<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
COMMUNITY HEALTH SYSTEMS, INC.
(Name of Subject Company)
COMMUNITY HEALTH SYSTEMS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
203666 10 2
(CUSIP NUMBER OF CLASS OF SECURITIES)
E. Thomas Chaney
President and Chief Executive Officer
Community Health Systems, Inc.
155 Franklin Road, Suite 400
Brentwood, Tennessee 37027
(Name, address and telephone number of person
authorized to receive notice and communications on
behalf of the person(s) filing statement).
With Copies to:
J. Michael Schell, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(212) 735-3000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Community Health Systems, Inc., a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is 155 Franklin Road, Suite 400, Brentwood, Tennessee
37027. The title of the class of equity securities to which this Statement
relates is the Common Stock, par value $.01 per share, of the Company (the
"Shares"), including the Preferred Stock Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement (the "Rights Agreement") dated as of September
7, 1995, between the Company and First Union National Bank of North Carolina, as
Rights Agent.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the tender offer by FLCH Acquisition Corp., a
Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of FLCH
Holdings Corp., a Delaware corporation ("Parent") formed by Forstmann Little &
Co. Equity Partnership-V, L.P. ("Forstmann Little"), disclosed in a Tender Offer
Statement on Schedule 14D-1 dated June 11, 1996 (the "Schedule 14D-1"), to
purchase all of the outstanding Shares, together with the associated Rights, at
$52.00 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated June 11, 1996 (the "Offer
to Purchase"), and the related Letter of Transmittal (which together constitute
the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of June 9, 1996 (the "Merger Agreement"), among Parent, the Purchaser and the
Company. The Merger Agreement provides, among other things, for the making of
the Offer by the Purchaser and further provides that, upon the terms and subject
to the conditions contained in the Merger Agreement, the Purchaser will merge
with and into the Company (the "Merger") as soon as practicable after the
consummation of the Offer. Following consummation of the Merger (the "Effective
Time"), the Company will continue as the surviving corporation. In the Merger,
each Share issued and outstanding immediately prior to the Effective Time (other
than Shares owned by the Purchaser or any subsidiary of the Purchaser or held in
the treasury of the Company, all of which will be cancelled, and other than
Shares held by stockholders who perfect appraisal rights under Delaware law)
will be converted into the right to receive the per Share consideration in the
Offer, without interest (the "Merger Consideration"). A copy of the Merger
Agreement is attached hereto as Exhibit 1 and incorporated herein by reference.
The Offer to Purchase states that the principal executive office of each of
the Purchaser, Parent and Forstmann Little is located at 767 Fifth Avenue, New
York, New York 10153.
ITEM 3. IDENTITY AND BACKGROUND.
(a)The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b)(1)
Certain contracts, agreements, arrangements and understandings between
the Company or its affiliates and certain of its executive officers,
directors or affiliates are described under the headings "Executive
Compensation" and "Election of Directors -- Compensation of Directors" at pages
4 to 12 of the Company's Proxy Statement dated April 30, 1996 for its 1996
Annual Meeting of Stockholders (the "1996 Proxy Statement"). Copies of such
pages are filed as Exhibit 2 hereto and are incorporated herein by reference.
EMPLOYMENT AND CONSULTING AGREEMENTS. On April 30, 1996, the Company
entered into an amended and restated employment agreement with Tyree G. Wilburn,
Executive Vice President of the Company (the "Wilburn Employment Agreement").
The Wilburn Employment Agreement terminates in 2017, unless earlier terminated
in accordance with the terms thereof. The Wilburn Employment Agreement provides,
among other things, that Mr. Wilburn will serve as the Company's Executive Vice
President at an annual Base Salary of $350,000, with annual increases in
accordance with the Wilburn Employment Agreement. Mr. Wilburn is also entitled
to certain benefits under the Wilburn Employment Agreement and to an annual
bonus conditioned on the Company meeting certain earnings per Share targets. Mr.
Wilburn is entitled to receive the benefits described below if he
1
<PAGE>
voluntarily terminates his employment with the Company within 12 months after a
Change of Control (as defined in the Wilburn Employment Agreement) occurs. The
benefits include the present value (calculated in accordance with the Wilburn
Employment Agreement) of the following for a 36 month period: (i) Base Salary at
the rate in effect on the date of termination of employment, (ii) all benefits
in effect at the date of termination of employment and (iii) an annual Bonus (as
defined in the Wilburn Employment Agreement) at the lesser of (x) the Target
Bonus (as defined in the Wilburn Employment Agreement) or (y) the average actual
percentage achievement of the Target Bonus earned in the three years preceding
termination of employment, applied in accordance with the Wilburn Employment
Agreement. The Wilburn Employment Agreement further provides that if any
compensation payable to Mr. Wilburn thereunder would be nondeductible to the
Company because it exceeds the $1 million deduction limit under the Internal
Revenue Code of 1986 (the "Code"), as amended, (or such other amount to which
the $1 million limit may be changed), then such compensation in excess of the $1
million deduction limit shall accrue to the following year or years and be paid
to Mr. Wilburn (together with accrued interest at the prime rate) in the
earliest year in which it can be paid and deducted by the Company. On May 1,
1996, the Company and Mr. Wilburn signed a letter concerning (i) Mr. Wilburn's
employment status with the Company, and (ii) the terms of Mr. Wilburn's options
to purchase shares, in each case in the event the Company did not, prior to July
31, 1996, enter into an agreement pursuant to which a third party would acquire
control of the Company. The Merger Agreement constitutes such an agreement and,
as a result the foregoing agreements are moot. The letter also provided that if
Mr. Wilburn is terminated after any such agreement is signed and prior to the
date the transaction contemplated by such agreement occurs, the Change of
Control vesting provisions of Mr. Wilburn's options will be triggered. The
Wilburn Employment Agreement and the Wilburn Letter are filed as Exhibits 3 and
4 hereto and are incorporated herein by reference.
On June 3, 1996, the Company entered into an employment agreement with Mr.
Ernest Bacon, Executive Vice President and Chief Operating Officer of the
Company (the "Bacon Employment Agreement"). The Bacon Employment Agreement
terminates in 2002, unless earlier terminated in accordance with the terms
thereof. The Bacon Employment Agreement provides, among other things, that Mr.
Bacon will serve as the Company's Executive Vice President at an annual Base
Salary of $300,000, with annual increases in accordance with the Bacon
Employment Agreement. Mr. Bacon is also entitled to certain benefits under the
Bacon Employment Agreement and to an annual bonus conditioned on the Company
meeting certain earnings per Share targets. The Bacon Employment Agreement
provides, among other things, that Mr. Bacon is entitled to receive the benefits
described below if he voluntarily terminates his employment with the Company
within 12 months after a Change of Control (as defined in the Bacon Employment
Agreement) occurs. The benefits include the present value (calculated in
accordance with the Bacon Employment Agreement) of the following for a 24 month
period: (i) Base Salary at the rate in effect on the date of termination of
employment, (ii) all benefits in effect at the date of termination of employment
and (iii) an annual Bonus (as defined in the Bacon Employment Agreement) at the
lesser of (x) the Target Bonus (as defined in the Bacon Employment Agreement) or
(y) the average actual percentage achievement of the Target Bonus earned in the
three years preceding termination of employment, applied in accordance with the
Bacon Employment Agreement. The Bacon Employment Agreement further provides that
if any compensation payable to Mr. Bacon thereunder would be nondeductible to
the Company because it exceeds the $1 million deduction limit under the Code (or
such other amount to which the $1 million limit may be changed), then such
compensation in excess of the $1 million deduction limit shall accrue to the
following year or years and be paid to Mr. Bacon (together with accrued interest
at the prime rate) in the earliest year in which it can be paid and deducted by
the Company. The Bacon Employment Agreement is filed as Exhibit 5 hereto and is
incorporated herein by reference.
On May 24, 1996, the Company entered into a consulting agreement with Mr.
David L. Steffy (the "Steffy Consulting Agreement"), which became effective on
June 1, 1996. The Steffy Consulting Agreement terminates in 2002, unless earlier
terminated in accordance with the terms thereof. Pursuant to the Steffy
Consulting Agreement, Mr. Steffy resigned as a director and employee of the
Company and its subsidiaries. The Steffy Consulting Agreement provides, among
other things, that
2
<PAGE>
Mr. Steffy will serve as a consultant to the Company in return for a base
consulting fee of $750,000. Mr. Steffy is also entitled to an additional
consulting fee of $750,000 in the event that, within 6 years from June 1, 1996,
a Change of Control (as defined in the Steffy Consulting Agreement) occurs. The
Steffy Consulting Agreement also provided that all of Mr. Steffy's outstanding
options were deemed vested and exercisable by Mr. Steffy as of June 1, 1996.
Pursuant to the Steffy Consulting Agreement, Mr. Steffy has up to 30 days from
June 1, 1996, to exercise such options. Mr. Steffy is also entitled to certain
benefits under the Steffy Consulting Agreement and to a one-time bonus
conditioned on the Company meeting certain earnings per Share targets. The
Steffy Consulting Agreement is filed as Exhibit 6 hereto and is incorporated
herein by reference.
Consummation of the Offer will be a Change of Control for purposes of the
Wilburn Employment Agreement, the Bacon Employment Agreement, the Steffy
Consulting Agreement and the employment agreements with Mr. Ragsdale and Mr.
Chaney described under the caption "Executive Compensation -- Employment and
Consulting Agreements" in the 1996 Proxy Statement.
The Purchaser agreed in the Merger Agreement to honor in accordance with
their terms all existing employment and severance agreements between the Company
or any of its subsidiaries and any officer, director, or employee of the Company
or any of its subsidiaries.
The Merger Agreement provides that all options (individually, an "Option"
and collectively, the "Options") outstanding immediately prior to the Effective
Time under any Company stock option plan (the "Stock Option Plans"), whether or
not then exercisable, shall be cancelled and each holder of an Option will be
entitled to receive from the Company, for each Share subject to an Option, an
amount in cash equal to the excess, if any, of the Merger consideration over the
per Share exercise price of such Option, without interest. The Merger Agreement
also provides that such amount shall be paid (i) with respect to Shares subject
to Options held by employees who are ranked for compensation purposes below the
level of corporate vice-president of the Company and by non-employees of the
Company or its subsidiaries who hold Options, at the Effective Time and (ii)
with respect to Shares subject to Options held by employees who are ranked for
compensation purposes at or above such level, at the time or times the Option or
portion of an Option will become exercisable in accordance with its terms as in
effect on the date of the Merger Agreement (or, to the extent the Option is
already exercisable at the Effective Time, payment shall be made at the
Effective Time), provided the holder of the Option continues in employment with
the Company at the time the payment is due and provided further that the entire
amount shall become due and payable if the holder of the Option shall be
terminated without cause prior to the first anniversary of the Effective Time.
The Company has agreed to use its reasonable best efforts to obtain all
necessary consents of the holders of Options; PROVIDED, HOWEVER, that any
failure on the part of the Company to obtain any one or more of such consents
shall have no effect on the Purchaser's and Parent's obligations to consummate
the Offer and the Merger.
The Purchaser has also represented in the Merger Agreement that it intends,
until the first anniversary of the Effective Time, that the benefits provided by
the Company and its subsidiaries to their employees (excluding employees covered
by collective bargaining agreements) to be, in the aggregate, no less favorable
than those currently provided by the Company and its subsidiaries to such
employees (other than pursuant to stock option, stock purchase or other stock
based plans). The Purchaser has also stated in the Merger Agreement its
intention that, after the first anniversary of the Effective Time, the Company
and its subsidiaries will provide benefits to their employees (excluding
employees covered by collective bargaining agreements), which benefits are
appropriate in the judgment of the Company, taking into account all relevant
factors, including, without limitation, the businesses in which the Company and
its subsidiaries are engaged.
Members of the Special Committee (as hereinafter defined) will receive
$30,000 each ($40,000 for the Chairman) for serving on the Special Committee.
3
<PAGE>
(b)(2)
THE MERGER AGREEMENT. On June 9, 1996, the Company, Parent and
Purchaser entered
into the Merger Agreement. The following is a summary of certain provisions of
the Merger Agreement. Such summary is qualified in its entirety by reference to
the Merger Agreement. The Merger Agreement is filed as Exhibit 1 hereto and is
incorporated herein by reference.
THE OFFER. The Merger Agreement provides for the commencement of the Offer,
in connection with which Parent and the Purchaser have expressly reserved the
right to waive certain conditions of the Offer, but without the prior written
consent of the Company, the Purchaser has agreed not to (i) waive the Minimum
Condition, (ii) reduce the number of Shares subject to the Offer, (iii) reduce
the price per Share to be paid pursuant to the Offer, (iv) extend the Offer if
all of the Offer conditions are satisfied or waived, (v) change the form of
consideration payable in the Offer, or (vi) amend or modify any term or
condition of the Offer (including the conditions described in Section 14 of this
Offer to Purchase) in any manner adverse to the holders of Shares.
Notwithstanding anything in the Merger Agreement to the contrary, the Purchaser
may, in its sole discretion without the consent of the Company, extend the Offer
at any time and from time to time (A) if at the then scheduled expiration date
of the Offer any of the conditions to the Purchaser's obligation to accept for
payment and pay for Shares shall not have been satisfied or waived; (B) for any
period required by any rule, regulation, interpretation or position of the
Commission or its staff applicable to the Offer; (C) for any period required by
applicable law in connection with an increase in the consideration to be paid
pursuant to the Offer; and (D) if all Offer conditions are satisfied or waived
but the number of Shares tendered is 85% or more but less than 90% of the then
outstanding number of Shares, for an aggregate period of not more than 5
business days (for all such extensions under this clause (D)) beyond the latest
expiration date that would be permitted under clause (A), (B) or (C) of this
sentence. So long as the Merger Agreement is in effect and the Offer conditions
have not been satisfied or waived, at the request of the Company, Purchaser
shall and Parent has agreed to cause the Purchaser to, extend the Offer for an
aggregate period of not more than 20 business days beyond the originally
scheduled expiration date of the Offer.
CONSIDERATION TO BE PAID IN THE MERGER. The Merger Agreement provides that
upon the terms (but subject to the conditions) set forth in the Merger
Agreement, the Purchaser will be merged with and into the Company whereupon the
separate existence of the Purchaser will cease, and the Company shall be the
Surviving Corporation and shall be a wholly owned subsidiary of the Parent. In
the Merger, each share of common stock, $.01 par value per share, of the
Purchaser outstanding immediately prior to the time of filing of a certificate
of merger relating to the Merger with the Secretary of State of the State of
Delaware, or such later time as is agreed by the parties (the "Effective Time"),
shall be converted into and exchanged for one validly issued, fully paid and
non-assessable share of Common Stock, $.01 par value per share, of the Surviving
Corporation. In the Merger, each Share issued and outstanding immediately prior
to the Effective Time (other than Shares owned by Parent or the Purchaser or
held by the Company, all of which shall be cancelled, and other than shares of
Dissenting Common Stock (as hereinafter defined)) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into the
right to receive the Merger Consideration. The Merger Agreement provides that
the closing of the Merger shall occur as soon as practicable, following the
satisfaction or, to the extent permitted under the Merger Agreement, waiver of
the conditions to the Merger set forth in Article 9 of the Merger Agreement.
BOARD REPRESENTATION. The Merger Agreement provides that promptly upon the
purchase of Shares pursuant to the Offer, the Purchaser shall be entitled to
designate such number of directors on the Board of Directors of the Company as
will give the Purchaser representation on the Board of Directors equal to the
product of (i) the number of directors on the Board of Directors and (ii) the
percentage that the number of Shares purchased by the Purchaser or any affiliate
bears to the number of Shares outstanding. The Company's obligation to appoint
such designees shall be subject to Section 14(f) of the Exchange Act. The
Company is required to take all action necessary to effect any such
4
<PAGE>
election and to include in this Statement the information required by Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Such
information is attached to this Statement as Annex B.
STOCKHOLDER MEETING. The Merger Agreement provides that, if required by
applicable law, the Company, acting through the Board of Directors, shall (i)
call a meeting of its stockholders (the "Stockholder Meeting") for the purpose
of voting on the Merger, (ii) hold the Stockholder Meeting as soon as
practicable after the purchase of Shares pursuant to the Offer and (iii) subject
to its fiduciary duties under applicable law as advised by outside counsel,
recommend to its stockholders the approval of the Merger. At the Stockholder
Meeting, Parent shall cause all the Shares then owned by Parent, the Purchaser
and any of their subsidiaries or affiliates to be voted in favor of the Merger.
The Merger Agreement provides that, notwithstanding the foregoing, if the
Purchaser, or any other direct or indirect subsidiary of Parent, shall acquire
at least 90 percent of the outstanding Shares, the parties thereto shall take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the Delaware Law.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to (i) the due
incorporation, existence and, subject to certain limitations, the qualification,
good standing, corporate power and authority of the Company and certain
significant subsidiaries; (ii) the due authorization, execution, and delivery of
the Merger Agreement and certain ancillary documents executed in connection
therewith and the consummation of transactions contemplated thereby, and the
validity and enforceability thereof; (iii) subject to certain exceptions and
limitations, the compliance by the Company and its subsidiaries with all
applicable foreign, federal, state or local laws, statutes, ordinances, rules,
regulations, orders, judgments, rulings and decrees ("Laws") of any foreign,
federal, state or local judicial, legislative, executive, administrative or
regulatory body or authority, or any court, arbitration, board or tribunal
("Governmental Entity"); (iv) the capitalization of the Company, including the
number of shares of capital stock of the Company outstanding, the number of
shares reserved for issuance on the exercise of options and similar rights to
purchase shares; (v) the identity, ownership (subject to certain exceptions and
limitations) and capitalization of each of the Company's subsidiaries and
ownership by the Company and its subsidiaries of interests or investments in
entities other than subsidiaries of the Company or its subsidiaries; (vi)
subject to certain exceptions and limitations, the absence of consents and
approvals necessary for consummation by the Company of the Merger, and the
absence of any violations, breaches or defaults which would result from
compliance by the Company with any provision of the Merger Agreement; (vii) the
failure of each registration statement, report, proxy statement or information
statement (as defined under the Exchange Act) prepared by it since January 1,
1993, each in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "Company Reports") and the financial statements
included therein filed by the Company with the Commission, the Schedule 14D-9,
the information statement, if any, filed by the Company in connection with the
Offer pursuant to Rule 14f-1 under the Exchange Act to contain any untrue
statement of a material fact; (viii) subject to certain exceptions and
limitations, the absence of pending or threatened claims, actions, suits,
proceedings, investigations or audits (collectively, "Litigation") or violation
of any law by the Company which would have a material adverse effect on the
business, results of operations, assets, or financial condition of the Company
and its subsidiaries taken as a whole ("Material Adverse Effect"); (ix) the
absence of certain changes or effects; (x) certain tax matters; (xi) certain
employee benefit and ERISA matters; (xii) certain labor and employment matters;
(xiii) certain fees in connection with the transactions contemplated by the
Merger Agreement; (xiv) subject to certain exceptions and limitations, the
possession by the Company, its subsidiaries and all of the hospitals and other
health care facilities owned, leased or managed by the Company or any of its
subsidiaries (the "Hospitals") of necessary licenses, permits, certificates of
need, approvals and authorizations; (xv) the Medicare and Medicaid participation
and accreditation of each of the Hospitals and, subject to certain exceptions
and limitations, the absence of any notices or pending or threatened
investigations,
5
<PAGE>
audits or surveys relating to the Medicare and Medicaid participation and
accreditation of Company or any of its subsidiaries; (xvi) subject to certain
exceptions and limitations, Medicare/Medicaid compliance; (xvii) certain
environmental matters; (xviii) subject to certain exceptions and limitations,
title to assets; (xix) material contracts of the Company and its subsidiaries;
(xx) the required vote of stockholders of the Company with respect to the
transactions contemplated by the Merger Agreement; and (xxi) the Rights
Agreement.
Parent and the Purchaser have also made certain representations and
warranties, including with respect to (i) the due incorporation, existence, good
standing and, subject to certain limitations, corporate power and authority of
Parent and the Purchaser; (ii) the due authorization, execution and delivery of
the Merger Agreement and certain ancillary documents executed in connection
therewith and the consummation of the transactions contemplated thereby, and the
validity and enforceability thereof; (iii) the accuracy and the adequacy of the
information contained in the Schedule 14D-1 and the documents therein pursuant
to which the Offer is being made, any Schedule required to be filed with the
Commission, and any amendment or supplement to any of the foregoing and the
accuracy of the information provided by Parent and the Purchaser for inclusion
in the Schedule 14D-9; (iv) subject to certain exceptions and limitations, the
absence of consents and approvals necessary for consummation by Parent and the
Purchaser, and the absence of any violations, breaches or defaults which would
result from compliance by Parent and the Purchaser with any provision of the
Merger Agreement; and (v) the sufficiency of funds available to Parent and the
Purchaser for the consummation of the Offer and the Merger.
CONDUCT OF BUSINESS PENDING MERGER. The Company has agreed that from the
date of the Merger Agreement to the Effective Time, with certain exceptions,
unless Parent has consented in writing thereto, the Company will, and will cause
each of its subsidiaries to; (i) conduct its operations according to its usual,
regular and ordinary course of business consistent with past practice; (ii) use
its reasonable best efforts to preserve intact their business organizations and
goodwill, maintain in effect all existing qualifications, licenses, permits,
approvals and other authorizations, keep available the services of their
officers and employees and maintain satisfactory relationships with those
persons having business relationships with them; (iii) promptly upon the
discovery thereof notify Parent of the existence of any breach of any
representation or warranty contained in the Merger Agreement (or, in the case of
any representation and warranty that makes no reference to Material Adverse
Effect, any breach of such representation and warranty in any material respect)
or the occurrence of any event that would cause any representation or warranty
contained in the Merger Agreement no longer to be true and correct (or, in the
case of any representation and warranty that makes no reference to Material
Adverse Effect, to no longer be true and correct in any material respect); and
(iv) promptly deliver to the Purchaser true and correct copies of any report,
statement or schedule filed with the Commission subsequent to the date of the
Merger Agreement, any internal monthly reports prepared for or delivered to the
Board of Directors after the date of the Merger Agreement and monthly financial
statements for the Company and its subsidiaries for and as of each month end
subsequent to the date of the Merger Agreement.
The Company has agreed that from the date of the Merger Agreement to the
Effective Time, with certain exceptions, unless Parent has consented in writing
thereto, the Company shall not, and shall not permit any of its subsidiaries to,
(i) amend its Amended and Restated Certificate of Incorporation or By-laws or
comparable governing instruments; (ii) issue, sell or pledge any shares of its
capital stock or other ownership interest in the Company (other than issuances
of shares of Common Stock in respect of any exercise of Options outstanding on
the date of the Merger Agreement and disclosed to Parent) or any of the
subsidiaries, or any securities convertible into or exchangeable for any such
shares or ownership interest, or any rights, warrants or options to acquire or
with respect to any such shares of capital stock, ownership interest, or
convertible or exchangeable securities; or accelerate any right to convert or
exchange or acquire any securities of the Company or any of its subsidiaries for
any such shares or ownership interest; (iii) effect any stock split or otherwise
change its capitalization as it
6
<PAGE>
exists on the date of the Merger Agreement; (iv) grant, confer or award any
option, warrant, convertible security or other right to acquire any shares of
its capital stock or take any action to cause to be exercisable any otherwise
unexercisable option under any existing stock option plan; (v) declare, set
aside or pay any dividend or make any other distribution or payment with respect
to any shares of its capital stock or other ownership interests (other than such
payments by a wholly owned subsidiary); (vi) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital stock
of any of its subsidiaries; (vii) sell, lease or otherwise dispose of any of its
assets (including capital stock of subsidiaries), except in the ordinary course
of business, none of which dispositions individually or in the aggregate will be
material; (viii) settle or compromise any pending or threatened litigation,
other than settlements which involve solely the payment of money (without
admission of liability) not to exceed $500,000 in any one case; (ix) acquire by
merger, purchase or any other manner, any business or entity or otherwise
acquire any assets that are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole, except for purchases of
inventory, supplies or capital equipment in the ordinary course of business
consistent with past practice; (x) incur or assume any long-term or short-term
debt, except for working capital purposes in the ordinary course of business
under the Company's existing credit agreement; (xi) assume, guarantee or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except wholly owned
subsidiaries of the Company; (xii) make or forgive any loans, advances or
capital continuations to, or investments in, any other person other than loans
and advances to employees in the ordinary course of business which do not exceed
$500,000 in the aggregate at any one time outstanding; (xiii) make any tax
election or settle any tax liability other than settlements involving solely the
payment of money which would be permitted by clause (viii); (xiv) grant any
stock related or performance awards except for grants which are substantially
consistent with the revised 1996 budget of the Company taken as a whole (the
"Revised Budget") which was provided to the purchaser; (xv) enter into any new
employment, severance, consulting or salary continuation agreements with any
officers, directors or employees or grant any increases in compensation or
benefits to employees other than increases which are subtantially consistent
with the Revised Budget (if being understood that the acquisition of employees
as part of the acquisition of hospitals on other healthcare facilities is not
covered by this clause); (xvi) adopt, amend in any material respect or terminate
any employee benefit plan or arrangement; (xvii) amend, change or waive (or
exempt any person or entity from the effect of) the Rights Agreement, except in
connection with the exercise of its fiduciary duties by the Board of Directors
or as set forth in the Merger Agreement; (xviii) permit any insurance policy
naming the Company or any subsidiary as a beneficiary or a loss payee to be
cancelled or terminated other than in the ordinary course of business; and (xix)
agree in writing or otherwise to take any of the foregoing actions.
CONDITIONS TO THE MERGER. The respective obligation of each party to effect
the Merger are subject to the satisfaction or waiver, where permissible, prior
to the Effective Time, of the following conditions: (i) if approval of the
Merger Agreement and the Merger by the holders of Shares is required by
applicable law, the Merger Agreement and the Merger shall have been approved by
the requisite vote of such holders; and (ii) there shall not have been issued
any injunction or issued or enacted any Law which prohibits or has the effect of
prohibiting the consummation of the Merger or make such consummation illegal.
The obligations of Parent and the Purchaser to effect the Merger shall be
further subject to the satisfaction or waiver on or prior to the Effective Time
of the condition that the Purchaser shall have accepted for payment and paid for
Shares tendered pursuant to the Offer; provided that this condition shall be
deemed satisfied if the Purchaser's failure to accept for payment and pay for
such shares breaches the Merger Agreement or violates the terms and conditions
of the Offer.
ACCESS TO INFORMATION. Under the Merger Agreement, from the date of the
Merger Agreement to the Merger Closing Date, the Company shall, and shall cause
its subsidiaries to, (i) give Parent and its authorized representatives and
lender banks full access to all books, records, personnel, offices and
7
<PAGE>
other facilities and properties of the Company and its subsidiaries and their
accountants and accountants' work papers, (ii) permit Parent to make such copies
and inspections thereof as Parent may reasonably request and (iii) furnish
Parent with such financial and operating data and other information with respect
to the business and properties of the Company and its subsidiaries as Parent may
from time to time reasonably request; provided that no investigation or
information furnished pursuant to the Merger Agreement shall affect any
representations or warranties made by the Company therein or the conditions to
the obligations of Parent to consummate the transactions contemplated thereby.
NO SOLICITATION. The Company has agreed in the Merger Agreement that
neither it nor any of its subsidiaries, nor any of their respective officers,
directors, employees, representatives, agents or affiliates, shall, directly or
indirectly, encourage, solicit, initiate or, except as is required in the
exercise of the fiduciary duties of the Company's directors to the Company or
its stockholders after consultation with outside counsel to the Company,
participate in any way in any discussions or negotiations with, or provide any
information to, or afford any access to the properties, books or records of the
Company or any of its subsidiaries to, or otherwise assist, facilitate or
encourage, any corporation, partnership, person or other entity or group (other
than Parent or any affiliate or associate of Parent) concerning any merger,
consolidation, business combination, liquidation, reorganization, sale of
substantial assets, sale of shares of capital stock or similar transactions
involving the Company or any subsidiary or any division of any thereof (an
"Alternative Proposal"), and shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
theretofore with respect to any of the foregoing; provided, however, that
nothing contained in the Merger Agreement shall prohibit the Company or the
Board of Directors from complying with Rule 14e-2(a) under the Exchange Act or
taking such action promulgated thereunder or from making such disclosure to the
Company's stockholders or taking such action which, in the judgment of the Board
of Directors with the advice of outside counsel, may be required under
applicable law. The Company has agreed promptly to notify Parent if any such
information is requested from it or any such negotiations or discussions are
sought to be initiated with the Company.
FEES AND EXPENSES. Except as provided in the Merger Agreement, whether or
not the Offer or the Merger is consummated, all costs and expenses incurred in
connection with the transactions contemplated by the Merger Agreement shall be
paid by the party incurring such expenses.
Pursuant to the Merger Agreement, if the Merger Agreement is terminated for
certain reasons, the Company and Parent have agreed that the Company will pay to
the Purchaser and its affiliates, in such manner as is designated by Forstmann
Little, an aggregate amount equal to $45,000,000 (the "Commitment Amount") and
shall reimburse the Purchaser and its affiliates for the documented reasonable
out-of-pocket expenses, not to exceed $15,000,000, of the Purchaser and its
affiliates incurred in connection with or arising out of the Offer, the Merger,
the Merger Agreement and certain ancillary documents and the transactions
contemplated thereby (including, without limitation, amounts paid or payable to
banks and investment bankers, fees and expenses of counsel, accountants and
consultants, and printing expenses ("Expenses")), regardless of when those
expenses are incurred. The Commitment Amount is payable if the Merger Agreement
is terminated (i) by the Company if there is an Alternative Proposal which the
Board of Directors in good faith determines represents a financially superior
transaction for the stockholders of the Company as compared to the Offer and the
Merger, and the Board of Directors determines, after consultations with Skadden,
Arps, Slate, Meagher & Flom, that failure to terminate the Merger Agreement
would be inconsistent with its fiduciary duties, provided that the right to
terminate the Merger Agreement under such circumstances shall not be available
(A) if the Company has breached in any material respect its obligations not to
solicit Alternative Proposals, or (B) if the Alternative Proposal (x) is subject
to a financing condition or (y) involves consideration that is not entirely cash
or does not permit stockholders to receive the payment of the offered
considerations in respect of all Shares at the same time unless the Board of
Directors has been furnished with a written opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") or other nationally recognized
investment banking firm to the
8
<PAGE>
effect that (in the case of clause (x)) the Alternative Proposal is readily
financeable and (in the case of clause (y)) that such offer provides a higher
value per Share than the consideration per Share pursuant to the Offer or the
Merger, or (C) if, prior to or concurrently with any purported termination
pursuant to this clause (i), the Company shall not have paid fees and expenses
of Parent and the Purchaser as required under the Merger Agreement, or (D) the
Company has not provided Parent and the Purchaser with one business day's prior
written notice of its intent to so terminate the Merger Agreement together with
a summary of the material terms and conditions of such offer; (ii) by the
Purchaser (x) if the Board of Directors shall have failed to recommend, or shall
have withdrawn, modified or amended in any material respect, its approval or
recommendation of the Offer or the Merger or shall have resolved to do any of
the foregoing (unless the event described therein occurs solely as a result of
the Purchaser's willful breach in any material respect of its representations,
warranties or obligations contained in the Merger Agreement) or (y) as a result
of the Company's willful breach or willful failure to comply in any material
respect with any of its material obligations under the Merger Agreement or the
inaccuracy in any material respect of the Company's representations and
warranties; or (iii) pursuant to Section 10.1(b)(iii) of the Merger Agreement at
a time when the Minimum Condition shall not have been satisfied and either, (x)
during the term of the Merger Agreement or within 12 months after the
termination of the Merger Agreement, the Board of Directors recommends an
Alternative Proposal or the Company enters in an agreement providing for an
Alternative Proposal or a majority of the outstanding Shares is acquired by a
third party ("Stock Acquisition") which Alternative Proposal (or another
Alternative Proposal by the same or a related person or entity) was made prior
to the termination of the Merger Agreement, or (y) during the term of the Merger
Agreement or within two months after the termination of the Merger Agreement,
the Board of Directors recommends an Alternative Proposal or the Company enters
into an agreement providing for an Alternative Proposal or a Stock Acquisition
occurs.
The Commitment Amount shall be payable (x) at the time of termination if
such Amount becomes payable pursuant to clause (i) above, (y) on the next
business day following termination if such Amount becomes payable pursuant to
clause (ii) above, and (z) on the next business day following the earliest of
the recommendation of an Alternative Proposal, the entering into of an agreement
providing for an Alternative Proposal or the occurrence of an Alternative
Proposal, if such Amount becomes payable pursuant to clause (iii) above.
The Merger Agreement provides that if the Company fails to promptly pay the
Commitment Amount or Expenses when due, the Company shall in addition thereto
pay to the Purchaser and its affiliates all costs and expenses (including fees
and disbursements of counsel) incurred in collecting such amounts, together with
interest on such amounts (or any unpaid portion thereof) from the date such
payment was required to be made until the date such payment is received by the
Purchaser at the Prime Rate as in effect from time to time during such period.
No amounts in reimbursement of Expenses shall be payable if the Commitment
Amount has been paid. If the Company shall have reimbursed the Purchaser for
Expenses incurred by the Purchaser and its affiliates and thereafter the
Commitment Amount shall become payable, then the Commitment Amount shall be
reduced by the amount of any reimbursed Expenses.
OTHER AGREEMENTS. The Merger Agreement provides that, subject to the terms
and conditions provided in the Merger Agreement, the Company, the Purchaser, and
the Purchaser shall: (a) use their best efforts to cooperate with one another in
(i) determining which filings are required to be made prior to the Effective
Time with, and which consents, approvals, permits, authorizations or waivers are
required to be obtained prior to the Effective Time from, governmental entities
or other third parties in connection with the execution and delivery of the
Merger Agreement and certain other ancillary documents and the consummation of
the transactions contemplated thereby and (ii) timely making all such filings
and timely seeking all such consents, approvals, permits, authorizations and
waivers; and (b) use their best efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
the Merger Agreement. If, at any time after the Effective Time, any
9
<PAGE>
further action is necessary or desirable to carry out the purpose of the Merger
Agreement, the proper officers and directors of Parent, the Purchaser and the
Surviving Corporation shall take all such necessary action.
CONDITIONS TO THE MERGER.
The respective obligation of each party to effect the Merger are subject to
the satisfaction or waiver, where permissible, prior to the Effective Time, of
the following conditions: (a) if approval of the Merger Agreement and the Merger
by the holders of Shares is required by applicable law, the Merger Agreement and
the Merger shall have been approved by the requisite vote of such holders; and
(b) there shall not have been issued any injunction or issued or enacted any law
which prohibits or has the effect of prohibiting the consummation of the Merger
or makes such consummation illegal.
The obligations of Parent and the Purchaser to effect the Merger shall be
further subject to the satisfaction or waiver on or prior to the Effective Time
of the condition that the Purchaser shall have accepted for payment and paid for
Shares tendered pursuant to the Offer; provided that this condition shall be
deemed satisfied if the Parent's failure to accept for payment and pay for such
shares breaches the Merger Agreement or violates the terms and conditions of the
Offer.
TERMINATION. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a)
by mutual written consent of the Board of Directors of the Company,
by a majority of the Continuing Directors if such consent occurs
following the election or appointment of Parent's designees, if applicable,
and the Purchaser;
(b)
by the Purchaser or the Company:
(i)
if the Effective Time shall not have occurred on or before
December 31, 1996 (provided that the right to terminate the
Merger Agreement pursuant to this clause (i) shall not be available to
any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or resulted in the failure of the
Effective Time to occur on or before such date);
(ii)
if there shall be any statute, law, rule or regulation that makes
consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction in the United States or other
Governmental Entity shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment, decree, ruling or other
action shall have become final and non-appealable;
(iii)
after October 31, 1996, if on account of the failure of any
condition specified in Section 14 of the Offer to Purchase the
Purchaser has not purchased any Shares in the Offer (provided that the
right to terminate the Merger Agreement pursuant to this clause (iii)
shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of or resulted
in the failure of any such condition); or
(iv)
upon a vote at a duly held meeting or upon any adjournment
thereof, the stockholders of the Company shall have failed to
give any approval required by applicable law;
(c)
by the Company if there is an Alternative Proposal which the Board of
Directors in good faith determines is more favorable from a financial
point of view for the stockholders of the Company as compared to the Offer
and the Merger, and the Board of Directors determines, after consultation
with Skadden, Arps, Slate, Meagher & Flom, that failure to terminate the
Merger Agreement would be inconsistent with the compliance by the Board of
Directors with its fiduciary duties to stockholders imposed by law;
provided, however, that the right to terminate the Merger Agreement in such
event shall not be available (i) if the Company has breached in any material
10
<PAGE>
respect its obligations not to solicit Alternative Proposals, or (ii) if the
Alternative Proposal (x) is subject to a financing condition or (y) involves
consideration that is not entirely cash or does not permit stockholders to
receive the payment of the offered consideration in respect of all Shares at
the same time, unless the Board of Directors has been furnished with a
written opinion of Merrill Lynch or other nationally recognized investment
banking firm to the effect that (in the case of clause (x)) the Alternative
Proposal is readily financeable and (in the case of clause (y)) that such
offer provides a higher value per share than the consideration per share
pursuant to the Offer or the Merger, or (iii) if, prior to or concurrently
with any purported termination pursuant to this clause (c), the Company
shall not have paid the Commitment Fee and the Expenses or (iv) if the
Company has not provided Parent and the Purchaser with prior written notice
of its intent to so terminate the Merger Agreement and delivered to Parent
and the Purchaser a copy of the written agreement embodying the Alternative
Proposal in its then most definitive form concurrently with the earlier of
(x) the public announcement of, or (y) filing with the Commission of any
documents relating to, the Alternative Proposal; and
(d)
by Parent if the Board of Directors shall have failed to recommend,
or shall have withdrawn, modified or amended in any material respect,
its approval or recommendation of the Offer or the Merger or shall have
recommended acceptance of any Alternative Proposal, or shall have resolved
to do any of the foregoing.
INDEMNIFICATION. The Merger Agreement provides that the Parent will cause
the Surviving Corporation to purchase a pre-paid noncancellable directors and
officers insurance policy expiring not earlier than October 7, 1999, covering
the current and all former directors and officers with respect to acts or
failures to act prior to the Effective Time, in a single aggregate amount over
the period expiring not earlier than October 7, 1999, equal to the policy limit
for the Company's current directors and officers insurance policy (the "Current
Policy"). If such insurance is not obtainable at a cost not in excess of the
annual premium paid by the Company for the Current Policy (the "Cap") times
3.25, then Parent will cause the Surviving Corporation to purchase policies
providing at least the same coverage as the Current Policy and containing terms
and conditions no less advantageous to the current and former directors and
officers of the Company than the Current Policy with respect to acts or failures
to act prior to the Effective Time; provided, however, that Parent and the
Surviving Corporation shall not be required to obtain policies providing such
coverage except to the extent that such coverage can be provided at an annual
cost of no greater than the Cap; and if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of the Cap, the
Purchaser or the Surviving Corporation shall only be required to obtain only as
much coverage as can be obtained by paying an annual premium equal to the Cap.
Parent has also agreed to cause the Surviving Corporation to keep in effect
in its By-Laws a provision for a period of not less than three years from the
Effective Time (or, in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the third anniversary of the Effective
Time, until such matters are finally resolved) which provides for
indemnification of the past and present officers and directors of the Company to
the fullest extent permitted by the Delaware Law.
The Merger Agreement provides that from and after the Effective Time, Parent
shall indemnify and hold harmless, to the fullest extent permitted under
applicable law, each person who is, or has been at any time prior to the date of
the Merger Agreement or who becomes prior to the Effective Time, an officer or
director of the Company or any subsidiary against all losses, claims, damages,
liabilities, costs or expenses (including attorneys' fees), judgments, fines,
penalties and amounts paid in settlement (collectively, "Losses") in connection
with any litigation arising out of or pertaining to acts or omissions, or
alleged acts or omissions, by them in their capacities as such, which acts or
omissions existed or occurred prior to the Effective Time, whether commenced,
asserted or claimed before or after the Effective Time, including, without
limitation, liabilities arising under the Securities Act, the Exchange Act and
state corporation laws in connection with the transactions contemplated in the
Merger Agreement.
