and responded to questions. After extended discussions, the Board of Directors, in part based on the recommendation of the Strategic Alternatives Committee and the review of SunTrust Robinson Humphrey’s fairness presentation, unanimously approved the merger agreement, the voting agreement and the deposit agreement, subject to satisfactory resolution of the final terms of the deposit agreement in the manner discussed at the meeting.

 

On October 10, 2008 and October 11, 2008, the Strategic Alternatives Committee and HSS and their respective financial and legal advisors continued to negotiate the remaining outstanding issues in the various transaction documents and to finalize Emageon’s disclosure schedules.

 

On the morning of October 12, 2008, a representative of HSS contacted Jefferies and stated HSS and its financing sources were concerned about the recent turbulence in the credit markets and the outlook of the global economy and reduced the offer price from $3.00 per share to $2.75 per share. Following further discussion, HSS revised its reduced purchase price from $2.75 per share to $2.85 per share. In addition, HSS conceded to the demands of Emageon regarding the $5.0 million deposit agreement, primarily that it include payment to Emageon for HSS’s intentional breach of the merger agreement and that the deposit payment would be a non-exclusive remedy when payable, and not liquidated damages.

 

Later on October 12, 2008, the Board of Directors held a special meeting to discuss the revised offer price proposed by HSS. Mr. Jett and representatives of SunTrust Robinson Humphrey, Jefferies and Bass, Berry & Sims participated in the meeting at the Board of Directors’ request. The Board of Directors reviewed the revised purchase price proposed by HSS and discussed the reasons given for the reduction. Jefferies also confirmed that based on recent discussions with Company F and Company G that such parties would not be able to offer a similar value to HSS’s revised proposal. SunTrust Robinson Humphrey provided an update of its analyses presented on October 9, 2008 in light of the reduced price, and confirmed that the reduced offer

price did not result in any meaningful changes to its financial analyses. Representatives of SunTrust Robinson Humphrey expressed their oral opinion that the merger consideration to be received by Emageon’s stockholders was fair to such stockholders from a financial point of view, which opinion was subsequently confirmed in writing to the Strategic Alternatives Committee. The full text of the written opinion of SunTrust Robinson Humphrey, which set forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinions, is attached as Annex B to this proxy statement. The Strategic Alternatives Committee reaffirmed its recommendation to enter into the merger agreement. Following extended discussions, the Board of Directors, in part based on the recommendation of the Strategic Alternatives Committee and the review of SunTrust Robinson Humphrey’s fairness presentation, unanimously approved the merger agreement, the voting agreement and the deposit agreement.

 

The merger agreement and the related transaction documents were finalized and executed by the parties on October 13, 2008, and Emageon and HSS issued a joint press release publicly announcing the proposed merger.

 

In the course of reaching its decision to approve the merger agreement and to recommend that Emageon stockholders vote to adopt the merger agreement, our Board of Directors consulted with our senior management and the independent financial advisors and legal counsel to the Strategic Alternatives Committee and Emageon, reviewed a significant amount of information and considered a number of factors, including, among others, the following potentially positive factors in support of the merger:

 

 

 

 

 

 

 

 

 

 

 

Our Board of Directors put significant weight on the analysis and unanimous recommendation of its Strategic Alternatives Committee, as well as the financial presentations of SunTrust Robinson Humphrey and Jefferies that were prepared for the Strategic Alternatives Committee and delivered to our Board of Directors at the request of such committee, and the fact that such committee received an opinion delivered by SunTrust Robinson Humphrey as to the fairness, from a financial point of view, of the merger consideration to the holders of Emageon common stock.

 

In the course of their deliberations, the Strategic Alternatives Committee and our Board of Directors also considered a variety of risks and other potentially negative factors relating to the merger agreement, including the following:

 

 

 

 

 

 

The foregoing discussion of the factors considered by our Strategic Alternatives Committee and Board of Directors is not intended to be exhaustive, but rather includes material factors that the Strategic Alternatives Committee and Board considered in approving and recommending the merger and related proposals. In view of the wide variety of factors considered by our Strategic Alternatives Committee and Board in connection with their evaluation of these transactions and the complexity of these factors, the Strategic Alternatives Committee and Board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign any specific or relative weights to the specific factors they considered in reaching their determination, except that, as noted above, our Board of Directors put significant weight on the recommendation of the Strategic Alternatives Committee as well as the financial presentations and fairness opinion delivered to the Strategic Alternatives Committee. Our Strategic Alternatives Committee and Board considered all these factors as a whole, and determined that the transaction was in the best interests of Emageon and its stockholders. In considering the factors described above, individual directors may have assigned different weights to different factors.

 

It should be noted that portions of the explanation of our Strategic Alternatives Committee and Board of Directors’ reasoning and other information presented in this section are forward-looking in nature and, therefore, should be read along with the factors discussed under the caption “Cautionary Statement Regarding Forward Looking Statements” on page 15 of this proxy statement.

 

For the reasons set forth above, our Board of Directors unanimously approved and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement, declared that it is in the best interest of our stockholders that we enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement, determined that the merger is advisable and fair to Emageon and its stockholders and recommended that our stockholders vote “FOR” adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

The Strategic Alternatives Committee of our Board of Directors engaged SunTrust Robinson Humphrey pursuant to a letter agreement dated May 23, 2007 to assist the Strategic Alternatives Committee in its evaluation of various strategic alternatives that may be available to Emageon. Pursuant to this engagement,

SunTrust Robinson Humphrey and Emageon management began a targeted marketing process, as more fully described above under “The Merger — Background of the Merger.” On July 11, 2008, Emageon announced that the Strategic Alternatives Committee had selected Jefferies as Lead Advisor and SunTrust Robinson Humphrey as Co-Advisor to assist the Strategic Alternatives Committee to evaluate all strategic options available for Emageon. Following this announcement, Jefferies and Emageon conducted an extensive marketing process, and Emageon eventually entered into an agreement and plan of merger with Health Systems Solutions, Inc. On October 12, 2008, SunTrust Robinson Humphrey delivered its oral opinion to the Strategic Alternatives Committee, and subsequently confirmed in writing on October 13, 2008 that, as of the date of the written opinion and based upon and subject to the factors and assumptions set forth in the opinion, the merger consideration was fair from a financial point of view to the holders of shares of Emageon common stock.

 

The full text of SunTrust Robinson Humphrey’s written opinion to the Strategic Alternatives Committee, dated October 13, 2008, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated herein by reference. The summary of the SunTrust Robinson Humphrey opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Holders of Emageon common stock are encouraged to read the SunTrust Robinson Humphrey opinion carefully in its entirety.

 

SunTrust Robinson Humphrey’s opinion was rendered at the request and for the benefit of the Strategic Alternatives Committee in its evaluation of the merger and relates solely to the fairness, from a financial point of view, of the merger consideration to be received by holders of Emageon common stock in the merger. The opinion does not address the relative merits of the merger as compared to alternative transactions or strategies that may be available to Emageon nor does it address Emageon’s underlying decision to engage in the merger or any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into by Emageon or any other person in connection with the merger. The opinion does not constitute a recommendation to any holder of Emageon common stock as to how such holder should vote on the merger.

 

In arriving at its opinion, SunTrust Robinson Humphrey, among other things:

 

 

In arriving at its opinion, SunTrust Robinson Humphrey assumed and relied upon, without independent investigation or verification, the accuracy and completeness of the financial and other information furnished or discussed with it by Emageon. With respect to the financial forecasts of Emageon furnished to or discussed with SunTrust Robinson Humphrey, SunTrust Robinson Humphrey assumed that they were reasonably prepared on bases reflecting the then best currently available estimates and judgments of the management of Emageon as to the future financial performance of Emageon. In arriving at its opinion, SunTrust Robinson Humphrey did not conduct a physical inspection of the properties and facilities of Emageon and SunTrust Robinson Humphrey did not make, nor was it provided with any evaluations or appraisals of the assets or

liabilities, if any, contingent or otherwise, of Emageon. With respect to certain contingent or potential tax and environmental liabilities, SunTrust Robinson Humphrey relied, without independent investigation or verification, upon the assessments of Emageon’s management and counsel. SunTrust Robinson Humphrey also assumed that the merger will be consummated in accordance with the terms of the merger agreement and that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on Emageon or on the expected benefits of the merger.

 

The SunTrust Robinson Humphrey opinion is necessarily based upon business, economic, market and other conditions as they existed on and could be evaluated as of the date of its opinion. SunTrust Robinson Humphrey did not express an opinion as to the underlying valuation, future performance or long-term viability of Emageon. Subsequent developments may affect SunTrust Robinson Humphrey’s opinion and SunTrust Robinson Humphrey does not have any obligation to update or revise its opinion.

