<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COLUMBIA/HCA HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8062 75-2497104
(PRIMARY STANDARD (I.R.S.
(STATE OR OTHER INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
JURISDICTION CODE NUMBER) NO.)
OFINCORPORATION OR
ORGANIZATION)
201 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(502) 572-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN T. BRAUN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
COLUMBIA/HCA HEALTHCARE CORPORATION
201 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(502)572-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
LINDA M. ROBISONWEIL, MICHAEL JOSEPH
GOTSHAL & MANGES DYER, ELLIS, JOSEPH & MILLS
700 LOUISIANA, SUITE 1600 600 NEW HAMPSHIRE AVENUE, N.W.
HOUSTON,TEXAS 77002 WASHINGTON, D.C. 20037
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT
TITLE OF EACH AMOUNT TO OFFERING AGGREGATE OF
CLASS OF SECURITIES BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED(1) REGISTERED(1) SHARE(2) PRICE(2) FEE(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 25,173,256 Shares $33.67 $847,597,524 $292,275
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Also includes associated Preferred Stock Purchase Rights. See "Description
of Columbia Capital Stock."
(2) The registration fee has been computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based on the average of the high and
low prices for shares of the Common Stock of Medical Care America, Inc.
reported on the New York Stock Exchange, Inc. on June 30, 1994 ($27.125)
and the maximum number of such shares (31,247,835 shares) that may be
exchanged for the securities being registered. The proposed maximum
offering price per share has been determined by dividing the maximum
aggregate offering price by the number of shares being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND PROSPECTUS
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM PROSPECTUS CAPTION
---- ------------------
A. INFORMATION ABOUT THE TRANSACTION
<C> <S> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus........ Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Available Information, Documents Incor-
porated By Reference, Table of Con-
tents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information..................... Summary, Certain Considerations, The
Merger
4. Terms of the Transaction......... The Merger, The Merger Agreement,
Description of Columbia Capital Stock,
Comparative Rights of Stockholders
5. Pro Forma Financial Information.. Unaudited Pro Forma Condensed Combined
Financial Statements
6. Material Contacts with the
Company Being Acquired.......... The Merger
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters.................... *
8. Interests of Named Experts and
Counsel......................... Legal Matters, Experts
9. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities...... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants..................... *
11. Incorporation of Certain
Information by Reference........ Documents Incorporated By Reference
12. Information with Respect to S-2
or S-3 Registrants.............. *
13. Incorporation of Certain
Information by Reference........ *
14. Information with Respect to
Registrants Other than S-3 or
S-2 Registrants................. *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies....................... Documents Incorporated By Reference
16. Information with Respect to S-2
or S-3 Companies................ *
17. Information with Respect to
Companies Other than S-3 or S-2
Companies....................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents
or Authorizations are to be
Solicited:
1. Date, Time and Place
Information................ Summary
2. Revocability of Proxy...... The Special Meeting
3. Dissenters' Rights of
Appraisal.................. The Special Meeting
4. Persons Making the
Solicitation............... General Information, The Special
Meeting
5. Interest of Certain Persons
in Matters to be Acted Upon
and Voting Securities and
Principal Holders Thereof.. The Merger, The Merger Agreement, The
Special Meeting, Approval of 1994
Restricted and Nonqualified Stock
Option Plan, Approval of Directors
Nonqualified Stock Option Plan,
Approval of Director Options
6. Vote Required for Approval. The Special Meeting
7. Directors and Executive
Officers, Executive
Compensation, and Certain
Relationships and Related
Transactions............... Documents Incorporated By Reference,
Election of Directors, Compensation
of Executive Officers
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer........................... *
</TABLE>
- -------
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
MEDICAL CARE AMERICA, INC.
13455 NOEL ROAD
DALLAS, TEXAS 75240
August , 1994
To the Stockholders of Medical Care America, Inc.:
Enclosed are a Notice of Special Meeting of Stockholders, a Proxy Statement
and Prospectus, and a Proxy for a Special Meeting of Stockholders (the "Special
Meeting") of Medical Care America, Inc. ("MCA") to be held on September ,
1994, at 9:00 a.m., Dallas, Texas time, at the Westin Hotel, Galleria Dallas,
13340 Dallas Parkway, Dallas, Texas.
At the Special Meeting you will be asked to consider and vote on a proposal
to approve and adopt a Merger Agreement pursuant to which a wholly-owned
subsidiary of Columbia/HCA Healthcare Corporation ("Columbia") will be merged
with and into MCA, which will thereupon become a subsidiary of Columbia. The
terms of the Merger Agreement provide that holders of MCA Common Stock owned as
of the effective time of the merger will receive a specified number of shares
of Columbia Common Stock for each share. You will also be asked to consider
proposals to (a) approve MCA's 1994 Restricted and Nonqualified Stock Option
Plan, (b) approve the June 1993 grant of stock options to MCA's non-employee
directors, (c) approve MCA's Directors Nonqualified Stock Option Plan, and (d)
elect four directors to serve until the 1997 Annual Meeting of Stockholders or
until their respective successors are duly elected and qualified.
Details of the proposals are set forth in the accompanying Proxy Statement
and Prospectus, which you should read carefully.
After careful consideration, the Board of Directors of MCA has determined
that the proposed merger is fair to and in the best interests of MCA and its
stockholders. Accordingly, the Board of Directors has unanimously approved the
Merger Agreement and recommends that all stockholders vote for its approval.
The Board of Directors of MCA believes that the proposed merger presents a
significant opportunity for diversification of stockholders' investment by
becoming stockholders of a larger company, which provides a broader range of
health care services and is thus more effectively able to respond to the
changing health care environment.
All stockholders are invited to attend the Special Meeting in person. The
affirmative vote of a majority of the outstanding shares of MCA Common Stock
will be necessary for approval and adoption of the Merger Agreement.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. If
you attend the Special Meeting in person you may, if you wish, vote personally
on all matters brought before the Special Meeting even if you have previously
returned your Proxy.
Sincerely,
Donald E. Steen
President and Chief Executive
Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
MEDICAL CARE AMERICA, INC.
13455 NOEL ROAD
DALLAS, TEXAS 75240
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 1994
To the Stockholders of Medical Care America, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Medical Care America, Inc. ("MCA") will be held on September ,
1994, at 9:00 a.m., Dallas, Texas time, at the Westin Hotel, Galleria Dallas,
13340 Dallas Parkway, Dallas, Texas, for the following purposes:
(1) to consider and vote on a proposal to approve and adopt an Agreement
and Plan of Merger dated as of May 23, 1994 (the "Merger Agreement"),
among Columbia/HCA Healthcare Corporation ("Columbia"), CHOS
Acquisition Corporation ("Columbia Sub") and MCA, pursuant to which,
among other things, (a) Columbia Sub would be merged with and into MCA
(the "Merger") and (b) each stockholder of MCA would receive for each
share of MCA Common Stock owned as of the effective time of the Merger
a specified number of shares of Columbia Common Stock, as described in
the accompanying Proxy Statement and Prospectus;
(2) to consider and act upon a proposal, effective the Effective Time of
the Merger, to approve MCA's 1994 Restricted and Nonqualified Stock
Option Plan for which shares previously issuable under pre-existing
stock option plans will be reallocated;
(3) to consider and act upon a proposal, effective the Effective Time of
the Merger, to approve the June 1993 grant to each of MCA's non-
employee directors of stock options to purchase 10,000 shares of MCA
Common Stock;
(4) to consider and act upon a proposal, effective the Effective Time of
the Merger, to approve MCA's Directors Nonqualified Stock Option Plan
for which shares previously issuable under pre-existing plans will be
reallocated;
(5) to elect four directors to serve until the 1997 Annual Meeting of
Stockholders or until their respective successors are duly elected and
qualified; and
(6) to transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The Board of Directors of MCA has fixed the close of business on August ,
1994, as the record date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting, and only stockholders of record
at such time will be entitled to notice of and to vote at the Special Meeting.
A list of MCA stockholders entitled to vote at the Special Meeting will be
available for examination, during ordinary business hours, at the principal
offices of MCA, 13455 Noel Road, Dallas, Texas, for ten days prior to the
Special Meeting.
A form of Proxy and a Proxy Statement and Prospectus containing more
detailed information with respect to the matters to be considered at the
Special Meeting accompany this notice.
You are cordially invited and urged to attend the Special Meeting in person,
but if you are unable to do so, please complete, sign, date and promptly
return the enclosed Proxy in the enclosed, self-addressed, stamped envelope.
If you attend the Special Meeting and desire to revoke your Proxy and vote in
person you may do so. In any event, a Proxy may be revoked at any time before
it is voted.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THE
ABOVE PROPOSALS. THE PROPOSAL TO ELECT FOUR DIRECTORS AND THE PROPOSAL TO
APPROVE MCA'S DIRECTORS NONQUALIFIED STOCK OPTION PLAN WILL BE PRESENTED AND
ACTED UPON AT THE SPECIAL MEETING ONLY IN THE EVENT THAT THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT IS NOT APPROVED BY STOCKHOLDERS.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
By Order of the Board of Directors,
Jonathan R. Bond
Senior Vice President and Secretary
Dallas, Texas
August , 1994
<PAGE>
COLUMBIA/HCA HEALTHCARE MEDICAL CARE AMERICA, INC.
CORPORATION
----------------
PROXY STATEMENT AND PROSPECTUS
----------------
GENERAL INFORMATION
This Proxy Statement and Prospectus (the "Proxy Statement/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Medical Care America, Inc., a Delaware corporation ("MCA"), for
use in connection with a Special Meeting of Stockholders of MCA (the "Special
Meeting"), which is to be held on September , 1994, or any adjournment(s) or
postponement(s) thereof. At such meeting, the stockholders of MCA will consider
and vote upon a proposal to approve and adopt an Agreement and Plan of Merger
dated as of May 23, 1994 (the "Merger Agreement") among Columbia/HCA Healthcare
Corporation, a Delaware corporation ("Columbia"), CHOS Acquisition Corporation,
a Delaware corporation and a wholly-owned subsidiary of Columbia ("Columbia
Sub"), and MCA, pursuant to which Columbia Sub would be merged with and into
MCA (the "Merger"). As a result of the Merger each of the then outstanding
shares of Common Stock, $.01 par value, of MCA (the "MCA Common Stock") would
be converted into the right to receive a specified number of shares of Common
Stock, $.01 par value, of Columbia (the "Columbia Common Stock").
In addition, at the Special Meeting, the stockholders of MCA will consider
and vote upon proposals to (a) approve MCA's 1994 Restricted and Nonqualified
Stock Option Plan, (b) approve the June 1993 grant of stock options to MCA's
non-employee directors, (c) approve MCA's Directors Nonqualified Stock Option
Plan, and (d) elect four directors to serve until the 1997 Annual Meeting of
Stockholders or until their respective successors are duly elected and
qualified.
The stockholders of MCA also will consider and vote upon such other business
as may properly come before the Special Meeting or any adjournment(s) or
postponement(s) thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of Columbia
with respect to the shares of Columbia Common Stock (including the associated
Preferred Stock Purchase Rights) to be issued pursuant to the Merger.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
"CERTAIN CONSIDERATIONS."
This Proxy Statement/Prospectus is first being mailed to the stockholders of
MCA on or about August , 1994.
----------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS AUGUST , 1994.
<PAGE>
AVAILABLE INFORMATION
Columbia and MCA are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information are available for inspection and copying at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60601. Copies of such materials can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. The shares of Columbia Common Stock
and MCA Common Stock are listed on the New York Stock Exchange and, as a
result, the periodic reports, proxy statements and other information filed by
Columbia and MCA with the Commission can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Columbia has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Columbia Common Stock to
be issued in connection with the Merger. This Proxy Statement/Prospectus also
constitutes the Prospectus of Columbia filed as part of the Registration
Statement. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement and any amendments thereto, including exhibits filed as
a part thereof, are available for inspection and copying as set forth above.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS RELATING
TO COLUMBIA AND MCA WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
DOCUMENTS RELATING TO COLUMBIA (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS
IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, FROM COLUMBIA/HCA
HEALTHCARE CORPORATION, 201 WEST MAIN STREET, LOUISVILLE, KENTUCKY 40202,
ATTENTION: STEPHEN T. BRAUN, SECRETARY, TELEPHONE: (502) 572-2000. DOCUMENTS
RELATING TO MCA (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, FROM MEDICAL CARE AMERICA, INC., 13455
NOEL ROAD, DALLAS, TEXAS 75240, ATTENTION: JONATHAN R. BOND, SECRETARY,
TELEPHONE: (214) 701-2200. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BY SEPTEMBER , 1994. COPIES OF DOCUMENTS SO
REQUESTED WILL BE SENT BY FIRST CLASS MAIL, POSTAGE PAID WITHIN ONE BUSINESS
DAY OF THE RECEIPT OF SUCH REQUEST.
The following Columbia documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1993, as
amended (the "1993 Columbia 10-K").
2. The portions of the Proxy Statement for the Annual Meeting of
Stockholders held May 12, 1994 that have been incorporated by reference in
the 1993 Columbia 10-K.
3. Quarterly Report on Form 10-Q for the interim period ended March 31,
1994.
4. Current Reports on Form 8-K dated May 12, 1994 and May 24, 1994.
5. Registration Statement on Form 8-A dated August 31, 1993.
(ii)
<PAGE>
The following MCA documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1993, as
amended (the "1993 MCA 10-K").
2. Quarterly Report on Form 10-Q for the interim period ended March 31,
1994.
3. Current Reports on Form 8-K dated March 8, 1994 and May 25, 1994.
4. Registration Statement on Form 8-A dated September 9, 1992.
All documents filed by Columbia or MCA with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof
and prior to the date of the MCA stockholders meeting shall be deemed to be
incorporated by reference herein and shall be a part hereof from the date of
filing of such documents. Any statements contained in a document incorporated
by reference herein or contained in this Proxy Statement/Prospectus shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS
PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COLUMBIA OR MCA
SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION......................................................... i
AVAILABLE INFORMATION....................................................... ii
DOCUMENTS INCORPORATED BY REFERENCE......................................... ii
SUMMARY..................................................................... 1
CERTAIN CONSIDERATIONS...................................................... 12
Health Care Reform........................................................ 12
Competition; Impact of Managed Care Organizations......................... 12
Limits on Reimbursement................................................... 12
Extensive Regulation...................................................... 13
Pending HCA Tax Litigation................................................ 13
Dependence on Key Personnel............................................... 14
Professional Liability Risks.............................................. 14
Certain Anti-takeover Provisions.......................................... 14
MCA Securities Litigation................................................. 14
THE SPECIAL MEETING......................................................... 15
Matters to Be Considered at the Special Meeting........................... 15
Vote Required............................................................. 15
Voting of Proxies......................................................... 15
Revocability of Proxies................................................... 16
Record Date; Shares Entitled to Vote; Quorum.............................. 16
No Dissenters' Rights..................................................... 16
Solicitation of Proxies................................................... 16
THE MERGER.................................................................. 17
General................................................................... 17
Background of the Merger.................................................. 17
Reasons for the Merger; Recommendation of the Board of Directors.......... 18
Opinion of Financial Advisor.............................................. 18
Interests of Certain Persons in the Merger................................ 22
Accounting Treatment...................................................... 23
Certain Federal Income Tax Consequences................................... 23
Regulatory Approval....................................................... 24
Resale Restrictions....................................................... 24
THE MERGER AGREEMENT........................................................ 25
The Merger................................................................ 25
Exchange Procedures....................................................... 26
Representations and Warranties............................................ 27
Certain Covenants......................................................... 28
No Solicitation of Transactions........................................... 29
Indemnification and Insurance............................................. 29
Conditions................................................................ 29
Termination............................................................... 30
Termination Fee........................................................... 31
Expenses.................................................................. 31
Amendment and Waiver...................................................... 31
Alternative Merger Structure.............................................. 31
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................. 32
DESCRIPTION OF COLUMBIA CAPITAL STOCK....................................... 38
Authorized Capital Stock.................................................. 38
Columbia Common Stock..................................................... 38
Columbia Nonvoting Common Stock........................................... 38
Columbia Preferred Stock.................................................. 38
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Columbia Preferred Stock Purchase Rights................................. 39
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................... 42
General.................................................................. 42
Classified Board of Directors............................................ 42
Stockholder Rights Plan.................................................. 42
Number of Directors; Removal; Filling Vacancies.......................... 43
No Stockholder Action by Written Consent; Special Meetings............... 44
Fair Price Provisions.................................................... 45
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals............................................................... 46
Common Stock and Nonvoting Common Stock.................................. 48
Preferred Stock.......................................................... 48
Amendment of the Certificate of Incorporation and Bylaws................. 48
Business Combinations.................................................... 49
Special Voting Requirements.............................................. 49
Limitation of Liability of Directors..................................... 49
Indemnification of Directors and Officers................................ 50
Other Provisions......................................................... 50
APPROVAL OF 1994 RESTRICTED AND NONQUALIFIED STOCK OPTION PLAN............. 51
General Description of the Plan.......................................... 51
Federal Income Tax Consequences.......................................... 53
Vote Required and Recommendation......................................... 54
APPROVAL OF DIRECTOR OPTIONS............................................... 55
Federal Income Tax Consequences.......................................... 55
Vote Required and Recommendation......................................... 56
APPROVAL OF DIRECTORS NONQUALIFIED STOCK OPTION PLAN....................... 56
General Description of the Plan.......................................... 56
Federal Income Tax Consequences.......................................... 57
Vote Required and Recommendation......................................... 57
SUMMARY OF BENEFITS UNDER THE 1994 PLAN, THE DIRECTORS PLAN AND THE 1993
DIRECTOR OPTIONS ......................................................... 57
ELECTION OF DIRECTORS...................................................... 58
Nominees................................................................. 59
Executive Officers and Directors Other than Nominees..................... 59
Certain Board Information................................................ 61
Compliance with Section 16 of the Exchange Act........................... 62
Compensation Committee Interlocks and Insider Participation.............. 62
COMPENSATION OF EXECUTIVE OFFICERS......................................... 62
Summary Compensation Table............................................... 62
Option Grants in Last Fiscal Year........................................ 63
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values........................................................... 63
Ten-Year Option/SAR Repricings........................................... 64
Employment Agreements.................................................... 64
REPORT OF THE OPTION AND COMPENSATION COMMITTEE............................ 65
PERFORMANCE GRAPH.......................................................... 67
LEGAL MATTERS.............................................................. 68
EXPERTS.................................................................... 68
SELECTION OF AUDITORS...................................................... 68
STOCKHOLDER PROPOSALS...................................................... 68
OTHER MATTERS.............................................................. 69
APPENDIX A--AGREEMENT AND PLAN OF MERGER................................... A-1
APPENDIX B--FAIRNESS OPINION OF DILLON, READ & CO. INC..................... B-1
</TABLE>
(v)
<PAGE>
SUMMARY
The following summary of certain information contained elsewhere in this
Proxy Statement and Prospectus (the "Proxy Statement/Prospectus") does not
purport to be complete and is qualified in its entirety by reference to the
full text, including the Appendices attached hereto. As used in this Proxy
Statement/Prospectus, "Columbia" refers to Columbia/HCA Healthcare Corporation
and "MCA" refers to Medical Care America, Inc., and, unless the context
otherwise requires, such entities and their respective subsidiaries and
affiliated partnerships. The information contained in this Proxy
Statement/Prospectus with respect to Columbia and its affiliates has been
supplied by Columbia, and the information with respect to MCA and its
affiliates has been supplied by MCA. Certain capitalized terms which are used
but not defined in this summary are defined elsewhere in this Proxy
Statement/Prospectus.
COLUMBIA
Columbia is one of the largest health care services companies in the United
States. As of March 31, 1994, Columbia operated 168 general, acute care
hospitals and 28 psychiatric hospitals in 26 states and two foreign countries.
In addition, as part of its comprehensive health care networks, Columbia
operates facilities that provide a broad range of outpatient and ancillary
services. For the year ended December 31, 1993, Columbia generated operating
revenues of $10.3 billion and income from continuing operations of $575
million. Columbia's outpatient and ancillary services accounted for 27 percent
of total operating revenues in 1993.
Columbia's primary objective is to provide to the markets it serves a
comprehensive array of quality health care services in the most cost effective
manner possible. Columbia's general, acute care hospitals usually provide a
full range of services commonly available in hospitals to accommodate such
medical specialties as internal medicine, general surgery, cardiology,
oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and
emergency services. Outpatient and ancillary health care services are provided
by Columbia's general, acute care hospitals as well as at freestanding
facilities operated by Columbia including rehabilitation facilities, outpatient
surgery and diagnostic centers, home health care agencies and other facilities.
In addition, Columbia operates psychiatric hospitals which generally provide a
full range of mental health care services in inpatient, partial hospitalization
and outpatient settings.
On February 10, 1994, Columbia acquired HCA-Hospital Corporation of America
("HCA") in a transaction accounted for as a pooling of interests (the "HCA
Merger"). Effective September 1, 1993, Columbia acquired Galen Health Care,
Inc. ("Galen") also in a pooling of interests transaction (the "Galen Merger").
Galen began operations as an independent publicly held corporation upon the
distribution of all of its common stock (the "Spinoff") by its then 100% owner,
Humana Inc. ("Humana"), on March 1, 1993.
Columbia's principal executive offices are located at 201 West Main Street,
Louisville, Kentucky 40202, and its telephone number at such address is (502)
572-2000.
MCA
MCA is a national provider of alternate-site health care services, consisting
primarily of outpatient surgical facilities. In addition to its ownership and
operation of 96 freestanding surgical centers, MCA owned or managed five
ophthalmic surgical practices, six diagnostic imaging centers, and ten physical
therapy facilities as of June 30, 1994.
The alternate-site provision of health care services, which is the provision
of services outside their traditional hospital setting, has grown in recent
years primarily as a result of cost containment efforts that have encouraged
shorter hospital stays, technological advances that have permitted an
increasing number of procedures to be safely performed outside the hospital
setting, and patient and physician preference.
1
<PAGE>
Until March 1994, MCA also provided infusion therapy services through
Critical Care America, Inc. ("CCA"), an entity with which it merged in
September 1992. On March 8, 1994, MCA sold substantially all the assets and
liabilities of CCA to Caremark International, Inc. for $175 million in cash.
MCA consolidated financial data contained herein reflect the results of
operations and net assets of CCA as a discontinued operation.
MCA's principal executive offices are located at 13455 Noel Road, Dallas,
Texas 75240, and its telephone number at such address is (214) 701-2200.
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement/Prospectus relates to a Special Meeting of Stockholders
of MCA (the "Special Meeting"). At the Special Meeting, the stockholders of MCA
will consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger dated as of May 23, 1994 (the "Merger Agreement") among
Columbia, CHOS Acquisition Corporation ("Columbia Sub") and MCA pursuant to
which Columbia Sub would be merged with and into MCA (the "Merger"). In
addition, the stockholders of MCA will consider and vote upon proposals to (a)
approve MCA's 1994 Restricted and Nonqualified Stock Option Plan (the "1994
Plan"), (b) approve the June 1993 grant of stock options to non-employee
directors, (c) approve MCA's Directors Nonqualified Stock Option Plan (the
"Directors Plan"), and (d) elect four directors to serve until the 1997 Annual
Meeting of Stockholders or until their respective successors are duly elected
and qualified.
The Special Meeting will be held on , September , 1994, at 9:00 a.m.,
Dallas, Texas time, at the Westin Hotel, Galleria Dallas, 13340 Dallas Parkway,
Dallas, Texas. The record date for stockholders of MCA entitled to notice of
and to vote at the Special Meeting is as of the close of business on August ,
1994. Voting rights for MCA are vested in the holders of the Common Stock, $.01
par value, of MCA ("MCA Common Stock"), with each share of MCA Common Stock
entitled to one vote on each matter coming before the stockholders. As of
August , 1994 there were shares of MCA Common Stock outstanding, held by
approximately holders of record.
VOTE REQUIRED
The favorable vote of the holders of a majority of the outstanding shares of
MCA Common Stock is required for the approval and adoption of the Merger
Agreement. The affirmative vote of a plurality of the shares of MCA Common
Stock represented at the Special Meeting, in person or by proxy, will be
necessary for the election of directors. The affirmative vote of a majority of
the shares represented at the Special Meeting, in person or by proxy, will be
necessary to approve the remaining proposals presented at the Special Meeting.
Any MCA stockholder present (including broker non-votes) at the Special
Meeting, but who abstains from voting, shall be counted for purposes of
determining whether a quorum exists. With respect to all matters other than the
election of directors, an abstention (or broker non-vote) has the same effect
as a vote against the proposal. As of August , 1994, directors, executive
officers and affiliates of MCA were beneficial owners of approximately % of
the outstanding shares of MCA Common Stock (excluding shares which may be
acquired upon exercise of options or other rights which are exercisable within
60 days of August , 1994).
THE MERGER
Conversion of Securities. Upon consummation of the transactions contemplated
by the Merger Agreement, (a) Columbia Sub will be merged with and into MCA (the
"Merger") and (b) each issued and outstanding share of MCA Common Stock will be
converted into the right to receive a specified number of shares of Columbia
Common Stock. The number of shares of Columbia Common Stock to be issued in
exchange for each share of MCA Common Stock in the Merger (the "Exchange
Ratio") will be determined as follows:
2
<PAGE>
(i) if the Average Price (as hereinafter defined) of a share of Columbia
Common Stock is less than $36.00, the Exchange Ratio will be .8056;
(ii) if the Average Price of a share of Columbia Common Stock is at least
$36.00 but less than or equal to $40.00, the Exchange Ratio will be equal
to the amount obtained by dividing 29 by the Average Price of a share of
Columbia Common Stock (with any fractional cent being rounded to the next
higher full cent);
(iii) if the Average Price of a share of Columbia Common Stock is greater
than $40.00 but less than or equal to $44.00, the Exchange Ratio will be
equal to the amount obtained by dividing the sum of 29 plus 25% of the
excess of the Average Price of a share of Columbia Common Stock above
$40.00 by the Average Price of a share of Columbia Common Stock (with any
fractional cent being rounded to the next higher full cent); or
(iv) if the Average Price of a share of Columbia Common Stock is greater
than $44.00, the Exchange Ratio will be equal to the amount obtained by
dividing 30 by the Average Price of a share of Columbia Common Stock (with
any fractional cent being rounded to the next higher full cent).
The Exchange Ratio will, in each case, be rounded to four decimal places. The
"Average Price" of a share of Columbia Common Stock will be the average of the
closing sales prices thereof on The New York Stock Exchange (the "NYSE") (as
reported by The Wall Street Journal or, if not reported thereby, by another
authoritative source) over the 20 trading days immediately preceding the date
which is five trading days prior to the Closing Date of the Merger.
IF THE AVERAGE PRICE OF THE COLUMBIA COMMON STOCK IS LESS THAN $36 PER SHARE,
THE MAXIMUM EXCHANGE RATIO (.8056) WOULD NOT PROVIDE A STOCKHOLDER OF MCA WITH
$29 PER SHARE IN "VALUE" (DETERMINED WITH REFERENCE TO THE AVERAGE PRICE) OF
THE COLUMBIA COMMON STOCK. IF THE AVERAGE PRICE OF THE COLUMBIA COMMON STOCK IS
GREATER THAN $44 PER SHARE, THE EXCHANGE RATIO WOULD LIMIT A STOCKHOLDER OF MCA
TO $30 PER SHARE IN "VALUE" OF THE COLUMBIA COMMON STOCK. THERE IS NO GUARANTEE
AS TO THE VALUE OF THE COLUMBIA COMMON STOCK THAT MCA STOCKHOLDERS WILL
RECEIVE. THE MERGER IS NOT CONDITIONED ON THE "AVERAGE PRICE" OF COLUMBIA
COMMON STOCK EXCEEDING ANY MINIMUM AMOUNT.
The following table indicates the Exchange Ratio assuming various Average
Prices, with the resulting "value" to be received for each share of MCA Common
Stock:
<TABLE>
<CAPTION>
"VALUE" TO BE RECEIVED
FOR EACH SHARE
AVERAGE PRICE EXCHANGE RATIO OF MCA COMMON STOCK
------------- -------------- ----------------------
(COL. 1) (COL. 2) (COL. 1 X COL. 2)
<S> <C> <C>
$32.00 .8056 $25.78(1)
34.00 .8056 27.39
36.00 .8056 29.00
38.00 .7632 29.00
40.00 .7250 29.00
42.00 .7024 29.50
44.00 .6818 30.00(2)
46.00 .6522 30.00
48.00 .6250 30.00
</TABLE>
- --------
(1) There is no limit on the minimum amount of "value" the MCA stockholders may
receive for each of their shares of MCA Common Stock.
(2) The MCA stockholders are limited to $30 in "value" of the Columbia Common
Stock which they may receive for each of their shares of MCA Common Stock.
3
<PAGE>
Fractional shares of Columbia Common Stock will not be issued in connection
with the Merger. A holder otherwise entitled to a fractional share will be paid
cash in lieu of such fractional share in an amount representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
of the aggregate of the fractional shares of Columbia Common Stock which would
otherwise have been issued.
Recommendation of the Board of Directors. The Board of Directors of MCA has
unanimously approved the Merger Agreement and unanimously recommends a vote FOR
approval and adoption of the Merger Agreement by the stockholders of MCA. The
Board of Directors of MCA believes that the terms of the Merger are fair to and
in the best interests of MCA and its stockholders. For a discussion of the
factors considered by the Board of Directors in reaching its decision, see "The
Merger--Reasons for the Merger; Recommendation of the Board of Directors."
Opinion of Financial Advisor. On May 23, 1994, Dillon, Read & Co. Inc.
("Dillon Read") delivered its oral opinion to MCA's Board of Directors to the
effect that, based on various considerations and assumptions and subject to its
final review of the Merger Agreement, the consideration to be received by the
holders of MCA Common Stock was, as of that date, fair to such holders from a
financial point of view. Dillon Read subsequently confirmed its oral opinion by
delivery of its written opinion dated as of the date of this Proxy
Statement/Prospectus. A copy of the full text of the written opinion of Dillon
Read, which sets forth the assumptions made, procedures followed, matters
considered and limits of its review, is attached to this Proxy
Statement/Prospectus as Appendix B, and should be read carefully in its
entirety. See "The Merger--Opinion of Financial Advisor."
Interests of Certain Persons in the Merger. In considering the recommendation
of the Board of Directors of MCA with respect to the Merger Agreement and the
transactions contemplated thereby, stockholders should be aware that certain
members of the management of MCA and the Board of Directors of MCA have certain
interests in the Merger that are in addition to the interests of stockholders
of MCA generally (including, without limitation, the acceleration of stock
options and shares of restricted stock). See "The Merger--Interests of Certain
Persons in the Merger" and "The Merger Agreement--Indemnification and
Insurance."
Conditions to the Merger. The obligations of Columbia and MCA to consummate
the Merger are subject to the satisfaction of certain conditions, including,
among others, (i) obtaining MCA stockholder approval, (ii) the expiration or
termination of the waiting period applicable to the consummation of the Merger
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (iii) the absence of any material adverse change in the financial
condition, business, operations or prospects of the other party (other than as
a result of changes in conditions, including economic or political
developments, applicable to the health care industry generally), (iv) the
absence of any injunction prohibiting consummation of the Merger, and (v) the
receipt of certain legal opinions with respect to the tax consequences of the
Merger. See "The Merger--Certain Federal Income Tax Consequences" and "The
Merger Agreement--Conditions."
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"), which certificate will be filed as promptly as
practicable after MCA stockholder approval has been obtained and all other
conditions to the Merger have been satisfied or waived. Subject to the
satisfaction (or waiver) of the other conditions to the obligations of Columbia
and MCA to consummate the Merger, it is currently expected that the Merger will
be consummated on September , 1994 or as soon thereafter as such conditions
are satisfied.
Exchange of MCA Stock Certificates. Upon consummation of the Merger, each
holder of a certificate or certificates representing shares of MCA Common Stock
("Certificates") outstanding immediately prior to the Merger will, upon the
surrender thereof (duly endorsed, if required) to a designated exchange agent
(the "Exchange Agent"), be entitled to receive a certificate or certificates
representing the number of whole shares
4
<PAGE>
of Columbia Common Stock into which such shares of MCA Common Stock will have
been automatically converted as a result of the Merger. After the consummation
of the Merger, the Exchange Agent will mail a letter of transmittal with
instructions to all holders of record of MCA Common Stock as of the Effective
Time for use in surrendering their Certificates in exchange for certificates
representing shares of Columbia Common Stock. Certificates should not be
surrendered until the letter of transmittal and instructions are received. See
"The Merger Agreement--Exchange Procedures."
No Dissenters' Rights. Holders of MCA Common Stock are not entitled to
dissenters' rights in connection with the Merger.
Certain Federal Income Tax Consequences. Based upon the advice of Davis Polk
& Wardwell, special counsel to MCA, MCA believes that no gain or loss will be
recognized by MCA or by MCA stockholders on the exchange of shares of MCA
Common Stock for Columbia Common Stock (except with respect to cash received in
lieu of a fractional interest in Columbia Common Stock). Based upon the advice
of Weil, Gotshal & Manges, special counsel to Columbia, Columbia believes that
no gain or loss will be recognized by Columbia, Columbia Sub or MCA as a result
of the Merger. See "The Merger--Certain Federal Income Tax Consequences" and
"The Merger Agreement--Conditions."
Accounting Treatment. Columbia will account for the Merger in accordance with
the purchase method of accounting. See "The Merger--Accounting Treatment."
Resale Restrictions. All shares of Columbia Common Stock received by MCA
stockholders in the Merger will be freely transferable, except that shares of
Columbia Common Stock received by persons who are deemed to be "affiliates" (as
such term is defined under the Securities Act) of MCA at the time of the
Special Meeting may be resold by them only in certain permitted circumstances.
See "The Merger--Resale Restrictions."
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the approval
by the stockholders of MCA, in a number of circumstances, which include, among
others: (a) by the mutual consent of MCA and Columbia by action of their
respective Boards of Directors; (b) by action of the Board of Directors of
either MCA or Columbia if (i) the Merger shall not have been consummated by
December 31, 1994, provided that the terminating party shall not have breached
in any material respect its obligations under the Merger Agreement in any
manner that shall have proximately contributed to the failure to consummate the
Merger or (ii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by MCA's stockholders shall not have been
obtained at a stockholders' meeting duly convened for such purpose (or any
adjournment thereof); (c) by action of the Board of Directors of MCA, if (i) in
the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, the Board of Directors of MCA determines that such
termination is required by reason of an Alternative Proposal (hereinafter
defined) being made for MCA, (ii) there has been a breach by Columbia of any
representation or warranty contained in the Merger Agreement which would have
or would be reasonably likely to have a material adverse effect on Columbia and
its subsidiaries taken as a whole, or (iii) there has been a material breach by
Columbia of any covenant or agreement contained in the Merger Agreement which
is not curable or, if curable, is not cured within 30 days after written notice
of such breach; or (d) by action of the Board of Directors of Columbia, if (i)
the Board of Directors of MCA shall have withdrawn or modified in a manner
adverse to Columbia its approval or recommendation of the Merger Agreement or
the Merger due to the existence of an Alternative Proposal, or shall have
recommended an Alternative Proposal to MCA stockholders, (ii) there has been a
breach by MCA of any representation or warranty contained in the Merger
Agreement which would have or would be reasonably likely to have a material
adverse effect on MCA and its subsidiaries taken as a whole, or (iii) there has
been a material breach by MCA of any covenant or agreement contained in the
Merger Agreement which
5
<PAGE>
is not curable or, if curable, is not cured within 30 days after written notice
of such breach. See "The Merger Agreement--Termination."
Termination Fee. If (a) MCA terminates the Merger Agreement because its Board
of Directors, in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders imposed by law, determines that such termination is
required by reason of an Alternative Proposal being made for MCA or (b)
Columbia terminates the Merger Agreement because the Board of Directors of MCA
shall have withdrawn or modified in a manner adverse to Columbia its approval
or recommendation of the Merger Agreement or the Merger due to the existence of
an Alternative Proposal, or shall have recommended an Alternative Proposal to
MCA stockholders, then MCA (or the successor thereto) is required to pay a fee
in cash of $25,000,000 to Columbia. See "The Merger Agreement--Termination
Fee."
New York Stock Exchange Listing. The Columbia Common Stock is listed on the
New York Stock Exchange (the "NYSE"). It is a condition to MCA's obligation to
consummate the Merger that the Columbia Common Stock to be issued to MCA
stockholders in connection with the Merger shall have been approved for listing
on the NYSE, subject only to official notice of issuance.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of Columbia and MCA
which are based upon the historical consolidated financial statements of
Columbia and MCA. The following data should be read in conjunction with the
respective consolidated financial statements incorporated by reference in this
Proxy Statement/Prospectus.
COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
---------------------- -------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................ $ 2,778 $ 2,654 $10,252 $ 9,932 $ 9,598 $ 8,641 $ 7,724
---------- ---------- ------- ------- ------- ------- -------
Salaries, wages and
benefits............... 1,113 1,072 4,215 4,112 3,976 3,510 3,066
Supplies................ 434 433 1,664 1,613 1,467 1,314 1,135
Other operating
expenses............... 492 478 1,893 1,849 1,739 1,586 1,483
Provision for doubtful
accounts............... 150 126 542 515 508 444 407
Depreciation and
amortization........... 144 136 554 541 524 499 468
Interest expense........ 64 85 321 401 597 694 667
Investment income....... (14) (12) (66) (81) (64) (69) (103)
Non-recurring
transactions........... 159 - 151 439 300 22 (10)
---------- ---------- ------- ------- ------- ------- -------
2,542 2,318 9,274 9,389 9,047 8,000 7,113
---------- ---------- ------- ------- ------- ------- -------
Income from continuing
operations before
minority interests and
income taxes........... 236 336 978 543 551 641 611
Minority interests in
earnings of
consolidated entities.. 3 4 9 10 9 4 4
---------- ---------- ------- ------- ------- ------- -------
Income from continuing
operations before
income taxes........... 233 332 969 533 542 637 607
Provision for income
taxes.................. 96 127 394 294 189 240 223
---------- ---------- ------- ------- ------- ------- -------
Income from continuing
operations............. 137 205 575 239 353 397 384
Income (loss) from
operations of
discontinued health
plan segment, net of
income taxes (benefit). - 16 16 (125) 16 (6) (18)
Extraordinary loss on
extinguishment of debt,
net of income tax
benefit................ (92) - (84) - - - (9)
Cumulative effect on
prior years of a change
in accounting for
income taxes........... - - - 51 - - -
---------- ---------- ------- ------- ------- ------- -------
Net income........... $ 45 $ 221 $ 507 $ 165 $ 369 $ 391 $ 357
========== ========== ======= ======= ======= ======= =======
Earnings per common and
common equivalent
share(a):
Income from continuing
operations............ $ .40 $ .61 $ 1.70 $ .73 $ 1.20 $ 1.28
Income (loss) from
operations of
discontinued health
plan segment.......... - .04 .04 (.39) .05 (.02)
Extraordinary loss on
extinguishment of
debt.................. (.27) - (.24) - - -
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - - .16 - -
---------- ---------- ------- ------- ------- -------
Net income........... $ .13 $ .65 $ 1.50 $ .50 $ 1.25 $ 1.26
========== ========== ======= ======= ======= =======
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 341,621 337,739 339,222 328,564 279,954 262,552
Net cash provided by
continuing operations.. $ 367 $ 376 $ 1,298 $ 1,287 $ 1,257 $ 1,191 $ 919
Cash dividends per
common share........... .03 - .06 - - - -
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------------
1994 1993 1992 1991 1990 1989
--------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Assets....................... $10,352 $10,216 $10,347 $10,843 $10,391 $10,461
Working capital.............. 758 573 606 635 482 379
Long-term debt, including
amounts due within one year. 3,614 3,698 3,656 5,158 5,139 6,022
Common stockholders' equity.. 3,514 3,471 3,691 2,822 2,099 1,585
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of hospitals at
end of period.......... 196 197 193 200 219 221 218
Weighted average
licensed beds.......... 41,955 41,525 41,263 40,608 42,437 42,264 41,452
Admissions.............. 309,800 306,200 1,158,400 1,161,100 1,189,700 1,174,700 1,139,300
Average length of stay
(days)................. 5.9 6.1 5.9 6.1 6.5 6.6 6.8
Average daily census.... 20,341 20,880 18,702 19,253 21,255 21,351 21,155
Occupancy............... 48.5% 50.3% 45.3% 47.4% 50.1% 50.5% 51.0%
Emergency room visits... 788,300 791,900 3,139,700 3,042,900 3,028,600 2,894,800 2,756,900
</TABLE>
- -------
(a) Earnings per common and common equivalent share are not presented for
periods prior to the initial public offering of Columbia Hospital
Corporation common stock in May 1990. Earnings per common and common
equivalent share include the effect of preferred stock dividend
requirements totaling $18 million in 1991 and $63 million in 1990. Fully
diluted earnings per common and common equivalent share are not presented
because such amounts approximate earnings per common and common equivalent
share.
7
<PAGE>
MEDICAL CARE AMERICA, INC.
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
---------------- --------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(A):
Revenues................ $ 108 $ 101 $ 432 $ 368 $ 289 $ 246 $ 149
------- ------- ------ ------ ------ ------ ------
Operating expenses...... 69 66 279 238 185 164 101
Provision for doubtful
accounts............... 3 3 12 9 7 6 3
Depreciation and
amortization........... 7 7 27 20 14 11 7
Interest expense........ 4 4 17 16 10 7 6
Investment income....... (2) (3) (12) (14) (8) (5) (3)
Non-recurring
transactions........... - - 55 23 - - -
------- ------- ------ ------ ------ ------ ------
81 77 378 292 208 183 114
------- ------- ------ ------ ------ ------ ------
Income from continuing
operations before
minority interests and
income taxes........... 27 24 54 76 81 63 35
Minority interests in
earnings of
consolidated entities.. 7 7 30 26 20 14 8
------- ------- ------ ------ ------ ------ ------
Income from continuing
operations before
income taxes........... 20 17 24 50 61 49 27
Provision for income
taxes.................. 8 6 18 23 23 19 10
------- ------- ------ ------ ------ ------ ------
Income from continuing
operations............. 12 11 6 27 38 30 17
Discontinued operations:
Income from operations
of discontinued
infusion therapy
business, net of
income taxes.......... - 1 4 14 14 16 11
Costs associated with
discontinuance of
infusion therapy
business, net of
income tax benefit.... - - (106) - - - -
Extraordinary items:
Gain on sale of
infusion therapy
business, net of
income taxes.......... 87 - - - - - -
Utilization of net
operating loss
carryforwards......... - - - - - - 3
Extinguishment of debt,
net of income tax
benefit............... - - - - (1) (1) -
------- ------- ------ ------ ------ ------ ------
Net income (loss).... $ 99 $ 12 $ (96) $ 41 $ 51 $ 45 $ 31
======= ======= ====== ====== ====== ====== ======
Earnings (loss) per
common and common
equivalent share (fully
diluted):
Income from continuing
operations............ $ .37 $ .29 $ .16 $ .73 $ 1.05 $ .86 $ .57
Discontinued
operations............ - .03 (2.78) .37 .36 .48 .35
Extraordinary items.... 2.27 - - - (.02) (.04) .10
------- ------- ------ ------ ------ ------ ------
Net income (loss).... $ 2.64 $ .32 $(2.62) $ 1.10 $ 1.39 $ 1.30 $ 1.02
======= ======= ====== ====== ====== ====== ======
Shares used in earnings
per common and common
equivalent share
computations
(in thousands)......... 38,385 36,664 36,557 37,279 36,530 34,847 29,981
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1994 1993 1992 1991 1990 1989
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Assets...................................... $710 $769 $850 $725 $461 $335
Working capital, excluding net assets of
discontinued operations.................... 124 187 211 315 170 102
Long-term debt, including amounts due within
one year................................... 245 240 240 210 97 52
Common stockholders' equity................. 327 424 514 458 317 257
</TABLE>
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
--------------- ---------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of surgical
centers at end of
period................. 93 90 93 90 78 72 69
Surgical cases.......... 93,800 88,700 370,900 340,800 298,500 264,100 189,800
</TABLE>
- -------
(a) Provision for doubtful accounts has been presented separately to conform to
the Columbia presentation.
8
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data are
derived from the Unaudited Pro Forma Condensed Combined Financial Statements
included elsewhere in this Proxy Statement/Prospectus and are based upon the
respective consolidated financial statements of Columbia and MCA, adjusted to
give effect to the Merger, and assume that the Merger will be recorded using
the purchase method of accounting. The following financial data do not reflect
costs savings, if any, which may be realized by Columbia after consummation of
the Merger. See "Unaudited Pro Forma Condensed Combined Financial Statements."
COLUMBIA/HCA HEALTHCARE CORPORATION AND MEDICAL CARE AMERICA, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE
MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1994 1993
------------- --------------
<S> <C> <C>
SUMMARY OF OPERATIONS:
Revenues.......................................... $ 2,886 $ 10,684
-------- --------
Operating expenses................................ 2,108 8,051
Provision for doubtful accounts................... 153 554
Depreciation and amortization..................... 154 593
Interest expense.................................. 68 338
Investment income................................. (16) (78)
Non-recurring transactions........................ 159 206
-------- --------
2,626 9,664
-------- --------
Income from continuing operations before minority
interests and income taxes....................... 260 1,020
Minority interests in earnings of consolidated
entities......................................... 10 39
-------- --------
Income from continuing operations before income
taxes............................................ 250 981
Provision for income taxes........................ 104 412
-------- --------
Income from continuing operations................. $ 146 $ 569
======== ========
Earnings per common and common equivalent share
from continuing operations (a)................... $ .40 $ 1.55
Shares used in earnings per common and common
equivalent share computations (in thousands)..... 368,583 367,239
<CAPTION>
MARCH 31, 1994
--------------
<S> <C> <C>
FINANCIAL POSITION:
Assets.......................................................... $ 11,577
Working capital................................................. 862
Long-term debt, including amounts due within one year........... 3,859
Common stockholders' equity..................................... 4,371
</TABLE>
9
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND MEDICAL CARE AMERICA, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
COLUMBIA MCA PRO FORMA MCA EQUIVALENT
HISTORICAL HISTORICAL COMBINED (A) PRO FORMA (B)
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
COMPARATIVE PER SHARE DATA:
Earnings per common and
common equivalent share
from continuing operations:
Year ended December 31,
1993..................... $ 1.70 $ .16 $ 1.55 $ 1.18
Three months ended March
31, 1994................. .40 .37 .40 .31
Book value per common share
as of March 31, 1994....... 10.40 11.19 12.14 9.27
</TABLE>
- --------
(a) The pro forma earnings per common and common equivalent share from
continuing operations are based on the combined average number of Columbia
and MCA common and common equivalent shares adjusted for an assumed
exchange ratio of 0.7632 (an assumed Average Price of Columbia Common Stock
of $38). The pro forma book value per common share is based on the combined
outstanding shares of Columbia Common Stock and MCA Common Stock adjusted
for an assumed exchange ratio of 0.7632.
(b) MCA equivalent pro forma per share amounts are calculated by multiplying
the respective pro forma combined per share amounts by an assumed exchange
ratio of 0.7632.
COMPARATIVE MARKET DATA
The Columbia Common Stock has been primarily traded on the NYSE (symbol
"COL") since July 14, 1993. Prior to that date, the Columbia Common Stock was
traded through the National Association of Securities Dealers Automated
Quotation National Market System ("NASDAQ/NMS"). The MCA Common Stock has been
primarily traded on the NYSE (symbol "MRX") since September 10, 1992 (the first
trading day for the MCA Common Stock). The table below sets forth, for the
calendar quarters indicated, the high and low sales prices per share reported
on the NYSE Composite Tape or NASDAQ/NMS for the Columbia Common Stock and the
MCA Common Stock as appropriate. The information with respect to NASDAQ/NMS
quotations was obtained from the National Association of Securities Dealers,
Inc. and reflects interdealer prices, without retail markup, markdown or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
COLUMBIA MCA
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1992:
First Quarter.................................... $21.25 $16.50 - -
Second Quarter................................... 22.00 16.25 - -
Third Quarter.................................... 19.25 16.25 $62.88 $22.13
Fourth Quarter................................... 21.75 13.75 27.88 17.25
1993:
First Quarter.................................... 24.50 16.25 26.00 18.13
Second Quarter................................... 27.75 19.25 19.13 13.75
Third Quarter.................................... 31.00 25.38 18.75 14.88
Fourth Quarter................................... 33.88 27.00 24.88 18.88
1994:
First Quarter.................................... 45.25 33.25 25.00 21.25
Second Quarter................................... 43.00 36.50 27.88 18.88
Third Quarter (through August , 1994)...........
</TABLE>
10
<PAGE>
The following table sets forth the last reported sales prices per share of
Columbia Common Stock and MCA Common Stock on May 23, 1994, the last trading
day preceding public announcement of the Merger, and on August , 1994. The
table also indicates, as of each such date, the market value on an equivalent
per share basis of MCA Common Stock if the Exchange Ratio were based on the
closing sale price of Columbia Common Stock.
<TABLE>
<CAPTION>
COLUMBIA MCA MCA
COMMON COMMON COMMON STOCK
STOCK STOCK EQUIVALENT
-------- ------ ------------
<S> <C> <C> <C>
May 23, 1994....................................... $39.75 $23.38 $29.00
August , 1994.....................................
</TABLE>
BECAUSE THE EXCHANGE RATIO IS VARIABLE AND BECAUSE THE MARKET PRICE OF
COLUMBIA COMMON STOCK IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE SHARES
OF COLUMBIA COMMON STOCK THAT HOLDERS OF MCA COMMON STOCK WILL RECEIVE IN THE
MERGER MAY INCREASE OR DECREASE PRIOR TO AND FOLLOWING THE MERGER. STOCKHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COLUMBIA COMMON STOCK AND
THE MCA COMMON STOCK.
Columbia commenced the payment of a quarterly dividend of $.03 per share in
the fourth quarter of 1993. Prior to that time, Columbia did not pay any cash
dividends. No dividends have been declared or paid on the MCA Common Stock
since MCA's inception. Columbia's Board of Directors has declared a quarterly
dividend of $.03 per share payable September 1, 1994 to holders of record on
August 1, 1994. Since the Merger will not be consummated by August 1, 1994, MCA
stockholders will not be entitled to receive this dividend.
DIVIDEND POLICY
While it is the present intention of the Columbia Board of Directors to
continue paying a quarterly dividend of $.03 per share, the declaration and
payment of future dividends by Columbia will depend upon many factors,
including Columbia's earnings, financial condition, business needs, capital and
surplus and regulatory considerations.
CERTAIN CONSIDERATIONS
See "Certain Considerations" with respect to factors which should be
considered in evaluating the Merger.
THE CORPORATE MATTERS
At the Special Meeting, the MCA stockholders will also consider and vote upon
(a) the approval of the 1994 Plan, (b) the approval of the June 1993 grant of
stock options to non-employee directors, (c) the approval of the Directors
Plan, and (d) the election of four directors (such matters being collectively
referred to as the "Corporate Matters"). Approval of the Corporate Matters by
the requisite vote of MCA stockholders is not a condition to, and is not
required for, consummation of the Merger. The proposal to elect four directors
and the proposal to approve the Directors Plan will be presented and acted upon
at the Special Meeting only in the event that the proposal to approve and adopt
the Merger Agreement is not approved by stockholders. See "Approval of 1994
Restricted and Nonqualified Stock Option Plan," "Approval of Director Options,"
"Approval of Directors Nonqualified Stock Option Plan" and "Election of
Directors."
11
<PAGE>
CERTAIN CONSIDERATIONS
The following factors should be considered carefully by the stockholders of
MCA in connection with voting upon the Merger.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration are cost controls on
hospitals, insurance market reforms to increase the availability of group
health insurance to small businesses, requirements that all businesses offer
health insurance coverage to their employees and the creation of a single
government health insurance plan that would cover all citizens. President
Clinton has stated that one of his primary objectives is to reform the nation's
health care system to insure universal coverage and address the rising costs of
care. In early 1993, President Clinton appointed Hillary Rodham Clinton to lead
a health care reform task force with the objective of developing a health care
reform proposal which could be submitted by the President. On September 22,
1993, before a Joint Session of Congress, President Clinton outlined the basic
principles of his upcoming health care reform proposal. President Clinton's
health care reform bill, introduced on November 22, 1993, includes certain
measures that could be viewed as advancing the scope of government regulation
on the health care industry. Key elements in the President's proposal include
various insurance market reforms, the requirement that businesses provide
health insurance coverage for their full-time and part-time employees,
significant reductions in future Medicare and Medicaid payments to providers,
and stringent government cost controls that would directly control insurance
premiums and indirectly affect the fees of hospitals, physicians and other
health care providers. In addition to the President's reform proposal, other
health care reform bills have been introduced, including The Managed
Competition Act of 1993, Affordable Health Care Now Act of 1993 and Health
Equity & Access Reform Today. There can be no assurance that health care
proposals adverse to Columbia's business will not be adopted.
COMPETITION; IMPACT OF MANAGED CARE ORGANIZATIONS
The health care business is highly competitive and competition among
hospitals and other health care providers for patients has intensified in
recent years. During this period, U.S. hospital occupancy rates have declined
as a result of cost containment pressures, changing technology, changes in
government regulation and reimbursement and changes in physician practice
patterns from inpatient to outpatient treatment. In most geographic areas in
which Columbia operates, there are other hospitals, outpatient surgery and
diagnostic centers and other facilities that provide most of the services
offered by Columbia's hospitals. Certain of these competing facilities offer
services, including extensive medical research and medical education programs,
which are not offered by many of Columbia's hospitals. In addition, hospitals
owned by governmental agencies or other tax-exempt entities benefit from
endowments, charitable contributions, tax-exempt financing and exemptions from
sales, property and income taxes, which advantages are not available to
Columbia's hospitals.
The competitive position of Columbia's hospitals also has been, and will
continue to be, affected by the increasing number of initiatives undertaken
during the past several years by major purchasers of health care, including
federal and state governments, insurance companies and employers, to revise
payment methodologies and monitor health care expenditures in order to contain
health care costs. As a result of these initiatives, managed care
organizations, which offer prepaid and discounted medical services packages,
represent an increasing segment of health care payors, the effect of which has
been to reduce hospital revenue growth nationwide.
LIMITS ON REIMBURSEMENT
A significant portion of Columbia's revenue is derived from the Medicare
program, which is highly regulated and subject to frequent and substantial
changes. In recent years, fundamental changes in the
12
<PAGE>
Medicare program (including the implementation of a prospective payment system
for inpatient services at medical/surgical hospitals) have resulted in reduced
levels of payment for a substantial portion of hospital procedures and costs.
Certain existing payment programs are scheduled to be revised in the future
which will likely result in further reductions in payment levels. Medicare
programs that currently are on a cost reimbursement basis, such as outpatient
and psychiatric hospital services, may be changed to a prospective payment
basis in the future. Additionally, hospitals have experienced increasing
pressures from private payors attempting to control health care costs through
direct contracting with hospitals to provide services on a discounted basis,
increased utilization review, and greater enrollment in managed care programs
such as health maintenance organizations ("HMO's") and preferred provider
organizations ("PPO's"). Management of Columbia believes that hospital
operating margins have been, and may continue to be, under significant pressure
because of deterioration in inpatient volumes and payor mix, and growth in
operating expenses in excess of the increase in prospective payments under the
Medicare program.
EXTENSIVE REGULATION
The health care industry, including hospitals, is subject to extensive
federal, state and local regulation relating to licensure, conduct of
operations, ownership of facilities, addition of facilities and services and
prices for services, and there can be no assurance that future regulatory
changes will not have an adverse impact on Columbia. In particular, Medicare
and Medicaid antifraud and abuse amendments codified under Section 1128B(b) of
the Social Security Act (the "Antifraud Amendments") prohibit certain business
practices and relationships that might affect the provision and cost of health
care services reimbursable under Medicare and Medicaid. Sanctions for violating
the Antifraud Amendments include criminal penalties and civil sanctions,
including fines and possible exclusion from the Medicare and Medicaid programs.
Pursuant to the Medicare and Medicaid Patient and Program Protection Act of
1987, the Department of Health and Human Services has issued regulations which
describe some of the conduct and business relationships permissible under the
Antifraud Amendments (the "Safe Harbors"). Certain of Columbia's current
arrangements with physicians, including joint ventures, do not qualify for the
Safe Harbors. Although Columbia exercises care in an effort to structure its
arrangements with physicians to comply in all material respects with these
laws, and although management of Columbia believes that Columbia is in
compliance with the Antifraud Amendments, there can be no assurance that (i)
government officials charged with responsibility for enforcing the prohibitions
of the Antifraud Amendments will not assert that Columbia or certain
transactions in which it is involved are in violation of the Antifraud
Amendments and (ii) such statute will ultimately be interpreted by the courts
in a manner consistent with Columbia's interpretation.
PENDING HCA TAX LITIGATION
As a result of examinations by the Internal Revenue Service (the "IRS") of
HCA's federal income tax returns, HCA received statutory notices of deficiency
for the years 1981 through 1988. HCA has filed petitions in the U.S. Tax Court
opposing these claimed deficiencies. Additionally, the IRS completed its
examination for the years 1989 and 1990 and has issued proposed adjustments,
which HCA has protested. In the aggregate, the IRS is claiming additional taxes
of $516 million and interest of approximately $802 million through March 31,
1994. In addition to disputing the IRS's positions, HCA is claiming refunds of
$51 million and interest through March 31, 1994 of $95 million. Management of
Columbia is of the opinion that HCA has properly reported its income and paid
its taxes in accordance with applicable laws and in accordance with agreements
established with the IRS during previous examinations. In Columbia management's
opinion, the final outcome from the IRS's examinations of prior years' income
taxes will not have a material adverse effect on the results of operations or
financial position of Columbia. If all or the majority of the positions of the
IRS are upheld, however, the financial position, results of operations and
liquidity of Columbia would be materially adversely affected.
13
<PAGE>
DEPENDENCE ON KEY PERSONNEL
Columbia is dependent upon the continued services and management experience
of Richard L. Scott and other executive officers. If Mr. Scott or any of such
other executive officers were to leave Columbia, Columbia's operating results
could be adversely affected. In addition, Columbia's continued growth depends
on its ability to attract and retain skilled employees, on the ability of its
officers and key employees to manage growth successfully and on Columbia's
ability to attract and retain physicians at its hospitals.
PROFESSIONAL LIABILITY RISKS
As is typical in the health care industry, Columbia is subject to claims and
legal actions by patients and others in the ordinary course of business.
Columbia, through two wholly-owned subsidiaries, insures substantially all of
its professional and general liability risks. Subject to various deductibles,
Columbia's hospitals are insured by these insurance subsidiaries for losses of
up to $25 million per occurrence for the former HCA hospitals and up to $5
million per occurrence for the former Columbia Hospital Corporation and Galen
hospitals. Columbia currently carries general and professional insurance from
unrelated commercial carriers for losses in excess of amounts insured by its
insurance subsidiaries. While Columbia's professional and other liability
insurance has been adequate to provide for liability claims in the past, there
can be no assurance that such insurance will continue to be adequate. If actual
payments of claims with respect to liabilities insured by Columbia through its
subsidiaries exceed anticipated payments of claims, the results of operations
and cash flow of Columbia could be adversely affected.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Restated Certificate of Incorporation and Bylaws of
Columbia may make an unsolicited acquisition of control of Columbia more
difficult or expensive. Furthermore, Columbia has adopted a stockholder rights
plan which may also make an unsolicited acquisition of Columbia more difficult
or expensive. See "Description of Columbia Capital Stock."
MCA SECURITIES LITIGATION
A class action, In re Medical Care America, Inc. Securities Litigation, is
pending in the United States District Court for the Northern District of Texas,
Dallas Division (Civil Action No. 3-92-CV-1996-R). A class has been certified
by the Court consisting of all persons who owned securities of MCA at the close
of trading on September 24, 1992 and who acquired those securities either in
purchases in the open market following the September 9, 1992 merger of Medical
Care International, Inc. ("MCI") and Critical Care America, Inc. ("CCA") or
through exchange of their securities in said companies pursuant to the merger,
and who sustained damages as a result of such purchases, subject to certain
exclusions (the "Class Members" or the "Class"). The named defendants include
MCA, MCI, CCA, as well as certain officers and/or directors of MCA, MCI or CCA.
The plaintiffs seek to recover damages sustained by Class Members as a result
of alleged violations by the defendants of Section 11 of the Securities Act and
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. In
addition, the complaint asserts claims under the state law of Texas which have
not been certified for class treatment at the present time, without prejudice
to any party's rights regarding certification of such claims in the future. The
complaint alleges a course of conduct in which the defendants knowingly or
recklessly failed to state material information and released false and
misleading information to the investing public, regarding the earnings,
profitability and business prospects of MCA and of MCI and CCA prior to their
merger. The plaintiffs allege that, as a result of this false and misleading
information, the market price of MCA securities was artificially inflated
throughout the class period. The plaintiffs further allege that, upon the
dissemination on September 25, 1992 of the true facts concerning MCA's
earnings, profitability and business prospects, the market price of MCA Common
Stock dropped precipitously, resulting in a significant market loss of over $1
billion, and causing damages to plaintiffs and the other Class Members. The
litigation is in the early stages of discovery. Management of MCA believes the
lawsuit is without merit and intends to vigorously defend the same.
14
<PAGE>
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of MCA Common Stock will consider and vote
upon a proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby. In addition, holders of MCA Common Stock will consider
and vote upon proposals to (a) approve MCA's 1994 Restricted and Nonqualified
Stock Option Plan (the "1994 Plan"), (b) approve the June 1993 grant of stock
options to MCA's non-employee directors, (c) approve MCA's Directors
Nonqualified Stock Option Plan (the "Directors Plan"), and (d) elect four
directors to serve until the 1997 Annual Meeting of Stockholders or until their
respective successors are duly elected and qualified (such matters being
collectively referred to as the "Corporate Matters"). The Merger Agreement and
the Corporate Matters will be voted upon separately. Approval of the Corporate
Matters is not a condition to, or required for, consummation of the Merger. The
proposal to elect four directors and the proposal to approve the Directors Plan
will be presented and acted upon at the meeting only in the event that the
proposal to approve and adopt the Merger Agreement is not approved by
stockholders. MCA stockholders will also consider and vote upon such other
matters as may properly be brought before the Special Meeting or any
adjournments or postponements thereof.
THE MCA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT MCA STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER. THE MCA BOARD OF DIRECTORS HAS ALSO APPROVED
THE CORPORATE MATTERS AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE CORPORATE
MATTERS.
VOTE REQUIRED
The favorable vote of the holders of a majority of the outstanding shares of
MCA Common Stock is required for the approval and adoption of the Merger
Agreement. The affirmative vote of a plurality of the shares of MCA Common
Stock represented at the Special Meeting, in person or by proxy, will be
necessary for the election of directors. The affirmative vote of a majority of
the shares represented at the Special Meeting, in person or by proxy, will be
necessary to approve the remaining Corporate Matters.
At August , 1994, MCA's directors, executive officers and affiliates may be
deemed to be beneficial owners of shares of MCA Common Stock (excluding
shares which may be acquired upon exercise of options and other rights which
are exercisable within 60 days of August , 1994), or approximately % of the
then outstanding shares of MCA Common Stock. The directors and executive
officers of MCA have indicated that they intend to vote their shares for
approval and adoption of the Merger Agreement and for the Corporate Matters.
VOTING OF PROXIES
Shares of MCA Common Stock represented by properly executed proxies received
at or prior to the Special Meeting will be voted at the Special Meeting in the
manner specified by the holders of such shares. Properly executed proxies which
do not contain voting instructions will be voted FOR approval and adoption of
the Merger Agreement and FOR approval of the Corporate Matters. Any stockholder
present in person or by proxy (including broker non-votes) at the Special
Meeting, but who abstains from voting, shall be counted for purposes of
determining whether a quorum exists. With respect to all matters other than the
election of directors, an abstention (or broker non-vote) has the same effect
as a vote against the proposal.
If any other matters are properly presented at the Special Meeting for
consideration, the person or persons named in the form of proxy enclosed
herewith and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment, unless the proxy indicates otherwise.
Management of MCA has no knowledge of any matters to be presented at the
Special Meeting other than those matters referred to and described herein.
15
<PAGE>
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from voting in person or otherwise revoking a proxy. Attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy.
A stockholder may revoke a proxy at any time prior to its exercise by
delivering to Jonathan R. Bond, Secretary of MCA, 13455 Noel Road, Dallas,
Texas 75240, a duly executed revocation or a proxy bearing a later date or by
voting in person at the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of MCA Common Stock at the close of business on August
, 1994 will be entitled to receive notice of and to vote at the Special
Meeting. At August , 1994, MCA had outstanding shares of MCA Common Stock.
A majority of the outstanding shares of MCA Common Stock entitled to vote must
be represented in person or by proxy at the Special Meeting in order for a
quorum to be present at the Special Meeting.
NO DISSENTERS' RIGHTS
No holder of MCA Common Stock will have any dissenters' rights in connection
with, or as a result of, the matters to be acted upon at the Special Meeting.
SOLICITATION OF PROXIES
MCA will bear the cost of the solicitation of proxies from its stockholders,
except that Columbia and MCA will share equally the cost of printing and
mailing this Proxy Statement/Prospectus. In addition to solicitation by mail,
the directors, officers and employees of MCA may solicit proxies from
stockholders of MCA by telephone or telegram or in person. Such persons will
not be additionally compensated, but will be reimbursed for reasonable out-of-
pocket expenses incurred in connection with such solicitation. Arrangements
will also be made with brokerage firms, nominees, fiduciaries and other
custodians, for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such persons, and MCA will reimburse such
persons for their reasonable out-of-pocket expenses in connection therewith.
D. F. King & Co., Inc. will assist in the solicitation of proxies by MCA for
a fee of $7,000 plus reimbursement of reasonable out-of-pocket expenses.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS
16
<PAGE>
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between Columbia and
MCA in which a wholly owned subsidiary of Columbia would be merged with and
into MCA and the holders of MCA Common Stock would be issued shares of Columbia
Common Stock, in a transaction treated as a purchase for accounting purposes
and as a tax-free reorganization for federal income tax purposes. The
discussion in this Proxy Statement/Prospectus of the Merger and the description
of the Merger's principal terms are subject to and qualified in their entirety
by reference to the Merger Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix A and which is incorporated herein by
reference.
BACKGROUND OF THE MERGER
During the past two to three years, MCA developed the view that its continued
success has become increasingly related to its ability to offer the services of
its outpatient surgical centers as part of a broader continuum of health care
services. In furtherance of this view, Donald E. Steen, MCA's President and
Chief Executive Officer, periodically held discussions with Richard L. Scott,
President and Chief Executive Officer of Columbia, concerning potential
arrangements whereby the two companies might jointly provide services in
several local markets. These discussions led initially to the formation of a
May 1992 joint venture under which the two companies began in September 1993 to
share ownership of Columbia hospitals and an MCA surgery center in Corpus
Christi, Texas.
In October 1993, Columbia and MCA entered into an affiliation agreement
contemplating similar joint ventures in nine additional markets in which both
were already operating independently. By the end of March 1994 they had entered
into two additional joint ventures. The process of negotiating the terms of
these arrangements, however, led both parties to conclude that the formation of
ventures in which both parties' interests were fully consistent was
substantially more difficult than either had anticipated. This realization led,
in turn, to discussions in mid-April between Messrs. Scott and Steen as to a
possible combination of the two companies.
Mr. Steen thereafter discussed with the MCA Board of Directors the status of
the joint ventures with Columbia and his conversations with Mr. Scott, and the
Board authorized management to continue to explore the possibility of a
business combination with Columbia. During May 1994, Mr. Steen, along with
representatives of Dillon Read, which had previously been retained as MCA's
financial advisor, met with representatives of Columbia and discussed the
respective businesses of Columbia and MCA and possible terms of a potential
business combination.
At a special meeting of MCA's Board of Directors held on May 15, 1994, Mr.
Steen, together with representatives of Dillon Read, reported the results of
their meetings with representatives of Columbia and discussed with the Board,
among other things, proposed terms of a merger with Columbia, the potential
risks and benefits of such a merger, and financial and valuation analyses of
such transaction. Following such discussion, the Board authorized management to
conduct a further due diligence investigation and to negotiate the terms of a
definitive merger agreement with representatives of Columbia. Such
investigation and negotiation occurred throughout the succeeding week.
On May 23, 1994, the MCA Board of Directors held a special meeting to
consider the proposed Merger Agreement. At such meeting, Mr. Steen, together
with MCA's financial and legal advisors, reviewed with the Board of Directors
the results of their due diligence investigation and the terms of the proposed
Merger Agreement. In addition, Dillon Read delivered its oral opinion to the
Board that, as of such date, the proposed consideration to be received in the
Merger by the holders of MCA Common Stock was fair, from a financial point of
view, to such holders. After discussion, the MCA Board unanimously approved the
Merger and authorized MCA to enter into the Merger Agreement.
17
<PAGE>
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
Because of the increasing importance of managed care plans as substantial
purchasers of health care services and facilities, and in light of possible
changes in the marketplace as a result of health care reform, MCA management
believes that the more effective future competitors in the health care industry
will be those providers offering a broad spectrum of services. Since payment
for hospital services comprises a substantial portion of total health care
expenditures, managed care plans are more likely to contract with providers
whose services include hospital services. Inclusion of MCA's surgical centers
as part of the hospital and other services offered by Columbia following the
Merger should enable MCA to reduce its costs and, particularly in view of the
fact that the majority of its surgical centers are in the same markets as
Columbia's hospitals, substantially enhance MCA's ability to be a major
provider to managed care plans. The Board of Directors of MCA believes that the
proposed merger presents a significant opportunity for diversification of
stockholders' investment by becoming stockholders of a larger company, which
provides a broader range of health care services and is thus more effectively
able to respond to the changing health care environment.
In arriving at its recommendation to stockholders, the MCA Board considered,
without assigning relative weights to, a number of additional factors,
including (i) the terms and conditions of the proposed Merger, including the
consideration to be received by MCA stockholders; (ii) the financial condition,
results of operations, business, market position, prospects, and strategic
objectives of Columbia; (iii) the strength of Columbia's management
organization; (iv) the likelihood that, for federal income tax purposes, no
gain or loss will be recognized by MCA stockholders with respect to the
Columbia Common Stock received in exchange for their MCA Common Stock; and (v)
the opinion of Dillon Read as to the fairness, from a financial point of view,
to MCA stockholders of the consideration to be received by them in the Merger.
THE BOARD OF DIRECTORS OF MCA UNANIMOUSLY RECOMMENDS THAT MCA STOCKHOLDERS
VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
On May 23, 1994, the Columbia Board of Directors approved the Merger and
authorized Columbia to enter into the Merger Agreement. The Board of Directors
of Columbia believes that the Merger is desirable for the following reasons,
among others: (i) the complementary geographic locations of the Columbia
facilities and MCA facilities should provide opportunity for profitability
growth due to synergies; (ii) the combination should enhance Columbia's
relationships with managed care plans because of expanded services and broader
geographic coverage; and (iii) the Merger should provide opportunities for
economies of scale and operating efficiencies.
OPINION OF FINANCIAL ADVISOR
On May 23, 1994, the Board of Directors of MCA received Dillon Read's written
opinion that, as of the date of such opinion, the consideration to be paid by
Columbia to the MCA stockholders pursuant to the Merger Agreement was fair to
such stockholders from a financial point of view. A copy of Dillon Read's
written opinion is set forth as Appendix B hereto and should be read in its
entirety for a description of the procedures followed, matters considered,
assumptions made and methods employed by Dillon Read in arriving at its
opinion.
In arriving at its opinion, Dillon Read (i) examined the Merger Agreement,
(ii) examined certain publicly available information relating to the business,
financial condition and operations of MCA, as well as certain financial and
other information furnished to Dillon Read by MCA that is not publicly
available, including projections prepared by the management of MCA, (iii) met
with certain senior officers of MCA to discuss the operations, financial
condition, history and prospects of MCA, (iv) reviewed historical common stock
price and trading volume data relating to MCA and analyzed the consideration to
be received by the MCA stockholders in relation to, among other measures,
market price, historical earnings, future earnings potential, cash flow of
MCA's business and book value, (v) reviewed recent merger and acquisition
transactions involving similar companies, and (vi) analyzed certain publicly
available information, including financial
18
<PAGE>
information, relating to public companies whose operations Dillon Read deemed
comparable to those of MCA. In addition, Dillon Read (i) examined certain
publicly available information relating to the business, financial condition
and operations of Columbia as well as certain financial and other information
furnished to it by Columbia that is not publicly available, including
projections prepared by the management of Columbia, and (ii) met with certain
senior officers of Columbia to discuss the operations, financial condition,
history and prospects of Columbia. Dillon Read also conducted such other
analyses and examinations as Dillon Read deemed necessary.
In connection with its review, Dillon Read did not independently verify any
of the publicly available information or non-public financial and other
information furnished by MCA and Columbia and relied upon such information as
being complete and accurate. Dillon Read did not solicit from other parties
indications of interest with respect to combining with or acquiring MCA or any
of its assets. In addition, Dillon Read did not make, request or receive any
independent evaluation or appraisal of the assets of MCA or Columbia.
The amount of consideration to be paid to the stockholders of MCA pursuant to
the Merger Agreement was determined through negotiations between MCA and
Columbia.
In connection with rendering its opinion, Dillon Read considered a variety of
valuation methods which are summarized below:
(a) Financial Analysis of MCA.
Dillon Read performed an analysis of the historical financial results and
certain non-public financial information of MCA. This analysis examined, among
other things, the historical financial results, future operating estimates and
certain non-public financial information of MCA. Historical financial results
were obtained from publicly available Securities and Exchange Commission
filings and the non-public financial information was obtained from MCA.
Dillon Read's financial analysis of MCA examined, among other things, MCA's
net sales, earnings and profit margins for the last two fiscal years (restated
for the sale of CCA) and estimated net sales, earnings and profit margins for
the twelve months ending December 31, 1994. The financial analysis showed that
MCA's net sales increased from $359.2 million in fiscal 1992 to $420.1 million
in fiscal 1993. MCA's earnings before interest and taxes increased from $102.0
million in fiscal 1992 to $112.8 million in fiscal 1993. MCA's income from
continuing operations (excluding one-time charges) increased from $45.2 million
in fiscal 1992 to $47.3 million in fiscal 1993. MCA's operating profit margin
decreased from 28.4% in fiscal 1992 to 26.9% in fiscal 1993. MCA's net profit
margin decreased from 12.6% in fiscal 1992 to 11.3% in fiscal 1993.
(b) Comparable Company Analysis.
Using publicly available information, Dillon Read analyzed, based upon market
trading values, multiples of certain financial criteria (such as net income,
projected net income, earnings before interest and taxes, earnings before
depreciation, amortization, interest and taxes, revenues and total assets) used
to value certain other companies, which, in Dillon Read's judgment, were
comparable to MCA for the purpose of this analysis. The primary comparable
company analysis included Surgical Care Affiliates, Inc., a public ambulatory
surgery center business, which Dillon Read deemed most similar to MCA. The
secondary comparable company analysis was comprised of seven acute care
hospital companies and included Columbia/HCA Healthcare Corporation, Health
Management Associates, Inc., American Medical Holdings, Inc., Community Health
Systems, Inc., Healthtrust, Inc., National Medical Enterprises, Inc. and OrNda
Healthcorp.
Market capitalization as a multiple of each of the indicated statistics, for
the primary comparable company, were as follows: (a) latest twelve months net
income--16.5x and (b) estimated calendar 1994 earnings based upon estimates
from industry sources.--13.1x. The adjusted market capitalization (defined as
market capitalization plus the book value of debt and preferred stock less cash
and cash equivalents) as a
19
<PAGE>
multiple of each of the indicated statistics, for the primary comparable
company, were as follows: (a) latest twelve months revenues--2.6x; (b) latest
twelve months earnings before depreciation, amortization, interest and taxes--
5.9x; (c) latest twelve months earnings before depreciation, amortization,
interest and taxes less cash distributions to minority interest--7.8x; (d)
latest twelve months earnings before interest and taxes--6.9x; (e) latest
twelve months earnings before interest and taxes less cash distributions to
minority interest--9.6x and (f) total assets 2.2x.
The range, median and mean for market capitalization as a multiple of each of
the indicated statistics, for the group of the secondary comparable companies,
were as follows: (a) latest twelve months net income--16.8x to 25.9x, with a
median of 19.0x and a mean of 19.6x; and (b) estimated calendar 1994 earnings
based upon estimates from industry sources--13.4x to 22.3x, with a median of
15.9x and a mean of 16.6x. The range, median and mean for adjusted market
capitalization (defined as market capitalization plus the book value of debt
and preferred stock less cash and cash equivalents) as a multiple of each of
the indicated statistics, for the group of the secondary comparable companies,
were as follows: (a) latest twelve months revenues--0.9x to 2.6x, with a median
of 1.3x and a mean of 1.5x; (b) latest twelve months earnings before
depreciation, amortization, interest and taxes--5.4x to 11.6x, with a median of
7.7x and a mean of 7.6x; (c) latest twelve months earnings before interest and
taxes--8.2x to 13.9x, with a median of 11.1x and a mean of 10.6x; and (d) total
assets--1.2x to 4.7x, with a median of 1.8x and a mean of 2.2x.
