<PAGE>
Rule 424(b)(3)
Registration No. 33-56803
COLUMBIA/HCA A NEW COMMITMENT TO HEALTHCARE . . . TOGETHER
- --------------------------------------------------------------------------------
Healthcare Corporation
201 West Main Street
P.O. Box 740033
Louisville, Kentucky 40201-7433
Telephone 502/572-2000
FAX 502/572-2002
January 10, 1995
To the Stockholders of Columbia/HCA Healthcare Corporation:
Enclosed are a Notice of Special Meeting of Stockholders, a Joint Proxy
Statement and Prospectus, and a Proxy for a Special Meeting of Stockholders
(the "Meeting") of Columbia/HCA Healthcare Corporation ("Columbia") to be held
on February 28, 1995, at 9:00 a.m., Nashville, Tennessee time, at the offices
of Columbia, One Park Plaza, Nashville, Tennessee.
At the 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 will be merged with and into Healthtrust, Inc.-The
Hospital Company ("Healthtrust"). The terms of the Merger Agreement provide
that holders of Healthtrust Common Stock owned as of the effective time of the
merger will receive 0.88 of a share of Columbia Common Stock for each
Healthtrust share. In addition, you will be asked to consider a proposal to
amend Columbia's Restated Certificate of Incorporation to increase the size of
the Board of Directors from 15 members to 18 members, to accommodate the
addition of three Healthtrust nominees as directors of Columbia. Details of the
proposals are set forth in the accompanying Joint Proxy Statement and
Prospectus, which you should read carefully.
After careful consideration, the Board of Directors of Columbia has approved
the Merger Agreement and the proposed amendment to Columbia's Restated
Certificate of Incorporation and recommends that all stockholders vote for
their approval. The Board of Directors of Columbia believes that the proposed
merger presents significant opportunities for growth in markets common to
Columbia and Healthtrust and the development of comprehensive integrated
healthcare delivery networks with physicians and other healthcare providers in
certain markets.
All stockholders are invited to attend the Meeting in person. The affirmative
vote of a majority of the shares of Columbia Common Stock present, in person or
by proxy, at the Meeting will be necessary for approval and adoption of the
Merger Agreement. The affirmative vote of 75% of the outstanding shares of
Columbia Common Stock will be necessary for approval of the amendment to
Columbia's Restated Certificate of Incorporation.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE 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 MEETING. If you attend the
Meeting in person you may, if you wish, vote personally on all matters brought
before the Meeting even if you have previously returned your Proxy.
Sincerely,
/s/ Thomas F. Frist, Jr. /s/ Richard L. Scott
Thomas F. Frist, Jr., M.D. Richard L. Scott
Chairman of the Board President and Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
201 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 1995
----------------
To the Stockholders of Columbia/HCA Healthcare Corporation:
Notice is hereby given that a Special Meeting of Stockholders (the "Meeting")
of Columbia/HCA Healthcare Corporation ("Columbia") will be held on February
28, 1995, at 9:00 a.m., Nashville, Tennessee time, at the offices of Columbia,
One Park Plaza, Nashville, Tennessee, 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 October 4, 1994 (the "Merger Agreement")
among Columbia, COL Acquisition Corporation ("Columbia Sub") and
Healthtrust, Inc.-The Hospital Company ("Healthtrust"), pursuant to which,
among other things, (a) Columbia Sub would be merged with and into
Healthtrust (the "Merger") and (b) each stockholder of Healthtrust would
receive for each share of Healthtrust Common Stock owned as of the
effective time of the Merger 0.88 of a share of Columbia Common Stock
(which approval and adoption shall constitute, among other things, approval
of the issuance of shares of Columbia Common Stock in connection with the
Merger) as described in the accompanying Joint Proxy Statement and
Prospectus;
(2) to consider and vote on a proposal to amend Columbia's Restated
Certificate of Incorporation to increase the size of the Board of Directors
from 15 members to 18 members, to accommodate the addition of three
Healthtrust nominees as directors of Columbia; and
(3) to transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
Notwithstanding stockholder approval of the foregoing Proposals, Columbia
reserves the right to abandon the Merger and/or such amendment at any time
prior to the consummation of the Merger.
The Board of Directors of Columbia has fixed the close of business on January
11, 1995, as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting, and only stockholders of record at such
time will be entitled to notice of and to vote at the Meeting. A list of
Columbia stockholders entitled to vote at the Meeting will be available for
examination, during ordinary business hours, at the offices of Columbia, One
Park Plaza, Nashville, Tennessee, for ten days prior to the Meeting.
A form of Proxy and a Joint Proxy Statement and Prospectus containing more
detailed information with respect to the matters to be considered at the
Meeting accompany this notice.
You are cordially invited and urged to attend the 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 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.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE 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 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,
/s/ Stephen T. Braun
Stephen T. Braun
Secretary
Louisville, Kentucky
January 10, 1995
<PAGE>
HEALTHTRUST
INC.-The Hospital Company
January 10, 1995
To the Stockholders of Healthtrust, Inc.-The Hospital Company:
Enclosed are a Notice of Special Meeting of Stockholders, a Joint Proxy
Statement and Prospectus, and a Proxy for a Special Meeting of Stockholders
(the "Meeting") of Healthtrust, Inc.-The Hospital Company ("Healthtrust") to be
held on February 28, 1995, at 9:00 a.m., Nashville, Tennessee time, at the
Doubletree Hotel, 314 Fourth Avenue North, Nashville, Tennessee.
At the 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 Healthtrust. The terms of the Merger Agreement provide that
holders of the Common Stock of Healthtrust will receive for each share of
Healthtrust Common Stock owned as of the effective time of the merger 0.88 of a
share of Columbia Common Stock. Details of the proposed transaction are set
forth in the accompanying Joint Proxy Statement and Prospectus, which you
should read carefully.
After careful consideration, the Board of Directors of Healthtrust has
determined that the proposed merger is in the best interests of Healthtrust and
its stockholders. Accordingly, the Board has approved the Merger Agreement and
recommends that all stockholders vote for its approval. The Board of Directors
of Healthtrust believes that the proposed merger presents significant
opportunities for growth in markets common to Healthtrust and Columbia and the
development of comprehensive integrated healthcare delivery networks with
physicians and other healthcare providers in certain markets.
All stockholders are invited to attend the Meeting in person. The affirmative
vote of the holders of not less than a majority of the outstanding shares of
Healthtrust Common Stock will be necessary for approval and adoption of the
Merger Agreement.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE 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 MEETING. If you attend the
Meeting in person you may, if you wish, vote personally on all matters brought
before the Meeting even if you have previously returned your Proxy.
Sincerely,
/s/ R. Clayton McWhorter
R. Clayton McWhorter
Chairman of the Board,
Chief Executive Officer and
President
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
HEALTHTRUST, INC.-THE HOSPITAL COMPANY
4525 HARDING ROAD
NASHVILLE, TENNESSEE 37205
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 1995
----------------
To the Stockholders of Healthtrust, Inc.-The Hospital Company:
Notice is hereby given that a Special Meeting of Stockholders (the "Meeting")
of Healthtrust, Inc.-The Hospital Company ("Healthtrust") will be held on
February 28, 1995, at 9:00 a.m., Nashville, Tennessee time, at the Doubletree
Hotel, 314 Fourth Avenue North, Nashville, Tennessee, 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 October 4, 1994 (the "Merger Agreement")
among Columbia/HCA Healthcare Corporation ("Columbia"), COL Acquisition
Corporation ("Columbia Sub") and Healthtrust, pursuant to which, among
other things (a) Columbia Sub would be merged with and into Healthtrust
(the "Merger"), and (b) each stockholder of Healthtrust would receive for
each share of Healthtrust Common Stock owned as of the effective time of
the Merger 0.88 of a share of Columbia Common Stock, as described in the
accompanying Joint Proxy Statement and Prospectus; and
(2) to transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
Notwithstanding stockholder approval of the foregoing Proposal (1),
Healthtrust reserves the right to abandon the Merger at any time prior to the
consummation of the Merger.
The Board of Directors of Healthtrust has fixed the close of business on
January 11, 1995, as the record date for the determination of stockholders
entitled to notice of and to vote at the Meeting, and only stockholders of
record at such time will be entitled to notice of and to vote at the Meeting. A
list of Healthtrust stockholders entitled to vote at the Meeting will be
available for examination, during ordinary business hours, at the principal
offices of Healthtrust, 4525 Harding Road, Nashville, Tennessee, for ten days
prior to the Meeting.
A form of Proxy and a Joint Proxy Statement and Prospectus containing more
detailed information with respect to the matters to be considered at the
Meeting accompany this notice.
You are cordially invited and urged to attend the 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 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 THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE 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 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,
/s/ Philip D. Wheeler
Philip D. Wheeler
Secretary
Nashville, Tennessee
January 10, 1995
<PAGE>
COLUMBIA/HCA HEALTHCARE HEALTHTRUST, INC.-THE
CORPORATION HOSPITAL COMPANY
----------------
JOINT PROXY STATEMENT AND PROSPECTUS
----------------
GENERAL INFORMATION
This Joint Proxy Statement and Prospectus (the "Proxy Statement/Prospectus")
is furnished in connection with the solicitation of proxies by the Boards of
Directors of Columbia/HCA Healthcare Corporation, a Delaware corporation
("Columbia"), and Healthtrust, Inc.-The Hospital Company, a Delaware
corporation ("Healthtrust"), for use in connection with a Special Meeting of
Stockholders of Columbia (the "Columbia Meeting") and a Special Meeting of
Stockholders of Healthtrust (the "Healthtrust Meeting"), respectively, each of
which is to be held on February 28, 1995, or any adjournment(s) or
postponement(s) thereof. At such meetings, the stockholders of each of Columbia
and Healthtrust will consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of October 4, 1994 (the "Merger
Agreement") among Columbia, COL Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Columbia ("Columbia Sub"), and Healthtrust,
pursuant to which Columbia Sub would be merged with and into Healthtrust (the
"Merger"). As a result of the Merger, each of the then outstanding shares of
Common Stock, $.001 par value, of Healthtrust (the "Healthtrust Common Stock")
would be converted into the right to receive 0.88 of a share of Common Stock,
$.01 par value, of Columbia (the "Columbia Common Stock").
In addition, at the Columbia Meeting, the stockholders of Columbia will
consider and vote upon a proposal to amend Columbia's Restated Certificate of
Incorporation to increase the size of the Board of Directors from 15 members to
18 members, to accommodate the addition of three Healthtrust nominees as
directors of Columbia.
The stockholders of Columbia and Healthtrust also will consider and vote upon
such other business as may properly come before the meetings 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
Columbia and Healthtrust on or about January 17, 1995.
----------------
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 JOINT PROXY STATEMENT AND PROSPECTUS IS JANUARY 10, 1995.
<PAGE>
AVAILABLE INFORMATION
Columbia and Healthtrust are each 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 Healthtrust Common Stock are listed on the New York Stock
Exchange and, as such, the periodic reports, proxy statements and other
information filed by Columbia and Healthtrust 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 HEALTHTRUST 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 HEALTHTRUST (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 HEALTHTRUST, INC.-THE HOSPITAL COMPANY, 4525 HARDING ROAD, NASHVILLE,
TENNESSEE 37205, ATTENTION: PHILIP D. WHEELER, SECRETARY, TELEPHONE: (615)
383-4444. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH
REQUEST SHOULD BE MADE BY FEBRUARY 21, 1995. 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 Reports on Form 10-Q for the interim periods ended March 31,
1994, June 30, 1994 and September 30, 1994.
4. Current Reports on Form 8-K dated February 10, 1994 (two filed),
February 28, 1994, March 11, 1994, March 18, 1994 (two filed), April 20,
1994, May 12, 1994, May 23, 1994, July 11, 1994, July 21, 1994, July 28,
1994, September 16, 1994, October 4, 1994 and December 13, 1994.
5. The description of the Columbia Common Stock and associated preferred
stock purchase rights contained in the Registration Statement on Form 8-A
dated August 31, 1993.
ii
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The following Healthtrust documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended August 31, 1994,
as amended.
2. Current Report on Form 8-K dated October 4, 1994.
3. The description of the Healthtrust Common Stock contained in its
Registration Statement on Form 8-A dated November 5, 1991, as amended by
Amendment No. 1 on Form 8 dated December 4, 1991.
4. The description of the Healthtrust preferred stock purchase rights
contained in the Registration Statement on Form 8-A dated July 12, 1993.
5. The consolidated financial statements of EPIC Holdings, Inc. and EPIC
Healthcare Group, Inc. contained in the Current Report on Form 8-K dated
May 5, 1994.
All documents filed by Columbia or Healthtrust 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 Columbia and Healthtrust stockholder
meetings shall be deemed to be incorporated by reference herein and shall be a
part hereof from the date of filing of such documents. Any statement 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
HEALTHTRUST SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
iii
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION......................................................... i
AVAILABLE INFORMATION....................................................... ii
DOCUMENTS INCORPORATED BY REFERENCE......................................... ii
SUMMARY..................................................................... 1
CERTAIN CONSIDERATIONS...................................................... 14
Competition; Impact of Managed Care Organizations......................... 14
Limits on Reimbursement................................................... 14
Extensive Regulation...................................................... 14
Health Care Reform........................................................ 15
Integration of the Businesses............................................. 15
Dependence on Key Personnel............................................... 16
Professional Liability Risks.............................................. 16
Certain Anti-takeover Provisions.......................................... 16
Pending HCA Tax Litigation; Spinoff Tax Ruling............................ 16
Pending MCA Securities Litigation......................................... 17
ERISA Matters............................................................. 17
Factors Affecting Market Price of Columbia Common Stock................... 19
THE MEETINGS................................................................ 19
Matters to Be Considered at the Meetings.................................. 19
Votes Required............................................................ 19
Voting of Proxies......................................................... 20
Revocability of Proxies................................................... 20
Record Date; Shares Entitled to Vote; Quorum.............................. 20
No Dissenters' Rights..................................................... 21
Solicitation of Proxies................................................... 21
THE MERGER.................................................................. 22
General................................................................... 22
Background of the Merger.................................................. 22
Reasons for the Merger; Recommendations of the Boards of Directors........ 23
Opinions of Financial Advisors............................................ 25
Interests of Certain Persons in the Merger................................ 34
Accounting Treatment...................................................... 35
Certain Federal Income Tax Consequences................................... 36
Regulatory Approval....................................................... 37
Resale Restrictions....................................................... 37
Litigation Relating to the Merger......................................... 37
THE MERGER AGREEMENT........................................................ 38
The Merger................................................................ 38
Exchange Procedures....................................................... 39
Representations and Warranties............................................ 40
Certain Covenants......................................................... 40
No Solicitation of Transactions........................................... 41
Benefit Plans............................................................. 42
Governance................................................................ 42
Indemnification and Insurance............................................. 42
Conditions................................................................ 43
Termination............................................................... 44
Termination Fee........................................................... 45
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Expenses................................................................. 45
Amendment and Waiver..................................................... 45
Alternative Merger Structure............................................. 45
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................ 46
DESCRIPTION OF COLUMBIA CAPITAL STOCK...................................... 57
Authorized Capital Stock................................................. 57
Columbia Common Stock.................................................... 57
Columbia Nonvoting Common Stock.......................................... 57
Columbia Preferred Stock................................................. 57
Preferred Stock Purchase Rights.......................................... 58
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................... 60
General.................................................................. 60
Classified Board of Directors............................................ 61
Stockholder Rights Plan.................................................. 61
Number of Directors; Removal; Filling Vacancies.......................... 62
No Stockholder Action by Written Consent; Special Meetings............... 63
Fair Price Provisions.................................................... 63
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals............................................................... 65
Common Stock and Nonvoting Common Stock.................................. 66
Preferred Stock.......................................................... 66
Amendment of the Certificate of Incorporation and Bylaws................. 67
Business Combinations.................................................... 67
Limitation of Liability of Directors..................................... 68
Indemnification of Directors and Officers................................ 68
Other Provisions......................................................... 69
THE PROPOSED AMENDMENT..................................................... 70
LEGAL MATTERS.............................................................. 71
EXPERTS.................................................................... 71
STOCKHOLDER PROPOSALS...................................................... 71
APPENDIX A--Agreement and Plan of Merger................................... A-1
APPENDIX B--Opinion of Morgan Stanley & Co. Incorporated................... B-1
APPENDIX C--Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.. C-1
</TABLE>
v
<PAGE>
SUMMARY
The following summary of certain information contained elsewhere in this
Joint 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 its predecessor corporation) and "Healthtrust" refers to Healthtrust,
Inc.-The Hospital Company, 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 Healthtrust and its affiliates has been supplied by
Healthtrust. 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. At October 31, 1994, Columbia operated 167 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. At October 31, 1994, Columbia operated more than 125 outpatient
centers. For the year ended December 31, 1993, Columbia generated operating
revenues of approximately $10.3 billion and income from continuing operations
of $575 million.
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 outpatient surgery and diagnostic
centers, rehabilitation facilities, 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 September 16, 1994, Columbia acquired Medical Care America, Inc. ("MCA")
in a transaction accounted for as a purchase (the "MCA Merger"). 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"). On
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. On January 10, 1995, Columbia announced that it is relocating its
principal executive offices to One Park Plaza, Nashville, Tennessee 37203.
HEALTHTRUST
Healthtrust is one of the largest providers of health care services in the
United States, delivering a full range of inpatient, outpatient and other
health care services principally through its affiliated hospitals. At October
31, 1994, Healthtrust operated 116 acute care hospitals, all of which are owned
or leased by Healthtrust through its subsidiaries or joint venture
arrangements. Healthtrust is also an investor, through joint ventures, in four
other acute care hospitals. Healthtrust's affiliated hospitals are located in
rural, suburban and urban communities in 22 southern and western states.
Healthtrust's affiliated hospitals generally provide a full range of inpatient
and outpatient health care services, including medical/surgical,
1
<PAGE>
diagnostic, obstetric, pediatric and emergency services. Many of Healthtrust's
hospitals also offer certain specialty programs and services, including
occupational medicine programs, home health care services, skilled nursing
services, physical therapy programs, rehabilitation services, alcohol and drug
dependency programs and selected mental health services. The health care
services provided by each hospital are based upon the local demand for such
services and the ability to provide such services on a competitive basis.
Healthtrust has experienced consistent growth since it began operations
through the acquisition of a group of hospitals and related assets (the
"Healthtrust Formation") from Hospital Corporation of America (the predecessor
to HCA) in September 1987. On May 5, 1994, Healthtrust acquired EPIC Holdings,
Inc. ("EPIC") (and, together with its wholly owned subsidiary EPIC Healthcare
Group, Inc., the "EPIC Entities") in a transaction accounted for as a purchase
(the "EPIC Merger").
Healthtrust's principal executive offices are located at 4525 Harding Road,
Nashville, Tennessee 37205, and its telephone number at such address is (615)
383-4444.
SPECIAL MEETINGS OF STOCKHOLDERS
This Proxy Statement/Prospectus relates to a Special Meeting of Stockholders
of Columbia (the "Columbia Meeting") and a Special Meeting of Stockholders of
Healthtrust (the "Healthtrust Meeting," and collectively with the Columbia
Meeting, the "Meetings"). At the Meetings, the stockholders of each of Columbia
and Healthtrust will consider and vote upon proposals to approve and adopt an
Agreement and Plan of Merger dated as of October 4, 1994 (the "Merger
Agreement") among Columbia, COL Acquisition Corporation, a wholly owned
subsidiary of Columbia ("Columbia Sub"), and Healthtrust pursuant to which
Columbia Sub would be merged with and into Healthtrust (the "Merger"). A copy
of the Merger Agreement is attached to this Proxy Statement/Prospectus as
Appendix A. Approval and adoption of the Merger Agreement by the stockholders
of Columbia shall also constitute approval of the issuance of shares of Common
Stock, $.01 par value, of Columbia ("Columbia Common Stock") in connection with
the Merger. In addition, the stockholders of Columbia will consider and vote
upon a proposal to amend Columbia's Restated Certificate of Incorporation to
increase the size of the Board of Directors from 15 members to 18 members, to
accommodate the addition of three Healthtrust nominees as directors of Columbia
(the "Proposed Amendment").
The Columbia Meeting will be held on Tuesday, February 28, 1995, at 9:00
a.m., Nashville, Tennessee time, at the offices of Columbia, One Park Plaza,
Nashville, Tennessee. The record date for stockholders of Columbia entitled to
notice of and to vote at the Columbia Meeting is as of the close of business on
January 11, 1995. Voting rights for Columbia are vested in the holders of the
Columbia Common Stock, with each share of Columbia Common Stock entitled to one
vote on each matter coming before the stockholders. As of December 31, 1994,
there were approximately 347,849,200 shares of Columbia Common Stock
outstanding and approximately 11,420 holders of record. Holders of shares of
Nonvoting Common Stock, $.01 par value, of Columbia (the "Columbia Nonvoting
Common Stock" and collectively with the Columbia Common Stock, the "Columbia
Shares") are not entitled to vote on either proposal being submitted at the
Columbia Meeting.
The Healthtrust Meeting will be held on Tuesday, February 28, 1995, at 9:00
a.m., Nashville, Tennessee time, at the Doubletree Hotel, 314 Fourth Avenue
North, Nashville, Tennessee. The record date for stockholders of Healthtrust
entitled to notice of and to vote at the Healthtrust Meeting is as of the close
of business on January 11, 1995. Voting rights for Healthtrust are vested in
the holders of the Common Stock, $.001 par value, of Healthtrust ("Healthtrust
Common Stock"), with each share of Healthtrust Common Stock entitled to one
vote on each matter coming before the stockholders. As of December 31, 1994,
there were 90,895,540 shares of Healthtrust Common Stock outstanding and
approximately 2,642 holders of record.
VOTES REQUIRED
Columbia. The favorable vote of a majority of the shares of Columbia Common
Stock present, in person or by proxy, at the Columbia Meeting will be necessary
for approval and adoption of the Merger
2
<PAGE>
Agreement. The favorable vote of the holders of 75% of the outstanding shares
of Columbia Common Stock is required for the approval of the Proposed
Amendment. Approval of the Proposed Amendment by the requisite vote of Columbia
stockholders is not a condition to, and is not required for, consummation of
the Merger. However, the Proposed Amendment will not be implemented unless the
Merger is consummated. As of December 31, 1994, directors and executive
officers of Columbia were beneficial owners of approximately 9.4% of the
outstanding shares of Columbia Common Stock (excluding 838,493 shares which may
be acquired upon exercise of options or other rights which are exercisable
within 60 days of December 31, 1994).
Healthtrust. The favorable vote of the holders of a majority of the
outstanding shares of Healthtrust Common Stock is required for the approval and
adoption of the Merger Agreement. As of December 31, 1994, directors and
executive officers of Healthtrust were beneficial owners of approximately 3.0%
of the outstanding shares of Healthtrust Common Stock (excluding 131,687 shares
which may be acquired upon exercise of options or other rights which are
exercisable within 60 days of December 31, 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
Healthtrust (the "Merger") and (b) each issued and outstanding share of
Healthtrust Common Stock will be converted into the right to receive 0.88 of a
share of Columbia Common Stock (the "Exchange Ratio"). 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 equal to the product of the Average Price
(as defined) of a share of the Columbia Common Stock multiplied by the fraction
of a share to which such holder would otherwise be entitled.
Recommendations of the Boards of Directors. The Board of Directors of
Columbia has approved the Merger Agreement and recommends a vote FOR approval
and adoption of the Merger Agreement by the stockholders of Columbia. The Board
of Directors of Columbia believes that the terms of the Merger are fair to and
in the best interests of Columbia and its stockholders. The Board of Directors
of Healthtrust has approved the Merger Agreement and recommends a vote FOR
approval and adoption of the Merger Agreement by the stockholders of
Healthtrust. The Board of Directors of Healthtrust believes that the terms of
the Merger are in the best interests of Healthtrust and its stockholders.
For a discussion of the factors considered by the respective Boards of
Directors in reaching their decisions, see "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors."
Opinions of Financial Advisors. On October 4, 1994, Morgan Stanley & Co.
Incorporated ("Morgan Stanley") delivered its oral opinion to Columbia's Board
of Directors to the effect that, based upon and subject to the matters
presented to Columbia's Board of Directors and as set forth in its opinion, as
of such date, the proposed consideration to be paid by Columbia pursuant to the
Merger was fair to Columbia from a financial point of view. Morgan Stanley also
confirmed such opinion by delivery of its written opinion dated as of October
4, 1994. A subsequent written opinion dated the date of this Proxy
Statement/Prospectus was also delivered to the Board of Directors of Columbia,
which opinion is substantially identical to the October 4, 1994 opinion.
On October 4, 1994, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") delivered its oral opinion (subsequently confirmed by a
written opinion dated such date) to Healthtrust'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 Exchange Ratio was fair to the
holders of Healthtrust Common Stock from a financial point of view. Merrill
Lynch subsequently confirmed such opinion by delivery of its written opinion
dated the date of this Proxy Statement/Prospectus.
3
<PAGE>
Copies of the full text of the written opinions of Morgan Stanley and Merrill
Lynch, dated the date of this Proxy Statement/Prospectus, which set forth the
assumptions made, procedures followed, matters considered and limits of their
respective reviews, are attached to this Proxy Statement/Prospectus as
Appendices B and C, respectively, and should be read carefully in their
entirety. See "The Merger--Opinions of Financial Advisors."
Interests of Certain Persons in the Merger. In considering the recommendation
of the Board of Directors of Healthtrust with respect to the Merger Agreement
and the transactions contemplated thereby, stockholders should be aware that
certain members of the management of Healthtrust and the Board of Directors of
Healthtrust have certain interests in the Merger that are in addition to the
interests of stockholders of Healthtrust generally (including, without
limitation, the adoption of severance agreements and the acceleration of stock
options). See "The Merger--Interests of Certain Persons in the Merger," "The
Merger Agreement--Benefit Plans" and "The Merger Agreement--Indemnification and
Insurance."
Governance. Following the consummation of the Merger and subject to the
adoption of the Proposed Amendment, the Board of Directors of Columbia will
consist of 18 members, comprised of the 15 current members plus the following
three current directors of Healthtrust: R. Clayton McWhorter, Richard W.
Hanselman and Donald S. MacNaughton. The Chairman of the Board of Columbia will
be R. Clayton McWhorter, presently Chairman of the Board, Chief Executive
Officer and President of Healthtrust, and the Vice Chairman of the Board of
Columbia will be Thomas F. Frist, Jr., M.D., presently Chairman of the Board of
Columbia. Richard L. Scott, presently President and Chief Executive Officer of
Columbia, will continue in such positions. See "The Merger Agreement--
Governance."