 

In preparing its opinion, SunTrust Robinson Humphrey performed a variety of financial and other analyses, including those described below. This summary is not a complete description of the analyses underlying SunTrust Robinson Humphrey’s opinion. The preparation of a fairness opinion is a complex analytic 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, therefore, is not readily susceptible to summary description. Accordingly, SunTrust Robinson Humphrey believes that its analyses and all relevant factors must be considered as an integrated whole and that selecting portions of its analyses or factors, without considering all analyses and factors, could create a misleading or incomplete view of the processes underlying such analyses and SunTrust Robinson Humphrey’s opinion.

 

In performing its analyses, SunTrust Robinson Humphrey considered general business, economic, industry and market conditions (financial and otherwise), many of which are beyond the control of Emageon. No company, transaction or business used in SunTrust Robinson Humphrey’s analyses as a comparison is identical to Emageon or the merger and, accordingly, the analyses necessarily involve complex considerations and judgments concerning differences in financial and operating characteristics of the companies and transactions reviewed and other factors that would affect the market values of the relevant companies and Emageon. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, SunTrust Robinson Humphrey did not make separate or quantifiable judgments regarding individual analyses. The estimates contained in these analyses and the valuation ranges indicated by any particular analysis are illustrative and not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such 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, these analyses and estimates are inherently subject to substantial uncertainty.

 

SunTrust Robinson Humphrey’s opinion and analyses were only one of many factors considered by the Strategic Alternatives Committee and the Board of Directors in their evaluation of the merger and should not be viewed as determinative of the views of the Strategic Alternatives Committee or the Board of Directors with respect to the merger.

 

SunTrust Robinson Humphrey did not recommend any specific merger consideration to the Strategic Alternatives Committee or that any specific merger consideration constituted the only appropriate merger consideration for the merger. The opinions and financial analyses of SunTrust Robinson Humphrey were only one of many factors considered by the Strategic Alternatives Committee in its evaluation of the proposed merger and should not be viewed as determinative of the views of the Strategic Alternatives Committee, the board of directors or management with respect to the merger or the merger consideration.

 

The following is a summary of the material financial and other analyses performed by SunTrust Robinson Humphrey in connection with the preparation of its opinion dated October 13, 2008 and presented by SunTrust Robinson Humphrey to the Strategic Alternatives Committee and Board of Directors on October 12, 2008. This summary includes certain information presented in tabular format. In order to fully understand such financial analysis, the table must be read together with the accompanying text. The table does not constitute a complete description of the financial analysis. Considering the data set forth in the table without considering

the full narrative description of the analysis, including the methodologies and assumptions underlying the analysis, could create a misleading or incomplete view of the financial analysis performed by SunTrust Robinson Humphrey.

 

Selected Companies Analysis

 

SunTrust Robinson Humphrey calculated ratios of firm value and equity value to certain historical and projected financial data for selected publicly traded companies in the Imaging Technology industry that were considered by SunTrust Robinson Humphrey to have, for purposes of its analyses, operations similar to certain operations of Emageon. For purposes of its analysis, SunTrust Robinson Humphrey defined firm value as the market value of the relevant entity’s outstanding equity securities (sometimes referred to herein as equity value) plus the value of its outstanding indebtedness and certain other liabilities less the amount of any cash and cash equivalents on its most recent financial statements. The selected publicly traded companies in the Imaging Technology industry used for this analysis were:

 

 

For the selected publicly traded companies, SunTrust Robinson Humphrey calculated firm value as a multiple of the relevant entity’s latest twelve months, or “LTM,” and projected 2008 and 2009 revenues, and earnings before interest, taxes, depreciation and amortization, or “EBITDA.” All multiples were based on closing stock prices as of October 8, 2008. Historical revenues and EBITDA results were based on publicly available financial information for the selected companies. Projected revenues and EBITDA estimates for the selected publicly traded companies were based on consensus research analyst estimates published by Thomson Reuters.

 

SunTrust Robinson Humphrey applied the multiples indicated by the selected companies’ analysis to corresponding financial data for Emageon, including projected financial data provided by the management of Emageon. That analysis indicated (a) an implied low and high value per share of Emageon common stock based on the projected 2008 revenue multiples of the selected companies of $1.63 and $3.26, (b) an implied low and high value per share of Emageon common stock based on the projected 2009 revenue multiples of the selected companies of $1.78 and $3.56, and (c) an implied low and high value per share of Emageon common stock based on the projected 2009 EBITDA multiples of the selected companies of $1.26 and $2.21, in each case as compared to the proposed merger consideration of $2.85 per share.

Selected Transactions Analysis

 

SunTrust Robinson Humphrey reviewed implied transaction multiples for the following 14 selected merger and acquisition transactions completed since January 1, 2005:

 

 

For each of the selected transactions, SunTrust Robinson Humphrey calculated the ratio of the firm value of the target based on the transaction consideration as a multiple of LTM revenues, EBITDA and EBIT. The firm values of the targets were based on the aggregate consideration paid in the relevant selected transaction and where available, the revenues, EBITDA and EBIT values for each of the target companies were based on publicly available historical financial information.

 

SunTrust Robinson Humphrey applied the multiples indicated by the selected transactions analysis to corresponding projected year-end financial data for Emageon for 2008. That analysis indicated an implied low and high value per share of Emageon common stock based on the selected multiples of the selected transactions of $3.25 and $8.13, in each case as compared to the proposed merger consideration of $2.85 per share.

 

Premiums Paid Analysis

 

SunTrust Robinson Humphrey reviewed the premiums paid in approximately 60 selected mergers and acquisitions involving publicly traded target companies from January 1, 2005 to June 31, 2008 with a transaction value between $50 million and $1.5 billion. SunTrust Robinson Humphrey also reviewed approximately 10 selected mergers and acquisitions involving publicly traded target companies in the Imaging Technology industry. SunTrust Robinson Humphrey reviewed the percentage premium paid for the common stock of the target company in such transactions relative to the target company’s closing stock price one day and 30 days prior to public announcement of the transaction.

 

SunTrust Robinson Humphrey applied the percentage premiums indicated by the premiums paid analysis to the closing prices of Emageon common stock one day and 30 days prior to October 10, 2008. That analysis indicated (a) an implied low and high value per share of Emageon common stock based on selected one day premiums paid analysis of $2.56 and $3.18 and (b) an implied low and high value per share of Emageon common stock based on selected 30 day premiums paid analysis of $2.76 and $3.43, in each case as compared to the proposed merger consideration of $2.85 per share.

 

Discounted Cash Flow Analysis

 

SunTrust Robinson Humphrey performed a discounted cash flow analysis of Emageon based upon projections provided by Emageon’s management for the fiscal years ending December 31, 2009 through 2013, a weighted average cost of capital for Emageon ranging from 16.3% to 20.3% and applied a perpetual growth

rate to Emageon’s projected free cash flow beyond fiscal 2013 ranging from 1.0% to 3.0%. That discounted cash flow analysis indicated implied values per share of Emageon common stock as follows:

 

 

Other Analyses

 

SunTrust Robinson Humphrey also considered the historical market prices and trading volumes for Emageon’s common stock as compared to corresponding data for selected publicly traded companies and selected market indexes, including the S&P 500 Index and the NASDAQ Index.

 

The Strategic Alternatives Committee retained SunTrust Robinson Humphrey to act as its financial advisor and render a fairness opinion in connection with the merger because of SunTrust Robinson Humphrey’s experience and reputation and its familiarity with Emageon and its business. SunTrust Robinson Humphrey is a nationally recognized investment banking firm regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements. In the ordinary course of its business, SunTrust Robinson Humphrey and its affiliates may actively trade in debt and equity securities of Emageon, as well as securities of Health Systems Solutions, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. In addition, SunTrust Robinson Humphrey is acting as a Co-Advisor for Emageon. During the past two years, SunTrust Robinson Humphrey and its affiliates have not provided financial advisory and financing services to Emageon or its affiliates other than with respect to the services rendered in connection with the proposed merger.

 

Under the terms of its engagement letter entered into with the Strategic Alternatives Committee in connection with its consideration of strategic alternatives, SunTrust Robinson Humphrey provided the Strategic Alternatives Committee financial advisory services and a fairness opinion in connection with the merger. In consideration of such services, SunTrust Robinson Humphrey will receive $350,000, which became payable upon delivery of SunTrust Robinson Humphrey’s fairness opinion, plus $412,940 to be paid if the merger is consummated at the current price. SunTrust Robinson Humphrey would also earn more or less compensation if the merger is consummated at a price higher or lower than the current merger price. Emageon has also agreed to reimburse SunTrust Robinson Humphrey for reasonable out-of-pocket fees and expenses, including attorney’s fees, incurred in connection with its engagement and to indemnify SunTrust Robinson Humphrey and related parties against liabilities, including liabilities under the federal securities laws, arising out of its engagement.

