SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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HEALTHSOURCE, INC.
(Name of Subject Company)
HEALTHSOURCE, INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $0.10 per share
(Title of Class of Securities)
42221E 10 4
(CUSIP Number of Class of Securities)
Jon S. Richardson, Esq.
Special Counsel to the President
Healthsource, Inc.
Two College Park Drive
Hooksett, New Hampshire 03106
(603) 268-7000
(Name, address and telephone number of person authorized to receive
notice and communication on behalf of the person(s) filing statement).
With a Copy to:
Paul T. Schnell, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
(212) 735-3000
This Amendment supplements and amends as Amendment No. 1 the
Solicitation/Recommendation Statement on Schedule 14D-9, originally filed
on March 6, 1997 (the Schedule 14D-9"), by Healthsource, Inc., a New
Hampshire corporation (the "Company"), relating to the tender offer by CHC
Acquisition, Corp., a New Hampshire corporation (the "Purchaser") and an
indirect wholly owned subsidiary of CIGNA Corporation, a Delaware
corporation ("Parent"), disclosed in a Tender Offer Statement on Schedule
14D-1, dated March 6, 1997, to purchase all outstanding shares of common
stock, par value $0.10 per share (the "Shares"), of the Company at a price
of $21.75 per Share, net to the seller in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated March 6, 1997,
and the related Letter of Transmittal. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Schedule
14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
On March 7, 1997, Betty Grayson Kurzweil and Robert Grayson, as
trustees under the will of Florence Rosenman (together, the "Plaintiffs"),
filed a putative class action in the Superior Court of Merrimack County for
the State of New Hampshire (the "Complaint"). The Complaint asserts one
cause of action sounding in breach of fiduciary duty against the Company,
each of the Company's directors (the "Director Defendants") and Parent.
The Complaint alleges that the February 28, 1997 announcement that
the Company had signed a definitive agreement to merge with Parent failed
to indicate whether the Company had engaged a financial advisor to evaluate
the Company or had made any attempt to "seek out other potential suitors
for the Company." As a result, the Plaintiffs allege that the Director
Defendants failed to adequately evaluate the Company's value as a potential
merger or acquisition candidate and/or did not act to enhance the Company's
value as such a candidate. The Complaint further alleges that Parent
disregarded the alleged breach of fiduciary duty and thus aided and abetted
the alleged breach. The Complaint seeks unspecified monetary damages. The
Company believes that the lawsuit is without merit. A copy of the Complaint
is filed herewith as Exhibit 18 and is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 18 - Complaint filed in the Superior Court, Merrimack County, of
the State of New Hampshire in an action titled Betty Grayson
Kurzweil and Robert Grayson, as trustees under the will of
Florence Rosenman, on behalf of themselves and all others
similarly situated v. Healthsource, Inc. et. al.
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: March 10, 1997
HEALTHSOURCE, INC.
By: /s/ Joseph M. Zubretsky
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Name: Joseph M. Zubretsky
Title: Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
Exhibit 18 Complaint filed in the Superior Court, Merrimack County, of
the State of New Hampshire in an action titled Betty Grayson
Kurzweil and Robert Grayson, as trustees under the will of
Florence Rosenman, on behalf of themselves and all others
similarly situated v. Healthsource, Inc. et. al.
STATE OF NEW HAMPSHIRE
MERRIMACK, SS SUPERIOR COURT
WRIT OF SUMMONS
BETTY GRAYSON KURZWEIL and ROBERT GRAYSON, as trustees under the will
of FLORENCE ROSENMAN, on behalf of themselves and all others similarly
situated
v.
HEALTHSOURCE, INC., MERWYN BAGAN, M.D., PAUL D. BARON, M.D.,
ROBERT S. CATHCART, III, M.D., ROBERT H. BILBRO, M.D.,
DANIEL F. EUBANK, M.D., ROBERT A. LEIPOLD, M.D.,
FRANCIS G. MIDDLETON, M.D., NORMAN C. PAYSON, M.D.
DANIEL W. SCHALL, M.D., J HAROLD CHANDLER and CIGNA CORPORATION
NOW COME the plaintiffs Betty Grayson Kurzweil and Robert Grayson, as
trustees under the will of Florence Rosenman, of 140 Mountain Avenue,
Springfield, New Jersey 07081, on behalf of themselves and all others
similarly situated and respectfully complains against the defendants and
allege as follows:
PARTIES
1. Plaintiffs are the owners of shares of defendant Healthsource.
2. Defendant Healthsource is a corporation organized and existing
under the laws of the State of New Hampshire. Healthsource maintains its
principal offices at 2 College Park Drive, Hooksett, New Hampshire 03106.
Healthsource manages healthcare and provides a broad range of managed
healthcare products through various subsidiaries. The Company owns health
maintenance organizations ("HMOs") in New England, upstate New York and the
Central, Southeastern and South Central United States.
3. Defendant Merwyn Bagan, M.D., ("Bagan") is Chairman of the Board
of Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
4. Defendant Paul D. Baron, M.D., ("Baron") is a Director of
Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
5. Defendant Robert S. Cathcart, III, M.D., ("Cathcart") is a
Director of Healthsource and maintains his principal office at 2 College
Park Drive, Hooksett, New Hampshire 03106.