Conditions to the Merger. The obligations of Columbia and Healthtrust to
consummate the Merger are subject to the satisfaction of certain conditions,
including, among others, (i) obtaining requisite stockholder approvals, (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, (v) the receipt of certain legal opinions with respect to the tax
consequences of the Merger and (vi) the receipt of accountants' letters with
respect to qualification of the Merger as a pooling of interests and customary
"cold comfort" matters. See "The Merger--Certain Federal Income Tax
Consequences," "The Merger--Accounting Treatment" 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 the requisite stockholder approvals have 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 Healthtrust to consummate the Merger, it is presently expected
that the Merger will be consummated immediately following the Meetings or as
soon thereafter as such other conditions are satisfied.
Exchange of Healthtrust Stock Certificates. Upon consummation of the Merger,
each holder of a certificate or certificates representing shares of Healthtrust
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 of Columbia Common Stock
into which such shares of Healthtrust 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 Healthtrust
4
<PAGE>
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 Columbia Common Stock and Healthtrust
Common Stock are not entitled to dissenters' rights in connection with either
the Merger or the Proposed Amendment.
Certain Federal Income Tax Consequences. The obligations of Healthtrust and
Columbia to consummate the Merger are conditioned on the receipt of opinions of
their respective counsel, Dewey Ballantine and Fried, Frank, Harris, Shriver &
Jacobson, 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
Internal Revenue Code of 1986, as amended (the "Code"). If so treated, no gain
or loss will be recognized by Healthtrust stockholders upon the receipt of
Columbia Common Stock in exchange for Healthtrust Common Stock except with
respect to cash received in lieu of a fractional interest in Columbia Common
Stock. See "The Merger--Certain Federal Income Tax Consequences" and "The
Merger Agreement--Conditions."
Accounting Treatment. Both Columbia and Healthtrust believe that the Merger
will qualify as a pooling of interests for accounting and financial reporting
purposes, and have been so advised by their respective independent public
accountants. Consummation of the Merger is conditioned upon the receipt by each
of Columbia and Healthtrust of a letter from their respective independent
public accountants stating that the Merger, in their respective opinions, will
qualify for pooling of interests accounting treatment. See "The Merger--
Accounting Treatment" and "The Merger Agreement--Conditions."
Resale Restrictions. All shares of Columbia Common Stock received by
Healthtrust 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 Healthtrust
at the time of the Healthtrust 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 Healthtrust and Columbia, respectively, in a number of
circumstances, which include, among others: (a) by the mutual consent of
Healthtrust and Columbia by action of their respective Boards of Directors; (b)
by action of the Board of Directors of either Healthtrust or Columbia if (i)
the Merger shall not have been consummated by May 31, 1995, 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, (ii) the
adoption of the Merger Agreement and the approval of the transactions
contemplated thereby by Healthtrust's stockholders shall not have been obtained
at a stockholders' meeting duly convened for such purpose (or any adjournment
thereof), (iii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by Columbia's stockholders shall not have
been obtained at a stockholders' meeting duly convened for such purpose (or any
adjournment thereof) or (iv) a court or 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
which shall have become final and nonappealable (provided that the terminating
party used all reasonable efforts to remove such injunction, order or decree);
(c) by action of the Board of Directors of Healthtrust, 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 Healthtrust determines that such
termination is required by reason of an Alternative Proposal (hereinafter
defined) being made for Healthtrust, (ii) there has been a breach by Columbia
or Columbia Sub 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
5
<PAGE>
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 Healthtrust shall have withdrawn
or modified in a manner materially adverse to Columbia its approval or
recommendation of the Merger or shall have recommended an Alternative Proposal
to Healthtrust stockholders, (ii) there has been a breach by Healthtrust 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 Healthtrust
and its subsidiaries taken as a whole, or (iii) there has been a material
breach by Healthtrust 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. See "The Merger Agreement--Termination."
Termination Fee. If any person makes an Alternative Proposal for Healthtrust
and the Merger Agreement is thereafter terminated by either party (other than
pursuant to the breach of the Merger Agreement by Columbia), Healthtrust is
required to pay Columbia a fee of $100,000,000. See "The Merger Agreement--
Termination Fee."
Regulatory Approval. Under the HSR Act, the Merger cannot be consummated
until notifications and certain information have been furnished to the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and specified waiting period requirements
have been satisfied. Columbia and Healthtrust each filed notification and
report forms under the HSR Act with the FTC and the Antitrust Division on
October 21, 1994. Since a request from the FTC for additional information and
documentary material was timely received by both Columbia and Healthtrust, the
waiting period will not terminate until 20 days after Columbia and Healthtrust
have each "substantially complied" (as such term is defined under the HSR Act)
with such request unless the FTC voluntarily terminates the waiting period
prior to substantial compliance. While Columbia and Healthtrust are in the
process of complying with such request, they have not to date "substantially
complied." In addition, certain states in which Columbia and Healthtrust
operate are investigating the competitive impact of the Merger in such states.
See "The Merger--Regulatory Approval."
New York Stock Exchange Listing. The Columbia Common Stock is listed on the
New York Stock Exchange (the "NYSE"). The obligations of Columbia and
Healthtrust to consummate the Merger are subject to the condition that the
Columbia Common Stock to be issued to Healthtrust 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
Healthtrust which are based upon the historical consolidated financial
statements of Columbia and Healthtrust. The following data should be read in
conjunction with the respective consolidated financial statements incorporated
by reference in this Proxy Statement/Prospectus.
The selected historical financial data coincides with the respective annual
reporting periods of Columbia (December 31) and Healthtrust (August 31). It is
anticipated that upon consummation of the Merger, the fiscal year of the
combined company will be December 31. Accordingly, historical financial
statements of the combined company subsequent to the Merger will reflect the
financial information of Healthtrust on a calendar year basis. See "The
Merger--Accounting Treatment" and "Unaudited Pro Forma Condensed Combined
Financial Statements."
COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------
1994 (a) 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................ $ 8,195 $ 7,681 $ 10,252 $ 9,932 $ 9,598 $ 8,641 $7,724
-------- -------- -------- -------- -------- -------- ------
Salaries, wages and
benefits............... 3,335 3,155 4,215 4,112 3,976 3,510 3,066
Supplies................ 1,254 1,251 1,664 1,613 1,467 1,314 1,135
Other operating
expenses............... 1,533 1,413 1,893 1,849 1,739 1,586 1,483
Provision for doubtful
accounts............... 470 410 542 515 508 444 407
Depreciation and
amortization........... 440 414 554 541 524 499 468
Interest expense........ 182 251 321 401 597 694 667
Investment income....... (50) (45) (66) (81) (64) (69) (103)
Non-recurring
transactions........... 159 151 151 439 300 22 (10)
-------- -------- -------- -------- -------- -------- ------
7,323 7,000 9,274 9,389 9,047 8,000 7,113
-------- -------- -------- -------- -------- -------- ------
Income from continuing
operations before
minority interests and
income taxes........... 872 681 978 543 551 641 611
Minority interests in
earnings of
consolidated entities.. 13 10 9 10 9 4 4
-------- -------- -------- -------- -------- -------- ------
Income from continuing
operations before
income taxes........... 859 671 969 533 542 637 607
Provision for income
taxes.................. 341 272 394 294 189 240 223
-------- -------- -------- -------- -------- -------- ------
Income from continuing
operations............. 518 399 575 239 353 397 384
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................ (115) (84) (84) - - - (9)
Cumulative effect on
prior years of a change
in accounting for
income taxes........... - - - 51 - - -
-------- -------- -------- -------- -------- -------- ------
Net income............. $ 403 $ 331 $ 507 $ 165 $ 369 $ 391 $ 357
======== ======== ======== ======== ======== ======== ======
Earnings per common and
common equivalent share
(b):
Income from continuing
operations............ $ 1.50 $ 1.18 $ 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.................. (.33) (.24) (.24) - - -
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - - .16 - -
-------- -------- -------- -------- -------- --------
Net income............. $ 1.17 $ .98 $ 1.50 $ .50 $ 1.25 $ 1.26
======== ======== ======== ======== ======== ========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands) (b)......... 344,954 338,744 339,222 328,564 279,954 262,552
Net cash provided by
continuing operations.. $ 985 $ 1,042 $ 1,298 $ 1,287 $ 1,257 $ 1,191 $ 919
Cash dividends per
common share........... .09 .03 .06 - - - -
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------
1994 (A) 1993 1992 1991 1990 1989
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Assets................... $11,839 $10,216 $10,347 $10,843 $10,391 $10,461
Working capital.......... 801 573 606 635 482 379
Long-term debt, including
amounts due within one
year.................... 3,758 3,698 3,656 5,158 5,139 6,022
Minority interests in
equity of consolidated
entities................ 204 57 31 23 16 10
Cumulative exchangeable
preferred stock......... - - - - 401 348
Common stockholders'
equity.................. 4,848 3,471 3,691 2,822 2,099 1,585
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1994 (A) 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of hospitals at
end of period.......... 195 191 193 200 219 221 218
Weighted average
hospital bed capacity.. 42,249 41,288 41,263 40,608 42,437 42,264 41,452
Average daily census.... 18,675 18,967 18,702 19,253 21,255 21,351 21,155
Occupancy............... 44% 46% 45% 47% 50% 51% 51%
Admissions.............. 890,500 871,300 1,158,400 1,161,100 1,189,700 1,174,700 1,139,300
Length of stay.......... 5.7 5.9 5.9 6.1 6.5 6.6 6.8
Emergency room visits... 2,415,700 2,363,000 3,139,700 3,042,900 3,028,600 2,894,800 2,756,900
Outpatient revenues as a
percentage of
patient revenues....... 26% 24% 27% 26% 24% 22% 21%
</TABLE>
- --------
(a) The selected historical consolidated financial data includes the effect of
the MCA Merger since Columbia's acquisition of MCA in September 1994.
(b) Earnings per common and common equivalent share are not presented for
periods prior to the initial public offering of common stock of Columbia 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.
8
<PAGE>
HEALTHTRUST, INC.-THE HOSPITAL COMPANY
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------
1994 (A) 1993 1992 1991 1990
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (B):
Revenues................... $ 2,970 $ 2,395 $ 2,265 $ 2,026 $ 1,857
--------- --------- --------- ------- -------
Salaries, wages and
benefits.................. 1,216 976 938 923 899
Supplies................... 405 347 326 292 271
Other operating expenses... 582 463 445 400 370
Provision for doubtful
accounts.................. 196 146 137 124 113
Depreciation and
amortization.............. 166 133 128 121 119
Interest expense........... 114 100 120 153 161
Investment income.......... (8) (8) (9) (22) (9)
--------- --------- --------- ------- -------
2,671 2,157 2,085 1,991 1,924
--------- --------- --------- ------- -------
Income (loss) before
minority interests and
income taxes.............. 299 238 180 35 (67)
Minority interests in
earnings of consolidated
entities.................. 10 12 15 13 8
--------- --------- --------- ------- -------
Income (loss) before income
taxes..................... 289 226 165 22 (75)
Provision for income taxes. 116 91 72 15 (22)
--------- --------- --------- ------- -------
Income (loss) before
extraordinary item........ 173 135 93 7 (53)
Extraordinary loss on
extinguishment of debt,
net of income tax benefit. - (13) (136) - (6)
--------- --------- --------- ------- -------
Net income (loss).......... 173 122 (43) 7 (59)
Dividends paid and discount
accretion on preferred
stock (c)................. - - 25 77 66
--------- --------- --------- ------- -------
Net income (loss) to
common stockholders...... $ 173 $ 122 $ (68) $ (70) $ (125)
========= ========= ========= ======= =======
Earnings (loss) per common
and common equivalent
share:
Income (loss) before
extraordinary item....... $ 1.98 $ 1.62 $ .90 $ (1.15) $ (2.03)
Extraordinary loss on
extinguishment of debt... - (.16) (1.78) - (.10)
--------- --------- --------- ------- -------
Net income (loss) to
common stockholders...... $ 1.98 $ 1.46 $ (.88) $ (1.15) $ (2.13)
========= ========= ========= ======= =======
Shares used in earnings per
common and common
equivalent share
computations (in
thousands)................ 87,444 83,541 76,769 60,409 58,534
Net cash provided by
operations................ $ 369 $ 365 $ 430 $ 321 $ 349
FINANCIAL POSITION:
Assets..................... $ 3,967 $ 2,537 $ 2,380 $ 2,445 $ 2,294
Working capital............ 283 219 245 390 310
Long-term debt, including
amounts due within one
year...................... 1,785 1,049 1,109 1,221 1,226
Minority interests in
equity of consolidated
entities.................. 17 14 21 21 21
Redeemable preferred stock
(c)....................... - - - 576 500
Common stockholders'
equity.................... 1,026 656 531 88 42
OPERATING DATA:
Number of hospitals at end
of period................. 116 81 81 85 86
Weighted average licensed
beds...................... 12,466 11,233 11,374 11,607 12,022
Average daily census....... 4,747 4,223 4,416 4,543 4,911
Occupancy.................. 38% 38% 39% 39% 41%
Admissions................. 333,200 284,606 291,599 293,344 307,758
Length of stay............. 5.2 5.4 5.5 5.7 5.8
Emergency room visits...... 1,288,377 1,065,626 1,015,708 958,642 972,678
Outpatient revenues as a
percentage of patient
revenues.................. 34% 31% 30% 27% 24%
</TABLE>
- --------
(a) The selected historical consolidated financial data includes the effect of
the EPIC Merger since Healthtrust's acquisition of EPIC in May 1994.
(b) Certain amounts have been reclassified to conform to classifications in
Columbia's Summary of Operations.
(c) The redeemable preferred stock (which was held by Columbia) was retired as
a component of Healthtrust's 1991 recapitalization.
9
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data are
presented assuming the Merger will be accounted for as a pooling of interests.
The Financial Position data reflect the combined historical data of Columbia at
September 30, 1994 and Healthtrust at August 31, 1994 (Healthtrust fiscal year
end). The Summary of Operations data for the years ended December 31, 1992 and
1991, and for the nine months ended September 30, 1993 reflect the historical
data of Columbia for such periods combined with historical operating results of
Healthtrust for the twelve months ended November 30, 1992 and 1991 and the nine
months ended August 31, 1993, respectively. As described more fully in the
notes accompanying the unaudited pro forma condensed combined financial
statements, the Summary of Operations data for the year ended December 31, 1993
and for the nine months ended September 30, 1994 reflect the historical
operating results of Columbia (pro forma adjusted for the MCA Merger) for such
periods combined with the historical operating results of Healthtrust (pro
forma adjusted for the EPIC Merger) for the twelve months ended November 30,
1993 and the nine months ended August 31, 1994, respectively. The unaudited pro
forma combined financial data do not reflect expenses expected to be incurred
by Columbia and Healthtrust in connection with the Merger or the effect of cost
savings, if any, which may be realized after the consummation of the Merger.
See "Unaudited Pro Forma Condensed Combined Financial Statements."
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- ----------------------------
1994 1993 1993 1992 1991
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................. $ 11,303 $ 9,473 $ 14,111 $ 12,216 $ 11,686
-------- -------- -------- -------- --------
Operating expenses....... 8,434 7,153 10,652 9,299 8,827
Provision for doubtful
accounts................ 668 522 791 652 636
Depreciation and
amortization............ 630 514 796 670 647
Interest expense......... 307 326 495 508 750
Investment income........ (57) (50) (85) (89) (84)
Non-recurring
transactions............ 159 151 206 532 521
-------- -------- -------- -------- --------
10,141 8,616 12,855 11,572 11,297
-------- -------- -------- -------- --------
Income from continuing
operations before
minority interests and
income taxes............ 1,162 857 1,256 644 389
Minority interests in
earnings of consolidated
entities................ 42 19 52 24 23
-------- -------- -------- -------- --------
Income from continuing
operations before income
taxes................... 1,120 838 1,204 620 366
Provision for income
taxes................... 452 339 505 336 153
-------- -------- -------- -------- --------
Income from continuing
operations.............. $ 668 $ 499 $ 699 $ 284 $ 213
======== ======== ======== ======== ========
Earnings per common and
common equivalent share. $ 1.50 $ 1.21 $ 1.58 $ .72 $ .64
======== ======== ======== ======== ========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands).............. 445,210 412,380 443,341 393,119 333,001
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Assets................... $ 15,818
Working capital.......... 1,084
Long-term debt, including
amounts due within one
year.................... 5,543
Minority interests in
equity of consolidated
entities................ 221
Common stockholders'
equity.................. 5,849
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
COLUMBIA HEALTHTRUST PRO FORMA HEALTHTRUST EQUIVALENT
HISTORICAL HISTORICAL COMBINED PRO FORMA (a)
---------- ----------- --------- ----------------------
<S> <C> <C> <C> <C>
COMPARATIVE PER SHARE
DATA:
Earnings per common and
common equivalent share
from continuing
operations:
Nine months ended
September 30:
1994.................. $ 1.50 (b) $ 1.52 $ 1.50 $ 1.32
1993.................. 1.18 (c) 1.22 1.21 1.06
Years ended December
31:
1993.................. 1.70 (c) 1.68 1.58 1.39
1992.................. .73 (d) 1.27 .72 .63
1991.................. 1.20 (e) .40 .64 .56
Dividends per common
share:
Nine months ended
September 30, 1994.... .09 - .09 .08
Year ended December 31,
1993.................. .06 (f) - .06 .05
Book value per common
share as of:
September 30, 1994..... 13.39 11.30 13.24 11.65
December 31, 1993...... 10.31 8.58 10.16 8.94
</TABLE>
- --------
(a) Healthtrust equivalent pro forma per share amounts are calculated by
multiplying the respective pro forma combined per share amounts by the
Exchange Ratio.
(b) Includes $102 million ($.30 per share) of costs related primarily to the
HCA Merger.
(c) Includes $98 million ($.29 per share) of costs related primarily to the
Galen Merger.
(d) Includes $358 million ($1.09 per share) of costs incurred in connection
with the Spinoff and the restructuring of certain psychiatric hospital
operations (including the planned divestiture of 22 psychiatric hospitals
and certain other facilities) and a gain on the sale of an investment in
Healthtrust Common Stock.
(e) Includes $161 million ($.58 per share) of charges related to the
acceleration of vesting of stock options and the establishment of exercise
prices at levels substantially less than the then fair value of the
underlying common stock, the writedown to net realizable value of certain
divested hospitals and other properties, and a gain on the sale of an
investment in preferred stock and warrants of Healthtrust.
(f) In September 1993, Columbia initiated a regular quarterly dividend of $.03
per Columbia Share.
11
<PAGE>
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 Healthtrust Common Stock
has been primarily traded on the NYSE (symbol "HTI") since December 13, 1991
(the date on which such shares commenced public trading). 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, as appropriate, for
the Columbia Common Stock and the Healthtrust Common Stock. 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 HEALTHTRUST
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1993:
First Quarter................................. $24.50 $16.25 $19.50 $12.50
Second Quarter................................ 27.75 19.25 19.38 15.38
Third Quarter................................. 31.00 25.38 22.38 18.88
Fourth Quarter................................ 33.88 27.00 27.25 21.63
1994:
First Quarter................................. 45.25 33.25 32.88 25.75
Second Quarter................................ 43.00 36.50 31.63 27.75
Third Quarter................................. 44.00 38.25 32.88 26.63
Fourth Quarter................................ 43.75 33.50 36.00 28.75
1995:
First Quarter (through January 9)............. 37.75 35.38 32.75 30.38
</TABLE>
The last reported sale prices per share of Columbia Common Stock and
Healthtrust Common Stock on October 4, 1994, the last trading day preceding
public announcement of the Merger, were $42.75 and $32.00, respectively. Based
on such closing sale price of Columbia Common Stock, the market value of 0.88
of a share of Columbia Common Stock was $37.62. On January 9, 1995, the closing
sale price per share of Columbia Common Stock was $37.75 and the closing sale
price per share of Healthtrust Common Stock was $32.75. Based on such closing
sale price of Columbia Common Stock, the market value of 0.88 of a share of
Columbia Common Stock was $33.22.
Because the Exchange Ratio is fixed 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 Healthtrust 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 HEALTHTRUST COMMON STOCK.
In September 1993, Columbia initiated a regular quarterly dividend of $.03
per Columbia Share. Prior to that time, Columbia did not pay any cash
dividends. No dividends have been declared or paid on the Healthtrust Common
Stock since Healthtrust's incorporation.
12
<PAGE>
DIVIDEND POLICY
While it is the present intention of the Columbia Board of Directors to
continue paying a quarterly dividend of $.03 per Columbia Share, the
declaration and payment of future dividends by Columbia will be at the
discretion of the Columbia Board of Directors and 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 PROPOSED AMENDMENT
In connection with the Merger, the Board of Directors of Columbia has
approved the Proposed Amendment, and recommends a vote FOR approval and
adoption of the Proposed Amendment by the stockholders of Columbia. Pursuant to
the Proposed Amendment, Columbia's Restated Certificate of Incorporation would
be amended to increase the size of the Board of Directors from 15 to 18
members, to accommodate the addition of three Healthtrust nominees as directors
of Columbia. Approval of the Proposed Amendment by the requisite vote of
Columbia stockholders is not a condition to, and is not required for,
consummation of the Merger. However, the Proposed Amendment will not be
implemented unless the Merger is consummated. See "The Proposed Amendment."
RECENT DEVELOPMENTS
On December 21, 1994, Healthtrust announced operating results for the first
quarter ended November 30, 1994. Such operating results are unaudited and are
not necessarily indicative of the results that may be expected for Healthtrust
in the future. Summary operating results of Healthtrust for the three months
ended November 30, 1994 and 1993 are presented below (dollars in millions
except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
-------------------
1994 1993
--------- ---------
<S> <C> <C>
Revenues................................................ $ 970 $ 622
Income before income taxes.............................. 84 65
Net income.............................................. 50 39
Earnings per common and common equivalent share......... 0.54 0.46
Shares used in earnings per common and common equivalent
share computations (in thousands)...................... 92,634 84,426
</TABLE>
13
<PAGE>
CERTAIN CONSIDERATIONS
The following factors should be considered carefully by the stockholders of
Columbia and Healthtrust in connection with voting upon the Merger.
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 many geographic areas in
which Columbia and Healthtrust operate, there are other hospitals, outpatient
surgery and diagnostic centers and other facilities that provide most of the
services offered by Columbia's and Healthtrust'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 or
Healthtrust's hospitals. In addition, hospitals owned by governmental agencies
or other tax-exempt entities benefit from endowments, charitable contributions,
tax-exempt financing and exemption from sales, property and income taxes, which
advantages are not available to Columbia's and Healthtrust's hospitals.
The competitive positions of Columbia's and Healthtrust's hospitals also have
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 (including health maintenance and preferred provider
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 and Healthtrust'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 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 and preferred provider organizations.
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 changes in 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, Healthtrust and the
combined company. 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
14
<PAGE>
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 U.S.
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"). In addition, certain provisions of Section
1877 of the Social Security Act, commonly known as the "Stark Bill," have been
amended to significantly broaden the scope of prohibited self-referrals
thereunder. Certain of Columbia's and Healthtrust's current arrangements with
physicians, including joint ventures, do not qualify for the Safe Harbors.
Although Columbia and Healthtrust exercise care in an effort to structure their
arrangements with physicians to comply in all material respects with these
laws, there can be no assurance that (i) government officials charged with
responsibility for enforcing such laws will not assert that Columbia,
Healthtrust or the combined company following the Merger (or certain
transactions in which any of them are involved) are in violation thereof or
(ii) such statute will ultimately be interpreted by the courts in a manner
consistent with Columbia's or Healthtrust's interpretation.
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. The costs of
certain proposals would be funded in significant part by reductions in payments
by governmental programs, including Medicare and Medicaid, to health care
providers such as hospitals. There can be no assurance that health care
proposals adverse to the business of Columbia, Healthtrust or the combined
company following the Merger will not be adopted. While the obligation of each
of Columbia and Healthtrust to consummate the Merger is subject to the
condition, among others, that from October 4, 1994 until the Effective Time no
change occur 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 such other party, this condition does not apply to
changes in conditions, including economic or political developments, applicable
to the health care industry generally. See "The Merger Agreement--Conditions."
INTEGRATION OF THE BUSINESSES
The Merger involves the integration of two companies that have previously
operated independently. There can be no assurance that Columbia will not
encounter difficulties in integrating the operations of Healthtrust with those
of Columbia or that the benefits expected from such integration will be
realized. Any delays or unexpected costs incurred in connection with such
integration could have a material adverse effect on the combined company's
business, operating results or financial condition. Furthermore, there can be
no assurance that the operations, managements and personnel of the two
companies will be compatible or that Columbia or Healthtrust will not
experience the loss of key personnel. Among the factors considered by the
Boards of Directors of Columbia and Healthtrust in connection with their
approval of the Merger Agreement were the opportunities for economies of scale
and operating efficiencies that should result from the Merger. While Columbia
and Healthtrust expect to achieve annual savings in operating costs as a result
of the Merger (including, without limitation, integration of office facilities,
information systems and support functions and the combined purchasing power of
the two companies) of approximately $125 million annually, there can be no
assurances that these savings will be realized.
In connection with the consummation of the Merger, Columbia intends to
refinance Healthtrust's $1.2 billion credit facility (the "Healthtrust Credit
Facility") (under which $706 million was outstanding as of December 31, 1994).
Columbia has not determined the source of funds for such refinancing, which may
include, among other things, additional borrowings under Columbia's existing
$2.25 billion credit facility
15
<PAGE>
(under which $3 million was outstanding as of December 31, 1994) and additional
issuances of commercial paper and other debt securities. As of December 31,
1994, Columbia had approximately $1.6 billion of commercial paper borrowings
outstanding. It is Columbia's policy to maintain borrowing capacity under its
credit facility equal to at least the amount of commercial paper outstanding.
Consummation of the Merger is not conditioned upon the Healthtrust Credit
Facility being refinanced. In the event the Healthtrust Credit Facility is not
refinanced as of the Effective Time, the terms of such facility would need to
be amended to permit the consummation of the Merger. In addition, under the
terms of the indentures under which $1 billion of subordinated notes of
Healthtrust (the "Notes") are outstanding, the surviving corporation in the
Merger (Healthtrust) may, under certain circumstances, be required to offer to
purchase the Notes at 100% of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase, during specified periods following the
Effective Time (the "Change of Control Offers"). Although Columbia believes it
has sufficient financial resources to refinance the Healthtrust Credit Facility
and any Notes tendered in the Change of Control Offers (if required) on terms
not materially less advantageous to Columbia than the Healthtrust debt being
refinanced, there can be no assurances in this regard. Although the amount of
the charge that would be incurred by Columbia in connection with the possible
refinancings of Healthtrust debt is contingent upon various market conditions
at the time of the transactions, Columbia anticipates that such after-tax
charge may approximate as much as $60 million.
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 and Healthtrust are
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. At the present time, and
subject to certain exceptions, Healthtrust is self-insured for professional and
general liability risks. 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."
PENDING HCA TAX LITIGATION; SPINOFF TAX RULING
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 $864 million through September
30, 1994. In addition to disputing the IRS's positions, HCA is claiming refunds
of $51 million and interest through September 30, 1994 of $100 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
16
<PAGE>
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.