 

The total amount of funds necessary to complete the merger and the related transactions is expected to be obtained through the sale by HSS of convertible debentures to Stanford International Bank, Limited, which we refer to as SIBL, pursuant to the terms of a Convertible Secured Debenture Purchase Agreement, dated October 12, 2008, which we refer to as the debenture purchase agreement. HSS has advised us that SIBL beneficially owns approximately 86% of HSS’s outstanding common stock.

 

Under the debenture purchase agreement, on October 12, 2008, SIBL purchased from HSS an initial debenture in the principal amount of $5 million in order to finance the escrow deposit with The Bank of New York Mellon under the deposit escrow agreement. In addition, subject to the closing of the merger and the satisfaction of specified closing conditions, SIBL will purchase from HSS a second debenture in the principal amount of $65 million to finance the remainder of the merger consideration, to pay costs and expenses related to the merger and to fund a portion of the combined company’s working capital needs. SIBL’s purchase of the second debenture is subject to satisfaction of the closing conditions in the merger agreement and certain other customary closing conditions. The debenture purchase agreement also provides

that as and when agreed by HSS and SIBL following the closing of the merger, SIBL will purchase additional debentures from HSS in an aggregate principal amount of up to $15 million in order to provide additional working capital to the combined company. HSS’s obligation to complete the merger is not contingent on its ability to obtain financing.

 

The debentures will bear interest on the unpaid principal amount outstanding at a rate of 6.0% per annum, with the principal balance being due and payable five years from the date of issuance. Interest on the debentures will accrue for the period from the date of issuance through December 31, 2009, which interest will be payable on or before January 1, 2010, and thereafter interest will be payable quarterly in arrears. At any time prior to the maturity date or the earlier conversion of a debenture, HSS may (upon 30 days’ prior written notice to each holder) redeem the debenture for an amount equal to the aggregate principal amount outstanding plus any unpaid, accrued interest. Additionally, each debenture will be convertible, at the holder’s option, into such number of shares of common stock of HSS equal to the quotient of the aggregate principal amount outstanding over the then-current conversion price. The conversion price is $5.00, subject to adjustment in accordance with the terms of the debentures. The debentures also require HSS to obtain the written approval of the holders prior to taking certain corporate actions, including but not limited to, the sale of HSS or a material portion of its assets, an amendment to HSS’s charter documents, a change in the nature of HSS’s business, the declaration or payment of any dividend or distribution with respect to any of HSS’s equity securities, making certain acquisitions or capital expenditures, entry into any material credit facility, issuance of any material amount of debt, any public offering of HSS’s equity or debt securities or an expansion of the size of HSS’s Board of Directors.

 

Upon Stanford’s purchase of the initial debenture, HSS also issued to SIBL and certain of its assigns warrants to purchase an aggregate of 528,000 shares of common stock with a term of seven years, with exercise prices between $0.001 and $4.00 per share, subject to adjustment. Upon SIBL’s purchase of the second debenture, SIBL will receive warrants to purchase an aggregate of 8,472,000 shares of common stock of HSS with a term of seven years, with exercise prices between $0.001 and $4.00 per share, subject to adjustment.

 

When considering the recommendation of our Board of Directors, you should be aware that members of our Board of Directors and Emageon’s executive officers have interests in the merger other than their interests as our stockholders generally, including those interests described below. These interests may be different from, or in conflict with, your interests as Emageon stockholders. The members of our Strategic Alternatives Committee and our Board of Directors were aware of these additional interests, and considered them, when they approved the merger agreement. Except as described below, such persons have, to our knowledge, no material interests in the merger that differ from your interests generally.

 

Stock Options

 

Under the merger agreement, at the effective time of the merger, each outstanding option to acquire our common stock will become fully vested and will be cancelled, and the holder of such option will be entitled to receive an amount in cash, without interest and less any applicable withholding tax, equal to the product of the maximum number of shares of common stock subject to such option with respect to which such option has not previously been exercised, multiplied by the excess of $2.85 over the exercise price per share of such option.

 

The following table summarizes, as of November 12, 2008, the outstanding vested and unvested options with exercise prices of less than $2.85 per share held by our current, and certain of our former, executive officers and directors and the consideration that each of them will receive under the merger agreement in connection with the cancellation of their options, assuming, as applicable, continued employment through the effective time of the merger:

 

 

 

 

 

Restricted Stock Unit Awards

 

Under the merger agreement, at the effective time of the merger, each outstanding restricted stock unit award will be cancelled, and the holder will be entitled to receive an amount in cash, without interest and less any applicable withholding tax, equal to the maximum number of shares of common stock subject to such restricted stock unit award, multiplied by the per share merger consideration of $2.85. The holder also will be entitled to receive any dividend equivalents accrued, but not yet distributed, with respect to such restricted stock unit award (other than any such dividend equivalents that are held in the form of restricted stock units as of the effective time of the merger).

The following table summarizes the estimated number of restricted stock unit awards that would vest for our current, and certain of our former, executive officers assuming continued service through the effective time of the merger, as applicable, and the consideration that each of them will receive under the merger agreement in connection with such outstanding restricted stock unit award. The following table assumes that the merger is completed on December 31, 2008. There are no dividend equivalents accrued, but not yet distributed, with respect to any such stock unit award.

 

 

 

 

As of the date of this proxy statement, our directors did not hold any restricted stock unit awards.

 

Severance Payments to President and Chief Executive Officer

 

The employment agreement of Charles A. Jett, Jr., our President and Chief Executive Officer, provides that if Mr. Jett terminates his employment for any reason during either the 60-day period following a change in control of Emageon or the 30-day period following the first anniversary of a change in control of Emageon, or we terminate his employment other than for “cause,” death or disability following a change in control of Emageon, then Mr. Jett will be entitled to receive, in addition to any earned but unpaid base salary and other benefits accrued through the date of termination, a lump sum payment that is equal to his then-current monthly base salary plus the product of one-twelfth of his target annual bonus (calculated as if all performance metrics had been achieved) multiplied by the number of months in Mr. Jett’s “severance period,” as well as group health and dental care during the severance period, among other things. If we terminate Mr. Jett’s employment other than for “cause,” death or disability following a change in control of Emageon, then the severance period under his employment agreement is equal to the greater of 12 months or the number of months remaining under the term of the employment agreement, which currently is 24 months. If Mr. Jett terminates his employment during one of the specified time periods following a change in control of Emageon, then the severance period under his employment agreement is equal to 12 months. The employment agreement also provides for tax protection in the form of a gross-up payment to reimburse Mr. Jett for any excise tax under Internal Revenue Code Section 4999 as well as any additional income and employment taxes resulting from any such reimbursement.

 

We have entered into a severance agreement with Mr. Jett pursuant to which his employment with Emageon will be terminated upon the effectiveness of the merger. Under the severance agreement, in addition to receipt of his earned but unpaid base salary and his other benefits accrued through the date of termination, Mr. Jett will be entitled to receive the following severance benefits, which are consistent with a termination of his employment by Emageon other than for “cause” following a change in control of Emageon:

 

 

 

The severance agreement also provides for tax protection in the form of a gross-up payment to reimburse Mr. Jett for any excise tax under Internal Revenue Code Section 4999 as well as any additional income and employment taxes resulting from such reimbursement. The gross-up payment is intended to place Mr. Jett in the same after-tax position that he would have been if no excise tax had applied.

 

The following table shows the estimated cash amounts payable to Mr. Jett based on an assumed termination date of December 31, 2008. The table also shows the potential estimated gross-up payment to which Mr. Jett is entitled in the event that any benefit gives rise to an excise tax. The table does not include the consideration resulting from the options or restricted stock unit awards described in the preceding tables, although these amounts have been taken into account to the extent they constitute parachute payments under 280G of the Internal Revenue Code of 1986, as amended, when estimating the potential gross-up payments set forth in the following table.

 

 

 

 

 

Employment Agreement with Keith Stahlhut

 

HSS entered into an employment agreement on October 10, 2008 with Keith Stahlhut, our acting Principal Operating Officer, for employment with HSS following the merger. Under the employment agreement, upon the closing of the merger, Mr. Stahlhut would be employed by HSS as the President of the HSS Emageon division (a division of HSS that will consist of the business of Emageon), and in that capacity, he will, subject to the authority of the Chief Executive Officer of HSS, supervise, control and have responsibility for the management of that division.

 

The employment agreement is for a three year term beginning on the date of closing of the merger, unless the employment agreement is terminated earlier in accordance with its terms. Under the employment agreement, Mr. Stahlhut will receive an initial annual base salary in an amount 20% greater than his current base salary as the acting Principal Operating Officer of Emageon. In addition, Mr. Stahlhut will be eligible to receive an annual performance bonus in an amount up to 50% of his base salary if HSS achieves certain financial thresholds, and an additional performance bonus, at the discretion of the Board of Directors of HSS, if HSS exceeds those financial thresholds. Mr. Stahlhut also will receive, subject to certain requirements, a grant of options to purchase shares of HSS common stock in an amount commensurate with his level of responsibility (which amount has not yet been determined).