MCA's multiples based upon the consideration to be offered in connection with
the Merger, which at the time of Dillon Read's rendering of its opinion was and
at the present time would be $29.00 per share, were as follows: (a) latest
twelve months net income--18.4x; (b) net income for fiscal year ending December
31, 1994 (based on MCA estimates)--15.3x; (c) latest twelve month revenues--
2.2x; (d) latest twelve months earnings before depreciation, amortization,
interest and taxes--6.9x; (e) estimated earnings before depreciation,
amortization, interest and taxes for fiscal year 1994 (based on MCA
estimates)--5.8x; (f) latest twelve months earnings before depreciation,
amortization, interest and taxes less cash distributions to minority interest--
8.5x; (g) earnings before depreciation, amortization, interest and taxes less
cash distributions to minority interest for fiscal year 1993--8.7x; (h) fiscal
1993 earnings before interest and taxes less cash distributions to minority
interest--11.3x; (i) estimated earnings before interest and taxes less cash
distributions to minority interest for the fiscal year ending December 31, 1994
(based on MCA estimates)--8.9x; and (j) total assets--2.0x.
(c) Comparable Mergers and Acquisitions.
Using publicly available information, Dillon Read analyzed, based upon the
purchase price of the equity of the acquired companies and total transaction
values, multiples of certain financial criteria (such as net income, projected
net income, earnings before interest and taxes, earnings before depreciation,
interest and taxes, revenues and total assets) used to value certain mergers
and acquisitions of acquired companies, which, in Dillon Read's judgment, were
comparable to MCA for the purpose of this analysis. The merger and acquisition
transactions which were analyzed included six transactions in the acute care
hospital industry. The range, median and mean for the purchase price of equity
as a multiple of each of the indicated statistics, for the group of comparable
transactions, were as follows: (a) latest twelve months net income--12.6x to
18.1x, with a median of 14.2x and a mean of 14.8x; and (b) estimated next
calendar year earnings (based upon estimates from industry sources)--10.0x to
14.6x, with a median of 12.9x and a mean of 12.6x. The range, median and mean
for the transaction value (defined as purchase price of equity plus the book
value of debt less cash and cash equivalents) as a multiple of each of the
indicated statistics, for the group of comparable companies, were as follows:
(a) latest twelve months revenues--0.7x to 1.5x, with a median of 1.0x and a
mean of 1.1x; (b) latest twelve months earnings before depreciation,
amortization, interest and taxes--5.6x to 8.4x, with a median of 7.1x and a
mean of 7.1x; (c) latest twelve months earnings before interest and taxes--8.1x
to 14.3x, with a median of 9.7x and a mean of 10.5x; and (d) total assets--1.3x
to 2.1x, with a median of 1.8x and a mean of 1.8x.
20
<PAGE>
MCA's multiples based upon the consideration to be offered in connection with
the Merger were as follows: (a) net income for latest twelve months--18.4x; (b)
net income for fiscal year ending December 31, 1994 (based on MCA estimates)--
15.3x; (c) net revenues for the fiscal year ended December 31, 1993--2.4x; (d)
net revenues for the fiscal year ending December 31, 1994 (based on MCA
estimates)--2.1x; (e) fiscal 1993 earnings before depreciation, amortization,
interest and taxes--7.1x; (h) estimated earnings before depreciation, interest
and taxes for the fiscal year ending December 31, 1994--5.8x; (i) fiscal 1993
earnings before interest and taxes less cash minority interest--11.3x; (j)
estimated earnings before interest and taxes less minority interest for the
fiscal year ending December 31, 1994--8.9x and (k) total assets--2.0x.
(d) Trading History of the Common Stock.
Dillon Read analyzed (i) the price and trading volume history of MCA and
Columbia, and (ii) the distribution of volume at various prices of the MCA
Common Stock and the Columbia Common Stock during 1991, 1992, 1993 and the
first quarter 1994. Dillon Read examined such trading history for comparative
and valuation purposes.
(e) Pro Forma Analysis.
Dillon Read reviewed certain financial information for the pro forma combined
entity resulting from the Merger based on MCA's and Columbia's managements'
projections for each of MCA, Columbia and the pro forma combined entity. With
respect to projections for MCA and Columbia, Dillon Read assumed that such
projections were reasonably prepared upon bases reflecting the best available
estimates and judgments of the managements of MCA and Columbia, respectively.
Such analysis indicated that earnings per share for the pro forma combined
entity would be approximately break-even as compared with actual and forecasted
positive earnings per share for Columbia as a stand alone entity.
(f) Discounted Cash Flow Analysis.
Based on MCA management's financial forecast for MCA's future cash flows
through 1996, terminal value multiples of MCA management's estimates of MCA's
earnings before depreciation, amortization, interest and taxes less cash
distributions to minority interest in 1996 ranging from 5.0x to 8.0x and
discount rates ranging from 10.0% to 14.0%, Dillon Read analyzed the present
value of MCA's estimated future cash flows. Such analysis indicated that
assuming the above terminal value multiples ranging from 5.0x to 8.0x (as
indicated by the comparable company and comparable mergers analyses) and
discount rates ranging from 11.0% to 13.0%, the net after-tax present value of
MCA's future cash flows (less net debt of approximately $137.1 million) ranged
from $19.38 to $35.57 per share of MCA Common Stock.
Dillon Read believes that its analyses must be considered as a whole and that
selecting portions of its analyses and other factors considered by it, without
considering all factors and analyses, could create a misleading view of the
processes underlying its opinion. Dillon Read did not quantify the effect of
each factor upon its opinion. Dillon Read made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond MCA's and Dillon Read's control. Any
estimates contained in Dillon Read's analyses are not necessarily indicative of
actual values, which may be significantly more or less favorable than as set
forth therein. Estimates of the financial value of companies do not purport to
be appraisals or necessarily reflect the prices at which companies actually may
be sold. Because such estimates inherently are subject to uncertainty, neither
MCA, Dillon Read nor any other person assumes responsibility for their
accuracy.
Fees and Expenses. Pursuant to the engagement letter between MCA and Dillon
Read, MCA has agreed to pay Dillon Read a fee of 0.5% of the aggregate amount
of the consideration paid to the MCA stockholders (plus reasonable expenses
including its attorney's fees) for its services and to indemnify Dillon Read
against certain liabilities and expenses in connection with the services
rendered by such firm in connection with the proposed Merger. Dillon Read will
receive a fee of approximately $4.3 million upon the completion of the Merger.
21
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of MCA with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of the management of MCA and
the Board of Directors of MCA have certain interests in the Merger that are in
addition to the interests of stockholders of MCA generally.
Stock Option Plans. As provided in the Merger Agreement, by virtue of the
Merger, all options (the "MCA Options") outstanding at the Effective Time under
any MCA stock option plan (collectively, the "MCA Stock Option Plans"), whether
or not then exercisable, will be assumed by Columbia and converted into and
become a right with respect to Columbia Common Stock. Each MCA Option assumed
by Columbia will be exercisable upon the same terms and conditions as under the
applicable MCA Stock Option Plans and applicable option agreements issued
thereunder, and Columbia will assume the MCA Stock Option Plans for such
purposes. Pursuant to the Merger Agreement, at and after the Effective Time,
(i) each MCA Option assumed by Columbia may be exercised solely for Columbia
Common Stock, (ii) the number of shares of Columbia Common Stock subject to
each MCA Option will be equal to the product, rounded to the nearest whole
share, of (A) the number of shares of MCA Common Stock subject to the original
MCA Option immediately prior to the Effective Time, times (B) the Exchange
Ratio, and (iii) the per share exercise price for each such MCA Option will be
equal to (A) the per share exercise price for the share of MCA Common Stock
otherwise purchasable pursuant to each MCA Option immediately prior to the
Effective Time divided by (B) the Exchange Ratio, rounded to the nearest full
cent. The Merger will cause the acceleration of vesting of certain of the MCA
Options under the existing terms of certain of the MCA Stock Option Plans. See
"Compensation of Executive Officers" and "Approval of 1994 Restricted and
Nonqualified Stock Option Plan."
Employment Agreements. A total of 16 of MCA's officers and key employees,
including the five most highly compensated executive officers, have pre-
existing employment agreements. The terms of the employment agreements of
Donald E. Steen and William H. Wilcox, MCA's President and Executive Vice
President, respectively, and of S. Tucker Taylor and Lawrence M. Mullen, Senior
Vice Presidents, provide that if there is a change of control of MCA, then MCA
must cause to vest all unvested stock options and restricted stock awards then
held by such persons, provide them 90 days to exercise such options, and lend
to them for one year, at the prime rate, the funds needed to exercise such
options if they are unable to obtain third-party financing for such funds. The
employment agreements for the other executive officers also provide similar
benefits if the executive officers are terminated without cause or within a
specified period following a change of control. The Merger would constitute a
"change of control" within the meaning of the employment agreements. See
"Compensation of Executive Officers."
Restricted Stock. At July , 1994, there were restricted shares of MCA
Common Stock granted under certain MCA Stock Option Plans. Under the terms of
these plans, upon a "change of control" (which includes consummation of the
Merger), all restrictions and other conditions pertaining to such restricted
shares will immediately lapse and the shares will be transferable and
nonforfeitable.
Acceleration Summary. Each of MCA's executive officers holds previously
granted options, shares of restricted stock, and stock awards, the vesting of
which will be accelerated by the consummation of the Merger. MCA's Chief
Executive Officer, its four most highly paid executive officers, and its
executive officers as a group hold the following aggregate amounts of such
options, shares of restricted stock, and stock awards: Mr. Steen, 210,017; Mr.
Wilcox, 124,484; Mr. Taylor, 87,599; Mr. Mullen, 86,765; Mr. Moore, 55,789; and
all MCA executive officers as a group (8 persons), 692,572. The "dollar value"
of such holdings, with option values determined by subtracting the exercise
price of options from an assumed value of $29 per share, and restricted stock
and stock award values based upon a value of $29 for each underlying share of
MCA Common Stock, are as follows: Mr. Steen, $3,738,393; Mr. Wilcox,
$2,291,680; Mr. Taylor, $1,159,080; Mr. Mullen, $1,420,747; Mr. Moore,
$919,821; and all MCA executive officers as a group, $11,585,537.
22
<PAGE>
Indemnification and Insurance. As provided in the Merger Agreement, the
surviving corporation is required to indemnify and advance expenses to
officers, directors, employees and agents of MCA (the "Indemnified Parties"),
to the fullest extent permitted under applicable law, against all losses,
claims, damages, liabilities, costs or expenses (including attorneys' fees),
judgments, fines, penalties and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation 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 occurred prior to the
Effective Time. Columbia has agreed that for a period of six years after the
Effective Time, it will cause the net worth of the surviving corporation and
its consolidated subsidiaries to be not less than the net worth of MCA and its
consolidated subsidiaries as of March 31, 1994. In addition, for a period of
six years after the Effective Time, Columbia is obligated to maintain in
effect policies of directors' and officers' liability insurance that are
substantially no less advantageous to the Indemnified Parties than the
policies presently maintained by MCA. See "The Merger Agreement--
Indemnification and Insurance."
ACCOUNTING TREATMENT
Columbia intends to record the Merger in accordance with the purchase method
of accounting. Under this method of accounting, the excess of the purchase
price over the fair value of the net assets acquired is expected to be
amortized on a straight-line basis over an appropriate period not to exceed 40
years.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income tax
consequences of the Merger to holders of MCA Common Stock, but does not
purport to be a complete analysis of all the potential tax effects of this
transaction. The discussion is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, Internal Revenue Service
("IRS") rulings and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial, or administrative action, and
any such change may be applied retroactively. No information is provided
herein with respect to foreign, state or local tax laws or estate and gift tax
considerations. This information is directed to MCA stockholders who hold
their shares of MCA Common Stock as "capital assets" within the meaning of
Section 1221 of the Code, and does not address the consequences to
stockholders in light of their particular circumstances (including, without
limitation, stockholders who acquired shares of MCA Common Stock pursuant to
the exercise of employee stock options or rights or otherwise as compensation,
foreign persons, tax-exempt organizations, insurance companies, financial
institutions and dealers in stock and securities). No ruling will be requested
from the IRS with respect to the federal income tax consequences of the
Merger. MCA stockholders are urged to consult their own tax advisors as to
specific tax consequences to them of the Merger.
Based upon the advice of Davis Polk & Wardwell, special counsel to MCA, MCA
believes that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code, and accordingly (i) no gain or loss
will be recognized by MCA as a result of the Merger; (ii) no gain or loss will
be recognized by the MCA stockholders upon the receipt of Columbia Common
Stock in exchange for MCA Common Stock in connection with the Merger (except
as discussed below with respect to cash received in lieu of a fractional
interest in Columbia Common Stock); (iii) the tax basis of the Columbia Common
Stock to be received by the MCA stockholders in connection with the Merger
will be the same as the basis in the MCA Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest for
which cash is received); (iv) the holding period of the Columbia Common Stock
to be received by the MCA stockholders in connection with the Merger will
include the holding period of the MCA Common Stock surrendered in exchange
therefor; and (v) an MCA stockholder who is entitled to receive cash in lieu
of a fractional share interest of Columbia Common Stock in connection with the
Merger will recognize capital gain (or loss) equal to the difference between
such cash amount and the stockholder's basis
23
<PAGE>
in the fractional share interest. MCA's obligation to consummate the Merger is
conditioned upon the receipt of a written opinion from Davis Polk & Wardwell to
the effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that MCA
and Columbia will each be a party to that reorganization within the meaning of
Section 368(b) of the Code. Based upon the advice of Weil, Gotshal & Manges,
special counsel to Columbia, Columbia believes that the Merger will result in
no gain or loss to Columbia, Columbia Sub or MCA as a result of the Merger.
Columbia's obligation to consummate the Merger is conditioned upon the receipt
of a written opinion from Weil, Gotshal & Manges to this effect. See "The
Merger Agreement--Conditions."
Certain MCA stockholders may be subject to backup withholding at a rate of
31% on payments of cash in lieu of fractional share interests of Columbia
Common Stock. In order to avoid such backup withholding, each MCA stockholder
must provide the Exchange Agent with such MCA stockholder's correct taxpayer
identification number and certify that such stockholder is not subject to such
backup withholding by completing the Substitute Form W-9 included in the letter
of transmittal.
REGULATORY APPROVAL
Under the HSR Act, and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger cannot be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting-period requirements have been satisfied. Columbia and MCA
each filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on June 29, 1994. The required waiting period under the HSR
Act will expire at 11:59 p.m. on July 29, 1994, unless extended by a request
from the FTC for additional information or documentary material or unless early
termination of the waiting period is granted. At any time before or after
consummation of the Merger, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Columbia or MCA. At any time
before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, any state could take such action under the
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of MCA
or businesses of Columbia or MCA by Columbia. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances.
RESALE RESTRICTIONS
All shares of Columbia Common Stock received by MCA stockholders in the
Merger will be freely transferable, except that shares of Columbia Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of MCA prior to the Merger may be resold by them only
in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Columbia) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of MCA or Columbia generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal stockholders of such party. The Merger Agreement
requires MCA to exercise its reasonable efforts to cause each of its affiliates
to execute a written agreement to the effect that such person will not offer to
sell, transfer or otherwise dispose of any of the shares of Columbia Common
Stock issued to such person in or pursuant to the Merger unless (a) such sale,
transfer or other disposition has been registered under the Securities Act, (b)
such sale, transfer or other disposition is made in conformity with Rule 145
under the Securities Act or (c) in the opinion of counsel, such sale, transfer
or other disposition is exempt from registration under the Securities Act.
24
<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger
Agreement.
THE MERGER
Pursuant to the Merger Agreement, subject to the terms and conditions
thereof, at the Effective Time (as defined below), Columbia Sub will be merged
with and into MCA. The Merger will have the effects specified in the Delaware
General Corporation Law.
Upon the satisfaction or waiver of all conditions to the Merger, and provided
that the Merger Agreement has not been terminated or abandoned, Columbia and
MCA will cause a Certificate of Merger to be executed, acknowledged and filed
with the Secretary of State of the State of Delaware as provided in Section 251
of the Delaware General Corporation Law (the "Certificate of Merger"). The time
at which the Merger becomes effective is referred to as the Effective Time.
As a result of the Merger and without any action on the part of the holders
thereof, each share of MCA Common Stock issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive a
specified number of shares of Columbia Common Stock and will cease to be
outstanding and will be cancelled and retired. Each holder of a Certificate
representing any such shares of MCA Common Stock will thereafter cease to have
any rights with respect to such shares of MCA Common Stock, except the right to
receive, without interest, shares of Columbia Common Stock and cash for
fractional interests of Columbia Common Stock (as described in "--Exchange
Procedures") upon the surrender of such Certificate. Each share of MCA Common
Stock held in MCA's treasury at the Effective Time will cease to be outstanding
and will be cancelled and retired without payment of any consideration
therefor.
The number of shares of Columbia Common Stock to be issued in exchange for
each share of MCA Common Stock in the Merger (the "Exchange Ratio") will be
determined as follows:
(i) if the Average Price (as hereinafter defined) of a share of Columbia
Common Stock is less than $36.00, the Exchange Ratio will be .8056;
(ii) if the Average Price of a share of Columbia Common Stock is at least
$36.00 but less than or equal to $40.00, the Exchange Ratio will be equal
to the amount obtained by dividing 29 by the Average Price of a share of
Columbia Common Stock (with any fractional cent being rounded to the next
higher full cent);
(iii) if the Average Price of a share of Columbia Common Stock is greater
than $40.00 but less than or equal to $44.00, the Exchange Ratio will be
equal to the amount obtained by dividing the sum of 29 plus 25% of the
excess of the Average Price of a share of Columbia Common Stock above
$40.00 by the Average Price of a share of Columbia Common Stock (with any
fractional cent being rounded to the next higher full cent); or
(iv) if the Average Price of a share of Columbia Common Stock is greater
than $44.00, the Exchange Ratio will be equal to the amount obtained by
dividing 30 by the Average Price of a share of Columbia Common Stock (with
any fractional cent being rounded to the next higher full cent).
The Exchange Ratio will, in each case, be rounded to four decimal places. The
"Average Price" of a share of Columbia Common Stock will be the average of the
closing sales prices thereof on The New York Stock Exchange (the "NYSE") (as
reported by The Wall Street Journal or, if not reported thereby, by another
authoritative source) over the 20 trading days immediately preceding the date
which is five trading days prior to the Closing Date of the Merger.
25
<PAGE>
IF THE AVERAGE PRICE OF THE COLUMBIA COMMON STOCK IS LESS THAN $36 PER SHARE,
THE MAXIMUM EXCHANGE RATIO (.8056) WOULD NOT PROVIDE A STOCKHOLDER OF MCA WITH
$29 PER SHARE IN "VALUE" (DETERMINED WITH REFERENCE TO THE AVERAGE PRICE) OF
THE COLUMBIA COMMON STOCK. IF THE AVERAGE PRICE OF THE COLUMBIA COMMON STOCK IS
GREATER THAN $44 PER SHARE, THE EXCHANGE RATIO WOULD LIMIT A STOCKHOLDER OF MCA
TO $30 PER SHARE IN "VALUE" OF THE COLUMBIA COMMON STOCK. THERE IS NO GUARANTEE
AS TO THE VALUE OF THE COLUMBIA COMMON STOCK THAT MCA STOCKHOLDERS WILL
RECEIVE. THE MERGER IS NOT CONDITIONED ON THE "AVERAGE PRICE" OF COLUMBIA
COMMON STOCK EXCEEDING ANY MINIMUM AMOUNT.
The following table indicates the Exchange Ratio assuming various Average
Prices, with the resulting "value" to be received for each share of MCA Common
Stock:
<TABLE>
<CAPTION>
"VALUE" TO BE RECEIVED
FOR EACH SHARE
AVERAGE PRICE EXCHANGE RATIO OF MCA COMMON STOCK
(COL. 1) (COL. 2) (COL. 1 X COL. 2)
------------- -------------- ----------------------
<S> <C> <C>
$32.00 .8056 $25.78(1)
34.00 .8056 27.39
36.00 .8056 29.00
38.00 .7632 29.00
40.00 .7250 29.00
42.00 .7024 29.50
44.00 .6818 30.00(2)
46.00 .6522 30.00
48.00 .6250 30.00
</TABLE>
- --------
(1) There is no limit on the minimum amount of "value" the MCA stockholders may
receive for each of their shares of MCA Common Stock.
(2) The MCA stockholders are limited to $30 in "value" of the Columbia Common
Stock which they may receive for each of their shares of MCA Common Stock.
At the Effective Time, all MCA Options then outstanding under the MCA Stock
Option Plans will remain outstanding and will be assumed by Columbia. Each such
MCA Option will be exercisable upon the same terms and conditions as under the
applicable MCA Stock Option Plan and the applicable option agreement issued
thereunder, except that (a) each such MCA Option will be exercisable for that
whole number of shares of Columbia Common Stock (to the nearest whole share)
into which the number of shares of MCA Common Stock under the unexercised
portion of such option would be converted at the Effective Time and (b) the
exercise price per share of Columbia Common Stock will be an amount equal to
the exercise price per share subject to such MCA Option prior to the Effective
Time divided by the Exchange Ratio (rounded upward to the nearest full cent).
See "The Merger--Interests of Certain Persons in the Merger."
EXCHANGE PROCEDURES
Promptly after the Effective Time, the Exchange Agent will mail to each
person who was, at the Effective Time, a holder of record of shares of MCA
Common Stock, a letter of transmittal to be used by such holders in forwarding
their certificates representing shares of MCA Common Stock ("Certificates"),
and instructions for effecting the surrender of the Certificates in exchange
for certificates representing shares of Columbia Common Stock. Upon surrender
to the Exchange Agent of a Certificate for cancellation, together with such
letter of transmittal, the holder of such Certificate will be entitled to
receive a certificate representing that number of whole shares of Columbia
Common Stock, cash in lieu of any fractional shares (as described below) and
unpaid dividends and distributions, if any, which such holder has the right to
receive in respect of the Certificate surrendered, and the Certificate so
surrendered will be cancelled. MCA STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
26
<PAGE>
No fractional shares of Columbia Common Stock will be issued and any holder
of shares of MCA Common Stock entitled under the Merger Agreement to receive a
fractional share will be entitled to receive only a cash payment in lieu
thereof, which payment will be in an amount representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
of the aggregate of the fractional shares of Columbia Common Stock which would
otherwise have been issued. Any such sale will be made by the Exchange Agent
within ten business days after the date upon which the Certificate(s) that
would otherwise result in the issuance of such shares of Columbia Common Stock
have been received by the Exchange Agent.
No dividends on shares of Columbia Common Stock will be paid with respect to
any shares of MCA Common Stock or other securities represented by a Certificate
until such Certificate is surrendered for exchange as provided in the Merger
Agreement. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the holder of certificates
representing shares of Columbia Common Stock issued in exchange therefor, (i)
at the time of such surrender, the amount of any dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such shares of Columbia Common Stock and not paid, less the
amount of any withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender thereof and a
payment date subsequent to surrender thereof payable with respect to such whole
shares of Columbia Common Stock less the amount of any withholding taxes which
may be required thereon.
At or after the Effective Time, there will be no transfers on the transfer
books of MCA of shares of MCA Common Stock which were outstanding immediately
prior to the Effective Time.
Any portion of the monies from which cash payments in lieu of fractional
interests in shares of Columbia Common Stock will be made (including the
proceeds of any investments thereof) and any shares of Columbia Common Stock
that are unclaimed by the former stockholders of MCA one year after the
Effective Time will be delivered to Columbia. Any former stockholders of MCA
who have not theretofore complied with the exchange procedures in the Merger
Agreement may thereafter look to Columbia only as general creditors for payment
of their shares of Columbia Common Stock, cash in lieu of fractional shares,
and any unpaid dividends and distributions on shares of Columbia Common Stock,
deliverable in respect of each share of MCA Common Stock such stockholder
holds. Notwithstanding the foregoing, none of MCA, Columbia, the Exchange Agent
or any other person will be liable to any former holder of shares of MCA Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
No interest will be paid or accrued on cash in lieu of fractional shares and
unpaid dividends and distributions, if any, which will be paid upon surrender
of Certificates.
In the event that any Certificate has 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 Columbia, the posting by
such person of a bond in such reasonable amount as Columbia may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Columbia Common Stock, cash in lieu of
fractional shares, and any unpaid dividends and distributions on shares of
Columbia Common Stock, as described above.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties relating
to, among other things: (a) the due organization, power and standing of MCA and
Columbia and similar corporate matters; (b) the authorization, execution,
delivery and enforceability of the Merger Agreement; (c) the capital structure
of MCA and Columbia; (d) subsidiaries of MCA and Columbia; (e) investment
interests of MCA and Columbia;
27
<PAGE>
(f) conflicts under charters or bylaws, violations of any instruments or law
and required consents or approvals; (g) certain documents filed by each of MCA
and Columbia with the Commission and the accuracy of information contained
therein; (h) litigation; (i) conduct of business in the ordinary course and the
absence of certain changes or material adverse effects; (j) taxes; (k)
retirement and other employee benefit plans of MCA and Columbia; (l) labor
matters; (m) brokers' and finders' fees with respect to the Merger; (n) receipt
of fairness opinions; (o) ownership of the capital stock of the other company
and (p) Medicare participation and accreditation.
CERTAIN COVENANTS
MCA has agreed (and has agreed to cause its subsidiaries), among other
things, prior to the consummation of the Merger, unless Columbia agrees in
writing or as otherwise required or permitted by the Merger Agreement, (i) to
conduct its operations according to its usual, regular and ordinary course in
substantially the same manner as theretofore conducted, (ii) promptly to notify
Columbia of any material emergency or other material change in the condition
(financial or otherwise), business or results of operations, any material
litigation or material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the breach in
any material respect of any representation or warranty contained in the Merger
Agreement and (iii) promptly to deliver to Columbia true and correct copies of
any report, statement or schedule filed with the Commission subsequent to May
23, 1994. In addition, MCA has agreed that, among other things, prior to the
consummation of the Merger, unless Columbia agrees in writing or as otherwise
required or permitted by the Merger Agreement, it shall not (and shall cause
its subsidiaries not to) (i) amend its certificate of incorporation or bylaws;
(ii) except pursuant to the exercise of certain options, warrants, conversion
rights and other contractual rights, issue any shares of capital stock, effect
any stock split or otherwise change its capitalization as it existed on May 23,
1994; (iii) grant, confer or award any option, warrant, conversion right or
other right not existing on May 23, 1994 to acquire shares of its capital
stock, other than employee stock options, stock benefits and stock purchases
under any existing stock option, stock benefit or stock purchase plan, provided
that the aggregate amount of employee stock options shall not exceed 50,000;
(iv) increase any compensation or enter into or amend any employment agreement
with any of its present or future officers or directors, except for normal
increases consistent with past practice and the payment of cash bonuses to
officers pursuant to and consistent with existing plans or programs; (v) adopt
any new employee benefit plan or amend any existing employee benefit plan in
any material respect; (vi) declare or pay any dividend to its stockholders or
make any other payment on its capital stock; or (vii) sell, lease or otherwise
dispose of any of its assets which are material, individually or in the
aggregate, except in the ordinary course of business.
Columbia has agreed, among other things, prior to the consummation of the
Merger, unless MCA agrees in writing or as otherwise required or permitted by
the Merger Agreement, to (i) conduct its operations in the ordinary course in
substantially the same manner as heretofore conducted and (ii) promptly to
deliver to MCA true and correct copies of any report, statement or schedule
filed with the Commission subsequent to May 23, 1994. In addition, Columbia has
agreed that, among other things, prior to the consummation of the Merger,
unless MCA agrees in writing or as otherwise required or permitted by the
Merger Agreement, it shall not (i) amend its certificate of incorporation; (ii)
sell, lease or otherwise dispose of any of its assets (including capital stock
of subsidiaries) which are material, individually or in the aggregate, except
in the ordinary course of business; (iii) redeem, purchase or otherwise
acquire, or propose to redeem, purchase or otherwise acquire, a material amount
of the outstanding Columbia Common Stock; or (iv) declare or make any
extraordinary distributions with respect to its capital stock, which
distributions are individually, or in the aggregate, material (except for
scheduled quarterly cash dividends payable on the Columbia Common Stock).
Both MCA and Columbia have agreed to cooperate in the prompt preparation and
filing of certain documents under federal and state securities laws and with
applicable government entities.
28
<PAGE>
NO SOLICITATION OF TRANSACTIONS
MCA has agreed that it will not, and will direct and use its best efforts to
cause its officers and directors, employees, agents and representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, MCA or any of its significant subsidiaries (any such proposal or
offer being hereinafter referred to as an "Alternative Proposal"), or engage in
any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Alternative
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Alternative Proposal. MCA has agreed to immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted prior to the date of the Merger Agreement with respect to any
of the foregoing and to take the necessary steps to inform the appropriate
individuals or entities of these obligations. MCA has also agreed to notify
Columbia immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with it; provided that the Board of
Directors of MCA may (i) furnish information to, or enter into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal to acquire MCA pursuant to a merger, consolidation, share exchange,
business combination, purchase of a substantial portion of its assets or other
similar transactions, if, and only to the extent that, (a) the Board of
Directors of MCA determines in good faith that such action is required for the
Board of Directors to comply with its fiduciary duties to stockholders imposed
by law, (b) prior to furnishing such information to, or entering into
discussions or negotiations with, the other person or entity, MCA provides
written notice to Columbia to the effect that it is furnishing information to,
or entering into discussions or negotiations with, the other person or entity,
and (c) subject to any confidentiality agreement with the other person or
entity (which MCA determined in good faith was required to be executed in order
for the Board of Directors to comply with its fiduciary duties to stockholders
imposed by law), MCA keeps Columbia informed of the status (not the terms) of
any such discussions or negotiations and (ii) to the extent applicable, comply
with Rule 14e-2 promulgated under the Exchange Act with regard to the
Alternative Proposal.
INDEMNIFICATION AND INSURANCE
As provided in the Merger Agreement, the surviving corporation is required to
indemnify and advance expenses to officers, directors, employees and agents of
MCA (the "Indemnified Parties"), to the fullest extent permitted under
applicable law, against all losses, claims, damages, liabilities, costs or
expenses (including attorneys' fees), judgments, fines, penalties and amounts
paid in settlement in connection with any claim, action, suit, proceeding or
investigation 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
occurred prior to the Effective Time. In addition, Columbia has agreed that for
a period of six years after the Effective Time, it will cause the net worth of
the surviving corporation and its consolidated subsidiaries to be not less than
the net worth of MCA and its consolidated subsidiaries as of March 31, 1994.
For a period of six years after the Effective Time, Columbia is obligated to
maintain in effect policies of directors' and officers' liability insurance
covering certain Indemnified Parties presently covered by MCA insurance
policies that are substantially no less advantageous to such Indemnified
Parties than the policies presently maintained by MCA, provided that Columbia
shall not be required in order to maintain such coverage to pay an annual
premium in excess of two times the current annual premium paid by MCA for its
existing coverage (the "Cap"); provided, that if equivalent coverage cannot be
obtained, or can be obtained only by paying an annual premium in excess of the
Cap, Columbia shall only be required to obtain as much coverage as can be
obtained by paying an annual premium equal to the Cap.
CONDITIONS
The respective obligations of MCA and Columbia to consummate the Merger are
subject to the fulfillment of each of the following conditions, among others:
(a) the Merger Agreement shall have been
29
<PAGE>
approved in the manner required by law by the holders of the issued and
outstanding shares of capital stock of MCA entitled to vote thereon; (b) the
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated; (c) none of the parties to the Merger
Agreement shall be subject to any order or injunction against the consummation
of the transactions contemplated by the Merger Agreement; (d) the Registration
Statement shall have become effective under the Securities Act and no stop
order with respect thereto shall be in effect; and (e) all consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body required in connection
with the execution, delivery and performance of the Merger Agreement shall have
been obtained or made (except where the failure to obtain or make any such
consent, authorization, order, approval, filing or registration would not have
a material adverse effect on the business of Columbia and MCA (and their
respective subsidiaries), taken as a whole, following the Effective Time).
The obligations of each of MCA and Columbia to effect the Merger are also
subject to the satisfaction or waiver by the other party prior to the Effective
Time of the following conditions, among others: (a) the other party shall have
performed all obligations required to be performed by it under the Merger
Agreement and the representations and warranties of the other party and its
subsidiaries set forth in the Merger Agreement shall be true in all material
respects as of the Effective Time unless the failure of such representation and
warranty to be so true and correct would not have or would not be reasonably
likely to have a material adverse effect on the business of such party and its
subsidiaries taken as a whole; (b) MCA shall have received the opinion of
Davis, Polk & Wardwell that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that MCA and Columbia will each be a party to that reorganization within
the meaning of Section 368(b) of the Code; (c) Columbia shall have received the
opinion of Weil, Gotshal and Manges that no gain or loss will be recognized for
federal income tax purposes by Columbia, Columbia Sub or MCA as a result of the
Merger; (d) MCA and Columbia shall have each received a "comfort" letter from
the other party's independent accountants covering matters customarily included
in such comfort letters relating to transactions similar to the Merger; and (e)
from the date of the Merger Agreement through the Effective Time, there shall
not have occurred any change in the financial condition, business, operations
or prospects of the other party that would have or would be reasonably likely
to have a material adverse effect on the other party and its subsidiaries taken
as a whole, other than as a result of changes in conditions, including economic
or political developments, applicable to the health care industry generally.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, before or after the approval by the
stockholders of MCA: (a) by the mutual consent of MCA and Columbia by action of
their respective Boards of Directors; (b) by action of the Board of Directors
of either MCA or Columbia if (i) the Merger shall not have been consummated by
December 31, 1994, provided that the terminating party shall not have breached
in any material respect its obligations under the Merger Agreement in any
manner that shall have proximately contributed to the failure to consummate the
Merger, or (ii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by MCA's stockholders shall not have been
obtained at a meeting duly convened therefor or at any adjournment thereof; (c)
if a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement and such order, decree,
ruling or other action shall have become final and non-appealable; provided
that the party seeking to terminate the Merger Agreement pursuant to this
clause (c) shall have used all reasonable efforts to remove such injunction,
order or decree; (d) by action of the Board of Directors of MCA, if (i) in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, the Board of Directors of MCA determines that such
termination is required by reason of an Alternative Proposal being made for
MCA, (ii) there has been a breach by Columbia of any representation or warranty
contained in the Merger Agreement which would have or would be reasonably
30
<PAGE>
likely to have a material adverse effect on Columbia and its subsidiaries taken
as a whole, or (iii) there has been a material breach by Columbia of any
covenant or agreement contained in the Merger Agreement which is not curable
or, if curable, is not cured within 30 days after written notice of such
breach; or (e) by action of the Board of Directors of Columbia, if (i) the
Board of Directors of MCA shall have withdrawn or modified in a manner adverse
to Columbia its approval or recommendation of the Merger Agreement or the
Merger due to the existence of an Alternative Proposal, or shall have
recommended an Alternative Proposal to MCA stockholders, (ii) there has been a
breach by MCA of any representation or warranty contained in the Merger
Agreement which would have or would be reasonably likely to have a material
adverse effect on MCA and its subsidiaries taken as a whole, or (iii) there has
been a material breach by MCA of any covenant or agreement contained in the
Merger Agreement which is not curable or, if curable, is not cured within 30
days after written notice of such breach. In the event of the termination of
the Merger Agreement pursuant to (d) or (e) above, nothing in the Merger
Agreement shall prejudice the ability of the non-breaching party to seek
damages from any other party for any breach of the Merger Agreement, including
without limitation, attorneys' fees and the right to pursue any remedy at law
or in equity; provided, that in the event Columbia has received an Alternative
Proposal Fee (as defined under "--Termination Fee"), it shall not (i) assert or
pursue in any manner, directly or indirectly, any claim or cause of action
based in whole or in part upon alleged tortious or other interference with
rights under the Merger Agreement against any entity or person submitting an
Alternative Proposal or (ii) assert or pursue in any manner, directly or
indirectly, any claim or cause of action against MCA or any of its officers or
directors based in whole or in part upon its or their receipt, consideration,
recommendation, or approval of an Alternative Proposal.
TERMINATION FEE
If (a) MCA terminates the Merger Agreement because its Board of Directors, in
the exercise of its good faith judgment as to its fiduciary duties to its
stockholders imposed by law, determines that such termination is required by
reason of an Alternative Proposal being made for MCA or (b) Columbia terminates
the Merger Agreement because the Board of Directors of MCA shall have withdrawn
or modified in a manner adverse to Columbia its approval or recommendation of
the Merger Agreement or the Merger due to the existence of an Alternative
Proposal, or shall have recommended an Alternative Proposal to MCA
stockholders, then MCA is required to pay a fee in cash of $25,000,000 to
Columbia (the "Alternative Proposal Fee") within two days of Columbia's request
for the payment of such amount.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, except as otherwise
provided in the Merger Agreement. The Merger Agreement provides that the
following expenses will be shared equally by Columbia and MCA: (a) the filing
fee in connection with the HSR Act filing, (b) the filing fee in connection
with the filing of the Registration Statement with the Commission and (c) the
expenses incurred in connection with printing and mailing this Proxy
Statement/Prospectus.
AMENDMENT AND WAIVER
The parties may modify or amend the Merger Agreement by written agreement at
any time prior to the Effective Time, to the extent permitted by applicable
law. The conditions to each party's obligation to consummate the Merger may be
waived by the other party in whole or in part to the extent permitted by
applicable law.
ALTERNATIVE MERGER STRUCTURE
Columbia and MCA reserve the right to change the structure of the Merger so
that MCA merges into Columbia Sub rather than Columbia Sub merging into MCA.
Stockholder approval of the Merger Agreement shall be deemed to include
approval of this alternative structure of the Merger. Any such change in the
structure of the Merger will not be made unless Columbia and MCA are satisfied
that such change would not affect the tax consequences of the Merger.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are
presented assuming the Merger will be recorded using the purchase method of
accounting, and reflect the combination of historical consolidated financial
data of Columbia and MCA and all material pro forma adjustments. The unaudited
pro forma condensed combined statement of income for the three months ended
March 31, 1994 and the year ended December 31, 1993 present the combined
operating results of Columbia and MCA as if the Merger had occurred on January
1, 1993. For both periods presented in the pro forma condensed combined
statement of income, shares used in the computation of earnings per common and
common equivalent share give effect to an assumed exchange ratio of 0.7632. The
unaudited pro forma condensed combined balance sheet assumes that the Merger
had occurred on March 31, 1994.