Certain actions or events both in and beyond the control of Columbia could
render the Spinoff or certain related transactions taxable. In connection with
the Spinoff, Humana received rulings from the IRS to the effect, among other
things, that the Spinoff was tax-free under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"). Prior to the Galen Merger, Galen
received a supplemental tax ruling that the Galen Merger would not alter such
tax rulings. Although generally binding on the IRS, each of the tax rulings and
the supplemental tax ruling is subject to the accuracy of certain factual
representations and assumptions contained in the ruling requests made by Humana
and Galen. While Columbia is not aware of any present facts or circumstances
which would cause such representations and assumptions to be inaccurate, there
can be no assurance in this regard. Each of Galen and Humana would be liable
for the full amount of any tax if the Spinoff were held taxable, although as
between Galen and Humana, Galen would be liable for approximately 61% of that
tax under a Tax Sharing and Indemnification Agreement entered into in
connection with the Spinoff (unless the Spinoff became taxable by reason of
actions or events deemed to be in the control of Galen, in which event Galen
would be responsible for 100% of such tax).
PENDING 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 Medical Care
America, Inc. ("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") forming MCA or through exchange of their
securities in said companies pursuant to the merger, and who allegedly
sustained damages as a result of such purchases, subject to certain exclusions
(the "Class Members"). 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 has been tentatively settled for
$60 million. The settlement is subject to the approval of the court as well as
a majority of the Class Members. This settlement will not have any effect on
earnings since this amount was reflected in the purchase price allocation with
respect to Columbia's acquisition of MCA.
ERISA MATTERS
In connection with the Healthtrust Formation in 1987, Healthtrust's Employee
Stock Ownership Plan (the "ESOP") purchased approximately 50.9 million shares
of Healthtrust Common Stock for $810 million. The purchase price was based on
the determination of the committee administering the ESOP (the "ESOP
17
<PAGE>
Committee") as to the fair market value of such shares at that time. Based on
such determination, and subject to limitations contained in the Code,
Healthtrust has claimed income tax deductions for contributions to the ESOP for
the years to which such contributions relate. Contributions to the ESOP were
used by the ESOP to pay interest and principal on the loans owed to
Healthtrust. These payments were in turn used by Healthtrust to pay interest
and principal on the ESOP term loans under a Healthtrust bank credit agreement
and certain other indebtedness related to the ESOP. As a result, Healthtrust
was effectively able to obtain a deduction for principal, as well as interest
payments, on ESOP-related borrowings. If the ESOP Committee's determination of
fair market value was incorrect, Healthtrust's contribution to the ESOP might
not be fully deductible, which could have a material adverse effect on
Healthtrust and on the combined company following the Merger.
It was intended that qualified holders of the ESOP term loans and the other
indebtedness incurred in connection with the ESOP be entitled to exclude from
taxable income 50% of the interest received on such indebtedness. In addition,
the loans to the ESOP and the purchase of Healthtrust Common Stock by the ESOP
were intended to qualify for exemption from the "prohibited transaction" rules
under the Code and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), which rules generally prohibit sale and loan transactions
between an employer and a qualified retirement plan. The 50% interest exclusion
and the prohibited transaction exemption were available only if the plan was
designed to invest primarily in "employer securities." It is likely that if
Healthtrust and HCA were deemed to have been members of the same "controlled
group of corporations" for purposes of the relevant section in the Code or
ERISA, the stock of HCA, and not Healthtrust's Common Stock, would have been
"employer securities" for these purposes. Healthtrust and HCA concluded that
they were not in the same "controlled group of corporations" (as defined in
Section 409(1) of the Code). If, notwithstanding such conclusion, HCA's common
stock were deemed to have been "employer securities" for such purposes, there
could be severe adverse consequences to Healthtrust, including violation of the
prohibited transaction rules discussed above (which could subject Healthtrust
or other disqualified persons with respect to the ESOP to an excise tax and
could require that certain corrective action be taken) and retroactive
increases in the rate of interest payable on certain of Healthtrust's
previously outstanding ESOP-related indebtedness as a result of the loss of the
50% interest exclusion. In addition, the 50% interest exclusion and the
prohibited transaction exemption were available only if the price paid by the
ESOP reflected the fair market value of the employer securities as determined
in good faith by the plan fiduciaries. Accordingly, if the ESOP Committee's
determination of fair market value was incorrect, the 50% interest exclusion
might not have been fully available and Healthtrust or other disqualified
persons may have committed prohibited transactions, either of which events
could have a material adverse effect on Healthtrust, which could have a
material adverse effect on the combined company following consummation of the
Merger.
The purchase of EPIC common stock by the EPIC Employee Stock Ownership Plan
(the "EPIC ESOP") in connection with EPIC's acquisition (the "EPIC Formation")
of its facilities from American Medical International, Inc. ("AMI") in 1988 was
structured in a manner similar to the purchase of Healthtrust Common Stock by
the ESOP in connection with the Healthtrust Formation and was intended to (i)
qualify for exemption from the "prohibited transaction" rules of the Code and
ERISA, (ii) permit EPIC to deduct for federal income tax purposes its
contributions to the EPIC ESOP used to pay principal and interest on loans made
by EPIC to the EPIC ESOP and (iii) permit qualified holders of indebtedness
incurred in connection with the EPIC ESOP to benefit from the 50% interest
exclusion provision referred to above. Exemption from the prohibited
transaction rules and the availability of the ESOP-related benefits described
above depends on (i) the amount the EPIC ESOP paid for EPIC common stock not
having exceeded the fair market value of that EPIC common stock, (ii) the EPIC
common stock being "employer securities" and (iii) compliance with the other
relevant provisions of the Code and ERISA. If (i) the EPIC ESOP paid an amount
in excess of fair market value for the EPIC common stock, (ii) the EPIC common
stock were to fail to qualify as "employer securities" or (iii) the EPIC ESOP
were to fail to comply with the other relevant provisions of the Code or ERISA,
such events could result in material adverse consequences to Healthtrust, which
could have a material adverse effect on the combined company following the
Merger.
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FACTORS AFFECTING MARKET PRICE OF COLUMBIA COMMON STOCK
Since the Exchange Ratio is fixed and the market price of Columbia Common
Stock is subject to fluctuation, the market value of the shares of Columbia
Common Stock that holders of Healthtrust Common Stock will receive in the
Merger may increase or decrease prior to and following the Merger. There can be
no assurance that at or after the Effective Time such shares of Columbia Common
Stock will maintain or equal the prices at which such shares have traded in the
past. The prices at which Columbia Common Stock trades after the Merger may be
influenced by many factors including, among others, the liquidity of the market
for Columbia Common Stock, investor perceptions of Columbia and the industry in
which it operates, the operating results of Columbia, Columbia's dividend
policy and general economic and market conditions. Similar factors affect the
prices at which the Healthtrust Common Stock currently trades.
THE MEETINGS
MATTERS TO BE CONSIDERED AT THE MEETINGS
Columbia. At the Columbia Meeting, holders of Columbia 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 Columbia Common
Stock will consider and vote upon a proposal to amend Columbia's Restated
Certificate of Incorporation to increase the size of the Board of Directors
from 15 members to 18 members, to accommodate the addition of three Healthtrust
nominees as directors of Columbia (the "Proposed Amendment"). The Merger
Agreement and the Proposed Amendment will be voted upon separately. Approval of
the Proposed Amendment is not a condition to, or required for, consummation of
the Merger. However, the Proposed Amendment will not be implemented unless the
Merger is consummated. Columbia stockholders will also consider and vote upon
such other matters as may properly be brought before the Columbia Meeting or
any adjournment(s) or postponement(s) thereof.
THE COLUMBIA BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT COLUMBIA STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT (WHICH APPROVAL AND ADOPTION SHALL CONSTITUTE, AMONG OTHER
THINGS, APPROVAL OF THE ISSUANCE OF SHARES OF COLUMBIA COMMON STOCK IN
CONNECTION WITH THE MERGER). THE COLUMBIA BOARD OF DIRECTORS HAS ALSO APPROVED
THE PROPOSED AMENDMENT AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
AMENDMENT.
Healthtrust. At the Healthtrust Meeting, holders of Healthtrust Common Stock
will consider and vote upon a proposal to approve and adopt the Merger
Agreement and such other matters as may properly be brought before the
Healthtrust Meeting or any adjournment(s) or postponement(s) thereof.
THE HEALTHTRUST BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT HEALTHTRUST STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
VOTES REQUIRED
Columbia. The affirmative vote of a majority of the shares of Columbia Common
Stock present, in person or by proxy, at the Columbia Meeting will be necessary
for approval and adoption of the Merger Agreement. The Proposed Amendment will
require the affirmative vote of 75% of the outstanding shares of Columbia
Common Stock. Each share of Columbia Common Stock is entitled to one vote. The
Proposed Amendment, if approved by stockholders, will not be effected unless
the Merger is consummated.
At December 31, 1994, Columbia's directors and executive officers may be
deemed to be beneficial owners of 32,806,756 shares of Columbia Common Stock
(excluding 838,493 shares which may be acquired upon exercise of options and
other rights which are exercisable within 60 days of December 31, 1994), or
approximately 9.4% of the then outstanding shares of Columbia Common Stock. The
directors and executive officers of Columbia have indicated that they intend to
vote their shares for approval and adoption of the Merger Agreement and for the
Proposed Amendment.
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Healthtrust. The affirmative vote of the holders of a majority of the
outstanding shares of Healthtrust Common Stock is required to approve and adopt
the Merger Agreement. Each share of Healthtrust Common Stock is entitled to one
vote.
At December 31, 1994, Healthtrust's directors and executive officers may be
deemed to be beneficial owners of 2,707,202 shares of Healthtrust Common Stock
(excluding 131,687 shares which may be acquired upon exercise of options or
other rights which are exercisable within 60 days of December 31, 1994), or
approximately 3.0% of the then outstanding shares of Healthtrust Common Stock.
The directors and executive officers of Healthtrust have indicated that they
intend to vote their shares for approval and adoption of the Merger Agreement.
VOTING OF PROXIES
Shares of Columbia Common Stock or Healthtrust Common Stock, as the case may
be, represented by properly executed proxies received at or prior to the
Meetings, will be voted at the appropriate 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 Proposed Amendment (in the case of proxies
for Columbia Common Stock) or FOR approval and adoption of the Merger Agreement
(in the case of proxies for Healthtrust Common Stock). Abstention from voting
on the Merger Agreement and the Proposed Amendment, a broker non-vote on the
Merger Agreement by Healthtrust stockholders or a broker non-vote on the
Proposed Amendment will have the practical effect of voting against such
matters. Broker non-votes on the Merger Agreement by Columbia stockholders will
have no impact on such matter since such broker non-votes are not considered
"shares present" for voting purposes.
If any other matters are properly presented at either the Columbia Meeting or
the Healthtrust Meeting for consideration, the person or persons named in the
relevant 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. Neither Columbia nor Healthtrust has any
knowledge of any matters to be presented at the Columbia Meeting or the
Healthtrust Meeting, as the case may be, other than those matters referred to
and described herein.
REVOCABILITY OF PROXIES
The grant of a proxy on the Columbia or Healthtrust form of proxy does not
preclude a stockholder from voting in person or otherwise revoking a proxy.
Attendance at the relevant 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 Stephen T. Braun, Secretary of Columbia, 201 West
Main Street, Louisville, Kentucky 40202 (in the case of a Columbia stockholder)
or Philip D. Wheeler, Secretary of Healthtrust, 4525 Harding Road, Nashville,
Tennessee 37205 (in the case of a Healthtrust stockholder) a duly executed
revocation or a proxy bearing a later date or by voting in person at the
appropriate Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Columbia. Only holders of record of Columbia Common Stock at the close of
business on January 11, 1995 will be entitled to receive notice of and to vote
at the Columbia Meeting. At December 31, 1994, Columbia had outstanding
approximately 347,849,200 shares of Columbia Common Stock. A majority of the
outstanding shares of Columbia Common Stock entitled to vote must be
represented in person or by proxy at the Columbia Meeting in order for a quorum
to be present at the Columbia Meeting. Holders of Columbia Nonvoting Common
Stock are not entitled to vote on either of the proposals being submitted at
the Columbia Meeting.
Healthtrust. Only holders of record of Healthtrust Common Stock at the close
of business on January 11, 1995 will be entitled to receive notice of and to
vote at the Healthtrust Meeting. At December 31, 1994,
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Healthtrust had outstanding 90,895,540 shares of Healthtrust Common Stock. A
majority of the outstanding shares of Healthtrust Common Stock entitled to vote
must be represented in person or by proxy at the Healthtrust Meeting in order
for a quorum to be present at the Healthtrust Meeting.
NO DISSENTERS' RIGHTS
No holder of Columbia Common Stock or Healthtrust Common Stock will have any
dissenters' rights in connection with, or as a result of, the matters to be
acted upon at the Meetings.
SOLICITATION OF PROXIES
Each of Columbia and Healthtrust will bear the cost of the solicitation of
proxies from its own stockholders, except that Columbia and Healthtrust 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
each company and their respective subsidiaries may solicit proxies from
stockholders of such company 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 Columbia
and Healthtrust will reimburse such persons for their reasonable out-of-pocket
expenses in connection therewith.
D.F. King & Co. will assist in the solicitation of proxies by Columbia for a
fee of $12,500, plus reimbursement of reasonable out-of-pocket expenses.
Georgeson & Company, Inc. will assist in the solicitation of proxies by
Healthtrust for a fee of $6,500, plus reimbursement of reasonable out-of-pocket
expenses.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS
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THE MERGER
GENERAL
The Merger Agreement provides for a business combination between Columbia
and Healthtrust in which a wholly owned subsidiary of Columbia will be merged
with and into Healthtrust and the holders of Healthtrust Common Stock will be
issued shares of Columbia Common Stock in a transaction intended to qualify as
a pooling of interests 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
Increased competitive pressures among health care providers and significant
health care reform proposals, among other things, have recently led to
consolidation in the health care industry. In response to these factors, and
following an analysis by Columbia's senior management of Columbia's strategic
alternatives, in January 1994, Richard L. Scott, President and Chief Executive
Officer of Columbia, initiated discussions with R. Clayton McWhorter, Chairman
of the Board, Chief Executive Officer and President of Healthtrust, as to a
potential business combination with Healthtrust. Preliminary discussions
concerning a business combination ensued and continued intermittently during
February and March 1994 among Mr. Scott, Mr. McWhorter and Thomas F. Frist,
Jr., M.D., Chairman of the Board of Columbia. In early April 1994, the Board
of Directors of Healthtrust met to discuss strategic alternatives to enhance
stockholder value. Following a review of the discussions with Columbia and
taking into consideration Healthtrust's pending corporate finance and
acquisition activities, it was the consensus of the Board of Directors of
Healthtrust not to continue discussions concerning a potential business
combination with Columbia at that time.
In May 1994, Dr. Frist and Mr. Scott again contacted Mr. McWhorter
concerning a potential business combination. After consulting with members of
the Executive Committee of the Healthtrust Board of Directors, Mr. McWhorter
resumed preliminary discussions with Dr. Frist and Mr. Scott, and Columbia and
Healthtrust executed confidentiality agreements on May 18, 1994. The parties
then exchanged information and conducted preliminary "due diligence" reviews
of the business and operations of the other company. Discussions regarding a
potential business combination continued until June 1994, and then terminated
without agreement on any business combination. Thereafter, members of the
senior management of Columbia and Healthtrust held preliminary discussions
concerning alternative transactions, including joint ventures in selected
markets and single facility transactions.
In early August 1994, Mr. McWhorter was contacted by Jeffrey C. Barbakow,
the Chairman and Chief Executive Officer of National Medical Enterprises, Inc.
("NME"), with respect to a potential business combination involving
Healthtrust, NME and American Medical Holdings, Inc. ("AMI"). Preliminary
conversations regarding such transaction commenced, and Healthtrust executed
confidentiality agreements with NME on August 11, 1994 and with AMI on August
26, 1994. The parties continued to explore a potential business combination
and engaged in due diligence discussions and document reviews. In mid-August
1994, Merrill Lynch commenced rendering financial advice to Healthtrust in
connection with Healthtrust's strategic alternatives. In August 1994, Mr.
Scott and Dr. Frist contacted Mr. McWhorter and renewed discussions regarding
a potential business combination between Columbia and Healthtrust. Healthtrust
and Merrill Lynch continued to analyze Healthtrust's strategic alternatives,
including a potential transaction with Columbia and a potential transaction
with NME and AMI. Due diligence reviews and preliminary negotiations continued
with respect to both such potential transactions through September 1994.
On September 29, 1994, the Executive Committee of Healthtrust's Board of
Directors met to discuss the strategic alternatives available to Healthtrust
to maximize stockholder value, including continuing to conduct its business as
an independent company. Following a review of the status of discussions
regarding the
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potential transaction with Columbia and the potential transaction with NME and
AMI, and after consulting Healthtrust's legal and financial advisors, it was
the consensus of the Executive Committee to recommend to the full Healthtrust
Board of Directors that Healthtrust pursue a potential business combination
with Columbia. Later that day, the Board of Directors of Healthtrust met to
discuss the strategic alternatives available to Healthtrust to maximize
stockholder value, including continuing to conduct its business as an
independent company. The Healthtrust Board reviewed with Merrill Lynch the
status of negotiations regarding, and certain financial considerations relating
to, the proposed business combination with Columbia and the proposed business
combination with NME and AMI. Healthtrust's legal advisor reported to the Board
the status of Healthtrust's due diligence investigations. Mr. McWhorter
indicated to the Board that the Executive Committee recommended pursuing a
transaction with Columbia. After extensive discussions regarding Healthtrust's
available strategic alternatives, the potential risks and benefits thereof, and
the terms of the proposed transactions, it was the consensus of the Board of
Directors of Healthtrust to pursue a potential business combination with
Columbia.
On October 1, 1994, a draft of the Merger Agreement was circulated to
Healthtrust, and thereafter Columbia and Healthtrust and their respective legal
and financial advisors negotiated the terms of the Merger Agreement. In
addition, both parties continued their due diligence reviews. On October 3,
1994, NME's advisors contacted Healthtrust's advisors to propose certain
revisions to the terms of the potential business combination involving
Healthtrust, NME and AMI.
On October 4, 1994, the Healthtrust Board of Directors met to continue
discussions regarding Healthtrust's strategic alternatives. At such meeting,
the Healthtrust Board of Directors reviewed the revised proposal of NME
regarding a potential business combination with NME and AMI. The Board
considered the proposed Merger Agreement with Columbia and the transactions
contemplated thereby, as well as the proposed Exchange Ratio. The Board
considered that the proposed Exchange Ratio represented higher consideration
per share of Healthtrust Common Stock than did the revised NME proposal.
Members of Healthtrust's senior management, together with Healthtrust's legal
and financial advisors, reviewed with the Board of Directors, among other
things, Healthtrust's strategic alternatives, the potential risks and benefits
thereof, financial and valuation analyses relating thereto and due diligence
findings. Merrill Lynch delivered its oral opinion (subsequently confirmed by a
written opinion dated October 4, 1994) to Healthtrust'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 Exchange Ratio was fair to the
holders of Healthtrust Common Stock from a financial point of view. After
extensive discussion and consideration, the Board of Directors of Healthtrust
approved the Merger Agreement and the transactions contemplated thereby, and
authorized the execution of the Merger Agreement.
The Columbia Board of Directors held special meetings on October 2, 1994 and
October 4, 1994 to consider the proposed Merger Agreement and the transactions
contemplated thereby, including the proposed Exchange Ratio as well as the
other provisions contained in the Merger Agreement. At such meetings, members
of Columbia's senior management, together with its legal and financial
advisors, reviewed with Columbia's Board of Directors, among other things, the
background of the proposed Merger, Columbia's alternatives, the strategic
rationale for, and potential risks and benefits of, the Merger, a summary of
due diligence findings, financial and valuation analyses of the transaction and
the terms of the Merger Agreement. In addition, at the October 4, 1994,
meeting, Morgan Stanley delivered its oral opinion to Columbia's Board of
Directors that, based upon the matters presented to Columbia's Board of
Directors and as set forth in its opinion, as of such date, the proposed
consideration to be paid by Columbia pursuant to the Merger was fair to
Columbia from a financial point of view. After extensive discussion and
consideration, Columbia's Board of Directors approved the Merger Agreement, the
Proposed Amendment and the transactions contemplated thereby, and authorized
the execution of the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Columbia. The Columbia Board of Directors believes that the terms of the
Merger Agreement are fair to and in the best interests of Columbia and its
stockholders. Accordingly, Columbia's Board has approved the Merger Agreement
and recommends approval thereof by the stockholders of Columbia. In reaching
its
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determination, the Columbia Board of Directors consulted with Columbia
management, as well as its financial and legal advisors, and considered a
number of factors, including, without limitation, the following:
(i) the Merger provides Columbia with the opportunity to combine with a
company having a large portfolio of strong, quality hospitals;
(ii) the complementary geographic locations of the Columbia facilities
and Healthtrust facilities should provide opportunity for profitability
growth due to synergies, Columbia would acquire a strong market position in
new markets, and the fact that Healthtrust's smaller markets should
complement Columbia's larger markets;
(iii) the combination should enhance Columbia's relationships with
managed care plans because of broader geographic coverage;
(iv) the market capitalization of the combined company will be larger
than Columbia's current market capitalization, providing Columbia
stockholders with enhanced liquidity;
(v) Healthtrust's business, operations, prospects and strategic
alliances;
(vi) the Merger will better position Columbia to deal with uncertainties
which may face the industry due to health care reform;
(vii) the opportunities for economies of scale and operating efficiencies
that should result from the Merger, particularly in terms of the
integration of office facilities, information systems and support functions
and the combined purchasing power of the two companies;
(viii) based on the relative earnings of both companies and the Exchange
Ratio, the Merger would be anti-dilutive to Columbia's current
stockholders, assuming certain synergies are achieved;
(ix) the oral opinion of Morgan Stanley given on October 4, 1994 that,
based upon the matters presented to the Columbia Board of Directors and as
set forth in its opinion, as of such date, the proposed consideration to be
paid by Columbia pursuant to the Merger was fair to Columbia from a
financial point of view;
(x) the terms of the Merger Agreement; and
(xi) the conditions to the Merger Agreement that the Merger will be
accounted for under the pooling of interests method of accounting and will
be a tax-free reorganization for federal income tax purposes.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Columbia Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
THE BOARD OF DIRECTORS OF COLUMBIA RECOMMENDS THAT COLUMBIA STOCKHOLDERS VOTE
TO APPROVE AND ADOPT THE MERGER AGREEMENT.
Healthtrust. The Healthtrust Board of Directors believes that the terms of
the Merger Agreement and the transactions contemplated thereby are in the best
interests of Healthtrust and its stockholders. Accordingly, Healthtrust's Board
has approved the Merger Agreement and recommends approval thereof by the
stockholders of Healthtrust. In reaching its determination, the Healthtrust
Board of Directors consulted with Healthtrust management, as well as its legal
counsel and its financial advisors, and considered a number of factors,
including, without limitation, the following:
(i) Healthtrust's strategic alternatives, including remaining an
independent company or effecting a business combination with one or more
other parties;
(ii) information concerning the financial condition, results of
operations, businesses, competitive positions and prospects of Columbia and
Healthtrust;
(iii) the enhanced position of the combined company to succeed in the
changing health care environment through the development of comprehensive
integrated health care delivery networks;
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(iv) the ability of the combined company to compete more effectively amid
the ongoing consolidation of health care providers and payors;
(v) the opportunities for operating efficiencies and synergies as a
result of the Merger, particularly through the integration of office
facilities, information systems and support functions and the combined
purchasing power of the two companies;
(vi) the increased market capitalization and financial strength of the
combined company;
(vii) the terms and conditions of the Merger Agreement, including the
condition that Healthtrust receive comfort that the Merger will be
accounted for as a pooling of interests and will be a tax-free
reorganization for federal income tax purposes;
(viii) the lack of any substantial impediments on the ability of the
Healthtrust Board of Directors to entertain alternative proposals,
negotiate and give information to third parties and terminate the Merger
Agreement in the event of an alternative proposal if required by the
Healthtrust Board's fiduciary duties to Healthtrust stockholders;
(ix) the Exchange Ratio and recent trading prices for Healthtrust Common
Stock and Columbia Common Stock;
(x) the opportunity for the holders of Healthtrust Common Stock to
receive a premium over the market price for their shares immediately prior
to the announcement of the Merger (the Exchange Ratio represented a premium
of approximately 18% over the closing sales price of $32.00 per share of
Healthtrust Common Stock on October 4, 1994, the last trading day prior to
the announcement of the Merger, based upon 0.88 times the closing sales
price per share of Columbia Common Stock ($42.75) on such date); and
(xi) the financial presentation of Merrill Lynch delivered to the
Healthtrust Board of Directors, including the opinion of Merrill Lynch
rendered on October 4, 1994 that the Exchange Ratio was fair to the holders
of Healthtrust Common Stock from a financial point of view.
The Board of Directors of Healthtrust believes that the Merger offers the
opportunity to create a combined company with greater financial resources and
flexibility, competitive strengths and business opportunities than would be
possible for Healthtrust alone.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Healthtrust Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
THE BOARD OF DIRECTORS OF HEALTHTRUST RECOMMENDS THAT HEALTHTRUST
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
Columbia
Columbia retained Morgan Stanley to act as its financial advisor in
connection with the Merger. At the October 4, 1994 meeting of the Columbia
Board of Directors, Morgan Stanley rendered its oral opinion that, as of such
date and based upon and subject to the various considerations set forth in its
opinion, the consideration to be paid by Columbia to the holders of Healthtrust
Common Stock pursuant to the Merger was fair from a financial point of view to
Columbia. Morgan Stanley also delivered to the Board of Directors of Columbia a
written opinion dated as of October 4, 1994 confirming its oral opinion. A
subsequent written opinion dated the date of this Proxy Statement/Prospectus
was also delivered to the Board of Directors of Columbia, which opinion is
substantially identical to the October 4, 1994 opinion. No limitations were
imposed by Columbia with respect to the investigations made or the procedures
followed by Morgan Stanley in rendering its opinion.