Under the employment agreement, Mr. Stahlhut is entitled to severance benefits if his employment with HSS is terminated by HSS other than for “cause,” or is terminated by Mr. Stahlhut for “good reason,” including payment of his then-current base salary for a period of 12 months after termination.

 

Relationship with Significant Stockholder

 

Our directors Augustus K. Oliver and Benner Ulrich are a principal and employee, respectively, of Oliver Press Partners, LLC, which, through its affiliates, is the beneficial owner of approximately 16.64% of our outstanding common stock. On June 22, 2008, we entered into an agreement with Mr. Jett and affiliates of Oliver Press Partners terminating the proxy contest with respect to our 2008 annual meeting of stockholders. Under the terms of the agreement, among other things, the size of our Board of Directors was ultimately expanded to nine members, Mr. Jett and Douglas D. French tendered their resignations from the Board of Directors and Messrs. Oliver and Ulrich were appointed to the Board of Directors. In addition, the Board of Directors agreed to appoint Bradley S. Karro to the board of directors, subject to the Board’s review of Mr. Karro’s qualifications and a background check of Mr. Karro. Further, Mr. Ulrich and, upon his subsequent appointment to the board of directors, Mr. Karro were added to the Strategic Alternatives Committee by the Board of Directors and the Strategic Alternatives Committee was reconstituted and recommenced its evaluation of strategic alternatives for Emageon.

 

Other Agreements

 

The employment agreement of John W. Wilhoite, our Chief Financial Officer and Treasurer, provides for certain severance payments to be made to Mr. Wilhoite if his employment is terminated for various reasons, including if we terminate his employment other than for “cause,” death or disability, or he terminates his employment for “good reason.” These arrangements are described in further detail, and a copy of Mr. Wilhoite’s employment agreement is included, in our Current Report on Form 8-K that was filed with the SEC on May 1, 2008.

 

Our current employment agreement with Keith Stahlhut, our acting Principal Operating Officer, provides for certain severance benefits for Mr. Stahlhut if his employment is terminated by us without “cause,” or by Mr. Stahlhut for “good reason.” As described above under “— Employment Agreement with Keith Stahlhut,” Mr. Stahlhut has entered into a new employment agreement with HSS regarding his employment with the combined company following the merger and the current agreement will be null and void as of the effective time of the merger.

 

Indemnification and Insurance

 

The merger agreement provides that HSS and the surviving corporation agree to defend, and to indemnify for any losses, claims, costs and expenses, the present and former directors and officers of Emageon and its subsidiaries in respect of threatened or actual legal action arising out of the fact that the indemnified person was an officer or director of Emageon or any of its subsidiaries, to the fullest extent permitted by law and required by the charter documents of Emageon and its subsidiaries. The merger agreement also provides that, for a period of six years after the effective time of the merger, the certificate of incorporation and bylaws of the surviving corporation in the merger, and those of its subsidiaries, will have provisions no less advantageous with respect to the elimination of liability of directors, indemnification of officers and directors and advancement of expenses than the provisions contained in the certificate of incorporation and bylaws of Emageon and its subsidiaries as of the date of the merger agreement.

 

The merger agreement provides that the surviving corporation in the merger shall maintain in effect for a period of six years after the effective time of the merger Emageon’s directors’ and officers’ liability insurance and fiduciary liability insurance in respect of acts or omissions occurring at or before the effective time of the merger on terms that are no less favorable in terms of coverage, deductible and amount than those in the existing policies of Emageon. Alternatively, Emageon or the surviving corporation may purchase a six-year pre-paid “tail” policy to cover Emageon’s officers and directors following the effective time of the merger. In satisfying its obligations, the surviving corporation is not obligated to pay annual premiums in excess of 200%

of the amount currently paid by Emageon, in which case the surviving corporation agrees to obtain a policy offering the maximum amount of coverage available for such annual 200% amount.

 

Post-Merger Arrangements

 

As of the date of this proxy statement, other than the severance agreement with Mr. Jett, none of our executive officers has entered into any amendments or modifications to their existing employment or severance agreements with us in connection with the merger. In addition, as of the date of this proxy statement, other than the employment agreement with Mr. Stahlhut, none of our executive officers has entered into any agreement, arrangement or understanding with HSS or any of its affiliates regarding the terms and conditions of compensation, cash-based incentives or employment or other engagement with the surviving corporation.

 

However, we have been informed that HSS and Mr. Jett anticipate that they will enter into an agreement for Mr. Jett to provide consulting services to the combined company following the merger, but the terms and conditions of any such engagement are subject to further negotiation and discussion and have not been finalized. In addition, HSS has initiated discussions with certain members of our existing senior management team in addition to Mr. Stahlhut and Mr. Jett relating to the terms and conditions of new agreements so as to encourage their retention with, or engagement by, the surviving corporation after the effective time of the merger. Although we believe certain of these members of our existing senior management team are likely to enter into new agreements prior to the completion of the merger, such matters are subject to further negotiations and discussion and no terms or conditions have been finalized.

 

The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as is agreed upon by HSS and Emageon and specified in the certificate of merger. Unless we otherwise agree with HSS in writing, the closing date of the merger will not be later than the second business day after satisfaction or waiver of the conditions to the closing of the merger described in the merger agreement. We currently anticipate that the merger will be completed in the fourth quarter of 2008 or the first quarter of 2009; however, the merger is subject to certain closing conditions, a delay in any of which may result in a change in the anticipated completion date.

 

If the merger is completed, our common stock will be deregistered under the Exchange Act, we will no longer file periodic reports with the SEC and our common stock will no longer be traded on The NASDAQ Global Market.

 

Under the Delaware General Corporation Law, holders of our common stock who do not vote to adopt the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery, which we refer to as the Chancery Court, if the merger is completed, but only if they demand and perfect their rights in accordance with Section 262 of the Delaware General Corporation Law.

 

The following description is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed in order to perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the Delaware General Corporation Law, the full text of which is included as Annex E to this proxy statement.

 

ANY EMAGEON STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX E CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISOR, BECAUSE FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

 

Section 262 of the Delaware General Corporation Law requires that stockholders on the record date for the special meeting be notified not less than 20 days before the special meeting that appraisal rights will be available. A copy of Section 262 of the Delaware General Corporation Law must be included with the notice. This proxy statement constitutes our notice to the holders of shares of our common stock of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262 of the Delaware General Corporation Law.

 

If you elect to demand appraisal of your shares, you must:

 

 

Voting (in person or by proxy) against, abstaining from voting on or failing to vote on the proposal to adopt the merger agreement will not constitute a written demand for appraisal within the meaning of Section 262 of the Delaware General Corporation Law. The written demand for appraisal must be in addition to and separate from any proxy or vote. If the written demand for appraisal is made in accordance with the requirements of Delaware law, the failure to vote against the merger (i.e., abstaining) will not operate as a waiver of the stockholder’s appraisal rights.

 

A demand for appraisal must be executed by or on behalf of the holder of record, fully and correctly, as his, her or its name appears on his, her or its certificate(s) or other instrument(s) evidencing an interest in shares of our common stock, and must state that such person intends thereby to demand appraisal of his, her or its shares of common stock in connection with the proposed merger. If the shares of common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand must be made in that capacity, and if the shares of common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is acting as agent for such owner or owners. Stockholders who hold their shares of common stock in brokerage accounts or other nominee forms, and who wish to exercise appraisal rights, are urged to consult with their broker or such other nominee to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

All demands for appraisal should be made in writing and addressed to Corporate Secretary, Emageon Inc., 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242, and must be received prior to the vote on the adoption of the merger agreement. The demand must reasonably inform us of the identity of the holder and the intention of the holder to demand appraisal of his, her or its shares of common stock. If your shares of common stock are held through a broker, trustee or other nominee, and you wish to demand appraisal rights, you must act promptly to instruct the applicable broker, trustee or other nominee to follow the steps summarized in this section.

 

Within 10 days after the effective date of the merger, the surviving corporation must give written notice of the date the merger became effective to each holder who has properly filed a written demand for appraisal and has not voted in favor of the merger. Within 120 days after the effective date of the merger, either the surviving corporation in the merger or any holder who has complied with the requirements of Section 262 of the Delaware General Corporation Law and who is otherwise entitled to appraisal rights may file a petition in the Chancery Court demanding a determination of the fair value of the shares of common stock held by all holders entitled to appraisal. Neither Emageon nor the other parties to the merger agreement have any intention or obligation to file such a petition. Accordingly, the failure of a holder to file a petition in the

Chancery Court demanding a determination of the fair value of the shares within 120 days after the effective date of the merger could nullify the holder’s previously written demand for appraisal. Within 120 days after the effective date of the merger, any holder of our common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation in the merger a statement setting forth the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed to each such holder within 10 days after a written request for the statement has been received by the surviving corporation in the merger.