These financial statements are for informational purposes only and are not
necessarily indicative of the results that would have been obtained had the
Merger occurred on the dates indicated above. The pro forma financial
statements should be read in conjunction with the related historical
consolidated financial statements of Columbia and MCA incorporated by reference
in this Proxy Statement/Prospectus.
32
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND MEDICAL CARE AMERICA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COLUMBIA/HCA MCA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $ 2,778 $ 108 $ 2,886
------- ------ -------
Operating expenses.............. 2,039 69 2,108
Provision for doubtful accounts. 150 3 153
Depreciation and amortization... 144 7 $ 3(a) 154
Interest expense................ 64 4 68
Investment income............... (14) (2) (16)
Non-recurring transactions...... 159 - 159
------- ------ --- -------
2,542 81 3 2,626
------- ------ --- -------
Income from continuing
operations before minority
interests and income taxes..... 236 27 (3) 260
Minority interests in earnings
of consolidated entities....... 3 7 10
------- ------ --- -------
Income from continuing
operations before income taxes. 233 20 (3) 250
Provision for income taxes...... 96 8 104
------- ------ --- -------
Income from continuing opera-
tions.......................... $ 137 $ 12 $(3) $ 146
======= ====== === =======
Earnings per common and common
equivalent share from continu-
ing operations................. $ 0.40 $ 0.37 $ 0.40
Shares used in earnings per
common and common equivalent
share computations (in
thousands)..................... 341,621 38,385 368,583
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
33
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND MEDICAL CARE AMERICA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COLUMBIA/HCA MCA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $10,252 $ 432 $10,684
------- ------ -------
Operating expenses.............. 7,772 279 8,051
Provision for doubtful accounts. 542 12 554
Depreciation and amortization... 554 27 $ 12(a) 593
Interest expense................ 321 17 338
Investment income............... (66) (12) (78)
Non-recurring transactions...... 151 55 206
------- ------ ---- -------
9,274 378 12 9,664
------- ------ ---- -------
Income from continuing
operations before minority
interests and income taxes..... 978 54 (12) 1,020
Minority interests in earnings
of consolidated entities....... 9 30 39
------- ------ ---- -------
Income from continuing
operations before income taxes. 969 24 (12) 981
Provision for income taxes...... 394 18 412
------- ------ ---- -------
Income from continuing
operations..................... $ 575 $ 6 $(12) $ 569
======= ====== ==== =======
Earnings per common and common
equivalent share from
continuing operations.......... $ 1.70 $ 0.16 $ 1.55
Shares used in earnings per
common and common equivalent
share computations (in
thousands)..................... 339,222 36,557 367,239
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
34
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND MEDICAL CARE AMERICA, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMBIA/HCA MCA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....... $ 109 $ 24 $(20)(d) $ 113
Accounts receivable, net........ 1,625 59 1,684
Inventories..................... 258 13 271
Other........................... 516 124 640
------- ---- ---- -------
2,508 220 (20) 2,708
Property and equipment, net...... 5,642 216 5,858
Investments of professional
liability insurance
subsidiaries.................... 688 - 688
Intangible assets, net........... 1,277 200 (200)(b) 2,027
750 (b)
Other............................ 237 74 (15)(e) 296
------- ---- ---- -------
$10,352 $710 $515 $11,577
======= ==== ==== =======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................ $ 485 $ 9 $ 494
Accrued expenses................ 1,184 74 1,258
Long-term debt due within one
year........................... 81 13 94
------- ---- -------
1,750 96 1,846
Long-term debt................... 3,533 232 3,765
Deferred credits and other lia-
bilities........................ 1,421 18 1,439
Minority interests in equity of
consolidated entities........... 134 37 $(15)(e) 156
Common stockholders' equity...... 3,514 327 847 (c) 4,371
(327)(c)
10 (f)
------- ---- ---- -------
$10,352 $710 $515 $11,577
======= ==== ==== =======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
35
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND MEDICAL CARE AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The purchase method of accounting has been used in the preparation of the pro
forma condensed combined financial statements. Under this method of accounting,
the aggregate purchase price is allocated to assets acquired and liabilities
assumed based on their estimated fair values. For purposes of the pro forma
condensed combined financial statements, the fair value of MCA's assets and
liabilities is assumed to approximate historical carrying values. Accordingly,
the excess of the purchase price over MCA's net assets has been reflected as
goodwill. It is expected that any reclassification between goodwill and other
assets and liabilities will not have a material effect on the consolidated
financial statements of the combined entity at the time of the Merger.
For purposes of the pro forma condensed combined financial statements, the
excess of the MCA purchase price over fair value of net assets acquired is
being amortized over 40 years using the straight-line method.
Provision for doubtful accounts has been presented separately on the MCA
historical statements of income to conform to the Columbia presentation.
NOTE 2--PURCHASE PRICE INFORMATION
Pursuant to the Merger Agreement, each outstanding share of MCA Common Stock
will be converted into a specified number of shares of Columbia Common Stock
based upon an exchange ratio which is subject to change under certain
circumstances. For purposes of the pro forma condensed combined financial
statements, the exchange ratio used assumes that the Average Price of Columbia
Common Stock approximates $38. The aggregate purchase price is summarized
below:
<TABLE>
<S> <C>
Conversion of MCA Common Stock (in thousands):
Shares of MCA Common Stock outstanding at March 31, 1994........... 29,215
Assumed exchange ratio............................................. 0.7632
------
Columbia Common Stock to be issued in connection with the Merger. 22,297
======
Aggregate purchase price (dollars in millions):
Estimated fair value of Columbia Common Stock to be issued in
connection with the Merger........................................ $ 847
Estimated fair value of options to purchase Columbia Common Stock
to be issued in exchange for outstanding options to purchase MCA
Common Stock...................................................... 10
Estimated expenses to be incurred in connection with the Merger.... 20
------
Aggregate purchase price......................................... $ 877
======
</TABLE>
NOTE 3--PRO FORMA ADJUSTMENTS
The adjustments included in the pro forma condensed combined financial
statements follow:
(a) To adjust amortization (dollars in millions):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1994 DECEMBER 31, 1993
-------------- -----------------
<S> <C> <C>
Record amortization related to the excess of
the MCA purchase price over net assets ac-
quired..................................... $ 5 $19
Eliminate MCA historical amortization of the
excess of purchase price over net assets
acquired................................... (2) (7)
--- ---
$ 3 $12
=== ===
</TABLE>
36
<PAGE>
(b) To record the excess of the MCA purchase price over fair value of net
assets acquired (dollars in millions):
<TABLE>
<S> <C> <C>
Aggregate purchase price........................................ $877
Net assets of MCA at March 31, 1994............................. $327
MCA historical excess of purchase price over net assets
acquired....................................................... (200) (127)
---- ----
Excess of the MCA purchase price over fair value of net assets
acquired....................................................... $750
====
</TABLE>
(c) To reflect Columbia's purchase of outstanding MCA Common Stock of $327
million and issuance of Columbia Common Stock of $847 million as
described in Note 2.
(d) To record $20 million of estimated expenses to be incurred in
connection with the Merger.
(e) To eliminate investments and related minority interests in joint
venture transactions between Columbia and MCA.
(f) To record the estimated fair value of options to purchase Columbia
Common Stock to be issued in exchange for outstanding options to
purchase MCA Common Stock.
NOTE 4--PRO FORMA EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
A summary of shares used in the pro forma earnings per common and common
equivalent share computations follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1994 DECEMBER 31, 1993
-------------- -----------------
<S> <C> <C>
Columbia common and common equivalent
shares.................................... 341,621 339,222
Columbia shares assumed to be issued in ex-
change for outstanding MCA Common Stock
and the dilutive effect of MCA common
equivalent shares effected for the assumed
exchange ratio............................ 26,962 28,017
------- -------
Shares used in the pro forma earnings per
common and common equivalent share compu-
tations................................... 368,583 367,239
======= =======
</TABLE>
37
<PAGE>
DESCRIPTION OF COLUMBIA CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Columbia's authorized capital stock presently consists of 800,000,000
authorized shares of Columbia Common Stock, 25,000,000 shares of Nonvoting
Common Stock, $.01 par value ("Columbia Nonvoting Common Stock"), and
25,000,000 shares of Preferred Stock, $.01 par value ("Columbia Preferred
Stock").
COLUMBIA COMMON STOCK
The holders of Columbia Common Stock are entitled to one vote for each share
on all matters voted on by the stockholders, including the election of
directors and, except as otherwise required by law, as provided in the Columbia
restated certificate of incorporation (the "Columbia Certificate") with respect
to the Columbia Series A Preferred Stock (as defined below) or provided in any
resolution adopted by the Columbia Board of Directors (the "Columbia Board")
with respect to any series of Columbia Preferred Stock, will exclusively
possess all voting power. The holders of Columbia Common Stock do not have any
cumulative voting, conversion, redemption or preemptive rights. Subject to any
preferential rights of any outstanding series of Columbia Preferred Stock
designated by the Columbia Board from time to time, the holders of Columbia
Common Stock are entitled to such dividends as may be declared from time to
time by the Columbia Board from funds available therefor, and upon liquidation
are entitled to receive pro rata all assets of Columbia available for
distribution to such holders. Any "Regulated Stockholder" may convert shares of
Columbia Common Stock into Columbia Nonvoting Common Stock. A Regulated
Stockholder is any stockholder that is subject to the provisions of Regulation
Y of the Board of Governors of the Federal Reserve System which was a
"Regulated Stockholder" of HCA immediately prior to the HCA Merger, so long as
such stockholder holds such shares (and only with respect to such shares) and
affiliates and certain transferees thereof.
COLUMBIA NONVOTING COMMON STOCK
The rights of holders of Columbia Nonvoting Common Stock will be identical to
those of holders of the Columbia Common Stock, except with respect to voting
and conversion rights. The holders of Columbia Nonvoting Common Stock will have
no right to vote on matters submitted to a vote of stockholders, except (i) as
to an amendment of a provision of the Columbia Certificate that would adversely
affect the powers, preferences or special rights of the holders of the Columbia
Nonvoting Common Stock and (ii) as otherwise required by law.
The shares of Columbia Nonvoting Common Stock will be convertible into
Columbia Common Stock on a share-for-share basis (subject to anti-dilution
adjustments), except that no holder of shares of Columbia Nonvoting Common
Stock may convert any such shares to the extent that, as a result, the holder
and its affiliates, directly or indirectly, would own, control or have the
power to vote a greater number of shares of the Columbia Common Stock or other
voting capital stock of Columbia than the holder and its affiliates would be
permitted to own, control or have power to vote under any law, regulation, rule
or other requirement of any governmental authority at the time applicable to
the holder or its affiliates.
COLUMBIA PREFERRED STOCK
The Columbia Board is authorized to provide for the issuance of shares of
Columbia Preferred Stock, in one or more series, and to fix for each such
series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolution adopted by the
Columbia Board providing for the issuance of such series and as are permitted
by Delaware law. In connection with the stockholder rights plan adopted by
Columbia, the Columbia Certificate provides for the issuance of a series of
8,000,000 shares of Columbia Preferred Stock designated as the Series A
Participating Preferred Stock (the "Columbia Series A Preferred Stock"), and a
series consisting of 250,000 shares of Columbia Preferred Stock designated as
the Series B Participating
38
<PAGE>
Preferred Stock (the "Columbia Series B Preferred Stock"). For a description of
the terms of the Columbia Series A Preferred Stock and Columbia Series B
Preferred Stock, see "--Columbia Preferred Stock Purchase Rights."
COLUMBIA PREFERRED STOCK PURCHASE RIGHTS
The Columbia Board has adopted a stockholders rights plan, pursuant to which
one Preferred Stock Purchase Right (a "Columbia Right") is issued with respect
to each share of Columbia Common Stock issued by Columbia. Each Columbia Right
entitles the registered holder to purchase from Columbia one one-hundredth of a
share of Columbia Series A Preferred Stock at a price of $100, subject to
adjustment (the "Purchase Price"). The description and terms of the Columbia
Rights are set forth in a Rights Agreement dated September 1, 1993 (the
"Columbia Rights Agreement") between Columbia and Mid-America Bank of
Louisville & Trust Company, as Rights Agent (the "Columbia Rights Agent").
Currently, the Columbia Rights are attached to all Columbia Common Stock
certificates representing shares outstanding and are not represented by
separate Columbia Rights certificates. Until the earlier to occur of (i) the
first date (the "Stock Acquisition Date") of a public announcement that,
without the prior approval of Columbia, a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire beneficial ownership of securities having 15% or more of the voting
power of all outstanding voting securities of Columbia or (ii) ten days (unless
such date is extended by the Columbia Board) following the commencement of (or
a public announcement of an intention to make) a tender offer or exchange offer
which would result in any person or group of related persons becoming an
Acquiring Person (the earlier of such dates being called the "Rights
Distribution Date"), the Columbia Rights will be evidenced by the Columbia
Common Stock certificates. Until the Rights Distribution Date, the Columbia
Rights will be transferred only with Columbia Common Stock certificates.
Columbia Common Stock certificates contain a notation incorporating the
Columbia Rights Agreement by reference. Until the Rights Distribution Date (or
earlier redemption or expiration of the Columbia Rights), the surrender for
transfer of any certificates for Columbia Common Stock outstanding as of the
Rights Distribution Date will also constitute the transfer of the Columbia
Rights associated with the Columbia Common Stock represented by such
certificate. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Columbia Rights ("Rights Certificates")
will be mailed to holders of record of the Columbia Common Stock as of the
close of business on the Rights Distribution Date, and the separate Rights
Certificates alone will evidence the Columbia Rights.
The Columbia Rights are not exercisable until the Rights Distribution Date.
The Columbia Rights expire on the earliest of (i) September 1, 2003, (ii)
consummation of a merger transaction with a person or group who acquired
Columbia Common Stock pursuant to a Permitted Offer (as defined below), and is
offering in the merger the same form of consideration, and not less than the
price per share, paid pursuant to the Permitted Offer or (iii) redemption of
the Columbia Rights by Columbia as described below.
The Purchase Price payable, and the number of shares of Columbia Series A
Preferred Stock or other securities issuable, upon exercise of the Columbia
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Columbia Series A Preferred Stock, (ii) upon the grant
to holders of the Columbia Series A Preferred Stock of certain rights or
warrants to subscribe for Columbia Series A Preferred Stock, certain
convertible securities or securities having rights, privileges and preferences
the same as, or more favorable than, the Columbia Series A Preferred Stock at
less than the current market price of the Columbia Series A Preferred Stock or
(iii) upon the distribution to holders of the Columbia Series A Preferred Stock
of evidences of indebtedness, cash (excluding regular quarterly cash dividends
out of earnings or retained earnings), assets (other than a dividend payable in
Columbia Series A Preferred Stock) or of subscription rights or warrants (other
than those referred to above).
39
<PAGE>
In the event that, after the first date of public announcement by Columbia or
an Acquiring Person that an Acquiring Person has become such, Columbia is
involved in a merger or other business combination transaction in which the
Columbia Common Stock is exchanged or changed (other than a merger with a
person or group who acquired Columbia Common Stock pursuant to a Permitted
Offer and is offering in the merger not less than the price paid pursuant to
the Permitted Offer and the same form of consideration paid in the Permitted
Offer), or 50% or more of Columbia's assets or earning power are sold (in one
transaction or a series of transactions), proper provision shall be made so
that each holder of a Columbia Right (other than such Acquiring Person) shall
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Columbia Right, that number of shares of common
stock of the acquiring company (or, in the event that there is more than one
acquiring company, the acquiring company receiving the greatest portion of the
assets or earning power transferred) which at the time of such transaction
would have a market value of two times the exercise price of the Columbia Right
(such right being called the "Merger Right"). "Permitted Offer" means a tender
offer or exchange offer for all outstanding shares of Columbia Common Stock at
a price and on terms determined, prior to the purchase of shares under such
tender offer or exchange offer, by at least a majority of the members of the
Board of Directors who are not officers of Columbia to be both adequate and
otherwise in the best interest of Columbia, its stockholders (other than the
person on whose behalf the offer is being made) and other relevant
constituencies.
In the event that an Acquiring Person becomes such, proper provision shall be
made so that each holder of a Columbia Right will have, for a 60 day period
thereafter, the right to receive upon exercise that number of shares of
Columbia Common Stock having a market value of two times the exercise price of
the Columbia Right, to the extent available, and then (after all authorized and
unreserved shares of Columbia Common Stock have been issued) a common stock
equivalent (such as Columbia Series A Preferred Stock or another equity
security with at least the same economic value as the Columbia Common Stock),
or, in certain circumstances, cash, property or a reduction in the purchase
price, having a market value of two times the exercise price of the Columbia
Right (such right being called the "Subscription Right").
The holder of a Columbia Right will continue to have the Merger Right whether
or not such holder exercises the Subscription Right. Upon the occurrence of any
of the events giving rise to the right to exercise the Merger Right or the
Subscription Right, any Columbia Rights that are or were at any time owned by
an Acquiring Person shall become void insofar as they relate to the Merger
Right or the Subscription Right.
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractions of shares will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Columbia
Common Stock on the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Columbia Rights, Columbia may
redeem the Columbia Rights in whole, but not in part, at a price of $.01 in
cash per Columbia Right (the "Redemption Price"), which redemption shall be
effective upon the action of the Columbia Board in the exercise of its sole
discretion. Additionally, Columbia may, following the Stock Acquisition Date,
redeem the then outstanding Columbia Rights in whole, but not in part, at the
Redemption Price provided that such redemption is (i) in connection with a
merger or other business combination transaction or series of transactions
involving Columbia in which all holders of Columbia Common Stock are treated
alike but not involving an Acquiring Person or any person who was an Acquiring
Person or (ii) following an event giving rise to, and the expiration of the
exercise period for, the Subscription Right if and for as long as no person
beneficially owns securities representing 15% or more of the voting power of
Columbia's voting securities. Upon the effective date of the redemption of the
Columbia Rights, the right to exercise the Columbia Rights will terminate and
the only right of the holders of Columbia Rights will be to receive the
Redemption Price.
Any of the provisions of the Columbia Rights Agreement may be amended by the
Columbia Board prior to the Rights Distribution Date. After the Rights
Distribution Date, the provisions of the Columbia Rights
40
<PAGE>
Agreement may be amended by the Columbia Board to cure any ambiguity, defect or
inconsistency, or to make changes which do not adversely affect the interests
of holders of Columbia Rights (excluding the interests of any Acquiring
Person).
The Columbia Series A Preferred Stock purchasable upon exercise of the
Columbia Rights will be nonredeemable and junior to any other series of
preferred stock Columbia may issue (unless otherwise provided in the terms of
such stock). Each share of Columbia Series A Preferred Stock will have a
preferential quarterly dividend in an amount equal to 100 times the dividend
declared on each share of Columbia Common Stock, but in no event less than
$1.00. In the event of liquidation, the holders of Columbia Series A Preferred
Stock will receive a preferred liquidation payment equal to $100 per share,
plus an amount equal to accrued and unpaid dividends thereon to the date of
such payment. Each share of Columbia Series A Preferred Stock will have 100
votes, voting together with the shares of Columbia Common Stock. In the event
of any merger, consolidation or other transaction in which shares of Columbia
Common Stock are exchanged, each share of Columbia Series A Preferred Stock
will be entitled to receive 100 times the amount and type of consideration
received per share of Columbia Common Stock. The rights of Columbia Series A
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution
provisions. Fractional shares of Columbia Series A Preferred Stock will be
issuable; however, Columbia may elect to distribute depository receipts in lieu
of such fractional shares. In lieu of fractional shares other than fractions
that are multiples of one one-hundredth of a share, an adjustment in cash will
be made based on the market price of the Columbia Series A Preferred Stock on
the last trading date prior to the date of exercise. Any Regulated Stockholder
may convert shares of Columbia Series A Preferred Stock into Columbia Series B
Preferred Stock.
Until a Columbia Right is exercised, the holder thereof, as such, has no
rights as a stockholder of Columbia including, without limitation, the right to
vote or to receive dividends.
The Columbia Rights have certain anti-takeover effects. The Columbia Rights
will cause substantial dilution to a person or group that attempts to acquire
Columbia without conditioning the offer on the Columbia Rights being redeemed
or a substantial number of Columbia Rights being acquired. However, the
Columbia Rights should not interfere with any tender offer or merger approved
by Columbia because the Columbia Rights (i) do not become exercisable in the
event of a Permitted Offer and expire automatically upon the consummation of a
merger in which the form of consideration is the same as, and the price is not
less than the price paid in, the Permitted Offer and (ii) are redeemable in
connection with an approved merger in which all holders of Columbia Common
Stock are treated alike.
The foregoing summary of certain terms of the Columbia Rights is qualified in
its entirety by reference to the Columbia Rights Agreement, a copy of which is
incorporated herein by reference.
Columbia has amended the Columbia Rights Agreement to provide for the
issuance of one Preferred Stock Purchase Right (a "Nonvoting Right") with
respect to each share of Columbia Nonvoting Common Stock. Each Nonvoting Right
will entitle the registered holder to purchase from Columbia one one-hundredth
of a share of Columbia Series B Preferred Stock at a price of $100, subject to
adjustment. The terms of the Nonvoting Rights and the Columbia Series B
Preferred Stock will be substantially identical to the terms of the Columbia
Rights and the Columbia Series A Preferred Stock except that (i) the Columbia
Series B Preferred Stock will not have the right to vote on matters upon which
the Columbia Common Stock have the right to vote, (ii) the subscription right
applicable to the Nonvoting Rights will differ from the Subscription Right in
that each holder of a Nonvoting Right will have, for a 60-day period after an
Acquiring Person becomes such, the right to receive upon exercise thereof
Columbia Nonvoting Common Stock or a common stock equivalent to the Columbia
Nonvoting Common Stock instead of Columbia Common Stock, which is the case with
respect to the Columbia Rights, and (iii) the shares of Columbia Series B
Preferred Stock will be convertible into shares of Columbia Series A Preferred
Stock.
41
<PAGE>
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, holders of MCA Common Stock will become
stockholders of Columbia and the rights of all such former MCA stockholders
will thereafter be governed by the Columbia Certificate, Columbia's bylaws (the
"Columbia Bylaws") and the Delaware General Corporation Law (the "Delaware
Law"). The rights of the holders of MCA Common Stock are presently governed by
the certificate of incorporation of MCA (the "MCA Certificate"), the bylaws of
MCA (the "MCA Bylaws") and the Delaware Law. The following summary, which does
not purport to be a complete statement of the general differences among the
rights of the stockholders of Columbia and MCA, sets forth certain differences
between the Columbia Certificate and the MCA Certificate and between the
Columbia Bylaws and the MCA Bylaws. This summary is qualified in its entirety
by reference to the full text of each of such documents and the Delaware Law.
For information as to how such documents may be obtained, see "Available
Information."
CLASSIFIED BOARD OF DIRECTORS
The Delaware Law provides that a corporation's board of directors may be
divided into various classes with staggered terms of office. The Columbia
Certificate provides that the Columbia Board is divided into three classes of
directors, as nearly equal in number as reasonably possible. One class of
directors is elected each year for a three-year term.
Classification of directors has the effect of making it more difficult for
stockholders to change the composition of the Columbia Board. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in the majority of the Columbia Board. Such a delay may help
ensure that the Columbia directors, if confronted by a holder attempting to
force a proxy contest, a tender or exchange offer or other extraordinary
corporate transaction, would have sufficient time to review the proposal as
well as any available alternatives to the proposal and to act in what they
believe to be the best interests of the stockholders.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Columbia even though such a transaction could
be beneficial to Columbia and its stockholders. The classification of the
Columbia Board might also increase the likelihood that incumbent directors will
retain their positions.
The MCA Certificate also provides that the directors, other than those who
may be elected by the holders of any series of MCA Preferred Stock under
specified circumstances, shall be divided into three classes, as nearly equal
in number as possible. One class of directors is elected each year for a three-
year term.
STOCKHOLDER RIGHTS PLAN
Columbia has adopted a stockholder rights plan that is designed to protect
Columbia stockholders from coercive or unfair takeover tactics. To implement
the plan, on September 1, 1993, the Columbia Board declared a dividend
distribution of one preferred stock purchase right (a "Columbia Right") for
each share of Columbia Common Stock then outstanding and authorized the
issuance of one Columbia Right for each share of Columbia Common Stock issued
thereafter, but prior to the triggering of the plan. One Columbia Right will be
issued with respect to each share of Columbia Common Stock issued pursuant to
the Merger. Each Columbia Right entitles a registered holder to purchase, upon
the occurrence of certain specified events, one one-hundredth of a share of the
Columbia Series A Preferred Stock at a purchase price of $100. The description
and terms of the Columbia Rights are set forth in the Columbia Rights
Agreement. In general, pursuant to the Columbia Rights Agreement, upon the
occurrence of specified triggering events, such as the acquisition by any
person (other than Columbia or any of its subsidiaries) of the beneficial
ownership of securities representing 15% or more of the Columbia Common Stock,
Columbia stockholders (except those stockholders whose Columbia Rights have
been voided under the Columbia Rights Agreement as a result of
42
<PAGE>
a triggering event) shall have the right to receive, in lieu of the Columbia
Series A Preferred Stock, that amount of the Columbia Common Stock (or in
certain circumstances, cash, property or other securities of Columbia or a
reduction in the purchase price) having a value equal to two times the exercise
price of the Columbia Rights. The Columbia Rights Agreement further provides
that if Columbia is acquired in a merger or other business combination which is
not approved by the Columbia Board, Columbia stockholders (except those
stockholders whose Columbia Rights have been voided under the Columbia Rights
Agreement as a result of a triggering event) shall have the right to receive
common stock of the acquiring company having a value equal to two times the
exercise price of the Columbia Rights. Under certain circumstances, Columbia
may redeem the Columbia Rights, which will otherwise expire on the tenth
anniversary of the adoption of the Columbia Rights Agreement. The Columbia
Rights Agreement further provides for the issuance of a Nonvoting Right with
respect to each share of the Columbia Nonvoting Common Stock issued. The effect
of the Columbia Rights Agreement may be to render more difficult a change in
control of Columbia
MCA also adopted a stockholder rights plan that is designed to protect MCA
stockholders from coercive or unfair takeover tactics. To implement the plan,
on July 29, 1992, the Board of Directors of MCA (the "MCA Board") declared a
dividend distribution of one preferred stock purchase right (the "MCA Right")
for each share of MCA Common Stock then outstanding and authorized the issuance
of one MCA Right for each share of MCA Common Stock issued thereafter but prior
to the triggering of the plan. Each MCA Right entitles the registered holder to
purchase upon the occurrence of certain specified events one one-hundredth of a
share of MCA Series A Junior Participating Preferred Stock, par value $1.00 per
share (the "MCA Series A Preferred Stock"), at a purchase price of $250.00 per
one one-hundredth of a share of MCA Series A Preferred Stock. The description
and terms of the MCA Rights are set forth in a Rights Agreement between Medical
Care International, Inc. (as predecessor to MCA) and Society National Bank, as
Rights Agent, dated as of July 30, 1992 (the "MCA Rights Agreement"). In
general, pursuant to the MCA Rights Agreement, upon the occurrence of specified
triggering events, such as the acquisition by any person (other than MCA or any
of its subsidiaries) of the beneficial ownership of securities representing 15%
or more of the MCA Common Stock, MCA's stockholders (except those stockholders
whose MCA Rights have been voided under the MCA Rights Agreement as a result of
the triggering event) shall have the right to receive, in lieu of MCA Series A
Preferred Stock, that amount of the MCA Common Stock (or in certain
circumstances, cash, property or other securities of MCA or a reduction in the
purchase price) having a value equal to two times the exercise price of the MCA
Right. The MCA Rights Agreement further provides that if MCA is acquired in a
merger or other business combination which is not approved by the MCA Board,
MCA's stockholders (except those stockholders whose MCA Rights have been voided
under the MCA Rights Agreement as a result of the takeover) shall have the
right to receive common stock of the acquiring company having a value equal to
two times the exercise price of the MCA Right. Under certain specified
circumstances, MCA may redeem the MCA Rights, which will otherwise expire on
September 9, 2002.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Columbia Certificate provides that, subject to any rights of holders of
the Columbia Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed from time to time by
action of not less than a majority of the Columbia Board then in office, but in
no event shall the number of directors be less than three nor more than
fifteen. The Columbia Board currently consists of 15 directors. The Columbia
Certificate provides that, subject to any rights of holders of the Columbia
Preferred Stock, any vacancies (including newly-created directorships) will be
filled only by the affirmative vote of a majority of the remaining directors,
though less than a quorum. Directors appointed to fill vacancies created by the
resignation or termination of a director will serve the remainder of the term
of the resigning or terminated director. Accordingly, the Columbia Board could
prevent any stockholder from enlarging the Columbia Board and filling the new
directorships with such stockholder's own nominees.
Under the Delaware Law, unless provided in the certificate of incorporation,
directors serving on a classified board may only be removed by the stockholders
for cause. The Columbia Certificate provides that directors may be removed only
for cause and only upon the affirmative vote of holders of at least 66 2/3% of
43
<PAGE>
the voting power of all the then outstanding shares of stock entitled to vote
generally in the election of directors (the "Columbia Voting Stock"), voting
together as a single class, subject to any rights of holders of the Columbia
Preferred Stock.
The MCA Board currently consists of ten directors. The MCA Certificate
provides that, subject to the rights of the holders of any series of preferred
stock of MCA ("MCA Preferred Stock") to elect directors under specified
circumstances, the number of directors of the MCA Board may be fixed, from time
to time, exclusively by the MCA Board pursuant to a resolution adopted by a
majority of the total number of directors that MCA would have if there were no
vacancies.
The MCA Certificate also states that vacancies on the MCA Board, whether
arising from death, resignation, retirement, disqualification, removal from
office, an increase in the number of directors or other cause, may only be
filled by the vote of a majority of the directors then in office, though less
than a quorum. Each director so elected shall hold office for a term expiring
at the annual meeting of stockholders at which the term of office of the class
to which he or she has been elected expires and until his or her successor
shall have been duly elected and qualified. In addition, the MCA Certificate
provides that, subject to the rights of the holders of the MCA Preferred Stock,
any director may be removed, but only for cause, at any time by the affirmative
vote of the holders of at least 80% of the voting power of all of the then
outstanding shares of MCA stock entitled to vote generally in the election of
directors (the "MCA Voting Stock"), voting together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Columbia Certificate (i) provides that, subject to the rights of any
holders of the Columbia Preferred Stock to elect additional directors under
specified circumstances, stockholder action can be taken only at an annual or
special meeting of stockholders and (ii) prohibits stockholder action by
written consent in lieu of a meeting. The Columbia Certificate also provides
that, subject to the rights of holders of any series of the Columbia Preferred
Stock to elect additional directors under specified circumstances, special
meetings of stockholders can be called only by the Chairman of the Board or the
Chief Executive Officer of Columbia or the Columbia Board. Stockholders are not
permitted to call a special meeting or to require that the Columbia Board call
a special meeting of stockholders. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the business
brought before the meeting pursuant to the notice of meeting given by Columbia.
The MCA Certificate (i) provides that, subject to the rights of the holders
of the MCA Preferred Stock, stockholder action can be taken only at an annual
or special meeting of stockholders and (ii) prohibits stockholder action by
written consent. The MCA Certificate also provides that, subject to the rights
of the holders of the MCA Preferred Stock, special meetings of the stockholders
may be called only by the Chairman or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors that MCA
would have if there were no vacancies. Moreover, pursuant to the MCA Bylaws,
only such business shall be conducted at a special meeting of MCA's
stockholders as shall have been brought before the meeting pursuant to the
notice of meeting given by MCA.
The provisions of the Columbia Certificate prohibiting stockholder action by
written consent may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting of stockholders. These provisions would
also prevent the holders of a majority of the voting power of the Columbia
Voting Stock from unilaterally using the written consent procedure to take
stockholder action. Moreover, a stockholder could not force stockholder
consideration of a proposal over the opposition of the Chairman of the Board,
the Chief Executive Officer and the Columbia Board by calling a special meeting
of stockholders prior to the time the Chairman of the Board, the Chief
Executive Officer or the Columbia Board believes such consideration to be
appropriate.
44
<PAGE>
FAIR PRICE PROVISIONS
The Columbia Certificate contains a "fair price" provision, requiring that,
in addition to any other vote required by the Columbia Certificate or the
Delaware Law, certain "Business Combination" transactions with a "Related
Person" will be subject to the affirmative vote of the holders of not less than
85% of the outstanding Columbia Voting Stock held by stockholders other than
the Related Person.
For the purposes of this provision, certain terms are defined as follows:
"Business Combination" means (a) any merger or consolidation of Columbia or a
subsidiary with a Related Person, (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition other than in the ordinary course of
business to or with a Related Person of any assets of Columbia or a subsidiary
having an aggregate fair market value of $25,000,000 or more, (c) the issuance
or transfer by Columbia of any shares of the Columbia Voting Stock or
securities convertible into or exercisable for such shares (other than by way
of pro rata distribution to all stockholders) to a Related Person, (d) any
recapitalization, merger or consolidation that would have the effect of
increasing the voting power of a Related Person, (e) the adoption of any plan
or proposal for the liquidation or dissolution of Columbia or a subsidiary
proposed, directly or indirectly, by or on behalf of a Related Person, (f) any
merger or consolidation of Columbia with another person proposed, directly or
indirectly, by or on behalf of a Related Person unless the entity surviving or
resulting from such merger or consolidation has a provision in its certificate
or articles of incorporation, charter or similar governing instrument which is
substantially identical to the "fair price" provisions of the Columbia
Certificate or (g) any agreement, contract or other arrangement or
understanding providing, directly or indirectly, for any of the foregoing
transactions.
"Related Person" means any individual, partnership, corporation, trust or
other person which together with its "affiliates" and "associates," as defined
in Rule 12b-2 under the Exchange Act as in effect on July 1, 1993, and together
with any other individual, partnership, corporation, trust or other person with
which it or they have any agreement, contract or other arrangement or
understanding with respect to acquiring, holding, voting or disposing of the
Columbia Voting Stock, "beneficially owns" (within the meaning of Rule 13d-3
under the Exchange Act on said date) an aggregate of 10% or more of the
outstanding Columbia Voting Stock. A Related Person, its affiliates and
associates and all such other individuals, partnerships, corporations and other
persons with whom it or they have any such agreement, contract or other
arrangement or understanding, are deemed a single Related Person for purposes
of this provision; provided, however, that the members of the Columbia Board
shall not be deemed to be associates or otherwise to constitute a Related
Person solely by reason of their board membership. A person who is a Related
Person (a) as of the time any definitive agreement relating to a Business
Combination is entered into, (b) as of the record date for the determination of
stockholders entitled to notice of and to vote on a Business Combination or (c)
immediately prior to the consummation of a Business Combination, shall be
deemed a Related Person for purposes of this provision.
"Continuing Director" means any member of the Columbia Board who is not an
"affiliate" or "associate" of the Related Person and was a member of the
Columbia Board prior to the time that such person became a Related Person, and
any successor of a Continuing Director who is unaffiliated with such Related
Person and is recommended to succeed a Continuing Director by a majority of the
Continuing Directors.
"Market Value" means the average of the high-bid and low-asked quoted sales
price on the date in question (or, if there is no reported sale on such date,
on the last preceding date on which any reported sale occurred) of a share on
the NYSE Composite Tape, or, if the shares are not listed or admitted to
trading on such exchange, on the principal United States securities exchange
registered under the Exchange Act on which the shares are listed or admitted to
trading, or, if the shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and the low-asked quotations
with respect to a share on such date as quoted on NASDAQ, or any similar system
then in use, or, if no such quotations are
45
<PAGE>
available, the fair market value on such date of a share as at least 66 2/3% of
the Continuing Directors shall determine.
The 85% voting requirement will not be applicable and a Business Combination
with a Related Person may be approved by the vote (if any) required by law or
by any other provision of the Columbia Certificate if either:
1. The Business Combination is approved by the Board of Directors of
Columbia by the affirmative vote of at least 66 2/3% of the Continuing
Directors, or
2. All of the following conditions are satisfied:
(a) The aggregate amount of cash and the fair market value of the
property, securities or other consideration to be received per share of
capital stock of Columbia in the Business Combination by the holders of
capital stock of Columbia, other than the Related Person involved in
the Business Combination, will not be less than the highest of (i) the
highest per share price (including brokerage commissions, soliciting
dealers' fees, and dealer-manager compensation, and with appropriate
adjustments for recapitalizations, stock splits, stock dividends and
like transactions and distributions) paid by such Related Person in
acquiring any of its holdings of such class or series of capital stock,
(ii) the highest per share Market Value of such class or series of
capital stock within the twelve-month period immediately preceding the
date the proposal for such Business Combination was first publicly
announced or (iii) the book value per share of such class or series of
capital stock, determined in accordance with generally accepted
accounting principles, as of the last day of the month immediately
preceding the date the proposal for such Business Combination was first
publicly announced;
(b) The consideration to be received in such Business Combination by
holders of capital stock other than the Related Person involved will,
except to the extent that a stockholder agrees otherwise as to all or
part of the shares which he or she owns, be in the same form and of the
same kind as the consideration paid by the Related Person in acquiring
capital stock already owned by it, provided, however, that if the
Related Person has paid for capital stock with varying forms of
consideration, the form of consideration for shares of capital stock
acquired in the Business Combination by the Related Person must either
be cash or the form used to acquire the largest number of shares of
capital stock previously acquired by it; and
(c) A proxy statement responsive to the requirements of the Exchange
Act is mailed to the stockholders of Columbia for the purpose of
soliciting stockholder approval of such Business Combination and
contains (i) any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Continuing
Directors may choose to state and (ii) the opinion of a reputable
investment banking firm selected by the Continuing Directors as to the
fairness of the terms of such Business Combination, from a financial
point of view, to the public stockholders (other than the Related
Person) of Columbia.
The "fair price" provision is intended to ensure that all stockholders
receive equal treatment in the event of a tender or exchange offer and to
protect stockholders against coercive or two-tiered takeover bids.
Notwithstanding the foregoing, the provision could also have the effect of
discouraging a third party from making a tender or exchange offer for Columbia,
even though such an offer might be beneficial to Columbia and its stockholders.
The MCA Certificate contains no "fair price" provision.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Columbia Certificate establishes an advance notice procedure for
stockholders to make nomination of candidates for election as directors, or
bring other business before an annual meeting of stockholders, of Columbia (the
"Stockholder Notice Procedure").