11
<PAGE>
If the Merger shall have been consummated, the Surviving Corporation shall,
to the fullest extent permitted under applicable law, indemnify and hold
harmless Parent and any person or entity who was a stockholder, officer,
director or affiliate of Parent prior to the Effective Time against any losses
in connection with any Litigation arising out of or pertaining to any of the
transactions contemplated by the Merger Agreement or certain ancillary documents
relating thereto. Parent is required to periodically advance expenses as
incurred with respect to the foregoing to the fullest extent permitted under
applicable law provided that the person to whom the expenses are advanced
provides an undertaking to repay such advance if it is ultimately determined
that such person is not entitled to indemnification.
CERTAIN EMPLOYEE MATTERS. The Merger Agreement provides that, from and
after the Effective Time, the Surviving Corporation will honor and assume, and
Parent will cause the Surviving Corporation to honor and assume, in accordance
with their terms all existing employment and severance agreements between the
Company or any of its subsidiaries and any officer, director, or employee of the
Company or any of its subsidiaries and all benefits or other amounts earned or
accrued to the extent vested or which becomes vested in the ordinary course,
through the Effective Time under all employee benefit plans of the Company and
any of its subsidiaries.
AMENDMENT. To the extent permitted by applicable law, the Merger Agreement
may be amended by action taken by or on behalf of the Board of Directors (by
action of a majority of the Continuing Directors if such amendment occurs
following the election or appointment of Parent's designees, if applicable) and
the Parent at any time before or after adoption of the Merger Agreement by the
stockholders of the Company but, after any such stockholder approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's stockholders hereunder without the
approval of such stockholders. The Merger Agreement may not be amended except by
an instrument in writing signed on behalf of all of the parties.
TIMING. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by the Purchaser pursuant to the Offer. Although Parent has agreed to
cause the Merger to be consummated on the terms set forth above, there can be no
assurance as to the timing of the Merger.
THE CONFIDENTIALITY AGREEMENT. On May 6, 1996, Forstmann Little entered
into a confidentiality agreement with the Company (the "Confidentiality
Agreement") pursuant to which Forstmann Little agreed to treat as confidential
certain information provided to it by or on behalf of the Company and agreed for
two years not to propose any transaction with the Company or its stockholders
involving the Shares or an acquisition of control of the Company without the
Company's consent, with certain exceptions. A copy of the Confidentiality
Agreement is filed as Exhibit 7 hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a), (b) In late 1995, Mr. E. Thomas Chaney, a co-founder of the Company and
its President and Chief Executive Officer, began to consider a change in his day
to day managerial operating role with the Company. Although he wished to
maintain his involvement with the Company and to continue his contributions to
the direction and policy of the Company, Mr. Chaney believed it more desirable
and more effective if he could function in a non-executive role, perhaps, for
example, as Chairman of the Executive Committee of the Board. About the same
time, Mr. Chaney informed the Board of his desire to begin a transition into
such a new role with the Company in the near future. At that time the Board
commissioned a search for an experienced, high-level executive who could assume
the duties and responsibilities of a chief executive officer of a company such
as Community Health Systems. As the search progressed, the Board became
concerned that finding a candidate of acceptable caliber could take more time
than was available. Accordingly, in March 1996 the Board instructed management
to expand its efforts to consider various strategic alternatives for maximizing
shareholder value in addition to continuing the search for a successor to Mr.
Chaney. Mr. Chaney and Mr. Richard E. Ragsdale, a co-founder of the Company and
its Chairman of the Board, met on several occasions with
12
<PAGE>
Merrill Lynch to discuss possible strategic alternatives available to the
Company. In March 1996, the Company retained Merrill Lynch as its financial
advisor in connection with analyzing, structuring, negotiating and effecting one
or another or more of these alternatives. At a meeting on March 26, 1996,
Merrill Lynch made a presentation to the Board of Directors regarding the
various strategic alternatives available to the Company and identifying various
entities Merrill Lynch believed might be interested in pursuing a strategic
transaction with the Company. Following this meeting, at the direction of the
Board of Directors, Merrill Lynch contacted in excess of twenty strategic and
financial parties that Merrill Lynch and the Company believed might be
interested in considering a transaction with the Company. During April and May
1996, the Company entered into confidentiality agreements with a number of
parties, including Forstmann Little. See Item 3(b)(2) for a description of the
Confidentiality Agreement. In May 1996, management of the Company met with
several parties, including Forstmann Little, that had expressed an interest in
considering a transaction with the Company.
On May 24, 1996, Forstmann Little indicated to Merrill Lynch its strong
interest in acquiring the Company. From May 29, 1996 to May 31, 1996, Forstmann
Little continued its due diligence review of the Company, having indicated an
interest in moving quickly to be in a position to make a proposal to acquire the
Company. On June 3, 1996, the Board of Directors met with Merrill Lynch and the
Company's legal counsel to discuss the status of the process of exploring
strategic alternatives and the results of the meetings held by management and
Merrill Lynch with various parties having a strategic interest in the Company.
In addition, the Board discussed the implications of the strong interest shown
by Forstmann Little and the fact that Forstmann Little had expressed a strong
philosophy of affording management the opportunity to invest in their
transactions and would be likely to do so in this case. At this meeting Messrs.
Chaney and Ragsdale advised the Board that they had had preliminary discussions
with Forstmann Little regarding their continuing as equity investors in the
Company in the event that a transaction with Forstmann Little were to result
from the process. In view of this development, the Board of Directors
established a special committee (the "Special Committee") consisting of the
members of the Board other than Messrs. Chaney and Ragsdale. The Special
Committee was charged with all of the duties and responsibilities of the Board
in connection with completing the exploration of strategic alternatives for the
Company, including retaining and directing advisors, negotiating with all
parties in the process and making recommendations to the full Board regarding
any course of action they might deem appropriate. The Special Committee directed
Merrill Lynch and the Company's legal counsel to continue negotiating with
Forstmann Little. The management of the Company was instructed to cooperate with
the Special Committee in all respects of the strategic alternatives process,
including furnishing information and assistance with due diligence to any party
designated by the Special Committee.
Late on June 3, 1996, Forstmann Little communicated a proposal to acquire
the Company to Merrill Lynch which reported the proposal to the Special
Committee on June 4, 1996. Forstmann Little's proposal contemplated acquiring
the Company at a price of $50.50 per share, subject to certain conditions, but
pursuant to a tender offer that would not be subject to any financing condition.
The proposal contemplated that the Company would grant Forstmann Little an
option to purchase newly issued Shares equal to 19.9% of the total outstanding,
which would be exercisable in specified circumstances, a $75 million termination
fee and reimbursement of Forstmann Little's expenses, in each case payable if
the transaction failed to proceed under certain circumstances. Forstmann Little
further indicated a desire to move quickly to negotiate a definitive agreement
and to announce a proposed transaction. On June 5, 1996, Forstmann Little
indicated to Merrill Lynch its insistence that the Company work with Forstmann
Little exclusively in negotiating a transaction and that it effectively
terminate the process in which it was engaged with other prospective buyers of
the Company. Forstmann Little further indicated a willingness to increase its
proposed purchase price in exchange for such an exclusive arrangement. Over the
next day, the parties negotiated an understanding in which Forstmann Little
increased its purchase price to $52.00 per Share and withdrew its request for
the 19.9% option in exchange for the exclusive arrangement it desired, an
undertaking by the Company to schedule a Board meeting no later than June 9,
1996, the Company's acceptance in principle of the
13
<PAGE>
form of acquisition agreement proposed by Forstmann Little and the Company's
acceptance in principle that there would be a termination fee payable if the
transaction failed to proceed under certain circumstances. Late on June 6, 1996,
the Special Committee authorized Merrill Lynch and the Company's legal advisor
to proceed with Forstmann Little on this basis and so informed the management of
the Company. Thereafter, the Company's representatives continued negotiations
with Forstmann Little's representatives leading to agreement concerning the form
of documentation which became the Merger Agreement.
On June 9, 1996, the Special Committee met and unanimously recommended to
the Board of Directors that it approve the Merger Agreement. In a later meeting
that same day, the Board of Directors of the Company unanimously (i) accepted
such recommendation, (ii) determined that the Offer and the Merger are fair to
and in the best interests of the stockholders of the Company, (iii) approved the
Merger Agreement and the transactions contemplated thereby and (iv) recommended
that stockholders accept the Offer.
In reaching their conclusions and recommendations described above, the
Special Committee and the Board of Directors considered a number of factors,
including the following:
(i)
The oral opinion of Merrill Lynch, which opinion was subsequently
confirmed in a written opinion dated June 9, 1996, to the Board of
Directors to the effect that, as of such date and based upon the assumptions
made, matters considered and limits of review as set forth in such opinion,
the cash consideration of $52.00 per Share to be received by the holders of
the Shares in the Offer and the Merger is fair to such stockholders from a
financial point of view. A copy of the written opinion dated June 9, 1996
delivered by Merrill Lynch to the Board, which set forth the assumptions
made, matters considered and certain limitations on the scope of review
undertaken by Merrill Lynch, is attached as Annex A hereto and is
incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY.
(ii)
The fact that the Offer and Merger are not conditioned on the
availability of financing and that commitments for all necessary
financing had been obtained.
(iii)
The possible alternatives to the Offer and the Merger, including the
possibility of continuing to operate the Company as an independent
entity and the timing and feasibility of such alternatives and the possible
values to the Company's stockholders of such alternatives.
(iv)
The terms and conditions of the Merger Agreement, including (A) the
provision permitting the Board of Directors to terminate the Merger
Agreement, on payment of the Commitment Fee, in order to accept an offer
from a third party to acquire the Company on terms that the Board of
Directors determines to be more favorable to the Company's stockholders than
the terms of the Offer, (B) the provision permitting the directors, if
required in the exercise of their fiduciary duties after consultation with
outside counsel, to participate in discussions or negotiations with, and
provide information to, potential competing bidders, although the Company
and its officers, directors and agents are prohibited by such provision from
directly or indirectly encouraging, soliciting or initiating a competing
bid, (C) the amount of the Commitment Fee and the circumstances under which
it would become payable and (D) the conditions to the Offer.
(v)
The Board of Directors' belief that it was unlikely other interested
parties would ultimately be prepared to pay an amount in excess of
the Offer price and its belief that any such interested party would insist
on substantial additional due diligence over an extended period of time
before such parties might be prepared to make a definitive proposal. In such
circumstances the Board was also concerned not to lose Forstmann Little as a
bidder.
(vi)
Recent market prices for the Shares, including the fact that the
Offer price represents a substantial premium over such prices.
(vii)
The Company's financial condition, results of operations, competitive
position, business and strategic objectives, as well as the risks
involved in achieving those objectives.
14
<PAGE>
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Merrill Lynch was retained, pursuant to the terms of a letter agreement,
dated March 25, 1996, as financial advisor to the Company in connection with any
proposed Business Combination (as defined in the letter agreement) involving the
Company and another party, including a merger of the Company, the acquisition of
20% or more of the Company's outstanding capital stock, the acquisition of all
or a substantial portion of the assets of the Company or similar transactions.
Merrill Lynch was paid a fee of $100,000 in cash on the date of the letter
agreement. Pursuant to the terms of such letter agreement, the Company also paid
Merrill Lynch an additional fee of $2,000,000 on June 10, 1996, upon the
execution of a definitive agreement to effect a Business Combination. Pursuant
to the terms of such letter agreement, if, during the period Merrill Lynch is
retained by the Company or within one year thereafter, (a) a Business
Combination is consummated or (b) the Company enters into an agreement which
subsequently results in a Business Combination, the Company has agreed to pay
Merrill Lynch an additional fee in an amount equal to 0.72% of the aggregate
purchase price paid in such Business Combination, payable in cash upon the
closing of such Business Combination or, in the case of a tender offer or
exchange offer, upon the first purchase or exchange of shares pursuant to such
tender offer or exchange offer, as the case may be; provided that the $100,000
fee and $2,000,000 fee described above will be credited against any such
additional fee. Accordingly, if the Offer and Merger are consummated, the
Company will pay Merrill Lynch fees aggregating approximately $9,100,000. The
Company has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including the reasonable fees and expenses of its
counsel, and to indemnify Merrill Lynch for certain liabilities arising out of
the rendering of its opinion, including liabilities arising under the federal
securities laws. A copy of the engagement letter is attached hereto as Exhibit
8, and is incorporated herein by reference.
Merrill Lynch has, in the past, provided financial advisory and financing
services to the Company and has received fees for the rendering of such
services. Merrill Lynch has also, in the past, provided financial advisory and
financing services and Merrill Lynch continues to provide financial advisory
services to companies controlled by Forstmann Little affiliates and has received
fees for the rendering of such services. In the ordinary course of business,
Merrill Lynch may actively trade the securities of the Company for its account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a)Except as set forth in Annex C hereto, no transactions in the Shares have
been effected during the past 60 days by the Company or, to the best of
the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b)To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, each executive officer,
director and affiliate of the Company currently intends to tender all Shares
over which he or she has sole dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a)Except as set forth in this Schedule 14D-9, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
15
<PAGE>
(b)There are presently no transactions, board resolutions, agreements in
principle or signed contracts in response to the Offer, other than as
described in or incorporated by reference into Item 3(b), which relate to or
would result in one or more of the matters referred to in Item 7(a)(1), (2), (3)
or (4).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a)DGCL 203
Section 203 of the DGCL purports to regulate certain business combinations
of a corporation organized under Delaware law, such as the Company, with a
stockholder beneficially owning 15% or more of the outstanding voting stock of
such corporation (an "Interested Stockholder"). Section 203 provides, in
relevant part, that the corporation shall not engage in any business combination
for a period of three years following the date such stockholder first becomes an
Interested Stockholder unless (i) prior to the date the stockholder first
becomes an Interested Stockholder, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an Interested Stockholder, (ii) upon becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) on or subsequent to the date the stockholder becomes an
Interested Stockholder, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock which is
not owned by the Interested Stockholder. The Company's Board of Directors has
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and, therefore, Section 203 of the DGCL is
inapplicable to the Offer and the Merger.
(b)Rights Agreement Amendment
In connection with the execution of the Merger Agreement, the Board of
Directors of the Company authorized an amendment (the "Rights Amendment") to the
Rights Agreement. The Rights Amendment provides (i) that no Person (as defined
in the Rights Agreement) shall become an Acquiring Person (as defined in the
Rights Agreement) for any purpose of the Rights Agreement as the result of the
acquisition of Shares by such Person pursuant to a Qualifying Tender Offer and
(ii) that the announcement of the intention of any Person to commence a
Qualifying Tender Offer shall not be deemed to cause the occurrence of the
Distribution Date (as defined in the Rights Agreement) for any purpose of the
Rights Agreement. The Rights Amendment defines a Qualifying Tender Offer as an
offer by any Person to acquire all Shares for consideration of not less than
$52.00 per Share, which offer (i) is a "tender offer" for purposes of, and is
conducted in accordance with, Section 14(d)(1) of the Exchange Act and the rules
and regulations thereunder (or any successor provisions thereto) and (ii) is
proposed to be followed by a merger between the Company and such Person or a
subsidiary of such Person in which all Shares (other than Shares owned by such
Person or its affiliates) are converted into the right to receive the per Share
consideration paid in the offer. The Offer is a Qualifying Tender Offer and as a
result the Rights Amendment prevents Parent and Purchaser from becoming an
Acquiring Person and prevents a Stock Acquisition Date (as defined in the Rights
Plan) or Distribution Date from occurring, in each case as a result of the Offer
or Merger. A copy of the Rights Amendment is filed as Exhibit 12 hereto and is
incorporated herein by reference.
(c)Information Statement
The Information Statement attached as Annex B hereto is being furnished in
connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's stockholders.
(d)Appraisal Rights
16
<PAGE>
No appraisal rights are available to holders of Shares in connection with
the Offer. However, if the Merger is consummated, holders of Shares will have
certain rights under Section 262 of the Delaware Law to dissent and demand
appraisal of, and payment in cash for the fair value of, their Shares. Such
rights, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value (excluding any element of value arising from
accomplishment or expectation of the Merger) required to be paid in cash to such
dissenting holders for their Shares. Any such judicial determination of the fair
value of Shares could be based upon considerations other than in addition to the
Offer Price and the market value of the Shares, including asset values and the
investment value of the Shares. The value so determined could be more or less
than the Offer Price or the Merger Consideration.
If any holder of Shares who demands appraisal under Section 262 of the
Delaware Law fails to perfect, or effectively withdraws or losses his right to
appraisal, as provided in the Delaware Law, the shares of such holder will be
converted into the Merger Consideration in accordance with the Merger Agreement.
A stockholder may withdraw his demand for appraisal by delivery to Parent of a
written withdrawal of his demand for appraisal and acceptance of the Merger.
Failure to follow the steps required by Section 262 of the Delaware Law for
perfecting appraisal rights may result in the loss of such rights.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------------
<S> <C>
Exhibit 1. Agreement and Plan of Merger, dated as of June 9, 1996, by and among Parent, the Purchaser and the
Company.
Exhibit 2. Pages 4 through 12 of the Proxy Statement, dated April 30, 1996, relating to the Company's 1996
Annual Meeting of Stockholders.
Exhibit 3. Third Amended and Restated Employment Agreement, dated April 30, 1996, between the Company and
Tyree G. Wilburn.
Exhibit 4. Letter Agreement, dated May 1, 1996, between the Company and Tyree G. Wilburn.
Exhibit 5. Employment Agreement, dated June 3, 1996, between the Company and Ernest Bacon.
Exhibit 6. Consulting Agreement, dated May 24, 1996, between the Company and David L. Steffy.
Exhibit 7. Confidentiality Agreement between Forstmann Little and the Company, dated May 6, 1996.
Exhibit 8. Engagement Letter dated March 25, 1996 between the Company and Merrill Lynch.
Exhibit 9. Press Release issued jointly by Forstmann Little and the Company, dated June 10, 1996.
Exhibit 10. Letter to Stockholders of the Company, dated June 11, 1996.
Exhibit 11. Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated June 9, 1996.*
Exhibit 12. Amendment, dated June 9, 1996, to the Rights Agreement, dated as of September 7, 1995, between the
Company and the Rights Agent.
</TABLE>
- ------------------------
* Included with Schedule 14D-9 mailed to stockholders.
17
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 11, 1996 COMMUNITY HEALTH SYSTEMS, INC.
By /s/ E. THOMAS CHANEY_______________
Name: E. Thomas Chaney
Title: President and Chief
Executive Officer
18
<PAGE>
ANNEX B
COMMUNITY HEALTH SYSTEMS, INC.
155 FRANKLIN ROAD
BRENTWOOD, TENNESSEE 37027
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about June 11, 1996 as a
part of Community Health Systems Inc.'s (the "Company")
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
to the holders of record of shares of Common Stock, par value $.01 per share, of
the Company (the "Shares") at the close of business on or about June 11, 1996.
You are receiving this Information Statement in connection with the possible
election of persons designated by the Parent (as defined below) to a majority of
the seats on the Board of Directors of the Company.
On June 9, 1996 the Company, FLCH Acquisition Corp., a Delaware corporation
(the "Purchaser") and FLCH Holdings Corp. ("Parent") entered into an Agreement
and Plan of Merger (the "Merger Agreement") in accordance with the terms and
subject to the conditions of which (i) Parent will cause the Purchaser to
commence a tender offer (the "Offer") for all outstanding Shares at a price of
$52.00 per Share net to the seller in cash, and (ii) the Purchaser will be
merged with and into the Company (the "Merger"). As a result of the Offer and
the Merger, the Company will become a wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to take such action as Parent may
reasonably request to cause the Parent's designees to be elected to the Board of
Directors under the circumstances described therein. See "Board of Directors and
Executive Officers -- Right to Designate Directors; The Parent Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on June
11, 1996. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on July 9, 1996 unless the Offer is extended.
The information contained in this Information Statement concerning the
Parent has been furnished to the Company by the Parent, and the Company assumes
no responsibility for the accuracy or completeness of such information.
B-1
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of March 15, 1996, there were
19,589,446 Shares outstanding.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
BOARD REPRESENTATION. The Merger Agreement provides that promptly upon the
purchase of Shares pursuant to the Offer, the Parent shall be entitled to
designate such number of directors (the "Parent Designees") on the Board of
Directors of the Company as will give the Parent representation on the Board of
Directors equal to the product of (i) the number of directors on the Board of
Directors and (ii) the percentage that the number of Shares purchased by the
Parent, Purchaser or any affiliate bears to the number of Shares outstanding.
The Company's obligation to appoint such designees shall be subject to Section
14(f) of the Exchange Act. The Company is required to take all action necessary
to effect any such election. This Information Statement sets forth the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder.
Parent has informed the Company that Parent will choose Theodore J.
Forstmann; Nicholas C. Forstmann and Sandra J. Horbach as Parent Designees and
may, if it so desires and is so permitted under the Merger Agreement, choose one
or both of Steven B. Klinsky or Winston W. Hutchins as additional Parent
Designees. The names and certain biographical information concerning the Parent
Designees are set forth below. The current business address of each such person
is 767 Fifth Avenue, New York, New York, 10153 and each such person is a citizen
of the United States of America.
Theodore J. Forstmann, 56, is a General Partner of partnerships affiliated
with Forstmann Little & Co. Equity Partnership-V, L.P. (collectively, "Forstmann
Little"), a private investment firm affiliated partnerships, and has been a
General Partner of Forstmann Little affiliated partnership since 1978. He is a
director of Department 56, Inc. and General Instrument Corporation. Mr. T.
Forstmann is the brother of Mr. N. Forstmann.
Nicholas C. Forstmann, 49, is a General Partner of Forstmann Little, and has
been a General Partner of Forstmann Little since 1978. He is a director of
Department 56, Inc. and General Instrument Corporation. Mr. N. Forstmann is the
brother of Mr. T. Forstmann.
Sandra J. Horbach, 35, is a General Partner of Forstmann Little. Ms. Horbach
has been a General Partner of Forstmann Little since January 1993, and has been
associated with such partnerships since August 1987. Ms. Horbach is a director
of Department 56, Inc.
Steven B. Klinsky, 40, is a General Partner of Forstmann Little. Mr. Klinsky
has been a General Partner of Forstmann Little since December 1986, and has been
associated with such partnerships since December 1984.
Winston W. Hutchins, 37, is a General Partner of Forstmann Little & Co.
affiliated partnerships. Mr. Hutchins has been a General Partner of Forstmann
Little & Co. affiliated partnerships since January 1990, and has been associated
with such partnerships since July 1983.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any directors
or executive officers of the Company or (iii) to the best knowledge of the
Parent, beneficially owns any securities (or rights to acquire such securities)
of the Company. The Company has been advised by the Parent that, to the best of
Parent's knowledge, none of the Parent Designees has been involved in any
transactions with the Company or any of its directors, executive officers or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Commission, except as may be disclosed herein or in the
Schedule 14D-9.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than July 9, 1996, and that, upon assuming office,
the Parent Designees will thereafter constitute at least a majority of the Board
of Directors.
BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors currently consists of seven persons, two of whom are
employees of the Company. In accordance with the Bylaws of the Company,
directors are divided into three classes composed as nearly as possible of an
equal number of directors. The term of the directors in class I expires in 1998,
class II expires in 1999, and class III expires in 1997.
B-2
<PAGE>
Biographical information concerning each of the Company's current directors
and executive officers is presented on the following.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND PRINCIPAL OCCUPATION SINCE CLASS
- --------------------------------------------------------------------------------------- ----------- -----
<S> <C> <C>
Thomas P. Cooper, M.D. age 52, has served as Chairman of the Company's Physicians 1988 II
Advisory Counsel and a consultant to the Company since July 1988. He has been a
director of Hanger Orthopedic, Inc. since September 1991, President and Chief
Executive Officer of Mobilex USA (formerly Cooper Holding Corporation), a provider of
services to nursing homes, since 1989, and Chief Executive Officer of Senior
Psychology Services, a provider of mental health services to nursing homes, since July
1994.
Kay W. Slayden, age 61, has served as Vice Chairman of ValueMark Healthcare Systems, 1994 II
Inc. ("ValueMark") since March 1995. Prior thereto, Mr. Slayden was President and
Chief Operating Officer of Jackson & Coker, Inc., a physician recruiting company, from
1991 to January 1994 and a director of Hallmark Healthcare Corporation ("Hallmark")
from 1989 to October 1994.
Richard E. Ragsdale, age 52, is a co-founder of the Company and has served as Chairman 1985 I
of the Board since its inception in 1985. Mr. Ragsdale also has served as a director
of RehabCare Corporation, an operator of contract rehabilitation units in hospitals,
since November 1993. Mr. Ragsdale was a co-founder, director and senior executive
officer of Republic and served in senior executive financial positions with INA
Healthcare Group, a subsidiary of INA Corporation, and HAI prior to 1985.
George O. Johnson, M.H.A., Ph.D., age 58, has been Associate Professor in the Division 1990 I
of Health Management and Policy and Director of the Program in Healthcare
Administration at the University of Minnesota School of Public Health since 1980; he
served as Head of the Division of Health Management and Policy from 1983 to June 1995.
E. Thomas Chaney, age 53, is a co-founder of the Company and has served as President 1985 III
and Chief Executive Officer since its inception in 1985. He served in senior executive
financial positions with ARA Living Centers, KMG Main Hurdman and HAI prior to 1985.
M. Ray Ferguson, age 63, performs services as a healthcare consultant. He served as 1985 III
Executive Vice President of Republic from 1981 to 1986 and as a senior operating
executive officer of HAI prior to 1981.
James T. McAfee, Jr., age 56, has been Chairman, President and Chief Executive Officer 1994 III
of ValueMark since October 1994. He served as Chief Executive Officer and Chairman of
the Board of Directors of Hallmark from 1987 to October 1994. From 1980 to September
1987, Mr. McAfee served as Executive Vice President, Hospital Operations and as
Director of Charter Medical Corporation. Prior to 1980, he served as Senior Vice
President of HAI.
</TABLE>
MEETINGS OF THE BOARD
The Board met six times during 1995. All current members of the Board
attended at least 75% of the combined total of the meetings of the Board and its
committees on which they served.
B-3
<PAGE>
COMMITTEES OF THE BOARD
The Board had four standing committees: the Executive Committee, the
Compensation Committee, the Option Committee and the Audit Committee. As of
April 30, 1996, the Option Committee and the Compensation Committee were
combined into the Compensation and Option Committee.
The Executive Committee is composed of Messrs. Ragsdale and Chaney. The
Committee is empowered to exercise all of the powers and authority of the Board
permitted by law between meetings of the Board. The Executive Committee acted by
unanimous written consent eight times during 1995.
The Compensation Committee was composed of Messrs. Ferguson, Ragsdale,
Slayden and Steffy and Dr. Johnson. Mr. Ragsdale ceased to be a member of the
Compensation Committee when it was combined with Option Committee. The
Compensation Committee was empowered to establish policies regarding employee
compensation and health and welfare plans and to approve the employment and
compensation arrangements of any senior officer or senior employee of the
Company. The Compensation Committee met once and acted by unanimous written
consent eight times during 1995.
The Option Committee was composed of Messrs. Ferguson and Slayden, and Dr.
Johnson. The Option Committee administered the Company's stock option plans. The
Option Committee met once and acted by unanimous written consent eleven times
during 1995.
The Audit Committee is composed of Messrs. Ferguson and McAfee, and Dr.
Cooper. The Committee is empowered, among other things, to (i) recommend
annually the appointment of independent public accountants to the Board, (ii)
review the scope of audits made by independent public accountants and the audit
reports submitted by such accountants, (iii) if the Company employs an internal
auditing staff, to determine the duties and responsibilities of such staff,
review the annual internal audit program and review audit reports submitted by
such staff, and (iv) take such action as it deems appropriate to assure that the
interests of the Company are adequately protected. The Audit Committee met five
times during 1995.
INFORMATION CONCERNING OTHER EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
OFFICER
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION AGE SINCE
- --------------------------------- --------------------------------------------------------------- --- -----------
<S> <C> <C> <C>
Ernest Bacon Executive Vice President and Chief Operating Officer since June 59 1996
Executive Vice President and 1, 1996; Chief Operating Officer of Georgia division at
Chief Operating Officer Columbia/HCA from 1995 to 1996; Regional Vice President for
Health Trust from 1992 to 1995 and Facility Manager for Health
Trust from 1990 to 1992.
Tyree G. Wilburn Executive Vice President and Chief Financial and Development 43 1992
Executive Vice President and Officer since May 1996. From February 1994 to September 1995,
Chief Financial and Development Mr. Wilburn was also responsible for corporate finance and
Officer administration. From November 1992 to April 1996, Mr. Wilburn
was Senior Vice President Acquisitions and Development. Prior
thereto, he was Vice President and served in various other
senior management positions with Humana, Inc. from 1974 to
1992.
T. Mark Buford, C.P.A. Corporate Controller since 1986 and Vice President since 1988. 43 1988
Vice President and Corporate
Controller
</TABLE>
B-4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1996, certain information as
to the shares of Common Stock beneficially owned by (i) each person who is known
by the Company to be a beneficial owner of more than five percent of the
Company's outstanding Common Stock, (ii) each director and nominee as director
of the Company, (iii) each executive officer named under the Summary
Compensation Table (except for officers who have resigned), and (iv) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNERSHIP (2)(3) OF CLASS (3)
- ------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Massachusetts Financial Services Company 1,784,320 9.11%
500 Boylston Street
Boston, Massachusetts 02116
AIM Management Group, Inc. 1,515,400 7.74%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
RCM Capital Management 1,095,100 5.59%
Four Embarcadero Center
San Francisco, California 94111-4189
Richard E. Ragsdale (4) 485,927 2.47%
E. Thomas Chaney (5) 271,432 1.38%
James T. McAfee, Jr. (6) 263,762 1.35%
M. Ray Ferguson (7) 45,499 *
George O. Johnson, Ph.D. 14,003 *
Kay W. Slayden 13,985 *
Thomas P. Cooper, M.D. -- *
Tyree G. Wilburn -- *
All directors and executive officers as a group (11 persons) 1,476,106 7.42%
</TABLE>
- ------------------------
* Less than one percent of class.
(1) The address of each named director and officer is c/o Community Health
Systems, Inc., 155 Franklin Road, Suite 400, Brentwood, Tennessee 37027.
(2) Unless otherwise indicated, such shares of Common Stock are owned directly
with sole voting and investment power.
(3) Includes the following shares issuable upon exercise of stock options that
are currently exercisable or that become exercisable within 60 days of March
15, 1996: Mr. Ragsdale, 108,000 shares; Mr. Chaney, 58,000 shares; Mr.
Ferguson, 34,834 shares; Dr. Johnson, 14,003 shares; Mr. Slayden, 7,305
shares; and all directors and officers, 314,042 shares. The shares described
in this note are deemed to be outstanding for the purpose of competing the
percentage of outstanding common stock owned by each named individual and by
the group, but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(4) Includes 188,763 shares owned by his wife and children and the Richard E.
Ragsdale Unified Credit Trust held for the benefit of his children of which
his wife serves as trustee. Also includes
B-5
<PAGE>
35,000 shares owned by the Ragsdale Family Foundation of which he serves as
President and 113,419 shares owned by the First Grantor Retained Annuity
Trust of which Mr. Ragsdale serves as trustee.
(5) Includes 184,665 shares owned by the Chaney Family Partnership, Ltd., 20,002
shares owned by The Chaney Family Foundation of which he serves as President
and 8,665 shares owned by his daughter, of which he disclaims beneficial
ownership.
(6) Includes 26,00 shares owned by the James T. and Carolyn T. McAfee
Foundation, a charitable trust of which Mr. McAfee serves as trustee.
(7) Includes 10,665 shares owned jointly with his wife.
B-6
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's Chief
Executive Officer and the Company's other five most highly compensated executive
officers whose total annual salary and bonus for 1995 exceeded $100,000 (the
"Named Executives") with respect to all services rendered to the Company during
the calendar years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS --
ANNUAL COMPENSATION (1) SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION (2)(#)
- ------------------------------------------- --------- ----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
E. Thomas Chaney .......................... 1995 $ 450,000 $ 337,500 20,000 $ 182,295
President and Chief 1994 $ 336,000 $ 342,720 100,000 $ 132,868
Executive Officer 1993 $ 313,750 $ 348,000 20,000 $ 137,857
Richard E. Ragsdale ....................... 1995 $ 265,000 $ 198,750 18,000 $ 94,261
Chairman of the Board 1994 $ 224,000 $ 228,480 100,000 $ 68,836
1993 $ 206,667 $ 229,000 20,000 $ 76,143
Martin S. Rash (3) ........................ 1995 $ 275,000 $ 165,000 15,000 $ 49,294
Executive Vice President and Chief 1994 $ 210,833 $ 143,366 50,000 $ 14,514
Operating Officer 1993 $ 133,333 $ 21,333 2,000 $ 13,336
David L. Steffy (4) ....................... 1995 $ 225,000 $ 168,750 -- $ 92,003
Vice Chairman of the Board 1994 $ 190,000 $ 193,800 -- $ 71,720
1993 $ 170,833 $ 189,000 20,000 $ 69,483
Deborah G. Moffett (5) .................... 1995 $ 173,333 $ 72,037 25,000 $ 18,858
Senior Vice President and 1994 $ 138,750 $ 56,850 12,500 $ 14,284
Chief Financial Officer 1993 $ 138,000 $ 47,200 2,000 $ 12,750
Tyree G. Wilburn (6) ...................... 1995 $ 213,500 $ 144,112 12,500 $ 28,550
Senior Vice President, 1994 $ 182,000 $ 123,760 -- $ 23,494
Acquisitions and Development 1993 $ 175,000 $ 129,000 10,000 $ 18,673
</TABLE>
- ------------------------
(1) Amounts shown include compensation earned but deferred at the election of
the executives. None of the Named Executives received perquisites and other
benefits with a value in excess of the lesser of $50,000 or 10% of such
executive's 1995 annual compensation.
(2) The amounts shown for 1995 consisted of (i) Mr. Chaney: $170,145 -- premiums
for a variable universal life insurance policy owned by him pursuant to a
supplemental welfare benefit plan ("Welfare Plan"); $4,158 -- annual
matching payment to the 401(k) Retirement and Profit-Sharing Plan ("401(k)
Plan"); and $7,992 -- matching payment to the Deferred Compensation Plan
("Deferred Plan"), (ii) Mr. Ragsdale: $87,106 -- premiums pursuant to the
Welfare Plan; $4,158 -- matching payment to the 401(k) Plan; and $2,997 --
matching payment to the Deferred Plan, (iii) Mr. Rash: $41,869 -- premiums
pursuant to the Welfare Plan; $4,158 -- matching payment to the 401(k) Plan;
and $3,267 -- matching payment to the Deferred Plan, (iv) Mr. Steffy:
$85,928 -- premiums pursuant to the Welfare Plan; $4,158 -- matching payment
to the 401(k) Plan; and $1,917 -- matching payment to the Deferred Plan, (v)
Mrs. Moffett: $13,942 -- premiums pursuant to the Welfare Plan; $4,158 --
matching payment to the 401(k) Plan; and $552 -- matching payment to the
Deferred Plan, and (vi) Mr. Wilburn: $22,785 -- premiums pursuant to the
Welfare Plan; $4,158 -- matching payment to the 401(k) Plan; and $1,607 --
matching payment to the Deferred Plan.
B-7
<PAGE>
(3) Mr. Rash resigned as Executive Vice President and Chief Operating Officer of
the Company on February 2, 1996.
(4) Mr. Steffy resigned as Senior Vice President of the Company on August 10,
1995. Mr. Steffy resigned his other positions with the Company and its
subsidiaries effective June 1, 1996. See Item 3(b)(1) of the Company's
Schedule 14D-9 attached hereto.
(5) Mrs. Moffett resigned as Senior Vice President and Chief Financial Officer
on May 15, 1996.
(6) On May 15, 1996, Mr. Wilburn was appointed Executive Vice President and
Chief Financial and Development Officer of the Company.
The following table summarizes stock option grants made during 1995 to the
Named Executives and the potential realizable values of the options, based upon
certain assumptions. The Company has no outstanding stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (1)(#) FISCAL YEAR (S/SHARES) DATE 5%($) 10%($)
- ------------------------------ -------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Chaney.............. 20,000 5.1% $ 33.875 6/30/2005 $ 426,076 $ 1,079,761
Richard E. Ragsdale........... 18,000 4.6% $ 33.875 6/30/2005 $ 383,469 $ 971,785
Martin S. Rash................ 15,000 3.8% $ 33.875 6/30/2005 $ 319,557 $ 809,820
David L. Steffy............... -- -- -- -- -- --
Deborah G. Moffett............ 25,000 6.4% $ 33.750 7/05/2005 $ 530,630 $ 1,344,720
Tyree G. Wilburn.............. 12,500 3.2% $ 33.875 6/30/2005 $ 266,298 $ 674,850
</TABLE>
- ------------------------
(1) Represent stock options to purchase Common Stock granted pursuant to the
Stock Option Plan. Options generally are exercisable in 20% annual
increments, commencing one year after the date of grant. In the event of a
"Change of Control," as defined in the options, the exercisability of the
options is accelerated.
(2) Based upon the per share market price on the date of grant and on annual
appreciation of such market price through the expiration date of such
options at the stated rates. These amounts represent assumed rates of
appreciation only and may not necessarily be achieved. Actual gains, if any,
depend on the future performance of the Common Stock, as well as the
continued employment of the Named Executives for the full term of the
options.
The following table sets forth the number of, and value realized on, shares
acquired on exercise of stock options during 1995 by each of the Named
Executives and the number of shares covered by unexercised options held by the
Named Executives and their value at December 31, 1995.
B-8
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN THE
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS AT FY-END
ACQUIRED ON VALUE OPTIONS AT FY-END (2) ($)(2)
EXERCISE REALIZED -------------------------- ----------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Chaney.............. -- -- 108,000 132,000 $ 2,461,500 $ 1,621,000
Richard E. Ragsdale........... 108,000 130,000 $ 2,381,500 $ 1,597,500
Martin S. Rash................ 36,500 $ 823,729 2,494 68,440 $ 60,698 $ 875,335
David L. Steffy............... 5,000 $ 123,438 83,000 32,000 $ 2,093,688 $ 729,750
Deborah G. Moffett............ 15,700 $ 426,118 400 45,000 $ 6,950 $ 467,775
Tyree G. Wilburn.............. 36,000 $ 951,480 24,000 58,500 $ 594,500 $ 1,176,125
</TABLE>
- ------------------------
(1) Represents the difference between the net selling price realized and the
exercise price.
(2) Represents an amount equal to the difference between the closing price of
the Company's Common Stock on the NYSE of $35.625 on December 29, 1995 minus
the option exercise price, multiplied by the number of unexercised options
at December 31, 1995.
COMPENSATION OF DIRECTORS
COMPENSATION OF DIRECTORS
Messrs. Ferguson, McAfee and Slayden and Dr. Johnson receive $2,500 per
meeting of the Board; each such director, together with Dr. Cooper, also
receives $500 per Committee meeting. Directors also are reimbursed by the
Company for out-of-pocket expenses incurred for attending meetings. Certain
directors have employment or consulting agreements with the Company. See
"Transactions with Executive Officers and Director -- Employment and Consulting
Agreements" for a description of their compensation during 1995. Directors are
also eligible to receive options to purchase shares of the Company's Common
Stock under the Fourth Amended and Restated 1986 Executive Nonqualified Stock
Option Plan (the "Stock Option Plan"). During 1995, Drs. Cooper and Johnson and
Messrs. Ferguson and Slayden were each granted an option to purchase 5,000
shares of the Company's Common Stock at $28.25 per share, the fair market value
of the shares on the date of grant. During 1995, Mr. Slayden also received
$5,000 in compensation from the Company for performing certain special projects
for the Board. Members of management receive no fees for serving as directors of
the Company.