 

If a petition for appraisal is duly filed by a holder and a copy of the petition is delivered to the surviving corporation in the merger, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all holders who have demanded an appraisal of their shares of common stock and with whom agreements as to the value of their shares of common stock have not been reached by the surviving corporation. After notice to holders of our common stock who have demanded appraisal of the time and place of the hearing of the petition, the Chancery Court is empowered to conduct a hearing at which the Chancery Court will determine those holders who have complied with Section 262 of the Delaware General Corporation Law and who have become entitled to appraisal rights. The Chancery Court may require the holders who have demanded an appraisal for their shares of common stock to submit their certificate(s) or other instrument(s) evidencing an interest in shares of our common stock to the Register in Chancery for notation of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that holder.

 

After the court determines the stockholders entitled to appraisal, the appraisal proceeding will be conducted in accordance with the rules of the Chancery Court. Through such proceeding, the Chancery Court will determine the fair value of the shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any. Unless the Chancery Court, in its discretion, determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. When the fair value is determined, the Chancery Court will direct the payment of the value, with interest, if any, to the holders entitled to receive payment, upon surrender by such holders of the certificate(s) or other instrument(s) representing the applicable shares of our common stock.

 

In determining fair value, the Chancery Court is required to take into account all relevant factors. You should be aware that the fair value of your shares of common stock as determined under Section 262 of the Delaware General Corporation Law could be more, the same, or less than the amount of the merger consideration that you are entitled to receive under the terms of the merger agreement.

 

Costs of the appraisal proceeding may be imposed upon the parties participating in the appraisal proceeding by the Chancery Court as it deems equitable in the circumstances. Costs do not include attorneys’ fees or expert witness fees or expenses; however, upon the application of a holder, the Chancery Court may order all or a portion of the expenses incurred by any holder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal.

 

Any holder who has demanded appraisal rights will not, from and after the effective date of the merger, be entitled to vote shares of common stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than dividends or other distribution payable to our stockholders of record in respect of a record date prior to the effective date of the merger. However, an appraisal demand may be withdrawn by a stockholder within 60 days after the effective date of the merger without the approval of the corporation surviving the merger, or thereafter with the approval of the surviving corporation; provided that the stockholder shall not have commenced an appraisal proceeding with respect to such stockholder’s shares or joined such a proceeding as a named party. Upon the effective

withdrawal of an appraisal demand by a stockholder, such stockholder will be entitled to receive the merger consideration. No appraisal proceeding in the Chancery Court will be dismissed as to any stockholder without the approval of the Chancery Court, and such approval may be subject to such conditions as the Chancery Court deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding as to such stockholder’s shares, or joined such an appraisal proceeding as a named party, will retain the right to withdraw his or her demand for appraisal within 60 days after the effective date of the merger and to accept the merger consideration. If the stockholder fails to perfect, effectively withdraws or otherwise loses the appraisal right, the stockholder’s shares will be converted into the right to receive the merger consideration.

 

In view of the complexity of Section 262 of the Delaware General Corporation Law, holders of shares of common stock who may wish to pursue appraisal rights should promptly consult their legal advisors.

 

Under the merger agreement, we agreed with HSS to make, if applicable, all appropriate filings with the United States Federal Trade Commission, which we refer to as the FTC, and the Antitrust Division of the United States Department of Justice, which we refer to as the DOJ, under the HSR Act, and all appropriate filings under foreign competition or merger control laws. However, other than the filing of a certificate of merger with the Secretary of State of the State of Delaware in order to effect the merger, we do not believe that any regulatory filings or applications, including under the HSR Act, are required to be made in respect of the consummation of the merger.

 

If any lawsuit or legal proceeding is instituted that challenges the merger agreement or the consummation of the transactions contemplated by the merger agreement, each of the parties is required under the merger agreement to use its reasonable best efforts to defend or contest such lawsuit or proceeding.

 

The following is a summary of certain U.S. federal income tax consequences of the merger to stockholders of Emageon whose shares of Emageon common stock are converted into the right to receive cash in the merger. The following summary is based on the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder, judicial decisions and administrative rulings, all of which are subject to change, possibly with retroactive effect. The summary applies only to stockholders who hold shares of Emageon common stock as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to particular stockholders in light of their individual circumstances or to stockholders who are subject to special rules, including: non-U.S. persons, U.S. expatriates, insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, financial institutions, mutual funds, pass-through entities, and investors in such entities, stockholders who hold their shares of Emageon common stock as a hedge or as part of a hedging, straddle, conversion, synthetic security, integrated investment, or other risk-reduction transaction, or who are subject to alternative minimum tax, or stockholders who acquired their shares of Emageon common stock upon the exercise of employee stock options or otherwise as compensation. Further, this discussion does not address any U.S. federal estate and gift or alternative minimum tax consequences or any state, local or foreign tax consequences relating to the merger.

 

The Merger

 

The receipt of cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes, and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income tax purposes, a stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder in the merger and the stockholder’s adjusted tax basis in the shares of Emageon common stock converted into cash in the merger. If shares of Emageon common stock are held by a stockholder as capital assets, gain or loss recognized by such stockholder will be capital gain or loss, which will be long-term capital gain or loss if the stockholder’s holding period for the shares of Emageon common stock exceeds one year. Capital gains recognized by an

individual upon a disposition of a share of Emageon that has been held for more than one year generally will be subject to a maximum U.S. federal income tax rate of 15% or, in the case of a share that has been held for one year or less, will be subject to tax at ordinary income tax rates. For corporations, capital gain is taxed at the same rate as ordinary income. In addition, there are limits on the deductibility of capital losses. The amount and character of gain or loss must be determined separately for each block of Emageon common stock (i.e., shares acquired at the same cost in a single transaction) converted into cash in the merger.

 

Information Reporting and Backup Withholding

 

Payments made to a stockholder whose shares of Emageon common stock are exchanged for cash pursuant to the merger are subject to information reporting and to backup withholding unless: (i) the stockholder is a corporation or other exempt recipient; or (ii) in the case of backup withholding, the stockholder provides a correct taxpayer identification number, and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a stockholder will be allowed as a credit against the stockholder’s U.S. federal income tax liability and may entitle the stockholder to a refund, provided that the required information is furnished to the IRS.

 

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE LAW IN EFFECT ON THE DATE HEREOF. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE MERGER.

 

The following sections describe the material provisions of the merger agreement among Emageon, HSS and Merger Sub. The summary of the material terms of the merger agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to that agreement, a copy of which is attached to this proxy statement as Annex A, and which is incorporated by reference into this document. This summary may not contain all of the information about the merger agreement that is important to you as an Emageon stockholder. You are encouraged to read carefully the merger agreement in its entirety.

 

The merger agreement has been included with this proxy statement to provide you with information regarding its terms. It is not intended to provide any factual, business or operational information about Emageon. Such information can be found elsewhere in this proxy statement and in the other public filings Emageon makes with the SEC, which are available without charge at http://www.sec.gov.

 

The merger agreement contains representations and warranties that Emageon, HSS and Merger Sub made to each other for purposes of the merger agreement. These representations and warranties were made as of specific dates, were solely for the benefit of Emageon, HSS and Merger Sub, and may be subject to qualifications, limitations and exceptions agreed to by the contracting parties, including being qualified by confidential disclosures exchanged among the parties in connection with the negotiation and execution of the merger agreement. The representations and warranties may have been made for the purposes of allocating contractual risk among Emageon, HSS and Merger Sub rather than establishing matters as facts, and may be subject to contractual standards of materiality that may differ from those generally applicable to disclosures to stockholders. Emageon’s stockholders are not third-party beneficiaries under the merger agreement, and you should not rely on the representations and warranties, or any descriptions thereof, as characterizations of the actual state of facts or condition of Emageon or HSS or any of their respective subsidiaries or affiliates. Information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in Emageon’s public disclosures.

 

Structure

 

Under the merger agreement, Merger Sub will be merged with and into Emageon, and Emageon will survive the merger as a wholly owned subsidiary of HSS. All of Emageon’s and Merger Sub’s respective rights, and all of their respective liabilities, will become those of Emageon as the surviving entity in the merger.

 

Effective Time

 

The closing of the merger will occur within two business days after the satisfaction or, if permissible, waiver of all of the closing conditions provided in the merger agreement, or on such other date as HSS and Emageon may agree in writing. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as is agreed upon in writing by HSS and Emageon and specified in the certificate of merger.

 

Certificate of Incorporation and Bylaws of Surviving Corporation

 

As of the effective time of the merger, our certificate of incorporation will be amended and restated to read as set forth in the form attached to the merger agreement, and the bylaws of Merger Sub will be the bylaws of the surviving corporation until changed or amended in accordance with the terms thereof or by applicable law.