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THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED THE DATE OF THIS
PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND THE SCOPE OF
THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED
AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS. COLUMBIA STOCKHOLDERS ARE
URGED TO READ MORGAN STANLEY'S OPINION IN ITS ENTIRETY. MORGAN STANLEY'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW TO
COLUMBIA, OF THE CONSIDERATION TO BE PAID BY COLUMBIA AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY COLUMBIA STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE COLUMBIA MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley, among other things: (i) analyzed
certain publicly available financial statements and other information of
Columbia and of Healthtrust; (ii) reviewed certain internal business, operating
and financial information, including financial forecasts, relating to
Healthtrust, furnished to it by Healthtrust; (iii) discussed the past and
current operations and financial condition and the prospects of Healthtrust
with senior executives of Healthtrust; (iv) reviewed certain internal business,
operating and financial information, including financial forecasts, relating to
Columbia, furnished to it by Columbia; (v) discussed the past and current
operations and financial condition and the prospects of Columbia with senior
executives of Columbia, and analyzed the pro forma impact of the Merger on
Columbia's earnings per share, consolidated capitalization and financial
ratios; (vi) reviewed the reported prices and trading activity for the
Healthtrust Common Stock and the Columbia Common Stock; (vii) compared the
financial performance of Healthtrust and the prices and trading activity of the
Healthtrust Common Stock with that of certain other comparable publicly traded
companies and their securities; (viii) compared the financial performance of
Columbia and the prices and trading activity of the Columbia Common Stock with
that of certain other comparable publicly traded companies and their
securities; (ix) discussed with the senior management of Columbia their view of
the strategic rationale for the Merger and the economic benefits of the Merger
to Columbia; (x) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions; (xi) participated in
discussions and negotiations among representatives of Healthtrust and Columbia
and their financial and legal advisors and reviewed the Merger Agreement; and
(xii) performed such other analyses as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial forecasts of Columbia and the financial budget and financial
forecasts of Healthtrust, Morgan Stanley assumed that they were reasonably
prepared by Columbia and Healthtrust, respectively, on bases reflecting the
best currently available estimates and judgments of the future financial
performance of Columbia and Healthtrust. Morgan Stanley also relied upon the
assumptions of the management of Columbia regarding cost savings and other
synergies that may be achieved by Columbia if the Merger is consummated. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of Healthtrust, nor was it furnished with any such appraisals.
Morgan Stanley's opinion was necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan
Stanley as of, the date of such opinion.
The following is a brief summary of the analyses performed by Morgan Stanley
in preparation of its opinion letter dated as of October 4, 1994 and reviewed
with the Columbia Board of Directors.
Overview of Healthtrust. Morgan Stanley reviewed the geographic distribution
of hospitals of Healthtrust, certain financial and operating information of
Healthtrust, the stock market trading history of Healthtrust and the stock
market performance of Healthtrust relative to its peer group of hospital
management companies.
Healthtrust Valuation Analysis. Morgan Stanley evaluated the terms of the
Merger using three valuation methodologies: a comparable companies public
market trading analysis; an analysis of prices and
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terms of comparable merger and acquisition transactions in the hospital
management industry; and a discounted cash flow analysis. These methodologies
are discussed below:
1. Public Market Trading Analysis. Morgan Stanley reviewed and analyzed
certain available financial and market information for a group of seven
selected publicly traded companies (American Medical Holdings, Inc.,
Columbia/HCA Healthcare Corporation, National Medical Enterprises, Inc.,
Community Health Systems, Inc., Health Management Associates, Inc., OrNda
HealthCorp., and Universal Health Services, Inc. (collectively, the "Comparable
Companies")) that, in Morgan Stanley's judgment, were comparable to Healthtrust
for the purposes of this analysis. The Comparable Companies were divided into
two groups: those deemed to be more comparable based on size, asset quality and
capitalization (American Medical Holdings, Inc., Columbia/HCA Healthcare
Corporation, and National Medical Enterprises, Inc. (the "Large Capitalization
Comparable Companies")) and those deemed to be less comparable (Community
Health Systems, Inc., Health Management Associates, Inc., OrNda HealthCorp.,
and Universal Health Services, Inc. (the "Small Capitalization Comparable
Companies")). Such financial and market information included, among other
things, market valuation, earnings per share, market price as a multiple of
earnings per share and aggregate value as a multiple of revenue and of earnings
before interest, taxes, depreciation and amortization ("EBITDA"). Morgan
Stanley noted that as of September 30, 1994, based on a compilation of earnings
projections by securities research analysts, Healthtrust traded at 15.7x
forecasted earnings for the calendar year 1994 and 13.0x forecasted earnings
for the calendar year 1995 compared to a range of multiples of 13.7x to 22.7x
forecasted earnings for the calendar year 1994 for the Comparable Companies,
with a mean of the Large Capitalization Comparable Companies of 16.5x and a
mean of the Small Capitalization Comparable Companies of 17.7x, and compared to
a range of multiples of 11.2x to 18.9x forecasted earnings for the calendar
year 1995 for the Comparable Companies, with a mean of the Large Capitalization
Comparable Companies of 14.5x and a mean of the Small Capitalization Comparable
Companies of 14.5x. Morgan Stanley noted that no company used in the Comparable
Companies analysis was identical to Healthtrust. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which they are being compared. Mathematical analysis (such as
determining the mean or median) is not, in itself, a meaningful method of
ensuring comparable company data. Morgan Stanley further noted that the public
market trading analysis does not include a premium for the acquisition, and
that it is typical in an acquisition context for a premium over market value to
be paid for the acquired company. In addition, this analysis did not reflect
any potential synergies resulting from the combination of the two companies.
2. Analysis of Selected Precedent Transactions. Morgan Stanley reviewed the
financial terms, to the extent publicly available or, in certain cases, based
on information furnished to it by Columbia, of nine selected pending and
completed merger and acquisition transactions in the hospital management
industry announced since April 1992 (collectively, the "Precedent
Transactions"), with the focus on three recent transactions (the "Comparable
Precedent Transactions") which, in Morgan Stanley's judgment, were comparable
to the Merger for the purposes of this analysis. The three transactions, in
reverse chronological order of public announcement, were the following: (i) the
acquisition of Medical Care America, Inc. by Columbia; (ii) the acquisition of
HCA--Hospital Corporation of America by Columbia; and (iii) the acquisition of
Galen Health Care, Inc. by Columbia. Morgan Stanley reviewed the prices paid in
such transactions in terms of the equity value as a multiple of net income for
the last twelve months prior to announcement and as a multiple of estimated net
income for the calendar year of the announcement, and in terms of the aggregate
value (defined as equity value plus long-term debt and short-term debt plus
deferred tax liability and credits plus minority interest less cash and cash
equivalents (the "Aggregate Value")) as a multiple of EBITDA for the last
twelve months prior to announcement and as a multiple of estimated EBITDA for
the calendar year of the announcement. Morgan Stanley noted that no transaction
reviewed was identical to the Merger and that, accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
Healthtrust and other factors that would affect the acquisition value of the
companies to
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which it is being compared. Morgan Stanley advised the Board of Directors of
Columbia that, in analyzing the results of the Precedent Transactions analysis,
the Board of Directors of Columbia should consider the size and demographic and
economic characteristics of the markets of each hospital company and the
competitive environment in which it operates. Morgan Stanley noted that, for
the Comparable Precedent Transactions, the range of multiples of equity value
to last twelve months' net income was 12.7x to 20.7x with a mean of 18.0x, the
range of multiples of equity value to estimated net income for the calendar
year of the announcement of the transaction (in one case, the next fiscal year
was utilized due to certain fundamental changes in the acquiree's business
during the year of announcement) was 11.4x to 15.5x with a mean of 13.7x, the
range of multiples of Aggregate Value to last twelve months' EBITDA was 6.2x to
7.8x with a mean of 6.9x, and the range of multiples of Aggregate Value to
estimated EBITDA for the calendar year of the announcement of the transaction
(in one case, the next fiscal year was utilized due to certain fundamental
changes in the acquiree's business during the year of announcement) was 6.2x to
7.5x with a mean of 6.4x. Morgan Stanley further noted that, with respect to
the Merger and assuming the Exchange Ratio, the equity value expressed as a
multiple of Healthtrust's last twelve months' net income varied between 21.7x
prior to consideration of synergies to 14.9x when expected synergies were
considered, and the equity value expressed as a multiple of Healthtrust's
estimated calendar year 1995 net income varied between 15.5x prior to
consideration of synergies to 11.7x when expected synergies were considered.
The Aggregate Value as a multiple of Healthtrust's last twelve months' EBITDA
ranged between 8.5x prior to consideration of synergies to 7.2x after
consideration of expected synergies, and the Aggregate Value as a multiple of
Healthtrust's estimated calendar year 1995 EBITDA ranged between 7.4x prior to
consideration of synergies to 6.4x after consideration of synergies. The mean
multiples for the Comparable Precedent Transactions are an average of a broad
range and are, therefore, subject to interpretation. Morgan Stanley further
noted that, in addition to other factors, the value of the expected synergies
was an important consideration in arriving at its opinion that the
consideration to be paid by Columbia was fair from a financial point of view to
Columbia.
3. Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted cash
flow analysis to estimate the present value of the stand-alone unlevered free
cash flows that Healthtrust is expected to generate if Healthtrust performs in
accordance with a scenario developed based upon financial projections prepared
by the management of Columbia and Healthtrust and certain variants thereof.
Morgan Stanley noted that the Columbia and Healthtrust projections appeared to
be based on reasonable assumptions and, thus, it did not alter these operating
assumptions in performing its discounted cash flow analysis. To arrive at a
valuation of Healthtrust, Morgan Stanley discounted the unlevered (before
interest expenses) after-tax cash flows that resulted from the aforementioned
assumptions using a range of discount rates of 11.0% to 13.0%. This range was
based on the weighted average cost of capital for certain companies in the
hospital management industry. Unlevered after-tax cash flows were calculated as
the after-tax operating earnings of Healthtrust plus projected depreciation and
amortization, plus (or minus) net changes in non-cash working capital, minus
projected capital expenditures. Morgan Stanley added to the present value of
the cash flows the terminal value of Healthtrust in the year 2003, discounted
back at the same discount rates. The terminal value was computed by multiplying
Healthtrust's projected EBITDA in the calendar year 2003 by a range of terminal
multiples of 6.0x to 7.0x. The discounted cash flow valuation indicated a
reference range for Healthtrust of between $35.14 and $47.86 per fully diluted
share before considering the value of free cash flows resulting from expected
cost savings and other potential synergies. In addition, and though Morgan
Stanley did consider all three valuation methodologies outlined above, it
placed greater reliance on the discounted cash flow analysis in forming its
opinion.
Pro Forma Merger Analysis. Morgan Stanley analyzed certain pro forma effects
resulting from the Merger, including the effect of the consummation of the
Merger, assuming the Exchange Ratio, on the earnings per share of Common Stock
of Columbia following the Merger. Morgan Stanley's method of analysis indicated
that the Merger would be marginally dilutive to Columbia's projected earnings
per share for fiscal years 1994, 1995 and 1996, and would be accretive to
Columbia's projected earnings per share for the same periods when expected
synergies were considered. Morgan Stanley noted that, in addition to other
factors, the value of these synergies was an important consideration in
arriving at its opinion that the consideration
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to be paid by Columbia was fair from a financial point of view to Columbia. The
actual operating results or financial position achieved by the combined company
may vary from the projected results and the variations may be material.
In connection with the review of the Merger by the Columbia Board of
Directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The summary
set forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley in connection with the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create a misleading view of the
processes underlying its opinion. In addition, Morgan Stanley may have given
various analyses more or less weight than other analyses with an emphasis on
the discounted cash flow analysis, and may have deemed various assumptions more
or less probable than other assumptions, so that the range of valuations
resulting for any particular analysis described above should not be taken to be
Morgan Stanley's view of the actual value of Healthtrust. In performing its
analyses, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of Columbia or Healthtrust. Any estimates
contained therein are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than such estimates.
Estimates of values of companies or assets do not purport to be appraisals or
to necessarily reflect the prices at which companies or assets may actually be
sold. The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the consideration to be paid by Columbia from a
financial point of view to Columbia and were provided to the Columbia Board of
Directors in connection with the delivery of Morgan Stanley's opinion.
The Columbia Board of Directors retained Morgan Stanley to act as its
financial advisor based upon its qualifications, experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the past, Morgan
Stanley and its affiliates have provided financial advisory or financing
services to Columbia and have received customary fees and reimbursement of
expenses for rendering such services. In the ordinary course of Morgan
Stanley's trading and brokerage activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, may trade or otherwise effect
transactions, for its own account or for the account of customers, in debt or
equity securities of Columbia or Healthtrust.
Pursuant to a letter agreement dated as of October 4, 1994, between Columbia
and Morgan Stanley, Columbia retained Morgan Stanley to render a financial
opinion letter to the Columbia Board of Directors in connection with the
Merger. Columbia agreed to pay Morgan Stanley an opinion fee of $2,000,000
payable at the time the written opinion is delivered. Columbia has also agreed
to reimburse Morgan Stanley for its out-of-pocket expenses, including the fees
of its legal counsel, and to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees, and each person, if any,
controlling Morgan Stanley or any of its affiliates against certain liabilities
and expenses, including liabilities under the federal securities laws, incurred
in connection with its services. In addition, Columbia has agreed to pay Morgan
Stanley approximately $2.5 million for a variety of investment banking and
other financial advisory services.
Healthtrust
On October 4, 1994, Merrill Lynch delivered its oral opinion (which it
subsequently confirmed in writing) to the Board of Directors of Healthtrust to
the effect that, as of October 4, 1994, and based upon the assumptions made,
matters considered and limits of review as set forth in such opinion, the
Exchange Ratio is fair to the holders of Healthtrust Common Stock from a
financial point of view. Merrill Lynch subsequently confirmed its opinion by
delivery of its written opinion dated the date of this Proxy
Statement/Prospectus (the "Merrill Lynch Opinion").
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A COPY OF THE MERRILL LYNCH OPINION DATED THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS, WHICH INCLUDES THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW, IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS APPENDIX C. HEALTHTRUST STOCKHOLDERS ARE URGED TO READ
THE MERRILL LYNCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO TO THE HOLDERS OF THE
HEALTHTRUST COMMON STOCK FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY HEALTHTRUST STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE. THE SUMMARY OF THE MERRILL LYNCH OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed Healthtrust's Annual Reports, Forms 10-K and related financial
information for the four years ended August 31, 1994 and certain publicly
available unaudited financial information for Healthtrust's quarterly period
ended November 30, 1994; (ii) reviewed Columbia's Annual Reports, Forms 10-K
and related financial information for the three years ended December 31, 1993
and Columbia's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1994, June 30, 1994 and September 30,
1994; (iii) reviewed certain other filings with the Commission made by Columbia
and Healthtrust, including proxy statements, Forms 8-K and registration
statements, since September 1, 1990 with respect to Healthtrust and since
January 1, 1991 with respect to Columbia; (iv) reviewed certain information,
including financial forecasts relating to the business, earnings, cash flows,
assets and prospects of Healthtrust and Columbia furnished to Merrill Lynch by
Healthtrust and Columbia and by research analysts; (v) conducted discussions
with members of senior management of Healthtrust and Columbia concerning their
respective businesses and prospects and strategic objectives as well as the
strategic implications and operating efficiencies and possible synergies that
might be realized following consummation of the Merger; (vi) reviewed the
historical market prices and trading activity for Healthtrust Common Stock and
Columbia Common Stock and compared them with those of certain publicly traded
companies which Merrill Lynch deemed to be reasonably similar to Healthtrust
and Columbia, respectively; (vii) compared the results of operations of
Healthtrust and Columbia with those of certain companies which Merrill Lynch
deemed to be similar to Healthtrust and Columbia, respectively; (viii) compared
the financial terms of the transactions contemplated by the Merger Agreement
with the financial terms of certain other mergers and acquisitions which
Merrill Lynch deemed to be relevant; (ix) reviewed the Merger Agreement; and
(x) reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as Merrill Lynch deemed
necessary, including an assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied upon the
accuracy and completeness of all information supplied or otherwise made
available to it by Healthtrust and Columbia (or its financial advisor) and
assumed that financial forecasts and estimates of operating efficiencies and
potential synergies reflected the best currently available estimates and
judgments of the managements of Healthtrust and Columbia as to the expected
future financial performance of their respective companies. Merrill Lynch did
not independently verify such information or assumptions, conduct a physical
inspection of the properties or facilities of Healthtrust or Columbia or
undertake an independent appraisal or evaluation of the assets or liabilities
of Healthtrust or Columbia. Merrill Lynch expressed no opinion as to what the
value of Columbia Common Stock actually will be when issued to Healthtrust
stockholders pursuant to the Merger or the price at which the Columbia Common
Stock will trade subsequent to the Merger.
The Merrill Lynch Opinion does not present a discussion of the relative
merits of the Merger as compared to any other business plan or opportunity that
might be presented to Healthtrust, or the effect of any other arrangement in
which Healthtrust might engage.
In arriving at the Merrill Lynch Opinion and making its presentation to the
Board of Directors of Healthtrust at the meeting held on October 4, 1994,
Merrill Lynch considered and discussed certain financial analyses and other
factors. In connection with its presentation, Merrill Lynch provided the Board
of Directors of Healthtrust with a summary of valuation results obtained by
using several different valuation methods as well as other materials concerning
Healthtrust Common Stock (the "Merrill Lynch Report"), the material portions of
which are summarized below.
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Historical Stock Price Analysis. Merrill Lynch reviewed the performance of
the per share daily closing market price of Healthtrust Common Stock and
Columbia Common Stock over the period from September 30, 1992 to September 30,
1994 both separately and in relation to each other and compared the movement of
such daily closing prices with the movement of the Standard & Poor's 500 Index
and a composite index of certain other publicly traded hospital companies,
which Merrill Lynch deemed to be comparable to Healthtrust and Columbia. The
companies included in the index were American Medical Holdings, Community
Health Systems, Inc., Health Management Associates, National Medical
Enterprises, OrNda Healthcorp, Quorum Health Group, Inc. ("Quorum") and
Universal Health Services, Inc. ("Universal Health") (collectively, the
"Industry Comparables"). Merrill Lynch also reviewed and analyzed the
historical ratio of the daily closing prices of Columbia Common Stock to
Healthtrust Common Stock (as adjusted by the Exchange Ratio) over the period
from September 28, 1993 to September 29, 1994.
Comparable Public Company Analysis. Merrill Lynch compared certain publicly
available financial and operating data and projected financial performance
(reflecting a composite of research analysts' estimates) of the Industry
Comparables, including Columbia, with similar financial and operating data and
projected financial performance of Healthtrust. Merrill Lynch compared the
market value as multiples of publicly reported last 12 months ("LTM") net
income, fiscal 1995 and 1996 estimated earnings per share (which were obtained
from First Call and were arithmetically adjusted by Merrill Lynch to reflect a
December year end), publicly reported LTM cash flow, latest fiscal quarter's
common equity per share and compared market capitalization as a multiple of
publicly reported LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"), publicly reported LTM earnings before interest and
taxes ("EBIT"), and publicly reported LTM sales. Merrill Lynch also analyzed
the estimated five year earnings per share growth rate (which were obtained
from Merrill Lynch Research, except for Quorum and Universal Health, which were
obtained from Institutional Brokerage Estimate Service) for Healthtrust,
Columbia and each of the Industry Comparables. For purposes of the foregoing
calculations, "market value" is equal to the closing price per share on
September 30, 1994 multiplied by the number of shares outstanding and "market
capitalization" is equal to the market value plus liquidation value of
preferred stock plus total debt and minority interests less cash, cash
equivalents and marketable securities. Merrill Lynch determined that these
multiples were as follows: (i) market value to LTM net income was 18.2x for
Healthtrust compared to those of the Industry Comparables (including Columbia),
which ranged from 13.6x to 26.6x (with a mean of 19.7x and a median of 20.3x);
(ii) market value to estimated fiscal year 1995 estimated earnings per share
was 12.9x for Healthtrust compared to those of the Industry Comparables
(including Columbia), which ranged from 11.4x to 19.1x (with a mean of 14.6x
and a median of 15.0x); (iii) market value to estimated fiscal year 1996
estimated earnings per share was 10.8x for Healthtrust compared to those of the
Industry Comparables (including Columbia), which ranged from 9.5x to 15.5x
(with a mean of 12.4x and a median of 12.5x); (iv) market value to LTM cash
flow was 8.7x for Healthtrust compared to those of the Industry Comparables
(including Columbia), which ranged from 6.1x to 18.4x (with a mean of 9.5x and
a median of 8.1x); (v) market value to latest fiscal quarter's common equity
was 3.0x for Healthtrust compared to those of the Industry Comparables
(including Columbia), which ranged from 1.54x to 4.72x (with a mean of 2.74x
and a median of 2.35x); (vi) market capitalization to LTM EBITDA was 7.2x for
Healthtrust compared to those of the Industry Comparables (including Columbia),
which ranged from 5.1x to 11.5x (with a mean of 7.6x and a median of 7.7x);
(vii) market capitalization to LTM EBIT was 10.6x for Healthtrust compared to
those for the Industry Comparables (including Columbia), which ranged from 8.0x
to 13.7x (with a mean of 11.0x and a median of 11.2x); (viii) market
capitalization to LTM sales was 1.22x for Healthtrust compared to those for the
Industry Comparables (including Columbia), which ranged from 0.6x to 2.65x
(with a mean of 1.37x and a median of 1.23x); and (ix) estimated five-year
earnings per share growth rate was 20.0% for Healthtrust compared to those for
the Industry Comparables (including Columbia), which ranged from 11.0% to 23.0%
(with a mean of 17.6% and a median of 18.5%).
Merrill Lynch then calculated the implied values per share of Healthtrust
Common Stock by applying Healthtrust's actual and certain forecasted financial
results to the mean of the multiples derived from its analysis of the Industry
Comparables described above. Merrill Lynch (i) calculated per share implied
values
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of Healthtrust Common Stock as follows: $37.38 (based on transaction value (as
hereinafter defined) as a multiple of LTM sales), $35.29 (based on transaction
value as a multiple of EBITDA), $34.39 (based on transaction value as a
multiple of LTM EBIT) and $36.58 and $37.31 (based on offer value as a multiple
of projected 1995 and 1996 net income, respectively) and (ii) compared such per
share calculations to $38.28, the implied offer value per share of Healthtrust
Common Stock as of September 30, 1994.
Selected Comparable Acquisition Analysis. Merrill Lynch reviewed certain
publicly available information regarding 14 selected business combinations of
hospital companies announced since May 15, 1987 (the "Acquisition
Comparables"). The Acquisition Comparables and the date the transaction was
announced were as follows: Community Health Systems acquisition of Hallmark
Healthcare Corp. (June 1994); Columbia's acquisition of Medical Care America,
Inc. (May 1994); Healthtrust's acquisition of EPIC (January 1994); OrNda
HealthCorp's acquisition of Summit Health, Ltd. (December 1993); OrNda
HealthCorp's acquisition of American Healthcare Management, Inc. (November
1993); Columbia's acquisition of HCA (October 1993); Columbia's acquisition of
Galen (June 1993); Columbia's acquisition of Basic American Medical, Inc.
(April 1992); AMI Holdings, Inc. acquisition of American Medical International,
Inc. (July 1989); HCA's acquisition of Hospital Corporation of America
(November 1988); HMA Holding Corporation's acquisition of Health Management
Associates, Inc. (July 1988); EPIC's acquisition of certain assets of American
Medical International (May 1988); WAF Acquisition Corp's acquisition of Charter
Medical Corporation (March 1988); and Healthtrust's acquisition of certain
assets of Hospital Corporation of America (May 1987).
Merrill Lynch compared the "offer value" (defined to be the offer price per
share multiplied by the sum of the number of shares outstanding and the number
of exercisable options outstanding) of each such transaction as a multiple of
then publicly available LTM net income, then publicly available LTM cash flow
and latest fiscal quarter's book value, and compared the "transaction value"
(defined to be the offer value plus the liquidation value of preferred stock
plus total debt and minority interests less cash, cash equivalents and proceeds
received upon exercise of options) of each such transaction as a multiple of
LTM sales, LTM EBITDA and LTM EBIT. The ranges of the offer value as a multiple
of LTM net income, LTM cash flow and latest fiscal quarter's book value for the
Acquisition Comparables were as follows: (i) offer value to LTM net income
ranged from 12.3x to 29.1x (with a mean of 19.2x); (ii) offer value to LTM cash
flow ranged from 4.6x to 19.5x (with a mean of 10.4x); and (iii) offer value to
latest fiscal quarter's book value ranged from 1.6x to 4.3x (with a mean of
2.8x). The range of transaction value as a multiple of (a) LTM sales was 0.71x
to 1.99x (with a mean of 1.25x); (b) LTM EBITDA was 5.5x to 10.1x (with a mean
of 7.7x); and (c) LTM EBIT was 7.9x to 31.9x (with a mean of 11.5x).
Merrill Lynch then calculated the implied values per share of Healthtrust
Common Stock by applying Healthtrust's actual and certain forecasted financial
results to the mean of the multiples derived from its analysis of the
Acquisition Comparables described above. Merrill Lynch (i) calculated per share
implied values of Healthtrust Common Stock as follows: $32.89 (based on
transaction value as a multiple of LTM sales), $31.36 (based on transaction
value as a multiple of LTM EBITDA), $32.77 (based on transaction value as a
multiple of EBIT) and $31.56 (based on transaction value as a multiple of LTM
net income) and (ii) compared such per share calculations to $38.28, the
implied offer value per share of Healthtrust Common Stock as of September 30,
1994.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash flow
analysis of Healthtrust, on a standalone basis, Columbia, on a standalone
basis, and the combination of Healthtrust and Columbia, giving effect to the
Merger but excluding synergies and cost savings, based upon estimates of
projected financial performance prepared by Healthtrust and Columbia,
respectively, for the years 1995-1999. Utilizing these projections, Merrill
Lynch calculated a range of implied values based upon the discounted net
present value of the sum of (i) the projected stream of unlevered free cash
flows to the year 1999, (ii) the projected terminal value of Healthtrust at
such year based upon a range of multiples of projected EBITDA and (iii) an
assumed cash balance (including other investments) net of debt (based upon full
conversion or
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exercise of all derivative securities). Merrill Lynch applied several discount
rates (ranging from 11% to 13%) and multiples of EBITDA (ranging from 6.0x to
8.0x for the Healthtrust analysis and ranging from 7.0x to 9.0x for the
Columbia analysis and the combined analysis). Utilizing this methodology, the
implied present value per share of (i) Healthtrust Common Stock ranged from
$32.94 to $50.24 on a fully diluted basis and (ii) Columbia Common Stock ranged
from $40.48 to $57.60 on a fully diluted basis. Utilizing this methodology, the
implied value per share of Healthtrust Common Stock based on the Exchange Ratio
ranged from $33.79 to $51.09 on a fully diluted basis.
Contribution Analysis. Merrill Lynch also compared the relative ownership of
the stockholders of Healthtrust and the stockholders of Columbia to the
combined company of 19% and 81% to the relative contributions of each of
Healthtrust and Columbia to the combined company for the years ending December
1995, 1996 and 1997, to net sales, EBITDA, EBITA and net income. This analysis
indicated that, for the years ending December 1995, 1996 and 1997, Columbia and
Healthtrust would have contributed approximately 75% and 25%, respectively, of
net sales of the combined entity; approximately 78% (77% in 1995) and 22% (23%
in 1995), respectively, of EBITDA of the combined entity; approximately 78% and
22%, respectively, of EBITA of the combined entity; and approximately 81% and
19%, respectively, of net income of the combined entity.