6. Defendant Robert H. Bilbro, M.D., ("Bilbro") is a Director of
Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
7. Defendant Daniel F. Eubank, M.D., ("Eubank") is a Director of
Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
8. Defendant Robert A. Leipold, M.D., ("Leipold") is a Director of
Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
9. Defendant Francis G. Middleton, M.D., ("Middleton") is a Director
of Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
10. Defendant Normal C. Payson, M.D., ("Payson") is President, Chief
Executive Officer and a Director of Healthsource and maintains his
principal office at 2 College Park Drive, Hooksett, New Hampshire 03106.
11. Defendant David W. Schall, M.D., ("Schall") is a Director of
Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
12. Defendant J. Harold Chandler, M.D., ("Chandler") is a Director of
Healthsource and maintains his principal office at 2 College Park Drive,
Hooksett, New Hampshire 03106.
13. The foregoing individual directors of Healthsource (collectively
the "Director Defendants"), owe fiduciary duties to Healthsource and its
shareholders.
14. Cigna Corporation ("Cigna") is a Delaware corporation with
executive offices at One Liberty Place, Philadelphia, Pennsylvania
19192-1550. Cigna is one of the largest healthcare companies in the United
States, offering a wide range of group medical, dental, disability and life
insurance products. Cigna substantially and knowingly participated in and
is benefitting from breaches of fiduciary duties alleged herein, and
therefore is liable as a aider and abettor thereof.
CLASS ACTION ALLEGATIONS
15. Plaintiffs brings this action on their own behalf and as a class
action pursuant to New Hampshire Superior Court Rule 27-A on behalf of all
shareholders of defendant Healthsource (except defendants herein and any
person, firm, trust, corporation or other entity related to or affiliated
with any of the defendants) or their successors in interest, who have been
or will be adversely affected by the conduct of defendants alleged herein.
16. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is
brought is so numerous that joinder of all class members is impracticable.
As of February 21, 1997, there were 63,800,000 shares of defendant
Healthsource's common stock outstanding owned by thousands of shareholders
of record scattered throughout the United States.
(b) There are questions of law and fact which are common to
members of the Class and which predominate over any questions affecting any
individual members. The common questions include, inter alia, the
following:
i. Whether one or more of the defendants has engaged in a plan
and scheme to enrich themselves at the expense of defendant Healthsource's
public stockholders;
ii. Whether the Defendant Directors have breached their
fiduciary duties owed by them to plaintiffs and members of the Class,
and/or have aided and abetted in such breach, by virtue of their
participation and/or acquiescence and by their other conduct complained of
herein;
iii. Whether defendants have failed to fully disclose the true
value of defendant Healthsource's assets and earning power and the future
financial benefits which they expect to derive from the merger with Cigna:
iv. Whether the Defendant Directors have wrongfully failed and
refused to seek a purchase of Healthsource at the highest possible price
and, instead, have sought to chill potential offers and allow the valuable
assets of defendant Healthsource to be acquired by defendant Cigna at an
unfair and inadequate price;
v. Whether defendant Cigna has induced or aided and abetted
breaches of fiduciary duty by members of Healthsource's Board of Directors;
vi. Whether plaintiffs and other members of the Class will be
irreparably damaged by the transactions complained of herein; and
vii. Whether defendants have breached or aided and abetted the
breaches of the fiduciary and other common law duties owed by them to
plaintiffs and the other members of the Class.
17. Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The
claims of plaintiffs are typical of the claims of the other members of the
Class and plaintiffs have the same interest as the other members of the
Class. Accordingly, plaintiffs are adequate representatives of the Class
and will fairly and adequately protect the interests of the Class.
18. Plaintiffs anticipate that there will not be any difficulty in
the management of this litigation.
19. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this
action.
FACTUAL BACKGROUND
20. On February 28, 1997, Healthsource announced the signing of a
definitive agreement to merge with Cigna valued at approximately $1.7
billion or $21.75 per Healthsource share. Cigna announced that it expected
to commence a tender offer for all outstanding Healthsource shares within
five business days. Though the offer price includes a premium over
Healthsource's closing price of $16-7/8 on February 27, 1997 it is
significantly below Healthsource's high of $40.375 on April 1, 1996.
21. Defendants' announcement fails to indicate if defendants engaged
a financial advisor or obtained an independent fairness opinion of a
financial advisor to evaluate the transactions' value and it fairness to
plaintiffs and the Class members. There is also no indication of whether or
not the board of directors voted on the transaction or if they did vote of
how they voted. There is no evidence of defendants making any efforts,
through the engagement of a financial advisor or otherwise, to undertake an
adequate evaluation of the Company's worth as a potential
merger/acquisition candidate. Additionally, there is no indication that
defendants engaged any financial or investment banking advisors to attempt
to seek out other potential suitors for the Company or make any general
efforts to shop the Company to the highest bidder as their fiduciary duties
require. No efforts were made by defendants to effectively expose the
Company to the marketplace in an effort to create an active and open
auction for Healthsource to maximize its value for its shareholders. In
effect defendants breached fiduciary duties owed by them to the public
shareholders of the Company by failing to take any steps to maximize the
value of the shareholdings of plaintiffs and the Class.