 

Directors and Officers of the Surviving Corporation

 

The directors and officers of Merger Sub immediately prior to the effective time of the merger will be the initial directors and officers, respectively, of the surviving corporation. The directors and officers will serve until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal in accordance with the certificate of incorporation or bylaws of the surviving corporation.

 

Common Stock

 

The merger agreement provides that each share of our common stock outstanding immediately prior to the effective time of the merger (other than shares owned by us, any of our subsidiaries, HSS, Merger Sub or by holders properly exercising appraisal rights under Delaware law) will be converted at the effective time of the merger into the right to receive $2.85 in cash, without interest and less any applicable withholding taxes. Shares owned by us, any of our subsidiaries, HSS or Merger Sub will be cancelled at the effective time of the merger without any payment.

 

Treatment of Stock Options and Stock-Based Awards

 

Stock Options

 

At the effective time of the merger, each outstanding option to acquire our common stock will become fully vested and will be cancelled, and the holder of such option will be entitled to receive an amount in cash, without interest and less any applicable withholding tax, payable by the surviving corporation as promptly as practicable following the effective time of the merger, equal to the product of:

 

 

Restricted Stock

 

At the effective time of the merger, each outstanding share of common stock held subject to a restricted stock agreement will become fully vested and free of all restrictions and will be cancelled and converted into the right to receive an amount in cash, without interest and less any applicable withholding tax, equal to the per share merger consideration of $2.85, which will be payable by the surviving corporation as promptly as practicable following the effective time of the merger.

 

Restricted Stock Units

 

At the effective time of the merger, each outstanding restricted stock unit award will be cancelled, and the holder will be entitled to receive an amount in cash, without interest and less any applicable withholding tax, payable as promptly as practicable following the effective time of the merger, equal to:

 

 

Before the effective time of the merger, HSS will designate a bank or trust company that is reasonably acceptable to us to act as the paying agent under the merger agreement. On the closing date, contemporaneously with the filing of the certificate of merger with the Secretary of State of the State of Delaware, HSS or Merger Sub will deposit, or cause to be deposited, in trust with the paying agent cash in an amount equal to the aggregate consideration payable in the merger. Before or promptly after the effective time of the merger, but in no event more than three business days after the effective time of the merger, the paying agent will mail to each holder of record of shares of our common stock immediately prior to the effective time a letter of transmittal and instructions for use in effecting the surrender of such holder’s Emageon stock certificates (or book-entry shares) in exchange for cash. The letter of transmittal will specify that delivery will be effected, and the risk of loss and title to such certificates (or book-entry shares) will pass, only upon proper delivery of the certificates (or book-entry shares) to the paying agent.

 

Upon proper surrender to the paying agent of a stock certificate (or book-entry share), together with a properly completed and duly executed letter of transmittal and any other required documents, you will be entitled to receive from the paying agent $2.85 in cash, without interest and less any applicable withholding tax, for each share represented by such stock certificate (or each book-entry share), and the certificate (or each such book-entry share) will be cancelled. No interest will be paid or accrue on any merger consideration payable upon the surrender of such certificates (or book-entry shares).

 

HSS, the surviving corporation and the paying agent will be entitled to deduct and withhold from the consideration otherwise payable to any holder of shares of Emageon common stock, stock options, restricted stock or restricted stock units such amounts that they are required to deduct and withhold with respect to making such payment under the Internal Revenue Code, or any other applicable state, local or foreign tax law.

 

If a transfer of shares of Emageon stock is not registered in Emageon’s transfer records, the merger consideration to be paid in respect of such transferred shares may be paid to the transferee if the certificate (or each of the applicable book-entry shares) is presented to the paying agent with all documents required as evidence of the transfer and that all applicable stock transfer taxes have been paid or are not applicable.

 

If any share certificate for common stock has been lost, stolen or destroyed, then before the owner will be entitled to receive the merger consideration in respect of the shares represented by that certificate, the owner of such certificate must sign an affidavit claiming such certificate has been lost, stolen or destroyed and, if required by the surviving corporation, post a bond customary in amount and upon such terms as the

surviving corporation may determine as indemnity against any claim that may be made against the surviving corporation with respect to that certificate.

 

At any time following the 18-month anniversary of the effective time of the merger, the surviving corporation may require the paying agent to deliver to it any funds that have been made available to the paying agent for payment of the merger consideration that have not been distributed to former holders of our common stock. Any former holders of our common stock who have not complied with the above-described procedures may thereafter look only to the surviving corporation (subject to abandoned property, escheat or other similar laws) for payment of the merger consideration, without interest, to which they are entitled upon surrender of the certificates (or book-entry shares) held by them.

 

If any of our stockholders perfect appraisal rights with respect to any of our shares, then we will treat those shares as described under “The Merger — Appraisal Rights.”

 

The merger agreement contains certain representations and warranties by each of the parties. These representations and warranties relate to the following subject matters with respect to each party and, as applicable, its subsidiaries:

 

 

We also make a number of representations and warranties to HSS and Merger Sub relating to, among other things:

 

 

 

HSS and Merger Sub also make a number of representations and warranties to us relating to, among other things:

 

 

Until the merger is completed or the merger agreement is terminated, unless we obtain the prior written consent of HSS, we have agreed that we will, and will cause each of our subsidiaries to, conduct our operations in the ordinary course, and use commercially reasonable efforts to maintain and preserve intact our business organization, keep available the services of our current officers, employees, consultants and independent contractors, and preserve our goodwill and current relationships with material customers, licensees and suppliers and other persons and entities with which we have material business relations.

In addition, subject to certain limited exceptions, we have agreed that, unless we obtain the prior written consent of HSS, we will not, and will cause each of our subsidiaries not to, take any of the following actions:

 

 

 

HSS and Merger Sub have agreed that, until the effective time of the merger, they will not, directly or indirectly, knowingly take or permit any action that would cause their representations and warranties in the merger agreement to be untrue in any material respect, or that would, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the ability of HSS and Merger Sub to complete the merger or the other transactions contemplated by the merger agreement or the debenture purchase agreement.

 

In General

 

We have agreed that we will not, will cause our officers, directors and subsidiaries not to, and will not authorize our representatives to:

 

 

However, until the merger agreement is adopted by our stockholders, this non-solicitation covenant does not prohibit us from furnishing information about Emageon and its subsidiaries to, or from participating, engaging or assisting in any manner in discussions or negotiations with, a third party in respect of a takeover proposal if:

 

 

 

 

However, if non-public information is to be provided to such third party, we must first enter into a confidentiality agreement with such third party, the terms of which are not materially less restrictive in the aggregate to the third party than those contained in our confidentiality agreement with HSS, and we must also provide to HSS any such non-public information that was not previously provided to HSS.

 

We are required to promptly notify HSS within two business days of the receipt of any takeover proposal, request for non-public information concerning a takeover proposal or any bona fide inquiry or request for discussions or negotiations regarding any takeover proposal, and to disclose to HSS the material terms of such takeover proposal, request or inquiry.

 

If our Board or its Strategic Alternatives Committee determines in good faith (after consultation with its financial advisor and outside legal counsel) that a takeover proposal constitutes a superior proposal, and determines in good faith (after consultation with outside legal counsel) that failing to take action with respect to the superior proposal could result in a violation of the Board’s fiduciary duties to our stockholders under applicable law, then the Board or the Strategic Alternatives Committee may withdraw, modify or qualify (or publicly propose to withdraw, modify or qualify), its recommendation that our stockholders adopt the merger agreement, recommend or endorse (or publicly propose to recommend or endorse) a takeover proposal, and/or cause us to terminate the merger agreement to enter into a definitive agreement with respect to the superior proposal, if:

 

 

If there are any material revisions to any applicable superior proposal, we will be required to deliver a new written notice to HSS and to comply with the requirements described above with respect to the new written notice.

 

As long as we comply with the restrictions described above, the merger agreement does not prohibit us from complying with our disclosure obligations under federal or state law with regard to a takeover proposal, including taking and disclosing to our stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act, or from making any required, in the good faith determination of our Board or its Strategic Alternatives Committee, communication of the type contemplated by Rule 14d-9(f) promulgated under the Exchange Act.

 

Definitions of “Takeover Proposal” and “Superior Proposal”

 

For the purposes of the merger agreement, a “takeover proposal” means any proposal or offer from any person or group other than HSS providing for the acquisition or purchase of 20% or more of the value of our consolidated assets, beneficial ownership of securities representing 20% or more of our outstanding securities, a tender or exchange offer that if consummated would result in any person or group beneficially owning securities representing 20% or more of our outstanding securities, or a merger, consolidation, share exchange, business combination, recapitalization or similar transaction involving Emageon (or any of our subsidiaries whose business constitutes 20% or more of our and our subsidiaries’ net revenues, net income or assets, taken as a whole).