Pro Forma Analysis. In addition, Merrill Lynch analyzed certain pro forma
effects resulting from the Merger based on the Exchange Ratio, including the
potential impact of the Merger on the estimated earnings per share and
estimated EBITDA per share of Healthtrust for the years 1995-1999 and compared
the same assuming the Merger does not occur. Merrill Lynch's analysis was based
on estimates of management of Columbia and Healthtrust of projected annual
savings from synergies of $125 million. The analysis indicated that for a
holder of Healthtrust Common Stock, (i) the Merger would be accretive on an
estimated earnings per share basis for the years 1995-1999 in amounts ranging
from 3.4% in 1995 to .6% in 1999 and (ii) the Merger would be dilutive on an
estimated EBITDA basis per share for the years 1995-1999 in amounts ranging
from (15.3%) in 1995 to (11.4%) in 1999. Merrill Lynch performed a discounted
cash flow analysis using EBITDA multiples ranging from 6x to 8x and a discount
rate of 12% and calculated an implied value of Healthtrust Common Stock of
between $39.80 and $51.18 per share if the Merger occurs and compared such
results to the value of Healthtrust Common Stock of between $32.32 per share
and $44.42 per share if the Merger does not occur.
In arriving at the Merrill Lynch Opinion and in presenting the Merrill Lynch
Report, Merrill Lynch performed a variety of financial analyses, the material
portions of which are summarized above. The summary set forth above does not
purport to be a complete description of the analyses performed by Merrill
Lynch. In addition, Merrill Lynch believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the process underlying its analyses set forth in
its opinion and the Merrill Lynch Report. The matters considered by Merrill
Lynch in arriving at its opinion that, as of the date of such opinion, the
Exchange Ratio is fair to the holders of Healthtrust Common Stock from a
financial point of view, are based on numerous macroeconomic, operating and
financial assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond
Healthtrust's or Columbia's control. Any estimates incorporated in the analyses
performed by Merrill Lynch are not necessarily indicative of actual past or
future results or values, which may be significantly more or less favorable
than such estimates. Estimated values do not purport to be appraisals and do
not necessarily reflect the prices at which businesses or companies may be sold
in the future, and such estimates are inherently subject to uncertainty.
Arriving at a fairness opinion is a complex process not necessarily susceptible
to partial or summary description. No public company utilized as a comparison
is identical to Healthtrust, Columbia or the business segment for which a
comparison is being made, and none of the Acquisition Comparables or other
business combinations utilized as a comparison is identical to the Merger.
Accordingly, an analysis of publicly traded comparable companies and comparable
business combinations resulting from the transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in
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financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
The Board of Directors of Healthtrust selected Merrill Lynch to render a
fairness opinion because Merrill Lynch is an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Merger and because it is familiar with Healthtrust and its business.
Merrill Lynch has from time to time rendered investment banking, financial
advisory and other services to Healthtrust, for which it has received customary
compensation. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. Merrill Lynch has rendered from time
to time various investment banking and financial advisory services to Columbia
for which it has received customary compensation, including serving as
financial advisor to Columbia in connection with the HCA Merger.
Merrill Lynch Fees. Healthtrust paid to Merrill Lynch a fee of $500,000 upon
delivery of the Merrill Lynch Opinion and has agreed to pay to Merrill Lynch
$1,500,000 upon the consummation of the Merger. Healthtrust has also agreed to
reimburse Merrill Lynch for its reasonable out-of-pocket expenses, including
fees and expenses of its legal counsel, and to indemnify Merrill Lynch and
certain related persons against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws. In
addition, Healthtrust has agreed to pay to Merrill Lynch approximately $2.5
million for a variety of other investment banking services, including the
review of strategic alternatives.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of Healthtrust
with respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of the management of
Healthtrust and the Board of Directors of Healthtrust have certain interests in
the Merger that are in addition to the interests of stockholders of Healthtrust
generally.
Stock Option Plans. As provided in the Merger Agreement, by virtue of the
Merger, all options (the "Healthtrust Options") outstanding at the Effective
Time under any Healthtrust stock option plan (collectively, the "Healthtrust
Stock Option Plans"), whether or not then exercisable, will be assumed by
Columbia and converted into and become a right to purchase Columbia Common
Stock. Each Healthtrust Option assumed by Columbia will be exercisable upon the
same terms and conditions as under the applicable Healthtrust Stock Option
Plans and applicable option agreements issued thereunder, except that (i) each
Healthtrust Option shall be exercisable for the number of shares of Columbia
Common Stock equal to the product, rounded to the nearest whole share, of (A)
the number of shares of Healthtrust Common Stock subject to the original
Healthtrust Option immediately prior to the Effective Time, times (B) the
Exchange Ratio and (ii) the per share exercise price for each such Healthtrust
Option will be equal to (A) the per share exercise price for the share of
Healthtrust Common Stock subject to such Healthtrust Option immediately prior
to the Effective Time divided by (B) the Exchange Ratio, rounded upward to the
nearest full cent. Under the existing terms of the Healthtrust Stock Option
Plans, the Merger will cause the acceleration of vesting of those Healthtrust
Options which are issued but not yet vested. As of December 31, 1994, employees
(or former employees) of Healthtrust owned Healthtrust Options to purchase an
aggregate of 4,257,332 shares of Healthtrust Common Stock at a weighted average
price of $17.88 per share (at exercise prices ranging from $0.01 to $35.00 per
share). Approval of the Merger Agreement by the stockholders of Columbia will
constitute stockholder approval of the assumption by Columbia of the rights and
obligations of Healthtrust under the Healthtrust Stock Option Plans. See "The
Merger Agreement--The Merger."
Severance Protection Agreements. As permitted by the Merger Agreement,
Healthtrust's Board of Directors has authorized Healthtrust to enter into
severance protection agreements with approximately 70 Healthtrust employees
(including all executive officers of Healthtrust), which provide that if the
employee's employment is terminated or there is a change in such employee's
responsibilities within two years of a change in control (which term would
include consummation of the Merger), such employee would be entitled to receive
severance pay based upon the employee's annual base salary on the date of the
agreement and targeted
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bonus. The severance pay shall be equal to (i) three times such employee's
annual salary for the Chief Executive Officer, the Chief Operating Officer and
each Senior Vice President of Healthtrust; two times annual salary for all Vice
Presidents, Assistant Vice Presidents, and certain management employees of
Healthtrust; and one times annual salary for certain other management employees
of Healthtrust and (ii) a pro rata bonus for the year in which the severance
payment becomes payable. Any such severance benefits will be reduced, to the
extent necessary, such that no portion thereof would become subject to the
excise tax imposed under Section 4999 of the Code. In addition, the employees
covered by such severance protection agreements would be entitled to continued
coverage under medical benefit plans for 18 months (or until such earlier date
as the employee obtains comparable medical coverage from a new employer). In
addition, the Merger Agreement permits Healthtrust to adopt a severance plan
for other employees of Healthtrust whose principal place of employment is at
Healthtrust's corporate headquarters or corporate offices located in Dallas or
Nashville. The severance plan will provide that if the employee's employment is
terminated involuntarily within one year of the Merger, then such employee is
entitled to a severance benefit equal to the product of (a) the employee's
weekly base salary and (b) a multiple of between 12 and 30, based upon the
employee's years of service and position with Healthtrust as of the date of
termination. As a precondition to becoming entitled to severance benefits, each
covered employee must waive his or her entitlement, if any, to severance,
salary continuation or similar benefits under all other plans or arrangements.
Indemnification and Insurance. In accordance with Healthtrust's existing
policies and agreements, Columbia has agreed to indemnify and advance expenses
to each person who was on October 4, 1994, or has been at any time prior to
October 4, 1994, an officer, director, employee, trustee or agent of
Healthtrust (or any subsidiary thereof) (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, whether commenced, asserted or claimed before or after the Effective Time
and including, without limitation, liabilities arising under the Securities
Act, the Exchange Act and state corporation laws in connection with the Merger.
In addition, Columbia has agreed not to amend the provisions of Healthtrust's
Certificate of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification, except as required by applicable law
or except to make changes permitted by law that would enlarge the Indemnified
Parties' right of indemnification. 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 Healthtrust, subject to certain maximum annual payments. See "The Merger
Agreement--Indemnification and Insurance."
Board of Directors. Subject to approval by the stockholders of Columbia of
the Proposed Amendment, Columbia has agreed to cause the directors comprising
the full Board of Directors of Columbia at the Effective Time to be increased
by three directors and to cause R. Clayton McWhorter, Richard W. Hanselman and
Donald S. MacNaughton, each currently a director of Healthtrust, to be elected
as directors of Columbia in order to fill the vacancies resulting from such
newly created directorships. Mr. McWhorter will serve as Chairman of the Board
of Directors of Columbia. See "The Merger Agreement--Governance" and "The
Proposed Amendment."
ACCOUNTING TREATMENT
Columbia and Healthtrust believe that the Merger will qualify as a pooling of
interests for accounting and financial reporting purposes, and have been so
advised by their respective independent public accountants. Under this method
of accounting, the assets and liabilities of Columbia and Healthtrust will be
combined based on the respective carrying values of the accounts in the
historical financial statements of each entity. Results of operations of the
combined company will include income of Columbia and Healthtrust for the entire
fiscal period in which the combination occurs and the historical results of
operations of the separate companies for fiscal years prior to the Merger will
be combined and reported as the results of operations of the combined company.
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Consummation of the Merger is conditioned upon the receipt by each of
Columbia and Healthtrust of a letter from their respective independent public
accountants stating that, in their respective opinions, the Merger will qualify
as a pooling of interests for accounting purposes. See "The Merger Agreement--
Conditions" and "Unaudited Pro Forma Condensed Combined Financial Statements."
Certain events, including certain transactions with respect to Healthtrust
Common Stock or Columbia Common Stock by affiliates of Healthtrust or Columbia,
respectively, may prevent the Merger from qualifying as a pooling of interests
for accounting and financial reporting purposes. See "--Resale Restrictions."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The respective obligations of Healthtrust and Columbia to consummate the
Merger are conditioned on the receipt of opinions of their respective special
counsel, Dewey Ballantine and Fried, Frank, Harris, Shriver & Jacobson, 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. See "The
Merger Agreement--Conditions." If so treated, no gain or loss will be
recognized to Healthtrust stockholders upon the receipt of Columbia Common
Stock in exchange for Healthtrust Common Stock. Healthtrust stockholders will
have a tax basis for the shares of Columbia Common Stock received in the Merger
equal to the tax basis for the shares of Healthtrust Common Stock surrendered
in exchange therefor, excluding any basis allocated to fractional shares for
which cash is received. If the shares of Healthtrust Common Stock are held as
capital assets, the holding period of the shares of Columbia Common Stock
received will include the period during which the shares of Healthtrust Common
Stock were held. Furthermore, if the Merger is treated as a reorganization, the
Merger will result in no gain or loss to Columbia on the exchange of shares of
Healthtrust Common Stock for Columbia Common Stock.
The IRS has announced a ruling policy of treating cash paid in lieu of
fractional share interests arising in corporate reorganizations as having been
received by the stockholders in payment for the fractional share interests if
the cash distribution is undertaken solely for the purpose of saving the
corporation the expense and inconvenience of issuing and transferring
fractional shares and is not a separately bargained for consideration. The IRS
has stated further that the purpose of the transaction giving rise to the
fractional share interests, the maximum amount of cash that may be received by
any one stockholder, and the percentage of the total consideration that will be
cash are among the factors that will be considered in this connection. If so
treated in the present case, gains and losses realized by Healthtrust
stockholders with respect to the receipt of cash in lieu of fractional shares
will be capital gain or loss, provided that the shares surrendered are held as
capital assets. Such capital gain or loss will be long-term capital gain or
loss if the shares of Healthtrust Common Stock were held for more than one year
at the Effective Time. To determine the amount of gain or loss, a portion of
the basis in the Healthtrust Common Stock will be allocated to the fractional
shares and the amount of gain or loss will be the difference between the amount
of cash received and the amount of such basis.
The foregoing discussion is intended only as a summary of selected federal
income tax consequences of the Merger under current law and does not purport to
be a complete analysis or description of all potential tax effects of the
Merger. The summary does not address all of the tax consequences that may be
important to stockholders subject to special tax treatment, such as insurance
companies, corporations subject to the alternative minimum tax, banks, dealers
in securities, tax-exempt organizations or foreign persons, or to stockholders
who acquired their shares of Healthtrust Common Stock as compensation. No
information is provided herein with respect to the tax consequences, if any, of
the Merger under applicable foreign, state, local, and other tax laws. The
discussion is based on the current provisions of the Code, final and proposed
Treasury regulations thereunder and current administrative rulings and court
decisions. All of the foregoing are subject to change and any such change could
affect the accuracy of this discussion. Healthtrust stockholders are urged to
consult their own tax advisors as to the specific tax consequences to them of
the Merger.
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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
Healthtrust each filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division on October 21, 1994. Since a request from the
FTC for additional information and documentary material was timely received by
both Columbia and Healthtrust, the waiting period will not terminate until 20
days after Columbia and Healthtrust have each "substantially complied" (as such
term is defined under the HSR Act) with such request unless the FTC voluntarily
terminates the waiting period prior to substantial compliance. While Columbia
and Healthtrust are in the process of complying with such request, they have
not to date "substantially complied." Since the requests by the FTC for
additional information and documentary material were limited to certain
specific markets, Columbia and Healthtrust expect that either (i) they will be
in substantial compliance with the requests at least 20 days prior to the date
of the Meetings or (ii) the FTC will voluntarily terminate the waiting period,
in either case so as not to delay consummation of the Merger on or about the
date of the Meetings. However, there can be no assurance that the consummation
of the Merger will not be delayed by reason of the HSR Act. In addition, the
offices of the attorney general in various states in which Columbia and
Healthtrust operate are investigating the competitive impact of the Merger in
their respective states. Columbia and Healthtrust have responded to requests
for additional information from these states. At any time before or after the
Effective Time, and notwithstanding that the HSR Act waiting period has
expired, the Antitrust Division, the FTC or any state could take 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 Healthtrust or businesses of Columbia or Healthtrust 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 Healthtrust 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 Healthtrust at the time of the Healthtrust
Meeting 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 Healthtrust 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 Healthtrust 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 or pursuant to a "no-
action" letter obtained from the Commission by such person, such sale, transfer
or other disposition is exempt from registration under the Securities Act. In
order to qualify for pooling of interests treatment, an affiliate of either
Columbia or Healthtrust may not sell (subject to certain de minimus
exceptions), or in any other way reduce said affiliate's relative risk to, the
shares of Columbia Common Stock until after such time as Columbia publishes
results covering at least 30 days of combined operations of Columbia and
Healthtrust. Healthtrust and Columbia have each agreed to use all reasonable
efforts to obtain agreements from their respective affiliates not to engage in
any such transactions. See "--Accounting Treatment" and "The Merger Agreement--
Certain Covenants."
LITIGATION RELATING TO THE MERGER
Two purported class actions, entitled Alvarez v. R. Clayton McWhorter, et al.
and Swain v. R. Clayton McWhorter, et al., were commenced in Delaware Chancery
Court in October 1994 by two alleged
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stockholders of Healthtrust against Healthtrust and its Board of Directors. The
complaint in the Swain case also names Columbia as a defendant. The complaints
in both actions allege that Healthtrust's Board of Directors breached its
fiduciary and common law duties to the Healthtrust's stockholders by failing to
maximize stockholder value and obtain the highest price possible for the
Healthtrust stockholders in connection with the Merger. The complaints seek (i)
a preliminary and permanent injunction against the Merger; (ii) rescission and
damages in the event the Merger is consummated; (iii) an accounting of any
profits that might be realized by the Healthtrust's directors through the
Merger; (iv) unspecified compensatory damages; and (v) attorney's and experts'
fees. The litigation is in the early stages of discovery. Healthtrust and
Columbia, as the case may be, believe that the allegations in the complaints
are without merit and intend to defend such actions vigorously.
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 Healthtrust. 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
Healthtrust 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 Healthtrust Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 0.88 of a share 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 Healthtrust Common Stock will thereafter cease
to have any rights with respect to such shares of Healthtrust 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
Healthtrust Common Stock held in Healthtrust's treasury at the Effective Time
will cease to be outstanding and will be cancelled and retired without payment
of any consideration therefor.
At the Effective Time, all Healthtrust Options then outstanding under the
Healthtrust Stock Option Plans will remain outstanding and will be assumed by
Columbia. Each such Healthtrust Option will be exercisable upon the same terms
and conditions as under the applicable Healthtrust Stock Option Plan and the
applicable option agreement issued thereunder, except that (a) each such
Healthtrust 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 Healthtrust 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 Healthtrust Option prior to the Effective Time divided by
the Exchange Ratio (rounded upward to the nearest full cent). Approval of the
Merger Agreement by the stockholders of Columbia will constitute stockholder
approval of the assumption by Columbia of the rights and obligations of
Healthtrust under the Healthtrust Stock Option Plans and of the amendment of
such plans to provide for, among other things, the conversion at the Effective
Time of
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each outstanding stock option into an option to purchase shares of Columbia
Common Stock at the Exchange Ratio. 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
Healthtrust Common Stock, a letter of transmittal to be used by such holders in
forwarding their certificates representing shares of Healthtrust 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. HEALTHTRUST STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
No fractional shares of Columbia Common Stock will be issued and any holder
of shares of Healthtrust 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 equal to the product of the
Average Price of a share of the Columbia Common Stock multiplied by the
fractional percentage of a share of Columbia Common Stock to which such holder
would otherwise be entitled. The "Average Price" of a share of Columbia Common
Stock will be the average of the closing sale prices thereof on the NYSE
Composite Tape (as reported by The Wall Street Journal or, if not reported
thereby, another authoritative source) over the ten business days immediately
preceding the closing date of the Merger.
No dividends on shares of Columbia Common Stock will be paid with respect to
any shares of Healthtrust 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 Healthtrust of shares of Healthtrust 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 Healthtrust one year after the
Effective Time will be delivered to the surviving corporation in the Merger
(Healthtrust). Any former stockholders of Healthtrust who have not theretofore
complied with the exchange procedures in the Merger Agreement may thereafter
look to the surviving corporation in the Merger (Healthtrust) 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 Healthtrust Common Stock such
stockholder holds. Notwithstanding the foregoing, neither Healthtrust,
Columbia, the Exchange Agent nor any other person will be liable to any former
holder of shares of Healthtrust Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
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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 the surviving corporation
in the Merger (Healthtrust), 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
Healthtrust and Columbia and similar corporate matters; (b) the authorization,
execution, delivery and enforceability of the Merger Agreement; (c) the capital
structure of Healthtrust and Columbia; (d) subsidiaries of Healthtrust and
Columbia; (e) investment interests of Healthtrust and Columbia; (f) the absence
of conflicts under charters or bylaws and violations of any instruments or law,
and required consents or approvals; (g) certain documents filed by each of
Healthtrust 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 Healthtrust and
Columbia; (l) labor matters; (m) qualification for "pooling of interests"
accounting treatment; (n) brokers' and finders' fees with respect to the
Merger; (o) receipt of fairness opinions; (p) ownership of the capital stock of
the other company; and (q) Medicare participation and accreditation.
CERTAIN COVENANTS
Healthtrust 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) to use its
reasonable efforts to preserve intact its business organization and goodwill,
keep available the services of its officers and employees and maintain
satisfactory business relationships, (iii) promptly to notify Columbia of any
material emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects or the normal
course of its businesses or in the operation of its properties, 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 (iv) promptly to deliver to Columbia true and correct copies of
any report, statement or schedule filed with the Commission subsequent to
October 4, 1994. In addition, Healthtrust 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: (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 October 4, 1994; (iii) grant, confer
or award any option, warrant, conversion right or other right not existing on
October 4, 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; (vii) except in connection with
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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
such action; or (viii) 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 Healthtrust 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 deliver to Healthtrust true and correct copies of any report,
statement or schedule filed with the Commission subsequent to October 4, 1994.
In addition, Columbia has agreed that, among other things, prior to the
consummation of the Merger, unless Healthtrust 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).
Healthtrust and Columbia have agreed that, during the period from October 4,
1994 until the Effective Time, except as otherwise contemplated by the Merger
Agreement, neither Healthtrust nor Columbia will knowingly take or knowingly
fail to take any action which would jeopardize the treatment of the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
Both Healthtrust and Columbia have agreed: (a) to cooperate in the prompt
preparation and filing of certain documents under federal and state securities
laws and with applicable government entities, and (b) to use their best efforts
to obtain and deliver to each other certain letters from "affiliates," as
defined under Rule 145 under the Securities Act or by applicable accounting
rules.
With respect to obtaining approval under the HSR Act, Columbia has agreed
that it will divest or otherwise hold separate, or take such other action with
respect to any of its subsidiaries or any of Healthtrust's assets and
properties, necessary to obtain such approval, except to the extent that such
actions would, in the aggregate, have a material adverse effect on the
business, financial condition or results of operations of Healthtrust and its
subsidiaries taken as a whole.
NO SOLICITATION OF TRANSACTIONS
Healthtrust has agreed that it will not, and will direct and use its best
efforts to cause its officers, 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, Healthtrust 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. Healthtrust 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. Healthtrust 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
41
<PAGE>
the Board of Directors of Healthtrust 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 Healthtrust 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 Healthtrust 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, Healthtrust 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 Healthtrust 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), Healthtrust 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.
BENEFIT PLANS
Columbia has agreed that, from and after the Effective Time, it will provide
benefits to the employees of Healthtrust and its subsidiaries which are
substantially similar to the benefits provided to similarly situated employees
of Columbia and its subsidiaries. Columbia has agreed to grant all Healthtrust
employees credit for all service with Healthtrust and its predecessors, to
waive any pre-existing conditions and actively-at-work exclusions and to take
into account expenses incurred prior to the Effective Time for purposes of
satisfying deductible, coinsurance and maximum out-of-pocket provisions of
Columbia benefit plans providing medical or dental welfare benefits.
GOVERNANCE
Subject to approval by the stockholders of Columbia of the Proposed
Amendment, Columbia has agreed to cause the directors comprising the full Board
of Directors of Columbia to be increased by three directors and to cause R.
Clayton McWhorter, Richard W. Hanselman and Donald S. MacNaughton, each
currently a director of Healthtrust, to be elected by the Columbia Board of
Directors as directors of Columbia in order to fill the vacancies resulting
from such newly created directorships. If, prior to the Effective Time, any of
such persons shall decline or be unable to serve as a director, Healthtrust
shall designate another person to serve in such person's stead, which person
must be reasonably acceptable to Columbia. See "The Proposed Amendment."
Subject to approval by the stockholders of Columbia of the Proposed
Amendment, Columbia's Board of Directors is obligated to take all action
necessary to cause R. Clayton McWhorter to be elected as Chairman of the Board
of Columbia and to cause Dr. Thomas F. Frist, Jr. to be elected as Vice
Chairman of the Board of Columbia. At the Effective Time, Richard L. Scott
shall continue to be President and Chief Executive Officer of Columbia, David
T. Vandewater shall continue to be Chief Operating Officer of Columbia and Carl
F. Pollard shall continue to be Chairman of the Executive Committee of
Columbia. The Board of Directors of Columbia is also obligated to take all
necessary action to cause R. Clayton McWhorter to be elected to the Executive
Committee of the Board of Directors of Columbia at the Effective Time. Other
senior management positions of Columbia after the Merger are expected to be
held by persons currently employed at either Columbia or Healthtrust.
INDEMNIFICATION AND INSURANCE
Columbia has agreed to indemnify and advance expenses to each person who was
on October 4, 1994, or has been at any time prior to October 4, 1994, an
officer, director, employee, trustee or agent of Healthtrust (or any subsidiary
thereof) (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
42
<PAGE>
investigation arising out of or pertaining to acts or omissions, or alleged
acts or omissions, by them in their capacities as such, whether commenced,
asserted or claimed before or after the Effective Time and including, without
limitation, liabilities arising under the Securities Act, the Exchange Act and
state corporation laws in connection with the Merger. In addition, Columbia has
agreed to cause the surviving corporation in the Merger (Healthtrust) not to
amend the provisions of its Certificate of Incorporation and Bylaws providing
for exculpation of director and officer liability and indemnification, except
as required by applicable law or except to make changes permitted by law that
would enlarge the Indemnified Parties' right of indemnification.
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 Healthtrust insurance
policies that are substantially no less advantageous to such Indemnified
Parties than the policies presently maintained by Healthtrust; provided that
Columbia shall not be required in order to maintain such coverage to pay an
annual premium in excess of three times the current annual premium paid by
Healthtrust 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.
Columbia shall pay all expenses, including attorneys' fees, that may be
incurred by any of the aforementioned parties in enforcing the indemnity and
other obligations referred to above. The rights of each such person shall be in
addition to any other rights such person may have under the certificate of
incorporation or bylaws of Healthtrust, the Delaware General Corporation Law or
otherwise.
CONDITIONS
The respective obligations of Healthtrust and Columbia to consummate the
Merger are subject to the fulfillment of each of the following conditions,
among others: (a) the Merger Agreement and the transactions contemplated
thereby shall have been approved in the manner required by law or by applicable
regulations of any stock exchange or other regulatory body, as the case may be,
by the holders of the issued and outstanding shares of capital stock of
Healthtrust and Columbia 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; (e) Healthtrust and Columbia
shall have received opinions from their respective independent public
accountants concerning the qualification of the Merger for "pooling of
interests" accounting treatment; (f) 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 Healthtrust (and their
respective subsidiaries), taken as a whole, following the Effective Time) and
(g) the Columbia Common Stock to be issued to Healthtrust stockholders in
connection with the Merger shall have been approved for listing on the NYSE,
subject only to official notice of issuance.
The obligations of each of Healthtrust 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) each party shall have
received the opinion of its tax counsel 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 Healthtrust and Columbia will each be a party to
that reorganization within the meaning of Section 368(b) of the Code;
43
<PAGE>
(c) Healthtrust 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 (d)
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 Healthtrust and Columbia, respectively: (a) by the mutual
consent of Healthtrust and Columbia; (b) by action of the Board of Directors of
either Healthtrust or Columbia if (i) the Merger shall not have been
consummated by May 31, 1995, 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; (ii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by Healthtrust's stockholders shall not have
been obtained at a meeting duly convened therefor or at any adjournment
thereof; (iii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by Columbia's stockholders shall not have
been obtained at a meeting duly convened therefor or at any adjournment
thereof; or (iv) 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 (iv) shall have used all reasonable efforts to remove
such injunction, order or decree; (c) by action of the Board of Directors of
Healthtrust, 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
Healthtrust determines that such termination is required by reason of an
Alternative Proposal being made for Healthtrust; (ii) there has been a breach
by Columbia or Columbia Sub 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
Healthtrust shall have withdrawn or modified in a manner materially adverse to
Columbia its approval or recommendation of the Merger Agreement or the Merger
or shall have recommended an Alternative Proposal to Healthtrust stockholders;
(ii) there has been a breach by Healthtrust 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 Healthtrust and its subsidiaries
taken as a whole; or (iii) there has been a material breach by Healthtrust 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 (c) or (d) 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 Healthtrust 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.