22. The proposed merger transaction is wrongful, unfair and harmful
to Healthsource's public stockholders, the Class members, and represents an
attempt by defendants to aggrandize the personal and financial positions
and interests of board members at the expense of and to the detriment of
the stockholders of the Company. The proposed transaction will deny
plaintiffs and other Class members their rights to share appropriately in
the true value of the Company's assets and future growth in profits and
earnings, while usurping the same for the benefit of defendant Cigna at an
unfair and inadequate price.
CAUSE OF ACTION AGAINST ALL DEFENDANTS
23. Defendants other than Cigna, acting in concert, have violated
their fiduciary duties owed to the public shareholders of Healthsource and
put their own personal interest and the interests of defendant Cigna ahead
of the interests of the Healthsource public shareholders and have used
their control positions as officers and directors of Healthsource for the
purpose of reaping personal gain for board members at the expense of
Healthsource's public shareholders.
24. The Directors Defendants apparently failed to (1) undertake an
adequate evaluation of Healthsource's worth as a potential
merger/acquisition candidate; (2) take adequate steps to enhance
Healthsource's value and/or attractiveness as a merger/acquisition
candidate; (3) effectively expose Healthsource to the marketplace in an
effort to create an active and open auction for Healthsource; or (4) act
independently so that the interests of public shareholders would be
protected. Instead, defendants have set an exchange price for the shares of
Healthsource stock that does not reflect the true value of Healthsource and
without an appropriate premium.
25. While the Directors Defendants of Healthsource should seek out
other possible purchasers of the assets of Healthsource or its stock in a
manner designed to obtain the highest possible price for Healthsource's
shareholders, or seek to enhance the value of Healthsource for all its
current shareholders, they have instead resolved to wrongfully allow Cigna
to obtain the valuable assets of Healthsource at a bargain price, which
under the circumstances here, disproportionately benefits Cigna.
26. The aforesaid tactics pursued by the defendants are, and will
continue to be, wrongful, unfair and harmful to Healthsource's public
shareholders, and are an attempt by certain defendants to aggrandize their
personal positions, interests and finances at the expense of and to the
detriment of the Healthsource public stockholders. The aforesaid maneuvers
by the defendants will deny members of the Class their right to share
appropriately in the true value of Healthsource's valuable assets, future
earnings and profitable businesses to the same extent as they would as
Healthsource's shareholders.
27. In contemplating, planning and/or effecting the foregoing
specified acts and in pursuing and structuring the Transaction, defendants
are not acting in good faith toward plaintiffs and the Class, and have
breached, and are breaching their fiduciary duties to plaintiffs and the
Class.
28. Because the Directors Defendant (and those acting in concert with
them) dominate and control the business and corporate affairs of
Healthsource and because they are in possession of private corporate
information concerning Healthsource's businesses and future prospects,
there exists an imbalance and disparity of knowledge and economic power
between the defendants and the public shareholders of Healthsource which
makes it inherently unfair to Healthsource's public shareholders.
29. Defendant Cigna has acted and is acting with knowledge or with
reckless disregard that the other defendants are in breach of their
fiduciary duties to Healthsource's public shareholders and have
participated in such breaches of fiduciary duties by the directors of
Healthsource and thus are liable as aiders and abettors.
30. By reason of the foregoing acts, practices and course of conduct,
the Directors Defendants have failed to use the required care and diligence
in the exercise of their fiduciary obligations owed to Healthsource and its
public shareholders and have otherwise failed to discharge their duties as
prescribed by RSA 293-A:8.30(a).
31. As a result of the actions of the defendants, plaintiffs and the
Class have been and will be damaged in that they will not receive the fair
value of Healthsource's assets and business in exchange for their
Healthsource's shares, and have been and will be prevented from obtaining a
fair price for their shares of Healthsource common stock.
32. The plaintiffs request a jury trial on their damage claims.
WHEREFORE, the plaintiffs respectfully pray that this Honorable Court
enter judgment against defendants Healthsource, Inc. Merwyn Bagan, M.D.,
Paul D. Baron, M.D., Robert S. Cathcart, III, M.D., Robert H. Bilbro, M.D.,
Daniel F. Eubank, M.D., Robert A. Leipold, M.D., Francis G. Middleton,
M.D., Norman C. Payson, M.D., Daniel W. Schall, M.D., J. Harold Chandler
and Cigna Corporation in an amount within the jurisdictional limits of this
Honorable Court.
COUNSEL FOR PLAINTIFF:
Frederick E. Upshall, Jr.
UPSHALL, COOPER & TEMPLE, P.A.
10 Green Street, P.O. Box 867
Concord, NH 03302-0867
(603) 225-2791
OF COUNSEL:
Shane T. Rowley
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
270 Madison Avenue
New York, NY 10016
(212) 545-4600
Jeffrey G. Smith
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
270 Madison Avenue
New York, NY 10016
(212) 545-4600