46
<PAGE>
The Stockholder Notice Procedure provides that, subject to the rights of any
holders of the Columbia Preferred Stock, only persons who are nominated by, or
at the direction of, the Columbia Board, or by a stockholder who has given
timely written notice to the Secretary of Columbia prior to the meeting at
which directors are to be elected, will be eligible for election as directors
of Columbia. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Chairman of the Board, the Chief
Executive Officer, or the Columbia Board or by a stockholder who has given
timely written notice to the Secretary of Columbia of such stockholder's
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, to be timely, notice of stockholder nominations or proposals
to be made at an annual meeting must be received by Columbia no less than 60
days nor more than 90 days prior to the scheduled date of the meeting (or, if
less than 70 days' notice or prior public disclosure of the date of the meeting
is given, the 10th day following the earlier of (i) the date such notice was
mailed or (ii) the date such public disclosure was made).
Under the Stockholder Notice Procedure, a stockholder's notice to Columbia
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and address of the
nominating stockholder, the class and number of shares of stock of Columbia
which are owned by such stockholder and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the proposed nominee. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business
and about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of
Columbia beneficially owned by such stockholder, and any material interest of
such stockholder in the business so proposed. If the Chairman of the Board, the
Chief Executive Officer or other officer presiding at a meeting determines that
a person was not nominated, or other business was not brought before the
meeting, in accordance with the Stockholder Notice Procedure, such person will
not be eligible for election as a director or such business will not be
conducted at such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Columbia Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Columbia Board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure also provides a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Columbia Board, provides the Columbia Board with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the Columbia Board's position regarding action to be taken with respect to
such business, so that stockholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Although the Columbia Certificate does not give the Columbia Board any power
to approve or disapprove stockholder nominations for the election of directors
or proposals for action, the foregoing provisions may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to Columbia and its stockholders.
The MCA Bylaws contain similar provisions relating to stockholder nominations
and stockholder proposals.
47
<PAGE>
COMMON STOCK AND NONVOTING COMMON STOCK
The terms of the Columbia Common Stock are substantially identical to those
of the MCA Common Stock. The Columbia Certificate authorizes the Columbia
Nonvoting Common Stock. The MCA Certificate does not authorize nonvoting common
stock.
PREFERRED STOCK
Pursuant to the Columbia Certificate, the Columbia Board is authorized,
subject to the limitations prescribed by law, to provide for the issuance of
shares of the Columbia Preferred Stock in one or more series (including the
Columbia Series A Preferred Stock), to establish the number of shares of each
such series, and to fix the designations, powers, preferences and rights of the
shares of each such series, and any qualifications, limitations or restrictions
thereof. See "--Stockholder Rights Plan." The MCA Certificate contains
substantially similar provisions relating to MCA Preferred Stock.
Management of Columbia believes that the ability of the Columbia Board to
issue one or more series of the Columbia Preferred Stock provides Columbia with
flexibility in structuring possible future financings, and acquisitions, and in
meeting other corporate needs that might arise. The authorized shares of the
Columbia Preferred Stock, as well as shares of the Columbia Common Stock, are
available for issuance without further action by the Columbia stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Columbia securities may be
listed or traded. The NYSE currently requires stockholder approval as a
prerequisite to listing shares in several instances, including where the
present or potential issuance of shares could result in an increase of at least
20% in the number of shares of common stock or in the amount of voting
securities outstanding. If the approval of the Columbia stockholders is not
required for the issuance of shares of the Columbia Preferred Stock or the
Columbia Common Stock, the Columbia Board may not seek stockholder approval.
Although the Columbia Board has no intention at the present time of doing so,
it could issue a series of the Columbia Preferred Stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Columbia Board will make any determination to issue
such shares based on its judgment as to the best interests of Columbia and its
stockholders. The Columbia Board, in so acting, could issue the Columbia
Preferred Stock having terms that discourage an acquisition attempt through
which an acquiror may be able to change the composition of the Columbia Board,
including a tender offer or other transaction that some, or a majority, of the
Columbia stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Columbia Certificate contains provisions requiring the affirmative vote
of the holders of at least 75% of the voting power of the Columbia Voting
Stock, after approval by the Columbia Board, to amend certain provisions of the
Columbia Certificate (including the provisions discussed above relating to
directors, action by written consent, special stockholder meetings and the
Stockholder Notice Procedure) or to amend any provision of the Columbia Bylaws.
An amendment of the "fair price" provision requires the approval of 66 2/3% of
the directors of Columbia then in office and the affirmative vote of 85% of the
Columbia Voting Stock held by stockholders other than any Related Person,
unless the amendment is approved by 66 2/3% of the Continuing Directors. These
provisions make it more difficult for stockholders to make changes in the
Columbia Certificate and the Columbia Bylaws, including changes designated to
facilitate the exercise of control over Columbia.
The MCA Certificate contains provisions requiring the affirmative vote of the
holders of at least 80% of the voting power of the MCA Voting Stock to amend
certain provisions of the MCA Certificate (including the provisions discussed
above relating to directors, stockholder action by written consent, special
stockholder
48
<PAGE>
meetings, stockholder nominations and stockholder proposals) or to amend any
provision of the MCA Bylaws.
BUSINESS COMBINATIONS
Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder unless (i) prior to
such date, 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 consummation of the transaction
which resulted in the stockholder 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 (excluding shares
held by directors who are also officers and employee stock purchase plans in
which employee participants do not have the right to determine confidentially
whether plan shares will be tendered in a tender or exchange offer) or (iii) on
or subsequent to such date, the business combination is approved by the board
of directors of the corporation and by the affirmative vote at an annual or
special meeting, and not by written consent, of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
Except as specified in Section 203 of the Delaware Law, an interested
stockholder is defined to include (a) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (b) the affiliates and associates of
any such person.
Under certain circumstances, Section 203 of the Delaware Law may make it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the corporation's certificate of incorporation or stockholders may
elect to exclude a corporation from the restrictions imposed thereunder. The
Columbia Certificate does not exclude Columbia from the restrictions imposed
under Section 203 of the Delaware Law. Similarly, the MCA Certificate does not
exclude MCA from the restrictions imposed under Section 203. It is anticipated
that the provisions of Section 203 of the Delaware Law may encourage companies
interested in acquiring Columbia to negotiate in advance with the Columbia
Board, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
SPECIAL VOTING REQUIREMENTS
The Columbia Certificate requires that (i) any change in the powers,
preferences or special rights of the Columbia Nonvoting Common Stock so as to
affect the holders thereof adversely will require the affirmative vote of a
majority of the directors then in office and the affirmative vote of the
holders of not less than 66 2/3% of the then outstanding shares of the Columbia
Nonvoting Common Stock and (ii) any change in the authorized number of shares
of any class of capital stock of Columbia will require the affirmative vote of
a majority of the directors then in office and the affirmative vote of the
holders of not less than a majority of the then outstanding shares of the
Columbia Common Stock and the Columbia Nonvoting Common Stock, voting together
as a single class. The MCA Certificate provides that the number of authorized
shares of MCA Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of the holders of a
majority of the voting power of the MCA Voting Stock, voting together as a
single class, without a separate vote of the holders of the MCA Preferred
Stock, or any series thereof unless a vote of any such holders is required
pursuant to any designation of the MCA Preferred Stock.
LIMITATION OF LIABILITY OF DIRECTORS
The Delaware Law permits a corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of
a director or officer to the corporation or its stockholders for
49
<PAGE>
damages for breach of the director's fiduciary duty, subject to certain
limitations. Each of the Columbia Certificate and the MCA Certificate includes
such a provision, as set forth below, to the maximum extent permitted by law.
Each of the Columbia Certificate and the MCA Certificate provides that a
director will not be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware Law, which concerns unlawful payments of
dividends, stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware Law permits a corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The Delaware Law provides that a
corporation may advance expenses of defense (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not appropriate)
and must reimburse a successful defendant for expenses, including attorneys'
fees, actually and reasonably incurred, and permits a corporation to purchase
and maintain liability insurance for its directors and officers. Delaware Law
provides that indemnification may not be made for any claim, issue or matter as
to which a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless
and only to the extent a court determines that the person is entitled to
indemnity for such expenses as the court deems proper.
The Columbia Certificate provides that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, will be
indemnified by the corporation to the full extent permitted by the Delaware
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted prior to such
amendment) or by other applicable laws then in effect. The indemnification
rights conferred by the Columbia Certificate are not exclusive of any other
right to which a person seeking indemnification may be entitled under any law,
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Columbia is authorized to purchase and maintain (and Columbia maintains)
insurance on behalf of its directors, officers, employees and agents. The MCA
Bylaws contain substantially similar provisions relating to indemnification and
insurance.
OTHER PROVISIONS
The Columbia Certificate provides that in discharging their respective duties
under applicable law and in determining what they believe to be in the best
interests of Columbia and its stockholders, the Columbia Board, each committee
of the Columbia Board and each director may take into account the effects, both
50
<PAGE>
long- and short-term, of the proposed action on the employees, associates,
associated physicians, distributors, patients or other customers, suppliers and
creditors of Columbia and the communities in which Columbia conducts its
business, to the extent such persons believe pertinent (including the
possibility that the interests of Columbia may best be served by remaining
independent). The MCA Certificate contains a substantially similar provision.
The Columbia Certificate also authorizes the Columbia Board to take such
action as it may determine to be reasonably necessary or desirable to encourage
any person or entity to enter into negotiations with the Columbia Board and
management respecting any transaction which may result in a change of control
of Columbia, and to contest or oppose any such transaction which the Columbia
Board determines to be unfair, abusive or otherwise undesirable to Columbia,
its businesses or stockholders or constituents. The Columbia Board is
specifically authorized to adopt plans or to issue securities of Columbia
(including the Columbia Common Stock or the Columbia Preferred Stock, rights
(including the Columbia Rights) or debt securities), which securities may be
exchangeable or convertible into cash or other securities on such terms as the
Columbia Board determines and may provide for different and unequal treatment
of different holders or classes of holders. The existence of this authority or
the actions which may be taken by the Columbia Board pursuant thereto are
intended to give the Columbia Board flexibility to act in the best interests of
stockholders in the event of a potential change of control transaction. Such
provisions may, however, deter potential acquirors from proposing unsolicited
transactions not approved by the Columbia Board and might enable the Columbia
Board to hinder or frustrate such a transaction if proposed, including a
transaction in which stockholders might receive a premium for their stock over
the then current market price of such stock. The MCA Certificate contains
substantially similar provisions.
APPROVAL OF 1994 RESTRICTED AND NONQUALIFIED STOCK OPTION PLAN
GENERAL DESCRIPTION OF THE PLAN
The MCA 1994 Restricted and Nonqualified Stock Option Plan (the "1994 Plan")
was adopted by the MCA Board effective June 22, 1993. The MCA Board directed
that the 1994 Plan be submitted to the stockholders for approval and adoption.
Approval and adoption of the 1994 Plan will not entail any additional
potential for dilution of the holdings of MCA stockholders. In connection with
the adoption of the 1994 Plan and the Directors Plan by the MCA Board, certain
of the existing stock option plans of MCA, which were originally Critical Care
America, Inc. plans ("CCA Plans"), have been amended to provide that no further
issuances of MCA Common Stock will be possible under these existing CCA Plans.
The shares previously issuable under these existing CCA Plans have been
reallocated to the 1994 Plan and the Directors Plan such that the total number
of shares issuable under the 1994 Plan and the Directors Plan is equal to the
number of shares that would otherwise have been issuable under these existing
CCA Plans had they not been amended. The total number of shares of MCA Common
Stock issuable under the 1994 Plan and the Directors Plan is thus equal to the
number of shares previously authorized by stockholders in approving and
adopting these existing CCA Plans.
The purposes of the 1994 Plan are (a) to provide additional incentive for key
employees of MCA and its subsidiaries by authorizing the payment of bonus or
incentive compensation in shares of MCA Common Stock and by encouraging such
key employees to invest in shares of MCA Common Stock, thereby furthering their
identity of interest with the interests of MCA's stockholders, increasing their
stake in the future growth and prosperity of MCA and stimulating and sustaining
constructive and imaginative thinking; and (b) to enable MCA, by offering
comparable incentives, to induce the employment and continued employment of key
employees and to compete with other organizations in attracting and retaining
the services of competent executives.
51
<PAGE>
The 1994 Plan provides that it shall be administered by a committee that
shall be appointed by the MCA Board and shall consist of not less than three
disinterested members of the MCA Board. No member of the committee is eligible
to participate in the 1994 Plan. The MCA Board has appointed the Option and
Compensation Committee (the "Committee") to administer the 1994 Plan.
Participation in the 1994 Plan is limited to such key employees
("participants") as the Committee may select from the employees of MCA who are
in positions of responsibility and who can, in the judgment of the Committee,
contribute significantly to the growth and successful operation of MCA and its
subsidiaries.
Subject to the provisions of the 1994 Plan, the Committee may at any time, or
from time to time, grant stock incentives to key employees in the following
forms: (i) nonqualified stock options to purchase shares of the MCA Common
Stock ("Options"); (ii) shares of restricted MCA Common Stock ("Restricted
Stock") which are substantially nonvested until specified vesting conditions
set forth in the participant's stock agreement are met; (iii) stock awards, or
retention shares ("Retention Share Awards") under which shares of the MCA
Common Stock are granted to a participant, with vesting pursuant to conditions
set forth in the participant's stock agreement; or (iv) plan units consisting
of a combination of shares of restricted stock and nonqualified stock options
which are granted together ("Plan Units"). The Committee may not, however,
grant to any one participant stock incentives totalling more than an average of
75,000 shares on an annual basis over any two year period.
The 1994 Plan provides that the maximum number of shares that may be issued
is 750,000. All of the stock which is to be issued under the 1994 Plan consists
of authorized but unissued or reacquired shares of MCA Common Stock reallocated
from dormant CCA Plans. The number of shares subject to Options and the
exercise price, the number of shares of Restricted Stock and the number of
shares covered by Retention Share Awards are subject to adjustment to reflect
any subdivision or consolidation of shares, or other capital readjustment,
stock dividend, exchange of shares, recapitalization, merger, split-up or
similar transaction affecting the shares.
Shares of Restricted Stock issued under the 1994 Plan are subject to
forfeiture and reversion to MCA until vested. Options granted under the 1994
Plan may not be exercised until vested, and shares of MCA Common Stock may not
be issued pursuant to any Retention Share Award until vested. The Committee is
empowered under the 1994 Plan to establish the terms and conditions of vesting
for any participant.
Options to purchase 254,414 shares of the MCA Common Stock have been granted
pursuant to the 1994 Plan, subject to stockholder approval of the 1994 Plan, to
16 current employees, effective as of July 1, 1993, by the Committee as
required by the terms of the 1994 Plan. Such options vest on each succeeding
July 1 in accordance with the following schedule for each participant who is an
employee on the designated vesting date:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
% Vested............................................ 20% 30% 40% 50% 100%
</TABLE>
A total of 165,737 shares of Restricted Stock were granted on July 1, 1993 by
the Committee, as required by the terms of the 1994 Plan, subject to
stockholder approval of the 1994 Plan. The initial Restricted Stock granted
effective as of July 1, 1993, vests 50% on July 1, 1997 and the remaining 50%
on July 1, 1998.
In order to encourage long term holding of exercised options, the Committee
granted Retention Share Awards, effective as of July 1, 1993, to participants
who were also granted Options effective as of July 1, 1993. A total of 50,881
Retention Share Awards were granted on July 1, 1993, subject to stockholder
approval of the 1994 Plan. Such Retention Share Awards provide for the issuance
of one share of the MCA Common Stock for each five shares covered by an Option.
Such Retention Share Awards vest as follows: Retention Share Awards equal to
one share of MCA Common Stock for each five shares purchased by the participant
upon exercise of an Option and which continue to be held by such participant on
the Effective Date, as defined
52
<PAGE>
below, will be deemed immediately vested as of the Effective Date and a stock
certificate representing the shares will be issued to such participant,
provided a participant is an employee of MCA or a subsidiary on the date which
is thirty-six months after the date of the participant's exercise of an Option
(the "Effective Date").
The exercise price at which shares of MCA Common Stock may be purchased
pursuant to an Option may not be less than 100% of the fair market value of
such shares of MCA Common Stock on the grant date. No Option may be exercised
more than ten years from the date it was granted. An Option under the 1994 Plan
is exercisable by a participant only during his lifetime and only while he is
an employee of MCA. No Option is transferrable by a participant except by will
or the laws of descent and distribution.
Each unexercised Option and nonvested Retention Share Award expires, and each
nonvested share of Restricted Stock is forfeited, immediately upon severance of
the employment relationship between MCA and the participant, other than by
death or disability, unless otherwise vested at the sole discretion of the
Committee. If a participant terminates employment due to disability, any vested
Option (whether vested prior to or as a consequence of the disability of the
participant) may be exercised at any time prior to the earlier of six months
after such termination or the expiration date of the Option. In the event of
the death of a participant while in the employ of MCA, any vested Option
(whether vested prior to or as a consequence of the death of the participant)
may be exercised at any time prior to the earlier of the date of expiration of
the Option or six months following the date of death. The Committee may specify
in each participant's stock agreement whether all or any nonvested shares of
Restricted Stock or any nonvested Retention Share Award shall become vested as
a result of the participant's death or disability.
The 1994 Plan provides that if MCA is to be dissolved or liquidated, if MCA
is not to be the surviving corporation in any merger or consolidation, or if
there is a change of control of MCA, each outstanding Option, Retention Share
Award and share of Restricted Stock shall become 100% vested, and for Options
immediately exercisable, and for Retention Share Awards, immediately issuable
and distributable. THE CONSUMMATION OF THE MERGER WOULD CONSTITUTE A "CHANGE OF
CONTROL" WITHIN THE MEANING OF THE 1994 PLAN, WITH THE FOREGOING RESULTS.
The MCA Board may suspend, discontinue, revise or amend the 1994 Plan without
stockholders' approval, except that such approval will be required for any
revision or amendment that would (i) increase the number of shares subject to
the 1994 Plan or (ii) change the description of the class of persons eligible
to receive benefits under the 1994 Plan. Adjustment in the total number of
shares subject to the 1994 Plan may be made, however, without stockholders'
approval pursuant to the anti-dilution adjustment provisions described above.
FEDERAL INCOME TAX CONSEQUENCES
Neither the receipt of shares of Restricted Stock nor the grant of an Option
should be a taxable event for federal income tax purposes. The receipt of
shares of Restricted Stock is not a taxable event because the shares are not
substantially vested at the time of receipt. The receipt of Options is not a
taxable event because the Options do not have a "readily ascertainable fair
market value" under criteria set forth in currently applicable regulations.
Rather, a participant will realize compensation income at the time the shares
of Restricted Stock become substantially vested or, if later, the first date on
which the participant's sale of the shares of Restricted Stock would no longer
be subject to liability under the "short-swing" profit prohibitions of Section
16(b) of the Exchange Act.
Recipients of Retention Share Awards granted under the 1994 Plan will not
realize compensation income for services until the later of (i) the time the
shares issuable pursuant to such Retention Share Award become
53
<PAGE>
substantially vested or (ii) the first date upon which the participant's sale
of such shares received would no longer be subject to liability under the
"short-swing" profit prohibitions of Section 16(b) of the Exchange Act.
The amount of compensation income recognized by a participant who acquires
shares of stock (whether shares of Restricted Stock or shares of MCA Common
Stock received upon exercise of an Option or subject to a Retention Share
Award) is the excess of the fair market value of the shares of stock at the
time the shares become substantially vested, or, if later, the first date on
which the participant's sale of such shares would no longer be subject to
liability under Section 16(b) of the Exchange Act, over the amount paid by the
participant for such shares. A participant who is issued shares of Restricted
Stock or shares of MCA Common Stock acquired upon exercise of an Option or
pursuant to a Retention Share Award which is not substantially vested or the
sale of which is subject to potential liability under Section 16(b), however,
may elect to treat the shares as if they are substantially vested and, thus,
recognize income as of the date of the issuance of the shares. The amount of
income recognized by a participant making such an election will be the excess
of the fair market value of the acquired shares on the date of the issuance
over the amount paid for the acquired shares.
Based on applicable provisions of the Code, no taxable income or gain should
be recognized, for federal tax purposes, as a result of the tender of
previously owned shares of MCA Common Stock in payment for the shares of MCA
Common Stock acquired upon the exercise of an Option under the 1994 Plan;
provided, however, that if any such shares were received on the exercise of a
statutory stock option or purchased pursuant to an employee stock purchase
plan, and such shares were held for less than the required holding period, then
the tender of such shares may constitute a disqualifying disposition.
If MCA determines that it is required to withhold Federal, state and/or local
taxes in connection with the exercise of an Option, the issuance of shares
covered by a Retention Share Award or the vesting of Restricted Stock, the
participant may elect to pay such withholding taxes by having shares with a
total fair market value equal to the withholding taxes withheld by MCA from the
shares otherwise to be issued to the participant, provided that the participant
has made an irrevocable written election to have such shares withheld at least
six months prior to the date that such shares are to be withheld. If MCA
withholds all amounts required to be withheld under applicable legal authority,
MCA ordinarily will be entitled to a compensation expense deduction equivalent
to the amount of compensation income realized by the participant. A deduction
is allowed to MCA in the same taxable year in which the income is included by
the participant.
The 1993 amendments to the federal tax laws increased the tax rate
differential between capital gains and ordinary income. The top marginal
individual tax rate for capital gains remains at 28%, whereas the top marginal
individual tax rate for ordinary income became 36%. A surtax imposed on higher
income brackets, however, effectively makes the top rate for ordinary income
39.6%.
VOTE REQUIRED AND RECOMMENDATION
Approval of the resolution to adopt the 1994 Plan requires the affirmative
vote of a majority of the shares of MCA Common Stock represented, in person or
by proxy, at the Special Meeting. The enclosed form of Proxy provides a means
for stockholders to vote for the 1994 Plan, to vote against the 1994 Plan, or
to abstain from voting with respect to the 1994 Plan. Each properly executed
Proxy received in time for the Special Meeting will be voted as specified
therein. If a stockholder executes and returns a Proxy but does not specify
otherwise, the shares represented by such stockholder's Proxy will be voted FOR
the approval of the 1994 Plan. Approval of the 1994 Plan will be effective at
the Effective Time of the Merger or, if the Merger is not approved by
stockholders, at the time the 1994 Plan is approved by stockholders.
THE MCA BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE 1994 PLAN.
EACH OF THE EMPLOYEE-DIRECTORS AND EXECUTIVE OFFICERS OF MCA HAS AN INTEREST IN
AND WILL BENEFIT FROM APPROVAL OF THE 1994 PLAN.
54
<PAGE>
APPROVAL OF DIRECTOR OPTIONS
Effective as of June 22, 1993, MCA granted to each of its non-employee
directors an option (the "1993 Director Options") to purchase 10,000 shares of
MCA Common Stock at $17.875 per share (which was the closing price of the MCA
Common Stock reported on the New York Stock Exchange Composite Tape on that
date). The 1993 Director Options become exercisable with respect to 3,333
shares, 3,333 shares and 3,334 shares on the first, second and third
anniversary dates of grant, respectively, and expire five years from the date
of grant. If the optionee ceases to be a member of the MCA Board for any
reason, such option will terminate thirty days following the day he ceases to
be a director. In the event of the death of the optionee while serving as a
director of MCA, such option will terminate on the earlier of the expiration
date of the 1993 Director Option and ninety days following his death.
The purpose of granting the 1993 Director Options and previous options was to
provide further incentive to certain directors of MCA whose continuing services
as directors were considered valuable to the financial success of MCA.
FEDERAL INCOME TAX CONSEQUENCES
The 1993 Director Options do not qualify as incentive stock options within
the meaning of Section 422 of Code. Accordingly, the 1993 Director Options are
"nonqualified stock options." No income was recognized by an optionee at the
time of grant of a 1993 Director Option. In addition, there were no federal
income tax consequences to MCA upon the grant of such options to an optionee.
Upon the exercise of a nonqualified stock option, the amount by which the
fair market value of the MCA Common Stock on the "determination date" (defined
below) exceeds the exercise price will be taxable to the optionee as ordinary
income. Since the holders of the 1993 Director Options are subject to Section
16(b) of the Exchange Act, the "determination date" is the date on which a sale
of MCA Common Stock by the optionee is no longer restricted by Section 16(b).
MCA will generally be entitled to a compensation expense deduction upon the
exercise of such an option in an amount equal to the compensation received by
the optionee as ordinary income; the deduction is allowed to MCA in the same
taxable year in which the income is included by the optionee.
The date the six-month restriction of Section 16(b) of the Exchange Act ends,
rather than the date of exercise, will generally be the determination date for
measuring the amount of ordinary income to be recognized upon exercising an
option and for the beginning of the optionee's holding period for capital gains
purposes. Nevertheless, pursuant to Section 83(b) of the Code, the optionee may
elect to have the date of exercise be the determination date by filing an
election with the Internal Revenue Service not later than 30 days after the
date of exercise.
The sale of shares acquired upon the exercise of a nonqualified stock option
may result in capital gain or loss, as the case may be, in an amount equal to
the difference between the amount realized upon such sale and the optionee's
tax basis in the shares. If payment of the option exercise price is made by
cash or check, the tax basis of the shares of MCA Common Stock will be equal to
the fair market value on the date of exercise (or, if applicable, the date on
which the six-month period under Section 16(b) ends), but not less than the
option exercise price. The holding period for determining short or long term
capital gain for MCA Common Stock will begin on the day after the shares are
acquired pursuant to the exercise of the option.
If payment of the exercise price for a nonqualified stock option is made with
shares of MCA Common Stock previously owned by the optionee, such payment
generally will not be considered a taxable disposition of the previously owned
shares of MCA Common Stock and thus no gain or loss will be recognized with
respect to such shares upon such exercise. The optionee's tax basis and holding
period of the previously owned shares of MCA Common Stock will be carried over
to the equivalent number of shares of MCA Common Stock received upon exercise.
The tax basis of the additional shares of MCA Common Stock received upon
55
<PAGE>
exercise will be the fair market value of such shares on the date of exercise
(or, if applicable, the date on which the six-month period under Section 16(b)
ends), but not less than the amount of cash used in payment, and the holding
period for determining short or long term capital gain for such additional
shares of MCA Common Stock will begin on the day the shares are acquired.
VOTE REQUIRED AND RECOMMENDATION
Approval of the grant of 1993 Director Options to non-employee directors
requires the affirmative vote of a majority of the shares of MCA Common Stock
represented, in person or by proxy, at the Special Meeting. MCA is soliciting
stockholder approval of its grant of the 1993 Director Options because it is a
requirement of the New York Stock Exchange and to qualify the 1993 Director
Options under Rule 16b-3 under the Exchange Act. MCA anticipates terminating
the 1993 Director Options if the stockholders do not approve the proposed
grant. The enclosed form of Proxy provides a means for stockholders to vote for
approval of the grant of the 1993 Director Options, to vote against approval of
such grant, or to abstain from voting with respect to such grant. Each properly
executed Proxy received in time for the Special Meeting will be voted as
specified therein. If a stockholder executes and returns a Proxy but does not
specify otherwise, the shares represented by such stockholder's Proxy will be
voted FOR the approval of the grant of the 1993 Director Options. Approval of
the 1993 Director Options will be effective at the Effective Time of the Merger
or, if the Merger is not approved by stockholders, at the time the 1993
Director Options are approved by stockholders.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE GRANT OF 1993
DIRECTOR OPTIONS TO NON-EMPLOYEE DIRECTORS.
APPROVAL OF DIRECTORS
NONQUALIFIED STOCK OPTION PLAN
GENERAL DESCRIPTION OF THE PLAN
The MCA Directors Nonqualified Stock Option Plan (the "Directors Plan") was
adopted by the MCA Board effective April 12, 1994. The MCA Board directed that
the Directors Plan be submitted to the stockholders for approval and adoption.
Approval and adoption of the Directors Plan will not entail any additional
potential dilution of the holdings of the stockholders of MCA. In connection
with the adoption of the Directors Plan and the 1994 Plan by the MCA Board,
certain of the currently existing CCA Plans have been amended to provide that
no further issuances of MCA Common Stock will be possible under these CCA
Plans. The shares previously issuable under these existing CCA Plans have been
reallocated to the Directors Plan and the 1994 Plan such that the total number
of shares of MCA Common Stock issuable under the Directors Plan and the 1994
Plan is equal to the shares that would otherwise have been issuable under these
existing CCA Plans had they not been amended. The total number of shares of MCA
Common Stock issuable under the Directors Plan is thus equal to the number of
shares previously authorized by stockholders in approving and adopting the
existing CCA Plans (less the number of shares allocated to the 1994 Plan).
The Directors Plan is designed to assist MCA in attracting and retaining the
services of directors who are not employees or significant stockholders of MCA
and whose training, experience and ability are of value to MCA. If approved by
the stockholders, the Directors Plan will assist MCA in increasing the stock
ownership of outside directors. The MCA Board believes that a mechanism to
place more MCA Common Stock in the hands of the outside, non-employee directors
will provide a strong connection between management and stockholder interests
and incentives to enhance stockholder value.
The Directors Plan is administered by the MCA Board subject to the provisions
of the Directors Plan. All decisions of the MCA Board must be approved by the
affirmative vote of a majority of its members then serving. There are currently
200,000 shares of MCA Common Stock authorized for issuance under the Directors
Plan.
56
<PAGE>
Under the Directors Plan, each outside director is, on a biennial basis,
automatically granted an option (each a "Director Option") to purchase 10,000
shares of MCA Common Stock. The first Director Option will be granted on August
1, 1994 to each outside director then serving on the MCA Board, with further
Director Options to be granted on a biennial basis to each outside director
then serving on the MCA Board. All grants made under the Directors Plan will be
made without the exercise of discretion by any person. Director Options granted
under the Directors Plan will have an exercise price equal to the fair market
value of the shares on the date of grant. Each Director Option becomes
exercisable with respect to 3,333 shares, 3,333 shares and 3,334 shares on the
first, second and third anniversary dates of grant, respectively, and expires
five years from the date of grant. If the optionee ceases to be a member of the
MCA Board for any reason, all outstanding Director Options of the optionee will
terminate 30 days following the day the optionee ceases to be a director,
unless otherwise vested at the sole discretion of the Committee. In the event
of the death of the optionee while serving as a director of MCA, all
outstanding Director Options of the optionee will terminate on the earlier of
the expiration date of such Director Options or 90 days following the
optionee's death.
The MCA Board has retained the right to amend or terminate the Directors Plan
as it deems advisable. Stockholder approval is required, however, for any
alteration or amendment that would (i) materially increase the benefits
accruing to optionees under the Directors Plan, (ii) materially increase the
number of securities that may be issued under the Directors Plan, or (iii)
materially modify the eligibility requirements for participation in the
Directors Plan. No termination or amendment of the Directors Plan may adversely
affect the rights of an optionee, except with the consent of the optionee.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences with respect to options granted under the
Directors Plan are the same as those with respect to the 1993 Director Options.
See "Approval of Director Options--Federal Income Tax Consequences."
VOTE REQUIRED AND RECOMMENDATION
Approval of the resolution to adopt the Directors Plan requires the
affirmative vote of a majority of the shares of MCA Common Stock voting, in
person or by proxy, at the Special Meeting. The enclosed form of Proxy provides
a means for stockholders to vote for the Directors Plan, to vote against the
Directors Plan, or to abstain from voting with respect to the Directors Plan.
Each properly executed Proxy received in time for the Special Meeting will be
voted as specified therein. If a stockholder executes and returns a Proxy but
does not specify otherwise, the shares represented by such stockholder's Proxy
will be voted FOR the approval of the Directors Plan.
THE MCA BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE DIRECTORS
PLAN.
SUMMARY OF BENEFITS UNDER THE 1994 PLAN,
THE DIRECTORS PLAN AND THE 1993 DIRECTOR OPTIONS
It is not possible to determine the number of shares that will in the future
be awarded under either the 1994 Plan or the Directors Plan to any particular
individual, or the dollar value of the Options, shares of Restricted Stock or
Retention Share Awards. The following table sets forth the number of Options,
the shares of Restricted Stock and the Retention Share Awards which were
awarded during the fiscal year ended December 31, 1993, to certain individuals
and groups under the 1994 Plan, the Directors Plan and the 1993 Director
Options, subject, in each case, to stockholder approval.
57
<PAGE>
<TABLE>
<CAPTION>
SHARES OF RETENTION
RESTRICTED SHARE DOLLAR
NAME AND POSITION OPTIONS(1) STOCK(1) AWARDS(1) VALUE ($)(2)
- ----------------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Donald E. Steen.................. 52,941 37,059 10,588 1,970,732
President and Chief
Executive Officer
William H. Wilcox................ 36,029 24,706 7,206 1,326,271
President of MCI
S. Tucker Taylor................. 22,059 14,706 4,412 799,828
Senior Vice President
Lawrence M. Mullen............... 22,059 14,706 4,412 799,828
Senior Vice President and
Chief Financial Officer
Emmett E. Moore.................. 14,706 9,412 2,941 521,841
Senior Vice President
Executive Group.................. 189,706 126,913 37,941 6,878,745
Non-Executive Director Group..... 70,000(3) 778,750
Non-Executive Officer Employee
Group........................... 64,708 38,824 12,940 2,221,033
</TABLE>
- --------
(1) Number of Options, shares of Restricted Stock or Retention Share Awards
granted during 1993 to the named individual or group under the 1994 Plan,
the Directors Plan or the 1993 Director Options, as applicable. On August
, 1994, the closing sales price of the MCA Common Stock was $ per share.
The number of Options, shares of Restricted Stock or Retention Share Awards
to be granted under the 1994 Plan is not determinable. The Committee has
complete authority to determine which persons will be granted Options,
shares of Restricted Stock or Retention Share Awards under the 1994 Plan,
and the number of Options, shares of Restricted Stock and Retention Share
Awards to be granted. The Committee may not, however, grant to any one
participant stock incentives totaling more than an average of 75,000 shares
on an annual basis over any two year period. The grants of the Options,
shares of Restricted Stock and Retention Share Awards are subject to
stockholder approval.
(2) For purposes of determining the amount shown in the table, the dollar
values of the Options were determined by subtracting the exercise price of
the Options from an assumed value of $29 per share (the "value" the MCA
stockholders would receive for each of their shares of MCA Common Stock,
assuming the Average Price of the Columbia Common Stock is at least $36).
For purposes of determining the dollar values of the shares of Restricted
Stock and Retention Share Awards, each underlying share was similarly
valued at $29. UNDER THE TERMS OF THE 1994 PLAN, UPON A "CHANGE OF CONTROL"
(WHICH INCLUDES CONSUMMATION OF THE MERGER), EACH OPTION, SHARE OF
RESTRICTED STOCK AND RETENTION SHARE AWARD WILL BECOME 100% VESTED.
(3) Number of options granted to the non-executive director group pursuant to
the 1993 Director Options, at an exercise price of $17.875 per share.
ELECTION OF DIRECTORS
The MCA Certificate provides that the MCA Board shall be divided into three
classes of similar size, with the term of each class expiring in consecutive
years so that only one class is elected in any given year. Successors to those
directors whose terms have expired are required to be elected by stockholder
vote; vacancies in unexpired terms and any additional positions initiated by
the MCA Board actions are to be filled by the existing MCA Board. The MCA
Bylaws provide that the number of directors constituting the MCA Board shall be
determined from time to time by a vote of a majority of the MCA Board, and the
MCA Board has determined that the number of directors shall be ten.
58
<PAGE>
At the Special Meeting, four directors are to be elected to serve three-year
terms and until their respective successors are elected and qualified. Shares
represented by the enclosed Proxy will be voted FOR the election as directors
of the four nominees named below unless authority is withheld. The withholding
of authority will have no effect upon the election of directors because the MCA
Bylaws provide that directors are to be elected by a plurality of the votes
cast. The shares held by each stockholder who signs and returns the enclosed
Proxy will be counted for purposes of determining the presence of a quorum at
the Special Meeting. If for any reason any nominee shall not be a candidate for
election as a director at the Special Meeting, an event not now anticipated,
the enclosed proxy will be voted for such substitute as shall be designated by
the MCA Board.
NOMINEES
The following sets forth, as of the date hereof, information concerning the
four nominees for election as directors of MCA.
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE SINCE BIOGRAPHY
------------ -------- ---------
<S> <C> <C>
Jack R. Anderson, 69...... 1983 President, Calver Corporation, a health
care investment and management consulting
firm; director, Manor Care, Inc. and
Navistar International Corporation.
Theodore A. Bosler, 59.... 1983 Vice President, Lincoln Capital Management,
an investment advisory firm (since 1980).
George D. Kennedy, 67..... 1992 Chairman of the Board, Mallinckrodt Group,
Inc., (1986 to present) and Chief
Executive Officer (1983 to 1991);
director, American National Can
Corporation, Kemper Corporation, Kemper
National Insurance Co., Brunswick
Corporation, Illinois Tool Works, Inc.,
Scotsman Industries, Inc., and Stone
Container Corporation.
William H. Wilcox, 42..... 1987 Executive Vice President of MCA and
President of Medical Care International,
Inc. ("MCI"), MCA's operating subsidiary
(1992 to present); MCI Executive Vice
President and Chief Operating Officer
(1987 to 1992).
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS OTHER THAN NOMINEES
The following table sets forth, as of the date hereof, information concerning
the executive officers and directors, other than nominees for director, of MCA
and of MCI.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald E. Steen.......... 47 President, Chief Executive Officer and Director
Jonathan R. Bond......... 35 Senior Vice President and Secretary
Emmett E. Moore.......... 52 Senior Vice President
Lawrence M. Mullen....... 51 Senior Vice President and Chief Financial Officer
Sue H. Shelley........... 40 Senior Vice President
Steven C. Straus......... 38 Senior Vice President
S. Tucker Taylor......... 51 Senior Vice President
James F. Glenn, M.D. .... 65 Director
B. Lee Karns............. 64 Director
M. Robert Knapp, M.D. ... 69 Director
Patrick S. Smith......... 41 Director
William L. Wearly........ 78 Director
</TABLE>
59
<PAGE>
DONALD E. STEEN. Mr. Steen has served as President and Chief Executive
Officer of MCA since its inception in September 1992. Mr. Steen was also a
founder of MCI and has served as Chairman, President and Chief Executive
Officer and as a director of MCI since September 1981.
JONATHAN R. BOND. Mr. Bond has served as a Senior Vice President of MCA since
March 1993 and was a Vice President--Acquisitions and Development of MCI from
April 1991 to March 1993. Mr. Bond served as Vice President--Operations and
Regional Director of MCI from April 1990 to April 1991 and Treasurer of MCI
since its inception through April 1990.