44
<PAGE>
TERMINATION FEE
In the event that any person shall have made an Alternative Proposal for
Healthtrust and thereafter the Merger Agreement is terminated by either party
(other than pursuant to the breach of the Merger Agreement by Columbia), then
Healthtrust shall be required to promptly (but in no event later than two days
after such termination) pay Columbia a fee of $100,000,000 ("Alternative
Proposal Fee"). If Healthtrust fails to make such payment and Columbia receives
a judgment against Healthtrust therefor, Healthtrust shall be required to pay
Columbia for its costs in connection with such suit, and to pay interest on the
amount of the fee at a rate of 12% per annum.
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 Healthtrust: (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 such party in whole or in part to the extent permitted by applicable
law.
ALTERNATIVE MERGER STRUCTURE
Columbia and Healthtrust reserve the right to change the structure of the
Merger so that Healthtrust would merge into Columbia Sub rather than Columbia
Sub merging into Healthtrust. 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 would not be made unless
Columbia and Healthtrust are satisfied that such change would not affect the
tax consequences of the Merger or the qualification of the Merger as a pooling
of interests.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are
presented assuming the Merger will be accounted for as a pooling of interests.
The unaudited pro forma condensed combined balance sheet reflects the
combined historical balance sheets of Columbia at September 30, 1994 and
Healthtrust at August 31, 1994 (Healthtrust fiscal year end). The unaudited pro
forma condensed combined income statements for the years ended December 31,
1992 and 1991, and for nine months ended September 30, 1993 reflect the
historical operating results of Columbia for such periods combined with
historical operating results of Healthtrust for the twelve months ended
November 30, 1992 and 1991 and the nine months ended August 31, 1993,
respectively. As described more fully in the notes accompanying the unaudited
pro forma condensed combined financial statements, the unaudited pro forma
condensed combined income statements for the year ended December 31, 1993 and
for the nine months ended September 30, 1994 reflect the historical operating
results of Columbia (pro forma adjusted for the MCA Merger) for such periods
combined with the historical operating results of Healthtrust (pro forma
adjusted for the EPIC Merger) for the twelve months ended November 30, 1993 and
the nine months ended August 31, 1994, respectively.
For all applicable periods presented in the pro forma condensed combined
income statements, shares used in the computation of earnings per common and
common equivalent share give effect to the Exchange Ratio.
The pro forma financial statements are not necessarily indicative of the
results that would have been obtained had the Merger occurred on the dates
indicated. These pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of Columbia
and Healthtrust incorporated by reference in this Proxy Statement/Prospectus.
46
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- ----------------------------------
1994 1993 1993 1992 1991
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 11,303 $ 9,473 $ 14,111 $ 12,216 $ 11,686
--------- --------- ---------- ---------- ----------
Operating expenses...... 8,434 7,153 10,652 9,299 8,827
Provision for doubtful
accounts............... 668 522 791 652 636
Depreciation and
amortization........... 630 514 796 670 647
Interest expense........ 307 326 495 508 750
Investment income....... (57) (50) (85) (89) (84)
Non-recurring
transactions........... 159 151 206 532 521
--------- --------- ---------- ---------- ----------
10,141 8,616 12,855 11,572 11,297
--------- --------- ---------- ---------- ----------
Income from continuing
operations before
minority
interests and income
taxes.................. 1,162 857 1,256 644 389
Minority interests in
earnings of
consolidated entities.. 42 19 52 24 23
--------- --------- ---------- ---------- ----------
Income from continuing
operations before
income taxes........... 1,120 838 1,204 620 366
Provision for income
taxes.................. 452 339 505 336 153
--------- --------- ---------- ---------- ----------
Income from continuing
operations............. $ 668 $ 499 $ 699 $ 284 $ 213
========= ========= ========== ========== ==========
Earnings per common and
common equivalent
share.................. $ 1.50 $ 1.21 $ 1.58 $ .72 $ .64
========= ========= ========== ========== ==========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 445,210 412,380 443,341 393,119 333,001
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
47
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COLUMBIA HEALTHTRUST
-------------------------------------- ------------------------------------------
PURCHASE COLUMBIA PURCHASE HEALTHTRUST POOLING PRO FORMA
COLUMBIA MCA ADJUSTMENTS PRO FORMA HEALTHTRUST EPIC ADJUSTMENTS PRO FORMA ADJUSTMENTS COMBINED
-------- ---- ----------- --------- ----------- ---- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........ $ 8,195 $298 $ 8,493 $ 2,348 $476 $ 2,824 $(14) (f) $ 11,303
-------- ---- -------- ------- ---- ------- ---- --------
Operating
expenses....... 6,122 189 6,311 1,746 391 $(2) (b) 2,135 (14) (f) 8,434
2 (g)
Provision for
doubtful
accounts....... 470 10 480 153 35 188 668
Depreciation and
amortization... 440 20 $ 10 (a) 470 131 23 6 (c) 160 630
Interest
expense........ 182 11 193 92 36 (14) (d) 114 307
Investment
income......... (50) (5) (55) (6) (1) 5 (e) (2) (57)
Non-recurring
transactions... 159 - 159 - - - 159
-------- ---- ---- -------- ------- ---- --- ------- ---- --------
7,323 225 10 7,558 2,116 484 (5) 2,595 (12) 10,141
-------- ---- ---- -------- ------- ---- --- ------- ---- --------
Income from
continuing
operations
before minority
interests and
income taxes... 872 73 (10) 935 232 (8) 5 229 (2) 1,162
Minority
interests in
earnings of
consolidated
entities....... 13 19 32 8 2 10 42
-------- ---- ---- -------- ------- ---- --- ------- ---- --------
Income from
continuing
operations
before income
taxes.......... 859 54 (10) 903 224 (10) 5 219 (2) 1,120
Provision for
income taxes... 341 21 362 90 1 91 (1) 452
-------- ---- ---- -------- ------- ---- --- ------- ---- --------
Income from
continuing
operations..... $ 518 $ 33 $(10) $ 541 $ 134 $(11) $ 5 $ 128 $ (1) $ 668
======== ==== ==== ======== ======= ==== === ======= ==== ========
Earnings per
common and
common
equivalent
share.......... $ 1.50 $ 1.48 $ 1.52 $ 1.40 $ 1.50
======== ======== ======= ======= ========
Shares used in
earnings per
common and
common
equivalent
share
computations
(in thousands). 344,954 364,832 88,450 91,339 445,210
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
48
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
POOLING PRO FORMA
COLUMBIA HEALTHTRUST ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.......................... $ 7,681 $ 1,804 $(12) (f) $ 9,473
-------- ------- ---- --------
Operating expenses................ 5,819 1,344 (12) (f) 7,153
2 (g)
Provision for doubtful accounts... 410 112 522
Depreciation and amortization..... 414 100 514
Interest expense.................. 251 75 326
Investment income................. (45) (5) (50)
Non-recurring transactions........ 151 - 151
-------- ------- ---- --------
7,000 1,626 (10) 8,616
-------- ------- ---- --------
Income from continuing operations
before minority interests and
income taxes..................... 681 178 (2) 857
Minority interests in earnings of
consolidated entities............ 10 9 19
-------- ------- ---- --------
Income from continuing operations
before income taxes.............. 671 169 (2) 838
Provision for income taxes........ 272 68 (1) 339
-------- ------- ---- --------
Income from continuing operations. $ 399 $ 101 $ (1) $ 499
======== ======= ==== ========
Earnings per common and common
equivalent share................. $ 1.18 $ 1.22 $ 1.21
======== ======= ========
Shares used in earnings per common
and common equivalent share
computations (in thousands)...... 338,744 83,677 412,380
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
49
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COLUMBIA HEALTHTRUST
-------------------------------------- --------------------------------------------
PURCHASE COLUMBIA PURCHASE HEALTHTRUST POOLING PRO FORMA
COLUMBIA MCA ADJUSTMENTS PRO FORMA HEALTHTRUST EPIC ADJUSTMENTS PRO FORMA ADJUSTMENTS COMBINED
-------- ---- ----------- --------- ----------- ------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $10,252 $432 $10,684 $2,425 $1,019 $3,444 $(17) (f) $14,111
------- ---- ------- ------ ------ ------ ---- -------
Operating
expenses........ 7,772 279 8,051 1,802 817 $(4) (b) 2,615 (17) (f) 10,652
3 (g)
Provision for
doubtful
accounts........ 542 12 554 156 81 237 791
Depreciation and
amortization.... 554 27 $ 12 (a) 593 134 58 11 (c) 203 796
Interest expense. 321 17 338 96 90 (29) (d) 157 495
Investment
income.......... (66) (12) (78) (8) (7) 8 (e) (7) (85)
Non-recurring
transactions.... 151 55 206 - - - 206
------- ---- ---- ------- ------ ------ --- ------ ---- -------
9,274 378 12 9,664 2,180 1,039 (14) 3,205 (14) 12,855
------- ---- ---- ------- ------ ------ --- ------ ---- -------
Income from
continuing
operations
before minority
interests and
income taxes.... 978 54 (12) 1,020 245 (20) 14 239 (3) 1,256
Minority
interests in
earnings of
consolidated
entities........ 9 30 39 10 3 13 52
------- ---- ---- ------- ------ ------ --- ------ ---- -------
Income from
continuing
operations
before income
taxes........... 969 24 (12) 981 235 (23) 14 226 (3) 1,204
Provision for
income taxes.... 394 18 412 94 2 (2) 94 (1) 505
------- ---- ---- ------- ------ ------ --- ------ ---- -------
Income from
continuing
operations...... $ 575 $ 6 $(12) $ 569 $ 141 $ (25) $16 $ 132 $ (2) $ 699
======= ==== ==== ======= ====== ====== === ====== ==== =======
Earnings per
common and
common
equivalent
share........... $ 1.70 $ 1.56 $ 1.68 $ 1.48 $ 1.58
======= ======= ====== ====== =======
Shares used in
earnings per
common and
common
equivalent share
computations (in
thousands)...... 339,222 364,965 83,864 89,064 443,341
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
50
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
POOLING PRO FORMA
COLUMBIA HEALTHTRUST ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................... $ 9,932 $2,299 $(15) (f) $12,216
------- ------ ----- -------
Operating expenses................. 7,574 1,736 (15) (f) 9,299
4 (g)
Provision for doubtful accounts.... 515 137 652
Depreciation and amortization...... 541 129 670
Interest expense................... 401 107 508
Investment income.................. (81) (8) (89)
Non-recurring transactions......... 439 - 93 (h) 532
------- ------ ----- -------
9,389 2,101 82 11,572
------- ------ ----- -------
Income from continuing operations
before minority interests and
income taxes...................... 543 198 (97) 644
Minority interests in earnings of
consolidated entities............. 10 14 24
------- ------ ----- -------
Income from continuing operations
before income taxes............... 533 184 (97) 620
Provision for income taxes......... 294 79 (37) 336
------- ------ ----- -------
Income from continuing operations.. $ 239 $ 105 $(60) $ 284
======= ====== ===== =======
Earnings per common and common
equivalent share.................. $ .73 $ 1.27 $ .72
======= ====== =======
Shares used in earnings per common
and common equivalent share
computations (in thousands)....... 328,564 82,579 393,119
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
51
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1991
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
POOLING PRO FORMA
COLUMBIA HEALTHTRUST ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................... $ 9,598 $2,104 $(16) (f) $11,686
------- ------ ----- -------
Operating expenses................. 7,182 1,658 (16) (f) 8,827
3 (g)
Provision for doubtful accounts.... 508 128 636
Depreciation and amortization...... 524 123 647
Interest expense................... 597 153 750
Investment income.................. (64) (20) (84)
Non-recurring transactions......... 300 - 221 (h) 521
------- ------ ----- -------
9,047 2,042 208 11,297
------- ------ ----- -------
Income from continuing operations
before minority interests and
income taxes...................... 551 62 (224) 389
Minority interests in earnings of
consolidated entities............. 9 14 23
------- ------ ----- -------
Income from continuing operations
before income taxes............... 542 48 (224) 366
Provision for income taxes......... 189 24 (60) 153
------- ------ ----- -------
Income from continuing operations.. $ 353 $ 24 $(164) $ 213
======= ====== ===== =======
Earnings per common and common
equivalent share.................. $ 1.20 $ .40 $ .64
======= ====== =======
Shares used in earnings per common
and common equivalent share
computations (in thousands)....... 279,954 60,281 333,001
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
52
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
COLUMBIA HEALTHTRUST ADJUSTMENTS COMBINED
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 25 $ 92 $ 117
Accounts receivable, net.......... 1,628 549 2,177
Inventories....................... 273 86 359
Other............................. 499 115 614
------- ------ -------
2,425 842 3,267
Property and equipment, net......... 6,211 2,254 8,465
Investments of professional
liability insurance subsidiaries... 739 - 739
Intangible assets, net.............. 2,206 762 $ 12 (i) 2,980
Other............................... 258 109 367
------- ------ ---- -------
$11,839 $3,967 $ 12 $15,818
======= ====== ==== =======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................. $ 401 $ 154 $ 555
Accrued expenses.................. 1,153 361 1,514
Income taxes...................... 21 - 21
Long-term debt due within one
year............................. 49 44 93
------- ------ -------
1,624 559 2,183
Long-term debt...................... 3,709 1,741 5,450
Deferred credits and other
liabilities........................ 1,454 624 $ 37 (i) 2,115
Minority interests in equity of
consolidated entities.............. 204 17 221
Common stockholders' equity......... 4,848 1,026 (25) (i) 5,849
------- ------ ---- -------
$11,839 $3,967 $ 12 $15,818
======= ====== ==== =======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
53
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
For accounting purposes, the Merger will be treated as a pooling of
interests. Accordingly, the accompanying unaudited pro forma condensed combined
financial statements give retroactive effect to the Merger and include the
combined operations of Columbia and Healthtrust for all periods presented.
The MCA Merger (consummated by Columbia in September 1994) and the EPIC
Merger (consummated by Healthtrust in May 1994) were accounted for under the
purchase method, and the historical financial statements of both Columbia and
Healthtrust include the accounts of these respective entities since the date of
acquisition. In addition, the pro forma condensed combined income statements
for the year ended December 31, 1993 and the nine months ended September 30,
1994 reflect the operating results of both MCA and EPIC as if these entities
were acquired at the beginning of each respective period.
Columbia's annual financial reporting period ending on December 31 will be
adopted by the combined entity. Upon consummation of the Merger, the historical
financial information related to Healthtrust will be recast to conform to a
calendar year reporting period.
In December 1991, Healthtrust completed a recapitalization plan that included
the reacquisition of its preferred stock from Columbia. The historical
consolidated statements of operations of Healthtrust prior to the
recapitalization reflected dividends paid and discount accretion on such
preferred stock in the calculation of net income to common stockholders. Upon
consummation of the Merger, such dividends and related accretion will be
eliminated and, accordingly, are not reflected in the accompanying pro forma
combined income statements.
NOTE 2 -- PRO FORMA ADJUSTMENTS
The adjustments to the pro forma financial statements are discussed below:
MCA Merger:
(a) To increase amortization expense by $10 million for the nine months ended
September 30, 1994 and $12 million for the year ended December 31, 1993 related
to the excess of purchase price over fair value of net assets acquired.
EPIC Merger:
(b) To eliminate compensation expense of $2 million for the nine months ended
September 30, 1994 and $4 million for the year ended December 31, 1993 related
to a stock appreciation rights plan terminated upon consummation of the EPIC
Merger.
(c) To increase amortization expense by $6 million for the nine months ended
September 30, 1994 and $11 million for the year ended December 31, 1993 related
to the excess of purchase price over fair value of net assets acquired.
(d) To eliminate interest expense of $14 million for the nine months ended
September 30, 1994 and $29 million for the year ended December 31, 1993 in
connection with the refinancing of long-term debt.
(e) To eliminate interest income of $5 million for the nine months ended
September 30, 1994 and $8 million for the year ended December 31, 1993 in
connection with the refinancing of long-term debt.
54
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
The Merger:
(f) To eliminate revenues and operating expenses associated with computer
information services provided to Healthtrust by Columbia as follows (dollars in
millions):
<TABLE>
<S> <C>
Nine months ended September 30:
1994.............................................................. $14
1993.............................................................. 12
Years ended December 31:
1993.............................................................. 17
1992.............................................................. 15
1991.............................................................. 16
</TABLE>
(g) To eliminate discounting of Healthtrust professional and general
liability loss provisions to conform to Columbia's accounting method as follows
(dollars in millions):
<TABLE>
<S> <C>
Nine months ended September 30:
1994............................................................... $ 2
1993............................................................... 2
Years ended December 31:
1993............................................................... 3
1992............................................................... 4
1991............................................................... 3
</TABLE>
(h) To eliminate gains recorded by Columbia on the sale of its investments in
Healthtrust preferred stock, warrants and common stock totaling $93 million in
1992 and $221 million in 1991.
(i) To increase the allowance for professional and general liability risks
related to the elimination of discounting discussed in (g) above, net of
deferred income taxes, as follows (dollars in millions):
<TABLE>
<S> <C>
Increase in allowance for professional and general liability
risks............................................................ $ 61
Income tax effect................................................. (24)
----
37
Portion of the adjustment allocable to intangible assets recorded
in the EPIC Merger............................................... (12)
----
Cumulative effect of change in accounting......................... $ 25
====
</TABLE>
NOTE 3 -- INCOME TAXES
Estimated provision for income taxes related to pro forma adjustments are
based on either historical amounts for those adjustments eliminating
intercompany transactions or an assumed combined federal and state income tax
rate of 40%, adjusted for certain nondeductible items.
55
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION AND HEALTHTRUST, INC.-THE HOSPITAL COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 -- EARNINGS PER COMMON SHARE
Shares used in pro forma earnings per common and common equivalent share are
computed as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------- ---------------------------------
1994 1993 1993 1992 1991
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Columbia:
Weighted average common
and common
equivalent shares..... 344,954 338,744 339,222 328,564 279,954
MCA common and common
equivalent shares
effected for the
applicable exchange
ratio................. 19,878 - 25,743 - -
--------- --------- ---------- ---------- ----------
364,832 338,744 364,965 328,564 279,954
--------- --------- ---------- ---------- ----------
Healthtrust:
Weighted average common
and common
equivalent shares..... 88,450 83,677 83,864 82,579 60,281
Common shares issued in
connection with the
EPIC Merger........... 2,889 - 5,200 - -
Shares held as an in-
vestment by Columbia.. - - - (9,221) -
--------- --------- ---------- ---------- ----------
91,339 83,677 89,064 73,358 60,281
Exchange Ratio......... .88 .88 .88 .88 .88
--------- --------- ---------- ---------- ----------
80,378 73,636 78,376 64,555 53,047
--------- --------- ---------- ---------- ----------
Shares used in earnings
per common and
common equivalent
share computations.... 445,210 412,380 443,341 393,119 333,001
========= ========= ========== ========== ==========
</TABLE>
NOTE 5 -- MERGER COSTS
No provision has been reflected in the unaudited pro forma condensed combined
financial statements for expenses expected to be incurred by Columbia and
Healthtrust in connection with the Merger. These expenses, consisting primarily
of amounts related to employee benefit and severance costs, investment advisory
and professional fees, and expenses for printing and distributing proxy
materials, will be charged to expense upon completion of the Merger. No
provision has been reflected for the possible refinancing of existing
Healthtrust long-term debt after consummation of the Merger (which provision
could approximate $60 million on an after-tax basis), nor has any provision
been recorded for other costs, if any, related to the Merger that may be
incurred by the combined entity. See "Certain Considerations--Integration of
the Businesses."
56
<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 Columbia's
Restated Certificate of Incorporation ("Columbia Certificate") with respect to
the Columbia Nonvoting Common Stock or the Series A Preferred Stock or Series B
Preferred Stock (each as defined below) or as provided in any resolution
adopted by the Columbia Board of Directors ("Columbia Board") with respect to
any other series of Columbia Preferred Stock, will exclusively possess all
voting power. The holders of Columbia Common Stock do not have any cumulative
voting, redemption or preemptive rights. Subject to any preferential rights of
any outstanding shares 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, together with the
holders of the Columbia Nonvoting Common Stock, to receive pro rata all assets
of Columbia available for distribution to such holders. The Columbia
Certificate provides that 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 are 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 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 are 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, will 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 are 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 "Series A Preferred Stock"), and the
issuance of a series of 250,000 shares of Columbia Preferred Stock designated
as the Series B Participating Preferred
57
<PAGE>
Stock (the "Series B Preferred Stock"). For a description of the terms of the
Series A Preferred Stock and Series B Preferred Stock, see "--Preferred Stock
Purchase Rights."
PREFERRED STOCK PURCHASE RIGHTS
The Columbia Board has adopted a stockholders rights plan, pursuant to which
one voting Preferred Stock Purchase Right (a "Voting Right") is issued with
respect to each share of Columbia Common Stock issued by Columbia and one non-
voting Preferred Stock Purchase Right (a "Nonvoting Right" and, together with
the Voting Rights, the "Rights") is issued with respect to each share of
Columbia Nonvoting Common Stock. Each Voting Right entitles the registered
holder to purchase from Columbia one one-hundredth of a share of Series A
Preferred Stock, and each Nonvoting Right entitles the registered holder to
purchase from Columbia one one-hundredth of a share of Series B Preferred
Stock, in each case at a price of $100, subject to adjustment (the "Purchase
Price"). The description and terms of the Rights are set forth in an Amended
and Restated Rights Agreement dated as of February 10, 1994 (the "Rights
Agreement") between Columbia and Mid-America Bank of Louisville & Trust
Company, as Rights Agent (the "Rights Agent").
Currently, the Rights are attached to all Columbia Common Stock and Columbia
Nonvoting Common Stock certificates representing shares outstanding and are not
represented by separate 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 Rights will be evidenced by the Columbia Common Stock
certificates or Columbia Nonvoting Common Stock certificates, as the case may
be. Until the Rights Distribution Date, the Rights will be transferred only
with Columbia Common Stock certificates or Columbia Nonvoting Common Stock
certificates, as the case may be. Columbia Common Stock certificates and
Columbia Nonvoting Common Stock certificates contain a notation incorporating
the Rights Agreement by reference. Until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Columbia Common Stock or Columbia Nonvoting Common Stock
outstanding as of the Rights Distribution Date will also constitute the
transfer of the Rights associated with the Columbia Common Stock or Columbia
Nonvoting Common Stock represented by such certificate. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights ("Rights Certificates") will be mailed to holders of record of the
Columbia Common Stock and Columbia Nonvoting Common Stock as of the close of
business on the Rights Distribution Date, and the separate Rights Certificates
alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The 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 Rights by Columbia as described
below.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities issuable, upon exercise of the Voting 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
Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for Series A
Preferred Stock, certain convertible securities or securities having rights,
privileges and preferences the same as, or more favorable than, the Series A
Preferred Stock at less than the current market price of the Series A Preferred
Stock or (iii) upon the distribution to holders of the 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
Series A Preferred Stock) or of subscription rights of
58
<PAGE>
warrants (other than those referred to above). The Rights Agreement contains
corresponding anti-dilution adjustments with respect to the Nonvoting Rights
and the Series B Preferred Stock.
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 Right (other than such Acquiring Person) shall thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price of the Right, in the case of the Voting Rights, that number of
shares of common stock or, in the case of the Nonvoting Rights, that number of
shares of nonvoting 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 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 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 Right will have, for a 60 day period thereafter,
the right to receive upon exercise that number of shares of Columbia Common
Stock or Columbia Nonvoting Common Stock (or in the discretion of the Board of
Directors, one one-hundreth of a share of Columbia Preferred Stock), as the
case may be, having a market value of two times the exercise price of the
Right, to the extent available, and then (after all authorized and unreserved
shares of Columbia Common Stock or Columbia Nonvoting Common Stock have been
issued), in the case of the Voting Rights, a common stock equivalent (such as
Series A Preferred Stock or another equity security with at least the same
economic value as the Columbia Common Stock) or, in the case of the Nonvoting
Rights, nonvoting common stock equivalent (such as Series B Preferred Stock or
another equity security with at least the same economic value as the Columbia
Nonvoting 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 Right (such right being called the "Subscription Right").
The holder of a 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 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 Rights, Columbia may redeem the
Rights in whole, but not in part, at a price of $.01 in cash per 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 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
59
<PAGE>
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 Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be
to receive the Redemption Price.
Any of the provisions of the Rights Agreement may be amended by the Columbia
Board prior to the Rights Distribution Date. After the Rights Distribution
Date, the provisions of the Rights 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 Rights (excluding the
interests of any Acquiring Person).
The Series A Preferred Stock purchasable upon exercise of the Voting 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 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 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 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 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 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 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 Series A Preferred Stock on the last trading
date prior to the date of exercise. Any Regulated Stockholder may convert
shares of Series A Preferred Stock into Series B Preferred Stock. The terms of
the Series B Preferred Stock are substantially identical to the terms of the
Series A Preferred Stock except that (i) the Series B Preferred Stock does not
have the right to vote on matters upon which the Columbia Common Stock has the
right to vote, and (ii) the shares of Series B Preferred Stock are convertible
into shares of Series A Preferred Stock.
Until a 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 Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Columbia
without conditioning the offer on the Rights being redeemed or a substantial
number of Rights being acquired. However, the Rights should not interfere with
any tender offer or merger approved by Columbia because the 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 Rights is qualified in its
entirety by reference to the Rights Agreement, a copy of which is incorporated
herein by reference.
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, holders of Healthtrust Common Stock will become
stockholders of Columbia and the rights of all such former Healthtrust
stockholders will thereafter be governed by the Columbia Certificate, the
bylaws of Columbia (the "Columbia Bylaws") and the Delaware General Corporation
Law (the "Delaware Law"). The rights of the holders of Healthtrust Common Stock
are presently governed by
60
<PAGE>
the certificate of incorporation of Healthtrust (the "Healthtrust
Certificate"), the bylaws of Healthtrust (the "Healthtrust Bylaws") and the
Delaware Law. The following summary, which does not purport to be a complete
statement of the general differences between the rights of the stockholders of
Columbia and Healthtrust, sets forth certain differences between the Columbia
Certificate and the Healthtrust Certificate and between the Columbia Bylaws and
the Healthtrust 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 Columbia's 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 Healthtrust Certificate contains a substantially identical classified
board provision.
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 Board of Directors of Columbia declared a
dividend distribution of one Voting Right for each outstanding share of
Columbia Common Stock and authorized the issuance of one Voting Right for each
share of Columbia Common Stock issued thereafter, but prior to the triggering
of the plan. The Rights Agreement was amended and restated as of February 10,
1994 to provide for the issuance of a Nonvoting Right with respect to each
share of Columbia Nonvoting Common Stock. One Voting Right will be issued with
respect to each share of Columbia Common Stock issued pursuant to the Merger.