DELINQUENT FILING OF STOCK OWNERSHIP AND TRADING REPORTS
During 1995, Mr. Ragsdale failed to report on a timely basis the acquisition
of 297 shares of Common Stock received upon the conversion of Hallmark shares in
the merger of Hallmark and a wholly-owned subsidiary of the Company on October
5, 1994, and Mr. Chaney failed to report on a timely basis the acquisition of
100 shares of Common Stock acquired on October 19, 1994 at the opening trading
ceremony for the Company's Common Stock on the New York Stock Exchange ("NYSE").
Both of these transactions were reported on Forms 5 filed on February 14, 1996.
There were no other late filings of reports on Forms 3, 4 or 5 by any director,
officer or person known by the Company to be the beneficial owner of more than
ten percent of the Company's Common Stock during 1995.
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company is a party to continuing employment agreements with Messrs.
Chaney and Ragsdale, providing for annual base salaries for 1996 of $450,000 and
$265,000, respectively. Each agreement provides for annual salary increases at
least equal to the percentage increase in the applicable consumer price index
for the preceding 12 months and for annual cash bonuses consisting
B-9
<PAGE>
of percentages of base salaries ranging from 90% for Messrs. Chaney and Ragsdale
when 100% of the Company's targeted net income per share is met. Lower bonuses
are earned if the Company achieves between 95% to 100% of such profit target. No
bonus is earned if the Company achieves less than 95% of the profit target. All
agreements provide for additional bonus payments ranging from 2.5% to 3% of base
salary for each percentage point by which the Company's performance exceeds the
profit target.
The agreements further provide for certain benefits in excess of those
provided to all other employees. Such benefits consist of participation in a
welfare benefit plan provided to all management employees in which the Company
contributes a percentage of each Named Executive's total cash compensation as
premium payments to a variable universal life insurance policy owned by the
executive; participation in the Company's Deferred Compensation Plan at a level
sufficient to restore benefits lost under the Company's 401(k) Plan due to
legislative limits; and long-term disability insurance coverage. A car is also
provided to Mr. Chaney.
Under certain Events of Termination of employment as defined below, Messrs.
Chaney and Ragsdale are entitled to receive, under the employment agreements,
severance benefits for a period of 36 months. Such benefits include the
continuation of (i) base salary at the rate in effect on the date of the
executive's termination of employment, (ii) cash bonus at the lesser of the
target bonus or the average actual bonuses earned in the preceding three years,
and (iii) continuing participation in various benefit plans. Events of
Termination include (i) the Company's termination of the executive's employment
without "good cause," as defined in the agreement, (ii) the executive's
voluntary termination following a failure of the Company to perform certain
obligations under the agreement, or (iii) the executive's voluntary termination
within twelve months following a "Change of Control," as defined in the
agreement.
The Company is a party to a continuing consulting agreement with Dr. Cooper
for serving as chairman of the Physicians Advisory Council and assisting with
other Company matters. The agreement provides for current annual compensation of
$59,808, subject to an annual increase at least equal to the percentage increase
in the applicable consumer price index for the preceding 12 months. The
agreement may be terminated by the Company subject to payment of the base
consulting fee for a period of one year following termination. Pursuant to the
consulting agreement, $58,937 was paid to Dr. Cooper during 1995.
The Company is also a party to a consulting agreement with Mr. McAfee for a
term of two years, commencing January 1, 1995. The agreement provides for an
annual consulting fee of $180,000 and office allowance of $7,500 per month
primarily for his assistance on matters relating to Hallmark. Pursuant to this
consulting agreement, the Company paid Mr. McAfee $270,000 in 1995.
For a description of the Company's current agreements with Messrs. Steffy
and Wilburn see Item 3(b) of the Company's Schedule 14D-9 attached hereto.
CERTAIN TRANSACTIONS
In connection with his initial employment as Senior Vice President,
Acquisition, the Company lent $200,000 to Mr. Wilburn, of which $100,657
remained outstanding as of March 15, 1996. No interest is payable on the loan,
which is due in annual installments as a percentage of his annual bonus payment
with the balance due on November 5, 1997.
In connection with the relocation of the Company's corporate office from
Houston to Nashville, the Company lent $100,000 to Mr. T. Mark Buford, its Vice
President and Corporate Controller. The loan is all due on December 15, 2000 and
bears no interest.
B-10
<PAGE>
COMPENSATION AND OPTION COMMITTEES' REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Option Committees (the "Committees") are responsible
for setting the Company's compensation philosophy, determining its executive
officer compensation program and administering the Company's Stock Option Plan.
The following is the Committees' report to the Board of Directors on executive
compensation for 1995.
COMPENSATION PHILOSOPHY
The Board of Directors and the Committees maintain the philosophy that the
compensation for the Company's executives should be designed to motivate and
reward them for attaining the financial and strategic objectives essential to
both the short-term and long-term profitability of the Company, while at the
same time allowing the Company to attract and retain the best executives in its
industry. Accordingly, the Committees have adopted a compensation program
consisting of base salary, bonus and long-term incentive compensation, mainly
through stock option grants. The Committees' shared objective is to have a
highly leveraged compensation program, which generally offers the executive a
salary that approximates the 50th percentile of other comparable publicly-traded
healthcare organizations, and a highly variable cash bonus opportunity that
brings total annual cash compensation to the 75th percentile of such group when
the Company achieves 100% of its profit targets. This payment structure is
designed to closely align compensation of executives with the profitability of
the Company through the cash bonus component and with stockholder value through
stock option grants that provide incentives to the executives to increase the
share price. Notwithstanding the Committees' discretion in setting compensation
levels for executives, there are certain contractual compensation commitments
that the Company has with its senior executives pursuant to their employment
agreements, which have also been received and approved by the Committees, as
described under "Executive Compensation -- Employment and Consulting
Agreements."
EXECUTIVE COMPENSATION PROGRAM
To assist the Committee in determining compensation levels for executive
officers for 1995, the Committees used a compensation survey prepared by an
independent consulting firm as its benchmark and also took into consideration
recommendations from the Chief Executive Officer in making compensation
adjustments, including stock option grants, for its executives.
BASE SALARY -- Annual salary is designed to compensate executives for their
sustained performance and is not subject to specific measurement criteria.
Salaries are reviewed on an annual basis and may be adjusted at that time based
on the Committees' subjective assessment of that individual's contribution to
the Company, level of responsibility, individual performance, and comparable pay
practices at other companies. For those executives with employment agreements,
annual base salary adjustments are in no event to be less than the percentage of
increase in certain CPI indices for the preceding 12 months. Actual 1995 base
salary adjustments for executive officers were made based on the Committees'
assessment of the foregoing factors at the end of 1994.
BONUS -- Bonus payments to executives are predicated on the Company's
success in achieving the targeted net income per share that is set by management
and approved by the Board of Directors at the beginning of each calendar year.
This profit target is generally set at an annual growth rate of 20% to 25% over
the previous year.
Targeted bonuses, calculated as a percentage of base salary, range from 30%
for vice president to 90% for the Chief Executive Officer and certain Named
Executives, if the Company achieves 100% of its target. Additional bonuses are
paid if the Company exceeds its profit target at the rate of 2% for vice
president to 3% for the Chief Executive Officer and certain Named Executives for
each percentage point over target. No bonus is paid to the executive officers if
the Company fails to achieve at least 95% of its target. In addition, certain
Named Executives (other than the Chief Executive Officer) are eligible to
receive cash bonuses up to an additional 37.5% of base salary upon achieving
certain non-financial goals mutually agreed upon by the individual executive and
the Chief Executive Officer for
B-11
<PAGE>
each calendar year. During 1995, actual bonuses ranged from 42% to 75% of base
salary for the Named Executives and was 26% for the remaining executive officer.
The actual bonuses awarded were based on the Company's having achieved 97% of
its targeted net income per share for the year, after making adjustments for
certain items pursuant to the terms of the bonus plan or the employment
agreements.
LONG-TERM INCENTIVES -- The Company provides long-term incentives to its
executives through the Stock Option Plan. Stock option grants provide the
executives with an ownership interest in the Company to help align their
financial interests with those of stockholders. They are of value to the
executives only if the share price increases, which will result in an increase
in stockholder value. The actual individual awards are not subject to specific
measurement criteria. They are based on the Option Committee's subjective
assessment of each executive's previous and anticipated future contribution to
the Company and the amount and terms of options already held by the executive.
Options are granted at the fair market value of the Company's Common Stock on
the date of grant, are generally exercisable in 20% annual increments,
commencing on the first anniversary date of the date of grant, and generally
expire 10 years after the date of grant.
Executive officers may also participate in the Company's 401(k) savings plan
and deferred compensation plan, which include employee and employer
contributions, and a welfare benefit plan, which provides additional
post-termination benefits to executive officers and certain management
employees. Under the welfare benefit plan, the Company contributes a percentage
of total cash compensation of each executive based upon his or her age and
length of service as premium payments to a variable universal life insurance
policy owned by the executive. The cash value of the policy vests in 10%
intervals annually over a 10-year period, including past service with the
Company. During 1995, the Company paid a total of $433,000, which ranged from 6%
to 22% of individual executive officer's total cash compensation.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. E. Thomas Chaney, a co-founder of the Company, has been President and
Chief Executive Officer since inception of the Company in 1985. The factors on
which Mr. Chaney's 1995 compensation was based are the same as described above
for all executive officers pursuant to the Company's executive compensation
philosophy and policies.
After reviewing the salary survey prepared by the executive compensation
consulting firm and several significant accomplishments achieved by the Company
during 1994 under Mr. Chaney's leadership, including (i) completion of a 4.1
million share Common Stock offering, (ii) increases in the Company's market
capitalization from $200 million to $500 million, (iii) the acquisition of
Hallmark which doubled the Company's revenues and hospitals, (iv) listing of the
Company's Common Stock on the New York Stock Exchange, and (v) amendment of the
Company's Revolving Credit Facility, all of which contributed to a 45% increase
in the share price of the Company's Common Stock during 1994, the Compensation
Committee increased Mr. Chaney's base salary from $336,000 to $450,000.
Consistent with the Company's compensation policies of linking pay to corporate
performance, approximately 43% of Mr. Chaney's 1995 annual compensation
consisted of his cash bonus.
In June 1995, Mr. Chaney was also granted an option under the Stock Option
Plan to purchase 20,000 shares of the Company's Common Stock. The stock option
grant was made to provide Mr. Chaney with an added incentive to continue to
increase long-term stockholder values.
B-12
<PAGE>
The Committees believe that Mr. Chaney's short-term and long-term incentive
compensation package for 1995 successfully focuses on the importance of
increasing profitability and stockholder values and achieves a highly leveraged
compensation structure that effectively aligns his compensation with the
achievement of corporate performance objectives.
<TABLE>
<CAPTION>
Compensation Committee Option Committee
- --------------------------------- ---------------------------------
<S> <C>
M. Ray Ferguson M. Ray Ferguson
George O. Johnson, Ph.D. George O. Johnson, Ph.D.
Richard E. Ragsdale Kay W. Slayden
Kay W. Slayden
David L. Steffy
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of three non-employee directors, Messrs.
Ferguson and Slayden and Dr. Johnson, and an employee director, Mr. Ragsdale,
and is responsible for setting the cash and benefit components of each executive
officer's compensation. The Option Committee consists of the three non-employee
directors who serve on the Compensation Committee and is responsible for setting
the stock option component of each executive officer's compensation.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Effective May 1, 1991, the Commission promulgated new rules under Section 16
of the Exchange Act. The Company believes that during the fiscal year ended
December 31, 1995, its executive officers and directors have complied with all
Section 16 filing requirements, except that during 1995, Mr. Ragsdale failed to
report on a timely basis the acquisition of 297 shares of Common Stock received
upon the conversion of Hallmark shares in the merger of Hallmark and a
wholly-owned subsidiary of the Company on October 5, 1994, and Mr. Chaney failed
to report on a timely basis the acquisition of 100 shares of Common Stock
acquired on October 19, 1994 at the opening trading ceremony for the Company's
Common Stock on the New York Stock Exchange ("NYSE"). Both of these transactions
were reported on Forms 5 filed on February 14, 1996. There was no other late
filings of reports on Forms 3, 4 or 5 by any director, officer or person known
by the Company to be the beneficial owner of more than ten percent of the
Company's Common Stock during 1995.
B-13
<PAGE>
ANNEX C
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK OF THE
COMPANY EFFECTIVE DURING PAST 60 DAYS
Except as set forth below, there have been no transactions in the Shares
during the past 60 days by the Company or, to the best of the Company's
knowledge, by any executive officer, director, affiliate or subsidiary of the
Company.
<TABLE>
<CAPTION>
NUMBER OF
DATE OF OPTIONS EXERCISE
PARTY EFFECTING TRANSACTION GRANT GRANTED PRICE
- -------------------------------------------------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Tyree G. Wilburn.......................................................... 4/30/1996 175,000 $ 43.37500
Ernest Bacon.............................................................. 6/3/1996 100,000 $ 44.50000
</TABLE>
C-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------------
<S> <C> <C>
Exhibit 1. Agreement and Plan of Merger, dated as of June 9, 1996, by and among Parent, the Purchaser
and the Company.
Exhibit 2. Pages 4 through 12 of the Proxy Statement, dated April 30, 1996, relating to the Company's
1996 Annual Meeting of Stockholders.
Exhibit 3. Third Amended and Restated Employment Agreement, dated April 30, 1996, between the Company
and Tyree G. Wilburn.
Exhibit 4. Letter Agreement, dated May 1, 1996, between the Company and Tyree G. Wilburn.
Exhibit 5. Employment Agreement, dated June 3, 1996, between the Company and Ernest Bacon.
Exhibit 6. Consulting Agreement, dated May 24, 1996, between the Company and David L. Steffy.
Exhibit 7. Confidentiality Agreement between Forstmann Little and the Company, dated May 6, 1996.
Exhibit 8. Engagement Letter, dated March 25, 1996, between the Company and Merrill Lynch.
Exhibit 9. Press Release issued jointly by Forstmann Little and the Company, dated June 9, 1996.
Exhibit 10. Letter to Stockholders of the Company, dated June 11, 1996.
Exhibit 11. Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated June 9, 1996.*
Exhibit 12. Amendment, dated June 9, 1996, to the Rights Agreement, dated as of September 7, 1995
between the Company and the Rights Agent.
</TABLE>
- ------------------------
* Included with Schedule 14D-9 mailed to stockholders.
<PAGE>
--------------------------------------------------
--------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
FLCH HOLDINGS CORP.\
FLCH ACQUISITION CORP.
and
COMMUNITY HEALTH SYSTEMS, INC.
Dated as of June 9, 1996
--------------------------------------------------
--------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. The Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. The Offer. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Actions by Purchaser and Merger Sub. . . . . . . . . . . 2
1.3. Actions by the Company . . . . . . . . . . . . . . . . . 3
1.4. Directors. . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . 6
2.2. The Closing. . . . . . . . . . . . . . . . . . . . . . . 6
2.3. Effective Time . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Certificate of Incorporation and Bylaws of the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1. Certificate of Incorporation . . . . . . . . . . . . . . 7
3.2. Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Directors and Officers of the Surviving Corporation. . . . . . 7
4.1. Directors. . . . . . . . . . . . . . . . . . . . . . . . 7
4.2. Officers . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Effect of the Merger on Securities of Merger Sub and
the Company. . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1. Merger Sub Stock.. . . . . . . . . . . . . . . . . . . . 8
5.2. Company Securities.. . . . . . . . . . . . . . . . . . . 9
5.3. Exchange of Certificates Representing Common Stock.. . . 10
5.4. Adjustment of Merger Consideration . . . . . . . . . . . 11
5.5. Dissenting Company Stockholders. . . . . . . . . . . . . 11
5.6. Merger Without Meeting of Stockholders . . . . . . . . . 12
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Representations and Warranties of Company. . . . . . . . . . . 12
6.1. Existence; Good Standing; Corporate Authority. . . . . . 12
6.2. Authorization, Validity and Effect of Agreements . . . . 13
6.3. Compliance with Laws . . . . . . . . . . . . . . . . . . 13
i
<PAGE>
6.4. Capitalization . . . . . . . . . . . . . . . . . . . . . 13
6.5. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 14
6.6. No Violation . . . . . . . . . . . . . . . . . . . . . . 15
6.7. Company Reports; Offer Documents . . . . . . . . . . . . 15
6.8. Litigation . . . . . . . . . . . . . . . . . . . . . . . 17
6.9. Absence of Certain Changes . . . . . . . . . . . . . . . 17
6.10. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.11. Employee Benefit Plans . . . . . . . . . . . . . . . . . 18
6.12. Labor and Employment Matters . . . . . . . . . . . . . . 20
6.13. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . 20
6.14. Licenses and Permits . . . . . . . . . . . . . . . . . . 20
6.15. Medicare Participation/Accreditation . . . . . . . . . . 21
6.16. Medicare/Medicaid Compliance . . . . . . . . . . . . . . 21
6.17. Environmental Compliance and Disclosure. . . . . . . . . 22
6.18. Title to Assets. . . . . . . . . . . . . . . . . . . . . 22
6.19. Material Contracts . . . . . . . . . . . . . . . . . . . 23
6.20. Required Vote of Company Stockholders. . . . . . . . . . 23
6.21. Rights Agreement . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. Representations and Warranties of Purchaser and Merger Sub.. . 24
7.1. Existence; Good Standing; Corporate Authority. . . . . . 24
7.2. Authorization, Validity and Effect of Agreements . . . . 24
7.3. Offer Documents. . . . . . . . . . . . . . . . . . . . . 24
7.4. No Violation . . . . . . . . . . . . . . . . . . . . . . 25
7.5. Financing. . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1. No Solicitation. . . . . . . . . . . . . . . . . . . . . 26
8.2. Interim Operations . . . . . . . . . . . . . . . . . . . 27
8.3. Company Stockholder Approval; Proxy Statement. . . . . . 28
8.4. Filings; Other Action. . . . . . . . . . . . . . . . . . 30
8.5. Access to Information. . . . . . . . . . . . . . . . . . 31
8.6. Publicity. . . . . . . . . . . . . . . . . . . . . . . . 31
8.7. Further Action . . . . . . . . . . . . . . . . . . . . . 32
8.8. Insurance; Indemnity.. . . . . . . . . . . . . . . . . . 32
8.9. Restructuring of Merger. . . . . . . . . . . . . . . . . 34
8.10. Employee Benefit Plans . . . . . . . . . . . . . . . . . 34
8.11. No Liability for Failure to Obtain Consent of Lenders. . 34
ii
<PAGE>
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. Conditions.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1. Conditions to Each Party's Obligation to Effect the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . 35
9.2. Conditions to Obligation of Purchaser and Merger Sub to
Effect the Merger . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10. Termination; Amendment; Waiver.. . . . . . . . . . . . . . . . 36
10.1. Termination . . . . . . . . . . . . . . . . . . . . . . 36
10.2. Effect of Termination . . . . . . . . . . . . . . . . . 37
10.3. Amendment . . . . . . . . . . . . . . . . . . . . . . . 37
10.4. Extension; Waiver . . . . . . . . . . . . . . . . . . . 38
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11. General Provisions. . . . . . . . . . . . . . . . . . . . . . 38
11.1. Nonsurvival of Representations and Warranties . . . . . 38
11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . 38
11.3. Assignment; Binding Effect. . . . . . . . . . . . . . . 39
11.4. Entire Agreement. . . . . . . . . . . . . . . . . . . . 39
11.5. Fees and Expenses . . . . . . . . . . . . . . . . . . . 39
11.6. Governing Law . . . . . . . . . . . . . . . . . . . . . 41
11.7. Headings. . . . . . . . . . . . . . . . . . . . . . . . 42
11.8. Interpretation. . . . . . . . . . . . . . . . . . . . . 42
11.9. Investigations. . . . . . . . . . . . . . . . . . . . . 42
11.10. Severability. . . . . . . . . . . . . . . . . . . . . . 42
11.11. Enforcement of Agreement. . . . . . . . . . . . . . . . 42
11.12. Counterparts. . . . . . . . . . . . . . . . . . . . . . 43
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of June 9,
1996, between FLCH Holdings Corp., a Delaware corporation ("PURCHASER"), FLCH
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Purchaser ("MERGER SUB"), and Community Health Systems, Inc., a Delaware
corporation (the "COMPANY").
RECITALS
WHEREAS, the Boards of Directors of Purchaser and the Company each
have determined that it is in the best interests of their respective companies
and stockholders for Purchaser to acquire the Company upon the terms and subject
to the conditions set forth herein.
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection herewith.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE OFFER
1.1 THE OFFER.
(a) Subject to the provisions of this Agreement and this Agreement not
having been terminated, as promptly as practicable but in no event later than
June 14, 1996, Merger Sub shall, and Purchaser shall cause Merger Sub to,
commence, within the meaning of Rule 14d-2 under the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"EXCHANGE ACT"), an offer to purchase all of the outstanding shares of Common
Stock, par value $.01 per share (the "COMMON STOCK") of the Company together
with the associated Rights (as hereinafter defined), at a price of $52.00
(fifty-two dollars) per share of Common Stock net to the seller in cash (the
"OFFER"). Except where the context otherwise requires, all references herein to
the shares of Common Stock shall include the associated Rights. The obligation
of Merger Sub to, and of Purchaser to cause Merger Sub to, commence the Offer
and accept for payment, and pay for, any shares of Common Stock tendered
pursuant to the Offer shall be subject to the conditions set forth in EXHIBIT A
and to the terms and conditions of this Agreement. Subject to the provisions of
this Agreement, the Offer shall expire 20 business days after the date of its
commencement, unless this Agreement is terminated in accordance with ARTICLE 10,
in which case the Offer
<PAGE>
(whether or not previously extended in accordance with the terms hereof) shall
expire on such date of termination.
(b) Without the prior written consent of the Company, Merger Sub shall not
(i) waive the Minimum Condition (as defined in EXHIBIT A), (ii) reduce the
number of shares of Common Stock subject to the Offer, (iii) reduce the price
per share of Common Stock to be paid pursuant to the Offer, (iv) extend the
Offer if all of the Offer conditions are satisfied or waived, (v) change the
form of consideration payable in the Offer, or (vi) amend or modify any term or
condition of the Offer (including the conditions set forth on EXHIBIT A) in any
manner adverse to the holders of Common Stock. Notwithstanding anything herein
to the contrary, Merger Sub may, in its sole discretion without the consent of
the Company, extend the Offer at any time and from time to time (i) if at the
then scheduled expiration date of the Offer any of the conditions to Merger
Sub's obligation to accept for payment and pay for shares of Common Stock shall
not have been satisfied or waived; (ii) for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange Commission
(the "SEC") or its staff applicable to the Offer; (iii) for any period required
by applicable law in connection with an increase in the consideration to be paid
pursuant to the Offer; and (iv) if all Offer conditions are satisfied or waived
but the number of shares of Common Stock tendered is 85% or more, but less than
90%, of the then outstanding number of shares of Common Stock, for an aggregate
period of not more than 5 business days (for all such extensions under this
clause (iv)) beyond the latest expiration date that would be permitted under
clause (i), (ii) or (iii) of this sentence. So long as this Agreement is in
effect and the Offer conditions have not been satisfied or waived, at the
request of the Company, Merger Sub shall, and Purchaser shall cause Merger Sub
to, extend the Offer for an aggregate period of not more than 20 business days
(for all such extensions) beyond the originally scheduled expiration date of the
Offer. Subject to the terms and conditions of the Offer and this Agreement (but
subject to the right of termination in accordance with ARTICLE 10), Merger Sub
shall, and Purchaser shall cause Merger Sub to, accept for payment, in
accordance with the terms of the Offer, all shares of Common Stock validly
tendered and not withdrawn pursuant to the Offer as soon as practicable after
the expiration of the Offer.
1.2. ACTIONS BY PURCHASER AND MERGER SUB.
(a) As soon as reasonably practicable following execution of this
Agreement, but in no event later than five business days from the date hereof,
Purchaser and Merger Sub shall file with the SEC a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer, which shall contain an offer to
purchase and a related letter of transmittal and any other ancillary documents
pursuant to which the Offer shall be made (such Schedule 14D-1 and the documents
therein pursuant to which the Offer will be made, together with any supplements
or amendments thereto, the "OFFER DOCUMENTS"). The Company and its counsel
shall
2
<PAGE>
be given an opportunity to review and comment upon the Offer Documents prior to
the filing thereof with the SEC. The Offer Documents shall comply as to form in
all material respects with the requirements of the Exchange Act, and on the date
filed with the SEC and on the date first published, sent or given to the
Company's stockholders, the Offer Documents shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by Purchaser or Merger Sub with respect to information
supplied by the Company for inclusion in the Offer Documents. Each of
Purchaser, Merger Sub and the Company agrees promptly to correct any information
provided by it for use in the Offer Documents if and to the extent that such
information shall have become false or misleading in any material respect, and
each of Purchaser, Merger Sub and the Company further agrees to take all steps
necessary to cause the Offer Documents as so corrected to be filed with the SEC
and to be disseminated to holders of shares of Common Stock, in each case as and
to the extent required by applicable federal securities laws. Purchaser and
Merger Sub agree to provide the Company and its counsel in writing with any
comments Purchaser, Merger Sub or their counsel may receive from the SEC or its
staff with respect to the Offer Documents promptly after receipt of such
comments and with copies of any written responses and telephonic notification of
any verbal responses by Purchaser, Merger Sub or their counsel.
(b) Purchaser shall provide or cause to be provided to Merger Sub all of
the funds necessary to purchase any shares of Common Stock that Merger Sub
becomes obligated to purchase pursuant to the Offer.
1.3. ACTIONS BY THE COMPANY.
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that the Board of Directors of the Company (the "BOARD
OF DIRECTORS" or the "BOARD") at a meeting duly called and held has duly
adopted, by unanimous vote, resolutions (i) approving this Agreement, the Offer
and the Merger (as hereinafter defined), determining that the Merger is
advisable and that the terms of the Offer and Merger are fair to, and in the
best interests of, the Company's stockholders and recommending that the
Company's stockholders accept the Offer and approve the Merger and this
Agreement, and (ii) taking all action necessary to render (x) Section 203 of the
Delaware General Corporation Law (the "DGCL"), (y) Article IX of the Company's
Certificate of Incorporation, and (z) the Company's Rights Agreement, dated as
of September 7, 1995, between the Company and First Union Bank of North
Carolina, as trustee (the "RIGHTS AGREEMENT") inapplicable to the Offer, the
Merger and this Agreement or any of the transactions contemplated hereby or
thereby. The Company further represents and warrants that the Board of
Directors has received the written opinion of Merrill Lynch & Co. (the
"FINANCIAL ADVISOR") that the proposed consideration to be received by the
3
<PAGE>
holders of shares of Common Stock pursuant to the Offer and the Merger is fair
to such holders from a financial point of view (the "FAIRNESS OPINION"). The
Company hereby consents to the inclusion in the Offer Documents of the
recommendation of the Board of Directors described in the first sentence of this
SECTION 1.3(A). The Company hereby represents and warrants that it has been
authorized by the Financial Advisor to permit the inclusion of the Fairness
Opinion and references thereto, subject to prior review and consent by the
Financial Advisor (such consent not to be unreasonably withheld) in the Offer
Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy Statement
(as hereinafter defined).
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-
9 with respect to the Offer (such Schedule 14D-9, as amended from time to time,
the "SCHEDULE 14D-9") containing the recommendations described in paragraph (a)
above and shall mail the Schedule 14D-9 to the stockholders of the Company. To
the extent practicable, the Company shall cooperate with Purchaser in mailing or
otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents
to the Company's stockholders. Purchaser and its counsel shall be given an
opportunity to review and comment upon the Schedule 14D-9 prior to the filing
thereof with the SEC. The Schedule 14D-9 shall comply as to form in all
material respects with the requirements of the Exchange Act and, on the date
filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Purchaser or Merger
Sub for inclusion in the Schedule 14D-9. Each of the Company, Purchaser and
Merger Sub agrees promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that such information shall have become
false or misleading in any material respect, and the Company further agrees to
take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed
with the SEC and to be disseminated to the holders of shares of Common Stock, in
each case as and to the extent required by applicable federal securities laws.
The Company agrees to provide Purchaser and Merger Sub and their counsel in
writing with any comments the Company or its counsel may receive from the SEC or
its staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments and with copies of any written responses and telephonic notification of
any verbal responses by the Company or its counsel.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Merger Sub with mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies of
all lists of stockholders, security position listings and computer files and all
other
4
<PAGE>
information in the Company's possession or control regarding the beneficial
owners of Common Stock, and shall furnish to Merger Sub such information and
assistance (including updated lists of stockholders, security position listings
and computer files) as Merger Sub may reasonably request in communicating the
Offer to the Company's stockholders. Subject to the requirements of law, and
except for such steps as are necessary to disseminate the Offer Documents and
any other documents necessary to consummate the Offer and the Merger, Purchaser
and Merger Sub and each of their affiliates and associates shall hold in
confidence the information contained in any of such labels, lists and files,
shall use such information only in connection with the Offer and the Merger,
and, if this Agreement is terminated, shall promptly deliver to the Company all
copies of such information then in their possession.
(d) Subject to the terms and conditions of this Agreement, if there shall
occur a change in law or in a binding judicial interpretation of existing law
which would, in the absence of action by the Company or the Board, prevent the
Merger Sub, were it to acquire a specified percentage of the shares of Common
Stock then outstanding, from approving and adopting this Agreement by its
affirmative vote as the holder of a majority of shares of Common Stock and
without the affirmative vote of any other stockholder, the Company will use its
best efforts to promptly take or cause such action to be taken.
1.4. DIRECTORS.
(a) Promptly upon the purchase of shares of Common Stock pursuant to the
Offer, Purchaser shall be entitled to designate such number of directors,
rounded up to the next whole number, as will give Purchaser representation on
the Board of Directors equal to the product of (i) the number of directors on
the Board of Directors and (ii) the percentage that the number of shares of
Common Stock purchased by Merger Sub or Purchaser or any affiliate bears to the
number of shares of Common Stock outstanding (the "PERCENTAGE"), and the Company
shall, upon request by Purchaser, promptly increase the size of the Board of
Directors and/or exercise its best efforts to secure the resignations of such
number of directors as is necessary to enable Purchaser's designees to be
elected to the Board of Directors and shall cause the Purchaser's designees to
be so elected. At the request of Purchaser, the Company will use its best
efforts to cause such individuals designated by Purchaser to constitute the same
Percentage of (i) each committee of the Board, (ii) the board of directors of
Community Health Investment Corporation and Hallmark Healthcare Corporation and
(iii) the committees of each such board of directors. The Company's obligations
to appoint designees to the Board of Directors shall be subject to Section 14(f)
of the Exchange Act. The Company shall take, at its expense, all action
necessary to effect any such election, and shall include in the Schedule 14D-9
the information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Purchaser will supply to Company in writing and be
solely responsible
5
<PAGE>
for any information with respect to itself and its nominees, directors and
affiliates required by Section 14(f) and Rule 14f-1. Notwithstanding the
foregoing, the parties hereto shall use their respective best efforts to ensure
that at least two of the members of the Board of Directors shall at all times
prior to the Effective Time (as hereinafter defined) be Continuing Directors (as
hereinafter defined).
(b) Following the election or appointment of Purchaser's designees
pursuant to this SECTION 1.4 and prior to the Effective Time, the approval of a
majority of the directors of the Company then in office who are not designated
by Purchaser (the "CONTINUING DIRECTORS") shall be required to authorize (and
such authorization shall constitute the authorization of the Board of Directors
and no other action on the part of the Company, including any action by any
other director of the Company, shall be required to authorize) any termination
of this Agreement by the Company, any amendment of this Agreement requiring
action by the Board of Directors, any extension of time for the performance of
any of the obligations or other acts of Purchaser or Merger Sub, and any waiver
of compliance with any of the agreements or conditions contained herein for the
benefit of the Company.
ARTICLE 2
THE MERGER
2.1. THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in SECTION 2.3), Merger Sub shall be merged with
and into the Company in accordance with this Agreement and the applicable
provisions of the DGCL, and the separate corporate existence of Merger Sub shall
thereupon cease (the "MERGER"). The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "SURVIVING
CORPORATION"). The Merger shall have the effects specified in the DGCL.
2.2. THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "CLOSING") shall take place at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New
York, at 10:00 a.m., local time, as soon as practicable following the
satisfaction (or waiver if permissible) of the conditions set forth in ARTICLE
9. The date on which the Closing occurs is hereinafter referred to as the
"CLOSING DATE."
2.3. EFFECTIVE TIME. If all the conditions to the Merger set forth in
ARTICLE 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in ARTICLE 10, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have
6
<PAGE>
agreed upon and designated in such filing as the effective time of the Merger
(the "EFFECTIVE TIME").
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
the Surviving Corporation shall be in the form attached hereto as EXHIBIT B,
until duly amended in accordance with applicable law.
3.2. BYLAWS. The Bylaws of Merger Sub in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation, until
duly amended in accordance with applicable law.
ARTICLE 4
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
4.1. DIRECTORS. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
4.2. OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
ARTICLE 5
EFFECT OF THE MERGER ON SECURITIES
OF MERGER SUB AND THE COMPANY
5.1. MERGER SUB STOCK. At the Effective Time, each share of common
stock, $.01 Par value per share, of Merger Sub outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock, $.01 Par value per share,
of the Surviving Corporation.
7
<PAGE>
5.2. COMPANY SECURITIES.
(a) At the Effective Time, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of Common
Stock owned by Purchaser or Merger Sub or held by the Company, all of which
shall be cancelled, and other than shares of Dissenting Common Stock (as
hereinafter defined)) shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive the per
share consideration in the Offer, without interest (the "MERGER CONSIDERATION").
(b) As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time all shares of Common Stock shall cease
to be outstanding and shall be cancelled and retired and shall cease to exist,
and each holder of shares of Common Stock (other than Merger Sub, Purchaser and
the Company) shall thereafter cease to have any rights with respect to such
shares of Common Stock, except the right to receive, without interest, the
Merger Consideration in accordance with SECTION 5.3 upon the surrender of a
certificate or certificates (a "CERTIFICATE") representing such shares of Common
Stock.
(c) Each share of Common Stock issued and held in the Company's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
(d) All options (individually, an "OPTION" and collectively, the
"OPTIONS") outstanding immediately prior to the Effective Time under any Company
stock option plan (the "STOCK OPTION PLANS"), whether or not then exercisable,
shall be cancelled and each holder of an Option will be entitled to receive from
the Surviving Corporation, for each share of Common Stock subject to an Option,
an amount in cash equal to the excess, if any, of the Merger Consideration over
the per share exercise price of such Option, without interest. The amounts
payable pursuant to this SECTION 5.2(d) shall be paid (i) with respect to shares
of Common Stock subject to Options held by employees who are ranked for
compensation purposes below the level of corporate vice-president of the Company
and by non-employees of the Company or its Subsidiaries who hold Options, at the
Effective Time and (ii) with respect to shares of Common Stock subject to
Options held by employees who are ranked for compensation purposes at or above
such level, at the time or times the Option or portion of an Option will become
exercisable in accordance with its terms as in effect on the date hereof (or, to
the extent the Option is already exercisable at the Effective Time, payment
shall be made at the Effective Time), provided the holder of the Option
continues in employment with the Company at the time the payment is due and
provided further that the entire amount shall come due and payable if the holder
of the Option shall be terminated without cause prior to the first anniversary
of the Effective Time. All amounts payable pursuant to this SECTION 5.2(d)
shall be subject to all applicable withholding
8
<PAGE>
of taxes. The Company shall use its reasonable best efforts to obtain all
necessary consents of the holders of Options, provided, however, that the
failure of the Company to obtain any one or more of such consents shall have no
effect on the Purchaser's and Merger Sub's obligation to consummate the Offer
and the Merger and shall not afford any basis for them to assert the condition
set forth in clause (ii) of paragraph (d) of Exhibit A.
5.3. EXCHANGE OF CERTIFICATES REPRESENTING COMMON STOCK.
(a) Prior to the Effective Time, Purchaser shall appoint a
commercial bank or trust company having net capital of not less than $20
million, or such other party reasonably satisfactory to the Company, to act as
paying agent hereunder for payment of the Merger Consideration upon surrender of
Certificates (the "PAYING AGENT"). Purchaser shall cause the Surviving
Corporation to provide the Paying Agent with cash in amounts necessary to pay
for all the shares of Common Stock pursuant to SECTION 5.2(a) and, in
connection with the Options, pursuant to SECTION 5.2(d), as and when such
amounts are needed by the Paying Agent. Such amounts shall hereinafter be
referred to as the "EXCHANGE FUND."
(b) Promptly after the Effective Time, Purchaser shall cause the
Paying Agent to mail to each holder of record of shares of Common Stock (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to such Certificates shall pass, only upon delivery of
the Certificates to the Paying Agent and which letter shall be in such form and
have such other provisions as Purchaser may reasonably specify and (ii)
instructions for effecting the surrender of such Certificates in exchange for
the Merger Consideration. Upon surrender of a Certificate to the Paying Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate shall
promptly receive in exchange therefor the amount of cash into which shares of
Common Stock theretofore represented by such Certificate shall have been
converted pursuant to SECTION 5.2, and the shares represented by the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or will
accrue on the cash payable upon surrender of any Certificate. In the event of a
transfer of ownership of Common Stock which is not registered in the transfer
records of the Company, payment may be made with respect to such Common Stock to
such a transferee if the Certificate representing such shares of Common Stock is
presented to the Paying Agent, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on
the stock transfer books of the company of the shares of Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time,
9
<PAGE>
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged as provided in this ARTICLE 5.
(d) Any portion of the Exchange Fund (including the proceeds of any
interest and other income received by the Paying Agent in respect of all such
funds) that remains unclaimed by the former stockholders of the Company six
months after the Effective Time shall be delivered to the Surviving Corporation.
Any former stockholders of the Company who have not theretofore complied with
this ARTICLE 5 shall thereafter look only to the Surviving Corporation for
payment of any Merger Consideration that may be payable in respect of each share
of Common Stock such stockholder holds as determined pursuant to this Agreement,
without any interest thereon.
(e) None of Purchaser, the Company, the Surviving Corporation, the
Paying Agent or any other person shall be liable to any former holder of shares
of Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(F) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Paying Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
payable in respect thereof pursuant to this Agreement.
5.4. ADJUSTMENT OF MERGER CONSIDERATION. If, subsequent to the date
of this Agreement but prior to the Effective Time, the outstanding shares of
Common Stock shall have been changed into a different number of shares or a
different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, split, combination, exchange,
recapitalization or other similar transaction, the Merger Consideration shall be
appropriately adjusted.
5.5. DISSENTING COMPANY STOCKHOLDERS. Notwithstanding any provision
of this Agreement to the contrary, if required by the DGCL but only to the
extent required thereby, shares of Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "DISSENTING COMMON
STOCK") will not be exchangeable for the right to receive the Merger
Consideration, and holders of such shares of Dissenting Common Stock will be
entitled to receive payment of the appraised value of such shares of Common
Stock in accordance with the provisions of such Section 262 unless and until
such holders fail to perfect or effectively withdraw or lose their rights to
appraisal and payment under the
10
<PAGE>
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such shares of Common Stock will
thereupon be treated as if they had been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. The Company will give Purchaser
prompt notice of any demands received by the Company for appraisals of shares of
Common Stock. The Company shall not, except with the prior written consent of
Purchaser, make any payment with respect to any demands for appraisal or offer
to settle or settle any such demands.
5.6. MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding the
foregoing but subject to the provisions of Section 8.3(f), if Merger Sub, or any
other direct or indirect subsidiary of Purchaser, shall acquire at least 90
percent of the outstanding shares of Common Stock, the parties hereto shall take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser and Merger Sub
as follows:
6.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of the
Company and its Significant Subsidiaries (as hereinafter defined) is (i) a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and (ii) is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified or to be in
good standing, individually or in the aggregate, would not have a Material
Adverse Effect (as hereinafter defined). Each of the Company and its
Significant Subsidiaries has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted,
except where the failure to have such power and authority, individually or in
the aggregate, would not have a Material Adverse Effect. The Company has no
reason to believe that the representations and warranties contained in the
preceding two sentences are not also true of its Subsidiaries. The Company has
heretofore delivered to Purchaser true and correct copies of the Company's
Certificate of Incorporation and Bylaws as currently in effect.