EMMETT E. MOORE. Mr. Moore has served as Senior Vice President of MCA since
January 1993 and Executive Vice President of MCI since its inception. From
March 1984 until January 1987, Mr. Moore served as Chief Financial Officer of
MCI.
LAWRENCE M. MULLEN. Mr. Mullen has served as MCA's Senior Vice President and
Chief Financial Officer since May 1993. Prior to joining MCA, Mr. Mullen was a
partner of KPMG Peat Marwick and had been with KPMG Peat Marwick since 1964.
SUE H. SHELLEY. Ms. Shelley has served as Senior Vice President of MCA since
November 1993 and as Senior Vice President of MCI since March 1991. From
October 1985 to March 1991, Ms. Shelley served as Vice President--Operations of
MCI; she served as Regional Director, Development of MCI from its inception to
October 1985.
STEVEN C. STRAUS. Mr. Straus has served as Senior Vice President of MCA since
October 1993. From 1986 until he joined MCA, Mr. Straus held several senior
sales positions with Baxter Healthcare Corporation, most recently as Vice
President--Multi-Hospital Systems. From 1978 until 1986, he served in sales and
sales management capacities with American Hospital Supply Corporation.
S. TUCKER TAYLOR. Mr. Taylor has served as a Senior Vice President of MCA
since September 1992 and as an Executive Vice President of MCI since April
1992. Mr. Taylor was a consultant to public and private companies from 1982
until joining MCA. From 1973 until 1982, he was employed by Federal Express
Corporation, serving in several management capacities, including Senior Vice
President of Human Resources and Senior Vice President of Sales and Customer
Service.
JAMES F. GLENN, M.D. Dr. Glenn has served as a director of MCA since 1992.
Dr. Glenn has been Professor of Surgery at the University of Kentucky Medical
Center since July 1987. He was President of the Mount Sinai Medical Center, New
York, New York from 1983 to 1987 and was Dean of the Emory University School of
Medicine, Atlanta, Georgia from 1980 to 1983. Dr. Glenn serves as director of
the National City Bank, Lexington, Kentucky.
B. LEE KARNS. Mr. Karns, a founder of MCI, has served as a director of MCI
since 1981 and of MCA since its formation in 1992. Prior to his retirement in
1990, Mr. Karns was the Chief Executive Officer of Comprehensive Care
Corporation, a provider of hospital-based alcoholism treatment services, for 18
years.
M. ROBERT KNAPP, M.D. Dr. Knapp, a founder of MCI and the founder of the
Minor Surgery Center, Wichita, Kansas, which was acquired by MCI in 1984, has
been a director of MCA since its formation. He was in the private practice of
anesthesiology in Wichita from 1955 until his retirement in 1982. Dr. Knapp is
a Fellow of the American College of Anesthesiologists and American College of
Physicians. He served as Corporate Medical Director of MCI from 1981 to 1991.
PATRICK S. SMITH. Mr. Smith, a founder of Critical Care America, Inc. ("CCA")
and its Chief Executive Officer from 1981 to 1992, has served as a director of
MCA since 1992.
WILLIAM L. WEARLY. Mr. Wearly served as the Chairman and Chief Executive
Officer of the Ingersoll-Rand Company from 1967 to 1980, and was Chairman of
its Executive Committee until his retirement in
60
<PAGE>
1986. Mr. Wearly serves as a director of A.S.A. Ltd. and has been elected to
the National Academy of Engineering. Mr. Wearly was a director of MCI from
1991 until the September 1992 formation of MCA and has been a director of MCA
since that time.
CERTAIN BOARD INFORMATION
The MCA Board held a total of seven meetings during 1993. During their
periods of service, all directors attended 75% percent or more of such
meetings and meetings of the MCA Board committees of which they were members.
The MCA Board has four committees: (i) the Audit Committee; (ii) the
Executive Committee; (iii) the Nominating Committee; and (iv) the Option and
Compensation Committee.
The Audit Committee is authorized by the MCA Board to review, with MCA's
independent auditors, the annual financial statements of MCA prior to
publication; to review the work of, and approve non-audit services performed
by, such independent auditors; and to make annual recommendations to the MCA
Board for the appointment of independent auditors for the ensuing year. The
Audit Committee also reviews the effectiveness of the financial and accounting
functions, organization, operations and management of MCA and its
subsidiaries. Its current members are Messrs. Bosler (Chairman), Anderson and
Karns. The Audit Committee held two meetings in 1993 and one meeting in 1994
to review MCA's 1993 consolidated financial statements and to consider other
financial and accounting matters.
The Executive Committee exercises certain powers of the MCA Board in the
management of the business and affairs of MCA between MCA Board meetings to
the extent permitted by Delaware law. The Executive Committee, the members of
which are Messrs. Anderson, Bosler and Steen, held three meetings in 1993.
The Nominating Committee recommends the nominees for directors to the MCA
Board. Its current members are Messrs. Wearly (Chairman) and Kennedy and Drs.
Glenn and Knapp. The Nominating Committee held one meeting in 1993 and one in
1994 to consider nominees for directors, which it recommended unanimously to
the MCA Board.
The Option and Compensation Committee reviews and recommends to the MCA
Board the compensation and benefits of all officers of MCA and reviews general
policy matters relating to compensation and benefits of employees of MCA. The
Option and Compensation Committee also administers MCA's bonus and stock
option plans. Its current members are Messrs. Karns (Chairman), Kennedy and
Wearly. Three meetings were held in 1993 and one in 1994.
MCA's non-employee directors receive an annual retainer of $10,000 and
$1,250 for each Board of Directors or Committee meeting attended. Non-employee
chairmen of the various Committees and non-employee members of the Executive
Committee each receive an additional annual retainer of $2,500. Each non-
employee director of MCA has been granted effective June 22, 1993, subject to
stockholder approval, an option to purchase 10,000 shares of MCA Common Stock
at a purchase price equal to the fair market value of the MCA Common Stock on
the date of grant. Each non-employee director of MCA will also be granted on a
bi-annual basis, commencing on August 1, 1994, subject to stockholder
approval, an option to purchase 10,000 shares of MCA Common Stock at a
purchase price equal to the fair market value of the MCA Common Stock on the
date of grant. Such options will vest over a three-year period, with one-third
vesting on the first three anniversaries of the date of grant. The Directors
Plan will be discontinued if the Merger Agreement is approved by the
stockholders of MCA. For a full description of future stock option grants to
MCA's non-employee directors, see "Approval of Directors Nonqualified Stock
Option Plan."
61
<PAGE>
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires MCA's executive officers and directors to file
reports of ownership and changes of ownership of MCA's equity securities with
the Securities and Exchange Commission and the New York Stock Exchange.
Executive officers and directors are required by Commission regulations to
furnish MCA with copies of all such reports filed by them. Based solely on a
review of the copies of such reports furnished to MCA and written
representations from MCA's executive officers and directors, MCA believes that
none of its executive officers and directors failed to comply with Section
16(a) reporting requirements during 1993 other than Mr. Moore, Ms. Shelley and
Mr. Straus who filed their initial statements of stock ownership beyond their
respective due dates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors serve on the Option and Compensation
Committee: Messrs. Karns (Chairman), Kennedy and Wearly.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table discloses for each of the last three fiscal years
compensation received by MCA's Chief Executive Officer and the four most
highly paid executive officers (the "Named Executive Officers") serving as
executive officers at the end of the last completed fiscal year.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
AWARDS PAYOUTS
---------------------- --------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND PRINCIPAL ---------------------- STOCK UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY BONUSES AWARD(S)(1) OPTIONS PAYOUTS COMPENSATION
- ------------------ ---- -------- -------- ----------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald E. Steen......... 1993 $472,500 $ 74,000 $851,690 52,941 $ 77,344 $12,000(2)
President and Chief 1992 $450,000 $160,534 0 0 $ 99,808 $10,000(2)
Executive Officer 1991 $305,000 $206,964 0 0 $339,453 $ 9,000(2)
William H. Wilcox....... 1993 $325,500 $ 51,000 $570,427 36,029 $ 46,406 $10,200(2)
President of MCI 1992 $310,000 $110,590 0 0 $ 59,888 $ 9,400(2)
1991 $220,000 $149,286 0 0 $203,672 $ 9,000(2)
S. Tucker Taylor (3).... 1993 $240,000 $ 37,000 $341,734 92,059 0 $34,769(4)
Senior Vice President 1992 $170,313 $ 60,200 0 0 0 0
1991 - - - - - -
Lawrence M. Mullen (5).. 1993 $157,000 $ 30,000 $341,734 62,059 0 $ 6,800(2)
Senior Vice President
and 1992 - - - - - -
Chief Financial Officer 1991 - - - - - -
Emmett E. Moore......... 1993 $192,500 $ 20,000 $220,810 14,706 $ 7,722 $ 9,000(2)
Senior Vice President 1992 $170,000 $ 55,295 0 0 $ 9,976 $ 7,800(2)
1991 $135,000 $ 45,804 0 0 $ 33,291 $ 7,800(2)
</TABLE>
- --------
(1) Represents dollar value of restricted stock calculated by multiplying the
closing market price of the MCA Common Stock on the date of grant by the
number of shares awarded. Restricted stock has been awarded under two
plans: the 1991 Restricted Stock and Nonqualified Stock Option Plan (the
"1991 Plan") and the 1994 Restricted Stock and Nonqualified Stock Option
Plan (the "1994 Plan") (collectively, the "Plans"). Either "restricted
stock" may be granted or "stock awards" may be made under the Plans.
Restricted stock granted under the 1991 Plan begins vesting January 1,
1996, with 20% vesting on January 1 of each year from 1996 through 2000
unless certain earnings per share performance targets are met, in which
case the restricted stock may vest earlier. With respect to 25% of the
stock awards, 75% were vested on January 1, 1994 and the remaining 25%
vest on January 1, 1995. The vesting of the remaining 75% of such stock
awards is dependent upon the achievement of certain performance targets.
Ten percent of such stock awards that are dependent on company performance
vested as a result of MCA's fiscal year 1991
62
<PAGE>
performance; 6.66% vested as a result of MCA's fiscal year 1992 performance.
Restricted stock, options and stock awards granted under the 1994 Plan are
subject to stockholder approval and accelerate upon consummation of the
Merger. For a full description of the 1994 Plan, see "Approval of 1994
Restricted Stock and Nonqualified Stock Option Plan." The number of shares
of restricted stock held by the Named Executive Officers as of December 31,
1993 and the value of such stock based on the closing market price of the
MCA Common Stock on such date of $22.875 were:
<TABLE>
<CAPTION>
1991 PLAN 1991 PLAN 1994 PLAN 1994 PLAN
RESTRICTED STOCK STOCK AWARD RESTRICTED STOCK STOCK AWARD TOTAL VALUE
---------------- ----------- ---------------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Steen......... 0 34,377 37,059 10,588 82,024 $1,876,299
William H. Wilcox....... 0 20,626 24,706 7,206 52,538 $1,201,807
S. Tucker Taylor........ 0 0 14,706 4,412 19,118 $ 437,324
Lawrence M. Mullen...... 0 0 14,706 4,412 19,118 $ 437,324
Emmett E. Moore......... 3,000 3,439 9,412 2,941 18,792 $ 429,867
</TABLE>
As of December 31, 1993, an aggregate of 112,000 and 216,620 shares of
restricted stock (including stock awards), having an aggregate value of
$2,562,000 and $4,955,183, respectively, had been awarded under the 1991
Plan and the 1994 Plan, respectively. Dividends, if any, are paid to the
recipients of restricted stock and stock awards at the same time and at the
same rate as paid to all stockholders.
(2) Automobile allowance.
(3) Commenced employment with MCA on April 1, 1992.
(4) Relocation allowance.
(5) Commenced employment with MCA on May 1, 1993.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Steen......... 52,941 4.0% $17.875 7/01/03 $ 595,136 $ 1,508,191
William H. Wilcox....... 36,029 2.8% $17.875 7/01/03 $ 405,020 $ 1,026,399
S. Tucker Taylor........ 20,000 1.5% $ 26.50 1/15/03 $ 333,314 $ 844,684
22,059 1.7% $17.875 7/01/03 $ 247,976 $ 628,420
50,000 3.8% $ 19.00 5/21/97 $ 204,731 $ 440,895
Lawrence M. Mullen...... 40,000 3.1% $ 14.25 5/03/98 $ 157,480 $ 347,991
22,059 1.7% $17.875 7/01/03 $ 247,976 $ 628,420
Emmett E. Moore......... 14,706 1.1% $17.875 7/01/03 $ 165,317 $ 418,947
</TABLE>
- --------
(1) Based on assumption that market price of underlying security appreciates in
value from date of grant to the end of the option term.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises during the year
ended December 31, 1993 by the Named Executive Officers and the value of such
officers' unexercised options at December 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE ------------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Steen......... 25,000 $328,125 0 181,402 0 $810,664
William H. Wilcox....... 50,000 $656,250 0 100,712 0 $455,048
S. Tucker Taylor........ 0 0 0 92,059 0 $304,045
Lawrence M. Mullen...... 0 0 0 62,059 0 $455,295
Emmett E. Moore......... 0 0 0 48,294 0 $186,572
</TABLE>
63
<PAGE>
- --------
(1) Values have been calculated based on the closing price of the MCA Common
Stock reported on the New York Stock Exchange composite tape on December
31, 1993, which was $22.875 per share.
TEN-YEAR OPTION/SAR REPRICINGS
Set forth below is certain information concerning all repricings of options
held by any of the Named Executive Officers since 1983.
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS/ TIME OF TIME OF REMAINING AT
SARS REPRICING OR REPRICING OR NEW DATE OF
REPRICED OR AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE AMENDED (#) ($) ($) PRICE ($) AMENDMENT
---- -------- ----------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Wilcox....... 01/20/88 12,500 $ 4.75 $ 8.00 $ 4.75 3 months
President of MCI 01/20/88 7,000 $ 4.75 $14.00 $ 4.75 13 months
01/20/88 20,000 $ 4.75 $ 6.50 $ 4.75 53 months
Tucker Taylor........... 05/21/93 50,000 $16.00 $61.38 $19.00 48 months
Senior Vice President
</TABLE>
EMPLOYMENT AGREEMENTS
Effective November 15, 1993, MCA amended its employment agreement with Mr.
Steen under which he is employed as Chief Executive Officer of MCA at a base
salary of $495,000 per year. The initial term of the agreement expires November
15, 1996 with automatic renewal for successive two-year terms. Either party may
terminate the agreement at any time upon at least 60 days prior written notice.
MCA may terminate the agreement, whether for cause or without cause, only upon
the affirmative vote of at least 75% of the members of the MCA Board. If
terminated without cause, Mr. Steen would be entitled to severance pay equal to
his salary at the time of termination, plus a bonus equal to the average annual
bonuses paid to Mr. Steen for the two calendar years preceding the date of
termination. No compensation or benefits would be paid or furnished to Mr.
Steen after termination for cause. If MCA terminates Mr. Steen without cause,
or if there is a change of control of MCA, then MCA must cause to vest all
unvested stock options and restricted stock awards then held by Mr. Steen,
provide him 90 days to exercise such options, and lend to him for one year, at
the prime rate, the funds needed to exercise such options if he is unable, with
the assistance of MCA, to obtain third party financing for such funds.
Effective November 15, 1993, MCA amended its employment agreement with Mr.
Wilcox under which he is employed as President of MCI at a base salary of
$341,000 per year. The initial term of the agreement expires November 15, 1995,
with automatic renewal thereafter for successive one-year terms. The agreement
may be terminated by either party at any time upon at least 60 days prior
written notice. If so terminated, Mr. Wilcox would be entitled to severance pay
based upon his base salary for a period of 12 months following termination,
plus a bonus equal to the average annual bonuses paid to Mr. Wilcox for the two
calendar years preceding the date of notice of termination. MCA may terminate
Mr. Wilcox for cause upon the affirmative vote of a majority of all of the
members of the MCA Board. No further compensation or benefits would be required
to be paid or furnished to Mr. Wilcox after termination for cause. If MCA
terminates Mr. Wilcox without cause, or if there is a change of control of MCA,
then MCA must cause to vest all unvested stock options and restricted stock
awards then held by Mr. Wilcox, provide Mr. Wilcox 90 days to exercise such
options, and lend to him for one year, at the prime rate, the funds needed to
exercise such options if he is unable, with the assistance of MCA, to obtain
third party financing for such funds.
Effective November 15, 1993, MCA entered into employment agreements with
Messrs. Taylor (Senior Vice President of MCA) and Mullen (Senior Vice
President, Treasurer and Chief Financial Officer of MCA). Mr. Taylor's initial
base salary under his employment agreement was established at $245,000 per
year. Mr. Mullen's initial base salary was $235,000. The initial term of both
employment agreements expires
64
<PAGE>
November 15, 1994 with automatic renewal for successive one-year terms. Each
party to the agreements may terminate at any time upon at least 60 days prior
written notice. If so terminated, either party would be entitled to severance
pay based on his base salary at the time of termination for a period of 12
months following termination. The amount of severance pay due may be reduced
under certain circumstances. MCA may terminate Mr. Taylor or Mr. Mullen for
cause, in which event no compensation or benefits would be payable after
termination. If either agreement is terminated by MCA within 12 months after a
change in control of MCA, then MCA must cause to vest all unvested stock
options then held by the employee, provide him 90 days to exercise such
options, and lend to him for one year, at the prime rate, the funds needed to
exercise such options if he is unable, with the assistance of MCA, to obtain
third party financing for such funds.
MCA and Mr. Moore, a Senior Vice President of MCA, entered into an employment
agreement on August 1, 1986 at a base salary of $200,000. The agreement is
automatically renewed annually for successive one-year terms, subject to
termination at any time by either party by giving at least six months prior
written notice. MCA may terminate the agreement, whether for cause or without
cause, only upon a unanimous vote of MCA's Executive Committee. If the
agreement is terminated for cause, no further compensation or benefits would be
payable after termination. If the agreement is terminated without cause, MCA
must cause to vest all unvested stock options which would vest if employment
continued for an additional year, provide Mr. Moore 30 days to exercise such
vested options, and lend to him for one year, at the prime rate, the funds
needed to exercise such options if he is unable, with the assistance of MCA, to
obtain third party financing for such funds.
Notwithstanding anything to the contrary set forth in any of MCA's previous
filings under the Securities Act of 1933, as amended, or the Exchange Act that
might incorporate future filings, including this Proxy Statement/Prospectus, in
whole or in part, the following Report of the Option and Compensation Committee
and Performance Graph shall not be incorporated by reference into any such
filings.
REPORT OF THE OPTION AND COMPENSATION COMMITTEE
The principal duties of the Option and Compensation Committee are to: (i)
establish the executive compensation policies of MCA; (ii) oversee the design
and administration of executive officer compensation programs; and (iii)
approve specific compensation decisions with respect to executive officers. The
Option and Compensation Committee offers the following report on its decisions
concerning compensation for 1993.
Guiding Principles. MCA applies a consistent philosophy to compensation for
all employees, including senior management. In all cases, MCA is committed to
maximizing stockholder value and as part of that commitment seeks to align the
financial interests of all its employees, including its executive officers,
with those of its stockholders. MCA provides executive compensation that is
designed to attract and retain highly qualified and seasoned executive officers
from the health care industry. To ensure that compensation is competitive, MCA
regularly compares its pay practices with those of comparable companies with
the assistance of an outside executive compensation consultant and sets
compensation parameters based on this review. In selecting companies to be used
for executive compensation comparisons, the Option and Compensation Committee
believes that MCA's most direct source for executive talent is a smaller peer
group than the one established to compare total return to stockholders. While
the peer group for total return to stockholders (See the Performance Graph in
the following Section) includes both the S&P Health Care Composite Index and
the S&P 500 Index, MCA competes directly with eight to ten other U.S. companies
that operate alternate-site health care services. Thus the peer group used by
the Option and Compensation Committee is not the same as the peer group used
for comparing cumulative total return to stockholders during the previous five
years. The Option and Compensation Committee administers an executive
compensation program that has been crafted in accordance with these guiding
principles. It consists of two basic elements: annual compensation and long-
term stock compensation. The Option and Compensation Committee has reviewed the
implications of the $1 million pay cap rules specified in the Omnibus Budget
Reconciliation Act of 1993. The 1994 Plan and the Directors Plan proposed in
this Proxy Statement/Prospectus have been designed to qualify as "performance-
based compensation," thereby enabling MCA to achieve maximum tax deductibility
of such compensation costs.
65
<PAGE>
Annual Compensation. Annual compensation is comprised of two components: base
salary and annual incentive bonus, both of which are targeted to provide
compensation equivalent to the median of that provided by a range of similar
companies. The Option and Compensation Committee annually establishes executive
officer base salary and annual incentive bonuses after reviewing data from
similar companies. Annual compensation also reflects the executive's
experience, sustained performance and corporate or operating unit performance.
Annual incentive bonuses increase or decrease based upon both individual
officer performance and with achievement of annual financial goals established
by the Option and Compensation Committee at the beginning of each year. MCA has
adopted, effective April 1, 1994, an Executive Incentive Plan ("EIP") which
provides for the payment of bonuses to senior officers. EIP bonuses are earned
in two segments: (1) a corporate performance segment based on growth in MCA's
net income; and (2) an individual segment based on the achievement by the
individual senior officer of personal goals established at the beginning of the
year. Each participant in the EIP is assigned a target bonus (ranging from 25%
to 60% of salary) that can increase to twice the targeted amount (or decrease
to zero) based on annual company and individual performance.
Long-Term Stock Compensation. MCA's long-term stock compensation for
executive officers includes restricted stock and stock option programs.
Generally, awards and grants under these programs vest over a three-year to
ten-year period, based on the achievement of multi-year net income or earnings
per share growth goals. Both programs provide for the retention of key
executives as well as the alignment of executives' and stockholders' financial
interests since a substantial portion of potential executive compensation is
realized only through increases in stockholder value. The Option and
Compensation Committee determines eligibility to participate, the size and
frequency of awards and grants, performance measures and goals, and final
awards under the plans.
CEO Compensation. Generally, MCA compensates its Chief Executive Officer in
accordance with the same guiding principles applied to its compensation of
other executive officers and employees. Donald E. Steen, the President and
Chief Executive Officer of MCA, received a base salary and annual incentive
bonus of $546,500 in 1993, a decrease of 10% compared to 1992, consistent with
MCA's cost-reduction efforts. Mr. Steen also earned $77,344 in 1993 as a result
of the vesting of a stock award granted in 1991. The Committee considers the
annual compensation and stock award paid to Mr. Steen to be appropriate and
consistent with the compensation received by CEOs of comparable companies. At
this time, the Committee has elected not to increase Mr. Steen's and other
executive officers' base salaries for the year 1994.
Repricing of Option. Effective May 21, 1993, the Committee approved the
repricing of an outstanding option to purchase 50,000 shares of MCA Common
Stock held by S. Tucker Taylor from an exercise price of $61.375 to a new
exercise price of $16.00 per share, the market price of the MCA Common Stock on
that date. The Committee believed that without the repricing, the option
(granted to Mr. Taylor in 1992) would not have continued to serve its purpose
of providing an incentive aligned with the interests of MCA's stockholders. No
other options held by Named Executive Officers were repriced within the last
five years.
The Option and Compensation
Committee
B. Lee Karns, Chairman
George D. Kennedy
William L. Wearly
66
<PAGE>
PERFORMANCE GRAPH
The following graph demonstrates the performance of the cumulative total
return to stockholders of the MCA Common Stock during the previous five years
in comparison to the cumulative total return on the Standard & Poor's 500 Stock
Index and the Standard & Poor's Health Care Composite Index.
<TABLE>
<CAPTION>
Indexed \ Cumulative Returns
Base
Period Return Return Return Return Return
Company \ Index Name 1988 1989 1990 1991 1992 1993
-------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MEDICAL CARE AMERICA INC 100 225.58 418.60 713.95 223.30 212.83
S&P 500 INDEX 100 131.69 127.60 166.47 179.15 197.21
S&P HEALTH CARE-COMPOSITE 100 145.63 171.05 263.44 220.52 201.99
</TABLE>
67
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Columbia Common Stock being
offered hereby will be passed upon for Columbia by Stephen T. Braun, Senior
Vice President and General Counsel of Columbia. As of June 30, 1994, Mr. Braun
owned approximately 1,072 shares and held stock options to purchase 94,500
shares of Columbia Common Stock. The federal income tax consequences in
connection with the Merger will be passed upon for Columbia by Weil, Gotshal &
Manges, Houston, Texas. The federal income tax consequences in connection with
the Merger will be passed upon for MCA by Davis Polk & Wardwell, New York, New
York.
EXPERTS
The consolidated financial statements and financial statement schedules of
Columbia, incorporated by reference in this Proxy Statement/Prospectus, have
been audited by Ernst & Young, independent auditors, as set forth in their
report with respect thereto. Such financial statements and schedules have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and financial statement schedules of
MCA, incorporated by reference in this Proxy Statement/Prospectus, have been
audited by KPMG Peat Marwick, independent auditors, as set forth in their
report with respect thereto. Such consolidated financial statements and
schedules are incorporated herein by reference in reliance on such report given
upon the authority of such firm as experts in accounting and auditing.
The report of KPMG Peat Marwick covering the December 31, 1993 consolidated
financial statements of MCA contains an explanatory paragraph which states that
MCA is a defendant in a class action lawsuit alleging that during 1992, MCA,
its subsidiaries, directors and certain of its officers violated federal
securities and various state laws by making false and misleading statements to
the public, and seeking damages in unspecified amounts. No provision for any
liability that may result upon adjudication has been recognized in the
consolidated financial statements.
The report of KPMG Peat Marwick covering the December 31, 1993 consolidated
financial statements of MCA also refers to a change in method of accounting for
income taxes in 1993 in accordance with Statement of Financial Accounting
Standards No. 109. "Accounting for Income Taxes" and change in method of
accounting for investment securities on December 31, 1993 in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
SELECTION OF AUDITORS
The firm of KPMG Peat Marwick has been retained by MCA as independent
auditors to audit the consolidated financial statements of MCA. KPMG Peat
Marwick served as MCA's independent auditors for fiscal 1993. Representatives
of KPMG Peat Marwick will be present at the Special Meeting and will be
afforded the opportunity to make a statement if they desire to do so and to
respond to appropriate questions.
STOCKHOLDER PROPOSALS
In the event that the Merger Agreement is not approved by stockholders, any
stockholder who wishes to present a proposal for consideration at the 1995
annual meeting of MCA stockholders must submit such proposal in accordance with
the rules promulgated by the Securities and Exchange Commission. In order for a
proposal to be included in MCA proxy materials relating to the 1995 annual
meeting, the stockholder must submit such proposal in writing to MCA so that it
is received not later than December 14, 1994. Such
68
<PAGE>
proposals should be addressed to Jonathan R. Bond, Senior Vice President and
Secretary, Medical Care America, Inc., 13455 Noel Road, Dallas, Texas 75240.
OTHER MATTERS
The MCA Board of Directors has no knowledge of any business to be presented
for consideration at the Special Meeting other than as described in this Proxy
Statement/Prospectus. Should any such other matters properly come before the
Special Meeting or any adjournment thereof, the persons named in the enclosed
Proxy will have discretionary authority to vote such Proxy in accordance with
their best judgment on such other matters and with respect to matters incident
to the conduct of the Special Meeting.
A copy of MCA's 1993 Annual Report to Stockholders is being mailed with this
Proxy Statement/Prospectus. Additional copies of the Annual Report and the
Notice of Special Meeting of Stockholders, this Proxy Statement/Prospectus and
the accompanying Proxy may be obtained from MCA.
69
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
COLUMBIA/HCA HEALTHCARE CORPORATION,
CHOS ACQUISITION CORPORATION
and
MEDICAL CARE AMERICA, INC.
Dated as of MAY 23, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1. The Merger............................................................ A-1
1.1. The Merger....................................................... A-1
1.2. The Closing...................................................... A-1
1.3. Effective Time................................................... A-1
2. Certificate of Incorporation and Bylaws of the Surviving Corporation.. A-2
2.1. Certificate of Incorporation..................................... A-2
2.2. Bylaws........................................................... A-2
3. Directors and Officers of the Surviving Corporation................... A-2
3.1. Directors........................................................ A-2
3.2. Officers......................................................... A-2
4. Effect of the Merger on Securities of Merger Sub and MCA.............. A-2
4.1. Merger Sub Stock................................................. A-2
4.2. MCA Securities................................................... A-2
4.3. Exchange of Certificates Representing MCA Common Stock........... A-4
4.4. Adjustment of Exchange Ratio..................................... A-6
5. Representations and Warranties of MCA................................. A-6
Existence; Good Standing; Corporate Authority; Compliance With
5.1. Law............................................................. A-6
5.2. Authorization, Validity and Effect of Agreements................. A-7
5.3. Capitalization................................................... A-7
5.4. Subsidiaries..................................................... A-7
5.5. Other Interests.................................................. A-7
5.6. No Violation..................................................... A-7
5.7. SEC Documents.................................................... A-8
5.8. Litigation....................................................... A-8
5.9. Absence of Certain Changes....................................... A-8
5.10. Taxes............................................................ A-9
5.11. Employee Benefit Plans........................................... A-9
5.12. Labor Matters.................................................... A-9
5.13. No Brokers....................................................... A-9
5.14. Opinion of Financial Advisor..................................... A-10
5.15. Columbia Stock Ownership......................................... A-10
5.16. Medicare Participation/Accreditation............................. A-10
6. Representations and Warranties of Columbia and Merger Sub............. A-10
Existence; Good Standing; Corporate Authority; Compliance With
6.1. Law............................................................. A-10
6.2. Authorization, Validity and Effect of Agreements................. A-10
6.3. Capitalization................................................... A-11
6.4. Subsidiaries..................................................... A-11
6.5. Other Interests.................................................. A-11
6.6. No Violation..................................................... A-11
6.7. SEC Documents.................................................... A-12
6.8. Litigation....................................................... A-12
6.9. Absence of Certain Changes....................................... A-12
6.10. Taxes............................................................ A-13
6.11. Employee Benefit Plans........................................... A-13
6.12. Labor Matters.................................................... A-13
6.13. Opinion of Financial Advisor..................................... A-13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
6.14. MCA Stock Ownership............................................. A-13
6.15. Columbia Common Stock........................................... A-14
6.16. Convertible Securities.......................................... A-14
6.17. Medicare Participation/Accreditation............................ A-14
7. Covenants............................................................. A-14
7.1. Alternative Proposals........................................... A-14
7.2. Interim Operations.............................................. A-15
7.3. Meeting of MCA Stockholders..................................... A-16
7.4. Filings; Other Action........................................... A-16
7.5. Inspection of Records........................................... A-16
7.6. Publicity....................................................... A-17
7.7. Registration Statement.......................................... A-17
7.8. Listing Application............................................. A-17
7.9. Further Action.................................................. A-18
7.10. Affiliate Letters............................................... A-18
7.11. Expenses........................................................ A-18
7.12. Insurance; Indemnity............................................ A-18
7.13. Restructuring of Merger......................................... A-19
7.14. Rights Agreement................................................ A-19
8. Conditions............................................................ A-19
8.1. Conditions to Each Party's Obligation to Effect the Merger...... A-19
8.2. Conditions to Obligation of MCA to Effect the Merger............ A-19
8.3. Conditions to Obligation of Columbia and Merger Sub to Effect
the Merger..................................................... A-20
9. Termination........................................................... A-21
9.1. Termination by Mutual Consent................................... A-21
9.2. Termination by Either Columbia or MCA........................... A-21
9.3. Termination by MCA.............................................. A-21
9.4. Termination by Columbia......................................... A-21
9.5. Effect of Termination and Abandonment........................... A-21
9.6. Extension; Waiver............................................... A-22
10. General Provisions................................................... A-23
10.1. Nonsurvival of Representations, Warranties and Agreements....... A-23
10.2. Notices......................................................... A-23
10.3. Assignment; Binding Effect...................................... A-23
10.4. Entire Agreement................................................ A-23
10.5. Amendment....................................................... A-24
10.6. Governing Law................................................... A-24
10.7. Counterparts.................................................... A-24
10.8. Headings........................................................ A-24
10.9. Interpretation.................................................. A-24
10.10. Waivers......................................................... A-24
10.11. Incorporation of Exhibits....................................... A-24
10.12. Severability.................................................... A-24
10.13. Enforcement of Agreement........................................ A-24
10.14. Subsidiaries.................................................... A-25
Exhibit A Form of Affiliate Letter....................................... A-26
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 23, 1994,
between Columbia/HCA Healthcare Corporation, a Delaware corporation
("Columbia"), CHOS Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Columbia ("Merger Sub"), and Medical Care America, Inc., a
Delaware corporation ("MCA").
RECITALS
A. The Boards of Directors of Columbia and MCA each have determined that a
business combination between Columbia and MCA is in the best interests of their
respective companies and stockholders and presents an opportunity for their
respective companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the merger provided for herein upon the terms
and subject to the conditions set forth herein.
B. For federal income tax purposes, it is intended that the merger provided
for herein shall qualify as a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code").
C. Columbia and MCA have each received a fairness opinion relating to the
transactions contemplated hereby as more fully described herein.
D. It is the present intention of Columbia that MCA will continue to operate
as a separate division, headquartered in Dallas, Texas, under MCA's current
management.
E. Columbia, Merger Sub and MCA desire to make certain representations,
warranties and agreements in connection with the merger.
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
1. THE MERGER.
1.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with
and into MCA in accordance with this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease (the "Merger"). MCA 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
Delaware General Corporation Law (the "DGCL").
1.2. The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York, at 10:00 a.m.,
local time, on the first business day immediately following the day on which
the last to be fulfilled or waived of the conditions set forth in Article 8
shall be fulfilled or waived in accordance herewith or (b) at such other time,
date or place as Columbia and MCA may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
1.3. Effective Time. If all the conditions to the Merger set forth in Article
8 shall have been fulfilled or waived in accordance herewith and this Agreement
shall not have been terminated as provided in Article 9, 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
A-1
<PAGE>
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 2
2. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.
2.1. Certificate of Incorporation. The Certificate of Incorporation of Merger
Sub in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation, until duly amended in accordance
with applicable law.
2.2. 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 3
3. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
3.1. 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.
3.2. Officers. The officers of Merger Sub 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 4
4. EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND MCA.
4.1. Merger Sub Stock. At the Effective Time, each share of the Common Stock,
$.01 par value, 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, of the Surviving
Corporation.
4.2. MCA SECURITIES.
(a) At the Effective Time, shares of Common Stock, $.01 par value (the "MCA
Common Stock"), of MCA issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive shares of
Common Stock, $.01 par value (the "Columbia Common Stock"), of Columbia on the
basis set forth below. The number of shares of Columbia Common Stock to be
issued to a holder of a share of MCA Common Stock in the Merger (the "Exchange
Ratio") shall be determined as follows:
(i) if the Average Price (as hereinafter defined) of a share of Columbia
Common Stock is less than $36.00, the Exchange Ratio shall be .8056;
(ii) if the Average Price of a share of Columbia Common Stock is at least
$36.00 but less than or equal to $40.00, the Exchange Ratio shall be equal
to the amount obtained by dividing 29 by the Average Price of a share of
Columbia Common Stock (with any fractional cent being rounded to the next
higher full cent);
(iii) if the Average Price of a share of Columbia Common Stock is greater
than $40.00 but less than or equal to $44.00, the Exchange Ratio shall be
equal to the amount obtained by dividing the sum
A-2
<PAGE>
of 29 plus 25% of the excess of the Average Price of a share of Columbia
Common Stock above $40.00 by the Average Price of a share of Columbia
Common Stock (with any fractional cent being rounded to the next higher
full cent); or
(iv) if the Average Price of a share of Columbia Common Stock is greater
than $44.00, the Exchange Ratio shall be equal to the amount obtained by
dividing 30 by the Average Price of a share of Columbia Common Stock (with
any fractional cent being rounded to the next higher full cent).
The Exchange Ratio shall, in each case, be rounded to the nearest ten-
thousandth of a share. The "Average Price" of a share of Columbia Common Stock
shall be the average of the closing sales prices thereof on The New York Stock
Exchange (the "NYSE") (as reported by The Wall Street Journal or, if not
reported thereby, by another authoritative source) over the twenty (20) trading
days immediately preceding the date which is five trading days prior to the
Closing Date.
Each share of Columbia Common Stock issued to holders of MCA Common Stock in
the Merger shall be issued together with one associated preferred stock
purchase right (a "Right") in accordance with the Rights Agreement dated as of
September 1, 1993, between Columbia and Mid-America Bank of Louisville & Trust
Company. References herein to the shares of Columbia Common Stock issuable in
the Merger shall be deemed to include the associated Rights.
(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 MCA Common Stock shall
cease to be outstanding and shall be cancelled and retired and shall cease to
exist, and each holder of shares of MCA Common Stock shall thereafter cease to
have any rights with respect to such shares of MCA Common Stock, except the
right to receive, without interest, the Columbia Common Stock and cash for
fractional shares of Columbia Common Stock in accordance with Sections 4.3(b)
and 4.3(e) upon the surrender of a certificate (a "Certificate") representing
such shares of MCA Common Stock.
(c) Each share of MCA Common Stock issued and held in MCA'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 "MCA Option" and collectively, the "MCA
Options") outstanding at the Effective Time under any MCA stock option plan
(the "MCA Stock Option Plans") shall remain outstanding following the Effective
Time. At the Effective Time, such MCA Options shall, by virtue of the Merger
and without any further action on the part of MCA or the holder of any such MCA
Options, be assumed by Columbia in such manner that Columbia (i) is a
corporation "assuming a stock option in a transaction to which Section 424(a)
applied" within the meaning of Section 424 of the Code, or (ii) to the extent
that Section 424 of the Code does not apply to any such MCA Options, would be
such a corporation were Section 424 applicable to such option. Each MCA Option
assumed by Columbia shall be exercisable upon the same terms and conditions as
under the applicable MCA Stock Option Plan and the applicable option agreement
issued thereunder, except that (i) each such MCA Option shall be exercisable
for that whole number of shares of Columbia Common Stock (to the nearest whole
share) into which the number of shares of MCA Common Stock subject to such MCA
Option immediately prior to the Effective Time would be converted under this
Section 4.2, and (ii) the option price per share of Columbia Common Stock shall
be an amount equal to the option price per share of MCA Common Stock subject to
such MCA Option in effect immediately prior to the Effective Time divided by
the Exchange Ratio (the option price per share, as so determined, being rounded
upward to the nearest full cent). No payment shall be made for fractional
interests. From and after the date of this Agreement, except as provided in
Section 7.2(f), no additional options shall be granted by MCA or its
Subsidiaries (as defined in Section 10.14 hereof) under the MCA Stock Option
Plans or otherwise.