Each Voting Right entitles a registered holder to purchase, upon the occurrence
of certain specified events, one one-hundredth of a share of the Series A
Preferred Stock at a Purchase Price of $100. The description and terms of the
Voting Rights are set forth in the Rights Agreement. In general, pursuant to
the 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's stockholders (except those
stockholders whose Rights have been voided under the Rights Agreement as a
result of a triggering event) shall have the right to receive, in the case of
the Voting Rights, that amount of Columbia Common Stock and, in the case of the
Nonvoting Rights, that amount of Columbia Nonvoting 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
Rights. The Rights Agreement further provides that if Columbia is acquired in a
merger or other business combination which is not approved by the Columbia
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Board, Columbia's stockholders (except those stockholders whose Rights have
been voided under the Rights Agreement as a result of a triggering event) shall
have the right to receive, with respect to the Voting Rights, common stock and,
with respect to the Nonvoting Rights, nonvoting common stock, of the acquiring
company having a value equal to two times the exercise price of the Rights.
Under certain circumstances, Columbia may redeem the Rights, which will
otherwise expire on the tenth anniversary of the adoption of the Rights
Agreement. See "Description of Columbia Capital Stock--Preferred Stock Purchase
Rights." The effect of the Rights Agreement may be to render more difficult a
change in control of Columbia.
Healthtrust presently has a stockholder rights plan which is substantially
similar to the Rights Agreement with the following exceptions: (i) the
Healthtrust rights plan provides for the issuance of rights to acquire voting
stock (as opposed to the Voting Rights and Nonvoting Rights provided for in the
Rights Agreement); (ii) the Healthtrust rights plan includes a provision that
permits a majority of the Board of Directors under certain circumstances to
exchange all or part of the then outstanding and exercisable rights for shares
of Healthtrust Common Stock at an exchange ratio of one share of Healthtrust
Common Stock for each right; and (iii) the Healthtrust rights plan requires the
approval of a majority of the Board of Directors and a majority of the
Continuing Directors for certain actions, including approval of any amendment
of the plan, redemption of the rights or exchange of rights for shares of
Healthtrust Common Stock ("Continuing Director" means any person who is a
member of the Healthtrust Board who is not an acquiring person or affiliate or
associate thereof or a representative or nominee of an acquiring person or
affiliate or associate thereof and who was a member of the Healthtrust Board on
the date of adoption of the Healthtrust rights plan or whose nomination or
election was approved by a majority of the Continuing Directors). Under the
terms of the Merger Agreement, Healthtrust is required to take all necessary
action to cause its stockholders rights plan to be inapplicable to the Merger,
without any payment to holders of rights issued thereunder.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Columbia Certificate provides that, subject to any rights of holders of
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. In connection with the Merger, subject to approval by the holders of
Columbia Common Stock, the Columbia Certificate will be amended to provide that
the number of directors shall be not less than three nor more than eighteen. In
addition, the Columbia Certificate provides that, subject to any rights of
holders of 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 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 otherwise 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 the voting power of all the then outstanding shares of
stock entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class, subject to any rights of holders of Columbia
Preferred Stock.
The Healthtrust Certificate provides that the number of directors
constituting the Healthtrust Board shall be not less than five nor more than
fifteen, as may be fixed from time to time by resolution of the Healthtrust
Board. The Board of Directors of Healthtrust currently consists of nine
directors.
Pursuant to the Healthtrust Certificate and the Healthtrust Bylaws, subject
to the rights of any holders of Healthtrust Preferred Stock, any vacancy in the
Healthtrust Board and any newly created directorships
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may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. In addition, the Healthtrust
Certificate provides that a director of the corporation may only be removed by
the stockholders for cause.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Columbia Certificate (i) provides that, subject to the rights of any
holders of 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 provides that,
subject to the rights of holders of any series of 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 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 holders of a majority of the voting power of the 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.
The Healthtrust Bylaws provide that special meetings of the stockholders for
any purpose or purposes may be called by either (i) the Chairman, (ii) the
President, (iii) any Vice President, (iv) the Secretary or (v) any Assistant
Secretary and shall be called by any such officer at the request in writing of
a majority of the Board of Directors.
In addition, the Healthtrust Bylaws state that unless otherwise provided in
the Healthtrust Certificate, any action required or permitted to be taken at
any Annual or Special Meeting of Stockholders of the Corporation, may be taken
without a meeting, without proper notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Healthtrust Certificate
does not contain any provision restricting the taking of any action without a
meeting.
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 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 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
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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
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
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 (i) as of the time any
definitive agreement relating to a Business Combination is entered into, (ii)
as of the record date for the determination of stockholders entitled to notice
of and to vote on a Business Combination or (iii) 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
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 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
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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 Healthtrust Certificate and the Healthtrust Bylaws contain 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 nominations of candidates for election as directors, or
bring other business before an annual meeting of stockholders, of Columbia (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that, subject to the rights of any
holders of 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
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and address of the nominating stockholder, the class and number of shares of
stock of Columbia which are beneficially 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 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 Healthtrust Certificate provides that nominations for the election of
directors must be made by notice in writing, by first class mail, postage
prepaid, to the Secretary of the corporation not less than 14 days nor more
than 50 days prior to any meeting of stockholders called for the election of
directors (or, if less than 21 days' notice of the date of the meeting is
given, no later than the close of business on the seventh day following the
date notice of the meeting was mailed to stockholders). Each notice must set
forth (i) the name, age, business address and, if known, residence address of
each proposed nominee, (ii) the principal occupation of the nominee and (iii)
the number of shares of stock of Healthtrust owned by the nominee.
The Healthtrust Certificate and the Healthtrust Bylaws do not contain
provisions requiring advance notice of business to be brought before a
stockholders' meeting by a stockholder.
COMMON STOCK AND NONVOTING COMMON STOCK
The terms of the Columbia Common Stock are substantially identical to those
of the Healthtrust Common Stock, except that the Columbia Certificate provides
that Regulated Stockholders may convert shares of Columbia Common Stock into
Columbia Nonvoting Common Stock.
The Healthtrust Certificate does not provide for the issuance of 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 Columbia Preferred Stock in one or more series
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(including the Series A Preferred Stock and Series B 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 Healthtrust Certificate contains substantially similar
provisions relating to Healthtrust Preferred Stock.
Columbia believes that the ability of the Columbia Board to issue one or more
series of 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 Columbia Preferred
Stock, as well as shares of Columbia Common Stock are available for issuance
without further action by Columbia stockholders, unless such action is required
by applicable law or the rules of any stock exchange or automated quotation
system on which Columbia's 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
Columbia's stockholders is not required for the issuance of shares of Columbia
Preferred Stock or 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 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 Columbia Preferred
Stock having terms that discourage an acquisition attempt through which an
acquirer may be able to change the composition of the Columbia Board, including
a tender offer or other transaction that some, or a majority, of Columbia's
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 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
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 Columbia Bylaws, including changes designed to facilitate the
exercise of control over Columbia.
The Healthtrust Certificate requires the affirmative vote of holders of 80%
of the voting power of the shares entitled to vote at an election of directors
to amend the classified board provision of the Healthtrust Certificate.
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
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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 Healthtrust Certificate
does not exclude Healthtrust 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.
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 damages for a
breach of the director's fiduciary duty, subject to certain limitations. Each
of the Columbia Certificate and the Healthtrust Certificate includes such a
provision, as set forth below, to the maximum extent permitted by law.
Each of the Columbia Certificate and the Healthtrust 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 attorney's
fees, actually and reasonably incurred, and permits a corporation to purchase
and maintain liability insurance for its directors and officers. Delaware
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Law provides that indemnification may 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
indemnify 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 persons 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.
Additionally, the Merger Agreement requires such insurance to be maintained by
Columbia covering present and former officers, directors, employees, trustees
and agents of Healthtrust for a period of at least six years from the Closing
Date, subject to certain limitations. See "The Merger Agreement--
Indemnification and Insurance." The Healthtrust Certificate and the Healthtrust
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
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 Healthtrust Certificate and the Healthtrust Bylaws contain no comparable
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 the company
(including Columbia Common Stock or Columbia Preferred Stock, rights (including
the 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 in order 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 Healthtrust Certificate and the Healthtrust Bylaws contain no comparable
provisions.
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THE PROPOSED AMENDMENT
The Columbia Board has approved, and recommends that the stockholders of
Columbia approve, the Proposed Amendment. Article Five, Section A of the
Columbia Certificate provides that "[t]he number of directors of the
Corporation (exclusive of directors to be elected by the holders of one or more
series of the Preferred Stock of the Corporation which may be outstanding,
voting separately as a series or class) shall be fixed from time to time by
action of not less than a majority of the members of the Board of Directors
then in office, but in no event shall be less than three nor more than
fifteen." Pursuant to the Proposed Amendment, the Columbia Certificate would be
amended to increase the maximum size of the Board of Directors from 15 to 18
members, to accommodate the addition of three Healthtrust nominees as
directors.
Subject to approval by the stockholders of Columbia of the Proposed
Amendment, Columbia has agreed pursuant to the Merger Agreement to cause the
directors comprising the full Board of Directors of Columbia to be increased by
three directors and to cause R. Clayton McWhorter, Richard W. Hanselman and
Donald S. MacNaughton, each currently a director of Healthtrust, to be elected
as directors of Columbia in order to fill the vacancies resulting from such
newly created directorships for the terms ending at the annual stockholder
meeting for 1997, 1996 and 1995, respectively. If, prior to the Effective Time,
any of such persons shall decline or be unable to serve as a director,
Healthtrust will designate another person to serve in such person's stead,
which person must be reasonably acceptable to Columbia. Following is certain
biographical information concerning the Healthtrust nominees.
R. Clayton McWhorter, age 61, has been Chairman and Chief Executive Officer
of Healthtrust since its formation in 1987 and was elected to the additional
office of President of Healthtrust in 1991. Mr. McWhorter served as President
and Chief Operating Officer of Hospital Corporation of America (HCA's
predecessor) from 1985 to 1987, and as a Director of Hospital Corporation of
America from 1983 to 1987. Mr. McWhorter joined Hospital Corporation of America
in 1970 as Administrator of Palmyra Park Hospital in Albany, Georgia. He was
named Division Vice President--Eastern Region in 1973, Senior Vice President in
1976, Executive Vice President--Domestic Operations in 1980 and Executive Vice
President--Operations in 1983. Mr. McWhorter is a director of Third National
Bank in Nashville and Ingram Industries, Inc. and is a member of the Board of
the Foundation for State Legislatures. He is also past Chairman of the
Federation of American Health Systems, a past member of the Board of Trustees
of the American Hospital Association, a Fellow of the American College of
Healthcare Executives and a Trustee of the Committee for Economic Development.
Richard W. Hanselman, age 67, was elected a Director of Healthtrust in 1987.
Mr. Hanselman is currently a private investor. From 1981 to 1986, he was
Chairman, President and Chief Executive Officer of Genesco, Inc., a diversified
footwear and apparel business. Prior thereto, he held senior management
positions with Beatrice Companies, Inc., Samsonite Corporation and RCA
Corporation. Mr. Hanselman is a director of Becton, Dickinson and Company,
Arvin Industries, Inc., The Bradford Funds, IMCO Recycling, Inc., Foundation
Health Corporation, Benson Eye Corp. and Daisy Manufacturing. Mr. Hanselman is
also a Trustee of the Committee for Economic Development.
Donald S. MacNaughton, age 77, has served as Chairman of the Executive
Committee of Healthtrust since its formation in 1987. He retired as an employee
of Healthtrust in 1991. Mr. MacNaughton joined Hospital Corporation of America
(HCA's predecessor) in 1978 as Chairman and Chief Executive Officer. He
continued to serve as Chief Executive Officer of Hospital Corporation of
America until 1982, Chairman of the Board until 1985 and as Chairman of the
Executive Committee until 1987. Prior to 1978, Mr. MacNaughton was Chairman and
Chief Executive Officer of The Prudential Insurance Company of America, where
he served in various management capacities for 23 years, including nine years
as Chairman and Chief Executive Officer. Mr. MacNaughton is a member of The
Business Council, a member of the Board of Trustees of Vanderbilt University
and a member of the Board of Directors of Financial Securities Advisers, Inc.
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The Proposed Amendment will be adopted if it receives the affirmative vote of
the holders of 75% of the outstanding shares of Columbia Common Stock; provided
that such amendment will not be implemented if the Merger is not consummated.
THE COLUMBIA BOARD RECOMMENDS THAT COLUMBIA STOCKHOLDERS VOTE FOR THE PROPOSED
AMENDMENT.
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 November 30, 1994, Mr.
Braun owned 1,544 shares and had 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 Fried, Frank, Harris, Shriver &
Jacobson, New York, New York (a partnership including professional
corporations). The federal income tax consequences in connection with the
Merger will be passed upon for Healthtrust by Dewey Ballantine, New York, New
York.
EXPERTS
The consolidated financial statements and financial statement schedules of
Columbia, the EPIC Entities and Healthtrust, incorporated by reference in this
Proxy Statement/Prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports with respect thereto. Such financial
statements and schedules have been incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
As described in Columbia's proxy statement relating to its 1994 Annual
Meeting of Stockholders, any proposals that stockholders of Columbia desire to
have presented at the 1995 Annual Meeting of Stockholders must have been
received by Columbia at its principal executive offices not 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 day such notice was mailed
or (ii) the day such public disclosure was made), for inclusion in Columbia's
1995 proxy materials. The 1995 Annual Meeting of Stockholders is scheduled to
be held on May 11, 1995.
In order for proposals of stockholders to be considered for inclusion in the
proxy statement for the next Annual Meeting of Stockholders of Healthtrust (if
the Merger is not consummated), such proposals must have been received by the
Secretary of Healthtrust a reasonable time before the solicitation is made.
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APPENDIX A
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AGREEMENT AND PLAN OF MERGER
BETWEEN
COLUMBIA/HCA HEALTHCARE CORPORATION,
COL ACQUISITION CORPORATION
AND
HEALTHTRUST, INC.--THE HOSPITAL COMPANY
DATED AS OF OCTOBER 4, 1994
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 4, 1994,
between Columbia/HCA Healthcare Corporation, a Delaware corporation
("Columbia"), COL Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Columbia ("Merger Sub"), and Healthtrust, Inc.--The
Hospital Company, a Delaware corporation ("Company").
RECITALS
A. The Boards of Directors of Columbia and Company each have determined that
a business combination between Columbia and Company 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"), and for
financial accounting purposes shall be accounted for as a pooling of interests.
C. Columbia and Company have each received a fairness opinion relating to the
transactions contemplated hereby as more fully described herein.
D. Columbia, Merger Sub and Company 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 Company in accordance with this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease (the "Merger"). Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"). The Merger shall have the effects specified in
the 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
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, 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 Company 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 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").
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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, a majority of whom shall not have been directors of the Company
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 Company.
4.1. Merger Sub Stock. At the Effective Time, each share of 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. Company Securities.
(a) At the Effective Time, each share of Common Stock, $.001 par value (the
"Company Common Stock"), of Company 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 0.88 of a
share of Common Stock, $.01 par value (the "Columbia Common Stock"), of
Columbia (the "Exchange Ratio"). Each share of Columbia Common Stock issued to
holders of Company Common Stock in the Merger shall be issued together with one
associated preferred stock purchase right (a "Right") in accordance with the
Amended and Restated Rights Agreement dated as of February 10, 1994, 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 Company Common Stock shall
cease to be outstanding and shall be cancelled and retired and shall cease to
exist, and each holder of shares of Company Common Stock shall thereafter cease
to have any rights with respect to such shares of Company 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 Company Common Stock.
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(c) Each share of Company Common Stock issued and held in Company's treasury
at the Effective Time shall, by virtue of the Merger, cease to be outstanding
and shall be cancelled and retired without payment of any consideration
therefor.
(d) All options (individually, a "Company Option" and collectively, the
"Company Options") outstanding at the Effective Time under any Company stock
option plan (the "Company Stock Option Plans") shall remain outstanding
following the Effective Time. At the Effective Time, such Company Options
shall, by virtue of the Merger and without any further action on the part of
Company or the holder of any such Company 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 Company Options, would be such a corporation were Section 424
applicable to such option. Each Company Option assumed by Columbia shall be
exercisable upon the same terms and conditions as under the applicable Company
Stock Option Plan and the applicable option agreement issued thereunder, except
that (i) each such Company 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 Company Common Stock subject to such Company 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 Company Common Stock subject to
such Company 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(a)(vi), no additional options shall be granted by
Company or its Subsidiaries (as defined in Section 10.14 hereof) under the
Company Stock Option Plans or otherwise.
4.3. Exchange of Certificates Representing Company 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
Company (the "Exchange Agent"), for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Article 4,
certificates representing the shares of Columbia Common Stock and the cash in
lieu of fractional shares (such cash and 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 Company Common Stock.
(b) Promptly after the Effective Time, Columbia shall cause the Exchange
Agent to mail to each holder of record of shares of Company 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 Company 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 Company Common Stock. In the event of a transfer of
ownership of Company Common Stock
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which is not registered in the transfer records of Company, 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 Company 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.
(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 Company 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 Company of the shares of Company 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 Company 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 fractional shares of Columbia Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Columbia Common
Stock pursuant to Section 4.2(b), cash adjustments will be paid to holders in
respect of any fractional share of Columbia Common Stock that would otherwise
be issuable, and the amount of such cash adjustment shall be equal to such
fractional proportion of the "Average Price" of a share of Columbia Common
Stock. The "Average Price" of a share of Columbia Common Stock shall be the
average of the closing sales prices thereof as reported on The New York Stock
Exchange (the "NYSE") Composite Tape (as reported by The Wall Street Journal
or, if not reported thereby, by another authoritative source) over the ten (10)
business days immediately preceding the Closing Date.
(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 Company one year after the Effective
Time shall be delivered to the Surviving Corporation. Any former stockholders
of Company 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 Company Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
(g) None of Columbia, Company, the Surviving Corporation, the Exchange Agent
or any other person shall be liable to any former holder of shares of Company
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
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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 Company
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 Company.
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Columbia (the "Company Disclosure Letter") or in the
Company Reports (as defined below), Company represents and warrants to Columbia
as of the date of this Agreement as follows:
5.1. Existence; Good Standing; Corporate Authority; Compliance With Law.
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Company 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 Company
and its Subsidiaries (as defined in Section 10.14) taken as a whole (a "Company
Material Adverse Effect"). Company has all requisite corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted. Each of Company'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 a Company
Material Adverse Effect. Neither Company 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 Company or any of its Subsidiaries or any of their respective properties
or assets is subject, where such violation would have a Company Material
Adverse Effect. Company 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 Company Material Adverse Effect. The copies of Company's
Certificate of Incorporation and Bylaws previously delivered to Columbia are
true and correct.
5.2. Authorization, Validity and Effect of Agreements. Company 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 Company Common Stock, the
consummation by Company of the
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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
Company, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
5.3. Capitalization. The authorized capital stock of Company consists of
400,000,000 shares of Company Common Stock and 78,000,000 shares of preferred
stock, $.001 par value (the "Company Preferred Stock"). As of October 3, 1994,
there were 90,598,279 shares of Company Common Stock, and no shares of Company
Preferred Stock, issued and outstanding. Since such date, no additional shares
of capital stock of Company have been issued, except pursuant to the exercise
of options outstanding under the Company Stock Option Plans or the exercise of
warrants to purchase shares of Company Common Stock outstanding on October 3,
1994. Company 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
Company on any matter. All issued and outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid, nonassessable and free
of preemptive rights. 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 Company or any of its
Subsidiaries to issue, transfer or sell any shares of capital stock of Company
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 Company or the Surviving Corporation pursuant to any Company Benefit Plan
(as defined in Section 5.11).
5.4. Subsidiaries. Company owns directly or indirectly each of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect a majority of directors or others
performing similar functions with respect to such Company Subsidiary) of each
of Company's Subsidiaries. Each of the outstanding shares of capital stock of
each of Company's Subsidiaries is duly authorized, validly issued, fully paid
and nonassessable, and is owned, directly or indirectly, by Company 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 Company 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 Company Subsidiaries,
neither Company nor any Company 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
held by Company's captive insurance subsidiaries, 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 $50,000,000).
5.6. No Violation. Neither the execution and delivery by Company of this
Agreement nor the consummation by Company 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
Company; (ii) 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 Company 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 triggering of any payment
or other material obligations pursuant to, result in the creation of any lien,
security interest, charge or encumbrance upon any of the material properties of
Company 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
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to which Company or any of its Subsidiaries is a party, or by which Company 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
Company 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 of 1933, as amended (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 a Company Material Adverse Effect.
5.7. SEC Documents. Company 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 August 31, 1993,
including, without limitation, (i) its Annual Report on Form 10-K for the year
ended August 31, 1993, as amended, (ii) its Quarterly Reports on Form 10-Q for
the periods ended November 30, 1993, February 28, 1994, and May 31, 1994, (iii)
its Current Reports on Form 8-K dated January 10, 1994 and May 5, 1994, (iv)
its Proxy Statement for the Annual Meeting of Stockholders held January 13,
1994, (v) its Registration Statement on Form S-3, as amended, Registration No.
33-52403, and (vi) its Registration Statement on Form S-3, as amended,
Registration No. 33-52401, each in the form (including exhibits and any
amendments thereto) filed with the Securities and Exchange Commission (the
"SEC") (collectively, the "Company Reports"). As of their respective dates, the
Company 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 Company included in or incorporated by reference
into the Company Reports (including the related notes and schedules) fairly
presents the consolidated financial position of Company and the Company
Subsidiaries as of its date, and each of the consolidated statements of income,
retained earnings and cash flows of Company included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of Company and the Company 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. Neither
Company nor any of the Company 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 Company 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 August 31, 1993.
5.8. Litigation. There are no actions, suits or proceedings pending against
Company or the Company Subsidiaries or, to the actual knowledge of the
executive officers of Company, threatened against Company or the Company
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 Company Material Adverse Effect.
5.9. Absence of Certain Changes. Since August 31, 1993, Company has conducted
its business only in the ordinary course of such business, and there has not
been (i) any Company 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.
5.10. Taxes. Company 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
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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 Company Reports.
5.11 Employee Benefit Plans.
(a) All employee benefit plans and other benefit arrangements covering
employees of Company and the Company Subsidiaries (the "Company Benefit Plans")
and all employee agreements providing compensation, severance or other benefits
to any employee or former employee of Company or any of its Subsidiaries are
listed in the Company Reports or are set forth in the Company Disclosure
Letter, except Company Benefit Plans which are not material. True and complete
copies of the Company Benefit Plans have been made available to Columbia. To
the extent applicable, the Company 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 Company 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. Neither Company
nor any ERISA Affiliate of Company (during the period of its affiliated status
and prior thereto, to its knowledge) maintains, contributes to or has in the
past maintained or contributed to any benefit plan which is covered by Title IV
of ERISA or Section 412 of the Code. No Company Benefit Plan nor Company has
incurred any liability or penalty under Section 4975 of the Code or Section
502(i) of ERISA. Each Company 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 Company, there are no pending or anticipated material claims
against or otherwise involving any of the Company Benefit Plans and no suit,
action or other litigation (excluding claims for benefits incurred in the
ordinary course of Company Benefit Plan activities) has been brought against or
with respect to any such Company Benefit Plan, except for any of the foregoing
which would not have a Company Material Adverse Effect. All material
contributions required to be made as of the date hereof to the Company Benefit
Plans have been made or provided for. Since September 25, 1980, neither Company
nor any ERISA Affiliate of Company (during the period of its affiliated status
and prior thereto, to its knowledge) has contributed to, or been required to
contribute to, any "multiemployer plan" (as defined in Sections 3(37) and
4001(a)(3) of ERISA). Company 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 Company has never
represented, promised or contracted (whether in oral or written form) to any
employee or former employee that such benefits would be provided. 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. The only severance agreements or severance policies
applicable to Company or its Subsidiaries are the agreements and policies
specifically referred to in the Company Disclosure Letter (and, in the case of
such agreements, the form of which is attached to the Company Disclosure
Letter).
(b) (i) From the date of its inception until its termination, each of the
HealthTrust Employee Stock Ownership Plan and the EPIC Employee Stock Ownership
Plan (the "ESOPs") were qualified under Section 401(a) of the Code and a
determination letter has been issued by the IRS to the effect that each such
ESOP was so qualified and that each trust forming a part of any such ESOP was
exempt from tax pursuant to Section 501(a) of the Code and no circumstances
existed or now exist which would adversely affect this qualification or
exemption. The termination of any of the ESOPs has not had a Company Material
Adverse Effect.
(ii) No "prohibited transaction," within the meaning of Section 4975 of the
Code or Section 406 of ERISA, has occurred with respect to any ESOP.
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(iii) All contributions and other payments required to be made by the
Company, its Subsidiaries or ERISA Affiliates to the ESOPs prior to the date
hereof have been made and no contributions have been made to the ESOPs that
would be considered non-deductible under the Code, except as would not have a
Company Material Adverse Effect.
(iv) Company, its Subsidiaries and ERISA Affiliates have complied with and
performed all obligations required to be performed by them under or with
respect to the ESOPs, or any related trust and have complied with all
applicable federal, state and local laws, rules or regulations with respect to
the ESOPs, except as would not have a Company Material Adverse Effect.
For purposes of this Agreement "ERISA Affiliate" means any business or entity
which is a member of the same "controlled group of corporations," under "common
control" or an "affiliated service group" with an entity within the meanings of
Sections 414(b), (c) or (m) of the Code, or required to be aggregated with the
entity under Section 414(o) of the Code, or is under "common control" with the
entity, within the meaning of Section 4001(a)(14) of ERISA, or any regulations
promulgated or proposed under any of the foregoing Sections.
5.12. Labor Matters. Neither Company 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 Company, threatened against Company or
its Subsidiaries relating to their business, except for any such proceeding
which would not have a Company Material Adverse Effect. To the knowledge of the
executive officers of Company, there are no organizational efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving employees of Company or any of its Subsidiaries.
5.13. No Brokers. Company has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
Company 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 Company has retained Merrill Lynch & Co. 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, Company 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.
5.14. Opinion of Financial Advisor. Company has received the opinion of
Merrill Lynch & Co. to the effect that, as of the date hereof, the Exchange
Ratio is fair to the holders of Company Common Stock from a financial point of
view.
5.15. Columbia Stock Ownership. Neither Company 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. All of Company'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 Company's assets. Neither
Company 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 Company 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 Company Material Adverse Effect. All of
Company's hospitals are accredited by the Joint Commission on Accreditation of
Healthcare Organizations.
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5.17. Pooling of Interests; Tax Reorganization. To the actual knowledge of
the executive officers of Company, Company has not taken or failed to take any
action which would prevent the accounting for the Merger as a pooling of
interests in accordance with Accounting Principles Board Opinion No. 16, the
interpretative releases issued pursuant thereto, and the pronouncements of the
SEC. To the actual knowledge of the executive officers of Company, Company has
not taken or failed to take any action which would prevent the Merger from
constituting a reorganization within the meaning of section 368(a) of the Code.
5.18 EPIC Transaction. To the actual knowledge of the executive officers of
Company, the representations and warranties of EPIC Holdings, Inc. ("EPIC") set
forth in the Agreement and Plan of Merger (the "EPIC Merger Agreement") dated
as of January 9, 1994 among Company, Odyssey Acquisition Corp. and EPIC were
true and correct in all material respects as of the closing date of the merger
contemplated by the EPIC Merger Agreement.