 

For the purposes of the merger agreement, a “superior proposal” is a written takeover proposal (except, for purposes of this definition, the references to 20% in the definition of takeover proposal are changed to 50%) that our Board of Directors (or its Strategic Alternatives Committee) determines in good faith (after

consultation with its financial advisor and outside legal counsel) to be more favorable from a financial perspective (taking into account such legal, financial, regulatory and other aspects of such takeover proposal and the merger and the other transactions contemplated by the merger agreement and such other factors, matters and issues as are deemed relevant by our Board of Directors or its Strategic Alternatives Committee, as applicable, and the anticipated timing, conditions and prospects for completion of such takeover proposal) to our stockholders than the merger and the other transactions contemplated by the merger agreement (taking into account all of the terms of any proposal by HSS to amend or modify the terms of the merger and the other transactions contemplated by the merger agreement) and that is likely to be consummated if accepted.

 

Subject to the terms and conditions of the merger agreement and in accordance with applicable law, we, HSS and Merger Sub have agreed to use our respective reasonable best efforts to take or do, or cause to be taken or done, all actions and all things necessary, proper or advisable to consummate the transactions contemplated by the merger agreement as promptly as practicable. Without limiting the foregoing, the parties have agreed to use their reasonable best efforts to:

 

 

HSS and Merger Sub have agreed to use their commercially reasonable efforts to arrange the financing contemplated by the debenture purchase agreement as promptly as practicable on the terms and conditions described in the debenture purchase agreement, including using reasonable best efforts to maintain in effect the debenture purchase agreement, satisfy on a timely basis all conditions applicable to them under the debenture purchase agreement, and enforce their rights under the debenture purchase agreement. Subject to the terms of the merger agreement, HSS has agreed that it will not amend or modify the debenture purchase agreement without our consent if the amendment or modification would impose new or additional conditions or otherwise be reasonably likely to materially delay the financing of the merger consideration or the completion of the merger.

 

We have agreed that we will provide, and will cause our subsidiaries and our and their representatives to provide, at HSS’s sole expense and upon reasonable prior notice, all reasonable cooperation as is customary and may be reasonably requested by HSS in connection with the financing contemplated by the debenture purchase agreement. HSS has agreed to indemnify and hold us, our subsidiaries and our and their representatives, harmless from liabilities, losses, costs and expenses suffered or incurred in connection with the arrangement of the financing.

 

HSS and the surviving corporation have agreed to indemnify each current and former Emageon director and officer for losses in respect of legal actions to which he or she is made a party in connection with his or her actions, before the effective time, as an Emageon director or officer. Such indemnification will be to the fullest extent permitted or required by, and subject to exceptions and limitations imposed by, applicable law

and Emageon’s organizational documents. For six years following the effective time of the merger, the surviving corporation will include in its organizational documents provisions regarding the elimination of liability of directors, indemnification of officers and directors and advancement of expenses no less advantageous to these indemnified parties than the corresponding provisions contained in Emageon’s organizational documents on the date of the merger agreement.

 

HSS and Emageon have agreed that the surviving corporation will maintain Emageon’s current directors’ and officers’ liability insurance and fiduciary liability insurance for six years following the effective time of the merger on terms no less favorable than those of the policies in effect on the date of the merger agreement. The surviving corporation is not required, however, to pay annual premiums in excess of 200% of the cost of the premiums for such policies on the date of the merger agreement, and will notify covered parties if such a cap is reached so that they may purchase additional coverage if desired.

 

HSS has agreed that the surviving corporation and its affiliates will honor our benefit plans (including any severance, retention, change of control or similar plans), agreements and offer letters, other than commitments to grant equity compensation, in accordance with their terms as in effect immediately prior to the effective time of the merger, subject to any amendment or termination that may be expressly permitted by the terms of any such plan.

 

HSS also agreed that, from the effective time of the merger until the first anniversary of the effective time of the merger, the surviving corporation will provide all persons who are employees of Emageon and its subsidiaries as of the effective time of the merger and who continue employment with the surviving corporation benefits under employee benefit plans and other fringe benefits, other than equity based compensation, no less favorable in the aggregate, on a group basis, than the benefits provided by Emageon immediately prior to the effective time of the merger. The surviving corporation is not required, however, to maintain any particular plan, and is not prevented from making changes to plans consistent with the plans’ terms.

 

HSS has agreed that our employees (and those of any of our subsidiaries) who continue employment with the surviving corporation will receive credit, to the extent recognized in a similar plan in which such employee participated immediately prior to the effective time of the merger, for all service with Emageon and its affiliates for all purposes, including determining eligibility to participate, level of benefits and vesting under the employee benefit plans of the surviving corporation, to the extent that such credit would not result in a duplication of accrual of benefits for the same period of service. In addition, HSS has agreed that each such employee will be eligible to participate, without a waiting period, in any new benefit plan that replaces coverage under a comparable benefit plan in which he or she participated immediately prior to the effective time of the merger, and that the surviving corporation will use commercially reasonable efforts to have pre-existing condition exclusions and actively-at-work requirements for such new plans waived for such employees to the extent they were waived or inapplicable under such comparable pre-effective time plans. The surviving corporation is required to take into account any eligible expenses incurred by each such employee during the portion of the plan year of a pre-effective time plan for purposes of satisfying deductibles, coinsurance and maximum out-of-pocket requirements under any corresponding new plan.

 

Conditions to Each Party’s Obligation to Complete the Merger

 

Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

 

 

 

Additional Conditions to HSS’s and Merger Sub’s Obligations to Complete the Merger

 

HSS’s and Merger Sub’s obligations to complete the merger are subject to the satisfaction by us, or waiver by HSS, of the following additional conditions:

 

 

Additional Conditions to Our Obligation to Complete the Merger

 

Our obligation to complete the merger is subject to satisfaction by HSS or Merger Sub, or waiver by us, of the following additional conditions:

 

 

Consummation of the merger is not conditioned on HSS’s obtaining financing.

 

Termination by Emageon and/or HSS

 

The merger agreement may be terminated and the merger may be abandoned at any time before the effective time of the merger by the mutual written consent of Emageon and HSS. The merger agreement may be terminated by either Emageon or HSS, upon written notice to the other and assuming that no failure by the terminating party to fulfill any of its obligations under the merger agreement has been a principal cause of or resulted in the failure of a condition to the merger, if:

 

 

 

Termination by HSS

 

The merger agreement may be terminated by HSS by written notice to Emageon before the effective time of the merger if:

 

 

Termination by Emageon

 

The merger agreement may be terminated by Emageon by written notice to HSS before the effective time of the merger if:

 

 

 

 

 

Expenses

 

The merger agreement provides that, in general, regardless of whether the merger is consummated, all expenses incurred by the parties in connection with the merger agreement and the merger will be paid by the party incurring those expenses.

 

Termination Fee

 

We will be required to pay to HSS a termination fee of $3.0 million if:

 

 

 

 

For purposes of determining whether a termination fee is payable by us, the references to 20% in the definition of takeover proposal are changed to 50%. If HSS receives payment of the termination fee upon any such termination of the merger agreement, HSS, Merger Sub and their affiliates are precluded from any other remedy against us, our affiliates or representatives at law or in equity or otherwise.

 

Remedies

 

Under the terms of the deposit escrow agreement, which is described below under the heading “The Merger Agreement — Other Agreements,” we are entitled to the $5.0 million deposited thereunder with the escrow agent, including any interest or investment proceeds thereof, as a non-exclusive remedy if we either terminate the merger agreement because HSS has not received the proceeds of its financing within two business days of our satisfaction of our obligations under the merger agreement, or we terminate the merger agreement and HSS is finally determined by a final non-appealable order of a court of competent jurisdiction to have intentionally breached any of its representations, warranties, covenants or other agreements set forth in the merger agreement.

 

Each of the parties to the merger agreement is entitled to an injunction to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, including the requirements that each party take all actions pursuant to the merger agreement as are necessary on its part to

consummate the merger, and HSS’s obligations with respect to arranging, enforcing and consummating its financing under the debenture purchase agreement.

 

For purposes of the merger agreement, a “material adverse effect” as it relates to Emageon means any event, change, occurrence or effect, individually or when taken together with all other events, changes, occurrences or effects, (i) that would reasonably be expected to materially impair the ability of Emageon to consummate the merger, or (ii) is or reasonably would be expected to be materially adverse to the business, financial condition, results of operations, assets, liabilities or properties of Emageon and its subsidiaries, taken as a whole, other than any event, change, occurrence or effect relating to or resulting from:

 

 

The merger agreement may be amended at any time by the written agreement of Emageon, HSS and Merger Sub, but after approval of our stockholders has been obtained, no amendment can be made that by law requires further approval by our stockholders without such approval, and any amendment must be duly authorized and approved by each of HSS and Merger Sub. Either Emageon or HSS may extend the time for performance of the other party’s obligations, waive any inaccuracies in the other party’s representations and warranties in the merger agreement or in any document delivered under the merger agreement, or, unless prohibited by law, waive compliance with any of the covenants or conditions contained in the merger agreement.