6.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company
has the requisite corporate power and authority to execute and deliver
11
<PAGE>
this Agreement and all agreements and documents contemplated hereby or executed
in connection herewith (the "ANCILLARY DOCUMENTS") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Ancillary Documents by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby have been
duly and validly authorized by the Board of Directors, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Ancillary Documents or to consummate the transactions contemplated
hereby and thereby (other than the approval of this Agreement by the holders of
a majority of the shares of Common Stock if required by applicable law). This
Agreement has been, and any Ancillary Document at the time of execution will
have been, duly and validly executed and delivered by the Company, and (assuming
this Agreement and such Ancillary Documents each constitutes a valid and binding
obligation of the Purchaser and Merger Sub) constitutes and will constitute the
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, moratorium
or other similar laws relating to creditors' rights and general principles of
equity.
6.3. COMPLIANCE WITH LAWS. Except as set forth in the Company Reports
(as hereinafter defined), each of the Company and its Subsidiaries is in
compliance with all applicable foreign, federal, state or local laws, statutes,
ordinances, rules, regulations, orders, judgments, rulings and decrees ("LAWS")
of any foreign, federal, state or local judicial, legislative, executive,
administrative or regulatory body or authority or any court, arbitration, board
or tribunal ("GOVERNMENTAL ENTITY"), except where the failure to be in
compliance, individually or in the aggregate, would not have a Material Adverse
Effect.
6.4. CAPITALIZATION. The authorized capital stock of the Company
consists of 45,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock, $.01 par value, of which 830,000 shares have been designated as Series A
Junior Participating Preferred Stock ("PREFERRED STOCK"). As of June 6, 1996,
(a) 19,731,068 shares of Common Stock were issued and outstanding, (b) 830,000
shares of Preferred Stock were subject to Preferred Stock Purchase Rights
("RIGHTS") issued pursuant to the Company's Rights Agreement and no other shares
of Preferred Stock are issued and outstanding, (c) Options to purchase an
aggregate of 2,017,515 shares of Common Stock were outstanding, 2,017,515 shares
of Common Stock were reserved for issuance upon the exercise of outstanding
Options and 42,666 shares were reserved for future grants under the Stock Option
Plans, and there are no stock appreciation rights or limited stock appreciation
rights outstanding other than those attached to such Options, (d) no shares of
Common Stock were held by the Company in its treasury, and (e) no shares of
capital stock of the Company were held by the Company's Subsidiaries. Except
for the Rights, the Company has no outstanding bonds, debentures, notes or other
obligations entitling the holders thereof to vote (or which are convertible into
or exercisable for securities having the right to vote) with the stockholders of
12
<PAGE>
the Company on any matter. Since June 6, 1996, the Company (i) has not issued
any shares of Common Stock other than upon the exercise of Options, (ii) has
granted no Options to purchase shares of Common Stock under the Stock Option
Plans, and (iii) has not split, combined or reclassified any of its shares of
capital stock. All issued and outstanding shares of Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except for the Rights and except as set forth in this SECTION 6.4 or in
SCHEDULE 6.4, there are no other shares of capital stock or voting securities of
the Company, and no existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate the Company or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock of, or equity interests in, the Company or any of its
Subsidiaries. There are no outstanding obligations of the Company or any
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company and there are no performance awards outstanding under the
Stock Option Plan or any other outstanding stock related awards. After the
Effective Time, the Surviving Corporation will have no obligation to issue,
transfer or sell any shares of capital stock of the Company or the Surviving
Corporation pursuant to any Company Benefit Plan (as defined in SECTION 6.11).
There are no voting trusts or other agreements or understandings to which the
Company or any of its Subsidiaries is a party with respect to the voting of
capital stock of the Company or any of its Subsidiaries.
6.5. SUBSIDIARIES. Except as set forth in SCHEDULE 6.5, (i) the
Company owns, directly or indirectly through a Subsidiary, all of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect directors or others performing
similar functions with respect to such Subsidiary) of each of the Company's
Subsidiaries, and (ii) each of the outstanding shares of capital stock of each
of the Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by the Company free and
clear of all liens, pledges, security interests, claims or other encumbrances
("ENCUMBRANCES") except (in the case of Subsidiaries which are not Significant
Subsidiaries for Encumbrances which individually or in the aggregate would not
have a Material Adverse Effect. SCHEDULE 6.5 sets forth for each Subsidiary of
the Company: (i) its name and jurisdiction of incorporation or organization;
(ii) its authorized capital stock or share capital; (iii) the number of issued
and outstanding shares of capital stock or share capital; (iv) the holder or
holders of such shares; and (v) whether such Subsidiary is a Significant
Subsidiary. Except for interests in the Company's Subsidiaries or as set forth
in SCHEDULE 6.5, neither the Company nor any of its Subsidiaries owns directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or other entity.
6.6. NO VIOLATION. Except as set forth in SCHEDULE 6.6, neither the
execution and delivery by the Company of this Agreement or any of the Ancillary
Documents nor the consummation by the Company of the transactions
13
<PAGE>
contemplated hereby or thereby will: (i) violate, conflict with or result in a
breach of any provisions of the Certificate of Incorporation or Bylaws of the
Company; (ii) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination or in a right of
termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment or other obligations pursuant to,
result in the creation of any Encumbrance upon any of the properties of the
Company or its Subsidiaries under, or result in there being declared void,
voidable, or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any license,
franchise, permit, lease, contract, agreement or other instrument, commitment or
obligation to which the Company or any of its Subsidiaries is a party, or by
which the Company or any of its Subsidiaries or any of their respective
properties is bound (each, a "CONTRACT" and collectively, "CONTRACTS"), except
for any of the foregoing matters which individually or in the aggregate would
not have a Material Adverse Effect; (iii) other than the filings provided for in
SECTION 2.3 and the filings required under the Exchange Act and the Securities
Act of 1933, as amended (the "SECURITIES ACT"), require any consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Entity, the lack of which individually or in the aggregate would have a Material
Adverse Effect or by Law prevent the consummation of the transactions
contemplated hereby; and (iv) violate any Laws applicable to the Company, any of
its Subsidiaries or any of their respective assets, except for violations which
individually or in the aggregate would not have a Material Adverse Effect or
materially adversely affect the ability of the Company to consummate the
transactions contemplated hereby.
6.7. COMPANY REPORTS; OFFER DOCUMENTS.
(a) The Company has delivered to Purchaser each registration
statement, report, proxy statement or information statement (as defined under
the Exchange Act) prepared by it since January 1, 1993, each in the form
(including exhibits and any amendments thereto) filed with the SEC
(collectively, the "COMPANY REPORTS"). As of their respective dates, (i) the
Company Reports filed since December 31, 1994 complied as to form in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act, and the rules and regulations thereunder and (ii) the Company
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of the Company
included in or incorporated by reference into the Company Reports (including the
related notes and schedules) fairly presents the consolidated financial position
of the Company and its Subsidiaries as of its date, and each of the consolidated
statements of income, retained earnings and cash flows of the Company included
in or incorporated by
14
<PAGE>
reference into the Company Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of the Company and its Subsidiaries for the periods set forth
therein, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein. Except as set forth in SCHEDULE 6.7, neither the Company nor any
of its Subsidiaries has any liabilities or obligations, contingent or otherwise,
except (i) liabilities and obligations in the respective amounts reflected or
reserved against in the Company's consolidated balance sheet as of March 31,
1996 included in the Company Reports or (ii) liabilities and obligations
incurred in the ordinary course of business since April 1, 1996 which
individually or in the aggregate would not have a Material Adverse Effect.
(b) None of the Schedule 14D-9, the information statement, if any,
filed by the Company in connection with the Offer pursuant to Rule 14f-1 under
the Exchange Act (the "INFORMATION STATEMENT"), any schedule required to be
filed by the Company with the SEC or any amendment or supplement thereto, at the
respective times such documents are filed with the SEC or first published, sent
or given to the Company's stockholders, will contain any untrue statement of a
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading except that no
representation is made by the Company with respect to information supplied by
the Purchaser or Merger Sub specifically for inclusion in the Schedule 14D-9 or
Information Statement or any amendment or supplement. None of the information
supplied or to be supplied by the Company in writing specifically for inclusion
or incorporation by reference in the Offer Documents will, at the date of filing
with the SEC, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time the Company
shall obtain knowledge of any facts with respect to itself, any of its officers
and directors or any of its Subsidiaries that would require the supplement or
amendment to any of the foregoing documents in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or to comply with applicable Laws, such amendment or supplement
shall be promptly filed with the SEC and, as required by Law, disseminated to
the stockholders of the Company, and in the event Purchaser shall advise the
Company as to its obtaining knowledge of any facts that would make it necessary
to supplement or amend any of the foregoing documents, the Company shall
promptly amend or supplement such document as required and distribute the same
to its stockholders.
6.8. LITIGATION. Except as set forth in SCHEDULE 6.8 or in the
Company Reports, (i) there are no claims, actions, suits, proceedings,
arbitrations, investigations or audits (collectively, "LITIGATION") by a
Governmental Entity pending
15
<PAGE>
or, to the knowledge of the Company through receipt of written notice,
threatened against the Company or any of its Subsidiaries, at law or in equity,
other than those in the ordinary course of business which individually or in the
aggregate would not have a Material Adverse Effect, and (ii) there are no
claims, actions, suits, proceedings, or arbitrations by a non-Governmental
Entity third party pending or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, at law or at equity, other than
those in the ordinary course of business which individually or in the aggregate
would not have a Material Adverse Effect. Except as set forth in the Company
Reports, no Governmental Entity has indicated in writing an intention to conduct
any audit, investigation or other review with respect to the Company or any of
its Subsidiaries which investigation or review, if adversely determined,
individually or in the aggregate would have a Material Adverse Effect.
6.9. ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE
6.9 or in the Company Reports, since December 31, 1995, the Company and its
Subsidiaries have conducted their business only in the ordinary course of such
business consistent with past practices, and there has not been (i) any events
or states of fact which individually or in the aggregate would have a Material
Adverse Effect; (ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to its capital stock; (iii) (during the
period following May 31, 1996) any repurchase, redemption or any other
acquisition by the Company or its Subsidiaries of any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Company or its Subsidiaries; (iv) any material change in accounting principles,
practices or methods; (v) any entry into any employment agreement with, or any
increase in the rate or terms (including, without limitation, any acceleration
of the right to receive payment) of compensation payable or to become payable by
the Company or any of its Subsidiaries to, their respective directors, officers
or employees, except increases occurring, and employment agreements entered
into, which are substantially consistent with the revised 1996 budget of the
Company taken as a whole previously provided to the Purchaser (the " REVISED
1996 BUDGET") (it being understood that the acquisition of employees as part of
the acquisition of hospitals or other healthcare facilities is not covered by
this clause (v) or clause (vi) below); or (vi) any increase in the rate or terms
(including, without limitation, any acceleration of the right to receive
payment) of any bonus, insurance, pension or other employee benefit plan or
arrangement covering any such directors, officers or employees, except increases
which are consistent with the Revised 1996 Budget.
6.10. TAXES. Except as set forth in SCHEDULE 6.10, the Company and
each of its Subsidiaries have timely filed all material Tax Returns required to
be filed by any of them. All such Tax Returns are true, correct and complete,
except for such instances which individually or in the aggregate would not have
a Material Adverse Effect. All Taxes of the Company and its Subsidiaries which
are (i) shown as due on such Returns, (ii) otherwise due and payable or (iii)
claimed or asserted
16
<PAGE>
by any taxing authority to be due, have been paid, except for those Taxes being
contested in good faith and for which adequate reserves have been established in
the financial statements included in the Company Reports in accordance with
generally accepted accounting principles. The Company does not know of any
proposed or threatened Tax claims or assessments which, if upheld, would
individually or in the aggregate have a Material Adverse Effect. Except as set
forth in SCHEDULE 6.10, the Company and each Subsidiary has withheld and paid
over to the relevant taxing authority all Taxes required to have been withheld
and paid in connection with payments to employees, independent contractors,
creditors, stockholders or other third parties, except for such Taxes which
individually or in the aggregate would not have a Material Adverse Effect. For
purposes of this Agreement, (a) "TAX" (and, with correlative meaning, "TAXES")
means any federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, premium,
withholding, alternative or added minimum, ad valorem, transfer or excise tax,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or penalty, imposed by
any Governmental Entity, and (b) "TAX RETURN" means any return, report or
similar statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
6.11. EMPLOYEE BENEFIT PLANS. All employee benefit plans,
compensation arrangements and other benefit arrangements covering employees of
the Company or any of its Subsidiaries (the "COMPANY BENEFIT PLANS") and all
employee agreements providing compensation, severance or other benefits to any
employee or former employee of the Company or any of its Subsidiaries which are
not disclosed in the Company Reports and which exceed $100,000 per annum are set
forth in SCHEDULE 6.11. True and complete copies of the Company Benefit Plans
have been made available to Purchaser. To the extent applicable, the Company
Benefit Plans comply with the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "CODE"), and any Company Benefit Plan intended to be
qualified under Section 401(a) of the Code has received a determination letter
and, to the knowledge of the Company continues to satisfy the requirements for
such qualification. Neither the Company nor any of its Subsidiaries nor any
ERISA Affiliate of the Company maintains, contributes to or has maintained or
contributed in the past six years to any benefit plan which is covered by Title
IV of ERISA or Section 412 of the Code. No Company Benefit Plan nor the Company
nor any Subsidiary has incurred any liability or penalty under Section 4975 of
the Code or Section 502(i) of ERISA or, to the knowledge of the Company, engaged
in any transaction that is reasonably likely to result in any such liability or
penalty. Except as set forth on SCHEDULE 6.11, each Company Benefit Plan has
been maintained and administered in compliance with its terms and with ERISA and
the Code to the extent applicable thereto, except for such non-compliance which
individually or in
17
<PAGE>
the aggregate would not have a Material Adverse Effect. There is no pending or,
to the knowledge of the Company, anticipated Litigation against or otherwise
involving any of the Company Benefit Plans and no Litigation (excluding claims
for benefits incurred in the ordinary course of Company Benefit Plan activities)
has been brought against or with respect to any such Company Benefit Plan,
except for any of the foregoing which individually or in the aggregate would not
have a Material Adverse Effect. All contributions required to be made as of the
date hereof to the Company Benefit Plans have been made or provided for. Except
as described in the Company Reports or as required by Law, neither the Company
nor any of its Subsidiaries maintains or contributes to any plan or arrangement
which provides or has any liability to provide life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment, and neither the Company nor any of its
Subsidiaries has ever represented, promised or contracted (whether in oral or
written form) to any employee or former employee that such benefits would be
provided. Except as set forth in SCHEDULE 6.11, the execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any benefit plan, policy, arrangement or agreement or any trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee. Except as set forth in Schedule 6.11, no payment or benefit which
will or may be made by the Company, any of its Subsidiaries, any ERISA Affiliate
or Purchaser or Merger Sub with respect to any employee will constitute an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the Code.
For purposes of this Agreement "ERISA AFFILIATE" means any business or
entity which is a member of the same "controlled group of corporations," under
"common control" or an "affiliated service group" with an entity within the
meanings of Sections 414(b), (c) or (m) of the Code, or required to be
aggregated with the entity under Section 414(o) of the Code, or is under "common
control" with the entity, within the meaning of Section 4001(a)(14) of ERISA, or
any regulations promulgated or proposed under any of the foregoing Sections.
6.12. LABOR AND EMPLOYMENT MATTERS. Except as set forth in
SCHEDULE 6.12, neither the Company nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement or other Contracts or
understanding with a labor union or labor organization. Except for such matters
which, individually or in the aggregate, would not have a Material Adverse
Effect, there is no (i) unfair labor practice, labor dispute (other than routine
individual grievances) or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or its Subsidiaries
relating to their business, (ii) to the knowledge of the Company, activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company or any of its
18
<PAGE>
Subsidiaries, or (iii) lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to such employees.
6.13. BROKERS. Except for the Financial Advisor, Merrill Lynch &
Co., no broker, finder or financial advisor is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company and (ii) the Company's fee arrangements with the Financial Advisor
have been disclosed to the Purchaser.
6.14. LICENSES AND PERMITS. Except as set forth in SCHEDULE 6.14,
the Company, its Subsidiaries and all of the hospitals and other healthcare
facilities owned, leased or managed by the Company or any of its Subsidiaries
(collectively, "HOSPITALS") have all necessary licenses, permits, certificates
of need, approvals and authorizations (collectively, "PERMITS") required to
lawfully conduct their respective businesses as presently conducted, except for
those Permits the lack of which individually or in the aggregate would not have
a Material Adverse Effect, and (a) no Permit is subject to revocation or
forfeiture by virtue of any existing circumstances, (b) there is no Litigation
pending or, to the knowledge of the Company, threatened to modify or revoke any
Permit, and (c) no Permit is subject to any outstanding order, decree, judgment,
stipulation, or, to the knowledge of the Company, investigation that would be
likely to affect such Permit, where the effect of the foregoing individually or
in the aggregate would have a Material Adverse Effect. Except as set forth in
SCHEDULE 6.14, all of the Hospitals are accredited by the Joint Commission on
Accreditation of Healthcare Organizations or the American Osteopathic
Association, as indicated on such schedule.
6.15. MEDICARE PARTICIPATION/ACCREDITATION. All of the Hospitals are
certified for participation or enrollment in the Medicare and Medicaid programs,
have a current and valid provider contract with the Medicare and Medicaid
programs, are in compliance with the conditions of participation of such
programs and have received all approvals or qualifications necessary for capital
reimbursement of the Company's assets, except where the failure to be in
compliance individually or in the aggregate would not have a Material Adverse
Effect. Except as set forth in SCHEDULE 6.15, neither the Company nor any of
its Subsidiaries has received notice from any Governmental Entities or other
regulatory authorities which enforce the statutory or regulatory provisions in
respect of either the Medicare or the Medicaid program of any pending or
threatened investigations, audits or surveys, and neither the Company nor any of
its Subsidiaries has any reason to believe that any such investigations, audits
or surveys are pending, threatened or imminent which, individually or in the
aggregate, may have a Material Adverse Effect.
19
<PAGE>
6.16. MEDICARE/MEDICAID COMPLIANCE.
(a) Except as set forth in SCHEDULE 6.16, (a) neither the Company
nor any of its Subsidiaries has filed any required terminating Medicare cost
report on any facility which the Company or any of its Subsidiaries has sold or
no longer operates, for which it has not received a Notice of Program
Reimbursement, and (b) neither the Company nor any of its Subsidiaries has
received any Notice of Program Reimbursement (or similar document for Medicaid)
with respect to any such facility's cost reports, including cost reports for
those facilities it has sold or no longer operates, which requires a refund to
the Governmental Entity responsible for the Medicare or Medicaid program, except
for such refunds which (i) have been paid, (ii) have been reflected as a
liability in the consolidated balance sheet of the Company and its Subsidiaries
at December 31, 1995 included in the Company Reports (the "1995 BALANCE SHEET")
or (iii) individually or in the aggregate would not have a Material Adverse
Effect.
(b) The Company and each of its Subsidiaries have filed all other
reports required to be filed in connection with all state and federal Medicare
and Medicaid programs, which reports are complete and correct in all material
respects. Except as set forth in SCHEDULE 6.16, there is no Litigation pending
or threatened before any Governmental Entity, with respect to any Medicare or
Medicaid claims filed by the Company or any of its Subsidiaries on or before the
date hereof which individually or in the aggregate would have a Material Adverse
Effect, and no validation review or program integrity review related to the
Company or any of its Subsidiaries or any Hospitals has been conducted by any
Governmental Entity in connection with the Medicare or Medicaid program, and to
the knowledge of the Company, no such reviews are scheduled, pending or
threatened against or affecting the Company or any of its Subsidiaries or any
Hospitals.
6.17. ENVIRONMENTAL COMPLIANCE AND DISCLOSURE. (a) Except as set
forth on SCHEDULE 6.17 or except for any matters which individually or in the
aggregate would not have a Material Adverse Effect, (i) the Company and each of
its Subsidiaries is in full compliance with all applicable Laws relating to
Environmental Matters (as defined below); (ii) the Company and each of its
Subsidiaries has obtained, and is in full compliance with, all Permits required
by applicable Laws for the use, storage, treatment, transportation, release,
emission and disposal of raw materials, by-products, wastes and other substances
used or produced by or otherwise relating to the operations of any of them;
(iii) to the Company's knowledge, there are no past or present events,
conditions, activities or practices that would prevent compliance or continued
compliance with any Law or give rise to any Environmental Liability (as defined
below).
(b) As used in this Agreement, the term "ENVIRONMENTAL MATTERS" means
any matter arising out of or relating to pollution or protection of the
environment, human safety or health, or sanitation, including matters relating
to
20
<PAGE>
emissions, discharges, releases, exposures, or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes including
petroleum and its fractions, radiation, biohazards and all toxic agents of
whatever type or nature into ambient air, surface water, ground water, or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants
or hazardous or toxic materials or wastes including petroleum and its fractions,
radiation, biohazards and all toxic agents of whatever type or nature.
"ENVIRONMENTAL LIABILITY" shall mean any liability or obligation arising under
any Law or under any other current theory of law or equity (including, without
limitation, any liability for personal injury, property damage or remediation)
that results from, or is based upon or related to, the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release, exposures or threatened release into the
environment, of any pollutant, contaminant, chemical, or industrial, toxic or
hazardous substance or waste.
6.18. TITLE TO ASSETS. (a) Except as set forth in the 1995
Balance Sheet, the Company and each of its Subsidiaries have good and marketable
title to all of their real and personal properties and assets reflected on the
1995 Balance Sheet (other than assets disposed of since December 31, 1995 in the
ordinary course of business consistent with past practice) or acquired since
December 31, 1995, in each case free and clear of all Encumbrances except for
(i) Encumbrances which secure indebtedness which is properly reflected in the
1995 Balance Sheet; (ii) liens for Taxes accrued but not yet payable;
(iii) liens arising as a matter of law in the ordinary course of business with
respect to obligations incurred after the date of the 1995 Balance Sheet,
provided that the obligations secured by such liens are not delinquent; and
(iv) such imperfections of title and Encumbrances, if any, as individually or in
the aggregate would not have a Material Adverse Effect. Except as set forth in
SCHEDULE 6.18, the Company and each of its Subsidiaries either own, or have
valid leasehold interests in, all properties and assets used by them in the
conduct of their business except where the absence of such ownership or
leasehold interest would not individually or in the aggregate have a Material
Adverse Effect.
(b) Except as set forth in SCHEDULE 6.18, neither the Company nor any
of its Subsidiaries has any legal obligation, absolute or contingent, to any
other person to sell or otherwise dispose of any interest in any of the
Hospitals, or to sell or dispose of any of its other assets with an individual
value of $1,000,000 or an aggregate value in excess of $5,000,000.
6.19. MATERIAL CONTRACTS. SCHEDULE 6.19 sets forth a list of all
(i) Contracts for borrowed money or guarantees thereof involving a currently
outstanding principal amount in excess of $1,000,000, (ii) Contracts to acquire
or dispose of Hospitals, (iii) Contracts containing non-compete covenants by the
Company or any Subsidiary and (iv) other Contracts (other than national supply
and national purchasing Contracts for the purchase of supplies in the ordinary
course of
21
<PAGE>
business) which involve the payment or receipt of $1 million or more per year.
All Contracts to which the Company or any of its Subsidiaries is a party or by
which any of their respective assets is bound are valid and binding, in full
force and effect and enforceable against the Company or any of its Subsidiaries,
as the case may be, and to the knowledge of the Company, the other parties
thereto in accordance with their respective terms, subject to applicable
bankruptcy, insolvency or other similar laws relating to creditors' rights and
general principles of equity, except where the failure to be so valid and
binding, in full force and effect or enforceable would not individually or in
the aggregate have a Material Adverse Effect.
6.20. REQUIRED VOTE OF COMPANY STOCKHOLDERS. Unless the Merger may
be consummated in accordance with Section 253 of the DGCL, the only vote of the
stockholders of the Company required to adopt this Agreement and approve the
Merger is the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock.
6.21. RIGHTS AGREEMENT. The Company has amended the Rights
Agreement so that the Rights Agreement will not be applicable to this Agreement,
the Offer, the announcement of the Offer, the purchase of shares of Common Stock
by Parent or Merger Sub pursuant to the Offer, the Merger, or any other action
contemplated hereby.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub hereby represent and warrant to the Company as
follows:
7.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of Purchaser
and Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted, except where the failure to have
such power and authority individually or in the aggregate would not materially
adversely affect the Purchaser and Merger Sub, taken as a whole.
7.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Each of
Purchaser and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Documents and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Ancillary Documents and the consummation by Purchaser and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by the respective Boards of Directors of
22
<PAGE>
Purchaser and Merger Sub and by Purchaser as the sole stockholder of Merger Sub
and no other corporate proceedings on the part of Purchaser or Merger Sub are
necessary to authorize this Agreement and the Ancillary Documents or to
consummate the transactions contemplated hereby and thereby. This Agreement has
been, and any Ancillary Documents at the time of execution will have been, duly
and validly executed and delivered by Purchaser and Merger Sub, and (assuming
this Agreement and such Ancillary Documents each constitutes a valid and binding
obligation of the Company) constitutes and will constitute the valid and binding
obligations of each of Purchaser and Merger Sub, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, moratorium
or other similar laws relating to creditors' rights and general principles of
equity.
7.3. OFFER DOCUMENTS. None of the Offer Documents, any schedule
required to be filed by Purchaser or Merger Sub with the SEC or any amendment or
supplement will contain, on the date of filing with the SEC, any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Purchaser or Merger Sub with respect to
information supplied by the Company specifically for inclusion in the Offer
Documents, any schedule required to be filed with the SEC or any amendment or
supplement. None of the information supplied by the Purchaser or Merger Sub in
writing specifically for inclusion or incorporation by reference in the
Schedule 14D-9 will, at the date of filing with the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If at any time
prior to the Effective Time either the Purchaser or Merger Sub shall obtain
knowledge of any facts with respect to itself, any of its officers and directors
or any of its Subsidiaries that would require the supplement or amendment to any
of the foregoing documents in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or to comply
with applicable Laws, such amendment or supplement shall be promptly filed with
the SEC and, as required by Law, disseminated to the stockholders of the
Company, and in the event the Company shall advise the Purchaser or Merger Sub
as to its obtaining knowledge of any facts that would make it necessary to
supplement or amend any of the foregoing documents, the Purchaser or Merger Sub
shall promptly amend or supplement such document as required and distribute the
same to the stockholders of the Company.
7.4. NO VIOLATION. Neither the execution and delivery of this
Agreement or any of the Ancillary Documents by the Purchaser and Merger Sub nor
the consummation by them of the transactions contemplated hereby or thereby will
(i) violate, conflict with or result in any breach of any provision of the
respective Certificates of Incorporation or By-Laws of the Purchaser or Merger
Sub; (ii) other
23
<PAGE>
than the filings provided for in SECTION 2.3 and the filings required under the
Exchange Act and the Securities Act, require any consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Entity, the lack of which individually or in the aggregate would have a material
adverse effect on the ability of the Purchaser or Merger Sub to consummate the
transactions contemplated hereby, (iii) violate any Laws applicable to the
Purchaser or the Merger Sub or any of their respective assets, except for
violations which individually or in the aggregate would not have a material
adverse effect on the ability of the Purchaser or Merger Sub to consummate the
transactions contemplated hereby, and (iv) violate, conflict with or result in a
breach of any provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination of, accelerate the performance required
by or benefit obtainable under, result in the creation of any Encumbrance upon
any of the properties of the Purchaser or Merger Sub under, or result in there
being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which the Purchaser or Merger Sub is
bound, except for any of the foregoing matters which would not individually or
in the aggregate have a material adverse effect on the Purchaser and Merger Sub,
taken as a whole.
7.5. FINANCING. At the consummation of the Offer and at the Effective
Time, the Purchaser will cause the Merger Sub to have funds available to it
sufficient to consummate the Offer and the Merger on the terms contemplated
hereby. Affiliates of the Purchaser have, in the aggregate, committed capital
of approximately $1.0 billion and the Purchaser intends to use a portion of
those funds together with bank borrowings (together, the "FINANCING") in order
to consummate the Offer and the Merger. The Purchaser has received from
Chemical Bank and Chase Securities Inc. a commitment letter (the "COMMITMENT
LETTER") confirming their commitments, subject to the terms and conditions
thereof, to lend $900 million in senior debt financing. True and complete
copies of the Commitment Letter have been delivered to the Company. To the
extent that such bank borrowings are unavailable, the Purchaser will arrange for
alternate financing for the transactions contemplated hereby.
ARTICLE 8
COVENANTS
8.1. NO SOLICITATION. Neither the Company nor any of its Subsidiaries,
nor any of their respective officers, directors, employees, representatives,
agents or affiliates, shall, directly or indirectly, encourage, solicit,
initiate or, except as is required in the exercise of the fiduciary duties of
the Company's directors to the Company or its stockholders after consultation
with
24
<PAGE>
outside counsel (as hereinafter defined) to the Company, participate in any way
in any discussions or negotiations with, or provide any information to, or
afford any access to the properties, books or records of the Company or any of
its Subsidiaries to, or otherwise assist, facilitate or encourage, any
corporation, partnership, person or other entity or group (other than the
Purchaser or any affiliate or associate of the Purchaser) concerning any merger,
consolidation, business combination, liquidation, reorganization, sale of
substantial assets, sale of shares of capital stock or similar transactions
involving the Company or any Subsidiary or any division of any thereof (an
"ALTERNATIVE PROPOSAL"), and shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing; provided, however, that nothing
contained in this SECTION 8.1 shall prohibit the Company or its Board of
Directors from complying with Rule 14e-2(a) promulgated under the Exchange Act
or from making such disclosure to the Company's stockholders or from taking such
action which, in the judgment of the Board of Directors with the advice of
outside counsel, may be required under applicable law. The Company will
promptly notify the Purchaser if any such information is requested from it or
any such negotiations or discussions are sought to be initiated with the
Company.
8.2. INTERIM OPERATIONS.
(a) From the date of this Agreement to the Effective Time, except as
set forth in SCHEDULE 8.2(a), unless Purchaser has consented in writing thereto,
the Company shall, and shall cause each of its Subsidiaries to, (i) conduct its
operations according to its usual, regular and ordinary course of business
consistent with past practice; (ii) use its reasonable best efforts to preserve
intact their business organizations and goodwill, maintain in effect all
existing qualifications, licenses, permits, approvals and other authorizations
referred to in SECTIONS 6.1 and 6.14, keep available the services of their
officers and employees and maintain satisfactory relationships with those
persons having business relationships with them; (iii) promptly upon the
discovery thereof notify Purchaser of the existence of any breach of any
representation or warranty contained herein (or, in the case of any
representation or warranty that makes no reference to Material Adverse Effect,
any breach of such representation or warranty in any material respect) or the
occurrence of any event that would cause any representation or warranty
contained herein no longer to be true and correct (or, in the case of any
representation or warranty that makes no reference to Material Adverse Effect,
to no longer be true and correct in any material respect); and (iv) promptly
deliver to Purchaser true and correct copies of any report, statement or
schedule filed with the SEC subsequent to the date of this Agreement, any
internal monthly reports prepared for or delivered to the Board of Directors
after the date hereof and monthly financial statements for the Company and its
Subsidiaries for and as of each month end subsequent to the date of this
Agreement.
25
<PAGE>
(b) From and after the date of this Agreement to the Effective Time,
except as set forth on SCHEDULE 8.2(b), unless Purchaser has consented in
writing thereto, the Company shall not, and shall not permit any of its
Subsidiaries to, (i) amend its Certificate of Incorporation or Bylaws or
comparable governing instruments; (ii) issue, sell or pledge any shares of its
capital stock or other ownership interest in the Company (other than issuances
of Common Stock in respect of any exercise of Options outstanding on the date
hereof and disclosed in SCHEDULE 6.4) or any of the Subsidiaries, or any
securities convertible into or exchangeable for any such shares or ownership
interest, or any rights, warrants or options to acquire or with respect to any
such shares of capital stock, ownership interest, or convertible or exchangeable
securities; or accelerate any right to convert or exchange or acquire any
securities of the Company or any of its Subsidiaries for any such shares or
ownership interest; (iii) effect any stock split or otherwise change its
capitalization as it exists on the date hereof; (iv) grant, confer or award any
option, warrant, convertible security or other right to acquire any shares of
its capital stock or take any action to cause to be exercisable any otherwise
unexercisable option under any existing stock option plan; (v) declare, set
aside or pay any dividend or make any other distribution or payment with respect
to any shares of its capital stock or other ownership interests (other than such
payments by a wholly-owned Subsidiary); (vi) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital stock
of any of its Subsidiaries; (vii) sell, lease or otherwise dispose of any of its
assets (including capital stock of Subsidiaries), except in the ordinary course
of business, none of which dispositions individually or in the aggregate will be
material; (viii) settle or compromise any pending or threatened Litigation,
other than settlements which involve solely the payment of money (without
admission of liability) not to exceed $500,000 in any one case; (ix) acquire by
merger, purchase or any other manner, any business or entity or otherwise
acquire any assets that are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole, except for purchases of
inventory, supplies or capital equipment in the ordinary course of business
consistent with past practice; (x) incur or assume any long-term or short-term
debt, except for working capital purposes in the ordinary course of business
under the Company's existing credit agreement set forth in SCHEDULE 6.19;
(xi) assume, guarantee or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except wholly owned Subsidiaries of the Company; (xii) make or forgive any
loans, advances or capital continuations to, or investments in, any other person
other than loans and advances to employees in the ordinary course of business
which do not exceed $500,000 in the aggregate at any one time outstanding;
(xiii) make any Tax election or settle any Tax liability other than settlements
involving solely the payment of money, which settlement would be permitted by
clause (viii); (xiv) grant any stock related or performance awards except for
grants which are substantially consistent with the Revised 1996 Budget;
(xv) enter into any new employment, severance, consulting or salary continuation
agreements with any officers, directors or employees or grant any increases in
compensation or benefits to employees
26
<PAGE>
other than increases which are substantially consistent with the Revised 1996
Budget (it being understood that the acquisition of employees as part of the
acquisition of hospitals or other healthcare facilities is not covered by this
clause (xv)); (xvi) adopt, amend in any material respect or terminate any
employee benefit plan or arrangement; (xvii) amend, change or waive (or exempt
any person or entity from the effect of) the Rights Agreement, except in
connection with the exercise of its fiduciary duties by the Board of Directors
as set forth in SECTION 8.1 of this Agreement or as contemplated by SECTION
6.23; (xviii) permit any insurance policy naming the Company or any Subsidiary
as a beneficiary or a loss payee to be cancelled or terminated other than in the
ordinary course of business; and (xix) agree in writing or otherwise to take any
of the foregoing actions.
8.3. COMPANY STOCKHOLDER APPROVAL; PROXY STATEMENT.
(a) If approval or action in respect of the Merger by the stockholders
of the Company is required by applicable law, the Company, acting through the
Board of Directors, shall (i) call a meeting of its stockholders (the
"STOCKHOLDERS MEETING") for the purpose of voting upon the Merger, (ii) hold the
Stockholder Meeting as soon as practicable following the purchase of shares of
Common Stock pursuant to the Offer, and (iii) subject to its fiduciary duties
under applicable law as advised by outside counsel, recommend to its
stockholders the approval of the Merger. The record date for the Stockholders
Meeting shall be a date subsequent to the date Purchaser or Merger Sub becomes a
record holder of Common Stock purchased pursuant to the Offer.
(b) If required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary Proxy Statement (such proxy statement, and any amendments or
supplements thereto, the "PROXY STATEMENT") or, if applicable, an Information
Statement with the SEC with respect to the Stockholders Meeting and will use its
best efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be cleared by the SEC. The Company will notify Purchaser of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Purchaser with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement or the Merger. The Company shall give Purchaser and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give Purchaser and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and Purchaser agrees to use its
best efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC. As promptly as
practicable after the Proxy Statement has been cleared by the SEC, the Company
27
<PAGE>
shall mail the Proxy Statement to the stockholders of the Company. If at any
time prior to the approval of this Agreement by the Company's stockholders there
shall occur any event that should be set forth in an amendment or supplement to
the Proxy Statement, the Company will prepare and mail to its stockholders such
an amendment or supplement.
(c) The Company represents and warrants that the Proxy Statement will
comply as to form in all material respects with the Exchange Act and, at the
respective times filed with the SEC and distributed to stockholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, that the Company makes no representation or
warranty as to any information included in the Proxy Statement which was
provided by Purchaser or Merger Sub. The Purchaser represents and warrants that
none of the information supplied by Purchaser or Merger Sub for inclusion in the
Proxy Statement will, at the respective times filed with the SEC and distributed
to stockholders of the Company, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Company shall use its best efforts to obtain the necessary
approvals by its stockholders of the Merger, this Agreement and the transactions
contemplated hereby.
(e) Purchaser agrees, subject to applicable law, to cause all shares
of Common Stock purchased by Merger Sub pursuant to the Offer and all other
shares of Common Stock owned by Purchaser, Merger Sub or any other subsidiary or
affiliate of Purchaser to be voted in favor of the approval of the Merger.
(f) Notwithstanding anything in this Agreement to the contrary,
Purchaser and Merger Sub, in their sole discretion, shall have the right to
defer the closing of the Merger for a period of 135 days following the
consummation of the Offer if, in Purchaser's and Merger Sub's sole judgment,
such deferral is necessary in order to enable the Company to effect a
covenant defeasance under the indenture (the "INDENTURE") related to the
Company's 10 1/4% Senior Subordinated Debentures due 2003 (the "DEBENTURES").
8.4. FILINGS; OTHER ACTION.
(a) Subject to the terms and conditions herein provided, the Company,
Purchaser, and Merger Sub shall: (a) use their best efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits, authorizations
or
28
<PAGE>
waivers are required to be obtained prior to the Effective Time from,
Governmental Entities or other third parties in connection with the execution
and delivery of this Agreement and any other Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby and (ii) timely
making all such filings and timely seeking all such consents, approvals,
permits, authorizations and waivers; and (b) use their best efforts to take, or
cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Purchaser and
the Surviving Corporation shall take all such necessary action.
(b) Concurrently with the commencement of the Offer, the Company shall
commence (i) an offer (the "DEBENTURE OFFER") to purchase all of the outstanding
Debentures, and (ii) a solicitation as part of the Debenture Offer (the
"SOLICITATION") of consents to amendments to the Indenture from the holders of
not less than a majority in aggregate principal amount of the Debentures
outstanding (the consents from such holders, the "REQUISITE CONSENTS"). The
Debenture Offer and Solicitation (including the amendments) shall be on terms
determined by Purchaser, provided that the Company shall not be required to
purchase the Debentures pursuant to the Debenture Offer, and the proposed
amendments, if approved, shall not become operative, unless (i) Purchaser has
consummated the Offer and (ii) the Company has received the proceeds of
financing arranged by Purchaser in an amount sufficient to (a) consummate the
Debenture Offer and pay all fees and expenses associated therewith, and (b)
refinance any indebtedness of the Company coming due by reason of the Debenture
Offer and Solicitation and consummation thereof. The Company agrees that
promptly following the date the Requisite Consents are obtained it will execute
a supplemental indenture containing the proposed amendments that by their terms
shall become operative only upon consummation of the Offer and the Debenture
Offer.
8.5. ACCESS TO INFORMATION.
(a) From the date of this Agreement to the Closing, the Company shall,
and shall cause its Subsidiaries to, (i) give Purchaser and its authorized
representatives and lender banks full access to all books, records, personnel,
offices and other facilities and properties of the Company and its Subsidiaries
and their accountants and accountants' work papers, (ii) permit Purchaser to
make such copies and inspections thereof as Purchaser may reasonably request and
(iii) furnish Purchaser with such financial and operating data and other
information with respect to the business and properties of the Company and its
Subsidiaries as Purchaser may from time to time reasonably request; provided
that no investigation or information furnished pursuant to this SECTION 8.5
shall affect any representations or warranties made by the Company herein or the
conditions to the obligations of the Purchaser to consummate the transactions
contemplated hereby.