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 Company (the "Columbia Disclosure Letter") or in the
Columbia Reports (as defined below), Columbia and Merger Sub represent and
warrant to Company 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 Company 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 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.
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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 September 30, 1994, there were 347,845,336 shares of Columbia
Common Stock, 14,189,999 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 (or other ownership interests
having by their terms ordinary voting power to elect a majority of directors or
others performing similar functions with respect to such Columbia Subsidiary).
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 Company, 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. Notwithstanding any provisions to the contrary, Columbia
may, in its sole discretion, increase the number of shares of authorized Common
Stock of Merger Sub and the number of shares of Common Stock of Merger Sub
issued and outstanding 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
in Quorum Health Group Inc., investments held by 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 and other
investments the aggregate market value of which is less than $50,000,000).
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) 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) under, result in the termination or in a right of
termination or
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cancellation of, accelerate the performance required by, result in the
triggering of any payment or other material obligations pursuant to, 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 Company 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, as amended, (ii) its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1994 and June
30, 1994, (iii) its Proxy Statement for the Annual Meeting of Stockholders held
May 12, 1994, and (iv) its Registration Statement on Form S-4, as amended,
Registration No. 33-54475, 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. 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 December 31, 1993.
6.8. Litigation. 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. 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.
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
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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") and all employee agreements providing compensation,
severance or other benefits to any employee or former employee of Columbia or
any of the Columbia Subsidiaries 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 Company. 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. Neither Columbia nor any ERISA Affiliate of Columbia
[(during the period of its affiliated status and prior thereto, to its
knowledge) maintains, contributes to or has in the past maintained or
contributed to any benefit plan which 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 ERISA
Affiliate of Columbia (during the period of its affiliated status and prior
thereto to its knowledge) 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
Morgan Stanley & Co. Incorporated 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. Company Stock Ownership. Neither Columbia nor any of its Subsidiaries
owns any shares of Company Common Stock or other securities convertible into
shares of Company Common Stock.
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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.
6.18. Pooling of Interests; Tax Reorganization. To the actual knowledge of
the executive officers of Columbia, Columbia has not taken or failed to take
any action which would prevent the accounting for the Merger as a pooling of
interests in accordance with Accounting Principles Board Opinion No. 16, the
interpretative releases issued pursuant thereto, and the pronouncements of the
SEC. To the actual knowledge of the executive officers of Columbia, Columbia
has not taken or failed to take any action which would prevent the Merger from
constituting a reorganization within the meaning of section 368(a) of the Code.
6.19. No Brokers. Columbia has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
Company or Columbia to pay any finder's fee, 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 Columbia has retained Morgan Stanley & Co. Incorporated as its financial
advisor, the arrangements with which have been disclosed in writing to Company
prior to the date hereof. Other than the foregoing arrangements, Company 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.
ARTICLE 7
7. Covenants.
7.1. Alternative Proposals. Prior to the Effective Time, Company 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, Company 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
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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 Company 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 Company 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 Company 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,
Company 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 Company 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), Company keeps Columbia informed of the status
(not the terms) of any such 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
Company to terminate this Agreement (except as specifically provided in Article
9 hereof), (y) permit Company 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, Company 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 Company under this Agreement.
7.2. Interim Operations.
(a) Prior to the Effective Time, except as set forth in the Company
Disclosure Letter or as contemplated by any other provision of this Agreement,
unless Columbia has consented in writing thereto, Company:
(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 or
comparable governing instruments;
(iv) Shall promptly notify Columbia of any material emergency or other
material change in its condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of its
business or of its properties 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
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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 other ownership interests 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 Company has consented in writing thereto, Columbia:
(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 Company 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. Meetings of Stockholders. Each of Columbia and Company 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 (i) in the case of Columbia, the
approval of the issuance of the shares of Columbia Common Stock pursuant to the
Merger contemplated hereby and the approval of an amendment to Columbia's
Certificate of Incorporation to increase the maximum number of directors
constituting the entire Board of Directors of Columbia from 15 to 18 persons
and (ii) in the case of Company, the approval of this Agreement and the
transactions contemplated hereby. The Board of Directors of each of Columbia
and Company shall recommend such approval and Columbia and Company shall each
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
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upon authority of, the Board of Directors of Columbia or Company, as the case
may be, 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 Ernst & Young, independent public accountants for
Company, dated the date of the Proxy Statement/Prospectus, with respect to the
financial statements of Company included in the Proxy Statement/Prospectus,
substantially in the form described in Section 8.3(c), and (ii) Company shall
have received a "comfort" letter from Ernst & Young, 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, Company 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. With respect to obtaining approval
under the HSR Act, Columbia's reasonable efforts shall be deemed to include
divesting or otherwise holding separate, or taking such other action (or
otherwise agreeing to do any of the foregoing) with respect to any of its
Subsidiaries or any of the Surviving Corporation's assets and properties
necessary to obtain such approval, except to the extent that such actions
would, in the aggregate, have a material adverse effect on the business,
financial condition or results of operations of Company and its Subsidiaries
taken as a whole (it being understood that for purposes of applying this
provision, if one or more assets or properties owned by Columbia in a
particular market are divested or held separate, comparable assets or
properties owned by Company in such market shall be deemed to have been
divested or held separate). 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 Company shall take
all such necessary action.
7.5. Inspection of Records. From the date hereof to the Effective Time, each
of Company 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 as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of Company 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 Company 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 Company 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 Company 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,
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a portion of which Registration Statement shall also serve as the joint proxy
statement with respect to the meetings of the stockholders of Company and of
Columbia 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 Company 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 respective meetings of
stockholders of Company and Columbia, 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 Company furnished to Columbia by Company
specifically for use in the Proxy Statement/Prospectus. Company agrees that the
written information concerning Company 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 respective meetings of
stockholders of Company and Columbia, or, in the case of written information
concerning Company provided by Company 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 Company without the approval of the other party.
Columbia will advise Company, 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.
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. (i) At least 30 days prior to the Closing Date,
Company shall deliver to Columbia a list of names and addresses of those
persons who were, in Company's reasonable judgment, at the record date for its
stockholders' meeting to approve the Merger, "affiliates" (each such person, an
"Affiliate") of Company within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. Company shall provide
Columbia such information and documents as Columbia shall reasonably request
for purposes of reviewing such list. Company 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 Company 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, and to issue appropriate
stop transfer instructions to the transfer agent for the Columbia Common Stock,
consistent with the terms of such Affiliate Letters.
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(ii) At least 30 days prior to the Closing Date, Columbia shall deliver to
Company a list of names and addresses of those persons who were, in Columbia's
reasonable judgment, at the record date for its stockholders' meeting to
approve the issuance of the Columbia Common Stock in the Merger, Affiliates of
Columbia. Columbia shall provide Company such information and documents as
Company shall reasonably request for purposes of reviewing such list. Columbia
shall use all reasonable efforts to deliver or cause to be delivered to
Company, prior to the Closing Date, from each of the Affiliates of Columbia
identified in the foregoing list, an Affiliate Letter in the form attached
hereto as Exhibit B.
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 Company and Columbia.
7.12. Insurance; Indemnity. (a) From and after the Effective Time, Columbia
shall indemnify, defend and hold harmless to the fullest extent permitted under
applicable law each person who is now, or has been at any time prior to the
date hereof, an officer, director, employee, trustee or agent of Company (or
any Subsidiary or division thereof), including, without limitation, each person
controlling any of the foregoing persons (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties"), 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, whether commenced, asserted or claimed before or after the Effective Time
and including, without limitation, liabilities arising under the Securities
Act, the Exchange Act and state corporation laws in connection with the Merger.
In the event of any such claim, action, suit, proceeding or investigation (an
"Action"), (i) Columbia shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Party, which counsel shall be reasonably acceptable
to Columbia, 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, however, that Columbia shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld) and provided, further, that Columbia 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.
(b) Columbia shall cause the Surviving Corporation to keep in effect
provisions in its Certificate of Incorporation and Bylaws providing for
exculpation of director and officer liability and its indemnification of the
Indemnified Parties to the fullest extent permitted under the DGGL, which
provisions shall not be amended except as required by applicable law or except
to make changes permitted by law that would enlarge the Indemnified Parties'
right of indemnification.
(c) For a period of six years after the Effective Time, Columbia shall cause
to be maintained officers' and directors' liability insurance covering the
Indemnified Parties who are currently covered, in their capacities as officers
and directors, by Company's existing officers' and directors' liability
insurance policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance; provided, however, that
Columbia shall not be required in order to maintain or procure such coverage to
pay an annual premium in excess of three times the current annual premium paid
by Company 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.
(d) Columbia shall pay all expenses, including attorneys' fees, that may be
incurred by any Indemnified parties in enforcing the indemnity and other
obligations provided for in this Section 7.12.
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(e) The rights of each Indemnified Party hereunder shall be in addition to
any other rights Indemnified Party may have under the Certificate of
Incorporation or Bylaws of Company, under the DGCL or otherwise. The provisions
of this Section shall survive the consummation of the Merger and expressly are
intended to benefit each of the Indemnified Parties.
7.13. Restructuring of Merger. Upon the mutual agreement of Columbia and
Company, the Merger shall be restructured in the form of a forward subsidiary
merger of Company into Merger Sub, with Merger Sub being the surviving
corporation, or as a merger of Company 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. Company shall take all necessary action prior to the
Effective Time to cause the dilution provisions of that certain Rights
Agreement dated as of July 8, 1993, between Company and First Union National
Bank of North Carolina, as Rights Agent, to be inapplicable to the Merger,
without any payment to holders of rights issued pursuant to such Rights
Agreement.
7.15. Governance. (a) Subject to approval by the stockholders of Columbia of
the amendment to Columbia's Certificate of Incorporation referred to in Section
7.3, Columbia's Board of Directors shall take all action necessary to cause the
directors comprising the full Board of Directors of Columbia at the Effective
Time to be increased by three directors and shall take all such action
necessary to cause R. Clayton McWhorter to be elected as a director of Columbia
for a term expiring at the third annual meeting of stockholders following the
Effective Time, and two other members of the present Board of Directors of
Company designated by Company and reasonably acceptable to Columbia to be
elected as directors of Columbia for terms expiring at the first and second
annual meetings of stockholders following the Effective Time, in order to fill
the vacancies resulting from such newly created directorships. If, prior to the
Effective Time, any of such persons shall decline or be unable to serve as a
director, Company shall designate another person to serve in such person's
stead, which person shall be reasonably acceptable to Columbia.
(b) Richard L. Scott shall continue to be President and Chief Executive
Officer of Columbia at the Effective Time and David T. Vandewater shall
continue to be Chief Operating Officer of Columbia at the Effective Time. The
Board of Directors of Columbia shall take all necessary action to cause R.
Clayton McWhorter to be elected as Chairman of the Board of Columbia and Dr.
Thomas F. Frist, Jr. to be elected as Vice Chairman of the Board of Columbia at
the Effective Time. Carl F. Pollard shall continue to be Chairman of the
Executive Committee of Columbia at the Effective Time. The Board of Directors
of Columbia shall take all necessary action to cause R. Clayton McWhorter to be
elected to the Executive Committee of Columbia at the Effective Time.
7.16. Pooling; Reorganization. From and after the date hereof and until the
Effective Time, neither Columbia nor Company nor any of their respective
subsidiaries or other affiliates shall (i) knowingly take any action, or
knowingly fail to take any action, that would jeopardize the treatment of the
Merger as a "pooling of interests" for accounting purposes; (ii) knowingly take
any action, or knowingly fail to take any action, that would jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code; or (iii) enter into any contract, agreement, commitment or
arrangement with respect to either of the foregoing. Following the Effective
Time, Columbia shall use its best efforts to conduct its business in a manner
that would not jeopardize the characterization of the Merger as a "pooling of
interests" for accounting purposes and as a reorganization within the meaning
of Section 368(a) of the Code.
7.17. Employee Benefit Plans. As of the Closing Date, Company shall take, or
cause to be taken, all such action as may be necessary to effect the cessation
of active participation of employees in the Company Benefit Plans and the
future accrual of benefits thereunder. With respect to Company's retirement
plans, Company and Columbia shall mutually agree as to the future disposition
of such plans and their assets. After the Effective Time Columbia shall provide
benefits to employees of Company and its Subsidiaries which are
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substantially similar to the benefits provided to similarly situated employees
of Columbia and its Subsidiaries. With respect to the Columbia Benefit Plans,
Columbia shall grant all employees of Company and its Subsidiaries who become
participants in such plans after the Closing Date credit for all service with
the Company and its Subsidiaries and their respective predecessors prior to the
Closing Date for all purposes for which such service was recognized by Company.
To the extent the Columbia Benefit Plans provide medical or dental welfare
benefits after the Closing Date, Columbia shall cause all pre-existing
condition exclusions and actively at work requirements to be waived and
Columbia shall provide that any expenses incurred on or before the Closing Date
shall be taken into account under the Columbia Benefit Plans for purposes of
satisfying the applicable deductible, coinsurance and maximum out-of-pocket
provisions for such employees and their covered dependents.
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 or by the applicable
regulations of any stock exchange or other regulatory body, as the case may
be, by the holders of the issued and outstanding shares of capital stock of
Company and Columbia, respectively.
(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 Company 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 Company (and their respective Subsidiaries), taken as a whole,
following the Effective Time.
(f) Columbia and Company shall each have received from Ernst & Young an
opinion that the Merger will be treated as a "pooling of interests" under
applicable accounting standards.
(g) The Columbia Common Stock to be issued to Company stockholders in
connection with the Merger shall have been approved for listing on the
NYSE, subject only to official notice of issuance.
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8.2. Conditions to Obligation of Company to Effect the Merger. The obligation
of Company 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 in all material respects 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 Company
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.
(b) Company shall have received the opinion of Dewey Ballantine, special
counsel to Company, 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 Company and Columbia
will each be a party to that reorganization within the meaning of Section
368(b) of the Code.
(c) Company shall have received a "comfort" letter from Ernst & Young, 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 Company, 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.
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) Company shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Closing Date, the representations and warranties of Company 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 Company,
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 a Company Material Adverse Effect.
(b) Columbia shall have received the opinion of Fried, Frank, Harris,
Shriver & Jacobson, special counsel to Columbia, 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 Company 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 a "comfort" letter from Ernst & Young,
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
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and other financial information of Company 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 Company and its Subsidiaries, taken as a whole,
that would have or would be reasonably likely to have a Company Material
Adverse Effect, other than as a result of changes in conditions, including
economic or political developments, applicable to the health care industry
generally.
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 Company, by the
mutual consent of Columbia and Company.
9.2. Termination by Either Columbia or Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Columbia or Company if (a) the Merger shall not have been consummated
by May 31, 1995, or (b) the approval of Company'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) the approval of Columbia'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 (d) 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 (d) shall have used all reasonable
efforts to remove such injunction, order or decree; and provided, in the case
of a termination pursuant to clause (a) above, that the terminating party 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 May 31, 1995.
9.3. Termination by Company. 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 Company referred to in Section
8.1(a), by action of the Board of Directors of Company, 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 Company determines that such termination is
required by reason of an Alternative Proposal being made, or (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 Company 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, before or after the
approval by the stockholders of Columbia referred to in Section 8.1(a), by
action of the Board of Directors of Columbia, if (a) the Board of Directors of
Company shall have withdrawn or modified in a manner materially adverse to
Columbia its approval or recommendation of this Agreement or the Merger or
shall have recommended an Alternative Proposal to Company stockholders, or (b)
there has been a breach by Company of any representation or warranty
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contained in this Agreement which would have or would be reasonably likely to
have a Company 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 Company, 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 Company.
9.5. Effect of Termination and Abandonment.
(a) In the event that any person shall have made an Alternative Proposal for
Company and thereafter this Agreement is terminated by either party (other than
pursuant to the breach of this Agreement by Columbia), then Company shall
promptly, but in no event later than two days after such termination, pay
Columbia a fee of $100,000,000, which amount shall be payable by wire transfer
of same day funds. Company 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 Company 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
against Company for the fee set forth in this Section 9.5(a), Company shall pay
to Columbia 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 Company 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.
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,
Sections 7.12, 7.15, 7.16 and 7.17 and this Article 10 and the agreements
delivered pursuant to this Agreement shall survive the Merger.
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<PAGE>
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 Company:
Richard L. Scott R. Clayton McWhorter
President and Chief Executive Chairman of the Board,
Officer Chief Executive Officer
Columbia/HCA Healthcare and President
Corporation Healthtrust, Inc.--The
201 West Main Street Hospital Company
Louisville, KY 40202 4525 Harding Road
Facsimile: (502) 572-2161 Nashville, Tennessee 37205
Facsimile: (615) 298-6122
With copies to: With copies to:
Mr. Stephen T. Braun Mr. Philip Wheeler
Senior Vice President Senior Vice President
and General Counsel and General Counsel
Columbia/HCA Healthcare Healthtrust, Inc.--The
Corporation Hospital Company
201 West Main Street 4525 Harding Road
Louisville, KY 40201-7433 Nashville, Tennessee 37205
Facsimile: (502) 572-2163 Facsimile: (615) 298-6122
Jeffrey Bagner Morton A. Pierce
Fried, Frank, Dewey Ballantine
Harris, Shriver & 1301 Avenue of the Americas
Jacobson New York, New York 10019
One New York Plaza Facsimile (212) 259-6333
New York, New York 10004
Facsimile (212) 820-8586
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 Sections 3.1, 7.12, 7.15 and 7.16 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 Company Disclosure
Letter, the Columbia Disclosure Letter, the Confidentiality Agreement dated May
18, 1994, between Company 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 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
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<PAGE>
the Merger by the stockholders of Company and Columbia, 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 Company 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 Company 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 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
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<PAGE>
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
Secretary President and Chief Executive
Officer
COL ACQUISITION CORPORATION
ATTEST:
/s/ Stephen T. Braun /s/ Richard L. Scott
By: _________________________________ By: _________________________________
Stephen T. Braun Richard L. Scott
Secretary President
HEALTHTRUST, INC.--THE HOSPITAL
COMPANY
ATTEST:
/s/ Philip D. Wheeler /s/ R. Clayton McWhorter
By: _________________________________ By: _________________________________
Philip D. Wheeler R. Clayton McWhorter
Secretary Chairman of the Board,
Chief Executive Officer and
President
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<PAGE>
EXHIBIT A TO MERGER AGREEMENT
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 [Company], a Delaware corporation ("Company"), as the term
"affiliate" is (i) 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"), or (ii) used in and for purposes of Accounting Series,
Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of
the Agreement and Plan of Merger dated as of October 4, 1994 (the "Agreement"),
between Columbia/HCA Healthcare Corporation, a Delaware corporation
("Columbia"), COL Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Columbia ("Merger Sub"), and Company, Merger Sub will be
merged with and into Company (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 $.001 per share, of Company.
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 Company.
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
Company, I may be deemed to have been an affiliate of Company 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 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 pursuant to 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.
A-A-1
<PAGE>
E. I also understand that stop transfer instructions will be given to
Columbia's transfer agents with respect to the Columbia Securities and 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 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 and the stop orders
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 available 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.
I further represent to and covenant with Columbia that I will not sell,
transfer or otherwise dispose of any Columbia Securities received by me in the
Merger or any other shares of the capital stock of Columbia until after such
time as results covering at least 30 days of combined operations of Company and
Columbia have been published by Columbia, in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a report
to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes such combined results of operations. Columbia shall
notify the "affiliates" of the publication of such results. Notwithstanding the
foregoing, I understand that I will not be prohibited from selling up to 10% of
the Columbia Securities received by me in the Merger during the aforementioned
period.
A-A-2
<PAGE>
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of Company 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
, 199 by
COLUMBIA/HCA HEALTHCARE CORPORATION
By: _________________________________
Name:
Title:
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<PAGE>
EXHIBIT B TO MERGER AGREEMENT
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 Columbia/HCA Healthcare Corporation, a Delaware corporation
("Columbia"), as the term "affiliate" is (i) 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"), or (ii) used in and
for purposes of Accounting Series, Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
of October 4, 1994 (the "Agreement"), between Columbia, COL Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Columbia
("Merger Sub"), [Company], a Delaware corporation ("Company"), Merger Sub will
be merged with and into Company (the "Merger").
I represent to and covenant with Company that I will not sell, transfer or
otherwise dispose of any shares of Common Stock, par value $.01 per share, of
Columbia ("Columbia Common Stock") that I may hold until after such time as
results covering at least 30 days of combined operations of Company and
Columbia have been published by Columbia, in the form of a quarterly earnings
report, an effective registration statement filed with the commission, a report
to the Commission on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes such combined results of operations.
Notwithstanding the foregoing, I understand that I will not be prohibited from
selling up to 10% of the Columbia Common Stock held by me at the time of the
Merger during the aforementioned period.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of Columbia 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
, 199 by
Company
By:
---------------------------------
Name:
Title:
A-B-1
<PAGE>
APPENDIX B
MORGAN STANLEY
Morgan Stanley & Co.
Board of Directors Incorporated
Columbia/HCA Healthcare Corporation 1251 Avenue of the Americas
201 West Main Street New York, New York
Louisville, KY 40202 10020
(212) 703-4000
January 10, 1995
Mesdames and Gentlemen:
We understand that Healthtrust, Inc. - The Hospital Company ("Healthtrust" or
the "Company"), Columbia/HCA Healthcare Corporation ("Columbia") and COL
Acquisition Corporation ("Columbia Sub") have entered into an Agreement and
Plan of Merger, dated October 4, 1994 (the "Merger Agreement"), which, subject
to the terms and conditions thereof, provides, among other things, for the
merger (the "Merger") of Columbia Sub with and into Healthtrust, as a result of
which Healthtrust will become a wholly owned subsidiary of Columbia. In the
Merger, each outstanding share of common stock, par value $0.001 per share (the
"Common Stock"), of Healthtrust (other than treasury shares or any shares held
by Columbia or any direct or indirect subsidiary of Columbia) will be converted
into 0.88 of a share of common stock, par value $0.01 per share, of Columbia
("Columbia Common Stock"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be paid to
the holders of shares of Common Stock pursuant to the Merger Agreement is fair
from a financial point of view to Columbia.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company and of Columbia;
(ii) reviewed certain internal business, operating and financial
information, including financial forecasts, relating to the Company,
furnished to us by the Company;
(iii) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the
Company;
(iv) reviewed certain internal business, operating and financial
information, including financial forecasts, relating to Columbia,
furnished to us by Columbia;
(v) discussed the past and current operations and financial condition
and the prospects of Columbia with senior executives of Columbia,
and analyzed the pro forma impact of the Merger on Columbia's
earnings per share, consolidated capitalization and financial
ratios;
(vi) reviewed the reported prices and trading activity for the Common
Stock and the Columbia Common Stock;
(vii) compared the financial performance of the Company and the prices
and trading activity of the Common Stock with that of certain other
comparable publicly traded companies and their securities;
(viii) compared the financial performance of Columbia and the prices and
trading activity of the Columbia Common Stock with that of certain
other comparable publicly traded companies and their securities;
(ix) discussed with the senior management of Columbia their view of the
strategic rationale for the Merger and the economic benefits of the
Merger to Columbia;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xi) participated in discussions and negotiations among representatives
of the Company and Columbia and their financial and legal advisors
and reviewed the Merger Agreement; and
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<PAGE>
(xii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. We have relied upon the assumptions of the management of Columbia
regarding cost savings and other synergies that will result from the Merger. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of Columbia in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Columbia and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Columbia only and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in any filing made by the Company or Columbia with the Securities and
Exchange Commission with respect to the Merger and the transactions related
thereto.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be paid to the holders of shares of Common
Stock of Healthtrust pursuant to the Merger Agreement is fair from a financial
point of view to Columbia.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ Charles R. Cory
By: _________________________________
Charles R. Cory
Managing Director
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APPENDIX C
[Letterhead of Merrill Lynch]
January 10, 1995
The Board of Directors
Healthtrust, Inc.-The Hospital Company
4525 Harding Road
Nashville, Tennessee 37205
Attention: R. Clayton McWhorter
Chairman of the Board, Chief Executive Officer and President
Board Members:
Healthtrust, Inc.-The Hospital Company (the "Company"), Columbia/HCA
Healthcare Corporation ("Columbia") and COL Acquisition Corporation ("Columbia
Sub") have entered into an Agreement and Plan of Merger dated as of October 4,
1994 (the "Merger Agreement"), pursuant to which, among other things, Columbia
Sub will be merged with and into the Company in a transaction (the "Merger") in
which each outstanding share of the Company's common stock (the "Company
Shares") will be converted into the right to receive 0.88 of a share of common
stock of Columbia (the "Columbia Shares"). The ratio at which the Company
Shares are converted into Columbia Shares, in accordance with the Merger
Agreement, is referred to herein as the "Exchange Ratio."
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
holders of the Company Shares from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the four years ended August 31, 1994, certain
publicly available unaudited financial information for the Company's
quarterly period ended November 30, 1994 and certain other filings with the
Securities and Exchange Commission made by the Company, including proxy
statements, Forms 8-K and registration statements, since September 1, 1990;
(2) Reviewed Columbia's Annual Reports, Forms 10-K and related financial
information for the three years ended December 31, 1993, Columbia's Forms
10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1994, June 30, 1994 and September 30, 1994, and
certain other filings with the Securities and Exchange Commission made by
Columbia, including proxy statements, Forms 8-K and registration
statements, since January 1, 1991;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company
and Columbia furnished to us by the Company and Columbia and by research
analysts;
(4) Conducted discussions with members of senior management of the
Company and Columbia concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Company Shares and the Columbia Shares and compared them with those of
certain publicly traded companies which we deemed to be reasonably similar
to the Company and Columbia, respectively;
(6) Compared the results of operations of the Company and Columbia with
that of certain companies which we deemed to be reasonably similar to the
Company and Columbia, respectively;
(7) Compared the financial terms of the transactions contemplated by the
Merger Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
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(8) Reviewed the Merger Agreement; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied upon the accuracy and completeness
of all information supplied or otherwise made available to us by the Company
and Columbia (or its financial advisor) and assumed that financial forecasts
and estimates of operating efficiencies and potential synergies reflected the
best currently available estimates and judgments of the managements of the
Company and Columbia as to the expected future financial performance of their
respective companies, and we have not independently verified such information
or assumptions, conducted a physical inspection of the properties or facilities
of the Company or Columbia or undertaken an independent appraisal or evaluation
of the assets or liabilities of the Company or Columbia.
We have, in the past, provided investment banking services to the Company and
Columbia and have received fees for the rendering of such services, including
the acquisition by Columbia of HCA-Hospital Corporation of America.
On the basis of, and subject to the foregoing, we are of the opinion that the
proposed Exchange Ratio is fair to the holders of the Company Shares from a
financial point of view.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
/s/ Mary Beth Henson
By: _________________________________
Mary Beth Henson
Director
Investment Banking Group
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