Each MCA option or other award granted under any MCA Benefit Plan (as defined
in Section 5.11 hereof), including options or awards (collectively, the "MCA
Awards") granted under any employment
A-3
<PAGE>
agreement or director stock option agreement, shall be governed by the terms of
the respective agreement under which it was issued, or by which it is otherwise
governed, it being the intent of parties hereto that no such option or award
will be accelerated by virtue of the Merger unless the agreement under which it
was granted, or by which it is otherwise governed, specifically provides for
acceleration. Notwithstanding the foregoing sentence and subject to obtaining
the consents of holders of MCA Awards, Columbia and MCA may agree prior to the
Effective Time to an alternative treatment of any such MCA Awards in order to
(i) eliminate or mitigate any potential adverse tax effects under Sections 280G
or 4999 of the Code or (ii) cancel any such MCA Awards and substitute therefor
awards based on Columbia Common Stock; provided, however, the foregoing
language shall not in any way be deemed to obligate Columbia, MCA or the
holders of MCA Awards to so modify the terms of any MCA Award.
(e) Those certain 7% Convertible Subordinated Debentures due 2015 and 6.75%
Convertible Subordinated Debentures due 2006 issued by Medical Care
International, Inc. ("MCI"), a wholly-owned Subsidiary of MCA (collectively,
the "Medical Care Debentures"), shall remain outstanding in accordance with the
terms of the indentures, as supplemented, governing the Medical Care Debentures
(unless any such Medical Care Debenture is redeemed or converted pursuant to
its terms at or prior to the Effective Time), except that each Medical Care
Debenture shall be convertible into such number of shares of Columbia Common
Stock which is equal to the number of shares of MCA Common Stock into which
such Medical Care Debenture would have otherwise been converted multiplied by
the Exchange Ratio.
4.3. EXCHANGE OF CERTIFICATES REPRESENTING MCA COMMON STOCK.
(a) As of the Effective Time, Columbia shall deposit, or shall cause to be
deposited, with an exchange agent selected by Columbia, which shall be
Columbia's Transfer Agent or such other party reasonably satisfactory to MCA
(the "Exchange Agent"), for the benefit of the holders of shares of MCA Common
Stock, for exchange in accordance with this Article 4, certificates
representing the shares of Columbia Common Stock (such certificates for shares
of Columbia Common Stock, together with any dividends or distributions with
respect thereto (relating to record dates for such dividends or distributions
after the Effective Time), being hereinafter referred to as the "Exchange
Fund") to be issued pursuant to Section 4.2 and paid pursuant to this Section
4.3 in exchange for outstanding shares of MCA Common Stock.
(b) Promptly after the Effective Time, Columbia shall cause the Exchange
Agent to mail to each holder of record of shares of MCA Common Stock (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to such shares of MCA Common Stock shall pass, only upon
delivery of the Certificates representing such shares to the Exchange Agent and
which shall be in such form and have such other provisions as Columbia may
reasonably specify and (ii) instructions for use in effecting the surrender of
such Certificates in exchange for certificates representing shares of Columbia
Common Stock and cash in lieu of fractional shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of the shares represented by such Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of Columbia Common Stock and (y) a check representing
the amount of cash in lieu of fractional shares, if any, and unpaid dividends
and distributions, if any, which such holder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions of this
Article 4, after giving effect to any required withholding tax, and the shares
represented by the Certificate so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on the cash in lieu of fractional shares and
unpaid dividends and distributions, if any, payable to holders of shares of MCA
Common Stock. In the event of a transfer of ownership of MCA Common Stock which
is not registered in the transfer records of MCA, a certificate representing
the proper number of shares of Columbia Common Stock, together with a check for
the cash to be paid in lieu of fractional shares, may be issued to such a
transferee if the Certificate representing such MCA Common Stock is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid.
A-4
<PAGE>
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Columbia Common Stock
shall be paid with respect to any shares of MCA Common Stock represented by a
Certificate until such Certificate is surrendered for exchange as provided
herein. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Columbia Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Columbia Common Stock and not
paid, less the amount of any withholding taxes which may be required thereon,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Columbia Common Stock, less the amount of any withholding
taxes which may be required thereon.
(d) At or after the Effective Time, there shall be no transfers on the stock
transfer books of MCA of the shares of MCA Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for certificates for shares of Columbia Common Stock
and cash in lieu of fractional shares, if any, deliverable in respect thereof
pursuant to this Agreement in accordance with the procedures set forth in this
Article 4. Certificates surrendered for exchange by any person constituting an
"affiliate" of MCA for purposes of Rule 145(c) under the Securities Act of
1933, as amended (the "Securities Act"), shall not be exchanged until Columbia
has received a written agreement from such person as provided in Section 7.10.
(e) No certificates or scrip representing fractional shares of Columbia
Common Stock will be issued in the Merger, but in lieu thereof each holder of
MCA Common Stock otherwise entitled to a fractional share of Columbia Common
Stock will be entitled to receive in accordance with the provisions of this
Section 4.3(e) from the Exchange Agent a cash payment in lieu of such
fractional share of Columbia Common Stock representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
on behalf of all such holders of the aggregate of the fractional shares of
Columbia Common Stock which would otherwise have been issued (the "Excess
Shares"). The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE as promptly as practicable after the Effective Time through one or
more member firms of the NYSE and shall be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales have been distributed
to the holders of MCA Common Stock, the Exchange Agent will hold such proceeds
in trust (the "Common Stock Trust") for the holders of the MCA Common Stock.
Columbia shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation, of the Exchange
Agent incurred in connection with this sale of the Excess Shares. The Exchange
Agent shall determine the portion of the Common Stock Trust to which each
holder of MCA Common Stock shall be entitled, if any, by multiplying the amount
of the aggregate net proceeds comprising the Common Stock Trust by a fraction
the numerator of which is the amount of the fractional Columbia Common Stock
interest to which such holder of MCA Common Stock is entitled and the
denominator of which is the aggregate amount of fractional share interests to
which all holders of MCA Common Stock are entitled. As soon as practicable
after the determination of the amount of cash, if any, to be paid to holders of
MCA Common Stock in lieu of any fractional shares of Columbia Common Stock, the
Exchange Agent shall make available such amounts to such holders of MCA Common
Stock without interest.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Columbia Common Stock) that remains
unclaimed by the former stockholders of MCA one year after the Effective Time
shall be delivered to the Surviving Corporation. Any former stockholders of MCA
who have not theretofore complied with this Article 4 shall thereafter look
only to the Surviving Corporation for payment of their shares of Columbia
Common Stock, cash in lieu of fractional shares and unpaid dividends and
distributions on the Columbia Common Stock deliverable in respect of each share
of MCA Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon.
A-5
<PAGE>
(g) None of Columbia, MCA, the Surviving Corporation, the Exchange Agent or
any other person shall be liable to any former holder of shares of MCA Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(h) In the event 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 Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the shares of
Columbia Common Stock and cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Columbia Common Stock as provided in
Section 4.3(c), deliverable in respect thereof pursuant to this Agreement.
4.4. ADJUSTMENT OF EXCHANGE RATIO.
In the event that, subsequent to the date of this Agreement but prior to the
Effective Time, the outstanding shares of Columbia Common Stock or MCA Common
Stock, respectively, 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 Exchange Ratio shall be
appropriately adjusted.
ARTICLE 5
5. REPRESENTATIONS AND WARRANTIES OF MCA.
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Columbia (the "MCA Disclosure Letter") or in the MCA
Reports (as defined below). MCA represents and warrants to Columbia as of the
date of this Agreement as follows:
5.1. Existence; Good Standing; Corporate Authority; Compliance With Law. MCA
is a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation. MCA 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 would not have a material adverse effect on the
business, results of operations or financial condition of MCA and its
Subsidiaries (as defined in Section 10.14) taken as a whole (an "MCA Material
Adverse Effect"). MCA has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
Each of MCA's Significant Subsidiaries (as defined in Section 10.14 hereof) is
a corporation or partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has the corporate or partnership power and authority to own its properties and
to carry on its business as it is now being conducted, and is duly qualified to
do business and is in good standing in each jurisdiction in which the ownership
of its property or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so qualified or to be in
good standing would not have an MCA Material Adverse Effect. Neither MCA nor
any of its Subsidiaries is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance, governmental
rule or regulation to which MCA or any of its Subsidiaries or any of their
respective properties or assets is subject, where such violation would have an
MCA Material Adverse Effect. MCA and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions required
by applicable law or governmental regulations in connection with their business
as now conducted, where the failure to obtain any such item or to take any such
action would have an MCA Material Adverse Effect. The copies of MCA's
Certificate of Incorporation and Bylaws previously delivered to Columbia are
true and correct.
A-6
<PAGE>
5.2. Authorization, Validity and Effect of Agreements. MCA has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby. Subject only to the approval of
this Agreement and the transactions contemplated hereby by the holders of a
majority of the outstanding shares of MCA Common Stock, the consummation by MCA
of the transactions contemplated hereby has been duly authorized by all
requisite corporate action. This Agreement constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant hereto for
value received) will constitute, the valid and legally binding obligations of
MCA, 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.
5.3. Capitalization. The authorized capital stock of MCA consists of
500,000,000 shares of MCA Common Stock and 50,000,000 shares of preferred
stock, $.01 par value (the "MCA Preferred Stock"). As of March 31, 1994, there
were 29,645,932 shares of MCA Common Stock (excluding 325,000 shares issued and
held in treasury), and no shares of MCA Preferred Stock, issued and
outstanding. Since such date, no additional shares of capital stock of MCA have
been issued, except pursuant to the exercise of options outstanding under the
MCA Stock Option Plans. Except for the Medical Care Debentures, MCA has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of MCA on any
matter. All issued and outstanding shares of MCA Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth in the MCA Reports, there are not at the date of
this Agreement any existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate MCA or any of its Subsidiaries to issue, transfer or sell any shares
of capital stock of MCA or any of its Subsidiaries. After the Effective Time,
the Surviving Corporation will have no obligation to issue, transfer or sell
any shares of capital stock of MCA or the Surviving Corporation pursuant to any
MCA Benefit Plan (as defined in Section 5.11).
5.4. Subsidiaries. MCA owns directly or indirectly each of the outstanding
shares of capital stock of each of MCA's Subsidiaries, except as set forth in
the MCA Disclosure Letter. Each of the outstanding shares of capital stock of
each of MCA's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by MCA free and clear of
all liens, pledges, security interests, claims or other encumbrances other than
liens imposed by local law which are not material. The following information
for each Subsidiary of MCA has been previously provided to Columbia, if
applicable: (i) its name and jurisdiction of incorporation or organization;
(ii) its authorized capital stock or share capital; and (iii) the number of
issued and outstanding shares of capital stock or share capital.
5.5. Other Interests. Except for interests in the MCA Subsidiaries, neither
MCA nor any MCA Subsidiary owns directly or indirectly any interest or
investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or entity other than investments in short-term
investment securities and corporate partnering, development, cooperative
marketing and similar undertakings, arrangements entered into in the ordinary
course of business and other investments the aggregate market value of which is
less than $3,000,000.
5.6. No Violation. Neither the execution and delivery by MCA of this
Agreement nor the consummation by MCA of the transactions contemplated hereby
in accordance with the terms hereof, will: (i) conflict with or result in a
breach of any provisions of the Certificate of Incorporation or Bylaws of MCA;
(ii) except as disclosed in the MCA Reports (as defined below), result in a
breach or violation of, a default under, or the triggering of any payment or
other material obligations pursuant to, or accelerate vesting under, any of its
existing MCA Stock Option Plans, or any grant or award made under any of the
foregoing; (iii) 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 or cancellation of, accelerate the performance required
by, result in the creation of any lien, security interest, charge or
encumbrance upon any of the material properties of MCA or its Subsidiaries
A-7
<PAGE>
under, or result in 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 material license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation to which MCA
or any of its Subsidiaries is a party, or by which MCA or any of its
Subsidiaries or any of their respective properties is bound or affected, except
for any of the foregoing matters which would not have an MCA Material Adverse
Effect; or (iv) other than the filings provided for in Article 1, applicable
federal, state and local regulatory filings, filings required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act or
applicable state securities and "Blue Sky" laws or filings in connection with
the maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any material consent,
approval or authorization of, or declaration, filing or registration with, any
domestic governmental or regulatory authority, the failure to obtain or make
which would have an MCA Material Adverse Effect.
5.7. SEC Documents. MCA has delivered to Columbia each registration
statement, report, proxy statement or information statement (as defined in
Regulation 14C under the Exchange Act) prepared by it since December 31, 1993,
including, without limitation, (i) its Annual Report on Form 10-K for the year
ended December 31, 1993, as amended, (ii) its Quarterly Report on Form 10-Q for
the period ended March 31, 1994, and (iii) its Current Reports on Form 8-K
dated January 16, 1994 and March 8, 1994, each in the form (including exhibits
and any amendments thereto) filed with the Securities and Exchange Commission
(the "SEC") (collectively, the "MCA Reports"). As of their respective dates,
the MCA Reports (i) 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) 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 MCA included in or incorporated by reference
into the MCA Reports (including the related notes and schedules) fairly
presents the consolidated financial position of MCA and the MCA Subsidiaries as
of its date, and each of the consolidated statements of income or operations,
stockholders' equity and cash flows of MCA included in or incorporated by
reference into the MCA Reports (including any related notes and schedules)
fairly presents the results of operations, stockholders' equity or cash flows,
as the case may be, of MCA and the MCA Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Except as and to
the extent set forth on the consolidated balance sheet of MCA and the MCA
Subsidiaries at December 31, 1993, including all notes thereto, or as set forth
in the MCA Reports, neither MCA nor any of the MCA Subsidiaries has any
material liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of MCA or in the notes thereto, prepared in
accordance with generally accepted accounting principles consistently applied,
except liabilities arising in the ordinary course of business since such date.
5.8. Litigation. Except as disclosed in the MCA Reports filed with the SEC
prior to the date hereof, there are no actions, suits or proceedings pending
against MCA or the MCA Subsidiaries or, to the actual knowledge of the
executive officers of MCA, threatened against MCA or the MCA Subsidiaries, at
law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality, that are reasonably likely to have an MCA
Material Adverse Effect.
5.9. Absence of Certain Changes. Except as disclosed in the MCA Reports filed
with the SEC prior to the date hereof, since December 31, 1993, MCA has
conducted its business only in the ordinary course of such business, and there
has not been (i) any MCA Material Adverse Effect (other than as a result of
changes in conditions, including economic or political developments, applicable
to the health care industry generally); (ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to its capital
stock; or (iii) any material change in its accounting principles, practices or
methods.
A-8
<PAGE>
5.10. Taxes. MCA and each of its Subsidiaries (i) have timely filed all
material federal, state and foreign tax returns required to be filed by any of
them for tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired, and all such returns are complete in all material respects,
(ii) have paid or accrued all taxes shown to be due and payable on such
returns, (iii) have properly accrued all such taxes for such periods subsequent
to the periods covered by such returns, and (iv) have "open" years for federal
income tax returns only as set forth in the MCA Reports.
5.11. Employee Benefit Plans. All employee benefit plans and other benefit
arrangements covering employees of MCA and the MCA Subsidiaries (the "MCA
Benefit Plans") are listed in the MCA Reports, except MCA Benefit Plans which
are not material. True and complete copies of the MCA Benefit Plans have been
made available to Columbia. To the extent applicable, the MCA Benefit Plans
comply, in all material respects, with the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, and
any MCA Benefit Plan intended to be qualified under Section 401(a) of the Code
has been determined by the Internal Revenue Service (the "IRS") to be so
qualified. No MCA Benefit Plan is covered by Title IV of ERISA or Section 412
of the Code. No MCA Benefit Plan nor MCA has incurred any liability or penalty
under Section 4975 of the Code or Section 502(i) of ERISA. Each MCA Benefit
Plan has been maintained and administered in all material respects in
compliance with its terms and with ERISA and the Code to the extent applicable
thereto. To the knowledge of the executive officers of MCA, there are no
pending or anticipated material claims against or otherwise involving any of
the MCA Benefit Plans and no suit, action or other litigation (excluding claims
for benefits incurred in the ordinary course of MCA Benefit Plan activities)
has been brought against or with respect to any such MCA Benefit Plan, except
for any of the foregoing which would not have an MCA Material Adverse Effect.
All material contributions required to be made as of the date hereof to the MCA
Benefit Plans have been made or provided for. Since September 25, 1980, neither
MCA nor any entity under "common control" with MCA within the meaning of ERISA
Section 4001 has contributed to, or been required to contribute to, any "multi-
employer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). MCA does
not maintain or contribute 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 MCA has never represented, promised or contracted (whether
in oral or written form) to any employee or former employee that such benefits
would be provided. Except as disclosed in the MCA Reports, 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.
5.12. Labor Matters. Neither MCA nor any of its Subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
the executive officers of MCA, threatened against MCA or its Subsidiaries
relating to their business, except for any such proceeding which would not have
an MCA Material Adverse Effect. To the knowledge of the executive officers of
MCA, there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of MCA or any of its Subsidiaries.
5.13. No Brokers. MCA has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of MCA
or Columbia to pay any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby, except that MCA has
retained Dillon, Read & Co. Inc. as its financial advisor, the arrangements
with which have been disclosed in writing to Columbia prior to the date hereof.
Other than the foregoing arrangements, MCA is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
A-9
<PAGE>
5.14. Opinion of Financial Advisor. MCA has received the opinion of Dillon,
Read & Co. Inc., to the effect that, as of the date hereof, the merger
consideration is fair to the holders of MCA Common Stock from a financial point
of view.
5.15. Columbia Stock Ownership. Neither MCA nor any of its Subsidiaries owns
any shares of Columbia Common Stock or other securities convertible into
Columbia Common Stock.
5.16. Medicare Participation/Accreditation. With respect to each of MCA's
surgical centers the business or activities of which includes the provision of
services through the Medicare or Medicaid program, such surgical center is
certified for participation or enrollment in the Medicare and Medicaid
programs, has a current and valid provider contract with the Medicare and
Medicaid programs and is in substantial compliance with the conditions of
participation of such programs. Neither MCA nor any of its Subsidiaries has
received notice from the 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 or surveys, and neither MCA nor any
of its Subsidiaries has any reason to believe that any such investigations or
surveys are pending, threatened or imminent which may have an MCA Material
Adverse Effect. As of the date hereof, an aggregate of 44 of MCA's surgical
centers are either accredited by the Joint Commission on Accreditation of
Healthcare Organizations or the Accreditation Association for Ambulatory Health
Care.
ARTICLE 6
6. REPRESENTATIONS AND WARRANTIES OF COLUMBIA AND MERGER SUB.
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to MCA (the "Columbia Disclosure Letter") or in the Columbia
Reports (as defined below), Columbia and Merger Sub represent and warrant to
MCA as of the date of this Agreement as follows:
6.1. Existence; Good Standing; Corporate Authority; Compliance With Law. Each
of Columbia and Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation.
Columbia 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 would not have a
material adverse effect on the business, results of operations or financial
condition of Columbia and its Subsidiaries taken as a whole (a "Columbia
Material Adverse Effect"). Columbia has all requisite corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted. Each of Columbia's Significant Subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its property
or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good
standing would not have a Columbia Material Adverse Effect. Neither Columbia
nor any Columbia Subsidiary is in violation of any order of any court,
governmental authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Columbia or any of its Subsidiaries or
any of their respective properties or assets is subject, where such violation
would have a Columbia Material Adverse Effect. Columbia and its Subsidiaries
have obtained all licenses, permits and other authorizations and have taken all
actions required by applicable law or governmental regulations in connection
with their business as now conducted, where the failure to obtain any such item
or to take any such action would have a Columbia Material Adverse Effect. The
copies of Columbia's Certificate of Incorporation and Bylaws previously
delivered to MCA are true and correct.
6.2. Authorization, Validity and Effect of Agreements. Each of Columbia and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and
A-10
<PAGE>
documents contemplated hereby. The consummation by Columbia and Merger Sub of
the transactions contemplated hereby has been duly authorized by all requisite
corporate action. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of
Columbia 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.
6.3. Capitalization. The authorized capital stock of Columbia consists of
800,000,000 shares of Columbia Common Stock, 25,000,000 shares of nonvoting
common stock, $.01 par value (the "Columbia Nonvoting Common Stock"), and
25,000,000 shares of preferred stock, $.01 par value (the "Columbia Preferred
Stock"). As of March 31, 1994, there were 318,806,885 shares of Columbia Common
Stock, 18,989,999 shares of Columbia Nonvoting Common Stock, and no shares of
Columbia Preferred Stock, issued and outstanding. Since such date, no
additional shares of capital stock of Columbia have been issued except pursuant
to the exercise of options outstanding under Columbia's stock option and
employee stock purchase plans (the "Columbia Stock Option Plans"). Columbia has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Columbia on any
matter. All such issued and outstanding shares of Columbia Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as contemplated by this Agreement, there are not at
the date of this Agreement any existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate Columbia or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock of Columbia or any of its
Subsidiaries.
6.4. Subsidiaries. (a) Columbia owns directly or indirectly each of the
outstanding shares of capital stock of each of Columbia's Subsidiaries, except
as set forth in the Columbia Reports (as defined in Section 6.7) filed prior to
the date of this Agreement. Each of the outstanding shares of capital stock of
each of Columbia's Subsidiaries is duly authorized, validly issued, fully paid
and nonassessable, and is owned, directly or indirectly, by Columbia free and
clear of all liens, pledges, security interests, claims or other encumbrances
other than liens imposed by local law which are not material. The following
information for each Subsidiary of Columbia has been previously provided to
MCA, if applicable: (i) its name and jurisdiction of incorporation or
organization; (ii) its authorized capital stock or share capital; and (iii) the
number of issued and outstanding shares of capital stock or share capital.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
Common Stock, $.01 par value, all of which shares are issued and outstanding
and owned by Columbia. Merger Sub has not engaged in any activities other than
in connection with the transactions contemplated by this Agreement.
6.5. Other Interests. Except for interests in the Columbia Subsidiaries,
neither Columbia nor any Columbia Subsidiary owns directly or indirectly any
interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or entity (other than investments
of two captive insurance companies and investments in short-term investment
securities and corporate partnering, development, cooperative marketing and
similar undertakings and arrangements entered into in the ordinary course of
business).
6.6. No Violation. Neither the execution and delivery by Columbia and Merger
Sub of this Agreement, nor the consummation by Columbia and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Certificate of
Incorporation or Bylaws of Columbia or Merger Sub; (ii) except as disclosed in
the Columbia Reports (as defined below), result in a breach or violation of, a
default under, or the triggering of any payment or other material obligations
pursuant to, or accelerate vesting under, any of the Columbia Stock Option
Plans, or any grant or award under any of the foregoing; (iii) 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)
A-11
<PAGE>
under, result in the termination or in a right of termination or cancellation
of, accelerate the performance required by, result in the creation of any lien,
security interest, charge or encumbrance upon any of the material properties of
Columbia or its Subsidiaries under, or result in 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 material license,
franchise, permit, lease, contract, agreement or other instrument, commitment
or obligation to which Columbia or any of its Subsidiaries is a party, or by
which Columbia or any of its Subsidiaries or any of their respective properties
is bound or affected, except for any of the foregoing matters which would not
have a Columbia Material Adverse Effect; or (iv) other than the Regulatory
Filings, require any material consent, approval or authorization of, or
declaration, filing or registration with, any domestic governmental or
regulatory authority, the failure to obtain or make which would have a Columbia
Material Adverse Effect.
6.7. SEC Documents. Columbia has delivered to MCA each registration
statement, report, proxy statement or information statement prepared by it
since December 31, 1993, including, without limitation, (i) its Annual Report
on Form 10-K for the year ended December 31, 1993, (ii) its Quarterly Report on
Form 10-Q for the period ended March 31, 1994, and (iii) its Proxy Statement
for the Annual Meeting of Stockholders held May 12, 1994, each in the form
(including exhibits and any amendments thereto) filed with the SEC
(collectively, the "Columbia Reports"). As of their respective dates, the
Columbia Reports (i) 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) 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 included in or incorporated by reference into the
Columbia Reports (including the related notes and schedules) fairly presents
the consolidated financial position of Columbia and the Columbia Subsidiaries
as of its date, and each of the consolidated statements of income, retained
earnings and cash flows included in or incorporated by reference into the
Columbia Reports (including any related notes and schedules) fairly presents
the results of operations, retained earnings or cash flows, as the case may be,
of Columbia and the Columbia Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Except as and to
the extent set forth on the consolidated balance sheet of Columbia and its
Subsidiaries at December 31, 1993, including all notes thereto, or as set forth
in the Columbia Reports, neither Columbia nor any of the Columbia Subsidiaries
has any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on,
or reserved against in, a balance sheet of Columbia or in the notes thereto,
prepared in accordance with generally accepted accounting principles
consistently applied, except liabilities arising in the ordinary course of
business since such date.
6.8. Litigation. Except as disclosed in the Columbia Reports filed with the
SEC prior to the date hereof, there are no actions, suits or proceedings
pending against Columbia or the Columbia Subsidiaries or, to the actual
knowledge of the executive officers of Columbia, threatened against Columbia or
the Columbia Subsidiaries, at law or in equity, or before or by any federal or
state commission, board, bureau, agency or instrumentality, that are reasonably
likely to have a Columbia Material Adverse Effect.
6.9. Absence of Certain Changes. Except as disclosed in the Columbia Reports
filed with the SEC prior to the date hereof, since December 31, 1993, Columbia
has conducted its business only in the ordinary course of such business, and
there has not been (i) any Columbia Material Adverse Effect (other than as a
result of changes in conditions, including economic or political developments,
applicable to the health care industry generally); (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
its capital stock (other than the regular quarterly cash dividends of $.03 per
share, payable on the Columbia Common Stock and the Columbia Nonvoting Common
Stock); or (iii) any material change in its accounting principles, practices or
methods.
A-12
<PAGE>
6.10. Taxes. Columbia and each of its Subsidiaries (i) have timely filed all
material federal, state and foreign tax returns required to be filed by any of
them for tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired, and all such returns are complete in all material respects,
(ii) have paid or accrued all taxes shown to be due and payable on such
returns, (iii) have properly accrued all such taxes for such periods subsequent
to the periods covered by such returns, and (iv) have "open" years for federal
income tax returns only as set forth in the Columbia Disclosure Letter.
6.11. Employee Benefit Plans. All employee benefit plans and other benefit
arrangements covering employees of Columbia and the Columbia Subsidiaries (the
"Columbia Benefit Plans") are listed in the Columbia Reports, except Columbia
Benefit Plans which are not material. True and complete copies of the Columbia
Benefit Plans have been made available to MCA. To the extent applicable, the
Columbia Benefit Plans comply, in all material respects, with the requirements
of ERISA and the Code, and any Columbia Benefit Plan intended to be qualified
under Section 401(a) of the Code has been determined by the IRS to be so
qualified. No Columbia Benefit Plan is covered by Title IV of ERISA or Section
412 of the Code. No Columbia Benefit Plan nor Columbia has incurred any
liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA.
Each Columbia Benefit Plan has been maintained and administered in all material
respects in compliance with its terms and with ERISA and the Code to the extent
applicable thereto. To the knowledge of the executive officers of Columbia,
there are no pending or anticipated claims against or otherwise involving any
of the Columbia Benefit Plans, and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Columbia
Benefit Plan activities) has been brought against or with respect to any such
Columbia Benefit Plan, except for any of the foregoing which would not have a
Columbia Material Adverse Effect. All material contributions required to be
made as of the date hereof to the Columbia Benefit Plans have been made or
provided for. Since September 25, 1980, neither Columbia nor any entity under
"common control" with Columbia within the meaning of ERISA Section 4001 has
contributed to, or been required to contribute to, any "multi-employer plan"
(as defined in Sections 3(37) and 4001(a)(3) of ERISA). Columbia does not
maintain or contribute 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 Columbia has never represented, promised or contracted
(whether in oral or written form) to any employee or former employee that such
benefits would be provided. Except as disclosed in the Columbia Reports, 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.
6.12. Labor Matters. Neither Columbia nor any of its Subsidiaries is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There is
no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the executive officers of Columbia, threatened against Columbia or
its Subsidiaries relating to their business, except for any such proceeding
which would not have a Columbia Material Adverse Effect. To the knowledge of
the executive officers of Columbia, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being made
or threatened involving employees of Columbia or any of its Subsidiaries.
6.13. Opinion of Financial Advisor. Columbia has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation to the effect that as of
the date hereof, the consideration to be paid by Columbia pursuant to the
Merger is fair to Columbia from a financial point of view.
6.14. MCA Stock Ownership. Neither Columbia nor any of its Subsidiaries owns
any shares of MCA Common Stock or other securities convertible into shares of
MCA Common Stock.
A-13
<PAGE>
6.15. Columbia Common Stock. The issuance and delivery by Columbia of shares
of Columbia Common Stock in connection with the Merger and this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of Columbia. The shares of Columbia Common Stock to be issued in connection
with the Merger and this Agreement, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable.
6.16. Convertible Securities. Columbia has no outstanding options, warrants
or other securities exercisable for, or convertible into, shares of Columbia
Common Stock, the terms of which would require any anti-dilution adjustments by
reason of the consummation of the transactions contemplated hereby.
6.17. Medicare Participation/Accreditation. All of Columbia's 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 substantial compliance with the conditions of
participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of the Columbia assets.
Neither Columbia nor any of its Subsidiaries has received notice from the
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 or surveys, and neither Columbia nor any of its
Subsidiaries has any reason to believe that any such investigations or surveys
are pending, threatened or imminent which may have a Columbia Material Adverse
Effect. All of Columbia's hospitals are accredited by the Joint Commission on
Accreditation of Healthcare Organizations.
ARTICLE 7
7. COVENANTS.
7.1. Alternative Proposals. Prior to the Effective Time, MCA agrees (a) that
neither it nor any of its Subsidiaries shall, and it shall direct and use its
best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, MCA or any of
its Significant Subsidiaries (any such proposal or offer being hereinafter
referred to as an "Alternative Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal;
(b) that it will 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, and it will take the necessary steps to
inform the individuals or entities referred to above of the obligations
undertaken in this Section 7.1; and (c) that it will notify Columbia
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; provided, however, that nothing
contained in this Section 7.1 shall prohibit the Board of Directors of MCA from
(i) furnishing information to or entering into discussions or negotiations
with, any person or entity that makes an unsolicited bona fide proposal to
acquire MCA pursuant to a merger, consolidation, share exchange, purchase of a
substantial portion of assets, business combination or other similar
transaction, if, and only to the extent that, (A) the Board of Directors of MCA
determines in good faith that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders imposed by law,
(B) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, MCA provides written notice to
Columbia to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) subject to any
confidentiality agreement with such person or entity (which MCA determined in
good faith was required to be executed in order for its Board of Directors to
comply with fiduciary duties to stockholders imposed by law), MCA keeps
Columbia informed of the status (not the terms) of any such
A-14
<PAGE>
discussions or negotiations; and (ii) to the extent applicable, complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Alternative
Proposal. Nothing in this Section 7.1 shall (x) permit MCA to terminate this
Agreement (except as specifically provided in Article 9 hereof), (y) permit MCA
to enter into any agreement with respect to an Alternative Proposal during the
term of this Agreement (it being agreed that during the term of this Agreement,
MCA shall not enter into any agreement with any person that provides for, or in
any way facilitates, an Alternative Proposal (other than a confidentiality
agreement in customary form)), or (z) affect any other obligation of MCA under
this Agreement.
7.2. Interim Operations. (a) Prior to the Effective Time, except as set forth
in the MCA Disclosure Letter or as contemplated by any other provision of this
Agreement, unless Columbia has consented in writing thereto, MCA:
(i) Shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) Shall use its reasonable efforts, and shall cause each of its
Subsidiaries to use its reasonable efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(iii) Shall not amend its Certificate of Incorporation or Bylaws;
(iv) Shall promptly notify Columbia of any material emergency or other
material change in its condition (financial or otherwise), business or
results of operations, any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(v) Shall promptly deliver to Columbia true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(vi) Shall not (x) except pursuant to the exercise of options, warrants,
conversion rights and other contractual rights existing on the date hereof
and disclosed pursuant to this Agreement, issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization as it
existed on the date hereof, (y) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire
any shares of its capital stock, other than employee stock options, stock
benefits and stock purchases under any stock option, stock benefit or stock
purchase plan existing on the date hereof, provided that the aggregate
amount of employee stock options granted pursuant to such employee stock
option plans shall not exceed 50,000, (z) increase any compensation or
enter into or amend any employment agreement with any of its present or
future officers or directors, except for normal increases consistent with
past practice and the payment of cash bonuses to officers pursuant to and
consistent with existing plans or programs, or (aa) adopt any new employee
benefit plan (including any stock option, stock benefit or stock purchase
plan) or amend any existing employee benefit plan in any material respect,
except for changes which are less favorable to participants in such plans;
(vii) Shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or (ii) except in connection with the use of shares of capital stock
to pay the exercise price or tax withholding in connection with its stock-
based employee benefit plans, directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any
of its Subsidiaries, or make any commitment for any such action; and
(viii) Shall not, and shall not permit any of its Subsidiaries to sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) which are material, individually or in the aggregate, except
in the ordinary course of business.
(b) Prior to the Effective Time, except as set forth in the Columbia
Disclosure Letter or as contemplated by any other provision of this Agreement,
unless MCA has consented in writing thereto, Columbia:
A-15
<PAGE>
(i) Shall conduct its operations in the ordinary course in substantially
the same manner as heretofore conducted;
(ii) Shall not amend its Certificate of Incorporation;
(iii) Shall promptly deliver to MCA true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(iv) Shall not sell, lease or otherwise dispose of any of its assets
(including capital stock of Subsidiaries) which are material, individually
or in the aggregate, except in the ordinary course of business;
(v) Shall not redeem, purchase or otherwise acquire, or propose to
redeem, purchase or acquire, a material amount of the outstanding Columbia
Common Stock; and
(vi) Shall not declare or make any extraordinary distributions with
respect to its capital stock, which distributions are individually, or in
the aggregate, material; provided, however, that scheduled quarterly cash
dividends payable on the Columbia Common Stock shall not be deemed
"extraordinary."
7.3. Meeting of MCA Stockholders. MCA will take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders as promptly as practicable to consider
and vote upon the approval of this Agreement and the transactions contemplated
hereby. The Board of Directors of MCA shall recommend such approval and shall
take all lawful action to solicit such approval, including, without limitation,
timely mailing the Proxy Statement/Prospectus (as defined in Section 7.7);
provided, however, that such recommendation or solicitation is subject to any
action (including any withdrawal or change of its recommendation) taken by, or
upon authority of, the Board of Directors of MCA in the exercise of its good
faith judgment as to its fiduciary duties to its stockholders imposed by law.
It shall be a condition to the mailing of the Proxy Statement/Prospectus that
(i) Columbia shall have received a "comfort" letter from KPMG Peat Marwick,
independent public accountants for MCA, dated the date of the Proxy
Statement/Prospectus, with respect to the financial statements of MCA included
in the Proxy Statement/Prospectus, substantially in the form described in
Section 8.3(c), and (ii) MCA shall have received (A) an opinion of Dillon, Read
& Co. Inc., dated the date of the Proxy Statement/Prospectus, to the effect
that, as of the date thereof, the merger consideration is fair to the holders
of MCA Common Stock from a financial point of view, and (B) a "comfort" letter
from Coopers & Lybrand, independent public accountants for Columbia, dated the
date of the Proxy Statement/Prospectus, with respect to the financial
statements of Columbia included in the Proxy Statement/Prospectus,
substantially in the form described in Section 8.2(c).
7.4. Filings; Other Action. Subject to the terms and conditions herein
provided, MCA and Columbia shall: (a) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Merger; (b) use all reasonable 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 or authorizations
are required to be obtained prior to the Effective Time from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (c) use all reasonable 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 Columbia and
MCA shall take all such necessary action.
7.5. Inspection of Records. From the date hereof to the Effective Time, each
of MCA and Columbia shall (i) allow all designated officers, attorneys,
accountants and other representatives of the other reasonable access at all
reasonable times to the offices, records and files, correspondence, audits and
properties, as well
A-16
<PAGE>
as to all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs, of MCA and
Columbia and their respective Subsidiaries, as the case may be, (ii) furnish to
the other, the other's counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such persons may reasonably request and (iii) instruct the
employees, counsel and financial advisors of MCA or Columbia, as the case may
be, to cooperate with the other in the other's investigation of the business of
it and its Subsidiaries.
7.6. Publicity. The initial press release relating to this Agreement shall be
a joint press release and thereafter MCA and Columbia shall, subject to their
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), consult with each other, and use reasonable
efforts to agree upon the text of any press release, 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 federal or
state governmental or regulatory agency or with any national securities
exchange with respect thereto.
7.7. Registration Statement. Columbia and MCA shall cooperate and promptly
prepare and Columbia shall file with the SEC as soon as practicable a
Registration Statement on Form S-4 (the "Form S-4") under the Securities Act,
with respect to the Columbia Common Stock issuable in the Merger, a portion of
which Registration Statement shall also serve as the proxy statement with
respect to the meeting of the stockholders of MCA in connection with the Merger
(the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Columbia shall use all reasonable
efforts, and MCA will cooperate with Columbia, to have the Form S-4 declared
effective by the SEC as promptly as practicable. Columbia shall use its best
efforts to obtain, prior to the effective date of the Form S-4, all necessary
state securities law or "Blue Sky" permits or approvals required to carry out
the transactions contemplated by this Agreement and will pay all expenses
incident thereto. Columbia agrees that the Proxy Statement/Prospectus and each
amendment or supplement thereto at the time of mailing thereof and at the time
of the meeting of stockholders of MCA, or, in the case of the Form S-4 and each
amendment or supplement thereto, at the time it is filed or becomes effective,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing shall not apply to the extent
that any such untrue statement of a material fact or omission to state a
material fact was made by Columbia in reliance upon and in conformity with
written information concerning MCA furnished to Columbia by MCA specifically
for use in the Proxy Statement/Prospectus. MCA agrees that the written
information concerning MCA provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meeting of stockholders of MCA, or, in
the case of written information concerning MCA provided by MCA for inclusion in
the Form S-4 or any amendment or supplement thereto, at the time it is filed or
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. No amendment or supplement to the Proxy
Statement/Prospectus will be made by Columbia or MCA without the approval of
the other party. Columbia will advise MCA, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective or any supplement
or amendment has been filed, the issuance of any stop order, the suspension of
the qualification of the Columbia Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon
and responses thereto or requests by the SEC for additional information.