29
<PAGE>
(b) All such information and access shall be subject to the provisions
of the letter agreement between an affiliate of Purchaser and the Company (the
"CONFIDENTIALITY AGREEMENT") relating to the confidential treatment of
"Proprietary Information" (as defined therein).
8.6. PUBLICITY. The initial press release relating to this Agreement
shall be a joint press release and thereafter the Company and Purchaser shall,
subject to their respective legal obligations, consult with each other before
issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any Governmental Entity or with any national securities exchange with respect
thereto.
8.7. FURTHER ACTION. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
8.8. INSURANCE; INDEMNITY.
(a) The Purchaser will cause the Surviving Corporation to purchase a
three-year pre-paid noncancellable directors and officers insurance policy
expiring not earlier than October 7, 1999, covering the current and all former
directors and officers with respect to acts or failures to act prior to the
Effective Time, in a single aggregate amount over the period expiring not
earlier than October 7, 1999 equal to the policy limit for the Company's current
directors and officers insurance policy (the "CURRENT POLICY"). If such
insurance is not obtainable at a cost not in excess of the annual premium paid
by the Company for the Current Policy (the "CAP") times 3.25, then the Purchaser
will cause the Surviving Corporation to purchase policies providing at least the
same coverage as the Current Policy and containing terms and conditions no less
advantageous to the current and former directors and officers of the Company
than the Current Policy with respect to acts or failures to act prior to the
Effective Time; provided, however, that the Purchaser and the Surviving
Corporation shall not be required to obtain policies providing such coverage
except to the extent that such coverage can be provided at an annual cost of no
greater than the Cap; and if equivalent coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, the Purchaser or
the Surviving Corporation shall only be required to obtain as much coverage as
can be obtained by paying an annual premium equal to the Cap.
(b) The Purchaser shall cause the Surviving Corporation to keep in
effect in its By-Laws a provision for a period of not less than three years from
the Effective Time (or, in the case of matters occurring prior to the Effective
Time which have not been resolved prior to the third anniversary of the
Effective Time,
30
<PAGE>
until such matters are finally resolved) which provides for indemnification of
the past and present officers and directors of the Company to the fullest extent
permitted by the DGCL.
(c) From and after the Effective Time, the Purchaser shall indemnify
and hold harmless, to the fullest extent permitted under applicable law, each
person who is, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer or director of the Company or any
Subsidiary against all losses, claims, damages, liabilities, costs or expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement (collectively, "LOSSES") in connection with any Litigation arising
out of or pertaining to acts or omissions, or alleged acts or omissions, by them
in their capacities as such, which acts or omissions existed or occurred at or
prior to the Effective Time, whether commenced, asserted or claimed before or
after the Effective Time, including, without limitation, liabilities arising
under the Securities Act, the Exchange Act and state corporation laws in
connection with the transactions contemplated hereby. Without limiting the
foregoing, the Company and after the Effective Time the Purchaser shall
periodically advance expenses as incurred with respect to the foregoing to the
fullest extent permitted under applicable law provided that the person to whom
the expenses are advanced provides an undertaking to repay such advance if it is
ultimately determined that such person is not entitled to indemnification.
(d) If the Merger shall have been consummated, the Surviving
Corporation shall, to the fullest extent permitted under applicable law,
indemnify and hold harmless the Purchaser and any person or entity who was a
stockholder, officer, director or affiliate of Purchaser prior to the Effective
Time against any Losses in connection with any Litigation arising out of or
pertaining to any of the transactions contemplated by this Agreement or the
Ancillary Documents. The Purchaser shall periodically advance expenses as
incurred with respect to the foregoing to the fullest extent permitted under
applicable law provided that the person to whom the expenses are advanced
provides an undertaking to repay such advance if it is ultimately determined
that such person is not entitled to indemnification.
(e) If any Litigation described in paragraph (c) or (d) of this
SECTION 8.8 (each, an "ACTION") arises or occurs, the Surviving Corporation
shall control the defense of such Action through its counsel, but counsel for
the party seeking indemnification pursuant to paragraph (c) or (d) of this
SECTION 8.8 (each, an "INDEMNIFIED PARTY") shall be selected by the
Indemnified Party, which counsel shall be reasonably acceptable to the
Surviving Corporation, and the Indemnified Parties shall be permitted to
participate in the defense of such Action through such counsel at the
Corporation's expense. If there is any conflict between the Surviving
Corporation and any Indemnified Parties or there are additional defenses
available to any Indemnified Parties, the Indemnified Parties shall be
permitted to
31
<PAGE>
participate in the defense of such Action with counsel selected by the
Indemnified Parties, which counsel shall be reasonably acceptable to the
Surviving Corporation; provided that the Surviving Corporation shall not be
obligated to pay the reasonable fees and expenses of more than one counsel for
all Indemnified Parties in any single Action except to the extent that, in the
opinion of counsel for the Indemnified Parties, two or more of such Indemnified
Parties have conflicting interests in the outcome of such Action. The Surviving
Corporation shall not be liable for any settlement effected without its written
consent, which consent shall not unreasonably be withheld. The Purchaser shall
cause the Surviving Corporation to cooperate in the defense of any Action.
(f) This Section 8.8 is intended to benefit each of the persons
referred to herein and shall be binding on all successors and assigns of the
Company and the Purchaser.
8.9. RESTRUCTURING OF MERGER. Upon the mutual agreement of Purchaser
and the Company, the Merger shall be restructured in the form of a forward
subsidiary merger of the Company into Merger Sub, with Merger Sub being the
surviving corporation, or as a merger of the Company into Purchaser, with
Purchaser being the surviving corporation. In such event, this Agreement shall
be deemed appropriately modified to reflect such form of merger.
8.10. EMPLOYEE BENEFIT PLANS.
(a) From and after the Effective Time, the Surviving Corporation and
their respective subsidiaries will honor and assume, and Purchaser will cause
the Surviving Corporation to honor and assume, in accordance with their terms,
all existing employment and severance agreements between the Company or any of
its Subsidiaries and any officer, director, or employee of the Company or any of
its Subsidiaries and all benefits or other amounts earned or accrued to the
extent vested or which becomes vested in the ordinary course, through the
Effective Time under all employee benefit plans of the Company and any of its
Subsidiaries.
(b) The Purchaser confirms that it is the Purchaser's intention that,
until the first anniversary of the Effective Time, the Surviving Corporation and
its Subsidiaries will provide benefits to their employees (excluding employees
covered by collective bargaining agreements, if any) which benefits will, in the
aggregate, be substantially equivalent to those currently provided by the
Company and its Subsidiaries to such employees (other than pursuant to stock
option, stock purchase or other stock based plans). The Purchaser intends that,
after the first anniversary of the Effective Time, the Surviving Corporation and
its Subsidiaries will provide benefits to their employees (excluding employees
covered by collective bargaining agreements, if any) which benefits are
appropriate in the judgment of the Surviving Corporation, taking into account
all relevant factors, including, without
32
<PAGE>
limitation, the businesses in which the Surviving Corporation and its
Subsidiaries are engaged.
8.11. NO LIABILITY FOR FAILURE TO OBTAIN CONSENT OF LENDERS. The
Purchaser and Merger Sub hereby agree that neither the Company nor any of its
Affiliates (as defined below) will incur any liability to Purchaser or Merger
Sub if the transactions contemplated hereby are not consummated because of the
failure or inability to obtain any consent, approval or waiver under the terms
of the Amended and Restated Credit Agreements, dated as of May 12, 1995, by and
among the Company, certain Subsidiaries, the lenders named therein, NationsBank
of Tennessee, N.A., as Administrative Agent, and First Union National Bank of
North Carolina, as Co-Agent and Issuing Bank. As used in this Section 8.11, the
term "Affiliates" shall mean any person directly or indirectly controlling the
Company (including all directors, officers and employees), directly or
indirectly controlled by or under direct or indirect common control with the
Company.
ARTICLE 9
CONDITIONS
9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) If approval of this Agreement and the Merger by the holders of
Common Stock is required by applicable law, this Agreement and the Merger shall
have been approved by the requisite vote of such holders.
(b) There shall not have been issued any injunction or issued or
enacted any Law which prohibits or has the effect of prohibiting the
consummation of the Merger or makes such consummation illegal.
9.2. CONDITIONS TO OBLIGATION OF PURCHASER AND MERGER SUB TO EFFECT THE
MERGER. The obligations of Purchaser and Merger Sub to effect the Merger shall
be further subject to the satisfaction or waiver on or prior to the Effective
Time of the condition that Purchaser shall have accepted for payment and paid
for shares of Common Stock tendered pursuant to the Offer; provided that this
condition shall be deemed satisfied if the Purchaser's failure to accept for
payment and pay for such shares breaches this Agreement or violates the terms
and conditions of the Offer.
33
<PAGE>
ARTICLE 10
TERMINATION; AMENDMENT; WAIVER
10.1. TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Board of Directors of the Company
(subject to SECTION 1.4) and the Purchaser;
(b) by the Purchaser or the Company:
(i) if the Effective Time shall not have occurred on or before
December 31, 1996 (provided that the right to terminate this Agreement
pursuant to this clause (i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Effective Time to occur on
or before such date);
(ii) if there shall be any statute, law, rule or regulation that
makes consummation of the Offer or the Merger illegal or prohibited or
if any court of competent jurisdiction in the United States or other
Governmental Entity shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment, decree, ruling or
other action shall have become final and non-appealable;
(iii) after October 31, 1996 if, on account of the failure of
any condition specified in EXHIBIT A, the Merger Sub has not purchased
any shares of Common Stock in the Offer by that date (provided that the
right to terminate this Agreement pursuant to this clause (iii) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure
of any such condition); or
(iv) upon a vote at a duly held meeting or upon any adjournment
thereof, the stockholders of the Company shall have failed to give any
approval required by applicable law;
(c) by the Company if there is an Alternative Proposal which the Board
of Directors in good faith determines is more favorable from a financial point
of view to the stockholders of the Company as compared to the Offer and the
Merger, and the Board of Directors determines, after consultation with Skadden,
Arps, Slate, Meagher & Flom ("OUTSIDE COUNSEL"), that failure to terminate this
Agreement would be inconsistent with the compliance by the Board of Directors
34
<PAGE>
with its fiduciary duties to stockholders imposed by law; provided, however,
that the right to terminate this Agreement pursuant to this SECTION 10.1(c)
shall not be available (i) if the Company has breached in any material respect
its obligations under SECTION 8.1, or (ii) if the Alternative Proposal (x) is
subject to a financing condition or (y) involves consideration that is not
entirely cash or does not permit stockholders to receive the payment of the
offered consideration in respect of all shares at the same time, unless the
Board of Directors has been furnished with a written opinion of the Financial
Advisor or other nationally recognized investment banking firm to the effect
that (in the case of clause (x)) the Alternative Proposal is readily financeable
and (in the case of clause (y)) that such offer provides a higher value per
share than the consideration per share pursuant to the Offer or the Merger, or
(iii) if, prior to or concurrently with any purported termination pursuant to
this SECTION 10.1(c), the Company shall not have paid the fees and expenses
contemplated by SECTION 11.5, or (iv) if the Company has not provided Purchaser
and Merger Sub with prior written notice of its intent to so terminate this
Agreement and delivered to the Purchaser and Merger Sub a copy of the written
agreement embodying the Alternative Proposal in its then most definitive form
concurrently with the earlier of (x) the public announcement of, or (y) filing
with the SEC of any documents relating to, the Alternative Proposal; and
(d) by the Purchaser if the Board of Directors shall have failed to
recommend, or shall have withdrawn, modified or amended in any material respect,
its approval or recommendation of the Offer or the Merger, or shall have
recommended acceptance of any Alternative Proposal, or shall have resolved to do
any of the foregoing.
10.2. EFFECT OF TERMINATION. If this Agreement is terminated and
the Merger is abandoned pursuant to SECTION 10.1 hereof, this Agreement, except
for the provisions of SECTIONS 1.3(c), 8.5(b), 8.6 and ARTICLE 11, shall
terminate, without any liability on the part of any party or its directors,
officers or stockholders. Nothing herein shall relieve any party to this
Agreement of liability for breach of this Agreement or prejudice the ability of
the non-breaching party to seek damages from any other party for any breach of
this Agreement, including without limitation, attorneys' fees and the right to
pursue any remedy at law or in equity.
10.3. AMENDMENT. To the extent permitted by applicable law, this
Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Company (subject to SECTION 1.4) and the Purchaser at any time
before or after adoption of this Agreement by the stockholders of the Company
but, after any such stockholder approval, no amendment shall be made which
decreases the Merger Consideration or which adversely affects the rights of the
Company's stockholders hereunder without the approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of all of the parties.
35
<PAGE>
10.4. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the Board of Directors of
the Company (subject to SECTION 1.4) and the Purchaser, may (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (iii)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 11
GENERAL PROVISIONS
11.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
11.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to Purchaser or Merger Sub: If to the Company:
FLCH Holdings Corp. Community Health Systems, Inc.
FLCH Acquisition Corp. 155 Franklin Road
c/o Forstmann Little & Co. Suite 400
767 Fifth Avenue Brentwood, TN 37027-4600
New York, NY 10153 Attn: Chairman of the Board and
Attn: Ms. Sandra Horbach Chairman of the Special
Facsimile: (212) 759-9059 Committee
Facsimile: (615) 377-1172
36
<PAGE>
With a copy to: With a copy to:
Stephen Fraidin, P.C. J. Michael Schell, Esq.
Fried, Frank, Harris, Skadden, Arps, Slate, Meagher
Shriver & Jacobson & Flom
One New York Plaza 919 Third Avenue
New York, New York 10004 New York, New York 10022
Facsimile: (212) 859-4000 Facsimile: (212) 735-2000
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
11.3. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that either Purchaser
or Merger Sub (or both) may assign its rights hereunder (including without
limitation the right to make the Offer and/or to purchase shares of Common Stock
in the Offer) to an affiliate but nothing shall relieve the assignor from its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except for the provisions of SECTION 8.8, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
11.4. ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement,
the Schedules, the Exhibits, the Ancillary Documents and any other documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto.
11.5. FEES AND EXPENSES.
(a) Except as provided in SECTION 11.5(b), whether or not the Offer or the
Merger is consummated, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
(b)(1) To compensate Forstmann Little & Co. and its affiliates for
incurring the costs and expenses related to the transactions contemplated hereby
37
<PAGE>
and the forgoing by Forstmann Little & Co. or its affiliates of the opportunity
with respect to their investment in Purchaser in connection herewith, the
Company agrees that it shall pay to Forstmann Little & Co. and its affiliates,
in such manner as is designated by Forstmann Little & Co., an aggregate amount
equal to $45,000,000 (the "COMMITMENT AMOUNT") if this Agreement is terminated
(i) by the Company pursuant to SECTION 10.1(c); (ii) by the Purchaser (x)
pursuant to SECTION 10.1(d) (unless the event described therein occurs solely as
a result of the Purchaser's willful breach in any material respect of its
representations, warranties or obligations contained herein) or (y) pursuant to
SECTION 10.1(b)(iii) because of the failure of the condition set forth in
paragraph (d) of EXHIBIT A as a result of the Company's willful breach or
willful failure to comply in any material respect with any of its material
obligations under this Agreement; or (iii) pursuant to SECTION 10.1(b)(iii) at a
time when the Minimum Condition shall not have been satisfied and, either
(x) during the term of this Agreement or within 12 months after the termination
of this Agreement, the Board of Directors recommends an Alternative Proposal or
the Company enters into an agreement providing for an Alternative Proposal or a
majority of the outstanding shares of Common Stock is acquired by a third party
(including a "group" as defined in the Exchange Act) (a "STOCK ACQUISITION")
which Alternative Proposal (or another Alternative Proposal by the same or a
related person or entity) was made prior to the termination of this Agreement,
or (y) during the term of this Agreement or within two months after the
termination of this Agreement, the Board of Directors recommends an Alternative
Proposal or the Company enters into an agreement providing for an Alternative
Proposal or a Stock Acquisition occurs.
The Commitment Amount shall be payable (x) at the time of termination if
such Amount becomes payable pursuant to clause (i) above, (y) on the next
business day following termination if such Amount becomes payable pursuant to
clause (ii) above, and (z) on the next business day following the earliest of
the recommendation of an Alternative Proposal, the entering into of an agreement
providing for an Alternative Proposal or the occurrence of an Alternative
Proposal, if such Amount becomes payable pursuant to clause (iii) above.
(2) The Company shall reimburse the Purchaser and its affiliates for the
documented reasonable out-of-pocket expenses of the Purchaser and its
affiliates, but not in excess of $15,000,000 in the aggregate, incurred in
connection with or arising out of the Offer, the Merger, this Agreement and the
Ancillary Documents and the transactions contemplated hereby (including, without
limitation, amounts paid or payable to banks and investment bankers, fees and
expenses of counsel, accountants and consultants, and printing expenses),
regardless of when those expenses are incurred, if this Agreement is terminated
(i) by the Company pursuant to SECTION 10.1(c); (ii) by the Purchaser (x)
pursuant to SECTION 10.1(d) (unless the event described therein occurs solely as
a result of the Purchaser's willful breach in any material respect of its
representations, warranties or obligations contained herein) or (y) pursuant to
SECTION 10.1(b)(iii)
38
<PAGE>
because of the failure of the condition set forth in paragraph (d) of EXHIBIT A,
or (iii) pursuant to SECTION 10.1(b)(iii) at a time when the Minimum Condition
shall not have been satisfied and, either (x) during the term of this Agreement
or within 12 months after the termination of this Agreement, the Board of
Directors recommends an Alternative Proposal or the Company enters into an
agreement providing for an Alternative Proposal or a Stock Acquisition occurs
which Alternative Proposal (or another Alternative Proposal by the same or a
related person or entity) was made prior to the termination of this Agreement,
or (y) during the term of this Agreement or within two months after the
termination of this Agreement, the Board of Directors recommends an Alternative
Proposal or the Company enters into an agreement providing for an Alternative
Proposal or a Stock Acquisition occurs. No amounts in reimbursement of expenses
shall be payable pursuant to this paragraph (2) if the Commitment Amount has
been paid. If the Company shall have reimbursed the Purchaser for expenses
incurred by the Purchaser and its affiliates pursuant to this paragraph (2) and
thereafter the Commitment Amount shall become payable pursuant to paragraph (1)
of this Section 11.5(b), then the Commitment Amount shall be reduced by the
amount of any reimbursed expenses.
(3) The Company acknowledges that the agreements contained in this
SECTION 11.5(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Purchaser would not enter
into this Agreement. Accordingly, if the Company fails to promptly pay any
amounts owing pursuant to this SECTION 11.5(b) when due, the Company shall in
addition thereto pay to the Purchaser and its affiliates all costs and expenses
(including fees and disbursements of counsel) incurred in collecting such
amounts, together with interest on such amounts (or any unpaid portion thereof)
from the date such payment was required to be made until the date such payment
is received by the Purchaser at the prime rate of Chemical Bank as in effect
from time to time during such period; provided, however, that no costs,
expenses, or interest shall be paid in respect of any payment owing under clause
(y) of SECTION 11.5(b)(1)(ii). If the Company shall fail to pay the Commitment
Amount when due, and the Purchaser shall notify the Company of such failure to
pay, the Purchaser agrees that it will include in its notice to the Company a
statement as to which clause of Section 11.5(b)(1) the Purchaser believes
entitles it to payment.
11.6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of the Company, Purchaser and Merger Sub hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America
located in the State of Delaware (the "DELAWARE COURTS") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the
39
<PAGE>
Delaware Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in an inconvenient forum.
11.7. HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
11.8. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." As used in this Agreement, "Subsidiary" shall mean, when used with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions with respect to such corporation or other
organization. "Significant Subsidiaries" shall refer to Subsidiaries (as
defined above) which constitute "significant subsidiaries" under Rule 12b-2
under the Exchange Act. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
shall mean a material adverse effect on the business, results of operations,
assets or financial condition of the Company and its Subsidiaries taken as a
whole.
11.9. INVESTIGATIONS. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
11.10. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11.11. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce
40
<PAGE>
specifically the terms and provisions hereof in any Delaware Court, this being
in addition to any other remedy to which they are entitled at law or in equity.
11.12. COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the parties
hereto.
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
COMMUNITY HEALTH SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
FLCH HOLDINGS CORP.
By:
--------------------------------------
Name:
Title:
FLCH ACQUISITION CORP.
By:
--------------------------------------
Name:
Title:
42
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer, Merger Sub shall not be
required to accept for payment or pay for, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) of the Exchange Act, any shares
of Common Stock not theretofore accepted for payment or paid for and may
terminate or amend the Offer as to such shares of Common Stock unless there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer that number of shares of Common Stock which would represent at least a
majority of the outstanding shares of Common Stock on a fully diluted basis (the
"MINIMUM CONDITION"). Furthermore, notwithstanding any other term of the Offer
or this Agreement, Merger Sub shall not be required to accept for payment or,
subject as aforesaid, to pay for any shares of Common Stock not theretofore
accepted for payment or paid for, and may terminate or amend the Offer if at any
time on or after the date of this Agreement and before the acceptance of such
shares of Common Stock for payment or the payment therefor, any of the following
conditions exist or shall occur and remain in effect:
(a) there shall have been instituted or pending any litigation by
the Government of the United States of America or any agency or
instrumentality thereof (i) which seeks to challenge the acquisition by
Purchaser or Merger Sub (or any of its affiliates) of shares of Common
Stock pursuant to the Offer or restrain, prohibit or delay the making or
consummation of the Offer or the Merger, (ii) which seeks to make the
purchase of or payment for some or all of the shares of Common Stock
pursuant to the Offer or the Merger illegal, (iii) which seeks to impose
limitations on the ability of Purchaser or Merger Sub (or any of their
affiliates) effectively to acquire or hold, or to require the Purchaser,
Merger Sub or the Company or any of their respective affiliates or
subsidiaries to dispose of or hold separate, any material portion of their
assets or business, (iv) which seeks to impose limitations on the ability
of Purchaser, Merger Sub or their affiliates to exercise full rights of
ownership of the shares of Common Stock purchased by it, including, without
limitation, the right to vote the shares purchased by it on all matters
properly presented to the stockholders of the Company, or (v) which seeks
to limit or prohibit any future business activity by Purchaser, Merger Sub
or any of their affiliates, including, without limitation, requiring the
prior consent of any person or entity (including the Government of the
United States of America or any agency or instrumentality thereof) to
future transactions by Purchaser, Merger Sub or any of their affiliates; or
A-1
<PAGE>
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any Governmental Entity,
any Law or there shall have been issued any injunction that results in any
of the consequences referred to in subsection (a) above; or
(c) this Agreement shall have been terminated in accordance with its
terms; or
(d) (i) any of the representations and warranties made by the Company
in this Agreement shall not have been true and correct in all material
respects when made, or shall thereafter have ceased to be true and correct
in all material respects as if made as of such later date (other than
representations and warranties made as of a specified date) or (ii) the
Company shall have breached or failed to comply in any material respect
with any of its obligations under this Agreement; or
(e) any corporation, entity, "group" or "person" (as defined in the
Exchange Act), other than Purchaser or Merger Sub, shall have acquired
beneficial ownership of more than 49% of the outstanding shares of Common
Stock; or
(f) except as set forth in the Company Reports or the Schedules to
the Agreement, any change shall have occurred or be threatened which
individually or in the aggregate has had or is continuing to have a
material adverse effect on the prospects of the Company and its
Subsidiaries, taken as a whole; or
(g) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over the counter market in the United States, (ii) a
declaration of any banking moratorium by federal or state authorities or
any suspension of payments in respect of banks or any limitation (whether
or not mandatory) imposed by federal or state authorities on the extension
of credit by lending institutions in the United States, (iii) a
commencement of a war, armed hostilities or any other international or
national calamity directly or indirectly involving the United States, other
than any war, armed hostilities or other international calamity involving
the former Yugoslavia, (iv) any mandatory limitation by the federal
government on the extension of credit by banks or other financial
institutions generally, (v) any increase of 500 or more basis points in the
prime rate as announced by Chemical Bank, measured from the date of this
Agreement, or (vi) in the case of the foregoing clause (iii), if existing
at the time of the commencement of the Offer, in the reasonable judgment of
the Purchaser, a material acceleration or worsening thereof.
A-2
<PAGE>
The foregoing conditions are for the sole benefit of Purchaser and Merger
Sub and may be asserted by Purchaser or Merger Sub regardless of the
circumstances (including any action or inaction by the Purchaser or the Company)
giving rise to any such condition and may be waived by Purchaser or Merger Sub,
in whole or in part, at any time and from time to time, in the sole discretion
of Purchaser. The failure by Purchaser or Merger Sub at any time to exercise
any of the foregoing rights will not be deemed a waiver of any right, the waiver
of such right with respect to any particular facts or circumstances shall not be
deemed a waiver with respect to any other facts or circumstances, and each right
will be deemed an ongoing right which may be asserted at any time and from time
to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the depositary to the tendering stockholders.
A-3
<PAGE>
Exhibit 2
The Option Committee is composed of Messrs. Ferguson and Slayden, and Dr.
Johnson. The Committee administers the Company's stock option plans. The
Option Committee met once and acted by unanimous written consent eleven times
during 1995.
The Audit Committee is composed of Messrs. Ferguson and McAfee, and Dr.
Cooper. The Committee is empowered, among other things, to (i) recommend
annually the appointment of independent public accountants to the Board, (ii)
review the scope of audits made by independent public accountants and the audit
reports submitted by such accountants, (iii) if the Company employs an internal
auditing staff, to determine the duties and responsibilities of such staff,
review the annual internal audit program and review audit reports submitted by
such staff, and (iv) take such action as it deems appropriate to assure that the
interests of the Company are adequately protected. The Audit Committee met five
times during 1995.
COMPENSATION OF DIRECTORS
Messrs. Ferguson, McAfee and Slaydon and Dr. Johnson receive $2,500 per
meeting of the Board; each such director, together with Dr. Cooper, also
receives $500 per Committee meeting. Directors also are reimbursed by the
Company for out-of-pocket expenses incurred for attending meetings. Certain
directors have employment or consulting agreements with the Company. See
"Executive Compensation-Employment and Consulting Agreements" for a description
of their compensation during 1995. Directors are also eligible to receive
options to purchase shares of the Company's Common Stock under the Fourth
Amended and Restated 1986 Executive Nonqualified Stock Option Plan (the "Stock
Option Plan"). During 1995, Drs. Cooper and Johnson and Messrs. Ferguson and
Slayden were each granted an option to purchase 5,000 shares of the Company's
Common Stock at $28.25 per share, the fair market value of the shares on the
date of grant. During 1995, Mr. Slayden also received $5,000 in compensation
from the Company for performing certain special projects for the Board. Members
of management receive no fees for serving as directors of the Company.
DELINQUENT FILING OF STOCK OWNERSHIP AND TRADING REPORTS
During 1995, Mr. Ragsdale failed to report on a timely basis the
acquisition of 297 shares of Common Stock received upon the conversion of
Hallmark shares in the merger of Hallmark and a wholly-owned subsidiary of the
Company on October 5, 1994, and Mr. Chaney failed to report on a timely basis
the acquisition of 100 shares of Common Stock acquired on October 19, 1994 at
the opening trading ceremony for the Company's Common Stock on the New York
Stock Exchange ("NYSE"). Both of these transactions were reported on Forms 5
filed on February 14, 1996. There were no other late filings of reports on
Forms 3, 4 or 5 by any director, officer or person known by the Company to be
the beneficial owner of more than ten percent of the Company's Common Stock
during 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1996, certain information
as to the shares of Common Stock beneficially owned by (i) each person who is
known by the Company to be a beneficial owner of more than five percent of the
Company's outstanding Common Stock, (ii) each director and nominee as director
of the Company, (iii) each executive officer named under the Summary
Compensation Table, and (iv) all executive officers and directors of the Company
as a group.
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
NAME AND ADDRESS OF OF BENEFICIAL OF
BENEFICIAL OWNER (1) OWNERSHIP (2)(3) CLASS (3)
-------------------- ---------------- ---------
<S> <C> <C>
Massachusetts Financial Services Company 1,784,320 9.11%
500 Boylston Street
Boston, Massachusetts 02116
A I M Management Group, Inc. 1,515,400 7.74%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
RCM Capital Management 1,095,100 5.59%
Four Embarcadero Center
San Francisco, California 94111-4189
Richard E. Ragsdale(4) 485,927 2.47%
David L. Steffy(5) 372,399 1.89%
E. Thomas Chaney(6) 271,432 1.38%
James T. McAfee, Jr.(7) 263,762 1.35%
M. Ray Ferguson(8) 45,499 *
George O. Johnson, Ph.D. 14,003 *
Kay W. Slayden 13,985 *
Deborah G. Moffett 4,900 *
Thomas P. Cooper, M.D. - *
Martin S. Rash - *
Tyree G. Wiburn - *
All directors and executive officers
as a group (11 persons) 1,476,106 7.42%
</TABLE>
_________________
* Less than one percent of class.
(1) The address of each named director and officer is c/o Community Health
Systems, Inc., 155 Franklin Road, Suite 400, Brentwood, Tennessee 37027.
(2) Unless otherwise indicated, such shares of Common Stock are owned directly
with sole voting and investment power.
(3) Includes the following shares issuable upon exercise of stock options that
are currently exercisable or that become exercisable within 60 days of
March 15, 1996: Mr. Ragsdale, 108,000 shares; Mr. Steffy, 83,000 shares;
Mr. Chaney, 58,000 shares; Mr. Ferguson, 34,834 shares; Dr. Johnson, 14,003
shares; Mr. Slayden, 7,305 shares; Mrs. Moffett, 4,900 shares; and all
directors and officers, 314,042 shares. The shares described in this note
are deemed to be outstanding for the purpose of computing the percentage of
outstanding common stock owned by each named individual and by the group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(4) Includes 188,763 shares owned by his wife and children and the Richard E.
Ragsdale Unified Credit Trust held for the benefit of his children of which
his wife serves as trustee. Also includes 35,000 shares owned by the
Ragsdale Family Foundation of which he serves as President and 113,419
shares owned by the First Grantor Retained Annuity Trust of which Mr.
Ragsdale serves as trustee.
(5) Includes 289,399 shares owend by the Steffy Family Trust, of which he serves
as trustee.
(6) Includes 184,665 shares owned by the Chaney Family Partnership, Ltd. 20,002
shares owned by The Chaney Family Foundation of which he serves as
President and 8,665 shares owned by his daughter, of which he disclaims
beneficial ownership.
(7) Includes 26,000 shares owned by the James T. and Carolyn T. McAfee
Foundation, a charitable trust of which Mr. McAfee serves as trustee.
(8) Includes 10,665 shares owned jointly with his wife.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's Chief
Executive Officer and the Company's other five most highly compensated executive
officers whose total annual salary and bonus for 1995 exceeded $100,000 (the
"Named Executives") with respect to all services rendered to the Company during
the calendar year indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS -
ANNUAL SECURITIES
COMPENSATION (1) UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION (2)
PRINCIPAL POSITION Year ($) ($) (#) ($)
- ----------------------------- ----- ---------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
E. Thomas Chaney 1995 $450,000 $337,500 20,000 $182,295
President and Chief Executive 1994 $336,000 $342,720 100,000 $132,868
Officer 1993 $313,750 $348,000 20,000 $137,857
Richard E. Ragsdale 1995 $265,000 $198,750 18,000 $ 94,261
Chairman of the Board 1994 $224,000 $228,480 100,000 $ 68,836
1993 $206,667 $229,000 20,000 $ 76,143
Martin S. Rash (3) 1995 $275,000 $165,000 15,000 $ 49,294
Executive Vice President and 1994 $210,833 $143,366 50,000 $ 14,514
Chief Operating Officer 1993 $133,333 $ 21,333 2,000 $ 13,336
David L. Steffy (4) 1995 $225,000 $168,750 - $ 92,003
Vice Chairman of the Board 1994 $190,000 $193,800 - $ 71,720
1993 $170,833 $189,000 20,000 $ 69,483
Deborah G. Moffett 1995 $173,333 $ 72,037 25,000 $ 18,858
Senior Vice President and 1994 $138,750 $ 56,850 12,500 $ 14,284
Chief Financial Officer 1993 $118,000 $ 47,200 2,000 $ 12,750
Tyree G. Wilburn 1995 $213,500 $144,112 12,500 $ 28,550
Senior Vice President, 1994 $182,000 $123,760 - $ 23,494
Acquisitions and Development 1993 $175,000 $129,000 10,000 $ 18,673
</TABLE>
___________________________
(1) Amount shown include compensation earned but deferred at the election of
the executives. None of the Named Executives received perquisites and
other benefits with a value in excess of the lesser of $50,000 or 10% of
such executive's 1995 annual compensation.
(2) The amounts shown for 1995 consisted of (i) Mr. Chaney: $170,145 - premiums
for a variable universal life insurance policy owned by him pursuant to a
supplemental welfare benefit plan ("Welfare Plan"); $4,158 - annual
matching payment to the 401(k) Retirement and Profit-Sharing Plan ("401(k)
Plan"); and $7,992 - matching payment to the Deferred Compensation Plan
("Deferred Plan"), (ii) Mr. Ragsdale; $87,106 - premiums pursuant to the
Welfare Plan; $4,158 - matching payment to the 401(k) Plan; and $2,997 -
matching payment to the Deferred Plan, (iii) Mr. Rash: $41,869 - premiums
pursuant to the Welfare Plan; $4,158 - matching payment to the 401(k) Plan;
and $3,267 - matching payment to the Deferred Plan, (iv) Mr. Steffy: $85,928
- premiums pursuant to the Welfare Plan; $4,158 - matching payment to the
401(k) Plan; and $1,917 - matching payment to the Deferred Plan, (v)
Mrs. Moffett: $13,942 - premiums pursuant to the Welfare Plan; $4,158 -
matching payment to the 401(k) Plan; and $522 - matching payment to the
Deferred Plan, and (vi) Mr. Wilburn: $22,785 - premiums pursuant to the
Welfare Plan; $4,158 - matching payment to the 401(k) Plan; and $1,607 -
matching payment to the Deferred Plan.
(3) Mr. Rash resigned as Executive Vice President and Chief Operating Officer
of the Company on February 2, 1996.
(4) Mr. Steffy resigned as Senior Vice President of the Company on August 10,
1995.
6
<PAGE>
The following table summarizes stock option grants made during 1995 to the
Named Executives and the potential realizable values of the options, based
upon certain assumptions. The Company has no outstanding stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF $ OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM (2)
GRANTED (1) IN FISCAL PRICE EXPIRATION ------------------------
NAME ($) YEAR ($/SHARE) DATE 5%(4) 10%(4)
- ------------------------ ----------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Chaney 20,000 5.1% $33.875 6/30/2005 $426,076 $1,079,761
Richard E. Ragsdale 18,000 4.6% $33.875 6/30/2005 $383,469 $ 971,785
Martin S. Rash 15,000 3.8% $33.875 6/30/2005 $319,557 $ 809,820
David L. Steffy - - - - - -
Deborah G. Moffett 25,000 6.4% $33.750 7/05/2005 $530,630 $1,344,720
Tyree G. Wilburn 12,500 3.2% $33.875 6/30/2005 $266,298 $ 674,850
</TABLE>
- -------------
(1) Represent stock options to purchase Common Stock granted pursuant to the
Stock Option Plan. Options generally are exercisable in 20% annual
increments, commencing one year after the date of grant. In the event of
a "Change of Control," as defined in the options, the exercisability of
the options is accelerated.
(2) Based upon the per share market price on the date of grant and on annual
appreciation of such market price through the expiration date of such
options at the stated rates. These amounts represent assumed rates of
appreciation only and may not necessarily be achieved. Actual gains, if any,
depend on the future performance of the Common Stock, as well as the
continued employment of the Named Executives for the full term of the
options.
The following table sets forth the number of, and value realized on,
shares acquired on exercise of stock options during 1995 by each of the Named
Executives and the number of shares covered by unexercised options held by
the Named Executives and their value at December 31, 1995.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
ON VALUE OPTIONS AT FY-END (#) AT FY-END ($)(2)
EXERCISE REALIZED ---------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ---------- --------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Chaney - - 108,000 132,000 $2,461,500 $1,621,000
Richard E. Ragsdale - - 108,000 130,000 $2,381,500 $1,597,500
Martin S. Rash 36,500 $823,729 2,494 68,440 $ 60,698 $ 875,335
David L. Steffy 5,000 $123,438 83,000 32,000 $2,093,688 $ 729,750
Deborah G. Moffett 15,700 $426,118 400 45,000 $ 6,950 $ 467,775
Tyree G. Wilburn 36,000 $951,480 24,000 58,500 $ 594,500 $1,176,125
</TABLE>
- -------------
(1) Represents the difference between the net selling price realized and the
exercise price.
(2) Represents an amount equal to the difference between the closing price of
the Company's Common Stock on the NYSE of $35.625 on December 29, 1995 minus
the option exercise price, multiplied by the number of unexercised options
at December 31, 1995.
7
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company is a party to continuing employment agreements with Messrs.
Chaney, Ragsdale, Steffy and Wilburn, providing for annual base salaries for
1996 of $450,000, $265,000, $225,000 and $231,000, respectively. Each
agreement provides for annual salary increases at least equal to the
percentage increase in the applicable consumer price index for the preceding
12 months and for annual cash bonuses consisting of percentages of base
salaries ranging from 37.5% for Mr. Wilburn to 90% for Messrs. Chaney,
Ragsdale and Steffy when 100% of the Company's targeted net income per share
is met. Lower bonuses are earned if the Company achieves between 95% to 100%
of such profit target. No bonus is earned if the Company achieves less than
95% of the profit target. Mr. Wilburn is also eligible to receive a cash bonus
up to an additional 37.5% of base salary upon achieving certain non-financial
goals. All agreements provide for additional bonus payments ranging from
2.5% to 3% of base salary for each percentage point by which the Company's
performance exceeds the profit target.
The agreements further provide for certain benefits in excess of those
provided to all other employees. Such benefits consist of participation in a
welfare benefit plan provided to all management employees in which the
Company contributes a percentage of each Named Executive's total cash
compensation as premium payments to a variable universal life insurance
policy owned by the executive; participation in the Company's Deferred
Compensation Plan at a level sufficient to restore benefits lost under the
Company's 401(k) Plan due to legislative limits; and long-term disability
insurance coverage. A car is also provided to Mr. Chaney.
Under certain Events of Termination of employment as defined below,
Messrs. Chaney, Ragsdale, Steffy and Wilburn are entitled to receive, under
the employment agreements, severance benefits for a period of 36 months (24
months for Mr. Wilburn in case of an Event of Termination other than a Change
of Control and 30 months in the event of a Change of Control). Such benefits
include the continuation of (i) base salary at the rate in effect on the date
of the executive's termination of employment, (ii) cash bonus at the lesser
of the target bonus or the average actual bonuses earned to the preceding
three years, and (iii) continuing participation in various benefit plans.
Events of Termination include (i) the Company's termination of the
executive's employment without "good cause," as defined in the agreement,
(ii) the executive's voluntary termination following a failure of the Company
to perform certain obligations under the agreement, or (iii) the executive's
voluntary termination without twelve months following a "Change of
Control," as defined in the agreement.
The Company is a party to a continuing consulting agreement with Dr.
Cooper for serving as chairman of the Physicians Advisory Council and
assisting with other Company matters. The agreement provides for current
annual compensation of $59,808, subject to an annual increase at least equal
to the percentage increase in the applicable consumer price index for the
preceding 12 months. The agreement may be terminated by the Company subject
to payment of the base consulting fee for a period of one year following
termination. Pursuant to the consulting agreement, $58,937 was paid to Dr.
Cooper during 1995.
The Company is also a party to a consulting agreement with Mr. McAfee for
a term of two years, commencing January 1, 1995. The agreement provides for
an annual consulting fee of $180,000 and office allowance of $7,500 per month
primarily for his assistance on matters relating to Hallmark. Pursuant to
this consulting agreement, the Company paid Mr. McAfee $270,000 in 1995.