 

In addition to the agreements described above, we and HSS have agreed in the merger agreement to take several other actions, including those listed below.

 

 

 

 

Voting Agreements

 

In connection with the execution of the merger agreement, HSS and Merger Sub entered into Voting Agreements with the following officers, directors and stockholder of Emageon:

 

Charles A. Jett, President and Chief Executive Officer
Keith Stahlhut, Principal Operating Officer
John W. Wilhoite, Chief Financial Officer and Treasurer
Arthur P. Beattie, director
Roddy J. H. Clark, director
Fred C. Goad, director
Bradley S. Karro, director
Mylle H. Mangum, director
Augustus K. Oliver, director
John W. Thompson, director
Benner Ulrich, director
Hugh H. Williamson, III, Chairman of the Board of Directors
Oliver Press Partners, LLC, an affiliate of Messrs. Oliver and Ulrich

 

The voting agreements provide that in any circumstance in which the vote, consent or approval of our stockholders is sought with respect to the merger agreement or a takeover proposal, each officer, director or stockholder will vote (or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a written consent (i) in favor of the adoption of the merger agreement and any related proposal in furtherance thereof, as reasonably requested by HSS; (ii) against any action, proposal or agreement that is in opposition to, or to the knowledge of the officer, director or stockholder (based upon the advice of counsel) is competitive or materially inconsistent with, the merger or to the knowledge of the officer, director or stockholder (based upon the advice of counsel) would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Emageon contained in the merger agreement, or of the officer, director or stockholder contained in the voting agreement; and (iii) against any takeover proposal and against any other action, agreement or transaction that the officer, director or stockholder knows would impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect the merger or the other transactions contemplated by the merger agreement or the voting agreement or the performance by Emageon of its

obligations under the merger agreement or by the officer, director or stockholder of its obligations under the voting agreement.

 

The voting agreements will terminate upon the earlier of (i) the closing of the merger agreement; (ii) the termination of the merger agreement in accordance with its terms; (iii) six months after the date of execution of the voting agreements; or (iv) at the option of the officer, director or stockholder, upon amendment, waiver or modification of the terms of the merger agreement or any amendment, waiver or modification of the terms of the merger agreement that changes the form of or decreases the amount of payment from what is set forth in the merger agreement.

 

The voting agreements also required the officers, directors and stockholder to deliver an irrevocable proxy to designees of HSS. The irrevocable proxy enables HSS to vote the shares of the officer, director or stockholder as specified above. As of the record date for the special meeting, the officers, directors and stockholder who entered into the voting agreements collectively held and were entitled to vote 3,794,387 shares of Emageon common stock which represents approximately 17.69% of the outstanding Emageon common stock entitled to vote at the special meeting. None of the officers, directors and stockholder who are parties to the voting agreements was paid consideration in connection with the voting agreements. A copy of the form of voting agreement is attached as Annex C to this proxy statement.

 

Deposit Escrow Agreement

 

In connection with the merger agreement, on October 21, 2008, we entered into a Deposit Escrow Agreement with HSS and The Bank of New York Mellon, as the escrow agent, under which HSS deposited $5.0 million with the escrow agent. We are entitled to the deposit, including any interest or investment proceeds thereof, as a non-exclusive remedy if we either terminate the merger agreement because HSS has not received the proceeds of its financing within two business days of our satisfaction of our obligations under the merger agreement, or we terminate the merger agreement and HSS is finally determined by a final non-appealable order of a court of competent jurisdiction to have intentionally breached any of its representations, warranties, covenants or other agreements set forth in the merger agreement. A copy of the deposit escrow agreement is attached as Annex D to this proxy statement.

 

If at the special meeting of stockholders, the number of shares of Emageon common stock represented and voting in favor of adoption of the merger agreement is insufficient to adopt that proposal under the Delaware General Corporation Law, we may move to adjourn the special meeting in order to enable our Board of Directors to solicit additional proxies in respect of such proposal. In that event, we will ask our stockholders to vote only upon the adjournment proposal, and not the proposal regarding the adoption of the merger agreement.

 

In this proposal, we are asking you to authorize the holder of any proxy solicited by our Board of Directors to vote in favor of granting discretionary authority to the proxy or attorney-in-fact to adjourn the special meeting to another time and place for the purpose of soliciting additional proxies. If the stockholders approve the adjournment proposal, we could adjourn the special meeting and any adjourned session of the special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously voted. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against the adoption of the merger agreement to defeat that proposal, we could adjourn the special meeting without a vote on the merger agreement and seek to convince the holders of those shares to change their votes to votes in favor of adoption of the merger agreement.

 

Failure of this proposal to pass will not affect the ability of the holder of any proxy solicited by us to adjourn the special meeting in the event insufficient shares of Emageon common stock are represented to establish a quorum, or for any other lawful purpose.

 

Approval of the proposal to adjourn the special meeting for the purpose of soliciting proxies, if necessary, requires the affirmative vote of the holders of a majority of the shares voted on such proposal. Abstentions and broker non-votes will have no effect on the proposal to adjourn the special meeting.

 

For the reasons set forth in this proxy statement, our Board of Directors recommends that our stockholders vote “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of November 12, 2008 by (i) each member of our Board of Directors, (ii) our named executive officers, (iii) all of our directors and executive officers as a group, and (iv) any person who is known by us to be the beneficial owner of more than 5% of our common stock as defined in accordance with Rule 13d-3 under the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We will hold an annual meeting of stockholders in 2009 only if the merger is not completed. In the event a stockholder desires to have a proposal considered for presentation at the 2009 Annual Meeting of Stockholders and included in our proxy statement and form of proxy card used in connection with that meeting, the proposal must be forwarded in writing to the Corporate Secretary of Emageon at our principal executive offices so that it is received no later than January 20, 2009. Any such proposal must comply with the requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended. In addition, for any proposal or nomination for director that a stockholder wishes to present at the 2009 Annual Meeting, regardless of whether the stockholder is seeking to have such proposal included in our proxy statement, notice as required by our bylaws must be received by the Corporate Secretary of Emageon at our principal executive offices no later than February 22, 2009; if such notice is not timely received, the matter or nomination will not be considered at the 2009 Annual Meeting. Notwithstanding the foregoing, if the number of directors to be elected to our Board of Directors is increased and there is no public announcement by us naming all of the nominees for director or specifying the size of the increased Board of Directors on or before April 14, 2009, a stockholder’s notice of a nomination for director at the 2009 Annual Meeting will be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Corporate Secretary at the principal executive offices of Emageon not later than the close of business on the 10th day following the day on which such public announcement is first made by us.

 

At this time, we know of no other matters to be submitted to our stockholders at the special meeting or any adjournment or postponement of the special meeting. If any other matters properly come before the special meeting or any adjournment or postponement of the special meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent in accordance with their judgment.

 

Emageon and HSS file annual, quarterly, and special reports, proxy statements, and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information that Emageon and HSS file with the SEC at the SEC’s public reference room at the following location:

 

Public Reference Room
100 F Street, N.E.
Washington, D.C. 20549

 

Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at the Internet World Wide Web site maintained by the SEC at http://www.sec.gov.

 

We incorporate by reference into this proxy statement any Current Reports on Form 8-K filed by us under the Exchange Act after the date of this proxy statement and before the date of the special meeting. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. However, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including related exhibits, is not and will not be incorporated by reference into this proxy statement.

You may obtain any of the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following address or telephone number:

 

Emageon Inc.

1200 Corporate Drive, Suite 200

Birmingham, Alabama 35242

Attn: Corporate Secretary

(205) 980-9222

 

You should not send in your Emageon share certificates until you receive the transmittal materials from the paying agent.

 

You should rely only on the information contained in this proxy statement and the annexes hereto. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated November 14, 2008. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement). Neither the mailing of this proxy statement to stockholders nor the issuance of cash in the merger creates any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.

 

If you have any questions about this proxy statement, the special meeting or the merger or need assistance with voting procedures, you should contact:

 

Morrow and Co., LLC
Stockholders call: (800) 662-5200
Brokers or Banks call: (203) 658-9400

or

Emageon Inc.
1200 Corporate Drive, Suite 200
Birmingham, Alabama 35242
Attn: Corporate Secretary
(205) 980-9222

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Emageon Inc.

 

John W. Wilhoite
Corporate Secretary

 

Birmingham, Alabama

November 14, 2008

 

EXECUTION COPY

 

 

AGREEMENT AND PLAN OF MERGER
by and among
HEALTH SYSTEMS SOLUTIONS, INC.,
HSS ACQUISITION CORP.
and
EMAGEON INC.
Dated as of October 13, 2008

 

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