7.8. Listing Application. Columbia shall promptly prepare and submit to the
NYSE a listing application covering the shares of Columbia Common Stock (and
associated Rights) issuable in the Merger, and shall use its best efforts to
obtain, prior to the Effective Time, approval for the listing of such Columbia
Common Stock (and associated Rights), subject to official notice of issuance.
A-17
<PAGE>
7.9. 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.
7.10. Affiliate Letters. At least 30 days prior to the Closing Date, MCA
shall deliver to Columbia a list of names and addresses of those persons who
were, in MCA's reasonable judgment, at the record date for its stockholders'
meeting to approve the Merger, "affiliates" (each such person, an "Affiliate")
of MCA within the meaning of Rule 145 of the rules and regulations promulgated
under the Securities Act. MCA shall provide Columbia such information and
documents as Columbia shall reasonably request for purposes of reviewing such
list. MCA shall use all reasonable efforts to deliver or cause to be delivered
to Columbia, prior to the Closing Date, from each of the Affiliates of MCA
identified in the foregoing list, an Affiliate Letter in the form attached
hereto as Exhibit A. Columbia shall be entitled to place legends as specified
in such Affiliate Letters on the certificates evidencing any Columbia Common
Stock to be received by such Affiliates pursuant to the terms of this
Agreement, consistent with the terms of such Affiliate Letters.
7.11. Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except
as expressly provided herein and except that (a) the filing fee in connection
with the HSR Act filing, (b) the filing fee in connection with the filing of
the Form S-4 or Proxy Statement/Prospectus with the SEC and (c) the expenses
incurred in connection with printing and mailing the Form S-4 and the Proxy
Statement/Prospectus, shall be shared equally by MCA and Columbia.
7.12. Insurance; Indemnity. Columbia will cause the Surviving Corporation to
maintain in effect for not less than six years after the Effective Time, MCA's
current directors and officers insurance policies (or policies of at least the
same coverage containing terms and conditions no less advantageous to the
current and all former directors and officers of MCA) with respect to acts or
failures to act prior to the Effective Time; provided, however, that in order
to maintain or procure such coverage, Columbia shall not be required to pay an
annual premium in excess of two times the current annual premium paid by MCA
for its existing coverage (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of the Cap, Columbia shall only be required to obtain
as much coverage as can be obtained by paying an annual premium equal to the
Cap. From and after the Effective Time, the Surviving Corporation 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 MCA or any
of its Subsidiaries (each, an "Indemnified Party") against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation 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 occurred prior to the Effective Time. In the
event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) the Surviving Corporation shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Party, which counsel shall be
reasonably acceptable to the Surviving Corporation, in advance of the final
disposition of any such Action to the full extent permitted by applicable law,
upon receipt of any undertaking required by applicable law, and (ii) the
Surviving Corporation will cooperate in the defense of any such matter;
provided that it will not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld); provided
further that the Surviving Corporation shall not be obligated pursuant to this
Section to pay the fees and disbursements 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. From the
Effective Time to a date which is six years from the Effective Time, Columbia
shall cause the net worth (determined in accordance with generally accepted
accounting principles) of the Surviving Corporation and its consolidated
subsidiaries to be not less than the net worth of MCA and its consolidated
subsidiaries as reflected on its Quarterly Report on Form 10-Q for the period
ended March 31, 1994.
A-18
<PAGE>
7.13. Restructuring of Merger. Upon the mutual agreement of Columbia and MCA,
the Merger shall be restructured in the form of a forward subsidiary merger of
MCA into Merger Sub, with Merger Sub being the surviving corporation, or as a
merger of MCA into Columbia, with Columbia being the surviving corporation. In
such event, this Agreement shall be deemed appropriately modified to reflect
such form of merger.
7.14. Rights Agreement. Immediately prior to the Effective Time, MCA shall
redeem the preferred stock purchase rights issued pursuant to that certain
Rights Agreement dated as of July 30, 1992, by and between MCA and Society
National Bank, at a cost of not more than $.01 per right.
ARTICLE 8
8. CONDITIONS.
8.1. 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 fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved in the manner required by applicable law by the holders of the issued
and outstanding shares of capital stock of MCA entitled to vote thereon.
(b) The waiting period applicable to the consummation of the Merger under the
HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any order or injunction
of a court of competent jurisdiction which prohibits the consummation of the
transactions contemplated by this Agreement. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
(d) The Form S-4 shall have become effective and shall be effective at the
Effective Time, and no stop order suspending effectiveness of the Form S-4
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities laws relating to
the issuance or trading of the Columbia Common Stock to be issued to MCA
stockholders in connection with the Merger shall have been received.
(e) All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made, except for filings in connection
with the Merger and any other documents required to be filed after the
Effective Time and except where the failure to have obtained or made any such
consent, authorization, order, approval, filing or registration would not have
a material adverse effect on the business of Columbia and MCA (and their
respective Subsidiaries), taken as a whole, following the Effective Time.
8.2. Conditions to Obligation of MCA to Effect the Merger. The obligation of
MCA to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) Columbia shall have performed its agreements contained in this Agreement
required to be performed on or prior to the Closing Date, the representations
and warranties of Columbia and Merger Sub contained in this Agreement and in
any document delivered in connection herewith shall be true and correct as of
the Closing Date, and MCA shall have received a certificate of the President or
a Vice President of Columbia, dated the Closing Date, certifying to such
effect; provided however, that notwithstanding anything herein to the contrary,
this Section 8.2(a) shall be deemed to have been satisfied even if such
representations or warranties are not true and correct, unless the failure of
any of the representations or warranties to be so true and correct would have
or would be reasonably likely to have a Columbia Material Adverse Effect.
A-19
<PAGE>
(b) MCA shall have received the opinion of Davis Polk & Wardwell, special
counsel to MCA, dated the Closing Date, to the effect that the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code, and that MCA and Columbia will each be a party
to that reorganization within the meaning of Section 368(b) of the Code.
(c) MCA shall have received a "comfort" letter from Coopers & Lybrand, of the
kind contemplated by the Statement of Auditing Standards with respect to
Letters to Underwriters promulgated by the American Institute of Certified
Public Accountants (the "AICPA Statement"), dated the Closing Date, in form and
substance reasonably satisfactory to MCA, in connection with the procedures
undertaken by them with respect to the financial statements of Columbia and its
Subsidiaries contained in the Form S-4 and the other matters contemplated by
the AICPA Statement and customarily included in comfort letters relating to
transactions similar to the Merger.
(d) From the date of this Agreement through the Effective Time, there shall
not have occurred any change in the financial condition, business, operations
or prospects of Columbia and its Subsidiaries, taken as a whole, that would
have or would be reasonably likely to have a Columbia Material Adverse Effect
(other than as a result of changes in conditions, including economic or
political developments, applicable to the health care industry generally).
(e) The Columbia Common Stock to be issued to MCA stockholders in connection
with the Merger shall have been approved for listing on the NYSE, subject only
to official notice of issuance.
8.3. Conditions to Obligation of Columbia and Merger Sub to Effect the
Merger. The obligations of Columbia and Merger Sub to effect the Merger shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) MCA shall have performed its agreements contained in this Agreement
required to be performed on or prior to the Closing Date, the representations
and warranties of MCA contained in this Agreement and in any document delivered
in connection herewith shall be true and correct as of the Closing Date, and
Columbia shall have received a certificate of the President or a Vice President
of MCA, dated the Closing Date, certifying to such effect; provided, however,
that notwithstanding anything herein to the contrary, this Section 8.3(a) shall
be deemed to have been satisfied even if such representations or warranties are
not true and correct, unless the failure of any of the representations or
warranties to be so true and correct would have or would be reasonably likely
to have an MCA Material Adverse Effect.
(b) Columbia shall have received the opinion of Weil, Gotshal & Manges,
special counsel to Columbia, dated the Closing Date, to the effect that no gain
or loss will be recognized for federal income tax purposes by Columbia, Merger
Sub or MCA as a result of the Merger.
(c) Columbia shall have received a "comfort" letter from KPMG Peat Marwick,
of the kind contemplated by the AICPA Statement, dated the Closing Date, in
form and substance reasonably satisfactory to Columbia, in connection with the
procedures undertaken by them with respect to the financial statements and
other financial information of MCA and its Subsidiaries contained in the Form
S-4 and the other matters contemplated by the AICPA Statement and customarily
included in comfort letters relating to transactions similar to the Merger.
(d) From the date of this Agreement through the Effective Time, there shall
not have occurred any change in the financial condition, business, operations
or prospects of MCA and its Subsidiaries, taken as a whole, that would have or
would be reasonably likely to have an MCA Material Adverse Effect (other than
as a result of changes in conditions, including economic or political
developments, applicable to the health care industry generally).
A-20
<PAGE>
ARTICLE 9
9. TERMINATION.
9.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of MCA, by the mutual
consent of Columbia and MCA.
9.2. Termination by Either Columbia or MCA. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
Columbia or MCA if (a) the Merger shall not have been consummated by December
31, 1994, or (b) the approval of MCA's stockholders required by Section 8.1(a)
shall not have been obtained at a meeting duly convened therefor or at any
adjournment thereof, or (c) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and non-
appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (c) shall have used all reasonable efforts to remove
such injunction, order or decree; provided, in the case of a termination
pursuant to clause (a) above, MCA shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by December 31,
1994.
9.3. Termination by MCA. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, before or after the
adoption and approval by the stockholders of MCA referred to in Section 8.1(a),
by action of the Board of Directors of MCA, if (a) in the exercise of its good
faith judgment as to fiduciary duties to its stockholders imposed by law, the
Board of Directors of MCA determines that such termination is required by
reason of an Alternative Proposal being made, (b) there has been a breach by
Columbia or Merger Sub of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have a Columbia
Material Adverse Effect, or (c) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of Columbia,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by MCA to Columbia.
9.4. Termination by Columbia. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, by action of the
Board of Directors of Columbia, if (a) the Board of Directors of MCA shall have
withdrawn or modified in a manner adverse to Columbia its approval or
recommendation of this Agreement or the Merger due to the existence of an
Alternative Proposal, or shall have recommended an Alternative Proposal to MCA
stockholders, or (b) there has been a breach by MCA of any representation or
warranty contained in this Agreement which would have or would be reasonably
likely to have an MCA Material Adverse Effect, or (c) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of MCA, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Columbia to MCA.
9.5. Effect of Termination and Abandonment.
(a) In the event that any person shall have made an Alternative Proposal for
MCA and thereafter this Agreement is terminated pursuant to Section 9.3(a) or
Section 9.4(a), then MCA, if requested by Columbia, shall promptly, but in no
event later than two days after the date of such request, pay Columbia a fee of
$25,000,000, which amount shall be payable by wire transfer of same day funds.
MCA acknowledges that the agreements contained in this Section 9.5(a) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Columbia and Merger Sub would not enter into this
Agreement; accordingly, if MCA fails to promptly pay the amount due pursuant to
this Section 9.5(a), and, in order to obtain such payment, Columbia or Merger
Sub commences a suit which results in a judgment
A-21
<PAGE>
against MCA for the fee set forth in this Section 9.5(a), the non-prevailing
party shall pay to the prevailing party its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the rate of 12% per annum.
(b) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article 9, all obligations of the parties hereto shall
terminate, except the obligations of the parties pursuant to this Section 9.5
and Section 7.11 and except for the provisions of Sections 10.3, 10.4, 10.6,
10.8, 10.9, 10.12, 10.13 and 10.14. Moreover, in the event of termination of
this Agreement pursuant to Section 9.3 or 9.4, nothing herein shall prejudice
the ability of the non-breaching party from seeking 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; and
provided further, that in the event Columbia has received the fee payable under
Section 9.5(a) hereof, it shall not (i) assert or pursue in any manner,
directly or indirectly, any claim or cause of action based in whole or in part
upon alleged tortious or other interference with rights under this Agreement
against any entity or person submitting an Alternative Proposal or (ii) assert
or pursue in any manner, directly or indirectly, any claim or cause of action
against MCA or any of its officers or directors based in whole or in part upon
its or their receipt, consideration, recommendation, or approval of an
Alternative Proposal.
9.6. Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
A-22
<PAGE>
ARTICLE 10
10. GENERAL PROVISIONS.
10.1. Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in Article 4,
Section 7.12 and this Article 10 and the agreements delivered pursuant to this
Agreement shall survive the Merger.
10.2. Notices. Any notice required to be given hereunder shall be sufficient
if in writing, and sent by facsimile transmission and 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 Columbia or Merger Sub: If to MCA:
Richard L. Scott Donald E. Steen
President and Chief Executive Officer President and Chief
Columbia/HCA Healthcare Corporation Executive Officer
201 West Main Street Medical Care America, Inc.
Louisville, KY 40202 13455 Noel Road
Facsimile: (502) 572-2161 Dallas, Texas 75240
Facsimile: (214) 385-3183
With copies to: With a copy to:
Mr. Stephen T. Braun Steven F. Goldstone
Senior Vice President and General Counsel Davis Polk & Wardwell
Columbia/HCA Healthcare Corporation 450 Lexington Avenue
201 West Main Street New York, NY 10017
Louisville, KY 40201-7433 Facsimile: (212) 450-4800
Facsimile: (502) 572-2163
Linda M. Robison
Weil, Gotshal & Manges
700 Louisiana, Suite 1600
Houston, Texas 77002
Facsimile: (713) 224-9511
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.
10.3. 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. 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
Article 4 and Section 7.12, 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.
10.4. Entire Agreement. This Agreement, the Exhibits, the MCA Disclosure
Letter, the Columbia Disclosure Letter, the previously executed Confidentiality
Agreements between MCA and Columbia and any 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
A-23
<PAGE>
parties with respect thereto. No addition to or modification of any provision
of this Agreement shall be binding upon any party hereto unless made in writing
and signed by all parties hereto.
10.5. Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of MCA, but after any such stockholder approval, no amendment
shall be made which by law requires the further approval of stockholders
without obtaining such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
10.6. 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 MCA and Columbia 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 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.
10.7. 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.
10.8. 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.
10.9. 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.
10.10. Waivers. Except as provided in this Agreement, 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. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
10.11. Incorporation of Exhibits. The MCA Disclosure Letter, the Columbia
Disclosure Letter and all Exhibits attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
10.12. 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.
10.13. Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was 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
specifically the terms and provisions hereof
A-24
<PAGE>
in any Delaware Court, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.14. Subsidiaries. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means 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, or any organization of which such party
is a general partner. When a reference is made in this Agreement to Significant
Subsidiaries, the words "Significant Subsidiaries" shall refer to Subsidiaries
(as defined above) which constitute "significant subsidiaries" under Rule 405
promulgated by the SEC under the Securities Act.
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.
Columbia/HCA Healthcare Corporation
ATTEST:
/s/ Stephen T. Braun /s/ Richard L. Scott
By: _________________________________ By: _________________________________
Stephen T. Braun Richard L. Scott
Assistant Secretary President and Chief Executive
Officer
CHOS Acquisition Corporation
ATTEST:
/s/ Stephen T. Braun /s/ Richard L. Scott
By: _________________________________ By: _________________________________
Stephen T. Braun Richard L. Scott
Assistant Secretary President
Medical Care America, Inc.
ATTEST:
/s/ Jonathan R. Bond /s/ Donald E. Steen
By: _________________________________ By: _________________________________
Name: Jonathan R. Bond Donald E. Steen
Title: Senior Vice President and President and Chief Executive
Secretary Officer
A-25
<PAGE>
EXHIBIT A
FORM OF AFFILIATE LETTER
Columbia/HCA Healthcare Corporation
201 West Main Street
Louisville, Kentucky 40202
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Medical Care America, Inc., a Delaware corporation ("MCA"),
as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). Pursuant to the terms of the Agreement and
Plan of Merger dated as of May , 1994 (the "Agreement"), between Columbia/HCA
Healthcare Corporation, a Delaware corporation ("Columbia"), CHOS Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Columbia
("Merger Sub"), and MCA, MCA will be merged with and into Merger Sub (the
"Merger").
As a result of the Merger, I may receive shares of Common Stock, par value
$.01 per share, of Columbia (the "Columbia Securities") in exchange for shares
owned by me of Common Stock, par value $.01 per share, of MCA.
I represent, warrant and covenant to Columbia that in the event I receive any
Columbia Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Columbia Securities in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the Columbia Securities
to the extent I felt necessary, with my counsel or counsel for MCA.
C. I have been advised that the issuance of Columbia Securities to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, since at the time the Merger was submitted for a vote of the
stockholders of MCA, I may be deemed to have been an affiliate of MCA and
the distribution by me of the Columbia Securities has not been registered
under the Act, I may not sell, transfer or otherwise dispose of the
Columbia Securities issued to me in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such
sale, transfer or under other disposition is made in conformity with Rule
145 promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to Columbia, or a "no action" letter obtained
by the undersigned from the staff of the Commission, such sale, transfer or
other disposition is otherwise exempt from registration under the Act.
D. I understand that Columbia is under no obligation to register the
sale, transfer or other disposition of the Columbia Securities by me or on
my behalf under the Act or to take any other action necessary in order to
make compliance with an exemption from such registration available.
E. I also understand that there will be placed on the certificates for
the Columbia Securities issued to me, or any substitutions therefor, a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
BETWEEN THE REGISTERED HOLDER HEREOF AND
A-26
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF COLUMBIA/HCA HEALTHCARE CORPORATION."
F. I also understand that unless the transfer by me of my Columbia
Securities has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Columbia reserves the right to
put the following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act or this
Agreement. It is understood and agreed that such legends referred to above will
be removed if (i) two years shall have elapsed from the date the undersigned
acquired the Columbia Securities received in the Merger and the provisions of
Rule 145(d)(2) are then available to the undersigned, (ii) three years shall
have elapsed from the date the undersigned acquired the Columbia Securities
received in the Merger and the provisions of Rule 145(d)(3) are then applicable
to the undersigned, or (iii) Columbia has received either an opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to
Columbia, or a "no action" letter obtained by the undersigned from the staff of
the Commission, to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of MCA as described in the first paragraph of this
letter or as a waiver of any rights I may have to object to any claim that I am
such an affiliate on or after the date of this letter.
Very truly yours,
_____________________________________
Name:
Accepted this day of , 1994 by
Columbia/HCA Healthcare Corporation
By: _________________________________
Name:
Title:
A-27
<PAGE>
APPENDIX B
[DILLION, READ & CO. INC. LETTERHEAD]
August , 1994
The Board of Directors
Medical Care America, Inc.
Two Galleria Tower
13455 Noel Road
Dallas, TX 75240
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view of the consideration to be received by the holders of common stock, par
value $0.01 per share ("MCA Common Stock") of Medical Care America, Inc.
("MCA") pursuant to an Agreement and Plan of Merger, dated as of May 23, 1994
(the "Agreement"), among MCA, Columbia/HCA Healthcare Corporation ("Columbia")
and CHOS Acquisition Corporation, a wholly owned subsidiary of Columbia
("Columbia Sub"). The Agreement provides for a merger (the "Merger") of
Columbia Sub into MCA and that at the effective time of the Merger, each
outstanding share of MCA Common Stock shall be converted into the right to
receive such number of shares of Columbia common stock, par value $0.01 per
share ("Columbia Common Stock ") as is determined in accordance with the
formula set forth in Section 4.2(a) of the Agreement, subject to adjustment as
provided in the Agreement. The formula as of the date hereof would result in
the receipt of Columbia Common Stock having a value of $29.00.
In arriving at our opinion we have examined certain publicly available
information relating to the business, financial condition and operations of
MCA, as well as certain financial and other information furnished to us by MCA
that is not publicly available, including projections prepared by the
management of MCA. We have met with certain senior officers of MCA to discuss
the operations, financial condition, history and prospects of MCA. We have
reviewed historical common stock price and trading volume data relating to MCA
and analyzed the consideration to be received by holders of MCA Common Stock in
relation to, among other measures, market price, historical earnings, future
earnings potential, cash flow and book value of MCA's businesses. We have
considered recent merger and acquisition transactions involving similar
companies, and have analyzed certain publicly available information, including
financial information, relating to public companies whose operations we deemed
comparable to those of MCA. In addition, we have examined certain publicly
available information relating to the business, financial condition and
operations of Columbia as well as certain financial and other information
furnished to us by Columbia that is not publicly available, including
projections prepared by the management of Columbia. We have also met with
certain senior officers of Columbia to discuss the operations, financial
condition, history and prospects of Columbia. Finally, we have conducted such
other analyses and examinations as we have deemed necessary in arriving at our
opinion.
Dillon, Read & Co. Inc. has not been authorized to and has not solicited
indications of interest in a business combination with MCA from parties other
than Columbia and MCA has advised us that it has not held discussions with any
party other than Columbia or conducted an "auction process". In the course of
our analysis we have relied upon the accuracy and completeness of the publicly
available financial information, and non-public financial and other information
provided to us by MCA and Columbia, which we have not independently verified.
We have not made, requested or received any independent appraisal of the assets
of MCA or Columbia. Our opinion herein is based upon market, economic and other
circumstances existing and disclosed to us as of the date hereof.
B-1
<PAGE>
Subject to the foregoing and based upon our experience as investment bankers,
our work described above and other factors we deemed relevant, we are of the
opinion that the consideration as of the date hereof to be received by the
holders of MCA Common Stock pursuant to the Agreement is fair to the
stockholders of MCA from a financial point of view.
Very truly yours,
Dillion, Read & Co. Inc.
B-2
<PAGE>
- ------------------------------------------------------------------------------
MEDICAL CARE AMERICA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Stockholders of Medical Care America, Inc., a Delaware
corporation ("MCA"), to be held at the Westin Hotel, Galleria Dallas, 13340
Dallas Parkway, Dallas, Texas on September , 1994 at 9:00 a.m., Dallas,
Texas time, and the Proxy Statement and Prospectus in connection therewith
(the "Proxy Statement/Prospectus") and (2) appoints Jack R. Anderson and
Donald E. Steen, and each of them, his proxies with full power of
substitution for and in the name, place, and stead of the undersigned, to
vote upon and act with respect to all of the shares of Common Stock of MCA
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the Special Meeting and at any
adjournment(s) or postponement(s) thereof.
P R O X Y
The undersigned directs that this proxy be voted as follows:
(1) To approve and adopt an Agreement and Plan of Merger dated as of May
23, 1994 (the "Merger Agreement") among Columbia/HCA Healthcare
Corporation ("Columbia"), CHOS Acquisition Corporation ("Columbia Sub")
and MCA, pursuant to which, among other things (a) Columbia Sub would
be merged with and into MCA (the "Merger") and (b) each stockholder of
MCA would receive for each share of MCA Common Stock owned as of the
effective time of the Merger a specified number of shares of Columbia
Common Stock, as described in the accompanying Proxy Statement/
Prospectus.
[_] FOR [_]AGAINST [_]ABSTAIN
(2) To approve, effective at the Effective Time of the Merger, MCA's 1994
Restricted and Nonqualified Stock Option Plan, as described in the
Proxy Statement/Prospectus.
[_] FOR [_]AGAINST [_]ABSTAIN
(3) To approve, effective at the Effective Time of the Merger, the June 1993
grant to each of MCA's non-employee directors of stock options to
purchase 10,000 shares of MCA Common Stock.
[_] FOR [_]AGAINST [_]ABSTAIN
(4) To approve, effective at the Effective Time of the Merger, MCA's Directors
Nonqualified Stock Option Plan, as described in the Proxy Statement/
Prospectus.
[_] FOR [_]AGAINST [_]ABSTAIN
(5) Election of four Directors
[_] FOR all nominees listed [_] WITHHOLD AUTHORITY to vote for
below (except as marked all nominees listed below
to the contrary below)
Jack R. Anderson, Theodore A. Bosler, Geroge D. Kennedy and William H. Wilcox
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
-----------------------------------------------------
(6) In the discretion of the proxies, on any other matter that may properly
come before the Special Meeting or any adjournments or postponements
thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS.
In connection with Proposal (1) above, Columbia and MCA reserve the right
to change the structure of the Merger so that MCA would merge into Columbia
Sub rather then Columbia Sub merging into MCA. Stockholder approval of the
Merger Agreement shall be deemed to include approval of this alternative
structure of the Merger.
Notwithstanding stockholder approval of the foregoing Proposals, MCA
reserves the right to abandon the Merger at any time prior to the
consummation of the Merger. Proposals (4) and (5) will be presented and
acted upon at the Special Meeting only in the event that Proposal (1) is
not approved.
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock of MCA and hereby ratifies and confirms
all that the proxies, their substitutes, or any of them may lawfully do by
virtue hereof.
If one or more of the proxies named shall be present in person or by
substitute at the Special Meeting or at any adjournment(s) or
postponement(s) thereof, the proxies so present and voting, either in
person or by substitute, shall exercise all of the powers hereby given.
Please date, sign, and mail this proxy in the enclosed envelope. No
postage is required.
Date: ________________________________, 1994
--------------------------------------------
Signature of Stockholder
--------------------------------------------
Signature of Stockholder
Please date this proxy and sign your name
exactly as it appears hereon. Where there
is more than one owner, each should sign.
When signing as an attorney, administrator,
executor, guardian, or trustee, please add
your title as such. If executed by a
corporation, the proxy should be signed by
a duly authorized officer. If a
partnership, please sign in partnership
name by authorized person.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Certificate of Incorporation provides that each
person who was or is made a party to, or is involved in, any action, suit or
proceeding by reason of the fact that he or she was a director or officer of
the Registrant (or was serving at the request of the Registrant as a director,
officer, employee or agent for another entity) will be indemnified and held
harmless by the Registrant, to the full extent authorized by the Delaware
General Corporation Law.
Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action brought by or in the right of a
corporation, the corporation may indemnify a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees) actually
and reasonably incurred by him or her if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless a court finds that, in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
The Registrant's Restated Certificate of Incorporation provides that to the
fullest extent permitted by Delaware General Corporation Law as the same exists
or may hereafter be amended, a director of the Registrant shall not be liable
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. The Delaware General Corporation Law permits
Delaware corporations to include in their certificates of incorporation a
provision eliminating or limiting director liability for monetary damages
arising from breaches of their fiduciary duty. The only limitations imposed
under the statute are that the provision may not eliminate or limit a
director's liability (i) for breaches of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or involving intentional misconduct or known violations of law, (iii) for the
payment of unlawful dividends or unlawful stock purchases or redemptions, or
(iv) for transactions in which the director received an improper personal
benefit.
The Registrant is insured against liabilities which it may incur by reason of
its indemnification of officers and directors in accordance with its Restated
Certificate of Incorporation. In addition, directors and officers are insured,
at the Registrant's expense, against certain liabilities that might arise out
of their employment and are not subject to indemnification under the Restated
Certificate of Incorporation.
The foregoing summaries are necessarily subject to the complete text of the
statutes, Restated Certificate of Incorporation and agreements referred to
above and are qualified in their entirety by reference thereto.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
2 Agreement and Plan of Merger (attached as Appendix A to the Proxy
Statement and Prospectus).
3.1 Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3(a) to the Registrant's Current Report on Form 8-K dated
February 11, 1994, and incorporated herein by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
3.2(a) By-laws of the Registrant (filed as Exhibit 2.2 to the Registrant's
Registration Statement on Form 8-A dated August 31, 1993, and
incorporated herein by reference).
3.2(b) Amendment to By-laws of the Registrant (filed as Exhibit 3(b).1 to
the Registrant's Current Report on Form 8-K dated February 11,
1994, and incorporated herein by reference).
4.1 Specimen Certificate for shares of Common Stock, par value $.01 per
share, of the Registrant (filed as Exhibit 4.1 to the Registrant's
Form SE to Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible
Note Due June 30, 1999 (filed as Exhibit 4.4 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Registrant and The 1818
Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, and incorporated herein by reference).
4.4 Securities Purchase Agreement by and between the Registrant and The
1818 Fund, L.P. dated as of March 18, 1991 (filed as Exhibit 4.6 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by reference).
4.5 Warrant to purchase shares of Common Stock, par value $.01 per
share, of the Registrant (filed as Exhibit 4.7 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990, and incorporated herein by reference).
4.6 Registration Rights Agreement dated as of March 16, 1989, by and
among HCA-Hospital Corporation of America and the persons listed on
the signature pages thereto (filed as Exhibit (g)(24) to Amendment
No. 3 to the Schedule 13E-3 filed by HCA-Hospital Corporation of
America, Hospital Corporation of America and The HCA Profit Sharing
Plan on March 22, 1989, and incorporated herein by reference).
4.7 Assignment and Assumption Agreement dated as of February 10, 1994,
between HCA-Hospital Corporation of America and the Registrant
relating to the Registration Rights Agreement, as amended (filed as
Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by
reference).
4.8 Amended and Restated Rights Agreement dated February 10, 1994
between the Registrant and Mid-America Bank of Louisville and Trust
Company (filed as Exhibit 4.8 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
4.9 $1 Billion Credit Agreement dated as of February 10, 1994, among the
Registrant, the Several Banks and Other Financial Institutions, and
Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.9
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).
4.10 $2 Billion Credit Agreement dated as of February 10, 1994, among the
Registrant, the Several Banks and Other Financial Institutions, and
Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.10
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).
4.11 Indenture dated as of December 15, 1993 between the Registrant and
The First National Bank of Chicago, as Trustee (filed as Exhibit
4.11 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by
reference).
5 Opinion of Stephen T. Braun, Senior Vice President and General
Counsel of the Registrant, regarding the issuance of the registered
securities.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of Ernst & Young.
23.2 Consent of KPMG Peat Marwick.
23.3 Consent of Stephen T. Braun (included in Exhibit 5).
*23.4 Consent of Weil, Gotshal & Manges.
*23.5 Consent of Davis Polk & Wardwell.
*23.6 Consent of Dillon Read & Co. Inc.
24 Power of Attorney (see page II-6)
</TABLE>
- --------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the Registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.
II-3
<PAGE>
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(9) To supply by means of post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was not
the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Louisville, Commonwealth of Kentucky, on the 6th day of July, 1994.
COLUMBIA/HCA HEALTHCARE CORPORATION
/s/ Stephen T. Braun
By: __________________________________________
Stephen T. Braun
Senior Vice President and General Counsel
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Stephen T. Braun, David C. Colby and Richard A.
Lechleiter, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and re-substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all Amendments (including Post-Effective Amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform such and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas F. Frist, Jr., M.D. Chairman of the July 6, 1994
- ------------------------------------- Board
THOMAS F. FRIST, JR., M.D.
/s/ Richard L. Scott President, Chief July 6, 1994
- ------------------------------------- Executive Officer
RICHARD L. SCOTT (Principal
Executive Officer)
and Director
/s/ David C. Colby Senior Vice July 6, 1994
- ------------------------------------- President, Chief
DAVID C. COLBY Financial Officer
and Treasurer
(Principal
Financial Officer)
/s/ Richard A. Lechleiter Vice President & July 6, 1994
- ------------------------------------- Controller
RICHARD A. LECHLEITER (Principal
Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Magdalena Averhoff, M.D. Director July 6, 1994
- -------------------------------------
MAGDALENA AVERHOFF, M.D.
/s/ J. David Grissom Director July 6, 1994
- -------------------------------------
J. DAVID GRISSOM
/s/ Ethan Jackson Director July 6, 1994
- -------------------------------------
ETHAN JACKSON
/s/ Charles J. Kane Director July 6, 1994
- -------------------------------------
CHARLES J. KANE
/s/ John W. Landrum Director July 6, 1994
- -------------------------------------
JOHN W. LANDRUM
/s/ T. Michael Long Director July 6, 1994
- -------------------------------------
T. MICHAEL LONG
/s/ Darla D. Moore Director July 6, 1994
- -------------------------------------
DARLA D. MOORE
/s/ Rodman W. Moorhead III Director July 6, 1994
- -------------------------------------
RODMAN W. MOORHEAD III
/s/ Carl F. Pollard Director July 6, 1994
- -------------------------------------
CARL F. POLLARD
/s/ Carl F. Reichardt Director July 6, 1994
- -------------------------------------
CARL F. REICHARDT
II-6
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Frank S. Royal, M.D. Director July 6, 1994
- -------------------------------------
FRANK S. ROYAL, M.D.
/s/ Robert D. Walter Director July 6, 1994
- -------------------------------------
ROBERT D. WALTER
/s/ William T. Young Director July 6, 1994
- -------------------------------------
WILLIAM T. YOUNG
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ------------------------------------------------------ ------------
<C> <S> <C>
2 Agreement and Plan of Merger (attached as Appendix A
to the Proxy Statement and Prospectus).
3.1 Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 3(a) to the Registrant's
Current Report on Form 8-K dated February 11, 1994,
and incorporated herein by reference).
3.2(a) By-laws of the Registrant (filed as Exhibit 2.2 to the
Registrant's Registration Statement on Form 8-A dated
August 31, 1993, and incorporated herein by
reference).
3.2(b) Amendment to By-laws of the Registrant (filed as
Exhibit 3(b).1 to the Registrant's Current Report on
Form 8-K dated February 11, 1994, and incorporated
herein by reference).
4.1 Specimen Certificate for shares of Common Stock, par
value $.01 per share, of the Registrant (filed as
Exhibit 4.1 to the Registrant's Form SE to Form 10-K
for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
4.2 Columbia Hospital Corporation 9% Subordinated
Mandatory Convertible Note Due June 30, 1999 (filed as
Exhibit 4.4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, and
incorporated herein by reference).
4.3 Registration Rights Agreement between the Registrant
and The 1818 Fund, L.P. dated March 18, 1991 (filed as
Exhibit 4.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, and
incorporated herein by reference).
4.4 Securities Purchase Agreement by and between the
Registrant and The 1818 Fund, L.P. dated as of March
18, 1991 (filed as Exhibit 4.6 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, and incorporated herein by
reference).
4.5 Warrant to purchase shares of Common Stock, par value
$.01 per share, of the Registrant (filed as Exhibit
4.7 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, and
incorporated herein by reference).
4.6 Registration Rights Agreement dated as of March 16,
1989, by and among HCA-Hospital Corporation of America
and the persons listed on the signature pages thereto
(filed as Exhibit (g)(24) to Amendment No. 3 to the
Schedule 13E-3 filed by HCA-Hospital Corporation of
America, Hospital Corporation of America and The HCA
Profit Sharing Plan on March 22, 1989, and
incorporated herein by reference).
4.7 Assignment and Assumption Agreement dated as of
February 10, 1994, between HCA-Hospital Corporation of
America and the Registrant relating to the
Registration Rights Agreement, as amended (filed as
Exhibit 4.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
4.8 Amended and Restated Rights Agreement dated February
10, 1994 between the Registrant and Mid-America Bank
of Louisville and Trust Company (filed as Exhibit 4.8
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated
herein by reference).
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ------------------------------------------------------- ------------
<C> <S> <C>
4.9 $1 Billion Credit Agreement dated as of February 10,
1994, among the Registrant, the Several Banks and Other
Financial Institutions, and Chemical Bank as Agent and
as CAF Loan Agent (filed as Exhibit 4.9 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein
by reference).
4.10 $2 Billion Credit Agreement dated as of February 10,
1994, among the Registrant, the Several Banks and Other
Financial Institutions, and Chemical Bank as Agent and
as CAF Loan Agent (filed as Exhibit 4.10 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein
by reference).
4.11 Indenture dated as of December 15, 1993 between the
Registrant and The First National Bank of Chicago, as
Trustee (filed as Exhibit 4.11 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by
reference).
5 Opinion of Stephen T. Braun, Senior Vice President and
General Counsel of the Registrant, regarding the
issuance of the registered securities.
23.1 Consent of Ernst & Young.
23.2 Consent of KPMG Peat Marwick.
23.3 Consent of Stephen T. Braun (included in Exhibit 5).
*23.4 Consent of Weil, Gotshal & Manges.
*23.5 Consent of Davis Polk & Wardwell.
*23.6 Consent of Dillon Read & Co. Inc.
24 Power of Attorney (see page II-6)
</TABLE>
- --------
* to be filed by amendment.
<PAGE>
EXHIBIT 5
[LETTERHEAD OF COLUMBIA/HCA APPEARS HERE]
July 6, 1994
Columbia/HCA Healthcare Corporation
201 West Main Street
Louisville, KY 40202
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Columbia/HCA Healthcare
Corporation (the "Company") and have acted as such in connection with the
preparation of a Registration Statement on Form S-4 under the Securities Act
of 1933, as amended (the "Act"), covering up to 25,173,256 shares of common
stock, $.01 par value per share (the "Shares"), of the Company. The Shares
also include associated Preferred Stock Purchase Rights (the "Rights"). The
Shares and the Rights are hereinafter collectively referred to as the "Common
Stock". The Common Stock would be issued pursuant to an Agreement and Plan of
Merger dated May 23, 1994, among the Company, CHOS Acquisition Corporation and
Medical Care America, Inc.
I have examined the Restated Certificate of Incorporation, By-laws and other
corporate records of the Company and such other documents as I have deemed
relevant to this opinion.
Based on the foregoing, it is my opinion that when the 25,173,256 shares of
the Common Stock, or any portion thereof, are issued as described in the
Registration Statement, such shares will be duly authorized, validly issued,
fully paid and nonassessable.
I hereby consent to the use of my name under the caption "Legal Matters" in
the Registration Statement and any prospectus which constitutes a part thereof
and to the filing of this opinion as an exhibit to the Registration Statement.
In giving this consent, I do not hereby admit that I come within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
Stephen T. Braun
Senior Vice President
and General Counsel
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and prospectus of Columbia/HCA Healthcare
Corporation for the registration of its common stock to be issued pursuant to
the merger with Medical Care America, Inc. and to the incorporation by
reference therein of our report dated July 5, 1994, with respect to the
consolidated financial statements and schedules of Columbia/HCA Healthcare
Corporation included in its Annual Report (Form 10-K/A-1) for the year ended
December 31, 1993, filed with the Securities and Exchange Commission.
Ernst & Young
Louisville, Kentucky
July 5, 1994
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF KPMG PEAT MARWICK APPEARS HERE]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
The Board of Directors
Medical Care America, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our Firm under the heading "Experts" in the prospectus.
Our report dated February 7, 1994, except as to note 3, which is as of March
21, 1994, contains an explanatory paragraph that states that the Company is a
defendant in a class action lawsuit alleging that, during 1992, the Company,
its subsidiaries, directors and certain of its officers violated Federal
securities and various state laws by making false and misleading statements to
the public, and seeking damages in unspecified amounts. No provision for any
liability that may result upon adjudication has been recognized in the
consolidated financial statements.
Our report dated February 7, 1994, except as to note 3, which is as of March
21, 1994, also refers to the Company's change in method of accounting for
income taxes in 1993 by adopting Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" and change in method of accounting for
investment securities on December 31, 1993 by adopting Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
/s/ KPMG Peat Marwick
Dallas, Texas
July 6, 1994