CERTAIN TRANSACTIONS
In connection with his initial employment as Senior Vice President,
Acquisitions, the Company lent $200,000 to Mr. Wilburn, of which $100,657
remained outstanding as of March 15, 1996. No interest is payable on the
loan, which is due in annual installments as a percentage of his annual
bonus payment with the balance due on November 5, 1997.
8
<PAGE>
In connection with the relocation of the Company's corporate office from
Houston to Nashville, the Company lent $100,000 to Mr. T. Mark Buford, its
Vice President and Corporate Controller. The loan is all due on December 15,
2000 and bears no interest.
COMPENSATION AND OPTION COMMITTEES' REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Option Committees (the "Committees") are
responsible for setting the Company's compensation philosophy, determining
its executive officer compensation program and administering the Company's
Stock Option Plan. The following is the Committees' report to the Board of
Directors on executive compensation for 1995.
COMPENSATION PHILOSOPHY
The Board of Directors and the Committees maintain the philosophy that the
compensation for the Company's executives should be designed to motivate and
reward them for attaining the financial and strategic objectives essential to
both the short-term and long-term profitability of the Company, while at the
same time allowing the Company to attract and retain the best executives in
its industry. Accordingly, the Committees have adopted a compensation program
consisting of base salary, bonus and long-term incentive compensation, mainly
through stock option grants. The Committees' shared objective is to have a
highly leveraged compensation program, which generally offers the executive a
salary that approximates the 50th percentile of other comparable
publicly-traded healthcare organizations, and a highly variable cash bonus
opportunity that brings total annual cash compensation to the 75th percentile
of such group when the Company achieves 100% of its profit targets. This
payment structure is designed to closely align compensation of executives
with the profitability of the Company through the cash bonus component and
with stockholder value through stock option grants that provide incentives to
the executives to increase the share price. Notwithstanding the Committees'
discretion in setting compensation levels for executives, there are certain
contractual compensation committees that the Company has with its senior
executives pursuant to their employment agreements, which have also been
reviewed and approved by the Committees, as described under "Executive
Compensation - Employment and Consulting Agreements."
EXECUTIVE COMPENSATION PROGRAM
To assist the Committees in determining compensation levels for executive
officers for 1995, the Committees used a compensation survey prepared by an
independent consulting firm as its benchmark and also took into consideration
recommendations from the Chief Executive Officer in making compensation
adjustments, including stock option grants, for its executives.
BASE SALARY - Annual salary is designed to compensate executives for their
sustained performance and is not subject to specific measurement criteria.
Salaries are reviewed on an annual basis and may be adjusted at that time
based on the Committees' subjective assessment of that individual's
contribution to the Company, level of responsibility, individual performance,
and comparable pay practices at other companies. For those executives with
employment agreements, annual base salary adjustments are in no event to be
less than the percentage of increase in certain CPI indices for the preceding
12 months. Actual 1995 base salary adjustments for executive officers were
made based on the Committees' assessment of the foregoing factors at the end
of 1994.
BONUS - Bonus payments to executives are predicated on the Company's
success in achieving the targeted net income per share that is set by
management and approved by the Board of Directors at the beginning of each
calendar year. This profit target is generally set at an annual growth rate
of 20% to 25% over the previous year.
9
<PAGE>
Targeted bonuses, calculated as a percentage of base salary, range from
30% for vice president to 90% for the Chief Executive Officer and certain
Named Executives, if the Company achieves 100% of its target. Additional
bonuses are paid if the Company exceeds its profit target at the rate of 2%
for vice president to 3% for the Chief Executive Officer and certain Named
Executives for each percentage point over target. No bonus is paid to the
executive officers if the Company fails to achieve at least 95% of its
target. In addition, certain Named Executives (other than the Chief Executive
Officer) are eligible to receive cash bonuses up to an additional 37.5% of
base salary upon achieving certain non-financial goals mutually agreed upon
by the individual executive and the Chief Executive Officer for each calendar
year. During 1995, actual bonuses ranged from 42% to 75% of base salary for
the Named Executives and was 26% for the remaining executive officer. The
actual bonuses awarded were based on the Company's having achieved 97% of its
targeted net income per share for the year, after making adjustments for
certain items pursuant to the terms of the bonus plan or the employment
agreements.
LONG-TERM INCENTIVES - The Company provides long-term incentives to its
executives through the Stock 0ption Plan. Stock option grants provide the
executives with an ownership interest in the Company to help align their
financial interests with those of stockholders. They are of value to the
executives only if the share price increases, which will result in an
increase in stockholder value. The actual individual awards are not subject
to specific measurement criteria. They are based on the Option Committee's
subjective assessment of each executive's previous and anticipated future
contribution to the Company and the amount and terms of options already held
by the executive. Options are granted at the fair market value of the
Company's Common Stock on the date of grant, are generally exercisable in 20%
annual increments, commencing on the first anniversary date of the date of
grant, and generally expire 10 years after the date of grant.
Executive officers may also participate in the Company's 401(k) savings
plan and deferred compensation plan, which include employee and employer
contributions, and a welfare benefit plan, which provides additional
post-termination benefits to executive officers and certain management
employees. Under the welfare benefit plan, the Company contributes a
percentage of total cash compensation of each executive based upon his or her
age and length of service as premium payments to a variable universal life
insurance policy owned by the executive. The cash value of the policy vests
in 10% intervals annually over a 10-year period, including past service with
the Company. During 1995, the Company paid a total of $433,000, which ranged
from 6% to 22% of individual executive officer's total cash compensation.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. E. Thomas Chaney, a co-founder of the Company, has been President and
Chief Executive Officer since inception of the Company in 1985. The factors
on which Mr. Chaney's 1995 compensation was based are the same as described
above for all executive officers pursuant to the Company's executive
compensation philosophy and policies.
After reviewing the salary survey prepared by the executive compensation
consulting firm and several significant accomplishments achieved by the
Company during 1994 under Mr. Chaney's leadership, including (i) completion of
a 4.1 million share Common Stock offering, (ii) increases in the Company's
market capitalization from $200 million to $500 million, (iii) the
acquisition of Hallmark which doubled the Company's revenues and hospitals,
(iv) listing of the Company's Common Stock on the New York Stock Exchange,
and (v) amendment of the Company's Revolving Credit Facility, all of which
contributed to a 45% increase in the share price of the Company's Common
Stock during 1994, the Compensation Committee increased Mr. Chaney's base
salary from $336,000 to $450,000. Consistent with the Company's compensation
policies of linking pay to corporate performance, approximately 43% of Mr.
Chaney's 1995 annual compensation consisted of his cash bonus.
In June 1995, Mr. Chaney was also granted an option under the Stock Option
Plan to purchase 20,000 shares of the Company's Common Stock. The stock
option grant was made to provide Mr. Chaney with an added incentive to
continue to increase long-term stockholder values.
10
<PAGE>
The Committees believe that Mr. Chaney's short-term and long-term incentive
compensation package for 1995 successfully focuses on the importance of
increasing profitability and stockholder values and achieves a highly
leveraged compensation structure that effectively aligns his compensation
with the achievement of corporate performance objectives.
Compensation Committee Option Committee
M. Ray Ferguson M. Ray Ferguson
George O. Johnson, Ph.D. George O. Johnson, Ph.D.
Richard E. Ragsdale Kay W. Slayden
Kay W. Slayden
David L. Steffy
PERFORMANCE GRAPH
The following graph demonstrates a 58 month comparison of cumulative total
stockholder returns, on a dividend reinvested basis, for the Company and the
companies on the Standard & Poor's ("S&P") 500 Stock Index and the S&P
Healthcare Composite Index, commencing on March 7, 1991 (the first day the
Company's Common Stock was publicly traded).
COMPARISON OF 58 MONTH CUMULATIVE TOTAL RETURN* AMONG
COMMUNITY HEALTH SYSTEMS, INC.,
THE S&P 500 STOCK INDEX AND
THE S&P HEALTHCARE COMPOSITE INDEX
<TABLE>
<CAPTION>
March December December December December December
1991 1991 1992 1993 1994 1995
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Community Health Systems, Inc. $100 $123 $156 $211 $307 $401
S&P 500 Stock Index $100 $117 $126 $138 $140 $193
S&P Healthcare Composite Index $100 $136 $114 $104 $118 $186
</TABLE>
* Assumes $100 invested on March 7, 1991 in the Company's Common Stock and on
February 28, 1991 for the indices presented.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of three non-employee directors,
Messrs. Ferguson and Slayden and Dr. Johnson, and two employee directors,
Messrs. Ragsdale and Steffy, and is responsible for setting the cash and
benefit components of each executive officer's compensation. The Option
Committee consists of the three non-employee directors who serve on the
Compensation Committee and is responsible for setting the stock option
component of each executive officer's compensation.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
meeting. However, if any such other matters are properly presented for
action, the persons named in the accompanying form of proxy will vote the
shares represented thereby in their discretion on such matters.
INDEPENDENT AUDITORS
Representatives of Arthur Andersen L.L.P., the Company's independent
auditors, are expected to be present at the Annual Meeting to respond to any
appropriate questions and to make a statement if they desire to do so.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting must be received by the Company by no later than December 1, 1996 to
be considered for inclusion in the proxy materials relating to the 1997
Annual Meeting. In addition, the Bylaws of the Company provide that only
stockholder proposals submitted in a timely manner to the Secretary of the
Company may be acted upon at an annual meeting of stockholders. To be timely,
a stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that, if less than 70
days' notice or prior public disclosure of the date of the meeting is given
or made to the stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made.
12
<PAGE>
Exhibit 3
THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
30th day of April, 1996, between Community Health Systems, Inc., a Delaware
corporation ("Employer" or "Company"), and Tyree G. Wilburn, an individual
resident of the State of Tennessee ("Employee").
RECITALS
WHEREAS, Employer and Employee were parties to that certain Employment
Agreement of December 14, 1992; and
WHEREAS, Employer and Employee amended the Employment Agreement by two
amendments dated December 15, 1993 and November 1, 1994; and
WHEREAS, Employer and Employee amended and restated the Employment
Agreement by a Second Amended and Restated Employment Agreement dated as of
January 1, 1995; and
WHEREAS, Employer and Employee amended the Second Amended and Restated
Employment Agreement by three amendments dated January 1, 1995, November 6,
1995 and November 14, 1995; and
WHEREAS, Employer and Employee now desire to further amend and restate the
terms and conditions of that Employment Agreement as previously amended and
restated from time to time to date;
NOW THEREFORE, in consideration of the mutual promises and agreements
contained in this Agreement, the parties agree as follows:
Section 1. EMPLOYMENT; DUTIES
1.1 EMPLOYMENT; DUTIES. The Company hereby employs Employee as its
Executive Vice President, and Employee hereby accepts such employment and
agrees to devote his entire time, ability and attention to fulfilling the duties
of his employment. As Executive Vice President of the Company, Employee shall
perform such duties related to the business of the Company as may be delegated
to him, subject to such limitations, instructions, directions and control as the
Chief Executive Officer of the Company may specify in his sole discretion.
<PAGE>
1.2 CHANGES IN ASSIGNMENT. The Company shall not have the right to change
the office and/or duties of the Employee without Employee's express prior
written consent. Any change of Employee's office or duties during the term of
this Agreement without Employee's express written consent shall be grounds for
an Event of Termination pursuant to Section 3.4.1.
1.3 LOCATION. The duties of Employee shall be performed principally at
the Company's place of business in Brentwood, Tennessee. Employee shall also on
a temporary basis, pursuant to routine business travel, perform such duties at
such other place or places as the interests or opportunities of the Company
shall reasonably require. Any change in Employee's principal place of
employment during the term of this Agreement without Employee's express written
consent shall be grounds for an Event of Termination pursuant to Section 3.4.1.
Section 2. COMPENSATION AND BENEFITS.
2.1 SALARY. Employer shall pay Employee an annual salary ("Base Salary")
of $350,000, payable on a semi-monthly basis, subject to such payroll and
withholding deductions as may be required by law. Employee's Base Salary will
be reviewed annually by the Board, and it shall be increased each January 1
(commencing January 1, 1997) during the term of this Agreement by at least the
percentage of increase in the Consumer Price Index for all goods and services,
U.S. All City Average Report, published by the United States Department of Labor
for the preceding 12 months. Employee shall be reimbursed for all of the actual
costs and expenses incurred by him in the performance of his duties hereunder,
including reasonable travel and entertainment expenses.
2.2 BENEFITS. Employee shall also be eligible to participate in all
benefit plans adopted by Employer for all or a select group of its employees,
including at a minimum the following supplemental benefits at the levels
specified:
- Employee shall be entitled to the same total and partial disability
coverage which applies from time to time to other senior executives of
the Company pursuant to the Company's Supplemental Benefits Plan
regardless of whether commercial insurance is available and with no
coverage exclusions. Total disability coverage shall not be less than
60% of Employee's Base Salary and Target Bonus.
- Supplemental Survivor Accumulation Plan providing basic survivor
benefits equal to 4 times April 30, 1996 Base Salary, and adjusted
every five years thereafter (beginning January 1, 2001); annual
premium deposited in January in such amounts as shall be determined by
independent consultants retained by the Company using the same
methodology on which this provision was based in previous Employment
Agreements (the premium deposited in January 1996 will be adjusted to
reflect the April 30, 1996 Base Salary for the remainder of 1996, and
any additional amounts required will be deposited in July 1996).
-2-
<PAGE>
- Deposits to the Company's Deferred Compensation Plan to restore
benefits lost under the Company's 401(k) Plan due to legislative
limits.
- Any distributions of the above-described supplemental benefits will be
made pursuant to the applicable benefit plan documents.
Employee shall also be entitled to annual paid vacation and other basic benefits
provided to all employees (e.g., sick leave and health insurance) in accordance
with Employer's policies as from time to time established.
2.3 BONUS. In addition to the Base Salary payable to Employee, Employee
shall be entitled to an annual bonus ("Bonus") based upon the relationship of
the Adjusted Earnings Per Share of the capital stock of Employer in a calendar
year or portion thereof during the term of this Agreement to the budgeted
earnings per share of the capital stock of Employer in its annual budget adopted
and approved by the Board of Directors for such calendar year or portion thereof
during the term of this Agreement. For Bonus purposes, Adjusted Earnings Per
Share shall be defined as follows: the reported earnings per share of Employer
(i.e., the earnings reported in the Company's annual or quarterly reports filed
with the Securities and Exchange Commission, or as set forth in the Company's
internal financial statements (if calculated at other than the end of a calendar
quarter) adjusted (i) to eliminate the effects of any changes in capital
structure resulting in interest savings, additional interest expense or other
nonrecurring gains or charges, (ii) to eliminate the effect of any extraordinary
gains or losses other than Medicare prior year contractual adjustments, (iii)
for any change in consolidated average shares outstanding as a result of a sale
by the Company of equity securities, all to the extent not reflected in the
Company's annual budget; and (iv) to exclude corporate consolidation reserves
expensed during the year or taken into income from prior year reserves. The
Bonus, if any, shall be payable upon determination of the amount due,
approximately mid-March of each year for the preceding calendar year. The amount
of Bonus paid shall be that percentage of Base Salary earned by Employee for
that calendar year determined under the Bonus Schedules set forth below:
-3-
<PAGE>
For the period from January 1, 1996 through April 30, 1996 (based upon a Base
Salary of $231,000 per annum)
BONUS SCHEDULE 1
Adjusted
Earnings Per
Share as % Bonus
of budgeted Earned as
earnings per Bonus % of
share Increment Salary
----- --------- ------
Below Threshold None
THRESHOLD 95.0% N/A 55.00%
96.0% 4.00% 59.00%
97.0% 4.00% 63.00%
98.0% 4.00% 67.00%
99.0% 4.00% 71.00%
TARGET BONUS
("Target Bonus") 100.0% 4.00% 75.00%
More than 75.00% plus
100.0% 2.5% for each
1% of actual
Adjusted
Earnings
Per Share
over 100% of
budgeted
earnings
per share
-4-
<PAGE>
Thereafter (based upon the Base Salary provided for herein)
BONUS SCHEDULE 2
Adjusted
Earnings Per
Share as % Bonus
of budgeted Earned as
earnings per Bonus % of
share Increment Salary
----- --------- ------
Below Threshold None
THRESHOLD 95.0% N/A 65.00%
96.0% 5.00% 70.00%
97.0% 5.00% 75.00%
98.0% 5.00% 80.00%
99.0% 5.00% 85.00%
TARGET BONUS
("Target Bonus") 100.0% 5.00% 90.00%
More than 90.00% plus 3%
100.0% for each 1% of
actual Adjusted
Earnings Per
Share over
100% of
budgeted
earnings per
share
Section 3. TERM AND TERMINATION.
3.1 TERM. The Term of this Agreement shall commence as of the date
hereof and shall continue until (a) December 31, 2017, or (b) until otherwise
terminated as provided herein.
3.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement
immediately upon written notice for "Good Cause." For the purposes of this
Agreement, the Company shall have "Good Cause" upon (a) Employee's gross
neglect of duties, which gross neglect continues more than
-5-
<PAGE>
thirty (30) days after receiving written notice from the Chief Executive Officer
of the Company (the "CEO") of the actions or inactions constituting the gross
neglect, (b) Employee's conviction of a felony, (c) Employee's dishonesty,
embezzlement, or fraud committed in connection with his employment with the
Company resulting in substantial financial harm to the Company as determined
solely by the CEO, (d) the issuance of any final order for Employee's removal as
an employee of the Company by any state or federal regulatory agency, (e)
Employee's violation of the non-competition provisions of Section 4.2 which
continues for more than five (5) days after the Employee receives written notice
from the CEO specifying those actions that constitute a violation of Section 4.2
and what actions Employee must take in order to cure such violation (except in
the event of a violation of Section 4.2.3 in which event the Employee shall have
thirty (30) days to cure such violation), (f) Employee's material breach of any
duty owed to the Company, including without limitation the duty of loyalty, as
determined by the CEO, or (g) Employee's material breach of any of his other
obligations under this Agreement, as determined by the CEO. Good Cause shall
not include ordinary negligence or failure to act, whether due to an error in
judgment or otherwise, if Employee has exercised substantial efforts in good
faith to perform the duties reasonably assigned or appropriate to his position.
If this Agreement is terminated pursuant to this Section 3.2, then all Base
Salary, Bonus and other benefits payable to Employee pursuant to Section 2 shall
cease as of the effective date of such termination. The annual Bonus provided
in Section 2.3 shall not continue to accrue beyond the effective date of such
termination; however, Employee shall be entitled to receive that Bonus as
provided in Section 2.3 which would have been payable to him based upon
year-to-date Employer earnings through the last complete month worked prior to
his date of termination, such Bonus to be paid within 60 days after such
termination date. For purposes of the preceding sentence, for any partial year
(1) the "Adjusted Earnings Per Share as Percentage of budgeted earnings per
share" (as such term is used in the Bonus schedule referenced in Section 2.3)
shall be determined by comparing the Adjusted Earnings Per Share of the capital
stock of Employer during the partial year to the budgeted earnings per share of
the capital stock of Employer for the same period; and (2) the "Base Salary" of
Employee (as such term is used in the Bonus schedule referenced in Section 2.3)
shall be that portion of the Employee's Base Salary specified in Section 2.1
earned by Employee through the end of the partial year.
3.3 TERMINATION UPON DEATH OR DISABILITY. The Employee's employment
shall terminate upon the death or total disability of Employee. As a
condition to any benefits, the Company may require the Employee to submit to
such physical or mental evaluations and tests as the CEO deems appropriate.
If Employee's employment with the Company is terminated pursuant to this
Section 3.3 because of total disability, Employee shall receive all Base
Salary, Bonus and other benefits payable to him under Section 2, reduced by
any disability benefits Employee receives under the Company's Supplemental
Benefits Plan (see Section 2.2), for a period of 12 months from the date of
Employee's total disability, payable in equal semi-monthly installments.
Employee or his estate shall also be entitled to receive that Bonus as
provided in Section 2.3 which would have been payable to him based upon
year-to-date Employer earnings through the last complete month actually
worked prior to his date of termination, payable within 60 days following the
date of Employee's death or disability. Employer may purchase insurance to
cover Employer's potential liability under this section. For
-6-
<PAGE>
purposes of the preceding sentence, for any partial year (1) the "Adjusted
Earnings Per Share as Percentage of budgeted earnings per share" (as such term
is used in the Bonus schedule referenced in Section 2.3) shall be determined by
comparing the Adjusted Earnings Per Share of the capital stock of Employer
during the partial year to the budgeted earnings per share of the capital stock
of Employer for the same period; and (2) the "Base Salary" of Employee (as such
term is used in the Bonus schedule referenced in Section 2.3) shall be that
portion of the Employee's Base Salary specified in Section 2.1 earned by
Employee through the end of the partial year.
3.4 OTHER TERMINATIONS -- SEVERANCE BENEFITS. Upon the occurrence of
an "Event of Termination" defined in Section 3.4.1, the Company shall pay to
the Employee the Severance Benefits described in Section 3.4.2, subject to
the provisions of Section 3.4.3.
3.4.1 EVENTS OF TERMINATION. Each of the following events constitutes
an "Event of Termination":
(a) The Company's termination of the Employee's employment
without Good Cause (as defined in Section 3.2 above).
(a) The Employee's voluntary termination of employment within 60
days after the Company changes the Employee's position or
duties without first obtaining the Employee's express
written consent to such change.
(b) The Employee's voluntary termination of employment within 60
days after the Company changes the principal location of the
Employee's employment with the Company without first
obtaining the Employee's express written consent to such
change.
(c) The Employee's voluntary termination of employment within 60
days after the Company's breach of any of its obligations
under this Agreement.
(d) The Employee's voluntary termination of employment within 12
months after a "Change of Control" occurs. For these
purposes, a "Change of Control" occurs when:
-
- any "Person" or "Group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of
1934 ("Exchange Act")), other than the Employee or the
Founders (i.e., E. Thomas Chaney, Richard E. Ragsdale
and David L. Steffy), or an entity the majority of the
voting stock of which is owned or controlled by the
Employee or the Founders becomes the "beneficial owner"
(within the meaning of
-7-
<PAGE>
Rule 13d-3 and/or Rule 13d-5 under the Exchange Act,
except that a Person shall be deemed to have
"beneficial ownership" of all shares that such person
has the right to acquire without condition, other than
the passage of time, whether such right is exercisable
immediately or only after the passage of time),
directly or indirectly, of more than 30% of the total
voting power of the then outstanding voting stock of
the Company;
- the Company consolidates with or merges into another
Person or conveys, transfers or leases all or
substantially all of its assets to any Person, or any
corporation consolidates with or merges into the
Company pursuant to a transaction in which the
outstanding voting stock of the Company is changed into
or exchanged for cash, securities or other property,
other than a transaction between the Company and (i) an
Affiliate of the Company, or (ii) any other entity
owned or controlled by the Founders; or
- individuals who at the beginning of any period of two
consecutive calendar years constituted the Company's
Board of Directors (together with any new directors
whose election by such Board of Directors or whose
nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds of the
members of the Board of Directors then still in office
who either were members of the Board of Directors at
the beginning of such period or whose election or
nomination for election was previously so approved)
cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
In addition during the period after the Company signs a
definitive agreement pursuant to which a Change of Control
will occur and prior to the date the actual Change of
Control occurs, a termination under any clause of this
Section 3.4.1 shall be deemed to be termination under this
clause (e).
3.4.2 SEVERANCE BENEFITS. Severance Benefits are payable within 30
days of Employee's termination and consist of the present value (the "present
value" of such benefits shall be determined using the interest rate for sixty
day certificates of deposit published in the Wall Street Journal on the date
of Employee's termination of employment with the Company) of the following
for a 24 month period (36 months if the Employee is entitled to Severance
Benefits as a result of a "Change of Control" Event of Termination defined in
Section 3.4.1(e)):
-8-
<PAGE>
- Base Salary at the rate in effect on the date of Employee's
termination of employment with the Company.
- All benefits in effect at the Employee's termination of
employment, including the benefits specified in Section 2.2
and further specifically including (a) medical and dental
benefits under the Company's welfare plans, as amended from
time to time; (b) group term life insurance under the
Company's welfare plans, as amended from time to time; (c)
contributions to the Company 401(k) Plan, as amended from
time to time, based on the Employee's prior three-year
average employee deferral (as a percentage of Base Salary)
times the average actual Company matching contribution for
similarly situated employees during the prior three year
period; and (d) survivor benefits under the Company's
welfare plans, as amended from time to time.
- Annual Bonus at the lesser of (x) Target Bonus or (y) the
average actual percentage achievement of the Target Bonus
earned in the three years preceding termination of
employment applied to Bonus Schedule 2 and the Base Salary
in effect at the time of termination.
If an Event of Termination occurring as a result of a Change of Control occurs
simultaneously with the closing of the transaction which results in a Change of
Control, Employee shall have the right to receive payment of the Severance
Benefits simultaneously with the Closing.
3.4.3 VALUE OF WELFARE AND INSURANCE BENEFITS. The value of
the welfare and insurance benefits described in Section 3.4.2 shall be based on
the premium that the Company otherwise would have paid on behalf of Employee.
3.4.4 COBRA CONTINUATION. Any benefits which are subject to
post-termination continuation under COBRA, and which are provided by the Company
during the 36-month period, shall be deemed to be provided as part of the
continuation period available under COBRA.
3.5 OTHER TERMINATIONS - NO SEVERANCE BENEFITS. If the Employee's
employment with the Company is terminated by Employee other than for an Event of
Termination described in Section 3.4.1, all compensation provided in Section 2
shall terminate as of the date of such termination; provided, however, that
Employee shall be entitled to receive that Bonus as provided in Section 2.3
which would have been payable to him based upon year-to-date Employer earnings
through the last complete month worked prior to his date of termination, such
Bonus to be paid within 60 days after such termination date. For purposes of
the preceding sentence, for any partial year (1) the "Adjusted Earnings Per
Share as percentage of budgeted earnings per share" (as such
-9-
<PAGE>
term is used in the Bonus schedule referenced in Section 2.3) shall be
determined by comparing the Adjusted Earnings Per Share of the capital stock of
Employer during the partial year to the budgeted earnings per share of the
capital stock of Employer for the same period; and (2) the "Base Salary" of
Employee (as such term is used in the Bonus schedule referenced in Section 2.3)
shall be that portion of the Employee's Base Salary specified in Section 2.1
earned by Employee through the end of the partial year.
3.6 RELEASE. If the Employee becomes entitled to any Severance
Benefits under this Section 3, it shall be a condition precedent to the
obligation of the Company to pay any such benefits that the Employee execute a
general release, in form acceptable to legal counsel of the Company, of any
claims the Employee may have against the Company (except for the Employee's
claim for the Severance Benefits payable under this Section 3) and/or any
Affiliate of the Company, including, by way of example and not limitation, any
claims by Employee under any state age or employment discrimination law; any
federal claims under the Civil Rights Act of 1964, as amended; the Age
Discrimination in Employment Act, as amended; the Employee Retirement Income
Security Act of 1974, as amended; the Rehabilitation Act of 1973, as amended;
the Americans With Disabilities Act of 1990, as amended; the Vietnam Era
Veterans' Readjustment Assistance Act of 1974, as amended; the Civil Rights Act
of 1866, as amended; the Civil Rights Act of 1871, as amended; any other claims
of age, race, sex, religious, national origin or handicap discrimination,
retaliation, claims or demands arising under either express or implied contract,
tort, public policy, the common law or any federal, state or local statute,
ordinance, regulation or constitutional provision.
Section 4. CONFIDENTIALITY; NONCOMPETITION
4.1 CONFIDENTIALITY. Employee agrees to keep confidential and not to
use or to disclose to others, except as expressly consented to in writing by the
Company or as required by law to be disclosed, any trade secrets or confidential
technology, proprietary information, customer lists, or knowledge belonging to
or relating to the affairs of the Company or any subsidiary of the Company (an
"Affiliate"), or any matter or thing ascertained by Employee through his
association with the Company or an Affiliate, the use or disclosure of which
might reasonably be construed to be contrary to the best interests of the
Company or an Affiliate. Employee further agrees that should he leave the
active service of the Company, he will neither take, nor retain, nor cause any
other person to take or retain, without prior written authorization from the
Company, any papers, data, client lists, books, records, files, or other
documents or any copy or duplicate thereof, or other confidential information of
any kind belonging to the Company or an Affiliate.
4.2 NON-COMPETITION AGREEMENT. Employee recognizes that the
Company's entering into this Agreement is induced primarily because of the
covenants and assurances made by him that his covenant not to compete is
necessary to insure the continuation of the business of the Company and its
Affiliates, and that irreparable harm and damage will be done to the Company and
its Affiliates within the geographic areas described below. Therefore, Employee
agrees as follows:
4.2.1 During the term of this Agreement, Employee will not directly
or indirectly own, manage, operate, control, participate in the management or
control of, be employed by, serve as a director of, or maintain or continue any
interest whatsoever in any corporation or legally
-10-
<PAGE>
organized enterprise having to do with the provision, distribution, marketing,
promotion, or advertising of any services or products similar to those offered
by the Company within the United States or its territories and possessions, or
otherwise act on behalf of any other enterprise whether in competition with the
Company or not, except as approved in advance from time to time by the Company's
Board of Directors and except Employee may, without approval by the Company's
Board of Directors, own stock in any corporation whose stock is listed on any
nationally recognized stock exchange as long as Employee owns less than three
percent of the outstanding shares of any such corporation.
4.2.2 If this Agreement is terminated by Employee, for a period of
one year thereafter, Employee will not directly or indirectly own, manage,
operate, control, participate in the management or control of, be employed by,
serve as a director of, or maintain or continue any interest whatsoever in any
corporation or legally organized enterprise in direct competition with the
business of the Company or an Affiliate, within a 50-mile radius of the
facilities of Employer or an Affiliate, not including the Company's corporate
offices, or offer employment with any other enterprise to one or more of the
Company's employees, except for those situations approved in advance by the
Company's Board of Directors. Notwithstanding the preceding sentence, nothing
shall prevent Employee from owning stock in any corporation whose stock is
listed on any nationally recognized stock exchange as long as Employee owns less
than three percent of the outstanding shares of any such corporation. The
parties specifically agree (i) that the provisions of this section shall only
apply to business of the Company prior to the date of termination, and (ii) if
this Agreement is terminated as a result of any Event of Termination as defined
in Section 3.4.1, Employee shall not be bound by such non-compete agreement
after the date of termination, except the prohibition against offering
employment with any other enterprise to one or more of the Company's employees
without the prior consent of the Company's Board of Directors which, in such
event, shall remain in effect for a period of one year thereafter.
4.2.3 If the Company's Board of Directors has previously approved in
advance Employee's role as a director or other management position or activity
on behalf of another enterprise pursuant to the provisions of Section 4.2.1
and/or Section 4.2.2, and the Board of Directors subsequently revokes such
approval, the CEO shall give Employee written notice of such revocation. In
such written notice, the CEO shall specify a time period (ending not less than
30 days from the date of delivery of such notice) during which Employee must
withdraw or resign from the director or other management role or activity with
the other enterprise. If the Employee fails to so withdraw or resign by the end
of the designated period, he will then be in violation of this Section 4.2.
Notwithstanding any other provision in this Section 4.2, Board of Director
approvals of any ownership position of Employee in another enterprise pursuant
to the provisions of Section 4.2.1. and/or Section 4.2.2 shall not be revoked.
4.2.4 These restrictions against competition are considered by the
parties to be reasonable for the purposes of protecting the business of the
Company. However, if any such restriction is found by any court of competent
jurisdiction to be unenforceable because it extends for
-11-
<PAGE>
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted (but only with respect to such
jurisdiction) to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable. Employee
recognizes that certain benefit plans sponsored by the Company also contain
noncompetition restrictions that may apply to Employee, and that such
restrictions apply independent of the restrictions under this Section 4.2.
Section 5. ADDITIONAL PROVISIONS
5.1 CARRYOVER OF NONDEDUCTIBLE COMPENSATION. If any compensation
payable to Employee under this Agreement would be nondeductible to the Company
because it exceeds the $1 million deduction limit under the Internal Revenue
Code of 1986 ("Code"), as amended (or such other amount to which the $1 million
limit may be changed), then such compensation in excess of the $1 million
deduction limit shall accrue to the following year or years and be paid to
Employee (together with accrued interest at the prime rate of the Company's
primary lender, from time to time) in the earliest year in which it can be paid
and deducted by the Company. Notwithstanding the preceding provisions of this
Section 5.1, any amounts deferred under this Section shall be deposited into the
Company's Executive Benefits Trust as provided for in this Section 5.1 and paid
from the Trust in the earliest year in which it can be paid and deducted by the
Company.
Any amounts deferred pursuant to this Section 5.1 shall be deposited by the
Company in (1) the Company's Executive Benefits Trust, existing on the date of
Employee's termination, or (2) a new trust established by the Company the assets
of which are dedicated to the payment of such deferred amounts to the Employee,
or the Company's creditors (such trust to be established with (i) a commercial
bank in Nashville, Tennessee having both trust powers and over $500 Million net
worth serving as trustee, (ii) terms that are satisfactory to the Employee).
The trustee of either such trust shall then have primary responsibility for
paying such deferred amounts, but the Company shall remain liable for any such
deferred amounts for which the assets of the trust are insufficient.
5.2 OPTIONAL WAIVER OF PARACHUTE PAYMENTS. In the event that any
payment or benefit provided under this agreement or otherwise provided to
Employee by or on behalf of the Company would, in the opinion of counsel
selected by the Company and Employee, not be deemed to be deductible in whole or
in part in the calculation of the Federal income tax of the Company, or any
other person making such payment or providing such benefit, by reason of Section
280G of the Code, at Employee's sole discretion, Employee may waive the right to
any payment or benefit hereunder or may agree to reduce the aggregate payments
or benefits provided hereunder so that no portion of such amount which is paid
to Employee is not deductible for tax purposes by reason of Section 280G of the
Code. Any such determination shall take into account that some or all of
Employee's entitlements may constitute reasonable compensation for services
rendered or to be rendered and, therefore, do not constitute "parachute
payments" or "excess parachute payments" within the meaning of Section 280G of
the Code.
-12-
<PAGE>
5.3 ACQUISITION OF THE COMPANY. In the event the Company (i) merges,
(ii) consolidates, (iii) sells or leases substantially all of the assets of
the Company and/or its affiliates, or (iv) a like event occurs, the Company
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent as the Company is required.
5.4 BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee, his executor, administrator, personal
representatives and assigns, and the Company and its successors and assigns;
provided, however, that neither Employee nor the Company may assign or delegate
any of their respective rights or duties under this Agreement without the
specific consent of both parties thereto.
5.5 NOTICES. Any notice, demand, or communication required,
permitted or desired to be given hereunder, shall be deemed effectively given
when personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:
Employee Employer
-------- ---------
Tyree G. Wilburn Community Health Systems, Inc.
4717 Chalmers Drive 155 Franklin Road, Suite 400
Nashville, TN 37215 Brentwood, TN 37027
Attn: President
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
5.6 GOVERNING LAW. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance with
the laws of the State of Tennessee.
5.7 INVALID PROVISIONS. The Company and Employee agree that the
agreements and provisions contained in this Agreement are severable and
divisible, that each such agreement and provision does not depend upon any other
provision or agreement for its enforceability, and that each such agreement and
provision set forth herein constitutes an enforceable obligation between the
parties thereto. Consequently, the parties hereto agree that neither the
invalidity nor the unenforceability of any provision of this Agreement shall
affect the other provisions, and this Agreement shall remain in full force and
effect and be construed in all respects as if such invalid or unenforceable
provision were omitted.
-13-
<PAGE>
5.8 HEADINGS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.9 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which together
shall constitute one and the same instrument.
5.10 WAIVER. The failure of either party hereto in one or more instances
to insist upon the performance of any of the terms or conditions of this
Agreement, or to exercise any rights or privileges conferred in this Agreement,
or the waiver or breach of any of the terms, covenants, or conditions of this
Agreement, shall not be construed as thereafter waiving any such terms,
covenants, conditions, rights, or privileges, and the same shall continue and
remain in full force and effect as if no such forbearance of waiver had
occurred.
5.11 ENTIRE AGREEMENT. This Agreement supersedes all previous contracts,
and constitutes the entire agreement between the parties. Employee shall be
entitled to no other benefits than those specified herein. No oral statements
or prior written material not specifically incorporated herein shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering into and executing this Agreement,
Employee relies solely upon the representations and agreements contained in this
Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above first written.
EMPLOYER: COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ E. Thomas Chaney
---------------------------------------
E. Thomas Chaney
Its: Chief Executive Officer
EMPLOYEE: /s/ Tyree G. Wilburn
------------------------------------------
Tyree G. Wilburn
-14
<PAGE>
Exhibit 4
May 1, 1996
Tyree G. Wilburn
Executive Vice President
Community Health Systems, Inc.
155 Franklin Road, Suite 400
Brentwood, TN 37027
RE: CEO POSITION
Dear Ty:
The purpose of this letter is to confirm our conversations about your
status in the event the proposed sale of the Company fails to materialize.
We have agreed (and the agreements set forth in this letter have been
approved by the Executive, Compensation and Option Committees of the CHS Board
of Directors) that if the Company has not entered into a binding agreement by
July 30, 1996, with a third party pursuant to which the third party would
purchase or otherwise acquire control of the Company, you will be promoted to
President and Chief Executive Officer, Director and member of the Executive
Committee of the Company and the Company will enter into the attached Fourth
Amended and Restated Employment Agreement with you. If for any reason (other
than an agreement by July 30, 1996 to sell the Company as set forth in the
preceding sentence) the Company fails to enter into such Fourth Amended and
Restated Employment Agreement, such failure shall constitute an "Event of
Termination" pursuant to Section 3.4.1(a) of your present Third Amended and
Restated Employment Agreement.
We have also agreed that the options previously granted to you to purchase
stock of the Company (the "Options") which would otherwise vest on or before
April 30, 1998 are hereby amended to provide that notwithstanding any provisions
therein to the contrary, in the event the closing price of the stock of the
Company on the New York Stock Exchange on the date you exercise those Options
(the "Exercise Date Stock Price") is below the closing price of the stock
<PAGE>
Page 2
on the New York Stock Exchange on April 26, 1996, (the "Target Price") you shall
be entitled to such number of additional shares at no additional cost as may be
required to yield you the profit you would have realized had the market price
been at the Target Price; in the event the Exercise Date Stock Price is above
the Target Price, you shall be entitled to exercise only such number of shares
at your exercise price as may be required to yield you the profit you would have
realized had the market price been at the Target Price and the option for
balance of the shares will be cancelled. If the Exercise Date Stock Price is
below 75%, or above 125% of the Target Price, these changes to your options
shall apply only to such 75% or 125% levels, as the case may be, and you shall
be subject to the detriment or benefit, as the case may be, of changes in the
Exercise Date Stock Price beyond such levels. The amendments set forth in this
paragraph shall not be applicable (i) in the event you become President and
Chief Executive Officer of the Company pursuant to the second paragraph of this
letter or (ii) in the event the Company enters into a definitive agreement by
July 30, 1996 to sell the Company.
We have also agreed that during the period after the Company signs a
definitive agreement pursuant to which a Change of Control will occur and prior
<PAGE>
Page 3
to the date the actual Change of Control occurs, any termination of your
employment without cause shall trigger the Change of Control vesting provisions
of your options.
If you are in agreement with the provisions of this letter, please sign and
return the enclosed counterpart, thereby making this letter a contract binding
on you and the Company.
Sincerely yours,
/s/ Richard E. Ragsdale
Richard E. Ragsdale
Chairman
/s/ E. Thomas Chaney
E. Thomas Chaney
President and CEO
Agreed
/s/ Tyree G. Wilburn
- -------------------------
Tyree G. Wilburn
<PAGE>
Exhibit 5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
3rd day of June, 1996, between Community Health Systems, Inc., a Delaware
corporation ("Employer" or "Company"), and Ernest Bacon, an individual resident
of the State of Tennessee ("Employee").
RECITALS
WHEREAS, Employer desires to obtain the services of Employee, and Employee
desires to be employed by Employer, upon the terms and conditions hereinafter
set forth:
NOW THEREFORE, in consideration of the mutual promises and agreements
contained in this Agreement, the parties agree as follows:
Section 1. EMPLOYMENT, DUTIES
1.1 EMPLOYMENT; DUTIES. The Company hereby employs Employee as its
Executive Vice President and Chief Operating Officer, and Employee hereby
accepts such employment and agrees to devote his entire time, ability and
attention to fulfilling the duties of his employment. As Executive Vice
President and Chief Operating Officer of the Company, Employee shall perform
such duties related to the business of the Company as may be delegated to him,
subject to such limitations, instructions, directions and control as the Chief
Executive Officer of the Company may specify in his sole discretion.
1.2 CHANGES IN ASSIGNMENT. The Company shall not have the right to change
the office and/or duties of the Employee without Employee's express prior
written consent. Any change of Employee's office or duties during the term of
this Agreement without Employee's express written consent shall be grounds for
an Event of Termination pursuant to Section 3.4.1.
1.3 LOCATION. The duties of Employee shall be performed principally at
the Company's place of business in Brentwood, Tennessee. Employee shall also on
a temporary basis, pursuant to routine business travel, perform such duties at
such other place or places as the interests or opportunities of the Company
shall reasonably require. Any change in Employee's principal place of
employment during the term of this Agreement without Employee's express written
consent shall be grounds for an Event of Termination pursuant to Section 3.4.1.
Section 2. COMPENSATION AND BENEFITS.
<PAGE>
2.1 SALARY. Employer shall pay Employee an annual salary ("Base Salary")
of $300,000, payable on a semi-monthly basis, subject to such payroll and
withholding deductions as may be required by law. Employee's Base Salary will
be reviewed annually by the Board, and it shall be increased each June 1
(commencing June 1, 1997) during the term of this Agreement by at least the
percentage of increase in the Consumer Price Index for all goods and services,
U.S. All City Average Report, published by the United States Department of Labor
for the preceding 12 months. Employee shall be reimbursed for all of the actual
costs and expenses incurred by him in the performance of his duties hereunder,
including reasonable travel and entertainment expenses.
2.2 BENEFITS. Employee shall also be eligible to participate in all
benefit plans adopted by Employer for all or a select group of its employees,
including at a minimum the following supplemental benefits at the levels
specified:
- Employee shall be entitled to the same total and partial disability
coverage which applies from time to time to other senior executives of
the Company. The total disability benefit will be targeted to provide
a monthly benefit equal to 60% of Employee's Base Salary and Target
Bonus. Coverage will be provided through commercial insurance which
may include a combination of group and individual coverage, and will
be subject to any coverage exclusions or limitations mandated by the
Company's insurance carriers. The Company shall use its best efforts
to obtain the level of commercial disability insurance coverage
described herein, but shall not be obligated to self-insure any
disability coverage for Employee which is denied by or specifically
excluded by commercial insurance carriers due to Employee's physical
condition or availability of coverage.
- Supplemental Survivor Accumulation Plan which provides basic survivor
benefits equal to 4 times Employee's June 3, 1996 Base Salary, and
adjusted every 5 years thereafter (beginning June 1, 2001); annual
premium deposited in July of each year (commencing with July 1996) in
the amount of 12.4% of Employee's Base Salary.
- Deposits to the Company's Deferred Compensation Plan for the benefit
of Employee to restore benefits lost under the Company's 401(k) Plan
due to limitations applicable to Employee's pre-tax deferrals under
such Plan.
Employee shall also be entitled to annual paid vacation and other basic benefits
provided to all employees (e.g., sick leave and health insurance) in accordance
with Employer's policies as from time to time established.
2.3 BONUS. In addition to the Base Salary payable to Employee, Employee
shall be entitled to an annual bonus ("Bonus") based upon the relationship of
the Adjusted
2
<PAGE>
Earnings Per Share of the capital stock of Employer in a calendar year or
portion thereof during the term of this Agreement to the budgeted earnings per
share of the capital stock of Employer in its annual budget adopted and approved
by the Board of Directors for such calendar year or portion thereof during the
term of this Agreement. For Bonus purposes, Adjusted Earnings Per Share shall
be defined as follows: the reported earnings per share of Employer (i.e., the
earnings reported in the Company's annual or quarterly reports filed with the
Securities and Exchange Commission, or as set forth in the Company's internal
financial statements if calculated at other than the end of a calendar quarter)
adjusted (i) to eliminate the effects of any changes in capital structure
resulting in interest savings, additional interest expense or other nonrecurring
gains or charges, (ii) to eliminate the effect of any extraordinary gains or
losses other than Medicare prior year contractual adjustments, (iii) for any
change in consolidated average shares outstanding as a result of a sale by the
Company of equity securities, all to the extent not reflected in the Company's
annual budget; and (iv) to exclude corporate consolidation reserves expensed
during the year or taken into income from prior year reserves. The Bonus, if
any, shall be payable upon determination of the amount due, approximately mid-
March of each year for the preceding calendar year. The amount of Bonus paid
shall be that percentage of Base Salary earned by Employee for that calendar
year determined under the Bonus Schedule set forth below:
3
<PAGE>
ADJUSTED
EARNINGS PER
SHARE AS % OF
BUDGETED Bonus Earned
EARNINGS Bonue as % of
PER SHARE Increment Salary
--------- ---------- ------------
Below Threshold < 95.0% N/A N/A
THRESHOLD 95.0% N/A 55.00%
96.0% 4.00% 59.00%
97.0% 4.00% 63.00%
98.0% 4.00% 67.00%
99.0% 4.00% 71.00%
TARGET BONUS 100.0% 4.00% 75.00%
> 100.0% 75.00% of Base Salary
plus 2.5% of Base
Salary for each 1% of
Adjusted Earnings Per
Share over the Profit
Target
From the commencement of this Agreement through December 31, 1996 (1) "Adjusted
Earnings Per Share as Percentage of budgeted earnings per share" (as such term
is used in the Bonus Schedule referenced in Section 2.3) shall be determined by
comparing the Adjusted Earnings Per Share of the capital stock of Employer
during the partial year to the budgeted earnings per share of the capital stock
of Employer for the same period; and (2) "Base Salary" of Employee (as such term
is used in the Bonus Schedule referenced in Section 2.3) shall be that portion
of the Employee's Base Salary specified in Section 2.1 earned by Employee
through the end of the partial year.
Section 3. TERM AND TERMINATION.
3.1 TERM. The Term of this Agreement shall commence as of the date hereof
and shall continue until (a) December 31, 2002, or (b) until otherwise
terminated as provided herein.
4
<PAGE>
3.2 TERMINATION FOR CAUSE. The Company may terminate this Agreement
immediately upon written notice for "Good Cause." For the purposes of this
Agreement, the Company shall have "Good Cause" upon (a) Employee's gross neglect
of duties, which gross neglect continues more than thirty (30) days after
receiving written notice from the Chief Executive Officer of the Company (the
"CEO") of the actions or inactions constituting the gross neglect, (b)
Employee's conviction of a felony, (c) Employee's dishonesty, embezzlement, or
fraud committed in connection with his employment with the Company resulting in
substantial financial harm to the Company as determined solely by the CEO, (d)
the issuance of any final order for Employee's removal as an employee of the
Company by any state or federal regulatory agency, (e) Employee's violation of
the non-competition provisions of Section 4.2 which continues for more than 5
days after the Employee receives written notice from the CEO specifying those
actions that constitute a violation of Section 4.2 and what actions Employee
must take in order to cure such violation (except in the event of a violation of
Section 4.2.3 in which event the Employee shall have 30 days to cure such
violation), (f) Employee's material breach of any duty owed to the Company,
including without limitation the duty of loyalty, as determined by the CEO, or
(g) Employee's material breach of any of his other obligations under this
Agreement, as determined by the CEO. Good Cause shall not include ordinary
negligence or failure to act, whether due to an error in judgment or otherwise,
if Employee has exercised substantial efforts in good faith to perform the
duties reasonably assigned or appropriate to his position. If this Agreement is
terminated pursuant to this Section 3.2, then all Base Salary, Bonus and other
benefits payable to Employee pursuant to Section 2 shall cease as of the
effective date of such termination. The annual Bonus provided in Section 2.3
shall not continue to accrue beyond the effective date of such termination;
however, Employee shall be entitled to receive that Bonus as provided in Section
2.3 which would have been payable to him based upon year-to-date Employer
earnings through the last complete month worked prior to his date of
termination, such Bonus to be paid within 60 days after such termination date.
For purposes of the preceding sentence, for any partial year (1) the "Adjusted
Earnings Per Share as Percentage of budgeted earnings per share" (as such term
is used in the Bonus Schedule referenced in Section 2.3) shall be determined by
comparing the Adjusted Earnings Per Share of the capital stock of Employer
during the partial year to the budgeted earnings per share of the capital stock
of Employer for the same period; and (2) the "Base Salary" of Employee (as such
term is used in the Bonus Schedule referenced in Section 2.3) shall be that
portion of the Employee's Base Salary specified in Section 2.1 earned by
Employee through the end of the partial year.
3.3 TERMINATION UPON DEATH OR DISABILITY. The Employee's employment shall
terminate upon the death or total disability of Employee. As a condition to any
benefits, the Company may require the Employee to submit to such physical or
mental evaluations and tests as the CEO deems appropriate. If Employee's
employment with the Company is terminated pursuant to this Section 3.3 because
of total disability, Employee shall receive all Base Salary, Bonus and other
benefits payable to him under Section 2, reduced by any
5
<PAGE>
disability benefits Employee receives under any insurance policies paid for by
the Company (see Section 2.2), for a period of 12 months from the date of
Employee's total disability, payable in equal semi-monthly installments.
Employee or his estate shall also be entitled to receive that Bonus as provided
in Section 2.3 which would have been payable to him based upon year-to-date
Employer earnings through the last complete month actually worked prior to his
date of termination, payable within 60 days following the date of Employee's
death or disability. Employer may purchase insurance to cover Employer's
potential liability under this section. For purposes of the preceding sentence,
for any partial year (1) the "Adjusted Earnings Per Share as Percentage of
budgeted earnings per share" (as such term is used in the Bonus Schedule
referenced in Section 2.3) shall be determined by comparing the Adjusted
Earnings Per Share of the capital stock of Employer during the partial year to
the budgeted earnings per share of the capital stock of Employer for the same
period; and (2) the "Base Salary" of Employee (as such term is used in the Bonus
Schedule referenced in Section 2.3) shall be that portion of the Employee's Base
Salary specified in Section 2.1 earned by Employee through the end of the
partial year.
3.4 OTHER TERMINATIONS -- SEVERANCE BENEFITS. Upon the occurrence of an
"Event of Termination" defined in Section 3.4.1, the Company shall pay to the
Employee the Severance Benefits described in Section 3.4.2, subject to the
provisions of Section 3.4.3.
3.4.1 EVENTS OF TERMINATION. Each of the following events
constitutes an "Event of Termination":
(a) The Company's termination of the Employee's employment
without Good Cause (as defined in Section 3.2 above).
(b) The Employee's voluntary termination of employment
within 60 days after the Company changes the
Employee's position or duties without first obtaining
the Employee's express written consent to such change.
(c) The Employee's voluntary termination of employment
within 60 days after the Company changes the principal
location of the Employee's employment with the Company
without first obtaining the Employee's express
written consent to such change.
6
<PAGE>
(d) The Employee's voluntary termination of employment
within 60 days after the Company's breach of any of its
obligations under this Agreement.
(e) The Employee's voluntary termination of employment
within 12 months after a "Change of Control" occurs.
For these purposes, a "Change of Control" occurs when:
- any "Person" or "Group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 ("Exchange Act")), other than
the Employee or the Founders (i.e., E. Thomas
Chancy, Richard E. Ragsdale and David L. Steffy),
or an entity the majority of the voting stock of
which is owned or controlled by the Employee or
the Founders becomes the "beneficial owner"
(within the meaning of Rule 13d-3 and/or Rule 13d-
5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of
all shares that such person has the right to
acquire without condition, other than the passage
of time, whether such right is exercisable
immediately or only after the passage of time),
directly or indirectly, of more than 30% of the
total voting power of the then outstanding voting
stock of the Company;
- the Company consolidates with or merges into
another Person or conveys, transfers or leases all
or substantially all of its assets to any Person,
or any corporation consolidates with or merges
into the Company pursuant to a transaction in
which the outstanding voting stock of the Company
is changed into or exchanged for cash, securities
or other property, other than a transaction
between the Company and (i) an Affiliate of the
Company, or (ii) any
7
<PAGE>
other entity owned or controlled by the Founders;
or
- individuals who at the beginning of any period of
2 consecutive calendar years constituted the
Company's Board of Directors (together with any
new directors whose election by such Board of
Directors or whose nomination for election by the
Company's shareholders was approved by a vote of
at least 2/3 of the members of the Board of
Directors then still in office who either were
members of the Board of Directors at the beginning
of such period or whose election or nomination for
election was previously so approved) cease for any
reason to constitute a majority of the members of
the Board of Directors then in office.
In addition during the period after the Company signs a
definitive agreement pursuant to which a Change of
Control will occur and prior to the date the actual
Change of Control occurs, a termination under any
clause of this Section 3.4.1 shall be deemed to be
termination under this clause (e).
3.4.2 SEVERANCE BENEFITS. Severance Benefits are payable within
30 days of Employee's termination and consist of the present value (the "present
value" of such benefits shall be determined using the interest rate for 60 day
certificates of deposit published in the Wall Street Journal on the date of
Employee's termination of employment with the Company) of the following for an
18-month period (24 months if the Employee is entitled to Severance Benefits as
a result of a "Change of Control" Event of Termination defined in Section
3.4.1(e)):
- Base Salary at the rate in effect on the date of Employee's
termination of employment with the Company.
- All benefits in effect at the Employee's termination of
employment, including the benefits specified in Section 2.2 and
further specifically including (a) medical and dental benefits
under the Company's welfare plans, as amended from time to time;
(b) group term life insurance under the Company's welfare plans,
as
8
<PAGE>
amended from time to time; (c) contributions to the Company 401
(k) Plan, as amended from time to time, based on the Employee's
prior 3 year average employee deferral or if shorter, Employee's
actual participation in the Plan (as a percentage of Base Salary)
times the average actual Company matching contribution for
similarly situated employees during the prior 3-year period; and
(d) survivor benefits under the Company's welfare plans, as
amended from time to time.
- Annual Bonus at the lesser of (x) Target Bonus or (y) the average
actual percentage achievement of the Target Bonus earned in the 3
years preceding termination of employment applied to the Bonus
Schedule and the Base Salary in effect at the time of
termination.
If an Event of Termination occurring as a result of a Change of Control occurs
simultaneously with the closing of the transaction which results in a Change of
Control, Employee shall have the right to receive payment of the Severance
Benefits simultaneously with such closing.
3.4.3 VALUE OF WELFARE AND INSURANCE BENEFITS. The value of the
welfare and insurance benefits described in Section 3.4.2 shall be based on the
premium that the Company otherwise would have paid on behalf of Employee.
3.5 OTHER TERMINATIONS - NO SEVERANCE BENEFITS. If the Employee's
employment with the Company is terminated by Employee other than for an Event of
Termination described in Section 3.4.1, all compensation provided in Section 2
shall terminate as of the date of such termination; provided, however, that
Employee shall be entitled to receive that Bonus as provided in Section 2.3
which would have been payable to him based upon year-to-date Employer earnings
through the last complete month worked prior to his date of termination, such
Bonus to be paid within 60 days after such termination date. For purposes of
the preceding sentence, for any partial year (1) the "Adjusted Earnings Per
Share as percentage of budgeted earnings per share" (as such term is used in the
Bonus Schedule referenced in Section 2.3) shall be determined by comparing the
Adjusted Earnings Per Share of the capital stock of Employer during the partial
year to the budgeted earnings per share of the capital stock of Employer for the
same period; and (2) the "Base Salary" of Employee (as such term is used in the
Bonus Schedule referenced in Section 2.3) shall be that portion of the
Employee's Base Salary specified in Section 2.1 earned by Employee through the
end of the partial year.
3.6 RELEASE. If the Employee becomes entitled to any Severance Benefits
under this Section 3, it shall be a condition precedent to the obligation of the
Company to pay any such benefits that the Employee execute a general release, in
form acceptable to legal counsel of the Company, of any claims the Employee may
have against the Company
9
<PAGE>
(except for the Employee's claim for the Severance Benefits payable under this
Section 3) and/or any Affiliate of the Company, including, by way of example and
not limitation, any claims by Employee under any state age or employment
discrimination law; any federal claims under the Civil Rights Act of 1964, as
amended; the Age Discrimination in Employment Act, as amended; the Employee
Retirement Income Security Act of 1974, as amended; the Rehabilitation Act of
1973, as amended; the Americans With Disabilities Act of 1990, as amended; the
Vietnam Era Veterans Readjustment Assistance Act of 1974, as amended; the Civil
Rights Act of 1866, as amended; the Civil Rights Act of 1871, as amended; any
other claims of age, race, sex, religious, national origin or handicap
discrimination, retaliation, claims or demands arising under either express or
implied contract, tort, public policy, the common law or any federal, state or
local statute, ordinance, regulation or constitutional provision.
Section 4. CONFIDENTIALITY; NONCOMPETITION
4.1 CONFIDENTIALITY. Employee agrees to keep confidential and not to use
or to disclose to others, except as expressly consented to in writing by the
Company or as required by law to be disclosed, any trade secrets or confidential
technology, proprietary information, customer lists, or knowledge belonging to
or relating to the affairs of the Company or any subsidiary of the Company (an
"Affiliate"), or any matter or thing ascertained by Employee through his
association with the Company or an Affiliate, the use or disclosure of which
might reasonably be construed to be contrary to the best interests of the
Company or an Affiliate. Employee further agrees that should he leave the
active service of the Company, he will neither take, nor retain, nor cause any
other person to take or retain, without prior written authorization from the
Company, any papers, data, client lists, books. records, files, or other
documents or any copy or duplicate thereof, or other confidential information of
any kind belonging to the Company or an Affiliate.
4.2 NON-COMPETITION AGREEMENT. Employee recognizes that the Company's
entering into this Agreement is induced primarily because of the covenants and
assurances made by him that his covenant not to compete is necessary to insure
the continuation of the business of the Company and its Affiliates, and that
irreparable harm and damage will be done to the Company and its Affiliates
within the geographic areas described below. Therefore, Employee agrees as
follows:
4.2.1 During the term of this Agreement, Employee will not
directly or indirectly own, manage, operate, control, participate in the
management or control of, be employed by, serve as a director of, or maintain or
continue any interest whatsoever in any corporation or legally organized
enterprise having to do with the provision, distribution, marketing, promotion,
or advertising of any services or products similar to those offered by the
Company within the United States or its territories and possessions, or
otherwise act on behalf of any other enterprise whether in competition with the
Company or not, except as approved in advance from time to time by the Company's
Board of
10
<PAGE>
Directors and except Employee may, without approval by the Company's Board of
Directors, own stock in any corporation whose stock is listed on any nationally
recognized stock exchange so long as Employee owns less than three percent of
the outstanding shares of any such corporation.
4.2.2 If this Agreement is terminated by Employee, for a period of
1 year thereafter, Employee will not directly or indirectly own, manage,
operate, control, participate in the management or control of, be employed by,
serve as a director of, or maintain or continue any interest whatsoever in any
corporation or legally organized enterprise in direct competition with the
business of the Company or an Affiliate, within a 50-mile radius of the
facilities of Employer or an Affiliate, not including the Company's corporate
offices, or offer employment with any other enterprise to one or more of the
Company's employees, except for those situations approved in advance by the
Company's Board of Directors. Notwithstanding the preceding sentence, nothing
shall prevent Employee from owning stock in any corporation whose stock is
listed on any nationally recognized stock exchange so long as Employee owns less
than 3% of the outstanding shares of any such corporation. The parties
specifically agree (i) that the provisions of this section shall only apply to
business of the Company prior to the date of termination, and (ii) if this
Agreement is terminated as a result of any Event of Termination as defined in
Section 3.4.1, Employee shall not be bound by such non-compete agreement after
the date of termination, except the prohibition against offering employment with
any other enterprise to one or more of the Company's employees without the prior
consent of the Company's Board of Directors which, in such event, shall remain
in effect for a period of one year thereafter.
4.2.3 These restrictions against competition are considered by the
parties to be reasonable for the purposes of protecting the business of the
Company. However, if any such restriction is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area,
it shall be interpreted (but only with respect to such jurisdiction) to extend
only over the maximum period of time, range of activities or geographic area as
to which it may be enforceable. Employee recognizes that certain benefit plans
sponsored by the Company also contain noncompetition restrictions that may apply
to Employee, and that such restrictions apply independent of the restrictions
under this Section 4.2.
Section 5. ADDITIONAL PROVISIONS
5.1 CARRYOVER OF NONDEDUCTIBLE COMPENSATION. If any compensation payable
to Employee under this Agreement would be nondeductible to the Company because
it exceeds the $1 million deduction limit under the Internal Revenue Code of
1986 ("Code"), as amended (or such other amount to which the $1 million limit
may be changed), then such compensation in excess of the $1 million deduction
limit shall accrue to the following
11
<PAGE>
year or years and be paid to Employee (together with accrued interest at the
prime rate of the Company's primary lender, from time to time) in the earliest
year in which it can be paid and deducted by the Company. Notwithstanding the
preceding provisions of this Section 5.1, any amounts deferred under this
Section shall be deposited into the Company's Executive Benefits Trust as
provided for in this Section 5.1 and paid from the Trust in the earliest year in
which it can be paid and deducted by the Company.
Any amounts deferred pursuant to this Section 5.1 shall be deposited by the
Company in (1) the Company's Executive Benefits Trust, or (2) a new trust
established by the Company the assets of which are dedicated to the payment of
such deferred amounts to the Employee, or the Company's creditors (such trust to
be established with (i) a commercial bank in Nashville, Tennessee having both
trust powers and over $500 Million net worth serving as trustee, (ii) terms that
are satisfactory to the Employee). The trustee of either such trust shall then
have primary responsibility for paying such deferred amounts, but the Company
shall remain liable for any such deferred amounts for which the assets of the
trust are insufficient.
5.2 OPTIONAL WAIVER OF PARACHUTE PAYMENTS. In the event that any payment
or benefit provided under this agreement or otherwise provided to Employee by or
on behalf of the Company would, in the opinion of counsel selected by the
Company and Employee, not be deemed to be deductible in whole or in part in the
calculation of the Federal income tax of the Company, or any other person making
such payment or providing such benefit, by reason of Section 28OG of the Code,
at Employee's sole discretion, Employee may waive the right to any payment or
benefit hereunder or may agree to reduce the aggregate payments or benefits
provided hereunder so that no portion of such amount which is paid to Employee
is not deductible for tax purposes by reason of Section 28OG of the Code. Any
such determination shall take into account that some or all of Employee's
entitlements may constitute reasonable compensation for services rendered or to
be rendered and, therefore, do not constitute "parachute payments" or "excess
parachute payments" within the meaning of Section 28OG of the Code.
5.3 ACQUISITION OF THE COMPANY. In the event the Company (i) merges, (ii)
consolidates, (iii) sells or leases substantially all of the assets of the
Company and/or its affiliates, or (iv) a like event occurs, the Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to substantially all of the business and/or assets
of the Company, by agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent as the Company is required.
5.4 BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Employee, his executor, administrator, personal
representatives and assigns, and the Company and its successors and assigns;
provided, however, that neither Employee nor the Company may assign or delegate
any of their respective rights or duties
12
<PAGE>
under this Agreement without the specific consent of both parties thereto.
5.5 NOTICES. Any notice, demand, or communication required, permitted or
desired to be given hereunder, shall be deemed effectively given when personally
delivered or mailed by prepaid certified mail, return receipt requested,
addressed as follows:
Employee Employer
-------- ---------
Ernest Bacon Community Health Systems, Inc.
224 Fourth Avenue South 155 Franklin Road, Suite 400
Franklin, TN 37064 Brentwood, TN 37027
Attn: President
or to such other address, and to the attention of such other person(s) or
officer(s) as either party may designate by written notice.
5.6 GOVERNING LAW. This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance with
the laws of the State of Tennessee.
5.7 INVALID PROVISIONS. The Company and Employee agree that the
agreements and provisions contained in this Agreement are severable and
divisible, that each such agreement and provision does not depend upon any other
provision or agreement for its enforceability, and that each such agreement and
provision set forth herein constitutes an enforceable obligation between the
parties thereto. Consequently, the parties hereto agree that neither the
invalidity nor the unenforceability of any provision of this Agreement shall
affect the other provisions, and this Agreement shall remain in full force and
effect and be construed in all respects as if such invalid or unenforceable
provision were omitted.
5.8 HEADINGS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
5.9 COUNTERPARTS. This Agreement may be executed in 2 counterparts, each
of which shall be deemed to be an original, but both of which together shall
constitute one and the same instrument.
5.10 WAIVER. The failure of either party hereto in one or more instances
to insist upon the performance of any of the terms or conditions of this
Agreement, or to exercise any rights or privileges conferred in this Agreement,
or the waiver or breach of any of the terms, covenants, or conditions of this
Agreement, shall not be construed as
13
<PAGE>
thereafter waiving any such terms, covenants, conditions, rights, or privileges,
and the same shall continue and remain in full force and effect as if no such
forbearance of waiver had occurred.
5.11 ENTIRE AGREEMENT. This Agreement supersedes all previous contracts,
and constitutes the entire agreement between the parties. Employee shall be
entitled to no other benefits than those specified herein. No oral statements
or prior written material not specifically incorporated herein shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated therein. Employee
specifically acknowledges that in entering into and executing this Agreement,
Employee relies solely upon the representations and agreements contained in this
Agreement and no others.
IN WITNESS WHEREOF, the parties have executed this Agreement in
multiple originals as of the date above first written.
EMPLOYER: COMMUNITY HEALTH SYSTEMS,INC.
By: /s/ E. Thomas Chaney
-------------------------
E. Thomas Chaney
Its: Chief Executive Officer
EMPLOYEE: /s/ Ernest Bacon
----------------------------
Ernest Bacon
14
<PAGE>
Exhibit 6
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into on
the 24th day of May 1996 but shall not become or be deemed operative or
effective until June 1, 1996 (the "Effective Date"), and is by and between
COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (the "Company") and DAVID
L. STEFFY, an individual resident of the State of California ("Steffy").
BACKGROUND
A. The Company and Steffy entered into an Employment Agreement as of
August 1, 1992 which was thereafter amended on several occasions. Most
recently, the employment relationship between the Company and Steffy has been
governed by that certain Second Amended and Restated Employment Agreement dated
as of January 1, 1995 (the "Employment Agreement").
B. The purpose and intent of this Agreement is to effect a termination of
the employment relationship between the Company and Steffy, to terminate their
respective rights and obligations under the Employment Agreement, to provide for
a consulting arrangement between Steffy and the Company, and to document the
parties' understandings and agreements as to all matters set forth herein.
AGREEMENT
1. RESIGNATIONS/TERMINATION OF EMPLOYMENT AGREEMENT. Steffy hereby
resigns, effective the Effective Date, as a director and employee of the Company
and any and all such positions with all direct and indirect subsidiaries of the
Company. The Company, on behalf of itself and its subsidiaries, hereby accepts
such resignations, effective the Effective Date. Both parties further
acknowledge and agree that the Employment Agreement is terminated as of the
Effective Date.
2. CONSULTING. Because the Company wishes to have access to
Steffy's knowledge and experience in the healthcare industry, the Company hereby
engages Steffy as a consultant on the terms set forth herein. For a period of
six (6) years from the Effective Date hereof, Steffy agrees to make himself
available for up to seven and one-half (7-1/2) hours per month to provide advice
to the Company's Chief Executive Officer with regard to operations of the
Company. Notwithstanding the foregoing, the term of Steffy's consulting
engagement shall terminate one (1) month after a "Change in Control" (as defined
below) in the event a Change in Control occurs prior to the sixth (6th)
anniversary of the Effective Date of this Agreement. The dates and times when
Steffy provides these consulting services shall be determined by Steffy in his
sole discretion. Except for Steffy's review of documents
<PAGE>
provided to him, all such consulting services shall be provided via telephonic
communication between the Company's Chief Executive Officer and Steffy and,
absent Steffy's consent which may be withheld in his sole discretion, Steffy
shall have no obligation to travel. Steffy's obligation to make himself
available for up to seven and one-half (7-1/2) hours each month is not
cumulative, and in the event that Steffy spends less than seven and one-half (7-
1/2) hours of consulting in a given month because the Company's Chief Executive
Officer did not request consulting services requiring this time commitment,
Steffy shall not be obligated to make himself available for more than seven and
one-half (7-1/2) hours in the following month or any month thereafter.
3. BASE CONSULTING FEE. Concurrent with the effectiveness hereof,
the Company is delivering Steffy's base consulting fee (the "Base Consulting
Fee") for the consulting engagement in the amount of Seven Hundred Fifty
Thousand Dollars ($750,000). Such Base Consulting Fee is non-refundable;
PROVIDED, HOWEVER, that the Company will be entitled to a pro rata return of the
Base Consulting Fee in the event of a Breach (as defined below) of this
Agreement by Steffy based on the period of time remaining from the date of
Steffy's Breach to the sixth (6th) anniversary of the Effective Date hereof.
4. ADDITIONAL CONSULTING FEE. In addition to the Base Consulting
Fee set forth in Section 3, Steffy shall be entitled to an additional consulting
fee (the "Additional Consulting Fee") equal to Seven Hundred Fifty Thousand
Dollars ($750,000) in the event that, within six (6) years from the Effective
Date hereof, a "Change of Control" occurs.
For purposes hereof, a "Change of Control" shall be deemed to
have occurred if and when:
(a) Except as provided by subparagraph (c) hereof, there is an
acquisition (other than from the Company) by any person, entity or "group",
within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (excluding, for this purpose, the
Company or its subsidiaries, or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting securities of the
Company), of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board of Directors of
the Company, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's stockholders,
is or was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such
2
<PAGE>
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board; or
(c) There is approval by the stockholders of the Company of a
reorganization, merger or consolidation with any other person, entity or
corporation, other than
(i) a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of another entity) more than fifty
percent (50%) of the combined voting power of the voting securities of
the Company or such other entity outstanding immediately after such
merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person acquires thirty percent (30%) or more of the combined voting
power of the Company's then outstanding voting securities; or
(d) There is approval by the stockholders of the Company or
consummation of a merger or consolidation with Champion Healthcare Corporation;
or
(e) There is approval by the stockholders of the Company of a
plan of complete liquidation of the Company or an agreement for the sale or
other disposition by the Company of all or substantially all of the Company's
assets.
The Additional Consulting Fee shall be due and payable in its
entirety upon the occurrence of a Change in Control. The Additional Consulting
Fee shall not be subject to reduction or offset as a result of any action or
inaction of Steffy hereunder, including without limitation a Breach of this
Agreement by Steffy.
5. STOCK OPTIONS. During the course of his employment with the
Company, the Company has from time to time granted stock options to Steffy under
the Community Health Systems, Inc. 1986 Stock Option Plan adopted September 1,
1986 and as thereafter amended, renamed and/or restated from time to time (the
"Stock Option Plan").
Pursuant to the Stock Option Plan, this Agreement and the Stock
Option Certificates relating to the September 30, 1991 100,000 share option
grant to Steffy and the December 15, 1993 20,000 share option grant to Steffy
(collectively, the "Stock Options"), all outstanding Stock Options of Steffy
shall be, and are hereby deemed and declared to be, fully and completely vested
and exercisable by Steffy on the Effective Date of this Agreement. For purposes
of this Section and the Stock Option Certificates relating to the vesting of the
Stock Options, the termination of Steffy's employment pursuant to this
3
<PAGE>
Agreement shall be deemed as an "Event of Termination" as specified in Section
3.4.1 of the Employment Agreement.
Steffy acknowledges that, pursuant to the existing terms and
conditions of the Stock Options, Steffy shall have up to thirty (30) days from
the Effective Date of this Agreement within which to exercise the Stock Options.
Pursuant to the authority granted under Section 5.03 of the Stock Option Plan,
the Company will permit payment of the exercise price for all or any portion of
the outstanding Stock Options to be made by Steffy with shares of stock of the
Company owned by Steffy immediately prior to the exercise. Steffy acknowledges,
however, that the amount of taxes to be withheld by the Company upon exercise
must be paid in cash by Steffy.
6. BENEFITS.
(a) ACCRUED SALARY. Concurrent with the effectiveness hereof,
the Company is delivering a check to Steffy for all unreimbursed costs and
expenses incurred by Steffy in the performance of his duties under the
Employment Agreement plus all accrued, unpaid salary to the date hereof.
(b) SSAP. The Company acknowledges and agrees that, pursuant to
Section 5.1.2 of that certain Supplemental Survivor Accumulation Plan Split
Dollar Insurance Agreement dated as of December 17, 1993 (the "SSAP Agreement"),
Steffy is currently One Hundred Percent (100%) vested in the cash value of the
Policy (as defined in the SSAP Agreement) and there exists no risk of
forfeiture. As a result, within forty-five (45) days of the Effective Date of
this Agreement, the Company will withdraw the appropriate amounts of state and
federal income taxes to be withheld directly from the Policy will execute and
deliver to Steffy a Release of Assignment evidencing Steffy's sole and outright
ownership of the Policy and the termination of the Company's interest in the
Policy.
(c) DEFERRED COMPENSATION. Pursuant to Section 7.1 of the
Company's Deferred Compensation Plan, as amended (the "Deferred Compensation
Plan"), the Company has caused, concurrent with the effectiveness hereof, all
amounts owing to Steffy to be paid to Steffy in the form specified in Section 7.
5 of the Deferred Compensation Plan.
(d) 1996 BONUS. Within sixty (60) days of the Effective Date of
this Agreement, the Company shall compute and pay to Steffy a pro rata bonus
amount (the "1996 Bonus") in accordance with the methodology set forth in
Section 2.3 of the Employment Agreement (including Table 1 attached thereto) and
based on the Company's financial performance from January 1, 1996 through May
31, 1996. For purposes of calculating the 1996 Bonus, it is understood and
agreed that Steffy's "Salary" (as used in Table 1 of the Employment Agreement)
shall be Steffy's actual 1996 salary paid through the Effective Date hereof.
4
<PAGE>
(e) MEDICAL. To provide funds for medical and/or dental plans,
the Company is delivering a check to Steffy for Fifteen Thousand Dollars
($15,000) on the Effective Date hereof.
7. BREACH. As used herein, "Breach" shall exclusively mean Steffy's
repeated refusal during the term of the consulting engagement to make himself
available for up to seven and one-half (7-1/2) hours of consulting each month,
which refusal continues for a period of sixty (60) days after written notice
documenting such prior refusal has been received by Steffy from the Company's
Board of Directors. Notwithstanding the foregoing, it shall not be a Breach if
the reason for Steffy's refusal or inability to make himself available for
consulting is because of his death or disability. It is specifically intended
that Steffy or his estate, heirs and successors shall be entitled to the
benefits of this Agreement (including without limitation retention of the Base
Consulting Fee and the Additional Consulting Fee) despite Steffy's death or
disability.
8. INDEMNIFICATION. The Company shall indemnify Steffy, to the
maximum extent permitted by applicable law, for any and all losses, claims,
expenses, fines, judgments, attorneys fees, disbursements and the like arising
out of, attributable to, or in any manner relating to Steffy's acts or omissions
on or prior to the date hereof as an officer, director, trustee, employee or
agent of the Company and/or any of its subsidiaries, affiliates, trusts or
plans.
9. NO OFFSET. Neither the Base Consulting Fee, the Additional
Consulting Fee nor any of the other benefits to be provided to Steffy under this
Agreement shall be reduced, limited or otherwise subject to offset as a result
of other income or benefits received by Steffy from third parties as a result of
his service as an employee, officer, director, representative, finder, trustee,
consultant or agent of any such third party.
10. MUTUAL RELEASE. The parties hereto forever specially and
generally release and discharge each other from any and all causes of action,
actions, judgments, liens, indebtedness, damages, losses, liabilities and
demands of whatsoever kind and character in any manner whatsoever arising from
or attributable to the employment, officership, trusteeship, directorship or
consultancy of Steffy with the Company or its subsidiaries, affiliates, trusts
or plans.
The parties understand and agree that this release extends to all
claims of every nature, known or unknown, suspected or unsuspected, past,
present or future, arising from or attributable to any action or omission of
either party in connection with the employment, officership, trusteeship,
directorship or consultancy of Steffy with the Company or its subsidiaries,
affiliates, trusts or plans, and that any and all rights granted to the parties
under Section 1542 of the California Civil Code or any analogous state or
federal law or regulation are hereby expressly waived. Section 1542 of the
California Civil Code reads as follows:
5
<PAGE>
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE WHICH IF KNOWN TO HIM MUST
HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
The parties understand and expressly agree that this release
shall bind and benefit each of their respective heirs, successors and assigns
and that Steffy's release of the Company shall also be deemed a full and
complete release as to the Company's officers, directors, employees and agents.
Steffy specifically releases the Company and its officers,
directors, employees and agents from any and all rights Steffy has under the
Employment Agreement, under any state age or employment discrimination law,
under the Civil Rights Act of 1964, as amended, under the Age Discrimination in
Employment Act, as amended, under the Employee Retirement Income Security Act of
1974, as amended, under the Vietnam Era Veterans' Readjustment Assistance Act of
1974, as amended, under the Civil Rights Act of 1866, as amended, and under the
Civil Rights Act of 1871, as amended. Steffy further specifically releases the
Company and its officers, directors, employees and agents from any and all other
claims of age, race, sex, religious, national origin or handicap discrimination,
retaliation, claims or demands arising under either express or implied contract,
tort, public policy, the common law or any federal, state or local statute,
ordinance, regulation or constitutional provision.
Steffy expressly acknowledges that the Company has advised him to
consult with an attorney and that he has, in fact, had the opportunity to so
consult before executing this Agreement. Steffy further acknowledges that he
has had a period of twenty-one (21) days in which to consider entering into this
Agreement, and as evidenced by his signature below, agrees that he has had the
opportunity to read and review this document and seek legal advice, and now
freely and voluntarily, without coercion, agrees to and understands the
significance and consequences of its terms.
Following the date of execution of this Agreement, Steffy shall
have seven (7) days in which to revoke this Agreement, in which case this
Agreement shall become null and void and all payments made hereunder by the
Company (except for the payment made pursuant to Section 6(a) hereof) shall be
repaid in full by Steffy to the Company. Should Steffy not exercise his rights
to revoke this Agreement within seven (7) days of the date of execution, this
Agreement shall be held in full force and effect, and each party shall be
obligated to comply with its requirements as set forth herein.
Nothing in this Section shall be deemed or construed as a release
of each party's rights and obligations as set forth in this Agreement.
Concurrent with the execution and delivery of this Agreement, and
as a condition to the effectiveness of Steffy's releases contained in this
Section 10, E. Thomas
6
<PAGE>
Chaney and Richard E. Ragsdale have executed and delivered to Steffy a General
and Special Release in a form reasonably satisfactory to Steffy and his counsel.
11. ATTORNEY FEE PAYMENT. In view of the Company's advice to Steffy
to consult with an attorney as reflected in Section 10 hereof, the Company is,
concurrent with the effectiveness hereof, delivering to Steffy's counsel,
Gibson, Dunn & Crutcher LLP, the sum of Eight Thousand Dollars ($8,000).
12. CONFIDENTIALITY. Steffy shall not at any time (without the prior
written consent of an executive officer of the Company) directly or indirectly
disclose or make available to any third party, or directly or indirectly
improperly use for his own benefit, any of the Company's proprietary information
or trade secrets.
13. COMPETITIVE ACTIVITIES. Subject only to Steffy's obligations to
comply with the confidentiality obligations of Section 12 hereof, Steffy shall
be fully entitled and free to pursue any and all other commercial and business
activities (including without limitation the acquisition of one or more
hospitals whether or not such hospital(s) are, were previously, or in the future
are target acquisitions of the Company or its affiliates), whether individually,
in concert with others, or in the service of one or more third parties, without
regard to whether those other commercial or business activities actually or
potentially compete with the past, current or future commercial or business
activities of the Company or its affiliates. The Company expressly acknowledges
and agrees that Steffy shall be under no express or implied obligations to
present to the Company future commercial or business opportunities that may come
to Steffy's attention.
14. INDEPENDENT CONTRACTOR. The parties intend that an independent
contractor relationship is created by this Agreement and that Steffy is being
retained by the Company only for the purposes and to the extent set forth
herein. Steffy shall not be considered an agent or employee of the Company for
any purpose. Steffy is free at all times to provide consulting and advisory
services to others.
As an independent contractor, Steffy agrees that he is solely
responsible for the payment of any taxes and assessments imposed on account of
the payment of compensation to Steffy under this Agreement, including without
limitation any unemployment insurance tax, federal, state and foreign income
taxes, federal Social Security (FICA) payments, and state disability insurance
taxes. Steffy agrees to indemnify and hold the Company and its employees
harmless from any and all liability, penalties and judgments arising out of
Steffy's failure to make any payment of taxes required to be paid by Steffy
under this Section.
15. DUE AUTHORIZATION. The Company represents and warrants that (a)
it has the right, power, legal capacity and authority to enter into and perform
its obligations under this Agreement, (b) no approvals or consents of any
persons other than the Company are necessary in connection with this Agreement,
and (c) the execution, delivery and
7
<PAGE>
performance of this Agreement have been duly authorized by all necessary or
appropriate corporate action.
16. MISCELLANEOUS.
(a) NOTICES. All notices, demands, requests, consents,
approvals or other communications (collectively "Notices") required or permitted
to be given hereunder or which are given with respect to this Agreement shall be
in writing and may be personally served or may be made via registered mail
postage prepaid, addressed as follows:
To: The Company Community Health Systems, Inc.
Post Office Box 217
155 Franklin Road, Suite 400
Brentwood, Tennessee 37027
Attention: President
To: Steffy David L. Steffy
6 Cypress Point Lane
Newport Beach, California 92660
with a copy to: Mark W. Shurtleff, Esq.
Gibson, Dunn & Crutcher LLP
4 Park Plaza, Suite 1700
Irvine, California 92714
or to such other address or person as either party shall have specified most
recently by written notice provided in accordance with this Section. Notice
shall be deemed given on the date of service if personally served. Notice
mailed as provided herein shall be deemed given on the third business day
following the date so mailed.
(b) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute but one and the same instrument.
(c) MODIFICATIONS AND AMENDMENTS. This Agreement may not be
modified, changed or supplemented, nor may any obligations hereunder be waived
or extensions of time for performance granted, except by written instrument
signed by the party to be charged or by its or his agent duly authorized in
writing or as otherwise expressly permitted herein.
(d) WAIVERS AND EXTENSIONS. No waiver of any breach of any
agreement or provision herein contained shall be deemed a waiver of any
preceding or succeeding breach or of any other agreement or provision herein
contained. No extension of
8
<PAGE>
time for performance of any obligations or acts shall be deemed an extension of
the time for performance of any other obligations or acts.
(e) TITLES AND HEADINGS. Titles and headings of sections of
this Agreement are for convenience of reference only and shall not affect the
construction of any provision of this Agreement.
(f) CONSENTS AND APPROVALS. Whenever the consent or approval of
either party is provided for in this Agreement, such consent or approval shall
be given in writing to the requesting party.
(g) FURTHER ASSURANCES. The parties agree to do such further
acts and things and to execute and deliver such additional agreements and
instruments as the other party may reasonably require to consummate, evidence or
confirm the agreements contained herein in the manner contemplated hereby.
(h) ENTIRE AGREEMENT. The terms of this Agreement are intended
by the parties as a final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of their terms and
that no extrinsic evidence whatsoever may be introduced in any judicial or
arbitration proceeding, if any, involving this Agreement or any of its included
provisions.
(i) SUCCESSORS AND PERMITTED ASSIGNS. This Agreement and the
provisions hereof shall be binding upon each of the parties, their heirs,
successors and permitted assigns. The Company hereby consents to Steffy's
assignment of this Agreement and/or the benefits owing to Steffy hereunder to
any corporation, partnership or trust so long as Steffy himself continues to
provide the consulting services contemplated by Section 2 hereof.
(j) PARTIAL INVALIDITY. If any provision Of this Agreement is
found to be invalid by any court or arbitrator, the invalidity of such provision
shall not affect the validity of the remaining provisions hereof
(k) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall be construed to imply a joint venture, partnership, or agency
relationship between the Company and Steffy, and Steffy shall not hold himself
out as an officer, director, employee or agent of the Company. Neither party
shall be liable for the debts, obligations, or responsibilities of the other
party, and neither party shall have the right or authority as a result of this
Agreement or consummation of the transaction contemplated hereby to assume or
create any obligation or responsibility, whether express of implied, on behalf
of or in the name of the other party or to bind the other party in any manner.
9
<PAGE>
(l) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California.
(m) CONSTRUCTION. The language in all parts of this Agreement
shall in all cases be construed simply, according to its fair meaning, and shall
not be construed strictly for or against either of the parties hereto.
Notwithstanding the foregoing, in the event of uncertainty or ambiguity in any
portion of this Agreement, the language of this Agreement shall be interpreted
and construed in the manner which most nearly provides to Steffy the Severance
Benefits Steffy would have received under the Employment Agreement had an Event
of Termination (as defined in Section 3.4.1 of the Employment Agreement)
occurred during the effectiveness of that Employment Agreement.
(n) EXPENSES. Except as set forth in Section 11 hereof, each
party shall bear and be solely responsible for the fees and expenses of its own
counsel in connection with the preparation and negotiation of this Agreement.
(o) ATTORNEYS' FEES. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including actual attorneys' fees and disbursements, incurred by the
prevailing party in connection with such action or proceeding.
(p) DISPUTE RESOLUTION. Any controversy, dispute, or claim
arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Agreement shall be finally determined, at the
request of either party, by arbitration conducted in Orange County, California,
in accordance with the then existing rules for commercial arbitration of the
American Arbitration Association and before its large complex case panel, and
judgment upon any award rendered by the arbitrator may be entered by any State
or Federal court having jurisdiction thereof. The parties intend that this
agreement to arbitrate be valid, enforceable and irrevocable. Each party shall
have discovery rights per California statutory and decisional law. The parties
consent to the jurisdiction and proper venue of all state and federal courts
located in the State of California.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on May 24, 1996.
COMMUNITY HEALTH SYSTEMS, INC. DAVID L. STEFFY
By: /s/ E. THOMAS CHANEY By: /s/ DAVID L. STEFFY
------------------------- --------------------
E. Thomas Chaney, President David L. Steffy
and Chief Executive Officer
10
<PAGE>
Exhibit 7
May 6, 1996
Forstmann Little & Co.
767 Fifth Avenue
44th Floor
New York, NY 10153
Attention: Ms. Sandra Horbach
Partner
Gentlemen:
In order to allow you to evaluate the possible acquisition (the
"Proposed Acquisition") of Community Health Systems, Inc. (the "Company") we
will deliver to you, upon your execution and delivery to us of this letter
agreement, certain information about the properties and operations of the
Company. All information about the Company furnished by us or our
Representatives (as defined below), whether furnished before or after the date
hereof, whether oral or written, and regardless of the manner in which it is
furnished, is referred to in this letter agreement as "Proprietary Information".
Proprietary Information does not include, however, information which (a) is or
becomes generally available to the public other than as a result of a disclosure
by you or your Representatives in violation of this agreement, (b) was available
to you on a nonconfidential basis prior to its disclosure by us or our
Representatives or (c) becomes available to you on a nonconfidential basis from
a person other than us or our Representatives who is not to your knowledge
otherwise bound by a confidentiality agreement with us or any Representative of
ours, or is otherwise not to your knowledge under an obligation to us or any
Representative of ours not to transmit the information to you. As used in this
letter agreement, the term "Representative" means, as to any person, such
person's affiliates and its and their directors, officers, employees, agents,
advisors (including, without limitation, financial advisors, counsel and
accountants) and controlling persons. As used in this letter agreement, the
term
<PAGE>
Page 2
"person" shall be broadly interpreted to include, without limitation, any
corporation, company, partnership, other entity or individual.
Except as required by law, unless otherwise agreed to in writing by
us, you agree (a) to keep all Proprietary Information confidential and not to
disclose or reveal any Proprietary Information to any person other than your
Representatives who are actively and directly participating in your evaluation
of the Proposed Acquisition or who otherwise need to know the Proprietary
Information for the purpose of evaluating the Proposed Acquisition and to cause
those persons to observe the terms of this letter agreement applicable to them,
(b) not to use Proprietary Information for any purpose other than in connection
with your evaluation of the Proposed Acquisition or the consummation of the
Proposed Acquisition in a manner that we have approved and (c) not to disclose
to any person (other than those of your Representatives who are actively and
directly participating in your evaluation of the Proposed Acquisition or who
otherwise need to know for the purpose of evaluating the Proposed Acquisition
and, in the case of your Representatives, whom you will cause to observe the
terms of this letter agreement applicable to them) any information about the
Proposed Acquisition, or the terms or conditions or any other facts relating
thereto, including, without limitation, the fact that discussions are taking
place with respect thereto or the status thereof, or the fact that Proprietary
Information has been made available to you or your Representatives. You will be
responsible for any breach of the terms of this letter agreement by you. You
will be responsible for any breach of the terms of this letter agreement
applicable to your Representatives by your Representatives.
<PAGE>
Page 3
You shall take all reasonable actions and precautions to prevent the
disclosure, use, photocopying, copying, duplicating or reproducing of any of the
Proprietary Information by you in any manner contrary to the terms of this
letter agreement. In the event that any information regarding the Proposed
Acquisition or any Proprietary Information shall be disclosed, used,
photocopied, copied, duplicated or reproduced by you in any manner contrary to
the terms of this letter agreement, you shall (i) notify us orally and in
writing of such disclosure (including, without limitation, the circumstances of
the disclosure and the identity of the person or entity to which such
Proprietary Information was disclosed) within twenty-four hours upon your
discovery of such disclosure; (ii) use reasonable efforts to prevent further
disclosure of such Proprietary Information and (iii) use reasonable efforts to
retrieve physical possession of such Proprietary Information.
In the event that you or anyone to whom you transmit the Proprietary
Information is compelled by applicable law or regulation or by legal process to
disclose any Proprietary Information or any other information concerning the
Company or the Proposed Acquisition, you agree that you will provide us with
prompt written and oral notice of such requirement in order to enable us to seek
an appropriate protective order or other remedy, to consult with you with
respect to our taking steps to resist or narrow the scope of such legal process,
or, in our sole discretion, to waive compliance, in whole or in part, with the
terms of this letter agreement. In any such event you and your Representatives
will furnish only that portion of the Proprietary Information which you are
advised by your attorneys you are legally required to furnish and you will, at
our expense, exercise the efforts directed by us to obtain reliable assurances
that confidential treatment
<PAGE>
Page 4
will be accorded the Proprietary Information and other information that is so
disclosed.
You also agree that for a period of two years from the date of this
letter agreement, neither you nor any of your Representatives will, without the
prior written consent of the Company or its Board of Directors:
(a) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or direct
or indirect rights to acquire any voting securities of the Company or
any subsidiary thereof, or any assets of the Company or any subsidiary
or division thereof;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" to vote (as such terms are used in the
rules of the Securities and Exchange Commission), or seek to advise or
influence any person or entity with respect to the voting of any
voting securities of the Company;
(c) make any public announcement with respect to, or submit a proposal
for, or offer of (with or without conditions) any merger,
consolidation, business combination, tender or exchange offer,
restructuring, recapitalization or other extraordinary transaction
involving the Company or any of its subsidiaries, securities or
assets;
(d) form, join or in any way participate in a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
in connection with any of the foregoing;
<PAGE>
Page 5
(e) otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of Directors or policies of the
Company; or
(f) have any discussions or enter into any arrangements, understandings or
agreements (whether written or oral) with, or advise, assist or
encourage, any other persons in connection with any of the foregoing.
You and your Representatives, on your behalf, also agree during such
period not to make any public proposal, statement or inquiry, or publicly
disclose any intention, plan or arrangement, whether written or oral,
inconsistent with the foregoing, or request the Company or any of its
Representatives, directly or indirectly to amend, waive or terminate any of the
foregoing provisions.
If you determine that you do not wish to proceed with the Proposed
Acquisition, you will promptly advise us of that decision. In that case, or in
the event that we, in our sole discretion, so request or the Proposed
Acquisition is not consummated by you, you will, upon our request, promptly
deliver to us or destroy all Proprietary Information, including all copies,
reproductions, summaries, analyses or extracts thereof or based thereon in your
possession or in the possession of any Representative of yours.
You acknowledge that none of the Company, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") or our other Representatives and
none of the respective officers, directors, employees, agents or controlling
persons of Merrill Lynch or such other Representatives makes any express or
implied
<PAGE>
Page 6
representation or warranty as to the accuracy or completeness of any Proprietary
Information, and you agree that none of such persons shall have any liability to
you or any of your Representatives relating to or arising from your or their use
of any Proprietary Information or for any errors therein or omissions therefrom.
You also agree that you are not entitled to rely on the accuracy or completeness
of any Proprietary Information and that you shall be entitled to rely solely on
such representations and warranties regarding Proprietary Information as may be
made to you in any final definitive acquisition agreement relating to the
Proposed Acquisition, subject to the terms and conditions of such agreement.
You agree that, without our prior written consent, you will not for a
period of two years from the date hereof directly or indirectly solicit for
employment or employ any person who is now employed by us or any of our
subsidiaries and who became known to you as a result of your evaluation or
otherwise in connection with the Proposed Acquisition; provided, however, that
you shall not be prohibited from employing any such person who contacts you on
his or her own initiative and without any direct or indirect solicitation by
you. The use of an independent employment agency (so long as it is not directed
by you to contact such person) or advertisements in the media, and the hiring as
a result of such use, shall not be deemed a violation of this paragraph.
You agree that until a final definitive acquisition agreement
regarding the Proposed Acquisition has been executed by you and us, neither we
nor any of our Representatives are under any legal obligation and shall have no
liability to you of any nature whatsoever with respect to the Proposed
Acquisition by virtue of this letter agreement or otherwise. You also
acknowledge
<PAGE>
Page 7
and agree that (i) we and our Representatives may conduct the process that may
or may not result in the Proposed Acquisition in such manner as we, in our sole
discretion, may determine (including, without limitation, negotiating and
entering into a final definitive acquisition agreement with any third party
without notice to you) and (ii) we reserve the right to change (in our sole
discretion, at any time and without notice to you) the procedures relating to
our and your consideration of the Proposed Acquisition (including, without
limitation, terminating all further discussions with you and requesting that you
return all Proprietary Information to us).
Without prejudice to the rights and remedies otherwise available to
us, you agree that the Company would be irreparably injured by a breach of this
letter agreement by you or your Representatives, that monetary remedies would be
inadequate to protect the Company against any actual or threatened breach of
this letter agreement by you or by your Representatives, and you agree we shall
be entitled to equitable relief including injunction or otherwise if you or any
of your Representatives breach or threaten to breach any of the provisions of
this letter agreement.
It is further understood and agreed that no failure or delay by us in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts executed in and
to be performed in that state without regard to the conflicts
<PAGE>
Page 8
of law principles thereof.
Any assignment of this letter agreement by you without our prior
written consent shall be void.
You further acknowledge and agree that if any provision of this letter
agreement shall, for any reason, be adjudged by any court of competent
jurisdiction to be invalid or unenforceable, such judgment shall not affect,
impair or invalidate the remainder of this letter agreement but shall be
confined in its operation to the provision of this letter agreement directly
involved in the controversy in which such judgment shall have been rendered.
This letter agreement contains the entire agreement between you and us
concerning confidentiality of the Proprietary Information, and no modification
of this letter agreement or waiver of the terms and conditions hereof shall be
binding upon you or us, unless approved in writing by each of you and us.
In addition, you acknowledge and agree that this letter agreement may
be executed in counterparts, each of which shall be deemed to be an original,
but both of which shall constitute the same agreement. You warrant that the
person who executes this letter agreement on your behalf has full authority to
do so.
<PAGE>
Page 9
Please confirm your agreement with the foregoing by signing and
returning to the undersigned the duplicate copy of this letter enclosed
herewith.
COMMUNITY HEALTH SYSTEMS, INC.
By /s/ Tyree G. Wilburn
---------------------------------
Title: Senior Vice President
Accepted and Agreed
as of the date
first written above:
FORSTMANN LITTLE & CO.
By /s/ Sandra J. Horbach
--------------------------------
Title: Partner
<PAGE>
Exhibit 8
March 25, 1996
Community Health Systems, Inc.
155 Franklin Boulevard
Suite 400
Brentwood, TN 37027-4600
Attention: Mr. Richard Ragsdale, Chairman
Mr. E. Thomas Chaney, President
and Chief Executive Officer
Gentlemen:
Merrill Lynch & Co. ("Merrill Lynch") is pleased to act as exclusive
financial advisor to Community Health Systems, Inc. (the "Company") in
connection with any proposed Business Combination involving the Company and
another party (a "Purchaser"). This letter agreement is to confirm our
understanding with respect to our engagement. As used in this letter agreement,
the term "Business Combination" means, whether effected in one transaction or a
series of transactions, (a) any merger, consolidation, reorganization or other
business combination pursuant to which the business of the Company is combined
with that of one or more Purchasers or one or more persons formed by or
affiliated with a Purchaser, including, without limitation, any joint venture,
(b) the acquisition, directly or indirectly, by one or more Purchasers of more
than 20% of the then outstanding capital stock of the Company by way of a tender
or exchange offer, negotiated purchase or other means (but excluding by way of a
public offering) or (c) the acquisition, directly or indirectly, by one or more
Purchasers of all or a substantial portion of the assets of, or of any right to
all or a substantial portion of the revenues or income of, the Company by way of
a negotiated purchase, lease, license, exchange, joint venture or other means.
Merrill Lynch will assist the Company in identifying Purchasers and in
analyzing, structuring, negotiating and effecting proposed Business Combinations
on the terms and conditions of this letter agreement. In this regard, we propose
to undertake certain activities on your behalf, including, if appropriate, the
following:
1) developing with the Company a list of prospective Purchasers;
<PAGE>
Page 2
2) performing financial analyses of the Company and prospective
Purchasers in the context of a possible Business Combination;
3) if requested by the Company, assisting the Company in preparing a
brochure to be utilized in discussions with prospective
Purchasers which will describe the Company in such detail as may
be appropriate under the circumstances;
4) assisting the Company in its determination of appropriate and
desirable values to be realized in a Business Combination;
5) advising the Company as to the structure and form of proposed
Business Combinations;
6) advising and assisting the Company's management in making
presentations to the Company's Board of Directors about proposed
Business Combinations;
7) counseling the Company as to strategy and tactics for initiating
discussions and negotiating with a prospective Purchaser and, if
requested by the Company, participating in such discussions and
negotiations;
8) assuming an agreement in principle is reached for a Business
Combination, assisting the Company in negotiating a definitive
acquisition agreement;
9) if requested by the Company, rendering an opinion (the "Opinion")
as to whether or not the consideration to be paid in a proposed
Business Combination is fair to the shareholders of the Company
from a financial point of view; and
10) rendering such other financial advisory and investment banking
services as may from time to time be agreed upon by Merrill Lynch
and the Company.
<PAGE>
Page 3
The Company agrees to pay the following fees to Merrill Lynch for its
financial advisory services:
1) a fee of $100,000, payable in cash on the date of this letter
agreement;
2) an additional fee of $2,000,000, contingent upon and payable in
cash upon the execution of a definitive agreement to effect a
Business Combination; and
3) if, during the period Merrill Lynch is retained by the Company or
within one year thereafter, (a) a Business Combination is
consummated with a Purchaser (i) which Merrill Lynch identified,
(ii) as to which Merrill Lynch advised the Company or (iii) with
which the Company or Merrill Lynch had discussions regarding a
Business Combination, in any such case during the term of Merrill
Lynch's engagement hereunder or (b) the Company enters into an
agreement with any such Purchaser which subsequently results in a
Business Combination, an additional fee in an amount equal to
0.72% of the aggregate purchase price paid in such Business
Combination, payable in cash upon the closing of such Business
Combination or, in the case of a tender offer or exchange offer,
upon the first purchase or exchange of shares pursuant to such
tender offer or exchange offer, as the case may be. Any fees
previously paid to Merrill Lynch pursuant to clauses (1) and (2)
of this paragraph will be deducted from any fee to which Merrill
Lynch is entitled pursuant to this clause (3).
The Company and Merrill Lynch agree that any fee payable hereunder with respect
to a Business Combination described in clause (b) of the first paragraph of this
letter agreement will be computed as if all the then outstanding shares of
capital stock of the Company on a fully diluted basis (including stock options)
were acquired in such Business Combination at a price per share equal to the
highest price paid per share of capital stock in such Business Combination, in
which event no additional fee will become payable by the Company hereunder with
respect to any other Business Combination thereafter consummated.
<PAGE>
Page 4
For purposes of this letter agreement, the term "purchase price" means
an amount equal to the sum of the aggregate fair market value of any securities
issued and any other non-cash consideration delivered (including, without
limitation, any joint venture interest delivered to, or retained by, the
Company), and any cash consideration paid, to the Company or its security
holders in connection with a Business Combination and the amount of all
indebtedness of the Company or any subsidiary of the Company less any cash of
the Company or any subsidiary of the Company, which is assumed or acquired by a
Purchaser or retired or defeased in connection with such Business Combination.
The fair market value of any securities issued and any other non-cash
consideration delivered or retained in connection with a Business Combination
will be the value determined by the Company and Merrill Lynch upon the closing
of the Business Combination.
In addition to any fees that may be payable to Merrill Lynch under
this letter agreement, the Company agrees to reimburse Merrill Lynch, upon
request made from time to time, for its reasonable out-of-pocket expenses
incurred in connection with Merrill Lynch's activities under this letter
agreement, including, without limitation, the reasonable fees and disbursements
of its legal counsel. Merrill Lynch will retain counsel subject to the
Company's approval, which will not be unreasonably withheld.
It is understood that the Opinion will be dated both as of a date
reasonably proximate to the date of the definitive agreement between the Company
and a Purchaser providing for the Business Combination and the date of the proxy
statement to be mailed to the shareholders of the Company in connection with the
Business Combination. It is further understood that, if the Opinion is included
in the proxy statement or offer to purchase or Schedule 14D-9 to be mailed to
the shareholders of the Company in connection with the Business Combination, the
Opinion will be reproduced in such proxy statement or offer to purchase or
Schedule 14D-9 in full, and any description of or reference to Merrill Lynch or
summary of the Opinion in such proxy statement or offer to purchase or Schedule
14D-9 will be in a form reasonably acceptable to Merrill Lynch and its counsel.
Except as provided in this letter agreement, the Opinion will not be reproduced,
summarized, described or referred to without Merrill Lynch's prior written
consent.
The Company will furnish Merrill Lynch (and will request that each
prospective Purchaser with which the Company enters into negotiations furnish
Merrill Lynch) with such information as Merrill Lynch believes appropriate to
its assignment (all such information
<PAGE>
Page 5
so furnished being the "Information"). The Company recognizes and confirms that
Merrill Lynch (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this letter agreement and in rendering the Opinion
without having independently verified the same, (b) does not assume
responsibility for the accuracy or completeness of the Information and such
other information and (c) will not make an appraisal of any assets or
liabilities of the Company or any prospective Purchaser.
The Company agrees to indemnify Merrill Lynch and its affiliates and
their respective directors, officers, employees, agents and controlling persons
(Merrill Lynch and each such person being an "Indemnified Party") from and
against any and all losses, claims, damages and liabilities, joint or several,
to which such Indemnified Party may become subject under any applicable federal
or state law, or otherwise, and related to or arising out of any Business
Combination contemplated by this letter agreement or the engagement of Merrill
Lynch pursuant to, and the performance by Merrill Lynch of the services
contemplated by, this letter agreement and will reimburse any Indemnified Party
for all expenses (including reasonable counsel fees and expenses) as they are
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party and whether or not such claim,
action or proceeding is initiated or brought by or on behalf of the Company.
The Company will not be liable under the foregoing indemnification and expense
reimbursement provision to the extent that any loss, claim, damage, liability or
expense is found in a final judgment by a court to have resulted from Merrill
Lynch's bad faith or gross negligence. The Company also agrees that no
Indemnified Party shall have any liability (whether direct or indirect, in
contract or tort or otherwise) to the Company or its security holders or
creditors related to or arising out of the engagement of Merrill Lynch pursuant
to, or the performance by Merrill Lynch of the services contemplated by, this
letter agreement except to the extent that any loss, claim, damage or liability
is found in a final judgment by a court to have resulted from Merrill Lynch's
bad faith or gross negligence.
If the indemnification of an Indemnified Party provided for in this
letter agreement is for any reason held unenforceable, the Company agrees to
contribute to the losses, claims, damages and liabilities for which such
indemnification is held unenforceable (i) in such proportion as is appropriate
to reflect the relative benefits to the Company, on the one hand, and Merrill
Lynch, on the
<PAGE>
Page 6
other hand, of the Business Combination as contemplated (whether or not the
Business Combination is consummated) or (ii) if (but only if) the allocation
provided for in clause (i) is for any reason held unenforceable, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) but also the relative fault of the Company, on the one hand,
and Merrill Lynch, on the other hand, as well as any other relevant equitable
considerations. The Company agrees that for the purposes of this paragraph the
relative benefits to the Company and Merrill Lynch of the Business Combination
as contemplated shall be deemed to be in the same proportion that the total
value received or contemplated to be received by the Company or its security
holders, as the case may be, as a result of or in connection with the Business
Combination bears to the fees paid or to be paid to Merrill Lynch under this
letter agreement; PROVIDED, HOWEVER, that, to the extent permitted by applicable
law, in no event shall the Indemnified Parties be required to contribute an
aggregate amount in excess of the aggregate fees actually paid to Merrill Lynch
under this letter agreement.
The Company agrees that, without Merrill Lynch's prior written
consent, it will not settle, compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding in respect of which
indemnification could be sought under the indemnification provision of this
letter agreement (whether or not Merrill Lynch or any other Indemnified Party is
an actual or potential party to such claim, action or proceeding), unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding.
The Company acknowledges and agrees that Merrill Lynch has been
retained to act solely as financial advisor to the Company. In such capacity,
Merrill Lynch shall act as an independent contractor, and any duties of Merrill
Lynch arising out of its engagement pursuant to this letter agreement shall be
owed solely to the Company.
Merrill Lynch's engagement hereunder may be terminated by either the
Company or Merrill Lynch at any time after February 28, 1997 upon written notice
to that effect to the other party, it being understood that the provisions
relating to the payment of fees and expenses, indemnification, limitations on
the liability of Indemnified Parties, contribution, settlements, the status of
Merrill Lynch as an independent contractor, the limitation on to whom Merrill
Lynch shall owe any duties and waiver of the right to
<PAGE>
Page 7
trial by jury will survive any such termination.
In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or on behalf of or against the
Company or any Purchaser in which such Indemnified Party is not named as a
defendant, the Company agrees to reimburse Merrill Lynch for all expenses
incurred by it in connection with such Indemnified Party's appearing and
preparing to appear as such a witness, including, without limitation, the fees
and disbursements of its legal counsel.
The Company acknowledges that Merrill Lynch may, at its option and
expense, place an announcement in such newspapers and periodicals as it may
choose, stating that Merrill Lynch has acted as the exclusive financial advisor
to the Company in connection with any Business Combination.
No waiver, amendment or other modification of this letter agreement
shall be effective unless in writing and signed by each party to be bound
thereby.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
executed in and to be performed in that state.
Each of Merrill Lynch and the Company (in its own behalf and, to the
extent permitted by applicable law, on behalf of its shareholders) waives all
right to trial by jury in any action, proceeding or counterclaim (whether based
upon contract, tort or otherwise) related to or arising out of the engagement of
Merrill Lynch pursuant to, or the performance by Merrill Lynch of the services
contemplated by, this letter agreement.
<PAGE>
Page 8
Please confirm that the foregoing correctly sets forth our agreement
by signing and returning to Merrill Lynch the duplicate copy of this letter
agreement enclosed herewith.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ DOUG BRAUNSTEIN
------------------------------
Managing Director
Investment Banking Group
Accepted and Agreed to as of
the date first written above:
COMMUNITY HEALTH SYSTEMS, INC.
By /s/ E. THOMAS CHANEY
-------------------------------
Title: President & CEO
<PAGE>
SARD VERBINNEN & CO NEWS
FOR IMMEDIATE RELEASE
CONTACT FOR COMMUNITY HEALTH SYSTEMS: CONTACT FOR FORSTMANN LITTLE:
Merilyn Herbert George Sard/Anna Cordasco
Director of Investor Relations Sard Verbinnen & Co
615/373-9600 212/687-8080
FORSTMANN LITTLE TO ACQUIRE COMMUNITY HEALTH SYSTEMS, LEADING PROVIDER OF
HEALTHCARE SERVICES IN NON-URBAN AREAS, FOR $1.37 BILLION
----------------------------------------------------------------
NEW YORK AND NASHVILLE, TN, JUNE 10, 1996 -- Forstmann Little & Co. and
Community Health Systems, Inc. (NYSE: CYH), a leading provider of healthcare
services in non-urban areas, today announced they have signed a definitive
agreement for Forstmann Little to acquire all of the outstanding shares of
Community Health Systems for $52 per share in cash. The total value of the
transaction is approximately $1.37 billion, including assumed and refinanced
debt.
Forstmann Little will invest $1 billion of its own capital and Chase
Manhattan Corp. has agreed to provide $900 million of bank financing. After all
shares are purchased and debt refinanced, this conservative capital structure
will provide over $500 million to Community Health Systems to fund internal
growth and the acquisition of additional hospitals. The Company now owns or
operates 38 hospitals in 18 states, primarily in the Southeast and Southwest.
The transaction, which is not subject to financing or antitrust clearance, is
expected to be completed in mid-July.
A Forstmann Little entity will commence tomorrow a tender offer for all
shares of Community Health Systems. Community Health Systems will simultaneously
commence a tender offer for its $100 million of outstanding 10 1/4% senior
subordinated debentures due November 30, 2003.
Community Health Systems will continue to be run by its current
management team, headed by Chairman Richard E. Ragsdale and President and
Chief Executive Officer E. Thomas Chancy. No changes in operations are
expected.
"Community Health Systems has all the characteristics we look for in an
acquisition -- leading market position, significant growth potential and a great
management team," said senior partner Theodore J. Forstmann. "Dick Ragsdale and
Tom Chaney founded the company in 1985 with a wise business model. Virtually all
of their hospitals are located in communities where the company operates the
only hospital in town, or one of two. They have built a superb company that
provides high-quality healthcare services to their chosen communities and
improves people's lives. We look forward to being partners with these
outstanding entrepreneurs and helping them accelerate the company's already
outstanding growth."
Sard Verbinnen & Co., Inc. 630 Third Avenue New York, NY 10017
Tel 212 687 8080 Fax 212 687 8344
<PAGE>
-2-
"Forstmann Little has an exceptional track record of enabling companies to
achieve their growth potential," said Ragsdale. "They share our commitment to
developing high-quality healthcare delivery systems centered around non-urban
hospitals. We are extremely fortunate to be joining them as partners."
"Forstmann Little and its unique capital structure will be invaluable to
us as we pursue our strategy of selective hospital acquisitions coupled with
market share expansion in our existing communities," said Chaney. "Our solid
base of loyal physicians has been a cornerstone of our company, and we expect to
be able to enhance that base. Furthermore, we will now have even more ability to
be the provider of choice in our markets, improve physical facilities and expand
delivery of a full range of inpatient services as well as state-of-the-art
outpatient, diagnostic and home health services."
The transaction was approved unanimously yesterday by the Board of
Directors of Community Health Systems, based on the recommendation of a Special
Committee of independent directors. Merrill Lynch served as financial adviser
and provided a fairness opinion to the Special Committee.
Community Health Systems, Inc. owns and operates full-service, acute care
hospitals in non-urban communities. The hospitals serve as the nucleus for
healthcare delivery in their communities by offering easy access to a full range
of medical services, excellent care and competitive pricing. Community Health
Systems employs over 7,900 healthcare professionals and support personnel. The
Company currently has approximately 19.7 million shares of common stock
outstanding.
Founded in 1978, Forstmann Little is a private investment firm that has
invested over $12 billion in 20 acquisitions, including General Instrument,
Ziff-Davis Publishing and Gulfstream Aerospace. The firm currently has
approximately $2.3 billion in committed capital for future investments.
###
<PAGE>
[COMMUNITY HEALTH SYSTEMS, INC. LETTERHEAD]
June 11, 1996
Dear Stockholder:
On June 9, 1996, Community Health Systems, Inc. entered into an Agreement
and Plan of Merger providing for the acquisition of Community Health Systems,
Inc. by FLCH Acquisition Corp., a Delaware corporation organized by Forstmann
Little & Co. Equity Partnership-V, L.P. As provided in the Merger Agreement,
FLCH Acquisition Corp. has today commenced a tender offer to purchase shares of
the Company's common stock at a price of $52.00 per share, net to the seller in
cash, subject to the terms and conditions in the Offer to Purchase accompanying
this letter. Following completion of the tender offer and subject to certain
conditions specified in the Merger Agreement, Community Health Systems, Inc.
will be merged with a subsidiary of FLCH Acquisition Corp. and will become a
wholly owned subsidiary of FLCH Holdings Corp. Each share of Community Health
Systems' stock not owned by FLCH Holdings Corp. or its subsidiaries, or by
stockholders who have properly exercised appraisal rights available under
Delaware law, will be converted into the right to receive $52.00 in cash.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TENDER OFFER AND THE
MERGER AND DETERMINED THAT BOTH ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF COMMUNITY HEALTH SYSTEMS, INC. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU ACCEPT THE OFFER AND TENDER YOUR SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors, as described in the attached Schedule
14D-9 filed with the Securities and Exchange Commission, including the opinion
of Merrill Lynch, Pierce, Fenner & Smith Incorporated, the financial advisor to
Community Health Systems, Inc., relating to the fairness from a financial point
of view of the consideration to be received by the stockholders in the tender
offer and subsequent merger.
Accompanying this letter, in addition to the Schedule 14D-9, is the Offer to
Purchase, together with related materials, including a Letter of Transmittal for
use in tendering shares. These documents set forth the terms and conditions of
the tender offer, describe the Merger Agreement and provide instructions as to
how to tender your shares. PLEASE READ THE ENCLOSED MATERIAL CAREFULLY BEFORE
MAKING YOUR DECISION WITH RESPECT TO THE OFFER.
I, personally, along with the Board of Directors, management and employees
of Community Health Systems, Inc., thank you for your loyal support throughout
the years.
Sincerely,
/s/ RICHARD E. RAGSDALE
Chairman of the Board
<PAGE>
Exhibit 11
June 9, 1996
Board of Directors
Community Health Systems, Inc.
155 Franklin Road, Suite 400
Brentwood, TN 37027-4600
Gentlemen:
Community Health Systems, Inc. (the "Company"), FLCH Holdings Corp.
(the "Acquiror") and FLCH Acquisition Corp., a wholly-owned subsidiary of the
Acquiror (the "Merger Sub"), propose to enter into an agreement (the
"Agreement") pursuant to which the Merger Sub will make a tender offer (the
"Offer") for any and all shares of the Company's common stock, par value $.01
per share (including the associated Preferred Stock Purchase Rights, the
"Shares"), at $52.00 per Share, net to the seller in cash. The Agreement also
provides that, following consummation of the Offer, the Company will be merged
with the Merger Sub in a transaction (the "Merger") in which each remaining
Share will be converted into the right to receive $52.00 in cash.
You have asked us whether, in our opinion, the proposed cash
consideration to be received by the holders of the Shares in the Offer and the
Merger is fair to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
1. Reviewed the Company's Annual Reports, Forms 10-K and
related financial information for the five fiscal years
ended December 31, 1995 and the Company's Form 10-Q and the
related unaudited financial information for the quarterly
period ending March 31, 1996;
2. Reviewed certain information, including
<PAGE>
Page 2
financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of the Company, furnished to us by the Company;
3. Conducted discussions with members of the senior management
of the Company concerning its businesses and prospects;
4. Reviewed the historical market prices and trading activity
for the Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonable
similar to the Company;
5. Compared the results of operations of the Company with that
of certain companies which we deemed to be reasonably
similar to the Company;
6. Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of
certain other mergers and acquisitions which we deemed to be
relevant;
7. Reviewed a draft of the Agreement dated June 8, 1996; and
8. Reviewed such other financial studies and analyses and
performed such other investigations and took into account
such other matters as we deemed necessary, including our
assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have relied on the accuracy
<PAGE>
Page 3
and completeness of all information supplied or otherwise made available to us
by the Company, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of the Company.
With respect to the financial forecasts furnished by the Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's management as to the expected
future financial performance of the Company.
We have, in the past, provided financial advisory and financing
services to the Company and have received fees for the rendering of such
services. We have also, in the past provided financial advisory and financing
services and we continue to provide financial advisory services to companies
controlled by Forstmann Little & Co. and have received fees for the rendering of
such services.
In the ordinary course of business, we may actively trade the
securities of the Company for our account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
On the basis of, and subject to the foregoing, we are of the opinion
that the proposed cash consideration to be received by the holders of the Shares
pursuant to the Offer and the Merger is fair to such shareholders from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE>
Exhibit 12
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of June 9, 1996, to the Rights Agreement, dated as
of September 7, 1995, between Community Health Systems, Inc., a Delaware
corporation (the "Company"), and First Union Bank of North Carolina, a North
Carolina banking corporation, as Rights Agent (the "Rights Agent") (the "Rights
Agreement").
WHEREAS, the Company and the Rights Agent entered into the Rights
Agreement specifying the terms of the Rights (as defined therein); and
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 27 of the Rights Agreement;
THEREFORE, in consideration of the premises and mutual agreements set
forth in the Rights Agreement and this Amendment, the parties hereby agree as
follows:
1. The Rights Agreement is hereby amended as set forth in this
Section 1.
(a) Section 1(a) of the Rights Agreement is hereby amended by adding
the following to the end thereof:
"Notwithstanding the forgoing provisions of this Section 1(a), no Person
shall be deemed to be an Acquiring Person for any purpose of this Agreement
as the result of the acquisition of Shares by such Person pursuant to a
Qualifying Tender Offer."
(b) The Rights Agreement is hereby amended by adding the following as
a new Section 1(n):
"Qualifying Tender Offer" shall mean an offer by any Person to acquire all
Common Shares for a per Common Share consideration of not less than $52,
which offer (i) is a "tender offer" for purposes of, and is conducted in
accordance with, Section 14(d)(1) of the Exchange Act and the rules and
regulations thereunder (or any successor provision thereto) and
<PAGE>
(ii) is proposed to be followed by a merger between the Company and such
Person or a subsidiary of such Person in which all Common Shares (other
than Common Shares owned by such Person or a subsidiary of such Person) are
converted into the right to receive the per Common Share consideration paid
in the offer.
(c) Section 3(a) of the Rights Agreement is hereby amended by adding
the following to the end thereof:
"Notwithstanding the foregoing provisions of this Section 3(a), the
announcement of the intention of any Person to commence a Qualifying Tender
Offer shall not be deemed to cause the occurrence of the Distribution Date
for any purposes of this Agreement."
2. The term "Agreement" as used in the Rights Agreement shall be
deemed to refer to the Rights Agreement as amended hereby.
3. The foregoing amendment shall be effective as of the date first
above written, and, except as set forth herein, the Rights Agreement shall
remain in full force and effect and shall be otherwise unaffected hereby.
4. This Amendment may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all for which together shall
constitute one and the same instrument.
5. This Amendment shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
2
<PAGE>
IN WITNESS WHEREOF, the partis hereto have caused this Amendment to be
duly executed as of this 9th day of June, 1996.
COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ E. THOMAS CHANEY
--------------------------
Name: E. Thomas Chaney
Title: President and Chief
Executive Officer
FIRST UNION BANK OF
NORTH CAROLINA
By:
--------------------------
Name:
Title: Rights Agent
3
